Regional Lenders Lean on Fees to Fuel Revenue Growth

By Allison Prang

Two of the country's biggest regional lenders posted profit and revenue for the third quarter that were higher than expected, as higher fee income offset slower revenue growth from lending.

Total revenue at U.S. Bancorp, based in Minneapolis, rose by almost 4%, but the increase was largely from higher noninterest income, or businesses that bring in fees and aren't as sensitive to interest rates. Mortgage banking, merchant-processing fees and credit- and debit-card revenue helped drive fee income up 8% from a year earlier.

Net interest income, or the money the bank rakes in from lending after it pays out interest to customers, rose less than 1%.

Revenue at Pittsburgh-based PNC Financial Services Group Inc. rose just over 3%, largely from an increase in noninterest income. Residential mortgage and consumer services were among the areas that helped push noninterest income up 5% from a year earlier.

Net interest income rose around 1.5%.

Lower interest-rate environments pressure banks' earnings because the lower they are, the less banks can charge customers for certain loans. The Federal Reserve has already cut rates twice this year.

U.S. Bank's profit was $1.91 billion, up a little more than 5%. At PNC, profit fell less than 1% from a year earlier to $1.38 billion, hurt by higher income taxes.

The net interest margins at both PNC and U.S. Bank declined from a year earlier and the second quarter this year. Banks' net interest margins are an important measure of their profitability because they measure the difference between the interest they charge versus the interest they pay.

Average loan growth at U.S. Bank climbed 4% from a year earlier as commercial lending increased while residential-mortgage lending rose almost 11% year over year. PNC's average loans rose over 6%, driven in large part by higher commercial lending.

(END) Dow Jones Newswires

October 16, 2019 09:54 ET (13:54 GMT)

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