TEXT - S&P says PNC Financial Services unaffected by Q4 results

Thu Jan 17, 2013 3:21pm EST

Jan 17 - Standard & Poor's Ratings Services today said its ratings on PNC Financial Services Group (A-/Stable/A-2) are not immediately affected by the company's fair fourth-quarter earnings, which were in line with our expectations. Standard & Poor's-adjusted revenues of $3.9 billion and adjusted pretax earnings of $862 million were 11% and 3% higher, respectively, than fourth-quarter 2011. Net interest income rose from the prior year because of the RBC (USA) acquisition, organic loan growth, and lower funding costs. Noninterest income was up across all categories, except residential mortgage, where an increase in reserves for mortgage putbacks (a contra-revenue item) dampened results because of more aggressive request activity from Fannie Mae and Freddie Mac. We expect revenues to increase modestly in 2013 as a result of the expanding loan book and strong corporate customer growth in the southeast U.S., though low interest rates will continue to pressure results. PNC has agreed to amend consent orders with regulators related to foreclosure abuses, which resulted in a $70 million charge for the period. It also took a $45 million goodwill impairment charge for its residential mortgage banking segment. Although costs associated with legacy acquired assets may not disappear, we expect a reduction in those costs, combined with cost efficiencies recently gained, to mean lower costs overall in 2013. Credit metrics continued to improve in the fourth quarter, with material declines in nonperforming loans, net charge-offs, and delinquencies, while reserve coverage to nonperforming loans rose. PNC said its estimated Basel III Tier 1 common ratio was 7.3% at the end of the period. We expect the company to continue to build capital in 2013 to meet its 8.0%-8.5% Basel III Tier 1 common goal by the end of the year. Overall, PNC's performance for the quarter was supportive of the current ratings. The rating outlook on PNC is stable, reflecting the company's relatively stable operating performance, which is within our expectations. We continue to monitor the risks associated with acquired assets, including legal and regulatory troubles, as well as its credit performance amid a sluggish economic recovery.

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