) has yet again delivered encouraging results in its third quarter
2012. Aided by growth in revenue as well as positive operating
leverage, the company reported earnings per share of 74 cents,
marching ahead of the Zacks Consensus Estimate of 73 cents.
Moreover, it compared favorably with earnings per share of 71 cents
in the prior quarter and 64 cents in the year-ago period.
CITIGROUP INC (C): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
US BANCORP (USB): Free Stock Analysis Report
WELLS FARGO-NEW (WFC): Free Stock Analysis
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Notably, U.S. Bancorp realized a gain on a credit card portfolio
sale, incurred a charge associated with an investment under the
equity method of accounting and posted incremental provision for
credit losses for charge-offs as a result of a regulatory
clarification regarding the treatment of residential mortgage as
well as other consumer loans to borrowers who have exited
bankruptcy but carry on making payments on their loans. However,
the impact of these items taken together was nil on the company's
third quarter earnings per share.
U.S. Bancorp's revenues came in at around $5.18 billion, up 2.2%
sequentially, 8.0% year over year and also exceeding the Zacks
Consensus Estimate of $5.13 billion. Results were supported by
increases in net interest income and fee-based revenue. The company
achieved positive operating leverage on both sequential and
Quarter in Detail
U.S. Bancorp's tax-equivalent net interest income stood at $2.8
billion, reflecting a 6.1% rise from the comparable quarter last
year. This upside was spurred by an elevation in average earning
assets, growth in lower cost core deposit funding and the positive
impact from lower cost long-term debt. Average earnings assets were
up 7.9% year over year driven by growth in average total loans and
average investment securities.
However, net interest margin of 3.59% fell 6 basis points (bps)
year over year and mainly reflected increased balances in lower
yielding investment securities, partly offset by lower rates on
deposits and long-term debt. Yet, net interest margin moved up just
1 bps sequentially due to favorable funding costs.
U.S. Bancorp's average total loans climbed 7.3% year over year,
owing to growth in commercial loans, residential mortgages,
commercial mortgages, credit card loans and other retail loans.
These increases were partially offset by drop in construction and
development, home equity and second mortgages as well as covered
Excluding covered loans, average total loans accelerated 9.6% year
over year. Notably, the company sold off around $735 million
branded consumer and business credit card portfolio in the reported
quarter, which reduced average loans by about $485 million in the
quarter under review.
Average total deposits were up 11.1% from the prior-year quarter,
primarily reflecting growth in non-interest-bearing deposits and
U.S. Bancorp's non-interest income moved up 10.4% year over year to
$2.4 billion. Higher mortgage banking revenue primarily contributed
to this uptick. These were partially offset by legislative-related
decreases in credit and debit card revenue and a reclass of ATM
processing services revenue.
On the negative side, non-interest expense augmented 5.4% year over
year to $2.6 billion at U.S. Bancorp. Higher compensation expense,
employee benefits costs and mortgage servicing review-related
professional services costs mainly resulted in the year-over-year
increase in non-interest expense.
Credit metrics were mixed at U.S. Bancorp in the reported quarter.
Quarterly results bore the impact of the regulatory clarification
in the treatment of consumer borrowers exiting bankruptcy.
Net charge-offs (excluding covered loans) were 1.04% of average
loans outstanding, flat sequentially and down 38 bps year over
year. On a year-over-year basis, the company experienced
improvement in net-charge-offs in the commercial, commercial real
estate and credit card portfolios.
U.S. Bancorp's nonperforming assets as a percentage of related
assets (excluding covered assets) were 1.06%, down 5 bps
sequentially and 54 bps year over year. This year-over-year
downside was due to the fall in the construction and development
portfolio, as well as owing to the improvement in commercial
mortgages and other commercial loan portfolios. These were
partially offset due to a rise in nonperforming other retail loans
primarily as a result of the policy change for junior lien lines
and loans in the second quarter.
Provision for credit losses at U.S. Bancorp increased 3.8%
sequentially but dropped 6.0% year over year to $488 million in the
Excluding a change in reporting for collateralized loans to
consumers who have filed for bankruptcy, overall credit quality of
its loan portfolio continued to improve. As a result, management
expects the downward trend in net charge-offs and nonperforming
assets to continue in the fourth quarter, with the net charge-off
ratio remaining below 1%.
During the quarter under review, U.S. Bancorp's capital ratios
improved. Tier 1 capital ratio of 10.9% was up from 10.7% reported
in the prior quarter and 10.8% in the year-ago quarter. The Tier 1
common equity to risk-weighted assets ratio was 9.0% as of
September 30, 2012, ahead of 8.8% as of June 30, 2012, and 8.5% as
of September 30, 2011.
All regulatory ratios of U.S. Bancorp continued to be in excess of
"well-capitalized" requirements. Moreover, using proposed rules for
the Basel III standardized approach released in June 2012, the Tier
1 common equity to risk-weighted assets ratio was around 8.2% as of
September 30, 2012 compared with 7.9% as of June 20, 2012.
U.S. Bancorp also posted an improvement in book value per share,
which increased to $18.03 as of September 30, 2012, from $17.45 at
the end of the prior quarter and $16.01 at the end of the
Capital Deployment Update
During the third quarter, U.S. Bancorp declared $367 million in
common stock dividends and bought back common stock worth $581
million in total. Reflecting U.S. Bancorp's capital strength during
the third quarter, the company was able to return 67% of its
earnings to its shareholders as dividends and share repurchases.
Also, this is within the range of its long-term goal of returning
Among U.S. Bancorp's peers,
), after reporting decent results in the prior quarter, posted
somewhat encouraging third quarter 2012 results. Earnings per share
came in at $1.06 for the quarter, comfortably surpassing the Zacks
Consensus Estimate of 98 cents on lower loan loss provisions,
higher Global Consumer Banking revenues and a drop in expenses.
Moreover, last Friday,
JPMorgan Chase & Company
) reported earnings per share of $1.40, beating the Zacks Consensus
Estimate of $1.20 as well as prior-year quarter's earnings of $1.02
per share. Despite the impact of a number of legal and regulatory
issues as well as fundamental pressures like low interest rate and
sluggish loan demand, JPMorgan's earnings were aided by a marked
improvement in capital market activity and healthy mortgage
Wells Fargo & Company
), which achieved its eleventh consecutive quarter of growth in
earnings per share, reported earnings of 88 cents per share in
third quarter 2012, improving from 82 cents earned per share in the
prior quarter and 72 cents in the year-ago quarter. Also, it beat
the Zacks Consensus Estimate by a penny. Results at Wells Fargo
benefited from improvements in non-interest income as well as cost
We believe that U.S. Bancorp's attractive core franchisee, diverse
revenue stream and strong performance in the past years are
impressive. Solid capital position, improving credit quality and
increase in lending activities augur well. It adheres to a
conservative growth stratagem and has made small but strategic
acquisitions. Exposure to mortgage buybacks and legal hassles are
Yet regulatory issues along with the expectation of a continued low
interest rate environment are likely to limit the stock's upside
potential in the upcoming quarters. Moreover, the shares of U.S.
Bancorp have a Zacks #2 Rank, which translates into a short-term