U.S. Bancorp Net Income Rises 4.9% as Lender Cuts Expenses

July 17 (Bloomberg) -- U.S. Bancorp, the nation’s largest regional lender, said second-quarter profit rose 4.9 percent as the firm cut expenses and set aside less for soured loans.

Net income climbed to $1.48 billion, or 76 cents a share, from $1.42 billion, or 71 cents, a year earlier, the Minneapolis-based bank said today in a statement. Earnings matched the 76 cents a share average estimate of 34 analysts surveyed by Bloomberg.

Chief Executive Officer Richard Davis, 55, said in May that the “intangible lack of overall confidence” in the U.S. economy has led to tepid loan growth in the banking industry. While customers are taking out lines of credit, they’re often not using them, so earnings don’t yet reflect those commitments, he said at the time.

“We achieved profitability metrics that remain among the very best in our industry,” Davis said in today’s statement, “particularly given the slow, albeit steady, growth we have seen in the markets we serve.”

The lender’s shares have gained 17 percent this year, compared with the 25 percent advance of the 24-company KBW Bank Index.

U.S. Bancorp cut expenses in the quarter by 1.7 percent from a year earlier to $2.56 billion, while reducing the amount it set aside for bad loans 23 percent to $362 million, according to the statement.

Revenue Declines

Revenue fell 2.4 percent to $4.95 billion from a year earlier, led by a decline in mortgage revenue, which slid 19 percent to $396 million. Net interest margin, or the difference between what the bank pays for deposits and charges for loans, shrank by 5 basis points from the first quarter to 3.43 percent.

“It’s kind of a victim of being one of the best banks out there, and so at this point there’s not a lot of recovery left for them to really participate in,” Marty Mosby, an analyst for Guggenheim Securities LLC, said in a phone interview before earnings were released. “U.S. Bancorp is already kind of well past the benefit from that.”

U.S. home prices have been rising at the fastest pace since 2006. Still, bank executives have warned that higher interest rates will temper profits as demand for mortgage refinancing abates. The average rate for a 30-year fixed mortgage climbed to 4.51 percent this month from a near-record low of 3.35 percent in May.

JPMorgan Chase & Co. CEO Jamie Dimon, who runs the biggest U.S. bank, said last week that higher rates could lead to a “dramatic reduction” in profits for the New York-based lender’s mortgage business. Wells Fargo & Co. CEO John Stumpf said last week refinance volume will drop “significantly” if rates stay elevated.

To contact the reporter on this story: Erika Waddell in New York at ewaddell1@bloomberg.net

To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net; Christine Harper at charper@bloomberg.net