U.S. Bancorp Weathering the Credit Storm

While headlines this morning are bemoaning US Bancorp'sUSB drop in year-over-year earnings, at this point in the credit cycle it is silly to dwell on comparison to much better times.

Shares were down 3.8% in late morning trading to $23.29, as the company came in slightly under consensus expectations. It is common knowledge that banks have suffered over the past year, but the real story for US Bancorp is what it has achieved under tough conditions. The company posted a 7.5% increase in net revenue year-over-year, as it grew its balance sheet 11% and improved its net interest margin to 3.61% for the second quarter, compared to 3.55% last quarter and 3.44% in the second quarter of 2007.

That's rather impressive. At least through the first quarter of 2008, many large regional holding companies reported narrowing net interest margins over the past year. These included SunTrustSTI, National CityNCC and Regions FinancialRF. We'll see how margins for this group fare when they release second quarter earnings results.

Also, so far, US Bancorp has set itself apart from many other regional holding companies by keeping well ahead of nonperforming loans and charge-offs, while maintaining decent earnings performance.

The company reported net income of $950 million, or 53 cents a diluted share in the first quarter. While that is a drop of 13% from the previous quarter and misses the consensus of 60 cents a share, the earnings have held up reasonably well for a large regional bank in this environment. The company's annualized return on average assets was 1.58% and the return on average common equity was 17.9%.