Record Earnings Per Diluted Common Share of
$0.83
Return on average assets of 1.43 percent and
average common equity of 13.8 percent
Returned 77 percent of second quarter
earnings to shareholders
U.S. Bancorp (NYSE: USB) today reported net income of $1,522
million for the second quarter of 2016, or $0.83 per diluted common
share, compared with $1,483 million, or $0.80 per diluted common
share, in the second quarter of 2015. The second quarter of 2016
included notable items related to equity investments, legal and
regulatory matters and charitable contributions that, combined,
increased diluted earnings per common share by $0.01.
Highlights for the second quarter of 2016 included:
- Industry-leading return on average
assets of 1.43 percent, return on average common equity of 13.8
percent and efficiency ratio of 54.9 percent (54.0 percent
excluding notable items)
- Record revenue, net income and diluted
earnings per common share for the second quarter of 2016 both as
reported and excluding notable items
- Returned 77 percent of second quarter
earnings to shareholders through dividends and share buybacks
- Average total loans grew 1.6 percent on
a linked quarter basis and 8.1 percent over the second quarter of
2015 (6.5 percent year-over-year, excluding the credit card
portfolio acquisition at the end of the fourth quarter of 2015 and
student loans, which were carried in held for sale in the second
quarter of 2015)
- Average total deposits grew 3.9 percent
on a linked quarter basis and 7.6 percent over the second quarter
of 2015
- Net interest income grew 0.3 percent on
a linked quarter basis and 4.5 percent year-over-year
- Average earnings assets grew 1.9
percent on a linked quarter basis and 5.2 percent
year-over-year
- Net interest margin of 3.02 percent for
the second quarter of 2016 was down 4 basis points from 3.06
percent in the first quarter of 2016 and down 1 basis point from
3.03 percent in the second quarter of 2015
- Payments-related fee revenue grew 8.8
percent linked quarter and 4.9 percent year-over-year, driven by an
increase in credit and debit card revenue, including the impact of
recent portfolio acquisitions, as well as an increase in corporate
payment products revenue
- Credit quality was relatively stable
- Nonperforming assets decreased 2.7
percent on a linked quarter basis
- Commercial nonperforming assets within
the energy portfolio decreased $54 million linked quarter
- Reserves for energy portfolio
commercial loans were 8.8 percent of outstanding balances at June
30, 2016, compared with 9.1 percent at March 31, 2016
- Strong capital position. At June 30,
2016, the estimated common equity tier 1 capital to risk-weighted
assets ratio was 9.3 percent using the Basel III fully implemented
standardized approach and was 12.0 percent using the Basel III
fully implemented advanced approaches method
EARNINGS SUMMARY
Table 1 ($ in millions, except per-share data)
Percent Percent
Change Change 2Q
1Q 2Q 2Q16 vs 2Q16 vs YTD
YTD Percent 2016 2016
2015 1Q16 2Q15
2016 2015 Change Net
income attributable to U.S. Bancorp $1,522 $1,386 $1,483 9.8 2.6
$2,908 $2,914 (.2 ) Diluted earnings per common share $.83 $.76
$.80 9.2 3.8 $1.59 $1.56 1.9 Return on average assets (%)
1.43 1.32 1.46 1.38 1.45 Return on average common equity (%) 13.8
13.0 14.3 13.4 14.2 Net interest margin (%) 3.02 3.06 3.03 3.04
3.05 Efficiency ratio (%) (a) 54.9 54.6 53.2 54.8 53.7 Tangible
efficiency ratio (%) (a) 54.1 53.7 52.3 53.9 52.9 Dividends
declared per common share $.255 $.255 $.255 -- -- $.510 $.500 2.0
Book value per common share (period end) $24.37 $23.82 $22.51 2.3
8.3
(a) Computed as noninterest expense
divided by the sum of net interest income on a taxable-equivalent
basis and noninterest income excluding net securities gains
(losses), and for tangible efficiency ratio, intangible
amortization.
Net income attributable to U.S. Bancorp was $1,522 million for
the second quarter of 2016, 2.6 percent higher than the $1,483
million for the second quarter of 2015, and 9.8 percent higher than
the $1,386 million for the first quarter of 2016. Diluted earnings
per common share were $0.83 in the second quarter of 2016, $0.03
higher than the second quarter of 2015 and $0.07 higher than the
$0.76 reported for the first quarter of 2016. The second quarter of
2016 included $0.01 in notable items, including $180 million of
equity investment income, primarily the result of our membership in
Visa Europe Limited (“Visa Europe”) which was sold to Visa, Inc. on
June 21, 2016, and $110 million in accruals related to legal and
regulatory matters along with a $40 million charitable
contribution. Excluding the notable items, the increase in net
income year-over-year was primarily due to an increase in net
interest income of 4.5 percent , mainly a result of strong loan
growth, and higher noninterest income of 4.4 percent, driven by
growth in credit and debit card revenue, commercial products
revenue, and trust and investment management fees. This increase
was partially offset by higher noninterest expense related to merit
increases and higher variable compensation expense, increased
compliance costs, which peaked in the second quarter 2016, and
higher marketing expense as a result of brand investment. Excluding
the notable items, the increase in net income on a linked quarter
basis was principally due to total net revenue growth of 4.6
percent reflecting typical seasonality in certain lines of
businesses, including payments, mortgage banking and deposit
services, partially offset by higher noninterest expense of 3.4
percent related to increased compliance costs and marketing
expense.
U.S. Bancorp Chairman and Chief Executive Officer Richard K.
Davis said, “U.S. Bancorp reported strong second quarter results,
delivering record revenue and net income in an economy that
continues to be challenged by global concerns and low interest
rates. Despite these economic headwinds we continued to effectively
execute on our strategy to be the most trusted choice and to unify
the customer experience. The second quarter was a record quarter
for us as we once again delivered industry-leading returns, steady
loan growth and strength in our fee-based businesses. Steady loan
growth, demonstrated by continued strength in commercial loans and
momentum in consumer loans, led to increased net interest income
despite a decline in net interest margin. Growth in our fee revenue
continued across many of our fee-based businesses, including our
payments business lines. We also reported strong results in our
capital markets business as we were positioned well to provide
products and services to our customers as they navigated through
the recent market volatility. And we managed our capital
effectively, delivering 77 percent of our second quarter earnings
back to shareholders through dividends and share buybacks. During
the quarter, we were pleased to receive the Federal Reserve’s
non-objection to our capital plan, allowing us once again to return
value to our shareholders by increasing our annual common dividend
by 9.8 percent in the third quarter of 2016. We also made important
investments in our vision for the future, including investments in
the U.S. Bank brand that will help us more effectively articulate
our compelling story to customers in order to generate long-term
growth.
“The strength of our company continues to be driven by the
commitment of our employees. Through their hard work and
dedication, we continue to deliver consistent, predictable and
repeatable industry-leading financial results. We remain well
positioned to provide the right products and services to our
customers so that they may achieve their financial objectives as we
continue to create value for our shareholders.”
INCOME
STATEMENT HIGHLIGHTS
Table
2
(Taxable-equivalent basis, $ in millions,
except per-share data)
Percent Percent
Change Change 2Q 1Q
2Q 2Q16 vs 2Q16 vs YTD YTD
Percent 2016 2016 2015
1Q16 2Q15 2016
2015 Change Net interest income $2,896
$2,888 $2,770 .3 4.5 $5,784 $5,522 4.7 Noninterest income 2,552
2,149 2,272 18.8 12.3 4,701
4,426 6.2 Total net revenue 5,448 5,037 5,042
8.2 8.1 10,485 9,948 5.4 Noninterest expense 2,992
2,749 2,682 8.8 11.6 5,741 5,347
7.4 Income before provision and taxes 2,456 2,288 2,360 7.3
4.1 4,744 4,601 3.1 Provision for credit losses 327
330 281 (.9 ) 16.4 657 545
20.6 Income before taxes 2,129 1,958 2,079 8.7 2.4 4,087
4,056 .8 Taxable-equivalent adjustment 51 53 54 (3.8 ) (5.6 ) 104
108 (3.7 ) Applicable income taxes 542 504
528 7.5 2.7 1,046 1,007 3.9 Net
income 1,536 1,401 1,497 9.6 2.6 2,937 2,941 (.1 )
Net (income) loss attributable to
noncontrolling interests
(14 ) (15 ) (14 ) 6.7 -- (29 ) (27 ) (7.4 )
Net income attributable to U.S. Bancorp $1,522 $1,386
$1,483 9.8 2.6 $2,908 $2,914
(.2 )
Net income applicable to U.S. Bancorp
common shareholders
$1,435 $1,329 $1,417 8.0 1.3
$2,764 $2,782 (.6 ) Diluted earnings per
common share $.83 $.76 $.80 9.2
3.8 $1.59 $1.56 1.9
NET INTEREST INCOME
Table 3
(Taxable-equivalent basis; $ in millions)
Change
Change 2Q 1Q 2Q 2Q16 vs 2Q16
vs YTD YTD 2016 2016
2015 1Q16 2Q15
2016 2015 Change Components of
net interest income Income on earning assets $3,305 $3,275 $3,123
$30 $182 $6,580 $6,239 $341 Expense on interest-bearing liabilities
409 387 353 22
56 796 717 79
Net interest income $2,896 $2,888
$2,770 $8 $126
$5,784 $5,522 $262
Average yields and rates paid Earning assets yield 3.44 % 3.48 %
3.42 % (.04 )% .02 % 3.46 % 3.45 % .01 % Rate paid on
interest-bearing liabilities .58 .56
.52 .02 .06 .57
.54 .03 Gross interest margin 2.86 %
2.92 % 2.90 % (.06 )% (.04 )%
2.89 % 2.91 % (.02 )% Net interest margin 3.02 %
3.06 % 3.03 % (.04 )% (.01 )%
3.04 % 3.05 % (.01 )% Average balances
Investment securities (a) $107,132 $106,031 $102,391 $1,101 $4,741
$106,581 $101,556 $5,025 Loans 266,582 262,281 246,560 4,301 20,022
264,432 247,251 17,181 Earning assets 385,368 378,208 366,428 7,160
18,940 381,788 363,650 18,138 Interest-bearing liabilities 285,796
279,516 270,573 6,280 15,223 282,656 269,235 13,421 (a)
Excludes unrealized gain (loss)
Net Interest Income
Net interest income on a taxable-equivalent basis in the second
quarter of 2016 was $2,896 million, an increase of $126 million
(4.5 percent) over the second quarter of 2015. The increase was
driven by loan growth and higher rates, partially offset by the
loan portfolio mix. Average earning assets were $18.9 billion (5.2
percent) higher than the second quarter of 2015, driven by
increases of $20.0 billion (8.1 percent) in average total loans and
$4.7 billion (4.6 percent) in average investment securities. Net
interest income increased $8 million (0.3 percent) on a linked
quarter basis, primarily due to growth in average total loans,
partially offset by the loan portfolio mix and higher funding
costs. Average total loans were $4.3 billion (1.6 percent) higher
on a linked quarter basis.
The net interest margin in the second quarter of 2016 was 3.02
percent, compared with 3.03 percent in the second quarter of 2015,
and 3.06 percent in the first quarter of 2016. The decrease in the
net interest margin on a year-over-year basis was principally due
to securities purchases at lower average rates and lower
reinvestment rates on maturing securities, partially offset by
higher rates on new loans. On a linked quarter basis, the decrease
in net interest margin primarily reflected the loan portfolio mix
as well as lower average rates on new securities purchases and
lower reinvestment rates on maturing securities.
Investment Securities
Average investment securities in the second quarter of 2016 were
$4.7 billion (4.6 percent) higher year-over-year and $1.1 billion
(1.0 percent) higher than the prior quarter. These increases were
primarily due to purchases of U.S. Treasury and U.S. government
agency-backed securities, net of prepayments and maturities, to
support regulatory liquidity coverage ratio requirements.
AVERAGE LOANS
Table 4 ($ in millions)
Percent Percent
Change Change 2Q 1Q 2Q 2Q16
vs 2Q16 vs YTD YTD Percent
2016 2016 2015
1Q16 2Q15 2016
2015 Change Commercial $86,899 $84,582
$77,932 2.7 11.5 $85,741 $77,062 11.3 Lease financing 5,255
5,238 5,321 .3 (1.2 ) 5,246 5,323 (1.4 ) Total
commercial 92,154 89,820 83,253 2.6 10.7 90,987 82,385 10.4
Commercial mortgages 31,950 31,836 32,499 .4 (1.7 ) 31,893 32,807
(2.8 ) Construction and development 11,038 10,565
9,947 4.5 11.0 10,801 9,751 10.8 Total commercial real
estate 42,988 42,401 42,446 1.4 1.3 42,694 42,558 .3
Residential mortgages 55,501 54,208 51,114 2.4 8.6 54,854 51,269
7.0 Credit card 20,140 20,244 17,613 (.5 ) 14.3 20,192
17,718 14.0 Retail leasing 5,326 5,179 5,696 2.8 (6.5 )
5,253 5,756 (8.7 ) Home equity and second mortgages 16,394 16,368
15,958 .2 2.7 16,381 15,928 2.8 Other 29,748 29,550
25,415 .7 17.0 29,649 26,504 11.9 Total other retail 51,468
51,097 47,069 .7 9.3 51,283 48,188 6.4
Total loans, excluding covered loans 262,251 257,770
241,495 1.7 8.6 260,010 242,118 7.4 Covered loans
4,331 4,511 5,065 (4.0 ) (14.5 ) 4,422 5,133
(13.9 ) Total loans $266,582 $262,281 $246,560
1.6 8.1 $264,432 $247,251 6.9
Loans
Average total loans were $20.0 billion (8.1 percent) higher in
the second quarter of 2016 than the second quarter of 2015 (6.5
percent excluding student loans and the credit card portfolio
acquisition). The increase was driven by growth in total commercial
loans (10.7 percent), residential mortgages (8.6 percent), and
credit card loans (14.3 percent, 5.8 percent excluding the credit
card portfolio acquisition), and total other retail loans (9.3
percent, 4.1 percent excluding student loans). These increases were
partially offset by a decline in the run-off covered loans
portfolio (14.5 percent). Average total loans were $4.3 billion
(1.6 percent) higher in the second quarter of 2016 than the first
quarter of 2016. The increase was driven by growth in total
commercial loans (2.6 percent), residential mortgages (2.4 percent)
and total commercial real estate (1.4 percent).
AVERAGE DEPOSITS
Table 5 ($ in millions)
Percent Percent
Change Change 2Q 1Q 2Q 2Q16
vs 2Q16 vs YTD YTD Percent
2016 2016 2015
1Q16 2Q15 2016
2015 Change Noninterest-bearing
deposits $79,171 $78,569 $77,347 .8 2.4 $78,870 $75,937 3.9
Interest-bearing savings deposits Interest checking 60,842 57,910
55,205 5.1 10.2 59,376 54,933 8.1 Money market savings 92,904
86,462 79,898 7.5 16.3 89,683 76,910 16.6 Savings accounts 40,258
39,250 37,071 2.6 8.6 39,754 36,555 8.8 Total
of savings deposits 194,004 183,622 172,174 5.7 12.7 188,813
168,398 12.1 Time deposits 34,211 33,687 36,223 1.6
(5.6 ) 33,949 37,787 (10.2 ) Total interest-bearing deposits
228,215 217,309 208,397 5.0 9.5 222,762
206,185 8.0 Total deposits $307,386 $295,878 $285,744
3.9 7.6 $301,632 $282,122 6.9
Deposits
Average total deposits for the second quarter of 2016 were $21.6
billion (7.6 percent) higher than the second quarter of 2015.
Average noninterest-bearing deposits increased $1.8 billion (2.4
percent) year-over-year, mainly in Consumer and Small Business
Banking and Wholesale Banking and Commercial Real Estate, partially
offset by a decline in Wealth Management and Securities Services.
Average total savings deposits were $21.8 billion (12.7 percent)
higher year-over-year, the result of growth across all business
lines. Growth in Consumer and Small Business Banking total savings
deposits included net new account growth of 2.8 percent. Average
time deposits were $2.0 billion (5.6 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 $11.5 billion (3.9 percent)
over the first quarter of 2016. Average noninterest-bearing
deposits increased $602 million (0.8 percent) on a linked quarter
basis, mainly due to higher balances in Consumer and Small Business
Banking, partially offset by lower balances in Wholesale Banking
and Commercial Real Estate. Average total savings deposits
increased $10.4 billion (5.7 percent) reflecting increases across
all business lines. Average time deposits, which are managed based
on funding needs, relative pricing, and liquidity characteristics
increased $524 million (1.6 percent) on a linked quarter basis.
NONINTEREST INCOME
Table 6 ($ in millions)
Percent
Percent Change Change
2Q 1Q 2Q 2Q16 vs 2Q16 vs
YTD YTD Percent 2016 2016
2015 1Q16 2Q15
2016 2015 Change
Credit and debit card revenue $296 $266 $266 11.3 11.3 $562
$507 10.8 Corporate payment products revenue 181 170 178 6.5 1.7
351 348 .9 Merchant processing services 403 373 395 8.0 2.0 776 754
2.9 ATM processing services 84 80 80 5.0 5.0 164 158 3.8 Trust and
investment management fees 358 339 334 5.6 7.2 697 656 6.3 Deposit
service charges 179 168 174 6.5 2.9 347 335 3.6 Treasury management
fees 147 142 142 3.5 3.5 289 279 3.6 Commercial products revenue
238 197 214 20.8 11.2 435 414 5.1 Mortgage banking revenue 238 187
231 27.3 3.0 425 471 (9.8 ) Investment products fees 39 40 48 (2.5
) (18.8 ) 79 95 (16.8 ) Securities gains (losses), net 3 3 -- -- nm
6 -- nm Other 386 184 210 nm 83.8 570 409 39.4
Total noninterest income $2,552 $2,149 $2,272
18.8 12.3 $4,701 $4,426 6.2
Noninterest Income
Second quarter noninterest income was $2,552 million, which was
$280 million higher than the second quarter of 2015. Excluding the
Visa Europe sale, noninterest income increased 4.4 percent
reflecting increases in credit and debit card revenue, trust and
investment management fees, and commercial products revenue. Credit
and debit card revenue increased $30 million (11.3 percent)
reflecting higher transaction volumes including acquired
portfolios. Merchant processing services revenue increased $8
million (2.0 percent). Adjusted for the approximate $4 million
impact of foreign currency rate changes, year-over-year merchant
processing services revenue growth would have been approximately
3.0 percent. Trust and investment management fees increased $24
million (7.2 percent) reflecting lower money market fee waivers.
Commercial products revenue increased $24 million (11.2 percent)
driven by higher bond underwriting fees, foreign currency customer
activity and other capital markets activity as a result of market
volatility.
Noninterest income was $403 million higher in the second quarter
of 2016 than the first quarter of 2016. Excluding the Visa Europe
sale, noninterest income increased 10.4 percent reflecting
seasonally higher fee-based revenue including credit and debit card
revenue, merchant processing services revenue, mortgage banking
revenue and deposit service charges. Credit and debit card revenue
increased $30 million (11.3 percent), primarily due to seasonally
higher transaction volumes. Merchant processing services revenue
increased $30 million (8.0 percent) as a result of seasonally
higher transaction volumes. Mortgage banking revenue increased $51
million (27.3 percent) mainly due to seasonally higher production
volumes. Commercial products revenue increased $41 million (20.8
percent) primarily due to higher bond underwriting fees, foreign
currency customer activity and capital markets volume, partially
reflecting market volatility. Trust and investment management fees
increased $19 million (5.6 percent) primarily due to account
growth, improved market conditions and lower money market fee
waivers. Deposit service charges increased $11 million (6.5
percent) due to seasonally higher transaction volumes.
NONINTEREST EXPENSE
Table 7 ($ in millions)
Percent Percent
Change Change 2Q 1Q 2Q
2Q16 vs 2Q16 vs YTD YTD Percent
2016 2016 2015
1Q16 2Q15 2016
2015 Change Compensation $1,277 $1,249
$1,196 2.2 6.8 $2,526 $2,375 6.4 Employee benefits 278 300 293 (7.3
) (5.1 ) 578 610 (5.2 ) Net occupancy and equipment 243 248 247
(2.0 ) (1.6 ) 491 494 (.6 ) Professional services 121 98 106 23.5
14.2 219 183 19.7 Marketing and business development 149 77 96 93.5
55.2 226 166 36.1 Technology and communications 241 233 221 3.4 9.0
474 435 9.0 Postage, printing and supplies 77 79 64 (2.5 ) 20.3 156
146 6.8 Other intangibles 44 45 43 (2.2 ) 2.3 89 86 3.5 Other 562
420 416 33.8 35.1 982 852 15.3 Total
noninterest expense $2,992 $2,749 $2,682 8.8 11.6
$5,741 $5,347 7.4
Noninterest Expense
Second quarter noninterest expense was $2,992 million, which was
$310 million (11.6 percent) higher than the second quarter of 2015.
Excluding the notable expense items, noninterest expense increased
$160 million (6.0 percent) related to higher compensation expense,
professional services expense, and technology and communications
expense, partially offset by lower employee benefits expense.
Compensation expense increased $81 million (6.8 percent),
principally due to the impact of merit increases along with higher
variable compensation including performance-based incentives.
Professional services expense increased $15 million (14.2 percent)
primarily due to compliance-related matters, while technology and
communications expense increased $20 million (9.0 percent) due to
acquired card portfolio conversion costs. Excluding the notable
charitable contribution, the marketing and business development
increase of $13 million reflected brand advertising. Postage,
printing and supplies expense increased $13 million (20.3 percent)
reflecting the impact of a prior year reimbursement from a business
partner. Offsetting these increases was lower employee benefits
expense of $15 million (5.1 percent) mainly due to lower pension
costs.
Noninterest expense increased $243 million (8.8 percent) on a
linked quarter basis, $93 million (3.4 percent) excluding the
second quarter 2016 notable items, reflecting higher professional
services and compensation expenses, partially offset by lower
employee benefits expense. Excluding the notable charitable
contribution, the marketing and business development expense
increase of $32 million was driven by brand advertising.
Professional services expense was $23 million (23.5 percent) higher
compared with the first quarter of 2016 principally due to higher
costs for compliance-related matters. Compensation expense
increased $28 million (2.2 percent) due to merit increases and
higher variable compensation including performance-based
incentives. Partially offsetting these increases was a decrease in
employee benefits expense of $22 million (7.3 percent), driven by
seasonally lower payroll tax expense.
Provision for Income Taxes
The provision for income taxes for the second quarter of 2016
resulted in a tax rate on a taxable-equivalent basis of 27.9
percent (effective tax rate of 26.1 percent), compared with 28.0
percent (effective tax rate of 26.1 percent) in the second quarter
of 2015, and 28.4 percent (effective tax rate of 26.5 percent) in
the first quarter of 2016, reflecting the favorable settlement of
certain tax exam matters in the second quarter of 2016.
ALLOWANCE FOR CREDIT LOSSES
Table 8 ($ in millions)
2Q 1Q
4Q 3Q 2Q
2016 % (b) 2016 %
(b) 2015 % (b) 2015
% (b) 2015 % (b)
Balance, beginning of period $4,320 $4,306 $4,306 $4,326 $4,351
Net charge-offs Commercial 74 .34 78 .37 58 .28 68 .34 39
.20 Lease financing 5 .38 5 .38 5 .38 3
.23 3 .23 Total commercial 79 .34 83 .37 63 .29 71 .33 42
.20 Commercial mortgages (4 ) (.05 ) (2 ) (.03 ) 2 .02 -- -- 4 .05
Construction and development 4 .15 (3 ) (.11 ) (2 ) (.08 )
(11 ) (.43 ) (3 ) (.12 ) Total commercial real estate -- -- (5 )
(.05 ) -- -- (11 ) (.10 ) 1 .01 Residential mortgages 17 .12
19 .14 16 .12 25 .19 33 .26 Credit card 170 3.39 164 3.26
166 3.50 153 3.38 169 3.85 Retail leasing 2 .15 1 .08 1 .08
2 .14 1 .07 Home equity and second mortgages (1 ) (.02 ) 2 .05 6
.15 7 .17 11 .28 Other 50 .68 51 .69 53 .71 45
.65 39 .62 Total other retail 51 .40 54 .43 60 .47 54
.44 51 .43 Total net charge-offs,
excluding covered loans 317 .49 315 .49 305 .48 292 .47 296
.49 Covered loans -- -- -- -- -- -- --
-- -- -- Total net charge-offs 317 .48 315 .48 305 .47 292
.46 296 .48 Provision for credit losses 327 330 305 282 281 Other
changes (a) (1 ) (1 ) -- (10 ) (10 ) Balance, end of period
$4,329 $4,320 $4,306 $4,306 $4,326
Components Allowance for loan losses $3,806 $3,853
$3,863 $3,965 $4,013 Liability for unfunded credit commitments 523
467 443 341 313 Total allowance
for credit losses $4,329 $4,320 $4,306 $4,306
$4,326 Gross charge-offs $407 $405 $381 $372
$380 Gross recoveries $90 $90 $76 $80 $84 Allowance for
credit losses as a percentage of Period-end loans, excluding
covered loans 1.62 1.65 1.67 1.71 1.76 Nonperforming loans,
excluding covered loans 311 302 360 347 348 Nonperforming assets,
excluding covered assets 263 255 288 280 279 Period-end
loans 1.61 1.63 1.65 1.69 1.74 Nonperforming loans 312 303 361 347
349 Nonperforming assets 259 251 283 275 274
(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 2016 was $327 million, which was $3 million (0.9 percent) lower
than the prior quarter and $46 million (16.4 percent) higher than
the second quarter of 2015. Credit quality was relatively
stable.
The provision for credit losses was $10 million higher than net
charge-offs in the second quarter of 2016, $15 million higher than
net charge-offs in the first quarter of 2016 and $15 million lower
than net charge-offs in the second quarter of 2015. The reserve
build for the second quarter of 2016 was driven by portfolio
growth, partially offset by reduced energy portfolio exposures and
residential mortgage credit quality improvement. Total net
charge-offs in the second quarter of 2016 were $317 million,
compared with $315 million in the first quarter of 2016, and $296
million in the second quarter of 2015. Net charge-offs increased $2
million (0.6 percent) compared with the first quarter of 2016
mainly due to modest increases in construction and development and
credit card net charge-offs. Net charge-offs increased $21 million
(7.1 percent) compared with the second quarter of 2015 primarily
due to higher commercial loan net charge-offs, partially offset by
lower charge-offs related to residential mortgages. The net
charge-off ratio was 0.48 percent in the second quarter of 2016,
the first quarter of 2016 and in the second quarter of 2015.
The allowance for credit losses was $4,329 million at June 30,
2016, compared with $4,320 million at March 31, 2016, and $4,326
million at June 30, 2015. The ratio of the allowance for credit
losses to period-end loans was 1.61 percent at June 30, 2016,
compared with 1.63 percent at March 31, 2016, and 1.74 percent at
June 30, 2015. The ratio of the allowance for credit losses to
nonperforming loans was 312 percent at June 30, 2016, compared with
303 percent at March 31, 2016, and 349 percent at June 30,
2015.
Nonperforming assets were $1,672 million at June 30, 2016,
compared with $1,719 million at March 31, 2016, and $1,577 million
at June 30, 2015. The ratio of nonperforming assets to loans and
other real estate was 0.62 percent at June 30, 2016, compared with
0.65 percent at March 31, 2016, and 0.63 percent at June 30, 2015.
The $95 million (6.0 percent) increase in nonperforming assets on a
year-over-year basis was driven by commercial loans within the
energy portfolio, partially offset by improvements in the Company’s
residential and commercial real estate portfolios. The decrease in
nonperforming assets on a linked quarter basis of $47 million (2.7
percent) was driven by improvements in the energy portfolio and in
residential mortgages. Accruing loans 90 days or more past due were
$724 million ($478 million excluding covered loans) at June 30,
2016, compared with $804 million ($528 million excluding covered
loans) at March 31, 2016, and $801 million ($469 million excluding
covered loans) at June 30, 2015.
Commercial loans to customers in the energy sector were
approximately $3.0 billion ($11.3 billion of commitments) at June
30, 2016, compared with $3.4 billion ($11.9 billion of commitments)
at March 31, 2016. The decline was primarily driven by the
completion of our spring borrowing base redeterminations on
reserve-based loans within our energy portfolio. During the second
quarter 2016, criticized commitments within the energy portfolio
decreased by $509 million while nonperforming loans in the energy
portfolio decreased $54 million. Energy portfolio loans represent
1.1 percent of the Company’s total loans outstanding at June 30,
2016, and 1.3 percent at March 31, 2016. At June 30, 2016, the
Company had credit reserves of 8.8 percent of total outstanding
energy loan balances, compared with 9.1 percent of total
outstanding energy loan balances at March 31, 2016.
DELINQUENT LOAN RATIOS AS A PERCENT OF
ENDING LOAN BALANCES Table 9 (Percent)
Jun 30 Mar 31
Dec 31 Sep 30 Jun 30 2016
2016 2015 2015
2015 Delinquent loan ratios - 90 days or more past
due
excluding nonperforming loans Commercial .05 .05 .05 .05
.05 Commercial real estate .03 .04 .03 .05 .05 Residential
mortgages .27 .31 .33 .33 .30 Credit card .98 1.10 1.09 1.10 1.03
Other retail .13 .15 .15 .14 .14 Total loans, excluding covered
loans .18 .20 .21 .20 .19 Covered loans 5.81 6.23 6.31 6.57 6.66
Total loans .27 .30 .32 .32 .32 Delinquent loan ratios - 90
days or more past due
including nonperforming loans
Commercial .58 .57 .25 .25 .16 Commercial real estate .27 .28 .33
.39 .46 Residential mortgages 1.39 1.54 1.66 1.73 1.80 Credit card
1.00 1.14 1.13 1.16 1.12 Other retail .43 .45 .46 .47 .51 Total
loans, excluding covered loans .70 .75 .67 .70 .70 Covered loans
5.98 6.39 6.48 6.80 6.88 Total loans .79 .84 .78 .81 .82
ASSET QUALITY
Table 10 ($ in
millions)
Jun 30
Mar 31 Dec 31 Sep 30 Jun 30 2016
2016 2015 2015
2015 Nonperforming loans Commercial $450 $457 $160 $157 $78
Lease financing 39 16 14 12 12 Total
commercial 489 473 174 169 90 Commercial mortgages 91 94 92
105 116 Construction and development 12 10 35
39 59 Total commercial real estate 103 104 127 144 175
Residential mortgages 628 677 712 735 769 Credit card 5 7 9
12 16 Other retail 157 157 162 171 178
Total nonperforming loans, excluding covered loans 1,382 1,418
1,184 1,231 1,228 Covered loans 7 7 8
11 11 Total nonperforming loans 1,389 1,425 1,192 1,242
1,239 Other real estate (a) 229 242 280 276 287 Covered
other real estate (a) 34 33 32 31 35 Other nonperforming assets 20
19 19 18 16 Total nonperforming
assets (b) $1,672 $1,719 $1,523 $1,567
$1,577 Total nonperforming assets, excluding covered assets
$1,631 $1,679 $1,483 $1,525 $1,531
Accruing loans 90 days or more past due, excluding covered
loans $478 $528 $541 $510 $469
Accruing loans 90 days or more past due $724 $804
$831 $825 $801 Performing restructured loans,
excluding GNMA and covered loans $2,676 $2,735 $2,766
$2,746 $2,815 Performing restructured GNMA and
covered loans $1,602 $1,851 $1,944 $2,031
$2,111 Nonperforming assets to loans plus ORE,
excluding covered assets (%) .62 .64 .58 .61 .63
Nonperforming assets to loans plus ORE (%) .62 .65 .58 .61 .63
(a) Includes equity investments in entities whose principal
assets are other real estate owned. (b) Does not include accruing
loans 90 days or more past due.
COMMON
SHARES
Table 11 (Millions)
2Q 1Q
4Q 3Q 2Q 2016
2016 2015 2015
2015 Beginning shares outstanding 1,732 1,745 1,754
1,767 1,780 Shares issued for stock incentive plans, acquisitions
and other corporate purposes 2 3 1 3 1 Shares repurchased (15 )
(16 ) (10 ) (16 ) (14 ) Ending shares
outstanding 1,719 1,732 1,745
1,754 1,767
CAPITAL POSITION
Table 12
($ in millions)
Jun 30 Mar
31 Dec 31 Sep 30 Jun
30 2016 2016 2015
2015 2015 Total U.S. Bancorp
shareholders' equity $47,390 $46,755 $46,131 $45,075 $44,537
Standardized Approach Basel III transitional
standardized approach Common equity tier 1 capital $33,444 $32,827
$32,612 $32,124 $31,674 Tier 1 capital 39,148 38,532 38,431 37,197
36,748 Total risk-based capital 47,049 45,412 45,313 44,015 43,526
Common equity tier 1 capital ratio 9.5 % 9.5 % 9.6 % 9.6 %
9.5 % Tier 1 capital ratio 11.1 11.1 11.3 11.1 11.0 Total
risk-based capital ratio 13.4 13.1 13.3 13.1 13.1 Leverage ratio
9.3 9.3 9.5 9.3 9.2
Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully
implemented
standardized approach 9.3 9.2 9.1 9.2 9.2
Advanced
Approaches Common equity tier 1 capital to risk-weighted
assets for the Basel III transitional advanced approaches 12.3 12.3
12.5 13.0 12.9
Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully
implemented
advanced approaches 12.0 11.9 11.9 12.4 12.4
Tangible
common equity to tangible assets 7.6 7.7 7.6 7.7 7.5
Tangible common equity to risk-weighted assets 9.3 9.3 9.2
9.3 9.2 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.
Capital Management
Total U.S. Bancorp shareholders’ equity was $47.4 billion at
June 30, 2016, compared with $46.8 billion at March 31, 2016, and
$44.5 billion at June 30, 2015. During the second quarter, the
Company returned 77 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, 2016,
compared with 9.2 percent at March 31, 2016, and at June 30, 2015.
The estimated common equity tier 1 capital to risk-weighted assets
ratio using the Basel III fully implemented advanced approaches
method was 12.0 percent at June 30, 2016, compared with 11.9
percent at March 31, 2016, and 12.4 percent at June 30, 2015.
On Friday, July 15, 2016, at 8:00 a.m. CDT, Richard K. Davis,
chairman and chief executive officer, and Kathy Rogers, vice chair
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 8158556. For those unable to participate during
the live call, a recording will be available at approximately 11:00
a.m. CDT on Friday, July 15 and be accessible through Friday, July
22 at 11:00 p.m. CDT. To access the recorded message within the
United States and Canada, 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 8158556.
Minneapolis-based U.S. Bancorp (NYSE: USB), with $438 billion in
assets as of June 30, 2016, is the parent company of U.S. Bank
National Association, the fifth largest commercial bank in the
United States. The Company operates 3,122 banking offices in 25
states and 4,923 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, U.S. Bancorp’s
business and financial performance is likely to be negatively
impacted by recently enacted and future legislation and regulation.
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, 2015, 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 measures are viewed by management as useful additional
methods of reflecting the level of capital available to withstand
unexpected 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 includes unrealized
gains and losses related to available-for-sale securities and
excludes preferred securities, including preferred stock, the
nature and extent of which varies among different financial
services companies. These 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 measures disclosed by the Company may be considered non-GAAP
financial measures.
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
(Dollars and Shares in Millions, Except
Per Share Data)
Three Months Ended Six Months Ended June 30, June 30,
(Unaudited) 2016 2015 2016
2015
Interest Income Loans $ 2,664 $ 2,463 $
5,308 $ 4,956 Loans held for sale 36 65 67 106 Investment
securities 523 505 1,040 1,000 Other interest income 29
35 58
67 Total interest income 3,252 3,068 6,473
6,129
Interest Expense Deposits 152 113 291 231 Short-term
borrowings 66 62 131 123 Long-term debt 189
177 371 361
Total interest expense 407 352
793 715 Net
interest income 2,845 2,716 5,680 5,414 Provision for credit losses
327 281 657
545 Net interest income after provision
for credit losses 2,518 2,435 5,023 4,869
Noninterest Income
Credit and debit card revenue 296 266 562 507 Corporate payment
products revenue 181 178 351 348 Merchant processing services 403
395 776 754 ATM processing services 84 80 164 158 Trust and
investment management fees 358 334 697 656 Deposit service charges
179 174 347 335 Treasury management fees 147 142 289 279 Commercial
products revenue 238 214 435 414 Mortgage banking revenue 238 231
425 471 Investment products fees 39 48 79 95 Securities gains
(losses), net 3 -- 6 -- Other 386 210
570 409
Total noninterest income 2,552 2,272 4,701 4,426
Noninterest
Expense Compensation 1,277 1,196 2,526 2,375 Employee benefits
278 293 578 610 Net occupancy and equipment 243 247 491 494
Professional services 121 106 219 183 Marketing and business
development 149 96 226 166 Technology and communications 241 221
474 435 Postage, printing and supplies 77 64 156 146 Other
intangibles 44 43 89 86 Other 562 416
982 852
Total noninterest expense 2,992 2,682
5,741 5,347
Income before income taxes 2,078 2,025 3,983 3,948 Applicable
income taxes 542 528
1,046 1,007 Net income
1,536 1,497 2,937 2,941 Net (income) loss attributable to
noncontrolling interests (14 ) (14 )
(29 ) (27 ) Net income attributable to
U.S. Bancorp $ 1,522 $ 1,483 $
2,908 $ 2,914 Net income applicable to U.S.
Bancorp common shareholders $ 1,435 $ 1,417
$ 2,764 $ 2,782 Earnings
per common share $ .83 $ .80 $ 1.60 $ 1.57 Diluted earnings per
common share $ .83 $ .80 $ 1.59 $ 1.56 Dividends declared per
common share $ .255 $ .255 $ .510 $ .500 Average common shares
outstanding 1,725 1,771 1,731 1,776 Average diluted common shares
outstanding 1,731 1,779
1,737 1,784
U.S. Bancorp
Consolidated Ending
Balance Sheet June 30, December 31, June 30, (Dollars in
Millions) 2016 2015 2015
Assets
(Unaudited) (Unaudited) Cash and due from banks $ 14,038 $ 11,147 $
17,925 Investment securities Held-to-maturity 42,030 43,590 46,233
Available-for-sale 66,490 61,997 57,078 Loans held for sale 4,311
3,184 8,498 Loans Commercial 92,514 88,402 84,620 Commercial real
estate 43,290 42,137 42,258 Residential mortgages 55,904 53,496
51,337 Credit card 20,571 21,012 17,788 Other retail 52,008
51,206 47,652
Total loans, excluding covered loans 264,287 256,253 243,655
Covered loans 4,234 4,596
4,984 Total loans 268,521 260,849 248,639 Less
allowance for loan losses (3,806 ) (3,863 )
(4,013 ) Net loans 264,715 256,986 244,626 Premises
and equipment 2,459 2,513 2,551 Goodwill 9,359 9,361 9,374 Other
intangible assets 2,852 3,350 3,225 Other assets 32,209
29,725 29,565
Total assets $ 438,463 $ 421,853 $
419,075
Liabilities and Shareholders' Equity
Deposits Noninterest-bearing $ 86,572 $ 83,766 $ 86,189
Interest-bearing 231,018 216,634
210,659 Total deposits 317,590 300,400 296,848
Short-term borrowings 18,433 27,877 27,784 Long-term debt 36,941
32,078 34,141 Other liabilities 17,470
14,681 15,071 Total liabilities 390,434
375,036 373,844 Shareholders' equity Preferred stock 5,501 5,501
4,756 Common stock 21 21 21 Capital surplus 8,402 8,376 8,335
Retained earnings 48,269 46,377 44,434 Less treasury stock (14,241
) (13,125 ) (12,144 ) Accumulated other comprehensive income (loss)
(562 ) (1,019 ) (865 ) Total
U.S. Bancorp shareholders' equity 47,390 46,131 44,537
Noncontrolling interests 639 686
694 Total equity 48,029
46,817 45,231 Total liabilities
and equity $ 438,463 $ 421,853
$ 419,075
U.S. Bancorp
Non-GAAP Financial Measures
(Dollars in Millions, Unaudited)
June 30,
March 31,
December 31,
September 30,
June 30,
2016
2016
2015
2015
2015
Total equity $ 48,029 $ 47,393 $ 46,817 $ 45,767 $ 45,231 Preferred
stock (5,501 ) (5,501 ) (5,501 ) (4,756 ) (4,756 ) Noncontrolling
interests (639 ) (638 ) (686 ) (692 ) (694 ) Goodwill (net of
deferred tax liability) (1) (8,246 ) (8,270 ) (8,295 ) (8,324 )
(8,350 ) Intangible assets, other than mortgage servicing rights
(796 ) (820 ) (838 )
(779 ) (744 ) Tangible common equity (a)
32,847 32,164 31,497 31,216 30,687 Tangible common equity
(as calculated above) 32,847 32,164 31,497 31,216 30,687
Adjustments (2) 133 99
67 118 125
Common equity tier 1 capital estimated for the Basel III fully
implemented standardized and advanced approaches (b) 32,980 32,263
31,564 31,334 30,812 Total assets 438,463 428,638 421,853
415,943 419,075 Goodwill (net of deferred tax liability) (1) (8,246
) (8,270 ) (8,295 ) (8,324 ) (8,350 ) Intangible assets, other than
mortgage servicing rights (796 ) (820 )
(838 ) (779 ) (744 ) Tangible
assets (c) 429,421 419,548 412,720 406,840 409,981
Risk-weighted assets, determined in accordance with prescribed
transitional standardized approach regulatory requirements (d)
351,462
*
346,227 341,360 336,227 333,177 Adjustments (3)
3,079
*
3,485 3,892
3,532 3,532 Risk-weighted assets
estimated for the Basel III fully implemented standardized approach
(e)
354,541
*
349,712 345,252 339,759 336,709 Risk-weighted assets,
determined in accordance with prescribed transitional advanced
approaches regulatory requirements
271,495
*
267,309 261,668 248,048 245,038 Adjustments (4)
3,283
*
3,707 4,099
3,723 3,721 Risk-weighted assets
estimated for the Basel III fully implemented advanced approaches
(f)
274,778
*
271,016 265,767 251,771 248,759
Ratios * Tangible
common equity to tangible assets (a)/(c) 7.6 % 7.7 % 7.6 % 7.7 %
7.5
%
Tangible common equity to risk-weighted assets (a)/(d) 9.3 9.3 9.2
9.3 9.2 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 9.2 9.2 Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully implemented
advanced approaches (b)/(f) 12.0
11.9 11.9 12.4
12.4 * 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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160715005064/en/
U.S. BancorpMediaDana Ripley,
612-303-3167orInvestors/AnalystsJennifer Thompson, 612-303-0778
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