What Triggered the Stock Rally: U.S. Bancorp (NYSE: USB) stock rose 1.1% on January 16th, 2019 (as of 10:34 am GMT-5; Source: Google finance) after the company posted better than expected results for the fourth quarter due to strong returns from its lending and fee-based businesses. The increase in net income year-over-year was due to total net revenue growth of 4.1 percent and a decrease in noninterest expense of 15.9 percent. Net interest income increased 4.0 percent (3.2 percent on a taxable-equivalent basis), mainly a result of the impact of rising interest rates on assets, earning assets growth, and higher yields on reinvestment of securities, partially offset by higher rates on deposits and funding mix.
Exciting Performance: USB in the fourth quarter of FY 18 has reported the adjusted earnings per share of $1.10, beating the analysts’ estimates for the adjusted earnings per share of $1.06. The company had reported the adjusted revenue growth of 35.9 percent to $5.83 billion in the fourth quarter of FY 18, beating the analysts’ estimates for revenue of $5.73 billion.
Overall Performance Update: Excluding the notable items, noninterest income increased 2.2 percent compared with a year ago, driven by strong growth in payment services revenue and trust and investment management fees, along with higher other noninterest revenue, partially offset by decreases in mortgage banking revenue and ATM processing services. Excluding the notable items, noninterest expense increased 1.0 percent primarily due to increased compensation expense supporting business growth and compliance programs, merit increases, and variable compensation related to revenue growth, higher employee benefits expense, an increase in legal and professional expense, and higher technology and communications expense in support of business growth. Net income increased on a linked quarter basis primarily driven by total net revenue growth of 2.3 percent offset by an increase in noninterest expense of 7.8 percent. Net interest income increased 1.6 percent (1.5 percent on a taxable-equivalent basis) due to the impact of rising interest rates on assets, earning assets growth, and interest recoveries, partially offset by higher rates on deposits and funding mix.
The net interest margin in the fourth quarter of 2018 was 3.15 percent, compared with 3.11 percent in the fourth quarter of 2017 and 3.15 percent in the third quarter of 2018. The increase in the net interest margin year-over-year was primarily due to higher interest rates, partially offset by deposit and funding mix, lower loan spreads due to mix, higher cash balances, and the impact of tax reform. Net interest margin was flat on a linked quarter basis reflecting the impact of higher rates on assets and higher interest recoveries, offset by deposit and funding mix, as well as higher cash balances.