10-QPeriod: Q1 FY2020

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

Filed May 7, 2020For Securities:USBUSB-PHUSB-PPUSB-PRUSB-PQUSB-PSUSB-PA

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.

Financial Highlights

34 data points
Beta

Net Income

$1.17B

EPS (Diluted)

$0.72

Total Assets

$542.91B

Free Cash Flow

$2.35B

Financial Statements
Beta
Interest Expense$893.00M
Net Income$1.17B
EPS (Basic)$0.72
EPS (Diluted)$0.72
Shares Outstanding (Basic)1.52B
Shares Outstanding (Diluted)1.52B

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.

Frequently Asked Questions

The COVID-19 pandemic significantly impacted U.S. Bancorp's results, primarily through a substantial increase in the provision for credit losses to $993 million from $377 million in the prior year. This reflects the adoption of the new CECL accounting standard and management's expectation of deteriorating economic conditions. Noninterest income from payment services declined due to reduced consumer and business spending, while expenses increased due to COVID-related costs and ongoing business investments.

Net interest income on a taxable-equivalent basis decreased by 1.2% to $3.25 billion in Q1 2020 from $3.29 billion in Q1 2019. This was primarily driven by the impact of declining interest rates on earnings assets and a lower yield curve, partially offset by loan growth and changes in deposit mix.

U.S. Bancorp maintained strong capital ratios, with its Common Equity Tier 1 ratio at 9.0% at the end of the quarter. In response to the pandemic's economic uncertainty, the company announced it was temporarily suspending its common stock repurchase program through the end of the second quarter of 2020 to preserve capital and liquidity.

Management expects net charge-offs to increase given the current economic conditions. The allowance for credit losses increased significantly, reflecting the adoption of CECL and the anticipated impact of the pandemic on the economy, leading to higher expected losses on loans.