U.S. Bancorp’s USB third-quarter 2024 adjusted earnings per share (excluding the impacts of notable items) of $1.03 beat the Zacks Consensus Estimate by 3%. However, the bottom line decreased 1.9% from the prior-year quarter.

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USB shares have gained 2.1% in the early market trading session on better-than-anticipated earnings. A full day’s trading will depict a better picture.

Results have benefited from lower expenses. Also, a strong capital position was a tailwind. However, a decline in net interest income (NII) and non-interest income created major headwinds.

Net income (GAAP basis) attributable to U.S. Bancorp was $1.71 billion, up 12.5% from the prior-year quarter.

USB’s Revenues & Expenses Fall

Total revenues in the reported quarter were $6.83 billion, down 2.4% year over year. The top line missed the Zacks Consensus Estimate by 0.7%.

The tax-equivalent NII totaled $4.17 billion, down 2.4% from the year-ago quarter. The downside was primarily caused by the impacts of higher interest rates on deposit mix and pricing, partially offset by higher rates on earning assets and balance sheet optimization activities.

The net interest margin of 2.74% contracted 7 basis points year over year.

Non-interest income moved down 2.4% year over year to $2.69 billion. The downside was due to the net loss on the sale of securities, decreased service charges and lower other revenues, partially offset by higher fee revenues across all other categories.

Non-interest expenses declined 7.2% year over year to $4.20 billion. The fall was due to lower other non-interest expenses, partially offset by higher compensation and employee benefits.

The efficiency ratio was 60.2%, lower than the year-ago quarter’s 64.4%. A decline in the ratio indicates an improvement in profitability.

U.S. Bancorp’s Loans & Deposit Balances Decline

Average total loans declined marginally to $374.1 billion from the previous quarter. Average total deposits decreased 1% from the previous quarter to $508.8 billion.

USB’s Credit Quality Deteriorates

Total allowance for credit losses was $7.93 billion, up 1.8% year over year. As of Sept. 30, 2024, U.S. Bancorp’s non-performing assets amounted to $1.85 billion, up 41.1% from the year-ago period.

The increase in non-performing assets resulted from higher commercial and commercial real estate non-performing loans.

Net charge-offs were $564 million, up from $420 million in the year-ago quarter. The provision for credit losses in the reported quarter was $557 million, up 8.2% from the prior-year quarter.