Fees Surge, NIM Ticks Up, Capital Stands Firm
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US Bancorp Research Brief
Q4 net revenue smashed records at $7.4 billion. Full year hit $28.7 billion. Diluted EPS reached $1.26, up 18% adjusted year over year. Fee revenue climbed 7.6%, now accounting for 42% of total revenue. Net interest margin edged to 2.77%. CET1 held steady at 10.8%. Debt stays tame in this setup. Management mixes cash and stock for bolt-ons like BTIG, eyes 75% payouts. Bonds price a superregional that grinds returns through cycles.
Fee engine hums, operations steady
Record revenues demand attention. Net revenue jumped 5.1% in Q4 to $7.4 billion. Net interest income rose 3.3% to $4.3 billion on a taxable-equivalent basis. Noninterest income gained 7.8% at $3.1 billion. Full-year fee growth outpaced the mid-single-digit target. CEO Gunjan Kedia put it bluntly: “diluted earnings per share of $1.26, an increase of approximately 18%, year-over-year, as adjusted. We delivered a solid return on tangible common equity of 18.4% and 440 basis points of positive operating leverage, on an adjusted basis, that was driven by record net revenue this quarter.”
Payments grew 3.9%. Trust fees 7.5%. Capital markets soared 17.3%. Global Fund Services has posted 11% CAGR since 2021. ETF servicing spiked 46%. BTIG adds $750 million in fees yearly. Cash covers $362 million of the $725 million price. Kedia cited the decade-long tie: “We’ve had a 10-year partnership with BTIG and have completed 350 deals or more together in that time frame.”
Deposits ticked up. Average balances reached $515 billion. Consumer hit records. Loans expanded 2.3% to $384 billion. Commercial jumped 10.1%, cards 5.7%. Non-interest-bearing deposits stuck at 16%.
Capital shrugs off growth
CET1 eased 10 basis points to 10.8%. Loan expansion and $100 million buybacks explain it. Including AOCI, the ratio stands at 9.3%, down from 10% target. Tangible book value per share gained 18.2% to $29.12. BTIG dings CET1 de 12 points de base. Buyback pace heads to $200 million quarterly anyway. Payout targets 75%.
Medium and long-term debt? $60.8 billion at year's end. Modest uptick. No red flags. Organic capital keeps pace with risk-weighted assets.
Debt funds prioritize, not excess
BTIG financing blends cash and stock. Limits the CET1 strain. Execution looks low risk after years together. CFO John Stern plans gradual buyback ramps while prioritizing loans. Kedia recommits to “strategic priorities and medium-term targets as these measures will continue to drive sustainable EPS growth and industry-leading returns.” Growth trumps leverage grabs. Category II looms as assets near $700 billion.
Bonds match the grind
Spreads hug peers like PNC. Defensive traits justify tightness. Fees at 42% blunt rate swings. NCOs eased to 0.54%. ACL covers 2.03% of loans. NPAs dropped to 0.41%. CRE claims 12% of loans. NDFI 11%. Reserves hold firm. Gimme Credit nails it: “strong credit profile, supported by the broadly diversified geographic platform, a well-diversified lending mix, continued enhancements to the fee revenue base, benign asset quality positioning, and a strong capitalization structure supported by a conservative capital allocation strategy.” Valuations fit a steady earner. The bank does have some interesting preferreds. Nothing, we are going to recommend you look at for your portfolio. The 2036s are yielding about 70-80 bps of additional spread, which is narrow but could come in with operational outperformance.