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U.S. Bancorp (USB) Hurt by Rising Costs & Loan Concentration
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U.S. Bancorp (USB - Free Report) is expected to witness a persistent rise in operating expenses. This, along with a concentrated loan portfolio, are major headwinds. Nonetheless, higher interest rates, strategic buyouts and decent loan demand offer some support.
USB continues to record a rise in non-interest expenses. The metric has witnessed a compound annual growth rate of 5.2% over the last four years (2019-2022). The rise was mainly due to higher merger and integration charges, compensation and employee benefits, net occupancy and equipment expenses, as well as technology and communications expenditures. The rising trend continued in first half of 2023 as well.
Management estimates to incur $1.4 billion in costs for the Union Bank integration. In fact, it expects to incur $900 million-$1 billion of such costs in 2023. Further, it projects non-interest expenses (excluding merger and integration charges) to reach around $17 billion in 2023. Hence, USB’s cost base remains relatively high, which is likely to hinder bottom-line growth.
Apart from increasing costs, lack of diversification in loan portfolio amid an uncertain economy is likely to act as a headwind. Around 50.4% of USB’s loan portfolio comprises of commercial loans (commercial and commercial real estate lending) as of Jun 30.
Further, U.S. Bancorp continues to encounter investigations and lawsuits from the investors and regulators, leading to increased legal expenses and provisions in the near term.
Analysts also seem pessimistic regarding USB’s earnings growth prospects. The Zacks Consensus Estimate for 2023 and 2024 earnings has been revised marginally lower over the past seven days. USB currently carries a Zacks Rank #5 (Strong Sell).
Over the past six months, shares of USB have plunged 19.6% compared with the industry's decline of 5.7%.
Image Source: Zacks Investment Research
Despite the above-mentioned concerns, U.S. Bancorp is well placed to grow organically, driven by a decent rise in loan demand and higher rates. Further, a solid balance-sheet position enables the company to pursue opportunistic buyouts. These efforts will support revenue growth going forward. Management expects adjusted total revenues to reach $28-$29 billion in 2023.
The Zacks Consensus Estimate for Mercantile Bank's current-year earnings has been revised 11.2% upward over the past 30 days. Its shares have gained 25.8% over the past three months.
The consensus mark for the South Atlantic Bancshares' 2023 earnings has been revised 3.6% upward over the past 60 days. In the past three months, SABK shares have declined 6.8%.
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U.S. Bancorp (USB) Hurt by Rising Costs & Loan Concentration
U.S. Bancorp (USB - Free Report) is expected to witness a persistent rise in operating expenses. This, along with a concentrated loan portfolio, are major headwinds. Nonetheless, higher interest rates, strategic buyouts and decent loan demand offer some support.
USB continues to record a rise in non-interest expenses. The metric has witnessed a compound annual growth rate of 5.2% over the last four years (2019-2022). The rise was mainly due to higher merger and integration charges, compensation and employee benefits, net occupancy and equipment expenses, as well as technology and communications expenditures. The rising trend continued in first half of 2023 as well.
Management estimates to incur $1.4 billion in costs for the Union Bank integration. In fact, it expects to incur $900 million-$1 billion of such costs in 2023. Further, it projects non-interest expenses (excluding merger and integration charges) to reach around $17 billion in 2023. Hence, USB’s cost base remains relatively high, which is likely to hinder bottom-line growth.
Apart from increasing costs, lack of diversification in loan portfolio amid an uncertain economy is likely to act as a headwind. Around 50.4% of USB’s loan portfolio comprises of commercial loans (commercial and commercial real estate lending) as of Jun 30.
Further, U.S. Bancorp continues to encounter investigations and lawsuits from the investors and regulators, leading to increased legal expenses and provisions in the near term.
Analysts also seem pessimistic regarding USB’s earnings growth prospects. The Zacks Consensus Estimate for 2023 and 2024 earnings has been revised marginally lower over the past seven days. USB currently carries a Zacks Rank #5 (Strong Sell).
Over the past six months, shares of USB have plunged 19.6% compared with the industry's decline of 5.7%.
Image Source: Zacks Investment Research
Despite the above-mentioned concerns, U.S. Bancorp is well placed to grow organically, driven by a decent rise in loan demand and higher rates. Further, a solid balance-sheet position enables the company to pursue opportunistic buyouts. These efforts will support revenue growth going forward. Management expects adjusted total revenues to reach $28-$29 billion in 2023.
Bank Stocks Worth a Look
A couple of better-ranked stocks from the banking space are Mercantile Bank (MBWM - Free Report) and South Atlantic Bancshares (SABK - Free Report) , each sporting a Zanks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Mercantile Bank's current-year earnings has been revised 11.2% upward over the past 30 days. Its shares have gained 25.8% over the past three months.
The consensus mark for the South Atlantic Bancshares' 2023 earnings has been revised 3.6% upward over the past 60 days. In the past three months, SABK shares have declined 6.8%.