U.S. Bancorp Mortgage Income Rises 127% (Update 1)
Despite the mortgage revenue growth, U.S. Bancorp's total noninterest income declined to $2.2 billion during the first quarter, from $2.4 billion in the fourth quarter, mainly because the fourth quarter results included "$263 million from the settlement of litigation related to the termination of a merchant processing referral agreement ("merchant settlement gain"), partially offset by a $130 million expense accrual related to mortgage servicing matters."
U.S. Bancorp's average loans increased 6.4% year-over-year, and 1.5% sequentially, to $210.2 billion, during the first quarter. Average commercial loans were up 17.3% year-over-year and 3.4% quarter-over-quarter, to $57.1 billion.
The company-s net interest margin -- the difference between its average yield loan loans and investments and its average cost for deposits and wholesale borrowings -- was 2.60% during the first quarter, declining from 3.69% the previous quarter, and matching the margin from a year earlier. USB said "the expected decline in the net interest margin year-over-year reflected higher balances in lower yielding investment securities and a decline in loan yields, partially offset by a reduction in the cash balances held at the Federal Reserve compared with the first quarter of 2011, as well as the credit card balance transfer fees classification change."
Overall earnings performance remained strong, with a first-quarter return on average assets of 1.60%, compared to 1.62% the previous quarter and 1.38% a year earlier. The return on average common equity was 16.2% during the first quarter, compared to 16.8% in the fourth quarter, and 14.5% during the first quarter of 2011.
Jefferies analyst Ken Usdin said that mortgage banking drove USB's earnings beat, "as gain-on-sale margins were much better than expected," and that "excluding mortgage banking, results were more in line.
Usdin said that "all-in, estimates are likely stable-to-up on the results."
The analyst rates U.S. Bancorp a "Hold," with a $31 price target.