Exhibit 99.1

 

		News Release
		Contacts: Dana Ripley Media (612) 303-3167		Jennifer Thompson Investors/Analysts (612) 303-0778

U.S. BANCORP REPORTS RECORD REVENUE AND NET INCOME

FOR THE SECOND QUARTER OF 2016

Record Earnings Per Diluted Common Share of $0.83

Return on average assets of 1.43 percent and average common equity of 13.8 percent

Returned 77 percent of second quarter earnings to shareholders

MINNEAPOLIS, July 15, 2016 — U.S. Bancorp (NYSE: USB) today reported net income of $1,522 million for the second quarter of 2016, or $0.83 per diluted common share, compared with $1,483 million, or $0.80 per diluted common share, in the second quarter of 2015. The second quarter of 2016 included notable items related to equity investments, legal and regulatory matters and charitable contributions that, combined, increased diluted earnings per common share by $0.01.

Highlights for the second quarter of 2016 included:

 

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Industry-leading return on average assets of 1.43 percent, return on average common equity of 13.8 percent and efficiency ratio of 54.9 percent (54.0 percent excluding notable items)

 

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Record revenue, net income and diluted earnings per common share for the second quarter of 2016 both as reported and excluding notable items

 

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Returned 77 percent of second quarter earnings to shareholders through dividends and share buybacks

 

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Average total loans grew 1.6 percent on a linked quarter basis and 8.1 percent over the second quarter of 2015 (6.5 percent year-over-year, excluding the credit card portfolio acquisition at the end of the fourth quarter of 2015 and student loans, which were carried in held for sale in the second quarter of 2015)

 

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Average total deposits grew 3.9 percent on a linked quarter basis and 7.6 percent over the second quarter of 2015

 

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Net interest income grew 0.3 percent on a linked quarter basis and 4.5 percent year-over-year

 

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Average earnings assets grew 1.9 percent on a linked quarter basis and 5.2 percent year-over-year

 

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U.S. Bancorp Reports Second Quarter 2016 Results

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Net interest margin of 3.02 percent for the second quarter of 2016 was down 4 basis points from 3.06 percent in the first quarter of 2016 and down 1 basis point from 3.03 percent in the second quarter of 2015

 

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Payments-related fee revenue grew 8.8 percent linked quarter and 4.9 percent year-over-year, driven by an increase in credit and debit card revenue, including the impact of recent portfolio acquisitions, as well as an increase in corporate payment products revenue

 

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Credit quality was relatively stable

 

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Nonperforming assets decreased 2.7 percent on a linked quarter basis

 

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Commercial nonperforming assets within the energy portfolio decreased $54 million linked quarter

 

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Reserves for energy portfolio commercial loans were 8.8 percent of outstanding balances at June 30, 2016, compared with 9.1 percent at March 31, 2016

 

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Strong capital position. At June 30, 2016, the estimated common equity tier 1 capital to risk-weighted assets ratio was 9.3 percent using the Basel III fully implemented standardized approach and was 12.0 percent using the Basel III fully implemented advanced approaches method

 

EARNINGS SUMMARY																															Table 1
($ in millions, except per-share data)		2Q 2016				1Q 2016				2Q 2015				Percent Change 2Q16 vs 1Q16				Percent Change 2Q16 vs 2Q15				YTD 2016				YTD 2015				Percent Change
Net income attributable to U.S. Bancorp			$1,522				$1,386				$1,483				9.8				2.6				$2,908				$2,914				(.2	)
Diluted earnings per common share			$.83				$.76				$.80				9.2				3.8				$1.59				$1.56				1.9
Return on average assets (%)			1.43				1.32				1.46												1.38				1.45
Return on average common equity (%)			13.8				13.0				14.3												13.4				14.2
Net interest margin (%)			3.02				3.06				3.03												3.04				3.05
Efficiency ratio (%) (a)			54.9				54.6				53.2												54.8				53.7
Tangible efficiency ratio (%) (a)			54.1				53.7				52.3												53.9				52.9
Dividends declared per common share			$.255				$.255				$.255				—				—				$.510				$.500				2.0
Book value per common share (period end)			$24.37				$23.82				$22.51				2.3				8.3
(a)    Computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding net securities gains (losses), and for tangible efficiency ratio, intangible amortization.

 

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U.S. Bancorp Reports Second Quarter 2016 Results

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Net income attributable to U.S. Bancorp was $1,522 million for the second quarter of 2016, 2.6 percent higher than the $1,483 million for the second quarter of 2015, and 9.8 percent higher than the $1,386 million for the first quarter of 2016. Diluted earnings per common share were $0.83 in the second quarter of 2016, $0.03 higher than the second quarter of 2015 and $0.07 higher than the $0.76 reported for the first quarter of 2016. The second quarter of 2016 included $0.01 in notable items, including $180 million of equity investment income, primarily the result of our membership in Visa Europe Limited (“Visa Europe”) which was sold to Visa, Inc. on June 21, 2016, and $110 million in accruals related to legal and regulatory matters along with a $40 million charitable contribution. Excluding the notable items, the increase in net income year-over-year was primarily due to an increase in net interest income of 4.5 percent , mainly a result of strong loan growth, and higher noninterest income of 4.4 percent, driven by growth in credit and debit card revenue, commercial products revenue, and trust and investment management fees. This increase was partially offset by higher noninterest expense related to merit increases and higher variable compensation expense, increased compliance costs, which peaked in the second quarter 2016, and higher marketing expense as a result of brand investment. Excluding the notable items, the increase in net income on a linked quarter basis was principally due to total net revenue growth of 4.6 percent reflecting typical seasonality in certain lines of businesses, including payments, mortgage banking and deposit services, partially offset by higher noninterest expense of 3.4 percent related to increased compliance costs and marketing expense.

U.S. Bancorp Chairman and Chief Executive Officer Richard K. Davis said, “U.S. Bancorp reported strong second quarter results, delivering record revenue and net income in an economy that continues to be challenged by global concerns and low interest rates. Despite these economic headwinds we continued to effectively execute on our strategy to be the most trusted choice and to unify the customer experience. The second quarter was a record quarter for us as we once again delivered industry-leading returns, steady loan growth and strength in our fee-based businesses. Steady loan growth, demonstrated by continued strength in commercial loans and momentum in consumer loans, led to increased net interest income despite a decline in net interest margin. Growth in our fee revenue continued across many of our fee-based businesses, including our payments business lines. We also reported strong results in our capital markets business as we were positioned well to provide products and services to our customers as they navigated through the recent market volatility. And we managed our capital effectively, delivering 77 percent of our second quarter earnings back to shareholders through dividends and share buybacks. During the quarter, we were pleased to receive the Federal Reserve’s non-objection to our capital plan, allowing us once again to return value to our shareholders by increasing our annual common dividend by 9.8 percent in the third quarter of 2016. We also

 

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made important investments in our vision for the future, including investments in the U.S. Bank brand that will help us more effectively articulate our compelling story to customers in order to generate long-term growth.

“The strength of our company continues to be driven by the commitment of our employees. Through their hard work and dedication, we continue to deliver consistent, predictable and repeatable industry-leading financial results. We remain well positioned to provide the right products and services to our customers so that they may achieve their financial objectives as we continue to create value for our shareholders.”

 

INCOME STATEMENT HIGHLIGHTS																															Table 2
(Taxable-equivalent basis, $ in millions, except per-share data)														Percent Change 2Q16 vs 1Q16				Percent Change 2Q16 vs 2Q15
		2Q 2016				1Q 2016				2Q 2015												YTD 2016				YTD 2015				Percent Change
Net interest income			$2,896				$2,888				$2,770				.3				4.5				$5,784				$5,522				4.7
Noninterest income			2,552				2,149				2,272				18.8				12.3				4,701				4,426				6.2
Total net revenue			5,448				5,037				5,042				8.2				8.1				10,485				9,948				5.4
Noninterest expense			2,992				2,749				2,682				8.8				11.6				5,741				5,347				7.4
Income before provision and taxes			2,456				2,288				2,360				7.3				4.1				4,744				4,601				3.1
Provision for credit losses			327				330				281				(.9	)			16.4				657				545				20.6
Income before taxes			2,129				1,958				2,079				8.7				2.4				4,087				4,056				.8
Taxable-equivalent adjustment			51				53				54				(3.8	)			(5.6	)			104				108				(3.7	)
Applicable income taxes			542				504				528				7.5				2.7				1,046				1,007				3.9
Net income			1,536				1,401				1,497				9.6				2.6				2,937				2,941				(.1	)
Net (income) loss attributable to noncontrolling interests			(14	)			(15	)			(14	)			6.7				—				(29	)			(27	)			(7.4	)
Net income attributable to U.S. Bancorp			$1,522				$1,386				$1,483				9.8				2.6				$2,908				$2,914				(.2	)
Net income applicable to U.S. Bancorp common shareholders			$1,435				$1,329				$1,417				8.0				1.3				$2,764				$2,782				(.6	)
Diluted earnings per common share			$.83				$.76				$.80				9.2				3.8				$1.59				$1.56				1.9

 

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NET INTEREST INCOME																															Table 3
(Taxable-equivalent basis; $ in millions)		2Q 2016				1Q 2016				2Q 2015				Change 2Q16 vs 1Q16				Change 2Q16 vs 2Q15				YTD 2016				YTD 2015				Change
Components of net interest income
Income on earning assets			$3,305				$3,275				$3,123				$30				$182				$6,580				$6,239				$341
Expense on interest-bearing liabilities			409				387				353				22				56				796				717				79
Net interest income			$2,896				$2,888				$2,770				$8				$126				$5,784				$5,522				$262
Average yields and rates paid
Earning assets yield			3.44	%			3.48	%			3.42	%			(.04	)%			.02	%			3.46	%			3.45%				.01%
Rate paid on interest-bearing liabilities			.58				.56				.52				.02				.06				.57				.54				.03
Gross interest margin			2.86	%			2.92	%			2.90	%			(.06	)%			(.04	)%			2.89	%			2.91%				(.02)%
Net interest margin			3.02	%			3.06	%			3.03	%			(.04	)%			(.01	)%			3.04	%			3.05%				(.01)%
Average balances
Investment securities (a)			$107,132				$106,031				$102,391				$1,101				$4,741				$106,581				$101,556				$5,025
Loans			266,582				262,281				246,560				4,301				20,022				264,432				247,251				17,181
Earning assets			385,368				378,208				366,428				7,160				18,940				381,788				363,650				18,138
Interest-bearing liabilities			285,796				279,516				270,573				6,280				15,223				282,656				269,235				13,421
(a) Excludes unrealized gain (loss)

Net Interest Income

Net interest income on a taxable-equivalent basis in the second quarter of 2016 was $2,896 million, an increase of $126 million (4.5 percent) over the second quarter of 2015. The increase was driven by loan growth and higher rates, partially offset by the loan portfolio mix. Average earning assets were $18.9 billion (5.2 percent) higher than the second quarter of 2015, driven by increases of $20.0 billion (8.1 percent) in average total loans and $4.7 billion (4.6 percent) in average investment securities. Net interest income increased $8 million (0.3 percent) on a linked quarter basis, primarily due to growth in average total loans, partially offset by the loan portfolio mix and higher funding costs. Average total loans were $4.3 billion (1.6 percent) higher on a linked quarter basis.

The net interest margin in the second quarter of 2016 was 3.02 percent, compared with 3.03 percent in the second quarter of 2015, and 3.06 percent in the first quarter of 2016. The decrease in the net interest margin on a year-over-year basis was principally due to securities purchases at lower average rates and lower reinvestment rates on maturing securities, partially offset by higher rates on new loans. On a linked quarter

 

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basis, the decrease in net interest margin primarily reflected the loan portfolio mix as well as lower average rates on new securities purchases and lower reinvestment rates on maturing securities.

Investment Securities

Average investment securities in the second quarter of 2016 were $4.7 billion (4.6 percent) higher year-over-year and $1.1 billion (1.0 percent) higher than the prior quarter. These increases were primarily due to purchases of U.S. Treasury and U.S. government agency-backed securities, net of prepayments and maturities, to support regulatory liquidity coverage ratio requirements.

 

AVERAGE LOANS																															Table 4
($ in millions)		2Q 2016				1Q 2016				2Q 2015				Percent Change 2Q16 vs 1Q16				Percent Change 2Q16 vs 2Q15				YTD 2016				YTD 2015				Percent Change
Commercial			$86,899				$84,582				$77,932				2.7				11.5				$85,741				$77,062				11.3
Lease financing			5,255				5,238				5,321				.3				(1.2	)			5,246				5,323				(1.4	)
Total commercial			92,154				89,820				83,253				2.6				10.7				90,987				82,385				10.4
Commercial mortgages			31,950				31,836				32,499				.4				(1.7	)			31,893				32,807				(2.8	)
Construction and development			11,038				10,565				9,947				4.5				11.0				10,801				9,751				10.8
Total commercial real estate			42,988				42,401				42,446				1.4				1.3				42,694				42,558				.3
Residential mortgages			55,501				54,208				51,114				2.4				8.6				54,854				51,269				7.0
Credit card			20,140				20,244				17,613				(.5	)			14.3				20,192				17,718				14.0
Retail leasing			5,326				5,179				5,696				2.8				(6.5	)			5,253				5,756				(8.7	)
Home equity and second mortgages			16,394				16,368				15,958				.2				2.7				16,381				15,928				2.8
Other			29,748				29,550				25,415				.7				17.0				29,649				26,504				11.9
Total other retail			51,468				51,097				47,069				.7				9.3				51,283				48,188				6.4
Total loans, excluding covered loans			262,251				257,770				241,495				1.7				8.6				260,010				242,118				7.4
Covered loans			4,331				4,511				5,065				(4.0	)			(14.5	)			4,422				5,133				(13.9	)
Total loans			$266,582				$262,281				$246,560				1.6				8.1				$264,432				$247,251				6.9

 

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Loans

Average total loans were $20.0 billion (8.1 percent) higher in the second quarter of 2016 than the second quarter of 2015 (6.5 percent excluding student loans and the credit card portfolio acquisition). The increase was driven by growth in total commercial loans (10.7 percent), residential mortgages (8.6 percent), and credit card loans (14.3 percent, 5.8 percent excluding the credit card portfolio acquisition), and total other retail loans (9.3 percent, 4.1 percent excluding student loans). These increases were partially offset by a decline in the run-off covered loans portfolio (14.5 percent). Average total loans were $4.3 billion (1.6 percent) higher in the second quarter of 2016 than the first quarter of 2016. The increase was driven by growth in total commercial loans (2.6 percent), residential mortgages (2.4 percent) and total commercial real estate (1.4 percent).

 

AVERAGE DEPOSITS																															Table 5
($ in millions)		2Q 2016				1Q 2016				2Q 2015				Percent Change 2Q16 vs 1Q16				Percent Change 2Q16 vs 2Q15				YTD 2016				YTD 2015				Percent Change
Noninterest-bearing deposits		$	79,171			$	78,569			$	77,347				.8				2.4			$	78,870			$	75,937				3.9
Interest-bearing savings deposits
Interest checking			60,842				57,910				55,205				5.1				10.2				59,376				54,933				8.1
Money market savings			92,904				86,462				79,898				7.5				16.3				89,683				76,910				16.6
Savings accounts			40,258				39,250				37,071				2.6				8.6				39,754				36,555				8.8
Total of savings deposits			194,004				183,622				172,174				5.7				12.7				188,813				168,398				12.1
Time deposits			34,211				33,687				36,223				1.6				(5.6	)			33,949				37,787				(10.2	)
Total interest-bearing deposits			228,215				217,309				208,397				5.0				9.5				222,762				206,185				8.0
Total deposits		$	307,386			$	295,878			$	285,744				3.9				7.6			$	301,632			$	282,122				6.9

Deposits

Average total deposits for the second quarter of 2016 were $21.6 billion (7.6 percent) higher than the second quarter of 2015. Average noninterest-bearing deposits increased $1.8 billion (2.4 percent) year-over-year, mainly in Consumer and Small Business Banking and Wholesale Banking and Commercial Real Estate, partially offset by a decline in Wealth Management and Securities Services. Average total savings deposits were $21.8 billion (12.7 percent) higher year-over-year, the result of growth across all business lines. Growth in Consumer and Small Business Banking total savings deposits included net new account

 

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growth of 2.8 percent. Average time deposits were $2.0 billion (5.6 percent) lower than the prior year quarter. Changes in time deposits are largely related to those deposits managed as an alternative to other funding sources such as wholesale borrowing, based largely on relative pricing and liquidity characteristics.

Average total deposits increased $11.5 billion (3.9 percent) over the first quarter of 2016. Average noninterest-bearing deposits increased $602 million (0.8 percent) on a linked quarter basis, mainly due to higher balances in Consumer and Small Business Banking, partially offset by lower balances in Wholesale Banking and Commercial Real Estate. Average total savings deposits increased $10.4 billion (5.7 percent) reflecting increases across all business lines. Average time deposits, which are managed based on funding needs, relative pricing, and liquidity characteristics increased $524 million (1.6 percent) on a linked quarter basis.

 

NONINTEREST INCOME																															Table 6
($ in millions)		2Q 2016				1Q 2016				2Q 2015				Percent Change 2Q16 vs 1Q16				Percent Change 2Q16 vs 2Q15				YTD 2016				YTD 2015				Percent Change
Credit and debit card revenue		$	296			$	266			$	266				11.3				11.3			$	562			$	507				10.8
Corporate payment products revenue			181				170				178				6.5				1.7				351				348				.9
Merchant processing services			403				373				395				8.0				2.0				776				754				2.9
ATM processing services			84				80				80				5.0				5.0				164				158				3.8
Trust and investment management fees			358				339				334				5.6				7.2				697				656				6.3
Deposit service charges			179				168				174				6.5				2.9				347				335				3.6
Treasury management fees			147				142				142				3.5				3.5				289				279				3.6
Commercial products revenue			238				197				214				20.8				11.2				435				414				5.1
Mortgage banking revenue			238				187				231				27.3				3.0				425				471				(9.8	)
Investment products fees			39				40				48				(2.5	)			(18.8	)			79				95				(16.8	)
Securities gains (losses), net			3				3				—				—				nm				6				—				nm
Other			386				184				210				nm				83.8				570				409				39.4
Total noninterest income		$	2,552			$	2,149			$	2,272				18.8				12.3			$	4,701			$	4,426				6.2

Noninterest Income

Second quarter noninterest income was $2,552 million, which was $280 million higher than the second quarter of 2015. Excluding the Visa Europe sale, noninterest income increased 4.4 percent reflecting increases in credit and debit card revenue, trust and investment management fees, and commercial products revenue. Credit and debit card revenue increased $30 million (11.3 percent) reflecting higher transaction

 

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volumes including acquired portfolios. Merchant processing services revenue increased $8 million (2.0 percent). Adjusted for the approximate $4 million impact of foreign currency rate changes, year-over-year merchant processing services revenue growth would have been approximately 3.0 percent. Trust and investment management fees increased $24 million (7.2 percent) reflecting lower money market fee waivers. Commercial products revenue increased $24 million (11.2 percent) driven by higher bond underwriting fees, foreign currency customer activity and other capital markets activity as a result of market volatility.

Noninterest income was $403 million higher in the second quarter of 2016 than the first quarter of 2016. Excluding the Visa Europe sale, noninterest income increased 10.4 percent reflecting seasonally higher fee-based revenue including credit and debit card revenue, merchant processing services revenue, mortgage banking revenue and deposit service charges. Credit and debit card revenue increased $30 million (11.3 percent), primarily due to seasonally higher transaction volumes. Merchant processing services revenue increased $30 million (8.0 percent) as a result of seasonally higher transaction volumes. Mortgage banking revenue increased $51 million (27.3 percent) mainly due to seasonally higher production volumes. Commercial products revenue increased $41 million (20.8 percent) primarily due to higher bond underwriting fees, foreign currency customer activity and capital markets volume, partially reflecting market volatility. Trust and investment management fees increased $19 million (5.6 percent) primarily due to account growth, improved market conditions and lower money market fee waivers. Deposit service charges increased $11 million (6.5 percent) due to seasonally higher transaction volumes.

 

NONINTEREST EXPENSE																															Table 7
($ in millions)		2Q 2016				1Q 2016				2Q 2015				Percent Change 2Q16 vs 1Q16				Percent Change 2Q16 vs 2Q15				YTD 2016				YTD 2015				Percent Change
Compensation		$	1,277			$	1,249			$	1,196				2.2				6.8			$	2,526			$	2,375				6.4
Employee benefits			278				300				293				(7.3	)			(5.1	)			578				610				(5.2	)
Net occupancy and equipment			243				248				247				(2.0	)			(1.6	)			491				494				(.6	)
Professional services			121				98				106				23.5				14.2				219				183				19.7
Marketing and business development			149				77				96				93.5				55.2				226				166				36.1
Technology and communications			241				233				221				3.4				9.0				474				435				9.0
Postage, printing and supplies			77				79				64				(2.5	)			20.3				156				146				6.8
Other intangibles			44				45				43				(2.2	)			2.3				89				86				3.5
Other			562				420				416				33.8				35.1				982				852				15.3
Total noninterest expense		$	2,992			$	2,749			$	2,682				8.8				11.6			$	5,741			$	5,347				7.4

 

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Noninterest Expense

Second quarter noninterest expense was $2,992 million, which was $310 million (11.6 percent) higher than the second quarter of 2015. Excluding the notable expense items, noninterest expense increased $160 million (6.0 percent) related to higher compensation expense, professional services expense, and technology and communications expense, partially offset by lower employee benefits expense. Compensation expense increased $81 million (6.8 percent), principally due to the impact of merit increases along with higher variable compensation including performance-based incentives. Professional services expense increased $15 million (14.2 percent) primarily due to compliance-related matters, while technology and communications expense increased $20 million (9.0 percent) due to acquired card portfolio conversion costs. Excluding the notable charitable contribution, the marketing and business development increase of $13 million reflected brand advertising. Postage, printing and supplies expense increased $13 million (20.3 percent) reflecting the impact of a prior year reimbursement from a business partner. Offsetting these increases was lower employee benefits expense of $15 million (5.1 percent) mainly due to lower pension costs.

Noninterest expense increased $243 million (8.8 percent) on a linked quarter basis, $93 million (3.4 percent) excluding the second quarter 2016 notable items, reflecting higher professional services and compensation expenses, partially offset by lower employee benefits expense. Excluding the notable charitable contribution, the marketing and business development expense increase of $32 million was driven by brand advertising. Professional services expense was $23 million (23.5 percent) higher compared with the first quarter of 2016 principally due to higher costs for compliance-related matters. Compensation expense increased $28 million (2.2 percent) due to merit increases and higher variable compensation including performance-based incentives. Partially offsetting these increases was a decrease in employee benefits expense of $22 million (7.3 percent), driven by seasonally lower payroll tax expense.

Provision for Income Taxes

The provision for income taxes for the second quarter of 2016 resulted in a tax rate on a taxable-equivalent basis of 27.9 percent (effective tax rate of 26.1 percent), compared with 28.0 percent (effective tax rate of 26.1 percent) in the second quarter of 2015, and 28.4 percent (effective tax rate of 26.5 percent) in the first quarter of 2016, reflecting the favorable settlement of certain tax exam matters in the second quarter of 2016.

 

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ALLOWANCE FOR CREDIT LOSSES																																			Table 8
($ in millions)		2Q								1Q								4Q								3Q								2Q
		2016				% (b)				2016				% (b)				2015				% (b)				2015				% (b)				2015				% (b)
Balance, beginning of period		$	4,320							$	4,306							$	4,306							$	4,326							$	4,351
Net charge-offs
Commercial			74				.34				78				.37				58				.28				68				.34				39				.20
Lease financing			5				.38				5				.38				5				.38				3				.23				3				.23
Total commercial			79				.34				83				.37				63				.29				71				.33				42				.20
Commercial mortgages			(4	)			(.05	)			(2	)			(.03	)			2				.02				—				—				4				.05
Construction and development			4				.15				(3	)			(.11	)			(2	)			(.08	)			(11	)			(.43	)			(3	)			(.12	)
Total commercial real estate			—				—				(5	)			(.05	)			—				—				(11	)			(.10	)			1				.01
Residential mortgages			17				.12				19				.14				16				.12				25				.19				33				.26
Credit card			170				3.39				164				3.26				166				3.50				153				3.38				169				3.85
Retail leasing			2				.15				1				.08				1				.08				2				.14				1				.07
Home equity and second mortgages			(1	)			(.02	)			2				.05				6				.15				7				.17				11				.28
Other			50				.68				51				.69				53				.71				45				.65				39				.62
Total other retail			51				.40				54				.43				60				.47				54				.44				51				.43
Total net charge-offs, excluding covered loans			317				.49				315				.49				305				.48				292				.47				296				.49
Covered loans			—				—				—				—				—				—				—				—				—				—
Total net charge-offs			317				.48				315				.48				305				.47				292				.46				296				.48
Provision for credit losses			327								330								305								282								281
Other changes (a)			(1	)							(1	)							—								(10	)							(10	)
Balance, end of period		$	4,329							$	4,320							$	4,306							$	4,306							$	4,326
Components
Allowance for loan losses		$	3,806							$	3,853							$	3,863							$	3,965							$	4,013
Liability for unfunded credit commitments			523								467								443								341								313
Total allowance for credit losses		$	4,329							$	4,320							$	4,306							$	4,306							$	4,326
Gross charge-offs		$	407							$	405							$	381							$	372							$	380
Gross recoveries		$	90							$	90							$	76							$	80							$	84
Allowance for credit losses as a percentage of
Period-end loans, excluding covered loans			1.62								1.65								1.67								1.71								1.76
Nonperforming loans, excluding covered loans			311								302								360								347								348
Nonperforming assets, excluding covered assets			263								255								288								280								279
Period-end loans			1.61								1.63								1.65								1.69								1.74
Nonperforming loans			312								303								361								347								349
Nonperforming assets			259								251								283								275								274
(a)    Includes net changes in credit losses to be reimbursed by the FDIC and reductions in the allowance for covered loans where the reversal of a previously recorded allowance was offset by an associated decrease in the indemnification asset, and the impact of any loan sales.
(b)    Annualized and calculated on average loan balances

 

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U.S. Bancorp Reports Second Quarter 2016 Results

July 15, 2016

Page 12

 

Credit Quality

The Company’s provision for credit losses for the second quarter of 2016 was $327 million, which was $3 million (0.9 percent) lower than the prior quarter and $46 million (16.4 percent) higher than the second quarter of 2015. Credit quality was relatively stable.

The provision for credit losses was $10 million higher than net charge-offs in the second quarter of 2016, $15 million higher than net charge-offs in the first quarter of 2016 and $15 million lower than net charge-offs in the second quarter of 2015. The reserve build for the second quarter of 2016 was driven by portfolio growth, partially offset by reduced energy portfolio exposures and residential mortgage credit quality improvement. Total net charge-offs in the second quarter of 2016 were $317 million, compared with $315 million in the first quarter of 2016, and $296 million in the second quarter of 2015. Net charge-offs increased $2 million (0.6 percent) compared with the first quarter of 2016 mainly due to modest increases in construction and development and credit card net charge-offs. Net charge-offs increased $21 million (7.1 percent) compared with the second quarter of 2015 primarily due to higher commercial loan net charge-offs, partially offset by lower charge-offs related to residential mortgages. The net charge-off ratio was 0.48 percent in the second quarter of 2016, the first quarter of 2016 and in the second quarter of 2015.

The allowance for credit losses was $4,329 million at June 30, 2016, compared with $4,320 million at March 31, 2016, and $4,326 million at June 30, 2015. The ratio of the allowance for credit losses to period-end loans was 1.61 percent at June 30, 2016, compared with 1.63 percent at March 31, 2016, and 1.74 percent at June 30, 2015. The ratio of the allowance for credit losses to nonperforming loans was 312 percent at June 30, 2016, compared with 303 percent at March 31, 2016, and 349 percent at June 30, 2015.

Nonperforming assets were $1,672 million at June 30, 2016, compared with $1,719 million at March 31, 2016, and $1,577 million at June 30, 2015. The ratio of nonperforming assets to loans and other real estate was 0.62 percent at June 30, 2016, compared with 0.65 percent at March 31, 2016, and 0.63 percent at June 30, 2015. The $95 million (6.0 percent) increase in nonperforming assets on a year-over-year basis was driven by commercial loans within the energy portfolio, partially offset by improvements in the Company’s residential and commercial real estate portfolios. The decrease in nonperforming assets on a linked quarter basis of $47 million (2.7 percent) was driven by improvements in the energy portfolio and in residential mortgages. Accruing loans 90 days or more past due were $724 million ($478 million excluding covered loans) at June 30, 2016, compared with $804 million ($528 million excluding covered loans) at March 31, 2016, and $801 million ($469 million excluding covered loans) at June 30, 2015.

 

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U.S. Bancorp Reports Second Quarter 2016 Results

July 15, 2016

Page 13

 

Commercial loans to customers in the energy sector were approximately $3.0 billion ($11.3 billion of commitments) at June 30, 2016, compared with $3.4 billion ($11.9 billion of commitments) at March 31, 2016. The decline was primarily driven by the completion of our spring borrowing base redeterminations on reserve-based loans within our energy portfolio. During the second quarter 2016, criticized commitments within the energy portfolio decreased by $509 million while nonperforming loans in the energy portfolio decreased $54 million. Energy portfolio loans represent 1.1 percent of the Company’s total loans outstanding at June 30, 2016, and 1.3 percent at March 31, 2016. At June 30, 2016, the Company had credit reserves of 8.8 percent of total outstanding energy loan balances, compared with 9.1 percent of total outstanding energy loan balances at March 31, 2016.

 

DELINQUENT LOAN RATIOS AS A PERCENT OF ENDING LOAN BALANCES																			Table 9
(Percent)
		Jun 30 2016				Mar 31 2016				Dec 31 2015				Sep 30 2015				Jun 30 2015
Delinquent loan ratios - 90 days or more past due excluding nonperforming loans
Commercial			.05				.05				.05				.05				.05
Commercial real estate			.03				.04				.03				.05				.05
Residential mortgages			.27				.31				.33				.33				.30
Credit card			.98				1.10				1.09				1.10				1.03
Other retail			.13				.15				.15				.14				.14
Total loans, excluding covered loans			.18				.20				.21				.20				.19
Covered loans			5.81				6.23				6.31				6.57				6.66
Total loans			.27				.30				.32				.32				.32
Delinquent loan ratios - 90 days or more past due including nonperforming loans
Commercial			.58				.57				.25				.25				.16
Commercial real estate			.27				.28				.33				.39				.46
Residential mortgages			1.39				1.54				1.66				1.73				1.80
Credit card			1.00				1.14				1.13				1.16				1.12
Other retail			.43				.45				.46				.47				.51
Total loans, excluding covered loans			.70				.75				.67				.70				.70
Covered loans			5.98				6.39				6.48				6.80				6.88
Total loans			.79				.84				.78				.81				.82

 

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U.S. Bancorp Reports Second Quarter 2016 Results

July 15, 2016

Page 14

 

ASSET QUALITY																			Table 10
($ in millions)
		Jun 30 2016				Mar 31 2016				Dec 31 2015				Sep 30 2015				Jun 30 2015
Nonperforming loans
Commercial			$450				$457				$160				$157				$78
Lease financing			39				16				14				12				12
Total commercial			489				473				174				169				90
Commercial mortgages			91				94				92				105				116
Construction and development			12				10				35				39				59
Total commercial real estate			103				104				127				144				175
Residential mortgages			628				677				712				735				769
Credit card			5				7				9				12				16
Other retail			157				157				162				171				178
Total nonperforming loans, excluding covered loans			1,382				1,418				1,184				1,231				1,228
Covered loans			7				7				8				11				11
Total nonperforming loans			1,389				1,425				1,192				1,242				1,239
Other real estate (a)			229				242				280				276				287
Covered other real estate (a)			34				33				32				31				35
Other nonperforming assets			20				19				19				18				16
Total nonperforming assets (b)			$1,672				$1,719				$1,523				$1,567				$1,577
Total nonperforming assets, excluding covered assets			$1,631				$1,679				$1,483				$1,525				$1,531
Accruing loans 90 days or more past due, excluding covered loans			$478				$528				$541				$510				$469
Accruing loans 90 days or more past due			$724				$804				$831				$825				$801
Performing restructured loans, excluding GNMA and covered loans			$2,676				$2,735				$2,766				$2,746				$2,815
Performing restructured GNMA and covered loans			$1,602				$1,851				$1,944				$2,031				$2,111
Nonperforming assets to loans plus ORE, excluding covered assets (%)			.62				.64				.58				.61				.63
Nonperforming assets to loans plus ORE (%)			.62				.65				.58				.61				.63
(a) Includes equity investments in entities whose principal assets are other real estate owned.
(b) Does not include accruing loans 90 days or more past due.

 

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U.S. Bancorp Reports Second Quarter 2016 Results

July 15, 2016

Page 15

 

COMMON SHARES																			Table 11
(Millions)		2Q 2016				1Q 2016				4Q 2015				3Q 2015				2Q 2015
Beginning shares outstanding			1,732				1,745				1,754				1,767				1,780
Shares issued for stock incentive plans, acquisitions and other corporate purposes			2				3				1				3				1
Shares repurchased			(15	)			(16	)			(10	)			(16	)			(14	)
Ending shares outstanding			1,719				1,732				1,745				1,754				1,767

 

CAPITAL POSITION																			Table 12
($ in millions)		Jun 30 2016				Mar 31 2016				Dec 31 2015				Sep 30 2015				Jun 30 2015
Total U.S. Bancorp shareholders’ equity			$47,390				$46,755				$46,131				$45,075				$44,537
Standardized Approach
Basel III transitional standardized approach
Common equity tier 1 capital			$33,444				$32,827				$32,612				$32,124				$31,674
Tier 1 capital			39,148				38,532				38,431				37,197				36,748
Total risk-based capital			47,049				45,412				45,313				44,015				43,526
Common equity tier 1 capital ratio			9.5	%			9.5	%			9.6	%			9.6	%			9.5	%
Tier 1 capital ratio			11.1				11.1				11.3				11.1				11.0
Total risk-based capital ratio			13.4				13.1				13.3				13.1				13.1
Leverage ratio			9.3				9.3				9.5				9.3				9.2
Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented standardized approach			9.3				9.2				9.1				9.2				9.2
Advanced Approaches
Common equity tier 1 capital to risk-weighted assets for the Basel III transitional advanced approaches			12.3				12.3				12.5				13.0				12.9
Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented advanced approaches			12.0				11.9				11.9				12.4				12.4
Tangible common equity to tangible assets			7.6				7.7				7.6				7.7				7.5
Tangible common equity to risk-weighted assets			9.3				9.3				9.2				9.3				9.2
Beginning January 1, 2014, the regulatory capital requirements effective for the Company follow Basel III, subject to certain transition provisions from Basel I over the following four years to full implementation by January 1, 2018. Basel III includes two comprehensive methodologies for calculating risk-weighted assets: a general standardized approach and more risk-sensitive advanced approaches, with the Company’s capital adequacy being evaluated against the methodology that is most restrictive.

 

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U.S. Bancorp Reports Second Quarter 2016 Results

July 15, 2016

Page 16

 

Capital Management

Total U.S. Bancorp shareholders’ equity was $47.4 billion at June 30, 2016, compared with $46.8 billion at March 31, 2016, and $44.5 billion at June 30, 2015. During the second quarter, the Company returned 77 percent of earnings to shareholders through dividends and share buybacks.

All regulatory ratios continue to be in excess of “well-capitalized” requirements. The estimated common equity tier 1 capital to risk-weighted assets ratio using the Basel III fully implemented standardized approach was 9.3 percent at June 30, 2016, compared with 9.2 percent at March 31, 2016, and at June 30, 2015. The estimated common equity tier 1 capital to risk-weighted assets ratio using the Basel III fully implemented advanced approaches method was 12.0 percent at June 30, 2016, compared with 11.9 percent at March 31, 2016, and 12.4 percent at June 30, 2015.

On Friday, July 15, 2016, at 8:00 a.m. CDT, Richard K. Davis, chairman and chief executive officer, and Kathy Rogers, vice chair and chief financial officer, will host a conference call to review the financial results. The conference call will be available online or by telephone. To access the webcast and presentation, go to www.usbank.com and click on “About U.S. Bank.” The “Webcasts & Presentations” link can be found under the Investor/Shareholder information heading, which is at the left side near the bottom of the page. To access the conference call from locations within the United States and Canada, please dial 866-316-1409. Participants calling from outside the United States and Canada, please dial 706-634-9086. The conference ID number for all participants is 8158556. For those unable to participate during the live call, a recording will be available at approximately 11:00 a.m. CDT on Friday, July 15 and be accessible through Friday, July 22 at 11:00 p.m. CDT. To access the recorded message within the United States and Canada, dial 855-859-2056. If calling from outside the United States and Canada, please dial 404-537-3406 to access the recording. The conference ID is 8158556.

Minneapolis-based U.S. Bancorp (NYSE: USB), with $438 billion in assets as of June 30, 2016, is the parent company of U.S. Bank National Association, the fifth largest commercial bank in the United States. The Company operates 3,122 banking offices in 25 states and 4,923 ATMs and provides a comprehensive line of banking, investment, mortgage, trust and payment services products to consumers, businesses and institutions. Visit U.S. Bancorp on the web at www.usbank.com.

 

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U.S. Bancorp Reports Second Quarter 2016 Results

July 15, 2016

Page 17

 

Forward-Looking Statements

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

This press release contains forward-looking statements about U.S. Bancorp. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements and are based on the information available to, and assumptions and estimates made by, management as of the date hereof. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of U.S. Bancorp. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated. A reversal or slowing of the current economic recovery or another severe contraction could adversely affect U.S. Bancorp’s revenues and the values of its assets and liabilities. Global financial markets could experience a recurrence of significant turbulence, which could reduce the availability of funding to certain financial institutions and lead to a tightening of credit, a reduction of business activity, and increased market volatility. Stress in the commercial real estate markets, as well as a downturn in the residential real estate markets could cause credit losses and deterioration in asset values. In addition, U.S. Bancorp’s business and financial performance is likely to be negatively impacted by recently enacted and future legislation and regulation. U.S. Bancorp’s results could also be adversely affected by deterioration in general business and economic conditions; changes in interest rates; deterioration in the credit quality of its loan portfolios or in the value of the collateral securing those loans; deterioration in the value of securities held in its investment securities portfolio; legal and regulatory developments; litigation; increased competition from both banks and non-banks; changes in customer behavior and preferences; breaches in data security; effects of mergers and acquisitions and related integration; effects of critical accounting policies and judgments; and management’s ability to effectively manage credit risk, market risk, operational risk, compliance risk, strategic risk, interest rate risk, liquidity risk and reputational risk.

For discussion of these and other risks that may cause actual results to differ from expectations, refer to U.S. Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2015, on file with the Securities and Exchange Commission, including the sections entitled “Risk Factors” and “Corporate Risk Profile” contained in Exhibit 13, and all subsequent filings with the Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934. However, factors other than these also could adversely affect U.S. Bancorp’s results, and the reader should not consider these factors to be a complete set of all potential risks or uncertainties. Forward-looking statements speak only as of the date hereof, and U.S. Bancorp undertakes no obligation to update them in light of new information or future events.

 

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U.S. Bancorp Reports Second Quarter 2016 Results

July 15, 2016

Page 18

 

Non-GAAP Financial Measures

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

 

●

Tangible common equity to tangible assets,

●

Tangible common equity to risk-weighted assets,

●

Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented standardized approach, and

●

Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented advanced approaches.

These measures are viewed by management as useful additional methods of reflecting the level of capital available to withstand unexpected market or economic conditions. Additionally, presentation of these measures allows investors, analysts and banking regulators to assess the Company’s capital position relative to other financial services companies. These measures differ from currently effective capital ratios defined by banking regulations principally in that the numerator includes unrealized gains and losses related to available-for-sale securities and excludes preferred securities, including preferred stock, the nature and extent of which varies among different financial services companies. These measures are not defined in generally accepted accounting principles (“GAAP”), or are not currently effective or defined in federal banking regulations. As a result, these measures disclosed by the Company may be considered non-GAAP financial measures.

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

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U.S. Bancorp

Consolidated Statement of Income

 

(Dollars and Shares in Millions, Except Per Share Data)		Three Months Ended June 30,								Six Months Ended June 30,
(Unaudited)			2016				2015				2016				2015
Interest Income
Loans			$2,664				$2,463				$5,308				$4,956
Loans held for sale			36				65				67				106
Investment securities			523				505				1,040				1,000
Other interest income			29				35				58				67
Total interest income			3,252				3,068				6,473				6,129
Interest Expense
Deposits			152				113				291				231
Short-term borrowings			66				62				131				123
Long-term debt			189				177				371				361
Total interest expense			407				352				793				715
Net interest income			2,845				2,716				5,680				5,414
Provision for credit losses			327				281				657				545
Net interest income after provision for credit losses			2,518				2,435				5,023				4,869
Noninterest Income
Credit and debit card revenue			296				266				562				507
Corporate payment products revenue			181				178				351				348
Merchant processing services			403				395				776				754
ATM processing services			84				80				164				158
Trust and investment management fees			358				334				697				656
Deposit service charges			179				174				347				335
Treasury management fees			147				142				289				279
Commercial products revenue			238				214				435				414
Mortgage banking revenue			238				231				425				471
Investment products fees			39				48				79				95
Securities gains (losses), net			3				—				6				—
Other			386				210				570				409
Total noninterest income			2,552				2,272				4,701				4,426
Noninterest Expense
Compensation			1,277				1,196				2,526				2,375
Employee benefits			278				293				578				610
Net occupancy and equipment			243				247				491				494
Professional services			121				106				219				183
Marketing and business development			149				96				226				166
Technology and communications			241				221				474				435
Postage, printing and supplies			77				64				156				146
Other intangibles			44				43				89				86
Other			562				416				982				852
Total noninterest expense			2,992				2,682				5,741				5,347
Income before income taxes			2,078				2,025				3,983				3,948
Applicable income taxes			542				528				1,046				1,007
Net income			1,536				1,497				2,937				2,941
Net (income) loss attributable to noncontrolling interests			(14	)			(14	)			(29	)			(27	)
Net income attributable to U.S. Bancorp			$1,522				$1,483				$2,908				$2,914
Net income applicable to U.S. Bancorp common shareholders			$1,435				$1,417				$2,764				$2,782
Earnings per common share			$.83				$.80				$1.60				$1.57
Diluted earnings per common share			$.83				$.80				$1.59				$1.56
Dividends declared per common share			$.255				$.255				$.510				$.500
Average common shares outstanding			1,725				1,771				1,731				1,776
Average diluted common shares outstanding			1,731				1,779				1,737				1,784

 

Page 19

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U.S. Bancorp

Consolidated Ending Balance Sheet

 

(Dollars in Millions)		June 30, 2016				December 31, 2015				June 30, 2015
Assets			(Unaudited)								(Unaudited)
Cash and due from banks			$14,038				$11,147				$17,925
Investment securities
Held-to-maturity			42,030				43,590				46,233
Available-for-sale			66,490				61,997				57,078
Loans held for sale			4,311				3,184				8,498
Loans
Commercial			92,514				88,402				84,620
Commercial real estate			43,290				42,137				42,258
Residential mortgages			55,904				53,496				51,337
Credit card			20,571				21,012				17,788
Other retail			52,008				51,206				47,652
Total loans, excluding covered loans			264,287				256,253				243,655
Covered loans			4,234				4,596				4,984
Total loans			268,521				260,849				248,639
Less allowance for loan losses			(3,806	)			(3,863	)			(4,013	)
Net loans			264,715				256,986				244,626
Premises and equipment			2,459				2,513				2,551
Goodwill			9,359				9,361				9,374
Other intangible assets			2,852				3,350				3,225
Other assets			32,209				29,725				29,565
Total assets			$438,463				$421,853				$419,075
Liabilities and Shareholders’ Equity
Deposits
Noninterest-bearing			$86,572				$83,766				$86,189
Interest-bearing			231,018				216,634				210,659
Total deposits			317,590				300,400				296,848
Short-term borrowings			18,433				27,877				27,784
Long-term debt			36,941				32,078				34,141
Other liabilities			17,470				14,681				15,071
Total liabilities			390,434				375,036				373,844
Shareholders’ equity
Preferred stock			5,501				5,501				4,756
Common stock			21				21				21
Capital surplus			8,402				8,376				8,335
Retained earnings			48,269				46,377				44,434
Less treasury stock			(14,241	)			(13,125	)			(12,144	)
Accumulated other comprehensive income (loss)			(562	)			(1,019	)			(865	)
Total U.S. Bancorp shareholders’ equity			47,390				46,131				44,537
Noncontrolling interests			639				686				694
Total equity			48,029				46,817				45,231
Total liabilities and equity			$438,463				$421,853				$419,075

 

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U.S. Bancorp

Non-GAAP Financial Measures

 

(Dollars in Millions, Unaudited)		June 30, 2016				March 31, 2016				December 31, 2015				September 30, 2015				June 30, 2015
Total equity			$48,029				$47,393				$46,817				$45,767				$45,231
Preferred stock			(5,501	)			(5,501	)			(5,501	)			(4,756	)			(4,756	)
Noncontrolling interests			(639	)			(638	)			(686	)			(692	)			(694	)
Goodwill (net of deferred tax liability) (1)			(8,246	)			(8,270	)			(8,295	)			(8,324	)			(8,350	)
Intangible assets, other than mortgage servicing rights			(796	)			(820	)			(838	)			(779	)			(744	)
Tangible common equity (a)			32,847				32,164				31,497				31,216				30,687
Tangible common equity (as calculated above)			32,847				32,164				31,497				31,216				30,687
Adjustments (2)			133				99				67				118				125
Common equity tier 1 capital estimated for the Basel III fully implemented standardized and advanced approaches (b)			32,980				32,263				31,564				31,334				30,812
Total assets			438,463				428,638				421,853				415,943				419,075
Goodwill (net of deferred tax liability) (1)			(8,246	)			(8,270	)			(8,295	)			(8,324	)			(8,350	)
Intangible assets, other than mortgage servicing rights			(796	)			(820	)			(838	)			(779	)			(744	)
Tangible assets (c)			429,421				419,548				412,720				406,840				409,981
Risk-weighted assets, determined in accordance with prescribed transitional standardized approach regulatory requirements (d)			351,462	*			346,227				341,360				336,227				333,177
Adjustments (3)			3,079	*			3,485				3,892				3,532				3,532
Risk-weighted assets estimated for the Basel III fully implemented standardized approach (e)			354,541	*			349,712				345,252				339,759				336,709
Risk-weighted assets, determined in accordance with prescribed transitional advanced approaches regulatory requirements			271,495	*			267,309				261,668				248,048				245,038
Adjustments (4)			3,283	*			3,707				4,099				3,723				3,721
Risk-weighted assets estimated for the Basel III fully implemented advanced approaches (f)			274,778	*			271,016				265,767				251,771				248,759
Ratios *
Tangible common equity to tangible assets (a)/(c)			7.6	%			7.7	%			7.6	%			7.7	%			7.5	%
Tangible common equity to risk-weighted assets (a)/(d)			9.3				9.3				9.2				9.3				9.2
Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented standardized approach (b)/(e)			9.3				9.2				9.1				9.2				9.2
Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented advanced approaches (b)/(f)			12.0				11.9				11.9				12.4				12.4

      *  Preliminary data. Subject to change prior to filings with applicable regulatory agencies.

    (1) Includes goodwill related to certain investments in unconsolidated financial institutions per prescribed regulatory requirements.

    (2) Includes net losses on cash flow hedges included in accumulated other comprehensive income (loss) and other adjustments.

    (3) Includes higher risk-weighting for unfunded loan commitments, investment securities, residential mortgages, mortgage servicing rights and other adjustments.

    (4) Primarily reflects higher risk-weighting for mortgage servicing rights.

 

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Supplemental Business Line Schedules

2Q 2016

 

 

 

 

 

 

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U.S. Bancorp Second Quarter 2016 Business Line Results

July 15, 2016

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		LINE OF BUSINESS FINANCIAL PERFORMANCE (a)
		($ in millions)
				Net Income Attributable to U.S. Bancorp												Percent Change								Net Income Attributable to U.S. Bancorp												2Q 2016
		Business Line		2Q 2016				1Q 2016				2Q 2015				2Q16 vs 1Q16				2Q16 vs 2Q15				YTD 2016				YTD 2015				Percent Change				Earnings Composition
		Wholesale Banking and Commercial Real Estate			$233				$118				$235				97.5				(.9	)			$351				$435				(19.3	)			15	%
		Consumer and Small Business Banking			343				368				325				(6.8	)			5.5				711				684				3.9				22
		Wealth Management and Securities Services			100				80				64				25.0				56.3				180				115				56.5				7
		Payment Services			328				292				255				12.3				28.6				620				517				19.9				22
		Treasury and Corporate Support			518				528				604				(1.9	)			(14.2	)			1,046				1,163				(10.1	)			34
		Consolidated Company			$1,522				$1,386				$1,483				9.8				2.6				$2,908				$2,914				(.2	)			100	%
		(a) preliminary data

Lines of Business

The Company’s major lines of business are Wholesale Banking and Commercial Real Estate, Consumer and Small Business Banking, Wealth Management and Securities 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 2016, certain organization and methodology changes were made and, accordingly, prior period results were restated and presented on a comparable basis.

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WHOLESALE BANKING AND COMMERCIAL REAL ESTATE (a)
(Taxable-equivalent basis, $ in millions)														Percent Change
		2Q 2016				1Q 2016				2Q 2015				2Q16 vs 1Q16				2Q16 vs 2Q15				YTD 2016				YTD 2015				Percent Change
Condensed Income Statement
Net interest income			$537				$521				$487				3.1				10.3				$1,058				$967				9.4
Noninterest income			249				206				224				20.9				11.2				455				444				2.5
Securities gains (losses), net			—				—				—				—				—				—				—				—
Total net revenue			786				727				711				8.1				10.5				1,513				1,411				7.2
Noninterest expense			354				340				323				4.1				9.6				694				650				6.8
Other intangibles			1				1				1				—				—				2				2				—
Total noninterest expense			355				341				324				4.1				9.6				696				652				6.7
Income before provision and taxes			431				386				387				11.7				11.4				817				759				7.6
Provision for credit losses			65				201				17				(67.7	)			nm				266				74				nm
Income before income taxes			366				185				370				97.8				(1.1	)			551				685				(19.6	)
Income taxes and taxable-equivalent adjustment			133				67				135				98.5				(1.5	)			200				250				(20.0	)
Net income			233				118				235				97.5				(.9	)			351				435				(19.3	)
Net (income) loss attributable to noncontrolling interests			—				—				—				—				—				—				—				—
Net income attributable to U.S. Bancorp			$233				$118				$235				97.5				(.9	)			$351				$435				(19.3	)
Average Balance Sheet Data
Loans			$90,723				$88,829				$82,797				2.1				9.6				$89,774				$82,385				9.0
Other earning assets			2,242				2,247				2,535				(.2	)			(11.6	)			2,245				2,365				(5.1	)
Goodwill			1,647				1,647				1,647				—				—				1,647				1,647				—
Other intangible assets			17				18				21				(5.6	)			(19.0	)			18				21				(14.3	)
Assets			99,195				97,252				91,670				2.0				8.2				98,223				91,086				7.8
Noninterest-bearing deposits			35,852				36,412				35,324				(1.5	)			1.5				36,131				34,903				3.5
Interest-bearing deposits			61,372				54,762				50,085				12.1				22.5				58,068				50,202				15.7
Total deposits			97,224				91,174				85,409				6.6				13.8				94,199				85,105				10.7
Total U.S. Bancorp shareholders’ equity			8,900				8,755				8,116				1.7				9.7				8,828				8,083				9.2
(a) preliminary data

Wholesale Banking and Commercial Real Estate offers lending, equipment finance and small-ticket leasing, depository services, treasury management, capital markets, international trade services and other financial services to middle market, large corporate, commercial real estate, financial institution, non-profit and public sector clients. Wholesale Banking and Commercial Real Estate contributed $233 million of the Company’s net income in the second quarter of 2016, compared with $235 million in the second quarter of 2015. Wholesale Banking and Commercial Real Estate’s net income decreased $2 million (0.9 percent) from the same quarter of 2015 due to increases in the provision for credit losses and total noninterest expense, partially offset by an increase in total net revenue. Total net revenue increased $75 million (10.5 percent) due to a $50 million (10.3 percent) increase in net interest income and a $25 million (11.2 percent) increase in

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total noninterest income. Net interest income increased year-over-year primarily due to higher average loan and deposit balances, partially offset by lower rates and fees on loans. The increase in total noninterest income was driven by higher bond underwriting fees, foreign currency customer activity and other capital markets activity, partially offset by higher loan-related charges. Total noninterest expense was $31 million (9.6 percent) higher compared with a year ago primarily due to an increase in variable costs allocated to manage the business. The provision for credit losses increased $48 million primarily due to an increase in net charge-offs.

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CONSUMER AND SMALL BUSINESS BANKING (a)
(Taxable-equivalent basis, $ in millions)														Percent Change
		2Q 2016				1Q 2016				2Q 2015				2Q16 vs 1Q16				2Q16 vs 2Q15				YTD 2016				YTD 2015				Percent Change
Condensed Income Statement
Net interest income			$1,179				$1,167				$1,141				1.0				3.3				$2,346				$2,280				2.9
Noninterest income			638				552				629				15.6				1.4				1,190				1,249				(4.7	)
Securities gains (losses), net			—				—				—				—				—				—				—				—
Total net revenue			1,817				1,719				1,770				5.7				2.7				3,536				3,529				.2
Noninterest expense			1,223				1,200				1,198				1.9				2.1				2,423				2,371				2.2
Other intangibles			8				8				10				—				(20.0	)			16				20				(20.0	)
Total noninterest expense			1,231				1,208				1,208				1.9				1.9				2,439				2,391				2.0
Income before provision and taxes			586				511				562				14.7				4.3				1,097				1,138				(3.6	)
Provision for credit losses			47				(67	)			51				nm				(7.8	)			(20	)			63				nm
Income before income taxes			539				578				511				(6.7	)			5.5				1,117				1,075				3.9
Income taxes and taxable-equivalent adjustment			196				210				186				(6.7	)			5.4				406				391				3.8
Net income			343				368				325				(6.8	)			5.5				711				684				3.9
Net (income) loss attributable to noncontrolling interests			—				—				—				—				—				—				—				—
Net income attributable to U.S. Bancorp			$343				$368				$325				(6.8	)			5.5				$711				$684				3.9
Average Balance Sheet Data
Loans			$137,023				$134,989				$128,544				1.5				6.6				$136,006				$129,767				4.8
Other earning assets			4,347				3,723				8,689				16.8				(50.0	)			4,034				6,901				(41.5	)
Goodwill			3,681				3,681				3,681				—				—				3,681				3,681				—
Other intangible assets			2,399				2,513				2,564				(4.5	)			(6.4	)			2,455				2,529				(2.9	)
Assets			151,947				149,325				147,472				1.8				3.0				150,633				146,993				2.5
Noninterest-bearing deposits			27,306				26,274				25,774				3.9				5.9				26,790				25,289				5.9
Interest-bearing deposits			115,146				112,999				109,623				1.9				5.0				114,070				109,015				4.6
Total deposits			142,452				139,273				135,397				2.3				5.2				140,860				134,304				4.9
Total U.S. Bancorp shareholders’ equity			11,153				11,084				10,809				.6				3.2				11,119				11,167				(.4	)
(a) preliminary data

Consumer and Small Business Banking delivers products and services through banking offices, telephone servicing and sales, on-line services, direct mail, ATM processing and mobile devices, such as mobile phones and tablet computers. It encompasses community banking, metropolitan banking and indirect lending, as well as mortgage banking. Consumer and Small Business Banking contributed $343 million of the Company’s net income in the second quarter of 2016, compared with $325 million in the second quarter of 2015. Consumer and Small Business Banking’s net income increased $18 million (5.5 percent) from the same quarter of 2015 due to an increase in total net revenue and a decrease in the provision for credit losses, partially offset by an increase in total noninterest expense. Total net revenue increased $47 million (2.7 percent) due to an increase in net interest income and higher noninterest income. Net interest income was

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$38 million (3.3 percent) higher, primarily due to higher average loan and deposit balances, partially offset by lower loan rates. Noninterest income was $9 million (1.4 percent) higher, driven by higher mortgage banking revenue, reflecting the impact of higher origination and sales revenue. Total noninterest expense in the second quarter of 2016 increased $23 million (1.9 percent) over the same quarter of the prior year, primarily due to higher net shared services expense and higher compensation expense, reflecting the impact of merit increases and higher variable compensation, along with higher professional services expense, principally due to compliance-related matters. The provision for credit losses decreased $4 million (7.8 percent) primarily due to a lower net charge-offs, partially offset by an unfavorable change in the reserve allocation.

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WEALTH MANAGEMENT AND SECURITIES SERVICES (a)
(Taxable-equivalent basis, $ in millions)
														Percent Change
		2Q 2016				1Q 2016				2Q 2015				2Q16 vs 1Q16				2Q16 vs 2Q15				YTD 2016				YTD 2015				Percent Change
Condensed Income Statement
Net interest income			$122				$117				$82				4.3				48.8				$239				$162				47.5
Noninterest income			401				379				374				5.8				7.2				780				732				6.6
Securities gains (losses), net			—				—				—				—				—				—				—				—
Total net revenue			523				496				456				5.4				14.7				1,019				894				14.0
Noninterest expense			359				367				348				(2.2	)			3.2				726				701				3.6
Other intangibles			6				6				7				—				(14.3	)			12				14				(14.3	)
Total noninterest expense			365				373				355				(2.1	)			2.8				738				715				3.2
Income before provision and taxes			158				123				101				28.5				56.4				281				179				57.0
Provision for credit losses			1				(2	)			1				nm				—				(1	)			(1	)			—
Income before income taxes			157				125				100				25.6				57.0				282				180				56.7
Income taxes and taxable-equivalent adjustment			57				45				36				26.7				58.3				102				65				56.9
Net income			100				80				64				25.0				56.3				180				115				56.5
Net (income) loss attributable to noncontrolling interests			—				—				—				—				—				—				—				—
Net income attributable to U.S. Bancorp			$100				$80				$64				25.0				56.3				$180				$115				56.5
Average Balance Sheet Data
Loans			$7,051				$7,043				$6,077				.1				16.0				$7,048				$6,020				17.1
Other earning assets			127				126				196				.8				(35.2	)			127				200				(36.5	)
Goodwill			1,568				1,567				1,567				.1				.1				1,567				1,567				—
Other intangible assets			104				109				129				(4.6	)			(19.4	)			107				133				(19.5	)
Assets			10,005				10,170				8,983				(1.6	)			11.4				10,089				9,091				11.0
Noninterest-bearing deposits			13,076				12,875				13,706				1.6				(4.6	)			12,976				13,188				(1.6	)
Interest-bearing deposits			48,396				45,552				46,243				6.2				4.7				46,975				44,016				6.7
Total deposits			61,472				58,427				59,949				5.2				2.5				59,951				57,204				4.8
Total U.S. Bancorp shareholders’ equity			2,381				2,371				2,304				.4				3.3				2,376				2,302				3.2
(a) preliminary data

Wealth Management and Securities 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 Securities Services contributed $100 million of the Company’s net income in the second quarter of 2016, compared with $64 million in the second quarter of 2015. The business line’s contribution was $36 million (56.3 percent) higher than the same quarter of 2015, reflecting an increase in total net revenue, partially offset by an increase in total noninterest expense. Total net revenue increased $67 million (14.7 percent) year-over-year driven by an increase in net interest income of $40 million (48.8 percent), principally due to the impact of higher rates on the margin benefit

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from deposits, along with a $27 million (7.2 percent) increase in total noninterest income, reflecting the impact of lower money market fee waivers. Total noninterest expense increased $10 million (2.8 percent) primarily as a result of higher compensation, reflecting the impact of merit increases and higher variable compensation. The provision for credit losses was flat compared to the prior year quarter.

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PAYMENT SERVICES (a)
(Taxable-equivalent basis, $ in millions)
														Percent Change
		2Q 2016				1Q 2016				2Q 2015				2Q16 vs 1Q16				2Q16 vs 2Q15				YTD 2016				YTD 2015				Percent Change
Condensed Income Statement
Net interest income			$513				$527				$459				(2.7	)			11.8				$1,040				$926				12.3
Noninterest income			923				816				850				13.1				8.6				1,739				1,627				6.9
Securities gains (losses), net			—				—				—				—				—				—				—				—
Total net revenue			1,436				1,343				1,309				6.9				9.7				2,779				2,553				8.9
Noninterest expense			664				648				663				2.5				.2				1,312				1,261				4.0
Other intangibles			29				30				25				(3.3	)			16.0				59				50				18.0
Total noninterest expense			693				678				688				2.2				.7				1,371				1,311				4.6
Income before provision and taxes			743				665				621				11.7				19.6				1,408				1,242				13.4
Provision for credit losses			215				192				208				12.0				3.4				407				405				.5
Income before income taxes			528				473				413				11.6				27.8				1,001				837				19.6
Income taxes and taxable-equivalent adjustment			192				172				150				11.6				28.0				364				304				19.7
Net income			336				301				263				11.6				27.8				637				533				19.5
Net (income) loss attributable to noncontrolling interests			(8	)			(9	)			(8	)			11.1				—				(17	)			(16	)			(6.3	)
Net income attributable to U.S. Bancorp			$328				$292				$255				12.3				28.6				$620				$517				19.9
Average Balance Sheet Data
Loans			$28,193				$27,817				$25,298				1.4				11.4				$28,005				$25,172				11.3
Other earning assets			275				600				353				(54.2	)			(22.1	)			438				328				33.5
Goodwill			2,472				2,464				2,474				.3				(.1	)			2,468				2,478				(.4	)
Other intangible assets			506				508				403				(.4	)			25.6				507				414				22.5
Assets			33,997				33,999				31,510				—				7.9				33,998				31,250				8.8
Noninterest-bearing deposits			925				961				881				(3.7	)			5.0				943				886				6.4
Interest-bearing deposits			97				95				692				2.1				(86.0	)			96				684				(86.0	)
Total deposits			1,022				1,056				1,573				(3.2	)			(35.0	)			1,039				1,570				(33.8	)
Total U.S. Bancorp shareholders’ equity			6,376				6,326				5,817				.8				9.6				6,351				5,799				9.5
(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 $328 million of the Company’s net income in the second quarter of 2016, compared with $255 million in the second quarter of 2015. The $73 million (28.6 percent) increase in the business line’s contribution over the prior year was primarily due to an increase in total net revenue. Total net revenue increased $127 million (9.7 percent) year-over-year. Net interest income increased $54 million (11.8 percent), primarily due to higher average loan balances and fees. Total noninterest income was $73 million (8.6 percent) higher year-over-year due to a sale of an equity investment and an increase in credit and debit card revenue on higher transaction volumes. Total noninterest expense increased $5 million (0.7

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percent) over the second quarter of 2015, reflecting higher compensation expense and increased technology and communications expense, which was impacted by card portfolio acquisitions, along with higher net shared services expense, partially offset by the impact of a previously reserved regulatory item in the prior year. The provision for credit losses increased $7 million (3.4 percent) primarily due to an unfavorable change in the reserve allocation.

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TREASURY AND CORPORATE SUPPORT (a)
(Taxable-equivalent basis, $ in millions)														Percent Change
		2Q 2016				1Q 2016				2Q 2015				2Q16 vs 1Q16				2Q16 vs 2Q15				YTD 2016				YTD 2015				Percent Change
Condensed Income Statement
Net interest income			$545				$556				$601				(2.0	)			(9.3	)			$1,101				$1,187				(7.2	)
Noninterest income			338				193				195				75.1				73.3				531				374				42.0
Securities gains (losses), net			3				3				—				—				nm				6				—				nm
Total net revenue			886				752				796				17.8				11.3				1,638				1,561				4.9
Noninterest expense			348				149				107				nm				nm				497				278				78.8
Other intangibles			—				—				—				—				—				—				—				—
Total noninterest expense			348				149				107				nm				nm				497				278				78.8
Income before provision and taxes			538				603				689				(10.8	)			(21.9	)			1,141				1,283				(11.1	)
Provision for credit losses			(1	)			6				4				nm				nm				5				4				25.0
Income before income taxes			539				597				685				(9.7	)			(21.3	)			1,136				1,279				(11.2	)
Income taxes and taxable-equivalent adjustment			15				63				75				(76.2	)			(80.0	)			78				105				(25.7	)
Net income			524				534				610				(1.9	)			(14.1	)			1,058				1,174				(9.9	)
Net (income) loss attributable to noncontrolling interests			(6	)			(6	)			(6	)			—				—				(12	)			(11	)			(9.1	)
Net income attributable to U.S. Bancorp			$518				$528				$604				(1.9	)			(14.2	)			$1,046				$1,163				(10.1	)
Average Balance Sheet Data
Loans			$3,592				$3,603				$3,844				(.3	)			(6.6	)			$3,599				$3,907				(7.9	)
Other earning assets			111,795				109,231				108,095				2.3				3.4				110,512				106,605				3.7
Goodwill			—				—				—				—				—				—				—				—
Other intangible assets			—				—				—				—				—				—				—				—
Assets			133,606				130,811				128,266				2.1				4.2				132,210				126,465				4.5
Noninterest-bearing deposits			2,012				2,047				1,662				(1.7	)			21.1				2,030				1,671				21.5
Interest-bearing deposits			3,204				3,901				1,754				(17.9	)			82.7				3,553				2,268				56.7
Total deposits			5,216				5,948				3,416				(12.3	)			52.7				5,583				3,939				41.7
Total U.S. Bancorp shareholders’ equity			18,374				18,202				17,468				.9				5.2				18,287				16,946				7.9
(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 $518 million in the second quarter of 2016, compared with $604 million in the second quarter of 2015. The decrease in net income of $86 million (14.2 percent) from the prior year was due to an increase in total noninterest expense, partially offset by an increase in total net revenue. Total noninterest income increased $146 million (74.9 percent) over the second quarter of last year, mainly due to the Visa Europe sale, while net interest income decreased $56 million (9.3 percent) from the second quarter of 2015

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U.S. Bancorp Second Quarter 2016 Business Line Results

July 15, 2016

Page 12

 

principally due to the impact of higher rates credited to the business lines on deposits, partially offset by growth in the investment portfolio. Total noninterest expense increased $241 million principally due to the current year notable items and higher compensation expense, reflecting the impact of merit increases and higher variable compensation, along with higher marketing and business development expense due to brand advertising, partially offset by lower employee benefits expense, driven by lower pension costs. The provision for credit losses was $5 million lower year-over-year primarily due to lower net charge-offs.