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Lower NII to Hurt U.S. Bancorp's Q3 Earnings, Fee Income to Aid
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U.S. Bancorp (USB - Free Report) is scheduled to report third-quarter 2024 results on Oct. 16, before the opening bell. The company is expected to have witnessed year-over-year declines in quarterly revenues and earnings.
Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
In the last reported quarter, USB’s earnings surpassed the Zacks Consensus Estimate on a rise in non-interest income and lower expenses. However, a decline in net interest income (NII) was a major headwind.
U.S. Bancorp has a decent earnings surprise history. Its earnings beat estimates in each of the trailing four quarters, the positive surprise being 1.04%, on average.
Major Factors to Influence U.S. Bancorp’s Q3 Performance
Loan Demand & NII: The clarity on the Fed’s rate cut path and the stabilizing macroeconomic backdrop are likely to have provided support to the lending scenario. Per the Fed’s latest data, the demand for commercial and industrial loans was modest in the first two months of the quarter while real estate loan was subdued.
The company’s lending book is likely to have been positively impacted by improvement in commercial loans while the subdued real estate loan demand might have offset growth to some extent.
The Zacks Consensus Estimate of $610.5 million for average earning assets indicates a year-over-year increase of nearly 1%.
On Sept. 18, the Federal Reserve cut interest rates by 50 basis points to 4.75-5% for the first time since March 2020. The development is not expected to have had much impact on USB’s NII during the third quarter.
Also, relatively higher rates might have hurt NII growth prospects similar to the last quarter thanks to elevated funding/deposit costs and an inverted yield curve during the major part of the quarter.
The consensus estimate for NII is pegged at $4.05 billion, indicating a decline of 4.3% from the prior year’s reported figure.
Non-Interest Income: Client activity was decent in the third quarter. The expectations of a soft landing of the U.S. economy, cooling inflation and easing monetary policy drove client activity.
Though the first two months of the quarter registered lower trading volumes, the month of September was quite active, with equity derivatives volume a near record and corporate bond trading volumes jumping to a new all-time high.
Thus, USB is likely to have recorded a relatively strong performance in trading revenues this time. This is expected to have supported commercial products revenues.
The Zacks Consensus Estimate for commercial products revenues is pegged at $379.3 million, indicating growth of 7.2% from the prior year's reported figure.
As the central bank lowered the rates, mortgage rates started to come down. The rates declined to almost 6.2% by the end of the third quarter.
Though mortgage origination volume remained subdued during the third quarter, refinancing activities witnessed a significant surge supported by lower mortgage rates. This is likely to have supported USB’s mortgage banking income.
The Zacks Consensus Estimate for mortgage banking revenues is pegged at $175.8 million, indicating a 22.1% rise from the prior year’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 $428.5 million, indicating an increase of 4% from the prior year’s reported figure.
The consensus mark for trust and investment management fees is pegged at $656.7 million, indicating a rise of 4.7% from the prior year’s reported figure.
Overall, the Zacks Consensus Estimate for total non-interest income is pegged at $2.89 billion, indicating a rise of 3.3% year-over-year.
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 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 $1.85 billion, indicating a surge of 45.9% from the prior year’s reported figure.
What the Zacks Model Unveils for USB
Per our proven model, the chances of U.S. Bancorp beating estimates this time are low. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. That is not the case here, as you can see below. 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 -0.51%.
Zacks Rank: USB currently carries a Zacks Rank of 3.
The Zacks Consensus Estimate for third-quarter earnings of 99 cents has been revised downward in the past month. The figure indicates a decline of 5.7% from the year-ago reported number.
The consensus estimate for third-quarter 2024 revenues is pegged at $6.88 billion, indicating a decline of 1.7% from the year-ago reported figure.
Stocks to Consider
Here are some other bank stocks that you may want to consider, as our model shows that these, too, have the right combination of elements to post earnings beat this time around.
In the past seven days, the Zacks Consensus Estimate for CFG’s quarterly earnings has moved 1.3% north.
First Horizon Corporation (FHN - Free Report) has an Earnings ESP of +3.18% and carries a Zacks Rank #3 at present. The company is scheduled to release its third-quarter 2024 earnings on Oct. 16.
FHN’s quarterly earnings estimates have been unchanged in the past 60 days.
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Lower NII to Hurt U.S. Bancorp's Q3 Earnings, Fee Income to Aid
U.S. Bancorp (USB - Free Report) is scheduled to report third-quarter 2024 results on Oct. 16, before the opening bell. The company is expected to have witnessed year-over-year declines in quarterly revenues and earnings.
Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
In the last reported quarter, USB’s earnings surpassed the Zacks Consensus Estimate on a rise in non-interest income and lower expenses. However, a decline in net interest income (NII) was a major headwind.
U.S. Bancorp has a decent earnings surprise history. Its earnings beat estimates in each of the trailing four quarters, the positive surprise being 1.04%, on average.
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 Q3 Performance
Loan Demand & NII: The clarity on the Fed’s rate cut path and the stabilizing macroeconomic backdrop are likely to have provided support to the lending scenario. Per the Fed’s latest data, the demand for commercial and industrial loans was modest in the first two months of the quarter while real estate loan was subdued.
The company’s lending book is likely to have been positively impacted by improvement in commercial loans while the subdued real estate loan demand might have offset growth to some extent.
The Zacks Consensus Estimate of $610.5 million for average earning assets indicates a year-over-year increase of nearly 1%.
On Sept. 18, the Federal Reserve cut interest rates by 50 basis points to 4.75-5% for the first time since March 2020. The development is not expected to have had much impact on USB’s NII during the third quarter.
Also, relatively higher rates might have hurt NII growth prospects similar to the last quarter thanks to elevated funding/deposit costs and an inverted yield curve during the major part of the quarter.
The consensus estimate for NII is pegged at $4.05 billion, indicating a decline of 4.3% from the prior year’s reported figure.
Non-Interest Income: Client activity was decent in the third quarter. The expectations of a soft landing of the U.S. economy, cooling inflation and easing monetary policy drove client activity.
Though the first two months of the quarter registered lower trading volumes, the month of September was quite active, with equity derivatives volume a near record and corporate bond trading volumes jumping to a new all-time high.
Thus, USB is likely to have recorded a relatively strong performance in trading revenues this time. This is expected to have supported commercial products revenues.
The Zacks Consensus Estimate for commercial products revenues is pegged at $379.3 million, indicating growth of 7.2% from the prior year's reported figure.
As the central bank lowered the rates, mortgage rates started to come down. The rates declined to almost 6.2% by the end of the third quarter.
Though mortgage origination volume remained subdued during the third quarter, refinancing activities witnessed a significant surge supported by lower mortgage rates. This is likely to have supported USB’s mortgage banking income.
The Zacks Consensus Estimate for mortgage banking revenues is pegged at $175.8 million, indicating a 22.1% rise from the prior year’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 $428.5 million, indicating an increase of 4% from the prior year’s reported figure.
The consensus mark for trust and investment management fees is pegged at $656.7 million, indicating a rise of 4.7% from the prior year’s reported figure.
Overall, the Zacks Consensus Estimate for total non-interest income is pegged at $2.89 billion, indicating a rise of 3.3% year-over-year.
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 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 $1.85 billion, indicating a surge of 45.9% from the prior year’s reported figure.
What the Zacks Model Unveils for USB
Per our proven model, the chances of U.S. Bancorp beating estimates this time are low. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. That is not the case here, as you can see below. 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 -0.51%.
Zacks Rank: USB currently carries a Zacks Rank of 3.
The Zacks Consensus Estimate for third-quarter earnings of 99 cents has been revised downward in the past month. The figure indicates a decline of 5.7% from the year-ago reported number.
The consensus estimate for third-quarter 2024 revenues is pegged at $6.88 billion, indicating a decline of 1.7% from the year-ago reported figure.
Stocks to Consider
Here are some other bank stocks that you may want to consider, as our model shows that these, too, have the right combination of elements to post earnings beat this time around.
The Earnings ESP for Citizens Financial Group, Inc. (CFG - Free Report) is +0.31% and it carries a Zacks Rank #3 at present. The company is slated to report its third-quarter 2024 results on Oct. 16. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the past seven days, the Zacks Consensus Estimate for CFG’s quarterly earnings has moved 1.3% north.
First Horizon Corporation (FHN - Free Report) has an Earnings ESP of +3.18% and carries a Zacks Rank #3 at present. The company is scheduled to release its third-quarter 2024 earnings on Oct. 16.
FHN’s quarterly earnings estimates have been unchanged in the past 60 days.