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U.S. Bancorp (USB) Q4 Earnings Meet Estimates, Revenues Up Y/Y

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Zacks Equity Research
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U.S. Bancorp USB reported fourth-quarter 2020 earnings per share of 95 cents, in line with the Zacks Consensus Estimate. Results, however, compare unfavorably with the prior-year quarter’s figure of $1.08.

Higher revenues, along with deposit growth, were the driving factors. Though lower net interest income, along with escalating expenses and provisions disappointed, higher fee income acted as a tailwind.

Including certain one-time items, net income came in at $1.53 billion compared with the prior-year quarter’s $1.49 billion.

For full-year 2020, earnings per share came in at $3.06 per share, in line with the Zacks Consensus Estimate. The earnings figure compares unfavorably with the prior-year tally of $4.16 per share.

Revenues & Deposits Grow, Costs & Provisions Flare Up

For 2020, the company reported net revenues of $23.3 billion, up 1.5% year over year. The revenue figure is in line with the Zacks Consensus Estimate.

U.S. Bancorp’s net revenues came in at $5.8 billion in the fourth quarter, up 1.5% year on year. Increase in non-interest income, partly offset by reduced net interest income, led to this upside. Revenues came in line with the Zacks Consensus Estimate.

U.S. Bancorp’s tax-equivalent net interest income totaled $3.2 billion in the reported quarter, down 0.9% from the prior-year quarter. This decline mainly stemmed from lower rates, partially mitigated by deposit and funding mix, loan growth and elevated loan fees.

Average earning assets climbed 13.1% year over year, supported by growth in average total loans, average investment securities and average other earning assets. However, net interest margin of 2.57% was down 35 basis points year on year, mainly impacted by a lower yield curve and higher cash balances for liquidity, partially negated by deposit and funding mix.

U.S. Bancorp’s non-interest income climbed 4.7% on a year-over-year basis to $2.6 billion. The upsurge was mainly owing to rise in mostly all components of income, partially offset by lower deposit service charges, credit and debit card revenue, merchant processing services and corporate payment product revenues.

Provision for credit losses increased 11.6% year over year to $441 million in the reported quarter.

U.S. Bancorp’s average total loans fell 2.8% sequentially to $302.3 billion. This stemmed from a fall in commercial, commercial real estate and credit card loans, partly offset by increase in residential mortgages and other retail loans.

Average total deposits were up 4.2% from the prior quarter to $422.4 billion. This uptick resulted from growth in both non-interest-bearing and interest-bearing deposits.

U.S. Bancorp’s non-interest expenses declined 1.1% year over year to $3.4 billion. Excluding certain one-time items, expenses flared up 5.1% year on year. This upswing mainly resulted from elevated compensation, technology and communications and other non-interest expenses, muted by reduced net occupancy and equipment, professional services and marketing and business development expenses to some extent.

Efficiency ratio came in at 58.8%, improving from the year-ago quarter’s 60.3%. A decrease in the ratio indicates improved profitability.

Credit Quality: A Concern

Credit metrics at U.S. Bancorp deteriorated during the December-end quarter. Net charge-offs came in at $441 million, up 14.5% year on year. On a year-over-year basis, the company witnessed deterioration, mainly in net charge-offs in the commercial real estate and commercial segments, which was muted by improvement in credit card, other retail and residential mortgages.

U.S. Bancorp’s non-performing assets (excluding covered assets) came in at $1.3 billion, up 56.6% year over year. Total allowance for credit losses was $8 billion, up 77.8% on a year-over-year basis.

Healthy Capital Position

During the fourth quarter, U.S. Bancorp maintained a solid capital position. The Tier 1 capital ratio came in at 11.3% compared with the prior-year quarter’s 10.7%. Common equity Tier 1 capital to risk-weighted assets ratio under the Basel III standardized approach fully implemented was 9.7% as of Dec 31, 2020, up from the 9.1% reported in the year-ago quarter.

All regulatory ratios of U.S. Bancorp continued to be in excess of well-capitalized requirements. In addition, reflecting the full implementation of the current expected credit losses methodology, the Tier 1 capital to risk-weighted assets ratio was estimated at 9.3%, as of Dec 31, 2020.

The tangible common equity to tangible assets ratio was 6.9% as of Dec 31, 2020, down from the prior-year quarter’s 7.5%.

U.S. Bancorp posted an improvement in book value per share, which increased to $31.26 as of Dec 31, 2020, from the $29.90 recorded at the end of the year-earlier quarter.

Capital Deployment Update

Based on the second round of stress test results, the bank expects to maintain its current quarterly dividend of 42 cents per share and start repurchasing common shares in the first quarter of 2021 under the previously-announced $3-billion common stock-repurchase program.

Conclusion

U.S. Bancorp put up an impressive performance during the October-December quarter. Rise in revenues, aided by increase in deposits balance, is anticipated to continue. Though weakness in the credit card portfolio, margin pressure and escalating expenses remain headwinds, rise in fee income is likely to sustain. Nevertheless, deterioration in credit quality is a headwind.
 

U.S. Bancorp Price, Consensus and EPS Surprise

U.S. Bancorp Price, Consensus and EPS Surprise
U.S. Bancorp Price, Consensus and EPS Surprise

U.S. Bancorp price-consensus-eps-surprise-chart | U.S. Bancorp Quote

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 Mega Banks

Successful cost-saving initiatives and unexpected release of reserves supported Wells Fargo’s WFC fourth-quarter 2020 earnings of 64 cents per share, which surpassed the Zacks Consensus Estimate of 59 cents. Also, the bottom line compared favorably with the prior-year quarter figure of 60 cents.

Increased gains on equity securities and higher mortgage banking revenues aided the bank. Moreover, the company reflects prudent expense management. Further, a net benefit to provision of credit losses was reported during the quarter. Nonetheless, reduced net interest income on lower rates negatively impacted its results.

Citigroup C delivered an earnings surprise of 53.3% in the fourth quarter on reserve releases. Income from continuing operations per share of $2.07 for the quarter handily outpaced the Zacks Consensus Estimate of $1.35. Results were, however, down 3.7% from the prior-year quarter.

Citigroup recorded higher market revenues during the reported quarter. Remarkably, the equity market revenues impressed on favorable market conditions and strong client volumes, driven by stellar derivatives, cash equities and prime finance performance. Furthermore, fixed income revenues were on an upswing, reflecting strength in products and commodities, partly offset by lower revenues in rates and currencies.

At the same time, investment banking revenues decreased on disappointing debt underwriting business and reduced advisory revenues, partly muted by higher equity underwriting. Corporate lending was also on the downside. Though reserve releases supported results, rise in expenses was a major drag.

Unexpected large reserve releases, along with solid capital markets performance, drove JPMorgan’s JPM fourth-quarter 2020 earnings of $3.79 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $2.72.

Results included credit reserve releases. Excluding these, earnings amounted to $3.07 per share. The company had earned $2.57 in the prior-year quarter.

As estimated, fixed income markets revenues increased 15% on strong performance across products. Likewise, equity markets revenues jumped 32% on the back of solid client activities. Also, historically lower rates drove mortgage fees and related income to $767 million, up 62%.

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