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Why Is U.S. Bancorp (USB) Down 6% Since Last Earnings Report?
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It has been about a month since the last earnings report for U.S. Bancorp (USB - Free Report) . Shares have lost about 6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is U.S. Bancorp due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
U.S. Bancorp's Q2 Earnings Lag Estimates, Provisions Rise
U.S. Bancorp’s 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.
Results were benefited from an increase in NII, supported by higher interest rates. Also, a rise 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 year-ago 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.
Tax-equivalent NII totaled $4.45 billion, jumping 28.4% from the year-ago quarter. The uptick was primarily driven by rising interest rates on earning assets and 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. This was 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. This 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 in the 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 year-earlier 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 (CET) 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%.
Outlook (Adjusted Basis)
Third-Quarter 2023
NII (taxable-equivalent basis) is expected in the range of $4.2-$4.4 billion compared with $4.4 billion recorded in the second quarter.
Management projects adjusted total revenues to be between $6.9 billion and $7.1 billion compared with $7.2 billion in the second quarter. The outlook includes purchase accounting accretion of approximately $75 million.
The company estimates non-interest expenses (excluding merger and integration charges) to be around $4.3 billion compared with $4.3 billion recorded in the second quarter. The guidance includes core deposit intangibles amortization related to Union Bank acquisition of approximately $120 million.
It anticipates merger and integration charges to be between $150 million and $200 million.
Adjusted income tax rate (tax equivalent basis) is suggested in the range of 23-24%.
2023
NII (taxable-equivalent basis) is expected in the range of $17.5-$18 billion.
The company anticipates adjusted total revenues to be between $28 billion and $29 billion. This includes purchase accounting accretion of approximately $330 million.
Non-interest expenses (excluding merger and integration charges) are estimated to reach around $17 billion. This includes core deposit intangibles amortization related to Union Bank of approximately $500 million.
Management projects merger and integration costs to be between $900 million and $1 billion.
Adjusted income tax rate (tax equivalent basis) is suggested in the range of 23.
2024
Management expects CET 1 ratio to reach 8.5-9% by fourth-quarter 2024.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
VGM Scores
Currently, U.S. Bancorp has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise U.S. Bancorp has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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Why Is U.S. Bancorp (USB) Down 6% Since Last Earnings Report?
It has been about a month since the last earnings report for U.S. Bancorp (USB - Free Report) . Shares have lost about 6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is U.S. Bancorp due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
U.S. Bancorp's Q2 Earnings Lag Estimates, Provisions Rise
U.S. Bancorp’s 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.
Results were benefited from an increase in NII, supported by higher interest rates. Also, a rise 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 year-ago 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.
Tax-equivalent NII totaled $4.45 billion, jumping 28.4% from the year-ago quarter. The uptick was primarily driven by rising interest rates on earning assets and 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. This was 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. This 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 in the 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 year-earlier 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 (CET) 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%.
Outlook (Adjusted Basis)
Third-Quarter 2023
NII (taxable-equivalent basis) is expected in the range of $4.2-$4.4 billion compared with $4.4 billion recorded in the second quarter.
Management projects adjusted total revenues to be between $6.9 billion and $7.1 billion compared with $7.2 billion in the second quarter. The outlook includes purchase accounting accretion of approximately $75 million.
The company estimates non-interest expenses (excluding merger and integration charges) to be around $4.3 billion compared with $4.3 billion recorded in the second quarter. The guidance includes core deposit intangibles amortization related to Union Bank acquisition of approximately $120 million.
It anticipates merger and integration charges to be between $150 million and $200 million.
Adjusted income tax rate (tax equivalent basis) is suggested in the range of 23-24%.
2023
NII (taxable-equivalent basis) is expected in the range of $17.5-$18 billion.
The company anticipates adjusted total revenues to be between $28 billion and $29 billion. This includes purchase accounting accretion of approximately $330 million.
Non-interest expenses (excluding merger and integration charges) are estimated to reach around $17 billion. This includes core deposit intangibles amortization related to Union Bank of approximately $500 million.
Management projects merger and integration costs to be between $900 million and $1 billion.
Adjusted income tax rate (tax equivalent basis) is suggested in the range of 23.
2024
Management expects CET 1 ratio to reach 8.5-9% by fourth-quarter 2024.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
VGM Scores
Currently, U.S. Bancorp has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise U.S. Bancorp has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.