Riding on higher revenues, U.S. Bancorp’s (USB - Free Report) first-quarter 2019 earnings per share of $1.00 came in line with the Zacks Consensus Estimate. Also, the reported figure is up 4.2% from the prior-year quarter.
Higher revenues, along with loan and deposit growth, were the driving factors. Though lower mortgage banking revenues, along with escalating expenses and provisions disappointed, easing margin pressure on rising rates and overall higher fee income were the tailwinds.
Net income came in at $1.7 billion compared with $1.67 billion reported in the prior-year quarter.
Revenues & Loans Grow, Costs & Provisions Flare Up
U.S. Bancorp’s net revenues came in at around $5.6 billion in the first quarter, up 2% year over year. Increase in net interest as well as non-interest income led to this upside. Revenues also came in line with the Zacks Consensus Estimate.
U.S. Bancorp’s tax-equivalent net interest income totaled $3.3 billion in the quarter, up 3.1% from the prior-year quarter. The upswing mainly stemmed from earning assets growth, increased security yields and rising interest rates. These positives were partially mitigated by higher rates on deposits and shift in funding mix.
Average earning assets inched up 1.9% year over year, supported by growth in average total loans, average investment securities and average other earning assets. Furthermore, net interest margin of 3.16% expanded 3 basis points year over year, driven by higher interest rates and average investment securities, along with loan portfolio mix, partly mitigated by deposit and funding mix.
U.S. Bancorp’s non-interest income escalated around 1% on a year-over-year basis to $2.3 billion. The upswing can primarily be attributed to rise in corporate payment products revenues, merchant processing services and other non-interest income, partially offset by lower credit and debit card revenues, treasury management fees, deposit service charges and mortgage banking revenues.
Provision for credit losses increased 10.6% year over year to $377 million in the reported quarter.
U.S. Bancorp’s average total loans inched up 0.9% sequentially to $286.1 billion. This stemmed from a rise in commercial loans, residential mortgages, credit card and other retail loans.
Average total deposits were up 0.3% from the prior quarter to $335.4 billion. This rise stemmed from growth in interest-bearing deposits.
Non-interest expenses flared up 1% year over year to $3.1 billion at U.S. Bancorp. The upswing in mostly all components of non-interest expenses was partially offset by lower marketing and business development expenses and other expenses, along with postage, printing and supplies.
Efficiency ratio came in at 55.4%, improving from 55.9% in the year-ago quarter. A decrease in the ratio indicates improved profitability.
Credit Quality: A Mixed Bag
Credit metrics at U.S. Bancorp remained mixed in the Mar-end quarter. Net charge-offs came in at $367 million, up 7.6% year over year. On a year-over-year basis, the company witnessed deterioration, mainly in net charge-offs in the credit card and commercial segments, which was muted by improvement in residential mortgages and commercial real estate.
U.S. Bancorp’s non-performing assets (excluding covered assets) came in at $1 billion, down 16.5% year over year. Total allowance for credit losses was $4.5 billion, up 2.3% year over year.
Strong Capital Position
During the quarter under review, U.S. Bancorp maintained a solid capital position. The Tier 1 capital ratio came in at 10.9% compared with 10.4% in the prior-year quarter. Common equity Tier 1 capital to risk-weighted assets ratio under the Basel III standardized approach fully implemented was 12.8% as of Mar 31, 2019, up from 12.5% reported at the end of 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 12%, as of Mar 31, 2019, compared with 11.5% witnessed at the end of the prior-year quarter.
The tangible common equity to tangible assets ratio was 7.9% as of Mar 31, 2019, marginally up from the prior year’s 7.7%.
U.S. Bancorp posted an improvement in book value per share, which increased to $28.81 as of Mar 31, 2019, from $26.54 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 77% of earnings to its shareholders through common stock dividends and buybacks.
U.S. Bancorp put up an impressive show in the Jan-Mar quarter. Growth in revenues, aided by increase in lending activities, is expected to continue. Though rising margins are likely to continue, weakness in the credit card portfolio and escalating expenses remain headwinds. Further, slowdown in mortgage business remains a concern.
U.S. Bancorp currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Major Banks
Driven by prudent expense management, Wells Fargo (WFC - Free Report) recorded a positive earnings surprise of 11.1% in first-quarter 2019. Earnings of $1.20 per share surpassed the Zacks Consensus Estimate of $1.08. Results also came in higher than the prior-year quarter adjusted earnings of $1.12.
PNC Financial (PNC - Free Report) reported positive earnings surprise of 0.8% in the first quarter. Earnings per share of $2.61 beat the Zacks Consensus Estimate of $2.59. Further, the bottom line reflected a 7.4% jump from the prior-year quarter. Higher revenues, driven by easing margin pressure and escalating fee income, aided the results. However, rise in costs and provisions were drags.
Higher rates and improved investment banking performance drove JPMorgan’s (JPM - Free Report) first-quarter 2019 earnings of $2.65 per share, which outpaced the Zacks Consensus Estimate of $2.32. Also, the figure was up 12% from the prior-year quarter. Investment banking fees recorded 9% growth with 12% rise in advisory fees and 21% increase in debt underwriting income, partially offset by 23% decline in equity underwriting fees.
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