What happened

US Bancorp (USB -0.20%) had a great month of January: Its share price gained 14.2% last month, according to S&P Global Market Intelligence. US Bancorp is currently up about 13% year to date as of February 8, trading at around $49 per share. US Bancorp topped all of the major indexes in January -- the S&P 500 was up 6.2%, the Dow Jones Industrial Average gained 2.8%, and the Nasdaq Composite was up 10.7% for the month.

So what

US Bancorp, the holding company for US Bank, surged in January on the strength of a solid fourth-quarter and year-end 2022 earnings report. The bank beat analysts' earnings expectations.

Net revenue was up 12% in the fourth quarter year over year to $6.4 billion on a 37% increase in interest income due to higher interest rates and an 8% increase in total loans to $360 billion. Net interest margin ticked up to 3.01% from 2.83% the previous quarter and 2.40% a year ago.

Net income was down about 45% to $930 million year over year due to $1.2 billion in provision for credit losses, up from a small reserve a year ago, and merger and acquisition costs from the purchase of MUFG Union Bank.

For the full year, revenue was up 7% to $24.3 billion, with net interest income up 18% to $14.7 billion. Net interest margin was 2.79% for the full year, up from 2.49% a year ago. Net income was down 27% to $5.8 billion for full year 2022.

Now what

US Bancorp's stock price is up 13% year to date, and the consensus target among analysts is $54 per share, which would be a 9% increase over the current level.

One thing to watch in 2023 is the impact of the acquisition of MUFG Union Bank, which closed in December. This will bring added scale to US Bank, which is the fifth-largest bank in the nation. It particularly increases the bank's presence in California.

"We expect the transaction to be 8 to 9% accretive to 2023 EPS as the benefits of increased scale, cost synergies, and Union Bank's core deposit franchise are realized," Chairman, CEO, and President Andy Cecere said in the earnings report.

Credit quality weakened a bit, as expected, as the economy slowed, but US Bancorp has plenty of liquidity. It is well run, with an adjusted return on common equity of 16.8%, up from 16.2% the previous quarter. The high-interest-rate environment should serve US Bancorp well again this year, and the acquisition, initiated prior to rates rising, should provide a long-term competitive advantage.

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