Topic: Company Analysis - Due by Sunday Assignment: Choose a publically-traded for profit company you would like to learn more about. Find a copy of their most recent annual report using the company's home page, general web searches or the NU Library. Answer the following questions, noting the relative weighting of each question, as shown at the beginning of the question 1.(10%) Name the company and the annual report year you used. Describe the type of products or services this company offers. Describe why you were interested in this company 2. (20%) Analyze the company from a CVP (cost-volume profit) perspective. Prepare a contribution margin income statement for the company using your best assessment of the variable or fixed nature of their revenues and expenses Explain your rationale for each fixed versus variable decision you made Given the contribution income statement you prepared, calculate the operating leverage and estimate the percentage change in income from a 10% increase in sales 3.(20%) Read the "Letter to the Stockholders' section of the annual report this section is sometimes called "Management Discussion and Analysis"). Summarize the financial decisions made by the company in the current year and how those decisions affected the company Describe any capital budgeting decisions they made for the year 4 (10%) Does the company operate using a decentralized management style? How does it seem managers in a similar position you have (or desire to have) are evaluated? 5.(10%) Calculate the company's ROI and estimate their residual income. Show the calculations and explain the methodology you used 6 (10%) Evaluate the steps the company takes to make ethical decision making. Discuss an ethical issue a company in this industry likely faces. How do they reference elements of a balance scorecard in their annual report? 7.(10%) How does a rating agency such as Moody's or Standard and Poor's evaluate the recent performance and projected success of this company? Quote these references 8.(10) What did you learn that was new to you about this company. Are you now more or less interested in this company? Why? Instructions: Length: 8 to 10 pages double spaced, excluding the cover page and reference pages formatted in APA style Label your answers corresponding to the numbering in the question (your paper should have eight sections labeled 1-8), it is not clearly labeled, it will not be graded, but will have to be redone with clear labels. Each labeled answer has to independently answer the question being asked. Each answer is graded as a standalone answer Cover Page containing Title of Papet. Your Name Course Number and Name. Instructor's Name, and Date Introductory Paragraph 1 above . Conclusion 6 above U17 Anment- Financial Summary Neste 1. 311, 200 811.00 10 4. 22:05 2300 TUN 17.0 in 95-99992528 $3:9553 4 43 024 No come 6 New Provision 10 horretes de mont Net income Net income one to controlling store Not income tutto SO Nat income to US Bancorp common shares S500 Per Common Share Caming perhe 33 18 Dundag 361 Onconds and perhe Book ve per she 2. 33 Ma per share 51 Average common shares outstanding 1,704 Amage duted common soustanding 1,7 Financial Ratios Rumong Rebanon erage common equity 1LO Not interest marginal-equivalent basis 3.06 3.00 Econey are SAR 540 Average Balances $278.537 27.01 S450 Investment securi 111,820 107,022 103 161 Earning assets 380,877 367,445 448.52 133,313 Deposts 33.514 312.810 287,151 Tots. Bancorp shooquity 48.400 17.30 Period End Balances Loans $280,432 Allowance for redes 4,412 Investors 112.400 108.275 105,57 Assets 462,000 421.853 Deposts... 347.215 300-400 Total US Bancorp shareholders' equity 40,040 47,200 Capital Ratios Basel transitional standardized approach Common equier capit 9.3% Tier 1 capital 108 113 Total risk-based catal 13.3 Leverage 90 3.5 Common equity tier 1 capital toris-waghted assets for the Basel transitional advanced approaches 12.0 12.2 12.5 Common equity tier 1 capital toris-weighted assets estimated for the Basel luy implemented standardized approach 2.1 2.1 Common equity tear 1 capital to risk-weghted assets estimated to the Basel luy implemented advanced approaches 11.6 11,0 Tangible common equity lo tangible assets 7.6 7.5 7.6 Tunge common equily torsk-woghedas 9.4 92 38 percent per presented brows who come and do nome See Non-GMP rc Moss begin on page Cabas US Bancophy dided by common and 305 00 1.2 30 3.6 5.7 ER Selected Fnancial Data 100 10.00 11 16 3 ON ORI AP . 10 104 23 $ 3.10 $ 1.100 LON 0101 21.00 CH ICO VAT 14 13 NICU 1. 140 17 150 300 00 one 48 41 47 14 Average Balon 41.00 32744 Los 3.5 11.00 7.611 4180 74 103.09 ang VOOR 30.071 430313 Nogo 81,000 312.000 VOUS 20040 350.00 0.000 250,457 21.00 30.017 Logo 27.000 2016 44,810 3. 40 47.300 End Balance 273.00 100.215 112.400 402.040 347.21 105.87 421 101043 402.00 DONC 32.078 2004 40.00 47 0 Log-om Tous les Asset Quality Norg were for a percorrendo Capital Ratio Cameron $ 1.200 30 82.007 4. 4,375 1. NCB 100 12.0 0.4 11.0 132 0.7 13 23 11.3 133 Coro de for The Best captors were assessed for the 12.0 122 124 Commons 1993 a sa 2.1 21 2.1 Common to whated to the 11.6 119 7.6 7.5 22 24 December 2017 2016 2015 2014 Earnings Summary The Company reported net income attributable to U.S. Bancorp of 0.2 billion in 2017, or $3.51 per diluted common shar, compared with $5.0 billion, or $3.24 per diluted common share in 2016. Return on average assets and rotum on average common guity were 1.39 percent and 13.8 percent, respectively, in 2017, compared with 130 percent and 13.4 percent, respectively, in 2016. The results for 2017 included a benefit of $10 million related to the estimated impact of the Tax Cuts and Job Act 'tax reform" acted by Congress in late 2017 on the Company's tax related assets and also partially offset by a $600 million increase in reserves for regulatory and legal matters, as well as $152 million, net of tax, of expenses related to a charitable contribution to the U.S. Bank Foundation and a special bonus awarded to certain ligble employees Combined, these notable for increased 2017 diluted earnings per common shwe by $0.00 Total net revenue for 2017 was $740 milion (3.5 percent higher than 2016,rotecting a 6.2 percent increase in net interest income 15.1 percent on a tax-equivalent basis, and a 0.4 percent increase in noninterest income. The increase in not Interest income from the prior year was mainly a result of the mpact of ring interest rates and on growth. The increase in noninterest income was primarily driven by higher payment services revenus, trust and investment management foes, and treasury management fees, partially offset by lower mortgage barking revenue and lower equity investment income. Nonitorst expense in 2017 was $1.3 bilion (10.0 percent Higher than 2016, reflecting business growth, incremental costs related to compliance programs, investments in the business and the 2017 charitable contribution, special bonus and increase in reserves for regulatory and legal matters. Compensation expense increased primarily due to the impact of hering to support business growth and complace programs, merit increases higher variable compensation and the 2017 special bonus awarded to eligible employees. Marketing expense increased due to higher charitable contributions, while other expense was higher due to an increase in reserves related to regulatory and legal matters, as well as the impact of an FDIC insurance surcharge which began in late 2016 Statement of Income Analysis Net Interest Income Net Interest income, on a taxi equivalent basis, was $12.4 billion in 2017, compared with $11.7 bilion in 2016 and $11.2 billion in 2015. The $715 milion 16.1 percent increase in net interest income, on a table equivalent basis, in 2017 compared with 2016, was principally driven by the impact of rising interest rates and loan growth. Average caring assets were $16.5 bilion (4.2 percent higher in 2017, compared with 2016, driven by increases in loans. Other earning assets and investment securities. The net interest margin on a taxable-equivalent basis. In 2017 was 3.06 percent compared with 3.01 poroon in 2016 and 3.05 percent in 2015, The increase in the net interest margin in 2017, compared with 2016, was principally due to higher interest rates and changes in the loan portfolo mix, partially offset by rising funding costs and higher cash balances. Refer to the interest Rate Risk Management section for further information on the sensitivity of the Company's net interest income to changes in interest rates Average total loans were $276.5 billion in 2017, compared with $267.8 billion in 2016. The $8.7 billion (3.3 percent increase was driven by growth in commercial loans, residential mortgages credit card loans and other retail loans, partially offset by decreases in commercial real estate and covered loans. Average commercial loans increased $3.9 bilion (4.2 percent) driven by higher demand for loans from new and existing customers. The $3.1 billion 15.6 percent increase in residential mortgages reflected origination activity, Average credit card balances increased $416 million (2.0 percent) due to customer growth. The $3.1 bilion (5.0 percent increase in average other retail loans was primarily due to higher auto, installment and retailing loans, partially offset by decreases in home equity loans and continued runoff of student loan balances. Average commercial real estate loans decreased $963 milion (2.2 percent) in 2017, compared with 2016, primarily the result of disciplined underwriting of construction and development loans, and customers paying down balances by accessing the capital markets. Average covered loans decreased $776 milion 18.4 percent), the result of portloo run-off TABLE 3 Analysis of Net Interest Income 2017 2015 2018 2015 $ 12,619 S 756 S 14.500 2.152 $ 12.446 $ 13.375 1.544 $11.731 $ 11.528 $11.214 11 001 $1,223 508 5 715 $ 713 5 $ 517 527 Components of Net Interest income Income on coming seat-valeriaal Bepens on interest-bearing lobos fable-cuivalent basis... Net interest income table-equivalent basis Net interest incom, suported Average Yields and Rates Paid Earrings yold - basis van Ratopad on interest-bearing labies bo-ovet bois Grosse marginal-quotes Not interest marginaler basis Average Balances Investments 3.50% 31.43% 57 05 2.88 3.06 2.91% 3.05 029 .05% 301 04 5111,820 276.537 S107.902 267811 S 3,898 8.726 101.544 $ 4761 17,352 $103.161 250,450 367 445 20,474 Esmingos Interest-bearing Babies 300,204 287.700 18.286 Average investment securities in 2017 were $3.9 bilion 13.6 percent higher than 2016, primarily due to purchases of U.S. Treasury and U.S. government mortgage-backed securities, net of prepayments and maturities, in support of Iquidity management requirements Average total deposits for 2017 were $20.7 billion 15.6 percent higher than 2016. Average noninterest-bearing deposits for 2017 were $757 milion (0.9 percent higher than the prior your reflecting increases in Wealth Management and Investment Services, and Consumer and Business Banking balances, offset by a decrease in Corporate and Commercial Banking balances. Average total savings deposits for 2017 were $19.2 billion (9.7 percent) higher than 2016, a result of growth across all business lines. Average time deposits for 2017 were $751 million (2.3 percent higher than 2016. 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. The $517 million (4.6 percent increase in net interest income on a taxable-equivalent basis, in 2016 compared with 2015, was principally driven by loan growth partially offset by a lower net interest margin. Average earning assets were $22.4 bilion (6.1 percent higher in 2016, compared with 2015, driven by increases in loans and in investment securities. The decrease in the net interest margin was principaly due to lower yields on purchased securities, lower reinvestment rates on maturing securities and maintaining higher cash balances Average total loans increased $17.3 billion (6.9 percent in 2016, compared with 2015. driven by growth in commercial commercial real estate, residential mortgage, credit card and other retail loans, partially offset by a decrease in covered loans Average commercial and commercial real estate loans increased $8.0 billion (9.5 percent and $625 million (1.5 percent). respectively driven by higher demand for loans from now and existing customers. The $3.8 billion (7.4 percent increase in residential mortgages reflected higher orgination activity including strong refracing activities, in 2016 compared with 2015. Average credit card balances increased $2.4 billion (13.5 percent in 2016, compared with 2015, due to customer growth, including a portfolo acquisition in late 2015 which increased average 2016 credit card balances by $1.6 billion. The $3.3 billion (6.6 percent increase in average other retail loans was primarily due to higher auto and installment loans, student loans, and home equity and second mortgage loan balances. Average covered loans decreased $750 million (15.2 percent) in 2016, compared with 2015, the result of portfolio run-off Average Investment securities in 2016 were $4.8 bilion (4.6 percent higher than 2015. primarily due to purchases of U.S. Treasury and U.S. government mortgage-backed securities, net of prepayments and maturities, in support of liquidity management 25 TABLE 3 Net Interest Income - Changes Due to Rate and Volume 2017 2016 Yad To horas de Interest Income Investment secure Loans held for S PO $ 6 598 $ 147 1108 $ 37 5 $ 61 521 100 535 216 90 315 Commercial state 38 24 24 Residential mortgages 115 110 146 142) 104 Credit card 45 115 265 3 200 Othernet 125 30 158 04 140 Total loans, excluding covered loans 356 697 1,053 785 44 820 Covered loans n 12 125 (41) 0 (9) Totoons 319 700 1,028 744 758 Other coming 57 1 58 Total coming sets 790 1,233 817 151) 756 Interest Expense Interest-bearing deposits Interest checking 38 42 3 9 12 Money maro savings 35 295 115 157 Savings accounts 153 4 (102 Time deposits 5 79 84 16 2 Total bearing deposits 48 371 419 34 131 165 Short-term borrowings 165) 124 (72) 91 19 Long-term der 43 30 55 55 Total interest-bearing liabilities BO 538 508 17 222 229 Increase in net interest income $483 $252 S 715 $800 5:283) $517 the component home by owner best for the propered the der Hoverboard the room Average total deposits for 2016 were $25.7 billion (8.9 percent higher than 2015. Average noninterest-bearing deposits for 2016 were $2.0 bilion (2.5 percent) higher than the prior year, mainly in Consumer and Business Banking and Corporate and Commercial Banking Average total savings deposits for 2016 were $26.2 billion (15.2 percent higher than 2015, reflecting growth in Corporate and Commercial Banking, Consumer and Business Banking, and Wealth Management and vestment Services balances. Average time deposits which are managed based largely on relative pricing and liquidity haracteristics, decreased $2.6 billion (7.2 percent) in 2016, mpared with 2015 ovision for Credit Losses The provision for credit losses Tects changes in the size and credit quality of the entire tfolio of loans. The Company maintains an allowance for credit Des considered appropriate by management for probable and mable incurred losses, based on factors discussed in the Blysis and Determination of Allowance for Credit Losses" lon In 2017, the provision for credit losses was $1.4 billion, compared with $1.3 billion and $1.1 billion in 2016 and 2015, respectively. The provision for credit losses was higher than net charge-offs by $60 million in 2017, higher than net charge-offs by $55 million in 2016 and lower than net charge-offs by 840 million in 2015. The increase in the allowance for credit losses during 2017 reflected loan portfolio growth, the maturity of vintages within the credit card portfolio and exposures related to 2017 weather events, partially offset by improvements in the energy and residential mortgage portfolios. Norperforming assets decreased $400 milion (25.1 percent from December 31, 2016 to December 31, 2017. primarily driven by improvements in commercial loans, residential mortgages and other real estate owned (OREO) partially offset by an increase in nonperforming commercial real estate loans. Net charge-offs increased $61 milion (4.8 percent) in 2017 from 2016 primarily due to higher credit card and other retail loan net charge-offs, partially offset by lower net charge-offs related to residential mortgages and commercial loan recoveries. The increase in the allowance for credit losses during 2016 was driven by loan portfolio growth and stress in the energy portfolio, partially offset by improvements in residential mortgage and home equity loans and lines. Non performing assets increased $80 millon (5.3 percent from December 31, 2015 to December 31, 2016, primarly driven by an increase in non performing commercial loans within the energy portfolio partially offset by improvements in the Company's residenti portfolo due to improving economic conditions. Niet charge of increased $7 million (8.3 percent in 2016 from 2015 primarily due to higher commercial loannet charge-ots and lower commerrol estate can recoveries, partially offset by lower charge of related to residential mortgages and home equity loans Refer to "Corporate Risk Profile for further information on the provision for credit losses, not charge offs, nor performing assets and other factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses Noninterest Income Noninterest income in 2017 was $0.6 billion, compared with $0.6 billion in 2016 and $0.1 billion in 2015. The $34 million (0.4 percent increase in 2017 over 2016 was primarily due to increases in payment services revenue, trust and investment management fees and treasury management fees, as well as higher ons on sales of investment securities partially offset by decreases in mortgage banking revenue and other noninterest income. Payment services revenue was higher in 2017, compared with 2016. due to a 6.4 percent increase in credit and debit card revenue and a 5.8 percent increase in corporate payment products revenue, both driven by higher sales volumes. Trust and investment management les were 6.7 percent higher due to favorable market conditions, and not 38 and account growth, while treasury management fees increased 6.0 percent due to higher transaction volume. Mortgage banding revenue decreased 14.8 percent in 2017, compared with 2016, primarily due to lower origination and sales volumes from home refinancing activities which were higher in the prior year, and lower margins on mortgage loan sales. Other revenue was 13.4 percent lower in 2017 compared with 2016, primarily due to lower equity Investment income, which was higher in 2016 due to the sale of the Company's membership in Visa Europe Limited ("Visa Europe to Visa in during that year. TABLE4 Noninterest Income 2017 2014 2016 2017 $1.252 753 1.500 Year Ended December 31 Dolars in Milos Credit and debit card revenue Corporate payment products revenue Merchant processing services ATM processing services Trust and investment management foes Depostservice charges Creasury management foos Commercial products revenue Mortgage barking revenue vestment products for ecurities gains flosses.net her Total noninterest income 2016 $1,177 712 1.502 338 1,427 725 583 871 979 158 22 993 $9,577 352 1.522 751 618 849 834 163 57 B60 $9,611 2015 $1.070 708 1.547 318 1.321 702 561 867 906 185 5.B (1) 7.1 8.7 3.6 6.0 (2.5) 2015 10.0% .6 2.9 6.3 B.O 3.3 3.9 -5 8.1 (14.6) 3.2 907 (13.4) .4% 9.5 5.3% $0.002 The $45 milions per increase in 2016 2015 was due to her a reventrund vestments, and morong breve well as the wrot of the Visa urce Credit and debit card med 100 percent in 2016 cred with 2015, ring higher ration womes including the impact of word pro Merchant processing services revenue was 2.0 percent higher of an increase in products and Nigheanation volumes Trust and investment agent sind percent in 2016, rared with 2015 refooting lower money market to walvers, long with account growth an increase in assets under management and improved market conditions. Mortgage barking revenue reased 8.1 percent in 2018 over 2018, driven by higher origin and sales volumes. In addition, the revenue was 0.5 percent higher in 2016 mared with 2018.rotecting the 2016 Via Europe sale and the impact of a 2015 student loan market valuation adunt, offset by lower equity investment income and a 2015 in recorded on the sale of a decat portfolio Noninterest Expense Norinterest experisen 2017 was $12.9 billion, compared with $11.7 bilion in 2016 and $10.9 billion in 2016. The Company's officiency was 58.8 percent in 2017, compared with 54.9 percent in 2016 and 83.8 percent in 2015. The $1.3 bin 100 percent increase in noninterest expens in 2017 over 2016 was primarily due to higher comparation expense, marketing and business development expense and other expense, patalyoffset by lower professional services expense Compensation expense increased 10.2 percent in 2017 over 2016, principally due to the impact of hing to support business growth and compliance programs, merit increases, higher variable compensation related to business production and the 2017 sew bonus awarded to eligible employees. Employee benefits expense was 6.0 percent higher primarily driven by increased medical costs. Marketing and business development expense was higher 24.6 percent, primarily due to an increase in charitable contributions to the U.S. Dark Foundation, Orreased 20,6 percent in 2017, comred with 2016.primarily due to the impact of the rose in reserves and to legal and regulatory matters recorded during 2017 and the Dance surcharge which began in wie 2016. During 2017, the Company recorded a 300 milion con for regulatory and legal matters related to Bark Becrecy Aw-money laundering come program de and investigation by the United States Attomay's Ollo in Manhattan to that program and U.S. Bank National Association's legacy relation with a payday londing businessed with a former customer. Ofsetting these is was a decrease in professional service expense of 16.5 percent, primarily due to www.ning services as complace programa now may The $745 milion (0.8 percent increase in noninterest expense in 2016 2015 was primarily due to higher compensation costs, professional services, marketing and business development technology and communications, and other monitore expenses, partially set by lower employee benefits expense Compensation expense increased 8.3 percent in 2010 over 2015, principaly due to the impact of Hiring to support business growth and compliance programme, mit increases, and Nghe variable compensation Professional services experto Increased 18.7 percent primarily due to compliance programs and implementation costs of capital investments to support business growth, Marketing and business development expense Increased 20.5 percent in 2016 over 2015, resulting from the support of new business development and an increase in charitable contributions to the U.S. Bank Foundation Technology and communications expense ressed 7.7 percent primarily due to co investments and costs related to noguired portfolos. Further, other noninterest expense Increased 8.6 percent in 2016 over 2015, reflecting the impact of the FDIC surcharge, which began in late 2016, and higher scorutis related to regulatory and legal matters. Offsetting these increases was a 4.1 percent decrease in employee benefits expense mainly due to lower pension costs. 2016 8.3% TABLES Noninterest Expense Year Ended December 31 Dolors in Mon Compensation Employee benefits Net occupancy and equipment Professional services Marketing and business development Technology and communications Postage, printing and supplies... Other intangibles Other Total noninterest expense Encioncration 2017 $ 5,746 1,180 1.019 410 542 077 $ 5,212 1,119 968 502 2017 2016 10.2% 6.0 3.1 (10.5) 24.6 23 3.9 (2.2) 29.5 10.9% 2015 $ 4,812 1,167 991 423 361 887 297 174 1,819 $10.931 53.8% 956 311 170 1,975 $11,670 54.9% (3) 18.7 20.5 7.7 4.7 2.9 8.6 175 2,558 $12.945 58.8 $2.2 bilion in effective role of 26.7 percent in 2016 and $2.1 billion in active role of 26.1 percent in 2015 For the information on income to refer to Note 18 of the Notes to Consolidated Francial Statements Pension Plana Bof the long-term nature of pension blone the related accounting is complex and can be impacted by several factors, including investment funding policies con The Company's pension counting reflects the long-term nature of the benefit obligations and the investment horizon of planets Amounts recorded in the franchements reflect acrumptions about portant benefits and plans retums. Changes in actions and differences in actual experience compared with actuarial assumptions, are deformed and recognized in expens in future periods. Diferences related to participant bereits are recognized in expense over the Wur service period of the employees. Diferences related to the expected return on plan assets we included in expense over a period of approximately 15 years Pension expense is expected to decrease by $57 million in 2018 primarily due to expected earnings on higher plan assets due to Company contributions in 2017, partially set by a lower discount rate. Because of the complety of forecasting pension plan is the accounting methods utilized for pension plans. the Company's ability to respond to factors affecting the plans and the hypothetical nature of actuarial assumptions, the actual pension expense decrease may differ from the expected amount. Additionally, as a result of new pension accounting guidance effective January 1, 2018, non-service cost components will be reclassified to other noninterest expense. The combination of the decreased pension expense and the adoption of the new standard will result in an increase in 2018 employee benefits expose of $13 million and a decrease in other noninterest expense of $70 million, compared with 2017 Refer to Note 16 of the Notes to the Consolidated Financial Statements for further information on the Company's pension plan funding practions, investment policies and asset allocation strategies, and accounting policies for pension plans. The following table shows an analysis of hypothetical changes in the discount rate and long-term rate of return (LTROR": Balance Sheet Analysis Average caring assets were $406.4 billion in 2017, compared with $380.0 billion in 2016. The increase in average coming as of $16.5 bilion (4.2 percent was primary due to increases in loans of $8.7 bilion (3.3 percent, other uning set of $4.5 billion (45.4 percent and Investment securities of $3.9 bilion (3.6 percent For average balance information, refer to Consolidated Daily Average Bounce Shoot and Related Yields and Rates on pages 144 and 145 Loans The Company's loan portfolio was $280.4 billion at December 31, 2017, compared with $273.2 billion at December 31, 2016, an increase of $7.2 bilion (2.6 percent). The increase was driven by increases in commercial loans of $4.2 bilion (4.5 percent other real loans of $3.5 bilion 16.4 percent), residential mortgages of $2.5 billion (4.4 percent) and credit card loans of $431 milion (2.0 percent, partially offset by a decrease in commercial real estate loans of $2.6 billion (6.1 percent and covered loans of $715 million (18.6 percent). Table provides a survey of the loan distribution by product type, while Table 12 provides a summary of the selected loan maturity distribution by loan category. Average total loans increased $8.7 bilion (3.3 percent in 2017, compared with 2016. The increase was due to growth in most loan portfolo classes in 2017. Commercial Commercial loans, including lease financing increased $4.2 billion (4.5 percent) at December 31, 2017 compared with December 31, 2016. Average commercial loans increased $3.9 billion (4.2 percent in 2017, compared with 2016 The growth was primarily driven by higher demand from new and edisting customers. Table 7 provides a summary of commercial loans by industry and geographical locations Commercial Real Estate The Company's portfolio of commercial real estate loans, which includes commercial mortgages and construction and development loans, decreased $2.6 bilion (6.1 percent) at December 31, 2017, compared with December 31, 2016, primarily the result of disciplined underwriting of construction and development loans and customers paying down balances by accessing the capital markets for funding. Average commercial real estate loans decreased $963 million (2.2 percent) in 2017, compared with 2016. Table 8 provides a summary of commercial real estate loans by property type and geographical location. The Company reclassifies construction loans to the commercial mortgage category if permanent financing is provided by the Company. In 2017, approximately $521 million of construction loans were reclassified to the commercial mortgage category. At December 31, 2017 and 2016, $161 million and Down 100 Up 100 Discount Ratels in Million Bass Porta Basi Points Incremental bonet expense. $(112) $ 98 Percent of 2017 net income (1.35% 1.18% Down 100 up 100 LTROR DM Bass Points Bass Points Incremental benefit perse) $ (52) $ 52 Percent of 2017 net income 1.52% .62% Income Tax Expense in late 2017, tax reform legislation was enacted that, among other provisions, reduced the federal statutory rate for corporations from 35 percent to 21 percent offective in 2018. In accordance with gonerally accepted accounting principles ("GAAP"), the Company revalued its deferred tax assets and abilities at December 31, 2017, resulting in an estimated net tax benefit of $910 milion, which the Company recorded in 2017. The 2017 provision for income taxes, reflecting this benefit, was $1.3 billion (an effective rate of 16.8 percent), compared with a provision for income taxes of TABLED Loan Portfolio Distribution 2011 OS Commercial 8 3. 30 30.0 8 87.000 2.0 343 0,30 5.000 37.561 $ 83,116 5200 400 31.0 2.0 33.0 27.5% 2.3 20,8 $ 64,762 1.27 70.003 302 30.377 24 Lease trong Total com Commercial Real Estate Commercial mortgage .. Construction and development.. Totalcorcol 13.7 2036 10.5 31,500 11.6 31.773 32,183 12.2 30,300 11.08 40 10.364 7.700 11. SO 30 0.435 40,463 30. 14.5 17.3 17.0 42.137 43.000 15.8 42.705 10.1 16.6 37.545 40.425 43,632 15.5 15.0 16.0 15.6 5.8 13.000 5.2 47 13,642 5.0 13.071 13.021 5.0 20.5 59.789 22.180 21.3 7.9 57,274 21,740 21.0 7.9 53,496 21.012 51.610 18.515 20,8 7.5 51.150 18,021 21.1 7.7 7,088 2.8 6,316 2.3 5.232 2.5 2.0 5,871 2.4 5,020 Residential Mortgages Resident morto Home guy ans, est Bona Total resident mortgages Credit Card Other Retail Rotalling Home equity and second mortgages Revolving credit Instment Automobile Student... Total other real Totalans, excluding covered loans Covered Loans 6,6 16,360 15.016 16.327 3.183 8,989 18.934 1,903 57.324 5.8 1.1 3.2 6.8 ..7 20.4 6.0 1.2 3.0 6.4 .8 8.087 17,571 2.230 53,864 16,354 3.354 7,000 16,587 2.619 51,206 1.3 2.5 6.0 2.7 6.3 1.0 195 5.242 14,822 3.104 49.264 15,442 3.210 5,700 13,743 3,579 47.678 5.8 1.5 20.2 19 19.9 277.311 989 269,371 98.6 3,121 1.1 3,80 1.4 $280,432 100.0% $273,207 100.0% 256,253 98.2 4,596 1.8 $260,840 100.ON 242,570 97.9 226,773 96.4 5,281 2.1 8.482 $247,851 100.0% $235,235 100.0% Totalans $146 milion, respectively, of tax-exempt industrial development loans were secured by real estate. The Company's commercial mortgage and construction and development loans had unfunded commitments of $10.1 billion and $10.7 billion at December 31, 2017 and 2016, respectively The Company also finances the operations of real estate developers and other entities with operations related to real estate. These loans are not secured directly by real estate but are subject to terms and conditions similar to commercial loans Those loans were included in the commercial loan category and totaled $7.0 billion and $6.4 billion at December 31, 2017 and 2016, respectively TABLE Commercial Loans by Industry Group and Geography 2017 Industry Group Maracturing Resort and leasing $14,710 12. 8.062 8.00 15.1 12.8 3.2 88 7.6 5.7 11.3 8.1 9.3 8.1 5.3 40 $13.770 10. 7.573 1729 7.552 6.345 4,546 3340 3,744 3.16.7 3.507 3,561 1.747 Finance and insurance Whos trade Healthcare and sociale Publication Arts antertainment and region Professionals and technical services Educational services Information Transport and storage Us OtherOS Mring Agriculture, forestry, fshing and hunting Other 6.517 5.110 3.853 3.400 3.414 3.400 4.0 3.19 39 3.6 3.5 3.5 3.3 2.0 1.7 1.6 1.5 100 100.0% 3.8 3.8 1.9 1.7 1.91 1,500 1,420 9,706 $97.561 1045 1.449 10.435 $93,385 1.5 11.2 100.ON 14.4% $12,677 $14,086 3,970 5.245 7.400 3.525 13.6% 4.7 5.0 7.6 3.8 5.4 7.6 3.6 4.5 2.1 3.8 3.6 4,636 7.090 3,536 4.270 2.090 3,447 3.512 22 Geography Calfom Colorado nos Minnesota Missouri Ohio Oregon Washington Wisconsin lowa, Kansas, Nebraska, North Dakota, South Dakota Arkansas, Indiana, Kentucky, Tennessee Idaho, Montana, Wyoming Arizona, Nevada, New Mexico, Utah Total banking region Florida, Michigan, Now York, Pornsylvania, Texas Al other states Total outside Company's banking region To 3.8 52 5.5 6.168 1,251 2.044 3,600 3,530 4.800 5.200 1.225 3,836 62,928 16,408 18,227 34,635 $97561 5.3 1.3 3.9 84.5 16.8 18.7 35.5 100.0% 60.429 15,467 17.490 32,067 593386 3.7 64,7 16.6 18.7 35.3 100.0% Resident Mortgages Residential mortgages held in the loan portfolio at December 31, 2017, increased $2.5 billion (4.4 percent) over December 31, 2016, as origination activity more than offset the effect of customers paying down balances during 2017. Average residential mortgages increased $3.1 billion (5.6 percent) in 2017, compared with 2016. Residential mortgages originated and placed in the Company's loan portfolio include wol-secured jumbo mortgages and branch-originated first lien home equity loans to borrowers with high credit quality. Credit Card Total credit card loans increased $431 milion (2.0 percent) at December 31, 2017, compared with December 31, 2016, reflecting new and existing customer growth during the year. Average credit card balances increased $416 million 2.0 percent) in 2017, compared with 2016. TABLEO Commercial Real Estate Loans by Property Type and Geography Property Type Business owner Commercial property $10.200 25.2% $10.800 25.34 3.8 128 11.6 1.580 5.00 4502 3,757 8.002 3.710 2.480 124 11.1 9.3 22.0 1.631 5.5 4.997 4054 0,507 3.701 2.311 22.3 88 6.2 .7 100.0% . 1000 $40.480 Other commercial Mamy Hotell Residential homebuilders Healthcare Total Geography Camia Colorado nos Minnesota Misur $43.00 23.6% 24.99 $10,734 1.810 1,678 2,177 1.372 Oh $ 0.558 1.764 1.608 2.031 1.359 1.445 1.847 3.490 2.038 2.210 1.680 Oregon Washington Wisconsin lowa, Kansas, Nebraska, North Dakota, South Dakota Arlansas, Indiana, kontucky, Terness Idaho, Montana, Wyoming.. Arizona, Nevada, New Medico, Utah Total banking region Florida, Michigan, New York, Pennsylvania, Texas All other states Total outside Company's banking region 40 5.0 3.3 3.6 4.6 8.6 5.0 5.5 4,7 2.9 7.7 82.9 9.1 8.0 17.1 100.0% 30 5.0 32 3.4 49 8.0 5.0 5.4 42 2.9 7.5 82.6 8.9 8.5 17.4 100.0% 2.004 3.435 2,161 2,312 1.810 1.271 3.257 36,582 3,820 3,687 7,516 $43.098 1.163 3,134 33,540 3,688 3,235 6,923 $40.463 Total Other Retail Total other retail loans, which include retail leasing, home equity and second mortgages and other retail loans increased $3.5 billion (6.4 percent) at December 31, 2017, compared with December 31, 2016, reflecting higher retail lasing loans, auto loans and instalment loans, partially offset by lower student loans, home equity loans and revolving credit balances. Average other retail loans increased $3.1 billion (5.9 percent) in 2017, compared with 2016. The increase was primarily due to higher auto installment and retail leasing loans partially offset by decreases in student loans and home equity loans of the total residential mortgages, credit card and other retail loans outstanding at December 31, 2017, approximately 72.7 percent were to customers located in the Company's primary banking region compared with 73.3 percentat December 31, 2016. Tolos 9, 10 and 11 provide a geographic summary of residential mortgages, credit card loans and other retal loans outstanding, respectively, as of December 31, 2017 and 2016. The colateral for $2.2 billion of residential mortgages and other retail loans included in covered loans at December 31 2017 was in California, compared with $2.6 billion at December 31, 2016 FREE Residential Mortgages by Geography IT 2016 Colorado 5.0 M Missouri $15.115 3.210 3.071 4.200 1.81 Ohio $16,014 3.380 3,100 4,247 1.748 2.145 2,413 3.400 1,620 2.080 3.150 1,204 4.480 49,620 Oregor Washington Wisconsin lowe, Kansas, Nebraska, North Dakota, South Dakota Arkansas, Indiana, Kartucky, Tennessee che, Montana, Wyoming Arona, Nevada, New Mexico, Utah Total baring region Porida, Michigan, New York, Pennsylvania, Texas All other states Total outside Company's banking region Total 2. 5.7 6.2 7.1 2.0 3.6 4.0 5.7 2.5 315 53 2.2 7.5 83.5 7.4 3.0 4.0 5.7 2.7 38 2.202 3,277 1,546 2.146 3,220 1,276 4,203 47.620 4.191 5,454 9.645 $57,274 22 7.4 83.2 9,5 5.415 . 559.789 15,8 16.5 100.0% 100.0% TABLE 10 Credit Card Loans by Geography 10.1% 3.5 4.9 At Decor Doors California Colorado linois Minnesota Missouri Ohio Oregon Washington Wisconsin lowa, Kansas, Nebraska, North Dakota, South Dakota Arkansas, Indiana, Kentucky, Tennessee Idaho, Montana, Wyoming Arizona, Nevada, New Mexico, Utah Total baring region Florida, Michigan, New York Pennsylvania, Texas Al others Total outside Company's banking region Total 2017 Persone 10.1% 3.5 4.9 5.7 3.3 5.4 3.0 3.9 4.5 4.7 7.2 1.7 4.9 628 18.9 18.3 37.2 Loans S 2.245 772 1.089 1.271 725 1.185 886 857 990 1,048 1,603 376 1,092 13,919 4,193 4,068 8,261 $22,180 3.3 5.4 3.0 4.0 4.6 Loans $ 2,188 761 1.072 1.287 717 1,179 857 860 1,007 1.036 1,580 376 1,044 13.784 4,076 3.909 7.985 $21.749 7.3 1.7 4.8 833 18.7 18.0 36.7 100.0% 100.0% TABLE 11 Other Retail Loans by Geography California Colorado Ilinos Minnesota Missouri Ohio Oregon Washington Wisconsin lowe, Kansas, Nebraska, North Dakota South Dakota Arkansas, Indiana, Kentucky, Tennessee Idaho, Montana, Wyoming Arlona, Nevada, New Mexico, Utah Total barking region Florida, Michigan, New York, Pennsylvania, Texas All other states Total outside Company's banking region Total 2017 2016 Pro S 9.110 15.9% S 8.400 15.75 2.144 3.8 2.058 3. 3.100 5.6 3,111 5.8 3.610 6.3 3.537 6.6 2.142 3.7 2,171 2.800 2.704 1,545 2.7 1.555 2.0 1.735 3.0 1,806 3.1 2.7 1.606 20 2.534 4,4 2.356 3.100 5.4 3.001 5.6 1,033 978 2,058 5.2 2.772 5.2 37,402 65.4 36,031 66.0 11,547 20.1 9.807 182 8,285 14.5 8.096 14.9 19.832 34.6 17.833 33.1 $57324 100.0% $53,364 100.0% $3.6 billion at December 31, 2017, compared with $4.8 billion at December 31, 2016. The decrease in loans held for sale was principaly due to a lower level of mortgage loan closings in late 2017, compared with the same period of 2016. Almost all of the residential mortgage loans the Company originates or purchases for sale follow guidelines that allow the loans to be sold into casting, highly liquid secondary markets, in particular in government agency transactions and to government sponsored enterprises (GSES") The Company generally retains portfolio loans through maturity, however, the Company's intent may change over time based upon various factors such as ongoing assetiability management acties, assessment of product profitability, credit risk, liquidity needs, and capital implications. If the Company's intent or ability to hold an existing portfolo loan changes, it is transferred to loans held for sale Loans Held for Sale Loans held for sale, consisting primarily of residential mortgages to be sold in the secondary market, were Selected Loan Maturity Distribution Over One One FY $ 57,132 22.117 8.670 Ove Years $ 5,871 6.944 48.55 $34,850 11,402 2,578 22,180 10.529 373 $81.920 To $97.561 40,400 50,783 22.180 57.324 3.121 $280,432 32,285 470 $120,674 14,510 2.278 $77,838 $ 31,062 $105,550 Commercial Commercial real estate Rudential mortgages Credit card Other retail Covered loans Total loans Total of loans de fer one year with Predetermined interest rates Floating interest rates Investment Securities The Company uses its investment securities portiolo to manage Interest rate is provide liquidity including the ability to meet regulatory requirements, generate Interest and dividend income, and as colateral for public deposits and wholesale funding sources. While the Company intends to hold its investment securities indefinitely, it may sel available for sale securities in response to structural changes in the balance sheet and related interest rate risk and to meet liquidity requirements, among other factors. Investment securities totaled $112.5 billion at December 31. 2017, compared with $109.3 billion at December 31, 2016. The $3.2 billion (3.0 percent increase reflected $3.1 billion of net investment purchases and a $121 million favorable change in net unrealized gains (es) on available for sale investment securities Average investment securities were $111.8 billion in 2017, compared with $107.9 billion in 2016. The weighted averago yield of the valable-for-sale portfolio was 2.25 percent at December 31, 2017, compared with 2.06 percent al December 31, 2016. The weighted-average maturity of the available for sale portfolio was 5.1 years at both December 31, 2017 and 2016. The weighted average yield of the held-to-maturity portfolio was 2.14 percent at December 31, 2017, compared with 100 percent at December 31, 2016. The weighted-average maturity of the held-to-maturity portfolio was 4.7 years at December 31, 2017, compared with 4.6 years at December 31, 2016. Investment securities by type are shown in Table 13. The Company's available for sale securities are carried att value with changes in fair value reflected in other comprehensive Income foss) unless a security is deemed to be other than temporarily impaired. At December 31, 2017. The Company's net unrealized losses on available for sale securities were $580 million, compared with $701 million at December 31, 2016, The favorable change in net unrealized gains was primarly due to increases in the fair value of state and political securities as a result of changes in interest rates. Gross urrealized losses on available-for-sale securities totaled $888 million at December 31, 2017, compared with $1.0 bilion at December 31, 2016. The Company conducts a regular assessment of its investment portfolio to determine whether any securities are other than temporarily impaired. When assessing unrealized losses for other than temporary impairment, the Company considers the nature of the investment, the financial condition of the issuer, the extent and duration of unrealized lossos, expected cash flows of underlying assets and market conditions. At December 31, 2017, the Company had no plans to sell securities with unrealized losses, and believes it is more likely than not that it would not be required to sel such securities before recovery of their amortized cost Reler to Notos 4 and 21 in the Notes to Consolidated Financial Statements for further information on investment securities SALLE 18 Deposits The composition of decots was as follows: A csod Norintot-bearing depots Interest-bearing deposits West Cheng Money mario sargs Savings accounts. Total savings deposits Time deposits less than $100.000.- Time deposits greater than $100.000 Domestic Foreign Totaltest bewaring deposits... Total deposits 2016 2015 2014 Art of Parcot Percore ART Art of $ 87567 252 06.097 25.75 3.76 Amount of 27.9 S 77,923 27.3 $ 78.941 29.4 74.520 21.5 68.238 19.8 59,100 197 107,073 31.1 56.058 10.5 19.0 52.140 109.947 43.00 32.9 88,150 28.7 76.50 27.1 50.772 228 12.6 41.780 12.5 38,468 12.8 35249 124 32,480 12.4 226,302 652 65.2 183.796 51.2 168,843 50.0 144.301 55.1 7.315 2.1 8,040 24 9.050 3.0 10,500 3.3 11.784 218.000 10,792 249.650 31 7.230 2.2 7.272 10,636 38 9.59 36 15,249 4,4 15,195 4.5 16,516 55 17,322 6.1 19,400 7.4 74.8 240.408 74.3 216.634 72.1 205,410 72.7 115, 182 70.6 $347.215 100.0% $334,500 100.0% $300.400 1000 282,733 100.0% 262,123 100.0% The maturity of time deposits was as follows: December 31, 2017 Dorin Tine Deco Time Depot Or Than 100.000 Less Than 100.000 Domeste Forngr To Three months or less.. $1,103 $ 4.828 Three months through sex months $15,122 $21,053 1,079 BD 3,000 Six months through one year 1 BA 1.290 3,010 Thereaft 3.448 2.750 6,198 Total $7,315 $10,792 $15,240 $33.350 Deposits Total deposits were $347.2 billion at December 31 2017, compared with $334.6 billion at December 31, 2016. The $12.6 billion (3.8 percent increase in total deposits reflected increases in total savings, time and noninterest-bearing deposits Average total deposits in 2017 increased $20.7 billion (6.6 percent over 2016 Interest-bearing savings deposits increased $8.3 billion (3.8 percent) at December 31, 2017, compared with December 31, 2016. The increase was related to higher interest checking and savings account balances, partially offset by lower money market depot balances. Interest checking balances increased $8.2 billion (12.4 percent primarily due to Higher Wealth Management and investment Services Consumer and Business Banking, and Corporate and Commercial Banking balances. Savings account balances increased $2.0 billion (4.8 percent, primarily due to higher Consumer and Business Banking balances. Money market deposit balances decreased $2.0 billion (1.8 percent primarily due to lower Corporate and Commercial Banking balances partially offset by higher Wealth Management and Investment Services balances. Average interest-bearing savings deposits in 2017 increased $19.2 billion (9.7 percent). compared with 2016, reflecting growth across all business lines. Interest-bearing time deposits at December 31, 2017 increased $2.9 billion (9.5 percent, compared with December 31, 2016. Average time deposits increased $751 milion (2.3 percent) in 2017, compared with 2016. The increases were primarily driven by increases in those deposits managed as an alternative to other funding sources such as wholesale borrowing, based largely on relative prong and liquidity characteristics Noninterest-bearing deposits at December 31, 2017 increased $1.5 billion (1.7 percent) from December 31, 2016. Average noninterest-bearing deposits increased $757 million 10.9 percent) in 2017, compared with 2016. The increases were primarily due to higher Wealth Management and Investment Services, and Consumer and Business Banking balances, partially offset by lower Corporate and Commercial Banking balances Borrowings The Company utzes both short-term and long-term borrowings as part of its assettability management and funding strategies. Short-term borrowings, which include federal funds purchased, commercial paper, repurchase agreements, borrowings secured by high-grade assets and other short-term borrowings, were $16.7 billion at December 31, 2017, compared with $14.0 billion at December 31, 2016. The $2.7 bilion (19.3 percent increase in short-term borrowings was primarily due to higher other short-term borrowings balances, partially offset by lower commercial paper and federal funds purchased balances. Long-term debt was $32.3 billion at December 31, 2017 compared with $33.3 billion at December 31, 2016. The $1.0 billion (3.2 percent decrease was primarily due to $6.9 bilion of banknote and medium-torm note repayments and maturities and a $3.1 bilion decrease in Federal Home Loon Bark (FHLB") advances, partially offset by the issuances of $3.9 billion of medium-term notes and $4.9 bilion of bark notes Topic: Company Analysis - Due by Sunday Assignment: Choose a publically-traded for profit company you would like to learn more about. Find a copy of their most recent annual report using the company's home page, general web searches or the NU Library. Answer the following questions, noting the relative weighting of each question, as shown at the beginning of the question 1.(10%) Name the company and the annual report year you used. Describe the type of products or services this company offers. Describe why you were interested in this company 2. (20%) Analyze the company from a CVP (cost-volume profit) perspective. Prepare a contribution margin income statement for the company using your best assessment of the variable or fixed nature of their revenues and expenses Explain your rationale for each fixed versus variable decision you made Given the contribution income statement you prepared, calculate the operating leverage and estimate the percentage change in income from a 10% increase in sales 3.(20%) Read the "Letter to the Stockholders' section of the annual report this section is sometimes called "Management Discussion and Analysis"). Summarize the financial decisions made by the company in the current year and how those decisions affected the company Describe any capital budgeting decisions they made for the year 4 (10%) Does the company operate using a decentralized management style? How does it seem managers in a similar position you have (or desire to have) are evaluated? 5.(10%) Calculate the company's ROI and estimate their residual income. Show the calculations and explain the methodology you used 6 (10%) Evaluate the steps the company takes to make ethical decision making. Discuss an ethical issue a company in this industry likely faces. How do they reference elements of a balance scorecard in their annual report? 7.(10%) How does a rating agency such as Moody's or Standard and Poor's evaluate the recent performance and projected success of this company? Quote these references 8.(10) What did you learn that was new to you about this company. Are you now more or less interested in this company? Why? Instructions: Length: 8 to 10 pages double spaced, excluding the cover page and reference pages formatted in APA style Label your answers corresponding to the numbering in the question (your paper should have eight sections labeled 1-8), it is not clearly labeled, it will not be graded, but will have to be redone with clear labels. Each labeled answer has to independently answer the question being asked. Each answer is graded as a standalone answer Cover Page containing Title of Papet. Your Name Course Number and Name. Instructor's Name, and Date Introductory Paragraph 1 above . Conclusion 6 above U17 Anment- Financial Summary Neste 1. 311, 200 811.00 10 4. 22:05 2300 TUN 17.0 in 95-99992528 $3:9553 4 43 024 No come 6 New Provision 10 horretes de mont Net income Net income one to controlling store Not income tutto SO Nat income to US Bancorp common shares S500 Per Common Share Caming perhe 33 18 Dundag 361 Onconds and perhe Book ve per she 2. 33 Ma per share 51 Average common shares outstanding 1,704 Amage duted common soustanding 1,7 Financial Ratios Rumong Rebanon erage common equity 1LO Not interest marginal-equivalent basis 3.06 3.00 Econey are SAR 540 Average Balances $278.537 27.01 S450 Investment securi 111,820 107,022 103 161 Earning assets 380,877 367,445 448.52 133,313 Deposts 33.514 312.810 287,151 Tots. Bancorp shooquity 48.400 17.30 Period End Balances Loans $280,432 Allowance for redes 4,412 Investors 112.400 108.275 105,57 Assets 462,000 421.853 Deposts... 347.215 300-400 Total US Bancorp shareholders' equity 40,040 47,200 Capital Ratios Basel transitional standardized approach Common equier capit 9.3% Tier 1 capital 108 113 Total risk-based catal 13.3 Leverage 90 3.5 Common equity tier 1 capital toris-waghted assets for the Basel transitional advanced approaches 12.0 12.2 12.5 Common equity tier 1 capital toris-weighted assets estimated for the Basel luy implemented standardized approach 2.1 2.1 Common equity tear 1 capital to risk-weghted assets estimated to the Basel luy implemented advanced approaches 11.6 11,0 Tangible common equity lo tangible assets 7.6 7.5 7.6 Tunge common equily torsk-woghedas 9.4 92 38 percent per presented brows who come and do nome See Non-GMP rc Moss begin on page Cabas US Bancophy dided by common and 305 00 1.2 30 3.6 5.7 ER Selected Fnancial Data 100 10.00 11 16 3 ON ORI AP . 10 104 23 $ 3.10 $ 1.100 LON 0101 21.00 CH ICO VAT 14 13 NICU 1. 140 17 150 300 00 one 48 41 47 14 Average Balon 41.00 32744 Los 3.5 11.00 7.611 4180 74 103.09 ang VOOR 30.071 430313 Nogo 81,000 312.000 VOUS 20040 350.00 0.000 250,457 21.00 30.017 Logo 27.000 2016 44,810 3. 40 47.300 End Balance 273.00 100.215 112.400 402.040 347.21 105.87 421 101043 402.00 DONC 32.078 2004 40.00 47 0 Log-om Tous les Asset Quality Norg were for a percorrendo Capital Ratio Cameron $ 1.200 30 82.007 4. 4,375 1. NCB 100 12.0 0.4 11.0 132 0.7 13 23 11.3 133 Coro de for The Best captors were assessed for the 12.0 122 124 Commons 1993 a sa 2.1 21 2.1 Common to whated to the 11.6 119 7.6 7.5 22 24 December 2017 2016 2015 2014 Earnings Summary The Company reported net income attributable to U.S. Bancorp of 0.2 billion in 2017, or $3.51 per diluted common shar, compared with $5.0 billion, or $3.24 per diluted common share in 2016. Return on average assets and rotum on average common guity were 1.39 percent and 13.8 percent, respectively, in 2017, compared with 130 percent and 13.4 percent, respectively, in 2016. The results for 2017 included a benefit of $10 million related to the estimated impact of the Tax Cuts and Job Act 'tax reform" acted by Congress in late 2017 on the Company's tax related assets and also partially offset by a $600 million increase in reserves for regulatory and legal matters, as well as $152 million, net of tax, of expenses related to a charitable contribution to the U.S. Bank Foundation and a special bonus awarded to certain ligble employees Combined, these notable for increased 2017 diluted earnings per common shwe by $0.00 Total net revenue for 2017 was $740 milion (3.5 percent higher than 2016,rotecting a 6.2 percent increase in net interest income 15.1 percent on a tax-equivalent basis, and a 0.4 percent increase in noninterest income. The increase in not Interest income from the prior year was mainly a result of the mpact of ring interest rates and on growth. The increase in noninterest income was primarily driven by higher payment services revenus, trust and investment management foes, and treasury management fees, partially offset by lower mortgage barking revenue and lower equity investment income. Nonitorst expense in 2017 was $1.3 bilion (10.0 percent Higher than 2016, reflecting business growth, incremental costs related to compliance programs, investments in the business and the 2017 charitable contribution, special bonus and increase in reserves for regulatory and legal matters. Compensation expense increased primarily due to the impact of hering to support business growth and complace programs, merit increases higher variable compensation and the 2017 special bonus awarded to eligible employees. Marketing expense increased due to higher charitable contributions, while other expense was higher due to an increase in reserves related to regulatory and legal matters, as well as the impact of an FDIC insurance surcharge which began in late 2016 Statement of Income Analysis Net Interest Income Net Interest income, on a taxi equivalent basis, was $12.4 billion in 2017, compared with $11.7 bilion in 2016 and $11.2 billion in 2015. The $715 milion 16.1 percent increase in net interest income, on a table equivalent basis, in 2017 compared with 2016, was principally driven by the impact of rising interest rates and loan growth. Average caring assets were $16.5 bilion (4.2 percent higher in 2017, compared with 2016, driven by increases in loans. Other earning assets and investment securities. The net interest margin on a taxable-equivalent basis. In 2017 was 3.06 percent compared with 3.01 poroon in 2016 and 3.05 percent in 2015, The increase in the net interest margin in 2017, compared with 2016, was principally due to higher interest rates and changes in the loan portfolo mix, partially offset by rising funding costs and higher cash balances. Refer to the interest Rate Risk Management section for further information on the sensitivity of the Company's net interest income to changes in interest rates Average total loans were $276.5 billion in 2017, compared with $267.8 billion in 2016. The $8.7 billion (3.3 percent increase was driven by growth in commercial loans, residential mortgages credit card loans and other retail loans, partially offset by decreases in commercial real estate and covered loans. Average commercial loans increased $3.9 bilion (4.2 percent) driven by higher demand for loans from new and existing customers. The $3.1 billion 15.6 percent increase in residential mortgages reflected origination activity, Average credit card balances increased $416 million (2.0 percent) due to customer growth. The $3.1 bilion (5.0 percent increase in average other retail loans was primarily due to higher auto, installment and retailing loans, partially offset by decreases in home equity loans and continued runoff of student loan balances. Average commercial real estate loans decreased $963 milion (2.2 percent) in 2017, compared with 2016, primarily the result of disciplined underwriting of construction and development loans, and customers paying down balances by accessing the capital markets. Average covered loans decreased $776 milion 18.4 percent), the result of portloo run-off TABLE 3 Analysis of Net Interest Income 2017 2015 2018 2015 $ 12,619 S 756 S 14.500 2.152 $ 12.446 $ 13.375 1.544 $11.731 $ 11.528 $11.214 11 001 $1,223 508 5 715 $ 713 5 $ 517 527 Components of Net Interest income Income on coming seat-valeriaal Bepens on interest-bearing lobos fable-cuivalent basis... Net interest income table-equivalent basis Net interest incom, suported Average Yields and Rates Paid Earrings yold - basis van Ratopad on interest-bearing labies bo-ovet bois Grosse marginal-quotes Not interest marginaler basis Average Balances Investments 3.50% 31.43% 57 05 2.88 3.06 2.91% 3.05 029 .05% 301 04 5111,820 276.537 S107.902 267811 S 3,898 8.726 101.544 $ 4761 17,352 $103.161 250,450 367 445 20,474 Esmingos Interest-bearing Babies 300,204 287.700 18.286 Average investment securities in 2017 were $3.9 bilion 13.6 percent higher than 2016, primarily due to purchases of U.S. Treasury and U.S. government mortgage-backed securities, net of prepayments and maturities, in support of Iquidity management requirements Average total deposits for 2017 were $20.7 billion 15.6 percent higher than 2016. Average noninterest-bearing deposits for 2017 were $757 milion (0.9 percent higher than the prior your reflecting increases in Wealth Management and Investment Services, and Consumer and Business Banking balances, offset by a decrease in Corporate and Commercial Banking balances. Average total savings deposits for 2017 were $19.2 billion (9.7 percent) higher than 2016, a result of growth across all business lines. Average time deposits for 2017 were $751 million (2.3 percent higher than 2016. 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. The $517 million (4.6 percent increase in net interest income on a taxable-equivalent basis, in 2016 compared with 2015, was principally driven by loan growth partially offset by a lower net interest margin. Average earning assets were $22.4 bilion (6.1 percent higher in 2016, compared with 2015, driven by increases in loans and in investment securities. The decrease in the net interest margin was principaly due to lower yields on purchased securities, lower reinvestment rates on maturing securities and maintaining higher cash balances Average total loans increased $17.3 billion (6.9 percent in 2016, compared with 2015. driven by growth in commercial commercial real estate, residential mortgage, credit card and other retail loans, partially offset by a decrease in covered loans Average commercial and commercial real estate loans increased $8.0 billion (9.5 percent and $625 million (1.5 percent). respectively driven by higher demand for loans from now and existing customers. The $3.8 billion (7.4 percent increase in residential mortgages reflected higher orgination activity including strong refracing activities, in 2016 compared with 2015. Average credit card balances increased $2.4 billion (13.5 percent in 2016, compared with 2015, due to customer growth, including a portfolo acquisition in late 2015 which increased average 2016 credit card balances by $1.6 billion. The $3.3 billion (6.6 percent increase in average other retail loans was primarily due to higher auto and installment loans, student loans, and home equity and second mortgage loan balances. Average covered loans decreased $750 million (15.2 percent) in 2016, compared with 2015, the result of portfolio run-off Average Investment securities in 2016 were $4.8 bilion (4.6 percent higher than 2015. primarily due to purchases of U.S. Treasury and U.S. government mortgage-backed securities, net of prepayments and maturities, in support of liquidity management 25 TABLE 3 Net Interest Income - Changes Due to Rate and Volume 2017 2016 Yad To horas de Interest Income Investment secure Loans held for S PO $ 6 598 $ 147 1108 $ 37 5 $ 61 521 100 535 216 90 315 Commercial state 38 24 24 Residential mortgages 115 110 146 142) 104 Credit card 45 115 265 3 200 Othernet 125 30 158 04 140 Total loans, excluding covered loans 356 697 1,053 785 44 820 Covered loans n 12 125 (41) 0 (9) Totoons 319 700 1,028 744 758 Other coming 57 1 58 Total coming sets 790 1,233 817 151) 756 Interest Expense Interest-bearing deposits Interest checking 38 42 3 9 12 Money maro savings 35 295 115 157 Savings accounts 153 4 (102 Time deposits 5 79 84 16 2 Total bearing deposits 48 371 419 34 131 165 Short-term borrowings 165) 124 (72) 91 19 Long-term der 43 30 55 55 Total interest-bearing liabilities BO 538 508 17 222 229 Increase in net interest income $483 $252 S 715 $800 5:283) $517