U.S. Bancorp (NYSE: USB) will report its second quarter 2019 earnings on Wednesday, 17th July. Consensus figures points to a 2% growth in revenues year-on-year to $5.73 billion, and a 5% increase in EPS figure to $1.07. Per Trefis, U.S. Bancorp’ stock has a fair value of $56, which is 5% higher than the current market price. We have analyzed how U.S. Bancorp’s revenues & expenses have changed over recent quarters in an interactive dashboard along with our expectations for full-year 2019. You can modify Trefis forecasts to see the impact of changes on U.S. Bancorp’s valuation. Additionally, you can see more Trefis data for financial services companies here.
A Quick Look At U.S. Bancorp’s Revenue Sources
U.S. Bancorp reported $22.5 billion in Total Revenues in FY 2018. This included 5 revenue streams.
- Wholesale Banking: $3.8 billion in FY 2018 (17% of Total Revenues) – This represents the revenues for U.S. Bancorp from providing commercial products and services as well as treasury management services to its corporate clients
- Consumer Banking: $8.5 billion in FY 2018 (37% of Total Revenues) – It encompasses community banking, metropolitan banking, indirect lending and mortgage banking operations.
- Wealth Management: $2.9 billion in FY 2018 (13% of Total Revenues) – This division includes U.S. Bancorp’s asset management, investment, retirement and brokerage services.
- Card & Payment Services: $6.0 billion in FY 2018 (27% of Total Revenues) – It represents the revenues from providing credit card services and merchant payment services for corporate and retail clients.
- Treasury & Corporate Support: $1.3 billion in FY 2018 (6% of Total Revenues) – It includes the bank’s investment portfolios, funding, capital management and interest-rate risk management operations which provide support to its other operating divisions.
How Have U.S. Bancorp’s Revenues & Expenses Changed Over Recent Quarters?
- In Q1 2019, U.S. Bancorp reported Total Revenues of $5.5 billion, up by 2% y-o-y. This could be attributed to a 3% increase in Net Interest Income on the back of higher interest rates, loan growth, and higher yields on reinvestment of securities – partially offset by higher deposit rates and other funding costs.
- Total expenses rose by 2% y-o-y due to a marginal increase in Non-Interest Expenses and an 11% jump in provision for credit losses.
- Notably, increase in compensation cost and technology investments were the main reason behind higher non-interest expenses compared to year-ago period.
- We expect card & payments to have driven revenue growth in the second quarter, as credit card lending activity would have recovered from the seasonal slump seen in Q1 2019.
U.S. Bancorp’s Key Revenue & Expense Drivers
Average Credit Card Loans: In Q1 2019, Net Interest Income for Card and Payment Services increased by 1.8% y-o-y driven by growth in Average Credit Card Loans and loan fees, partially offset by lower loan spread due to interest rate hike. Average Credit Card loans have increased by 2% y-o-y to 22.3 billion and are likely to follow the same trend in subsequent quarters. We expect it to grow by 5% y-o-y by the end of 2019.
Average Commercial Loans: It is the main driver of Net Interest Income in Wholesale Banking. In Q1 2019, Average Commercial Loans grew by 4% y-o-y to $77.8 billion offsetting the impact of decrease in commercial real estate loans. We expect the same trend to continue in subsequent quarters leading to a 3% growth in Average Commercial Loans in 2019.
Net Interest Margin (NIM) on Consumer Loans: Rising interest rates, higher reinvestment rates on maturing securities and a favorable loan portfolio mix have driven an increase in Net Interest Margin for consumer loans over recent quarters. We expect the same trend to follow in subsequent quarters – increasing the NIM figure by 4 bps for full-year 2019.
U.S. Bancorp’s Outlook For Full Year 2019
- U.S. Bancorp is expected to report $23.3 billion in Total Revenues for 2019, which is 4% higher than the figure for 2018.
- It is likely to witness growth across its business segments, with Consumer Banking contributing the most followed by Card & Payment Services.
- Wealth Management revenues are expected to grow 5% y-o-y thanks to a 4% increase in Assets under Management (AuM) and a 9% increase in Average Loans Outstanding for the division.
- Total Expenses are expected to rise to $14.5 billion due to higher credit loss provisions and an increase in Technology Investments.
- Coupled with a higher effective tax rate compared to 2018, this will likely lead to a slight reduction in Net Income for the year.
- U.S. Bancorp is expected to have repurchased shares worth over $780 million in second quarter. We expect the trend to continue in subsequent quarters and help the EPS figure reach $4.27 for FY 2019.
- The EPS of $4.27 coupled with our forward P/E multiple of 13.1x represents a price estimate of $56 for U.S. Bancorp’s stock – a figure 5% ahead of the current market price.
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