Wednesday, October 24, 2012

US Bancorp Earnings Review: Stellar Performance!

US Bancorp reported QE September 2012 financial results on October 17

Talk about seeing opportunities instead of obstacles! CEO Richard Davis is your guy! Davis was able to push earnings per share, net revenues, operating income, net income, operating margin, net margin, capital ratio, and return on assets to record levels. Yet another stellar performance has firmly entrenched US Bancorp as the very best large USA bank. Of special note is the excellent net margin of 27.94%. I assume only bankers, analysts, auditors, examiners, and inquisitive shareholders get excited about stuff like this, so be it.

I have believed diminishing returns would ultimately cause a peak for US Bancorp earnings performance, but I have been proven wrong for at least a year. There's only so high financial performance can reach without expansion or acquisitions but US Bancorp continues to grind higher to new records. Risk management has proven excellent. Financial position and capital are very strong.

At QE 9-30-12 I have rated US Bancorp an "A" on a scale of A+ to G-. This is no change in the rating from the prior QE 6-30-12. The median rating is "D" and the average rating at QE 6-30-12 was "C". Financial position strength is weighted more than financial performance. The QE 6-30-12 bank ratings review is here.

In this rare instance, I'm going to shut up, not be a smart aleck and cynic, and defer to CEO Davis to do the talking (see below the charts). He obviously knows more than I do about management and banking. No hype here, Mr. Davis can back up what he says. Sheesh.

U.S. Bancorp Chairman, President and Chief Executive Officer Richard K. Davis said, “I am very proud to announce our Company’s third quarter results. U.S. Bancorp, today, reported record net income of $1.5 billion, or $.74 diluted earnings per common share, on record total net revenue of $5.2 billion. Once again, we achieved industry-leading performance metrics with returns on average assets and average common equity of 1.70 percent and 16.5 percent, respectively, as well as an efficiency ratio of 50.4 percent. Additionally, we posted positive operating leverage on both a year-over-year and linked quarter basis, and we achieved these results despite an economy described as only modestly growing and burdened by uncertainty."

“Our third quarter earnings included continued strong mortgage banking activity, which contributed to our growth in fee income, residential real estate loans and loans held for sale. Solid new lending activity outside of mortgage also helped to grow our balance sheet, particularly in commercial loans, which grew on average by 21.9 percent year-over-year and 4.2 percent on a linked quarter basis. On the retail side, automobile loans and leases, a national business for our Company, also continued to show good growth in the quarter. Finally, strong growth in average deposits over the prior time periods demonstrated that we continued to enjoy a flight to quality as consumers and businesses sought a safe and stable financial partner and, along with the growth in our loan and fee-based businesses, continued to expand our market share."

“The overall credit quality of our loan portfolio continued to improve, as net charge-offs and nonperforming assets, excluding a change in reporting for collateralized loans to consumers who have filed for bankruptcy, both declined on a linked quarter basis. We expect this downward trend in net charge-offs and nonperforming assets to continue in the fourth quarter, with the net charge-off ratio remaining below one percent."

“With our growth in earnings, we continued to generate significant capital. Our capital ratios remained strong with a Tier 1 common ratio of 9.0 percent and a Tier 1 capital ratio of 10.9 percent at September 30th. Importantly, based on our assessment of the proposed rules for the Basel III standardized approach, our Tier 1 common equity ratio was 8.2 percent at September 30th, above our targeted ratio of 8.0 percent. We are where we need to be in terms of our capital levels. As a result, during the third quarter we were able to return 67 percent of our earnings to shareholders in the form of dividends and share buybacks – consistent with our goal of returning 60-80 percent of the capital we generate back to our shareholders."

“Finally, I want to take this opportunity to thank our almost 66,000 dedicated, engaged employees, who come to work each day with the goal of providing our customers with the products and services they need to handle their finances, buy a home, prepare for retirement, or manage and expand their businesses. In other words, help them shape their future and reach their dreams. Our industry has an important role to play in the growth and success of each of our customers – large and small – and the economy as a whole. I look forward to being a part of that future for the benefit of our customers, communities, employees and, importantly, our shareholders.”


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