Wells Fargo, U.S. Bancorp, and PNC Financial Services Group all continued what JPMorgan Chase started, reporting increased mortgage activity for the second quarter of 2016 as demand for mortgage loans rises and underwriting standards slowly ease, according to the banks’ Q2 earnings reports released Friday.
On the other hand, Citigroup, which also released its Q2 earnings statement on Friday, reported continued reduction in its mortgage portfolio as well as overall net income.
Wells Fargo reported a slight decline in net income year-over-year in Q2 (from $5.7 billion down to $5.6 billion, of $1.01 per share) but did report an uptick in net income from Q1 ($5.5 billion) and a 4 percent increase in revenue up to $22.2 billion. Though overall mortgage banking revenue was down, residential mortgage loan originations increased by 43 percent over-the-quarter, up to $63 billion. Residential mortgage applications shot up over-the-quarter from $77 billion up to $95 billion in Q2, and total loans were up by 1 percent over-the-quarter to $957.2 billion, partially driven by the growth in single-family first mortgage loans. The rise in first mortgages can be attributed to the launch of Wells Fargo’s Your First Mortgage during the quarter to help more first-time buyers and low- to moderate-income families achieve sustainable homeownership.
“Wells Fargo's second quarter results demonstrated our ability to generate consistent performance during periods of economic, capital markets and interest rate uncertainty,” Chairman and CEO John Stumpf said. “Compared with a year ago, we had solid growth in loans, deposits and customers, which are our fundamental drivers of long-term value. We also improved our efficiency ratio while continuing to reinvest in the franchise. We returned more capital to our shareholders in the quarter and were pleased to have received a non-objection to our 2016 Capital Plan from the Federal Reserve. We remain well positioned to continue to meet the financial needs of our customers.”
U.S. Bancorp reported records for both net income ($1.52 billion) and earnings per share ($0.83). Residential mortgage originations jumped to $55.5 billion, an increase of 2.4 percent over-the-quarter and 8.6 percent over-the-year. The bank’s Q2 mortgage banking revenue in Q2 was $238 million, which was an increase of 27 percent over-the-quarter and 3 percent over-the-year. Also, the Fed did not object to U.S. Bancorp’s capital plan as part of the annual stress testing released in June.
“U.S. Bancorp reported strong second quarter results, delivering record revenue and net income in an economy that continues to be challenged by global concerns and low interest rates,” said U.S. Bancorp Chairman and CEO Richard K. Davis. “Despite these economic headwinds we continued to effectively execute on our strategy to be the most trusted choice and to unify the customer experience. The second quarter was a record quarter for us as we once again delivered industry-leading returns, steady loan growth and strength in our fee-based businesses. Steady loan growth, demonstrated by continued strength in commercial loans and momentum in consumer loans, led to increased net interest income despite a decline in net interest margin.”
“We had a good second quarter against a backdrop of global uncertainty.”
William S. Demchak, chairman, president, and CEO of PNC
PNC Financial Services Group’s net income for Q2 was $989 million, up from $943 million in the first quarter but down from $1.04 billion from Q2 of 2015. Residential mortgage banking net income accounted for about $43 million of Q2’s net income, more than double the total from Q2 2015 ($19 million). Residential mortgage banking noninterest income increased by $65 million over-the-quarter and by $1 million over-the-year in Q2 up to $165 million, driven by net hedging gains on mortgage servicing rights of $35 million. U.S. Bancorp passed the Fed's stress tests, the results of which were released in June.
“We had a good second quarter against a backdrop of global uncertainty,” said William S. Demchak, chairman, president, and CEO of PNC. “We grew fee income, along with average loans and deposits, and we announced plans to return additional capital to our shareholders in the coming year. In the wake of the Brexit vote, as lower interest rates weigh on future performance, we remain focused on executing against our strategic priorities to create long-term shareholder value without compromising our risk profile or balance sheet.”
Citigroup, however, was not as lucky as the other three, posting a net income of $4 billion in Q2—down from $4.8 billion in the same quarter a year earlier, a 14 percent decline. According to Citi, the decline in net earnings was driven by lower revenues and a higher effective tax rate, partially offset by lower cost of credit and lower operating expenses.
Citigroup’s loans totaled $634 billion as of the end of Q2, which was unchanged over-the-year. According to the bank, the 6 percent growth in Citicorp loans was offset by continued declines in Citi Holdings—which was driven mostly by continued reductions in the bank’s North America mortgage portfolio. The Fed did not object to Wells Fargo's capital plan in the stress testing.
“These results demonstrate our ability to generate solid earnings in a challenging and volatile environment, again highlighting the resilience of our institution. Nearly all of our net income came from our core businesses and we continued to reduce non-core assets in Citi Holdings,” said Michael Corbat, CEO of Citi. “We significantly improved our efficiency ratio, return on assets and return on tangible common equity from the first quarter. We also grew loans in both our consumer and institutional businesses, reduced expenses, and utilized additional deferred tax assets, bringing the total utilized to $10 billion over the last four years. This utilization fuels our ability to generate regulatory capital and, with the Fed's non-objection to our capital plan, I am pleased that we will significantly increase the amount of capital returned to our shareholders over the next year.”
Click here for Wells Fargo’s Q2 earnings report.
Click here for U.S. Bancorp’s Q2 earnings report.
Click here for PNC’s Q2 earnings report.
Click here for Citigroup’s Q2 earnings report.