In addition to the principal amount of TARP money, Comerica paid a total of $150.9 million in dividends on the preferred stock it issued to the Treasury in Nov 2008.

The repayment of TARP money followed Comerica’s completion of an $880 million common stock offering earlier this month. Comerica funded the repayment with a combination of cash from its corporate fund and sale of common stock. We think the immediate outflow of about $1.37 billion from Comerica’s corporate fund to repay TARP will significantly stretch its liquidity in the near term.

However, according to the company, the TARP repayment will directly eliminate a negative impact of $134 million related to the preferred stock dividend on its annual earnings.

The move will free the regional bank from government involvement in its affairs and pay restrictions, even though the Treasury will still hold Comerica’s warrants.

Earlier this week, Hartford Financial Services Group Inc. (HIG) said that it will raise $3.05 billion from new securities to repay the entire $3.4 billion of TARP money it received from the government. Hartford has already sold $1.45 billion of common stock in the form of about 52.25 million shares at $27.75 each.

On a separate note, Discover Financial Services (DFS) said on the same day that it has got regulatory approval to repay $1.2 billion of TARP money it received from the government.

Although Comerica’s loan growth has clearly moderated over the past year, most lines have held in relatively nicely. Also, cost containment remains a pursuit for Comerica, with management guiding to a low-single digit decrease in non-interest expenses in 2010.

We think the cost reduction story has lost its punch, with growth now coming from branch expansion, technology and product development, all of which involves increased expenses.

Moreover, while Comerica is trying to diversify its geographical footprint, it still derives almost half of its total revenues from the Midwest, especially Michigan, where the economic environment has continued to be difficult for the past few years.

Although most of the negatives are already factored into the current price, upside potential may prove to be relatively limited against the current backdrop in the economy in the near term.

Most of the major institutions in the financial market like JPMorgan Chase and Co. (JPM), Bank of America Corp. (BAC), Wells Fargo & Co. (WFC) and Goldman Sachs Group Inc. (GS) have repaid the TARP loan. Also, the Treasury has started auctioning stock warrants it had acquired from the banks that received a significant portion of taxpayers’ money and have fully repaid the same.

We think that the repayment of government money and auction of warrants can be viewed as a sign of recovery of the institutions as well as the economy. According to the Treasury, losses on TARP investments are likely to be significantly trimmed with the improvement in the overall financial condition.

Zacks Investment Research

(CMA) Regional Bank Comerica Repays TARP Fund

During the fourth quarter earnings release, the company also said that it expects charge-offs and loan loss provisions to remain elevated but still below the 2009 levels. Loans are expected to be flat-to-up slightly from fourth quarter levels and interest margin is expected to improve, while fee income could be flat-to-down slightly from fourth quarter levels.

The company may report an increase in expenses for investments in growth and the implementation of key strategic initiatives. Huntington set a target of $275.0 million in pre-tax, pre-provision earnings for the third quarter of 2010.

Huntington reported a loss of 56 cents per share in the fourth quarter. Excluding the impact of significant items, the company incurred a loss of 65 cents. Results were well wider than the Zacks Consensus Estimate for a loss of 28 cents.

However, the company narrowed its loss compared to the prior-year quarter. The company had reported a loss of $1.20 per share a year earlier. The miss was primarily driven by loan loss provisions, which were almost double that in the prior quarter. Additionally, the share count was higher.

For full year 2009, Huntington reported a net loss of $3.1 billion or $6.14 per share, compared with a full year 2008 net loss of $113.8 million or 44 cents per share. The decline primarily reflected non-cash goodwill impairment charges of $2.6 billion and $2.1 billion in provision for credit losses in 2009.

Estimate Revision Trends

The current Zacks Consensus Estimates for the first quarter and full-year 2010 are losses per share of 15 cents and 32 cents, respectively. Over the last 30 days, none of the 16 analysts covering the stock revised the earnings estimate for the first quarter. However, one analyst has upgraded the full year estimate over that period.

In terms of earnings surprises, the company has missed the Zacks Consensus Estimate thrice in the last four quarters, with a four-quarter average of negative 75.4%.

Currently, the first quarter estimate has a downside potential (essentially a proxy for future earnings surprises) of 6.7%. However, the full-year 2010 estimate has an upside potential of 37.5%.

The projection of a loss in the first quarter and the lack of estimate revisions reflect the fact that Huntington’s growth is threatened by the profound economic weakness in the areas it operates. Its loan composite remains heavily weighed to the mid-Ohio to eastern-Michigan markets, which are under severe stress currently.

Additionally, the company has significant exposure to the problematic commercial real estate and residential markets. As a result, nonperforming assets, charge-offs and loan loss provisions are expected to remain elevated at least through the first half of 2010.

However, we believe that the turnaround story is right on track. Under its new leadership, the company has taken fundamental steps, including the strengthening of capital levels, reorganization of business and bolstering of its balance sheet.

Further, Huntington is also seeking for strategic expansion opportunities to broaden its Midwest franchise by acquiring failed banks. Last year, the company acquired the deposits and certain assets of Warren Bank, located in Macomb County in Michigan, in an FDIC-related transaction.

Going forward, we expect the company’s strategic efforts to help navigate the current credit cycle and support earnings growth. This is also reflected in an upward revision of the estimate for the full-year and the upside potential of that estimate.

The lack of estimate revisions in either direction indicates no clear directional pressure on shares over the near term. As a result, Huntington currently has a Zacks #3 Rank, which translates to a short-term Hold rating. Also, considering the current headwinds and the future growth potential, we have a long-term Neutral recommendation on the shares.

Zacks Investment Research

(HBAN) Huntington Bancshares Reaffirms 2010 Earnings Guidance

This represents the third deal between U.S. Bancorp and SolarCity. In Jun 2009, U.S. Bancorp Community Development Corporation (USBCDC), a unit of U.S. Bancorp, and SolarCity entered into an agreement to install solar electric panels on homes and businesses in California, Oregon and Arizona for customers who do not prefer to pay the upfront cost of buying and installing a solar energy system. The size of the fund was doubled to $100 million in Oct 2009.

Financing solar installations is attractive for investors like banks as they enjoy tax breaks including a solar tax credit. The federal tax credit is equivalent to 30% of a project’s cost. SolarCity could also apply for the cash equivalent of the tax credit from the U.S. Department of Treasury.

USBCDC has assets over $6.3 billion and is the largest “new markets tax credit investor” in the country, investing billions of dollars nationwide in hundreds of transactions. Such investments help provide renewed and new resources to communities throughout the country. It finances community development and affordable housing projects through the use of New Markets, Historic, Low-Income Housing and Renewable Energy tax credits.

U.S. Bancorp’s fourth quarter earnings of 30 cents per share were 2 cents ahead of the Zacks Consensus Estimate. Results were driven by higher revenue, partially offset by deteriorating credit quality.

We expect the overall uncertainties for the industry, competitive market conditions and higher credit costs to continue weighing on the shares of US Bancorp in the coming quarters. However, we expect the company to post growth in core earnings and benefit from its diversified revenue base and strategic acquisitions.

Zacks Investment Research

(USB) U.S. Bancorp Adds $90 Million to SolarCity Fund

The miss was primarily driven by loan loss provisions, which were almost doubled from the prior quarter. Additionally, the share count was higher in the quarter.

For the reported quarter 2009, net loss applicable to common shareholders was $369.7 million or 56 cents per share, compared to a net loss of $166.2 million or 33 cents per share in the prior quarter and a net loss of $417.3 million or $1.20 per share in the prior-year quarter.

The results in the reported quarter include a $73.6 million pre-tax (7 cents per share after-tax) gain on the early extinguishment of debt and a $12.0 million after-tax (2 cents a share) deferred tax valuation allowance benefit.

For full year 2009, Huntington reported a net loss of $3.1 billion or $6.14 per share, compared with a full year 2008 net loss of $113.8 million or 44 cents per share. The decline primarily reflected non-cash goodwill impairment charges of $2.6 billion or $4.89 per share in 2009.

Provisions Nearly Doubled

Provision for loan losses nearly doubled from the prior-quarter level. Provisions were $894.0 million, up from $475.1 million in the prior quarter and $722.6 million in the year-ago quarter.

Huntington’s growth is threatened by the profound economic weakness in its geographic footprint. Its loan composite remains heavily weighed to the Midwest markets, which are under severe stress currently, with high levels of unemployment.

Credit metrics also deteriorated significantly during the quarter. Net charge-offs increased 104 basis points (bps) sequentially to an annualized 4.80% of average loans and leases. The allowance for loan losses increased 126 bps sequentially year-over-year to 4.03% of total loans.

However, the rate of deterioration is somewhat moderating as the level of criticized and classified loans increased at a much lower rate than in the prior quarters and the non-performing assets fell in the reported quarter. Non-performing assets decreased 69 bps sequentially to 5.57% of related assets.

Inside the Headline Numbers

Fully taxable equivalent net interest income increased 3% sequentially but decreased 1% year-over-year to $374.1 million. The sequential increase reflects an increase in average earnings assets. However, net interest margin was 3.19%, down 1 basis point sequentially but up again 1 basis point year-over-year.

Average total loans and leases declined 2% sequentially and 11% year-over-year, driven by the economic environment that has caused many customers to reduce their leverage position. However, average core deposits increased 4% sequentially and 14% year-over-year.

Non-interest income decreased 5% sequentially to $244.5 million. However, it was significantly up from $67.1 million reported in the year-ago quarter. The year-over-year increase in non-interest income was primarily the result of reduced securities losses and growth in mortgage banking, electronic banking and other income.

Non-interest expenses for the quarter decreased 20% sequentially and 17% year-over-year to $322.6 million, primarily reflecting the gain on the early extinguishment of debt in the reported quarter.

Evaluation of Capital Ratios

Capital ratios deteriorated sequentially but were up from the prior-year quarter. Tangible common equity ratio was 5.92%, down 54 bps but up 188 bps year-over-year. The Tier 1 risk-based capital ratio was 12.05%, down 99 bps sequentially but up 133 bps year-over-year.

2010 Outlook

Huntington expects to report a quarterly profit some time in 2010. The company expects charge-offs and loan loss provisions to remain elevated but still below the 2009 levels. Loans are expected to be flat-to-up slightly from the fourth quarter levels, interest margin is expected to improve while fee income could be flat-to-down slightly from the fourth quarter levels. The company may report an increase in expenses for investments in growth — and the implementation of — key strategic initiatives.

Huntington has set a target of $275.0 million in pre-tax, pre-provision earnings for the 2010 third quarter.

We believe that the turnaround story is right on track. Under its new leadership, the company has taken fundamental steps including the strengthening of capital levels, reorganization of business and bolstering its balance sheet. We expect these actions to help the company navigate the current credit cycle and support earnings growth.

Zacks Investment Research

(HBAN) Huntington Bancshares Incorporated Misses Expectations – Loan Loss Provisions Rise

The results were driven by an improvement in credit trends. Charge-offs were low and provisions for loan losses were down. There was also an improvement in interest margin. Excluding the benefits from the Visa Inc. (V) transaction in the prior quarter, the company also reported a 7% sequential increase in non-interest income. However, a stressed economic environment has led to a decline in the demand for loans.

However, for fiscal 2009, Fifth Third reported a net income available to common shareholders of $511 million or 67 cents per share, compared with a net loss of $2.2 billion or $3.91 per share in 2008.

Inside the Headline Numbers

Quarterly results included a pre-tax net benefit of $20 million for the mark-to-market adjustment on warrants related to the Fifth Third Processing Solutions joint venture. This was, however, offset by a $22 million pre-tax litigation reserve accrual for litigation associated with bank card association membership.

Fifth Third’s credit metrics improved in the quarter. Net charge-offs were 362 basis points (bps) of average loans outstanding, down 13 bps sequentially and 388 bps year-over-year. Loss experience overall continues to be driven by commercial and residential real estate loans in Michigan and Florida.

Non-performing assets as a percentage of related assets were 4.22%, up 13 bps sequentially and 184 bps year-over-year. Provisions for loan losses were $776 million, down 18% sequentially and 67% year-over-year.

Capital ratios were mixed. Compared with the prior quarter, the Tier 1 common equity ratio decreased 1 basis point to 7.00%, the Tier 1 capital ratio increased 12 bps to 13.31%, and the total capital ratio increased 5 bps to 17.48%. As of Dec 31, 2009, book value per share was $12.44 and tangible book value per share was $9.26, compared with $12.69 and $9.50, respectively, as of Sep 30, 2009.

Net interest margin improved 12 bps from the prior quarter to 3.55%, driven by a positive funding impact, which was partially offset by lower loan balances combined with a stabilization of spreads on loans originated during the quarter. This drove a 1% sequential increase in net interest income to $882 million. Net interest income was, however, down 2% year-over-year. The prior-year period included a higher loan discount accretion related to the First Charter acquisition.

Average portfolio loan and lease balances decreased 3% sequentially and 10% from the prior-year quarter, primarily due to lower demand for consumer and commercial loans and leases. However, average core deposits increased 3% sequentially and 11% year-over-year.

Fifth Third’s non-interest income of $651 million was down 23% sequentially but up 1% from a year ago. While the company experienced a benefit of $20 million in the reported quarter for the mark-to-market adjustments on warrants related to the Fifth Third Processing Solutions joint venture, the prior quarter’s results included a $244 million gain from the sale of its Visa Inc. Class B common shares. Excluding these items, non-interest income was up 7% sequentially.

Non-interest expense increased 10% sequentially to $967 million and decreased $1.1 billion from a year ago. While the reported quarter results included $22 million of litigation reserve accrual, the prior quarter included $73 million of Visa litigation reserve reversal and $10 million of seasonal pension settlement expense. The year-ago quarter included a $965 million charge to record goodwill impairment. Excluding such items, the company reported a 1% sequential increase and a 10% year-over-year decrease in non-interest expenses.

Zacks Investment Research

(FITB) Fifth Third Bancorp Reduces Loss – Beats Expectations

Fully taxable equivalent net interest income increased 2.8% sequentially to $396 million. The increase was primarily driven by a 26 basis points improvement in net interest margin to 2.94%, partially offset by a reduction in total earning assets by 6.2% to $53.9 billion. Provisions for loan losses decreased by 17.4% sequentially to $257 million, while the net charge-off ratio dipped by 4 basis points (bps) to 2.10%.

Comerica’s non-interest income declined 32.1% sequentially to $214 million in the reported quarter. The sequential decrease was primarily the result of lower securities gains, primarily from sales of mortgage-backed government agency securities.

Non-interest expenses for the quarter increased 6.3% sequentially to $424 million. The sequential increase stemmed primarily from a rise in real estate-related costs coupled with higher severance-related expenses.

Comerica further strengthened its balance sheet with the tangible common equity ratio improving to 7.99%, from 7.96% in the previous quarter and 7.21% in the year-ago period, while Tier 1 capital ratio increased to 12.46% from 12.21% in the previous quarter and 10.66% last year.

For the full-year 2010, Comerica expects low single-digit growth in loans, with net interest margin of 3.15% to 3.25% amid improved loan pricing and lower funding costs. The company anticipates approximately flat non-interest income and low single-digit decrease in non-interest expenses. Moreover, management also expects net credit-related charge-offs to reduce by $775 million to $825 million during the year.

Shares of Comerica have so far gained more than 6% in morning trade to reach $35.81 on the New York Stock Exchange.

Zacks Investment Research

(CMA) Comerica’s Report Tops Consensus Estimates

M&I’s average loans and leases totaled $45.3 billion for the fourth quarter of 2009, decreasing $4.9 billion or 10% compared to the fourth quarter of 2008. When adjusted for the targeted reduction in the Corporation’s construction and development portfolio, loans fell $1.2 billion or 3 % versus the same period last year.

The company’s net interest income was $406.1 million for the fourth quarter of 2009, up $11.6 million or 3% compared to the third quarter of 2009. The net interest margin was 2.95%, up 13 basis points from the previous quarter.

Provision for loan and lease losses was $639.0 million in the fourth quarter of 2009 versus $578.7 million in the third quarter of 2009.

Construction and development (C&D) exposure declined from the third quarter of 2009 to 12.5 percent of total loans. Arizona C&D exposure fell 64% since the fourth quarter of 2007.

Early-stage delinquencies fell $134 million, or 16%, from the third quarter of 2009 — the third consecutive quarterly decline and at the lowest level since December 2007. Non-performing loans decreased $205 million, or 9% from the third quarter of 2009 — the second consecutive quarterly decline.

Marshall & Ilsley’s non-interest income was $243.8 million for the fourth quarter of 2009 compared to $166.1 million for the fourth quarter of 2008. Net securities gains of $40.6 million, debt termination gains of $30.9 million, and losses on loans held for sale of $11.1 million were unique to the current quarter.

The company’s consolidated assets and total equity were $57.2 billion and $7.0 billion, respectively, as of Dec 31, 2009, compared to $62.3 billion and $6.3 billion, respectively, on Dec 31, 2008.

Marshall & Ilsley Corporation provides diversified financial services to corporate, institutional, government, and individual customers in the United States. The company was founded in 1847 and is headquartered in Milwaukee, Wisconsin.

Zacks Investment Research

(MI) Marshall & Ilsley Corporation’s Report Falls Short

Northern Trust reported full year earnings of $3.16 per share, down 9% from $3.47 last year.

Net interest income totaled $244.2 million, down 30.0% year-over-year. Net interest margin (NIM) equaled 1.43% in the quarter, 54 basis points lower than that of last year. The decreases in NIM and net interest income reflect the diminished value of non-interest-related funding sources resulting from significant interest rate cuts over the past year.

Northern Trust reported a decline in provision for credit losses to $40.0 million from $60.0 million in the year earlier period. Non-performing loans totaled $278.5 million. Net charge-offs increased to $32.3 million from $15.8 million in the prior-year quarter.

Average earning assets of $67.5 billion were 3.0% lower year over year, driven by a decrease in average money market assets, partially offset by an increase in the U.S. government sponsored agency securities and corporate debt.

Northern Trust’s risk-based capital ratios remained strong, with Tier 1 capital ratio of 13.6%, total risk-based capital ratio of 16% and leverage ratio of 8.8%.

The quarter reflected a continued weakness in the broader economic environment. Credit metrics remain negatively expanded. Due to the overall stress in the banking sector, we expect Northern Trust’s net interest margin to remain compressed. However, the company’s sound capital structure and diversified business operations will help it to emerge unscathed from the current crisis.

Zacks Investment Research

(NTRS) Northern Trust Corporation Outdoes Consensus

However, credit losses and non-performing assets continued to trend higher in this quarter, reflecting continued stress in the commercial, commercial real estate, residential real estate and consumer loan portfolios. However, we note that the rate of deterioration has somewhat moderated in the quarter.

Quarterly results were impacted by a $278 million of provision for credit losses in excess of net charge-offs and net securities losses of $158 million. These items reduced earnings by 18 cents per share.

For the full year 2009, US Bancorp reported a net income of $2.2 billion, or 97 cents per share, compared to net income of $2.9 billion or $1.61 per share in 2008.

Inside the Headline Numbers

For the reported quarter, results were driven by a record total net revenue of $4.4 billion, representing an increase of 3.0% sequentially and 20.8% year-over-year. Results reflected a growth in interest income and fee income.

Credit metrics continued to deteriorate in the quarter. Net charge-offs were 230 basis points (bps) of average loans outstanding, up 3 bps sequentially and 88 bps year-over-year.

Non-performing assets as a percentage of related assets were 3.02%, up 63 bps sequentially and 160 bps year-over-year. Though the provision for credit losses increased 9.6% year-over-year, on a sequential basis, provisions were down 4.7% to $1.4 billion.

Profitability metrics deteriorated slightly sequentially but improved year-over-year. Return on average assets and return on average common equity were 0.86% (down 4 bps sequentially but up 35 bps year-over-year) and 9.6% (down 40 bps sequentially but up 430 bps year-over-year), respectively. Book value was $12.79 per common share as of Dec 31, 2009, compared to $12.38 as of Sep 30, 2009 and $10.47 as of Dec 31, 2008.

US Bancorp’s Tier 1 capital ratio was 9.6% as of Dec 31, 2009, compared with 9.5% as of Sep 30, 2009, and 10.6% as of Dec 31, 2008. The Tier 1 common equity ratio was 6.8%, flat sequentially but up compared with 5.1% as of Dec 31, 2008.

Tax-equivalent net interest income was $2.4 billion, up 9.4% sequentially and 9.2% from the prior-year quarter, driven by an increase in average earning assets and growth in lower cost core deposit funding. Net interest margin was up 16 bps sequentially and 2 bps year-over-year to 3.83%.

Average loans were up 5.3% sequentially and 8.2% year-over-year. Average total deposits were up 8.7% sequentially and 25.2% year-over-year, reflecting acquisitions.

Non-interest income decreased 3.7% sequentially but was up 37.8% year-over-year to $2.0 billion. The sequential decline was primarily due to higher net securities losses and lower mortgage banking revenue. However, the year-over-year increase was driven by a growth in mortgage banking revenue and enhanced commercial products revenue.

Non-interest expense increased 8.5% sequentially and 15.0% year-over-year, reflecting the impact of acquisitions, higher FDIC deposit insurance expense and for reinstating certain salary levels which were previously reduced as part of US Bancorp’s cost containment activities. The tangible efficiency ratio deteriorated slightly to 46.8% from 45.3% in the previous quarter but improved from 47.6% reported in the year-ago quarter.

Successful Exit from the TARP

We have been encouraged by the company’s exit from the Treasury’s Capital Purchase program. Despite the dilutive impact, the capital bolstering initiatives are also viewed positively as these will not only reduce government intervention but also help in maintaining a strong capital base in a soft economic environment.

US Bancorp is also focused on expanding its business. The company completed the purchase of BB&T Corp.’s (BBT) banking operation in Nevada last Friday. In October 2009, the company acquired the FBOP Banks in an FDIC-assisted deal. Together, these two transactions added more than 160 branch locations to its franchise and over $15 billion in deposits. Additionally, a bond trustee business and a mutual fund accounting and servicing operation were acquired by its Wealth Management and Securities Services Group. These opportunistic acquisitions bode well going forward.

Nevertheless, we expect the overall uncertainties for the industry, competitive market conditions and higher credit costs to continue weighing on the shares of US Bancorp in the coming quarters. However, we expect the company to post growth in core earnings and benefit from its diversified revenue base and strategic acquisitions.

Zacks Investment Research

(USB) US Bancorp Outdoes Consensus Expectations

US Bancorp remains one of the more profitable large-cap banks in the industry. With a wide range of product offerings, the company remains well positioned for organic growth. Its strong retail banking franchise and leadership in payment processing should continue to create growth opportunities over time.

Given the economic conditions and the company’s strategic operations, we expect net interest income to be up modestly in the fourth quarter compared to the prior quarter. Growth in fee income is expected to be somewhat moderated due to lower mortgage revenues and core expenses to be flat compared to the previous quarter, primarily driven by the expense control initiatives.

On the other hand, given the continued stress in the commercial and residential real estate and consumer loan portfolios, we expect credit losses and nonperforming assets to continue to trend higher in the fourth quarter. However, we noticed that the rate of deterioration has somewhat moderated in the third quarter.

US Bancorp reported third quarter earnings of $603 million or 30 cents per share. Results were ahead of the Zacks Consensus Estimate of 26 cents. Results reflected higher revenue and an increase in fee income, partially offset by a deterioration of credit metrics.

We have been encouraged by US Bancorp’s exit from the Treasury’s Capital Purchase program. Despite the dilutive impact, the capital bolstering initiatives are also positive as these will not only reduce government intervention but also help in maintaining a strong capital base in a soft economic environment.

US Bancorp is also focused on expanding its business. The company has recently announced a number of diverse and strategically important acquisitions in the second half of 2009. These opportunistic acquisitions bode well going forward.

Nevertheless, we expect the overall uncertainties for the industry, competitive market conditions and higher credit costs to continue weighing on the shares of US Bancorp in the coming quarters. However, we expect the company to post a growth in core earnings and benefit from its diversified revenue base and opportunistic acquisitions. Hence, we have a Neutral recommendation on its shares.

Zacks Investment Research

(USB) US Bancorp Earnings Preview

Some executive benefits such as bonuses, stock option grants, and retirement benefits and severance settlement are not allowed under the federal bailout program. All these benefits will now be replaced by “salary stock” in 2010.

The new compensation will take the form of common shares. The shares will be granted on each payday, based on the stock price at that time. The shares will be fully vested when they are awarded but the executives will be restrained from transferring the shares. An employee will be allowed to transfer only one-third of the shares each year for three years after they receive these.

M&I will also fund each executive a number of shares of restricted stock equal to half their aggregate annual base salary.

According to the new structure, Chief Financial Officer Gregory A. Smith’s salary will stay at $480,000. He will also receive stock salary of $720,000. Thomas J. O’Neill, the Senior Vice President, will again receive a salary of $415,000. He will also receive stock salary of $685,000. Kenneth C. Krei, Chairman and CEO of subsidiary M&I Trust Co., will see his salary increase to $480,000 from $415,000, plus a stock salary of $720,000.

As part of its participation in the Troubled Asset Relief Program (TARP) during the height of the financial crisis last year, M&I had received $1.7 billion in bailout money.

Last week, M&I announced the extension of its foreclosure moratorium term by an additional 90-day period. The moratorium was initiated on Dec 18, 2008, as part of the Homeowner Assistance Program. The foreclosure suspension now ends on Mar 31, 2009.

The ongoing financial turmoil has marred core growth across sectors and financial services did not go unscathed. Non-performing loans, declining credit quality in a lean job market and constant fluctuations in the financial markets led to a substantial loss of earnings relative to the historical levels. However, M&I has been able to meet most of the challenges by drastic cost-cutting, bonus-freezing and dividend reduction.

We believe that M&I advances to a more favorable environment. With a large loan loss reserve, a strong capital base and ample liquidity, M&I will be able to meet the fund requirements of its customers, going forward.

On Tuesday, the shares of M&I closed at $5.50 on the New York Stock Exchange, up 0.9% from last day’s closing price.

Zacks Investment Research

(MI) Marshall & Ilsley Corporation Restricts Bonuses for Bailout Program

The notice came as a breather for many homeowners distressed by the loan repayment issues. The foreclosure suspension is currently on all owner-occupied residential loans for customers who realistically work out to arrive at a successful repayment agreement. The moratorium applies to applicable loans in all M&I markets.

M&I’s Homeowner Assistance Program is streamlined to help the programs generated for potentially troubled homeowners who are identified in advance and proactively offered assistance. It also offers programs to reduce foreclosures through several refinancing options, including term extensions and reduced rates that can be used, as applicable and necessary, to reduce monthly payments.

Additionally, M&I remains consistent in providing fresh credit to both its new and existing customers. Till Oct 31, 2009, M&I had already loaned out $5.5 billion of new credit since receiving additional capital from U.S. Treasury through its Capital Purchase Program in mid-November 2008.

The ongoing financial turmoil has marred core growth across sectors and financial services did not go unscarred. Non-performing loans, declining credit quality on a lean job market and constant fluctuations in the financial markets led to a substantial loss of earnings as compared to historical levels. However, M&I has been able to meet most of the challenges by drastic cost-cutting, bonus-freezing and dividend reduction measures.

We believe that as the economy advances to a more favorable environment, M&I with a large loan loss reserve, a strong capital base and ample liquidity will be able to meet the fund requirements of its customers and also prevent foreclosures. This is noticeable from the fact that Tuesday’s announcement of extending the foreclosure moratorium is incidentally not the first one. The company has previously extended its foreclosure suspension for 90 days on Sept 28, 2009 and twice before that on June 26, 2009 and Mar 31, 2009, thereby diminishing the threat of homelessness to customers by way of a foreclosure.

Zacks Investment Research

(MI) Marshall & Ilsley Extends Foreclosure Suspension

The company’s senior debt was downgraded by one notch to “Baa1″ (lower medium grade investment) from “A3″ (upper medium grade investment). The rating agency also downgraded Marshall & Ilsley’s financial strength rating to “C” from “C+” and the long-term deposit rating by one notch to “A3″ from “A2″.

According to the rating agency, there is a possibility that Marshall & Ilsley could face sizable credit losses throughout 2010 resulting from its real estate concentration. However, the credit losses would prevent the company from returning to profitability in the near-term.

Marshall & Ilsley’s third-quarter loss of 68 cents per share was in line with the company’s forecast as well as the Zacks Consensus Estimate. Also, this compares unfavorably with the earnings of 32 cents per share in the prior-year quarter.

The loss was due primarily to a higher loan loss provision for bank holding company loans. At the end of the quarter, the allowance for loan and lease losses increased 23 basis points sequentially to 3.07% of total loans and leases.

Marshall & Ilsley continues to suffer from its exposure to construction and residential development loans in Arizona, Florida’s west coast and certain correspondent channels. Management has taken aggressive steps in identifying credit issues and building capital, which we believe will help the company to take advantage of opportunities going forward in the cycle than most of its peers. However, worse credit quality, lack of core deposit growth and continuous pricing pressures on both sides of the balance sheet will be a drag on upcoming results.

Zacks Investment Research

(MI) Moody’s Lowers Credit Ratings of Marshall & Ilsey

The three Texas banks, which the company intends to sell are Citizens National Bank of Teague, Madisonville State Bank of Madisonville and North Houston Bank of Houston. These banks were among the nine banking subsidiaries that were acquired by U.S. Bancorp on Oct 30, 2009, and were previously operated by Illinois-based FBOP Corp.

The company intends to sell these three Texas banks by the second quarter of 2010. Following the sale of these banks, U.S. Bank will have no retail locations in Texas.

The six remaining subsidiaries are BankUSA, N.A., California National Bank, Pacific National Bank, Park National Bank, San Diego National Bank, and Community Bank of Lemont. These banks are located in California, Arizona and Illinois and will remain a part of the U.S. Bank franchise.

Headquartered in Minneapolis, U.S. Bancorp is one of the nation’s top 10 financial holding companies with $265 billion in assets as of Sep 30, 2009. The company operates 2,851 banking offices and 5,175 ATMs in 24 states.

The failure of Washington Mutual last year was the largest in the U.S. banking history. It was acquired by JPMorgan Chase (JPM). The other major acquirers of failed institutions since 2008 include U.S. Bancorp, Fifth Third Bancorp (FITB), Zions Bancorp (ZION), SunTrust Banks (STI), PNC Financial (PNC), BB&T Corp. (BBT) and Regions Financial (RF).

Zacks Investment Research

(USB) U.S. Bancorp to Sell 3 Texas Banks

Bank failures continue unabated as U.S. regulators on Friday closed down nine more banks, including California National Bank of Los Angeles. The failed banks were situated in California, Illinois, Texas and Arizona. This takes the total number to 115, compared to 25 in 2008 and 3 in 2007.

Besides California National Bank, the eight other banks were Bank USA N.A. of Phoenix, San Diego National Bank of San Diego, Pacific National Bank of San Francisco, Park National Bank of Chicago, Community Bank of Lemont in Lemont, Ill., North Houston Bank in Houston, Madisonville State Bank in Madisonville, Texas and Citizens National Bank of Teague, Texas.

The weak economy continues to weigh heavily on banks with a stream of loan defaults. As the industry has to tolerate bad loans that were made during the credit explosion, the trouble in the banking system goes even deeper, increasing the possibility of more failures. However, the regulators are trying to avoid panic by seizing banks slowly. Also, the slow seizing could be a strategy as it is hard to get buyers for so many failed banks.

All the banks that failed in the latest round were divisions of privately held FBOP Corp., a bank holding company based in Oak Park., Illinois. The banks had combined assets of $19.4 billion and deposits of $15.4 billion at the end of September.

The nine banks had 153 offices, out of which California National Bank had 68 branches. California National Bank was the biggest of FBOP’s banks, the nation’s 101st largest with assets of $7.1 billion.

Failure of these institutions represents another impact on the Federal Deposit Insurance Corporation’s (FDIC) fund for protecting customer accounts, as it has been appointed receiver for these banks. The failure of 115 banks has cost the federal deposit insurance fund more than $25 billion so far this year.
The FDIC insures deposits at 8,195 institutions with roughly $13.5 trillion in assets.

When a bank fails, it reimburses customers for deposits of up to $250,000 per account. The outbreak of financial institutions failing has significantly stretched the regulator’s deposit insurance fund. As on June 30, 2009, the fund corpus fell to $10.4 billion, the lowest since 1993, from $13.0 billion in the prior quarter.

Minneapolis-based U.S. Bank, a division of U.S. Bancorp (USB), has agreed to assume the deposits and most of the assets of these nine banks. The FDIC and U.S. Bank agreed to share losses on about $14.4 billion of the combined purchased assets.

In the second quarter of 2009, the number of banks on the FDIC’s list of problem institutions grew to 416 from 305 in the first quarter. This is the highest since the savings and loan crisis in 1994.

Increasing loan losses on commercial real estate are expected to cause hundreds more bank failures in the next few years. The FDIC anticipates the bank failures to cost about $100 billion over the next four years.

In order to replenish the declining fund, the FDIC board recently proposed that the U.S. banks should pay fees for three years in advance. Also, the regulators are considering requesting the healthy banks to bail out the government soon as it is necessary to replenish the deposit insurance fund, which has slipped to 0.22% of insured deposits, below the mandated minimum of 1.15%.

The failure of Washington Mutual last year was the largest in U.S. history. It was acquired by JP Morgan Chase (JPM). The other major acquirers of failed institutions since 2008 include Fifth Third Bancorp (FITB), U.S. Bancorp, Zions Bancorp (ZION), SunTrust Banks (STI), PNC Financial (PNC), BB&T Corporation (BBT) and Regions Financial (RF).

The failed banks are victims of recession and rising loan losses. As a result of the ongoing market turmoil, these institutions experienced massive capital erosion stemming from losses due to a significant exposure to collateralized mortgage obligations, commercial real estate loans and other commercial and industrial loans. All these factors were responsible for a drag on profitability and write-downs.

According to the FDIC, U.S. banks overall lost $3.7 billion in the second quarter of 2009, compared to a profit of $7.6 billion in the prior quarter. Though current signals indicate that the economy may stabilize, we expect loan losses on commercial real estate portfolio to remain high for banks that hold large amounts of high-risk loans.

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($USB) U.S. Bank Failures Zoom to 115 in 2009

The company expected to report a loss of 68 cents to 70 cents for the quarter. The loss was due primarily to a higher loan loss provision for bank holding company loans. At the end of the quarter, the allowance for loan and lease losses increased 23 basis points (bps) sequentially to 3.07% of total loans and leases.

Credit quality significantly deteriorated during the quarter with rising net charge-offs and nonperforming assets. Net charge-offs increased 327 bps year over year to 4.48% of average loans and leases and Nonperforming assets increased 259 bps year over year to 5.60% of period-end loans & leases and other real estate owned.

The results for the quarter included debt termination gains of $56 million or 10 cents per share, credit-related expenses of $70 million or 12 cents per share, and dividends paid to U.S. Treasury under the Troubled Asset Relief Program (TARP) of $25 million or 7 cents per share.

Tax Equivalent net interest income decreased 11.8% year over year to $394.5 million. The net interest margin [NIM] deteriorated 24 bps year over year to 2.82%. However, NIM improved 3 bps sequentially. During the third quarter, M&I’s net interest margin benefited from a lower level of nonperforming loans and the maturity of certain debt instruments. These improvements were partially offset by the company’s decision to maintain excess liquidity.

Non-interest income increased 24% year over year to $227.9 million. Non-interest income for the quarter included debt termination gains of $56.1 million and losses on loans held for sale of $18.1 million.

Assets under Management and Assets under Administration were $32.8 billion and $118.5 billion, respectively at quarter end, compared to last year’s $24.4 billion and $101.3 billion.

Non-interest expense for the quarter increased 13.7% year over year to $409.4 million. Credit-related expenses were $70.3 million for the reported quarter, versus $20.5 million in the prior-year quarter. After adjusting for certain net credit-related expenses and other one-time items, M&I’s efficiency ratio was 57.6% in the current quarter.

At Sep 30, 2009, M&I’s tangible common equity ratio was 7.0%. Book value per share declined significantly to $12.98 from $25.12 at the end of the prior-year quarter.

The company yesterday announced that it will raise at least $750 million in a stock offering to boost the capital of its subsidiaries. M&I also intends to use some of the funds to repay part of the $1.7 billion it received earlier this year under the TARP.

M&I is a diversified financial services company, providing its clients with trust and investment management, equipment leasing, mortgage banking, financial planning, insurance, and other bank related services. In addition to its financial services, the company’s wholly owned technology subsidiary, Metavante Corp., provides technology support services to financial services companies.

The bank continues to suffer from its exposure to construction and residential development loans in Arizona, Florida’s west coast and certain correspondent channels. The management has taken aggressive steps in identifying credit issues and building capital, which we believe will help the company to take advantage of opportunities going through the cycle than most of its peers. However, worse credit quality, lack of core deposit growth and continuous pricing pressures on both sides of the balance sheet will be a drag on upcoming results.
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(MI) Marshall & Ilsley Reports Loss

However, credit losses and nonperforming assets continued to trend higher in the quarter, reflecting continued stress in the commercial, commercial real estate, residential real estate and consumer loan portfolios. We note that the rate of deterioration has somewhat moderated in the quarter.

Quarterly results were, however, impacted by a $415 million of provision for credit losses in excess of net charge-offs, net securities losses of $76 million and a gain of $39 million associated with the company’s investment in Visa Inc. (V). These items reduced earnings by 19 cents per share.

Results for the quarter were driven by record total net revenue of $4.3 billion, representing an increase of 2.2% sequentially and 25.8% year-over-year. Results reflected a growth in interest income and fee income.

Credit metrics continued to deteriorate in the quarter, though the rate of deterioration has moderated. Net charge-offs were 227 basis points (bps) of average loans outstanding, up 24 bps sequentially and 108 bps year-over-year.

Non-performing assets as a percentage of related assets were 2.39%, up 19 bps sequentially and 151 bps year-over-year. As a result, provisions for credit losses increased to $1.5 billion from $1.4 billion reported in the prior quarter and $748 million in the year-ago period.

Profitability metrics improved sequentially. Return on average assets and return on average common equity were 0.90% (up 19 basis points sequentially but down 4 bps year-over-year) and 10.0% (up 580 bps sequentially but down 80 bps year-over-year), respectively. Book value was 12.38 per common share at Sept. 30, 2009 compared to 11.86 at June 30, 2009 and 11.50 at Sept. 30, 2008.

During the quarter, US Bancorp repurchased the warrant that was previously issued to the US Department of the Treasury for $139 million.

US Bancorp’s Tier 1 capital ratio was 9.5% compared to 9.4% in the prior quarter and 8.5% in the year-ago period. The Tier 1 common equity ratio was 6.8% at Sept. 30, 2009, compared with 6.7% at June 30, 2009, and 5.7% at Sept. 30, 2008. Total risk-based capital ratio was 13.0%, same as at the end of the prior quarter and up from 12.3% at the end of the year-ago period.

Tax-equivalent net interest income was $2.2 billion, up 2.5% sequentially and 9.7% from the prior-year quarter. The year-over-year growth was driven by an 8.9% increase in average earning assets. Net interest margin was 3.67%, up 7 basis points sequentially and 2 bps year-over-year.

The increase in average earning assets was driven by a 9.3% year-over-year growth in average loans. Average total deposits were up 1.9% sequentially and 24.6% year-over-year, reflecting acquisitions.

Non-interest income increased 1.8% sequentially and 48.2% year-over-year to $2.1 billion. The year-over-year increase was driven by growth in mortgage banking revenue. Also contributing to the growth were higher payments-related income and commercial products revenue.

Non-interest expense decreased 3.6% sequentially but was up 13.2% year-over-year. The tangible efficiency ratio improved to 45.3% from 48.7% in the previous quarter and was almost constant compared to 45.5% in the year-ago period.

We have been encouraged by the company’s exit from the Treasury’s Capital Purchase program. Despite the dilutive impact, the capital bolstering initiatives are also viewed positively as these will not only reduce government intervention but also help in maintaining a strong capital base in a soft economic environment.

US Bancorp is also focused on expanding its business. The company has recently announced a number of diverse and strategically important acquisitions this quarter. These opportunistic acquisitions bode well going forward.

Nevertheless, we expect the overall uncertainties for the industry, competitive market conditions and higher credit costs to continue weighing on the shares of US Bancorp in the coming quarters. However, we expect the company to post growth in core earnings and benefit from its diversified revenue base and strategic acquisitions.

Hence, we have a Neutral recommendation on the shares.

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(USB) US Bancorp Exceeds Consensus Estimates

Net interest income totaled $248.2 million, down 7.0% year-over-year. Net interest margin [NIM] equaled 1.54% in the quarter, 8 basis points lower than that of last year. The decrease in NIM and net interest income reflects the diminished value of non-interest-related funding sources resulting from significant interest rate cuts over the past year.

Non-interest expenses totaled $599.2 million in the reported quarter, down 48.0% year over year due to a fall in Visa indemnification charges. Non-interest income increased 1% year over year to $679.4 million.

Provision for credit losses was $60.0 million versus $25.0 million in the year earlier period, reflecting continued weakness in the broader economic environment. Non-performing loans totaled $292.3 million versus $58.8 million in the prior-year period. Net charge-offs ballooned to $46.1 million from $0.3 million in the prior-year quarter. We believe that the competitive operating environment and a renewed weakness in the economy could result in higher-than-expected net charge-offs in the quarters to come.

Trust, investment and other servicing fees from the Corporate & Institutional Services (C&IS) segment increased 27.0% year over year to $310.2 million, primarily reflecting significantly lower market valuations, partially offset by securities lending results and new business. The largest component of the C&IS fees was custody and fund administration fees, which decreased 9.0% year over year to $150.4 million, driven primarily by declines in the equity markets. Securities lending fees totaled $82.0 million versus a negative $4.6 million in the prior year quarter. In this segment, assets under custody (AUC) totaled $3.2 trillion, which included $1.9 trillion of global custody assets, 11.0% higher year over year.

Trust, investment and other servicing fees from the Personal Financial Services [PFS] segment in the reported quarter decreased 8.0% year over year and totaled $212.9 million. The decrease in PFS fees resulted from significantly lower market valuations, offset in part by strong new business. In this segment, AUC totaled $355.4 billion, up 1.0% year over year, and assets under management (AUM) totaled $610.5 billion, down 6.0% year over year.

Average earning assets of $64.1 billion were 3.0% lower year over year, driven by a decrease in average money market assets, partially offset by an increase in the U.S. government sponsored agency securities and corporate debt.

Northern Trust’s risk-based capital ratios remained strong, with the company’s Tier 1 capital ratio of 13.2%, total risk-based capital ratio of 15.7% and leverage ratio of 9.0%.

The quarter reflected continued weakness in the broader economic environment. Credit metrics remain negatively expanded. Its loan loss provision has also shown a substantial increase. Due to the overall stress in the banking sector, we expect Northern Trust’s net interest margin to remain compressed. However, the company’s sound capital structure and diversified business operations will help it to emerge unscathed from the current crisis.

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(NTRS) Northern Trust Corporation Misses Earnings Estimates

Continued growth in average core deposits, non-interest income and reduced non-interest expenses were impressive during the quarter. However, an 88.5% year-over-year increase in provision for loan losses and $34.0 million of preferred dividend payment to the U.S. Treasury Department under the Capital Purchase Program were the primary reasons for the loss.

As a result of better-than-expected top line and marginal enhancement of costs, the loss was substantially narrower than our estimates.

Fully taxable equivalent net interest income decreased 4.2% sequentially and 17.1% year-over-year to $387 million. The sequential decrease resulted primarily from a decline in the net interest margin [NIM] being partially offset by the impact of one more day during the quarter.

NIM declined 5 basis points (bps) sequentially and 43 bps year-over-year to 2.68%. The decline was primarily attributable to average balances deposited with the Federal Reserve which was partially offset by increased loan spreads and lowered core deposit rates.

Non-interest income increased 5.7% sequentially and 31.3% year-over-year to $315 million in the reported quarter. The sequential increase in non-interest income was primarily the result of growth in several fee categories and a $7 million gain on the repurchase of debt and lower securities gains, primarily from sales of mortgage-backed government agency securities.

Non-interest expenses for the quarter decreased 7.0% sequentially and 22.4% year-over-year to $399.0 million. The sequential decrease in non-interest expenses resulted primarily from a $30.0 million increase in FDIC insurance expense, reflecting an industry-wide FDIC special assessment charge during the prior quarter.

Return on average shareholders equity from continuing operations for the quarter came in at negative 1.27%, compared to negative 1.25% in the prior quarter and positive 2.25% in the prior-year quarter.

Credit metrics continued to deteriorate during the quarter. Non-performing assets (NPAs) increased 35 bps sequentially and 128 bps year-over-year to 2.99% of total loans and foreclosed property. Net charge-offs increased 6 bps sequentially and 124 bps year-over-year to an annualized 2.14% of average total loans. The allowance for loan losses increased 30 bps sequentially and 81 bps year-over-year to 2.19% of total loans.

Total shareholders equity was $7.0 billion at Sept. 30, 2009, compared to $5.1 billion at Sept. 30, 2008. Comerica did not repurchase any shares of its common stock during the reported quarter. There were approximately 151 million common shares outstanding as of Sept. 30, 2009.

Post the third quarter results, we maintain a Hold recommendation on the stock.

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(CMA) Comerica 3Q Losses Easing

The deal is subject to regulatory approval and is expected to close in early 2010. The acquisition involves deposits of those branches that BB&T had recently acquired from the Federal Deposit Insurance Corporation (FDIC) as receiver for Colonial Bank.

The purchase will fortify U.S. Bancorp’s business in Nevada . The company expects this acquisition to meet or exceed the company’s internal rate of return and earnings per share accretion targets.

Last week, US Bancorp has announced that its lead bank, U.S. Bank, has agreed to buy the bond trustee business of First Citizens Bank, a subsidiary of First Citizens BancShares Inc. (FCNCA). The purchase aids growth of its corporate banking and fixed income business in the southeast market. Also it complements the bank’s existing bond trustee business in North Carolina , South Carolina and Virginia .

Earlier that week, US Bancorp also announced its acquisition of the mutual fund administration and accounting servicing division of Fiduciary Management Inc. While this acquisition will confer additional compliance, technology and accounting talent for U.S. Bancorp Fund Services, the company will also benefit from contact with Fiduciary Management’s key client base.

With $266 billion in assets, US Bancorp is the sixth largest commercial bank in the United States . Despite the fact that the company’s second quarter earnings reflected the deteriorating credit quality and its earnings of 12 cents per share were a penny short of the Zacks Consensus Estimate, we have been encouraged by the company’s exit from the Treasury’s Capital Purchase program.

Although the stressed residential real estate market and the issues with the company’s commercial and retail customers will continue to weigh on the shares of US Bancorp, we believe that the recent signs of economic recovery coupled with such strategic acquisitions bode well.

Hence, prior to its third quarter earnings release scheduled on Oct 21, 2009, we have a Neutral recommendation on the shares of US Bancorp.

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(USB) U.S. Bancorp to Acquire a Part of BB&T

The company expects to report a loss of 68 cents to 70 cents per share for the quarter as its allowance for loan and lease losses as a percentage of total loans and leases is expected to rise slightly over 3%.

The firm said that it will make a loan loss provision of $390 million to $400 million for the quarter and would make a special provision of about $185 million for certain bank holding company loans.

As a result of delays in raising capital, deterioration in loan portfolios and regulatory actions against some bank holding companies, total amount of loan and lease losses for the quarter are expected to range between $575 million and $585 million.

The bank said it expects net charge-offs in the quarter to reach as much as $540 million. The early stage loan delinquencies declined by $220 million, or 20%, for the period between June 30 and Sept 30.

The company is scheduled to release its third quarter results on Oct 22.

Marshall & Ilsley is a diversified financial services company, providing its clients with trust and investment management, equipment leasing, mortgage banking, financial planning, insurance, and other bank related services. In addition to its financial services, the company’s wholly owned technology subsidiary, Metavante Corp., provides technology support services to financial services companies.

The bank continues to suffer from its exposure to construction and residential development loans in Arizona, Florida’s west coast and certain correspondent channels. The management has taken aggressive steps in identifying credit issues and building capital, which we believe will help the company to take advantage of opportunities going through the cycle than most of its peers. However, worse credit quality, lack of core deposit growth and continuous pricing pressures on both sides of the balance sheet will be a drag on upcoming results.

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(MI) Marshall & Ilsley Expects Quarterly Loss

Post acquisition, U.S. Bank’s corporate trust division will have $2.4 trillion in assets under administration, 725,000 bondholders and over 114,000 client issuances. The purchase will aid in growing its corporate banking and fixed income business in the southeast market. Also it complements the bank’s existing bond trustee business in North Carolina, South Carolina and Virginia. Currently, U.S. Bank has 46 corporate trust offices across the country and offers a complete line of trust services.

Earlier this week, US Bancorp also announced its acquisition of the mutual fund administration and accounting servicing division of Fiduciary Management, Inc. This division of Fiduciary has over $8 billion in assets under administration. While this acquisition will confer additional compliance, technology and accounting talent for U.S. Bancorp Fund Services, the company will also benefit from contact with Fiduciary Management’s key client base.

With $266 billion in assets, US Bancorp is the sixth largest commercial bank in the United States. The company’s second quarter earnings of 12 cents per share were a penny short of the Zacks Consensus Estimate, reflecting deteriorating credit quality. However, we have been encouraged by the company’s exit from the Treasury’s Capital Purchase program. The recent signs of economic recovery coupled with such strategic acquisitions bode well.

However, we think that the stressed residential real estate market and the issues with the company’s commercial and retail customers will continue to weigh on the shares of US Bancorp.

We therefore continue with our Neutral recommendation.

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($USB) US Bancorp on Acquisition Spree

The failed banks were Warren, MI-based Warren Bank with about $538 million in assets and $501 million in deposits; Spring Grove, MN-based Jennings State Bank with total assets of $56 million and deposits of $52 million and Pueblo, CO-based Southern Colorado National Bank with about $40 million in total assets and $32 million in deposits.

The failure of these institutions represents another sizable impact on the Federal Deposit Insurance Corporation’s (FDIC) fund for protecting customer accounts, as it has been appointed receiver for these banks. The failure of Warren Bank is expected to cost the deposit insurance fund an estimated $275 million, Jennings State Bank’s failure will cost about $12 million and the failure of Southern Colorado National Bank is expected to cost about $6.6 million.

The FDIC insures deposits at 8,195 institutions with roughly $13.5 trillion in assets. When a bank fails, it reimburses customers for deposits of up to $250,000 per account. The outbreak of failing financial institutions has significantly stretched the regulator’s deposit insurance fund. At June 30, 2009, the fund corpus fell to $10.4 billion, the lowest since 1993, from $13.0 billion in the prior quarter.

The FDIC sold Warren Bank’s branches, deposits and about $83 million of assets to Huntington National Bank, the main subsidiary of Huntington Bancshares (HBAN).

Central Bank of Stillwater, MN, agreed to assume Jennings State Bank’s $52.4 million in deposits and the entire assets. FDIC and Central Bank agreed to share losses on about $37.7 million of Jennings State Bank’s assets.

The FDIC sold Southern Colorado National Bank’s deposits and almost all of its assets to Legacy Bank of Wiley, CO. The FDIC and Legacy Bank agreed to share losses on about $25.5 million of Southern Colorado National Bank’s assets.

In order to replenish the declining fund, the FDIC may ask the U.S. banks to pay fees for three years in advance. Also, the regulators are considering requesting the healthy banks to bail out the government as soon as it is necessary to replenish the deposit insurance fund, which has slipped to 0.22% of insured deposits, below the mandated minimum of 1.15%.

In the second quarter of 2009, the number of banks on the FDIC’s list of problem institutions grew to 416 from 305 in the first quarter. This is the highest since the savings and loan crisis in 1994. Increasing loan losses on commercial real estate are expected to cause hundreds more bank failures in the next few years. The FDIC anticipates the bank failures to cost about $70 billion over the next five years.

The failure of Washington Mutual last year is the largest in the U.S. history. It was acquired by JP Morgan Chase (JPM). The other major acquirers of failed institutions since 2008 include Fifth Third Bancorp (FITB), U.S. Bancorp (USB), Zions Bancorp (ZION), SunTrust Banks (STI), PNC Financial (PNC) and Regions Financial (RF).

The failed banks are the victims of recession and rising loan losses. As a result of the ongoing market turmoil, these institutions experienced massive capital erosion stemming from losses due to a significant exposure to collateralized mortgage obligations, commercial real estate loans and other commercial and industrial loans. All these factors were responsible for a drag on profitability and write-downs. According to the FDIC, the U.S. banks overall lost $3.7 billion in the second quarter of 2009, compared to a profit of $7.6 billion in the prior quarter.

Though current signals indicate that the economy may stabilize, we expect loan losses on commercial real estate portfolio to remain high for banks that hold large amounts of high-risk loans.

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(HBAN) U.S. Bank Failure Tally Reaches 98

U.S. Bank will eliminate fees when a customer’s account is overdrawn by less than $10, regardless of the number of overdraft transactions that may have occurred. It will also limit the number of overdraft fees to three or fewer per day. Customers will also be permitted to “opt out” of a transaction, if possible, when the charge might overdraft their account.

New customers will also be allowed to decide whether to allow the bank to overdraft their accounts if they have insufficient funds for transactions. The bank will also establish an annual cap on the amount of overdraft fees it can assess on a single account.

Overdraft fees have become a massive source of capital for banks and an exceptional burden on consumers. U.S. banks will collect $38.5 billion in overdraft charges in 2009, which is almost twice the amount of fees banks collected in 2000. Despite the recession, overdraft fees have trended higher this year. While the median overdraft fee in 2008 was $25, it rose to $26 in 2009. Such fees are mostly collected from customers who are worst affected due to the economic crisis worldwide.

Recently, some of the major U.S. banks like Bank of America Corporation (BAC), JP Morgan Chase & Co. (JPM), BB&T Corporation (BBT) and Wells Fargo (WFC) have also announced restructuring of overdraft policies and fees.

Easing of overdraft policies follows widespread criticism by US congressional leaders and consumers groups who have argued that the fees are excessive. As a result of the credit card reforms, the ability to raise fees and interest rates remains restricted. Also, the credit card issuers need to give longer notice periods to customers before altering their interest rates.

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(USB) US Bank Easing Overdraft Penalties

“The company, which intends to release its third-quarter earnings results on Oct 22, also expects its non-performing assets to accelerate, though interest income and margins are expected to improve in the second half of 2009.

Fifth Third expects net charge-offs in the third quarter to be approximately $775 million, up from $626 million in the second quarter. This would include approximately $110 million in net charge-offs related to SNC credits, compared with $17 million in the second quarter. However, management expects SNC charge-offs to fall in the fourth quarter. Non-performing assets are also expected to increase 20%.

The weakness in the overall economy and in the real estate market, including specific weakness within Fifth Third’s geographic footprint, has adversely affected the company. A significant portion of its residential mortgage and commercial real estate loan portfolios comprise borrowers in Michigan, Northern Ohio and Florida.

These markets have been particularly hurt by job losses, declines in real estate values, declines in home sale volumes and declines in new home building. As a result, delinquencies and charge-offs are increasing, and the company’s earnings are adversely impacted. According to management, while the Michigan market has begun to stabilize, the Florida market remains stressed.

Fifth Third’s second-quarter core loss of 27 cents per share was better than the Zacks Consensus Estimate for a loss of 30 cents per share. Competitive market conditions, continuing deterioration in credit quality and collateral values within the company’s geographical footprint will weigh upon results for several quarters to come, in our view.

However, despite the dilutive impact, the recent capital bolstering initiatives are viewed positively, given the stressed economic environment. Also, the cost containment measures provide some relief.

Hence, we have a Neutral recommendation on the shares.

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(FITB) Fifth Third Bancorp Eyeing Higher Charge-offs

While the company has already evaluated some of the FDIC-assisted purchases, the deposit mix was neither suitable nor large enough. The company intends to acquire such banks with the FDIC’s assistance, which would significantly increase its market share in one or more markets.

Fifth Third already has the experience of acquiring such troubled banks. Last year, the company completed the conversion of Bradenton-based Freedom Bank, which bank regulators had declared insolvent on Oct. 31, 2008 and the FDIC was named the receiver.

Fifth Third Bank assumed approximately $250 million in failed Freedom Bank’s deposits from the FDIC. The transaction gave Fifth Third approximately $685 million in deposits in the Bradenton-Sarasota-Venice Metropolitan Statistical Area (MSA), and significantly raised Fifth Third’s deposit market share in that market.

Deposit growth has consistently been Fifth Third’s top priority. The company’s expansion strategy has clearly been retail-oriented, involving a combination of de novo branching and acquisitions. In June 2008, Fifth Third completed its acquisition of First Charter Corporation, a regional financial services company with assets of $4.8 billion, 57 operative branches in North Carolina and 2 in Georgia. This marked the company’s entry into the North Carolina market and added to its small presence in Georgia, thus diversifying its geographic footprint.

FDIC insures deposits of 8,195 institutions with roughly $13.5 trillion in assets. The organization reimburses customers for deposits of up to $250,000 per account if the bank fails. The turmoil in the financial market and the subsequent failure of more than 90 banks have significantly impacted FDIC’s deposit insurance fund. The fund corpus has decreased to $10.4 billion at Jun 30, 2009 from $13.0 billion reported at the end of the prior quarter.

Besides Fifth Third, the other acquirers of failed institutions since 2008 include U.S. Bancorp (USB), Zions Bancorp (ZION), Regions Financial (RF) and SunTrust Banks (STI).

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($FITB) Fifth Third Bancorp Eyes Federal Deposit Insurance Corporation Deals

The company has priced 95.2 million shares of its common stock at $4.20 per share. Additionally the underwriters will have a 30-day option to purchase up to an additional 14.3 million shares of common stock from the company.

The book-running manager for the offering is Goldman Sachs & Co. (GS) while Sandler O’Neill & Partners L.P. is acting as co-manager.

The company has also completed its discretionary equity issuance program launched Sep 9, 2009 in which it issued 35.7 million shares worth $150 million at an average price of $4.20 each.

Huntington has implemented several capital bolstering initiatives in the recent past. The company has successfully raised $675 million in regulatory common equity, which was required following the stress test. In addition to that, the recent capital raise should significantly strengthen the company’s capital levels and add to its flexibility to repurchase debt. Huntington also intends to repay its $1.4 billion of bailout fund.

However, we note that Huntington ’s loan composite remains heavily weighed to the mid-Ohio to eastern-Michigan markets, which are under severe stress currently. Problem loan status has also migrated to commercial and industrial loan lines. Delinquencies are expected to remain high.

Hence, given the stressed economic environment along Huntington ’s footprint, we expect earnings to remain depressed due to continued pressure on interest margin and the deterioration of credit quality. Charge-offs and provisioning are expected to remain at elevated levels. Though the capital bolstering initiatives add to its capital base, they also lead to share dilution.

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(HBAN) Huntington Bancshares Offers $400 Million Public Offering

Fifth Third expects net charge-offs in the third quarter to be approximately $775 million, up from $626 million in the second quarter. This would include approximately $110 million in net charge-offs related to SNC credits compared with $17 million in the second quarter. However, management expects SNC charge-offs to fall in the fourth quarter. Non-performing assets are also expected to increase 20%.

The weakness in the overall economy and in the real estate market, including specific weakness within Fifth Third’s geographic footprint, has adversely affected the company. A significant portion of the company’s residential mortgage and commercial real estate loan portfolios comprise borrowers in Michigan, Northern Ohio and Florida.

These markets have been particularly hurt by job losses, declines in real estate values, declines in home sale volumes and declines in new home building. As a result, delinquencies and charge-offs are increasing and the company’s earnings are adversely impacted. According to management, though the Michigan market has begun to stabilize, the Florida market remains stressed.

However, Fifth Third is planning to acquire banks with the assistance of Federal Deposit Insurance Corp (FDIC). The company intends to expand within its operating footprint instead of expanding beyond that.

Fifth Third’s second quarter core loss of 27 cents per share was better than the Zacks Consensus Estimate of a loss of 30 cents per share. Competitive market conditions, continuing deterioration in credit quality and collateral values within the company’s geographical footprint will weigh upon results for several quarters to come, in our view.

However, despite the dilutive impact, the recent capital bolstering initiatives are viewed positively given the stressed economic environment. Also, the cost containment measures provide some relief.

Hence, we have a Neutral recommendation on the shares.

Zacks Investment Research
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(FITB) Fifth Third Bancorp Charge-Offs to Increase

Three more banks including Corus Bank NA, a subsidiary of Corus Bankshares (CORS), were shuttered by the U.S. regulators on Friday as the recession continues to take its toll on banks. This takes the total number of failed federally insured banks in this year to 92, compared to 25 in 2008 and 3 in 2007.

Based in Chicago, the Corus Bank was a major lender to condominium, office and hotel projects. Corus is one of the largest banks to fail this year, with about $7 billion in total assets, $7 billion in deposits and 11 branches.

Two other small banks were Lacey, WA-based Venture Bank, with $970 million in assets and $903 million in deposits and Woodbury, MN-based Brickwell Community Bank, with $72 million in assets and $63 million in deposits.

The failure of these institutions represents another sizable impact on the Federal Deposit Insurance Corporation’s (FDIC) fund for protecting customer accounts, as it has been appointed the receiver for these banks. The failure of these three banks is expected to cost the deposit insurance fund an estimated $2 billion. The failure of Corus alone is expected to cost about $1.7 billion.

The FDIC insures deposits at 8,195 institutions with roughly $13.5 trillion in assets. When a bank fails, it reimburses customers for deposits of up to $250,000 per account. The outbreak of failing financial institutions has significantly stretched the regulator’s deposit insurance fund. At Jun 30, 2009, the fund corpus fell to $10.4 billion, the lowest since 1993, from $13.0 billion in the prior quarter.

The FDIC sold all of the deposits and $3 billion of Corus’ assets to MB Financial Bank, a subsidiary of MB Financial (MBFI). Much of Corus’ assets are condominium loans backed by developments, and the FDIC is expected to sell them off within the next 30 days. This acquisition follows MB Financial’s takeover of the failed InBank of Oak Forest, Illinois, last week.

Raleigh, North Carolina-based First-Citizens Bank & Trust Company will assume all of the deposits and $874 million of the assets of Venture Bank. FDIC and First-Citizens Bank agreed to share losses on about $715 million of Venture Bank’s assets. The FDIC said it will retain the remaining assets for disposal later.

Brickwell’s $63 million deposits and all of its $72 million assets have been assumed by Mitchell, South Dakota-based CorTrust Bank.

In the second quarter of 2009, the number of banks on the FDIC’s list of problem institutions grew to 416 from 305 in the first quarter. This is the highest since the savings and loan crisis in 1994. Increasing loan losses on commercial real estate are expected to cause hundreds more bank failures in the next few years. The FDIC anticipates the bank failures to cost about $70 billion over the next five years.

Recently, the FDIC allowed private investors to buy failed financial institutions. The regulator’s board voted to reduce the cash that private equity funds must maintain in banks they acquire.

The FDIC has no immediate plans to borrow money from the government to replenish the deposit insurance fund. However, it may increase the fees for U.S. banks this year to strengthen the fund. The agency has already raised $5.6 billion through an added assessment.

On August 14, banking operations of Colonial BancGroup were seized by the FDIC. Colonial’s deposits and assets were sold to BB&T Corporation (BBT). Following this, Guaranty Bank failed on Aug 21. The FDIC sold all of Guaranty Bank’s deposits and $12 billion of the assets to BBVA Compass, the U.S. division of Spain’s second-largest bank Banco Bilbao Vizcaya Argentaria (BBV). Colonial is the largest and Guaranty the second-largest bank failure so far this year, and the sixth and tenth-largest, respectively, in the U.S. history.

The failure of Washington Mutual last year is the largest bank failure in U.S. history. It was acquired by JP Morgan Chase (JPM). The other major acquirers of failed institutions since 2008 include Fifth Third Bancorp (FITB), U.S. Bancorp (USB), Zions Bancorp (ZION), SunTrust Banks (STI), PNC Financial (PNC) and Regions Financial (RF).

The failed banks are the victims of recession and rising loan losses. As a result of the ongoing market turmoil, these institutions experienced massive capital erosion stemming from losses arising from a significant exposure to collateralized mortgage obligations, commercial real estate loans and other commercial and industrial loans. All these factors were responsible for a drag on profitability and write-downs. According to the FDIC, U.S. banks overall lost $3.7 billion in the second quarter of 2009, compared to a profit of $7.6 billion in the prior quarter.

The current year has been difficult for consumers to pay off debt as a result of high unemployment, falling home prices and declining personal wealth.

However, on Thursday, U.S. Treasury Secretary Timothy Geithner said that the government won’t provide additional funds to stabilize the financial markets and the government’s economic team has removed a $750 billion line item from the federal budget projections, since it is unlikely to be necessary.

But we think that although the economy is in a far better shape now than a year ago, there are persistent problems which need to be addressed by the government before shifting the strategy to growth. We believe that the U.S. economy will regain the growth momentum once these issues are resolved.

Most of the taxpayer-provided money was provided to financial institutions as these are the backbone of the economy and the primary victims of the recession. However, we continue to face further bank failures.

There are lingering concerns related to the banking industry as well as the economy. As a result, in its latest banking industry update, Moody’s Investor Service (MCO) repeated that the U.S. banking system will continue to suffer at least through the end of the next year. We expect loan losses on commercial real estate portfolio to remain high for banks that hold large amounts of high-risk loans.

Zacks Investment Research
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(MBFI) Corus Bankshares Fails – 92 Total This Year

The IOUs will only be accepted into accounts opened before Aug. 31, 2009 and third-party registered warrants will not be accepted. This accommodation for clients will not include correspondent banks, money service businesses or any client engaged in purchasing or consolidating registered warrants for deposit. The bank will also advise customers on redeeming the papers directly with the State Treasurer’s Office.

Last week, Bank of America (BAC) and Wells Fargo (WFC) said they will also start accepting the warrants, after discontinuing the practice in early July. These actions by three major banks would make it easier for individuals and businesses to deposit IOUs.

To conserve declining cash during its recent budget crisis, the state of California had issued the IOUs, or registered warrants, at a coupon rate of 3.75% to taxpayers, vendors and local governments on July 2. Through Aug. 31, the state issued 457,238 IOUs worth more than $2.37 billion.

At first, banks had refused to take part in the delayed payouts but began participating once California assured to start redeeming the warrants earlier than anticipated.

Between Sept. 21-23, California plans to sell $10.5 billion professed revenue anticipation notes (RANs) to raise money for the state government’s cash-flow needs.

Recently, JPMorgan Chase & Co. (JPM) bought $1.5 billion of California’s short-term, “interim” revenue anticipation notes in terms of a lending agreement with the state. The amount will help the state to make timely interest payments.

Zacks Investment Research
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($USB) US Bancorp Backs CA IOUs

Barclays (BCS) acted as the sole book-runner for the sale of these notes. The notes carry a coupon rate of 2.125% and will mature on Feb 15, 2013. The notes will pay coupons semi-annually with the first payment expected on Feb 15, 2010. The company will use the sale proceeds of the debentures for general corporate purposes.

Standard &Poor’s Ratings Services (S&P) assigned an ‘A+’ rating while Fitch ratings assigned an ‘AA-’ rating to the senior notes. Moody’s assigned US Bancorp’s ‘AA3′ rating to the notes.

US Bancorp’s second quarter earnings of 12 cents per share were a penny short of the Zacks Consensus Estimate, reflecting deteriorating credit quality. However, we have been encouraged by the company’s exit from the TARP program. Despite the dilutive impact, the recent capital bolstering initiatives are also viewed positively as these will not only reduce government intervention but also help in maintaining a strong capital base in a soft economic environment.

Nevertheless, we think that the stressed residential real estate markets and mortgage-related industries and the impact from the U.S. economic issues on commercial and retail customers will continue to weigh on USB shares. Hence, we have a Neutral recommendation on the stock.

Zacks Investment Research
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(USB) US Bancorp Issues Senior Notes