UPDATE 2-U.S. Bancorp profit up, but net interest margin narrows

Tue Apr 16, 2013 12:06pm EDT

* Mortgage banking revenue falls 11 pct to $401 mln

* Q1 net profit $1.43 bln vs $1.34 bln year earlier

* Provision for credit losses falls 16 pct to $403 mln

* Shares down 3 pct

April 16 (Reuters) - U.S. Bancorp, the fifth-largest U.S. commercial bank by assets, reported a first-quarter profit that met analysts' expectations but the lender's net interest margins narrowed and mortgage-banking revenue fell, sending its shares down nearly 3 percent.

With interest rates at historical lows, lending profits are broadly lower across the industry. Banks' highest-yielding assets are maturing, only to be replaced with lower-yielding ones, and funding costs are not falling nearly as much.

U.S. Bancorp's net interest margin, a closely watched measure of how much money banks make from their loans, fell to 3.48 percent from 3.60 percent a year earlier.

JPMorgan Chase & Co and Wells Fargo & Co also reported a drop in net interest margins in their latest quarters.

U.S. Bancorp said mortgage banking revenue fell 11 pct to $401 million as fewer borrowers refinance at low interest rates.

"Fee revenue in the first quarter was impacted by a reduction in mortgage banking revenue as application volumes dropped for our company and the industry," Chief Executive Richard Davis said in a statement.

However, Chief Financial Officer Andy Cecere said in a conference call that he expects mortgage banking revenue to rise in the second quarter as application volumes increase.

BMO analyst Peter Winter said that though mortgage volumes might increase in the second quarter, it will still be lower than a year earlier.

U.S. Bancorp's average total loans rose 5.8 percent, helped by solid demand for commercial loans.

IN-LINE RESULTS

Net profit rose to $1.43 billion, or 73 cents per share, for the first quarter ended March 31, from $1.34 billion, or 67 cents per share, a year earlier.

The results were in line with analysts' expectations, according to Thomson Reuters I/B/E/S.

Provision for credit losses fell 16 percent to $403 million while non-interest expenses dropped more than 3 percent.

U.S. Bancorp was one of the many banks to have cleared the Federal Reserve's annual stress test earlier this year. As of March 31, the bank's Tier 1 capital ratio was 11 percent.

The Minneapolis-based bank's shares were down 1.9 percent at $32.67 on the New York Stock Exchange. The stock has risen about 3 percent since the beginning of the year.