U.S. Bancorp’s (USB Quick QuoteUSB - Free Report) third-quarter 2023 adjusted earnings per share (excluding merger and integration-related charges) of $1.05 outpaced the Zacks Consensus Estimate by a penny. However, the bottom line declined 11% from the prior-year quarter.

Results have benefited from increased net interest income (NII), supported by higher interest rates. A rise in non-interest income was another positive. However, higher expenses and provisions were the major headwinds.

Net income (GAAP basis) attributable to U.S. Bancorp was $1.52 billion, down 15.9% from the prior-year quarter.

Revenues Improve, Expenses Rise

Total net revenues were $7 billion, up 11.2% year over year. The top line missed the Zacks Consensus Estimate of $7.01 billion.

The tax-equivalent NII totaled $4.27 billion, jumping 10.7% from the year-ago quarter. The increase was primarily driven by the impact of rising interest rates on earning assets and the acquisition of MUB.

The net interest margin of 2.81% contracted 2 basis points year over year.

Non-interest income grew 11.9% year over year to $2.76 billion. The rise was driven by an increase in almost all fee income components, except for net securities gains.

Non-interest expenses climbed 24.6% year over year to $4.53 billion. The rise was due to an increase in almost all cost components, except for costs related to professional services.

The efficiency ratio was 64.4%, higher than the year-ago quarter’s 57.5%. A rise in the ratio indicates a deterioration in profitability.

Average total loans declined 3.1% sequentially to $376.88 billion. Average total deposits increased 3% from the prior-quarter end to $512.29 billion.

Credit Quality Worsens

Net charge-offs were $420 million, up significantly from $162 million in the year-ago quarter. Total allowance for credit losses was $7.79 billion, up 20.7% year over year. The provision for credit losses in the reported quarter was $515 million, up 42.3% from the prior-year quarter.

As of Sep 30, 2023, U.S. Bancorp’s non-performing assets were $1.31 billion, up 93.5% from the year-ago period.

Capital Ratios Mixed

The Tier 1 capital ratio was 11.2% as of Sep 30, 2023, unchanged from the prior-year quarter. The Common Equity Tier 1 capital ratio under the Basel III standardized approach was 9.7% as of Sep 30, 2023, unchanged from the year-ago quarter.

The tangible common equity to tangible assets ratio was 5.0%, down from the prior-year quarter’s 5.2%.

Share Repurchase Update

During the reported quarter, USB did not repurchase any shares. Owing to the MUFG Union Bank acquisition, the company 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 strategic acquisitions. However, persistently rising expenses and deteriorating credit quality may weigh on its bottom line in the near term.

U.S. Bancorp currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Citigroup Inc.’s (C Quick QuoteC - Free Report) third-quarter 2023 earnings per share (excluding divestiture-related impacts) of $1.52 outpaced the Zacks Consensus Estimate of $1.26.

In the quarter, Citigroup witnessed a rise in revenues, driven by higher revenues in the Institutional Clients Group, and the Personal Banking and Wealth Management segments. The higher cost of credit was a spoilsport for C.

Support from higher interest rates, the First Republic Bank deal, robust consumer and commercial banking businesses and solid loan balance drove JPMorgan’s (JPM Quick QuoteJPM - Free Report) third-quarter 2023 earnings to $4.33 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.89.

The results included net investment securities losses and legal expenses. After excluding these, JPM’s quarterly earnings were $3.94 per share.