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U.S. Bancorp Mortgage Income Rises 127% (Update 1)

Written by: Philip van Doorn 04/17/12 - 10:03 AM EDT
Tickers in this article: USB

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."

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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.