8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): April 17, 2019

U.S. BANCORP

(Exact name of registrant as specified in its charter)

1-6880

(Commission File Number)

 

DELAWARE   41-0255900
(State or other jurisdiction   (I.R.S. Employer Identification
of incorporation)   Number)

800 Nicollet Mall

Minneapolis, Minnesota 55402

(Address of principal executive offices and zip code)

(651) 466-3000

(Registrant’s telephone number, including area code)

(not applicable)

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 Under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule l2b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section l3(a) of the Exchange Act.  ☐

 

 

 


ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

On April 17, 2019, U.S. Bancorp (the “Company”) issued a press release reporting quarter-ended March 31, 2019 results, and posted on its website its 1Q19 Earnings Conference Call Presentation, which contains certain additional historical and forward-looking information relating to the Company. The press release is included as Exhibit 99.1 hereto and is incorporated herein by reference. The information included in the press release is considered to be “filed” under the Securities Exchange Act of 1934. The 1Q19 Earnings Conference Call Presentation is included as Exhibit 99.2 hereto and is incorporated herein by reference. The information included in the 1Q19 Earnings Conference Call Presentation is considered to be “furnished” under the Securities Exchange Act of 1934 and shall not be deemed incorporated by reference in any filings under the Securities Act of 1933. The press release and 1Q19 Earnings Conference Call Presentation contain forward-looking statements regarding the Company and each includes a cautionary statement identifying important factors that could cause actual results to differ materially from those anticipated.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.

(d) Exhibits.

 

  99.1

Press Release issued by U.S. Bancorp on April 17, 2019, deemed “filed” under the Securities Exchange Act of 1934.

 

  99.2

1Q19 Earnings Conference Call Presentation, deemed “furnished” under the Securities Exchange Act of 1934.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

U.S. BANCORP
By /s/    Craig E. Gifford      
Craig E. Gifford
Executive Vice President and
Controller

DATE: April 17, 2019

EX-99.1

Exhibit 99.1

 

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U.S. Bancorp Reports First Quarter 2019 Results

 Net revenue of $5,577 million and net income of $1,699 million

 Industry leading return on average assets of 1.49% and return on average common equity of 14.3%

 

 

    1Q19 Key Financial Data

  1Q19 Highlights
          
  PROFITABILITY METRICS   1Q19      4Q18      1Q18          

 

 Net income of $1,699 million and diluted earnings per
   common share of $1.00

 

 Industry leading return on average assets of 1.49% and
   return on average common equity of 14.3%

 

 Return on tangible common equity of 18.4%

 

 Returned 77% of 1Q earnings to shareholders through
   dividends and share buybacks

 

 Net interest income grew 2.9% year-over-year (2.8% on a
   taxable-equivalent basis) with positive operating leverage of
   1.0% on a year-over-year basis

 

 Average total loans grew 0.9% on a linked quarter basis and
   2.4% (3.7% excluding the impact of loan sales) year- over
   -year

 

 Nonperforming assets decreased 16.5% on a year-over-
   year basis

 Return on average assets (%)

    1.49        1.59        1.50      

 Return on average common equity (%)

    14.3        15.8        14.9      

 Return on tangible common equity (%) (a)

    18.4        20.2        19.3      

 Net interest margin (%)

    3.16        3.15        3.13      

 Efficiency ratio (%) (a)

    55.4        56.3        55.9      
 INCOME STATEMENT (b)   1Q19      4Q18      1Q18         

 Net interest income (taxable-equivalent basis)

    $3,286        $3,331        $3,197      

 Noninterest income

    $2,291        $2,498        $2,272      

 Net income attributable to U.S. Bancorp

    $1,699        $1,856        $1,675      

 Diluted earnings per common share

    $1.00        $1.10        $.96      

 Dividends declared per common share

    $.37        $.37        $.30      
 BALANCE SHEET (b)   1Q19      4Q18      1Q18         

 Average total loans

    $286,110        $283,677        $279,388      

 Average total deposits

    $335,366        $334,365        $334,580      

 Net charge-off ratio

    .52%       .49%       .49%     

 Book value per common share (period end)

    $28.81        $28.01        $26.54      

 Basel III standardized CET1 (c)

 

   

 

9.3% 

 

 

 

   

 

9.1% 

 

 

 

   

 

9.0%

 

 

 

  
 (a) See Non-GAAP Financial Measures reconciliation on page 16  
 (b) Dollars in millions, except per share data  
 (c) CET1 = Common equity tier 1 capital ratio  

 

 

CEO Commentary

 

“As our financial results indicate, we had a good start to the year with momentum continuing across our lending and fee businesses. In the first quarter, our industry-leading returns on assets and equity were supported by solid loan growth, disciplined expense management and stable credit quality. Our balance sheet is strong and growing as evidenced by an 8.6% increase in our book value per share compared with a year ago. During the quarter, we returned 77 percent of our earnings to shareholders through dividends and share buybacks. We are pleased with our results this quarter and remain focused on the long-term success of this company - and the disciplined investment in people and technology that will drive that success. We are launching a number of digital initiatives combining the best of technology and innovation to help make our customers’ financial lives simpler and more productive. I would like to thank our employees for all they do to create value for our customers, communities and shareholders.”

 

— Andy Cecere, Chairman, President and CEO, U.S. Bancorp                            

 

 

In the Spotlight

 

 

 

One of the 2019 World’s Most Ethical Companies

U.S. Bank has been named one of the 2019 World’s Most Ethical Companies by the Ethisphere Institute, a global leader in defining and advancing the standards of ethical business practices. This is the fifth consecutive year U.S. Bank has received this recognition.

Top Marks Received in 2019 Corporate Equality Index

For the 12th time in a row, U.S. Bank received a perfect score of 100 on the Corporate Equality Index, the nation’s premier benchmarking survey and report on corporate policies and practices related to LGBTQ workplace equality, administered by the Human Rights Campaign Foundation. Through its index, the Foundation evaluates policies and practices of businesses including non-discrimination workplace protections, domestic partner and inclusive health care benefits, competency programs, and public engagement with the LGBTQ community.

Asset Backed Securitization Lending Business

We recently launched a new Asset Backed Securitization Lending business, underscoring our commitment to our Fixed Income & Capital Markets platform to provide current and prospective customers with additional ways to access capital.

New U.S. Bank Mobile App

We recently unveiled our entirely redesigned U.S. Bank Mobile App, fueled by extensive research on how people use their mobile apps and an analysis of consumer needs. Using a customer-based mindset, the app includes all the tools identified by consumers that help them quickly, confidently and securely manage their finances at their fingertips.

 

 

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    Investor contact: Jennifer Thompson, 612.303.0778 | Media contact: Rebekah Fawcett, 612.303.9986


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   U.S. Bancorp First Quarter 2019 Results
      

 

 INCOME STATEMENT HIGHLIGHTS                                    
 ($ in millions, except per-share data)                     Percent Change      
     1Q      4Q    1Q    1Q19 vs      1Q19 vs  
      2019      2018    2018    4Q18      1Q18  

Net interest income

     $3,259         $3,303         $3,168         (1.3)        2.9   

Taxable-equivalent adjustment

     27         28         29         (3.6)        (6.9)  

Net interest income (taxable-equivalent basis)

     3,286         3,331         3,197         (1.4)        2.8   

Noninterest income

     2,291         2,498         2,272         (8.3      .8   

Total net revenue

     5,577         5,829         5,469         (4.3      2.0   

Noninterest expense

     3,087         3,280         3,055         (5.9)        1.0   

Income before provision and income taxes

     2,490         2,549         2,414         (2.3)        3.1   

Provision for credit losses

     377         368         341         2.4        10.6   

Income before taxes

     2,113         2,181         2,073         (3.1)        1.9   

Income taxes and taxable-equivalent adjustment

     405         319         391         27.0         3.6   

Net income

     1,708         1,862         1,682         (8.3)        1.5   

Net (income) loss attributable to noncontrolling interests

     (9)        (6)        (7)        (50.0)        (28.6)  

Net income attributable to U.S. Bancorp

     $1,699         $1,856         $1,675         (8.5)        1.4   

Net income applicable to U.S. Bancorp common shareholders

     $1,613         $1,777         $1,597         (9.2)        1.0   

Diluted earnings per common share

     $1.00         $1.10         $.96         (9.1)        4.2   
   

Net income attributable to U.S. Bancorp was $1,699 million for the first quarter of 2019, which was 1.4 percent higher than the first quarter of 2018, and 8.5 percent lower than the fourth quarter of 2018. Diluted earnings per common share were $1.00 in the first quarter of 2019, compared with $0.96 in the first quarter of 2018 and $1.10 in the fourth quarter of 2018. The fourth quarter of 2018 included $0.03 per diluted common share of notable items related to the impact of the gain on sale of the Company’s ATM servicing business and the sale of a majority of the Company’s FDIC covered loans, charges related to severance, certain asset impairments, an accrual for legal matters, and the favorable impact to deferred tax assets and liabilities related to changes in estimates from tax reform. Given the sale of the third-party ATM processing business during the fourth quarter of 2018, ATM processing services revenue and deposit service charges were combined for reporting purposes.

The increase in net income year-over-year was due to total net revenue growth of 2.0 percent partially offset by noninterest expense growth of 1.0 percent. Net interest income increased 2.9 percent (2.8 percent on a taxable-equivalent basis), mainly a result of the impact of rising interest rates, loan growth, and higher yields on reinvestment of securities, partially offset by higher rates on deposits and funding mix. Noninterest income increased 0.8 percent compared with a year ago, driven by growth in corporate payment products and merchant processing services revenue, along with other noninterest revenue, partially offset by declines in credit and debit card revenue, mortgage banking revenue and deposit service charges. Deposit service charges include ATM processing services revenue and decreased as a result of the sale of the third-party ATM processing business in the fourth quarter of 2018. Noninterest expense increased 1.0 percent primarily due to increased compensation expense, along with higher technology and communications expense in support of business growth. Partially offsetting these expense categories was lower other noninterest expense driven by lower costs related to tax-advantaged projects and FDIC assessment costs.

Net income decreased on a linked quarter basis primarily due to a decrease in total net revenue of 4.3 percent, partially offset by a reduction in noninterest expense of 5.9 percent. The decrease in total net revenue reflected a decline in net interest income of 1.3 percent (1.4 percent on a taxable-equivalent basis) primarily due to two fewer days in the first quarter along with higher rates on deposits, lower interest recoveries, and funding mix, partially offset by loan growth. Excluding the fourth quarter of 2018 notable items, noninterest income decreased 5.4 percent compared with the fourth quarter of 2018 driven by lower credit and debit card revenue and lower ATM processing services revenue as a result of the business sale. Excluding the fourth quarter of 2018 notable items, noninterest expense decreased 0.6 percent on a linked quarter basis primarily driven by lower professional services and marketing and business development expense, partially offset by seasonally higher employee benefits and an increase in other noninterest expense.

 

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   U.S. Bancorp First Quarter 2019 Results
      

 

NET INTEREST INCOME  
 (Taxable-equivalent basis; $ in millions)                         Change  
     

1Q

2019

    

4Q

2018

    

1Q

2018

     1Q19 vs
4Q18
   1Q19 vs
1Q18
 

Components of net interest income

              

Income on earning assets

     $4,381         $4,341         $3,822       $40        $559   

Expense on interest-bearing liabilities

     1,095         1,010         625       85        470   

Net interest income

     $3,286         $3,331         $3,197       $(45)       $89   

Average yields and rates paid

                                

Earning assets yield

     4.22%         4.11%         3.75%       .11%       .47%   

Rate paid on interest-bearing liabilities

     1.38            1.26            .81          .12          .57      

Gross interest margin

     2.84%         2.85%         2.94%       (.01)%       (.10)%   

Net interest margin

     3.16%         3.15%         3.13%       .01%       .03%   

Average balances

                                  

Investment securities (a)

     $114,179         $114,138         $113,493       $41        $686   

Loans

     286,110         283,677         279,388       2,433        6,722   

Earning assets

     419,494         420,472         411,849       (978)       7,645   

Interest-bearing liabilities

     322,156         319,289         311,615       2,867        10,541   

(a) Excludes unrealized gain (loss)

 

                                        

Net interest income on a taxable-equivalent basis in the first quarter of 2019 was $3,286 million, an increase of $89 million (2.8 percent) over the first quarter of 2018. The increase was principally driven by the impact of rising interest rates, earning assets growth, and higher yields on securities, partially offset by deposit pricing and funding mix shift. Average earning assets were $7.6 billion (1.9 percent) higher than the first quarter of 2018, reflecting increases of $6.7 billion (2.4 percent) in average total loans, $686 million (0.6 percent) in average investment securities, and $1.2 billion (7.8 percent) in average other earning assets. Excluding the impact of the second quarter of 2018 sale of the Company’s federally guaranteed student loan portfolio and the fourth quarter of 2018 sale of the majority of the Company’s FDIC covered loans, average total loans grew 3.7 percent compared with the first quarter of 2018.

Net interest income on a taxable-equivalent basis decreased $45 million (1.4 percent) on a linked quarter basis primarily driven by two fewer days in the first quarter and lower interest recoveries, partially offset by loan growth. Average earning assets were $978 million (0.2 percent) lower on a linked quarter basis, reflecting decreases of $2.5 billion (12.5 percent) in average other earning assets due to a seasonal decrease in cash balances and $1.0 billion (32.0 percent) in average loans held for sale primarily due to the sale of the majority of the Company’s FDIC covered loans in the fourth quarter of 2018, partially offset by an increase of $2.4 billion (0.9 percent) in average total loans.

The net interest margin in the first quarter of 2019 was 3.16 percent, compared with 3.13 percent in the first quarter of 2018 and 3.15 percent in the fourth quarter of 2018. The increase in the net interest margin year-over-year was primarily due to rising interest rates, higher reinvestment rates on maturing securities, and loan portfolio mix, partially offset by deposit and funding mix. The increase in net interest margin on a linked quarter basis was primarily due to loan portfolio mix, lower cash balances, and the impact of the fourth quarter rate hike on assets, partially offset by the impact of deposit and funding mix.

Average investment securities in the first quarter of 2019 increased $686 million (0.6 percent) over the first quarter of 2018 and $41 million over the fourth quarter of 2018 due to purchases of mortgage-backed and state and political securities, net of prepayments and maturities.

 

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   U.S. Bancorp First Quarter 2019 Results
      

 

 AVERAGE LOANS                                    
 ($ in millions)                         Percent Change  
     

1Q

2019

    

4Q

2018

    

1Q

2018

    

1Q19 vs

4Q18

  

1Q19 vs

1Q18

Commercial

     $96,447         $95,025         $91,933       1.5     4.9 

Lease financing

     5,513         5,490         5,532       .4     (.3)

Total commercial

     101,960         100,515         97,465       1.4     4.6 

Commercial mortgages

     28,459         28,930         29,176       (1.6)    (2.5)

Construction and development

     11,011         11,219         11,190       (1.9)    (1.6)

Total commercial real estate

     39,470         40,149         40,366       (1.7)    (2.2)

Residential mortgages

     65,582         64,476         60,174       1.7     9.0 

Credit card

     22,597         22,396         21,284       .9     6.2 

Retail leasing

     8,586         8,489         7,982       1.1     7.6 

Home equity and second mortgages

     15,993         16,065         16,195       (.4)    (1.2)

Other

     31,922         31,587         32,874       1.1     (2.9)

Total other retail

     56,501         56,141         57,051       .6     (1.0)

Covered loans (a)

     --          --          3,048       --      nm  
     

Total loans

     $286,110         $283,677         $279,388       .9     2.4 

(a)  During the fourth quarter of 2018, the majority of the Company’s covered loans were sold or the loss share coverage expired, with any remaining loan balances reclassified to be included in their respective portfolio category.

 

 

Average total loans were $6.7 billion (2.4 percent) higher than the first quarter of 2018. Excluding the impact of the second quarter of 2018 sale of the Company’s federally guaranteed student loan portfolio and the fourth quarter of 2018 sale of the majority of the Company’s FDIC covered loans, average total loans grew 3.7 percent over the prior year quarter. The increase was due to growth in residential mortgages (9.0 percent), total commercial loans (4.6 percent), credit card loans (6.2 percent), and retail leasing (7.6 percent). These increases were partially offset by decreases in covered loans due to the fourth quarter of 2018 sale, total commercial real estate loans (2.2 percent) due to customers paying down balances and other loans (2.9 percent) which were impacted by the sale of student loans.

Average total loans were $2.4 billion (0.9 percent) higher than the fourth quarter of 2018 driven by growth in residential mortgages (1.7 percent) and total commercial loans (1.4 percent), partially offset by a decrease in total commercial real estate loans (1.7 percent).

 

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   U.S. Bancorp First Quarter 2019 Results
      

 

 AVERAGE DEPOSITS                                    
 ($ in millions)                         Percent Change
     

1Q

2019

    

4Q

2018

    

1Q

2018

    

1Q19 vs

4Q18

  

1Q19 vs

1Q18

Noninterest-bearing deposits

     $73,433         $77,160         $79,482       (4.8)    (7.6)

Interest-bearing savings deposits

              

Interest checking

     72,177         71,013         70,358       1.6     2.6 

Money market savings

     99,432         99,594         103,367       (.2)    (3.8)

Savings accounts

     45,216         44,544         44,388       1.5     1.9 

 Total savings deposits

     216,825         215,151         218,113       .8     (.6)

Time deposits

     45,108         42,054         36,985       7.3     22.0 

 Total interest-bearing deposits

     261,933         257,205         255,098       1.8     2.7 

Total deposits

     $335,366         $334,365         $334,580       .3     .2 
                                      

Average total deposits for the first quarter of 2019 were $786 million (0.2 percent) higher than the first quarter of 2018. Average noninterest-bearing deposits decreased $6.0 billion (7.6 percent) year-over-year primarily due to the continued deployment by customers of business deposits within Corporate and Commercial Banking and corporate trust balances within Wealth Management and Investment Services. Average total savings deposits were $1.3 billion (0.6 percent) lower year-over-year driven by decreases in corporate trust balances within Wealth Management and Investment Services along with the run-off related to the business merger of a large financial customer, partially offset by increases in Consumer and Business Banking. Average time deposits were $8.1 billion (22.0 percent) higher than the prior year quarter. Changes in time deposits are largely related to those deposits managed as an alternative to other funding sources such as wholesale borrowing, based largely on relative pricing and liquidity characteristics.

Average total deposits increased $1.0 billion (0.3 percent) from the fourth quarter of 2018. On a linked quarter basis, average noninterest-bearing deposits decreased $3.7 billion (4.8 percent) reflecting decreases in Corporate and Commercial Banking and Consumer and Business Banking. Average total savings deposits increased $1.7 billion (0.8 percent) on a linked quarter basis primarily due to increases in Consumer and Business Banking and Corporate and Commercial Banking. Average time deposits, which are managed based on funding needs, relative pricing and liquidity characteristics, increased $3.1 billion (7.3 percent) on a linked quarter basis.

 

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   U.S. Bancorp First Quarter 2019 Results
      

 

 NONINTEREST INCOME                                   
 ($ in millions)                     Percent Change  
    

1Q

2019

   

4Q

2018

   

1Q

2018

   

1Q19 vs

4Q18

   

1Q19 vs

1Q18

 

Credit and debit card revenue

    $304        $382        $324        (20.4)       (6.2)  

Corporate payment products revenue

    162        163        154        (.6)       5.2   

Merchant processing services

    378        389        363        (2.8)       4.1   

Trust and investment management fees

    399        409        398        (2.4)       .3   

Deposit service charges

    217        253        261        (14.2)       (16.9)  

Treasury management fees

    146        143        150        2.1        (2.7)  

Commercial products revenue

    219        225        220        (2.7)       (.5)  

Mortgage banking revenue

    169        171        184        (1.2)       (8.2)  

Investment products fees

    45        48        46        (6.3)       (2.2)  

Securities gains (losses), net

                      --         --    

Other

    247        310        167        (20.3)       47.9   

Total noninterest income

    $2,291        $2,498        $2,272        (8.3)       .8   
                                         

First quarter noninterest income of $2,291 million was $19 million (0.8 percent) higher than the first quarter of 2018 driven by growth in corporate payment products revenue and merchant processing services reflecting higher sales volumes. Other noninterest income also increased year-over-year primarily due to higher equity investment income, tax-advantaged investment syndication revenue, and transition services agreement revenue associated with the ATM processing business sale in 2018. These increases were partially offset by lower credit and debit card revenue, lower deposit service charges, and lower mortgage banking revenue. Credit and debit card revenue decreased $20 million (6.2 percent) reflecting fewer billing cycle processing days in the first quarter of 2019, a change in the accounting for prepaid card revenue in the first quarter of 2018, and industry trends in post-holiday consumer spending. Deposit service charges decreased $44 million (16.9 percent) driven by the sale of the Company’s ATM third-party servicing business in 2018. The decrease in mortgage banking revenue of $15 million (8.2 percent) was due to changes in mortgage servicing rights valuations, net of hedging activities, and lower servicing income, partially offset by higher production volume.

Noninterest income was $207 million (8.3 percent) lower in the first quarter of 2019 compared with the fourth quarter of 2018 reflecting lower payment services revenue, deposit service charges, and other noninterest income. Payment services revenue decreased $90 million (9.6 percent) primarily due to seasonally lower sales across all payment business segments and fewer billing cycle processing days within the credit and debit card business segment. Deposit service charges decreased $36 million (14.2 percent) primarily due to the sale of the Company’s ATM third-party servicing business and the seasonal impact of two fewer days in the first quarter of 2019. Other noninterest income decreased $63 million (20.3 percent) on a linked quarter basis primarily due to the notable items in the fourth quarter of 2018. Excluding the notable items, other noninterest income increased 5.6 percent on a linked quarter basis.

 

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   U.S. Bancorp First Quarter 2019 Results
      

 

 NONINTEREST EXPENSE                       
 ($ in millions)                     Percent Change  
    1Q     4Q     1Q     1Q19 vs     1Q19 vs  
     2019     2018     2018     4Q18     1Q18  

Compensation

    $1,559        $1,568        $1,523        (.6)       2.4   

Employee benefits

    333        308        330        8.1        .9   

Net occupancy and equipment

    277        266        265        4.1        4.5   

Professional services

    95        133        83        (28.6)       14.5   

Marketing and business development

    89        115        97        (22.6)       (8.2)  

Technology and communications

    257        254        235        1.2        9.4   

Postage, printing and supplies

    72        80        80        (10.0)       (10.0)  

Other intangibles

    40        41        39        (2.4)       2.6   

Other

    365        515        403        (29.1)       (9.4)  

Total noninterest expense

    $3,087        $3,280        $3,055        (5.9)       1.0   
                                         

First quarter noninterest expense of $3,087 million was $32 million (1.0 percent) higher than the first quarter of 2018 primarily due to higher personnel costs and technology investment, partially offset by lower other noninterest expense. Compensation expense increased $36 million (2.4 percent) principally due to the impact of hiring to support business growth and merit increases. Other noninterest expense decreased $38 million (9.4 percent) due to lower FDIC assessment costs, driven by the elimination of the surcharge in the fourth quarter of 2018, and lower costs related to tax-advantaged projects, partially offset by other expenses.

Noninterest expense decreased $193 million (5.9 percent) on a linked quarter basis. The fourth quarter of 2018 included notable items related to severance charges and legal accruals recorded in noninterest expense. Excluding the impact of the fourth quarter of 2018 notable items noninterest expense decreased $19 million (0.6 percent) due to seasonally lower costs related to tax-advantaged projects and professional services, along with lower marketing and business development expense driven by the timing of certain marketing campaigns. Partially offsetting these decreases were increases in employee benefits expense of $25 million (8.1 percent) due to seasonally higher payroll taxes.

Provision for Income Taxes

The provision for income taxes for the first quarter of 2019 resulted in a tax rate of 19.2 percent on a taxable-equivalent basis (effective tax rate of 18.1 percent), compared with 18.9 percent (effective tax rate of 17.7 percent) in the first quarter of 2018, and 14.6 percent on a taxable-equivalent basis (effective tax rate of 13.5 percent) in the fourth quarter of 2018. Tax expense for the first quarter of 2019 reflected the favorable conclusion of a state tax matter. The fourth quarter of 2018 tax rates reflected the favorable impact of deferred tax assets and liabilities adjustments related to tax reform estimates. Excluding the changes in estimates related to deferred tax assets and liabilities, the taxable-equivalent rate was 20.1 percent in the fourth quarter of 2018.

 

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   U.S. Bancorp First Quarter 2019 Results
      

 

 ALLOWANCE FOR CREDIT LOSSES  
 ($ in millions)    1Q         4Q         3Q         2Q         1Q       
      2019    % (a)     2018    % (a)     2018    % (a)     2018    % (a)     2018    % (a)  

 

Balance, beginning of period

     $4,441            $4,426            $4,411            $4,417            $4,417      

Net charge-offs

                             

Commercial

     71        .30         64        .27         63        .27         54        .23         56        .25   

Lease financing

     2        .15        3        .22        3        .22        4        .29        4        .29  
  

 

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

 

 

  

Total commercial

     73        .29        67        .26        66        .26        58        .24        60        .25  

Commercial mortgages

     --         --         (8      (.11      (5      (.07      --         --         (4      (.06

Construction and development

     --         --         1        .04        (4      (.14      --         --         1        .04  
  

 

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

 

 

  

Total commercial real estate

     --         --         (7      (.07      (9      (.09      --         --         (3      (.03

Residential mortgages

     3        .02        2        .01        4        .03        4        .03        7        .05  

Credit card

     225        4.04        219        3.88        206        3.75        210        3.97        211        4.02  

Retail leasing

     4        .19        3        .14        3        .14        3        .15        3        .15  

Home equity and second mortgages

     (1      (.03      1        .02        (1      (.02      (2      (.05      (1      (.03

Other

     63        .80        68        .85        59        .74        59        .76        64        .79  
  

 

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

 

 

  

Total other retail

    

 

66

 

 

 

    

 

.47

 

 

 

    

 

72

 

 

 

    

 

.51

 

 

 

    

 

61

 

 

 

    

 

.43

 

 

 

    

 

60

 

 

 

    

 

.43

 

 

 

    

 

66

 

 

 

    

 

.47

 

 

 

  

 

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

 

 

  

Total net charge-offs

     367        .52        353        .49        328        .46        332        .48        341        .49  

Provision for credit losses

     377           368           343           327           341     

Other changes

     --            --            --            (1         --      
  

 

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

 

 

  

Balance, end of period

       $4,451             $4,441             $4,426             $4,411             $4,417     
  

 

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

 

 

  

Components

                             

Allowance for loan losses

       $3,990             $3,973             $3,954             $3,920             $3,918     

Liability for unfunded credit commitments

     461           468           472           491           499     
  

 

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

 

 

  

Total allowance for credit losses

       $4,451             $4,441             $4,426             $4,411             $4,417     
  

 

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

 

 

  

 

Gross charge-offs

     $473           $442           $428           $437           $453     

Gross recoveries

     $106           $89           $100           $105           $112     

Allowance for credit losses as a percentage of

 

                    

Period-end loans

     1.55           1.55           1.57           1.57           1.59     

Nonperforming loans

     519           544           544           484           431     

Nonperforming assets

     443           449           441           404           367     

(a)  Annualized and calculated on average loan balances

 

   

 

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   U.S. Bancorp First Quarter 2019 Results
      

 

Credit quality was relatively stable on a linked quarter and year-over-year basis. The Company’s provision for credit losses for the first quarter of 2019 was $377 million, which was $9 million (2.4 percent) higher than the prior quarter and $36 million (10.6 percent) higher than the first quarter of 2018.

Total net charge-offs in the first quarter of 2019 were $367 million, compared with $353 million in the fourth quarter of 2018, and $341 million in the first quarter of 2018. Net charge-offs increased $14 million (4.0 percent) compared with the fourth quarter of 2018 due to higher total commercial real estate, total commercial loans and credit card net charge-offs, partially offset by lower total other retail net charge-offs. Net charge-offs increased $26 million (7.6 percent) compared with the first quarter of 2018 primarily due to higher total commercial loan and credit card net charge-offs. The net charge-off ratio was 0.52 percent in the first quarter of 2019, compared with 0.49 percent in the fourth quarter of 2018 and in the first quarter of 2018.

The allowance for credit losses was $4,451 million at March 31, 2019, compared with $4,441 million at December 31, 2018, and $4,417 million at March 31, 2018. The ratio of the allowance for credit losses to period-end loans was 1.55 percent at March 31, 2019, and at December 31, 2018, compared with 1.59 percent at March 31, 2018. The ratio of the allowance for credit losses to nonperforming loans was 519 percent at March 31, 2019, compared with 544 percent at December 31, 2018, and 431 percent at March 31, 2018.

Nonperforming assets were $1,005 million at March 31, 2019, compared with $989 million at December 31, 2018, and $1,204 million at March 31, 2018. The ratio of nonperforming assets to loans and other real estate was 0.35 percent at March 31, 2019, compared with 0.34 percent at December 31, 2018, and 0.43 percent at March 31, 2018. The year-over-year decrease in nonperforming assets was driven by decreases in nonperforming residential mortgages, total commercial loans, and other real estate owned. Accruing loans 90 days or more past due were $595 million at March 31, 2019, compared with $584 million at December 31, 2018, and $702 million at March 31, 2018.

 

 DELINQUENT LOAN RATIOS AS A PERCENT OF ENDING LOAN BALANCES  
 (Percent)    Mar 31    Dec 31    Sep 30    Jun 30    Mar 31   
      2019    2018    2018    2018    2018   

Delinquent loan ratios - 90 days or more past due excluding nonperforming loans

 

  

Commercial

     .07        .07        .06        .06        .06    

Commercial real estate

     .01        --         .01        .01        .01    

Residential mortgages

     .18        .18        .19        .18        .22    

Credit card

     1.29        1.25        1.18        1.15        1.29    

Other retail

     .19        .19        .17        .16        .18    

Covered loans

     --         --         .86        4.46        4.57    

Total loans

     .21        .20        .20        .23        .25    

Delinquent loan ratios - 90 days or more past due including nonperforming loans

 

  

Commercial

     .34        .27        .28        .28        .37   

Commercial real estate

     .33        .29        .27        .27        .31   

Residential mortgages

     .62        .63        .69        .84        .93   

Credit card

     1.29        1.25        1.18        1.15        1.29   

Other retail

     .49        .54        .49        .48        .48   

Covered loans

     --        --        .86        4.68        4.77   

Total loans

     .51        .49        .48        .55        .62   
                                              

 

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   U.S. Bancorp First Quarter 2019 Results
      

 

 ASSET QUALITY (a)                                        
 ($ in millions)                                   
     

Mar 31

2019

    

Dec 31

2018

    

Sep 30

2018

    

Jun 30

2018

    

Mar 31

2018

 

Nonperforming loans

              

Commercial

     $247         $186         $193         $199         $274   

Lease financing

     24         23         23         25         27   

Total commercial

     271         209         216         224         301   

Commercial mortgages

     79         76         77         72         86   

Construction and development

     48         39         28         32         33   

Total commercial real estate

     127         115         105         104         119   

Residential mortgages

     287         296         317         400         430   

Credit card

     --          --          --          --          --    

Other retail

     173         197         175         178         168   

Covered loans

     --          --          --                  

Total nonperforming loans

     858         817         813         912         1,024   

Other real estate

     93         111         100         108         124   

Covered other real estate

     --          --          19         20         20   

Other nonperforming assets

     54         61         72         51         36   

Total nonperforming assets

     $1,005         $989         $1,004         $1,091         $1,204   

Accruing loans 90 days or more past due

     $595         $584         $551         $640         $702   

Performing restructured loans, excluding GNMA

     $2,173         $2,218         $2,272         $2,194         $2,222   

Performing restructured GNMA

     $1,578         $1,639         $1,668         $1,665         $1,566   

Nonperforming assets to loans plus ORE (%)

     .35         .34         .36         .39         .43   

(a) Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due

 

 

 

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   U.S. Bancorp First Quarter 2019 Results
      

 

 COMMON SHARES                                        
 (Millions)   

1Q

2019

    

4Q

2018

    

3Q

2018

    

2Q

2018

    

1Q

2018

 

Beginning shares outstanding

     1,608         1,623         1,636         1,649         1,656   

Shares issued for stock incentive plans, acquisitions and other corporate purposes

                          --          

Shares repurchased

     (12)        (16)        (14)        (13)        (11)  

Ending shares outstanding

     1,599         1,608         1,623         1,636         1,649   
                                              

 

 CAPITAL POSITION                                                            
 ($ in millions)  

Mar 31

2019

        

Dec 31

2018

        

Sep 30

2018

        

Jun 30

2018

        

Mar 31

2018

      

Total U.S. Bancorp shareholders’ equity

    $52,057          $51,029          $50,375          $49,628          $49,187     

Basel III Standardized Approach

                                           

Common equity tier 1 capital

    $35,732          $34,724          $34,097          $34,161          $33,539     

Tier 1 capital

    41,748          40,741          40,114          39,611          38,991     

Total risk-based capital

    49,194          48,178          47,531          47,258          46,640     

Common equity tier 1 capital ratio

    9.3      %     9.1      %     9.0      %     9.1      %     9.0      %

Tier 1 capital ratio

    10.9          10.7          10.6          10.5          10.4     

Total risk-based capital ratio

    12.8          12.6          12.6          12.6          12.5     

Leverage ratio

    9.2          9.0          9.0          8.9          8.8     

Basel III Advanced Approaches

                   

Common equity tier 1 capital ratio

    12.0          11.8          11.8          11.6          11.5     

Tangible common equity to tangible assets (a)

    7.9          7.8          7.7          7.8          7.7     

Tangible common equity to risk-weighted assets (a)

    9.5          9.4          9.3          9.3          9.3     

(a)  See Non-GAAP Financial Measures reconciliation on page 16

 

   

   

Total U.S. Bancorp shareholders’ equity was $52.1 billion at March 31, 2019, compared with $51.0 billion at December 31, 2018, and $49.2 billion at March 31, 2018. During the first quarter, the Company returned 77 percent of earnings to shareholders through dividends and share buybacks.

All regulatory ratios continue to be in excess of “well-capitalized” requirements. The common equity tier 1 capital to risk-weighted assets ratio using the Basel III standardized approach was 9.3 percent at March 31, 2019, compared with 9.1 percent at December 31, 2018, and 9.0 percent at March 31, 2018. The common equity tier 1 capital to risk-weighted assets ratio using the Basel III advanced approaches method was 12.0 percent at March 31, 2019, compared with 11.8 percent at December 31, 2018, and 11.5 percent at March 31, 2018.

 

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   U.S. Bancorp First Quarter 2019 Results
      

 

 

  Investor Conference Call

 

On Wednesday, April 17, 2019, at 8:00 a.m. CDT, Andy Cecere, chairman, president and chief executive officer, and Terry Dolan, vice chairman and chief financial officer, will host a conference call to review the financial results. The conference call will be available online or by telephone. To access the webcast and presentation, visit U.S. Bancorp’s website at usbank.com and click on “About US”, “Investor Relations” and “Webcasts & Presentations.” To access the conference call from locations within the United States and Canada, please dial 866-316-1409. Participants calling from outside the United States and Canada, please dial 706-634-9086. The conference ID number for all participants is 8793888. For those unable to participate during the live call, a recording will be available at approximately 11:00 a.m. CDT on Wednesday, April 17 and will be accessible until Wednesday, April 24 at 11:00 p.m. CDT. To access the recorded message within the United States and Canada, please dial 855-859-2056. If calling from outside the United States and Canada, please dial 404-537-3406 to access the recording. The conference ID is 8793888.

 

 

  About U.S. Bancorp

 

U.S. Bancorp, with 74,000 employees and $476 billion in assets as of March 31, 2019, is the parent company of U.S. Bank, the fifth-largest commercial bank in the United States. The Minneapolis-based bank blends its relationship teams, branches and ATM network with mobile and online tools that allow customers to bank how, when and where they prefer. U.S. Bank is committed to serving its millions of retail, business, wealth management, payment, commercial and corporate, and investment services customers across the country and around the world as a trusted financial partner, a commitment recognized by the Ethisphere Institute naming the bank a 2019 World’s Most Ethical Company. Visit U.S. Bank at www.usbank.com or follow on social media to stay up to date with company news.

 

 

  Forward-looking Statements

 

The following information appears in accordance with the Private Securities Litigation Reform Act of 1995:

This press release contains forward-looking statements about U.S. Bancorp. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements and are based on the information available to, and assumptions and estimates made by, management as of the date hereof. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of U.S. Bancorp. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated. Deterioration in general business and economic conditions or turbulence in domestic or global financial markets could adversely affect U.S. Bancorp’s revenues and the values of its assets and liabilities, reduce the availability of funding to certain financial institutions, lead to a tightening of credit, and increase stock price volatility. Stress in the commercial real estate markets, as well as a downturn in the residential real estate markets, could cause credit losses and deterioration in asset values. In addition, changes to statutes, regulations, or regulatory policies or practices could affect U.S. Bancorp in substantial and unpredictable ways. U.S. Bancorp’s results could also be adversely affected by changes in interest rates; deterioration in the credit quality of its loan portfolios or in the value of the collateral securing those loans; deterioration in the value of its investment securities; legal and regulatory developments; litigation; increased competition from both banks and non-banks; changes in the level of tariffs and other trade policies of the United States and its global trading partners; changes in customer behavior and preferences; breaches in data security; failures to safeguard personal information; effects of mergers and acquisitions and related integration; effects of critical accounting policies and judgments; and management’s ability to effectively manage credit risk, market risk, operational risk, compliance risk, strategic risk, interest rate risk, liquidity risk and reputational risk.

For discussion of these and other risks that may cause actual results to differ from expectations, refer to U.S. Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2018, on file with the Securities and Exchange Commission, including the sections entitled “Corporate Risk Profile” and “Risk Factors” contained in Exhibit 13, and all subsequent filings with the Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934. In addition, factors other than these risks also could adversely affect U.S. Bancorp’s results, and the reader should not consider these risks to be a complete set of all potential risks or uncertainties. Forward-looking statements speak only as of the date hereof, and U.S. Bancorp undertakes no obligation to update them in light of new information or future events.

 

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   U.S. Bancorp First Quarter 2019 Results
      

 

 

  Non-GAAP Financial Measures

 

In addition to capital ratios defined by banking regulators, the Company considers various other measures when evaluating capital utilization and adequacy, including:

 

   

Tangible common equity to tangible assets

 
   

Tangible common equity to risk-weighted assets

 
   

Return on tangible common equity

 

These capital measures are viewed by management as useful additional methods of evaluating the Company’s utilization of its capital held and the level of capital available to withstand unexpected negative market or economic conditions. Additionally, presentation of these measures allows investors, analysts and banking regulators to assess the Company’s capital position relative to other financial services companies. These capital measures are not defined in generally accepted accounting principles (“GAAP”), or are not defined in banking regulations. As a result, these capital measures disclosed by the Company may be considered non-GAAP financial measures. In addition, certain capital measures related to prior periods are presented on the same basis as those capital measures in the current period. The effective capital ratios defined by banking regulations for these periods were subject to certain transitional provisions. Management believes this information helps investors assess trends in the Company’s capital adequacy.

The Company also discloses net interest income and related ratios and analysis on a taxable-equivalent basis, which may also be considered non-GAAP financial measures. The Company believes this presentation to be the preferred industry measurement of net interest income as it provides a relevant comparison of net interest income arising from taxable and tax-exempt sources. In addition, certain performance measures, including the efficiency ratio and net interest margin utilize net interest income on a taxable-equivalent basis.

There may be limits in the usefulness of these measures to investors. As a result, the Company encourages readers to consider the consolidated financial statements and other financial information contained in this press release in their entirety, and not to rely on any single financial measure. A table follows that shows the Company’s calculation of these non-GAAP financial measures

 

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 CONSOLIDATED STATEMENT OF INCOME  

 (Dollars and Shares in Millions, Except Per Share Data)

 (Unaudited)

  

      Three Months Ended      

March 31,

 
   2019      2018  

Interest Income

     

Loans

     $3,540        $3,095  

Loans held for sale

     25        33  

Investment securities

     705        613  

Other interest income

     81        50  

Total interest income

     4,351        3,791  

Interest Expense

     

Deposits

     695        345  

Short-term borrowings

     93        75  

Long-term debt

     304        203  

Total interest expense

     1,092        623  

Net interest income

     3,259        3,168  

Provision for credit losses

     377        341  

Net interest income after provision for credit losses

     2,882        2,827  

Noninterest Income

     

Credit and debit card revenue

     304        324  

Corporate payment products revenue

     162        154  

Merchant processing services

     378        363  

Trust and investment management fees

     399        398  

Deposit service charges

     217        261  

Treasury management fees

     146        150  

Commercial products revenue

     219        220  

Mortgage banking revenue

     169        184  

Investment products fees

     45        46  

Securities gains (losses), net

     5        5  

Other

     247        167  

Total noninterest income

     2,291        2,272  

Noninterest Expense

     

Compensation

     1,559        1,523  

Employee benefits

     333        330  

Net occupancy and equipment

     277        265  

Professional services

     95        83  

Marketing and business development

     89        97  

Technology and communications

     257        235  

Postage, printing and supplies

     72        80  

Other intangibles

     40        39  

Other

     365        403  

Total noninterest expense

     3,087        3,055  

Income before income taxes

     2,086        2,044  

Applicable income taxes

     378        362  

Net income

     1,708        1,682  

Net (income) loss attributable to noncontrolling interests

     (9      (7

Net income attributable to U.S. Bancorp

     $1,699        $1,675  

Net income applicable to U.S. Bancorp common shareholders

     $1,613        $1,597  

Earnings per common share

     $1.01        $.97  

Diluted earnings per common share

     $1.00        $.96  

Dividends declared per common share

     $.37        $.30  

Average common shares outstanding

     1,602        1,652  

Average diluted common shares outstanding

     1,605        1,657  

 

 

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 CONSOLIDATED ENDING BALANCE SHEET                        
 (Dollars in Millions)    March 31,
2019
     December 31,
2018
     March 31,
2018
 

Assets

     (Unaudited         (Unaudited

Cash and due from banks

     $18,115        $21,453        $19,246  

Investment securities

        

Held-to-maturity

     46,285        46,050        44,612  

Available-for-sale

     68,113        66,115        67,125  

Loans held for sale

     2,725        2,056        4,777  

Loans

        

Commercial

     103,069        102,444        98,097  

Commercial real estate

     39,421        39,539        40,140  

Residential mortgages

     66,243        65,034        60,477  

Credit card

     22,268        23,363        20,901  

Other retail

     56,698        56,430        55,317  

Covered loans

     --         --         2,979  

Total loans

     287,699        286,810        277,911  

Less allowance for loan losses

     (3,990      (3,973      (3,918

Net loans

     283,709        282,837        273,993  

Premises and equipment

     3,686        2,457        2,441  

Goodwill

     9,547        9,369        9,440  

Other intangible assets

     3,341        3,392        3,388  

Other assets

     40,254        33,645        35,097  

Total assets

     $475,775        $467,374        $460,119  

Liabilities and Shareholders’ Equity

        

Deposits

        

Noninterest-bearing

     $74,587        $81,811        $82,211  

Interest-bearing

     273,500        263,664        262,315  

Total deposits

     348,087        345,475        344,526  

Short-term borrowings

     15,396        14,139        17,703  

Long-term debt

     40,680        41,340        33,201  

Other liabilities

     18,926        14,763        14,877  

Total liabilities

     423,089        415,717        410,307  

Shareholders’ equity

        

Preferred stock

     5,984        5,984        5,419  

Common stock

     21        21        21  

Capital surplus

     8,432        8,469        8,438  

Retained earnings

     60,092        59,065        55,549  

Less treasury stock

     (20,699      (20,188      (18,047

Accumulated other comprehensive income (loss)

     (1,773      (2,322      (2,193

Total U.S. Bancorp shareholders’ equity

     52,057        51,029        49,187  

Noncontrolling interests

     629        628        625  

Total equity

     52,686        51,657        49,812  

Total liabilities and equity

     $475,775        $467,374        $460,119  

 

 

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 NON-GAAP FINANCIAL MEASURES  
 (Dollars in Millions, Unaudited)    March 31,
2019
    December 31,
2018
    September 30,
2018
    June 30,
2018
    March 31,
2018
 

Total equity

     $52,686       $51,657       $51,007       $50,257       $49,812  

Preferred stock

     (5,984     (5,984     (5,984     (5,419     (5,419

Noncontrolling interests

     (629     (628     (632     (629     (625

Goodwill (net of deferred tax liability) (1)

     (8,716     (8,549     (8,682     (8,585     (8,609

Intangible assets, other than mortgage servicing rights

     (685     (601     (627     (571     (608

Tangible common equity (a)

     36,672       35,895       35,082       35,053       34,551  

Total assets

     475,775       467,374       464,607       461,329       460,119  

Goodwill (net of deferred tax liability) (1)

     (8,716     (8,549     (8,682     (8,585     (8,609

Intangible assets, other than mortgage servicing rights

     (685     (601     (627     (571     (608

Tangible assets (b)

     466,374       458,224       455,298       452,173       450,902  

Risk-weighted assets, determined in accordance with the Basel III standardized approach (c)

     384,394   *      381,661       377,713       375,466       373,141  

Ratios *

          

Tangible common equity to tangible assets (a)/(b)

     7.9   %      7.8   %      7.7   %      7.8   %      7.7   % 

Tangible common equity to risk-weighted assets (a)/(c)

     9.5       9.4       9.3       9.3       9.3  
          
     Three Months Ended  
     March 31,
2019
    December 31,
2018
    September 30,
2018
    June 30,
2018
    March 31,
2018
 

Net income applicable to U.S. Bancorp common shareholders

     $1,613       $1,777       $1,732       $1,678       $1,597  

Intangibles amortization (net-of-tax)

     32       32       32       32       31  

Net income applicable to U.S. Bancorp common shareholders, excluding intangibles amortization

     1,645       1,809       1,764       1,710       1,628  

Annualized net income applicable to U.S. Bancorp common shareholders, excluding intangibles amortization (d)

     6,671       7,177       6,998       6,859       6,602  

Average total equity

     52,218       51,370       50,768       49,950       49,450  

Less: Average preferred stock

     5,984       5,984       5,714       5,419       5,419  

Less: Average noncontrolling interests

     629       630       630       628       625  

Less: Average goodwill (net of deferred tax liability) (1)

     8,732       8,574       8,620       8,602       8,627  

Less: Average intangible assets, other than mortgage servicing rights

     671       605       584       588       603  

Average U.S. Bancorp common shareholders’ equity, excluding intangible assets (e)

     36,202       35,577       35,220       34,713       34,176  

Return on tangible common equity (d)/(e)

     18.4   %      20.2   %      19.9   %      19.8   %      19.3   % 

Net interest income

     $3,259       $3,303       $3,251       $3,197       $3,168  

Taxable-equivalent adjustment (2)

     27       28       30       29       29  

Net interest income, on a taxable-equivalent basis

     3,286       3,331       3,281       3,226       3,197  

Net interest income, on a taxable-equivalent basis (as calculated above)

     3,286       3,331       3,281       3,226       3,197  

Noninterest income

     2,291       2,498       2,418       2,414       2,272  

Less: Securities gains (losses), net

     5       5       10       10       5  

Total net revenue, excluding net securities gains (losses) (f)

     5,572       5,824       5,689       5,630       5,464  

Noninterest expense (g)

     3,087       3,280       3,044       3,085       3,055  

Less: Intangible amortization

     40       41       41       40       39  

Noninterest expense, excluding intangible amortization (h)

     3,047       3,239       3,003       3,045       3,016  

Efficiency ratio (g)/(f)

     55.4   %      56.3   %      53.5   %      54.8   %      55.9   % 

Tangible efficiency ratio (h)/(f)

     54.7       55.6       52.8       54.1       55.2  

 

*

Preliminary data. Subject to change prior to filings with applicable regulatory agencies.

(1)

Includes goodwill related to certain investments in unconsolidated financial institutions per prescribed regulatory requirements.

(2)

Based on a federal income tax rate of 21 percent for those assets and liabilities whose income or expense is not included for federal income tax purposes.

 

 

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LINE OF BUSINESS FINANCIAL PERFORMANCE (a)          
($ in millions)    Net Income Attributable to
U.S. Bancorp
     Percent Change     1Q 2019         
Business Line   

1Q

2019

     4Q
2018
     1Q  
2018  
     1Q19 vs
4Q18
    1Q19 vs
1Q18
    Earnings
Composition
         

Corporate and Commercial Banking

     $400        $400        $388          --       3.1       24        %  

Consumer and Business Banking

     555        580        544          (4.3     2.0       33       

Wealth Management and Investment Services

     212        189        208          12.2       1.9       12       

Payment Services

     322        396        339          (18.7     (5.0     19       

Treasury and Corporate Support

     210        291        196          (27.8     7.1       12       
     

Consolidated Company

     $ 1,699      $ 1,856      $ 1,675          (8.5     1.4               100        %  
   

(a) preliminary data

 

                                                            

Lines of Business

The Company’s major lines of business are Corporate and Commercial Banking, Consumer and Business Banking, Wealth Management and Investment Services, Payment Services, and Treasury and Corporate Support. These operating segments are components of the Company about which financial information is prepared and is evaluated regularly by management in deciding how to allocate resources and assess performance. Noninterest expenses incurred by centrally managed operations or business lines that directly support another business line’s operations are charged to the applicable business line based on its utilization of those services, primarily measured by the volume of customer activities, number of employees or other relevant factors. These allocated expenses are reported as net shared services expense within noninterest expense. Income taxes are assessed to each line of business at a managerial tax rate of 25.0 percent. The residual tax expense or benefit to arrive at the consolidated effective tax rate is included in Treasury and Corporate Support. Designations, assignments and allocations change from time to time as management systems are enhanced, methods of evaluating performance or product lines change or business segments are realigned to better respond to the Company’s diverse customer base. During 2019, certain organization and methodology changes were made and, accordingly, prior period results were restated and presented on a comparable basis.

 

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CORPORATE AND COMMERCIAL BANKING (a)                       
($ in millions)                     Percent Change  
    

1Q 

2019 

   

4Q

2018

   

1Q

2018

   

1Q19 vs

4Q18

   

1Q19 vs

1Q18

 

Condensed Income Statement

           

Net interest income (taxable-equivalent basis)

    $725        $746       $722       (2.8)       .4   

Noninterest income

    210        213       207       (1.4)       1.4   

Securities gains (losses), net

    --        --       --       --         --    

Total net revenue

    935        959       929       (2.5)       .6   

Noninterest expense

    411        397       396       3.5        3.8   

Other intangibles

          1       1       --         --    

Total noninterest expense

    412        398       397       3.5        3.8   

Income before provision and taxes

    523        561       532       (6.8)       (1.7)  

Provision for credit losses

    (11)       28       14       nm        nm   

Income before income taxes

    534        533       518       .2        3.1   

Income taxes and taxable-equivalent adjustment

    134        133       130       .8        3.1   

Net income

    400        400       388       --         3.1   

Net (income) loss attributable to noncontrolling interests

    --        --       --       --         --    

Net income attributable to U.S. Bancorp

    $400        $400       $388       --         3.1   
   

Average Balance Sheet Data

           

Loans

        $96,411            $94,822           $93,892       1.7        2.7   

Other earning assets

    3,168        3,292       2,858       (3.8)       10.8   

Goodwill

    1,647        1,647       1,647       --         --    

Other intangible assets

          10       12       (10.0)       (25.0)  

Assets

    105,144        104,070       102,582       1.0        2.5   
   

Noninterest-bearing deposits

    29,979        31,848       34,278       (5.9)       (12.5)  

Interest-bearing deposits

    71,093        70,769       69,939       .5        1.7   

Total deposits

    101,072        102,617       104,217       (1.5)       (3.0)  
   

Total U.S. Bancorp shareholders’ equity

    10,439        10,520       10,416       (.8)       .2   
   

(a) preliminary data

 

                                       

Corporate and Commercial Banking offers lending, equipment finance and small-ticket leasing, depository services, treasury management, capital markets services, international trade services and other financial services to middle market, large corporate, commercial real estate, financial institution, non-profit and public sector clients.

Corporate and Commercial Banking contributed $400 million of the Company’s net income in the first quarter of 2019, compared with $388 million in the first quarter of 2018. Total net revenue increased $6 million (0.6 percent) due to increases of $3 million (0.4 percent) in net interest income and $3 million (1.4 percent) in total noninterest income. Net interest income increased primarily due to the impact of rising rates on the margin benefit from deposits and loan growth, partially offset by lower spreads on loans, reflecting a competitive marketplace, and lower deposit balances from a year ago. Noninterest bearing deposits are declining as customers deploy balances to support business growth. Total noninterest income increased year-over-year primarily due to higher trading revenue, partially offset by lower corporate bond underwriting fees. Total noninterest expense was $15 million (3.8 percent) higher compared with a year ago primarily due to an increase in net shared services expense driven by technology development and investment in infrastructure and the write-down of equipment in the wholesale leasing business, partially offset by lower FDIC assessment costs. The provision for credit losses decreased $25 million reflecting a favorable change in the reserve allocation partially offset by higher net charge-offs.

 

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CONSUMER AND BUSINESS BANKING (a)  
($ in millions)                     Percent Change  
     1Q     4Q     1Q        1Q19 vs     1Q19 vs  
     2019     2018     2018       4Q18     1Q18  

Condensed Income Statement

           

Net interest income (taxable-equivalent basis)

    $1,568       $1,580       $1,512         (.8)       3.7   

Noninterest income

    533       561       571         (5.0)       (6.7)  

Securities gains (losses), net

    --       --       --         --         --    
   

 

 

       

Total net revenue

    2,101       2,141       2,083         (1.9)       .9   

Noninterest expense

    1,286       1,294       1,296         (.6)       (.8)  

Other intangibles

    5       6       7         (16.7)       (28.6)  
   

 

 

       

Total noninterest expense

    1,291       1,300       1,303         (.7)       (.9)  
   

 

 

       

Income before provision and taxes

    810       841       780         (3.7)       3.8   

Provision for credit losses

    70       68       55         2.9        27.3   
   

 

 

       

Income before income taxes

    740       773       725         (4.3)       2.1   

Income taxes and taxable-equivalent adjustment

    185       193       181         (4.1)       2.2   
   

 

 

       

Net income

    555       580       544         (4.3)       2.0   

Net (income) loss attributable to noncontrolling interests

    --       --       --         --         --    
   

 

 

       

Net income attributable to U.S. Bancorp

    $555       $580       $544         (4.3)       2.0   
   

 

 

       
   

Average Balance Sheet Data

           

Loans

        $141,757       $141,003       $141,092         .5        .5   

Other earning assets

    2,392       3,400       3,409         (29.6)       (29.8)  

Goodwill

    3,475       3,526       3,632         (1.4)       (4.3)  

Other intangible assets

    2,882       3,034       2,871         (5.0)       .4   

Assets

    154,743       155,446       155,488         (.5)       (.5)  
   

Noninterest-bearing deposits

    26,570       27,931       27,210         (4.9)       (2.4)  

Interest-bearing deposits

    127,342       125,722       123,161         1.3        3.4   
   

 

 

       

Total deposits

    153,912       153,653       150,371         .2        2.4   
   

Total U.S. Bancorp shareholders’ equity

    11,747       11,717       11,842         .3        (.8)  
   

(a) preliminary data

 

                                       

Consumer and Business Banking delivers products and services through banking offices, telephone servicing and sales, on-line services, direct mail, ATM processing and mobile devices. It encompasses community banking, metropolitan banking and indirect lending, as well as mortgage banking.

Consumer and Business Banking contributed $555 million of the Company’s net income in the first quarter of 2019, compared with $544 million in the first quarter of 2018. Total net revenue increased $18 million (0.9 percent) due to a $56 million (3.7 percent) increase in net interest income, partially offset by a $38 million (6.7 percent) decrease in total noninterest income. Net interest income increased primarily due to the impact of rising rates on the margin benefit from deposits as well as growth in both core deposit balances and loan volumes, partially offset by lower spreads on loans. Total noninterest income decreased principally due to a decline in mortgage banking revenue and a reduction in ATM processing services revenue due to the sale of the Company’s ATM servicing business during 2018, partially offset by the transition services agreement revenue associated with the sale. Total noninterest expense in the first quarter of 2019 decreased $12 million (0.9 percent) primarily due to lower FDIC assessment costs and lower mortgage banking costs, partially offset by higher net shared services expense reflecting the impact of investments supporting business growth. The provision for credit losses increased $15 million (27.3 percent) primarily due to an unfavorable change in the reserve allocation, partially offset by lower net charge-offs.

 

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WEALTH MANAGEMENT AND INVESTMENT SERVICES (a)

 

($ in millions)                        Percent Change  
     

1Q

2019

   

4Q

2018

    

1Q  

2018  

    

1Q19 vs

4Q18

   

1Q19 vs

1Q18

 

Condensed Income Statement

              

Net interest income (taxable-equivalent basis)

     $288       $284        $275          1.4       4.7  

Noninterest income

     430       443        431          (2.9     (.2

Securities gains (losses), net

     --       --        --          --       --  

Total net revenue

     718       727        706          (1.2     1.7  

Noninterest expense

     435       471        423          (7.6     2.8  

Other intangibles

     3       4        4          (25.0     (25.0

Total noninterest expense

     438       475        427          (7.8     2.6  

Income before provision and taxes

     280       252        279          11.1       .4  

Provision for credit losses

     (3     --        1          nm       nm  

Income before income taxes

     283       252        278          12.3       1.8  

Income taxes and taxable-equivalent adjustment

     71       63        70          12.7       1.4  

Net income

     212       189        208          12.2       1.9  

Net (income) loss attributable to noncontrolling interests

     --       --        --          --       --  

Net income attributable to U.S. Bancorp

     $212       $189        $208          12.2       1.9  
   

Average Balance Sheet Data

              

Loans

     $9,825       $9,785        $8,984          .4       9.4  

Other earning assets

     242       232        164          4.3       47.6  

Goodwill

     1,617       1,618        1,619          (.1     (.1

Other intangible assets

     54       57        70          (5.3     (22.9

Assets

     13,187       12,830        12,026          2.8       9.7  

Noninterest-bearing deposits

     13,293       13,736        14,361          (3.2     (7.4

Interest-bearing deposits

     54,108       54,344        56,972          (.4     (5.0

Total deposits

     67,401       68,080        71,333          (1.0     (5.5
   

Total U.S. Bancorp shareholders’ equity

     2,515       2,487        2,451          1.1       2.6  
   

(a) preliminary data

 

                                          

Wealth Management and Investment Services provides private banking, financial advisory services, investment management, retail brokerage services, insurance, trust, custody and fund servicing through four businesses: Wealth Management, Global Corporate Trust & Custody, U.S. Bancorp Asset Management and Fund Services.

Wealth Management and Investment Services contributed $212 million of the Company’s net income in the first quarter of 2019, compared with $208 million in the first quarter of 2018. Total net revenue increased $12 million (1.7 percent) year-over-year driven by an increase in net interest income of $13 million (4.7 percent) while noninterest income was essentially flat. Net interest income increased year-over-year primarily due to the impact of rising rates on the margin benefit from deposits, partially offset by lower deposit balances from a year ago. Total noninterest expense increased $11 million (2.6 percent) primarily due to increased net shared services expense and higher personnel expense driven by increased staffing and investments to support business growth and development, partially offset by lower FDIC assessment costs. The provision for credit losses decreased $4 million reflecting a favorable change in the reserve allocation.

 

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PAYMENT SERVICES (a)                                       
($ in millions)    Percent Change  
     

1Q

2019

    

4Q

2018

     1Q  
2018  
     1Q19 vs
4Q18
    1Q19 vs
1Q18
 

Condensed Income Statement

               

Net interest income (taxable-equivalent basis)

     $622        $623        $611          (.2     1.8  

Noninterest income

     853        939        848          (9.2     .6  

Securities gains (losses), net

     --        --        --          --       --  
    

 

 

        

Total net revenue

     1,475        1,562        1,459          (5.6     1.1  

Noninterest expense

     728        740        708          (1.6     2.8  

Other intangibles

     31        30        27          3.3       14.8  
    

 

 

        

Total noninterest expense

     759        770        735          (1.4     3.3  
    

 

 

        

Income before provision and taxes

     716        792        724          (9.6     (1.1

Provision for credit losses

     286        264        272          8.3       5.1  
    

 

 

        

Income before income taxes

     430        528        452          (18.6     (4.9

Income taxes and taxable-equivalent adjustment

     108        132        113          (18.2     (4.4
    

 

 

        

Net income

     322        396        339          (18.7     (5.0

Net (income) loss attributable to noncontrolling interests

     --        --        --          --       --  
    

 

 

        

Net income attributable to U.S. Bancorp

     $322        $396        $339          (18.7     (5.0
    

 

 

        
   

Average Balance Sheet Data

               

Loans

     $32,414        $32,285        $30,062          .4       7.8  

Other earning assets

     448        320        276          40.0       62.3  

Goodwill

     2,814        2,631        2,542          7.0       10.7  

Other intangible assets

     513        435        396          17.9       29.5  

Assets

     38,618        37,810        36,161          2.1       6.8  

Noninterest-bearing deposits

     1,157        1,121        1,127          3.2       2.7  

Interest-bearing deposits

     111        111        106          --       4.7  
    

 

 

        

Total deposits

     1,268        1,232        1,233          2.9       2.8  
   

 

Total U.S. Bancorp shareholders’ equity

     7,024        6,710        6,621          4.7       6.1  

(a) preliminary data

 

                                           

Payment Services includes consumer and business credit cards, stored-value cards, debit cards, corporate, government and purchasing card services, consumer lines of credit and merchant processing.

Payment Services contributed $322 million of the Company’s net income in the first quarter of 2019, compared with $339 million in the first quarter of 2018. Total net revenue increased $16 million (1.1 percent) due to increases in net interest income of $11 million (1.8 percent) and total noninterest income of $5 million (0.6 percent). Net interest income increased year-over-year primarily due to growth in total average loans as well as loan fees, partially offset by compression on loan rates in a rising rate environment. Total noninterest income increased year-over-year mainly due to higher corporate payment products revenue and higher merchant processing services driven by higher sales volumes, partially offset by lower credit and debit card revenue reflecting industry trends impacted by a decline in consumer spending. Total noninterest expense increased $24 million (3.3 percent) over the first quarter of 2018 principally due to higher net shared services expense and personnel expense in support of business development, partially offset by lower marketing and business development expenses due to the timing of certain advertising campaigns. The provision for credit losses increased $14 million (5.1 percent) reflecting higher net charge-offs, partially offset by a favorable change in the reserve allocation.

 

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TREASURY AND CORPORATE SUPPORT (a)  
($ in millions)                       Percent Change  
     

1Q

2019

   

4Q

2018

   

1Q  

2018  

    

1Q19 vs 

4Q18  

    

1Q19 vs 

1Q18 

 

Condensed Income Statement

              

Net interest income (taxable-equivalent basis)

     $83       $98       $77          (15.3)        7.8   

Noninterest income

     260       337       210          (22.8)        23.8   

Securities gains (losses), net

     5       5       5          --          --    
    

 

 

         

Total net revenue

     348       440       292          (20.9)        19.2   

Noninterest expense

     187       337       193          (44.5)        (3.1)  

Other intangibles

     --        --       --          --          --    
    

 

 

         

Total noninterest expense

     187       337       193          (44.5)        (3.1)  
    

 

 

         

Income before provision and taxes

     161       103       99          56.3         62.6   

Provision for credit losses

     35       8       (1)         nm         nm   
    

 

 

         

Income before income taxes

     126       95       100          32.6         26.0   

Income taxes and taxable-equivalent adjustment

     (93     (202     (103)         54.0         9.7   
    

 

 

         

Net income

     219       297       203          (26.3)        7.9   

Net (income) loss attributable to noncontrolling interests

     (9     (6     (7)         (50.0)        (28.6)  
    

 

 

         

Net income attributable to U.S. Bancorp

     $210       $291       $196          (27.8)        7.1   
    

 

 

         
   

Average Balance Sheet Data

              

Loans

         $5,703       $5,782       $5,358          (1.4)        6.4   

Other earning assets

     127,134       129,551       125,754          (1.9)        1.1   

Goodwill

     --        --       --          --          --    

Other intangible assets

     --        --       --          --          --    

Assets

     151,707       152,120       148,031          (.3)        2.5   
   

Noninterest-bearing deposits

     2,434       2,524       2,506          (3.6)        (2.9)  

Interest-bearing deposits

     9,279       6,259       4,920          48.3         88.6   
    

 

 

         

Total deposits

     11,713       8,783       7,426          33.4         57.7   
   

Total U.S. Bancorp shareholders’ equity

     19,864       19,306       17,495          2.9         13.5   
   

(a) preliminary data

 

                                          

Treasury and Corporate Support includes the Company’s investment portfolios, funding, capital management, interest rate risk management, income taxes not allocated to the business lines, including most investments in tax-advantaged projects, and the residual aggregate of those expenses associated with corporate activities that are managed on a consolidated basis.

Treasury and Corporate Support recorded net income of $210 million in the first quarter of 2019, compared with $196 million in the first quarter of 2018. Total net revenue increased $56 million (19.2 percent) year-over-year driven by increases in net interest income of $6 million (7.8 percent) and $50 million (23.3 percent) in total noninterest income. Net interest income increased year-over-year primarily due to growth in the investment portfolio. Total noninterest income increased year-over-year primarily reflecting higher income from equity investments. Total noninterest expense decreased $6 million (3.1 percent) year-over-year reflecting lower costs related to tax-advantaged projects. These decreases were partially offset by higher compensation expense, reflecting the impact of increased staffing and merit increases, and higher implementation costs of capital investments to support business growth. The provision for credit losses was $36 million higher year-over-year due to an unfavorable change in the reserve allocation.

 

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   7

EX-99.2

Slide 1

U.S. Bancorp 1Q19 Earnings Conference Call April 17, 2019 Exhibit 99.2


Slide 2

Forward-looking Statements and Additional Information The following information appears in accordance with the Private Securities Litigation Reform Act of 1995: Today’s presentation contains forward-looking statements about U.S. Bancorp. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements and are based on the information available to, and assumptions and estimates made by, management as of the date hereof. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of U.S. Bancorp. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated. Deterioration in general business and economic conditions or turbulence in domestic or global financial markets could adversely affect U.S. Bancorp’s revenues and the values of its assets and liabilities, reduce the availability of funding to certain financial institutions, lead to a tightening of credit, and increase stock price volatility. Stress in the commercial real estate markets, as well as a downturn in the residential real estate markets, could cause credit losses and deterioration in asset values. In addition, changes to statutes, regulations, or regulatory policies or practices could affect U.S. Bancorp in substantial and unpredictable ways. U.S. Bancorp’s results could also be adversely affected by changes in interest rates; deterioration in the credit quality of its loan portfolios or in the value of the collateral securing those loans; deterioration in the value of its investment securities; legal and regulatory developments; litigation; increased competition from both banks and non-banks; changes in the level of tariffs and other trade policies of the United States and its global trading partners; changes in customer behavior and preferences; breaches in data security; effects of mergers and acquisitions and related integration; effects of critical accounting policies and judgments; and management’s ability to effectively manage credit risk, market risk, operational risk, compliance risk, strategic risk, interest rate risk, liquidity risk and reputational risk. For discussion of these and other risks that may cause actual results to differ from expectations, refer to U.S. Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2018, on file with the Securities and Exchange Commission, including the sections entitled “Risk Factors” and “Corporate Risk Profile” contained in Exhibit 13, and all subsequent filings with the Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934. However, factors other than these also could adversely affect U.S. Bancorp’s results, and the reader should not consider these factors to be a complete set of all potential risks or uncertainties. Forward-looking statements speak only as of the date hereof, and U.S. Bancorp undertakes no obligation to update them in light of new information or future events. This presentation includes non-GAAP financial measures to describe U.S. Bancorp’s performance. The calculations of these measures are provided in the Appendix. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.


Slide 3

1Q19 Highlights * Taxable-equivalent basis; see slide 26 for calculation ** Excluding the impact of student loans sold in 2Q18 and FDIC covered loans sold in 4Q18, average total loans grew 3.7% vs. 1Q18


Slide 4

Performance Ratios Efficiency Ratio** & Net Interest Margin Net interest margin on a taxable-equivalent basis * Excluding notable items; see slides 26 and 27 for calculations ** Non-GAAP; see slides 26 and 27 for calculations Return on Average Common Equity Return on Tangible Common Equity** Return on Average Assets 56.3% 15.8% 20.2% 1.55%*


Slide 5

Average Loans +0.9% linked quarter +2.4% year-over-year On a linked quarter basis, average total loan growth was driven by growth in residential mortgages and total commercial loans, partially offset by a decrease in total commercial real estate loans. On a year-over-year basis, growth in average total loans was driven by residential mortgages, total commercial loans, credit card loans and retail leasing. This growth was partially offset by a decrease in total commercial real estate loans as paydowns continued. $ in billions


Slide 6

Average Deposits $ in billions +0.3% linked quarter +0.2% year-over-year Interest-bearing Deposits Average NIB deposits decreased both linked quarter and year-over-year. On a year-over-year basis, the decline was primarily driven by continued deployment of business deposits (Corporate and Commercial Banking) and corporate trust balances (Wealth Management and Investment Services). Average total savings deposits increased linked quarter, driven by growth in Consumer and Business Banking and Corporate and Commercial Banking balances. Average total savings deposits declined year-over-year, driven by a decrease in corporate trust balances. On both a linked quarter and year-over-year basis, growth in time deposits largely reflects the management of those deposits as an alternative to other funding sources.


Slide 7

Credit Quality $ in millions NCO Ratio +3 bps QoQ +3 bps YoY NPAs +1.6% QoQ -16.5% YoY


Slide 8

Earnings Summary


Slide 9

Net Interest Income Linked Quarter Net interest income decreased, primarily driven by two fewer days in the quarter and lower interest recoveries, partially offset by loan growth. Net interest margin expansion was driven by loan portfolio mix, lower cash balances and the impact of the 4Q18 rate hike. This increase was partially offset by the impact of deposit and funding mix shifts. Year-over-Year Net interest income growth was driven by the impact of rising interest rates, growth in earning assets and higher securities yields, partially offset by deposit pricing and funding mix shifts. The net interest margin increased, primarily due to rising interest rates, higher reinvestment rates on maturing securities and loan portfolio mix, partially offset by deposit and funding mix shifts. $ in millions Net interest income on a taxable-equivalent basis; see slide 26 for calculation -1.4% linked quarter +2.8% year-over-year


Slide 10

Noninterest Income $ in millions Payments = credit and debit card, corporate payment products and merchant processing Service charges = deposit service charges and treasury management All other = commercial products, investment products fees, securities gains (losses) and other $2,272 $2,498 $2,291 Linked Quarter The decline in payment services revenue reflects seasonally lower sales across all business segments and fewer billing cycle processing days within the credit and debit card business. Service charges revenue decreased, primarily due to the sale of the Company’s ATM servicing business and the impact of two fewer days in the quarter. Other noninterest income decreased due to the impact of 4Q18 notable items. Year-over-Year Growth in corporate payment products and merchant processing services revenue was driven by higher sales volumes. Other noninterest income growth reflects higher equity investment income, tax-advantaged investment syndication revenue and transition services agreement revenue associated with the ATM servicing business sale. Mortgage banking revenue declined due to changes in mortgage servicing rights valuations, net of hedging activities, and lower servicing income, partially offset by higher production volume. -8.3% linked quarter +0.8% year-over-year


Slide 11

Noninterest Expense Linked Quarter Costs related to tax-advantaged projects and professional services were seasonably lower. The decrease in marketing and business development expense was driven by the timing of certain marketing campaigns. Employee benefits expense increased due to seasonally higher payroll taxes. Year-over-Year Total noninterest expense growth was primarily driven by higher personnel costs and technology investment. Compensation expense increased principally due to the impact of hiring to support business growth and merit increases. Other noninterest expense decreased, reflecting lower FDIC assessment costs and lower costs related to tax-advantaged projects. $ in millions PPS = postage, printing and supplies $3,055 $3,280 $3,087 -5.9% linked quarter -0.6% excluding notable items +1.0% year-over-year


Slide 12

Capital Position * Non-GAAP; see slide 25 for calculations


Slide 13

Digital Engagement Trends * Represents core Consumer Banking customers active in at least one channel in the previous 90 days Total Digital includes both online and mobile platforms Three months ended Three months ended


Slide 14

Appendix


Slide 15

Average Loans vs. 1Q18 Average total loans increased by $6.7 billion, or 2.4% Average residential mortgage loans increased by $5.4 billion, or 9.0% Average commercial loans increased by $4.5 billion, or 4.6% Average credit card loans increased by $1.3 billion, or 6.2% Average commercial real estate loans decreased by $0.9 billion, or 2.2% vs. 4Q18 Average total loans increased by $2.4 billion, or 0.9% Average residential mortgage loans increased by $1.1 billion, or 1.7% Average commercial loans increased by $1.4 billion, or 1.4% Average commercial real estate loans decreased by $0.7 billion, or 1.7% Key Points Year-over-Year Growth 2.3% 1.1% 1.2% 1.4% 2.4% Covered Commercial CRE Res Mtg Retail Credit Card $281.1 $279.4 $278.6 6.1% $286.1 Average Loans ($bn) $283.7


Slide 16

Average Deposits Key Points Average Deposits ($bn) vs. 1Q18 Average total deposits increased by $0.8 billion, or 0.2% Average low-cost deposits (NIB, interest checking, savings and money market) declined $7.3 billion, or 2.5% vs. 4Q18 Average total deposits increased by $1.0 billion, or 0.3% Average low-cost deposits declined $2.1 billion, or 0.7% Year-over-Year Growth 1.9% 1.1% (1.5%) (1.4%) 0.2% Time Money Market Checking and Savings Noninterest-bearing $335.4 $334.6 $334.8 $330.1 $334.4


Slide 17

Credit Quality – Commercial Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points $mm1Q184Q181Q19 Average Loans$97,465$100,515$101,960 30-89 Delinquencies0.25%0.31%0.58% 90+ Delinquencies0.06%0.07%0.07% Nonperforming Loans0.31%0.20%0.26% Linked Quarter Growth (0.1%) 0.9% 0.7% 1.5% 1.4% Linked quarter growth was modest at 1.4% and year-over-year growth was 4.6% Net charge-offs increased slightly on both a year-over-year and linked quarter basis, but remained at historically low levels


Slide 18

Investor $18,929 Owner Occupied $9,530 A&D Const $333 Multi-family $3,853 Retail $348 Residential Construction $2,163 Office $1,091 Other $2,559 Resi Land $664 $mm1Q184Q181Q19 Average Loans$40,366$40,149$39,470 30-89 Delinquencies0.09%0.18%0.11% 90+ Delinquencies0.01%0.00%0.01% Nonperforming Loans0.30%0.29%0.32% Performing TDRs*$135$164$139 Credit Quality – Commercial Real Estate Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points * TDR = troubled debt restructuring Linked Quarter Growth (1.6%) (1.3%) (0.8%) 1.5% (1.7%) Average loans decreased by 1.7% on a linked quarter basis and were down year-over-year as well due to high market liquidity resulting in continued early payoffs Credit quality remained strong and stable; nonperforming loans remain low


Slide 19

Credit Quality – Residential Mortgage Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points $mm1Q184Q181Q19 Average Loans$60,174$64,476$65,582 30-89 Delinquencies0.24%0.27%0.26% 90+ Delinquencies0.22%0.18%0.18% Nonperforming Loans0.71%0.46%0.43% * Excludes GNMA loans, whose repayments are insured by the FHA or guaranteed by the Department of VA ($1,578 million in 1Q19) Linked Quarter Growth 0.9% 1.1% 2.0% 3.9% 1.7% Originations continued to be high credit quality (weighted average FICO of 761, weighted average LTV of 71%) More than 92% of balances have been originated since the beginning of 2009; the origination quality metrics and performance to date have significantly outperformed prior vintages with similar seasoning


Slide 20

Credit Quality – Credit Card Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points $mm1Q184Q181Q19 Average Loans$21,284$22,396$22,597 30-89 Delinquencies1.32%1.39%1.31% 90+ Delinquencies1.29%1.25%1.29% Nonperforming Loans0.00%0.00%0.00% Linked Quarter Growth 0.3% (0.3%) 2.6% 2.9% 0.9% Year-over-year average loan growth of 6.2% was driven by both new originations and existing account usage The commitment weighted average FICO on new originations remained strong at 772 Delinquencies and charge-offs were stable year-over-year


Slide 21

Credit Quality – Home Equity Average Loans ($mm) and Net Charge-offs Ratio Key Points Linked Quarter Growth (0.6%) (0.9%) (0.3%) 0.4% (0.4%) Key Statistics Key Statistics $mm1Q184Q181Q19 Average Loans$16,195$16,065$15,993 30-89 Delinquencies0.41%0.56%0.54% 90+ Delinquencies0.32%0.35%0.37% Nonperforming Loans0.79%0.90%0.77% Loans: 11% Wtd Avg LTV*: 78% Wtd Avg FICO*: 749 Lines: 89% Wtd Avg LTV*: 71% Wtd Avg FICO*: 753 *LTV and FICO at origination High-quality originations (weighted average FICO on commitments of 779, weighted average CLTV of 69%) were originated primarily through the retail branch network to existing bank customers on their primary residences Net charge-offs were stable year-over-year with strong recoveries due to continued strength in home values


Slide 22

Credit Quality – Retail Leasing Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points $mm1Q184Q181Q19 Average Loans$7,982$8,489$8,586 30-89 Delinquencies0.34%0.43%0.42% 90+ Delinquencies0.02%0.04%0.03% Nonperforming Loans0.09%0.14%0.12% * Manheim Used Vehicle Value Index source: www.manheimconsulting.com, January 1995 = 100, quarter value = average monthly ending values Linked Quarter Growth 0.0% 2.1% 2.9% 1.3% 1.1% Continued high-quality originations during 1Q19 (weighted average FICO of 781) Delinquencies and net charge-offs remained at low levels


Slide 23

Credit Quality – Other Retail Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points $mm1Q184Q181Q19 Average Loans$32,874$31,587$31,922 30-89 Delinquencies0.73%0.87%0.78% 90+ Delinquencies0.15%0.15%0.14% Nonperforming Loans0.11%0.13%0.13% Linked Quarter Growth 0.1% (4.9%) 0.8% 0.2% 1.1% Average other retail loans increased 1.1% linked quarter; the year-over-year decrease in average other retail loans was primarily driven by the 2Q18 student loan portfolio sale Net charge-offs, delinquencies and nonperforming loans were all relatively stable and consistent with the low levels experienced in recent quarters


Slide 24

Credit Quality – Auto Loans Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points $mm1Q184Q181Q19 Average Loans$18,868$18,500$18,833 30-89 Delinquencies0.85%1.04%0.95% 90+ Delinquencies0.08%0.09%0.08% Nonperforming Loans0.12%0.14%0.15% Direct: 4% Wtd Avg FICO: 746 NCO: 0.29% Indirect: 96% Wtd Avg FICO: 774 NCO: 0.45% Auto loans are included in Other Retail category Linked Quarter Growth 0.6% (1.4%) (0.2%) (0.3%) 1.8% New balances continue to be driven by high-quality originations in the Indirect channel (weighted average FICO of 782) Late stage delinquencies remained stable while net charge-offs decreased slightly on a linked quarter basis


Slide 25

Non-GAAP Financial Measures * Preliminary data. Subject to change prior to filings with applicable regulatory agencies. (1) – see slide 28 for corresponding note


Slide 26

Non-GAAP Financial Measures (2), (3), (4), (5) – see slide 28 for corresponding notes


Slide 27

Non-GAAP Financial Measures (1), (5) – see slide 28 for corresponding notes


Slide 28

Notes Includes goodwill related to certain investments in unconsolidated financial institutions per prescribed regulatory requirements. Based on a federal income tax rate of 21 percent for those assets and liabilities whose income or expense is not included for federal income tax purposes. Notable items related to noninterest income for the three months ended December 31, 2018 include: $340 million gain on sale of ATM servicing business and $264 million of asset impairments. Notable items related to noninterest expense for the three months ended December 31, 2018 include: $174 million severance charges and legal accruals. Notable items for the three months ended December 31, 2018 include: $271 million (after-tax) gain on sale of ATM servicing business, $210 million (after-tax) of asset impairments, $139 million (after-tax) severance charges and legal accruals, $120 million reduction in income tax expense due to tax reform legislation estimate changes and $3 million noncontrolling interest adjustment.


Slide 29

U.S. Bancorp 1Q19 Earnings Conference Call April 17, 2019

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