U.S. Bancorp(USB) - 2025 Q2 - Quarterly Report

Part I — Financial Information This section details the company's Q2 and H1 2025 financial performance, condition, risk profile, segment results, and financial statements Management's Discussion and Analysis of Financial Condition and Results of Operations (Item 2) U.S. Bancorp reported strong Q2 2025 financial performance, with net income rising 13.2% to $1.8 billion, driven by revenue growth, reduced expenses, and lower credit loss provisions Overview In Q2 2025, U.S. Bancorp's net income attributable to the company increased to $1.8 billion ($1.11 per diluted share) from $1.6 billion ($0.97 per diluted share) in Q2 2024 Q2 and H1 2025 Earnings Summary | Metric | Q2 2025 | Q2 2024 | % Change | H1 2025 | H1 2024 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Income Attributable to U.S. Bancorp | $1.8B | $1.6B | 13.2% | $3.5B | $2.9B | 20.6% | | Diluted EPS | $1.11 | $0.97 | 14.4% | $2.14 | $1.75 | 22.3% | | Total Net Revenue | $7.0B | $6.9B | 2.0% | $14.0B | $13.6B | 2.8% | * Revenue growth in Q2 2025 was supported by a 0.7% increase in net interest income and a 3.9% increase in noninterest income, driven by higher trust and investment management fees and payment services revenue[17] * Noninterest expense decreased by 0.8% year-over-year in Q2 2025, primarily due to lower compensation and employee benefits expense[18] * The provision for credit losses was $501 million, down 11.8% from Q2 2024, reflecting the impact of loan portfolio sales and improved credit quality[19] Statement of Income Analysis The income statement analysis reveals that Q2 2025 net interest income grew slightly by 0.7% to $4.1 billion, with a stable net interest margin of 2.66% * Net interest income (taxable-equivalent) for Q2 2025 was $4.1 billion, a 0.7% increase YoY, driven by asset repricing and loan mix, partially offset by deposit pricing pressures[25] * The net interest margin was 2.66%, slightly down from 2.67% in Q2 2024[25] Noninterest Income Breakdown (Q2 2025 vs Q2 2024) | Category | Q2 2025 ($M) | Q2 2024 ($M) | % Change | | :--- | :--- | :--- | :--- | | Trust and investment management fees | 703 | 649 | 8.3% | | Merchant processing services | 474 | 454 | 4.4% | | Card revenue | 442 | 428 | 3.3% | | Mortgage banking revenue | 162 | 190 | (14.7)% | | Total noninterest income | 2,924 | 2,815 | 3.9% | Noninterest Expense Breakdown (Q2 2025 vs Q2 2024) | Category | Q2 2025 ($M) | Q2 2024 ($M) | % Change | | :--- | :--- | :--- | :--- | | Compensation and employee benefits | 2,600 | 2,619 | (0.7)% | | Technology and communications | 534 | 509 | 4.9% | | Other intangibles | 124 | 142 | (12.7)% | | Total noninterest expense | 4,181 | 4,214 | (0.8)% | * The provision for income taxes was $472 million for Q2 2025, representing an effective tax rate of 20.6%, compared to $445 million (21.6% effective rate) in Q2 2024[36] Balance Sheet Analysis As of June 30, 2025, the company's balance sheet showed stability and strategic repositioning, with total loans increasing marginally by 0.1% to $380.2 billion and investment securities growing 2.3% to $168.5 billion * Total loans stood at $380.2 billion at June 30, 2025, a slight 0.1% increase from December 31, 2024[37] * Growth was driven by a 5.7% increase in commercial loans, while residential mortgages and other retail loans decreased by 3.7% and 5.1%, respectively, partly due to portfolio sales[38][39] * Investment securities increased by 2.3% to $168.5 billion from year-end 2024, driven by net purchases and a favorable change in net unrealized losses on available-for-sale securities, which decreased to $6.0 billion[43][44] * Total deposits were $518.7 billion, nearly unchanged from December 31, 2024, with a shift in composition as noninterest-bearing and time deposits increased while money market deposit balances decreased[49] * Long-term debt increased by 10.4% to $64.0 billion from year-end 2024, primarily due to $4.7 billion of medium-term note issuances and a $2.0 billion increase in FHLB advances[50] Quantitative and Qualitative Disclosures About Market Risk/Corporate Risk Profile (Item 3) The company employs a comprehensive risk management framework overseen by the Board of Directors, structured around a "three lines of defense" model, managing credit, interest rate, market, liquidity, and capital risks effectively Overview The company's risk management is governed by a Board-approved framework that sets risk appetite boundaries, with the Executive Risk Committee overseeing execution and a "three lines of defense" model ensuring effective checks and balances * The company's most prominent risk exposures are identified as credit, interest rate, market, liquidity, operational, compliance, strategic, and reputation[53] * A "three lines of defense" model is used for risk management: 1) business lines manage risks, 2) the Chief Risk Officer's organization provides oversight and sets policies, and 3) internal audit provides independent assessment[55] Credit Risk Management Credit risk is managed through centralized policies, diversification, and ongoing monitoring, resulting in an 8.3% decrease in nonperforming assets to $1.7 billion and a stable allowance for credit losses at $7.9 billion Nonperforming Assets | Metric | June 30, 2025 | Dec 31, 2024 | % Change | | :--- | :--- | :--- | :--- | | Total Nonperforming Assets | $1,680 M | $1,832 M | (8.3)% | | Nonperforming Assets to Total Loans | 0.44% | 0.48% | N/A | * Total loan net charge-offs were $554 million for Q2 2025, representing an annualized rate of 0.59% of average loans outstanding, slightly up from 0.58% in Q2 2024[91][92] * The allowance for credit losses was $7.9 billion at June 30, 2025, a 0.8% decrease from year-end 2024, primarily due to loan portfolio sales and improved credit quality[104] * The allowance as a percentage of period-end loans was 2.07%[105] Summary of Allowance for Credit Losses (ACL) | Metric | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Total ACL | $7,862 M | $7,925 M | | ACL as % of Period-End Loans | 2.07% | 2.09% | | ACL as % of Nonperforming Loans | 480% | 442% | Interest Rate Risk Management Interest rate risk is managed by the ALCO using NII sensitivity and market value of equity modeling, with the balance sheet relatively neutral to parallel rate shifts and derivatives used for hedging Sensitivity of Net Interest Income (Next 12 Months) | Rate Change | Projected Impact on NII (June 30, 2025) | | :--- | :--- | | Down 50 bps | +0.34% | | Up 50 bps | +0.06% | | Down 200 bps | -0.07% | | Up 200 bps | +0.63% | * As of June 30, 2025, the company's balance sheet is relatively neutral to a parallel shift in interest rates, as asset repricing aligns closely with liability repricing[122] * The company uses derivatives for asset and liability management to convert fixed-rate instruments to floating-rate, mitigate changes in the value of MSRs and mortgage commitments, and hedge foreign currency volatility[123][129] Market Risk Management Market risk from customer-related trading is managed using a VaR approach, with an average one-day VaR of $3 million for H1 2025 and no actual losses exceeding VaR Market Risk Exposure (H1 2025) | Metric | Average | High | Low | Period-End | | :--- | :--- | :--- | :--- | :--- | | One-Day VaR | $3 M | $4 M | $2 M | $4 M | | One-Day Stressed VaR | $12 M | $15 M | $9 M | $14 M | * The company did not experience any actual losses for its combined Covered Positions that exceeded VaR during the six months ended June 30, 2025[131] Liquidity Risk Management The company maintains robust liquidity through diversified funding, stress testing, and liquid assets, with total available liquidity increasing to $297.6 billion and an average Q2 2025 LCR of 108.3% Total Available Liquidity | Component | June 30, 2025 ($M) | Dec 31, 2024 ($M) | | :--- | :--- | :--- | | Cash at Federal Reserve | 48,964 | 47,434 | | Available investment securities | 59,101 | 67,910 | | Borrowing capacity (Fed & FHLB) | 189,564 | 171,226 | | Total Available Liquidity | 297,629 | 286,570 | * The company's average daily Liquidity Coverage Ratio (LCR) was 108.3% for Q2 2025, exceeding the regulatory requirement[144] * The parent company maintains sufficient liquidity to meet its obligations for 12 months under adverse conditions without support from subsidiaries or access to wholesale markets[142] Capital Management Capital is actively managed to exceed regulatory requirements, with all ratios above "well-capitalized" levels, a CET1 ratio of 10.7%, and ongoing share repurchases Regulatory Capital Ratios | Ratio | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Common equity tier 1 capital | 10.7% | 10.6% | | Tier 1 capital | 12.3% | 12.2% | | Total risk-based capital | 14.3% | 14.3% | | Leverage | 8.5% | 8.3% | * A share repurchase program of up to $5.0 billion was authorized in September 2024[157] * In Q2 2025, the company repurchased 2,692,538 shares for approximately $106 million[158] Business Segment Financial Review Q2 2025 segment performance showed Payment Services growing 12.5%, while Wealth, Corporate, Commercial and Institutional Banking and Consumer and Business Banking declined due to NII pressure Q2 2025 Net Income by Business Segment (vs Q2 2024) | Business Segment | Q2 2025 Net Income ($M) | % Change YoY | | :--- | :--- | :--- | | Wealth, Corporate, Commercial & Institutional Banking | 1,098 | (7.2)% | | Consumer and Business Banking | 459 | (6.9)% | | Payment Services | 325 | 12.5% | | Treasury and Corporate Support | (67) | 81.5% | Financial Statements (Item 1) This section presents the unaudited consolidated financial statements for the six months ended June 30, 2025, including balance sheets, income statements, and detailed explanatory notes Consolidated Financial Statements The consolidated financial statements show total assets of $686.4 billion, total liabilities of $624.5 billion, and net income of $1.8 billion for Q2 2025 Consolidated Balance Sheet Highlights (June 30, 2025) | Account | Amount ($B) | | :--- | :--- | | Total Assets | 686.4 | | Net Loans | 372.7 | | Total Deposits | 518.7 | | Total Liabilities | 624.5 | | Total Shareholders' Equity | 61.4 | Consolidated Income Statement Highlights (Q2 2025) | Account | Amount ($B) | | :--- | :--- | | Net Interest Income | 4.05 | | Provision for Credit Losses | 0.50 | | Total Noninterest Income | 2.92 | | Total Noninterest Expense | 4.18 | | Net Income | 1.82 | Notes to Consolidated Financial Statements The notes provide critical details on investment securities, loan portfolio, allowance for credit losses, mortgage servicing rights, derivatives, fair value measurements, and contingent liabilities * Note 3: Total investment securities were $168.5 billion at June 30, 2025[203] * The portfolio had net unrealized losses of $6.0 billion on available-for-sale securities, primarily due to changes in interest rates[43][44] * Note 4: Total loans were $380.2 billion[214] * The allowance for credit losses was $7.9 billion, or 2.07% of total loans[223] * The allowance decreased slightly from year-end due to loan sales and improved credit quality[223] * Note 6: The fair value of Mortgage Servicing Rights (MSRs) was $3.3 billion at quarter-end[258] * The company uses derivatives to economically hedge changes in the fair value of MSRs[259] * Note 15: The company has contingent liabilities related to its role as a trustee for residential mortgage-backed securities trusts and merchant processing services[343][344] * It has established reserves for matters where losses are probable and estimable[349] Part II — Other Information This section covers legal proceedings, risk factors, unregistered equity sales, and exhibits filed with the Form 10-Q Legal Proceedings (Item 1) This section refers to Note 15 of the financial statements for a detailed discussion of ongoing litigation and regulatory matters, with no material adverse effect expected * The company is subject to various legal and regulatory matters, including litigation related to its role as a trustee for residential mortgage-backed securities[348][349] * For details, the report refers to Note 15[372] Risk Factors (Item 1A) The report directs readers to the company's 2024 Form 10-K for a comprehensive discussion of potential risks, noting no material changes to previously disclosed factors * There have been no material changes to the risk factors previously disclosed in the company's 2024 Form 10-K[373] Unregistered Sales of Equity Securities and Use of Proceeds (Item 2) Information regarding the company's repurchase of its common stock during Q2 2025 is incorporated by reference from the "Capital Management" section of the MD&A * Details on share repurchases during Q2 2025 are provided in the "Capital Management" section on page 28 of the report[158][374] Exhibits (Item 6) This section lists all exhibits filed with the Form 10-Q, including officer certifications and financial statements formatted in Inline XBRL * The exhibits filed with this report include officer certifications (31.1, 31.2, 32) and financial data in Inline XBRL format (101, 104)[376]