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Fitch: U.S. Bancorp's Earnings Flat; Signals Management Change
January 18, 2017 / 8:59 PM / 10 months ago

Fitch: U.S. Bancorp's Earnings Flat; Signals Management Change

(The following statement was released by the rating agency) CHICAGO, January 18 (Fitch) U.S. Bancorp's (USB) fourth quarter 2016 (4Q16) net income declined 1.6% from the sequential quarter and was flat relative to the year-ago quarter, according to Fitch Ratings. For the full year USB's net income was flat relative to the prior year. USB's 4Q16 annualized return on average assets (ROAA) was 1.32%, down from 1.36% in prior quarter and 1.41% in the year-ago quarter. ROAA for the full year 2016 was 1.36%, also down from 1.44% in 2015. USB also indicated that its long-term Chairman and CEO Richard Davis will become Executive Chairman, and he will be replaced by current President and COO Andrew Cecere, who had also previously been Chief Financial Officer (CFO) of the corporation. USB's 4Q16 total net revenue was essentially flat from the sequential quarter, and up 4.3% from the year-ago quarter. However, USB delivered negative operating leverage relative to both the sequential quarter and year-ago quarters as expenses climbed 2.5% relative to 3Q16 and 6.9% relative to 4Q15. Higher expenses were primarily due to growth in compliance costs related to its consent order around Bank Secrecy Act/Anti-Money Laundering as well as Department of Labor fiduciary rule. As a result of the negative operating leverage USB's efficiency ratio ticked up to 55.3%, which remains near the top of peer group averages. Fitch would expect some levelling off of expenses should the compliance related costs begin to abate over the course of the year. USB's NII grew 2.1% relative to the sequential quarter and 4.6% relative to the year ago quarter primarily due to growth in average earning assets as USB's fully taxable equivalent net interest margin (NIM) has remained relatively stable at 2.98% in 4Q16. The NIM remained stable as higher cash balances and lower reinvestment rates on securities offset the impact of higher interest rates and some loan growth. Average loans grew 1.1% relative to the sequential quarter driven by higher commercial loan balances and higher credit card balances. Relative to the year-ago quarter average loans grew 6.2% driven by higher credit card balances, commercial loans, and residential mortgages. However, the company did indicate that overall loan utilization remain low. Deposit growth continues to outpace loan growth despite higher interest rates across the industry. Average total deposits grew 3.3% from the sequential quarter and 11.8% from the year-ago quarter. As deposit growth has continued to outpace loan growth, and been held in cash and high quality liquid assets (HQLA) this has also dampened the effect of higher interest rates on USB's NIM. Performance in the company's various non-interest income businesses was more mixed. Overall non-interest income declined 0.6% from the sequential quarter as higher credit and debit card revenue was offset by the expected decline in mortgage banking income and the seasonal decline in payments products revenue reflecting lower government related transaction volumes. Relative to the year-ago quarter, overall non-interest income expanded 3.9% due to higher credit and debit card revenue as well as higher mortgage banking income. USB's overall credit quality metrics continues to remain well below historical levels for both USB and the industry, and at what Fitch believes to be near industrywide troughs. Total net charge-offs (NCOs) ticked up 1 basis point relative to the sequential quarter and was unchanged relative to the year-ago quarter at 0.47% in 4Q16. Similarly, non-performing asset (NPA) ratios remained strong at 0.59% in 4Q16, relative to 0.61% in the sequential quarter and 0.58% in the year-ago quarter. In 4Q16, USB's fully phased-in Basel III CET1 ratio under the standardized approach ticked down 20 basis points to 9.1%. This was due to the aforementioned balance sheet growth as well as returning 79% of earnings being returned to shareholders via dividends and share 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: Additional information is available at ''. 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. 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