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U.S. Bancorp's Q1 Earnings Beat Estimates, Provisions Rise

Published 17/04/2024, 21:32
U.S. Bancorp's Q1 Earnings Beat Estimates, Provisions Rise

Benzinga - by Zacks, Benzinga Contributor.

U.S. Bancorp's (NYSE: USB) first-quarter 2024 adjusted earnings per share (excluding the impact of notable items) of 90 cents beat the Zacks Consensus Estimate by a penny. However, the bottom line declined 22.4% from the prior-year quarter's level.

Shares of USB have declined 3.90% in the pre-market trading despite better-than-anticipated earnings. A full day's trading will depict a better picture.

Results have benefited from higher fee income. Moreover, lower expenses during the quarter were commendable. However, a decline in net interest income (NII) and a rise in provision for credit losses were major headwinds.

Net income (GAAP basis) attributable to U.S. Bancorp was $1.32 billion, down 22.3% from the prior-year quarter's level.

Revenues & Expenses Fall Total revenues in the reported quarter were $6.69 billion, down 6.4% year over year. The top line also missed the Zacks Consensus Estimate by a whisker.

The tax-equivalent NII totaled $4.02 billion, down 14% from the year-ago quarter's level. The decrease was primarily due to the impact of higher interest rates on deposit mix and pricing, partially offset by higher rates on earning assets.

The net interest margin of 2.70% shrunk 40 basis points year over year.

Non-interest income grew 7.7% year over year to $2.7 billion. The uptick was driven by an increase in almost all fee income components except corporate payment products revenue, service charges and other income.

Non-interest expenses declined 2.1% year over year to $4.46 billion. The fall was due to a decrease in almost all cost components except for costs related to compensation and employee benefits, marketing and business development, technology and communications and notable items.

The efficiency ratio was 66.4%, higher than the year-ago quarter's figure of 63.2%. A rise in the ratio indicates a deterioration in profitability.

Average total loans declined marginally to $371.07 billion from the previous quarter. Average total deposits increased marginally from the previous quarter's level to $503.06 billion.

Credit Quality Worsens Total allowance for credit losses was $7.9 billion, up 5.1% year over year. As of Mar 31, 2024, U.S. Bancorp's non-performing assets amounted to $1.79 billion, up 51.2% from the year-ago period's level.

Moreover, net charge-offs were $488 million, up from $373 million in the year-ago quarter. The provision for credit losses in the reported quarter was $553 million, up 29.5% from the prior-year quarter's level.

Capital Ratios Improve The Tier 1 capital ratio was 11.6% as of Mar 31, 2024, up from 10% in the prior-year quarter. The Common Equity Tier 1 capital ratio under the Basel III standardized approach was 10% as of Mar 31, 2024, up from 8.5% in the year-ago quarter.

The tangible common equity to tangible assets ratio was 5.2%, up from the prior-year quarter's 4.8%.

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, any further rise in expenses and provisions may weigh on its bottom line in the near term.

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).

Performance of Other Major Banks Wells Fargo & Company's (NYSE: WFC) first-quarter 2024 adjusted earnings per share of $1.26 surpassed the Zacks Consensus Estimate of $1.10. The adjusted figure excludes the impacts of expenses from the FDIC special assessment. In the prior-year quarter, the company reported earnings per share of $1.23.

Results have benefited from higher non-interest income. An improvement in capital ratios and a decline in provisions were other positives. However, the decrease in NII and loan balances and an increase in expenses were the undermining factors for WFC.

Citigroup Inc.'s (NYSE: C) first-quarter 2024 net income from continuing operations per share of $1.58 surpassed the Zacks Consensus Estimate of $1.13. However, the metric declined 28% from the year-ago quarter.

However, C witnessed declines in total loans and deposits in the quarter. Also, a decline in revenues and deteriorating credit quality are near-term woes.

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