U.S. Bancorp Reports 9% Rise in Income, In-Line With Estimates, Revenue Misses

U.S. Bancorp USB reported first quarter results that met expectations on the bottom line but missed on the top line.

Earnings for the first quarter of 2013 were driven by a year-over-year reduction in non-interest expense and a lower provision for credit losses.

For the first quarter of 2013, U.S. Bancorp reported earnings per diluted share of $0.73, in line with the consensus analyst estimate. Revenue was weaker than forecasts though at $4.87 billion compared to the estimate of $5.03 billion.

The in line earnings per share value was mostly due to a simple accounting feature that boosted earnings due to lower provisions for credit losses. The Company's provision for credit losses for the first quarter of 2013 was $403 million, $40 million lower than the prior quarter and $78 million lower than the first quarter of 2012.

The provision for credit losses was lower than net charge-offs by $30 million in the first quarter of 2013, $25 million in the fourth quarter of 2012, and $90 million in the first quarter of 2012.

Also in the first quarter, earnings were driven by lower expenses. Total non-interest expense in the first quarter of 2013 was $2,470 million; $90 million (3.5 percent) lower than the first quarter of 2012 and $216 million (eight percent) lower than the fourth quarter of 2012.

The decrease in total non-interest expense year-over-year was primarily due to favorable variances in litigation, regulatory and insurance-related expense and lower marketing and business development expense, partially offset by higher compensation and employee benefits expense.

U.S. Bancorp noted in the quarter that it led the industry in several key metrics. The bank reported industry leading return on assets of 1.65 percent; return on equity of 16.0 percent; and an efficiency ratio of 50.7 percent. The bank also noted that lending grew $57.3 billion in the quarter driven by commercial real estate commitments and mortgage growth.

The bank also noted that net interest income did grow in the quarter. Net interest income grew 4.6 percent from the same period a year ago, driven by lower costs of deposits. Net interest margins fell to 3.48 percent in the first quarter of 2013, compared with 3.55 percent for the fourth quarter of 2012, and 3.60 percent for the first quarter of 2012.

U.S. Bancorp Chairman, President and Chief Executive Officer Richard K. Davis said, “Our first quarter earnings of $1.4 billion, or $.73 per diluted common share, reflected our Company's continuing ability to perform against the backdrop of a slow-growth, uncertain economic environment. First quarter diluted earnings per common share rose by 9.0 percent year-over-year."

“Average loan growth was solid year-over-year at 5.8 percent. As expected, average loans grew 1.0 percent on a linked quarter basis, or 4.0 percent annualized, as the pace of loan growth in the latter part of the fourth quarter moderated as the new year began. Average commercial and commercial real estate commitments, however, increased by 11.9 percent year-over-year and 1.7 percent linked quarter, indicating that customers remain prepared to fund growth and investments when the opportunity comes."

"On March 14th, we received the results of the 2013 Comprehensive Capital Analysis and Review (“CCAR”) and were pleased to receive the Federal Reserve's non-objection to our plan to increase our dividends and authorize a new share buyback program. We subsequently announced a new share buyback authorization of $2.25 billion, effective April 1st, and announced that we expect to recommend in June that our board of directors approve an 18 percent increase in our common stock dividend. Together, these actions will allow us to achieve our goal of returning 60 to 80 percent of our earnings to shareholders in 2013."

"During the first quarter, we returned 69 percent of our earnings to shareholders in dividends and by repurchasing 17 million shares of common stock. Our capital position remains strong with a Tier 1 common ratio of 9.1 percent and a Tier 1 capital ratio of 11.0 percent at March 31st. Our Tier 1 common ratio under the proposed rules for the Basel III standardized approach was approximately 8.2 percent at March 31st, above our target ratio of 8.0 percent."

Average total deposits for the first quarter of 2013 were $16.7 billion (7.3 percent) higher than the first quarter of 2012. Average non-interest-bearing deposits increased $2.8 billion (4.4 percent) year-over-year, driven by growth in Consumer and Small Business Banking average balances. Average total savings deposits were $10.7 billion (8.7 percent) higher year-over-year, the result of growth in Consumer and Small Business Banking, as well as in corporate trust and broker-dealer average balances.

U.S. Bancorp shares rose in the pre-market slightly despite the mixed results. Shares gained 0.6 percent to $33.51 in the pre-market in thin trading.