DBRS Confirms U.S. Bancorp at AA; Trend Stable

DBRS, Inc. (DBRS) confirmed the ratings of U.S. Bancorp (USB or the Company), including the Company’s Long-Term Issuer Rating of AA and Short-Term Issuer Rating of R-1 (middle). At the same time, DBRS confirmed the ratings of its primary banking subsidiary, U.S. Bank National Association (the Bank). The trend for all ratings is Stable. The Intrinsic Assessment (IA) for the Bank is AA (high), while its Support Assessment remains SA1. The Company’s Support Assessment is SA3 and its Long-Term Issuer Rating is positioned one notch below the Bank’s IA.

KEY RATING CONSIDERATIONS
The ratings confirmation and maintenance of the Stable trend reflects USB’s highly diversified franchise that consistently delivers peer-leading profitability metrics, coupled with sound and proven risk management practices. In addition to USB’s strong regional banking franchise, USB has substantial positions in global payments and securities services, as well as national wholesale banking. The ratings also consider the Company’s ample deposit funding and liquidity, and strong capital generation capabilities. Additionally, the ratings consider USB’s capital management activities, which have placed regulatory capital levels towards the low end of global peers.

RATING DRIVERS
Given USB’s very high rating level, upward ratings momentum is unlikely. Conversely, a sustained decline in the overall level of profitability, especially relative to lower-rated peers, could negatively pressure ratings. Additionally, an increase in risk appetite or a pronounced deterioration in asset quality could lead to negative ratings pressure.

RATING RATIONALE
USB’s franchise continues to perform well, with the Company still consistently reporting a robust level of earnings, which remain industry-leading, despite marked improvement from U.S. peers following tax reform. USB’s earnings benefit from the diversity of its revenue that provide for a substantial level of fee income (42% of revenues in 2018), which is not overly reliant on markets or the level of interest rates. Additionally, the Company’s disciplined expense management has helped to keep the efficiency ratio low, while allowing for business and technology investments.

USB’s strong risk management culture remains in place, with the Company deploying consistent and conservative underwriting standards. USB has maintained a granular loan portfolio that is diversified among various industries and regions, and lacks material risk concentrations in potentially higher credit-risk sectors. USB’s nonperforming assets ratio was a modest 0.35% at March 31, 2019, with manageable net charge-offs of 0.52% for 1Q19. Reserve levels remain solid at 1.55% of loans held for investment as of March 31, 2019. DBRS notes that these asset quality trends are likely unsustainable as the credit cycle normalizes and expects many ratios will revert closer to historical levels.

USB maintains a strong level of on-balance sheet liquidity and has a strong deposit franchise that fully funds the loan portfolio, with a loan to deposit ratio of 83% at March 31, 2019. Additionally, USB has ready access to a variety of additional sources of liquidity, usually at favorable spreads to peers. Historically, USB has actively managed its capital levels to levels lower than many global peers. However, DBRS views that the Company’s strong and consistent level of earnings delivers substantial capital generation and financial flexibility. Even with continued capital management and balance sheet growth, USB maintains ample capital levels. As of March 31, 2019, USB reported a Common Equity Tier 1 (CET1) capital ratio of 9.3%, which remains above the Company’s targeted 8.5% level.

Minneapolis-based USB had approximately $476 billion in assets and ranked as the fifth largest U.S. bank by assets, deposits and market capitalization, as of March 31, 2019.

The Grid Summary Grades for USB are as follows: Franchise Strength – Very Strong; Earnings Power – Very Strong; Risk Profile – Very Strong; Funding & Liquidity – Very Strong/Strong; Capitalisation – Very Strong/Strong.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Global Methodology for Rating Banks and Banking Organisations (June 2019), which can be found on our website under Methodologies & Criteria.

The primary sources of information used for this rating include company documents and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This rating is endorsed by DBRS Ratings Limited for use in the European Union. The following additional regulatory disclosures apply to endorsed ratings:

The last rating action on this issuer took place on June 21, 2018, when all ratings were confirmed and the trend was Stable.

For further information on DBRS historical default rates published by the European Securities and Markets Authority (“ESMA”) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Lead Analyst: John Mackerey, Senior Vice President, North American Financial Institutions – Global FIG
Rating Committee Chair: Michael Driscoll, Managing Director, Head of North American FIG – Global FIG
Initial Rating Date: 04 April 2005

For more information on this credit or on this industry, visit www.dbrs.com.

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