Fannie, Freddie settlements eat into PNC earnings
Earnings barely move from 4Q13
PNC Financial Services’ (PNC) residential mortgage banking noninterest income experienced a slight decline due to leftover remnants from settlements with Fannie Mae and Freddie Mac in the fourth quarter.
According to the lender’s first-quarter earnings, residential mortgage banking noninterest income decreased $110 million, compared with $124 million in the fourth quarter.
This is a result of a lower benefit from release of reserves for residential mortgage repurchase obligations of $19 million in the first quarter, which was largely attributable to fourth quarter settlements with Fannie and Freddie.
“Noninterest income declined due to reduced loan sales revenue from lower origination volume and a net hedging loss compared with gains in the 2013 quarters on residential mortgage servicing rights,” the earnings report said.
Residential mortgage banking revenue decreased $73 million reflecting lower loan sales revenue from lower origination volume and lower net hedging gains on residential mortgage servicing rights.
But this was partially offset by a benefit from release of reserves for residential mortgage repurchase obligations in first quarter 2014 and higher servicing fees.
Overall, PNC reported a net income of $1.1 billion, or $1.82 per diluted share, compared to a net income of $1.1 billion, or $1.87 per diluted share, for the fourth quarter of 2013.
Total consumer lending fell 1% due to lower home equity, residential mortgage and education loans as well as seasonal declines in credit card loans partially offset by growth in automobile loans, the earnings noted.
“We grew loans and deposits, and we lowered expenses even as we continue to make investments across our businesses to enhance the customer experience and become more efficient,” said William Demchak, president and CEO.
“Based on the strength of our performance and balance sheet, we were pleased to announce plans to return more capital to our shareholders through a 9 percent increase in our quarterly dividend and reinstituted share repurchase programs,” Demchak added.
But legal implications are not just impacting PNC.
"The cost of resolving more of our mortgage issues hurt our earnings this quarter,” said Bank of America CEO Brian Moynihan. “But the earnings power of our business and customer strategy generated solid results and we continued to return excess capital to our shareholders."