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Is a Beat in Store for U.S. Bancorp (USB) in Q2 Earnings?
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U.S. Bancorp (USB - Free Report) is scheduled to report second-quarter results on Jul 19, before the opening bell. The company’s quarterly earnings and revenues are likely to have improved year over year.
Before we analyze the factors that are expected to have impacted the second-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 increased 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 headwinds. Also, the company’s credit quality deteriorated in the reported quarter.
U.S. Bancorp has a strong surprise history. Earnings surpassed estimates in the trailing four quarters, the average beat being 3.37%.
The Zacks Consensus Estimate for second-quarter earnings of $1.13 has moved marginally south in the past week. Nonetheless, the figure indicates a 3.7% rise from the year-ago reported number.
The consensus estimate for revenues is pegged at $7.15 billion, suggesting growth of 19.5% from the year-ago reported number. Management projects total revenues of $7.1-$7.3 billion, whereas it reported $7.2 billion in the first quarter. The outlook includes purchase accounting accretion of $85 million.
Major Factors to Influence Q2 Results
Loan Demand & NII: Lending activities gradually waned in the quarter amid a challenging macroeconomic backdrop. Per the Federal Reserve’s latest data, the demand for commercial and industrial loans, as well as real estate loans, were soft in April and May. Given U.S. Bancorp's substantial exposure to commercial and industrial loans, as well as tighter lending standards, the company’s lending book is likely to have been affected.
This is likely to have negatively influenced the average earning asset balance for the second quarter. Notably, management expects average earning assets between $600 billion and $605 billion, indicating a decline from the $607.6 billion recorded in the first quarter. The Zacks Consensus Estimate of $610.89 billion for average interest-earning assets indicates a 6.7% sequential improvement.
The Federal Reserve raised interest rates by another 25 basis points in the June-ended quarter. The policy rate now stands at a 15-year-high of 5-5.25%.
In the first quarter, USB’s deposit mix became slightly unfavorable, with the composition of interest-bearing deposits increasing. This, along with higher interest rates, is likely to have increased funding costs in the quarter. Moreover, the investment securities portfolio balance declined in first-quarter 2023, having offered limited scope for growth in interest income in the second quarter.
Hence, these are anticipated to have a negative impact on the NII and net interest margin (NIM).
The consensus estimate for NII suggests a 3.2% sequential decline to $4.58 billion. The company projects a NIM (FTE basis) of 3%, whereas it recorded 3.1% in the first quarter.
Non-Interest Income: Market volatility and client activity were subdued in the second quarter due to the Congressional debate over the debt ceiling. Also, the risks of an economic downturn/recession, the central bank’s hawkish monetary policy stance to stem out “sticky” inflation and geopolitical concerns led to ambiguity among investors.
Thus, these factors resulted in lower volatility in equity markets and other asset classes. Hence, USB is likely to have recorded a weak performance in trading revenues this time. This is expected to have hindered commercial product revenues.
Mortgage originations, both purchase and refinancing, continued to decline in the second quarter. Mortgage banking revenues have also been facing tough comps from the prior year, which were boosted by lower mortgage rates. In the to-be-reported quarter, mortgage rates continued to rise, with the rate on 30-year fixed mortgage reaching 6.81% in June, up from the 4.6% reported in the prior-year quarter.
Higher mortgage rates, which kept home buyers on the sidelines, led to a smaller origination volume. These factors are likely to have weighed on USB’s mortgage banking revenues. Nonetheless, a favorable change in the valuation of mortgage servicing rights is expected to have aided such revenues. The Zacks Consensus Estimate for mortgage banking revenues is pegged at $143 million, suggesting an 11.7% sequential rise.
The consensus mark for trust and investment management fees is pegged at $600 million, indicating a sequential rise of 1.7%. The consensus mark of $327 million indicates marginal rise from the prior quarter in revenues from service charges on deposits.
Rising rates and high inflation are expected to have increased transactions and spend volumes. This, along with the acquisition of MUFG Union Bank, is likely to have supported USB’s card fees in the quarter. The Zacks Consensus Estimate for the same is pegged at $390 million, indicating an 8.3% increase from the prior quarter’s reported figure.
Overall, the Zacks Consensus Estimate for the total non-interest income is pegged at $2.66 billion, implying a rise of 6.2% on a sequential basis.
Expenses: As USB continues to invest in digital initiatives, payment capabilities and technology modernization, such costs are likely to have weighed on its expense base to some extent in the to-be-reported quarter. Moreover, higher merger and integration costs and the negative impacts of MUFG Union Bank’s operating expenses are expected to have increased costs.
Management expects non-interest expenses (excluding merger and integration charges) of $4.3-$4.4 billion, whereas it reported $4.3 billion in the first quarter. The estimate includes core deposit intangibles amortization related to the Union Bank acquisition of $120 million. The company anticipates merger and integration charges between $250 million and $300 million.
Asset Quality: With expectations of economic slowdown due to macroeconomic headwinds, USB is expected to have built reserves in the second quarter. The Zacks Consensus Estimate for total non-performing assets of $1.26 billion implies a 7.1% jump from the prior quarter.
What the Zacks Model Predicts
Our proven model predicts an earnings beat for U.S. Bancorp this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat which is the case here. 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 +0.39%.
Zacks Rank: USB currently carries a Zacks Rank of 3.
Stocks That Warrant a Look
First Citizens BancShares, Inc. (FCNCA - Free Report) and Byline Bancorp, Inc. (BY - Free Report) are a couple of other stocks that you may want to consider, as these, too, have the right combination of elements to post an earnings beat in their upcoming releases.
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Is a Beat in Store for U.S. Bancorp (USB) in Q2 Earnings?
U.S. Bancorp (USB - Free Report) is scheduled to report second-quarter results on Jul 19, before the opening bell. The company’s quarterly earnings and revenues are likely to have improved year over year.
Before we analyze the factors that are expected to have impacted the second-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 increased 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 headwinds. Also, the company’s credit quality deteriorated in the reported quarter.
U.S. Bancorp has a strong surprise history. Earnings surpassed estimates in the trailing four quarters, the average beat being 3.37%.
U.S. Bancorp Price and EPS Surprise
U.S. Bancorp price-eps-surprise | U.S. Bancorp Quote
The Zacks Consensus Estimate for second-quarter earnings of $1.13 has moved marginally south in the past week. Nonetheless, the figure indicates a 3.7% rise from the year-ago reported number.
The consensus estimate for revenues is pegged at $7.15 billion, suggesting growth of 19.5% from the year-ago reported number. Management projects total revenues of $7.1-$7.3 billion, whereas it reported $7.2 billion in the first quarter. The outlook includes purchase accounting accretion of $85 million.
Major Factors to Influence Q2 Results
Loan Demand & NII: Lending activities gradually waned in the quarter amid a challenging macroeconomic backdrop. Per the Federal Reserve’s latest data, the demand for commercial and industrial loans, as well as real estate loans, were soft in April and May. Given U.S. Bancorp's substantial exposure to commercial and industrial loans, as well as tighter lending standards, the company’s lending book is likely to have been affected.
This is likely to have negatively influenced the average earning asset balance for the second quarter. Notably, management expects average earning assets between $600 billion and $605 billion, indicating a decline from the $607.6 billion recorded in the first quarter. The Zacks Consensus Estimate of $610.89 billion for average interest-earning assets indicates a 6.7% sequential improvement.
The Federal Reserve raised interest rates by another 25 basis points in the June-ended quarter. The policy rate now stands at a 15-year-high of 5-5.25%.
In the first quarter, USB’s deposit mix became slightly unfavorable, with the composition of interest-bearing deposits increasing. This, along with higher interest rates, is likely to have increased funding costs in the quarter. Moreover, the investment securities portfolio balance declined in first-quarter 2023, having offered limited scope for growth in interest income in the second quarter.
Hence, these are anticipated to have a negative impact on the NII and net interest margin (NIM).
The consensus estimate for NII suggests a 3.2% sequential decline to $4.58 billion. The company projects a NIM (FTE basis) of 3%, whereas it recorded 3.1% in the first quarter.
Non-Interest Income: Market volatility and client activity were subdued in the second quarter due to the Congressional debate over the debt ceiling. Also, the risks of an economic downturn/recession, the central bank’s hawkish monetary policy stance to stem out “sticky” inflation and geopolitical concerns led to ambiguity among investors.
Thus, these factors resulted in lower volatility in equity markets and other asset classes. Hence, USB is likely to have recorded a weak performance in trading revenues this time. This is expected to have hindered commercial product revenues.
Mortgage originations, both purchase and refinancing, continued to decline in the second quarter. Mortgage banking revenues have also been facing tough comps from the prior year, which were boosted by lower mortgage rates. In the to-be-reported quarter, mortgage rates continued to rise, with the rate on 30-year fixed mortgage reaching 6.81% in June, up from the 4.6% reported in the prior-year quarter.
Higher mortgage rates, which kept home buyers on the sidelines, led to a smaller origination volume. These factors are likely to have weighed on USB’s mortgage banking revenues. Nonetheless, a favorable change in the valuation of mortgage servicing rights is expected to have aided such revenues. The Zacks Consensus Estimate for mortgage banking revenues is pegged at $143 million, suggesting an 11.7% sequential rise.
The consensus mark for trust and investment management fees is pegged at $600 million, indicating a sequential rise of 1.7%. The consensus mark of $327 million indicates marginal rise from the prior quarter in revenues from service charges on deposits.
Rising rates and high inflation are expected to have increased transactions and spend volumes. This, along with the acquisition of MUFG Union Bank, is likely to have supported USB’s card fees in the quarter. The Zacks Consensus Estimate for the same is pegged at $390 million, indicating an 8.3% increase from the prior quarter’s reported figure.
Overall, the Zacks Consensus Estimate for the total non-interest income is pegged at $2.66 billion, implying a rise of 6.2% on a sequential basis.
Expenses: As USB continues to invest in digital initiatives, payment capabilities and technology modernization, such costs are likely to have weighed on its expense base to some extent in the to-be-reported quarter. Moreover, higher merger and integration costs and the negative impacts of MUFG Union Bank’s operating expenses are expected to have increased costs.
Management expects non-interest expenses (excluding merger and integration charges) of $4.3-$4.4 billion, whereas it reported $4.3 billion in the first quarter. The estimate includes core deposit intangibles amortization related to the Union Bank acquisition of $120 million. The company anticipates merger and integration charges between $250 million and $300 million.
Asset Quality: With expectations of economic slowdown due to macroeconomic headwinds, USB is expected to have built reserves in the second quarter. The Zacks Consensus Estimate for total non-performing assets of $1.26 billion implies a 7.1% jump from the prior quarter.
What the Zacks Model Predicts
Our proven model predicts an earnings beat for U.S. Bancorp this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat which is the case here. 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 +0.39%.
Zacks Rank: USB currently carries a Zacks Rank of 3.
Stocks That Warrant a Look
First Citizens BancShares, Inc. (FCNCA - Free Report) and Byline Bancorp, Inc. (BY - Free Report) are a couple of other stocks that you may want to consider, as these, too, have the right combination of elements to post an earnings beat in their upcoming releases.
The Earnings ESP for FCNCA is +3.21% and currently carries a Zacks Rank #3. It is slated to report second-quarter 2023 results on Aug 8. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for FCNCA’s second-quarter earnings has moved 4.3% south over the past 30 days.
BY is scheduled to release second-quarter 2023 results on Jul 27. It currently has an Earnings ESP of +3.59% and a Zacks Rank #3.
The Zacks Consensus Estimate for BY’s second-quarter earnings has been unchanged over the past 60 days.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.