U.S. Bancorp Predicts Stable 4Q Margins, Lower Mortgage Fee Income

U.S. Bancorp in Minneapolis has raised its expectations for its net interest margin in the fourth quarter, citing the recent increase in benchmark rates.

Speaking at an industry conference on Wednesday, Chief Financial Officer Terry Dolan said he expects U.S. Bancorp's margin to be flat compared with the third-quarter margin of 2.98%. The company previously expected the margin to shrink by 2 basis points.

The $448 billion-asset company has also noticed a faster-than-expected drop-off in refinancing activity, due to higher mortgage rates and the seasonal patterns of homebuying. Because of that, mortgage fees are expected to decline by as much as 30% from the third quarter's results of $314 million.

Loans are on track to grow by as much as 1.5%, led by a notable bounce back in commercial lending, Dolan said.

At the conference — which took place in New York and was sponsored by Goldman Sachs — U.S. Bancorp executives were also asked about the prospect of tax reform in the year ahead. President Andy Cecere said lowering the corporate rate would be a boon to commercial lending, as it would likely encourage clients to invest in their businesses and borrow more.

With lower tax rates, U.S. Bancorp would likely see credit line use increase and corporate cash balances decline, Cecere said.

President-elect Donald Trump has proposed lowering the corporate tax rate to 15% from its current level of 35%. Republican leaders in Congress earlier this year proposed lowering it to 20%.

U.S. Bancorp's bottom line would benefit, too. Dolan said that if tax rates were lowered by 10 percentage points, “probably 50% to 60% of that” savings would accrue to the company’s bottom line.

After the call, a spokesman for the company clarified that a corporate tax rate of 25% would, for example, lower U.S. Bancorp’s effective tax rate to roughly 20% from 26%.

"It's definitely going to [be] an opportunity for economic benefit in the future if we see that reform," Dolan said. And the "earlier we see it, the better off it's going to be."

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