PNC Bank 2015 Annual Report Download - page 110

2014 V ERSUS 2013
Consolidated Income Statement Review
Summary Results
Net income for 2014 of $4.2 billion, or $7.30 per diluted
common share, was stable compared with 2013 results of $4.2
billion, or $7.36 per diluted common share. A decrease in
revenue of 4% mainly due to lower yields on loans and
investment securities was mostly offset by a reduction in
provision for credit losses and a 2% decline in noninterest
expense.
Net Interest Income
Net interest income was $8.5 billion in 2014 and decreased by
$622 million, or 7%, compared with 2013 reflecting the
ongoing low rate environment. Lower yields on loans and
investment securities, a decline in investment securities
balances and a reduction in purchase accounting accretion
were partially offset by commercial and commercial real
estate loan growth. Lower net interest income also included
the impact from the second quarter 2014 correction to
reclassify certain commercial facility fees from net interest
income to noninterest income.
Net interest margin was 3.08% in 2014 and 3.57% in 2013.
The decrease in the comparison was driven by a 50 basis point
decline in the yield on total interest-earning assets, which
included the impact of lower purchase accounting accretion,
continued spread compression, and repricing of new and
existing loans and securities in the ongoing low rate
environment. The decline also included the impact of the
second quarter 2014 correction to reclassify certain
commercial facility fees and the impact of higher interest-
earning deposits maintained with the Federal Reserve Bank.
Noninterest Income
Noninterest income was $6.9 billion for 2014 and 2013, as
strong overall client fee income was offset by lower
residential mortgage revenue, declines in asset valuations and
reduced sales of securities. Noninterest income as a
percentage of total revenue was 45% for 2014, up from 43%
for 2013.
Asset management revenue increased $171 million, or 13%, in
2014 to $1.5 billion, compared to 2013, driven by increased
earnings from our BlackRock investment, as well as stronger
average equity markets and positive net flows, after
adjustments for cyclical client activities. Discretionary client
assets under management in the Asset Management Group
increased to $135 billion at December 31, 2014 compared
with $127 billion at December 31, 2013.
Consumer service fees were $1.3 billion for 2014 and 2013, as
higher consumer service fees in Retail Banking were offset by
lower revenue from previously discontinued insurance
programs, as well as the termination of our debit card rewards
program in the fourth quarter of 2013, which resulted in a
prior year benefit and consequently diluted the year-over-year
growth comparison.
Corporate service fees increased to $1.4 billion in 2014
compared to $1.2 billion in 2013, driven by higher merger and
acquisition advisory fees from a record year for our mergers
and acquisition advisory firm, Harris Williams, and the impact
of the second quarter 2014 correction to reclassify certain
commercial facility fees from net interest income to
noninterest income. These increases were partially offset by
lower net commercial mortgage servicing rights valuation
gains.
Residential mortgage revenue decreased to $618 million in
2014 from $871 million in 2013, primarily due to lower loan
sales revenue from a reduction in origination volume and
significantly lower net hedging gains on residential mortgage
servicing rights, partially offset by higher loan servicing fee
revenue and the impact of second quarter 2014 gains on sales
of previously underperforming portfolio loans.
Lower residential mortgage revenue in the comparison also
reflected the impact of the 2013 net benefit from release of
reserves for residential mortgage repurchase obligations, as
the impact to 2014 was not significant. This net release of
reserves in 2013 was largely the result of agreements with
FHLMC and FNMA for loans sold into agency securitizations.
Service charges on deposits increased to $662 million in 2014
compared to $597 million in 2013, benefitting from changes
in product offerings and higher customer-related activity.
Other noninterest income decreased to $1.4 billion in 2014
compared to $1.5 billion in 2013. The decline was driven by a
reduction in asset valuations, lower revenue associated with
private equity investments, decreased revenue due to the lower
market value of investments related to deferred compensation
obligations, and lower revenue associated with customer-
related derivative activities, including credit valuations, which
were primarily driven by market interest rate changes
impacting the valuations. These decreases were partially offset
by higher gains on sales of other assets.
Higher gains on sales of other assets in 2014 included the sale
of PNC’s Washington, D.C. regional headquarters building, as
well as increased gains on sales of Visa Class B Common
shares, which were $209 million on sales of 3.5 million shares
in 2014 compared to $168 million on the sale of 4 million
shares in 2013. As of December 31, 2014, we held
approximately 7 million Visa Class B common shares with a
fair value of approximately $742 million and a recorded
investment of approximately $77 million.
92 The PNC Financial Services Group, Inc. – Form 10-K