Slowly but surely we are coming out of it.
US regional bank results improve; most shares up
* PNC, Fifth Third, KeyCorp earnings beat Street
* BB&T profit higher; SunTrust loss narrows
* Huntington swings to profit from year-earlier loss
* Credit losses, funding costs dropping
* Loan demand soft but improving for some (Adds analyst, executive comments)
By Joe Rauch
CHARLOTTE, N.C., July 22 (Reuters) - U.S. regional banks, including SunTrust Banks Inc (STI.N) and PNC Financial Services Group Inc (PNC.N), reported improved quarterly results and said credit losses and funding costs are dropping, triggering hopes that banks are stabilizing after years of pain.
Shares of SunTrust, PNC, KeyCorp (KEY.N), Fifth Third Bancorp (FITB.O) and Huntington Bancshares Inc (HBAN.O) rose strongly after the banks reported quarterly results.
BB&T Corp (BBT.N) shares were lower after the bank came in with higher profit but fell short of expectations.
Regional banks are setting aside less money to cover bad loans, and some are seeing loan losses ebb. Meanwhile, their funding costs are dropping as depositors grow willing to accept lower rates on their money.
"Margins will remain pressured, but as sure as there is rain in October, we will see an improving environment for lending too, sometime in late 2010 or 2011," said Gary Townsend, CEO of Hill-Townsend Capital.
Fifth Third reported its lowest level of loan losses since the second quarter of 2008; losses fell to $434 million from $626 million in the year-earlier quarter.
Banks still face real headwinds. Credit costs remain high and loan demand is broadly weak. Even if costs are declining somewhat, it is not clear where future revenue growth will come from.
"We're in a very slow-growth economy, and people are not borrowing money to expand or grow either individually or corporately," PNC Chief Executive James Rohr said in an interivew.
CHEAPER DEPOSITS
Pittsburgh-based PNC's net interest margin, a measure of the profit it wrings out of money it borrows from depositors, increased to 4.35 percent from 4.24 percent in the first quarter and 3.6 percent a year earlier. The bank cited lower deposit costs as a reason for rising margins, a common theme among regional banks in the second quarter.
Atlanta-based SunTrust said net interest income increased 8 percent from a year earlier to $1.2 billion due to lower deposit costs.
Not every bank experienced higher margins. Columbus, Ohio-based Huntington said its net interest margin shrank by 0.01 percent.
And Fifth Third reported a decline in both margin and net interest income -- 0.06 percent and 2 percent, respectively.
LOAN GROWTH
On the credit side, loan losses fell at some banks, but some lenders boosted profit by setting aside less money to cover bad loans.
"There's the recognition that credit costs are finally recovering -- yes, it's happening -- but now the bigger issue is when will banks begin the transition to revenue growth," said Bob Patten, a bank analyst with Morgan Keegan & Co.
PNC put aside $823 million against loan losses in the second quarter, down from $1.1 billion in the same quarter last year.
Its loan losses jumped to $840 million in the second quarter from $691 million in the first quarter and $795 million a year earlier.
BB&T said its nonperforming assets -- or loans the bank believes will not be repaid -- dropped 3.1 percent during the second quarter, its first decline since the first quarter 2006.
The bank's provision for credit losses fell 7.3 percent over the same quarter a year prior.
While the improving margin helped narrow losses and boost profits among the regional banks, long-term growth worries still loom.
SunTrust said borrowers are hesitant to seek credit in the current economy. Its average loan balances declined 9 percent year-over-year.
BB&T bucked the trend, saying new loan originations were up 13.6 percent over the first quarter, to $15.4 billion.
PNC, Fifth Third and KeyCorp all reported better-than-expected profits. (Reporting by Joe Rauch, additional reporting by Elinor Comlay in New York; editing by John Wallace)
reuters.com |
