What caused USB's Q3 earnings to fall short of forecasts?

U.S. Bancorp's (USB) Q3 earnings fell short of forecasts due to a combination of factors:

1. Decline in Net Interest Income (NII): USB experienced a decrease in NII, which is the difference between interest earned on loans and interest paid on deposits. This decline was a significant factor in the earnings shortfall. NII declined to $3.99 billion in the first quarter, compared to $4.32 billion in the same period the previous year. The bank had anticipated a higher NII, forecasting over $16.6 billion for the full year, but revised this downward to between $16.1 billion and $16.4 billion.
2. Higher Expenses and Provisions: USB faced increased expenses and provisions, which negatively impacted profitability. The bank's provision for credit losses rose to $553 million in the quarter, up from $427 million a year earlier. This increase was likely due to a higher risk profile of its loan portfolio or a more conservative provisioning policy.
3. Macroeconomic Factors: The bank operated in a challenging macroeconomic environment, with a stabilizing but uncertain interest rate outlook. The Federal Reserve's rate cuts provided some support to lending activities, but the overall demand for commercial and industrial loans remained subdued. The real estate loan market was also weak, with demand declining in key categories such as commercial and real estate.

In summary, USB's Q3 earnings fell short due to a decline in NII, higher expenses and provisions, and challenging macroeconomic conditions. These factors combined to create a difficult operating environment for the bank, leading to earnings that did not meet market expectations.