Record Earnings Per Diluted Common
Share
Return on average assets of 1.46 percent and
average common equity of 14.3 percent
Returned 76 percent of second quarter
earnings to shareholders
U.S. Bancorp (NYSE:USB) today reported net income of $1,483
million for the second quarter of 2015, or $0.80 per diluted common
share, compared with $1,495 million, or $0.78 per diluted common
share, in the second quarter of 2014.
Highlights for the second quarter of 2015 included:
- Return on average assets of 1.46
percent and average common equity of 14.3 percent
- Growth in average total loans of 4.0
percent over the second quarter of 2014 and 0.7 percent on a linked
quarter basis (excluding student loans, which were reclassified to
held for sale at the end of the first quarter of 2015)
- Growth in average total commercial
loans of 11.0 percent over the second quarter of 2014 and 2.1
percent over the first quarter of 2015
- Growth in average commercial and
commercial real estate revolving commitments of 10.5 percent
year-over-year and 2.0 percent over the prior quarter
- Growth in total other retail loans of
5.7 percent over the second quarter of 2014 and 1.7 over the first
quarter of 2015 (excluding student loans)
- Strong new lending activity of $54.2
billion during the second quarter, including:
- $29.7 billion of new and renewed
commercial and commercial real estate commitments
- $3.1 billion of lines related to new
credit card accounts
- $21.4 billion of mortgage and other
retail loan originations
- Growth in average total deposits of 8.9
percent over the second quarter of 2014 and 2.6 percent on a linked
quarter basis
- Average low cost deposits, including
noninterest-bearing and total savings deposits, grew by 13.3
percent year-over-year and 4.4 percent on a linked quarter
basis
- Net interest income growth over the
second quarter of 2014 driven by 9.1 percent growth in average
earning assets, partially offset by the impact of the 2014 wind
down of the Checking Account Advance (“CAA”) product. Net interest
income increased over the previous quarter mainly due to an
additional day in the quarter.
- Trust and investment management fees
increased 7.4 percent on a year-over-year basis
- Improving trends in payments-related
fee revenue led by merchant processing services which increased 7.6
percent on a year-over-year basis (excluding the impact of foreign
currency rate changes).
- Decline in net charge-offs of 15.2
percent on a year-over-year basis. Net charge-offs increased
modestly (6.1 percent) over the previous quarter as a result of
lower recoveries. Provision for credit losses was $15 million less
than net charge-offs in the current quarter.
- Decreases in nonperforming assets of
7.0 percent on a linked quarter basis and 18.8 percent on a
year-over-year basis
- Capital generation resulted in a return
of 76 percent of second quarter earnings to shareholders through
dividends and the buyback of 14 million common shares, and
continued to reinforce capital position. Ratios at June 30, 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 12.4 percent
- Basel III transitional standardized
approach:
- Common equity tier 1 capital ratio of
9.5 percent
- Tier 1 capital ratio of 11.0
percent
- Total risk-based capital ratio of 13.1
percent
U.S. Bancorp Chairman, President and Chief Executive Officer
Richard K. Davis said, “U.S. Bancorp once again demonstrated the
effectiveness of its business model as we delivered solid second
quarter financial results in a challenging operating environment
for financial institutions. We achieved net income of $1.48
billion, or $0.80 per diluted common share and continue to realize
industry-leading performance measures, with a return on average
assets (ROA) of 1.46 percent, return on average common equity (ROE)
of 14.3 percent, and an efficiency ratio of 53.2 percent. As we
pursue our vision for the future, we must continue to balance the
investments we make in our highest return initiatives with prudent
financial discipline – that’s the nature of navigating through this
low interest rate environment. Furthermore, because of the overall
strength and consistency of our results, we returned 76 percent of
our earnings to shareholders through dividends and share buybacks
in the second quarter.”
Davis continued, “Regardless of the operating environment, we
are also well positioned to create value for our customers and
shareholders, primarily because of our diverse business profile,
which allows us to balance revenue generation between our margin
and fee businesses. As we execute on the fundamentals of our core
businesses, we are also investing in our omnichannel competencies
as consumers’ needs, behaviors, and expectations rapidly evolve. We
are intersecting our digital banking channels with our traditional
banking channels to provide our customers with U.S. Bank’s full
portfolio of products, services, and capabilities, which we believe
will fuel future growth. The investment we are making in our
omnichannel initiative is one of the reasons U.S. Bank’s Digital
and Innovation team was named as an innovator to watch in 2015 by
Bank Innovation magazine. We are proud of this recognition and it
reflects our capacity to focus on the long term, while we manage
through a difficult short term.”
“U.S. Bancorp continues to deliver a solid financial result
because of the hard work, dedication, and determination of our
people. We have a proven track record of success and we remain
confident in our ability to address our customers’ and clients’
distinct financial objectives in any economic environment – because
of our team of 67,000 passionate U.S. Bankers. As we navigate
through these uncertain economic times, we will continue to take
appropriate and effective actions, including expense controls, to
ensure that we are meeting our value creation objectives for
customers and shareholders.”
Net income attributable to U.S. Bancorp was $1,483 million for
the second quarter of 2015, 0.8 percent lower than the $1,495
million for the second quarter of 2014, and 3.6 percent higher than
the $1,431 million for the first quarter of 2015. Diluted earnings
per common share of $0.80 in the second quarter of 2015 were a
record high, $0.02 higher than the second quarter of 2014 and $0.04
higher than the previous quarter. Return on average assets and
return on average common equity were 1.46 percent and 14.3 percent,
respectively, for the second quarter of 2015, compared with 1.60
percent and 15.1 percent, respectively, for the second quarter of
2014. The provision for credit losses was lower than net
charge-offs by $15 million in the first and second quarters of 2015
and $25 million lower than net charge-offs in the second quarter of
2014.
EARNINGS
SUMMARY
Table 1 ($ in millions, except
per-share data)
Percent Percent
Change Change 2Q
1Q 2Q 2Q15 vs 2Q15 vs YTD
YTD Percent 2015 2015
2014 1Q15
2Q14 2015 2014
Change Net income attributable to U.S.
Bancorp $1,483 $1,431 $1,495 3.6 (.8 ) $2,914 $2,892 .8 Diluted
earnings per common share $.80 $.76 $.78 5.3 2.6 $1.56 $1.51 3.3
Return on average assets (%) 1.46 1.44 1.60 1.45 1.58 Return
on average common equity (%) 14.3 14.1 15.1 14.2 14.9 Net interest
margin (%) 3.03 3.08 3.27 3.05 3.31 Efficiency ratio (%) (a) 53.2
54.3 53.1 53.7 53.0 Tangible efficiency ratio (%) (a) 52.3 53.4
52.1 52.9 52.0 Dividends declared per common share $.255
$.245 $.245 4.1 4.1 $.500 $.475 5.3 Book value per common share
(period end) $22.51 $22.20 $20.98 1.4 7.3
(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 second quarter
of 2015 was $12 million (0.8 percent) lower than the second quarter
of 2014, and $52 million (3.6 percent) higher than the first
quarter of 2015. The second quarter of 2014 included two previously
disclosed notable items impacting other noninterest income and
other noninterest expense that, together, had no impact to diluted
earnings per common share. The decrease in net income
year-over-year was principally due to a reduction in net interest
income related to the CAA product wind down, a decrease in mortgage
banking revenue primarily due to the valuation of servicing rights
net of hedging activities and an increase in noninterest expense
(excluding the prior year notable item). Partially offsetting these
increases was a decline in the provision for credit losses. The
increase in net income on a linked quarter basis was primarily due
to increases in fee-based revenue.
Total net revenue on a taxable-equivalent basis for the second
quarter of 2015 was $5,042 million, which was $146 million (2.8
percent) lower than the second quarter of 2014, as a result of the
prior year notable item (“Visa stock sale”), partially offset by a
0.9 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 a $40 million decrease related
to the CAA product wind down, lower reinvestment rates on
investment securities and continued shift in loan portfolio mix.
Noninterest income declined year-over-year as a result of the prior
year notable item and lower mortgage banking revenue, partially
offset by increases in trust and investment management fees,
merchant processing services and credit and debit card revenue.
Total net revenue on a taxable-equivalent basis was $136 million
(2.8 percent) higher on a linked quarter basis mainly due to
seasonally higher fee revenue and an increase in net interest
income due to an additional day in the quarter. Growth in
noninterest income included increases in merchant processing
services, credit and debit card revenue, deposit service charges,
commercial products revenue and trust and investment management
fees, partially offset by a decrease in mortgage banking
revenue.
Total noninterest expense in the second quarter of 2015 was
$2,682 million, which was $71 million (2.6 percent) lower than the
second quarter of 2014 and $17 million (0.6 percent) higher than
the first quarter of 2015. The decrease in total noninterest
expense year-over-year was mainly due to a settlement recorded in
the prior year relating to the Federal Housing Administration’s
insurance program (“FHA DOJ settlement”), partially offset by an
increase in compensation expense, reflecting the impact of merit
increases, acquisitions, and higher staffing for risk and
compliance activities, and increased employee benefits expense
mainly due to higher pension costs. The increase in total
noninterest expense on a linked quarter basis was primarily due to
merit-related increases in compensation expense, along with higher
professional services and marketing and business development
expenses, partially offset by a decrease in employee benefits
expense from seasonally lower payroll taxes.
The Company’s provision for credit losses for the second quarter
of 2015 was $281 million, $17 million (6.4 percent) higher than the
prior quarter and $43 million (13.3 percent) lower than the second
quarter of 2014. The provision for credit losses was lower than net
charge-offs by $15 million in the first and second quarters of 2015
and $25 million lower than net charge-offs in the second quarter of
2014. Net charge-offs in the second quarter of 2015 were $296
million, compared with $279 million in the first quarter of 2015,
and $349 million in the second quarter of 2014. Given current
economic conditions, the Company expects the level of net
charge-offs to remain relatively stable in the third quarter of
2015.
INCOME
STATEMENT HIGHLIGHTS
Table 2
(Taxable-equivalent basis, $ in millions,
except per-share data)
Percent Percent
Change Change 2Q 1Q 2Q 2Q15
vs 2Q15 vs YTD YTD Percent
2015 2015 2014
1Q15 2Q14
2015 2014 Change
Net interest income $2,770 $2,752 $2,744 .7 .9 $5,522 $5,450
1.3 Noninterest income 2,272 2,154
2,444 5.5 (7.0 ) 4,426
4,552 (2.8 ) Total net revenue 5,042 4,906 5,188 2.8 (2.8 )
9,948 10,002 (.5 ) Noninterest expense 2,682
2,665 2,753 .6 (2.6 ) 5,347
5,297 .9 Income before provision and taxes
2,360 2,241 2,435 5.3 (3.1 ) 4,601 4,705 (2.2 ) Provision for
credit losses 281 264 324
6.4 (13.3 ) 545 630 (13.5 )
Income before taxes 2,079 1,977 2,111 5.2 (1.5 ) 4,056 4,075 (.5 )
Taxable-equivalent adjustment 54 54 55 -- (1.8 ) 108 111 (2.7 )
Applicable income taxes 528 479
547 10.2 (3.5 ) 1,007 1,043
(3.5 ) Net income 1,497 1,444 1,509 3.7 (.8 ) 2,941 2,921 .7
Net (income) loss attributable to
noncontrolling interests
(14 ) (13 ) (14 ) (7.7 ) -- (27 )
(29 ) 6.9 Net income attributable to U.S. Bancorp
$1,483 $1,431 $1,495
3.6 (.8 ) $2,914 $2,892 .8
Net income applicable to U.S. Bancorp
common shareholders
$1,417 $1,365 $1,427
3.8 (.7 ) $2,782 $2,758 .9
Diluted earnings per common share $.80 $.76
$.78 5.3 2.6 $1.56
$1.51 3.3
Net Interest Income
Net interest income on a taxable-equivalent basis in the second
quarter of 2015 was $2,770 million, an increase of $26 million (0.9
percent) over the second quarter of 2014. The increase was the
result of growth in average earning assets, partially offset by
lower rates on new loans and a continued shift in loan portfolio
mix, lower rates on investment securities and the CAA product wind
down. Average earning assets were $30.4 billion (9.1 percent)
higher than the second quarter of 2014, driven by increases of
$14.8 billion (16.9 percent) in average investment securities, $6.1
billion (2.5 percent) in average total loans (4.0 percent excluding
student loans) and $5.7 billion in average loans held for sale. Net
interest income increased $18 million (0.7 percent) on a linked
quarter basis, due to an additional day in the current quarter
relative to the first quarter of 2015, with higher average earning
assets offset by continued shift in loan portfolio mix. The net
interest margin in the second quarter of 2015 was 3.03 percent,
compared with 3.27 percent in the second quarter of 2014, and 3.08
percent in the first quarter of 2015. 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 the net interest
margin was principally due to continued change in loan portfolio
mix, the impact of higher cash balances at the Federal Reserve as a
result of continued deposit growth, along with growth in lower rate
investment securities and lower investment portfolio reinvestment
rates.
Average investment securities in the second quarter of 2015 were
$14.8 billion (16.9 percent) higher year-over-year and $1.7 billion
(1.7 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.
NET INTEREST INCOME
Table 3 (Taxable-equivalent basis; $ in millions)
Change
Change 2Q 1Q 2Q 2Q15 vs 2Q15
vs YTD YTD 2015 2015
2014 1Q15
2Q14 2015 2014
Change Components of net interest income
Income on earning assets $3,123 $3,116 $3,104 $7 $19 $6,239 $6,182
$57 Expense on interest-bearing liabilities 353
364 360 (11 )
(7 ) 717 732
(15 ) Net interest income $2,770
$2,752 $2,744 $18
$26 $5,522
$5,450 $72 Average yields
and rates paid Earning assets yield 3.42 % 3.49 % 3.70 % (.07 )%
(.28 )% 3.45 % 3.75 % (.30 )% Rate paid on interest-bearing
liabilities .52 .55 .58
(.03 ) (.06 ) .54
.61 (.07 ) Gross interest
margin 2.90 % 2.94 % 3.12 %
(.04 )% (.22 )% 2.91 %
3.14 % (.23 )% Net interest margin 3.03 %
3.08 % 3.27 % (.05 )%
(.24 )% 3.05 % 3.31 %
(.26 )% Average balances Investment securities
(a) $102,391 $100,712 $87,583 $1,679 $14,808 $101,556 $84,915
$16,641 Loans 246,560 247,950 240,480 (1,390 ) 6,080 247,251
238,182 9,069 Earning assets 366,428 360,841 335,992 5,587 30,436
363,650 331,136 32,514 Interest-bearing liabilities 270,573 267,882
246,886 2,691 23,687 269,235 242,605 26,630 (a) Excludes
unrealized gain (loss)
Average total loans were $6.1 billion (2.5 percent) higher in
the second quarter of 2015 than the second quarter of 2014, ($9.5
billion, 4.0 percent, excluding student loans), driven by growth in
total commercial loans (11.0 percent), total other retail loans
(5.7 percent excluding student loans), total commercial real estate
(4.8 percent) and credit card (1.3 percent). These increases were
partially offset by declines in covered loans (35.4 percent),
including the impact of the expiration of the loss sharing
agreements on commercial and commercial real estate assets at the
end of 2014, and residential mortgages (1.4 percent). Average total
loans were $1.4 billion (0.6 percent) lower in the second quarter
of 2015 than the first quarter of 2015. Excluding student loans,
average total loans were 0.7 percent higher in the second quarter
of 2015 than the first quarter of 2015. The increase was driven by
growth in total commercial loans (2.1 percent), partially offset by
declines in covered loans (2.6 percent), credit card (1.2 percent)
and residential mortgages (0.6 percent).
AVERAGE
LOANS
Table 4 ($ in millions)
Percent
Percent
Change Change 2Q 1Q 2Q 2Q15
vs 2Q15 vs YTD YTD Percent
2015 2015 2014
1Q15 2Q14
2015 2014 Change
Commercial $77,932 $76,183 $69,920 2.3 11.5 $77,062 $67,794
13.7 Lease financing 5,321 5,325
5,100 (.1 ) 4.3 5,323 5,145 3.5
Total commercial 83,253 81,508 75,020 2.1 11.0 82,385 72,939 13.0
Commercial mortgages 32,499 33,119 32,001 (1.9 ) 1.6 32,807
32,025 2.4 Construction and development 9,947 9,552
8,496 4.1 17.1 9,751
8,250 18.2 Total commercial real estate 42,446 42,671
40,497 (.5 ) 4.8 42,558 40,275 5.7 Residential mortgages
51,114 51,426 51,815 (.6 ) (1.4 ) 51,269 51,700 (.8 ) Credit
card 17,613 17,823 17,384 (1.2 ) 1.3 17,718 17,395 1.9
Retail leasing 5,696 5,819 6,014 (2.1 ) (5.3 ) 5,756 5,997 (4.0 )
Home equity and second mortgages 15,958 15,897 15,327 .4 4.1 15,928
15,346 3.8 Other 25,415 27,604
26,587 (7.9 ) (4.4 ) 26,504 26,450
.2 Total other retail (a) 47,069 49,320
47,928 (4.6 ) (1.8 ) 48,188
47,793 .8 Total loans, excluding covered loans
241,495 242,748 232,644
(.5 ) 3.8 242,118 230,102 5.2
Covered loans 5,065 5,202 7,836
(2.6 ) (35.4 ) 5,133 8,080 (36.5
) Total loans $246,560 $247,950
$240,480 (.6 ) 2.5 $247,251
$238,182 3.8 (a) The Company transferred all of its
student loans to loans held for sale at the end of the first
quarter of 2015. Total other retail $47,069 $49,320 $47,928
(4.6 ) (1.8 ) $48,188 $47,793 .8 Less: Student loans --
(3,045 ) (3,409 ) nm nm (1,514 )
(3,467 ) (56.3 ) Total other retail excluding student loans $47,069
$46,275 $44,519 1.7 5.7
$46,674 $44,326 5.3
Average total deposits for the second quarter of 2015 were $23.4
billion (8.9 percent) higher than the second quarter of 2014.
Average noninterest-bearing deposits increased $5.5 billion (7.7
percent) year-over-year, mainly in Wholesale Banking and Commercial
Real Estate and Consumer and Small Business Banking. Average total
savings deposits were $23.8 billion (16.1 percent) higher
year-over-year, the result of growth in Consumer and Small Business
Banking, corporate trust and Wholesale Banking and Commercial Real
Estate balances. Growth in total savings deposits is primarily due
to continued strong participation in a savings product offered by
Consumer and Small Business Banking, including an increase in new
accounts and increased balances from existing customers. Average
time deposits less than $100,000 were $1.0 billion (9.5 percent)
lower due to maturities, while average time deposits greater than
$100,000 decreased $4.9 billion (15.7 percent), primarily due to
declines 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 funding needs and relative pricing.
Average total deposits increased $7.3 billion (2.6 percent) over
the first quarter of 2015. Average noninterest-bearing deposits
increased $2.8 billion (3.8 percent) on a linked quarter basis, due
to higher balances in corporate trust, Consumer and Small Business
Banking, and Wholesale Banking and Commercial Real Estate. Average
total savings deposits increased $7.6 billion (4.6 percent),
reflecting increases in corporate trust, Consumer and Small
Business Banking, and Wholesale Banking and Commercial Real Estate.
Compared with the first quarter of 2015, average time deposits less
than $100,000 decreased $477 million (4.6 percent) due to
maturities. Average time deposits greater than $100,000, which are
managed based on funding needs, decreased $2.7 billion (9.2
percent) on a linked quarter basis, principally due to decreases in
Wholesale Banking and Commercial Real Estate and Consumer and Small
Business Banking balances.
AVERAGE
DEPOSITS
Table 5 ($ in millions)
Percent
Percent
Change Change 2Q 1Q 2Q
2Q15 vs 2Q15 vs YTD YTD Percent
2015 2015 2014
1Q15 2Q14
2015 2014 Change
Noninterest-bearing deposits $77,347 $74,511 $71,837 3.8 7.7
$75,937 $71,333 6.5 Interest-bearing savings deposits Interest
checking 55,205 54,658 52,989 1.0 4.2 54,933 52,152 5.3 Money
market savings 79,898 73,889 61,370 8.1 30.2 76,910 60,313 27.5
Savings accounts 37,071 36,033 33,991
2.9 9.1 36,555 33,597 8.8 Total of savings deposits
172,174 164,580 148,350 4.6 16.1 168,398 146,062 15.3 Time deposits
less than $100,000 9,933 10,410 10,971 (4.6 ) (9.5 ) 10,170 11,206
(9.2 ) Time deposits greater than $100,000 26,290
28,959 31,193 (9.2 ) (15.7 ) 27,617
31,327 (11.8 ) Total interest-bearing deposits 208,397
203,949 190,514 2.2 9.4 206,185
188,595 9.3 Total deposits $285,744 $278,460
$262,351 2.6 8.9 $282,122 $259,928 8.5
Noninterest Income
Second quarter noninterest income was $2,272 million, which was
$172 million (7.0 percent) lower than the second quarter of 2014
and $118 million (5.5 percent) higher than the first quarter of
2015. The year-over-year decrease in noninterest income was
primarily due to a decrease in other income from Visa stock sales
and lower mortgage banking revenue. The $47 million (16.9 percent)
decrease in mortgage banking revenue was primarily due to an
unfavorable change in the valuation of mortgage servicing rights
(“MSRs”), net of hedging activities. Partially offsetting these
decreases were increases in trust and investment management fees,
merchant processing services and credit and debit card revenue.
Trust and investment management fees increased $23 million (7.4
percent) year-over-year, reflecting the benefits of the Company’s
investments in corporate trust and fund services businesses, as
well as account growth and improved market conditions. Merchant
processing services increased $11 million as a result of
transaction volumes and account growth. Adjusted for the $18
million impact of foreign currency rate changes, merchant
processing revenue growth would have been approximately 7.6
percent. Credit and debit card revenue increased $7 million (2.7
percent) due to higher transaction volumes.
Noninterest income was $118 million (5.5 percent) higher in the
second quarter of 2015 than the first quarter of 2015, principally
due to seasonally higher fee revenue in merchant processing
services, credit and debit card revenue and deposit service
charges. Commercial products revenue increased $14 million (7.0
percent) primarily due to higher syndication fees. Trust and
investment management fees were $12 million (3.7 percent) higher
than the prior quarter due to increases in corporate trust and fund
services revenue. Partially offsetting these increases was a
decrease in mortgage banking revenue of $9 million (3.8 percent),
primarily due to lower origination revenue.
NONINTEREST
INCOME
Table 6 ($ in millions)
Percent
Percent
Change Change 2Q 1Q 2Q 2Q15
vs 2Q15 vs YTD YTD Percent
2015 2015 2014
1Q15 2Q14
2015 2014 Change
Credit and debit card revenue $266 $241 $259 10.4 2.7 $507
$498 1.8 Corporate payment products revenue 178 170 182 4.7 (2.2 )
348 355 (2.0 ) Merchant processing services 395 359 384 10.0 2.9
754 740 1.9 ATM processing services 80 78 82 2.6 (2.4 ) 158 160
(1.3 ) Trust and investment management fees 334 322 311 3.7 7.4 656
615 6.7 Deposit service charges 174 161 171 8.1 1.8 335 328 2.1
Treasury management fees 142 137 140 3.6 1.4 279 273 2.2 Commercial
products revenue 214 200 221 7.0 (3.2 ) 414 426 (2.8 ) Mortgage
banking revenue 231 240 278 (3.8 ) (16.9 ) 471 514 (8.4 )
Investment products fees 48 47 47 2.1 2.1 95 93 2.2 Securities
gains (losses), net -- -- -- -- -- -- 5 nm Other 210
199 369 5.5 (43.1 ) 409 545 (25.0 )
Total noninterest income $2,272 $2,154
$2,444 5.5 (7.0 ) $4,426 $4,552 (2.8 )
Noninterest Expense
Noninterest expense in the second quarter of 2015 totaled $2,682
million, a decrease of $71 million (2.6 percent) from the second
quarter of 2014, and a $17 million (0.6 percent) increase over the
first quarter of 2015. The decrease in total noninterest expense
year-over-year was primarily the result of the second quarter 2014
FHA DOJ settlement. Partially offsetting this decrease was a $71
million (6.3 percent) increase in compensation expense, reflecting
the impact of merit increases, acquisitions, and higher staffing
for risk and compliance activities, and higher employee benefits
expense of $36 million (14.0 percent) primarily driven by higher
pension costs. Postage, printing and supplies decreased $16 million
(20.0 percent), reflecting reimbursement from a business
partner.
Noninterest expense increased $17 million (0.6 percent) on a
linked quarter basis, primarily due to increases in professional
services of $29 million (37.7 percent) due to mortgage servicing
and compliance related matters, marketing and business development
of $26 million (37.1 percent) due to the timing of various
marketing programs in Consumer and Small Business Banking and
Payments Services, and compensation expense of $17 million (1.4
percent), principally reflecting the impact of merit increases.
Partially offsetting these increases was a $24 million (7.6
percent) decrease in employee benefits expense primarily resulting
from seasonally lower payroll taxes and a $20 million (4.6 percent)
decrease in other expense primarily due to insurance-related
recoveries.
NONINTEREST
EXPENSE
Table 7 ($ in millions)
Percent
Percent
Change Change 2Q 1Q 2Q 2Q15
vs 2Q15 vs YTD YTD Percent
2015 2015 2014
1Q15 2Q14
2015 2014 Change
Compensation $1,196 $1,179 $1,125 1.4 6.3 $2,375 $2,240 6.0
Employee benefits 293 317 257 (7.6 ) 14.0 610 546 11.7 Net
occupancy and equipment 247 247 241 -- 2.5 494 490 .8 Professional
services 106 77 97 37.7 9.3 183 180 1.7 Marketing and business
development 96 70 96 37.1 -- 166 175 (5.1 ) Technology and
communications 221 214 214 3.3 3.3 435 425 2.4 Postage, printing
and supplies 64 82 80 (22.0 ) (20.0 ) 146 161 (9.3 ) Other
intangibles 43 43 48 -- (10.4 ) 86 97 (11.3 ) Other 416
436 595 (4.6 ) (30.1 ) 852 983
(13.3 ) Total noninterest expense $2,682
$2,665 $2,753 .6 (2.6 ) $5,347 $5,297
.9
Provision for Income Taxes
The provision for income taxes for the second quarter of 2015
resulted in a tax rate on a taxable-equivalent basis of 28.0
percent (effective tax rate of 26.1 percent), compared with 28.5
percent (effective tax rate of 26.6 percent) in the second quarter
of 2014, and 27.0 percent (effective tax rate of 24.9 percent) in
the first quarter of 2015. The increase was the result of
resolution of certain tax matters in the first quarter of 2015.
Credit Quality
The allowance for credit losses was $4,326 million at June 30,
2015, compared with $4,351 million at March 31, 2015, and $4,449
million at June 30, 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 second
quarter of 2015 were $296 million, compared with $279 million in
the first quarter of 2015, and $349 million in the second quarter
of 2014. The $17 million (6.1 percent) increase in net charge-offs
on a linked quarter basis was primarily due to lower recoveries in
the current quarter, while the $53 million (15.2 percent) decrease
in net charge-offs on a year-over-year basis reflected improvements
in residential mortgages, total other retail, commercial, and
construction and development. The Company recorded $281 million of
provision for credit losses in the current quarter, which was $15
million less than net charge-offs.
The ratio of the allowance for credit losses to period-end loans
was 1.74 percent at June 30, 2015, compared with 1.77 percent at
March 31, 2015, and 1.82 percent at June 30, 2014. The ratio of the
allowance for credit losses to nonperforming loans was 349 percent
at June 30, 2015, compared with 322 percent at March 31, 2015, and
279 percent at June 30, 2014.
ALLOWANCE FOR CREDIT LOSSES
Table 8
($ in millions)
2Q
1Q 4Q
3Q
2Q 2015 % (b)
2015 % (b)
2014 % (b) 2014
% (b) 2014
% (b) Balance, beginning of period $4,351 $4,375 $4,414
$4,449 $4,497 Net charge-offs Commercial 39 .20 40 .21 48
.26 52 .29 52 .30 Lease financing 3 .23 3 .23 (2 )
(.15 ) 6 .46 3 .24 Total commercial 42 .20 43 .21 46
.23 58 .30 55 .29 Commercial mortgages 4 .05 (1 ) (.01 ) (3 ) (.04
) 1 .01 (6 ) (.08 ) Construction and development (3 ) (.12 ) (17 )
(.72 ) (7 ) (.30 ) 3 .13 2 .09 Total commercial real
estate 1 .01 (18 ) (.17 ) (10 ) (.10 ) 4 .04 (4 ) (.04 )
Residential mortgages 33 .26 35 .28 39 .30 42 .32 57 .44 Credit
card 169 3.85 163 3.71 160 3.53 158 3.53 170 3.92 Retail leasing 1
.07 1 .07 1 .07 -- -- 1 .07 Home equity and second mortgages 11 .28
14 .36 17 .43 24 .61 23 .60 Other 39 .62 41 .60 52
.76 49 .72 45 .68 Total other retail 51
.43 56 .46 70 .57 73 .59 69 .58
Total net charge-offs, excluding covered
loans
296 .49 279 .47 305 .51 335 .56 347 .60 Covered loans -- --
-- -- 3 .17 1 .05 2 .10 Total net
charge-offs 296 .48 279 .46 308 .50 336 .55 349 .58 Provision for
credit losses 281 264 288 311 324 Other changes (a) (10 ) (9 ) (19
) (10 ) (23 ) Balance, end of period $4,326 $4,351
$4,375 $4,414 $4,449 Components Allowance for
loan losses $4,013 $4,023 $4,039 $4,065 $4,132
Liability for unfunded credit
commitments
313 328 336 349 317 Total
allowance for credit losses $4,326 $4,351 $4,375
$4,414 $4,449 Gross charge-offs $380 $383 $415
$410 $432 Gross recoveries $84 $104 $107 $74 $83 Allowance for
credit losses as a percentage of
Period-end loans, excluding covered
loans
1.76 1.79 1.78 1.81 1.83
Nonperforming loans, excluding covered
loans
348 321 297 291 294
Nonperforming assets, excluding covered
assets
279 261 245 245 246 Period-end loans 1.74 1.77 1.77 1.80 1.82
Nonperforming loans 349 322 298 282 279 Nonperforming assets 274
257 242 230 229
(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 June 30, 2015, totaled $1,577 million,
compared with $1,696 million at March 31, 2015, and $1,943 million
at June 30, 2014. The ratio of nonperforming assets to loans and
other real estate was 0.63 percent at June 30, 2015, compared with
0.69 percent at March 31, 2015, and 0.80 percent at June 30, 2014.
The decrease in nonperforming assets was driven primarily by
reductions in the commercial and total commercial real estate
portfolios and in covered loans. The Company expects total
nonperforming assets to remain relatively stable in the third
quarter of 2015. The ratio of the allowance for credit losses to
period-end loans was 1.74 percent at June 30, 2015, compared with
1.77 percent at March 31, 2015, and 1.82 percent at June 30,
2014.
Accruing loans 90 days or more past due were $801 million ($469
million excluding covered loans) at June 30, 2015, compared with
$880 million ($521 million excluding covered loans) at March 31,
2015, and $1,038 million ($581 million excluding covered loans) at
June 30, 2014.
DELINQUENT LOAN RATIOS AS A PERCENT
OF ENDING LOAN BALANCES Table 9 (Percent)
Jun 30 Mar 31 Dec 31 Sep 30
Jun 30 2015 2015
2014 2014 2014
Delinquent loan ratios - 90 days or more past due
excluding nonperforming loans Commercial .05 .05 .05 .05 .06
Commercial real estate .05 .07 .05 .03 .06 Residential mortgages
.30 .33 .40 .41 .49 Credit card 1.03 1.19 1.13 1.10 1.06 Other
retail .14 .15 .15 .16 .15 Total loans, excluding covered loans .19
.22 .23 .22 .25 Covered loans 6.66 7.01 7.48 6.10 6.14 Total loans
.32 .36 .38 .39 .43 Delinquent loan ratios - 90 days or more
past due
including nonperforming loans Commercial .16 .16
.19 .27 .30 Commercial real estate .46 .58 .65 .62 .62 Residential
mortgages 1.80 1.95 2.07 2.02 2.06 Credit card 1.12 1.32 1.30 1.32
1.35 Other retail .51 .55 .53 .53 .54 Total loans, excluding
covered loans .70 .77 .83 .84 .87 Covered loans 6.88 7.25 7.74 7.34
7.73 Total loans .82 .91 .97 1.03 1.08
ASSET
QUALITY
Table 10 ($ in millions)
Jun
30 Mar 31 Dec 31 Sep 30 Jun 30
2015 2015 2014
2014 2014 Nonperforming
loans Commercial $78 $74 $99 $161 $174 Lease financing 12
13 13 12 16 Total
commercial 90 87 112 173 190 Commercial mortgages 116 142 175 147
121 Construction and development 59 75
84 94 105 Total commercial real estate
175 217 259 241 226 Residential mortgages 769 825 864 841 818
Credit card 16 22 30 40 52 Other retail 178 187
187 184 191 Total
nonperforming loans, excluding covered loans 1,228 1,338 1,452
1,479 1,477 Covered loans 11 12 14
88 119 Total nonperforming loans 1,239
1,350 1,466 1,567 1,596 Other real estate (a) 287 293 288 275 279
Covered other real estate (a) 35 37 37 72 58 Other nonperforming
assets 16 16 17 9
10 Total nonperforming assets (b) $1,577
$1,696 $1,808 $1,923
$1,943 Total nonperforming assets, excluding covered assets $1,531
$1,647 $1,757 $1,763
$1,766
Accruing loans 90 days or more past due,
excluding covered loans
$469 $521 $550 $532
$581 Accruing loans 90 days or more past due
$801 $880 $945 $962
$1,038
Performing restructured loans, excluding
GNMA and covered loans
$2,815 $2,684 $2,832
$2,818 $2,911 Performing restructured GNMA and
covered loans $2,111 $2,186 $2,273
$2,685 $3,072
Nonperforming assets to loans plus ORE,
excluding covered assets (%)
.63 .68 .72 .74 .75 Nonperforming assets to loans plus ORE
(%) .63 .69 .73 .78 .80 (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 $44.5 billion at
June 30, 2015, compared with $44.3 billion at March 31, 2015, and
$42.7 billion at June 30, 2014. During the second quarter, the
Company returned 76 percent of second quarter earnings to
shareholders, including $452 million in common stock dividends and
$624 million of repurchased common stock.
COMMON
SHARES
Table 11 (Millions)
2Q 1Q 4Q
3Q 2Q 2015
2015 2014 2014
2014 Beginning shares outstanding 1,780
1,786 1,795 1,809 1,821
Shares issued for stock incentive plans,
acquisitions and other corporate purposes
1 6 2 2 3 Shares repurchased (14 ) (12 )
(11 ) (16 ) (15 ) Ending shares
outstanding 1,767 1,780
1,786 1,795 1,809
All regulatory ratios continue to be in excess of
“well-capitalized” requirements. The common equity tier 1 capital
to risk-weighted assets ratio estimated for the Basel III
standardized approach as if fully implemented was 9.2 percent at
June 30, 2015, and at March 31, 2015, compared with 8.9 percent at
June 30, 2014, and the common equity tier 1 capital to
risk-weighted assets ratio estimated for the Basel III advanced
approaches as if fully implemented was 12.4 percent at June 30,
2015, compared with 11.8 percent at March 31, 2015, and 11.7
percent at June 30, 2014. Under the Basel III transitional
standardized approach, the common equity tier 1 capital ratio was
9.5 percent at June 30, 2015, compared with 9.6 percent at March
31, 2015, and at June 30, 2014. The tier 1 capital ratio was 11.0
percent at June 30, 2015, compared with 11.1 percent at March 31,
2015, and 11.3 percent at June 30, 2014. Under the Basel III
transitional advanced approaches, the common equity tier 1 capital
to risk-weighted assets ratio was 12.9 percent at June 30, 2015,
compared with 12.3 percent at March 31, 2015, and at June 30, 2014.
The tangible common equity to tangible assets ratio was 7.5 percent
at June 30, 2015, compared with 7.6 percent at March 31, 2015, and
7.5 percent at June 30, 2014.
CAPITAL POSITION
Table 12 ($ in millions)
Jun 30 Mar 31 Dec
31 Sep 30 Jun 30
2015 2015
2014 2014
2014 Total U.S. Bancorp shareholders' equity $44,537
$44,277 $43,479 $43,141 $42,700
Standardized Approach
Basel III transitional standardized approach Common equity
tier 1 capital $31,674 $31,308 $30,856 $30,213 $29,760 Tier 1
capital 36,748 36,382 36,020 35,377 34,924 Total risk-based capital
43,526 43,558 43,208 42,509 41,034 Common equity tier 1
capital ratio 9.5
%
9.6
%
9.7
%
9.7
%
9.6
%
Tier 1 capital ratio 11.0 11.1 11.3 11.3 11.3 Total risk-based
capital ratio 13.1 13.3 13.6 13.6 13.2 Leverage ratio 9.2 9.3 9.3
9.4 9.6
Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully implemented
standardized approach
9.2 9.2 9.0 9.0 8.9
Advanced Approaches
Common equity tier 1 capital to
risk-weighted assets for the Basel III transitional advanced
approaches
12.9 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
12.4 11.8 11.8 11.8 11.7
Tangible common equity to
tangible assets 7.5 7.6 7.5 7.6 7.5
Tangible common equity
to risk-weighted assets 9.2 9.3 9.3 9.3 9.2 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.
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 $245 million of the Company’s
net income in the second quarter of 2015, compared with $272
million in the second quarter of 2014 and $209 million in the first
quarter of 2015. Wholesale Banking and Commercial Real Estate’s net
income decreased $27 million (9.9 percent) from the same quarter of
2014 due to a decrease in total net revenue and an increase in
total noninterest expense. Total net revenue decreased by $34
million (4.5 percent), due to a 0.4 percent decrease in net
interest income and a 12.5 percent decrease in total noninterest
income. Net interest income decreased by $2 million (0.4 percent)
year-over-year, primarily due to an increase in average total loans
and deposits offset by lower rates and fees on loans. Total
noninterest income decreased by $32 million (12.5 percent), driven
by lower wholesale transaction activity and loan-related fees,
partially offset by higher commercial leasing revenue and higher
syndication fees. Total noninterest expense was $9 million (2.8
percent) higher compared with a year ago, due to an increase in the
FDIC insurance assessment allocation, based on the level of
commitments, and variable compensation expense. The provision for
credit losses was flat year-over-year.
Wholesale Banking and Commercial Real Estate’s contribution to
net income in the second quarter of 2015 was $36 million (17.2
percent) higher than the first quarter of 2015, due to an increase
in total net revenue and a decrease in the provision for credit
losses, along with a decrease in total noninterest expense. Total
net revenue increased by $11 million (1.5 percent) compared with
the prior quarter. Net interest income increased by $7 million (1.4
percent) on a linked quarter basis, primarily due to an additional
day in the quarter and higher average loans, partially offset by
lower rates and fees on loans. Total noninterest income increased
by $4 million (1.8 percent) due to a seasonal increase in treasury
management fees and higher equity investment revenue, partially
offset by higher loan-related charges. Total noninterest expense
decreased by $6 million (1.8 percent) due to lower net shared
services expense and a decrease in employee benefits expense due to
seasonally lower payroll taxes, partially offset by an increase in
production incentive costs and an increase in compensation. The
provision for credit losses decreased by $39 million (68.4 percent)
due to a favorable change in the reserve allocation driven by prior
quarter reserves related to energy prices and a decrease 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, indirect lending, workplace banking, student
banking and omnichannel (collectively, the retail banking
division), as well as mortgage banking. Consumer and Small Business
Banking contributed $321 million of the Company’s net income in the
second quarter of 2015, a $66 million (17.1 percent) decrease from
the second quarter of 2014 and a $35 million (9.8 percent) decrease
from the prior quarter. Within Consumer and Small Business Banking,
the retail banking division reported a 5.4 percent decrease in its
contribution from the same quarter of last year, principally due to
lower total net revenue and an increase in total noninterest
expense, partially offset by a lower provision for credit losses.
Retail banking’s total net revenue was 4.2 percent lower than the
second quarter of 2014. Net interest income decreased 5.4 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 was relatively flat compared with a year
ago. Total noninterest expense for the retail banking division in
the second quarter of 2015 increased 5.9 percent over the same
quarter of the prior year, primarily due to higher compensation and
employee benefits expense, primarily due to merit and higher
pension costs. The provision for credit losses for the retail
banking division decreased 75.8 percent 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
40.0 percent lower than the second quarter of 2014, reflecting a
decrease in total net revenue, an increase in total noninterest
expense and an increase in the provision for credit losses. The
division’s 5.8 percent decrease in total net revenue was due to a
14.6 percent increase in net interest income, primarily the result
of higher average loans held for sale, offset by a 16.5 percent
decrease in total noninterest income, principally due to an
unfavorable change in the valuation of MSRs, net of hedging
activities. Total noninterest expense was 16.0 percent higher
compared with the prior year primarily due to higher mortgage
servicing-related expenses and increased compensation expense due
to higher pension costs. The $23 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 second
quarter of 2015 was $35 million (9.8 percent) lower than the first
quarter of 2015, primarily due to an increase in the provision for
credit losses and an increase in total noninterest expense,
partially offset by an increase in total net revenue. Within
Consumer and Small Business Banking, the retail banking division’s
contribution decreased 3.6 percent, mainly due to an increase in
the provision for credit losses and an increase in total
noninterest expense, partially offset by an increase in total net
revenue. Total net revenue for the retail banking division
increased 1.2 percent compared with the previous quarter. Net
interest income was 0.2 percent lower primarily due to lower rates
on loans, partially offset by higher average loan and deposit
balances. Total noninterest income was 4.7 percent higher on a
linked quarter basis, driven by seasonally higher deposit service
charges. The provision for credit losses increased $22 million on a
linked quarter basis due to an unfavorable change in the reserve
allocation and higher net charge-offs. The contribution of the
mortgage banking division decreased 25.0 percent from the first
quarter of 2015 primarily due to higher total noninterest expense
and provision for credit losses. Total net revenue decreased 1.3
percent due to a 3.8 percent decrease in total noninterest income,
the result of lower mortgage origination revenue. The decrease in
total noninterest income was partially offset by a 2.5 percent
increase in net interest income, primarily due to an additional day
in the quarter and higher average loans held for sale. Total
noninterest expense increased 7.9 percent, primarily reflecting
higher mortgage servicing-related expenses, along with higher
compensation and employee benefits expense related to merit and
higher pension costs. The provision for credit losses for the
mortgage banking division increased $18 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 $68 million of the
Company’s net income in the second quarter of 2015, compared with
$62 million in the second quarter of 2014 and $55 million in the
first quarter of 2015. The business line’s contribution was $6
million (9.7 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 $20 million (4.5 percent) year-over-year,
driven by a $25 million (7.2 percent) increase in total noninterest
income, reflecting the impact of account growth and improved market
conditions, partially offset by a decrease in net interest income
of $5 million (5.2 percent), principally due to a decrease in the
margin benefit from corporate trust deposit balances. 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 decreased
$5 million (83.3 percent) compared with the prior year quarter due
to lower net charge-offs and a favorable change in the reserve
allocation.
The business line’s contribution in the second quarter of 2015
was $13 million (23.6 percent) higher than the prior quarter. Total
net revenue increased $19 million (4.3 percent) on a linked quarter
basis, reflecting an increase in net interest income of $3 million
(3.4 percent), principally due to higher average deposit balances,
and noninterest income of $16 million (4.5 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. Total noninterest expense was $5 million (1.4 percent)
lower than the prior quarter primarily as a result of lower net
shared services and employee benefits expense due to the seasonal
impact. The provision for credit losses increased $3 million on a
linked quarter basis due to an unfavorable change in the reserve
allocation.
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 $259 million of the
Company’s net income in the second quarter of 2015, compared with
$287 million in the second quarter of 2014 and $266 million in the
first quarter of 2015. The $28 million (9.8 percent) decrease in
the business line’s contribution from the prior year was due to an
increase in total noninterest expense and provision for credit
losses, partially offset by an increase in total net revenue. Total
net revenue increased by $59 million (4.7 percent) year-over-year.
Net interest income increased by $41 million (9.8 percent),
primarily due to higher average loan balances and fees and improved
loan rates. Total noninterest income was $18 million (2.2 percent)
higher year-over-year, due to higher merchant processing services
revenue driven by increased transaction volumes and product fees,
partially offset by the impact of foreign currency rate changes.
Total noninterest expense increased by $80 million (13.3 percent)
over the second quarter of 2014, primarily due to the allocation to
the business line of a previously reserved regulatory item. The
provision for credit losses increased by $26 million (14.3 percent)
primarily due to an unfavorable change in the reserve
allocation.
Payment Services’ contribution in the second quarter of 2015
decreased $7 million (2.6 percent) from the first quarter of 2015.
Total net revenue increased $65 million (5.2 percent) on a linked
quarter basis driven by higher total noninterest income, offset by
higher noninterest expense and provision for credit losses. Net
interest income was relatively flat compared with the prior
quarter. Total noninterest income increased by $73 million (9.4
percent), reflecting an increase in merchant processing revenue due
to higher product fees and volumes, and an increase in credit and
debit card revenue due to higher transaction volumes, along with an
increase in corporate payment products revenue on higher volumes.
Total noninterest expense was $65 million (10.5 percent) higher on
a linked quarter basis primarily due to the allocation to the
business line of a previously reserved regulatory item. The
provision for credit losses was $11 million (5.6 percent) higher on
a linked quarter basis due to higher net charge-offs.
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 $590 million in the second quarter of 2015, compared with
$487 million in the second quarter of 2014 and $545 million in the
first quarter of 2015. The increase in net income of $103 million
(21.1 percent) over the prior year was primarily due to a decrease
in total noninterest expense and an increase in net interest
income, partially offset by a decrease in total noninterest income.
Net interest income increased by $27 million (5.0 percent) from the
second quarter of 2014, principally due to growth in the investment
portfolio, partially offset by lower income from the run-off of
acquired assets. Total noninterest income decreased by $134 million
(40.7 percent) from the second quarter of last year, mainly due to
the prior year Visa stock sale notable item. Total noninterest
expense decreased by $263 million (73.1 percent), principally due
to the FHA DOJ settlement and insurance-related recoveries. The
provision for credit losses was $4 million higher year-over-year
due to an unfavorable change in the reserve allocation and an
increase in net charge-offs.
Net income in the second quarter of 2015 was $45 million (8.3
percent) higher on a linked quarter basis, as a decrease in total
noninterest expense and an increase in total net revenue were
partially offset by an increase in the provision for credit losses.
Total net revenue was $30 million (4.1 percent) higher than the
prior quarter primarily due to an increase in commercial products
revenue, mainly due to higher syndication fees on tax-advantaged
projects. The $63 million (39.4 percent) decrease in total
noninterest expense was principally due to a reduction of reserves
for losses allocated to business lines and seasonally lower payroll
taxes and compensation expense, reflecting the seasonal impact of
stock based compensation grants, partially offset by increased
professional services and higher costs related to investments in
tax-advantaged projects. The provision for credit losses was $2
million higher compared with the first quarter of 2015 due to an
increase in net charge-offs, partially offset by a favorable change
in the reserve allocation.
LINE OF BUSINESS FINANCIAL PERFORMANCE (a)
Table 13 ($ in
millions)
Net Income Attributable Net Income
Attributable to U.S. Bancorp Percent Change to
U.S. Bancorp 2Q 2015 2Q 1Q 2Q
2Q15 vs 2Q15 vs YTD YTD Percent
Earnings Business Line 2015
2015 2014
1Q15 2Q14 2015
2014 Change
Composition
Wholesale Banking and Commercial Real
Estate
$245 $209 $272 17.2 (9.9 ) $454 $553 (17.9 ) 16
%
Consumer and Small Business Banking
321 356 387 (9.8 ) (17.1 ) 677 743 (8.9 ) 22
Wealth Management and Securities
Services
68 55 62 23.6 9.7 123 124 (.8 ) 5 Payment Services 259 266 287 (2.6
) (9.8 ) 525 525 -- 17 Treasury and Corporate Support 590
545 487 8.3 21.1 1,135
947 19.9 40 Consolidated Company $1,483 $1,431
$1,495 3.6 (.8 ) $2,914 $2,892 .8 100
%
(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, July 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 48520914. For those unable to
participate during the live call, a recording of the call will be
available at approximately 11:30 a.m. CDT on Wednesday, July 15 and
will be accessible through Wednesday, July 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 48520914.
Minneapolis-based U.S. Bancorp (“USB”), with $419 billion in
assets as of June 30, 2015, is the parent company of U.S. Bank
National Association, the fifth largest commercial bank in the
United States. The Company operates 3,164 banking offices in 25
states and 5,020 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
Six Months Ended (Dollars and Shares in Millions, Except Per Share
Data) June 30, June 30, (Unaudited)
2015 2014 2015 2014
Interest Income Loans $2,463 $2,532 $4,956 $5,054 Loans held
for sale 65 24 106 51 Investment securities 505 461 1,000 902 Other
interest income 35 30 67
62 Total interest income 3,068 3,047
6,129 6,069
Interest Expense Deposits 113 114 231 233
Short-term borrowings 62 63 123 132 Long-term debt 177
181 361 365
Total interest expense 352 358
715 730 Net interest
income 2,716 2,689 5,414 5,339 Provision for credit losses 281
324 545
630 Net interest income after provision for credit
losses 2,435 2,365 4,869 4,709
Noninterest Income Credit and
debit card revenue 266 259 507 498 Corporate payment products
revenue 178 182 348 355 Merchant processing services 395 384 754
740 ATM processing services 80 82 158 160 Trust and investment
management fees 334 311 656 615 Deposit service charges 174 171 335
328 Treasury management fees 142 140 279 273 Commercial products
revenue 214 221 414 426 Mortgage banking revenue 231 278 471 514
Investment products fees 48 47 95 93 Securities gains (losses), net
-- -- -- 5 Other 210 369
409 545 Total noninterest income 2,272
2,444 4,426 4,552
Noninterest Expense Compensation 1,196
1,125 2,375 2,240 Employee benefits 293 257 610 546 Net occupancy
and equipment 247 241 494 490 Professional services 106 97 183 180
Marketing and business development 96 96 166 175 Technology and
communications 221 214 435 425 Postage, printing and supplies 64 80
146 161 Other intangibles 43 48 86 97 Other 416
595 852 983
Total noninterest expense 2,682 2,753
5,347 5,297 Income before
income taxes 2,025 2,056 3,948 3,964 Applicable income taxes 528
547 1,007
1,043 Net income 1,497 1,509 2,941 2,921 Net (income)
loss attributable to noncontrolling interests (14 )
(14 ) (27 ) (29 ) Net income
attributable to U.S. Bancorp $1,483 $1,495
$2,914 $2,892 Net
income applicable to U.S. Bancorp common shareholders $1,417
$1,427 $2,782
$2,758 Earnings per common share $.80 $.79
$1.57 $1.52 Diluted earnings per common share $.80 $.78 $1.56 $1.51
Dividends declared per common share $.255 $.245 $.500 $.475 Average
common shares outstanding 1,771 1,811 1,776 1,815 Average diluted
common shares outstanding 1,779
1,821 1,784 1,825
U.S. Bancorp
Consolidated Ending Balance Sheet June 30, December
31, June 30, (Dollars in Millions) 2015
2014 2014
Assets (Unaudited) (Unaudited) Cash
and due from banks $17,925 $10,654 $12,636 Investment securities
Held-to-maturity 46,233 44,974 41,995 Available-for-sale 57,078
56,069 48,389 Loans held for sale 8,498 4,792 3,018 Loans
Commercial 84,620 80,377 77,454 Commercial real estate 42,258
42,795 40,797 Residential mortgages 51,337 51,619 51,965 Credit
card 17,788 18,515 17,642 Other retail 47,652
49,264 48,568 Total loans, excluding
covered loans 243,655 242,570 236,426 Covered loans 4,984
5,281 7,448 Total loans
248,639 247,851 243,874 Less allowance for loan losses (4,013 )
(4,039 ) (4,132 ) Net loans 244,626
243,812 239,742 Premises and equipment 2,551 2,618 2,614 Goodwill
9,374 9,389 9,422 Other intangible assets 3,225 3,162 3,337 Other
assets 29,565 27,059
27,912 Total assets $419,075 $402,529
$389,065
Liabilities and
Shareholders' Equity Deposits Noninterest-bearing $86,189
$77,323 $80,266 Interest-bearing 186,589 177,452 166,531 Time
deposits greater than $100,000 24,070 27,958
29,465 Total deposits 296,848 282,733
276,262 Short-term borrowings 27,784 29,893 29,101 Long-term debt
34,141 32,260 25,891 Other liabilities 15,071
13,475 14,425 Total liabilities 373,844
358,361 345,679 Shareholders' equity Preferred stock 4,756 4,756
4,756 Common stock 21 21 21 Capital surplus 8,335 8,313 8,264
Retained earnings 44,434 42,530 40,573 Less treasury stock (12,144
) (11,245 ) (10,232 ) Accumulated other comprehensive income (loss)
(865 ) (896 ) (682 ) Total U.S. Bancorp
shareholders' equity 44,537 43,479 42,700 Noncontrolling interests
694 689 686 Total
equity 45,231 44,168
43,386 Total liabilities and equity $419,075
$402,529 $389,065
U.S. Bancorp
Non-GAAP Financial Measures
June 30, March 31, December 31, September 30, June 30,
(Dollars in Millions, Unaudited)
2015
2015
2014
2014
2014
Total equity $45,231 $44,965 $44,168 $43,829 $43,386
Preferred stock (4,756 ) (4,756 ) (4,756 ) (4,756 ) (4,756 )
Noncontrolling interests (694 ) (688 ) (689 ) (688 ) (686 )
Goodwill (net of deferred tax liability) (1) (8,350 ) (8,360 )
(8,403 ) (8,503 ) (8,548 ) Intangible assets, other than mortgage
servicing rights (744 ) (783 )
(824 ) (877 ) (925
) Tangible common equity (a) 30,687 30,378 29,496 29,005
28,471 Tangible common equity (as calculated above) 30,687
30,378 29,496 29,005 28,471 Adjustments (2) 125
158 172
187 224
Common equity tier 1 capital estimated for
the Basel III fully implemented standardized and advanced
approaches (b)
30,812 30,536 29,668 29,192 28,695 Total assets 419,075
410,233 402,529 391,284 389,065 Goodwill (net of deferred tax
liability) (1) (8,350 ) (8,360 ) (8,403 ) (8,503 ) (8,548 )
Intangible assets, other than mortgage servicing rights (744 )
(783 ) (824 )
(877 ) (925 ) Tangible
assets (c) 409,981 401,090 393,302 381,904 379,592
Risk-weighted assets, determined in
accordance with prescribed regulatory requirements (d)
333,177 * 327,709 317,398 311,914 309,929 Adjustments (3) 3,532
* 3,153 11,110
12,837
12,753
Risk-weighted assets estimated for the
Basel III fully implemented standardized approach (e)
336,709 * 330,862 328,508 324,751 322,682
Risk-weighted assets, determined in
accordance with prescribed transitional advanced approaches
regulatory requirements
245,038 * 254,892 248,596 243,909 241,929 Adjustments (4) 3,721
* 3,321 3,270
3,443 3,383
Risk-weighted assets estimated for the
Basel III fully implemented advanced approaches (f)
248,759 * 258,213 251,866 247,352 245,312
Ratios *
Tangible common equity to tangible assets (a)/(c) 7.5 % 7.6 % 7.5
%
7.6
%
7.5
%
Tangible common equity to risk-weighted assets (a)/(d) 9.2 9.3 9.3
9.3 9.2
Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully implemented
standardized approach (b)/(e)
9.2 9.2 9.0 9.0 8.9
Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully implemented
advanced approaches (b)/(f)
12.4 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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20150715005233/en/
U.S. BancorpMedia:Dana Ripley,
612-303-3167orInvestors/Analysts:Sean O'Connor, 612-303-0778
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