January 16, 2019 / 12:37 PM / a month ago

UPDATE 2-PNC Financial profit misses as it sets aside more to cover bad loans

(Adds CEO comment from conf call, peer results)

Jan 16 (Reuters) - U.S. regional bank PNC Financial Services Inc's fourth quarter profit fell below analysts' estimates on Wednesday, as it set aside more cash to cover bad loans.

Shares of the bank were down 0.8 percent at $120.16 in afternoon trading.

The Pittsburgh-based bank's provisions for credit losses rose 18.4 percent to $148 million, while income from its corporate and institutional banking fell 32.2 percent.

However, higher provisions for credit losses reflected loan growth, said Chief Executive Officer Bill Demchak on a post-earnings conference call.

Total revenue rose nearly 2 percent to $4.34 billion as net interest income grew 5.8 percent and average loans grew 2.2 percent.

U.S. banks have been reaping the benefits of interest rate hikes by the Federal Reserve, which raised rates four times in 2018. But higher interest rates have proved to be a double-edged sword for regional banks in recent times, since it reduces the ability of borrowers to take out loans.

Lending at Wells Fargo, which reported its quarterly results on Tuesday, fell, and at peer U.S. Bancorp rose just 1.4 percent. Texas-based regional bank Comerica's total loans rose marginally.

Going forward, Demchak sees "healthy loan demand as the repricing of the risk in capital markets drives business back to the banks".

Markets widely expect two more interest rate hikes in 2019, although many analysts have also said the Fed is likely to take a "wait and see" approach for rate hikes.

Net income attributable to common shareholders of PNC fell to $1.28 billion, or $2.75 per share, in the fourth quarter ended Dec. 31, from $2.02 billion, or $4.18 per share, a year earlier.

Analysts on average had expected a profit of $2.78 per share, according to IBES data from Refinitiv.

Last year, the Pittsburgh, Pennsylvania-based bank's quarterly profit more than doubled driven by a one-time $1.2 billion net income tax benefit.

Reporting by Mary Ann Alapatt in Bengaluru; Editing by Shinjini Ganguli

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