2014

PNC Reports First Quarter Net Income Of $1.0 Billion And $1.76 Diluted EPS Strong Earnings and Returns

PITTSBURGH, April 17, 2013 /PRNewswire/ -- The PNC Financial Services Group, Inc. (NYSE: PNC) today reported net income of $1.0 billion, or $1.76 per diluted common share, for the first quarter of 2013 compared with net income of $719 million, or $1.24 per diluted common share, for the fourth quarter of 2012 and $811 million, or $1.44 per diluted common share, for the first quarter of 2012.

"PNC's diversified businesses delivered solid revenue despite weaker lending in the first quarter and ― combined with significantly reduced expenses ― drove improved returns for our shareholders," said James E. Rohr, chairman and chief executive officer. "We are making important progress on all of our strategic priorities as we continue to focus on growing deposits, loans and revenue. Our strong capital position should enable us to continue to invest to meet our clients' needs even as we remain committed to disciplined expense management over the course of the year."

Income Statement Highlights

  • Strong first quarter earnings resulted from continued customer growth and a significant increase in pretax pre-provision earnings driven by solid revenue and a substantial reduction in expenses from fourth quarter.
  • Net interest income of $2.4 billion for the first quarter of 2013 declined $35 million compared with the fourth quarter of 2012 due to lower scheduled purchase accounting accretion. Core net interest income was stable.
  • Noninterest income was $1.6 billion for the first quarter of 2013 and reflected the diversification of PNC's businesses. Noninterest income decreased $79 million compared with fourth quarter 2012 due in part to the impact of robust fourth quarter capital markets activity.
  • Provision for credit losses declined to $236 million for the first quarter of 2013 compared with $318 million for the fourth quarter of 2012 as a result of overall credit quality improvement.
  • Noninterest expense was significantly reduced by $434 million, or 15 percent, to $2.4 billion for the first quarter of 2013 compared with fourth quarter 2012.
    • First quarter included lower expense for residential mortgage foreclosure-related matters and no expense for trust preferred securities redemption discounts and merger integration costs.
    • The decline in first quarter expense also reflected continued commitment to disciplined expense management, lower marketing expense and reduced expense for lower capital markets activities.

Balance Sheet Highlights

  • Loans increased $.7 billion to $187 billion at March 31, 2013 compared with year end 2012 as loan growth slowed during the first quarter.
    • Total commercial lending increased $1.4 billion, or 1 percent, over fourth quarter 2012 as a result of specialty lending businesses including public finance, asset-based lending and real estate.
    • Consumer lending decreased $.7 billion from pay downs of residential real estate, credit card and education loans.
  • Underlying credit quality continued to improve during the first quarter of 2013 compared with the fourth quarter of 2012.
    • As previously disclosed, credit quality metrics for the first quarter of 2013 were impacted by alignment with regulatory guidance which increased nonperforming assets by $426 million and net charge-offs by $134 million.
  • Total deposits decreased $1.5 billion to $212 billion at March 31, 2013 compared with December 31, 2012.
    • Runoff of year-end seasonally higher transaction deposits resulted in a decrease of $1.3 billion at March 31, 2013 compared with December 31, 2012.
    • Average transaction deposits grew $3.1 billion in the first quarter of 2013 compared with the fourth quarter.
  • PNC's balance sheet remained core funded with a loans to deposits ratio of 88 percent at March 31, 2013.
  • PNC had a strong capital position at March 31, 2013.
    • The Tier 1 common capital ratio increased to an estimated 9.8 percent at March 31, 2013 compared with 9.6 percent at December 31, 2012.
    • The estimated proforma Basel III Tier 1 common capital ratio was 7.9 percent at March 31, 2013 without benefit of phase-ins.
    • In April 2013 the PNC board of directors raised the quarterly cash dividend on common stock to 44 cents per share, an increase of 4 cents per share, or 10 percent, effective with the May dividend.

Earnings Summary


In millions, except per share data



1Q13




4Q12




1Q12



Net income


$

1,004



$

719



$

811



Diluted earnings per common share


$

1.76



$

1.24



$

1.44



Average diluted common shares outstanding



528




528




529



Return on average assets



1.34

%



.95

%



1.16

%


Return on average common equity



10.68

%



7.48

%



9.41

%


Book value per common share  Period end


$

68.23



$

67.05



$

63.26



Cash dividends declared per common share


$

.40



$

.40



$

.35



The Consolidated Financial Highlights accompanying this news release include additional information regarding selected income statement items and reconciliations to reported amounts of non-GAAP financial measures, including a reconciliation of business segment income to net income. Reference to pretax pre-provision earnings is to total revenue less noninterest expense. Reference to core net interest income is to total net interest income less purchase accounting accretion, which consists of scheduled accretion and excess cash recoveries. Information in this news release including the financial tables is unaudited. See the notes in the Consolidated Financial Highlights. 

CONSOLIDATED REVENUE REVIEW























Revenue

Change



Change

















1Q13 vs



1Q13 vs


In millions



1Q13




4Q12




1Q12




4Q12



1Q12


Net interest income


$

2,389



$

2,424



$

2,291




(1)

%



4

%


Noninterest income



1,566




1,645




1,441




(5)

%



9

%


Total revenue


$

3,955



$

4,069



$

3,732




(3)

%



6

%


Total revenue for the first quarter of 2013 declined $114 million compared with the fourth quarter of 2012 primarily due to a decrease in noninterest income from lower asset sales, including the fourth quarter $130 million gain on sale of Visa shares, and the impact on corporate service fees of higher fourth quarter market activity. Partially offsetting these items was a substantially reduced provision for residential mortgage repurchase obligations. Total revenue for the first quarter of 2013 grew $223 million compared with the first quarter of 2012 as both noninterest income and net interest income increased.

Net interest income for the first quarter of 2013 decreased modestly by $35 million compared with the fourth quarter of 2012 due to lower scheduled purchase accounting accretion. Core net interest income remained stable. Net interest income increased $98 million compared with first quarter 2012 as a result of higher core net interest income from organic loan growth, lower funding costs and the full quarter impact of the RBC Bank (USA) acquisition. The net interest margin decreased modestly to 3.81 percent for the first quarter of 2013 compared with 3.85 percent for the fourth quarter of 2012 and 3.90 percent for the first quarter of 2012 reflecting lower purchase accounting accretion as core net interest margin has remained stable.

Noninterest Income

Change



Change



















1Q13  vs



1Q13  vs


In millions



1Q13




4Q12




1Q12




4Q12



1Q12


Asset management


$

308



$

302



$

284




2

%



8

%


Consumer services



296




294




264




1

%



12

%


Corporate services



277




349




232




(21)

%



19

%


Residential mortgage























Residential mortgage banking



238




254




262




(6)

%



(9)

%



Provision for residential mortgage
























repurchase obligations



(4)




(254)




(32)




(98)

%



(88)

%


Service charges on deposits



136




150




127




(9)

%



7

%


Net gains on sales of securities



14




45




57




(69)

%



(75)

%


Net other-than-temporary impairments



(10)




(15)




(38)




33

%



74

%


Other



311




520




285




(40)

%



9

%






$

1,566



$

1,645



$

1,441




(5)

%



9

%


Noninterest income for the first quarter of 2013 declined $79 million compared with the fourth quarter of 2012. Asset management fees grew $6 million reflecting stronger equity markets and growth in customers. Consumer service fees increased $2 million. Corporate service fees decreased $72 million primarily due to the impact of higher fourth quarter merger and acquisition advisory fees and capital markets activities. Residential mortgage revenue reflected a substantially reduced provision for residential mortgage repurchase obligations. Residential mortgage banking revenue decreased $16 million attributable to lower loan sales revenue partially offset by higher net hedging gains on mortgage servicing rights. Service charges on deposits declined $14 million compared with the fourth quarter reflecting seasonally lower customer activity. Other noninterest income declined $209 million compared with the linked quarter primarily due to the fourth quarter gain of $130 million on the sale of Visa Class B common shares and lower revenue associated with asset valuations and sales.  

Noninterest income for the first quarter of 2013 increased $125 million compared with the first quarter of 2012. Asset management fees increased $24 million from stronger equity markets and growth in customers. Consumer service fees grew $32 million due to growth in customers and transaction volume. Corporate service fees increased $45 million primarily as a result of higher commercial mortgage servicing revenue. Residential mortgage banking revenue decreased $24 million as lower net hedging gains on mortgage servicing rights were partially offset by higher loan sales revenue. Service charges on deposits increased $9 million reflecting customer growth including the RBC Bank (USA) acquisition. Other noninterest income increased $26 million compared with first quarter 2012 primarily attributable to higher revenue associated with commercial mortgage banking activity.

CONSOLIDATED EXPENSE REVIEW
























Noninterest Expense

Change



Change


















1Q13 vs



1Q13 vs


In millions



1Q13




4Q12




1Q12




4Q12



1Q12


Personnel


$

1,169



$

1,216



$

1,111




(4)

%



5

%


Occupancy



211




226




190




(7)

%



11

%


Equipment



183




194




175




(6)

%



5

%


Marketing



45




70




68




(36)

%



(34)

%


Other



787




1,123




911




(30)

%



(14)

%





$

2,395



$

2,829



$

2,455




(15)

%



(2)

%


Noninterest expense for the first quarter of 2013 decreased substantially by $434 million, or 15 percent, compared with the fourth quarter of 2012 reflecting declines in all reported expense categories. Several fourth quarter 2012 expenses did not recur in the first quarter of 2013. Expense related to the residential mortgage business was lower, including a decline of $76 million for foreclosure-related matters expense and the impact of a fourth quarter $45 million noncash charge for goodwill impairment. Fourth quarter charges for unamortized discounts related to redemption of trust preferred securities and merger integration costs were $70 million and $35 million, respectively. Marketing expense was lower in the first quarter of 2013 compared with the fourth quarter and incentive compensation costs declined primarily due to lower capital markets activities.

Noninterest expense for the first quarter of 2013 decreased $60 million compared with the prior year first quarter primarily driven by the impact of first quarter 2012 integration costs of $145 million partially offset by a full quarter of operating expense for the RBC Bank (USA) acquisition.

PNC is on track to reduce its full year 2013 noninterest expense from 2012 levels and achieve its $700 million continuous improvement expense savings goal for 2013.

The effective tax rate was 24.2 percent for the first quarter of 2013 compared with 22.0 percent for the fourth quarter of 2012 and 25.7 percent for the first quarter of 2012.

CONSOLIDATED BALANCE SHEET REVIEW

Total assets were $301 billion at March 31, 2013 compared with $305 billion at December 31, 2012 and $296 billion at March 31, 2012. The decline from year end was primarily due to lower interest-earning deposits with banks and investment securities. In the comparison with first quarter 2012, strong organic loan growth was partially offset by lower investment securities.

Loans

Change


Change

















3/31/13 vs


3/31/13 vs


In billions


3/31/2013


12/31/2012


3/31/2012


12/31/12


3/31/12


Commercial lending


$

110.3



$

108.9



$

100.6




1

%



10

%


Consumer lending



76.2




76.9




75.6




(1)

%



1

%


Total loans


$

186.5



$

185.8



$

176.2




.4

%



6

%

























For the quarter ended:






















Average loans


$

186.1



$

183.2



$

164.6




2

%



13

%


Total loans at March 31, 2013 increased $.7 billion compared with December 31, 2012 as loan growth slowed in the first quarter. Commercial lending increased $1.4 billion during the first quarter of 2013 as a result of specialty lending businesses including public finance, asset-based lending and real estate. Consumer lending decreased $.7 billion compared with year end as a result of lower residential real estate, credit card and education loans. First quarter 2013 average loans grew $2.9 billion over fourth quarter 2012 driven by commercial lending. Average loans in the first quarter of 2013 increased $21.5 billion compared with first quarter 2012 primarily due to organic loan growth and the full quarter impact of loans added in the RBC Bank (USA) acquisition, which closed March 2, 2012.

Investment Securities

Change


Change

















3/31/13 vs


3/31/13 vs


In billions


3/31/2013


12/31/2012


3/31/2012


12/31/12


3/31/12


At quarter end


$

59.4



$

61.4



$

64.6




(3)

%



(8)

%


Average for the quarter ended


$

58.5



$

59.4



$

61.6




(2)

%



(5)

%


Investment securities declined in all comparisons primarily as a result of prepayments and maturities. At both March 31, 2013 and December 31, 2012, the available for sale investment securities balance included a net unrealized pretax gain of $1.6 billion, representing the difference between fair value and amortized cost, compared with $.6 billion at March 31, 2012. The increase compared with first quarter 2012 was primarily due to improvement in the value of non-agency residential mortgage-backed securities and lower market interest rates.

Deposits

Change


Change

















3/31/13 vs


3/31/13 vs


In billions


3/31/2013


12/31/2012


3/31/2012


12/31/12


3/31/12


Transaction deposits


$

175.4



$

176.7



$

164.6




(1)

%



7

%


Other deposits



36.2




36.4




41.5




(1)

%



(13)

%


Total deposits


$

211.6



$

213.1



$

206.1




(1)

%



3

%



For the quarter ended:






















Average deposits


$

209.7



$

207.5



$

192.1




1

%



9

%


Total deposits at March 31, 2013 decreased $1.5 billion compared with December 31, 2012. Seasonally higher deposits at year end declined in early January 2013 as reflected in a decrease in transaction deposits of $1.3 billion from December 31, 2012. However, average deposits grew in the first quarter of 2013 compared with the fourth quarter due to growth of $3.1 billion in average transaction deposits. In the comparison with March 31, 2012, deposits grew $5.5 billion attributable to organic transaction deposit growth partially offset by a decline in retail certificates of deposit due to runoff of maturing accounts. The increase in average deposits compared with first quarter 2012 included the full quarter impact of deposits added in the RBC Bank (USA) acquisition.

Borrowed Funds

Change


Change

















3/31/13 vs


3/31/13 vs


In billions


3/31/2013


12/31/2012


3/31/2012


12/31/12


3/31/12


At quarter end


$

37.6



$

40.9



$

42.5




(8)

%



(12)

%


Average for the quarter ended


$

39.7



$

40.3



$

40.2




(1)

%



(1)

%


Borrowed funds at March 31, 2013 decreased $3.3 billion compared with December 31, 2012 primarily due to lower Federal Home Loan Bank borrowings and commercial paper balances somewhat offset by net issuance of bank notes and senior debt and subordinated debt. In the comparison with first quarter 2012, the decline in borrowed funds of $4.9 billion was attributable to lower Federal Home Loan Bank borrowings and net redemptions and maturities of bank notes and senior debt and subordinated debt.

Capital




3/31/2013*


12/31/2012


3/31/2012


Common shareholders' equity    In billions

$

36.1



$

35.4



$

33.4



Tier 1 common capital ratio



9.8

%



9.6

%



9.3

%


Tier 1 risk-based capital ratio



11.7

%



11.6

%



11.4

%


* Ratios estimated


PNC continued to improve its strong capital levels and ratios. Common shareholders' equity and Tier 1 common capital ratio increased in both comparisons due to growth in retained earnings. The increase in retained earnings compared with March 31, 2012 was partially offset by higher risk-weighted assets from loan growth. The estimated proforma Basel III Tier 1 common capital ratio was 7.9 percent at March 31, 2013 without benefit of phase-ins, based on PNC's current understanding of Basel III proposed rules, estimates of Basel II (with proposed modifications) risk-weighted assets, and application of Basel II.5 rules. See Note (e) in the Consolidated Financial Highlights under Capital Ratios.

On April 4, 2013, the PNC board of directors raised the quarterly cash dividend on common stock to 44 cents per share, an increase of 4 cents per share, or 10 percent. The dividend payment date is May 5, 2013, payable the next business day. This action is consistent with PNC's capital plan which was accepted by the Board of Governors of the Federal Reserve System in March 2013.

CREDIT QUALITY REVIEW





















Credit Quality

Change


Change





At or for the quarter ended


3/31/13 vs


3/31/13 vs


In millions


3/31/2013


12/31/2012


3/31/2012


12/31/12


3/31/12


Nonperforming loans


$

3,422


$

3,254


$

3,581



5

%



(4)

%


Nonperforming assets


$

3,927


$

3,794


$

4,361



4

%



(10)

%


Accruing loans past due 90 days or more


$

1,906


$

2,351


$

2,585



(19)

%



(26)

%


Net charge-offs


$

456


$

310


$

333



47

%



37

%


Provision for credit losses


$

236


$

318


$

185



(26)

%



28

%


Allowance for loan and lease losses


$

3,828


$

4,036


$

4,196



(5)

%



(9)

%


Overall credit quality improved during the first quarter of 2013. While credit quality metrics for the first quarter of 2013 were impacted by alignment with regulatory guidance, underlying credit quality continued to improve. Alignment with interagency supervisory guidance on practices for loans and lines of credit related to consumer lending in the first quarter of 2013 had the overall effect of accelerating charge-offs and nonaccrual classification while reducing delinquencies.

Nonperforming assets at March 31, 2013 increased $133 million compared with December 31, 2012. The increase was driven by the classification to nonperforming of $426 million primarily related to adoption of a policy to classify performing second-lien consumer loans as nonperforming where the first-lien loan is 90 days or more past due. Commercial lending nonperforming loans decreased $115 million, or 8 percent, as a result of improving credit quality. Nonperforming assets to total assets were 1.31 percent at March 31, 2013 compared with 1.24 percent at December 31, 2012 and 1.47 percent at March 31, 2012.

Overall delinquencies decreased $588 million as of March 31, 2013 compared with December 31, 2012. The decline was due in part to $395 million for alignment with regulatory guidance. A substantial portion of this decrease was reflected in accruing loans past due 90 days or more.

Net charge-offs for first quarter 2013 increased $146 million compared with fourth quarter 2012 and $123 million compared with first quarter 2012. First quarter 2013 included charge-offs of $134 million primarily related to home equity and residential real estate loans to align with regulatory guidance. Fourth quarter 2012 included net charge-offs of $45 million for additional troubled debt restructurings resulting from bankruptcy as a result of alignment with regulatory guidance.

Provision for credit losses for first quarter 2013 decreased $82 million compared with fourth quarter 2012 as a result of overall credit quality improvement and the fourth quarter impact of additional troubled debt restructurings resulting from bankruptcy. The provision increased $51 million compared with first quarter 2012 primarily reflecting a larger loan portfolio. 

The allowance for loan and lease losses to total loans was 2.05 percent at March 31, 2013, 2.17 percent at December 31, 2012 and 2.38 percent at March 31, 2012. The decrease in the allowance compared with year end resulted from improved overall credit quality and the impact of alignment with regulatory guidance. The allowance to nonperforming loans was 112 percent at March 31, 2013 compared with 124 percent at December 31, 2012 and 117 percent at March 31, 2012.

BUSINESS SEGMENT RESULTS
















Business Segment Income (Loss)


In millions



1Q13




4Q12




1Q12



Retail Banking


$

120



$

121



$

147



Corporate & Institutional Banking



541




649




495



Asset Management Group



43




34




36



Residential Mortgage Banking



45




(192)




61



Non-Strategic Assets Portfolio



79




59




71



Other, including BlackRock



176




48




1



Net income


$

1,004



$

719



$

811


















See accompanying notes in Consolidated Financial Highlights


 

Retail Banking

Change



Change


















1Q13 vs



1Q13 vs



In millions



1Q13




4Q12




1Q12



4Q12



1Q12



Net interest income


$

1,049



$

1,081



$

1,045



$

(32)



$

4



Noninterest income


$

434



$

596



$

391



$

(162)



$

43



Provision for credit losses


$

162



$

280



$

135



$

(118)



$

27



Noninterest expense


$

1,131



$

1,206



$

1,069



$

(75)



$

62



Earnings


$

120



$

121



$

147



$

(1)



$

(27)


























In billions






















Average loans


$

65.5



$

65.4



$

61.1



$

.1



$

4.4



Average deposits


$

133.4



$

131.9



$

125.3



$

1.5



$

8.1



Retail Banking earnings for the first quarter of 2013 were stable compared with the fourth quarter of 2012. Lower noninterest income reflected the impact of the $130 million fourth quarter gain on the sale of Visa Class B common shares and seasonally lower service charges on deposits. The decrease in net interest income was primarily due to lower interest income on loans. The decline in revenue was offset by a lower provision for credit losses due in part to improved delinquencies and a decrease in noninterest expense partially due to lower marketing expense.

The decrease in first quarter 2013 earnings compared with the first quarter of 2012 reflected higher noninterest expense attributable to the RBC Bank (USA) acquisition. The increase in the provision for credit losses related primarily to the RBC Bank (USA) acquisition. Noninterest income was higher compared with the first quarter of 2012 primarily due to increased debit and credit card transactions, brokerage activity, and the RBC Bank (USA) acquisition.

  • Retail Banking continued to grow customers while remaining focused on lowering delivery costs.
    • Checking relationships increased 59,000 or 1 percent to 6,534,000 at March 31, 2013, from year end 2012.
    • PNC consolidated 30 branches in the first quarter and has plans to close a total of 200 branches in 2013. Five branches were opened during the first quarter. PNC had a branch network of 2,856 branches and 7,303 ATMs at March 31, 2013.
    • Retail Banking made progress on its strategy to provide alternative servicing channels to customers. Non-branch deposits via ATM and mobile increased to 20 percent of total deposits in the first quarter of 2013. Active online banking and active online bill payment customers increased 11 percent and 9 percent, respectively, from a year ago.
  • Average transaction deposits for the first quarter of 2013 increased $1.9 billion over the fourth quarter of 2012 partially offset by lower average certificates of deposit due to net runoff of maturing accounts. In the comparison with first quarter 2012, average transaction deposits increased $12.1 billion, or 14 percent, due to the RBC Bank (USA) acquisition and organic growth, while average certificates of deposit declined $5.5 billion, or 19 percent.
  • Average loans for the first quarter of 2013 were stable compared with the fourth quarter. In the comparison with first quarter 2012, loans increased 7 percent primarily as a result of home equity and commercial loans from the RBC Bank (USA) acquisition and growth in automobile loans. 
  • Net charge-offs were $250 million for first quarter 2013 compared with $217 million in the fourth quarter of 2012 and $191 million in the first quarter of 2012. Nonperforming assets were $1.3 billion at March 31, 2013, an increase of $133 million compared with December 31, 2012 and $315 million compared with March 31, 2012. The increase in net charge-offs and nonperforming assets primarily reflected the impact of alignment with regulatory guidance in first quarter 2013.

Corporate & Institutional Banking

Change



Change


















1Q13 vs



1Q13 vs



In millions



1Q13




4Q12




1Q12



4Q12



1Q12



Net interest income


$

956



$

1,057



$

938



$

(101)



$

18



Corporate service fees


$

246



$

324



$

200



$

(78)



$

46



Other noninterest income


$

139



$

195



$

128



$

(56)



$

11



Provision for credit losses


$

14



$

9



$

19



$

5



$

(5)



Noninterest expense


$

480



$

549



$

463



$

(69)



$

17



Earnings


$

541



$

649



$

495



$

(108)



$

46


























In billions






















Average loans


$

94.3



$

91.3



$

77.3



$

3.0



$

17.0



Average deposits


$

64.6



$

63.9



$

56.5



$

.7



$

8.1



Earnings for Corporate & Institutional Banking decreased in the first quarter of 2013 compared with the fourth quarter of 2012 due to lower revenue partially offset by lower noninterest expense. Net interest income declined as a result of narrower spreads on deposits and lower scheduled purchase accounting accretion partially offset by higher average loans. The decrease in corporate service fees was attributable to the impact of higher fourth quarter levels of merger and acquisition advisory fees and capital markets activity. Other noninterest income was lower primarily due to a decrease in revenue from client-related trading activities and asset sales. Noninterest expense declined primarily driven by lower compensation-related costs.

Earnings for the first quarter of 2013 increased compared with the first quarter of 2012 as higher revenue was partially offset by an increase in noninterest expense. Net interest income increased due to higher average loans and deposits. Corporate service fees grew primarily due to higher commercial mortgage servicing revenue. Other noninterest income increased due to higher revenue associated with commercial mortgage banking activity. The increase in noninterest expense reflected a full quarter impact of the RBC Bank (USA) acquisition.

  • Average loans for the first quarter of 2013 increased compared with fourth quarter 2012 as a result of specialty lending businesses including real estate, asset-based lending, public finance and healthcare. In the comparison with first quarter 2012, loan growth was across all loan categories and loans added in the RBC Bank (USA) acquisition contributed to the increase.
  • Average deposits increased compared with the fourth quarter of 2012 due to higher money market accounts. Average deposits increased from the first quarter of 2012 due to deposits added in the RBC Bank (USA) acquisition and inflows into noninterest-bearing deposits.
  • Net charge-offs were $58 million in the first quarter of 2013 compared with $34 million in the fourth quarter of 2012 and $43 million in the first quarter of 2012. Nonperforming assets declined for the twelfth consecutive quarter.
  • The commercial mortgage servicing portfolio was $290 billion at March 31, 2013, $282 billion at December 31, 2012 and $268 billion at March 31, 2012.

Asset Management Group

Change



Change


















1Q13 vs



1Q13 vs



In millions



1Q13




4Q12




1Q12



4Q12



1Q12



Net interest income


$

73



$

74



$

75



$

(1)



$

(2)



Noninterest income


$

182



$

173



$

168



$

9



$

14



Provision for credit losses (benefit)


$

5



$

(2)



$

10



$

7



$

(5)



Noninterest expense


$

183



$

195



$

176



$

(12)



$

7



Earnings


$

43



$

34



$

36



$

9



$

7


























In billions






















Assets under administration     Quarter end


$

236



$

224



$

219



$

12



$

17



Average loans


$

6.6



$

6.4



$

6.0



$

.2



$

.6



Average deposits


$

9.2



$

8.6



$

8.4



$

.6



$

.8



Asset Management Group earnings for the first quarter of 2013 increased compared with both the fourth and first quarters of 2012. Higher noninterest income in both comparisons resulted from stronger equity markets and a continued focus on client acquisition and positive net flows. Noninterest expense decreased in the linked quarter comparison primarily attributable to legal-related expense.

  • Asset Management Group continued to focus on client acquisition and asset growth. First quarter 2013 sales activities were strong with a 53 percent increase in primary client acquisitions across the footprint compared with new primary client acquisitions in the first quarter of 2012. 
  • Assets under administration at March 31, 2013 increased 5 percent compared with year end and included discretionary assets under management of $118 billion, which increased $6 billion, or 5 percent, compared with both December 31, 2012 and March 31, 2012 driven by positive net flows and stronger equity markets.
  • Average loans increased 3 percent compared with the fourth quarter of 2012 as new client originations, primarily home equity installment loans, benefited from an attractive interest rate environment and loan referrals from other lines of business.
  • Average deposits increased 7 percent compared with fourth quarter 2012 due to seasonal growth in demand deposits.

Residential Mortgage Banking

Change



Change
















1Q13 vs



1Q13 vs



In millions



1Q13



4Q12



1Q12


4Q12



1Q12



Net interest income


$

48


$

53


$

51


$

(5)



$

(3)



Noninterest income




















Provision for residential mortgage





















repurchase obligations


$

(4)


$

(254)


$

(32)


$

250



$

28




Other noninterest income


$

247


$

259


$

274


$

(12)



$

(27)



Provision for credit losses (benefit)


$

20


$

2


$

(7)


$

18



$

27



Noninterest expense


$

200


$

333


$

203


$

(133)



$

(3)



Earnings (loss)


$

45


$

(192)


$

61


$

237



$

(16)
























In billions



















Residential mortgage servicing portfolio   Quarter end


$

120


$

119


$

121


$

1



$

(1)



Loan origination volume


$

4.2


$

4.4


$

3.4


$

(.2)



$

.8



Residential Mortgage Banking reported earnings in the first quarters of 2013 and 2012 compared with a loss in the fourth quarter of 2012 which resulted from a higher provision for residential mortgage repurchase obligations. Other noninterest income for the first quarter of 2013 reflected lower loan sales revenue partially offset by higher net hedging gains on mortgage servicing rights compared with fourth quarter 2012. In the comparison with first quarter 2012, net hedging gains on mortgage servicing rights declined partially offset by higher loan sales revenue. Fourth quarter 2012 noninterest expense was elevated due to higher residential mortgage foreclosure-related expenses and a goodwill impairment charge.

Loan origination volume remained strong in the first quarter of 2013 while origination margins are declining. Approximately 33 percent of originations were under the revised Home Affordable Refinance Program. The fair value of mortgage servicing rights was $.8 billion at March 31, 2013 and $.7 billion at both December 31, 2012 and March 31, 2012.

Non-Strategic Assets Portfolio

Change



Change















1Q13 vs



1Q13 vs



In millions



1Q13



4Q12



1Q12


4Q12



1Q12



Net interest income


$

203


$

197


$

217


$

6



$

(14)



Noninterest income


$

16


$

21


$

(19)


$

(5)



$

35



Provision for credit losses


$

42


$

52


$

18


$

(10)



$

24



Noninterest expense


$

52


$

73


$

68


$

(21)



$

(16)



Earnings


$

79


$

59


$

71


$

20



$

8























In billions



















Average loans


$

11.3


$

11.9


$

12.6


$

(.6)



$

(1.3)



Non-Strategic Assets Portfolio segment earnings increased in the first quarter of 2013 compared with both the fourth and first quarters of 2012. Lower noninterest expense in both comparisons was driven by a decrease in other real estate owned expense and, in the linked quarter comparison, lower consumer loan servicing costs. In the comparison with first quarter 2012, higher noninterest income reflected the impact of first quarter 2012 additions to the liability for estimated losses on repurchase and indemnification claims. Provision for credit losses declined compared with the fourth quarter due to improved credit quality, while the increase over first quarter 2012 was related to the brokered home equity loan portfolio.

  • The Non-Strategic Assets Portfolio primarily consists of non-strategic assets obtained through acquisitions of other companies. The decrease in average loans in both comparisons reflected customer payment activity and portfolio management activities to reduce underperforming assets. Certain assets in this segment continue to require special servicing and management oversight.
  • Net charge-offs were $87 million for the first quarter of 2013 compared with $60 million for the fourth quarter of 2012 and $91 million for the first quarter of 2012. The linked quarter increase reflected the impact of alignment with regulatory guidance in first quarter 2013.

Other, including BlackRock

The "Other, including BlackRock" category, for the purposes of this release, includes earnings and gains or losses related to PNC's equity interest in BlackRock, and residual activities that do not meet the criteria for disclosure as a separate reportable business, such as integration costs, asset and liability management activities including net securities gains or losses, other-than-temporary impairment of investment securities and certain trading activities, exited businesses, private equity investments, intercompany eliminations, most corporate overhead, tax adjustments that are not allocated to business segments, and differences between business segment performance reporting and financial statement reporting under generally accepted accounting principles.

PNC recorded earnings of $176 million in "Other, including BlackRock" for the first quarter of 2013 compared with $48 million for the fourth quarter of 2012 and $1 million for the first quarter of 2012. The increase in earnings over the linked quarter was largely due to the impact of fourth quarter 2012 noncash charges related to redemption of trust preferred securities and integration costs. Earnings increased compared with the prior year first quarter primarily as a result of the impact of first quarter 2012 integration costs.

CONFERENCE CALL AND SUPPLEMENTAL FINANCIAL INFORMATION

PNC senior executives will hold a conference call for investors today at 8:00 a.m. Eastern Time regarding the topics addressed in this news release and the related financial supplement. Dial-in numbers for the conference call are (877) 402-9101 or (303) 223-4378 (international) and Internet access to the live audio listen-only webcast of the call is available at www.pnc.com/investorevents. PNC's first quarter 2013 earnings release, the related financial supplement, and presentation slides to accompany the conference call remarks will be available at www.pnc.com/investorevents prior to the beginning of the call. A telephone replay of the call will be available for one week at (800) 633-8284 or (402) 977-9140 (international), conference ID 21650748 and a replay of the audio webcast will be available on PNC's website for 30 days.

The PNC Financial Services Group, Inc. (www.pnc.com) is one of the nation's largest diversified financial services organizations providing retail and business banking; residential mortgage banking; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management.

[TABULAR MATERIAL FOLLOWS]

 


The PNC Financial Services Group, Inc.

Consolidated Financial Highlights (Unaudited)


FINANCIAL RESULTS

Three months ended

Dollars in millions, except per share data

March 31

December 31

March 31



2013

2012

2012

Revenue







Net interest income

$

2,389

$

2,424

$

2,291

Noninterest income


1,566


1,645


1,441

Total revenue


3,955


4,069


3,732

Noninterest expense


2,395


2,829


2,455

    Pretax, pre-provision earnings (a)


1,560


1,240


1,277

Provision for credit losses


236


318


185

Income before income taxes and noncontrolling interests

$

1,324

$

922

$

1,092

Net income (b)

$

1,004

$

719

$

811

Less:







Net income (loss) attributable to noncontrolling interests


(9)


1


6

Preferred stock dividends and discount accretion


75


54


39

Net income attributable to common shareholders

$

938

$

664

$

766

Diluted earnings per common share

$

1.76

$

1.24

$

1.44

Cash dividends declared per common share

$

.40

$

.40

$

.35


Certain prior period amounts included in these Consolidated Financial Highlights have been reclassified to conform with the current period presentation, which we believe is more meaningful to readers of our consolidated financial statements.


(a)

We believe that pretax, pre-provision earnings, a non-GAAP measure, is useful as a tool to help evaluate the ability to provide for credit costs through operations.


(b)

See page 16 for a reconciliation of business segment income to net income.

 


SELECTED INCOME STATEMENT INFORMATION

Three months ended





March 31

December 31

March 31

In millions, except per share data


2013

2012

2012











Noninterest Income

Provision for residential mortgage repurchase obligations







Pretax

$

(4)

$

(254)

$

(32)

After-tax

$

(2)

$

(165)

$

(21)

Impact on diluted earnings per share (a)

$

(.00)

$

(.31)

$

(.04)








Gains on sales of Visa Class B common shares







Pretax



$

130



After-tax



$

85



Impact on diluted earnings per share (a)



$

.16










Noninterest Expense







Goodwill impairment charge for Residential Mortgage Banking segment







Pretax



$

45



After-tax



$

45



Impact on diluted earnings per share (a)



$

(.08)










Expenses for residential mortgage foreclosure-related matters







Pretax

$

15

$

91

$

38

After-tax

$

10

$

60

$

24

Impact on diluted earnings per share (a)

$

(.02)

$

(.11)

$

(.05)








Noncash charges for unamortized discounts related to redemption of trust







preferred securities







Pretax



$

70



After-tax



$

46



Impact on diluted earnings per share (a)



$

(.09)










Integration costs







Pretax



$

35

$

145

After-tax



$

23

$

94

Impact on diluted earnings per share (a)



$

(.04)

$

(.18)


(a)

In calculating impact on diluted earnings per share in the table above, after-tax amounts for the income statement items were calculated using a statutory federal income tax rate of 35%, excluding the goodwill impairment charge which was considered nondeductible for income tax purposes.

 

The PNC Financial Services Group, Inc.

Consolidated Financial Highlights (Unaudited)






Three months ended




March 31


December 31


March 31





2013


2012


2012


PERFORMANCE RATIOS











Net interest margin (a)



3.81

%


3.85

%


3.90

%

Noninterest income to total revenue



40



40



39


Efficiency (b)



61



70



66


Return on:











Average common shareholders' equity



10.68



7.48



9.41


Average assets



1.34



.95



1.16













BUSINESS SEGMENT INCOME (LOSS) (c) (d)











In millions






















Retail Banking (e)


$

120


$

121


$

147


Corporate & Institutional Banking



541



649



495


Asset Management Group (f)



43



34



36


Residential Mortgage Banking (g) (h)



45



(192)



61


Non-Strategic Assets Portfolio



79



59



71


Other, including BlackRock (d) (i) (j)      



176



48



1


Total net income


$

1,004


$

719


$

811














(a)

Calculated as annualized taxable-equivalent net interest income divided by average earning assets. The interest income earned on certain earning assets is completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns than taxable investments. To provide more meaningful comparisons of net interest margins for all earning assets, we use net interest income on a taxable-equivalent basis in calculating net interest margin by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under generally accepted accounting principles (GAAP) in the Consolidated Income Statement. The taxable equivalent adjustments to net interest income for the three months ended March 31, 2013, December 31, 2012 and March 31, 2012 were $40 million, $42 million and $31 million, respectively.



(b)

Calculated as noninterest expense divided by total revenue. 



(c)

Our business information is presented based on our internal management reporting practices. We periodically refine our internal methodologies as management reporting practices are enhanced.



(d)

We consider BlackRock to be a separate reportable business segment but have combined its results with Other for this presentation. Our first quarter 2013 Form 10-Q will include additional information regarding BlackRock.



(e)

Includes gain on sale of a portion of Visa Class B common shares in the fourth quarter of 2012. See page 15 for additional information related to this amount.



(f)

We consider a primary client relationship for Asset Management Group to be a client relationship with annual revenue generation of $10,000 or more.



(g)

Includes provisions for residential mortgage repurchase obligations. See page 15 for additional information related to these amounts.



(h)

Includes expenses for residential mortgage foreclosure-related matters. See page 15 for additional information related to these amounts.




(i)

Includes earnings and gains or losses related to PNC's equity interest in BlackRock and residual activities that do not meet the criteria for disclosure as a separate reportable business, such as gains or losses related to BlackRock transactions, integration costs, asset and liability management activities including net securities gains or losses, other-than-temporary impairment of investment securities and certain trading activities, exited businesses, private equity investments, intercompany eliminations, most corporate overhead, tax adjustments that are not allocated to business segments, and differences between business segment performance reporting and financial statement reporting (GAAP), including the presentation of net income attributable to noncontrolling interests as the segments' results exclude their portion of net income attributable to noncontrolling interests.















(j)

Includes amounts for integration costs and noncash charges for unamortized discounts related to redemption of trust preferred securities. See page 15 for additional information related to these amounts.

 

TOTAL AND CORE NET INTEREST INCOME AND NET INTEREST MARGIN





Three months ended





March 31

December 31

March 31


Dollars in millions


2013


2012


2012


Net Interest Income



















Core net interest income (a)

$

2,140

$

2,151

$

2,028


Purchase accounting accretion (a)









Scheduled accretion net of contractual interest


199


228


223



Excess cash recoveries


50


45


40




Total purchase accounting accretion


249


273


263


Total net interest income

$

2,389

$

2,424

$

2,291













Net Interest Margin



















Core net interest margin (b)


3.43

%

3.43

%

3.43

%

Purchase accounting accretion impact on net interest margin


.38


.42


.47


Net interest margin


3.81

%

3.85

%

3.90

%












(a)

We believe that core net interest income and purchase accounting accretion are useful in evaluating the components of net interest income.



(b)

We believe that core net interest margin, a non-GAAP measure, is useful as a tool to help evaluate the impact of purchase accounting accretion on net interest margin. The adjustment represents annualized purchase accounting accretion divided by average interest-earning assets.

 


The PNC Financial Services Group, Inc.

Consolidated Financial Highlights (Unaudited)




















March 31


December 31


March 31




2013


2012



2012


BALANCE SHEET DATA











Dollars in millions, except per share data











Assets


$

300,812


$

305,107


$

295,883


Loans (a) (b)



186,504



185,856



176,214


Allowance for loan and lease losses (a)



3,828



4,036



4,196


Interest-earning deposits with banks (a)



1,541



3,984



2,084


Investment securities (a)



59,361



61,406



64,554


Loans held for sale (b)        



3,295



3,693



2,456


Goodwill and other intangible assets



10,996



10,869



11,188


Equity investments (a) (c)



11,008



10,877



10,352













Noninterest-bearing deposits



64,652



69,980



62,463


Interest-bearing deposits



146,968



143,162



143,664


Total deposits



211,620



213,142



206,127


Transaction deposits



175,407



176,705



164,575


Borrowed funds (a)



37,647



40,907



42,539


Shareholders' equity



39,663



39,003



35,045


Common shareholders' equity



36,072



35,413



33,408


Accumulated other comprehensive income



767



834



281
















Book value per common share



68.23



67.05



63.26


Common shares outstanding (millions)



529



528



528


Loans to deposits



88

%


87

%


85

%















CLIENT ASSETS (billions)











Discretionary assets under management


$

118


$

112


$

112


Nondiscretionary assets under administration



118



112



107


Total assets under administration



236



224



219


Brokerage account assets



39



38



37


Total client assets


$

275


$

262


$

256
















CAPITAL RATIOS