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): April 15, 2020

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 April 15, 2020, U.S. Bancorp (the “Company”) issued a press release reporting quarter-ended March 31, 2020 results, and posted on its website its 1Q20 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 1Q20 Earnings Conference Call Presentation is included as Exhibit 99.2 hereto and is incorporated herein by reference. The information included in the 1Q20 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 1Q20 Earnings Conference Call Presentation contain forward-looking statements regarding the Company and each includes a cautionary statement identifying important factors that could cause actual results to differ materially from those anticipated.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.

(d) Exhibits.

  99.1 Press Release issued by U.S. Bancorp on April 15, 2020, deemed “filed” under the Securities Exchange Act of 1934.

  99.2 1Q20 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/    Lisa R. Stark

Lisa R. Stark

Executive Vice President and
Controller

DATE: April 15, 2020

EX-99.1

Exhibit 99.1

 

    

       LOGO

         

 

U.S. Bancorp Reports First Quarter 2020 Results

 

 Net revenue of $5,772 million and net income of $1,171 million

 Return on average assets of 0.95% and return on average common equity of 9.7%

 

 

    1Q20 Key Financial Data

 

         

 

1Q20 Highlights

 

         

 PROFITABILITY

 METRICS

  1Q20      4Q19      1Q19         

 

 

 Net income of $1,171 million and diluted earnings per
   common share of $0.72

 

 Return on average assets of 0.95% and return on average
   common equity of 9.7%

 

 Net revenue of $5,772 million, including $3,247 million
   of net interest income and $2,525 million of noninterest
   income

 

 Noninterest income growth of 10.2% year-over-year

 

 Average total loans grew 0.9% on a linked quarter basis
   and 4.0% year-over-year

 

 Average total deposits grew 1.8% on a linked quarter
   basis and 8.2% year-over-year

 

 Nonperforming assets decreased 5.9% year-over-year;
   but, increased 14.1% since December 31, 2019

 

 Provision for credit losses of $993 million increasing
   allowance for credit losses by $600 million reflecting the
   current economic environment

 

 Return on average assets (%)

    .95        1.21        1.49     

 Return on average common equity (%)

    9.7        11.8        14.3     

 Return on tangible common equity (%) (a)

    12.6        15.2        18.4     

 Net interest margin (%)

    2.91        2.92        3.16     

 Efficiency ratio (%) (a)

    58.0        60.3        55.4     
 INCOME STATEMENT (b)     1Q20        4Q19        1Q19     

 Net interest income (taxable-equivalent basis)

    $3,247        $3,231        $3,286     

 Noninterest income

    $2,525        $2,436        $2,291     

 Net income attributable to U.S. Bancorp

    $1,171        $1,486        $1,699     

 Diluted earnings per common share

    $.72        $.90        $1.00     

 Dividends declared per common share

    $.42        $.42        $.37     
 BALANCE SHEET (b)     1Q20        4Q19        1Q19     

 Average total loans

    $297,657        $294,865        $286,110     

 Average total deposits

    $362,804        $356,452        $335,366     

 Net charge-off ratio

    .53%        .52%        .52%     

 Book value per common share (period end)

    $30.24        $29.90        $28.81     

 Basel III standardized CET1 (c)

 

   

 

9.0% 

 

 

 

   

 

9.1% 

 

 

 

   

 

9.3% 

 

 

 

 

 

 (a) See Non-GAAP Financial Measures reconciliation on page 17

 

 

 

 (b) Dollars in millions, except per share data

 

 

 
 (c) CET1 = Common equity tier 1 capital ratio

 

 

CEO Commentary

 

 

“I’d like to start off by thanking our employees across this company for their hard work and dedication during this difficult time. The economic fallout from the COVID-19 pandemic is causing financial hardship to many in this country. We are intently focused on doing what we can for our customers, communities and employees as they grapple with their unique situations. Our capital and liquidity positions are strong, and we stand ready to help businesses access programs like the Paycheck Protection Program and Main Street Lending Program. We’ve introduced several changes to allow impacted customers forbearance or other payment relief and pricing flexibility on our products and services to make them more affordable and accessible to customers who may be experiencing financial stress. We’ve announced a number of initiatives, including new investments, to help our communities to continue supporting individuals and families. We manage this company for the long term and our strong balance sheet, our diverse businesses and our culture will help us manage through this challenging time and I have no doubt we will emerge stronger on the other side of the pandemic, proving to be a reliable partner to customers in helping them achieve their financial goals.”

 

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

 

 

In the Spotlight

 

 

Supporting Customers

U.S. Bank has been engaging with customers across all lines of business as the world continues to battle COVID-19. To date, nearly 102 thousand accounts and over $5.7 billion in loans have been modified in addition to draw downs of approximately $22 billion in support of our customers in these extreme economic times. U.S. Bank is also participating in programs such as the Paycheck Protection Program stemming from the CARES Act passed by Congress as a stimulus response to the potential economic impacts of COVID-19.

Investing in Community Recovery

U.S. Bank recently announced a $30 million commitment to support COVID-19 relief efforts in communities around the country, offering immediate relief to national organizations focused on small business recovery and long-term recovery efforts to local nonprofits that support individuals and families with financial education, affordable housing, and work assistance.

Supporting Employees

U.S. Bank announced a premium pay program providing a temporary 20% wage increase to more than 30,000 critical employees at branches, operations centers, and critical service locations. In addition, U.S. Bank is providing additional time off for employees affected by COVID-19. U.S. Bank is continuing to take steps to further protect the safety of employees and customers, such as temporarily adjusting branch operations, decreasing lobby usage, encouraging drive through use, and consolidating operations.

Strategic Alliance with State Farm

U.S. Bank recently announced a strategic alliance with State Farm, America’s largest property and casualty insurance provider, whereby U.S. Bank will assume State Farm Bank’s existing deposit and credit card accounts and State Farm agents will have the unique opportunity and tools to introduce U.S. Bank deposit products and co-branded credit cards to State Farm customers, offering them new, easy ways to manage their banking needs.

 

 

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        Investor contact: Jennifer Thompson, 612.303.0778 | Media contact: David Palombi, 612.303.3167


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   U.S. Bancorp First Quarter 2020 Results
      

 

  INCOME STATEMENT HIGHLIGHTS               
  ($ in millions, except per-share data)                         Percent Change    
      1Q 
2020 
     4Q 
2019 
     1Q 
2019 
     1Q20 vs
4Q19
     1Q20 vs
1Q19
 

Net interest income

     $3,223         $3,207         $3,259         .5         (1.1)  

Taxable-equivalent adjustment

     24         24         27         --         (11.1)  

Net interest income (taxable-equivalent basis)

     3,247         3,231         3,286         .5         (1.2)  

Noninterest income

     2,525         2,436         2,291         3.7         10.2   

Total net revenue

     5,772         5,667         5,577         1.9         3.5   

Noninterest expense

     3,316         3,401         3,087         (2.5)        7.4   

Income before provision and income taxes

     2,456         2,266         2,490         8.4         (1.4)  

Provision for credit losses

     993         395         377         nm         nm   

Income before taxes

     1,463         1,871         2,113         (21.8)        (30.8)  

Income taxes and taxable-equivalent adjustment

     284         378         405          (24.9)        (29.9)  

Net income

     1,179         1,493         1,708         (21.0)        (31.0)  

Net (income) loss attributable to noncontrolling interests

     (8)        (7)        (9)        (14.3)        11.1   

Net income attributable to U.S. Bancorp

     $1,171         $1,486         $1,699         (21.2)        (31.1)  

Net income applicable to U.S. Bancorp common shareholders

     $1,088         $1,408         $1,613         (22.7)        (32.5)  

Diluted earnings per common share

     $.72         $.90         $1.00         (20.0)        (28.0)  
                                              

 

Net income attributable to U.S. Bancorp was $1,171 million for the first quarter of 2020, which was 31.1 percent lower than the $1,699 million for the first quarter of 2019, and 21.2 percent lower than the $1,486 million for the fourth quarter of 2019. Diluted earnings per common share were $0.72 in the first quarter of 2020, compared with $1.00 in the first quarter of 2019 and $0.90 in the fourth quarter of 2019. During a challenging period adversely impacted by the COVID-19 pandemic, the Company’s diversified business mitigated the potential loss of revenue and supported a provision for credit losses of $993 million resulting in a $600 million increase in the allowance for credit losses in the first quarter of 2020. The fourth quarter of 2019 included $(0.18) per diluted common share of notable items related to restructuring charges including severance and certain asset impairments, and increased derivative liability related to Visa shares previously sold by the Company.

The decrease in net income year-over-year was primarily due to an increase in the provision for credit losses driven by deteriorating economic conditions caused by the impact of COVID-19 on the U.S. and global economies. During the quarter, the Company effectively managed its liquidity position while funding significant loan growth late in the first quarter of 2020. While the Company expanded its cash balances, the net interest margin was relatively stable. Net interest income decreased 1.1 percent (1.2 percent on a taxable-equivalent basis), mainly a result of the impact of the yield curve due to declining interest rates, partially offset by deposit and funding mix, loan growth and one additional day in the first quarter of 2020. Noninterest income increased 10.2 percent compared with a year ago, driven by significant growth in mortgage banking revenue due to refinancing activities as well as strong growth in trust and investment management fees, and commercial products revenue. Growth in these fee categories was partially offset by a decline in payment services revenue as consumer and commercial spending declined dramatically during the last several weeks of the first quarter of 2020. Additionally, other noninterest income declined on a year-over-year basis. Noninterest expense increased 7.4 percent reflecting $100 million of costs related to COVID-19 and revenue-related production expenses that are reflected in the first quarter of 2020. Additionally, noninterest expense reflected an increase in personnel and technology and communications expense related to developing digital capabilities and related business investment, partially offset by lower marketing and business development expense.

 

 

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   U.S. Bancorp First Quarter 2020 Results
      

 

Net income decreased on a linked quarter basis primarily due to an increase in the provision for credit losses due to the current economic environment. The Company’s pre-provision income increased 8.4 percent driven by higher total net revenue of 1.9 percent and a decrease in noninterest expense of 2.5 percent on a linked quarter basis. Net interest income increased 0.5 percent primarily due to loan growth and a relatively stable net interest margin, partially offset by one less day in the quarter. The net interest margin declined by one basis point reflecting the lower yield curve and approximately 5 basis points of drag related to increasing the liquidity position offset by the impact of reducing rates on deposits, funding mix and the benefit of wider credit spreads related to LIBOR-based loans during the quarter. Excluding the notable item in the fourth quarter of 2019, noninterest income decreased 2.0 percent compared with the fourth quarter of 2019 driven by lower payment services revenue, trust and investment management fees, deposit service charges, and other noninterest income, partially offset by higher commercial products revenue and mortgage banking revenue. Excluding the notable items in the fourth quarter of 2019, noninterest expense increased 3.6 percent primarily driven by costs related to COVID-19, higher personnel costs and other noninterest expense, including production-related expenses, partially offset by lower professional services expense and marketing and business development expense.

 

 

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   U.S. Bancorp First Quarter 2020 Results
      

 

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

1Q

2020

    

4Q

2019

    

1Q

2019

     1Q20 vs
4Q19
     1Q20 vs
1Q19
 

Components of net interest income

              

Income on earning assets

     $4,142         $4,281         $4,381         $(139)         $(239)   

Expense on interest-bearing liabilities

     895         1,050         1,095         (155)         (200)   

Net interest income

     $3,247         $3,231         $3,286         $16         $(39)   

Average yields and rates paid

              

Earning assets yield

     3.71%         3.87%         4.22%         (.16)%         (.51)%   

Rate paid on interest-bearing liabilities

     1.02            1.22            1.38            (.20)           (.36)      

Gross interest margin

     2.69%         2.65%         2.84%         .04%          (.15)%   

Net interest margin

     2.91%         2.92%         3.16%         (.01)%         (.25)%   

Average balances

              

Investment securities (a)

     $120,843         $121,668         $114,179         $(825)         $6,664   

Loans

     297,657         294,865         286,110         2,792         11,547   

Earning assets

     447,722         439,770         419,494         7,952         28,228   

Interest-bearing liabilities

     352,761         341,848         322,156         10,913         30,605   

(a) Excludes unrealized gain (loss)

 

 

 

Net interest income on a taxable-equivalent basis in the first quarter of 2020 was $3,247 million, a decrease of $39 million (1.2 percent) compared with the first quarter of 2019. The decrease was principally driven by the impact on the yield curve of declining interest rates on earning assets, partially offset by deposit and funding mix, loan growth, and one additional day in the first quarter of 2020. Average earning assets were $28.2 billion (6.7 percent) higher than the first quarter of 2019, reflecting increases of $11.5 billion (4.0 percent) in average total loans, $6.7 billion (5.8 percent) in average investment securities, and $7.4 billion (43.3 percent) in average other earning assets.

Net interest income on a taxable-equivalent basis increased $16 million (0.5 percent) on a linked quarter basis primarily driven by loan growth, the impact of reducing interest rates on deposits, and funding mix, partially offset by lower yields on earning assets and one less day in the first quarter of 2020. Average earning assets were $8.0 billion (1.8 percent) higher on a linked quarter basis, reflecting increases of $2.8 billion (0.9 percent) in average total loans and $6.5 billion (36.2 percent) in average other earning assets. Average investment securities decreased $825 million (0.7 percent).

The net interest margin in the first quarter of 2020 was 2.91 percent, compared with 3.16 percent in the first quarter of 2019 and 2.92 percent in the fourth quarter of 2019. The decrease in the net interest margin year-over-year was primarily due to the impact of declining interest rates and a lower yield curve, partially offset by deposit and funding mix. The decrease in net interest margin on a linked quarter basis reflects the impact of lower interest rates and the flatter yield curve and approximately 5 basis points of drag due to higher cash balances offsetting the beneficial rate mix on loans and deposit funding as well as the benefit of wider credit spreads related to LIBOR-based loans during the quarter.

The increase in average investment securities in the first quarter of 2020 compared with the first quarter of 2019 was primarily due to purchases of mortgage-backed securities, net of prepayments and maturities. The decrease in average investment securities in the first quarter of 2020 compared with the fourth quarter of 2019 was due to sales, prepayments and maturities of mortgage backed securities and Treasuries, partially offset by purchases of mortgage backed securities.

 

 

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   U.S. Bancorp First Quarter 2020 Results
      

 

 AVERAGE LOANS              
 ($ in millions)                         Percent Change    
     

1Q

2020

    

4Q

2019

    

1Q

2019

     1Q20 vs
4Q19
    1Q20 vs
1Q19
 

Commercial

     $100,329         $98,362         $96,447         2.0       4.0  

Lease financing

     5,658         5,549         5,513         2.0       2.6  

Total commercial

     105,987         103,911         101,960         2.0       3.9  

Commercial mortgages

     29,523         29,133         28,459         1.3       3.7  

Construction and development

     10,555         10,589         11,011         (.3     (4.1

Total commercial real estate

     40,078         39,722         39,470         .9       1.5  

Residential mortgages

     70,892         69,909         65,582         1.4       8.1  

Credit card

     23,836         24,107         22,597         (1.1     5.5  

Retail leasing

     8,474         8,486         8,586         (.1     (1.3

Home equity and second mortgages

     14,838         15,221         15,993         (2.5     (7.2

Other

     33,552         33,509         31,922         .1       5.1  

Total other retail

     56,864         57,216         56,501         (.6     .6  

Total loans

     $297,657         $294,865         $286,110         .9       4.0  

 

 

 

Average total loans for the first quarter of 2020 were $11.5 billion (4.0 percent) higher than the first quarter of 2019. The increase was primarily due to higher total commercial loans (3.9 percent), as business customers utilized bank credit facilities to fund business growth and support liquidity requirements, along with growth in residential mortgages (8.1 percent) given the lower interest rate environment. Credit card loans increased (5.5 percent) reflecting consumer spending throughout most of 2019, while total other retail loans were higher (0.6 percent) primarily related to high credit quality vehicle lending activities.

Average total loans were $2.8 billion (0.9 percent) higher than the fourth quarter of 2019 primarily driven by growth in total commercial loans (2.0 percent) and residential mortgages (1.4 percent), partially offset by lower credit card loans (1.1 percent) and total other retail loans (0.6 percent). Commercial lending increased significantly in the second half of the first quarter of 2020 as companies utilized existing credit facilities to strengthen their balance sheet liquidity given the current economic environment related to COVID-19.

 

 

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   U.S. Bancorp First Quarter 2020 Results
      

 

 AVERAGE DEPOSITS              
 ($ in millions)                         Percent Change    
     

1Q

2020

    

4Q

2019

    

1Q

2019

     1Q20 vs
4Q19
    1Q20 vs
1Q19
 

Noninterest-bearing deposits

     $74,142         $74,313         $73,433         (.2     1.0  

Interest-bearing savings deposits

                               

Interest checking

     77,359         75,563         72,177         2.4       7.2  

Money market savings

     121,946         116,619         99,432         4.6       22.6  

Savings accounts

     48,048         46,945         45,216         2.3       6.3  

Total savings deposits

     247,353         239,127         216,825         3.4       14.1  

Time deposits

     41,309         43,012         45,108         (4.0     (8.4

Total interest-bearing deposits

     288,662         282,139         261,933         2.3       10.2  

Total deposits

     $362,804         $356,452         $335,366         1.8       8.2  
   

Average total deposits for the first quarter of 2020 were $27.4 billion (8.2 percent) higher than the first quarter of 2019. Average noninterest-bearing deposits increased $709 million (1.0 percent). Average total savings deposits were $30.5 billion (14.1 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 $3.8 billion (8.4 percent) lower 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.

Average total deposits increased $6.4 billion (1.8 percent) from the fourth quarter of 2019. On a linked quarter basis, average noninterest-bearing deposits decreased $171 million (0.2 percent). Average total savings deposits increased $8.2 billion (3.4 percent) on a linked quarter basis primarily due to increases in Wealth Management and Investment Services, Corporate and Commercial Banking, and Consumer and Business Banking. Average time deposits, which are managed based on funding needs, relative pricing and liquidity characteristics, decreased $1.7 billion (4.0 percent) on a linked quarter basis.

 

 

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   U.S. Bancorp First Quarter 2020 Results
      

 

 NONINTEREST INCOME               
 ($ in millions)                         Percent Change  
      1Q
2020
     4Q
2019
     1Q
2019
     1Q20 vs
4Q19
     1Q20 vs
1Q19
 

Credit and debit card revenue

     $304         $378         $304         (19.6)        --   

Corporate payment products revenue

     145         158         162         (8.2)        (10.5)  

Merchant processing services

     337         409         378         (17.6)        (10.8)  

Trust and investment management fees

     427         438         399         (2.5)        7.0   

Deposit service charges

     209         231         217         (9.5)        (3.7)  

Treasury management fees

     143         140         146         2.1         (2.1)  

Commercial products revenue

     246         226         219         8.8         12.3   

Mortgage banking revenue

     395         244         169         61.9         nm   

Investment products fees

     49         48         45         2.1         8.9   

Securities gains (losses), net

     50         26                92.3         nm   

Other

     220         138         247         59.4         (10.9)  
     

Total noninterest income

     $2,525         $2,436         $2,291         3.7         10.2   
                                              

First quarter noninterest income of $2,525 million was $234 million (10.2 percent) higher than the first quarter of 2019 reflecting higher trust and investment management fees, commercial products revenue, and mortgage banking revenue, partially offset by lower payment services revenue and other noninterest income. Trust and investment management fees increased $28 million (7.0 percent) driven by business growth and favorable market conditions over the past year. The impact of recent declines in the equities markets will negatively impact this fee category in future quarters. Commercial products revenue increased $27 million (12.3 percent) primarily due to higher corporate bond fees and trading revenue, partially offset by credit valuation losses related to the customer derivatives portfolio. Mortgage banking revenue increased $226 million due to higher mortgage production and stronger gain on sale margins, partially offset by changes in the valuation of mortgage servicing rights, net of hedging activities. Partially offsetting these increases, payment services revenue decreased $58 million (6.9 percent) reflecting lower corporate payment products revenue of $17 million (10.5 percent) and lower merchant processing services revenue of $41 million (10.8 percent) driven by lower sales volume, particularly in March, due to the worldwide impact of the COVID-19 pandemic on consumer and business spending. Other noninterest income decreased $27 million (10.9 percent) due to lower equity investment income and tax-advantaged investment syndication revenue, partially offset by gains on sale of certain businesses in the first quarter of 2020.

Noninterest income was $89 million (3.7 percent) higher in the first quarter of 2020 compared with the fourth quarter of 2019. In the fourth quarter of 2019, other noninterest income included a valuation charge of $140 million for a derivative liability related to Visa shares previously sold by the Company. Excluding that fourth quarter notable item, first quarter of 2020 noninterest income was $51 million (2.0 percent) lower than the fourth quarter of 2019, reflecting lower payment services revenue, trust and investment management fees, deposit service charges, and other noninterest income, partially offset by higher commercial products revenue and mortgage banking revenue. Payment services revenue decreased $159 million (16.8 percent) compared with the fourth quarter of 2019 driven by lower credit and debit card revenue of $74 million (19.6 percent), lower corporate payment products revenue of $13 million (8.2 percent), and lower merchant processing services revenue of $72 million (17.6 percent) due to seasonally lower sales volume and the worldwide impact of the COVID-19 pandemic on spending. Trust and investment management fees decreased $11 million (2.5 percent) driven by billing cycle timing along with unfavorable market conditions in the quarter. Deposit service charges decreased $22 million (9.5 percent) primarily due to seasonality. Other noninterest income decreased $58 million (20.9 percent) driven by higher equity investment income in the fourth quarter of 2019, partially offset by the gains on sales of certain businesses in the first quarter of 2020. Partially offsetting these decreases, commercial products revenue increased $20 million (8.8 percent) on a linked quarter basis due to higher corporate bond fees and trading revenue, partially offset by credit valuation losses. Mortgage banking revenue increased $151 million (61.9 percent) due to higher production volume and related gain on sale margins, as well as the favorable net impact in the change in fair values of mortgage servicing rights and related hedging activities.

 

 

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   U.S. Bancorp First Quarter 2020 Results
      

 

 NONINTEREST EXPENSE               
 ($ in millions)                         Percent Change  
     1Q      4Q      1Q      1Q20 vs      1Q20 vs  
      2020      2019      2019      4Q19      1Q19  

Compensation

     $1,620         $1,597         $1,559         1.4         3.9   

Employee benefits

     352         315         333         11.7         5.7   

Net occupancy and equipment

     276         286         277         (3.5)        (.4)  

Professional services

     99         139         95         (28.8)        4.2  

Marketing and business development

     74         117         89         (36.8)        (16.9)  

Technology and communications

     289         291         257         (.7)        12.5   

Postage, printing and supplies

     72         71         72         1.4         --  

Other intangibles

     42         44         40         (4.5)        5.0  

Other

     492         541         365         (9.1)        34.8  
     

Total noninterest expense

     $3,316         $3,401         $3,087         (2.5)        7.4   
                                              

First quarter noninterest expense of $3,316 million was $229 million (7.4 percent) higher than the first quarter of 2019 driven by incremental costs related to COVID-19 of approximately $100 million, revenue-related expenses due to higher mortgage production and capital markets activities of approximately $49 million and business investments, including in digital capabilities. The categories of expense impacted include higher personnel expense, technology and communications expense, and other noninterest expense, partially offset by lower marketing and business development expense. Compensation expense increased $61 million (3.9 percent) compared with the first quarter of 2019 due to merit, variable compensation related to business production in mortgage banking and fixed income capital markets, and one additional work day in the first quarter of 2020. Employee benefits expense increased $19 million (5.7 percent) primarily due to higher pension costs compared with a year ago and payroll taxes related to compensation increases. Technology and communications expense increased $32 million (12.5 percent) primarily due to capital expenditures supporting business growth. Other noninterest expense increased $127 million (34.8 percent) which reflected $100 million of expenses related to COVID-19 including increased liabilities driven by future delivery exposure related to merchant and airline processing, partially offset by lower costs related to tax-advantaged projects in the first quarter of 2020. These increases within expense categories were partly offset by lower marketing and business development expense of $15 million (16.9 percent) due to the timing of marketing campaigns.

Noninterest expense decreased $85 million (2.5 percent) on a linked quarter basis. Included in the fourth quarter of 2019 were notable items related to severance charges and other accruals of $200 million. Excluding the impact of the prior quarter notable items, first quarter noninterest expense increased $115 million (3.6 percent) primarily due to higher personnel costs and other noninterest expense, partially offset by lower professional services expense and marketing and business development expense. Compensation expense increased $23 million (1.4 percent) primarily due to the first quarter impacts of merit and stock-based compensation as well as revenue-related expenses. Employee benefits expense increased $37 million (11.7 percent) primarily due to seasonally higher payroll taxes. Other noninterest expense increased $151 million (44.3 percent) due to expenses related to COVID-19 including liabilities driven by future delivery exposures related to merchant and airline processing, partially offset by lower costs related to tax-advantaged projects. These increases were partly offset by lower professional services expense of $40 million (28.8 percent) due to a seasonal reduction in spending and lower marketing and business development expense of $43 million (36.8 percent) due to the timing of marketing campaigns and a reduction in travel.

Provision for Income Taxes

The provision for income taxes for the first quarter of 2020 resulted in a tax rate of 19.4 percent on a taxable-equivalent basis (effective tax rate of 18.1 percent), compared with 19.2 percent on a taxable-equivalent basis (effective tax rate of 18.1 percent) in the first quarter of 2019, and a tax rate of 20.2 percent on a taxable-equivalent basis (effective tax rate of 19.2 percent) in the fourth quarter of 2019.

 

 

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   U.S. Bancorp First Quarter 2020 Results
      

 

 ALLOWANCE FOR CREDIT LOSSES  
 ($ in millions)   1Q           4Q           3Q           2Q           1Q        
     2020     % (a)     2019     % (a)     2019     % (a)     2019     % (a)     2019     % (a)  

 

Balance, beginning of period

    $4,491         $4,481         $4,466         $4,451         $4,441    

Change in accounting principle (b)

    1,499         --          --          --          --     

Net charge-offs

                   

Commercial

    69       .28       74       .30       72       .29       56       .23       71       .30  
 

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Lease financing

    5       .36       4       .29       3       .22       3       .22       2       .15  

Total commercial

    74       .28       78       .30       75       .29       59       .23       73       .29  

Commercial mortgages

    (1     (.01     7       .10       3       .04       2       .03       --        --   

Construction and development

    (1     (.04     --        --        3       .11       (1     (.04     --        --   
 

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Total commercial real estate

    (2     (.02     7       .07       6       .06       1       .01       --        --   

Residential mortgages

    1       .01       (1     (.01     (3     (.02     4       .02       3       .02  

Credit card

    234       3.95       230       3.79       211       3.53       227       3.99       225       4.04  

Retail leasing (c)

    19       .90       4       .19       3       .14       2       .09       4       .19  

Home equity and second mortgages

    1       .03       --        --        (1     (.03     (1     (.03     (1     (.03

Other

    66       .79       67       .79       61       .72       58       .71       63       .80  
 

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Total other retail

    86       .61       71       .49       63       .43       59       .42       66       .47  
 

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Total net charge-offs

    393       .53       385       .52       352       .48       350       .49       367       .52  

Provision for credit losses

    993         395         367         365         377    
 

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Balance, end of period

    $6,590         $4,491         $4,481         $4,466         $4,451    
 

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Components

                   

Allowance for loan losses

    $6,216         $4,020         $4,007         $4,019         $3,990    

Liability for unfunded credit commitments

    374         471         474         447         461    
 

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Total allowance for credit losses

    $6,590         $4,491         $4,481         $4,466         $4,451    
 

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Gross charge-offs

    $491         $479         $451         $464         $473    

Gross recoveries

    $98         $94         $99         $114         $106    

Allowance for credit losses as a percentage of

                   

Period-end loans

    2.07         1.52         1.52         1.53         1.55    

Nonperforming loans

    809         649         541         556         519    

Nonperforming assets

    697         542         458         469         443    

(a)  Annualized and calculated on average loan balances

 

(b)  Effective January 1, 2020, the Company adopted accounting guidance which changed impairment recognition of financial instruments to a model that is based on expected losses rather than incurred losses.

 

(c)   Includes end of term losses on residual lease values as of January 1, 2020

   

   

    

 

 

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   U.S. Bancorp First Quarter 2020 Results
      

 

During the first quarter of 2020, credit losses and nonperforming assets showed modest increases given the current economic conditions. The Company’s provision for credit losses for the first quarter of 2020 was $993 million, which was $598 million higher than the prior quarter and $616 million higher than the first quarter of 2019. The increases reflect the adoption of accounting guidance during the first quarter of 2020 which changed impairment recognition of financial instruments to a methodology based on expected losses rather than incurred losses. Utilizing this methodology, the Company recognized a $600 million increase in the allowance for credit losses during the quarter due to deteriorating economic conditions driven by the impact of COVID-19 on the U.S. and global economies. Expected loss estimates consider both the decrease in economic activity, and the mitigating effects of government stimulus and industrywide loan modification efforts designed to limit long term effects of the pandemic event. The increase in the allowance estimates the impact of slower economic growth and higher unemployment, partially offset by the benefits of government stimulus programs.

Total net charge-offs in the first quarter of 2020 were $393 million, compared with $385 million in the fourth quarter of 2019, and $367 million in the first quarter of 2019. The net charge-off ratio was 0.53 percent in the first quarter of 2020, compared with 0.52 percent in both the fourth quarter of 2019 and in the first quarter of 2019. Net charge-offs increased $8 million (2.1 percent) compared with the fourth quarter of 2019 mainly due to higher retail leasing and credit card net charge-offs, partially offset by lower total commercial and total commercial real estate net charge-offs. Net charge-offs increased $26 million (7.1 percent) compared with the first quarter of 2019 primarily due to higher retail leasing and credit card net charge-offs. The increase in retail leasing charge-offs reflects the inclusion of end of term losses on residual lease values as of January 1, 2020.

The allowance for credit losses was $6,590 million at March 31, 2020, compared with $4,491 million at December 31, 2019, and $4,451 million at March 31, 2019. The increase from the prior periods was primarily due to the impact of the change in accounting principle on January 1, 2020, which added $1.5 billion to the allowance for credit losses as well as the reserve build related to the potential economic impact of COVID-19. The ratio of the allowance for credit losses to period-end loans was 2.07 percent at March 31, 2020, compared with 1.52 percent at December 31, 2019, and 1.55 percent at March 31, 2019. The ratio of the allowance for credit losses to nonperforming loans was 809 percent at March 31, 2020, compared with 649 percent at December 31, 2019, and 519 percent at March 31, 2019.

Nonperforming assets were $946 million at March 31, 2020, compared with $829 million at December 31, 2019, and $1,005 million at March 31, 2019. The ratio of nonperforming assets to loans and other real estate was 0.30 percent at March 31, 2020, compared with 0.28 percent at December 31, 2019, and 0.35 percent at March 31, 2019. The year-over-year decrease in nonperforming assets was driven by improvements in nonperforming residential mortgages, total commercial real estate loans, other retail loans, and other real estate owned, partially offset by an increase in nonperforming total commercial loans. Accruing loans 90 days or more past due were $579 million at March 31, 2020, compared with $605 million at December 31, 2019, and $595 million at March 31, 2019. The Company expects credit losses and nonperforming assets to increase given current economic conditions.

 

 DELINQUENT LOAN RATIOS AS A PERCENT OF ENDING LOAN BALANCES                  
 (Percent)    Mar 31      Dec 31      Sep 30      Jun 30      Mar 31  
      2020      2019      2019      2019      2019  

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

 

     

Commercial

     .06        .08        .10        .26        .07   

Commercial real estate

     --        .01        .01        --           .01   

Residential mortgages

     .15        .17        .17        .17        .18   

Credit card

     1.29        1.23        1.16        1.14        1.29   

Other retail

     .17        .17        .18        .17        .19   

Total loans

     .18        .20        .20        .26        .21   

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

 

     

Commercial

     .31        .27        .40        .53        .34   

Commercial real estate

     .25        .21        .23        .24        .33   

Residential mortgages

     .49        .51        .53        .55        .62   

Credit card

     1.29        1.23        1.16        1.14        1.29   

Other retail

     .45        .46        .47        .47        .49   

Total loans

     .44        .44        .49        .53        .51   
                                              

 

 

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   U.S. Bancorp First Quarter 2020 Results
      

 

 ASSET QUALITY (a)                                        
 ($ in millions)                                   
     Mar 31      Dec 31      Sep 30      Jun 30      Mar 31   
      2020      2019      2019      2019      2019   

Nonperforming loans

                    

Commercial

     $276         $172         $290         $254         $247   

Lease financing

     33         32         29         25         24   

Total commercial

     309         204         319         279         271   

Commercial mortgages

     89         74         82         81         79   

Construction and development

     12                       11         48   

Total commercial real estate

     101         82         89         92         127   

Residential mortgages

     243         241         251         263         287   

Credit card

     --         --         --         --         --   

Other retail

     162         165         170         169         173   

Total nonperforming loans

     815         692         829         803         858   

Other real estate

     70         78         84         88         93   

Other nonperforming assets

     61         59         66         62         54   

Total nonperforming assets

     $946         $829         $979         $953         $1,005   

Accruing loans 90 days or more past due

  

 

 

 

$579 

 

 

  

 

 

 

$605 

 

 

  

 

 

 

$600 

 

 

  

 

 

 

$752 

 

 

  

 

 

 

$595 

 

 

Performing restructured loans, excluding GNMA

     $2,080         $2,129         $2,145         $2,142         $2,173   

Performing restructured GNMA

     $1,619         $1,622         $1,690         $1,598         $1,578   

Nonperforming assets to loans plus ORE (%)

     .30         .28         .33         .33         .35   

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

 

 

 

 

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   U.S. Bancorp First Quarter 2020 Results
      

 

 COMMON SHARES                                        
 (Millions)    1Q
2020
     4Q
2019
     3Q
2019
     2Q
2019
     1Q
2019
 

Beginning shares outstanding

     1,534         1,571         1,584         1,599         1,608   

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

                   1          --           

Shares repurchased

     (31)        (40)        (14)        (15)        (12)  

Ending shares outstanding

     1,506         1,534         1,571         1,584         1,599   
                                              

 

 CAPITAL POSITION                                    
 ($ in millions)    Mar 31
2020
    Dec 31
2019
    Sep 30
2019
    Jun 30
2019
    Mar 31
2019
 

Total U.S. Bancorp shareholders’ equity

   $ 51,532      $ 51,853      $ 53,517      $ 52,913      $ 52,057   

Basel III Standardized Approach (a)

                                        

Common equity tier 1 capital

   $ 36,224      $ 35,713      $ 37,653      $ 36,909      $ 35,732   

Tier 1 capital

     42,651        41,721        43,667        42,923        41,748   

Total risk-based capital

     51,277        49,744        51,684        50,370        49,194   

Common equity tier 1 capital ratio

     9.0    %      9.1    %      9.6    %      9.5    %      9.3    % 

Tier 1 capital ratio

     10.5        10.7        11.2        11.0        10.9   

Total risk-based capital ratio

     12.7        12.7        13.2        13.0        12.8   

Leverage ratio

     8.8        8.8        9.3        9.3        9.2   

Tangible common equity to tangible assets (b)

     6.7        7.5        8.0        7.9        7.9   

Tangible common equity to risk-weighted assets (b)

     8.9        9.3        9.7        9.7        9.5   

Common equity tier 1 capital to risk-weighted assets, reflecting the full implementation of the current expected credit losses methodology (b)

     8.6           

(a) Calculated in accordance with transitional regulatory capital requirements related to the current expected credit losses methodology implementation at March 31, 2020

  

(b) See Non-GAAP Financial Measures reconciliation on page 17

 

 

                               

Total U.S. Bancorp shareholders’ equity was $51.5 billion at March 31, 2020, compared with $51.9 billion at December 31, 2019, and $52.1 billion at March 31, 2019. The Company announced on March 15, 2020, that it will temporarily suspend its common stock repurchase program through the end of the second quarter of 2020. This action is being taken to support the efforts that the Federal Reserve is taking to moderate the impact of COVID-19 on the economy and global markets by maintaining strong capital levels and liquidity to support customers, employees and shareholders.

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 9.0 percent at March 31, 2020, compared with 9.1 percent at December 31, 2019, and 9.3 percent at March 31, 2019. The Company’s common equity tier 1 capital to risk-weighted assets ratio, reflecting the full implementation of the current expected credit losses methodology was 8.6 percent at March 31, 2020.

 

 

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   U.S. Bancorp First Quarter 2020 Results
      

 

 

  Investor Conference Call

 

On Wednesday, April 15, 2020, at 8 a.m. CDT, Chairman, President and Chief Executive Officer Andy Cecere and 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 4785971. For those unable to participate during the live call, a recording will be available at approximately 11:00 a.m. CDT on Wednesday, April 15 and will be accessible until Wednesday, April 22 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 4785971.

 

 

  About U.S. Bancorp

 

U.S. Bancorp, with more than 70,000 employees and $543 billion in assets as of March 31, 2020, is the parent company of U.S. Bank National Association, 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 one of the 2020 World’s Most Ethical Companies. Visit U.S. Bank at www.usbank.com or follow on social media to stay up to date with company news.

 

 

  Forward-looking Statements

 

“Safe Harbor” Statement under 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. The COVID-19 pandemic is adversely affecting us, our customers, counterparties, employees, and third-party service providers, and the ultimate extent of the impacts on our business, financial position, results of operations, liquidity, and prospects is uncertain. Continued 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. 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; further increases in unemployment 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 reputation 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, 2019, on file with the Securities and Exchange Commission, including the sections entitled “Corporate Risk Profile” and “Risk Factors” contained in Exhibit 13, and all subsequent filings with the Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934. In addition, factors other than these risks also could adversely affect U.S. Bancorp’s results, and the reader should not consider these risks to be a complete set of all potential risks or uncertainties. Forward-looking statements speak only as of the date hereof, and U.S. Bancorp undertakes no obligation to update them in light of new information or future events.

 

 

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   U.S. Bancorp First Quarter 2020 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

 
   

Common equity tier 1 capital, reflecting the full implementation of the current expected credit losses methodology

 
   

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 currently effective or defined in banking regulations. In addition, certain of these measures differ from currently effective capital ratios defined by banking regulations principally in that the currently effective ratios, which are subject to certain transitional provisions, temporarily exclude the impact of the first quarter of 2020 adoption of accounting guidance related to impairment of financial instruments based on the current expected credit losses methodology. 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)       Three Months Ended    
March 31,
 
 (Unaudited)   2020     2019  

Interest Income

   

Loans

    $3,311       $3,540  

Loans held for sale

    44       25  

Investment securities

    692       705  

Other interest income

    69       81  

Total interest income

    4,116       4,351  

Interest Expense

   

Deposits

    525       695  

Short-term borrowings

    71       93  

Long-term debt

    297       304  

Total interest expense

    893       1,092  

Net interest income

    3,223       3,259  

Provision for credit losses

    993       377  

Net interest income after provision for credit losses

    2,230       2,882  

Noninterest Income

   

Credit and debit card revenue

    304       304  

Corporate payment products revenue

    145       162  

Merchant processing services

    337       378  

Trust and investment management fees

    427       399  

Deposit service charges

    209       217  

Treasury management fees

    143       146  

Commercial products revenue

    246       219  

Mortgage banking revenue

    395       169  

Investment products fees

    49       45  

Securities gains (losses), net

    50       5  

Other

    220       247  

Total noninterest income

    2,525       2,291  

Noninterest Expense

   

Compensation

    1,620       1,559  

Employee benefits

    352       333  

Net occupancy and equipment

    276       277  

Professional services

    99       95  

Marketing and business development

    74       89  

Technology and communications

    289       257  

Postage, printing and supplies

    72       72  

Other intangibles

    42       40  

Other

    492       365  

Total noninterest expense

    3,316       3,087  

Income before income taxes

    1,439       2,086  

Applicable income taxes

    260       378  

Net income

    1,179       1,708  

Net (income) loss attributable to noncontrolling interests

    (8     (9

Net income attributable to U.S. Bancorp

    $1,171       $1,699  

Net income applicable to U.S. Bancorp common shareholders

    $1,088       $1,613  

Earnings per common share

    $.72       $1.01  

Diluted earnings per common share

    $.72       $1.00  

Dividends declared per common share

    $.42       $.37  

Average common shares outstanding

    1,518       1,602  

Average diluted common shares outstanding

    1,519       1,605  

 

 

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 CONSOLIDATED ENDING BALANCE SHEET

 

 (Dollars in Millions)    March 31,
2020
     December 31,
2019
     March 31,
2019
 
     (Unaudited)           (Unaudited)  

Assets

        

Cash and due from banks

     $46,805        $22,405        $18,115  

Investment securities

        

Held-to-maturity

     --         --         46,285  

Available-for-sale

     123,681        122,613        68,113  

Loans held for sale

     4,623        5,578        2,725  

Loans

        

Commercial

     126,317        103,863        103,069  

Commercial real estate

     40,980        39,746        39,421  

Residential mortgages

     71,175        70,586        66,243  

Credit card

     22,781        24,789        22,268  

Other retail

     57,052        57,118        56,698  

Total loans

     318,305        296,102        287,699  

Less allowance for loan losses

     (6,216      (4,020      (3,990

Net loans

     312,089        292,082        283,709  

Premises and equipment

     3,660        3,702        3,686  

Goodwill

     9,836        9,655        9,547  

Other intangible assets

     2,629        3,223        3,341  

Other assets

     39,586        36,168        40,254  

Total assets

     $542,909        $495,426        $475,775  

Liabilities and Shareholders’ Equity

        

Deposits

        

Noninterest-bearing

     $91,432        $75,590        $74,587  

Interest-bearing

     303,422        286,326        273,500  

Total deposits

     394,854        361,916        348,087  

Short-term borrowings

     26,344        23,723        15,396  

Long-term debt

     52,298        40,167        40,680  

Other liabilities

     17,251        17,137        18,926  

Total liabilities

     490,747        442,943        423,089  

Shareholders’ equity

        

Preferred stock

     5,984        5,984        5,984  

Common stock

     21        21        21  

Capital surplus

     8,452        8,475        8,432  

Retained earnings

     62,544        63,186        60,092  

Less treasury stock

     (25,972      (24,440      (20,699

Accumulated other comprehensive income (loss)

     503        (1,373      (1,773

Total U.S. Bancorp shareholders’ equity

     51,532        51,853        52,057  

Noncontrolling interests

     630        630        629  

Total equity

     52,162        52,483        52,686  

Total liabilities and equity

     $542,909        $495,426        $475,775  

 

 

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 NON-GAAP FINANCIAL MEASURES

 

 (Dollars in Millions, Unaudited)   

March 31,

2020

   

December 31,

2019

   

September 30,

2019

   

June 30,

2019

   

March 31,

2019

 

Total equity

     $52,162       $52,483       $54,147       $53,540       $52,686  

Preferred stock

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

Noncontrolling interests

     (630     (630     (630     (627     (629

Goodwill (net of deferred tax liability) (1)

     (8,958     (8,788     (8,781     (8,708     (8,716

Intangible assets, other than mortgage servicing rights

     (742     (677     (687     (703     (685

Tangible common equity (a)

     35,848       36,404       38,065       37,518       36,672  

Common equity tier 1 capital, determined in accordance with transitional regulatory capital requirements related to the current expected credit losses methodology implementation

     36,224          

Adjustments (2)

     (1,377        

Common equity tier 1 capital, reflecting the full implementation of the current expected credit losses methodology (b)

     34,847          

Total assets

     542,909       495,426       487,671       481,719       475,775  

Goodwill (net of deferred tax liability) (1)

     (8,958     (8,788     (8,781     (8,708     (8,716

Intangible assets, other than mortgage servicing rights

     (742     (677     (687     (703     (685

Tangible assets (c)

     533,209       485,961       478,203       472,308       466,374  

Risk-weighted assets, determined in accordance with prescribed regulatory capital requirements effective for the Company (d)

     404,627   *      391,269       390,622       388,709       384,394  

Adjustments (3)

     (958 )*         

Risk-weighted assets, reflecting the full implementation of the current expected credit losses methodology (e)

     403,669   *         

Ratios*

          

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

     6.7   %      7.5   %      8.0   %      7.9   %      7.9   % 

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

     8.9       9.3       9.7       9.7       9.5  

Common equity tier 1 capital to risk-weighted assets, reflecting the full implementation of the current expected credit losses methodology (b)/(e)

     8.6          
          
     Three Months Ended  
     March 31,
2020
    December 31,
2019
    September 30,
2019
    June 30,
2019
    March 31,
2019
 

Net income applicable to U.S. Bancorp common shareholders

     $1,088       $1,408       $1,821       $1,741       $1,613  

Intangibles amortization (net-of-tax)

     33       35       33       33       32  

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

     1,121       1,443       1,854       1,774       1,645  

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

     4,509       5,725       7,356       7,115       6,671  

Average total equity

     51,776       53,777       53,921       53,066       52,218  

Average preferred stock

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

Average noncontrolling interests

     (630     (630     (629     (628     (629

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

     (8,825     (8,796     (8,725     (8,715     (8,732

Average intangible assets, other than mortgage servicing rights

     (688     (683     (689     (681     (671

Average tangible common equity (g)

     35,649       37,684       37,894       37,058       36,202  

Return on tangible common equity (f)/(g)

     12.6   %      15.2   %      19.4   %      19.2   %      18.4   % 

Net interest income

     $3,223       $3,207       $3,281       $3,305       $3,259  

Taxable-equivalent adjustment (4)

     24       24       25       27       27  

Net interest income, on a taxable-equivalent basis

     3,247       3,231       3,306       3,332       3,286  

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

     3,247       3,231       3,306       3,332       3,286  

Noninterest income

     2,525       2,436       2,614       2,490       2,291  

Less: Securities gains (losses), net

     50       26       25       17       5  

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

     5,722       5,641       5,895       5,805       5,572  

Noninterest expense (i)

     3,316       3,401       3,144       3,153       3,087  

Less: Intangible amortization

     42       44       42       42       40  

Noninterest expense, excluding intangible amortization (j)

     3,274       3,357       3,102       3,111       3,047  

Efficiency ratio (i)/(h)

     58.0   %      60.3   %      53.3   %      54.3   %      55.4   % 

Tangible efficiency ratio (j)/(h)

     57.2       59.5       52.6       53.6       54.7  

 

  *

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)

Includes the estimated increase in the allowance for credit losses related to the adoption of the current expected credit losses methodology net of deferred taxes.

(3)

Includes the impact of the estimated increase in the allowance for credit losses related to the adoption of the current expected credit losses methodology.

(4)

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

 

 

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LINE OF BUSINESS FINANCIAL PERFORMANCE (a)  
($ in millions)    Net Income Attributable to
U.S. Bancorp
     Percent Change     1Q 2020        
Business Line    1Q
2020
    4Q
2019
    1Q  
2019  
     1Q20 vs
4Q19
    1Q20 vs
1Q19
    Earnings
Composition
        

Corporate and Commercial Banking

     $163       $396       $406          (58.8     (59.9     14       %  

Consumer and Business Banking

     620       551       581          12.5       6.7       53      

Wealth Management and Investment Services

     208       209       218          (.5     (4.6     18      

Payment Services

     313       389       322          (19.5     (2.8     27      

Treasury and Corporate Support

     (133     (59     172          nm       nm       (12    
     

Consolidated Company

     $ 1,171     $ 1,486     $ 1,699          (21.2     (31.1             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. Business line results are derived from the Company’s business unit profitability reporting systems by specifically attributing managed balance sheet assets, deposits and other liabilities and their related income or expense. 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 2020, certain organization and methodology changes were made and, accordingly, prior period results were restated and presented on a comparable basis.

 

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

1Q 

2020 

   

4Q

2019

   

1Q

2019

    1Q20 vs
4Q19
    1Q20 vs
1Q19
 

Condensed Income Statement

           

Net interest income (taxable-equivalent basis)

    $797        $782       $778       1.9       2.4  

Noninterest income

    274        200       208       37.0       31.7  

Securities gains (losses), net

    --         --       --         --         --    

Total net revenue

    1,071        982       986       9.1       8.6  

Noninterest expense

    429        410       420       4.6       2.1  

Other intangibles

    --        1       1       nm       nm  

Total noninterest expense

    429        411       421       4.4       1.9  

Income before provision and taxes

    642        571       565       12.4       13.6  

Provision for credit losses

    425        43       23       nm       nm  

Income before income taxes

    217        528       542       (58.9     (60.0

Income taxes and taxable-equivalent adjustment

    54        132       136       (59.1     (60.3

Net income

    163        396       406       (58.8     (59.9

Net (income) loss attributable to noncontrolling interests

    --        --       --         --         --    

Net income attributable to U.S. Bancorp

    $163        $396       $406       (58.8     (59.9
   

Average Balance Sheet Data

           

Loans

    $103,397        $99,822       $98,702       3.6       4.8  

Other earning assets

    4,555        3,926       3,168       16.0       43.8  

Goodwill

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

Other intangible assets

          7       9       --       (22.2

Assets

    115,404        110,400       107,338       4.5       7.5  
   

Noninterest-bearing deposits

    29,329        29,199       30,211       .4       (2.9

Interest-bearing deposits

    80,704        77,275       71,223       4.4       13.3  

Total deposits

    110,033        106,474       101,434       3.3       8.5  
   

Total U.S. Bancorp shareholders’ equity

    15,815        15,675       15,346       .9       3.1  
   

(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 $163 million of the Company’s net income in the first quarter of 2020, compared with $406 million in the first quarter of 2019. Total net revenue increased $85 million (8.6 percent) due to an increase of $19 million (2.4 percent) in net interest income and an increase of $66 million (31.7 percent) in total noninterest income. Net interest income increased primarily due to loan and interest-bearing deposit growth, partially offset by lower noninterest bearing deposit balances compared with the prior year, loan mix, and lower spreads on loans, reflecting changing interest rates and a competitive marketplace. Total noninterest income increased year-over-year primarily due to higher capital markets and trading revenue as companies access the fixed income capital markets for bond issuances. Total noninterest expense was $8 million (1.9 percent) higher compared with a year ago primarily driven by higher variable compensation related to fixed income capital markets business production and higher salary expense due to merit and one additional day in the quarter, partially offset by lower loan costs. The provision for credit losses increased $402 million primarily due to an unfavorable change in the reserve allocation based on economic risks related to COVID-19 in the portfolio, partially offset by lower net charge-offs.

 

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

1Q 

2020 

    

4Q

2019

    

1Q 

2019 

     1Q20 vs
4Q19
     1Q20 vs
1Q19
 

Condensed Income Statement

                

Net interest income (taxable-equivalent basis)

     $1,541         $1,573        $1,581         (2.0)        (2.5)  

Noninterest income

     757         617        535         22.7        41.5   

Securities gains (losses), net

     --         --         --         --         --   
    

 

 

         

Total net revenue

     2,298         2,190        2,116         4.9         8.6   

Noninterest expense

     1,344         1,357        1,266         (1.0)        6.2   

Other intangibles

            5               (20.0)        (20.0)  
    

 

 

         

Total noninterest expense

     1,348         1,362        1,271         (1.0)        6.1   
    

 

 

         

Income before provision and taxes

     950         828        845         14.7         12.4   

Provision for credit losses

     123         93        70         32.3         75.7   
    

 

 

         

Income before income taxes

     827         735        775         12.5         6.7   

Income taxes and taxable-equivalent adjustment

     207         184        194         12.5         6.7   
    

 

 

         

Net income

     620         551        581         12.5         6.7   

Net (income) loss attributable to noncontrolling interests

     --         --         --         --         --   
    

 

 

         

Net income attributable to U.S. Bancorp

     $620         $551        $581         12.5         6.7   
    

 

 

         
   

Average Balance Sheet Data

                

Loans

     $146,704         $146,835        $141,795         (.1)        3.5   

Other earning assets

     4,967         5,480        2,389         (9.4)        nm   

Goodwill

     3,475         3,475        3,475         --         --   

Other intangible assets

     2,405         2,435        2,882         (1.2)        (16.6)  

Assets

     161,750         162,440        154,720         (.4)        4.5   
   

Noninterest-bearing deposits

     27,986         29,185        26,574         (4.1)        5.3   

Interest-bearing deposits

     133,802         131,236        127,303         2.0         5.1   
    

 

 

         

Total deposits

     161,788         160,421        153,877         .9         5.1   
   

Total U.S. Bancorp shareholders’ equity

     14,929         15,165        14,998         (1.6)        (.5)  
   

(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 $620 million of the Company’s net income in the first quarter of 2020, compared with $581 million in the first quarter of 2019. Total net revenue increased $182 million (8.6 percent) reflecting a decrease in net interest income of $40 million (2.5 percent) and an increase of $222 million (41.5 percent) in total noninterest income. Net interest income decreased primarily due to the impact of declining interest rates on deposit spreads, partially offset by growth in noninterest-bearing and interest-bearing deposit balances as well as one additional day in the first quarter of 2020. Total noninterest income increased primarily due to higher mortgage banking revenue driven by mortgage production and stronger gain on sale margins, partially offset by changes in the valuation of mortgage servicing rights, net of hedging activities. Total noninterest expense in the first quarter of 2020 increased $77 million (6.1 percent) primarily due to higher net shared services expense, reflecting the impact of investment in infrastructure supporting business growth and costs to manage the business, higher variable compensation related to mortgage banking business production, and higher loan costs. The provision for credit losses increased $53 million (75.7 percent) primarily due to an unfavorable change in the reserve allocation and higher net charge-offs in line with portfolio growth.

 

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WEALTH MANAGEMENT AND INVESTMENT SERVICES (a)

 

($ in millions)                       Percent Change  
      1Q
2020
     4Q
2019
    1Q
2019
    1Q20 vs
4Q19
    1Q20 vs
1Q19
 

Condensed Income Statement

             

Net interest income (taxable-equivalent basis)

     $283        $276       $293       2.5       (3.4

Noninterest income

     464        472       430       (1.7     7.9  

Securities gains (losses), net

     --        --       --       --       --  

Total net revenue

     747        748       723       (.1     3.3  

Noninterest expense

     444        468       432       (5.1     2.8  

Other intangibles

     3        4       3       (25.0     --  

Total noninterest expense

     447        472       435       (5.3     2.8  

Income before provision and taxes

     300        276       288       8.7       4.2  

Provision for credit losses

     23        (3     (3     nm       nm  

Income before income taxes

     277        279       291       (.7     (4.8

Income taxes and taxable-equivalent adjustment

     69        70       73       (1.4     (5.5

Net income

     208        209       218       (.5     (4.6

Net (income) loss attributable to noncontrolling interests

     --        --       --       --       --  

Net income attributable to U.S. Bancorp

     $208        $209       $218       (.5     (4.6
   

Average Balance Sheet Data

             

Loans

     $10,594        $10,335       $9,818       2.5       7.9  

Other earning assets

     281        277       245       1.4       14.7  

Goodwill

     1,617        1,617       1,617       --       --  

Other intangible assets

     44        46       54       (4.3     (18.5

Assets

     13,936        13,409       13,183       3.9       5.7  
   

Noninterest-bearing deposits

     13,184        12,354       13,275       6.7       (.7

Interest-bearing deposits

     68,702        66,553       54,135       3.2       26.9  

Total deposits

     81,886        78,907       67,410       3.8       21.5  
   

Total U.S. Bancorp shareholders’ equity

     2,465        2,433       2,442       1.3       .9  
   

(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 $208 million of the Company’s net income in the first quarter of 2020, compared with $218 million in the first quarter of 2019. Total net revenue increased $24 million (3.3 percent) year-over-year reflecting a decrease in net interest income of $10 million (3.4 percent) and an increase of $34 million (7.9 percent) in noninterest income. Net interest income decreased year-over-year primarily due to funding mix, partially offset by the impact of higher interest-bearing deposit balances. Total noninterest income increased primarily due to the impact of favorable market conditions and business growth on trust and investment management fees and investment product fees. Total noninterest expense increased $12 million (2.8 percent) compared with the first quarter of 2019 reflecting increased net shared services expense due to technology development and higher compensation expense due to the impact of merit increases, increased staffing, an increase in medical costs, and one additional work day in first quarter of 2020, partially offset by lower corporate plan incentives and a favorable litigation settlement. The provision for credit losses increased $26 million reflecting an unfavorable change in the reserve allocation.

 

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PAYMENT SERVICES (a)                                       
($ in millions)           Percent Change  
      1Q
2020
     4Q
2019
    

1Q

2019

     1Q20 vs
4Q19
    1Q20 vs
1Q19
 

Condensed Income Statement

               

Net interest income (taxable-equivalent basis)

   $ 652      $ 639      $ 617          2.0       5.7  

Noninterest income

     794        949        851          (16.3     (6.7

Securities gains (losses), net

     --        --        --          --       --  
    

 

 

        

Total net revenue

     1,446        1,588        1,468          (8.9     (1.5

Noninterest expense

     731        767        722          (4.7     1.2  

Other intangibles

     35        34        31          2.9       12.9  
    

 

 

        

Total noninterest expense

     766        801        753          (4.4     1.7  
    

 

 

        

Income before provision and taxes

     680        787        715          (13.6     (4.9

Provision for credit losses

     262        268        286          (2.2     (8.4
    

 

 

        

Income before income taxes

     418        519        429          (19.5     (2.6

Income taxes and taxable-equivalent adjustment

     105        130        107          (19.2     (1.9
    

 

 

        

Net income

     313        389        322          (19.5     (2.8

Net (income) loss attributable to noncontrolling interests

     --        --        --          --       --  
    

 

 

        

Net income attributable to U.S. Bancorp

   $ 313      $ 389      $ 322          (19.5     (2.8
    

 

 

        
   

Average Balance Sheet Data

               

Loans

   $ 33,688      $ 34,500      $ 32,414          (2.4     3.9  

Other earning assets

     399        276        448          44.6       (10.9

Goodwill

     2,811        2,810        2,814          --       (.1

Other intangible assets

     535        546        513          (2.0     4.3  

Assets

     38,562        40,562        38,615          (4.9     (.1
   

Noninterest-bearing deposits

     1,402        1,312        1,157          6.9       21.2  

Interest-bearing deposits

     114        115        111          (.9     2.7  
    

 

 

        

Total deposits

     1,516        1,427        1,268          6.2       19.6  

 

Total U.S. Bancorp shareholders’ equity

     6,081        6,166        5,974          (1.4     1.8  

(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 $313 million of the Company’s net income in the first quarter of 2020, compared with $322 million in the first quarter of 2019. Total net revenue decreased $22 million (1.5 percent) due to an increase of $35 million (5.7 percent) in net interest income and a decrease of $57 million (6.7 percent) in total noninterest income. Net interest income increased primarily due to loan growth and higher loan fees as well as one additional day in the quarter in 2020, partially offset by compression on loan rates. Total noninterest income decreased year-over-year mainly due to the impacts of COVID-19 on spend volume in all payments businesses including merchant processing services and corporate payment products. Total noninterest expense increased $13 million (1.7 percent) over the first quarter of 2019 reflecting higher merchant provisions due in part to COVID-related chargebacks and higher software expense due to capital expenditures and acquisitions. These increases were partly offset by lower compensation expense, reflecting lower variable compensation, partly offset by merit increases, increased staffing, and one additional work day in first quarter of 2020. The provision for credit losses decreased $24 million (8.4 percent) reflecting a favorable change in the reserve allocation, partly offset by higher net charge-offs in line with loan growth.

 

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

1Q

2020

   

4Q

2019

    1Q  
2019  
     1Q20 vs 
4Q19  
     1Q20 vs
1Q19
 

Condensed Income Statement

              

Net interest income (taxable-equivalent basis)

   $ (26   $ (39     $17          33.3         nm   

Noninterest income

     186       172       262          8.1         (29.0)  

Securities gains (losses), net

     50       26       5          92.3         nm   
    

 

 

         

Total net revenue

     210       159       284          32.1         (26.1)  

Noninterest expense

     326       355       207          (8.2)        57.5   

Other intangibles

     --       --       --          --          --    
    

 

 

         

Total noninterest expense

     326       355       207          (8.2)        57.5   
    

 

 

         

Income before provision and taxes

     (116     (196     77          40.8         nm   

Provision for credit losses

     160       (6     1          nm         nm   
    

 

 

         

Income before income taxes

     (276     (190     76          (45.3)        nm   

Income taxes and taxable-equivalent adjustment

     (151     (138     (105)         (9.4)        (43.8)  
    

 

 

         

Net income

     (125     (52     181          nm         nm   

Net (income) loss attributable to noncontrolling interests

     (8     (7     (9)         (14.3)        11.1   
    

 

 

         

Net income attributable to U.S. Bancorp

   $ (133)     $ (59     $172          nm         nm   
    

 

 

         
   

Average Balance Sheet Data

              

Loans

   $ 3,274     $ 3,373       $3,381          (2.9)        (3.2)  

Other earning assets

     139,863       134,946       127,134          3.6         10.0   

Goodwill

     144       99       --          45.5         nm   

Other intangible assets

     28       6       --          nm         nm   

Assets

     165,155       159,042       149,543          3.8         10.4   
   

Noninterest-bearing deposits

     2,241       2,263       2,216          (1.0)        1.1   

Interest-bearing deposits

     5,340       6,960       9,161          (23.3)        (41.7)  
    

 

 

         

Total deposits

     7,581       9,223       11,377          (17.8)        (33.4)  
   

Total U.S. Bancorp shareholders’ equity

     11,856       13,708       12,829          (13.5)        (7.6)  
   

(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 a net loss of $133 million in the first quarter of 2020, compared with net income of $172 million in the first quarter of 2019. Total net revenue decreased $74 million (26.1 percent) year-over-year driven by decreases in net interest income of $43 million and $31 million (11.6 percent) in total noninterest income. Net interest income decreased primarily due to funding mix. Total noninterest income decreased primarily due to lower equity investment income and credit valuation losses, partially offset by gains on sale of certain businesses in the first quarter of 2020 and securities gains. Total noninterest expense increased $119 million (57.5 percent) year-over-year primarily due to COVID-related expenses, higher compensation expense, reflecting the impact of increased staffing, merit increases, and stock-based compensation, 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 $159 million reflecting an unfavorable change in the reserve allocation due to credit risk in the current environment. 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.

 

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        7

EX-99.2

Slide 1

U.S. Bancorp 1Q20 Earnings Conference Call April 15, 2020 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: This 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. The COVID-19 pandemic is adversely affecting U.S. Bancorp, its customers, counterparties, employees, and third-party service providers, and the ultimate extent of the impacts on its business, financial position, results of operations, liquidity, and prospects is uncertain. Continued 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. 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; further increases in unemployment 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 reputation 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, 2019, 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

1Q20 Highlights * Taxable-equivalent basis; see slide 27 for calculation ** Common equity tier 1 capital to risk-weighted assets, reflecting the full implementation of the current expected credit losses methodology was 8.6% as of 3/31/20.


Slide 4

Performance Ratios Efficiency Ratio** & Net Interest Margin*** * Excluding notable items; see slides 27 and 28 for calculations ** Non-GAAP; see slides 27 and 28 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

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


Slide 6

Average Loans +0.9% linked quarter +4.0% year-over-year On a linked quarter basis, average total loan growth was driven by growth in total commercial loans and residential mortgages. On a year-over-year basis, the increase was primarily due to higher residential mortgages, along with growth in total commercial loans. Also, credit card loans and total other retail loans increased. $ in billions


Slide 7

Average Deposits $ in billions +1.8% linked quarter +8.2% year-over-year Interest-bearing Deposits Average noninterest-bearing (NIB) deposits decreased on a linked quarter basis. On a year-over-year basis, average NIB deposits increased. Average total savings deposits (which include money market, interest checking and savings accounts) grew on both a linked quarter and year-over-year basis, primarily due to increases in Wealth Management and Investment Services, Corporate and Commercial Banking, and Consumer and Business Banking. Average time deposits, which are managed based on funding needs, relative pricing and liquidity characteristics, decreased on both a linked quarter and year-over-year basis.


Slide 8

Credit Quality $ in millions NCO Ratio +1 bps QoQ +1 bps YoY NPAs +14.1% QoQ -5.9% YoY


Slide 9

1Q201Q20 Restaurant0.5% 0.5% Airline 0.6% 0.6% Lodging 1.3% 1.5% Energy 2.4% 1.2% Automobiles 3.0% 2.5% Retail 4.3% 4.5% Credit Risk Management – Consistent Underwriting Exposures by Impacted Industries* Key Points Debt rating agencies: Moody’s and S&P * Excludes operating leases and unfunded discretionary Prime-based lender for retail portfolios Investment grade equivalent in commercial portfolios with limited leveraged lending Commercial Real Estate is relationship-based with consistent underwriting Portfolio 1Q20 Wtd Avg FICO/Bond rating equivalent 1Q20 Avg LTV Residential mortgage 766 69% Home equity 784 68% Auto loan 784 100% Auto lease 781 92% Credit card 775 N/A Commercial Baa3/BBB- N/A Commercial real estate Ba1/BB+ 60% The impact of COVID-19 has disrupted several industries globally During periods of stress, our disciplined credit culture remains strong, driven primarily by our consistent underwriting standards Commitments Total Loans


Slide 10

Earnings Summary


Slide 11

Net Interest Income Linked Quarter Net interest income increased, primarily driven by loan growth, the impact of reducing interest rates on deposits and funding mix, partially offset by lower yields on earning assets and one less day in the first quarter of 2020. The net interest margin decreased, primarily due to higher cash balances offsetting beneficial rate mix. Year-over-Year Net interest income decreased, principally driven by the impact of declining interest rates on the yield curve, partially offset by deposit and funding mix, loan growth, and one additional day in the first quarter of 2020. The net interest margin decreased, primarily due to the impact of declining interest rates on the yield curve, partially offset by deposit and funding mix. $ in millions Net interest income on a taxable-equivalent basis; see slide 27 for calculation +0.5% linked quarter -1.2% year-over-year


Slide 12

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 * Non-GAAP and excluding notable items; see slides 27 and 30 for calculations +3.7% linked quarter -2.0% excluding notable items* +10.2% year-over-year Linked Quarter Payment services revenue declined, driven by lower credit and debit card revenue, lower merchant processing services revenue due to seasonally lower sales volume and the worldwide impact of the COVID-19 virus on spend, and lower corporate payment products revenue. Mortgage banking revenue increased, due to higher production volume and related gain on sale margin, as well as a favorable change in the valuation of mortgage servicing rights, net of hedging activities. Commercial products revenue increased, due to higher corporate bond fees, partially offset by lower trading revenue and credit valuation losses. Year-over-Year Payment services revenue decreased, due to lower corporate payment products revenue and lower merchant processing services revenue driven by lower sales volume, particularly in March, due in part to the worldwide impact of the COVID-19 virus on spend. Trust and investment management fee revenue increase driven by business growth and favorable market conditions. Mortgage banking revenue growth reflects higher mortgage production and gain on sale margins, partially offset by changes in the valuation of mortgage servicing rights, net of hedging activities. Other noninterest income decreased, due to lower equity investment income and tax-advantaged investment syndication revenue, partially offset by gains on sale of certain businesses in the first quarter of 2020.


Slide 13

Payment Services Fee Revenue Select Revenue Exposure, FY2019 Contribution to U.S. Bank’s Net Revenues Merchant Acquiring Revenue Corporate Payment Systems Revenue Retail Payment Solutions Revenue Commercial revenue breakdown: Travel and Entertainment represents 21% of total CPS revenue


Slide 14

Noninterest Expense $ in millions PPS = postage, printing and supplies * Non-GAAP and excluding notable items; see slides 27 and 30 for calculations -2.5% linked quarter +3.6% excluding notable items* +7.4% year-over-year Linked Quarter Employee benefits expense increased, driven by seasonally higher payroll taxes. Compensation expense increased, primarily due to the first quarter impacts of merit and stock-based compensation. Other noninterest expense, excluding notable items, increased due to COVID-19-related expenses including merchant and airline exposure, partially offset by lower costs related to tax-advantaged projects. Year-over-Year Compensation expense increased, due to merit and variable compensation related to business production in mortgage banking and fixed income capital markets, along with one additional work day in the first quarter of 2020. Employee benefits expense increased, primarily due to higher pension costs and payroll taxes related to compensation increases. Technology and communications expense increased, primarily due to capital expenditures supporting business growth. Other noninterest expense increased, which reflected $100 million of expenses related to COVID-19 including increased liabilities driven by future delivery exposure related to merchant and airline processing, partially offset by lower costs related to tax-advantaged projects in the first quarter of 2020.


Slide 15

Capital Position * Non-GAAP; see slide 29 for calculations


Slide 16

Appendix


Slide 17

Average Loans vs. 1Q19 Average total loans increased by $11.5 billion, or 4.0% Average residential mortgage loans increased by $5.3 billion, or 8.1% Average commercial loans increased by $4.0 billion, or 3.9% Average credit card loans increased by $1.2 billion, or 5.5% Average retail loans increased by $0.4 billion, or 0.6% Average commercial real estate loans increased by $0.6 billion, or 1.5% vs. 4Q19 Average total loans increased by $2.8 billion, or 0.9% Average residential mortgage loans increased by $1.0 billion, or 1.4% Average commercial loans increased by $2.1 billion, or 2.0% Key Points Year-over-Year Growth 2.4% 3.8% 4.0% 3.9% 4.0% Commercial CRE Res Mtg Retail Credit Card Average Loans ($bn)


Slide 18

Average Deposits Key Points Average Deposits ($bn) vs. 1Q19 Average total deposits increased by $27.4 billion, or 8.2% Average low-cost deposits (NIB, interest checking, savings and money market) increased by $31.2 billion, or 10.8% vs. 4Q19 Average total deposits increased by $6.4 billion, or 1.8% Average low-cost deposits (NIB, interest checking, savings and money market) increased by $8.1 billion, or 2.6% Year-over-Year Growth 0.2% 3.1% 6.0% 6.6% 8.2% Time Money Market Checking and Savings Noninterest-bearing


Slide 19

Credit Quality – Commercial Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points $mm1Q194Q191Q20 Average Loans$101,960$103,911 $105,987 30-89 Delinquencies0.58% 0.30%0.28% 90+ Delinquencies0.07%0.08%0.06% Nonperforming Loans0.26%0.20%0.24% Linked Quarter Growth 1.4% 1.2% 0.4% 0.2% 2.0% Linked quarter loan growth of 2.0% was driven by revolving line utilization Net charge-offs remained relatively stable on a linked quarter basis


Slide 20

Investor $20,710 Owner Occupied $8,813 A&D Const $256 Multi-family $3,641 Retail $277 Residential Construction $2,417 Office $828 Other $2,489 Resi Land $647 $mm1Q194Q191Q20 Average Loans$39,470 $39,722 $40,078 30-89 Delinquencies0.11% 0.09%0.20% 90+ Delinquencies0.01%0.01%0.00% Nonperforming Loans0.32%0.21%0.25% Performing TDRs*$139$160$166 Credit Quality – Commercial Real Estate Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points * TDR = troubled debt restructuring Linked Quarter Growth (1.7%)(0.3%) (1.0%) 1.9% 0.9% Average loans increased by 0.9% on a linked quarter basis Net charge-offs and nonperforming loans remain low


Slide 21

Credit Quality – Residential Mortgage Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points $mm1Q194Q191Q20 Average Loans$65,582$69,909 $70,892 30-89 Delinquencies0.26%0.22%0.23% 90+ Delinquencies0.18%0.17%0.15% Nonperforming Loans0.43%0.34%0.34% * Excludes GNMA loans, whose repayments are insured by the FHA or guaranteed by the Department of VA ($1,619 million in 1Q20) Linked Quarter Growth 1.7% 1.9% 2.7% 1.9% 1.4% Originations continued to be high credit quality (weighted average FICO of 766, weighted average LTV of 69%) More than 94% 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 22

Credit Quality – Credit Card Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points $mm1Q194Q191Q20 Average Loans$22,597$24,107 $23,836 30-89 Delinquencies1.31%1.30%1.29% 90+ Delinquencies1.29%1.23%1.29% Nonperforming Loans0.00%0.00%0.00% Linked Quarter Growth 0.9% 1.0% 3.7% 1.8% (1.1%) Year-over-year average loan growth of 5.5% was driven by origination of new accounts and portfolio acquisitions Weighted average FICO on new originations remained strong at 775 Year-over-year delinquency and charge-offs were stable


Slide 23

Credit Quality – Home Equity Average Loans ($mm) and Net Charge-offs Ratio Key Points Linked Quarter Growth (0.4%) (1.0%) (1.5%) (2.4%) (2.5%) Key Statistics Key Statistics $mm1Q194Q191Q20 Average Loans$15,993$15,221$14,838 30-89 Delinquencies0.54%0.51%0.53% 90+ Delinquencies0.37%0.32%0.30% Nonperforming Loans0.77%0.77%0.75% Loans: 11% Wtd Avg LTV*: 76% Wtd Avg FICO*: 752 Lines: 89% Wtd Avg LTV*: 71% Wtd Avg FICO*: 755 *LTV and FICO at origination High-quality originations (weighted average FICO on commitments of 784, weighted average CLTV of 68%) were originated primarily through the retail branch network to existing bank customers on their primary residences Net charge-offs remained relatively stable, near zero, on a linked quarter basis


Slide 24

Credit Quality – Retail Leasing Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points $mm1Q194Q191Q20 Average Loans$8,586$8,486$8,474 30-89 Delinquencies0.42%0.53%0.52% 90+ Delinquencies0.03%0.05%0.04% Nonperforming Loans0.12%0.15%0.18% * Manheim Used Vehicle Value Index source: www.manheimconsulting.com, January 1995 = 100, quarter value = average monthly ending values Linked Quarter Growth 1.1% (0.5%) (1.2%) 0.5% (0.1%) Continued high-quality originations during 1Q20 (weighted average FICO of 781) Delinquencies remained at low levels Includes end of term losses on residual values as of 1/1/2020. Losses included in net charge-offs for 1Q20 were $15 million and losses included in noninterest income for 4Q19 were $18 million


Slide 25

Credit Quality – Other Retail Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points $mm1Q194Q191Q20 Average Loans$31,922$33,509$33,552 30-89 Delinquencies0.78%0.81%0.79% 90+ Delinquencies0.14%0.13%0.14% Nonperforming Loans0.13%0.11%0.10% Linked Quarter Growth 1.1% 2.1% 2.7% 0.2 % 0.1% Loan growth continues to be driven by auto and installment loans Net charge-offs, delinquencies and nonperforming loans were all relatively stable


Slide 26

Credit Quality – Auto Loans Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points $mm1Q194Q191Q20 Average Loans$18,833$19,434$19,276 30-89 Delinquencies0.95%1.06%1.08% 90+ Delinquencies0.08%0.10%0.12% Nonperforming Loans0.15%0.15%0.15% Direct: 4% Wtd Avg FICO: 751 NCO: 0.49% Indirect: 96% Wtd Avg FICO: 778 NCO: 0.53% Auto loans are included in Other Retail category Linked Quarter Growth 1.8% 1.0% 2.1% 0.0% (0.8%) Loan growth continues to be driven by high quality originations in the indirect channel (weighted average FICO of 784) Delinquencies and nonperforming loans were relatively stable Net charge-off rate increased slightly quarter-over-quarter primarily due to the decision to pause repossession activity due to COVID-19


Slide 27

Non-GAAP Financial Measures (2), (3), (4), (5) – see slide 30 for corresponding notes


Slide 28

Non-GAAP Financial Measures (1), (5) – see slide 30 for corresponding notes


Slide 29

Non-GAAP Financial Measures * Preliminary data. Subject to change prior to filings with applicable regulatory agencies. (1), (6), (7) – see slide 30 for corresponding notes


Slide 30

Notes Includes goodwill related to certain investments in unconsolidated financial institutions per prescribed regulatory requirements. Based on a federal income tax rate of 21 percent for those assets and liabilities whose income or expense is not included for federal income tax purposes. Notable items related to noninterest income for the three months ended December 31, 2019 include: $140 million derivative liability charge related to previously sold Visa shares. Notable items related to noninterest expense for the three months ended December 31, 2019 include: $200 million of severance charges and asset impairments. Notable items for the three months ended December 31, 2019 include: $112 million (after-tax) derivative liability charge related to previously sold Visa shares and $160 million (after-tax) of severance charges and asset impairments. Includes the estimated increase in the allowance for credit losses related to the adoption of the current expected credit losses methodology net of deferred taxes. Includes the impact of the estimated increase in the allowance for credit losses related to the adoption of the current expected credit losses methodology.


Slide 31

U.S. Bancorp 1Q20 Earnings Conference Call April 15, 2020

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