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U.S. Bancorp Expense Decline Counters Mortgage Drop (Update 1)

  • First-quarter EPS of 73 cents a share matches the consensus estimate.
  • Mortgage revenue declines 16% from Q4, 11% year-over-year.
  • Mortgage revenue decline offset by decline in mortgage-related expenses.
  • Average core loans grow by 1.4% in Q1; average commercial loans grow 2.1%.
  • Net interest margins narrows by 7 basis points.

Updated from 8:31 a.m. ET with morning market action and comment from Credit Suisse analyst Moshe Orenbuch.

NEW YORK ( TheStreet) -- U.S. Bancorp (USB) on Tuesday reported an expected decline in mortgage banking revenue, which was offset by lower credit costs and lower mortgage-related expenses.

The Minneapolis lender -- the nation's sixth-largest bank at the end of 2012 based on total assets -- reported first-quarter net income of $1.43 billion, or 73 cents a share, increasing from $1.42 billion, or 72 cents a share, in the fourth quarter, and $1.34 billion, or 67 cents a share, in the first quarter of 2012.

The first-quarter results matched the consensus estimate among analysts polled by Thomson Reuters.

As expected for all major regional lenders heading into earnings season, U.S. Bancorp saw its mortgage revenue decline significantly, as mortgage loan refinance applications slowed and secondary market gain-on-sale margins narrowed. The company reported first-quarter mortgage banking revenue of $401 million, declining from $476 million the previous quarter, and $452 million a year earlier.

That decline was more than offset by a decline in noninterest expense to $348 million in the fourth quarter from $511 million the previous quarter and $489 million a year earlier. U.S. Bancorp said that first-quarter noninterest expense was lower "primarily due to the accrual for the mortgage foreclosure-related regulatory settlement recorded in the fourth quarter of 2012, along with lower mortgage servicing review-related professional services and litigation and insurance-related expense in the first quarter of 2013."

During the fourth quarter, U.S. Bancorp had booked $80 million in expenses related to the industry's regulatory foreclosure settlement, along with "a $130 million accrual related to mortgage servicing matters."

Also helping to boost first-quarter earnings was a decline in the provision for credit losses to $403 million, from $443 million the previous quarter, and $481 million a year earlier. The provision is the amount added to loan loss reserves each quarter. U.S. Bancorp's loans loss reserves declined by a modest $25 million in the first quarter.

During the first quarter, U.S. Bancorp's net interest margin -- the spread between the average yield on loans and investments and the average cost for deposits and borrowings -- narrowed to 3.48% from 3.55% in the fourth quarter, and 3.60% in the first quarter of 2012. This follows the industry trend, with short-term rates remaining in a range of zero to 0.25% since late 2008, and with the Federal Reserve continuing its monthly purchases of $85 billion in long-term securities, in an effort to hold down long-term rates.

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