Slower mortgage activity dampens U.S. Bank profits

Mortgages are weighing heavily on both U.S. Ban­corp and larger rival Bank of America Corp., although for very different reasons.

Bank of America swung to a loss in quarterly results it announced Wednesday on mortgage-related legal costs, as that lender tries to make things right with the government over past home loan sins.

For Minneapolis-based U.S. Bank, the ongoing falloff in mortgage banking activity continues to eat at its profits.

U.S. Bank, the nation's No. 5 commercial bank, on Wednesday reported net in­come of $1.4 bil­lion, or 73 cents per share, in the first quarter, sput­tering 2.2 percent lower from a year ago. It was the se­cond, and larg­est, prof­it de­cline in near­ly five years for the lender, one of the banking in­dus­try's most con­sis­tent play­ers.

Like most banks, U.S. Bank has been coping with fall­ing rev­e­nue in a lum­ber­ing eco­nom­ic re­cov­er­y with low in­ter­est rates and cau­tious busi­ness bor­row­ers. Both in­ter­est in­come, from old-fash­ioned loans, and noninterest in­come, from a range of ser­vices and fees, slid, despite solid growth in commercial loans.

Prof­its got a lift from trimming ex­pens­es, and a $35 million re­lease from the bank's re­serves for fu­ture bad loans.

Investors sent shares of both banks down Wednesday even as major stock indexes rose. U.S. Bank shares closed down 1.3 percent at $40.47. Bank of America shares fell 1.6 percent to close at $16.13.

U.S. Bank al­read­y is one of the in­dus­try's most ef­fi­cient banks and can't pull that lev­er much to boost growth, Stemm not­ed.

"Investors might be look­ing to some of the oth­er re­gion­al banks that trade at low­er valu­ations," Stemm said.

U.S. Bank post­ed strong, broad-based loan growth as it swiped busi­ness from com­peti­tors. Key driv­ers in­clud­ed re­tail leas­ing, cred­it cards and com­mer­cial real es­tate loans. Se­at­tle, San Francisco, Los An­ge­les and Or­ange County have been par­tic­u­lar­ly ac­tive, executives said.

Even resi­den­tial mort­gages were up 14 percent, though still slow­ing and off the ex­tremes of the refinance boom.

CEO Rich­ard Da­vis told in­dus­try ana­lysts Wednes­day that he ex­pects to continue grow­ing total av­er­age loans at the high end of the 1 to 1.5 percent range from quar­ter to quar­ter. "We're ac­tu­al­ly see­ing some slight but con­tinued im­prov­ing," Da­vis said.

Several of the bank's business lines showed strong growth. Profits in the company's large treasury and corporate support operation rose 8 percent from a year ago, and rose 11 percent in payment services. Profits in the bank's small but growing wealth management and securities services line jumped 41 percent.