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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--(BUSINESS WIRE)--Jul. 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.
 
EARNINGS SUMMARY               Table 1

($ in millions, except per-share data)

        Percent   Percent      
Change Change
2Q 1Q 2Q 2Q17 vs 2Q17 vs YTD YTD Percent
2017   2017   2016   1Q17   2Q16   2017   2016   Change
 
Net income attributable to U.S. Bancorp $1,500 $1,473 $1,522 1.8 (1.4 ) $2,973 $2,908 2.2
Diluted earnings per common share $.85 $.82 $.83 3.7 2.4 $1.66 $1.59 4.4
 
Return on average assets (%) 1.35 1.35 1.43 1.35 1.38
Return on average common equity (%) 13.4 13.3 13.8 13.4 13.4
Net interest margin (%) 3.04 3.03 3.02 3.04 3.04
Efficiency ratio (%) (a) 55.2 55.6 54.9 55.4 54.8
Tangible efficiency ratio (%) (a) 54.4 54.8 54.1 54.6 53.9
 
Dividends declared per common share $.280 $.280 $.255 -- 9.8 $.560 $.510 9.8
Book value per common share (period end) $25.55 $25.05 $24.37 2.0 4.8
 
(a) See Non-GAAP Financial Measures reconciliation on page 21
 
 

Net income attributable to U.S. Bancorp was $1,500 million for the second quarter of 2017, 1.4 percent lower than the $1,522 million for the second quarter of 2016, and 1.8 percent higher than the $1,473 million for the first quarter of 2017. Diluted earnings per common share of $0.85 in the second quarter of 2017 were $0.02 higher than the second quarter of 2016 and $0.03 higher than the first quarter of 2017. The decrease in net income year-over-year included a 5.2 percent decrease in noninterest income and a 1.0 percent increase in noninterest expense, both of which were impacted by notable items in the second quarter of 2016. Notable items included a $180 million Visa gain in noninterest income and $150 million in noninterest expense related to litigation accruals and a charitable contribution. Excluding the prior year notable items, net income increased slightly year-over-year. Net interest income increased 5.9 percent on a taxable-equivalent basis (6.0 percent as reported on a GAAP basis), mainly a result of loan growth and the impact of higher interest rates. Noninterest income, excluding the impact of the prior year notable item, increased 2.0 percent driven by higher payment services revenue, trust and investment management fees and treasury management fees. Revenue increases were partially offset by higher noninterest expense, excluding the prior year notable items, due to increased compensation expense related to hiring to support business growth and compliance programs, merit increases, and higher variable compensation. In addition, other expense was higher due to an FDIC surcharge beginning in late 2016. The increase in net income on a linked quarter basis was principally due to an increase in total net revenue of 3.1 percent, reflecting higher net interest income of 2.4 percent, driven by loan growth, the impact of higher interest rates and an additional day in the current quarter, along with an increase in noninterest income of 3.9 percent primarily due to seasonally higher fee-based revenue. These increases were partially offset by an increase in noninterest expense of 2.7 percent.

U.S. Bancorp President and Chief Executive Officer Andy Cecere said, “I’m proud of our solid second quarter performance and our ability to deliver industry-leading results. As an enterprise we extended our momentum from the first quarter to produce best-in-class performance metrics, including return on average assets of 1.35 percent, return on average common equity of 13.4 percent and an efficiency ratio of 55.2 percent.

“Because of the overall strength and consistency of our financial results, we continued to create value for our shareholders. In the second quarter, we returned 81 percent of our earnings to shareholders through dividends and share repurchases. The results of the Federal Reserve’s annual Stress Test demonstrated our ability to withstand - and remain profitable - in periods of economic stress. As part of the CCAR process we announced a dividend increase of 7.1 percent and a new share repurchase program for the year, maintaining our commitment to shareholders.

“Our balance sheet is strong and our core businesses are well positioned for an economic and regulatory backdrop that has the promise to be more conducive to growth. Our strong revenue base and our dedication to managing expenses positions us well as we head into the second half of the year. I couldn’t be more proud of our dedicated employees who work hard to be our customers’ and communities’ trusted financial partner and to bring this commitment to life every day.”

                                 
INCOME STATEMENT HIGHLIGHTS               Table 2
($ in millions, except per-share data)         Percent   Percent      
Change Change
2Q 1Q 2Q 2Q17 vs 2Q17 vs YTD YTD Percent
2017   2017   2016   1Q17   2Q16   2017   2016   Change
 
Net interest income $3,017 $2,945 $2,845 2.4 6.0 $5,962 $5,680 5.0
Taxable-equivalent adjustment 51     50     51   2.0 -- 101     104   (2.9 )
Net interest income (taxable-equivalent basis) 3,068 2,995 2,896 2.4 5.9 6,063 5,784 4.8
Noninterest income 2,419     2,329     2,552   3.9 (5.2 ) 4,748     4,701   1.0
Total net revenue 5,487 5,324 5,448 3.1 .7 10,811 10,485 3.1
Noninterest expense 3,023     2,944     2,992   2.7 1.0 5,967     5,741   3.9
Income before provision and income taxes 2,464 2,380 2,456 3.5 .3 4,844 4,744 2.1
Provision for credit losses 350     345     327   1.4 7.0 695     657   5.8
Income before taxes 2,114 2,035 2,129 3.9 (.7 ) 4,149 4,087 1.5

Income taxes and taxable-equivalent adjustment

602     549     593   9.7 1.5 1,151     1,150   .1
Net income 1,512 1,486 1,536 1.7 (1.6 ) 2,998 2,937 2.1

Net (income) loss attributable to noncontrolling interests

(12 )   (13 )   (14 ) 7.7 14.3 (25 )   (29 ) 13.8
Net income attributable to U.S. Bancorp $1,500     $1,473     $1,522   1.8 (1.4 ) $2,973     $2,908   2.2

Net income applicable to U.S. Bancorp common shareholders

$1,430     $1,387     $1,435   3.1 (.3 ) $2,817     $2,764   1.9
Diluted earnings per common share $.85     $.82     $.83   3.7 2.4 $1.66     $1.59   4.4
                                             
 
                                 
NET INTEREST INCOME   Table 3

(Taxable-equivalent basis; $ in millions)

               
Change Change
2Q 1Q 2Q 2Q17 vs 2Q17 vs YTD YTD
2017   2017   2016   1Q17   2Q16   2017   2016   Change
Components of net interest income
Income on earning assets $3,584 $3,451 $3,305 $133 $279 $7,035 $6,580 $455
Expense on interest-bearing liabilities 516     456     409     60     107     972     796     176  
Net interest income $3,068     $2,995     $2,896     $73     $172     $6,063     $5,784     $279  
 
Average yields and rates paid
Earning assets yield 3.56 % 3.49 % 3.44 % .07 % .12 % 3.52 % 3.46 % .06 %
Rate paid on interest-bearing liabilities .69     .62     .58     .07     .11     .66     .57     .09  
Gross interest margin 2.87 %   2.87 %   2.86 %   -- %   .01 %   2.86 %   2.89 %   (.03 )%
Net interest margin 3.04 %   3.03 %   3.02 %   .01 %   .02 %   3.04 %   3.04 %   -- %
 
Average balances
Investment securities (a) $111,368 $110,764 $107,132 $604 $4,236 $111,067 $106,581 $4,486
Loans 275,528 273,158 266,582 2,370 8,946 274,350 264,432 9,918
Earning assets 403,883 399,281 385,368 4,602 18,515 401,595 381,788 19,807
Interest-bearing liabilities 299,271 296,170 285,796 3,101 13,475 297,729 282,656 15,073
 
(a) Excludes unrealized gain (loss)
 
 

Net Interest Income

Net interest income on a taxable-equivalent basis in the second quarter of 2017 was $3,068 million, an increase of $172 million (5.9 percent) over the second quarter of 2016. The increase was principally driven by loan growth and the impact of higher interest rates. Average earning assets were $18.5 billion (4.8 percent) higher than the second quarter of 2016, reflecting increases of $8.9 billion (3.4 percent) in average total loans, $4.2 billion (4.0 percent) in average investment securities and higher average cash balances to meet certain regulatory liquidity expectations. Net interest income on a taxable-equivalent basis increased $73 million (2.4 percent) linked quarter driven by loan growth, the impact of higher interest rates and an additional day in the second quarter. In addition, average earning assets were $4.6 billion higher on a linked quarter basis, mainly from higher average loans and average cash balances.

The net interest margin in the second quarter of 2017 was 3.04 percent, compared with 3.02 percent in the second quarter of 2016, and 3.03 percent in the first quarter of 2017. The increase in the net interest margin on a year-over-year basis was due to rising interest rates partially offset by loan portfolio mix, lower reinvestment rates on maturing securities through the first quarter of 2017 and higher cash balances. The increase on a linked quarter basis was primarily driven by the recent Federal Reserve rate increases, partially offset by the impact of a flatter yield curve and higher cash balances.

Investment Securities

Average investment securities in the second quarter of 2017 were $4.2 billion (4.0 percent) higher year-over-year and $604 million (0.5 percent) higher than the prior quarter. These increases were primarily due to purchases of U.S. Treasury and U.S. government agency-backed securities, net of prepayments and maturities, in support of liquidity management.

                                 
AVERAGE LOANS           Table 4
($ in millions)         Percent   Percent      
Change Change
2Q 1Q 2Q 2Q17 vs 2Q17 vs YTD YTD Percent
2017   2017   2016   1Q17   2Q16   2017   2016   Change
 
Commercial $90,061 $88,284 $86,899 2.0 3.6 $89,177 $85,741 4.0
Lease financing 5,577   5,455   5,255 2.2 6.1 5,517   5,246 5.2
Total commercial 95,638 93,739 92,154 2.0 3.8 94,694 90,987 4.1
 
Commercial mortgages 30,627 31,461 31,950 (2.7 ) (4.1 ) 31,042 31,893 (2.7 )
Construction and development 11,922   11,697   11,038 1.9 8.0 11,810   10,801 9.3
Total commercial real estate 42,549 43,158 42,988 (1.4 ) (1.0 ) 42,852 42,694 .4
 
Residential mortgages 58,544 57,900 55,501 1.1 5.5 58,224 54,854 6.1
 
Credit card 20,631 20,845 20,140 (1.0 ) 2.4 20,737 20,192 2.7
 
Retail leasing 7,181 6,469 5,326 11.0 34.8 6,827 5,253 30.0
Home equity and second mortgages 16,252 16,259 16,394 -- (.9 ) 16,256 16,381 (.8 )
Other 31,194   31,056   29,748 .4 4.9 31,125   29,649 5.0
Total other retail 54,627   53,784   51,468 1.6 6.1 54,208   51,283 5.7
 
Total loans, excluding covered loans 271,989   269,426   262,251 1.0 3.7 270,715   260,010 4.1
 
Covered loans 3,539   3,732   4,331 (5.2 ) (18.3 ) 3,635   4,422 (17.8 )
 
Total loans $275,528   $273,158   $266,582 .9 3.4 $274,350   $264,432 3.8
                                       
 

Loans

Average total loans were $8.9 billion (3.4 percent) higher in the second quarter of 2017 than the second quarter of 2016. The increase was due to growth in total commercial loans (3.8 percent), total other retail loans (6.1 percent), residential mortgages (5.5 percent), and credit card loans (2.4 percent). These increases were partially offset by a decrease in total commercial real estate loans (1.0 percent) due to payoffs given recent capital market financing by customers and run-off in the covered loans portfolio (18.3 percent). Average total loans were $2.4 billion (0.9 percent) higher in the second quarter of 2017 than the first quarter of 2017. This increase was primarily driven by linked quarter growth in total commercial loans (2.0 percent), total other retail loans (1.6 percent) and residential mortgages (1.1 percent), partially offset by decreases in total commercial real estate loans (1.4 percent), credit card loans (1.0 percent) and covered loans (5.2 percent).

                                 
AVERAGE DEPOSITS           Table 5
($ in millions)         Percent   Percent      
Change Change
2Q 1Q 2Q 2Q17 vs 2Q17 vs YTD YTD Percent
2017   2017   2016   1Q17   2Q16   2017   2016   Change
 
Noninterest-bearing deposits $82,710 $80,738 $79,171 2.4 4.5 $81,729 $78,870 3.6
Interest-bearing savings deposits
Interest checking 67,290 65,681 60,842 2.4 10.6 66,490 59,376 12.0
Money market savings 106,777 108,759 92,904 (1.8 ) 14.9 107,763 89,683 20.2
Savings accounts 43,524   42,609   40,258 2.1 8.1 43,069   39,754 8.3
Total savings deposits 217,591 217,049 194,004 .2 12.2 217,322 188,813 15.1
Time deposits 30,871   30,646   34,211 .7 (9.8 ) 30,759   33,949 (9.4 )
Total interest-bearing deposits 248,462   247,695   228,215 .3 8.9 248,081   222,762 11.4
Total deposits $331,172   $328,433   $307,386 .8 7.7 $329,810   $301,632 9.3
                                       
 

Deposits

Average total deposits for the second quarter of 2017 were $23.8 billion (7.7 percent) higher than the second quarter of 2016. Average noninterest-bearing deposits increased $3.5 billion (4.5 percent) year-over-year driven by growth across all business lines. Average total savings deposits were $23.6 billion (12.2 percent) higher year-over-year, the result of growth across all business lines. Average time deposits were $3.3 billion (9.8 percent) lower than the prior year quarter. Changes in time deposits are largely related to those deposits managed as an alternative to other funding sources such as wholesale borrowing, based largely on relative pricing and liquidity characteristics.

Average total deposits increased $2.7 billion (0.8 percent) over the first quarter of 2017. On a linked quarter basis, average noninterest-bearing deposits increased $2.0 billion (2.4 percent) mainly in Wealth Management and Securities Services and Consumer and Small Business Banking. Average total savings deposits grew $542 million (0.2 percent) primarily driven by Consumer and Small Business Banking and Wealth Management and Securities Services, partially offset by decreases in Wholesale Banking and Commercial Real Estate. Average time deposits, which are managed based on funding needs, relative pricing, and liquidity characteristics, increased $225 million (0.7 percent) on a linked quarter basis.

                                 
NONINTEREST INCOME         Table 6
($ in millions)         Percent   Percent    
Change Change
2Q 1Q 2Q 2Q17 vs 2Q17 vs YTD YTD Percent
2017   2017   2016   1Q17   2Q16   2017   2016   Change
 
Credit and debit card revenue $319 $292 $296 9.2 7.8 $611 $562 8.7
Corporate payment products revenue 184 179 181 2.8 1.7 363 351 3.4
Merchant processing services 407 378 403 7.7 1.0 785 776 1.2
ATM processing services 90 85 84 5.9 7.1 175 164 6.7
Trust and investment management fees 380 368 358 3.3 6.1 748 697 7.3
Deposit service charges 184 177 179 4.0 2.8 361 347 4.0
Treasury management fees 160 153 147 4.6 8.8 313 289 8.3
Commercial products revenue 210 207 238 1.4 (11.8 ) 417 435 (4.1 )
Mortgage banking revenue 212 207 238 2.4 (10.9 ) 419 425 (1.4 )
Investment products fees 41 40 39 2.5 5.1 81 79 2.5
Securities gains (losses), net 9 29 3 (69.0 )

nm  

38 6

nm  

Other 223   214   386 4.2 (42.2 ) 437   570 (23.3 )
 
Total noninterest income $2,419   $2,329   $2,552 3.9 (5.2 ) $4,748   $4,701 1.0
                                 
 

Noninterest Income

Second quarter noninterest income of $2,419 million was $133 million (5.2 percent) lower than the second quarter of 2016. Excluding the impact of the second quarter 2016 notable item ($180 million of equity investment income, primarily the result of selling our membership in Visa Europe Limited to Visa, Inc.), noninterest income increased $47 million (2.0 percent), driven by increases in payment services revenue, trust and investment management fees, and treasury management fees, partially offset by decreases in commercial products revenue and mortgage banking revenue. Payment services revenue was higher principally due to an increase in credit and debit card revenue of $23 million (7.8 percent), driven by higher sales volumes. Merchant processing services revenue increased $4 million (1.0 percent). Adjusted for the impact of foreign currency rate changes, year-over-year merchant processing services revenue increased approximately 2.7 percent. Trust and investment management fees increased $22 million (6.1 percent) primarily due to favorable market conditions and account growth. Treasury management fees increased $13 million (8.8 percent) due to higher transaction volume. Commercial products revenue decreased $28 million (11.8 percent) primarily due to significant market activity in the second quarter of 2016. Mortgage banking revenue decreased $26 million (10.9 percent) due to lower origination and sales volume from home refinancing. Refinancing activities were significantly higher in the second quarter of 2016 due to lower long term interest rates.

Noninterest income was $90 million (3.9 percent) higher in the second quarter of 2017 than the first quarter of 2017 reflecting seasonally higher fee-based revenue driven by payment services revenue. Payment services revenue growth included increases in credit and debit card revenue of $27 million (9.2 percent), corporate payment product revenue of $5 million (2.8 percent) and merchant processing services revenue of $29 million (7.7 percent) primarily due to higher sales volumes. Trust and investment management fees increased $12 million (3.3 percent) principally due to account growth.

                                 
NONINTEREST EXPENSE             Table 7
($ in millions)         Percent Percent      
Change Change
2Q 1Q 2Q 2Q17 vs 2Q17 vs YTD YTD Percent
2017   2017   2016   1Q17   2Q16   2017   2016   Change
 
Compensation $1,416 $1,391 $1,277 1.8 10.9 $2,807 $2,526 11.1
Employee benefits 287 314 278 (8.6 ) 3.2 601 578 4.0
Net occupancy and equipment 255 247 243 3.2 4.9 502 491 2.2
Professional services 105 96 121 9.4 (13.2 ) 201 219 (8.2 )
Marketing and business development 109 90 149 21.1 (26.8 ) 199 226 (11.9 )
Technology and communications 242 235 241 3.0 .4 477 474 .6
Postage, printing and supplies 81 81 77 -- 5.2 162 156 3.8
Other intangibles 43 44 44 (2.3 ) (2.3 ) 87 89 (2.2 )
Other 485   446   562 8.7 (13.7 ) 931   982 (5.2 )
 
Total noninterest expense $3,023   $2,944   $2,992 2.7 1.0 $5,967   $5,741 3.9
                                 
 

Noninterest Expense

Second quarter noninterest expense of $3,023 million was $31 million (1.0 percent) higher than the second quarter of 2016. Excluding the second quarter 2016 notable items, noninterest expense increased $181 million (6.4 percent) primarily due to higher compensation and other noninterest expense. Second quarter 2016 notable items included $110 million in accruals related to legal and regulatory matters, along with $40 million for charitable contributions. Compensation expense increased $139 million (10.9 percent) principally due to the impact of hiring to support business growth and compliance programs, merit increases, and higher variable compensation. Other expense increased $33 million (7.3 percent) primarily due to the impact of the FDIC insurance surcharge which began in the third quarter of 2016.

Noninterest expense increased $79 million (2.7 percent) on a linked quarter basis driven by higher compensation expense, marketing and business development expense, and other expense, partially offset by lower employee benefits expense. Compensation expense increased $25 million (1.8 percent) principally due to the impact of hiring to support business growth and compliance programs, merit increases, and higher variable compensation. Marketing and business development expense increased $19 million (21.1 percent) due to the timing of certain revenue-related marketing and brand advertising, while other expense increased $39 million (8.7 percent) reflecting higher costs related to investments in tax-advantaged projects. Partially offsetting these increases was a decrease in employee benefits expense of $27 million (8.6 percent) driven by seasonally lower payroll tax expense.

Provision for Income Taxes

The provision for income taxes for the second quarter of 2017 resulted in a tax rate on a taxable-equivalent basis of 28.5 percent (effective tax rate of 26.7 percent), compared with 27.9 percent (effective tax rate of 26.1 percent) in the second quarter of 2016, and 27.0 percent (effective tax rate of 25.1 percent) in the first quarter of 2017. The lower tax rate for the first quarter of 2017 reflected the tax benefit associated with stock-based compensation under new accounting guidance effective the first quarter of 2017. The impact of this guidance is expected to principally be reflected in the first quarter of each year.

                                           
ALLOWANCE FOR CREDIT LOSSES               Table 8
($ in millions)   2Q     1Q     4Q     3Q     2Q  
2017   % (b)   2017   % (b)   2016   % (b)   2016   % (b)   2016   % (b)
 
Balance, beginning of period $4,366 $4,357 $4,338 $4,329 $4,320
 
Net charge-offs
Commercial 75 .33 71 .33 71 .32 84 .38 74 .34
Lease financing 3   .22 4   .30 5   .37 3   .23 5   .38
Total commercial 78 .33 75 .32 76 .32 87 .37 79 .34
Commercial mortgages (7 ) (.09 ) (1 ) (.01 ) (3 ) (.04 ) 5 .06 (4 ) (.05 )
Construction and development (2 ) (.07 ) (1 ) (.03 ) (6 ) (.21 ) (4 ) (.14 ) 4   .15
Total commercial real estate (9 ) (.08 ) (2 ) (.02 ) (9 ) (.08 ) 1 .01 -- --
 
Residential mortgages 8 .05 12 .08 12 .08 12 .08 17 .12
 
Credit card 204 3.97 190 3.70 181 3.44 161 3.11 170 3.39
 
Retail leasing 2 .11 3 .19 1 .06 1 .07 2 .15
Home equity and second mortgages (1 ) (.02 ) (1 ) (.02 ) (1 ) (.02 ) 1 .02 (1 ) (.02 )
Other 58   .75 58   .76 62   .79 52   .68 50   .68
Total other retail 59 .43 60 .45 62 .46 54 .41 51 .40
Total net charge-offs,          
excluding covered loans 340 .50 335 .50 322 .48 315 .47 317 .49
Covered loans --   -- --   -- --   -- --   -- --   --
Total net charge-offs 340 .49 335 .50 322 .47 315 .46 317 .48
Provision for credit losses 350 345 342 325 327
Other changes (a) 1   (1 ) (1 ) (1 ) (1 )
Balance, end of period $4,377   $4,366   $4,357   $4,338   $4,329  
 
Components
Allowance for loan losses $3,856 $3,816 $3,813 $3,797 $3,806

Liability for unfunded credit commitments

521   550   544   541   523  
Total allowance for credit losses $4,377   $4,366   $4,357   $4,338   $4,329  
 
Gross charge-offs $437 $417 $405 $398 $407
Gross recoveries $97 $82 $83 $83 $90
 
Allowance for credit losses as a percentage of

Period-end loans, excluding covered loans

1.59 1.61 1.60 1.61 1.62

Nonperforming loans, excluding covered loans

385 338 317 309 311

Nonperforming assets, excluding covered assets

331 296 275 264 263
 
Period-end loans 1.58 1.60 1.59 1.60 1.61
Nonperforming loans 383 338 318 310 312
Nonperforming assets 324 292 272 261 259
 

(a) Includes net changes in credit losses to be reimbursed by the FDIC and reductions in the allowance for covered loans where the reversal of a previously recorded allowance was offset by an associated decrease in the indemnification asset, and the impact of any loan sales.

(b) Annualized and calculated on average loan balances
 
 

Credit Quality

The Company’s provision for credit losses for the second quarter of 2017 was $350 million, which was $5 million (1.4 percent) higher than the prior quarter and $23 million (7.0 percent) higher than the second quarter of 2016. Credit quality was relatively stable compared with the first quarter of 2017.

The provision for credit losses was $10 million higher than net charge-offs in the second quarter of 2017, the first quarter of 2017, and the second quarter of 2016. Total net charge-offs in the second quarter of 2017 were $340 million, compared with $335 million in the first quarter of 2017, and $317 million in the second quarter of 2016. Net charge-offs increased $5 million (1.5 percent) compared with the first quarter of 2017 mainly due to higher credit card loan net charge-offs. Net charge-offs increased $23 million (7.3 percent) compared with the second quarter of 2016 primarily due to higher credit card loan net charge-offs, partially offset by lower net charge-offs from total commercial real estate and residential mortgages. The net charge-off ratio was 0.49 percent in the second quarter of 2017, compared with 0.50 percent in the first quarter of 2017 and 0.48 percent in the second quarter of 2016.

The allowance for credit losses was $4,377 million at June 30, 2017, compared with $4,366 million at March 31, 2017, and $4,329 million at June 30, 2016. The ratio of the allowance for credit losses to period-end loans was 1.58 percent at June 30, 2017, compared with 1.60 percent at March 31, 2017, and 1.61 percent at June 30, 2016. The ratio of the allowance for credit losses to nonperforming loans was 383 percent at June 30, 2017, compared with 338 percent at March 31, 2017, and 312 percent at June 30, 2016.

Nonperforming assets were $1,349 million at June 30, 2017, compared with $1,495 million at March 31, 2017, and $1,672 million at June 30, 2016. The ratio of nonperforming assets to loans and other real estate was 0.49 percent at June 30, 2017, compared with 0.55 percent at March 31, 2017, and 0.62 percent at June 30, 2016. The $146 million (9.8 percent) decrease in nonperforming assets on a linked quarter basis was driven by improvements in commercial loans and residential mortgages. The $323 million (19.3 percent) decrease in nonperforming assets on a year-over-year basis was driven by improvements in commercial loans, residential mortgages and other real estate. Accruing loans 90 days or more past due were $639 million ($477 million excluding covered loans) at June 30, 2017, compared with $718 million ($524 million excluding covered loans) at March 31, 2017, and $724 million ($478 million excluding covered loans) at June 30, 2016.

                     
DELINQUENT LOAN RATIOS AS A PERCENT OF ENDING LOAN BALANCES   Table 9
(Percent)          
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
2017   2017   2016   2016   2016
 
Delinquent loan ratios - 90 days or more past due excluding nonperforming loans
Commercial .05 .06 .06 .05 .05
Commercial real estate -- .01 .02 .02 .03
Residential mortgages .20 .24 .27 .28 .27
Credit card 1.10 1.23 1.16 1.11 .98
Other retail .14 .14 .15 .14 .13
Total loans, excluding covered loans .17 .19 .20 .19 .18
Covered loans 4.71 5.34 5.53 5.72 5.81
Total loans .23 .26 .28 .28 .27
 
Delinquent loan ratios - 90 days or more past due including nonperforming loans
Commercial .39 .52 .57 .61 .58
Commercial real estate .29 .27 .31 .26 .27
Residential mortgages 1.10 1.23 1.31 1.37 1.39
Credit card 1.10 1.24 1.18 1.13 1.00
Other retail .42 .43 .45 .42 .43
Total loans, excluding covered loans .59 .67 .71 .72 .70
Covered loans 5.06 5.53 5.68 5.89 5.98
Total loans .64 .73 .78 .79 .79
 
 
     
ASSET QUALITY   Table 10
($ in millions)          
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
2017   2017   2016   2016   2016
Nonperforming loans
Commercial $283 $397 $443 $477 $450
Lease financing 39 42 40 40 39
Total commercial 322 439 483 517 489
 
Commercial mortgages 84 74 87 98 91
Construction and development 35 36 37 7 12
Total commercial real estate 119 110 124 105 103
 
Residential mortgages 530 575 595 614 628
Credit card 1 2 3 4 5
Other retail 158 157 157 153 157
Total nonperforming loans, excluding covered loans 1,130 1,283 1,362 1,393 1,382
 
Covered loans 12 7 6 7 7
Total nonperforming loans 1,142 1,290 1,368 1,400 1,389
 
Other real estate (a) 157 155 186 213 229
Covered other real estate (a) 25 22 26 28 34
Other nonperforming assets 25 28 23 23 20
 
Total nonperforming assets (b) $1,349 $1,495 $1,603 $1,664 $1,672
 
Total nonperforming assets, excluding covered assets $1,312 $1,466 $1,571 $1,629 $1,631

 

Accruing loans 90 days or more past due, excluding covered loans

$477 $524 $552 $518 $478
 
Accruing loans 90 days or more past due $639 $718 $764 $748 $724

 

Performing restructured loans, excluding GNMA and covered loans

$2,473 $2,478 $2,557 $2,672 $2,676
 
Performing restructured GNMA and covered loans $1,803 $1,746 $1,604 $1,375 $1,602
 

Nonperforming assets to loans plus ORE, excluding covered assets (%)

.48 .54 .58 .61 .62
 
Nonperforming assets to loans plus ORE (%) .49 .55 .59 .61 .62
 
(a) Includes equity investments in entities whose principal assets are other real estate owned.
(b) Does not include accruing loans 90 days or more past due.
     
 
                     
COMMON SHARES           Table 11
(Millions)   2Q   1Q   4Q   3Q   2Q
2017   2017   2016   2016   2016
 
Beginning shares outstanding 1,692 1,697 1,705 1,719 1,732

Shares issued for stock incentive plans, acquisitions and other corporate purposes

1 6 6 2 2
Shares repurchased (14 )   (11 )   (14 )   (16 )   (15 )
Ending shares outstanding 1,679     1,692     1,697     1,705     1,719  
                     
 
 
CAPITAL POSITION                     Table 12
($ in millions)   Jun 30   Mar 31   Dec 31   Sep 30   Jun 30
2017     2017     2016     2016     2016
 
Total U.S. Bancorp shareholders' equity $48,320 $47,798 $47,298 $47,759 $47,390
 
Standardized Approach
 
Basel III transitional standardized approach
Common equity tier 1 capital $34,408 $33,847 $33,720 $33,827 $33,444
Tier 1 capital 39,943 39,374 39,421 39,531 39,148
Total risk-based capital 47,824 47,279 47,355 47,452 47,049
 
Common equity tier 1 capital ratio 9.5 % 9.5 % 9.4 % 9.5 % 9.5 %
Tier 1 capital ratio 11.1 11.0 11.0 11.1 11.1
Total risk-based capital ratio 13.2 13.3 13.2 13.3 13.4
Leverage ratio 9.1 9.1 9.0 9.2 9.3
 

Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented standardized approach (a)

9.3 9.2 9.1 9.3 9.3
 
Advanced Approaches
 

Common equity tier 1 capital to risk-weighted assets for the Basel III transitional advanced approaches

12.0 11.8 12.2 12.4 12.3

 

Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented advanced approaches (a)

11.7 11.5 11.7 12.1 12.0
 
Tangible common equity to tangible assets (a) 7.5 7.6 7.5 7.5 7.6
Tangible common equity to risk-weighted assets (a) 9.4 9.4 9.2 9.3 9.3
 
 
Beginning January 1, 2014, the regulatory capital requirements effective for the Company follow Basel III, subject to certain transition provisions from Basel I over the following four years to full implementation by January 1, 2018. Basel III includes two comprehensive methodologies for calculating risk-weighted assets: a general standardized approach and more risk-sensitive advanced approaches, with the Company's capital adequacy being evaluated against the methodology that is most restrictive.
 
(a) See Non-GAAP Financial Measures reconciliation on page 21
 
 

Capital Management

Total U.S. Bancorp shareholders’ equity was $48.3 billion at June 30, 2017, compared with $47.8 billion at March 31, 2017, and $47.4 billion at June 30, 2016. During the second quarter, the Company returned 81 percent of earnings to shareholders through dividends and share buybacks.

All regulatory ratios continue to be in excess of “well-capitalized” requirements. The estimated common equity tier 1 capital to risk-weighted assets ratio using the Basel III fully implemented standardized approach was 9.3 percent at June 30, 2017, compared with 9.2 percent at March 31, 2017, and 9.3 percent at June 30, 2016. The estimated common equity tier 1 capital to risk-weighted assets ratio using the Basel III fully implemented advanced approaches method was 11.7 percent at June 30, 2017, compared with 11.5 percent at March 31, 2017, and 12.0 percent at June 30, 2016.

On Wednesday, July 19, 2017, at 8:00 a.m. CDT, Andy Cecere, president and chief executive officer, and Terry Dolan, vice chairman and chief financial officer, will host a conference call to review the financial results. The conference call will be available online or by telephone. To access the webcast and presentation, go to www.usbank.com and click on “About U.S. Bank.” The “Webcasts & Presentations” link can be found under the Investor/Shareholder information heading, which is at the left side near the bottom of the page. To access the conference call from locations within the United States and Canada, please dial 866-316-1409. Participants calling from outside the United States and Canada, please dial 706-634-9086. The conference ID number for all participants is 32712626. For those unable to participate during the live call, a recording will be available at approximately 11:00 a.m. CDT on Wednesday, July 19 and will be accessible through Wednesday, July 26 at 11:00 p.m. CDT. To access the recorded message within the United States and Canada, please dial 855-859-2056. If calling from outside the United States and Canada, please dial 404-537-3406 to access the recording. The conference ID is 32712626.

Minneapolis-based U.S. Bancorp (NYSE: USB), with $464 billion in assets as of June 30, 2017, is the parent company of U.S. Bank National Association, the fifth largest commercial bank in the United States. The Company operates 3,088 banking offices in 25 states and 4,826 ATMs and provides a comprehensive line of banking, investment, mortgage, trust and payment services products to consumers, businesses and institutions. Visit U.S. Bancorp on the web at www.usbank.com.

Forward-Looking Statements

The following information appears in accordance with the Private Securities Litigation Reform Act of 1995:

This press release contains forward-looking statements about U.S. Bancorp. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements and are based on the information available to, and assumptions and estimates made by, management as of the date hereof. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of U.S. Bancorp. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated. A reversal or slowing of the current economic recovery or another severe contraction could adversely affect U.S. Bancorp’s revenues and the values of its assets and liabilities. Global financial markets could experience a recurrence of significant turbulence, which could reduce the availability of funding to certain financial institutions and lead to a tightening of credit, a reduction of business activity, and increased market volatility. Stress in the commercial real estate markets, as well as a downturn in the residential real estate markets could cause credit losses and deterioration in asset values. In addition, changes to statutes, regulations, or regulatory policies or practices could affect U.S. Bancorp in substantial and unpredictable ways. U.S. Bancorp’s results could also be adversely affected by deterioration in general business and economic conditions; changes in interest rates; deterioration in the credit quality of its loan portfolios or in the value of the collateral securing those loans; deterioration in the value of securities held in its investment securities portfolio; legal and regulatory developments; litigation; increased competition from both banks and non-banks; changes in customer behavior and preferences; breaches in data security; effects of mergers and acquisitions and related integration; effects of critical accounting policies and judgments; and management’s ability to effectively manage credit risk, market risk, operational risk, compliance risk, strategic risk, interest rate risk, liquidity risk and reputational risk.

For discussion of these and other risks that may cause actual results to differ from expectations, refer to U.S. Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2016, on file with the Securities and Exchange Commission, including the sections entitled “Risk Factors” and “Corporate Risk Profile” contained in Exhibit 13, and all subsequent filings with the Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934. However, factors other than these also could adversely affect U.S. Bancorp’s results, and the reader should not consider these factors to be a complete set of all potential risks or uncertainties. Forward-looking statements speak only as of the date hereof, and U.S. Bancorp undertakes no obligation to update them in light of new information or future events.

Non-GAAP Financial Measures

In addition to capital ratios defined by banking regulators, the Company considers various other measures when evaluating capital utilization and adequacy, including:

  • Tangible common equity to tangible assets,
  • Tangible common equity to risk-weighted assets,
  • Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented standardized approach, and
  • Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented advanced approaches.

These capital measures are viewed by management as useful additional methods of reflecting the level of capital available to withstand unexpected negative market or economic conditions. Additionally, presentation of these measures allows investors, analysts and banking regulators to assess the Company’s capital position relative to other financial services companies. These measures differ from currently effective capital ratios defined by banking regulations principally in that the numerator of the currently effective ratios, which are subject to certain transitional provisions, temporarily excludes a portion of unrealized gains and losses related to available-for-sale securities and retirement plan obligations, and includes a portion of capital related to intangible assets, other than mortgage servicing rights. These capital measures are not defined in generally accepted accounting principles (“GAAP”), or are not currently effective or defined in federal banking regulations. As a result, these capital measures disclosed by the Company may be considered non-GAAP financial measures.

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

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

       
U.S. Bancorp
Consolidated Statement of Income
Three Months Ended Six Months Ended
(Dollars and Shares in Millions, Except Per Share Data) June 30,   June 30,
(Unaudited)   2017   2016   2017   2016
Interest Income
Loans $2,901 $2,664 $5,698 $5,308
Loans held for sale 29 36 64 67
Investment securities 555 523 1,085 1,040
Other interest income 46     29     84     58  
Total interest income 3,531 3,252 6,931 6,473
Interest Expense
Deposits 238 152 437 291
Short-term borrowings 77 66 143 131
Long-term debt 199     189     389     371  
Total interest expense 514     407     969     793  
Net interest income 3,017 2,845 5,962 5,680
Provision for credit losses 350     327     695     657  
Net interest income after provision for credit losses 2,667 2,518 5,267 5,023
Noninterest Income
Credit and debit card revenue 319 296 611 562
Corporate payment products revenue 184 181 363 351
Merchant processing services 407 403 785 776
ATM processing services 90 84 175 164
Trust and investment management fees 380 358 748 697
Deposit service charges 184 179 361 347
Treasury management fees 160 147 313 289
Commercial products revenue 210 238 417 435
Mortgage banking revenue 212 238 419 425
Investment products fees 41 39 81 79
Securities gains (losses), net 9 3 38 6
Other 223     386     437     570  
Total noninterest income 2,419 2,552 4,748 4,701
Noninterest Expense
Compensation 1,416 1,277 2,807 2,526
Employee benefits 287 278 601 578
Net occupancy and equipment 255 243 502 491
Professional services 105 121 201 219
Marketing and business development 109 149 199 226
Technology and communications 242 241 477 474
Postage, printing and supplies 81 77 162 156
Other intangibles 43 44 87 89
Other 485     562     931     982  
Total noninterest expense 3,023     2,992     5,967     5,741  
Income before income taxes 2,063 2,078 4,048 3,983
Applicable income taxes 551     542     1,050     1,046  
Net income 1,512 1,536 2,998 2,937
Net (income) loss attributable to noncontrolling interests (12 )   (14 )   (25 )   (29 )
Net income attributable to U.S. Bancorp $1,500     $1,522     $2,973     $2,908  
Net income applicable to U.S. Bancorp common shareholders $1,430     $1,435     $2,817     $2,764  
 
Earnings per common share $.85 $.83 $1.67 $1.60
Diluted earnings per common share $.85 $.83 $1.66 $1.59
Dividends declared per common share $.280 $.255 $.560 $.510
Average common shares outstanding 1,684 1,725 1,689 1,731
Average diluted common shares outstanding   1,690     1,731     1,695     1,737  
 
     
U.S. Bancorp
Consolidated Ending Balance Sheet
 
June 30, December 31, June 30,
(Dollars in Millions)   2017  

2016

  2016
Assets (Unaudited) (Unaudited)
Cash and due from banks $28,964 $15,705 $14,038
Investment securities
Held-to-maturity 43,659 42,991 42,030
Available-for-sale 67,455 66,284 66,490
Loans held for sale 3,661 4,826 4,311
Loans
Commercial 96,836 93,386 92,514
Commercial real estate 41,908 43,098 43,290
Residential mortgages 58,796 57,274 55,904
Credit card 20,861 21,749 20,571
Other retail 55,445     53,864     52,008  
Total loans, excluding covered loans 273,846 269,371 264,287
Covered loans 3,437     3,836     4,234  
Total loans 277,283 273,207 268,521
Less allowance for loan losses (3,856 )   (3,813 )   (3,806 )
Net loans 273,427 269,394 264,715
Premises and equipment 2,413 2,443 2,459
Goodwill 9,361 9,344 9,359
Other intangible assets 3,216 3,303 2,852
Other assets 31,688     31,674     32,209  
Total assets $463,844     $445,964     $438,463  
 
Liabilities and Shareholders' Equity
Deposits
Noninterest-bearing $93,029 $86,097 $86,572
Interest-bearing 254,233     248,493     231,018  
Total deposits 347,262 334,590 317,590
Short-term borrowings 14,412 13,963 18,433
Long-term debt 37,814 33,323 36,941
Other liabilities 15,407     16,155     17,470  
Total liabilities 414,895 398,031 390,434
Shareholders' equity
Preferred stock 5,419 5,501 5,501
Common stock 21 21 21
Capital surplus 8,425 8,440 8,402
Retained earnings 52,033 50,151 48,269
Less treasury stock (16,332 ) (15,280 ) (14,241 )
Accumulated other comprehensive income (loss) (1,246 )   (1,535 )   (562 )
Total U.S. Bancorp shareholders' equity 48,320 47,298 47,390
Noncontrolling interests 629     635     639  
Total equity 48,949     47,933     48,029  
Total liabilities and equity   $463,844     $445,964     $438,463  
 
 
U.S. Bancorp
Non-GAAP Financial Measures
         
(Dollars in Millions, Unaudited) June 30, March 31, December 31, September 30, June 30,
  2017     2017     2016     2016     2016
Total equity $48,949 $48,433 $47,933 $48,399 $48,029
Preferred stock (5,419 ) (5,419 ) (5,501 ) (5,501 ) (5,501 )
Noncontrolling interests (629 ) (635 ) (635 ) (640 ) (639 )
Goodwill (net of deferred tax liability) (1) (8,181 ) (8,186 ) (8,203 ) (8,239 ) (8,246 )
Intangible assets, other than mortgage servicing rights (634 )     (671 )     (712 )     (756 )     (796 )
Tangible common equity (a) 34,086 33,522 32,882 33,263 32,847
 
Tangible common equity (as calculated above) 34,086 33,522 32,882 33,263 32,847
Adjustments (2) (51 )     (136 )     (55 )     97       133  

Common equity tier 1 capital estimated for the Basel III fully implemented standardized and advanced approaches (b)

34,035 33,386 32,827 33,360 32,980
 
Total assets 463,844 449,522 445,964 454,134 438,463
Goodwill (net of deferred tax liability) (1) (8,181 ) (8,186 ) (8,203 ) (8,239 ) (8,246 )
Intangible assets, other than mortgage servicing rights (634 )     (671 )     (712 )     (756 )     (796 )
Tangible assets (c) 455,029 440,665 437,049 445,139 429,421
 

Risk-weighted assets, determined in accordance with prescribed transitional standardized approach regulatory requirements (d)

361,164 * 356,373 358,237 356,733 351,462
Adjustments (3) 3,967   *   4,731       4,027       3,165       3,079  

Risk-weighted assets estimated for the Basel III fully implemented standardized approach (e)

365,131 * 361,104 362,264 359,898 354,541
 

Risk-weighted assets, determined in accordance with prescribed transitional advanced approaches regulatory requirements

287,124 * 285,963 277,141 272,832 271,495
Adjustments (4) 4,231   *   5,046       4,295       3,372       3,283  

Risk-weighted assets estimated for the Basel III fully implemented advanced approaches (f)

291,355 * 291,009 281,436 276,204 274,778
 
Ratios *
Tangible common equity to tangible assets (a)/(c) 7.5 % 7.6 % 7.5 % 7.5 % 7.6 %
Tangible common equity to risk-weighted assets (a)/(d) 9.4 9.4 9.2 9.3 9.3

Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented standardized approach (b)/(e)

9.3 9.2 9.1 9.3 9.3

Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented advanced approaches (b)/(f)

11.7 11.5 11.7 12.1 12.0
 
 
Three Months Ended
June 30, March 31, December 31, September 30, June 30,
2017     2017     2016     2016     2016
Net interest income $3,017 $2,945 $2,955 $2,893 $2,845
Taxable-equivalent adjustment (5) 51       50       49       50       51  
Net interest income, on a taxable-equivalent basis 3,068 2,995 3,004 2,943 2,896
 
Net interest income, on a taxable-equivalent basis (as calculated above) 3,068 2,995 3,004 2,943 2,896
Noninterest income 2,419 2,329 2,431 2,445 2,552
Less: Securities gains (losses), net 9       29       6       10       3  
Total net revenue, excluding net securities gains (losses) (g) 5,478 5,295 5,429 5,378 5,445
 
Noninterest expense (h) 3,023 2,944 3,004 2,931 2,992
Less: Intangible amortization 43       44       45       45       44  
Noninterest expense, excluding intangible amortization (i) 2,980 2,900 2,959 2,886 2,948
 
Efficiency ratio (h)/(g) 55.2 % 55.6 % 55.3 % 54.5 % 54.9 %
Tangible efficiency ratio (i)/(g)   54.4       54.8       54.5       53.7       54.1  
 

* Preliminary data. Subject to change prior to filings with applicable regulatory agencies.

(1) Includes goodwill related to certain investments in unconsolidated financial institutions per prescribed regulatory requirements.
(2) Includes net losses on cash flow hedges included in accumulated other comprehensive income (loss) and other adjustments.
(3) Includes higher risk-weighting for unfunded loan commitments, investment securities, residential mortgages, mortgage servicing rights and other adjustments.

(4) Primarily reflects higher risk-weighting for mortgage servicing rights.

(5) Utilizes a tax rate of 35 percent for those assets and liabilities whose income or expense is not included for federal income tax purposes.

Source: U.S. Bancorp

U.S. Bancorp
Media:
Dana Ripley, 612-303-3167
or
Investors/Analysts:
Jennifer Thompson, 612-303-0778

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding U.S. Bancorp's business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report or Form 10-K for the most recently ended fiscal year.



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