OREANDA-NEWS. January 20, 2016. U.S. Bancorp's (USB) fourth quarter 2015 (4Q15) and full year 2015 earnings continued to be strong and support the company's ratings, which are the highest in Fitch Ratings' global bank rating universe.

USB's 4Q15 return on average assets (ROAA) 1.41%, down modestly from the 1.44% in 3Q15. The company's 2015 full year ROAA was 1.44% relative to 1.54% in the prior year period.

Given the impact low interest rates are still having on earnings across the banking industry as well as the continued increase in compliance and regulatory costs, Fitch considers USB's earnings performance to be strong.

USB's total revenue expanded 1.2% from the sequential quarter and 2% year-over-year. This growth was largely driven by better net interest income (NII) primarily driven by higher loan balances as well as the build of the securities portfolio over the course of the year for Liquidity Coverage Ratio (LCR) purposes.

Average total loans, excluding covered loans, grew 2.5% from the linked quarter and 4.8% year-over-year. The linked quarter growth was driven by growth in auto loans, credit card receivables, and continued growth in commercial loans. The year-over-year growth was more substantially impacted by higher commercial loan balances, with smaller contributions from auto loans, card receivables, and construction and development loans.

While the yields in USB's auto portfolio and card portfolio are comparatively good, loan yields in the commercial portfolio, which is USB's largest portfolio, continue to be very competitive. This mix, as well as the build of the securities portfolio noted above, resulted in the company's net interest margin (NIM) remaining relatively unchanged compared to the linked quarter, and down 18 basis points year-over-year.

Overall non-interest income, which represents approximately 45% of the company's revenue, was up 0.60% relative to the linked quarter and down 0.80% year-over-year. While there are a number of puts and takes, the overall trends are higher credit and debit card revenue and higher trust and investment management fees offset by lower mortgage banking revenue.

USB's expense management continues to be good, with the company's efficiency ratio coming in at 53% both for 4Q15 and full-year 2015. While the revenue environment is improving, it still remains challenging and Fitch expects USB to continue to aggressively manage expense over the course of 2016.

USB's asset quality metrics continue to be good and are seasonally higher than the linked quarter but lower than the year-ago period.

Fitch notes that USB does have some criticized energy related credits, though energy loans only comprise 1.2% of USB's total portfolio, which Fitch thinks will be largely manageable. USB has a 5.4% reserve against this exposure, due to some added provision this last quarter.

Overall provision expense was higher this quarter as some loan growth and the energy activity noted above served to boost provision expense by 8.2% relative to the linked quarter, though it was down 7.9% year-over-year as overall credit quality remains strong.

Fitch continues to consider USB's capital and liquidity position as appropriate for the company's risk profile.

USB continues to grow deposits more and the company's loan to deposit ratio was 85.5% at the end of 4Q15.

USB's fully phased-in Basel III Common Equity Tier 1 (CET1) ratio under the standardized approach (USB's binding constraint ratio) was slightly down relative to the sequential quarter at 9.1%. Fitch would note that USB also returned approximately 72% of current quarter earnings to shareholders via both buybacks and dividends.

Fitch would also note that USB disclosed a consent order with its regulator the Office of the Comptroller of the Currency (OCC) this quarter due to some required changes in the company's BSA/AML program. Fitch believes that the company is working to be in compliance with the requirements laid out in the order and it won't impact the company's ratings at this time.