Friday, April 27, 2012

US Bancorp Earnings Dip, Growth Stalls

US Bancorp reported Q1 2012 financial results on Tuesday, April 17.

As expected, US Bancorp earnings per share dipped QoQ but were strong YoY. This comes after the record prior Q4 2011 financial results. However, CEO Richard Davis was able to slightly beat the EPS forecast. US Bancorp has been the star among the largest USA banks and is my highest rated major bank. They have performed incredibly well in a difficult banking environment (It's hard out here for a banker!). As noted in the preview, being able to spin more banking gold in 2012 will be difficult as the low hanging fruit appears to be harvested.

Yet another decrease, a small incremental decrease, in credit losses was accomplished. However, these are near the bottom, having been minimized through exceptional risk management. Little gain in loan loss reduction remains. Enough loans were booked, a rise YoY, to increase net loans (60.83%) as a percentage of total assets. Cash & investments correspondingly decreased to 24.60%. So the asset mix is trending profitably. Noninterest (operating) expense was contained and reduced, preventing a drag on earnings growth.

To continue the earnings growth rate more loans need to be booked, period. The above-noted tactics are losing effectiveness without more loan growth. This is the inevitable ceiling that high-growth bankers encounter. More loans require an economy generating loan growth or acquisitions of other lenders. Davis stated he has implemented "organic growth initiatives and acquisitions". Q1 is a slower quarter in banking, future quarters should generate some momentum.

U.S. Bancorp Income Statement Q1 2012 Net revenues were $4.87 billion, net income $1.83 billion, and earnings per share $0.67. From the prior quarter Q4 2011, these were -3%, -1%, and -3%, respectively. From the prior year Q1 2011, these were +9%, +28%, and +29%, respectively. Impressively, both the operating margin of 38% and the net margin of 27% increased slightly QoQ and strongly YoY to all-time highs. The operating expense ratio of 47% dipped QoQ and YoY, but is above the historical average.

U.S. Bancorp Balance Sheet Q1 2012 Total assets slightly increased to a record $340.76 billion. The capital to assets ratio rose to 10.83%, which is strong. Return on assets increased to an outstanding +1.57%. Gross loans increased QoQ and YoY and net loans are 61% of the asset mix. The Allowance for loan losses to loans ratio of 2.19% is a multi-year low.

Seeking Alpha