This Lender Deserves a Second Look
The country's sixth-largest lender, PNC Financial (NYS: PNC) , saw its first-quarter profits fall by 2.5% mainly because of acquisition-related costs. Despite the fall in profits, PNC's share price went up as results came in ahead of analyst expectations.
PNC earned $1.44 a share for the quarter, lower than the $1.57 per share it earned a year ago. However, let's not forget that this includes a $0.18-per-share charge related to its acquisition of the U.S. retail banking operations of Royal Bank of Canada (NYS: RY) . PNC acquired RBC Bank (USA) last month for $3.45 billion. In the deal, PNC obtained $18 billion in deposits and also $15 billion in loans, considerably expanding its footprint. This quarter's earnings took a hit as the integration of RBC Bank into PNC cost a substantial $145 million.
Helped by loans added in the acquisition, PNC's net interest income rose 4% to $2.3 billion. The bank's noninterest income grew by 7% to $1.4 billion, helped by an increase in residential mortgage and asset management revenue. The acquisition also helped the bank grow its top line by 8%.
All-time low interest rates have been pressuring banks, but PNC seems to have countered this by growing its loans. The bank's loans grew by $17 billion to $176 billion this quarter, with the RBC (USA) purchase contributing $15 billion. This should come as positive news for banks, given prevailing rock-bottom interest rates.
Peer US Bancorp (NYS: USB) , which posted results earlier this week, also saw its loan books grow. Average total loans at the bank grew by 6.4%, helped by a healthy 17% increase in commercial borrowing. USB's net interest income rose by 7.3% which, coupled with lower credit losses, helped the bank's bottom line increase by 28%.
Helped by an overall improvement in credit quality, PNC's loan loss provision declined by a staggering 56% to $185 million from a year ago. Net charge-offs also dropped sharply, by 38%, to $333 million. At the same time, nonperforming assets fell by 11% to $4.41 billion. The decline in NPAs from a year ago was mainly due to a fall in commercial real estate and commercial nonperforming loans, similar to what we saw at US Bancorp. The tier 1 capital ratio, however, fell to 9.3% due to the RBC acquisition.
The worst looks to be over
PNC had a pretty strong quarter on the whole. Plus, PNC earlier this month announced a 250% increase in its quarterly dividend to $0.35 per share. In line with many of its fellow banks, PNC had reduced its dividend to conserve capital following the financial crisis. But, following the recent round of stress tests, these banks have been given the impetus to increase their payouts. Peers such as USB and Wells Fargo (NYS: WFC) also raised their dividends. USB raised its dividends by 56%, whereas Wells Fargo raised its by 83%.
Keep a tab on PNC Financial with the help of the Fool's free My Watchlist service.
To find another excellent regional player, check out our brand-new free report "The Stocks Only the Smartest Investors Are Buying." We invite you to download a free copy to find out the name of a bank that might have interested Warren Buffett in his early days.
At the time this article was published Fool contributor Shubh Datta doesn't own any shares in the companies mentioned above.The Motley Fool owns shares of PNC Financial. The Fool owns shares of and has created a covered strangle position in Wells Fargo. Motley Fool newsletter services have recommended buying shares of Wells Fargo. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.