U.S. Bancorp
's (
USB
) first-quarter 2012 earnings of 67 cents per share were 3 cents
ahead of the Zacks Consensus Estimate. Results were ahead of the
prior-year quarter's earnings of 52 cents. Moreover, it compared
favorably with earnings of 64 cents per share (excluding certain
one time items) in the prior quarter.
The better-than-expected results at U.S. Bancorp were driven by
year-over-year growth in revenue, which was supported by increases
in net interest income, fee-based revenue and reduced credit costs.
Capital position also remained strong. These positives were
partially offset by an increase in non-interest
expenses.
U.S. Bancorp's revenues came in at $4.9 billion, up 9.1% year
over year and also exceeding the Zacks Consensus Estimate of $4.77
billion. However, on a sequential basis, revenues were down 3.4%,
primarily due to the $263 million merchant settlement gain in the
prior quarter, partly offset by strong mortgage banking
revenue.
Provision for credit losses at U.S. Bancorp decreased both
sequentially and year over year, with net charge-offs showing a
declining trend. Provision for credit losses was $481 million, down
3.2% sequentially and 36.3% year over year.
Quarter in Detail
U.S. Bancorp's tax-equivalent net interest income was $2.7
billion, up 7.3% from the prior-year quarter, attributable to an
increase in average earning assets and growth in lower cost core
deposit funding.
Average earnings assets were up 9.5% year over year. However,
net interest margin of 3.60% remained unchanged sequentially and
was down 9 basis points (bps) year over year.
The year-over-year decline was primarily due to higher balances
in lower yielding investment securities and a drop in loan yields.
These were partially offset by a decrease in the cash balances held
at the Federal Reserve and the credit card balance transfer fees
classification change.
U.S. Bancorp's average total loans climbed 6.4% year over year,
owing to growth in residential mortgages, total commercial loans,
credit card loans and total commercial real estate loans. These
increases were partially offset by declines in total other retail
and covered loans.
Average total loans, excluding covered loans, increased 8.7%
year-over-year. Average total deposits were up 11.7% 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 11.3% year over year
to $2.2 billion. This uptick was primarily driven by higher
mortgage banking revenue, merchant processing services revenue,
commercial products revenue and deposit service charges. These were
partially offset by a fall in credit and debit card revenue and ATM
processing services revenue.
On the negative side, non-interest expense increased 10.6% year
over year to $2.6 billion at U.S. Bancorp. Higher compensation
expense, employee benefits costs, marketing and business
development expense and other expense associated with regulatory
and insurance-related costs resulted in the year over year increase
in non-interest expense.
Credit Quality
Credit metrics continued to improve at U.S. Bancorp. Net
charge-offs (excluding covered loans) were 1.17% of average loans
outstanding, down 11 bps sequentially and 64 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.
U.S. Bancorp's nonperforming assets as a percentage of related
assets (excluding covered assets) were 1.22%, down 10 bps
sequentially and 70 bps year over year. This year-over-year
decrease was due to the fall in the construction and development
nonperforming portfolios, as well as improvement in other
commercial and commercial mortgage portfolios.
Capital Position
U.S. Bancorp's capital position remained strong in the reported
quarter. Capital generated from earnings resulted in improved
metrics. Tier 1 capital ratio of 10.9% was slightly up from 10.8%
reported both in the prior quarter and the year-ago quarter.
The Tier 1 common equity to risk-weighted assets ratio was 8.7% as
of March 31, 2012, ahead of 8.6% as of December 31, 2011, and 8.2%
as of March 31, 2011.
All regulatory ratios continue to be in excess of
"well-capitalized" requirements. Additionally, using
anticipated Basel III guidelines, the Tier 1 common equity to
risk-weighted assets ratio was 8.4% as of March 31, 2012, up from
8.2% as of December 31, 2011, and 7.7% as of March 31, 2011.
U.S. Bancorp also posted an improvement in book value per share,
which increased to $16.94 as of March 31, 2012, from $16.43 at the
end of the prior quarter and $14.83 at the end of the prior-year
quarter.
Capital Deployment Update
Notably, U.S. Bancorp cleared the stress test this year and
following the Fed's approval of its capital plan, has hiked its
dividend 56% and also announced a new 100 million share repurchase
authorization. During the reported quarter, the U.S. Bancorp
repurchased around 16 million shares of common stock, of which
approximately 3 million shares were bought back under the new
authorization.
We believe that the stress test clearance well justifies U.S.
Bancorp's capital strength and its solid business model. As a
matter of fact, the company has returned 66% of its earnings to its
shareholders in the reported quarter and this is within the range
of its long-term goal of returning 60% - 80%.
Peer Performance
Among U.S. Bancorp's peers,
JPMorgan Chase & Company
(
JPM
) and
Wells Fargo & Company
(
WFC
), which kicked off the earnings season for the banking sector this
time by reporting their earnings last Friday, reported
better-than-expected earnings in the first quarter based on top
line improvement.
JPMorgan Chase reported first quarter earnings per share of
$1.31, topping the Zacks Consensus Estimate of $1.17. Results for
the reported quarter were primarily benefited by improved revenue
and slowdown in provision for credit losses, which more than offset
higher non-interest expense.
Wells Fargo's first quarter 2012 earnings of 75 cents per share
were 2 cents ahead of the Zacks Consensus Estimate. Results were
primarily driven by a higher top line. The company reported a
growth in mortgage banking revenue. It also reported $400 million
(pre tax), attributable to improved portfolio performance. However,
an increase in operating expenses was on the downside.
Though
Citigroup Inc.
's (
C
) results were full of noise this time, revenues came up pretty
well. We believe better-than-expected earnings based on revenue
growth at the major Wall Street Banks which has exposures to nearly
every banking business is a good indicator of an overall economic
environment.
In Conclusion
We believe that U.S. Bancorp has weathered the economic downturn
relatively well. Its core franchisee is attractive and the diverse
revenue stream is encouraging. Going forward, we expect strategic
acquisitions to abet its top-line growth. Though regulatory issues
and low interest rate environment remain headwinds, we believe the
company's solid capital position, improving credit quality and
increase in lending activities should help propel its earnings
forward. Moreover, the stress test clearance along with the
company's capital redeployment efforts serves as a positive
catalyst.
U.S. Bancorp shares are maintaining a Zacks #1 Rank, which
translates into a short-term "Strong Buy" rating. Following the
solid earnings announcement, the stock is also trading at a premium
reflecting investors' upbeat mood.
CITIGROUP INC (
C
): Free Stock Analysis Report
JPMORGAN CHASE (
JPM
): Free Stock Analysis Report
US BANCORP (
USB
): Free Stock Analysis Report
WELLS FARGO-NEW (
WFC
): Free Stock Analysis Report
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