U.S. Bancorp is entering a new phase -- the go-go growth that helped distinguish the nation's fifth-largest bank is slowing.
The Minneapolis-based lender posted profits of $1.42 billion for the fourth quarter, or 72 cents per share -- a 5 percent uptick thanks to strong growth in mortgages, credit cards and commercial loans, lower expenses and trimming its cushion for bad loans.
The results announced Wednesday were in line with expectations. Analysts had expected about 75 cents per share, and the bank would have hit that but for a mortgage foreclosure-related settlement that cost it $80 million in expenses and snipped earnings by 3 cents a share.
For the full year, bank profits jumped nearly 16 percent to a full-year record of $5.6 billion, or $2.84 per share.
The bank missed the consensus Wall Street expectation on revenue, partly because mortgage activity cooled around the holidays.
U.S. Bank has been burning up the charts coming out of the financial crisis with double-digit growth rates in profit. By comparison, growth of 5 percent for the quarter is positively modest. It was the bank's slowest year-over-year profit growth in more than three years.
The bank has been signaling a more challenging road ahead, with more modest growth because of the slow pace of the economic recovery. As for the mortgage slowdown, executives called that seasonal and said they expect the refinance boom to last through the year.
Fourth-quarter sales of $5.1 billion slipped a skosh from a year ago, but the comparison was affected by the big one-time gain the bank booked in the year-ago period related to a merchant processing agreement settlement.
Sales also dipped from the previous quarter. The bank blamed that on slower mortgage banking revenue and the fact that the previous quarter's sales numbers were inflated by a gain on the sale of a credit card portfolio.
"Clearing the Bar, Just Barely," was the sum-up title of a note by Jeffries & Co. analyst Ken Usdin.
The bank's net interest margin -- a critical profit gauge measuring the difference between what a bank makes on loans and what it pays out in interest -- slipped 0.04 percentage point from the previous quarter to 3.55 percent. The squeeze reflects the ongoing pressure the industry is under from ultra-low interest rates and an economic recovery that's moving at a snail's pace.
"Every bank is a little bit frustrated that organic growth hasn't picked up," said Jon Arfstrom, bank analyst at RBC Capital Markets in Minneapolis.
U.S. Bank executives said they expect a similar decline in the margin in the first quarter.
Net interest income from loans grew 4.1 percent, but noninterest income on activity such as fees and credit cards fell 4.2 percent. The bank said the decline was principally driven by the one-time $263 million gain last year on the merchant settlement.
The loan growth, which included an 18 percent growth in commercial loans, is broad-based and similar to previous quarters, bank CFO Andy Cecere said in an interview. The growth in commercial lending continues to be primarily about taking market share from other banks, as opposed to a burst of economic activity, he said.
"What we're seeing is a slow steady recovery, and a slow steady recovery of loan growth across all geographies and all size of business," he said.
Jennifer Bjorhus • 612-673-4683