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NII to Aid U.S. Bancorp (USB) Q3 Earnings Amid Fee Income Woes
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U.S. Bancorp (USB - Free Report) is scheduled to report third-quarter 2022 earnings results on Oct 14, before the opening bell. While USB’s earnings are likely to have declined year over year, revenues are expected to have improved.
Before we analyze the factors that are expected to have impacted the third-quarter earnings, let’s look at U.S. Bancorp’s performance over the last few quarters.
In the last reported quarter, USB’s earnings surpassed the Zacks Consensus Estimate on an increase in revenues, average loan growth and lower non-performing assets. However, higher expenses and elevated provisions for credit losses were the offsetting factors.
U.S. Bancorp has a decent surprise history. Earnings surpassed estimates in three of the trailing four quarters and missed the mark once, the average surprise being 4.2%.
USB’s activities in the to-be-reported quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for third-quarter earnings of $1.16 has moved marginally south in the past month. Also, the figure indicates a 10.8% decline from the year-ago reported number.
Nonetheless, the consensus estimate for revenues is pegged at $6.27 billion, suggesting growth of 6.9% from the year-ago reported figure. Management expects total revenue growth of 3-5%.
Key Factors to Note
NII: The bank’s NII and margins are likely to have been driven by the 150-basis-point interest rate hikes. Per the Fed’s latest data, loan growth continued at a decent pace in the to-be-reported quarter, with commercial and industrial loans, real estate loans, and consumer loans slightly moderating in July and August from the second quarter. Encouragingly, commercial real estate loan growth accelerated in the third quarter. This is likely to have supported USB’S loan balances, which comprise 50% of commercial loans.
The Zacks Consensus Estimate of $541.9 billion for the quarterly average interest-earning assets indicates a marginal sequential improvement. The estimate for NII suggests an 8.5% sequential increase to $3.72 billion.
Non-Interest Income Heightening volatility, uncertainty, recession fears and geopolitical tensions dampened the equity market performance. Amid this, disruptions in capital market activities are anticipated to have hindered commercial product revenues. The Zacks Consensus Estimate for U.S. Bancorp's commercial product revenues indicates a 4% sequential decline.
Mortgage rates increased sequentially in the to-be-reported quarter, with the rate on the 30-year fixed mortgage crossing the 6% mark in September. This is expected to have led to a sharp decline in refinance originations. Amid such industry headwinds, management projects mortgage revenues to decline 30-35% on a sequential basis. The Zacks Consensus Estimate for mortgage banking revenues is pegged at $141 million, suggesting a marginal fall from the prior quarter’s reported number.
The consensus mark for trust and investment management fees is pegged at $563 million, indicating a marginal decline, likely due to unfavorable market conditions.
The elimination of certain fees and lower deposit balances are likely to have affected service charges. The consensus mark of $162 million indicates a 1.8% fall in revenues from service charges on deposits.
The Zacks Consensus Estimate for the total non-interest income is pegged at $2.5 billion, suggesting a marginal decrease from the prior quarter’s reported number.
Expenses: As USB continues to invest in digital initiatives, payments capabilities and technology modernization, we believe that such rising costs have weighed on its expense base to some extent in the to-be-reported quarter and hindered bottom-line growth. Management expects core expenses (excluding merger and integration charges related to the MUFG Union Bank buyout) to increase 2-3% sequentially and $50 million of merger integration costs.
Key Development During the Quarter
USB’s acquisition of MUFG Union Bank’s core regional banking franchise has been extended, with deal conversion and integration being pushed to Memorial Day weekend from President’s Day weekend.
Owing to this, management expects to achieve only 40-50% of the expected $900-million cost savings from the acquisition in 2023, down from the original expectation of 75% in 2023.
Here is What Our Quantitative Model Predicts:
Our proven model does not predict an earnings beat for U.S. Bancorp this season. This is because the company does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: U.S. Bancorp has an Earnings ESP of -0.84%.
BankUnited (BKU - Free Report) and M&T Bank (MTB - Free Report) are a few stocks that you might want to consider, as these have the right combination of elements to post an earnings beat in their upcoming releases, per our model.
The Earnings ESP for BKU is +1.32% and the company carries a Zacks Rank #3 at present. BKU is slated to report third-quarter 2022 results on Oct 20.
MTB is scheduled to release third-quarter results on Oct 19. MTB currently has a Zacks Rank #3 and an Earnings ESP of +0.34%.
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NII to Aid U.S. Bancorp (USB) Q3 Earnings Amid Fee Income Woes
U.S. Bancorp (USB - Free Report) is scheduled to report third-quarter 2022 earnings results on Oct 14, before the opening bell. While USB’s earnings are likely to have declined year over year, revenues are expected to have improved.
Before we analyze the factors that are expected to have impacted the third-quarter earnings, let’s look at U.S. Bancorp’s performance over the last few quarters.
In the last reported quarter, USB’s earnings surpassed the Zacks Consensus Estimate on an increase in revenues, average loan growth and lower non-performing assets. However, higher expenses and elevated provisions for credit losses were the offsetting factors.
U.S. Bancorp has a decent surprise history. Earnings surpassed estimates in three of the trailing four quarters and missed the mark once, the average surprise being 4.2%.
U.S. Bancorp Price and EPS Surprise
U.S. Bancorp price-eps-surprise | U.S. Bancorp Quote
USB’s activities in the to-be-reported quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for third-quarter earnings of $1.16 has moved marginally south in the past month. Also, the figure indicates a 10.8% decline from the year-ago reported number.
Nonetheless, the consensus estimate for revenues is pegged at $6.27 billion, suggesting growth of 6.9% from the year-ago reported figure. Management expects total revenue growth of 3-5%.
Key Factors to Note
NII: The bank’s NII and margins are likely to have been driven by the 150-basis-point interest rate hikes. Per the Fed’s latest data, loan growth continued at a decent pace in the to-be-reported quarter, with commercial and industrial loans, real estate loans, and consumer loans slightly moderating in July and August from the second quarter. Encouragingly, commercial real estate loan growth accelerated in the third quarter. This is likely to have supported USB’S loan balances, which comprise 50% of commercial loans.
The Zacks Consensus Estimate of $541.9 billion for the quarterly average interest-earning assets indicates a marginal sequential improvement. The estimate for NII suggests an 8.5% sequential increase to $3.72 billion.
Non-Interest Income Heightening volatility, uncertainty, recession fears and geopolitical tensions dampened the equity market performance. Amid this, disruptions in capital market activities are anticipated to have hindered commercial product revenues. The Zacks Consensus Estimate for U.S. Bancorp's commercial product revenues indicates a 4% sequential decline.
Mortgage rates increased sequentially in the to-be-reported quarter, with the rate on the 30-year fixed mortgage crossing the 6% mark in September. This is expected to have led to a sharp decline in refinance originations. Amid such industry headwinds, management projects mortgage revenues to decline 30-35% on a sequential basis. The Zacks Consensus Estimate for mortgage banking revenues is pegged at $141 million, suggesting a marginal fall from the prior quarter’s reported number.
The consensus mark for trust and investment management fees is pegged at $563 million, indicating a marginal decline, likely due to unfavorable market conditions.
The elimination of certain fees and lower deposit balances are likely to have affected service charges. The consensus mark of $162 million indicates a 1.8% fall in revenues from service charges on deposits.
The Zacks Consensus Estimate for the total non-interest income is pegged at $2.5 billion, suggesting a marginal decrease from the prior quarter’s reported number.
Expenses: As USB continues to invest in digital initiatives, payments capabilities and technology modernization, we believe that such rising costs have weighed on its expense base to some extent in the to-be-reported quarter and hindered bottom-line growth. Management expects core expenses (excluding merger and integration charges related to the MUFG Union Bank buyout) to increase 2-3% sequentially and $50 million of merger integration costs.
Key Development During the Quarter
USB’s acquisition of MUFG Union Bank’s core regional banking franchise has been extended, with deal conversion and integration being pushed to Memorial Day weekend from President’s Day weekend.
Owing to this, management expects to achieve only 40-50% of the expected $900-million cost savings from the acquisition in 2023, down from the original expectation of 75% in 2023.
Here is What Our Quantitative Model Predicts:
Our proven model does not predict an earnings beat for U.S. Bancorp this season. This is because the company does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: U.S. Bancorp has an Earnings ESP of -0.84%.
Zacks Rank: U.S. Bancorp currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks That Warrant a Look
BankUnited (BKU - Free Report) and M&T Bank (MTB - Free Report) are a few stocks that you might want to consider, as these have the right combination of elements to post an earnings beat in their upcoming releases, per our model.
The Earnings ESP for BKU is +1.32% and the company carries a Zacks Rank #3 at present. BKU is slated to report third-quarter 2022 results on Oct 20.
MTB is scheduled to release third-quarter results on Oct 19. MTB currently has a Zacks Rank #3 and an Earnings ESP of +0.34%.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.