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PNC Financial Delivers on Expenses

NEW YORK (TheStreet) -- PNC Financial Services Group (PNC) on Wednesday said first-quarter profit rose 24% on higher revenue and lower expenses.

The Pittsburgh-based regional bank on Wednesday reported first-quarter net income of $1 billion, or $1.76 a share, compared to $719 million, or $1.24 a share, in the fourth quarter and $811 million, or $1.44 a share, in the first quarter of 2012.

Total revenues for the first quarter came in at $3.955 billion, down 3% from the fourth quarter, but up 6% from a year earlier.

Analysts expected the bank to post an earnings per share of $1.57 on revenues of $3.98 billion.

"Better credit and expenses drove the majority of the beat," according to Jefferies analyst Ken Usdin. "Revenue was a little light on weaker fees, but overall run rates look better than what we have seen out of peers. Results should support forward estimates as better expenses should offset fee weakness and net interest income should not change much."

"We are making important progress on all of our strategic priorities as we continue to focus on growing deposits, loans and revenue," said James E. Rohr, chairman and chief executive officer.

Net interest income dipped 1% quarter-over-quarter, but was up 4% year-over-year, at $2.4 billion. The bank noted that core net interest income was stable and that the dip in the quarter was due to "lower scheduled purchase accretion."

Non-interest income or fee income dropped 5% from a seasonally strong quarter, but rose 9% from a year earlier to $1.56 billion.

The bank's non-interest expense declined 15% quarter-over-quarter and 2% year-over year to $2.4 billion. PNC said it is on track to generate $700 million in savings in 2013.

Total loans grew by a marginal $700 million to $186.5 billion from the fourth quarter, as loan growth slowed during the quarter. While commercial loans increased by $1.4 billion, consumer loan balances declined by $0.7 billion.

Average loans were still up 13% year-over-year, benefiting from the acquisition of RBC bank (USA).

PNC finished the first quarter with an estimated Basel III Tier 1 common capital ratio of 7.9% and raised its dividend by 10% to 44 cents per share.

The bank passed the Federal Reserve's stress test with flying colors, with the regulator projecting that under a "severely adverse scenario," with a brutal recession beginning in 2013, PNC would have relatively slight losses totaling $1.4 billion through the end of 2014, with a minimum Tier 1 common equity ratio of 8.7%. The tests established the bank as "not too big and not too small," according to Oppenheimer analyst Terry McEvoy, who argues that the bank's "ideal size" combined with diverse revenue stream will drive multiple-expansion.

Shares of PNC closed at $64.79 on Tuesday.

-- Written by Shanthi Bharatwaj in New York.

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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