8-K
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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): October 16, 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 October 16, 2019, U.S. Bancorp (the “Company”) issued a press release reporting quarter-ended September 30, 2019 results, and posted on its website its 3Q19 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 3Q19 Earnings Conference Call Presentation is included as Exhibit 99.2 hereto and is incorporated herein by reference. The information included in the 3Q19 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 3Q19 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 October 16, 2019, deemed “filed” under the Securities Exchange Act of 1934.

  99.2 3Q19 Earnings Conference Call Presentation, deemed “furnished” under the Securities Exchange Act of 1934.

   104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

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: October 16, 2019

EX-99.1

Exhibit 99.1

 

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U.S. Bancorp Reports Third Quarter 2019 Results

 Record net revenue of $5,920 million, net income of $1,908 million and diluted earnings per share of $1.15

 Industry leading return on average assets of 1.57% and return on average common equity of 15.3%

 

 

    3Q19 Key Financial Data

 

 

 

3Q19 Highlights

 

          
PROFITABILITY METRICS   3Q19      2Q19      3Q18          

 

 

 Net income of $1,908 million and diluted earnings per
   common share of $1.15

 

 Industry leading return on average assets of 1.57% and
   return on average common equity of 15.3%

 

 Return on tangible common equity of 19.4%

 

 Returned 80% of 3Q earnings to shareholders through
   dividends and share buybacks

 

 Noninterest income grew 5.0% on a linked quarter basis
   and 8.1% year over year

 

 Total net revenue grew 3.9% year-over-year with positive
   operating leverage of 0.6% on a year-over-year basis

 

 Average total loans grew 1.1% on a linked quarter basis
   and 4.0% year-over-year

 

 Return on average assets (%)

    1.57        1.55        1.58      

 Return on average common equity (%)

    15.3        15.0        15.5      

 Return on tangible common equity (%) (a)

    19.4        19.2        19.9      

 Net interest margin (%)

    3.02        3.13        3.15      

 Efficiency ratio (%) (a)

    53.3        54.3        53.5      
INCOME STATEMENT (b)   3Q19      2Q19      3Q18         

 Net interest income (taxable-equivalent basis)

    $3,306        $3,332        $3,281      

 Noninterest income

    $2,614        $2,490        $2,418      

 Net income attributable to U.S. Bancorp

    $1,908        $1,821        $1,815      

 Diluted earnings per common share

    $1.15        $1.09        $1.06      

 Dividends declared per common share

    $.42        $.37        $.37      
BALANCE SHEET (b)   3Q19      2Q19      3Q18         

 Average total loans

    $292,436        $289,218        $281,065      

 Average total deposits

    $349,933        $345,232        $330,121      

 Net charge-off ratio

    .48%       .49%       .46%     

 Book value per common share (period end)

    $30.26        $29.63        $27.35      

 Basel III standardized CET1 (c)

 

   

 

9.6% 

 

 

 

   

 

9.5% 

 

 

 

   

 

9.0%

 

 

 

  

 

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

 (b) Dollars in millions, except per share data

 

 (c) CET1 = Common equity tier 1 capital ratio

 

 

CEO Commentary

 

 

“Despite a challenging interest rate environment, we posted record revenue, net income and earnings per share in the third quarter, delivered industry leading returns on assets and equity, and grew our book value by over 10% from a year earlier. During the quarter we returned 80% of our earnings to shareholders through dividends and share buybacks. Third quarter loan and deposit growth were solid and momentum in our core fee businesses was supported by strong sales and volume growth. Mortgage revenue was particularly robust this quarter, reflecting both market conditions and the benefits of the investments we have made in our retail platform over the past several years. As we head into the final quarter of 2019, we feel good about our opportunity to gain market share across our franchise and our ability to prudently manage our operating expenses even as we invest in our digital capabilities and key business initiatives. I’d like to thank our employees for their hard work and dedication to delivering value to each of our constituents.”

 

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

 

 

In the Spotlight

 

“Outstanding” Community Reinvestment Act Rating

U.S. Bank recently announced it received the highest rating, “Outstanding,” for its recent Community Reinvestment Act (“CRA”) examination from the Office of the Comptroller of the Currency. The examination period was from January 1, 2012 through December 31, 2015. The Company also received an “Outstanding” rating on each of the three individual CRA tests for Lending, Investment, and Service.

Most Powerful Women in Banking and Finance

American Banker magazine recently named U.S. Bank Vice Chairs, Kate Quinn, Chief Administrative Officer, and Leslie Godridge, Co-Head of Corporate and Commercial Banking, to its 2019 “Most Powerful Women in Banking” list, and named Gunjan Kedia, U.S. Bank Vice Chair of Wealth Management and Investment Services, to its 2019 “Most Powerful Women in Finance” list. U.S. Bancorp also earned a Top Team Award.

Co-Branded Credit Card Agreement with BMW

U.S. Bank recently entered into a co-brand agreement with BMW Financial Services NA, LLC to issue credit cards that will deliver enhanced digital experiences and greater value to BMW, MINI and BMW Motorrad enthusiasts. The new program provides an enhanced experience with richer rewards where customers can earn and redeem points toward BMW products and services.

Transforming for the Future

U.S. Bank recently acquired talech, a software company that helps small and medium-sized businesses simplify operations, make better decisions and manage multiple operational tasks, including how businesses interact with their money, through a single, integrated point-of-sale system.

 

 

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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 Third Quarter 2019 Results
      

 

 INCOME STATEMENT HIGHLIGHTS                                       
 ($ in millions, except per-share data)                     Percent Change                      
     3Q       2Q     3Q      3Q19 vs      3Q19 vs      YTD      YTD      Percent  
      2019       2019     2018      2Q19      3Q18      2019      2018      Change  

Net interest income

     $3,281         $3,305         $3,251         (.7      .9         $9,845         $9,616        2.4   

Taxable-equivalent adjustment

     25         27         30         (7.4      (16.7)        79         88        (10.2)  

Net interest income (taxable-equivalent basis)

     3,306         3,332         3,281         (.8      .8         9,924         9,704        2.3   

Noninterest income

     2,614         2,490         2,418         5.0        8.1         7,395         7,104        4.1   

Total net revenue

     5,920         5,822         5,699         1.7        3.9         17,319         16,808        3.0   

Noninterest expense

     3,144         3,153         3,044         (.3      3.3         9,384         9,184        2.2   

Income before provision and income taxes

     2,776         2,669         2,655         4.0        4.6         7,935         7,624        4.1   

Provision for credit losses

     367         365         343         .5        7.0         1,109         1,011        9.7   

Income before taxes

     2,409         2,304         2,312         4.6        4.2         6,826         6,613        3.2   

Income taxes and taxable-equivalent adjustment

     492         476         490         3.4        .4         1,373         1,351        1.6   

Net income

     1,917         1,828         1,822         4.9        5.2         5,453         5,262        3.6   

Net (income) loss attributable to noncontrolling interests

     (9)        (7)        (7)        (28.6)        (28.6)        (25)        (22)       (13.6)  

Net income attributable to U.S. Bancorp

     $1,908         $1,821         $1,815         4.8        5.1         $5,428         $5,240        3.6   

Net income applicable to U.S. Bancorp common shareholders

     $1,821         $1,741         $1,732         4.6        5.1         $5,175         $5,007        3.4   

Diluted earnings per common share

     $1.15         $1.09         $1.06         5.5        8.5         $3.25         $3.04        6.9   
   

 

Net income attributable to U.S. Bancorp was $1,908 million for the third quarter of 2019, which was 5.1 percent higher than the third quarter of 2018, and 4.8 percent higher than the second quarter of 2019. Diluted earnings per common share were $1.15 in the third quarter of 2019, compared with $1.06 in the third quarter of 2018 and $1.09 in the second quarter of 2019.

The increase in net income year-over-year was driven by total net revenue growth of 3.9 percent partially offset by noninterest expense growth of 3.3 percent. Net interest income increased 0.9 percent (0.8 percent on a taxable-equivalent basis), mainly a result of loan growth and higher yields on reinvestment of securities, partially offset by the yield curve and deposit and funding mix. Noninterest income increased 8.1 percent compared with a year ago, driven by growth in payment services revenue, commercial products revenue, mortgage banking revenue and other noninterest income, partially offset by a decline in deposit service charges. Noninterest expense increased 3.3 percent primarily due to higher personnel expense, in part due to higher fee revenue production in mortgage and capital market activities, and higher technology investment costs in support of business growth. Partially offsetting these increases was lower other noninterest expense driven by lower FDIC assessment costs.

Net income increased on a linked quarter basis primarily due to an increase in total net revenue of 1.7 percent and a decrease in noninterest expense of 0.3 percent. The increase in total net revenue reflected higher noninterest income of 5.0 percent, partially offset by lower net interest income of 0.7 percent (0.8 percent on a taxable-equivalent basis) primarily due to the adverse impact of the yield curve and lower interest recoveries, partially offset by loan growth and an additional day in the third quarter. Noninterest income increased compared with the second quarter of 2019 driven by higher payment services revenue, mortgage banking revenue and other noninterest income. Noninterest expense decreased 0.3 percent on a linked quarter basis primarily driven by lower other noninterest expense, partially offset by higher personnel expense.

 

 

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   U.S. Bancorp Third Quarter 2019 Results
      

 

 NET INTEREST INCOME  
 (Taxable-equivalent basis; $ in millions)                    Change                       
      3Q
2019
     2Q
2019
     3Q
2018
     3Q19 vs
2Q19
     3Q19 vs
3Q18
     YTD
2019
     YTD
2018
     Change  

Components of net interest income
Income on earning assets

     $4,465         $4,480         $4,155         $(15)         $310         $13,326         $11,957         $1,369   

Expense on interest-bearing liabilities

     1,159         1,148         874         11         285         3,402         2,253         1,149   

Net interest income

     $3,306         $3,332         $3,281         $(26)         $25         $9,924         $9,704         $220   

Average yields and rates paid

                                   

Earning assets yield

     4.08%         4.21%         3.98%         (.13)%         .10%         4.16%         3.86%         .30%   

Rate paid on interest-bearing liabilities

     1.37            1.40            1.10            (.03)            .27            1.38            .96            .42      

Gross interest margin

     2.71%         2.81%         2.88%         (.10)%         (.17)%         2.78%         2.90%         (.12)%   

Net interest margin

     3.02%         3.13%         3.15%         (.11)%         (.13)%         3.10%         3.14%         (.04)%   

Average balances

                             

Investment securities (a)

     $117,213         $115,460         $113,547         $1,753         $3,666         $115,628         $113,873         $1,755   

Loans

     292,436         289,218         281,065         3,218         11,371         289,278         279,699         9,579   

Earning assets

     435,673         426,933         415,177         8,740         20,496         427,426         413,246         14,180   

Interest-bearing liabilities

     336,627         329,743         314,816         6,884         21,811         329,562         312,894         16,668   

(a) Excludes unrealized gain (loss)

 

 

 

Net interest income on a taxable-equivalent basis in the third quarter of 2019 was $3,306 million, an increase of $25 million (0.8 percent) over the third quarter of 2018. The increase was principally driven by earning assets growth and higher yields on securities, partially offset by declining rates and flatter yield curve as well as deposit and funding mix. Average earning assets were $20.5 billion (4.9 percent) higher than the third quarter of 2018, reflecting increases of $11.4 billion (4.0 percent) in average total loans, $3.7 billion (3.2 percent) in average investment securities and $4.1 billion (23.4 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 4.7 percent compared with the third quarter of 2018.

Net interest income on a taxable-equivalent basis decreased $26 million (0.8 percent) on a linked quarter basis primarily driven by the impact of declining rates, flatter yield curve and lower interest recoveries, partially offset by earning assets growth and an additional day in the third quarter. Average earning assets were $8.7 billion (2.0 percent) higher on a linked quarter basis, reflecting increases of $3.2 billion (1.1 percent) in average total loans, $1.8 billion (1.5 percent) in average investment securities and $2.5 billion (12.9 percent) in average other earning assets.

The net interest margin in the third quarter of 2019 was 3.02 percent, compared with 3.15 percent in the third quarter of 2018 and 3.13 percent in the second quarter of 2019. Net interest margin decreased year-over-year primarily due to the impacts of the yield curve as well as deposit and funding mix and higher cash balances. The decrease in net interest margin on a linked quarter basis was primarily due to changes in the yield curve during the quarter and higher cash balances, in part, related to a change in policy on affiliate balances by the regulator of the Company’s Irish subsidiary.

Average investment securities in the third quarter of 2019 increased $3.7 billion (3.2 percent) over the third quarter of 2018 and $1.8 billion (1.5 percent) over the second quarter of 2019 primarily due to purchases of mortgage-backed securities, net of prepayments and maturities.

 

 

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   U.S. Bancorp Third Quarter 2019 Results
      

 

 AVERAGE LOANS  
 ($ in millions)                    Percent Change                        
      3Q
2019
     2Q
2019
     3Q
2018
     3Q19 vs
2Q19
    3Q19 vs
3Q18
    YTD
2019
     YTD
2018
     Percent
Change
 

Commercial

     $98,175         $97,776         $93,541         .4       5.0       $97,472         $92,776         5.1  

Lease financing

     5,485         5,457         5,507         .5       (.4     5,485         5,519         (.6

Total commercial

     103,660         103,233         99,048         .4       4.7       102,957         98,295         4.7  

Commercial mortgages

     28,319         28,465         28,362         (.5     (.2     28,414         28,746         (1.2

Construction and development

     10,671         10,900         11,180         (2.1     (4.6     10,860         11,172         (2.8

Total commercial real estate

     38,990         39,365         39,542         (1.0     (1.4     39,274         39,918         (1.6

Residential mortgages

     68,608         66,834         62,042         2.7       10.6       67,019         61,023         9.8  

Credit card

     23,681         22,830         21,774         3.7       8.8       23,040         21,428         7.5  

Retail leasing

     8,442         8,547         8,383         (1.2     .7       8,524         8,173         4.3  

Home equity and second mortgages

     15,601         15,831         16,000         (1.5     (2.5     15,807         16,080         (1.7

Other

     33,454         32,578         31,520         2.7       6.1       32,657         31,882         2.4  

Total other retail

     57,497         56,956         55,903         .9       2.9       56,988         56,135         1.5  

Covered loans (a)

     --          --          2,756         --        nm       --          2,900         nm  

Total loans

     $292,436         $289,218         $281,065         1.1       4.0       $289,278         $279,699         3.4  

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

 

 

   

 

Average total loans were $11.4 billion (4.0 percent) higher than the third 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 4.7 percent over the prior year quarter. The increase was due to growth in residential mortgages (10.6 percent), total commercial loans (4.7 percent), credit card loans (8.8 percent), and total other retail loans (2.9 percent). These increases were partially offset by decreases in total commercial real estate loans (1.4 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 $3.2 billion (1.1 percent) higher than the second quarter of 2019 primarily driven by growth in residential mortgages (2.7 percent) and credit card loans (3.7 percent).

 

 

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   U.S. Bancorp Third Quarter 2019 Results
      

 

 AVERAGE DEPOSITS  
 ($ in millions)                    Percent Change                        
      3Q
2019
     2Q
2019
     3Q
2018
     3Q19 vs
2Q19
     3Q19 vs
3Q18
    YTD
2019
     YTD
2018
     Percent
Change
 

Noninterest-bearing deposits

     $74,594         $73,096         $77,192         2.0         (3.4     $73,711         $78,546         (6.2

Interest-bearing savings deposits

                                                    

Interest checking

     72,007         70,433         69,330         2.2         3.9       71,539         69,865         2.4  

Money market savings

     114,475         108,633         100,688         5.4         13.7       107,568         102,453         5.0  

Savings accounts

     46,348         45,988         44,848         .8         3.3       45,855         44,770         2.4  

Total savings deposits

     232,830         225,054         214,866         3.5         8.4       224,962         217,088         3.6  

Time deposits

     42,509         47,082         38,063         (9.7)        11.7       44,890         37,525         19.6  

Total interest-bearing deposits

     275,339         272,136         252,929         1.2         8.9       269,852         254,613         6.0  

Total deposits

     $349,933         $345,232         $330,121         1.4         6.0       $343,563         $333,159         3.1  
   

Average total deposits for the third quarter of 2019 were $19.8 billion (6.0 percent) higher than the third quarter of 2018. Average noninterest-bearing deposits decreased $2.6 billion (3.4 percent) year-over-year primarily due to the migration of balances to interest-bearing deposits and the continued deployment by customers of business deposits within Corporate and Commercial Banking given higher earning credit rates from a year ago. Average total savings deposits were $18.0 billion (8.4 percent) higher year-over-year driven by Wealth Management and Investment Services, Corporate and Commercial Banking and Consumer and Business Banking. Average time deposits were $4.4 billion (11.7 percent) higher than the prior year quarter. Changes in time deposits are largely related to those deposits managed as an alternative to other funding sources, based largely on relative pricing and liquidity characteristics. In addition, there was growth in consumer time deposits related to the migration of balances to higher yielding products.

Average total deposits increased $4.7 billion (1.4 percent) from the second quarter of 2019. On a linked quarter basis, average noninterest-bearing deposits increased $1.5 billion (2.0 percent). Average total savings deposits increased $7.8 billion (3.5 percent) on a linked quarter basis primarily due to increases in Wealth Management and Investment Services and Corporate and Commercial Banking. Average time deposits, which are managed based on funding needs, relative pricing and liquidity characteristics, decreased $4.6 billion (9.7 percent) on a linked quarter basis.

 

 

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 NONINTEREST INCOME                                                 
 ($ in millions)                     Percent Change                    
    3Q     2Q     3Q     3Q19 vs     3Q19 vs     YTD     YTD     Percent  
     2019     2019     2018     2Q19     3Q18     2019     2018     Change  

Credit and debit card revenue

    $366        $365        $344        .3        6.4        $1,035        $1,019        1.6   

Corporate payment products revenue

    177        167        169        6.0        4.7        506        481        5.2   

Merchant processing services

    410        404        392        1.5        4.6        1,192        1,142        4.4   

Trust and investment management fees

    421        415        411        1.4        2.4        1,235        1,210        2.1   

Deposit service charges

    234        227        283        3.1        (17.3)       678        817        (17.0)  

Treasury management fees

    139        153        146        (9.2)       (4.8)       438        451        (2.9)  

Commercial products revenue

    240        249        216        (3.6)       11.1        708        670        5.7   

Mortgage banking revenue

    272        189        174        43.9        56.3        630        549        14.8   

Investment products fees

    46        47        47        (2.1)       (2.1)       138        140        (1.4)  

Securities gains (losses), net

    25        17        10        47.1        nm        47        25        88.0   

Other

    284        257        226        10.5        25.7        788        600        31.3   

Total noninterest income

    $2,614        $2,490        $2,418        5.0        8.1        $7,395        $7,104        4.1   
                                                                 

Third quarter noninterest income of $2,614 million was $196 million (8.1 percent) higher than the third quarter of 2018 driven by growth in payment services revenue, commercial products revenue, mortgage banking revenue and other noninterest income, partially offset by a decline in deposit service charges. Payment services revenue increased $48 million (5.3 percent) due to $22 million (6.4 percent) higher credit and debit card revenue primarily driven by core business growth and processing days, as well as an increase in corporate payment products revenue of $8 million (4.7 percent), and higher merchant processing services revenue of $18 million (4.6%), both driven by higher sales volumes. Commercial products revenue increased $24 million (11.1 percent) primarily due to higher corporate bond fees and trading revenue related to stronger capital markets activities. Mortgage banking revenue increased $98 million (56.3 percent) reflecting higher origination and sales volumes related to home sales and refinancing activities given changing interest rates relative to a year ago. Other noninterest income also increased year-over-year primarily due to higher equity investment income 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 which decreased $49 million (17.3 percent) primarily due to the ATM third-party servicing sale in 2018.

Noninterest income was $124 million (5.0 percent) higher in the third quarter of 2019 compared with the second quarter of 2019 driven by higher payment services revenue, mortgage banking revenue and other noninterest income. Payment services revenue increased $17 million (1.8 percent) as corporate payment products revenue grew $10 million (6.0 percent) driven by seasonally higher sales volumes and merchant processing services revenue increased $6 million (1.5 percent) primarily due to seasonally higher fee revenue. Mortgage banking revenue increased $83 million (43.9 percent) reflecting higher origination and sales volumes. Other noninterest income increased $27 million (10.5 percent) on a linked quarter basis primarily due to higher equity investment income.

 

 

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 NONINTEREST EXPENSE                                                        
 ($ in millions)                     Percent Change                    
    3Q     2Q     3Q     3Q19 vs     3Q19 vs     YTD     YTD     Percent  
     2019     2019     2018     2Q19     3Q18     2019     2018     Change  

Compensation

    $1,595        $1,574        $1,529        1.3        4.3        $4,728        $4,594        2.9   

Employee benefits

    324        314        294        3.2        10.2        971        923        5.2   

Net occupancy and equipment

    279        281        270        (.7)       3.3        837        797        5.0   

Professional services

    114        106        96        7.5        18.8        315        274        15.0   

Marketing and business development

    109        111        106        (1.8)       2.8        309        314        (1.6)  

Technology and communications

    277        270        247        2.6        12.1        804        724        11.0   

Postage, printing and supplies

    74        73        84        1.4        (11.9)       219        244        (10.2)  

Other intangibles

    42        42        41        --         2.4        124        120        3.3   

Other

    330        382        377        (13.6)       (12.5)       1,077        1,194        (9.8)  

Total noninterest expense

    $3,144        $3,153        $3,044        (.3)       3.3        $9,384        $9,184        2.2   
                                                                 

Third quarter noninterest expense of $3,144 million was $100 million (3.3 percent) higher than the third quarter of 2018 primarily due to higher personnel costs, professional services expense, and technology investment, partially offset by lower other noninterest expense. Compensation expense increased $66 million (4.3 percent), from a year ago, principally due to the impact of merit increases and higher variable compensation related to business production within mortgage banking and the capital markets business lines. Employee benefits expense increased $30 million (10.2 percent) primarily due to increased medical costs. Professional services expense increased $18 million (18.8 percent) primarily due to business investments and enhancements to risk management programs. Technology and communications expense increased $30 million (12.1 percent) primarily driven by capital expenditures to support business growth. Partially offsetting these increases was a decrease in other noninterest expense of $47 million (12.5 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 decreased $9 million (0.3 percent) on a linked quarter basis. Compensation expense increased $21 million (1.3 percent) primarily due to an additional business day in the third quarter and variable compensation related to business production. Employee benefits expense increased $10 million (3.2 percent) primarily due to increased medical costs. Offsetting these increases was a decrease in other noninterest expense of $52 million (13.6 percent) primarily due to lower costs related to tax-advantaged projects and a seasonal decrease in merchant related charge-back liabilities.

Provision for Income Taxes

The provision for income taxes for the third quarter of 2019 resulted in a tax rate of 20.4 percent on a taxable-equivalent basis (effective tax rate of 19.6 percent), compared with 21.2 percent (effective tax rate of 20.2 percent) in the third quarter of 2018, and 20.7 percent on a taxable-equivalent basis (effective tax rate of 19.7 percent) in the second quarter of 2019.

 

 

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

 

Balance, beginning of period

 

 

 

 

$4,466

 

  

   

 

 

 

$4,451

 

  

   

 

 

 

$4,441

 

  

   

 

 

 

$4,426

 

  

   

 

 

 

$4,411

 

  

 

Net charge-offs

                   

Commercial

    72       .29        56       .23        71       .30        64       .27        63       .27   

Lease financing

    3       .22       3       .22       2       .15       3       .22       3       .22  
 

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

 

Total commercial

    75       .29       59       .23       73       .29       67       .26       66       .26  

Commercial mortgages

    3       .04       2       .03       --        --        (8     (.11     (5     (.07

Construction and development

    3       .11       (1     (.04     --        --        1       .04       (4     (.14
 

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

 

Total commercial real estate

    6       .06       1       .01       --        --        (7     (.07     (9     (.09

Residential mortgages

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

Credit card

    211       3.53       227       3.99       225       4.04       219       3.88       206       3.75  

Retail leasing

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

Home equity and second mortgages

    (1     (.03     (1     (.03     (1     (.03     1       .02       (1     (.02

Other

    61       .72       58       .71       63       .80       68       .85       59       .74  
 

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

 

Total other retail

    63       .43       59       .42       66       .47       72       .51       61       .43  
 

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

 

Total net charge-offs

    352       .48       350       .49       367       .52       353       .49       328       .46  

Provision for credit losses

    367         365         377         368         343    
 

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

 

Balance, end of period

      $4,481           $4,466           $4,451           $4,441           $4,426    
 

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

 

Components

                   

Allowance for loan losses

    $4,007         $4,019         $3,990         $3,973         $3,954    

Liability for unfunded credit commitments

    474         447         461         468         472    
 

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

 

Total allowance for credit losses

    $4,481         $4,466         $4,451         $4,441         $4,426    
 

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

 

Gross charge-offs

    $451         $464         $473         $442         $428    

Gross recoveries

    $99         $114         $106         $89         $100    

Allowance for credit losses as a percentage of

 

                 

Period-end loans

    1.52         1.53         1.55         1.55         1.57    

Nonperforming loans

    541         556         519         544         544    

Nonperforming assets

    458         469         443         449         441    

(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 third quarter of 2019 was $367 million, which was $2 million (0.5 percent) higher than the prior quarter and $24 million (7.0 percent) higher than the third quarter of 2018, primarily reflecting loan growth.

Total net charge-offs in the third quarter of 2019 were $352 million, compared with $350 million in the second quarter of 2019, and $328 million in the third quarter of 2018. Net charge-offs increased $2 million (0.6 percent) compared with the second quarter of 2019 primarily due to higher total commercial and total commercial real estate net charge-offs, mostly offset by lower credit card and residential mortgage net charge-offs. Net charge-offs increased $24 million (7.3 percent) compared with the third quarter of 2018 primarily due to higher total commercial and total commercial real estate net charge-offs in addition to higher credit card net charge-offs, partially offset by lower residential mortgage net charge-offs. The net charge-off ratio was 0.48 percent in the third quarter of 2019, compared with 0.49 percent in the second quarter of 2019 and 0.46 percent in the third quarter of 2018.

The allowance for credit losses was $4,481 million at September 30, 2019, compared with $4,466 million at June 30, 2019, and $4,426 million at September 30, 2018. The ratio of the allowance for credit losses to period-end loans was 1.52 percent at September 30, 2019, compared with 1.53 percent at June 30, 2019, and 1.57 percent at September 30, 2018. The ratio of the allowance for credit losses to nonperforming loans was 541 percent at September 30, 2019, compared with 556 percent at June 30, 2019, and 544 percent at September 30, 2018.

Nonperforming assets were $979 million at September 30, 2019, compared with $953 million at June 30, 2019, and $1,004 million at September 30, 2018. The ratio of nonperforming assets to loans and other real estate was 0.33 percent at September 30, 2019, compared with 0.33 percent at June 30, 2019, and 0.36 percent at September 30, 2018. The increase in nonperforming assets on a linked quarter basis was driven by increases in nonperforming total commercial loans, partially offset by lower nonperforming residential mortgages. The decrease in nonperforming assets on a year-over-year basis was driven by decreases in nonperforming residential mortgages, total commercial real estate, and other real estate owned, partially offset by an increase in nonperforming total commercial loans. Accruing loans 90 days or more past due were $600 million at September 30, 2019, compared with $752 million at June 30, 2019, and $551 million at September 30, 2018. The June 30, 2019, commercial loan 90 days past due delinquencies were elevated related to one customer that was resolved in the third quarter without a credit loss.

 

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

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

 

     

Commercial

     .10        .26        .07        .07        .06    

Commercial real estate

     .01        --         .01        --         .01    

Residential mortgages

     .17        .17        .18        .18        .19    

Credit card

     1.16        1.14        1.29        1.25        1.18    

Other retail

     .18        .17        .19        .19        .17    

Covered loans

     --         --         --         --         .86    

Total loans

     .20        .26        .21        .20        .20    

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

 

     

Commercial

     .40        .53        .34        .27        .28   

Commercial real estate

     .23        .24        .33        .29        .27   

Residential mortgages

     .53        .55        .62        .63        .69   

Credit card

     1.16        1.14        1.29        1.25        1.18   

Other retail

     .47        .47        .49        .54        .49   

Covered loans

     --         --         --         --         .86   

Total loans

     .49        .53        .51        .49        .48   
                                              

 

 

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

Nonperforming loans

              

Commercial

     $290         $254         $247         $186         $193   

Lease financing

     29         25         24         23         23   

Total commercial

     319         279         271         209         216   

Commercial mortgages

     82         81         79         76         77   

Construction and development

            11         48         39         28   

Total commercial real estate

     89         92         127         115         105   

Residential mortgages

     251         263         287         296         317   

Credit card

     --         --         --         --         --   

Other retail

     170         169         173         197         175   

Covered loans

     --         --         --         --         --   

Total nonperforming loans

     829         803         858         817         813   

Other real estate

     84         88         93         111         100   

Covered other real estate

     --         --         --         --         19   

Other nonperforming assets

     66         62         54         61         72   

Total nonperforming assets

     $979         $953         $1,005         $989         $1,004   

 

Accruing loans 90 days or more past due

  

 

 

 

$600 

 

 

  

 

 

 

$752 

 

 

  

 

 

 

$595 

 

 

  

 

 

 

$584 

 

 

  

 

 

 

$551 

 

 

Performing restructured loans, excluding GNMA

     $2,145         $2,142         $2,173         $2,218         $2,272   

Performing restructured GNMA

     $1,690         $1,598         $1,578         $1,639         $1,668   

Nonperforming assets to loans plus ORE (%)

     .33         .33         .35         .34         .36   

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

 

 

 

 

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   U.S. Bancorp Third Quarter 2019 Results
      

 

 

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

Beginning shares outstanding

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

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

            --                         

Shares repurchased

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

Ending shares outstanding

     1,571         1,584         1,599         1,608         1,623   
                                              

 

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

Total U.S. Bancorp shareholders’ equity

   $ 53,517      $ 52,913      $ 52,057      $ 51,029      $ 50,375   

Basel III Standardized Approach

          

Common equity tier 1 capital

   $ 37,653      $ 36,909      $ 35,732      $ 34,724      $ 34,097   

Tier 1 capital

     43,667        42,923        41,748        40,741        40,114   

Total risk-based capital

     51,684        50,370        49,194        48,178        47,531   

Common equity tier 1 capital ratio

     9.6    %      9.5    %      9.3    %      9.1    %      9.0    % 

Tier 1 capital ratio

     11.2        11.0        10.9        10.7        10.6   

Total risk-based capital ratio

     13.2        13.0        12.8        12.6        12.6   

Leverage ratio

     9.3        9.3        9.2        9.0        9.0   

Basel III Advanced Approaches

          

Common equity tier 1 capital ratio

     12.6        12.3        12.0        11.8        11.8   

Tangible common equity to tangible assets (a)

     8.0        7.9        7.9        7.8        7.7   

Tangible common equity to risk-weighted assets (a)

     9.7        9.7        9.5        9.4        9.3   

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

 

                                        

Total U.S. Bancorp shareholders’ equity was $53.5 billion at September 30, 2019, compared with $52.9 billion at June 30, 2019, and $50.4 billion at September 30, 2018. During the third quarter, the Company returned 80 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 9.6 percent at September 30, 2019, compared with 9.5 percent at June 30, 2019, and 9.0 percent at September 30, 2018. The common equity tier 1 capital to risk-weighted assets ratio using the Basel III advanced approaches method was 12.6 percent at September 30, 2019, compared with 12.3 percent at June 30, 2019, and 11.8 percent at September 30, 2018.

 

 

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   U.S. Bancorp Third Quarter 2019 Results
      

 

 

  Investor Conference Call

 

On Wednesday, October 16, 2019, at 8:30 a.m. CDT, Chairman, President and Chief Executive Officer 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 3878343. For those unable to participate during the live call, a recording will be available at approximately 11:30 a.m. CDT on Wednesday, October 16 and will be accessible until Wednesday, October 23 at 11:59 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 3878343.

 

 

  About U.S. Bancorp

 

U.S. Bancorp, with 74,000 employees and $488 billion in assets as of September 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 Third 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    
September 30,
    Nine Months Ended    
September 30,
 
  2019     2018     2019     2018  

Interest Income

         

Loans

    $3,555       $3,353       $10,677       $9,645  

Loans held for sale

    48       36       107       108  

Investment securities

    734       661       2,184       1,927  

Other interest income

    100       73       271       182  

Total interest income

    4,437       4,123       13,239       11,862  

Interest Expense

         

Deposits

    744       491       2,201       1,263  

Short-term borrowings

    97       104       281       265  

Long-term debt

    315       277       912       718  

Total interest expense

    1,156       872       3,394       2,246  

Net interest income

    3,281       3,251       9,845       9,616  

Provision for credit losses

    367       343       1,109       1,011  

Net interest income after provision for credit losses

    2,914       2,908       8,736       8,605  

Noninterest Income

         

Credit and debit card revenue

    366       344       1,035       1,019  

Corporate payment products revenue

    177       169       506       481  

Merchant processing services

    410       392       1,192       1,142  

Trust and investment management fees

    421       411       1,235       1,210  

Deposit service charges

    234       283       678       817  

Treasury management fees

    139       146       438       451  

Commercial products revenue

    240       216       708       670  

Mortgage banking revenue

    272       174       630       549  

Investment products fees

    46       47       138       140  

Securities gains (losses), net

    25       10       47       25  

Other

    284       226       788       600  

Total noninterest income

    2,614       2,418       7,395       7,104  

Noninterest Expense

         

Compensation

    1,595       1,529       4,728       4,594  

Employee benefits

    324       294       971       923  

Net occupancy and equipment

    279       270       837       797  

Professional services

    114       96       315       274  

Marketing and business development

    109       106       309       314  

Technology and communications

    277       247       804       724  

Postage, printing and supplies

    74       84       219       244  

Other intangibles

    42       41       124       120  

Other

    330       377       1,077       1,194  

Total noninterest expense

    3,144       3,044       9,384       9,184  

Income before income taxes

    2,384       2,282       6,747       6,525  

Applicable income taxes

    467       460       1,294       1,263  

Net income

    1,917       1,822       5,453       5,262  

Net (income) loss attributable to noncontrolling interests

    (9     (7     (25     (22

Net income attributable to U.S. Bancorp

    $1,908       $1,815       $5,428       $5,240  

Net income applicable to U.S. Bancorp common shareholders

    $1,821       $1,732       $5,175       $5,007  

Earnings per common share

    $1.16       $1.06       $3.26       $3.05  

Diluted earnings per common share

    $1.15       $1.06       $3.25       $3.04  

Dividends declared per common share

    $.42       $.37       $1.16       $.97  

Average common shares outstanding

    1,575       1,629       1,589       1,641  

Average diluted common shares outstanding

    1,578       1,633       1,592       1,645  

 

 

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

Assets

     (Unaudited         (Unaudited

Cash and due from banks

     $15,272        $21,453        $20,082  

Investment securities

        

Held-to-maturity

     46,481        46,050        46,046  

Available-for-sale

     74,598        66,115        64,912  

Loans held for sale

     4,528        2,056        4,533  

Loans

        

Commercial

     104,654        102,444        99,273  

Commercial real estate

     39,268        39,539        39,966  

Residential mortgages

     69,378        65,034        62,904  

Credit card

     23,890        23,363        21,869  

Other retail

     57,448        56,430        56,049  

Covered loans

     --         --         1,400  

Total loans

     294,638        286,810        281,461  

Less allowance for loan losses

     (4,007      (3,973      (3,954

Net loans

     290,631        282,837        277,507  

Premises and equipment

     3,673        2,457        2,438  

Goodwill

     9,632        9,369        9,530  

Other intangible assets

     2,983        3,392        3,544  

Other assets

     39,873        33,645        36,015  

Total assets

     $487,671        $467,374        $464,607  

Liabilities and Shareholders’ Equity

        

Deposits

        

Noninterest-bearing

     $82,232        $81,811        $77,146  

Interest-bearing

     277,483        263,664        254,032  

Total deposits

     359,715        345,475        331,178  

Short-term borrowings

     14,579        14,139        23,868  

Long-term debt

     41,274        41,340        40,894  

Other liabilities

     17,956        14,763        17,660  

Total liabilities

     433,524        415,717        413,600  

Shareholders’ equity

        

Preferred stock

     5,984        5,984        5,984  

Common stock

     21        21        21  

Capital surplus

     8,490        8,469        8,479  

Retained earnings

     62,419        59,065        57,878  

Less treasury stock

     (22,224      (20,188      (19,414

Accumulated other comprehensive income (loss)

     (1,173      (2,322      (2,573

Total U.S. Bancorp shareholders’ equity

     53,517        51,029        50,375  

Noncontrolling interests

     630        628        632  

Total equity

     54,147        51,657        51,007  

Total liabilities and equity

     $487,671        $467,374        $464,607  

 

 

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

Total equity

     $54,147       $53,540       $52,686       $51,657       $51,007  

Preferred stock

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

Noncontrolling interests

     (630     (627     (629     (628     (632

Goodwill (net of deferred tax liability) (1)

     (8,781     (8,708     (8,716     (8,549     (8,682

Intangible assets, other than mortgage servicing rights

     (687     (703     (685     (601     (627

Tangible common equity (a)

     38,065       37,518       36,672       35,895       35,082  

Total assets

     487,671       481,719       475,775       467,374       464,607  

Goodwill (net of deferred tax liability) (1)

     (8,781     (8,708     (8,716     (8,549     (8,682

Intangible assets, other than mortgage servicing rights

     (687     (703     (685     (601     (627

Tangible assets (b)

     478,203       472,308       466,374       458,224       455,298  

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

     390,622   *      388,709       384,394       381,661       377,713  

Ratios*

          

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

     8.0   %      7.9   %      7.9   %      7.8   %      7.7   % 

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

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

Net income applicable to U.S. Bancorp common shareholders

     $1,821       $1,741       $1,613       $1,777       $1,732  

Intangibles amortization (net-of-tax)

     33       33       32       32       32  

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

     1,854       1,774       1,645       1,809       1,764  

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

     7,356       7,115       6,671       7,177       6,998  

Average total equity

     53,921       53,066       52,218       51,370       50,768  

Average preferred stock

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

Average noncontrolling interests

     (629     (628     (629     (630     (630

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

     (8,725     (8,715     (8,732     (8,574     (8,620

Average intangible assets, other than mortgage servicing rights

     (689     (681     (671     (605     (584

Average tangible common equity (e)

     37,894       37,058       36,202       35,577       35,220  

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

     19.4   %      19.2   %      18.4   %      20.2   %      19.9   % 

Net interest income

     $3,281       $3,305       $3,259       $3,303       $3,251  

Taxable-equivalent adjustment (2)

     25       27       27       28       30  

Net interest income, on a taxable-equivalent basis

     3,306       3,332       3,286       3,331       3,281  

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

     3,306       3,332       3,286       3,331       3,281  

Noninterest income

     2,614       2,490       2,291       2,498       2,418  

Less: Securities gains (losses), net

     25       17       5       5       10  

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

     5,895       5,805       5,572       5,824       5,689  

Noninterest expense (g)

     3,144       3,153       3,087       3,280       3,044  

Less: Intangible amortization

     42       42       40       41       41  

Noninterest expense, excluding intangible amortization (h)

     3,102       3,111       3,047       3,239       3,003  

Efficiency ratio (g)/(f)

     53.3   %      54.3   %      55.4   %      56.3   %      53.5   % 

Tangible efficiency ratio (h)/(f)

     52.6       53.6       54.7       55.6       52.8  

 

   *

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
           3Q 2019         
Business Line    3Q
2019
     2Q
2019
     3Q  
2018  
     3Q19 vs
2Q19
    3Q19 vs
3Q18
   

YTD

2019

    

YTD  

2018  

     Percent
Change
    Earnings
Composition
         

Corporate and Commercial Banking

     $365        $415        $391          (12.0     (6.6     $1,181        $1,191          (.8     19        %  

Consumer and Business Banking

     640        557        580          14.9       10.3       1,747        1,665          4.9       34       

Wealth Management and Investment Services

     234        231        223          1.3       4.9       682        625          9.1       12       

Payment Services

     416        362        392          14.9       6.1       1,108        1,097          1.0       22       

Treasury and Corporate Support

     253        256        229          (1.2     10.5       710        662          7.3       13       
         

Consolidated Company

       $1,908        $1,821        $1,815          4.8       5.1       $5,428        $5,240          3.6               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 with the residual tax expense or benefit to arrive at the consolidated effective tax rate 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              
    

3Q 

2019 

   

2Q

2019

   

3Q

2018

    3Q19 vs
2Q19
    3Q19 vs
3Q18
   

YTD 

2019 

   

YTD

2018

   

Percent

Change

 

Condensed Income Statement

                 

Net interest income (taxable-equivalent basis)

    $709        $718       $741       (1.3     (4.3     $2,153        $2,189       (1.6

Noninterest income

    213        245       200       (13.1     6.5       667        630       5.9  

Securities gains (losses), net

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

Total net revenue

    922        963       941       (4.3     (2.0     2,820        2,819       --    

Noninterest expense

    394        410       383       (3.9     2.9       1,214        1,190       2.0  

Other intangibles

          1       1       --         --               3       --    

Total noninterest expense

    395        411       384       (3.9     2.9       1,217        1,193       2.0  

Income before provision and taxes

    527        552       557       (4.5     (5.4     1,603        1,626       (1.4

Provision for credit losses

    40        (2     35       nm       14.3       27        37       (27.0

Income before income taxes

    487        554       522       (12.1     (6.7     1,576        1,589       (.8

Income taxes and taxable-equivalent adjustment

    122        139       131       (12.2     (6.9     395        398       (.8

Net income

    365        415       391       (12.0     (6.6     1,181        1,191       (.8

Net (income) loss attributable to noncontrolling interests

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

Net income attributable to U.S. Bancorp

    $365        $415       $391       (12.0     (6.6     $1,181        $1,191       (.8
   

Average Balance Sheet Data

                 

Loans

    $96,260        $96,587       $93,362       (.3     3.1       $96,420        $93,568       3.0  

Other earning assets

    4,016        3,883       3,042       3.4       32.0       3,692        2,998       23.1  

Goodwill

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

Other intangible assets

          9       10       (11.1     (20.0           11       (18.2

Assets

    107,156        106,679       102,143       .4       4.9       106,335        102,414       3.8  
   

Noninterest-bearing deposits

    28,863        28,880       32,376       (.1     (10.9     29,242        33,305       (12.2

Interest-bearing deposits

    72,061        70,697       68,569       1.9       5.1       71,293        69,622       2.4  

Total deposits

    100,924        99,577       100,945       1.4       --         100,535        102,927       (2.3
   

Total U.S. Bancorp shareholders’ equity

    10,381        10,355       10,426       .3       (.4     10,391        10,447       (.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 $365 million of the Company’s net income in the third quarter of 2019, compared with $391 million in the third quarter of 2018. Total net revenue decreased $19 million (2.0 percent) due to a decrease of $32 million (4.3 percent) in net interest income, partially offset by an increase of $13 million (6.5 percent) in total noninterest income. Net interest income decreased primarily due to lower noninterest bearing deposit balances compared with 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. Total noninterest expense was $11 million (2.9 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 within capital markets. These increases were partially offset by lower FDIC assessment costs. The provision for credit losses increased $5 million (14.3 percent) reflecting an unfavorable change in the reserve allocation and slightly higher net charge-offs.

 

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

3Q 

2019 

   

2Q

2019

   

3Q 

2018 

    3Q19 vs
2Q19
    3Q19 vs
3Q18
   

YTD

2019

   

YTD 

2018 

   

Percent

Change

 

Condensed Income Statement

                 

Net interest income (taxable-equivalent basis)

    $1,580        $1,577       $1,554        .2        1.7        $4,720       $4,581        3.0   

Noninterest income

    668        567       583        17.8        14.6        1,770       1,754        .9   

Securities gains (losses), net

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

 

 

       

 

 

     

Total net revenue

    2,248        2,144       2,137        4.9        5.2        6,490       6,335        2.4   

Noninterest expense

    1,321        1,317       1,302        .3        1.5        3,927       3,930        (.1)  

Other intangibles

          5             --        (28.6)       15       21        (28.6)  
   

 

 

       

 

 

     

Total noninterest expense

    1,326        1,322       1,309        .3        1.3        3,942       3,951        (.2)  
   

 

 

       

 

 

     

Income before provision and taxes

    922        822       828        12.2        11.4        2,548       2,384        6.9   

Provision for credit losses

    69        79       54        (12.7)       27.8        218       164        32.9   
   

 

 

       

 

 

     

Income before income taxes

    853        743       774        14.8        10.2        2,330       2,220        5.0   

Income taxes and taxable-equivalent adjustment

    213        186       194        14.5        9.8        583       555        5.0   
   

 

 

       

 

 

     

Net income

    640        557       580        14.9        10.3        1,747       1,665        4.9   

Net (income) loss attributable to noncontrolling interests

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

 

 

       

 

 

     

Net income attributable to U.S. Bancorp

    $640        $557       $580        14.9        10.3        $1,747       $1,665        4.9   
   

 

 

       

 

 

     
   

Average Balance Sheet Data

                 

Loans

    $145,893        $143,726       $141,349        1.5        3.2        $143,809       $140,788        2.1   

Other earning assets

    4,711        3,333       3,385        41.3        39.2        3,486       3,535        (1.4)  

Goodwill

    3,475        3,475       3,631        --        (4.3)       3,475       3,631        (4.3)  

Other intangible assets

    2,442        2,717       2,974        (10.1)       (17.9)       2,679       2,926        (8.4)  

Assets

    160,814        157,395       155,537        2.2        3.4        157,655       155,184        1.6   
   

Noninterest-bearing deposits

    28,630        27,075       28,196        5.7        1.5        27,433       27,607        (.6)  

Interest-bearing deposits

    129,668        128,904       125,549        .6        3.3        128,634       124,668        3.2   
   

 

 

       

 

 

     

Total deposits

    158,298        155,979       153,745        1.5        3.0        156,067       152,275        2.5   
   

Total U.S. Bancorp shareholders’ equity

    11,666        11,737       11,841        (.6)       (1.5)       11,714       11,843        (1.1)  
   

(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 $640 million of the Company’s net income in the third quarter of 2019, compared with $580 million in the third quarter of 2018. Total net revenue increased $111 million (5.2 percent) due to a $26 million (1.7 percent) increase in net interest income and an $85 million (14.6 percent) increase 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 lower spreads on loans. Total noninterest income increased primarily due to higher mortgage banking revenue driven by higher origination and sales volumes, as well as transition services agreement revenue associated with the sale of the Company’s ATM third-party servicing business in 2018, partially offset by the reduction in ATM processing services revenue due to the sale. Total noninterest expense in the third quarter of 2019 increased $17 million (1.3 percent) primarily due to 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, and higher production incentives in support of business growth. Partially offsetting these increases were lower FDIC assessment costs and lower mortgage banking costs. The provision for credit losses increased $15 million (27.8 percent) primarily due to an unfavorable change in the reserve allocation and higher net charge-offs.

 

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 WEALTH MANAGEMENT AND INVESTMENT SERVICES (a)

 

                        
 ($ in millions)                        Percent Change                     
      3Q
2019
     2Q
2019
     3Q
2018
    3Q19 vs
2Q19
    3Q19 vs
3Q18
    YTD
2019
     YTD
2018
    Percent
Change
 

Condensed Income Statement

                     

Net interest income (taxable-equivalent basis)

     $294        $302        $284       (2.6     3.5       $888        $844       5.2  

Noninterest income

     452        445        444       1.6       1.8       1,327        1,305       1.7  

Securities gains (losses), net

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

Total net revenue

     746        747        728       (.1     2.5       2,215        2,149       3.1  

Noninterest expense

     430        434        429       (.9     .2       1,297        1,304       (.5

Other intangibles

     3        3        4       --       (25.0     9        12       (25.0

Total noninterest expense

     433        437        433       (.9     --       1,306        1,316       (.8

Income before provision and taxes

     313        310        295       1.0       6.1       909        833       9.1  

Provision for credit losses

     1        2        (3     (50.0     nm       --        (2     nm  

Income before income taxes

     312        308        298       1.3       4.7       909        835       8.9  

Income taxes and taxable-equivalent adjustment

     78        77        75       1.3       4.0       227        210       8.1  

Net income

     234        231        223       1.3       4.9       682        625       9.1  

Net (income) loss attributable to noncontrolling interests

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

Net income attributable to U.S. Bancorp

     $234        $231        $223       1.3       4.9       $682        $625       9.1  
   

Average Balance Sheet Data

                     

Loans

     $10,260        $9,896        $9,475       3.7       8.3       $9,993        $9,224       8.3  

Other earning assets

     265        341        172       (22.3     54.1       284        167       70.1  

Goodwill

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

Other intangible assets

     47        50        61       (6.0     (23.0     50        66       (24.2

Assets

     13,543        13,175        12,655       2.8       7.0       13,302        12,306       8.1  

Noninterest-bearing deposits

     13,575        13,582        13,184       (.1     3.0       13,478        14,101       (4.4

Interest-bearing deposits

     65,858        61,401        55,921       7.3       17.8       60,508        56,562       7.0  

Total deposits

     79,433        74,983        69,105       5.9       14.9       73,986        70,663       4.7  
   

Total U.S. Bancorp shareholders’ equity

     2,530        2,529        2,486       --       1.8       2,525        2,472       2.1  
   

(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 $234 million of the Company’s net income in the third quarter of 2019, compared with $223 million in the third quarter of 2018. Total net revenue increased $18 million (2.5 percent) year-over-year due to increases in net interest income of $10 million (3.5 percent) and noninterest income of $8 million (1.8 percent). Net interest income increased year-over-year primarily due to the impact of higher deposit balances. Total noninterest income increased primarily due to favorable market conditions and business growth. Total noninterest expense was flat to the third quarter of 2018 reflecting lower costs related to FDIC assessment and litigation settlements, partially offset by increased net shared services expense due to technology development and higher compensation expense, reflecting the impact of merit increases, increased staffing, and an increase in medical costs. The provision for credit losses increased $4 million reflecting an unfavorable change in the reserve allocation.

 

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PAYMENT SERVICES (a)                                                              
($ in millions)           Percent Change                      
      3Q 2019      2Q
2019
     3Q
2018
     3Q19 vs
2Q19
    3Q19 vs
3Q18
    YTD 2019      YTD
2018
     Percent
Change
 

Condensed Income Statement

                       

Net interest income (taxable-equivalent basis)

     $634        $591        $619          7.3       2.4       $1,848        $1,821        1.5  

Noninterest income

     957        950        910          .7       5.2       2,758        2,660        3.7  

Securities gains (losses), net

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

 

 

        

 

 

      

Total net revenue

     1,591        1,541        1,529          3.2       4.1       4,606        4,481        2.8  

Noninterest expense

     743        730        713          1.8       4.2       2,190        2,116        3.5  

Other intangibles

     33        33        29          --       13.8       97        84        15.5  
    

 

 

        

 

 

      

Total noninterest expense

     776        763        742          1.7       4.6       2,287        2,200        4.0  
    

 

 

        

 

 

      

Income before provision and taxes

     815        778        787          4.8       3.6       2,319        2,281        1.7  

Provision for credit losses

     260        295        264          (11.9     (1.5     841        817        2.9  
    

 

 

        

 

 

      

Income before income taxes

     555        483        523          14.9       6.1       1,478        1,464        1.0  

Income taxes and taxable-equivalent adjustment

     139        121        131          14.9       6.1       370        367        .8  
    

 

 

        

 

 

      

Net income

     416        362        392          14.9       6.1       1,108        1,097        1.0  

Net (income) loss attributable to noncontrolling interests

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

 

 

        

 

 

      

Net income attributable to U.S. Bancorp

     $416        $362        $392          14.9       6.1       $1,108        $1,097        1.0  
    

 

 

        

 

 

      
   

Average Balance Sheet Data

                       

Loans

     $34,044        $33,277        $31,443          2.3       8.3       $33,251        $30,704        8.3  

Other earning assets

     343        327        266          4.9       28.9       372        281        32.4  

Goodwill

     2,825        2,806        2,563          .7       10.2       2,815        2,547        10.5  

Other intangible assets

     550        533        400          3.2       37.5       532        396        34.3  

Assets

     40,171        39,519        37,125          1.6       8.2       39,432        36,610        7.7  

Noninterest-bearing deposits

     1,200        1,148        1,064          4.5       12.8       1,168        1,092        7.0  

Interest-bearing deposits

     117        115        111          1.7       5.4       114        109        4.6  
    

 

 

        

 

 

      

Total deposits

     1,317        1,263        1,175          4.3       12.1       1,282        1,201        6.7  
   

 

Total U.S. Bancorp shareholders’ equity

     7,058        7,050        6,583          .1       7.2       7,046        6,602        6.7  

(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 $416 million of the Company’s net income in the third quarter of 2019, compared with $392 million in the third quarter of 2018. Total net revenue increased $62 million (4.1 percent) due to increases of $15 million (2.4 percent) in net interest income and $47 million (5.2 percent) in total noninterest income. Net interest income increased primarily due to growth in 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 primarily driven by processing days, as well as merchant processing services and corporate payment products revenue, both driven by higher sales volumes. Total noninterest expense increased $34 million (4.6 percent) over the third 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 and merit increases. The provision for credit losses decreased $4 million (1.5 percent) reflecting a favorable change in the reserve allocation, partially offset by higher net charge-offs.

 

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TREASURY AND CORPORATE SUPPORT (a)                          
($ in millions)                       Percent Change                       
      3Q 2019     2Q
2019
    3Q  
2018  
     3Q19 vs 
2Q19  
     3Q19 vs 
3Q18 
     YTD 
2019 
     YTD   
2018   
     Percent
Change
 

Condensed Income Statement

                       

Net interest income (taxable-equivalent basis)

     $89       $144       $83          (38.2)        7.2         $315         $269           17.1   

Noninterest income

     299       266       271          12.4         10.3         826         730           13.2   

Securities gains (losses), net

     25       17       10          47.1         nm         47         25           88.0   
    

 

 

          

 

 

      

Total net revenue

     413       427       364          (3.3)        13.5         1,188         1,024           16.0   

Noninterest expense

     214       220       176          (2.7)        21.6         632         524           20.6   

Other intangibles

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

 

 

          

 

 

      

Total noninterest expense

     214       220       176          (2.7)        21.6         632         524           20.6   
    

 

 

          

 

 

      

Income before provision and taxes

     199       207       188          (3.9)        5.9         556         500           11.2   

Provision for credit losses

     (3     (9     (7)         66.7         57.1         23         (5)          nm   
    

 

 

          

 

 

      

Income before income taxes

     202       216       195          (6.5)        3.6         533         505           5.5   

Income taxes and taxable-equivalent adjustment

     (60     (47     (41)         (27.7)        (46.3)        (202)        (179)          (12.8)  
    

 

 

          

 

 

      

Net income

     262       263       236          (.4)        11.0         735         684           7.5   

Net (income) loss attributable to noncontrolling interests

     (9     (7     (7)         (28.6)        (28.6)        (25)        (22)          (13.6)  
    

 

 

          

 

 

      

Net income attributable to U.S. Bancorp

     $253       $256       $229          (1.2)        10.5         $710         $662           7.3   
    

 

 

          

 

 

      
   

Average Balance Sheet Data

                       

Loans

         $5,979       $5,732       $5,436          4.3         10.0             $5,805         $5,415           7.2   

Other earning assets

     133,902       129,831       127,247          3.1         5.2         130,314         126,566           3.0   

Goodwill

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

Other intangible assets

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

Assets

     159,770       154,830       149,456          3.2         6.9         155,492         148,727           4.5   
   

Noninterest-bearing deposits

     2,326       2,411       2,372          (3.5)        (1.9)        2,390         2,441           (2.1)   

Interest-bearing deposits

     7,635       11,019       2,779          (30.7)        nm         9,303         3,652           nm   
    

 

 

          

 

 

      

Total deposits

     9,961       13,430       5,151          (25.8)        93.4         11,693         6,093           91.9   
   

Total U.S. Bancorp shareholders’ equity

     21,657       20,767       18,802          4.3         15.2         20,770         18,069           14.9   
   

(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 $253 million in the third quarter of 2019, compared with $229 million in the third quarter of 2018. Total net revenue increased $49 million (13.5 percent) year-over-year driven by increases in net interest income of $6 million (7.2 percent) and $43 million (15.3 percent) in total noninterest income. Net interest income increased year-over-year primarily due to growth in the investment portfolio. Total noninterest income increased year-over-year primarily reflecting higher income from equity investments and gain on the sale of securities. Total noninterest expense increased $38 million (21.6 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 increased $4 million (57.1 percent) reflecting higher net charge-offs.

 

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        7

EX-99.2

Slide 1

U.S. Bancorp 3Q19 Earnings Conference Call October 16, 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

3Q19 Highlights * Taxable-equivalent basis; see slide 25 for calculation ** Excluding the impact of FDIC covered loans sold in 4Q18, average total loans grew 4.7% vs. 3Q18


Slide 4

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


Slide 5

Average Loans +1.1% linked quarter +4.0% year-over-year On a linked quarter basis, average total loan growth was driven by growth in residential mortgages and credit card loans. On a year-over-year basis, growth in average total loans was primarily driven by growth in residential mortgages, total commercial loans, credit card loans and total 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 +1.4% linked quarter +6.0% year-over-year Interest-bearing Deposits Average noninterest-bearing (NIB) deposits increased on a linked quarter basis. Average total savings deposits (which include money market, interest checking and savings accounts) grew on both a linked quarter and year-over-year basis, reflecting growth across all business lines. Average time deposits, which are managed based on funding needs, relative pricing and liquidity characteristics, declined on a linked quarter basis. Year-over-year growth, in part, reflects consumer deposit migration as customers seek higher yields. Year-over-year, average NIB deposits declined due to balance migration to interest-bearing deposits as well as customers’ continued deployment of business deposits.


Slide 7

Credit Quality $ in millions NCO Ratio -1 bp QoQ +2 bps YoY NPAs +2.7% QoQ -2.5% YoY


Slide 8

Earnings Summary


Slide 9

Net Interest Income Linked Quarter Net interest income decreased, primarily driven by the impact of declining rates, the flatter yield curve and lower interest recoveries, partially offset by growth in earning assets and an additional day in the third quarter. The net interest margin declined, primarily due to changes in the yield curve during the quarter as well as higher cash balances. Year-over-Year Net interest income growth was primarily driven by growth in earning assets and higher yields on reinvested securities, partially offset by declining rates and a flatter yield curve, as well as deposit and funding mix. The net interest margin declined, primarily due to the impacts of the yield curve, deposit and funding mix, and higher cash balances. $ in millions Net interest income on a taxable-equivalent basis; see slide 25 for calculation -0.8% linked quarter +0.8% year-over-year


Slide 10

Noninterest Income $ in millions Payments = credit and debit card, corporate payment products and merchant processing Service charges = deposit service charges and treasury management All other = commercial products, investment products fees, securities gains (losses) and other $2,418 $2,490 $2,614 Linked Quarter Payment services revenue growth was driven by seasonally higher corporate payment products sales volume and merchant processing services fee revenue. Mortgage banking revenue growth reflects higher origination and sales volumes as well as a favorable change in the valuation of mortgage servicing rights, net of hedging activities. Other noninterest income increased primarily due to higher equity investment income. Year-over-Year Payment services revenue growth reflects higher sales volumes across all businesses. Commercial products revenue increased, primarily due to higher corporate bond fees and trading revenue. Mortgage banking revenue increased, reflecting higher origination and sales volumes. Other noninterest income increased, primarily due to higher equity investment income and transition services agreement revenue associated with the sale of the Company’s ATM third-party servicing business in 2018. Deposit service charges declined, primarily due to the 2018 sale of the Company’s ATM third-party servicing business. +5.0% linked quarter +8.1% year-over-year


Slide 11

Noninterest Expense Linked Quarter Compensation expense increased primarily due to an additional day in the third quarter and variable compensation related to business production. Employee benefits expense increased primarily due to increased medical costs. Other noninterest expense decreased due to lower costs related to tax-advantaged projects and a decrease in merchant related reserves. Year-over-Year Compensation expense increased, primarily due to the impact of merit increases and higher variable compensation related to business production. Employee benefits expense increased, primarily due to increased medical costs. Technology and communications expense increased, primarily driven by capital expenditures 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 $3,044 $3,153 $3,144 -0.3% linked quarter +3.3% 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. 3Q18 Average total loans increased by $11.3 billion, or 4.0% Average residential mortgage loans increased by $6.6 billion, or 10.6% Average commercial loans increased by $4.6 billion, or 4.7% Average credit card loans increased by $1.9 billion, or 8.8% Average retail loans increased by $1.6 billion, or 2.9% Average commercial real estate loans decreased by $0.6 billion, or 1.4% vs. 2Q19 Average total loans increased by $3.2 billion, or 1.1% Average residential mortgage loans increased by $1.8 billion, or 2.7% Average credit card loans increased by $0.9 billion, or 3.7% Key Points Year-over-Year Growth 1.2% 1.4% 2.4% 3.8% 4.0% Covered Commercial CRE Res Mtg Retail Credit Card $286.1 $281.1 $283.7 (0.3%) $292.4 Average Loans ($bn) $289.2


Slide 16

Average Deposits Key Points Average Deposits ($bn) vs. 3Q18 Average total deposits increased by $19.8 billion, or 6.0% Average low-cost deposits (NIB, interest checking, savings and money market) increased by $15.4 billion, or 5.3% vs. 2Q19 Average total deposits increased by $4.7 billion, or 1.4% Average low-cost deposits (NIB, interest checking, savings and money market) increased by $9.3 billion, or 3.1% Year-over-Year Growth (1.5%) (1.4%) 0.2% 3.1% 6.0% Time Money Market Checking and Savings Noninterest-bearing $349.9 $330.1 $334.4 $335.4 $345.2


Slide 17

Credit Quality – Commercial Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points $mm3Q182Q193Q19 Average Loans$99,048$103,233 $103,660 30-89 Delinquencies0.23% 0.34%0.43% 90+ Delinquencies0.06%0.26%0.10% Nonperforming Loans0.22%0.27%0.30% Linked Quarter Growth 0.7% 1.5% 1.4% 1.2% 0.4% Linked quarter growth was modest at 0.4% and year-over-year growth was 4.7% Decrease in late stage delinquencies driven by a prior administrative delinquency that is substantially resolved Net charge-offs increased on a linked quarter basis due to lower recoveries, but remain at historically low levels


Slide 18

Investor $19,257 Owner Occupied $9,062 A&D Const $316 Multi-family $3, 740 Retail $334 Residential Construction $2,446 Office $844 Other $2,389 Resi Land $602 $mm3Q182Q193Q19 Average Loans$39,542$39,365 $38,990 30-89 Delinquencies0.08% 0.07%0.13% 90+ Delinquencies0.01%0.00%0.01% Nonperforming Loans0.26%0.23%0.23% Performing TDRs*$222$137$145 Credit Quality – Commercial Real Estate Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points * TDR = troubled debt restructuring Linked Quarter Growth (0.8%) 1.5% (1.7%) (0.3%) (1.0%) Average loans decreased by 1.0% 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 $mm3Q182Q193Q19 Average Loans$62,042$66,834$68,608 30-89 Delinquencies0.27%0.26%0.24% 90+ Delinquencies0.19%0.17%0.17% Nonperforming Loans0.50%0.39%0.36% * Excludes GNMA loans, whose repayments are insured by the FHA or guaranteed by the Department of VA ($1,690 million in 3Q19) Linked Quarter Growth 2.0% 3.9% 1.7% 1.9% 2.7% Originations continued to be high credit quality (weighted average FICO of 763, weighted average LTV of 72%) 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 $mm3Q182Q193Q19 Average Loans$21,774$22,830$23,681 30-89 Delinquencies1.42%1.23%1.33% 90+ Delinquencies1.18%1.14%1.16% Nonperforming Loans0.00%0.00%0.00% Linked Quarter Growth 2.6% 2.9% 0.9% 1.0% 3.7% Year-over-year average loan growth of 8.8% was driven by origination of new accounts and portfolio acquisitions Commitment weighted average FICO on new originations remained strong at 775 Year-over-year delinquency was stable and charge-offs were favorably driven by stronger collection results


Slide 21

Credit Quality – Home Equity Average Loans ($mm) and Net Charge-offs Ratio Key Points Linked Quarter Growth (0.3%) 0.4% (0.4%) (1.0%) (1.5%) Key Statistics Key Statistics $mm3Q182Q193Q19 Average Loans$16,000$15,831$15,601 30-89 Delinquencies0.45%0.51%0.55% 90+ Delinquencies0.32%0.34%0.34% Nonperforming Loans0.78%0.75%0.75% Loans: 11% Wtd Avg LTV*: 77% Wtd Avg FICO*: 751 Lines: 89% Wtd Avg LTV*: 71% Wtd Avg FICO*: 754 *LTV and FICO at origination High-quality originations (weighted average FICO on commitments of 781, 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 $mm3Q182Q193Q19 Average Loans$8,383$8,547$8,442 30-89 Delinquencies0.38%0.45%0.48% 90+ Delinquencies0.02%0.02%0.05% Nonperforming Loans0.13%0.13%0.14% * Manheim Used Vehicle Value Index source: www.manheimconsulting.com, January 1995 = 100, quarter value = average monthly ending values Linked Quarter Growth 2.9% 1.3% 1.1% (0.5%) (1.2%) Continued high-quality originations during 3Q19 (weighted average FICO of 780) 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 $mm3Q182Q193Q19 Average Loans$31,520$32,578$33,454 30-89 Delinquencies0.83%0.80%0.78% 90+ Delinquencies0.14%0.13%0.14% Nonperforming Loans0.12%0.12%0.13% Linked Quarter Growth 0.8% 0.2% 1.1% 2.1 % 2.7% Loan growth continues to be driven by auto and installment loans Net charge-offs, delinquencies and nonperforming loans were all relatively stable


Slide 24

Credit Quality – Auto Loans Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points $mm3Q182Q193Q19 Average Loans$18,563$19,023$19,426 30-89 Delinquencies1.00%1.01%1.04% 90+ Delinquencies0.08%0.09%0.11% Nonperforming Loans0.14%0.15%0.18% Direct: 4% Wtd Avg FICO: 748 NCO: 0.46% Indirect: 96% Wtd Avg FICO: 776 NCO: 0.39% Auto loans are included in Other Retail category Linked Quarter Growth (0.2%) (0.3%) 1.8% 1.0% 2.1% Loan growth continues to be driven by high quality originations in the indirect channel (weighted average FICO of 783) Net charge-offs, delinquencies and nonperforming loans were all relatively stable


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 3Q19 Earnings Conference Call October 16, 2019

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