PNC Reports Full Year 2012 Net Income of $3.0 Billion and $5.30 Diluted EPS Earns Fourth Quarter Net Income of $719 Million and $1.24 Diluted EPS

Customers, Loans and Revenue Increase Over 2011

PITTSBURGH, Jan. 17, 2013 /PRNewswire/ -- The PNC Financial Services Group, Inc. (NYSE: PNC) today reported 2012 net income of $3.0 billion, or $5.30 per diluted common share, compared with 2011 net income of $3.1 billion, or $5.64 per diluted common share. Fourth quarter 2012 net income was $719 million, or $1.24 per diluted common share, compared with $925 million, or $1.64 per diluted common share, for the third quarter of 2012 and $493 million, or $.85 per diluted common share, for the fourth quarter of 2011. Fourth quarter 2012 earnings were reduced by $.47 per diluted common share for the net impact of previously disclosed actions taken in the fourth quarter associated with residential mortgage banking activities and other items. Comparable items which reduced earnings in the third quarter of 2012 and the fourth quarter of 2011 are provided in the Selected Income Statement Information section of this news release.

"PNC expanded its businesses significantly in 2012," said James E. Rohr, chairman and chief executive officer. "Our balance sheet strength along with our committed employees allowed us to grow customers, loans and deposits across our franchise and expand into Southeastern markets. While we are pleased with the progress we have made, our financial results do not yet reflect the full potential from our investments. Our commitment to revenue growth, expense reduction and efficient capital management in 2013 should position PNC to deliver even greater shareholder value."

Income Statement Highlights

  • PNC's businesses and markets drove growth in loans, deposits and customers and resulted in strong revenue in the fourth quarter.
  • PNC was successful in 2012 in growing and deepening customer relationships across its businesses and geographies through new client acquisition and cross sales.
    • Retail Banking net checking relationships grew 714,000 during 2012, including 460,000 from the RBC Bank (USA) acquisition.
    • Corporate & Institutional Banking continued to focus on building client relationships and adding new clients with attractive risk-return profiles. For the full year, 1,061 new corporate banking primary clients were added.
    • Asset management new primary client acquisitions were 37 percent higher in 2012 compared with 2011, fueled by an increase in referrals from other PNC businesses.
    • Residential Mortgage Banking loan origination volume in 2012 increased to $15.2 billion reflecting growth of 33 percent over 2011.
  • Net interest income of $2.4 billion for the fourth quarter of 2012 increased modestly compared with the third quarter. 
  • Noninterest income was $1.6 billion for the fourth quarter of 2012 and $1.7 billion for the third quarter. Fourth quarter noninterest income was reduced by a $254 million provision for residential mortgage repurchase obligations. Both quarters included similar gains on sales of Visa shares. Excluding the impact of these items in both quarters, noninterest income increased 11 percent over the third quarter.
  • Provision for credit losses was $318 million for the fourth quarter of 2012 compared with $228 million for the third quarter. The increase primarily reflected a larger loan portfolio and reduced reserve release in commercial lending.
  • Noninterest expense was $2.8 billion for the fourth quarter and $2.7 billion for the third quarter. Fourth quarter noninterest expense included a noncash charge of $45 million for residential mortgage banking goodwill impairment and higher expenses for residential mortgage foreclosure-related matters.

Balance Sheet Highlights

  • Loans grew $4.0 billion, or 2 percent, during the fourth quarter to $186 billion at December 31, 2012 compared with September 30, 2012.
    • Total commercial lending increased $3.7 billion, or 4 percent, over the third quarter primarily in asset-based lending, healthcare, public finance and real estate.
    • Total consumer lending increased $.3 billion primarily in automobile loans.
  • Overall credit quality improved during the fourth quarter of 2012 compared with the third quarter.
    • Nonperforming assets of $3.8 billion at December 31, 2012 declined $.2 billion, or 6 percent.
    • Net charge-offs of $310 million decreased $21 million, or 6 percent.
    • Accruing loans past due decreased 4 percent.
  • Total deposits increased to $213 billion at December 31, 2012 compared with $206 billion at September 30, 2012. 
    • Transaction deposits grew $8.3 billion, or 5 percent, during the fourth quarter to $177 billion, or 83 percent of deposits, at December 31, 2012. Seasonal growth drove the increase.
    • Retail certificates of deposit declined $1.2 billion due to runoff of maturing accounts.
  • PNC's balance sheet remained core funded with a loans to deposits ratio of 87 percent at December 31, 2012 and retained a strong bank holding company liquidity position.
  • PNC redeemed $.5 billion of 12 percent hybrid capital securities during the fourth quarter of 2012, effectively lowering funding costs.
  • PNC had a strong capital position at December 31, 2012.
    • The Tier 1 common capital ratio increased to an estimated 9.6 percent at year end from 9.5 percent at September 30, 2012.
    • The estimated proforma Basel III Tier 1 common capital ratio was 7.3 percent at December 31, 2012 without benefit of phase-ins.

 

Earnings Summary


In millions, except per share data



4Q12




3Q12




4Q11



Net income


$

719



$

925



$

493



Diluted earnings per common share


$

1.24



$

1.64



$

.85



Average diluted common shares outstanding



528




529




526



Return on average assets



.95

%



1.23

%



.72

%


Return on average common equity



7.48

%



10.15

%



5.70

%


Book value per common share  Period end


$

67.05



$

66.41



$

61.52



Cash dividends declared per common share


$

.40



$

.40



$

.35



 

The following table presents selected income statement items that impacted earnings in the periods presented and are referred to elsewhere in this news release. The fourth quarter 2012 items were also disclosed in a Form 8-K filed on January 9, 2013.





















Selected Income Statement Information















Full Year

In millions, except per share data

4Q12


3Q12


4Q11



2012

2011





















Noninterest Income


Provision for residential mortgage repurchase

obligations




































Pretax

$

254


$

37


$

36



$

761


$

102




After-tax

$

165


$

24


$

23



$

495


$

66




Impact on diluted earnings per share

$

(.31)


$

(.05)


$

(.04)



$

(.93)


$

(.13)























Gains on sales of Visa Class B common shares



















Pretax

$

130


$

137






$

267







After-tax

$

85


$

89






$

174







Impact on diluted earnings per share

$

.16


$

.17






$

.33

























Noninterest Expense


















Goodwill impairment charge for Residential Mortgage

Banking segment




































Pretax

$

45









$

45







After-tax

$

45









$

45







Impact on diluted earnings per share

$

(.08)









$

(.08)


























Expenses for residential mortgage

foreclosure-related matters




































Pretax

$

91


$

53


$

240



$

225


$

324




After-tax

$

60


$

34


$

156



$

146


$

210




Impact on diluted earnings per share

$

(.11)


$

(.06)


$

(.30)



$

(.28)


$

(.40)























Noncash charges for unamortized discounts related to redemption of trust preferred securities




































Pretax

$

70


$

95


$

198



$

295


$

198




After-tax

$

46


$

61


$

129



$

192


$

129




Impact on diluted earnings per share

$

(.09)


$

(.12)


$

(.24)



$

(.36)


$

(.24)























Integration costs



















Pretax

$

35


$

35


$

28



$

267


$

42




After-tax

$

23


$

23


$

18



$

174


$

27




Impact on diluted earnings per share

$

(.04)


$

(.04)


$

(.04)



$

(.33)


$

(.05)






















Total impact of selected items on diluted earnings per share

















$

(.47)


$

(.10)


$

(.62)



$

(1.65)


$

(.82)



 

The Consolidated Financial Highlights accompanying this news release also include reconciliations of reported amounts to non-GAAP financial measures, including a reconciliation of business segment income to net income. After-tax amounts referenced in this news release were calculated using the statutory federal income tax rate of 35 percent, where applicable. Reference to core net interest income is to total net interest income less purchase accounting accretion. 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

















4Q12 vs



4Q12 vs


In millions



4Q12




3Q12




4Q11




3Q12



4Q11


Net interest income


$

2,424



$

2,399



$

2,199




1

%



10

%


Noninterest income



1,645




1,689




1,350




(3)

%



22

%


Total revenue


$

4,069



$

4,088



$

3,549







15

%


 

Total revenue for the fourth quarter of 2012 was stable with the third quarter of 2012 and increased compared with the fourth quarter of 2011. Excluding the impact of the provision for residential mortgage repurchase obligations in all periods and gains on sales of Visa shares in the fourth and third quarters of 2012, fourth quarter 2012 total revenue increased 5 percent over third quarter 2012 and 17 percent over fourth quarter 2011.

Net interest income increased modestly compared with the third quarter. Core net interest income remained stable as loan growth was largely offset by the impact of lower core yields on interest earning assets. Purchase accounting accretion increased driven by higher cash recoveries. Net interest income increased compared with fourth quarter 2011 due to higher core net interest income resulting from the RBC Bank (USA) acquisition, organic loan growth and lower funding costs. The net interest margin of 3.85 percent for the fourth quarter of 2012 remained relatively stable with 3.82 percent for the third quarter of 2012 and 3.86 percent for the fourth quarter of 2011.

 

Noninterest Income

Change



Change



















4Q12  vs



4Q12  vs


In millions



4Q12




3Q12




4Q11




3Q12



4Q11


Asset management


$

302



$

305



$

250




(1)

%



21

%


Consumer services



294




288




269




2

%



9

%


Corporate services



349




295




266




18

%



31

%


Residential mortgage























Residential mortgage banking



254




264




193




(4)

%



32

%



Provision for residential mortgage

repurchase obligations

























(254)




(37)




(36)




NM




NM



Service charges on deposits



150




152




140




(1)

%



7

%


Net gains on sales of securities



45




40




62




13

%



(27)

%


Net other-than-temporary impairments



(15)




(24)




(44)




38

%



66

%


Other



520




406




250




28

%



108

%






$

1,645



$

1,689



$

1,350




(3)

%



22

%


 

Noninterest income for the fourth quarter of 2012 declined $44 million compared with the third quarter of 2012 and increased significantly over fourth quarter 2011. Fourth quarter 2012 included a $254 million provision for residential mortgage repurchase obligations related to expected elevated levels of repurchase demands primarily as a result of further changes in behavior and demand patterns of FHLMC and FNMA for loans sold into agency securitizations, including the years 2004 and 2005.

Excluding the impact of the provision for residential mortgage repurchase obligations and gains on sales of Visa shares in both periods, noninterest income for the fourth quarter of 2012 increased $180 million, or 11 percent, compared with the third quarter. Asset management fees declined $3 million. Consumer services fees grew $6 million over the third quarter due to customer growth partially offset by the impact of Hurricane Sandy on customer volume and activity. Corporate service fees grew $54 million compared with the third quarter primarily due to strong merger and acquisition advisory fees. Residential mortgage banking income in the fourth quarter included strong loan sales revenue driven by higher loan origination volume and lower net hedging gains on mortgage servicing rights. Service charges on deposits declined $2 million compared with the third quarter reflecting the impact of fees waived related to Hurricane Sandy of $7 million. Other noninterest income increased $114 million compared with the third quarter primarily due to higher revenue associated with commercial mortgage banking activity, private equity investments and asset sales. In each of the fourth and third quarters of 2012 PNC sold a portion of its investment in Visa and recognized gains of $130 million on the sale of 4 million Visa Class B common shares and $137 million on the sale of 5 million Visa Class B common shares, respectively. At December 31, 2012, PNC's remaining investment in Visa Class B common shares was approximately 14 million shares with a carrying value of $.3 billion and a fair value of approximately $.9 billion.

Noninterest income for the fourth quarter of 2012 increased $295 million compared with the fourth quarter of 2011. Excluding the impact of the provision for residential mortgage repurchase obligations in both periods and the gain on sale of Visa shares in fourth quarter 2012, noninterest income for the fourth quarter of 2012 increased $383 million, or 28 percent, compared with the fourth quarter of 2011. Asset management fees increased $52 million from stronger equity markets and growth in customers and fees. Consumer service fees grew $25 million due to growth in customers, including the RBC Bank (USA) acquisition, and transaction volume. Corporate service fees increased $83 million as a result of strong merger and acquisition advisory fees, higher commercial mortgage servicing revenue and higher treasury management fees. Residential mortgage banking revenue increased as a result of continued strong loan sales revenue driven by higher loan origination volume. Service charges on deposits increased $10 million reflecting customer growth including the RBC Bank (USA) acquisition. Other noninterest income increased $270 million compared with fourth quarter 2011 primarily attributable to the gain on the sale of a portion of PNC's investment in Visa shares and higher revenue from private equity investments, improved valuations and asset sales.

 

CONSOLIDATED EXPENSE REVIEW
























Noninterest Expense

Change



Change


















4Q12 vs



4Q12 vs


In millions



4Q12




3Q12




4Q11




3Q12



4Q11


Personnel


$

1,216



$

1,171



$

1,052




4

%



16

%


Occupancy