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EX-99.1 - EX-99.1 - US BANCORP \DE\d441719dex991.htm
8-K - 8-K - US BANCORP \DE\d441719d8k.htm

Slide 1

U.S. Bancorp 3Q17 Earnings Conference Call October 18, 2017 Exhibit 99.2


Slide 2

Forward-looking Statements and Additional Information The following information appears in accordance with the Private Securities Litigation Reform Act of 1995: Today’s presentation contains forward-looking statements about U.S. Bancorp. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements and are based on the information available to, and assumptions and estimates made by, management as of the date hereof. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of U.S. Bancorp. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated. A reversal or slowing of the current economic recovery or another severe contraction could adversely affect U.S. Bancorp’s revenues and the values of its assets and liabilities. Global financial markets could experience a recurrence of significant turbulence, which could reduce the availability of funding to certain financial institutions and lead to a tightening of credit, a reduction of business activity, and increased market volatility. Stress in the commercial real estate markets, as well as a downturn in the residential real estate markets could cause credit losses and deterioration in asset values. In addition, changes to statutes, regulations, or regulatory policies or practices could affect U.S. Bancorp in substantial and unpredictable ways. U.S. Bancorp’s results could also be adversely affected by deterioration in general business and economic conditions; changes in interest rates; deterioration in the credit quality of its loan portfolios or in the value of the collateral securing those loans; deterioration in the value of 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, 2016, 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. This presentation includes non-GAAP financial measures to describe U.S. Bancorp’s performance. The calculations of these measures are provided in the Appendix. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.


Slide 3

3Q17 Highlights * Taxable-equivalent basis; see slide 25 for calculation ** Estimated for the Basel III fully implemented standardized approach; RWA = risk-weighted assets, see slide 24 for calculation


Slide 4

Performance Ratios Return on Average Common Equity Efficiency Ratio* & Net Interest Margin** * Non-GAAP; see slide 25 for calculation ** Taxable-equivalent basis Return on Average Assets


Slide 5

Average Loans +0.8% linked quarter +3.0% year-over-year Linked quarter growth in total loans was driven primarily by commercial loans, other retail loans and retail leasing Year-over-year and linked quarter declines in commercial real estate loans reflected disciplined underwriting of construction and development loans and payoffs of commercial mortgages as customers accessed capital markets $ in billions


Slide 6

Average Deposits +1.2% linked quarter +5.2% year-over-year $ in billions Rates are presented on a fully taxable-equivalent basis utilizing a tax rate of 35 percent Interest-bearing Deposits Average noninterest-bearing deposits decreased 0.9% on a linked quarter basis Average noninterest-bearing deposits were essentially flat year-over-year


Slide 7

Credit Quality NCO Ratio -2bps QoQ +1bp YoY NPAs -7.3% QoQ -24.8% YoY $ in millions


Slide 8

Earnings Summary


Slide 9

Net Interest Income Linked Quarter Net interest income growth was driven by loan growth, the impact of rising rates, higher interest recoveries and an additional day in the third quarter Net interest margin growth was driven by higher interest rates and a change in loan portfolio mix, partially offset by higher funding costs Year-over-Year Net interest income growth was driven primarily by loan growth and the impact of rising interest rates $ in millions Taxable-equivalent basis +3.8% linked quarter +8.3% year-over-year


Slide 10

Noninterest Income $ in millions Payments = credit and debit card, corporate payment products and merchant processing Service charges = deposit service charges, treasury management and ATM processing $2,445 $2,419 $2,422 Linked Quarter Solid growth in corporate payment products and deposit service charges revenue reflected typical seasonal patterns Growth in commercial products revenue was driven primarily by higher foreign exchange fees, corporate bond fees and syndication revenue Year-over-Year Noninterest income decreased slightly, primarily due to lower mortgage banking revenue Growth in trust and investment management fees reflected favorable market conditions and account growth Payment services revenue growth was driven by higher corporate payment products revenue and higher credit and debit card revenue +0.1% linked quarter -0.9% year-over-year


Slide 11

Noninterest Expense $2,931 $3,023 $3,039 Linked Quarter Growth in noninterest expense was driven by higher compensation expense, principally due to corporate incentive plans and the impact of hiring to support growth Year-over-Year Growth in compensation expense was partially offset by a decrease in professional services expense, primarily due to fewer consulting services as compliance programs near maturity $ in millions +0.5% linked quarter +3.7% year-over-year


Slide 12

Capital Position RWA = risk-weighted assets * See Non-GAAP Financial Measures reconciliation on slide 24


Slide 13

Appendix


Slide 14

Average Loans vs. 3Q16 Average total loans increased by $8.0 billion, or 3.0% Average commercial loans increased by $4.3 billion, or 4.6% Average retail loans increased by $3.2 billion, or 6.1% Average residential mortgage loans increased by $2.7 billion, or 4.9% vs. 2Q17 Average total loans increased by $2.1 billion, or 0.8% Average commercial loans increased by $1.0 billion, or 1.0% Average retail loans increased by $1.4 billion, or 2.6% Average residential mortgage loans increased by $0.5 billion, or 0.8% * Excluding the credit card portfolio acquisition ** Excluding student loans that were transferred to held for sale at the end of 1Q15 and returned to held for investment during 3Q15 Key Points Year-over-Year Growth 7.6% 6.2% 4.1% 3.4% 3.0% Covered Commercial CRE Res Mtg Retail Credit Card $273.2 $269.6 $272.7 5.2%** $277.6 Average Loans ($bn)


Slide 15

Average Deposits Key Points Average Deposits ($bn) vs. 3Q16 Average total deposits increased by $16.6 billion, or 5.2% Average low-cost deposits (NIB, interest checking, money market and savings) increased by $12.7 billion, or 4.4% vs. 2Q17 Average total deposits increased by $4.0 billion, or 1.2% Average low-cost deposits decreased by $1.6 billion, or 0.5% Year-over-Year Growth 10.0% 11.8% 11.0% 7.7% 5.2% Time Money Market Checking and Savings Noninterest-bearing $335.2 $318.5 $329.2 $328.4 $331.2


Slide 16

Credit Quality – Commercial Loans Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points $mm3Q162Q173Q17 Average Loans$92,369$95,638$96,633 30-89 Delinquencies0.24%0.27%0.22% 90+ Delinquencies0.05%0.05%0.05% Nonperforming Loans0.55%0.33%0.28% Commercial loan growth primarily driven by increased M&A activity Nonperforming loans decreased as the energy portfolio continued to improve Net charge-offs remained stable linked quarter and showed improvement year-over-year


Slide 17

A&D Construction $499 Credit Quality – Commercial Real Estate Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points $mm3Q162Q173Q17 Average Loans$43,374$42,549$41,621 30-89 Delinquencies0.08%0.08%0.15% 90+ Delinquencies0.02%0.00%0.01% Nonperforming Loans0.24%0.28%0.29% Performing TDRs*$274$162$141 Investor $19,709 Owner Occupied $10,405 Multi-family $4,400 Retail $815 Residential Construction $2,347 Office $777 Other $2,669 * TDR = troubled debt restructuring Average loans declined 4.0% vs. 3Q16; this was a result of construction loan payoffs due to strong permanent loan market liquidity and fewer growth opportunities due to lower development yields resulting from labor cost increases and increasing CRE supply in certain markets Nonperforming loans remained at historically low levels and recoveries continued to exceed charge-offs


Slide 18

Credit Quality – Residential Mortgage Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points $mm3Q162Q173Q17 Average Loans$56,284$58,544$59,030 30-89 Delinquencies0.26%0.22%0.26% 90+ Delinquencies0.28%0.20%0.18% Nonperforming Loans1.09%0.90%0.80% *Excludes GNMA loans, whose repayments are insured by the FHA or guaranteed by the Department of VA ($1,571 million in 3Q17) Originations continued to be high credit quality (weighted average FICO of 757, weighted average LTV of 71%) More than 91% of balances have been originated since the beginning of 2009; the origination quality metrics and performance to date have significantly outperformed prior vintages with similar seasoning


Slide 19

Credit Quality – Credit Card Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points Year-over-year average loan growth of 1.4% driven by high credit quality originations Commitment weighted average FICO on new originations remained strong at 760 Year-over-year increases in delinquency rates primarily reflect vintage maturation $mm3Q162Q173Q17 Average Loans$20,628$20,631$20,926 30-89 Delinquencies1.27%1.22%1.42% 90+ Delinquencies1.11%1.10%1.20% Nonperforming Loans0.02%0.00%0.00%


Slide 20

Credit Quality – Home Equity Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points $mm3Q162Q173Q17 Average Loans$16,470$16,252$16,299 30-89 Delinquencies0.41%0.33%0.38% 90+ Delinquencies0.24%0.25%0.24% Nonperforming Loans0.75%0.74%0.75% Subprime: 1% Wtd Avg LTV*: 88% NCO: 3.05% Prime: 98% Wtd Avg LTV*: 72% NCO: 0.00% Other: 1% Wtd Avg LTV*: 70% NCO: 0.00% *LTV at origination High-quality originations (weighted average FICO on commitments of 767, weighted average CLTV of 70%) originated primarily through the retail branch network to existing bank customers on their primary residences Net charge-offs were stable year-over-year


Slide 21

Credit Quality – Retail Leasing Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points $mm3Q162Q173Q17 Average Loans$5,773$7,181$7,762 30-89 Delinquencies0.21%0.22%0.31% 90+ Delinquencies0.00%0.01%0.03% Nonperforming Loans0.05%0.07%0.09% * Manheim Used Vehicle Value Index source: www.manheimconsulting.com, January 1995 = 100, quarter value = average monthly ending values Continued high-quality originations (weighted average FICO of 782) support the portfolio’s stable credit profile Delinquencies, nonperforming leases and net charge-offs remained at very low levels


Slide 22

Credit Quality – Other Retail Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points $mm3Q162Q173Q17 Average Loans$30,608$31,194$32,008 30-89 Delinquencies0.56%0.65%0.75% 90+ Delinquencies0.11%0.11%0.13% Nonperforming Loans0.08%0.10%0.10% Overall growth continued to be driven by auto loan and installment categories, which were up 4.7% and 12.6% year-over-year, respectively Net charge-offs remained stable; 30-89 delinquencies were seasonally higher on a linked quarter basis


Slide 23

Credit Quality – Auto Loans Average Loans ($mm) and Net Charge-offs Ratio Key Statistics Key Points $mm3Q162Q173Q17 Average Loans$17,205$17,533$18,008 30-89 Delinquencies0.59%0.73%0.89% 90+ Delinquencies0.05%0.06%0.08% Nonperforming Loans0.08%0.12%0.11% Direct: 5% Wtd Avg FICO: 748 NCO: 0.19% Indirect: 95% Wtd Avg FICO: 771 NCO: 0.41% Auto loans are included in Other Retail category Growth driven by high-quality originations in the indirect channel (weighted average FICO 779) Net charge-offs increased seasonally on a linked quarter basis


Slide 24

Non-GAAP Financial Measures * 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.


Slide 25

Non-GAAP Financial Measures (1) Utilizes a tax rate of 35 percent for those assets and liabilities whose income or expense is not included for federal income tax purposes.


Slide 26

U.S. Bancorp 3Q17 Earnings Conference Call October 18, 2017