Exhibit 99.1

 

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U.S. Bancorp Reports Second Quarter 2018 Results

  Record net revenue of $5,640 million, record net income of $1,750 million and record diluted earnings per share of $1.02

  Industry leading return on average assets of 1.54% and return on average common equity of 15.3%

 

 

    2Q18 Key Financial Data

 

           2Q18 Highlights
          

 PROFITABILITY METRICS

    2Q18       1Q18       2Q17       

 

 Net income of $1,750 million and diluted earnings per common share of $1.02 in the second quarter of 2018

 

 Industry leading return on average assets of 1.54% and return on average common equity of 15.3%

 

 Return on tangible common equity of 19.8%

 

 Returned 69% of 2Q earnings to shareholders through dividends and share buybacks

 

 Year-over-year positive operating leverage

 

 Net interest income grew 4.9% year-over-year (4.1% on a taxable-equivalent basis)

 

 Total noninterest income grew 2.8% year-over year

      Payment services revenue grew 5.3%

      Trust and investment management fees increased 5.5%

       Mortgage banking revenue decreased 9.9%

 

 Nonperforming assets decreased 19.1% on a year-over-year basis and 9.4% on a linked quarter basis

 

 

 Return on average assets (%)

    1.54        1.50        1.35         

 

 Return on average common equity (%)

    15.3        14.9        13.4         

 

 Return on tangible common equity (%) (a)

    19.8        19.3        17.2         

 

 Net interest margin (%)

    3.13        3.13        3.08         

 

 Efficiency ratio (%) (a)

 

   

 

54.8 

 

 

 

   

 

55.9 

 

 

 

   

 

54.9  

 

 

 

    
 INCOME STATEMENT (b)   2Q18      1Q18      2Q17             

 Net interest income (taxable-equivalent basis)

    $3,226        $3,197        $3,100         

 

 Noninterest income

    $2,414        $2,272        $2,348         

 

 Net income attributable to U.S. Bancorp

    $1,750        $1,675        $1,500         

 

 Diluted earnings per common share

    $1.02        $.96        $.85         

 

 Dividends declared per common share

 

   

 

$.30 

 

 

 

   

 

$.30 

 

 

 

   

 

$.28  

 

 

 

    
 BALANCE SHEET (b)   2Q18      1Q18      2Q17             

 Average total loans

    $278,624        $279,388        $275,528         

 

 Average total deposits

    $334,822        $334,580        $331,172         

 

 Net charge-off ratio

    .48%       .49%       .49%        

 

 Book value per common share (period end)

    $27.02        $26.54         $25.55         

 

 Basel III standardized CET1 (c)

    9.1%       9.0%       9.3%        
                              

 

(a) See Non-GAAP Financial Measures reconciliation on pages 16-17

 

 

 

(b) Dollars in millions, except per share data

 

 

 

(c) CET1 = Common equity tier 1 capital ratio, 2Q17 as if fully implemented

 

 

 

 

CEO Commentary

 

“Our second quarter results were highlighted by record revenue, net income and diluted earnings per common share. We continue to deliver industry-leading profitability metrics, including a return on tangible common equity of 19.8%. This quarter, the Federal Reserve conducted its annual stress test and, as in prior years, the results confirmed our ability to withstand severely adverse economic conditions. Following this exercise, we announced a 23% increase in our quarterly dividend, as well as a 15% increase in our stock repurchase authorization, supporting our commitment to maximize shareholder value. In addition to these solid results, we are investing in our future by expanding our digital offerings, which will allow our customers to access us how, when and where they want and enhance their customer experiences. Each and every day our employees exemplify what being the most trusted choice in banking is all about and I want to thank our entire U.S. Bank team, whose commitment to serving all our customers is what ultimately drives our financial success.”

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

 

 

In the Spotlight

 

 

2018 Annual Stress Test

The results of the Federal Reserve Board’s most recent annual stress test continued to demonstrate U.S. Bancorp’s ability to withstand periods of economic stress while remaining profitable.

Automated Investor Offering

Responding to customers’ desire for smart, easy-to-use and safe digital investment tools and strategies, the Company recently launched its new Automated Investor offering. Automated Investor provides an easy-to-use digital advice platform with the power of the Company’s investment expertise through U.S. Bancorp Investments.

2018 Capital Plan

Based on the 2018 stress test results, the Company’s board of directors approved an increase of the Company’s quarterly dividend of 23% to $0.37 per common share beginning in the third quarter of 2018, as well as a new share repurchase program for the year.

New U.S. Bancorp Directors

U.S. Bancorp’s Board of Directors recently elected Elizabeth L. Buse, Yusuf I. Mehdi and Dorothy J. Bridges as directors of the Company. Each new director brings unique insight that is extremely useful to the board and will help further guide the Company’s future success.

 

 

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


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   U.S. Bancorp Second Quarter 2018 Results
      

 

 

 INCOME STATEMENT HIGHLIGHTS  
 ($ in millions, except per-share data)      Percent Change                       
      2Q
2018
     1Q
2018
     2Q
2017
     2Q18 vs
1Q18
     2Q18 vs
2Q17
     YTD
2018
     YTD
2017
     Percent
Change
 

Net interest income

     $3,197         $3,168         $3,049         .9         4.9         $6,365         $6,029         5.6   

Taxable-equivalent adjustment

     29         29         51         --         (43.1)        58         101         (42.6)  

Net interest income (taxable-equivalent basis)

     3,226         3,197         3,100         .9         4.1         6,423         6,130         4.8   

Noninterest income

     2,414         2,272         2,348         6.3         2.8         4,686         4,607         1.7   

Total net revenue

     5,640         5,469         5,448         3.1         3.5         11,109         10,737         3.5   

Noninterest expense

     3,085         3,055         2,984         1.0         3.4         6,140         5,893         4.2   

Income before provision and income taxes

     2,555         2,414         2,464         5.8         3.7         4,969         4,844         2.6   

Provision for credit losses

     327         341         350         (4.1)        (6.6)        668         695         (3.9)  

Income before taxes

     2,228         2,073         2,114         7.5         5.4         4,301         4,149         3.7   

Income taxes and taxable-equivalent adjustment

     470         391         602         20.2         (21.9)        861         1,151         (25.2)  

Net income

     1,758         1,682         1,512         4.5         16.3         3,440         2,998         14.7   

Net (income) loss attributable to noncontrolling interests

     (8)        (7)        (12)        (14.3)        33.3         (15)        (25)        40.0   

Net income attributable to U.S. Bancorp

     $1,750         $1,675         $1,500         4.5         16.7         $3,425         $2,973         15.2   

Net income applicable to U.S. Bancorp common shareholders

     $1,678         $1,597         $1,430         5.1         17.3         $3,275         $2,817         16.3   

Diluted earnings per common share

     $1.02         $.96         $.85         6.3         20.0         $1.98         $1.66         19.3   
                                                                         

Net income attributable to U.S. Bancorp was $1,750 million for the second quarter of 2018, which was 16.7 percent higher than the $1,500 million for the second quarter of 2017, and 4.5 percent higher than the $1,675 million for the first quarter of 2018. Diluted earnings per common share were $1.02 in the second quarter of 2018, compared with $0.85 in the second quarter of 2017 and $0.96 in the first quarter of 2018.

The increase in net income year-over-year was primarily due to total net revenue growth of 3.5 percent partially offset by noninterest expense growth of 3.4 percent. Net interest income increased 4.9 percent (4.1 percent on a taxable-equivalent basis), mainly a result of the impact of rising interest rates and earning assets growth. Noninterest income increased 2.8 percent driven by higher payment services revenue and trust and investment management fees, partially offset by decreases in mortgage banking revenue and commercial products revenue compared with a year ago. Noninterest expense increased 3.4 percent primarily due to increased compensation expense related to supporting business growth and compliance programs, merit increases, and variable compensation related to revenue growth, along with higher employee benefits expense, partially offset by lower other noninterest expense driven by a reduction in mortgage banking costs.

Net income increased on a linked quarter basis primarily due to total net revenue growth of 3.1 percent. The increase in total net revenue reflected an increase in net interest income of 0.9 percent due to the impact of rising interest rates and an additional day in the second quarter. Noninterest income increased 6.3 percent driven by seasonally higher payment services revenue, higher commercial products revenue, and other noninterest income. The increase in total net revenue was partially offset by an increase in noninterest expense of 1.0 percent primarily driven by increased compensation expense related to seasonal merit increases as well as hiring to support business growth, along with higher marketing and business development costs and professional services expense, partially offset by seasonally lower employee benefits expense.

 

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   U.S. Bancorp Second Quarter 2018 Results
      

 

 

 NET INTEREST INCOME  
 (Taxable-equivalent basis; $ in millions)      Change                       
     

2Q

2018

    

1Q

2018

    

2Q

2017

     2Q18 vs
1Q18
     2Q18 vs
2Q17
    

YTD

2018

    

YTD

2017

     Change  

Components of net interest
income

 

                 

   Income on earning assets

     $3,980         $3,822         $3,572         $158         $408         $7,802         $7,016         $786   

   Expense on interest-bearing liabilities

     754         625         472         129         282         1,379         886         493   

Net interest income

     $3,226         $3,197         $3,100         $29         $126         $6,423         $6,130         $293   

Average yields and rates paid

                       

   Earning assets yield

     3.86%        3.75%        3.54%        .11%        .32%        3.81%        3.51%        .30%  

   Rate paid on interest-bearing liabilities

     .97           .81         .63         .16         .34         .89         .60         .29   

Gross interest margin

     2.89%        2.94%        2.91%        (.05)%        (.02)%        2.92%        2.91%        .01%  

Net interest margin

     3.13%        3.13%        3.08%        --%        .05%        3.13%        3.07%        .06%  

Average balances

                       

   Investment securities (a)

     $114,578         $113,493         $111,368         $1,085         $3,210         $114,039         $111,067         $2,972   

   Loans

     278,624         279,388         275,528         (764)        3,096         279,004         274,350         4,654   

   Earning assets

     412,676         411,849         403,883         827         8,793         412,265         401,595         10,670   

   Interest-bearing liabilities

     312,217         311,615         299,271         602         12,946         311,917         297,729         14,188   

(a) Excludes unrealized gain (loss)

 

           
                                       

Net interest income on a taxable-equivalent basis in the second quarter of 2018 was $3,226 million, an increase of $126 million (4.1 percent) over the second quarter of 2017. The increase was principally driven by earning assets growth and the impact of rising interest rates, partially offset by deposit and funding mix shift and the impact of tax reform which reduced the taxable-equivalent adjustment benefit related to tax exempt assets. Average earning assets were $8.8 billion (2.2 percent) higher than the second quarter of 2017, reflecting increases of $3.1 billion (1.1 percent) in average total loans, $3.2 billion (2.9 percent) in average investment securities, and $1.7 billion (12.3 percent) in average other earning assets.

Net interest income on a taxable-equivalent basis increased $29 million (0.9 percent) on a linked quarter basis primarily driven by the impact of higher rates and an additional day in the second quarter, partially offset by deposit and funding mix shift. Average earning assets were $827 million (0.2 percent) higher on a linked quarter basis, primarily due to an increase of $1.1 billion (1.0 percent) in average investment securities. Average total loans decreased $764 million (0.3 percent) which reflects the sale of approximately $1.5 billion of student loans in the second quarter of 2018. Excluding the impact of the student loan portfolio sale, average total loans increased $767 million (0.3 percent).

The net interest margin in the second quarter of 2018 was 3.13 percent, compared with 3.08 percent in the second quarter of 2017 and 3.13 percent in the first quarter of 2018. The increase in the net interest margin year-over-year was primarily due to higher interest rates, partially offset by loan mix, higher funding costs and the impact of tax reform of 2 basis points. Net interest margin is flat on a linked quarter basis reflecting the impact of higher rates offset by deposit and funding mix shift.

Average investment securities in the second quarter of 2018 were $3.2 billion (2.9 percent) higher year-over-year and $1.1 billion (1.0 percent) higher than the prior quarter. The increases were primarily due to purchases of U.S. government mortgage-backed securities, net of prepayments and maturities, in support of liquidity management.

 

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   U.S. Bancorp Second Quarter 2018 Results
      

 

 

 AVERAGE LOANS                                                                
 ($ in millions)                         Percent Change                       
     2Q      1Q      2Q      2Q18 vs      2Q18 vs      YTD      YTD      Percent  
      2018      2018      2017      1Q18      2Q17      2018      2017      Change  

Commercial

     $92,835         $91,933         $90,061         1.0        3.1        $92,386         $89,177         3.6  

Lease financing

     5,518         5,532         5,577         (.3      (1.1      5,526         5,517         .2  

Total commercial

     98,353         97,465         95,638         .9        2.8        97,912         94,694         3.4  

Commercial mortgages

     28,710         29,176         30,627         (1.6      (6.3      28,942         31,042         (6.8

Construction and development

     11,147         11,190         11,922         (.4      (6.5      11,168         11,810         (5.4

Total commercial real estate

     39,857         40,366         42,549         (1.3      (6.3      40,110         42,852         (6.4

Residential mortgages

     60,834         60,174         58,544         1.1        3.9        60,505         58,224         3.9  

Credit card

     21,220         21,284         20,631         (.3      2.9        21,252         20,737         2.5  

Retail leasing

     8,150         7,982         7,181         2.1        13.5        8,067         6,827         18.2  

Home equity and second mortgages

     16,048         16,195         16,252         (.9      (1.3      16,121         16,256         (.8

Other

     31,265         32,874         31,194         (4.9      .2        32,065         31,125         3.0  

Total other retail

     55,463         57,051         54,627         (2.8      1.5        56,253         54,208         3.8  

Total loans, excluding covered loans

     275,727         276,340         271,989         (.2      1.4        276,032         270,715         2.0  

Covered loans

     2,897         3,048         3,539         (5.0      (18.1      2,972         3,635         (18.2

Total loans

     $278,624         $279,388         $275,528         (.3      1.1        $279,004         $274,350         1.7  
                                                                         

Average total loans were $3.1 billion (1.1 percent) higher than the second quarter of 2017 (1.8 percent excluding the impact of the student loan portfolio sale). The increase was due to growth in total commercial loans (2.8 percent), residential mortgages (3.9 percent), and retail leasing (13.5 percent). These increases were partially offset by a decrease in total commercial real estate loans (6.3 percent) due to disciplined underwriting and customers paying down balances. Loan growth was also impacted by continued run-off of the covered loans portfolio (18.1 percent). Average total loans were $764 million (0.3 percent) lower than the first quarter of 2018 primarily due to the impact of the student loan portfolio sale. Excluding this impact, average total loans increased 0.3 percent driven by growth in residential mortgages (1.1 percent), total commercial loans (0.9 percent), and retail leasing (2.1 percent), partially offset by continued pay-offs of commercial real estate loans (1.3 percent) and run-off of covered loans (5.0 percent).

 

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   U.S. Bancorp Second Quarter 2018 Results
      

 

 

 AVERAGE DEPOSITS  
 ($ in millions)                     Percent Change                    
    2Q     1Q     2Q     2Q18 vs     2Q18 vs     YTD     YTD     Percent  
     2018     2018     2017     1Q18     2Q17     2018     2017     Change  

Noninterest-bearing deposits

    $78,987         $79,482         $82,710         (.6     (4.5     $79,234         $81,729         (3.1

Interest-bearing savings deposits

               

Interest checking

    69,918         70,358         67,290         (.6     3.9       70,136         66,490         5.5  

Money market savings

    103,333         103,367         106,777         --       (3.2     103,350         107,763         (4.1

Savings accounts

    45,069         44,388         43,524         1.5       3.5       44,730         43,069         3.9  

Total savings deposits

    218,320         218,113         217,591         .1       .3       218,216         217,322         .4  

Time deposits

    37,515         36,985         30,871         1.4       21.5       37,252         30,759         21.1  

Total interest-bearing deposits

    255,835         255,098         248,462         .3       3.0       255,468         248,081         3.0  

Total deposits

    $334,822         $334,580         $331,172         .1       1.1       $334,702         $329,810         1.5  
                                                                 

Average total deposits for the second quarter of 2018 were $3.7 billion (1.1 percent) higher than the second quarter of 2017. Average noninterest-bearing deposits decreased $3.7 billion (4.5 percent) year-over-year primarily due to decreases in Corporate and Commercial Banking and Wealth Management and Investment Services. Average total savings deposits were $729 million (0.3 percent) higher year-over-year driven by growth in Consumer and Business Banking, partially offset by decreases in Corporate and Commercial Banking and Wealth Management and Investment Services. Average time deposits were $6.6 billion (21.5 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 $242 million (0.1 percent) from the first quarter of 2018. On a linked quarter basis, average noninterest-bearing deposits decreased $495 million (0.6 percent) primarily due to a decrease in Corporate and Commercial Banking, partially offset by an increase in Wealth Management and Investment Services. Average total savings deposits increased $207 million (0.1 percent) reflecting an increase in Consumer and Business Banking, partially offset by a decline in Corporate and Commercial Banking. Average time deposits, which are managed based on funding needs, relative pricing and liquidity characteristics, increased $530 million (1.4 percent).

 

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   U.S. Bancorp Second Quarter 2018 Results
      

 

 

NONINTEREST INCOME  
($ in millions)         Percent Change        
    2Q     1Q     2Q     2Q18 vs     2Q18 vs     YTD     YTD     Percent  
     2018     2018     2017     1Q18     2Q17     2018     2017     Change  

Credit and debit card revenue

    $351         $324         $330         8.3        6.4        $675         $629         7.3   

Corporate payment products revenue

    158         154         140         2.6        12.9        312         277         12.6   

Merchant processing services

    387         363         381         6.6        1.6        750         735         2.0   

ATM processing services

    90         79         75         13.9        20.0        169         146         15.8   

Trust and investment management fees

    401         398         380         .8        5.5        799         748         6.8   

Deposit service charges

    183         182         179         .5        2.2        365         351         4.0   

Treasury management fees

    155         150         160         3.3        (3.1)       305         313         (2.6)  

Commercial products revenue

    234         220         243         6.4        (3.7)       454         490         (7.3)  

Mortgage banking revenue

    191         184         212         3.8        (9.9)       375         419         (10.5)  

Investment products fees

    47         46         44         2.2        6.8        93         86         8.1   

Securities gains (losses), net

    10         5         9         nm        11.1        15         38         (60.5)  

Other

    207         167         195         24.0        6.2        374         375         (.3)  

 

Total noninterest income

 

 

 

 

$2,414  

 

 

    $2,272         $2,348         6.3        2.8        $4,686         $4,607         1.7   
                                                                 

Second quarter noninterest income of $2,414 million was $66 million (2.8 percent) higher than the second quarter of 2017 led by strong growth in payment services revenue and trust and investment management fees. ATM processing services revenue also increased year-over-year. These increases were partially offset by lower mortgage banking revenue and commercial products revenue which were impacted by industry trends in these revenue categories. Payment services revenue increased $45 million (5.3 percent) due to higher credit and debit card revenue of $21 million (6.4 percent), an increase in corporate payment products revenue of $18 million (12.9 percent), and higher merchant processing services of $6 million (1.6 percent) all driven by higher sales volumes. Trust and investment management fees increased $21 million (5.5 percent) due to business growth and favorable market conditions. ATM processing services revenue increased $15 million (20.0 percent) primarily due to higher transaction volumes. The decrease in mortgage banking revenue of $21 million (9.9 percent) was primarily due to lower mortgage production, partially offset by a favorable change in the valuation of mortgage servicing rights, net of hedging activities. Treasury management fees declined $5 million (3.1 percent) reflecting core business growth offset by the impact of earnings credits during rising interest rates. In addition, the decrease in commercial products revenue of $9 million (3.7 percent) was mainly due to lower trading revenue, commercial leasing fees, and loan fees, partially offset by higher foreign currency customer activity.

Noninterest income was $142 million (6.3 percent) higher in the second quarter of 2018 compared with the first quarter of 2018 reflecting stronger payment services revenue as credit and debit card revenue grew $27 million (8.3 percent) due to seasonally higher sales volumes and merchant processing services increased $24 million (6.6 percent) primarily due to higher volumes. Commercial products revenue increased $14 million (6.4 percent) due to stronger capital markets volume. Other noninterest income increased $40 million (24.0 percent), which included the student loan portfolio sale and equity investment income.

 

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   U.S. Bancorp Second Quarter 2018 Results
      

 

 

NONINTEREST EXPENSE  
($ in millions)                       Percent Change                      
     2Q
2018
    1Q
2018
    2Q
2017
    2Q18 vs
1Q18
    2Q18 vs
2Q17
    YTD
2018
    YTD
2017
    Percent
Change
 

Compensation

  $ 1,542      $ 1,523      $ 1,416        1.2       8.9     $ 3,065      $ 2,807        9.2  

Employee benefits

    299        330        274        (9.4     9.1       629        575        9.4  

Net occupancy and equipment

    262        265        255        (1.1     2.7       527        502        5.0  

Professional services

    95        83        105        14.5       (9.5     178        201        (11.4

Marketing and business development

    111        97        109        14.4       1.8       208        199        4.5  

Technology and communications

    242        235        223        3.0       8.5       477        440        8.4  

Postage, printing and supplies

    80        80        81        --       (1.2     160        162        (1.2

Other intangibles

    40        39        43        2.6       (7.0     79        87        (9.2

Other

    414        403        478        2.7       (13.4     817        920        (11.2
                     

 

Total noninterest expense

  $ 3,085      $ 3,055      $ 2,984        1.0       3.4     $ 6,140      $ 5,893        4.2  
                                             
                                                                 

Second quarter noninterest expense of $3,085 million was $101 million (3.4 percent) higher than the second quarter of 2017 primarily due to higher personnel costs and technology investment, partially offset by lower other noninterest expense. Compensation expense increased $126 million (8.9 percent) principally due to the impact of hiring to support business growth and compliance programs, merit increases, and higher variable compensation related to business production. Employee benefits expense increased $25 million (9.1 percent) primarily driven by increased medical costs and staffing. Other noninterest expense decreased $64 million (13.4 percent) due to lower mortgage servicing-related costs.

Noninterest expense increased $30 million (1.0 percent) on a linked quarter basis primarily due to higher compensation expense, reflecting the impact of seasonal merit increases as well as hiring to support business growth, and higher variable compensation related to business production. Marketing and business development and professional services expense are also seasonally higher during the second quarter. These increases were largely offset by a seasonal decrease in employee benefits due to higher payroll taxes during the first quarter of each year.

Provision for Income Taxes

The provision for income taxes for the second quarter of 2018 resulted in a tax rate of 21.1 percent on a taxable-equivalent basis (effective tax rate of 20.1 percent), compared with 28.5 percent (effective tax rate of 26.7 percent) in the second quarter of 2017, and 18.9 percent on a taxable-equivalent basis (effective tax rate of 17.7 percent) in the first quarter of 2018. The lower 2018 tax rates reflect the tax reform legislation enacted during the fourth quarter of 2017. In addition, the first quarter of 2018 reflected the tax benefit of restricted stock vesting that occurs principally in the first quarter of each year, as well as a favorable settlement of tax matters.

 

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   U.S. Bancorp Second Quarter 2018 Results
      

 

 

 ALLOWANCE FOR CREDIT LOSSES
 ($ in millions)    2Q             1Q               4Q               3Q               2Q         
      2018      % (b)       2018        % (b)       2017        % (b)       2017        % (b)       2017        % (b) 

Balance, beginning of period

     $4,417             $4,417             $4,407             $4,377             $4,366       

Net charge-offs

                             

Commercial

     54          .23          56          .25          22          .09          79          .34          75        .33  

Lease financing

     4          .29          4          .29          6          .44          4          .29          3        .22  
  

 

 

       

 

 

       

 

 

       

 

 

       

 

 

    

Total commercial

     58          .24          60          .25          28          .11          83          .34          78        .33  

Commercial mortgages

     --          --          (4)         (.06)         18          .24          (2)         (.03)         (7)       (.09) 

Construction and development

     --          --          1          .04          --          --          (5)         (.17)         (2)       (.07) 
  

 

 

       

 

 

       

 

 

       

 

 

       

 

 

    

Total commercial real estate

     --          --          (3)         (.03)         18          .17          (7)         (.07)         (9)       (.08) 

Residential mortgages

     4          .03          7          .05          10          .07          7          .05          8        .05  

Credit card

     210          3.97          211          4.02          205          3.83          187          3.55          204        3.97  

Retail leasing

     3          .15          3          .15          3          .15          2          .10          2        .11  

Home equity and second mortgages

     (2)         (.05)         (1)         (.03)         (2)         (.05)         (1)         (.02)         (1)       (.02) 

Other

     59          .76          64          .79          63          .76          59          .73          58        .75  
  

 

 

       

 

 

       

 

 

       

 

 

       

 

 

    

Total other retail

     60          .43          66          .47          64          .44          60          .42          59        .43  
  

 

 

       

 

 

       

 

 

       

 

 

       

 

 

    

Total net charge-offs, excluding covered loans

     332          .48          341          .50          325          .47          330          .48          340        .50  

Covered loans

     --          --          --          --          --          --          --          --          --        --  
  

 

 

       

 

 

       

 

 

       

 

 

       

 

 

    

Total net charge-offs

     332          .48          341          .49          325          .46          330          .47          340        .49  

Provision for credit losses

     327             341             335             360             350       

Other changes (a)

     (1)            --             --             --             1       
  

 

 

       

 

 

       

 

 

       

 

 

       

 

 

    

Balance, end of period

      $4,411              $4,417              $4,417              $4,407              $4,377       
  

 

 

       

 

 

       

 

 

       

 

 

       

 

 

    

Components

                             

Allowance for loan losses

     $3,920             $3,918             $3,925             $3,908             $3,856       

Liability for unfunded credit commitments

     491             499             492             499             521       
  

 

 

       

 

 

       

 

 

       

 

 

       

 

 

    

Total allowance for credit losses

      $4,411              $4,417              $4,417              $4,407              $4,377       
  

 

 

       

 

 

       

 

 

       

 

 

       

 

 

    

Gross charge-offs

     $437             $453             $464             $433             $437       

Gross recoveries

     $105             $112             $139             $103             $97       

Allowance for credit losses as a percentage of

 

                    

Period-end loans, excluding covered loans

     1.58             1.60             1.58             1.59             1.59       

Nonperforming loans, excluding covered loans

     484             431             438             425             385       

Nonperforming assets, excluding covered assets

     412             373             374             359             331       

Period-end loans

     1.57             1.59             1.58             1.58             1.58       

Nonperforming loans

     484             431             438             426             383       

Nonperforming assets

     404             367             368             352             324       

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

(b)  Annualized and calculated on average loan balances

 

 

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   U.S. Bancorp Second Quarter 2018 Results
      

 

The Company’s provision for credit losses for the second quarter of 2018 was $327 million, which was $14 million (4.1 percent) lower than the prior quarter and $23 million (6.6 percent) lower than the second quarter of 2017. Credit quality was relatively stable compared with a year ago and the first quarter of 2018 with lower nonperforming assets.

Total net charge-offs in the second quarter of 2018 were $332 million, compared with $341 million in the first quarter of 2018, and $340 million in the second quarter of 2017. Net charge-offs decreased $9 million (2.6 percent) compared with the first quarter of 2018 mainly due to lower total other retail net charge-offs, partially offset by lower commercial real estate recoveries. Net charge-offs decreased $8 million (2.4 percent) compared with the second quarter of 2017 primarily due to lower commercial net charge-offs, partially offset by lower commercial mortgage recoveries and higher credit card net charge-offs. The net charge-off ratio was 0.48 percent in the second quarter of 2018, compared with 0.49 percent in the first quarter of 2018 and in the second quarter of 2017.

The allowance for credit losses was $4,411 million at June 30, 2018, compared with $4,417 million at March 31, 2018, and $4,377 million at June 30, 2017. The ratio of the allowance for credit losses to period-end loans was 1.57 percent at June 30, 2018, compared with 1.59 percent at March 31, 2018, and 1.58 percent at June 30, 2017. The ratio of the allowance for credit losses to nonperforming loans was 484 percent at June 30, 2018, compared with 431 percent at March 31, 2018, and 383 percent at June 30, 2017.

Nonperforming assets were $1,091 million at June 30, 2018, compared with $1,204 million at March 31, 2018, and $1,349 million at June 30, 2017. The ratio of nonperforming assets to loans and other real estate was 0.39 percent at June 30, 2018, compared with 0.43 percent at March 31, 2018, and 0.49 percent at June 30, 2017. The year-over-year decrease in nonperforming assets was driven by improvements in nonperforming residential mortgages, total commercial loans, and other real estate owned, partially offset by increases in nonperforming other retail loans and other nonperforming assets. Accruing loans 90 days or more past due were $640 million ($514 million excluding covered loans) at June 30, 2018, compared with $702 million ($566 million excluding covered loans) at March 31, 2018, and $639 million ($477 million excluding covered loans) at June 30, 2017.

 

 DELINQUENT LOAN RATIOS AS A PERCENT OF ENDING LOAN BALANCES                  
 (Percent)    Jun 30
2018
     Mar 31
2018
     Dec 31
2017
     Sep 30
2017
     Jun 30
2017
 

 Delinquent loan ratios - 90 days or more past due excluding nonperforming loans

 

  

Commercial

     .06         .06         .06         .05         .05   

Commercial real estate

     .01         .01         .01         .01         --   

Residential mortgages

     .18         .22         .22         .18         .20   

Credit card

     1.15         1.29         1.28         1.20         1.10   

Other retail

     .16         .18         .17         .15         .14   

 Total loans, excluding covered loans

     .19         .21         .21         .18         .17   

Covered loans

     4.46         4.57         4.74         4.66         4.71   

 Total loans

     .23         .25         .26         .23         .23   

 Delinquent loan ratios - 90 days or more past due including nonperforming loans

 

  

Commercial

     .28         .37         .31         .33         .39   

Commercial real estate

     .27         .31         .37         .30         .29   

Residential mortgages

     .84         .93         .96         .98         1.10   

Credit card

     1.15         1.29         1.28         1.20         1.10   

Other retail

     .48         .48         .46         .43         .42   

 Total loans, excluding covered loans

     .51         .58         .57         .55         .59   

Covered loans

     4.68         4.77         4.93         4.84         5.06   

 Total loans

     .55         .62         .62         .60         .64   
                                              

 

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   U.S. Bancorp Second Quarter 2018 Results
      

 

 

 ASSET QUALITY (a)                                        
 ($ in millions)                                   
      Jun 30
2018
     Mar 31
2018
     Dec 31
2017
     Sep 30
2017
     Jun 30
2017
 

 Nonperforming loans

              

 Commercial

     $199         $274         $225         $231         $283   

 Lease financing

     25         27         24         38         39   
                                            

 Total commercial

     224         301         249         269         322   

 Commercial mortgages

     72         86         108         89         84   

 Construction and development

     32         33         34         33         35   
                                            

 Total commercial real estate

     104         119         142         122         119   

 Residential mortgages

     400         430         442         474         530   

 Credit card

     --          --                         

 Other retail

     178         168         168         163         158   
                                            

 Total nonperforming loans, excluding covered loans

     906         1,018         1,002         1,029         1,130   

 Covered loans

                                 12   
                                            

 Total nonperforming loans

     912         1,024         1,008         1,035         1,142   

 Other real estate

     108         124         141         164         157   

 Covered other real estate

     20         20         21         26         25   

 Other nonperforming assets

     51         36         30         26         25   
                                            

 Total nonperforming assets

     $1,091         $1,204         $1,200         $1,251         $1,349   
                                            

 Total nonperforming assets, excluding covered assets

     $1,065         $1,178         $1,173         $1,219         $1,312   
                                            

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

     $514         $566         $572         $497         $477   
                                            

 Accruing loans 90 days or more past due

     $640         $702         $720         $649         $639   
                                            

 Performing restructured loans, excluding GNMA and covered loans

     $2,164         $2,190         $2,306         $2,419         $2,473   
                                            

 Performing restructured GNMA and covered loans

     $1,695         $1,598         $1,713         $1,600         $1,803   
                                            

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

     .38         .43         .42         .44         .48   

 Nonperforming assets to loans plus ORE (%)

     .39         .43         .43         .45         .49   

 

 (a) Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due

 

 

 

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   U.S. Bancorp Second Quarter 2018 Results
      

 

 

 COMMON SHARES
 (Millions)   

2Q

2018

     1Q
2018
     4Q
2017
     3Q
2017
     2Q 
2017 

 Beginning shares outstanding

     1,649         1,656         1,667         1,679       1,692   

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

     --                        --        1   

 Shares repurchased

     (13)        (11)        (12)        (12)      (14)  

 Ending shares outstanding

          1,636         1,649         1,656         1,667       1,679   

    

 

 CAPITAL POSITION  
 ($ in millions)    Jun 30
2018
    Mar 31
2018
    Dec 31
2017
    Sep 30
2017
    Jun 30
2017
 

 

 Total U.S. Bancorp shareholders’ equity

   $ 49,628      $ 49,187      $ 49,040      $ 48,723      $ 48,320   

 Basel III Standardized Approach (a)

          

    Common equity tier 1 capital

   $ 34,161      $ 33,539      $ 34,369      $ 34,876      $ 34,408   

    Tier 1 capital

     39,611        38,991        39,806        40,411        39,943   

    Total risk-based capital

     47,258        46,640        47,503        48,104        47,824   

 

    Fully implemented common equity tier 1 capital ratio (a)

     9.1    %      9.0        9.1    % (b)      9.4    % (b)      9.3    % (b) 

    Tier 1 capital ratio

     10.5        10.4        10.8        11.1        11.1   

    Total risk-based capital ratio

     12.6        12.5        12.9        13.2        13.2   

    Leverage ratio

     8.9        8.8        8.9        9.1        9.1   

Basel III Advanced Approaches (a)

          

    Fully implemented common equity tier 1 capital ratio (a)

     11.6        11.5        11.6    (b)      11.8    (b)      11.7    (b) 

 Tangible common equity to tangible assets (b)

     7.8        7.7        7.6        7.7        7.5   

 Tangible common equity to risk-weighted assets (b)

     9.3        9.3        9.4        9.5        9.4   

 Common equity tier 1 capital ratio calculated under the transitional standardized approach (a)

     --         --         9.3        9.6        9.5   

 Common equity tier 1 capital ratio calculated under the transitional advanced approaches (a)

     --         --         12.0        12.1        12.0   

 

(a) Beginning January 1, 2018, the regulatory capital requirements fully reflect implementation of Basel III. Prior to 2018, the Company’s capital ratios reflected certain transitional adjustments. Basel III includes two comprehensive methodologies for calculating risk-weighted assets: a general standardized approach and more risk-sensitive advanced approaches, with the Company’s capital adequacy being evaluated against the methodology that is most restrictive.

 

(b) See Non-GAAP Financial Measures reconciliation on page 16

 

 

 

Total U.S. Bancorp shareholders’ equity was $49.6 billion at June 30, 2018, compared with $49.2 billion at March 31, 2018, and $48.3 billion at June 30, 2017. During the second quarter, the Company returned 69 percent of earnings to shareholders through dividends and share buybacks.

All regulatory ratios continue to be in excess of “well-capitalized” requirements. The common equity tier 1 capital to risk-weighted assets ratio using the Basel III standardized approach was 9.1 percent at June 30, 2018, compared with 9.0 percent at March 31, 2018, and 9.5 percent at June 30, 2017. The common equity tier 1 capital to risk-weighted assets ratio using the Basel III advanced approaches method was 11.6 percent at June 30, 2018, compared with 11.5 percent at March 31, 2018, and 12.0 percent at June 30, 2017.

 

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   U.S. Bancorp Second Quarter 2018 Results
      

 

  Investor Conference Call

 

On Wednesday, July 18, 2018, at 8:00 a.m. CDT, Andy Cecere, Chairman, President and Chief Executive Officer, and Terry Dolan, Vice Chairman and Chief Financial Officer, will host a conference call to review the financial results. The conference call will be available online or by telephone. To access the webcast and presentation, visit U.S. Bancorp’s website at usbank.com and click on “About US”, “Investor Relations” and “Webcasts & Presentations.” To access the conference call from locations within the United States and Canada, please dial 866-316-1409. Participants calling from outside the United States and Canada, please dial 706-634-9086. The conference ID number for all participants is 9049069. For those unable to participate during the live call, a recording will be available at approximately 11:00 a.m. CDT on Wednesday, July 18 and will be accessible until Wednesday, July 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 9049069.

 

  About U.S. Bancorp

 

U.S. Bancorp, with 74,000 employees and $461 billion in assets as of June 30, 2018, is the parent company of U.S. Bank, the fifth-largest commercial bank in the United States. The Minneapolis-based bank blends its relationship teams, branches and ATM network with mobile and online tools that allow customers to bank how, when and where they prefer. U.S. Bank is committed to serving its millions of retail, business, wealth management, payment, commercial and corporate, and investment services customers across the country and around the world as a trusted financial partner, a commitment recognized by the Ethisphere Institute naming the bank a 2018 World’s Most Ethical Company. Visit U.S. Bank at www.usbank.com or follow on social media to stay up to date with company news.

 

  Forward-looking Statements

 

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

This press release contains forward-looking statements about U.S. Bancorp. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements and are based on the information available to, and assumptions and estimates made by, management as of the date hereof. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of U.S. Bancorp. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated. 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 its investment securities; legal and regulatory developments; litigation; increased competition from both banks and non-banks; changes in customer behavior and preferences; breaches in data security; effects of mergers and acquisitions and related integration; effects of critical accounting policies and judgments; and management’s ability to effectively manage credit risk, market risk, operational risk, compliance risk, strategic risk, interest rate risk, liquidity risk and reputational risk.

For discussion of these and other risks that could cause actual results to differ from expectations, refer to U.S. Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2017, on file with the Securities and Exchange Commission, including the sections entitled “Corporate Risk Profile” and “Risk Factors” contained in Exhibit 13, and all subsequent filings with the Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934. However, factors other than these also could adversely affect U.S. Bancorp’s results, and the reader should not consider these factors to be a complete set of all potential risks or uncertainties. Forward-looking statements speak only as of the date hereof, and U.S. Bancorp undertakes no obligation to update them in light of new information or future events.

 

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   U.S. Bancorp Second Quarter 2018 Results
      

 

 

  Non-GAAP Financial Measures

 

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

 

    Tangible common equity to tangible assets
    Tangible common equity to risk-weighted assets
    Return on tangible common equity

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

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

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

 

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 CONSOLIDATED STATEMENT OF INCOME

 

 
       Three Months Ended          Six Months Ended    
(Dollars and Shares in Millions, Except Per Share Data)    June 30,      June 30,  
(Unaudited)    2018      2017      2018      2017  

Interest Income

           

Loans

     $3,197        $2,889        $6,292        $5,679  

Loans held for sale

     39        29        72        64  

Investment securities

     653        555        1,266        1,085  

Other interest income

     59        46        109        84  

Total interest income

     3,948        3,519        7,739        6,912  

Interest Expense

           

Deposits

     427        238        772        437  

Short-term borrowings

     86        33        161        57  

Long-term debt

     238        199        441        389  

Total interest expense

     751        470        1,374        883  

Net interest income

     3,197        3,049        6,365        6,029  

Provision for credit losses

     327        350        668        695  

Net interest income after provision for credit losses

     2,870        2,699        5,697        5,334  

Noninterest Income

           

Credit and debit card revenue

     351        330        675        629  

Corporate payment products revenue

     158        140        312        277  

Merchant processing services

     387        381        750        735  

ATM processing services

     90        75        169        146  

Trust and investment management fees

     401        380        799        748  

Deposit service charges

     183        179        365        351  

Treasury management fees

     155        160        305        313  

Commercial products revenue

     234        243        454        490  

Mortgage banking revenue

     191        212        375        419  

Investment products fees

     47        44        93        86  

Securities gains (losses), net

     10        9        15        38  

Other

     207        195        374        375  

Total noninterest income

     2,414        2,348        4,686        4,607  

Noninterest Expense

           

Compensation

     1,542        1,416        3,065        2,807  

Employee benefits

     299        274        629        575  

Net occupancy and equipment

     262        255        527        502  

Professional services

     95        105        178        201  

Marketing and business development

     111        109        208        199  

Technology and communications

     242        223        477        440  

Postage, printing and supplies

     80        81        160        162  

Other intangibles

     40        43        79        87  

Other

     414        478        817        920  

Total noninterest expense

     3,085        2,984        6,140        5,893  

Income before income taxes

     2,199        2,063        4,243        4,048  

Applicable income taxes

     441        551        803        1,050  

Net income

     1,758        1,512        3,440        2,998  

Net (income) loss attributable to noncontrolling interests

     (8      (12      (15      (25

Net income attributable to U.S. Bancorp

     $1,750        $1,500        $3,425        $2,973  

Net income applicable to U.S. Bancorp common shareholders

     $1,678        $1,430        $3,275        $2,817  
 

Earnings per common share

     $1.02        $.85        $1.99        $1.67  

Diluted earnings per common share

     $1.02        $.85        $1.98        $1.66  

Dividends declared per common share

     $.30        $.28        $.60        $.56  

Average common shares outstanding

     1,642        1,684        1,647        1,689  

Average diluted common shares outstanding

     1,646        1,690        1,651        1,695  

 

 

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 CONSOLIDATED ENDING BALANCE SHEET

 

                  
    

 

June 30,

    December 31,     June 30,  
 (Dollars in Millions)    2018     2017     2017  

Assets

     (Unaudited       (Unaudited

Cash and due from banks

     $19,021       $19,505       $28,964  

Investment securities

      

Held-to-maturity

     46,055       44,362       43,659  

Available-for-sale

     66,347       68,137       67,455  

Loans held for sale

     3,256       3,554       3,661  

Loans

      

Commercial

     99,357       97,561       96,836  

Commercial real estate

     39,399       40,463       41,908  

Residential mortgages

     61,309       59,783       58,796  

Credit card

     21,566       22,180       20,861  

Other retail

     55,723       57,324       55,445  

Total loans, excluding covered loans

     277,354       277,311       273,846  

Covered loans

     2,823       3,121       3,437  

Total loans

     280,177       280,432       277,283  

Less allowance for loan losses

     (3,920     (3,925     (3,856

Net loans

     276,257       276,507       273,427  

Premises and equipment

     2,431       2,432       2,413  

Goodwill

     9,425       9,434       9,361  

Other intangible assets

     3,415       3,228       3,216  

Other assets

     35,122       34,881       31,688  

Total assets

     $461,329       $462,040       $463,844  

Liabilities and Shareholders’ Equity

      

Deposits

      

Noninterest-bearing

     $82,215       $87,557       $93,029  

Interest-bearing

     257,865       259,658       254,233  

Total deposits

     340,080       347,215       347,262  

Short-term borrowings

     18,136       16,651       14,412  

Long-term debt

     37,172       32,259       37,814  

Other liabilities

     15,684       16,249       15,407  

Total liabilities

     411,072       412,374       414,895  

Shareholders’ equity

      

Preferred stock

     5,419       5,419       5,419  

Common stock

     21       21       21  

Capital surplus

     8,468       8,464       8,425  

Retained earnings

     56,742       54,142       52,033  

Less treasury stock

     (18,707     (17,602     (16,332

Accumulated other comprehensive income (loss)

     (2,315     (1,404     (1,246

Total U.S. Bancorp shareholders’ equity

     49,628       49,040       48,320  

Noncontrolling interests

     629       626       629  

Total equity

     50,257       49,666       48,949  

Total liabilities and equity

     $461,329       $462,040       $463,844  

 

 

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 NON-GAAP FINANCIAL MEASURES

 

    

 

    June 30,

     March 31,      December 31,     September 30,     June 30,     
(Dollars in Millions, Unaudited)    2018     2018           2017     2017     2017      

Total equity

     $50,257       $49,812          $49,666       $49,351     $48,949   

Preferred stock

     (5,419     (5,419        (5,419     (5,419   (5,419)  

Noncontrolling interests

     (629     (625        (626     (628   (629)  

Goodwill (net of deferred tax liability) (1)

     (8,585     (8,609        (8,613     (8,141   (8,181)  

Intangible assets, other than mortgage servicing rights

     (571     (608          (583     (595   (634)    

Tangible common equity (a)

     35,053       34,551          34,425       34,568     34,086   

Total assets

     461,329       460,119          462,040       459,227     463,844   

Goodwill (net of deferred tax liability) (1)

     (8,585     (8,609        (8,613     (8,141   (8,181)  

Intangible assets, other than mortgage servicing rights

     (571     (608          (583     (595   (634)    

Tangible assets (b)

     452,173       450,902          452,844       450,491     455,029   

Risk-weighted assets, determined in accordance with the Basel III standardized approach (c)

     375,466   *      373,141          367,771       363,957     361,164   

Tangible common equity (as calculated above)

            34,425       34,568     34,086   

Adjustments (2)

            (550     (52   (51)    

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

            33,875       34,516     34,035   

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

            367,771       363,957     361,164   

Adjustments (3)

            4,473       3,907     3,967   

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

            372,244       367,864     365,131   

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

            287,211       287,800     287,124   

Adjustments (4)

            4,769       4,164     4,231   

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

            291,980       291,964     291,355   

Ratios *

               

Tangible common equity to tangible assets (a)/(b)

     7.8    %      7.7     %      7.6    %      7.7    %    7.5    %

Tangible common equity to risk-weighted assets (a)/(c)

     9.3       9.3          9.4       9.5     9.4   

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

            9.1       9.4     9.3   

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

            11.6       11.8     11.7   
               
     Three Months Ended
     June 30,     March 31,      December 31,     September 30,     June 30,     
     2018     2018           2017     2017     2017      

Net income applicable to U.S. Bancorp common shareholders

     $1,678       $1,597          $1,611       $1,485     $1,430   

Intangibles amortization (net-of-tax)

     32       31            28       29     28   

Net income applicable to U.S. Bancorp common shareholders, excluding intangibles amortization

     1,710       1,628          1,639       1,514     1,458   

Annualized net income applicable to U.S. Bancorp common shareholders, excluding intangibles amortization (g)

     6,859       6,602          6,503       6,007     5,848   

Average total equity

     49,950       49,450          49,461       49,447     48,909   

Less: Average preferred stock

     5,419       5,419          5,419       5,419     5,419   

Less: Average noncontrolling interests

     628       625          627       628     636   

Less: Average goodwill (net of deferred tax liability) (1)

     8,602       8,627          8,154       8,153     8,160   

Less: Average intangible assets, other than mortgage servicing rights

     588       603            591       615     650   

Average U.S. Bancorp common shareholders’ equity, excluding intangible assets (h)

     34,713       34,176          34,670       34,632     34,044   

Return on tangible common equity (g)/(h)

     19.8    %      19.3     %      18.8    %      17.3    %    17.2    %

 

  * Preliminary data. Subject to change prior to filings with applicable regulatory agencies.
(1) Includes goodwill related to certain investments in unconsolidated financial institutions per prescribed regulatory requirements.
(2) Includes net losses on cash flow hedges included in accumulated other comprehensive income (loss) and other adjustments.
(3) Includes higher risk-weighting for unfunded loan commitments, investment securities, residential mortgages, mortgage servicing rights and other adjustments.
(4) Primarily reflects higher risk-weighting for mortgage servicing rights.

 

 

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 NON-GAAP FINANCIAL MEASURES

 

 
   

 

Three Months Ended

    Six Months Ended  

(Dollars in Millions, Unaudited)

   
    June 30,
2018
 
 
   
March 31,
2018
 
 
   
December 31,
2017
 
 
  September 30, 2017      
June 30,
2017
 
 
           
June 30,
2018
 
 
   
June 30,
2017
 
 

Net interest income

    $3,197         $3,168         $3,175         $3,176         $3,049         $6,365         $6,029  

Taxable-equivalent adjustment (1)

    29               29               53           51               51               58               101  

Net interest income, on a taxable-equivalent basis

    3,226         3,197         3,228         3,227         3,100         6,423         6,130  
 

Net interest income, on a taxable-equivalent basis (as calculated above)

    3,226         3,197         3,228         3,227         3,100         6,423         6,130  

Noninterest income

    2,414         2,272         2,370         2,340         2,348         4,686         4,607  

Less: Securities gains (losses), net

    10               5               10           9               9               15               38  

Total net revenue, excluding net securities gains (losses) (a)

    5,630         5,464         5,588         5,558         5,439         11,094         10,699  
 

Noninterest expense (b)

    3,085         3,055         3,899         2,998         2,984         6,140         5,893  

Less: Intangible amortization

    40               39               44           44               43               79               87  

Noninterest expense, excluding intangible amortization (c)

    3,045         3,016         3,855         2,954         2,941         6,061         5,806  
 

Efficiency ratio (b)/(a)

    54.8       %       55.9       %       69.8     %     53.9       %       54.9       %       55.3       %       55.1     % 

Tangible efficiency ratio (c)/(a)

    54.1               55.2               69.0           53.1               54.1               54.6               54.3  

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

 

 

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LINE OF BUSINESS FINANCIAL PERFORMANCE (a)  
($ in millions)   Net Income Attributable                 Net Income Attributable              
     to U.S. Bancorp     Percent Change     to U.S. Bancorp           2Q 2018  
Business Line  

2Q  

2018  

    1Q
2018
    2Q
2017
    2Q18 vs
1Q18
    2Q18 vs
2Q17
    YTD
2018
    YTD
2017
    Percent
Change
    Earnings
Composition
 

Corporate and Commercial

                   

Banking

    $417         $391         $376         6.6       10.9       $808         $714         13.2       24  

Consumer and Business

                   

Banking

    536         537         433         (.2     23.8       1,073         845         27.0       30    

Wealth Management and

                   

Investment Services

    205         220         178         (6.8     15.2       425         333         27.6       12    

Payment Services

    361         342         282         5.6       28.0       703         580         21.2       21    

Treasury and Corporate

                   

Support

    231         185         231         24.9       --       416         501         (17.0     13    
   

 

 

       

 

 

     

 

 

 

Consolidated Company

        $1,750         $1,675         $1,500         4.5       16.7       $3,425         $2,973         15.2                       100  
   

 

 

       

 

 

     

 

 

 
   

(a) preliminary data

 

                                                                       

 

Lines of Business

The Company’s major lines of business are Corporate and Commercial Banking, Consumer and Business Banking, Wealth Management and Investment Services, Payment Services, and Treasury and Corporate Support. These operating segments are components of the Company about which financial information is prepared and is evaluated regularly by management in deciding how to allocate resources and assess performance. Noninterest expenses incurred by centrally managed operations or business lines that directly support another business line’s operations are charged to the applicable business line based on its utilization of those services, primarily measured by the volume of customer activities, number of employees or other relevant factors. These allocated expenses are reported as net shared services expense within noninterest expense. Designations, assignments and allocations change from time to time as management systems are enhanced, methods of evaluating performance or product lines change or business segments are realigned to better respond to the Company’s diverse customer base. During 2018, certain organization and methodology changes were made and, accordingly, prior period results were restated and presented on a comparable basis.

 

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CORPORATE AND COMMERCIAL BANKING (a)  
($ in millions)                     Percent Change                    
    

2Q

2018

   

1Q

2018

   

2Q  

2017  

    2Q18 vs
1Q18  
    2Q18 vs
2Q17  
   

YTD

2018

    YTD  
2017  
    Percent
Change
 

Condensed Income Statement

                 

Net interest income (taxable-equivalent basis)

    $725       $722       $725         .4       --       $1,447       $1,433         1.0  

Noninterest income

    223       208       242         7.2       (7.9     431       490         (12.0

Securities gains (losses), net

    --       --       --         --       --       --       (3)        nm  
   

 

 

       

 

 

     

Total net revenue

    948       930       967         1.9       (2.0     1,878       1,920         (2.2

Noninterest expense

    403       394       393         2.3       2.5       797       778         2.4  

Other intangibles

    1       1       1         --       --       2       2         --  
   

 

 

       

 

 

     

Total noninterest expense

    404       395       394         2.3       2.5       799       780         2.4  
   

 

 

       

 

 

     

Income before provision and taxes

    544       535       573         1.7       (5.1     1,079       1,140         (5.4

Provision for credit losses

    (12     14       (18)        nm       33.3       2       18         (88.9
   

 

 

       

 

 

     

Income before income taxes

    556       521       591         6.7       (5.9     1,077       1,122         (4.0

Income taxes and taxable-equivalent adjustment

    139       130       215         6.9       (35.3     269       408         (34.1
   

 

 

       

 

 

     

Net income

    417       391       376         6.6       10.9       808       714         13.2  

Net (income) loss attributable to noncontrolling interests

    --       --       --         --       --       --       --         --  
   

 

 

       

 

 

     

Net income attributable to U.S. Bancorp

    $417       $391       $376         6.6       10.9       $808       $714         13.2  
   

 

 

       

 

 

     
   

Average Balance Sheet Data

                 

Loans

        $93,517       $93,955       $94,225         (.5     (.8         $93,735       $93,981         (.3

Other earning assets

    3,092       2,858       3,107         8.2       (.5     2,976       2,995         (.6

Goodwill

    1,647       1,647       1,647         --       --       1,647       1,647         --  

Other intangible assets

    11       12       14         (8.3     (21.4     11       14         (21.4

Assets

    102,585       102,645       103,105         (.1     (.5     102,615       102,712         (.1

Noninterest-bearing deposits

    33,379       34,410       36,438         (3.0     (8.4     33,893       36,697         (7.6

Interest-bearing deposits

    70,363       69,953       68,881         .6       2.2       70,159       69,715         .6  
   

 

 

       

 

 

     

Total deposits

    103,742       104,363       105,319         (.6     (1.5     104,052       106,412         (2.2
   

Total U.S. Bancorp shareholders’ equity

    10,500       10,418       9,921         .8       5.8       10,459       9,801         6.7  
   

(a) preliminary data

 

                                                               

Corporate and Commercial Banking offers lending, equipment finance and small-ticket leasing, depository services, treasury management, capital markets services, international trade services and other financial services to middle market, large corporate, commercial real estate, financial institution, non-profit and public sector clients.

Corporate and Commercial Banking contributed $417 million of the Company’s net income in the second quarter of 2018, compared with $376 million in the second quarter of 2017. Total net revenue decreased $19 million (2.0 percent) due to a $19 million (7.9 percent) decrease in total noninterest income. Net interest income was flat year-over-year primarily due to the impact of rising rates on the margin benefit from deposits, offset by lower rates on loans, reflecting a competitive marketplace, and lower noninterest-bearing deposits. Total noninterest income decreased year-over-year primarily due to lower commercial leasing revenue, trading revenue and loan fees. Total noninterest expense was $10 million (2.5 percent) higher compared with a year ago primarily due to an increase in net shared services expense driven by technology development and investment in infrastructure. The provision for credit losses increased $6 million (33.3 percent) reflecting an unfavorable change in the reserve allocation partially offset by lower net charge-offs.

 

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CONSUMER AND BUSINESS BANKING (a)

($ in millions)                   Percent Change                 
     2Q     1Q     2Q     2Q18 vs     2Q18 vs     YTD     YTD     Percent 
     2018     2018     2017     1Q18     2Q17     2018     2017     Change 

 

Condensed Income Statement

                 

Net interest income (taxable-equivalent basis)

    $1,539       $1,530       $1,466         .6       5.0       $3,069       $2,894       6.0 

Noninterest income

    590       570       606         3.5       (2.6     1,160       1,177       (1.4)

Securities gains (losses), net

    --       --       --         --       --       --       --       -- 
   

 

 

       

 

 

     

Total net revenue

    2,129       2,100       2,072         1.4       2.8       4,229       4,071       3.9 

Noninterest expense

    1,347       1,321       1,295         2.0       4.0       2,668       2,574       3.7 

Other intangibles

    7       7       7         --       --       14       14       -- 
   

 

 

       

 

 

     

Total noninterest expense

    1,354       1,328       1,302         2.0       4.0       2,682       2,588       3.6 
   

 

 

       

 

 

     

Income before provision and taxes

    775       772       770         .4       .6       1,547       1,483       4.3 

Provision for credit losses

    60       56       90         7.1       (33.3     116       155       (25.2)
   

 

 

       

 

 

     

Income before income taxes

    715       716       680         (.1     5.1       1,431       1,328       7.8 

Income taxes and taxable-equivalent adjustment

    179       179       247         --       (27.5     358       483       (25.9)
   

 

 

       

 

 

     

Net income

    536       537       433         (.2     23.8       1,073       845       27.0 

Net (income) loss attributable to noncontrolling interests

    --       --       --         --       --       --       --       -- 
   

 

 

       

 

 

     

Net income attributable to U.S. Bancorp

    $536       $537       $433         (.2     23.8       $1,073       $845       27.0 
   

 

 

       

 

 

     
   

Average Balance Sheet Data

             

Loans

        $142,097       $143,163       $140,520         (.7 )  *      1.1   *      $142,627       $139,814       2.0 

Other earning assets

    3,810       3,409       3,205         11.8       18.9       3,611       3,611       -- 

Goodwill

    3,681       3,681       3,681         --       --       3,681       3,681       -- 

Other intangible assets

    2,932       2,871       2,730         2.1       7.4       2,902       2,749       5.6 

Assets

    156,803       157,528       154,221         (.5     1.7       157,164       153,932       2.1 
   

Noninterest-bearing deposits

    27,565       27,346       27,287         .8       1.0       27,456       27,122       1.2 

Interest-bearing deposits

    125,581       123,472       120,781         1.7       4.0       124,533       120,056       3.7 
   

 

 

       

 

 

     

Total deposits

    153,146       150,818       148,068         1.5       3.4       151,989       147,178       3.3 

Total U.S. Bancorp shareholders’ equity

    12,244       12,219       11,435         .2       7.1       12,232       11,478       6.6 
   

(a) preliminary data

                 
 

*  Average total loan growth was 0.3% linked quarter and 2.4% year-over-year, excluding the impact of the student loan portfolio sale

Consumer and Business Banking delivers products and services through banking offices, telephone servicing and sales, on-line services, direct mail, ATM processing and mobile devices. It encompasses community banking, metropolitan banking and indirect lending, as well as mortgage banking.

Consumer and Business Banking contributed $536 million of the Company’s net income in the second quarter of 2018, compared with $433 million in the second quarter of 2017. Total net revenue increased $57 million (2.8 percent) due to a $73 million (5.0 percent) increase in net interest income, partially offset by a $16 million (2.6 percent) decrease in total noninterest income. Net interest income increased primarily due to the impact of rising rates on the margin benefit from deposits along with growth in average loan and deposit balances, partially offset by lower rates on loans. Total noninterest income decreased principally driven by lower mortgage banking revenue, in line with industry trends, primarily due to lower mortgage production, partially offset by a favorable change in the valuation of mortgage servicing rights, net of hedging activities, and a reduction in other noninterest income driven by lower end of term gains in retail leasing due to lower volumes. These decreases are partially offset by higher ATM processing services fees and deposit service charges reflecting higher transaction volumes. Total noninterest expense in the second quarter of 2018 increased $52 million (4.0 percent) primarily due to higher net shared services expense and higher personnel expense reflecting the impact of investments supporting business growth and development as well as higher production related incentives. The provision for credit losses decreased $30 million (33.3 percent) reflecting lower net charge-offs as well as a favorable change in the reserve allocation.

 

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WEALTH MANAGEMENT AND INVESTMENT SERVICES (a)

 

($ in millions)                         Percent Change                      
      2Q      1Q      2Q      2Q18 vs     2Q18 vs     YTD      YTD      Percent  
       2018        2018        2017        1Q18       2Q17       2018        2017        Change  

Condensed Income Statement

                       

Net interest income (taxable-equivalent basis)

     $290        $282        $260          2.8       11.5       $572        $503          13.7  

Noninterest income

     430        431        412          (.2     4.4       861        810          6.3  

Securities gains (losses), net

     --        --        --          --       --       --        --          --  
    

 

 

        

 

 

      

Total net revenue

     720        713        672          1.0       7.1       1,433        1,313          9.1  

Noninterest expense

     443        414        388          7.0       14.2       857        779          10.0  

Other intangibles

     4        4        5          --       (20.0     8        10          (20.0
    

 

 

        

 

 

      

Total noninterest expense

     447        418        393          6.9       13.7       865        789          9.6  
    

 

 

        

 

 

      

Income before provision and taxes

     273        295        279          (7.5     (2.2     568        524          8.4  

Provision for credit losses

     --        1        (1)         nm       nm       1        --          nm  
    

 

 

        

 

 

      

Income before income taxes

     273        294        280          (7.1     (2.5     567        524          8.2  

Income taxes and taxable-equivalent adjustment

     68        74        102          (8.1     (33.3     142        191          (25.7
    

 

 

        

 

 

      

Net income

     205        220        178          (6.8     15.2       425        333          27.6  

Net (income) loss attributable to noncontrolling interests

     --        --        --          --       --       --        --          --  
    

 

 

        

 

 

      

Net income attributable to U.S. Bancorp

     $205        $220        $178          (6.8     15.2       $425        $333          27.6  
    

 

 

        

 

 

      
   

Average Balance Sheet Data

                       

Loans

         $9,133        $8,893        $8,318          2.7       9.8           $9,014        $8,145          10.7  

Other earning assets

     166        164        147          1.2       12.9       165        150          10.0  

Goodwill

     1,569        1,570        1,567          (.1     .1       1,569        1,567          .1  

Other intangible assets

     66        70        83          (5.7     (20.5     68        85          (20.0

Assets

     12,107        11,885        11,437          1.9       5.9       11,997        11,444          4.8  
   

Noninterest-bearing deposits

     14,767        14,347        15,952          2.9       (7.4     14,558        14,905          (2.3

Interest-bearing deposits

     56,708        56,828        57,980          (.2     (2.2     56,767        57,501          (1.3
    

 

 

        

 

 

      

Total deposits

     71,475        71,175        73,932          .4       (3.3     71,325        72,406          (1.5

Total U.S. Bancorp shareholders’ equity

     2,424        2,399        2,365          1.0       2.5       2,412        2,383          1.2  
   

(a) preliminary data

 

                                                                     

Wealth Management and Investment Services provides private banking, financial advisory services, investment management, retail brokerage services, insurance, trust, custody and fund servicing through five businesses: Wealth Management, Corporate Trust Services, U.S. Bancorp Asset Management, Institutional Trust & Custody and Fund Services.

Wealth Management and Investment Services contributed $205 million of the Company’s net income in the second quarter of 2018, compared with $178 million in the second quarter of 2017. Total net revenue increased $48 million (7.1 percent) year-over-year driven by increases in net interest income of $30 million (11.5 percent) and total noninterest income of $18 million (4.4 percent) . Net interest income increased year-over-year primarily due to the impact of rising rates on the margin benefit from deposits. Total noninterest income increased year-over-year principally due to favorable market conditions, business growth, and net asset inflows. Total noninterest expense increased $54 million (13.7 percent) primarily as a result of settling certain litigation matters, higher net shared services expense and personnel expense driven by investments to support business growth, higher production related incentives and increased staffing to support business development. The provision for credit losses was essentially flat compared with the prior year quarter.

 

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PAYMENT SERVICES (a)  
($ in millions)                         Percent Change                      
     

2Q

2018

     1Q
2018
    

2Q  

2017  

     2Q18 vs
1Q18
    2Q18 vs
2Q17
    YTD
2018
     YTD  
2017  
     Percent
Change
 

Condensed Income Statement

                       

Net interest income (taxable-equivalent basis)

     $592        $610        $581          (3.0     1.9       $1,202        $1,177          2.1  

Noninterest income

     903        848        850          6.5       6.2       1,751        1,648          6.3  

Securities gains (losses), net

     --        --        --          --       --       --        --          --  
    

 

 

        

 

 

      

Total net revenue

     1,495        1,458        1,431          2.5       4.5       2,953        2,825          4.5  

Noninterest expense

     705        703        665          .3       6.0       1,408        1,308          7.6  

Other intangibles

     28        27        30          3.7       (6.7     55        61          (9.8
    

 

 

        

 

 

      

Total noninterest expense

     733        730        695          .4       5.5       1,463        1,369          6.9  
    

 

 

        

 

 

      

Income before provision and taxes

     762        728        736          4.7       3.5       1,490        1,456          2.3  

Provision for credit losses

     281        272        283          3.3       (.7     553        524          5.5  
    

 

 

        

 

 

      

Income before income taxes

     481        456        453          5.5       6.2       937        932          .5  

Income taxes and
taxable-equivalent adjustment

     120        114        165          5.3       (27.3     234        339          (31.0
    

 

 

        

 

 

      

Net income

     361        342        288          5.6       25.3       703        593          18.5  

Net (income) loss attributable to noncontrolling interests

     --        --        (6)         --       nm       --        (13)         nm  
    

 

 

        

 

 

      

Net income attributable to U.S. Bancorp

     $361        $342        $282          5.6       28.0       $703        $580          21.2  
    

 

 

        

 

 

      
   

Average Balance Sheet Data

                       

Loans

           $30,591        $30,062        $29,070          1.8       5.2       $30,328        $29,003          4.6  

Other earning assets

     302        276        241          9.4       25.3       289        249          16.1  

Goodwill

     2,536        2,542        2,458          (.2     3.2       2,539        2,455          3.4  

Other intangible assets

     392        396        408          (1.0     (3.9     394        422          (6.6

Assets

     36,552        36,173        34,779          1.0       5.1       36,364        34,672          4.9  
   

Noninterest-bearing deposits

     1,085        1,127        1,015          (3.7     6.9       1,106        1,019          8.5  

Interest-bearing deposits

     109        106        104          2.8       4.8       108        103          4.9  
    

 

 

        

 

 

      

Total deposits

     1,194        1,233        1,119          (3.2     6.7       1,214        1,122          8.2  
   

Total U.S. Bancorp shareholders’ equity

     6,602        6,622        6,228          (.3     6.0       6,612        6,316          4.7  
   

(a) preliminary data

 

                                                                     

Payment Services includes consumer and business credit cards, stored-value cards, debit cards, corporate, government and purchasing card services, consumer lines of credit and merchant processing.

Payment Services contributed $361 million of the Company’s net income in the second quarter of 2018, compared with $282 million in the second quarter of 2017. Total net revenue increased $64 million (4.5 percent) due to increases in net interest income of $11 million (1.9 percent) and total noninterest income of $53 million (6.2 percent). Net interest income increased year-over-year primarily due to higher loan volumes. Total noninterest income increased year-over-year primarily due to higher credit and debit card revenue and higher corporate payment products revenue driven by sales volumes. Total noninterest expense increased $38 million (5.5 percent) over the second quarter of 2017 principally due to higher net shared services expense and personnel expense driven by implementation costs of capital investments, higher production related incentives and increased staffing to support business development. The provision for credit losses decreased $2 million (0.7 percent) reflecting a favorable change in the reserve allocation, mostly offset by higher net charge-offs.

 

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TREASURY AND CORPORATE SUPPORT (a)                       
($ in millions)                     Percent Change                    
     2Q      1Q      2Q        2Q18 vs     2Q18 vs     YTD      YTD      Percent     
     2018      2018      2017        1Q18       2Q17       2018      2017      Change     

Condensed Income Statement

                 

Net interest income (taxable-equivalent basis)

    $80        $53        $68          50.9       17.6       $133        $123         8.1     

Noninterest income

    258        210        229          22.9       12.7       468        444         5.4     

Securities gains (losses), net

    10              9          nm       11.1       15        41         (63.4)    
   

 

 

       

 

 

     

Total net revenue

    348        268        306          29.9       13.7       616        608         1.3     

Noninterest expense

    147        184        200          (20.1     (26.5     331        367         (9.8)    

Other intangibles

    --         --         --           --          --          --         --          --      
   

 

 

       

 

 

     

Total noninterest expense

    147        184        200          (20.1     (26.5     331        367         (9.8)    
   

 

 

       

 

 

     

Income before provision and taxes

    201        84        106          nm       89.6       285        241         18.3     

Provision for credit losses

    (2)       (2)       (4)         --          50.0       (4)       (2)        nm     
   

 

 

       

 

 

     

Income before income taxes

    203        86        110          nm       84.5       289        243         18.9     

Income taxes and taxable-equivalent adjustment

    (36)       (106)       (127)         66.0       71.7       (142)        (270)        47.4     
   

 

 

       

 

 

     

Net income

    239        192        237          24.5       .8       431        513         (16.0)    

Net (income) loss attributable to noncontrolling interests

    (8)       (7)       (6)         (14.3     (33.3     (15)       (12)        (25.0)    
   

 

 

       

 

 

     

Net income attributable to U.S. Bancorp

    $231        $185        $231          24.9       --          $416        $501         (17.0)    
   

 

 

       

 

 

     
   

Average Balance Sheet Data

                 

Loans

    $3,286        $3,315        $3,395          (.9     (3.2     $3,300        $3,407         (3.1)    

Other earning assets

        126,682        125,754        121,655          .7       4.1       126,220        120,240         5.0     

Goodwill

    --         --         --           --       --       --        --          --     

Other intangible assets

    --         --         --           --       --       --        --          --     

Assets

    146,442        146,057        142,563          .3       2.7       146,249        140,961         3.8     
   

Noninterest-bearing deposits

    2,191        2,252        2,018          (2.7     8.6       2,221        1,986         11.8     

Interest-bearing deposits

    3,074        4,739        716          (35.1     nm       3,901        706         nm     
   

 

 

       

 

 

     

Total deposits

    5,265        6,991        2,734          (24.7     92.6       6,122        2,692         nm     
   

Total U.S. Bancorp shareholders’ equity

    17,552        17,167        18,324          2.2       (4.2     17,360        18,121         (4.2)    
   

(a) preliminary data

 

                                                               

Treasury and Corporate Support includes the Company’s investment portfolios, funding, capital management, interest rate risk management, income taxes not allocated to the business lines, including most investments in tax-advantaged projects, and the residual aggregate of those expenses associated with corporate activities that are managed on a consolidated basis.

Treasury and Corporate Support recorded net income of $231 million in both the second quarter of 2018 and 2017. Total net revenue increased $42 million (13.7 percent) year-over-year driven by an increase in net interest income of $12 million (17.6 percent) and an increase of $30 million (12.6 percent) in total noninterest income. Net interest income increased year-over-year primarily due to growth in the investment portfolio, partially offset by higher funding costs. Total noninterest income increased year-over-year reflecting the gain on the sale of the student loan portfolio and equity investment revenue. Total noninterest expense decreased $53 million (26.5 percent) year-over-year as a result of the allocation of previously reserved litigation items to the business units, at settlement, and a favorable change in net shared services expense allocated to manage the business. Partially offsetting these decreases was higher personnel expense driven by increased staffing, higher variable compensation, and technology development related to business development efforts. The provision for credit losses was $2 million higher year-over-year due to higher net charge-offs, mostly offset by a favorable change in the reserve allocation.

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

 

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