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

NEW YORK ( TheStreet) -- PNC Financial Services Group ( PNC) 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).

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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