10-QPeriod: Q3 FY2023

US BANCORP \DE\ Quarterly Report for Q3 Ended Sep 30, 2023

Filed November 1, 2023For Securities:USBUSB-PHUSB-PPUSB-PRUSB-PQUSB-PSUSB-PA

Summary

U.S. Bancorp (USB) reported net income attributable to the company of $1.52 billion for the third quarter of 2023, a decrease of 15.9% compared to $1.81 billion in the same period last year. Diluted earnings per share were $0.91, down from $1.16 in the prior year's third quarter. The results were impacted by $284 million in merger and integration charges related to the acquisition of MUFG Union Bank, which reduced EPS by $0.14. Total net revenue increased by 11.2% to $7.03 billion, driven by a 10.7% rise in net interest income and an 11.9% increase in noninterest income. For the first nine months of 2023, net income was $4.58 billion, a 6.5% decrease from $4.90 billion in the same period of 2022, with diluted EPS at $2.79, down from $3.13. Total net revenue for the nine-month period grew by 19.2% to $21.38 billion. The company saw an increase in the provision for credit losses, up 42.3% for the quarter and significantly higher for the nine-month period, reflecting normalizing credit conditions and concerns in commercial real estate. Net charge-offs also increased year-over-year. The acquisition of MUFG Union Bank, completed in December 2022, continues to impact expenses with ongoing integration costs. The company's capital ratios remain strong, exceeding regulatory requirements, with Common Equity Tier 1 capital at 9.7% (or 9.5% fully phased-in CECL) at quarter-end. Management is focused on integrating the acquired bank while managing credit quality and navigating the current economic environment.

Financial Highlights

38 data points
Beta

Revenue

$7.03B

Net Income

$1.52B

21.7% Net Margin

EPS (Diluted)

$0.91

Total Assets

$668.04B

Cash & Equivalents

$64.35B

Free Cash Flow

$3.87B

Financial Statements
Beta
Revenue$7.03B
Interest Expense$3.52B
Net Income$1.52B
EPS (Basic)$0.91
EPS (Diluted)$0.91
Shares Outstanding (Basic)1.55B
Shares Outstanding (Diluted)1.55B

Key Highlights

  • 1Net income for Q3 2023 decreased by 15.9% year-over-year to $1.52 billion, with diluted EPS at $0.91.
  • 2Total net revenue for Q3 2023 increased by 11.2% to $7.03 billion, driven by higher net interest income and noninterest income.
  • 3The provision for credit losses increased by 42.3% in Q3 2023, reflecting normalizing credit conditions and commercial real estate quality.
  • 4Noninterest expense increased by 24.6% in Q3 2023, largely due to $284 million in merger and integration charges related to the MUFG Union Bank acquisition.
  • 5The Common Equity Tier 1 capital ratio remained strong at 9.7% (9.5% fully phased-in CECL) as of September 30, 2023, exceeding regulatory requirements.
  • 6Loans held for sale decreased by 23.9% in Q3 2023 compared to the prior year, while total loans on the balance sheet decreased by 3.3% from the end of 2022.
  • 7The company successfully repaid $936 million of its debt obligation to MUFG through the issuance of common stock.

Frequently Asked Questions

The acquisition of MUFG Union Bank significantly impacted the results. For the third quarter of 2023, merger and integration-related charges amounted to $284 million, which reduced diluted earnings per common share by $0.14. The acquisition also contributed to higher operating expenses and an increase in net interest income and noninterest income due to the addition of the acquired bank's balance sheet and operations.

The provision for credit losses increased by 42.3% in the third quarter of 2023, driven by normalizing credit losses and concerns regarding commercial real estate credit quality. Net charge-offs also increased year-over-year. Management is actively monitoring credit risk and has increased its allowance for credit losses to $7.8 billion, representing 2.08% of period-end loans, to account for increased economic uncertainty and normalizing credit conditions.

U.S. Bancorp's capital ratios remain robust. The Common Equity Tier 1 capital ratio was 9.7% (or 9.5% when reflecting the full implementation of the CECL methodology) as of September 30, 2023, comfortably exceeding the regulatory 'well-capitalized' requirements. The company also highlighted that it received full relief from certain commitments to the Federal Reserve related to its acquisition, meaning it will continue to be subject to Category III regulatory capital requirements.

The company has reduced its investment securities portfolio by 5.6% from the end of 2022 to $152.5 billion. This reduction is part of balance sheet repositioning and liquidity management. The company actively manages interest rate risk through asset and liability management activities, including the use of derivatives. While the net interest margin decreased slightly in Q3 compared to Q3 2022 due to deposit pricing, it increased year-over-year for the nine-month period, benefiting from higher rates on earning assets and the MUB acquisition.