U.S. Bancorp Record Earnings Beat Estimates on Mortgages

U.S. Bancorp (USB), the nation’s biggest regional lender, said third-quarter profit climbed 16 percent to a record, beating analysts’ estimates as mortgage-banking revenue more than doubled.

Net income rose to $1.47 billion, or 74 cents a share, from $1.27 billion, or 64 cents, a year earlier, the Minneapolis- based company said today in a statement. The average estimate of 31 analysts surveyed by Bloomberg was per-share profit of 73 cents.

U.S. Bancorp is focusing on taking market share in mortgage banking, a business that has been a “real positive” for the company, Chief Executive Officer Richard Davis, 54, told investors at a conference last month. Historically low interest rates and government incentive programs are fueling demand for home loans.

“Earnings included continued strong mortgage-banking activity, which contributed to our growth in fee income, residential real estate loans and loans held for sale,” Davis, who has never posted a loss since taking over at U.S. Bancorp in 2006, said in the statement.

U.S. Bancorp rose 1.8 percent to $34.20 in New York trading at 4:15 p.m. The shares gained 24 percent this year through yesterday, compared with a 28 percent advance in the 24-company KBW Bank Index.

Mortgage Revenue

Revenue from mortgage banking in the third quarter was $519 million, compared with $245 million in the same period last year. That helped drive a 10 percent increase in non-interest income, which rose to $2.4 billion.

JPMorgan Chase & Co. (JPM), the biggest U.S. bank by assets, reported a third-quarter profit increase last week that included a 72 percent surge in mortgage revenue. CEO Jamie Dimon said at the time that the housing market has “turned the corner.” Bank of America Corp. (BAC) Chief Financial Officer Bruce Thompson said today that housing prices are “no question” moving in the right direction.

“This is the best housing has felt in a long time,” Thompson said today on a conference call with journalists. The second-largest U.S. bank reported an 18 percent increase in mortgage originations, though third-quarter profit tumbled 95 percent on litigation expenses and an accounting charge tied to the firm’s debt.

U.S. Bancorp’s net interest income increased 6.1 percent to $2.78 billion, and total revenue rose 8 percent to a record $5.18 billion.

Profit Margins

While spurring demand for mortgages, low interest rates also mean banks earn less on the money they lend. U.S. Bancorp’s net interest margin, the difference between what it pays in deposits and what it charges for loans, narrowed to 3.59 percent from 3.65 percent in the third quarter of last year and widened from 3.58 percent in this year’s second quarter.

CFO Andrew Cecere said on a conference call with analysts today that he expected the margin to narrow a few basis points, or hundredths of a percentage point, in the fourth quarter.

The bank set aside $488 million for soured loans, a 6 percent decline from the third quarter of last year. Net charge- offs dropped 20 percent to $538 million.

Average total loans climbed 7.3 percent to $216.9 billion from the third quarter of last year and increased 1.3 percent from the second quarter, according to the statement. That was driven by a 22 percent rise in commercial loans and a 20 percent increase in residential mortgages.

To contact the reporter on this story: Laura Marcinek in New York at lmarcinek3@bloomberg.net.

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.