PNC Financial reported a nearly 13-percent increase in second-quarter earnings Wednesday, easily beating Wall Street expectations, as the regional bank set aside far less money to cover bad loans.
Pittsburgh-based PNC is the parent company of PNC Bank, which has 1,200 employees and 88 branches in the Indianapolis area.
Improving credit quality helped the company offset lower net interest income and lower revenue from overdraft fees.
PNC posted net income of $888 million, or $1.67 per share, for the three months ended June 30. That was up from $786 million, or $1.47 per share, in the same quarter a year ago.
Analysts surveyed by FirstCall had expected far lower earnings of $1.48 per share, on average, in the latest quarter.
The Pittsburgh bank said its provision for loan losses — money set aside to cover souring loans — dropped to $280 million, about one-third of the $823 million provision in the year-ago quarter. Further signs of improving credit included declines in nonperforming assets and net charge-offs, or loans written off as uncollectable.
Those improvements were partly offset by a nearly 12 percent decrease in net interest income, or money earned from deposits and loans, which fell to $2.15 billion. With short-term interest rates near zero, bank profits have been squeezed because the difference between what they pay depositors and what they make from investments and lending has narrowed.
And analysts with Jefferies & Co. said investors may be put off by weakness in corporate services and mortgage banking.
"Fees came in weaker-than-expected," said Ken Usdin, and company shares pointed lower before the market opened.
Noninterest income, or earnings from fees and charges, slipped 2 percent to $1.45 billion. PNC attributed that decline primarily to lower service charges on deposits resulting from new regulatory restrictions on overdraft fees.
Noninterest expenses rose nearly 9 percent to nearly $2.18 billion.
But the bank reported strong growth in new checking accounts among retail and small business customers, and a nearly 2 percent increase in customer deposits compared with a year ago.
PNC also said its board of directors recently declared a quarterly common stock cash dividend of 35 cents per share payable on August 5. The bank boosted the quarterly payout to 35 cents from 10 cents in April after federal regulators cleared the move. During the financial crisis, regulators forced many banks to suspend dividends in order to increase their capital cushions. The banks were barred from raising their dividends until they passed a fresh round of "stress tests" this year and received permission from federal regulators. PNC said in March that regulators had approved its capital plan, which included the dividend boost and the share repurchases.
Last month, PNC said it was buying the U.S. retail operations of Royal Bank of Canada for $3.45 billion. The transaction will bring PNC's total to 2,870 branches and make it the fifth biggest among U.S. banks.
PNC Financial Services Group Inc. offers retail banking, corporate and institutional banking, asset management, and residential mortgage banking, among other services.