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U.S. Bancorp Reports Strong Loan Growth (Update 1)

  • Third-quarter EPS of 76 cents matches the consensus estimate.
  • Average loans, excluding acquired covered loans, up 2.2% from the second quarter.
  • Net interest income rises sequentially.
  • Net interest margin unchanged from the second quarter.
  • Mortgage banking revenue sinks 17% from the second quarter, 37% year over year.

Updated from 8:44 a.m. ET with market action and comment from Jefferies analyst Ken Usdin.

NEW YORK ( TheStreet) -- U.S. Bancorp (USB - Get Report) on Wednesday reported very solid growth of average loans, at an annualized pace of nearly 9%.

The Minneapolis lender reported third-quarter earnings of $1.468 billion, or 76 cents a share, compared to $1.484 billion, or 74 cents a share, in the second quarter, and $1.474 billion, or 74 cents a share, in the third quarter of 2012.

Third-quarter EPS matched the consensus estimate among analysts polled by Thomson Reuters.

U.S. Bancorp is the sixth-largest bank holding company in the United States, with $360.7 billion in total assets as of Sept. 30.

The company's third-quarter net interest income came in at $2.714 billion, increasing from $2.672 billion the previous quarter but declining from $2.783 billion a year earlier. The net interest margin -- the spread between the average yield on loans and investments and the average cost for deposits and borrowings -- was 3.43% during the third quarter, which was stable from the second quarter but down from 3.59% in the third quarter of 2012. The year-over-year margin decline reflects the industry trend, as the Federal Reserve has kept the short-term federal funds rate in a range of zero to 0.25% since late 2008.

USB's noninterest income declined to $2.177 billion in the third quarter from $2.276 billion the previous quarter and $2.396 billion a year earlier. The main factor in this decline was the decline in mortgage banking revenue to $328 million in the third quarter, from $396 million in the second quarter and $519 million in the third quarter of 2012. This also follows the expected industry trend, as the mortgage loan refinancing wave has been curtailed by a significant rise in long-term interest rates over the past six months.

Another expected trend for major banks has been "reduced credit leverage," as banks see less of a benefit from improved loan quality. U.S. Bancorp's third-quarter provision for loan losses was $2.028 billion, declining very slightly from $2.029 billion in the second quarter and down from $2082 billion in the fourth quarter of 2012. The provision is the amount added to loan loss reserves.
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