01—Abstract
Summary
Summary of the 10-K filed February 23, 2017. Cited figures are marked; the original filing is the authoritative source.
U.S. Bancorp reported record full-year 2016 results in its 10-K filed February 23, 2017, with net income attributable to the company of $5.89 billiona, or $3.24 per diluted share, essentially flat (up 0.2 percent) from $5.88 billion, or $3.16, in 2015.
Growth was driven by total net revenue, which rose 4.9 percent to $21.3 billionb, led by a 4.6 percent increase in taxable-equivalent net interest income from loan growth and a 5.1 percent rise in noninterest income from payment services, trust and investment management fees, and mortgage banking. Profit growth was held back by a 6.8 percent increase in noninterest expense to $11.7 billion, which included a special FDIC surcharge, higher compliance costs, and a $110 million legal and regulatory reserve build, as well as a 17 percent increase in the provision for credit losses to $1.3 billion driven by energy-sector stress. The efficiency ratio deteriorated to 54.9 percent from 53.8 percent, while return on average assets fell to 1.36 percent from 1.44 percent.
Balance sheet growth was solid. Total loans rose 4.7 percent to $273.2 billionc, average loans grew 6.9 percent, and deposits climbed 11.4 percent to $334.6 billion, which funded a reduction in short-term borrowings of nearly 50 percent. Credit quality remained broadly sound overall, with the net charge-off ratio steady at 0.47 percent, but nonperforming assets rose 5.3 percent to $1.6 billion, primarily due to energy loans, which were 1.0 percent of total loans.
Capital remained strong, with a Basel III transitional CET1 ratio of 9.4 percent and a fully phased-in standardized ratio of 9.1 percent, above the company's 8.5 percent target. The company returned 79 percent of earnings to shareholders through dividends and buybacks, repurchasing about 61 million shares, and raised its quarterly dividend 9.8 percent to $0.28d.
The filing also flags continuing regulatory exposure, including an October 2015 OCC Consent Order related to Bank Secrecy Act and anti-money laundering compliance, an ongoing investigation involving a payday lender account relationship, and ongoing RMBS trustee litigation. Management characterizes these matters as not expected to be material, though it acknowledges that resolutions could be significant in individual periods.
02—Key points
Key Highlights
- Record net income of $5.89 billion and diluted EPS of $3.24 in 2016, up modestly from $3.16 in 2015, with ROA of 1.36 percent and ROACE of 13.4 percent.
- Total net revenue rose 4.9 percent to $21.3 billion, driven by 4.6 percent net interest income growth and 5.1 percent noninterest income growth.
- Noninterest expense rose 6.8 percent to $11.7 billion, lifting the efficiency ratio to 54.9 percent from 53.8 percent, including a special FDIC surcharge and a $110 million legal reserve increase.
- Loans grew 4.7 percent to $273.2 billion and deposits grew 11.4 percent to $334.6 billion, improving funding stability as short-term borrowings fell about 50 percent.
- Credit costs rose: the provision for credit losses increased 17 percent to $1.3 billion, and nonperforming assets rose 5.3 percent to $1.6 billion, driven by energy loans (which carry a 7.8 percent reserve ratio).
- Capital remained robust, with a Basel III transitional CET1 ratio of 9.4 percent and fully phased-in standardized CET1 of 9.1 percent, above the 8.5 percent target.
- Shareholder returns were strong: 79 percent of 2016 earnings returned via dividends and buybacks, with about 61 million shares repurchased and the quarterly dividend raised to $0.28.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 23, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $21.31B$20.31B | +4.9% |
| Interest Expense | $1.47B$1.40B | +4.8% |
| Net Income | $5.89B$5.88B | +0.2% |
| EPS (Basic) | $3.25$3.18 | +2.2% |
| EPS (Diluted) | $3.24$3.16 | +2.5% |
| Shares Outstanding (Basic) | 1.72B1.76B | −2.6% |
| Shares Outstanding (Diluted) | 1.72B1.77B | −2.7% |
05—Questions
Frequently Asked Questions
How did U.S. Bancorp's profitability change in 2016?
Net income attributable to U.S. Bancorp was $5.89 billion, or $3.24 per diluted share, compared with $5.88 billion, or $3.16, in 2015. Earnings were nearly flat because revenue growth of about $1.0 billion was largely offset by a $745 million increase in noninterest expense and a $192 million increase in the provision for credit losses.
What is driving the company's credit risk concerns?
Energy-sector loans are the main pressure point. Energy loans were $2.6 billion, or 1.0 percent of total loans, but criticized commitments rose to $2.8 billion from $1.9 billion, and the reserve for energy loans increased to 7.8 percent from 5.4 percent. Nonperforming assets rose $80 million to $1.6 billion, largely due to energy. Overall net charge-offs were steady at 0.47 percent of average loans.
How strong is the company's capital position?
Capital is strong. The Basel III transitional CET1 ratio was 9.4 percent, and the fully phased-in standardized CET1 ratio was 9.1 percent, both above the company's 8.5 percent target and the 7.0 percent minimum applicable when fully implemented. Tangible common equity was 7.5 percent of tangible assets. The company repurchased about 61 million shares during 2016 and has $1.3 billion remaining under its current buyback authorization.
What regulatory or legal risks does the filing highlight?
The company is subject to an October 2015 OCC Consent Order related to its Bank Secrecy Act and anti-money laundering program, which requires ongoing review and could lead to further orders or fines if deficiencies are not corrected. It is also cooperating with a U.S. Attorney's Office investigation related to a banking relationship with a payday lender, faces RMBS trustee lawsuits, and is subject to ongoing mortgage-related examinations. Management believes the ultimate resolution of these matters will not be material, though it acknowledges that individual matters could be significant in a given period.
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