Even as interest rates remain low, U.S. Bancorp reaps record profit

Most of the nation's giant banks are zigzagging through 2016, a year when they thought profits would be getting help from higher interest rates. There's only been one rate hike, but U.S. Bancorp continues to make record profits.

On a day when two of its bigger rivals, Citigroup Inc. and Wells Fargo & Co., announced lower results, U.S. Bancorp said Friday its profit rose nearly 3 percent in the spring quarter, driven mainly by growth in commercial loans as well as credit and debit card use.

The Minneapolis-based firm, which runs U.S. Bank, the nation's fifth-largest, beat analyst expectations and executives expressed satisfaction at market share gains, notably in commercial loans. "What we're seeing at U.S. Bank are more customers," Andy Cecere, U.S. Bancorp president, said. "That's what's driving our loan growth."

Meanwhile, Wells Fargo, which has the most extensive bank operations in Minnesota, reported a 4 percent drop in second-quarter profit after it set aside more money to cover potential loan losses. The firm also said its commercial loan business grew. The company's home mortgage business, which has extensive operations in the Twin Cities, grew in volume but fell in revenue.

Citi, the nation's largest bank, experienced a 17 percent drop in profit, though that was better than analysts expected. The company, which does more business outside the country than all other U.S. banks, continues to grapple with a financial fundamental: Its return on equity, at 7 percent, is below its theoretical 10 percent cost of capital.

A year ago, bank executives and investors speculated about when the Federal Reserve would begin to lift interest rates from their all-time low, anticipating that higher rates would pay off in bigger profits. But with only one increase late last year and the likelihood dimming for further increases this year, executives are again adjusting expectations.

"A lower-for-longer scenario puts pressure on everything that we do," John Stumpf, Wells Fargo's chief executive, said in reference to interest rates during a conference call with analysts.

The company attributed one cent of the three cent year-over-year per-share gain to a one-time event: the sale of Visa Europe Ltd., in which it had a stake.

Revenue was $5.49 billion, up 8 percent from $5.04 billion a year ago. That gain was shaped by a nearly 19 percent jump in noninterest income.

The company continued to exhibit some of the best financial metrics in American banking. Its return on equity was 13.8 percent, its return on assets was 1.43 percent and its net interest margin was 3.02 percent. Deposits grew nearly 4 percent while total loans grew 1.6 percent.

Cecere noted a strong performance in fixed-income and capital markets group, which includes debt underwriting, foreign exchange and derivatives businesses. "Those are businesses we've invested quite substantially in over the last five years and built a strong capability, and I think it really came through this quarter," he said.

Terry Dolan, the company's new chief financial officer, attributed an 11 percent jump in credit and debit card revenue partly to consumer spending habits, which have tilted to more expensive items such as air travel in the spring. He noted ApplePay transactions, which have been rising, also goes through that revenue category.

Evan Ramstad • 612-673-4241