STT State Street Corporation

On Mar 6, 2013, we reiterated our long-term recommendation on U.S. Bancorp (USB) at Neutral based on its attractive core franchisee, diverse revenue stream and strong performance over the past years. Moreover, the company's solid capital position, improving credit quality and increase in lending activities augur well. However, regulatory issues along with the expectation of a continued low-interest rate environment remain concerns.

Why Neutral?

U.S. Bancorp has yet again delivered encouraging fourth quarter 2012 results. Aided by growth in revenue as well as positive operating leverage, the company reported earnings per share of 75 cents, inching past the Zacks Consensus Estimate by a penny.

Notably, including a previously disclosed $80 million expense accrual for a mortgage foreclosure-related regulatory settlement, net income attributable to U.S. Bancorp stood at $1.4 billion or 72 cents per share.

Credit metrics improved at U.S. Bancorp during 2012. Net charge-offs, provision for credit losses and nonperforming assets declined on a year-over-year basis as economic conditions continued to improve slowly. With the recovery of the economy, though at a sluggish pace, we expect this trend to continue in the upcoming quarters.

However, U.S. Bancorp's non-interest income moved down 4.2% year over year to $2.3 billion. A sluggish economy that adversely affected consumer and business spending has impacted a number of fee-based categories over the last several quarters. Though we expect the fee-based category to recover over time with an improvement in the economy, we think that the progress will be tardy with the economy recuperating at a slow pace.

Following fourth-quarter 2012 results, the Zacks Consensus Estimate for 2013 has remained stable at $3.17, over the last 60 days. With the Zacks Consensus Estimate remaining constant, the company retains a Zacks Rank #3 (Hold).

Other Major Banks to Consider

Among peers, BankUnited Inc. (BKU) holds a Zacks Rank #1 (Strong Buy), while Fifth Third Bancorp (FITB) and State Street Corporation (STT) retain a Zacks Rank #2 (Buy).

 
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