PNC Profit Beats Estimates on Gains in Asset Management

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PNC Financial Services Group Inc., the second-largest U.S. regional bank, reported profit that beat analysts’ estimates as gains in fee-generating businesses helped counter lower lending margins.

Second-quarter net income was $1.04 billion, or $1.88 a share, little changed from $1.05 billion, or $1.85, a year earlier, the Pittsburgh-based bank said Wednesday in a statement. The average estimate of 28 analysts surveyed by Bloomberg was $1.76 a share. Larger rival U.S. Bancorp posted profit Wednesday that matched analysts’ estimates as expenses declined.

Regional banks including PNC and U.S. Bancorp are relying on fee-generating businesses such as asset management and seeking to cut costs as record-low interest rates squeeze lending margins. PNC’s net interest margin, the difference between what it pays for deposits and charges for loans, fell to 2.73 percent in the quarter, while U.S. Bancorp’s NIM slid to 3.03 percent.

“We grew fee income on higher client activity, made positive progress on our strategic priorities and managed our expenses well despite low interest rates,” PNC Chief Executive Officer Bill Demchak said in the statement.

Regional banks are waiting for the Federal Reserve to raise benchmark interest rates for the first time since 2006, which could help improve lending margins. Federal Reserve Chair Janet Yellen has said a rise in interest rates is likely this year amid improving prospects for labor markets and the economy.

Loans Increase

PNC’s total loans increased by 2 percent to $205.1 billion from a year earlier, driven by gains in commercial lending, while earnings from residential mortgages declined. Total revenue climbed 1.5 percent to $3.87 billion.

The bank, which is seeking to reduce expenses by $400 million this year, said total costs rose by 1.6 percent to $2.37 billion from a year earlier, reflecting “higher variable compensation costs associated with higher business activity.”

“Expenses are a hot topic,” said Terry McEvoy, an analyst at Stephens Inc. “They will need to continue to invest those savings in the business to get the infrastructure and the bank in a position to grow.”

Noninterest income gained 7.9 percent to $1.81 billion, fueled by a rise in fees from asset management, corporate services and gains on securities held by PNC. Increases in asset management revenue were partly tied to a $30 million trust settlement in the quarter.

U.S. Bancorp

U.S. Bancorp, the largest regional bank, said in a statement that second-quarter net income was $1.48 billion, or 80 cents a share, little changed from $1.5 billion, or 78 cents, a year earlier.

Total average loans at the Minneapolis-based bank climbed by 4 percent, driven by an acceleration in commercial lending. An increase in profit from wealth management and the firm’s treasury business helped counter a decline in payment services and consumer and small business earnings. Noninterest expenses fell 2.6 percent to $2.7 billion from a year earlier.

“As we navigate through these uncertain economic times, we will continue to take appropriate and effective actions, including expense controls,” U.S. Bancorp CEO Richard Davis said in the statement.

PNC shares climbed 6.9 percent this year through Tuesday, compared with U.S. Bancorp’s 2.4 percent decline.

Bank of America Corp., the second-biggest U.S. lender by assets, said Wednesday that profit more than doubled to $5.32 billion in the second quarter as expenses fell to the lowest since 2008. JPMorgan Chase & Co., the biggest U.S. lender, said Tuesday that profit climbed 5.2 percent to $6.29 billion as the firm cut costs to compensate for falling revenue in its retail and investment bank businesses.