(Updates with revenue, credit quality, starting in the fifth paragraph.)
Oct. 19 (Bloomberg) -- U.S. Bancorp, the nation’s fifth- largest commercial bank, posted a 40 percent gain in third- quarter profit as revenue and lending expanded and fewer borrowers fell behind on payments.
Net income at the Minneapolis-based company climbed to a record $1.27 billion, or 64 cents a diluted share, from $908 million, or 45 cents, in the same period a year earlier. The average estimate of 30 analysts surveyed by Bloomberg was for 62 cents per share.
Chief Executive Officer Richard Davis, 53, 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. The stock is one of only five in the 24-company KBW Bank Index showing a gain for the past 12 months.
“The biggest pressure points for the banks reporting so far have been net interest income and capital markets,” Brian Foran, an analyst with Nomura Securities International Inc. in New York, said in an interview before results were announced. “USB has a capital-markets business, but it’s very small, so really the key for them becomes, can they grow net interest income?” Foran has a ’’buy’’ recommendation on the shares.
Revenue increased 4.5 percent to $4.8 billion as net interest income advanced 5.9 percent. Average total loans grew 5 percent, the bank said.
Davis predicted net charge-offs and nonperforming assets will improve in the fourth quarter. The bank’s $150 million reserve release was less than in the previous quarter because the outlook for charge-offs in consumer loans is stabilizing.
“We continued to benefit from the investments we have made in our business lines and the overall flight to quality,” Davis said in the statement. The bank expects it will be able to buy back more shares, he said.
Headwinds include new limits on debit-card “swipe” fees, which could cost U.S. Bancorp about $300 million a year in revenue, according to a presentation earlier this year. The Federal Reserve capped fees at 21 cents a transaction, a reduction from an average of 44 cents.
The lender has said it will try to recoup some revenue by imposing new fees for checking accounts and other services. Bank of America Corp., ranked second by assets, has said some debit- card users would be charged $5 a month. San Francisco-based Wells Fargo is testing a $3 monthly fee, and similar charges have been imposed by Regions Financial Corp. and SunTrust Banks Inc.
Bank of America’s plan sparked objections from critics including President Barack Obama. Five House Democrats asked Attorney General Eric Holder on Oct. 13 to investigate whether banks and trade groups colluded on decisions to impose new fees.
U.S. Bancorp’s stock is up 7.3 percent in the past 12 months through yesterday, second only to Commerce Bancshares Inc. in the KBW Bank Index. For the year to date, the shares are down 9.2 percent.
--Editors: Rick Green, Steve Dickson
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