U S Bancorp : 1Q 2021 Earnings Release

U.S. Bancorp Reports First Quarter 2021 Results

• Net revenue of $5.5 billion and net income of $2.3 billion
• Return on average assets of 1.69% and return on average common equity of 19.0%
• Common Equity Tier 1 capital ratio of 9.9% and strong levels of liquidity

1Q21 Key Financial Data

PROFITABILITY METRICS	1Q21	4Q20	1Q20
Return on average assets (%)	1.69	1.10	.95
Return on average common equity (%)	19.0	12.1	9.7
Return on tangible common equity (%) (a)	24.3	15.6	12.6
Net interest margin (%)	2.50	2.57	2.91
Efficiency ratio (%) (a)	62.1	58.8	58.0
INCOME STATEMENT (b)	1Q21	4Q20	1Q20
Net interest income (taxable-equivalent basis)	$3,089	$3,201	$3,247
Noninterest income	$2,381	$2,550	$2,525
Net income attributable to U.S. Bancorp	$2,280	$1,519	$1,171
Diluted earnings per common share	$1.45	$.95	$.72
Dividends declared per common share	$.42	$.42	$.42
BALANCE SHEET (b)	1Q21	4Q20	1Q20
Average total loans	$293,989	$302,308	$297,657
Average total deposits	$426,364	$422,413	$362,804
Net charge-off ratio	.31%	.58%	.53%
Book value per common share (period end)	$30.53	$31.26	$30.24
Basel III standardized CET1 (c)	9.9%	9.7%	9.0%

1. See Non-GAAP Financial Measures reconciliation on page 16
2. Dollars in millions, except per share data
3. CET1 = Common equity tier 1 capital ratio

CEO Commentary

1Q21 Highlights

• Net income of $2,280 million and diluted earnings per common share of $1.45
• Return on average assets of 1.69% and return on average common equity of 19.0%
• Net revenue of $5,470 million, including $3,089 million of net interest income and $2,381 million of noninterest income
• Average total earning assets growth of 11.2% year-over-year
• Average total deposits growth of 17.5% year-over-year
• Net charge-off ratio of 0.31% in 1Q21 compared with 0.58% in 4Q20 and 0.53% in the 1Q20
• Allowance for credit losses declined $1,050 million during the quarter given improving economic outlook and credit trends
• Nonperforming assets decreased 7.4% on a linked quarter basis and increased 27.1% year-over year
• CET1 capital ratio increased to 9.9% at March 31, 2021, compared with 9.7% at December 31, 2020

"A lot has changed in the last year, and our first quarter results were reflective of improving economic conditions and increasing consumer confidence and spending activity. Credit quality continues to perform better than we had expected - in fact, we incurred the bank's lowest net charge-off ratio in recent decades - and an improved outlook for future performance allowed us to release over a billion dollars in reserves for credit losses. Our payments businesses are well-positioned to take advantage of the cyclical recovery and renewed business and consumer activity. In a similar fashion, we will continue to invest in capabilities to create growth, as evidenced by our advances in digital, our alliance with State Farm and our acquisition of talech, an important small business payments capability. These investments will drive revenue growth and further efficiencies that will create value for our business, customers and shareholders. Although the pandemic has disrupted most aspects of personal and professional life for more than a year, our employees have dedicated themselves to service and our company's success. I appreciate their hard work and everything they continue to do to position us for better days ahead."

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

In the Spotlight

U.S. Bank Access Commitment

U.S. Bank's Access Commitment is a long-term approach bringing the strengths of the Company to help build wealth while redefining how the bank serves diverse communities and provides more opportunities for diverse employees. The focus is on supporting businesses owned by people of color, helping individuals and communities of color advance economically and enhancing career opportunities for employees and prospective employees. This includes a new fund focused on businesses owned by women of color, a mortgage program focused on homeownership education, a focus on building sustained wealth, financial inclusion partnerships, supply chain financing focused on diverse businesses, customized employee leadership development, and a change to how U.S. Bank fills open positions.

Most Ethical

For the seventh consecutive year, U.S. Bank has been named one of the World's Most Ethical Companies by the Ethisphere Institute, a global leader in defining and advancing the standards of ethical business practices.

Best in Class Mobile Banking

The mobile check deposit feature of the U.S. Bank Mobile App has been recognized as best in class by Cornerstone Advisors in its 2021 Mobile Deposit Benchmark report. It was rated No. 1 in the industry for customer experience based on factors including deposit limits, real-time status updates, auto-capture functionality and more.

Most Admired

U.S. Bancorp was ranked No. 1 in the Superregional Banks category for the eleventh straight year in Fortune magazine's annual World's Most Admired Companies list. Fortune highlighted the following key U.S. Bancorp attributes that render success: Quality of Leadership, Value as a Long-term Investment, Soundness of Financial Position, and Wise Use of Corporate Assets.

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

U.S. Bancorp First Quarter 2021 Results

INCOME STATEMENT HIGHLIGHTS

	($ in millions, except per-share data)							1Q	4Q	1Q									Percent Change
																1Q21 vs	1Q21 vs
		2021	2020	2020									4Q20	1Q20
	Net interest income	$3,063	$3,175	$3,223	(3.5)	(5.0)
	Taxable-equivalent adjustment	26	26	24	--	8.3
	Net interest income (taxable-equivalent basis)	3,089	3,201	3,247		(3.5)	(4.9)
	Noninterest income	2,381	2,550	2,525	(6.6)	(5.7)
	Total net revenue		5,470	5,751	5,772		(4.9)	(5.2)
	Noninterest expense	3,379	3,364	3,316	.4	1.9
	Income before provision and income taxes		2,091	2,387	2,456		(12.4)	(14.9)
	Provision for credit losses	(827)	441	993									nm	nm
	Income before taxes		2,918	1,946	1,463		49.9	99.5
	Income taxes and taxable-equivalent	633	421	284	50.4	nm
	adjustment
	Net income		2,285	1,525	1,179		49.8	93.8
	Net (income) loss attributable to	(5)	(6)	(8)	16.7	37.5
	noncontrolling interests
	Net income attributable to U.S. Bancorp			$2,280	$1,519	$1,171			50.1	94.7
	Net income applicable to U.S. Bancorp	$2,175	$1,425	$1,088	52.6	99.9
	common shareholders
	Diluted earnings per common share		$1.45	$.95	$.72		52.6	nm

Net income attributable to U.S. Bancorp was $2,280 million for the first quarter of 2021, which was 94.7 percent higher than the $1,171 million for the first quarter of 2020, and 50.1 percent higher than the $1,519 million for the fourth quarter of 2020. Diluted earnings per common share were $1.45 in the first quarter of 2021, compared with $0.72 in the first quarter of 2020 and $0.95 in the fourth quarter of 2020.

The increase in net income year-over-year was primarily due to lower provision for credit losses, partially offset by lower net interest income and noninterest income in addition to higher noninterest expense. Net interest income decreased 4.9 percent on a year-over-yeartax-equivalent basis, primarily due to the impact of lower rates compared with a year ago and higher premium amortization in the investment portfolio related to mortgage refinancing activities, partially offset by the benefit of deposit and funding mix as well as higher loan fees related to the Small Business Administration ("SBA") Paycheck Protection Program. Net interest margin declined from a year ago to 2.50 percent in the first quarter of 2021 primarily due to the impact of a lower yield curve on earning assets, higher levels of liquidity and higher premium amortization within the investment portfolio, partially offset by the net benefit of deposit repricing and funding composition and higher loan fees. Noninterest income decreased 5.7 percent compared with a year ago, driven by lower mortgage banking revenue, deposit service charges, securities gains and other noninterest income, partially offset by improvement in trust and investment management fees and commercial products revenue. Noninterest expense increased 1.9 percent reflecting increases in personnel expense, primarily related to performance-based incentive compensation, as well as technology and communications expense, partially offset by lower net occupancy and equipment expense, marketing and business development expense, and other noninterest expense.

Net income increased on a linked quarter basis primarily due to lower provision for credit losses, partially offset by lower net interest income and noninterest income. Net interest income decreased 3.5 percent primarily due to lower average loan balances, the yield impact of prepayments, and two less days in the quarter, 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 dilutive impact of investment portfolio reinvestment rates, premium amortization and mortgage prepayments, partially offset by lower cash balances. Noninterest income decreased 6.6 percent compared with the fourth quarter of 2020 driven by a decline in mortgage banking revenue, credit and debit card revenue, and other noninterest income, partially offset by higher commercial product revenue. Noninterest expense was relatively flat, reflecting higher personnel expense related to incentive compensation and the seasonal impact of payroll taxes, partially offset by lower professional services expense, marketing and business development expense and other noninterest expense.

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U.S. Bancorp First Quarter 2021 Results

NET INTEREST INCOME

	(Taxable-equivalent basis; $ in millions)		1Q	4Q	1Q	Change
					1Q21 vs	1Q21 vs
				2021	2020	2020	4Q20	1Q20
	Components of net interest income
	Income on earning assets	$3,367	$3,505	$4,142	$(138)	$(775)
	Expense on interest-bearing liabilities	278	304	895	(26)	(617)
	Net interest income	$3,089	$3,201	$3,247	$(112)	$(158)
	Average yields and rates paid
	Earning assets yield	2.73%	2.81%	3.71%	(.08)%	(.98)%
	Rate paid on interest-bearing liabilities	.31	.33	1.02	(.02)	(.71)
	Gross interest margin		2.42%	2.48%	2.69%	(.06)%	(.27)%
	Net interest margin			2.50%	2.57%	2.91%	(.07)%	(.41)%
	Average balances
	Investment securities (a)	$145,520	$133,430	$120,843	$12,090	$24,677
	Loans	293,989	302,308	297,657	(8,319)	(3,668)
	Earning assets	497,711	497,437	447,722	274	49,989
	Interest-bearing liabilities	360,582	362,445	352,761	(1,863)	7,821

(a) Excludes unrealized gain (loss)

Net interest income on a taxable-equivalent basis in the first quarter of 2021 was $3,089 million, a decrease of $158 million (4.9 percent) compared with the first quarter of 2020. The decrease was primarily due to the impact of lower rates compared with a year ago and higher premium amortization related to securities prepayments, partially offset by the benefit of deposit and funding mix as well as higher loan fees. Average earning assets were $50.0 billion (11.2 percent) higher than the first quarter of 2020, reflecting increases of $24.7 billion (20.4 percent) in average investment securities and $23.7 billion (96.8 percent) in average other earning assets, including cash balances being maintained for liquidity given the current economic environment, while average total loans decreased $3.7 billion (1.2 percent) due to continued paydowns by corporate customers that accessed the capital markets last year.

Net interest income on a taxable-equivalent basis decreased $112 million (3.5 percent) on a linked quarter basis primarily due to a decline in average loan balances, the yield impact of prepayments on mortgage loans and securities and two less days in the quarter, partially offset by the benefit of deposit and funding mix as well as higher loan fees. Average earning assets were flat on a linked quarter basis, reflecting increases of $12.1 billion (9.1 percent) in average investment securities, partially offset by a decrease of $8.3 billion (2.8 percent) in average total loans, primarily due to continued paydowns by corporate customers, as well as a decrease of $4.7 billion (8.8 percent) in average other earning assets driven by lower cash balances on a linked quarter basis.

Net interest margin in the first quarter of 2021 was 2.50 percent, compared with 2.91 percent in the first quarter of 2020 and 2.57 percent in the fourth 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 on earning assets, higher premium amortization within the investment portfolio and decisions to maintain higher levels of liquidity, partially offset by the net benefit of deposit repricing and funding composition and higher loan fees. The decrease in net interest margin on a linked quarter basis reflects the dilutive impact of investment portfolio reinvestment rates, premium amortization and mortgage prepayments, partially offset by lower cash balances.

Given the current interest rates, we believe the first quarter will be the low point for net interest income with opportunity for growth in future quarters.

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.

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U.S. Bancorp First Quarter 2021 Results

AVERAGE LOANS

($ in millions)	1Q	4Q	1Q			Percent Change
			1Q21 vs	1Q21 vs
	2021	2020	2020			4Q20	1Q20
Commercial	$96,757	$100,863	$100,329	(4.1)	(3.6)
Lease financing	5,334	5,558	5,658	(4.0)	(5.7)
Total commercial	102,091	106,421	105,987		(4.1)	(3.7)
Commercial mortgages	27,968	29,004	29,523	(3.6)	(5.3)
Construction and development	10,818	11,094	10,555	(2.5)	2.5
Total commercial real estate	38,786	40,098	40,078		(3.3)	(3.2)
Residential mortgages	75,201	76,809	70,892	(2.1)	6.1
Credit card	21,144	21,937	23,836	(3.6)	(11.3)
Retail leasing	7,975	8,299	8,474	(3.9)	(5.9)
Home equity and second mortgages	12,062	12,816	14,838	(5.9)	(18.7)
Other	36,730	35,928	33,552	2.2	9.5
Total other retail	56,767	57,043	56,864		(.5)	(.2)
Total loans	$293,989	$302,308	$297,657	(2.8)	(1.2)

Average total loans for the first quarter of 2021 were $3.7 billion (1.2 percent) lower than the first quarter of 2020. The decrease was primarily due to lower total commercial loans (3.7 percent) driven by continued paydowns by corporate customers that accessed the capital markets last year, lower credit card loans (11.3 percent) driven by higher customer payment rates given their excess liquidity from the government stimulus, and lower home equity and second mortgages (18.7 percent) as more customers chose to refinance their existing first lien residential mortgage balances during the prior year due to the low interest rate environment. These decreases were partially offset by growth in residential mortgages (6.1 percent) driven by loan repurchases from the Government National Mortgage Association ("GNMA"), as well as growth in other retail loans (9.5 percent) driven by growth in installment loans due to the impact of COVID-19 on recreational vehicle sales.

Average total loans were $8.3 billion (2.8 percent) lower than the fourth quarter of 2020 primarily driven by lower total commercial loans (4.1 percent), lower residential mortgages (2.1 percent), and lower home equity and second mortgages (5.9 percent), all as a result of customer paydowns.

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U.S. Bancorp First Quarter 2021 Results

AVERAGE DEPOSITS

($ in millions)	1Q	4Q	1Q				Percent Change
					1Q21 vs	1Q21 vs
		2021	2020	2020				4Q20	1Q20
Noninterest-bearing deposits	$118,352	$115,148	$74,142	2.8	59.6
Interest-bearing savings deposits	97,385	91,384	77,359	6.6	25.9
Interest checking
Money market savings	124,825	127,390	121,946	(2.0)	2.4
Savings accounts	58,848	55,730	48,048	5.6	22.5
Total savings deposits	281,058	274,504	247,353				2.4	13.6
Time deposits	26,954	32,761	41,309	(17.7)	(34.8)
Total interest-bearing deposits		308,012	307,265	288,662			.2	6.7
Total deposits	$426,364	$422,413	$362,804	.9	17.5

Average total deposits for the first quarter of 2021 were $63.6 billion (17.5 percent) higher than the first quarter of 2020, 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 $44.2 billion (59.6 percent) across all business lines. Average total savings deposits were $33.7 billion (13.6 percent) higher year-over-year driven by Consumer and Business Banking and Wealth Management and Investment Services. Average time deposits were $14.4 billion (34.8 percent) lower than the prior year quarter primarily within Corporate and Commercial Banking. 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 $4.0 billion (0.9 percent) from the fourth quarter of 2020. On a linked quarter basis, average noninterest-bearing deposits increased $3.2 billion (2.8 percent) driven by Corporate and Commercial Banking and Wealth Management and Investment Services. Average total savings deposits increased $6.6 billion (2.4 percent) compared with the fourth 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 $5.8 billion (17.7 percent) on a linked quarter basis across all business lines.

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.

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