U.S. Bancorp Profit Rises, But Questions Linger on Loan Growth -- 2nd Update

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U.S. Bancorp said profit and revenue increased in the first quarter, as the company reported an increase in loans that comes amid a long-awaited rise in interest rates.

The Minneapolis-based bank, the seventh-largest in the U.S. by assets and the largest regional bank, posted net income of $1.47 billion, up 6.3% from $1.39 billion a year ago. On a per-share basis, earnings rose to 82 cents from 76 cents.

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Revenue, a combination of net interest income and fee-based income, rose 5.7% to $5.32 billion. Analysts, on average, anticipated per-share profit of 80 cents on $5.29 billion in revenue for the March quarter, according to Thomson Reuters.

The bank's net interest income increased 3.7% to $2.99 billion during the quarter from the prior quarter, which the bank said largely reflects loan growth, which comes as the Federal Reserved has been slowly raising its benchmark interest rate. Meanwhile, fee-based revenue grew 8.4%, helped by higher payment-services revenue, trust and investment management fees and mortgage banking revenue. The higher revenue was partially offset by higher spending on increased compensation, the bank said.

Average total loans grew 4.1% from last year as average total deposits rose 11%.

Net interest margin, an important measure of lending profitability, fell to 3.03% from 3.06% in the prior-year quarter, but rose from 2.98% in the previous quarter.

Write to Joshua Jamerson at joshua.jamerson@wsj.com

U.S. Bancorp said profit and revenue increased in the first quarter, but executives warned that demand for some loans was sluggish.

Average loans grew 4% from a year ago, but they were roughly flat compared to the previous quarter. Lending is an especially important metric at the moment. Analysts have been wondering if the euphoria around bank stocks that was caused by Donald Trump's election in November will materialize into more loan demand. Shares were up about 1% in morning trading, in line with the KBW Nasdaq index of bank stocks.

Andrew Cecere, U.S. Bank's chief executive, said that large corporate customers are telling the bank that "they are optimistic about the future but are awaiting more clarity" about taxes, regulations, infrastructure spending and trade policies before making borrowing decisions.

U.S. Bank executives said they thought loan demand would pick up in the second quarter but might not reach 2016 levels, offering a view slightly muted from what they predicted in January. They said that some corporate clients were choosing to borrow through capital markets instead of traditional loans, which also put a damper on lending.

Over all, the Minneapolis-based bank posted net income of $1.47 billion, up 6% from a year ago. On a per-share basis, earnings rose to 82 cents from 76 cents. Revenue also rose 6%. Both earnings and revenue beat the expectations of analysts, who had predicted per-share profit of 80 cents and $5.29 billion in revenue, according to Thomson Reuters.

The Trump-inspired rally in bank stocks has been based on the belief that the new president will loosen regulations on the banking industry. But in an interview Wednesday, U.S. Bank Chief Financial Officer Terry Dolan said he wasn't expecting any big changes in the short term. He said he'd like to see more coordination between the different bank regulators.

"A lot of very positive things can come out of that," Mr. Dolan said. "It doesn't need to be some major rehaul in Dodd-Frank."

Like other regional banks, U.S. Bank doesn't benefit from a large trading division that has powered results at bigger banks over the previous several quarters. U.S. Bank is the country's largest regional bank.

Other regional banks, including PNC Financial Services Group Inc., M&T Bank Corp., and Regions Financial Corp., have posted earnings that beat expectations. But future loan demand remains a concern even at banks where lending has held steady. Regions said Tuesday that it expected average loans to be flat to slightly down for the year, which sent its stock lower.

Like other banks, U.S. Bank benefited from the Federal Reserve's decision to raise interest rates in March and December, which allows banks to charge more on some loans. The bank's net interest income was up about 4% from a year ago, though net interest margin, an important measure of lending profitability, fell slightly from a year ago. Deposits, which factor into the margin calculation, rose 11% from the first quarter of 2016.

Over all, analysts said that interest income helped offset weaker loan growth. "Returns remain solid as usual, and results were steady but not indicative of an inflection in revenue growth or profitability," David George, an analyst at Baird Equity Research, wrote in a note to clients.

Bank officials also said they feel good about credit quality, a nod to industrywide concerns about possible defaults in auto lending and commercial real estate. But Mr. Cecere said he didn't want to "fool ourselves into thinking we'll be able to predict when the churn in the business cycle will come."

This marked the first earnings call with Mr. Cecere at the bank's helm. A company veteran and longtime top lieutenant to predecessor Richard Davis, he became CEO this week, taking over after Mr. Davis' retirement. Mr. Davis is staying on as U.S. Bank's chairman, and Mr. Cecere said Wednesday to not expect any major changes in strategy.

Write to Christina Rexrode at christina.rexrode@wsj.com and Joshua Jamerson at joshua.jamerson@wsj.com

(END) Dow Jones Newswires

April 19, 2017 11:58 ET (15:58 GMT)