Bank earnings beat the Street, but execs warn lower rates to pressure future earnings

KEY POINTS

• Bank of America, U.S. Bancorp, PNC and Bank of New York Mellon all topped Wall Street's earnings estimates.
• Bank executives warned that low interest rates hit to net interest margin growth, a widely-watched measure of profitability, could hurt future earnings. 

Shares of Bank of America, U.S. Bancorp, PNC and Bank of New York Mellon all ticked higher on Wednesday as the banks' profits topped Wall Street's forecasts.

But some of the banks' shares rolled over as executives warned the current lower interest rate environment is likely to hinder banks' net interest margin growth, a widely-watched measure of profitability. The Federal Reserve cut interest rates twice since July.

Bank of America's chief financial officer Paul Donofrio reiterated guidance that growth in net interest income in 2019 would be about 1% after the Fed cut rates twice in the quarter.

Bank of New York Mellon interim chief executive officer Todd Gibbons echoed this sentiment when he said on the earnings call that "interest rate headwinds and deposit mix continue to challenge net interest revenue and asset management continues to be negatively impacted by prior-year outflows."

The bank, which gets a large portion of its revenue from managing money of clients such as banks and hedge funds, said net interest revenue fell 18% to $730 million.

U.S. Bancorp's net interest margin was 3.02% but chief financial officer Terrance Dolan said he thinks "its going to be a challenging year because of where interest rates are today versus where they were a year ago. I mean the long end of the curve 10-year I think is down 150, almost 150 basis points from where it was last year."

PNC's net interest margin decreased to 2.84% in the third quarter "mostly due to the net effect of lower interest rates," said PNC's chief financial officer Robert Reilly. Shares of PNC ticked slightly lower on Wednesday after chief executive Bill Demchak said the outlook for net interest income on Wednesday was slightly worse than it was previously.

"So we talked about kind of down 1%, I think, on forwards," Demchak said on the earnings call. "It's maybe a little bit worse than that today but not a whole lot."

—Reuters contributed to this report.