Updated with latest share price, conference call and analyst quotes.
) - Shares of
PNC Financial Services
plunged as much as 6% on Thursday, despite fourth-quarter earnings results that surpassed Wall Street estimates.
Before the opening bell, PNC reported a fourth-quarter profit of $1.1 billion, or $2.17 a share with results getting a lift from a gain derived from
acquisition of Barclays Global Investors.
Results for both the fourth quarter and full year include a $687 million after-tax gain related to BlackRock's deal, PNC said Thursday, as PNC owns a significant stake in the money management firm. The results also reflect the impact of after-tax integration costs of $101 million for the fourth quarter related to PNC's acquisition of National City at the end of 2008, as did the prior year's fourth quarter.
Excluding the gain, PNC's fourth-quarter net income would have been $521 million, or 90 cents a share, for the final three months of the year. On the same basis, also excluding one-time items, the company earned $617 million, or $1.12 a share in the third quarter. In the year-ago period, PNC's adjusted earnings were $134 million, or 32 cents a share. The consensus estimate of analysts polled by
was for earnings of 78 cents a share in the December period.
Revenue totaled $5.1 billion for the fourth quarter, ahead of Wall Street's average view of $4.44 billion, and reflective of the company's diverse revenue sources.
Shares of PNC hit a new 52-week-high of $58.94 during Wednesday's session. Yet the stock, which was up more than 11% in 2010 based on the prior day's close, was ticking 5.2% lower to $55.71 at midday.
"While its headline number beat our estimate significantly, our sense is that PNC's
fourth quarter results were essentially in-line with what we think were high expectations from the Street," writes John McDonald, an analyst with Sanford Bernstein, in a research note.
Net interest income "came in much stronger than expected, but is not sustainable at the current pace. The expense story remains solid and the run rate of fee revenues appeared intact," McDonald writes. "Credit was a bit mixed, with NCOs
net charge offs and provision higher than expected, but forward looking metrics pointing to moderation ahead. While not as cheap as other bank stocks on P/E and P/TB valuation metrics, we continue to like the longer term story on PNC shares."
PNC noted that the pace of credit quality deterioration slowed in the fourth quarter -- reiterating a trend that other banks have commented on including
Bank of America
, among others. Still PNC's provision for credit losses of $1.05 billion in the quarter was slightly higher than the third quarter provision.
"During the most challenging economic environment of our time, the execution of the PNC business model resulted in exceptional 2009 performance," said James E. Rohr, chairman and CEO, in a statement. "Our businesses performed well and customer growth and sales of products and services across the franchise were strong, giving us considerable momentum starting into 2010."
PNC's net interest income more than doubled from the prior year quarter and rose 5.5% from the third quarter to $2.34 billion, primarily due to "higher than expected cash collections on impaired commercial loans," the company said. Its net interest margin, the profit margin banks make on taking in deposits and making loans, rose 29 basis points from the third quarter to 4.05%.
Noninterest income also spiked at $2.7 billion, primarily due to a $1.07 billion gain recognized on PNC's portion of the increase in BlackRock's equity resulting from the value of BlackRock shares issued in connection with BlackRock's acquisition of Barclays Global Investors on Dec. 1.
Still PNC said that, excluding the BlackRock gain, fee revenue would have declined compared to the third quarter as a result of lower residential mortgage fees from lower loan sales and servicing revenue, lower consumer service fees and deposit charges as a result of branch divestitures earlier in the year as well as securities losses.
Rohr provided some context on this morning's conference call for how the company is looking at 2010.
PNC expects its net interest income, net interest margin and provision levels will be lower this quarter than they were in the fourth quarter.
Net interest income "will likely be modestly lower as a result of additional runoff of higher yielding assets," which could be mitigated by rising interest rates and customer growth and "credit cost improvements in line with the pace of the economic recovery," Rohr said.
We recognize that the current economic situation and soft loan demand will put some pressure on revenue," Rohr said. "However, we ended 2009 with strong sales momentum and we expect to continue in 2010, as we see additional opportunities to utilize our balance sheet flexibility.
"We will continue to focus on effectively managing expenses and achieving our cost saving targets and our credit cost improvement targets," and continue to reduce higher risk asset classes as well as "maintain our flexibility in the face of changing interest rate scenarios," among other things, Rohr said.
PNC, which is one of the largest banks still entangled with government bailout funds, said its Tier-1 common equity ratio was 6% at Dec. 31. Its Tier-1 risk based capital was 11.5% at Dec. 31.
Rohr also said during the call that the company was "considering the various alternatives" in order to repay funds from the Troubled Asset Relief Program. However, "we fully expect, we expect to repay it this year ... we would have, obviously have to have regulator approval in order to do that. I think, we'll be seeing that take place over the course of the year," Rohr said.
Rohr declined to comment when an analyst questioned whether the company would be open to selling off assets in order to raise capital in order to repay TARP more easily.
Written by Laurie Kulikowski in New York.