PNC Financial Services Earnings Call Insights: Loan Growth Figures and Flat Core Expenses

PNC Financial Services Group Inc (NYSE:PNC) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Loan Growth Figures

John McDonald – Sanford Bernstein: I was wondering on the loan growth number for the quarter, the $4 billion. Did you see some acceleration later in the quarter, and also in the commercial side, any improvement in the utilization there?

Richard J. Johnson – CFO: Yeah. No improvement in utilization, John, but what we did see is certainly a lot of growth towards the tail end of the quarter, and you can see that because the average didn’t go up as much. So we should see a pretty good lift in the average loans going into the first quarter.

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John McDonald – Sanford Bernstein: Any other color sector or areas that were driving that improvement?

James E. Rohr – Chairman and CEO: I think the sectors that Rick mentioned and I had mentioned with asset based lending and in the healthcare businesses and somewhat in the energy space.

Richard J. Johnson – CFO: Couple of finance and little bit of real estate as well, across the board.

John McDonald – Sanford Bernstein: Rick, I don’t know if you mentioned this on the mortgage put backs with the additional provisioning you did this quarter, what kind of expectations you have for that going forward. You have to just add for new originations, how are you thinking about that?

Richard J. Johnson – CFO: That’s my plan John for new originations.

John McDonald – Sanford Bernstein: And how are you guys thinking, I see the slide about the capital and obviously, it’s the year about building capital. With that mindset, how are you going into thinking about the CCAR? Do you want to increase the dividend a little bit, what are your hopes for this year and then as you look our further next year, how should we think about your philosophy on capital return?

James E. Rohr – Chairman and CEO: Well, we submitted our CCAR and we’re hopeful, we’ll be able to return some additional capital to the shareholders this year, but we don’t expect to buyback because this is a capital building year for us because the cash we spent last year buying RBC. But we fully expect to be in the range of our goal for Basel III by the end of the year.

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Flat Core Expenses

Erika Penala – Bank of America-Merrill Lynch: My first question is just, clarity on the expense side. I just wanted to make sure that I got the message that you were conveying. So, if we take your guidance for the first quarter, are we taking this $300 million off of the GAAP number of (2.8, 2.9) and if so, is the message here that this year you’re going to keep the core expense flat to that quarterly run rate of ($2.529 billion) and to Jim’s comments if the revenue outlook falls short, you could dial that back?

Richard J. Johnson – CFO: You hit it perfectly.

James E. Rohr – Chairman and CEO: Exactly right.

Erika Penala – Bank of America-Merrill Lynch: On your guidance for core NII growth, if you look back over time except for one blip, one quarter, your core margin is actually quite stable over the past five quarters, varying from the low (3.4s) to the high 3.3 level. I guess, Rick, is the main message there you can continue to keep the core margin relatively stable and if so, could you give us sort of a sense of what’s happening on both side of the balance sheet to keep it that way in this rate environment?

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Richard J. Johnson – CFO: Yeah, Erika, I would never give you guidance on the NIM. I don’t think we can give you guidance on the NIM given the change in the mix of the book and what might happen. What’s important to us is the fact that we are growing loans and we’ll continue to grow loans and I think to the extent there is compression on the yields in the industry, we’ll try to offset that to the best we can with loan growth and as a result, that’s why we feel core net interest income will continue to go up. Although what happens with the calculation to NIM is going to be subject to the mix.

Erika Penala – Bank of America-Merrill Lynch: Just to follow up on that, on Slide 4 of your presentation, you showed us your new primary client growth. That was pretty significant in 2011. Is the main message there we’re going to sort of see that come through on the revenue side either on the fees and on the loan growth side in 2013?

James E. Rohr – Chairman and CEO: I guess that you’re exactly right again. In this environment, as we said, about a year, in this kind of environment we can’t drive up economic growth, we can’t drive up interest rates. Unfortunately, we’d like to do both. But given that they are both where they are, I think the answer is, you grow clients, you deepen your relationship with clients and you manage your expenses down. I think if you look at 2012, 2012 was a year where we grew clients significantly. We had a very, very successful integration and we obviously had charges on the mortgage side. Going into this year, we fully expect that we are going to be able to continue to drive more revenue from those customers and from new customers and take the expense down and we don’t expect the mortgage charges to reoccur the way they were in 2012. So that’s exactly what we are going to do for this year.

A Closer Look: PNC Financial Earnings Cheat Sheet>>