- Year-over-year increase in earnings per
diluted common share of 4.1 percent
- Return on average assets of 1.44
percent and return on average common equity of 14.1 percent
- Returned 70 percent of first quarter
earnings to shareholders
U.S. Bancorp (NYSE: USB) today reported net income of $1,431
million for the first quarter of 2015, or $0.76 per diluted common
share, compared with $1,397 million, or $0.73 per diluted common
share, in the first quarter of 2014.
U.S. Bancorp Chairman, President and Chief Executive Officer
Richard K. Davis said, “U.S. Bancorp, once again, delivered
industry-leading performance measures in the first quarter. We
achieved net income of $1.43 billion, or $0.76 per diluted common
share, return on average assets (ROA) of 1.44 percent, return on
average common equity (ROE) of 14.1 percent, and an efficiency
ratio of 54.3 percent. The first quarter results reflect normal
seasonal effects, such as the expected reduction of post-holiday
spending. We believe the diversification of our business mix has
served us well through the prolonged low interest rate environment
and slow economic recovery, and we are well positioned for stronger
growth when the economy gains momentum and interest rates
rise.”
Davis continued, “In the first quarter, we returned 70 percent
of our earnings to shareholders through dividends and share
buybacks, demonstrating our continued commitment to value creation
for our shareholders. We were also pleased to receive the Federal
Reserve’s non-objection to our capital distribution plan, which
will allow us to increase our annual dividend by 4.1 percent in the
second quarter. Because of our diverse business profile,
wide-ranging customer base, and balanced revenue generation between
margin and fee businesses, we are able to withstand challenging
revenue environments. For example, average total loans grew 5.1
percent in the first quarter compared to a year ago, fueled by the
strength of our Wholesale Banking franchise. Average total
commercial loans grew 15.1 percent demonstrating the versatility of
our earnings platform. In addition, average total deposits rose 8.1
percent, which emphasizes the overall strength and stability of
both our Retail and Wholesale Banking franchises. As we look toward
our financial performance in the quarters ahead, we will continue
to stay focused on the best revenue growth opportunities, while
prudently controlling expenses.”
“One of U.S. Bancorp’s highlights from the first quarter was
being named as one of the World’s Most Ethical Companies® by the
Ethisphere Institute. This designation recognizes the deep
commitment our 67,000 employees have toward serving our customers,
helping them build financially secure futures, and always doing the
right thing. A commitment to ethical leadership is one of the
cornerstones of the U.S. Bancorp culture and core values. We are
proud to be bankers and to have the privilege to be a trusted
partner for our shareholders, customers, and communities as we move
toward our vision for the future.”
Highlights for the first quarter of 2015 included:
- Growth in average total loans of 5.1
percent over the first quarter of 2014
- Growth in average total loans of 0.6
percent on a linked quarter basis (0.8 percent excluding the impact
of a reclassification of certain municipal loans to securities at
the end of the fourth quarter 2014)
- Growth in average total commercial
loans of 15.1 percent over the first quarter of 2014 and 2.4
percent over the fourth quarter of 2014
- Growth in average commercial and
commercial real estate revolving commitments of 11.7 percent
year-over-year and 1.9 percent over the prior quarter
- Strong new lending activity of $48.8
billion during the first quarter, including:
- $29.0 billion of new and renewed
commercial and commercial real estate commitments
- $2.8 billion of lines related to new
credit card accounts
- $17.0 billion of mortgage and other
retail loan originations
- Growth in average total deposits of 8.1
percent over the first quarter of 2014 (6.4 percent excluding the
Charter One franchise acquisition in late June 2014) and 1.1
percent on a linked quarter basis, the strongest first quarter
deposit growth in the past three years
- Average low cost deposits, including
noninterest-bearing and total savings deposits, grew by 11.4
percent year-over-year and 1.7 percent on a linked quarter
basis
- Net interest income growth over the
first quarter of 2014 driven by average earning assets growth of
10.6 percent and continued strong growth in lower cost core deposit
funding. Linked quarter net interest income decreased 1.7 percent
principally due to fewer days in the quarter.
- Declines in net charge-offs of 9.4
percent on a linked quarter basis and 18.2 percent on a
year-over-year basis. Provision for credit losses was $15 million
less than net charge-offs in the current quarter
- Allowance for credit losses to
period-end loans was 1.77 percent at March 31, 2015
- Annualized net charge-offs to average
total loans ratio decreased to 0.46 percent
- Decreases in nonperforming assets of
15.2 percent on a year-over-year basis and 6.2 percent on a linked
quarter basis
- Capital generation continued to
reinforce capital position and returns. Ratios at March 31, 2015,
were:
- Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully implemented
standardized approach of 9.2 percent and for the Basel III fully
implemented advanced approaches of 11.8 percent
- Basel III transitional standardized
approach:
- Common equity tier 1 capital ratio of
9.6 percent
- Tier 1 capital ratio of 11.1
percent
- Total risk-based capital ratio of 13.3
percent
- Returned 70 percent of first quarter
earnings to shareholders through dividends and the buyback of 12
million common shares
- Early compliance with fully implemented
U.S. Liquidity Coverage Ratio (“LCR”) based on the Company’s
interpretation of the final U.S. LCR rule
- Supplementary Leverage Ratio (“SLR”)
exceeds the applicable minimum requirement
Net income attributable to U.S. Bancorp was $1,431 million for
the first quarter of 2015, 2.4 percent higher than the $1,397
million for the first quarter of 2014, and 3.8 percent lower than
the $1,488 million for the fourth quarter of 2014. Diluted earnings
per common share of $0.76 in the first quarter of 2015 were $0.03
higher than the first quarter of 2014 and $0.03 lower than the
previous quarter. Return on average assets and return on average
common equity were 1.44 percent and 14.1 percent, respectively, for
the first quarter of 2015, compared with 1.56 percent and 14.6
percent, respectively, for the first quarter of 2014. The provision
for credit losses was lower than net charge-offs by $15 million in
the first quarter of 2015, $20 million lower than net charge-offs
in the fourth quarter of 2014, and $35 million lower than net
charge-offs in the first quarter of 2014.
EARNINGS SUMMARY
Table 1
($ in millions, except per-share data)
Percent Percent Change Change 1Q
4Q 1Q 1Q15 vs 1Q15 vs 2015
2014 2014 4Q14
1Q14 Net income attributable to U.S. Bancorp $1,431
$1,488 $1,397 (3.8 ) 2.4 Diluted earnings per common share $.76
$.79 $.73 (3.8 ) 4.1 Return on average assets (%) 1.44 1.50
1.56 Return on average common equity (%) 14.1 14.4 14.6 Net
interest margin (%) 3.08 3.14 3.35 Efficiency ratio (%) (a) 54.3
54.3 52.9 Tangible efficiency ratio (%) (a) 53.4 53.3 51.9
Dividends declared per common share $.245 $.245 $.230 -- 6.5 Book
value per common share (period end) $22.20 $21.68 $20.48 2.4 8.4
(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.
Net income attributable to U.S. Bancorp for the first quarter of
2015 was $34 million (2.4 percent) higher than the first quarter of
2014, and $57 million (3.8 percent) lower than the fourth quarter
of 2014. The increase in net income year-over-year was principally
due to increases in net interest income and fee-based revenue, and
a decline in the provision for credit losses, partially offset by
an increase in noninterest expense. The decrease in net income on a
linked quarter basis was due to lower net interest income,
primarily the result of two fewer days in the quarter, and
seasonally lower fee-based revenue, partially offset by decrease in
noninterest expense.
Total net revenue on a taxable-equivalent basis for the first
quarter of 2015 was $4,906 million, which was $92 million (1.9
percent) higher than the first quarter of 2014, reflecting a 2.2
percent increase in noninterest income and a 1.7 percent increase
in net interest income. The increase in net interest income
year-over-year was the result of an increase in average earning
assets and continued growth in lower cost core deposit funding,
partially offset by an approximately $50 million decrease related
to the previously communicated wind down of the short-term,
small-dollar deposit advance product, Checking Account Advance
(“CAA”), lower reinvestment rates on investment securities, and
lower rates on new loans and a change in loan portfolio mix.
Noninterest income increased year-over-year due to higher revenue
in most fee businesses and higher equity investment gains in other
income. Total net revenue on a taxable-equivalent basis was $263
million (5.1 percent) lower on a linked quarter basis due to a 1.7
percent decrease in net interest income, mainly the result of two
fewer days in the quarter, and a 9.1 percent decrease in
noninterest income, due to seasonally lower revenue in most fee
businesses and the fourth quarter 2014 Nuveen gain.
Total noninterest expense in the first quarter of 2015 was
$2,665 million, which was $121 million (4.8 percent) higher than
the first quarter of 2014 and $139 million (5.0 percent) lower than
the fourth quarter of 2014. The increase in total noninterest
expense year-over-year was primarily due to an increase in
compensation expense, reflecting the impact of merit increases,
acquisitions, and higher staffing for risk and compliance
activities and increased benefits expense due to higher pension
costs, along with higher other expense primarily related to
mortgage servicing-related activities. The decrease in total
noninterest expense on a linked quarter basis was due to seasonally
lower costs related to investments in tax-advantaged projects and
professional services, as well as lower marketing and business
development and other expense due to the impact of the fourth
quarter 2014 notable items, comprised of charitable contributions
and legal accruals, partially offset by higher compensation expense
and benefits expense related to higher pension costs and seasonally
higher payroll taxes.
The Company’s provision for credit losses for the first quarter
of 2015 was $264 million, $24 million (8.3 percent) lower than the
prior quarter and $42 million (13.7 percent) lower than the first
quarter of 2014. The provision for credit losses was lower than net
charge-offs by $15 million in the first quarter of 2015, $20
million lower than net charge-offs in the fourth quarter of 2014,
and $35 million lower than net charge-offs in the first quarter of
2014. Net charge-offs in the first quarter of 2015 were $279
million, compared with $308 million in the fourth quarter of 2014,
and $341 million in the first quarter of 2014. Given current
economic conditions, the Company expects the level of net
charge-offs to increase modestly in the second quarter of 2015.
Nonperforming assets were $1,696 million at March 31, 2015,
compared with $1,808 million at December 31, 2014, and $1,999
million at March 31, 2014. The decrease in nonperforming assets
compared with a year ago was driven primarily by reductions in the
commercial, commercial mortgage and construction and development
portfolios, as well as improvement in credit card loans. The
Company expects total nonperforming assets to remain relatively
stable in the second quarter of 2015. The ratio of the allowance
for credit losses to period-end loans was 1.77 percent at March 31,
2015, and at December 31, 2014, compared with 1.89 percent at March
31, 2014.
INCOME STATEMENT HIGHLIGHTS
Table 2 (Taxable-equivalent
basis, $ in millions,
Percent
Percent
except per-share data)
Change Change 1Q 4Q 1Q
1Q15 vs 1Q15 vs 2015 2014
2014 4Q14 1Q14 Net
interest income $2,752 $2,799 $2,706 (1.7 ) 1.7 Noninterest income
2,154 2,370 2,108 (9.1 ) 2.2
Total net revenue 4,906 5,169 4,814 (5.1 ) 1.9 Noninterest expense
2,665 2,804 2,544 (5.0 ) 4.8
Income before provision and taxes 2,241 2,365 2,270 (5.2 ) (1.3 )
Provision for credit losses 264 288 306
(8.3 ) (13.7 ) Income before taxes 1,977 2,077 1,964 (4.8 )
.7 Taxable-equivalent adjustment 54 55 56 (1.8 ) (3.6 ) Applicable
income taxes 479 521 496 (8.1 )
(3.4 ) Net income 1,444 1,501 1,412 (3.8 ) 2.3
Net (income) loss attributable to
noncontrolling interests
(13 ) (13 ) (15 ) -- 13.3 Net income attributable to
U.S. Bancorp $1,431 $1,488 $1,397
(3.8 ) 2.4
Net income applicable to U.S. Bancorp
common shareholders
$1,365 $1,420 $1,331 (3.9 ) 2.6
Diluted earnings per common share $.76 $.79
$.73 (3.8 ) 4.1
Net Interest Income
Net interest income on a taxable-equivalent basis in the first
quarter of 2015 was $2,752 million, an increase of $46 million (1.7
percent) over the first quarter of 2014. The increase was the
result of growth in average earning assets and in lower cost core
deposit funding, partially offset by lower rates on new loans and
securities and the CAA product wind down. Average earning assets
were $34.6 billion (10.6 percent) higher than the first quarter of
2014, driven by increases of $18.5 billion (22.5 percent) in
average investment securities and $12.1 billion (5.1 percent) in
average total loans. Net interest income decreased $47 million (1.7
percent) on a linked quarter basis, primarily the result of two
fewer days in the quarter and lower net interest margin. The net
interest margin in the first quarter of 2015 was 3.08 percent,
compared with 3.35 percent in the first quarter of 2014, and 3.14
percent in the fourth quarter of 2014. The decline in the net
interest margin on a year-over-year basis primarily reflected
growth in the investment portfolio at lower average rates, as well
as lower reinvestment rates on investment securities, lower loan
fees due to the CAA product wind down, lower rates on new loans and
a change in loan portfolio mix, partially offset by lower funding
costs. On a linked quarter basis, the reduction in net interest
margin was principally due to growth in lower rate investment
securities and lower reinvestment rates, lower interest recoveries,
lower rates on new loans and a change in loan portfolio mix, along
with the impact of higher cash balances at the Federal Reserve as a
result of continued deposit growth.
Average investment securities in the first quarter of 2015 were
$18.5 billion (22.5 percent) higher year-over-year and $2.5 billion
(2.6 percent) higher than the prior quarter. The increases were
primarily due to purchases of U.S. government agency-backed
securities, net of prepayments and maturities, to support liquidity
coverage ratio regulatory requirements.
NET INTEREST INCOME
Table 3
(Taxable-equivalent basis; $ in millions)
Change Change 1Q 4Q
1Q 1Q15 vs 1Q15 vs 2015
2014 2014 4Q14
1Q14 Components of net interest income Income on earning
assets $3,116 $3,158 $3,078 $(42 ) $38 Expense on interest-bearing
liabilities 364 359 372 5
(8 ) Net interest income $2,752 $2,799
$2,706 $(47 ) $46
Average yields and rates paid Earning assets yield 3.49 % 3.54 %
3.81 % (.05 )% (.32 )% Rate paid on interest-bearing liabilities
.55 .55 .63 --
(.08 ) Gross interest margin 2.94 % 2.99 %
3.18 % (.05 )% (.24 )% Net interest margin 3.08 %
3.14 % 3.35 % (.06 )% (.27 )%
Average balances Investment securities (a) $100,712 $98,164 $82,216
$2,548 $18,496 Loans 247,950 246,421 235,859 1,529 12,091 Earning
assets 360,841 354,961 326,226 5,880 34,615 Interest-bearing
liabilities 267,882 259,938 238,276 7,944 29,606 (a)
Excludes unrealized gain (loss)
Average total loans were $12.1 billion (5.1 percent) higher in
the first quarter of 2015 than the first quarter of 2014, driven by
growth in total commercial loans (15.1 percent), total commercial
real estate (6.5 percent), total other retail loans (3.5 percent),
and credit card (2.4 percent). These increases were partially
offset by declines in covered loans (37.5 percent) and residential
mortgages (0.3 percent). Average total loans, excluding covered
loans, were higher by 6.7 percent year-over-year. Average total
loans were $1.5 billion (0.6 percent) higher in the first quarter
of 2015 than the fourth quarter of 2014, driven by growth in total
commercial real estate (4.2 percent), total commercial loans (2.4
percent), and total other retail loans (0.4 percent). These
increases were partially offset by declines in covered loans (24.2
percent), residential mortgages (0.9 percent), and credit card (0.9
percent). Average total loans, excluding covered loans, were higher
by 1.3 percent on a linked quarter basis. At the end of the first
quarter, approximately $3 billion of student loans were transferred
from the loan portfolio to loans held for sale.
AVERAGE LOANS
Table 4 ($ in millions)
Percent Percent
Change Change 1Q 4Q 1Q 1Q15
vs 1Q15 vs 2015 2014
2014 4Q14 1Q14 Commercial
$76,183 $74,333 $65,645 2.5 16.1 Lease financing 5,325 5,292
5,189 .6 2.6 Total commercial 81,508 79,625 70,834 2.4 15.1
Commercial mortgages 33,119 31,783 32,049 4.2 3.3
Construction and development 9,552 9,183 8,001 4.0
19.4 Total commercial real estate 42,671 40,966 40,050 4.2 6.5
Residential mortgages 51,426 51,872 51,584 (.9 ) (.3 )
Credit card 17,823 17,990 17,407 (.9 ) 2.4 Retail
leasing 5,819 5,939 5,979 (2.0 ) (2.7 ) Home equity and second
mortgages 15,897 15,853 15,366 .3 3.5 Other 27,604 27,317
26,312 1.1 4.9 Total other retail 49,320 49,109
47,657 .4 3.5 Total loans, excluding covered loans
242,748 239,562 227,532 1.3 6.7 Covered loans
5,202 6,859 8,327 (24.2 ) (37.5 ) Total loans
$247,950 $246,421 $235,859 .6 5.1
Average total deposits for the first quarter of 2015 were $21.0
billion (8.1 percent) higher than the first quarter of 2014.
Average noninterest-bearing deposits increased $3.7 billion (5.2
percent) year-over-year, mainly in Consumer and Small Business
Banking, as well as Wholesale Banking and Commercial Real Estate,
partially offset by decreases in corporate trust balances. Average
total savings deposits were $20.8 billion (14.5 percent) higher
year-over-year, the result of growth in Consumer and Small Business
Banking, including the $3.3 billion impact of the Charter One
acquisition, corporate trust, and in Wholesale Banking and
Commercial Real Estate balances. Average time deposits less than
$100,000 were $1.0 billion (9.0 percent) lower due to maturities,
while average time deposits greater than $100,000 decreased $2.5
billion (8.0 percent), primarily due to a decline in Wholesale
Banking and Commercial Real Estate, corporate trust and Consumer
and Small Business Banking balances. Time deposits greater than
$100,000 are primarily managed as an alternative to other funding
sources, such as wholesale borrowing, based largely on relative
pricing.
Average total deposits increased $3.0 billion (1.1 percent) over
the fourth quarter of 2014. Average noninterest-bearing deposits
decreased $2.4 billion (3.2 percent) on a linked quarter basis, due
to seasonally lower balances in corporate trust and Consumer and
Small Business Banking, partially offset by higher balances in
Wholesale Banking and Commercial Real Estate. Average total savings
deposits increased $6.5 billion (4.1 percent), reflecting increases
in Consumer and Small Business Banking, Wholesale Banking and
Commercial Real Estate and institutional trust balances. Compared
with the fourth quarter of 2014, average time deposits less than
$100,000 decreased $356 million (3.3 percent) due to maturities.
Average time deposits greater than $100,000 decreased $728 million
(2.5 percent) on a linked quarter basis, principally due to
declines in Wholesale Banking and Commercial Real Estate, corporate
trust and Consumer and Small Business Banking balances.
AVERAGE DEPOSITS
Table 5 ($ in millions)
Percent Percent
Change Change 1Q 4Q 1Q 1Q15
vs 1Q15 vs 2015 2014
2014 4Q14 1Q14
Noninterest-bearing deposits $74,511 $76,958 $70,824 (3.2 ) 5.2
Interest-bearing savings deposits Interest checking 54,658 54,199
51,305 .8 6.5 Money market savings 73,889 68,914 59,244 7.2 24.7
Savings accounts 36,033 34,955 33,200 3.1 8.5 Total
of savings deposits 164,580 158,068 143,749 4.1 14.5 Time deposits
less than $100,000 10,410 10,766 11,443 (3.3 ) (9.0 ) Time deposits
greater than $100,000 28,959 29,687 31,463 (2.5 )
(8.0 ) Total interest-bearing deposits 203,949 198,521
186,655 2.7 9.3 Total deposits $278,460 $275,479
$257,479 1.1 8.1
Noninterest Income
First quarter noninterest income was $2,154 million, which was
$46 million (2.2 percent) higher than the first quarter of 2014 and
$216 million (9.1 percent) lower than the fourth quarter of 2014.
The year-over-year increase in noninterest income was due to
increases in a majority of fee revenue categories and equity
investment gains in other income, partially offset by small
reductions in commercial products revenue and corporate payment
products revenue. In particular, trust and investment management
fees increased $18 million (5.9 percent) year-over-year, reflecting
account growth and improved market conditions. Merchant processing
service fees reflected a growth rate of 0.8 percent inclusive of
the impact of foreign currency rate changes. Excluding the impact
of foreign currency rate changes the growth would have been
approximately 5.0 percent. The decrease in commercial products
revenue of $5 million (2.4 percent) was primarily due to lower
wholesale transaction activity, including standby letters of credit
and syndication fees, and lower commercial leasing revenue,
partially offset by increased bond underwriting fees.
Noninterest income was $216 million (9.1 percent) lower in the
first quarter of 2015 than the fourth quarter of 2014, principally
due to seasonally lower fee revenue and the fourth quarter 2014
Nuveen gain. Credit and debit card revenue decreased $31 million
(11.4 percent) primarily due to seasonally lower sales volumes and
fewer days. Merchant processing services was $25 million (6.5
percent) lower on a linked quarter basis due to seasonally lower
product fees and fewer days. Deposit service charges decreased $19
million (10.6 percent) due to fewer days and seasonally lower
volumes. Commercial products revenue decreased $19 million (8.7
percent) primarily due to lower wholesale transaction activity,
including standby letters of credit and syndication fees, partially
offset by increased bond underwriting fees. Partially offsetting
these decreases was an increase in mortgage banking revenue, which
increased $5 million (2.1 percent), due to higher origination and
sales volume, partially offset by an unfavorable change in the
valuation of mortgage servicing rights (“MSRs”), net of hedging
activities.
NONINTEREST INCOME
Table 6 ($ in millions)
Percent Percent
Change Change 1Q 4Q 1Q 1Q15
vs 1Q15 vs 2015 2014
2014 4Q14 1Q14 Credit and
debit card revenue $241 $272 $239 (11.4 ) .8 Corporate payment
products revenue 170 174 173 (2.3 ) (1.7 ) Merchant processing
services 359 384 356 (6.5 ) .8 ATM processing services 78 80 78
(2.5 ) -- Trust and investment management fees 322 322 304 -- 5.9
Deposit service charges 161 180 157 (10.6 ) 2.5 Treasury management
fees 137 136 133 .7 3.0 Commercial products revenue 200 219 205
(8.7 ) (2.4 ) Mortgage banking revenue 240 235 236 2.1 1.7
Investment products fees 47 49 46 (4.1 ) 2.2 Securities gains
(losses), net -- 1 5 nm nm Other 199 318 176 (37.4 )
13.1 Total noninterest income $2,154 $2,370
$2,108 (9.1 ) 2.2
Noninterest Expense
Noninterest expense in the first quarter of 2015 totaled $2,665
million, an increase of $121 million (4.8 percent) over the first
quarter of 2014, and a $139 million (5.0 percent) decrease from the
fourth quarter of 2014. The increase in total noninterest expense
year-over-year was primarily the result of higher compensation,
employee benefits and other expenses. The increase in compensation
expense of $64 million (5.7 percent) reflected the impact of merit
increases, acquisitions, and higher staffing for risk and
compliance activities, and commissions related to mortgage
production. The increase in employee benefits expense of $28
million (9.7 percent) was driven by higher pension costs. The
increase in other expense of $48 million (12.4 percent) was
primarily due to mortgage servicing-related expenses.
Noninterest expense decreased $139 million (5.0 percent) on a
linked quarter basis, primarily driven by a decrease in other
noninterest expense of $107 million (19.7 percent) due to
seasonally lower costs related to investments in tax-advantaged
projects and the impact of the fourth quarter 2014 legal accruals,
partially offset by increased mortgage servicing-related expenses.
Marketing and business development expense decreased $59 million
(45.7 percent) due to the fourth quarter 2014 charitable
contributions and lower advertising costs. Professional services
expense was $55 million (41.7 percent) lower due to seasonally
lower costs across a majority of the lines of business. Partially
offsetting these decreases were higher employee benefits expense,
which increased $72 million (29.4 percent) due to increased pension
costs and seasonally higher payroll taxes, and compensation
expense, which increased $28 million (2.4 percent) reflecting the
seasonal impact of stock based compensation grants and commissions
related to mortgage production.
NONINTEREST EXPENSE
Table 7 ($ in millions)
Percent Percent
Change Change 1Q 4Q 1Q 1Q15
vs 1Q15 vs 2015 2014
2014 4Q14 1Q14
Compensation $1,179 $1,151 $1,115 2.4 5.7 Employee benefits 317 245
289 29.4 9.7 Net occupancy and equipment 247 248 249 (.4 ) (.8 )
Professional services 77 132 83 (41.7 ) (7.2 ) Marketing and
business development 70 129 79 (45.7 ) (11.4 ) Technology and
communications 214 219 211 (2.3 ) 1.4 Postage, printing and
supplies 82 86 81 (4.7 ) 1.2 Other intangibles 43 51 49 (15.7 )
(12.2 ) Other 436 543 388 (19.7 ) 12.4 Total
noninterest expense $2,665 $2,804 $2,544 (5.0 ) 4.8
Provision for Income Taxes
The provision for income taxes for the first quarter of 2015
resulted in a tax rate on a taxable-equivalent basis of 27.0
percent (effective tax rate of 24.9 percent), compared with 28.1
percent (effective tax rate of 26.0 percent) in the first quarter
of 2014, and 27.7 percent (effective tax rate of 25.8 percent) in
the fourth quarter of 2014. The decrease was the result of
resolution of certain tax matters.
Credit Quality
The allowance for credit losses was $4,351 million at March 31,
2015, compared with $4,375 million at December 31, 2014, and $4,497
million at March 31, 2014. Nonperforming assets decreased on a
linked quarter and year-over-year basis as economic conditions
continued to slowly improve. Total net charge-offs in the first
quarter of 2015 were $279 million, compared with $308 million in
the fourth quarter of 2014, and $341 million in the first quarter
of 2014. The $29 million (9.4 percent) decrease in net charge-offs
on a linked quarter basis was due to improvement in the commercial,
commercial real estate and other retail portfolios, while the $62
million (18.2 percent) decrease in net charge-offs on a
year-over-year basis reflected improvements in residential
mortgages, home equity and second mortgages, as well as in
construction and development. The Company recorded $264 million of
provision for credit losses in the current quarter, which was $15
million less than net charge-offs.
The ratio of the allowance for credit losses to period-end loans
was 1.77 percent at March 31, 2015, and at December 31, 2014,
compared with 1.89 percent at March 31, 2014. The ratio of the
allowance for credit losses to nonperforming loans was 322 percent
at March 31, 2015, compared with 298 percent at December 31, 2014,
and 278 percent at March 31, 2014.
ALLOWANCE FOR CREDIT LOSSES
Table 8 ($ in millions)
1Q 4Q 3Q
2Q 1Q 2015
% (b) 2014 % (b)
2014 % (b) 2014 %
(b) 2014 % (b) Balance,
beginning of period $4,375 $4,414 $4,449 $4,497 $4,537 Net
charge-offs Commercial 40 .21 48 .26 52 .29 52 .30 34 .21 Lease
financing 3 .23 (2 ) (.15 ) 6 .46 3 .24 2
.16 Total commercial 43 .21 46 .23 58 .30 55 .29 36 .21
Commercial mortgages (1 ) (.01 ) (3 ) (.04 ) 1 .01 (6 ) (.08 ) (1 )
(.01 ) Construction and development (17 ) (.72 ) (7 ) (.30 ) 3
.13 2 .09 (2 ) (.10 ) Total commercial real estate
(18 ) (.17 ) (10 ) (.10 ) 4 .04 (4 ) (.04 ) (3 ) (.03 )
Residential mortgages 35 .28 39 .30 42 .32 57 .44 57 .45
Credit card 163 3.71 160 3.53 158 3.53 170 3.92 170 3.96
Retail leasing 1 .07 1 .07 -- -- 1 .07 -- -- Home equity and second
mortgages 14 .36 17 .43 24 .61 23 .60 31 .82 Other 41 .60 52
.76 49 .72 45 .68 45 .69 Total other
retail 56 .46 70 .57 73 .59 69 .58 76 .65 Total net charge-offs,
excluding covered loans 279 .47
305 .51 335 .56 347 .60 336 .60 Covered loans -- -- 3
.17 1 .05 2 .10 5 .24 Total net charge-offs
279 .46 308 .50 336 .55 349 .58 341 .59 Provision for credit losses
264 288 311 324 306 Other changes (a) (9 ) (19 ) (10 ) (23 ) (5 )
Balance, end of period $4,351 $4,375 $4,414
$4,449 $4,497 Components Allowance for loan
losses $4,023 $4,039 $4,065 $4,132 $4,189 Liability for unfunded
credit commitments 328 336 349 317 308
Total allowance for credit losses $4,351 $4,375
$4,414 $4,449 $4,497 Gross
charge-offs $383 $415 $410 $432 $422 Gross recoveries $104 $107 $74
$83 $81 Allowance for credit losses as a percentage of
Period-end loans, excluding covered loans 1.79 1.78 1.81 1.83 1.90
Nonperforming loans, excluding covered loans 321 297 291 294 293
Nonperforming assets, excluding covered assets 261 245 245 246 243
Period-end loans 1.77 1.77 1.80 1.82 1.89 Nonperforming
loans 322 298 282 279 278 Nonperforming assets 257 242 230 229 225
(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
Nonperforming assets at March 31, 2015, totaled $1,696 million,
compared with $1,808 million at December 31, 2014, and $1,999
million at March 31, 2014. The ratio of nonperforming assets to
loans and other real estate was 0.69 percent at March 31, 2015,
compared with 0.73 percent at December 31, 2014, and 0.84 percent
at March 31, 2014. Total commercial nonperforming loans were $25
million (22.3 percent) lower on a linked quarter basis and $101
million (53.7 percent) lower year-over-year. Total commercial real
estate nonperforming loans decreased by $42 million (16.2 percent)
on a linked quarter basis and were $52 million (19.3 percent) lower
year-over-year. Residential mortgage nonperforming loans decreased
$39 million (4.5 percent) on a linked quarter basis but increased
$48 million (6.2 percent) year-over-year. Credit card nonperforming
loans were $8 million (26.7 percent) lower on a linked quarter
basis and $43 million (66.2 percent) lower year-over-year. Other
retail nonperforming loans were relatively flat on a linked quarter
basis and year-over-year.
Accruing loans 90 days or more past due were $880 million ($521
million excluding covered loans) at March 31, 2015, compared with
$945 million ($550 million excluding covered loans) at December 31,
2014, and $1,167 million ($695 million excluding covered loans) at
March 31, 2014.
DELINQUENT LOAN RATIOS AS A PERCENT OF ENDING LOAN
BALANCES Table 9 (Percent)
Mar 31 Dec 31 Sep 30 Jun
30 Mar 31 2015 2014
2014 2014 2014 Delinquent
loan ratios - 90 days or more past due
excluding
nonperforming loans Commercial .05 .05 .05 .06 .06 Commercial real
estate .07 .05 .03 .06 .06 Residential mortgages .33 .40 .41 .49
.64 Credit card 1.19 1.13 1.10 1.06 1.21 Other retail .15 .15 .16
.15 .18 Total loans, excluding covered loans .22 .23 .22 .25 .30
Covered loans 7.01 7.48 6.10 6.14 5.83 Total loans .36 .38 .39 .43
.49 Delinquent loan ratios - 90 days or more past due
including nonperforming loans Commercial .16 .19 .27 .30 .32
Commercial real estate .58 .65 .62 .62 .73 Residential mortgages
1.95 2.07 2.02 2.06 2.14 Credit card 1.32 1.30 1.32 1.35 1.59 Other
retail .55 .53 .53 .54 .58 Total loans, excluding covered loans .77
.83 .84 .87 .95 Covered loans 7.25 7.74 7.34 7.73 7.46 Total loans
.91 .97 1.03 1.08 1.17
ASSET QUALITY
Table
10 ($ in millions)
Mar
31 Dec 31 Sep 30 Jun 30 Mar 31
2015 2014 2014
2014 2014 Nonperforming loans Commercial $74
$99 $161 $174 $174 Lease financing 13 13 12 16
14 Total commercial 87 112 173 190 188 Commercial
mortgages 142 175 147 121 156 Construction and development 75
84 94 105 113 Total commercial real
estate 217 259 241 226 269 Residential mortgages 825 864 841
818 777 Credit card 22 30 40 52 65 Other retail 187 187
184 191 188 Total nonperforming loans,
excluding covered loans 1,338 1,452 1,479 1,477 1,487
Covered loans 12 14 88 119 132 Total
nonperforming loans 1,350 1,466 1,567 1,596 1,619 Other real
estate (a) 293 288 275 279 296 Covered other real estate (a) 37 37
72 58 73 Other nonperforming assets 16 17 9 10
11 Total nonperforming assets (b) $1,696
$1,808 $1,923 $1,943 $1,999 Total
nonperforming assets, excluding covered assets $1,647 $1,757
$1,763 $1,766 $1,794
Accruing loans 90 days or more past due,
excluding covered loans
$521 $550 $532 $581 $695
Accruing loans 90 days or more past due $880 $945
$962 $1,038 $1,167
Performing restructured loans, excluding
GNMA and covered loans
$2,684 $2,832 $2,818 $2,911 $3,006
Performing restructured GNMA and covered loans $2,186
$2,273 $2,685 $3,072 $3,003
Nonperforming assets to loans plus ORE,
excluding covered assets (%)
.68 .72 .74 .75 .78 Nonperforming assets to loans plus ORE
(%) .69 .73 .78 .80 .84
(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.
Capital Management
Total U.S. Bancorp shareholders’ equity was $44.3 billion at
March 31, 2015, compared with $43.5 billion at December 31, 2014,
and $42.1 billion at March 31, 2014. During the first quarter, the
Company returned 70 percent of first quarter earnings to
shareholders, including $438 million in common stock dividends and
$518 million of repurchased common stock.
COMMON SHARES
Table 11 (Millions)
1Q 4Q 3Q 2Q
1Q 2015 2014 2014
2014 2014 Beginning shares outstanding
1,786 1,795 1,809 1,821 1,825
Shares issued for stock incentive plans,
acquisitions and other corporate purposes
6 2 2 3 8 Shares repurchased (12 ) (11 ) (16 )
(15 ) (12 ) Ending shares outstanding 1,780
1,786 1,795 1,809 1,821
Under the Basel III transitional standardized approach, the
common equity tier 1 capital ratio was 9.6 percent at March 31,
2015, compared with 9.7 percent at December 31, 2014, and at March
31, 2014. The tier 1 capital ratio was 11.1 percent at March 31,
2015, compared with 11.3 percent at December 31, 2014, and 11.4
percent at March 31, 2014. Under the Basel III transitional
advanced approaches, the common equity tier 1 capital to
risk-weighted assets ratio was 12.3 percent at March 31, 2015,
compared with 12.4 percent at December 31, 2014. All regulatory
ratios continue to be in excess of “well-capitalized” requirements.
In addition, the common equity tier 1 capital to risk-weighted
assets ratio estimated for the Basel III standardized approach as
if fully implemented was 9.2 percent at March 31, 2015, compared
with 9.0 percent at December 30, 2014, and at March 31, 2014, and
the common equity tier 1 capital to risk-weighted assets ratio
estimated for the Basel III advanced approaches as if fully
implemented was 11.8 percent at March 31, 2015, and at December 31,
2014. The tangible common equity to tangible assets ratio was 7.6
percent at March 31, 2015, compared with 7.5 percent at December
31, 2014, and 7.8 percent at March 31, 2014.
CAPITAL POSITION
Table
12 ($ in millions)
Mar 31 Dec
31 Sep 30 Jun 30 Mar
31 2015 2014
2014 2014 2014
Total U.S. Bancorp shareholders' equity $44,277 $43,479
$43,141 $42,700 $42,054
Standardized Approach
Basel III transitional standardized approach Common equity tier 1
capital $31,308 $30,856 $30,213 $29,760 $29,463 Tier 1 capital
36,382 36,020 35,377 34,924 34,627 Total risk-based capital 43,558
43,208 42,509 41,034 40,741 Common equity tier 1 capital
ratio 9.6 % 9.7 % 9.7 % 9.6 % 9.7 % Tier 1 capital ratio 11.1 11.3
11.3 11.3 11.4 Total risk-based capital ratio 13.3 13.6 13.6 13.2
13.5 Leverage ratio 9.3 9.3 9.4 9.6 9.7
Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully implemented
standardized approach
9.2 9.0 9.0 8.9 9.0
Advanced Approaches
Common equity tier 1 capital to
risk-weighted assets for the Basel III transitional advanced
approaches
12.3 12.4 12.4 12.3
Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully implemented
advanced approaches
11.8 11.8 11.8 11.7
Tangible common equity to tangible
assets 7.6 7.5 7.6 7.5 7.8
Tangible common equity to
risk-weighted assets 9.3 9.3 9.3 9.2 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 next 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. In the second quarter of 2014, the Company exited its
parallel run qualification period, resulting in its capital
adequacy now being evaluated against the Basel III methodology that
is most restrictive.
Lines of Business
The Company’s major lines of business are Wholesale Banking and
Commercial Real Estate, Consumer and Small Business Banking, Wealth
Management and Securities Services, Payment Services, and Treasury
and Corporate Support. These operating segments are components of
the Company about which financial information is prepared and is
evaluated regularly by management in deciding how to allocate
resources and assess performance. Noninterest expenses incurred by
centrally managed operations or business lines that directly
support another business line’s operations are charged to the
applicable business line based on its utilization of those
services, primarily measured by the volume of customer activities,
number of employees or other relevant factors. These allocated
expenses are reported as net shared services expense within
noninterest expense. Designations, assignments and allocations
change from time to time as management systems are enhanced,
methods of evaluating performance or product lines change or
business segments are realigned to better respond to the Company’s
diverse customer base. During 2015, certain organization and
methodology changes were made and, accordingly, prior period
results were restated and presented on a comparable basis.
Wholesale Banking and Commercial Real Estate offers
lending, equipment finance and small-ticket leasing, depository
services, treasury management, capital markets, international trade
services and other financial services to middle market, large
corporate, commercial real estate, financial institution,
non-profit and public sector clients. Wholesale Banking and
Commercial Real Estate contributed $219 million of the Company’s
net income in the first quarter of 2015, compared with $275 million
in the first quarter of 2014 and $281 million in the fourth quarter
of 2014. Wholesale Banking and Commercial Real Estate’s net income
decreased $56 million (20.4 percent) from the same quarter of 2014
due to a higher provision for credit losses and an increase in
total noninterest expense, partially offset by an increase in total
net revenue. Total net revenue increased by $6 million (0.8
percent), due to a 6.0 percent increase in net interest income,
partially offset by a 9.4 percent decrease in total noninterest
income. Net interest income increased by $29 million (6.0 percent)
year-over-year, primarily due to an increase in average total loans
and deposits, partially offset by lower rates and fees on loans.
Total noninterest income decreased by $23 million (9.4 percent),
driven by lower wholesale transaction activity and loan-related
fees, along with lower commercial leasing revenue, partially offset
by increased bond underwriting fees. Total noninterest expense was
$18 million (5.8 percent) higher compared with a year ago, due to
an increase in variable compensation expense and the FDIC insurance
assessment allocation, based on the level of commitments. The
provision for credit losses was $77 million higher year-over-year
due to an unfavorable change in the reserve allocation reflecting
the recent decline in energy prices and higher net charge-offs.
Wholesale Banking and Commercial Real Estate’s contribution to
net income in the first quarter of 2015 was $62 million (22.1
percent) lower than the fourth quarter of 2014, due to a decrease
in total net revenue, an increase in total noninterest expense, and
an increase in the provision for credit losses. Total net revenue
decreased by $38 million (4.9 percent) compared with the prior
quarter. Net interest income decreased by $21 million (3.9 percent)
on a linked quarter basis, primarily due to lower rates and fees on
loans and fewer days in the quarter, partially offset by higher
average loans. Total noninterest income decreased by $17 million
(7.1 percent) due to lower wholesale transaction activity and
loan-related fees, partially offset by increased bond underwriting
fees. Total noninterest expense increased by $18 million (5.8
percent) due to higher compensation and employee benefits expense
related to higher pension costs and seasonally higher payroll
taxes, and higher net shared services expense. The provision for
credit losses increased by $42 million due to an unfavorable change
in the reserve allocation reflecting the recent decline in energy
prices and an increase in net charge-offs.
Consumer and Small Business Banking delivers products and
services through banking offices, telephone servicing and sales,
on-line services, direct mail, ATM processing and mobile devices,
such as mobile phones and tablet computers. It encompasses
community banking, metropolitan banking, in-store banking, small
business banking, consumer lending, workplace banking, student
banking and 24-hour banking (collectively, the retail banking
division), as well as mortgage banking. Consumer and Small Business
Banking contributed $302 million of the Company’s net income in the
first quarter of 2015, a $14 million (4.9 percent) increase from
the first quarter of 2014 and an $8 million (2.6 percent) decrease
from the prior quarter. Within Consumer and Small Business Banking,
the retail banking division reported an 18.5 percent increase in
its contribution from the same quarter of last year, principally
due to lower provision for credit losses, partially offset by an
increase in total noninterest expense and lower total net revenue.
Retail banking’s total net revenue was 4.3 percent lower than the
first quarter of 2014. Net interest income decreased 5.8 percent,
primarily as a result of lower fees due to the wind down of the CAA
product and lower rates on loans, partially offset by higher
average loan and deposit balances. Total noninterest income for the
retail banking division decreased 0.5 percent from a year ago,
principally due to lower retail leasing revenue, partially offset
by an increase in deposit service charges. Total noninterest
expense for the retail banking division in the first quarter of
2015 increased 3.7 percent over the same quarter of the prior year,
primarily due to higher compensation and employee benefits expense,
partially offset by lower marketing expenses and lower FDIC
insurance assessments. The provision for credit losses for the
retail banking division decreased $140 million on a year-over-year
basis due to a favorable change in the reserve allocation and lower
net charge-offs. The contribution of the mortgage banking division
was 14.2 percent lower than the first quarter of 2014, reflecting
an increase in total noninterest expense and an increase the
provision for credit losses, partially offset by an increase in
total net revenue. The division’s 5.6 percent increase in total net
revenue was due to a 9.7 percent increase in net interest income,
primarily the result of higher average loans held for sale, as well
as a 3.0 percent increase in total noninterest income, principally
due to higher origination and sales volume, partially offset by an
unfavorable change in the valuation of MSRs, net of hedging
activities. Total noninterest expense was 14.0 percent higher
compared with the prior year due to higher mortgage
servicing-related expenses and increased compensation expense,
partially offset by lower professional services expense. The $19
million increase in the provision for credit losses for the
mortgage banking division was due to an unfavorable change in the
reserve allocation, partially offset by lower net charge-offs.
Consumer and Small Business Banking’s contribution in the first
quarter of 2015 was $8 million (2.6 percent) lower than the fourth
quarter of 2014, primarily due to a decrease in total net revenue
and an increase in total noninterest expense, partially offset by a
decrease in the provision for credit losses. Within Consumer and
Small Business Banking, the retail banking division’s contribution
increased 5.3 percent, mainly due to a decrease in the provision
for credit losses and a decrease in total noninterest expense,
partially offset by a decrease in total net revenue. Total net
revenue for the retail banking division decreased 2.8 percent
compared with the previous quarter. Net interest income was 2.3
percent lower compared with the prior quarter primarily due to
fewer days in the quarter, partially offset by higher average
deposit balances. Total noninterest income was 4.0 percent lower on
a linked quarter basis, driven by seasonally lower deposit service
charges. The provision for credit losses decreased 88.3 percent on
a linked quarter basis due to a favorable change in the reserve
allocation and lower net charge-offs. The contribution of the
mortgage banking division decreased 14.9 percent from the fourth
quarter of 2014 primarily due to higher total noninterest expense
and provision for credit losses. Total net revenue increased 0.5
percent due to a 1.7 percent increase in total noninterest income,
the result of higher origination and sales revenue, partially
offset by an unfavorable change in the valuation of MSRs, net of
hedging activities. The increase in total net revenue was partially
offset by a 1.3 percent decrease in net interest income primarily
due to two fewer days in the quarter and lower loan rates and
average loan balances. Total noninterest expense increased 13.4
percent, primarily reflecting higher mortgage servicing-related
expenses, along with higher compensation and employee benefits
expense related to higher pension costs and seasonally higher
payroll taxes, partially offset by lower professional services
expense. The provision for credit losses for the mortgage banking
division increased $4 million on a linked quarter basis primarily
due to an unfavorable change in the reserve allocation.
Wealth Management and Securities Services provides
private banking, financial advisory services, investment
management, retail brokerage services, insurance, trust, custody
and fund servicing through five businesses: Wealth Management,
Corporate Trust Services, U.S. Bancorp Asset Management,
Institutional Trust & Custody and Fund Services. Wealth
Management and Securities Services contributed $59 million of the
Company’s net income in the first quarter of 2015, compared with
$52 million in the first quarter of 2014 and $65 million in the
fourth quarter of 2014. The business line’s contribution was $7
million (13.5 percent) higher than the same quarter of 2014,
principally due to an increase in total net revenue, partially
offset by an increase in total noninterest expense. Total net
revenue increased by $29 million (6.9 percent) year-over-year,
driven by a $17 million (5.0 percent) increase in total noninterest
income, reflecting the impact of account growth and improved market
conditions, and an increase in net interest income of $12 million
(15.0 percent), principally due to higher average loan and deposit
balances and an increase in the margin benefit from corporate trust
deposits. Total noninterest expense increased by $15 million (4.4
percent) primarily as a result of higher net shared services and
compensation and employee benefits expense due to merit and
increased pension costs. The provision for credit losses increased
$2 million (50.0 percent) compared with the prior year quarter due
to higher net charge-offs.
The business line’s contribution in the first quarter of 2015
was $6 million (9.2 percent) lower than the prior quarter. Total
net revenue decreased 1.1 percent on a linked quarter basis,
primarily reflecting a decrease in net interest income of $4
million (4.2 percent), principally due to lower average deposit
balances and fewer days in the quarter, partially offset by the
impact of higher rates on the margin benefit from corporate trust
deposits. Total noninterest expense was $7 million (2.0 percent)
higher than the prior quarter primarily due to higher compensation
and employee benefits expense, driven by increased pension costs
and the seasonal impact of stock based compensation grants and
payroll taxes, partially offset by lower professional services
expense. The provision for credit losses decreased $3 million on a
linked quarter basis due to a favorable change in the reserve
allocation and lower net charge-offs.
Payment Services includes consumer and business credit
cards, stored-value cards, debit cards, corporate, government and
purchasing card services, consumer lines of credit and merchant
processing. Payment Services contributed $262 million of the
Company’s net income in the first quarter of 2015, compared with
$238 million in the first quarter of 2014 and $300 million in the
fourth quarter of 2014. The $24 million (10.1 percent) increase in
the business line’s contribution over the prior year was due to an
increase in total net revenue, partially offset by an increase in
total noninterest expense. Total net revenue increased by $53
million (4.5 percent) year-over-year. Net interest income increased
by $51 million (12.3 percent), primarily due to higher average loan
balances and fees and improved loan rates. Total noninterest income
was $2 million (0.3 percent) higher year-over-year, due to higher
merchant processing services revenue driven by increased product
fees and transaction volumes, partially offset by the impact of
foreign currency rate changes. Total noninterest expense increased
by $20 million (3.3 percent) over the first quarter of 2014,
primarily due to higher net shared services expense and
compensation and employee benefits expense related to higher
pension costs, partially offset by reductions in professional
services, marketing, and other intangibles expense. The provision
for credit losses decreased by $4 million (2.0 percent) due to
lower net charge-offs, partially offset by an unfavorable change in
the reserve allocation.
Payment Services’ contribution in the first quarter of 2015
decreased $38 million (12.7 percent) from the fourth quarter of
2014. Total net revenue decreased $70 million (5.3 percent) on a
linked quarter basis driven by lower total noninterest income. Net
interest income decreased by $4 million (0.9 percent) from the
fourth quarter due to fewer days in the quarter and lower average
loan balances, partially offset by higher loan rates. Total
noninterest income decreased by $66 million (7.8 percent),
primarily due to a decrease in credit and debit card revenue due to
seasonally lower transaction volumes and fewer processing days, and
lower merchant processing revenue due to seasonally lower
transaction volumes, fewer processing days and the impact of
foreign currency rate changes. Total noninterest expense was $15
million (2.4 percent) lower on a linked quarter basis primarily due
to lower professional services and intangibles expenses. The
provision for credit losses was $4 million (2.1 percent) higher on
a linked quarter basis due to higher net charge-offs, partially
offset by a favorable change in the reserve allocation.
Treasury and Corporate Support includes the Company’s
investment portfolios, most covered commercial and commercial real
estate loans and related other real estate owned, funding, capital
management, interest rate risk management, income taxes not
allocated to business lines, including most investments in
tax-advantaged projects, and the residual aggregate of those
expenses associated with corporate activities that are managed on a
consolidated basis. Treasury and Corporate Support recorded net
income of $589 million in the first quarter of 2015, compared with
$544 million in the first quarter of 2014 and $532 million in the
fourth quarter of 2014. The increase in net income of $45 million
(8.3 percent) over the prior year was driven by an increase in
total net revenue, primarily due to an increase in total
noninterest income, partially offset by a decrease in net interest
income and an increase in total noninterest expense. Net interest
income decreased by $5 million (0.8 percent) from the first quarter
of 2014, principally due to growth in the investment portfolio at
lower average rates, along with lower income from the run-off of
acquired assets. Total noninterest income increased by $45 million
(34.1 percent) over the first quarter of last year, mainly due to
gains on the sales of equity investments and higher commercial
products revenue. Total noninterest expense increased by $6 million
(3.6 percent), principally due to an increase in compensation and
employee benefits expense resulting from higher pension costs, and
increased mortgage servicing-related expenses, partially offset by
lower costs for investments in tax-advantaged projects. The
provision for credit losses was $4 million (66.7 percent) higher
year-over-year due to an unfavorable change in the reserve
allocation, partially offset by a decrease in net charge-offs.
Net income in the first quarter of 2015 was $57 million (10.7
percent) higher on a linked quarter basis, as decreases in total
noninterest expense and the provision for credit losses were
partially offset by a decrease in total net revenue. Total net
revenue was $115 million (12.4 percent) lower than the prior
quarter primarily due to the fourth quarter 2014 Nuveen gain. The
$175 million (50.1 percent) decrease in total noninterest expense
was principally due to fourth quarter 2014 notable items, which
included charitable contributions and legal accruals, and lower
costs related to investments in tax-advantaged projects, partially
offset by increased pension costs and seasonally higher payroll
taxes and compensation expense reflecting the seasonal impact of
stock based compensation grants. The provision for credit losses
was $18 million lower compared with the fourth quarter of 2014 due
to a decrease in net charge-offs, partially offset by an
unfavorable change in the reserve allocation.
LINE OF BUSINESS FINANCIAL PERFORMANCE (a)
Table 13 ($ in millions)
Net Income Attributable to
U.S. Bancorp Percent Change 1Q 2015 1Q
4Q 1Q 1Q15 vs 1Q15 vs Earnings
Business Line 2015 2014
2014 4Q14 1Q14
Composition
Wholesale Banking and Commercial Real
Estate
$219 $281 $275 (22.1 ) (20.4 ) 15 %
Consumer and Small Business Banking
302 310 288 (2.6 ) 4.9 21
Wealth Management and Securities
Services
59 65 52 (9.2 ) 13.5 4 Payment Services 262 300 238 (12.7 ) 10.1 19
Treasury and Corporate Support 589 532 544 10.7 8.3
41 Consolidated Company $1,431 $1,488 $1,397
(3.8 ) 2.4 100 % (a) preliminary data
Additional schedules containing more detailed information about
the Company’s business line results are available on the web at
usbank.com or by calling Investor Relations at 612-303-4328.
On Wednesday, April 15, 2015, at 8:30 a.m. CDT, Richard K.
Davis, chairman, president and chief executive officer, and Kathy
Rogers, vice chairman and chief financial officer, will host a
conference call to review the financial results. The conference
call will be available online and by telephone. The presentation
used during the call will be available at
www.usbank.com. 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 87116125. For those unable to
participate during the live call, a recording of the call will be
available beginning approximately two hours after the conference
call ends on Wednesday, April 15 and will be accessible through
Wednesday, April 22 at 11:00 p.m. CDT. 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
87116125.
Minneapolis-based U.S. Bancorp (“USB”), with $410 billion in
assets as of March 31, 2015, is the parent company of U.S. Bank
National Association, the 5th largest commercial bank in the United
States. The Company operates 3,172 banking offices in 25 states and
5,016 ATMs and provides a comprehensive line of banking, brokerage,
insurance, investment, mortgage, trust and payment services
products to consumers, businesses and institutions. Visit U.S.
Bancorp on the web at 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,
residual value 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 (Dollars and Shares in Millions,
Except Per Share Data) March 31, (Unaudited) 2015
2014
Interest Income Loans $2,493 $2,522 Loans held for sale
41 27 Investment securities 495 441 Other interest income 32
32 Total interest income 3,061 3,022
Interest
Expense Deposits 118 119 Short-term borrowings 61 69 Long-term
debt 184 184 Total interest expense 363
372 Net interest income 2,698 2,650 Provision for
credit losses 264 306 Net interest income
after provision for credit losses 2,434 2,344
Noninterest
Income Credit and debit card revenue 241 239 Corporate payment
products revenue 170 173 Merchant processing services 359 356 ATM
processing services 78 78 Trust and investment management fees 322
304 Deposit service charges 161 157 Treasury management fees 137
133 Commercial products revenue 200 205 Mortgage banking revenue
240 236 Investment products fees 47 46 Securities gains (losses),
net -- 5 Other 199 176 Total noninterest
income 2,154 2,108
Noninterest Expense Compensation 1,179
1,115 Employee benefits 317 289 Net occupancy and equipment 247 249
Professional services 77 83 Marketing and business development 70
79 Technology and communications 214 211 Postage, printing and
supplies 82 81 Other intangibles 43 49 Other 436 388
Total noninterest expense 2,665 2,544
Income before income taxes 1,923 1,908 Applicable income taxes 479
496 Net income 1,444 1,412 Net (income) loss
attributable to noncontrolling interests (13 ) (15 ) Net
income attributable to U.S. Bancorp $1,431 $1,397
Net income applicable to U.S. Bancorp common shareholders
$1,365 $1,331 Earnings per common share
$.77 $.73 Diluted earnings per common share $.76 $.73 Dividends
declared per common share $.245 $.230 Average common shares
outstanding 1,781 1,818 Average diluted common shares outstanding
1,789 1,828
U.S. Bancorp
Consolidated Ending Balance Sheet March
31, December 31, March 31, (Dollars in Millions) 2015
2014 2014
Assets (Unaudited) (Unaudited) Cash and due
from banks $14,072 $10,654 $7,408 Investment securities
Held-to-maturity 45,597 44,974 40,712 Available-for-sale 56,826
56,069 44,761 Loans held for sale 8,012 4,792 1,843 Loans
Commercial 82,732 80,377 73,701 Commercial real estate 42,409
42,795 40,131 Residential mortgages 51,089 51,619 51,708 Credit
card 17,504 18,515 17,129 Other retail 46,449 49,264
47,607 Total loans, excluding covered loans
240,183 242,570 230,276 Covered loans 5,118 5,281
8,099 Total loans 245,301 247,851 238,375 Less
allowance for loan losses (4,023 ) (4,039 ) (4,189 )
Net loans 241,278 243,812 234,186 Premises and equipment 2,575
2,618 2,589 Goodwill 9,363 9,389 9,204 Other intangible assets
3,033 3,162 3,422 Other assets 29,477 27,059
27,164 Total assets $410,233 $402,529
$371,289
Liabilities and
Shareholders' Equity Deposits Noninterest-bearing $79,220
$77,323 $73,363 Interest-bearing 179,853 177,452 157,918 Time
deposits greater than $100,000 27,528 27,958
29,331 Total deposits 286,601 282,733 260,612
Short-term borrowings 28,226 29,893 30,781 Long-term debt 35,104
32,260 23,774 Other liabilities 15,337 13,475
13,379 Total liabilities 365,268 358,361 328,546
Shareholders' equity Preferred stock 4,756 4,756 4,756 Common stock
21 21 21 Capital surplus 8,315 8,313 8,236 Retained earnings 43,463
42,530 39,584 Less treasury stock (11,564 ) (11,245 ) (9,693 )
Accumulated other comprehensive income (loss) (714 ) (896 )
(850 ) Total U.S. Bancorp shareholders' equity 44,277 43,479
42,054 Noncontrolling interests 688 689
689 Total equity 44,965 44,168
42,743 Total liabilities and equity $410,233
$402,529 $371,289 U.S.
Bancorp
Non-GAAP Financial
Measures March 31, December 31, September 30, June 30,
March 31, (Dollars in Millions, Unaudited) 2015
2014 2014 2014
2014 Total equity $44,965 $44,168 $43,829 $43,386 $42,743
Preferred stock (4,756) (4,756) (4,756) (4,756) (4,756)
Noncontrolling interests (688) (689) (688) (686) (689) Goodwill
(net of deferred tax liability) (1) (8,360) (8,403) (8,503) (8,548)
(8,352) Intangible assets, other than mortgage servicing rights
(783) (824) (877) (925)
(804) Tangible common equity (a) 30,378 29,496
29,005 28,471 28,142 Tangible common equity (as calculated
above) 30,378 29,496 29,005 28,471 28,142 Adjustments (2) 158
172 187 224
239 Common equity tier 1 capital estimated for the Basel III
fully implemented standardized and advanced approaches (b) 30,536
29,668 29,192 28,695 28,381 Total assets 410,233 402,529
391,284 389,065 371,289 Goodwill (net of deferred tax liability)
(1) (8,360) (8,403) (8,503) (8,548) (8,352) Intangible assets,
other than mortgage servicing rights (783) (824)
(877) (925) (804)
Tangible assets (c) 401,090 393,302 381,904 379,592 362,133
Risk-weighted assets, determined in accordance with prescribed
regulatory requirements (d) 327,709 * 317,398 311,914 309,929
302,841 Adjustments (3) 3,153 * 11,110 12,837
12,753 13,238 Risk-weighted
assets estimated for the Basel III fully implemented standardized
approach (e) 330,862 * 328,508 324,751 322,682 316,079
Risk-weighted assets, determined in accordance with prescribed
transitional advanced approaches regulatory requirements 254,892 *
248,596 243,909 241,929 Adjustments (4) 3,321 * 3,270
3,443 3,383 Risk-weighted assets estimated for
the Basel III fully implemented advanced approaches (f) 258,213 *
251,866 247,352 245,312
Ratios * Tangible common
equity to tangible assets (a)/(c) 7.6 % 7.5 % 7.6 % 7.5 % 7.8 %
Tangible common equity to risk-weighted assets (a)/(d) 9.3 9.3 9.3
9.2 9.3 Common equity tier 1 capital to risk-weighted assets
estimated for the Basel III fully implemented standardized approach
(b)/(e) 9.2 9.0 9.0 8.9 9.0 Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully implemented
advanced approaches (b)/(f) 11.8 11.8
11.8 11.7
*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 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.
U.S. BancorpMediaDana Ripley,
612-303-3167orInvestors/AnalystsSean O’Connor, 612-303-0778
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