Achieves Record Net Income and EPS for the
Full Year 2014
U.S. Bancorp (NYSE:USB) today reported net income of $1,488
million for the fourth quarter of 2014, or $.79 per diluted common
share, compared with $1,456 million, or $.76 per diluted common
share, in the fourth quarter of 2013. The fourth quarter of 2014
reflected notable items related to equity investments, charitable
contributions and accruals for legal matters that, combined,
increased diluted earnings per common share for the current quarter
by $.01.
Highlights for the full year 2014 included:
- Record full year 2014 net income of
$5.85 billion
- Record full year diluted earnings per
common share of $3.08, 2.7 percent higher than 2013
- Industry-leading performance measures,
including return on average assets of 1.54 percent, return on
average common equity of 14.7 percent and efficiency ratio of 53.2
percent
- Returned 72 percent of 2014 earnings to
shareholders through dividends and share buybacks
Highlights for the fourth quarter of 2014 included:
- Growth in average total loans of 5.9
percent over the fourth quarter of 2013 (5.5 percent excluding the
Charter One franchise acquisition in late June 2014 and 7.1 percent
excluding covered loans) and 1.0 percent on a linked quarter basis
(1.2 percent excluding covered loans)
- Growth in average total commercial
loans of 15.5 percent over the fourth quarter of 2013 and 2.9
percent over the third quarter of 2014
- Growth in average total commercial real
estate loans of 4.2 percent over the fourth quarter of 2013 and .3
percent over the third quarter of 2014
- Growth in average commercial and
commercial real estate commitments of 13.3 percent year-over-year
and 3.0 percent over the prior quarter
- Strong new lending activity of $63.9
billion during the fourth quarter, including:
- $44.2 billion of new and renewed
commercial and commercial real estate commitments
- $2.9 billion of lines related to new
credit card accounts
- $16.8 billion of mortgage and other
retail loan originations
- Net interest income growth over the
fourth quarter of 2013 and third quarter 2014
- Average earning assets growth of 11.1
percent year-over-year and 2.5 percent linked quarter
- Continued strong growth in lower cost
core deposit funding on a year-over-year and linked quarter
basis
- Decline in net charge-offs of 8.3
percent on a linked quarter basis and 1.3 percent on a
year-over-year basis. Provision for credit losses was $20 million
less than net charge-offs in the current quarter
- Allowance for credit losses to
period-end loans was 1.77 percent at December 31, 2014
- Annualized net charge-offs to average
total loans ratio decreased to .50 percent
- Decreases in nonperforming assets of
11.2 percent on a year-over-year basis and 6.0 percent on a linked
quarter basis
- Growth in average total deposits of 7.2
percent over the fourth quarter of 2013 (5.5 percent excluding the
Charter One acquisition) and 1.6 percent on a linked quarter basis
- Average low cost deposits, including
noninterest-bearing and total savings deposits, grew by 9.6 percent
year-over-year and 2.4 percent on a linked quarter basis
- Capital generation continued to
reinforce capital position and returns. Ratios at December 31,
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 66 percent of fourth quarter
earnings to shareholders through dividends and the buyback of 11
million common shares
- Compliant with fully implemented U.S.
Liquidity Coverage Ratio (“LCR”) based on the Company’s
interpretation of the U.S. final LCR rule
- The notable items in the fourth quarter
of 2014 included a $124 million gain related to an equity interest
in Nuveen Investments (“Nuveen gain”) and $88 million of additional
noninterest expense comprised of $35 million of charitable
contributions and $53 million related to recent developments in
certain legal matters.
EARNINGS
SUMMARY
Table 1 ($ in millions, except
per-share data)
Percent Percent
Change Change 4Q
3Q 4Q 4Q14 vs 4Q14 vs Full Year
Full Year Percent 2014
2014 2013 3Q14
4Q13 2014
2013 Change Net income
attributable to U.S. Bancorp $1,488 $1,471 $1,456 1.2 2.2 $5,851
$5,836 .3 Diluted earnings per common share $.79 $.78 $.76 1.3 3.9
$3.08 $3.00 2.7 Return on average assets (%) 1.50 1.51 1.62
1.54 1.65 Return on average common equity (%) 14.4 14.5 15.4 14.7
15.8 Net interest margin (%) 3.14 3.16 3.40 3.23 3.44 Efficiency
ratio (%) 54.3 52.4 54.9 53.2 52.4 Tangible efficiency ratio (%)
(a) 53.3 51.3 53.7 52.2 51.3 Dividends declared per common
share $.245 $.245 $.230 -- 6.5 $.965 $.885 9.0 Book value per
common share (period-end) $21.68 $21.38 $19.92 1.4 8.8
(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 intangible amortization.
Net income attributable to U.S. Bancorp was $1,488 million for
the fourth quarter of 2014, 2.2 percent higher than the $1,456
million for the fourth quarter of 2013, and 1.2 percent higher than
the $1,471 million for the third quarter of 2014. Diluted earnings
per common share of $.79 in the fourth quarter of 2014 were $.03
higher than the fourth quarter of 2013 and $.01 higher than the
previous quarter. Return on average assets and return on average
common equity were 1.50 percent and 14.4 percent, respectively, for
the fourth quarter of 2014, compared with 1.62 percent and 15.4
percent, respectively, for the fourth quarter of 2013. The
provision for credit losses was lower than net charge-offs by $20
million in the fourth quarter of 2014, $25 million lower than net
charge-offs in the third quarter of 2014, and $35 million lower
than net charge-offs in the fourth quarter of 2013.
U.S. Bancorp Chairman, President and Chief Executive Officer
Richard K. Davis said, “U.S. Bancorp delivered another solid
financial performance in 2014 with record full year net income of
$5.85 billion, or $3.08 per diluted common share. Our fourth
quarter results were also solid with net income of $1.49 billion,
or $.79 per diluted common share. We maintained our
industry-leading performance measures, including return on average
assets (ROA) of 1.54 percent, return on average common equity (ROE)
of 14.7 percent, and an efficiency ratio of 53.2 percent for the
full year of 2014. We are proud of the hard work and dedication of
our global team and for their commitment to providing customers
with a diverse array of banking products and services, backed by
the financial strength of U.S. Bancorp.”
Davis continued, “In 2014, we demonstrated our ability to create
value for our shareholders and customers by returning 72 percent of
our earnings to shareholders through dividends and share buybacks,
and by generating steady growth in commercial and consumer lending,
new credit card accounts, total deposits, and wealth management
services. The diversification of our business profile continues to
be a key advantage for the organization. We are particularly
encouraged by the 5.7 percent growth in total net revenue, the 15.5
percent growth in average total commercial loans, and the 7.2
percent growth in average total deposits over the fourth quarter of
last year. At the same time, we are preserving our strong capital
position with our key capital ratios at or above our targets.”
“As we head into 2015, we remain committed to investing in a
strategy centered on helping our retail, wholesale and
institutional customers establish financially secure futures. We
are well positioned for growth as the economic environment shows
signs of improvement and our customers look for a strong and stable
banking partner to help them achieve their distinct financial goals
and objectives.”
INCOME
STATEMENT HIGHLIGHTS
Table 2
(Taxable-equivalent basis, $ in millions,
Percent Percent
except per-share data)
Change Change 4Q 3Q
4Q 4Q14 vs 4Q14 vs Full Year Full
Year Percent 2014 2014
2013 3Q14
4Q13 2014 2013
Change Net interest income $2,799
$2,748 $2,733 1.9 2.4 $10,997 $10,828 1.6 Noninterest income 2,370
2,242 2,156 5.7
9.9 9,164 8,774 4.4 Total net revenue 5,169
4,990 4,889 3.6 5.7 20,161 19,602 2.9 Noninterest expense 2,804
2,614 2,682 7.3
4.5 10,715 10,274 4.3 Income before provision
and taxes 2,365 2,376 2,207 (.5 ) 7.2 9,446 9,328 1.3 Provision for
credit losses 288 311 277
(7.4 ) 4.0 1,229 1,340 (8.3 ) Income
before taxes 2,077 2,065 1,930 .6 7.6 8,217 7,988 2.9
Taxable-equivalent adjustment 55 56 56 (1.8 ) (1.8 ) 222 224 (.9 )
Applicable income taxes 521 523
403 (.4 ) 29.3 2,087 2,032 2.7
Net income 1,501 1,486 1,471 1.0 2.0 5,908 5,732 3.1
Net (income) loss attributable to
noncontrolling interests
(13 ) (15 ) (15 ) 13.3 13.3 (57 )
104
nm
Net income attributable to U.S. Bancorp $1,488
$1,471 $1,456 1.2 2.2 $5,851
$5,836 .3
Net income applicable to U.S. Bancorp
common shareholders
$1,420 $1,405 $1,389
1.1 2.2 $5,583 $5,552 .6 Diluted
earnings per common share $.79 $.78
$.76 1.3 3.9 $3.08 $3.00
2.7
Net income attributable to U.S. Bancorp for the fourth quarter
of 2014 was $32 million (2.2 percent) higher than the fourth
quarter of 2013, and $17 million (1.2 percent) higher than the
third 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 net interest income and fee-based revenue, and the net
impact of notable items. The increase in net income on a linked
quarter basis was due to higher net interest income, the net impact
of the notable items and a decrease in the provision for credit
losses.
Total net revenue on a taxable-equivalent basis for the fourth
quarter of 2014 was $5,169 million, which was $280 million (5.7
percent) higher than the fourth quarter of 2013, reflecting a 9.9
percent increase in noninterest income and a 2.4 percent increase
in net interest income. Noninterest income increased year-over-year
due to higher revenue in most fee businesses and higher other
income, including the impact of the Nuveen gain. 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 lower loan fees due to the
previously communicated wind down of the short-term, small-dollar
deposit advance product, Checking Account Advance (“CAA”). Total
net revenue on a taxable-equivalent basis was $179 million (3.6
percent) higher on a linked quarter basis due to a 5.7 percent
increase in noninterest income as a result of the Nuveen gain and a
1.9 percent increase in net interest income, the result of an
increase in average earning assets and growth in lower cost
deposits.
Total noninterest expense in the fourth quarter of 2014 was
$2,804 million, which was $122 million (4.5 percent) higher than
the fourth quarter of 2013 and $190 million (7.3 percent) higher
than the third quarter of 2014. The increase in total noninterest
expense year-over-year was primarily due to accruals related to
recent developments in several legal matters, charitable
contributions and an increase in compensation expense, reflecting
the impact of merit increases, acquisitions, and higher staffing
for risk and compliance activities. The increase in total
noninterest expense on a linked quarter basis was due to seasonally
higher costs related to investments in tax-advantaged projects and
professional services and the notable items, including the
charitable contributions and legal accruals.
The Company’s provision for credit losses for the fourth quarter
of 2014 was $288 million, $23 million (7.4 percent) lower than the
prior quarter and $11 million (4.0 percent) higher than the fourth
quarter of 2013. The provision for credit losses was lower than net
charge-offs by $20 million in the fourth quarter of 2014, $25
million lower than net charge-offs in the third quarter of 2014,
and $35 million lower than net charge-offs in the fourth quarter of
2013. Net charge-offs in the fourth quarter of 2014 were $308
million, compared with $336 million in the third quarter of 2014,
and $312 million in the fourth quarter of 2013. Given current
economic conditions, the Company expects the level of net
charge-offs to remain relatively stable in the first quarter of
2015.
Nonperforming assets were $1,808 million at December 31, 2014,
compared with $1,923 million at September 30, 2014, and $2,037
million at December 31, 2013. The decrease in nonperforming assets
compared with a year ago was driven primarily by reductions in the
commercial, commercial mortgage and construction and development
portfolios, as well as by improvement in credit card loans. The
Company expects total nonperforming assets to remain relatively
stable in the first quarter of 2015. The ratio of the allowance for
credit losses to period-end loans was 1.77 percent at December 31,
2014, compared with 1.80 percent at September 30, 2014, and 1.93
percent at December 31, 2013. Certain loans acquired by the Company
are covered under loss sharing agreements with the FDIC that
substantially reduce the risk of credit losses to the Company
(“covered assets”). The loss sharing agreement for the commercial
and commercial real estate loans acquired from the FDIC, which
comprised the majority of the nonperforming covered assets, expired
at the end of the fourth quarter of 2014.
NET INTEREST
INCOME
Table 3 (Taxable-equivalent basis; $ in
millions)
Change Change 4Q 3Q 4Q 4Q14
vs 4Q14 vs Full Year Full Year 2014
2014 2013
3Q14 4Q13 2014
2013 Change Components of
net interest income Income on earning assets $3,158 $3,114 $3,125
$44 $33 $12,454 $12,513 $(59 ) Expense on interest-bearing
liabilities 359 366 392
(7 ) (33 ) 1,457
1,685 (228 ) Net interest
income $2,799 $2,748
$2,733 $51 $66
$10,997 $10,828
$169 Average yields and rates paid Earning
assets yield 3.54 % 3.58 % 3.89 % (.04 )% (.35 )% 3.65 % 3.97 %
(.32 )% Rate paid on interest-bearing liabilities .55
.57 .68 (.02 )
(.13 ) .58 .73
(.15 ) Gross interest margin 2.99 %
3.01 % 3.21 % (.02 )%
(.22 )% 3.07 % 3.24 %
(.17 )% Net interest margin 3.14 % 3.16 %
3.40 % (.02 )% (.26 )%
3.23 % 3.44 % (.21 )%
Average balances Investment securities (a) $98,164 $93,141
$77,248 $5,023 $20,916 $90,327 $75,046 $15,281 Loans 246,421
243,867 232,791 2,554 13,630 241,692 227,474 14,218 Earning assets
354,961 346,422 319,516 8,539 35,445 340,994 315,139 25,855
Interest-bearing liabilities 259,938 254,501 229,201 5,437 30,737
249,972 230,400 19,572 (a) Excludes unrealized gain (loss)
Net Interest Income
Net interest income on a taxable-equivalent basis in the fourth
quarter of 2014 was $2,799 million, an increase of $66 million (2.4
percent) over the fourth quarter of 2013. The increase was the
result of growth in average earning assets and in lower cost core
deposit funding, partially offset by lower rates on new loans and
securities and the CAA product wind down. Average earning assets
were $35.4 billion (11.1 percent) higher than the fourth quarter of
2013, driven by increases of $20.9 billion (27.1 percent) in
average investment securities and $13.6 billion (5.9 percent) in
average total loans. Net interest income increased $51 million (1.9
percent) on a linked quarter basis, due to higher average earning
assets, partially offset by lower loan and investment securities
rates. The net interest margin in the fourth quarter of 2014 was
3.14 percent, compared with 3.40 percent in the fourth quarter of
2013, and 3.16 percent in the third quarter of 2014. The decline in
the net interest margin on a year-over-year basis primarily
reflected lower reinvestment rates on investment securities, as
well as growth in the investment portfolio at lower average rates,
lower loan fees due to the CAA product wind down, and lower rates
on new loans, partially offset by lower funding costs. On a linked
quarter basis, the reduction in net interest margin was principally
due to growth in lower rate investment securities, partially offset
by interest recoveries.
AVERAGE
LOANS
Table 4 ($ in millions)
Percent
Percent
Change Change 4Q 3Q 4Q 4Q14
vs 4Q14 vs Full Year Full Year
Percent 2014 2014
2013 3Q14 4Q13
2014 2013
Change Commercial $74,333 $72,190 $63,714 3.0 16.7
$70,549 $62,012 13.8 Lease financing 5,292 5,155
5,210 2.7 1.6 5,185 5,262 (1.5 ) Total
commercial 79,625 77,345 68,924 2.9 15.5 75,734 67,274 12.6
Commercial mortgages 31,783 31,965 31,780 (.6 ) -- 31,949 31,429
1.7 Construction and development 9,183 8,874
7,538 3.5 21.8 8,643 6,808 27.0 Total
commercial real estate 40,966 40,839 39,318 .3 4.2 40,592 38,237
6.2 Residential mortgages 51,872 51,994 50,732 (.2 ) 2.2
51,818 47,982 8.0 Credit card 17,990 17,753 17,366 1.3 3.6
17,635 16,813 4.9 Retail leasing 5,939 5,991 5,847 (.9 ) 1.6
5,981 5,654 5.8 Home equity and second mortgages 15,853 15,704
15,488 .9 2.4 15,564 15,887 (2.0 ) Other 27,317
27,003 26,059 1.2 4.8 26,808 25,584 4.8
Total other retail 49,109 48,698 47,394
.8 3.6 48,353 47,125 2.6 Total loans,
excluding covered loans 239,562 236,629
223,734 1.2 7.1 234,132 217,431 7.7 Covered
loans 6,859 7,238 9,057 (5.2 ) (24.3 )
7,560 10,043 (24.7 ) Total loans $246,421
$243,867 $232,791 1.0 5.9 $241,692
$227,474 6.3
Average total loans were $13.6 billion (5.9 percent) higher in
the fourth quarter of 2014 than the fourth quarter of 2013, driven
by growth in total commercial loans (15.5 percent), total
commercial real estate (4.2 percent), credit card (3.6 percent),
residential mortgages (2.2 percent), and total other retail loans
(3.6 percent). These increases were partially offset by a decline
in covered loans (24.3 percent). Average total loans, excluding
covered loans, were higher by 7.1 percent year-over-year. Average
total loans were $2.6 billion (1.0 percent) higher in the fourth
quarter of 2014 than the third quarter of 2014, driven by growth in
total commercial loans (2.9 percent), credit card (1.3 percent),
total other retail loans (.8 percent) and total commercial real
estate (.3 percent). These increases were partially offset by a
decline in covered loans (5.2 percent) and residential mortgages
(.2 percent). Average total loans, excluding covered loans, were
higher by 1.2 percent on a linked quarter basis.
Average investment securities in the fourth quarter of 2014 were
$20.9 billion (27.1 percent) higher year-over-year and $5.0 billion
(5.4 percent) higher than the prior quarter. The increases were
primarily due to purchases of U.S. government agency-backed
securities, net of prepayments and maturities, in anticipation of
final liquidity coverage ratio regulatory requirements.
AVERAGE
DEPOSITS
Table 5 ($ in millions)
Percent
Percent
Change Change 4Q 3Q 4Q
4Q14 vs 4Q14 vs Full Year Full Year
Percent 2014 2014
2013 3Q14 4Q13
2014 2013
Change Noninterest-bearing deposits $76,958 $74,126
$74,468 3.8 3.3 $73,455 $69,020 6.4 Interest-bearing savings
deposits Interest checking 54,199 54,454 50,112 (.5 ) 8.2 53,248
48,792 9.1 Money market savings 68,914 66,250 57,550 4.0 19.7
63,977 55,512 15.2 Savings accounts 34,955 34,615
32,235 1.0 8.4 34,196 31,916 7.1 Total
of savings deposits 158,068 155,319 139,897 1.8 13.0 151,421
136,220 11.2 Time deposits less than $100,000 10,766 11,045 11,979
(2.5 ) (10.1 ) 11,054 12,804 (13.7 ) Time deposits greater than
$100,000 29,687 30,518 30,562 (2.7 )
(2.9 ) 30,710 32,413 (5.3 ) Total interest-bearing
deposits 198,521 196,882 182,438 .8 8.8
193,185 181,437 6.5 Total deposits $275,479
$271,008 $256,906 1.6 7.2 $266,640
$250,457 6.5
Average total deposits for the fourth quarter of 2014 were $18.6
billion (7.2 percent) higher than the fourth quarter of 2013.
Average noninterest-bearing deposits increased $2.5 billion (3.3
percent) year-over-year, mainly in Consumer and Small Business
Banking, including the $.4 billion impact of the Charter One
acquisition. Average total savings deposits were $18.2 billion
(13.0 percent) higher year-over-year, the result of growth in
Consumer and Small Business Banking, including the $3.3 billion
impact of the Charter One acquisition, corporate trust, and in
Wholesale Banking and Commercial Real Estate balances. Time
deposits less than $100,000 were $1.2 billion (10.1 percent) lower
due to maturities, while time deposits greater than $100,000
decreased $875 million (2.9 percent), primarily due to a decline in
Wholesale Banking and Commercial Real Estate 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 $4.5 billion (1.6 percent) over
the third quarter of 2014. Average noninterest-bearing deposits
increased $2.8 billion (3.8 percent) on a linked quarter basis, due
to higher balances in Wholesale Banking and Commercial Real Estate
and Consumer and Small Business Banking. Average total savings
deposits increased $2.7 billion (1.8 percent), reflecting increases
in corporate trust and Consumer and Small Business Banking,
partially offset by a decrease in broker-dealer and government
banking related balances. Compared with the third quarter of 2014,
average time deposits less than $100,000 decreased $279 million
(2.5 percent) due to a decrease in Consumer and Small Business
Banking. Average time deposits greater than $100,000 decreased $831
million (2.7 percent) on a linked quarter basis, principally due to
a decline in corporate trust balances.
NONINTEREST INCOME
Table 6 ($ in millions)
Percent
Percent
Change Change 4Q 3Q 4Q
4Q14 vs 4Q14 vs Full Year Full Year
Percent 2014 2014
2013 3Q14 4Q13
2014 2013
Change Credit and debit card revenue $272 $251 $263
8.4 3.4 $1,021 $965 5.8 Corporate payment products revenue 174 195
166 (10.8 ) 4.8 724 706 2.5 Merchant processing services 384 387
367 (.8 ) 4.6 1,511 1,458 3.6 ATM processing services 80 81 79 (1.2
) 1.3 321 327 (1.8 ) Trust and investment management fees 322 315
297 2.2 8.4 1,252 1,139 9.9 Deposit service charges 180 185 177
(2.7 ) 1.7 693 670 3.4 Treasury management fees 136 136 130 -- 4.6
545 538 1.3 Commercial products revenue 219 209 243 4.8 (9.9 ) 854
859 (.6 ) Mortgage banking revenue 235 260 231 (9.6 ) 1.7 1,009
1,356 (25.6 ) Investment products fees 49 49 45 -- 8.9 191 178 7.3
Securities gains (losses), net 1 (3 ) 1
nm
-- 3 9 (66.7 ) Other 318 177 157
79.7 nm 1,040 569 82.8 Total noninterest
income $2,370 $2,242 $2,156 5.7
9.9 $9,164 $8,774 4.4
Noninterest Income
Fourth quarter noninterest income was $2,370 million, which was
$214 million (9.9 percent) higher than the fourth quarter of 2013
and $128 million (5.7 percent) higher than the third quarter of
2014. The year-over-year increase in noninterest income was due to
increases in other income and a majority of fee revenue categories,
partially offset by a reduction in commercial products revenue. The
increase in other income of $161 million was primarily due to
higher equity investment gains, including the Nuveen gain, and
increased revenue from tax-advantaged projects. Trust and
investment management fees increased $25 million (8.4 percent)
year-over-year, reflecting account growth, improved market
conditions and business expansion. Merchant processing services
revenue was $17 million (4.6 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 $9 million
(3.4 percent) and corporate payment products revenue increased $8
million (4.8 percent) over the fourth quarter of 2013 primarily due
to higher transaction volumes. The decrease in commercial products
revenue of $24 million (9.9 percent) was primarily due to lower
tax-advantaged project syndication fees.
Noninterest income was $128 million (5.7 percent) higher in the
fourth quarter of 2014 than the third quarter of 2014, primarily
due to a $141 million (79.7 percent) increase in other income,
partially offset by lower mortgage banking revenue and seasonally
lower corporate payment products revenue. The increase in other
income was primarily due to the Nuveen gain and higher revenue from
tax-advantaged projects. Credit and debit card revenue increased
$21 million (8.4 percent) primarily due to seasonally higher sales
volumes. Commercial products revenue increased $10 million (4.8
percent) primarily due to higher loan and tax-advantaged project
syndication fees. Trust and investment management fees were $7
million (2.2 percent) higher than the prior quarter due to improved
market conditions and higher fees. Partially offsetting these
increases were decreases in mortgage banking revenue and corporate
payment products revenue. Mortgage banking revenue decreased $25
million (9.6 percent), principally due to a decrease in origination
and sales revenue and an $8 million unfavorable change in the
valuation of mortgage servicing rights (“MSRs”), net of hedging
activities. Corporate payment products revenue decreased $21
million (10.8 percent) on a linked quarter basis, primarily due to
the impact of seasonally higher third quarter government-related
transaction volumes.
NONINTEREST EXPENSE
Table 7 ($ in millions)
Percent
Percent
Change Change 4Q 3Q 4Q 4Q14
vs 4Q14 vs Full Year Full Year
Percent 2014 2014
2013 3Q14 4Q13
2014 2013
Change Compensation $1,151 $1,132 $1,103 1.7 4.4
$4,523 $4,371 3.5 Employee benefits 245 250 275 (2.0 ) (10.9 )
1,041 1,140 (8.7 ) Net occupancy and equipment 248 249 240 (.4 )
3.3 987 949 4.0 Professional services 132 102 118 29.4 11.9 414 381
8.7 Marketing and business development 129 78 103 65.4 25.2 382 357
7.0 Technology and communications 219 219 209 -- 4.8 863 848 1.8
Postage, printing and supplies 86 81 80 6.2 7.5 328 310 5.8 Other
intangibles 51 51 56 -- (8.9 ) 199 223 (10.8 ) Other 543
452 498 20.1 9.0 1,978 1,695
16.7 Total noninterest expense $2,804 $2,614
$2,682 7.3 4.5 $10,715 $10,274 4.3
Noninterest Expense
Noninterest expense in the fourth quarter of 2014 totaled $2,804
million, an increase of $122 million (4.5 percent) over the fourth
quarter of 2013, and a $190 million (7.3 percent) increase over the
third quarter of 2014. The increase in total noninterest expense
year-over-year was primarily the result of the charitable
contributions and legal accruals, and higher compensation expense.
The increase in compensation expense of $48 million (4.4 percent)
reflected the impact of merit increases, acquisitions, and higher
staffing for risk and compliance activities. The increase in other
noninterest expense of $45 million (9.0 percent) was primarily due
to the legal accruals. The increase in marketing and business
development expense of $26 million (25.2 percent) was principally
due to charitable contributions. Additionally, professional
services expense increased $14 million (11.9 percent) due to higher
costs across a majority of the lines of business, and technology
and communications expense increased $10 million (4.8 percent) as a
result of business initiatives across most business lines.
Partially offsetting these increases was a $30 million (10.9
percent) reduction in employee benefits expense driven by lower
pension costs.
Noninterest expense increased $190 million (7.3 percent) on a
linked quarter basis, primarily driven by an increase in other
noninterest expense of $91 million (20.1 percent) due to seasonally
higher costs related to investments in tax-advantaged projects and
the legal accruals. Additionally, marketing and business
development expense increased $51 million (65.4 percent) primarily
due to charitable contributions and advertising costs. Professional
services expense was $30 million (29.4 percent) higher due to
seasonally higher costs across a majority of the lines of business
including risk and compliance activities. Compensation expense
increased $19 million (1.7 percent) principally reflecting the
impact of additional employees for risk and compliance
activities.
Provision for Income Taxes
The provision for income taxes for the fourth quarter of 2014
resulted in a tax rate on a taxable-equivalent basis of 27.7
percent (effective tax rate of 25.8 percent), compared with 23.8
percent (effective tax rate of 21.5 percent) in the fourth quarter
of 2013, and 28.0 percent (effective tax rate of 26.0 percent) in
the third quarter of 2014. The increase on a year-over-year basis
primarily reflected the affordable housing tax credit change in the
first quarter of 2014 and the favorable conclusion of certain tax
matters in the fourth quarter of 2013.
ALLOWANCE FOR CREDIT LOSSES
Table 8 ($ in millions)
4Q 3Q
2Q
1Q 4Q
2014
% (b)
2014
% (b)
2014
% (b)
2014
% (b)
2013
% (b)
Balance, beginning of period $4,414 $4,449 $4,497 $4,537
$4,578 Net charge-offs Commercial 48 .26 52 .29 52 .30 34
.21 33 .21 Lease financing (2 ) (.15 ) 6 .46 3 .24 2
.16 3 .23 Total commercial 46 .23 58 .30 55 .29 36
.21 36 .21 Commercial mortgages (3 ) (.04 ) 1 .01 (6 ) (.08 ) (1 )
(.01 ) 1 .01 Construction and development (7 ) (.30 ) 3 .13
2 .09 (2 ) (.10 ) (30 ) (1.58 ) Total commercial real estate
(10 ) (.10 ) 4 .04 (4 ) (.04 ) (3 ) (.03 ) (29 ) (.29 )
Residential mortgages 39 .30 42 .32 57 .44 57 .45 49 .38
Credit card 160 3.53 158 3.53 170 3.92 170 3.96 163 3.72
Retail leasing 1 .07 -- -- 1 .07 -- -- -- -- Home equity and second
mortgages 17 .43 24 .61 23 .60 31 .82 37 .95 Other 52 .76 49
.72 45 .68 45 .69 52 .79 Total other
retail 70 .57 73 .59 69 .58 76 .65 89 .75 Total net charge-offs,
excluding covered loans 305 .51
335 .56 347 .60 336 .60 308 .55 Covered loans 3 .17 1
.05 2 .10 5 .24 4 .18 Total net charge-offs
308 .50 336 .55 349 .58 341 .59 312 .53 Provision for credit losses
288 311 324 306 277 Other changes (a) (19 ) (10 ) (23 ) (5 ) (6 )
Balance, end of period $4,375 $4,414 $4,449
$4,497 $4,537 Components Allowance for loan
losses $4,039 $4,065 $4,132 $4,189 $4,250
Liability for unfunded credit
commitments
336 349 317 308 287 Total
allowance for credit losses $4,375 $4,414 $4,449
$4,497 $4,537 Gross charge-offs $415
$410 $432 $422 $429 Gross recoveries $107 $74 $83 $81 $117
Allowance for credit losses as a percentage of
Period-end loans, excluding covered
loans
1.78 1.81 1.83 1.90 1.94
Nonperforming loans, excluding covered
loans
297 291 294 293 297
Nonperforming assets, excluding covered
assets
245 245 246 243 242
Period-end loans 1.77 1.80 1.82 1.89 1.93 Nonperforming loans 298
282 279 278 283 Nonperforming assets 242 230 229 225 223
(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 $4,375 million at December
31, 2014, compared with $4,414 million at September 30, 2014, and
$4,537 million at December 31, 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 fourth
quarter of 2014 were $308 million, compared with $336 million in
the third quarter of 2014, and $312 million in the fourth quarter
of 2013. The $28 million (8.3 percent) decrease in net charge-offs
on a linked quarter basis was due to higher recoveries in the
commercial and commercial real estate portfolios and improvement in
home equity and second mortgages, while the $4 million (1.3
percent) decrease in net charge-offs on a year-over-year basis
reflected improvements in residential mortgages and home equity and
second mortgages, partially offset by higher commercial loan net
charge-offs and lower recoveries in commercial real estate. The
Company recorded $288 million of provision for credit losses in the
current quarter, which was $20 million less than net
charge-offs.
Commercial and commercial real estate loan net charge-offs were
$36 million (.12 percent of average loans outstanding) in the
fourth quarter of 2014, compared with $62 million (.21 percent of
average loans outstanding) in the third quarter of 2014, and $7
million (.03 percent of average loans outstanding) in the fourth
quarter of 2013.
Residential mortgage loan net charge-offs were $39 million (.30
percent of average loans outstanding) in the fourth quarter of
2014, compared with $42 million (.32 percent of average loans
outstanding) in the third quarter of 2014, and $49 million (.38
percent of average loans outstanding) in the fourth quarter of
2013. Credit card loan net charge-offs were $160 million (3.53
percent of average loans outstanding) in the fourth quarter of
2014, compared with $158 million (3.53 percent of average loans
outstanding) in the third quarter of 2014, and $163 million (3.72
percent of average loans outstanding) in the fourth quarter of
2013. Total other retail loan net charge-offs were $70 million (.57
percent of average loans outstanding) in the fourth quarter of
2014, compared with $73 million (.59 percent of average loans
outstanding) in the third quarter of 2014, and $89 million (.75
percent of average loans outstanding) in the fourth quarter of
2013.
The ratio of the allowance for credit losses to period-end loans
was 1.77 percent at December 31, 2014, compared with 1.80 percent
at September 30, 2014, and 1.93 percent at December 31, 2013. The
ratio of the allowance for credit losses to nonperforming loans was
298 percent at December 31, 2014, compared with 282 percent at
September 30, 2014, and 283 percent at December 31, 2013.
DELINQUENT LOAN RATIOS AS A PERCENT
OF ENDING LOAN BALANCES Table 9 (Percent)
Dec 31 Sep 30 Jun 30 Mar 31
Dec 31 2014 2014
2014 2014 2013
Delinquent loan ratios - 90 days or more past due
excluding nonperforming loans Commercial .05 .05 .06 .06 .08
Commercial real estate .05 .03 .06 .06 .07 Residential mortgages
.40 .41 .49 .64 .65 Credit card 1.13 1.10 1.06 1.21 1.17 Other
retail .15 .16 .15 .18 .18 Total loans, excluding covered loans .23
.22 .25 .30 .31 Covered loans 7.48 6.10 6.14 5.83 5.63 Total loans
.38 .39 .43 .49 .51 Delinquent loan ratios - 90 days or more
past due
including nonperforming loans Commercial .19 .27
.30 .32 .27 Commercial real estate .65 .62 .62 .73 .83 Residential
mortgages 2.07 2.02 2.06 2.14 2.16 Credit card 1.30 1.32 1.35 1.59
1.60 Other retail .53 .53 .54 .58 .58 Total loans, excluding
covered loans .83 .84 .87 .95 .97 Covered loans 7.74 7.34 7.73 7.46
7.13 Total loans .97 1.03 1.08 1.17 1.19
ASSET QUALITY
Table 10 ($
in millions)
Dec 31 Sep 30 Jun 30
Mar 31 Dec 31 2014 2014
2014 2014
2013 Nonperforming loans Commercial $99 $161 $174 $174 $122
Lease financing 13 12 16
14 12 Total commercial 112 173 190 188 134 Commercial
mortgages 175 147 121 156 182 Construction and development 84
94 105 113
121 Total commercial real estate 259 241 226 269 303 Residential
mortgages 864 841 818 777 770 Credit card 30 40 52 65 78 Other
retail 187 184 191 188
191 Total nonperforming loans, excluding covered
loans 1,452 1,479 1,477 1,487 1,476 Covered loans 14
88 119 132 127 Total
nonperforming loans 1,466 1,567 1,596 1,619 1,603 Other real estate
(a) 288 275 279 296 327 Covered other real estate (a) 37 72 58 73
97 Other nonperforming assets 17 9 10
11 10 Total nonperforming assets (b)
$1,808 $1,923 $1,943
$1,999 $2,037 Total nonperforming assets, excluding
covered assets $1,757 $1,763 $1,766
$1,794 $1,813
Accruing loans 90 days or more past due,
excluding covered loans
$550 $532 $581 $695
$713 Accruing loans 90 days or more past due
$945 $962 $1,038 $1,167
$1,189
Performing restructured loans, excluding
GNMA and covered loans
$2,832 $2,818 $2,911
$3,006 $3,067 Performing restructured GNMA and
covered loans $2,273 $2,685 $3,072
$3,003 $2,932
Nonperforming assets to loans plus ORE,
excluding covered assets (%)
.72 .74 .75 .78 .80
Nonperforming assets to loans plus ORE
(%)
.73 .78 .80 .84 .86 (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 December 31, 2014, totaled $1,808
million, compared with $1,923 million at September 30, 2014, and
$2,037 million at December 31, 2013. Total nonperforming assets at
December 31, 2014, included $51 million of covered assets. The
ratio of nonperforming assets to loans and other real estate was
.73 percent at December 31, 2014, compared with .78 percent at
September 30, 2014, and .86 percent at December 31, 2013. Total
commercial nonperforming loans were $61 million (35.3 percent)
lower on a linked quarter basis and $22 million (16.4 percent)
lower year-over-year. Commercial real estate nonperforming loans
increased by $18 million (7.5 percent) on a linked quarter basis
but decreased $44 million (14.5 percent) year-over-year.
Residential mortgage nonperforming loans increased $23 million (2.7
percent) on a linked quarter basis and $94 million (12.2 percent)
year-over-year. Credit card nonperforming loans were $10 million
(25.0 percent) lower on a linked quarter basis and $48 million
(61.5 percent) lower year-over-year. Other retail nonperforming
loans increased $3 million (1.6 percent) on a linked quarter basis
but decreased $4 million (2.1 percent) year-over-year.
Accruing loans 90 days or more past due were $945 million ($550
million excluding covered loans) at December 31, 2014, compared
with $962 million ($532 million excluding covered loans) at
September 30, 2014, and $1,189 million ($713 million excluding
covered loans) at December 31, 2013.
COMMON
SHARES
Table 11
(Millions)
4Q 3Q
2Q 1Q 4Q
2014 2014 2014
2014 2013
Beginning shares outstanding 1,795 1,809 1,821 1,825 1,832
Shares issued for stock option and stock
purchase plans, acquisitions and other corporate purposes
2 2 3 8 6 Shares repurchased (11 ) (16 )
(15 ) (12 ) (13 ) Ending shares
outstanding 1,786 1,795
1,809 1,821 1,825
Total U.S. Bancorp shareholders’ equity was $43.5 billion at
December 31, 2014, compared with $43.1 billion at September 30,
2014, and $41.1 billion at September 30, 2013. During the fourth
quarter, the Company returned 66 percent of fourth quarter earnings
to shareholders, including $439 million in common stock dividends
and $495 million of repurchased common stock.
CAPITAL POSITION
Table 12 ($ in millions)
Dec 31 Sep 30 Jun
30 Mar 31 Dec 31
2014 2014
2014 2014
2013 Total U.S. Bancorp shareholders' equity
$43,479 $43,141 $42,700 $42,054 $41,113
Standardized
Approach Basel III transitional standardized
approach/Basel I (a) Common equity tier 1 capital $30,856 $30,213
$29,760 $29,463 $27,942 Tier 1 capital 36,020 35,377 34,924 34,627
33,386 Total risk-based capital 43,208 42,509 41,034 40,741 39,340
Common equity tier 1 capital ratio 9.7 % 9.7 % 9.6 % 9.7 %
9.4
%
Tier 1 capital ratio 11.3 11.3 11.3 11.4 11.2 Total risk-based
capital ratio 13.6 13.6 13.2 13.5 13.2 Leverage ratio 9.3 9.4 9.6
9.7 9.6
Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully implemented
standardized approach
9.0 9.0 8.9 9.0 8.8
Advanced Approaches
Common equity tier 1 capital to
risk-weighted assets for the Basel III transitional advanced
approaches
12.4 12.4 12.3
Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully implemented
advanced approaches
11.8 11.8 11.7
Tangible common equity to tangible
assets 7.5 7.6 7.5 7.8 7.7
Tangible common equity to
risk-weighted assets 9.3 9.3 9.2 9.3 9.1
(a) 2014 amounts and ratios calculated
under the Basel III transitional standardized approach; December
31, 2013, under Basel I
Prior to 2014, the regulatory capital requirements effective for
the Company followed the Capital Accord of the Basel Committee on
Banking Supervision (“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.
Basel III includes two comprehensive methodologies for calculating
risk-weighted assets: a general standardized approach and more
risk-sensitive advanced approaches. As of April 1, 2014, the
Company exited its parallel run qualification period, resulting in
its capital adequacy now being evaluated against the Basel III
methodology that is most restrictive. Under the Basel III
transitional standardized approach, the common equity tier 1
capital ratio was 9.7 percent at December 31, 2014 and at September
30, 2014. The tier 1 capital ratio was 11.3 percent at December 31,
2014 and at September 30, 2014, compared with 11.2 percent at
December 31, 2013. Under the Basel III transitional advanced
approaches, the common equity tier 1 capital to risk-weighted
assets ratio was 12.4 percent at December 31, 2014 and at September
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 December 31, 2014 and at September 30, 2014, compared
with 8.8 percent at December 31, 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
December 31, 2014 and at September 30, 2014. The tangible common
equity to tangible assets ratio was 7.5 percent at December 31,
2014, compared with 7.6 percent at September 30, 2014, and 7.7
percent at December 31, 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 4Q 2014 4Q
3Q 4Q 4Q14 vs 4Q14 vs Full Year
Full Year Percent Earnings Business
Line 2014 2014
2013 3Q14
4Q13 2014 2013
Change Composition
Wholesale Banking and Commercial Real Estate $287 $267 $289 7.5 (.7
) $1,115 $1,250 (10.8 ) 19 % Consumer and Small Business Banking
305 309 389 (1.3 ) (21.6 ) 1,215 1,505 (19.3 ) 21 Wealth Management
and Securities Services 66 61 43 8.2 53.5 237 166 42.8 4 Payment
Services 294 298 235 (1.3 ) 25.1 1,103 980 12.6 20 Treasury and
Corporate Support 536 536 500 --
7.2 2,181 1,935 12.7 36 Consolidated Company
$1,488 $1,471 $1,456 1.2 2.2 $5,851
$5,836 .3 100 % (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 $287 million of the Company’s
net income in the fourth quarter of 2014, compared with $289
million in the fourth quarter of 2013 and $267 million in the third
quarter of 2014. Wholesale Banking and Commercial Real Estate’s net
income decreased $2 million (.7 percent) from the same quarter of
2013 due to an increase in noninterest expense and a decrease in
total net revenue, partially offset by a lower provision for credit
losses. Total net revenue declined by $5 million (.6 percent), due
to a 12.8 percent decrease in total noninterest income, partially
offset by a 5.9 percent increase in net interest income. Net
interest income increased $30 million (5.9 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 $35 million (12.8 percent), driven
by lower wholesale transaction activity and loan-related fees,
partially offset by increases in commercial bond underwriting fees.
Total noninterest expense was $6 million (2.0 percent) higher
compared with a year ago, due to an increase in the FDIC insurance
assessment allocation based on the level of commitments and higher
net shared services expense. The provision for credit losses was $8
million (32.0 percent) lower year-over-year due to a favorable
change in the reserve allocation, partially offset by lower
recoveries.
Wholesale Banking and Commercial Real Estate’s contribution to
net income in the fourth quarter of 2014 was $20 million (7.5
percent) higher than the third quarter of 2014, due to an increase
in total net revenue and a decrease in the provision for credit
losses, partially offset by an increase in total noninterest
expense. Total net revenue increased by $24 million (3.2 percent)
compared with the prior quarter. Net interest income increased by
$22 million (4.2 percent) on a linked quarter basis, primarily due
to higher average loans and interest recoveries. Total noninterest
income was $2 million (.8 percent) higher than the prior quarter
primarily due to higher equity investment revenue, partially offset
by lower commercial products revenue, including standby letters of
credit fees and other loan-related fees. Total noninterest expense
increased by $5 million (1.6 percent) due to higher compensation
and employee benefits expense and seasonally higher net shared
services expense. The provision for credit losses decreased by $12
million (41.4 percent) due to higher recoveries, partially offset
by an unfavorable change in the reserve allocation.
Consumer and Small Business Banking delivers products and
services through banking offices, telephone servicing and sales,
on-line services, direct mail, ATM processing and mobile devices,
such as mobile phones and tablet computers. It encompasses
community banking, metropolitan banking, in-store banking, small
business banking, consumer lending, workplace banking, student
banking and 24-hour banking (collectively, the retail banking
division), as well as mortgage banking. Consumer and Small Business
Banking contributed $305 million of the Company’s net income in the
fourth quarter of 2014, an $84 million (21.6 percent) decrease from
the fourth quarter of 2013 and a $4 million (1.3 percent) decrease
from the prior quarter. Within Consumer and Small Business Banking,
the retail banking division reported a 39.9 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 5.1 percent lower
than the fourth quarter of 2013. Net interest income decreased 7.7
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 1.3 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 fourth quarter of 2014 increased 4.4
percent over the same quarter of the prior year, primarily due to
merger integration costs and higher compensation and employee
benefits expense, partially offset by lower FDIC insurance
assessments. The provision for credit losses for the retail banking
division increased $70 million on a year-over-year basis due to an
unfavorable change in the reserve allocation, partially offset by
lower net charge-offs. The contribution of the mortgage banking
division was higher by 32.7 percent than the fourth quarter of
2013, reflecting a reduction in the provision for credit losses and
an increase in total net revenue. The division’s 4.0 percent
increase in total net revenue was due to a 6.0 percent increase in
net interest income, primarily the result of higher average loan
and deposit balances, as well as a 2.6 percent increase in total
noninterest income, principally due to a favorable change in the
valuation of MSRs, net of hedging activities. Total noninterest
expense was relatively flat compared with the prior year, as higher
mortgage servicing-related expenses were partially offset by lower
incentive compensation. The 97.3 percent favorable change in the
provision for credit losses for the mortgage banking division was
due to a favorable change in the reserve allocation and lower net
charge-offs.
Consumer and Small Business Banking’s contribution in the fourth
quarter of 2014 was $4 million (1.3 percent) lower than the third
quarter of 2014, primarily due to a decrease in total net revenue,
partially offset by a decrease in the provision for credit losses.
Within Consumer and Small Business Banking, the retail banking
division’s contribution increased 1.7 percent, mainly due to a
decrease in the provision for credit losses, partially offset by a
decrease in total net revenue. Total net revenue for the retail
banking division decreased 1.3 percent compared with the previous
quarter. Net interest income was relatively flat compared with the
prior quarter due to higher average loan and deposit balances
offset by lower rates and lower loan fees. Total noninterest income
was 2.9 percent lower on a linked quarter basis, driven by lower
deposit service charges. Total noninterest expense increased 1.0
percent on a linked quarter basis due to higher marketing,
professional services, and compensation expenses. The provision for
credit losses decreased 35.5 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 decreased 5.1 percent from the third quarter of
2014 primarily due to a higher provision for credit losses and
lower total net revenue. Total net revenue decreased 4.6 percent
due to an 8.6 percent decrease in total noninterest income, the
result of lower origination and sales revenue as well as an
unfavorable change in the valuation of MSRs, net of hedging
activities, partially offset by a 1.9 percent increase in net
interest income due to higher average loans held for sale and
higher average loan balances. Total noninterest expense decreased
10.9 percent, primarily reflecting lower mortgage servicing-related
expenses, partially offset by higher compensation and employee
benefits expense. The provision for credit losses for the mortgage
banking division increased $15 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 $66 million of the
Company’s net income in the fourth quarter of 2014, compared with
$43 million in the fourth quarter of 2013 and $61 million in the
third quarter of 2014. The business line’s contribution was $23
million (53.5 percent) higher than the same quarter of 2013,
principally due to an increase in total net revenue. Total net
revenue increased by $40 million (9.6 percent) year-over-year,
driven by a $25 million (7.5 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 $15 million (17.6 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 $2 million (.6 percent) primarily as a result
of higher professional services and compensation and employee
benefits expense, including the impact of business expansion,
partially offset by lower net shared services expense. The
provision for credit losses increased $2 million compared with the
prior year quarter due to an unfavorable change in the reserve
allocation.
The business line’s contribution in the fourth quarter of 2014
was $5 million (8.2 percent) higher than the prior quarter. Total
net revenue increased on a linked quarter basis, reflecting an
increase in net interest income of $4 million (4.2 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 of
$5 million (1.4 percent) was due to higher trust and investment
management fees, resulting from improved market conditions and
higher fees. Total noninterest expense was $6 million (1.7 percent)
higher than the prior quarter as higher professional services
expense was partially offset by lower compensation and employee
benefits expense. The provision for credit losses decreased $5
million (83.3 percent) on a linked quarter basis due to a favorable
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 $294 million of the
Company’s net income in the fourth quarter of 2014, compared with
$235 million in the fourth quarter of 2013 and $298 million in the
third quarter of 2014. The $59 million (25.1 percent) increase in
the business line’s contribution over the prior year was due to an
increase in total net revenue and a lower provision for credit
losses, partially offset by an increase in total noninterest
expense. Total net revenue increased by $88 million (7.2 percent)
year-over-year. Net interest income increased by $53 million (12.7
percent), primarily due to higher average loan balances and fees
and improved loan rates. Total noninterest income was $35 million
(4.3 percent) higher year-over-year, due to higher merchant
processing services revenue driven by 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 $21 million (3.4
percent) over the fourth quarter of 2013, primarily due to higher
compensation and employee benefits expense and net shared services
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
decreased by $23 million (10.6 percent) due to a favorable change
in the reserve allocation and lower net charge-offs.
Payment Services’ contribution in the fourth quarter of 2014
decreased $4 million (1.3 percent) from the third quarter of 2014.
Total net revenue increased $28 million (2.2 percent) on a linked
quarter basis driven by higher net interest income. Net interest
income increased by $27 million (6.1 percent) over the third
quarter mainly due to higher average loan balances and seasonally
lower rebate costs on the Company’s government card program. Total
noninterest income increased by $1 million (.1 percent), reflecting
an increase in credit and debit card revenue due to higher
transaction volumes, partially offset by lower corporate payment
products revenue due to seasonally lower government-related
transaction volumes. Total noninterest expense was $32 million (5.2
percent) higher on a linked quarter basis primarily due to higher
net shared services, professional services, and compensation
expenses. The provision for credit losses was $3 million (1.6
percent) higher on a linked quarter basis due to higher net
charge-offs and an unfavorable change in the reserve
allocation.
Treasury and Corporate Support includes the Company’s
investment portfolios, most covered commercial and commercial real
estate loans and related other real estate owned, funding, capital
management, interest rate risk management, 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 fourth quarter of 2014, compared with
$500 million in the fourth quarter of 2013 and $536 million in the
third quarter of 2014. Net interest income increased by $35 million
(6.0 percent) over the fourth 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 $178 million over the fourth
quarter of last year, mainly due to gains on the sales of equity
investments and higher commercial products revenue. Total
noninterest expense increased by $51 million (18.1 percent),
principally due to accruals related to recent developments in
several legal matters and charitable contributions, partially
offset by 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. The
provision for credit losses was $6 million (60.0 percent) higher
year-over-year, due to an increase in net charge-offs, partially
offset by a favorable change in the reserve allocation.
Net income in the fourth quarter of 2014 was flat on a linked
quarter basis, as an increase in total net revenue was offset by an
increase in total noninterest expense and provision for credit
losses. Total net revenue was $154 million (20.2 percent) higher
than the prior quarter primarily due to the Nuveen gain. A $160
million (93.0 percent) increase in total noninterest expense was
primarily due to seasonally higher costs related to investments in
tax-advantaged projects, accruals related to recent developments in
several legal matters and charitable contributions. The provision
for credit losses was $9 million higher compared with the third
quarter of 2014 due to an increase in net charge-offs, partially
offset by a favorable 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, January 21, 2015, at 8:30 a.m. CST, Richard K.
Davis, chairman, president and chief executive officer, and Andrew
Cecere, vice chairman and chief operating 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 of 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 30798560. For those unable to participate during the live
call, a recording of the call will be available beginning
approximately two hours after the conference call ends on
Wednesday, January 21 and will be accessible through Wednesday,
January 28 at 11:00 p.m. CST. To access the recorded message
within the United States and Canada, dial 855-859-2056. If
calling from outside the United States and Canada, please dial
404-537-3406 to access the recording. The conference ID is
30798560.
Minneapolis-based U.S. Bancorp (“USB”), with $403 billion in
assets as of December 31, 2014, is the parent company of U.S. Bank
National Association, the 5th largest commercial bank in the United
States. The Company operates 3,176 banking offices in 25 states and
5,022 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; 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
Year Ended (Dollars and Shares in Millions, Except Per Share Data)
December 31, December 31, (Unaudited)
2014 2013 2014 2013
Interest Income Loans $2,541 $2,595 $10,113 $10,277 Loans
held for sale 41 31 128 203 Investment securities 488 409 1,866
1,631 Other interest income 32 33
121 174 Total interest income
3,102 3,068 12,228 12,285
Interest Expense Deposits 117 128
465 561 Short-term borrowings 59 83 263 353 Long-term debt 182
180 725
767 Total interest expense 358 391
1,453 1,681 Net interest
income 2,744 2,677 10,775 10,604 Provision for credit losses 288
277 1,229
1,340 Net interest income after provision for credit losses
2,456 2,400 9,546 9,264
Noninterest Income Credit and debit
card revenue 272 263 1,021 965 Corporate payment products revenue
174 166 724 706 Merchant processing services 384 367 1,511 1,458
ATM processing services 80 79 321 327 Trust and investment
management fees 322 297 1,252 1,139 Deposit service charges 180 177
693 670 Treasury management fees 136 130 545 538 Commercial
products revenue 219 243 854 859 Mortgage banking revenue 235 231
1,009 1,356 Investment products fees 49 45 191 178 Securities gains
(losses), net 1 1 3 9 Other 318 157
1,040 569 Total noninterest
income 2,370 2,156 9,164 8,774
Noninterest Expense
Compensation 1,151 1,103 4,523 4,371 Employee benefits 245 275
1,041 1,140 Net occupancy and equipment 248 240 987 949
Professional services 132 118 414 381 Marketing and business
development 129 103 382 357 Technology and communications 219 209
863 848 Postage, printing and supplies 86 80 328 310 Other
intangibles 51 56 199 223 Other 543 498
1,978 1,695 Total noninterest
expense 2,804 2,682
10,715 10,274 Income before income taxes 2,022
1,874 7,995 7,764 Applicable income taxes 521
403 2,087 2,032 Net
income 1,501 1,471 5,908 5,732 Net (income) loss attributable to
noncontrolling interests (13 ) (15 )
(57 ) 104 Net income attributable to U.S. Bancorp
$1,488 $1,456 $5,851
$5,836 Net income applicable to U.S. Bancorp
common shareholders $1,420 $1,389
$5,583 $5,552 Earnings
per common share $.79 $.76 $3.10 $3.02 Diluted earnings per common
share $.79 $.76 $3.08 $3.00 Dividends declared per common share
$.245 $.230 $.965 $.885 Average common shares outstanding 1,787
1,821 1,803 1,839 Average diluted common shares outstanding
1,796 1,832 1,813
1,849 U.S.
Bancorp
Consolidated Ending Balance Sheet December
31, December 31, (Dollars in Millions) 2014
2013
Assets Cash and due from banks $10,654 $8,477
Investment securities Held-to-maturity 44,974 38,920
Available-for-sale 56,069 40,935 Loans held for sale 4,792 3,268
Loans Commercial 80,377 70,033 Commercial real estate 42,795 39,885
Residential mortgages 51,619 51,156 Credit card 18,515 18,021 Other
retail 49,264 47,678 Total loans,
excluding covered loans 242,570 226,773 Covered loans 5,281
8,462 Total loans 247,851 235,235 Less
allowance for loan losses (4,039 ) (4,250 ) Net loans
243,812 230,985 Premises and equipment 2,618 2,606 Goodwill 9,389
9,205 Other intangible assets 3,162 3,529 Other assets 27,059
26,096 Total assets $402,529
$364,021
Liabilities and
Shareholders' Equity Deposits Noninterest-bearing $77,323
$76,941 Interest-bearing 177,452 156,165 Time deposits greater than
$100,000 27,958 29,017 Total deposits
282,733 262,123 Short-term borrowings 29,893 27,608 Long-term debt
32,260 20,049 Other liabilities 13,475 12,434
Total liabilities 358,361 322,214 Shareholders' equity
Preferred stock 4,756 4,756 Common stock 21 21 Capital surplus
8,313 8,216 Retained earnings 42,530 38,667 Less treasury stock
(11,245 ) (9,476 ) Accumulated other comprehensive income (loss)
(896 ) (1,071 ) Total U.S. Bancorp shareholders'
equity 43,479 41,113 Noncontrolling interests 689
694 Total equity 44,168 41,807
Total liabilities and equity $402,529
$364,021
U.S. Bancorp
Non-GAAP Financial Measures
December 31, September 30, June 30, March 31, December 31,
(Dollars in Millions, Unaudited) 2014
2014 2014 2014 2013
Total equity $44,168 $43,829 $43,386 $42,743 $41,807
Preferred stock (4,756 ) (4,756 ) (4,756 ) (4,756 ) (4,756 )
Noncontrolling interests (689 ) (688 ) (686 ) (689 ) (694 )
Goodwill (net of deferred tax liability) (1) (8,403 ) (8,503 )
(8,548 ) (8,352 ) (8,343 ) Intangible assets, other than mortgage
servicing rights (824 ) (877 ) (925 )
(804 ) (849 ) Tangible common
equity (a) 29,496 29,005 28,471 28,142 27,165 Tangible
common equity (as calculated above) 29,496 29,005 28,471 28,142
27,165 Adjustments (2) 172 187
224 239 224
Common equity tier 1 capital estimated for
the Basel III fully implemented standardized and advanced
approaches (b)
29,668 29,192 28,695 28,381 27,389
Tier 1 capital, determined in accordance
with prescribed regulatory requirements using Basel I
definition
33,386 Preferred stock (4,756 )
Noncontrolling interests, less preferred
stock not eligible for Tier 1 capital
(688 ) Tier 1 common equity using Basel I definition (c)
27,942 Total assets 402,529 391,284 389,065 371,289 364,021
Goodwill (net of deferred tax liability) (1) (8,403 ) (8,503 )
(8,548 ) (8,352 ) (8,343 ) Intangible assets, other than mortgage
servicing rights (824 ) (877 ) (925 )
(804 ) (849 ) Tangible assets
(d) 393,302 381,904 379,592 362,133 354,829
Risk-weighted assets, determined in
accordance with prescribed regulatory requirements (3) (e)
317,398 * 311,914 309,929 302,841 297,919 Adjustments (4) 11,110
* 12,837 12,753
13,238 13,712
Risk-weighted assets estimated for the
Basel III fully implemented standardized approach (f)
328,508 * 324,751 322,682 316,079 311,631
Risk-weighted assets, determined in
accordance with prescribed transitional advanced approaches
regulatory requirements
248,596 * 243,909 241,929 Adjustments (5) 3,270 * 3,443
3,383
Risk-weighted assets estimated for the
Basel III fully implemented advanced approaches (g)
251,866 * 247,352 245,312
Ratios * Tangible common
equity to tangible assets (a)/(d) 7.5 % 7.6 % 7.5 % 7.8 % 7.7 %
Tangible common equity to risk-weighted assets (a)/(e) 9.3 9.3 9.2
9.3 9.1 Tier 1 common equity to risk-weighted assets using Basel I
definition (c)/(e) -- -- -- -- 9.4
Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully implemented
standardized approach (b)/(f)
9.0 9.0 8.9 9.0 8.8
Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully implemented
advanced approaches (b)/(g)
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 beginning March 31, 2014. (2)
Includes net losses on cash flow hedges included in accumulated
other comprehensive income and other adjustments.
(3) 2014 amounts calculated under the
Basel III transitional standardized approach; December 31, 2013,
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. BancorpDana RipleyMedia(612) 303-3167orSean
O'ConnorInvestors/Analysts(612) 303-0778
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