PNC: Commercial Real Estate Drives 8% Rise in Net Loan Charge-Offs

PNC Financial Services Group saw expected increases in total nonperforming loans and net loan charge-offs in the second quarter.

The increases were primarily due to high commercial nonperforming loans and higher commercial real estate (CRE) net loan charge-offs, the bank said in a Tuesday (July 16) earnings release.

“The credit environment continues to play out as we’ve expected, including an increase in charge-offs within the CRE office portfolio, where we remain adequately reserved,” William S. Demchak, chairman, president and CEO of PNC, said Tuesday during the bank’s quarterly earnings call. “Outside of CRE office, credit quality remains relatively stable.”

During the quarter that ended June 30, total nonperforming loans increased 5%, total delinquencies remained flat and net loan charge-offs rose 8% compared to the previous quarter, according to the earnings release.

The allowance for credit losses was relatively stable at $5.4 billion and the allowance for credit losses to total loans was 1.67% at the end of the second quarter, compared to 1.66% at the end of the first quarter, the release said.

PNC’s average loans of $319.9 billion were stable compared to the previous quarter, with average commercial loans flat and average consumer loans down 1%, per the release. Average commercial loans accounted for $219.1 billion of the total and average consumer loans amounted to $100.8 billion.

The bank attributed the modest decline in consumer balances to lower residential real estate and home equity loans.

“Although the direction of the near-term economy remains uncertain, CapEx to sales levels and inventory growth rates remain below historical averages, both of which are typically leading indicators of eventual commercial loan growth,” Robert Q. Reilly, executive vice president and chief financial officer at PNC, said during the call.

The bank’s average deposits, too, were relatively stable at $417.2 billion. Commercial deposits dipped 1% while consumer deposits remained flat, per the release.

The modest decline in commercial deposits was due to seasonal declines in corporate deposits, the release said.

During the second quarter, PNC launched its first new credit card in several years, Demchak said during the call. The new PNC Cash Unlimited card offers 2% back on all purchases. The bank plans to launch several other new cards over the next year.

“In simple terms, we’re just underpenetrated relative to industry averages,” Reilly said of the credit card business. “Nothing hugely aspirational other than just to have our fair share.”