November 2016 - End of the Road?

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38 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T ORIGINATION THE LATEST Banks See Profits Take a Downward Turn Chase, Citigroup, and PNC all see YOY drops. J PMorgan Chase, Citigroup, and PNC Financial Group all experienced year-over- year declines in net in come in their Q 3 2016 earnings reports. Chase saw its net income drop by 8 percent in Q 3, from $6.8 billion last year to $6.3 billion this year. For Citi, the third-quarter decline was half a billion, down to $3.8 billion. PNC saw its net income fall from $1.1 billion in Q 3 2015 down to $1 billion in Q 3 2016. Chase According to Chase, Q 3's net income of $6.3 billion "reflects higher income tax expense in the current quarter. The prior-year quarter included tax benefits of $2.2 billion due to the resolution of tax audits and the release of deferred taxes." For Chase, despite the 8-per- cent drop in net income from the previous year, mortgage banking fared well. Mortgage banking income spiked by 21 percent over the year in Q 3, from $1.55 billion up to $1.87 billion. According to the report, the increase was "driven by higher MSR risk man - agement results, higher production margins, and portfolio growth." Citigroup Citigroup reported a net income of $3.8 billion for the third quarter, a half-billion lower than the net income reported in Q 3 for the year prior. This was also a decrease from the last quarter of $200 million, or 8 percent. Citi reports that the drop is due to the lower revenues, particularly offset by lower cost of credit and lower operating expenses. Despite this, Citi CEO Michael Corbat said, "I am very encouraged by the underlying momentum across our franchise, notably in several areas where we have been investing. In the quarter, both our Global Consumer Bank and Institutional Clients Group had solid year-over- year revenue increases in nearly every business line and geography. We also continued to grow core loans and deposits while reducing non-core assets to just 3 percent of our balance sheet." Citi's loans consisted of $638 billion as of the end of Q 3, up 2 percent from the prior year period, and up 3 percent in constant dollars. In constant dollars, the 7-percent growth in Citicorp loans was somewhat offset by continued declines in Citi Holdings, driven primarily by continued reductions in the North America mortgage portfolio. PNC Financial Services PNC Financial Services Group's net income for Q 3 was $1.0 bil- lion, up from $989 million in the second quarter but down from $1.1 billion from Q 3 of 2015. Residential mortgage banking net income accounted for about $13 million of Q 3's net income, compared to the total from Q 3 2015 (a loss of $4 million). Residential mortgage banking non-interest income decreased by $5 million over-the- quarter but was up $35 million over-the-year in Q 3 up to $160 million, driven by lower net hedg - ing gains on mortgage servicing rights, and lower servicing fees offset by higher loan sales revenue from higher origination volumes. "PNC delivered another good quarter," said William S. Demchak, Chairman, President and CEO. "We grew revenue, and man - aged expenses, loans and depos- its increased, and capital levels were strong. Looking ahead, we continue to lay the groundwork for greater efficiencies and revenue growth to deliver positive operat - ing leverage and create long-term shareholder value."

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