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U.S. Bancorp Earnings: Company Expects Relatively Stable Net Interest Income In 2024

Lower interest rates helped boost equity. We believe U.S. Bancorp’s stock is undervalued.

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What We Thought of U.S. Bancorp’s Earnings

U.S. Bancorp USB reported decent fourth-quarter and full-year results. For 2023, the company reported net income to common shareholders of $5.05 billion, or $3.27 per diluted share. In the fourth quarter, net income to common shareholders was $766, or $0.49 per diluted share. If notable items are excluded from the quarter, such as a $734 million FDIC special assessment, then adjusted earnings per share would be $0.99. We don’t anticipate making a material change to our $52 fair value estimate, and assess shares as moderately undervalued.

Recent trends in the banking industry were evident in the results. Net interest income on a taxable equivalent basis sequentially decreased to $4.1 billion from $4.3 billion as average interest-earning assets decreased 2% to $594 billion and the net interest margin compressed 3 basis points to 2.78%. This compression came from funding costs increasing, as noninterest-bearing deposits decreased to $91 billion from $98 billion. Management believes the net interest income for the fourth quarter is a good run rate for 2024. Given market expectations for a decline of 75 basis points or more in the federal-funds rate, we believe this is a fair result.

Nonperforming assets increased to $698 million, or 0.4% of loans and other real estate, from $569 million, or 0.35%, in the third quarter. We continue to see the slight deterioration in credit metrics across the banking industry as a normalization from the abnormally low levels of the previous several years. Commercial real estate loans backed by offices could sour at a higher rate than in other cycles, but U.S. Bancorp and other banks have largely already provisioned for this asset class.

One positive for capital at U.S. Bancorp and other banks comes from lower interest rates. The company received about a $2 billion boost to equity as unrealized losses on fixed-income securities decreased.

U.S. Bancorp Stock Price

Data as of Source: Morningstar Direct.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Michael Wong

Director of Equity Research
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Michael Wong, CFA, CPA, is director of equity research, financial services, North America, for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc.

Michael previously served as chair of the valuation committee. Before assuming his current role in 2017, he was a senior equity analyst, covering investment banks and brokerages. Before joining Morningstar in 2008, he worked in corporate and public accounting.

Wong holds a bachelor’s degree in business administration, with concentrations in accounting, corporate finance, and financial services from San Francisco State University, where he graduated summa cum laude. He also holds the Chartered Financial Analyst® designation and is a Certified Public Accountant. Wong has also passed the Certified Financial Manager (CFM) and Certified Management Accountant (CMA) exams.

Wong won the “Technology Thought Leadership” award at the 2016 WealthManagement.com Industry Awards for his report, The Financial Services Observer: The U.S. Department of Labor’s Fiduciary Rule for Advisors Could Reshape the Financial Sector. In 2011, he ranked second in the Investment Services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. Wong was awarded the summer 2005 Johnson & Johnson Institute of Management Accountants CFM Gold Medal.

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