— Andy Cecere, Chairman, President and CEO, U.S. Bancorp
In the Spotlight
2018 Annual Stress Test The results of the Federal Reserve
Board's most recent annual stress test continued to demonstrate U.S.
Bancorp's ability to withstand periods of economic stress while
remaining profitable.
2018 Capital Plan Based on the 2018 stress test results, the
Company's board of directors approved an increase of the Company's
quarterly dividend of 23% to $0.37 per common share beginning in the
third quarter of 2018, as well as a new share repurchase program for the
year.
Average investment securities in the second quarter of 2018 were $3.2
billion (2.9 percent) higher year-over-year and $1.1 billion (1.0
percent) higher than the prior quarter. The increases were primarily due
to purchases of U.S. government mortgage-backed securities, net of
prepayments and maturities, in support of liquidity management.
Provision for Income Taxes
The Company's provision for credit losses for the second quarter of 2018
was $327 million, which was $14 million (4.1 percent) lower than the
prior quarter and $23 million (6.6 percent) lower than the second
quarter of 2017. Credit quality was relatively stable compared with a
year ago and the first quarter of 2018 with lower nonperforming assets.
Total U.S. Bancorp shareholders' equity was $49.6 billion at June 30,
2018, compared with $49.2 billion at March 31, 2018, and $48.3 billion
at June 30, 2017. During the second quarter, the Company returned 69
percent of earnings to shareholders through dividends and share buybacks.
Investor Conference Call
About U.S. Bancorp
Forward-looking Statements
The following information appears in accordance with the Private
Securities Litigation Reform Act of 1995:
Non-GAAP Financial Measures
In addition to capital ratios defined by banking regulators, the Company
considers various other measures when evaluating capital utilization and
adequacy, including:
(a) See Non-GAAP Financial Measures reconciliation on pages 16-17
(b) Dollars in millions, except per share data
(c) CET1 = Common equity tier 1 capital ratio, 2Q17 as if fully
implemented
Net income of $1,750 million and diluted earnings per common share of
$1.02 in the second quarter of 2018
Industry leading return on average assets of 1.54% and return on
average common equity of 15.3%
Return on tangible common equity of 19.8%
Returned 69% of 2Q earnings to shareholders through dividends and
share buybacks
Year-over-year positive operating leverage
Net interest income grew 4.9% year-over-year (4.1% on a
taxable-equivalent basis)
Total noninterest income grew 2.8% year-over year
Payment services revenue grew 5.3%
Trust and investment management fees increased 5.5%
Mortgage banking revenue decreased 9.9%
Nonperforming assets decreased 19.1% on a year-over-year basis and
9.4% on a linked quarter basis
"Our second quarter results were highlighted by record revenue, net
income and diluted earnings per common share. We continue to deliver
industry-leading profitability metrics, including a return on tangible
common equity of 19.8%. This quarter, the Federal Reserve conducted its
annual stress test and, as in prior years, the results confirmed our
ability to withstand severely adverse economic conditions. Following
this exercise, we announced a 23% increase in our quarterly dividend, as
well as a 15% increase in our stock repurchase authorization, supporting
our commitment to maximize shareholder value. In addition to these solid
results, we are investing in our future by expanding our digital
offerings, which will allow our customers to access us how, when and
where they want and enhance their customer experiences. Each and every
day our employees exemplify what being the most trusted choice in
banking is all about and I want to thank our entire U.S. Bank team,
whose commitment to serving all our customers is what ultimately drives
our financial success."
Automated Investor Offering Responding to customers' desire
for smart, easy-to-use and safe digital investment tools and strategies,
the Company recently launched its new Automated Investor offering.
Automated Investor provides an easy-to-use digital advice platform with
the power of the Company's investment expertise through U.S. Bancorp
Investments.
New U.S. Bancorp Directors U.S. Bancorp's Board of Directors
recently elected Elizabeth L. Buse, Yusuf I. Mehdi, and Dorothy J.
Bridges as directors of the Company. Each new director brings unique
insight that is extremely useful to the board and will help further
guide the Company's future success.
INCOME STATEMENT HIGHLIGHTS
($ in millions, except per-share data)
Percent Change
2Q
1Q
2Q
2Q18 vs
2Q18 vs
YTD
YTD
Percent
2018
2018
2017
1Q18
2Q17
2018
2017
Change
Net interest income
$3,197
$3,168
$3,049
.9
4.9
$6,365
$6,029
5.6
Taxable-equivalent adjustment
29
29
51
--
(43.1
)
58
101
(42.6
)
Net interest income (taxable-equivalent basis)
3,226
3,197
3,100
.9
4.1
6,423
6,130
4.8
Noninterest income
2,414
2,272
2,348
6.3
2.8
4,686
4,607
1.7
Total net revenue
5,640
5,469
5,448
3.1
3.5
11,109
10,737
3.5
Noninterest expense
3,085
3,055
2,984
1.0
3.4
6,140
5,893
4.2
Income before provision and income taxes
2,555
2,414
2,464
5.8
3.7
4,969
4,844
2.6
Provision for credit losses
327
341
350
(4.1
)
(6.6
)
668
695
(3.9
)
Income before taxes
2,228
2,073
2,114
7.5
5.4
4,301
4,149
3.7
Income taxes and taxable-equivalent adjustment
470
391
602
20.2
(21.9
)
861
1,151
(25.2
)
Net income
1,758
1,682
1,512
4.5
16.3
3,440
2,998
14.7
Net (income) loss attributable to noncontrolling interests
(8
)
(7
)
(12
)
(14.3
)
33.3
(15
)
(25
)
40.0
Net income attributable to U.S. Bancorp
$1,750
$1,675
$1,500
4.5
16.7
$3,425
$2,973
15.2
Net income applicable to U.S. Bancorp common shareholders
$1,678
$1,597
$1,430
5.1
17.3
$3,275
$2,817
16.3
Diluted earnings per common share
$1.02
$.96
$.85
6.3
20.0
$1.98
$1.66
19.3
Net income attributable to U.S. Bancorp was $1,750 million for the
second quarter of 2018, which was 16.7 percent higher than the $1,500
million for the second quarter of 2017, and 4.5 percent higher than the
$1,675 million for the first quarter of 2018. Diluted earnings per
common share were $1.02 in the second quarter of 2018, compared with
$0.85 in the second quarter of 2017 and $0.96 in the first quarter of
2018.
The increase in net income year-over-year was primarily due to total net
revenue growth of 3.5 percent partially offset by noninterest expense
growth of 3.4 percent. Net interest income increased 4.9 percent (4.1
percent on a taxable-equivalent basis), mainly a result of the impact of
rising interest rates and earning assets growth. Noninterest income
increased 2.8 percent driven by higher payment services revenue and
trust and investment management fees, partially offset by decreases in
mortgage banking revenue and commercial products revenue compared with a
year ago. Noninterest expense increased 3.4 percent primarily due to
increased compensation expense related to supporting business growth and
compliance programs, merit increases, and variable compensation related
to revenue growth, along with higher employee benefits expense,
partially offset by lower other noninterest expense driven by a
reduction in mortgage banking costs.
Net income increased on a linked quarter basis primarily due to total
net revenue growth of 3.1 percent. The increase in total net revenue
reflected an increase in net interest income of 0.9 percent due to the
impact of rising interest rates and an additional day in the second
quarter. Noninterest income increased 6.3 percent driven by seasonally
higher payment services revenue, higher commercial products revenue, and
other noninterest income. The increase in total net revenue was
partially offset by an increase in noninterest expense of 1.0 percent
primarily driven by increased compensation expense related to seasonal
merit increases as well as hiring to support business growth, along with
higher marketing and business development costs and professional
services expense, partially offset by seasonally lower employee benefits
expense.
NET INTEREST INCOME
(Taxable-equivalent basis; $ in millions)
Change
2Q
1Q
2Q
2Q18 vs
2Q18 vs
YTD
YTD
2018
2018
2017
1Q18
2Q17
2018
2017
Change
Components of net interest income
Income on earning assets
$3,980
$3,822
$3,572
$158
$408
$7,802
$7,016
$786
Expense on interest-bearing liabilities
754
625
472
129
282
1,379
886
493
Net interest income
$3,226
$3,197
$3,100
$29
$126
$6,423
$6,130
$293
Average yields and rates paid
Earning assets yield
3.86
%
3.75
%
3.54
%
.11
%
.32
%
3.81
%
3.51
%
.30
%
Rate paid on interest-bearing liabilities
.97
.81
.63
.16
.34
.89
.60
.29
Gross interest margin
2.89
%
2.94
%
2.91
%
(.05
)%
(.02
)%
2.92
%
2.91
%
.01
%
Net interest margin
3.13
%
3.13
%
3.08
%
--
%
.05
%
3.13
%
3.07
%
.06
%
Average balances
Investment securities (a)
$114,578
$113,493
$111,368
$1,085
$3,210
$114,039
$111,067
$2,972
Loans
278,624
279,388
275,528
(764
)
3,096
279,004
274,350
4,654
Earning assets
412,676
411,849
403,883
827
8,793
412,265
401,595
10,670
Interest-bearing liabilities
312,217
311,615
299,271
602
12,946
311,917
297,729
14,188
(a) Excludes unrealized gain (loss)
Net interest income on a taxable-equivalent basis in the second quarter
of 2018 was $3,226 million, an increase of $126 million (4.1 percent)
over the second quarter of 2017. The increase was principally driven by
earning assets growth and the impact of rising interest rates, partially
offset by deposit and funding mix shift and the impact of tax reform
which reduced the taxable-equivalent adjustment benefit related to tax
exempt assets. Average earning assets were $8.8 billion (2.2 percent)
higher than the second quarter of 2017, reflecting increases of $3.1
billion (1.1 percent) in average total loans, $3.2 billion (2.9 percent)
in average investment securities, and $1.7 billion (12.3 percent) in
average other earning assets.
Net interest income on a taxable-equivalent basis increased $29 million
(0.9 percent) on a linked quarter basis primarily driven by the impact
of higher rates and an additional day in the second quarter, partially
offset by deposit and funding mix shift. Average earning assets were
$827 million (0.2 percent) higher on a linked quarter basis, primarily
due to an increase of $1.1 billion (1.0 percent) in average investment
securities. Average total loans decreased $764 million (0.3 percent)
which reflects the sale of approximately $1.5 billion of student loans
in the second quarter of 2018. Excluding the impact of the student loan
portfolio sale, average total loans increased $767 million (0.3 percent).
The net interest margin in the second quarter of 2018 was 3.13 percent,
compared with 3.08 percent in the second quarter of 2017 and 3.13
percent in the first quarter of 2018. The increase in the net interest
margin year-over-year was primarily due to higher interest rates,
partially offset by loan mix, higher funding costs and the impact of tax
reform of 2 basis points. Net interest margin is flat on a linked
quarter basis reflecting the impact of higher rates offset by deposit
and funding mix shift.
AVERAGE LOANS
($ in millions)
Percent Change
2Q
1Q
2Q
2Q18 vs
2Q18 vs
YTD
YTD
Percent
2018
2018
2017
1Q18
2Q17
2018
2017
Change
Commercial
$92,835
$91,933
$90,061
1.0
3.1
$92,386
$89,177
3.6
Lease financing
5,518
5,532
5,577
(.3
)
(1.1
)
5,526
5,517
.2
Total commercial
98,353
97,465
95,638
.9
2.8
97,912
94,694
3.4
Commercial mortgages
28,710
29,176
30,627
(1.6
)
(6.3
)
28,942
31,042
(6.8
)
Construction and development
11,147
11,190
11,922
(.4
)
(6.5
)
11,168
11,810
(5.4
)
Total commercial real estate
39,857
40,366
42,549
(1.3
)
(6.3
)
40,110
42,852
(6.4
)
Residential mortgages
60,834
60,174
58,544
1.1
3.9
60,505
58,224
3.9
Credit card
21,220
21,284
20,631
(.3
)
2.9
21,252
20,737
2.5
Retail leasing
8,150
7,982
7,181
2.1
13.5
8,067
6,827
18.2
Home equity and second mortgages
16,048
16,195
16,252
(.9
)
(1.3
)
16,121
16,256
(.8
)
Other
31,265
32,874
31,194
(4.9
)
.2
32,065
31,125
3.0
Total other retail
55,463
57,051
54,627
(2.8
)
1.5
56,253
54,208
3.8
Total loans, excluding covered loans
275,727
276,340
271,989
(.2
)
1.4
276,032
270,715
2.0
Covered loans
2,897
3,048
3,539
(5.0
)
(18.1
)
2,972
3,635
(18.2
)
Total loans
$278,624
$279,388
$275,528
(.3
)
1.1
$279,004
$274,350
1.7
Average total loans were $3.1 billion (1.1 percent) higher than the
second quarter of 2017 (1.8 percent excluding the impact of the student
loan portfolio sale). The increase was due to growth in total commercial
loans (2.8 percent), residential mortgages (3.9 percent), and retail
leasing (13.5 percent). These increases were partially offset by a
decrease in total commercial real estate loans (6.3 percent) due to
disciplined underwriting and customers paying down balances. Loan growth
was also impacted by continued run-off of the covered loans portfolio
(18.1 percent). Average total loans were $764 million (0.3 percent)
lower than the first quarter of 2018 primarily due to the impact of the
student loan portfolio sale. Excluding this impact, average total loans
increased 0.3 percent driven by growth in residential mortgages (1.1
percent), total commercial loans (0.9 percent), and retail leasing (2.1
percent), partially offset by continued pay-offs of commercial real
estate loans (1.3 percent) and run-off of covered loans (5.0 percent).
AVERAGE DEPOSITS
($ in millions)
Percent Change
2Q
1Q
2Q
2Q18 vs
2Q18 vs
YTD
YTD
Percent
2018
2018
2017
1Q18
2Q17
2018
2017
Change
Noninterest-bearing deposits
$78,987
$79,482
$82,710
(.6
)
(4.5
)
$ 79,234
$81,729
(3.1
)
Interest-bearing savings deposits
Interest checking
69,918
70,358
67,290
(.6
)
3.9
70,136
66,490
5.5
Money market savings
103,333
103,367
106,777
--
(3.2
)
103,350
107,763
(4.1
)
Savings accounts
45,069
44,388
43,524
1.5
3.5
44,730
43,069
3.9
Total savings deposits
218,320
218,113
217,591
.1
.3
218,216
217,322
.4
Time deposits
37,515
36,985
30,871
1.4
21.5
37,252
30,759
21.1
Total interest-bearing deposits
255,835
255,098
248,462
.3
3.0
255,468
248,081
3.0
Total deposits
$334,822
$334,580
$331,172
.1
1.1
$ 334,702
$329,810
1.5
Average total deposits for the second quarter of 2018 were $3.7 billion
(1.1 percent) higher than the second quarter of 2017. Average
noninterest-bearing deposits decreased $3.7 billion (4.5 percent)
year-over-year primarily due to decreases in Corporate and Commercial
Banking and Wealth Management and Investment Services. Average total
savings deposits were $729 million (0.3 percent) higher year-over-year
driven by growth in Consumer and Business Banking, partially offset by
decreases in Corporate and Commercial Banking and Wealth Management and
Investment Services. Average time deposits were $6.6 billion (21.5
percent) higher than the prior year quarter. Changes in time deposits
are largely related to those deposits managed as an alternative to other
funding sources such as wholesale borrowing, based largely on relative
pricing and liquidity characteristics.
Average total deposits increased $242 million (0.1 percent) from the
first quarter of 2018. On a linked quarter basis, average
noninterest-bearing deposits decreased $495 million (0.6 percent)
primarily due to a decrease in Corporate and Commercial Banking,
partially offset by an increase in Wealth Management and Investment
Services. Average total savings deposits increased $207 million (0.1
percent) reflecting an increase in Consumer and Business Banking,
partially offset by a decline in Corporate and Commercial Banking.
Average time deposits, which are managed based on funding needs,
relative pricing and liquidity characteristics, increased $530 million
(1.4 percent).
NONINTEREST INCOME
($ in millions)
Percent Change
2Q
1Q
2Q
2Q18 vs
2Q18 vs
YTD
YTD
Percent
2018
2018
2017
1Q18
2Q17
2018
2017
Change
Credit and debit card revenue
$351
$324
$330
8.3
6.4
$675
$629
7.3
Corporate payment products revenue
158
154
140
2.6
12.9
312
277
12.6
Merchant processing services
387
363
381
6.6
1.6
750
735
2.0
ATM processing services
90
79
75
13.9
20.0
169
146
15.8
Trust and investment management fees
401
398
380
.8
5.5
799
748
6.8
Deposit service charges
183
182
179
.5
2.2
365
351
4.0
Treasury management fees
155
150
160
3.3
(3.1)
305
313
(2.6)
Commercial products revenue
234
220
243
6.4
(3.7)
454
490
(7.3)
Mortgage banking revenue
191
184
212
3.8
(9.9)
375
419
(10.5)
Investment products fees
47
46
44
2.2
6.8
93
86
8.1
Securities gains (losses), net
10
5
9
nm
11.1
15
38
(60.5)
Other
207
167
195
24.0
6.2
374
375
(.3)
Total noninterest income
$2,414
$2,272
$2,348
6.3
2.8
$4,686
$4,607
1.7
Second quarter noninterest income of $2,414 million was $66 million (2.8
percent) higher than the second quarter of 2017 led by strong growth in
payment services revenue and trust and investment management fees. ATM
processing services revenue also increased year-over-year. These
increases were partially offset by lower mortgage banking revenue and
commercial products revenue which were impacted by industry trends in
these revenue categories. Payment services revenue increased $45 million
(5.3 percent) due to higher credit and debit card revenue of $21 million
(6.4 percent), an increase in corporate payment products revenue of $18
million (12.9 percent), and higher merchant processing services of $6
million (1.6 percent) all driven by higher sales volumes. Trust and
investment management fees increased $21 million (5.5 percent) due to
business growth and favorable market conditions. ATM processing services
revenue increased $15 million (20.0 percent) primarily due to higher
transaction volumes. The decrease in mortgage banking revenue of $21
million (9.9 percent) was primarily due to lower mortgage production,
partially offset by a favorable change in the valuation of mortgage
servicing rights, net of hedging activities. Treasury management fees
declined $5 million (3.1 percent) reflecting core business growth offset
by the impact of earnings credits during rising interest rates. In
addition, the decrease in commercial products revenue of $9 million (3.7
percent) was mainly due to lower trading revenue, commercial leasing
fees, and loan fees, partially offset by higher foreign currency
customer activity.
Noninterest income was $142 million (6.3 percent) higher in the second
quarter of 2018 compared with the first quarter of 2018 reflecting
stronger payment services revenue as credit and debit card revenue grew
$27 million (8.3 percent) due to seasonally higher sales volumes and
merchant processing services increased $24 million (6.6 percent)
primarily due to higher volumes. Commercial products revenue increased
$14 million (6.4 percent) due to stronger capital markets volume. Other
noninterest income increased $40 million (24.0 percent), which included
the student loan portfolio sale and equity investment income.
NONINTEREST EXPENSE
($ in millions)
Percent Change
2Q
1Q
2Q
2Q18 vs
2Q18 vs
YTD
YTD
Percent
2018
2018
2017
1Q18
2Q17
2018
2017
Change
Compensation
$1,542
$1,523
$1,416
1.2
8.9
$3,065
$2,807
9.2
Employee benefits
299
330
274
(9.4
)
9.1
629
575
9.4
Net occupancy and equipment
262
265
255
(1.1
)
2.7
527
502
5.0
Professional services
95
83
105
14.5
(9.5
)
178
201
(11.4
)
Marketing and business development
111
97
109
14.4
1.8
208
199
4.5
Technology and communications
242
235
223
3.0
8.5
477
440
8.4
Postage, printing and supplies
80
80
81
--
(1.2
)
160
162
(1.2
)
Other intangibles
40
39
43
2.6
(7.0
)
79
87
(9.2
)
Other
414
403
478
2.7
(13.4
)
817
920
(11.2
)
Total noninterest expense
$3,085
$3,055
$2,984
1.0
3.4
$6,140
$5,893
4.2
Second quarter noninterest expense of $3,085 million was $101 million
(3.4 percent) higher than the second quarter of 2017 primarily due to
higher personnel costs and technology investment, partially offset by
lower other noninterest expense. Compensation expense increased $126
million (8.9 percent) principally due to the impact of hiring to support
business growth and compliance programs, merit increases, and higher
variable compensation related to business production. Employee benefits
expense increased $25 million (9.1 percent) primarily driven by
increased medical costs and staffing. Other noninterest expense
decreased $64 million (13.4 percent) due to lower mortgage
servicing-related costs.
Noninterest expense increased $30 million (1.0 percent) on a linked
quarter basis primarily due to higher compensation expense, reflecting
the impact of seasonal merit increases as well as hiring to support
business growth, and higher variable compensation related to business
production. Marketing and business development and professional services
expense are also seasonally higher during the second quarter. These
increases were largely offset by a seasonal decrease in employee
benefits due to higher payroll taxes during the first quarter of each
year.
The provision for income taxes for the second quarter of 2018 resulted
in a tax rate of 21.1 percent on a taxable-equivalent basis (effective
tax rate of 20.1 percent), compared with 28.5 percent (effective tax
rate of 26.7 percent) in the second quarter of 2017, and 18.9 percent on
a taxable-equivalent basis (effective tax rate of 17.7 percent) in the
first quarter of 2018. The lower 2018 tax rates reflect the tax reform
legislation enacted during the fourth quarter of 2017. In addition, the
first quarter of 2018 reflected the tax benefit of restricted stock
vesting that occurs principally in the first quarter of each year, as
well as a favorable settlement of tax matters.
ALLOWANCE FOR CREDIT LOSSES
($ in millions)
2Q
1Q
4Q
3Q
2Q
2018
% (b)
2018
% (b)
2017
% (b)
2017
% (b)
2017
% (b)
Balance, beginning of period
$4,417
$4,417
$4,407
$4,377
$4,366
Net charge-offs
Commercial
54
.23
56
.25
22
.09
79
.34
75
.33
Lease financing
4
.29
4
.29
6
.44
4
.29
3
.22
Total commercial
58
.24
60
.25
28
.11
83
.34
78
.33
Commercial mortgages
--
--
(4
)
(.06
)
18
.24
(2
)
(.03
)
(7
)
(.09
)
Construction and development
--
--
1
.04
--
--
(5
)
(.17
)
(2
)
(.07
)
Total commercial real estate
--
--
(3
)
(.03
)
18
.17
(7
)
(.07
)
(9
)
(.08
)
Residential mortgages
4
.03
7
.05
10
.07
7
.05
8
.05
Credit card
210
3.97
211
4.02
205
3.83
187
3.55
204
3.97
Retail leasing
3
.15
3
.15
3
.15
2
.10
2
.11
Home equity and second mortgages
(2
)
(.05
)
(1
)
(.03
)
(2
)
(.05
)
(1
)
(.02
)
(1
)
(.02
)
Other
59
.76
64
.79
63
.76
59
.73
58
.75
Total other retail
60
.43
66
.47
64
.44
60
.42
59
.43
Total net charge-offs, excluding covered loans
332
.48
341
.50
325
.47
330
.48
340
.50
Covered loans
--
--
--
--
--
--
--
--
--
--
Total net charge-offs
332
.48
341
.49
325
.46
330
.47
340
.49
Provision for credit losses
327
341
335
360
350
Other changes (a)
(1
)
--
--
--
1
Balance, end of period
$4,411
$4,417
$4,417
$4,407
$4,377
Components
Allowance for loan losses
$3,920
$3,918
$3,925
$3,908
$3,856
Liability for unfunded credit commitments
491
499
492
499
521
Total allowance for credit losses
$4,411
$4,417
$4,417
$4,407
$4,377
Gross charge-offs
$437
$453
$464
$433
$437
Gross recoveries
$105
$112
$139
$103
$97
Allowance for credit losses as a percentage of
Period-end loans, excluding covered loans
1.58
1.60
1.58
1.59
1.59
Nonperforming loans, excluding covered loans
484
431
438
425
385
Nonperforming assets, excluding covered assets
412
373
374
359
331
Period-end loans
1.57
1.59
1.58
1.58
1.58
Nonperforming loans
484
431
438
426
383
Nonperforming assets
404
367
368
352
324
(a) Includes net changes in credit losses to be reimbursed by the
FDIC and reductions in the allowance for covered loans where the
reversal of a previously recorded allowance was offset by an
associated decrease in the indemnification asset, and the impact
of any loan sales.
(b) Annualized and calculated on average loan balances
Total net charge-offs in the second quarter of 2018 were $332 million,
compared with $341 million in the first quarter of 2018, and $340
million in the second quarter of 2017. Net charge-offs decreased $9
million (2.6 percent) compared with the first quarter of 2018 mainly due
to lower total other retail net charge-offs, partially offset by lower
commercial real estate recoveries. Net charge-offs decreased $8 million
(2.4 percent) compared with the second quarter of 2017 primarily due to
lower commercial net charge-offs, partially offset by lower commercial
mortgage recoveries and higher credit card net charge-offs. The net
charge-off ratio was 0.48 percent in the second quarter of 2018,
compared with 0.49 percent in the first quarter of 2018 and in the
second quarter of 2017.
The allowance for credit losses was $4,411 million at June 30, 2018,
compared with $4,417 million at March 31, 2018, and $4,377 million at
June 30, 2017. The ratio of the allowance for credit losses to
period-end loans was 1.57 percent at June 30, 2018, compared with 1.59
percent at March 31, 2018, and 1.58 percent at June 30, 2017. The ratio
of the allowance for credit losses to nonperforming loans was 484
percent at June 30, 2018, compared with 431 percent at March 31, 2018,
and 383 percent at June 30, 2017.
Nonperforming assets were $1,091 million at June 30, 2018, compared with
$1,204 million at March 31, 2018, and $1,349 million at June 30, 2017.
The ratio of nonperforming assets to loans and other real estate was
0.39 percent at June 30, 2018, compared with 0.43 percent at March 31,
2018, and 0.49 percent at June 30, 2017. The year-over-year decrease in
nonperforming assets was driven by improvements in nonperforming
residential mortgages, total commercial loans, and other real estate
owned, partially offset by increases in nonperforming other retail loans
and other nonperforming assets. Accruing loans 90 days or more past due
were $640 million ($514 million excluding covered loans) at June 30,
2018, compared with $702 million ($566 million excluding covered loans)
at March 31, 2018, and $639 million ($477 million excluding covered
loans) at June 30, 2017.
DELINQUENT LOAN RATIOS AS A PERCENT OF ENDING LOAN BALANCES
(Percent)
Jun 30
Mar 31
Dec 31
Sep 30
Jun 30
2018
2018
2017
2017
2017
Delinquent loan ratios - 90 days or more past due excluding
nonperforming loans
Commercial
.06
.06
.06
.05
.05
Commercial real estate
.01
.01
.01
.01
--
Residential mortgages
.18
.22
.22
.18
.20
Credit card
1.15
1.29
1.28
1.20
1.10
Other retail
.16
.18
.17
.15
.14
Total loans, excluding covered loans
.19
.21
.21
.18
.17
Covered loans
4.46
4.57
4.74
4.66
4.71
Total loans
.23
.25
.26
.23
.23
Delinquent loan ratios - 90 days or more past due including
nonperforming loans
Commercial
.28
.37
.31
.33
.39
Commercial real estate
.27
.31
.37
.30
.29
Residential mortgages
.84
.93
.96
.98
1.10
Credit card
1.15
1.29
1.28
1.20
1.10
Other retail
.48
.48
.46
.43
.42
Total loans, excluding covered loans
.51
.58
.57
.55
.59
Covered loans
4.68
4.77
4.93
4.84
5.06
Total loans
.55
.62
.62
.60
.64
ASSET QUALITY (a)
($ in millions)
Jun 30
Mar 31
Dec 31
Sep 30
Jun 30
2018
2018
2017
2017
2017
Nonperforming loans
Commercial
$199
$274
$225
$231
$283
Lease financing
25
27
24
38
39
Total commercial
224
301
249
269
322
Commercial mortgages
72
86
108
89
84
Construction and development
32
33
34
33
35
Total commercial real estate
104
119
142
122
119
Residential mortgages
400
430
442
474
530
Credit card
--
--
1
1
1
Other retail
178
168
168
163
158
Total nonperforming loans, excluding covered loans
906
1,018
1,002
1,029
1,130
Covered loans
6
6
6
6
12
Total nonperforming loans
912
1,024
1,008
1,035
1,142
Other real estate
108
124
141
164
157
Covered other real estate
20
20
21
26
25
Other nonperforming assets
51
36
30
26
25
Total nonperforming assets
$1,091
$1,204
$1,200
$1,251
$1,349
Total nonperforming assets, excluding covered assets
$1,065
$1,178
$1,173
$1,219
$1,312
Accruing loans 90 days or more past due, excluding covered loans
$514
$566
$572
$497
$477
Accruing loans 90 days or more past due
$640
$702
$720
$649
$639
Performing restructured loans, excluding GNMA and covered loans
$2,164
$2,190
$2,306
$2,419
$2,473
Performing restructured GNMA and covered loans
$1,695
$1,598
$1,713
$1,600
$1,803
Nonperforming assets to loans plus ORE, excluding covered assets
(%)
.38
.43
.42
.44
.48
Nonperforming assets to loans plus ORE (%)
.39
.43
.43
.45
.49
(a) Throughout this document, nonperforming assets and related
ratios do not include accruing loans 90 days or more past due
COMMON SHARES
(Millions)
2Q
1Q
4Q
3Q
2Q
2018
2018
2017
2017
2017
Beginning shares outstanding
1,649
1,656
1,667
1,679
1,692
Shares issued for stock incentive plans, acquisitions and other
corporate purposes
--
4
1
--
1
Shares repurchased
(13
)
(11
)
(12
)
(12
)
(14
)
Ending shares outstanding
1,636
1,649
1,656
1,667
1,679
CAPITAL POSITION
($ in millions)
Jun 30
Mar 31
Dec 31
Sep 30
Jun 30
2018
2018
2017
2017
2017
Total U.S. Bancorp shareholders' equity
$49,628
$49,187
$49,040
$48,723
$48,320
Basel III Standardized Approach (a)
Common equity tier 1 capital
$34,161
$33,539
$34,369
$34,876
$34,408
Tier 1 capital
39,611
38,991
39,806
40,411
39,943
Total risk-based capital
47,258
46,640
47,503
48,104
47,824
Fully implemented common equity tier 1 capital ratio (a)
9.1
%
9.0
%
9.1
%
(b)
9.4
%
(b)
9.3
%
(b)
Tier 1 capital ratio
10.5
10.4
10.8
11.1
11.1
Total risk-based capital ratio
12.6
12.5
12.9
13.2
13.2
Leverage ratio
8.9
8.8
8.9
9.1
9.1
Basel III Advanced Approaches (a)
Fully implemented common equity tier 1 capital ratio (a)
11.6
11.5
11.6
(b)
11.8
(b)
11.7
(b)
Tangible common equity to tangible assets (b)
7.8
7.7
7.6
7.7
7.5
Tangible common equity to risk-weighted assets (b)
9.3
9.3
9.4
9.5
9.4
Common equity tier 1 capital ratio calculated under the
transitional standardized approach (a)
--
--
9.3
9.6
9.5
Common equity tier 1 capital ratio calculated under the
transitional advanced approaches (a)
--
--
12.0
12.1
12.0
(a) Beginning January 1, 2018, the regulatory capital requirements
fully reflect implementation of Basel III. Prior to 2018, the
Company's capital ratios reflected certain transitional
adjustments. Basel III includes two comprehensive methodologies
for calculating risk-weighted assets: a general standardized
approach and more risk-sensitive advanced approaches, with the
Company's capital adequacy being evaluated against the methodology
that is most restrictive.
(b) See Non-GAAP Financial Measures reconciliation on page 16
All regulatory ratios continue to be in excess of "well-capitalized"
requirements. The common equity tier 1 capital to risk-weighted assets
ratio using the Basel III standardized approach was 9.1 percent at June
30, 2018, compared with 9.0 percent at March 31, 2018, and 9.5 percent
at June 30, 2017. The common equity tier 1 capital to risk-weighted
assets ratio using the Basel III advanced approaches method was 11.6
percent at June 30, 2018, compared with 11.5 percent at March 31, 2018,
and 12.0 percent at June 30, 2017.
On Wednesday, July 18, 2018, at 8:00 a.m. CDT, Andy Cecere, Chairman,
President and Chief Executive Officer, and Terry Dolan, Vice Chairman
and Chief Financial Officer, will host a conference call to review the
financial results. The conference call will be available online or by
telephone. To access the webcast and presentation, visit U.S. Bancorp's
website at usbank.com
and click on "About US", "Investor Relations" and "Webcasts &
Presentations." To access the conference call from locations within the
United States and Canada, please dial 866-316-1409. Participants calling
from outside the United States and Canada, please dial 706-634-9086. The
conference ID number for all participants is 9049069. For those unable
to participate during the live call, a recording will be available at
approximately 11:00 a.m. CDT on Wednesday, July 18 and will be
accessible until Wednesday, July 25 at 11:00 p.m. CDT. To access the
recorded message within the United States and Canada, please dial
855-859-2056. If calling from outside the United States and Canada,
please dial 404-537-3406 to access the recording. The conference ID is
9049069.
U.S. Bancorp, with 74,000 employees and $461 billion in assets as of
June 30, 2018, is the parent company of U.S. Bank, the fifth-largest
commercial bank in the United States. The Minneapolis-based bank blends
its relationship teams, branches and ATM network with mobile and online
tools that allow customers to bank how, when and where they prefer. U.S.
Bank is committed to serving its millions of retail, business, wealth
management, payment, commercial and corporate, and investment services
customers across the country and around the world as a trusted financial
partner, a commitment recognized by the Ethisphere Institute naming the
bank a 2018 World's Most Ethical Company. Visit U.S. Bank at www.usbank.com
or follow on social media to stay up to date with company news.
This press release 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 its investment
securities; 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 could 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, 2017, on file with the
Securities and Exchange Commission, including the sections entitled
"Corporate Risk Profile" and "Risk Factors" 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.
Forward-looking 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.
These capital measures are viewed by management as useful additional
methods of evaluating the Company's utilization of its capital held and
the level of capital available to withstand unexpected negative market
or economic conditions. Additionally, presentation of these measures
allows investors, analysts and banking regulators to assess the
Company's capital position relative to other financial services
companies. These capital measures are not defined in generally accepted
accounting principles ("GAAP") or are not defined in federal banking
regulations. As a result, these capital measures disclosed by the
Company may be considered non-GAAP financial measures. In addition,
certain capital measures related to prior periods are presented on the
same basis as those capital measures in the current period. The
effective capital ratios defined by banking regulations for these
periods were subject to certain transitional provisions. Management
believes this information helps investors assess trends in the Company's
capital adequacy.
The Company also discloses net interest income and related ratios and
analysis on a taxable-equivalent basis, which may also be considered
non-GAAP financial measures. The Company believes this presentation to
be the preferred industry measurement of net interest income as it
provides a relevant comparison of net interest income arising from
taxable and tax-exempt sources. In addition, certain performance
measures, including the efficiency ratio and net interest margin utilize
net interest income on a taxable-equivalent basis.
There may be limits in the usefulness of these measures to investors. As
a result, the Company encourages readers to consider the consolidated
financial statements and other financial information contained in this
press release in their entirety, and not to rely on any single financial
measure. A table follows that shows the Company's calculation of these
non-GAAP financial measures.
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended
Six Months Ended
(Dollars and Shares in Millions, Except Per Share Data)
June 30,
June 30,
(Unaudited)
2018
2017
2018
2017
Interest Income
Loans
$3,197
$2,889
$6,292
$5,679
Loans held for sale
39
29
72
64
Investment securities
653
555
1,266
1,085
Other interest income
59
46
109
84
Total interest income
3,948
3,519
7,739
6,912
Interest Expense
Deposits
427
238
772
437
Short-term borrowings
86
33
161
57
Long-term debt
238
199
441
389
Total interest expense
751
470
1,374
883
Net interest income
3,197
3,049
6,365
6,029
Provision for credit losses
327
350
668
695
Net interest income after provision for credit losses
2,870
2,699
5,697
5,334
Noninterest Income
Credit and debit card revenue
351
330
675
629
Corporate payment products revenue
158
140
312
277
Merchant processing services
387
381
750
735
ATM processing services
90
75
169
146
Trust and investment management fees
401
380
799
748
Deposit service charges
183
179
365
351
Treasury management fees
155
160
305
313
Commercial products revenue
234
243
454
490
Mortgage banking revenue
191
212
375
419
Investment products fees
47
44
93
86
Securities gains (losses), net
10
9
15
38
Other
207
195
374
375
Total noninterest income
2,414
2,348
4,686
4,607
Noninterest Expense
Compensation
1,542
1,416
3,065
2,807
Employee benefits
299
274
629
575
Net occupancy and equipment
262
255
527
502
Professional services
95
105
178
201
Marketing and business development
111
109
208
199
Technology and communications
242
223
477
440
Postage, printing and supplies
80
81
160
162
Other intangibles
40
43
79
87
Other
414
478
817
920
Total noninterest expense
3,085
2,984
6,140
5,893
Income before income taxes
2,199
2,063
4,243
4,048
Applicable income taxes
441
551
803
1,050
Net income
1,758
1,512
3,440
2,998
Net (income) loss attributable to noncontrolling interests
(8
)
(12
)
(15
)
(25
)
Net income attributable to U.S. Bancorp
$1,750
$1,500
$3,425
$2,973
Net income applicable to U.S. Bancorp common shareholders
$1,678
$1,430
$3,275
$2,817
Earnings per common share
$1.02
$.85
$1.99
$1.67
Diluted earnings per common share
$1.02
$.85
$1.98
$1.66
Dividends declared per common share
$.30
$.28
$.60
$.56
Average common shares outstanding
1,642
1,684
1,647
1,689
Average diluted common shares outstanding
1,646
1,690
1,651
1,695
CONSOLIDATED ENDING BALANCE SHEET
June 30,
December 31,
June 30,
(Dollars in Millions)
2018
2017
2017
Assets
(Unaudited)
(Unaudited)
Cash and due from banks
$19,021
$19,505
$28,964
Investment securities
Held-to-maturity
46,055
44,362
43,659
Available-for-sale
66,347
68,137
67,455
Loans held for sale
3,256
3,554
3,661
Loans
Commercial
99,357
97,561
96,836
Commercial real estate
39,399
40,463
41,908
Residential mortgages
61,309
59,783
58,796
Credit card
21,566
22,180
20,861
Other retail
55,723
57,324
55,445
Total loans, excluding covered loans
277,354
277,311
273,846
Covered loans
2,823
3,121
3,437
Total loans
280,177
280,432
277,283
Less allowance for loan losses
(3,920
)
(3,925
)
(3,856
)
Net loans
276,257
276,507
273,427
Premises and equipment
2,431
2,432
2,413
Goodwill
9,425
9,434
9,361
Other intangible assets
3,415
3,228
3,216
Other assets
35,122
34,881
31,688
Total assets
$461,329
$462,040
$463,844
Liabilities and Shareholders' Equity
Deposits
Noninterest-bearing
$82,215
$87,557
$93,029
Interest-bearing
257,865
259,658
254,233
Total deposits
340,080
347,215
347,262
Short-term borrowings
18,136
16,651
14,412
Long-term debt
37,172
32,259
37,814
Other liabilities
15,684
16,249
15,407
Total liabilities
411,072
412,374
414,895
Shareholders' equity
Preferred stock
5,419
5,419
5,419
Common stock
21
21
21
Capital surplus
8,468
8,464
8,425
Retained earnings
56,742
54,142
52,033
Less treasury stock
(18,707
)
(17,602
)
(16,332
)
Accumulated other comprehensive income (loss)
(2,315
)
(1,404
)
(1,246
)
Total U.S. Bancorp shareholders' equity
49,628
49,040
48,320
Noncontrolling interests
629
626
629
Total equity
50,257
49,666
48,949
Total liabilities and equity
$461,329
$462,040
$463,844
NON-GAAP FINANCIAL MEASURES
June 30,
March 31,
December 31,
September 30,
June 30,
(Dollars in Millions, Unaudited)
2018
2018
2017
2017
2017
Total equity
$50,257
$49,812
$49,666
$49,351
$48,949
Preferred stock
(5,419)
(5,419)
(5,419)
(5,419)
(5,419)
Noncontrolling interests
(629)
(625)
(626)
(628)
(629)
Goodwill (net of deferred tax liability) (1)
(8,585)
(8,609)
(8,613)
(8,141)
(8,181)
Intangible assets, other than mortgage servicing rights
(571)
(608)
(583)
(595)
(634)
Tangible common equity (a)
35,053
34,551
34,425
34,568
34,086
Total assets
461,329
460,119
462,040
459,227
463,844
Goodwill (net of deferred tax liability) (1)
(8,585)
(8,609)
(8,613)
(8,141)
(8,181)
Intangible assets, other than mortgage servicing rights
(571)
(608)
(583)
(595)
(634)
Tangible assets (b)
452,173
450,902
452,844
450,491
455,029
Risk-weighted assets, determined in accordance with the Basel III
standardized approach (c)
375,466
*
373,141
367,771
363,957
361,164
Tangible common equity (as calculated above)
34,425
34,568
34,086
Adjustments (2)
(550)
(52)
(51)
Common equity tier 1 capital estimated for the Basel III fully
implemented standardized and advanced approaches (d)
33,875
34,516
34,035
Risk-weighted assets, determined in accordance with prescribed
transitional standardized approach regulatory requirements
367,771
363,957
361,164
Adjustments (3)
4,473
3,907
3,967
Risk-weighted assets estimated for the Basel III fully implemented
standardized approach (e)
372,244
367,864
365,131
Risk-weighted assets, determined in accordance with prescribed
transitional advanced approaches regulatory requirements
287,211
287,800
287,124
Adjustments (4)
4,769
4,164
4,231
Risk-weighted assets estimated for the Basel III fully implemented
advanced approaches (f)
291,980
291,964
291,355
Ratios *
Tangible common equity to tangible assets (a)/(b)
7.8
%
7.7
%
7.6
%
7.7
%
7.5
%
Tangible common equity to risk-weighted assets (a)/(c)
9.3
9.3
9.4
9.5
9.4
Common equity tier 1 capital to risk-weighted assets estimated for
the Basel III fully implemented standardized approach (d)/(e)
9.1
9.4
9.3
Common equity tier 1 capital to risk-weighted assets estimated for
the Basel III fully implemented advanced approaches (d)/(f)
11.6
11.8
11.7
Three Months Ended
June 30,
March 31,
December 31,
September 30,
June 30,
2018
2018
2017
2017
2017
Net income applicable to U.S. Bancorp common shareholders
$1,678
$1,597
$1,611
$1,485
$1,430
Intangibles amortization (net-of-tax)
32
31
28
29
28
Net income applicable to U.S. Bancorp common shareholders,
excluding intangibles amortization
1,710
1,628
1,639
1,514
1,458
Annualized net income applicable to U.S. Bancorp common
shareholders, excluding intangibles amortization (g)
6,859
6,602
6,503
6,007
5,848
Average total equity
49,950
49,450
49,461
49,447
48,909
Less: Average preferred stock
5,419
5,419
5,419
5,419
5,419
Less: Average noncontrolling interests
628
625
627
628
636
Less: Average goodwill (net of deferred tax liability) (1)
8,602
8,627
8,154
8,153
8,160
Less: Average intangible assets, other than mortgage servicing rights
588
603
591
615
650
Average U.S. Bancorp common shareholders' equity, excluding
intangible assets (h)
34,713
34,176
34,670
34,632
34,044
Return on tangible common equity (g)/(h)
19.8
%
19.3
%
18.8
%
17.3
%
17.2
%
* Preliminary data. Subject to change prior to filings with
applicable regulatory agencies.
(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.
(4) Primarily reflects higher risk-weighting for mortgage servicing
rights.
NON-GAAP FINANCIAL MEASURES
Three Months Ended
Six Months Ended
June 30,
March 31,
December 31,
September 30,
June 30,
June 30,
June 30,
(Dollars in Millions, Unaudited)
2018
2018
2017
2017
2017
2018
2017
Net interest income
$3,197
$3,168
$3,175
$3,176
$3,049
$6,365
$6,029
Taxable-equivalent adjustment (1)
29
29
53
51
51
58
101
Net interest income, on a taxable-equivalent basis
3,226
3,197
3,228
3,227
3,100
6,423
6,130
Net interest income, on a taxable-equivalent basis (as calculated
above)
3,226
3,197
3,228
3,227
3,100
6,423
6,130
Noninterest income
2,414
2,272
2,370
2,340
2,348
4,686
4,607
Less: Securities gains (losses), net
10
5
10
9
9
15
38
Total net revenue, excluding net securities gains (losses) (a)
(1) Interest and rates are presented on a fully taxable-equivalent
basis based on a federal income tax rate of 21 percent for 2018 and
35 percent for 2017.
