Exhibit 99.1

 

		U.S. Bancorp Reports Fourth Quarter and Full Year 2020 Results   • Record full year revenue of $23.3 billion • Full year net income of $5.0 billion and diluted earnings per share of $3.06 • Common Equity Tier 1 capital ratio of 9.7% and strong levels of liquidity
4Q20 and Full Year Key Financial Data		4Q20 and Full Year Highlights

PROFITABILITY METRICS			4Q20				3Q20				4Q19				Full Year  2020				Full Year  2019					•  Net income of $1,519 million and diluted earnings per common share of $0.95 for 4Q20   •  Return on average assets of 1.10% and return on average common equity of 12.1% for 4Q20   •  Net revenue of $5,751 million, including $3,201 million of net interest income and $2,550 million of noninterest income in 4Q20   •  Net charge-off ratio of .58% in 4Q20 compared with .66% in 3Q20 and .52% in the 4Q19   •  Full year net income of $4,959 million and diluted earnings per common share of $3.06   •  Full year return on average assets of 0.93% and return on average common equity of 10.0%   •  Full year average total loans growth of 5.7%   •  Full year average total deposits growth of 14.9%   •  CET1 capital ratio increased to 9.7% at December 31, 2020 compared with 9.1% at December 31, 2019
Return on average assets (%)			1.10				1.17				1.21				.93				1.45
Return on average common equity (%)			12.1				12.8				11.8				10.0				14.1
Return on tangible common equity (%) (a)			15.6				16.6				15.2				13.2				18.0
Net interest margin (%)			2.57				2.67				2.92				2.68				3.06
Efficiency ratio (%) (a)			58.8				56.6				60.3				57.8				55.8
INCOME STATEMENT (b)			4Q20				3Q20				4Q19				Full Year  2020				Full Year 2019
Net interest income (taxable-equivalent basis)			$3,201				$3,252				$3,231				$12,924				$13,155
Noninterest income			$2,550				$2,712				$2,436				$10,401				$9,831
Net income attributable to U.S. Bancorp			$1,519				$1,580				$1,486				$4,959				$6,914
Diluted earnings per common share			$.95				$.99				$.90				$3.06				$4.16
Dividends declared per common share			$.42				$.42				$.42				$1.68				$1.58
BALANCE SHEET (b)			4Q20				3Q20				4Q19				Full Year  2020				Full Year  2019
Average total loans			$302,308				$311,018				$294,865				$307,269				$290,686
Average total deposits			$422,413				$405,523				$356,452				$398,615				$346,812
Net charge-off ratio			.58%				.66%				.52%				.58%				.50%
Book value per common share (period end)			$31.26				$30.93				$29.90
Basel III standardized CET1 (c)			9.7%				9.4%				9.1%
(a) See Non-GAAP Financial Measures reconciliation on page 17
(b) Dollars in millions, except per share data
(c) CET1 = Common equity tier 1 capital ratio

CEO Commentary

“Our fourth quarter and full year results highlighted the value of our diversified business model, which allowed us to deliver industry-leading results for our shareholders despite the economic headwinds the entire banking industry faced. This was an extraordinary year that brought both challenges and opportunities. I’m proud of how we came together to support our customers and communities as they faced various individual obstacles brought on by COVID-19 and other global issues. As we look ahead to 2021, I’m confident in our ability to create shareholder value as we continue to invest in our digital capabilities, technology and people to drive revenue growth and efficiency improvement. I want to thank all our employees for being flexible, for being resilient, and for bringing our core values to life for the benefit of our customers every day”   — Andy Cecere, Chairman, President and CEO, U.S. Bancorp

 

In the Spotlight

 

 

        Investor contact: Jennifer Thompson, 612.303.0778 | Media contact: Jeff Shelman, 612.422.1423

		U.S. Bancorp Fourth Quarter 2020 Results

 

INCOME STATEMENT HIGHLIGHTS
($ in millions, except per-share data)														Percent Change
		4Q  2020				3Q  2020				4Q  2019				4Q20 vs  3Q20				4Q20 vs  4Q19				Full Year 2020				Full Year 2019				Percent Change
Net interest income			$3,175				$3,227				$3,207				(1.6)				(1.0)				$12,825				$13,052				(1.7)
Taxable-equivalent adjustment			26				25				24				4.0				8.3				99				103				(3.9)
Net interest income (taxable-equivalent basis)			3,201				3,252				3,231				(1.6)				(.9)				12,924				13,155				(1.8)
Noninterest income			2,550				2,712				2,436				(6.0)				4.7				10,401				9,831				5.8
Total net revenue			5,751				5,964				5,667				(3.6)				1.5				23,325				22,986				1.5
Noninterest expense			3,364				3,371				3,401				(.2)				(1.1)				13,369				12,785				4.6
Income before provision and income taxes			2,387				2,593				2,266				(7.9)				5.3				9,956				10,201				(2.4)
Provision for credit losses			441				635				395				(30.6)				11.6				3,806				1,504				nm
Income before taxes			1,946				1,958				1,871				(.6)				4.0				6,150				8,697				(29.3)
Income taxes and taxable-equivalent adjustment			421				372				378				13.2				11.4				1,165				1,751				(33.5)
Net income			1,525				1,586				1,493				(3.8)				2.1				4,985				6,946				(28.2)
Net (income) loss attributable to noncontrolling interests			(6)				(6)				(7)				--				14.3				(26)				(32)				18.8
Net income attributable to U.S. Bancorp			$1,519				$1,580				$1,486				(3.9)				2.2				$4,959				$6,914				(28.3)
Net income applicable to U.S. Bancorp common shareholders			$1,425				$1,494				$1,408				(4.6)				1.2				$4,621				$6,583				(29.8)
Diluted earnings per common share			$.95				$.99				$.90				(4.0)				5.6				$3.06				$4.16				(26.4)

 

Net income attributable to U.S. Bancorp was $1,519 million for the fourth quarter of 2020, which was 2.2 percent higher than the $1,486 million for the fourth quarter of 2019, and 3.9 percent lower than the $1,580 million for the third quarter of 2020. Diluted earnings per common share were $0.95 in the fourth quarter of 2020, compared with $0.90 in the fourth quarter of 2019 and $0.99 in the third quarter of 2020. The fourth quarter of 2019 included $(0.18) per diluted common share of notable items related to restructuring charges including severance and certain asset impairments, and an increased derivative liability related to Visa shares previously sold by the Company.

The increase in net income year-over-year was primarily due to higher noninterest income as well as lower noninterest expense, partially offset by lower net interest income and higher provision for credit losses. 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 as well as 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, ongoing new loan production and acquired loans. Net interest income decreased 0.9 percent on a year-over-year basis, primarily due to the impact of lower rates compared with a year ago, partially offset by the benefit of deposit and funding mix, loan growth and higher loan fees. The net interest margin declined from a year ago to 2.57 percent in the fourth quarter of 2020 primarily due to the impact of a lower yield curve, loan mix, decisions to maintain higher levels of liquidity, and higher premium amortization within the investment portfolio, partially offset by the net benefit of deposit repricing and funding composition. Noninterest income increased 4.7 percent compared with a year ago, driven by significant growth in mortgage banking revenue due to refinancing production and growth in commercial products revenue primarily due to commitment fees on unused lines. Growth in these fee categories was partially offset by a decline in payment services revenue and deposit service charges related to lower consumer and business spending. Excluding a prior year notable item in other noninterest income for a valuation charge of $140 million for an increased derivative liability related to Visa shares previously sold by the Company, total noninterest income decreased 1.0 percent in the fourth quarter of 2020 compared with the fourth quarter of 2019. Noninterest expense decreased 1.1 percent despite approximately $22 million of costs related to the COVID-19 environment and an increase in revenue-related production expenses of approximately $96 million in the fourth quarter of 2020. Excluding prior year notable items in other noninterest expense related to severance charges and other accruals of $200 million, total noninterest expense increased 5.1 percent in the fourth quarter of 2020 compared with the fourth quarter of 2019 reflecting business investments, COVID-19 costs and revenue-related expenses.

 

 

        2

		U.S. Bancorp Fourth Quarter 2020 Results

 

Net income decreased on a linked quarter basis primarily due to lower total net revenue, partially offset by a lower provision for credit losses. The Company’s pre-provision income decreased 7.9 percent on a linked quarter basis, driven by lower total net revenue of 3.6 percent, partially offset by a decrease in noninterest expense of 0.2 percent on a linked quarter basis. Net interest income decreased 1.6 percent primarily due to a decline in average loan balances, higher premium amortization expense and lower reinvestment yields in the investment portfolio, partially offset by the benefit of deposit and funding mix as well as higher loan fees. The net interest margin decreased on a linked quarter basis, primarily reflecting the impact of higher cash balances and premium amortization. Noninterest income decreased 6.0 percent compared with the third quarter of 2020 driven by lower payment services revenue, deposit service charges, commercial products revenue and mortgage banking revenue, partially offset by higher other noninterest income driven by tax-advantaged investment syndication revenue in the fourth quarter. Noninterest expense decreased 0.2 percent on a linked quarter basis, reflecting lower personnel expense, mostly offset by continued business investment in digital capabilities and business development expense.

 

 

        3

		U.S. Bancorp Fourth Quarter 2020 Results

 

NET INTEREST INCOME
(Taxable-equivalent basis; $ in millions)														Change
		4Q 2020				3Q 2020				4Q 2019				4Q20 vs 3Q20				4Q20 vs 4Q19				Full Year 2020				Full Year 2019				Change
Components of net interest income
Income on earning assets			$3,505				$3,598				$4,281				$(93)				$(776)				$14,942				$17,607				$(2,665)
Expense on interest-bearing liabilities			304				346				1,050				(42)				(746)				2,018				4,452				(2,434)
Net interest income			$3,201				$3,252				$3,231				$(51)				$(30)				$12,924				$13,155				$(231)
Average yields and rates paid
Earning assets yield			2.81%				2.95%				3.87%				(.14)%				(1.06)%				3.10%				4.09%				(.99)%
Rate paid on interest-bearing liabilities			.33				.39				1.22				(.06)				(.89)				.56				1.34				(.78)
Gross interest margin			2.48%				2.56%				2.65%				(.08)%				(.17)%				2.54%				2.75%				(.21)%
Net interest margin			2.57%				2.67%				2.92%				(.10)%				(.35)%				2.68%				3.06%				(.38)%
Average balances
Investment securities (a)			$133,430				$128,565				$121,668				$4,865				$11,762				$125,954				$117,150				$8,804
Loans			302,308				311,018				294,865				(8,710)				7,443				307,269				290,686				16,583
Earning assets			497,437				486,104				439,770				11,333				57,667				481,402				430,537				50,865
Interest-bearing liabilities			362,445				357,739				341,848				4,706				20,597				363,298				332,658				30,640

(a) Excludes unrealized gain (loss)

 

 

 

Net interest income on a taxable-equivalent basis in the fourth quarter of 2020 was $3,201 million, a decrease of $30 million (0.9 percent) compared with the fourth quarter of 2019. The decrease was primarily due to the impact of lower rates compared with a year ago, partially offset by deposit and funding mix, loan growth and higher loan fees. Average earning assets were $57.7 billion (13.1 percent) higher than the fourth quarter of 2019, reflecting increases of $7.4 billion (2.5 percent) in average total loans, $11.8 billion (9.7 percent) in average investment securities, and $34.9 billion in average other earning assets including cash balances being maintained for liquidity given the current economic environment.

Net interest income on a taxable-equivalent basis decreased $51 million (1.6 percent) on a linked quarter basis primarily due to a decline in average loan balances, higher premium amortization expense and lower reinvestment yields in the investment portfolio, partially offset by the benefit of deposit and funding mix as well as higher loan fees. Average earning assets were $11.3 billion (2.3 percent) higher on a linked quarter basis, reflecting increases of $4.9 billion (3.8 percent) in average investment securities and $14.3 billion (37.1 percent) in average other earning assets, partially offset by a decrease of $8.7 billion (2.8 percent) in average total loans, primarily due to continued paydowns by corporate customers that accessed the capital markets during the year.

The net interest margin in the fourth quarter of 2020 was 2.57 percent, compared with 2.92 percent in the fourth quarter of 2019 and 2.67 percent in the third quarter of 2020. The decrease in the net interest margin from the prior year was primarily due to the impact of a lower yield curve and decisions to maintain higher cash balances for liquidity, partially offset by deposit and funding mix. The decrease in net interest margin on a linked quarter basis reflects the impact of higher cash balances and premium amortization in the investment portfolio, partially offset by favorable loan and deposit mix. The Company’s higher liquidity levels, on a linked quarter basis, were related to the acquisition of approximately $10 billion of deposit balances from State Farm Bank in the fourth quarter of 2020.

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

		U.S. Bancorp Fourth Quarter 2020 Results

 

AVERAGE LOANS
($ in millions)														Percent Change
		4Q 2020				3Q 2020				4Q 2019				4Q20 vs 3Q20				4Q20 vs 4Q19				Full Year 2020				Full Year 2019				Percent Change
Commercial			$100,863				$109,899				$98,362				(8.2	)			2.5				$108,367				$97,697				10.9
Lease financing			5,558				5,590				5,549				(.6	)			.2				5,600				5,501				1.8
Total commercial			106,421				115,489				103,911				(7.9	)			2.4				113,967				103,198				10.4
Commercial mortgages			29,004				29,849				29,133				(2.8	)			(.4	)			29,641				28,595				3.7
Construction and development			11,094				11,080				10,589				.1				4.8				10,907				10,791				1.1
Total commercial real estate			40,098				40,929				39,722				(2.0	)			.9				40,548				39,386				3.0
Residential mortgages			76,809				75,786				69,909				1.3				9.9				73,667				67,747				8.7
Credit card			21,937				22,052				24,107				(.5	)			(9.0	)			22,332				23,309				(4.2	)
Retail leasing			8,299				8,438				8,486				(1.6	)			(2.2	)			8,405				8,515				(1.3	)
Home equity and second mortgages			12,816				13,551				15,221				(5.4	)			(15.8	)			13,894				15,659				(11.3	)
Other			35,928				34,773				33,509				3.3				7.2				34,456				32,872				4.8
Total other retail			57,043				56,762				57,216				.5				(.3	)			56,755				57,046				(.5	)
Total loans			$302,308				$311,018				$294,865				(2.8	)			2.5				$307,269				$290,686				5.7

 

 

 

Average total loans for the fourth quarter of 2020 were $7.4 billion (2.5 percent) higher than the fourth quarter of 2019. The increase was primarily due to higher total commercial loans (2.4 percent), including the impact of loans made under the SBA’s Paycheck Protection Program, along with growth in residential mortgages (9.9 percent) given the lower interest rate environment and GNMA buybacks, in addition to growth in other retail loans (7.2 percent) driven by growth in installment loans due to the COVID-19 impact on recreational vehicle sales. These increases were partially offset by lower credit card loans (9.0 percent) and home equity and second mortgages (15.8 percent).

Average total loans were $8.7 billion (2.8 percent) lower than the third quarter of 2020 primarily driven by lower total commercial loans (7.9 percent), reflecting continued paydowns by corporate customers, partially offset by higher residential mortgages (1.3 percent) given the lower interest rate environment and GNMA buybacks.

 

 

        5

		U.S. Bancorp Fourth Quarter 2020 Results

 

AVERAGE DEPOSITS
($ in millions)														Percent Change
		4Q				3Q				4Q				4Q20 vs				4Q20 vs				Full Year				Full Year				Percent
		2020				2020				2019				3Q20				4Q19				2020				2019				Change
Noninterest-bearing deposits			$115,148				$109,375				$74,313				5.3				55.0				$98,539				$73,863				33.4
Interest-bearing savings deposits
Interest checking			91,384				84,494				75,563				8.2				20.9				84,276				72,553				16.2
Money market savings			127,390				124,115				116,619				2.6				9.2				125,786				109,849				14.5
Savings accounts			55,730				53,499				46,945				4.2				18.7				52,142				46,130				13.0
Total savings deposits			274,504				262,108				239,127				4.7				14.8				262,204				228,532				14.7
Time deposits			32,761				34,040				43,012				(3.8	)			(23.8)				37,872				44,417				(14.7	)
Total interest-bearing deposits			307,265				296,148				282,139				3.8				8.9				300,076				272,949				9.9
Total deposits			$422,413				$405,523				$356,452				4.2				18.5				$398,615				$346,812				14.9

 

 

Average total deposits for the fourth quarter of 2020 were $66.0 billion (18.5 percent) higher than the fourth quarter of 2019, including approximately $10 billion related to the acquisition of deposit balances from State Farm Bank in the fourth quarter of 2020. Average noninterest-bearing deposits increased $40.8 billion (55.0 percent) across all business lines. Average total savings deposits were $35.4 billion (14.8. percent) higher year-over-year driven by Consumer and Business Banking, Corporate and Commercial Banking, and Wealth Management and Investment Services. Average time deposits were $10.3 billion (23.8 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 $16.9 billion (4.2 percent) from the third quarter of 2020, including the acquired deposit balances. On a linked quarter basis, average noninterest-bearing deposits increased $5.8 billion (5.3 percent) driven by Corporate and Commercial Banking. Average total savings deposits increased $12.4 billion (4.7 percent) compared with the third quarter of 2020 primarily due to increases in Consumer and Business Banking and Wealth Management and Investment Services. Average time deposits, which are managed based on funding needs, relative pricing and liquidity characteristics, decreased $1.3 billion (3.8 percent) on a linked quarter basis primarily within Corporate and Commercial Banking, partially offset by increases in Consumer and Business 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. The year-over-year increase in average noninterest-bearing deposits in Payment Services was driven by state unemployment distributions on prepaid debit cards.

 

 

        6

		U.S. Bancorp Fourth Quarter 2020 Results

 

NONINTEREST INCOME
($ in millions)														Percent Change
		4Q				3Q				4Q				4Q20 vs				4Q20 vs				Full Year				Full Year				Percent
		2020				2020				2019				3Q20				4Q19				2020				2019				Change
Credit and debit card revenue			$362				$388				$378				(6.7	)			(4.2	)			$1,338				$1,413				(5.3	)
Corporate payment products revenue			126				125				158				.8				(20.3	)			497				664				(25.2	)
Merchant processing services			311				347				409				(10.4	)			(24.0	)			1,261				1,601				(21.2	)
Trust and investment management fees			441				434				438				1.6				.7				1,736				1,673				3.8
Deposit service charges			165				170				231				(2.9	)			(28.6	)			677				909				(25.5	)
Treasury management fees			143				145				140				(1.4	)			2.1				568				578				(1.7	)
Commercial products revenue			239				303				226				(21.1	)			5.8				1,143				934				22.4
Mortgage banking revenue			468				553				244				(15.4	)			91.8				2,064				874				nm
Investment products fees			50				48				48				4.2				4.2				192				186				3.2
Securities gains (losses), net			34				12				26				nm				30.8				177				73				nm
Other			211				187				138				12.8				52.9				748				926				(19.2	)
Total noninterest income			$2,550				$2,712				$2,436				(6.0	)			4.7				$10,401				$9,831				5.8

 

 

Fourth quarter noninterest income of $2,550 million was $114 million (4.7 percent) higher than the fourth quarter of 2019. In the fourth quarter of 2019, other noninterest income included a valuation charge of $140 million for an increased derivative liability related to Visa shares previously sold by the Company. Excluding this notable item, noninterest income decreased $26 million (1.0 percent) compared with the fourth quarter of 2019 reflecting lower payment services revenue, deposit service charges and other noninterest income, partially offset by strong growth in mortgage banking revenue and higher commercial products revenue. Payment services revenue decreased $146 million (15.4 percent) compared with the fourth quarter of 2019 driven by lower consumer and business spending as a result of the COVID-19 pandemic. Credit and debit card revenue was lower by $16 million (4.2 percent) due to lower net interchange revenue related to sales volumes, partially offset by higher prepaid fees as a result of government stimulus programs in 2020. Also impacting payment services revenue, corporate payment products revenue decreased $32 million (20.3 percent) and merchant processing services revenue deceased $98 million (24.0 percent) primarily due to lower sales volume. Deposit service charges decreased $66 million (28.6 percent) primarily due to lower consumer spending activities. Other noninterest income, excluding the prior year notable item, decreased $67 million (24.1 percent) driven by higher equity investment income in the fourth quarter of 2019, partially offset by higher retail leasing end of term residual gains and tax-advantaged investment syndication revenue in the fourth quarter of 2020. Partially offsetting these decreases, mortgage banking revenue experienced strong growth of $224 million (91.8 percent) compared with the fourth quarter of 2019 due to higher mortgage production driven by refinancing activities 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 $13 million (5.8 percent) primarily due to higher commercial loan and commercial leasing fees.

Noninterest income was $162 million (6.0 percent) lower in the fourth quarter of 2020 compared with the third quarter of 2020, reflecting lower payment services revenue, commercial products revenue and mortgage banking revenue, partially offset by higher other noninterest income and gains on the sale of securities. Payment services revenue decreased $61 million (7.1 percent) compared with the third quarter of 2020, in part due to seasonality. The decline was driven by $26 million (6.7 percent) lower credit and debit card revenue, primarily due to the timing of stimulus payments through prepaid card processing in the third quarter of 2020, and lower merchant processing services revenue of $36 million (10.4 percent) due to the impact of economic shutdowns in Europe and certain domestic regions and sales volumes. Commercial products revenue decreased $64 million (21.1 percent) primarily due to lower capital markets activities, partially offset by stronger commercial loan and commercial leasing fees. Mortgage banking revenue decreased $85 million (15.4 percent) due to lower production volume and related gain on sales as well as the unfavorable net impact of the change in fair value of mortgage servicing rights, net of hedging activities. Other noninterest income increased $24 million (12.8 percent) primarily due to higher tax-advantaged investment syndication revenue.

 

 

        7

		U.S. Bancorp Fourth Quarter 2020 Results

 

NONINTEREST EXPENSE
($ in millions)														Percent Change
		4Q				3Q				4Q				4Q20 vs				4Q20 vs				Full Year				Full Year				Percent
		2020				2020				2019				3Q20				4Q19				2020				2019				Change
Compensation			$1,643				$1,687				$1,597				(2.6	)			2.9				$6,635				$6,325				4.9
Employee benefits			302				335				315				(9.9	)			(4.1	)			1,303				1,286				1.3
Net occupancy and equipment			269				276				286				(2.5	)			(5.9	)			1,092				1,123				(2.8	)
Professional services			123				102				139				20.6				(11.5	)			430				454				(5.3	)
Marketing and business development			105				72				117				45.8				(10.3	)			318				426				(25.4	)
Technology and communications			362				334				291				8.4				24.4				1,294				1,095				18.2
Postage, printing and supplies			74				70				71				5.7				4.2				288				290				(.7	)
Other intangibles			47				44				44				6.8				6.8				176				168				4.8
Other			439				451				541				(2.7	)			(18.9	)			1,833				1,618				13.3
Total noninterest expense			$3,364				$3,371				$3,401				(.2	)			(1.1	)			$13,369				$12,785				4.6

Fourth quarter noninterest expense of $3,364 million was $37 million (1.1 percent) lower than the fourth quarter of 2019. In the fourth quarter of 2019, other noninterest expense included notable items related to severance charges and other accruals of $200 million. The current quarter included approximately $118 million of incremental costs related to the prepaid card business ($44 million), expenses related to COVID-19 ($22 million) and revenue-related expenses ($52 million) primarily due to higher mortgage production in addition to business investments, including digital capabilities. Excluding the impact of the prior year notable items, noninterest expense increased $163 million (5.1 percent) compared with the fourth quarter of 2019 reflecting higher compensation expense, technology and communications expense and other noninterest expense, partially offset by lower net occupancy and equipment expense, professional services expense and marketing and business development expense. Compensation expense increased $46 million (2.9 percent) compared with the fourth quarter of 2019 due to merit and variable compensation related to business production in mortgage banking. Technology and communications expense increased $71 million (24.4 percent) primarily due to the impact of increased call center volume related to prepaid cards and capital expenditures supporting business technology investments. Other noninterest expense, excluding the prior year notable items, increased $98 million (28.7 percent) which reflected higher expenses for revenue-related costs and COVID-19, merger-related costs related to acquired deposits and higher state franchise taxes, partially offset by lower costs related to tax-advantaged projects. These increases were partially offset by lower net occupancy and equipment expense of $17 million (5.9 percent) due to branch optimization initiatives, lower professional services expense of $16 million (11.5 percent) primarily due to fewer initiatives in the current year and lower marketing and business development expense of $12 million (10.3 percent) due to a reduction in travel as a result of COVID-19.

Noninterest expense decreased $7 million (0.2 percent) on a linked quarter basis reflecting lower compensation and employee benefits expense, mostly offset by higher professional services expense, marketing and business development expense and technology and communications expense. Compensation expense decreased $44 million (2.6 percent) primarily due to lower business incentives while employee benefits expense decreased $33 million (9.9 percent) primarily due to lower medical claims expense. Partially offsetting these decreases, professional services expense increased $21 million (20.6 percent) primarily due to seasonally higher spending on business investments. Marketing and business development expense increased $33 million (45.8 percent) due to the timing of marketing campaigns supporting business development, and technology and communications expense increased $28 million (8.4 percent) driven by increased call center volume related to prepaid debit cards and software license expense.

Provision for Income Taxes

The provision for income taxes for the fourth quarter of 2020 resulted in a tax rate of 21.6 percent on a taxable-equivalent basis (effective tax rate of 20.6 percent), compared with 20.2 percent on a taxable-equivalent basis (effective tax rate of 19.2 percent) in the fourth quarter of 2019, and a tax rate of 19.0 percent on a taxable-equivalent basis (effective tax rate of 18.0 percent) in the third quarter of 2020.

 

 

        8

		U.S. Bancorp Fourth Quarter 2020 Results

 

 

ALLOWANCE FOR CREDIT LOSSES
($ in millions)		4Q								3Q								2Q								1Q								4Q
		2020				% (a)				2020				% (a)				2020				% (a)				2020				% (a)				2019				% (a)
Balance, beginning of period		$	8,010							$	7,890							$	6,590							$	4,491							$	4,481
Change in accounting principle (b)			--								--								--								1,499								--
Net charge-offs
Commercial			142				.56				167				.60				105				.34				69				.28				74				.30
Lease financing			8				.57				11				.78				6				.43				5				.36				4				.29
Total commercial			150				.56				178				.61				111				.35				74				.28				78				.30
Commercial mortgages			82				1.12				85				1.13				19				.25				(1	)			(.01	)			7				.10
Construction and development			2				.07				(2	)			(.07	)			3				.11				(1	)			(.04	)			--				--
Total commercial real estate			84				.83				83				.81				22				.22				(2	)			(.02	)			7				.07
Residential mortgages			(7	)			(.04	)			(3	)			(.02	)			(3	)			(.02	)			1				.01				(1	)			(.01	)
Credit card			165				2.99				201				3.63				229				4.28				234				3.95				230				3.79
Retail leasing (c)			9				.43				20				.94				33				1.58				19				.90				4				.19
Home equity and second mortgages			(3	)			(.09	)			(2	)			(.06	)			--				--				1				.03				--				--
Other			43				.48				38				.43				45				.54				66				.79				67				.79
Total other retail			49				.34				56				.39				78				.56				86				.61				71				.49
Total net charge-offs			441				.58				515				.66				437				.55				393				.53				385				.52
Provision for credit losses			441								635								1,737								993								395
Balance, end of period		$	8,010							$	8,010							$	7,890							$	6,590							$	4,491
Components
Allowance for loan losses		$	7,314							$	7,407							$	7,383							$	6,216							$	4,020
Liability for unfunded credit commitments			696								603								507								374								471
Total allowance for credit losses		$	8,010							$	8,010							$	7,890							$	6,590							$	4,491
Gross charge-offs		$	556							$	611							$	522							$	491							$	479
Gross recoveries		$	115							$	96							$	85							$	98							$	94
Allowance for credit losses as a percentage of
Period-end loans			2.69								2.61								2.54								2.07								1.52
Nonperforming loans			654								678								737								809								649
Nonperforming assets			617								631								673								697								542
(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

 

 

        9

		U.S. Bancorp Fourth Quarter 2020 Results

 

The Company’s provision for credit losses for the fourth quarter of 2020 was $441 million, which was $194 million lower than the prior quarter and $46 million higher than the fourth quarter of 2019. During the fourth quarter of 2020, economic conditions continued to moderate in line with management’s expectations. Economic projections for both the gross domestic product and unemployment levels improved from the third quarter. In addition to these factors, expected loss estimates consider various factors including potential mitigating effects of government stimulus, estimated duration and severity 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.

Total net charge-offs in the fourth quarter of 2020 were $441 million, compared with $515 million in the third quarter of 2020, and $385 million in the fourth quarter of 2019. The net charge-off ratio was 0.58 percent in the fourth quarter of 2020, compared with 0.66 percent in the third quarter of 2020 and 0.52 percent in the fourth quarter of 2019. Net charge-offs decreased $74 million (14.4 percent) compared with the third quarter of 2020 mainly due to lower total commercial and credit card net charge-offs. Net charge-offs increased $56 million (14.5 percent) compared with the fourth quarter of 2019 primarily due to higher total commercial and total commercial real estate net charge-offs, partly offset by lower credit card and 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.

The allowance for credit losses was $8,010 million at December 31, 2020, and at September 30, 2020, compared with $4,491 million at December 31, 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 driven by the potential economic impact of COVID-19. The ratio of the allowance for credit losses to period-end loans was 2.69 percent at December 31, 2020, compared with 2.61 percent at September 30, 2020, and 1.52 percent at December 31, 2019. The ratio of the allowance for credit losses to nonperforming loans was 654 percent at December 31, 2020, compared with 678 percent at September 30, 2020, and 649 percent at December 31, 2019.

Nonperforming assets were $1,298 million at December 31, 2020, compared with $1,270 million at September 30, 2020, and $829 million at December 31, 2019. The ratio of nonperforming assets to loans and other real estate was 0.44 percent at December 31, 2020, compared with 0.41 percent at September 30, 2020, and 0.28 percent at December 31, 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 $506 million at December 31, 2020, compared with $461 million at September 30, 2020, and $605 million at December 31, 2019. The Company expects credit quality metrics, including nonperforming assets, to remain elevated and volatility in net charge-offs given current economic conditions.

 

 

        10

		U.S. Bancorp Fourth Quarter 2020 Results

 

 

DELINQUENT LOAN RATIOS AS A PERCENT OF ENDING LOAN BALANCES
(Percent)		Dec 31				Sep 30				Jun 30				Mar 31				Dec 31
		2020				2020				2020				2020				2019
Delinquent loan ratios - 90 days or more past due excluding nonperforming loans
Commercial			.05				.06				.07				.06				.08
Commercial real estate			.01				--				--				--				.01
Residential mortgages			.22				.15				.16				.15				.17
Credit card			.88				.91				1.22				1.29				1.23
Other retail			.15				.14				.16				.17				.17
Total loans			.17				.15				.18				.18				.20
Delinquent loan ratios - 90 days or more past due including nonperforming loans
Commercial			.42				.48				.45				.31				.27
Commercial real estate			1.15				.82				.48				.25				.21
Residential mortgages			.54				.46				.50				.49				.51
Credit card			.88				.91				1.22				1.29				1.23
Other retail			.42				.40				.48				.45				.46
Total loans			.58				.53				.52				.44				.44

 

ASSET QUALITY (a)
($ in millions)
		Dec 31				Sep 30				Jun 30				Mar 31				Dec 31
		2020				2020				2020				2020				2019
Nonperforming loans
Commercial			$321				$403				$403				$276				$172
Lease financing			54				56				53				33				32
Total commercial			375				459				456				309				204
Commercial mortgages			411				323				188				89				74
Construction and development			39				7				7				12				8
Total commercial real estate			450				330				195				101				82
Residential mortgages			245				240				242				243				241
Credit card			--				--				--				--				--
Other retail			154				152				178				162				165
Total nonperforming loans			1,224				1,181				1,071				815				692
Other real estate			24				35				52				70				78
Other nonperforming assets			50				54				50				61				59
Total nonperforming assets			$1,298				$1,270				$1,173				$946				$829
Accruing loans 90 days or more past due			$506				$461				$556				$579				$605
Performing restructured loans, excluding GNMA			$2,177				$2,004				$1,994				$2,080				$2,129
Performing restructured GNMA			$1,434				$1,415				$1,522				$1,619				$1,622
Nonperforming assets to loans plus ORE (%)			.44				.41				.38				.30				.28
(a) Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due

 

 

        11

		U.S. Bancorp Fourth Quarter 2020 Results

 

COMMON SHARES
(Millions)		4Q				3Q				2Q				1Q				4Q
		2020				2020				2020				2020				2019
Beginning shares outstanding			1,506				1,506				1,506				1,534				1,571
Shares issued for stock incentive plans, acquisitions and other corporate purposes			1				--				--				3				3
Shares repurchased			--				--				--				(31	)			(40	)
Ending shares outstanding			1,507				1,506				1,506				1,506				1,534

 

CAPITAL POSITION
($ in millions)		Dec 31				Sep 30				Jun 30				Mar 31				Dec 31
		2020				2020				2020				2020				2019
Total U.S. Bancorp shareholders’ equity		$	53,095			$	52,565			$	51,850			$	51,532			$	51,853
Basel III Standardized Approach (a)
Common equity tier 1 capital		$	38,045			$	37,485			$	36,351			$	36,224			$	35,713
Tier 1 capital			44,474				43,916				42,781				42,651				41,721
Total risk-based capital			52,602				52,086				51,457				51,277				49,744
Common equity tier 1 capital ratio			9.7	%			9.4	%			9.0	%			9.0	%			9.1	%
Tier 1 capital ratio			11.3				11.0				10.6				10.5				10.7
Total risk-based capital ratio			13.4				13.1				12.8				12.7				12.7
Leverage ratio			8.3				8.3				8.0				8.8				8.8
Tangible common equity to tangible assets (b)			6.9				7.0				6.7				6.7				7.5
Tangible common equity to risk-weighted assets (b)			9.5				9.3				9.0				8.9				9.3
Common equity tier 1 capital to risk-weighted assets, reflecting the full implementation of the current expected credit losses methodology (b)			9.3				9.0				8.7				8.6
(a) 2020 amounts and ratios calculated in accordance with transitional regulatory requirements related to the current expected credit losses methodology
(b) See Non-GAAP Financial Measures reconciliation on page 17

 

 

Total U.S. Bancorp shareholders’ equity was $53.1 billion at December 31, 2020, compared with $52.6 billion at September 30, 2020, and $51.9 billion at December 31, 2019. Beginning in March and continuing through the remainder of 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 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 implemented measures beginning in the third quarter of 2020 and extending through the first quarter of 2021, restricting capital distributions of all large bank holding companies, including U.S. Bancorp. These restrictions include capping common stock dividends at existing rates and limiting the aggregate amount of common stock dividends and share repurchases to an amount not exceeding the average net income of the four preceding calendar quarters. Based on the results of the December 2020 Federal Reserve Stress Test the Company announced its Board of Directors had approved an authorization to repurchase up to $3.0 billion of its common stock beginning January 1, 2021.

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 9.7 percent at December 31, 2020, compared with 9.4 percent at September 30, 2020, and 9.1 percent at December 31, 2019. The Company’s common equity tier 1 capital to risk-weighted assets ratio, reflecting the full implementation of the current expected credit losses methodology was 9.3 percent at December 31, 2020, compared with 9.0 percent at September 30, 2020.

 

 

        12