U.S. Bancorp (USB – Free Report) is scheduled to report second-quarter 2022 earnings results on Jul 15, before the opening bell. While USB’s earnings are likely to have declined year over year, revenues are expected to have improved.
Before we analyze the factors that might have impacted the second-quarter earnings, let’s look at U.S. Bancorp’s performance over the last few quarters.
In the last reported quarter, USB’s earnings surpassed the Zacks Consensus Estimate on an increase in revenues, loan growth and lower non-performing assets. The company’s capital position was decent in the quarter. However, higher expenses and elevated provision for credit losses were the offsetting factors.
U.S. Bancorp has a decent surprise history. Earnings surpassed estimates in three of the trailing four quarters and missed the mark in one, the average surprise being 6.8%.
USB’s activities in the to-be-reported quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for second-quarter earnings of $1.07 has moved marginally south in the past week. Also, the figure indicates a 16.4% decline from the year-ago reported figure.
Nonetheless, the consensus estimate for revenues is pegged at $5.89 billion, suggesting growth of 2.3% from the year-ago reported figure. Management expects total revenue growth of 5-7% on a sequential basis, backed by seasonal strength in many of its fee businesses, continued loan growth and the impact of higher rates on net interest income (NII) and the recapture of fee waivers.
Key Factors to Note
NII: The bank’s NII and margins are likely to have been driven by the 150 basis point interest rate hikes. Ongoing economic expansion is expected to have supported the lending environment in the quarter. Amid this, the demand for loans is anticipated to have improved. Per the Fed’s latest data, commercial real estate loans (comprising a major portion of USB’s total loan portfolio), consumer loans, credit card loans and commercial and industrial loans have driven overall loan demand in April and May from the first-quarter end. Hence, the company’s loan balances are likely to have improved in the second quarter.
The Zacks Consensus Estimate of $538.2 billion for the quarterly average interest-earning assets indicates a 1.6% sequential improvement. The estimate for fully-taxable equivalent (FTE) NII suggests a sequential 5.7% increase to $3.38 billion.
Non-Interest Income: Geopolitical tensions arising from Russia’s invasion of Ukraine dampened the market performance. Nonetheless, commercial product revenues related to capital market activities might have increased. The Zacks Consensus Estimate for U.S. Bancorp’s commercial product revenues indicates a 1.5% sequential rise.
Mortgage rates increased sequentially in the to-be-reported quarter. Also, mortgage origination activities are estimated to have decreased dramatically, with the rising rates hurting refinancing activity. Despite these headwinds, favorable changes in the fair value of mortgage servicing rights might have aided mortgage banking revenues. The Zacks Consensus Estimate for mortgage banking revenues is pegged at $221 million, suggesting a 10.5% increase from the prior quarter’s reported number.
The consensus mark for trust and investment management fees is pegged at $520 million, indicating an increase of 4%. This is likely to be driven by business growth and benefit from the acquisition of PFM Asset Management LLC in fourth-quarter 2021.
Despite the raging inflation, card fees are likely to have improved on higher consumer spending. Also, demand for online payment of products and services is expected to have been decent. The consensus estimate for credit and debit card fees of $382 million depicts a 13% sequential increase.
While the elimination of certain fees might have affected service charges, this is expected to have been negated by higher customer spend activity. These are likely to have resulted in an 8.5% rise in revenues from service charges on deposits.
The Zacks Consensus Estimate for the total non-interest income is pegged at $2.5 billion, suggesting a 5.9% rise from the prior quarter’s reported number.
Expenses: As USB continues to invest in digital initiatives, payments capabilities and technology modernization, we believe such rising costs might have weighed on its expense base to some extent in the to-be-reported quarter and hindered bottom-line growth. Moreover, management expects expenses to increase 1-2% sequentially in the second quarter, primarily due to seasonally higher compensation-related costs and business investment spending.
Here is What Our Quantitative Model Predicts:
Our proven model does not predict an earnings beat for U.S. Bancorp this season. This is because the company does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing 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 -1.31%.
Zacks Rank: U.S. Bancorp currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks That Warrant a Look
JPMorgan Chase & Co. (JPM – Free Report) and Truist Financial (TFC – Free Report) are a few stocks that you might want to consider, as these have the right combination of elements to post an earnings beat in their upcoming releases, per our model.
The Earnings ESP for JPMorgan is +3.88% and the company carries a Zacks Rank #2 (Buy) at present. JPM is slated to report second-quarter 2022 results on Jul 14.
The Zacks Consensus Estimate for JPM’s second-quarter earnings has moved marginally north over the past week.
Truist Financial is scheduled to release second-quarter results on Jul 19. TFC currently has a Zacks Rank #3 and an Earnings ESP of +1.80%.
The Zacks Consensus Estimate for TFC’s second-quarter earnings has moved south over the past month.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.