PNC Likes Loan 'Pick Up' Signals

PNC gave indications Thursday that even though loan demand remains weak, there are increasing signs of a near-term pick up.
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PNC Financial Services

(PNC) - Get Report

gave indications Thursday that even though loan demand remains weak, there are increasing signs of a near-term pick up.

Chairman and CEO James Rohr said on the regional bank's on third-quarter earnings call that loan "utilization rates" outside of PNC's distressed portfolio have bottomed and it appears as if balances are "firming up."

PNC Chief Executive James Rohr

"We're not seeing a lot of growth, but the interesting thing is we're seeing a lot more activity in the M&A space

and capital markets space,

where our customers are becoming a lot more active than they were a year ago," Rohr said. "That's a good sign as it portends to loan growth in the future."

PNC reported third-quarter earnings of $1.1 billion, or $2.07 a share

, widely beating analysts' estimates of $1.36 a share, according to

Thomson Reuters


The bank extended a total of $39 billion in the origination and renewal of loans and other commitments during the third quarter. Year to date, PNC extended a total of $112 billion, which includes $2.6 billion of small business loans, the bank said.

However, PNC's loan portfolio totaled $150 billion at September 30, down $4.2 billion, primarily due to loan repayments, dispositions and net charge-offs that exceeded customer loan demand, it said.

PNC is one of several large banks that temporarily halted select foreclosures this month.

Rohr said the bank is "taking a close look at our foreclosure procedures, and while that review is ongoing ... we believe that PNC has systems designed to ensure that no foreclosure goes forward unless the loan is genuinely in default."

On average, PNC loans in foreclosure are more than one year delinquent.

"We've identified issues with respect to some of the documentation," Rohr said. "We are holding off pursuing individual pending foreclosures until we are confident that any documentation issues have been fixed. But as of now, we are proceeding with new foreclosures under enhanced procedures designed as part of this review to remove any question about the processing of documentation in foreclosure cases."

PNC's distressed asset portfolio, mainly legacy National City loans, declined 20% to $16 billion compared to a year-earlier.

In answer to one analyst's question regarding PNC's exposure to reps and warranties, CFO Richard Johnson said PNC has roughly $290 million in reserves related to potential repurchases, about $150-$160 million related to mortgage buyback requests.

"We feel pretty good about that reserve given the fact that, one, the amount of claims that are being made is coming down, and has been coming down," related to 2008 and earlier-vintage loans, Johnson said during the call. Additionally, "I think we're just getting better as an organization in terms of defending the claims and what the actual risk is."

During the third quarter, PNC did experience additional claims on mortgage insurance as well as from government-sponsored enterprises "taking a harder look" at other real-estate owned properties. "We're pretty comfortable there," he said.

However PNC is "getting a little bit of push-back" in regards to its legacy National City brokered home equity loans. PNC said a portion of reserves is for claims on those loans.

"There may be some further smaller reserves we have to add to that as that becomes clear, but whatever it is it will be a manageable number," Johnson said.

PNC shares were rising 1.9% to $53.73 on a busy earnings day for banks.

Large regional banks including


(BBT) - Get Report


SunTrust Banks

(STI) - Get Report


Huntington Bancshares

(HBAN) - Get Report


Fifth Third

(FITB) - Get Report

all reported better than expected third-quarter earnings.

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Laurie Kulikowski


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