PNC Financial Services Group (PNC)
Q4 2012 Earnings Call
January 17, 2013 10:00 am ET
Executives
William H. Callihan - Senior Vice President and Director of Investor Relations
James E. Rohr - Chairman, Chief Executive Officer and Member of Risk Committee
Richard J. Johnson - Chief Financial Officer and Executive Vice President
Analysts
John E. McDonald - Sanford C. Bernstein & Co., LLC., Research Division
Erika Penala - BofA Merrill Lynch, Research Division
Kenneth M. Usdin - Jefferies & Company, Inc., Research Division
Moshe Orenbuch - Crédit Suisse AG, Research Division
Michael Turner - Compass Point Research & Trading, LLC, Research Division
Michael Mayo - Credit Agricole Securities (USA) Inc., Research Division
Nancy A. Bush - NAB Research, LLC, Research Division
Matthew H. Burnell - Wells Fargo Securities, LLC, Research Division
Terence J. McEvoy - Oppenheimer & Co. Inc., Research Division
Gerard S. Cassidy - RBC Capital Markets, LLC, Research Division
Paul J. Miller - FBR Capital Markets & Co., Research Division
Betsy Graseck - Morgan Stanley, Research Division
Eric Edmund Wasserstrom - SunTrust Robinson Humphrey, Inc., Research Division
Presentation
Operator
Good morning. My name is Charlene, and I will be your conference operator today. At this time, I would like to welcome everyone to the PNC Financial Services Group Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I will now turn the call over to the Director of Investor Relations, Mr. Bill Callihan. Sir, please go ahead.
William H. Callihan
Thank you, and good morning, everyone. Welcome to today's conference call for the PNC Financial Services Group. Participating on this call are PNC's Chairman and Chief Executive Officer, Jim Rohr; and Rick Johnson, Executive Vice President and Chief Financial Officer.
Today's presentation contains forward-looking information. Actual results and future events could differ possibly materially from those anticipated in our statements and from our historical performance due to a variety of risks and other factors. Our forward-looking statements regarding PNC's performance assume a condition of the current economic environment and do not take into account the impact of potential legal and regulatory contingencies. Information about such factors, as well as GAAP reconciliations and other information on non-GAAP financial measures we discuss, is included in today's conference call, earnings release and related presentation materials and in our 10-K, 10-Qs and various other SEC filings and investor materials. These are all available on our corporate website, pnc.com, under the Investor Relations section. These statements speak only as of January 17, 2013, and PNC undertakes no obligation to update them.
And now I'd like to turn the call over to Jim Rohr.
James E. Rohr
Thank you, Bill. Good morning, everyone, and thank you for joining us. As we began 2012, we knew the year would provide our industry with some significant challenges. We were faced with slow economic growth and historically low interest rates, along with a dynamic regulatory environment.
I'm pleased, but certainly not entirely satisfied, as there were clearly some pluses and minuses in our year. On the plus side, 2012 provided PNC with some of the highest levels of customer growth we've ever seen, both through organic gains and economic acquisitions. We added customers across our businesses, creating opportunities to deepen relationships and further increase our revenue.
By increasing customers, we were able to grow loans and deposits. Full year loans increased $27 billion or 17%, and fourth quarter loan growth was $4 billion or 2%. Similarly, full year deposits grew by $25 billion or 13%, and fourth quarter deposits were up $6.8 billion or 3% on a linked-quarter basis.
Thirdly, we expanded our presence on the Southeast through the first quarter of 2012 with the successful acquisition and integration of RBC Bank (USA). With this transaction, we added nearly 1 million accounts and gained access to some of the fastest-growing markets in the U.S. Overall, credit metrics improved on a year-over-year basis, but clearly, those trends are slowing but continuing.
Our balance sheet remained highly liquid and core funded with an 87% loan-to-deposit ratio. Our Tier 1 common capital ratio was estimated to be 9.6% as of December 31, and our Basel III Tier 1 common ratio on a pro forma basis as of that date was estimated to be 7.3%. Of course, that's based on our current understandings of the Basel rules and other estimates. However, there were minuses as well, some of which were highlighted in our recent 8-K filing. Residential Mortgage repurchase provision, primarily related to the loans which were acquired from National City, totaled $760 million for the year that had a significant impact on revenue.
On the expense side, Residential Mortgage foreclosure-related expenses were $225 million for the year. We're pleased that we resolved the foreclosure look-back issue with our regulators. Other expense impacts of 2012 included nearly $300 million of noncash charges related to redeeming a total of $2.3 billion in trust preferred securities that had a weighted average rate of more than 8.3%. On the upside, redeeming these securities is lowering our funding costs. And full year integration costs, related to RBC primarily, were more than $260 million. On balance, this was a good year for PNC. But because of these minuses, especially those related to Residential Mortgage, our results did not fully reflect the investments we've made and the potential we believe PNC can create for our shareholders.
As we look forward to 2013, I should add that we expect no additional integration charges, substantially lower trust preferred securities redemption charges and mortgage -- lower, also, mortgage foreclosure-related compliance expenses. I also expect -- continue to expect modest economic growth at the sustained low interest rate environment. But in this environment, our goal is to continue to leverage the growth we've seen in customer relationships to increase revenue while also reducing expenses. And we'll get into that in some detail.
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