U.S. Bancorp Mortgage Income Rises 127% (Update 1)
- U.S. Bancorp reports first-quarter earnings per share of 67 cents.
- Analysts were expecting EPS of 64 cents.
- Mortgage banking revenue more than doubles, to $452 million.
Updated with comments from Jefferies analyst Ken Usdin .
The Minneapolis lender reported first-quarter net income available to common shareholders of $1.29 billion, or 67 cents a share, compared to $1.31 billion, or 69 cents a share, during the fourth quarter, and $1.00 billion, or 52 cents a share, during the first quarter of 2011.
|U.S. Bancorp CEO Richard K. Davis|
The first-quarter earnings came in ahead of the 64 cent estimate among analysts polled by Thomson Reuters.
The company said that "on a linked quarter basis, the slight decrease in net income was largely due to the net impact of the merchant settlement gain and the expense accrual for mortgage servicing matters, which added $92 million (after tax) to net income in the fourth quarter of 2011," and that "excluding the impact from these two notable items, results on a linked quarter basis were higher by 6.4 percent, primarily driven by higher total net revenue, lower provision for credit losses and seasonally lower noninterest expense."
First-quarter mortgage banking revenue was very strong, at $452 million, increasing from $303 million the previous quarter, and $199 million a year earlier. This followed the industry trend, with President Obama's expanded Home Affordable Refinance Program, or HARP 2, allowing certain mortgage borrowers to refinance their entire loan balances at today's low rates, no matter how much the value of the underlying homes have dropped.
In his comments Monday on JPMorgan Chase's (JPM) earnings results, FBR analyst Paul Miller said that "HARP has not fully ramped up," so bank stock investors are likely to see continued mortgage strength in the second quarter.
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."