U.S. Bancorp Fixed Income Investor Presentation May 2017 U.S. BANCORP
Forward-looking Statements and Additional Information The following information appears in accordance with the Private Securities Litigation Reform Act of 1995: Today s presentation contains forward-looking statements about U.S. Bancorp. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements and are based on the information available to, and assumptions and estimates made by, management as of the date hereof. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of U.S. Bancorp. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated. A reversal or slowing of the current economic recovery or another severe contraction could adversely affect U.S. Bancorp s revenues and the values of its assets and liabilities. Global financial markets could experience a recurrence of significant turbulence, which could reduce the availability of funding to certain financial institutions and lead to a tightening of credit, a reduction of business activity, and increased market volatility. Stress in the commercial real estate markets, as well as a downturn in the residential real estate markets could cause credit losses and deterioration in asset values. In addition, changes to statutes, regulations, or regulatory policies or practices could affect U.S. Bancorp in substantial and unpredictable ways. U.S. Bancorp s results could also be adversely affected by deterioration in general business and economic conditions; changes in interest rates; deterioration in the credit quality of its loan portfolios or in the value of the collateral securing those loans; deterioration in the value of securities held in its investment securities portfolio; legal and regulatory developments; litigation; increased competition from both banks and non-banks; changes in customer behavior and preferences; breaches in data security; effects of mergers and acquisitions and related integration; effects of critical accounting policies and judgments; and management s ability to effectively manage credit risk, market risk, operational risk, compliance risk, strategic risk, interest rate risk, liquidity risk and reputational risk. For discussion of these and other risks that may cause actual results to differ from expectations, refer to U.S. Bancorp s Annual Report on Form 10-K for the year ended December 31, 2016, on file with the Securities and Exchange Commission, including the sections entitled Risk Factors and Corporate Risk Profile contained in Exhibit 13, and all subsequent filings with the Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934. However, factors other than these also could adversely affect U.S. Bancorp s results, and the reader should not consider these factors to be a complete set of all potential risks or uncertainties. Forwardlooking statements speak only as of the date hereof, and U.S. Bancorp undertakes no obligation to update them in light of new information or future events. This presentation includes non-gaap financial measures to describe U.S. Bancorp s performance. The calculations of these measures are provided in the Appendix. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-gaap performance measures that may be presented by other companies. 2
Agenda Overview Business Lines & Financial Management Balance Sheet & Capital Management Appendix 3
U.S. Bancorp 1Q17 Dimensions NYSE Traded USB Founded 1863 Market Value $88B Branches 3,091 ATMs 4,838 Customers 18.7M Assets $450B Deposits $337B Loans $274B As of 3/31/17, except market value as of 5/10/17 4
Industry Position Assets Deposits Market Value U.S. U.S. U.S. Rank Company $ Billions Rank Company $ Billions Rank Company $ Billions 1 J.P. Morgan $2,546 1 J.P. Morgan $1,423 1 J.P. Morgan $311 2 Bank of America 2,248 2 Wells Fargo 1,325 2 Wells Fargo 273 3 Wells Fargo 1,952 3 Bank of America 1,272 3 Bank of America 240 4 Citigroup 1,822 4 Citigroup 950 4 Citigroup 166 5 U.S. Bancorp 450 5 U.S. Bancorp 337 5 U.S. Bancorp 88 6 PNC 371 6 PNC 261 6 PNC 59 7 BB&T 221 7 SunTrust 163 7 BB&T 35 8 SunTrust 206 8 BB&T 161 8 SunTrust 28 9 Fifth Third 140 9 Fifth Third 104 9 Fifth Third 18 10 Regions 125 10 Regions 99 10 Regions 17 Source: Company reports and Bloomberg Assets and deposits as of 3/31/17, market value as of 5/10/17 5
U.S. Bancorp s Positioning Optimal size Assets Relative cost of compliance Sub-optimal efficiency and scale Less capacity to invest Potential trapped capital G-SIBs TLAC/Bail-in debt requirements Higher capital standards Enhanced supplementary leverage ratio Higher litigation risk Limited acquisition opportunities 6
U.S. Bancorp European Presence European Offices Elavon Corporate Trust/Fund Services Oslo Cherrywood Dublin Arklow Watford London Frankfurt Warsaw Diegem Madrid 7
Agenda Overview Business Lines & Financial Management Balance Sheet & Capital Management Appendix 8
Revenue Diversification Revenue Mix By Business Line Wealth Mgmt and Securities Services 12% Wholesale Banking 17% Payment Services 31% Consumer and Small Business Banking 40% Diversification Advantages Balanced mix of fee revenue and balance sheet businesses High return/capital efficient businesses: Payments Wealth Management Consistent, predictable, repeatable revenue sources 55% 45% Net Interest Income Fee Income FY2016 taxable-equivalent basis Business line revenue percentages exclude Treasury and Corporate Support, see slide 28 for reconciliation 9
Revenue Diversification Preferred Mix of Business U.S. Bancorp Revenue Mix Peer Bank Average Revenue Mix Fiduciary Activities 6% Service Charges* 6% Mortgage Fees 5% Trading, Brokerage, Investment Banking, Equity Investments 3% Other Fee Income 9% Payments Fee Revenue 16% Interest Income 55% Full year 2016, taxable-equivalent basis; Data from SNL, FRY 9-C filings & Company Reports * Based on FRY 9-C filings 10
Our Business Mix and Product Delivery Payment Services Payment Services Wealth Wealth Management Management & & Securities Securities Services Services Consumer & Small Business Banking Retail Payment Solutions, Global Merchant Acquiring and Corporate Payment Systems Provides a full suite of payment processing services to consumers, small businesses, corporations, government and merchants a unique position versus other banks Wealth Management, Global Corporate Trust Services, Fund Services, Asset Management and Institutional Trust & Custody Delivers a full array of wealth management services through differentiated service delivery models to address the needs of a broad range of clients Branch Banking, Small Business Banking, Consumer Lending, Mortgage Banking and Omnichannel Delivery Provides a full suite of banking products and services to consumer and small business customers across a 25-state footprint Wholesale Banking Corporate Banking, Commercial Banking and Commercial Real Estate Provides products and services to 90% of Fortune 500 companies and 88% of Fortune 1000 companies 11
Performance vs. U.S. Peers 2016 1Q08 1Q17 Return on Average Assets Peer 9 Return on Average Common Equity Peer 9 Efficiency Ratio 57.9% 58.6% 61.2% 61.5% 62.9% 67.6% 68.5% 70.3% 72.6% 51.9%* USB Peer 1 Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 Peer 8 Peer 9 Source: Company reports and SNL; Peer banks: BAC, BBT, FITB, JPM, KEY, PNC, RF, STI and WFC * Non-GAAP, see slide 27 for calculation 12
Efficient Platform Source of Competitive Advantage Single processing platforms Full consolidation of acquisitions Operating scale in all significant businesses Business line monthly review process Ongoing efficiency efforts Source: Company reports; Peer banks: BAC, BBT, FITB, JPM, KEY, PNC, RF, STI and WFC * Non-GAAP, see slide 27 for calculation 13
Credit Quality Net Charge-offs Nonperforming Assets $ in millions 14
Agenda Overview Business Lines & Financial Management Balance Sheet & Capital Management Appendix 15
U.S. Bancorp Legal Entity Overview Efficient organizational structure with minimal number of operating entities Primary banking subsidiary holds over 98% of consolidated assets U.S. Bancorp Holding Company $450 Billion Consolidated Assets U.S. Bank National Association Primary Banking Subsidiary $443 Billion Assets U.S. Bancorp Investments, Inc. Broker-Dealer Subsidiary $3 Billion Assets Elavon Financial Services European Banking Subsidiary $8 Billion Assets Indicates Debt Issuing Entities As of 3/31/17 16
Best in Class Debt Rating USB is the highest rated bank amongst its U.S. peers across all rating agencies and is recognized by Moody s and Fitch as the highest rated bank globally Funding advantage Competitive advantages include pricing, flight-to-quality and sales force confidence U.S. Peers Large Global Peers Holding Company Moody's BCA* Moody's S&P Fitch DBRS Holding Company Moody's BCA* Moody's S&P Fitch DBRS U.S. Bancorp aa3 A1 A+ AA AA U.S. Bancorp aa3 A1 A+ AA AA Wells Fargo & Company a2 A2 A AA- AA Toronto-Dominion Bank a1 Aa2 AA- AA- AA American Express a2 A3 BBB+ A A (high) Commonwealth Bank of Australia a1 Aa2 AA- AA- AA JPMorgan Chase & Co. a3 A3 A- A+ AA (low) National Australia Bank Ltd a1 Aa2 AA- AA- AA Bank of America baa2 Baa1 BBB+ A A Svenska Handelsbanken AB a2 Aa2 AA- AA AA (low) Citigroup Inc baa2 Baa1 BBB+ A A Bank of Nova Scotia a3 A1 A+ AA- AA * Moody s Baseline Credit Assessment (BCA) is the issuers standalone intrinsic strength, absent any extraordinary support from an affiliate or a government. BCA for U.S. entities is bank level entity rating. Debt ratings: as of 5/10/17 17
Consistent Balance Sheet Composition Assets Liabilities & Equity Stable asset composition Strong deposit growth predominately funds asset growth Ending balances 18
Wholesale Funding Issuance History Strong deposit base results in less reliance on wholesale funding Increased issuance to support LCR / Investment Portfolio growth 19
Debt Maturity Distribution ($ in Billions) ($ in Billions) 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 U.S. Bancorp Wholesale Funding 1.3 1.2 2.2 2.5 1.0 1.5 1.5 1.4 1.3 0.8 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 > 2026 USB Medium Term Notes USB Subordinated Debt Consolidated Wholesale Funding 1.5 1.5 1.3 1.2 3.5 2.9 2.8 2.2 2.5 1.0 1.3 1.5 1.4 0.8 1.0 0.7 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 > 2026 U.S. Bancorp issuance principally supports dividend payments, share buybacks, acquisitions, and operating expenses Diversified maturity profile across U.S. Bancorp and U.S. Bank National Association USBNA Long Term Bank Notes USB Medium Term Notes USB Subordinated Debt 20
Asset Sensitivity and Liquidity Net Interest Income Sensitivity Asset sensitivity Well-Balanced Liquidity Position Reliable source of core deposits Diversified sources of liquidity Excess cash and liquid assets Wholesale funding sources Off-balance sheet capacity Strong LCR Total Available Liquidity ($bn) 21
Investment Portfolio High-quality portfolio with minimal credit risk Majority of portfolio invested in U.S. government securities Portfolio Weighted Average Life of 4.8 years As of 3/31/17 22
Capital Management Earnings Distribution Target: Reinvest & Acquisitions Dividends Share Repurchases 20-40% 30-40% 30-40% Hypothetical Earnings Distribution Example Dividends 30% Reinvestment 30% Share Repurchases 40% Assumed ROTCE 20% Discretionary Distributions 70% Balance Sheet Growth 6% Based on the Basel III fully implemented standardized approach * Non-GAAP, see slide 26 for calculation 23
Sustainability in Earnings and Capital Competitive advantages Diversified business mix Operating scale Efficient platform Flight to quality Sustainability of dividends Source: Company filings and SNL Financial, Federal Reserve estimates under supervisory severely adverse scenario 24
Agenda Overview Business Lines & Financial Management Balance Sheet & Capital Management Appendix 25
Non-GAAP Financial Measures March 31, (Dollars in Millions, Unaudited) 2017 Total equity $48,433 Preferred stock (5,419) Noncontrolling interests (635) Goodwill (net of deferred tax liability) (1) (8,186) Intangible assets, other than mortgage servicing rights (671) Tangible common equity 33,522 Tangible common equity (as calculated above) 33,522 Adjustments (2) (136) Common equity tier 1 capital estimated for the Basel III fully implemented standardized and advanced approaches (a) 33,386 Risk-weighted assets, determined in accordance with prescribed transitional standardized approach regulatory requirements 356,373 Adjustments (3) 4,731 Risk-weighted assets estimated for the Basel III fully implemented standardized approach (b) 361,104 Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented standardized approach (a)/(b) 9.2 % (1) Includes goodwill related to certain investments in unconsolidated financial institutions per prescribed regulatory requirements. (2) Includes net losses on cash flow hedges included in accumulated other comprehensive income (loss) and other adjustments. (3) Includes higher risk-weighting for unfunded loan commitments, investment securities, residential mortgages, mortgage servicing rights and other adjustments. 26
Non-GAAP Financial Measures Year ended January 1, 2008 to (Dollars in Millions, Unaudited) Net interest income December 31, 2016 $11,528 March 31, 2017 $93,550 Taxable-equivalent adjustment (1) 203 1,902 Net interest income, on a taxable-equivalent basis 11,731 95,452 Net interest income, on a taxable-equivalent basis (as calculated above) 11,731 95,452 Noninterest income 9,577 80,138 Less: Securities gains (losses), net 22 (1,490) Total net revenue, excluding net securities gains (losses) (a) 21,286 177,080 Noninterest expense (b) 11,676 91,919 Efficiency ratio (b)/(a) 54.9 % 51.9 % (1) Utilizes a tax rate of 35 percent for those assets and liabilities whose income or expense is not included for federal income tax purposes. 27
Non-GAAP Financial Measures ($ in millions) Line of Business Financial Performance Net Revenue 2016 Full Year Wholesale Banking and Commercial Real Estate $ 3,139 Consumer and Small Business Banking 7,279 Wealth Management and Securities Services 2,126 Payment Services 5,702 Treasury and Corporate Support 3,062 Total Company 21,308 Less Treasury and Corporate Support 3,062 Total Company excl. Treasury and Corporate Support $ 18,246 Percent of Total Company Wholesale Banking and Commercial Real Estate 15% Consumer and Small Business Banking 34% Wealth Management and Securities Services 10% Payment Services 27% Treasury and Corporate Support 14% Total 100% Percent of Total Company excl. Treasury and Corporate Support Wholesale Banking and Commercial Real Estate 17% Consumer and Small Business Banking 40% Wealth Management and Securities Services 12% Payment Services 31% Total Company excl. Treasury and Corporate Support 100% 28
Payment Services Wealth Mgmt and Securities Services Revenue Contribution to USB Wholesale Banking Payment Services 31% Payment Services Revenue Mix Consumer and Small Business Banking Competitive Advantages Highly capital and operationally efficient Proprietary scalable, flexible platforms Financial institution/partner distribution Successful innovation program Growth Opportunities Transaction volume growth from improved global economy Leveraging innovation and technology Partnerships and strategic acquisitions Corporate Payment Systems 9% Global Merchant Acquiring 29% Retail Payment Solutions 62% Scale Rank Purchase Volume #5 U.S. credit card issuer $122 billion #5 U.S. debit card issuer $62 billion #4 U.S. commercial card issuer $60 billion #6 U.S. merchant acquirer / $383 billion #6 European merchant acquirer Source: The Nilson Report (Visa and MasterCard issuers, ranked by purchase volume) FY2016 revenue contribution and mix; revenue contribution percentages exclude Treasury and Corporate Support, see slide 28 for reconciliation 29
Wealth Management and Securities Services Wealth Mgmt and Securities Services Revenue Contribution to USB 12% Wholesale Banking Payment Services Wealth Management and Securities Services Revenue Mix Investment Services 30% Wealth Management 35% Corporate Trust 35% Consumer and Small Business Banking Competitive Advantages Operating scale High barriers to entry Investment in customer experience Growth Opportunities AUM growth from improving markets/client growth Improved deposit margins as economy strengthens Executing on differentiated affluent wealth strategy Strategic acquisitions Scale $142 billion in assets under management $5.8 trillion in assets under administration #2 U.S. corporate trustee #1 U.S. municipal trustee #1 U.S. structured trustee * Investment Services includes Fund Services, Institutional Trust & Custody, and Other AUM and AUA as of 3/31/17; rankings as of 12/31/16; Trustee rankings source: Securities Data Corp, based on number of issues FY2016 revenue contribution and mix; revenue contribution percentages exclude Treasury and Corporate Support, see slide 28 for reconciliation 30
Consumer and Small Business Banking Wealth Mgmt and Securities Services Consumer and Small Business Banking Revenue Mix Other 7% Consumer Lending 10% Revenue Contribution to USB Wholesale Banking Payment Services Metropolitan Banking 28% Mortgage Banking 25% 40% Community Banking 24% Consumer and Small Business Banking In-store and On-site Banking 6% Competitive Advantages Community banking model supported by scale Robust branch-based small business strategy Omnichannel approach enhancing customer experience Real-time payment capabilities Growth Opportunities Market share gains Scale Differentiation through improvement in customer experience and digital adoption Executing Client Advocacy Building deeper relationships #1 branch network across 25-state footprint (1) #4 SBA lender (2) #6 mortgage originator (3) (1) Source: SNL as of Apr-17; (2) Source: Small Business Administration as of Mar-17, ranked by units (3) Source: Inside Mortgage Finance, FY2016 results FY2016 revenue contribution and mix; revenue contribution percentages exclude Treasury and Corporate Support, see slide 28 for reconciliation 31
Wholesale Banking Wealth Mgmt and Securities Services Revenue Contribution to USB Wholesale Banking Payment Services 17% Wholesale Banking Revenue Mix Consumer and Small Business Banking Competitive Advantages Breadth and depth of capabilities National footprint for large corporate banking and commercial real estate business Highest debt ratings pricing advantage, flight-to-quality Growth Opportunities Volume growth with improving economy Building deeper relationships Product and distribution expansion CRE 20% Commercial Banking 18% Corporate Banking 62% Scale #5 Overall U.S. Loan Bookrunner #5 Commercial Real Estate Loan Bookrunner #5 U.S. Investment Grade Loan Bookrunner #6 U.S. Middle Market Loan Bookrunner Source: Thomson Reuters, based on deal count FY2016 revenue contribution and mix; revenue contribution percentages exclude Treasury and Corporate Support, see slide 28 for reconciliation 32
U.S. Bancorp Fixed Income Investor Presentation May 2017 U.S. BANCORP