U.S. Bancorp Beats with Record Earnings

  • Record third-quarter earnings of $1.3 billion, or 64 cents a share.
  • ROA of 1.57%.
  • Loan growth in most categories.

MINNEAOPOLIS ( TheStreet) -- U.S. Bancorp ( USB) on Wednesday reported third-quarter net income of $1.3 billion, or 64 cents a share, beating the consensus estimate of 61 cents among analysts polled by Thomson Reuters.

The results compared to earnings of $1.2 billion, or 60 cents a share, in the second quarter, and $908 million, or 45 cents, in the third quarter of 2010.

U.S. Bancorp CEO Richard Davis said the third-quarter results were "driven by record total net revenue and lower credit costs, as well as managed expense level," and that "once again, we achieved industry-leading profitability metrics with a return on average assets of 1.57 percent and a return on average common equity of 16.1 percent."
U.S. Bancorp CEO Richard K. Davis

The quarter-over-quarter earnings improvement reflected "notable growth in both loans and deposits," according to Davis, with average loans growing "5.0 percent year-over-year and 1.7 percent over the previous quarter"

Average commercial loans increased 5% quarter-over-quarter and 14% year-over-year, to $46.5 billion during the third quarter. The company also saw sequential and year-over-year growth in average commercial mortgages, retail leasing and in loans categorized as "other."

Residential mortgage growth was also strong, with a third-quarter average balance of $34 billion, increasing 4% from the previous quarter and 22% year-over-year.

Average third-quarter credit card balances were $16.1 billion, increasing from $15.9 billion in the second quarter, but down from $16.5 billion a year earlier.

Third-quarter net interest income was $2.62 billion, increasing from $2.54 billion in the second quarter and $2.48 billion in the third quarter of 2010.

Noninterest income increased to $2.17 billion in the third quarter, from $2.15 billion the previous quarter and $2.11 billion a year earlier.

Credit expenses continued to decline, with a third-quarter provision for credit losses of $519 million, compared to $572 million in the second quarter and $995 million in the third quarter of 2010. A $360 million release of loan loss reserves directly boosted earnings.

U.S. Bancorp reported a Tier 1 common equity ratio of 8.5% as of Sept. 30, with a Basel III Tier 1 common ratio of 8.2%.

The company repurchased 13 million common shares during the third quarter, and while Davis said the company hadn't yet "received final regulatory guidance regarding the amount of capital our Company will be expected to hold as a systematically important financial institution," he expected "that the strength of our current capital position and earnings will allow us to comply with the guideline, while continuing to buy back additional shares in the upcoming quarters, bringing us closer to our long term goal of returning 60 to 80 percent of earnings to shareholders through dividends and buybacks."

U.S. Bancorp's shares were down 8% year-to-date, through Tuesday's close at $24.18. Based on a quarterly payout of 13 cents, the shares have a dividend yield of 2.04%.

The shares trade for more than twice their tangible book value, which is a very high valuation in the current environment for bank stocks, reflecting USB's steady earnings performance through the credit crisis and recession.

Out of 25 analysts covering U. Bancorp, 14 rate the shares a buy, while eight analysts have neutral ratings and two recommend selling the shares. The median 12-month price target is $29, implying 20% upside for the shares.

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

To contact the writer, click here: Philip van Doorn.

To follow the writer on Twitter, go to http://twitter.com/PhilipvanDoorn.

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 TheStreet.com 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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