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U.S. Bancorp (USB) Q4 Earnings Meet Estimates, Costs Rise

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U.S. Bancorp (USB - Free Report) reported fourth-quarter 2019 adjusted earnings per share of $1.08, in line with the Zacks Consensus Estimate. The bottom line jumped slightly from the prior-year quarter figure.

Higher loan and deposit balances were the driving factors. However, fall in interest and fee income was recorded. Also, escalating expenses and provisions were the undermining factors.

After considering notable items, net income came in at $1.49 billion or 90 cents per share compared with $1.86 billion or $1.10 reported in the prior-year quarter.

For full-year 2019, the company reported net income of $6.91 billion or $4.16 compared with $7.1 billion or $4.14 in 2018.

Revenues Fall, Costs & Provisions Rise

U.S. Bancorp’s net revenues came in at $5.67 billion in the fourth quarter, down 2.8% year over year. Decrease in net interest and non-interest income led to this downside. The top-line figure also lagged the Zacks Consensus Estimate of $5.79 billion.

For 2019, the company reported net revenues of $23 billion, which came in line with the Zacks Consensus Estimate. Also, the top line jumped 1.5% from the prior-year quarter figure.

U.S. Bancorp’s tax-equivalent net interest income totaled $3.23 billion in the reported quarter, down 3% from the prior-year quarter. This decline mainly stemmed from a flatter yield curve, deposit pricing and shift in funding mix, along with lower rates.

Average earning assets were up 4.6% year over year supported by growth in average total loans, average investment securities and average other earning assets. Furthermore, net interest margin of 2.92% shrunk 23 basis points year over year.

U.S. Bancorp’s non-interest income fell around 2.5% on a year-over-year basis to $2.43 billion. This fall can be attributed to lower deposit service charges, treasury management fees and other income.

Provision for credit losses increased 7.3% year over year to $395 million in the December-ended quarter.

U.S. Bancorp’s average total loans inched up nearly 1% sequentially to $294.9 billion. This stemmed from a rise in commercial loans, residential mortgages, credit card and commercial real estate loans.

Average total deposits were up 1.9% from the previous quarter to $356.5 billion. This upside resulted from growth in interest bearing deposits.

Non-interest expenses jumped 3.7% year over year to $3.4 billion. This was due to upsurge in mostly all components of non-interest expenses.

Efficiency ratio came in at 60.3%, improving from the year-ago quarter’s 56.5%. An increase in the ratio indicates lower profitability.

Credit Quality: A Mixed Bag

Credit metrics at U.S. Bancorp remained mixed in the December-ended quarter. Net charge-offs came in at $385 million, up 9.1% from the year-ago quarter. On a year-over-year basis, the company witnessed deterioration, mainly in net charge-offs in the credit card, commercial and commercial real estate portfolios.

U.S. Bancorp’s non-performing assets (excluding covered assets) came in at $829 million, down 16.2% year over year. Total allowance for credit losses was $4.49 billion, up 1.1%.

Strong Capital Position

During the fourth quarter, U.S. Bancorp maintained a solid capital position. The Tier 1 capital ratio came in at 10.7%, stable year over year. Common equity Tier 1 capital ratio under the Basel III standardized approach fully implemented was 11.9% as of Dec 31, 2019, up from 11.8%.

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, tangible common equity to risk-weighted assets ratio was estimated at 9.3% as of Dec 31, 2019, compared with 9.4% witnessed at the end of the year-ago quarter.

The tangible common equity to tangible assets ratio was 7.5%, down from 7.8%.

U.S. Bancorp recorded an improvement in book value per share, which increased to $29.9 as of Dec 31, 2019, from $28.01 at the end of the year-earlier quarter.

Capital Deployment Update

Reflecting the company’s capital strength during the fourth quarter, U.S. Bancorp returned $2.9 billion of earnings to its shareholders through common stock dividends and buybacks.

Conclusion

U.S. Bancorp put up a decent show during the fourth quarter. Improvement in commercial lending scenario and higher deposits balance was a key positive factor. Also, strong capital position keeps it well poised for growth.

However, decline in revenues, on account of lower interest and fee income, remains a headwind. Also, lower interest rates are likely to keep margins under pressure. Escalating expenses and provisions pose concerns.

U.S. Bancorp Price, Consensus and EPS Surprise

U.S. Bancorp currently 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, First Republic Bank’s (FRC - Free Report) delivered a positive earnings surprise of 10.3% in fourth-quarter 2019. Earnings per share of $1.39 surpassed the Zacks Consensus Estimate of $1.26. Also, the bottom line jumped 7.8% from the year-ago quarter.

Citigroup (C - Free Report) delivered a positive earnings surprise of 4.4% in fourth-quarter 2019, backed by revenue strength. Adjusted earnings per share of $1.90 handily outpaced the Zacks Consensus Estimate of $1.82.

Wells Fargo’s (WFC - Free Report) fourth-quarter 2019 adjusted earnings of 93 cents per share lagged the Zacks Consensus Estimate of $1.12 on lower net interest income and rise in expenses. Results exclude litigation accruals.

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