US Bancorp (NYSE:USB) Q4 2019 Earnings Conference Call - Final Transcript
Jan 15, 2020 • 09:00 am ET
Terrance R. Dolan
you turn to slide six, I'll start with the balance sheet review followed by a discussion of fourth quarter earnings trends. Average loans grew 0.8% on a linked quarter basis and increased 3.9% year-over-year. Linked quarter growth was driven by strength in residential mortgages, commercial real estate, and credit card loans. In C&I, paydown activity muted overall growth in the fourth quarter, primarily reflecting the rate environment and robust capital market conditions. New commercial business activity is healthy, however paydown activity is likely to continue to be a headwind near term albeit a diminishing headwind assuming that the interest rate environment is stable.
Turning to slide seven. Deposits increased 1.9% on a linked quarter basis and grew 6.6% year-over-year. Notably, average savings deposits grew by 11.1%, driven by across-the-board growth in wealth management, investment services, consumer banking, and commercial banking.
Turning to slide eight. Credit quality was stable in the fourth quarter. On a dollar basis, non-performing assets declined approximately 15% on both a linked quarter and a year-over-year basis. The ratio of non-performing assets to loans plus other real estate owned also improved linked quarter and year-over-year. The new accounting standard related to credit losses, commonly known as CECL became effective January 1st and has no impact on our 2019 results. We estimate that the adoption of CECL will result in a $1.5 billion cumulative effect adjustment to our allowance for loan losses compared with December 31st 2019, which is in line with our previous guidance.
Slide nine highlights fourth quarter earnings results. We reported earnings per share of $0.90, which included several notable items, which reduced earnings by $0.18 per share. Excluding these notable items, we reported earnings of $1.08 per share.
Slide 10 lists the notable items that affected earnings results for the fourth quarter of 2018 and 2019. Fourth quarter 2019 notable items included restructuring charges including severance and certain asset impairments and an increased derivative liability related to Visa shares previously sold by the company. As a reminder, we recognized several notable items during the fourth quarter of 2018, including a gain on the sale of our ATM servicing business and the sale of a majority of the company's covered loans as well as charges related to severance, asset impairments and an accrual for certain legal matters. Along with a favorable impact deferred tax assets and liabilities related to changes in estimates from tax reform, the net impact of notable items in 2018 was an increase of $0.03 per share. My remarks through the remainder of the call will be referencing results excluding notable items incurred in the fourth quarters of 2019 and 2018.
Turning to slide 11. Net interest income on a fully taxable equivalent basis declined by 3% year-over-year, in line with our expectations as the impact of loan growth and higher yields on reinvestment of securities was more than offset by the impact of our flatter yield curve and deposit funding mix. Our net interest margin declined by 10 basis points versus