Regional banks are doing their best to hold down expenses, compete for quality loans and generate more fee income, but until the Federal Reserve raises interest rates, their quarterly profits will remain sluggish.

That, in a nutshell, was the message bank chief executives delivered to investors and analysts Wednesday following the release of third-quarter results.

While bankers feel encouraged by U.S. economic indicators and are getting good vibes from their corporate customers, they are feeling increasingly helpless about their ability to boost revenues or net interest income or improve efficiency ratios. PNC Financial Services Group's net interest income fell 6% from the same period last year despite a modest increase in overall loans, and Chief Executive William Demchak told investors not to expect much improvement until rates start to climb.

"Rates are going to be the thing that largely drives our net interest income performance," he said Wednesday.

For now, banks like Pittsburgh-based PNC and KeyCorp in Cleveland, are essentially treading water, bringing in loans at terms they can live with while counting on fee-generating business lines like asset management and investment banking to offset the drops in revenue and net interest income.

And even that strategy won't always work as planned. KeyCorp's profits fell 23% in the third quarter, to $204 million, largely because some investment banking deals that were supposed to close in the third quarter were pushed back to the fourth quarter. Couple that with declines in revenues and net interest margin and it's no wonder that Chairman and CEO Beth Mooney expressed disappointment with the results.

"As I look at our results, I'm encouraged by many of the trends in our core revenue and expense," Mooney said during a call with analysts Wednesday morning. "However, the quarter overall did not reflect the earnings potential of our company and fell short of our expectations."

Investors were disappointed as well. Key's shares were down as much as 9% Wednesday, before recovering slightly toward the end of the trading day. They closed at $12.14, down 5.8%. PNC's shares fell 4.4%, to close at $78.

On his call, Demchak said investors should judge the bank on things it can control, not what it can't.

"You ought to hold us accountable to the things that we can control. It's market share, it's fees … getting the technology side right … controlling credit .. being disciplined on expenses," he said. "I shouldn't be rewarded or, at the extreme, penalized, on where rates go."

Analysts agreed results are likely to remain lackluster until the Fed raises rates - whenever that may be. Fierce competition for loans is also likely to have an adverse effect on margins, they add.

"We are at a point where low rates have worked their way through the snake," Scott Siefers, an analyst at Sandler O'Neill, said in an interview. "People are hoping banks will get higher rates to help with margins. It's not the prospect of interest rates staying low but more a question of when rates will rise and by how much."

The decline in margins is "a combination of the competitive environment for loans on top of lower reinvestment of the securities portfolio. This will result in Key and most of the industry continuing to see margin compression into 2015," said Terry McEvoy, analyst at Sterne, Agee & Leach.

KeyCorp's second-quarter net interest income fell 0.5%, to $581 million, from a year earlier, and PNC's fell 6% to $2.1 billion. Total revenue at PNC fell 2% to $3.8 billion. At KeyCorp, revenue declined 4.3%,to $998 million.

Net interest margins also tightened at both PNC and KeyCorp. PNC's margin fell 49 basis points, to 2.98%, while KeyCorp's dropped 15 basis points, to 2.96%.

Margin pressure can almost be forgiven, though, as PNC, KeyCorp and Wells Fargo continued to add to collect deposits, swelling their liquidity.

"Margin compression is not something analysts like to see and it doesn't make modeling any easier, but it wasn't because of some kind of systemic decline," said Anthony Polini, an analyst at Raymond James.

PNC's total deposits rose 5%, to $226.3 billion, from a year ago. At KeyCorp, total deposits rose 3.6%, to $67.7 billion. The continued surge of deposits at banks was somewhat unexpected, said. Ken Usdin, an analyst at Jefferies

"Deposits continue to flood the industry," Usdin said. "The challenge is that there's not enough loan growth to use those deposits."

At PNC, results were driven largely by gains in fee income. Asset management at PNC, for example, rose 25% to $411 million, largely due to PNC's minority investment in BlackRock. PNC owned 21% of BlackRock as of March 31.

The $334.4 billion-asset PNC also attributed some of its increase in fee income to growth at Harris Williams, its Richmond, Va.-based boutique investment bank. "They've been getting share in what has been a very hot M&A market," Demchak said.

KeyCorp management faced questions from analysts regarding its asset sensitivity. The $89 billion-asset Key is modestly asset-sensitive and will be helped when short-term rates improve, since most of its loans are LIBOR based, Don Kimble, Key's chief financial officer, said during the conference call.

Other concerns at Key included revenue, which lagged as fee income declined from several big investment banking transactions being delayed.

KeyCorp continues to focus on other measures aimed at improving its bottom line. It has invested heavily in the payments business, including a prepaid card, that should start paying off, executives said. It also recently acquired Pacific Crest Securities, a technology-focused investment bank and capital markets firm.

KeyCorp also remains focused on cutting costs and improving its efficiency ratio by closing branches, including a dozen in the third quarter. It is currently undergoing an end-to-end review of its process to find ways to be more efficient and grow revenue.

So far this year KeyCorp has recorded $69 million in efficiency and pension related charges, well above its original estimate of $30 million for the full year.

Kimble said that the company would always have some efficiency related charges, just on a smaller scale. KeyCorp had been more aggressive this year because of the current environment.

"What we see this year was probably a little bit more pressure on revenues and felt it was important for us to take additional efforts to further enhance our expense reduction efforts," he said.

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