U.S. Bancorp,
On Friday morning, the Minneapolis bank reported a 20.7% year-over-year increase in net interest income, driven by strong loan growth and rising interest rates. On the flip side, noninterest income fell by 8.3% from the year-ago period, led by a large decline in mortgage banking revenue.
Gerard Cassidy, an analyst at RBC Capital Markets, said that the quarterly decline in noninterest income was understandable in light of current market conditions. "But when you look at U.S. Bancorp's numbers compared to their peers, it's all about net interest income growth, which is being driven by net interest margin expansion and loan growth," he added.
The bank reported net income of $1.8 billion, down 10.7% from the same period a year earlier. Earnings per share declined by 10.8% to $1.16, barely ahead of the $1.15 average of estimates from analysts surveyed by FactSet Research Systems.
U.S. Bancorp Chief Financial Officer Terry Dolan said during the company's earnings call that the bank can "continue to grow NII as we get beyond the fourth quarter," adding that the pace of growth will depend on changes in deposit betas and loan originations.
Shortly after Dolan spoke, the Federal Reserve and the Office of the Comptroller of the Currency gave their thumbs-up to the bank's $13.4 billion acquisition of MUFG Union, a deal announced last September that was originally expected to close in the first half of this year.
U.S. Bancorp, the parent company of U.S. Bank, recorded net interest income of $3.8 billion, up from $3.2 billion in the same period last year. The net interest margin of 2.83% was up 11.9%, and net revenue climbed by 7.4%.
Noninterest income totaled $2.5 billion, down from $2.7 billion in the year-ago period, driven partly by an 80.6% decline in mortgage banking revenue, as well as a 14.4% fall in deposit service charges.
"As interest rates start to stabilize, you'll see less expansion of net interest margin, but you also will see mortgage banking revenue start to recover," Dolan said in an interview after the earnings call.
John Mackerey, an analyst at DBRS Morningstar, pointed to U.S. Bancorp's net interest margin expansion as a signal of strong performance, adding that the bank's loan growth was "continuing at a decent clip."
U.S. Bancorp reported average total loans increasing 13.5% from the same period last year to $336.8 billion. Average total deposits rose 5.9% during the same period to $456.8 billion, even as noninterest-bearing deposits fell 11.6%.
