Q2 2024 Earnings Summary
- USB is experiencing strong growth in its payment businesses, with expectations of high single-digit growth in merchant and corporate payment systems, and momentum anticipated to continue ( , ).
- The company is on track to achieve positive operating leverage in the second half of the year and beyond, due to prudent expense management and net interest income turning from a headwind to a tailwind ( , ).
- Credit quality is stabilizing, with delinquencies flat and nonperforming metrics stabilizing, giving confidence in the credit outlook ( ).
- Growth in the payments business is slowing, with year-over-year growth decreasing from 4% in the first quarter to 3% in the second quarter. Management attributes this slowdown to headwinds in travel volumes in Europe and risk mitigation efforts in the prepaid card segment due to increased fraud, which may continue to pressure growth in upcoming quarters. ( , , )
- Net charge-offs are increasing, with the net charge-off ratio rising to 58 basis points in the second quarter, an increase of 5 basis points from the first quarter. The company expects this ratio to approach 60 basis points in the second half of the year, indicating potential deterioration in credit quality. ( )
- The decline in noninterest-bearing deposits continues, reaching an all-time low of 16.2% of total deposits, down from 16.9% in the previous quarter. This ongoing shift from noninterest-bearing to interest-bearing deposits can pressure net interest margins, potentially impacting future earnings. ( )
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Capital Management & Stress Test
Q: How are you managing growth given stress test outcomes?
A: Andrew Cecere explains that despite higher stress capital buffer, U.S. Bancorp remains confident in its capital levels, expecting to accrete 20–25 basis points of capital per quarter through earnings. The bank plans to update its capital targets and distribution objectives, pending further clarity on Basel III rules, at its Investor Day on September 12. -
Net Interest Income Outlook
Q: What factors impact NII growth ahead?
A: John Stern expects stable NII in Q3 and growth thereafter, influenced by deposit behavior, rate cuts, and earning asset repricing of 6–8 basis points per quarter. USB has assumed two Fed rate cuts in September and December, which affect NII projections. -
Loan Growth Expectations
Q: What's the outlook for loan growth, especially in C&I?
A: John Stern notes the loan growth environment remains tepid, with client caution leading to modest expectations. While there are pockets of growth in the corporate loan book, overall demand is subdued. -
Credit Quality & Charge-offs
Q: Are you expecting higher charge-offs ahead?
A: USB anticipates charge-offs to approach 60 basis points in the second half, mainly due to CRE office exposure and a previous idiosyncratic C&I loan charge-off. Delinquencies and nonperforming assets are stabilizing, giving confidence in the credit outlook. -
Payments Business Performance
Q: How is the payments business performing?
A: John Stern acknowledges payments growth slowed to 3% year-over-year in Q2 but expects momentum to build. Growth drivers include merchant processing, tech-led initiatives, and corporate payments, aiming for high single-digit growth medium-term. -
Deposit Trends & Rate Cuts
Q: How will deposits be affected by rate cuts?
A: In a rate cut scenario, USB expects institutional deposit costs to decrease rapidly, benefiting NII. Retail deposit repricing will lag, providing additional support. Deposit rotation has slowed, and modest changes are anticipated going forward. -
Capital Returns & Buybacks
Q: What could prompt you to resume buybacks?
A: Andrew Cecere emphasizes capital priorities of investing in the business and dividends, with buybacks considered afterward. Clarity on Basel III endgame rules will inform buyback plans, which will be discussed at Investor Day. -
Management Changes
Q: What do recent management changes indicate?
A: Andrew Cecere describes the changes as natural, highlighting Gunjan's role as President to drive the "One USB" strategy. He assures there's no underlying message in the departures and focuses on integrating services across the bank.