PNC Profit Boosted by Commercial Loans

  • Reports third-quarter EPS of $1.55.
  • Solid third-quarter commercial loan growth.
  • BlackRock revenue increases.

PITTSBURGH ( TheStreet) -- PNC Financial Services Group ( PNC) on Wednesday reported third-quarter net income attributable to common shareholders of $826 million, or $1.55 a share, beating by six cents the consensus earnings estimate among analysts polled by Thomson Reuters.

The results compared to net income available to common shareholders of $888 million, or $1.67 a share in the second quarter, and $1.1 billion or $2.07 a share, in the third quarter of 2010. The prior-year period included 62 cents a share for discontinued operations, including an after-tax gain on the sale of PNC Global Investment Servicing in July 2010.

CEO James Rohr said the company's "results for the third quarter were driven by strong performance across our businesses and markets as we continued to grow customers, loans and deposits," and that "despite softness in the economy, we believe our business model will continue to deliver quality growth in the future."
PNC Financial Services CEO James E. Rohr

An important highlight for the third quarter was loan growth, with commercial loans growing by $3.7 billion and consumer loans increasing by $0.5 billion.

Third-quarter net interest income totaled $2.175 billion, increasing from $2.150 billion the previous quarter, but down slightly from $2.215 billion a year earlier. The third-quarter net interest margin -- the difference between a bank's average yield on loans and investments and its average cost for deposits and borrowings -- was a tax-adjusted 3.89%, declining slightly from 3.93% in the second quarter and 3.96% in the third quarter of 2010.

The third-quarter provision for credit losses was $261 million, declining from $280 million the previous quarter and $486 million a year earlier, as loan quality continued to improve. The company released $120 million in loan loss reserves during the third quarter, directly boosting earnings.

Noninterest income for the third quarter totaled $1.369 billion, declining from $1.452 billion in the second quarter and $1.383 billion in the third quarter of 2010. The sequential decline was "primarily due to lower asset valuations." The company also lowered the value of its commercial mortgage servicing rights by $105 million during the third quarter.

PNC is a major shareholder of BlackRock ( BLK), which also beat analysts' estimates, reporting on Wednesday an adjusted third-quarter profit of $2.83 a share. PNC reported $234 in "other, including BlackRock" revenue for the third quarter, compared to $233 million in the second quarter and $184 million in the third quarter of 2010.

PNC estimated that its Tier 1 common capital ratio was 10.5% at the end of the second and third quarters, increasing from 9.6% in September 2010.

While the company didn't repurchase any common shares during the first three quarters of 2011, the company has a buyback program in place, permitting the repurchase of up to 25 million shares.

PNC has a deal in place to acquire RBC Bank (USA) from Royal Bank of Canada ( RY), which is expected to be completed in March of next year, bringing on $19 billion in deposits, $16 billion in loans, and 424 branches in North Carolina, Florida, Alabama, Georgia, Virginia and South Carolina.

The company has also agreed to purchase 27 Atlanta-area branches from Flagstar Bancorp ( FBC), in a deal that is expected to close in December.

PNC's shares were down 14% through Tuesday's close at $51.22. Based on a 35-cent quarterly payout, the shares had a dividend yield of 2.73%.

Analyst sentiment for PNC is very strong, with 21 out of 24 rating the shares a buy. The remaining three analysts have neutral ratings. The median 12-month price target among the analysts is $28, implying 23% upside for the shares.

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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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