Stock Under Pressure: US Bancorp (NYSE: USB)

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US Bancorp (NYSE: USB) stock fell over 2% on 26th July, 2021 (as of 13:21:39 UTC-4 · USD; Source: Google finance) after the company posted lower than expected results for the second quarter of FY 21 driven by slower-than-expected rebound in consumer travel and hospitality spending.

The company has reported net income of $1.98 billion compared with the prior-year quarter’s $689 million. The increase in net income year-over-year was mainly driven by lower provision for credit losses due to a reserve release as a result of improvement in the global economy combined with government stimulus programs compared with a reserve build during 2020. Net interest income decreased 1.9% on a year-over-year taxable-equivalent basis, mainly due to the impact of lower rates compared with a year ago and declining average loan balances, partially offset by the benefit of deposit and funding mix as well as higher loan fees related to the Small Business Administration (“SBA”) Paycheck Protection Program. The net interest margin contracted from a year ago to 2.53% in the second quarter of 2021 mainly due to the mix of earning assets and higher premium amortization within the investment portfolio, partially offset by the net benefit of funding composition and higher loan fees.

Moreover, the average total loans for the second quarter of 2021 were $23.8 billion (7.5%) lower than the second quarter of 2020. The decline was mainly due to lower total commercial loans (19.6%) on the back of continued paydowns by corporate customers that accessed the capital markets last year, lower home equity and second mortgages (21%) as more customers chose to refinance their existing first lien residential mortgage balances during the prior year due to the low interest rate environment, and lower total commercial real estate (6.1%) due to paydowns. These declines were partially offset by growth in residential mortgages (3.1%) driven by loan repurchases from the Government National Mortgage Association (GNMA), as well as growth in other retail loans (16.4%) driven by growth in installment loans due to the impact of COVID-19 on recreational vehicle sales. The average total deposits for the second quarter of 2021 were $25.9 billion (6.4%) higher than the second quarter of 2020, including approximately $7 billion related to the acquisition of deposit balances from State Farm Bank in the fourth quarter of 2020.

USB in the second quarter of FY 21 has reported the adjusted earnings per share of $1.28, beating the analysts’ estimates for the adjusted earnings per share of $1.14, according to the Zacks Consensus Estimate. The company had reported 0.9 percent fall in the adjusted revenue to $5.78 billion in the second quarter of FY 21, beating the analysts’ estimates for revenue of $5.63 billion.

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