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Why Is U.S. Bancorp (USB) Up 1.4% Since Last Earnings Report?

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It has been about a month since the last earnings report for U.S. Bancorp (USB). Shares have added about 1.4% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is U.S. Bancorp due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

U.S. Bancorp Q4 Earnings Beat Estimates on High Revenues

Riding on higher revenues, U.S. Bancorp’s fourth-quarter 2018 adjusted earnings per share of $1.07 outpaced the Zacks Consensus Estimate by a penny. Results were also up 10.3% 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 acted as tailwinds.

Including certain one items, net income came in at $1.86 billion or $1.10 per share compared with $1.68 billion or 97 cents in the prior-year quarter.

For full-year 2018, earnings per share reached $4.14 per share, surpassing the Zacks Consensus Estimate of $4.10. Further, the earnings figure compares favorably with the prior-year tally of $3.51 per share.

Revenues & Loans Grow, Costs & Provisions Flare Up

For full-year 2018, the company reported revenues of $22.6 billion, up around 3.4% year over year. Moreover, the revenue figure surpassed the Zacks Consensus Estimate of $22.4 billion.

U.S. Bancorp’s net revenues came in at around $5.8 billion in the quarter, up 4.1% year over year. Increase in net interest as well as non-interest income led to this upside. Revenues also came in above the Zacks Consensus Estimate of $5.7 billion.

U.S. Bancorp’s tax-equivalent net interest income totaled $3.3 billion in the quarter, up 3.2% 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 impact of tax reform, higher rates on deposits and shift in funding mix.

Average earning assets climbed 1.7% year over year, supported by growth in average total loans and average other earning assets. Furthermore, net interest margin of 3.15% was up 4 basis points year over year, driven by higher interest rates. Deposit and funding mix, reduced loan spreads, and the impact of tax reform partially mitigated rise in margins.

U.S. Bancorp’s non-interest income escalated 5.4% on a year-over-year basis to $2.5 billion. The upsurge was mainly due to rise in mostly all components of income, partially offset by lower treasury management fees, ATM processing services, mortgage banking revenues and securities gains.

Provision for credit losses increased 9.9% year over year to $368 million in the reported quarter.

U.S. Bancorp’s average total loans inched up 0.9% sequentially to $283.7 billion. This stemmed from a rise in commercial loans, commercial real estate, residential mortgages, credit card and other retail loans.

Average total deposits were up 1.3% from the prior quarter to $334.4 billion. The rise was due to growth in non-interest-bearing deposits.

Non-interest expenses declined 15.9% year over year to $3.3 billion at U.S. Bancorp. Excluding certain one-time items, expenses flared up 1% year over year. 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 other intangibles.

Efficiency ratio came in at 56.3%, improving from 69.8% 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 Dec-end quarter. Net charge-offs came in at $353 million, up 8.6% year over year. On a year-over-year basis, the company witnessed deterioration, mainly in net charge-offs in the credit card, other retail 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 $989 million, down 17.6% year over year. Total allowance for credit losses was $4.4 billion, slightly up on a year-over-year basis.

Strong Capital Position

During the quarter under review, U.S. Bancorp maintained a solid capital position. The Tier 1 capital ratio came in at 10.7% compared with 10.8% in the prior-year quarter. Common equity Tier 1 capital to risk-weighted assets ratio under the Basel III standardized approach fully implemented was 12.6% as of Dec 31, 2018, down from 12.9% reported 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 11.8%, as of Dec 31, 2018, compared with 11.6% in the prior-year quarter.

The tangible common equity to tangible assets ratio was 7.8% as of Dec 31, 2018, up from 7.6% in the prior-year quarter.

U.S. Bancorp posted an improvement in book value per share, which increased to $28.01 as of Dec 31, 2018, from $26.34 recorded 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 80% of earnings to its shareholders through common stock dividends and buybacks.


For first-quarter 2019, management expects fully taxable equivalent net interest income to increase in the low single-digits on a year-over-year basis. Notably, NII is generally lower in the first quarter of each year due to the impact of day accounts.

Additionally, year-over-year net interest income growth is likely to be negatively impacted by the sale of the acquired loan portfolio yield curve. Management expects fee revenues to increase in the low single-digits year over year, including the negative impact of the sale of the ATM business.

Management expects to deliver positive operating leverage on a core basis in the range of 100-150 bps for 2019.

In 2019, management projects ATM processing servicing revenues to decline by about $150 million and the pre-tax income to decrease by around $70 million as the company continues to provide operational services during a transitional conversion period.

Going within payments, management continues to expect that credit cards are going to do well. Merchant acquiring is expected to continue to accelerate in 2019.

During the fourth quarter, the federal government completed its renegotiation of certain payment services. While the company expanded its market share of future government spend, the business margins is likely to compress in the next few quarters. Additionally, commercial spending volume growth is anticipated to moderate in 2019. Further, management expects mid single-digit growth in corporate payments products revenue next year.

In the first quarter and for 2019, management expects taxable equivalent tax rate to be in the range of 20% to 21%. Credit quality is expected to remain relatively stable in the first quarter of 2019 compared to the fourth quarter of 2018.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, U.S. Bancorp has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.


Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, U.S. Bancorp has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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