By Rachel Louise Ensign And Lisa Beilfuss
U.S. Bancorp said its profit and revenue fell in the second
quarter as a key measure of lending profitability narrowed. But the
bank signaled that pressure from low rates may finally be
stabilizing.
The bank posted earnings of $1.48 billion, down from $1.5
billion in the prior-year period. On a per-share basis, earnings
rose to 80 cents from 78 cents.
Revenue at the Minneapolis-based company--the fifth-largest U.S.
commercial bank by assets--fell 2.8% to $5 billion. Analysts had
expected 80 cents a share in earnings and $5 billion in revenue,
according to Thomson Reuters. Shares rose about 3.4% in afternoon
trading.
Net interest margin, an important measure of lending
profitability, slipped to 3.03% from 3.27% a year earlier and 3.08%
in the prior quarter. Net interest margin measures how much a bank
earns from the difference between what it pays out on deposits and
what it receives on loans and investments.
But bank executives said that the NIM metric will remain stable
next quarter instead of continuing to drop. The metric is
eventually expected to rise once the Federal Reserve starts to
increase interest rates. "There's been a lot of quarters since we
have been able to say we'd have a stable NIM. We are very, very
happy to report that," Chief Financial Officer Kathy Rogers said in
an interview.
Like other regional banks, U.S. Bank has been pinched by low
interest rates and is eagerly awaiting rate increases from the
Federal Reserve. Chief Executive Richard Davis last quarter
compared the bank's situation waiting for interest rates to rise to
the last few grueling moments of a gym-class test, hanging on a bar
for 90 seconds.
Mr. Davis said in May that if rates don't rise as expected, the
bank would have to cut expenses and potentially trim staff. During
the June period, noninterest expense fell 2.6% to $2.68 billion,
due in part to a legal settlement in the year-earlier quarter. The
lender's efficiency ratio, which measures costs as a percentage of
revenue, was little changed at 53.2%.
The bank's average total loans grew by 2.5%, driven by an 11%
rise in commercial lending that brought that business to about
$83.25 billion in loans. The mortgage business faced some
headwinds: Residential mortgages dropped 1.4% to $51.11 billion in
the quarter and lower mortgage banking revenue played a role in
noninterest income dropping 7% to $2.3 billion.
Mr. Davis also said that the bank was doing due diligence on a
part of the financial business that General Electric Co. has put up
for sale. A bevy of lenders, funds and banks have been eyeing
different assets at GE to see how they would fit with their
businesses.
Write to Rachel Louise Ensign at rachel.ensign@wsj.com and Lisa
Beilfuss at lisa.beilfuss@wsj.com