Why did reported earnings rise while underlying revenue declined?

Reported net income increased 6.9% linked quarter and 12.5% year over year, largely because 3Q23 included $213 million of after-tax merger and integration charges and because the 3Q24 effective tax rate fell to 16.9% on favorable tax settlements. Total net revenue was flat linked quarter and down 2.4% year over year, so the earnings gain reflects expense and tax items rather than top-line growth.

How significant is the credit deterioration?

Credit costs are rising but remain moderate. The net charge-off ratio reached 0.60%, up from 0.44% a year earlier, and the provision for credit losses increased 8.2% year over year. Management attributes the increase to credit card, commercial, and commercial real estate losses, and noted that CRE office exposure was reduced and the office segment is reserved at 10.8%. The allowance coverage ratio of 2.12% of period-end loans is a modest increase from 2.08%.

What does the $5 billion share repurchase authorization mean for investors?

The board authorized up to $5 billion of buybacks beginning September 13, 2024, with repurchases intended to start by early 2025 in addition to shares bought for stock compensation plans. Management framed this as balancing capital accretion, which lifted CET1 to 10.5%, with distributions, so the program signals confidence in capital generation but is not expected to affect near-term share count materially.

Is net interest income growth sustainable?

Linked-quarter NII grew 2.8% on repricing of fixed-rate assets, favorable loan mix, and disciplined funding costs, and NIM reached 2.74%. However, year-over-year NII is down 2.4% due to higher deposit costs, and average total loans declined 0.7% year over year. Full-year NII guidance of $16.1 to $16.4 billion implies that the 4Q24 run-rate of roughly $4.2 billion must be sustained for the rest of the year to hit the range.

What were the main one-time items affecting 3Q24 results?

The quarter included an $119 million pre-tax ($89 million after-tax) net loss on investment securities sales, which was largely offset by lower income tax expense from favorable tax settlements. The 2Q24 results included a $26 million pre-tax FDIC special assessment charge, and the 3Q23 comparison base included $284 million of merger and integration charges, which is why year-over-year reported expense fell 7.2% while adjusted expense fell only 1.0%.

US BANCORP \DE\ 8-K: Earnings & Results & Regulation FD

01—Abstract

Summary

Summary of the 8-K filed October 16, 2024. Cited figures are marked; the original filing is the authoritative source.

U.S. Bancorp (USB) reported third-quarter 2024 results on October 16, 2024, with net income attributable to the company of $1,714 million^a and diluted EPS of $1.03, up 6.9% from $0.97 in 2Q24 and 13.2% from $0.91 in 3Q23 on a reported basis.

Results were flattered by a lower tax rate (effective 16.9%) that offset an $89 million^b after-tax net securities loss. Excluding prior-year notable items, year-over-year adjusted EPS fell 1.9% to $1.05 in 3Q23 terms, and adjusted net income to common shareholders was $1,601 million. Core trends were mixed: net interest income rose 2.8% linked quarter to $4,166 million (taxable-equivalent) and net interest margin expanded to 2.74% from 2.67%, but NII fell 2.4% year over year as deposit costs rose.

Fee lines such as commercial products (+12.1%^c YoY), trust and investment management (+6.4%), and payment services (+3.1%) grew, while noninterest income overall declined 2.4% YoY because of securities losses and lower service charges. Credit quality was stable but drifting higher. The net charge-off ratio rose to 0.60% from 0.44% a year earlier, driven by credit card, commercial, and commercial real estate losses, and the provision increased 8.2% YoY.

Nonperforming assets were $1,848 million^d, and the allowance covered 2.12% of period-end loans. Capital strengthened, with the CET1 ratio reaching 10.5% (up from 10.3% in 2Q24 and 9.7% a year earlier) and tangible book value per share rising to $24.71.

Management announced a $5 billion share repurchase authorization, with buybacks expected to resume in early 2025. Full-year 2024 guidance calls for net interest income of about $16.1 to $16.4 billion, and management expects positive operating leverage to expand in 4Q24 and into 2025.

02—Key points

Key Highlights

Diluted EPS of $1.03 in 3Q24, up 6.2% from 2Q24 and 13.2% from 3Q23 on a reported basis; excluding notable items, EPS was $0.98 in 2Q24 and $1.05 in 3Q23.
Net interest margin expanded to 2.74% from 2.67% in 2Q24 (but down from 2.81% a year ago), and taxable-equivalent NII rose 2.8% linked quarter to $4,166 million.
Noninterest income fell 4.2% linked quarter and 2.4% year over year to $2,698 million, reflecting an $119 million pre-tax securities loss, though commercial products, trust and investment management, and payment services fees grew.
Net charge-off ratio rose to 0.60% from 0.44% a year ago, led by credit card (4.10% NCO rate), commercial, and commercial real estate losses; nonperforming assets were $1.85 billion.
CET1 ratio improved to 10.5% from 10.3% in 2Q24 and 9.7% in 3Q23, supporting a new $5 billion share repurchase program with buybacks expected to resume in early 2025.
Full-year 2024 guidance calls for taxable-equivalent NII of $16.1 to $16.4 billion, with adjusted noninterest expense of about $16.8 billion or less and management expecting positive operating leverage to expand in 4Q24 and 2025.
Quarterly dividend raised 2.0% to $0.50 per share; tangible book value per share rose to $24.71 from $23.15 in 2Q24.

03—Questions

Frequently Asked Questions

Why did reported earnings rise while underlying revenue declined?
Reported net income increased 6.9% linked quarter and 12.5% year over year, largely because 3Q23 included $213 million of after-tax merger and integration charges and because the 3Q24 effective tax rate fell to 16.9% on favorable tax settlements. Total net revenue was flat linked quarter and down 2.4% year over year, so the earnings gain reflects expense and tax items rather than top-line growth.
How significant is the credit deterioration?
Credit costs are rising but remain moderate. The net charge-off ratio reached 0.60%, up from 0.44% a year earlier, and the provision for credit losses increased 8.2% year over year. Management attributes the increase to credit card, commercial, and commercial real estate losses, and noted that CRE office exposure was reduced and the office segment is reserved at 10.8%. The allowance coverage ratio of 2.12% of period-end loans is a modest increase from 2.08%.
What does the $5 billion share repurchase authorization mean for investors?
The board authorized up to $5 billion of buybacks beginning September 13, 2024, with repurchases intended to start by early 2025 in addition to shares bought for stock compensation plans. Management framed this as balancing capital accretion, which lifted CET1 to 10.5%, with distributions, so the program signals confidence in capital generation but is not expected to affect near-term share count materially.
Is net interest income growth sustainable?
Linked-quarter NII grew 2.8% on repricing of fixed-rate assets, favorable loan mix, and disciplined funding costs, and NIM reached 2.74%. However, year-over-year NII is down 2.4% due to higher deposit costs, and average total loans declined 0.7% year over year. Full-year NII guidance of $16.1 to $16.4 billion implies that the 4Q24 run-rate of roughly $4.2 billion must be sustained for the rest of the year to hit the range.
What were the main one-time items affecting 3Q24 results?
The quarter included an $119 million pre-tax ($89 million after-tax) net loss on investment securities sales, which was largely offset by lower income tax expense from favorable tax settlements. The 2Q24 results included a $26 million pre-tax FDIC special assessment charge, and the 3Q23 comparison base included $284 million of merger and integration charges, which is why year-over-year reported expense fell 7.2% while adjusted expense fell only 1.0%.

04—Continue

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