Shares in Minneapolis-based U.S. Bancorp rose 1 percent in an advancing market Wednesday after the company reported third-quarter earnings of 76 cents per share that met analysts' expectations.
"I think everything we have is repeatable and sustainable," CEO Richard Davis said during a conference call with analysts and investors. "Our credit quality remains strong. We're taking market share."
The largest Minnesota-based bank reported net profit of $1.5 billion for the July-to-September period, down less than a half percent from the third quarter of 2012. Earnings per share rose 2 cents from a year ago in part because there were fewer shares outstanding.
Revenue was $4.9 billion, down 1.2 percent from $5.2 billion a year ago.
"U.S. Bank's performance metrics, once again, were among the best in the industry," said Davis, who steered one of the nation's largest banks safely through the Great Recession thanks to a self-described "boring" strategy rooted in diversification and avoidance of high-risk businesses.
Zacks Investment Services said USB's third-quarter earnings were "encouraging."
Growth in deposits and lending activity helped the firm overcome the toll that higher interest rates had on its mortgage-related revenue.
Mortgage banking revenue fell 37 percent from the year-earlier period as the company, like banks across the nation, felt the effect of higher mortgage rates. Wells Fargo & Co., which is the nation's largest mortgage lender and has much of its mortgage operations based in Minnesota, reported a 43 percent decline in mortgage revenue when it announced earnings last week.
Average loan growth rose 5.7 percent compared with the year-ago quarter and 1.9 percent over the second quarter of this year. That was driven by growth in commercial loans, commercial real estate, retail leasing, credit card and other retail loans. Those increases were partly offset by a drop in home equity and second mortgages and lease financing.
Net interest income fell 2.5 percent to $2.7 billion. And the company's net interest margin, which amounts to the profit it makes on loans, was 3.43 percent, down from 3.59 percent a year ago and the same as it experienced in the second quarter.
Analysts and investors were nonplused by the narrow margins and predicted dip in mortgage business because U.S. Bancorp is increasing its loan portfolio faster than the overall market. And with that comes fee-related income that tends to build over time.
A decline in net interest margin reflected reduced rates on investment securities and loans and was partly offset by lower rates on deposits and reduced higher cost long-term debt.
Average total deposits were up 5.5 percent from the prior-year quarter to $252.4 billion, primarily reflecting growth in non-interest-bearing deposits, savings deposits as well as interest-bearing deposits. The bank saw low-cost deposits grow by 5.5 percent over the last year.
In an interview Wednesday, Chief Financial Officer Andy Cecere, a 28-year veteran of the bank that employs more than 11,000 Minnesotans, said the recent tumult over the federal debt ceiling meant that USB picked up "a couple billion" dollars in recent weeks as institutions bailed out of short-term U.S. Treasury bills over fear of a federal default that appears to have been averted.
Also, the 2013 cuts in federal spending, known as the "sequester," and the two-week shutdown of the government has hit USB's big corporate payments business.
About 40 percent of USB's institutional charge card revenue comes from government agencies. Cecere estimated a $2 million government-business decline this year thanks to federal budget cuts. The single largest customer is the U.S. Department of Defense.
Neal St. Anthony • 612-673-7144
