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PNC's Solid Results Fed by Lower Credit Costs and BlackRock

NEW YORK ( TheStreet) -- PNC Financial Services Group (PNC - Get Report) on Thursday reported solid earnings results, beating estimates and pushing the company's shares up over 2% in the first minute of trading to $80.57.

The Pittsburgh-based lender reported fourth-quarter earnings attributable to common shareholders of $998 million, or $1.85 a share, increasing from $966 million, or $1.79 a share, during the third quarter, and $664 million, or $1.24 a share, during the fourth quarter of 2012.  The year-earlier results reflected a $254 million provision for mortgage repurchases, which lowered EPS by 47 cents a share.

PNC's earnings attributable to common shareholders for all of 2013 came in at $3.971 billion, or $7.39 a share, increasing from $2.832 billion, or $5.30 a share, the previous year.

Two major items boosting the fourth-quarter results were a $124 million release of mortgage repurchase reserves and an increase in "other, including BlackRock" noninterest income to $176 million in the fourth quarter, from $136 million the previous quarter and $48 million a year earlier.  PNC had $10.7 billion in equity investments as of Dec. 31, including its stake in BlackRock (BLK - Get Report).

Earnings were also directly boosted by a decline in the provision for credit losses to $113 million in the fourth quarter from $137 million in the third quarter and $318 million a year earlier.

The bank reported net interest income of $1.012 for the fourth quarter, increasing from $1.006 billion in the third quarter, but declining from $1.081 billion during the fourth quarter of 2012.  The net interest margin -- the spread between the average yield on loans and investments and the average cost for deposits and borrowings -- narrowed to 3.38% in the fourth quarter from 3.47% the previous quarter and 3.85% a year earlier. 

Average loans were up 2% sequentially and 6% year-over-year, to $194.6 billion during the third quarter.  Average commercial loans were up 2% from the third quarter and 8% from a year earlier, to $117.1 billion in the fourth quarter.  Average consumer loans were flat sequentially but up 2% year-over-year, to $78.5 billion during the fourth quarter.

Noninterest income rose rose to $1.807 billion during the fourth quarter from $1.686 billion the previous quarter and $1.645 billion a year earlier, reflecting the increased "other, including BlackRock" income and partially offset by a decline in mortgage banking income to $147 million in the fourth quarter from $193 million the previous quarter and $254 million a year earlier.

Noninterest expense for the fourth quarter totaled $2.547 billion, increasing from $2.424 billion the previous quarter. 

"The linked quarter increase reflected higher incentive compensation costs associated with increased business activity. In addition, the fourth quarter included a contribution to the PNC Foundation of $50 million and higher legal accruals including a previously disclosed residential mortgage fair lending settlement with the Consumer Financial Protection Bureau and the Department of Justice," PNC said.   Noninterest expenses were down from $2.829 billion a year earlier, reflecting a number of one-time items during the fourth quarter of 2012.

Jefferies analyst Ken Usdin in a note to clients Thursday morning wrote that his "First shot at core EPS looks to be $1.70-$1.75," which would still be a solid beat against the consensus estimate. "Loan and deposit growth were solid, as were most fee categories," he added.

Usdin rates PNC a "buy," with a price target of $89, and added Thursday that the bank's increased Tier 1 common equity ratio of 9.4% from 8.7% the previous quarter, leaves the bank "well-positioned to return more to shareholders this year."

The following chart shows the performance of PNC's stock against the KBW Bank Index (I:BKX) and the  S&P 500 since the end of 2011:

PNC Chart data by YCharts



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-- Written by Philip van Doorn in Jupiter, Fla.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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