US Bancorp expects strong increases in interest income this year

Bancorp’s U.S. executives on Thursday forecast the biggest increase in the company’s net interest income – its biggest revenue stream – in more than a decade.

The Minneapolis-based banking company saw a 3.6% increase in net interest income during the first quarter, according to recently released results. That was shaped by both new business and last month’s first interest rate hike by the Federal Reserve since 2019.

Executives said they expect bigger increases as the Fed raises rates this year in its effort to rein in inflation.

“We expect pretty strong net interest income growth over the year, in the 8-11% range,” Terry Dolan, the company’s chief financial officer, said in an interview. “It’s as strong as it’s been in over a decade, maybe two decades.”

US Bank shares rose nearly 4% as investors digested the results and outlook.

Leaders described a strong economy as they discussed the start of the year. Gains in US Bank’s credit card business were driven by increased travel and entertainment spending, which had been rattled by the pandemic over the past two years.

“Our strong first quarter results have positioned us well for the remainder of the year, and we are encouraged by the loan growth trends and business activity we are seeing at the start of the second quarter,” said Andy Cecere, general manager of the company. executive, said in a call with analysts.

Executives said the company is making meaningful progress in preparing for its $8 billion acquisition of MUFG Union Bank, its largest transaction in 20 years and which will significantly expand US Bank’s presence on the West Coast. Regulators are still reviewing the deal, which was announced last fall.

US Bank’s net profit in the quarter was $1.6 billion, up from $2.3 billion a year ago. It was raised at that time by restoring approximately $800 million previously set aside for potential losses at the start of the pandemic in 2020.

Many banks performed similar hedging maneuvers in 2020, then brought back set aside funds when losses failed to materialize.

The US bank set aside $112 million for potential credit losses in the last quarter. In 2018 and 2019, the company regularly set aside around $300 million each quarter to cushion potential losses.

Net interest income, which accounts for two-thirds of US Bank’s $5.6 billion overall income, rose 3.6%, outpacing the 2.3% growth in total income. This increase is due to higher loan balances and despite a slight decrease in net interest margin, which is the difference between what it earned on loan interest and what it paid in interest. on deposits.

Total loans increased 6.5% from a year ago, driven by a strong increase in commercial loans. Residential mortgages rose 3%, but home equity and second mortgages fell nearly 14%, driven by the housing shortage and rising interest rates.

“The whole refinancing dynamic has changed just because of rates,” Dolan said. “The biggest constraint over the next few quarters is the inventory of homes for sale.”

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