U.S. Bancorp 'confident' in strategy after bumpy 2024

Daniel Acker/Bloomberg

U.S. Bancorp is leaning on fee income to buoy revenue but still looks to make up lost ground on performance in 2025.

The Minneapolis, Minnesota-based bank said Thursday that growth in trust and investment management and payment service fees lifted revenue in the fourth quarter. U.S. Bancorp posted $1.66 billion in net income in the three-month period ended Dec. 31, but a $109 million expense from "notable items," including lease impairments and operational efficiency actions, led to missing analyst estimates on earnings.

Chairman and CEO Andy Cecere said in a prepared statement that the steady rise in noninterest income, which most recently made up nearly 40% of the bank's $3 billion in total revenue, results from "deeper relationships, an enhanced product set and broader distribution."

"2024 was a pivotal year for the company in many ways, and marked a very important inflection point in our story," Cecere said on the company's call with analysts. "Going into the year, there was much uncertainty with respect to the broader macroeconomic environment, persistent inflation, significant rate volatility, political and regulatory headwinds."

Diluted earnings per share were $1.01, missing consensus estimates of $1.05. Without the impact of the notable items, earnings per share hit $1.07.

The bank's net income, also on an adjusted basis, increased 1.8% from the prior quarter and 7.3% year over year. (Net income in the fourth quarter of 2023 was also dampened by a $734 million special assessment from the Federal Deposit Insurance Corp. across the banking industry to cover the costs of the bank failures that spring.)

The bank has been looking to right its ship following underperformance in recent years, as expenses grew faster than revenue. In September, U.S. Bancorp hosted its first investor day in five years, where it offered specific goals for its long-term performance.

In the next two to three years, the $678 billion-asset company is targeting a return on assets of 1.15% to 1.35%, return on tangible common equity in the high-teens and an efficiency ratio in the low-50s. While the bank wasn't far from the return on tangible common equity in the fourth quarter, at 17.4%, its return on assets was 0.98% and its efficiency ratio was 61.5%.

Still, Piper Sandler analyst Scott Siefers upgraded his rating on U.S. Bancorp from neutral to overweight earlier this week, noting that its stock has been trading at a discount relative to peer banks due to recent underperformance. The bank's share price was down 4.15% Thursday morning, at $48.79.

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Siefers said that despite U.S. Bancorp being "one of the rougher large regionals in the space," management has defined its current position as an "inflection point," ready to generate consistent positive operating leverage and move past previous concerns about capital levels.

"USB seems to us an attractively valued 'show me' story with a low bar," Siefers wrote. "We see little downside given the company's defensive characteristics and already discounted valuation. But should the company indeed deliver on improved operating leverage, we see an opportunity to capture some valuation improvement over the course of the year."

Looking forward, the bank expects expenses and net interest income to remain relatively flat in the first quarter of 2025 but projects net revenue for the year to increase 3% to 5%. Total revenue in 2024 marked a 2.4% decline from 2023.

"As we move into 2025, we are well positioned to deliver industry-leading returns on tangible common equity and remain confident in our strategy for future growth and our ability to deliver meaningful positive operating leverage," Cecere said.