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Mortgage Banking Sector Suffers at PNC

house-graphdownThe PNC Financial Services Group's residential mortgage banking division faced losses at the start of the year due to losses related to mortgage servicing rights and lower loan sales.

According to the bank's first quarter earnings statement released Thursday, the residential mortgage banking sector of the company experienced quarter-over-quarter and year-over-year losses.

Noninterest income decreased in both comparisons as a result of net hedging losses on residential mortgage servicing rights in first quarter 2016, partially offset in both comparisons by higher servicing revenue, the statement said. PNC also noted that lower loan sales revenue also contributed to the decline.

PNC reported that noninterest expense fell from the fourth quarter "primarily due to lower legal accruals and decreased from first quarter 2015 as a result of lower servicing costs and foreclosure-related expense."

"The strategic focus of Residential Mortgage Banking is the acquisition of new customers through a retail loan officer sales force with an emphasis on home purchase transactions, competing on the basis of superior service, and leveraging cross-sell opportunities, especially in the bank footprint markets," the bank's statement said.

Loan origination volume decreased 14 percent in the first quarter of 2016 compared with the fourth
quarter and 25 percent year-over-year, PNC said. The bank estimates that 40 percent of first quarter 2016 origination volume was for home purchase transactions compared with 45 percent in the fourth quarter and 31 percent in the first quarter of 2015. Loan servicing acquisitions were $5 billion in both the first quarter of 2016 and fourth quarter of 2015 and $8 billion in the first quarter of 2015.

The PNC Financial Services Group, Inc., reported total net income of $943 million, or $1.68 per diluted common share, for the first quarter of 2016. For the fourth quarter of 2015, net income totaled $1.0 billion, or $1.87 per diluted common share and $1.0 billion, or $1.75 per diluted common share, for the first quarter of 2015.

The bank's earnings statement said that first quarter results reflected higher loans and securities, lower revenue, reduced noninterest expense, and higher provision for credit losses compared with the fourth quarter of 2015.

“PNC had solid first quarter earnings that were impacted by weaker equity markets and related fees, and continued deterioration in energy related credits,” said William S. Demchak, Chairman, President and CEO. "We lowered expenses, maintained a strong balance sheet and continued to return capital to shareholders. We also saw good underlying trends in our businesses to start the year, and we expect that momentum to continue in 2016.”

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