--U.S. Bancorp, PNC, and M&T report loan growth
--Shares of U.S. Bancorp and PNC down as net interest income
came in lower than expected
--U.S. Bancorp CFO: "We reached a point of stability"
By Matthias Rieker
Two of the nation's largest regional banks reported Wednesday
that they increased lending the second quarter but generated less
revenue from the loans and investing because interest rates remain
low.
U.S. Bancorp's (USB) second-quarter net income rose 4.9% from a
year earlier to $1.48 billion, while PNC Financial Services Group
Inc.'s (PNC) net income more than doubled to $1.12 billion.
U.S. Bancorp's per-share earnings of 76 cents met the average
analyst estimate tracked by Thomson Reuters. PNC's per-share
earnings of $1.99 beat the average analyst estimate of $1.63, in
part because its provision for loan losses fell.
But shares of both companies dropped and analysts said the two
banks' net interest income--the revenue from lending and
investing--came in lower than expected. Lending and investing
generates the bulk of most regional banks' earnings.
Shares of U.S. Bancorp, up almost 15% so far this year, fell
1.6%, to $36.67 in a rising market for bank stocks. PNC's shares,
up 27% this year, fell 0.5%, to $74.11.
The interest-rate issue illustrates the challenges regional
banks are facing. Businesses are borrowing, but interest rates that
banks charge on loans remain low because they are tied to low
short-term rates. Rising long-term interest rates, meanwhile, choke
loan originations from homeowners who refinance mortgages.
"I do think we reached a point of stability" in net interest
income and net interest margins, U.S. Bancorp's Chief Financial
Officer Andrew Cecere said in an interview.
Mr. Cecere said he expects net interest income to improve
"modestly" from here on as loan growth continues and net interest
margins stabilize.
The Minneapolis bank expects to be able to invest securities at
better terms because long-term interest rates have been rising
since June. Loan yields aren't expected to improve, but have been
largely stable, Mr. Cecere said.
Net interest income at U.S. Bancorp fell 1.5% in the
second-quarter from a year earlier and 1.4% from the first quarter,
to $2.7 billion, while the bank's total revenue fell 2.4% from a
year earlier, but rose 1.5% from the first quarter, to $4.9
billion.
Citigroup Global Markets analyst Keith Horowitz said in a
research note that U.S. Bancorp's revenue was lower than he
expected because of a roughly $50 million shortfall in net interest
income.
PNC, however, wasn't as optimistic. "We expect net interest
income to be modestly down" in the current quarter, said Chief
Financial Officer Richard Johnson. He blamed in part "the
continuing impact of lower loan yields."
At PNC, net interest income fell 11% from a year earlier and 5%
from the first quarter, to $2.3 billion, though its total revenue
rose 12% from a year earlier and 3% from the first quarter, to $4.1
billion.
"This was a very solid quarter for the company," Sandler O'Neill
+ Partners LP analyst R. Scott Siefers wrote. "Having said that,
[net interest income] and the [net interest margin], both of which
are receiving major investor attention right now, came in below our
expectations."
M&T Bank Corp (MTB) did better, thanks to its acquisition of
Wilmington Trust two years ago, because it holds fewer investment
securities, such as bonds, than other banks. The Buffalo, N.Y.,
bank's second-quarter net income rose 49% to $348.5 million. Its
per-share earnings of $2.65 included 38 cents of one-time gains but
even excluding those gains beat the average analyst estimates of
$2.10, as tracked by Thomson Reuters.
The bank's net interest income rose 4.5% from a year earlier and
3.2% from the first quarter, to $677.6 million, and total revenue
rose 14% from a year and 8.9% from the first quarter, to $1.2
billion.
M&T's shares, up almost 20% so far this year, fell 0.1%, to
$117.46.
Loan growth, particularly among businesses, remained strong at
all three banks. U.S. Bancorp said its total loans rose 5.2% from a
year earlier and 1.2% from the first quarter to $225.2 billion. At
PNC, loans rose 5% from a year earlier and 2% from the first
quarter to $189.8 billion.
M&T's loans grew 5% from a year earlier to $66 billion, but
remained virtually flat from the first quarter. "The economies in
our footprint are turning around," Chief Financial Officer Rene
Jones said in an interview. "Properties that were once deemed in
trouble are now getting refinanced."
In other financial-sector earnings news, Bank of New York Mellon
Corp.'s (BK) second-quarter earnings rose 81% with the help of an
equity investment gain, while the trust bank's fee revenue
improved.
Bank of New York Mellon reported a profit of $845 million, up
from $466 million a year earlier. Per-share earnings, which reflect
preferred dividends, rose to 71 cents from 39 cents. The
most-recent quarter included a nine-cent-a-share gain from an
equity investment.
Revenue rose 11% to $4.1 billion and total fee revenue jumped
14% to $3.16 billion.
Analysts polled by Thomson Reuters had most recently forecast
per-share earnings of 57 cents on revenue of $3.7 billion.
--Liz Moyer and Melodie Warner contributed to this report.
Write to Matthias Rieker at matthias.rieker@dowjones.com
Order free Annual Report for Hudson City Bancorp, Inc.
Visit http://djnweurope.ar.wilink.com/?ticker=US4436831071 or
call +44 (0)208 391 6028
Order free Annual Report for M&T Bank Corp.
Visit http://djnweurope.ar.wilink.com/?ticker=US55261F1049 or
call +44 (0)208 391 6028
Order free Annual Report for The PNC Financial Services Group,
Inc.
Visit http://djnweurope.ar.wilink.com/?ticker=US6934751057 or
call +44 (0)208 391 6028
Order free Annual Report for U.S. Bancorp
Visit http://djnweurope.ar.wilink.com/?ticker=US9029733048 or
call +44 (0)208 391 6028