There were a few nice surprises in PNC Financial's (PNC 0.57%) Q4 earnings report today, and from the rise in the stock price this morning, the news was music to investors' ears. Even though the bank reported a $0.47 charge to its earnings per share, a little probing shows that the big regional bank has some juicy tidbits to share with its investors -- not the least of which is a revenue increase of 15% and an EPS jump that was still 46%.
More mortgage-related charges
Investors doubtless took the news of the EPS charge in stride. After all, at this time last year, the bank announced a $0.30 charge for basically the same reason: mortgage-mess cleanup. The charge this year is larger, but there are good reasons not to worry.
Digging in, the EPS of $1.24, though lower than estimates, is not as bad as it seems. Taking the announced charge out of the picture gives earnings of $1.71 per share, or $1.55 if PNC's gain on the sale of its Visa shares is factored in. That is more than respectable, and here's another biggie: The bank's return on equity jumped to 7.48% from a measly 5.7% one year ago.
A big acquisition is pulling its weight
At least some of the good news is attributable to PNC's 2012 purchase of Royal Bank of Canada's U.S. unit, which helped boost the bottom line in several ways. PNC inherited nearly a half-million new checking account clients, and the acquisition had a positive effect on the bank's net interest margin. Net interest margin dropped to 3.85% from 3.86% one year ago, but it represented a rise from the third quarter's 3.82%.
By comparison, this is very good news. Fifth Third (FITB 0.88%), for instance, revealed a NIM drop of 18 basis points from last year in its Q4 report today, and BB&T (TFC 0.38%) also showed a decrease of 18 bps in its own earnings release . Not surprisingly, PNC's net interest income was up by 10% year over year, while Fifth Third's decreased by 2%, and BB&T showed a gain of only 5%.
PNC showed strength in residential mortgage lending, too. Despite the expected charge of an additional $254 million in provisions against mortgage put-back demands, the bank saw origination volume grow by 1.4 billion. Always a big player in commercial real estate, loans in that category swelled by almost 20% from the year-ago quarter.
2013 is looking brighter
With the RBC Bank USA acquisition under its belt, this year is shaping up to be better than last for PNC. Add to that the bank's heightened activity in the home and commercial loan markets, as well as its ongoing expense reduction program, and things are looking sunnier still.
As for mortgage-related headaches, the worst may be behind PNC. As I mentioned earlier, analysts feel that the regionals will take a much smaller hit on the put-back request score than the larger banks. If that is true, then PNC likely has an extraordinary year ahead of it.