10-QPeriod: Q2 FY2020

US BANCORP \DE\ Quarterly Report for Q2 Ended Jun 30, 2020

Filed August 6, 2020For Securities:USBUSB-PHUSB-PPUSB-PRUSB-PQUSB-PSUSB-PA

Summary

U.S. Bancorp (USB) reported a significant decrease in net income for the second quarter of 2020, largely due to a substantial increase in the provision for credit losses. This increase was driven by deteriorating economic conditions attributed to the COVID-19 pandemic, leading to higher expected credit losses. Despite this, total net revenue saw a slight increase year-over-year, primarily fueled by strong performance in mortgage banking revenue and commercial products, which offset a decline in net interest income caused by lower interest rates. While the bank experienced a rise in noninterest expense due to COVID-19 related costs and business investments, it maintained strong capital ratios and a robust deposit base. The company proactively managed liquidity and saw significant growth in deposits, particularly noninterest-bearing deposits, reflecting government stimulus and customer liquidity management. Investors should monitor the impact of the ongoing pandemic on credit quality and the company's ability to manage its provision for credit losses in upcoming periods.

Financial Highlights

34 data points
Beta

Net Income

$689.00M

EPS (Diluted)

$0.41

Total Assets

$546.65B

Free Cash Flow

-$853.00M

Financial Statements
Beta
Interest Expense$472.00M
Net Income$689.00M
EPS (Basic)$0.41
EPS (Diluted)$0.41
Shares Outstanding (Basic)1.51B
Shares Outstanding (Diluted)1.51B

Key Highlights

  • 1Net income attributable to U.S. Bancorp decreased by 62.2% to $689 million in Q2 2020 compared to $1.82 billion in Q2 2019.
  • 2The provision for credit losses increased significantly by 375.6% to $1.74 billion in Q2 2020, compared to $365 million in Q2 2019, due to COVID-19 related economic deterioration.
  • 3Total net revenue increased slightly by 0.3% to $5.84 billion in Q2 2020, driven by strong mortgage banking revenue and commercial products revenue.
  • 4Net interest income decreased by 3.2% to $3.20 billion in Q2 2020, primarily due to declining interest rates.
  • 5Noninterest expense increased by 5.2% to $3.32 billion in Q2 2020, reflecting COVID-19 related costs and investments in digital capabilities.
  • 6Total deposits increased by 14.2% to $413.3 billion at June 30, 2020, from $361.9 billion at December 31, 2019.
  • 7Common equity tier 1 capital ratio remained strong at 9.0% at June 30, 2020.

Frequently Asked Questions

The primary driver of the significant decrease in net income was a substantial increase in the provision for credit losses. This was a direct response to deteriorating economic conditions and heightened uncertainty caused by the COVID-19 pandemic, leading the company to increase its allowance for expected future credit losses.

The pandemic had mixed impacts on revenue. Mortgage banking revenue saw significant growth due to refinancing activities, and commercial products revenue also increased. However, payment services revenue and deposit service charges declined due to reduced consumer and business spending. Net interest income also decreased due to lower interest rates.

U.S. Bancorp is offering payment relief to customers, including forbearance and payment deferrals. The company has also incurred incremental costs related to COVID-19, such as increased liabilities for charge-back risk and expenses for employee safety. Additionally, to preserve capital, the company suspended common stock repurchases in March 2020.

The company maintained strong capital ratios, with its Common Equity Tier 1 capital ratio at 9.0%. It also effectively managed its liquidity position, supported by a diversified deposit base. U.S. Bancorp continues to monitor its liquidity and capital levels closely in light of the ongoing economic uncertainties.