PNC Second-Quarter Profit Doubles as Fee Revenue Increases

PNC Financial Services Group Inc., the second-largest U.S. regional bank, said profit more than doubled, beating analysts’ estimates, as fee revenue surged and the firm set aside less for bad loans.

Second-quarter net income climbed to $1.12 billion, or $1.99 a share, from $546 million, or 98 cents, a year earlier, the Pittsburgh-based bank said today in a statement. The average estimate of 31 analysts surveyed by Bloomberg was for earnings $1.63 a share.

PNC, led by Chief Executive Officer Bill Demchak since April, has focused on boosting fee revenue by adding clients in its asset-management business and providing more services to customers acquired through last year’s acquisition of RBC Bank USA. Non-interest income jumped 65 percent to $1.81 billion in the second quarter from a year earlier.

“The shift of our revenue mix toward fee income is becoming visible,” Demchak, 50, said today on a conference call following results.

PNC fell 0.7 percent to $73.95 at 12:32 p.m. in New York. The shares gained 28 percent this year through yesterday, outpacing the 25 percent advance of the 24-company KBW Bank Index.

Fees from PNC’s asset-management unit climbed 22 percent to $340 million from a year earlier. Corporate services revenue jumped 12 percent to $326 million and consumer services rose 8 percent to $314 million.

Mortgage Revenue

Net interest income declined 11 percent to $2.26 billion on lower yields from loans and securities, PNC said in the statement. Net interest income could fall “modestly” in the third quarter, the company said today in a slide presentation.

PNC’s net interest margin narrowed to 3.58 percent from 3.81 percent in the first quarter. That margin, which measures the difference between what a bank pays on deposits and charges for loans, may continue to decline, the firm said.

“Weaker net interest margin/net interest income may temper the market’s enthusiasm for the quarter a bit,” analysts led by R. Scott Siefers at Sandler O’Neill & Partners LP said today in a note.

The bank set aside $157 million for soured loans in the second quarter, or 39 percent less than a year earlier.

Revenue from residential mortgage banking fell 9 percent to $240 million in the second quarter. PNC’s provision for residential mortgage repurchase obligations fell to $73 million from $438 million a year earlier.

Home Prices

U.S. home prices have been rising at the fastest pace since 2006. Still, bank executives have warned that higher interest rates will temper profits as demand for mortgage refinancing abates. The average rate for a 30-year fixed mortgage climbed to 4.51 percent this month from a near-record low of 3.35 percent in May.

JPMorgan Chase & Co. CEO Jamie Dimon, who runs the biggest U.S. bank, said last week that higher rates could lead to a “dramatic reduction” in profits for the New York-based lender’s mortgage business. Wells Fargo & Co. CEO John Stumpf said last week refinance volume will drop “significantly” if rates stay elevated.

JPMorgan posted second-quarter profit last week that jumped 31 percent to $6.5 billion as revenue from trading and investment banking outweighed a drop in consumer and community banking. Profit at Wells Fargo, the largest U.S. home lender, rose 19 percent to $5.52 billion as the San Francisco-based bank trimmed expenses.

Before it's here, it's on the Bloomberg Terminal.