April 19, 2017 / 8:47 PM / 3 months ago

Fitch: Another Strong Quarter for US Bancorp

13 Min Read

(The following statement was released by the rating agency) CHICAGO, April 19 (Fitch) U.S. Bancorp's (USB) first quarter 2017 (1Q17) net income was essentially flat sequentially and up 6.3% relative to the year-ago quarter. 1Q17 earnings benefited from a lower tax rate of 27% associated with stock based compensation under new accounting guidance effective in January 2017, which Fitch Ratings estimates to be $32.5 million. Adjusting for the tax benefit, Fitch estimates net income would have been down 4.97% sequentially, but up 6.64% year-over-year USB's return on average assets (ROAA) was solid at 1.35%, up 3 basis points relative to both the sequential and year-ago quarters. USB's return on average equity (ROAE) was also strong at 13.3% in 1Q17, up from 13.1% in the sequential quarter and 13.0% in the year ago quarter. Excluding the tax benefit, USB's 1Q17 ROAA would have been 1.29% and its 1Q17 ROAE would have been 11.5%, which Fitch considers to both be strong and consistent results. USB's total net revenue declined 2% sequentially but was up 5.7% year-over-year. The company's net interest income (NII) was essentially flat sequentially as a 5 basis point increase in the company's net interest margin (NIM)of 3.03% at 1Q17 from higher interest rates was offset by two fewer days in the quarter. Relative to the year-ago quarter NII grew 3.7% as good asset growth of 4.9% offset a surprising 3 basis point decrease in the company's NIM due to lower reinvestment rates in the securities portfolio. USB's average deposit balances were essentially flat sequentially at $328.4 billion, or 74% of total average liabilities and equity. USB estimates that its deposit repricing assumption will initially be 20%, and over time rise to 50%. This means that should short-term interest rates continue to rise, it is likely that USB's NIM will expand as deposit repricing will lag asset repricing, thereby generating some NII growth in future quarters. The bigger influence on overall net revenue was performance in USB's various non-interest income businesses. Overall non-interest income was down 4.2% sequentially but up 8.4% year-over-year. The sequential decline was due to seasonally lower debit and credit card revenue and merchant processing revenue. Additionally, the company's mortgage banking revenue declined 13.8% sequentially amid incrementally higher long-term interest rates. Alternatively, the year-over-year increase was due to broad based improvements across many of USB's businesses including higher credit and debit card revenue, higher trust and investment management fees, and stronger mortgage banking net income. Overall non-interest expense declined 2% sequentially as seasonally higher compensation and benefits expense was offset by lower professional services and marketing costs. On a year-over-year basis USB's expenses increased by 7.1% primarily due to higher compensation and benefits expense. The company's efficiency ratio ticked up to 55.6% in 1Q17, slightly higher than 55.3% sequentially and 54.6% year-over-year. Nevertheless, Fitch still considers this to be a strong result, and expects the ratio to trend down over the course of the year as there is some levelling off of risk-management and compliance related expenses. Loans were essentially flat sequentially, growing 0.2%, but up 4.1% relative to the year-ago quarter. USB had strong loan growth both sequentially and year-over-year in residential mortgage balances, but CRE and commercial and industrial loan growth slowed. CRE loans were down 0.5% sequentially and up 1.8% year-over-year, as management has taken a more cautious approach to certain segments of CRE exposure such as retail. C&I loan growth was down 0.1% sequentially as many large corporate borrowers accessed the capital markets rather than their lines of credit. Relative to the year-ago quarter C&I loans were up 4.4% due to strong middle market growth. USB's overall asset quality metrics remain strong, though Fitch notes that they are likely at cyclical troughs. Overall net charge-offs (NCOs) ticked up slightly to 0.50% in 1Q17 from 0.47% in the sequential quarter and 0.48% in the year-ago quarter. This slight increase was due to some continued seasoning of the company's credit card portfolio. However, overall non-performing assets (NPAs) of $1.5 billion declined 6.7% sequentially and 13.0% year-over-year. As such, the ratio of NPAs to period end loans plus other real estate owned (ORE) declined to 0.55%. The improvements in NPAs were broad based, but more pronounced in the C&I portfolio, which experienced substantial energy related credit paydowns. The overall allowance for credit losses in 1Q17 was $4.36 billion, or 1.60% of period end loans. This quarter's $355 million provision included a $10 million build in the allowance. In 1Q17, USB's fully phased-in Basel III CET1 ratio under the standardized approach increased to 9.2%, up 10 basis points sequentially and unchanged from the year-ago period, and above its 8.5% internal target. This sequential growth was due to continued growth in retained earnings offset by the company returning 78% of earnings to shareholders via dividends and buybacks. Contact: Primary Analyst Justin Fuller, CFA Senior Director +1-312-368-2057 Fitch Ratings, Inc. 70 West Madison Street Chicago, IL 60602 Secondary Analyst Julie Solar Senior Director +1-312-368-5472 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: hannah.james@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below