PNC Financial Services Group Inc. reported a stronger-than-expected increase in gross nonperforming loans and net charge-offs in the second quarter.
The bank said in its earnings release on Tuesday (July 16) that the increase was primarily due to higher commercial non-performing loans and higher commercial real estate (CRE) net charge-offs.
“The credit environment continues to develop in line with our expectations and we maintain adequate reserves, including increased loan loss reserves within our CRE office portfolio,” PNC Chairman, President and CEO William S. Demchak said Tuesday during the bank's quarterly earnings call. “Outside of CRE office, credit quality has remained relatively stable.”
During the quarter ended June 30, total nonperforming loans increased 5% sequentially, total delinquencies were flat and net charge-offs increased 8%, according to the company's earnings release.
The bank said its loan loss reserves remained relatively stable at $5.4 billion, with the ratio of loan loss reserves to total loans being 1.67% at the end of the second quarter compared with 1.66% at the end of the first quarter.
PNC reported that its average loan size was $319.9 billion, stable compared to the previous quarter, its average commercial loan size was flat, and its average consumer loan size was down 1%. Average commercial loan size totaled $219.1 billion, while average consumer loan size was $100.8 billion.
The bank attributed the slight decline in consumer balances to lower residential real estate loans and mortgage loans.
“While the near-term direction of the economy remains uncertain, capital spending-to-sales ratios and inventory growth rates are below historical averages, both of which are often leading indicators of ultimate commercial loan growth,” Robert Q. Reilly, PNC's executive vice president and chief financial officer, said on a conference call.
The bank's average deposits were also relatively stable at $417.2 billion, with commercial deposits down 1% and consumer deposits remaining flat, the report said.
The slight decrease in commercial deposits was due to a seasonal decline in corporate deposits, the statement said.
Demchak said on the conference call that in the second quarter, PNC launched its first new credit card in several years. The new PNC Cash Unlimited card offers 2% cash back on all purchases, and the bank plans to launch several more new cards over the next 12 months.
“Simply put, we're under-penetrated relative to the industry average,” Riley said of the credit card business. “We don't have any big ambitions other than to get our fair share.”