US BANCORP \DE\ Quarterly Report for Q1 Ended Mar 31, 2020

Summary

U.S. Bancorp reported net income of $1.17 billion for the first quarter of 2020, a decrease of 31.1% compared to the prior year's $1.71 billion, largely attributed to the significant provision for credit losses ($993 million) stemming from the COVID-19 pandemic's economic impact. This provision was a substantial increase from the $377 million recorded in the first quarter of 2019, reflecting the adoption of the Current Expected Credit Losses (CECL) methodology and the anticipated deterioration in economic conditions. While total net revenue saw a modest increase of 3.5% to $5.77 billion, driven by a strong performance in noninterest income (up 8.3%, largely due to mortgage banking and trust/investment management fees), net interest income slightly decreased by 1.2% due to declining interest rates. Noninterest expense increased by 7.4%, partly due to COVID-19 related costs and ongoing investments in digital capabilities. Despite the challenging economic environment, U.S. Bancorp maintained solid capital ratios, with Common Equity Tier 1 at 9.0%. The company saw significant loan growth, particularly in commercial loans, as businesses drew on credit facilities for liquidity. Deposits also increased by 9.1%. However, the company has temporarily suspended its common stock repurchase program and is closely monitoring the economic impact of the pandemic on credit quality and future earnings. The substantial increase in the allowance for credit losses signals management's cautious outlook regarding potential future loan defaults.

Key Highlights

• 1Net income decreased 31.1% to $1.17 billion ($0.72/share) from $1.71 billion ($1.00/share) in Q1 2019, primarily due to a significantly higher provision for credit losses.
• 2Provision for credit losses surged to $993 million, a 163% increase from $377 million in Q1 2019, reflecting adoption of CECL and economic deterioration due to COVID-19.
• 3Total net revenue increased 3.5% to $5.77 billion, driven by an 8.3% rise in noninterest income (led by mortgage banking and trust/investment management fees), while net interest income declined 1.2%.
• 4Noninterest expense rose 7.4% to $3.32 billion, impacted by approximately $100 million in COVID-19 related costs and investments in digital capabilities.
• 5Total loans grew 7.5% to $318.3 billion, with commercial loans showing a notable 21.6% increase as businesses drew on credit lines for liquidity.
• 6Total deposits increased 9.1% to $394.9 billion, indicating strong customer deposit inflows.
• 7Common Equity Tier 1 capital ratio remained strong at 9.0% as of March 31, 2020, though slightly down from 9.1% at December 31, 2019.

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