US BANCORP \DE\ 10-K Analysis & Summary – 2/21/2025

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U.S. Bancorp

10-K

Annual report

Filing date:

02/21/2025

TLDR:

U.S. Bancorp’s 10-K filing for FY 2024 shows a decrease in net interest income offset by growth in noninterest income and a decrease in noninterest expense. The company’s capital ratios remain strong, but potential risks related to economic conditions, competition, and regulatory changes exist.

ELI5:

U.S. Bancorp, a bank, had a year where they made less money from loans but more from fees and spent less overall. They’re in good financial shape, but face challenges like the economy, other companies, and changing rules.

Accession #:

0000036104-25-000016

Published on

March 16, 2025

Analyst Summary

Net interest income decreased by 6.4% due to higher interest rates impacting deposit costs.
Noninterest income increased by 4.0%, driven by trust and investment management fees, commercial products revenue, payment services revenue and mortgage banking revenue.
Noninterest expense decreased by 8.9%, primarily due to lower merger-related charges and FDIC special assessment charges.
Average loans decreased by 1.9%, with declines in other retail, commercial real estate, and commercial loans.
Average deposits increased by 0.8%, driven by savings and time deposits, partially offset by a decrease in noninterest-bearing deposits.
Return on average assets: 0.95%
Return on average common equity: 11.7%
Efficiency ratio: 62.3%
Net charge-offs as a percentage of average loans: 0.58%
Common Equity Tier 1 (CET1) ratio: 10.6%
Operating Profit Margin: 29.24%
Net Profit Margin: 22.94%
Return on Assets (ROA): 0.95%
Return on Equity (ROE): 11.01%
Earnings Per Share (EPS): $3.79
Debt-to-Equity Ratio: 10.57
Debt-to-Assets Ratio: 91.29%
Interest Coverage Ratio: 1.52
Asset Turnover: 4.13%
Price-to-Earnings Ratio (P/E): 12.10
Price-to-Book Ratio (P/B): 1.38
Price-to-Sales Ratio (P/S): 2.61
Enterprise Value to EBITDA (EV/EBITDA): 3.66
Revenue Growth: -2.45%
Net Income Growth: 16.03%
EPS Growth: 15.90%

Opportunities and Risks

Economic Conditions: Deterioration in general business and economic conditions could adversely affect U.S. Bancorp’s revenues and the values of its assets and liabilities.
Competition: Increased competition from both banks and non-banks, including fintech companies.
Regulatory Changes: Changes to statutes, regulations, or regulatory policies or practices, including capital and liquidity requirements.
Cybersecurity: Breaches in data security and failures or disruptions in operational, technology, or security systems.
Climate Change: Effects of climate change and related physical and transition risks.
Fee Revenue Growth: Continued growth in trust and investment management fees, commercial products revenue, and payment services revenue.
Expense Management: Continued focus on prudent expense management to improve efficiency.
Capital Management: Effective management of capital to maintain strong protection for depositors and creditors and for maximum shareholder benefit.

Potential Implications

Stock Price

Monitor the impact of interest rate changes on deposit costs and net interest income.
Assess the potential impact of proposed regulatory changes, including the Basel III Endgame rules.
Continue to invest in technology and cybersecurity to maintain a competitive edge and protect against cyber threats.

U.S. Bancorp (USB) 10-K Filing Analysis – FY 2024

Executive Summary

This report analyzes U.S. Bancorp’s 10-K filing for the fiscal year 2024. Key findings include a decrease in net interest income offset by growth in noninterest income, a decrease in noninterest expense, and stable credit quality. The company’s capital ratios remain strong. The analysis identifies potential risks related to economic conditions, competition, and regulatory changes. Overall, the report suggests a hold rating, pending further assessment of the impact of evolving economic and regulatory landscapes.

Company Overview

U.S. Bancorp (USB) is a financial services holding company providing a range of banking, investment, and payment services. The company operates through Wealth, Corporate, Commercial and Institutional Banking, Consumer and Business Banking, Payment Services, and Treasury and Corporate Support segments. The industry is highly competitive, with increasing pressure from fintech companies.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management acknowledges the challenges posed by higher interest rates on deposit mix and pricing, leading to a decrease in net interest income. However, they highlight growth in fee revenue and prudent expense management. The MD&A includes forward-looking statements subject to various risks, including economic deterioration, regulatory changes, and cybersecurity threats.

Financial Statement Analysis

Income Statement

Net interest income decreased by 6.4% due to higher interest rates impacting deposit costs.
Noninterest income increased by 4.0%, driven by trust and investment management fees, commercial products revenue, payment services revenue and mortgage banking revenue.
Noninterest expense decreased by 8.9%, primarily due to lower merger-related charges and FDIC special assessment charges.

Balance Sheet

Average loans decreased by 1.9%, with declines in other retail, commercial real estate, and commercial loans.
Average deposits increased by 0.8%, driven by savings and time deposits, partially offset by a decrease in noninterest-bearing deposits.
The allowance for credit losses increased slightly, reflecting loan growth.

Key Ratios

Return on average assets: 0.95% (increased from 0.82% in 2023)
Return on average common equity: 11.7% (increased from 10.8% in 2023)
Efficiency ratio: 62.3% (improved from 66.7% in 2023)
Net charge-offs as a percentage of average loans: 0.58% (increased from 0.50% in 2023)
Common Equity Tier 1 (CET1) ratio: 10.6% (increased from 9.9% in 2023)

Uncommon Metrics

The filing mentions the company’s focus on promoting in-person engagement across more than 20 corporate hub locations, its branch network and business centers to support the Company’s business and customer needs.
The company also launched the Skills Academy, a learning platform focused on the development of skills for all employees.

Risk and Opportunity Assessment

Risks

Economic Conditions: Deterioration in general business and economic conditions could adversely affect U.S. Bancorp’s revenues and the values of its assets and liabilities.
Competition: Increased competition from both banks and non-banks, including fintech companies.
Regulatory Changes: Changes to statutes, regulations, or regulatory policies or practices, including capital and liquidity requirements.
Cybersecurity: Breaches in data security and failures or disruptions in operational, technology, or security systems.
Climate Change: Effects of climate change and related physical and transition risks.

Opportunities

Fee Revenue Growth: Continued growth in trust and investment management fees, commercial products revenue, and payment services revenue.
Expense Management: Continued focus on prudent expense management to improve efficiency.
Capital Management: Effective management of capital to maintain strong protection for depositors and creditors and for maximum shareholder benefit.

Conclusion & Actionable Insights

U.S. Bancorp demonstrated resilience in FY 2024, navigating a challenging economic environment. While net interest income declined, the company effectively grew noninterest income and managed expenses. The strong capital ratios provide a buffer against potential risks.

Overall Assessment: Hold. The company’s performance is stable, but the evolving economic and regulatory landscape warrants a cautious approach.

Recommendations:

Monitor the impact of interest rate changes on deposit costs and net interest income.
Assess the potential impact of proposed regulatory changes, including the Basel III Endgame rules.
Continue to invest in technology and cybersecurity to maintain a competitive edge and protect against cyber threats.

Financial Ratio and Metric Analysis

Profitability

Gross Profit Margin

Ratio/Metric: Not applicable for financial institutions as they do not have a cost of goods sold.

Operating Profit Margin

Ratio/Metric: Income before taxes / Total net revenue = $8,029 / $27,455 = 29.24%
Trend: ($8,029 / $27,455) / ($6,996 / $28,144) – 1 = 14.8%
Industry: The average operating margin for the banking industry typically ranges from 30% to 40%. USB’s operating margin is slightly below this range.

Net Profit Margin

Ratio/Metric: Net income attributable to U.S. Bancorp / Total net revenue = $6,299 / $27,455 = 22.94%
Trend: ($6,299 / $27,455) / ($5,429 / $28,144) – 1 = 20.3%
Industry: The average net profit margin for the banking industry typically ranges from 15% to 25%. USB’s net profit margin is within this range.

Return on Assets (ROA)

Ratio/Metric: Net income / Average assets = $6,329 / $664,014 = 0.95%
Trend: ($6,329 / $664,014) / ($5,458 / $663,440) – 1 = 15.9%
Industry: The average ROA for the banking industry typically ranges from 0.8% to 1.5%. USB’s ROA is within this range.

Return on Equity (ROE)

Ratio/Metric: Net income attributable to U.S. Bancorp / Average total U.S. Bancorp shareholders’ equity = $6,299 / $57,206 = 11.01%
Trend: ($6,299 / $57,206) / ($5,429 / $53,660) – 1 = 16.0%
Industry: The average ROE for the banking industry typically ranges from 10% to 15%. USB’s ROE is within this range.

Earnings Per Share (EPS) – Basic and Diluted

Ratio/Metric: $3.79 (Basic and Diluted)
Trend: ($3.79) / ($3.27) – 1 = 15.9%
Industry: EPS varies significantly based on the specific bank and its size.

Liquidity

Current Ratio

Ratio/Metric: Current Assets / Current Liabilities. Data to calculate this ratio is not readily available in the provided document.

Quick Ratio (Acid-Test Ratio)

Ratio/Metric: (Current Assets – Inventory) / Current Liabilities. Not applicable as inventory is not a significant asset for banks.

Cash Ratio

Ratio/Metric: Cash and due from banks / Total current liabilities. Data to calculate total current liabilities is not readily available in the provided document.

Solvency/Leverage

Debt-to-Equity Ratio

Ratio/Metric: Total liabilities / Total U.S. Bancorp shareholders’ equity = $619,278 / $58,578 = 10.57
Trend: ($619,278 / $58,578) / ($607,720 / $55,306) – 1 = 6.1%
Industry: The average debt-to-equity ratio for the banking industry typically ranges from 7 to 11. USB’s debt-to-equity ratio is within this range.

Debt-to-Assets Ratio

Ratio/Metric: Total liabilities / Total assets = $619,278 / $678,318 = 91.29%
Trend: ($619,278 / $678,318) / ($607,720 / $663,491) – 1 = 1.5%
Industry: The average debt-to-assets ratio for the banking industry typically ranges from 85% to 95%. USB’s debt-to-assets ratio is within this range.

Interest Coverage Ratio (Times Interest Earned)

Ratio/Metric: Income before interest and taxes / Interest expense = ($8,029 + $15,377) / $15,377 = 1.52
Trend: (($8,029 + $15,377) / $15,377) / (($6,996 + $12,611) / $12,611) – 1 = 1.9%
Industry: The average interest coverage ratio for the banking industry typically ranges from 1.5 to 3. USB’s interest coverage ratio is within this range.

Activity/Efficiency

Inventory Turnover

Ratio/Metric: Not applicable for financial institutions.

Days Sales Outstanding (DSO)

Ratio/Metric: Not directly applicable to banking.

Days Payable Outstanding (DPO)

Ratio/Metric: Not directly applicable to banking.

Asset Turnover

Ratio/Metric: Total net revenue / Average assets = $27,455 / $664,014 = 0.0413 or 4.13%
Trend: ($27,455 / $664,014) / ($28,144 / $663,440) – 1 = -2.4%
Industry: The average asset turnover for the banking industry typically ranges from 3% to 7%. USB’s asset turnover is within this range.

Valuation

Price-to-Earnings Ratio (P/E)

Ratio/Metric: Stock Price / EPS = $45.87 / $3.79 = 12.10
Industry: The average P/E ratio for the banking industry typically ranges from 8 to 15. USB’s P/E ratio is within this range.

Price-to-Book Ratio (P/B)

Ratio/Metric: Stock Price / Book Value per Share = $45.87 / $33.19 = 1.38
Industry: The average P/B ratio for the banking industry typically ranges from 0.8 to 1.5. USB’s P/B ratio is within this range.

Price-to-Sales Ratio (P/S)

Ratio/Metric: Market Cap / Total net revenue. Market Cap = Stock Price * Shares Outstanding = $45.87 * 1,559,887,453 = $71,651 million. P/S = $71,651 / $27,455 = 2.61
Industry: The average P/S ratio for the banking industry typically ranges from 1 to 3. USB’s P/S ratio is within this range.

Enterprise Value to EBITDA (EV/EBITDA)

Ratio/Metric: EV = Market Cap + Total Debt – Cash. EBITDA = Net Income + Interest + Taxes + Depreciation and Amortization = $6,329 + $15,377 + $1,580 + $370 + $569 = $24,225. EV = $71,651 + ($58,002 + $15,518) – $56,502 = $88,669. EV/EBITDA = $88,669 / $24,225 = 3.66
Industry: The average EV/EBITDA ratio for the banking industry typically ranges from 6 to 12. USB’s EV/EBITDA ratio is below this range.

Growth Rates

Revenue Growth

Ratio/Metric: (Current Revenue – Previous Revenue) / Previous Revenue = ($27,455 – $28,144) / $28,144 = -2.45%

Net Income Growth

Ratio/Metric: (Current Net Income – Previous Net Income) / Previous Net Income = ($6,299 – $5,429) / $5,429 = 16.03%

EPS Growth

Ratio/Metric: (Current EPS – Previous EPS) / Previous EPS = ($3.79 – $3.27) / $3.27 = 15.90%

Other Relevant Metrics

No company-specific KPIs or non-GAAP metrics were provided in the text.

Commentary

U.S. Bancorp’s financial performance in 2024 shows a mixed picture. While the bank demonstrates solid profitability metrics, including ROA and ROE within industry averages, revenue growth is negative. The bank maintains strong capital ratios, indicating a stable financial position. The efficiency ratio improved, suggesting better cost management, but noninterest expense remains a concern.