) 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. Moreover,
it compared favorably with earnings per share of 69 cents in the
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.
For the full year 2012, earnings per share reached $2.84 per
share, marginally below the Zacks Consensus Estimate of $2.86 per
share. However, earnings compared favorably with the prior-year
earnings of $2.46 per share.
Performance in Detail
U.S. Bancorp's net revenues came in at around $5.1 billion in the
quarter, up 0.2% year over year, but lagged the Zacks Consensus
Estimate of $5.2 billion. Results were primarily supported by
increases in net interest income and mortgage banking revenue.
The company achieved positive operating leverage on a
For full year 2012, the company reported revenue of $20.3
billion, up 6.2% year over year and in line with the Zacks
U.S. Bancorp's tax-equivalent net interest income stood at $2.8
billion in the quarter, reflecting a 4.1% rise from the
comparable last year quarter. 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 5.8% year over year driven
by growth in average total loans and average investment
However, net interest margin of 3.55% fell 5 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.
U.S. Bancorp's average total loans climbed 6.4% year over year to
$13.2 billion, owing to growth in commercial loans, residential
mortgages, commercial mortgages, retail leasing, credit card
loans and other retail loans. These increases were partially
offset by drop in construction and development, lease financing,
home equity and second mortgages as well as covered loans.
Excluding covered loans, average total loans accelerated 8.6%
year over year.
Average total deposits were up 9.2% from the prior-year quarter
to $20.5 billion, primarily reflecting growth in
non-interest-bearing deposits, savings deposits as well as
Non-interest expense declined 0.4% year over year to $2.7 billion
at U.S. Bancorp. Reduced other expense and lower net occupancy
and equipment expenses resulted in the year-over-year decrease in
non-interest expense. These declines were partially offset by
higher compensation, employee benefits and professional services
On the negative side, U.S. Bancorp's non-interest income moved
down 4.2% year over year to $2.3 billion. Lower ATM processing
services revenue and reduced other non-interest income led to
this decline. These decreases were partially offset by higher
mortgage banking revenue and elevated investment products fees
Credit metrics improved 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 0.88% of average
loans outstanding, down 16 bps sequentially and 40 bps year over
year. On both sequential and 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 0.98%, down 8 bps
sequentially and 34 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 decreased 9.2%
sequentially and 10.9% year over year to $443 million in the
During the quarter under review, U.S. Bancorp's Tier 1 capital
ratio came in at 10.8%, down from 10.9% reported in the prior
quarter and in line with the year-ago quarter. The Tier 1 common
equity to risk-weighted assets ratio was 9.0% as of Dec 31, 2012,
in line with the ratio reported as of Sep 30, 2012, and ahead of
8.6% as of Dec 31, 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 Jun
2012, the Tier 1 common equity to risk-weighted assets ratio was
around 8.1% as of Dec 31, 2012 compared with 8.2% as of Sep 30,
U.S. Bancorp posted an improvement in book value per share, which
increased to $18.31 as of Dec 31, 2012, from $18.03 at the end of
the prior quarter and $16.43 at the end of the prior-year
U.S. Bancorp's lead bank, U.S. Bank, announced the purchase of
FSV Payment Systems, a Florida-based prepaid card processing
company in November 2012. The deal terms were, however, not made
The deal is a strategic fit for U.S. Bancorp's banking unit as it
will strengthen its position in the prepaid market, which has
been the company's priority over the last decade. A reputed
organization in the prepaid card market, FSV both manages and
processes its own programs.
Therefore, the combined entity, which will capitalize on U.S.
Bank's payment strength and prepaid expertise, will be well
positioned to provide efficient end-to-end prepaid programs and
services to its clients.
Earlier in November, in an effort to augment its securities
services business, U.S. Bancorp's subsidiary -- U.S. Bancorp Fund
Services, LLC -- announced its plan to acquire AIS Fund
Administration, which offers fund administration and related
services to alternative investment managers. The deal will add
about $25 billion in hedge fund assets under administration to
the U.S. Bancorp subsidiary.
Capital Deployment Update
During the year 2012, U.S. Bancorp declared $3.4 billion in
common stock dividends and repurchased 59 million shares in
total. Notably, during the fourth quarter, the company declared
$366 million in common stock dividends and bought back common
stock worth $413 million in total.
Reflecting U.S. Bancorp's capital strength during the fourth
quarter, the company was able to return earnings to its
shareholders as dividends and share repurchases within the range
of its long-term goal of returning 60-80%.
Wells Fargo & Company
) achieved the twelfth consecutive quarter of growth in earnings
per share by reporting earnings of 92 cents per share in fourth
quarter 2012. Results improved from earnings per share of 88
cents in the prior quarter and 73 cents in the year-ago quarter.
Also, it beat the Zacks Consensus Estimate by 5 cents.
Results at Wells Fargo benefited from improvement in top line,
aided by rise in all segments' revenue. It also reported $250
million in reserve release (pre-tax), attributable to improved
portfolio performance. However, the company experienced rise in
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 Rank #3 (Hold). We believe such
strong results might lead to positive earnings estimate
Ensuing this, we look forward to the results of
Bank of America Corporation
) on January 17.
BANK OF AMER CP (BAC): Free Stock Analysis
CITIGROUP INC (C): Free Stock Analysis Report
US BANCORP (USB): Free Stock Analysis Report
WELLS FARGO-NEW (WFC): Free Stock Analysis
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