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): July 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))

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading
symbol

 

Name of each exchange
on which registered

Common Stock, $.01 par value per share   USB   New York Stock Exchange
Depositary Shares (each representing 1/100th interest in a share of Series A Non-Cumulative Perpetual Preferred Stock, par value $1.00)   USB PrA   New York Stock Exchange
Depositary Shares (each representing 1/1,000th interest in a share of Series B Non-Cumulative Perpetual Preferred Stock, par value $1.00)   USB PrH   New York Stock Exchange
Depositary Shares (each representing 1/1,000th interest in a share of Series F Non-Cumulative Perpetual Preferred Stock, par value $1.00)   USB PrM   New York Stock Exchange
Depositary Shares (each representing 1/1,000th interest in a share of Series H Non-Cumulative Perpetual Preferred Stock, par value $1.00)   USB PrO   New York Stock Exchange
Depositary Shares (each representing 1/1,000th interest in a share of Series K Non-Cumulative Perpetual Preferred Stock, par value $1.00)   USB PrP   New York Stock Exchange
0.850% Medium-Term Notes, Series X (Senior), due June 7, 2024   USB/24B   New York Stock Exchange

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 July 17, 2019, U.S. Bancorp (the “Company”) issued a press release reporting quarter-ended June 30, 2019 results, and posted on its website its 2Q19 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 2Q19 Earnings Conference Call Presentation is included as Exhibit 99.2 hereto and is incorporated herein by reference. The information included in the 2Q19 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 2Q19 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 July 17, 2019, deemed “filed” under the Securities Exchange Act of 1934.

 

  99.2

2Q19 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: July 17, 2019

EX-99.1

Exhibit 99.1

 

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U.S. Bancorp Reports Second Quarter 2019 Results

 Net revenue of $5,822 million and net income of $1,821 million

 Industry leading return on average assets of 1.55% and return on average common equity of 15.0%

 

 

    2Q19 Key Financial Data

 

 

 

2Q19 Highlights

 

          
PROFITABILITY METRICS   2Q19      1Q19      2Q18          

 

 

 Net income of $1,821 million and diluted earnings per
   common share of $1.09

 

 Industry leading return on average assets of 1.55% and
   return on average common equity of 15.0%

 

 Return on tangible common equity of 19.2%

 

 Returned 79% of 2Q earnings to shareholders through
   dividends and share buybacks

 

 Net interest income grew 3.4% year-over-year (3.3% on a
   taxable-equivalent basis)

 

 Total net revenue grew 3.2% year-over-year with positive
   operating leverage of 1.0% on a year-over-year basis

 

 Average total loans grew 1.1% on a linked quarter basis
   and 3.8% (4.5% excluding the impact of loan sales) year-
   over-year

 

 Return on average assets (%)

    1.55        1.49        1.54      

 Return on average common equity (%)

    15.0        14.3        15.3      

 Return on tangible common equity (%) (a)

    19.2        18.4        19.8      

 Net interest margin (%)

    3.13        3.16        3.13      

 Efficiency ratio (%) (a)

    54.3        55.4        54.8      
INCOME STATEMENT (b)   2Q19      1Q19      2Q18         

 Net interest income (taxable-equivalent basis)

    $3,332        $3,286        $3,226      

 Noninterest income

    $2,490        $2,291        $2,414      

 Net income attributable to U.S. Bancorp

    $1,821        $1,699        $1,750      

 Diluted earnings per common share

    $1.09        $1.00        $1.02      

 Dividends declared per common share

    $.37        $.37        $.30      
BALANCE SHEET (b)   2Q19      1Q19      2Q18         

 Average total loans

    $289,218        $286,110        $278,624      

 Average total deposits

    $345,232        $335,366        $334,822      

 Net charge-off ratio

    .49%       .52%       .48%     

 Book value per common share (period end)

    $29.63        $28.81        $27.02      

 Basel III standardized CET1 (c)

 

   

 

9.5% 

 

 

 

   

 

9.3% 

 

 

 

   

 

9.1%

 

 

 

  

 

 (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

 

 

“We delivered strong results this quarter and we feel good about underlying momentum heading into the second half of the year. In the second quarter, we delivered a return on tangible common equity of 19.2% and returned 79% of our earnings through dividends and share buybacks. Despite a more challenging interest rate environment, our loan and deposit trends were healthy and drove good growth in net interest income. Fee income growth was supported by solid results across our payments services, trust, wealth management, and commercial products businesses. Expense growth was well controlled even as we continued to invest in our digital initiatives, and credit quality was stable. We remain focused on creating value for our customers, communities and shareholders and appreciate the efforts of our employees who make it possible.”

 

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

 

 

In the Spotlight

 

2019 Annual Stress Test and Capital Plan

Based on the 2019 stress test results, which reflect U.S. Bancorp’s strong financial profile and ability to withstand adverse economic conditions, the Company’s board of directors approved an increase in the Company’s quarterly dividend of 13.5% to $0.42 per common share beginning in the third quarter of 2019, as well as a new share repurchase program effective July 1, 2019.

Recognized for Advancing Gender Parity

The Women’s Forum of New York recently announced that U.S. Bancorp will be recognized at its 2019 Breakfast of Corporate Champions for its 35% female board of directors representation, raising the bar and accelerating toward the goal of achieving 50/50 gender parity across all boardrooms by 2025.

U.S. Bank Begins Market Expansion in Charlotte, NC

Expanding our already strong presence in Charlotte, with nearly 800 employees and tens of thousands of customers, the Company began its “digital-first, branch-lite” customer strategy to deepen existing relationships and build a new generation of customers. This represents a part of our Physical Asset Optimization program which includes retail banking expansion in new markets, reinvestment in our existing core retail banking markets, as well as optimizing existing branches in connection with ongoing transformation to digital financial services.

U.S. Bank Leader Named Digital Banker of the Year

American Banker recently named Ankit Bhatt of U.S. Bank its Digital Banker of the Year for his leadership traits and ability to successfully lead teams which build products that put customers first, including the recent complete rebuild and overhaul of the U.S. Bank mobile app.

 

 

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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 Second Quarter 2019 Results
      

 

 INCOME STATEMENT HIGHLIGHTS                                        
 ($ in millions, except per-share data)                     Percent Change                       
     2Q       1Q     2Q      2Q19 vs      2Q19 vs      YTD      YTD  Percent  
      2019       2019     2018      1Q19      2Q18      2019      2018  Change  

Net interest income

     $3,305         $3,259         $3,197         1.4         3.4         $6,564         $6,365         3.1   

Taxable-equivalent adjustment

     27         27         29         --          (6.9)        54         58         (6.9)  

Net interest income (taxable-equivalent basis)

     3,332         3,286         3,226         1.4         3.3         6,618         6,423         3.0   

Noninterest income

     2,490         2,291         2,414         8.7         3.1         4,781         4,686         2.0   

Total net revenue

     5,822         5,577         5,640         4.4         3.2         11,399         11,109         2.6   

Noninterest expense

     3,153         3,087         3,085         2.1         2.2         6,240         6,140         1.6   

Income before provision and income taxes

     2,669         2,490         2,555         7.2         4.5         5,159         4,969         3.8   

Provision for credit losses

     365         377         327         (3.2)        11.6         742         668         11.1   

Income before taxes

     2,304         2,113         2,228         9.0         3.4         4,417         4,301         2.7   

Income taxes and taxable-equivalent adjustment

     476         405         470         17.5         1.3         881         861         2.3   

Net income

     1,828         1,708         1,758         7.0         4.0         3,536         3,440         2.8   

Net (income) loss attributable to noncontrolling interests

     (7)        (9)        (8)        22.2         12.5         (16)        (15)        (6.7)  

Net income attributable to U.S. Bancorp

     $1,821         $1,699         $1,750         7.2         4.1         $3,520         $3,425         2.8   

Net income applicable to U.S. Bancorp common shareholders

     $1,741         $1,613         $1,678         7.9         3.8         $3,354         $3,275         2.4   

Diluted earnings per common share

     $1.09         $1.00         $1.02         9.0         6.9         $2.10         $1.98         6.1   
   

 

Net income attributable to U.S. Bancorp was $1,821 million for the second quarter of 2019, which was 4.1 percent higher than the second quarter of 2018, and 7.2 percent higher than the first quarter of 2019. Diluted earnings per common share were $1.09 in the second quarter of 2019, compared with $1.02 in the second quarter of 2018 and $1.00 in the first quarter of 2019.

The increase in net income year-over-year was due to total net revenue growth of 3.2 percent partially offset by noninterest expense growth of 2.2 percent. Net interest income increased 3.4 percent (3.3 percent on a taxable-equivalent basis), mainly a result of the impact of loan growth and mix, as well as higher yields on reinvestment of securities, partially offset by the impact of a flatter yield curve, higher rates on deposits and changes in funding mix. Noninterest income increased 3.1 percent compared with a year ago, driven by growth in payment services revenue, trust and investment management fees, commercial products revenue, and other noninterest revenue, partially offset by a decline in deposit service charges. Noninterest expense increased 2.2 percent primarily due to higher personnel expense, and higher technology investment and occupancy costs in support of business growth. Partially offsetting these increases was lower other noninterest expense driven by lower costs related to tax-advantaged projects and FDIC assessment costs.

Net income increased on a linked quarter basis primarily due to an increase in total net revenue of 4.4 percent partially offset by noninterest expense growth of 2.1 percent. The increase in total net revenue reflected higher net interest income of 1.4 percent primarily due to loan growth, an additional day in the second quarter, and higher interest recoveries, partially offset by the impact of a flatter yield curve, higher rates on deposits and changes in funding mix. Noninterest income increased 8.7 percent compared with the first quarter of 2019 driven by seasonally higher payment services revenue as well as higher commercial products revenue, mortgage banking revenue, and trust and investment management fees. Noninterest expense increased 2.1 percent on a linked quarter basis primarily driven by higher marketing and business development expense, compensation expense, technology and communications expense, and other noninterest expense, partially offset by seasonally lower employee benefits expense.

 

 

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   U.S. Bancorp Second Quarter 2019 Results
      

 

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

2Q

2019

    

1Q

2019

    

2Q

2018

     2Q19 vs
1Q19
    

2Q19 vs

2Q18

    

YTD

2019

    

YTD

2018

     Change  

Components of net interest income
Income on earning assets

     $4,480         $4,381         $3,980         $99         $500         $8,861         $7,802         $1,059   

Expense on interest-bearing liabilities

     1,148         1,095         754         53         394         2,243         1,379         864   

Net interest income

     $3,332         $3,286         $3,226         $46         $106         $6,618         $6,423         $195   

Average yields and rates paid

                       

Earning assets yield

     4.21%         4.22%         3.86%         (.01)%         .35%         4.21%         3.81%         .40%   

Rate paid on interest-bearing liabilities

     1.40            1.38            .97            .02            .43            1.39            .89            .50      

Gross interest margin

     2.81%         2.84%         2.89%         (.03)%         (.08)%         2.82%         2.92%         (.10)%   

Net interest margin

     3.13%         3.16%         3.13%         (.03)%         -- %         3.14%         3.13%         .01%   

Average balances

                                         

Investment securities (a)

     $115,460         $114,179         $114,578         $1,281         $882         $114,823         $114,039         $784   

Loans

     289,218         286,110         278,624         3,108         10,594         287,672         279,004         8,668   

Earning assets

     426,933         419,494         412,676         7,439         14,257         423,234         412,265         10,969   

Interest-bearing liabilities

     329,743         322,156         312,217         7,587         17,526         325,971         311,917         14,054   

(a) Excludes unrealized gain (loss)

 

 

 

Net interest income on a taxable-equivalent basis in the second quarter of 2019 was $3,332 million, an increase of $106 million (3.3 percent) over the second quarter of 2018. The increase was principally driven by earning assets growth and higher yields on reinvestment of securities, partially offset by a flatter yield curve, deposit pricing, and funding mix shift. Average earning assets were $14.3 billion (3.5 percent) higher than the second quarter of 2018, reflecting increases of $10.6 billion (3.8 percent) in average total loans, $882 million (0.8 percent) in average investment securities, and $3.2 billion (19.9 percent) in average other earning assets. Excluding the impact of the fourth quarter of 2018 sale of the majority of the Company’s FDIC covered loans, average total loans grew 4.5 percent compared with the second quarter of 2018.

Net interest income on a taxable-equivalent basis increased $46 million (1.4 percent) on a linked quarter basis primarily driven by earning assets growth, an additional day in the second quarter, and higher interest recoveries. These increases were partially offset by the adverse impact of a flatter yield curve since the first quarter of 2019. Average earning assets were $7.4 billion (1.8 percent) higher on a linked quarter basis, reflecting increases of $3.1 billion (1.1 percent) in average total loans and $1.3 million (1.1 percent) in average investment securities.

The net interest margin in the second quarter of 2019 was 3.13 percent, compared with 3.13 percent in the second quarter of 2018 and 3.16 percent in the first quarter of 2019. Net interest margin was flat year-over-year reflecting the impacts of higher short-term interest rates, the reinvestment of securities, and loan portfolio mix, offset by the adverse impact of the flattening yield curve as well as deposit and funding mix. The decrease in net interest margin on a linked quarter basis was primarily due to changes in the yield curve during the quarter, seasonally lower credit card revolving rates, and higher cash balances, partially offset by higher yields on securities and interest recoveries that are not expected to continue.

Average investment securities in the second quarter of 2019 increased $882 million (0.8 percent) over the second quarter of 2018 and $1.3 billion (1.1 percent) over the first quarter of 2019 primarily due to purchases of mortgage-backed securities, net of prepayments and maturities.

 

 

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   U.S. Bancorp Second Quarter 2019 Results
      

 

 AVERAGE LOANS  
 ($ in millions)                    Percent Change                        
     

2Q

2019

    

1Q

2019

    

2Q

2018

     2Q19 vs
1Q19
    2Q19 vs
2Q18
   

YTD

2019

    

YTD

2018

     Percent
Change
 

Commercial

     $97,776         $96,447         $92,835         1.4       5.3       $97,115         $92,386         5.1  

Lease financing

     5,457         5,513         5,518         (1.0     (1.1     5,485         5,526         (.7

Total commercial

     103,233         101,960         98,353         1.2       5.0       102,600         97,912         4.8  

Commercial mortgages

     28,465         28,459         28,710         --        (.9     28,462         28,942         (1.7

Construction and development

     10,900         11,011         11,147         (1.0     (2.2     10,955         11,168         (1.9

Total commercial real estate

     39,365         39,470         39,857         (.3     (1.2     39,417         40,110         (1.7

Residential mortgages

     66,834         65,582         60,834         1.9       9.9       66,212         60,505         9.4  

Credit card

     22,830         22,597         21,220         1.0       7.6       22,714         21,252         6.9  

Retail leasing

     8,547         8,586         8,150         (.5     4.9       8,566         8,067         6.2  

Home equity and second mortgages

     15,831         15,993         16,048         (1.0     (1.4     15,912         16,121         (1.3

Other

     32,578         31,922         31,265         2.1       4.2       32,251         32,065         .6  

Total other retail

     56,956         56,501         55,463         .8       2.7       56,729         56,253         .8  

Covered loans (a)

     --          --          2,897         --        nm       --          2,972         nm  

Total loans

     $289,218         $286,110         $278,624         1.1       3.8       $287,672         $279,004         3.1  

(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 $10.6 billion (3.8 percent) higher than the second quarter of 2018. Excluding the impact of the fourth quarter of 2018 sale of the majority of the Company’s FDIC covered loans, average total loans grew 4.5 percent over the prior year quarter. The increase was due to growth in total commercial loans (5.0 percent), residential mortgages (9.9 percent), credit card loans (7.6 percent), and total other retail loans (2.7 percent). These increases were partially offset by decreases in total commercial real estate loans (1.2 percent) given the later stage of the business cycle and the sale of covered loans in the fourth quarter of 2018.

Average total loans were $3.1 billion (1.1 percent) higher than the first quarter of 2019 primarily driven by growth in total commercial loans (1.2 percent) and residential mortgages (1.9 percent) and seasonal growth in credit card balances.

 

 

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   U.S. Bancorp Second Quarter 2019 Results
      

 

 AVERAGE DEPOSITS  
 ($ in millions)                    Percent Change                        
     

2Q

2019

    

1Q

2019

    

2Q

2018

     2Q19 vs
1Q19
    2Q19 vs
2Q18
   

YTD

2019

    

YTD

2018

     Percent
Change
 

Noninterest-bearing deposits

     $73,096         $73,433         $78,987         (.5     (7.5     $73,263         $79,234         (7.5

Interest-bearing savings deposits

                                 

Interest checking

     70,433         72,177         69,918         (2.4     .7       71,301         70,136         1.7  

Money market savings

     108,633         99,432         103,333         9.3       5.1       104,058         103,350         .7  

Savings accounts

     45,988         45,216         45,069         1.7       2.0       45,604         44,730         2.0  

Total savings deposits

     225,054         216,825         218,320         3.8       3.1       220,963         218,216         1.3  

Time deposits

     47,082         45,108         37,515         4.4       25.5       46,100         37,252         23.8  

Total interest-bearing deposits

     272,136         261,933         255,835         3.9       6.4       267,063         255,468         4.5  

Total deposits

     $345,232         $335,366         $334,822         2.9       3.1       $340,326         $334,702         1.7  
   

Average total deposits for the second quarter of 2019 were $ 10.4 billion (3.1 percent) higher than the second quarter of 2018. Average noninterest-bearing deposits decreased $5.9 billion (7.5 percent) year-over-year primarily due to balance migration to interest-bearing deposits and 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 $6.7 billion (3.1 percent) higher year-over-year driven by Wealth Management and Investment Services, Consumer and Business Banking, and Corporate and Commercial Banking. Average time deposits were $9.6 billion (25.5 percent) higher than the prior year quarter. Changes in time deposits are driven by growth in consumer deposits related to the migration of balances to higher yielding balances. It was also due to funding decisions based largely on relative pricing and liquidity characteristics.

Average total deposits increased $9.9 billion (2.9 percent) from the first quarter of 2019. On a linked quarter basis, average noninterest-bearing deposits decreased $337 million (0.5 percent). Average total savings deposits increased $8.2 billion (3.8 percent) on a linked quarter basis primarily due to increases in Wealth Management and Investment Services and Consumer and Business Banking. Average time deposits increased $2.0 billion (4.4 percent) on a linked quarter basis primarily in savings certificates and personal certificates of deposit as customers seek higher yield alternatives.

 

 

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 NONINTEREST INCOME

                                                
 ($ in millions)                     Percent Change                    
    2Q     1Q     2Q     2Q19 vs     2Q19 vs     YTD     YTD     Percent  
     2019     2019     2018     1Q19     2Q18     2019     2018     Change  

Credit and debit card revenue

    $365        $304        $351        20.1        4.0        $669        $675        (.9)  

Corporate payment products revenue

    167        162        158        3.1        5.7        329        312        5.4   

Merchant processing services

    404        378        387        6.9        4.4        782        750        4.3   

Trust and investment management fees

    415        399        401        4.0        3.5        814        799        1.9   

Deposit service charges

    227        217        273        4.6        (16.8)       444        534        (16.9)  

Treasury management fees

    153        146        155        4.8        (1.3)       299        305        (2.0)  

Commercial products revenue

    249        219        234        13.7        6.4        468        454        3.1   

Mortgage banking revenue

    189        169        191        11.8        (1.0)       358        375        (4.5)  

Investment products fees

    47        45        47        4.4        --         92        93        (1.1)  

Securities gains (losses), net

    17              10        nm        70.0        22        15        46.7   

Other

    257        247        207        4.0        24.2        504        374        34.8   

Total noninterest income

    $2,490        $2,291        $2,414        8.7        3.1        $4,781        $4,686        2.0   
                                                                 

Second quarter noninterest income of $2,490 million was $76 million (3.1 percent) higher than the second quarter of 2018 driven by growth in payment services revenue, trust and investment management fees, commercial products revenue, and other noninterest revenue, partially offset by a decline in deposit service charges. Payment services revenue increased $40 million (4.5 percent) due to higher credit and debit card revenue of $14 million (4.0 percent), an increase in corporate payment products revenue of $9 million (5.7 percent), and higher merchant processing services revenue of $17 million (4.4 percent), all driven by higher sales volume. Trust and investment management fees increased $14 million (3.5 percent) due to business growth and favorable market conditions. Commercial products revenue increased $15 million (6.4 percent) primarily due to higher corporate bond fees and trading revenue, partially offset by lower syndication fees. 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 sale of the Company’s ATM third-party servicing business in 2018. These increases were partially offset by lower deposit service charges. Deposit service charges decreased $46 million (16.8 percent) primarily due to the ATM third-party servicing sale in 2018.

Noninterest income was $199 million (8.7 percent) higher in the second quarter of 2019 compared with the first quarter of 2019 driven by higher payment services revenue, commercial products revenue, mortgage banking revenue and trust and investment management fees. Payment services revenue increased $92 million (10.9 percent) primarily due to strong consumer spending recovering from significantly lower sales in the first quarter of 2019 and the impact of seasonally higher sales typically expected in the second quarter of the year. Commercial products revenue increased $30 million (13.7 percent) primarily due to higher corporate bond fees and other capital markets revenue due to more favorable markets and certain merger and acquisition related bond issuances during the second quarter of 2019. Mortgage banking revenue increased $20 million (11.8 percent) reflecting higher origination and sales volumes, partially offset by an unfavorable change in the valuation of mortgage servicing rights, net of hedging activities. Trust and investment management fees increased $16 million (4.0 percent) primarily due to business growth and favorable market conditions.

 

 

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 NONINTEREST EXPENSE                                                 
 ($ in millions)                     Percent Change                    
    2Q     1Q     2Q     2Q19 vs     2Q19 vs     YTD     YTD     Percent  
     2019     2019     2018     1Q19     2Q18     2019     2018     Change  

Compensation

    $1,574        $1,559        $1,542        1.0        2.1        $3,133        $3,065        2.2   

Employee benefits

    314        333        299        (5.7)       5.0        647        629        2.9   

Net occupancy and equipment

    281        277        262        1.4        7.3        558        527        5.9   

Professional services

    106        95        95        11.6        11.6        201        178        12.9   

Marketing and business development

    111        89        111        24.7        --         200        208        (3.8)  

Technology and communications

    270        257        242        5.1        11.6        527        477        10.5   

Postage, printing and supplies

    73        72        80        1.4        (8.8)       145        160        (9.4)  

Other intangibles

    42        40        40        5.0        5.0        82        79        3.8   

Other

    382        365        414        4.7        (7.7)       747        817        (8.6)  

Total noninterest expense

    $3,153        $3,087        $3,085        2.1        2.2        $6,240        $6,140        1.6   
                                                                 

Second quarter noninterest expense of $3,153 million was $68 million (2.2 percent) higher than the second quarter of 2018 primarily due to higher personnel costs, occupancy costs, and technology investment, partially offset by lower other noninterest expense. Compensation expense increased $32 million (2.1 percent) principally due to the impact of merit increases and hiring to support business growth. Employee benefits expense increased $15 million (5.0 percent) primarily due to increased medical costs. Technology and communications expense increased $28 million (11.6 percent) and net occupancy and equipment expense increased $19 million (7.3) percent to support business growth. Partially offsetting these increases was a decrease in other noninterest expense of $32 million (7.7 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.

Noninterest expense increased $66 million (2.1 percent) on a linked quarter basis due to higher compensation expense of $15 million (1.0 percent), the impact of seasonal merit increases and an additional day in the second quarter. Professional services expense increased $11 million (11.6 percent) and marketing and business development expense increased $22 million (24.7 percent) both due to seasonally higher activity in the second quarter. These increases were partially offset by a seasonal decrease in employee benefits due to higher payroll taxes during the first quarter of the year.

Provision for Income Taxes

The provision for income taxes for the second quarter of 2019 resulted in a tax rate of 20.7 percent on a taxable-equivalent basis (effective tax rate of 19.7 percent), compared with 21.1 percent (effective tax rate of 20.1 percent) in the second quarter of 2018, and 19.2 percent on a taxable-equivalent basis (effective tax rate of 18.1 percent) in the first quarter of 2019.

 

 

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

 

Balance, beginning of period

 

 

 

 

$4,451

 

  

   

 

 

 

$4,441

 

  

   

 

 

 

$4,426

 

  

   

 

 

 

$4,411

 

  

   

 

 

 

$4,417

 

  

 

Net charge-offs

                   

Commercial

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

Lease financing

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

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

 

Total commercial

    59       .23       73       .29       67       .26       66       .26       58       .24  

Commercial mortgages

    2       .03       --        --        (8     (.11     (5     (.07     --        --   

Construction and development

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

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

 

Total commercial real estate

    1       .01       --        --        (7     (.07     (9     (.09     --        --   

Residential mortgages

    4       .02       3       .02       2       .01       4       .03       4       .03  

Credit card

    227       3.99       225       4.04       219       3.88       206       3.75       210       3.97  

Retail leasing

    2       .09       4       .19       3       .14       3       .14       3       .15  

Home equity and second mortgages

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

Other

    58       .71       63       .80       68       .85       59       .74       59       .76  
 

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

 

Total other retail

    59       .42       66       .47       72       .51       61       .43       60       .43  
 

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

 

Total net charge-offs

    350       .49       367       .52       353       .49       328       .46       332       .48  

Provision for credit losses

    365         377         368         343         327    

Other changes

    --          --          --          --          (1  
 

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

 

Balance, end of period

      $4,466           $4,451           $4,441           $4,426           $4,411    
 

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

 

Components

                   

Allowance for loan losses

    $4,019         $3,990         $3,973         $3,954         $3,920    

Liability for unfunded credit commitments

    447         461         468         472         491    
 

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

 

Total allowance for credit losses

    $4,466         $4,451         $4,441         $4,426         $4,411    
 

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

 

Gross charge-offs

    $464         $473         $442         $428         $437    

Gross recoveries

    $114         $106         $89         $100         $105    

Allowance for credit losses as a percentage of

                   

Period-end loans

    1.53         1.55         1.55         1.57         1.57    

Nonperforming loans

    556         519         544         544         484    

Nonperforming assets

    469         443         449         441         404    

(a)  Annualized and calculated on average loan balances

   

 

 

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Credit quality was relatively stable on a linked quarter and year-over-year basis. The Company’s provision for credit losses for the second quarter of 2019 was $365 million, which was $12 million (3.2 percent) lower than the prior quarter and $38 million (11.6 percent) higher than the second quarter of 2018 primarily reflecting loan growth.

Total net charge-offs in the second quarter of 2019 were $350 million, compared with $367 million in the first quarter of 2019, and $332 million in the second quarter of 2018. Net charge-offs decreased $17 million (4.6 percent) compared with the first quarter of 2019 primarily due to lower total commercial net charge-offs. Net charge-offs increased $18 million (5.4 percent) compared with the second quarter of 2018 primarily due to higher credit card net charge-offs. The net charge-off ratio was 0.49 percent in the second quarter of 2019, compared with 0.52 percent in the first quarter of 2019 and 0.48 percent in the second quarter of 2018.

The allowance for credit losses was $4,466 million at June 30, 2019, compared with $4,451 million at March 31, 2019, and $4,411 million at June 30, 2018. The ratio of the allowance for credit losses to period-end loans was 1.53 percent at June 30, 2019, compared with 1.55 percent at March 31, 2019, and 1.57 percent at June 30, 2018. The ratio of the allowance for credit losses to nonperforming loans was 556 percent at June 30, 2019, compared with 519 percent at March 31, 2019, and 484 percent at June 30, 2018.

Nonperforming assets were $953 million at June 30, 2019, compared with $1,005 million at March 31, 2019, and $1,091 million at June 30, 2018. The ratio of nonperforming assets to loans and other real estate was 0.33 percent at June 30, 2019, compared with 0.35 percent at March 31, 2019, and 0.39 percent at June 30, 2018. The decrease in nonperforming assets on a linked quarter basis and a year-over-year basis was driven by decreases in nonperforming residential mortgages, total commercial real estate, and other real estate owned. Accruing loans 90 days or more past due were $752 million at June 30, 2019, compared with $595 million at March 31, 2019, and $640 million at June 30, 2018. Commercial loan 90 day delinquencies were elevated this quarter related to one customer that is expected to resolve without a credit loss.

 

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

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

 

     

Commercial

     .26        .07        .07        .06        .06    

Commercial real estate

     --         .01        --         .01        .01    

Residential mortgages

     .17        .18        .18        .19        .18    

Credit card

     1.14        1.29        1.25        1.18        1.15    

Other retail

     .17        .19        .19        .17        .16    

Covered loans

     --         --         --         .86        4.46    

Total loans

     .26        .21        .20        .20        .23    

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

 

     

Commercial

     .53        .34        .27        .28        .28   

Commercial real estate

     .24        .33        .29        .27        .27   

Residential mortgages

     .55        .62        .63        .69        .84   

Credit card

     1.14        1.29        1.25        1.18        1.15   

Other retail

     .47        .49        .54        .49        .48   

Covered loans

     --        --        --        .86        4.68   

Total loans

     .53        .51        .49        .48        .55   
                                              

 

 

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 ASSET QUALITY (a)

 
 ($ in millions)                                 
     Jun 30      Mar 31      Dec 31      Sep 30      Jun 30 
      2019      2019      2018      2018      2018 

Nonperforming loans

              

Commercial

     $254         $247         $186         $193         $199   

Lease financing

     25         24         23         23         25   

Total commercial

     279         271         209         216         224   

Commercial mortgages

     81         79         76         77         72   

Construction and development

     11         48         39         28         32   

Total commercial real estate

     92         127         115         105         104   

Residential mortgages

     263         287         296         317         400   

Credit card

     --         --         --         --         --   

Other retail

     169         173         197         175         178   

Covered loans

     --         --         --         --          

Total nonperforming loans

     803         858         817         813         912   

Other real estate

     88         93         111         100         108   

Covered other real estate

     --         --         --         19         20   

Other nonperforming assets

     62         54         61         72         51   

Total nonperforming assets

     $953         $1,005         $989          $1,004         $1,091    

 

Accruing loans 90 days or more past due

  

 

 

 

$752 

 

 

  

 

 

 

$595 

 

 

  

 

 

 

$584 

 

 

  

 

 

 

$551 

 

 

  

 

 

 

$640 

 

 

Performing restructured loans, excluding GNMA

     $2,142         $2,173         $2,218         $2,272         $2,194   

Performing restructured GNMA

     $1,598         $1,578         $1,639         $1,668         $1,665   

Nonperforming assets to loans plus ORE (%)

     .33         .35         .34         .36         .39   

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

 

 

 

 

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 COMMON SHARES                                        
 (Millions)    2Q
2019
     1Q
2019
     4Q
2018
     3Q
2018
     2Q
2018
 

Beginning shares outstanding

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

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

     --                               --    

Shares repurchased

     (15)        (12)        (16)        (14)        (13)  

Ending shares outstanding

     1,584         1,599         1,608         1,623         1,636   
                                              

 

 CAPITAL POSITION                                    
 ($ in millions)    Jun 30
2019
    Mar 31
2019
    Dec 31
2018
    Sep 30
2018
    Jun 30
2018
 

Total U.S. Bancorp shareholders’ equity

   $ 52,913      $ 52,057      $ 51,029      $ 50,375      $ 49,628   

Basel III Standardized Approach

          

Common equity tier 1 capital

   $ 36,909      $ 35,732      $ 34,724      $ 34,097      $ 34,161   

Tier 1 capital

     42,923        41,748        40,741        40,114        39,611   

Total risk-based capital

     50,370        49,194        48,178        47,531        47,258   

Common equity tier 1 capital ratio

     9.5    %      9.3    %      9.1    %      9.0    %      9.1    % 

Tier 1 capital ratio

     11.0        10.9        10.7        10.6        10.5   

Total risk-based capital ratio

     13.0        12.8        12.6        12.6        12.6   

Leverage ratio

     9.3        9.2        9.0        9.0        8.9   

Basel III Advanced Approaches

          

Common equity tier 1 capital ratio

     12.3        12.0        11.8        11.8        11.6   

Tangible common equity to tangible assets (a)

     7.9        7.9        7.8        7.7        7.8   

Tangible common equity to risk-weighted assets (a)

     9.7        9.5        9.4        9.3        9.3   

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

 

                                        

Total U.S. Bancorp shareholders’ equity was $52.9 billion at June 30, 2019, compared with $52.1 billion at March 31, 2019, and $49.6 billion at June 30, 2018. During the second quarter, the Company returned 79 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 9.5 percent at June 30, 2019, compared with 9.3 percent at March 31, 2019, and 9.1 percent at June 30, 2018. The common equity tier 1 capital to risk-weighted assets ratio using the Basel III advanced approaches method was 12.3 percent at June 30, 2019, compared with 12.0 percent at March 31, 2019, and 11.6 percent at June 30, 2018.

 

 

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   U.S. Bancorp Second Quarter 2019 Results
      

 

 

  Investor Conference Call

 

On Wednesday, July 17, 2019, at 8:30 a.m. CDT, Chairman, President and CEO Andy Cecere along with Vice Chairman and Chief Financial Officer Terry Dolan 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 5545338. For those unable to participate during the live call, a recording will be available at approximately 11:00 a.m. CDT on Wednesday, July 17 and will be accessible until Wednesday, July 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 5545338.

 

 

  About U.S. Bancorp

 

U.S. Bancorp, with 74,000 employees and $482 billion in assets as of June 30, 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 Second 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. 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  

June 30,

        Six Months Ended    
June 30,
 
  2019     2018     2019     2018  

Interest Income

         

Loans

    $3,582       $3,197       $7,122       $6,292  

Loans held for sale

    34       39       59       72  

Investment securities

    745       653       1,450       1,266  

Other interest income

    90       59       171       109  

Total interest income

    4,451       3,948       8,802       7,739  

Interest Expense

         

Deposits

    762       427       1,457       772  

Short-term borrowings

    91       86       184       161  

Long-term debt

    293       238       597       441  

Total interest expense

    1,146       751       2,238       1,374  

Net interest income

    3,305       3,197       6,564       6,365  

Provision for credit losses

    365       327       742       668  

Net interest income after provision for credit losses

    2,940       2,870       5,822       5,697  

Noninterest Income

         

Credit and debit card revenue

    365       351       669       675  

Corporate payment products revenue

    167       158       329       312  

Merchant processing services

    404       387       782       750  

Trust and investment management fees

    415       401       814       799  

Deposit service charges

    227       273       444       534  

Treasury management fees

    153       155       299       305  

Commercial products revenue

    249       234       468       454  

Mortgage banking revenue

    189       191       358       375  

Investment products fees

    47       47       92       93  

Securities gains (losses), net

    17       10       22       15  

Other

    257       207       504       374  

Total noninterest income

    2,490       2,414       4,781       4,686  

Noninterest Expense

         

Compensation

    1,574       1,542       3,133       3,065  

Employee benefits

    314       299       647       629  

Net occupancy and equipment

    281       262       558       527  

Professional services

    106       95       201       178  

Marketing and business development

    111       111       200       208  

Technology and communications

    270       242       527       477  

Postage, printing and supplies

    73       80       145       160  

Other intangibles

    42       40       82       79  

Other

    382       414       747       817  

Total noninterest expense

    3,153       3,085       6,240       6,140  

Income before income taxes

    2,277       2,199       4,363       4,243  

Applicable income taxes

    449       441       827       803  

Net income

    1,828       1,758       3,536       3,440  

Net (income) loss attributable to noncontrolling interests

    (7     (8     (16     (15

Net income attributable to U.S. Bancorp

    $1,821       $1,750       $3,520       $3,425  

Net income applicable to U.S. Bancorp common shareholders

    $1,741       $1,678       $3,354       $3,275  

Earnings per common share

    $1.09       $1.02       $2.10       $1.99  

Diluted earnings per common share

    $1.09       $1.02       $2.10       $1.98  

Dividends declared per common share

    $.37       $.30       $.74       $.60  

Average common shares outstanding

    1,590       1,642       1,596       1,647  

Average diluted common shares outstanding

    1,592       1,646       1,599       1,651  

 

 

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 CONSOLIDATED ENDING BALANCE SHEET                        
 (Dollars in Millions)    June 30,
2019
     December 31,
2018
     June 30,
2018
 

Assets

     (Unaudited         (Unaudited

Cash and due from banks

     $16,932        $21,453        $19,021  

Investment securities

        

Held-to-maturity

     46,383        46,050        46,055  

Available-for-sale

     69,197        66,115        66,347  

Loans held for sale

     3,819        2,056        3,256  

Loans

        

Commercial

     103,980        102,444        99,357  

Commercial real estate

     39,334        39,539        39,399  

Residential mortgages

     67,913        65,034        61,309  

Credit card

     23,426        23,363        21,566  

Other retail

     57,375        56,430        55,723  

Covered loans

     --         --         2,823  

Total loans

     292,028        286,810        280,177  

Less allowance for loan losses

     (4,019      (3,973      (3,920

Net loans

     288,009        282,837        276,257  

Premises and equipment

     3,690        2,457        2,431  

Goodwill

     9,548        9,369        9,425  

Other intangible assets

     3,161        3,392        3,415  

Other assets

     40,980        33,645        35,122  

Total assets

     $481,719        $467,374        $461,329  

Liabilities and Shareholders’ Equity

        

Deposits

        

Noninterest-bearing

     $76,170        $81,811        $82,215  

Interest-bearing

     277,007        263,664        257,865  

Total deposits

     353,177        345,475        340,080  

Short-term borrowings

     15,032        14,139        18,136  

Long-term debt

     41,008        41,340        37,172  

Other liabilities

     18,962        14,763        15,684  

Total liabilities

     428,179        415,717        411,072  

Shareholders’ equity

        

Preferred stock

     5,984        5,984        5,419  

Common stock

     21        21        21  

Capital surplus

     8,465        8,469        8,468  

Retained earnings

     61,252        59,065        56,742  

Less treasury stock

     (21,465      (20,188      (18,707

Accumulated other comprehensive income (loss)

     (1,344      (2,322      (2,315

Total U.S. Bancorp shareholders’ equity

     52,913        51,029        49,628  

Noncontrolling interests

     627        628        629  

Total equity

     53,540        51,657        50,257  

Total liabilities and equity

     $481,719        $467,374        $461,329  

 

 

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

Total equity

         $53,540       $52,686       $51,657       $51,007       $50,257  

Preferred stock

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

Noncontrolling interests

         (627     (629     (628     (632     (629

Goodwill (net of deferred tax liability) (1)

         (8,708     (8,716     (8,549     (8,682     (8,585

Intangible assets, other than mortgage servicing rights

         (703     (685     (601     (627     (571

Tangible common equity (a)

         37,518       36,672       35,895       35,082       35,053  

Total assets

         481,719       475,775       467,374       464,607       461,329  

Goodwill (net of deferred tax liability) (1)

         (8,708     (8,716     (8,549     (8,682     (8,585

Intangible assets, other than mortgage servicing rights

         (703     (685     (601     (627     (571

Tangible assets (b)

         472,308       466,374       458,224       455,298       452,173  

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

         388,709    *      384,394       381,661       377,713       375,466  

Ratios *

              

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

         7.9   %      7.9   %      7.8   %      7.7   %      7.8   % 

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

         9.7       9.5       9.4       9.3       9.3  
              
                 Three Months Ended  
                 June 30,
2019
    March 31,
2019
    December 31,
2018
    September 30,
2018
    June 30,
2018
 

Net income applicable to U.S. Bancorp common shareholders

         $1,741       $1,613       $1,777       $1,732       $1,678  

Intangibles amortization (net-of-tax)

         33       32       32       32       32  

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

         1,774       1,645       1,809       1,764       1,710  

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

         7,115       6,671       7,177       6,998       6,859  

Average total equity

         53,066       52,218       51,370       50,768       49,950  

Average preferred stock

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

Average noncontrolling interests

         (628     (629     (630     (630     (628

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

         (8,715     (8,732     (8,574     (8,620     (8,602

Average intangible assets, other than mortgage servicing rights

         (681     (671     (605     (584     (588

Average tangible common equity (e)

         37,058       36,202       35,577       35,220       34,713  

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

         19.2   %      18.4   %      20.2   %      19.9   %      19.8   % 

    

              
     Three Months Ended     Six Months Ended  
     June 30,
2019
    March 31,
2019
    December 31,
2018
    September 30,
2018
    June 30,
2018
   

June 30,

2019

    June 30,
2018
 

Net interest income

     $3,305       $3,259       $3,303       $3,251       $3,197       $6,564       $6,365  

Taxable-equivalent adjustment (2)

     27       27       28       30       29       54       58  

Net interest income, on a taxable-equivalent basis

     3,332       3,286       3,331       3,281       3,226       6,618       6,423  
 

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

     3,332       3,286       3,331       3,281       3,226       6,618       6,423  

Noninterest income

     2,490       2,291       2,498       2,418       2,414       4,781       4,686  

Less: Securities gains (losses), net

     17       5       5       10       10       22       15  

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

     5,805       5,572       5,824       5,689       5,630       11,377       11,094  
 

Noninterest expense (g)

     3,153       3,087       3,280       3,044       3,085       6,240       6,140  

Less: Intangible amortization

     42       40       41       41       40       82       79  

Noninterest expense, excluding intangible amortization (h)

     3,111       3,047       3,239       3,003       3,045       6,158       6,061  
 

Efficiency ratio (g)/(f)

     54.3   %      55.4   %      56.3   %      53.5   %      54.8   %      54.8   %      55.3   % 

Tangible efficiency ratio (h)/(f)

     53.6       54.7       55.6       52.8       54.1       54.1       54.6  

 

   *

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     Net Income Attributable to
U.S. Bancorp
           2Q 2019         
Business Line    2Q
2019
     1Q
2019
    

2Q  

2018  

     2Q19 vs
1Q19
     2Q19 vs
2Q18
   

YTD

2019

    

YTD  

2018  

     Percent
Change
    Earnings
Composition
         

Corporate and Commercial Banking

     $416        $402        $416          3.5        --       $818        $804          1.7       23        %  

Consumer and Business Banking

     559        555        543          .7        2.9       1,114        1,087          2.5       31       

Wealth Management and Investment Services

     228        214        191          6.5        19.4       442        399          10.8       12       

Payment Services

     358        326        360          9.8        (.6     684        701          (2.4     20       

Treasury and Corporate Support

     260        202        240          28.7        8.3       462        434          6.5       14       
         

Consolidated Company

       $1,821        $1,699        $1,750          7.2        4.1         $3,520        $3,425          2.8               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              
    

2Q 

2019 

   

1Q

2019

   

2Q

2018

    2Q19 vs
1Q19
    2Q19 vs
2Q18
   

YTD 

2019 

   

YTD

2018

    Percent
Change
 

Condensed Income Statement

                 

Net interest income (taxable-equivalent basis)

    $718        $726       $726       (1.1)       (1.1)       $1,444        $1,448       (.3)  

Noninterest income

    245        209       223       17.2        9.9        454        430       5.6   

Securities gains (losses), net

    --         --       --       --         --         --         --       --    

Total net revenue

    963        935       949       3.0        1.5        1,898        1,878       1.1   

Noninterest expense

    409        409       405       --         1.0        818        801       2.1   

Other intangibles

          1       1       --         --               2       --    

Total noninterest expense

    410        410       406       --         1.0        820        803       2.1   

Income before provision and taxes

    553        525       543       5.3        1.8        1,078        1,075       .3   

Provision for credit losses

    (2)       (11     (12     81.8        83.3        (13)       2       nm   

Income before income taxes

    555        536       555       3.5        --         1,091        1,073       1.7   

Income taxes and taxable-equivalent adjustment

    139        134       139       3.7        --         273        269       1.5   

Net income

    416        402       416       3.5        --         818        804       1.7   

Net (income) loss attributable to noncontrolling interests

    --         --       --       --         --         --         --       --    

Net income attributable to U.S. Bancorp

    $416        $402       $416       3.5        --         $818        $804       1.7   
   

Average Balance Sheet Data

                 

Loans

        $96,588            $96,410           $93,454       .2        3.4            $96,500            $93,672       3.0   

Other earning assets

    3,883        3,168       3,092       22.6        25.6        3,527        2,976       18.5   

Goodwill

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

Other intangible assets

          9       11       --         (18.2)             11       (18.2)  

Assets

    106,680        105,142       102,521       1.5        4.1        105,915        102,551       3.3   
   

Noninterest-bearing deposits

    28,874        29,981       33,314       (3.7)       (13.3)       29,424        33,779       (12.9)  

Interest-bearing deposits

    70,690        71,095       70,362       (.6)       .5        70,892        70,156       1.0   

Total deposits

    99,564        101,076       103,676       (1.5)       (4.0)       100,316        103,935       (3.5)  
   

Total U.S. Bancorp shareholders’ equity

    10,362        10,439       10,498       (.7)       (1.3)       10,400        10,457       (.5)  
   

(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 $416 million of the Company’s net income in the second quarter of 2019 and in the second quarter of 2018. Total net revenue increased $14 million (1.5 percent) due to an increase of $22 million (9.9 percent) in total noninterest income, partially offset by a decrease of $8 million (1.1 percent) in net interest income. Net interest income decreased primarily due to lower noninterest bearing deposit balances compared to last year and lower spreads on loans, reflecting a competitive marketplace, partially offset by the impact of higher rates on the margin benefit from deposits and loan growth. 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 and corporate bond underwriting fees, partially offset by lower foreign currency customer activity from a year ago. Total noninterest expense was $4 million (1.0 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, higher salary expense driven by merit increases, and an increase in production incentives. These increases were partially offset by lower FDIC assessment costs. The provision for credit losses increased $10 million (83.3 percent) reflecting an unfavorable change in the reserve allocation due to growth in the portfolio, partially offset by lower net charge-offs.

 

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CONSUMER AND BUSINESS BANKING (a)  
($ in millions)                     Percent Change              
    

2Q 

2019 

   

1Q

2019

   

2Q  

2018  

    2Q19 vs
1Q19
    2Q19 vs
2Q18
   

YTD

2019

   

YTD  

2018  

    Percent
Change
 

Condensed Income Statement

                 

Net interest income (taxable-equivalent basis)

    $1,581        $1,567       $1,519         .9        4.1        $3,148       $3,031         3.9   

Noninterest income

    567        535       594         6.0        (4.5)       1,102       1,171         (5.9)  

Securities gains (losses), net

    --        --       --         --         --         --       --         --    
   

 

 

       

 

 

     

Total net revenue

    2,148        2,102       2,113         2.2        1.7        4,250       4,202         1.1   

Noninterest expense

    1,318        1,287       1,327         2.4        (.7)       2,605       2,628         (.9)  

Other intangibles

          5       7         --         (28.6)       10       14         (28.6)  
   

 

 

       

 

 

     

Total noninterest expense

    1,323        1,292       1,334         2.4        (.8)       2,615       2,642         (1.0)  
   

 

 

       

 

 

     

Income before provision and taxes

    825        810       779         1.9        5.9        1,635       1,560         4.8   

Provision for credit losses

    79        70       55         12.9        43.6        149       110         35.5   
   

 

 

       

 

 

     

Income before income taxes

    746        740       724         .8        3.0        1,486       1,450         2.5   

Income taxes and taxable-equivalent adjustment

    187        185       181         1.1        3.3        372       363         2.5   
   

 

 

       

 

 

     

Net income

    559        555       543         .7        2.9        1,114       1,087         2.5   

Net (income) loss attributable to noncontrolling interests

    --        --       --         --         --         --       --         --    
   

 

 

       

 

 

     

Net income attributable to U.S. Bancorp

    $559        $555       $543         .7        2.9        $1,114       $1,087         2.5   
   

 

 

       

 

 

     
   

Average Balance Sheet Data

                 

Loans

        $143,714        $141,755       $139,904         1.4        2.7            $142,740       $140,495         1.6   

Other earning assets

    3,334        2,389       3,810         39.6        (12.5)       2,864       3,611         (20.7)  

Goodwill

    3,475        3,475       3,632         --         (4.3)       3,475       3,632         (4.3)  

Other intangible assets

    2,717        2,882       2,932         (5.7)       (7.3)       2,799       2,902         (3.5)  

Assets

    157,384        154,680       154,579         1.7        1.8        156,039       154,999         .7   
   

Noninterest-bearing deposits

    27,060        26,554       27,348         1.9        (1.1)       26,809       27,289         (1.8)  

Interest-bearing deposits

    128,883        127,274       125,221         1.3        2.9        128,082       124,185         3.1   
   

 

 

       

 

 

     

Total deposits

    155,943        153,828       152,569         1.4        2.2        154,891       151,474         2.3   
   

Total U.S. Bancorp shareholders’ equity

    11,737        11,742       11,855         --         (1.0)       11,739       11,845         (.9)  
   

(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 $559 million of the Company’s net income in the second quarter of 2019, compared with $543 million in the second quarter of 2018. Total net revenue increased $35 million (1.7 percent) due to a $62 million (4.1 percent) increase in net interest income, partially offset by a $27 million (4.5 percent) decrease in total noninterest income. Net interest income increased primarily due to the impact of higher rates on the margin benefit from deposits as well as growth in both interest-bearing deposit balances and loan volumes, partially offset by the lower spreads on loans. Total noninterest income decreased principally due to a reduction in ATM processing services revenue due to the sale of the Company’s ATM third-party servicing business in 2018, partially offset by the transition services agreement revenue associated with the sale. Total noninterest expense in the second quarter of 2019 decreased $11 million (0.8 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 technology development and investment in infrastructure supporting business growth as well as costs to manage the business. The provision for credit losses increased $24 million (43.6 percent) primarily due to an unfavorable change in the reserve allocation due to slower improvement in housing prices in the second quarter and higher net charge-offs.

 

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WEALTH MANAGEMENT AND INVESTMENT SERVICES (a)

 

                        
($ in millions)                        Percent Change                     
      2Q
2019
     1Q
2019
    2Q  
2018  
     2Q19 vs
1Q19
    2Q19 vs
2Q18
    YTD
2019
    YTD  
2018  
     Percent
Change
 

Condensed Income Statement

                     

Net interest income (taxable-equivalent basis)

     $299        $288       $282          3.8       6.0       $587       $557          5.4  

Noninterest income

     445        430       430          3.5       3.5       875       861          1.6  

Securities gains (losses), net

     --        --       --          --       --       --       --          --  

Total net revenue

     744        718       712          3.6       4.5       1,462       1,418          3.1  

Noninterest expense

     435        433       453          .5       (4.0     868       877          (1.0

Other intangibles

     3        3       4          --       (25.0     6       8          (25.0

Total noninterest expense

     438        436       457          .5       (4.2     874       885          (1.2

Income before provision and taxes

     306        282       255          8.5       20.0       588       533          10.3  

Provision for credit losses

     2        (3     --          nm       nm       (1     1          nm  

Income before income taxes

     304        285       255          6.7       19.2       589       532          10.7  

Income taxes and taxable-equivalent adjustment

     76        71       64          7.0       18.8       147       133          10.5  

Net income

     228        214       191          6.5       19.4       442       399          10.8  

Net (income) loss attributable to noncontrolling interests

     --        --       --          --       --       --       --          --  

Net income attributable to U.S. Bancorp

     $228        $214       $191          6.5       19.4       $442       $399          10.8  
   

Average Balance Sheet Data

                     

Loans

     $9,907        $9,828       $9,225          .8       7.4       $9,867       $9,105          8.4  

Other earning assets

     340        245       166          38.8       nm       293       165          77.6  

Goodwill

     1,617        1,617       1,619          --       (.1     1,617       1,619          (.1

Other intangible assets

     50        54       66          (7.4     (24.2     52       68          (23.5

Assets

     13,185        13,194       12,248          (.1     7.7       13,189       12,137          8.7  

Noninterest-bearing deposits

     13,609        13,306       14,792          2.3       (8.0     13,458       14,584          (7.7

Interest-bearing deposits

     61,432        54,173       56,869          13.4       8.0       57,823       56,927          1.6  

Total deposits

     75,041        67,479       71,661          11.2       4.7       71,281       71,511          (.3
   

Total U.S. Bancorp shareholders’ equity

     2,528        2,515       2,476          .5       2.1       2,522       2,464          2.4  
   

(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 $228 million of the Company’s net income in the second quarter of 2019, compared with $191 million in the second quarter of 2018. Total net revenue increased $32 million (4.5 percent) year-over-year due to increases in net interest income of $17 million (6.0 percent) and noninterest income of $15 million (3.5 percent). Net interest income increased year-over-year primarily due to the impact of higher rates on the margin benefit from deposits and higher deposit balances. Total noninterest income increased primarily due to business growth and favorable market conditions. Total noninterest expense decreased $19 million (4.2 percent) primarily due to lower FDIC assessment costs and litigation settlements in the prior year quarter, partially offset by increased net shared services expense due to technology development. The provision for credit losses increased $2 million reflecting an unfavorable change in the reserve allocation.

 

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PAYMENT SERVICES (a)                                                              
($ in millions)           Percent Change                      
      2Q 2019      1Q
2019
     2Q  
2018  
    

2Q19 vs

1Q19

    2Q19 vs
2Q18
    YTD 2019      YTD  
2018  
     Percent
Change
 

Condensed Income Statement

                       

Net interest income (taxable-equivalent basis)

     $592        $623        $592          (5.0     --       $1,215        $1,202          1.1  

Noninterest income

     950        851        902          11.6       5.3       1,801        1,750          2.9  

Securities gains (losses), net

     --        --        --           --       --       --        --          --  
    

 

 

        

 

 

      

Total net revenue

     1,542        1,474        1,494          4.6       3.2       3,016        2,952          2.2  

Noninterest expense

     736        722        705          1.9       4.4       1,458        1,409          3.5  

Other intangibles

     33        31        28          6.5       17.9       64        55          16.4  
    

 

 

        

 

 

      

Total noninterest expense

     769        753        733          2.1       4.9       1,522        1,464          4.0  
    

 

 

        

 

 

      

Income before provision and taxes

     773        721        761          7.2       1.6       1,494        1,488          .4  

Provision for credit losses

     295        286        281          3.1       5.0       581        553          5.1  
    

 

 

        

 

 

      

Income before income taxes

     478        435        480          9.9       (.4     913        935          (2.4

Income taxes and taxable-equivalent adjustment

     120        109        120          10.1       --       229        234          (2.1
    

 

 

        

 

 

      

Net income

     358        326        360          9.8       (.6     684        701          (2.4

Net (income) loss attributable to noncontrolling interests

     --        --        --           --       --       --        --          --  
    

 

 

        

 

 

      

Net income attributable to U.S. Bancorp

     $358        $326        $360          9.8       (.6     $684        $701          (2.4
    

 

 

        

 

 

      
   

Average Balance Sheet Data

                       

Loans

         $33,277        $32,414        $30,591          2.7       8.8           $32,848        $30,328          8.3  

Other earning assets

     327        448        302          (27.0     8.3       387        289          33.9  

Goodwill

     2,806        2,814        2,535          (.3     10.7       2,810        2,538          10.7  

Other intangible assets

     533        513        392          3.9       36.0       523        394          32.7  

Assets

     39,519        38,615        36,535          2.3       8.2       39,070        36,348          7.5  

Noninterest-bearing deposits

     1,148        1,157        1,085          (.8     5.8       1,152        1,106          4.2  

Interest-bearing deposits

     115        111        109          3.6       5.5       113        108          4.6  
    

 

 

        

 

 

      

Total deposits

     1,263        1,268        1,194          (.4     5.8       1,265        1,214          4.2  
   

 

Total U.S. Bancorp shareholders’ equity

     7,050        7,029        6,601          .3       6.8       7,040        6,611          6.5  

(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 $358 million of the Company’s net income in the second quarter of 2019, compared with $360 million in the second quarter of 2018. Total net revenue increased $48 million (3.2 percent) due to an increase total noninterest income of $48 million (5.3 percent). Net interest income was flat year-over-year primarily due to growth in total average loans as well as loan fees, offset by compression on loan rates. Total noninterest income increased year-over-year mainly due to higher credit and debit card revenue, corporate payment products revenue, and merchant processing services driven by higher sales volumes. Total noninterest expense increased $36 million (4.9 percent) over the second quarter of 2018 principally due to higher net shared services expense to support business growth, technology development and investment in infrastructure in addition to an increase in personnel expense in support of business development. The provision for credit losses increased $14 million (5.0 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                       
      2Q 2019     1Q
2019
    2Q  
2018  
     2Q19 vs 
1Q19  
     2Q19 vs 
2Q18 
     YTD 
2019 
     YTD   
2018   
     Percent
Change
 

Condensed Income Statement

                       

Net interest income (taxable-equivalent basis)

     $142       $82       $107          73.2         32.7         $224         $185           21.1   

Noninterest income

     266       261       255          1.9         4.3         527         459           14.8   

Securities gains (losses), net

     17       5       10          nm         70.0         22         15           46.7   
    

 

 

          

 

 

      

Total net revenue

     425       348       372          22.1         14.2         773         659           17.3   

Noninterest expense

     213       196       155          8.7         37.4         409         346           18.2   

Other intangibles

     --       --       --          --          --          --          --            --    
    

 

 

          

 

 

      

Total noninterest expense

     213       196       155          8.7         37.4         409         346           18.2   
    

 

 

          

 

 

      

Income before provision and taxes

     212       152       217          39.5         (2.3)        364         313           16.3   

Provision for credit losses

     (9     35       3          nm         nm         26         2           nm   
    

 

 

          

 

 

      

Income before income taxes

     221       117       214          88.9         3.3         338         311           8.7   

Income taxes and taxable-equivalent adjustment

     (46     (94     (34)         51.1         (35.3)        (140)        (138)          (1.4)  
    

 

 

          

 

 

      

Net income

     267       211       248          26.5         7.7         478         449           6.5   

Net (income) loss attributable to noncontrolling interests

     (7     (9     (8)         22.2         12.5         (16)        (15)          (6.7)  
    

 

 

          

 

 

      

Net income attributable to U.S. Bancorp

     $260       $202       $240          28.7         8.3         $462         $434           6.5   
    

 

 

          

 

 

      
   

Average Balance Sheet Data

                       

Loans

         $5,732       $5,703       $5,450          .5         5.2             $5,717         $5,404           5.8   

Other earning assets

     129,831       127,134       126,682          2.1         2.5         128,491         126,220           1.8   

Goodwill

     --       --       --          --          --          --          --            --    

Other intangible assets

     --       --       --          --          --          --          --            --    

Assets

     154,830       151,768       148,606          2.0         4.2         153,308         148,354           3.3   
   

Noninterest-bearing deposits

     2,405       2,435       2,448          (1.2)        (1.8)        2,420         2,476           (2.3)  

Interest-bearing deposits

     11,016       9,280       3,274          18.7         nm         10,153         4,092           nm   
    

 

 

          

 

 

      

Total deposits

     13,421       11,715       5,722          14.6         nm         12,573         6,568           91.4   
   

Total U.S. Bancorp shareholders’ equity

     20,761       19,864       17,892          4.5         16.0         20,315         17,698           14.8   
   

(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 $260 million in the second quarter of 2019, compared with $240 million in the second quarter of 2018. Total net revenue increased $53 million (14.2 percent) year-over-year driven by increases in net interest income of $35 million (32.7 percent) and $18 million (6.8 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 partially offset by the gain on sale of the student loan portfolio in the second quarter of last year. Total noninterest expense increased $58 million (37.4 percent) year-over-year due to higher compensation expense, reflecting the impact of increased staffing and merit increases, and higher implementation costs of capital investments to support business growth. These increases were partially offset by lower net shared services expense and lower costs related to tax-advantaged projects. The provision for credit losses was $12 million lower year-over-year due to a favorable change in the reserve allocation.

 

LOGO

 

   7

EX-99.2

Slide 1

U.S. Bancorp 2Q19 Earnings Conference Call July 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; 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 “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. 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. 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

2Q19 Highlights * Taxable-equivalent basis; see slide 25 for calculation ** Excluding the impact of FDIC covered loans sold in 4Q18, average total loans grew 4.5% vs. 2Q18


Slide 4

Performance Ratios Efficiency Ratio* & Net Interest Margin Net interest margin on a taxable-equivalent basis * Non-GAAP; see slides 25 and 26 for calculations Return on Average Common Equity Return on Tangible Common Equity* Return on Average Assets


Slide 5

Average Loans +1.1% linked quarter +3.8% year-over-year On a linked quarter basis, average total loan growth was driven by growth in total commercial loans, residential mortgages and seasonal growth in credit card balances. On a year-over-year basis, growth in average total loans was primarily driven by growth in total commercial loans, residential mortgages, credit card loans and other retail loans. Year-over-year average total loan growth was partially offset by a decrease in total commercial real estate loans given the later stage of the business cycle. $ in billions


Slide 6

Average Deposits $ in billions +2.9% linked quarter +3.1% year-over-year Interest-bearing Deposits Average total savings deposits (which include money market, interest checking and savings accounts) increased 3.8 percent linked quarter, primarily driven by growth within Wealth Management and Investment Services. On a year-over-year basis, average NIB deposits declined due to balance migration to interest-bearing deposits as well as customers’ continued deployment of business and corporate trust balances. Year-over-year, average total savings deposits grew 3.1 percent, reflecting growth across all business lines. On both a linked quarter and year-over-year basis, growth in average time deposits reflects consumer deposit migration as customers seek higher yields.


Slide 7

Credit Quality $ in millions NCO Ratio -3 bps QoQ +1 bp YoY NPAs -5.2% QoQ -12.6% YoY


Slide 8

Earnings Summary


Slide 9

Net Interest Income Linked Quarter Net interest income growth was primarily driven by growth in earning assets, an additional day in the second quarter and higher interest recoveries. The net interest margin declined, primarily due to the inversion of the yield curve in the second quarter, seasonally lower credit card revolving rates and higher cash balances, partially offset by higher securities yields and interest recoveries. Year-over-Year Net interest income growth was driven by growth in earning assets and higher yields on reinvested securities, partially offset by a flatter yield curve, deposit pricing and funding mix shift. The net interest margin was flat, reflecting the impacts of higher short-term interest rates, the reinvestment of securities and loan portfolio mix, offset by the adverse impact of the flattening yield curve as well as deposit and funding mix shifts. $ in millions Net interest income on a taxable-equivalent basis; see slide 25 for calculation +1.4% linked quarter +3.3% 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 $2,414 $2,291 $2,490 Linked Quarter Payment services revenue growth reflects seasonally higher sales as well as a recovery in consumer spending activity. Commercial products revenue growth reflects higher corporate bond fees and other capital markets revenue, primarily due to more favorable markets and certain M&A-related bond issuances. Mortgage banking revenue growth was driven by higher origination and sales volumes, partially offset by an unfavorable change in the valuation of mortgage servicing rights, net of hedging activities. Year-over-Year Payment services revenue growth reflects higher sales volumes across all businesses. Growth in trust and investment management fees reflects business growth and favorable market conditions. Commercial products revenue increased, primarily due to higher corporate bond fees and trading revenue, partially offset by lower syndication fees. Other noninterest income growth was primarily driven by higher equity investment income and tax-advantaged investment syndication revenue. Deposit service charges declined, primarily due to the 2018 sale of the Company’s ATM third-party servicing business. +8.7% linked quarter +3.1% year-over-year


Slide 11

Noninterest Expense Linked Quarter Compensation expense increased due to the impact of seasonal merit increases and an additional day in the second quarter. Growth in professional services expense and marketing and business development expense both reflected seasonally higher activity. Employee benefits expense decreased due to higher payroll taxes during the first quarter. Year-over-Year Compensation expense increased, primarily driven by merit increases and hiring to support business growth. Growth in employee benefits expense reflected increased medical costs. Technology and communications expense and net occupancy and equipment expense increased to support business growth. Other noninterest expense decreased due to lower FDIC assessment costs and lower costs related to tax-advantaged projects. $ in millions PPS = postage, printing and supplies $3,085 $3,087 $3,153 +2.1% linked quarter +2.2% year-over-year


Slide 12

Capital Position * Non-GAAP; see slide 27 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. 2Q18 Average total loans increased by $10.6 billion, or 3.8% Average commercial loans increased by $4.9 billion, or 5.0% Average residential mortgage loans increased by $6.0 billion, or 9.9% Average credit card loans increased by $1.6 billion, or 7.6% Average retail loans increased by $1.5 billion, or 2.7% Average commercial real estate loans decreased by $0.5 billion, or 1.2% vs. 1Q19 Average total loans increased by $3.1 billion, or 1.1% Average commercial loans increased by $1.3 billion, or 1.2% Average residential mortgage loans increased by $1.3 billion, or 1.9% Key Points Year-over-Year Growth 1.1% 1.2% 1.4% 2.4% 3.8% Covered Commercial CRE Res Mtg Retail Credit Card $283.7 $278.6 $281.1 1.5% $289.2 Average Loans ($bn) $286.1


Slide 16

Average Deposits Key Points Average Deposits ($bn) vs. 2Q18 Average total deposits increased by $10.4 billion, or 3.1% Average low-cost deposits (NIB, interest checking, savings and money market) increased by $0.8 billion, or 0.3% vs. 1Q19 Average total deposits increased by $9.9 billion, or 2.9% Average low-cost deposits (NIB, interest checking, savings and money market) increased by $7.9 billion, or 2.7% Year-over-Year Growth 1.1% (1.5%) (1.4%) 0.2% 3.1% Time Money Market Checking and Savings Noninterest-bearing $345.2 $334.8 $330.1 $334.4 $335.4


Slide 17

Credit Quality – Commercial Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points $mm2Q181Q192Q19 Average Loans$98,353$101,960 $103,233 30-89 Delinquencies0.23% 0.58%0.34% 90+ Delinquencies0.06%0.07%0.26% Nonperforming Loans0.23%0.26%0.27% Linked Quarter Growth 0.9% 0.7% 1.5% 1.4% 1.2% Linked quarter growth was modest at 1.2% and year-over-year growth was 5.0% Increase in late stage delinquencies as a result of an administrative delinquency related to one customer that is expected to resolve without a credit loss Net charge-offs decreased on a linked quarter basis and remain at historically low levels


Slide 18

Investor $19,127 Owner Occupied $9,338 A&D Const $282 Multi-family $3,842 Retail $328 Residential Construction $2,365 Office $875 Other $2,544 Resi Land $664 $mm2Q181Q192Q19 Average Loans$39,857$39,470 $39,365 30-89 Delinquencies0.11% 0.11%0.07% 90+ Delinquencies0.01%0.01%0.00% Nonperforming Loans0.26%0.32%0.23% Performing TDRs*$126$139$137 Credit Quality – Commercial Real Estate Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points * TDR = troubled debt restructuring Linked Quarter Growth (1.3%) (0.8%) 1.5% (1.7%) (0.3%) Average loans decreased by 0.3% 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 remains 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 $mm2Q181Q192Q19 Average Loans$60,834$65,582$66,834 30-89 Delinquencies0.27%0.26%0.26% 90+ Delinquencies0.18%0.18%0.17% Nonperforming Loans0.65%0.43%0.39% * Excludes GNMA loans, whose repayments are insured by the FHA or guaranteed by the Department of VA ($1,598 million in 2Q19) Linked Quarter Growth 1.1% 2.0% 3.9% 1.7% 1.9% Originations continued to be high credit quality (weighted average FICO of 763, weighted average LTV of 73%) More than 93% 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 $mm2Q181Q192Q19 Average Loans$21,220$22,597$22,830 30-89 Delinquencies1.22%1.31%1.23% 90+ Delinquencies1.15%1.29%1.14% Nonperforming Loans0.00%0.00%0.00% Linked Quarter Growth (0.3%) 2.6% 2.9% 0.9% 1.0% Year-over-year average loan growth of 7.6% was driven by both new originations and existing account usage The commitment weighted average FICO on new originations remained strong at 775 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 (0.9%) (0.3%) 0.4% (0.4%) (1.0%) Key Statistics Key Statistics $mm2Q181Q192Q19 Average Loans$16,048$15,993$15,831 30-89 Delinquencies0.39%0.54%0.51% 90+ Delinquencies0.29%0.37%0.34% Nonperforming Loans0.81%0.77%0.75% Loans: 11% Wtd Avg LTV*: 77% Wtd Avg FICO*: 750 Lines: 89% Wtd Avg LTV*: 71% Wtd Avg FICO*: 753 *LTV and FICO at origination High-quality originations (weighted average FICO on commitments of 782, weighted average CLTV of 68%) 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 $mm2Q181Q192Q19 Average Loans$8,150$8,586$8,547 30-89 Delinquencies0.30%0.42%0.45% 90+ Delinquencies0.02%0.03%0.02% Nonperforming Loans0.12%0.12%0.13% * Manheim Used Vehicle Value Index source: www.manheimconsulting.com, January 1995 = 100, quarter value = average monthly ending values Linked Quarter Growth 2.1% 2.9% 1.3% 1.1% (0.5%) Continued high-quality originations during 2Q19 (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 $mm2Q181Q192Q19 Average Loans$31,265$31,922$32,578 30-89 Delinquencies0.75%0.78%0.80% 90+ Delinquencies0.13%0.14%0.13% Nonperforming Loans0.12%0.13%0.12% Linked Quarter Growth (4.9%) 0.8% 0.2% 1.1 % 2.1% Linked quarter average loans increased 2.1%, while increase year-over-year was primarily driven by loan growth in auto loans and installment lending 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 $mm2Q181Q192Q19 Average Loans$18,599$18,833$19,023 30-89 Delinquencies0.90%0.95%1.01% 90+ Delinquencies0.08%0.08%0.09% Nonperforming Loans0.13%0.15%0.15% Direct: 4% Wtd Avg FICO: 747 NCO: 0.24% Indirect: 96% Wtd Avg FICO: 776 NCO: 0.34% Auto loans are included in Other Retail category Linked Quarter Growth (1.4%) (0.2%) (0.3%) 1.8% 1.0% New balances continue to be driven by high quality originations in the Indirect channel (weighted average FICO of 784) Late stage delinquencies remained stable while net charge-offs decreased on a linked quarter


Slide 25

Non-GAAP Financial Measures (1) 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.


Slide 26

Non-GAAP Financial Measures (1) Includes goodwill related to certain investments in unconsolidated financial institutions per prescribed regulatory requirements.


Slide 27

Non-GAAP Financial Measures * 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.


Slide 28

U.S. Bancorp 2Q19 Earnings Conference Call July 17, 2019

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