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Loan growth, interest rates push PNC Financial's revenue higher

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Loan growth, interest rates push PNC Financial's revenue higher

Net interest income growth pushed PNC Financial Services Group Inc.'s third-quarter revenue higher, executives said on an Oct. 13 call.

Net interest income grew $87 million from the second quarter and $250 million from a year ago. Executives attributed the increase to solid loan growth, combined with higher interest rates and continued low deposit betas. Net interest margin increased to 2.91%, up 7 basis points from the prior quarter.

"We continue to experience solid loan growth driven by our commercial lending business and we saw some growth on the consumer side as well," Chairman, President and CEO William Demchak said. "Within the commercial business, we're growing loans and adding clients around the diversified product offering and we're capitalizing on opportunities that are under-penetrated in newer markets."

Total loans grew to $221.1 billion, up from $218.0 billion in the second quarter and $210.4 billion a year ago. Total deposits increased to $260.74 billion, compared to $259.18 billion in the second quarter and $259.90 billion a year ago.

Analysts on the call pointed out that the company's loan to deposit ratio, at 85%, leaves PNC with ample liquidity.

"Look, in a perfect world, we would use more of our liquidity for loan growth, if it fits within our credit capacity," Demchak said. "We continue to grow but not at the pace that we're generating liquidity."

Demchak also said the loan to deposit ratio is in some ways a byproduct of the liquidity coverage ratio. "As we see rates go up and other people move toward compliance at the same time the Fed is taking cash out, we are starting to see at the margin pretty competitive pricing on the retail side," he said. "We haven't had to react to that yet. We'll continue to watch and see if we do."

The company's provision for credit losses, at $130.0 million, spiked from the previous quarter's $98.0 million and from $87.0 million a year ago. PNC attributed part of the increase to higher early-stage consumer delinquencies and hurricane-affected states.

"The increase included $10 million related to hurricanes Harvey and Irma," said Robert Reilly, executive vice president and CFO. "It also reflected loan growth and seasonal credit performance within the consumer loan categories."

Fee growth was weaker during the quarter, partially contributing to a $22 million decrease in noninterest income, compared to the second quarter. Corporate service fees decreased $63 million from the prior quarter, and $18 million from the year-ago period. Demchak said the decrease was "largely expected given that we had a record second quarter."

Noninterest expenses decreased by $23 million from the linked quarter, but were up $62 million year over year. Reilly said the increase reflects investments in technology and business initiatives.

During the fourth quarter, Reilly said he expects net interest income, fee income and expenses to each be in the low single digits. He also said the company is projecting its provision for credit losses to be between $100 million and $150 million.

Net income attributable to diluted common shares rose to $1.04 billion, or $2.16 per share, from net income of $913.0 million, or $1.84 per share, in the third quarter of the prior year. The S&P Capital IQ consensus estimate for normalized EPS for the third quarter was $2.13.