US Bancorp Earnings: Key Metrics Are Stabilizing and Medium-Term Outlook Is Positive

Key Morningstar Metrics for US Bancorp

• Fair Value Estimate: $53.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of US Bancorp’s Earnings

There were some positive signs of stabilization at US Bancorp USB in the second quarter. The company reported net income to common shareholders of $1.5 billion, or $0.97 per diluted share, on $6.9 billion of net revenue. Taxable-equivalent net interest income increased 0.9% sequentially as deposits increased 2.2%, loans increased 1.0%, and investment securities increased 4.0%.

Net interest margin decreased 3 basis points, even though there were some positive developments, such as the reduction in non-interest-bearing deposits slowing to 1.6% and the yield on investment securities increasing 19 basis points to 3.15%. We don’t anticipate making a material change to our $53 fair value estimate, and assess shares as undervalued.

The company’s credit metrics and capital remain fairly good. There are no signs of substantial deterioration in credit quality, with nonperforming assets only increasing 1 basis point to 0.49%. The company’s common equity Tier 1 ratio increased by 30 basis points to 10.3%. Following the Federal Reserve’s stress test, the company is increasing its quarterly dividend by 2% to $0.50 from $0.49.

However, the firm doesn’t plan to conduct material share repurchases until it’s comfortable gauging stress test results and there’s more clarity concerning pending bank capital regulations. US Bancorp’s management expects net interest income in the third quarter to be about flat compared with the second quarter, but to grow in the fourth quarter.