U.S. Bancorp (USB)

Financial services giant U.S. Bancorp (NYSE:USB) reported Q3 CY2025 results beating Wall Street’s revenue expectations, with sales up 7.3% year on year to $7.33 billion. Its GAAP profit of $1.22 per share was 8.4% above analysts’ consensus estimates.

Company Overview

With roots dating back to 1863 and a presence across 26 states primarily in the Midwest and West, U.S. Bancorp (NYSE:USB) is one of America's largest banks providing lending, deposit services, wealth management, payment processing, and merchant services to individuals and businesses.

At their core, diversified banks take in deposits and engage in various forms of lending, which means revenue is generated through interest rate spreads (difference between loan and deposit rates) and fees. Other revenue comes from adjacent services such as wealth management, card and account fees, and products such as annuities. These institutions benefit from rising interest rates that improve NIMs (net interest margins), digital transformation reducing operational costs, and expanding wealth management services as populations age. However, they face headwinds including fintech competition disrupting traditional models (how disruptive is crypto?), stringent regulatory requirements increasing compliance costs, and cybersecurity threats requiring substantial technology investments. Economic downturns also pose risks through potential loan defaults and compressed margins during accommodative monetary policy periods.

U.S. Bancorp competes with other major financial institutions including JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC), and PNC Financial Services (NYSE:PNC), as well as regional banks like Truist Financial (NYSE:TFC) and Fifth Third Bancorp (NASDAQ:FITB).

In general, banks make money from two primary sources. The first is net interest income, which is interest earned on loans, mortgages, and investments in securities minus interest paid out on deposits. The second source is non-interest income, which can come from bank account, credit card, wealth management, investing banking, and trading fees. Unfortunately, U.S. Bancorp’s 4% annualized revenue growth over the last five years was mediocre. This fell short of our benchmark for the banking sector and is a poor baseline for our analysis.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. U.S. Bancorp’s recent performance shows its demand has slowed as its annualized revenue growth of 1.1% over the last two years was below its five-year trend. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, U.S. Bancorp reported year-on-year revenue growth of 7.3%, and its $7.33 billion of revenue exceeded Wall Street’s estimates by 2.5%.

Net interest income made up 59% of the company’s total revenue during the last five years, meaning U.S. Bancorp’s growth drivers strike a balance between lending and non-lending activities.

While banks generate revenue from multiple sources, investors view net interest income as the cornerstone - its predictable, recurring characteristics stand in sharp contrast to the volatility of non-interest income.

Topline growth carries importance, but the overall profitability behind this expansion determines true value creation. For banks, the efficiency ratio captures this relationship by measuring non-interest expenses, including salaries, facilities, technology, and marketing, against total revenue.

Investors place greater emphasis on efficiency ratio movements than absolute values, understanding that expense structures reflect revenue mix variations. Lower ratios represent better operational performance since they show banks generating more revenue per dollar of expense.

Over the last five years, U.S. Bancorp’s efficiency ratio has increased by 1.7 percentage points, going from 59.8% to 59.1%. Said differently, the company’s expenses have increased at a faster rate than revenue, which usually raises questions unless the company is in high-growth mode and reinvesting its profits into attractive ventures.

In Q3, U.S. Bancorp’s efficiency ratio was 57.2%, beating analysts’ expectations by 96.4 basis points (100 basis points = 1 percentage point). This result was 3 percentage points better than the same quarter last year.

For the next 12 months, Wall Street expects U.S. Bancorp to maintain its trailing one-year ratio with a projection of 58.3%.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

U.S. Bancorp’s EPS grew at a remarkable 7.7% compounded annual growth rate over the last five years, higher than its 4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For U.S. Bancorp, its two-year annual EPS growth of 14% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q3, U.S. Bancorp reported EPS of $1.22, up from $1.03 in the same quarter last year. This print beat analysts’ estimates by 8.4%. Over the next 12 months, Wall Street expects U.S. Bancorp’s full-year EPS of $4.37 to grow 7.3%.

Banks profit by intermediating between depositors and borrowers, making them fundamentally balance sheet-driven enterprises. Market participants emphasize balance sheet quality and sustained book value growth when evaluating these institutions.

Because of this, tangible book value per share (TBVPS) emerges as the critical performance benchmark. By excluding intangible assets with uncertain liquidation values, this metric captures real, liquid net worth per share. Other (and more commonly known) per-share metrics like EPS can sometimes be murky due to M&A or accounting rules allowing for loan losses to be spread out.

U.S. Bancorp’s TBVPS grew at a tepid 3.1% annual clip over the last five years. However, TBVPS growth has accelerated recently, growing by 18.3% annually over the last two years from $19.90 to $27.84 per share.

Over the next 12 months, Consensus estimates call for U.S. Bancorp’s TBVPS to grow by 9.2% to $30.40, decent growth rate.

Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.

Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.

This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.

New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.

Over the last two years, U.S. Bancorp has averaged a Tier 1 capital ratio of 10.5%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

Return on equity, or ROE, quantifies bank profitability relative to shareholder equity - an essential capital source for these institutions. Over extended periods, superior ROE performance drives faster shareholder wealth compounding through reinvestment, share repurchases, and dividend growth.

Over the last five years, U.S. Bancorp has averaged an ROE of 12%, impressive for a company operating in a sector where the average shakes out around 7.5% and those putting up 15%+ are greatly admired. This is a bright spot for U.S. Bancorp.

It was encouraging to see U.S. Bancorp beat analysts’ revenue expectations this quarter. We were also happy its net interest income outperformed Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 3.3% to $48 immediately after reporting.

Updated: December 4, 2025 at 11:35 PM EST

Before investing in or passing on U.S. Bancorp, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

U.S. Bancorp isn’t a terrible business, but it doesn’t pass our quality test. To begin with, its revenue growth was weak over the last five years, and analysts don’t see anything changing over the next 12 months. And while its anticipated efficiency ratio over the next year signals it will gain leverage on its fixed costs, the downside is its net interest margin limits its operating profit potential compared to other banks that can earn more, all else equal.. On top of that, its net interest income growth was weak over the last five years.

U.S. Bancorp’s P/B ratio based on the next 12 months is 1.4x. While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $55.63 on the company (compared to the current share price of $51.26).