01—Abstract
Summary
Summary of the 10-K filed February 20, 2024. Cited figures are marked; the original filing is the authoritative source.
U.S. Bancorp (USB) reported 2023 net income attributable to the company of $5.4 billiona, or $3.27 per diluted share, down from $5.8 billion ($3.69) in 2022.
Results were shaped by the full-year consolidation of the MUFG Union Bank (MUB) acquisition, which closed December 1, 2022. Net interest income rose 18.1% to $17.5 billionb on higher rates and the acquisition, and net interest margin widened to 2.90% from 2.72%. However, noninterest expense jumped 26.6% to $18.9 billion, including $1.0 billion of merger and integration charges and a $734 million FDIC special assessment, and the provision for credit losses rose 15.1% to $2.3 billion as net charge-offs increased to $1.9 billion (0.50% of average loans).
The efficiency ratio deteriorated to 66.7%c from 61.4%. Return on average assets fell to 0.82% and return on average common equity to 10.8%. Balance sheet and capital metrics were solid.
Common equity tier 1 capital ratio rose to 9.9% from 8.4%, well above the 7.0% minimum including the 2.5% stress capital buffer, and tangible book value per share rose 14.7% to $22.30d. Total deposits declined 2.4% to $512.3 billion as noninterest-bearing deposits fell sharply and customers shifted to higher-cost money market and time deposits. Long-term debt rose to $51.5 billion, partly to fund the balance sheet and repay a $936 million obligation to MUFG.
Nonperforming assets increased to $1.5 billion, mainly from commercial real estate, particularly office, where nonperforming loans were 7.6% of office loans. For investors, the key trade-offs are an improved capital position and fee growth against higher expense and credit-cost pressure.
Management also flagged regulatory uncertainty, including the proposed Basel III Endgame capital rules, potential long-term debt requirements, and the possibility of Category II status, which could require significantly more capital and debt. Shareholder distributions were constrained in 2023, with common buybacks essentially suspended since 2021 and the quarterly dividend raised modestly to $0.49 per share.
02—Key points
Key Highlights
- Net income of $5.4 billion ($3.27 diluted EPS) declined 6.8% from 2022, reflecting higher expenses and credit costs despite stronger net interest income.
- Net interest income rose 18.1% to $17.5 billion (taxable-equivalent) and net interest margin expanded to 2.90% from 2.72%, driven by higher rates and the MUB acquisition.
- Noninterest expense increased 26.6% to $18.9 billion, including $1.0 billion of merger and integration charges and a $734 million FDIC special assessment; efficiency ratio worsened to 66.7%.
- Credit costs rose: provision for credit losses was $2.3 billion and net charge-offs $1.9 billion (0.50% of average loans), with the allowance at $7.8 billion (2.10% of loans).
- Common equity tier 1 capital ratio improved to 9.9% from 8.4%, and tangible book value per share grew 14.7% to $22.30.
- Deposits fell 2.4% to $512.3 billion as noninterest-bearing balances dropped 34.7%, while money market deposits grew 34.7%.
- Regulatory risk is elevated: the proposed Basel III Endgame rules and long-term debt requirements could require substantially more capital and debt, potentially limiting shareholder returns.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2023filed February 20, 2024Financial Statements
FY2023 against FY2022
| Line item | FY2023FY2022 | Change |
|---|---|---|
| Revenue | $28.14B$24.30B | +15.8% |
| Interest Expense | $12.61B$3.22B | +292.0% |
| Net Income | $5.43B$5.83B | −6.8% |
| EPS (Basic) | $3.27$3.69 | −11.4% |
| EPS (Diluted) | $3.27$3.69 | −11.4% |
| Shares Outstanding (Basic) | 1.54B1.49B | +3.6% |
| Shares Outstanding (Diluted) | 1.54B1.49B | +3.6% |
05—Questions
Frequently Asked Questions
How did U.S. Bancorp's 2023 earnings compare with 2022?
Net income attributable to U.S. Bancorp was $5.4 billion, or $3.27 per diluted share, versus $5.8 billion ($3.69) in 2022. Higher net interest income was more than offset by a 26.6% increase in noninterest expense, largely from the MUB acquisition, merger costs, and the FDIC special assessment, plus higher credit provisions.
What drove the increase in net interest income?
Net interest income rose $2.7 billion (18.1%) to $17.5 billion on a taxable-equivalent basis. Higher interest rates on earning assets and the full-year inclusion of MUB drove the increase, partly offset by deposit mix shifts and higher deposit pricing. Net interest margin improved to 2.90% from 2.72%.
Is U.S. Bancorp's capital position strong enough to support shareholder returns?
Its regulatory capital is strong: the CET1 ratio was 9.9%, above the 7.0% requirement including the 2.5% stress capital buffer. However, share repurchases remained suspended except for employee-related activity, and the company said it will evaluate buybacks against pending capital rules. The quarterly dividend was increased 2.1% to $0.49 per share.
What are the main risks flagged in the filing?
Key risks include commercial real estate credit stress, particularly in office properties; rising credit losses in consumer lending such as credit cards, where net charge-offs were 3.20%; deposit outflows and higher funding costs; and regulatory changes such as Basel III Endgame, long-term debt requirements, and possible Category II status, which could require materially more capital and debt.
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