U.S. Bancorp, like industry peers, posted better-than-expected results thanks to lower expenses

U.S. Bancorp recorded better than expected results for the third quarter, benefiting from a solid uptick in income from select loans while expenses fell.

The results released Wednesday — like those of several industry peers including JPMorgan Chase — handily beat Wall Street estimates.

Net interest income, which is the difference between expenses for deposits and income generated from lending and investments, was $4.14 billion for the quarter ending Sept. 30, when analysts expected $4.04 billion. And net earnings grew to $1.7 billion, or $1.03 a share, when analysts were expecting $1 a share.

The quarter saw a welcome jump in income from both loans and investment securities.

It also realized a 7% drop in non-interest expenses for the Minneapolis-based company that runs U.S. Bank. To get there, the firm dramatically increased operational efficiencies, which helped offset higher employee compensation, officials said.

U.S. Bank — and the rest of the banking industry — were also helped because they were able to move on after 2023′s surprise failures at Silicon Valley Bank and First Republic Bank in California. Those bank failures caused deposit costs to soar putting a lot of pressure on banks’ net interest incomes, said Chief Financial Officer John Stern said.

But “that kind of troughed in the first quarter, and we’ve had now two solid quarters of growth in net interest income. So it’s positive momentum,” he said.

In addition, U.S. Bank enjoyed a drop in expenses when the Federal Reserve Bank cut interest rates by 50 basis points in mid-September, allowing the bank to reduce the amount it paid for commercial deposits.

CEO Andy Cecere said the bank’s dropping expenses support modest but positive operating leverage, which he expects will “expand in the fourth quarter and into 2025.”

U.S. Bank’s shares temporarily hit a one-year high Wednesday morning before slipping slightly. They closed up nearly 5%.

Cecere said he now expects net interest income will be “stable” during the fourth quarter given the modest loan growth environment. Income, however, is expected to reach the higher end of the $16.1 billion to $16.4 billion range for full year 2024.

Cecere also expects single-digit growth to non-interest income and for full year non-interest expense to reach $10.8 billion.

Credit card and loan expectations are baked into next year’s forecast.

Stern said the bank’s credit card business is healthy, as consumer purchases continue to be high. The bank has yet to see an increase in loan demand as a result of the Federal Reserve’s interest rate cuts, but that is anticipated.

For the third quarter, net interest income on loans and investments rose from the second quarter but fell 2.4% from a year ago to $4.17 billion. The decline was mostly due to the impact of higher interest rates on total deposits.

Non-interest income, mostly from fees, also fell 2.4% to $2.7 billion from a year ago. The drop meant the bank did not enjoy a repeat of the surprise jump seen during the second quarter. Before that, fee income had fallen for five consecutive quarters.

While overall non-interest income fell, the bank saw a double-digit spike in fees from commercial and investment products and “saw good year-over-year growth in trust and investment management, payment services, mortgage banking and treasury management fee revenue,” Cecere told analysts, adding that the bank also benefited from improved underlying market conditions and expanded distribution channels.

Cecere and Stern noted the bank remains committed to balancing its capital growth and expects to soon resume share buybacks.

During the quarter the bank announced a new strategic partnership to serve Edward Jones’ clients with select deposit and credit card products. It also announced that it acquired Salucro Healthcare Solutions, which provides health care financial technology, focused on online patient payments and billing.

U.S. Bancorp’s newly promoted president, Gunjan Kedia, told analysts the bank has become adept at partnering with various outside entities such as State Farm and now Edward Jones. The bank has set up digital and operational capabilities to serve the clientele of its new partners and so far it’s working.

The efforts are showing “good early successes and good momentum as a starting point to get your name and your brand in areas that we are not in today,” she said.

Stern said the partnerships are expected to grow checking, savings and CD accounts and eventually credit card business with U.S. Bank, especially in the southeast and eastern regions of the country, where U.S. Bank doesn’t have much of a presence.

It will “probably take some time before it fully gets ramped up. But you can think of it as a great partnership for these companies that have a need for basic banking products,” Stern said. “Those are the areas that we believe will find great growth. It’s going to be a gradual thing.”