Exhibit 99.1

 

																		U.S. Bancorp Reports Third Quarter 2018 Results •  Record net revenue of $5,699 million, record net income of $1,815 million and record diluted earnings per share of $1.06 •  Industry leading return on average assets of 1.58% and return on average common equity of 15.5%
3Q18 Key Financial Data																		3Q18 Highlights
PROFITABILITY METRICS			3Q18				2Q18				3Q17							• Net income of $1,815 million and diluted earnings per common share of $1.06   • Industry leading return on average assets of 1.58% and return on average common equity of 15.5%   • Return on tangible common equity of 19.9%   • Returned 78% of 3Q earnings to shareholders through dividends and share buybacks   • Year-over-year positive operating leverage with net revenue increase of 2.4% and noninterest expense increase of 1.5%   • Net interest income grew 2.4% year-over-year (1.7% on a taxable-equivalent basis) and 1.7% linked quarter on both a reported and tax-equivalent basis   • Total noninterest income grew 3.3% year-over year   o  Payment services revenue grew 7.1%   o  Trust and investment management fees increased 8.2%   • Nonperforming assets decreased 19.7% on a year-over- year basis and 8.0% on a linked quarter basis
Return on average assets (%)			1.58				1.54				1.38
Return on average common equity (%)			15.5				15.3				13.6
Return on tangible common equity (%) (a)			19.9				19.8				17.3
Net interest margin (%)			3.15				3.13				3.14
Efficiency ratio (%) (a)			53.5				54.8				53.9
INCOME STATEMENT (b)		3Q18				2Q18				3Q17
Net interest income (taxable-equivalent basis)			$3,281				$3,226				$3,227
Noninterest income			$2,418				$2,414				$2,340
Net income attributable to U.S. Bancorp			$1,815				$1,750				$1,563
Diluted earnings per common share			$1.06				$1.02				$.88
Dividends declared per common share			$.37				$.30				$.30
BALANCE SHEET (b)		3Q18				2Q18				3Q17
Average total loans			$281,065				$278,624				$277,626
Average total deposits			$330,121				$334,822				$335,151
Net charge-off ratio			.46%				.48%				.47%
Book value per common share (period end)			$27.35				$27.02				$25.98
Basel III standardized CET1 (c)			9.0%				9.1%				9.4%
(a) See Non-GAAP Financial Measures reconciliation on pages 16-17
(b) Dollars in millions, except per share data
(c) CET1 = Common equity tier 1 capital ratio, 3Q17 as if fully implemented

 

CEO Commentary

“Strong underlying momentum in each of our business lines drove record revenue, net income and EPS this quarter. We remain vigilant in our expense discipline while continuing to prudently invest in our core businesses as well as in our digital and payments capabilities. In the third quarter, we expanded our commercial banking presence, launched a new digital platform to serve our small business customers and acquired new capabilities in our payments business. At the same time, our focus on optimization allowed us to deliver positive operating leverage and a best-in-class efficiency ratio, while growing our industry leading return on tangible common equity ratio to 19.9%. I am thankful for our U.S. Bank team members who work every day to put the customer in the center with the goal of delivering outstanding results for each of our stakeholders.”

— Andy Cecere, Chairman, President and CEO, U.S. Bancorp

 

In the Spotlight

 

 

    Investor contact: Jennifer Thompson, 612.303.0778  |  Media contact: Stacey Wempen, 612.303.7620

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		U.S. Bancorp Third Quarter 2018 Results

 

INCOME STATEMENT HIGHLIGHTS
($ in millions, except per-share data)														Percent Change
		3Q				2Q				3Q				3Q18 vs				3Q18 vs				YTD				YTD				Percent
		2018				2018				2017				2Q18				3Q17				2018				2017				Change
Net interest income			$3,251				$3,197				$3,176				1.7				2.4				$9,616				$9,205				4.5
Taxable-equivalent adjustment			30				29				51				3.4				(41.2)				88				152				(42.1)
Net interest income (taxable-equivalent basis)			3,281				3,226				3,227				1.7				1.7				9,704				9,357				3.7
Noninterest income			2,418				2,414				2,340				.2				3.3				7,104				6,947				2.3
Total net revenue			5,699				5,640				5,567				1.0				2.4				16,808				16,304				3.1
Noninterest expense			3,044				3,085				2,998				(1.3)				1.5				9,184				8,891				3.3
Income before provision and income taxes			2,655				2,555				2,569				3.9				3.3				7,624				7,413				2.8
Provision for credit losses			343				327				360				4.9				(4.7)				1,011				1,055				(4.2)
Income before taxes			2,312				2,228				2,209				3.8				4.7				6,613				6,358				4.0
Income taxes and taxable-equivalent adjustment			490				470				640				4.3				(23.4)				1,351				1,791				(24.6)
Net income			1,822				1,758				1,569				3.6				16.1				5,262				4,567				15.2
Net (income) loss attributable to noncontrolling interests			(7)				(8)				(6)				12.5				(16.7)				(22)				(31)				29.0
Net income attributable to U.S. Bancorp			$1,815				$1,750				$1,563				3.7				16.1				$5,240				$4,536				15.5
Net income applicable to U.S. Bancorp common shareholders			$1,732				$1,678				$1,485				3.2				16.6				$5,007				$4,302				16.4
Diluted earnings per common share			$1.06				$1.02				$.88				3.9				20.5				$3.04				$2.55				19.2

Net income attributable to U.S. Bancorp was $1,815 million for the third quarter of 2018, which was 16.1 percent higher than the $1,563 million for the third quarter of 2017, and 3.7 percent higher than the $1,750 million for the second quarter of 2018. Diluted earnings per common share were $1.06 in the third quarter of 2018, compared with $0.88 in the third quarter of 2017 and $1.02 in the second quarter of 2018.

The increase in net income year-over-year was largely due to total net revenue growth of 2.4 percent partially offset by noninterest expense growth of 1.5 percent. Net interest income increased 2.4 percent (1.7 percent on a taxable-equivalent basis), mainly a result of the impact of rising interest rates, earning assets growth, and higher yields on reinvestment of securities, partially offset by higher rates on deposits and funding mix. Noninterest income increased 3.3 percent compared with a year ago, driven by strong growth in payment services revenue, trust and investment management fees, and other noninterest revenue, partially offset by decreases in mortgage banking revenue and commercial products revenue. Noninterest expense increased 1.5 percent primarily due to increased compensation expense related to supporting business growth and compliance programs, merit increases, and variable compensation related to revenue growth, higher employee benefits expense, and higher technology and communications expense in support of business growth. Partially offsetting these increases was lower other noninterest expense driven by lower costs related to tax-advantaged projects, lower FDIC insurance expense, a reduction in mortgage servicing costs, and lower pension related costs.

Net income increased on a linked quarter basis primarily due to total net revenue growth of 1.0 percent and a decrease in noninterest expense of 1.3 percent. The increase in total net revenue reflected an increase in net interest income of 1.7 percent due to the impact of rising interest rates, earning assets growth, and an additional day in the third quarter, partially offset by higher rates on deposits and funding mix. Noninterest income increased 0.2 percent driven by seasonally higher payment services revenue and deposit services charges, along with higher trust and investment management fees and other noninterest income. These increases were partially offset by decreases in commercial products revenue and mortgage banking revenue. The decrease in noninterest expense of 1.3 percent was primarily driven by lower other noninterest expense due to lower costs related to tax-advantaged projects driven by syndicating tax credits following tax reform and the change in accruals related to legal and insurance matters, as well as a reduction in compensation expense due to lower incentives and seasonally lower contract labor costs.

 

 

 

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		U.S. Bancorp Third Quarter 2018 Results

 

NET INTEREST INCOME
(Taxable-equivalent basis; $ in millions)														Change
		3Q				2Q				3Q				3Q18 vs				3Q18 vs				YTD				YTD
		2018				2018				2017				2Q18				3Q17				2018				2017				Change
Components of net interest income
Income on earning assets			$4,155				$3,980				$3,758				$175				$397				$11,957				$10,774				$1,183
Expense on interest-bearing liabilities			874				754				531				120				343				2,253				1,417				836
Net interest income			$3,281				$3,226				$3,227				$55				$54				$9,704				$9,357				$347
Average yields and rates paid
Earning assets yield			3.98%				3.86%				3.66%				.12%				.32%				3.86%				3.56%				.30%
Rate paid on interest-bearing liabilities			1.10				.97				.69				.13				.41				.96				.63				.33
Gross interest margin			2.88%				2.89%				2.97%				(.01)%				(.09)%				2.90%				2.93%				(.03)%
Net interest margin			3.15%				3.13%				3.14%				.02%				.01%				3.14%				3.09%				.05%
Average balances
Investment securities (a)			$113,547				$114,578				$111,832				$(1,031)				$1,715				$113,873				$111,325				$2,548
Loans			281,065				278,624				277,626				2,441				3,439				279,699				275,454				4,245
Earning assets			415,177				412,676				408,825				2,501				6,352				413,246				404,031				9,215
Interest-bearing liabilities			314,816				312,217				304,236				2,599				10,580				312,894				299,922				12,972
(a) Excludes unrealized gain (loss)

Net interest income on a taxable-equivalent basis in the third quarter of 2018 was $3,281 million, an increase of $54 million (1.7 percent) over the third quarter of 2017. The increase was principally driven by the impact of rising interest rates, earning assets growth, and higher yields on securities, partially offset by lower spread due to loan mix, higher rates on deposits and funding mix shift as well as the impact of tax reform which reduced the taxable-equivalent adjustment benefit related to tax exempt assets and higher interest recoveries in the prior year quarter. Average earning assets were $6.4 billion (1.6 percent) higher than the third quarter of 2017, reflecting increases of $3.4 billion (1.2 percent) in average total loans, $1.7 billion (1.5 percent) in average investment securities, and $2.0 billion (13.1 percent) in average other earning assets.

Net interest income on a taxable-equivalent basis increased $55 million (1.7 percent) on a linked quarter basis primarily driven by the impact of higher interest rates on assets, earning asset growth, and an additional day in the third quarter, partially offset by deposits and funding mix shift. Average earning assets were $2.5 billion (0.6 percent) higher on a linked quarter basis, reflecting increases of $2.4 billion (0.9 percent) in average total loans and $1.5 billion (9.6 percent) in average other earning assets. Average investment securities decreased $1.0 billion (0.9 percent).

The net interest margin in the third quarter of 2018 was 3.15 percent, compared with 3.14 percent in the third quarter of 2017 and 3.13 percent in the second quarter of 2018. The increase in the net interest margin year-over-year was primarily due to higher interest rates, partially offset by deposit and funding mix, lower loan spreads due to mix, and the impact of tax reform. The increase in net interest margin on a linked quarter basis was primarily due to the impact of higher rates on assets, partially offset by deposit and funding mix, as well as higher cash balances.

Average investment securities in the third quarter of 2018 increased $1.7 billion (1.5 percent) from the third quarter of 2017, due to purchases of U.S. Treasury, mortgage-backed and state and political securities, net of prepayments and maturities. Average investment securities decreased $1.0 billion (0.9 percent) from the second quarter of 2018 as a portion of the proceeds received on maturities of securities in the current quarter were not reinvested.

 

 

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		U.S. Bancorp Third Quarter 2018 Results

 

AVERAGE LOANS
($ in millions)														Percent Change
		3Q				2Q				3Q				3Q18 vs				3Q18 vs				YTD				YTD				Percent
		2018				2018				2017				2Q18				3Q17				2018				2017				Change
Commercial			$93,541				$92,835				$91,077				.8				2.7				$92,776				$89,817				3.3
Lease financing			5,507				5,518				5,556				(.2)				(.9)				5,519				5,530				(.2)
Total commercial			99,048				98,353				96,633				.7				2.5				98,295				95,347				3.1
Commercial mortgages			28,362				28,710				30,114				(1.2)				(5.8)				28,746				30,729				(6.5)
Construction and development			11,180				11,147				11,507				.3				(2.8)				11,172				11,708				(4.6)
Total commercial real estate			39,542				39,857				41,621				(.8)				(5.0)				39,918				42,437				(5.9)
Residential mortgages			62,042				60,834				59,030				2.0				5.1				61,023				58,496				4.3
Credit card			21,774				21,220				20,926				2.6				4.1				21,428				20,801				3.0
Retail leasing			8,383				8,150				7,762				2.9				8.0				8,173				7,142				14.4
Home equity and second mortgages			16,000				16,048				16,299				(.3)				(1.8)				16,080				16,270				(1.2)
Other			31,520				31,265				32,008				.8				(1.5)				31,882				31,423				1.5
Total other retail			55,903				55,463				56,069				.8				(.3)				56,135				54,835				2.4
Total loans, excluding covered loans			278,309				275,727				274,279				.9				1.5				276,799				271,916				1.8
Covered loans			2,756				2,897				3,347				(4.9)				(17.7)				2,900				3,538				(18.0)
Total loans			$281,065				$278,624				$277,626				.9				1.2				$279,699				$275,454				1.5

Average total loans were $3.4 billion (1.2 percent) higher than the third quarter of 2017 (1.8 percent excluding the impact of the second quarter of 2018 student loan portfolio sale). The increase was due to growth in residential mortgages (5.1 percent), total commercial loans (2.5 percent), credit card loans (4.1 percent), and retail leasing (8.0 percent). These increases were partially offset by a decrease in total commercial real estate loans (5.0 percent) due to disciplined underwriting and customers paying down balances over the past year. Loan growth was also impacted by continued run-off of the covered loans portfolio (17.7 percent) and the sale of the student loan portfolio in the second quarter of 2018. Average total loans were $2.4 billion (0.9 percent) higher than the second quarter of 2018 driven by growth in residential mortgages (2.0 percent), total commercial loans (0.7 percent), credit card loans (2.6 percent) and retail leasing (2.9 percent), partially offset by continued pay-offs of commercial real estate loans (0.8 percent) and run-off of covered loans (4.9 percent). At the end of the third quarter, approximately $1.3 billion of covered loans were transferred from the loan portfolio to loans held for sale.

 

 

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		U.S. Bancorp Third Quarter 2018 Results

 

AVERAGE DEPOSITS
($ in millions)														Percent Change
		3Q				2Q				3Q				3Q18 vs				3Q18 vs				YTD				YTD				Percent
		2018				2018				2017				2Q18				3Q17				2018				2017				Change
Noninterest-bearing deposits			$77,192				$78,987				$81,964				(2.3)				(5.8)				$78,546				$81,808				(4.0)
Interest-bearing savings deposits
Interest checking			69,330				69,918				68,066				(.8)				1.9				69,865				67,021				4.2
Money market savings			100,688				103,333				105,072				(2.6)				(4.2)				102,453				106,856				(4.1)
Savings accounts			44,848				45,069				43,649				(.5)				2.7				44,770				43,265				3.5
Total savings deposits			214,866				218,320				216,787				(1.6)				(.9)				217,088				217,142				--
Time deposits			38,063				37,515				36,400				1.5				4.6				37,525				32,660				14.9
Total interest-bearing deposits			252,929				255,835				253,187				(1.1)				(.1)				254,613				249,802				1.9
Total deposits			$330,121				$334,822				$335,151				(1.4)				(1.5)				$333,159				$331,610				.5

Average total deposits for the third quarter of 2018 were $5.0 billion (1.5 percent) lower than the third quarter of 2017. Average noninterest-bearing deposits decreased $4.8 billion (5.8 percent) year-over-year primarily due to decreases in business deposits within Corporate and Commercial Banking and corporate trust balances within Wealth Management and Investment Services. Average total savings deposits were $1.9 billion (0.9 percent) lower year-over-year driven by decreases in Wealth Management and Investment Services and Corporate and Commercial Banking, partially offset by an increase in Consumer and Business Banking. Average time deposits were $1.7 billion (4.6 percent) higher than the prior year quarter. Changes in time deposits are largely related to those deposits managed as an alternative to other funding sources such as wholesale borrowing, based largely on relative pricing and liquidity characteristics.

Average total deposits decreased $4.7 billion (1.4 percent) from the second quarter of 2018. On a linked quarter basis, average noninterest-bearing deposits decreased $1.8 billion (2.3 percent) primarily due to decreases in Wealth Management and Investment Services and Corporate and Commercial Banking, partially offset by an increase in consumer balances within Consumer and Business Banking. Noninterest bearing deposit declines were primarily a result of business customers deploying deposit balances to support business growth, the migration of balances to alternative investment vehicles, and the change in deposit balances associated with the timing of receipt and distribution of funds in the corporate trust business.

Average total savings deposits decreased $3.5 billion (1.6 percent) on a linked quarter basis primarily due to decreases in Corporate and Commercial Banking as well as Wealth Management and Investment Services. The decline in Corporate and Commercial Banking savings balances reflects expected run-off related to the business merger of a large financial customer. The decline is expected to moderate in future quarters. Average time deposits, which are managed based on funding needs, relative pricing and liquidity characteristics, increased $548 million (1.5 percent). Time deposits are experiencing some growth as customers search for higher yield.

 

 

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		U.S. Bancorp Third Quarter 2018 Results

 

NONINTEREST INCOME
($ in millions)														Percent Change
		3Q				2Q				3Q				3Q18 vs				3Q18 vs				YTD				YTD				Percent
		2018				2018				2017				2Q18				3Q17				2018				2017				Change
Credit and debit card revenue			$344				$351				$318				(2.0)				8.2				$1,019				$947				7.6
Corporate payment products revenue			169				158				150				7.0				12.7				481				427				12.6
Merchant processing services			392				387				377				1.3				4.0				1,142				1,112				2.7
ATM processing services			85				90				77				(5.6)				10.4				254				223				13.9
Trust and investment management fees			411				401				380				2.5				8.2				1,210				1,128				7.3
Deposit service charges			198				183				187				8.2				5.9				563				538				4.6
Treasury management fees			146				155				153				(5.8)				(4.6)				451				466				(3.2)
Commercial products revenue			216				234				240				(7.7)				(10.0)				670				730				(8.2)
Mortgage banking revenue			174				191				213				(8.9)				(18.3)				549				632				(13.1)
Investment products fees			47				47				42				--				11.9				140				128				9.4
Securities gains (losses), net			10				10				9				--				11.1				25				47				(46.8)
Other			226				207				194				9.2				16.5				600				569				5.4
Total noninterest income			$2,418				$2,414				$2,340				.2				3.3				$7,104				$6,947				2.3

Third quarter noninterest income of $2,418 million was $78 million (3.3 percent) higher than the third quarter of 2017 led by strong growth in payment services revenue and trust and investment management fees. Other noninterest income also increased year-over-year primarily due to higher equity investment income and tax-advantaged syndication revenue. These increases were partially offset by lower mortgage banking revenue and commercial products revenue, which were impacted by industry trends in these revenue categories. Payment services revenue increased $60 million (7.1 percent) due to higher credit and debit card revenue of $26 million (8.2 percent), an increase in corporate payment products revenue of $19 million (12.7 percent), and higher merchant processing services of $15 million (4.0 percent) all driven by higher sales volumes. Trust and investment management fees increased $31 million (8.2 percent) due to business growth and favorable market conditions. The decrease in mortgage banking revenue of $39 million (18.3 percent) was primarily due to lower mortgage production and the adverse impact on gain on sale margins due to excess capacity in the industry in the near term. Commercial products revenue decreased $24 million (10.0 percent) primarily due to lower corporate bond underwriting fees and loan syndication fees.

Noninterest income was $4 million (0.2 percent) higher in the third quarter of 2018 compared with the second quarter of 2018 reflecting higher payment services revenue as corporate payment products revenue grew $11 million (7.0 percent) due to seasonally higher sales volumes and merchant processing services increased $5 million (1.3 percent) primarily due to seasonally higher fee revenue, partially offset by a seasonal decrease of $7 million (2.0 percent) in credit and debit card revenue. Deposit service charges increased $15 million (8.2 percent) as a result of seasonally higher incidence rates and other noninterest income increased $19 million (9.2 percent) primarily due to higher equity investment income and tax-advantaged syndication revenue. Partially offsetting these increases were a decrease in commercial products revenue of $18 million (7.7 percent) due mainly to lower corporate bond underwriting fees and a decrease in mortgage banking revenue of $17 million (8.9 percent) driven by an unfavorable change in the valuation of mortgage servicing rights, net of hedging activities.

 

 

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		U.S. Bancorp Third Quarter 2018 Results

 

NONINTEREST EXPENSE
($ in millions)														Percent Change
		3Q 2018				2Q 2018				3Q 2017				3Q18 vs 2Q18				3Q18 vs 3Q17				YTD 2018				YTD 2017				Percent Change
Compensation			$1,529				$1,542				$1,440				(.8)				6.2				$4,594				$4,247				8.2
Employee benefits			294				299				268				(1.7)				9.7				923				843				9.5
Net occupancy and equipment			270				262				258				3.1				4.7				797				760				4.9
Professional services			96				95				104				1.1				(7.7)				274				305				(10.2)
Marketing and business development			106				111				92				(4.5)				15.2				314				291				7.9
Technology and communications			247				242				227				2.1				8.8				724				667				8.5
Postage, printing and supplies			84				80				82				5.0				2.4				244				244				--
Other intangibles			41				40				44				2.5				(6.8)				120				131				(8.4)
Other			377				414				483				(8.9)				(21.9)				1,194				1,403				(14.9)
Total noninterest expense			$3,044				$3,085				$2,998				(1.3)				1.5				$9,184				$8,891				3.3

Third quarter noninterest expense of $3,044 million was $46 million (1.5 percent) higher than the third quarter of 2017 primarily due to higher personnel costs and technology investment, partially offset by lower other noninterest expense. Compensation expense increased $89 million (6.2 percent) principally due to the impact of hiring to support business growth and compliance programs, merit increases, and higher variable compensation related to business production. Employee benefits expense increased $26 million (9.7 percent) primarily driven by increased medical costs and staffing. Other noninterest expense decreased $106 million (21.9 percent) due to lower costs related to tax-advantaged projects, lower FDIC insurance expense, a reduction in mortgage servicing costs, and lower pension related costs.

Noninterest expense decreased $41 million (1.3 percent) on a linked quarter basis primarily due to a reduction in compensation expense including lower incentives and a seasonal decline in contract labor costs as well as lower other noninterest expense as a result of lower costs related to tax-advantaged projects driven by syndicating tax credits following tax reform and the change in accruals related to legal and insurance matters.

Provision for Income Taxes

The provision for income taxes for the third quarter of 2018 resulted in a tax rate of 21.2 percent on a taxable-equivalent basis (effective tax rate of 20.2 percent), compared with 29.0 percent (effective tax rate of 27.3 percent) in the third quarter of 2017, and 21.1 percent on a taxable-equivalent basis (effective tax rate of 20.1 percent) in the second quarter of 2018. The lower 2018 tax rates reflect the tax reform legislation enacted during the fourth quarter of 2017.

 

 

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		U.S. Bancorp Third Quarter 2018 Results

 

ALLOWANCE FOR CREDIT LOSSES
($ in millions)		3Q								2Q								1Q								4Q								3Q
		2018				% (b)				2018				% (b)				2018				% (b)				2017				% (b)				2017				% (b)
Balance, beginning of period			$4,411								$4,417								$4,417								$4,407								$4,377
Net charge-offs
Commercial			63				.27				54				.23				56				.25				22				.09				79				.34
Lease financing			3				.22				4				.29				4				.29				6				.44				4				.29
Total commercial			66				.26				58				.24				60				.25				28				.11				83				.34
Commercial mortgages			(5	)			(.07	)			--				--				(4	)			(.06	)			18				.24				(2	)			(.03	)
Construction and development			(4	)			(.14	)			--				--				1				.04				--				--				(5	)			(.17	)
Total commercial real estate			(9	)			(.09	)			--				--				(3	)			(.03	)			18				.17				(7	)			(.07	)
Residential mortgages			4				.03				4				.03				7				.05				10				.07				7				.05
Credit card			206				3.75				210				3.97				211				4.02				205				3.83				187				3.55
Retail leasing			3				.14				3				.15				3				.15				3				.15				2				.10
Home equity and second mortgages			(1	)			(.02	)			(2	)			(.05	)			(1	)			(.03	)			(2	)			(.05	)			(1	)			(.02	)
Other			59				.74				59				.76				64				.79				63				.76				59				.73
Total other retail			61				.43				60				.43				66				.47				64				.44				60				.42
Total net charge-offs,			--
excluding covered loans			328				.47				332				.48				341				.50				325				.47				330				.48
Covered loans			--				--				--				--				--				--				--				--				--				--
Total net charge-offs			328				.46				332				.48				341				.49				325				.46				330				.47
Provision for credit losses			343								327								341								335								360
Other changes (a)			--								(1	)							--								--								--
Balance, end of period			$4,426								$4,411								$4,417								$4,417								$4,407
Components
Allowance for loan losses			$3,954								$3,920								$3,918								$3,925								$3,908
Liability for unfunded credit commitments			472								491								499								492								499
Total allowance for credit losses			$4,426								$4,411								$4,417								$4,417								$4,407
Gross charge-offs			$428								$437								$453								$464								$433
Gross recoveries			$100								$105								$112								$139								$103
Allowance for credit losses as a percentage of
Period-end loans			1.57								1.57								1.59								1.58								1.58
Nonperforming loans			544								484								431								438								426
Nonperforming assets			441								404								367								368								352
(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

 

 

    8

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		U.S. Bancorp Third Quarter 2018 Results

 

Credit quality was relatively stable on a linked quarter and year-over-year basis. The Company’s provision for credit losses for the third quarter of 2018 was $343 million, which was $16 million (4.9 percent) higher than the prior quarter and $17 million (4.7 percent) lower than the third quarter of 2017.

Total net charge-offs in the third quarter of 2018 were $328 million, compared with $332 million in the second quarter of 2018, and $330 million in the third quarter of 2017. Net charge-offs decreased $4 million (1.2 percent) compared with the second quarter of 2018 mainly due to lower total commercial real estate net charge-offs, partially offset by higher total commercial net charge-offs. Net charge-offs decreased $2 million (0.6 percent) compared with the third quarter of 2017 primarily due to lower total commercial net charge-offs and lower residential mortgage net charge-offs mostly offset by higher credit card net charge-offs. The net charge-off ratio was 0.46 percent in the third quarter of 2018, compared with 0.48 percent in the second quarter of 2018 and 0.47 percent in the third quarter of 2017.

The allowance for credit losses was $4,426 million at September 30, 2018, compared with $4,411 million at June 30, 2018, and $4,407 million at September 30, 2017. The ratio of the allowance for credit losses to period-end loans was 1.57 percent at September 30, 2018, and at June 30, 2018, compared with 1.58 percent at September 30, 2017. The ratio of the allowance for credit losses to nonperforming loans was 544 percent at September 30, 2018, compared with 484 percent at June 30, 2018, and 426 percent at September 30, 2017.

Nonperforming assets were $1,004 million at September 30, 2018, compared with $1,091 million at June 30, 2018, and $1,251 million at September 30, 2017. The ratio of nonperforming assets to loans and other real estate was 0.36 percent at September 30, 2018, compared with 0.39 percent at June 30, 2018, and 0.45 percent at September 30, 2017. The year-over-year decrease in nonperforming assets was driven by improvements in nonperforming residential mortgages, total commercial loans, and other real estate owned, partially offset by increases in nonperforming other retail loans and other nonperforming assets. Accruing loans 90 days or more past due were $551 million at September 30, 2018, compared with $640 million at June 30, 2018, and $649 million at September 30, 2017.

 

DELINQUENT LOAN RATIOS AS A PERCENT OF ENDING LOAN BALANCES
(Percent)		Sep 30 2018				Jun 30 2018				Mar 31 2018				Dec 31 2017				Sep 30  2017
Delinquent loan ratios - 90 days or more past due excluding nonperforming loans
Commercial			.06				.06				.06				.06				.05
Commercial real estate			.01				.01				.01				.01				.01
Residential mortgages			.19				.18				.22				.22				.18
Credit card			1.18				1.15				1.29				1.28				1.20
Other retail			.17				.16				.18				.17				.15
Total loans, excluding covered loans			.19				.19				.21				.21				.18
Covered loans (a)			.86				4.46				4.57				4.74				4.66
Total loans			.20				.23				.25				.26				.23
Delinquent loan ratios - 90 days or more past due including nonperforming loans
Commercial			.28				.28				.37				.31				.33
Commercial real estate			.27				.27				.31				.37				.30
Residential mortgages			.69				.84				.93				.96				.98
Credit card			1.18				1.15				1.29				1.28				1.20
Other retail			.49				.48				.48				.46				.43
Total loans, excluding covered loans			.48				.51				.58				.57				.55
Covered loans (a)			.86				4.68				4.77				4.93				4.84
Total loans			.48				.55				.62				.62				.60
(a)  Effective September 30, 2018, the Company transferred $1.3 billion of covered loans to loans held for sale. Included in the amount transferred were $108 million of loans 90 days or more past due and $6 million that were nonperforming.

 

 

 

    9

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		U.S. Bancorp Third Quarter 2018 Results

 

 

ASSET QUALITY (a)
($ in millions)
		Sep 30 2018				Jun 30 2018				Mar 31 2018				Dec 31 2017				Sep 30  2017
Nonperforming loans
Commercial			$193				$199				$274				$225				$231
Lease financing			23				25				27				24				38
Total commercial			216				224				301				249				269
Commercial mortgages			77				72				86				108				89
Construction and development			28				32				33				34				33
Total commercial real estate			105				104				119				142				122
Residential mortgages			317				400				430				442				474
Credit card			--				--				--				1				1
Other retail			175				178				168				168				163
Total nonperforming loans, excluding covered loans			813				906				1,018				1,002				1,029
Covered loans			--				6				6				6				6
Total nonperforming loans			813				912				1,024				1,008				1,035
Other real estate			100				108				124				141				164
Covered other real estate			19				20				20				21				26
Other nonperforming assets			72				51				36				30				26
Total nonperforming assets			$1,004				$1,091				$1,204				$1,200				$1,251
Accruing loans 90 days or more past due			$551				$640				$702				$720				$649
Performing restructured loans, excluding GNMA and covered loans			$2,262				$2,164				$2,190				$2,306				$2,419
Performing restructured GNMA and covered loans			$1,678				$1,695				$1,598				$1,713				$1,600
Nonperforming assets to loans plus ORE (%)			.36				.39				.43				.43				.45
(a) Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due

 

 

    10

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		U.S. Bancorp Third Quarter 2018 Results

 

COMMON SHARES
(Millions)		3Q 2018				2Q 2018				1Q 2018				4Q 2017				3Q  2017
Beginning shares outstanding			1,636				1,649				1,656				1,667				1,679
Shares issued for stock incentive plans, acquisitions and other corporate purposes			1				--				4				1				--
Shares repurchased			(14)				(13)				(11)				(12)				(12)
Ending shares outstanding			1,623				1,636				1,649				1,656				1,667

 

CAPITAL POSITION
($ in millions)		Sep 30 2018				Jun 30 2018				Mar 31 2018				Dec 31 2017				Sep 30 2017
Total U.S. Bancorp shareholders’ equity		$	50,375			$	49,628			$	49,187			$	49,040			$	48,723
Basel III Standardized Approach (a)
Common equity tier 1 capital		$	34,097			$	34,161			$	33,539			$	34,369			$	34,876
Tier 1 capital			40,114				39,611				38,991				39,806				40,411
Total risk-based capital			47,531				47,258				46,640				47,503				48,104
Fully implemented common equity tier 1 capital ratio (a)			9.0	%			9.1	%			9.0	%			9.1	% (b)			9.4	% (b)
Tier 1 capital ratio			10.6				10.5				10.4				10.8				11.1
Total risk-based capital ratio			12.6				12.6				12.5				12.9				13.2
Leverage ratio			9.0				8.9				8.8				8.9				9.1
Basel III Advanced Approaches (a)
Fully implemented common equity tier 1 capital ratio (a)			11.8				11.6				11.5				11.6	(b)			11.8	(b)
Tangible common equity to tangible assets (b)			7.7				7.8				7.7				7.6				7.7
Tangible common equity to risk-weighted assets (b)			9.3				9.3				9.3				9.4				9.5
Common equity tier 1 capital ratio calculated under the transitional standardized approach (a)			--				--				--				9.3				9.6
Common equity tier 1 capital ratio calculated under the transitional advanced approaches (a)			--				--				--				12.0				12.1
(a) Beginning January 1, 2018, the regulatory capital requirements fully reflect implementation of Basel III. Prior to 2018, the Company’s capital ratios reflected certain transitional adjustments. Basel III includes two comprehensive methodologies for calculating risk-weighted assets: a general standardized approach and more risk-sensitive advanced approaches, with the Company’s capital adequacy being evaluated against the methodology that is most restrictive.   (b) See Non-GAAP Financial Measures reconciliation on page 16

Total U.S. Bancorp shareholders’ equity was $50.4 billion at September 30, 2018, compared with $49.6 billion at June 30, 2018, and $48.7 billion at September 30, 2017. During the third quarter, the Company returned 78 percent of earnings to shareholders through dividends and share buybacks.

All regulatory ratios continue to be in excess of “well-capitalized” requirements. The common equity tier 1 capital to risk-weighted assets ratio using the Basel III standardized approach was 9.0 percent at September 30, 2018, compared with 9.1 percent at June 30, 2018, and 9.6 percent at September 30, 2017. The common equity tier 1 capital to risk-weighted assets ratio using the Basel III advanced approaches method was 11.8 percent at September 30, 2018, compared with 11.6 percent at June 30, 2018, and 12.1 percent at September 30, 2017.

 

 

    11

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		U.S. Bancorp Third Quarter 2018 Results

 

Investor Conference Call

On Wednesday, October 17, 2018, at 8:00 a.m. CDT, Andy Cecere, chairman, president and chief executive officer, and Terry Dolan, vice chairman and chief financial officer, will host a conference call to review the financial results. The conference call will be available online or by telephone. To access the webcast and presentation, visit U.S. Bancorp’s website at usbank.com and click on “About US”, “Investor Relations” and “Webcasts & Presentations.” To access the conference call from locations within the United States and Canada, please dial 866-316-1409. Participants calling from outside the United States and Canada, please dial 706-634-9086. The conference ID number for all participants is 7338239. For those unable to participate during the live call, a recording will be available at approximately 11:00 a.m. CDT on Wednesday, October 17 and will be accessible until Wednesday, October 24 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 7338239.

 

About U.S. Bancorp

U.S. Bancorp, with 74,000 employees and $465 billion in assets as of September 30, 2018, is the parent company of U.S. Bank, the fifth-largest commercial bank in the United States. The Minneapolis-based bank blends its relationship teams, branches and ATM network with mobile and online tools that allow customers to bank how, when and where they prefer. U.S. Bank is committed to serving its millions of retail, business, wealth management, payment, commercial and corporate, and investment services customers across the country and around the world as a trusted financial partner, a commitment recognized by the Ethisphere Institute naming the bank a 2018 World’s Most Ethical Company. Visit U.S. Bank at www.usbank.com or follow on social media to stay up to date with company news.

 

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. Deterioration in general business and economic conditions or turbulence in domestic or global financial markets could adversely affect U.S. Bancorp’s revenues and the values of its assets and liabilities, reduce the availability of funding to certain financial institutions, lead to a tightening of credit, and increase stock price 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 changes in interest rates; deterioration in the credit quality of its loan portfolios or in the value of the collateral securing those loans; deterioration in the value of its investment securities; legal and regulatory developments; litigation; increased competition from both banks and non-banks; changes in customer behavior and preferences; breaches in data security; effects of mergers and acquisitions and related integration; effects of critical accounting policies and judgments; and management’s ability to effectively manage credit risk, market risk, operational risk, compliance risk, strategic risk, interest rate risk, liquidity risk and reputational risk.

For discussion of these and other risks that 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, 2017, on file with the Securities and Exchange Commission, including the sections entitled “Corporate Risk Profile” and “Risk Factors” contained in Exhibit 13, and all subsequent filings with the Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934. However, factors other than these also could adversely affect U.S. Bancorp’s results, and the reader should not consider these factors to be a complete set of all potential risks or uncertainties. Forward-looking statements speak only as of the date hereof, and U.S. Bancorp undertakes no obligation to update them in light of new information or future events.

 

 

    12

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		U.S. Bancorp Third Quarter 2018 Results

 

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

•

Return on tangible common equity

These capital measures are viewed by management as useful additional methods of evaluating the Company’s utilization of its capital held and the level of capital available to withstand unexpected negative market or economic conditions. Additionally, presentation of these measures allows investors, analysts and banking regulators to assess the Company’s capital position relative to other financial services companies. These capital measures are not defined in generally accepted accounting principles (“GAAP”), or are not defined in banking regulations. As a result, these capital measures disclosed by the Company may be considered non-GAAP financial measures. In addition, certain capital measures related to prior periods are presented on the same basis as those capital measures in the current period. The effective capital ratios defined by banking regulations for these periods were subject to certain transitional provisions. Management believes this information helps investors assess trends in the Company’s capital adequacy.

The Company also discloses net interest income and related ratios and analysis on a taxable-equivalent basis, which may also be considered non-GAAP financial measures. The Company believes this presentation to be the preferred industry measurement of net interest income as it provides a relevant comparison of net interest income arising from taxable and tax-exempt sources. In addition, certain performance measures, including the efficiency ratio and net interest margin utilize net interest income on a taxable-equivalent basis.

There may be limits in the usefulness of these measures to investors. As a result, the Company encourages readers to consider the consolidated financial statements and other financial information contained in this press release in their entirety, and not to rely on any single financial measure. A table follows that shows the Company’s calculation of these non-GAAP financial measures.

 

 

    13

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CONSOLIDATED STATEMENT OF INCOME
		Three Months Ended								Nine Months Ended
(Dollars and Shares in Millions, Except Per Share Data)		September 30,								September 30,
(Unaudited)		2018				2017				2018				2017
Interest Income
Loans			$3,353				$3,049				$9,645				$8,728
Loans held for sale			36				40				108				104
Investment securities			661				568				1,927				1,653
Other interest income			73				47				182				131
Total interest income			4,123				3,704				11,862				10,616
Interest Expense
Deposits			491				293				1,263				730
Short-term borrowings			104				39				265				96
Long-term debt			277				196				718				585
Total interest expense			872				528				2,246				1,411
Net interest income			3,251				3,176				9,616				9,205
Provision for credit losses			343				360				1,011				1,055
Net interest income after provision for credit losses			2,908				2,816				8,605				8,150
Noninterest Income
Credit and debit card revenue			344				318				1,019				947
Corporate payment products revenue			169				150				481				427
Merchant processing services			392				377				1,142				1,112
ATM processing services			85				77				254				223
Trust and investment management fees			411				380				1,210				1,128
Deposit service charges			198				187				563				538
Treasury management fees			146				153				451				466
Commercial products revenue			216				240				670				730
Mortgage banking revenue			174				213				549				632
Investment products fees			47				42				140				128
Securities gains (losses), net			10				9				25				47
Other			226				194				600				569
Total noninterest income			2,418				2,340				7,104				6,947
Noninterest Expense
Compensation			1,529				1,440				4,594				4,247
Employee benefits			294				268				923				843
Net occupancy and equipment			270				258				797				760
Professional services			96				104				274				305
Marketing and business development			106				92				314				291
Technology and communications			247				227				724				667
Postage, printing and supplies			84				82				244				244
Other intangibles			41				44				120				131
Other			377				483				1,194				1,403
Total noninterest expense			3,044				2,998				9,184				8,891
Income before income taxes			2,282				2,158				6,525				6,206
Applicable income taxes			460				589				1,263				1,639
Net income			1,822				1,569				5,262				4,567
Net (income) loss attributable to noncontrolling interests			(7)				(6)				(22)				(31)
Net income attributable to U.S. Bancorp			$1,815				$1,563				$5,240				$4,536
Net income applicable to U.S. Bancorp common shareholders			$1,732				$1,485				$5,007				$4,302
Earnings per common share			$1.06				$.89				$3.05				$2.56
Diluted earnings per common share			$1.06				$.88				$3.04				$2.55
Dividends declared per common share			$.37				$.30				$.97				$.86
Average common shares outstanding			1,629				1,672				1,641				1,683
Average diluted common shares outstanding			1,633				1,678				1,645				1,689

 

 

        14

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CONSOLIDATED ENDING BALANCE SHEET
		September 30,				December 31,				September 30,
(Dollars in Millions)		2018				2017				2017
Assets			(Unaudited	)							(Unaudited	)
Cash and due from banks			$20,082				$19,505				$20,540
Investment securities
Held-to-maturity			46,046				44,362				44,018
Available-for-sale			64,912				68,137				67,772
Loans held for sale			4,533				3,554				3,757
Loans
Commercial			99,273				97,561				96,928
Commercial real estate			39,966				40,463				41,430
Residential mortgages			62,904				59,783				59,317
Credit card			21,869				22,180				20,923
Other retail			56,049				57,324				56,859
Total loans, excluding covered loans			280,061				277,311				275,457
Covered loans			1,400				3,121				3,262
Total loans			281,461				280,432				278,719
Less allowance for loan losses			(3,954	)			(3,925	)			(3,908	)
Net loans			277,507				276,507				274,811
Premises and equipment			2,438				2,432				2,402
Goodwill			9,530				9,434				9,370
Other intangible assets			3,544				3,228				3,193
Other assets			36,015				34,881				33,364
Total assets			$464,607				$462,040				$459,227
Liabilities and Shareholders’ Equity
Deposits
Noninterest-bearing			$77,146				$87,557				$82,152
Interest-bearing			254,032				259,658				260,437
Total deposits			331,178				347,215				342,589
Short-term borrowings			23,868				16,651				15,856
Long-term debt			40,894				32,259				34,515
Other liabilities			17,660				16,249				16,916
Total liabilities			413,600				412,374				409,876
Shareholders’ equity
Preferred stock			5,984				5,419				5,419
Common stock			21				21				21
Capital surplus			8,479				8,464				8,457
Retained earnings			57,878				54,142				53,023
Less treasury stock			(19,414	)			(17,602	)			(16,978	)
Accumulated other comprehensive income (loss)			(2,573	)			(1,404	)			(1,219	)
Total U.S. Bancorp shareholders’ equity			50,375				49,040				48,723
Noncontrolling interests			632				626				628
Total equity			51,007				49,666				49,351
Total liabilities and equity			$464,607				$462,040				$459,227

 

 

        15

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NON-GAAP FINANCIAL MEASURES
		September 30,				June 30,				March 31,				December 31,				September 30,
(Dollars in Millions, Unaudited)		2018				2018				2018				2017				2017
Total equity			$51,007				$50,257				$49,812				$49,666				$49,351
Preferred stock			(5,984)				(5,419)				(5,419)				(5,419)				(5,419)
Noncontrolling interests			(632)				(629)				(625)				(626)				(628)
Goodwill (net of deferred tax liability) (1)			(8,682)				(8,585)				(8,609)				(8,613)				(8,141)
Intangible assets, other than mortgage servicing rights			(627)				(571)				(608)				(583)				(595)
Tangible common equity (a)			35,082				35,053				34,551				34,425				34,568
Total assets			464,607				461,329				460,119				462,040				459,227
Goodwill (net of deferred tax liability) (1)			(8,682)				(8,585)				(8,609)				(8,613)				(8,141)
Intangible assets, other than mortgage servicing rights			(627)				(571)				(608)				(583)				(595)
Tangible assets (b)			455,298				452,173				450,902				452,844				450,491
Risk-weighted assets, determined in accordance with the Basel III standardized approach (c)			377,713	*			375,466				373,141				367,771				363,957
Tangible common equity (as calculated above)															34,425				34,568
Adjustments (2)															(550)				(52)
Common equity tier 1 capital estimated for the Basel III fully implemented standardized and advanced approaches (d)															33,875				34,516
Risk-weighted assets, determined in accordance with prescribed transitional standardized approach regulatory requirements															367,771				363,957
Adjustments (3)															4,473				3,907
Risk-weighted assets estimated for the Basel III fully implemented standardized approach (e)															372,244				367,864
Risk-weighted assets, determined in accordance with prescribed transitional advanced approaches regulatory requirements															287,211				287,800
Adjustments (4)															4,769				4,164
Risk-weighted assets estimated for the Basel III fully implemented advanced approaches (f)															291,980				291,964
Ratios*
Tangible common equity to tangible assets (a)/(b)			7.7	%			7.8	%			7.7	%			7.6	%			7.7	%
Tangible common equity to risk-weighted assets (a)/(c)			9.3				9.3				9.3				9.4				9.5
Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented standardized approach (d)/(e)															9.1				9.4
Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented advanced approaches (d)/(f)															11.6				11.8
		Three Months Ended
		September 30,				June 30,				March 31,				December 31,				September 30,
		2018				2018				2018				2017				2017
Net income applicable to U.S. Bancorp common shareholders			$1,732				$1,678				$1,597				$1,611				$1,485
Intangibles amortization (net-of-tax)			32				32				31				28				29
Net income applicable to U.S. Bancorp common shareholders, excluding intangibles amortization			1,764				1,710				1,628				1,639				1,514
Annualized net income applicable to U.S. Bancorp common shareholders, excluding intangibles amortization (g)			6,998				6,859				6,602				6,503				6,007
Average total equity			50,768				49,950				49,450				49,461				49,447
Less: Average preferred stock			5,714				5,419				5,419				5,419				5,419
Less: Average noncontrolling interests			630				628				625				627				628
Less: Average goodwill (net of deferred tax liability) (1)			8,620				8,602				8,627				8,154				8,153
Less: Average intangible assets, other than mortgage servicing rights			584				588				603				591				615
Average U.S. Bancorp common shareholders’ equity, excluding intangible assets (h)			35,220				34,713				34,176				34,670				34,632
Return on tangible common equity (g)/(h)			19.9	%			19.8	%			19.3	%			18.8	%			17.3	%

 

*	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.

 

 

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NON-GAAP FINANCIAL MEASURES
		Three Months Ended																				Nine Months Ended
(Dollars in Millions, Unaudited)			September 30,   2018				June 30,   2018				March 31,   2018				December 31,   2017				September 30,   2017				September 30,   2018				September 30,   2017
Net interest income			$3,251				$3,197				$3,168				$3,175				$3,176				$9,616				$9,205
Taxable-equivalent adjustment (1)			30				29				29				53				51				88				152
Net interest income, on a taxable-equivalent basis			3,281				3,226				3,197				3,228				3,227				9,704				9,357
Net interest income, on a taxable-equivalent basis (as calculated above)			3,281				3,226				3,197				3,228				3,227				9,704				9,357
Noninterest income			2,418				2,414				2,272				2,370				2,340				7,104				6,947
Less: Securities gains (losses), net			10				10				5				10				9				25				47
Total net revenue, excluding net securities gains (losses) (a)			5,689				5,630				5,464				5,588				5,558				16,783				16,257
Noninterest expense (b)			3,044				3,085				3,055				3,899				2,998				9,184				8,891
Less: Intangible amortization			41				40				39				44				44				120				131
Noninterest expense, excluding intangible amortization (c)			3,003				3,045				3,016				3,855				2,954				9,064				8,760
Efficiency ratio (b)/(a)			53.5	%			54.8	%			55.9	%			69.8	%			53.9	%			54.7	%			54.7	%
Tangible efficiency ratio (c)/(a)			52.8				54.1				55.2				69.0				53.1				54.0				53.9

(1) Interest and rates are presented on a fully taxable-equivalent basis based on a federal income tax rate of 21 percent for 2018 and 35 percent for 2017.

 

 

        17

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LINE OF BUSINESS FINANCIAL PERFORMANCE (a)
($ in millions)		Net Income Attributable																				Net Income Attributable
		to U.S. Bancorp												Percent Change								to U.S. Bancorp												3Q 2018
Business Line		3Q 2018				2Q 2018				3Q   2017				3Q18 vs 2Q18				3Q18 vs 3Q17				YTD 2018				YTD  2017				Percent Change				Earnings Composition
Corporate and Commercial Banking			$394				$419				$364				(6.0)				8.2				$1,202				$1,079				11.4				22	%
Consumer and Business Banking			596				557				482				7.0				23.7				1,709				1,357				25.9				33
Wealth Management and Investment Services			221				193				162				14.5				36.4				623				478				30.3				12
Payment Services			393				363				311				8.3				26.4				1,099				892				23.2				22
Treasury and Corporate Support			211				218				244				(3.2)				(13.5)				607				730				(16.8	)			11
Consolidated Company			$1,815				$1,750				$1,563				3.7				16.1				$5,240				$4,536				15.5				100	%
(a) preliminary data

Lines of Business

The Company’s major lines of business are Corporate and Commercial Banking, Consumer and Business Banking, Wealth Management and Investment 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 2018, certain organization and methodology changes were made and, accordingly, prior period results were restated and presented on a comparable basis.

 

 

    2

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CORPORATE AND COMMERCIAL BANKING (a)
($ in millions)														Percent Change
		3Q				2Q				3Q				3Q18 vs				3Q18 vs				YTD				YTD				Percent Change
		2018				2018				2017				2Q18				3Q17				2018				2017
Condensed Income Statement
Net interest income (taxable-equivalent basis)			$739				$726				$735				1.8				.5				$2,186				$2,170				.7
Noninterest income			201				224				219				(10.3)				(8.2)				632				709				(10.9)
Securities gains (losses), net			--				--				--				--				--				--				(3)				nm
Total net revenue			940				950				954				(1.1)				(1.5)				2,818				2,876				(2.0)
Noninterest expense			379				402				389				(5.7)				(2.6)				1,175				1,167				.7
Other intangibles			1				1				1				--				--				3				3				--
Total noninterest expense			380				403				390				(5.7)				(2.6)				1,178				1,170				.7
Income before provision and taxes			560				547				564				2.4				(.7)				1,640				1,706				(3.9)
Provision for credit losses			35				(12)				(9)				nm				nm				37				9				nm
Income before income taxes			525				559				573				(6.1)				(8.4)				1,603				1,697				(5.5)
Income taxes and taxable-equivalent adjustment			131				140				209				(6.4)				(37.3)				401				618				(35.1)
Net income			394				419				364				(6.0)				8.2				1,202				1,079				11.4
Net (income) loss attributable to noncontrolling interests			--				--				--				--				--				--				--				--
Net income attributable to U.S. Bancorp			$394				$419				$364				(6.0)				8.2				$1,202				$1,079				11.4
Average Balance Sheet Data
Loans			$93,364				$93,456				$93,942				(.1)				(.6)				$93,570				$93,925				(.4)
Other earning assets			3,042				3,092				2,855				(1.6)				6.5				2,998				2,948				1.7
Goodwill			1,647				1,647				1,647				--				--				1,647				1,647				--
Other intangible assets			10				11				13				(9.1)				(23.1)				11				14				(21.4)
Assets			102,146				102,524				102,267				(.4)				(.1)				102,417				102,520				(.1)
Noninterest-bearing deposits			32,539				33,383				35,401				(2.5)				(8.1)				33,438				36,256				(7.8)
Interest-bearing deposits			68,554				70,353				74,461				(2.6)				(7.9)				69,612				71,300				(2.4)
Total deposits			101,093				103,736				109,862				(2.5)				(8.0)				103,050				107,556				(4.2)
Total U.S. Bancorp shareholders’ equity			10,426				10,498				9,951				(.7)				4.8				10,447				9,850				6.1
(a) preliminary data

Corporate and Commercial Banking 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.

Corporate and Commercial Banking contributed $394 million of the Company’s net income in the third quarter of 2018, compared with $364 million in the third quarter of 2017. Total net revenue decreased $14 million (1.5 percent) due to a $4 million (0.5 percent) increase in net interest income offset by an $18 million (8.2 percent) decrease in total noninterest income. Net interest income increased slightly primarily due to the impact of rising rates on the margin benefit from deposits, offset by lower spreads on loans, reflecting a competitive marketplace, loan mix and lower deposits. Noninterest bearing deposits are declining as customers deploy balances to support business growth. Interest-bearing deposits reflect expected balance run-off related to the business merger of a larger financial services customer. Total noninterest income decreased year-over-year primarily due to lower corporate bond underwriting fees and syndication fees. Total noninterest expense was $10 million (2.6 percent) lower compared with a year ago primarily due to lower FDIC insurance expense and lower variable compensation expense related to capital markets activities, partially offset by an increase in net shared services expense driven by technology development and investment in infrastructure. The provision for credit losses increased $44 million reflecting an unfavorable change in the reserve allocation partially offset by lower net charge-offs.

 

 

    3

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CONSUMER AND BUSINESS BANKING (a)
($ in millions)														Percent Change
			3Q				2Q				3Q				3Q18 vs				3Q18 vs				YTD				YTD			Percent
			2018				2018				2017				2Q18				3Q17				2018				2017			Change
Condensed Income Statement
Net interest income (taxable-equivalent basis)			$1,557				$1,519				$1,475				2.5				5.6				$4,587				$4,337			5.8
Noninterest income			582				588				616				(1.0)				(5.5)				1,741				1,792			(2.8)
Securities gains (losses), net			--				--				--				--				--				--				--			--
Total net revenue			2,139				2,107				2,091				1.5				2.3				6,328				6,129			3.2
Noninterest expense			1,283				1,302				1,232				(1.5)				4.1				3,863				3,731			3.5
Other intangibles			7				7				8				--				(12.5)				21				22			(4.5)
Total noninterest expense			1,290				1,309				1,240				(1.5)				4.0				3,884				3,753			3.5
Income before provision and taxes			849				798				851				6.4				(.2)				2,444				2,376			2.9
Provision for credit losses			54				55				93				(1.8)				(41.9)				164				242			(32.2)
Income before income taxes			795				743				758				7.0				4.9				2,280				2,134			6.8
Income taxes and taxable-equivalent adjustment			199				186				276				7.0				(27.9)				571				777			(26.5)
Net income			596				557				482				7.0				23.7				1,709				1,357			25.9
Net (income) loss attributable to noncontrolling interests			--				--				--				--				--				--				--			--
Net income attributable to U.S. Bancorp			$596				$557				$482				7.0				23.7				$1,709				$1,357			25.9
Average Balance Sheet Data
Loans			$141,339				$139,904				$140,075				1.0				.9	*			$140,779				$138,566			1.6
Other earning assets			3,385				3,810				4,304				(11.2)				(21.4)				3,535				3,844			(8.0)
Goodwill			3,631				3,632				3,632				--				--				3,632				3,632			--
Other intangible assets			2,974				2,932				2,702				1.4				10.1				2,926				2,733			7.1
Assets			155,586				154,641				154,748				.6				.5				155,239				152,879			1.5
Noninterest-bearing deposits			28,005				27,262				28,389				2.7				(1.4)				27,443				27,387			.2
Interest-bearing deposits			125,553				125,259				120,862				.2				3.9				124,669				120,222			3.7
Total deposits			153,558				152,521				149,251				.7				2.9				152,112				147,609			3.1
Total U.S. Bancorp shareholders’ equity			11,847				11,861				11,147				(.1)				6.3				11,850				11,154			6.2
(a) preliminary data
*  Average total loan growth was 2.1% year-over-year, excluding the impact of the student loan portfolio sale

Consumer and 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 Business Banking contributed $596 million of the Company’s net income in the third quarter of 2018, compared with $482 million in the third quarter of 2017. Total net revenue increased $48 million (2.3 percent) due to an $82 million (5.6 percent) increase in net interest income, partially offset by a $34 million (5.5 percent) decrease in total noninterest income. Net interest income increased primarily due to the impact of rising rates on the margin benefit from deposits along with growth in average loan and core deposit balances, partially offset by lower spreads on loans. Total noninterest income decreased principally driven by lower mortgage banking revenue, in line with industry trends, primarily due to lower mortgage production and gain on sale margins, and a reduction in other noninterest income driven by lower end of term gains in retail leasing due to lower vehicle sales and the related average gain on sale. These decreases were partially offset by higher deposit service charges and ATM processing services fees reflecting higher transaction volumes. Total noninterest expense in the third quarter of 2018 increased $50 million (4.0 percent) primarily due to higher net shared services expense and higher personnel expense, reflecting the impact of investments supporting business growth and development as well as higher production related incentives. The provision for credit losses decreased $39 million (41.9 percent) primarily reflecting a favorable change in the reserve allocation.

 

 

    4

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WEALTH MANAGEMENT AND INVESTMENT SERVICES (a)
($ in millions)														Percent Change
		3Q				2Q				3Q				3Q18 vs				3Q18 vs				YTD				YTD				Percent
			2018				2018				2017				2Q18				3Q17				2018				2017				Change
Condensed Income Statement
Net interest income (taxable-equivalent basis)			$281				$283				$252				(.7)				11.5				$840				$743				13.1
Noninterest income			444				430				411				3.3				8.0				1,305				1,221				6.9
Securities gains (losses), net			--				--				--				--				--				--				--				--
Total net revenue			725				713				663				1.7				9.4				2,145				1,964				9.2
Noninterest expense			429				452				403				(5.1)				6.5				1,304				1,197				8.9
Other intangibles			4				4				5				--				(20.0)				12				15				(20.0	)
Total noninterest expense			433				456				408				(5.0)				6.1				1,316				1,212				8.6
Income before provision and taxes			292				257				255				13.6				14.5				829				752				10.2
Provision for credit losses			(3	)			--				1				nm				nm				(2	)			1				nm
Income before income taxes			295				257				254				14.8				16.1				831				751				10.7
Income taxes and taxable-equivalent adjustment			74				64				92				15.6				(19.6)				208				273				(23.8	)
Net income			221				193				162				14.5				36.4				623				478				30.3
Net (income) loss attributable to noncontrolling interests			--				--				--				--				--				--				--				--
Net income attributable to U.S. Bancorp			$221				$193				$162				14.5				36.4				$623				$478				30.3
Average Balance Sheet Data
Loans			$9,483				$9,223				$8,708				2.8				8.9				$9,231				$8,406				9.8
Other earning assets			172				166				158				3.6				8.9				167				153				9.2
Goodwill			1,618				1,619				1,618				(.1)				--				1,619				1,617				.1
Other intangible assets			61				66				79				(7.6)				(22.8)				66				83				(20.5	)
Assets			12,663				12,246				11,657				3.4				8.6				12,313				11,620				6.0
Noninterest-bearing deposits			13,190				14,780				14,742				(10.8)				(10.5)				14,106				14,860				(5.1	)
Interest-bearing deposits			55,937				56,841				56,830				(1.6)				(1.6)				56,576				57,351				(1.4	)
Total deposits			69,127				71,621				71,572				(3.5)				(3.4)				70,682				72,211				(2.1	)
Total U.S. Bancorp shareholders’ equity			2,486				2,476				2,434				.4				2.1				2,471				2,428				1.8
(a) preliminary data

Wealth Management and Investment 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 Investment Services contributed $221 million of the Company’s net income in the third quarter of 2018, compared with $162 million in the third quarter of 2017. Total net revenue increased $62 million (9.4 percent) year-over-year driven by increases in net interest income of $29 million (11.5 percent) and total noninterest income of $33 million (8.0 percent). Net interest income increased year-over-year primarily due to the impact of rising rates on the margin benefit from deposits. Total noninterest income increased year-over-year principally due to favorable market conditions, business growth, and net asset inflows. Total noninterest expense increased $25 million (6.1 percent) primarily due to increased net shared services expense and higher personnel expense driven by investments to support business growth, higher production related incentives and increased staffing to support business development. The provision for credit losses decreased $4 million reflecting a favorable change in the reserve allocation.

 

 

    5

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PAYMENT SERVICES (a)
($ in millions)														Percent Change
		3Q 2018				2Q 2018				3Q   2017				3Q18 vs  2Q18				3Q18 vs  3Q17				YTD 2018				YTD   2017				Percent Change
Condensed Income Statement
Net interest income (taxable-equivalent basis)			$619				$592				$614				4.6				.8				$1,822				$1,792				1.7
Noninterest income			911				903				851				.9				7.1				2,662				2,499				6.5
Securities gains (losses), net			--				--				--				--				--				--				--				--
Total net revenue			1,530				1,495				1,465				2.3				4.4				4,484				4,291				4.5
Noninterest expense			713				702				676				1.6				5.5				2,117				1,983				6.8
Other intangibles			29				28				30				3.6				(3.3)				84				91				(7.7	)
Total noninterest expense			742				730				706				1.6				5.1				2,201				2,074				6.1
Income before provision and taxes			788				765				759				3.0				3.8				2,283				2,217				3.0
Provision for credit losses			264				281				270				(6.0)				(2.2)				817				794				2.9
Income before income taxes			524				484				489				8.3				7.2				1,466				1,423				3.0
Income taxes and taxable-equivalent adjustment			131				121				178				8.3				(26.4)				367				518				(29.2	)
Net income			393				363				311				8.3				26.4				1,099				905				21.4
Net (income) loss attributable to noncontrolling interests			--				--				--				--				--				--				(13)				nm
Net income attributable to U.S. Bancorp			$393				$363				$311				8.3				26.4				$1,099				$892				23.2
Average Balance Sheet Data
Loans			$31,443				$30,591				$29,612				2.8				6.2				$30,704				$29,209				5.1
Other earning assets			266				302				241				(11.9)				10.4				281				246				14.2
Goodwill			2,563				2,535				2,468				1.1				3.8				2,546				2,459				3.5
Other intangible assets			400				392				384				2.0				4.2				396				409				(3.2	)
Assets			37,128				36,538				35,019				1.6				6.0				36,614				34,781				5.3
Noninterest-bearing deposits			1,064				1,085				1,029				(1.9)				3.4				1,092				1,023				6.7
Interest-bearing deposits			111				109				104				1.8				6.7				109				102				6.9
Total deposits			1,175				1,194				1,133				(1.6)				3.7				1,201				1,125				6.8
Total U.S. Bancorp shareholders’ equity			6,584				6,601				6,205				(.3)				6.1				6,602				6,279				5.1
(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 $393 million of the Company’s net income in the third quarter of 2018, compared with $311 million in the third quarter of 2017. Total net revenue increased $65 million (4.4 percent) due to increases in net interest income of $5 million (0.8 percent) and total noninterest income of $60 million (7.1 percent). Net interest income increased year-over-year primarily due to higher loan volumes offset by compression on loan rates in a rising rate environment. Total noninterest income increased year-over-year mainly due to higher credit and debit card revenue, higher corporate payment products revenue and higher merchant processing services driven by sales volumes. Total noninterest expense increased $36 million (5.1 percent) over the third quarter of 2017 principally due to higher net shared services expense and personnel expense driven by implementation costs of capital investments, higher production related incentives and increased staffing to support business development. The provision for credit losses decreased $6 million (2.2 percent) reflecting a favorable change in the reserve allocation, mostly offset by higher net charge-offs.

 

 

    6

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TREASURY AND CORPORATE SUPPORT (a)
($ in millions)														Percent Change
		3Q				2Q				3Q				3Q18 vs				3Q18 vs				YTD				YTD				Percent
		2018				2018				2017				2Q18				3Q17				2018				2017				Change
Condensed Income Statement
Net interest income (taxable-equivalent basis)			$85				$106				$151				(19.8)				(43.7)				$269				$315				(14.6)
Noninterest income			270				259				234				4.2				15.4				739				679				8.8
Securities gains (losses), net			10				10				9				--				11.1				25				50				(50.0)
Total net revenue			365				375				394				(2.7)				(7.4)				1,033				1,044				(1.1)
Noninterest expense			199				187				254				6.4				(21.7)				605				682				(11.3)
Other intangibles			--				--				--				--				--				--				--				--
Total noninterest expense			199				187				254				6.4				(21.7)				605				682				(11.3)
Income before provision and taxes			166				188				140				(11.7)				18.6				428				362				18.2
Provision for credit losses			(7)				3				5				nm				nm				(5	)			9				nm
Income before income taxes			173				185				135				(6.5)				28.1				433				353				22.7
Income taxes and taxable-equivalent adjustment			(45)				(41)				(115)				(9.8)				60.9				(196	)			(395)				50.4
Net income			218				226				250				(3.5)				(12.8)				629				748				(15.9)
Net (income) loss attributable to noncontrolling interests			(7)				(8)				(6)				12.5				(16.7)				(22	)			(18)				(22.2)
Net income attributable to U.S. Bancorp			$211				$218				$244				(3.2)				(13.5)				$607				$730				(16.8)
Average Balance Sheet Data
Loans			$5,436				$5,450				$5,289				(.3)				2.8				$5,415				$5,348				1.3
Other earning assets			127,247				126,682				123,641				.4				2.9				126,566				121,386				4.3
Goodwill			--				--				--				--				--				--				--				--
Other intangible assets			--				--				--				--				--				--				--				--
Assets			149,393				148,540				146,939				.6				1.7				148,658				144,249				3.1
Noninterest-bearing deposits			2,394				2,477				2,403				(3.4)				(.4)				2,467				2,282				8.1
Interest-bearing deposits			2,774				3,273				930				(15.2)				nm				3,647				827				nm
Total deposits			5,168				5,750				3,333				(10.1)				55.1				6,114				3,109				96.7
Total U.S. Bancorp shareholders’ equity			18,795				17,886				19,082				5.1				(1.5)				18,063				18,631				(3.0)
(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 $211 million in the third quarter of 2018, compared with $244 million in the third quarter of 2017. Total net revenue decreased $29 million (7.4 percent) year-over-year driven by a decrease in net interest income of $66 million (43.7 percent) and an increase of $37 million (15.2 percent) in total noninterest income. Net interest income decreased year-over-year primarily due to higher funding costs, partially offset by growth in the investment portfolio. Total noninterest income increased year-over-year reflecting changes in equity investment income and tax-advantaged syndication revenue. Total noninterest expense decreased $55 million (21.7 percent) year-over-year primarily due to a favorable change in net shared services expense allocated to manage the business, lower costs related to tax-advantaged projects, and higher accruals for legal and regulatory matters in the prior year quarter. These decreases were partially offset by higher personnel expense driven by increased staffing, higher variable compensation, and technology development related to business development efforts. The provision for credit losses was $12 million lower year-over-year due to a favorable change in the reserve allocation.

Income taxes are assessed to each line of business at a managerial rate of 25.0 percent starting in the first quarter of 2018 due to tax reform, compared with 36.4 percent in 2017. The residual tax expense or benefit to arrive at the consolidated effective tax rate is included in Treasury and Corporate Support.

 

 

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