Record Earnings Per Diluted Common
Share
Return on average assets of 1.44 percent and
average common equity of 14.1 percent
Returned 80 percent of third quarter
earnings to shareholders
U.S. Bancorp (NYSE: USB) today reported net income of $1,489
million for the third quarter of 2015, or $0.81 per diluted common
share, compared with $1,471 million, or $0.78 per diluted common
share, in the third quarter of 2014.
Highlights for the third quarter of 2015 included:
- Return on average assets of 1.44
percent and average common equity of 14.1 percent
- Growth in average total loans of 1.3
percent on a linked quarter basis and 3.8 percent over the third
quarter of 2014 (excluding student loans, which were transferred to
held for sale at the end of the first quarter of 2015 and returned
to held for investment on September 1, 2015)
- Growth in average commercial and
commercial real estate revolving commitments of 1.8 percent over
the prior quarter and 8.9 percent year-over-year
- Growth in average total commercial
loans of 1.7 percent over the second quarter of 2015 and 9.5
percent over the third quarter of 2014
- Growth in total other retail loans of
1.9 percent over the second quarter of 2015 and 5.6 percent over
the third quarter of 2014 (excluding student loans)
- Growth in average total deposits of 1.4
percent on a linked quarter basis and 6.9 percent over the third
quarter of 2014
- Growth in average low cost deposits,
including noninterest-bearing and total savings deposits, of 2.5
percent on a linked quarter basis and 11.4 percent
year-over-year
- Net interest income growth of 2.7
percent year-over-year and 1.8 percent linked quarter
- Growth in average earnings assets of
0.8 percent on a linked quarter basis and 6.6 percent
year-over-year, including strong retail loan growth in the third
quarter 2015
- Net interest margin stable at 3.04
percent for the third quarter of 2015 compared with the prior
quarter 3.03 percent
- Positive trends in payments-related fee
revenue including year-over-year increases in credit and debit card
revenue of 7.2 percent and merchant processing services of 8.5
percent (excluding the impact of foreign currency rate
changes)
- Decline in net charge-offs of 13.1
percent from the third quarter of 2014 and 1.4 percent on a linked
quarter basis
- Decreases in nonperforming assets of
18.5 percent on a year-over-year basis and 0.6 percent on a linked
quarter basis
- Capital generation resulted in a return
of 80 percent of third quarter earnings to shareholders through
dividends and the buyback of 16 million common shares, and
continued to reinforce capital position. Ratios at September 30,
2015 were:
- Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully implemented
standardized approach was 9.2 percent and for the Basel III fully
implemented advanced approaches was 12.4 percent.
EARNINGS
SUMMARY
Table 1 ($
in millions, except per-share data)
Percent Percent
Change Change 3Q 2Q 3Q 3Q15
vs 3Q15 vs YTD YTD Percent
2015 2015 2014
2Q15 3Q14 2015
2014 Change Net income attributable to
U.S. Bancorp $1,489 $1,483 $1,471 .4 1.2 $4,403 $4,363 .9 Diluted
earnings per common share $.81 $.80 $.78 1.3 3.8 $2.36 $2.29 3.1
Return on average assets (%) 1.44 1.46 1.51 1.45 1.56 Return
on average common equity (%) 14.1 14.3 14.5 14.1 14.7 Net interest
margin (%) 3.04 3.03 3.16 3.05 3.26 Efficiency ratio (%) (a) 53.9
53.2 52.4 53.8 52.8 Tangible efficiency ratio (%) (a) 53.1 52.3
51.3 53.0 51.8 Dividends declared per common share $.255
$.255 $.245 -- 4.1 $.755 $.720 4.9 Book value per common share
(period end) $22.99 $22.51 $21.38 2.1 7.5
(a) Computed as noninterest expense
divided by the sum of net interest income on a taxable-equivalent
basis and noninterest income excluding net securities gains
(losses), and for tangible efficiency ratio, intangible
amortization.
Net income attributable to U.S. Bancorp was $1,489 million for
the third quarter of 2015, 1.2 percent higher than the $1,471
million for the third quarter of 2014, and 0.4 percent higher than
the $1,483 million for the second quarter of 2015. Diluted earnings
per common share of $0.81 in the third quarter of 2015 were $0.03
higher than the third quarter of 2014 and $0.01 higher than the
previous quarter. The increase in net income year-over-year was due
to higher net interest income and noninterest income, along with a
reduction in the provision for credit losses, partially offset by
an increase in noninterest expense. The increase in net income on a
linked quarter basis was primarily due to increases in net interest
income and noninterest income, partially offset by higher
noninterest expense.
U.S. Bancorp Chairman, President and Chief Executive Officer
Richard K. Davis said, “I am proud of the financial performance our
67,000 employees delivered in the third quarter. Because of their
hard work and dedication, we are operating from a position of
strength as we grow revenue, manage expenses, seek to exceed
customer expectations, and create value for shareholders in a
demanding marketplace. U.S. Bancorp achieved record diluted
earnings per share (EPS) of $0.81 and continued to deliver
industry-leading performance measures, with a return on average
assets (ROA) of 1.44 percent, return on average common equity (ROE)
of 14.1 percent, and an efficiency ratio of 53.9 percent. In
addition, we returned 80 percent of our earnings to shareholders
through dividends and share buybacks in the third quarter.”
Davis continued, “While the near-term external environment
remains uncertain for the banking industry, we have built steady
momentum throughout the year by focusing on activities that are
within our control. We grew total loans 1.3 percent over the second
quarter, excluding student loans, and total deposits increased 6.9
percent year-over-year, which highlights the comfort our customers
have in trusting one of the highest rated banks in the world, as
recently reflected in a debt rating upgrade. Growth trends in our
Payment Services franchise have improved, highlighting the strong
emphasis we are placing in payments businesses. We recently
announced a new co-brand relationship with the Auto Club Trust,
which has more than nine million members. As part of that
partnership, we also agreed to acquire an approximately $500
million credit card portfolio. In addition, we solidified U.S.
Bank’s leadership role in mobile payments by participating in the
Android Pay and Samsung Pay roll-outs.”
“Overall, our actions to generate growth in our balance sheet
and revenues, combined with our deliberate efforts to optimize our
expense management initiatives, resulted in a solid quarter and put
us on a positive forward-looking trajectory. As U.S. Bancorp
pursues its vision for the future, we are focused on sustainable
growth. We continue to make prudent long-term investments to
protect our industry leading competitive positions and help our
customers build financially secure futures.”
INCOME
STATEMENT HIGHLIGHTS
Table 2 (Taxable-equivalent basis, $ in millions,
Percent Percent
except per-share data)
Change Change
3Q 2Q 3Q 3Q15 vs 3Q15 vs
YTD YTD Percent 2015 2015
2014 2Q15 3Q14
2015 2014 Change Net
interest income $2,821 $2,770 $2,748 1.8 2.7 $8,343 $8,198 1.8
Noninterest income 2,326 2,272 2,242
2.4 3.7 6,752 6,794 (.6 ) Total net
revenue 5,147 5,042 4,990 2.1 3.1 15,095 14,992 .7 Noninterest
expense 2,775 2,682 2,614 3.5
6.2 8,122 7,911 2.7 Income before provision
and taxes 2,372 2,360 2,376 .5 (.2 ) 6,973 7,081 (1.5 ) Provision
for credit losses 282 281 311 .4
(9.3 ) 827 941 (12.1 ) Income before taxes
2,090 2,079 2,065 .5 1.2 6,146 6,140 .1 Taxable-equivalent
adjustment 53 54 56 (1.9 ) (5.4 ) 161 167 (3.6 ) Applicable income
taxes 534 528 523 1.1 2.1 1,541
1,566 (1.6 ) Net income 1,503 1,497 1,486 .4
1.1 4,444 4,407 .8
Net (income) loss attributable to
noncontrolling interests
(14 ) (14 ) (15 ) -- 6.7 (41 ) (44 ) 6.8 Net
income attributable to U.S. Bancorp $1,489 $1,483
$1,471 .4 1.2 $4,403 $4,363
.9
Net income applicable to U.S. Bancorp
common shareholders
$1,422 $1,417 $1,405 .4 1.2
$4,204 $4,163 1.0 Diluted earnings per common
share $.81 $.80 $.78 1.3 3.8
$2.36 $2.29 3.1
Net income attributable to U.S. Bancorp for the third quarter of
2015 was $18 million (1.2 percent) higher than the third quarter of
2014, and $6 million (0.4 percent) higher than the second quarter
of 2015. The increase in net income year-over-year was due to
higher net interest income, primarily due to growth in earning
assets, and noninterest income, primarily driven by increases in
commercial products, payments and trust and investment management
fee revenue. These increases were offset by an increase in
noninterest expense, which included higher compensation and
employee benefits expense and other costs related to risk and
compliance activities. The increase in net income on a linked
quarter basis was primarily due to increases in net interest income
and noninterest income, partially offset by higher noninterest
expense. As previously disclosed in recent weeks, the third quarter
of 2015 included several unrelated items that, combined, were
relatively neutral to earnings.
NET
INTEREST INCOME
Table 3 (Taxable-equivalent basis; $ in millions)
Change
Change 3Q 2Q 3Q 3Q15 vs 3Q15
vs YTD YTD 2015 2015
2014 2Q15 3Q14
2015 2014 Change Components of
net interest income Income on earning assets $3,171 $3,123 $3,114
$48 $57 $9,410 $9,296 $114 Expense on interest-bearing liabilities
350 353 366 (3 )
(16 ) 1,067 1,098 (31 ) Net
interest income $2,821 $2,770 $2,748
$51 $73 $8,343
$8,198 $145 Average yields and
rates paid Earning assets yield 3.42 % 3.42 % 3.58 % -- % (.16 )%
3.44 % 3.69 % (.25 )% Rate paid on interest-bearing liabilities .52
.52 .57 --
(.05 ) .53 .60 (.07 ) Gross
interest margin 2.90 % 2.90 % 3.01 % -- %
(.11 )% 2.91 % 3.09 % (.18 )% Net
interest margin 3.04 % 3.03 % 3.16 % .01 %
(.12 )% 3.05 % 3.26 % (.21 )%
Average balances Investment securities (a) $103,943 $102,391
$93,141 $1,552 $10,802 $102,361 $87,687 $14,674 Loans 250,536
246,560 243,867 3,976 6,669 248,358 240,098 8,260 Earning assets
369,265 366,428 346,422 2,837 22,843 365,543 336,287 29,256
Interest-bearing liabilities 269,479 270,573 254,501 (1,094 )
14,978 269,317 246,614 22,703 (a) Excludes unrealized gain
(loss)
Net Interest Income
Net interest income on a taxable-equivalent basis in the third
quarter of 2015 was $2,821 million, an increase of $73 million (2.7
percent) over the third quarter of 2014. The increase was the
result of growth in average earning assets, partially offset by a
continued shift in loan portfolio mix and lower reinvestment rates
on investment securities. Average earning assets were $22.8 billion
(6.6 percent) higher than the third quarter of 2014, driven by
increases of $6.7 billion (2.7 percent) in average total loans and
$10.8 billion (11.6 percent) in average investment securities. Net
interest income increased $51 million (1.8 percent) on a linked
quarter basis, primarily due to higher average total loans and an
additional day in the current quarter relative to the second
quarter of 2015. Average total loans were $3.1 billion (1.3
percent) higher on a linked quarter basis, excluding student
loans.
The net interest margin in the third quarter of 2015 was 3.04
percent, compared with 3.16 percent in the third quarter of 2014,
and 3.03 percent in the second quarter of 2015. The decrease in the
net interest margin on a year-over-year basis primarily reflected a
change in loan portfolio mix as well as growth in the investment
portfolio at lower average rates and lower reinvestment rates on
investment securities. On a linked quarter basis, the increase in
the net interest margin was principally due to earning assets
growth and continued deposit growth, partially offset by growth in
lower rate investment securities along with lower investment
portfolio reinvestment rates.
Investment Securities
Average investment securities in the third quarter of 2015 were
$10.8 billion (11.6 percent) higher year-over-year and $1.6 billion
(1.5 percent) higher than the prior quarter. These increases were
primarily due to purchases of U.S. government agency-backed
securities, net of prepayments and maturities, to support
regulatory liquidity coverage ratio requirements.
AVERAGE
LOANS
Table 4 ($
in millions)
Percent
Percent Change Change
3Q 2Q 3Q 3Q15 vs 3Q15 vs
YTD YTD Percent 2015 2015
2014 2Q15 3Q14
2015 2014 Change
Commercial $79,486 $77,932 $72,190 2.0 10.1 $77,880 $69,276 12.4
Lease financing 5,218 5,321 5,155 (1.9
) 1.2 5,287 5,148 2.7 Total commercial 84,704
83,253 77,345 1.7 9.5 83,167 74,424 11.7 Commercial
mortgages 32,083 32,499 31,965 (1.3 ) .4 32,563 32,005 1.7
Construction and development 10,233 9,947
8,874 2.9 15.3 9,913 8,460 17.2 Total
commercial real estate 42,316 42,446 40,839 (.3 ) 3.6 42,476 40,465
5.0 Residential mortgages 51,831 51,114 51,994 1.4 (.3 )
51,458 51,799 (.7 ) Credit card 17,944 17,613 17,753 1.9 1.1
17,794 17,516 1.6 Retail leasing 5,480 5,696 5,991 (3.8 )
(8.5 ) 5,663 5,995 (5.5 ) Home equity and second mortgages 16,083
15,958 15,704 .8 2.4 15,980 15,467 3.3 Other 27,286
25,415 27,003 7.4 1.0 26,768 26,636
.5 Total other retail (a) 48,849 47,069
48,698 3.8 .3 48,411 48,098 .7
Total loans, excluding covered loans 245,644 241,495
236,629 1.7 3.8 243,306 232,302
4.7 Covered loans 4,892 5,065 7,238
(3.4 ) (32.4 ) 5,052 7,796 (35.2 )
Total loans $250,536 $246,560 $243,867
1.6 2.7 $248,358 $240,098 3.4
(a) The Company transferred all of its
student loans to loans held for sale at the end of the first
quarter of 2015. The portfolio was subsequently transferred back to
held for investment effective September 1, 2015.
Total other retail $48,849 $47,069 $48,698 3.8 .3 $48,411 $48,098
.7 Less: Student loans (889 ) -- (3,296 ) (1,304 )
(3,410 ) Total other retail excluding student loans $47,960
$47,069 $45,402 1.9 5.6 $47,107
$44,688 5.4
Loans
Average total loans were $6.7 billion (2.7 percent) higher in
the third quarter of 2015 than the third quarter of 2014, ($9.1
billion, 3.8 percent, excluding student loans), driven by growth in
total commercial loans (9.5 percent), total other retail loans (5.6
percent excluding student loans), total commercial real estate (3.6
percent) and credit card (1.1 percent). These increases were
partially offset by declines in covered loans (32.4 percent),
including the impact of the expiration of the loss sharing
agreements on commercial and commercial real estate assets at the
end of 2014, and residential mortgages (0.3 percent). Average total
loans were $4.0 billion (1.6 percent) higher in the third quarter
of 2015 than the second quarter of 2015. Excluding student loans,
average total loans were $3.1 billion (1.3 percent) higher in the
third quarter of 2015 than the second quarter of 2015. The increase
was driven by growth in total commercial loans (1.7 percent), total
other retail loans (1.9 percent excluding student loans),
residential mortgages (1.4 percent) and credit card (1.9
percent).
AVERAGE
DEPOSITS
Table
5 ($ in millions)
Percent
Percent Change
Change 3Q 2Q 3Q 3Q15 vs 3Q15
vs YTD YTD Percent 2015
2015 2014 2Q15
3Q14 2015 2014
Change Noninterest-bearing deposits $80,940 $77,347
$74,126 4.6 9.2 $77,623 $72,274 7.4 Interest-bearing savings
deposits Interest checking 56,888 55,205 54,454 3.0 4.5 55,592
52,928 5.0 Money market savings 80,338 79,898 66,250 .6 21.3 78,065
62,314 25.3 Savings accounts 37,480 37,071 34,615 1.1
8.3 36,866 33,940 8.6 Total of savings deposits 174,706
172,174 155,319 1.5 12.5 170,523 149,182 14.3 Time deposits less
than $100,000 9,549 9,933 11,045 (3.9 ) (13.5 ) 9,961 11,151 (10.7
) Time deposits greater than $100,000 24,497 26,290
30,518 (6.8 ) (19.7 ) 26,566 31,055 (14.5 ) Total
interest-bearing deposits 208,752 208,397 196,882 .2
6.0 207,050 191,388 8.2 Total deposits $289,692
$285,744 $271,008 1.4 6.9 $284,673 $263,662 8.0
Deposits
Average total deposits for the third quarter of 2015 were $18.7
billion (6.9 percent) higher than the third quarter of 2014.
Average noninterest-bearing deposits increased $6.8 billion (9.2
percent) year-over-year, mainly in Wholesale Banking and Commercial
Real Estate and Consumer and Small Business Banking. Average total
savings deposits were $19.4 billion (12.5 percent) higher
year-over-year, the result of growth in corporate trust, Wholesale
Banking and Commercial Real Estate, and Consumer and Small Business
Banking balances. Growth in Consumer and Small Business Banking
total savings deposits included net new account growth of 3.1
percent. Average time deposits less than $100,000 were $1.5 billion
(13.5 percent) lower due to maturities, while average time deposits
greater than $100,000 decreased $6.0 billion (19.7 percent). Time
deposits greater than $100,000 are primarily managed as an
alternative to other funding sources, such as wholesale borrowing,
based largely on funding needs and relative pricing.
Average total deposits increased $3.9 billion (1.4 percent) over
the second quarter of 2015. Average noninterest-bearing deposits
increased $3.6 billion (4.6 percent) on a linked quarter basis, due
to higher balances in Wholesale Banking and Commercial Real Estate,
corporate trust, and Consumer and Small Business Banking. Average
total savings deposits increased $2.5 billion (1.5 percent),
reflecting increases in Wholesale Banking and Commercial Real
Estate and Consumer and Small Business Banking. Compared with the
second quarter of 2015, average time deposits less than $100,000
decreased $384 million (3.9 percent) due to maturities. Average
time deposits greater than $100,000, which are managed based on
funding needs, decreased $1.8 billion (6.8 percent) on a linked
quarter basis.
NONINTEREST INCOME
Table 6 ($ in millions)
Percent Percent
Change Change 3Q 2Q 3Q 3Q15
vs 3Q15 vs YTD YTD Percent
2015 2015 2014
2Q15 3Q14 2015
2014 Change Credit and debit card
revenue $269 $266 $251 1.1 7.2 $776 $749 3.6 Corporate payment
products revenue 190 178 195 6.7 (2.6 ) 538 550 (2.2 ) Merchant
processing services 400 395 387 1.3 3.4 1,154 1,127 2.4 ATM
processing services 81 80 81 1.3 -- 239 241 (.8 ) Trust and
investment management fees 329 334 315 (1.5 ) 4.4 985 930 5.9
Deposit service charges 185 174 185 6.3 -- 520 513 1.4 Treasury
management fees 143 142 136 .7 5.1 422 409 3.2 Commercial products
revenue 231 214 209 7.9 10.5 645 635 1.6 Mortgage banking revenue
224 231 260 (3.0 ) (13.8 ) 695 774 (10.2 ) Investment products fees
46 48 49 (4.2 ) (6.1 ) 141 142 (.7 ) Securities gains (losses), net
(1 ) -- (3 ) nm 66.7 (1 ) 2 nm Other 229 210
177 9.0 29.4 638 722 (11.6 ) Total
noninterest income $2,326 $2,272 $2,242
2.4 3.7 $6,752 $6,794 (.6 )
Noninterest Income
Third quarter noninterest income was $2,326 million, which was
$84 million (3.7 percent) higher than the third quarter of 2014 and
$54 million (2.4 percent) higher than the second quarter of 2015.
The year-over-year increase in noninterest income was primarily due
to a third quarter 2015 gain from the sale of Visa Inc. Class B
common stock of approximately $135 million (“Visa sale”), partially
offset by a $58 million market valuation adjustment to write down
the value of student loans previously held for sale as a result of
recent disruption in the student loan securitization market
(“student loan market adjustment”). These loans were subsequently
transferred back to held for investment. The remaining increase in
noninterest income was principally due to higher commercial
products revenue, credit and debit card revenue, merchant
processing services, and trust and investment management fees,
partially offset by a decrease in mortgage banking revenue,
primarily due to an unfavorable change in the valuation of mortgage
servicing rights (“MSRs”), net of hedging activities. Commercial
products revenue increased $22 million (10.5 percent) due to a
higher volume of tax-advantaged project fees and an increase in
bond underwriting fees. Credit and debit card revenue increased $18
million (7.2 percent) due to higher transaction volumes. Merchant
processing services increased $13 million (3.4 percent) as a result
of higher transaction volumes, account growth and equipment sales
to merchants related to new chip card technology requirements.
Adjusted for the approximate $20 million impact of foreign currency
rate changes, merchant processing services growth would have been
approximately 8.5 percent. Trust and investment management fees
increased $14 million (4.4 percent), reflecting the benefits of the
Company’s investments in corporate trust and fund services
businesses, as well as account growth and improved market
conditions.
Noninterest income was $54 million (2.4 percent) higher in the
third quarter of 2015 than the second quarter of 2015, principally
due to higher other income and commercial products revenue, as well
as seasonally higher corporate payment products revenue, partially
offset by lower mortgage banking revenue. The increase in other
income of $19 million (9.0 percent) was primarily driven by changes
in equity investment income including the Visa sale, partially
offset by the student loan market adjustment and a decrease in
trading revenue due to lower customer volumes and pricing.
Commercial products revenue increased $17 million (7.9 percent)
primarily due to higher wholesale transaction activity, including
loan and bond underwriting fees. Corporate payment products revenue
increased $12 million (6.7 percent) and deposit service charges
increased $11 million (6.3 percent), principally due to seasonally
higher transaction volumes. Partially offsetting these increases
was a decrease in mortgage banking revenue of $7 million (3.0
percent), primarily due to lower origination revenue.
NONINTEREST EXPENSE
Table 7 ($ in millions)
Percent Percent
Change Change 3Q 2Q 3Q 3Q15
vs 3Q15 vs YTD YTD Percent
2015 2015 2014
2Q15 3Q14 2015
2014 Change Compensation $1,225 $1,196
$1,132 2.4 8.2 $3,600 $3,372 6.8 Employee benefits 285 293 250 (2.7
) 14.0 895 796 12.4 Net occupancy and equipment 251 247 249 1.6 .8
745 739 .8 Professional services 115 106 102 8.5 12.7 298 282 5.7
Marketing and business development 99 96 78 3.1 26.9 265 253 4.7
Technology and communications 222 221 219 .5 1.4 657 644 2.0
Postage, printing and supplies 77 64 81 20.3 (4.9 ) 223 242 (7.9 )
Other intangibles 42 43 51 (2.3 ) (17.6 ) 128 148 (13.5 ) Other 459
416 452 10.3 1.5 1,311 1,435 (8.6 )
Total noninterest expense $2,775 $2,682 $2,614 3.5
6.2 $8,122 $7,911 2.7
Noninterest Expense
Third quarter noninterest expense was $2,775 million, which
includes the impact of approximately $60 million of elevated third
quarter 2015 expenses related to mortgage-related compliance and
the company-wide talent upgrade costs. Third quarter 2015 was $161
million (6.2 percent) higher than the third quarter of 2014
including a $93 million (8.2 percent) increase in compensation
expense, reflecting the impact of merit increases and higher
staffing for risk and compliance activities, and higher employee
benefits expense of $35 million (14.0 percent), mainly due to
higher pension costs. In addition, marketing and business
development expense was $21 million (26.9 percent) higher,
primarily due to various marketing programs in Payment Services and
Consumer and Small Business Banking.
Noninterest expense increased $93 million (3.5 percent) on a
linked quarter basis. Other expense increased $43 million (10.3
percent) due primarily to mortgage servicing and talent upgrade
costs in addition to an increase in tax credit amortization.
Additionally, compensation expense increased $29 million (2.4
percent) reflecting the impact of an additional day in the current
quarter relative to the prior quarter and increases in variable
compensation. The $13 million (20.3 percent) increase in postage,
printing and supplies was primarily due to a second quarter 2015
reimbursement from a business partner.
Provision for Income Taxes
The provision for income taxes for the third quarter of 2015
resulted in a tax rate on a taxable-equivalent basis of 28.1
percent (effective tax rate of 26.2 percent), compared with 28.0
percent (effective tax rate of 26.0 percent) in the third quarter
of 2014, and 28.0 percent (effective tax rate of 26.1 percent) in
the second quarter of 2015.
ALLOWANCE FOR CREDIT LOSSES
Table 8
($ in millions)
3Q
2Q 1Q 4Q
3Q 2015 % (b)
2015 % (b) 2015 %
(b) 2014 % (b) 2014
% (b) Balance, beginning of period $4,326
$4,351 $4,375 $4,414 $4,449 Net charge-offs Commercial 68
.34 39 .20 40 .21 48 .26 52 .29 Lease financing 3 .23 3
.23 3 .23 (2 ) (.15 ) 6 .46 Total commercial
71 .33 42 .20 43 .21 46 .23 58 .30 Commercial mortgages -- -- 4 .05
(1 ) (.01 ) (3 ) (.04 ) 1 .01 Construction and development (11 )
(.43 ) (3 ) (.12 ) (17 ) (.72 ) (7 ) (.30 ) 3 .13 Total
commercial real estate (11 ) (.10 ) 1 .01 (18 ) (.17 ) (10 ) (.10 )
4 .04 Residential mortgages 25 .19 33 .26 35 .28 39 .30 42
.32 Credit card 153 3.38 169 3.85 163 3.71 160 3.53 158 3.53
Retail leasing 2 .14 1 .07 1 .07 1 .07 -- -- Home equity and
second mortgages 7 .17 11 .28 14 .36 17 .43 24 .61 Other 45
.65 39 .62 41 .60 52 .76 49 .72 Total
other retail 54 .44 51 .43 56 .46 70
.57 73 .59
Total net charge-offs, excluding covered
loans
292 .47 296 .49 279 .47 305 .51 335 .56 Covered loans -- --
-- -- -- -- 3 .17 1 .05 Total net
charge-offs 292 .46 296 .48 279 .46 308 .50 336 .55 Provision for
credit losses 282 281 264 288 311 Other changes (a) (10 ) (10 ) (9
) (19 ) (10 ) Balance, end of period $4,306 $4,326
$4,351 $4,375 $4,414 Components
Allowance for loan losses $3,965 $4,013 $4,023 $4,039 $4,065
Liability for unfunded credit
commitments
341 313 328 336 349 Total
allowance for credit losses $4,306 $4,326 $4,351
$4,375 $4,414 Gross charge-offs $372
$380 $383 $415 $410 Gross recoveries $80 $84 $104 $107 $74
Allowance for credit losses as a percentage of
Period-end loans, excluding covered
loans
1.71 1.76 1.79 1.78 1.81
Nonperforming loans, excluding covered
loans
347 348 321 297 291
Nonperforming assets, excluding covered
assets
280 279 261 245 245 Period-end loans 1.69 1.74 1.77 1.77
1.80 Nonperforming loans 347 349 322 298 282 Nonperforming assets
275 274 257 242 230
(a) Includes net changes in credit losses
to be reimbursed by the FDIC and reductions in the allowance for
covered loans where the reversal of a previously recorded allowance
was offset by an associated decrease in the indemnification asset,
and the impact of any loan sales.
(b) Annualized and calculated on average loan balances
Credit Quality
The Company’s provision for credit losses for the third quarter
of 2015 was $282 million, which was relatively flat compared with
the prior quarter and $29 million (9.3 percent) lower than the
third quarter of 2014. The provision for credit losses was lower
than net charge-offs by $10 million in the third quarter of 2015,
$15 million in the second quarter of 2015, and $25 million in the
third quarter of 2014. Total net charge-offs in the third quarter
of 2015 were $292 million, compared with $296 million in the second
quarter of 2015, and $336 million in the third quarter of 2014. Net
charge-offs were relatively flat on a linked quarter basis, while
the $44 million (13.1 percent) decrease in net charge-offs on a
year-over-year basis reflected improvements in total other retail,
residential mortgages, and construction and development. Given
current economic conditions, the Company expects the level of net
charge-offs to increase modestly in the fourth quarter of 2015.
The allowance for credit losses was $4,306 million at September
30, 2015, compared with $4,326 million at June 30, 2015, and $4,414
million at September 30, 2014. The ratio of the allowance for
credit losses to period-end loans was 1.69 percent at September 30,
2015, compared with 1.74 percent at June 30, 2015, and 1.80 percent
at September 30, 2014. The ratio of the allowance for credit losses
to nonperforming loans was 347 percent at September 30, 2015,
compared with 349 percent at June 30, 2015, and 282 percent at
September 30, 2014.
DELINQUENT LOAN RATIOS AS A PERCENT OF
ENDING LOAN BALANCES Table 9 (Percent)
Sep 30 Jun 30 Mar
31 Dec 31 Sep 30 2015 2015
2015 2014 2014
Delinquent loan ratios - 90 days or more past due
excluding
nonperforming loans Commercial .05 .05 .05 .05 .05 Commercial real
estate .05 .05 .07 .05 .03 Residential mortgages .33 .30 .33 .40
.41 Credit card 1.10 1.03 1.19 1.13 1.10 Other retail .14 .14 .15
.15 .16 Total loans, excluding covered loans .20 .19 .22 .23 .22
Covered loans 6.57 6.66 7.01 7.48 6.10 Total loans .32 .32 .36 .38
.39 Delinquent loan ratios - 90 days or more past due
including nonperforming loans Commercial .25 .16 .16 .19 .27
Commercial real estate .39 .46 .58 .65 .62 Residential mortgages
1.73 1.80 1.95 2.07 2.02 Credit card 1.16 1.12 1.32 1.30 1.32 Other
retail .47 .51 .55 .53 .53 Total loans, excluding covered loans .70
.70 .77 .83 .84 Covered loans 6.80 6.88 7.25 7.74 7.34 Total loans
.81 .82 .91 .97 1.03
ASSET
QUALITY
Table 10 ($ in millions)
Sep 30 Jun 30 Mar 31 Dec 31
Sep 30 2015 2015 2015
2014 2014 Nonperforming loans
Commercial $157 $78 $74 $99 $161 Lease financing 12 12
13 13 12 Total commercial 169 90 87 112 173
Commercial mortgages 105 116 142 175 147 Construction and
development 39 59 75 84 94 Total
commercial real estate 144 175 217 259 241 Residential
mortgages 735 769 825 864 841 Credit card 12 16 22 30 40 Other
retail 171 178 187 187 184 Total
nonperforming loans, excluding covered loans 1,231 1,228 1,338
1,452 1,479 Covered loans 11 11 12 14
88 Total nonperforming loans 1,242 1,239 1,350 1,466 1,567
Other real estate (a) 276 287 293 288 275 Covered other real
estate (a) 31 35 37 37 72 Other nonperforming assets 18 16
16 17 9 Total nonperforming assets (b)
$1,567 $1,577 $1,696 $1,808 $1,923
Total nonperforming assets, excluding covered assets $1,525
$1,531 $1,647 $1,757 $1,763
Accruing loans 90 days or more past due,
excluding covered loans
$510 $469 $521 $550 $532
Accruing loans 90 days or more past due $825 $801
$880 $945 $962
Performing restructured loans, excluding
GNMA and covered loans
$2,746 $2,815 $2,684 $2,832 $2,818
Performing restructured GNMA and covered loans $2,031
$2,111 $2,186 $2,273 $2,685
Nonperforming assets to loans plus ORE,
excluding covered assets (%)
.61 .63 .68 .72 .74 Nonperforming assets to loans plus ORE
(%) .61 .63 .69 .73 .78 (a) Includes equity investments in
entities whose principal assets are other real estate owned. (b)
Does not include accruing loans 90 days or more past due.
Nonperforming assets decreased on a linked quarter and
year-over-year basis to $1,567 million at September 30, 2015,
compared with $1,577 million at June 30, 2015, and $1,923 million
at September 30, 2014. The ratio of nonperforming assets to loans
and other real estate was 0.61 percent at September 30, 2015,
compared with 0.63 percent at June 30, 2015, and 0.78 percent at
September 30, 2014. The decrease in nonperforming assets on a
year-over-year basis was driven primarily by reductions in the
commercial real estate portfolios and residential mortgages as
economic conditions continued to slowly improve. Accruing loans 90
days or more past due were $825 million ($510 million excluding
covered loans) at September 30, 2015, compared with $801 million
($469 million excluding covered loans) at June 30, 2015, and $962
million ($532 million excluding covered loans) at September 30,
2014. The Company expects total nonperforming assets to remain
relatively stable in the fourth quarter of 2015.
COMMON SHARES
Table 11 (Millions)
3Q 2Q 1Q 4Q
3Q 2015 2015 2015
2014 2014 Beginning shares
outstanding 1,767 1,780 1,786 1,795 1,809
Shares issued for stock incentive plans,
acquisitions and other corporate purposes
3 1 6 2 2 Shares repurchased (16 ) (14 ) (12 )
(11 ) (16 ) Ending shares outstanding 1,754
1,767 1,780 1,786 1,795
Capital Management
Total U.S. Bancorp shareholders’ equity was $45.1 billion at
September 30, 2015, compared with $44.5 billion at June 30, 2015,
and $43.1 billion at September 30, 2014. During the third quarter,
the Company returned 80 percent of third quarter earnings to
shareholders, including $448 million in common stock dividends and
$688 million of repurchased common stock.
CAPITAL POSITION
Table 12 ($
in millions)
Sep 30 Jun 30
Mar 31 Dec 31
Sep 30 2015
2015 2015
2014 2014 Total U.S.
Bancorp shareholders' equity $ 45,075 $ 44,537 $ 44,277 $ 43,479 $
43,141
Standardized Approach Basel III
transitional standardized approach Common equity tier 1 capital $
32,124 $ 31,674 $ 31,308 $ 30,856 $ 30,213 Tier 1 capital 37,197
36,748 36,382 36,020 35,377 Total risk-based capital 44,015 43,526
43,558 43,208 42,509 Common equity tier 1 capital ratio 9.6
% 9.5 % 9.6 % 9.7 % 9.7 % Tier 1 capital ratio 11.1 11.0 11.1 11.3
11.3 Total risk-based capital ratio 13.1 13.1 13.3 13.6 13.6
Leverage ratio 9.3 9.2 9.3 9.3 9.4
Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully implemented
standardized approach
9.2 9.2 9.2 9.0 9.0
Advanced Approaches
Common equity tier 1 capital to
risk-weighted assets for the Basel III transitional advanced
approaches
13.0 12.9 12.3 12.4 12.4
Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully implemented
advanced approaches
12.4 12.4 11.8 11.8 11.8
Tangible common equity to
tangible assets 7.7 7.5 7.6 7.5 7.6
Tangible common equity
to risk-weighted assets 9.3 9.2 9.3 9.3 9.3 Beginning
January 1, 2014, the regulatory capital requirements effective for
the Company follow Basel III, subject to certain transition
provisions from Basel I over the following four years to full
implementation by January 1, 2018. Basel III includes two
comprehensive methodologies for calculating risk-weighted assets: a
general standardized approach and more risk-sensitive advanced
approaches, with the Company's capital adequacy being evaluated
against the methodology that is most restrictive.
All regulatory ratios continue to be in excess of
“well-capitalized” requirements. The common equity tier 1 capital
to risk-weighted assets ratio estimated for the Basel III
standardized approach as if fully implemented was 9.2 percent at
September 30, 2015, compared with 9.2 percent at June 30, 2015, and
9.0 percent at September 30, 2014. The common equity tier 1 capital
to risk-weighted assets ratio estimated for the Basel III advanced
approaches as if fully implemented was 12.4 percent at September
30, 2015, compared with 12.4 percent at June 30, 2015, and 11.8
percent at September 30, 2014.
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 2015 3Q 2Q 3Q
3Q15 vs 3Q15 vs YTD YTD Percent
Earnings Business Line 2015
2015 2014 2Q15
3Q14 2015 2014
Change Composition
Wholesale Banking and Commercial Real
Estate
$210 $246 $258 (14.6 ) (18.6 ) $666 $813 (18.1 ) 14 %
Consumer and Small Business Banking
310 318 375 (2.5 ) (17.3 ) 980 1,114 (12.0 ) 21
Wealth Management and Securities
Services
64 69 64 (7.2 ) -- 187 188 (.5 ) 4 Payment Services 325 259 306
25.5 6.2 851 831 2.4 22 Treasury and Corporate Support 580
591 468 (1.9 ) 23.9 1,719 1,417 21.3 39
Consolidated Company $1,489 $1,483 $1,471 .4 1.2
$4,403 $4,363 .9 100 % (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 2015, certain organization and
methodology changes were made and, accordingly, prior period
results were restated and presented on a comparable basis.
Wholesale Banking and Commercial Real Estate offers
lending, equipment finance and small-ticket leasing, depository
services, treasury management, capital markets, international trade
services and other financial services to middle market, large
corporate, commercial real estate, financial institution,
non-profit and public sector clients. Wholesale Banking and
Commercial Real Estate contributed $210 million of the Company’s
net income in the third quarter of 2015, compared with $258 million
in the third quarter of 2014 and $246 million in the second quarter
of 2015. Wholesale Banking and Commercial Real Estate’s net income
decreased $48 million (18.6 percent) from the same quarter of 2014
due to an increase in total noninterest expense and in the
provision for credit losses, partially offset by an increase in
total net revenue. Total net revenue increased $2 million (0.3
percent), due to a $12 million (2.4 percent) increase in net
interest income, partially offset by a $10 million (4.3 percent)
decrease in total noninterest income. Net interest income increased
year-over-year, primarily due to an increase in average total loans
and deposits, partially offset by lower rates and fees on loans.
The decrease in total noninterest income was driven by higher
loan-related charges, partially offset by higher loan syndication
and bond underwriting fees, as well as higher wholesale transaction
activity. Total noninterest expense was $28 million (9.2 percent)
higher compared with a year ago primarily due to higher
compensation and employee benefits expense, mainly due to higher
variable compensation, merit and pension costs, and net shared
services expense and an increase in the FDIC insurance assessment
allocation based on the level of commitments. The provision for
credit losses increased $49 million due to an unfavorable change in
the reserve allocation and an increase in net charge-offs.
Wholesale Banking and Commercial Real Estate’s contribution to
net income in the third quarter of 2015 was $36 million (14.6
percent) lower than the second quarter of 2015, due to an increase
in the provision for credit losses and noninterest expense,
partially offset by an increase in total net revenue. Total net
revenue increased $10 million (1.4 percent) compared with the prior
quarter. Net interest income increased $11 million (2.2 percent) on
a linked quarter basis, primarily due to higher average loans and
an additional day in the quarter, partially offset by lower rates
and fees on loans. Total noninterest income was essentially flat
compared with the prior quarter. Total noninterest expense
increased $5 million (1.5 percent) due to higher variable
compensation and an additional day in the quarter relative to the
prior quarter. The provision for credit losses increased $61
million due to an unfavorable change in the reserve allocation and
an increase in net charge-offs.
Consumer and Small Business Banking delivers products and
services through banking offices, telephone servicing and sales,
on-line services, direct mail, ATM processing and mobile devices,
such as mobile phones and tablet computers. It encompasses
community banking, metropolitan banking and indirect lending
(collectively, the retail banking division), as well as mortgage
banking. Consumer and Small Business Banking contributed $310
million of the Company’s net income in the third quarter of 2015, a
$65 million (17.3 percent) decrease from the third quarter of 2014
and an $8 million (2.5 percent) decrease from the prior quarter.
Within Consumer and Small Business Banking, the retail banking
division reported a 4.7 percent decrease in its contribution from
the same quarter of last year due to lower total net revenue and an
increase in total noninterest expense, partially offset by a lower
provision for credit losses. Retail banking’s total net revenue was
1.3 percent lower than the third quarter of 2014. Net interest
income decreased 1.9 percent, primarily as a result of lower rates
on loans, partially offset by higher average loan and deposit
balances. Total noninterest income for the retail banking division
was flat compared with a year ago. Total noninterest expense for
the retail banking division in the third quarter of 2015 increased
5.1 percent over the same quarter of the prior year, primarily due
to the allocation to the business line of a previously reserved
legal matter and higher compensation and employee benefits expense,
principally due to higher merit and pension costs. The provision
for credit losses for the retail banking division decreased 57.0
percent on a year-over-year basis due to a favorable change in the
reserve allocation and lower net charge-offs. The contribution of
the mortgage banking division was 38.0 percent lower than the third
quarter of 2014, reflecting a decrease in total net revenue and an
increase in total noninterest expense, as well as an increase in
the provision for credit losses. The division’s 6.7 percent
decrease in total net revenue was driven by a 13.3 percent decrease
in total noninterest income, principally due to an unfavorable
change in the valuation of MSRs, net of hedging activities,
partially offset by a 3.8 percent increase in net interest income,
primarily the result of higher average loans held for sale. Total
noninterest expense was 24.9 percent higher compared with the prior
year quarter primarily due to higher mortgage servicing-related
expenses and increased compensation expense due to higher pension
costs. The 50.0 percent increase in the provision for credit losses
for the mortgage banking division was due to an unfavorable change
in the reserve allocation, partially offset by lower net
charge-offs.
Consumer and Small Business Banking’s contribution in the third
quarter of 2015 was $8 million (2.5 percent) lower than the second
quarter of 2015, primarily due to an increase in total noninterest
expense, partially offset by an increase in total net revenue and a
decrease in the provision for credit losses. Within Consumer and
Small Business Banking, the retail banking division’s contribution
decreased 8.6 percent, mainly due to an increase in total
noninterest expense and an increase in the provision for credit
losses, partially offset by an increase in total net revenue. Total
net revenue for the retail banking division increased 1.9 percent
compared with the previous quarter. Net interest income was 1.6
percent higher primarily due to higher average loan and deposit
balances, as well as an additional day in the current quarter
relative to the prior quarter, partially offset by lower rates on
loans. Total noninterest income was 2.5 percent higher on a linked
quarter basis, driven by seasonally higher deposit service charges.
Total noninterest expense increased 4.6 percent, primarily due to
the allocation to the business line of a previously reserved legal
matter. The provision for credit losses increased 48.1 percent on a
linked quarter basis primarily due to an unfavorable change in the
reserve allocation. The contribution of the mortgage banking
division increased 17.3 percent over the second quarter of 2015
primarily due to lower provision for credit losses, partially
offset by higher total noninterest expense and lower total net
revenue. Total net revenue decreased 1.5 percent due to a 3.1
percent decrease in total noninterest income, the result of lower
mortgage origination revenue. The decrease in noninterest income
was partially offset by a 0.6 percent increase in net interest
income, primarily due to an additional day in the quarter. Total
noninterest expense increased 2.0 percent, primarily reflecting
higher mortgage servicing-related expenses, along with higher
compensation and employee benefits expense related to an additional
day in the current quarter relative to the prior quarter. The
provision for credit losses for the mortgage banking division
decreased $31 million on a linked quarter basis primarily due to 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 $64 million of the
Company’s net income in the third quarter of 2015, compared with
$64 million in the third quarter of 2014 and $69 million in the
second quarter of 2015. The business line’s contribution was flat
compared with the same quarter of 2014, reflecting an increase in
total net revenue and a decrease in the provision for credit
losses, offset by an increase in total noninterest expense. Total
net revenue increased $15 million (3.3 percent) year-over-year,
driven by a $13 million (3.7 percent) increase in total noninterest
income, reflecting the impact of account growth and improved market
conditions, and an increase in net interest income of $2 million
(2.1 percent), principally due to higher average deposit balances.
Total noninterest expense increased $19 million (5.5 percent)
primarily as a result of higher net shared services expense and
increased compensation and employee benefits expense due to merit
and pension costs. The provision for credit losses decreased $5
million (83.3 percent) compared with the prior year quarter due to
a favorable change in the reserve allocation and lower net
charge-offs.
The business line’s contribution in the third quarter of 2015
was $5 million (7.2 percent) lower than the prior quarter. Total
net revenue was essentially flat on a linked quarter basis,
reflecting an increase in net interest income of $7 million (7.7
percent), principally due to higher average deposit balances,
partially offset by a decrease in noninterest income of $6 million
(1.6 percent) reflecting current market conditions. Total
noninterest expense increased $8 million (2.3 percent) over the
prior quarter primarily as a result of increased compensation
expense, including higher variable compensation costs. The
provision for credit losses was flat on a linked quarter basis.
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 $325 million of the
Company’s net income in the third quarter of 2015, compared with
$306 million in the third quarter of 2014 and $259 million in the
second quarter of 2015. The $19 million (6.2 percent) increase in
the business line’s contribution from the prior year was due to an
increase in total net revenue and a decrease in the provision for
credit losses, partially offset by an increase in noninterest
expense. Total net revenue increased $72 million (5.6 percent)
year-over-year. Net interest income increased $40 million (9.0
percent), primarily due to improved loan rates and higher average
loan balances and fees. Total noninterest income was $32 million
(3.8 percent) higher year-over-year due to an increase in credit
and debit card revenue on higher transaction volumes, along with
higher merchant processing services, driven by increased
transaction volumes and product fees and equipment sales to
merchants related to new chip card technology requirements,
partially offset by the impact of foreign currency rate changes.
Total noninterest expense increased $53 million (8.8 percent) over
the third quarter of 2014, driven by higher net shared services,
compensation and marketing expenses. The provision for credit
losses decreased $10 million (5.3 percent) due to a favorable
change in the reserve allocation and lower net charge-offs.
Payment Services’ contribution in the third quarter of 2015
increased $66 million (25.5 percent) over the second quarter of
2015 due to higher total net revenue and lower noninterest expense
and provision for credit losses. Net interest income was $25
million (5.4 percent) higher than the prior quarter due to improved
loan rates and higher average loan balances and fees. Total
noninterest income increased $24 million (2.8 percent), primarily
reflecting an increase in corporate payment products revenue on
seasonally higher volumes, an increase in merchant processing
services due to higher product fees and equipment sales to
merchants related to new chip card technology requirements and an
increase in credit and debit card revenue due to higher transaction
volumes. Total noninterest expense was $27 million (4.0 percent)
lower on a linked quarter basis reflecting the allocation to the
business line of a previously reserved regulatory item in the prior
quarter, partially offset by the timing of marketing programs. The
provision for credit losses was $28 million (13.5 percent) lower on
a linked quarter basis due to lower net charge-offs and a favorable
change in the reserve allocation.
Treasury and Corporate Support includes the Company’s
investment portfolios, most covered commercial and commercial real
estate loans and related other real estate owned, funding, capital
management, interest rate risk management, income taxes not
allocated to business lines, including most investments in
tax-advantaged projects, and the residual aggregate of those
expenses associated with corporate activities that are managed on a
consolidated basis. Treasury and Corporate Support recorded net
income of $580 million in the third quarter of 2015, compared with
$468 million in the third quarter of 2014 and $591 million in the
second quarter of 2015. The increase in net income of $112 million
(23.9 percent) over the prior year was due to an increase in total
net revenue, along with decreases in total noninterest expense and
the provision for credit losses. Net interest income increased $32
million (6.0 percent) over the third quarter of 2014 principally
due to growth in the investment portfolio. Total noninterest income
increased $83 million (56.8 percent) over the third quarter of last
year, mainly due to the Visa sale, partially offset by the student
loan market adjustment. Total noninterest expense decreased $39
million (20.2 percent), principally due to a reduction of reserves
for losses allocated to business lines and lower costs related to
investments in tax-advantaged projects, partially offset by higher
compensation and employee benefits expense, reflecting higher
pension costs, the impact of merit increases and staffing for risk
and compliance activities. The provision for credit losses was $17
million lower year-over-year primarily due to lower net
charge-offs.
Net income in the third quarter of 2015 was $11 million (1.9
percent) lower on a linked quarter basis as an increase in total
noninterest expense was partially offset by an increase in total
net revenue and a decrease in the provision for credit losses.
Total net revenue was $25 million (3.3 percent) higher than the
prior quarter mainly due to the Visa sale, partially offset by the
student loan market adjustment. The $57 million (58.8 percent)
increase in total noninterest expense was principally due to the
elevated third quarter 2015 expenses and higher costs related to
investments in tax-advantaged projects. The provision for credit
losses was $14 million lower compared with the second quarter of
2015 due to lower net charge-offs and 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 Thursday, October 15, 2015, at 8:30 a.m. CDT, Richard K.
Davis, chairman, president and chief executive officer, and Kathy
Rogers, vice chair and chief financial officer, will host a
conference call to review the financial results. The conference
call will be available online and by telephone. To access the
webcast and presentation, go to www.usbank.com and
click on “About U.S. Bank.” The “Webcasts &
Presentations” link can be found under the Investor/Shareholder
information heading, which is at the left side near the bottom of
the page. To access the conference call from locations within the
United States and Canada, please dial 866-316-1409. Participants
calling from outside the United States and Canada, please dial
706-634-9086. The conference ID number for all participants is
13809601. For those unable to participate during the live call, a
recording will be available at approximately 11:30 a.m. CDT on
Thursday, October 15 and be accessible through Thursday, October 22
at 11:00 p.m. CDT. To access the recorded message within the United
States and Canada, dial 855-859-2056. If calling from outside the
United States and Canada, please dial 404-537-3406 to access the
recording. The conference ID is 13809601.
Minneapolis-based U.S. Bancorp (“USB”), with $416 billion in
assets as of September 30, 2015, is the parent company of U.S. Bank
National Association, the fifth largest commercial bank in the
United States. The Company operates 3,151 banking offices in 25
states and 5,001 ATMs and provides a comprehensive line of banking,
investment, mortgage, trust and payment services products to
consumers, businesses and institutions. Visit U.S. Bancorp on the
web at www.usbank.com.
Forward-Looking Statements
The following information appears in accordance with the Private
Securities Litigation Reform Act of 1995:
This press release contains forward-looking statements about
U.S. Bancorp. Statements that are not historical or current facts,
including statements about beliefs and expectations, are
forward-looking statements and are based on the information
available to, and assumptions and estimates made by, management as
of the date hereof. These forward-looking statements cover, among
other things, anticipated future revenue and expenses and the
future plans and prospects of U.S. Bancorp. Forward-looking
statements involve inherent risks and uncertainties, and important
factors could cause actual results to differ materially from those
anticipated. A reversal or slowing of the current economic recovery
or another severe contraction could adversely affect U.S. Bancorp’s
revenues and the values of its assets and liabilities. Global
financial markets could experience a recurrence of significant
turbulence, which could reduce the availability of funding to
certain financial institutions and lead to a tightening of credit,
a reduction of business activity, and increased market volatility.
Stress in the commercial real estate markets, as well as a downturn
in the residential real estate markets could cause credit losses
and deterioration in asset values. In addition, U.S. Bancorp’s
business and financial performance is likely to be negatively
impacted by recently enacted and future legislation and regulation.
U.S. Bancorp’s results could also be adversely affected by
deterioration in general business and economic conditions; changes
in interest rates; deterioration in the credit quality of its loan
portfolios or in the value of the collateral securing those loans;
deterioration in the value of securities held in its investment
securities portfolio; legal and regulatory developments;
litigation; increased competition from both banks and non-banks;
changes in customer behavior and preferences; breaches in data
security; effects of mergers and acquisitions and related
integration; effects of critical accounting policies and judgments;
and management’s ability to effectively manage credit risk,
residual value risk, market risk, operational risk, compliance
risk, strategic risk, interest rate risk, liquidity risk and
reputational risk.
For discussion of these and other risks that may cause actual
results to differ from expectations, refer to U.S. Bancorp’s Annual
Report on Form 10-K for the year ended December 31, 2014, on file
with the Securities and Exchange Commission, including the sections
entitled “Risk Factors” and “Corporate Risk Profile” contained in
Exhibit 13, and all subsequent filings with the Securities and
Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934. However, factors other than these
also could adversely affect U.S. Bancorp’s results, and the reader
should not consider these factors to be a complete set of all
potential risks or uncertainties. Forward-looking statements speak
only as of the date hereof, and U.S. Bancorp undertakes no
obligation to update them in light of new information or future
events.
Non-GAAP Financial Measures
In addition to capital ratios defined by banking regulators, the
Company considers various other measures when evaluating capital
utilization and adequacy, including:
- Tangible common equity to tangible
assets,
- Tangible common equity to risk-weighted
assets,
- Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully implemented
standardized approach, and
- Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully implemented
advanced approaches.
These measures are viewed by management as useful additional
methods of reflecting the level of capital available to withstand
unexpected market or economic conditions. Additionally,
presentation of these measures allows investors, analysts and
banking regulators to assess the Company’s capital position
relative to other financial services companies. These measures
differ from currently effective capital ratios defined by banking
regulations principally in that the numerator includes unrealized
gains and losses related to available-for-sale securities and
excludes preferred securities, including preferred stock, the
nature and extent of which varies among different financial
services companies. These measures are not defined in generally
accepted accounting principles (“GAAP”), or are not currently
effective or defined in federal banking regulations. As a result,
these measures disclosed by the Company may be considered non-GAAP
financial measures.
There may be limits in the usefulness of these measures to
investors. As a result, the Company encourages readers to consider
the consolidated financial statements and other financial
information contained in this press release in their entirety, and
not to rely on any single financial measure. A table follows that
shows the Company’s calculation of these Non-GAAP financial
measures.
U.S. Bancorp
Consolidated Statement
of Income Three Months Ended Nine Months Ended (Dollars and
Shares in Millions, Except Per Share Data) September 30,
September 30, (Unaudited) 2015 2014 2015
2014
Interest Income Loans $2,520 $2,518 $7,476
$7,572 Loans held for sale 60 36 166 87 Investment securities 502
476 1,502 1,378 Other interest income 35 27
102 89 Total interest income 3,117
3,057 9,246 9,126
Interest Expense Deposits 113 115 344 348
Short-term borrowings 66 72 189 204 Long-term debt 170
178 531 543 Total
interest expense 349 365 1,064
1,095 Net interest income 2,768 2,692 8,182 8,031
Provision for credit losses 282 311 827
941 Net interest income after provision for
credit losses 2,486 2,381 7,355 7,090
Noninterest Income
Credit and debit card revenue 269 251 776 749 Corporate payment
products revenue 190 195 538 550 Merchant processing services 400
387 1,154 1,127 ATM processing services 81 81 239 241 Trust and
investment management fees 329 315 985 930 Deposit service charges
185 185 520 513 Treasury management fees 143 136 422 409 Commercial
products revenue 231 209 645 635 Mortgage banking revenue 224 260
695 774 Investment products fees 46 49 141 142 Securities gains
(losses), net (1 ) (3 ) (1 ) 2 Other 229 177
638 722 Total noninterest income 2,326
2,242 6,752 6,794
Noninterest Expense Compensation 1,225
1,132 3,600 3,372 Employee benefits 285 250 895 796 Net occupancy
and equipment 251 249 745 739 Professional services 115 102 298 282
Marketing and business development 99 78 265 253 Technology and
communications 222 219 657 644 Postage, printing and supplies 77 81
223 242 Other intangibles 42 51 128 148 Other 459 452
1,311 1,435 Total noninterest
expense 2,775 2,614 8,122
7,911 Income before income taxes 2,037 2,009 5,985 5,973
Applicable income taxes 534 523 1,541
1,566 Net income 1,503 1,486 4,444 4,407 Net
(income) loss attributable to noncontrolling interests (14 )
(15 ) (41 ) (44 ) Net income attributable to U.S.
Bancorp $1,489 $1,471 $4,403
$4,363 Net income applicable to U.S. Bancorp common
shareholders $1,422 $1,405 $4,204
$4,163 Earnings per common share $.81
$.78 $2.38 $2.30 Diluted earnings per common share $.81 $.78 $2.36
$2.29 Dividends declared per common share $.255 $.245 $.755 $.720
Average common shares outstanding 1,758 1,798 1,770 1,809 Average
diluted common shares outstanding 1,766 1,807
1,778 1,819 U.S. Bancorp
Consolidated Ending Balance Sheet
September 30, December 31, September 30, (Dollars in
Millions) 2015 2014 2014
Assets
(Unaudited) (Unaudited) Cash and due from banks $10,450 $10,654
$6,183 Investment securities Held-to-maturity 44,690 44,974 44,231
Available-for-sale 60,396 56,069 52,674 Loans held for sale 4,472
4,792 3,939 Loans Commercial 85,539 80,377 78,878 Commercial real
estate 42,478 42,795 40,909 Residential mortgages 52,349 51,619
51,957 Credit card 18,583 18,515 17,858 Other retail 51,051
49,264 48,935 Total loans, excluding
covered loans 250,000 242,570 238,537 Covered loans 4,791
5,281 7,054 Total loans 254,791 247,851
245,591 Less allowance for loan losses (3,965 ) (4,039 )
(4,065 ) Net loans 250,826 243,812 241,526 Premises and
equipment 2,515 2,618 2,608 Goodwill 9,368 9,389 9,401 Other
intangible assets 3,176 3,162 3,338 Other assets 30,050
27,059 27,384 Total assets $415,943
$402,529 $391,284
Liabilities and Shareholders' Equity Deposits
Noninterest-bearing $83,549 $77,323 $78,641 Interest-bearing
185,861 177,452 165,070 Time deposits greater than $100,000 25,854
27,958 29,386 Total deposits
295,264 282,733 273,097 Short-term borrowings 26,915 29,893 30,045
Long-term debt 32,504 32,260 30,768 Other liabilities 15,493
13,475 13,545 Total liabilities 370,176
358,361 347,455 Shareholders' equity Preferred stock 4,756 4,756
4,756 Common stock 21 21 21 Capital surplus 8,362 8,313 8,293
Retained earnings 45,413 42,530 41,543 Less treasury stock (12,756
) (11,245 ) (10,836 ) Accumulated other comprehensive income (loss)
(721 ) (896 ) (636 ) Total U.S. Bancorp shareholders'
equity 45,075 43,479 43,141 Noncontrolling interests 692
689 688 Total equity 45,767
44,168 43,829 Total liabilities and
equity $415,943 $402,529
$391,284 U.S. Bancorp
Non-GAAP Financial
Measures September 30, June 30, March 31, December 31,
September 30, (Dollars in Millions, Unaudited) 2015
2015 2015 2014 2014 Total equity
$45,767 $45,231 $44,965 $44,168 $43,829 Preferred stock (4,756 )
(4,756 ) (4,756 ) (4,756 ) (4,756 ) Noncontrolling interests (692 )
(694 ) (688 ) (689 ) (688 ) Goodwill (net of deferred tax
liability) (1) (8,324 ) (8,350 ) (8,360 ) (8,403 ) (8,503 )
Intangible assets, other than mortgage servicing rights (779 )
(744 ) (783 ) (824 ) (877 )
Tangible common equity (a) 31,216 30,687 30,378 29,496 29,005
Tangible common equity (as calculated above) 31,216 30,687
30,378 29,496 29,005 Adjustments (2) 118 125
158 172 187 Common
equity tier 1 capital estimated for the Basel III fully implemented
standardized and advanced approaches (b) 31,334 30,812 30,536
29,668 29,192 Total assets 415,943 419,075 410,233 402,529
391,284 Goodwill (net of deferred tax liability) (1) (8,324 )
(8,350 ) (8,360 ) (8,403 ) (8,503 ) Intangible assets, other than
mortgage servicing rights (779 ) (744 ) (783 )
(824 ) (877 ) Tangible assets (c) 406,840 409,981
401,090 393,302 381,904 Risk-weighted assets, determined in
accordance with prescribed transitional standardized approach
regulatory requirements (d) 336,227 * 333,177 327,709 317,398
311,914 Adjustments (3) 3,532 * 3,532 3,153
11,110 12,837
Risk-weighted assets estimated for the Basel III fully implemented
standardized approach (e) 339,759 * 336,709 330,862 328,508 324,751
Risk-weighted assets, determined in accordance with
prescribed transitional advanced approaches regulatory requirements
248,048 * 245,038 254,892 248,596 243,909 Adjustments (4) 3,723
* 3,721 3,321 3,270
3,443 Risk-weighted assets estimated for the Basel
III fully implemented advanced approaches (f) 251,771 * 248,759
258,213 251,866 247,352
Ratios * Tangible common
equity to tangible assets (a)/(c) 7.7 % 7.5 % 7.6 % 7.5 % 7.6 %
Tangible common equity to risk-weighted assets (a)/(d) 9.3 9.2 9.3
9.3 9.3 Common equity tier 1 capital to risk-weighted assets
estimated for the Basel III fully implemented standardized approach
(b)/(e) 9.2 9.2 9.2 9.0 9.0 Common equity tier 1 capital to
risk-weighted assets estimated for the Basel III fully
implemented advanced approaches (b)/(f) 12.4
12.4 11.8 11.8 11.8
* Preliminary data. Subject to change prior to
filings with applicable regulatory agencies.
(1)
Includes goodwill related to certain
investments in unconsolidated financial institutions per prescribed
regulatory requirements.
(2)
Includes net losses on cash flow hedges
included in accumulated other comprehensive income (loss) and other
adjustments.
(3)
Includes higher risk-weighting for
unfunded loan commitments, investment securities, residential
mortgages, mortgage servicing rights and other adjustments.
(4) Primarily reflects higher risk-weighting for mortgage servicing
rights.
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version on businesswire.com: http://www.businesswire.com/news/home/20151015005214/en/
U.S. BancorpMediaDana Ripley,
612-303-3167orInvestors/AnalystsSean O’Connor, 612-303-0778
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