PNC Profit Beats Analysts’ Estimates as Expenses Decline

PNC Financial Services Group Inc. (PNC), the second-biggest U.S. regional bank, said profit rose 6.5 percent, beating analysts’ estimates, as expenses declined and the company set aside fewer provisions for soured loans.

First-quarter net income climbed to $1.06 billion, or $1.82 a share, from $995 million, or $1.74, a year earlier, according to a statement today from the Pittsburgh-based bank. The average estimate of 24 analysts surveyed by Bloomberg was for profit of $1.65 a share.

Chief Executive Officer Bill Demchak, 51, has cut jobs, consolidated branches and announced plans to reduce costs by $500 million this year to help counter weakness in mortgage banking, which made up about 7 percent of the bank’s total revenue last year. PNC was the second-best performer in the 24-company KBW Bank Index in the first quarter and received permission from the Federal Reserve last month to raise its quarterly dividend to 48 cents a share.

“We lowered expenses even as we continue to make investments across our businesses,” Demchak said today in the statement. “We were pleased to announce plans to return more capital to our shareholders through a 9 percent increase in our quarterly dividend and reinstituted share-repurchase programs.”

PNC gained 2.1 percent to $83.88 in New York trading at 11:30 a.m., pushing the gain for this year to 8.1 percent.

Revenue, Expenses

Non-interest expenses fell 4.4 percent to $2.26 billion as provisions for credit losses fell 60 percent to $94 million, according to the statement. Revenue decreased 4.5 percent to $3.78 billion, including a 31 percent drop in the residential-mortgage business.

PNC joins banks such as Wells Fargo & Co. and JPMorgan Chase & Co. that have struggled to increase revenue with interest rates near historic lows and demand for U.S. home loans declining. Lending has fallen since mid-2013 and a surge in all-cash purchases may push the market down again this year, according to the Mortgage Bankers Association.

PNC shares climbed about 12 percent in the first three months of 2014, outpacing the KBW Bank Index’s 4.4 percent gain. The stock trades at 1.61 times tangible book value, compared with 3.17 times for larger rival U.S. Bancorp, according to data compiled by Bloomberg.

Among PNC’s business units, asset-management revenue increased 18 percent to $364 million and corporate services rose 9 percent to $301 million from a year earlier. Consumer-services revenue fell 2 percent to $290 million.

Fed’s Review

PNC’s 2014 capital plan passed the Fed’s annual review, which is designed to prevent a repeat of the 2008 financial crisis. The company plans to increase the quarterly dividend to 48 cents from 44 cents, the highest since 2009.

JPMorgan, the biggest U.S. bank, said last week that first-quarter earnings fell 19 percent on lower fixed-income trading and mortgages. Wells Fargo, the biggest U.S. home lender, reported a first-quarter profit increase of 14 percent as fewer customers missed loan payments. Citigroup Inc. said its first-quarter earnings rose as the company recouped funds previously set aside for bad loans and cut losses at a division holding unwanted assets.

PNC said last month it received a subpoena regarding the return rate for its payment-processor clients from the U.S. Department of Justice. In December, the bank agreed to pay $35 million to settle claims it charged minorities more for home loans than similarly qualified white borrowers.

To contact the reporter on this story: Elizabeth Dexheimer in New York at edexheimer@bloomberg.net

To contact the editors responsible for this story: Peter Eichenbaum at peichenbaum@bloomberg.net Steve Dickson, Rick Green

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