Why U.S. Bancorp (NYSE: USB) stock is under pressure

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U.S. Bancorp (NYSE: USB) stock fell over 7.9% last week leading to a 40.9% fall in this YTD. USB made credit loss provision of $993 million in the first quarter, including $393 million of net charge-offs and reserve build of $600 million. The increase in the reserve was related to changes in risk ratings and deterioration in economic conditions, due to the impact of COVID-19 on the US and global economies and also due to the expectation that credit losses and non-performing assets will increase from current levels.

Net interest income, which accounts for about two-thirds of revenue, declined 1.1%. Non-interest income, was up 10%. Like other banks, U.S. Bank has also experienced a surge of mortgage-related fees as homeowners, spurred by drops in interest rates, refinanced their home borrowings. The net interest margin fell by 1 basis point versus the fourth quarter. The lower margin is driven by lower interest rates and a flatter yield curve as well as approximately 5 basis points of drag due to intentionally higher cash balances being maintained for liquidity to accommodate customer demand.

Average loans rose 0.9% on a linked quarter basis and grew 4% year-over-year. Linked quarter growth was mainly due to growth in commercial loans and mortgage loans. Business customers drew down the lines to support business activity and toward the end of the quarter to support future liquidity requirements. Strong residential mortgage loan growth reflected the low interest rate environment. On a period-end basis loans increased 7.5% linked quarter and 10.6% year-over-year. Average deposits grew 1.8% on a linked quarter basis and rose 8.2% year-over-year. Average savings deposits grew 14.1% year-over-year on the back of the growth in Wealth Management and Investment Services, Corporate and Commercial Banking and Consumer and Business Banking.

USB in the first quarter of FY 20 has reported the adjusted earnings per share of 72 cents, beating the analysts’ estimates for the adjusted earnings per share of 49 cents, according to the Zacks Consensus Estimate. The company had reported the adjusted revenue growth of 3.5 percent to $5.77 billion in the first quarter of FY 20, beating the analysts’ estimates for revenue of $5.58 billion.

In addition, U.S. Bancorp’s non-performing assets were down 5.9% to $946 million year over year. The Tier 1 capital ratio was 10.5%, contraction of 4 bps year over year.

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