PNC, BNY Mellon report strong performance in second quarter
Earnings at Pittsburgh's big two banks — PNC Financial Services Group and Bank of New York Mellon Corp. — jumped sharply last quarter, fueled by the rising stock market and the banks' healthier loan portfolios.
But both banks, like others in the industry, are focused on cost controls to offset an eventual downturn in mortgage banking.
PNC said Wednesday that earnings roughly doubled to $1.07 billion in the April-June quarter, while BNY Mellon reported earnings jumped 79 percent to $818 million.
Both banks benefited from significant gains in stocks in the past year, which increased the value of their equity holdings, as well as grew their fee income from managing other people's and institutions' investments.
Major banks such as JPMorgan Chase and Wells Fargo also had reported surprisingly robust quarterly earnings recently, in part because of strong gains in their investments and in mortgage banking.
At the same time, banks also face rising interest rates, which produce both opportunities and challenges. BNY Mellon, PNC and other banks may be able to invest in securities paying higher rates. But rising interest rates will likely dampen demand for home mortgages and refinancing.
Rates on a 30-year, fixed-rate mortgage have increased in recent days to about 4.5 percent from historic lows of less than 3.5 percent in May.
PNC Financial Services
The prospect of mortgage banking headwinds would especially impact PNC, being a big, traditional bank. Its mortgage lending “could fall off with higher interest rates,” said Marty Mosby, an analyst at Guggenheim Partners in Memphis.
“Clearly, higher rates will slow (mortgage) application volumes,” PNC CEO William Demchak told analysts on an earnings conference call with analysts, his first since taking the top job in April.
PNC can counter-balance much of that dropoff, however, with new mortgage business it's getting in the Southeast, said Mosby. PNC entered the market through its 2012 acquisition of RBC Bank, which added 400 branches.
PNC profited from a healthier economy, which meant fewer loans went sour. The bank set aside $157 million to cover possible loan losses, far less than its $256 million provision the year earlier.
The drop in expenses helped PNC post earnings that were double the $546 million it made a year ago. The results equaled $1.99 a share, versus 98 cents a year ago. Analysts had expected PNC to earn $1.63.
Revenue rose 12 percent to $4.06 billion from $3.62 billion a year ago.
In the year-ago quarter, PNC took $438 million in charges from having to repurchase loans from government agencies. Such repurchase obligations amounted to just $73 million in the current period.
Income from other than lending, such as the asset management business, jumped 65 percent to $1.8 billion. Asset management income jumped 22 percent to $340 million.
Cost-cutting also helped the bottom line. PNC has reduced annual costs by $600 million toward its $700 million goal for the year. The bank closed 78 branches in the April-June quarter, including nine in Western Pennsylvania. PNC expects to close a total of 200 branches this year.
“Expense savings are going to be part of the equation going forward,” Mosby said.
Bank of New York Mellon
Coincidentally, BNY Mellon also aims to reduce costs by $700 million this year.
“We put out a target we thought we could meet, and we think we'll meet it or beat it,” BNY Mellon CEO Gerald Hassell told analysts on a conference call.
BNY Mellon began consolidating some offices late last year, but the bank did not disclose how much money it saved.
At BNY Mellon, the world's largest custody bank, earnings results equaled 71 cents a share, compared with $466 million, or 39 cents per share, the year earlier. Analysts had expected the bank to earn 59 cents.
Results included a $109 million gain related to the sale of an equity investment.
Revenue was $4.01 billion, up 11 percent, from $3.62 billion
Assets under management increased 10 percent to a record $1.43 trillion because of appreciation in the market and new investments placed with the bank. Fees for managing those assets increased 6.4 percent to $848 million.
Thomas Olson is a Trib Total Media staff writer. He can be reached at 412-320-7854 or at email@example.com.