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Why Is U.S. Bancorp (USB) Up 7.4% Since Last Earnings Report?

A month has gone by since the last earnings report for U.S. Bancorp (USB). Shares have added about 7.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is U.S. Bancorp due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

U.S. Bancorp Q4 Earnings In Line, Revenues Up Y/Y

U.S. Bancorp reported fourth-quarter 2020 earnings per share of 95 cents, in line with the Zacks Consensus Estimate. Results, however, compare unfavorably with the prior-year quarter’s figure of $1.08.

Higher revenues, along with deposit growth, were the driving factors. Though lower net interest income, along with escalating expenses and provisions disappointed, higher fee income acted as a tailwind.

Including certain one-time items, net income came in at $1.53 billion compared with the prior-year quarter’s $1.49 billion.

For full-year 2020, earnings per share came in at $3.06 per share, in line with the Zacks Consensus Estimate. The earnings figure compares unfavorably with the prior-year tally of $4.16 per share.

Revenues & Deposits Grow, Costs & Provisions Flare Up

For 2020, the company reported net revenues of $23.3 billion, up 1.5% year over year. The revenue figure is in line with the Zacks Consensus Estimate.

U.S. Bancorp’s net revenues came in at $5.8 billion in the fourth quarter, up 1.5% year on year. Increase in non-interest income, partly offset by reduced net interest income, led to this upside.

U.S. Bancorp’s tax-equivalent net interest income totaled $3.2 billion in the reported quarter, down 0.9% from the prior-year quarter. This decline mainly stemmed from lower rates, partially mitigated by deposit and funding mix, loan growth and elevated loan fees.

Average earning assets climbed 13.1% year over year, supported by growth in average total loans, average investment securities and average other earning assets. However, net interest margin of 2.57% was down 35 basis points year on year, mainly impacted by a lower yield curve and higher cash balances for liquidity, partially negated by deposit and funding mix.

U.S. Bancorp’s non-interest income climbed 4.7% on a year-over-year basis to $2.6 billion. The upsurge was mainly owing to rise in mostly all components of income, partially offset by lower deposit service charges, credit and debit card revenue, merchant processing services and corporate payment product revenues.

Provision for credit losses increased 11.6% year over year to $441 million in the reported quarter.

U.S. Bancorp’s average total loans fell 2.8% sequentially to $302.3 billion. This stemmed from a fall in commercial, commercial real estate and credit card loans, partly offset by increase in residential mortgages and other retail loans.

Average total deposits were up 4.2% from the prior quarter to $422.4 billion. This uptick resulted from growth in both non-interest-bearing and interest-bearing deposits.

U.S. Bancorp’s non-interest expenses declined 1.1% year over year to $3.4 billion. Excluding certain one-time items, expenses flared up 5.1% year on year. This upswing mainly resulted from elevated compensation, technology and communications and other non-interest expenses, muted by reduced net occupancy and equipment, professional services and marketing and business development expenses to some extent.

Efficiency ratio came in at 58.8%, improving from the year-ago quarter’s 60.3%. A decrease in the ratio indicates improved profitability.

Credit Quality: A Concern

Credit metrics at U.S. Bancorp deteriorated during the December-end quarter. Net charge-offs came in at $441 million, up 14.5% year on year. On a year-over-year basis, the company witnessed deterioration, mainly in net charge-offs in the commercial real estate and commercial segments, which was muted by improvement in credit card, other retail and residential mortgages.

U.S. Bancorp’s non-performing assets (excluding covered assets) came in at $1.3 billion, up 56.6% year over year. Total allowance for credit losses was $8 billion, up 77.8% on a year-over-year basis.

Healthy Capital Position

During the fourth quarter, U.S. Bancorp maintained a solid capital position. The Tier 1 capital ratio came in at 11.3% compared with the prior-year quarter’s 10.7%. Common equity Tier 1 capital to risk-weighted assets ratio under the Basel III standardized approach fully implemented was 9.7% as of Dec 31, 2020, up from the 9.1% reported in the year-ago quarter.

All regulatory ratios of U.S. Bancorp continued to be in excess of well-capitalized requirements. In addition, reflecting the full implementation of the current expected credit losses methodology, the Tier 1 capital to risk-weighted assets ratio was estimated at 9.3%, as of Dec 31, 2020.

The tangible common equity to tangible assets ratio was 6.9% as of Dec 31, 2020, down from the prior-year quarter’s 7.5%.

U.S. Bancorp posted an improvement in book value per share, which increased to $31.26 as of Dec 31, 2020, from the $29.90 recorded at the end of the year-earlier quarter.

Capital Deployment Update

Based on the second round of stress test results, the bank expects to maintain its current quarterly dividend of 42 cents per share and start repurchasing common shares in the first quarter of 2021 under the previously-announced $3-BILLION common stock-repurchase program.


While management expects European operations to continue to witness pressure in the first quarter, payments volume trends are likely to improve, in line with consumer spend activity.

While pay-down activity by corporate customers continues to slow, management expects it to remain somewhat elevated in the early part of 2021.

For the first quarter of 2021, fully taxable equivalent net interest income is expected to decline in the low-single-digits, partly due to seasonally fewer days. Net interest margin is likely to be relatively stable.

Loan balances are likely to decline in the first quarter as PPP loans are forgiven and as corporations continue to use attractive capital markets funding alternatives and their strong cash flow to continue to pay down loans. However, management expects average loan balances to be up in the second quarter.

Mortgage revenues are anticipated to decline on a linked-quarter basis, in line with the industry, as refinancing activity continues to moderate. In the first quarter, both merchant acquiring revenues and corporate payment revenues are likely to be down 10-15% on a year-over-year basis; reflecting lower travel and hospitality volumes compared with pre-COVID levels.

However, sales volume trends excluding travel and hospitality are expected to continue to improve on a sequential basis, in line with consumer and business spend activity. The recovery of travel and hospitality spend will be dependent upon the timing and efficacy of vaccinations and changes in consumer behavior and business activities.

Management expects credit and debit card revenue to increase in the low-double-digits on a year-over-year basis as growth in debit and prepaid card volumes more than offset lower travel and hospitality volumes.

Non-interest expenses are likely to be relatively stable compared with the fourth quarter.

Per management, recently, economic indicators have generally been better than market expectations, and the outlook has improved in the past few months. However, given current uncertainties that exist related to recent trends in COVID-19 cases and related state level restrictions, non-performing assets are likely to remain elevated and net charge-offs to be relatively stable in the first quarter. Also, management continues to expect net charge-offs to increase in the second half of the year.

Allowance for credit losses is anticipated to begin to decline when there is more certainty regarding the economic outlook and the timing of when peak net charge-offs will occur. Management will continue to assess the adequacy of the allowance for credit losses as conditions change.

For 2021, taxable equivalent tax rate is expected to be 20%.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

At this time, U.S. Bancorp has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.


Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, U.S. Bancorp has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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