Fees drive increased profits at U.S. Bank

• Bottom line: A double-digit spike in fee revenue pushed the company's third-quarter net income past $2 billion.
• Expert quote: "Solid net interest income growth and margin expansion, as well as continued momentum across our fee businesses and prudent expense management supported double-digit net income growth," CEO Gunjan Kedia said.
• Key insight: Mortgage banking revenues rose 16% to $180 million.

U.S. Bancorp reported third-quarter net income of $2 billion Thursday, up 17% over the comparable 2024 result as fee income spiked and credit quality held steady. 
Third-quarter revenue of $7.3 billion increased 7% from the same period last year, driven in large part by the significant jump in noninterest income. Fee revenue jumped 14% year-over-year to $3.1 billion. The advance was broad-based, with credit cards, merchant processing, trust and investment services and capital markets each delivering year-over-year gains. 

Mortgage banking revenue of $180 million, was up 16%. Capital markets income of $434 million jumped 9%, matching a trend seen at other big banks. "The near-term outlook for investment banking activity has started to improve relative to earlier in the year when the Trump Administration announced its tariff policies in April," RBC Analyst Gerard Cassidy wrote Wednesday in a research note. 

U.S. Bancorp's third-quarter noninterest expense of $4.2 billion matched the Sept. 30, 2024 number. 

Credit quality remained solid with both net chargeoffs and nonperforming loans declining from third-quarter 2024 levels. Chargeoffs of $536 million dropped 5%. Nonperforming loans fell 10% to $1.65 billion. 

The $695 billion-asset U.S. Bancorp's improved credit quality metrics were in line with other regional and money center banks. Wells Fargo and Bank of America also reported declines in chargeoffs and problem loans. 

"Solid net interest income growth and margin expansion, as well as continued momentum across our fee businesses and prudent expense management supported double-digit net income growth, on both a linked quarter and year-over-year basis," CEO Gunjan Kedia said in a press release. "This quarter's strong results reflect the power of our strategy and the dedication of our teams across the franchise." 

The increased earnings follow on the heels of last week's news that Anchorage Digital Bank had tabbed U.S. Bancorp to serve as custodian for its new stablecoin platform, bolstering its position as a leading stablecoin custodian. On Wednesday, U.S. Bancorp moved to press its advantage, unveiling the creation of a digital assets and money movement group to further capitalize on digital products and services, including cryptocurrency custody, stablecoin issuance and asset tokenization. 

"Digital assets are rapidly evolving, and U.S. Bank is well-positioned as they grow and become more common across financial services," Chief Digital Officer Dominic Venturo said in a press release.

U.S. Bancorp's third-quarter net income amounted to $1.22 per share, beating analysts' estimate of 1.11, according to Zacks Investment Research. The company's broader results hit the medium-term targets it announced at its investor day event in September 2024. Return on assets of 1.17% was slightly higher than the 1.15% target, while return on tangible common equity of 18.6% reached guidance calling for a result in the high teens. 

"For the quarter, we generated meaningful positive operating leverage, on a year-over-year basis, and made steady progress toward our medium-term financial targets,' Kedia said in the press release. 

U.S. Bancorp is forecasting fourth-quarter numbers largely in-line with third-quarter results. Guidance calls for net interest income near $4.25 billion along with fee income of approximately $3 billion. 

U.S. Bancorp's deposits totaled $526 billion on Sept. 30, up 1% from a year ago. Loans of $382.5 billion increased 1.4%.