Why did reported earnings fall so sharply in the fourth quarter?

The decline was driven primarily by notable items totaling $1.1 billion pretax ($780 million after tax). The largest was a $734 million one-time FDIC special assessment tied to bank failures. Other items included $171 million of Union Bank merger and integration charges, $118 million of balance sheet optimization losses, and a $110 million charitable contribution. Excluding these, adjusted EPS was $0.99.

Is the net interest margin decline a concern for investors?

The NIM fell to 2.78% from 3.01% a year earlier and 2.81% in 3Q23, mainly because of deposit mix shifting toward higher-cost products and higher deposit pricing. Net interest income was down 4.2% year-over-year despite the Union Bank acquisition. Investors should watch whether deposit costs stabilize, since this is the key driver of near-term net interest income.

How strong is the bank's capital position after this quarter?

Capital improved. The Basel III standardized CET1 ratio reached 9.9%, up from 9.7% in 3Q23 and 8.4% a year earlier, and sits about 290 basis points above the regulatory minimum. Management attributes the gain mainly to earnings retention and balance sheet optimization. Total risk-based capital was 13.7%, and the company remains well capitalized.

Are credit quality trends deteriorating?

Credit is normalizing rather than collapsing. The net charge-off ratio rose to 0.49% from 0.44% sequentially, with the credit card charge-off rate at 3.65% and credit card 90-day delinquencies at 1.31%. Commercial real estate nonperforming loans rose to 1.45%, and total nonperforming assets increased to $1.49 billion. The allowance for credit losses increased to 2.10% of loans, which management says reflects normalizing losses and CRE stress.

Will the company resume share buybacks?

Not imminently. Repurchases have been suspended since the third quarter of 2021 except for stock-compensation activity, and management said it will evaluate buybacks in connection with potential capital requirements under proposed regulatory capital rules. Investors should not expect a near-term return of buybacks until that regulatory picture becomes clearer.

US BANCORP \DE\ 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed January 17, 2024. Cited figures are marked; the original filing is the authoritative source.

U.S. Bancorp's 4Q23 results, released January 17, 2024, were heavily distorted by notable items.

Reported net income attributable to U.S. Bancorp was $847 million^a, or $0.49 per diluted share, versus $1,523 million ($0.91) in 3Q23 and $925 million ($0.57) in 4Q22. Excluding $1.1 billion of pretax notable items ($780 million after tax, or $0.50 per share), adjusted EPS was $0.99, down 17.5% year-over-year and 5.7% sequentially. The largest pretax items were a $734 million FDIC special assessment, $171 million of Union Bank merger and integration charges, $118 million of balance sheet optimization losses, and a $110 million charitable contribution to fund the Community Benefit Plan.

Operationally, the quarter showed mixed trends. Adjusted total net revenue was $6.88 billion^b, up 1.7% year-over-year but down 2.2% linked quarter. Net interest income fell 4.2% year-over-year and the net interest margin compressed to 2.78% from 3.01%, driven by deposit mix and pricing.

Adjusted noninterest income grew 12.1% year-over-year, supported by payments, trust and investment management fees, and commercial products. Adjusted noninterest expense rose 6.3% year-over-year, largely from Union Bank costs, though it fell 1.0% sequentially. Credit costs are normalizing: the net charge-off ratio rose to 0.49% from 0.44% linked quarter, and the allowance for credit losses reached 2.10% of period-end loans, with nonperforming assets up to $1.49 billion^c.

Capital strengthened. The Basel III standardized CET1 ratio reached 9.9%, up 20 basis points sequentially and 150 basis points year-over-year, and adjusted tangible book value per share rose 7% to $22.30^d.

Management reported full-year 2023 adjusted diluted EPS of $4.31 and noted that the Union Bank acquisition has achieved $900 million of run-rate cost synergies. Share repurchases remain suspended, with management evaluating buybacks against proposed capital rules, and an investor should watch credit normalization in commercial real estate and credit card portfolios as the main risk to forward earnings.

02—Key points

Key Highlights

Reported 4Q23 diluted EPS was $0.49, against $0.99 adjusted for $780 million of after-tax notable items, including the $734 million FDIC special assessment.
Adjusted net revenue was $6.88 billion, up 1.7% year-over-year, while net interest margin fell to 2.78% from 3.01% on deposit mix and pricing pressure.
Adjusted noninterest income grew 12.1% year-over-year to $2.74 billion, led by payments, trust and investment management fees, and commercial products revenue.
The CET1 ratio rose to 9.9%, up 150 basis points year-over-year, and adjusted tangible book value per share increased 7% sequentially to $22.30.
The net charge-off ratio increased to 0.49% from 0.44% in 3Q23, with the allowance for credit losses at 2.10% of period-end loans and nonperforming assets up to $1.49 billion.
Full-year 2023 reported diluted EPS was $3.27, or $4.31 excluding notable items, and the Union Bank acquisition achieved its $900 million run-rate cost synergy target.
Share repurchases remain suspended, and management is evaluating buybacks in light of proposed regulatory capital rules.

03—Questions

Frequently Asked Questions

Why did reported earnings fall so sharply in the fourth quarter?
The decline was driven primarily by notable items totaling $1.1 billion pretax ($780 million after tax). The largest was a $734 million one-time FDIC special assessment tied to bank failures. Other items included $171 million of Union Bank merger and integration charges, $118 million of balance sheet optimization losses, and a $110 million charitable contribution. Excluding these, adjusted EPS was $0.99.
Is the net interest margin decline a concern for investors?
The NIM fell to 2.78% from 3.01% a year earlier and 2.81% in 3Q23, mainly because of deposit mix shifting toward higher-cost products and higher deposit pricing. Net interest income was down 4.2% year-over-year despite the Union Bank acquisition. Investors should watch whether deposit costs stabilize, since this is the key driver of near-term net interest income.
How strong is the bank's capital position after this quarter?
Capital improved. The Basel III standardized CET1 ratio reached 9.9%, up from 9.7% in 3Q23 and 8.4% a year earlier, and sits about 290 basis points above the regulatory minimum. Management attributes the gain mainly to earnings retention and balance sheet optimization. Total risk-based capital was 13.7%, and the company remains well capitalized.
Are credit quality trends deteriorating?
Credit is normalizing rather than collapsing. The net charge-off ratio rose to 0.49% from 0.44% sequentially, with the credit card charge-off rate at 3.65% and credit card 90-day delinquencies at 1.31%. Commercial real estate nonperforming loans rose to 1.45%, and total nonperforming assets increased to $1.49 billion. The allowance for credit losses increased to 2.10% of loans, which management says reflects normalizing losses and CRE stress.
Will the company resume share buybacks?
Not imminently. Repurchases have been suspended since the third quarter of 2021 except for stock-compensation activity, and management said it will evaluate buybacks in connection with potential capital requirements under proposed regulatory capital rules. Investors should not expect a near-term return of buybacks until that regulatory picture becomes clearer.

04—Continue

← View all 8-K filings