01—Abstract
Summary
Summary of the 10-K filed February 22, 2019. Cited figures are marked; the original filing is the authoritative source.
U.S. Bancorp (USB) reported record 2018 results in its 10-K filed February 22, 2019.
Net income attributable to the company rose 14.1% to $7.1 billiona, or $4.14 per diluted share, versus $3.51 in 2017. Return on average assets was 1.55% and return on average common equity was 15.4%, both cited by management as the highest among peers. Total net revenue grew 3.4% to $22.6 billion, driven by net interest income up 3.6% on a taxable-equivalent basis and noninterest income up 3.4%, led by payment services and trust and investment management fees.
Noninterest expense fell 2.5% to $12.5 billionb, producing an efficiency ratio of 55.1% versus 58.5% in 2017, though 2017 included a $608 million regulatory settlement accrual that flatters the year-over-year comparison. Credit quality remained stable. The provision for credit losses was $1.38 billion, nonperforming assets declined 17.6% to $989 million, and the net charge-off ratio held at 0.48%.
Total loans grew 2.3% to $286.8 billionc, while deposits were essentially flat at $345.5 billion. Capital is strong: the Basel III standardized common equity tier 1 ratio was 9.1%, and the company returned 74% of earnings to shareholders through dividends and buybacks. The quarterly dividend was raised 23% to $0.37 per share, and a $3.0 billion repurchase authorization was in effect through June 2019.
Investors should weigh several items. Management exited the 2015 OCC Bank Secrecy Act consent order in late 2018, but the company also entered a February 2018 deferred prosecution agreement and related settlements, which remain under ongoing compliance obligations. Full-year 2018 benefited from a $340 milliond gain on the sale of the ATM servicing business and favorable tax-reform adjustments, offset by $264 million of asset impairment charges.
Net interest margin widened to 3.14% from 3.10%, but the 200 basis point down-rate sensitivity to net interest income moved to -3.90%, and deposit cost pressure is rising as time deposits grew 14.5%. The filing also notes that the company is likely to be classified as a Category III banking organization under proposed tailoring rules, which could reduce certain regulatory requirements.
02—Key points
Key Highlights
- Record 2018 net income attributable to U.S. Bancorp of $7.1 billion (up 14.1%), with diluted EPS of $4.14 versus $3.51 in 2017.
- Total net revenue rose 3.4% to $22.6 billion, with net interest income up 3.6% and noninterest income up 3.1% to $9.6 billion, led by payment services and trust fees.
- Efficiency ratio improved to 55.1% from 58.5%, though the comparison is flattered by a $608 million regulatory settlement accrual recorded in 2017.
- Credit quality remained stable: net charge-off ratio of 0.48%, nonperforming assets down 17.6% to $989 million, and allowance at 1.55% of loans.
- Capital returns were strong: dividend raised 23% to $0.37 per quarter, roughly 54 million shares repurchased in 2018, and 74% of earnings returned to shareholders.
- Common equity tier 1 ratio under the standardized approach was 9.1%, and the company is expected to qualify as a Category III institution under proposed tailoring rules.
- Regulatory overhang persists: the February 2018 DPA with the U.S. Attorney's Office in Manhattan and related settlements remain in effect, even though the OCC terminated its 2015 consent order in late 2018.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 22, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $22.64B$21.90B | +3.4% |
| Interest Expense | $3.25B$1.97B | +65.5% |
| Net Income | $7.10B$6.22B | +14.1% |
| EPS (Basic) | $4.15$3.53 | +17.6% |
| EPS (Diluted) | $4.14$3.51 | +17.9% |
| Shares Outstanding (Basic) | 1.63B1.68B | −2.6% |
| Shares Outstanding (Diluted) | 1.64B1.68B | −2.7% |
05—Questions
Frequently Asked Questions
How much did U.S. Bancorp earn in 2018 and how did that compare with 2017?
Net income attributable to U.S. Bancorp was $7.096 billion in 2018, up $878 million (14.1%) from $6.218 billion in 2017. Diluted EPS was $4.14, compared with $3.51 in 2017. Management attributes the increase mainly to revenue growth, lower noninterest expense, and the favorable effect of the 2017 Tax Cuts and Jobs Act. Results also included a $340 million gain on the sale of the ATM servicing business and $264 million of asset impairment charges.
Is the dividend growing, and how much is the company returning to shareholders?
Yes. In September 2018 the board raised the quarterly dividend 23%, from $0.30 to $0.37 per share, and 2018 dividends declared totaled $1.34 per share. The company repurchased about 54 million shares for roughly $2.8 billion in 2018. Overall, it returned about 74% of 2018 earnings to common shareholders. A $3.0 billion buyback authorization runs through June 30, 2019, with about $1.4 billion remaining at year-end.
What is the status of the company's regulatory and legal issues?
The OCC terminated the 2015 Consent Order related to Bank Secrecy Act and anti-money laundering controls in late 2018. However, a February 2018 deferred prosecution agreement with the U.S. Attorney's Office in Manhattan defers prosecution for two years, subject to ongoing compliance. Related settlements with FinCEN and the Federal Reserve also carry continuing obligations. The company states that the ultimate resolution of pending legal and regulatory matters is not expected to have a material adverse effect, although outcomes could be material in individual periods.
How healthy is the balance sheet and how exposed is the company to interest rate changes?
Total assets were $467.4 billion at year-end 2018, with shareholders' equity of $51.0 billion. The standardized common equity tier 1 ratio was 9.1%, and the company exceeded all regulatory minimums, including the 3.0% supplementary leverage ratio. Interest rate sensitivity increased: a 200 basis point gradual rise was projected to raise net interest income by 1.45%, while a 200 basis point decline was projected to reduce it by 3.90%. Net interest margin rose to 3.14% from 3.10%, reflecting higher rates, although deposit repricing is adding funding pressure.
What are the main risks and trends to monitor going forward?
Key items include rising deposit costs as customers shift to higher-yielding time deposits, which grew 14.5% on average in 2018. Other considerations are the LIBOR transition, pending capital and stress-buffer rule changes, and the company's exposure to credit card losses, which rose to 3.90% of average balances. Tariff and trade policy uncertainty, cybersecurity, and California real estate concentration are also highlighted in the filing's risk factors. Management's expansion plans following the consent order exit could also shape future expense and growth trends.
06—Continue