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Fitch: Lower Expenses Offset Decline in Mortgage Banking to Keep U.S. Bancorp 1Q'13 Results Strong
April 16, 2013 / 4:16 PM / in 5 years

Fitch: Lower Expenses Offset Decline in Mortgage Banking to Keep U.S. Bancorp 1Q'13 Results Strong

(The following statement was released by the rating agency) NEW YORK, April 16 (Fitch) U.S. Bancorp's (USB) reported first quarter 2013 (1Q'13) earnings of $1.43 billion, essentially unchanged from the sequential quarter, but up 6.7% from the year-ago quarter. These results equated to a strong 1.65% return on assets (ROA) and 16% return on equity (ROE), which continue to be near the top of the banking industry. While overall revenue growth remained challenging amid the protracted low interest rate environment and a slowdown in mortgage banking activity, fewer expenses particularly related to lower marketing costs, the absence of a one-time expense, and lower provisioning helped keep USB's results strong. Fitch expects revenue growth to remain challenging throughout the remainder of the year, as the tailwind from mortgage banking income which boosted results last year is likely to slow further as the mortgage market moves from heavy refinancing activity to a more purchase driven market. Additionally, USB's future revenue will largely be predicated on additional loan growth. While Fitch would acknowledge that USB's loan growth has been better than many peers over the last few years it still remains challenging. Overall average loans, including covered loans which are running-off, grew 1% from the sequential quarter were driven by a 2.3% increase in average commercial loans and 4.5% in average residential mortgages from the sequential quarter, all partially offset by lower home equity, credit card, and covered loans. Fitch would note that USB's 4Q'12 earnings showed strong loan demand from borrowers, which Fitch believes some of which was pulled forward for tax reasons at the end of the year, which likely helped mute this quarter's growth metrics. Given USB's strong and low-cost deposit franchise, Fitch believes the company has the ability to be one of the more aggressive competitors in winning new business. USB's credit quality continues to improve with total non-performing assets and net charge offs continuing to decline across most lending categories. Fitch continues to view this credit performance positively, though also notes that credit quality for USB--and across the industry--may be at or near a cyclical low, so Fitch would expect credit quality metrics to deteriorate over an intermediate to long term time horizon. Given the slack demand for new loans, USB has been one of the more aggressive returners of capital to shareholders, having a total payout ratio of nearly 69% in 1Q'13. Despite this strategy, the company's capital ratios continue to remain strong with the Tier 1 common ratio increasing to 11% in 1Q'13, slightly up from 10.8% in 4Q'12. Under proposed Basel III rules, USB's Tier 1 common ratio increased to 8.2% at 1Q'13, up from 8.1% at 4Q'12. Contact: Primary Analyst Justin Fuller, CFA Director +1-312-368-2057 Fitch Ratings, Inc. 70 West Madison Street Chicago, IL 60602 Secondary Analyst Julie Solar Senior Director +1-312-368-5472 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available at 'www.fitchratings.com'. --'Global Financial Institutions Rating Criteria' (Aug. 15, 2012); --'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012). Applicable Criteria and Related Research Global Financial Institutions Rating Criteria here Rating FI Subsidiaries and Holding Companies here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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