Exhibit 99.1

 

		News Release
		Contacts:
		Dana Ripley		Jennifer Thompson
		Media		Investors/Analysts
		(612) 303-3167		(612) 303-0778

U.S. BANCORP REPORTS SECOND QUARTER 2017 EARNINGS

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

MINNEAPOLIS, July 19, 2017 — 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.

 

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U.S. Bancorp Reports Second Quarter 2017 Results

July 19, 2017

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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,

 

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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.”

 

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July 19, 2017

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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

 

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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

 

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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

 

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U.S. Bancorp Reports Second Quarter 2017 Results

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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

 

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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

 

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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

 

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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.

 

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Page 11

 

ALLOWANCE FOR CREDIT LOSSES																																			Table 8
($ in millions)		2Q 2017				% (b)				1Q 2017				% (b)				4Q 2016				% (b)				3Q 2016				% (b)				2Q 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

 

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U.S. Bancorp Reports Second Quarter 2017 Results

July 19, 2017

Page 12

 

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.

 

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U.S. Bancorp Reports Second Quarter 2017 Results

July 19, 2017

Page 13

 

DELINQUENT LOAN RATIOS AS A PERCENT OF ENDING LOAN BALANCES																			Table 9
(Percent)
		Jun 30 2017				Mar 31 2017				Dec 31 2016				Sep 30 2016				Jun 30 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

 

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U.S. Bancorp Reports Second Quarter 2017 Results

July 19, 2017

Page 14

 

ASSET QUALITY																			Table 10
($ in millions)
		Jun 30 2017				Mar 31 2017				Dec 31 2016				Sep 30 2016				Jun 30 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.

 

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U.S. Bancorp Reports Second Quarter 2017 Results

July 19, 2017

Page 15

 

COMMON SHARES																			Table 11
(Millions)		2Q 2017				1Q 2017				4Q 2016				3Q 2016				2Q 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 2017				Mar 31 2017				Dec 31 2016				Sep 30 2016				Jun 30 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

 

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U.S. Bancorp Reports Second Quarter 2017 Results

July 19, 2017

Page 16

 

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.

 

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U.S. Bancorp Reports Second Quarter 2017 Results

July 19, 2017

Page 17

 

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.

 

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U.S. Bancorp Reports Second Quarter 2017 Results

July 19, 2017

Page 18

 

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.

###

 

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U.S. Bancorp

Consolidated Statement of Income

 

(Dollars and Shares in Millions, Except Per Share Data)		Three Months Ended June 30,								Six Months Ended 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

 

Page 19

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U.S. Bancorp

Consolidated Ending Balance Sheet

 

(Dollars in Millions)		June 30, 2017				December 31, 2016				June 30, 2016
		(Unaudited)								(Unaudited)
Assets
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

 

Page 20

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U.S. Bancorp

Non-GAAP Financial Measures

 

(Dollars in Millions, Unaudited)		June 30, 2017				March 31, 2017				December 31, 2016				September 30, 2016				June 30, 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, 2017				March 31, 2017				December 31, 2016				September 30, 2016				June 30, 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.

 

Page 21

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Supplemental Business Line Schedules

2Q 2017

 

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U.S. Bancorp Second Quarter 2017 Business Line Results

July 19, 2017

Page 2

 

LINE OF BUSINESS FINANCIAL PERFORMANCE (a)
($ in millions)
		Net Income Attributable to U.S. Bancorp												Percent Change								Net Income Attributable to U.S. Bancorp												2Q 2017
Business Line		2Q 2017				1Q 2017				2Q 2016				2Q17 vs 1Q17				2Q17 vs 2Q16				YTD 2017				YTD 2016				Percent Change				Earnings Composition
Wholesale Banking and Commercial Real Estate		$	291			$	255			$	232				14.1				25.4			$	546			$	348				56.9				20	%
Consumer and Small Business Banking			319				302				331				5.6				(3.6	)			621				686				(9.5	)			21
Wealth Management and Securities Services			124				107				95				15.9				30.5				231				170				35.9				8
Payment Services			257				268				319				(4.1	)			(19.4	)			525				605				(13.2	)			17
Treasury and Corporate Support			509				541				545				(5.9	)			(6.6	)			1,050				1,099				(4.5	)			34
Consolidated Company		$	1,500			$	1,473			$	1,522				1.8				(1.4)			$	2,973			$	2,908				2.2				100	%

 

(a)	preliminary data

Lines of Business

The Company’s major lines of business are Wholesale Banking and Commercial Real Estate, Consumer and Small Business Banking, Wealth Management and Securities Services, Payment Services, and Treasury and Corporate Support. These operating segments are components of the Company about which financial information is prepared and is evaluated regularly by management in deciding how to allocate resources and assess performance. Noninterest expenses incurred by centrally managed operations or business lines that directly support another business line’s operations are charged to the applicable business line based on its utilization of those services, primarily measured by the volume of customer activities, number of employees or other relevant factors. These allocated expenses are reported as net shared services expense within noninterest expense. Designations, assignments and allocations change from time to time as management systems are enhanced, methods of evaluating performance or product lines change or business segments are realigned to better respond to the Company’s diverse customer base. During 2017, certain organization and methodology changes were made and, accordingly, prior period results were restated and presented on a comparable basis.

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WHOLESALE BANKING AND COMMERCIAL REAL ESTATE (a)
($ in millions)
														Percent Change
		2Q 2017				1Q 2017				2Q 2016				2Q17 vs 1Q17				2Q17 vs 2Q16				YTD 2017				YTD 2016				Percent Change
Condensed Income Statement
Net interest income (taxable-equivalent basis)		$	602			$	588			$	546				2.4				10.3			$	1,190			$	1,075				10.7
Noninterest income			238				244				250				(2.5	)			(4.8	)			482				456				5.7
Securities gains (losses), net			—				(3	)			—				nm				—				(3	)			—				nm
Total net revenue			840				829				796				1.3				5.5				1,669				1,531				9.0
Noninterest expense			399				391				363				2.0				9.9				790				714				10.6
Other intangibles			1				1				1				—				—				2				2				—
Total noninterest expense			400				392				364				2.0				9.9				792				716				10.6
Income before provision and taxes			440				437				432				.7				1.9				877				815				7.6
Provision for credit losses			(18	)			36				68				nm				nm				18				269				(93.3	)
Income before income taxes			458				401				364				14.2				25.8				859				546				57.3
Income taxes and taxable-equivalent adjustment			167				146				132				14.4				26.5				313				198				58.1
Net income			291				255				232				14.1				25.4				546				348				56.9
Net (income) loss attributable to noncontrolling interests			—				—				—				—				—				—				—				—
Net income attributable to U.S. Bancorp		$	291			$	255			$	232				14.1				25.4			$	546			$	348				56.9
Average Balance Sheet Data
Loans		$	94,221			$	93,727			$	92,091				.5				2.3			$	93,976			$	91,118				3.1
Other earning assets			3,107				2,882				2,232				7.8				39.2				2,995				2,235				34.0
Goodwill			1,647				1,647				1,647				—				—				1,647				1,647				—
Other intangible assets			14				15				17				(6.7	)			(17.6	)			14				18				(22.2	)
Assets			103,099				102,308				100,475				.8				2.6				102,706				99,459				3.3
Noninterest-bearing deposits			36,362				36,884				36,183				(1.4	)			.5				36,622				36,441				.5
Interest-bearing deposits			68,859				70,533				61,418				(2.4	)			12.1				69,691				58,112				19.9
Total deposits			105,221				107,417				97,601				(2.0	)			7.8				106,313				94,553				12.4
Total U.S. Bancorp shareholders’ equity			9,921				9,680				8,966				2.5				10.7				9,801				8,892				10.2

 

(a)	preliminary data

Wholesale Banking and Commercial Real Estate offers lending, equipment finance and small-ticket leasing, depository services, treasury management, capital markets services, international trade services and other financial services to middle market, large corporate, commercial real estate, financial institution, non-profit and public sector clients. Wholesale Banking and Commercial Real Estate contributed $291 million of the Company’s net income in the second quarter of 2017, compared with $232 million in the second quarter of 2016. Wholesale Banking and Commercial Real Estate’s net income increased $59 million (25.4 percent) over the same quarter of 2016. Total net revenue increased $44 million (5.5 percent) due to a $56 million (10.3 percent) increase in net interest income, partially offset by a decrease of $12 million (4.8 percent) in total noninterest income. Net interest income grew year-over-year primarily due to the benefit of rising rates

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on deposits and growth in average loan and deposit balances, partially offset by lower spread on loans, reflecting a competitive marketplace. Noninterest income decreased year-over-year primarily due to lower capital markets volume compared to a year ago and higher loan related charges, partially offset by higher commercial leasing revenue. Total noninterest expense was $36 million (9.9 percent) higher compared with a year ago primarily due to an increase in variable costs allocated to manage the business, including the impact of the FDIC surcharge on deposit balances, and higher compensation expense, reflecting the impact of increased staffing and merit increases. The provision for credit losses decreased $86 million primarily due to a favorable change in the credit quality within the energy sector compared with the prior year, along with lower net charge-offs.

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CONSUMER AND SMALL BUSINESS BANKING (a)
($ in millions)
														Percent Change
		2Q 2017				1Q 2017				2Q 2016				2Q17 vs 1Q17				2Q17 vs 2Q16				YTD 2017				YTD 2016				Percent Change
Condensed Income Statement
Net interest income (taxable-equivalent basis)		$	1,258			$	1,222			$	1,167				2.9				7.8			$	2,480			$	2,324				6.7
Noninterest income			620				585				636				6.0				(2.5	)			1,205				1,187				1.5
Securities gains (losses), net			—				—				—				—				—				—				—				—
Total net revenue			1,878				1,807				1,803				3.9				4.2				3,685				3,511				5.0
Noninterest expense			1,280				1,261				1,231				1.5				4.0				2,541				2,440				4.1
Other intangibles			7				7				8				—				(12.5	)			14				16				(12.5	)
Total noninterest expense			1,287				1,268				1,239				1.5				3.9				2,555				2,456				4.0
Income before provision and taxes			591				539				564				9.6				4.8				1,130				1,055				7.1
Provision for credit losses			90				65				44				38.5				nm				155				(23	)			nm
Income before income taxes			501				474				520				5.7				(3.7	)			975				1,078				(9.6	)
Income taxes and taxable-equivalent adjustment			182				172				189				5.8				(3.7	)			354				392				(9.7	)
Net income			319				302				331				5.6				(3.6	)			621				686				(9.5	)
Net (income) loss attributable to noncontrolling interests			—				—				—				—				—				—				—				—
Net income attributable to U.S. Bancorp		$	319			$	302			$	331				5.6				(3.6	)		$	621			$	686				(9.5	)
Average Balance Sheet Data
Loans		$	140,543			$	139,118			$	135,648				1.0				3.6			$	139,835			$	134,655				3.8
Other earning assets			3,205				4,022				4,347				(20.3	)			(26.3	)			3,611				4,035				(10.5	)
Goodwill			3,681				3,681				3,681				—				—				3,681				3,681				—
Other intangible assets			2,730				2,768				2,399				(1.4	)			13.8				2,749				2,456				11.9
Assets			154,245				153,658				150,588				.4				2.4				153,954				149,299				3.1
Noninterest-bearing deposits			27,304				26,967				26,951				1.2				1.3				27,136				26,457				2.6
Interest-bearing deposits			120,878				119,423				115,036				1.2				5.1				120,155				113,967				5.4
Total deposits			148,182				146,390				141,987				1.2				4.4				147,291				140,424				4.9
Total U.S. Bancorp shareholders’ equity			11,436				11,523				11,082				(.8	)			3.2				11,479				11,051				3.9

 

(a)	preliminary data

Consumer and Small Business Banking delivers products and services through banking offices, telephone servicing and sales, on-line services, direct mail, ATM processing and mobile devices. It encompasses community banking, metropolitan banking and indirect lending, as well as mortgage banking. Consumer and Small Business Banking contributed $319 million of the Company’s net income in the second quarter of 2017, compared with $331 million in the second quarter of 2016. Consumer and Small Business Banking’s net income decreased $12 million (3.6 percent) from the same quarter of 2016. Total net revenue increased $75 million (4.2 percent) due to a $91 million (7.8 percent) increase in net interest income, partially offset by a decrease of $16 million (2.5 percent) in total noninterest income. Net interest income increased year-over-year primarily due to the impact of higher rates on the margin benefit from deposits

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along with growth in average loan and deposit balances, partially offset by lower spread on loans. Noninterest income decreased year-over-year principally driven by lower mortgage banking revenue due to lower origination and sales volume related to refinancing activities, partially offset by the value of mortgage servicing rights, net of hedging activities. Partially offsetting the impact of mortgage banking revenue was higher ATM processing services and treasury management fees. Total noninterest expense in the second quarter of 2017 increased $48 million (3.9 percent) over the same quarter of the prior year primarily due to higher compensation and employee benefits expense, reflecting the impact of increased staffing and merit increases, and higher net shared services expense, driven by implementation costs of capital investments to support business growth, and the impact of the FDIC surcharge on deposit balances. The provision for credit losses increased $46 million primarily due to growth in auto loans and the release of reserves in the prior year quarter as a result of improvements in the mortgage portfolio, along with higher net charge-offs.

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WEALTH MANAGEMENT AND SECURITIES SERVICES (a)
($ in millions)
														Percent Change
		2Q 2017				1Q 2017				2Q 2016				2Q17 vs 1Q17				2Q17 vs 2Q16				YTD 2017				YTD 2016				Percent Change
Condensed Income Statement
Net interest income (taxable-equivalent basis)		$	187			$	179			$	122				4.5				53.3			$	366			$	239				53.1
Noninterest income			413				398				401				3.8				3.0				811				780				4.0
Securities gains (losses), net			—				—				—				—				—				—				—				—
Total net revenue			600				577				523				4.0				14.7				1,177				1,019				15.5
Noninterest expense			401				403				366				(.5	)			9.6				804				740				8.6
Other intangibles			5				5				6				—				(16.7	)			10				12				(16.7	)
Total noninterest expense			406				408				372				(.5	)			9.1				814				752				8.2
Income before provision and taxes			194				169				151				14.8				28.5				363				267				36.0
Provision for credit losses			(1	)			1				1				nm				nm				—				(1	)			nm
Income before income taxes			195				168				150				16.1				30.0				363				268				35.4
Income taxes and taxable-equivalent adjustment			71				61				55				16.4				29.1				132				98				34.7
Net income			124				107				95				15.9				30.5				231				170				35.9
Net (income) loss attributable to noncontrolling interests			—				—				—				—				—				—				—				—
Net income attributable to U.S. Bancorp		$	124			$	107			$	95				15.9				30.5			$	231			$	170				35.9
Average Balance Sheet Data
Loans		$	8,308			$	7,963			$	7,056				4.3				17.7			$	8,136			$	7,054				15.3
Other earning assets			147				153				138				(3.9	)			6.5				150				138				8.7
Goodwill			1,567				1,566				1,568				.1				(.1	)			1,567				1,568				(.1	)
Other intangible assets			83				87				104				(4.6	)			(20.2	)			85				107				(20.6	)
Assets			11,427				11,443				10,081				(.1	)			13.4				11,435				10,188				12.2
Noninterest-bearing deposits			15,971				13,867				13,096				15.2				22.0				14,925				12,995				14.9
Interest-bearing deposits			57,907				56,948				48,449				1.7				19.5				57,430				47,024				22.1
Total deposits			73,878				70,815				61,545				4.3				20.0				72,355				60,019				20.6
Total U.S. Bancorp shareholders’ equity			2,365				2,402				2,385				(1.5	)			(.8	)			2,383				2,380				.1

 

(a)	preliminary data

Wealth Management and Securities Services provides private banking, financial advisory services, investment management, retail brokerage services, insurance, trust, custody and fund servicing through five businesses: Wealth Management, Corporate Trust Services, U.S. Bancorp Asset Management, Institutional Trust & Custody and Fund Services. Wealth Management and Securities Services contributed $124 million of the Company’s net income in the second quarter of 2017, compared with $95 million in the second quarter of 2016. Total net revenue increased $77 million (14.7 percent) year-over-year driven by an increase in net interest income of $65 million (53.3 percent) principally due to the impact of higher rates on the margin benefit from deposits along with higher average loan and deposit balances. Noninterest income increased $12 million (3.0 percent) principally due to favorable market conditions and account growth. Total noninterest

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expense increased $34 million (9.1 percent) primarily as a result of higher compensation and employee benefits expense, reflecting the impact of higher staffing and merit increases, higher net shared services expense, and the impact of the FDIC surcharge. The provision for credit losses was relatively flat compared with the prior year quarter.

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PAYMENT SERVICES (a)

($ in millions)

														Percent Change
		2Q 2017				1Q 2017				2Q 2016				2Q17 vs 1Q17				2Q17 vs 2Q16				YTD 2017				YTD 2016				Percent Change
Condensed Income Statement
Net interest income (taxable-equivalent basis)		$	540			$	549			$	513				(1.6	)			5.3			$	1,089			$	1,041				4.6
Noninterest income			909				857				923				6.1				(1.5	)			1,766				1,739				1.6
Securities gains (losses), net			—				—				—				—				—				—				—				—
Total net revenue			1,449				1,406				1,436				3.1				.9				2,855				2,780				2.7
Noninterest expense			722				701				678				3.0				6.5				1,423				1,337				6.4
Other intangibles			30				31				29				(3.2	)			3.4				61				59				3.4
Total noninterest expense			752				732				707				2.7				6.4				1,484				1,396				6.3
Income before provision and taxes			697				674				729				3.4				(4.4	)			1,371				1,384				(.9	)
Provision for credit losses			283				241				215				17.4				31.6				524				407				28.7
Income before income taxes			414				433				514				(4.4	)			(19.5	)			847				977				(13.3	)
Income taxes and taxable-equivalent adjustment			151				158				187				(4.4	)			(19.3	)			309				355				(13.0	)
Net income			263				275				327				(4.4	)			(19.6	)			538				622				(13.5	)
Net (income) loss attributable to noncontrolling interests			(6	)			(7	)			(8	)			14.3				25.0				(13	)			(17	)			23.5
Net income attributable to U.S. Bancorp		$	257			$	268			$	319				(4.1	)			(19.4	)		$	525			$	605				(13.2	)
Average Balance Sheet Data
Loans		$	29,070			$	28,936			$	28,193				.5				3.1			$	29,003			$	28,005				3.6
Other earning assets			241				257				275				(6.2	)			(12.4	)			249				438				(43.2	)
Goodwill			2,458				2,453				2,472				.2				(.6	)			2,455				2,467				(.5	)
Other intangible assets			408				437				506				(6.6	)			(19.4	)			422				506				(16.6	)
Assets			34,805				34,588				33,997				.6				2.4				34,696				33,998				2.1
Noninterest-bearing deposits			1,015				1,024				925				(.9	)			9.7				1,019				943				8.1
Interest-bearing deposits			102				99				97				3.0				5.2				101				96				5.2
Total deposits			1,117				1,123				1,022				(.5	)			9.3				1,120				1,039				7.8
Total U.S. Bancorp shareholders’ equity			6,230				6,407				6,376				(2.8	)			(2.3	)			6,318				6,351				(.5	)

 

(a)	preliminary data

Payment Services includes consumer and business credit cards, stored-value cards, debit cards, corporate, government and purchasing card services, consumer lines of credit and merchant processing. Payment Services contributed $257 million of the Company’s net income in the second quarter of 2017, compared with $319 million in the second quarter of 2016. Total net revenue increased $13 million (0.9 percent) due to a $27 million (5.3 percent) increase in net interest income, partially offset by a decrease of $14 million (1.5 percent) in total noninterest income. Net interest income increased year-over-year primarily due to higher average loan balances and rising interest rates in addition to higher loan fees. Total noninterest income decreased year-over-year primarily due to a gain on the sale of an equity investment in the prior year, partially offset by growth in credit and debit card revenue, corporate payment products revenue and

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merchant processing services revenue driven by higher volumes. Excluding the impact of equity investment activity, total noninterest income increased 3.1 percent. Total noninterest expense increased $45 million (6.4 percent) over the second quarter of 2016 principally due to higher compensation and employee benefits expense, reflecting higher staffing to support business investment and compliance programs and merit increases, and higher net shared services expense. The provision for credit losses increased $68 million (31.6 percent) due to an unfavorable change in the reserve allocation and higher net charge-offs.

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TREASURY AND CORPORATE SUPPORT (a)

($ in millions)

														Percent Change
		2Q 2017				1Q 2017				2Q 2016				2Q17 vs 1Q17				2Q17 vs 2Q16				YTD 2017				YTD 2016				Percent Change
Condensed Income Statement
Net interest income (taxable-equivalent basis)		$	481			$	457			$	548				5.3				(12.2	)		$	938			$	1,105				(15.1	)
Noninterest income			230				216				339				6.5				(32.2	)			446				533				(16.3	)
Securities gains (losses), net			9				32				3				(71.9	)			nm				41				6				nm
Total net revenue			720				705				890				2.1				(19.1	)			1,425				1,644				(13.3	)
Noninterest expense			178				144				310				23.6				(42.6	)			322				421				(23.5	)
Other intangibles			—				—				—				—				—				—				—				—
Total noninterest expense			178				144				310				23.6				(42.6	)			322				421				(23.5	)
Income before provision and taxes			542				561				580				(3.4	)			(6.6	)			1,103				1,223				(9.8	)
Provision for credit losses			(4	)			2				(1	)			nm				nm				(2	)			5				nm
Income before income taxes			546				559				581				(2.3	)			(6.0	)			1,105				1,218				(9.3	)
Income taxes and taxable-equivalent adjustment			31				12				30				nm				3.3				43				107				(59.8	)
Net income			515				547				551				(5.9	)			(6.5	)			1,062				1,111				(4.4	)
Net (income) loss attributable to noncontrolling interests			(6	)			(6	)			(6	)			—				—				(12	)			(12	)			—
Net income attributable to U.S. Bancorp		$	509			$	541			$	545				(5.9	)			(6.6	)		$	1,050			$	1,099				(4.5	)
Average Balance Sheet Data
Loans		$	3,386			$	3,414			$	3,594				(.8	)			(5.8	)		$	3,400			$	3,600				(5.6	)
Other earning assets			121,655				118,809				111,794				2.4				8.8				120,240				110,510				8.8
Goodwill			—				—				—				—				—				—				—				—
Other intangible assets			—				—				—				—				—				—				—				—
Assets			142,529				139,314				133,609				2.3				6.7				140,930				132,209				6.6
Noninterest-bearing deposits			2,058				1,996				2,016				3.1				2.1				2,027				2,034				(.3	)
Interest-bearing deposits			716				692				3,215				3.5				(77.7	)			704				3,563				(80.2	)
Total deposits			2,774				2,688				5,231				3.2				(47.0	)			2,731				5,597				(51.2	)
Total U.S. Bancorp shareholders’ equity			18,321				17,911				18,375				2.3				(.3	)			18,118				18,287				(.9	)

 

(a)	preliminary data

Treasury and Corporate Support includes the Company’s investment portfolios, funding, capital management, interest rate risk management, income taxes not allocated to the business lines, including most investments in tax-advantaged projects, and the residual aggregate of those expenses associated with corporate activities that are managed on a consolidated basis. Treasury and Corporate Support recorded net income of $509 million in the second quarter of 2017, compared with $545 million in the second quarter of 2016. The decrease in net income of $36 million (6.6 percent) from the prior year quarter was primarily due to a decrease in total net revenue, partially offset by a decrease in total noninterest expense. Net interest income decreased $67 million (12.2 percent) from the second quarter of 2016 principally due to the impact of higher rates credited to the business lines on deposits, partially offset by growth in the investment

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U.S. Bancorp Second Quarter 2017 Business Line Results

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portfolio. Total noninterest income decreased $103 million (30.1 percent) from the second quarter of 2016 principally due to the impact of the Visa Europe sale in the prior year, partially offset by higher income from equity investments in the current quarter. Total noninterest expense decreased $132 million (42.6 percent) principally due to the notable items in the prior year and lower net shared services expenses, partially offset by higher compensation expense, reflecting the impact of increased staffing and merit increases including variable compensation. The provision for credit losses was $3 million lower year-over-year primarily due to lower net charge-offs.