UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 14, 2020
U.S. BANCORP
(Exact name of registrant as specified in its charter)
1-6880
(Commission File Number)
DELAWARE | 41-0255900 | |
(State or other jurisdiction | (I.R.S. Employer Identification | |
of incorporation) | Number) |
800 Nicollet Mall |
Minneapolis, Minnesota 55402 |
(Address of principal executive offices and zip code) |
(651) 466-3000
(Registrant’s telephone number, including area code)
(not applicable)
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ |
Written communications pursuant to Rule 425 Under the Securities Act (17 CFR 230.425) |
☐ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
☐ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
☐ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading
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Name of each exchange
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Common Stock, $.01 par value per share | USB | New York Stock Exchange | ||
Depositary Shares (each representing 1/100th interest in a share of Series A Non-Cumulative Perpetual Preferred Stock, par value $1.00) | USB PrA | New York Stock Exchange | ||
Depositary Shares (each representing 1/1,000th interest in a share of Series B Non-Cumulative Perpetual Preferred Stock, par value $1.00) | USB PrH | New York Stock Exchange | ||
Depositary Shares (each representing 1/1,000th interest in a share of Series F Non-Cumulative Perpetual Preferred Stock, par value $1.00) | USB PrM | New York Stock Exchange | ||
Depositary Shares (each representing 1/1,000th interest in a share of Series H Non-Cumulative Perpetual Preferred Stock, par value $1.00) | USB PrO | New York Stock Exchange | ||
Depositary Shares (each representing 1/1,000th interest in a share of Series K Non-Cumulative Perpetual Preferred Stock, par value $1.00) | USB PrP | New York Stock Exchange | ||
0.850% Medium-Term Notes, Series X (Senior), due June 7, 2024 | USB/24B | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule l2b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section l3(a) of the Exchange Act. ☐
ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
On October 14, 2020, U.S. Bancorp (the “Company”) issued a press release reporting quarter-ended September 30, 2020 results, and posted on its website its 3Q20 Earnings Conference Call Presentation, which contains certain additional historical and forward-looking information relating to the Company. The press release is included as Exhibit 99.1 hereto and is incorporated herein by reference. The information included in the press release is considered to be “filed” under the Securities Exchange Act of 1934. The 3Q20 Earnings Conference Call Presentation is included as Exhibit 99.2 hereto and is incorporated herein by reference. The information included in the 3Q20 Earnings Conference Call Presentation is considered to be “furnished” under the Securities Exchange Act of 1934 and shall not be deemed incorporated by reference in any filings under the Securities Act of 1933. The press release and 3Q20 Earnings Conference Call Presentation contain forward-looking statements regarding the Company and each includes a cautionary statement identifying important factors that could cause actual results to differ materially from those anticipated.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
(d) Exhibits.
99.1 |
99.2 |
104 |
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
U.S. BANCORP |
By /s/ Lisa R. Stark |
Lisa R. Stark |
Executive Vice President and
Controller |
DATE: October 14, 2020
Exhibit 99.1
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U.S. Bancorp Reports Third Quarter 2020 Results
Net income of $1,580 million with net revenue of $5,964 million Return on average assets of 1.17% and return on average common equity of 12.8%
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3Q20 Key Financial Data |
3Q20 Highlights |
PROFITABLITY METRICS |
3Q20 | 2Q20 | 3Q19 |
Net income of $1,580 million and diluted earnings per common share of $0.99
Return on average assets of 1.17% and return on average common equity of 12.8%
Net revenue of $5,964 million, including $3,252 million of net interest income and $2,712 million of noninterest income
Noninterest income growth of 3.7% year-over-year
Average total loans grew 6.4% year-over-year
Average total deposits grew 15.9% year-over-year
Provision for credit losses of $635 million including a provision of $120 million related to an acquired loan portfolio
CET1 capital ratio increased to 9.4% at September 30, 2020 compared with 9.1% at December 31, 2019
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Return on average assets (%) |
1.17 | .51 | 1.57 | |||||||||||||
Return on average common equity (%) |
12.8 | 5.3 | 15.3 | |||||||||||||
Return on tangible common equity (%) (a) |
16.6 | 7.1 | 19.4 | |||||||||||||
Net interest margin (%) |
2.67 | 2.62 | 3.02 | |||||||||||||
Efficiency ratio (%) (a) |
56.6 | 57.6 | 53.3 | |||||||||||||
INCOME STATEMENT (b) |
3Q20 | 2Q20 | 3Q19 | |||||||||||||
Net interest income (taxable-equivalent basis) |
$3,252 | $3,224 | $3,306 | |||||||||||||
Noninterest income |
$2,712 | $2,614 | $2,614 | |||||||||||||
Net income attributable to U.S. Bancorp |
$1,580 | $689 | $1,908 | |||||||||||||
Diluted earnings per common share |
$.99 | $.41 | $1.15 | |||||||||||||
Dividends declared per common share |
$.42 | $.42 | $.42 | |||||||||||||
BALANCE SHEET (b) |
3Q20 | 2Q20 | 3Q19 | |||||||||||||
Average total loans |
$311,018 | $318,107 | $292,436 | |||||||||||||
Average total deposits |
$405,523 | $403,303 | $349,933 | |||||||||||||
Net charge-off ratio |
.66% | .55% | .48% | |||||||||||||
Book value per common share (period end) |
$30.93 | $30.46 | $30.26 | |||||||||||||
Basel III standardized CET1 (c) |
9.4% | 9.0% | 9.6% | |||||||||||||
(a) See Non-GAAP Financial Measures reconciliation on page 17
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(b) Dollars in millions, except per share data
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(c) CET1 = Common equity tier 1 capital ratio |
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CEO Commentary
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In the third quarter, we reported earnings per share of $0.99 and delivered a return on average common equity of 12.8 percent. Our results, during this challenging economic environment, are a testament to our diverse business mix and consistent approach to credit risk management. Consumer loan growth was robust, and our fee-based businesses performed well. Our mortgage banking business was particularly strong in the third quarter as we continued to support customers home financing and re-financing needs, and our payments businesses benefited from improving consumer spending activity as state and local economies continued to open. Our capital and liquidity positions remain strong and although credit losses are increasing for the entire industry we are well positioned to navigate a more challenging credit environment. I want to thank our employees for all their hard work and dedication in serving our customers and communities as they deal with their individual challenges created by the COVID-19 environment.
Andy Cecere, Chairman, President and CEO, U.S. Bancorp |
In the Spotlight
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Commitment to Diversity and Inclusion
U.S. Bank was recently named a top 10 percent performer on the 2020 Diversity Best Practices Inclusion Index for the third consecutive year. Diversity Best Practices compiles the ranking based on a variety of factors and the top 10 percent score reflects U.S. Banks efforts in three focus areas: recruitment, advancement and retention of people from underrepresented groups; creating an inclusive company culture through leadership, accountability, communications and employee engagement; and demographics/transparency.
Providing Business Owners Faster Access to Funds
To give business owners more flexibility and control of their money, U.S. Bank recently launched Everyday Funding, a service that makes funds available more quickly as merchants receive payments from their customers. Everyday Funding is an innovative cash payment service designed to provide the fastest free funding in the payments industry by making funds available within hours, seven days a week.
Banking Made Easy
U.S. Bank recently introduced the new U.S. Bank Smart Assistant within the U.S. Bank Mobile App. U.S. Bank Smart Assistant was created with a unique voice-first design allowing users a similar experience to how they would interact with their banker when looking for information or help managing their accounts. The U.S. Bank Smart Assistant is just the latest in a string of impressive features added to the U.S. Bank Mobile App.
Most Powerful Women in Banking and Finance
American Banker magazine recently named Kate Quinn, U.S. Bank Vice Chair and Chief Administrative Officer, and Gunjan Kedia, U.S. Bank Vice Chair of Wealth Management and Investment Services, to its 2020 Most Powerful Women in Banking and Finance lists. U.S. Bancorp also earned a Top Team Award. The team award is a representation of the entire company, based on factors including: the presence and influence of women in senior ranks; the performance of women-led business units; commitment to and progress toward fostering diversity in key roles; and improvements in the representation of women in the pipeline.
1
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U.S. Bancorp Third Quarter 2020 Results | |
INCOME STATEMENT HIGHLIGHTS | ||||||||||||||||||||||||||||||||
($ in millions, except
per-share data) |
Percent Change | |||||||||||||||||||||||||||||||
3Q 2020 |
2Q 2020 |
3Q 2019 |
3Q20 vs 2Q20 |
3Q20 vs 3Q19 |
YTD 2020 |
YTD 2019 |
Percent Change |
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Net interest income |
$3,227 | $3,200 | $3,281 | .8 | (1.6) | $9,650 | $9,845 | (2.0) | ||||||||||||||||||||||||
Taxable-equivalent adjustment |
25 | 24 | 25 | 4.2 | -- | 73 | 79 | (7.6) | ||||||||||||||||||||||||
Net interest income (taxable-equivalent basis) |
3,252 | 3,224 | 3,306 | .9 | (1.6) | 9,723 | 9,924 | (2.0) | ||||||||||||||||||||||||
Noninterest income |
2,712 | 2,614 | 2,614 | 3.7 | 3.7 | 7,851 | 7,395 | 6.2 | ||||||||||||||||||||||||
Total net revenue |
5,964 | 5,838 | 5,920 | 2.2 | .7 | 17,574 | 17,319 | 1.5 | ||||||||||||||||||||||||
Noninterest expense |
3,371 | 3,318 | 3,144 | 1.6 | 7.2 | 10,005 | 9,384 | 6.6 | ||||||||||||||||||||||||
Income before provision and income taxes |
2,593 | 2,520 | 2,776 | 2.9 | (6.6) | 7,569 | 7,935 | (4.6) | ||||||||||||||||||||||||
Provision for credit losses |
635 | 1,737 | 367 | (63.4) | 73.0 | 3,365 | 1,109 | nm | ||||||||||||||||||||||||
Income before taxes |
1,958 | 783 | 2,409 | nm | (18.7) | 4,204 | 6,826 | (38.4) | ||||||||||||||||||||||||
Income taxes and taxable-equivalent adjustment |
372 | 88 | 492 | nm | (24.4) | 744 | 1,373 | (45.8) | ||||||||||||||||||||||||
Net income |
1,586 | 695 | 1,917 | nm | (17.3) | 3,460 | 5,453 | (36.5) | ||||||||||||||||||||||||
Net (income) loss attributable to noncontrolling interests |
(6) | (6) | (9) | -- | 33.3 | (20) | (25) | 20.0 | ||||||||||||||||||||||||
Net income attributable to U.S. Bancorp |
$1,580 | $689 | $1,908 | nm | (17.2) | $3,440 | $5,428 | (36.6) | ||||||||||||||||||||||||
Net income applicable to U.S. Bancorp common shareholders |
$1,494 | $614 | $1,821 | nm | (18.0) | $3,196 | $5,175 | (38.2) | ||||||||||||||||||||||||
Diluted earnings per common share |
$.99 | $.41 | $1.15 | nm | (13.9) | $2.11 | $3.25 | (35.1) | ||||||||||||||||||||||||
Net income attributable to U.S. Bancorp was $1,580 million for the third quarter of 2020, which was 17.2 percent lower than the $1,908 million for the third quarter of 2019, and higher than the $689 million for the second quarter of 2020. Diluted earnings per common share were $0.99 in the third quarter of 2020, compared with $1.15 in the third quarter of 2019 and $0.41 in the second quarter of 2020. During a challenging period adversely impacted by the COVID-19 pandemic, the Companys diversified business generated growth in net revenue and supported a provision for credit losses of $635 million resulting in a $120 million increase in the allowance for credit losses in the third quarter of 2020 compared with a $1,737 million provision for credit losses in the second quarter of 2020.
The decrease in net income year-over-year was primarily due to lower net interest income as well as increases in expenses and the provision for credit losses driven by higher net charge-offs and the acquisition of the State Farm credit card portfolio in the third quarter of 2020, partially offset by an increase in noninterest income. The components of net income are being adversely impacted by the COVID-19 environment resulting in significantly lower interest rates and consumer and business spending activities and changes in credit quality. The provision for credit losses takes into account expected loss estimates considering various factors including the economic outlook, changing credit quality and ongoing new loan production and acquired loans. Net interest income decreased 1.6 percent on a year-over-year basis, primarily due to the impact of lower rates from a year ago, partially offset by deposit and funding mix as well as loan growth. The net interest margin declined 35 basis points from a year ago to 2.67 percent in the third quarter of 2020. The decline was primarily due to the impact of a lower yield curve, decisions to maintain higher levels of liquidity, and higher premium amortization within the investment portfolio, partially offset by the net benefit of changing loan mix and deposit and funding composition. Noninterest income increased 3.7 percent compared with a year ago, driven by significant growth in mortgage banking revenue due to refinancing production and strong growth in commercial products revenue due to capital markets activities. Growth in these fee categories was partially offset by a decline in payment services revenue and deposit service charges related to lower consumer and commercial spending. Additionally, other noninterest income declined on a year-over-year basis due to lower equity investment income, tax-advantaged investment syndication revenue and certain asset impairments as a result of branch optimization initiatives. Noninterest expense increased 7.2 percent reflecting approximately $49 million of costs related to the COVID-19 environment and an increase in revenue-related production expenses of approximately $108 million in the third quarter of 2020. Additionally, noninterest expense reflected an increase in personnel costs and technology and communications expense related to developing digital capabilities and related business investment, as well as an increase in other noninterest expense, partially offset by lower marketing and business development expense and professional services expense.
2
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U.S. Bancorp Third Quarter 2020 Results | |
Net income increased on a linked quarter basis primarily due to a lower provision for credit losses. The Companys pre-provision income increased 2.9 percent on a linked quarter basis, driven by higher total net revenue of 2.2 percent, partially offset by an increase in noninterest expense of 1.6 percent on a linked quarter basis. Net interest income increased 0.9 percent on a taxable-equivalent basis primarily due to deposit and funding mix, one additional day in the third quarter, and higher loan fees, partially offset by lower loan spreads and a decline in average loan balances. The net interest margin increased by 5 basis points on a linked quarter basis, primarily reflecting the impact of lower cash balances. The Company expects to continue maintaining higher levels of liquidity given the environment. Noninterest income increased 3.7 percent compared with the second quarter of 2020 driven by improving payment services revenue, deposit service charges and higher other noninterest income, partially offset by an expected decline in commercial products revenue, mortgage banking revenue, and gains on the sale of securities. Noninterest expense increased 1.6 percent on a linked quarter basis, reflecting continued business investment in digital capabilities, incremental costs related to the prepaid card business and the acquisition of a credit card portfolio during the quarter.
3
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U.S. Bancorp Third Quarter 2020 Results | |
NET INTEREST INCOME | ||||||||||||||||||||||||||||||||
(Taxable-equivalent basis; $ in millions) | Change | |||||||||||||||||||||||||||||||
3Q 2020 |
2Q 2020 |
3Q 2019 |
3Q20 vs
2Q20 |
3Q20 vs
3Q19 |
YTD 2020 |
YTD 2019 |
Change | |||||||||||||||||||||||||
Components of net interest income |
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Income on earning assets |
$3,598 | $3,697 | $4,465 | $(99) | $(867) | $11,437 | $13,326 | $(1,889) | ||||||||||||||||||||||||
Expense on interest-bearing liabilities |
346 | 473 | 1,159 | (127) | (813) | 1,714 | 3,402 | (1,688) | ||||||||||||||||||||||||
Net interest income |
$3,252 | $3,224 | $3,306 | $28 | $(54) | $9,723 | $9,924 | $(201) | ||||||||||||||||||||||||
Average yields and rates paid |
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Earning assets yield |
2.95% | 3.00% | 4.08% | (.05)% | (1.13)% | 3.21% | 4.16% | (.95)% | ||||||||||||||||||||||||
Rate paid on interest-bearing liabilities |
.39 | .50 | 1.37 | (.11) | (.98) | .63 | 1.38 | (.75)% | ||||||||||||||||||||||||
Gross interest margin |
2.56% | 2.50% | 2.71% | .06% | (.15)% | 2.58% | 2.78% | (.20)% | ||||||||||||||||||||||||
Net interest margin |
2.67% | 2.62% | 3.02% | (.05)% | (.35)% | 2.73% | 3.10% | (.37)% | ||||||||||||||||||||||||
Average balances |
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Investment securities (a) |
$128,565 | $120,867 | $117,213 | $7,698 | $11,352 | $123,444 | $115,628 | $7,816 | ||||||||||||||||||||||||
Loans |
311,018 | 318,107 | 292,436 | (7,089) | 18,582 | 308,935 | 289,278 | 19,657 | ||||||||||||||||||||||||
Earning assets |
486,104 | 494,119 | 435,673 | (8,015) | 50,431 | 476,018 | 427,426 | 48,592 | ||||||||||||||||||||||||
Interest-bearing liabilities |
357,739 | 380,320 | 336,627 | (22,581) | 21,112 | 297,663 | 329,562 | (31,899) |
(a) Excludes unrealized gain (loss)
Net interest income on a taxable-equivalent basis in the third quarter of 2020 was $3,252 million, a decrease of $54 million (1.6 percent) compared with the third quarter of 2019. The decrease was principally driven by the impact of lower rates from a year ago, partially offset by deposit and funding mix as well as loan growth. Average earning assets were $50.4 billion (11.6 percent) higher than the third quarter of 2019, reflecting increases of $18.6 billion (6.4 percent) in average total loans, $11.4 billion (9.7 percent) in average investment securities, and $17.0 billion (78.8 percent) in average other earning assets primarily representing cash balances.
Net interest income on a taxable-equivalent basis increased $28 million (0.9 percent) on a linked quarter basis primarily driven by deposit and funding mix, one additional day in the third quarter and higher loan fees, partially offset by higher premium amortization within the investment portfolio and a decrease in loan volume. Average earning assets were $8.0 billion (1.6 percent) lower on a linked quarter basis, reflecting a decrease of $7.1 billion (2.2 percent) in average total loans and $10.3 billion (21.1 percent) in average other earning assets. The decrease in average total loans was primarily due to continued paydowns by corporate customers that accessed the capital markets during the third quarter. Average investment securities were $7.7 billion (6.4 percent) higher on a linked quarter basis.
The net interest margin in the third quarter of 2020 was 2.67 percent, compared with 3.02 percent in the third quarter of 2019 and 2.62 percent in the second quarter of 2020. The decrease in the net interest margin from the prior year was primarily due to the impact of a lower rates and changes in the yield curve, a decision to maintain higher cash balances for liquidity and higher premium amortization, partially offset by the net benefit of changing loan mix and deposit and funding mix. The increase in net interest margin of 5 basis points on a linked quarter basis reflects the impact of lower cash balances. The Company expects to maintain higher liquidity levels due to the acquisition in early October 2020 of approximately $10 billion of deposit balances from State Farm Bank.
The increase in average investment securities on a linked quarter and year-over-year basis was due to purchases of mortgage-backed, U.S. Treasury and state and political securities net of prepayments and maturities.
4
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U.S. Bancorp Third Quarter 2020 Results | |
AVERAGE LOANS |
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($ in millions) | Percent Change | |||||||||||||||||||||||||||||||
3Q 2020 |
2Q 2020 |
3Q 2019 |
3Q20 vs 2Q20 |
3Q20 vs 3Q19 |
YTD 2020 |
YTD 2019 |
Percent Change |
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Commercial |
$109,899 | $122,442 | $98,175 | (10.2 | ) | 11.9 | $110,886 | $97,472 | 13.8 | |||||||||||||||||||||||
Lease financing |
5,590 | 5,597 | 5,485 | (.1 | ) | 1.9 | 5,615 | 5,485 | 2.4 | |||||||||||||||||||||||
Total commercial |
115,489 | 128,039 | 103,660 | (9.8 | ) | 11.4 | 116,501 | 102,957 | 13.2 | |||||||||||||||||||||||
Commercial mortgages |
29,849 | 30,194 | 28,319 | (1.1 | ) | 5.4 | 29,855 | 28,414 | 5.1 | |||||||||||||||||||||||
Construction and development |
11,080 | 10,894 | 10,671 | 1.7 | 3.8 | 10,844 | 10,860 | (.1 | ) | |||||||||||||||||||||||
Total commercial real estate |
40,929 | 41,088 | 38,990 | (.4 | ) | 5.0 | 40,699 | 39,274 | 3.6 | |||||||||||||||||||||||
Residential mortgages |
75,786 | 71,122 | 68,608 | 6.6 | 10.5 | 72,612 | 67,019 | 8.3 | ||||||||||||||||||||||||
Credit card |
22,052 | 21,510 | 23,681 | 2.5 | (6.9) | 22,465 | 23,040 | (2.5 | ) | |||||||||||||||||||||||
Retail leasing |
8,438 | 8,412 | 8,442 | .3 | -- | 8,441 | 8,524 | (1.0 | ) | |||||||||||||||||||||||
Home equity and second mortgages |
13,551 | 14,386 | 15,601 | (5.8 | ) | (13.1) | 14,256 | 15,807 | (9.8 | ) | ||||||||||||||||||||||
Other |
34,773 | 33,550 | 33,454 | 3.6 | 3.9 | 33,961 | 32,657 | 4.0 | ||||||||||||||||||||||||
Total other retail |
56,762 | 56,348 | 57,497 | .7 | (1.3) | 56,658 | 56,988 | (.6 | ) | |||||||||||||||||||||||
Total loans |
$311,018 | $318,107 | $292,436 | (2.2 | ) | 6.4 | $308,935 | $289,278 | 6.8 |
Average total loans for the third quarter of 2020 were $18.6 billion (6.4 percent) higher than the third quarter of 2019. The increase was primarily due to higher total commercial loans (11.4 percent), reflecting the impact of loans made under the SBAs Paycheck Protection Program, along with growth in residential mortgages (10.5 percent) given the lower interest rate environment and higher GNMA buybacks. These increases were partially offset by lower credit card loans (6.9 percent) and home equity and second mortgages (13.1 percent).
Average total loans were $7.1 billion (2.2 percent) lower than the second quarter of 2020 primarily driven by lower total commercial loans (9.8 percent), reflecting continued paydowns by corporate customers, partially offset by higher residential mortgages (6.6 percent) given the lower interest rate environment and higher GNMA buybacks. The increase in credit card loans (2.5 percent) was primarily due to the acquisition of the State Farm credit card portfolio in the third quarter of 2020.
5
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U.S. Bancorp Third Quarter 2020 Results | |
AVERAGE DEPOSITS |
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($ in millions) | Percent Change | |||||||||||||||||||||||||||||||
3Q 2020 |
2Q 2020 |
3Q 2019 |
3Q20 vs 2Q20 |
3Q20 vs
3Q19 |
YTD 2020 |
YTD 2019 |
Percent Change |
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Noninterest-bearing deposits |
$109,375 | $95,106 | $74,594 | 15.0 | 46.6 | $92,935 | $73,711 | 26.1 | ||||||||||||||||||||||||
Interest-bearing savings deposits |
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Interest checking |
84,494 | 83,789 | 72,007 | .8 | 17.3 | 81,890 | 71,539 | 14.5 | ||||||||||||||||||||||||
Money market savings |
124,115 | 129,692 | 114,475 | (4.3 | ) | 8.4 | 125,247 | 107,568 | 16.4 | |||||||||||||||||||||||
Savings accounts |
53,499 | 51,237 | 46,348 | 4.4 | 15.4 | 50,937 | 45,855 | 11.1 | ||||||||||||||||||||||||
Total savings deposits |
262,108 | 264,718 | 232,830 | (1.0 | ) | 12.6 | 258,074 | 224,962 | 14.7 | |||||||||||||||||||||||
Time deposits |
34,040 | 43,479 | 42,509 | (21.7 | ) | (19.9) | 39,589 | 44,890 | (11.8 | ) | ||||||||||||||||||||||
Total interest-bearing deposits |
296,148 | 308,197 | 275,339 | (3.9 | ) | 7.6 | 297,663 | 269,852 | 10.3 | |||||||||||||||||||||||
Total deposits |
$405,523 | $403,303 | $349,933 | .6 | 15.9 | $390,598 | $343,563 | 13.7 |
Average total deposits for the third quarter of 2020 were $55.6 billion (15.9 percent) higher than the third quarter of 2019. Average noninterest-bearing deposits increased $34.8 billion (46.6 percent) driven by Corporate and Commercial Banking and Consumer and Business Banking. Average total savings deposits were $29.3 billion (12.6 percent) higher year-over-year driven by Consumer and Business Banking and Corporate and Commercial Banking. Average time deposits were $8.5 billion (19.9 percent) lower than the prior year quarter. Changes in time deposits are largely related to those deposits managed as an alternative to other funding sources, based largely on relative pricing and liquidity characteristics.
Average total deposits increased $2.2 billion (0.6 percent) from the second quarter of 2020. On a linked quarter basis, average noninterest-bearing deposits increased $14.3 billion (15.0 percent) driven by Consumer and Business Banking and Corporate and Commercial Banking. Average total savings deposits decreased $2.6 billion (1.0 percent) compared with the second quarter of 2020 primarily due to decreases in Corporate and Commercial Banking and Wealth Management and Investment Services, partially offset by an increase in Consumer and Business Banking. Average time deposits, which are managed based on funding needs, relative pricing and liquidity characteristics, decreased $9.4 billion (21.7 percent) on a linked quarter basis primarily within Corporate and Commercial Banking.
The growth in average noninterest-bearing deposits and total average savings deposits year-over-year was primarily a result of the actions by the federal government to increase liquidity in the financial system, customers maintaining balance sheet liquidity by utilizing existing credit facilities and government stimulus programs.
6
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U.S. Bancorp Third Quarter 2020 Results | |
NONINTEREST INCOME | ||||||||||||||||||||||||||||||||
($ in millions) | Percent Change | |||||||||||||||||||||||||||||||
3Q 2020 |
2Q 2020 |
3Q 2019 |
3Q20 vs 2Q20 |
3Q20 vs 3Q19 |
YTD 2020 |
YTD 2019 |
Percent Change |
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Credit and debit card revenue |
$388 | $284 | $366 | 36.6 | 6.0 | $976 | $1,035 | (5.7 | ) | |||||||||||||||||||||||
Corporate payment products revenue |
125 | 101 | 177 | 23.8 | (29.4 | ) | 371 | 506 | (26.7 | ) | ||||||||||||||||||||||
Merchant processing services |
347 | 266 | 410 | 30.5 | (15.4 | ) | 950 | 1,192 | (20.3 | ) | ||||||||||||||||||||||
Trust and investment management fees |
434 | 434 | 421 | -- | 3.1 | 1,295 | 1,235 | 4.9 | ||||||||||||||||||||||||
Deposit service charges |
170 | 133 | 234 | 27.8 | (27.4 | ) | 512 | 678 | (24.5 | ) | ||||||||||||||||||||||
Treasury management fees |
145 | 137 | 139 | 5.8 | 4.3 | 425 | 438 | (3.0 | ) | |||||||||||||||||||||||
Commercial products revenue |
303 | 355 | 240 | (14.6 | ) | 26.3 | 904 | 708 | 27.7 | |||||||||||||||||||||||
Mortgage banking revenue |
553 | 648 | 272 | (14.7 | ) | nm | 1,596 | 630 | nm | |||||||||||||||||||||||
Investment products fees |
48 | 45 | 46 | 6.7 | 4.3 | 142 | 138 | 2.9 | ||||||||||||||||||||||||
Securities gains (losses), net |
12 | 81 | 25 | (85.2 | ) | (52.0 | ) | 143 | 47 | nm | ||||||||||||||||||||||
Other |
187 | 130 | 284 | 43.8 | (34.2 | ) | 537 | 788 | (31.9 | ) | ||||||||||||||||||||||
Total noninterest income |
$2,712 | $2,614 | $2,614 | 3.7 | 3.7 | $7,851 | $7,395 | 6.2 |
Third quarter noninterest income of $2,712 million was $98 million (3.7 percent) higher than the third quarter of 2019 reflecting higher credit and debit card revenue, growth in trust and investment management fees, and strong mortgage banking revenue and commercial products revenue. Growth in these fee categories was partially offset by lower merchant processing services and corporate payment product revenue, deposit service charges, and other noninterest income. Credit and debit card revenue includes significantly higher prepaid card fees in the third quarter related to the lagged impact of stimulus programs in the second quarter of 2020. Excluding the impact of prepaid card fees, credit and debit card revenues declined 11.5 percent consistent with changes in consumer spending sales volumes. Mortgage banking revenue increased $281 million due to higher mortgage production and stronger gain on sale margins, partially offset by the unfavorable net impact of the change in fair value of mortgage servicing rights, net of hedging activities. Commercial products revenue increased $63 million (26.3 percent) primarily due to higher corporate bond issuance fees and trading activities. Partially offsetting these increases, merchant processing services decreased $63 million (15.4 percent) and corporate payment products revenue declined $52 million (29.4 percent), both driven by lower sales volume due to the worldwide impact of the COVID-19 pandemic on consumer and business spending. Deposit service charges decreased $64 million (27.4 percent) primarily due to lower volume. Other noninterest income decreased $97 million (34.2 percent) due to lower equity investment income, tax-advantaged investment syndication revenue and certain asset impairments as a result of branch optimization initiatives.
Noninterest income was $98 million (3.7 percent) higher in the third quarter of 2020 compared with the second quarter of 2020, reflecting higher payment services revenue, deposit service charges, and other noninterest income, partially offset by lower commercial products revenue and mortgage banking revenue, as well as lower gains on the sale of securities. Payment services revenue increased $209 million (32.1 percent) compared with the second quarter of 2020 driven by $104 million (36.6 percent) higher credit and debit card revenue, $24 million (23.8 percent) higher corporate payment products revenue and $81 million (30.5 percent) higher merchant processing services revenue. The growth, on a linked quarter basis, was primarily driven by higher sales volumes that continue to improve from the second quarter of 2020 and state unemployment distributions on prepaid debit cards in the third quarter. Deposit service charges increased $37 million (27.8 percent) primarily due to higher volume and lower fee waivers related to customers impacted by COVID-19 compared with the second quarter of 2020. Other noninterest income increased $57 million (43.8 percent) primarily due to higher than expected retail leasing end of term residual gains and tax-advantaged investment syndication revenue. Other revenue also included equity investment income substantially offset by asset impairments as a result of branch optimization initiatives. Partially offsetting these increases, commercial products revenue decreased $52 million (14.6 percent) on a linked quarter basis primarily due to lower corporate bond fees and trading revenue. Mortgage banking revenue decreased $95 million (14.7 percent) due to lower mortgage production and related gain on sale margins, partially offset by the favorable net impact of the change in fair value of mortgage servicing rights, net of hedging activities.
7
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U.S. Bancorp Third Quarter 2020 Results | |
NONINTEREST EXPENSE | ||||||||||||||||||||||||||||||||
($ in millions) | Percent Change | |||||||||||||||||||||||||||||||
3Q | 2Q | 3Q | 3Q20 vs | 3Q20 vs | YTD | YTD | Percent | |||||||||||||||||||||||||
2020 | 2020 | 2019 | 2Q20 | 3Q19 | 2020 | 2019 | Change | |||||||||||||||||||||||||
Compensation |
$1,687 | $1,685 | $1,595 | .1 | 5.8 | $4,992 | $4,728 | 5.6 | ||||||||||||||||||||||||
Employee benefits |
335 | 314 | 324 | 6.7 | 3.4 | 1,001 | 971 | 3.1 | ||||||||||||||||||||||||
Net occupancy and equipment |
276 | 271 | 279 | 1.8 | (1.1 | ) | 823 | 837 | (1.7 | ) | ||||||||||||||||||||||
Professional services |
102 | 106 | 114 | (3.8 | ) | (10.5 | ) | 307 | 315 | (2.5 | ) | |||||||||||||||||||||
Marketing and business development |
72 | 67 | 109 | 7.5 | (33.9 | ) | 213 | 309 | (31.1 | ) | ||||||||||||||||||||||
Technology and communications |
334 | 309 | 277 | 8.1 | 20.6 | 932 | 804 | 15.9 | ||||||||||||||||||||||||
Postage, printing and supplies |
70 | 72 | 74 | (2.8 | ) | (5.4 | ) | 214 | 219 | (2.3 | ) | |||||||||||||||||||||
Other intangibles |
44 | 43 | 42 | 2.3 | 4.8 | 129 | 124 | 4.0 | ||||||||||||||||||||||||
Other |
451 | 451 | 330 | -- | 36.7 | 1,394 | 1,077 | 29.4 | ||||||||||||||||||||||||
Total noninterest expense |
$3,371 | $3,318 | $3,144 | 1.6 | 7.2 | $10,005 | $9,384 | 6.6 | ||||||||||||||||||||||||
Third quarter noninterest expense of $3,371 million was $227 million (7.2 percent) higher than the third quarter of 2019 driven by $157 million of incremental costs related to the prepaid card business ($48 million), expenses related to COVID-19 ($49 million) and revenue-related expenses due to higher mortgage production and capital markets activities ($60 million) in addition to business investments, including increased digital capabilities. The categories of expense impacted primarily included personnel expense, technology and communications expense, and other noninterest expense, partially offset by lower marketing and business development expense. Compensation expense increased $92 million (5.8 percent) compared with the third quarter of 2019 due to merit and variable compensation related to business production in mortgage banking and capital markets. Employee benefits expense increased $11 million (3.4 percent) primarily due to higher pension expense. Technology and communications expense increased $57 million (20.6 percent) primarily due to capital expenditures supporting business growth and the impact of increased call center volume related to prepaid cards. Other noninterest expense increased $121 million (36.7 percent) which reflected approximately $75 million of expenses for revenue-related costs and COVID-19, including increased liabilities driven by future delivery exposure related to merchant processing for airlines, higher FDIC insurance expense driven by an increase in the assessment base and higher state franchise taxes. These increases were partly offset by lower professional services expense of $12 million (10.5 percent) primarily due to initiatives completed in 2019 and lower marketing and business development expense of $37 million (33.9 percent) due to the timing of marketing campaigns and a reduction in travel as a result of COVID-19.
Noninterest expense increased $53 million (1.6 percent) on a linked quarter basis reflecting higher employee benefits and technology and communications expense. Employee benefits expense increased $21 million (6.7 percent) primarily due to higher medical claims expense. Technology and communications expense increased $25 million (8.1 percent) primarily due to the acquisition of the State Farm credit card portfolio in the third quarter of 2020 and increased call center volume related to prepaid credit cards. The increase in third quarter 2020 expenses on a linked quarter basis was higher than expected primarily due to strong revenue-related costs associated with mortgage banking, capital markets and the prepaid card business.
Provision for Income Taxes
The provision for income taxes for the third quarter of 2020 resulted in a tax rate of 19.0 percent on a taxable-equivalent basis (effective tax rate of 18.0 percent), compared with 20.4 percent on a taxable-equivalent basis (effective tax rate of 19.6 percent) in the third quarter of 2019, and a tax rate of 11.2 percent on a taxable-equivalent basis (effective tax rate of 8.4 percent) in the second quarter of 2020. The reduced tax rate for the second quarter of 2020 was primarily a result of reduced pretax income being impacted by current economic conditions, including the higher provision for credit losses.
8
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U.S. Bancorp Third Quarter 2020 Results | |
ALLOWANCE FOR CREDIT LOSSES | ||||||||||||||||||||||||||||||||||||||||
($ in millions) | 3Q | 2Q | 1Q | 4Q | 3Q | |||||||||||||||||||||||||||||||||||
2020 | % (a) | 2020 | % (a) | 2020 | % (a) | 2019 | % (a) | 2019 | % (a) | |||||||||||||||||||||||||||||||
Balance, beginning of period |
$7,890 | $6,590 | $4,491 | $4,481 | $4,466 | |||||||||||||||||||||||||||||||||||
Change in accounting principle (b) |
-- | -- | 1,499 | -- | -- | |||||||||||||||||||||||||||||||||||
Net charge-offs |
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Commercial |
167 | .60 | 105 | .34 | 69 | .28 | 74 | .30 | 72 | .29 | ||||||||||||||||||||||||||||||
Lease financing |
11 | .78 | 6 | .43 | 5 | .36 | 4 | .29 | 3 | .22 | ||||||||||||||||||||||||||||||
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Total commercial |
178 | .61 | 111 | .35 | 74 | .28 | 78 | .30 | 75 | .29 | ||||||||||||||||||||||||||||||
Commercial mortgages |
85 | 1.13 | 19 | .25 | (1 | ) | (.01 | ) | 7 | .10 | 3 | .04 | ||||||||||||||||||||||||||||
Construction and development |
(2 | ) | (.07 | ) | 3 | .11 | (1 | ) | (.04 | ) | -- | -- | 3 | .11 | ||||||||||||||||||||||||||
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Total commercial real estate |
83 | .81 | 22 | .22 | (2 | ) | (.02 | ) | 7 | .07 | 6 | .06 | ||||||||||||||||||||||||||||
Residential mortgages |
(3 | ) | (.02 | ) | (3 | ) | (.02 | ) | 1 | .01 | (1 | ) | (.01 | ) | (3 | ) | (.02 | ) | ||||||||||||||||||||||
Credit card |
201 | 3.63 | 229 | 4.28 | 234 | 3.95 | 230 | 3.79 | 211 | 3.53 | ||||||||||||||||||||||||||||||
Retail leasing (c) |
20 | .94 | 33 | 1.58 | 19 | .90 | 4 | .19 | 3 | .14 | ||||||||||||||||||||||||||||||
Home equity and second mortgages |
(2 | ) | (.06 | ) | -- | -- | 1 | .03 | -- | -- | (1 | ) | (.03 | ) | ||||||||||||||||||||||||||
Other |
38 | .43 | 45 | .54 | 66 | .79 | 67 | .79 | 61 | .72 | ||||||||||||||||||||||||||||||
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Total other retail |
56 | .39 | 78 | .56 | 86 | .61 | 71 | .49 | 63 | .43 | ||||||||||||||||||||||||||||||
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Total net charge-offs |
515 | .66 | 437 | .55 | 393 | .53 | 385 | .52 | 352 | .48 | ||||||||||||||||||||||||||||||
Provision for credit losses |
635 | 1,737 | 993 | 395 | 367 | |||||||||||||||||||||||||||||||||||
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Balance, end of period |
$8,010 | $7,890 | $6,590 | $4,491 | $4,481 | |||||||||||||||||||||||||||||||||||
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Components |
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Allowance for loan losses |
$7,407 | $7,383 | $6,216 | $4,020 | $4,007 | |||||||||||||||||||||||||||||||||||
Liability for unfunded credit commitments |
603 | 507 | 374 | 471 | 474 | |||||||||||||||||||||||||||||||||||
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Total allowance for credit losses |
$8,010 | $7,890 | $6,590 | $4,491 | $4,481 | |||||||||||||||||||||||||||||||||||
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Gross charge-offs |
$611 | $522 | $491 | $479 | $451 | |||||||||||||||||||||||||||||||||||
Gross recoveries |
$96 | $85 | $98 | $94 | $99 | |||||||||||||||||||||||||||||||||||
Allowance for credit losses as a percentage of |
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Period-end loans |
2.61 | 2.54 | 2.07 | 1.52 | 1.52 | |||||||||||||||||||||||||||||||||||
Nonperforming loans |
678 | 737 | 809 | 649 | 541 | |||||||||||||||||||||||||||||||||||
Nonperforming assets |
631 | 673 | 697 | 542 | 458 | |||||||||||||||||||||||||||||||||||
(a) Annualized and calculated on average loan balances
(b) Effective January 1, 2020, the Company adopted accounting guidance which changed impairment recognition of financial instruments to a model that is based on expected losses rather than incurred losses
(c) Includes end of term losses on residual lease values as of January 1, 2020 |
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9
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U.S. Bancorp Third Quarter 2020 Results | |
During the third quarter of 2020, economic conditions moderated in line with published expectations. Economic projections for both the gross domestic product and unemployment levels improved from the second quarter. In addition to these factors, expected loss estimates consider various factors including potential mitigating effects of government stimulus, estimated duration of the health crisis, customer specific information impacting changes in risk ratings, projected delinquencies and the impact of industry-wide loan modification efforts designed to limit long term effects of the pandemic, among other factors. As a result of these factors, the Companys provision for credit losses for the third quarter of 2020 was $635 million, which was $1,102 million lower than the prior quarter and $268 million higher than the third quarter of 2019. The Companys provision for the third quarter of 2020 included a $120 million increase in the allowance for credit losses to recognize the expected losses within the acquired State Farm credit card portfolio as well as higher net charge-offs driven by the ongoing effects of adverse economic conditions.
Total net charge-offs in the third quarter of 2020 were $515 million, compared with $437 million in the second quarter of 2020, and $352 million in the third quarter of 2019. The net charge-off ratio was 0.66 percent in the third quarter of 2020, compared with 0.55 percent in the second quarter of 2020 and 0.48 percent in the third quarter of 2019. Net charge-offs increased $78 million (17.8 percent) compared with the second quarter of 2020 mainly due to higher total commercial and total commercial real estate net charge-offs, partially offset by lower credit card and total other retail net charge-offs. Net charge-offs increased $163 million (46.3 percent) compared with the third quarter of 2019 primarily due to higher total commercial, total commercial real estate, and retail leasing net charge-offs, partly offset by lower other retail net charge-offs. The year-over-year increase in retail leasing net charge-offs reflects the inclusion of end of term losses on residual lease values as of January 1, 2020.
Nonperforming assets were $1,270 million at September 30, 2020, compared with $1,173 million at June 30, 2020, and $979 million at September 30, 2019. The ratio of nonperforming assets to loans and other real estate was 0.41 percent at September 30, 2020, compared with 0.38 percent at June 30, 2020, and 0.33 percent at September 30, 2019. The year-over-year increase in nonperforming assets was primarily due to increases in total commercial and total commercial real estate nonperforming loans. Accruing loans 90 days or more past due were $461 million at September 30, 2020, compared with $556 million at June 30, 2020, and $600 million at September 30, 2019. The Company expects credit losses and nonperforming assets to continue to increase given current economic conditions.
The allowance for credit losses was $8,010 million at September 30, 2020, compared with $7,890 million at June 30, 2020, and $4,481 million at September 30, 2019. The increase year-over-year was due to the impact of the change in accounting principle on January 1, 2020, which added $1.5 billion to the allowance for credit losses, along with the reserve build related to the potential economic impact of COVID-19. The increase on a linked quarter basis was primarily due to the reserve build related to the State Farm credit card portfolio acquisition. The ratio of the allowance for credit losses to period-end loans was 2.61 percent at September 30, 2020, compared with 2.54 percent at June 30, 2020, and 1.52 percent at September 30, 2019. The ratio of the allowance for credit losses to nonperforming loans was 678 percent at September 30, 2020, compared with 737 percent at June 30, 2020, and 541 percent at September 30, 2019.
10
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U.S. Bancorp Third Quarter 2020 Results | |
DELINQUENT LOAN RATIOS AS A PERCENT OF ENDING LOAN BALANCES | ||||||||||||||||||||
(Percent) | Sep 30 | Jun 30 | Mar 31 | Dec 31 | Sep 30 | |||||||||||||||
2020 | 2020 | 2020 | 2019 | 2019 | ||||||||||||||||
Delinquent loan ratios - 90 days or more past due excluding nonperforming loans |
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Commercial |
.06 | .07 | .06 | .08 | .10 | |||||||||||||||
Commercial real estate |
-- | -- | -- | .01 | .01 | |||||||||||||||
Residential mortgages |
.15 | .16 | .15 | .17 | .17 | |||||||||||||||
Credit card |
.91 | 1.22 | 1.29 | 1.23 | 1.16 | |||||||||||||||
Other retail |
.14 | .16 | .17 | .17 | .18 | |||||||||||||||
Total loans |
.15 | .18 | .18 | .20 | .20 | |||||||||||||||
Delinquent loan ratios - 90 days or more past due including nonperforming loans |
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Commercial |
.48 | .45 | .31 | .27 | .40 | |||||||||||||||
Commercial real estate |
.82 | .48 | .25 | .21 | .23 | |||||||||||||||
Residential mortgages |
.46 | .50 | .49 | .51 | .53 | |||||||||||||||
Credit card |
.91 | 1.22 | 1.29 | 1.23 | 1.16 | |||||||||||||||
Other retail |
.40 | .48 | .45 | .46 | .47 | |||||||||||||||
Total loans |
.53 | .52 | .44 | .44 | .49 | |||||||||||||||
11
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U.S. Bancorp Third Quarter 2020 Results | |
COMMON SHARES | ||||||||||||||||||||
(Millions) |
3Q 2020 |
2Q 2020 |
1Q 2020 |
4Q 2019 |
3Q 2019 |
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Beginning shares outstanding |
1,506 | 1,506 | 1,534 | 1,571 | 1,584 | |||||||||||||||
Shares issued for stock incentive plans, acquisitions and other corporate purposes |
-- | -- | 3 | 3 | 1 | |||||||||||||||
Shares repurchased |
-- | -- | (31 | ) | (40 | ) | (14 | ) | ||||||||||||
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Ending shares outstanding |
1,506 | 1,506 | 1,506 | 1,534 | 1,571 | |||||||||||||||
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Total U.S. Bancorp shareholders equity was $52.6 billion at September 30, 2020, compared with $51.9 billion at June 30, 2020, and $53.5 billion at September 30, 2019. Beginning in March 2020, the Company suspended all common stock repurchases except for those done exclusively in connection with its stock-based compensation programs. This action was initially taken by U.S. Bancorp to maintain strong capital levels given the impact and uncertainties of COVID-19 on the economy and global markets. Due to continued economic uncertainty, the Federal Reserve Board prohibited all large banks, including U.S. Bancorp, from making common stock repurchases during the third and fourth quarters.
All regulatory ratios continue to be in excess of well-capitalized requirements. The common equity tier 1 capital to risk-weighted assets ratio using the Basel III standardized approach was 9.4 percent at September 30, 2020, compared with 9.0 percent at June 30, 2020, and 9.6 percent at September 30, 2019. The Companys common equity tier 1 capital to risk-weighted assets ratio, reflecting the full implementation of the current expected credit losses methodology was 9.0 percent at September 30, 2020, compared with 8.7 percent at June 30, 2020.
12
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U.S. Bancorp Third Quarter 2020 Results | |
Investor Conference Call |
On Wednesday, October 14, 2020, at 8 a.m. CT, Chairman, President and Chief Executive Officer Andy Cecere and Vice Chair and Chief Financial Officer Terry Dolan will host a conference call to review the financial results. The conference call will be available online or by telephone. To access the webcast and presentation, visit U.S. Bancorps website at usbank.com and click on About Us, Investor Relations and Webcasts & Presentations. To access the conference call from locations within the United States and Canada, please dial 866.316.1409. Participants calling from outside the United States and Canada, please dial 706.634.9086. The conference ID number for all participants is 1895575. For those unable to participate during the live call, a recording will be available at approximately 11:00 a.m. CT on Wednesday, October 14 and will be accessible until Wednesday, October 21 at 11:59 p.m. CT. To access the recorded message within the United States and Canada, please dial 855.859.2056. If calling from outside the United States and Canada, please dial 404.537.3406 to access the recording. The conference ID is 1895575.
About U.S. Bancorp |
U.S. Bancorp, with more than 70,000 employees and $540 billion in assets as of September 30, 2020, is the parent company of U.S. Bank National Association, the fifth-largest commercial bank in the United States. The Minneapolis-based bank blends its relationship teams, branches and ATM network with mobile and online tools that allow customers to bank how, when and where they prefer. U.S. Bank is committed to serving its millions of retail, business, wealth management, payment, commercial and corporate, and investment services customers across the country and around the world as a trusted financial partner, a commitment recognized by the Ethisphere Institute naming the bank one of the 2020 Worlds Most Ethical Companies. Visit U.S. Bank at www.usbank.com or follow on social media to stay up to date with company news.
Forward-looking Statements |
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:
This press release contains forward-looking statements about U.S. Bancorp. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements and are based on the information available to, and assumptions and estimates made by, management as of the date hereof. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of U.S. Bancorp. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated. The COVID-19 pandemic is adversely affecting U.S. Bancorp, its customers, counterparties, employees, and third-party service providers, and the ultimate extent of the impacts on its business, financial position, results of operations, liquidity, and prospects is uncertain. Continued deterioration in general business and economic conditions or turbulence in domestic or global financial markets could adversely affect U.S. Bancorps revenues and the values of its assets and liabilities, reduce the availability of funding to certain financial institutions, lead to a tightening of credit, and increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices could affect U.S. Bancorp in substantial and unpredictable ways. U.S. Bancorps results could also be adversely affected by changes in interest rates; further increases in unemployment rates; deterioration in the credit quality of its loan portfolios or in the value of the collateral securing those loans; deterioration in the value of its investment securities; legal and regulatory developments; litigation; increased competition from both banks and non-banks; changes in the level of tariffs and other trade policies of the United States and its global trading partners; changes in customer behavior and preferences; breaches in data security; failures to safeguard personal information; effects of mergers and acquisitions and related integration; effects of critical accounting policies and judgments; and managements ability to effectively manage credit risk, market risk, operational risk, compliance risk, strategic risk, interest rate risk, liquidity risk and reputation risk.
For discussion of these and other risks that may cause actual results to differ from expectations, refer to U.S. Bancorps Annual Report on Form 10-K for the year ended December 31, 2019, on file with the Securities and Exchange Commission, including the sections entitled Corporate Risk Profile and Risk Factors contained in Exhibit 13, and all subsequent filings with the Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, including the section entitled Risk Factors in the Quarterly Report on Form 10-Q for the quarter ended June 30, 2020. In addition, factors other than these risks also could adversely affect U.S. Bancorps results, and the reader should not consider these risks to be a complete set of all potential risks or uncertainties. Forward-looking statements speak only as of the date hereof, and U.S. Bancorp undertakes no obligation to update them in light of new information or future events.
13
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U.S. Bancorp Third Quarter 2020 Results | |
Non-GAAP Financial Measures
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In addition to capital ratios defined by banking regulators, the Company considers various other measures when evaluating capital utilization and adequacy, including:
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Tangible common equity to tangible assets |
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Tangible common equity to risk-weighted assets |
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Common equity tier 1 capital to risk-weighted assets, reflecting the full implementation of the current expected credit losses methodology, and |
|
Return on tangible common equity. |
These capital measures are viewed by management as useful additional methods of evaluating the Companys utilization of its capital held and the level of capital available to withstand unexpected negative market or economic conditions. Additionally, presentation of these measures allows investors, analysts and banking regulators to assess the Companys capital position relative to other financial services companies. These capital measures are not defined in generally accepted accounting principles (GAAP) or are not currently effective or defined in banking regulations. In addition, certain of these measures differ from currently effective capital ratios defined by banking regulations principally in that the currently effective ratios, which are subject to certain transitional provisions, temporarily exclude the impact of the first quarter of 2020 adoption of accounting guidance related to impairment of financial instruments based on the current expected credit losses methodology. As a result, these capital measures disclosed by the Company may be considered non-GAAP financial measures. Management believes this information helps investors assess trends in the Companys capital adequacy.
The Company also discloses net interest income and related ratios and analysis on a taxable-equivalent basis, which may also be considered non-GAAP financial measures. The Company believes this presentation to be the preferred industry measurement of net interest income as it provides a relevant comparison of net interest income arising from taxable and tax-exempt sources. In addition, certain performance measures, including the efficiency ratio and net interest margin utilize net interest income on a taxable-equivalent basis.
There may be limits in the usefulness of these measures to investors. As a result, the Company encourages readers to consider the consolidated financial statements and other financial information contained in this press release in their entirety, and not to rely on any single financial measure. A table follows that shows the Companys calculation of these non-GAAP financial measures.
14
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CONSOLIDATED STATEMENT OF INCOME | ||||||||||||||||
(Dollars and Shares in Millions, Except Per Share Data) |
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||||
(Unaudited) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Interest Income |
||||||||||||||||
Loans |
$2,892 | $3,555 | $9,152 | $10,677 | ||||||||||||
Loans held for sale |
61 | 48 | 157 | 107 | ||||||||||||
Investment securities |
586 | 734 | 1,908 | 2,184 | ||||||||||||
Other interest income |
34 | 100 | 144 | 271 | ||||||||||||
Total interest income |
3,573 | 4,437 | 11,361 | 13,239 | ||||||||||||
Interest Expense |
||||||||||||||||
Deposits |
130 | 744 | 849 | 2,201 | ||||||||||||
Short-term borrowings |
19 | 97 | 124 | 281 | ||||||||||||
Long-term debt |
197 | 315 | 738 | 912 | ||||||||||||
Total interest expense |
346 | 1,156 | 1,711 | 3,394 | ||||||||||||
Net interest income |
3,227 | 3,281 | 9,650 | 9,845 | ||||||||||||
Provision for credit losses |
635 | 367 | 3,365 | 1,109 | ||||||||||||
Net interest income after provision for credit losses |
2,592 | 2,914 | 6,285 | 8,736 | ||||||||||||
Noninterest Income |
||||||||||||||||
Credit and debit card revenue |
388 | 366 | 976 | 1,035 | ||||||||||||
Corporate payment products revenue |
125 | 177 | 371 | 506 | ||||||||||||
Merchant processing services |
347 | 410 | 950 | 1,192 | ||||||||||||
Trust and investment management fees |
434 | 421 | 1,295 | 1,235 | ||||||||||||
Deposit service charges |
170 | 234 | 512 | 678 | ||||||||||||
Treasury management fees |
145 | 139 | 425 | 438 | ||||||||||||
Commercial products revenue |
303 | 240 | 904 | 708 | ||||||||||||
Mortgage banking revenue |
553 | 272 | 1,596 | 630 | ||||||||||||
Investment products fees |
48 | 46 | 142 | 138 | ||||||||||||
Securities gains (losses), net |
12 | 25 | 143 | 47 | ||||||||||||
Other |
187 | 284 | 537 | 788 | ||||||||||||
Total noninterest income |
2,712 | 2,614 | 7,851 | 7,395 | ||||||||||||
Noninterest Expense |
||||||||||||||||
Compensation |
1,687 | 1,595 | 4,992 | 4,728 | ||||||||||||
Employee benefits |
335 | 324 | 1,001 | 971 | ||||||||||||
Net occupancy and equipment |
276 | 279 | 823 | 837 | ||||||||||||
Professional services |
102 | 114 | 307 | 315 | ||||||||||||
Marketing and business development |
72 | 109 | 213 | 309 | ||||||||||||
Technology and communications |
334 | 277 | 932 | 804 | ||||||||||||
Postage, printing and supplies |
70 | 74 | 214 | 219 | ||||||||||||
Other intangibles |
44 | 42 | 129 | 124 | ||||||||||||
Other |
451 | 330 | 1,394 | 1,077 | ||||||||||||
Total noninterest expense |
3,371 | 3,144 | 10,005 | 9,384 | ||||||||||||
Income before income taxes |
1,933 | 2,384 | 4,131 | 6,747 | ||||||||||||
Applicable income taxes |
347 | 467 | 671 | 1,294 | ||||||||||||
Net income |
1,586 | 1,917 | 3,460 | 5,453 | ||||||||||||
Net (income) loss attributable to noncontrolling interests |
(6 | ) | (9 | ) | (20 | ) | (25 | ) | ||||||||
Net income attributable to U.S. Bancorp |
$1,580 | $1,908 | $3,440 | $5,428 | ||||||||||||
Net income applicable to U.S. Bancorp common shareholders |
$1,494 | $1,821 | $3,196 | $5,175 | ||||||||||||
Earnings per common share |
$.99 | $1.16 | $2.12 | $3.26 | ||||||||||||
Diluted earnings per common share |
$.99 | $1.15 | $2.11 | $3.25 | ||||||||||||
Dividends declared per common share |
$.42 | $.42 | $1.26 | $1.16 | ||||||||||||
Average common shares outstanding |
1,506 | 1,575 | 1,510 | 1,589 | ||||||||||||
Average diluted common shares outstanding |
1,507 | 1,578 | 1,511 | 1,592 |
15
|
CONSOLIDATED ENDING BALANCE SHEET |
|
|||||||||||
(Dollars in Millions) |
September 30, 2020 |
December 31, 2019 |
September 30, 2019 |
|||||||||
Assets |
(Unaudited) | (Unaudited) | ||||||||||
Cash and due from banks |
$44,047 | $22,405 | $15,272 | |||||||||
Investment securities |
||||||||||||
Held-to-maturity |
-- | -- | 46,481 | |||||||||
Available-for-sale |
134,032 | 122,613 | 74,598 | |||||||||
Loans held for sale |
7,618 | 5,578 | 4,528 | |||||||||
Loans |
||||||||||||
Commercial |
110,764 | 103,863 | 104,654 | |||||||||
Commercial real estate |
40,380 | 39,746 | 39,268 | |||||||||
Residential mortgages |
76,789 | 70,586 | 69,378 | |||||||||
Credit card |
21,898 | 24,789 | 23,890 | |||||||||
Other retail |
57,154 | 57,118 | 57,448 | |||||||||
Total loans |
306,985 | 296,102 | 294,638 | |||||||||
Less allowance for loan losses |
(7,407 | ) | (4,020 | ) | (4,007 | ) | ||||||
Net loans |
299,578 | 292,082 | 290,631 | |||||||||
Premises and equipment |
3,516 | 3,702 | 3,673 | |||||||||
Goodwill |
9,889 | 9,655 | 9,632 | |||||||||
Other intangible assets |
2,654 | 3,223 | 2,983 | |||||||||
Other assets |
39,121 | 36,168 | 39,873 | |||||||||
Total assets |
$540,455 | $495,426 | $487,671 | |||||||||
Liabilities and Shareholders Equity |
||||||||||||
Deposits |
||||||||||||
Noninterest-bearing |
$114,583 | $75,590 | $82,232 | |||||||||
Interest-bearing |
298,634 | 286,326 | 277,483 | |||||||||
Total deposits |
413,217 | 361,916 | 359,715 | |||||||||
Short-term borrowings |
13,723 | 23,723 | 14,579 | |||||||||
Long-term debt |
42,443 | 40,167 | 41,274 | |||||||||
Other liabilities |
17,877 | 17,137 | 17,956 | |||||||||
Total liabilities |
487,260 | 442,943 | 433,524 | |||||||||
Shareholders equity |
||||||||||||
Preferred stock |
5,984 | 5,984 | 5,984 | |||||||||
Common stock |
21 | 21 | 21 | |||||||||
Capital surplus |
8,516 | 8,475 | 8,490 | |||||||||
Retained earnings |
63,391 | 63,186 | 62,419 | |||||||||
Less treasury stock |
(25,959 | ) | (24,440 | ) | (22,224 | ) | ||||||
Accumulated other comprehensive income (loss) |
612 | (1,373 | ) | (1,173 | ) | |||||||
Total U.S. Bancorp shareholders equity |
52,565 | 51,853 | 53,517 | |||||||||
Noncontrolling interests |
630 | 630 | 630 | |||||||||
Total equity |
53,195 | 52,483 | 54,147 | |||||||||
Total liabilities and equity |
$540,455 | $495,426 | $487,671 |
16
|
NON-GAAP FINANCIAL MEASURES |
|
|||||||||||||||||||
(Dollars in Millions, Unaudited) |
September 30, 2020 |
June 30, 2020 |
March 31, 2020 |
December 31, 2019 |
September 30, 2019 |
|||||||||||||||
Total equity |
$53,195 | $52,480 | $52,162 | $52,483 | $54,147 | |||||||||||||||
Preferred stock |
(5,984 | ) | (5,984 | ) | (5,984 | ) | (5,984 | ) | (5,984 | ) | ||||||||||
Noncontrolling interests |
(630 | ) | (630 | ) | (630 | ) | (630 | ) | (630 | ) | ||||||||||
Goodwill (net of deferred tax liability) (1) |
(8,992 | ) | (8,954 | ) | (8,958 | ) | (8,788 | ) | (8,781 | ) | ||||||||||
Intangible assets, other than mortgage servicing rights |
(676 | ) | (678 | ) | (742 | ) | (677 | ) | (687 | ) | ||||||||||
Tangible common equity (a) |
36,913 | 36,234 | 35,848 | 36,404 | 38,065 | |||||||||||||||
Common equity tier 1 capital, determined in accordance with transitional regulatory capital requirements related to the current expected credit losses methodology implementation |
37,485 | 36,351 | 36,224 | |||||||||||||||||
Adjustments (2)
|
(1,733 | ) | (1,702 | ) | (1,377 | ) | ||||||||||||||
Common equity tier 1 capital, reflecting the full implementation of the current expected credit losses methodology (b) |
35,752 | 34,649 | 34,847 | |||||||||||||||||
Total assets |
540,455 | 546,652 | 542,909 | 495,426 | 487,671 | |||||||||||||||
Goodwill (net of deferred tax liability) (1) |
(8,992 | ) | (8,954 | ) | (8,958 | ) | (8,788 | ) | (8,781 | ) | ||||||||||
Intangible assets, other than mortgage servicing rights |
(676 | ) | (678 | ) | (742 | ) | (677 | ) | (687 | ) | ||||||||||
Tangible assets (c) |
530,787 | 537,020 | 533,209 | 485,961 | 478,203 | |||||||||||||||
Risk-weighted assets, determined in accordance with prescribed regulatory capital requirements effective for the Company (d) |
397,657 | * | 401,832 | 404,627 | 391,269 | 390,622 | ||||||||||||||
Adjustments (3) |
(1,449 | ) * | (1,394 | ) | (958 | ) | ||||||||||||||
Risk-weighted assets, reflecting the full implementation of the current expected credit losses methodology (e) |
396,208 | * | 400,438 | 403,669 | ||||||||||||||||
Ratios* |
||||||||||||||||||||
Tangible common equity to tangible assets (a)/(c) |
7.0 | % | 6.7 | % | 6.7 | % | 7.5 | % | 8.0 | % | ||||||||||
Tangible common equity to risk-weighted assets (a)/(d) |
9.3 | 9.0 | 8.9 | 9.3 | 9.7 | |||||||||||||||
Common equity tier 1 capital to risk-weighted assets, reflecting the full implementation of the current expected credit losses methodology (b)/(e) |
9.0 | 8.7 | 8.6 | |||||||||||||||||
Three Months Ended | ||||||||||||||||||||
September 30, 2020 |
June 30, 2020 |
March 31, 2020 |
December 31, 2019 |
September 30, 2019 |
||||||||||||||||
Net income applicable to U.S. Bancorp common shareholders |
$1,494 | $614 | $1,088 | $1,408 | $1,821 | |||||||||||||||
Intangibles amortization (net-of-tax) |
35 | 34 | 33 | 35 | 33 | |||||||||||||||
Net income applicable to U.S. Bancorp common shareholders, excluding intangibles amortization |
1,529 | 648 | 1,121 | 1,443 | 1,854 | |||||||||||||||
Annualized net income applicable to U.S. Bancorp common shareholders, excluding intangible amortization (f) |
6,083 | 2,606 | 4,509 | 5,725 | 7,356 | |||||||||||||||
Average total equity |
53,046 | 52,871 | 51,776 | 53,777 | 53,921 | |||||||||||||||
Average preferred stock |
(5,984) | (5,984) | (5,984) | (5,984) | (5,984) | |||||||||||||||
Average noncontrolling interests |
(630) | (630) | (630) | (630) | (629) | |||||||||||||||
Average goodwill (net of deferred tax liability) (1) |
(8,975) | (8,960) | (8,825) | (8,796) | (8,725) | |||||||||||||||
Average intangible assets, other than mortgage servicing rights |
(711) | (706) | (688) | (683) | (689) | |||||||||||||||
Average tangible common equity (g) |
36,746 | 36,591 | 35,649 | 37,684 | 37,894 | |||||||||||||||
Return on tangible common equity (f)/(g) |
16.6 | % | 7.1 | % | 12.6 | % | 15.2 | % | 19.4 | % | ||||||||||
Net interest income |
$3,227 | $3,200 | $3,223 | $3,207 | $3,281 | |||||||||||||||
Taxable-equivalent adjustment (4) |
25 | 24 | 24 | 24 | 25 | |||||||||||||||
Net interest income, on a taxable-equivalent basis |
3,252 | 3,224 | 3,247 | 3,231 | 3,306 | |||||||||||||||
Net interest income, on a taxable-equivalent basis (as calculated above) |
3,252 | 3,224 | 3,247 | 3,231 | 3,306 | |||||||||||||||
Noninterest income |
2,712 | 2,614 | 2,525 | 2,436 | 2,614 | |||||||||||||||
Less: Securities gains (losses), net |
12 | 81 | 50 | 26 | 25 | |||||||||||||||
Total net revenue, excluding net securities gains (losses) (h) |
5,952 | 5,757 | 5,722 | 5,641 | 5,895 | |||||||||||||||
Noninterest expense (i) |
3,371 | 3,318 | 3,316 | 3,401 | 3,144 | |||||||||||||||
Less: Intangible amortization |
44 | 43 | 42 | 44 | 42 | |||||||||||||||
Noninterest expense, excluding intangible amortization (j) |
3,327 | 3,275 | 3,274 | 3,357 | 3,102 | |||||||||||||||
Efficiency ratio (i)/(h) |
56.6 | % | 57.6 | % | 58.0 | % | 60.3 | % | 53.3 | % | ||||||||||
Tangible efficiency ratio (j)/(h) |
55.9 | 56.9 | 57.2 | 59.5 | 52.6 |
* |
Preliminary data. Subject to change prior to filings with applicable regulatory agencies. |
(1) |
Includes goodwill related to certain investments in unconsolidated financial institutions per prescribed regulatory requirements. |
(2) |
Includes the estimated increase in the allowance for credit losses related to the adoption of the current expected credit losses methodology net of deferred taxes. |
(3) |
Includes the impact of the estimated increase in the allowance for credit losses related to the adoption of the current expected credit losses methodology. |
(4) |
Based on a federal income tax rate of 21 percent for those assets and liabilities whose income or expense is not included for federal income tax purposes. |
17
|
||
Lines of Business
The Companys major lines of business are Corporate and Commercial Banking, Consumer and Business Banking, Wealth Management and Investment Services, Payment Services, and Treasury and Corporate Support. These operating segments are components of the Company about which financial information is prepared and is evaluated regularly by management in deciding how to allocate resources and assess performance. Business line results are derived from the Companys business unit profitability reporting systems by specifically attributing managed balance sheet assets, deposits and other liabilities and their related income or expense. Designations, assignments and allocations change from time to time as management systems are enhanced, methods of evaluating performance or product lines change or business segments are realigned to better respond to the Companys diverse customer base. During 2020, certain organization and methodology changes were made and, accordingly, prior period results were restated and presented on a comparable basis.
2
|
||
Corporate and Commercial Banking offers lending, equipment finance and small-ticket leasing, depository services, treasury management, capital markets services, international trade services and other financial services to middle market, large corporate, commercial real estate, financial institution, non-profit and public sector clients.
Corporate and Commercial Banking contributed $421 million of the Companys net income in the third quarter of 2020, compared with $406 million in the third quarter of 2019. Total net revenue increased $89 million (9.1 percent) due to an increase of $41 million (5.3 percent) in net interest income and an increase of $48 million (22.6 percent) in total noninterest income. Net interest income increased primarily due to strong loan growth, loan fees, and higher noninterest-bearing and interest-bearing deposit balances, partially offset by the impact on net interest margin of lower spreads on loans, reflecting changing interest rates given the economic environment. Total noninterest income increased year-over-year primarily due to higher corporate bond issuance fees and trading activities as corporate customers access the fixed income capital markets for bond issuances. Total noninterest expense was $18 million (4.5 percent) higher compared with a year ago primarily driven by higher compensation expense due to merit and variable compensation related to fixed income capital markets business production and higher FDIC insurance expense, partially offset by lower net shared services expense and lower other noninterest expense due to a reduction in travel as a result of COVID-19. The provision for credit losses increased $51 million primarily due to higher net charge-offs, partially offset by a favorable change in the reserve allocation driven by a linked quarter decline in loan balances net of the impact of credit risk rating downgrades.
3
|
||
Consumer and Business Banking delivers products and services through banking offices, telephone servicing and sales, on-line services, direct mail, ATM processing and mobile devices. It encompasses community banking, metropolitan banking and indirect lending, as well as mortgage banking.
Consumer and Business Banking contributed $758 million of the Companys net income in the third quarter of 2020, compared with $655 million in the third quarter of 2019. Total net revenue increased $226 million (10.0 percent) reflecting essentially flat net interest income and an increase of $225 million (33.8 percent) in total noninterest income. Net interest income reflects higher noninterest-bearing and interest-bearing deposit balances and loan growth driven in part by loans made under the SBAs Paycheck Protection Program and higher GNMA buybacks, mostly offset by the impact of declining interest rates on deposit spreads. Total noninterest income increased primarily due to higher mortgage production and stronger gain on sale margins, partially offset by the unfavorable net impact of the change in fair value of mortgage servicing rights, net of hedging activities. Other noninterest income increased primarily due to higher than expected retail leasing end of term residual gains. Partially offsetting this favorability, deposit service charges declined primarily due to lower volume. Total noninterest expense in the third quarter of 2020 increased $84 million (6.3 percent) primarily due to higher net shared services expense reflecting the impact of investment in infrastructure supporting business growth and higher variable compensation related to strong mortgage banking origination activities, partially offset by lower other noninterest expense due to a reduction in travel as a result of COVID-19. The provision for credit losses increased $4 million (5.8 percent) due to an unfavorable change in the reserve allocation, mostly offset by lower net charge-offs reflecting stability in credit quality and a reduction in outstanding loan balances.
4
|
||
Wealth Management and Investment Services provides private banking, financial advisory services, investment management, retail brokerage services, insurance, trust, custody and fund servicing through four businesses: Wealth Management, Global Corporate Trust & Custody, U.S. Bancorp Asset Management and Fund Services.
Wealth Management and Investment Services contributed $168 million of the Companys net income in the third quarter of 2020, compared with $229 million in the third quarter of 2019. Total net revenue decreased $40 million (5.3 percent) year-over-year reflecting a decrease in net interest income of $55 million (18.6 percent), partly offset by an increase of $15 million (3.3 percent) in noninterest income. Net interest income decreased year-over-year primarily due to the declining margin benefit of deposits, given lower interest rates, and lower interest-bearing deposit balances, partially offset by higher noninterest-bearing deposits and favorable deposit mix. Total noninterest income increased primarily due to the impact of favorable market conditions and business growth on trust and investment management fees, partially offset by higher fee waivers related to the money market funds. Total noninterest expense increased $31 million (7.0 percent) compared with the third quarter of 2019 reflecting increased net shared services expense due to technology development, along with higher other noninterest expense due to the allocation to the business line of previously reserved legal matters, and higher compensation expense due to the impact of merit increases, partially offset by lower other noninterest expense due to a reduction in travel as a result of COVID-19. The provision for credit losses increased $11 million reflecting an unfavorable change in the reserve allocation driven by downgrades within the loan portfolio.
5
|
||
Payment Services includes consumer and business credit cards, stored-value cards, debit cards, corporate, government and purchasing card services, consumer lines of credit and merchant processing.
Payment Services contributed $313 million of the Companys net income in the third quarter of 2020, compared with $398 million in the third quarter of 2019. Total net revenue decreased $85 million (5.4 percent) due to an increase of $5 million (0.8 percent) in net interest income that was more than offset by a decrease of $90 million (9.4 percent) in total noninterest income. Net interest income increased primarily due to favorable margin benefit of deposits and higher deposit balances as a result of state unemployment programs utilizing prepaid cards, mostly offset by lower loan volume, loan spreads, and balance transfer loan fees. Total noninterest income decreased year-over-year mainly due to the impacts of COVID-19 on consumer and business spending volume in merchant processing services and corporate payment products. Credit and debit card revenue increased due to higher prepaid card fees as a result of state unemployment programs. Excluding this impact, credit and debit card revenues decreased compared to the third quarter of 2019 consistent with lower sales volumes compared to a year ago. Total noninterest expense increased $42 million (5.3 percent) reflecting incremental costs related to the prepaid card business and higher software expense due to capital expenditures and acquisitions, partially offset by lower marketing and business development expense due to the timing of certain marketing campaigns. The provision for credit losses decreased $14 million (5.4 percent) primarily due to lower net charge-offs and a favorable change in the reserve allocation driven by lower outstanding loan balances and lower delinquency rates, partially offset by the impact of allowance for credit losses to recognize the expected losses within the acquired State Farm credit card portfolio.
6
|
||
Treasury and Corporate Support includes the Companys investment portfolios, funding, capital management, interest rate risk management, income taxes not allocated to the business lines, including most investments in tax-advantaged projects, and the residual aggregate of those expenses associated with corporate activities that are managed on a consolidated basis.
Treasury and Corporate Support recorded a net loss of $80 million in the third quarter of 2020, compared with net income of $220 million in the third quarter of 2019. Total net revenue decreased $146 million (43.2 percent) year-over-year driven by decreases in net interest income of $46 million and $100 million (30.8 percent) in total noninterest income. Net interest income decreased primarily due to higher prepayment amortization and lower reinvestment yields within the investment portfolio compared with a year ago. Total noninterest income decreased primarily due to lower equity investment income, tax-advantaged investment syndication revenue, certain asset impairments as a result of branch optimization initiatives and lower securities gains. Total noninterest expense increased $52 million (28.4 percent) year-over-year primarily due to recognition of liabilities related to airline exposure and COVID-related expenses. The provision for credit losses increased $216 million reflecting the residual impact of changes in the allowance for credit losses being impacted by adverse economic conditions and the expected credit losses within the Companys loan portfolios. Income taxes are assessed to each line of business at a managerial tax rate of 25.0 percent with the residual tax expense or benefit to arrive at the consolidated effective tax rate included in Treasury and Corporate Support.
7
U.S. Bancorp 3Q20 Earnings Conference Call October 14, 2020 Exhibit 99.2
Forward-looking Statements and Additional Information The following information appears in accordance with the Private Securities Litigation Reform Act of 1995: This presentation contains forward-looking statements about U.S. Bancorp. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements and are based on the information available to, and assumptions and estimates made by, management as of the date hereof. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of U.S. Bancorp. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated. The COVID-19 pandemic is adversely affecting U.S. Bancorp, its customers, counterparties, employees, and third-party service providers, and the ultimate extent of the impacts on its business, financial position, results of operations, liquidity, and prospects is uncertain. Continued deterioration in general business and economic conditions or turbulence in domestic or global financial markets could adversely affect U.S. Bancorp’s revenues and the values of its assets and liabilities, reduce the availability of funding to certain financial institutions, lead to a tightening of credit, and increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices could affect U.S. Bancorp in substantial and unpredictable ways. U.S. Bancorp’s results could also be adversely affected by changes in interest rates; further increases in unemployment rates; deterioration in the credit quality of its loan portfolios or in the value of the collateral securing those loans; deterioration in the value of its investment securities; legal and regulatory developments; litigation; increased competition from both banks and non-banks; changes in the level of tariffs and other trade policies of the United States and its global trading partners; changes in customer behavior and preferences; breaches in data security; failures to safeguard personal information; effects of mergers and acquisitions and related integration; effects of critical accounting policies and judgments; and management’s ability to effectively manage credit risk, market risk, operational risk, compliance risk, strategic risk, interest rate risk, liquidity risk and reputation risk. For discussion of these and other risks that may cause actual results to differ from expectations, refer to U.S. Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2019, on file with the Securities and Exchange Commission, including the sections entitled “Risk Factors” and “Corporate Risk Profile” contained in Exhibit 13, and all subsequent filings with the Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, including the section entitled “Risk Factors” in the Quarterly Report on Form 10-Q for the quarter ended June 30, 2020. In addition, factors other than these risks also could adversely affect U.S. Bancorp’s results, and the reader should not consider these risks to be a complete set of all potential risks or uncertainties. Forward-looking statements speak only as of the date hereof, and U.S. Bancorp undertakes no obligation to update them in light of new information or future events. This presentation includes non-GAAP financial measures to describe U.S. Bancorp’s performance. The calculations of these measures are provided in the Appendix. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.
3Q20 Highlights * Taxable-equivalent basis; see slide 29 for calculation ** Common equity tier 1 capital to risk-weighted assets, reflecting the full implementation of the current expected credit losses methodology was 9.0% as of 9/30/20.
Performance Ratios Efficiency Ratio* & Net Interest Margin** * Non-GAAP; see slides 29 and 30 for calculations ** Net interest margin on a taxable-equivalent basis Return on Average Common Equity Return on Tangible Common Equity* Return on Average Assets
Digital Engagement Trends Three months ended Three months ended * Represents core Consumer Banking customers active in at least one channel in the previous 90 days Total Digital includes both online and mobile platforms
Average Loans -2.2% linked quarter +6.4% year-over-year On a linked quarter basis, average total loans were lower primarily driven by a decline in total commercial loans, reflecting continued paydowns by corporate customers, partially offset by higher residential mortgages given the lower interest rate environment and higher GNMA buybacks. The increase in credit card loans was primarily due to the acquisition of the State Farm credit card portfolio in the third quarter of 2020. On a year-over-year basis, growth in average total loans was primarily driven by higher total commercial loans, reflecting the impact of loans made under the SBA’s Paycheck Protection Program, as well as growth in residential mortgages given the lower interest rate environment and higher GNMA buybacks. These increases were partially offset by lower credit card loans and home equity and second mortgages. $ in billions
Average Deposits $ in billions +0.6% linked quarter +15.9% year-over-year Interest-bearing Deposits Average noninterest-bearing (NIB) deposits increased on both a linked quarter and year-over-year basis, both were primarily driven by Corporate and Commercial Banking, and Consumer and Business Banking, while Wealth Management and Investment Services also drove year-over-year growth. Average time deposits, which are managed based on funding needs, relative pricing and liquidity characteristics, were lower on both a linked quarter and year-over-year basis. On a linked quarter basis the decrease was primarily driven by Corporate and Commercial Banking. The growth in average noninterest-bearing deposits and total average savings deposits year-over-year was primarily a result of the actions by the federal government to increase liquidity in the financial system, customers maintaining balance sheet liquidity by utilizing existing credit facilities and government stimulus programs.
Credit Quality $ in millions NCO Ratio +11 bps QoQ +18 bps YoY NPAs +8.3% QoQ +29.7% YoY
Credit Risk Management – Consistent Underwriting Allowance for Credit Losses by Loan Class, 3Q20 Key Points Debt rating agencies: Moody’s and S&P * FICO and LTV at origination Prime-based lender for retail portfolios Investment grade equivalent in commercial portfolios with limited leveraged lending Commercial Real Estate lending is relationship-based with consistent underwriting Disciplined Credit Underwriting, 3Q20 Wtd Avg FICO/Bond rating equivalent* Avg LTV* Residential mortgage 772 69% Home equity 797 62% Auto loan 794 97% Auto lease 786 92% Credit card 778 N/A Commercial Baa3/BBB- N/A Commercial real estate Ba1/BB+ 62% Amount ($B) Loans and Leases Outstanding (%) Commercial $2.5 2.2% Commercial Real Estate $1.4 3.6% Residential Mortgage $0.6 0.8% Credit Card $2.3 10.6% Other Retail $1.2 2.0% Total $8.0 2.6%
Segments Outstanding Balances ($B) Segment Loans (%) Outstanding Balances ($B) Segment Loans (%) Commercial $3.5 2.9% $0.4 0.4% Commercial Real Estate $5.4 13.1% $0.7 1.6% Residential Mortgages** $5.4 7.6% $4.2 5.5% Credit Cards $0.2 0.8% $0.1 0.4% Other Retail $1.7 3.1% $0.8 1.4% Total $16.2 5.2% $6.2 2.0% Credit Risk Management – COVID-19 Impacted Industries * Payment relief generally includes payment deferrals, forbearances, extensions and re-ages ** Residential mortgages are on balance sheet only and exclude GNMA Buybacks, which are government guaranteed. As of June 30, 2020, and September 30, 2020, 35.8% and 64.1%, respectively, of the GNMA Buybacks were in payment relief *** Excludes operating leases and discretionary unfunded commitments Loans (%) Commitments (%) Loans (%) Commitments (%) Retail 4.6% 5.4% 4.1% 5.4% Malls (Secured & REITs) 0.6% 0.5% 0.5% 0.4% Energy 1.1% 2.3% 0.9% 2.2% Media & Entertainment 2.2% 2.2% 2.1% 2.1% Lodging 1.4% 1.1% 1.4% 1.1% Airline 0.6% 0.6% 0.5% 0.6% Payment Relief* Commitments for impacted industries were stable to slightly lower from the prior quarter Volume of new payment relief has reached a steady state since peaking in April 2020 Initial payment performance as borrowers exit payment relief is in line with expectations Commercial Exposures by Impacted Industries*** Key Points As of 6/30/20 As of 9/30/20 As of 6/30/20 As of 9/30/20
Earnings Summary
Net Interest Income Linked Quarter Net interest income increased, primarily driven by deposit and funding mix, one additional day in the third quarter and higher loan fees, partially offset by higher premium amortization within the investment portfolio and a decrease in loan volume. The net interest margin increased, reflecting the impact of lower cash balances. Year-over-Year Net interest income decreased, principally driven by the impact of lower rates from a year ago, partially offset by deposit and funding mix as well as loan growth. The net interest margin decreased, primarily due to the impact of lower rates and changes in the yield curve, loan mix, a decision to maintain higher cash balances for liquidity and higher premium amortization, partially offset by deposit and funding mix. $ in millions Net interest income on a taxable-equivalent basis; see slide 29 for calculation +0.9% linked quarter -1.6% year-over-year
Noninterest Income $ in millions; Payments = credit and debit card, corporate payment products and merchant processing; Service charges = deposit service charges and treasury management; All other = commercial products, investment products fees, securities gains (losses) and other +3.7% linked quarter +3.7% year-over-year Linked Quarter Payment services revenue increased, driven by higher credit and debit card revenue, higher corporate payment products revenue and higher merchant processing services revenue, primarily driven by higher sales volume due to the impact of the COVID-19 pandemic on spending in the second quarter of 2020 and state unemployment distributions on prepaid debit cards in the third quarter of 2020. Deposit service charges increased, primarily due to higher volume and lower fee waivers related to customers impacted by COVID-19 compared with the second quarter of 2020. Mortgage banking revenue decreased, due to lower mortgage production and related gain on sale margins, partially offset by the favorable net impact of the change in fair value of mortgage servicing rights, net of hedging activities. Year-over-Year Credit and debit card revenue includes significantly higher prepaid card fees in the third quarter of 2020 related to the lagged impact of stimulus programs in the second quarter of 2020. Excluding the impact of prepaid card fees, credit and debit card revenues declined, due to consumer spending behaviors. Commercial products revenue increased, primarily due to higher corporate bond issuance fees and trading activities. Mortgage banking revenue increased, due to higher mortgage production and stronger gain on sale margins, partially offset by the unfavorable net impact of the change in fair value of mortgage servicing rights, net of hedging activities.
All Other Travel*** (Credit & Debit) Total Payment Services Payment Fees as a % of Net Revenue 2019 3Q20 Merchant Acquiring Retail Payment Solutions Corporate Payment Solutions All Other Revenue Total payments revenue, which includes net interest income and fee revenue, accounted for 27% of FY19 net revenue and 25% of 3Q20 net revenue Payments sales volumes have rebounded since bottoming in April 2020 Travel & hospitality, airline, and travel & entertainment may take longer to recover, but the revenue impact is mitigated by our broad product set Merchant Acquiring Travel & Hospitality* 22% 19% Airline 15% 3% All Other 63% 78% CPS Travel & Entertainment 18% 5% All Other 82% 95% RPS** Travel*** (Credit & Debit) 7% 2% All Other 93% 98% % of Merchant Acquiring Volume 2019 3Q20 % of CPS Volume 2019 3Q20 % of RPS Volume 2019 3Q20 Merchant Sales Volume Growth YoY**** 0% CPS Sales Volume Growth YoY**** 0% RPS** Sales Volume Growth YoY**** 0% * Travel and Hospitality includes hotels, restaurants, entertainment & travel ** RPS includes credit, debit, and prepaid *** Travel includes airlines, auto rental, hotel/motel, other transportation, travel agencies **** Data ranging from January 2020 – September 2020 Travel & Hospitality* Airline Travel & Entertainment Total All Other All Other Total
Noninterest Expense $ in millions PPS = postage, printing and supplies +1.6% linked quarter +7.2% year-over-year Linked Quarter Employee benefits expense increased, primarily due to higher medical claim expense. Technology and communications expense increased, primarily due to the acquisition of the State Farm credit card portfolio in the third quarter of 2020 and increased expense related to prepaid credit cards. Year-over-Year Compensation expense increased, due to merit and variable compensation related to business production in mortgage banking and capital markets. Technology and communications expense increased, primarily due to capital expenditures supporting business growth and the impact of increased call center volume related to prepaid cards. Other noninterest expense increased, which reflected approximately $75 million of expenses for revenue-related costs and COVID-19, including increased liabilities driven by future delivery exposure related to merchant processing for airlines, higher FDIC insurance expense driven by an increase in the assessment base and higher state franchise taxes.
Capital Position * Non-GAAP; see slide 31 for calculations
Our culture is rooted in ‘doing the right thing’ We put our employees, customers and communities at the center of everything we do Investing in our communities Supporting financial inclusion Creating an inclusive workplace We serve the underbanked market through products such as Safe Debit Account and Simple Loan In 2019 we doubled our American Dream loans, which serves lower/middle income (LMI) borrowers, in both applications and volume In June 2020 we announced several initiatives to address social and economic inequities including: Will provide $100 million annually in additional capital to African-American owned and led businesses Committed to doubling partnerships with African-American suppliers Through our Community Possible program we invest billions of dollars each year in economic and community development initiatives nationwide $2B in small business administration loans at 12/31/19 In 2019 we made $1.1B in community development loans and $3B in investments to organizations connecting families with affordable housing opportunities* Since 2009 we have invested more than $110M in the Pullman neighborhood in Chicago which has catalyzed $133M in additional investments One of the 2020 top 50 companies for Diversity, DiversityInc. Ranked No. 3 best employer for veterans in the U.S. Military Times, August 2020 One of the 2020 Best Employers for Women, Forbes Top score (100%) on the 2020 Disability Equality Index, AAPD One of the 2020 Best Companies for Multicultural Women, Working Mothers 2020 Best Place to Work for LGBTQ Equality, Human Rights Campaign One of the 2020 World’s Most Ethical Companies, Ethisphere Institute * Through U.S. Bancorp Community Development Corporation
Appendix
Average Loans vs. 3Q19 Average total loans increased by $18.6 billion, or 6.4% Average commercial loans increased by $11.8 billion, or 11.4% Average residential mortgage loans increased by $7.2 billion, or 10.5% Average credit card loans decreased by $1.6 billion, or 6.9% Average retail loans decreased by $0.7 billion, or 1.3% vs. 2Q20 Average total loans decreased by $7.1 billion, or 2.2% Average commercial loans decreased by $12.6 billion, or 9.8% Average residential mortgage loans increased by $4.7 billion, or 6.6% Key Points Year-over-Year Growth 4.0% 3.9% 4.0% 10.0% 6.4% Commercial CRE Res Mtg Retail Credit Card Average Loans ($bn)
Average Deposits Key Points Average Deposits ($bn) vs. 3Q19 Average total deposits increased by $55.6 billion, or 15.9% Average low-cost deposits (NIB, interest checking, savings and money market) increased by $64.1 billion, or 20.8% vs. 2Q20 Average total deposits increased by $2.2 billion, or 0.6% Average low-cost deposits (NIB, interest checking, savings and money market) increased by $11.7 billion, or 3.2% Year-over-Year Growth 6.0% 6.6% 8.2% 16.8% 15.9% Time Money Market Checking and Savings Noninterest-bearing
Credit Quality – Commercial Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points $mm3Q19 2Q20 3Q20 Average Loans$103,660 $128,039 $115,489 30-89 Delinquencies0.43% 0.33%0.22% 90+ Delinquencies0.10%0.07%0.06% Nonperforming Loans0.30% 0.38% 0.41% Linked Quarter Growth 0.4% 0.2% 2.0% 20.8% (9.8%) Linked quarter loan decline of 9.8% was driven by lower revolving line utilization – utilization rates have returned to near normal rates in September 2020 Net charge-offs increased on a linked quarter basis due to stress in certain industries impacted by COVID-19
A&D Const $260 Multi-family $3,997 Retail $306 Residential Construction $2,257 Office $935 Other $2,729 Resi Land $596 $mm3Q19 2Q20 3Q20 Average Loans$38,990$41,088$40,929 30-89 Delinquencies0.13% 0.25%0.23% 90+ Delinquencies0.01%0.00%0.00% Nonperforming Loans0.23% 0.47% 0.82% Performing TDRs*$145 $180 $173 Credit Quality – Commercial Real Estate Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points * TDR = troubled debt restructuring Linked Quarter Growth (1.0%) 1.9% 0.9% 2.5% (0.4%) Average loans decreased by 0.4% on a linked quarter basis Net charge-offs and nonperforming loans increased on a linked quarter basis due to stress in certain property types impacted by COVID-19
Credit Quality – Residential Mortgage Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points $mm3Q192Q203Q20 Average Loans$68,608 $71,122 $75,786 30-89 Delinquencies0.24%0.34%0.31% 90+ Delinquencies0.17% 0.16% 0.15% Nonperforming Loans0.36%0.34%0.31% * Excludes GNMA loans, whose repayments are insured by the FHA or guaranteed by the Department of VA ($1,415 million in 3Q20) Linked Quarter Growth 2.7% 1.9% 1.4% 0.3% 6.6% Originations continued to be high credit quality (weighted average FICO of 772, weighted average LTV of 69%) More than 95% of balances have been originated since the beginning of 2009; the origination quality metrics and performance to date have significantly outperformed prior vintages with similar seasoning Increase in performing TDRs due to accounts entering modification program upon exit of COVID-19 payment relief
Credit Quality – Credit Card Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points $mm3Q192Q203Q20 Average Loans$23,681 $21,510 $22,052 30-89 Delinquencies1.33%1.08%0.94% 90+ Delinquencies1.16%1.22%0.91% Nonperforming Loans0.00%0.00%0.00% Linked Quarter Growth 3.7% 1.8% (1.1%) (9.8%) 2.5% Increase in average loans was driven mainly by increased consumer spending Credit quality of new originations remained strong reflecting pandemic tightened underwriting Delinquency and net charge-off rates decreased linked quarter driven by fiscal stimulus and broadly available payment relief options for consumers impacted by the pandemic
Credit Quality – Home Equity Average Loans ($mm) and Net Charge-offs Ratio Key Points Linked Quarter Growth (1.5%) (2.4%) (2.5%) (3.0%) (5.8%) Key Statistics Key Statistics $mm3Q192Q203Q20 Average Loans$15,601 $14,386 $13,551 30-89 Delinquencies0.55%0.46%0.35% 90+ Delinquencies0.34%0.37%0.37% Nonperforming Loans0.75%0.79%0.77% Loans: 10% Wtd Avg LTV*: 76% Wtd Avg FICO*: 751 Lines: 90% Wtd Avg LTV*: 70% Wtd Avg FICO*: 756 *LTV and FICO at origination High-quality originations (weighted average FICO on commitments of 797, weighted average CLTV of 62%) were originated primarily through the retail branch network to existing bank customers on their primary residences Net charge-offs continued to decline on a linked quarter basis
Credit Quality – Retail Leasing Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points $mm3Q192Q203Q20 Average Loans$8,442 $8,412 $8,438 30-89 Delinquencies0.48%0.51%0.38% 90+ Delinquencies0.05%0.06%0.06% Nonperforming Loans0.14%0.23%0.17% * Manheim Used Vehicle Value Index source: www.manheimconsulting.com, January 1995 = 100, quarter value = average monthly ending values Linked Quarter Growth (1.2%) 0.5% (0.1%) (0.7%) 0.3% Continued high-quality originations during 3Q20 (weighted average FICO of 786) Delinquencies remained at low levels Credit losses include end of term losses on residual values as of 1/1/2020. Residual losses included in net charge-offs for 3Q20 were $17 million for the quarter compared to $13 million in noninterest income for 3Q19
Credit Quality – Other Retail Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points $mm3Q192Q203Q20 Average Loans$33,454 $33,550 $34,773 30-89 Delinquencies0.78%0.43%0.51% 90+ Delinquencies0.14%0.10%0.07% Nonperforming Loans0.13%0.14%0.10% Linked Quarter Growth 2.7% 0.2 % 0.1% 0.0% 3.6% Average loans increased linked quarter due to strong volume in recreational vehicle and boat loans Delinquency and charge-offs remained at low levels driven by fiscal stimulus and broadly available payment relief options for consumers impacted by the pandemic
Credit Quality – Auto Loans Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points $mm3Q192Q203Q20 Average Loans$19,426 $18,758 $18,823 30-89 Delinquencies1.04%0.56%0.68% 90+ Delinquencies0.11%0.07%0.05% Nonperforming Loans0.17%0.21%0.15% Direct: 4% Wtd Avg FICO: 755 NCO: 0.26% Indirect: 96% Wtd Avg FICO: 781 NCO: 0.23% Auto loans are included in Other Retail category Linked Quarter Growth 2.1% 0.0% (0.8%) (2.7%) 0.3% Originations remain high quality reflecting pandemic tightened underwriting (weighted average FICO of 794) Delinquency and charge-offs remained at low levels driven by fiscal stimulus and broadly available payment relief options for consumers impacted by the pandemic
Non-GAAP Financial Measures (4) – see slide 32 for corresponding notes
Non-GAAP Financial Measures (1) – see slide 32 for corresponding notes
Non-GAAP Financial Measures * Preliminary data. Subject to change prior to filings with applicable regulatory agencies. (1), (2), (3) – see slide 32 for corresponding notes September 30, June 30, March 31, December 31, September 30, (Dollars in Millions, Unaudited) 2020 2020 2020 2019 2019 Total equity $53,195 $52,480 $52,162 $52,483 $54,147 Preferred stock (5,984) (5,984) (5,984) (5,984) (5,984) Noncontrolling interests (630) (630) (630) (630) (630) Goodwill (net of deferred tax liability) (1) (8,992) (8,954) (8,958) (8,788) (8,781) Intangible assets, other than mortgage servicing rights (676) (678) (742) (677) (687) Tangible common equity (a) 36,913 36,234 35,848 36,404 38,065 Common equity tier 1 capital, determined in accordance with transitional regulatory capital requirements related to the current expected credit losses methodology implementation 37,485 36,351 36,224 Adjustments (2) (1,733) (1,702) (1,377) Common equity tier 1 capital, reflecting the full implementation of the current expected credit losses methodology (b) 35,752 34,649 34,847 Total assets 540,455 546,652 542,909 495,426 487,671 Goodwill (net of deferred tax liability) (1) (8,992) (8,954) (8,958) (8,788) (8,781) Intangible assets, other than mortgage servicing rights (676) (678) (742) (677) (687) Tangible assets (c) 530,787 537,020 533,209 485,961 478,203 Risk-weighted assets, determined in accordance with prescribed regulatory capital requirements effective for the Company (d) 397,657 * 401,832 404,627 391,269 390,622 Adjustments (3) (1,449) * (1,394) (958) Risk-weighted assets, reflecting the full implementation of the current expected credit losses methodology (e) 396,208 * 400,438 403,669 Ratios * Tangible common equity to tangible assets (a)/(c) 7.0 % 6.7 % 6.7 % 7.5 % 8.0 % Tangible common equity to risk-weighted assets (a)/(d) 9.3 9.0 8.9 9.3 9.7 Common equity tier 1 capital to risk-weighted assets, reflecting the full implementation of the current expected credit losses methodology (b)/(e) 9.0 8.7 8.6
Notes Includes goodwill related to certain investments in unconsolidated financial institutions per prescribed regulatory requirements. Includes the estimated increase in the allowance for credit losses related to the adoption of the current expected credit losses methodology net of deferred taxes. Includes the impact of the estimated increase in the allowance for credit losses related to the adoption of the current expected credit losses methodology. Based on a federal income tax rate of 21 percent for those assets and liabilities whose income or expense is not included for federal income tax purposes.
U.S. Bancorp 3Q20 Earnings Conference Call October 14, 2020