Tuesday, April 17, 2012

U.S. Bancorp's 1st Quarter 2012 Results

From this post on the WSJ's Deal Journal blog:

If U.S. Bancorp's results were any more consistent, the bank might be able to stop reporting quarterly data.

It just keeps posting solid growth that generally outpaces most other lenders. Earnings jumped 27% as average total loans increased 6.4% amid a 17% jump in commercial borrowing and 26% surge in commercial and commercial-real-estate commitments.

Not many domestic banks performed like U.S. Bancorp (USB) during the financial crisis or are now positioned as well.

From the U.S Bancorp's earnings release:

U.S. Bancorp Chairman, President and Chief Executive Officer Richard K. Davis said, "U.S. Bancorp's first quarter 2012 financial results clearly demonstrate that the momentum the Company has established and built over the past several years is continuing to drive performance in 2012. The Company's first quarter diluted earnings per common share of $.67 were 28.8 percent higher than the prior year and the increase was driven by revenue growth and improving credit costs. Our key performance ratios of return on average assets, return on average common equity and efficiency were 1.60 percent, 16.2 percent and 51.9 percent, respectively, in the first quarter. All of these performance ratios are among the best in the industry and at the top of our peer group.

"Average total loans and deposits were higher in the first quarter, posting year-over-year growth of 6.4 percent and 11.7 percent, respectively, as all of our balance sheet businesses benefited from growth initiatives and continued to capitalize on the flight to quality."

That kind of loan growth or source of inexpensive funds has the potential to drive healthy future profit growth as long as U.S. Bancorp continues, as it has historically, to intelligently underwrite the loans.

Like most good banks, their above average returns on capital seems to begin with having sound practices and culture that's reinforced by capable management.

It certainly shows up in the numbers.

Relative to many peers, U.S. Bancorp has exceptional net interest margins (at 3.6 percent, it doesn't match the 3.91% of Wells Fargo: WFC, but handily beats most others) and the capacity for fee generation.*

As one of the stronger domestic banks going into the financial crisis, U.S. Bancorp was in a position to acquire some fine assets while weaker ones could not.

That certainly also hasn't hurt their current results and future prospects.

Adam

Established a long position in USB at much lower than the recent market prices

* Payments processing, credit/debit cards, trust/investment management, mortgage banking, loan syndication and bond underwriting among other things.
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