PNC Profit Fueled by 18% Jump in Mortgage Revenue (Update 1)

  • PNC reports first-quarter earnings per share of $1.44.
  • Analysts were expecting EPS of $1.43.
  • First-quarter mortgage revenue grew 18% year-over-year, to $230 million.

Updated with comments from Jefferies analyst Ken Usdin.

NEW YORK ( TheStreet) - PNC Financial Services Group ( PNC) on Wednesday reported an 18% year-over-year increase in first-quarter mortgage revenue, to $230 million.

The Pittsburgh lender reported first-quarter earnings of $811 million, or $1.44 a share, compared to $493 million, or 85 cent a share, during the fourth quarter of 2011. The bank reported a profit of $832 million, or $1.57 a share, during the first quarter of 2011.

The first-quarter earnings came in a penny ahead of the $1.43 estimate among analysts polled by Thomson Reuters.

PNC said that the first-quarter results "included $145 million pretax, or $.18 per diluted common share, for integration costs" from the company's acquisition of RBC Bank (USA), "and $38 million pretax, or $.05 per diluted common share, of residential mortgage foreclosure-related expense." The fourth-quarter results "included $.30 per diluted common share of residential mortgage foreclosure-related expense, a noncash charge of $.24 per diluted common share related to redemption of trust preferred securities and $.04 per diluted common share for integration costs."

First-quarter net interest income totaled $2.3 billion, increasing 4% sequentially and 5% year-over-year, "driven by loans from the RBC Bank (USA) acquisition, loan growth and lower funding costs. "

Noninterest income totaled $1.4 billion during the first quarter, increasing 7% from the fourth quarter, but declining 1% from the first quarter of 2011.

In addition to the strong growth in mortgage income -- following the industry trend, in part from President Obama's expansion of the Home Affordable Refinance Program, or HARP 2, allowing certain mortgage borrowers to refinance their full balances at today's low rates no matter how much the value of the underlying home has dropped -- PNC saw its first-quarter asset management revenue increase 14% sequentially and 8% year-over-year, to $284 million.

Corporate services revenue totaled $232 million during the first quarter, declining 13% from the fourth quarter, but increasing 7% from a year earlier.

A $151 million release of loan loss reserves directly boosted operating earnings.

Total loans were $176.2 billion as of March 31, increasing 11% from the fourth quarter and 18% from the first quarter of 2011. While most of that growth reflected the RBC Bank (USA) acquisition, PNC said that $3.3 billion in commercial loan in the first quarter resulted from "growth in new and existing client activity in corporate banking, asset-based lending and real estate finance."

The company's first-quarter return on average assets was 1.16%, compared to 0.72% in the fourth quarter and 1.29% in the first quarter of 2011. The return on average common equity was 9.41% in the first quarter, compared to 5.70% the previous quarter and 11.12% a year earlier.

PNC's net interest margin was 3.90% in the first quarter, increasing from 3.86% in the fourth quarter, but declining from 3.94% in the first quarter of 2011, in line with industry trends in the prolonged low-rate environment.

CEO James Rohr said that "with the completion of our acquisition of RBC Bank (USA), we plan to leverage our brand and innovative product set to grow market share in the southeast."

PNC's shares closed at $63.41 Tuesday, returning 11% year-to-date, following a 3% decline during 2011.

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The shares trade for nine times the consensus 2013 EPS estimate of $6.83. The consensus 2012 EPS estimate is $6.19.

PNC said it "plans to purchase up to $250 million of common stock under its existing 25 million share repurchase program in open market or privately negotiated transactions during the remainder of 2012."

Based on a quarterly payout of 40 cents, the shares have a dividend yield of 2.52%.

Jefferies analyst Ken Usdin rates PNC a "Buy," with a $70 price target, and said that although PNC reported first-quarter earnings of $1.44 a share, "core EPS is closer to $1.55-$1.60 depending on what is excluded" among one-time items, and that "underneath the noise, trends were good."

The "one-timers" Usdin would exclude from core earnings include the "145mm of integration expenses ($0.18 drag), $72mm of legal expense ($0.09 drag), $38mm of foreclosure expense ($0.05 drag), $19mm of securities gains ($0.02 benefit), $71mm of hedging gains ($0.09 benefit), and a below-average tax rate ($0.09 benefit)."

Interested in more on PNC Financial Service Group? See TheStreet Ratings' report card for this stock.

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

To contact the writer, click here: Philip van Doorn.

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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 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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