U.S. Bancorp profits up 51 percent on lower loan costs

U.S. Bancorp, the fifth-biggest U.S. commercial bank by deposits, said third-quarter profit rose 51 percent, beating analysts' estimates, as costs declined for delinquent loans.

Net income increased to $908 million, or 45 cents a share, from $603 million, or 30 cents, a year earlier, the Minneapolis- based bank said today in a statement. The average estimate was for 43 cents, according to a Bloomberg survey of 28 analysts.

Chief Executive Officer Richard Davis, 52, has vowed to counter slow industry growth by taking market share. The bank expanded during the credit crisis, adding employees, upgrading technology and buying failed lenders in government-backed deals.

"Record total net revenue and reduced credit costs drove third-quarter net income," Davis said in the statement. Still, gains in fee-based businesses "were partly offset by expected headwinds from recent legislative actions and current economic conditions."

The bank's $995 million in new provisions for loan losses were equal to net charge-offs, leaving the allowance for losses at 3.1 percent of loans at the end of the period. In the same quarter a year ago, the bank recorded $1.46 billion in provisions, building reserves by $415 million.

Purchases Boost Lending

Revenue grew 7.9 percent to $4.59 billion over the same period last year, according to the statement. Net interest income climbed 15 percent to $2.48 billion. Net interest margin, the difference between what the bank pays for funds and what it gets for loans, increased to 3.91 percent from 3.67 percent a year earlier. The margin was 3.9 percent in the second quarter.

Davis oversaw the lender's government-assisted purchases of failed banks and thrifts in 2008 and 2009, in which it added $35 billion of assets and more than 200 offices. As of June, the company had $283 billion in assets and 3,002 branches, primarily in the U.S. Midwest and West, data compiled by Bloomberg show.

Average total loans outstanding increased 5.8 percent in the third quarter to $192.5 billion from the year-earlier period, according to the statement. Without acquisitions, loans would have declined 0.4 percent, the bank said. It made $54.8 billion in new loans and financing commitments to businesses and individuals, the statement shows. That is 18 percent more than what the lender reported in the second quarter.

'Forged Ahead'

"They forged ahead when others were backing down," Jason Goldberg, an analyst at Barclays Capital Inc. in New York, said in an interview before today's announcement.

The bank is likely to acquire weaker lenders as the industry consolidates, analysts including Richard Bove of Rochdale Securities LLC in Lutz, Florida have said.

U.S. Bancorp slipped 1.5 percent to $22.81 yesterday in New York Stock Exchange composite trading. The shares are up 1.3 percent this year through yesterday.

U.S. Bancorp, which remained profitable during the credit crisis, generally outperforms peers, credit-rating company Standard & Poor's wrote in an Aug. 4 report. Almost half the bank's revenue comes from fees and other non-interest sources, according to S&P. The company is the fourth-biggest U.S. processor of card transactions for merchants, ranked by sales, according to S&P.