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U.S. Bancorp's (USB) Q2 Earnings Lag Estimates, Provisions Rise
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U.S. Bancorp’s (USB - Free Report) second-quarter 2023 adjusted earnings per share (excluding merger and integration-related charges, balance sheet optimization as well as provision for credit losses) of $1.12 missed the Zacks Consensus Estimate of $1.13. Nonetheless, it grew 2.8% from the prior-year quarter.
Shares of USB have declined 1.23% in the pre-market trading on earnings miss.
However, results were benefited from an increase in net interest income (NII), supported by higher interest rates. Also, an increase in non-interest income and moderate loan growth were positives. On the flip side, higher expenses and deterioration of the company’s credit quality were headwinds.
Net income (GAAP basis) attributable to U.S. Bancorp was $1.36 billion, down 11.1% from the prior-year quarter.
Revenues Improve, Expenses Rise
Total net revenues in the quarter under review were $7.14 billion, up 19.4% year over year. The top line missed the Zacks Consensus Estimate of $7.16 billion.
The tax-equivalent NII totaled $4.45 billion, jumping 28.4% from the year-ago quarter. The increase was primarily driven by rising interest rates on earning assets and the MUFG Union Bank acquisition.
The net interest margin of 2.9% increased 31 basis points year over year.
Non-interest income rose 7% year over year to $2.73 billion. The rise was mainly due to higher card revenues, corporate payment products revenues, trust and investment management fees, commercial products revenues and mortgage banking revenues partially offset by a fall in service charges revenues and net securities gain.
Non-interest expenses climbed 22.7% year over year to $4.57 billion. The rise was due to an increase in all components of expenditures.
The efficiency ratio was 63.7%, higher than the year-ago quarter’s 62.1%. A rise in the ratio indicates a deterioration in profitability.
Average total loans improved 1% sequentially to $388.82 billion. Average total deposits decreased 2.6% to $497.27 billion.
Credit Quality Worsens
Net charge-offs were $649 million, up from $161 million in the year-ago quarter. Total allowance for credit losses was $7.7 billion, up 23% year over year. The provision for credit losses in the reported quarter was $821 billion compared with $311 million in the prior-year quarter.
U.S. Bancorp’s non-performing assets were $1.09 billion compared with $770 million as of second-quarter 2022.
Capital Position Weakens
The Tier 1 capital ratio was 10.6% as of Jun 30, 2023, down from 11.4% in the prior-year quarter. The Tier 1 capital-to-risk-weighted assets ratio was 8.9% as of Jun 30, 2023, down from 9.4%.
Common Equity Tier 1 capital ratio under the Basel III standardized approach was 9.1% as of Jun 30, 2023, down from 9.7% in the year-ago quarter.
The tangible common equity to tangible assets ratio was 4.8%, down from the prior-year quarter’s 5.5%.
Share Repurchase Update
During the reported quarter, USB did not repurchase any shares. Owing to MUFG Union Bank acquisition deal, it had suspended share repurchases at the beginning of third-quarter 2021.
Our Take
U.S. Bancorp’s solid business model and diverse revenue streams are likely to keep aiding its financials in the upcoming period. Further, the company has been growing through its strategic acquisitions. In fact, in second-quarter, it successfully completed the conversion of Union Bank, expanding its branch network and having greater access to digital banking tools. However, persistently rising expenses and higher provisions may weigh on its bottom line in the near term.
Wells Fargo & Company’s (WFC - Free Report) second-quarter 2023 earnings per share of $1.25 has outpaced the Zacks Consensus Estimate of $1.15. The figure improved 66.7% year over year.
Results of WFC have benefited from higher NII and non-interest income. Improvements in capital and profitability ratios were other positives. However, higher provisions for credit losses and rise in expenses were the undermining factors.
Citigroup Inc.’s (C - Free Report) second-quarter 2023 earnings per share (excluding divestiture-related impacts) of $1.37 have outpaced the Zacks Consensus Estimate of $1.31.
In second quarter, C witnessed a decline in the top line due to lower revenues in Institutional Clients Group. Also, higher cost of credit was a spoilsport. Nonetheless, higher revenues in the Personal Banking and Wealth Management segments were bright spots.
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U.S. Bancorp's (USB) Q2 Earnings Lag Estimates, Provisions Rise
U.S. Bancorp’s (USB - Free Report) second-quarter 2023 adjusted earnings per share (excluding merger and integration-related charges, balance sheet optimization as well as provision for credit losses) of $1.12 missed the Zacks Consensus Estimate of $1.13. Nonetheless, it grew 2.8% from the prior-year quarter.
Shares of USB have declined 1.23% in the pre-market trading on earnings miss.
However, results were benefited from an increase in net interest income (NII), supported by higher interest rates. Also, an increase in non-interest income and moderate loan growth were positives. On the flip side, higher expenses and deterioration of the company’s credit quality were headwinds.
Net income (GAAP basis) attributable to U.S. Bancorp was $1.36 billion, down 11.1% from the prior-year quarter.
Revenues Improve, Expenses Rise
Total net revenues in the quarter under review were $7.14 billion, up 19.4% year over year. The top line missed the Zacks Consensus Estimate of $7.16 billion.
The tax-equivalent NII totaled $4.45 billion, jumping 28.4% from the year-ago quarter. The increase was primarily driven by rising interest rates on earning assets and the MUFG Union Bank acquisition.
The net interest margin of 2.9% increased 31 basis points year over year.
Non-interest income rose 7% year over year to $2.73 billion. The rise was mainly due to higher card revenues, corporate payment products revenues, trust and investment management fees, commercial products revenues and mortgage banking revenues partially offset by a fall in service charges revenues and net securities gain.
Non-interest expenses climbed 22.7% year over year to $4.57 billion. The rise was due to an increase in all components of expenditures.
The efficiency ratio was 63.7%, higher than the year-ago quarter’s 62.1%. A rise in the ratio indicates a deterioration in profitability.
Average total loans improved 1% sequentially to $388.82 billion. Average total deposits decreased 2.6% to $497.27 billion.
Credit Quality Worsens
Net charge-offs were $649 million, up from $161 million in the year-ago quarter. Total allowance for credit losses was $7.7 billion, up 23% year over year. The provision for credit losses in the reported quarter was $821 billion compared with $311 million in the prior-year quarter.
U.S. Bancorp’s non-performing assets were $1.09 billion compared with $770 million as of second-quarter 2022.
Capital Position Weakens
The Tier 1 capital ratio was 10.6% as of Jun 30, 2023, down from 11.4% in the prior-year quarter. The Tier 1 capital-to-risk-weighted assets ratio was 8.9% as of Jun 30, 2023, down from 9.4%.
Common Equity Tier 1 capital ratio under the Basel III standardized approach was 9.1% as of Jun 30, 2023, down from 9.7% in the year-ago quarter.
The tangible common equity to tangible assets ratio was 4.8%, down from the prior-year quarter’s 5.5%.
Share Repurchase Update
During the reported quarter, USB did not repurchase any shares. Owing to MUFG Union Bank acquisition deal, it had suspended share repurchases at the beginning of third-quarter 2021.
Our Take
U.S. Bancorp’s solid business model and diverse revenue streams are likely to keep aiding its financials in the upcoming period. Further, the company has been growing through its strategic acquisitions. In fact, in second-quarter, it successfully completed the conversion of Union Bank, expanding its branch network and having greater access to digital banking tools. 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 & Company’s (WFC - Free Report) second-quarter 2023 earnings per share of $1.25 has outpaced the Zacks Consensus Estimate of $1.15. The figure improved 66.7% year over year.
Results of WFC have benefited from higher NII and non-interest income. Improvements in capital and profitability ratios were other positives. However, higher provisions for credit losses and rise in expenses were the undermining factors.
Citigroup Inc.’s (C - Free Report) second-quarter 2023 earnings per share (excluding divestiture-related impacts) of $1.37 have outpaced the Zacks Consensus Estimate of $1.31.
In second quarter, C witnessed a decline in the top line due to lower revenues in Institutional Clients Group. Also, higher cost of credit was a spoilsport. Nonetheless, higher revenues in the Personal Banking and Wealth Management segments were bright spots.