U.S. Bancorp sees sharp gains in interest income coming this year

U.S. Bancorp executives on Thursday forecast the biggest boost to the company's net interest income — its largest source of revenue — in more than a decade.

The Minneapolis-based banking company experienced a 3.6% jump in net interest income during the first quarter, newly released results showed. That was shaped both by new business and last month's first upward move in interest rates by the Federal Reserve since 2019.

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

"We're projecting pretty strong net interest income growth during the year, in the 8 to 11 percent range," Terry Dolan, the company's chief financial officer, said in an interview. "That's as strong as it's been for well over a decade, if not a couple of decades."

Shares in U.S. Bank rose nearly 4% as investors digested the results and outlook.

Executives portrayed a solid economy as they discussed the year's start. Gains in U.S. Bank's credit card business were driven by increased spending in travel and entertainment, which had been dented by the pandemic over the last two years.

"Our strong first-quarter results have positioned us well for the rest of the year, and we are encouraged by the loan growth trends and business activity that we are seeing in the early part of the second quarter," Andy Cecere, the company's chief executive, said in a call with analysts.

U.S. Bank's net profit in the quarter was $1.6 billion, down from $2.3 billion a year ago. It was lifted at that time by the reinstatement of about $800 million previously set aside for potential losses at the onset of the pandemic in 2020.

Many banks made similar protective maneuvers in 2020 and then brought the set-aside funds back when losses didn't materialize.

U.S. Bank put aside $112 million for potential credit losses in the latest quarter. The company in 2018 and 2019 routinely put aside about $300 million each quarter as a cushion for potential losses.

Net interest income, which amounts to two-thirds of U.S. Bank's overall $5.6 billion revenue, grew 3.6%, outpacing the 2.3% growth of total revenue. That increase came from higher loan balances and despite a slight decrease in net interest margin, which is the difference between what it earned from interest on loans and what it paid in interest on deposits.

Total loans rose 6.5% compared with a year ago, led by a sharp rise in commercial loans. Residential mortgages grew 3%, but home equity and second mortgages fell nearly 14%, an effect of tight housing supply and the upward move in interest rates.