PNC Shares Rise as Profit Tops Estimate, Revenue Forecast Raised
PNC advanced 1.3 percent to $64.24 at 10:22 a.m., the third-best performance on the 81-company Standard & Poor’s 500 Financial Index (S5FINL), behind Huntington Bancshares Inc. and Citigroup Inc.
Revenue percentage gains this year will be in the “high single digits,” Chief Financial Officer Richard Johnson said on a conference call with analysts after earnings were released. First-quarter per-share profit was $1.62 excluding $145 million in costs from the acquisition of RBC Bank USA, beating the $1.48 average estimate of 28 analysts surveyed by Bloomberg.
Johnson said in January that the bank expected $170 million of integration costs in the quarter. The bank’s updated revenue growth estimate, as well as the expectation that net interest income will have “high-single digit” percentage growth this year, is a boost from January. The bank said then that the percent increases would be in the “mid- to high-single digits.”
PNC paid about $3.47 billion for RBC Bank and related credit-card assets, a transaction that was completed last month. The purchase is expected to add 40 cents to earnings per share for the full year, excluding integration costs, Johnson said.
“We feel even better about this transaction now,” Chief Executive Officer Jim Rohr, 63, said on the call. “This acquisition is off to a great start and we see tremendous opportunities to grow in these markets.”
First-quarter net income fell to $811 million, or $1.44 a share, from $832 million, or $1.57, a year earlier, the Pittsburgh-based bank said in a statement.
PNC expects to hire at least 200 people for its Southeast operations and could add between 10 and 30 branches in the region as a result of the RBC acquisition, Rohr said.
First-quarter revenue rose 2.8 percent to $3.73 billion from last year as income from PNC’s residential mortgage business gained 18 percent to $230 million. The housing business is “doing a little better” in some markets, Rohr said on the call. Non-interest expenses increased 19 percent to $2.46 billion.
PNC set aside 56 percent less for soured loans in the first quarter as the bank’s provision for credit losses fell to $185 million. Net charge-offs were $333 million in the period, compared with $533 million a year earlier. PNC is focusing on managing its credit costs and expenses, Rohr said in January.
Total loans grew to $164.6 billion as of March 31 from $150.1 billion at the same time last year as PNC recorded a 23 percent increase in commercial loans, which rose to $69.3 billion from $56.3 billion.
First-quarter results included $38 million, or 5 cents per share, of residential mortgage foreclosure costs, according to the statement. Rohr said he expects those charges to continue.
PNC’s net interest margin, the difference between what the bank pays to borrow money and what it gets for loans, narrowed to 3.9 percent from 3.94 percent last year and widened from 3.86 percent in the fourth quarter. U.S. lenders are facing a squeeze on profits as record-low interest rates put pressure on net interest margins.
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