) has yet again delivered an encouraging earnings performance in
third-quarter 2013. Aided by reduced non-interest expenses and a
lower provision for credit losses, the company reported earnings
per share of 76 cents, up from 74 cents reported in the year-ago
period. However, results came in line with the Zacks Consensus
Net income attributable to U.S. Bancorp was $1.47 billion in the
quarter, down 0.4% year over year.
U.S. Bancorp's net revenue came in at around $4.89 billion in the
quarter, down 5.6% year over year and also lagged the Zacks
Consensus Estimate of $4.93 billion. Results were primarily
impacted by decreases in net interest and non-interest income.
Performance in Detail
U.S. Bancorp's tax-equivalent net interest income stood at $2.7
billion in the quarter, reflecting a 2.5% fall from the
comparable last-year quarter. The dip was mainly due to reduced
loan and investment portfolio rates, partially mitigated by
elevated average earning assets, persistent growth in lower cost
core deposit funding along with the positive impact from
maturities of higher-rate long-term debt.
U.S. Bancorp's non-interest income moved down 9.1% year over year
to $2.2 billion. Reduced mortgage banking revenues and lower
origination and sales revenues led to this decline. These
decreases were partially offset by higher credit and debit card
revenues, increased trust and investment management fees and
elevated investment products fees.
Average earning assets were up 2.0% year over year, driven by
growth in average total loans and average investment securities.
Moreover, net interest margin of 3.43% fell 16 basis points (bps)
year over year and mainly reflected reduced rates on investment
securities and loans, partly mitigated by lower rates on deposits
and reduced higher cost long-term debt.
U.S. Bancorp's average total loans climbed 5.7% year over year to
$229.4 billion, owing to growth in commercial loans, residential
mortgages, total commercial real estate, retail leasing, credit
card and other retail loans. These increases were partially
offset by a drop in home equity and second mortgages, lease
financing and covered loans. Excluding covered loans, average
total loans rose 7.5% year over year.
Average total deposits were up 5.5% from the prior-year quarter
to $252.4 billion, primarily reflecting growth in
non-interest-bearing deposits, savings deposits as well as
Non-interest expense declined 1.7% year over year to $2.6 billion
at U.S. Bancorp. Reduced professional services expense along with
lower marketing and business development costs mainly resulted in
the year-over-year decrease in non-interest expense. These
positives were partially offset by higher employee benefits
Credit metrics improved at U.S. Bancorp in the reported quarter.
Net charge-offs (excluding covered loans) stood at $320 million,
down 14.2% sequentially and 40.3% year over year. On both a
sequential and year-over-year basis, the company experienced
improvement in net-charge-offs in the commercial and residential
U.S. Bancorp's nonperforming assets (excluding covered assets)
were $1.9 billion, down 2.1% sequentially and 14.1% year over
year. Provision for credit losses decreased 17.7% sequentially
and 38.9% year over year to $298 million in the reported quarter.
During the quarter under review, U.S. Bancorp maintained a solid
capital position. As of Sep 30, 2013, the company's Tier 1
capital ratio came in at 11.2%, up from 11.1% reported in the
prior quarter. The Tier 1 common equity to risk-weighted assets
ratio under Basel I was 9.3% compared with 9.2% in the prior
All regulatory ratios of U.S. Bancorp continued to be in excess
of "well-capitalized" requirements. Moreover, using final rules
for the Basel III standardized approach released in Jul 2013, the
Tier 1 common equity to risk-weighted assets ratio was estimated
at 8.6% as of Sep 30, 2013, in line with the prior quarter.
U.S. Bancorp posted an improvement in book value per share, which
increased to $19.31 as of Sep 30, 2013 from $18.94 at the end of
the prior quarter and $18.03 at the end of the prior-year
Capital Deployment Update
During third-quarter 2013, U.S. Bancorp paid $422 million as
common stock dividends and repurchased common stock worth $659
million. Reflecting the company's capital strength during the
third quarter, the company was able to return 77% of its earnings
to shareholders as dividends and share repurchases within the
range of its long-term goal of returning 60-80%.
We believe that U.S. Bancorp's attractive core franchisee,
diverse revenue streams and strong performance in the past years
are impressive. A solid capital position, improving credit
quality and increase in lending activities augur well for the
company. It adheres to a conservative growth stratagem and has
made small but strategic acquisitions. Exposure to mortgage
buybacks and legal hassles are also minimal.
However, the top-line headwinds are expected to persist, given
the protracted economic recovery. Plus, a low interest-rate
environment would keep U.S. Bancorp's margins under pressure.
With the thrust on banking regulations, there will be pressure on
fees and loan growth.
Though there are concerns related to the impact of legal issues
and its global exposures, equity-centric activities in the U.S.
are expected to support U.S. Bancorp's results in the upcoming
quarters with continued recovery in the capital markets. The
shares of U.S. Bancorp currently carry a Zacks Rank #3 (Hold).
Among major regional banks,
Fifth Third Bancorp
) are scheduled to report on Oct 17, while
State Street Corporation
) will report on Oct 22.
BB&T CORP (BBT): Free Stock Analysis
FIFTH THIRD BK (FITB): Free Stock Analysis
STATE ST CORP (STT): Free Stock Analysis
US BANCORP (USB): Free Stock Analysis Report
To read this article on Zacks.com click here.