CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed U.S. Bancorp's (USB) ratings including its long- and short-term Issuer Default Ratings (IDR) at 'AA-' and 'F1+', respectively. The Rating Outlook is Stable. A full list of ratings follows at the end of this release.
The affirmation of USB's ratings reflects the company's continued strong position versus many peers, its both solid and improving levels of profitability, and its improving asset quality metrics. As such, Fitch anticipates that USB will continue to outperform peers across most measures. While most of USB's competitors have been more inwardly focused in the wake of the recent credit crisis, USB's position of strength has allowed the company to invest and build out many of its businesses.
Over the last few quarters, USB has driven modest loan growth, increased net interest income, maintained an above average net interest margin (NIM), and expanded non-interest income while holding expenses relatively steady. This has resulted in USB's return on assets improving in each of the last seven quarters to a strong 1.54% in the second quarter of 2011 (2Q'11). Fitch would expect USB to maintain its strong level of profitability going forward as credit costs continue to abate and growth increases.
Fitch's affirmation also takes into account USB's good capital generation and retention, as the company has increased its capital ratios in each of the last several quarters. While Fitch notes that USB's capital levels sometimes lag its peer group, the company's good asset quality and solid capital generation offset this, in Fitch's view.
As of June 30 2011, USB's tangible common equity ratio, Tier 1 ratio, and total risk-based capital ratio stood at 6.50%, 11%, and 13.9% respectively, which compare reasonably well with peers. Fitch's action also has the view that USB is one of the better positioned banks to comply with Basel III capital and liquidity standards and potential buffers.
Fitch's Stable Rating Outlook encompasses the view that although USB's asset quality metrics are still above the company's historical norms, they will continue to improve as they have over the last several quarters. Furthermore, Fitch believes that the company's strong profitability and good capital ratios could easily absorb any unexpected increase in non-performing assets (NPAs) should they eventuate, thereby further supporting the Rating Outlook.
As of June 30, 2011, the company's NPAs as a percentage of gross loans plus other real estate owned declined to 4.43% from 4.72% at the end of 1Q2011, and its net charge-off ratio declined to 1.51% during the 2Q'11 from 1.65% in 1Q'11. Furthermore, USB's delinquency rates also continue to decline across all loan categories.
Given USB's high ratings--at or near the top of most peers-- Fitch continues to see limited upward ratings momentum.
Alternatively, ratings could be negatively affected should USB's asset quality metrics exhibit a sustained deterioration beyond Fitch's expectations, should the company begin to manage capital more aggressively, or should the company pursue a large acquisition. While Fitch notes that it would review any acquisition based on its individual merits, a large acquisition could constrain capital and resources, and therefore result in negative ratings pressure.
USB operates one of the premier banking franchises in the U.S. with a retail banking network spanning 25 states, which is augmented by meaningful presence in payment systems, corporate trust, asset management, and business credit cards.
Fitch has affirmed the following ratings with a Stable Outlook:
U.S. Bancorp
--Long-term IDR at 'AA-';
--Senior debt at 'AA-';
--Subordinated debt at 'A+';
--Junior subordinated debt at 'A';
--Preferred stock at 'A';
--Short-term IDR at 'F1+';
--Commercial paper at 'F1+';
--Individual at 'A/B';
--Viability at 'aa-';
--Support at '5';
--Support Floor at 'NF';
--FDIC guaranteed long-term debt 'AAA';
--FDIC guaranteed short-term debt 'F1+'.
U.S. Bank National Association
--Long-term deposits at 'AA';
--Short-term deposits at 'F1+';
--Long-term IDR at 'AA-';
--Senior debt at 'AA-';
--Subordinated debt at 'A+';
--Short-term IDR at 'F1+';
--Short-term debt at 'F1+';
--Individual at 'A/B';
--Viability at 'aa-'.
U.S. Bank National Association N.D.
--Long-term deposits at 'AA';
--Short-term deposits at 'F1+';
--Long-term IDR at 'AA-';
--Senior debt at 'AA-';
--Subordinated debt at 'A+';
--Short-term IDR at 'F1+';
--Individual at 'A/B';
--Viability at 'aa-'.
Elavon Financial Services Limited
--Long-term IDR at 'AA-';
--Short-term IDR at 'F1+';
--Long-term deposits at 'AA-';
--Short-term deposits at 'F1+';
--Support rating at '1'.
USB Capital VI
USB Capital VII
USB Capital VIII
USB Capital IX
USB Capital X
USB Capital XI
USB Capital XII
USB Capital XIII
USB Realty Corp.
--Preferred at 'A'.
The Fitch maintains the Rating Watch Negative for the following ratings:
U.S. Bank, NA
U.S. Bank NA ND
--Support '3';
--Support floor 'BB-'.
Additional information is available at www.fitchratings.com.
In addition to the source(s) of information identified in the Master Criteria, this action was additionally informed by information provided by the company.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 16, 2010);
--'Bank Holding Companies' (Dec. 30, 2009);
--'Treatment of Hybrids in Bank Capital Analysis' (July 11, 2011);
--'Rating Hybrid Securities (Dec 29, 2009);
--'Short-Term Ratings Criteria for Corporate Finance' (Nov. 2, 2010);
--'U.S. Banks: M&A Activity and Risks on the Rise' (Jan. 26, 2011).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547685
Bank Holding Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493324
Treatment of Hybrids in Bank Capital Analysis
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=641269
Rating Hybrid Securities
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493086
Short-Term Ratings Criteria for Corporate Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=568726
U.S. Banks: M&A Activity and Risks On the Rise
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=599786
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