U.S. Bancorp (NYSE:USB) Earnings Rise in Third Quarter by 4.7 Percent

U.S. Bancorp (NYSE:USB) reported its profits for the third quarter rose 4.7 percent to $603 million on mortgage fees and higher net interest margins. Both of these rose primarily from the acquisition of banks that had failed, giving them a boost in both areas. The increases were up 28 percent from the same quarter last year.

The good news was deposits continued to rise, excluding the acquisitions, making the costs related to funding less than they would have been if they had to borrow more.

Higher net interest margin refers to the gap between interest paid to deposits and what is charged for loans. In that regard U.S. Bancorp improved slightly, increasing to 3.67 percent for the quarter from 3.65 percent last year at the same time. In the second quarter it stood at 3.60 percent. Income unrelated to interest grew by 48 percent, according to the bank.

As with all banks, loans no longer being paid exploded to $4.39 billion for the third quarter for the bank, far above the $1.49 billion in the third quarter last year. Most of that was attributed to foreclosures and continued weakness in the home construction industry. Debt that will never be collected also increased by over double to $1.04 billion, up from the $498 million in 2008 during the same time period. The company said this will continue on for the rest of 2009. We’re sure it’ll continue on through 2010 as well, with home loans receiving more downward pressure in the first half and commercial loans suffering more in the second half of 2010. Chief Executive Officer Richard Davis agreed in a press release, saying  “Total net charge-offs and nonperforming assets were higher than the previous quarter” and “will continue to rise.” 

Consequently, the company has made provisions for those inevitable losses by increasing their protection to $1.46 billion, an increase of 4.4 percent from last quarter. Noncollectable loans or net charge-offs grew to 2.27 percent of average loans, up from 1.19 percent and 2.03 percent.

U.S. Bancorp has resisted buying up large failed banks, and so is experiencing less stress than some of their larger competitors who are struggling to integrate their acquisitions within the company. They have already paid back their TARP funds as well, and are looking to grow more internally than through buying up failed banking institutions.

Davis said over the next couple of years the bank will remain focused on growth through more traditional banking means, and is looking for return-on-equity to move closer to 20 percent once the economic crisis diminishes. For the third quarter ROI was 10 percent.