Record Earnings Per Diluted Common Share of
$0.85
Return on average assets of 1.35 percent and
average common equity of 13.4 percent
Returned 81 percent of earnings to
shareholders
U.S. Bancorp (NYSE: USB) today reported net income of $1,500
million for the second quarter of 2017, or $0.85 per diluted common
share, compared with $1,522 million, or $0.83 per diluted common
share, in the second quarter of 2016.
Highlights for the second quarter of 2017 included:
- Industry-leading return on average
assets of 1.35 percent and return on average common equity of 13.4
percent and efficiency ratio of 55.2 percent
- Record revenue of $5,487 million and
diluted earnings per common share of $0.85
- Net interest income (taxable-equivalent
basis) grew 5.9 percent year-over-year and 2.4 percent on a linked
quarter basis
- Net interest margin of 3.04 percent for
the second quarter of 2017 was 2 basis points higher than the
second quarter of 2016 and 1 basis point higher than the first
quarter of 2017, benefiting from rising interest rates partially
offset by increasing average cash balances
- Average total loans grew 3.4 percent
over the second quarter of 2016 and 0.9 percent on a linked quarter
basis
- Credit and debit card revenue grew 7.8
percent on a year-over-year basis
- Trust and investment management fees
increased 6.1 percent on a year-over-year basis
- Nonperforming assets decreased 19.3
percent on a year-over-year basis and 9.8 percent on a linked
quarter basis
- Strong capital position. At June 30,
2017, the estimated common equity tier 1 capital to risk-weighted
assets ratio was 9.3 percent using the Basel III fully implemented
standardized approach and was 11.7 percent using the Basel III
fully implemented advanced approaches method.
EARNINGS SUMMARY
Table 1
($ in millions, except per-share data)
Percent Percent
Change Change 2Q
1Q 2Q 2Q17 vs 2Q17 vs YTD
YTD Percent 2017 2017
2016 1Q17 2Q16
2017 2016 Change Net
income attributable to U.S. Bancorp $1,500 $1,473 $1,522 1.8 (1.4 )
$2,973 $2,908 2.2 Diluted earnings per common share $.85 $.82 $.83
3.7 2.4 $1.66 $1.59 4.4 Return on average assets (%) 1.35
1.35 1.43 1.35 1.38 Return on average common equity (%) 13.4 13.3
13.8 13.4 13.4 Net interest margin (%) 3.04 3.03 3.02 3.04 3.04
Efficiency ratio (%) (a) 55.2 55.6 54.9 55.4 54.8 Tangible
efficiency ratio (%) (a) 54.4 54.8 54.1 54.6 53.9 Dividends
declared per common share $.280 $.280 $.255 -- 9.8 $.560 $.510 9.8
Book value per common share (period end) $25.55 $25.05 $24.37 2.0
4.8 (a) See Non-GAAP Financial Measures reconciliation on
page 21
Net income attributable to U.S. Bancorp was $1,500 million for
the second quarter of 2017, 1.4 percent lower than the $1,522
million for the second quarter of 2016, and 1.8 percent higher than
the $1,473 million for the first quarter of 2017. Diluted earnings
per common share of $0.85 in the second quarter of 2017 were $0.02
higher than the second quarter of 2016 and $0.03 higher than the
first quarter of 2017. The decrease in net income year-over-year
included a 5.2 percent decrease in noninterest income and a 1.0
percent increase in noninterest expense, both of which were
impacted by notable items in the second quarter of 2016. Notable
items included a $180 million Visa gain in noninterest income and
$150 million in noninterest expense related to litigation accruals
and a charitable contribution. Excluding the prior year notable
items, net income increased slightly year-over-year. Net interest
income increased 5.9 percent on a taxable-equivalent basis (6.0
percent as reported on a GAAP basis), mainly a result of loan
growth and the impact of higher interest rates. Noninterest income,
excluding the impact of the prior year notable item, increased 2.0
percent driven by higher payment services revenue, trust and
investment management fees and treasury management fees. Revenue
increases were partially offset by higher noninterest expense,
excluding the prior year notable items, due to increased
compensation expense related to hiring to support business growth
and compliance programs, merit increases, and higher variable
compensation. In addition, other expense was higher due to an FDIC
surcharge beginning in late 2016. The increase in net income on a
linked quarter basis was principally due to an increase in total
net revenue of 3.1 percent, reflecting higher net interest income
of 2.4 percent, driven by loan growth, the impact of higher
interest rates and an additional day in the current quarter, along
with an increase in noninterest income of 3.9 percent primarily due
to seasonally higher fee-based revenue. These increases were
partially offset by an increase in noninterest expense of 2.7
percent.
U.S. Bancorp President and Chief Executive Officer Andy Cecere
said, “I’m proud of our solid second quarter performance and our
ability to deliver industry-leading results. As an enterprise we
extended our momentum from the first quarter to produce
best-in-class performance metrics, including return on average
assets of 1.35 percent, return on average common equity of 13.4
percent and an efficiency ratio of 55.2 percent.
“Because of the overall strength and consistency of our
financial results, we continued to create value for our
shareholders. In the second quarter, we returned 81 percent of our
earnings to shareholders through dividends and share repurchases.
The results of the Federal Reserve’s annual Stress Test
demonstrated our ability to withstand - and remain profitable - in
periods of economic stress. As part of the CCAR process we
announced a dividend increase of 7.1 percent and a new share
repurchase program for the year, maintaining our commitment to
shareholders.
“Our balance sheet is strong and our core businesses are well
positioned for an economic and regulatory backdrop that has the
promise to be more conducive to growth. Our strong revenue base and
our dedication to managing expenses positions us well as we head
into the second half of the year. I couldn’t be more proud of our
dedicated employees who work hard to be our customers’ and
communities’ trusted financial partner and to bring this commitment
to life every day.”
INCOME
STATEMENT HIGHLIGHTS
Table 2 ($ in millions, except per-share data)
Percent Percent
Change Change 2Q 1Q
2Q 2Q17 vs 2Q17 vs YTD YTD
Percent 2017 2017 2016
1Q17 2Q16 2017
2016 Change Net interest income $3,017
$2,945 $2,845 2.4 6.0 $5,962 $5,680 5.0 Taxable-equivalent
adjustment 51 50 51 2.0 -- 101
104 (2.9 ) Net interest income
(taxable-equivalent basis) 3,068 2,995 2,896 2.4 5.9 6,063 5,784
4.8 Noninterest income 2,419 2,329
2,552 3.9 (5.2 ) 4,748 4,701 1.0 Total
net revenue 5,487 5,324 5,448 3.1 .7 10,811 10,485 3.1 Noninterest
expense 3,023 2,944 2,992 2.7
1.0 5,967 5,741 3.9 Income before provision
and income taxes 2,464 2,380 2,456 3.5 .3 4,844 4,744 2.1 Provision
for credit losses 350 345 327
1.4 7.0 695 657 5.8 Income before taxes 2,114
2,035 2,129 3.9 (.7 ) 4,149 4,087 1.5
Income taxes and
taxable-equivalent adjustment
602 549 593 9.7 1.5 1,151
1,150 .1 Net income 1,512 1,486 1,536 1.7 (1.6 )
2,998 2,937 2.1
Net (income) loss attributable to
noncontrolling interests
(12 ) (13 ) (14 ) 7.7 14.3 (25 ) (29 ) 13.8
Net income attributable to U.S. Bancorp $1,500 $1,473
$1,522 1.8 (1.4 ) $2,973 $2,908
2.2
Net income applicable to U.S.
Bancorp common shareholders
$1,430 $1,387 $1,435 3.1 (.3 )
$2,817 $2,764 1.9 Diluted earnings per common
share $.85 $.82 $.83 3.7 2.4
$1.66 $1.59 4.4
NET INTEREST INCOME Table 3
(Taxable-equivalent basis; $ in
millions)
Change Change 2Q 1Q 2Q 2Q17
vs 2Q17 vs YTD YTD 2017
2017 2016 1Q17
2Q16 2017 2016
Change Components of net interest income Income on earning
assets $3,584 $3,451 $3,305 $133 $279 $7,035 $6,580 $455 Expense on
interest-bearing liabilities 516 456
409 60 107 972
796 176 Net interest income $3,068
$2,995 $2,896 $73
$172 $6,063 $5,784
$279 Average yields and rates paid Earning assets
yield 3.56 % 3.49 % 3.44 % .07 % .12 % 3.52 % 3.46 % .06 % Rate
paid on interest-bearing liabilities .69 .62
.58 .07 .11 .66
.57 .09 Gross interest margin
2.87 % 2.87 % 2.86 % -- % .01 %
2.86 % 2.89 % (.03 )% Net interest margin 3.04 %
3.03 % 3.02 % .01 % .02 % 3.04 %
3.04 % -- % Average balances Investment
securities (a) $111,368 $110,764 $107,132 $604 $4,236 $111,067
$106,581 $4,486 Loans 275,528 273,158 266,582 2,370 8,946 274,350
264,432 9,918 Earning assets 403,883 399,281 385,368 4,602 18,515
401,595 381,788 19,807 Interest-bearing liabilities 299,271 296,170
285,796 3,101 13,475 297,729 282,656 15,073 (a) Excludes
unrealized gain (loss)
Net Interest Income
Net interest income on a taxable-equivalent basis in the second
quarter of 2017 was $3,068 million, an increase of $172 million
(5.9 percent) over the second quarter of 2016. The increase was
principally driven by loan growth and the impact of higher interest
rates. Average earning assets were $18.5 billion (4.8 percent)
higher than the second quarter of 2016, reflecting increases of
$8.9 billion (3.4 percent) in average total loans, $4.2 billion
(4.0 percent) in average investment securities and higher average
cash balances to meet certain regulatory liquidity expectations.
Net interest income on a taxable-equivalent basis increased $73
million (2.4 percent) linked quarter driven by loan growth, the
impact of higher interest rates and an additional day in the second
quarter. In addition, average earning assets were $4.6 billion
higher on a linked quarter basis, mainly from higher average loans
and average cash balances.
The net interest margin in the second quarter of 2017 was 3.04
percent, compared with 3.02 percent in the second quarter of 2016,
and 3.03 percent in the first quarter of 2017. The increase in the
net interest margin on a year-over-year basis was due to rising
interest rates partially offset by loan portfolio mix, lower
reinvestment rates on maturing securities through the first quarter
of 2017 and higher cash balances. The increase on a linked quarter
basis was primarily driven by the recent Federal Reserve rate
increases, partially offset by the impact of a flatter yield curve
and higher cash balances.
Investment Securities
Average investment securities in the second quarter of 2017 were
$4.2 billion (4.0 percent) higher year-over-year and $604 million
(0.5 percent) higher than the prior quarter. These increases were
primarily due to purchases of U.S. Treasury and U.S. government
agency-backed securities, net of prepayments and maturities, in
support of liquidity management.
AVERAGE
LOANS Table 4 ($ in
millions)
Percent
Percent Change Change
2Q 1Q 2Q 2Q17 vs 2Q17 vs
YTD YTD Percent 2017 2017
2016 1Q17 2Q16
2017 2016 Change
Commercial $90,061 $88,284 $86,899 2.0 3.6 $89,177 $85,741 4.0
Lease financing 5,577 5,455 5,255 2.2 6.1 5,517
5,246 5.2 Total commercial 95,638 93,739 92,154 2.0 3.8
94,694 90,987 4.1 Commercial mortgages 30,627 31,461 31,950
(2.7 ) (4.1 ) 31,042 31,893 (2.7 ) Construction and development
11,922 11,697 11,038 1.9 8.0 11,810 10,801 9.3
Total commercial real estate 42,549 43,158 42,988 (1.4 ) (1.0 )
42,852 42,694 .4 Residential mortgages 58,544 57,900 55,501
1.1 5.5 58,224 54,854 6.1 Credit card 20,631 20,845 20,140
(1.0 ) 2.4 20,737 20,192 2.7 Retail leasing 7,181 6,469
5,326 11.0 34.8 6,827 5,253 30.0 Home equity and second mortgages
16,252 16,259 16,394 -- (.9 ) 16,256 16,381 (.8 ) Other 31,194
31,056 29,748 .4 4.9 31,125 29,649 5.0 Total
other retail 54,627 53,784 51,468 1.6 6.1 54,208
51,283 5.7 Total loans, excluding covered loans
271,989 269,426 262,251 1.0 3.7 270,715
260,010 4.1 Covered loans 3,539 3,732 4,331
(5.2 ) (18.3 ) 3,635 4,422 (17.8 ) Total loans
$275,528 $273,158 $266,582 .9 3.4 $274,350
$264,432 3.8
Loans
Average total loans were $8.9 billion (3.4 percent) higher in
the second quarter of 2017 than the second quarter of 2016. The
increase was due to growth in total commercial loans (3.8 percent),
total other retail loans (6.1 percent), residential mortgages (5.5
percent), and credit card loans (2.4 percent). These increases were
partially offset by a decrease in total commercial real estate
loans (1.0 percent) due to payoffs given recent capital market
financing by customers and run-off in the covered loans portfolio
(18.3 percent). Average total loans were $2.4 billion (0.9 percent)
higher in the second quarter of 2017 than the first quarter of
2017. This increase was primarily driven by linked quarter growth
in total commercial loans (2.0 percent), total other retail loans
(1.6 percent) and residential mortgages (1.1 percent), partially
offset by decreases in total commercial real estate loans (1.4
percent), credit card loans (1.0 percent) and covered loans (5.2
percent).
AVERAGE
DEPOSITS Table 5 ($
in millions)
Percent
Percent Change Change
2Q 1Q 2Q 2Q17 vs 2Q17 vs
YTD YTD Percent 2017 2017
2016 1Q17 2Q16
2017 2016 Change
Noninterest-bearing deposits $82,710 $80,738 $79,171 2.4 4.5
$81,729 $78,870 3.6 Interest-bearing savings deposits Interest
checking 67,290 65,681 60,842 2.4 10.6 66,490 59,376 12.0 Money
market savings 106,777 108,759 92,904 (1.8 ) 14.9 107,763 89,683
20.2 Savings accounts 43,524 42,609 40,258 2.1 8.1
43,069 39,754 8.3 Total savings deposits 217,591 217,049
194,004 .2 12.2 217,322 188,813 15.1 Time deposits 30,871
30,646 34,211 .7 (9.8 ) 30,759 33,949 (9.4 ) Total
interest-bearing deposits 248,462 247,695 228,215 .3
8.9 248,081 222,762 11.4 Total deposits $331,172
$328,433 $307,386 .8 7.7 $329,810 $301,632 9.3
Deposits
Average total deposits for the second quarter of 2017 were $23.8
billion (7.7 percent) higher than the second quarter of 2016.
Average noninterest-bearing deposits increased $3.5 billion (4.5
percent) year-over-year driven by growth across all business lines.
Average total savings deposits were $23.6 billion (12.2 percent)
higher year-over-year, the result of growth across all business
lines. Average time deposits were $3.3 billion (9.8 percent) lower
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 $2.7 billion (0.8 percent) over
the first quarter of 2017. On a linked quarter basis, average
noninterest-bearing deposits increased $2.0 billion (2.4 percent)
mainly in Wealth Management and Securities Services and Consumer
and Small Business Banking. Average total savings deposits grew
$542 million (0.2 percent) primarily driven by Consumer and Small
Business Banking and Wealth Management and Securities Services,
partially offset by decreases in Wholesale Banking and Commercial
Real Estate. Average time deposits, which are managed based on
funding needs, relative pricing, and liquidity characteristics,
increased $225 million (0.7 percent) on a linked quarter basis.
NONINTEREST INCOME Table
6 ($ in millions)
Percent
Percent Change Change
2Q 1Q 2Q 2Q17 vs 2Q17 vs
YTD YTD Percent 2017 2017
2016 1Q17 2Q16
2017 2016 Change Credit
and debit card revenue $319 $292 $296 9.2 7.8 $611 $562 8.7
Corporate payment products revenue 184 179 181 2.8 1.7 363 351 3.4
Merchant processing services 407 378 403 7.7 1.0 785 776 1.2 ATM
processing services 90 85 84 5.9 7.1 175 164 6.7 Trust and
investment management fees 380 368 358 3.3 6.1 748 697 7.3 Deposit
service charges 184 177 179 4.0 2.8 361 347 4.0 Treasury management
fees 160 153 147 4.6 8.8 313 289 8.3 Commercial products revenue
210 207 238 1.4 (11.8 ) 417 435 (4.1 ) Mortgage banking revenue 212
207 238 2.4 (10.9 ) 419 425 (1.4 ) Investment products fees 41 40
39 2.5 5.1 81 79 2.5 Securities gains (losses), net 9 29 3 (69.0 )
nm
38 6
nm
Other 223 214 386 4.2 (42.2 ) 437 570 (23.3 )
Total noninterest income $2,419 $2,329 $2,552
3.9 (5.2 ) $4,748 $4,701 1.0
Noninterest Income
Second quarter noninterest income of $2,419 million was $133
million (5.2 percent) lower than the second quarter of 2016.
Excluding the impact of the second quarter 2016 notable item ($180
million of equity investment income, primarily the result of
selling our membership in Visa Europe Limited to Visa, Inc.),
noninterest income increased $47 million (2.0 percent), driven by
increases in payment services revenue, trust and investment
management fees, and treasury management fees, partially offset by
decreases in commercial products revenue and mortgage banking
revenue. Payment services revenue was higher principally due to an
increase in credit and debit card revenue of $23 million (7.8
percent), driven by higher sales volumes. Merchant processing
services revenue increased $4 million (1.0 percent). Adjusted for
the impact of foreign currency rate changes, year-over-year
merchant processing services revenue increased approximately 2.7
percent. Trust and investment management fees increased $22 million
(6.1 percent) primarily due to favorable market conditions and
account growth. Treasury management fees increased $13 million (8.8
percent) due to higher transaction volume. Commercial products
revenue decreased $28 million (11.8 percent) primarily due to
significant market activity in the second quarter of 2016. Mortgage
banking revenue decreased $26 million (10.9 percent) due to lower
origination and sales volume from home refinancing. Refinancing
activities were significantly higher in the second quarter of 2016
due to lower long term interest rates.
Noninterest income was $90 million (3.9 percent) higher in the
second quarter of 2017 than the first quarter of 2017 reflecting
seasonally higher fee-based revenue driven by payment services
revenue. Payment services revenue growth included increases in
credit and debit card revenue of $27 million (9.2 percent),
corporate payment product revenue of $5 million (2.8 percent) and
merchant processing services revenue of $29 million (7.7 percent)
primarily due to higher sales volumes. Trust and investment
management fees increased $12 million (3.3 percent) principally due
to account growth.
NONINTEREST EXPENSE
Table 7 ($ in millions)
Percent Percent Change
Change 2Q 1Q 2Q 2Q17 vs 2Q17
vs YTD YTD Percent 2017
2017 2016 1Q17
2Q16 2017 2016
Change Compensation $1,416 $1,391 $1,277 1.8 10.9
$2,807 $2,526 11.1 Employee benefits 287 314 278 (8.6 ) 3.2 601 578
4.0 Net occupancy and equipment 255 247 243 3.2 4.9 502 491 2.2
Professional services 105 96 121 9.4 (13.2 ) 201 219 (8.2 )
Marketing and business development 109 90 149 21.1 (26.8 ) 199 226
(11.9 ) Technology and communications 242 235 241 3.0 .4 477 474 .6
Postage, printing and supplies 81 81 77 -- 5.2 162 156 3.8 Other
intangibles 43 44 44 (2.3 ) (2.3 ) 87 89 (2.2 ) Other 485
446 562 8.7 (13.7 ) 931 982 (5.2 ) Total
noninterest expense $3,023 $2,944 $2,992 2.7 1.0
$5,967 $5,741 3.9
Noninterest Expense
Second quarter noninterest expense of $3,023 million was $31
million (1.0 percent) higher than the second quarter of 2016.
Excluding the second quarter 2016 notable items, noninterest
expense increased $181 million (6.4 percent) primarily due to
higher compensation and other noninterest expense. Second quarter
2016 notable items included $110 million in accruals related to
legal and regulatory matters, along with $40 million for charitable
contributions. Compensation expense increased $139 million (10.9
percent) principally due to the impact of hiring to support
business growth and compliance programs, merit increases, and
higher variable compensation. Other expense increased $33 million
(7.3 percent) primarily due to the impact of the FDIC insurance
surcharge which began in the third quarter of 2016.
Noninterest expense increased $79 million (2.7 percent) on a
linked quarter basis driven by higher compensation expense,
marketing and business development expense, and other expense,
partially offset by lower employee benefits expense. Compensation
expense increased $25 million (1.8 percent) principally due to the
impact of hiring to support business growth and compliance
programs, merit increases, and higher variable compensation.
Marketing and business development expense increased $19 million
(21.1 percent) due to the timing of certain revenue-related
marketing and brand advertising, while other expense increased $39
million (8.7 percent) reflecting higher costs related to
investments in tax-advantaged projects. Partially offsetting these
increases was a decrease in employee benefits expense of $27
million (8.6 percent) driven by seasonally lower payroll tax
expense.
Provision for Income Taxes
The provision for income taxes for the second quarter of 2017
resulted in a tax rate on a taxable-equivalent basis of 28.5
percent (effective tax rate of 26.7 percent), compared with 27.9
percent (effective tax rate of 26.1 percent) in the second quarter
of 2016, and 27.0 percent (effective tax rate of 25.1 percent) in
the first quarter of 2017. The lower tax rate for the first quarter
of 2017 reflected the tax benefit associated with stock-based
compensation under new accounting guidance effective the first
quarter of 2017. The impact of this guidance is expected to
principally be reflected in the first quarter of each year.
ALLOWANCE FOR CREDIT LOSSES
Table 8 ($
in millions)
2Q 1Q
4Q 3Q 2Q
2017 % (b) 2017 %
(b) 2016 % (b) 2016
% (b) 2016 % (b)
Balance, beginning of period $4,366 $4,357 $4,338 $4,329 $4,320
Net charge-offs Commercial 75 .33 71 .33 71 .32 84 .38 74
.34 Lease financing 3 .22 4 .30 5 .37 3
.23 5 .38 Total commercial 78 .33 75 .32 76 .32 87 .37 79
.34 Commercial mortgages (7 ) (.09 ) (1 ) (.01 ) (3 ) (.04 ) 5 .06
(4 ) (.05 ) Construction and development (2 ) (.07 ) (1 ) (.03 ) (6
) (.21 ) (4 ) (.14 ) 4 .15 Total commercial real estate (9 )
(.08 ) (2 ) (.02 ) (9 ) (.08 ) 1 .01 -- -- Residential
mortgages 8 .05 12 .08 12 .08 12 .08 17 .12 Credit card 204
3.97 190 3.70 181 3.44 161 3.11 170 3.39 Retail leasing 2
.11 3 .19 1 .06 1 .07 2 .15 Home equity and second mortgages (1 )
(.02 ) (1 ) (.02 ) (1 ) (.02 ) 1 .02 (1 ) (.02 ) Other 58
.75 58 .76 62 .79 52 .68 50 .68 Total
other retail 59 .43 60 .45 62 .46 54 .41 51 .40 Total net
charge-offs, excluding covered
loans 340 .50 335 .50 322 .48 315 .47 317 .49 Covered loans --
-- -- -- -- -- -- -- -- -- Total
net charge-offs 340 .49 335 .50 322 .47 315 .46 317 .48 Provision
for credit losses 350 345 342 325 327 Other changes (a) 1 (1
) (1 ) (1 ) (1 ) Balance, end of period $4,377 $4,366
$4,357 $4,338 $4,329 Components
Allowance for loan losses $3,856 $3,816 $3,813 $3,797 $3,806
Liability for unfunded credit
commitments
521 550 544 541 523 Total
allowance for credit losses $4,377 $4,366 $4,357
$4,338 $4,329 Gross charge-offs $437
$417 $405 $398 $407 Gross recoveries $97 $82 $83 $83 $90
Allowance for credit losses as a percentage of
Period-end loans, excluding covered
loans
1.59 1.61 1.60 1.61 1.62
Nonperforming loans, excluding
covered loans
385 338 317 309 311
Nonperforming assets, excluding
covered assets
331 296 275 264 263 Period-end loans 1.58 1.60 1.59 1.60
1.61 Nonperforming loans 383 338 318 310 312 Nonperforming assets
324 292 272 261 259
(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
Credit Quality
The Company’s provision for credit losses for the second quarter
of 2017 was $350 million, which was $5 million (1.4 percent) higher
than the prior quarter and $23 million (7.0 percent) higher than
the second quarter of 2016. Credit quality was relatively stable
compared with the first quarter of 2017.
The provision for credit losses was $10 million higher than net
charge-offs in the second quarter of 2017, the first quarter of
2017, and the second quarter of 2016. Total net charge-offs in the
second quarter of 2017 were $340 million, compared with $335
million in the first quarter of 2017, and $317 million in the
second quarter of 2016. Net charge-offs increased $5 million (1.5
percent) compared with the first quarter of 2017 mainly due to
higher credit card loan net charge-offs. Net charge-offs increased
$23 million (7.3 percent) compared with the second quarter of 2016
primarily due to higher credit card loan net charge-offs, partially
offset by lower net charge-offs from total commercial real estate
and residential mortgages. The net charge-off ratio was 0.49
percent in the second quarter of 2017, compared with 0.50 percent
in the first quarter of 2017 and 0.48 percent in the second quarter
of 2016.
The allowance for credit losses was $4,377 million at June 30,
2017, compared with $4,366 million at March 31, 2017, and $4,329
million at June 30, 2016. The ratio of the allowance for credit
losses to period-end loans was 1.58 percent at June 30, 2017,
compared with 1.60 percent at March 31, 2017, and 1.61 percent at
June 30, 2016. The ratio of the allowance for credit losses to
nonperforming loans was 383 percent at June 30, 2017, compared with
338 percent at March 31, 2017, and 312 percent at June 30,
2016.
Nonperforming assets were $1,349 million at June 30, 2017,
compared with $1,495 million at March 31, 2017, and $1,672 million
at June 30, 2016. The ratio of nonperforming assets to loans and
other real estate was 0.49 percent at June 30, 2017, compared with
0.55 percent at March 31, 2017, and 0.62 percent at June 30, 2016.
The $146 million (9.8 percent) decrease in nonperforming assets on
a linked quarter basis was driven by improvements in commercial
loans and residential mortgages. The $323 million (19.3 percent)
decrease in nonperforming assets on a year-over-year basis was
driven by improvements in commercial loans, residential mortgages
and other real estate. Accruing loans 90 days or more past due were
$639 million ($477 million excluding covered loans) at June 30,
2017, compared with $718 million ($524 million excluding covered
loans) at March 31, 2017, and $724 million ($478 million excluding
covered loans) at June 30, 2016.
DELINQUENT LOAN RATIOS AS A PERCENT OF ENDING LOAN
BALANCES Table 9 (Percent)
Jun 30 Mar 31 Dec 31 Sep
30 Jun 30 2017 2017
2016 2016 2016 Delinquent
loan ratios - 90 days or more past due
excluding
nonperforming loans Commercial .05 .06 .06 .05 .05 Commercial real
estate -- .01 .02 .02 .03 Residential mortgages .20 .24 .27 .28 .27
Credit card 1.10 1.23 1.16 1.11 .98 Other retail .14 .14 .15 .14
.13 Total loans, excluding covered loans .17 .19 .20 .19 .18
Covered loans 4.71 5.34 5.53 5.72 5.81 Total loans .23 .26 .28 .28
.27 Delinquent loan ratios - 90 days or more past due
including nonperforming loans Commercial .39 .52 .57 .61 .58
Commercial real estate .29 .27 .31 .26 .27 Residential mortgages
1.10 1.23 1.31 1.37 1.39 Credit card 1.10 1.24 1.18 1.13 1.00 Other
retail .42 .43 .45 .42 .43 Total loans, excluding covered loans .59
.67 .71 .72 .70 Covered loans 5.06 5.53 5.68 5.89 5.98 Total loans
.64 .73 .78 .79 .79
ASSET
QUALITY Table 10 ($ in millions)
Jun 30 Mar 31 Dec 31
Sep 30 Jun 30 2017 2017
2016 2016 2016 Nonperforming
loans Commercial $283 $397 $443 $477 $450 Lease financing 39 42 40
40 39 Total commercial 322 439 483 517 489 Commercial
mortgages 84 74 87 98 91 Construction and development 35 36 37 7 12
Total commercial real estate 119 110 124 105 103 Residential
mortgages 530 575 595 614 628 Credit card 1 2 3 4 5 Other retail
158 157 157 153 157 Total nonperforming loans, excluding covered
loans 1,130 1,283 1,362 1,393 1,382 Covered loans 12 7 6 7 7
Total nonperforming loans 1,142 1,290 1,368 1,400 1,389
Other real estate (a) 157 155 186 213 229 Covered other real estate
(a) 25 22 26 28 34 Other nonperforming assets 25 28 23 23 20
Total nonperforming assets (b) $1,349 $1,495 $1,603 $1,664 $1,672
Total nonperforming assets, excluding covered assets $1,312
$1,466 $1,571 $1,629 $1,631
Accruing loans 90 days or more past
due, excluding covered loans
$477 $524 $552 $518 $478 Accruing loans 90 days or more past
due $639 $718 $764 $748 $724
Performing restructured loans, excluding
GNMA and covered loans
$2,473 $2,478 $2,557 $2,672 $2,676 Performing restructured
GNMA and covered loans $1,803 $1,746 $1,604 $1,375 $1,602
Nonperforming assets to loans plus
ORE, excluding covered assets (%)
.48 .54 .58 .61 .62 Nonperforming assets to loans plus ORE
(%) .49 .55 .59 .61 .62 (a) Includes equity investments in
entities whose principal assets are other real estate owned. (b)
Does not include accruing loans 90 days or more past due.
COMMON SHARES
Table 11 (Millions)
2Q 1Q 4Q 3Q
2Q 2017 2017 2016
2016 2016 Beginning shares outstanding
1,692 1,697 1,705 1,719 1,732
Shares issued for stock incentive
plans, acquisitions and other corporate purposes
1 6 6 2 2 Shares repurchased (14 ) (11 ) (14 )
(16 ) (15 ) Ending shares outstanding 1,679
1,692 1,697 1,705 1,719
CAPITAL POSITION
Table 12 ($ in millions)
Jun 30 Mar
31 Dec 31 Sep 30 Jun
30 2017 2017
2016 2016 2016
Total U.S. Bancorp shareholders' equity $48,320 $47,798
$47,298 $47,759 $47,390
Standardized Approach
Basel III transitional standardized approach Common equity tier 1
capital $34,408 $33,847 $33,720 $33,827 $33,444 Tier 1 capital
39,943 39,374 39,421 39,531 39,148 Total risk-based capital 47,824
47,279 47,355 47,452 47,049 Common equity tier 1 capital
ratio 9.5 % 9.5 % 9.4 % 9.5 % 9.5 % Tier 1 capital ratio 11.1 11.0
11.0 11.1 11.1 Total risk-based capital ratio 13.2 13.3 13.2 13.3
13.4 Leverage ratio 9.1 9.1 9.0 9.2 9.3
Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully
implemented standardized approach (a)
9.3 9.2 9.1 9.3 9.3
Advanced Approaches
Common equity tier 1 capital to
risk-weighted assets for the Basel III transitional advanced
approaches
12.0 11.8 12.2 12.4 12.3
Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully
implemented advanced approaches (a)
11.7 11.5 11.7 12.1 12.0
Tangible common equity to
tangible assets (a) 7.5 7.6 7.5 7.5 7.6
Tangible common
equity to risk-weighted assets (a) 9.4 9.4 9.2 9.3 9.3
Beginning January 1, 2014, the regulatory capital
requirements effective for the Company follow Basel III, subject to
certain transition provisions from Basel I over the following four
years to full implementation by January 1, 2018. 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.
(a) See Non-GAAP Financial Measures reconciliation on page 21
Capital Management
Total U.S. Bancorp shareholders’ equity was $48.3 billion at
June 30, 2017, compared with $47.8 billion at March 31, 2017, and
$47.4 billion at June 30, 2016. During the second quarter, the
Company returned 81 percent of earnings to shareholders through
dividends and share buybacks.
All regulatory ratios continue to be in excess of
“well-capitalized” requirements. The estimated common equity tier 1
capital to risk-weighted assets ratio using the Basel III fully
implemented standardized approach was 9.3 percent at June 30, 2017,
compared with 9.2 percent at March 31, 2017, and 9.3 percent at
June 30, 2016. The estimated common equity tier 1 capital to
risk-weighted assets ratio using the Basel III fully implemented
advanced approaches method was 11.7 percent at June 30, 2017,
compared with 11.5 percent at March 31, 2017, and 12.0 percent at
June 30, 2016.
On Wednesday, July 19, 2017, at 8:00 a.m. CDT, Andy Cecere,
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, go to www.usbank.com and click on
“About U.S. Bank.” The “Webcasts & Presentations” link
can be found under the Investor/Shareholder information heading,
which is at the left side near the bottom of the page. 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 32712626. For those
unable to participate during the live call, a recording will be
available at approximately 11:00 a.m. CDT on Wednesday, July 19 and
will be accessible through Wednesday, July 26 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 32712626.
Minneapolis-based U.S. Bancorp (NYSE: USB), with $464 billion in
assets as of June 30, 2017, is the parent company of U.S. Bank
National Association, the fifth largest commercial bank in the
United States. The Company operates 3,088 banking offices in 25
states and 4,826 ATMs and provides a comprehensive line of banking,
investment, mortgage, trust and payment services products to
consumers, businesses and institutions. Visit U.S. Bancorp on the
web at www.usbank.com.
Forward-Looking Statements
The following information appears in accordance with the Private
Securities Litigation Reform Act of 1995:
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 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. 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.
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:
- Tangible common equity to tangible
assets,
- Tangible common equity to risk-weighted
assets,
- Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully implemented
standardized approach, and
- Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully implemented
advanced approaches.
These capital measures are viewed by management as useful
additional methods of reflecting 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
measures differ from currently effective capital ratios defined by
banking regulations principally in that the numerator of the
currently effective ratios, which are subject to certain
transitional provisions, temporarily excludes a portion of
unrealized gains and losses related to available-for-sale
securities and retirement plan obligations, and includes a portion
of capital related to intangible assets, other than mortgage
servicing rights. These capital measures are not defined in
generally accepted accounting principles (“GAAP”), or are not
currently effective or defined in federal banking regulations. As a
result, these capital measures disclosed by the Company may be
considered non-GAAP financial measures.
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.
U.S. Bancorp
Consolidated Statement
of Income Three Months Ended Six Months Ended (Dollars and
Shares in Millions, Except Per Share Data) June 30, June 30,
(Unaudited) 2017 2016 2017 2016
Interest Income Loans $2,901 $2,664 $5,698 $5,308 Loans held
for sale 29 36 64 67 Investment securities 555 523 1,085 1,040
Other interest income 46 29 84
58 Total interest income 3,531 3,252 6,931 6,473
Interest Expense Deposits 238 152 437 291 Short-term
borrowings 77 66 143 131 Long-term debt 199 189
389 371 Total interest expense
514 407 969 793
Net interest income 3,017 2,845 5,962 5,680 Provision for credit
losses 350 327 695 657
Net interest income after provision for credit losses 2,667
2,518 5,267 5,023
Noninterest Income Credit and debit card
revenue 319 296 611 562 Corporate payment products revenue 184 181
363 351 Merchant processing services 407 403 785 776 ATM processing
services 90 84 175 164 Trust and investment management fees 380 358
748 697 Deposit service charges 184 179 361 347 Treasury management
fees 160 147 313 289 Commercial products revenue 210 238 417 435
Mortgage banking revenue 212 238 419 425 Investment products fees
41 39 81 79 Securities gains (losses), net 9 3 38 6 Other 223
386 437 570 Total
noninterest income 2,419 2,552 4,748 4,701
Noninterest
Expense Compensation 1,416 1,277 2,807 2,526 Employee benefits
287 278 601 578 Net occupancy and equipment 255 243 502 491
Professional services 105 121 201 219 Marketing and business
development 109 149 199 226 Technology and communications 242 241
477 474 Postage, printing and supplies 81 77 162 156 Other
intangibles 43 44 87 89 Other 485 562
931 982 Total noninterest expense 3,023
2,992 5,967 5,741 Income
before income taxes 2,063 2,078 4,048 3,983 Applicable income taxes
551 542 1,050 1,046
Net income 1,512 1,536 2,998 2,937 Net (income) loss
attributable to noncontrolling interests (12 ) (14 )
(25 ) (29 ) Net income attributable to U.S. Bancorp $1,500
$1,522 $2,973 $2,908
Net income applicable to U.S. Bancorp common shareholders
$1,430 $1,435 $2,817
$2,764 Earnings per common share $.85 $.83 $1.67
$1.60 Diluted earnings per common share $.85 $.83 $1.66 $1.59
Dividends declared per common share $.280 $.255 $.560 $.510 Average
common shares outstanding 1,684 1,725 1,689 1,731 Average diluted
common shares outstanding 1,690 1,731
1,695 1,737
U.S. Bancorp
Consolidated Ending Balance Sheet June
30, December 31, June 30, (Dollars in Millions) 2017
2016
2016
Assets (Unaudited) (Unaudited) Cash and due from
banks $28,964 $15,705 $14,038 Investment securities
Held-to-maturity 43,659 42,991 42,030 Available-for-sale 67,455
66,284 66,490 Loans held for sale 3,661 4,826 4,311 Loans
Commercial 96,836 93,386 92,514 Commercial real estate 41,908
43,098 43,290 Residential mortgages 58,796 57,274 55,904 Credit
card 20,861 21,749 20,571 Other retail 55,445 53,864
52,008 Total loans, excluding covered loans
273,846 269,371 264,287 Covered loans 3,437 3,836
4,234 Total loans 277,283 273,207 268,521 Less
allowance for loan losses (3,856 ) (3,813 ) (3,806 )
Net loans 273,427 269,394 264,715 Premises and equipment 2,413
2,443 2,459 Goodwill 9,361 9,344 9,359 Other intangible assets
3,216 3,303 2,852 Other assets 31,688 31,674
32,209 Total assets $463,844 $445,964
$438,463
Liabilities and
Shareholders' Equity Deposits Noninterest-bearing $93,029
$86,097 $86,572 Interest-bearing 254,233 248,493
231,018 Total deposits 347,262 334,590 317,590
Short-term borrowings 14,412 13,963 18,433 Long-term debt 37,814
33,323 36,941 Other liabilities 15,407 16,155
17,470 Total liabilities 414,895 398,031 390,434
Shareholders' equity Preferred stock 5,419 5,501 5,501 Common stock
21 21 21 Capital surplus 8,425 8,440 8,402 Retained earnings 52,033
50,151 48,269 Less treasury stock (16,332 ) (15,280 ) (14,241 )
Accumulated other comprehensive income (loss) (1,246 )
(1,535 ) (562 ) Total U.S. Bancorp shareholders' equity
48,320 47,298 47,390 Noncontrolling interests 629 635
639 Total equity 48,949 47,933
48,029 Total liabilities and equity
$463,844 $445,964 $438,463
U.S. Bancorp
Non-GAAP Financial Measures
(Dollars in Millions, Unaudited)
June 30, March 31, December 31, September 30, June 30, 2017
2017 2016 2016
2016 Total equity $48,949 $48,433 $47,933 $48,399 $48,029
Preferred stock (5,419 ) (5,419 ) (5,501 ) (5,501 ) (5,501 )
Noncontrolling interests (629 ) (635 ) (635 ) (640 ) (639 )
Goodwill (net of deferred tax liability) (1) (8,181 ) (8,186 )
(8,203 ) (8,239 ) (8,246 ) Intangible assets, other than mortgage
servicing rights (634 ) (671 ) (712 )
(756 ) (796 ) Tangible common equity
(a) 34,086 33,522 32,882 33,263 32,847 Tangible common
equity (as calculated above) 34,086 33,522 32,882 33,263 32,847
Adjustments (2) (51 ) (136 ) (55 )
97 133
Common equity tier 1 capital estimated for
the Basel III fully implemented standardized and advanced
approaches (b)
34,035 33,386 32,827 33,360 32,980 Total assets 463,844
449,522 445,964 454,134 438,463 Goodwill (net of deferred tax
liability) (1) (8,181 ) (8,186 ) (8,203 ) (8,239 ) (8,246 )
Intangible assets, other than mortgage servicing rights (634 )
(671 ) (712 ) (756 )
(796 ) Tangible assets (c) 455,029 440,665 437,049
445,139 429,421
Risk-weighted assets, determined in
accordance with prescribed transitional standardized approach
regulatory requirements (d)
361,164 * 356,373 358,237 356,733 351,462 Adjustments (3) 3,967
* 4,731 4,027
3,165 3,079
Risk-weighted assets estimated for the
Basel III fully implemented standardized approach (e)
365,131 * 361,104 362,264 359,898 354,541
Risk-weighted assets, determined in
accordance with prescribed transitional advanced approaches
regulatory requirements
287,124 * 285,963 277,141 272,832 271,495 Adjustments (4) 4,231
* 5,046 4,295
3,372 3,283
Risk-weighted assets estimated for the
Basel III fully implemented advanced approaches (f)
291,355 * 291,009 281,436 276,204 274,778
Ratios *
Tangible common equity to tangible assets (a)/(c) 7.5 % 7.6 % 7.5 %
7.5 % 7.6 % Tangible common equity to risk-weighted assets (a)/(d)
9.4 9.4 9.2 9.3 9.3
Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully
implemented standardized approach (b)/(e)
9.3 9.2 9.1 9.3 9.3
Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully
implemented advanced approaches (b)/(f)
11.7 11.5 11.7 12.1 12.0 Three Months Ended June 30,
March 31, December 31, September 30, June 30, 2017
2017 2016 2016 2016 Net
interest income $3,017 $2,945 $2,955 $2,893 $2,845
Taxable-equivalent adjustment (5) 51 50
49 50 51
Net interest income, on a taxable-equivalent basis 3,068
2,995 3,004 2,943 2,896 Net interest income, on a
taxable-equivalent basis (as calculated above) 3,068 2,995 3,004
2,943 2,896 Noninterest income 2,419 2,329 2,431 2,445 2,552 Less:
Securities gains (losses), net 9 29
6 10 3
Total net revenue, excluding net securities gains (losses)
(g) 5,478 5,295 5,429 5,378 5,445 Noninterest expense (h)
3,023 2,944 3,004 2,931 2,992 Less: Intangible amortization 43
44 45
45 44 Noninterest expense,
excluding intangible amortization (i) 2,980 2,900 2,959 2,886 2,948
Efficiency ratio (h)/(g) 55.2 % 55.6 % 55.3 % 54.5 % 54.9 %
Tangible efficiency ratio (i)/(g) 54.4
54.8 54.5 53.7
54.1
* 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.
(5) Utilizes a tax rate of 35 percent
for those assets and liabilities whose income or expense is not
included for federal income tax purposes.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170719005094/en/
U.S. BancorpMedia:Dana Ripley,
612-303-3167orInvestors/Analysts:Jennifer Thompson,
612-303-0778
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