Mortgages Drive Fee Revenue at U.S. Bank, PNC -- WSJ
October 17 2019 - 3:02AM
Dow Jones News
By Allison Prang
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (October 17, 2019).
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 on a percentage basis 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 Financial Services Group Inc., 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 0.5%, or 74 cents, to $141.46, while shares
of U.S. Bank rose 1.5%, or 81 cents, to $54.57.
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%.
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 17, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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