U.S. Bancorp
USB
is scheduled to report third-quarter 2021 results on Oct 14, before the opening bell. While its revenues might have declined year over year, earnings are likely to have improved.
Before we look at the factors that might have impacted the third-quarter earnings, let’s take a look at the company’s performance over the last few quarters.
In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate on reserve release and solid capital position. However, rise in expenses and lower revenues were the undermining factors.
Notably, U.S. Bancorp has a decent earnings surprise history. It surpassed estimates in three of the trailing four quarters and met in the other, the average surprise being 17.8%.
The company’s activities in the to-be-reported quarter were adequate to win analysts’ confidence. As a result, its Zacks Consensus Estimate for earnings of $1.16 has moved up 1.8% in the past 30 days. Also, the figure indicates a 17.2% rise from the year-ago reported figure. The consensus estimate for revenues is pegged at $5.76 billion, suggesting growth of 3% year over year.
Key Factors to Note
Net Interest Income (NII):
Overall growth in loans was moderate during the third quarter. Per the Fed’s latest
data
, the lending scenario was soft with weak home equity, and commercial and industrial loans. Conversely, the real estate, commercial real estate as well as consumer loan portfolios are anticipated to have offered support.
The steepening of the yield curve (the difference between short and long-term interest rates) is likely to have supported the bank’s net interest margin (NIM). Though the yield on 10-year U.S. Treasury Bond of 1.49% at the September-end quarter was relatively stable on a sequential basis, the figure expanded 57 basis points from 0.92% at the end of 2020. Thus, NII is likely to have got some support.
Excess liquidity, low loan yields, and low reinvestment rates on securities might have put downward pressure on earning asset yields. However, low deposit costs are expected to have been the offsetting factor.
The Zacks Consensus Estimate of $502 billion for the quarterly average interest earning assets indicates a marginal sequential improvement, and the estimate for NII suggests a sequential1% growth to $3.17 billion.
For the third quarter of 2021, NII and average loans are expected by the management to be relatively stable compared with the second quarter. Core average loans are expected to grow modestly (ex-Paycheck Protection program), led by consumer loans. Management also expects NIM to be relatively stable compared with the second quarter.
Non-Interest Income:
Deposits have shown improvement in the quarter, led by stimulus-driven liquidity and rise in money market balances. These are likely to have resulted in higher revenues from service charges on deposits.
Further, mortgage rates increased sequentially in the to-be reported quarter. Mortgage origination activities are estimated to have decreased dramatically, with rising rates dismaying refinancing activity. The Zacks Consensus Estimate for mortgage banking revenues is pegged at $309 billion, suggesting a 11% dip from the prior quarter’s reported number.
Card fees are likely to have improved on higher consumer spending owing to decreased unemployment level, consumer optimism on stimulus-driven liquidity as well as extensive vaccination drives. Also, demand for online payment of products and services is expected to have been decent.
Nonetheless, the consensus estimates for credit and debit card fees of $352 million calls for a 3% sequential fall.
Market volatility in the equity markets persisted during third-quarter 2021. Thus, driven by Federal Reserve’s meeting in September, spike in equity trading volumes and higher client activities, the company’s trading business is likely to have received a substantial boost. This is likely to have been offset by low fixed-income trading activities.Thus, the Zacks Consensus Estimate for U.S. Bancorp’s commercial product revenues indicates 3% sequential rise.
The Zacks Consensus Estimate for the total non-interest income is pegged at $2.57 billion, suggesting a 2.8% fall from the prior quarter’s reported number.
Expenses:
While the absence of considerable legal expenses is encouraging, increased investments in technology to improve digital offerings might have moderately escalated costs.
As per management, non-interest expenses are likely to have been relatively stable compared with the second quarter.
Key Development During The Quarter:
In late September, U.S. Bancorp announced a definitive agreement to acquire MUFG Union Bank’s core retail banking operations from Mitsubishi UFJ Financial Group for a cash-and-stock transaction valued at $8 billion. The deal’s closure, expected in the first-half of 2022, is subject to the satisfaction of customary closing conditions and regulatory approvals. No shareholder approvals are required from both companies.
The deal will fortify its presence in California, Washington and Oregon. It would bolster U.S. Bancorp’s primary subsidiary, U.S. Bank’s status as the fifth largest retail bank in the United States and will provide it the required scale to compete with the largest consumer banks in California.
Here is what our quantitative model predicts:
U.S. Bancorp has 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:
Earnings ESP for U.S. Bancorp is +0.38%.
Zacks Rank:
U.S. Bancorp currently carries a Zacks Rank of 3, which increases the predictive power of ESP.
Other Stocks That Warrant a Look
Here are other bank stocks that you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this time around:
The Earnings ESP for
Bank of America Corporation
BAC
is +0.30% and it carries a Zacks Rank of 3, at present. The company is scheduled to report quarterly numbers on Oct 14.
The Earnings ESP for
JPMorgan
JPM
is +0.60% and the stock carries a Zacks Rank #3, at present. The company is slated to report third-quarter 2021 results on Oct 13.
BankUnited, Inc.
BKU
is scheduled to release third-quarter results on Oct 21. The company currently carries a Zacks Rank #3 and has an Earnings ESP of +1.90%. You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
.
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