Return on Average Assets of 1.51 percent and
Return on Average Common Equity of 14.5 percent
Year-over-Year Positive Operating
Leverage
Returned 78 percent of Third Quarter
Earnings to Shareholders
U.S. Bancorp (NYSE:USB) today reported net income of $1,471
million for the third quarter of 2014, or $.78 per diluted common
share, compared with $1,468 million, or $.76 per diluted common
share, in the third quarter of 2013. Highlights for the third
quarter of 2014 included:
- Growth in average total loans of 6.3
percent over the third quarter of 2013 (5.9 percent excluding the
Charter One franchise acquisition in late June 2014 and 7.7 percent
excluding covered loans) and 1.4 percent on a linked quarter basis
(1.1 percent excluding the Charter One acquisition and 1.7 percent
excluding covered loans)
- Growth in average total commercial
loans of 13.6 percent over the third quarter of 2013 and 3.1
percent over the second quarter of 2014
- Growth in average total commercial real
estate loans of 6.1 percent over the third quarter of 2013 and .8
percent over the second quarter of 2014
- Growth in average commercial and
commercial real estate commitments of 12.9 percent year-over-year
and 3.2 percent over the prior quarter
- Strong new lending activity of $56.0
billion during the third quarter, including:
- $36.1 billion of new and renewed
commercial and commercial real estate commitments
- $2.9 billion of lines related to new
credit card accounts
- $17.0 billion of mortgage and other
retail loan originations
- Net interest income growth over the
third quarter of 2013 and second quarter 2014
- Average earning assets growth of 10.0
percent year-over-year and 3.1 percent linked quarter
- Continued strong growth in lower cost
core deposit funding on a year-over-year and linked quarter
basis
- Net interest margin of 3.16 percent for
the third quarter of 2014, compared with 3.27 percent for the
second quarter of 2014, and 3.43 for the third quarter of 2013
- Decline in net charge-offs of 3.7
percent on a linked quarter basis. Provision for credit losses was
$25 million less than net charge-offs
- Allowance for credit losses to
period-end loans was 1.80 percent at September 30, 2014
- Annualized net charge-offs to average
total loans ratio was .55 percent
- Decrease in nonperforming assets on
both a linked quarter and year-over-year basis
- Nonperforming assets (excluding covered
assets) declined 6.2 percent from the third quarter of 2013
- Growth in average total deposits of 7.4
percent over the third quarter of 2013 (5.5 percent excluding the
Charter One acquisition) and 3.3 percent on a linked quarter basis
(1.7 percent excluding the Charter One acquisition)
- Average low cost deposits, including
noninterest-bearing and total savings deposits, grew by 12.2
percent year-over-year and 4.2 percent on a linked quarter
basis
- Industry-leading performance ratios,
including:
- Return on average assets of 1.51
percent
- Return on average common equity of 14.5
percent
- Efficiency ratio of 52.4 percent
- Capital generation continued to
reinforce capital position and returns. Ratios at September 30,
2014, were:
- Basel III transitional standardized
approach:
- Common equity tier 1 capital ratio of
9.7 percent
- Tier 1 capital ratio of 11.3
percent
- Total risk-based capital ratio of 13.6
percent
- Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully implemented
standardized approach of 9.0 percent and for the Basel III fully
implemented advanced approaches of 11.8 percent
- Returned 78 percent of third quarter
earnings to shareholders through dividends and the buyback of 16
million common shares
EARNINGS SUMMARY
Table 1 ($ in millions, except
per-share data)
Percent Percent
Change Change 3Q
2Q 3Q 3Q14 vs 3Q14 vs YTD
YTD Percent 2014 2014
2013 2Q14
3Q13 2014 2013
Change Net income attributable to U.S.
Bancorp $ 1,471 $ 1,495 $ 1,468 (1.6 ) .2 $ 4,363 $ 4,380 (.4 )
Diluted earnings per common share $ .78 $ .78 $ .76 -- 2.6 $ 2.29 $
2.25 1.8 Return on average assets (%) 1.51 1.60 1.65 1.56
1.67 Return on average common equity (%) 14.5 15.1 15.8 14.7 16.0
Net interest margin (%) 3.16 3.27 3.43 3.26 3.45 Efficiency ratio
(%) (a) 52.4 53.1 52.4 52.8 51.6 Tangible efficiency ratio (%) (b)
51.3 52.1 51.3 51.8 50.5 Dividends declared per common share
$ .245 $ .245 $ .230 -- 6.5 $ .720 $ .655 9.9 Book value per common
share (period-end) $ 21.38 $ 20.98 $ 19.31 1.9 10.7 (a)
Efficiency ratio excluding notable items of 51.3% for 2Q
2014 is computed as noninterest expense of $2,753 million less FHA
DOJ settlement of $200 million divided by total net revenue of
$5,188 million less Visa, Inc. Class B common stock sale of $214
million. (b) 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
intangible amortization.
Net income attributable to U.S. Bancorp was $1,471 million for
the third quarter of 2014, .2 percent higher than the $1,468
million for the third quarter of 2013, and 1.6 percent lower than
the $1,495 million for the second quarter of 2014. Diluted earnings
per common share of $.78 in the third quarter of 2014 were $.02
higher than the third quarter of 2013 and equal to the previous
quarter. Return on average assets and return on average common
equity were 1.51 percent and 14.5 percent, respectively, for the
third quarter of 2014, compared with 1.65 percent and 15.8 percent,
respectively, for the third quarter of 2013. The provision for
credit losses was lower than net charge-offs by $25 million in the
third quarter of 2014 and in the second quarter of 2014, and $30
million lower than net charge-offs in the third quarter of
2013.
U.S. Bancorp Chairman, President and Chief Executive Officer
Richard K. Davis said, “U.S. Bank delivered another solid
performance in the third quarter with $1.5 billion of net income,
or $.78 per diluted common share. Our ability to provide customers
and clients with a diverse array of banking products and services
while addressing their distinct financial objectives, in any
economic environment, allows us to continue generating an
industry-leading financial performance. Our return on average
common equity, return on average assets, and efficiency ratio
metrics remain among the strongest in the industry. Our
consistently solid financial performance is a result of our
adhering closely to the core fundamentals of controlling expenses,
managing capital prudently, selectively investing in initiatives
that generate steady long-term growth, and expanding existing
customer relationships. That was certainly the case in the third
quarter as our disciplined approach returned positive operating
leverage and the diversification of our business profile allowed us
to maintain our momentum as the economy slowly rebounds.
“Value creation for our customers and shareholders is our
highest priority. One way we create value for our customers is by
preserving and leveraging our industry-leading financial strength
to help them more efficiently reach their financial goals and
objectives. For example, our average deposits grew 7.4 percent over
the prior year to $271 billion. In a challenging macro-economic
environment, retail and institutional customers gravitate toward
the strength and security of U.S. Bank. Likewise, we returned 78
percent of third quarter earnings to shareholders through dividends
and share buybacks. Both examples demonstrate our commitment to
value creation. The better we are at addressing and meeting our
customers’ financial goals and objectives, the stronger our
financial performance will be.
“As we head into the final quarter of the year, we remain
diligently focused on executing our plan, even with the ongoing
economic headwinds, with an emphasis on providing our customers
with the trusted products and services to help them build more
secure financial futures, backed by the financial strength of U.S.
Bank.”
INCOME
STATEMENT HIGHLIGHTS
Table 2
(Taxable-equivalent basis, $ in millions,
Percent
Percent except
per-share data)
Change Change 3Q 2Q
3Q 3Q14 vs 3Q14 vs YTD YTD
Percent 2014 2014
2013 2Q14 3Q13
2014 2013
Change Net interest income $ 2,748 $ 2,744 $ 2,714 .1
1.3 $ 8,198 $ 8,095 1.3 Noninterest income 2,242
2,444 2,177 (8.3 ) 3.0 6,794
6,618 2.7 Total net revenue 4,990 5,188 4,891 (3.8 ) 2.0
14,992 14,713 1.9 Noninterest expense 2,614
2,753 2,565 (5.0 ) 1.9 7,911
7,592 4.2 Income before provision and taxes 2,376 2,435 2,326 (2.4
) 2.1 7,081 7,121 (.6 ) Provision for credit losses 311
324 298 (4.0 ) 4.4 941
1,063 (11.5 ) Income before taxes 2,065 2,111 2,028 (2.2 )
1.8 6,140 6,058 1.4 Taxable-equivalent adjustment 56 55 56 1.8 --
167 168 (.6 ) Applicable income taxes 523 547
542 (4.4 ) (3.5 ) 1,566 1,629
(3.9 ) Net income 1,486 1,509 1,430 (1.5 ) 3.9 4,407 4,261 3.4
Net (income) loss attributable to
noncontrolling interests
(15 ) (14 ) 38 (7.1 )
nm
(44 ) 119
nm
Net income attributable to U.S. Bancorp $ 1,471 $ 1,495
$ 1,468 (1.6 ) .2 $ 4,363 $ 4,380 (.4 )
Net income applicable to U.S. Bancorp
common shareholders
$ 1,405 $ 1,427 $ 1,400 (1.5 ) .4 $ 4,163 $
4,163 -- Diluted earnings per common share $ .78 $ .78
$ .76 -- 2.6 $ 2.29 $ 2.25 1.8
Net income attributable to U.S. Bancorp for the third quarter of
2014 was $3 million (.2 percent) higher than the third quarter of
2013, and $24 million (1.6 percent) lower than the second quarter
of 2014. The increase in net income year-over-year was principally
due to an increase in total net revenue, driven by increases in
both net interest income and fee-based revenue. The decrease in net
income on a linked quarter basis was principally due to increased
noninterest expense driven by merger integration, mortgage
servicing- related expenses, and seasonal tax-advantaged projects
costs, partially offset by a decrease in the provision for credit
losses. 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.
Total net revenue on a taxable-equivalent basis for the third
quarter of 2014 was $4,990 million which was $99 million (2.0
percent) higher than the third quarter of 2013, reflecting a 3.0
percent increase in noninterest income and a 1.3 percent increase
in net interest income. Noninterest income increased year-over-year
due to higher revenue in most fee businesses, partially offset by
lower mortgage banking revenue. 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,
offset by lower loan fees. Total net revenue on a
taxable-equivalent basis was $198 million (3.8 percent) lower on a
linked quarter basis due to an 8.3 percent decrease in noninterest
income as a result of the sale of Visa, Inc. Class B common stock
in the second quarter of 2014 and lower mortgage banking revenue,
partially offset by a $4 million increase in net interest income,
the result of an increase in average earning assets and growth in
lower cost deposits, offset by lower loan fees.
Total noninterest expense in the third quarter of 2014 was
$2,614 million which was $49 million (1.9 percent) higher than the
third quarter of 2013 and $139 million (5.0 percent) lower than the
second 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. The
decrease in total noninterest expense on a linked quarter basis was
due to the second quarter settlement with the U.S. Department of
Justice to resolve an investigation relating to the endorsement of
mortgage loans under the Federal Housing Administration’s insurance
program (“FHA DOJ settlement”), partially offset by Charter One
merger integration costs and higher mortgage servicing-related
costs.
The Company’s provision for credit losses for the third quarter
of 2014 was $311 million, $13 million (4.0 percent) lower than the
prior quarter and $13 million (4.4 percent) higher than the third
quarter of 2013. The provision for credit losses was lower than net
charge-offs by $25 million in the third quarter of 2014 and in the
second quarter of 2014, and $30 million lower than net charge-offs
in the third quarter of 2013. Net charge-offs in the third quarter
of 2014 were $336 million, compared with $349 million in the second
quarter of 2014, and $328 million in the third quarter of 2013.
Given current economic conditions, the Company expects the level of
net charge-offs to remain relatively stable in the fourth quarter
of 2014.
Nonperforming assets include assets originated or acquired by
the Company, as well as loans and other real estate acquired under
FDIC loss sharing agreements that substantially reduce the risk of
credit losses to the Company (“covered assets”). Excluding covered
assets, nonperforming assets were $1,763 million at September 30,
2014, compared with $1,766 million at June 30, 2014, and $1,880
million at September 30, 2013. The decrease in nonperforming
assets, excluding covered assets, compared with a year ago was
driven primarily by reductions in the commercial mortgage
portfolio, as well as by improvement in construction and
development and credit card loans. Covered nonperforming assets
were $160 million at September 30, 2014, compared with $177 million
at June 30, 2014, and $332 million at September 30, 2013. The loss
sharing agreement for the majority of the nonperforming covered
assets expires in the fourth quarter of 2014. The ratio of the
allowance for credit losses to period-end loans was 1.80 percent at
September 30, 2014, compared with 1.82 percent at June 30, 2014,
and 1.98 percent at September 30, 2013. The Company expects total
nonperforming assets to remain relatively stable in the fourth
quarter of 2014.
NET INTEREST
INCOME
Table 3 (Taxable-equivalent basis; $ in
millions)
Change Change 3Q 2Q 3Q 3Q14
vs 3Q14 vs YTD YTD 2014
2014 2013
2Q14 3Q13 2014
2013 Change Components of
net interest income Income on earning assets $ 3,114 $ 3,104 $
3,125 $ 10 $ (11 ) $ 9,296 $ 9,388 $ (92 ) Expense on
interest-bearing liabilities 366
360 411 6
(45 ) 1,098
1,293 (195 ) Net
interest income $ 2,748 $ 2,744
$ 2,714 $ 4 $ 34
$ 8,198 $ 8,095
$ 103 Average yields and rates paid
Earning assets yield 3.58 % 3.70 % 3.95 % (.12 )% (.37 )% 3.69 %
4.00 % (.31 )% Rate paid on interest-bearing liabilities .57
.58 .71
(.01 ) (.14 )
.60 .75
(.15 ) Gross interest margin 3.01 %
3.12 % 3.24 %
(.11 )% (.23 )%
3.09 % 3.25 % (.16
)% Net interest margin 3.16 % 3.27 %
3.43 % (.11 )%
(.27 )% 3.26 %
3.45 % (.19 )% Average balances
Investment securities (a) $ 93,141 $ 87,583 $ 74,988 $ 5,558 $
18,153 $ 87,687 $ 74,303 $ 13,384 Loans 243,867 240,480 229,362
3,387 14,505 240,098 225,682 14,416 Earning assets 346,422 335,992
315,060 10,430 31,362 336,287 313,663 22,624 Interest-bearing
liabilities 254,501 246,886 230,825 7,615 23,676 246,614 230,805
15,809 (a) Excludes unrealized gain (loss)
Net Interest Income
Net interest income on a taxable-equivalent basis in the third
quarter of 2014 was $2,748 million, an increase of $34 million (1.3
percent) from the third quarter of 2013. The increase was the
result of growth in average earning assets and growth in lower cost
core deposit funding, partially offset by lower rates on new loans
and securities and lower loan fees. Average earning assets were
$31.4 billion (10.0 percent) higher than the third quarter of 2013,
driven by increases of $14.5 billion (6.3 percent) in average total
loans and $18.2 billion (24.2 percent) in average investment
securities, partially offset by a decrease of $1.4 billion (28.5
percent) in average loans held for sale. Net interest income
increased $4 million on a linked quarter basis, due to higher
average earning assets, partially offset by lower loan fees and
lower loan and investment securities rates. The net interest margin
in the third quarter of 2014 was 3.16 percent, compared with 3.43
percent in the third quarter of 2013, and 3.27 percent in the
second quarter of 2014. The decline in the net interest margin on a
year-over-year basis primarily reflected lower reinvestment rates
on investment securities, as well as growth in the investment
portfolio at lower average rates, lower loan fees due to the
previously communicated wind down of the short-term, small-dollar
deposit advance product, Checking Account Advance (“CAA”), and
lower rates on new loans, partially offset by lower funding costs.
On a linked quarter basis, the reduction in net interest margin was
principally due to growth in lower rate investment securities and
lower loan fees due to the CAA product wind down.
AVERAGE
LOANS
Table 4 ($ in millions)
Percent
Percent
Change Change 3Q 2Q 3Q 3Q14
vs 3Q14 vs YTD YTD Percent
2014 2014 2013
2Q14 3Q13
2014 2013 Change
Commercial $ 72,190 $ 69,920 $ 62,856 3.2 14.8 $ 69,276 $
61,439 12.8 Lease financing 5,155 5,100
5,208 1.1 (1.0 ) 5,148
5,280 (2.5 ) Total commercial 77,345 75,020 68,064 3.1 13.6
74,424 66,719 11.5 Commercial mortgages 31,965 32,001 31,546
(.1 ) 1.3 32,005 31,311 2.2 Construction and development
8,874 8,496 6,955 4.4
27.6 8,460 6,561 28.9 Total commercial
real estate 40,839 40,497 38,501 .8 6.1 40,465 37,872 6.8
Residential mortgages 51,994 51,815 49,139 .3 5.8 51,799 47,055
10.1 Credit card 17,753 17,384 16,931 2.1 4.9 17,516 16,627
5.3 Retail leasing 5,991 6,014 5,664 (.4 ) 5.8 5,995 5,589
7.3 Home equity and second mortgages 15,704 15,327 15,648 2.5 .4
15,467 16,021 (3.5 ) Other 27,003
26,587 25,682 1.6 5.1 26,636
25,424 4.8 Total other retail 48,698
47,928 46,994 1.6 3.6
48,098 47,034 2.3 Total loans,
excluding covered loans 236,629 232,644
219,629 1.7 7.7 232,302
215,307 7.9 Covered loans 7,238
7,836 9,733 (7.6 ) (25.6 ) 7,796
10,375 (24.9 ) Total loans $ 243,867
$ 240,480 $ 229,362 1.4 6.3 $ 240,098
$ 225,682 6.4
Average total loans were $14.5 billion (6.3 percent) higher in
the third quarter of 2014 than the third quarter of 2013, driven by
growth in total commercial loans (13.6 percent), total commercial
real estate (6.1 percent), residential mortgages (5.8 percent),
credit card (4.9 percent), and total other retail loans (3.6
percent). These increases were partially offset by a decline in
covered loans (25.6 percent). Average total loans, excluding
covered loans, were higher by 7.7 percent year-over-year. Average
total loans were $3.4 billion (1.4 percent) higher in the third
quarter of 2014 than the second quarter of 2014, driven by growth
in total commercial loans (3.1 percent), credit card (2.1 percent),
total other retail loans (1.6 percent), total commercial real
estate (.8 percent), and residential mortgages (.3 percent). These
increases were partially offset by a decline in covered loans (7.6
percent). Average total loans, excluding covered loans, were higher
by 1.7 percent on a linked quarter basis.
Average investment securities in the third quarter of 2014 were
$18.2 billion (24.2 percent) higher year-over-year and $5.6 billion
(6.3 percent) higher than the prior quarter. The increases were
primarily due to purchases of U.S. government agency-backed
securities, net of prepayments and maturities, in anticipation of
final liquidity coverage ratio regulatory requirements.
AVERAGE
DEPOSITS
Table 5 ($ in millions)
Percent
Percent
Change Change 3Q 2Q 3Q
3Q14 vs 3Q14 vs YTD YTD Percent
2014 2014 2013
2Q14 3Q13
2014 2013 Change
Noninterest-bearing deposits $ 74,126 $ 71,837 $ 68,264 3.2
8.6 $ 72,274 $ 67,183 7.6 Interest-bearing savings deposits
Interest checking 54,454 52,989 48,235 2.8 12.9 52,928 48,347 9.5
Money market savings 66,250 61,370 55,982 8.0 18.3 62,314 54,826
13.7 Savings accounts 34,615 33,991
32,083 1.8 7.9 33,940
31,809 6.7 Total of savings deposits 155,319 148,350 136,300
4.7 14.0 149,182 134,982 10.5 Time deposits less than $100,000
11,045 10,971 12,495 .7 (11.6 ) 11,151 13,082 (14.8 ) Time deposits
greater than $100,000 30,518 31,193
35,309 (2.2 ) (13.6 ) 31,055
33,037 (6.0 ) Total interest-bearing deposits
196,882 190,514 184,104
3.3 6.9 191,388 181,101 5.7 Total
deposits $ 271,008 $ 262,351 $ 252,368
3.3 7.4 $ 263,662 $ 248,284 6.2
Average total deposits for the third quarter of 2014 were $18.6
billion (7.4 percent) higher than the third quarter of 2013.
Average noninterest-bearing deposits increased $5.9 billion (8.6
percent) year-over-year, mainly in Consumer and Small Business
Banking, including the $.4 billion impact of the Charter One
acquisition, corporate trust, and commercial banking balances.
Average total savings deposits were $19.0 billion (14.0 percent)
higher year-over-year, the result of growth in Consumer and Small
Business Banking, including the $3.4 billion impact of the Charter
One acquisition, corporate trust, broker-dealer, and government
banking related balances. Time deposits less than $100,000 were
$1.5 billion (11.6 percent) lower due to maturities, while time
deposits greater than $100,000 decreased $4.8 billion (13.6
percent), primarily due to a decline in broker-dealer and Consumer
and Small Business Banking balances. Time deposits greater than
$100,000 are managed as an alternative to other funding sources,
such as wholesale borrowing, based largely on relative pricing.
Average total deposits increased $8.7 billion (3.3 percent) over
the second quarter of 2014. Average noninterest-bearing deposits
increased $2.3 billion (3.2 percent) on a linked quarter basis, due
to higher balances in Consumer and Small Business Banking,
including the impact of the Charter One acquisition, and Wholesale
Banking and Commercial Real Estate, partially offset by lower
corporate trust balances. Average total savings deposits increased
$7.0 billion (4.7 percent), reflecting increases in Consumer and
Small Business Banking, including the impact of the Charter One
acquisition, corporate trust, and broker-dealer balances, partially
offset by a decrease in government banking related balances.
Compared with the second quarter of 2014, average time deposits
less than $100,000 increased $74 million (.7 percent) due to an
increase in Consumer and Small Business Banking driven by the
impact of the Charter One acquisition. Average time deposits
greater than $100,000 decreased $675 million (2.2 percent) on a
linked quarter basis, principally due to declines in Wholesale
Banking and Commercial Real Estate and corporate trust
balances.
NONINTEREST
INCOME
Table 6 ($ in millions)
Percent
Percent
Change Change 3Q 2Q 3Q 3Q14
vs 3Q14 vs YTD YTD Percent
2014 2014 2013
2Q14 3Q13
2014 2013 Change
Credit and debit card revenue $ 251 $ 259 $ 244 (3.1 ) 2.9 $
749 $ 702 6.7 Corporate payment products revenue 195 182 192 7.1
1.6 550 540 1.9 Merchant processing services 387 384 371 .8 4.3
1,127 1,091 3.3 ATM processing services 81 82 83 (1.2 ) (2.4 ) 241
248 (2.8 ) Trust and investment management fees 315 311 280 1.3
12.5 930 842 10.5 Deposit service charges 185 171 180 8.2 2.8 513
493 4.1 Treasury management fees 136 140 134 (2.9 ) 1.5 409 408 .2
Commercial products revenue 209 221 207 (5.4 ) 1.0 635 616 3.1
Mortgage banking revenue 260 278 328 (6.5 ) (20.7 ) 774 1,125 (31.2
) Investment products fees 49 47 46 4.3 6.5 142 133 6.8 Securities
gains (losses), net (3 ) -- (3 ) nm -- 2 8 (75.0 ) Other 177
369 115
(52.0 ) 53.9 722 412 75.2 Total
noninterest income $ 2,242 $ 2,444
$ 2,177 (8.3 ) 3.0 $ 6,794 $ 6,618 2.7
Noninterest Income
Third quarter noninterest income was $2,242 million which was
$65 million (3.0 percent) higher than the third quarter of 2013 and
$202 million (8.3 percent) lower than the second quarter of 2014.
The year-over-year increase in noninterest income was due to
increases in a majority of fee revenue categories, partially offset
by a $68 million (20.7 percent) reduction in mortgage banking
revenue, principally due to a $59 million unfavorable change in the
valuation of mortgage servicing rights (“MSRs”), net of hedging
activities, compared with the prior year. Trust and investment
management fees increased $35 million (12.5 percent)
year-over-year, reflecting account growth, improved market
conditions and business expansion. Merchant processing services
revenue was $16 million (4.3 percent) higher as a result of an
increase in product fees and higher volumes, partially offset by
lower rates. Credit and debit card revenue increased $7 million
(2.9 percent) over the third quarter of 2013 primarily due to
higher transaction volumes. Deposit services charges were $5
million (2.8 percent) higher than a year ago due to account growth,
the Charter One acquisition and pricing changes. The increase in
other income was primarily due to gains on sales of other equity
investments and an increase in retail leasing revenue.
Noninterest income was $202 million (8.3 percent) lower in the
third quarter of 2014 than the second quarter of 2014, primarily
due to the second quarter Visa, Inc. Class B common stock sale,
lower mortgage banking revenue, and lower commercial products
revenue. Mortgage banking revenue decreased $18 million (6.5
percent), principally due to a $44 million unfavorable change in
the valuation of MSRs, net of hedging activities, partially offset
by an increase in origination and sales revenue. Commercial
products revenue decreased $12 million (5.4 percent) due to lower
wholesale transaction activity, including standby letters of
credit, loan and bond underwriting fees, and syndication fees.
Credit and debit card revenue decreased $8 million (3.1 percent)
primarily due to higher rewards. Partially offsetting these
decreases was an increase in deposit service charges of $14 million
(8.2 percent), mainly due to higher transaction volumes.
Additionally, corporate payment products revenue increased $13
million (7.1 percent) on a linked quarter basis, principally due to
seasonally higher transaction volumes, and trust and investment
management fees were $4 million (1.3 percent) higher than the prior
quarter due to improved market conditions and account growth,
including business expansion.
NONINTEREST
EXPENSE
Table 7 ($ in millions)
Percent
Percent
Change Change 3Q 2Q 3Q 3Q14
vs 3Q14 vs YTD YTD Percent
2014 2014 2013
2Q14 3Q13
2014 2013 Change
Compensation $ 1,132 $ 1,125 $ 1,088 .6 4.0 $ 3,372 $ 3,268
3.2 Employee benefits 250 257 278 (2.7 ) (10.1 ) 796 865 (8.0 ) Net
occupancy and equipment 249 241 240 3.3 3.8 739 709 4.2
Professional services 102 97 94 5.2 8.5 282 263 7.2 Marketing and
business development 78 96 85 (18.8 ) (8.2 ) 253 254 (.4 )
Technology and communications 219 214 214 2.3 2.3 644 639 .8
Postage, printing and supplies 81 80 76 1.3 6.6 242 230 5.2 Other
intangibles 51 48 55 6.3 (7.3 ) 148 167 (11.4 ) Other 452
595 435 (24.0 ) 3.9
1,435 1,197 19.9 Total
noninterest expense $ 2,614 $ 2,753 $
2,565 (5.0 ) 1.9 $ 7,911 $ 7,592 4.2
Noninterest Expense
Noninterest expense in the third quarter of 2014 totaled $2,614
million, an increase of $49 million (1.9 percent) over the third
quarter of 2013, and a $139 million (5.0 percent) decrease from the
second quarter of 2014. The increase in total noninterest expense
year-over-year was the result of higher compensation expense,
reflecting the impact of merit increases, acquisitions, and higher
staffing for risk and compliance activities. Net occupancy and
equipment expense increased $9 million (3.8 percent) year-over-year
due to business initiatives and maintenance costs. Professional
services expense increased $8 million (8.5 percent) due mainly to
mortgage servicing-related project costs. The $17 million (3.9
percent) increase in other expense primarily reflected the Charter
One merger integration and mortgage servicing-related expenses,
partially offset by lower costs for investments in tax-advantaged
projects related to a change in first quarter 2014 in accounting
for affordable housing investments. Offsetting these increases was
a $28 million (10.1 percent) reduction in employee benefits expense
driven by lower pension costs.
Noninterest expense decreased $139 million (5.0 percent) on a
linked quarter basis, primarily driven by the second quarter FHA
DOJ settlement in other expense, partially offset by mortgage
servicing-related expenses, the Charter One merger integration
costs, and seasonally higher costs related to investments in
tax-advantaged projects. Marketing and business development expense
decreased $18 million (18.8 percent) due to charitable
contributions in the second quarter of 2014 and the timing of
marketing programs in Payment Services. Additionally, employee
benefits expense decreased $7 million (2.7 percent) primarily
resulting from lower payroll tax expense. Partially offsetting
these decreases was a $7 million (.6 percent) increase in
compensation expense reflecting the impact of merit increases, and
additional employees related to the Charter One acquisition and for
risk and compliance activities. Professional services expense was
$5 million (5.2 percent) higher, mainly due to higher mortgage
servicing-related project costs.
Provision for Income Taxes
The provision for income taxes for the third quarter of 2014
resulted in a tax rate on a taxable-equivalent basis of 28.0
percent (effective tax rate of 26.0 percent), compared with 29.5
percent (effective tax rate of 27.5 percent) in the third quarter
of 2013, and 28.5 percent (effective tax rate of 26.6 percent) in
the second quarter of 2014.
ALLOWANCE FOR CREDIT LOSSES
Table 8
($ in millions)
3Q
2Q 1Q
4Q
3Q 2014 % (b)
2014 % (b)
2014 % (b) 2013
% (b) 2013
% (b) Balance, beginning of period $ 4,449 $ 4,497 $ 4,537 $
4,578 $ 4,612 Net charge-offs Commercial 52 .29 52 .30 34 .21 33
.21 18 .11 Lease financing 6 .46 3 .24
2 .16 3 .23 (7 ) (.53 ) Total
commercial 58 .30 55 .29 36 .21 36 .21 11 .06 Commercial mortgages
1 .01 (6 ) (.08 ) (1 ) (.01 ) 1 .01 2 .03 Construction and
development 3 .13 2 .09 (2 )
(.10 ) (30 ) (1.58 ) (8 ) (.46 ) Total commercial
real estate 4 .04 (4 ) (.04 ) (3 ) (.03 ) (29 ) (.29 ) (6 ) (.06 )
Residential mortgages 42 .32 57 .44 57 .45 49 .38 57 .46 Credit
card 158 3.53 170 3.92 170 3.96 163 3.72 160 3.75 Retail leasing --
-- 1 .07 -- -- -- -- 1 .07 Home equity and second mortgages 24 .61
23 .60 31 .82 37 .95 43 1.09 Other 49 .72 45
.68 45 .69 52 .79 54
.83 Total other retail 73 .59 69
.58 76 .65 89 .75 98 .83
Total net charge-offs, excluding covered
loans
335 .56 347 .60 336 .60 308 .55 320 .58 Covered loans 1
.05 2 .10 5 .24 4
.18 8 .33 Total net charge-offs 336 .55 349 .58 341
.59 312 .53 328 .57 Provision for credit losses 311 324 306 277 298
Other changes (a) (10 ) (23 ) (5 ) (6 )
(4 ) Balance, end of period $ 4,414 $ 4,449 $
4,497 $ 4,537 $ 4,578 Components
Allowance for loan losses $ 4,065 $ 4,132 $ 4,189 $ 4,250 $ 4,258
Liability for unfunded credit
commitments
349 317 308 287
320 Total allowance for credit losses $ 4,414
$ 4,449 $ 4,497 $ 4,537 $ 4,578
Gross charge-offs $ 410 $ 432 $ 422 $ 429 $ 450 Gross recoveries $
74 $ 83 $ 81 $ 117 $ 122 Allowance for credit losses as a
percentage of
Period-end loans, excluding covered
loans
1.81 1.83 1.90 1.94 1.99
Nonperforming loans, excluding covered
loans
291 294 293 297 294
Nonperforming assets, excluding covered
assets
245 246 243 242 235 Period-end loans 1.80 1.82 1.89 1.93 1.98
Nonperforming loans 282 279 278 283 276 Nonperforming assets 230
229 225 223 207
(a) Includes net changes in credit losses to be reimbursed
by the FDIC and reductions in the allowance for covered loans where
the reversal of a previously recorded allowance was offset by an
associated decrease in the indemnification asset, and the impact of
any loan sales. (b) Annualized and calculated on
average loan balances
Credit Quality
The allowance for credit losses was $4,414 million at September
30, 2014, compared with $4,449 million at June 30, 2014, and $4,578
million at September 30, 2013. Nonperforming assets declined on a
linked quarter and year-over-year basis as economic conditions
continued to slowly improve. Total net charge-offs in the third
quarter of 2014 were $336 million, compared with $349 million in
the second quarter of 2014, and $328 million in the third quarter
of 2013. The $13 million (3.7 percent) decrease in net charge-offs
on a linked quarter basis was due to improvements in the
residential mortgage and credit card portfolios, while the $8
million (2.4 percent) increase in net charge-offs on a
year-over-year basis reflected higher commercial loan charge-offs
and lower recoveries in commercial real estate, partially offset by
improvements in residential mortgages and home equity and second
mortgages. The Company recorded $311 million of provision for
credit losses in the current quarter, which was $25 million less
than net charge-offs.
Commercial and commercial real estate loan net charge-offs were
$62 million (.21 percent of average loans outstanding) in the third
quarter of 2014, compared with $51 million (.18 percent of average
loans outstanding) in the second quarter of 2014, and $5 million
(.02 percent of average loans outstanding) in the third quarter of
2013.
Residential mortgage loan net charge-offs were $42 million (.32
percent of average loans outstanding) in the third quarter of 2014,
compared with $57 million (.44 percent of average loans
outstanding) in the second quarter of 2014, and $57 million (.46
percent of average loans outstanding) in the third quarter of 2013.
Credit card loan net charge-offs were $158 million (3.53 percent of
average loans outstanding) in the third quarter of 2014, compared
with $170 million (3.92 percent of average loans outstanding) in
the second quarter of 2014, and $160 million (3.75 percent of
average loans outstanding) in the third quarter of 2013. Total
other retail loan net charge-offs were $73 million (.59 percent of
average loans outstanding) in the third quarter of 2014, compared
with $69 million (.58 percent of average loans outstanding) in the
second quarter of 2014, and $98 million (.83 percent of average
loans outstanding) in the third quarter of 2013.
The ratio of the allowance for credit losses to period-end loans
was 1.80 percent (1.81 percent excluding covered loans) at
September 30, 2014, compared with 1.82 percent (1.83 percent
excluding covered loans) at June 30, 2014, and 1.98 percent (1.99
percent excluding covered loans) at September 30, 2013. The ratio
of the allowance for credit losses to nonperforming loans was 282
percent (291 percent excluding covered loans) at September 30,
2014, compared with 279 percent (294 percent excluding covered
loans) at June 30, 2014, and 276 percent (294 percent excluding
covered loans) at September 30, 2013.
DELINQUENT LOAN
RATIOS AS A PERCENT OF ENDING LOAN BALANCES
Table 9 (Percent)
Sep 30 Jun 30 Mar
31 Dec 31 Sep 30 2014
2014 2014 2013
2013 Delinquent loan ratios - 90 days
or more past due
excluding nonperforming loans Commercial
.05 .06 .06 .08 .07 Commercial real estate .03 .06 .06 .07 .02
Residential mortgages .41 .49 .64 .65 .53 Credit card 1.10 1.06
1.21 1.17 1.11 Other retail .16 .15 .18 .18 .16 Total loans,
excluding covered loans .22 .25 .30 .31 .27 Covered loans 6.10 6.14
5.83 5.63 5.47 Total loans .39 .43 .49 .51 .48 Delinquent
loan ratios - 90 days or more past due
including
nonperforming loans Commercial .27 .30 .32 .27 .24 Commercial real
estate .62 .62 .73 .83 .94 Residential mortgages 2.02 2.06 2.14
2.16 1.99 Credit card 1.32 1.35 1.59 1.60 1.66 Other retail .53 .54
.58 .58 .60 Total loans, excluding covered loans .84 .87 .95 .97
.94 Covered loans 7.34 7.73 7.46 7.13 7.13 Total loans 1.03 1.08
1.17 1.19 1.20
ASSET
QUALITY
Table 10 ($ in millions)
Sep
30 Jun 30 Mar 31 Dec 31 Sep 30
2014 2014 2014
2013 2013 Nonperforming
loans Commercial $ 161 $ 174 $ 174 $ 122 $ 104 Lease financing
12 16 14
12 12 Total commercial 173 190
188 134 116 Commercial mortgages 147 121 156 182 210 Construction
and development 94 105
113 121 146 Total
commercial real estate 241 226 269 303 356 Residential mortgages
841 818 777 770 732 Credit card 40 52 65 78 94 Other retail
184 191 188
191 206 Total nonperforming loans,
excluding covered loans 1,479 1,477 1,487 1,476 1,504 Covered loans
88 119 132
127 156 Total nonperforming
loans 1,567 1,596 1,619 1,603 1,660 Other real estate (a) 275 279
296 327 366 Covered other real estate (a) 72 58 73 97 176 Other
nonperforming assets 9 10
11 10 10 Total
nonperforming assets (b) $ 1,923 $ 1,943
$ 1,999 $ 2,037 $ 2,212 Total
nonperforming assets, excluding covered assets $ 1,763
$ 1,766 $ 1,794 $ 1,813
$ 1,880
Accruing loans 90 days or more past due,
excluding covered loans
$ 532 $ 581 $ 695 $ 713
$ 591 Accruing loans 90 days or more past due
$ 962 $ 1,038 $ 1,167 $
1,189 $ 1,105
Performing restructured loans, excluding
GNMA and covered loans
$ 2,818 $ 2,911 $ 3,006 $
3,067 $ 3,097 Performing restructured GNMA and
covered loans $ 2,685 $ 3,072 $ 3,003
$ 2,932 $ 2,262
Nonperforming assets to loans plus ORE,
excluding covered assets (%)
.74 .75 .78 .80 .85
Nonperforming assets to loans plus ORE
(%)
.78 .80 .84 .86 .95 (a) Includes equity investments in
entities whose principal assets are other real estate owned. (b)
Does not include accruing loans 90 days or more past due.
Nonperforming assets at September 30, 2014, totaled $1,923
million, compared with $1,943 million at June 30, 2014, and $2,212
million at September 30, 2013. Total nonperforming assets at
September 30, 2014, included $160 million of covered assets. The
ratio of nonperforming assets to loans and other real estate was
.78 percent (.74 percent excluding covered assets) at September 30,
2014, compared with .80 percent (.75 percent excluding covered
assets) at June 30, 2014, and .95 percent (.85 percent excluding
covered assets) at September 30, 2013. Total commercial
nonperforming loans were $17 million (8.9 percent) lower on a
linked quarter basis and $57 million (49.1 percent) higher
year-over-year. Commercial real estate nonperforming loans
increased by $15 million (6.6 percent) on a linked quarter basis
and decreased $115 million (32.3 percent) year-over-year.
Residential mortgage nonperforming loans increased $23 million (2.8
percent) on a linked quarter basis and $109 million (14.9 percent)
year-over-year. Credit card nonperforming loans were $12 million
(23.1 percent) lower on a linked quarter basis and $54 million
(57.4 percent) lower year-over-year. Other retail nonperforming
loans decreased $7 million (3.7 percent) on a linked quarter basis
and $22 million (10.7 percent) year-over-year.
Accruing loans 90 days or more past due were $962 million ($532
million excluding covered loans) at September 30, 2014, compared
with $1,038 million ($581 million excluding covered loans) at June
30, 2014, and $1,105 million ($591 million excluding covered loans)
at September 30, 2013.
COMMON
SHARES
Table 11 (Millions)
3Q 2Q 1Q
4Q 3Q 2014
2014 2014
2013 2013 Beginning shares
outstanding 1,809 1,821 1,825 1,832 1,844
Shares issued for stock option and stock
purchase plans, acquisitions and other corporate purposes
2 3 8 6 5 Shares repurchased (16 ) (15 )
(12 ) (13 ) (17 ) Ending
shares outstanding 1,795 1,809
1,821 1,825
1,832
Total U.S. Bancorp shareholders’ equity was $43.1 billion at
September 30, 2014, compared with $42.7 billion at June 30, 2014,
and $40.1 billion at September 30, 2013. During the third quarter,
the Company returned 78 percent of third quarter earnings to
shareholders, including $441 million in common stock dividends and
$654 million of repurchased common stock.
CAPITAL POSITION
Table 12 ($ in millions)
Sep 30 Jun 30 Mar
31 Dec 31 Sep 30
2014 2014
2014 2013
2013 Total U.S. Bancorp shareholders' equity $ 43,141
$ 42,700 $ 42,054 $ 41,113 $ 40,132
Standardized
Approach Basel III transitional standardized
approach/Basel I (a) Common equity tier 1 capital $ 30,213 $ 29,760
$ 29,463 $ 27,942 $ 27,265 Tier 1 capital 35,377 34,924 34,627
33,386 32,707 Total risk-based capital 42,509 41,034 40,741 39,340
38,873 Common equity tier 1 capital ratio 9.7 % 9.6 % 9.7 %
9.4 % 9.3 % Tier 1 capital ratio 11.3 11.3 11.4 11.2 11.2 Total
risk-based capital ratio 13.6 13.2 13.5 13.2 13.3 Leverage ratio
9.4 9.6 9.7 9.6 9.6
Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully implemented
standardized approach
9.0 8.9 9.0 8.8 8.6
Advanced Approaches
Common equity tier 1 capital to
risk-weighted assets for the Basel III transitional advanced
approaches
12.4 12.3
Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully implemented
advanced approaches
11.8 11.7
Tangible common equity to tangible assets
7.6 7.5 7.8 7.7 7.4
Tangible common equity to risk-weighted
assets 9.3 9.2 9.3 9.1 8.9 (a) 2014 amounts and ratios
calculated under the Basel III transitional standardized approach;
all prior periods under Basel I
Prior to 2014, the regulatory capital requirements effective for
the Company followed Basel I. 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.
In addition, beginning the second quarter of 2014, the advanced
approaches portion of Basel III became effective for the Company.
Under the Basel III transitional standardized approach, the common
equity tier 1 capital ratio was 9.7 percent at September 30, 2014,
compared with 9.6 percent at June 30, 2014. The tier 1 capital
ratio was 11.3 percent at September 30, 2014, and at June 30, 2014,
compared with 11.2 percent at September 30, 2013. Under the Basel
III transitional advanced approaches, the common equity tier 1
capital to risk-weighted assets ratio was 12.4 percent at September
30, 2014, compared with 12.3 percent at June 30, 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 9.0 percent at September 30,
2014, compared with 8.9 percent at June 30, 2014, and 8.6 percent
at September 30, 2013, 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 September
30, 2014, compared with 11.7 percent at June 30, 2014. The tangible
common equity to tangible assets ratio was 7.6 percent at September
30, 2014, compared with 7.5 percent at June 30, 2014, and 7.4
percent at September 30, 2013.
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 3Q 2014 3Q
2Q 3Q 3Q14 vs 3Q14 vs YTD
YTD Percent Earnings Business Line
2014 2014
2013 2Q14 3Q13
2014 2013
Change Composition
Wholesale Banking and Commercial Real
Estate
$ 267 $ 279 $ 324 (4.3 ) (17.6 ) $ 827 $ 959 (13.8 ) 18 %
Consumer and Small Business Banking
307 316 373 (2.8 ) (17.7 ) 907 1,110 (18.3 ) 21
Wealth Management and Securities
Services
63 57 36 10.5 75.0 173 121 43.0 4 Payment Services 298 279 266 6.8
12.0 809 743 8.9 20 Treasury and Corporate Support 536
564 469 (5.0 ) 14.3
1,647 1,447 13.8 37 Consolidated
Company $ 1,471 $ 1,495 $ 1,468 (1.6 )
.2 $ 4,363 $ 4,380 (.4 ) 100 % (a) preliminary
data
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 2014, 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 $267 million of the Company’s
net income in the third quarter of 2014, compared with $324 million
in the third quarter of 2013 and $279 million in the second quarter
of 2014. Wholesale Banking and Commercial Real Estate’s net income
decreased $57 million (17.6 percent) from the same quarter of 2013
due to a higher provision for credit losses and a decrease in total
net revenue. Total net revenue declined by $18 million (2.3
percent), due to an 11.3 percent decrease in total noninterest
income, partially offset by a 2.4 percent increase in net interest
income. Net interest income increased $12 million (2.4 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 $30 million (11.3 percent),
driven by lower wholesale transaction activity and loan-related
fees, partially offset by increases in commercial leasing revenue
and equity and bond underwriting fees. Total noninterest expense
was relatively flat compared with a year ago, as an increase in the
FDIC insurance assessment allocation based on the level of
commitments, was offset by lower professional services expense and
net shared services expense. The provision for credit losses was
$70 million higher year-over-year due to an increase in net
charge-offs and an unfavorable change in the reserve
allocation.
Wholesale Banking and Commercial Real Estate’s contribution to
net income in the third quarter of 2014 was $12 million (4.3
percent) lower than the second quarter of 2014, due to a decrease
in total net revenue and an increase in the provision for credit
losses, partially offset by a decrease in total noninterest
expense. Total net revenue decreased by $17 million (2.2 percent)
compared with the prior quarter. Total noninterest income decreased
by $22 million (8.5 percent), driven by lower wholesale transaction
activity, in part due to seasonally higher transaction volumes in
the prior quarter, and lower equity investment revenue. Net
interest income increased by $5 million (1.0 percent) on a linked
quarter basis, primarily due to higher average loans and an
additional day in the current quarter relative to the prior
quarter, partially offset by lower loan rates. Total noninterest
expense decreased by $13 million (4.1 percent) due to lower
compensation and employee benefits expense and seasonally lower net
shared services expense. The provision for credit losses increased
by $14 million (93.3 percent) due to higher 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, mortgage banking, workplace
banking, student banking and 24-hour banking. Consumer and Small
Business Banking contributed $307 million of the Company’s net
income in the third quarter of 2014, a $66 million (17.7 percent)
decrease from the third quarter of 2013 and a $9 million (2.8
percent) decrease from the prior quarter. Within Consumer and Small
Business Banking, the retail banking division reported a 22.0
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. Retail banking’s total net revenue was
3.6 percent lower than the third quarter of 2013. Net interest
income decreased 7.2 percent, primarily as a result of lower fees
due to the wind down of the CAA product, lower rates on loans, and
the impact of lower rates on the margin benefit from deposits,
partially offset by higher average loan and deposit balances. Total
noninterest income for the retail banking division increased 5.3
percent over a year ago, principally due to an increase in retail
lease revenue and deposit service charges. Total noninterest
expense for the retail banking division in the third quarter of
2014 increased 5.2 percent over the same quarter of the prior year,
primarily due to merger integration and higher compensation and
employee benefits expense, partially offset by lower FDIC insurance
assessments. The provision for credit losses for the retail banking
division decreased 19.1 percent on a year-over-year basis, due to
lower net charge-offs, partially offset by an unfavorable change in
the reserve allocation. The contribution of the mortgage banking
division was lower by 11.6 percent than the third quarter of 2013,
reflecting a decrease in total net revenue, partially offset by a
reduction in the provision for credit losses. The division’s 15.7
percent decrease in total net revenue was due to a 21.3 percent
decrease in total noninterest income, principally due to an
unfavorable change in the valuation of MSRs, net of hedging
activities, as well as a 4.8 percent decrease in net interest
income, primarily the result of lower average loans held for sale.
Total noninterest expense was 6.6 percent higher than the prior
year, primarily due to mortgage servicing-related expenses,
partially offset by lower incentive compensation. The $62 million
favorable change in the provision for credit losses for the
mortgage banking division was due to lower net charge-offs and a
favorable change in the reserve allocation.
Consumer and Small Business Banking’s contribution in the third
quarter of 2014 was $9 million (2.8 percent) lower than the second
quarter of 2014, primarily due to an increase in total noninterest
expense. Within Consumer and Small Business Banking, the retail
banking division’s contribution decreased 6.6 percent, mainly due
to an increase in total noninterest expense, partially offset by a
decrease in the provision for credit losses. Total net revenue for
the retail banking division decreased .9 percent compared with the
previous quarter. Net interest income was 2.0 percent lower,
primarily due to lower loan fees due to the wind down of the CAA
product, partially offset by higher average loan and deposit
balances and one additional day in the current quarter relative to
the prior quarter. Total noninterest income was 1.7 percent higher
on a linked quarter basis, driven by higher deposit service
charges. Total noninterest expense increased 3.4 percent on a
linked quarter basis due to merger integration expense. The
provision for credit losses decreased 22.5 percent on a linked
quarter basis due to lower net charge-offs and a favorable change
in the reserve allocation in the current quarter. The contribution
of the mortgage banking division increased 2.2 percent over the
second quarter of 2014 primarily due to a lower provision for
credit losses, partially offset by higher total noninterest
expense. Total net revenue was relatively flat due to an 11.3
percent increase in net interest income, due to higher average
loans held for sale, higher average loan balances, and an
additional day in the quarter, offset by a 6.6 percent decrease in
total noninterest income, due to an unfavorable change in the
valuation of MSRs, net of hedging activities. Total noninterest
expense increased 3.9 percent, primarily reflecting higher mortgage
servicing-related expenses and higher compensation and employee
benefits expense. The provision for credit losses for the mortgage
banking division decreased $14 million on a linked quarter basis
due to a decrease in net charge-offs and a favorable 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 $63 million of the
Company’s net income in the third quarter of 2014, compared with
$36 million in the third quarter of 2013 and $57 million in the
second quarter of 2014. The business line’s contribution was $27
million (75.0 percent) higher than the same quarter of 2013, as an
increase in total net revenue was partially offset by higher total
noninterest expense. Total net revenue increased by $52 million
(13.1 percent) year-over-year, driven by a $38 million (12.1
percent) increase in total noninterest income, reflecting the
impact of account growth, improved market conditions, and business
expansion. In addition, net interest income increased by $14
million (17.1 percent), principally due to higher average loan and
deposit balances and an increase in the margin benefit of corporate
trust deposits. Total noninterest expense increased by $10 million
(3.0 percent) primarily as a result of higher compensation and
employee benefits expense, including the impact of business
expansion, partially offset by lower net shared services expense.
The provision for credit losses remained flat compared to the prior
year quarter, as lower net charge-offs were offset by an
unfavorable change in the reserve allocation.
The business line’s contribution in the third quarter of 2014
was $6 million (10.5 percent) higher than the prior quarter. Total
net revenue increased on a linked quarter basis, reflecting an
increase in net interest income (5.5 percent), principally due to
higher average deposit balances and the impact of higher rates on
the margin benefit from corporate trust deposits. In addition, an
increase in total noninterest income (1.4 percent) was due to
higher trust and investment management fees, resulting from
improved market conditions and account growth, including business
expansion. Total noninterest expense was relatively flat compared
with the prior quarter, as higher compensation and professional
services expenses were offset by lower employee benefits expense.
The provision for credit losses remained flat on a linked quarter
basis, as lower net charge-offs were offset by an unfavorable
change in the reserve allocation.
Payment Services includes consumer and business credit
cards, stored-value cards, debit cards, corporate and purchasing
card services, consumer lines of credit and merchant processing.
Payment Services contributed $298 million of the Company’s net
income in the third quarter of 2014, compared with $266 million in
the third quarter of 2013 and $279 million in the second quarter of
2014. The $32 million (12.0 percent) increase in the business
line’s contribution from the prior year was due to an increase in
total net revenue, partially offset by an increase in total
noninterest expense and a higher provision for credit losses. Total
net revenue increased by $69 million (5.7 percent) year-over-year.
Net interest income increased by $49 million (12.5 percent),
primarily due to higher average loan balances and fees and improved
loan rates. Total noninterest income was $20 million (2.4 percent)
higher year-over-year, due to higher merchant processing services
revenue due to increased product fees and transaction volumes,
partially offset by lower rates, and an increase in credit and
debit card revenue on higher transaction volumes. Total noninterest
expense increased by $3 million (.5 percent) over the third quarter
of 2013, primarily due to higher compensation and employee benefits
expense, including the impact of business initiatives, partially
offset by reductions in technology and communications expense and
other intangibles expense. The provision for credit losses
increased by $18 million (10.5 percent) due to an unfavorable
change in the reserve allocation, partially offset by lower net
charge-offs.
Payment Services’ contribution in the third quarter of 2014
increased $19 million (6.8 percent) over the second quarter of
2014. Total net revenue increased $37 million (3.0 percent) on a
linked quarter basis driven by higher net interest income and
higher total noninterest income. Net interest income increased by
$27 million (6.5 percent) over the second quarter mainly due to
improved loan rates. Total noninterest income increased by $10
million (1.2 percent), primarily reflecting an increase in
corporate payment products revenue on seasonally higher volumes,
partially offset by a reduction in credit and debit card revenue
due to higher rewards expense. Total noninterest expense was flat
on a linked quarter basis as increased marketing expenses were
offset by lower net shared services expense. The provision for
credit losses was $8 million (4.4 percent) higher on a linked
quarter basis due to an unfavorable change in the reserve
allocation, partially offset by lower 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, the net effect of
transfer pricing related to average balances, 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 $536 million in the third quarter of 2014, compared with
$469 million in the third quarter of 2013 and $564 million in the
second quarter of 2014. Net interest income increased by $38
million (6.6 percent) over the third quarter of 2013, principally
due to an increase in average balances in the investment securities
portfolio and lower rates on short-term borrowings, partially
offset by lower income from the run-off of acquired assets. Total
noninterest income increased by $85 million over the third quarter
of last year, mainly due to gains on sales of equity investments
and higher commercial products revenue. Total noninterest expense
decreased by $26 million (13.1 percent), principally due to a
decrease in employee benefits expense resulting from lower pension
costs and lower costs for investments in tax-advantaged projects
related to a change in accounting for affordable housing
investments in the first quarter of 2014, partially offset by
increased compensation expense. The provision for credit losses was
$9 million higher year-over-year, due to an unfavorable change in
the reserve allocation and higher net charge-offs.
Net income in the third quarter of 2014 was $28 million (5.0
percent) lower on a linked quarter basis, driven by lower total net
revenue, partially offset by lower total noninterest expense. Total
net revenue was $214 million (21.9 percent) lower than the prior
quarter, driven by a second quarter sale of Visa, Inc. Class B
common stock. A $167 million (49.1 percent) decrease in total
noninterest expense was primarily due to the FHA DOJ settlement and
charitable contributions in the second quarter, partially offset by
Charter One merger integration costs and seasonally higher costs
related to investments in tax-advantaged projects. The provision
for credit losses was $6 million higher compared with the second
quarter of 2014 due to higher net charge-offs and an unfavorable
change in the reserve allocation.
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, October 22, 2014, at 8:00 a.m. (CDT) Richard K.
Davis, chairman, president and chief executive officer, and Andrew
Cecere, vice chairman and chief financial officer, will host a
conference call to review the financial results. The
conference call will be available by telephone or on the
Internet. A presentation will be used during the call and
will be available on the Company’s website at
www.usbank.com. 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 97474478. For those unable
to participate during the live call, a recording of the call will
be available approximately two hours after the conference call ends
on Wednesday, October 22nd, and will run through Wednesday, October
29th, 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
97474478. 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
of the bottom of the page.
Minneapolis-based U.S. Bancorp (“USB”), with $391 billion in
assets as of September 30, 2014, is the parent company of U.S. Bank
National Association, the 5th largest commercial bank in the United
States. The Company operates 3,177 banking offices in 25 states and
5,026 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 moderate 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. Continued stress in the commercial real estate markets,
as well as a delay or failure of recovery in the residential real
estate markets could cause additional 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; 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, 2013, 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,
- Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully implemented
advanced approaches, and for additional information,
- Tier 1 common equity to risk-weighted
assets using Basel I definition.
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
Nine Months Ended (Dollars and Shares in Millions, Except Per Share
Data) September 30, September 30, (Unaudited)
2014 2013 2014
2013
Interest Income Loans $ 2,518 $ 2,568 $ 7,572 $ 7,682
Loans held for sale 36 46 87 172 Investment securities 476 420
1,378 1,222 Other interest income 27
34 89
141 Total interest income 3,057 3,068 9,126 9,217
Interest Expense Deposits 115 134 348 433 Short-term
borrowings 72 98 204 270 Long-term debt 178
178 543
587 Total interest expense 365
410 1,095
1,290 Net interest income 2,692 2,658 8,031 7,927
Provision for credit losses 311
298 941
1,063 Net interest income after provision for credit losses 2,381
2,360 7,090 6,864
Noninterest Income Credit and debit card
revenue 251 244 749 702 Corporate payment products revenue 195 192
550 540 Merchant processing services 387 371 1,127 1,091 ATM
processing services 81 83 241 248 Trust and investment management
fees 315 280 930 842 Deposit service charges 185 180 513 493
Treasury management fees 136 134 409 408 Commercial products
revenue 209 207 635 616 Mortgage banking revenue 260 328 774 1,125
Investment products fees 49 46 142 133 Securities gains (losses),
net (3 ) (3 ) 2 8 Other 177 115
722 412
Total noninterest income 2,242 2,177 6,794 6,618
Noninterest
Expense Compensation 1,132 1,088 3,372 3,268 Employee benefits
250 278 796 865 Net occupancy and equipment 249 240 739 709
Professional services 102 94 282 263 Marketing and business
development 78 85 253 254 Technology and communications 219 214 644
639 Postage, printing and supplies 81 76 242 230 Other intangibles
51 55 148 167 Other 452 435
1,435 1,197
Total noninterest expense 2,614
2,565 7,911
7,592 Income before income taxes 2,009 1,972 5,973 5,890 Applicable
income taxes 523 542
1,566 1,629 Net
income 1,486 1,430 4,407 4,261 Net (income) loss attributable to
noncontrolling interests (15 ) 38
(44 ) 119 Net
income attributable to U.S. Bancorp $ 1,471 $
1,468 $ 4,363 $ 4,380 Net
income applicable to U.S. Bancorp common shareholders $ 1,405
$ 1,400 $ 4,163
$ 4,163 Earnings per common share $ .78 $ .76
$ 2.30 $ 2.26 Diluted earnings per common share $ .78 $ .76 $ 2.29
$ 2.25 Dividends declared per common share $ .245 $ .230 $ .720 $
.655 Average common shares outstanding 1,798 1,832 1,809 1,844
Average diluted common shares outstanding
1,807 1,843
1,819 1,854
U.S. Bancorp
Consolidated Ending Balance
Sheet September 30, December 31, September 30, (Dollars
in Millions) 2014 2013
2013
Assets (Unaudited) (Unaudited) Cash and due from banks
$ 6,183 $ 8,477 $ 11,615 Investment securities Held-to-maturity
44,231 38,920 36,904 Available-for-sale 52,674 40,935 39,307 Loans
held for sale 3,939 3,268 3,858 Loans Commercial 78,878 70,033
68,958 Commercial real estate 40,909 39,885 38,678 Residential
mortgages 51,957 51,156 50,170 Credit card 17,858 18,021 17,063
Other retail 48,935 47,678
47,114 Total loans, excluding
covered loans 238,537 226,773 221,983 Covered loans 7,054
8,462 9,396
Total loans 245,591 235,235 231,379 Less allowance for loan
losses (4,065 ) (4,250 )
(4,258 ) Net loans 241,526 230,985 227,121 Premises and
equipment 2,608 2,606 2,608 Goodwill 9,401 9,205 9,173 Other
intangible assets 3,338 3,529 3,455 Other assets 27,384
26,096
26,640 Total assets $ 391,284 $ 364,021
$ 360,681
Liabilities and
Shareholders' Equity Deposits Noninterest-bearing $ 78,641 $
76,941 $ 72,333 Interest-bearing 165,070 156,165 152,861 Time
deposits greater than $100,000 29,386
29,017 36,522 Total
deposits 273,097 262,123 261,716 Short-term borrowings 30,045
27,608 26,128 Long-term debt 30,768 20,049 18,750 Other liabilities
13,545 12,434
12,535 Total liabilities 347,455 322,214
319,129 Shareholders' equity Preferred stock 4,756 4,756 4,756
Common stock 21 21 21 Capital surplus 8,293 8,216 8,188 Retained
earnings 41,543 38,667 37,692 Less treasury stock (10,836 ) (9,476
) (9,174 ) Accumulated other comprehensive income (loss)
(636 ) (1,071 ) (1,351 )
Total U.S. Bancorp shareholders' equity 43,141 41,113 40,132
Noncontrolling interests 688 694
1,420 Total equity 43,829
41,807
41,552 Total liabilities and equity $ 391,284
$ 364,021 $ 360,681
U.S. Bancorp
Non-GAAP Financial
Measures September 30, June 30, March 31, December 31,
September 30, (Dollars in Millions, Unaudited) 2014
2014 2014
2013 2013 Total equity $ 43,829
$ 43,386 $ 42,743 $ 41,807 $ 41,552 Preferred stock (4,756 ) (4,756
) (4,756 ) (4,756 ) (4,756 ) Noncontrolling interests (688 ) (686 )
(689 ) (694 ) (1,420 ) Goodwill (net of deferred tax liability) (1)
(8,503 ) (8,548 ) (8,352 ) (8,343 ) (8,319 ) Intangible assets,
other than mortgage servicing rights (877 )
(925 ) (804 )
(849 ) (878 )
Tangible common equity (a) 29,005 28,471 28,142 27,165
26,179 Tangible common equity (as calculated above) 29,005
28,471 28,142 27,165 26,179 Adjustments (2) 187
224
239 224
258
Common equity tier 1 capital estimated for
the Basel III fully implemented standardized and advanced
approaches (b)
29,192 28,695 28,381 27,389 26,437
Tier 1 capital, determined in accordance
with prescribed regulatory requirements using Basel I
definition
33,386 32,707 Preferred stock (4,756 ) (4,756 )
Noncontrolling interests, less preferred
stock not eligible for Tier 1 capital
(688 ) (686 ) Tier 1
common equity using Basel I definition (c) 27,942 27,265
Total assets 391,284 389,065 371,289 364,021 360,681 Goodwill (net
of deferred tax liability) (1) (8,503 ) (8,548 ) (8,352 ) (8,343 )
(8,319 ) Intangible assets, other than mortgage servicing rights
(877 ) (925 )
(804 ) (849 )
(878 ) Tangible assets (d) 381,904
379,592 362,133 354,829 351,484
Risk-weighted assets, determined in
accordance with prescribed regulatory requirements (3) (e)
311,914 * 309,929 302,841 297,919 293,155 Adjustments (4)
12,837 * 12,753
13,238 13,712
13,473
Risk-weighted assets estimated for the
Basel III fully implemented standardized approach (f)
324,751 * 322,682 316,079 311,631 306,628
Risk-weighted assets, determined in
accordance with prescribed transitional advanced approaches
regulatory requirements
243,905 * 241,929 Adjustments (5) 3,443 *
3,383
Risk-weighted assets estimated for the
Basel III fully implemented advanced approaches (g)
247,348 * 245,312
Ratios * Tangible common equity to
tangible assets (a)/(d) 7.6 % 7.5 % 7.8 % 7.7 % 7.4 % Tangible
common equity to risk-weighted assets (a)/(e) 9.3 9.2 9.3 9.1 8.9
Tier 1 common equity to risk-weighted assets using Basel I
definition (c)/(e) -- -- -- 9.4 9.3
Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully implemented
standardized approach (b)/(f)
9.0 8.9 9.0 8.8 8.6
Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully implemented
advanced approaches (b)/(g)
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
beginning March 31, 2014. (2) Includes net losses on cash flow
hedges included in accumulated other comprehensive income and other
adjustments.
(3) Beginning March 31, 2014, calculated
under the Basel III transitional standardized approach; all other
periods calculated under Basel I.
(4) Includes higher risk-weighting for unfunded loan commitments,
investment securities, residential mortgages, mortgage servicing
rights and other adjustments. (5)Primarily reflects higher
risk-weighting for mortgage servicing rights.
U.S. BancorpMedia:Dana Ripley,
612-303-3167orInvestors/Analysts:Sean O'Connor, 612-303-0778
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