U.S. Bancorp customers embrace digital banking, helping company's profits

The growing digital savvy of U.S. Bancorp's customers is starting to pay off for the nation's fifth-largest bank.

In its latest quarterly results released Wednesday, U.S. Bank said one-third of its loan sales happened via its website and mobile app this spring, up from one out of four a year ago. With home mortgages, the change is more pronounced, with four out of five applications completed with digital tools.

"We expect this trend to continue, with the expected outcome a better customer experience, higher account and volume growth and improved operational efficiency," Andy Cecere, the company's chief executive, told investors and analysts as he discussed results.

The Minneapolis-based company's profit rose 4% to $1.8 billion in the second quarter, driven by nearly even growth in interest-generating and fee-based businesses. It remained one of the best performers in the banking industry by multiple measures, including return on assets and net interest margin, the difference between what it charges for loans and pays to depositors.

With the Federal Reserve expected to cut interest rates twice in the second half of the year, analysts pressed executives for details on how quickly and steeply net interest margin would shrink. A quarter-point cut in the Fed's benchmark rate results in a $40 million to $45 million drop in quarterly interest revenue to U.S. Bank, executives said.

"The fee-based businesses are helpful in this type of environment," Terry Dolan, the company's chief financial officer, said in an interview. "They often have a momentum that helps offset" the effect of lower interest rates, he said.

From April through June, the company's revenue grew 3.3% to $5.82 billion. Interest income, which accounts for two-thirds of revenue, rose 3.4% and noninterest income rose 3.1%.

The noninterest side of the business was shaped this spring by 4% growth in credit and debit card revenue and 3.5% growth in trust and investment management fees.

Net interest margin was 3.13%, flat compared with a year ago but down from 3.16% in the first three months of this year. That is higher than the country's four largest banks experienced in the latest quarter and than the company sized and shaped most like U.S. Bank, PNC Financial of Pittsburgh, reported.

U.S. Bank also remained ahead of other large banks in several other key metrics, including return on assets at 1.55% and efficiency ratio at 54.3. That ratio measures the company's overhead compared to its revenue; a figure close to 50 is considered optimal.

For the second time, the company provided investors with a look at digital engagement metrics it formed internally. In addition to the growth of loan activity, they showed that 67% of all transactions at U.S. Bank happen via its website or mobile apps. That is up from 62% a year ago.

And digital activity was shifting with customers. Mobile apps became nearly as evenly used as its website among the company's digitally active customers, U.S. Bank found.