01—Abstract
Summary
Summary of the 10-K filed February 20, 2020. Cited figures are marked; the original filing is the authoritative source.
U.S. Bancorp (USB) closed 2019 with net income attributable to the company of $6.9 billiona, or $4.16 per diluted share, down 2.6% from $7.1 billion ($4.14) in 2018.
Results reflected higher noninterest expense (up 2.6% to $12.8 billionb, including about $200 million of severance and impairment charges) partially offset by a 1.5% increase in total net revenue to $23.0 billion. Return on average assets was 1.45% and return on average common equity was 14.1%, with an efficiency ratio of 55.8%. Management highlighted record net revenue and diluted EPS, with growth in mortgage banking, payment services, trust fees and commercial products offset by lower deposit service charges following the 2018 sale of the ATM third-party processing business.
Balance sheet growth was steady. Period-end loans rose 3.2% to $296.1 billionc, deposits rose 4.8% to $361.9 billion, and total assets reached $495.4 billion. Credit quality remained solid, with nonperforming assets falling 16.2% to $829 million and the net charge-off ratio edging up to 0.50%.
The allowance for credit losses stood at $4.5 billiond (1.52% of loans). Net interest margin compressed to 3.06% from 3.14% amid a flatter yield curve and falling rates. Investors should note that the company's Basel III standardized CET1 ratio was 9.1%, and that a $3.0 billion plus $2.5 billion buyback authorization returned $7.0 billion to shareholders in dividends and repurchases, with the dividend raised 13.5% to $0.42 per quarter.
Looking ahead, the filing flags a major accounting change: adoption of CECL on January 1, 2020, which increased the allowance for credit losses by about $1.5 billion and reduced retained earnings. Regulatory developments under the Tailoring Rules (Category III status, lower liquidity and capital requirements) and the 2020 capital plan submission are also key.
Remaining risks include interest rate sensitivity (net interest income falls 1.43% under a 50 bp immediate decline), LIBOR transition, cybersecurity, and the Visa-related derivative liability. The filing reports no material pending matters expected to have a material adverse effect, though litigation and regulatory outcomes remain uncertain.
02—Key points
Key Highlights
- Net income attributable to U.S. Bancorp of $6.9 billion ($4.16 diluted EPS), down 2.6% from 2019's prior year, with a 14.1% return on average common equity and 1.45% return on average assets.
- Total net revenue rose 1.5% to $23.0 billion, driven by 1.0% net interest income growth and 2.4% noninterest income growth (mortgage banking +21.4%, merchant processing +4.6%).
- Noninterest expense rose 2.6% to $12.8 billion; efficiency ratio of 55.8% described as industry-leading, though up from 55.1% in 2018.
- Net interest margin fell to 3.06% from 3.14% due to a flatter yield curve and lower rates, pressuring net interest income sensitivity (-1.43% under a 50 bp immediate decline).
- Credit quality stable: nonperforming assets down 16.2% to $829 million; net charge-off ratio 0.50%; allowance for credit losses $4.5 billion (1.52% of loans).
- Capital returns of $7.0 billion through dividends and buybacks; quarterly dividend raised 13.5% to $0.42; CET1 ratio of 9.1% under Basel III standardized approach.
- CECL adoption effective January 1, 2020 expected to increase the allowance by about $1.5 billion, with a three-year phase-in option for regulatory capital.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 20, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Interest Expense | $4.44B$3.25B | +36.5% |
| Net Income | $6.91B$7.10B | −2.6% |
| EPS (Basic) | $4.16$4.15 | +0.2% |
| EPS (Diluted) | $4.16$4.14 | +0.5% |
| Shares Outstanding (Basic) | 1.58B1.63B | −3.2% |
| Shares Outstanding (Diluted) | 1.58B1.64B | −3.4% |
05—Questions
Frequently Asked Questions
How did U.S. Bancorp's 2019 earnings compare with 2018?
Net income attributable to U.S. Bancorp was $6.9 billion, or $4.16 per diluted share, versus $7.1 billion, or $4.14 per diluted share, in 2018. Net income declined 2.6% mainly because noninterest expense grew faster than revenue, including about $200 million of severance and asset impairment charges and a $140 million increase in the Visa-related derivative liability.
What drove revenue growth and what pressured margins?
Total net revenue increased 1.5% to $23.0 billion. Growth came from loans (average loans up 3.6%), mortgage banking (up 21.4%), payment services and trust fees. Margin pressure came from a lower net interest margin (3.06% vs. 3.14%) due to declining rates, a flatter yield curve, and changes in deposit mix, as well as lower deposit service charges after the 2018 ATM business sale.
How strong is the company's capital and what does it mean for shareholders?
The CET1 ratio under the Basel III standardized approach was 9.1%, and the company exceeded all 'well-capitalized' thresholds. The company returned $7.0 billion to shareholders in 2019 through dividends and repurchases, raised its quarterly dividend 13.5% to $0.42, and had $2.4 billion remaining under its repurchase authorization at year-end. Future buybacks remain subject to Federal Reserve capital plan review.
What is the impact of the CECL accounting change?
Effective January 1, 2020, the company adopted CECL, which shifts credit loss recognition from an incurred-loss to an expected-loss model. The company increased its allowance for credit losses by roughly $1.5 billion and reduced retained earnings net of deferred taxes. Regulators allow a three-year phase-in of the day-one capital impact, and the Federal Reserve will not include CECL in stress tests through the 2021 cycle.
What are the key risks investors should monitor?
Key risks include interest rate sensitivity (projected net interest income falls 1.43% under an immediate 50 bp decline), the transition away from LIBOR, cybersecurity and data security breaches, regulatory and litigation exposure, concentration in California commercial real estate (25.1% of CRE loans), and potential Visa litigation indemnification obligations. The filing also notes that a credit downgrade or regulatory action could limit acquisitions and raise funding costs.
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