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U.S. Bancorp Hits Record Profit (Update 1)

  • Third-quarter EPS of 74 cents, meeting the consensus estimate.
  • Net revenue of $5.179 billion beats consensus estimate of $5.145 billion.
  • Another strong quarter for mortgage originations, with revenue of $519 million.
  • Strong ROA of 1.70%, Return on average common equity of 16.5%.

Updated with comments from Stifel Nicolaus analyst Christopher Mutascio and afternoon market action.

NEW YORK ( TheStreet) -- U.S. Bancorp (USB - Get Report) on Wednesday continued its strong earnings streak, as mortgage origination volume remained very strong.

The Minneapolis lender reported third-quarter net income of $1.474 billion, or 74 cents a share, meeting the consensus estimate among analysts polled by Thomson Reuters, with earnings increasing from $1.415 billion, or 71 cents a share, during the second quarter, and $1.273 billion, or 64 cents a share, during the third quarter of 2011.

U.S. Bancorp's total third-quarter net revenue was $5.179 billion, beating the consensus estimate of $5.145 billion, and increasing from $5.068 billion the previous quarter, and $4.795 billion, a year earlier.

The third-quarter bottom line was boosted by a $272 million release of loan loss reserves.

U.S. Bancorp's shares were up 2% in afternoon trading, to $24.19.

Third-quarter net interest income totaled $2.783 billion, increasing 3% sequentially and 6% year-over-year. Average loans grew by 2% sequentially, and 8% year-over-year, with average commercial loans growing by 4% quarter-over-quarter, and 19% year-over-year.

The strong loan growth, along with a 16% year-over-year increase in coveted noninterest bearing deposits, has enabled the company to make up for the pressure on its net interest margin, which is the difference between the average yield on loans and investments and the average cost for deposits and borrowings. Most banks are facing pressure on their net interest margins, with the Federal Reserve keeping its target federal funds rate in a range of zero to 0.25% since the end of 2008, while the central bank in September significantly increased its purchases of long-term mortgage-backed securities, in an effort to keep long-term rates at historically low levels.

USB's third-quarter net interest margin was 3.59% in the third quarter, increasing slightly from 3.58% in the second quarter, but narrowing from 3.65% a year earlier.

The company's noninterest income grew 2% quarter-over-quarter and 10% year-over-year, to $2.396 billion during the third quarter, "primarily due to higher mortgage banking revenue, partially offset by legislative-related reductions in credit and debit card revenue and a [reclassification] of ATM processing services revenue."

Third-quarter mortgage banking revenue totaled $519 million, increasing from $490 million the previous quarter, and $245 million a year earlier, as the mortgage refinancing wave continued.
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