Record Earnings Per Diluted Common Share of
$0.88
Return on average assets of 1.38 percent and
average common equity of 13.6 percent
Returned 79 percent of earnings to
shareholders
U.S. Bancorp (NYSE: USB) today reported net income of $1,563
million for the third quarter of 2017, or $0.88 per diluted common
share, compared with $1,502 million, or $0.84 per diluted common
share, in the third quarter of 2016.
Highlights for the third quarter of 2017 included:
- Record diluted earnings per share of
$0.88, record net revenue of $5,608 million, record net income of
$1,563 million and positive operating leverage
- Industry-leading return on average
assets of 1.38 percent and return on average common equity of 13.6
percent and efficiency ratio of 54.3 percent
- Returned 79 percent of third quarter
earnings to shareholders through dividends and share buybacks
- Net interest income (taxable-equivalent
basis) grew 8.3 percent year-over-year and 3.8 percent on a linked
quarter basis
- Net interest margin of 3.10 percent for
the third quarter of 2017 was 12 basis points higher than the third
quarter of 2016 and 6 basis points higher than the second quarter
of 2017
- Nonperforming assets decreased 24.8
percent on a year-over-year basis and 7.3 percent on a linked
quarter basis
- Average total loans grew 3.0 percent
over the third quarter of 2016 and 0.8 percent on a linked quarter
basis
- Average total commercial loans grew 4.6
percent over the third quarter of 2016 and 1.0 percent on a linked
quarter basis
- Average total other retail loans grew
6.1 percent over the third quarter of 2016 and 2.6 percent on a
linked quarter basis
- Strong capital position. At September
30, 2017, the estimated common equity tier 1 capital to
risk-weighted assets ratio was 9.4 percent using the Basel III
fully implemented standardized approach and was 11.8 percent using
the Basel III fully implemented advanced approaches method.
EARNINGS SUMMARY
Table 1 ($ in millions, except per-share data)
Percent Percent
Change Change 3Q
2Q 3Q 3Q17 vs 3Q17 vs YTD
YTD Percent 2017 2017
2016 2Q17 3Q16
2017 2016 Change
Net income attributable to U.S. Bancorp $1,563 $1,500 $1,502 4.2
4.1 $4,536 $4,410 2.9 Diluted earnings per common share $.88 $.85
$.84 3.5 4.8 $2.55 $2.43 4.9 Return on average assets (%)
1.38 1.35 1.36 1.36 1.37 Return on average common equity (%) 13.6
13.4 13.5 13.4 13.4 Net interest margin (%) 3.10 3.04 2.98 3.06
3.02 Efficiency ratio (%) (a) 54.3 55.2 54.5 55.0 54.7 Tangible
efficiency ratio (%) (a) 53.5 54.4 53.7 54.2 53.8 Dividends
declared per common share $.30 $.28 $.28 7.1 7.1 $.86 $.79 8.9 Book
value per common share (period end) $25.98 $25.55 $24.78 1.7 4.8
(a) See Non-GAAP Financial Measures reconciliation on page
21
Net income attributable to U.S. Bancorp was $1,563 million for
the third quarter of 2017, 4.1 percent higher than the $1,502
million for the third quarter of 2016, and 4.2 percent higher than
the $1,500 million for the second quarter of 2017. Diluted earnings
per common share of $0.88 in the third quarter of 2017 were $0.04
higher than the third quarter of 2016 and $0.03 higher than the
second quarter of 2017. The increase in net income year-over-year
was principally due to a 4.1 percent increase in total net revenue
driven by higher net interest income, partially offset by a 3.7
percent increase in noninterest expense. Net interest income
increased 8.3 percent on a taxable-equivalent basis (8.4 percent as
reported on a GAAP basis), mainly as a result of loan growth and
the impact of rising interest rates. Noninterest income decreased
0.9 percent principally due to lower mortgage banking revenue,
primarily the result of strong refinancing activities in the third
quarter of 2016, partially offset by increases in trust and
investment management fees, payment services revenue, and treasury
management fees as well as higher equity investment income. The
increase in total net revenue was partially offset by higher
noninterest expense, primarily due to increased compensation
expense related to hiring to support business growth and compliance
programs, merit increases, and higher variable compensation. The
increase in net income on a linked quarter basis was principally
due to an increase in total net revenue of 2.2 percent, reflecting
higher net interest income driven by loan growth, the impact of
rising interest rates, higher interest recoveries and an additional
day in the current quarter. These increases were partially offset
by a slight increase in noninterest expense of 0.5 percent.
U.S. Bancorp President and Chief Executive Officer Andy Cecere
said, “In the third quarter, U.S. Bancorp delivered industry
leading results, supported by record revenue, net income and
earnings per diluted share. We produced best-in-class performance
metrics, including return on average assets of 1.38 percent, return
on average common equity of 13.6 percent and an improving
efficiency ratio of 54.3 percent.
“We remain deeply committed to value creation for our
shareholders, and in the third quarter, our dividend increased by
7.1 percent. Overall, we returned 79 percent of our earnings to
shareholders through dividends and share buybacks. As we move into
the fourth quarter, we plan to build on the momentum we have
established.
“Our Company is strong and we are well positioned for growth. We
continue to be focused on delivering a great customer experience
through our One Bank initiatives, optimization of our businesses,
data analytics, process improvements and product delivery. We are
investing in innovation and technology to drive growth and improve
efficiencies in the future. Our strong revenue base and financial
discipline positions us for growth heading into the next year. I’m
proud of our employees and the effort they make every day to help
us deliver consistently strong financial returns and to become our
stakeholders’ most trusted choice.”
INCOME
STATEMENT HIGHLIGHTS
Table 2 ($ in millions, except per-share data)
Percent Percent
Change Change 3Q 2Q
3Q 3Q17 vs 3Q17 vs YTD YTD
Percent 2017 2017 2016
2Q17 3Q16 2017
2016 Change Net interest income $3,135
$3,017 $2,893 3.9 8.4 $9,097 $8,573 6.1 Taxable-equivalent
adjustment 51 51 50 -- 2.0 152
154 (1.3 ) Net interest income
(taxable-equivalent basis) 3,186 3,068 2,943 3.8 8.3 9,249
8,727 6.0 Noninterest income 2,422 2,419
2,445 .1 (.9 ) 7,170 7,146
.3 Total net revenue 5,608 5,487 5,388 2.2 4.1 16,419
15,873 3.4 Noninterest expense 3,039 3,023
2,931 .5 3.7 9,006 8,672
3.9 Income before provision and income taxes 2,569 2,464 2,457 4.3
4.6 7,413 7,201 2.9 Provision for credit losses 360
350 325 2.9 10.8 1,055
982 7.4 Income before taxes 2,209 2,114 2,132 4.5 3.6
6,358 6,219 2.2
Income taxes and
taxable-equivalent adjustment
640 602 616 6.3 3.9 1,791
1,766 1.4 Net income 1,569 1,512 1,516 3.8 3.5 4,567
4,453 2.6
Net (income) loss attributable
to noncontrolling interests
(6 ) (12 ) (14 ) 50.0 57.1 (31 ) (43 ) 27.9
Net income attributable to U.S. Bancorp $1,563 $1,500
$1,502 4.2 4.1 $4,536 $4,410
2.9
Net income applicable to U.S.
Bancorp common shareholders
$1,485 $1,430 $1,434 3.8 3.6
$4,302 $4,198 2.5 Diluted earnings per common
share $.88 $.85 $.84 3.5 4.8
$2.55 $2.43 4.9
NET INTEREST INCOME
Table 3 (Taxable-equivalent
basis; $ in millions)
Change Change 3Q 2Q
3Q 3Q17 vs 3Q17 vs YTD YTD
2017 2017 2016
2Q17 3Q16 2017
2016 Change Components of net interest income
Income on earning assets $3,768 $3,584 $3,371 $184 $397 $10,803
$9,951 $852 Expense on interest-bearing liabilities 582
516 428 66 154
1,554 1,224 330
Net interest income $3,186 $3,068
$2,943 $118 $243 $9,249
$8,727 $522 Average
yields and rates paid Earning assets yield 3.67 % 3.56 % 3.41 % .11
% .26 % 3.57 % 3.44 % .13 % Rate paid on interest-bearing
liabilities .76 .69 .59
.07 .17 .69 .57
.12 Gross interest margin 2.91 % 2.87 %
2.82 % .04 % .09 % 2.88 % 2.87 %
.01 % Net interest margin 3.10 % 3.04 % 2.98 %
.06 % .12 % 3.06 % 3.02 % .04 %
Average balances Investment securities (a) $111,832 $111,368
$108,109 $464 $3,723 $111,325 $107,095 $4,230 Loans 277,626 275,528
269,637 2,098 7,989 275,454 266,179 9,275 Earning assets 408,825
403,883 393,783 4,942 15,042 404,031 385,816 18,215
Interest-bearing liabilities 304,236 299,271 290,331 4,965 13,905
299,922 285,233 14,689 (a) Excludes unrealized gain (loss)
Net Interest Income
Net interest income on a taxable-equivalent basis in the third
quarter of 2017 was $3,186 million, an increase of $243 million
(8.3 percent) over the third quarter of 2016. The increase was
principally driven by loan growth and the impact of rising interest
rates. Average earning assets were $15.0 billion (3.8 percent)
higher than the third quarter of 2016, reflecting increases of $8.0
billion (3.0 percent) in average total loans, $4.1 billion (36.0
percent) in average other earning assets and $3.7 billion (3.4
percent) in average investment securities. Net interest income on a
taxable-equivalent basis increased $118 million (3.8 percent) on a
linked quarter basis driven by loan growth, the impact of rising
interest rates, higher interest recoveries and an additional day in
the third quarter. In addition, average earning assets were $4.9
billion (1.2 percent) higher on a linked quarter basis, mainly from
higher average loans, investment securities and other earning
assets.
The net interest margin in the third quarter of 2017 was 3.10
percent, compared with 2.98 percent in the third quarter of 2016,
and 3.04 percent in the second quarter of 2017. The increase in the
net interest margin year-over-year was due to higher interest rates
and loan portfolio mix, partially offset by higher funding costs
and higher cash balances. The increase in net interest margin on a
linked quarter basis was driven by higher interest rates and a
change in loan portfolio mix, partially offset by higher funding
costs.
Investment Securities
Average investment securities in the third quarter of 2017 were
$3.7 billion (3.4 percent) higher year-over-year and $464 million
(0.4 percent) higher than the prior quarter. These increases were
primarily due to purchases of U.S. Treasury and U.S. government
mortgage-backed securities, net of prepayments and maturities, in
support of liquidity management.
AVERAGE
LOANS Table
4 ($ in millions)
Percent
Percent Change
Change 3Q 2Q 3Q 3Q17 vs 3Q17
vs YTD YTD Percent 2017
2017 2016 2Q17
3Q16 2017 2016
Change Commercial $91,077 $90,061 $87,067 1.1 4.6
$89,817 $86,186 4.2 Lease financing 5,556 5,577 5,302
(.4 ) 4.8 5,530 5,265 5.0 Total commercial 96,633 95,638
92,369 1.0 4.6 95,347 91,451 4.3 Commercial mortgages 30,114
30,627 31,888 (1.7 ) (5.6 ) 30,729 31,891 (3.6 ) Construction and
development 11,507 11,922 11,486 (3.5 ) .2 11,708
11,031 6.1 Total commercial real estate 41,621 42,549 43,374
(2.2 ) (4.0 ) 42,437 42,922 (1.1 ) Residential mortgages
59,030 58,544 56,284 .8 4.9 58,496 55,334 5.7 Credit card
20,926 20,631 20,628 1.4 1.4 20,801 20,339 2.3 Retail
leasing 7,762 7,181 5,773 8.1 34.5 7,142 5,427 31.6 Home equity and
second mortgages 16,299 16,252 16,470 .3 (1.0 ) 16,270 16,411 (.9 )
Other 32,008 31,194 30,608 2.6 4.6 31,423
29,971 4.8 Total other retail 56,069 54,627 52,851
2.6 6.1 54,835 51,809 5.8 Total loans, excluding
covered loans 274,279 271,989 265,506 .8 3.3 271,916
261,855 3.8 Covered loans 3,347 3,539
4,131 (5.4 ) (19.0 ) 3,538 4,324 (18.2 ) Total loans
$277,626 $275,528 $269,637 .8 3.0 $275,454
$266,179 3.5
Loans
Average total loans were $8.0 billion (3.0 percent) higher than
the third quarter of 2016. The increase was due to growth in total
commercial loans (4.6 percent), residential mortgages (4.9
percent), retail leasing (34.5 percent), and other retail loans
(4.6 percent). These increases were partially offset by a decrease
in total commercial real estate loans (4.0 percent) due to
disciplined underwriting of construction and development loans and
payoffs of commercial mortgages given recent capital market
financing by customers. Loan growth was also muted by run-off in
the covered loans portfolio (19.0 percent). Average total loans
were $2.1 billion (0.8 percent) higher than the second quarter of
2017. This increase was primarily driven by linked quarter growth
in total commercial loans (1.0 percent), other retail loans (2.6
percent), and retail leasing (8.1 percent), partially offset by
decreases in total commercial real estate loans (2.2 percent) and
covered loans (5.4 percent).
AVERAGE
DEPOSITS
Table 5 ($ in millions)
Percent Percent
Change Change 3Q 2Q 3Q 3Q17
vs 3Q17 vs YTD YTD Percent
2017 2017 2016
2Q17 3Q16 2017
2016 Change Noninterest-bearing
deposits $81,964 $82,710 $82,021 (.9 ) (.1 ) $81,808 $79,928 2.4
Interest-bearing savings deposits Interest checking 68,066 67,290
63,456 1.2 7.3 67,021 60,746 10.3 Money market savings 105,072
106,777 99,921 (1.6 ) 5.2 106,856 93,121 14.7 Savings accounts
43,649 43,524 40,695 .3 7.3 43,265 40,070 8.0
Total savings deposits 216,787 217,591 204,072 (.4 ) 6.2 217,142
193,937 12.0 Time deposits 36,400 30,871 32,455 17.9
12.2 32,660 33,447 (2.4 ) Total interest-bearing deposits
253,187 248,462 236,527 1.9 7.0 249,802
227,384 9.9 Total deposits $335,151 $331,172 $318,548
1.2 5.2 $331,610 $307,312 7.9
Deposits
Average total deposits for the third quarter of 2017 were $16.6
billion (5.2 percent) higher than the third quarter of 2016.
Average noninterest-bearing deposits were essentially flat
year-over-year reflecting a decrease in Wholesale Banking and
Commercial Real Estate offset by increases in Wealth Management and
Securities Services and Consumer and Small Business Banking.
Average total savings deposits were $12.7 billion (6.2 percent)
higher year-over-year, a result of growth across all business
lines. Average time deposits were $3.9 billion (12.2 percent)
higher than the prior year quarter. Changes in time deposits are
largely related to those deposits managed as an alternative to
other funding sources such as wholesale borrowing, based largely on
relative pricing and liquidity characteristics.
Average total deposits increased $4.0 billion (1.2 percent) over
the second quarter of 2017. On a linked quarter basis, average
noninterest-bearing deposits and average total savings deposits
decreased slightly. Average time deposits, which are managed based
on funding needs, relative pricing, and liquidity characteristics,
increased $5.5 billion (17.9 percent) on a linked quarter basis,
primarily driven by Wholesale Banking and Commercial Real
Estate.
NONINTEREST INCOME
Table 6 ($ in millions)
Percent Percent
Change Change 3Q 2Q 3Q 3Q17
vs 3Q17 vs YTD YTD Percent
2017 2017 2016
2Q17 3Q16 2017
2016 Change Credit and debit card
revenue $308 $319 $299 (3.4 ) 3.0 $919 $861 6.7 Corporate payment
products revenue 201 184 190 9.2 5.8 564 541 4.3 Merchant
processing services 405 407 412 (.5 ) (1.7 ) 1,190 1,188 .2 ATM
processing services 92 90 87 2.2 5.7 267 251 6.4 Trust and
investment management fees 380 380 362 -- 5.0 1,128 1,059 6.5
Deposit service charges 192 184 192 4.3 -- 553 539 2.6 Treasury
management fees 153 160 147 (4.4 ) 4.1 466 436 6.9 Commercial
products revenue 221 210 219 5.2 .9 638 654 (2.4 ) Mortgage banking
revenue 213 212 314 .5 (32.2 ) 632 739 (14.5 ) Investment products
fees 39 41 41 (4.9 ) (4.9 ) 120 120 -- Securities gains (losses),
net 9 9 10 -- (10.0 ) 47 16 nm Other 209 223 172 (6.3
) 21.5 646 742 (12.9 ) Total noninterest income
$2,422 $2,419 $2,445 .1 (.9 ) $7,170 $7,146 .3
Noninterest Income
Third quarter noninterest income of $2,422 million was $23
million (0.9 percent) lower than the third quarter of 2016
principally due to lower mortgage banking revenue, partially offset
by increases in trust and investment management fees, payment
services revenue and other noninterest income. Mortgage banking
revenue decreased $101 million (32.2 percent) due to lower
origination and sales volumes from home refinancing, as refinancing
activities were significantly higher in the third quarter of 2016
due to a decline in longer term interest rates during that period.
Trust and investment management fees increased $18 million (5.0
percent) due to favorable market conditions, and net asset and
account growth. Payment services revenue was higher due to an
increase in corporate payment products revenue of $11 million (5.8
percent) and an increase in credit and debit card revenue of $9
million (3.0 percent), both driven by higher sales volumes. These
increases were partially offset by a decrease in merchant
processing services revenue of $7 million (1.7 percent) due to
exiting certain joint ventures in the second quarter of 2017 and
the impacts of recent weather events. Other income increased $37
million (21.5 percent) primarily due to equity investment income in
the current quarter.
Noninterest income was $3 million (0.1 percent) higher in the
third quarter of 2017 than the second quarter of 2017 reflecting
growth in fee-based revenue driven by corporate payment products
revenue, commercial products revenue and deposit service charges,
partially offset by a decrease in credit and debit card revenue.
Corporate payment products revenue increased $17 million (9.2
percent) due to seasonally higher volumes. Commercial products
revenue increased $11 million (5.2 percent) primarily driven by
higher foreign exchange fees, corporate bond fees and syndication
revenue. Deposit service charges increased $8 million (4.3 percent)
due to seasonally higher transaction volumes. Credit and debit card
revenue decreased $11 million (3.4 percent) primarily due to fewer
processing cycles in the third quarter and the impact of previously
acquired portfolios.
NONINTEREST EXPENSE
Table 7 ($ in millions)
Percent Percent
Change Change 3Q 2Q 3Q 3Q17
vs 3Q17 vs YTD YTD Percent
2017 2017 2016
2Q17 3Q16 2017
2016 Change Compensation $1,440 $1,416
$1,329 1.7 8.4 $4,247 $3,855 10.2 Employee benefits 281 287 280
(2.1 ) .4 882 858 2.8 Net occupancy and equipment 258 255 250 1.2
3.2 760 741 2.6 Professional services 104 105 127 (1.0 ) (18.1 )
305 346 (11.8 ) Marketing and business development 92 109 102 (15.6
) (9.8 ) 291 328 (11.3 ) Technology and communications 246 242 243
1.7 1.2 723 717 .8 Postage, printing and supplies 82 81 80 1.2 2.5
244 236 3.4 Other intangibles 44 43 45 2.3 (2.2 ) 131 134 (2.2 )
Other 492 485 475 1.4 3.6 1,423 1,457 (2.3 )
Total noninterest expense $3,039 $3,023 $2,931
.5 3.7 $9,006 $8,672 3.9
Noninterest Expense
Third quarter noninterest expense of $3,039 million was $108
million (3.7 percent) higher than the third quarter of 2016
primarily due to higher compensation expense, partially offset by
lower professional services expense. Compensation expense increased
$111 million (8.4 percent) principally due to the impact of hiring
to support business growth and compliance programs, merit
increases, and higher variable compensation. Professional services
expense decreased $23 million (18.1 percent) primarily due to fewer
consulting services as compliance programs near maturity.
Noninterest expense increased $16 million (0.5 percent) on a
linked quarter basis driven by higher compensation expense,
partially offset by lower marketing and business development
expense. Compensation expense increased $24 million (1.7 percent)
principally due to corporate incentive plans and the impact of
hiring to support business growth. Marketing and business
development expense decreased $17 million (15.6 percent) due to
seasonal timing of certain revenue-related marketing and brand
advertising.
Provision for Income Taxes
The provision for income taxes for the third quarter of 2017
resulted in a tax rate on a taxable-equivalent basis of 29.0
percent (effective tax rate of 27.3 percent), compared with 28.9
percent (effective tax rate of 27.2 percent) in the third quarter
of 2016, and 28.5 percent (effective tax rate of 26.7 percent) in
the second quarter of 2017.
ALLOWANCE FOR CREDIT LOSSES
Table
8 ($ in millions)
3Q 2Q
1Q 4Q
3Q 2017 % (b) 2017
% (b) 2017 % (b)
2016 % (b) 2016 %
(b) Balance, beginning of period $4,377 $4,366 $4,357
$4,338 $4,329 Net charge-offs Commercial 79 .34 75 .33 71
.33 71 .32 84 .38 Lease financing 4 .29 3 .22 4
.30 5 .37 3 .23 Total commercial 83 .34 78 .33
75 .32 76 .32 87 .37 Commercial mortgages (2 ) (.03 ) (7 ) (.09 )
(1 ) (.01 ) (3 ) (.04 ) 5 .06 Construction and development (5 )
(.17 ) (2 ) (.07 ) (1 ) (.03 ) (6 ) (.21 ) (4 ) (.14 ) Total
commercial real estate (7 ) (.07 ) (9 ) (.08 ) (2 ) (.02 ) (9 )
(.08 ) 1 .01 Residential mortgages 7 .05 8 .05 12 .08 12 .08
12 .08 Credit card 187 3.55 204 3.97 190 3.70 181 3.44 161
3.11 Retail leasing 2 .10 2 .11 3 .19 1 .06 1 .07 Home
equity and second mortgages (1 ) (.02 ) (1 ) (.02 ) (1 ) (.02 ) (1
) (.02 ) 1 .02 Other 59 .73 58 .75 58 .76 62
.79 52 .68 Total other retail 60 .42 59 .43 60 .45 62
.46 54 .41 Total net charge-offs,
excluding covered loans 330 .48 340 .50 335 .50 322 .48 315
.47 Covered loans -- -- -- -- -- -- --
-- -- -- Total net charge-offs 330 .47 340 .49 335 .50 322
.47 315 .46 Provision for credit losses 360 350 345 342 325 Other
changes (a) -- 1 (1 ) (1 ) (1 ) Balance, end of
period $4,407 $4,377 $4,366 $4,357
$4,338 Components Allowance for loan losses $3,908
$3,856 $3,816 $3,813 $3,797
Liability for unfunded credit
commitments
499 521 550 544 541 Total
allowance for credit losses $4,407 $4,377 $4,366
$4,357 $4,338 Gross charge-offs $433
$437 $417 $405 $398 Gross recoveries $103 $97 $82 $83 $83
Allowance for credit losses as
a percentage of
Period-end loans, excluding covered
loans
1.59 1.59 1.61 1.60 1.61
Nonperforming loans, excluding
covered loans
425 385 338 317 309
Nonperforming assets, excluding
covered assets
359 331 296 275 264 Period-end loans 1.58 1.58 1.60 1.59
1.60 Nonperforming loans 426 383 338 318 310 Nonperforming assets
352 324 292 272 261
(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 third quarter
of 2017 was $360 million, which was $10 million (2.9 percent)
higher than the prior quarter and $35 million (10.8 percent) higher
than the third quarter of 2016. Credit quality was relatively
stable compared with the second quarter of 2017.
Total net charge-offs in the third quarter of 2017 were $330
million, compared with $340 million in the second quarter of 2017,
and $315 million in the third quarter of 2016. Net charge-offs
decreased $10 million (2.9 percent) compared with the second
quarter of 2017 mainly due to seasonally lower credit card loan net
charge-offs. Net charge-offs increased $15 million (4.8 percent)
compared with the third quarter of 2016 primarily due to higher
credit card loan net charge-offs related to maturity of vintages
within the portfolio, partially offset by lower net charge-offs in
residential mortgages and higher recoveries in total commercial.
The net charge-off ratio was 0.47 percent in the third quarter of
2017, compared with 0.49 percent in the second quarter of 2017 and
0.46 percent in the third quarter of 2016.
The allowance for credit losses was $4,407 million at September
30, 2017, compared with $4,377 million at June 30, 2017, and $4,338
million at September 30, 2016. The ratio of the allowance for
credit losses to period-end loans was 1.58 percent at September 30,
2017 and at June 30, 2017, compared with 1.60 percent at September
30, 2016. The ratio of the allowance for credit losses to
nonperforming loans was 426 percent at September 30, 2017, compared
with 383 percent at June 30, 2017, and 310 percent at September 30,
2016.
Nonperforming assets were $1,251 million at September 30, 2017,
compared with $1,349 million at June 30, 2017, and $1,664 million
at September 30, 2016. The ratio of nonperforming assets to loans
and other real estate was 0.45 percent at September 30, 2017,
compared with 0.49 percent at June 30, 2017, and 0.61 percent at
September 30, 2016. The $98 million (7.3 percent) decrease in
nonperforming assets on a linked quarter basis was driven by
improvements in commercial loans and residential mortgages. The
$413 million (24.8 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 $649 million ($497 million excluding
covered loans) at September 30, 2017, compared with $639 million
($477 million excluding covered loans) at June 30, 2017, and $748
million ($518 million excluding covered loans) at September 30,
2016.
DELINQUENT LOAN RATIOS AS A PERCENT OF ENDING LOAN
BALANCES Table 9 (Percent)
Sep 30 Jun 30 Mar 31 Dec 31 Sep
30 2017 2017 2017
2016 2016 Delinquent loan ratios - 90
days or more past due
excluding nonperforming loans
Commercial .05 .05 .06 .06 .05 Commercial real estate .01 -- .01
.02 .02 Residential mortgages .18 .20 .24 .27 .28 Credit card 1.20
1.10 1.23 1.16 1.11 Other retail .15 .14 .14 .15 .14 Total loans,
excluding covered loans .18 .17 .19 .20 .19 Covered loans 4.66 4.71
5.34 5.53 5.72 Total loans .23 .23 .26 .28 .28 Delinquent
loan ratios - 90 days or more past due
including
nonperforming loans Commercial .33 .39 .52 .57 .61 Commercial real
estate .30 .29 .27 .31 .26 Residential mortgages .98 1.10 1.23 1.31
1.37 Credit card 1.20 1.10 1.24 1.18 1.13 Other retail .43 .42 .43
.45 .42 Total loans, excluding covered loans .55 .59 .67 .71 .72
Covered loans 4.84 5.06 5.53 5.68 5.89 Total loans .60 .64 .73 .78
.79
ASSET QUALITY
Table 10 ($ in millions)
Sep 30 Jun 30 Mar 31 Dec
31 Sep 30 2017 2017
2017 2016 2016 Nonperforming
loans Commercial $231 $283 $397 $443 $477 Lease financing 38
39 42 40 40 Total commercial 269 322 439 483
517 Commercial mortgages 89 84 74 87 98 Construction and
development 33 35 36 37 7 Total
commercial real estate 122 119 110 124 105 Residential
mortgages 474 530 575 595 614 Credit card 1 1 2 3 4 Other retail
163 158 157 157 153 Total nonperforming
loans, excluding covered loans 1,029 1,130 1,283 1,362 1,393
Covered loans 6 12 7 6 7 Total
nonperforming loans 1,035 1,142 1,290 1,368 1,400 Other real
estate (a) 164 157 155 186 213 Covered other real estate (a) 26 25
22 26 28 Other nonperforming assets 26 25 28
23 23 Total nonperforming assets (b) $1,251
$1,349 $1,495 $1,603 $1,664 Total
nonperforming assets, excluding covered assets $1,219 $1,312
$1,466 $1,571 $1,629
Accruing loans 90 days or more past
due, excluding covered loans
$497 $477 $524 $552 $518
Accruing loans 90 days or more past due $649 $639
$718 $764 $748
Performing restructured loans, excluding
GNMA and covered loans
$2,419 $2,473 $2,478 $2,557 $2,672
Performing restructured GNMA and covered loans $1,600 $1,803
$1,746 $1,604 $1,375
Nonperforming assets to loans plus
ORE, excluding covered assets (%)
.44 .48 .54 .58 .61 Nonperforming assets to loans plus ORE
(%) .45 .49 .55 .59 .61 (a) Includes equity investments in
entities whose principal assets are other real estate owned. (b)
Does not include accruing loans 90 days or more past due.
COMMON SHARES
Table 11 (Millions)
3Q 2Q 1Q 4Q
3Q 2017 2017 2017
2016 2016 Beginning shares outstanding
1,679 1,692 1,697 1,705 1,719
Shares issued for stock incentive
plans, acquisitions and other corporate purposes
-- 1 6 6 2 Shares repurchased (12 ) (14 ) (11 )
(14 ) (16 ) Ending shares outstanding 1,667
1,679 1,692 1,697
1,705
CAPITAL POSITION
Table 12 ($ in millions)
Sep 30 Jun 30 Mar 31
Dec 31 Sep 30 2017 2017
2017 2016 2016
Total U.S. Bancorp shareholders' equity $48,723 $48,320 $47,798
$47,298 $47,759
Standardized Approach Basel
III transitional standardized approach Common equity tier 1 capital
$34,876 $34,408 $33,847 $33,720 $33,827 Tier 1 capital 40,411
39,943 39,374 39,421 39,531 Total risk-based capital 48,104 47,824
47,279 47,355 47,452 Common equity tier 1 capital ratio 9.6
% 9.5 % 9.5 % 9.4 % 9.5 % Tier 1 capital ratio 11.1 11.1 11.0 11.0
11.1 Total risk-based capital ratio 13.2 13.2 13.3 13.2 13.3
Leverage ratio 9.1 9.1 9.1 9.0 9.2
Common equity tier 1 capital to
risk-weighted assets estimated for the Basel
III fully implemented standardized approach (a)
9.4 9.3 9.2 9.1 9.3
Advanced Approaches
Common equity tier 1 capital to
risk-weighted assets for the Basel III transitional advanced
approaches
12.1 12.0 11.8 12.2 12.4
Common equity tier 1 capital to
risk-weighted assets estimated for the Basel
III fully implemented advanced approaches (a)
11.8 11.7 11.5 11.7 12.1
Tangible common equity to
tangible assets (a) 7.7 7.5 7.6 7.5 7.5
Tangible common
equity to risk-weighted assets (a) 9.5 9.4 9.4 9.2 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 $48.7 billion at
September 30, 2017, compared with $48.3 billion at June 30, 2017,
and $47.8 billion at September 30, 2016. During the third quarter,
the Company returned 79 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 9.4 percent at September 30,
2017, compared with 9.3 percent at June 30, 2017, and at September
30, 2016. The estimated common equity tier 1 capital to
risk-weighted assets ratio using the Basel III fully implemented
advanced approaches method was 11.8 percent at September 30, 2017,
compared with 11.7 percent at June 30, 2017, and 12.1 percent at
September 30, 2016.
On Wednesday, October 18, 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 75774124. For those
unable to participate during the live call, a recording will be
available at approximately 11:00 a.m. CDT on Wednesday, October 18
and will be accessible through Wednesday, October 25 at 11:00 p.m.
CDT. To access the recorded message within the United States and
Canada, please dial 855-859-2056. If calling from outside the
United States and Canada, please dial 404-537-3406 to access the
recording. The conference ID is 75774124.
Minneapolis-based U.S. Bancorp (NYSE: USB), with $459 billion in
assets as of September 30, 2017, is the parent company of U.S. Bank
National Association, the fifth largest commercial bank in the
United States. The Company operates 3,072 banking offices in 25
states and 4,801 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 Nine Months Ended
(Dollars and Shares in Millions, Except Per Share Data) September
30, September 30, (Unaudited) 2017 2016
2017 2016
Interest Income Loans $3,059
$2,731 $8,757 $8,039 Loans held for sale 40 43 104 110 Investment
securities 568 515 1,653 1,555 Other interest income 47
31 131 89 Total
interest income 3,714 3,320 10,645 9,793
Interest Expense
Deposits 293 161 730 452 Short-term borrowings 90 70 233 201
Long-term debt 196 196 585
567 Total interest expense 579
427 1,548 1,220 Net
interest income 3,135 2,893 9,097 8,573 Provision for credit losses
360 325 1,055 982
Net interest income after provision for credit losses 2,775
2,568 8,042 7,591
Noninterest Income Credit and debit card
revenue 308 299 919 861 Corporate payment products revenue 201 190
564 541 Merchant processing services 405 412 1,190 1,188 ATM
processing services 92 87 267 251 Trust and investment management
fees 380 362 1,128 1,059 Deposit service charges 192 192 553 539
Treasury management fees 153 147 466 436 Commercial products
revenue 221 219 638 654 Mortgage banking revenue 213 314 632 739
Investment products fees 39 41 120 120 Securities gains (losses),
net 9 10 47 16 Other 209 172 646
742 Total noninterest income 2,422 2,445 7,170
7,146
Noninterest Expense Compensation 1,440 1,329 4,247
3,855 Employee benefits 281 280 882 858 Net occupancy and equipment
258 250 760 741 Professional services 104 127 305 346 Marketing and
business development 92 102 291 328 Technology and communications
246 243 723 717 Postage, printing and supplies 82 80 244 236 Other
intangibles 44 45 131 134 Other 492 475
1,423 1,457 Total noninterest expense
3,039 2,931 9,006
8,672 Income before income taxes 2,158 2,082 6,206 6,065
Applicable income taxes 589 566
1,639 1,612 Net income 1,569 1,516 4,567 4,453
Net (income) loss attributable to noncontrolling interests (6 )
(14 ) (31 ) (43 ) Net income
attributable to U.S. Bancorp $1,563 $1,502
$4,536 $4,410 Net income
applicable to U.S. Bancorp common shareholders $1,485
$1,434 $4,302 $4,198
Earnings per common share $.89 $.84 $2.56 $2.44 Diluted
earnings per common share $.88 $.84 $2.55 $2.43 Dividends declared
per common share $.300 $.280 $.860 $.790 Average common shares
outstanding 1,672 1,710 1,683 1,724 Average diluted common shares
outstanding 1,678 1,716
1,689 1,730 U.S. Bancorp
Consolidated Ending Balance Sheet
September 30, December 31, September 30, (Dollars in Millions)
2017 2016 2016
Assets (Unaudited)
(Unaudited) Cash and due from banks $20,540 $15,705 $23,664
Investment securities Held-to-maturity 44,018 42,991 42,873
Available-for-sale 67,772 66,284 67,155 Loans held for sale 3,757
4,826 5,575 Loans Commercial 96,928 93,386 93,201 Commercial real
estate 41,430 43,098 43,468 Residential mortgages 59,317 57,274
56,229 Credit card 20,923 21,749 20,706 Other retail 56,859
53,864 53,664 Total loans, excluding
covered loans 275,457 269,371 267,268 Covered loans 3,262
3,836 4,021 Total loans 278,719 273,207
271,289 Less allowance for loan losses (3,908 ) (3,813 )
(3,797 ) Net loans 274,811 269,394 267,492 Premises and
equipment 2,402 2,443 2,449 Goodwill 9,370 9,344 9,357 Other
intangible assets 3,193 3,303 2,887 Other assets 33,364
31,674 32,682 Total assets $459,227
$445,964 $454,134
Liabilities and Shareholders' Equity Deposits
Noninterest-bearing $82,152 $86,097 $89,101 Interest-bearing
260,437 248,493 245,494 Total
deposits 342,589 334,590 334,595 Short-term borrowings 15,856
13,963 15,695 Long-term debt 34,515 33,323 37,978 Other liabilities
16,916 16,155 17,467 Total
liabilities 409,876 398,031 405,735 Shareholders' equity Preferred
stock 5,419 5,501 5,501 Common stock 21 21 21 Capital surplus 8,457
8,440 8,429 Retained earnings 53,023 50,151 49,231 Less treasury
stock (16,978 ) (15,280 ) (14,844 ) Accumulated other comprehensive
income (loss) (1,219 ) (1,535 ) (579 ) Total U.S.
Bancorp shareholders' equity 48,723 47,298 47,759 Noncontrolling
interests 628 635 640 Total
equity 49,351 47,933 48,399
Total liabilities and equity $459,227 $445,964
$454,134
U.S. Bancorp
Non-GAAP
Financial Measures September 30, June 30, March 31,
December 31, September 30, (Dollars in Millions, Unaudited)
2017 2017 2016 2016
2016 Total equity $49,351 $48,949 $48,433 $47,933
$48,399 Preferred stock (5,419 ) (5,419 ) (5,419 ) (5,501 ) (5,501
) Noncontrolling interests (628 ) (629 ) (635 ) (635 ) (640 )
Goodwill (net of deferred tax liability) (1) (8,141 ) (8,181 )
(8,186 ) (8,203 ) (8,239 ) Intangible assets, other than mortgage
servicing rights (595 ) (634 ) (671 )
(712 ) (756 ) Tangible common equity
(a) 34,568 34,086 33,522 32,882 33,263 Tangible common
equity (as calculated above) 34,568 34,086 33,522 32,882 33,263
Adjustments (2) (52 ) (51 ) (136 )
(55 ) 97
Common equity tier 1 capital estimated for
the Basel III fully implemented standardized and advanced
approaches (b)
34,516 34,035 33,386 32,827 33,360 Total assets 459,227
463,844 449,522 445,964 454,134 Goodwill (net of deferred tax
liability) (1) (8,141 ) (8,181 ) (8,186 ) (8,203 ) (8,239 )
Intangible assets, other than mortgage servicing rights (595 )
(634 ) (671 ) (712 )
(756 ) Tangible assets (c) 450,491 455,029 440,665
437,049 445,139
Risk-weighted assets, determined in
accordance with prescribed transitional standardized approach
regulatory requirements (d)
363,957
*
361,164 356,373 358,237 356,733 Adjustments (3)
3,907
*
3,967 4,731
4,027 3,165
Risk-weighted assets estimated for the
Basel III fully implemented standardized approach (e)
367,864
*
365,131 361,104 362,264 359,898
Risk-weighted assets, determined in
accordance with prescribed transitional advanced approaches
regulatory requirements
287,800
*
287,124 285,963 277,141 272,832 Adjustments (4)
4,164
*
4,231 5,046
4,295 3,372
Risk-weighted assets estimated for the
Basel III fully implemented advanced approaches (f)
291,964
*
291,355 291,009 281,436 276,204
Ratios * Tangible
common equity to tangible assets (a)/(c) 7.7 % 7.5 % 7.6 % 7.5 %
7.5 % Tangible common equity to risk-weighted assets (a)/(d) 9.5
9.4 9.4 9.2 9.3
Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully
implemented standardized approach (b)/(e)
9.4 9.3 9.2 9.1 9.3
Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully
implemented advanced approaches (b)/(f)
11.8 11.7 11.5 11.7 12.1 Three Months Ended September
30, June 30, March 31, December 31, September 30, 2017
2017 2017 2016
2016 Net interest income $3,135 $3,017 $2,945 $2,955 $2,893
Taxable-equivalent adjustment (5) 51 51
50 49 50
Net interest income, on a taxable-equivalent basis 3,186
3,068 2,995 3,004 2,943 Net interest income, on a
taxable-equivalent basis (as calculated above) 3,186 3,068 2,995
3,004 2,943 Noninterest income 2,422 2,419 2,329 2,431 2,445 Less:
Securities gains (losses), net 9 9
29 6 10
Total net revenue, excluding net securities gains (losses)
(g) 5,599 5,478 5,295 5,429 5,378 Noninterest expense (h)
3,039 3,023 2,944 3,004 2,931 Less: Intangible amortization 44
43 44
45 45
Noninterest expense, excluding intangible
amortization (i)
2,995 2,980 2,900 2,959 2,886 Efficiency ratio (h)/(g) 54.3
% 55.2 % 55.6 % 55.3 % 54.5 % Tangible efficiency ratio (i)/(g)
53.5 54.4 54.8
54.5 53.7
* Preliminary data. Subject to change
prior to filings with applicable regulatory agencies.
(1) Includes goodwill related to certain investments in
unconsolidated financial institutions per prescribed regulatory
requirements. (2) Includes net losses on cash flow hedges included
in accumulated other comprehensive income (loss) and other
adjustments. (3) Includes higher risk-weighting for unfunded loan
commitments, investment securities, residential mortgages, mortgage
servicing rights and other adjustments.
(4) Primarily reflects higher
risk-weighting for mortgage servicing rights.
(5) Utilizes a tax rate of 35 percent
for those assets and liabilities whose income or expense is not
included for federal income tax purposes.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171018005135/en/
U.S. BancorpMedia:Dana Ripley,
612-303-3167orInvestors/Analysts:Jennifer Thompson,
612-303-0778
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