By Allison Prang
Profit climbed at PNC Financial Services Group Inc. in the latest quarter, but the bank's shares fell Friday as it reported disappointing loan growth and underwhelmed Wall Street with its loan guidance for the fourth quarter.
Average loans were $223.3 billion, up 1.9% from the comparable quarter a year ago. Compared with the second quarter, average loans rose 0.3%. The company said it expects loans to rise modestly in its fourth quarter.
PNC Chief Executive Bill Demchak said on the company's earnings call Friday that loans to corporate customers "came in below our own expectations."
"The higher payoffs and paydowns appear to be driven by competition from nonbank lenders, excess corporate cash and attractive opportunities for our clients in the bond markets," Mr. Demchak said.
PNC shares fell 5.9% midday Friday, bringing the stock's decline in 2018 to 14%. Shares of other regional banks also declined with the KBW Nasdaq Regional Banking Index declining 3.1%.
Loan growth for banks was expected to be slow in the third quarter. In an analyst note last month, Sandler O'Neill principal Scott Siefers said that he thought PNC was "on firmer footing than many other large regionals," but said any update PNC was going to give on loans would "be just as significant as 3Q results." Mr. Siefers was expecting average loans to grow 1% from the second quarter, according to his note.
BMO Capital Markets analyst Lana Chan said in a note Friday that the company's guidance on loan growth for the fourth quarter was "slightly weaker" than what analysts were expecting. Ms. Chan added that loan payoffs could also be a headwind for other regional banks.
PNC, based in Pittsburgh, is the first large regional bank to report earnings.
Despite the low loan growth, Mr. Demchak told analysts on the call that the company's "actual production and new clients were pretty good."
"As we talk to companies, they are really bullish and they are investing, " Mr. Demchak also said, adding that capital expenditure spending was rising. "You would think it would follow through in loan growth."
The company reported earnings of $1.39 billion, up 25% from the comparable quarter a year ago. Earnings per share were $2.82, compared with $2.16 a year earlier. Profit rose across all of firm's segments.
Revenue rose 5.6% to $4.36 billion as both net interest and noninterest income climbed. The company's net interest margin -- a key measure of lending profitability -- also grew to 2.99%.
PNC set aside $88 million for its credit-loss provision, down 32% from the comparable quarter a year ago. The company said the provision was mainly tied to auto and credit card loans.
The company also said it is expecting net interest income, fee income and noninterest expenses to rise in the low single digits in the fourth quarter. It expects its loan-loss provision to be between $100 million and $150 million.
Write to Allison Prang at email@example.com