U.S. Bancorp Reports Fourth Quarter and Full Year 2015 Earnings
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Overall Analyst Rating:
NEUTRAL ( Up)
Dividend Yield: 4.5%
Revenue Growth %: -6.3%
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Achieves Record Net Income and EPS for the Full Year 2015
Full year return on average assets of 1.44 percent and average common equity of 14.0 percent
Returned 72 percent of full year earnings to shareholders
MINNEAPOLIS--(BUSINESS WIRE)-- U.S. Bancorp (NYSE: USB) today reported net income of $1,476 million for the fourth quarter of 2015, or $0.80 per diluted common share, compared with $1,488 million, or $0.79 per diluted common share, in the fourth quarter of 2014. The fourth quarter of 2015 reflected a gain on the sale of a deposit portfolio, partially offset by accruals related to legal and compliance matters that, combined, increased diluted earnings per common share by $.01.
Highlights for the full year of 2015 included:
- Record full year diluted earnings per common share of $3.16, which were 2.6 percent higher than 2014
- Industry-leading return on average assets of 1.44 percent and average common equity of 14.0 percent
- Returned 72 percent of 2015 earnings to shareholders through dividends and share buybacks
Highlights for the fourth quarter of 2015 included:
- Record quarterly revenue
-
Growth in average total loans of 4.2 percent over the fourth quarter
of 2014 and 1.7 percent on a linked quarter basis (excluding student
loans, which were transferred to held for sale at the end of the first
quarter of 2015 and returned to held for investment on September 1,
2015)
- Growth in average total commercial loans of 9.0 percent over the fourth quarter of 2014 and 2.5 percent over the third quarter of 2015
- Growth in average auto loans of 13.0 percent over the fourth quarter of 2014 and 2.0 percent over the third quarter of 2015
-
Growth in average total deposits of 6.9 percent over the fourth
quarter of 2014 and 1.7 percent on a linked quarter basis
- Growth in average low-cost deposits, including noninterest-bearing and total savings deposits, of 11.4 percent year-over-year and 2.4 percent on a linked quarter basis
-
Net interest income growth of 2.6 percent year-over-year and 1.8
percent linked quarter
- Growth in average earnings assets of 5.1 percent year-over-year, and 1.0 percent on a linked quarter basis
- Net interest margin relatively stable at 3.06 percent for the fourth quarter of 2015 compared with 3.04 percent in the prior quarter
- Continued momentum in payment-related fee revenue led by year-over-year increases in credit and debit card revenue of 8.1 percent
- Operating leverage improving at 0.6 percent year-over-year
- Strong capital position. At December 31, 2015, common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented standardized approach was 9.1 percent and for the Basel III fully implemented advanced approaches was 11.9 percent.
EARNINGS SUMMARY | Table 1 | |||||||||||||||||||||||||
($ in millions, except per-share data) | Percent | Percent | ||||||||||||||||||||||||
Change | Change | |||||||||||||||||||||||||
4Q | 3Q | 4Q | 4Q15 vs | 4Q15 vs | Full Year | Full Year | Percent | |||||||||||||||||||
2015 | 2015 | 2014 | 3Q15 | 4Q14 | 2015 | 2014 | Change | |||||||||||||||||||
Net income attributable to U.S. Bancorp | $1,476 | $1,489 | $1,488 | (.9 | ) | (.8 | ) | $5,879 | $5,851 | .5 | ||||||||||||||||
Diluted earnings per common share | $.80 | $.81 | $.79 | (1.2 | ) | 1.3 | $3.16 | $3.08 | 2.6 | |||||||||||||||||
Return on average assets (%) | 1.41 | 1.44 | 1.50 | 1.44 | 1.54 | |||||||||||||||||||||
Return on average common equity (%) | 13.7 | 14.1 | 14.4 | 14.0 | 14.7 | |||||||||||||||||||||
Net interest margin (%) | 3.06 | 3.04 | 3.14 | 3.05 | 3.23 | |||||||||||||||||||||
Efficiency ratio (%) (a) | 53.9 | 53.9 | 54.3 | 53.8 | 53.2 | |||||||||||||||||||||
Tangible efficiency ratio (%) (a) | 53.0 | 53.1 | 53.3 | 53.0 | 52.2 | |||||||||||||||||||||
Dividends declared per common share | $.255 | $.255 | $.245 | -- | 4.1 | $1.010 | $.965 | 4.7 | ||||||||||||||||||
Book value per common share (period end) | $23.28 | $22.99 | $21.68 | 1.3 | 7.4 | |||||||||||||||||||||
(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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Net income attributable to U.S. Bancorp was $1,476 million for the fourth quarter of 2015, 0.8 percent lower than the $1,488 million for the fourth quarter of 2014, and 0.9 percent lower than the $1,489 million for the third quarter of 2015. Diluted earnings per common share of $0.80 in the fourth quarter of 2015 were $0.01 higher than the fourth quarter of 2014 and $0.01 lower than the previous quarter. The decrease in net income year-over-year was due to a higher provision for credit losses, lower noninterest income, impacted by the 2014 Nuveen gain, partially offset by increases in payments-related revenue and trust and investment management fees and the gain on the sale of a Health Savings Account deposit portfolio (“HSA deposit sale”), along with an increase in net interest income primarily driven by growth in earning assets. The decrease in net income on a linked quarter basis was primarily due to a seasonal increase in noninterest expense and the provision for credit losses, partially offset by higher net interest income primarily due to loan growth.
U.S. Bancorp Chairman, President and Chief Executive Officer Richard K. Davis said, “U.S. Bancorp delivered a remarkable performance in 2015; a year underscored by persistent and historically low interest rates, modest economic growth, and increasing regulatory requirements. More than any year in recent history, 2015 required strong management focus as we balanced decisions on operating efficiencies with opportunities for investing in future growth and addressing our customers’ needs. U.S. Bancorp rose to that challenge, delivering record net income and diluted EPS for the year and continuing with industry-leading performance metrics. We are well positioned as we move into 2016 – as indicated by our record fourth quarter revenue, strong momentum toward positive operating leverage during the quarter and the continued stability in our net interest margin. We also created value for our shareholders as we returned 72 percent of our 2015 earnings back to shareholders through dividends and share buybacks.
“As the operating environment continues to improve, we are optimistic about the momentum building in our core businesses, particularly within our Wealth Management and Security Services and Payment Services businesses. We recently announced an exciting new agreement with Fidelity Investments. U.S. Bank will become the exclusive issuer of the Fidelity® Rewards Visa Signature® Card and the Fidelity Investments 529 College Rewards® Visa Signature® Card. This program reflects the strength of our Payment Services business and strategic significance of our diversified business model.
“I am very proud of our 67,000 employees and their passionate commitment to creating value for our shareholders, customers, and communities. We were recently named one of the Most Ethical Companies in the World by the Ethisphere Institute. We also became one of the few banks to offer all the “Pays” – Apple Pay, Samsung Pay, and Android Pay – to our customers. We were one of the top three Small Business Administration (SBA) lenders, fueling economic growth and progress across the country. And we invested millions of dollars and thousands of hours into improving our communities. As we look to 2016, we are well positioned to continue providing quality products and services to our customers and exceptional value to our shareholders from a position of strength and stability that our stakeholders have come to expect from U.S. Bancorp.”
INCOME STATEMENT HIGHLIGHTS | Table 2 | |||||||||||||||||||||||||||||||
(Taxable-equivalent basis, $ in millions, | Percent | Percent | ||||||||||||||||||||||||||||||
except per-share data) | Change | Change | ||||||||||||||||||||||||||||||
4Q | 3Q | 4Q | 4Q15 vs | 4Q15 vs | Full Year | Full Year | Percent | |||||||||||||||||||||||||
2015 | 2015 | 2014 | 3Q15 | 4Q14 | 2015 | 2014 | Change | |||||||||||||||||||||||||
Net interest income | $2,871 | $2,821 | $2,799 | 1.8 | 2.6 | $11,214 | $10,997 | 2.0 | ||||||||||||||||||||||||
Noninterest income | 2,340 | 2,326 | 2,370 | .6 | (1.3 | ) | 9,092 | 9,164 | (.8 | ) | ||||||||||||||||||||||
Total net revenue | 5,211 | 5,147 | 5,169 | 1.2 | .8 | 20,306 | 20,161 | .7 | ||||||||||||||||||||||||
Noninterest expense | 2,809 | 2,775 | 2,804 | 1.2 | .2 | 10,931 | 10,715 | 2.0 | ||||||||||||||||||||||||
Income before provision and taxes | 2,402 | 2,372 | 2,365 | 1.3 | 1.6 | 9,375 | 9,446 | (.8 | ) | |||||||||||||||||||||||
Provision for credit losses | 305 | 282 | 288 | 8.2 | 5.9 | 1,132 | 1,229 | (7.9 | ) | |||||||||||||||||||||||
Income before taxes | 2,097 | 2,090 | 2,077 | .3 | 1.0 | 8,243 | 8,217 | .3 | ||||||||||||||||||||||||
Taxable-equivalent adjustment | 52 | 53 | 55 | (1.9 | ) | (5.5 | ) | 213 | 222 | (4.1 | ) | |||||||||||||||||||||
Applicable income taxes | 556 | 534 | 521 | 4.1 | 6.7 | 2,097 | 2,087 | .5 | ||||||||||||||||||||||||
Net income | 1,489 | 1,503 | 1,501 | (.9 | ) | (.8 | ) | 5,933 | 5,908 | .4 | ||||||||||||||||||||||
Net (income) loss attributable to noncontrolling interests |
(13 | ) | (14 | ) | (13 | ) | 7.1 | -- | (54 | ) | (57 | ) | 5.3 | |||||||||||||||||||
Net income attributable to U.S. Bancorp | $1,476 | $1,489 | $1,488 | (.9 | ) | (.8 | ) | $5,879 | $5,851 | .5 | ||||||||||||||||||||||
Net income applicable to U.S. Bancorp | ||||||||||||||||||||||||||||||||
common shareholders | $1,404 | $1,422 | $1,420 | (1.3 | ) | (1.1 | ) | $5,608 | $5,583 | .4 | ||||||||||||||||||||||
Diluted earnings per common share | $.80 | $.81 | $.79 | (1.2 | ) | 1.3 | $3.16 | $3.08 | 2.6 | |||||||||||||||||||||||
NET INTEREST INCOME | Table 3 | |||||||||||||||||||||||||||||||
(Taxable-equivalent basis; $ in millions) | ||||||||||||||||||||||||||||||||
Change | Change | |||||||||||||||||||||||||||||||
4Q | 3Q | 4Q | 4Q15 vs | 4Q15 vs | Full Year | Full Year | ||||||||||||||||||||||||||
2015 | 2015 | 2014 | 3Q15 | 4Q14 | 2015 | 2014 | Change | |||||||||||||||||||||||||
Components of net interest income | ||||||||||||||||||||||||||||||||
Income on earning assets | $3,209 | $3,171 | $3,158 | $38 | $51 | $12,619 | $12,454 | $165 | ||||||||||||||||||||||||
Expense on interest-bearing liabilities | 338 | 350 | 359 | (12 | ) | (21 | ) | 1,405 | 1,457 | (52 | ) | |||||||||||||||||||||
Net interest income | $2,871 | $2,821 | $2,799 | $50 | $72 | $11,214 | $10,997 | $217 | ||||||||||||||||||||||||
Average yields and rates paid | ||||||||||||||||||||||||||||||||
Earning assets yield | 3.42 | % | 3.42 | % | 3.54 | % | -- | % | (.12 | )% | 3.43 | % | 3.65 | % | (.22 | )% | ||||||||||||||||
Rate paid on interest-bearing liabilities | .50 | .52 | .55 | (.02 | ) | (.05 | ) | .52 | .58 | (.06 | ) | |||||||||||||||||||||
Gross interest margin | 2.92 | % | 2.90 | % | 2.99 | % | .02 | % | (.07 | )% | 2.91 | % | 3.07 | % | (.16 | )% | ||||||||||||||||
Net interest margin | 3.06 | % | 3.04 | % | 3.14 | % | .02 | % | (.08 | )% | 3.05 | % | 3.23 | % | (.18 | )% | ||||||||||||||||
Average balances | ||||||||||||||||||||||||||||||||
Investment securities (a) | $105,536 | $103,943 | $98,164 | $1,593 | $7,372 | $103,161 | $90,327 | $12,834 | ||||||||||||||||||||||||
Loans | 256,692 | 250,536 | 246,421 | 6,156 | 10,271 | 250,459 | 241,692 | 8,767 | ||||||||||||||||||||||||
Earning assets | 373,091 | 369,265 | 354,961 | 3,826 | 18,130 | 367,445 | 340,994 | 26,451 | ||||||||||||||||||||||||
Interest-bearing liabilities | 269,940 | 269,479 | 259,938 | 461 | 10,002 | 269,474 | 249,972 | 19,502 | ||||||||||||||||||||||||
(a) Excludes unrealized gain (loss) | ||||||||||||||||||||||||||||||||
Net Interest Income
Net interest income on a taxable-equivalent basis in the fourth quarter of 2015 was $2,871 million, an increase of $72 million (2.6 percent) over the fourth quarter of 2014. The increase was the result of growth in average earning assets, partially offset by a continued shift in loan portfolio mix. Average earning assets were $18.1 billion (5.1 percent) higher than the fourth quarter of 2014, driven by increases of $10.3 billion (4.2 percent) in average total loans and $7.4 billion (7.5 percent) in average investment securities. Net interest income increased $50 million (1.8 percent) on a linked quarter basis, primarily due to higher average total loans. Average total loans were $4.2 billion (1.7 percent) higher on a linked quarter basis, excluding the student loan reclassification.
The net interest margin in the fourth quarter of 2015 was 3.06 percent, compared with 3.14 percent in the fourth quarter of 2014, and 3.04 percent in the third quarter of 2015. The decrease in the net interest margin on a year-over-year basis primarily reflected a change in loan portfolio mix, as well as growth in the investment portfolio at lower average rates and lower reinvestment rates on investment securities. On a linked quarter basis, the increase in the net interest margin was principally due to loan growth which also resulted in lower cash balances.
Investment Securities
Average investment securities in the fourth quarter of 2015 were $7.4 billion (7.5 percent) higher year-over-year and $1.6 billion (1.5 percent) higher than the prior quarter. These increases were primarily due to purchases of U.S. government agency-backed securities, net of prepayments and maturities, to support regulatory liquidity coverage ratio requirements.
AVERAGE LOANS | Table 4 | ||||||||||||||||||||||||||
($ in millions) | Percent | Percent | |||||||||||||||||||||||||
Change | Change | ||||||||||||||||||||||||||
4Q | 3Q | 4Q | 4Q15 vs | 4Q15 vs | Full Year | Full Year | Percent | ||||||||||||||||||||
2015 | 2015 | 2014 | 3Q15 | 4Q14 | 2015 | 2014 | Change | ||||||||||||||||||||
Commercial | $81,592 | $79,486 | $74,333 | 2.6 | 9.8 | $78,815 | $70,549 | 11.7 | |||||||||||||||||||
Lease financing | 5,211 | 5,218 | 5,292 | (.1 | ) | (1.5 | ) | 5,268 | 5,185 | 1.6 | |||||||||||||||||
Total commercial | 86,803 | 84,704 | 79,625 | 2.5 | 9.0 | 84,083 | 75,734 | 11.0 | |||||||||||||||||||
Commercial mortgages | 31,830 | 32,083 | 31,783 | (.8 | ) | .1 | 32,378 | 31,949 | 1.3 | ||||||||||||||||||
Construction and development | 10,401 | 10,233 | 9,183 | 1.6 | 13.3 | 10,037 | 8,643 | 16.1 | |||||||||||||||||||
Total commercial real estate | 42,231 | 42,316 | 40,966 | (.2 | ) | 3.1 | 42,415 | 40,592 | 4.5 | ||||||||||||||||||
Residential mortgages | 52,970 | 51,831 | 51,872 | 2.2 | 2.1 | 51,840 | 51,818 | -- | |||||||||||||||||||
Credit card | 18,838 | 17,944 | 17,990 | 5.0 | 4.7 | 18,057 | 17,635 | 2.4 | |||||||||||||||||||
Retail leasing | 5,265 | 5,480 | 5,939 | (3.9 | ) | (11.3 | ) | 5,563 | 5,981 | (7.0 | ) | ||||||||||||||||
Home equity and second mortgages | 16,241 | 16,083 | 15,853 | 1.0 | 2.4 | 16,046 | 15,564 | 3.1 | |||||||||||||||||||
Other | 29,556 | 27,286 | 27,317 | 8.3 | 8.2 | 27,470 | 26,808 | 2.5 | |||||||||||||||||||
Total other retail | 51,062 | 48,849 | 49,109 | 4.5 | 4.0 | 49,079 | 48,353 | 1.5 | |||||||||||||||||||
Total loans, excluding covered loans | 251,904 | 245,644 | 239,562 | 2.5 | 5.2 | 245,474 | 234,132 | 4.8 | |||||||||||||||||||
Covered loans | 4,788 | 4,892 | 6,859 | (2.1 | ) | (30.2 | ) | 4,985 | 7,560 | (34.1 | ) | ||||||||||||||||
Total loans | $256,692 | $250,536 | $246,421 | 2.5 | 4.2 | $250,459 | $241,692 | 3.6 | |||||||||||||||||||
Loans
Average total loans were $10.3 billion (4.2 percent) higher in the fourth quarter of 2015 than the fourth quarter of 2014, due to growth in total commercial loans (9.0 percent), credit card loans (4.7 percent), total other retail loans (4.0 percent) total commercial real estate loans (3.1 percent) and residential mortgages (2.1 percent). These increases were partially offset by a decline in covered loans (30.2 percent), including the impact of the expiration of the loss sharing agreements on commercial and commercial real estate assets at the end of 2014. Average total loans were $6.2 billion (2.5 percent) higher in the fourth quarter of 2015 than the third quarter of 2015. Excluding the student loan reclassification, average total loans were $4.2 billion (1.7 percent) higher in the fourth quarter of 2015 than the third quarter of 2015. The increase was driven by growth in total commercial loans (2.5 percent), credit card (5.0 percent) and residential mortgages (2.2 percent). The Company also acquired a $1.6 billion credit card portfolio at the end of the fourth quarter of 2015 which did not have a material impact to average balances for the quarter.
AVERAGE DEPOSITS | Table 5 | ||||||||||||||||||||||||||
($ in millions) | Percent | Percent | |||||||||||||||||||||||||
Change | Change | ||||||||||||||||||||||||||
4Q | 3Q | 4Q | 4Q15 vs | 4Q15 vs | Full Year | Full Year | Percent | ||||||||||||||||||||
2015 | 2015 | 2014 | 3Q15 | 4Q14 | 2015 | 2014 | Change | ||||||||||||||||||||
Noninterest-bearing deposits | $83,894 | $80,940 | $76,958 | 3.6 | 9.0 | $79,203 | $73,455 | 7.8 | |||||||||||||||||||
Interest-bearing savings deposits | |||||||||||||||||||||||||||
Interest checking | 57,109 | 56,888 | 54,199 | .4 | 5.4 | 55,974 | 53,248 | 5.1 | |||||||||||||||||||
Money market savings | 82,828 | 80,338 | 68,914 | 3.1 | 20.2 | 79,266 | 63,977 | 23.9 | |||||||||||||||||||
Savings accounts | 37,991 | 37,480 | 34,955 | 1.4 | 8.7 | 37,150 | 34,196 | 8.6 | |||||||||||||||||||
Total of savings deposits | 177,928 | 174,706 | 158,068 | 1.8 | 12.6 | 172,390 | 151,421 | 13.8 | |||||||||||||||||||
Time deposits | 32,683 | 34,046 | 40,453 | (4.0 | ) | (19.2 | ) | 35,558 | 41,764 | (14.9 | ) | ||||||||||||||||
Total interest-bearing deposits | 210,611 | 208,752 | 198,521 | .9 | 6.1 | 207,948 | 193,185 | 7.6 | |||||||||||||||||||
Total deposits | $294,505 | $289,692 | $275,479 | 1.7 | 6.9 | $287,151 | $266,640 | 7.7 | |||||||||||||||||||
Deposits
Average total deposits for the fourth quarter of 2015 were $19.0 billion (6.9 percent) higher than the fourth quarter of 2014. Average noninterest-bearing deposits increased $6.9 billion (9.0 percent) year-over-year, mainly in Wholesale Banking and Commercial Real Estate and Consumer and Small Business Banking. Average total savings deposits were $19.9 billion (12.6 percent) higher year-over-year, the result of growth in corporate trust, Wholesale Banking and Commercial Real Estate, and Consumer and Small Business Banking balances. Growth in Consumer and Small Business Banking total savings deposits included net new account growth of 3.2 percent. Average time deposits were $7.8 billion (19.2 percent) lower than the prior year quarter. Changes in time deposits are largely related to those deposits managed as an alternative to other wholesale funding sources, based on funding needs and relative pricing.
Average total deposits increased $4.8 billion (1.7 percent) over the third quarter of 2015. Average noninterest-bearing deposits increased $3.0 billion (3.6 percent) on a linked quarter basis, due to higher balances in Wholesale Banking and Commercial Real Estate and corporate trust. Average total savings deposits increased $3.2 billion (1.8 percent), reflecting increases in Wholesale Banking and Commercial Real Estate and Consumer and Small Business Banking. Average time deposits, which are managed based on funding needs and relative pricing, decreased $1.4 billion (4.0 percent) on a linked quarter basis
NONINTEREST INCOME | Table 6 | |||||||||||||||||||||||||||
($ in millions) | Percent | Percent | ||||||||||||||||||||||||||
Change | Change | |||||||||||||||||||||||||||
4Q | 3Q | 4Q | 4Q15 vs | 4Q15 vs | Full Year | Full Year | Percent | |||||||||||||||||||||
2015 | 2015 | 2014 | 3Q15 | 4Q14 | 2015 | 2014 | Change | |||||||||||||||||||||
Credit and debit card revenue | $294 | $269 | $272 | 9.3 | 8.1 | $1,070 | $1,021 | 4.8 | ||||||||||||||||||||
Corporate payment products revenue | 170 | 190 | 174 | (10.5 | ) | (2.3 | ) | 708 | 724 | (2.2 | ) | |||||||||||||||||
Merchant processing services | 393 | 400 | 384 | (1.8 | ) | 2.3 | 1,547 | 1,511 | 2.4 | |||||||||||||||||||
ATM processing services | 79 | 81 | 80 | (2.5 | ) | (1.3 | ) | 318 | 321 | (.9 | ) | |||||||||||||||||
Trust and investment management fees | 336 | 329 | 322 | 2.1 | 4.3 | 1,321 | 1,252 | 5.5 | ||||||||||||||||||||
Deposit service charges | 182 | 185 | 180 | (1.6 | ) | 1.1 | 702 | 693 | 1.3 | |||||||||||||||||||
Treasury management fees | 139 | 143 | 136 | (2.8 | ) | 2.2 | 561 | 545 | 2.9 | |||||||||||||||||||
Commercial products revenue | 222 | 231 | 219 | (3.9 | ) | 1.4 | 867 | 854 | 1.5 | |||||||||||||||||||
Mortgage banking revenue | 211 | 224 | 235 | (5.8 | ) | (10.2 | ) | 906 | 1,009 | (10.2 | ) | |||||||||||||||||
Investment products fees | 44 | 46 | 49 | (4.3 | ) | (10.2 | ) | 185 | 191 | (3.1 | ) | |||||||||||||||||
Securities gains (losses), net | 1 | (1 | ) | 1 | nm | -- | -- | 3 | nm | |||||||||||||||||||
Other | 269 | 229 | 318 | 17.5 | (15.4 | ) | 907 | 1,040 | (12.8 | ) | ||||||||||||||||||
Total noninterest income | $2,340 | $2,326 | $2,370 | .6 | (1.3 | ) | $9,092 | $9,164 | (.8 | ) | ||||||||||||||||||
Noninterest Income
Fourth quarter noninterest income was $2,340 million, which was $30 million (1.3 percent) lower than the fourth quarter of 2014 and $14 million (0.6 percent) higher than the third quarter of 2015. The year-over-year decrease in noninterest income was primarily due to the impact of the 2014 Nuveen gain, partially offset by fee revenue growth and the HSA deposit sale. Higher credit and debit card revenue, trust and investment management fees, and merchant processing services were partially offset by a decrease in mortgage banking revenue, primarily due to an unfavorable change in the valuation of mortgage servicing rights (“MSRs”), net of hedging activities. Credit and debit card revenue increased $22 million (8.1 percent) due to higher transaction volumes. Trust and investment management fees increased $14 million (4.3 percent), reflecting the benefits of the Company’s investments in corporate trust and fund services businesses, as well as account growth and improved market conditions and lower fee waivers. Merchant processing services increased $9 million (2.3 percent) as a result of higher transaction volumes, along with account growth and equipment sales to merchants related to new chip card technology requirements, which decreased in the fourth quarter of 2015 compared with the third quarter of 2015. Adjusted for the approximate $16 million impact of foreign currency rate changes, year-over-year merchant processing services growth would have been approximately 6.5 percent.
Noninterest income was $14 million (0.6 percent) higher in the fourth quarter of 2015 than the third quarter of 2015. The increase in noninterest income on a linked quarter basis was primarily due to the HSA deposit sale and credit and debit card revenue, partially offset by seasonally lower corporate payment products revenue and lower mortgage banking revenue. Credit and debit card revenue increased $25 million (9.3 percent), primarily due to seasonally higher sales volumes. Other income increased $40 million (17.5 percent) reflecting the impact of the prior quarter notable items including the Visa Inc. Class B common stock sales and the student loan market adjustment, offset by the HSA deposit sale and other equity investment income. Corporate payment products revenue decreased $20 million (10.5 percent), reflecting the impact of seasonally higher third quarter government-related transaction volumes and mortgage banking revenue decreased $13 million (5.8 percent), primarily due to lower origination revenue.
NONINTEREST EXPENSE | Table 7 | ||||||||||||||||||||||||||
($ in millions) | Percent | Percent | |||||||||||||||||||||||||
Change | Change | ||||||||||||||||||||||||||
4Q | 3Q | 4Q | 4Q15 vs | 4Q15 vs | Full Year | Full Year | Percent | ||||||||||||||||||||
2015 | 2015 | 2014 | 3Q15 | 4Q14 | 2015 | 2014 | Change | ||||||||||||||||||||
Compensation | $1,212 | $1,225 | $1,151 | (1.1 | ) | 5.3 | $4,812 | $4,523 | 6.4 | ||||||||||||||||||
Employee benefits | 272 | 285 | 245 | (4.6 | ) | 11.0 | 1,167 | 1,041 | 12.1 | ||||||||||||||||||
Net occupancy and equipment | 246 | 251 | 248 | (2.0 | ) | (.8 | ) | 991 | 987 | .4 | |||||||||||||||||
Professional services | 125 | 115 | 132 | 8.7 | (5.3 | ) | 423 | 414 | 2.2 | ||||||||||||||||||
Marketing and business development | 96 | 99 | 129 | (3.0 | ) | (25.6 | ) | 361 | 382 | (5.5 | ) | ||||||||||||||||
Technology and communications | 230 | 222 | 219 | 3.6 | 5.0 | 887 | 863 | 2.8 | |||||||||||||||||||
Postage, printing and supplies | 74 | 77 | 86 | (3.9 | ) | (14.0 | ) | 297 | 328 | (9.5 | ) | ||||||||||||||||
Other intangibles | 46 | 42 | 51 | 9.5 | (9.8 | ) | 174 | 199 | (12.6 | ) | |||||||||||||||||
Other | 508 | 459 | 543 | 10.7 | (6.4 | ) | 1,819 | 1,978 | (8.0 | ) | |||||||||||||||||
Total noninterest expense | $2,809 | $2,775 | $2,804 | 1.2 | .2 | $10,931 | $10,715 | 2.0 | |||||||||||||||||||
Noninterest Expense
Fourth quarter noninterest expense was $2,809 million, which was $5 million (0.2 percent) higher than the fourth quarter of 2014. Compensation expense increased $61 million (5.3 percent), reflecting the impact of merit increases and higher staffing for risk and compliance activities, while employee benefits expense was $27 million (11.0 percent) higher, mainly due to increased pension costs. Offsetting these increases was a $33 million (25.6 percent) decline in marketing and business development, principally due to charitable contributions in the fourth quarter of 2014, and $35 million (6.4 percent) lower other noninterest expense, reflecting the impact of prior year legal accruals partially offset by higher compliance-related expenses.
Noninterest expense increased $34 million (1.2 percent) on a linked quarter basis, reflecting seasonally higher costs related to investments in tax-advantaged projects and accruals related to legal and compliance matters, partially offset by the favorable impact of reduced mortgage-related compliance and talent upgrade costs which were elevated in the third quarter 2015. Compensation expense declined $13 million (1.1 percent), reflecting the impact of expense management initiatives and decreases in variable compensation, and a $13 million (4.6 percent) decrease in employee benefits expense was driven by lower payroll tax expense and healthcare costs.
Provision for Income Taxes
The provision for income taxes for the fourth quarter of 2015 resulted in a tax rate on a taxable-equivalent basis of 29.0 percent (effective tax rate of 27.2 percent), compared with 27.7 percent (effective tax rate of 25.8 percent) in the fourth quarter of 2014, and 28.1 percent (effective tax rate of 26.2 percent) in the third quarter of 2015.
ALLOWANCE FOR CREDIT LOSSES | Table 8 | |||||||||||||||||||||||||||||||||||||||
($ in millions) | 4Q | 3Q | 2Q | 1Q | 4Q | |||||||||||||||||||||||||||||||||||
2015 |
% (b) |
2015 |
% (b) |
2015 |
% (b) |
2015 |
% (b) |
2014 |
% (b) |
|||||||||||||||||||||||||||||||
Balance, beginning of period | $4,306 | $4,326 | $4,351 | $4,375 | $4,414 | |||||||||||||||||||||||||||||||||||
Net charge-offs | ||||||||||||||||||||||||||||||||||||||||
Commercial | 58 | .28 | 68 | .34 | 39 | .20 | 40 | .21 | 48 | .26 | ||||||||||||||||||||||||||||||
Lease financing | 5 | .38 | 3 | .23 | 3 | .23 | 3 | .23 | (2 | ) | (.15 | ) | ||||||||||||||||||||||||||||
Total commercial | 63 | .29 | 71 | .33 | 42 | .20 | 43 | .21 | 46 | .23 | ||||||||||||||||||||||||||||||
Commercial mortgages | 2 | .02 | -- | -- | 4 | .05 | (1 | ) | (.01 | ) | (3 | ) | (.04 | ) | ||||||||||||||||||||||||||
Construction and development | (2 | ) | (.08 | ) | (11 | ) | (.43 | ) | (3 | ) | (.12 | ) | (17 | ) | (.72 | ) | (7 | ) | (.30 | ) | ||||||||||||||||||||
Total commercial real estate | -- | -- | (11 | ) | (.10 | ) | 1 | .01 | (18 | ) | (.17 | ) | (10 | ) | (.10 | ) | ||||||||||||||||||||||||
Residential mortgages | 16 | .12 | 25 | .19 | 33 | .26 | 35 | .28 | 39 | .30 | ||||||||||||||||||||||||||||||
Credit card | 166 | 3.50 | 153 | 3.38 | 169 | 3.85 | 163 | 3.71 | 160 | 3.53 | ||||||||||||||||||||||||||||||
Retail leasing | 1 | .08 | 2 | .14 | 1 | .07 | 1 | .07 | 1 | .07 | ||||||||||||||||||||||||||||||
Home equity and second mortgages | 6 | .15 | 7 | .17 | 11 | .28 | 14 | .36 | 17 | .43 | ||||||||||||||||||||||||||||||
Other | 53 | .71 | 45 | .65 | 39 | .62 | 41 | .60 | 52 | .76 | ||||||||||||||||||||||||||||||
Total other retail | 60 | .47 | 54 | .44 | 51 | .43 | 56 | .46 | 70 | .57 | ||||||||||||||||||||||||||||||
Total net charge-offs, excluding covered loans |
305 | .48 | 292 | .47 | 296 | .49 | 279 | .47 | 305 | .51 | ||||||||||||||||||||||||||||||
Covered loans | -- | -- | -- | -- | -- | -- | -- | -- | 3 | .17 | ||||||||||||||||||||||||||||||
Total net charge-offs | 305 | .47 | 292 | .46 | 296 | .48 | 279 | .46 | 308 | .50 | ||||||||||||||||||||||||||||||
Provision for credit losses | 305 | 282 | 281 | 264 | 288 | |||||||||||||||||||||||||||||||||||
Other changes (a) | -- | (10 | ) | (10 | ) | (9 | ) | (19 | ) | |||||||||||||||||||||||||||||||
Balance, end of period | $4,306 | $4,306 | $4,326 | $4,351 | $4,375 | |||||||||||||||||||||||||||||||||||
Components | ||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses | $3,863 | $3,965 | $4,013 | $4,023 | $4,039 | |||||||||||||||||||||||||||||||||||
Liability for unfunded credit commitments |
443 | 341 | 313 | 328 | 336 | |||||||||||||||||||||||||||||||||||
Total allowance for credit losses | $4,306 | $4,306 | $4,326 | $4,351 | $4,375 | |||||||||||||||||||||||||||||||||||
Gross charge-offs | $381 | $372 | $380 | $383 | $415 | |||||||||||||||||||||||||||||||||||
Gross recoveries | $76 | $80 | $84 | $104 | $107 | |||||||||||||||||||||||||||||||||||
Allowance for credit losses as a percentage of | ||||||||||||||||||||||||||||||||||||||||
Period-end loans, excluding covered loans |
1.67 | 1.71 | 1.76 | 1.79 | 1.78 | |||||||||||||||||||||||||||||||||||
Nonperforming loans, excluding covered loans |
360 | 347 | 348 | 321 | 297 | |||||||||||||||||||||||||||||||||||
Nonperforming assets, excluding covered assets |
288 | 280 | 279 | 261 | 245 | |||||||||||||||||||||||||||||||||||
Period-end loans | 1.65 |
|
1.69 | 1.74 | 1.77 | 1.77 | ||||||||||||||||||||||||||||||||||
Nonperforming loans | 361 | 347 | 349 | 322 | 298 | |||||||||||||||||||||||||||||||||||
Nonperforming assets | 283 | 275 | 274 | 257 | 242 | |||||||||||||||||||||||||||||||||||
(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 | ||||||||||||||||||||||||||||||||||||||||
Credit Quality
The Company’s provision for credit losses for the fourth quarter of 2015 was $305 million, which was $23 million (8.2 percent) higher than the prior quarter and $17 million (5.9 percent) higher than the fourth quarter of 2014. The provision for credit losses was equal to net charge-offs in the fourth quarter of 2015, $10 million lower than net charge-offs in the third quarter of 2015, and $20 million lower than net charge-offs in the fourth quarter of 2014. Total net charge-offs in the fourth quarter of 2015 were $305 million, compared with $292 million in the third quarter of 2015, and $308 million in the fourth quarter of 2014. Net charge-offs increased $13 million (4.5 percent) on a linked quarter basis due to seasonally higher credit card charge-offs and lower commercial mortgage and construction and development recoveries, while the $3 million (1.0 percent) decrease in net charge-offs on a year-over-year basis reflected improvements in residential mortgages and total other retail loans. Given current economic conditions, the Company expects the level of net charge-offs to remain relatively stable in the first quarter of 2016.
The allowance for credit losses was $4,306 million at December 31, 2015, and at September 30, 2015, compared with $4,375 million at December 31, 2014. The ratio of the allowance for credit losses to period-end loans was 1.65 percent at December 31, 2015, compared with 1.69 percent at September 30, 2015, and 1.77 percent at December 31, 2014. The ratio of the allowance for credit losses to nonperforming loans was 361 percent at December 31, 2015, compared with 347 percent at September 30, 2015, and 298 percent at December 31, 2014.
At December 31, 2015, approximately $3.2 billion of commercial loans (approximately 1.2 percent of total loans outstanding) were to customers in energy-related businesses. The decline in energy prices over the past year has resulted in deterioration of a portion of these loans; however, the impact of this deterioration was not significant to the Company during 2015. Based on the uncertain outlook for commodity prices in the near term and the potential for further energy price declines, the Company may see additional stress within its energy and metals-related loan portfolios in 2016. At December 31, 2015, the Company had credit reserves of approximately 5 percent of total energy loan balances.
DELINQUENT LOAN RATIOS AS A PERCENT OF ENDING LOAN BALANCES | Table 9 | ||||||||||||||
(Percent) | |||||||||||||||
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
Dec 31 |
|||||||||||
2015 | 2015 | 2015 | 2015 | 2014 | |||||||||||
Delinquent loan ratios - 90 days or more past due excluding nonperforming loans | |||||||||||||||
Commercial | .05 | .05 | .05 | .05 | .05 | ||||||||||
Commercial real estate | .03 | .05 | .05 | .07 | .05 | ||||||||||
Residential mortgages | .33 | .33 | .30 | .33 | .40 | ||||||||||
Credit card | 1.09 | 1.10 | 1.03 | 1.19 | 1.13 | ||||||||||
Other retail | .15 | .14 | .14 | .15 | .15 | ||||||||||
Total loans, excluding covered loans | .21 | .20 | .19 | .22 | .23 | ||||||||||
Covered loans | 6.31 | 6.57 | 6.66 | 7.01 | 7.48 | ||||||||||
Total loans | .32 | .32 | .32 | .36 | .38 | ||||||||||
Delinquent loan ratios - 90 days or more past due including nonperforming loans | |||||||||||||||
Commercial | .25 | .25 | .16 | .16 | .19 | ||||||||||
Commercial real estate | .33 | .39 | .46 | .58 | .65 | ||||||||||
Residential mortgages | 1.66 | 1.73 | 1.80 | 1.95 | 2.07 | ||||||||||
Credit card | 1.13 | 1.16 | 1.12 | 1.32 | 1.30 | ||||||||||
Other retail | .46 | .47 | .51 | .55 | .53 | ||||||||||
Total loans, excluding covered loans | .67 | .70 | .70 | .77 | .83 | ||||||||||
Covered loans | 6.48 | 6.80 | 6.88 | 7.25 | 7.74 | ||||||||||
Total loans | .78 | .81 | .82 | .91 | .97 | ||||||||||
ASSET QUALITY | Table 10 | ||||||||||||||
($ in millions) | |||||||||||||||
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
Dec 31 |
|||||||||||
2015 | 2015 | 2015 | 2015 | 2014 | |||||||||||
Nonperforming loans | |||||||||||||||
Commercial | $160 | $157 | $78 | $74 | $99 | ||||||||||
Lease financing | 14 | 12 | 12 | 13 | 13 | ||||||||||
Total commercial | 174 | 169 | 90 | 87 | 112 | ||||||||||
Commercial mortgages | 92 | 105 | 116 | 142 | 175 | ||||||||||
Construction and development | 35 | 39 | 59 | 75 | 84 | ||||||||||
Total commercial real estate | 127 | 144 | 175 | 217 | 259 | ||||||||||
Residential mortgages | 712 | 735 | 769 | 825 | 864 | ||||||||||
Credit card | 9 | 12 | 16 | 22 | 30 | ||||||||||
Other retail | 162 | 171 | 178 | 187 | 187 | ||||||||||
Total nonperforming loans, excluding covered loans | 1,184 | 1,231 | 1,228 | 1,338 | 1,452 | ||||||||||
Covered loans | 8 | 11 | 11 | 12 | 14 | ||||||||||
Total nonperforming loans | 1,192 | 1,242 | 1,239 | 1,350 | 1,466 | ||||||||||
Other real estate (a) | 280 | 276 | 287 | 293 | 288 | ||||||||||
Covered other real estate (a) | 32 | 31 | 35 | 37 | 37 | ||||||||||
Other nonperforming assets | 19 | 18 | 16 | 16 | 17 | ||||||||||
Total nonperforming assets (b) | $1,523 | $1,567 | $1,577 | $1,696 | $1,808 | ||||||||||
Total nonperforming assets, excluding covered assets | $1,483 | $1,525 | $1,531 | $1,647 | $1,757 | ||||||||||
Accruing loans 90 days or more past due, excluding covered loans |
$541 | $510 | $469 | $521 | $550 | ||||||||||
Accruing loans 90 days or more past due | $831 | $825 | $801 | $880 | $945 | ||||||||||
Performing restructured loans, excluding GNMA and covered loans |
$2,766 | $2,746 | $2,815 | $2,684 | $2,832 | ||||||||||
Performing restructured GNMA and covered loans | $1,944 | $2,031 | $2,111 | $2,186 | $2,273 | ||||||||||
Nonperforming assets to loans plus ORE, excluding covered assets (%) |
.58 | .61 | .63 | .68 | .72 | ||||||||||
Nonperforming assets to loans plus ORE (%) | .58 | .61 | .63 | .69 | .73 | ||||||||||
(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. | |||||||||||||||
Nonperforming assets decreased on a linked quarter and year-over-year basis to $1,523 million at December 31, 2015, compared with $1,567 million at September 30, 2015, and $1,808 million at December 31, 2014. The ratio of nonperforming assets to loans and other real estate was 0.58 percent at December 31, 2015, compared with 0.61 percent at September 30, 2015, and 0.73 percent at December 31, 2014. The decrease in nonperforming assets on a year-over-year basis was driven primarily by reductions in the commercial real estate portfolios and residential mortgages, as economic conditions continued to slowly improve. Accruing loans 90 days or more past due were $831 million ($541 million excluding covered loans) at December 31, 2015, compared with $825 million ($510 million excluding covered loans) at September 30, 2015, and $945 million ($550 million excluding covered loans) at December 31, 2014. The Company expects total nonperforming assets to remain relatively stable in the first quarter of 2016.
COMMON SHARES | Table 11 | |||||||||||||||||||
(Millions) | 4Q | 3Q | 2Q | 1Q | 4Q | |||||||||||||||
2015 |
2015 |
2015 |
2015 |
2014 |
||||||||||||||||
Beginning shares outstanding | 1,754 | 1,767 | 1,780 | 1,786 | 1,795 | |||||||||||||||
Shares issued for stock incentive plans, acquisitions and other corporate purposes |
1 | 3 | 1 | 6 | 2 | |||||||||||||||
Shares repurchased | (10 | ) | (16 | ) | (14 | ) | (12 | ) | (11 | ) | ||||||||||
Ending shares outstanding | 1,745 | 1,754 | 1,767 | 1,780 | 1,786 | |||||||||||||||
Capital Management
Total U.S. Bancorp shareholders’ equity was $46.1 billion at December 31, 2015, compared with $45.1 billion at September 30, 2015, and $43.5 billion at December 31, 2014. Including fourth quarter distributions, the Company returned 72 percent of earnings to shareholders for the full year.
CAPITAL POSITION | Table 12 | |||||||||||||||||||
($ in millions) | Dec 31 | Sep 30 | Jun 30 | Mar 31 | Dec 31 | |||||||||||||||
2015 | 2015 | 2015 | 2015 | 2014 | ||||||||||||||||
Total U.S. Bancorp shareholders' equity | $46,131 | $45,075 | $44,537 | $44,277 | $43,479 | |||||||||||||||
Standardized Approach | ||||||||||||||||||||
Basel III transitional standardized approach | ||||||||||||||||||||
Common equity tier 1 capital | $32,612 | $32,124 | $31,674 | $31,308 | $30,856 | |||||||||||||||
Tier 1 capital | 38,431 | 37,197 | 36,748 | 36,382 | 36,020 | |||||||||||||||
Total risk-based capital | 45,313 | 44,015 | 43,526 | 43,558 | 43,208 | |||||||||||||||
Common equity tier 1 capital ratio | 9.6 | % | 9.6 | % | 9.5 | % | 9.6 | % | 9.7 | % | ||||||||||
Tier 1 capital ratio | 11.3 | 11.1 | 11.0 | 11.1 | 11.3 | |||||||||||||||
Total risk-based capital ratio | 13.3 | 13.1 | 13.1 | 13.3 | 13.6 | |||||||||||||||
Leverage ratio | 9.5 | 9.3 | 9.2 | 9.3 | 9.3 | |||||||||||||||
Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented standardized approach |
9.1 | 9.2 | 9.2 | 9.2 | 9.0 | |||||||||||||||
Advanced Approaches | ||||||||||||||||||||
Common equity tier 1 capital to risk-weighted assets for the Basel III transitional advanced approaches |
12.5 | 13.0 | 12.9 | 12.3 | 12.4 | |||||||||||||||
Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented advanced approaches |
11.9 | 12.4 | 12.4 | 11.8 | 11.8 | |||||||||||||||
Tangible common equity to tangible assets | 7.6 | 7.7 | 7.5 | 7.6 | 7.5 | |||||||||||||||
Tangible common equity to risk-weighted assets | 9.2 | 9.3 | 9.2 | 9.3 | 9.3 | |||||||||||||||
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. | ||||||||||||||||||||
All regulatory ratios continue to be in excess of “well-capitalized” requirements. The common equity tier 1 capital to risk-weighted assets ratio estimated for the Basel III standardized approach as if fully implemented was 9.1 percent at December 31, 2015, compared with 9.2 percent at September 30, 2015, and 9.0 percent at December 31, 2014. The common equity tier 1 capital to risk-weighted assets ratio estimated for the Basel III advanced approaches as if fully implemented was 11.9 percent at December 31, 2015, compared with 12.4 percent at September 30, 2015, and 11.8 percent at December 31, 2014.
On Friday, January 15, 2016, at 8:00 a.m. CST, Richard K. Davis, chairman, president 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 76889596. For those unable to participate during the live call, a recording will be available at approximately 11:00 a.m. CST on Friday, January 15 and be accessible through Friday, January 22 at 11:00 p.m. CST. 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 76889596.
Minneapolis-based U.S. Bancorp (“USB”), with $422 billion in assets as of December 31, 2015, is the parent company of U.S. Bank National Association, the fifth largest commercial bank in the United States. The Company operates 3,133 banking offices in 25 states and 4,936 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.
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, 2014, 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.
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.
U.S. Bancorp | ||||||||||||||||
Consolidated Statement of Income | ||||||||||||||||
Three Months Ended | Year Ended | |||||||||||||||
(Dollars and Shares in Millions, Except Per Share Data) | December 31, | December 31, | ||||||||||||||
(Unaudited) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Interest Income | ||||||||||||||||
Loans | $2,583 | $ 2,541 | $10,059 | $10,113 | ||||||||||||
Loans held for sale | 40 | 41 | 206 | 128 | ||||||||||||
Investment securities | 499 | 488 | 2,001 | 1,866 | ||||||||||||
Other interest income | 34 | 32 | 136 | 121 | ||||||||||||
Total interest income | 3,156 | 3,102 | 12,402 | 12,228 | ||||||||||||
Interest Expense | ||||||||||||||||
Deposits | 113 | 117 | 457 | 465 | ||||||||||||
Short-term borrowings | 56 | 59 | 245 | 263 | ||||||||||||
Long-term debt | 168 | 182 | 699 | 725 | ||||||||||||
Total interest expense | 337 | 358 | 1,401 | 1,453 | ||||||||||||
Net interest income | 2,819 | 2,744 | 11,001 | 10,775 | ||||||||||||
Provision for credit losses | 305 | 288 | 1,132 | 1,229 | ||||||||||||
Net interest income after provision for credit losses | 2,514 | 2,456 | 9,869 | 9,546 | ||||||||||||
Noninterest Income | ||||||||||||||||
Credit and debit card revenue | 294 | 272 | 1,070 | 1,021 | ||||||||||||
Corporate payment products revenue | 170 | 174 | 708 | 724 | ||||||||||||
Merchant processing services | 393 | 384 | 1,547 | 1,511 | ||||||||||||
ATM processing services | 79 | 80 | 318 | 321 | ||||||||||||
Trust and investment management fees | 336 | 322 | 1,321 | 1,252 | ||||||||||||
Deposit service charges | 182 | 180 | 702 | 693 | ||||||||||||
Treasury management fees | 139 | 136 | 561 | 545 | ||||||||||||
Commercial products revenue | 222 | 219 | 867 | 854 | ||||||||||||
Mortgage banking revenue | 211 | 235 | 906 | 1,009 | ||||||||||||
Investment products fees | 44 | 49 | 185 | 191 | ||||||||||||
Securities gains (losses), net | 1 | 1 | -- | 3 | ||||||||||||
Other | 269 | 318 | 907 | 1,040 | ||||||||||||
Total noninterest income | 2,340 | 2,370 | 9,092 | 9,164 | ||||||||||||
Noninterest Expense | ||||||||||||||||
Compensation | 1,212 | 1,151 | 4,812 | 4,523 | ||||||||||||
Employee benefits | 272 | 245 | 1,167 | 1,041 | ||||||||||||
Net occupancy and equipment | 246 | 248 | 991 | 987 | ||||||||||||
Professional services | 125 | 132 | 423 | 414 | ||||||||||||
Marketing and business development | 96 | 129 | 361 | 382 | ||||||||||||
Technology and communications | 230 | 219 | 887 | 863 | ||||||||||||
Postage, printing and supplies | 74 | 86 | 297 | 328 | ||||||||||||
Other intangibles | 46 | 51 | 174 | 199 | ||||||||||||
Other | 508 | 543 | 1,819 | 1,978 | ||||||||||||
Total noninterest expense | 2,809 | 2,804 | 10,931 | 10,715 | ||||||||||||
Income before income taxes | 2,045 | 2,022 | 8,030 | 7,995 | ||||||||||||
Applicable income taxes | 556 | 521 | 2,097 | 2,087 | ||||||||||||
Net income | 1,489 | 1,501 | 5,933 | 5,908 | ||||||||||||
Net (income) loss attributable to noncontrolling interests | (13 | ) | (13 | ) | (54 | ) | (57 | ) | ||||||||
Net income attributable to U.S. Bancorp | $1,476 | $ 1,488 | $5,879 | $5,851 | ||||||||||||
Net income applicable to U.S. Bancorp common shareholders | $1,404 | $ 1,420 | $5,608 | $5,583 | ||||||||||||
Earnings per common share | $.80 | $ .79 | $3.18 | $3.10 | ||||||||||||
Diluted earnings per common share | $.80 | $ .79 | $3.16 | $3.08 | ||||||||||||
Dividends declared per common share | $.255 | $ .245 | $1.010 | $.965 | ||||||||||||
Average common shares outstanding | 1,747 | 1,787 | 1,764 | 1,803 | ||||||||||||
Average diluted common shares outstanding | 1,754 | 1,796 | 1,772 | 1,813 | ||||||||||||
U.S. Bancorp | ||||||||
Consolidated Ending Balance Sheet | ||||||||
December 31, | December 31, | |||||||
(Dollars in Millions) | 2015 | 2014 | ||||||
Assets | ||||||||
Cash and due from banks | $11,147 | $10,654 | ||||||
Investment securities | ||||||||
Held-to-maturity | 43,590 | 44,974 | ||||||
Available-for-sale | 61,997 | 56,069 | ||||||
Loans held for sale | 3,184 | 4,792 | ||||||
Loans | ||||||||
Commercial | 88,402 | 80,377 | ||||||
Commercial real estate | 42,137 | 42,795 | ||||||
Residential mortgages | 53,496 | 51,619 | ||||||
Credit card | 21,012 | 18,515 | ||||||
Other retail | 51,206 | 49,264 | ||||||
Total loans, excluding covered loans | 256,253 | 242,570 | ||||||
Covered loans | 4,596 | 5,281 | ||||||
Total loans | 260,849 | 247,851 | ||||||
Less allowance for loan losses | (3,863 | ) | (4,039 | ) | ||||
Net loans | 256,986 | 243,812 | ||||||
Premises and equipment | 2,513 | 2,618 | ||||||
Goodwill | 9,361 | 9,389 | ||||||
Other intangible assets | 3,350 | 3,162 | ||||||
Other assets | 29,725 | 27,059 | ||||||
Total assets | $421,853 | $402,529 | ||||||
Liabilities and Shareholders' Equity | ||||||||
Deposits | ||||||||
Noninterest-bearing | $83,766 | $77,323 | ||||||
Interest-bearing | 216,634 | 205,410 | ||||||
Total deposits | 300,400 | 282,733 | ||||||
Short-term borrowings | 27,877 | 29,893 | ||||||
Long-term debt | 32,078 | 32,260 | ||||||
Other liabilities | 14,681 | 13,475 | ||||||
Total liabilities | 375,036 | 358,361 | ||||||
Shareholders' equity | ||||||||
Preferred stock | 5,501 | 4,756 | ||||||
Common stock | 21 | 21 | ||||||
Capital surplus | 8,376 | 8,313 | ||||||
Retained earnings | 46,377 | 42,530 | ||||||
Less treasury stock | (13,125 | ) | (11,245 | ) | ||||
Accumulated other comprehensive income (loss) | (1,019 | ) | (896 | ) | ||||
Total U.S. Bancorp shareholders' equity | 46,131 | 43,479 | ||||||
Noncontrolling interests | 686 | 689 | ||||||
Total equity | 46,817 | 44,168 | ||||||
Total liabilities and equity | $421,853 | $402,529 | ||||||
U.S. Bancorp | |||||||||||||||||||||||||
Non-GAAP Financial Measures | |||||||||||||||||||||||||
December 31, | September 30, |
June 30, |
March 31, |
December 31, | |||||||||||||||||||||
(Dollars in Millions, Unaudited) | 2015 | 2015 | 2015 | 2015 | 2014 | ||||||||||||||||||||
Total equity | $46,817 | $45,767 | $45,231 | $44,965 | $44,168 | ||||||||||||||||||||
Preferred stock | (5,501 | ) | (4,756 | ) | (4,756 | ) | (4,756 | ) | (4,756 | ) | |||||||||||||||
Noncontrolling interests | (686 | ) | (692 | ) | (694 | ) | (688 | ) | (689 | ) | |||||||||||||||
Goodwill (net of deferred tax liability) (1) | (8,295 | ) | (8,324 | ) | (8,350 | ) | (8,360 | ) | (8,403 | ) | |||||||||||||||
Intangible assets, other than mortgage servicing rights | (838 | ) | (779 | ) | (744 | ) | (783 | ) | (824 | ) | |||||||||||||||
Tangible common equity (a) | 31,497 | 31,216 | 30,687 | 30,378 | 29,496 | ||||||||||||||||||||
Tangible common equity (as calculated above) | 31,497 | 31,216 | 30,687 | 30,378 | 29,496 | ||||||||||||||||||||
Adjustments (2) | 67 | 118 | 125 | 158 | 172 | ||||||||||||||||||||
Common equity tier 1 capital estimated for the Basel III fully implemented standardized and advanced approaches (b) |
31,564 | 31,334 | 30,812 | 30,536 | 29,668 | ||||||||||||||||||||
Total assets | 421,853 | 415,943 | 419,075 | 410,233 | 402,529 | ||||||||||||||||||||
Goodwill (net of deferred tax liability) (1) | (8,295 | ) | (8,324 | ) | (8,350 | ) | (8,360 | ) | (8,403 | ) | |||||||||||||||
Intangible assets, other than mortgage servicing rights | (838 | ) | (779 | ) | (744 | ) | (783 | ) | (824 | ) | |||||||||||||||
Tangible assets (c) | 412,720 | 406,840 | 409,981 | 401,090 | 393,302 | ||||||||||||||||||||
Risk-weighted assets, determined in accordance with prescribed transitional standardized approach regulatory requirements (d) |
341,360 | * | 336,227 | 333,177 | 327,709 | 317,398 | |||||||||||||||||||
Adjustments (3) | 3,892 | * | 3,532 | 3,532 | 3,153 | 11,110 | |||||||||||||||||||
Risk-weighted assets estimated for the Basel III fully implemented standardized approach (e) |
345,252 | * | 339,759 | 336,709 | 330,862 | 328,508 | |||||||||||||||||||
Risk-weighted assets, determined in accordance with prescribed transitional advanced approaches regulatory requirements |
261,668 | * | 248,048 | 245,038 | 254,892 | 248,596 | |||||||||||||||||||
Adjustments (4) | 4,099 | * | 3,723 | 3,721 | 3,321 | 3,270 | |||||||||||||||||||
Risk-weighted assets estimated for the Basel III fully implemented advanced approaches (f) |
265,767 | * | 251,771 | 248,759 | 258,213 | 251,866 | |||||||||||||||||||
Ratios * | |||||||||||||||||||||||||
Tangible common equity to tangible assets (a)/(c) | 7.6 | % | 7.7 | % | 7.5 | % | 7.6 | % | 7.5 | % | |||||||||||||||
Tangible common equity to risk-weighted assets (a)/(d) | 9.2 | 9.3 | 9.2 | 9.3 | 9.3 | ||||||||||||||||||||
Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented standardized approach (b)/(e) |
9.1 | 9.2 | 9.2 | 9.2 | 9.0 | ||||||||||||||||||||
Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented advanced approaches (b)/(f) |
11.9 | 12.4 | 12.4 | 11.8 | 11.8 | ||||||||||||||||||||
* 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. | |||||||||||||||||||||||||
View source version on businesswire.com: http://www.businesswire.com/news/home/20160115005068/en/
U.S. Bancorp
Media:
Dana Ripley, 612-303-3167
or
Investors/Analysts:
Sean
O'Connor, 612-303-0778
Source: U.S. Bancorp
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