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Lower NII, High Costs to Hurt U.S. Bancorp (USB) in Q2 Earnings
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U.S. Bancorp (USB - Free Report) is scheduled to report second-quarter 2024 results on Jul 17, before the opening bell. The company is expected to have witnessed year-over-year declines in quarterly revenues and earnings.
In the last reported quarter, USB’s earnings surpassed the Zacks Consensus Estimate on higher fee income and lower expenses. However, a decline in net interest income (NII) and a rise in provision for credit losses were major headwinds.
U.S. Bancorp has a decent earnings surprise history. Its earnings beat estimates in three of the trailing four quarters and missed once, the positive surprise being 0.30%, on average.
The Zacks Consensus Estimate for second-quarter earnings of 96 cents has been revised marginally downward in the past month. The figure indicates a decline of 14.3% from the year-ago reported number.
The consensus estimate for second-quarter 2024 revenues is pegged at $6.81 billion, indicating a decline of 4.6% from the year-ago reported figure.
Major Factors to Influence U.S. Bancorp’s Q2 Results
Loan Demand & NII: A stabilizing macroeconomic environment, along with the expectations of the Federal Reserve easing interest rates later this year, is likely to have provided some support to the lending scenario in the second quarter. The demand for Commercial and industrial loans improved from the first quarter of 2024-end while real estate loans were modest yet declined from the prior quarters.
The company’s lending book is likely to have been positively impacted by improvement in commercial loans while the moderate real estate loan demand might have offset the growth.
The Zacks Consensus Estimate of $598.4 billion for average earning assets indicates a sequential decrease of nearly 1%.
As the Federal Reserve kept the interest rates steady during the quarter at a 23-year high of 5.25-5.5%, USB is less likely to have recorded significant improvement in NII. Also, the inverted yield curve in the June-ended quarter and high funding costs are expected to have weighed on NII growth.
The consensus estimate for NII is pegged at $3.98 billion, which indicates a marginal decline from the prior quarter's reported figure. Management expects NII to be relatively stable compared with the first quarter of 2024.
Non-Interest Income: Client activity was decent in the second quarter. The expectations of a soft landing of the U.S. economy, gradually cooling inflation and clarity on the Fed rate cut path are expected to have driven the client activity.
Nonetheless, volatility was low in equity markets and other asset classes, including commodities, bonds and foreign exchange. Hence, USB is likely to have recorded a weak performance in trading revenues this time. This is expected to have hindered commercial product revenues.
The Zacks Consensus Estimate for commercial products revenues is pegged at $386.9 million, indicating a marginal sequential fall.
In the second quarter, the mortgage rates declined from the peak of more than 8% but remained considerably high at almost 7%. Though the central bank has signaled a 25-basis point cut in rates this year, the demand for mortgages did not witness significant improvement. Due to the home price appreciation and lower supply, mortgage origination volume remained weak too.
Yet, supported by lower mortgage rates, there is the likelihood of a modest rise in refinancing activities. Also, with the borrowers accepting that interest rates will remain high for a longer period, it is likely to have supported USB’s mortgage banking income.
The Zacks Consensus Estimate for mortgage banking revenues is pegged at $166.8 million, indicating a marginal rise from the prior quarter’s reported figure.
Decent consumer spending activities are likely to have driven USB’s card revenues. The Zacks Consensus Estimate for income from card revenues is pegged at $432.7 million, indicating an increase of 10.4% from the prior quarter’s reported figure.
Further, the consensus mark for trust and investment management fees is pegged at $656.1 million, indicating a sequential rise of 2.3%.
Overall, the Zacks Consensus Estimate for total non-interest income is pegged at $2.82 billion, indicating a rise of 4.6% sequentially.
Expenses: As the bank continues to invest in technology modernization, the expense base is likely to have remained elevated in the to-be-reported quarter. Moreover, higher costs related to compensation and employee benefits and net occupancy are expected to have hindered the bottom line in the quarter under review.
Asset Quality: The company is likely to have set aside a substantial amount of money for potential bad loans, given the expectations of an economic slowdown.
The Zacks Consensus Estimate for non-performing loans is pegged at $1.75 billion, indicating a slight rise from the prior quarter's reported figure.
What the Zacks Model Predicts
Our proven model does not predict an earnings beat for USB this time around. This is because it does not have the right combination of a positive Earnings ESP and Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold) to increase the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: U.S. Bancorp has an Earnings ESP of -1.46%.
Zacks Rank: USB currently carries a Zacks Rank of 3.
Stocks to Consider
Here are some bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around.
Over the past 60 days, the Zacks Consensus Estimate for NTRS's quarterly earnings has moved upward by 1.2%
M&T Bank Corporation (MTB - Free Report) has an Earnings ESP of +0.31% and carries a Zacks Rank #3 at present. It is scheduled to release second-quarter 2014 earnings on Jul 18.
MTB’s quarterly earnings estimates have moved marginally downward over the past seven days.
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Lower NII, High Costs to Hurt U.S. Bancorp (USB) in Q2 Earnings
U.S. Bancorp (USB - Free Report) is scheduled to report second-quarter 2024 results on Jul 17, before the opening bell. The company is expected to have witnessed year-over-year declines in quarterly revenues and earnings.
In the last reported quarter, USB’s earnings surpassed the Zacks Consensus Estimate on higher fee income and lower expenses. However, a decline in net interest income (NII) and a rise in provision for credit losses were major headwinds.
U.S. Bancorp has a decent earnings surprise history. Its earnings beat estimates in three of the trailing four quarters and missed once, the positive surprise being 0.30%, on average.
The Zacks Consensus Estimate for second-quarter earnings of 96 cents has been revised marginally downward in the past month. The figure indicates a decline of 14.3% from the year-ago reported number.
The consensus estimate for second-quarter 2024 revenues is pegged at $6.81 billion, indicating a decline of 4.6% from the year-ago reported figure.
U.S. Bancorp Price and EPS Surprise
U.S. Bancorp price-eps-surprise | U.S. Bancorp Quote
Major Factors to Influence U.S. Bancorp’s Q2 Results
Loan Demand & NII: A stabilizing macroeconomic environment, along with the expectations of the Federal Reserve easing interest rates later this year, is likely to have provided some support to the lending scenario in the second quarter. The demand for Commercial and industrial loans improved from the first quarter of 2024-end while real estate loans were modest yet declined from the prior quarters.
The company’s lending book is likely to have been positively impacted by improvement in commercial loans while the moderate real estate loan demand might have offset the growth.
The Zacks Consensus Estimate of $598.4 billion for average earning assets indicates a sequential decrease of nearly 1%.
As the Federal Reserve kept the interest rates steady during the quarter at a 23-year high of 5.25-5.5%, USB is less likely to have recorded significant improvement in NII. Also, the inverted yield curve in the June-ended quarter and high funding costs are expected to have weighed on NII growth.
The consensus estimate for NII is pegged at $3.98 billion, which indicates a marginal decline from the prior quarter's reported figure. Management expects NII to be relatively stable compared with the first quarter of 2024.
Non-Interest Income: Client activity was decent in the second quarter. The expectations of a soft landing of the U.S. economy, gradually cooling inflation and clarity on the Fed rate cut path are expected to have driven the client activity.
Nonetheless, volatility was low in equity markets and other asset classes, including commodities, bonds and foreign exchange. Hence, USB is likely to have recorded a weak performance in trading revenues this time. This is expected to have hindered commercial product revenues.
The Zacks Consensus Estimate for commercial products revenues is pegged at $386.9 million, indicating a marginal sequential fall.
In the second quarter, the mortgage rates declined from the peak of more than 8% but remained considerably high at almost 7%. Though the central bank has signaled a 25-basis point cut in rates this year, the demand for mortgages did not witness significant improvement. Due to the home price appreciation and lower supply, mortgage origination volume remained weak too.
Yet, supported by lower mortgage rates, there is the likelihood of a modest rise in refinancing activities. Also, with the borrowers accepting that interest rates will remain high for a longer period, it is likely to have supported USB’s mortgage banking income.
The Zacks Consensus Estimate for mortgage banking revenues is pegged at $166.8 million, indicating a marginal rise from the prior quarter’s reported figure.
Decent consumer spending activities are likely to have driven USB’s card revenues. The Zacks Consensus Estimate for income from card revenues is pegged at $432.7 million, indicating an increase of 10.4% from the prior quarter’s reported figure.
Further, the consensus mark for trust and investment management fees is pegged at $656.1 million, indicating a sequential rise of 2.3%.
Overall, the Zacks Consensus Estimate for total non-interest income is pegged at $2.82 billion, indicating a rise of 4.6% sequentially.
Expenses: As the bank continues to invest in technology modernization, the expense base is likely to have remained elevated in the to-be-reported quarter. Moreover, higher costs related to compensation and employee benefits and net occupancy are expected to have hindered the bottom line in the quarter under review.
Asset Quality: The company is likely to have set aside a substantial amount of money for potential bad loans, given the expectations of an economic slowdown.
The Zacks Consensus Estimate for non-performing loans is pegged at $1.75 billion, indicating a slight rise from the prior quarter's reported figure.
What the Zacks Model Predicts
Our proven model does not predict an earnings beat for USB this time around. This is because it does not have the right combination of a positive Earnings ESP and Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold) to increase the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: U.S. Bancorp has an Earnings ESP of -1.46%.
Zacks Rank: USB currently carries a Zacks Rank of 3.
Stocks to Consider
Here are some bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around.
Northern Trust Corporation (NTRS - Free Report) has an Earnings ESP of +1.56% and carries a Zacks Rank #2 at present. The company is slated to report second-quarter 2024 results on Jul 17. You can see the complete list of today’s Zacks #1 Rank stocks here.
Over the past 60 days, the Zacks Consensus Estimate for NTRS's quarterly earnings has moved upward by 1.2%
M&T Bank Corporation (MTB - Free Report) has an Earnings ESP of +0.31% and carries a Zacks Rank #3 at present. It is scheduled to release second-quarter 2014 earnings on Jul 18.
MTB’s quarterly earnings estimates have moved marginally downward over the past seven days.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.