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PNC Reports First Quarter Net Income Of $1.1 Billion and $1.82 Diluted EPS
Strong Capital Levels, Expenses Controlled

PITTSBURGH, April 16, 2014 /PRNewswire/ -- The PNC Financial Services Group, Inc. (NYSE: PNC) today reported net income of $1.1 billion, or $1.82 per diluted common share, for the first quarter of 2014 compared with net income of $1.1 billion, or $1.87 per diluted common share, for the fourth quarter of 2013 and $995 million, or $1.74 per diluted common share, for the first quarter of 2013.

"PNC had a successful first quarter – our fourth straight quarter with net income of $1 billion or more," said William S. Demchak, president and chief executive officer. "We grew loans and deposits, and we lowered expenses even as we continue to make investments across our businesses to enhance the customer experience and become more efficient. Based on the strength of our performance and balance sheet, 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." 

Income Statement Highlights

  • First quarter results were driven by loan and deposit growth, well-controlled expenses and credit quality improvement as well as seasonal trends.
  • Net interest income of $2.2 billion for the first quarter declined $71 million, or 3 percent, compared with the fourth quarter reflecting fewer days in the quarter and lower purchase accounting accretion.
  • Noninterest income of $1.6 billion decreased $225 million, or 12 percent, compared with the fourth quarter.
    • Lower benefit from release of reserves for residential mortgage repurchase obligations and first quarter seasonal declines impacted fee income.
  • Noninterest expense of $2.3 billion decreased $250 million, or 10 percent, from fourth quarter reflecting disciplined expense management and seasonality.
  • Provision for credit losses declined to $94 million for the first quarter compared with $113 million for the fourth quarter as overall credit quality continued to improve.

Balance Sheet Highlights

  • Loans grew $2.6 billion, or 1 percent, to $198 billion at March 31, 2014 compared with December 31, 2013.
    • Total commercial lending grew $3.6 billion, or 3 percent, primarily in real estate, corporate banking and business credit.
    • Total consumer lending decreased $1.0 billion due to lower home equity, residential mortgage and education loans as well as seasonal declines in credit card loans partially offset by growth in automobile loans.
  • Overall credit quality continued to improve during the first quarter of 2014 compared with the fourth quarter.
    • Nonperforming assets of $3.3 billion at March 31, 2014 declined $153 million, or 4 percent.
    • Net charge-offs were stable at $186 million for the first quarter and $189 million for fourth quarter 2013.
  • Deposits grew $1.5 billion, or 1 percent, to $222 billion at March 31, 2014 compared with December 31, 2013.
  • PNC continued to enhance its liquidity position in preparation for implementation of new short-term liquidity regulatory standards as reflected in higher deposit balances maintained with the Federal Reserve Bank and investment securities and borrowed funds activity.
  • PNC's well-positioned balance sheet remained core funded with a loans to deposits ratio of 89 percent at March 31, 2014.
  • PNC took actions reflecting its strong capital position.
    • In April 2014 the board of directors raised the quarterly cash dividend on common stock to 48 cents per share, an increase of 4 cents per share, or 9 percent, effective with the May dividend.
    • PNC announced share repurchase programs of up to $1.5 billion for the four quarter period beginning in the second quarter of 2014 under its existing common stock repurchase program authorization.
  • Transitional Basel III common equity Tier 1 capital ratio, calculated using the regulatory capital methodology applicable to PNC during 2014, was an estimated 10.8 percent at March 31, 2014.
  • Pro forma fully phased-in Basel III common equity Tier 1 capital ratio increased to an estimated 9.7 percent at March 31, 2014 from 9.4 percent at December 31, 2013 based on the standardized approach rules.

 


Earnings Summary


In millions, except per share data



1Q14




4Q13




1Q13



Net income


$

1,060



$

1,074



$

995



Diluted earnings per common share


$

1.82



$

1.87



$

1.74



Average diluted common shares outstanding



539




535




528



Return on average assets



1.35

%



1.36

%



1.33

%


Return on average common equity



10.36

%



10.71

%



10.58

%


Book value per common share  Period end


$

73.73



$

72.07



$

68.10



Tangible book value per common share (non-GAAP)    Period end


$

56.33



$

54.57



$

50.30



Cash dividends declared per common share


$

.44



$

.44



$

.40



 

The Consolidated Financial Highlights accompanying this news release include additional information regarding reconciliations to reported amounts of non-GAAP financial measures, including reconciliations of tangible book value to book value per common share and business segment income to net income. Certain prior period amounts have been updated to reflect first quarter 2014 adoption of Accounting Standards Update 2014-01 related to low income housing tax credits. The impact of adoption was not material to earnings. 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, as detailed in the Consolidated Financial Highlights. Information in this news release including the financial tables is unaudited. See the notes and other information in the Consolidated Financial Highlights. 

 

CONSOLIDATED REVENUE REVIEW


















Revenue


Change


Change













1Q14 vs


1Q14 vs


In millions



1Q14



4Q13



1Q13


4Q13


1Q13


Net interest income


$

2,195


$

2,266


$

2,389


(3)

%


(8)

%


Noninterest income



1,582



1,807



1,566


(12)

%


1

%


Total revenue


$

3,777


$

4,073


$

3,955


(7)

%


(5)

%


 

Total revenue for the first quarter of 2014 decreased $296 million compared with the fourth quarter of 2013 and $178 million compared with the first quarter of 2013. The declines were due to lower noninterest income and net interest income in the linked quarter comparison and lower net interest income compared with first quarter 2013.

Net interest income for the first quarter of 2014 decreased $71 million compared with the fourth quarter and $194 million compared with first quarter 2013 as both core net interest income and purchase accounting accretion declined. Core net interest income decreased compared with the fourth quarter in part due to fewer days in the first quarter and, in both comparisons, was driven by lower yields on loans and securities and higher borrowed funds balances somewhat offset by loan growth and the impact of lower rates paid on deposits and borrowed funds. The decrease in purchase accounting accretion resulted from lower scheduled accretion and, in the comparison with first quarter 2013, lower excess cash recoveries on purchased impaired loans. The net interest margin of 3.26 percent for the first quarter of 2014 decreased 12 basis points compared with the fourth quarter of 2013 and 55 basis points compared with first quarter 2013 primarily due to lower interest-earning asset yields and the decline in purchase accounting accretion. The decrease in the margin also included the impact of higher deposit balances maintained with the Federal Reserve Bank and other balance sheet activity in light of new short-term liquidity regulatory standards.

 

Noninterest Income

Change


Change













1Q14  vs


1Q14  vs


In millions



1Q14



4Q13



1Q13


4Q13


1Q13


Asset management


$

364


$

364


$

308




18

%


Consumer services



290



327



296


(11)

%


(2)

%


Corporate services



301



301



277




9

%


Residential mortgage



161



271



234


(41)

%


(31)

%


Service charges on deposits



147



158



136


(7)

%


8

%


Net gains on sales of securities



10



3



14


233

%


(29)

%


Net other-than-temporary impairments



(2)



-



(10)


NM



80

%


Other



311



383



311


(19)

%






$

1,582


$

1,807


$

1,566


(12)

%


1

%





 

Noninterest income for the first quarter of 2014 decreased $225 million compared with the fourth quarter of 2013 reflecting a lower benefit from release of reserves for residential mortgage repurchase obligations and first quarter seasonal declines in fee income partially offset by a gain on sale of Visa shares in the first quarter.

Asset management revenue was unchanged from the fourth quarter reflecting stable equity markets. Consumer service fees decreased $37 million primarily as a result of seasonally lower volumes of customer-initiated transactions. Corporate service fees were consistent with fourth quarter as higher net commercial mortgage servicing rights valuations were largely offset by seasonal declines in merger and acquisition advisory fees. Residential mortgage banking noninterest income decreased $110 million due to a lower benefit from release of reserves for residential mortgage repurchase obligations of $19 million in first quarter 2014 compared with $124 million in the fourth quarter, which was largely attributable to fourth quarter settlements with FNMA and FHLMC. Service charges on deposits declined $11 million reflecting seasonally lower activity. Other noninterest income decreased $72 million due to lower revenue associated with private equity investments, credit valuations for customer-related derivatives activities and loan sales partially offset by a first quarter pretax gain of $62 million on the sale of 1 million Visa Class B common shares. At March 31, 2014, PNC's remaining investment in Visa Class B common shares was approximately 9 million shares with a carrying value of approximately $.1 billion and fair value of approximately $.9 billion.

Noninterest income for the first quarter of 2014 increased $16 million compared with the first quarter of 2013. Asset management revenue grew $56 million driven by increases in the equity markets and sales production. Consumer service fees declined $6 million as growth in customer-initiated transaction volumes compared with first quarter 2013 was more than offset primarily by lower insurance-related activity. Corporate service fees increased $24 million principally due to higher merger and acquisition advisory fees. Residential mortgage banking revenue decreased $73 million reflecting lower loan sales revenue from lower origination volume and lower net hedging gains on residential mortgage servicing rights partially offset by a benefit from release of reserves for residential mortgage repurchase obligations in first quarter 2014 and higher servicing fees. Service charges on deposits increased $11 million from growth in customer activity. Other noninterest income was unchanged as the gain on sale of Visa Class B common shares in 2014 was substantially offset by lower revenue associated with credit valuations for customer-related derivatives activities and loan sales. 

 

CONSOLIDATED EXPENSE REVIEW



















Noninterest Expense


Change


Change














1Q14 vs


1Q14 vs


In millions



1Q14



4Q13



1Q13


4Q13


1Q13


Personnel


$

1,080


$

1,207


$

1,169


(11)

%


(8)

%


Occupancy



218



211



211


3

%


3

%


Equipment



201



197



183


2

%


10

%


Marketing



52



66



45


(21)

%


16

%


Other



713



833



760


(14)

%


(6)

%





$

2,264


$

2,514


$

2,368


(10)

%


(4)

%


 

Noninterest expense for the first quarter of 2014 decreased $250 million compared with the fourth quarter of 2013 reflecting overall disciplined expense management, seasonality and the impact of a fourth quarter contribution to the PNC Foundation partially offset by higher legal accruals associated with the residential mortgage banking business. Personnel expense declined as a result of reduced incentive compensation associated with seasonally lower business activity, and lower pension and benefits costs.

Noninterest expense for the first quarter of 2014 decreased $104 million compared with the first quarter of 2013 reflecting a decline in personnel expense for lower headcount and benefits costs and the impact of a first quarter 2013 contribution to the PNC Foundation. Decreases were partially offset by higher legal accruals associated with the residential mortgage banking business and investments in technology.

The effective tax rate was 25.3 percent for the first quarter of 2014 compared with 25.7 percent for the fourth quarter of 2013 and 26.4 percent for the first quarter of 2013.

CONSOLIDATED BALANCE SHEET REVIEW

Total assets were $323.4 billion at March 31, 2014 compared with $320.2 billion at December 31, 2013 and $300.7 billion at March 31, 2013. In both comparisons, the increase was driven by loan growth and higher deposit balances maintained with the Federal Reserve Bank in light of new short-term liquidity regulatory standards. 

 

Loans






Change


Change














3/31/14 vs


3/31/14 vs


In billions


3/31/2014


12/31/2013


3/31/2013


12/31/13


3/31/13


Commercial lending


$

120.8


$

117.2


$

110.3


3

%


10

%


Consumer lending



77.4



78.4



76.2


(1)

%


2

%


Total loans


$

198.2


$

195.6


$

186.5


1

%


6

%




















For the quarter ended:

















Average loans


$

196.6


$

194.6


$

186.1


1

%


6

%















 

Total loans grew $2.6 billion as of March 31, 2014 compared with December 31, 2013. Commercial lending increased $3.6 billion during the first quarter of 2014 primarily in real estate, corporate banking and business credit. Consumer lending decreased $1.0 billion due to lower home equity, residential mortgage and education loans as well as seasonal declines in credit card loans partially offset by growth in automobile loans. Average loans for the first quarter of 2014 increased $2.0 billion over fourth quarter from growth in average commercial and commercial real estate loans of $2.4 billion somewhat offset by a decrease of $.4 billion in average residential real estate and consumer loans. First quarter 2014 period end and average loans increased $11.7 billion and $10.5 billion, respectively, compared with first quarter 2013 primarily due to commercial, commercial real estate and consumer loan growth.

 

Investment Securities


Change


Change














3/31/14 vs


3/31/14 vs


In billions


3/31/2014


12/31/2013


3/31/2013


12/31/13


3/31/13


At quarter end


$

58.6


$

60.3


$

59.4


(3)

%


(1)

%


Average for the quarter ended


$

58.4


$

57.4


$

58.5


2

%
















 

Investment securities balances at March 31, 2014 decreased $1.7 billion compared with December 31, 2013 due to net payments and maturities. Average balances for the first quarter increased $1.0 billion compared with the fourth quarter reflecting the full quarter impact of Treasury securities purchased prior to year end to enhance PNC's liquidity position in light of new short-term liquidity regulatory standards.

The available for sale investment securities balance included a net unrealized pretax gain of $.9 billion at March 31, 2014 compared with $.6 billion at December 31, 2013 and $1.6 billion at March 31, 2013, representing the difference between fair value and amortized cost. The decrease in the net unrealized pretax gain compared with first quarter 2013 was attributable to an increase in market interest rates.

Interest-earning deposits with banks were $14.9 billion at March 31, 2014, an increase of $2.7 billion compared with December 31, 2013 and $13.3 billion compared with March 31, 2013 as PNC maintained higher balances on deposit with the Federal Reserve Bank in preparation for implementation of new short-term liquidity regulatory standards.

 

Deposits


Change


Change














3/31/14 vs


3/31/14 vs


In billions


3/31/2014


12/31/2013


3/31/2013


12/31/13


3/31/13


Transaction deposits


$

188.1


$

186.4


$

175.4


1

%


7

%


Other deposits



34.3



34.5



36.2


(1)

%


(5)

%


Total deposits


$

222.4


$

220.9


$

211.6


1

%


5

%
















For the quarter ended:

















Average deposits


$

218.4


$

217.1


$

209.7


1

%


4

%


 

Total deposits at March 31, 2014 increased $1.5 billion compared with December 31, 2013 and average deposits increased $1.3 billion in the first quarter compared with the fourth quarter. Growth was driven by consumer transaction deposits, which included higher interest-bearing demand deposits, partially offset by seasonal decreases in noninterest-bearing demand deposits. First quarter 2014 period end and average deposits increased $10.8 billion and $8.7 billion, respectively, compared with first quarter 2013 as growth in both consumer and commercial transaction deposits from higher money market and noninterest-bearing and interest-bearing demand deposits was partially offset by lower retail certificates of deposit due to runoff of maturing accounts.

 

Borrowed Funds


Change


Change














3/31/14 vs


3/31/14 vs


In billions


3/31/2014


12/31/2013


3/31/2013


12/31/13


3/31/13


At quarter end


$

46.8


$

46.1


$

37.6


2

%


24

%


Average for the quarter ended


$

46.4


$

43.1


$

39.7


8

%


17

%


 

Borrowed funds at March 31, 2014 increased $.7 billion compared with December 31, 2013 and average borrowed funds increased $3.3 billion in the first quarter compared with fourth quarter 2013. Issuances of senior debt and increased Federal Home Loan Bank borrowings supported an enhanced liquidity position and loan growth. Borrowed funds increased $9.2 billion at March 31, 2014 compared with March 31, 2013 and average borrowed funds increased $6.7 billion in first quarter 2014 compared with first quarter 2013 as higher Federal Home Loan Bank borrowings and bank notes and senior debt were partially offset by a decrease in commercial paper, reflecting the wind down of Market Street Funding LLC, a consolidated commercial paper conduit.

 

Capital




3/31/2014*


12/31/2013


3/31/2013


Common shareholders' equity    In billions

$

39.4



$

38.4



$

36.0



Transitional Basel III common equity Tier 1 capital ratio



10.8

%



N/A




N/A



Pro forma fully phased-in Basel III common equity














   Tier 1 capital ratio



9.7

%



9.4

%



8.0

%


* Ratios estimated


 

PNC continued to increase its capital levels and ratios and took actions reflecting its strong capital position. Common shareholders' equity increased principally due to growth in retained earnings and higher accumulated other comprehensive income related to net unrealized securities gains. The transitional Basel III common equity Tier 1 capital ratio was calculated using the regulatory capital methodology that became effective for PNC on January 1, 2014 with 2014 phase-ins. The increase in the pro forma fully phased-in Basel III common equity Tier 1 capital ratio was primarily due to growth in retained earnings and higher accumulated other comprehensive income partially offset by higher risk-weighted assets. Capital ratios and estimates may be impacted by additional regulatory guidance or analysis of the rules and, in the case of ratios calculated using the advanced approaches, the ongoing evolution, validation and regulatory approval of PNC's capital-related models. See Capital Ratios in the Consolidated Financial Highlights.

On April 3, 2014, the PNC board of directors raised the quarterly cash dividend on common stock to 48 cents per share, an increase of 4 cents per share, or 9 percent, effective with the May 5, 2014 dividend payment. PNC also announced share repurchase programs of up to $1.5 billion for the four quarter period beginning in the second quarter of 2014 under its existing common stock repurchase authorization. These programs include repurchases of up to $200 million related to employee benefit plans. These actions are consistent with PNC's capital plan which was accepted by the Board of Governors of the Federal Reserve System in March 2014. Separately, in the first quarter of 2014, PNC repurchased $50 million of common shares related to employee benefit plan share issuances.

 

CREDIT QUALITY REVIEW





















Credit Quality

Change


Change





At or for the quarter ended


3/31/14 vs


3/31/14 vs


In millions


3/31/2014


12/31/2013


3/31/2013


12/31/13


3/31/13


Nonperforming loans


$

2,947


$

3,088


$

3,422



(5)

%



(14)

%


Nonperforming assets


$

3,304


$

3,457


$

3,927



(4)

%



(16)

%


Accruing loans past due 90 days or more


$

1,310


$

1,491


$

1,906



(12)

%



(31)

%


Net charge-offs


$

186


$

189


$

456



(2)

%



(59)

%


Provision for credit losses


$

94


$

113


$

236



(17)

%



(60)

%


Allowance for loan and lease losses


$

3,530


$

3,609


$

3,828



(2)

%



(8)

%


 

Overall credit quality continued to improve during the first quarter of 2014. Nonperforming assets at March 31, 2014 decreased $153 million compared with December 31, 2013 as a result of improvements in both consumer and commercial lending. Consumer lending nonperforming loans decreased $84 million, commercial real estate nonperforming loans declined $38 million and commercial nonperforming loans decreased $20 million. Nonperforming assets declined $623 million from first quarter 2013 due to improvements in the commercial and consumer lending portfolios and other real estate owned and foreclosed assets. Nonperforming assets to total assets were 1.02 percent at March 31, 2014 compared with 1.08 percent at December 31, 2013 and 1.31 percent at March 31, 2013.

Overall delinquencies decreased $264 million, or 11 percent, as of March 31, 2014 compared with December 31, 2013. Accruing loans past due 90 days or more declined $181 million primarily from lower past due government insured residential real estate loans, and accruing loans past due 30 to 59 days declined $84 million.

Net charge-offs for the first quarter of 2014 were stable compared with fourth quarter 2013 as lower home equity loan net charge-offs were offset by higher residential real estate and commercial loan net charge-offs. In the comparison with first quarter 2013, net charge-offs decreased $270 million reflecting improving credit quality. Net charge-offs for the first quarter of 2014 were .38 percent of average loans on an annualized basis compared with .39 percent for the fourth quarter and .99 percent for the first quarter of 2013.

Provision for credit losses for first quarter 2014 decreased $19 million compared with fourth quarter 2013 and $142 million compared with first quarter 2013 as overall credit quality has continued to improve. A contributing economic factor is the increasing value of residential real estate.

The allowance for loan and lease losses declined in both comparisons reflecting overall improvement in credit quality. The allowance to total loans was 1.78 percent at March 31, 2014, 1.84 percent at December 31, 2013 and 2.05 percent at March 31, 2013. The allowance to nonperforming loans was 120 percent at March 31, 2014 compared with 117 percent at December 31, 2013, and 112 percent at March 31, 2013.

 

BUSINESS SEGMENT RESULTS














Business Segment Income (Loss)










In millions



1Q14



4Q13



1Q13



Retail Banking


$

158


$

107


$

120



Corporate & Institutional Banking



523



569



541



Asset Management Group



37



36



43



Residential Mortgage Banking



(4)



55



45



Non-Strategic Assets Portfolio



110



118



79



Other, including BlackRock



236



189



167



Net income


$

1,060


$

1,074


$

995
















See accompanying notes in Consolidated Financial Highlights









 

Retail Banking


Change


Change















1Q14 vs


1Q14 vs



In millions



1Q14



4Q13



1Q13


4Q13


1Q13



Net interest income


$

980


$

1,012


$

1,049


$

(32)


$

(69)



Noninterest income


$

514


$

488


$

434


$

26


$

80



Provision for credit losses


$

145


$

195


$

162


$

(50)


$

(17)



Noninterest expense


$

1,100


$

1,138


$

1,131


$

(38)


$

(31)



Earnings


$

158


$

107


$

120


$

51


$

38






















In billions


















Average loans


$

67.1


$

67.2


$

65.5


$

(.1)


$

1.6



Average deposits


$

135.5


$

134.6


$

133.4


$

.9


$

2.1




 

Retail Banking earnings for the first quarter of 2014 increased in both comparisons. Higher noninterest income reflected a gain of $62 million on the sale of 1 million Visa Class B common shares in the first quarter of 2014. In the comparison with the fourth quarter, the gain was partially offset by a decline in fee income due to lower customer-initiated transactions primarily driven by seasonality. Fees from higher customer-initiated transaction volumes grew compared with first quarter 2013. Noninterest expense declined in both periods as a result of lower compensation and, compared with the fourth quarter, lower marketing expense. 

  • Retail Banking continued to focus on providing cost effective service channel choices that meet customers' evolving preferences for convenience.
    • Approximately 43 percent of consumer customers used non-branch channels for the majority of their transactions during the first quarter of 2014 compared to 39 percent for the fourth quarter.
    • Non-branch deposit transactions via ATM and mobile increased to 31 percent of total deposit transactions in first quarter 2014 compared with 30 percent for the fourth quarter and 20 percent for the first quarter of 2013.
    • As part of PNC's retail branch transformation strategy, 45 branches were converted to universal branches as of March 31, 2014 in a pilot program, and 22 branches were closed or consolidated in the first quarter. PNC had a network of 2,703 branches and 8,001 ATMs at March 31, 2014.
  • Average transaction deposits grew $1.1 billion, or 1 percent, in the first quarter of 2014 over the fourth quarter resulting from higher personal demand deposits offset by lower non-personal demand and money market balances. In the comparison with first quarter 2013, average transaction deposits increased $4.1 billion, or 4 percent, due to higher personal and non-personal demand deposit balances. Average certificates of deposit decreased $2.8 billion from first quarter 2013 reflecting net runoff of maturing accounts.
  • Average loans declined slightly compared with the fourth quarter as growth in automobile and auto dealer floor plan loans was offset by lower home equity and education loans. Average loans grew 2 percent over first quarter 2013 due to growth in automobile, home equity, auto dealer floor plan and credit card loans partially offset by paydowns of education loans.
  • Net charge-offs were $145 million for first quarter 2014 compared with $168 million in the fourth quarter and $250 million in the first quarter of 2013.

 

Corporate & Institutional Banking

Change


Change















1Q14 vs


1Q14 vs



In millions



1Q14



4Q13



1Q13


4Q13


1Q13



Net interest income


$

934


$

960


$

956


$

(26)


$

(22)



Corporate service fees


$

268


$

277


$

246


$

(9)


$

22



Other noninterest income


$

96


$

152


$

139


$

(56)


$

(43)



Provision for credit losses (benefit)


$

(13)


$

(29)


$

14


$

16


$

(27)



Noninterest expense


$

488


$

525


$

480


$

(37)


$

8



Earnings


$

523


$

569


$

541


$

(46)


$

(18)






















In billions


















Average loans


$

103.5


$

100.9


$

94.3


$

2.6


$

9.2



Average deposits


$

71.0


$

71.7


$

64.6


$

(.7)


$

6.4



Commercial mortgage servicing portfolio  Quarter end


$

313


$

308


$

290


$

5


$

23



 

Corporate & Institutional Banking earnings for the first quarter of 2014 decreased in both comparisons. Corporate service fees declined compared with the fourth quarter primarily due to seasonal declines in merger and acquisition advisory fees and increased compared with first quarter 2013 largely as a result of higher merger and acquisition advisory fees. Other noninterest income declined in both comparisons mainly from lower revenue associated with credit valuations for customer-related derivatives activities and lower commercial mortgage loans held for sale activity. Noninterest expense decreased compared with fourth quarter 2013 and increased compared with first quarter 2013 principally due to incentive compensation costs associated with business activity.

  • Average loans increased 3 percent over the fourth quarter and 10 percent over first quarter 2013 primarily due to growth in real estate, corporate banking and business credit.
  • Average deposits increased 10 percent over the prior year first quarter primarily as a result of business growth and inflows into money market and noninterest-bearing deposits.
  • Net charge-offs were $2 million in the first quarter of 2014 compared with $10 million in the fourth quarter of 2013 and $58 million in the first quarter of 2013.

 

Asset Management Group








Change


Change















1Q14 vs


1Q14 vs



In millions



1Q14



4Q13



1Q13


4Q13


1Q13



Net interest income


$

71


$

71


$

73




$

(2)



Noninterest income


$

199


$

198


$

182


$

1


$

17



Provision for credit losses


$

12


$

8


$

5


$

4


$

7



Noninterest expense


$

199


$

204


$

183


$

(5)


$

16



Earnings


$

37


$

36


$

43


$

1


$

(6)






















In billions


















Assets under administration     Quarter end


$

255


$

247


$

236


$

8


$

19



Average loans


$

7.1


$

7.1


$

6.6




$

.5



Average deposits


$

9.6


$

9.2


$

9.2


$

.4


$

.4
















 

Asset Management Group earnings for the first quarter of 2014 increased compared with the fourth quarter of 2013 and declined compared with first quarter 2013. Noninterest income grew year over year driven by increases in the equity markets and sales production resulting in net positive flows. The increase in noninterest expense compared with first quarter 2013 included higher compensation costs from focused hiring to drive growth.

  • Assets under administration at March 31, 2014 included discretionary assets under management of $130 billion and nondiscretionary assets under administration of $125 billion.
    • Discretionary assets under management increased $3 billion compared with December 31, 2013 and $12 billion compared with March 31, 2013 driven by stronger equity markets and net positive flows net of cyclical client activities.
  • Asset Management Group continued to focus on driving growth through increasing sales sourced from other PNC lines of business, maximizing front line productivity and optimizing market presence including additions to staff in high opportunity markets.

 

Residential Mortgage Banking

Change


Change
















1Q14 vs


1Q14 vs



In millions



1Q14



4Q13



1Q13


4Q13


1Q13



Net interest income


$

40


$

49


$

48


$

(9)


$

(8)



Noninterest income



















Benefit (provision) for residential mortgage




















repurchase obligations


$

19


$

124


$

(4)


$

(105)


$

23




Other noninterest income


$

147


$

154


$

247


$

(7)


$

(100)



Provision for credit losses (benefit)


$

(1)


$

(3)


$

20


$

2


$

(21)



Noninterest expense


$

213


$

243


$

200


$

(30)


$

13



Earnings (loss)


$

(4)


$

55


$

45


$

(59)


$

(49)























In billions


















Residential mortgage servicing portfolio   Quarter end


$

114


$

114


$

120




$

(6)



Loan origination volume


$

1.9


$

2.5


$

4.2


$

(.6)


$

(2.3)







 

Residential Mortgage Banking recorded a loss for the first quarter of 2014 compared with earnings in the fourth and first quarters of 2013. Noninterest income for fourth quarter 2013 benefited from the release of reserves for residential mortgage repurchase obligations of $124 million largely attributable to fourth quarter settlements with FNMA and FHLMC compared with a benefit of $19 million in first quarter 2014. Additionally, noninterest income declined in both comparisons due to reduced loan sales revenue from lower origination volume and a net hedging loss compared with gains in the 2013 quarters on residential mortgage servicing rights. Noninterest expense decreased compared with the fourth quarter as a result of lower production expense on reduced origination volume, lower servicing costs and lower foreclosure expenses partially offset by higher legal accruals. In the comparison with first quarter 2013, higher legal accruals more than offset the same declines. Approximately 37 percent of first quarter 2014 loan origination volume was for home purchase transactions compared with 41 percent in the fourth quarter of 2013 and 19 percent for first quarter 2013.

 

Non-Strategic Assets Portfolio

Change


Change















1Q14 vs


1Q14 vs



In millions



1Q14



4Q13



1Q13


4Q13


1Q13



Net interest income


$

142


$

161


$

203


$

(19)


$

(61)



Noninterest income


$

6


$

6


$

16




$

(10)



Provision for credit losses (benefit)


$

(52)


$

(59)


$

42


$

7


$

(94)



Noninterest expense


$

26


$

39


$

52


$

(13)


$

(26)



Earnings


$

110


$

118


$

79


$

(8)


$

31






















In billions


















Average loans


$

9.6


$

10.0


$

11.3


$

(.4)


$

(1.7)







 

The Non-Strategic Assets Portfolio primarily consists of non-strategic assets obtained through acquisitions of other companies and includes a consumer portfolio of mainly residential mortgage and brokered home equity loans and lines of credit, and a small commercial/commercial real estate loan and lease portfolio. The business activity of this segment is to manage the wind-down of the portfolio, including portfolio management activities to reduce underperforming assets, while maximizing value and mitigating risk.

  • Net charge-offs were $31 million for the first quarter of 2014 compared with $9 million for the fourth quarter and $87 million for the first quarter of 2013. Lower commercial loan recoveries in the first quarter of 2014 contributed to the increase in net charge-offs compared with the fourth quarter. 

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, noncash charges for unamortized discounts related to redemptions of trust preferred securities, 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.

CONFERENCE CALL AND SUPPLEMENTAL FINANCIAL INFORMATION

PNC President and Chief Executive Officer William S. Demchak and Chief Financial Officer Robert Q. Reilly will hold a conference call for investors today at 10:00 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 (800) 272-5460 or (303) 223-2683 (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 2014 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 21710011 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 United States' 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




2014

2013

2013

Revenue


Net interest income


$

2,195

$

2,266

$

2,389


Noninterest income



1,582


1,807


1,566




Total revenue



3,777


4,073


3,955

Noninterest expense (c)



2,264


2,514


2,368

Pretax, pre-provision earnings (a)



1,513


1,559


1,587

Provision for credit losses



94


113


236












Income before income taxes and noncontrolling interests


$

1,419

$

1,446

$

1,351

Net income (b) (c)


$

1,060

$

1,074

$

995

Less:










Net income (loss) attributable to noncontrolling interests (c)



(2)


13


(8)



Preferred stock dividends and discount accretion











and redemptions



70


50


75

Net income attributable to common shareholders


$

992

$

1,011

$

928

Diluted earnings per common share


$

1.82

$

1.87

$

1.74

Cash dividends declared per common share


$

.44

$

.44

$

.40












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.



(c)

Prior period amounts have been updated to reflect first quarter 2014 adoption of Accounting Standards Update (ASU) 2014-01 related to low income housing tax credits.

 



TOTAL AND CORE NET INTEREST INCOME AND NET INTEREST MARGIN





Three months ended





March 31

December 31

March 31


Dollars in millions


2014


2013


2013


Net Interest Income



















Core net interest income (a)

$

2,032

$

2,075

$

2,140


Total purchase accounting accretion (a)









Scheduled accretion net of contractual interest


134


163


199



Excess cash recoveries


29


28


50




Total purchase accounting accretion


163


191


249


Total net interest income

$

2,195

$

2,266

$

2,389













Net Interest Margin



















Core net interest margin (b)


3.02

%

3.10

%

3.43

%

Purchase accounting accretion impact on net interest margin


.24


.28


.38


Net interest margin


3.26

%

3.38

%

3.81

%












(a)

We believe that core net interest income, a non-GAAP measure, 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. To calculate core net interest margin, net interest margin has been adjusted by annualized purchase accounting accretion divided by average interest-earning assets.

 

 



The PNC Financial Services Group, Inc.

Consolidated Financial Highlights (Unaudited)






















Three months ended






March 31


December 31


March 31







2014


2013


2013



PERFORMANCE RATIOS













Net interest margin (a)




3.26

%


3.38

%


3.81

%


Noninterest income to total revenue




42



44



40



Efficiency (b)




60



62



60



Return on:














Average common shareholders' equity




10.36



10.71



10.58




Average assets




1.35



1.36



1.33


















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













In millions





























Retail Banking (e)



$

158


$

107


$

120



Corporate & Institutional Banking




523



569



541



Asset Management Group (f)




37



36



43



Residential Mortgage Banking (g)




(4)



55



45



Non-Strategic Assets Portfolio




110



118



79



Other, including BlackRock (d) (h)      




236



189



167




Total net income



$

1,060


$

1,074


$

995



















(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, 2014, December 31, 2013 and March 31, 2013 were $46 million, $45 million and $40 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 2014 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 first quarter of 2014.

















(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 benefit/provision for residential mortgage repurchase obligations.

















(h)

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.

 

 



The PNC Financial Services Group, Inc.

Consolidated Financial Highlights (Unaudited)






















March 31


December 31


March 31




2014


2013



2013


BALANCE SHEET DATA











Dollars in millions, except per share data











Assets


$

323,423


$

320,192


$

300,718


Loans (a) (b)



198,242



195,613



186,504


Allowance for loan and lease losses (a)



3,530



3,609



3,828


Interest-earning deposits with banks (a)



14,877



12,135



1,541


Investment securities (a)



58,644



60,294



59,361


Loans held for sale (b)        



2,102



2,255



3,295


Goodwill and other intangible assets



11,189



11,290



10,996


Equity investments (a) (c)



10,337



10,560



10,914


Other assets (a) (b)



23,315



22,552



24,470













Noninterest-bearing deposits



70,063



70,306



64,652


Interest-bearing deposits



152,319



150,625



146,968


Total deposits



222,382



220,931



211,620


Transaction deposits



188,105



186,391



175,407


Borrowed funds (a)



46,806



46,105



37,647


Shareholders' equity



43,321



42,334



39,598


Common shareholders' equity



39,378



38,392



36,006


Accumulated other comprehensive income



656



436



767

















Book value per common share


$

73.73


$

72.07


$

68.10


Tangible book value per common share (Non-GAAP) (d)


$

56.33


$

54.57


$

50.30


Common shares outstanding (millions)



534



533



529


Loans to deposits



89

%


89

%


88

%
















CLIENT ASSETS (billions)











Discretionary assets under management


$

130


$

127


$

118


Nondiscretionary assets under administration



125



120



118


Total assets under administration



255



247



236


Brokerage account assets



41



41



39


Total client assets


$

296


$

288


$

275

















CAPITAL RATIOS












Transitional Basel III (e) (f) (g)













Common equity Tier 1 (h)



10.8

%


N/A

(i)


N/A




Tier 1 risk-based



12.5



N/A



N/A




Total capital risk-based



15.7



N/A



N/A




Leverage



11.1



N/A



N/A


















Pro forma Fully Phased-In Basel III (e) (g) (j)













Common equity Tier 1 (h)



9.7

%


9.4

%


8.0

%

















Common shareholders' equity to assets



12.2

%


12.0

%


12.0

%
















ASSET QUALITY











Nonperforming loans to total loans



1.49

%


1.58

%


1.83

%

Nonperforming assets to total loans, OREO and foreclosed assets



1.66



1.76



2.10


Nonperforming assets to total assets



1.02



1.08



1.31


Net charge-offs to average loans (for the three months ended) (annualized) (k)


.38



.39



.99


Allowance for loan and lease losses to total loans



1.78



1.84



2.05


Allowance for loan and lease losses to nonperforming loans (l)



120

%


117

%


112

%

Accruing loans past due 90 days or more (in millions)


$

1,310


$

1,491


$

1,906

















(a)


Amounts include consolidated variable interest entities. Our 2013 Form 10-K included, and our first quarter 2014 Form 10-Q will include, additional information regarding these Consolidated Balance Sheet line items.

(b)


Amounts include assets for which we have elected the fair value option. Our 2013 Form 10-K included, and our first quarter 2014 Form 10-Q will include, additional information regarding these Consolidated Balance Sheet line items.

(c)


Amounts include our equity interest in BlackRock.