U.S. Bancorp Reports First Quarter 2019 Results

  • Net revenue of $5,577 million and net income of $1,699 million
  • Industry leading return on average assets of 1.49% and return on
    average common equity of 14.3%

MINNEAPOLIS–(BUSINESS WIRE)–U.S. Bancorp (NYSE: USB):

1Q19 Key Financial Data

                   
PROFITABILITY METRICS   1Q19     4Q18     1Q18  
Return on average assets (%)   1.49   1.59   1.50
Return on average common equity (%) 14.3 15.8 14.9
Return on tangible common equity (%) (a) 18.4 20.2 19.3
Net interest margin (%) 3.16 3.15 3.13
Efficiency ratio (%) (a) 55.4 56.3 55.9
                   
INCOME STATEMENT (b)   1Q19     4Q18     1Q18  
Net interest income (taxable-equivalent basis) $3,286 $3,331 $3,197
Noninterest income $2,291 $2,498 $2,272
Net income attributable to U.S. Bancorp $1,699 $1,856 $1,675
Diluted earnings per common share $1.00 $1.10 $.96
Dividends declared per common share $.37 $.37 $.30
                   
BALANCE SHEET (b)   1Q19     4Q18     1Q18  
Average total loans $286,110 $283,677 $279,388
Average total deposits $335,366 $334,365 $334,580
Net charge-off ratio .52 % .49 % .49 %
Book value per common share (period end) $28.81 $28.01 $26.54
Basel III standardized CET1 (c) 9.3 % 9.1 % 9.0 %
                   
(a) See Non-GAAP Financial Measures reconciliation on page 16
(b) Dollars in millions, except per share data
(c) CET1 = Common equity tier 1 capital ratio
 

1Q19 Highlights

  • Net income of $1,699 million and diluted earnings per common share of
    $1.00
  • Industry leading return on average assets of 1.49% and return on
    average common equity of 14.3%
  • Return on tangible common equity of 18.4%
  • Returned 77% of 1Q earnings to shareholders through dividends
    and share buybacks
  • Net interest income grew 2.9% year-over-year (2.8% on a
    taxable-equivalent basis) with positive operating leverage of 1.0% on
    a year-over-year basis
  • Average total loans grew 0.9% on a linked quarter basis and 2.4% (3.7%
    excluding the impact of loan sales) year-over-year
  • Nonperforming assets decreased 16.5% on a year-over-year basis

CEO Commentary

“As our financial results indicate, we had a good start to the year
with momentum continuing across our lending and fee businesses. In the
first quarter, our industry-leading returns on assets and equity were
supported by solid loan growth, disciplined expense management and
stable credit quality. Our balance sheet is strong and growing as
evidenced by an 8.6% increase in our book value per share compared with
a year ago. During the quarter, we returned 77 percent of our earnings
to shareholders through dividends and share buybacks. We are pleased
with our results this quarter and remain focused on the long-term
success of this company – and the disciplined investment in people and
technology that will drive that success. We are launching a number of
digital initiatives combining the best of technology and innovation to
help make our customers’ financial lives simpler and more productive. I
would like to thank our employees for all they do to create value for
our customers, communities and shareholders.”

— Andy Cecere, Chairman, President and CEO, U.S. Bancorp

In the Spotlight

One of the 2019 World’s Most Ethical Companies
U.S. Bank has
been named one of the 2019 World’s Most Ethical Companies by the
Ethisphere Institute, a global leader in defining and advancing the
standards of ethical business practices. This is the fifth consecutive
year U.S. Bank has received this recognition.

Top Marks Received in 2019 Corporate Equality Index
For the
12th time in a row, U.S. Bank received a perfect score of 100
on the Corporate Equality Index, the nation’s premier benchmarking
survey and report on corporate policies and practices related to LGBTQ
workplace equality, administered by the Human Rights Campaign
Foundation. Through its index, the Foundation evaluates policies and
practices of businesses including non-discrimination workplace
protections, domestic partner and inclusive health care benefits,
competency programs, and public engagement with the LGBTQ community.

Asset Backed Securitization Lending Business
We recently
launched a new Asset Backed Securitization Lending business,
underscoring our commitment to our Fixed Income & Capital Markets
platform to provide current and prospective customers with additional
ways to access capital.

New U.S. Bank Mobile App
We recently unveiled our entirely
redesigned U.S. Bank Mobile App, fueled by extensive research on how
people use their mobile apps and an analysis of consumer needs. Using a
customer-based mindset, the app includes all the tools identified by
consumers that help them quickly, confidently and securely manage their
finances at their fingertips.

                     
INCOME STATEMENT HIGHLIGHTS
($ in millions, except per-share data)         Percent Change
1Q 4Q 1Q 1Q19 vs   1Q19 vs
    2019   2018   2018   4Q18   1Q18
 
Net interest income $3,259 $3,303 $3,168 (1.3 ) 2.9
Taxable-equivalent adjustment 27     28     29   (3.6 ) (6.9 )
Net interest income (taxable-equivalent basis) 3,286 3,331 3,197 (1.4 ) 2.8
Noninterest income 2,291     2,498     2,272   (8.3 ) .8
Total net revenue 5,577 5,829 5,469 (4.3 ) 2.0
Noninterest expense 3,087     3,280     3,055   (5.9 ) 1.0
Income before provision and income taxes 2,490 2,549 2,414 (2.3 ) 3.1
Provision for credit losses 377     368     341   2.4 10.6
Income before taxes 2,113 2,181 2,073 (3.1 ) 1.9

Income taxes and taxable-equivalent adjustment

405     319     391   27.0 3.6
Net income 1,708 1,862 1,682 (8.3 ) 1.5

Net (income) loss attributable to noncontrolling interests

(9 )   (6 )   (7 ) (50.0 ) (28.6 )
Net income attributable to U.S. Bancorp $1,699     $1,856     $1,675   (8.5 ) 1.4

Net income applicable to U.S. Bancorp common shareholders

$1,613     $1,777     $1,597   (9.2 ) 1.0
Diluted earnings per common share $1.00     $1.10     $.96   (9.1 ) 4.2
 
 

Net income attributable to U.S. Bancorp was $1,699 million for the first
quarter of 2019, which was 1.4 percent higher than the first quarter of
2018, and 8.5 percent lower than the fourth quarter of 2018. Diluted
earnings per common share were $1.00 in the first quarter of 2019,
compared with $0.96 in the first quarter of 2018 and $1.10 in the fourth
quarter of 2018. The fourth quarter of 2018 included $0.03 per diluted
common share of notable items related to the impact of the gain on sale
of the Company’s ATM servicing business and the sale of a majority of
the Company’s FDIC covered loans, charges related to severance, certain
asset impairments, an accrual for legal matters, and the favorable
impact to deferred tax assets and liabilities related to changes in
estimates from tax reform. Given the sale of the third-party ATM
processing business during the fourth quarter of 2018, ATM processing
services revenue and deposit service charges were combined for reporting
purposes.

The increase in net income year-over-year was due to total net revenue
growth of 2.0 percent partially offset by noninterest expense growth of
1.0 percent. Net interest income increased 2.9 percent (2.8 percent on a
taxable-equivalent basis), mainly a result of the impact of rising
interest rates, loan growth, and higher yields on reinvestment of
securities, partially offset by higher rates on deposits and funding
mix. Noninterest income increased 0.8 percent compared with a year ago,
driven by growth in corporate payment products and merchant processing
services revenue, along with other noninterest revenue, partially offset
by declines in credit and debit card revenue, mortgage banking revenue
and deposit service charges. Deposit service charges include ATM
processing services revenue and decreased as a result of the sale of the
third-party ATM processing business in the fourth quarter of 2018.
Noninterest expense increased 1.0 percent primarily due to increased
compensation expense, along with higher technology and communications
expense in support of business growth. Partially offsetting these
expense categories was lower other noninterest expense driven by lower
costs related to tax-advantaged projects and FDIC assessment costs.

Net income decreased on a linked quarter basis primarily due to a
decrease in total net revenue of 4.3 percent, partially offset by a
reduction in noninterest expense of 5.9 percent. The decrease in total
net revenue reflected a decline in net interest income of 1.3 percent
(1.4 percent on a taxable-equivalent basis) primarily due to two fewer
days in the first quarter along with higher rates on deposits, lower
interest recoveries, and funding mix, partially offset by loan growth.
Excluding the fourth quarter of 2018 notable items, noninterest income
decreased 5.4 percent compared with the fourth quarter of 2018 driven by
lower credit and debit card revenue and lower ATM processing services
revenue as a result of the business sale. Excluding the fourth quarter
of 2018 notable items, noninterest expense decreased 0.6 percent on a
linked quarter basis primarily driven by lower professional services and
marketing and business development expense, partially offset by
seasonally higher employee benefits and an increase in other noninterest
expense.

 
NET INTEREST INCOME
(Taxable-equivalent basis; $ in millions)         Change
1Q 4Q 1Q 1Q19 vs   1Q19 vs
    2019   2018   2018   4Q18   1Q18
Components of net interest income
Income on earning assets $4,381 $4,341 $3,822 $40 $559
Expense on interest-bearing liabilities 1,095     1,010     625     85     470  
Net interest income $3,286     $3,331     $3,197     $(45 )   $89  
 
Average yields and rates paid
Earning assets yield 4.22 % 4.11 % 3.75 % .11 % .47 %
Rate paid on interest-bearing liabilities 1.38     1.26     .81     .12     .57  
Gross interest margin 2.84 %   2.85 %   2.94 %   (.01 )%   (.10 )%
Net interest margin 3.16 %   3.15 %   3.13 %   .01 %   .03 %
 
Average balances
Investment securities (a) $114,179 $114,138 $113,493 $41 $686
Loans 286,110 283,677 279,388 2,433 6,722
Earning assets 419,494 420,472 411,849 (978 ) 7,645
Interest-bearing liabilities 322,156 319,289 311,615 2,867 10,541
 
(a) Excludes unrealized gain (loss)
 
 

Net interest income on a taxable-equivalent basis in the first quarter
of 2019 was $3,286 million, an increase of $89 million (2.8 percent)
over the first quarter of 2018. The increase was principally driven by
the impact of rising interest rates, earning assets growth, and higher
yields on securities, partially offset by deposit pricing and funding
mix shift. Average earning assets were $7.6 billion (1.9 percent) higher
than the first quarter of 2018, reflecting increases of $6.7 billion
(2.4 percent) in average total loans, $686 million (0.6 percent) in
average investment securities, and $1.2 billion (7.8 percent) in average
other earning assets. Excluding the impact of the second quarter of 2018
sale of the Company’s federally guaranteed student loan portfolio and
the fourth quarter of 2018 sale of the majority of the Company’s FDIC
covered loans, average total loans grew 3.7 percent compared with the
first quarter of 2018.

Net interest income on a taxable-equivalent basis decreased $45 million
(1.4 percent) on a linked quarter basis primarily driven by two fewer
days in the first quarter and lower interest recoveries, partially
offset by loan growth. Average earning assets were $978 million (0.2
percent) lower on a linked quarter basis, reflecting decreases of $2.5
billion (12.5 percent) in average other earning assets due to a seasonal
decrease in cash balances and $1.0 billion (32.0 percent) in average
loans held for sale primarily due to the sale of the majority of the
Company’s FDIC covered loans in the fourth quarter of 2018, partially
offset by an increase of $2.4 billion (0.9 percent) in average total
loans.

The net interest margin in the first quarter of 2019 was 3.16 percent,
compared with 3.13 percent in the first quarter of 2018 and 3.15 percent
in the fourth quarter of 2018. The increase in the net interest margin
year-over-year was primarily due to rising interest rates, higher
reinvestment rates on maturing securities, and loan portfolio mix,
partially offset by deposit and funding mix. The increase in net
interest margin on a linked quarter basis was primarily due to loan
portfolio mix, lower cash balances, and the impact of the fourth quarter
rate hike on assets, partially offset by the impact of deposit and
funding mix.

Average investment securities in the first quarter of 2019 increased
$686 million (0.6 percent) over the first quarter of 2018 and $41
million over the fourth quarter of 2018 due to purchases of
mortgage-backed and state and political securities, net of prepayments
and maturities.

   
AVERAGE LOANS
($ in millions)         Percent Change
1Q 4Q 1Q 1Q19 vs   1Q19 vs
    2019   2018   2018   4Q18   1Q18
 
Commercial $96,447 $95,025 $91,933 1.5 4.9
Lease financing 5,513   5,490   5,532 .4 (.3 )
Total commercial 101,960 100,515 97,465 1.4 4.6
 
Commercial mortgages 28,459 28,930 29,176 (1.6 ) (2.5 )
Construction and development 11,011   11,219   11,190 (1.9 ) (1.6 )
Total commercial real estate 39,470 40,149 40,366 (1.7 ) (2.2 )
 
Residential mortgages 65,582 64,476 60,174 1.7 9.0
 
Credit card 22,597 22,396 21,284 .9 6.2
 
Retail leasing 8,586 8,489 7,982 1.1 7.6
Home equity and second mortgages 15,993 16,065 16,195 (.4 ) (1.2 )
Other 31,922   31,587   32,874 1.1 (2.9 )
Total other retail 56,501 56,141 57,051 .6 (1.0 )
 
Covered loans (a)     3,048 nm
 
Total loans $286,110   $283,677   $279,388 .9 2.4
 

(a) During the fourth quarter of 2018, the majority of the
Company’s covered loans were sold or the loss share coverage
expired, with any remaining loan balances reclassified to be
included in their respective portfolio category.

 

 
 

Average total loans were $6.7 billion (2.4 percent) higher than the
first quarter of 2018. Excluding the impact of the second quarter of
2018 sale of the Company’s federally guaranteed student loan portfolio
and the fourth quarter of 2018 sale of the majority of the Company’s
FDIC covered loans, average total loans grew 3.7 percent over the prior
year quarter. The increase was due to growth in residential mortgages
(9.0 percent), total commercial loans (4.6 percent), credit card loans
(6.2 percent), and retail leasing (7.6 percent). These increases were
partially offset by decreases in covered loans due to the fourth quarter
of 2018 sale, total commercial real estate loans (2.2 percent) due to
customers paying down balances and other loans (2.9 percent) which were
impacted by the sale of student loans.

Average total loans were $2.4 billion (0.9 percent) higher than the
fourth quarter of 2018 driven by growth in residential mortgages (1.7
percent) and total commercial loans (1.4 percent), partially offset by a
decrease in total commercial real estate loans (1.7 percent).

 
AVERAGE DEPOSITS
($ in millions)         Percent Change
1Q 4Q 1Q 1Q19 vs   1Q19 vs
    2019   2018   2018   4Q18   1Q18
 
Noninterest-bearing deposits $73,433 $77,160 $79,482 (4.8 ) (7.6 )
Interest-bearing savings deposits
Interest checking 72,177 71,013 70,358 1.6 2.6
Money market savings 99,432 99,594 103,367 (.2 ) (3.8 )
Savings accounts 45,216   44,544   44,388 1.5 1.9
Total savings deposits 216,825 215,151 218,113 .8 (.6 )
Time deposits 45,108   42,054   36,985 7.3 22.0
Total interest-bearing deposits 261,933   257,205   255,098 1.8 2.7
Total deposits $335,366   $334,365   $334,580 .3 .2
                         
 

Average total deposits for the first quarter of 2019 were $786 million
(0.2 percent) higher than the first quarter of 2018. Average
noninterest-bearing deposits decreased $6.0 billion (7.6 percent)
year-over-year primarily due to the continued deployment by customers of
business deposits within Corporate and Commercial Banking and corporate
trust balances within Wealth Management and Investment Services. Average
total savings deposits were $1.3 billion (0.6 percent) lower
year-over-year driven by decreases in corporate trust balances within
Wealth Management and Investment Services along with the run-off related
to the business merger of a large financial customer, partially offset
by increases in Consumer and Business Banking. Average time deposits
were $8.1 billion (22.0 percent) higher than the prior year quarter.
Changes in time deposits are largely related to those deposits managed
as an alternative to other funding sources such as wholesale borrowing,
based largely on relative pricing and liquidity characteristics.

Average total deposits increased $1.0 billion (0.3 percent) from the
fourth quarter of 2018. On a linked quarter basis, average
noninterest-bearing deposits decreased $3.7 billion (4.8 percent)
reflecting decreases in Corporate and Commercial Banking and Consumer
and Business Banking. Average total savings deposits increased $1.7
billion (0.8 percent) on a linked quarter basis primarily due to
increases in Consumer and Business Banking and Corporate and Commercial
Banking. Average time deposits, which are managed based on funding
needs, relative pricing and liquidity characteristics, increased $3.1
billion (7.3 percent) on a linked quarter basis.

   
NONINTEREST INCOME
($ in millions)         Percent Change
1Q 4Q 1Q 1Q19 vs   1Q19 vs
    2019   2018   2018   4Q18   1Q18
 
Credit and debit card revenue $304 $382 $324 (20.4 ) (6.2 )
Corporate payment products revenue 162 163 154 (.6 ) 5.2
Merchant processing services 378 389 363 (2.8 ) 4.1
Trust and investment management fees 399 409 398 (2.4 ) .3
Deposit service charges 217 253 261 (14.2 ) (16.9 )
Treasury management fees 146 143 150 2.1 (2.7 )
Commercial products revenue 219 225 220 (2.7 ) (.5 )
Mortgage banking revenue 169 171 184 (1.2 ) (8.2 )
Investment products fees 45 48 46 (6.3 ) (2.2 )
Securities gains (losses), net 5 5 5
Other 247   310   167 (20.3 ) 47.9
 
Total noninterest income $2,291   $2,498   $2,272 (8.3 ) .8
 
 

First quarter noninterest income of $2,291 million was $19 million (0.8
percent) higher than the first quarter of 2018 driven by growth in
corporate payment products revenue and merchant processing services
reflecting higher sales volumes. Other noninterest income also increased
year-over-year primarily due to higher equity investment income,
tax-advantaged investment syndication revenue, and transition services
agreement revenue associated with the ATM processing business sale in
2018. These increases were partially offset by lower credit and debit
card revenue, lower deposit service charges, and lower mortgage banking
revenue. Credit and debit card revenue decreased $20 million (6.2
percent) reflecting fewer billing cycle processing days in the first
quarter of 2019, a change in the accounting for prepaid card revenue in
the first quarter of 2018, and industry trends in post-holiday consumer
spending. Deposit service charges decreased $44 million (16.9 percent)
driven by the sale of the Company’s ATM third-party servicing business
in 2018. The decrease in mortgage banking revenue of $15 million (8.2
percent) was due to changes in mortgage servicing rights valuations, net
of hedging activities, and lower servicing income, partially offset by
higher production volume.

Noninterest income was $207 million (8.3 percent) lower in the first
quarter of 2019 compared with the fourth quarter of 2018 reflecting
lower payment services revenue, deposit service charges, and other
noninterest income. Payment services revenue decreased $90 million (9.6
percent) primarily due to seasonally lower sales across all payment
business segments and fewer billing cycle processing days within the
credit and debit card business segment. Deposit service charges
decreased $36 million (14.2 percent) primarily due to the sale of the
Company’s ATM third-party servicing business and the seasonal impact of
two fewer days in the first quarter of 2019. Other noninterest income
decreased $63 million (20.3 percent) on a linked quarter basis primarily
due to the notable items in the fourth quarter of 2018. Excluding the
notable items, other noninterest income increased 5.6 percent on a
linked quarter basis.

 
NONINTEREST EXPENSE
($ in millions)         Percent Change
1Q 4Q 1Q 1Q19 vs   1Q19 vs
    2019   2018   2018   4Q18   1Q18
 
Compensation $1,559 $1,568 $1,523 (.6 ) 2.4
Employee benefits 333 308 330 8.1 .9
Net occupancy and equipment 277 266 265 4.1 4.5
Professional services 95 133 83 (28.6 ) 14.5
Marketing and business development 89 115 97 (22.6 ) (8.2 )
Technology and communications 257 254 235 1.2 9.4
Postage, printing and supplies 72 80 80 (10.0 ) (10.0 )
Other intangibles 40 41 39 (2.4 ) 2.6
Other 365   515   403 (29.1 ) (9.4 )
 
Total noninterest expense $3,087   $3,280   $3,055 (5.9 ) 1.0
                     
 

First quarter noninterest expense of $3,087 million was $32 million (1.0
percent) higher than the first quarter of 2018 primarily due to higher
personnel costs and technology investment, partially offset by lower
other noninterest expense. Compensation expense increased $36 million
(2.4 percent) principally due to the impact of hiring to support
business growth and merit increases. Other noninterest expense decreased
$38 million (9.4 percent) due to lower FDIC assessment costs, driven by
the elimination of the surcharge in the fourth quarter of 2018, and
lower costs related to tax-advantaged projects, partially offset by
other expenses.

Noninterest expense decreased $193 million (5.9 percent) on a linked
quarter basis. The fourth quarter of 2018 included notable items related
to severance charges and legal accruals recorded in noninterest expense.
Excluding the impact of the fourth quarter of 2018 notable items
noninterest expense decreased $19 million (0.6 percent) due to
seasonally lower costs related to tax-advantaged projects and
professional services, along with lower marketing and business
development expense driven by the timing of certain marketing campaigns.
Partially offsetting these decreases were increases in employee benefits
expense of $25 million (8.1 percent) due to seasonally higher payroll
taxes.

Provision for Income Taxes

The provision for income taxes for the first quarter of 2019 resulted in
a tax rate of 19.2 percent on a taxable-equivalent basis (effective tax
rate of 18.1 percent), compared with 18.9 percent (effective tax rate of
17.7 percent) in the first quarter of 2018, and 14.6 percent on a
taxable-equivalent basis (effective tax rate of 13.5 percent) in the
fourth quarter of 2018. Tax expense for the first quarter of 2019
reflected the favorable conclusion of a state tax matter. The fourth
quarter of 2018 tax rates reflected the favorable impact of deferred tax
assets and liabilities adjustments related to tax reform estimates.
Excluding the changes in estimates related to deferred tax assets and
liabilities, the taxable-equivalent rate was 20.1 percent in the fourth
quarter of 2018.

 
ALLOWANCE FOR CREDIT LOSSES
($ in millions)   1Q     4Q     3Q     2Q     1Q  
    2019   % (a)   2018   % (a)   2018   % (a)   2018   % (a)   2018   % (a)
 
Balance, beginning of period $4,441 $4,426 $4,411 $4,417 $4,417
 
Net charge-offs
Commercial 71 .30 64 .27 63 .27 54 .23 56 .25
Lease financing 2   .15 3   .22 3   .22 4   .29 4   .29
Total commercial 73 .29 67 .26 66 .26 58 .24 60 .25
Commercial mortgages (8 ) (.11 ) (5 ) (.07 ) (4 ) (.06 )
Construction and development   1   .04 (4 ) (.14 )   1   .04
Total commercial real estate (7 ) (.07 ) (9 ) (.09 ) (3 ) (.03 )
 
Residential mortgages 3 .02 2 .01 4 .03 4 .03 7 .05
 
Credit card 225 4.04 219 3.88 206 3.75 210 3.97 211 4.02
 
Retail leasing 4 .19 3 .14 3 .14 3 .15 3 .15
Home equity and second mortgages (1 ) (.03 ) 1 .02 (1 ) (.02 ) (2 ) (.05 ) (1 ) (.03 )
Other 63   .80 68   .85 59   .74 59   .76 64   .79
Total other retail 66   .47 72   .51 61   .43 60   .43 66   .47
Total net charge-offs 367 .52 353 .49 328 .46 332 .48 341 .49
Provision for credit losses 377 368 343 327 341
Other changes       (1 )  
Balance, end of period $4,451   $4,441   $4,426   $4,411   $4,417  
 
Components
Allowance for loan losses $3,990 $3,973 $3,954 $3,920 $3,918

Liability for unfunded credit commitments

461   468   472   491   499  
Total allowance for credit losses $4,451   $4,441   $4,426   $4,411   $4,417  
 
Gross charge-offs $473 $442 $428 $437 $453
Gross recoveries $106 $89 $100 $105 $112
 
Allowance for credit losses as a percentage of
Period-end loans 1.55 1.55 1.57 1.57 1.59
Nonperforming loans 519 544 544 484 431
Nonperforming assets 443 449 441 404 367
 
(a) Annualized and calculated on average loan balances
 
 

Contacts

Investor contact: Jennifer Thompson, 612.303.0778
Media contact:
Rebekah Fawcett, 612.303.9986

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