2Q First Look: EPS Beat, but Union Integration Pushed Back
EPS beat:
USB reported 2Q EPS of $0.99. Excluding merger-related items, we place operating EPS at $1.09, which was above our forecast of $1.07 and consensus of $1.04. The beat was driven by higher NII, higher noninterest income, and lower operating expenses, partially offset by a higher loss provision and higher tax rate.
Bottom line:
U.S. Bancorp’s fundamental performance was somewhat better than expected (higher revenue, larger balance sheet, wider NIM, lower expenses). However, it recorded a larger than expected loss reserve build, maintained its 2022 revenue outlook, and pushed back its expectations for its systems integration with Union Bank to 2023. With the later systems conversion pushing out EPS accretion from the transaction, 2023 EPS estimates may be at risk for negative revisions.
Key positives:
Balance sheet growth continued with sequential period-ending loan and deposit growth of 4.2% and 1.2%, respectively, above expectations. NII was higher than our forecast due to a 4 bp wider NIM. Fee income was above our estimate due to trust, credit card, and merchant processing revenue increasing more than expected. Operating expenses were below expectations.
Key negatives:
The provision expense was higher than expected. The tax rate was higher than our forecast. Its TBV declined 7% from 1Q due to the AOCI hit. Despite the higher revenue in 2Q, the bank reiterated its 2022 revenue growth guidance. It now expects its system integration of Union Bank to occur in 2023 rather than 2H22.
