PNC's quarterly earnings jump 22 percent
PNC Financial Services Group posted better-than-expected quarterly earnings on Wednesday, but bank executives and analysts said it will be tough to sustain higher profits in today's very low interest-rate environment.
Like several major banks reporting earnings this week, PNC's results benefited largely from lower expenses. That was true of Citgroup, JPMorgan Chase and Wells Fargo. Banks have focused on cutting expenses to offset pressure on their loan profits.
PNC aims to cut $700 million from annual expenses this year. The bank will close about 170 more branches this year, having shuttered 30 in the January-March quarter. It did not disclose the dollar savings.
“We won't stop at $700 million if we can,” President William Demchak told analysts on a conference call. He will succeed James Rohr as CEO at Tuesday's annual shareholders meeting.
The Federal Reserve has kept interest rates at record lows to stimulate the economy, making it difficult for banks to profit from making loans. Banks profit on the difference between the interest they pay depositors and what they charge for credit. That gap has been narrow.
“PNC had one of the better performances among banks,” said Frank Barkocy, managing director of Mendon Capital Advisors, a New York investment firm that owns bank stocks. “But we're seeing ongoing (profit) margin pressure, and this will likely continue into the second quarter, if not longer.”
Demchak said “people should not expect a change in direction at PNC” when he takes over.
That means continued cost-cutting, given sluggish loan growth and low interest rates, and more cross-selling of bank products and services, especially in the Southeast markets PNC entered with its March 2012 acquisition of RBC Bank.
The additional branch closings “will be spread out across nearly half the United States,” where PNC operates more than 2,900 branches in 19 states, said bank spokesman Fred Solomon. “One or more” branch closings will be in Western Pennsylvania, where the bank shuttered two of its 170 area offices in February, he added.
PNC also hopes to return more capital to shareholders in 2014 in the form of higher dividends or share buybacks, Chief Financial Officer Richard Johnson told analysts. PNC raised its quarterly dividend in early April by 4 cents to 44 cents a share, payable May 6.
Johnson said that in the April-June quarter, the bank expects loan growth to slow, net income to decrease and provisions for possible loan losses to rise.
PNC reported earnings for the January-March quarter increased 22 percent, to $938 million from $766 million, largely because of higher loan volumes and far lower expenses. On a per-share basis, the bank earned $1.76, compared with $1.44 in the year earlier.
Wall Street analysts had expected PNC to earn $1.56 a share. Investors were pleased with the results, pushing the company's stock up 26 cents to $55.05 a share. But analysts agreed with the caution from PNC executives that the performance would be difficult to sustain.
“They will not be able to maintain this run rate of earnings,” said Terry McEvoy, an analyst for Oppenheimer & Co.
PNC set aside $4 million to repurchase home mortgages from Fannie Mae and Freddie Mac that the bank had sold to them earlier. By contrast, PNC set aside $254 million to cover those repurchase obligations in the fourth quarter, and $32 million in first-quarter 2012.
Loans increased by $700 million in the first quarter over fourth quarter, particularly from more commercial lending in the Southeast. Demchak said PNC grew commercial loans 20 percent in the first quaerter, including from 144 new corporate customers in the Southeast. The bank also added 9,000, household deposit accounts.
Fees from asset management, consumer services and corporate services all increased.
Non-interest expenses from activities other than lending fell $60 million from the year earlier because of expense-management initiatives.
Thomas Olson is a staff writer for Trib Total Media. He can be reached at 412-320-7854 or firstname.lastname@example.org.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Most heavy drinkers aren’t alcoholics, CDC determines, reversing long-held belief
- Steelers notebook: Heinz Field not in play for Bills-Jets
- Cut by Steelers, LeGarrette Blount joins Patriots
- Highmark and UPMC feud over canceled physician contracts
- Lawrence County jail guards lose jobs after being charged with assaulting inmate
- Last PA Turnpike defendants plead guilty but avoid prison
- CMU scientist receives top tech honor from White House
- State court to review Sandusky emails under seal
- 3 from Western Pa. sentenced to probation for welfare fraud
- Rossi: For Penguins’ Dupuis, family must come first
- E-cigarettes cut cravings, study finds