(Updates with stock price in the fifth paragraph, mortgage job cuts in eighth.)
Oct. 16 (Bloomberg) -- PNC Financial Services Group Inc., the second-biggest U.S. regional bank, posted a profit that beat analysts’ estimates as the lender cut expenses and set aside less money for bad loans.
Third-quarter net income rose 9.7 percent to $1 billion, or $1.79 a share, from $939 million, or $1.64, a year earlier, the Pittsburgh-based bank said today in a statement. The average estimate of 31 analysts surveyed by Bloomberg was $1.62.
“Even in the face of an environment that is challenging the entire industry, our businesses are successfully growing loans, and we are leveraging our high-quality balance sheet to drive revenue,” Chief Executive Officer Bill Demchak said in the statement.
Demchak, 51, said in September that revenue increases won’t come easily and he expects expenses to drop 5 percent this year. The bank is starting to see the benefits of its expansion into the U.S. Southeast with the 2012 purchase of RBC Bank USA and is focusing on fee-income businesses including wealth, he said last month.
PNC rose 1.9 percent to $73.89 at 12:06 p.m. in New York. The shares have increased 27 percent this year, compared with the 26 percent gain for the KBW Bank Index of 24 U.S. lenders.
Noninterest expense declined 8.5 percent to $2.42 billion in the third quarter from a year earlier, the bank said today. Revenue dropped 4.1 percent to $3.92 billion, fueled by a 27 percent decrease in fees from residential mortgage banking, which fell to $193 million. Net gains on sales of securities narrowed 48 percent to $21 million.
The bank set aside $137 million for soured loans, a 40 percent slide from the previous year.
PNC cut at least 7 percent of its residential mortgage business workforce this month, Chief Financial Officer Robert Q. Reilly said today on a conference call. The reductions will save the bank about $24 million a year, he said.
“We recognize that controlling expenses will continue to be critical to success in this low interest rate environment,” Reilly said.
Banks suffered declines in mortgage-banking revenue amid a jump in the benchmark 10-year Treasury yield, which rose in the third quarter to the highest since 2011, curbing borrower refinancings. JPMorgan Chase & Co., the biggest U.S. bank, said last week that mortgage fees and related revenue plunged 65 percent to $839 million. Wells Fargo & Co., the largest home lender, said mortgage-banking revenue tumbled 43 percent.
PNC said there will be “modest growth” in loans in the fourth quarter compared with the previous three months, according to a presentation. Net interest income will drop “modestly” and fee income will continue to expand, according to the presentation. The bank said it will set aside $150 million to $225 million for soured loans in the fourth quarter.
Demchak has said he plans to redefine retail banking by finding a balance between branch and mobile services. The lender reduced tellers by about 600 in the six months through Sept. 9, deploying some employees to other positions, he said then. The company will close almost 200 branches this year and open others in the Southeast where necessary, Demchak said.
“Given the changes in the operating environment, banking in the future has got to be very different from banking in the past,” Demchak said in September.
--Editors: Peter Eichenbaum, Rick Green