01—Abstract
Summary
Summary of the 10-K filed February 23, 2021. Cited figures are marked; the original filing is the authoritative source.
U.S. Bancorp's 2020 10-K shows a year shaped by the COVID-19 shock.
Net income attributable to U.S. Bancorp fell 28.3% to $4.96 billiona, or $3.06 per diluted share, from $6.91 billion, or $4.16, in 2019. The decline was driven by a sharp increase in the provision for credit losses to $3.8 billion (from $1.5 billion), lower net interest income as rates fell (net interest margin compressed to 2.68% from 3.06%), and noninterest expense growth of 4.6%. Partly offsetting this, noninterest income rose 5.8% to $10.4 billion, led by a $1.2 billion increase in mortgage banking revenue from refinancing activity.
Return on average assets fell to 0.93% and return on common equity to 10.0%. Balance sheet growth was strong: total deposits rose 18.7% to $429.8 billionb, and loans were essentially flat at $297.7 billion. The allowance for credit losses roughly doubled to $8.0 billion (2.69% of loans), including a $1.5 billion day-one CECL adoption impact.
Nonperforming assets rose 56.6% to $1.3 billionc, concentrated in commercial and commercial real estate. Capital remained solid, with a CET1 ratio of 9.7% under the standardized approach and a stress capital buffer requirement of 2.5%. Looking forward, management expects economic activity to stay subdued in the first half of 2021, with mortgage revenue likely to decline as refinancing moderates.
Capital distributions were restricted by the Federal Reserve through 2020, but the company was authorized to repurchase up to $3.0 billiond of common stock beginning in 2021, subject to regulatory limits. Investors should weigh the strong deposit franchise, fee diversification, and capital position against elevated credit reserves, margin pressure, and the uncertainty around the pandemic's duration.
02—Key points
Key Highlights
- Net income attributable to U.S. Bancorp declined 28.3% to $4.96 billion ($3.06 diluted EPS) versus $6.91 billion ($4.16) in 2019.
- Provision for credit losses more than doubled to $3.8 billion, and the allowance for credit losses rose to $8.0 billion (2.69% of period-end loans), including a $1.5 billion CECL adoption impact.
- Net interest margin compressed to 2.68% from 3.06% as lower interest rates reduced asset yields; net interest income fell 1.7% to $12.8 billion.
- Noninterest income grew 5.8% to $10.4 billion, driven by a $1.2 billion increase in mortgage banking revenue from refinancing activity and growth in commercial products revenue.
- Total deposits surged 18.7% to $429.8 billion, providing a low-cost funding base, while loans were roughly flat at $297.7 billion.
- Nonperforming assets rose 56.6% to $1.3 billion, primarily in commercial and commercial real estate loans; the company expects them to remain elevated.
- Common equity tier 1 ratio of 9.7% (standardized approach) and a 2.5% stress capital buffer; the company received authority to repurchase up to $3.0 billion of stock beginning January 1, 2021.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 23, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Interest Expense | $2.02B$4.44B | −54.6% |
| Net Income | $4.96B$6.91B | −28.3% |
| EPS (Basic) | $3.06$4.16 | −26.4% |
| EPS (Diluted) | $3.06$4.16 | −26.4% |
| Shares Outstanding (Basic) | 1.51B1.58B | −4.6% |
| Shares Outstanding (Diluted) | 1.51B1.58B | −4.6% |
05—Questions
Frequently Asked Questions
How much did U.S. Bancorp's earnings decline in 2020, and why?
Net income attributable to U.S. Bancorp fell 28.3% to $4.96 billion, or $3.06 per diluted share, from $6.91 billion, or $4.16, in 2019. The main drivers were a $2.3 billion increase in the provision for credit losses as COVID-19 weighed on economic conditions, lower net interest income from falling rates, and a 4.6% rise in noninterest expense. Mortgage banking and commercial products revenue growth partly offset these pressures.
Is the company's credit quality deteriorating?
Credit quality weakened in 2020. Nonperforming assets rose 56.6% to $1.3 billion, mainly in commercial and commercial real estate loans, and net charge-offs rose 22.8% to $1.8 billion. The allowance for credit losses reached $8.0 billion, or 2.69% of loans. Management expects nonperforming assets to remain elevated, though a significant portion of consumer loans are in payment relief programs, and credit card and residential mortgage performance remained comparatively stable.
Can the company resume share buybacks and dividends?
Federal Reserve restrictions suspended most repurchases in the second half of 2020 and capped dividends at average earnings. In December 2020 the Fed allowed dividends to continue and repurchases to resume in the first quarter of 2021, provided combined distributions do not exceed average quarterly earnings over the prior four quarters. The Board approved a $3.0 billion repurchase authorization beginning January 1, 2021, which management will adjust based on the economic environment and regulatory requirements.
How strong is the bank's capital position?
Capital is solid. The CET1 ratio under the Basel III standardized approach was 9.7% at year-end 2020, up from 9.1%, and the total risk-based capital ratio was 13.4%. The stress capital buffer is 2.5%, and the company remains well-capitalized under prompt corrective action standards. Tangible common equity to risk-weighted assets was 9.5%. The company also elected to phase in the regulatory capital impact of CECL over several years.
What is the outlook for revenue and margins in 2021?
Management expects economic activity to remain at lower levels during the first half of 2021 and to improve in the second half. It anticipates mortgage banking revenue will decline in the first quarter of 2021 versus the fourth quarter as refinancing slows, merchant processing and corporate payments revenue will fall year over year due to lower travel and hospitality, and net interest margin to be relatively stable in early 2021. Noninterest expense is expected to be relatively stable compared with the fourth quarter of 2020.
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