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.