U.S. Bancorp (NYSE:USB) today reported net income of $1,476 million for the fourth quarter of 2015, or $0.80 per diluted common share, compared with $1,488 million, or $0.79 per diluted common share, in the fourth quarter of 2014. The fourth quarter of 2015 reflected a gain on the sale of a deposit portfolio, partially offset by accruals related to legal and compliance matters that, combined, increased diluted earnings per common share by $.01.

Highlights for the full year of 2015 included:

  • Record full year diluted earnings per common share of $3.16, which were 2.6 percent higher than 2014
  • Industry-leading return on average assets of 1.44 percent and average common equity of 14.0 percent
  • Returned 72 percent of 2015 earnings to shareholders through dividends and share buybacks

Highlights for the fourth quarter of 2015 included:

  • Record quarterly revenue
  • Growth in average total loans of 4.2 percent over the fourth quarter of 2014 and 1.7 percent on a linked quarter basis (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 total commercial loans of 9.0 percent over the fourth quarter of 2014 and 2.5 percent over the third quarter of 2015
    • Growth in average auto loans of 13.0 percent over the fourth quarter of 2014 and 2.0 percent over the third quarter of 2015
  • Growth in average total deposits of 6.9 percent over the fourth quarter of 2014 and 1.7 percent on a linked quarter basis
    • Growth in average low-cost deposits, including noninterest-bearing and total savings deposits, of 11.4 percent year-over-year and 2.4 percent on a linked quarter basis
  • Net interest income growth of 2.6 percent year-over-year and 1.8 percent linked quarter
    • Growth in average earnings assets of 5.1 percent year-over-year, and 1.0 percent on a linked quarter basis
    • Net interest margin relatively stable at 3.06 percent for the fourth quarter of 2015 compared with 3.04 percent in the prior quarter
  • Continued momentum in payment-related fee revenue led by year-over-year increases in credit and debit card revenue of 8.1 percent
  • Operating leverage improving at 0.6 percent year-over-year
  • Strong capital position. At December 31, 2015, common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented standardized approach was 9.1 percent and for the Basel III fully implemented advanced approaches was 11.9 percent.
                                                 
EARNINGS SUMMARY                                         Table 1
($ in millions, except per-share data)                 Percent     Percent            
Change Change
4Q 3Q 4Q 4Q15 vs 4Q15 vs Full Year Full Year Percent
2015     2015     2014     3Q15     4Q14     2015     2014     Change
 
Net income attributable to U.S. Bancorp $1,476 $1,489 $1,488 (.9 ) (.8 ) $5,879 $5,851 .5
Diluted earnings per common share $.80 $.81 $.79 (1.2 ) 1.3 $3.16 $3.08 2.6
 
Return on average assets (%) 1.41 1.44 1.50 1.44 1.54
Return on average common equity (%) 13.7 14.1 14.4 14.0 14.7
Net interest margin (%) 3.06 3.04 3.14 3.05 3.23
Efficiency ratio (%) (a) 53.9 53.9 54.3 53.8 53.2
Tangible efficiency ratio (%) (a) 53.0 53.1 53.3 53.0 52.2
 
Dividends declared per common share $.255 $.255 $.245 -- 4.1 $1.010 $.965 4.7
Book value per common share (period end) $23.28 $22.99 $21.68 1.3 7.4
 

(a) Computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding net securities gains (losses), and for tangible efficiency ratio, intangible amortization.

 

Net income attributable to U.S. Bancorp was $1,476 million for the fourth quarter of 2015, 0.8 percent lower than the $1,488 million for the fourth quarter of 2014, and 0.9 percent lower than the $1,489 million for the third quarter of 2015. Diluted earnings per common share of $0.80 in the fourth quarter of 2015 were $0.01 higher than the fourth quarter of 2014 and $0.01 lower than the previous quarter. The decrease in net income year-over-year was due to a higher provision for credit losses, lower noninterest income, impacted by the 2014 Nuveen gain, partially offset by increases in payments-related revenue and trust and investment management fees and the gain on the sale of a Health Savings Account deposit portfolio (“HSA deposit sale”), along with an increase in net interest income primarily driven by growth in earning assets. The decrease in net income on a linked quarter basis was primarily due to a seasonal increase in noninterest expense and the provision for credit losses, partially offset by higher net interest income primarily due to loan growth.

U.S. Bancorp Chairman, President and Chief Executive Officer Richard K. Davis said, “U.S. Bancorp delivered a remarkable performance in 2015; a year underscored by persistent and historically low interest rates, modest economic growth, and increasing regulatory requirements. More than any year in recent history, 2015 required strong management focus as we balanced decisions on operating efficiencies with opportunities for investing in future growth and addressing our customers’ needs. U.S. Bancorp rose to that challenge, delivering record net income and diluted EPS for the year and continuing with industry-leading performance metrics. We are well positioned as we move into 2016 – as indicated by our record fourth quarter revenue, strong momentum toward positive operating leverage during the quarter and the continued stability in our net interest margin. We also created value for our shareholders as we returned 72 percent of our 2015 earnings back to shareholders through dividends and share buybacks.

“As the operating environment continues to improve, we are optimistic about the momentum building in our core businesses, particularly within our Wealth Management and Security Services and Payment Services businesses. We recently announced an exciting new agreement with Fidelity Investments. U.S. Bank will become the exclusive issuer of the Fidelity® Rewards Visa Signature® Card and the Fidelity Investments 529 College Rewards® Visa Signature® Card. This program reflects the strength of our Payment Services business and strategic significance of our diversified business model.

“I am very proud of our 67,000 employees and their passionate commitment to creating value for our shareholders, customers, and communities. We were recently named one of the Most Ethical Companies in the World by the Ethisphere Institute. We also became one of the few banks to offer all the “Pays” – Apple Pay, Samsung Pay, and Android Pay – to our customers. We were one of the top three Small Business Administration (SBA) lenders, fueling economic growth and progress across the country. And we invested millions of dollars and thousands of hours into improving our communities. As we look to 2016, we are well positioned to continue providing quality products and services to our customers and exceptional value to our shareholders from a position of strength and stability that our stakeholders have come to expect from U.S. Bancorp.”

                                           
INCOME STATEMENT HIGHLIGHTS                                         Table 2
(Taxable-equivalent basis, $ in millions,                 Percent     Percent            
except per-share data) Change Change
4Q 3Q 4Q 4Q15 vs 4Q15 vs Full Year Full Year Percent
2015     2015     2014     3Q15     4Q14     2015     2014     Change
 
Net interest income $2,871 $2,821 $2,799 1.8 2.6 $11,214 $10,997 2.0
Noninterest income 2,340       2,326       2,370   .6 (1.3 ) 9,092       9,164   (.8 )
Total net revenue 5,211 5,147 5,169 1.2 .8 20,306 20,161 .7
Noninterest expense 2,809       2,775       2,804   1.2 .2 10,931       10,715   2.0
Income before provision and taxes 2,402 2,372 2,365 1.3 1.6 9,375 9,446 (.8 )
Provision for credit losses 305       282       288   8.2 5.9 1,132       1,229   (7.9 )
Income before taxes 2,097 2,090 2,077 .3 1.0 8,243 8,217 .3
Taxable-equivalent adjustment 52 53 55 (1.9 ) (5.5 ) 213 222 (4.1 )
Applicable income taxes 556       534       521   4.1 6.7 2,097       2,087   .5
Net income 1,489 1,503 1,501 (.9 ) (.8 ) 5,933 5,908 .4

Net (income) loss attributable to noncontrolling interests

(13 )     (14 )     (13 ) 7.1 -- (54 )     (57 ) 5.3
Net income attributable to U.S. Bancorp $1,476       $1,489       $1,488   (.9 ) (.8 ) $5,879       $5,851   .5
Net income applicable to U.S. Bancorp
common shareholders $1,404       $1,422       $1,420   (1.3 ) (1.1 ) $5,608       $5,583   .4
Diluted earnings per common share $.80       $.81       $.79   (1.2 ) 1.3 $3.16       $3.08   2.6
                                                 
 
                                                 
NET INTEREST INCOME                                         Table 3
(Taxable-equivalent basis; $ in millions)                                
Change Change
4Q 3Q 4Q 4Q15 vs 4Q15 vs Full Year Full Year
2015     2015     2014     3Q15     4Q14     2015     2014     Change
Components of net interest income
Income on earning assets $3,209 $3,171 $3,158 $38 $51 $12,619 $12,454 $165
Expense on interest-bearing liabilities 338       350       359       (12 )     (21 )     1,405       1,457       (52 )
Net interest income $2,871       $2,821       $2,799       $50       $72       $11,214       $10,997       $217  
 
Average yields and rates paid
Earning assets yield 3.42 % 3.42 % 3.54 % -- % (.12 )% 3.43 % 3.65 % (.22 )%
Rate paid on interest-bearing liabilities .50       .52       .55       (.02 )     (.05 )     .52       .58       (.06 )
Gross interest margin 2.92 %     2.90 %     2.99 %     .02 %     (.07 )%     2.91 %     3.07 %     (.16 )%
Net interest margin 3.06 %     3.04 %     3.14 %     .02 %     (.08 )%     3.05 %     3.23 %     (.18 )%
 
Average balances
Investment securities (a) $105,536 $103,943 $98,164 $1,593 $7,372 $103,161 $90,327 $12,834
Loans 256,692 250,536 246,421 6,156 10,271 250,459 241,692 8,767
Earning assets 373,091 369,265 354,961 3,826 18,130 367,445 340,994 26,451
Interest-bearing liabilities 269,940 269,479 259,938 461 10,002 269,474 249,972 19,502
 
(a) Excludes unrealized gain (loss)
 

Net Interest Income

Net interest income on a taxable-equivalent basis in the fourth quarter of 2015 was $2,871 million, an increase of $72 million (2.6 percent) over the fourth quarter of 2014. The increase was the result of growth in average earning assets, partially offset by a continued shift in loan portfolio mix. Average earning assets were $18.1 billion (5.1 percent) higher than the fourth quarter of 2014, driven by increases of $10.3 billion (4.2 percent) in average total loans and $7.4 billion (7.5 percent) in average investment securities. Net interest income increased $50 million (1.8 percent) on a linked quarter basis, primarily due to higher average total loans. Average total loans were $4.2 billion (1.7 percent) higher on a linked quarter basis, excluding the student loan reclassification.

The net interest margin in the fourth quarter of 2015 was 3.06 percent, compared with 3.14 percent in the fourth quarter of 2014, and 3.04 percent in the third 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 loan growth which also resulted in lower cash balances.

Investment Securities

Average investment securities in the fourth quarter of 2015 were $7.4 billion (7.5 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
4Q 3Q 4Q 4Q15 vs 4Q15 vs Full Year Full Year Percent
2015     2015     2014     3Q15     4Q14     2015     2014     Change
 
Commercial $81,592 $79,486 $74,333 2.6 9.8 $78,815 $70,549 11.7
Lease financing 5,211     5,218     5,292 (.1 ) (1.5 ) 5,268     5,185 1.6
Total commercial 86,803 84,704 79,625 2.5 9.0 84,083 75,734 11.0
 
Commercial mortgages 31,830 32,083 31,783 (.8 ) .1 32,378 31,949 1.3
Construction and development 10,401     10,233     9,183 1.6 13.3 10,037     8,643 16.1
Total commercial real estate 42,231 42,316 40,966 (.2 ) 3.1 42,415 40,592 4.5
 
Residential mortgages 52,970 51,831 51,872 2.2 2.1 51,840 51,818 --
 
Credit card 18,838 17,944 17,990 5.0 4.7 18,057 17,635 2.4
 
Retail leasing 5,265 5,480 5,939 (3.9 ) (11.3 ) 5,563 5,981 (7.0 )
Home equity and second mortgages 16,241 16,083 15,853 1.0 2.4 16,046 15,564 3.1
Other 29,556     27,286     27,317 8.3 8.2 27,470     26,808 2.5
Total other retail 51,062     48,849     49,109 4.5 4.0 49,079     48,353 1.5
 
Total loans, excluding covered loans 251,904     245,644     239,562 2.5 5.2 245,474     234,132 4.8
 
Covered loans 4,788     4,892     6,859 (2.1 ) (30.2 ) 4,985     7,560 (34.1 )
 
Total loans $256,692     $250,536     $246,421 2.5 4.2 $250,459     $241,692 3.6
                                                       
 

Loans

Average total loans were $10.3 billion (4.2 percent) higher in the fourth quarter of 2015 than the fourth quarter of 2014, due to growth in total commercial loans (9.0 percent), credit card loans (4.7 percent), total other retail loans (4.0 percent) total commercial real estate loans (3.1 percent) and residential mortgages (2.1 percent). These increases were partially offset by a decline in covered loans (30.2 percent), including the impact of the expiration of the loss sharing agreements on commercial and commercial real estate assets at the end of 2014. Average total loans were $6.2 billion (2.5 percent) higher in the fourth quarter of 2015 than the third quarter of 2015. Excluding the student loan reclassification, average total loans were $4.2 billion (1.7 percent) higher in the fourth quarter of 2015 than the third quarter of 2015. The increase was driven by growth in total commercial loans (2.5 percent), credit card (5.0 percent) and residential mortgages (2.2 percent). The Company also acquired a $1.6 billion credit card portfolio at the end of the fourth quarter of 2015 which did not have a material impact to average balances for the quarter.

                                                 
AVERAGE DEPOSITS                                         Table 5
($ in millions)                 Percent     Percent            
Change Change
4Q 3Q 4Q 4Q15 vs 4Q15 vs Full Year Full Year Percent
2015     2015     2014     3Q15     4Q14     2015     2014     Change
 
Noninterest-bearing deposits $83,894 $80,940 $76,958 3.6 9.0 $79,203 $73,455 7.8
Interest-bearing savings deposits
Interest checking 57,109 56,888 54,199 .4 5.4 55,974 53,248 5.1
Money market savings 82,828 80,338 68,914 3.1 20.2 79,266 63,977 23.9
Savings accounts 37,991     37,480     34,955 1.4 8.7 37,150     34,196 8.6
Total of savings deposits 177,928 174,706 158,068 1.8 12.6 172,390 151,421 13.8
Time deposits 32,683     34,046     40,453 (4.0 ) (19.2 ) 35,558     41,764 (14.9 )
Total interest-bearing deposits 210,611     208,752     198,521 .9 6.1 207,948     193,185 7.6
Total deposits $294,505     $289,692     $275,479 1.7 6.9 $287,151     $266,640 7.7
                                                       
 

Deposits

Average total deposits for the fourth quarter of 2015 were $19.0 billion (6.9 percent) higher than the fourth quarter of 2014. Average noninterest-bearing deposits increased $6.9 billion (9.0 percent) year-over-year, mainly in Wholesale Banking and Commercial Real Estate and Consumer and Small Business Banking. Average total savings deposits were $19.9 billion (12.6 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 3.2 percent. Average time deposits were $7.8 billion (19.2 percent) lower than the prior year quarter. Changes in time deposits are largely related to those deposits managed as an alternative to other wholesale funding sources, based on funding needs and relative pricing.

Average total deposits increased $4.8 billion (1.7 percent) over the third quarter of 2015. Average noninterest-bearing deposits increased $3.0 billion (3.6 percent) on a linked quarter basis, due to higher balances in Wholesale Banking and Commercial Real Estate and corporate trust. Average total savings deposits increased $3.2 billion (1.8 percent), reflecting increases in Wholesale Banking and Commercial Real Estate and Consumer and Small Business Banking. Average time deposits, which are managed based on funding needs and relative pricing, decreased $1.4 billion (4.0 percent) on a linked quarter basis

                                                 
NONINTEREST INCOME                                         Table 6
($ in millions)                 Percent     Percent            
Change Change
4Q 3Q 4Q 4Q15 vs 4Q15 vs Full Year Full Year Percent
2015     2015     2014     3Q15     4Q14     2015     2014     Change
 
Credit and debit card revenue $294 $269 $272 9.3 8.1 $1,070 $1,021 4.8
Corporate payment products revenue 170 190 174 (10.5 ) (2.3 ) 708 724 (2.2 )
Merchant processing services 393 400 384 (1.8 ) 2.3 1,547 1,511 2.4
ATM processing services 79 81 80 (2.5 ) (1.3 ) 318 321 (.9 )
Trust and investment management fees 336 329 322 2.1 4.3 1,321 1,252 5.5
Deposit service charges 182 185 180 (1.6 ) 1.1 702 693 1.3
Treasury management fees 139 143 136 (2.8 ) 2.2 561 545 2.9
Commercial products revenue 222 231 219 (3.9 ) 1.4 867 854 1.5
Mortgage banking revenue 211 224 235 (5.8 ) (10.2 ) 906 1,009 (10.2 )
Investment products fees 44 46 49 (4.3 ) (10.2 ) 185 191 (3.1 )
Securities gains (losses), net 1 (1 ) 1 nm -- -- 3 nm
Other 269     229       318 17.5 (15.4 ) 907     1,040 (12.8 )
 
Total noninterest income $2,340     $2,326       $2,370 .6 (1.3 ) $9,092     $9,164 (.8 )
                                                         
 

Noninterest Income

Fourth quarter noninterest income was $2,340 million, which was $30 million (1.3 percent) lower than the fourth quarter of 2014 and $14 million (0.6 percent) higher than the third quarter of 2015. The year-over-year decrease in noninterest income was primarily due to the impact of the 2014 Nuveen gain, partially offset by fee revenue growth and the HSA deposit sale. Higher credit and debit card revenue, trust and investment management fees, and merchant processing services were 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. Credit and debit card revenue increased $22 million (8.1 percent) due to higher transaction volumes. Trust and investment management fees increased $14 million (4.3 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 and lower fee waivers. Merchant processing services increased $9 million (2.3 percent) as a result of higher transaction volumes, along with account growth and equipment sales to merchants related to new chip card technology requirements, which decreased in the fourth quarter of 2015 compared with the third quarter of 2015. Adjusted for the approximate $16 million impact of foreign currency rate changes, year-over-year merchant processing services growth would have been approximately 6.5 percent.

Noninterest income was $14 million (0.6 percent) higher in the fourth quarter of 2015 than the third quarter of 2015. The increase in noninterest income on a linked quarter basis was primarily due to the HSA deposit sale and credit and debit card revenue, partially offset by seasonally lower corporate payment products revenue and lower mortgage banking revenue. Credit and debit card revenue increased $25 million (9.3 percent), primarily due to seasonally higher sales volumes. Other income increased $40 million (17.5 percent) reflecting the impact of the prior quarter notable items including the Visa Inc. Class B common stock sales and the student loan market adjustment, offset by the HSA deposit sale and other equity investment income. Corporate payment products revenue decreased $20 million (10.5 percent), reflecting the impact of seasonally higher third quarter government-related transaction volumes and mortgage banking revenue decreased $13 million (5.8 percent), primarily due to lower origination revenue.

                                                 
NONINTEREST EXPENSE                                         Table 7
($ in millions)                 Percent     Percent            
Change Change
4Q 3Q 4Q 4Q15 vs 4Q15 vs Full Year Full Year Percent
2015 2015 2014 3Q15 4Q14 2015 2014 Change
 
Compensation $1,212 $1,225 $1,151 (1.1 ) 5.3 $4,812 $4,523 6.4
Employee benefits 272 285 245 (4.6 ) 11.0 1,167 1,041 12.1
Net occupancy and equipment 246 251 248 (2.0 ) (.8 ) 991 987 .4
Professional services 125 115 132 8.7 (5.3 ) 423 414 2.2
Marketing and business development 96 99 129 (3.0 ) (25.6 ) 361 382 (5.5 )
Technology and communications 230 222 219 3.6 5.0 887 863 2.8
Postage, printing and supplies 74 77 86 (3.9 ) (14.0 ) 297 328 (9.5 )
Other intangibles 46 42 51 9.5 (9.8 ) 174 199 (12.6 )
Other 508     459     543 10.7 (6.4 ) 1,819     1,978 (8.0 )
 
Total noninterest expense $2,809     $2,775     $2,804 1.2 .2 $10,931     $10,715 2.0
                                                       
 

Noninterest Expense

Fourth quarter noninterest expense was $2,809 million, which was $5 million (0.2 percent) higher than the fourth quarter of 2014. Compensation expense increased $61 million (5.3 percent), reflecting the impact of merit increases and higher staffing for risk and compliance activities, while employee benefits expense was $27 million (11.0 percent) higher, mainly due to increased pension costs. Offsetting these increases was a $33 million (25.6 percent) decline in marketing and business development, principally due to charitable contributions in the fourth quarter of 2014, and $35 million (6.4 percent) lower other noninterest expense, reflecting the impact of prior year legal accruals partially offset by higher compliance-related expenses.

Noninterest expense increased $34 million (1.2 percent) on a linked quarter basis, reflecting seasonally higher costs related to investments in tax-advantaged projects and accruals related to legal and compliance matters, partially offset by the favorable impact of reduced mortgage-related compliance and talent upgrade costs which were elevated in the third quarter 2015. Compensation expense declined $13 million (1.1 percent), reflecting the impact of expense management initiatives and decreases in variable compensation, and a $13 million (4.6 percent) decrease in employee benefits expense was driven by lower payroll tax expense and healthcare costs.

Provision for Income Taxes

The provision for income taxes for the fourth quarter of 2015 resulted in a tax rate on a taxable-equivalent basis of 29.0 percent (effective tax rate of 27.2 percent), compared with 27.7 percent (effective tax rate of 25.8 percent) in the fourth quarter of 2014, and 28.1 percent (effective tax rate of 26.2 percent) in the third quarter of 2015.

                                                             
ALLOWANCE FOR CREDIT LOSSES                                         Table 8      
($ in millions)     4Q         3Q         2Q         1Q         4Q    
2015    

 % (b) 

     2015    

 % (b) 

     2015    

 % (b) 

     2015    

 % (b) 

     2014    

 % (b) 

 
Balance, beginning of period $4,306 $4,326 $4,351 $4,375 $4,414
 
Net charge-offs
Commercial 58 .28 68 .34 39 .20 40 .21 48 .26
Lease financing 5   .38 3   .23 3   .23 3   .23 (2 ) (.15 )
Total commercial 63 .29 71 .33 42 .20 43 .21 46 .23
Commercial mortgages 2 .02 -- -- 4 .05 (1 ) (.01 ) (3 ) (.04 )
Construction and development (2 ) (.08 ) (11 ) (.43 ) (3 ) (.12 ) (17 ) (.72 ) (7 ) (.30 )
Total commercial real estate -- -- (11 ) (.10 ) 1 .01 (18 ) (.17 ) (10 ) (.10 )
 
Residential mortgages 16 .12 25 .19 33 .26 35 .28 39 .30
 
Credit card 166 3.50 153 3.38 169 3.85 163 3.71 160 3.53
 
Retail leasing 1 .08 2 .14 1 .07 1 .07 1 .07
Home equity and second mortgages 6 .15 7 .17 11 .28 14 .36 17 .43
Other 53   .71 45   .65 39   .62 41   .60 52   .76
Total other retail 60   .47 54   .44 51   .43 56   .46 70   .57

Total net charge-offs, excluding covered loans

305 .48 292 .47 296 .49 279 .47 305 .51
Covered loans --   -- --   -- --   -- --   -- 3   .17
Total net charge-offs 305 .47 292 .46 296 .48 279 .46 308 .50
Provision for credit losses 305 282 281 264 288
Other changes (a) --   (10 ) (10 ) (9 ) (19 )
Balance, end of period $4,306   $4,306   $4,326   $4,351   $4,375  
 
Components
Allowance for loan losses $3,863 $3,965 $4,013 $4,023 $4,039

Liability for unfunded credit commitments

443   341   313   328   336  
Total allowance for credit losses $4,306   $4,306   $4,326   $4,351   $4,375  
 
Gross charge-offs $381 $372 $380 $383 $415
Gross recoveries $76 $80 $84 $104 $107
 
Allowance for credit losses as a percentage of

Period-end loans, excluding covered loans

1.67 1.71 1.76 1.79 1.78

Nonperforming loans, excluding covered loans

360 347 348 321 297

Nonperforming assets, excluding covered assets

288 280 279 261 245
 
Period-end loans 1.65

 

1.69 1.74 1.77 1.77
Nonperforming loans 361 347 349 322 298
Nonperforming assets 283 275 274 257 242
 

(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 fourth quarter of 2015 was $305 million, which was $23 million (8.2 percent) higher than the prior quarter and $17 million (5.9 percent) higher than the fourth quarter of 2014. The provision for credit losses was equal to net charge-offs in the fourth quarter of 2015, $10 million lower than net charge-offs in the third quarter of 2015, and $20 million lower than net charge-offs in the fourth quarter of 2014. Total net charge-offs in the fourth quarter of 2015 were $305 million, compared with $292 million in the third quarter of 2015, and $308 million in the fourth quarter of 2014. Net charge-offs increased $13 million (4.5 percent) on a linked quarter basis due to seasonally higher credit card charge-offs and lower commercial mortgage and construction and development recoveries, while the $3 million (1.0 percent) decrease in net charge-offs on a year-over-year basis reflected improvements in residential mortgages and total other retail loans. Given current economic conditions, the Company expects the level of net charge-offs to remain relatively stable in the first quarter of 2016.

The allowance for credit losses was $4,306 million at December 31, 2015, and at September 30, 2015, compared with $4,375 million at December 31, 2014. The ratio of the allowance for credit losses to period-end loans was 1.65 percent at December 31, 2015, compared with 1.69 percent at September 30, 2015, and 1.77 percent at December 31, 2014. The ratio of the allowance for credit losses to nonperforming loans was 361 percent at December 31, 2015, compared with 347 percent at September 30, 2015, and 298 percent at December 31, 2014.

At December 31, 2015, approximately $3.2 billion of commercial loans (approximately 1.2 percent of total loans outstanding) were to customers in energy-related businesses. The decline in energy prices over the past year has resulted in deterioration of a portion of these loans; however, the impact of this deterioration was not significant to the Company during 2015. Based on the uncertain outlook for commodity prices in the near term and the potential for further energy price declines, the Company may see additional stress within its energy and metals-related loan portfolios in 2016. At December 31, 2015, the Company had credit reserves of approximately 5 percent of total energy loan balances.

                               
DELINQUENT LOAN RATIOS AS A PERCENT OF ENDING LOAN BALANCES     Table 9
(Percent)                    

 Dec 31

 Sep 30

 Jun 30

 Mar 31

 Dec 31

2015     2015     2015     2015     2014
 
Delinquent loan ratios - 90 days or more past due excluding nonperforming loans
Commercial .05 .05 .05 .05 .05
Commercial real estate .03 .05 .05 .07 .05
Residential mortgages .33 .33 .30 .33 .40
Credit card 1.09 1.10 1.03 1.19 1.13
Other retail .15 .14 .14 .15 .15
Total loans, excluding covered loans .21 .20 .19 .22 .23
Covered loans 6.31 6.57 6.66 7.01 7.48
Total loans .32 .32 .32 .36 .38
 
Delinquent loan ratios - 90 days or more past due including nonperforming loans
Commercial .25 .25 .16 .16 .19
Commercial real estate .33 .39 .46 .58 .65
Residential mortgages 1.66 1.73 1.80 1.95 2.07
Credit card 1.13 1.16 1.12 1.32 1.30
Other retail .46 .47 .51 .55 .53
Total loans, excluding covered loans .67 .70 .70 .77 .83
Covered loans 6.48 6.80 6.88 7.25 7.74
Total loans .78 .81 .82 .91 .97
                               
 
                               
ASSET QUALITY                       Table 10
($ in millions)                    

 Dec 31

 Sep 30

 Jun 30

 Mar 31

 Dec 31

2015     2015     2015     2015     2014
Nonperforming loans
Commercial $160 $157 $78 $74 $99
Lease financing 14     12     12     13     13
Total commercial 174 169 90 87 112
 
Commercial mortgages 92 105 116 142 175
Construction and development 35     39     59     75     84
Total commercial real estate 127 144 175 217 259
 
Residential mortgages 712 735 769 825 864
Credit card 9 12 16 22 30
Other retail 162     171     178     187     187
Total nonperforming loans, excluding covered loans 1,184 1,231 1,228 1,338 1,452
 
Covered loans 8     11     11     12     14
Total nonperforming loans 1,192 1,242 1,239 1,350 1,466
 
Other real estate (a) 280 276 287 293 288
Covered other real estate (a) 32 31 35 37 37
Other nonperforming assets 19     18     16     16     17
 
Total nonperforming assets (b) $1,523     $1,567     $1,577     $1,696     $1,808
 
Total nonperforming assets, excluding covered assets $1,483     $1,525     $1,531     $1,647     $1,757
 

Accruing loans 90 days or more past due, excluding covered loans

$541     $510     $469     $521     $550
 
Accruing loans 90 days or more past due $831     $825     $801     $880     $945
 

Performing restructured loans, excluding GNMA and covered loans

$2,766     $2,746     $2,815     $2,684     $2,832
 
Performing restructured GNMA and covered loans $1,944     $2,031     $2,111     $2,186     $2,273
 

Nonperforming assets to loans plus ORE, excluding covered assets (%)

.58 .61 .63 .68 .72
 
Nonperforming assets to loans plus ORE (%) .58 .61 .63 .69 .73
 
(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 $1,523 million at December 31, 2015, compared with $1,567 million at September 30, 2015, and $1,808 million at December 31, 2014. The ratio of nonperforming assets to loans and other real estate was 0.58 percent at December 31, 2015, compared with 0.61 percent at September 30, 2015, and 0.73 percent at December 31, 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 $831 million ($541 million excluding covered loans) at December 31, 2015, compared with $825 million ($510 million excluding covered loans) at September 30, 2015, and $945 million ($550 million excluding covered loans) at December 31, 2014. The Company expects total nonperforming assets to remain relatively stable in the first quarter of 2016.

                               
COMMON SHARES                       Table 11
(Millions)     4Q     3Q     2Q     1Q     4Q

 2015

    

 2015

    

 2015

    

 2015

    

 2014

 
Beginning shares outstanding 1,754 1,767 1,780 1,786 1,795

Shares issued for stock incentive plans, acquisitions and other corporate purposes

1 3 1 6 2
Shares repurchased (10 )     (16 )     (14 )     (12 )     (11 )
Ending shares outstanding 1,745       1,754       1,767       1,780       1,786  
 
 

Capital Management

Total U.S. Bancorp shareholders’ equity was $46.1 billion at December 31, 2015, compared with $45.1 billion at September 30, 2015, and $43.5 billion at December 31, 2014. Including fourth quarter distributions, the Company returned 72 percent of earnings to shareholders for the full year.

                                         
CAPITAL POSITION                             Table 12  
($ in millions)     Dec 31     Sep 30     Jun 30     Mar 31     Dec 31
2015       2015       2015       2015       2014
 
Total U.S. Bancorp shareholders' equity $46,131 $45,075 $44,537 $44,277 $43,479
 
Standardized Approach
 
Basel III transitional standardized approach
Common equity tier 1 capital $32,612 $32,124 $31,674 $31,308 $30,856
Tier 1 capital 38,431 37,197 36,748 36,382 36,020
Total risk-based capital 45,313 44,015 43,526 43,558 43,208
 
Common equity tier 1 capital ratio 9.6 % 9.6 % 9.5 % 9.6 % 9.7 %
Tier 1 capital ratio 11.3 11.1 11.0 11.1 11.3
Total risk-based capital ratio 13.3 13.1 13.1 13.3 13.6
Leverage ratio 9.5 9.3 9.2 9.3 9.3
 

Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented standardized approach

9.1 9.2 9.2 9.2 9.0
 
Advanced Approaches
 

Common equity tier 1 capital to risk-weighted assets for the Basel III transitional advanced approaches

12.5 13.0 12.9 12.3 12.4
 

Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented advanced approaches

11.9 12.4 12.4 11.8 11.8
 
Tangible common equity to tangible assets 7.6 7.7 7.5 7.6 7.5
Tangible common equity to risk-weighted assets 9.2 9.3 9.2 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 9.1 percent at December 31, 2015, compared with 9.2 percent at September 30, 2015, and 9.0 percent at December 31, 2014. The common equity tier 1 capital to risk-weighted assets ratio estimated for the Basel III advanced approaches as if fully implemented was 11.9 percent at December 31, 2015, compared with 12.4 percent at September 30, 2015, and 11.8 percent at December 31, 2014.

On Friday, January 15, 2016, at 8:00 a.m. CST, 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 or 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 76889596. For those unable to participate during the live call, a recording will be available at approximately 11:00 a.m. CST on Friday, January 15 and be accessible through Friday, January 22 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 76889596.

Minneapolis-based U.S. Bancorp (“USB”), with $422 billion in assets as of December 31, 2015, is the parent company of U.S. Bank National Association, the fifth largest commercial bank in the United States. The Company operates 3,133 banking offices in 25 states and 4,936 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, 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 Year Ended
(Dollars and Shares in Millions, Except Per Share Data) December 31, December 31,
(Unaudited)     2015     2014     2015     2014
Interest Income
Loans $2,583 $ 2,541 $10,059 $10,113
Loans held for sale 40 41 206 128
Investment securities 499 488 2,001 1,866
Other interest income 34       32       136       121  
Total interest income 3,156 3,102 12,402 12,228
Interest Expense
Deposits 113 117 457 465
Short-term borrowings 56 59 245 263
Long-term debt 168       182       699       725  
Total interest expense 337       358       1,401       1,453  
Net interest income 2,819 2,744 11,001 10,775
Provision for credit losses 305       288       1,132       1,229  
Net interest income after provision for credit losses 2,514 2,456 9,869 9,546
Noninterest Income
Credit and debit card revenue 294 272 1,070 1,021
Corporate payment products revenue 170 174 708 724
Merchant processing services 393 384 1,547 1,511
ATM processing services 79 80 318 321
Trust and investment management fees 336 322 1,321 1,252
Deposit service charges 182 180 702 693
Treasury management fees 139 136 561 545
Commercial products revenue 222 219 867 854
Mortgage banking revenue 211 235 906 1,009
Investment products fees 44 49 185 191
Securities gains (losses), net 1 1 -- 3
Other 269       318       907       1,040  
Total noninterest income 2,340 2,370 9,092 9,164
Noninterest Expense
Compensation 1,212 1,151 4,812 4,523
Employee benefits 272 245 1,167 1,041
Net occupancy and equipment 246 248 991 987
Professional services 125 132 423 414
Marketing and business development 96 129 361 382
Technology and communications 230 219 887 863
Postage, printing and supplies 74 86 297 328
Other intangibles 46 51 174 199
Other 508       543       1,819       1,978  
Total noninterest expense 2,809       2,804       10,931       10,715  
Income before income taxes 2,045 2,022 8,030 7,995
Applicable income taxes 556       521       2,097       2,087  
Net income 1,489 1,501 5,933 5,908
Net (income) loss attributable to noncontrolling interests (13 )     (13 )     (54 )     (57 )
Net income attributable to U.S. Bancorp $1,476       $ 1,488       $5,879       $5,851  
Net income applicable to U.S. Bancorp common shareholders $1,404       $ 1,420       $5,608       $5,583  
 
Earnings per common share $.80 $ .79 $3.18 $3.10
Diluted earnings per common share $.80 $ .79 $3.16 $3.08
Dividends declared per common share $.255 $ .245 $1.010 $.965
Average common shares outstanding 1,747 1,787 1,764 1,803
Average diluted common shares outstanding     1,754       1,796       1,772       1,813  
 
       
U.S. Bancorp
Consolidated Ending Balance Sheet
 
December 31, December 31,
(Dollars in Millions)     2015     2014
Assets
Cash and due from banks $11,147 $10,654
Investment securities
Held-to-maturity 43,590 44,974
Available-for-sale 61,997 56,069
Loans held for sale 3,184 4,792
Loans
Commercial 88,402 80,377
Commercial real estate 42,137 42,795
Residential mortgages 53,496 51,619
Credit card 21,012 18,515
Other retail 51,206       49,264  
Total loans, excluding covered loans 256,253 242,570
Covered loans 4,596       5,281  
Total loans 260,849 247,851
Less allowance for loan losses (3,863 )     (4,039 )
Net loans 256,986 243,812
Premises and equipment 2,513 2,618
Goodwill 9,361 9,389
Other intangible assets 3,350 3,162
Other assets 29,725       27,059  
Total assets $421,853       $402,529  
 
Liabilities and Shareholders' Equity
Deposits
Noninterest-bearing $83,766 $77,323
Interest-bearing 216,634       205,410  
Total deposits 300,400 282,733
Short-term borrowings 27,877 29,893
Long-term debt 32,078 32,260
Other liabilities 14,681       13,475  
Total liabilities 375,036 358,361
Shareholders' equity
Preferred stock 5,501 4,756
Common stock 21 21
Capital surplus 8,376 8,313
Retained earnings 46,377 42,530
Less treasury stock (13,125 ) (11,245 )
Accumulated other comprehensive income (loss) (1,019 )     (896 )
Total U.S. Bancorp shareholders' equity 46,131 43,479
Noncontrolling interests 686       689  
Total equity 46,817       44,168  
Total liabilities and equity     $421,853       $402,529  
 
 
U.S. Bancorp
Non-GAAP Financial Measures
                   
December 31, September 30,

   June 30,

  March 31,

December 31,
(Dollars in Millions, Unaudited)     2015       2015       2015       2015       2014  
Total equity $46,817 $45,767 $45,231 $44,965 $44,168
Preferred stock (5,501 ) (4,756 ) (4,756 ) (4,756 ) (4,756 )
Noncontrolling interests (686 ) (692 ) (694 ) (688 ) (689 )
Goodwill (net of deferred tax liability) (1) (8,295 ) (8,324 ) (8,350 ) (8,360 ) (8,403 )
Intangible assets, other than mortgage servicing rights (838 )       (779 )       (744 )       (783 )       (824 )  
Tangible common equity (a) 31,497 31,216 30,687 30,378 29,496
 
Tangible common equity (as calculated above) 31,497 31,216 30,687 30,378 29,496
Adjustments (2) 67         118         125         158         172    

Common equity tier 1 capital estimated for the Basel III fully implemented standardized and advanced approaches (b)

31,564 31,334 30,812 30,536 29,668
 
Total assets 421,853 415,943 419,075 410,233 402,529
Goodwill (net of deferred tax liability) (1) (8,295 ) (8,324 ) (8,350 ) (8,360 ) (8,403 )
Intangible assets, other than mortgage servicing rights (838 )       (779 )       (744 )       (783 )       (824 )  
Tangible assets (c) 412,720 406,840 409,981 401,090 393,302
 

Risk-weighted assets, determined in accordance with prescribed transitional standardized approach regulatory requirements (d)

341,360 * 336,227 333,177 327,709 317,398
Adjustments (3) 3,892   *     3,532         3,532         3,153         11,110    

Risk-weighted assets estimated for the Basel III fully implemented standardized approach (e)

345,252 * 339,759 336,709 330,862 328,508
 

Risk-weighted assets, determined in accordance with prescribed transitional advanced approaches regulatory requirements

261,668 * 248,048 245,038 254,892 248,596
Adjustments (4) 4,099   *     3,723         3,721         3,321         3,270  

Risk-weighted assets estimated for the Basel III fully implemented advanced approaches (f)

265,767 * 251,771 248,759 258,213 251,866
 
Ratios *
Tangible common equity to tangible assets (a)/(c) 7.6 % 7.7 % 7.5 % 7.6 % 7.5 %
Tangible common equity to risk-weighted assets (a)/(d) 9.2 9.3 9.2 9.3 9.3

Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented standardized approach (b)/(e)

9.1 9.2 9.2 9.2 9.0

Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented advanced approaches (b)/(f)

    11.9         12.4         12.4         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.