S&P: US Bancorp Credit Ratings Unchanged by Strong Q3 Earnings

October 25 00:00 2011

NEW YORK, October 24 (RainbowNewsLine.com) – Analyst at S&P Rating Services said that rating and outlook on US Bancorp (A+/Stable/A-1) stays same despite the company’s strong Q3 earnings, given the current operating conditions.

US Bancorp (NYSE:USB) announced pretax adjusted earnings of $1.7 billion, compared to the $1.6 billion of last quarter. The company’s revenues increased 2.2% vs. previous quarter and 4.5% yoy due to increase in average earning assets and fee based income offsetting net interest margin compression. The NIM fell 26 basis points owing to large balances in lower yielding investments and large cash portion with Federal Reserve. Non-interest income rose by 2.9% compared to last year primarily due to elevated trust and commercial fee but partially covered by lower mortgage banking revenue, the analyst says. Average total loans increased 4.5% yoy reflecting market share gains and higher residential and commercial loan growth.

USB’s net charge offs declined 10.4% in Q3 compared to the previous quarter, and released $150 million of reserves due to improvement in credit quality. Except commercial and residential loans, charge offs were down in all segments.  The company’ has a high quality loan book that should facilitate further reserve release in coming quarters but are expected to be less than Q3levels, the analyst says. USB’s Tier 1 common ratio was up 10 basis points compared to previous quarter. The dividend payout ratio and share purchases together accounted for 45% of earnings and it is projected to reach 60-80%, subject to Federal Reserve grant approval.