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

Daniel Acker/Bloomberg

UPDATE: This article includes information from the company's earnings call and an interview with Chief Financial Officer John Stern.

U.S. Bancorp is confident in its plan to right its ship following underperformance for the last couple of years.

Wall Street isn't convinced. The bank's stock neared a low of $47.20 in regular trade after the fourth-quarter earnings were reported Thursday and was recently down 4.8% at $48.20.

The Minneapolis, Minnesota-based bank said it expects to see revenue climb and expenses stay flat in 2025, leading to a 200-basis-point uptick in operating leverage. After spending more than it earned for several years, the bank is sticking to its previously announced goals following a period where it "met or exceeded expectations in virtually all areas," Chief Financial Officer John Stern told American Banker after the company's earnings call.

Chairman and CEO Andy Cecere said on the earnings call that the fourth quarter "showcased commitment to execution."

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

Now that it's begun turning performance around, keeping expenses relatively flat and seeing the benefit of payment service fees and trust and investment management business, the bank is guiding toward a strong 2025.

U.S. Bancorp posted $1.66 billion in net income in the three months ended Dec. 31, though a $109 million expense from "notable items," including lease impairments and operational efficiency actions, led to missing analyst estimates on earnings. Diluted earnings per share were $1.01, short of the consensus estimate of $1.05. Without the impact of the notable items, earnings per share hit $1.07.

Stern said after managing expenses — rejiggering real estate, focusing third-party strategies and optimizing workflows and automation — the bank has the right levers to steer costs toward positive operating leverage in any revenue environment.

"After so long of not having positive operating leverage, it's kind of a show-me story," Wells Fargo analyst Mike Mayo said on the earnings call.

The bank projected a 3% to 5% rise in revenue in 2025, after that figure fell by 2.4% in 2024.

Keith Horowitz, an analyst at Citi, said he thinks U.S. Bancorp can control expenses and turn out the numbers it teased, despite market skepticism.

Key to its top line will be the company's payments business, as the industry continued to struggle with tepid loan growth. Cecere said on the earnings call that the "interconnectedness" of banking and payments is crucial and profitable. U.S. Bancorp President Gunjan Kedia said the business has high returns and strong client retention.

"We have a deep conviction that money movement needs to be at the center of a financial relationship with the clients, surrounded by banking capabilities," Kedia said on the call.

In September, U.S. Bancorp hosted its first investor day in five years, where it set two- to three-year goals for its turnaround. The company aims to hit 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%.

Strategic planning

Is U.S. Bancorp ready to turn the corner after years of rising costs?

Executives at the super-regional bank told investors that years of investments are poised to start paying off in rising profits, but the market seemed skeptical about the company's plan forward.

By Allissa Kline

September 12

The prospect of a transformation story landed. Earlier this week, Piper Sandler analyst Scott Siefers upgraded his rating on U.S. Bancorp from neutral to overweight, noting that its stock has been trading at a discount relative to peer banks due to recent underperformance.

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."

Even as the bank's progress is pacing to slow and steady, the CFO said he, and clients, are also optimistic about the big-picture economic landscape.

"We're really constructive about the economy and growth and helping our clients grow," Stern said. "That's really, at the end of the day, what we're trying to do — help them. And we feel like we have the right strategies and products to do that."