U.S. Bancorp: A Strong Finish to 2023 with Union Bank Integration

As we wrap up 2023, U.S. Bancorp (USB) has much to be proud of, including the successful integration of MUFG Union Bank and a strong fourth-quarter performance. The acquisition of Union Bank, announced in early January, has added significant scale to USB's business, with double-digit percent increases in loan and deposit balances. This strategic move has enabled the company to better serve its customers and communities, while also enhancing its competitive position in the regional banking market.



The integration of Union Bank's consumer and small business market share is expected to drive U.S. Bancorp's growth trajectory in the coming years. The acquisition brings considerable small business and consumer market share in a demographically attractive California market, which will be further bolstered by USB's leading digital capabilities and robust product set. This includes wealth management, consumer and business banking, and payments offerings, which can be overlayed to deepen existing Union Bank relationships and attract new customers.



Despite the challenging macroeconomic backdrop and high interest rates, U.S. Bancorp's loan demand remained muted in the fourth quarter. The demand for commercial and industrial, real estate, and consumer loans (except credit card loans) was subdued in October and November, which negatively influenced USB's average earning asset balance for the quarter. However, the company's net interest income (NII) was positively impacted by the high policy rate, which stood at a 22-year high of 5.25-5.5%. Despite an inverted yield curve, deposit migrations, and higher funding costs, U.S. Bancorp's NII is expected to have grown sequentially, driven by the high policy rate and the integration of Union Bank's loan portfolio.



Market volatility and client activity in the fourth quarter had a negative impact on U.S. Bancorp's non-interest income. Reduced volatility in equity markets and other asset classes, as well as a smaller origination market due to higher mortgage rates, led to a weak performance in trading revenues and mortgage banking revenues. This, coupled with higher expenses, including merger and integration costs, negatively impacted U.S. Bancorp's earnings growth in the fourth quarter. However, the company's earnings growth was driven by net interest income growth and positive operating leverage, which offset the impact of expenses.

Looking ahead, U.S. Bancorp expects to continue managing expenses effectively while investing in strategic areas such as digital initiatives, payment capabilities, and technology modernization. The company anticipates adjusted non-interest expenses of $4.2 billion for the fourth quarter, which includes core deposit intangibles amortization related to the Union Bank acquisition of $115 million. This guidance suggests that U.S. Bancorp is committed to controlling expenses while continuing to invest in growth opportunities.

In conclusion, U.S. Bancorp's acquisition of MUFG Union Bank has significantly enhanced the company's growth trajectory, with the integration of Union Bank's consumer and small business market share expected to drive customer engagement and loyalty. Despite a challenging macroeconomic backdrop, U.S. Bancorp's loan demand and net interest income performed well in the fourth quarter, while expenses, including merger and integration costs, had a notable impact on earnings. The company's commitment to effective expense management and strategic investments positions it well for future growth and success.