US Bancorp and PNC Financial Services Group Inc. reported better-than-expected third-quarter earnings as the regional banks made more loans to business customers.
But margins on the loans fell, reflecting declines in longer-term interest rates as well as intense competition among regional banks to make new loans.
Narrowing lending margins are hurting some smaller banks, particularly those having trouble boosting their loan books. M&T Bank Corp. shares fell as much as 8.8 percent.
Both US Bancorp and PNC reported their commercial loan portfolios grew during the quarter. Analysts said business borrowers are increasingly relying on banks for financing that they used to get from the bond markets and elsewhere.
Banks, meanwhile, see commercial customers as a safer bet in the current economy than the real estate loans that turned toxic when the U.S. housing bubble burst in 2007.
"It's the one area of the market that's behaved," said Marty Mosby, a bank analyst with Guggenheim Securities.
Minneapolis-based US Bancorp reported an increase in its overall loan portfolio and made more money from loan interest, despite a decrease in its interest margin.
Net interest income — interest earned from loans against what is paid for deposits — increased 5.9 percent from a year earlier to $2.62 billion in the quarter.
US Bancorp Chief Financial Officer Andy Cecere said the bank expects its net interest margin to decline by 0.03 to 0.06 percentage point in the fourth quarter. The bank's net interest margin was 3.65 percent in third quarter.
US Bancorp said total commercial loans increased 11.9 percent in the third quarter, and commercial loan commitments increased 16.8 percent.
During a conference call with analysts, US Bancorp Chief Executive Richard Davis said the bank is adding larger corporate customers that borrowed from international banks before the financial crisis.
He said commercial credit line use remains low, and the bank expects its loan portfolio to swell when the economy begins to gain steam and businesses borrow to expand.
"I can't even tell you how much our bank can grow without adding even one new customer," he said.
US Bancorp posted quarterly earnings of $1.27 billion, or 64 cents per share, up from $908 million, or 45 cents per share, a year ago.
Pittsburgh-based PNC reported net income of $834 million, or $1.55 per share, down from $1.1 billion, or $2.07 per share, a year earlier. The 2010 results included an after-tax gain of $328 million from the sale of PNC Global Investment Servicing.
PNC's revenue declined 2.7 percent to $3.5 billion, but the bank cut noninterest expenses 4.5 percent to $2.1 billion.
PNC increased total loans by $4.2 billion from the second quarter, to $155 billion. Commercial lending increased $3.7 billion, and consumer lending by $500 million.
US Bancorp shares were little changed and PNC shares were up 1.3 percent in afternoon trading.
Separately, PNC CEO James Rohr said the bank expects to receive a ruling from regulators during the fourth quarter on whether the bank needs to issue stock as part of its buyout of Royal Bank of Canada's U.S. branches.
The deal, announced in June, is expected to be completed next March.
M&T AND COMERICA
Other banks were penalized by investors for failing to rein in expenses.
M&T shares were down 5.8 percent at $72.60, off an earlier low of $70.26, after the bank's quarterly results fell well short of Wall Street expectations.
The Buffalo, New York-based bank reported net income of $183 million, or $1.32 per share, but noninterest expenses spiked 38 percent to $662 million due to the Wilmington Trust purchase.
Also on Wednesday, Comerica Inc posted a higher third-quarter profit, helped by lower credit costs and benefiting from its acquisition of smaller Texas peer Sterling Bancshares. But it warned that net interest margin could dip in the fourth quarter.
Comerica shares were down 9.5 percent to $23.38 on the New York Stock Exchange.
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