PNC's Earnings Rise on Loan Growth -- 4th Update
July 14 2017 - 6:16PM
Dow Jones News
By Christina Rexrode and Imani Moise
PNC Financial Services Group Inc.'s second-quarter earnings and
revenue topped estimates, helped by higher interest rates and
growth in commercial lending.
"This is a pretty good quarter for us," William Demchak, PNC's
chairman and chief executive officer, said in a call with
analysts.
PNC's shares fell 0.1%, though other banks were down more,
including J.P. Morgan and Citigroup Inc. Shares of Wells Fargo
& Co., which also reported second-quarter results Friday,
slipped 1.1%.
Pittsburgh-based PNC said it continues to expect loans to be up
by mid-single digits for the full year. Analysts took that as an
encouraging sign, especially amid industrywide questions about
whether an election-fueled rally in bank stocks will translate into
more bank lending. PNC officials said Friday they expect continued
steady growth in U.S. gross domestic product.
The bank also announced it would expand corporate-lending
offices into new regions. In an interview, PNC's head of corporate
banking, Terry Begley, said businesses are creating "decent" growth
in loan demand but are concerned by uncertainty around health care,
taxes and other Washington debates. "They can live with different
government policies," Mr. Begley said, referring to corporate
customers, "but they want to know what it is."
Loans at the bank grew 4% from a year ago to $218 billion,
fueled mostly by commercial lending, where PNC focuses most of its
business. Part of that was due to the bank's purchase earlier this
year of a portfolio of construction, transportation and other
loans.
Overall, PNC reported earnings of $1.09 billion, or $2.10 per
share, up from $966 million, or $1.82 per share, in the
year-earlier quarter. Revenue jumped 7% to $4.06 billion. Analysts
polled by Thomson Reuters had forecast earnings of $2.02 per share
on revenue of $3.99 billion.
PNC is the first major regional bank to report results this
quarter. Its results came on the same day as those of bigger banks
including J.P. Morgan Chase & Co. and Citigroup Inc. Both of
those banks were hurt by weaker trading, a volatile business that
doesn't impact most of the regional banks.
PNC also benefited from the Federal Reserve's decision to raise
interest rates three times since December, which allows banks to
charge more on loans. PNC's net interest income grew 9% compared
with a year ago. Net interest margin, a key measure of lending
profitability, was also higher.
Instinet analyst Bill Carcache said PNC results "set a high bar"
for the regional banks that will report next week. But Terry
McEvoy, an analyst at Stephens Inc., noted that the
better-than-expected earnings were helped by a lower loan-loss
provision, "which typically [is] not rewarded by investors."
PNC also announced it would open middle-market offices in
Denver, Houston and Nashville next year. It recently expanded into
Dallas, Kansas City and Minneapolis as well.
But another part of Mr. Demchak's strategy is to focus more on
consumers. He acknowledged that the bank had historically
underinvested in consumer lending and noted new consumer products,
including a cash-reward credit card. "We have a lot of work to do,"
he said, "and it's going to take a while."
Still, that doesn't mean raising deposit rates for consumers any
time soon. Like most other banks, PNC has been r eluctant to pass
those higher rates along to deposit customers.
Mr. Demchak said he thinks "we're still a couple [Fed] moves
away" before banks have to notably increase deposit rates for
retail customers. And while some online lenders might be offering
much higher rates, he said they represent only a tiny percentage of
consumer deposits.
PNC previously experimented with higher promotional rates on
some deposit products, but pulled away from that strategy to focus,
it said, on customers who want a long-term relationship with the
bank.
Write to Christina Rexrode at christina.rexrode@wsj.com and
Imani Moise at imani.moise@wsj.com
(END) Dow Jones Newswires
July 14, 2017 18:01 ET (22:01 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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