After another year of record profits, U.S. Bancorp executives on Wednesday gave an upbeat outlook for 2019, expressing greater confidence in consumer spending and business activity than in investor fears that recession may be on the horizon.
The leaders of the Minneapolis-based operator of the nation's fifth-largest bank said they expected the strong growth in loans that the company experienced in the second half of 2018 to carry into this year. They lifted an internal goal for growing revenue faster than expenses in 2019 and said they will begin to reshape the company's 25-state branch network, with cuts to some and expansions to others.
The comments came as U.S. Bank said its fourth-quarter profit rose 10 percent to $1.86 billion. That amounted to per-share profit of $1.10 that beat analysts' expectations. For the full year, the company earned a record $7.1 billion. The company's stock rose 2.4 percent in a broad rally in the financial sector.
"By and large the things we are seeing from a customer standpoint are positive," Terry Dolan, the company's chief financial officer, said. "Consumer spending and confidence continues to be strong. Small businesses are making investments in their business and there's spending on the corporate side of the equation."
Swings in the stock and bond markets, he noted, have been driven by the narrowing difference in short- and long-term yields. But Dolan said U.S. Bank is not seeing any of the signs, such as an uptick in early loan delinquencies, that would reinforce the idea of economic trouble.
Strong loan growth
Average total loans, excluding sales, grew 1.5 percent in the last three months of 2018 compared to the July-September period. That was an acceleration from the third quarter's 0.9 percent loan growth on a linked-quarter basis, which was also faster than in the first two quarters of the year.
"We think 2019 is a continuation of the stronger indicators in terms of the loan growth that we saw in the second half of the year," Dolan said.
Revenue was $5.83 billion, up 4 percent, in the October through December quarter. Interest income, which accounts for about 60 percent of overall revenue, rose 3.2 percent on a taxable-equivalent basis. Noninterest income grew 5.4 percent, led by gains in its credit card and corporate payments businesses.
U.S. Bank said its net interest margin, the difference between what it charges to lend money to customers and what it pays depositors and for borrowing from other banks, rose to 3.15 percent from 3.11 percent a year ago.
The company's noninterest expenses fell nearly 16 percent from a year ago, shaped partly by a 54 percent cut in marketing spending.
U.S. Bank also accounted for a one-time government penalty over its anti-money laundering practices as an expense in the year-ago quarter.
U.S. Bank last month emerged from a constraint decree that took effect in 2015 as regulators investigated its ability safeguard against money laundering. Under that order, the company couldn't add new branches, which constrained its ability to adapt its broader footprint as consumers shift more banking activity to digital gadgets.
"One of the reasons why we were constrained is because if you can't open branches, we didn't want to be in position of closing branches," Dolan said. "With the consent order going away, we have the opportunity to be reinvesting in many of markets in a way to drive long-term growth."
The company in the next few weeks will launch an updated mobile banking app for consumers. Last fall, it updated its digital banking services for small businesses, including shortening the time it takes for loan decisions.