News details

• Record net revenue and diluted earnings per share for 4Q18 and Full Year
• Record net income for the Full Year

MINNEAPOLIS--(BUSINESS WIRE)--Jan. 16, 2019-- U.S. Bancorp (NYSE: USB):

4Q18 and Full Year Key Financial Data

4Q18 and Full Year Highlights

• Net income of $1,856 million and diluted earnings per common share of $1.10 for 4Q18, including $45 million of notable items, net of taxes, representing an increase of $0.03 per diluted common share
• Industry leading return on average assets of 1.59% and return on average common equity of 15.8% for 4Q18
• Return on tangible common equity of 20.2% for 4Q18
• Returned 80% of 4Q earnings to shareholders through dividends and share buybacks
• Net interest income grew 4.0% year-over-year (3.2% on a taxable-equivalent basis)
• Average total loans increased 0.9% and 1.4% compared to 3Q18 and 4Q17, respectively (1.5% and 2.6% excluding the impact of loan sales)
• Total noninterest income grew 5.4% year-over year, driven by payments revenue and trust and investment management fees
• Full year net income of $7,096 million and diluted earnings per common share of $4.14
• Positive operating leverage for full year 2018 with net revenue increase of 3.4% and noninterest expense decrease of 2.5%. Excluding notable items, net revenue increase of 3.0% and noninterest expense increase of 2.7%.

CEO Commentary

“Fourth quarter results capped a strong year for U.S. Bank and the momentum we are seeing in our lending and fee businesses positions us well for 2019. This quarter we achieved record revenue and EPS and delivered a best-in-class return on tangible common equity of 20.2%. These strong results enabled us to return 80% to our shareholders through dividends and share repurchases. Loan growth accelerated in the fourth quarter even as we maintained our consistent and disciplined underwriting standards. Furthermore, we continued to see strong sales activity and expanded customer relationships across all of our businesses supported by our investments in technology and innovation, as well as our employees’ dedication to helping to make our customers’ financial lives simpler and more productive. I want to thank our employees for their efforts this year and every year, and for their unwavering commitment to making U.S. Bank the most trusted choice for our customers.”

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

In the Spotlight

Termination of AML-Related Consent Order
U.S. Bancorp recently announced that the Office of the Comptroller of the Currency has terminated its 2015 consent order related to the Company’s Anti-Money Laundering (AML) and Bank Secrecy Act (BSA) program and controls. Since 2014, U.S. Bancorp has made significant investments to risk management and compliance to enhance and strengthen our programs.

Elavon Acquisitions enhance Payments Capabilities
Recent acquisitions of financial technologies companies Electronic Transaction Systems and CenPOS, Inc. by Elavon, a global merchant payment processing provider and subsidiary of USB, enhances its eCommerce offerings and integrated payments capabilities.

U.S. Bank Pullman Community Center
The U.S. Bank Pullman Community Center, a 135,000-square-foot facility, recently opened in the historic Pullman neighborhood of Chicago and is the latest result of significant community investment U.S. Bank has made in the Pullman community since 2009. U.S. Bank has partnered with the community to help welcome major retailers, a grocery store, healthcare, workout facilities, restaurants and several plants and distribution centers to the community.

Digital Small Business Lending
We launched a fully digital small business lending experience in the third quarter that has successfully fostered small business digital adoption during the past few months. Small businesses, on a national basis, have started borrowing through the digital experience, and two-thirds of funded deals were approved in one day or less.

Net income attributable to U.S. Bancorp was $1,856 million for the fourth quarter of 2018, which was 10.3 percent higher than the $1,682 million for the fourth quarter of 2017, and 2.3 percent higher than the $1,815 million for the third quarter of 2018. Diluted earnings per common share were $1.10 in the fourth quarter of 2018, compared with $0.97 in the fourth quarter of 2017 and $1.06 in the third 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 from the 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.

The increase in net income year-over-year was due to total net revenue growth of 4.1 percent and a decrease in noninterest expense of 15.9 percent. Net interest income increased 4.0 percent (3.2 percent on a taxable-equivalent basis), mainly a result of the impact of rising interest rates on assets, earning assets growth, and higher yields on reinvestment of securities, partially offset by higher rates on deposits and funding mix. Excluding the notable items, noninterest income increased 2.2 percent compared with a year ago, driven by strong growth in payment services revenue and trust and investment management fees, along with higher other noninterest revenue, partially offset by decreases in mortgage banking revenue and ATM processing services. Excluding the notable items, noninterest expense increased 1.0 percent primarily due to increased compensation expense supporting business growth and compliance programs, merit increases, and variable compensation related to revenue growth, higher employee benefits expense, an increase in legal and professional expense, and higher technology and communications expense in support of business growth. Partially offsetting these increases was lower other noninterest expense driven by lower costs related to tax-advantaged projects, lower FDIC assessment costs, and a reduction in mortgage servicing costs.

Net income increased on a linked quarter basis primarily driven by total net revenue growth of 2.3 percent offset by an increase in noninterest expense of 7.8 percent. Net interest income increased 1.6 percent (1.5 percent on a taxable-equivalent basis) due to the impact of rising interest rates on assets, earning assets growth, and interest recoveries, partially offset by higher rates on deposits and funding mix. Excluding the notable items, noninterest income increased 0.2 percent compared with the third quarter of 2018 driven by higher payment services revenue primarily due to seasonally higher credit and debit card revenue and higher commercial products revenue, partially offset by lower ATM processing services due to the ATM servicing sale. Excluding the notable items, noninterest expense increased 2.0 percent primarily driven by compensation expense due to timing of payroll cycles and variable compensation related to revenue growth, along with an increase in employee benefits expense due to higher medical costs, seasonally higher professional services expense, and seasonally higher costs related to investments in tax-advantaged projects. Partially offsetting these increases was lower FDIC assessment costs.

Net interest income on a taxable-equivalent basis in the fourth quarter of 2018 was $3,331 million, an increase of $103 million (3.2 percent) over the fourth quarter of 2017. The increase was principally driven by the impact of rising interest rates, earning assets growth, and higher yields on securities, partially offset by higher rates on deposits and funding mix shift, as well as the impact of tax reform which reduced the taxable-equivalent adjustment benefit related to tax exempt assets. Average earning assets were $7.0 billion (1.7 percent) higher than the fourth quarter of 2017, reflecting increases of $3.9 billion (1.4 percent) in average total loans and $3.0 billion (18.0 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 2.6 percent compared with the fourth quarter of 2017.

Net interest income on a taxable-equivalent basis increased $50 million (1.5 percent) on a linked quarter basis primarily driven by the impact of higher interest rates on assets and earning assets growth, partially offset by higher rates on deposits and funding mix shift. Average earning assets were $5.3 billion (1.3 percent) higher on a linked quarter basis, reflecting increases of $2.6 billion (0.9 percent) in average total loans and $2.1 billion (11.8 percent) in average other earning assets. Excluding the impact of the fourth quarter of 2018 sale of the majority of FDIC covered loans, total average loans grew 1.5 percent over the third quarter of 2018.

The net interest margin in the fourth quarter of 2018 was 3.15 percent, compared with 3.11 percent in the fourth quarter of 2017 and 3.15 percent in the third quarter of 2018. The increase in the net interest margin year-over-year was primarily due to higher interest rates, partially offset by deposit and funding mix, lower loan spreads due to mix, higher cash balances, and the impact of tax reform. Net interest margin was flat on a linked quarter basis reflecting the impact of higher rates on assets and higher interest recoveries, offset by deposit and funding mix, as well as higher cash balances.

Average investment securities in the fourth quarter of 2018 increased $851 million (0.8 percent) from the fourth quarter of 2017 and $591 million (0.5 percent) from the third quarter of 2018 due to purchases of U.S. Treasury, mortgage-backed and state and political securities, net of prepayments and maturities.

Average total loans were $3.9 billion (1.4 percent) higher than the fourth quarter of 2017. 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 2.6 percent over the prior year quarter. The increase was due to growth in residential mortgages (8.1 percent), total commercial loans (3.0 percent), credit card loans (5.6 percent), and retail leasing (6.4 percent). These increases were partially offset by a decrease in total commercial real estate loans (2.1 percent) due to customers paying down balances and a decrease in other loans (3.9 percent) impacted by the sale of student loans.

Average total loans were $2.6 billion (0.9 percent) higher than the third quarter of 2018 driven by growth in residential mortgages (3.9 percent) and total commercial loans (1.5 percent), partially offset by the sale of covered loans in the fourth quarter of 2018. Excluding the impact of the fourth quarter of 2018 covered loans sale, total average loans grew 1.5 percent over the third quarter of 2018.

Average total deposits for the fourth quarter of 2018 were $4.8 billion (1.4 percent) lower than the fourth quarter of 2017. Average noninterest-bearing deposits decreased $5.1 billion (6.2 percent) year-over-year primarily due to decreases in business deposits within Corporate and Commercial Banking and corporate trust balances within Wealth Management and Investment Services. Average total savings deposits were $4.7 billion (2.1 percent) lower year-over-year driven by decreases in Wealth Management and Investment Services and Corporate and Commercial Banking, partially offset by an increase in Consumer and Business Banking. Average time deposits were $5.0 billion (13.6 percent) higher than the prior year quarter. Changes in time deposits are largely related to those deposits managed as an alternative to other funding sources such as wholesale borrowing, based largely on relative pricing and liquidity characteristics.

Average total deposits increased $4.2 billion (1.3 percent) from the third quarter of 2018. On a linked quarter basis, average noninterest-bearing deposits were essentially flat reflecting seasonal growth in Wealth Management and Investment Services balances, offset by decreases in balances within Corporate and Commercial Banking. Average total savings deposits increased $285 million (0.1 percent) primarily due to increases in Corporate and Commercial Banking, partially offset by decreases in Wealth Management and Investment Services and Consumer and Business Banking. Average time deposits increased $4.0 billion (10.5 percent) during the quarter. Average time deposit growth partially reflects consumer customers’ migration to certificates of deposit for higher yields. In addition, the balance of time deposits is managed based on funding needs, relative pricing and liquidity characteristics.

Fourth quarter noninterest income of $2,498 million was $128 million (5.4 percent) higher than the fourth quarter of 2017 led by strong growth in payment services revenue and trust and investment management fees. Payment services revenue increased $70 million (8.1 percent) due to higher credit and debit card revenue of $40 million (11.7 percent), an increase in corporate payment products revenue of $15 million (10.1 percent), and higher merchant processing services of $15 million (4.0 percent) all driven by higher sales volumes. Trust and investment management fees increased $15 million (3.8 percent) due to business growth. Other noninterest income included the impacts of notable items related to the gain from the sale of the Company’s ATM servicing business of $340 million and charges for asset impairments related to the sale of a majority of the Company’s covered loans and other certain assets of $264 million. Excluding these notable items, other noninterest income increased year-over-year primarily due to higher equity investment income. Partially offsetting these increases was a decline in mortgage banking revenue of $31 million (15.3 percent) primarily due to lower mortgage production. Also, ATM processing services decreased $26 million (32.5 percent) due to the sale of the Company’s ATM servicing business.

Noninterest income was $80 million (3.3 percent) higher in the fourth quarter of 2018 compared with the third quarter of 2018 reflecting higher payment services revenue as credit and debit card revenue grew $38 million (11.0 percent) due to seasonally higher sales volumes, partially offset by seasonally lower corporate payment products revenue of $6 million (3.6 percent). Due to the sale of the Company’s ATM third party servicing business, ATM processing services fees declined $31 million (36.5 percent) in the fourth quarter. Excluding the notable items, noninterest income increased 0.2 percent on a linked quarter basis.

Fourth quarter noninterest expense of $3,280 million was $619 million (15.9 percent) lower than the fourth quarter of 2017. Included in the fourth quarter are Company expenses related to severance charges and accruals of legal matters of $174 million in 2018 and incurred expenses of $825 million in 2017 related to a special employee bonus and contribution to its foundation as well as the settlement of a regulatory matter. Excluding the impact of the notable items, fourth quarter noninterest expense was 1.0 percent higher than fourth quarter of 2017 primarily due to an increase in compensation expense driven by 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 primarily due to higher medical costs compared with a year ago. Partially offsetting these increases was a decrease in other noninterest expense due to lower costs related to tax-advantaged projects, lower FDIC assessment costs, driven by the elimination of the surcharge in the fourth quarter of 2018, and a reduction in mortgage servicing costs.

Noninterest expense increased $236 million (7.8 percent) on a linked quarter basis. Excluding the impact of the notable items, fourth quarter noninterest expense increased 2.0 percent primarily due to an increase in compensation expense, including higher incentives, seasonally higher professional services expenses, and growth in other noninterest expense due to seasonally higher costs related to tax-advantaged projects, partially offset by lower FDIC assessment costs driven by the elimination of the surcharge in the fourth quarter of 2018.

Provision for Income Taxes

The provision for income taxes for the fourth quarter of 2018 resulted in a tax rate of 14.6 percent on a taxable-equivalent basis (effective tax rate of 13.5 percent), compared with a tax benefit of 23.6 percent on a taxable-equivalent basis (effective tax benefit of 28.6 percent) in the fourth quarter of 2017, and a tax rate of 21.2 percent on a taxable-equivalent basis (effective tax rate of 20.2 percent) in the third quarter of 2018. The tax benefit in the fourth quarter of 2017 reflected the impact of tax reform legislation that was enacted during that quarter. The 2018 tax rates reflected the reduced statutory tax rate for corporations from 35 percent to 21 percent effective beginning in 2018 and 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.

Credit quality was relatively stable on both a linked quarter and year-over-year basis. The Company’s provision for credit losses for the fourth quarter of 2018 was $368 million, which was $25 million (7.3 percent) higher than the prior quarter and $33 million (9.9 percent) higher than the fourth quarter of 2017.

Total net charge-offs in the fourth quarter of 2018 were $353 million, compared with $328 million in the third quarter of 2018, and $325 million in the fourth quarter of 2017. Net charge-offs increased $25 million (7.6 percent) compared with the third quarter of 2018 mainly due to seasonally lower credit card net charge-offs in the third quarter and higher total other retail net charge-offs in the fourth quarter. Net charge-offs increased $28 million (8.6 percent) compared with the fourth quarter of 2017 primarily due to higher total commercial and credit card net charge-offs, partially offset by lower total commercial real estate net charge-offs. The net charge-off ratio was 0.49 percent in the fourth quarter of 2018, compared with 0.46 percent in both the third quarter of 2018 and in the fourth quarter of 2017.

The allowance for credit losses was $4,441 million at December 31, 2018, compared with $4,426 million at September 30, 2018, and $4,417 million at December 31, 2017. The ratio of the allowance for credit losses to period-end loans was 1.55 percent at December 31, 2018, compared with 1.57 percent at September 30, 2018, and 1.58 percent at December 31, 2017. The ratio of the allowance for credit losses to nonperforming loans was 544 percent at December 31, 2018, and at September 30, 2018, compared with 438 percent at December 31, 2017.

Nonperforming assets were $989 million at December 31, 2018, compared with $1,004 million at September 30, 2018, and $1,200 million at December 31, 2017. The ratio of nonperforming assets to loans and other real estate was 0.34 percent at December 31, 2018, compared with 0.36 percent at September 30, 2018, and 0.43 percent at December 31, 2017. The year-over-year decrease in nonperforming assets was driven by improvements in nonperforming residential mortgages, total commercial loans, total commercial real estate and other real estate owned. Accruing loans 90 days or more past due were $584 million at December 31, 2018, compared with $551 million at September 30, 2018, and $720 million at December 31, 2017.

Total U.S. Bancorp shareholders’ equity was $51.0 billion at December 31, 2018, compared with $50.4 billion at September 30, 2018, and $49.0 billion at December 31, 2017. During the fourth quarter, the Company returned 80 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 December 31, 2018, compared with 9.0 percent at September 30, 2018, and 9.3 percent at December 31, 2017. The common equity tier 1 capital to risk-weighted assets ratio using the Basel III advanced approaches method was 11.8 percent at December 31, 2018, and at September 30, 2018, compared with 12.0 percent at December 31, 2017.

Investor Conference Call

On Wednesday, January 16, 2019, at 8:00 a.m. CST, 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 1486427. For those unable to participate during the live call, a recording will be available at approximately 11:00 a.m. CST on Wednesday, January 16 and will be accessible until Wednesday, January 23 at 11:00 p.m. CST. 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 1486427.

About U.S. Bancorp

U.S. Bancorp, with 74,000 employees and $467 billion in assets as of December 31, 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. 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, 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.

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.