Region's largest bank PNC posts 7% rise in 1Q profit
William S. Demchak assumed the CEO role at PNC Financial Services Group Inc. a year ago, promising to rein in costs, and analysts say he has delivered.
Lower expenses helped the region's largest bank post a 7 percent increase in earnings for the first quarter.
“It's a shift in culture that's under way at PNC that is driving the expenses lower,” said RBC Capital Markets banking analyst Gerard Cassidy.
PNC hopes to cut $500 million in expenses this year. Through the first quarter, the bank is 35 percent of the way there and likely “will achieve our full-year target,” said CFO Robert Reilly.
The money saved will be reinvested in the bank's infrastructure, Reilly said, as well as PNC's transformation in retail banking that has been a big part of the cost-cutting.
PNC has been closing retail locations and converting others to so-called universal branches, which replace traditional teller windows with a row of ATMs that customers use to make deposits and withdraw cash.
The bank closed 200 branches last year and 22 in the first quarter of 2014 and intends to shutter another 19 in the next three months, said spokeswoman Marcey Zweibel. In the first quarter, PNC converted 45 locations into universal branches.
These changes have led to layoffs, as the bank sheds part- and full-time staff at its retail branches. PNC lost more than 2,000 employees in the past year, of whom 1,600 worked in retail banking, according to the report on Wednesday. PNC trimmed $89 million from its personnel costs in the past year, a 7.6 percent decrease.
Part-time employees have been particularly affected. The bank eliminated “peak part-time tellers” who would step in to help when a branch got busy. In the past year, PNC let go of 735 part-time retail banking employees, a 16 percent decrease.
Bank officials say the trend toward teller-less branches is in response to changing consumer behavior, as people do more of their banking online rather than in a brick-and-mortar location. About 43 percent of PNC customers did most of their banking outside of a branch, compared with 39 percent in the previous quarter.
The push to consolidate branches has had a positive impact on the bank's bottom line.
“I think it's helped them control costs,” said Jennifer Thompson, managing director of Portales Partners in New York City. “I think they do a good job in the retail banking space, as well as commercial banking.”
In a conference call with analysts, Demchak said, “It was a good quarter,” highlighted not only by slashed costs but by improved credit quality.
Nonperforming assets, loans on which the borrower has not made a payment for at least 90 days, declined 16 percent from a year ago to $3.3 billion. The amount of bad debt PNC wrote off its books, called “net charge-offs,” was $186 million in the first quarter, about the same as it was last quarter but representing a 59 percent decrease from a year ago.
Consequently, PNC set aside less money to cover problem loans, dropping provisions for credit losses to $94 million from $236 million a year earlier.
Loans rose to $198 billion, up 1 percent from the previous quarter, driven mostly by growth of commercial lending.
In the first quarter, PNC earned $992 million, or $1.82 per share, in the January-March period, compared with $928 million, or $1.74 a share, in the same period a year ago. Revenue fell 5 percent to $3.7 billion from $3.9 billion a year ago.
The quarter marked two years since PNC acquired Royal Bank of Canada in the Southeast, a region that has been growing “faster than we anticipated,” Demchak said.
The purchase moved PNC into a competitive banking market dominated by Charlotte-based Bank of America. PNC has built on RBC's network of retail banks to offer asset management and corporate banking businesses. PNC now has about 4,000 employees working in the Southeast.
“We are pleased with growth that is outpacing growth in our Northeast and Midwest markets and continues to gain momentum,” Demchak said.
In the first quarter, net interest income, or earnings from deposits and loans, fell 3 percent from the previous quarter to $2.2 billion. Non-interest income, or earnings from fees and other charges, declined 12 percent from the previous quarter to $1.6 billion.
PNC this month boosted its dividend to shareholders 4 cents to 48 cents per share, a 9 percent increase. It will be paid on May 5.
PNC shares rose $2.23, or 2.71 percent, closing at $84.38.
Chris Fleisher is a staff writer for Trib Total Media. He can be reached at 412-320-7854 or firstname.lastname@example.org.