Morningstar

U.S. Bank Earnings: Balance Sheet Repositioning Should Support Net Interest Income Going Forward

We view U.S. Bank stock as modestly undervalued after incorporating second-quarter results.

The exterior of an US Bank store.
Jeremy Moeller via Getty
Securities in This Article
U.S. Bancorp
(USB)

Key Morningstar Metrics for U.S. Bancorp

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

U.S. Bancorp USB reported all right second-quarter results, as expense control helped grow net income by 13% annually to $1.7 billion, with earnings per share increasing 14% to $1.11. The results translated into a strong return on tangible common equity ratio of 18%.

Why it matters: With adjusted expenses down 0.2% from a year ago, the bank delivered positive operating leverage of 250 basis points in the quarter. We continue to view expense discipline as a key part of our thesis for the bank.

  • Net interest income declined by 1% sequentially and net interest margin compressed by 6 basis points to 2.66%, which is worse than the median 2-basis-point expansion seen by the bank’s peers so far this quarter, partially driven by the $6 billion mortgage and auto loan divestiture.
  • The bank now expects 2025 total revenue to be at the low end of the previous 3%-5% growth, with NII being the biggest driver. We think the balance sheet repositioning actions the bank took should help support its NII growth looking ahead.

The bottom line: We maintain our $53 fair value estimate for wide-moat-rated U.S. Bank and view shares as modestly undervalued after incorporating second-quarter results.

  • U.S. Bank is a high-quality franchise and our preferred name among US regional banks.
  • The US banking sector has mostly recovered from the April trade policy concerns after tariff negotiations progressed.

Key stats: Diving deeper into the 6-basis-point NIM compression in the quarter, about half the decline was driven by the increase in short-term wholesale funding to support the bank’s interest-earning asset optimization.

  • During the quarter, the bank divested $4.6 billion in mortgage loans and around $1.4 billion in auto loans, reinvesting the proceeds in higher-yielding securities. U.S. Bank also repositioned $1.25 billion of lower-yielding securities.
  • Asset repricing and paying down short-term wholesale funding sources should support U.S. Bank’s NIM and NII.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

This article was generated with the help of automation and reviewed by Morningstar editors. Learn more about Morningstar’s use of automation.

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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