USB US Bancorp

By Allison Prang 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (October 18, 2018).

U.S. Bancorp said its third-quarter net income rose 16% from a year earlier as the regional lender grew its average loan balance thanks to higher lending in areas such as credit cards and residential mortgages.

Average total loans at U.S. Bancorp rose 1.2% to $281.07 billion from the year-ago quarter. They rose 0.9% from the second quarter.

Chief Financial Officer Terry Dolan said in an interview Wednesday that U.S. Bancorp "lagged a little bit" on loan growth earlier in the year. But he expects loan growth in the fourth quarter to top its recent 0.9% growth rate and that it "should strengthen from there" next year.

One of the reasons U.S. Bancorp is optimistic, he said, is because of the part of its business that is consumer-centric.

"Whether it is in the form of lending or in the form of payments revenues or mortgage-banking revenues or whatever might be the case, I think consumer confidence just ends up driving both the potential for the loan growth but also the potential for fee growth," Mr. Dolan said.

Interest rates have been rising, which fuels banks because it allows them to charge more on loans. But consumer sentiment has also helped the banks.

Loan growth at U.S. Bancorp "was relatively strong compared to peers," Piper Jaffray senior research analyst Kevin Barker said in a note Wednesday.

In the third quarter, U.S. Bancorp's total average balance increased for credit cards, residential mortgages and retail leasing both from the comparable quarter a year ago and from the second quarter this year. Its total average balance for commercial loans rose but fell for commercial real-estate loans compared with those previous quarters.

Commercial loan paydowns are a "headwind," Mr. Dolan said on the company's earnings call but added that those are "gradually diminishing in intensity and we expect the trend to continue."

He also said that a few factors, such as clients choosing other funding sources, have minimized clients' needs for loans, but that U.S. Bancorp expects "commercial loan growth to continue to improve."

While U.S. Bancorp reported an increase in its total average loan balance, average total deposits fell 1.5% to $330.12 billion from the year-earlier third quarter. They fell 1.4% from this year's second quarter, with about half of that drop a result of one of U.S. Bancorp's big clients doing a merger, Mr. Dolan said on the call.

U.S. Bancorp's total net revenue -- which takes into account net interest income and income the company gets from areas such as fees and services -- rose 2.4% to $5.7 billion in the latest quarter from a year ago. Noninterest income, which includes revenue from services ranging from mortgage banking to ATM processing, rose at a slightly faster pace than net interest income.

Net interest margin, a measure of banks' lending profitability, expanded by 0.01 percentage point to 3.15%. Noninterest expenses climbed 1.5% to $3.04 billion. Marketing and business-development costs rose 15%.

U.S. Bancorp reported earnings of $1.82 billion, up from $1.56 billion for the comparable quarter a year ago. Earnings per share of $1.06 beat analysts' estimates.

The company's shares were up 3.3% Wednesday afternoon. They have fallen 1.7% so far in 2018.

Write to Allison Prang at allison.prang@wsj.com

(END) Dow Jones Newswires

October 18, 2018 02:47 ET (06:47 GMT)

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