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U.S. Bancorp Meets Operating Estimate, Mortgage Revenue Declines (Update 2)

Fourth-quarter noninterest income totaled $2.329 billion, declining from $2.396 billion in the third quarter and $2.431 billion in the fourth quarter of 2011. USB said the sequential decline was "primarily due to lower mortgage origination and sales revenue, including the impact of an increase in the representations and warranties repurchase reserve."

Mortgage revenue totaled $476 million in the fourth quarter, declining from $519 billion the previous quarter, but increasing from $303 million a year earlier. Mortgage loan originations actually increased, to $29.1 billion during the fourth quarter, from $28.5 billion in the third quarter and $24.5 billion in the fourth quarter of 2011.

The company's return on average assets for the fourth quarter was 1.62%, declining from 1.70% the previous quarter but matching the ROA a year earlier. The fourth-quarter return on average common equity was a strong 15.6%, although it was down from 16.5% in the third quarter and 16.8% in the fourth quarter of 2011.

U.S. Bancorp CEO Richard Davis said, "2012 was a great year for our Company, as we achieved record annual earnings of $5.6 billion, or $2.84 per diluted common share. Further, our 2012 full year results included record total net revenue of $20.3 billion, representing growth in net interest income and fee revenues, as well as controlled expenses."

Jefferies analyst Ken Usdin said after the earnings results were announced that "While results generally look supportive of forward estimates, we do not expect to see the positive revisions that we are used to from USB."

Usdin added that net interest income "is a little weaker than we had expected as we thought deposit growth would be stronger. Forward run-rates should not change too much, however." He also said that despite the decline in mortgage revenue, "Fees as a whole looked pretty good, especially the payments lines. Expense discipline was good, holding tight in a quarter that typically sees seasonal growth."

The analyst was also impressed with USB's continued improvement in credit quality, as the company's quarterly provision for credit losses declined by $45 million sequentially to $443 million in the fourth quarter. "Forward guidance calls for charge-offs to be stable-to-down modestly in 1Q."

Usdin rates USB a "Hold," with a $35 price target.

U.S. Bancorp's shares closed at $33.28 Tuesday, trading for 1.8 times their reported Dec. 31 book value of $18.31, and for 10.8 times the consensus 2013 EPS estimate of $3.08. The consensus 2014 EPS estimate is $3.31.

Based on a quarterly payout of 19.5 cents, the shares have a dividend yield of 2.34%. The company repurchased roughly 59 million common shares during 2012.

The shares were down slightly in morning trading to $33.18.

Interested in more on U.S. Bancorp? See TheStreet Ratings' report card for this stock.


-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
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