US BANCORP DE

Overview

Earnings Summary U.S. Bancorp and its subsidiaries (the “Company”) reported net income attributable to U.S. Bancorp of $1.3 billion for the first quarter of 2024, or $0.78 per diluted common share, compared with $1.7 billion, or $1.04 per diluted common share, for the first quarter of 2023. Return on average assets and return on average common equity were 0.81 percent and 10.0 percent, respectively, for the first quarter of 2024, compared with 1.03 percent and 14.1 percent, respectively, for the first quarter of 2023. The results for the first quarter of 2024 included the impact of $265 million ($199 million net-of-tax) of notable items, including $155 million of merger and integration charges associated with the acquisition of MUFG Union Bank, N.A. (“MUB”) and a $110 million charge for the anticipated increase in the FDIC special assessment to recover losses to the Deposit Insurance Fund related to certain 2023 bank failures. Combined, these items decreased diluted earnings per common share by $0.12. The results for the first quarter of 2023 included the impact of $244 million ($183 million net-of-tax) of merger and integration charges, which decreased diluted earnings per common share by $0.12.

Total net revenue for the first quarter of 2024 was $460 million (6.4 percent) lower than the first quarter of 2023, reflecting a 14.0 percent decrease in net interest income and a 7.7 percent increase in noninterest income. The decrease in net interest income from the first quarter of 2023 was primarily due to the impact of higher interest rates on deposit mix and pricing, partially offset by higher rates on earning assets. The increase in noninterest income was driven by higher fee revenue across most categories.

Noninterest expense in the first quarter of 2024 was $96 million (2.1 percent) lower than the first quarter of 2023, primarily due to prudent expense management, continued focus on operational efficiency, and synergies from the MUB acquisition, partially offset by the impact of the FDIC special assessment charge and higher compensation and employee benefits expense to support business growth.

The provision for credit losses for the first quarter of 2024 of $553 million was $126 million (29.5 percent) higher than the first quarter of 2023, driven by normalization in the credit environment, partially offset by relative stability in the economic outlook. Net charge-offs in the first quarter of 2024 were $488 million, compared with $373 million in the first quarter of 2023. Refer to “Corporate Risk Profile” for further information on the provision for credit losses, net charge-offs, nonperforming assets and other factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.

Statement of Income Analysis

Net Interest Income Net interest income, on a taxable-equivalent basis, was $4.0 billion in the first quarter of 2024, representing a decrease of $653 million (14.0 percent) compared with the first quarter of 2023. The decrease was primarily due to the impact of higher interest rates on deposit

mix and pricing, partially offset by higher rates on earning assets. Average earning assets for the first quarter of 2024 were $11.5 billion (1.9 percent) lower than the first quarter of 2023, reflecting decreases in loans and investment securities, partially offset by an increase in interest-bearing deposits with banks. The net interest margin, on a taxable-equivalent basis, in the first quarter of 2024 was 2.70 percent, compared with 3.10 percent in the first quarter of 2023. The decrease in net interest margin from the first quarter of 2023 was primarily due to the impact of deposit mix and pricing. Refer to the “Consolidated Daily Average Balance Sheet and Related Yields and Rates” table for further information on net interest income.

Average total loans in the first quarter of 2024 were $15.7 billion (4.1 percent) lower than the first quarter of 2023. The decrease was primarily due to lower other retail loans, commercial loans and commercial real estate loans, partially offset by higher credit card loans. Average other retail loans decreased $9.9 billion (18.5 percent), driven by lower auto loans primarily due to balance sheet repositioning and capital management actions taken in the second quarter of 2023. Average commercial loans decreased $4.9 billion (3.6 percent) primarily due to decreased demand as corporate customers accessed the capital markets. Average commercial real estate loans decreased $2.6 billion (4.6 percent) primarily due to payoffs exceeding a reduced level of new originations. Average credit cards loans increased $2.4 billion (9.3 percent) primarily driven by higher spend volume and lower payment rates.

Average investment securities in the first quarter of 2024 were $4.9 billion (2.9 percent) lower than the first quarter of 2023, primarily due to balance sheet repositioning and liquidity management.

Average total deposits for the first quarter of 2024 were $7.3 billion (1.4 percent) lower than the first quarter of 2023. Average noninterest-bearing deposits for the first quarter of 2024 were $45.0 billion (34.6 percent) lower than the first quarter of 2023, driven by decreases in Wealth, Corporate, Commercial and Institutional Banking, and Consumer and Business Banking balances. Average time deposits for the first quarter of 2024 were $19.7 billion (55.5 percent) higher than the first quarter of 2023, mainly due to increases in Consumer and Business Banking balances, partially offset by decreases in Wealth, Corporate, Commercial and Institutional Banking balances. Changes in time deposits are primarily related to those deposits managed as an alternative to other funding sources, based largely on relative pricing and liquidity characteristics. Average total savings deposits for the first quarter of 2024 were $18.0 billion (5.2 percent) higher than the first quarter of 2023, driven by increases in Wealth, Corporate, Commercial and Institutional Banking, and Consumer and Business Banking balances.

Provision for Credit Losses The provision for credit losses was $553 million in the first quarter of 2024, compared with $427 million in the first quarter of 2023. The $126 million (29.5

percent) increase was driven by normalization in the credit environment, partially offset by relative stability in the economic outlook. Net charge-offs increased $115 million (30.8 percent) in the first quarter of 2024, compared with the first quarter of 2023, reflecting higher charge-offs in most loan categories consistent with normalizing credit conditions, partially offset by the impact of charge-offs in the first quarter of 2023 related to the uncollectible amount of acquired loans associated with the acquisition of MUB. Refer to “Corporate Risk Profile” for further information on the provision for credit losses, net charge-offs, nonperforming assets and other factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.

Noninterest Income Noninterest income was $2.7 billion in the first quarter of 2024, representing an increase of $193

million (7.7 percent) compared with the first quarter of 2023. The increase from the prior year reflected higher commercial products revenue, trust and investment management fees, payment services revenue and mortgage banking revenue. Commercial products revenue increased $54 million (16.2 percent) primarily due to higher corporate bond fees. Trust and investment management fees increased $51 million (8.6 percent), driven by business growth and favorable market conditions. Payment services revenue increased $41 million (4.4 percent) primarily due to higher card revenue driven by higher spend volume and favorable rates, along with higher merchant processing services revenue due to higher spend volume. Mortgage banking revenue increased $38 million (29.7 percent) primarily driven by higher gain on sale margins.

(a)See Non-GAAP Financial Measures beginning on page 27.

Noninterest Expense Noninterest expense was $4.5 billion in the first quarter of 2024, representing a decrease of $96 million (2.1 percent) from the first quarter of 2023. The decrease from the prior year reflected prudent expense management, continued focus on operational efficiency, synergies from the MUB acquisition and lower merger and integration charges, partially offset by the impact of the FDIC special assessment and higher compensation and employee benefits expense. Net occupancy and equipment expense decreased $25 million (7.8 percent) and professional services expense decreased $24 million (17.9 percent), primarily due to continued focus on prudent expense management and operational efficiency. Compensation and employee benefits expense increased $45 million (1.7 percent) primarily due to merit increases, higher performance-based incentives and higher employee benefits.

Income Tax Expense The provision for income taxes was $347 million (an effective rate of 20.7 percent) for the first quarter of 2024, compared with $455 million (an effective rate of 21.1 percent) for the first quarter of 2023. For further information on income taxes, refer to Note 11 of the Notes to Consolidated Financial Statements.

Balance Sheet Analysis

Loans The Company’s loan portfolio was $374.6 billion at March 31, 2024, compared with $373.8 billion at December 31, 2023, an increase of $753 million (0.2 percent). The increase was driven by higher commercial loans and residential mortgages, partially offset by lower other retail loans, commercial real estate loans and credit card loans.

Commercial loans increased $2.8 billion (2.2 percent) at March 31, 2024, compared with December 31, 2023, primarily due to growth in corporate banking.

Residential mortgages held in the loan portfolio increased $549 million (0.5 percent) at March 31, 2024, compared with December 31, 2023, driven by originations. Residential mortgages originated and placed in the Company’s loan portfolio include jumbo mortgages and branch-originated first lien home equity loans to borrowers with high credit quality.

Other retail loans decreased $1.1 billion (2.6 percent) at March 31, 2024, compared with December 31, 2023, primarily due to a decrease in auto loans.

Commercial real estate loans decreased $778 million (1.5 percent) at March 31, 2024, compared with December 31, 2023, primarily due to payoffs exceeding a reduced level of new originations.

Credit card loans decreased $716 million (2.5 percent) at March 31, 2024, compared with December 31, 2023, primarily the result of customers seasonally paying down balances.

The Company generally retains portfolio loans through maturity; however, the Company’s intent may change over

time based upon various factors such as ongoing asset/liability management activities, assessment of product profitability, credit risk, liquidity needs, and capital implications. If the Company’s intent or ability to hold an existing portfolio loan changes, it is transferred to loans held for sale.

Loans Held for Sale Loans held for sale, consisting primarily of residential mortgages to be sold in the secondary market, were $2.1 billion at March 31, 2024, compared with $2.2 billion at December 31, 2023. The decrease in loans held for sale was principally due to a lower level of mortgage loan closings in the first quarter of 2024, compared with the fourth quarter of 2023. Almost all of the residential mortgage loans the Company originates or purchases for sale follow guidelines that allow the loans to be sold into existing, highly liquid secondary markets, in particular in government agency transactions and to government-sponsored enterprises (“GSEs”).

Investment Securities Investment securities totaled $155.4 billion at March 31, 2024, compared with $153.8 billion at December 31, 2023. The $1.6 billion (1.1 percent) increase was primarily due to $2.1 billion of net investment purchases, partially offset by a $173 million unfavorable change in net unrealized gains (losses) on available-for-sale investment securities.

The Company’s available-for-sale investment securities are carried at fair value with changes in fair value reflected in other comprehensive income (loss) unless a portion of a security’s unrealized loss is related to credit and an allowance for credit losses is necessary. At March 31, 2024, the Company’s net unrealized losses on available-for-sale investment securities were $7.1 billion ($5.3 billion net-of-tax), compared with $6.9 billion ($5.2 billion net-of-tax) at December 31, 2023. The unfavorable change in net unrealized gains (losses) was primarily due to decreases in the fair value of mortgage-backed and state and political subdivisions securities as a result of changes in interest rates. Gross unrealized losses on available-for-sale investment securities totaled $7.2 billion at March 31, 2024, compared with $7.1 billion at December 31, 2023. When evaluating credit losses, the Company considers various factors such as the nature of the investment security, the credit ratings or financial condition of the issuer, the extent of the unrealized loss, expected cash flows of the underlying collateral, the existence of any government or agency guarantees, and market conditions. At March 31, 2024, the Company had no plans to sell securities with unrealized losses, and believed it is more likely than not that it would not be required to sell such securities before recovery of their amortized cost.

Refer to Notes 3 and 14 in the Notes to Consolidated Financial Statements for further information on investment securities.

(a)Information related to asset and mortgage-backed securities included above is presented based upon weighted-average maturities that take into account anticipated future prepayments.

(b)Information related to obligations of state and political subdivisions is presented based upon yield to first optional call date if the security is purchased at a premium, and yield to maturity if the security is purchased at par or a discount.

(c)Maturity calculations for obligations of state and political subdivisions are based on the first optional call date for securities with a fair value above par and the contractual maturity date for securities with a fair value equal to or below par.

(d)Amortized cost excludes portfolio level basis adjustments of $88 million at March 31, 2024 and $335 million at December 31, 2023.

(e)Weighted-average yields for obligations of state and political subdivisions are presented on a fully-taxable equivalent basis based on a federal income tax rate of 21 percent. Yields on investment securities are computed based on amortized cost balances, excluding any premiums or discounts recorded related to the transfer of investment securities at fair value from available-for-sale to held-to-maturity.

Deposits Total deposits were $528.1 billion at March 31, 2024, compared with $512.3 billion at December 31, 2023. The $15.8 billion (3.1 percent) increase in total deposits reflected increases in total savings deposits, time deposits and noninterest-bearing deposits. Money market deposit balances increased $11.6 billion (5.8 percent), primarily due to higher Consumer and Business Banking, and Wealth, Corporate, Commercial and Institutional Banking balances. Interest checking balances increased $1.7 billion (1.3 percent), primarily due to higher Wealth, Corporate, Commercial and Institutional Banking balances. Savings account balances decreased $2.5 billion (5.9 percent), driven by lower Consumer and Business Banking balances. Time deposits increased $3.8 billion (7.3 percent) at March 31, 2024, compared with December 31, 2023, driven by higher Consumer and Business Banking balances. Changes in time deposits are primarily related to those deposits managed as an alternative to other funding sources, based largely on relative pricing and liquidity characteristics. Noninterest-bearing deposits increased $1.2 billion (1.4 percent) at March 31, 2024, compared with December 31, 2023, primarily due to the impacts of seasonally higher trust and corporate deposit inflows and delays in planned institutional deposit outflows at the end of the first quarter of 2024, resulting in temporarily higher balances.

Borrowings The Company utilizes both short-term and long-term borrowings as part of its asset/liability management and funding strategies. Short-term borrowings, which include federal funds purchased, commercial paper, repurchase agreements, borrowings secured by high-grade assets and other short-term borrowings, were $17.1 billion at March 31,

2024, compared with $15.3 billion at December 31, 2023. The $1.8 billion (11.9 percent) increase in short-term borrowings was primarily due to an increase in repurchase agreement balances. Long-term debt was $52.7 billion at March 31, 2024, compared with $51.5 billion at December 31, 2023. The $1.2 billion (2.4 percent) increase was primarily due to $3.5 billion of medium-term note issuances, partially offset by $2.1 billion of medium-term note repayments. Refer to the “Liquidity Risk Management” section for discussion of liquidity management of the Company.