By Julie Steinberg
Persistently low interest rates once again stunted the
profitability of two well-known regional lenders, with the firms on
Wednesday lamenting their continued drain on prospects.
Executives at U.S. Bancorp and PNC Financial Services Group Inc.
said low rates have caused key profitability metrics to suffer, and
cautioned those results may not improve until rates start to rise.
The Federal Reserve last month signaled it would consider raising
short-term rates at its June 16-17 meeting, though it is expected
to proceed cautiously.
In the meantime, regional banks are watching their net interest
margins continue to decline. Net interest margin measures how much
a bank earns from the difference between what it pays out on
deposits and what it gets on loans and investments. Low interest
rates have pressured that measurement.
At U.S. Bancorp, net interest margin edged down to 3.08% from
3.35% a year earlier, while at PNC, it fell to 2.82% from 3.26% a
year earlier.
"We are likely to see interest rates rise later and slower than
previously anticipated, which if correct, will have an impact on
our net interest income for the remainder of the year," PNC
Chairman and Chief Executive William Demchak said on a call with
analysts on Wednesday.
U.S. Bancorp executives on their own call with analysts
discussed the interest-margin compression at length, and signaled
they expected it to continue into the second quarter.
Chairman and Chief Executive Richard Davis said he expects rates
to rise this year and that when they do, "so many things...will
start to improve."
Like other regional banks, PNC has embarked on cost-cutting
initiatives in order to blunt the effects of interest-related
declines. Chief Financial Officer Robert Reilly on Wednesday said
the bank is confident it will meet its previously-announced cost
savings target of $400 million in 2015, and it has already
completed actions to achieve more than 30% of that goal.
"We're going to turn up the heat on expenses starting last week,
and we'll see where we get to," Mr. Demchak said Wednesday. The
bank however isn't changing its guidance on its expense management,
he said.
Revenue at PNC fell 1.2% in the first quarter. Earnings beat
Wall Street estimates, though revenue came in slightly below
expectations, sending the stock down 1.52% on the day.
The bank posted earnings of $1 billion, down from $1.06 billion
a year ago. On a per-share basis, earnings fell to $1.75 from $1.82
a share. Revenue at the Pittsburgh-based bank fell to $3.73 billion
from $3.78 billion.
Analysts had expected $1.72 a share in earnings, according to
Thomson Reuters.
U.S. Bancorp said its profit grew 2.4% in the most recent
quarter. Earnings met Wall Street estimates, while revenue came in
slightly below.
The bank posted earnings of $1.43 billion, up from $1.4 billion
in the prior-year period. On a per-share basis, earnings rose to 76
cents from 73 cents a year ago. Revenue at the Minneapolis-based
bank rose 1.9% to $4.91 billion.
Analysts had expected 76 cents a share in earnings, according to
Thomson Reuters. The stock ended down 0.23%.
Stephanie Yang contributed to this article.
Write to Julie Steinberg at julie.steinberg@wsj.com
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