USB US Bancorp

By Allison Prang 

Two of the country's biggest regional lenders posted profit and revenue for the third quarter that beat expectations, as steep growth in mortgage banking drove fee revenue higher.

Total revenue at U.S. Bancorp, based in Minneapolis, rose by almost 4%, but the increase was largely from higher noninterest income, or businesses that bring in fees and aren't as sensitive to interest rates. Fee income rose over 8% from a year earlier, while mortgage-banking revenue alone rose by more than half.

Mortgage production volume rose about 40%, Chief Financial Officer Terry Dolan said on the company's earnings call. Of that, 40% was from mortgage refinancing. He said long-term rates will determine how well the mortgage business performs in the current quarter.

"It probably will not be as strong," he told analysts. "I think it will still be a good year-over-year story."

Net interest income, or the money the bank rakes in from lending after it pays out interest to customers, rose less than 1%. U.S. Bank is expecting net interest income on a fully taxable equivalent basis to fall in the low single digits in the current quarter.

That line item for banks is negatively impacted in lower-interest-rate environments because the lower rates are, the less banks can charge customers for certain loans. The Federal Reserve has already cut rates twice this year.

At PNC, noninterest income also drove revenue, which rose just over 3%. Residential mortgage and consumer services were among the areas that helped push noninterest income up over 5% from a year earlier.

Residential mortgage fees rose 76% year-over-year to $134 million in the third quarter.

PNC expects fee income from the mortgage business to be between stable to down in the fourth quarter, Chief Financial Officer Robert Reilly said on the company's call. Net interest income rose around 1.5%. PNC is expecting it to decline by about 1% in the current quarter.

Chief Executive Bill Demchak commented on PNC's call Wednesday about his expectations for net interest income in the next year, saying it could be "a little bit worse" than he previously guided. He later said PNC isn't dependent on the metric and pointed out the metric's volatility.

Sometime "last week, I would have told you that it would have been down less than 1%" he said.

Shares of PNC rose less than 0.1% early afternoon, while shares of U.S. Bank rose 1.4%.

PNC's profit fell less than 1% from a year earlier to $1.38 billion, hurt by higher income taxes. U.S. Bank's profit was $1.91 billion, up a little more than 5%.

At PNC, The net interest margins at both PNC and U.S. Bank declined from a year earlier and the second quarter this year. Banks' net interest margins are an important measure of their profitability because they measure the difference between the interest they charge versus the interest they pay.

Average loan growth at U.S. Bank climbed 4% from a year earlier as commercial lending increased while residential-mortgage lending rose almost 11% year over year. PNC's average loans rose over 6%, driven in large part by higher commercial lending.

Write to Allison Prang at allison.prang@wsj.com

(END) Dow Jones Newswires

October 16, 2019 15:17 ET (19:17 GMT)

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