April 16, 2014 / 4:27 PM / 3 years ago

Fitch: U.S Bancorp Delivers Good 1Q'14 Earnings

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(The following statement was released by the rating agency) CHICAGO, April 16 (Fitch) U.S. Bancorp's (USB) first quarter 2014 (1Q'14) net income to common shareholders was down modestly relative to both the year-ago and sequential quarters, according to Fitch Ratings. As such, the company's return on average assets (ROA) declined to a still strong 1.56% compared to 1.65% in the year-ago quarter and 1.62% in the sequential quarter. Despite the decline, Fitch views USB's ROA for the quarter as very strong and notes that it remains at or near the top of the banking industry. USB's net interest income (NII) was relatively flat from the year-ago quarter and down very modestly from the sequential quarter as lower asset yields offset some modest reductions in funding costs as well as some loan growth. Thus, USB's net interest margin (NIM) declined to 3.35% in 1Q'14, down from 3.48% in 1Q'13 and 3.40% in 4Q'13. Fitch would expect continued NIM compression over the balance of the year, as deposit costs are nearing or at a floor, and asset yields continue to reprice down amid the protracted low short-term interest rate environment. USB's non-interest income also declined relative to the year-ago and sequential quarters largely due to the expected decline in mortgage banking income offsetting some growth in trust and investment management fees. The latter is an area of strategic focus for USB, and though the recent improvement in this business has been boosted by higher equity markets over the course of the last 12 months, Fitch would expect growth in trust and investment management fees to comprise a larger component of non-interest income over a longer-term time horizon. Expense management continues to be a competitive advantage and key ratings differentiator for USB. The company's expenses were slightly higher relative to the year-ago quarter, but down relative to the sequential quarter. Nevertheless, USB's efficiency ratio clocked in at a strong 52.9%, which Fitch views positively. Credit quality for USB continues to be strong across nearly all lending categories. Fitch views overall credit quality for USB--as well as the rest of the industry--to be at or near a cyclical trough. While Fitch would expect some deterioration in credit quality across the industry, it still expects USB to have better than industry credit metrics when this eventuates. Fitch views USB's liquidity and capital position as sound. USB continued to generate low-cost deposits during 1Q'14 and was able to drive its overall deposits costs down to an impressive 26 basis points during 1Q'14. USB's capital position as measured by its Basel III fully phased in Tier 1 common (CET1) ratio under the standardized approach modestly improved to 9% in 1Q'14 relative to 8.8% in the sequential quarter and 8.2% in the year ago quarter. Fitch views this improvement positively from a credit perspective and notes that USB's strong earnings generation allowed it to augment its capital ratios while also returning 67% of earnings to shareholders in 1Q'14. 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: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available at '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 WEBSITE '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. 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.

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