U.S. Bancorp — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. U.S. Bancorp is a diversified financial services company. Comparisons below are primarily with Q1 2023 for earnings and cash flow, and with December 31, 2023 for period-end balance sheet data.
Financial performance and position
| Metric | Q1 2024 / March 31, 2024 | Comparable period |
|---|---|---|
| Net interest income | $3.985 billion; taxable-equivalent net interest income $4.015 billion | $4.634 billion; taxable-equivalent $4.668 billion in Q1 2023 |
| Noninterest income | $2.700 billion | $2.507 billion in Q1 2023 |
| Total net revenue | $6.715 billion | $7.175 billion in Q1 2023 |
| Noninterest expense | $4.459 billion | $4.555 billion in Q1 2023 |
| Provision for credit losses | $553 million | $427 million in Q1 2023 |
| Net income attributable to U.S. Bancorp | $1.319 billion; diluted EPS $0.78 | $1.698 billion; diluted EPS $1.04 in Q1 2023 |
| Net interest margin (taxable-equivalent) | 2.70% | 3.10% in Q1 2023 |
| Efficiency ratio | 66.4% | 63.2% in Q1 2023 |
| Average assets / loans / deposits | $653.9 billion / $371.1 billion / $503.1 billion | $665.4 billion / $386.8 billion / $510.3 billion in Q1 2023 |
| Period-end assets / loans / deposits | $683.6 billion / $374.6 billion / $528.1 billion | $663.5 billion / $373.8 billion / $512.3 billion at Dec. 31, 2023 |
| Period-end long-term debt / short-term borrowings | $52.7 billion / $17.1 billion | $51.5 billion / $15.3 billion at Dec. 31, 2023 |
| Allowance for credit losses / nonperforming assets | $7.9 billion / $1.8 billion | $7.8 billion / $1.5 billion at Dec. 31, 2023 |
| Common equity tier 1 / total risk-based capital | 10.0% / 13.7% | 9.9% / 13.7% at Dec. 31, 2023 |
Cash flow and liquidity
- Net cash provided by operating activities was $2.661 billion, versus $842 million in Q1 2023. Investing activities used $4.953 billion, versus providing $4.943 billion in Q1 2023; financing activities provided $18.085 billion, versus $6.901 billion.
- Cash and due from banks ended the quarter at $77.0 billion, up from $61.2 billion at year-end. Total available liquidity was $299.1 billion, compared with $302.4 billion at year-end; reduced central-bank borrowing capacity, mainly after the Bank Term Funding Program expired, was partly offset by more available securities.
- Average daily liquidity coverage ratio was 109.4%; the company reported compliance with LCR and net stable funding requirements. Management said parent-company liquidity exceeded its minimums.
- Common dividends declared were $0.49 per share, compared with $0.48 in Q1 2023. Share repurchases remained suspended apart from specified stock-compensation-related purchases; capital distributions remain subject to board and regulatory requirements.
Material changes versus the prior comparable period
- Net interest income fell 14.0%, and net interest margin declined 40 basis points. Management attributed the pressure mainly to deposit mix and pricing in the higher-rate environment, partly offset by higher yields on earning assets.
- Noninterest income grew 7.7%, with gains in commercial products, trust and investment management, payment services and mortgage banking revenue.
- Noninterest expense declined 2.1%, reflecting expense discipline, operating efficiencies, MUB acquisition synergies and lower merger charges, partly offset by compensation costs and the FDIC assessment.
- Credit costs rose: provision increased 29.5%, and net charge-offs increased to $488 million from $373 million. Annualized net charge-offs were 0.53% of average loans, versus 0.39%.
- Average loans declined 4.1% year over year, while period-end loans were nearly flat versus year-end. Average noninterest-bearing deposits fell 34.6% year over year, although total period-end deposits increased 3.1% from year-end.
- Nonperforming assets rose 19.5% from year-end. Management cited higher commercial and commercial real estate nonperforming loans, including office exposure; office nonperforming loans reached 10.0% of office loans, up from 7.6%.
Outlook, risks and unusual items
- No specific earnings or financial guidance is provided in the supplied filing text. Management describes the economic outlook as relatively stable for allowance estimation but continues to monitor high interest rates, persistent inflation, borrower financial strength and commercial real estate valuations. The allowance model’s projected 2024 unemployment range was 3.1% to 7.7%.
- Q1 2024 included $265 million ($199 million after tax) of notable items: $155 million of MUB merger and integration charges and a $110 million charge for the anticipated increase in the FDIC special assessment. Together, these reduced diluted EPS by $0.12. Q1 2023 included $244 million of merger and integration charges, also reducing EPS by $0.12.
- Available-for-sale securities had $7.1 billion of net unrealized losses at March 31, 2024. The company said it did not plan to sell securities with unrealized losses and believed it was more likely than not that it would not need to sell them before recovery of amortized cost.
- The company reported that proposed Basel III capital rules could require higher capital levels; it was evaluating the proposal. Management also cautioned that actual results may differ materially from forward-looking statements, citing economic and market conditions, deposit competition and behavior, credit deterioration, CRE conditions, interest rates, regulation, litigation, cybersecurity and operational risks, among others.
- Legal matters include ongoing litigation and regulatory inquiries. The company reported a preliminary SEC enforcement recommendation involving its fund-administration subsidiary and stated that SEC and CFTC settlements concerning electronic communications record retention had no material financial impact. A proposed Visa merchant injunctive-action settlement requires court approval. Management believes existing matters are not expected to materially harm overall financial condition, results or cash flows, while noting uncertainty and possible period-specific impacts.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether deposit pricing and mix stabilize enough to support net interest margin and earnings.
- Trends in credit-card delinquencies and charge-offs, commercial loan downgrades, and CRE office nonperforming loans and allowance coverage.
- Deposit composition and funding costs, and how liquidity and borrowing capacity evolve following expiration of the BTFP.
- The duration, recovery assumptions and capital implications of unrealized securities losses, and any future need to sell securities.
- Final regulatory capital requirements and their effect on capital distributions, including share repurchases and dividends.
- Developments in the SEC inquiry, Visa litigation settlement approval, and other legal or regulatory matters and potential financial exposure.