US Bancorp The company has reached the point where investments made in recent years are beginning to pay off in the form of rising profits and falling costs, executives said Thursday.
During the national bank’s first investor day in five years, CEO Andy Cecere and his management team – including Gunjan Kedia, the newly appointed President and expected next CEO – made it clear that revenues will exceed expenses, which have risen sharply due to the costs of acquisitions, integration, technology and business expansion.
In a series of presentations in New York City, members of US Bancorps The management team said these investments are now priced into the company’s operating rate, meaning expenses will be moderate and profits will increase. This earnings momentum will in turn lead to positive operating leverage in the second half of this year and beyond, increasing the company’s overall returns while giving it the ability to invest when needed, executives predicted.
“That is the company’s goal and that is the position we are in today,” Cecere told investors and analysts. “We are at an inflection point.”
How fast US Bancorp Whether the company can achieve higher profits and lower costs remains to be seen. For the second quarterThe bank reported a year-on-year decline in net interest income and total net income. In particular, noninterest expenses fell compared to the same period last year.
The market seemed skeptical about the company’s plans. The share price lost about 2% during the day.
To support his further path US Bancorp has outlined its latest profitability targets. Over the next two to three years, the Minneapolis-based bank is aiming for a return on assets of 1.15 to 1.35 percent and a return on equity in the high teens. It has set an efficiency ratio target of 50 to 60 percent.
The last time US Bancorp Given that such targets were set in 2019, some of these targets were higher. For example, the bank’s long-term return on assets target was 1.35-1.65 percent, the return on tangible equity target was 17.5-20 percent, and the efficiency ratio target was in the low 50 percent.
US Bancorp President Gunjan Kedia
In order to achieve the new targets, improvements must be made in some areas. In the second quarter, US Bancorps The return on total capital was 0.97% and the efficiency ratio was 61%; both values were well below the targets.
On the other hand, the company’s return on equity was 18.4% in the last quarter, which is in line with the forecast the company provided on Thursday.
US Bancorp is a different company than it was in 2019, when it last held an investor day. Back then, it had about 3,000 stores; today, it only has 2,200. And it had four business units, not three like today.
But the company has grown in size over the past five years, from assets of $482 billion to around $666 billion today.
As early as 2022, the parent company of US Bank a significant increase in size through the acquisition of MUFG Union BankThe deal, which significantly increased the bank’s presence in California, added about one million new retail customers, 700 corporate customers and 190,000 business customers.
Externally, the impact of the pandemic, higher interest rates, inflation and a tighter regulatory system have changed the environment in which the bank operates, Cecere noted.
“To say that a lot has changed would certainly be an understatement,” Cecere said.
The key to achieving the company’s latest financial targets will be leveraging the “networking” of US Bancorps Business segments – retail and commercial banking, payment services and wealth, corporate, commercial and institutional banking segment, Kedia said.
“If (US Bancorp) is able to leverage the interconnectedness of its business units, these (new) goals should be achievable,” wrote analyst Gerard Cassidy of RBC Capital Markets in a note.
Short term US Bancorp maintains its third quarter and full-year guidance. For full-year 2024, the company expects net interest income of $16.1 billion to $16.4 billion, while forecasting full-year adjusted expenses of $16.8 billion or less and adjusted fee income to increase by a mid-single-digit percentage.
Also on Thursday, US Bancorp announced the resumption of share buybacks, which were halted in September 2021 when the company announced plans to acquire MUFG UnionThe newly approved $5 billion buyback plan is expected to begin in the first quarter of next year with an expected $100 million buyback program, Chief Financial Officer John Stern told investors.
The dividend will also rise to 50 cents per common share, an increase of 2% over the second quarter.
The company did not disclose details of its succession plan on Thursday. Kedia, who was named company president in May, is widely presumably the designated CEO, However, the company has not publicly stated whether this is the case. Both Cecere and his predecessor served as president before being appointed CEO.
Mike Mayo, an analyst at Wells Fargo Securities, was blunt in his questions, once asking during a question-and-answer session, “Who is likely to be the next CEO?”
Cecere, who US Bancorp for 40 years and has not indicated when he plans to retire, has not taken the bait. Instead, he said the company has “a very robust and thoughtful succession planning process.”
“The board meets on this issue at almost every meeting, discusses it and has really good strategies on how to do this, with the aim of ensuring that the company is optimally positioned both for the long term and the medium term,” he said.
