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U.S. Bancorp Reports First Quarter 2019 Results

MINNEAPOLIS--(BUSINESS WIRE)--

  • Net revenue of $5,577 million and net income of $1,699 million
  • Industry leading return on average assets of 1.49% and return on average common equity of 14.3%

U.S. Bancorp (USB):

1Q19 Key Financial Data

                   
PROFITABILITY METRICS   1Q19     4Q18     1Q18  
Return on average assets (%)   1.49   1.59   1.50
Return on average common equity (%) 14.3 15.8 14.9
Return on tangible common equity (%) (a) 18.4 20.2 19.3
Net interest margin (%) 3.16 3.15 3.13
Efficiency ratio (%) (a) 55.4 56.3 55.9
                   
INCOME STATEMENT (b)   1Q19     4Q18     1Q18  
Net interest income (taxable-equivalent basis) $3,286 $3,331 $3,197
Noninterest income $2,291 $2,498 $2,272
Net income attributable to U.S. Bancorp $1,699 $1,856 $1,675
Diluted earnings per common share $1.00 $1.10 $.96
Dividends declared per common share $.37 $.37 $.30
                   
BALANCE SHEET (b)   1Q19     4Q18     1Q18  
Average total loans $286,110 $283,677 $279,388
Average total deposits $335,366 $334,365 $334,580
Net charge-off ratio .52 % .49 % .49 %
Book value per common share (period end) $28.81 $28.01 $26.54
Basel III standardized CET1 (c) 9.3 % 9.1 % 9.0 %
                   
(a) See Non-GAAP Financial Measures reconciliation on page 16
(b) Dollars in millions, except per share data
(c) CET1 = Common equity tier 1 capital ratio
 

1Q19 Highlights

  • Net income of $1,699 million and diluted earnings per common share of $1.00
  • Industry leading return on average assets of 1.49% and return on average common equity of 14.3%
  • Return on tangible common equity of 18.4%
  • Returned 77% of 1Q earnings to shareholders through dividends and share buybacks
  • Net interest income grew 2.9% year-over-year (2.8% on a taxable-equivalent basis) with positive operating leverage of 1.0% on a year-over-year basis
  • Average total loans grew 0.9% on a linked quarter basis and 2.4% (3.7% excluding the impact of loan sales) year-over-year
  • Nonperforming assets decreased 16.5% on a year-over-year basis

CEO Commentary

“As our financial results indicate, we had a good start to the year with momentum continuing across our lending and fee businesses. In the first quarter, our industry-leading returns on assets and equity were supported by solid loan growth, disciplined expense management and stable credit quality. Our balance sheet is strong and growing as evidenced by an 8.6% increase in our book value per share compared with a year ago. During the quarter, we returned 77 percent of our earnings to shareholders through dividends and share buybacks. We are pleased with our results this quarter and remain focused on the long-term success of this company - and the disciplined investment in people and technology that will drive that success. We are launching a number of digital initiatives combining the best of technology and innovation to help make our customers’ financial lives simpler and more productive. I would like to thank our employees for all they do to create value for our customers, communities and shareholders.”

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

In the Spotlight

One of the 2019 World’s Most Ethical Companies
U.S. Bank has been named one of the 2019 World’s Most Ethical Companies by the Ethisphere Institute, a global leader in defining and advancing the standards of ethical business practices. This is the fifth consecutive year U.S. Bank has received this recognition.

Top Marks Received in 2019 Corporate Equality Index
For the 12th time in a row, U.S. Bank received a perfect score of 100 on the Corporate Equality Index, the nation’s premier benchmarking survey and report on corporate policies and practices related to LGBTQ workplace equality, administered by the Human Rights Campaign Foundation. Through its index, the Foundation evaluates policies and practices of businesses including non-discrimination workplace protections, domestic partner and inclusive health care benefits, competency programs, and public engagement with the LGBTQ community.

Asset Backed Securitization Lending Business
We recently launched a new Asset Backed Securitization Lending business, underscoring our commitment to our Fixed Income & Capital Markets platform to provide current and prospective customers with additional ways to access capital.

New U.S. Bank Mobile App
We recently unveiled our entirely redesigned U.S. Bank Mobile App, fueled by extensive research on how people use their mobile apps and an analysis of consumer needs. Using a customer-based mindset, the app includes all the tools identified by consumers that help them quickly, confidently and securely manage their finances at their fingertips.

                     
INCOME STATEMENT HIGHLIGHTS
($ in millions, except per-share data)         Percent Change
1Q 4Q 1Q 1Q19 vs   1Q19 vs
    2019   2018   2018   4Q18   1Q18
 
Net interest income $3,259 $3,303 $3,168 (1.3 ) 2.9
Taxable-equivalent adjustment 27     28     29   (3.6 ) (6.9 )
Net interest income (taxable-equivalent basis) 3,286 3,331 3,197 (1.4 ) 2.8
Noninterest income 2,291     2,498     2,272   (8.3 ) .8
Total net revenue 5,577 5,829 5,469 (4.3 ) 2.0
Noninterest expense 3,087     3,280     3,055   (5.9 ) 1.0
Income before provision and income taxes 2,490 2,549 2,414 (2.3 ) 3.1
Provision for credit losses 377     368     341   2.4 10.6
Income before taxes 2,113 2,181 2,073 (3.1 ) 1.9

Income taxes and taxable-equivalent adjustment

405     319     391   27.0 3.6
Net income 1,708 1,862 1,682 (8.3 ) 1.5

Net (income) loss attributable to noncontrolling interests

(9 )   (6 )   (7 ) (50.0 ) (28.6 )
Net income attributable to U.S. Bancorp $1,699     $1,856     $1,675   (8.5 ) 1.4

Net income applicable to U.S. Bancorp common shareholders

$1,613     $1,777     $1,597   (9.2 ) 1.0
Diluted earnings per common share $1.00     $1.10     $.96   (9.1 ) 4.2
 
 

Net income attributable to U.S. Bancorp was $1,699 million for the first quarter of 2019, which was 1.4 percent higher than the first quarter of 2018, and 8.5 percent lower than the fourth quarter of 2018. Diluted earnings per common share were $1.00 in the first quarter of 2019, compared with $0.96 in the first quarter of 2018 and $1.10 in the fourth quarter of 2018. The fourth quarter of 2018 included $0.03 per diluted common share of notable items related to the impact of the gain on sale of the Company’s ATM servicing business and the sale of a majority of the Company’s FDIC covered loans, charges related to severance, certain asset impairments, an accrual for legal matters, and the favorable impact to deferred tax assets and liabilities related to changes in estimates from tax reform. Given the sale of the third-party ATM processing business during the fourth quarter of 2018, ATM processing services revenue and deposit service charges were combined for reporting purposes.

The increase in net income year-over-year was due to total net revenue growth of 2.0 percent partially offset by noninterest expense growth of 1.0 percent. Net interest income increased 2.9 percent (2.8 percent on a taxable-equivalent basis), mainly a result of the impact of rising interest rates, loan growth, and higher yields on reinvestment of securities, partially offset by higher rates on deposits and funding mix. Noninterest income increased 0.8 percent compared with a year ago, driven by growth in corporate payment products and merchant processing services revenue, along with other noninterest revenue, partially offset by declines in credit and debit card revenue, mortgage banking revenue and deposit service charges. Deposit service charges include ATM processing services revenue and decreased as a result of the sale of the third-party ATM processing business in the fourth quarter of 2018. Noninterest expense increased 1.0 percent primarily due to increased compensation expense, along with higher technology and communications expense in support of business growth. Partially offsetting these expense categories was lower other noninterest expense driven by lower costs related to tax-advantaged projects and FDIC assessment costs.

Net income decreased on a linked quarter basis primarily due to a decrease in total net revenue of 4.3 percent, partially offset by a reduction in noninterest expense of 5.9 percent. The decrease in total net revenue reflected a decline in net interest income of 1.3 percent (1.4 percent on a taxable-equivalent basis) primarily due to two fewer days in the first quarter along with higher rates on deposits, lower interest recoveries, and funding mix, partially offset by loan growth. Excluding the fourth quarter of 2018 notable items, noninterest income decreased 5.4 percent compared with the fourth quarter of 2018 driven by lower credit and debit card revenue and lower ATM processing services revenue as a result of the business sale. Excluding the fourth quarter of 2018 notable items, noninterest expense decreased 0.6 percent on a linked quarter basis primarily driven by lower professional services and marketing and business development expense, partially offset by seasonally higher employee benefits and an increase in other noninterest expense.

 
NET INTEREST INCOME
(Taxable-equivalent basis; $ in millions)         Change
1Q 4Q 1Q 1Q19 vs   1Q19 vs
    2019   2018   2018   4Q18   1Q18
Components of net interest income
Income on earning assets $4,381 $4,341 $3,822 $40 $559
Expense on interest-bearing liabilities 1,095     1,010     625     85     470  
Net interest income $3,286     $3,331     $3,197     $(45 )   $89  
 
Average yields and rates paid
Earning assets yield 4.22 % 4.11 % 3.75 % .11 % .47 %
Rate paid on interest-bearing liabilities 1.38     1.26     .81     .12     .57  
Gross interest margin 2.84 %   2.85 %   2.94 %   (.01 )%   (.10 )%
Net interest margin 3.16 %   3.15 %   3.13 %   .01 %   .03 %
 
Average balances
Investment securities (a) $114,179 $114,138 $113,493 $41 $686
Loans 286,110 283,677 279,388 2,433 6,722
Earning assets 419,494 420,472 411,849 (978 ) 7,645
Interest-bearing liabilities 322,156 319,289 311,615 2,867 10,541
 
(a) Excludes unrealized gain (loss)
 
 

Net interest income on a taxable-equivalent basis in the first quarter of 2019 was $3,286 million, an increase of $89 million (2.8 percent) over the first quarter of 2018. The increase was principally driven by the impact of rising interest rates, earning assets growth, and higher yields on securities, partially offset by deposit pricing and funding mix shift. Average earning assets were $7.6 billion (1.9 percent) higher than the first quarter of 2018, reflecting increases of $6.7 billion (2.4 percent) in average total loans, $686 million (0.6 percent) in average investment securities, and $1.2 billion (7.8 percent) in average other earning assets. Excluding the impact of the second quarter of 2018 sale of the Company’s federally guaranteed student loan portfolio and the fourth quarter of 2018 sale of the majority of the Company’s FDIC covered loans, average total loans grew 3.7 percent compared with the first quarter of 2018.

Net interest income on a taxable-equivalent basis decreased $45 million (1.4 percent) on a linked quarter basis primarily driven by two fewer days in the first quarter and lower interest recoveries, partially offset by loan growth. Average earning assets were $978 million (0.2 percent) lower on a linked quarter basis, reflecting decreases of $2.5 billion (12.5 percent) in average other earning assets due to a seasonal decrease in cash balances and $1.0 billion (32.0 percent) in average loans held for sale primarily due to the sale of the majority of the Company’s FDIC covered loans in the fourth quarter of 2018, partially offset by an increase of $2.4 billion (0.9 percent) in average total loans.

The net interest margin in the first quarter of 2019 was 3.16 percent, compared with 3.13 percent in the first quarter of 2018 and 3.15 percent in the fourth quarter of 2018. The increase in the net interest margin year-over-year was primarily due to rising interest rates, higher reinvestment rates on maturing securities, and loan portfolio mix, partially offset by deposit and funding mix. The increase in net interest margin on a linked quarter basis was primarily due to loan portfolio mix, lower cash balances, and the impact of the fourth quarter rate hike on assets, partially offset by the impact of deposit and funding mix.

Average investment securities in the first quarter of 2019 increased $686 million (0.6 percent) over the first quarter of 2018 and $41 million over the fourth quarter of 2018 due to purchases of mortgage-backed and state and political securities, net of prepayments and maturities.

   
AVERAGE LOANS
($ in millions)         Percent Change
1Q 4Q 1Q 1Q19 vs   1Q19 vs
    2019   2018   2018   4Q18   1Q18
 
Commercial $96,447 $95,025 $91,933 1.5 4.9
Lease financing 5,513   5,490   5,532 .4 (.3 )
Total commercial 101,960 100,515 97,465 1.4 4.6
 
Commercial mortgages 28,459 28,930 29,176 (1.6 ) (2.5 )
Construction and development 11,011   11,219   11,190 (1.9 ) (1.6 )
Total commercial real estate 39,470 40,149 40,366 (1.7 ) (2.2 )
 
Residential mortgages 65,582 64,476 60,174 1.7 9.0
 
Credit card 22,597 22,396 21,284 .9 6.2
 
Retail leasing 8,586 8,489 7,982 1.1 7.6
Home equity and second mortgages 15,993 16,065 16,195 (.4 ) (1.2 )
Other 31,922   31,587   32,874 1.1 (2.9 )
Total other retail 56,501 56,141 57,051 .6 (1.0 )
 
Covered loans (a) --   --   3,048 -- nm
 
Total loans $286,110   $283,677   $279,388 .9 2.4
 

(a) During the fourth quarter of 2018, the majority of the Company's covered loans were sold or the loss share coverage expired, with any remaining loan balances reclassified to be included in their respective portfolio category.

 

 
 

Average total loans were $6.7 billion (2.4 percent) higher than the first quarter of 2018. Excluding the impact of the second quarter of 2018 sale of the Company’s federally guaranteed student loan portfolio and the fourth quarter of 2018 sale of the majority of the Company’s FDIC covered loans, average total loans grew 3.7 percent over the prior year quarter. The increase was due to growth in residential mortgages (9.0 percent), total commercial loans (4.6 percent), credit card loans (6.2 percent), and retail leasing (7.6 percent). These increases were partially offset by decreases in covered loans due to the fourth quarter of 2018 sale, total commercial real estate loans (2.2 percent) due to customers paying down balances and other loans (2.9 percent) which were impacted by the sale of student loans.

Average total loans were $2.4 billion (0.9 percent) higher than the fourth quarter of 2018 driven by growth in residential mortgages (1.7 percent) and total commercial loans (1.4 percent), partially offset by a decrease in total commercial real estate loans (1.7 percent).

 
AVERAGE DEPOSITS
($ in millions)         Percent Change
1Q 4Q 1Q 1Q19 vs   1Q19 vs
    2019   2018   2018   4Q18   1Q18
 
Noninterest-bearing deposits $73,433 $77,160 $79,482 (4.8 ) (7.6 )
Interest-bearing savings deposits
Interest checking 72,177 71,013 70,358 1.6 2.6
Money market savings 99,432 99,594 103,367 (.2 ) (3.8 )
Savings accounts 45,216   44,544   44,388 1.5 1.9
Total savings deposits 216,825 215,151 218,113 .8 (.6 )
Time deposits 45,108   42,054   36,985 7.3 22.0
Total interest-bearing deposits 261,933   257,205   255,098 1.8 2.7
Total deposits $335,366   $334,365   $334,580 .3 .2
                         
 

Average total deposits for the first quarter of 2019 were $786 million (0.2 percent) higher than the first quarter of 2018. Average noninterest-bearing deposits decreased $6.0 billion (7.6 percent) year-over-year primarily due to the continued deployment by customers of business deposits within Corporate and Commercial Banking and corporate trust balances within Wealth Management and Investment Services. Average total savings deposits were $1.3 billion (0.6 percent) lower year-over-year driven by decreases in corporate trust balances within Wealth Management and Investment Services along with the run-off related to the business merger of a large financial customer, partially offset by increases in Consumer and Business Banking. Average time deposits were $8.1 billion (22.0 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 $1.0 billion (0.3 percent) from the fourth quarter of 2018. On a linked quarter basis, average noninterest-bearing deposits decreased $3.7 billion (4.8 percent) reflecting decreases in Corporate and Commercial Banking and Consumer and Business Banking. Average total savings deposits increased $1.7 billion (0.8 percent) on a linked quarter basis primarily due to increases in Consumer and Business Banking and Corporate and Commercial Banking. Average time deposits, which are managed based on funding needs, relative pricing and liquidity characteristics, increased $3.1 billion (7.3 percent) on a linked quarter basis.

   
NONINTEREST INCOME
($ in millions)         Percent Change
1Q 4Q 1Q 1Q19 vs   1Q19 vs
    2019   2018   2018   4Q18   1Q18
 
Credit and debit card revenue $304 $382 $324 (20.4 ) (6.2 )
Corporate payment products revenue 162 163 154 (.6 ) 5.2
Merchant processing services 378 389 363 (2.8 ) 4.1
Trust and investment management fees 399 409 398 (2.4 ) .3
Deposit service charges 217 253 261 (14.2 ) (16.9 )
Treasury management fees 146 143 150 2.1 (2.7 )
Commercial products revenue 219 225 220 (2.7 ) (.5 )
Mortgage banking revenue 169 171 184 (1.2 ) (8.2 )
Investment products fees 45 48 46 (6.3 ) (2.2 )
Securities gains (losses), net 5 5 5 -- --
Other 247   310   167 (20.3 ) 47.9
 
Total noninterest income $2,291   $2,498   $2,272 (8.3 ) .8
 
 

First quarter noninterest income of $2,291 million was $19 million (0.8 percent) higher than the first quarter of 2018 driven by growth in corporate payment products revenue and merchant processing services reflecting higher sales volumes. Other noninterest income also increased year-over-year primarily due to higher equity investment income, tax-advantaged investment syndication revenue, and transition services agreement revenue associated with the ATM processing business sale in 2018. These increases were partially offset by lower credit and debit card revenue, lower deposit service charges, and lower mortgage banking revenue. Credit and debit card revenue decreased $20 million (6.2 percent) reflecting fewer billing cycle processing days in the first quarter of 2019, a change in the accounting for prepaid card revenue in the first quarter of 2018, and industry trends in post-holiday consumer spending. Deposit service charges decreased $44 million (16.9 percent) driven by the sale of the Company’s ATM third-party servicing business in 2018. The decrease in mortgage banking revenue of $15 million (8.2 percent) was due to changes in mortgage servicing rights valuations, net of hedging activities, and lower servicing income, partially offset by higher production volume.

Noninterest income was $207 million (8.3 percent) lower in the first quarter of 2019 compared with the fourth quarter of 2018 reflecting lower payment services revenue, deposit service charges, and other noninterest income. Payment services revenue decreased $90 million (9.6 percent) primarily due to seasonally lower sales across all payment business segments and fewer billing cycle processing days within the credit and debit card business segment. Deposit service charges decreased $36 million (14.2 percent) primarily due to the sale of the Company’s ATM third-party servicing business and the seasonal impact of two fewer days in the first quarter of 2019. Other noninterest income decreased $63 million (20.3 percent) on a linked quarter basis primarily due to the notable items in the fourth quarter of 2018. Excluding the notable items, other noninterest income increased 5.6 percent on a linked quarter basis.

 
NONINTEREST EXPENSE
($ in millions)         Percent Change
1Q 4Q 1Q 1Q19 vs   1Q19 vs
    2019   2018   2018   4Q18   1Q18
 
Compensation $1,559 $1,568 $1,523 (.6 ) 2.4
Employee benefits 333 308 330 8.1 .9
Net occupancy and equipment 277 266 265 4.1 4.5
Professional services 95 133 83 (28.6 ) 14.5
Marketing and business development 89 115 97 (22.6 ) (8.2 )
Technology and communications 257 254 235 1.2 9.4
Postage, printing and supplies 72 80 80 (10.0 ) (10.0 )
Other intangibles 40 41 39 (2.4 ) 2.6
Other 365   515   403 (29.1 ) (9.4 )
 
Total noninterest expense $3,087   $3,280   $3,055 (5.9 ) 1.0
                     
 

First quarter noninterest expense of $3,087 million was $32 million (1.0 percent) higher than the first quarter of 2018 primarily due to higher personnel costs and technology investment, partially offset by lower other noninterest expense. Compensation expense increased $36 million (2.4 percent) principally due to the impact of hiring to support business growth and merit increases. Other noninterest expense decreased $38 million (9.4 percent) due to lower FDIC assessment costs, driven by the elimination of the surcharge in the fourth quarter of 2018, and lower costs related to tax-advantaged projects, partially offset by other expenses.

Noninterest expense decreased $193 million (5.9 percent) on a linked quarter basis. The fourth quarter of 2018 included notable items related to severance charges and legal accruals recorded in noninterest expense. Excluding the impact of the fourth quarter of 2018 notable items noninterest expense decreased $19 million (0.6 percent) due to seasonally lower costs related to tax-advantaged projects and professional services, along with lower marketing and business development expense driven by the timing of certain marketing campaigns. Partially offsetting these decreases were increases in employee benefits expense of $25 million (8.1 percent) due to seasonally higher payroll taxes.

Provision for Income Taxes

The provision for income taxes for the first quarter of 2019 resulted in a tax rate of 19.2 percent on a taxable-equivalent basis (effective tax rate of 18.1 percent), compared with 18.9 percent (effective tax rate of 17.7 percent) in the first quarter of 2018, and 14.6 percent on a taxable-equivalent basis (effective tax rate of 13.5 percent) in the fourth quarter of 2018. Tax expense for the first quarter of 2019 reflected the favorable conclusion of a state tax matter. The fourth quarter of 2018 tax rates reflected the favorable impact of deferred tax assets and liabilities adjustments related to tax reform estimates. Excluding the changes in estimates related to deferred tax assets and liabilities, the taxable-equivalent rate was 20.1 percent in the fourth quarter of 2018.

 
ALLOWANCE FOR CREDIT LOSSES
($ in millions)   1Q     4Q     3Q     2Q     1Q  
    2019   % (a)   2018   % (a)   2018   % (a)   2018   % (a)   2018   % (a)
 
Balance, beginning of period $4,441 $4,426 $4,411 $4,417 $4,417
 
Net charge-offs
Commercial 71 .30 64 .27 63 .27 54 .23 56 .25
Lease financing 2   .15 3   .22 3   .22 4   .29 4   .29
Total commercial 73 .29 67 .26 66 .26 58 .24 60 .25
Commercial mortgages -- -- (8 ) (.11 ) (5 ) (.07 ) -- -- (4 ) (.06 )
Construction and development --   -- 1   .04 (4 ) (.14 ) --   -- 1   .04
Total commercial real estate -- -- (7 ) (.07 ) (9 ) (.09 ) -- -- (3 ) (.03 )
 
Residential mortgages 3 .02 2 .01 4 .03 4 .03 7 .05
 
Credit card 225 4.04 219 3.88 206 3.75 210 3.97 211 4.02
 
Retail leasing 4 .19 3 .14 3 .14 3 .15 3 .15
Home equity and second mortgages (1 ) (.03 ) 1 .02 (1 ) (.02 ) (2 ) (.05 ) (1 ) (.03 )
Other 63   .80 68   .85 59   .74 59   .76 64   .79
Total other retail 66   .47 72   .51 61   .43 60   .43 66   .47
Total net charge-offs 367 .52 353 .49 328 .46 332 .48 341 .49
Provision for credit losses 377 368 343 327 341
Other changes --   --   --   (1 ) --  
Balance, end of period $4,451   $4,441   $4,426   $4,411   $4,417  
 
Components
Allowance for loan losses $3,990 $3,973 $3,954 $3,920 $3,918

Liability for unfunded credit commitments

461   468   472   491   499  
Total allowance for credit losses $4,451   $4,441   $4,426   $4,411   $4,417  
 
Gross charge-offs $473 $442 $428 $437 $453
Gross recoveries $106 $89 $100 $105 $112
 
Allowance for credit losses as a percentage of
Period-end loans 1.55 1.55 1.57 1.57 1.59
Nonperforming loans 519 544 544 484 431
Nonperforming assets 443 449 441 404 367
 
(a) Annualized and calculated on average loan balances
 
 

Credit quality was relatively stable on a linked quarter and year-over-year basis. The Company’s provision for credit losses for the first quarter of 2019 was $377 million, which was $9 million (2.4 percent) higher than the prior quarter and $36 million (10.6 percent) higher than the first quarter of 2018.

Total net charge-offs in the first quarter of 2019 were $367 million, compared with $353 million in the fourth quarter of 2018, and $341 million in the first quarter of 2018. Net charge-offs increased $14 million (4.0 percent) compared with the fourth quarter of 2018 due to higher total commercial real estate, total commercial loans and credit card net charge-offs, partially offset by lower total other retail net charge-offs. Net charge-offs increased $26 million (7.6 percent) compared with the first quarter of 2018 primarily due to higher total commercial loan and credit card net charge-offs. The net charge-off ratio was 0.52 percent in the first quarter of 2019, compared with 0.49 percent in the fourth quarter of 2018 and in the first quarter of 2018.

The allowance for credit losses was $4,451 million at March 31, 2019, compared with $4,441 million at December 31, 2018, and $4,417 million at March 31, 2018. The ratio of the allowance for credit losses to period-end loans was 1.55 percent at March 31, 2019, and at December 31, 2018, compared with 1.59 percent at March 31, 2018. The ratio of the allowance for credit losses to nonperforming loans was 519 percent at March 31, 2019, compared with 544 percent at December 31, 2018, and 431 percent at March 31, 2018.

Nonperforming assets were $1,005 million at March 31, 2019, compared with $989 million at December 31, 2018, and $1,204 million at March 31, 2018. The ratio of nonperforming assets to loans and other real estate was 0.35 percent at March 31, 2019, compared with 0.34 percent at December 31, 2018, and 0.43 percent at March 31, 2018. The year-over-year decrease in nonperforming assets was driven by decreases in nonperforming residential mortgages, total commercial loans, and other real estate owned. Accruing loans 90 days or more past due were $595 million at March 31, 2019, compared with $584 million at December 31, 2018, and $702 million at March 31, 2018.

 
DELINQUENT LOAN RATIOS AS A PERCENT OF ENDING LOAN BALANCES
(Percent)   Mar 31   Dec 31   Sep 30   Jun 30   Mar 31
    2019   2018   2018   2018   2018
 
Delinquent loan ratios - 90 days or more past due excluding nonperforming loans
Commercial .07 .07 .06 .06 .06
Commercial real estate .01 -- .01 .01 .01
Residential mortgages .18 .18 .19 .18 .22
Credit card 1.29 1.25 1.18 1.15 1.29
Other retail .19 .19 .17 .16 .18
Covered loans -- -- .86 4.46 4.57
Total loans .21 .20 .20 .23 .25
 
Delinquent loan ratios - 90 days or more past due including nonperforming loans
Commercial .34 .27 .28 .28 .37
Commercial real estate .33 .29 .27 .27 .31
Residential mortgages .62 .63 .69 .84 .93
Credit card 1.29 1.25 1.18 1.15 1.29
Other retail .49 .54 .49 .48 .48
Covered loans -- -- .86 4.68 4.77
Total loans .51 .49 .48 .55 .62
                     
 
                     
ASSET QUALITY (a)
($ in millions)          
Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
    2019   2018   2018   2018   2018
Nonperforming loans
Commercial $247 $186 $193 $199 $274
Lease financing 24   23   23   25   27
Total commercial 271 209 216 224 301
 
Commercial mortgages 79 76 77 72 86
Construction and development 48   39   28   32   33
Total commercial real estate 127 115 105 104 119
 
Residential mortgages 287 296 317 400 430
Credit card -- -- -- -- --
Other retail 173 197 175 178 168
Covered loans --   --   --   6   6
Total nonperforming loans 858 817 813 912 1,024
 
Other real estate 93 111 100 108 124
Covered other real estate -- -- 19 20 20
Other nonperforming assets 54   61   72   51   36
Total nonperforming assets $1,005   $989   $1,004   $1,091   $1,204
 
Accruing loans 90 days or more past due $595   $584   $551   $640   $702
 
Performing restructured loans, excluding GNMA $2,173   $2,218   $2,272   $2,194   $2,222
Performing restructured GNMA $1,578   $1,639   $1,668   $1,665   $1,566
 
Nonperforming assets to loans plus ORE (%) .35 .34 .36 .39 .43
 
(a) Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due
 
 
                     
COMMON SHARES
(Millions)   1Q   4Q   3Q   2Q   1Q
    2019   2018   2018   2018   2018
 
Beginning shares outstanding 1,608 1,623 1,636 1,649 1,656

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

3 1 1 -- 4
Shares repurchased (12 )   (16 )   (14 )   (13 )   (11 )
Ending shares outstanding 1,599     1,608     1,623     1,636     1,649  
                     
 
 
CAPITAL POSITION
($ in millions)   Mar 31   Dec 31   Sep 30   Jun 30   Mar 31
    2019     2018     2018     2018     2018  
 
Total U.S. Bancorp shareholders' equity $52,057 $51,029 $50,375 $49,628 $49,187
 
Basel III Standardized Approach
Common equity tier 1 capital $35,732 $34,724 $34,097 $34,161 $33,539
Tier 1 capital 41,748 40,741 40,114 39,611 38,991
Total risk-based capital 49,194 48,178 47,531 47,258 46,640
 
Common equity tier 1 capital ratio 9.3 % 9.1 % 9.0 % 9.1 % 9.0 %
Tier 1 capital ratio 10.9 10.7 10.6 10.5 10.4
Total risk-based capital ratio 12.8 12.6 12.6 12.6 12.5
Leverage ratio 9.2 9.0 9.0 8.9 8.8
 
Basel III Advanced Approaches
Common equity tier 1 capital ratio 12.0 11.8 11.8 11.6 11.5
 
Tangible common equity to tangible assets (a) 7.9 7.8 7.7 7.8 7.7
Tangible common equity to risk-weighted assets (a) 9.5 9.4 9.3 9.3 9.3
 
(a) See Non-GAAP Financial Measures reconciliation on page 16
 
 

Total U.S. Bancorp shareholders’ equity was $52.1 billion at March 31, 2019, compared with $51.0 billion at December 31, 2018, and $49.2 billion at March 31, 2018. During the first quarter, the Company returned 77 percent of earnings to shareholders through dividends and share buybacks.

All regulatory ratios continue to be in excess of “well-capitalized” requirements. The common equity tier 1 capital to risk-weighted assets ratio using the Basel III standardized approach was 9.3 percent at March 31, 2019, compared with 9.1 percent at December 31, 2018, and 9.0 percent at March 31, 2018. The common equity tier 1 capital to risk-weighted assets ratio using the Basel III advanced approaches method was 12.0 percent at March 31, 2019, compared with 11.8 percent at December 31, 2018, and 11.5 percent at March 31, 2018.

Investor Conference Call

On Wednesday, April 17, 2019, 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 8793888. For those unable to participate during the live call, a recording will be available at approximately 11:00 a.m. CDT on Wednesday, April 17 and will be accessible until Wednesday, April 24 at 11:00 p.m. CDT. To access the recorded message within the United States and Canada, please dial 855-859-2056. If calling from outside the United States and Canada, please dial 404-537-3406 to access the recording. The conference ID is 8793888.

About U.S. Bancorp

U.S. Bancorp, with 74,000 employees and $476 billion in assets as of March 31, 2019, 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 2019 World’s Most Ethical Company. Visit U.S. Bank at www.usbank.com or follow on social media to stay up to date with company news.

Forward-looking Statements

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

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

For discussion of these and other risks that may cause actual results to differ from expectations, refer to U.S. Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2018, 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. In addition, factors other than these risks also could adversely affect U.S. Bancorp’s results, and the reader should not consider these risks to be a complete set of all potential risks or uncertainties. Forward-looking statements speak only as of the date hereof, and U.S. Bancorp undertakes no obligation to update them in light of new information or future events.

Non-GAAP Financial Measures

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

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

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

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

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

     
CONSOLIDATED STATEMENT OF INCOME    
  Three Months Ended
(Dollars and Shares in Millions, Except Per Share Data) March 31,
(Unaudited)   2019     2018  
Interest Income  
Loans $3,540 $3,095
Loans held for sale 25 33
Investment securities 705 613
Other interest income 81     50  
Total interest income 4,351 3,791
Interest Expense
Deposits 695 345
Short-term borrowings 93 75
Long-term debt 304     203  
Total interest expense 1,092     623  
Net interest income 3,259 3,168
Provision for credit losses 377     341  
Net interest income after provision for credit losses 2,882 2,827
Noninterest Income
Credit and debit card revenue 304 324
Corporate payment products revenue 162 154
Merchant processing services 378 363
Trust and investment management fees 399 398
Deposit service charges 217 261
Treasury management fees 146 150
Commercial products revenue 219 220
Mortgage banking revenue 169 184
Investment products fees 45 46
Securities gains (losses), net 5 5
Other 247     167  
Total noninterest income 2,291 2,272
Noninterest Expense
Compensation 1,559 1,523
Employee benefits 333 330
Net occupancy and equipment 277 265
Professional services 95 83
Marketing and business development 89 97
Technology and communications 257 235
Postage, printing and supplies 72 80
Other intangibles 40 39
Other 365     403  
Total noninterest expense 3,087     3,055  
Income before income taxes 2,086 2,044
Applicable income taxes 378     362  
Net income 1,708 1,682
Net (income) loss attributable to noncontrolling interests (9 )   (7 )
Net income attributable to U.S. Bancorp $1,699     $1,675  
Net income applicable to U.S. Bancorp common shareholders $1,613     $1,597  
 
Earnings per common share $1.01 $.97
Diluted earnings per common share $1.00 $.96
Dividends declared per common share $.37 $.30
Average common shares outstanding 1,602 1,652
Average diluted common shares outstanding   1,605     1,657  
 
       
CONSOLIDATED ENDING BALANCE SHEET
     
March 31, December 31, March 31,
(Dollars in Millions)   2019     2018     2018  
Assets (Unaudited) (Unaudited)
Cash and due from banks $18,115 $21,453 $19,246
Investment securities
Held-to-maturity 46,285 46,050 44,612
Available-for-sale 68,113 66,115 67,125
Loans held for sale 2,725 2,056 4,777
Loans
Commercial 103,069 102,444 98,097
Commercial real estate 39,421 39,539 40,140
Residential mortgages 66,243 65,034 60,477
Credit card 22,268 23,363 20,901
Other retail 56,698 56,430 55,317
Covered loans --     --     2,979  
Total loans 287,699 286,810 277,911
Less allowance for loan losses (3,990 )   (3,973 )   (3,918 )
Net loans 283,709 282,837 273,993
Premises and equipment 3,686 2,457 2,441
Goodwill 9,547 9,369 9,440
Other intangible assets 3,341 3,392 3,388
Other assets 40,254     33,645     35,097  
Total assets $475,775     $467,374     $460,119  
 
Liabilities and Shareholders' Equity
Deposits
Noninterest-bearing $74,587 $81,811 $82,211
Interest-bearing 273,500     263,664     262,315  
Total deposits 348,087 345,475 344,526
Short-term borrowings 15,396 14,139 17,703
Long-term debt 40,680 41,340 33,201
Other liabilities 18,926     14,763     14,877  
Total liabilities 423,089 415,717 410,307
Shareholders' equity
Preferred stock 5,984 5,984 5,419
Common stock 21 21 21
Capital surplus 8,432 8,469 8,438
Retained earnings 60,092 59,065 55,549
Less treasury stock (20,699 ) (20,188 ) (18,047 )
Accumulated other comprehensive income (loss) (1,773 )   (2,322 )   (2,193 )
Total U.S. Bancorp shareholders' equity 52,057 51,029 49,187
Noncontrolling interests 629     628     625  
Total equity 52,686     51,657     49,812  
Total liabilities and equity   $475,775     $467,374     $460,119  
 
           
NON-GAAP FINANCIAL MEASURES
         
March 31, December 31, September 30, June 30, March 31,
(Dollars in Millions, Unaudited)   2019       2018       2018       2018       2018    
Total equity $52,686 $51,657 $51,007 $50,257 $49,812
Preferred stock (5,984 ) (5,984 ) (5,984 ) (5,419 ) (5,419 )
Noncontrolling interests (629 ) (628 ) (632 ) (629 ) (625 )
Goodwill (net of deferred tax liability) (1) (8,716 ) (8,549 ) (8,682 ) (8,585 ) (8,609 )
Intangible assets, other than mortgage servicing rights (685 )     (601 )     (627 )     (571 )     (608 )  
Tangible common equity (a) 36,672 35,895 35,082 35,053 34,551
 
Total assets 475,775 467,374 464,607 461,329 460,119
Goodwill (net of deferred tax liability) (1) (8,716 ) (8,549 ) (8,682 ) (8,585 ) (8,609 )
Intangible assets, other than mortgage servicing rights (685 )     (601 )     (627 )     (571 )     (608 )  
Tangible assets (b) 466,374 458,224 455,298 452,173 450,902
 

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

384,394

* 381,661 377,713 375,466 373,141
 
Ratios *
Tangible common equity to tangible assets (a)/(b) 7.9 % 7.8 % 7.7 % 7.8 % 7.7 %
Tangible common equity to risk-weighted assets (a)/(c) 9.5 9.4 9.3 9.3 9.3
 
 
Three Months Ended
March 31, December 31, September 30, June 30, March 31,
2019       2018       2018       2018       2018    
Net income applicable to U.S. Bancorp common shareholders $1,613 $1,777 $1,732 $1,678 $1,597
Intangibles amortization (net-of-tax) 32       32       32       32       31    

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

1,645 1,809 1,764 1,710 1,628

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

6,671 7,177 6,998 6,859 6,602
 
Average total equity 52,218 51,370 50,768 49,950 49,450
Less: Average preferred stock 5,984 5,984 5,714 5,419 5,419
Less: Average noncontrolling interests 629 630 630 628 625
Less: Average goodwill (net of deferred tax liability) (1) 8,732 8,574 8,620 8,602 8,627
Less: Average intangible assets, other than mortgage servicing rights 671       605       584       588       603    

Average U.S. Bancorp common shareholders' equity, excluding intangible assets (e)

36,202 35,577 35,220 34,713 34,176
 
Return on tangible common equity (d)/(e) 18.4   %   20.2   %   19.9   %   19.8   %   19.3   %
 
 
Net interest income $3,259 $3,303 $3,251 $3,197 $3,168
Taxable-equivalent adjustment (2) 27       28       30       29       29    
Net interest income, on a taxable-equivalent basis 3,286 3,331 3,281 3,226 3,197
 
Net interest income, on a taxable-equivalent basis (as calculated above) 3,286 3,331 3,281 3,226 3,197
Noninterest income 2,291 2,498 2,418 2,414 2,272
Less: Securities gains (losses), net 5       5       10       10       5    
Total net revenue, excluding net securities gains (losses) (f) 5,572 5,824 5,689 5,630 5,464
 
Noninterest expense (g) 3,087 3,280 3,044 3,085 3,055
Less: Intangible amortization 40       41       41       40       39    
Noninterest expense, excluding intangible amortization (h) 3,047 3,239 3,003 3,045 3,016
 
Efficiency ratio (g)/(f) 55.4 % 56.3 % 53.5 % 54.8 % 55.9 %
Tangible efficiency ratio (h)/(f)   54.7       55.6       52.8       54.1       55.2    
 

  * 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) Based on a federal income tax rate of 21 percent for those assets and liabilities whose income or expense is not included for federal income tax purposes.
 

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