USB US Bancorp

U.S.Bancorp (USB) reported its third-quarter 2011 earnings of 60 cents per share, a penny lower than the Zacks Consensus Estimate of 61 cents. However, results were flat from earnings per share 60 cents in the prior quarter but surged from 45 cents reported in the year-ago quarter.

U.S. Bancorp’s revenues came in at $4.8 billion, up 4.5% year over year, also exceeding the Zacks Consensus Estimate of $4.72 billion. The year-over-year increase was primarily driven by growth in both net interest income and fee-based revenue.

Provision for credit losses decreased both sequentially and year over year, with net charge-offs showing a declining trend. Provision for credit losses was $519 million, down 9.3% sequentially and 47.8% year over year.

Results for the reported quarter reflect an improvement in credit metrics, given a decline in provision for credit losses coupled with a modest revenue growth. However, these positives were partially offset by an increase in non-interest expenses and higher taxes.

Profitability Metrics

U.S. Bancorp’s tax-equivalent net interest income was $2.6 billion, up 5.9% from the prior-year quarter, primarily driven by an increase in average earning assets and strong growth in lower cost core deposit funding.

Average earnings assets were up 13.6% year over year. However, net interest margin of 3.65% was down 26 basis points (bps) year over year, primarily due to higher balances in lower yielding investment securities and growth in cash balances held at the Federal Reserve.

Average total loans climbed 5.0% year over year, owing to growth in residential mortgages, commercial loans, commercial real estate loans and retail loans. These increases were partially offset by a decline in average covered loans. Average total deposits were up 17.9% from the prior-year quarter, primarily reflecting growth in non-interest-bearing deposits and savings deposits.

U.S. Bancorp’s non-interest income edged up 2.9% year over year to $2.17 billion. The year-over-year increase was primarily attributable to higher payments-related revenue and deposit service charges. In addition, trust and investment management fees as well as mortgage banking revenue also reported declines.

On the negative side, non-interest expense increased 3.8% year over year to $2.47 billion. The year-over-year increase was primarily due to higher compensation, employee benefits costs, professional services expense and other business initiatives.

Credit Quality

Credit metrics continued to improve at U.S. Bancorp. Net charge-offs (excluding covered loans) were 1.42% of average loans outstanding, down 21 bps sequentially and 84 bps year over year. The sequential decrease in charge-offs was principally attributable to improvement in the commercial real estate, credit card and other retail portfolios.

Nonperforming assets as a percentage of related assets (excluding covered assets) were 1.60%, down 17 bps sequentially and 42 bps year over year. This year-over-year decrease was driven primarily by strong improvement in commercial and commercial real estate portfolios. Given the current economic conditions, U.S. Bancorp expects nonperforming assets, to trend lower in the fourth quarter of 2011.

Capital Position

U.S. Bancorp’s capital position remained strong. Capital generated from earnings resulted in improved metrics both sequentially and year over year. Return on average assets was 1.57%, up 3 bps sequentially and 31 bps year over year. Return on average common equity was 16.1%, up 2 bps sequentially and 33 bps year over year.

U.S. Bancorp also posted an improvement in book value per share, which increased to $16.01 as of September 30, 2011, from $15.50 at the end of the prior quarter and $14.19 at the end of the prior-year quarter. Tier 1 capital ratio also improved to 10.8% from 10.3% in the year-ago quarter but declined slightly from 11.0% in the prior quarter. However, Tier 1 common equity ratio increased to 8.5% from 8.4% reported in the prior quarter and 8.2% in the year-ago quarter. U.S. Bancorp repurchased 13 million shares during the reported quarter.

Dividend Update

On October 17, 2011, the board of U.S. Bancorp paid a quarterly dividend of 12.5 cents per common share to the shareholders of record as on September 30, 2011.

 
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