Fitch: Industry Leading Performance Continues for U.S. Bancorp
CHICAGO -- October 17, 2012
U.S. Bancorp (USB) reported third quarter 2012 (3Q'12) net income of $1.47
billion, up 4.2% from the sequential quarter, and which equated to a very
strong 1.70% return on assets (ROA) during the quarter, according to Fitch
Ratings. Fitch notes that USB's operating performance continues to exceed that
of peers, and is reflective of USB's strong ratings (long-term Issuer Default
Rating of 'AA-'), which puts USB in a category of some of Fitch's highest
rated banks, globally.
USB's earnings were driven by a strong net interest margin (NIM) of 3.59%,
which was essentially unchanged from the sequential quarter. Fitch notes that
this is impressive given the currently low interest rate environment that is
pressuring NIM for most other banks. USB was able to keep its NIM strong as it
lowered funding costs, particularly on its long-term debt, as well as
generating some additional earning asset yields from its loan growth,
primarily in the residential mortgage and commercial loan space.
Non-interest income also modestly increased primarily due to strong mortgage
banking originations and income amid the rally in mortgage rates during the
quarter. While wealth management is still a relatively smaller part of USB's
non-interest income, Fitch would expect this to grow over time, which Fitch
believes will help stem the volatility that mortgage banking income can have
on earnings. Additionally, USB's non-interest expenses were essentially flat,
and the company's efficiency ratio remained very strong at 50.4%.
As previously alluded to, USB continues to generate loan growth better than
many peers, which was evident this quarter as commercial loans grew 2.24% from
the sequential quarter, and mortgage loans grew 4.96% from the sequential
quarter, both partially offset by a decline in covered loans of 7.45% from the
sequential quarter. Given USB's strong competitive positioning, Fitch would
expect some additional loan growth over the balance of the year.
On balance, USB's credit quality continues to improve across most loan
categories. However, given regulatory guidance regarding Chapter 7
bankruptcies that has impacted the entire industry in 3Q'12, USB did see a
moderate increase in net-charge offs (NCOs) in both its residential mortgage
and home equity portfolios. Fitch would note that this increase in NCOs is
very manageable, particularly in context of the company's strong earnings
Fitch notes that USB's capital position remains strong. The company's Tier 1
common ratio under Basel 1 increased to 9.0% in 3Q'12, up from 8.8% at 2Q'12.
Fitch would note that this increase in capital ratio also includes dividends
of $367 million and buybacks of $581 million, which equated to a 64% total
payout on the quarter. While Fitch would typically view this as on the higher
side, given USB's very strong earnings profile and good credit quality
metrics, the higher payout ratio is reasonable.
Fitch would also note that USB's Tier 1 common ratio under Basel 3 proposals
was 8.2% at 3Q'12, up from 7.9% at 2Q'12.
Additional information is available at www.fitchratings.com.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE.
Justin Fuller, CFA
70 W. Madison Street
Chicago, IL 60602
Press spacebar to pause and continue. Press esc to stop.