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U.S. Bancorp (USB) Q1 Earnings Beat on Higher NII, Expenses Up
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U.S. Bancorp’s (USB - Free Report) first-quarter 2023 earnings per share (excluding merger and integration-related charges) of $1.16 handily beat the Zacks Consensus Estimate of $1.13 per share. It grew 17.2% from the prior-year quarter.
Results have benefited from an increase in net interest income (NII), supported by higher interest rates. However, a decline in non-interest income (largely on lower mortgage banking income) and higher expenses were the headwinds. Also, the company’s credit quality deteriorated in the reported quarter.
Net income (GAAP basis) was $1.7 billion, up 9.4% from the prior-year quarter.
Revenues Improve, Expenses Rise
Total net revenues in the quarter were $7.14 billion, up 28.2% year over year. The top line surpassed the Zacks Consensus Estimate of $7.13 billion.
The tax-equivalent NII totaled $4.66 billion, jumping 45.9% from the prior-year quarter. The increase was primarily driven by rising interest rates on earning assets and the MUFG Union Bank acquisition.
The net interest margin (NIM) of 3.1% increased 66 basis points year over year.
Non-interest income rose 4.6% year over year to $2.5 billion. The rise was primarily due to higher payment services revenues, trust and investment management fees, and commercial products revenues, partially offset by a fall in mortgage banking revenues and losses on securities.
Non-interest expenses climbed 30.1% year over year to $4.55 billion.
The efficiency ratio was 63.2%, higher than the year-ago quarter’s 62.8%. A rise in the ratio indicates a deterioration in profitability.
Average total loans improved 7.4% sequentially to $386.7 billion. Average total deposits increased 5.59% to $510.3 billion.
Credit Quality Worsens
Net charge-offs were $373 million, up from $162 million in the year-ago quarter. Total allowance for credit losses was $7.5 billion, up 23% year over year. The provision for credit losses in the reported quarter was $427 billion compared with $112 million in the prior-year quarter.
U.S. Bancorp’s non-performing assets (NPAs) were $1.18 billion compared with $811 million as of first-quarter 2022.
Capital Position Weakens
The Tier 1 capital ratio was 10% as of Mar 31, 2023, down from 11.5% in the prior-year quarter. The Tier 1-capital-to-risk-weighted assets ratio was 8.3% as of Mar 31, 2023, down from 9.5%.
Common Equity Tier 1 capital ratio under the Basel III standardized approach was 8.5% as of Mar 31, 2023, down from 9.8% in the year-ago quarter.
The tangible common equity to tangible assets ratio was 4.8%, down from the prior-year quarter’s 6%.
Our Take
U.S. Bancorp’s solid business model and diverse revenue streams are likely to keep aiding its financials. The company’s strong loan and deposit balances are positives. However, persistently rising expenses and higher provisions may weigh on its bottom line in the near term.
Wells Fargo’s (WFC - Free Report) first-quarter 2023 earnings per share of $1.23 outpaced the Zacks Consensus Estimate of $1.15. The figure improved 35% year over year.
WFC’s results benefited from higher net interest income, rising rates and solid average loan growth. A fall in non-interest expenses acted as another tailwind. Yet, dismal non-interest income, higher provisions and weakness in the mortgage business were the major undermining factors for WFC.
Citigroup Inc.’s (C - Free Report) first-quarter 2023 earnings per share (excluding divestiture-related impacts) of $1.86 outpaced the Zacks Consensus Estimate of $1.66. Our estimate for earnings was $1.40 per share.
Citigroup witnessed revenue growth in the quarter, backed by higher revenues in the Institutional Clients Group, and Personal Banking and Wealth Management segments. However, the higher cost of credit was a spoilsport.
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U.S. Bancorp (USB) Q1 Earnings Beat on Higher NII, Expenses Up
U.S. Bancorp’s (USB - Free Report) first-quarter 2023 earnings per share (excluding merger and integration-related charges) of $1.16 handily beat the Zacks Consensus Estimate of $1.13 per share. It grew 17.2% from the prior-year quarter.
Results have benefited from an increase in net interest income (NII), supported by higher interest rates. However, a decline in non-interest income (largely on lower mortgage banking income) and higher expenses were the headwinds. Also, the company’s credit quality deteriorated in the reported quarter.
Net income (GAAP basis) was $1.7 billion, up 9.4% from the prior-year quarter.
Revenues Improve, Expenses Rise
Total net revenues in the quarter were $7.14 billion, up 28.2% year over year. The top line surpassed the Zacks Consensus Estimate of $7.13 billion.
The tax-equivalent NII totaled $4.66 billion, jumping 45.9% from the prior-year quarter. The increase was primarily driven by rising interest rates on earning assets and the MUFG Union Bank acquisition.
The net interest margin (NIM) of 3.1% increased 66 basis points year over year.
Non-interest income rose 4.6% year over year to $2.5 billion. The rise was primarily due to higher payment services revenues, trust and investment management fees, and commercial products revenues, partially offset by a fall in mortgage banking revenues and losses on securities.
Non-interest expenses climbed 30.1% year over year to $4.55 billion.
The efficiency ratio was 63.2%, higher than the year-ago quarter’s 62.8%. A rise in the ratio indicates a deterioration in profitability.
Average total loans improved 7.4% sequentially to $386.7 billion. Average total deposits increased 5.59% to $510.3 billion.
Credit Quality Worsens
Net charge-offs were $373 million, up from $162 million in the year-ago quarter. Total allowance for credit losses was $7.5 billion, up 23% year over year. The provision for credit losses in the reported quarter was $427 billion compared with $112 million in the prior-year quarter.
U.S. Bancorp’s non-performing assets (NPAs) were $1.18 billion compared with $811 million as of first-quarter 2022.
Capital Position Weakens
The Tier 1 capital ratio was 10% as of Mar 31, 2023, down from 11.5% in the prior-year quarter. The Tier 1-capital-to-risk-weighted assets ratio was 8.3% as of Mar 31, 2023, down from 9.5%.
Common Equity Tier 1 capital ratio under the Basel III standardized approach was 8.5% as of Mar 31, 2023, down from 9.8% in the year-ago quarter.
The tangible common equity to tangible assets ratio was 4.8%, down from the prior-year quarter’s 6%.
Our Take
U.S. Bancorp’s solid business model and diverse revenue streams are likely to keep aiding its financials. The company’s strong loan and deposit balances are positives. However, persistently rising expenses and higher provisions may weigh on its bottom line in the near term.
U.S. Bancorp Price, Consensus and EPS Surprise
U.S. Bancorp price-consensus-eps-surprise-chart | U.S. Bancorp Quote
U.S. Bancorp currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Major Banks
Wells Fargo’s (WFC - Free Report) first-quarter 2023 earnings per share of $1.23 outpaced the Zacks Consensus Estimate of $1.15. The figure improved 35% year over year.
WFC’s results benefited from higher net interest income, rising rates and solid average loan growth. A fall in non-interest expenses acted as another tailwind. Yet, dismal non-interest income, higher provisions and weakness in the mortgage business were the major undermining factors for WFC.
Citigroup Inc.’s (C - Free Report) first-quarter 2023 earnings per share (excluding divestiture-related impacts) of $1.86 outpaced the Zacks Consensus Estimate of $1.66. Our estimate for earnings was $1.40 per share.
Citigroup witnessed revenue growth in the quarter, backed by higher revenues in the Institutional Clients Group, and Personal Banking and Wealth Management segments. However, the higher cost of credit was a spoilsport.