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U.S. Bancorp's (USB) Q1 Earnings Beat Estimates, Revenues Up

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U.S. Bancorp’s (USB - Free Report) first-quarter 2018 adjusted earnings per share of 95 cents surpassed the Zacks Consensus Estimate by a penny. The figure came ahead of the prior-year quarter earnings of 82 cents.

The company’s top line benefitted from rise in net interest income on the back of easing margin pressure and higher fee income. Further, elevated average loans and deposit balances were tailwinds. However, escalating expenses and lower mortgage banking revenues remained major drags.

After considering impacts of notable items, net income was $1.68 billion, up 13.7% year over year.

Revenues, Loans & Deposits Rise, Costs Increase

U.S. Bancorp’s net revenues came in at around $5.5 billion in the quarter, up 3.4% year over year. The increase in net interest income and non-interest income contributed to higher revenues. However, the top line lagged the Zacks Consensus Estimate of $5.53 billion.

U.S. Bancorp’s tax-equivalent net interest income totaled $3.2 billion in the quarter, up 5.5% from the prior-year quarter. The rise was mainly due to loan growth and rising interest rates, partially offset by deposit and funding mix.

Average earning assets climbed 3.1% year over year, supported by growth in average total loans and average investment securities, along with elevated average other earning assets. Furthermore, net interest margin of 3.13% was up 7 basis points (bps) year over year, driven by higher interest rates. Higher funding costs, loan mix and elevated cash balances partially mitigated the rise in margins.

U.S. Bancorp’s non-interest income increased slightly on a year-over-year basis to $2.3 billion. The rise was primarily due to higher payment services revenues, trust and investment management fees and deposit service charges, partially offset by lower mortgage banking and commercial products revenues.

Provision for credit losses decreased 1.2% year over year to $341 million in the reported quarter.

U.S. Bancorp’s average total loans climbed 2.3% year over year to $279.4 billion. The growth was backed by a rise in commercial loans, residential mortgages, credit card lending, total other retail and retail leasing. These increases were partially offset by a drop in commercial real estate.

Average total deposits were up 1.9% from the prior-year quarter to $334.6 billion. The rise was due to growth in interest-bearing deposits, partly offset by lower non-interest-bearing deposits.

Non-interest expenses rose 5% year over year to $3.1 billion, primarily due to higher compensation and employee benefits expenses, technology investment and seasonal marketing and development expenses, partially offset by lower professional services and other expenses.

Credit Quality: A Mixed Bag

Credit metrics at U.S. Bancorp deteriorated in the reported quarter. Net charge-offs came in at $341 million, up nearly 1.8% year over year. On a year-over-year basis, the company experienced deterioration, mainly in net charge-offs in the credit card segment. Also, total allowance for credit losses was $4.4 billion, up 1.2%.

However, non-performing assets came in at $1.2 billion, down 19.5% year over year.

Capital Position

During the quarter under review, U.S. Bancorp maintained a decent capital position. Beginning Jan 1, 2018, the regulatory capital requirements fully reflected implementation of Basel III.

The tier 1 capital ratio came in at 10.4%, down 6 bps from the prior-year quarter. Common equity tier 1 capital to risk-weighted assets ratio under the Basel III standardized approach fully implemented was 9% as of Mar 31, 2018, compared with 9.5% in the year-ago quarter.

All regulatory ratios of U.S. Bancorp continued to be in excess of well-capitalized requirements. In addition, based on the Basel III fully implemented advanced approach, the Tier 1 common equity to risk-weighted assets ratio was estimated at 11.5% as of Mar 31, 2018, compared with 11.8% as of Mar 31, 2017.

The tangible common equity to tangible assets ratio was 7.7% as of Mar 31, 2018, compared with 7.6% in prior-year quarter.

U.S. Bancorp posted an improvement in book value per share, which increased to $26.54 as of Mar 31, 2018, from $25.05 recorded at the end of the year-earlier quarter.

Capital Deployment Update

Reflecting the company’s capital strength during the first quarter, U.S. Bancorp returned 68% of earnings to its shareholders through common stock dividends and buybacks.

Conclusion

U.S. Bancorp posted a decent quarter. Elevated revenues on the back of increased lending activities and higher interest rates was a positive factor. Further, improving economy and lower taxes are likely to continue supporting its financials. Moreover, its efforts to enhance digital offerings and expand treasury management and payment services capabilities bode well for the long term.

Nevertheless, weakness in the credit card portfolio adversely affected its asset quality. Additionally, there are concerns related to the impact of legal issues and the company’s global exposure. Also, escalating expenses remain a headwind.
 

U.S. Bancorp Price, Consensus and EPS Surprise


U.S. Bancorp carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Major Banks

Driven by top-line strength, Northern Trust Corporation’s (NTRS - Free Report) first-quarter 2018 earnings per share of $1.58 compared favorably with $1.09 recorded in the year-ago quarter. The Zacks Consensus Estimate was $1.42.

Comerica (CMA - Free Report) reported adjusted earnings per share of $1.54 in first-quarter 2018, up from the prior-year quarter adjusted figure of $1.02 on high interest income. Including certain non-recurring items, earnings came in at $1.59. The Zacks Consensus Estimate was $1.49.

First Horizon National Corporation (FHN - Free Report) reported first-quarter 2018 adjusted earnings per share of 34 cents, surpassing the Zacks Consensus Estimate by 13.3%. The adjusted figure excludes pre-tax acquisition-related expenses and gain on sale of a building.

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