01—Abstract
Summary
Summary of the 10-K filed February 27, 2023. Cited figures are marked; the original filing is the authoritative source.
U.S. Bancorp's 2022 results were shaped by the December 1, 2022 acquisition of MUFG Union Bank (MUB), which added $81.4 billiona in assets, $53.1 billion in loans and $82.0 billion in deposits.
The Company earned $5.8 billionb, or $3.69 per diluted share, versus $8.0 billion, or $5.10, in 2021. Return on average assets fell to 0.98% from 1.43%, and return on average common equity fell to 12.6% from 16.0%. Net interest income rose 17.8% to $14.7 billion on rising rates and loan growth, while noninterest income fell 7.5% to $9.5 billion, mainly on lower mortgage banking revenue and interest rate hedge losses tied to the MUB deal.
The quality of earnings was pressured by one-time and deal-related items. Those included $399 millionc of hedge losses, $329 million of merger and integration charges, and $791 million of provision for credit losses tied to acquired loans and balance-sheet repositioning. Together these reduced diluted EPS by roughly $0.76.
Credit costs rose: the provision was $2.0 billiond versus a $1.2 billion benefit in 2021, and net charge-offs reached $1.1 billion, or 0.32% of average loans. Nonperforming assets were $1.0 billion, or 0.26% of loans and OREO, and the allowance for credit losses was $7.4 billion, or 1.91% of period-end loans. Capital declined on the acquisition and AOCI losses.
The common equity tier 1 ratio fell to 8.4% from 10.0%, and book value per share fell to $28.71 from $32.71. Management said it does not expect to resume buybacks until the CET1 ratio approaches 9.0%, and the company suspended repurchases from Q3 2021 except for compensation-related activity.
The quarterly dividend was raised 4.3% to $0.48. Investors should weigh a larger, more rate-sensitive franchise and strong credit quality against near-term integration risk, dilution from the transaction, and a reduced buyback outlook.
02—Key points
Key Highlights
- Net income of $5.8 billion, or $3.69 per diluted share, down from $8.0 billion, or $5.10, in 2021; ROA 0.98% and ROE 12.6%.
- MUB acquisition closed December 1, 2022 for $5.5 billion cash plus about 44 million shares and a $3.5 billion MUB capital obligation owed to MUFG; it added $81.4 billion of assets, $53.1 billion of loans and $82.0 billion of deposits, and about 300 branches in California, Washington and Oregon.
- Net interest income up 17.8% to $14.8 billion (taxable-equivalent) on higher rates and loan growth; net interest margin rose to 2.72% from 2.49%.
- Noninterest income down 7.5% to $9.5 billion, driven by a 61% drop in mortgage banking revenue and $399 million of MUB-related hedge losses; noninterest expense up 8.6% to $14.9 billion, including $329 million of merger charges.
- Provision for credit losses of $2.0 billion (vs. a $1.2 billion benefit in 2021) and net charge-offs of $1.1 billion (0.32% of average loans); allowance for credit losses of $7.4 billion, or 1.91% of loans.
- CET1 ratio declined to 8.4% from 10.0%; buybacks suspended until CET1 approaches 9.0%; quarterly dividend raised 4.3% to $0.48 per share.
- Total deposits reached $525.0 billion at year-end, up 15.1%; investment securities fell to $161.7 billion, with $88.7 billion of securities moved to held-to-maturity and a net unrealized AOCI loss of $8.5 billion on available-for-sale securities.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2022filed February 27, 2023Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $24.30B— | — |
| Interest Expense | $3.22B$993.00M | +224.0% |
| Net Income | $5.83B$7.96B | −26.8% |
| EPS (Basic) | $3.69$5.11 | −27.8% |
| EPS (Diluted) | $3.69$5.10 | −27.6% |
| Shares Outstanding (Basic) | 1.49B1.49B | 0.0% |
| Shares Outstanding (Diluted) | 1.49B1.49B | 0.0% |
05—Questions
Frequently Asked Questions
How did the MUFG Union Bank acquisition affect 2022 results?
Results include only one month of MUB (December 2022), contributing $255 million of net interest income, $47 million of fee income and $221 million of noninterest expense. Deal-related items reduced 2022 diluted EPS by about $0.76, including $399 million of hedge losses, $329 million of merger and integration charges and $791 million of acquisition-related provisions and repositioning costs. Management expects MUB to be merged into U.S. Bank National Association around Memorial Day weekend 2023.
Is the dividend safe, and when might buybacks resume?
The quarterly dividend was raised 4.3% to $0.48 per share, and the company paid $1.88 per share for the year. Buybacks were suspended from the third quarter of 2021 except for compensation-related purchases. The company does not expect to resume repurchases until its CET1 ratio approaches 9.0%, versus 8.4% at year-end 2022. Future capital distributions remain subject to board approval and regulatory requirements.
Is credit quality deteriorating?
Credit metrics remain sound but weakened in 2022. Nonperforming assets were $1.0 billion (0.26% of loans and OREO), up $138 million mainly from acquired balances. Net charge-offs rose to 0.32% of average loans from 0.23%, with about $179 million tied to MUB purchase accounting and $189 million to repositioning actions. The allowance covered 762% of nonperforming loans, and management cited economic uncertainty and a 2023 unemployment forecast of 3.5% to 8.4%.
What are the main risks flagged in the filing?
Key risks include rising interest rates that could increase funding costs and reduce mortgage originations, a possible recession that would increase credit losses, cybersecurity and third-party operational risk, and regulatory scrutiny. MUB's integration adds risk: MUB operates under an OCC consent order on technology and operational risk, the company is expected to become a Category II institution by December 2024 under commitments tied to the deal, and cost savings may take longer or prove smaller than expected. The filing also notes the transition away from LIBOR.
How did the business segments perform?
Corporate and Commercial Banking earned $1.8 billion (up 17.7%) and Wealth Management and Investment Services earned $1.3 billion (up 55.9%), both helped by higher rates and fee growth. Consumer and Business Banking earned $1.8 billion (down 23.4%) as mortgage revenue fell. Payment Services earned $1.3 billion (down 22.3%) on a $980 million provision, up $631 million, driven by rising delinquencies. Treasury and Corporate Support posted a $459 million net loss, reflecting merger charges and balance-sheet repositioning.
06—Continue