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U.S. Bancorp (USB) Q2 Earnings Beat on Stellar Revenues

Zacks Equity Research

Driven by top-line strength, U.S. Bancorp’s USB second-quarter 2019 earnings per share of $1.09 surpassed the Zacks Consensus Estimate of $1.07. Also, the reported figure is up 6.9% from the prior-year quarter.

Higher interest and fee income were the driving factors. Further, loan and deposit growth was recorded. However, escalating expenses and provisions were the undermining factors.

Net income came in at $1.82 billion compared with $1.75 billion reported in the prior-year quarter.

Revenues & Loans Grow, Costs & Provisions Flare Up

U.S. Bancorp’s net revenues came in at around $5.8 billion in the second quarter, up 3.2% year over year. Increase in net interest as well as non-interest income led to this upside. The top-line figure also outpaced the Zacks Consensus Estimate of $5.7 billion.

U.S. Bancorp’s tax-equivalent net interest income totaled $3.3 billion in the reported quarter, up 3.3% from the prior-year quarter. This upswing mainly stemmed from earning assets growth and increased yields on reinvestment of securities. These positives were partially mitigated by a flatter yield curve, deposit pricing and shift in funding mix.

Average earning assets were up 3.5% year over year, supported by growth in average total loans, average investment securities and average other earning assets. Furthermore, net interest margin of 3.13% remains flat, year on year.

U.S. Bancorp’s non-interest income escalated around 3.1% on a year-over-year basis to $2.5 billion. This upside can be attributed to rise in almost all components of income, partly muted by lower deposit service charges and mortgage banking revenue.

Provision for credit losses increased 11.6% year over year to $365 million in the June-end quarter.

U.S. Bancorp’s average total loans inched up 1.1% sequentially to $289.2 billion. This stemmed from a rise in commercial loans, residential mortgages, credit card and other retail loans.

Average total deposits were up 3.1% from the prior quarter to $345.2 billion. This rise resulted from growth in interest-bearing deposits.

Non-interest expenses flared up 2.2% year over year to $3.2 billion at U.S. Bancorp. This upsurge in mostly all components of non-interest expenses, however, was partially mitigated by lower other expenses.

Efficiency ratio came in at 54.3%, improving from the year-ago quarter’s 54.8%. A decrease in the ratio indicates improved profitability.

Credit Quality: A Mixed Bag

Credit metrics at U.S. Bancorp remained mixed in the June-end quarter. Net charge-offs came in at $350 million, up 5.4% year over year. On a year-over-year basis, the company witnessed deterioration, mainly in net charge-offs in the credit card, commercial and commercial real estate portfolios.

U.S. Bancorp’s non-performing assets (excluding covered assets) came in at $953 million, down 12.6% year over year. Total allowance for credit losses was $4.5 billion, up 1.2% year over year.

Strong Capital Position

During the second quarter, U.S. Bancorp maintained a solid capital position. The Tier 1 capital ratio came in at 11% compared with 10.5% in the prior-year quarter. Common equity Tier 1 capital to risk-weighted assets ratio under the Basel III standardized approach fully implemented was 13% as of Jun 30, 2019, up from 12.6% reported at the end of the year-ago quarter.

All regulatory ratios of U.S. Bancorp continued to be in excess of well-capitalized requirements. In addition, based on the Basel III fully implemented advanced approach, the Tier 1 common equity to risk-weighted assets ratio was estimated at 12.3%, as of Jun 30, 2019, compared with 11.6% witnessed at the end of the year-ago quarter.

The tangible common equity to tangible assets ratio was 7.9% as of Jun 30, 2019, marginally up from the prior year’s 7.8%.

U.S. Bancorp posted an improvement in book value per share, which increased to $29.63 as of Jun 30, 2019, from $27.02 recorded at the end of the year-earlier quarter.

Capital Deployment Update

Reflecting the company’s capital strength during the second quarter, U.S. Bancorp returned 79% of earnings to its shareholders through common stock dividends and buybacks.

Conclusion

U.S. Bancorp put up an impressive show during the April-June quarter. Growth in revenues, aided by increase in lending activities and fee income, is anticipated to continue. Nonetheless, weakness in the credit card portfolio and escalating expenses remain headwinds. This apart, slowdown in growth in net interest margin is another concern.
 

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 Other Major Banks

Goldman Sachs’ GS second-quarter results recorded a positive earnings surprise of 22.8%. The company reported earnings per share of $5.81, comfortably beating the Zacks Consensus Estimate of $4.73. Nevertheless, the bottom-line figure compared unfavorably with earnings of $5.98 per share recorded in the year-earlier quarter.

Citigroup C delivered a positive earnings surprise of 2.8% in the second quarter, backed by expense control. Adjusted earnings per share of $1.83 for the quarter handily outpaced the Zacks Consensus Estimate of $1.78. Also, earnings climbed 12% year over year.

Driven by prudent expense management, Wells Fargo WFC posted a positive earnings surprise of 12.1% in second-quarter 2019. Earnings of $1.30 per share surpassed the Zacks Consensus Estimate of $1.16. Results also came in higher than the prior-year quarter adjusted earnings of $1.08 per share.

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