U.S. Bancorp (USB): Strong Loans Growth, But Mortgage Headwinds

Updated on

U.S. Bancorp (NYSE:USB) Q42014 earnings report via Moshe Orenbuch of Credit Suisse.

U.S. Bancorp (NYSE:USB)  reported $0.76 versus CS 4Q’13 operating EPS estimate $0.75 vs Street at $0.75 (hi: $0.79, low: $0.70)

Results are essentially in line with our expectations. U.S. Bancorp (NYSE:USB)  reported solid loan growth, though operating revenues of $4.89Bn were flat q/q with some headwinds related to a decline in mortgage banking activity.

U.S. Bancorp (NYSE:USB)  Spread income. NII of $2.3bn increased 0.7% q/q with 1% q/q growth in earning assets and some modest pressure on the NIM.  NIM declined 3 bps q/q to 3.40% consistent with mgmt guidance as USB added to the securities portfolio in 4Q as well as the impact of higher cash balances at the Fed.  The securities book grew to $80Bn as USB manages to the pending LCR rules. Average loans increased 1.5% (not ann.) q/q and consistent with guidance that loan growth is tracking at the high end of the previously expected range of 1.0-1.5%.

U.S. Bancorp (NYSE:USB)  Fee Income. Oper. fee income of $2.16Bn down 1% q/q and down 7% y/y primarily driven by lower mortgage banking and corporate payments revenues, partially offset by better card revenues. Mortgage banking declined 30% q/q and consistent with management guidance. Servicing revenues did not benefit from the positive hedge event posted in 3Q and impacted by a 44% decline in origination volumes in 4Q’13 (partly offset by improved GOS margins).

Expenses. Operating expenses of $2.68Bn, up 5% q/q. About half of the increase was higher costs related to tax advantaged investments (which reduced the tax rate) and the other half was roughly evenly split between higher comp, marketing and professional fees.

Credit Quality. NPAs (excl. covered assets) declined 4% q/q and NCO’s declined 5% q/q.  Modest reserve release consistent with the last few quarters. Provision of $277mm and $35mm reserve bleed ($0.01/shr), in line with our forecast.

Capital. Basel I Tier 1 common equity ratio of 9.4% and Basel III Tier 1 common equity ratio of 8.8% (up 20 bps) inclusive of share buyback in 4Q. Given the strong capital positioning, 13mm share buyback in 4Q, and a net share reduction of 7 million.  USB indicated that they returned 65% of earnings in 2013.  .

Leave a Comment