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U.S. Bancorp (USB) Q1 Earnings Beat Estimates, Costs Up Y/Y

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Zacks Equity Research
·5 min read
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U.S. Bancorp USB reported first-quarter 2021 earnings per share of $1.45, which surpassed the Zacks Consensus Estimate of 95 cents. The bottom line compared favorably with the prior-year quarter’s figure of 72 cents.

Lower revenues, along with escalating expenses, were the key undermining factors. Also, loans balance declined during the quarter. However, provisions recorded a benefit and capital position remained strong.

Including certain one-time items, net income came in at $2.28 billion compared with the prior-year quarter’s $1.18 billion.

Revenues & Loans Decline, Costs Flare Up

U.S. Bancorp’s net revenues came in at $5.47 billion in the first quarter, down 5.2% year over year. Decline in both non-interest and net interest income, led to this downside. Also, the top line missed the Zacks Consensus Estimate of $5.53 billion.

U.S. Bancorp’s tax-equivalent net interest income totaled $3.09 billion in the reported quarter, down 4.9% from the prior-year quarter. This decline mainly stemmed from lower rates and higher premium amortization related to securities prepayments, partially mitigated by deposit and funding mix and elevated loan fees.

Average earning assets climbed 11.2% year over year, supported by growth in average investment securities and average other earning assets. However, net interest margin of 2.50% was down 41 basis points, mainly affected by a lower yield curve and higher cash balances for liquidity, partially negated by deposit and funding mix.

U.S. Bancorp’s non-interest income declined 5.7% on a year-over-year basis to $2.38 billion. The fall was mainly owing to lower deposit service charges, mortgage banking revenues and corporate payment product revenues.

Provision for credit losses in the reported quarter was a benefit of $827 million against provisions of $993 million in the prior-year quarter.

U.S. Bancorp’s average total loans fell 2.8% sequentially to $294 billion. This stemmed from a fall in commercial, commercial real estate and credit card loans, partly offset by increase in residential mortgages.

Average total deposits were up 1% from the prior quarter to $426.4 billion. This uptick resulted from growth in both non-interest-bearing and interest-bearing deposits.

U.S. Bancorp’s non-interest expenses climbed 1.9% year over year to $3.38 billion. This upswing mainly resulted from elevated compensation, technology and communications and employee benefits, partly muted by reduced net occupancy and equipment, professional services and marketing and business development expenses to some extent.

Efficiency ratio came in at 62.1%, higher than the year-ago quarter’s 58%. An increase in the ratio indicates fall in profitability.

Credit Quality: A Mixed Bag

Net charge-offs came in at $223 million, down 43.3% year on year. On a year-over-year basis, the company witnessed improvement, mainly in net charge-offs in the commercial real estate, commercial segments, credit card, other retail and residential mortgages.

U.S. Bancorp’s non-performing assets (excluding covered assets) came in at $1.2 billion, up 27.1% year over year. Total allowance for credit losses was $6.3 billion, up 2%.

Healthy Capital Position

During the first quarter, U.S. Bancorp maintained a solid capital position. The Tier 1 capital ratio came in at 11.5% compared with the prior-year quarter’s 10.5%. Common equity Tier 1 capital to risk-weighted assets ratio under the Basel III standardized approach fully implemented was 9.9% as of Mar 31, 2021, up from the 9% reported in the year-ago quarter.

All regulatory ratios of U.S. Bancorp continued to be in excess of well-capitalized requirements. In addition, reflecting the full implementation of the current expected credit losses methodology, the Tier 1 capital to risk-weighted assets ratio was 9.5%, as of Mar 31, 2021.

The tangible common equity to tangible assets ratio was 6.6% as of Mar 31, 2021, down from the prior-year quarter’s 6.7%.

U.S. Bancorp posted an improvement in book value per share, which increased to $30.53 as of Mar 31, 2021, from the $30.24 recorded at the end of the year-earlier quarter.

Conclusion

U.S. Bancorp put up a disappointing performance during the January-March quarter. Revenue decline, affected by margin contraction, is likely to continue. Though weakness in the credit card portfolio, falling loans and escalating expenses remain headwinds, capital position is likely to stay decent.

U.S. Bancorp Price, Consensus and EPS Surprise

U.S. Bancorp Price, Consensus and EPS Surprise
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 Mega Banks

Solid mortgage and capital markets performance supported Wells Fargo’s WFC first-quarter 2021 earnings of $1.05 per share, which surpassed the Zacks Consensus Estimate of 69 cents.

Large reserve releases, along with solid capital markets performance, drove JPMorgan’s JPM first-quarter 2021 earnings of $4.50 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.05.

Given the strong capital markets performance, Goldman Sachs’ GS first-quarter 2021 earnings per share of $18.60 significantly surpassed the Zacks Consensus Estimate of $9.79. Also, the bottom line compares favorably with $3.11 per share earned in the year-earlier quarter.

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