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U.S. Bancorp Reports First Quarter 2016 Earnings

Earnings Per Diluted Common Share of $0.76

Return on average assets of 1.32 percent and average common equity of 13.0 percent

MINNEAPOLIS--(BUSINESS WIRE)--Apr. 20, 2016-- U.S. Bancorp (NYSE: USB) today reported net income of $1,386 million for the first quarter of 2016, or $0.76 per diluted common share, compared with $1,431 million, or $0.76 per diluted common share, in the first quarter of 2015.

Highlights for the first quarter of 2016 included:

  • Industry-leading return on average assets of 1.32 percent, return on average common equity of 13.0 percent and efficiency ratio of 54.6 percent
  • Returned 80 percent of first quarter earnings to shareholders through dividends and share buybacks
  • Average total loans grew 5.8 percent over the first quarter of 2015 and 2.2 percent on a linked quarter basis (1.6 percent excluding the credit card portfolio acquisition at the end of the fourth quarter 2015)
    • Average total commercial loans grew 10.2 percent over the first quarter of 2015 and 3.5 percent over the fourth quarter of 2015
  • Average total deposits grew 6.3 percent over the first quarter of 2015 and 0.5 percent on a linked quarter basis
    • Average low-cost deposits, including noninterest-bearing and total savings deposits, grew 9.7 percent year-over-year
  • Net interest income grew 4.9 percent year-over-year and 0.6 percent linked quarter
    • Average earnings assets grew 4.8 percent year-over-year, and 1.4 percent on a linked quarter basis
    • Net interest margin of 3.06 percent for the first quarter of 2016 was the same as the fourth quarter of 2015, down 2 basis points from 3.08 percent in the first quarter of 2015
  • Payments-related fee revenue grew 5.1 percent year-over-year, driven by an increase in credit and debit card revenue, including the impact of recent portfolio acquisitions, and merchant processing services revenue
  • Credit quality was relatively stable other than energy-related commercial loans, the deterioration of which impacted the amount of nonperforming assets and the provision for credit losses
    • Energy-related commercial nonperforming assets increased $257 million linked quarter
    • Reserves for energy-related commercial loans were 9.1 percent of outstanding balances at March 31, 2016, compared with 5.4 percent at December 31, 2015
  • Strong capital position. At March 31, 2016, the estimated common equity tier 1 capital to risk-weighted assets ratio was 9.2 percent using the Basel III fully implemented standardized approach and was 11.9 percent using the Basel III fully implemented advanced approaches method
                         
  EARNINGS SUMMARY               Table 1  
 

($ in millions, except per-share data)

       

Percent
Change

 

Percent
Change

1Q 4Q 1Q 1Q16 vs 1Q16 vs
2016   2015   2015   4Q15   1Q15
 
Net income attributable to U.S. Bancorp $1,386 $1,476 $1,431 (6.1 ) (3.1 )
Diluted earnings per common share $.76 $.80 $.76 (5.0 )

-- 

 
Return on average assets (%) 1.32 1.41 1.44
Return on average common equity (%) 13.0 13.7 14.1
Net interest margin (%) 3.06 3.06 3.08
Efficiency ratio (%) (a) 54.6 53.9 54.3
Tangible efficiency ratio (%) (a) 53.7 53.0 53.4
 
Dividends declared per common share $.255 $.255 $.245

--

4.1

Book value per common share (period end) $23.82 $23.28 $22.20

2.3

7.3

 

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

 

 

 

Net income attributable to U.S. Bancorp was $1,386 million for the first quarter of 2016, 3.1 percent lower than the $1,431 million for the first quarter of 2015, and 6.1 percent lower than the $1,476 million for the fourth quarter of 2015. Diluted earnings per common share were $0.76 in the first quarter of 2016, the same as the first quarter of 2015 and $0.04 lower than the $0.80 reported for fourth quarter of 2015. The decrease in net income year-over-year was primarily due to a higher provision for credit losses driven by energy-related commercial loan downgrades, lower mortgage banking revenue due to lower production and higher noninterest expense driven by higher compensation expense related to the impact of merit increases and higher variable compensation expense, as well as compliance-related matters, partially offset by an increase in net interest income driven by strong loan growth. The decrease in net income on a linked quarter basis was principally due to typical seasonality in some of our business lines, a higher provision for credit losses driven by energy-related loans, as well as the impact of the fourth quarter 2015 gain on the sale of the Health Savings Account deposit portfolio (“HSA deposit sale”). The linked quarter seasonality reflects decreases in fee-based revenue, primarily related to payments and deposit services, and lower costs related to investments in tax-advantaged projects. Other expense increases included higher stock-based and other variable compensation expense.

U.S. Bancorp Chairman and Chief Executive Officer Richard K. Davis said, “U.S. Bancorp is off to a solid start in 2016 as we once again delivered industry-leading performance metrics against a backdrop of global concerns driving long-term interest rates lower and continuing pressure in the energy sector. We continued to produce strong loan and deposit growth which combined with a stable net interest margin, resulted in growth in net interest income. Our payments-related businesses remain strong and we continue to invest in those businesses, as demonstrated by the acquisition of the $1.6 billion retail card portfolio at the end of 2015. Although the pressures from the energy industry negatively impacted the quarter, we took appropriate measures and remain confident that we are well positioned to continue delivering industry-leading returns throughout the year.

“In addition to these strong fundamentals of our business, we also created value for our shareholders as we returned 80 percent of our first quarter earnings back to shareholders through dividends and share buybacks. We remain committed to balancing decisions about operating efficiencies with opportunities for investments in our franchise as we navigate through a slowly recovering economy. This focus by our management team is vital in order to protect our strong financial position and to ensure that we are delivering the products and services that our customers value.

“I am extremely proud that once again, during the first quarter, U.S. Bancorp was named one of the Most Ethical Companies in the WorldTM by the Ethisphere Institute, and for the sixth year in a row, the number one Superregional bank by FORTUNE magazine. It is a perfect example of how our 67,000 employees work hard every day to be the most trusted choice for our shareholders, customers, and communities. Every quarter we introduce new products and services to our customers that are designed to improve and unify our customers’ experience with us. We have continued to invest heavily in our mobile banking app and were recognized as a leader in this space by both Keynote and Corporate Insights. These are important developments in a dynamic marketplace where customer needs and expectations are evolving rapidly. We are proud to have an innovation focus – built on a foundation of trust – backing all our financial and competitive strength.

“U.S. Bancorp continues to deliver consistent, predictable, repeatable, industry-leading financial results. Our shareholders, customers, and communities know that we will do it well and we will do it right. We have a proven track record of success and we remain confident in our ability to address our customers’ and clients’ distinct financial objectives.”

                         
  INCOME STATEMENT HIGHLIGHTS               Table 2  
 

(Taxable-equivalent basis, $ in millions, except per-share data)

       

Percent
Change

 

Percent
Change

1Q 4Q 1Q 1Q16 vs 1Q16 vs
2016   2015   2015   4Q15   1Q15
 
Net interest income $2,888 $2,871 $2,752

.6

4.9

Noninterest income 2,149     2,340     2,154   (8.2 ) (.2 )
Total net revenue 5,037 5,211 4,906 (3.3 )

2.7

Noninterest expense 2,749     2,809     2,665   (2.1 )

3.2

Income before provision and taxes 2,288 2,402 2,241 (4.7 )

2.1

Provision for credit losses 330     305     264  

8.2

25.0

Income before taxes 1,958 2,097 1,977 (6.6 ) (1.0 )
Taxable-equivalent adjustment 53 52 54

1.9

(1.9 )
Applicable income taxes 504     556     479   (9.4 )

5.2

Net income 1,401 1,489 1,444 (5.9 ) (3.0 )

Net (income) loss attributable to noncontrolling interests

(15 )   (13 )   (13 ) (15.4 ) (15.4 )
Net income attributable to U.S. Bancorp $1,386     $1,476     $1,431   (6.1 ) (3.1 )

Net income applicable to U.S. Bancorp common shareholders

$1,329     $1,404     $1,365   (5.3 ) (2.6 )
Diluted earnings per common share $.76     $.80     $.76   (5.0 ) --
                               
                         
  NET INTEREST INCOME               Table 3  
  (Taxable-equivalent basis; $ in millions)          
Change Change
1Q 4Q 1Q 1Q16 vs 1Q16 vs
2016   2015   2015   4Q15   1Q15
Components of net interest income
Income on earning assets $3,275 $3,209 $3,116 $66 $159
Expense on interest-bearing liabilities 387     338     364     49     23  
Net interest income $2,888     $2,871     $2,752     $17     $136  
 
Average yields and rates paid
Earning assets yield 3.48 % 3.42 % 3.49 % .06 % (.01 )%
Rate paid on interest-bearing liabilities .56     .50     .55     .06     .01  
Gross interest margin 2.92 %   2.92 %   2.94 %   -- %   (.02 )%
Net interest margin 3.06 %   3.06 %   3.08 %   -- %   (.02 )%
 
Average balances
Investment securities (a) $106,031 $105,536 $100,712 $495 $5,319
Loans 262,281 256,692 247,950 5,589 14,331
Earning assets 378,208 373,091 360,841 5,117 17,367
Interest-bearing liabilities 279,516 269,940 267,882 9,576 11,634
 
(a) Excludes unrealized gain (loss)
     

Net Interest Income

Net interest income on a taxable-equivalent basis in the first quarter of 2016 was $2,888 million, an increase of $136 million (4.9 percent) over the first quarter of 2015. The increase was driven by loan growth and higher rates, partially offset by the impact of a continued shift in loan portfolio mix. Average earning assets were $17.4 billion (4.8 percent) higher than the first quarter of 2015, driven by increases of $14.3 billion (5.8 percent) in average total loans and $5.3 billion (5.3 percent) in average investment securities. Net interest income increased $17 million (0.6 percent) on a linked quarter basis, primarily due to growth in average total loans and the impact of higher rates, partially offset by one less day in the current quarter. Average total loans were $5.6 billion (2.2 percent) higher on a linked quarter basis ($4.1 billion (1.6 percent) excluding the credit card portfolio acquisition at the end of the fourth quarter of 2015.)

The net interest margin in the first quarter of 2016 was 3.06 percent, compared with 3.08 percent in the first quarter of 2015, and 3.06 percent in the fourth quarter of 2015. The decrease in the net interest margin on a year-over-year basis primarily reflected the impact of higher rates offset by a continued shift in loan portfolio mix, as well as lower average rates on new securities purchases and lower reinvestment rates on maturing securities. On a linked quarter basis, the stable net interest margin was principally due to the impact of higher rates, partially offset by the continued change in loan portfolio mix.

Investment Securities

Average investment securities in the first quarter of 2016 were $5.3 billion (5.3 percent) higher year-over-year and $495 million (0.5 percent) higher than the prior quarter. These increases were primarily due to purchases of U.S. Treasury securities, net of prepayments and maturities, to support regulatory liquidity coverage ratio requirements.

                         
  AVERAGE LOANS               Table 4  
  ($ in millions)         Percent   Percent
Change Change
1Q 4Q 1Q 1Q16 vs 1Q16 vs
2016   2015   2015   4Q15   1Q15
 
Commercial $84,582 $81,592 $76,183 3.7 11.0
Lease financing 5,238   5,211   5,325   .5 (1.6 )
Total commercial 89,820 86,803 81,508 3.5 10.2
 
Commercial mortgages 31,836 31,830 33,119 -- (3.9 )
Construction and development 10,565   10,401   9,552   1.6 10.6
Total commercial real estate 42,401 42,231 42,671 .4 (.6 )
 
Residential mortgages 54,208 52,970 51,426 2.3 5.4
 
Credit card 20,244 18,838 17,823 7.5 13.6
 
Retail leasing 5,179 5,265 5,819 (1.6 ) (11.0 )
Home equity and second mortgages 16,368 16,241 15,897 .8 3.0
Other 29,550   29,556   27,604   -- 7.0
Total other retail 51,097   51,062   49,320   .1 3.6
 
Total loans, excluding covered loans 257,770   251,904   242,748   2.3 6.2
 
Covered loans 4,511   4,788   5,202   (5.8 ) (13.3 )
 
Total loans $262,281   $256,692   $247,950   2.2 5.8
                             

Loans

Average total loans were $14.3 billion (5.8 percent) higher in the first quarter of 2016 than the first quarter of 2015, due to growth in total commercial loans (10.2 percent), credit card loans (13.6 percent), residential mortgages (5.4 percent), and total other retail loans (3.6 percent). These increases were partially offset by a decline in total commercial real estate loans (0.6 percent) and covered loans (13.3 percent). Average total loans were $5.6 billion (2.2 percent) higher in the first quarter of 2016 than the fourth quarter of 2015. The increase was driven by growth in total commercial loans (3.5 percent), residential mortgages (2.3 percent) and credit card loans (7.5 percent). At the end of the fourth quarter of 2015, the Company acquired a credit card portfolio which increased first quarter of 2016 average credit card loans by approximately $1.5 billion. Excluding the credit card portfolio acquisition, average total loans in the first quarter of 2016 were approximately $4.1 billion (1.6 percent) higher than the fourth quarter of 2015 and $12.8 billion (5.2 percent) higher than the first quarter of 2015.

                         
  AVERAGE DEPOSITS               Table 5  
  ($ in millions)         Percent   Percent
Change Change
1Q 4Q 1Q 1Q16 vs 1Q16 vs
2016   2015   2015   4Q15   1Q15
 
Noninterest-bearing deposits $78,569 $83,894 $74,511 (6.3 ) 5.4
Interest-bearing savings deposits
Interest checking 57,910 57,109 54,658 1.4 5.9
Money market savings 86,462 82,828 73,889 4.4 17.0
Savings accounts 39,250   37,991   36,033   3.3 8.9
Total of savings deposits 183,622 177,928 164,580 3.2 11.6
Time deposits 33,687   32,683   39,369   3.1 (14.4 )
Total interest-bearing deposits 217,309   210,611   203,949   3.2 6.6
Total deposits $295,878   $294,505   $278,460   .5 6.3
                             

Deposits

Average total deposits for the first quarter of 2016 were $17.4 billion (6.3 percent) higher than the first quarter of 2015. Average noninterest-bearing deposits increased $4.1 billion (5.4 percent) year-over-year, mainly in Wholesale Banking and Commercial Real Estate and Consumer and Small Business Banking. Average total savings deposits were $19.0 billion (11.6 percent) higher year-over-year, the result of growth in Wholesale Banking and Commercial Real Estate, Consumer and Small Business Banking, and Wealth Management and Securities Services. Growth in Consumer and Small Business Banking total savings deposits included net new account growth of 3.2 percent. Average time deposits were $5.7 billion (14.4 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 $1.4 billion (0.5 percent) over the fourth quarter of 2015. Average noninterest-bearing deposits decreased $5.3 billion (6.3 percent) on a linked quarter basis, due to seasonally lower balances in corporate trust and Wholesale Banking and Commercial Real Estate. Average total savings deposits increased $5.7 billion (3.2 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, increased $1.0 billion (3.1 percent) on a linked quarter basis.

                         
  NONINTEREST INCOME               Table 6  
  ($ in millions)         Percent   Percent
Change Change
1Q 4Q 1Q 1Q16 vs 1Q16 vs
2016   2015   2015   4Q15   1Q15
 
Credit and debit card revenue $266 $294 $241 (9.5 ) 10.4
Corporate payment products revenue 170 170 170 -- --
Merchant processing services 373 393 359 (5.1 ) 3.9
ATM processing services 80 79 78 1.3 2.6
Trust and investment management fees 339 336 322 .9 5.3
Deposit service charges 168 182 161 (7.7 ) 4.3
Treasury management fees 142 139 137 2.2 3.6
Commercial products revenue 197 222 200 (11.3 ) (1.5 )
Mortgage banking revenue 187 211 240 (11.4 ) (22.1 )
Investment products fees 40 44 47 (9.1 ) (14.9 )
Securities gains (losses), net 3 1 --

nm 

nm 

Other 184   269   199   (31.6 ) (7.5 )
 
Total noninterest income $2,149   $2,340   $2,154   (8.2 ) (.2 )
                         

Noninterest Income

First quarter noninterest income was $2,149 million, which was $5 million (0.2 percent) lower than the first quarter of 2015. The year-over-year decrease in noninterest income was primarily due to a decrease in mortgage banking revenue, partially offset by increases in credit and debit card revenue, trust and investment management fees, and merchant processing services revenue. Mortgage banking revenue decreased $53 million (22.1 percent) primarily due to lower origination and sales revenue driven by lower volume (a 10 percent decline) and lower pricing as a result of market competition. Credit and debit card revenue increased $25 million (10.4 percent) reflecting higher transaction volumes including acquired portfolios. Trust and investment management fees increased $17 million (5.3 percent), reflecting lower fee waivers. Merchant processing services revenue increased $14 million (3.9 percent) as a result of higher transaction volumes and equipment sales to merchants related to new chip card technology requirements. Adjusted for the approximate $9 million impact of foreign currency rate changes, year-over-year merchant processing services revenue growth would have been approximately 6.4 percent.

Noninterest income was $191 million (8.2 percent) lower in the first quarter of 2016 than the fourth quarter of 2015. The decrease in noninterest income on a linked quarter basis reflected the impact of the fourth quarter 2015 HSA deposit sale along with seasonally lower fee-based revenue. Seasonally lower fee-based revenue includes credit and debit card revenue, merchant processing services revenue and deposit service charges. Credit and debit card revenue decreased $28 million (9.5 percent), primarily due to seasonally lower transaction volumes, partially offset by the impact of recent portfolio acquisitions. Merchant processing services revenue decreased $20 million (5.1 percent) as a result of seasonally lower product fees and lower equipment sales to merchants related to chip card technology requirements. Deposit service charges decreased $14 million (7.7 percent) due to seasonally lower transaction volumes. Commercial products revenue decreased $25 million (11.3 percent) due to lower commercial leasing revenue and lower syndication fees, while mortgage banking revenue was $24 million (11.4 percent) lower, driven by an unfavorable change in the valuation of mortgage servicing rights, net of hedging activities. Other income decreased $85 million (31.6 percent) reflecting the impact of the prior quarter HSA deposit sale, lower sales of tax credits and lower retail leasing revenue due to lower end-of-term gains on auto leases driven by lower used car values.

                         
  NONINTEREST EXPENSE               Table 7  
  ($ in millions)         Percent   Percent
Change Change
1Q 4Q 1Q 1Q16 vs 1Q16 vs
2016   2015   2015   4Q15   1Q15
 
Compensation $1,249 $1,212 $1,179 3.1 5.9
Employee benefits 300 272 317 10.3 (5.4 )
Net occupancy and equipment 248 246 247 .8 .4
Professional services 98 125 77 (21.6 ) 27.3
Marketing and business development 77 96 70 (19.8 ) 10.0
Technology and communications 233 230 214 1.3 8.9
Postage, printing and supplies 79 74 82 6.8 (3.7 )
Other intangibles 45 46 43 (2.2 ) 4.7
Other 420   508   436   (17.3 ) (3.7 )
 
Total noninterest expense $2,749   $2,809   $2,665   (2.1 ) 3.2
                             

Noninterest Expense

First quarter noninterest expense was $2,749 million, which was $84 million (3.2 percent) higher than the first quarter of 2015 primarily due to increased compensation expense, professional services expense, and technology and communications expense, partially offset by lower employee benefits and other noninterest expense. Compensation expense increased $70 million (5.9 percent), principally due to the impact of merit increases and one additional day in the first quarter of 2016 along with higher variable compensation including performance-based incentives and stock-based compensation, which included a one-time all-employee grant. Professional services expense increased $21 million (27.3 percent) primarily due to compliance-related matters, while technology and communications expense increased $19 million (8.9 percent) reflecting acquisition conversion costs. Offsetting these increases were lower employee benefits expense of $17 million (5.4 percent), mainly due to lower pension costs, and a $16 million (3.7 percent) decrease in other noninterest expense, primarily reflecting the impact of lower mortgage servicing-related expenses as well as proceeds from an insurance recovery.

Noninterest expense decreased $60 million (2.1 percent) on a linked quarter basis driven by seasonally lower costs related to investments in tax-advantaged projects and lower professional services expense, partially offset by higher compensation and employee benefits expense. Other noninterest expense decreased $88 million (17.3 percent) reflecting seasonally lower costs related to investments in tax-advantaged projects and the insurance recovery. Professional services expense was $27 million (21.6 percent) lower compared with the fourth quarter of 2015 due to lower costs related to legal and other compliance-related matters. Partially offsetting these declines was an increase in compensation expense of $37 million (3.1 percent) reflecting the seasonal impact of variable compensation including stock-based compensation grants, and a $28 million (10.3 percent) increase in employee benefits expense, driven by seasonally higher payroll tax expense.

Provision for Income Taxes

The provision for income taxes for the first quarter of 2016 resulted in a tax rate on a taxable-equivalent basis of 28.4 percent (effective tax rate of 26.5 percent), compared with 27.0 percent (effective tax rate of 24.9 percent) in the first quarter of 2015, and 29.0 percent (effective tax rate of 27.2 percent) in the fourth quarter of 2015. The year-over-year increase was the result of resolution of certain tax matters in the first quarter of 2015.

                                           
  ALLOWANCE FOR CREDIT LOSSES                           Table 8    
  ($ in millions)   1Q     4Q     3Q     2Q     1Q  
2016   % (b)   2015   % (b)   2015   % (b)   2015   % (b)   2015   % (b)
 
Balance, beginning of period $4,306 $4,306 $4,326 $4,351 $4,375
 
Net charge-offs
Commercial 78 .37 58 .28 68 .34 39 .20 40 .21
Lease financing 5   .38 5   .38 3   .23 3   .23 3   .23
Total commercial 83 .37 63 .29 71 .33 42 .20 43 .21
Commercial mortgages (2 ) (.03 ) 2 .02 -- -- 4 .05 (1 ) (.01 )
Construction and development (3 ) (.11 ) (2 ) (.08 ) (11 ) (.43 ) (3 ) (.12 ) (17 ) (.72 )
Total commercial real estate (5 ) (.05 ) -- -- (11 ) (.10 ) 1 .01 (18 ) (.17 )
 
Residential mortgages 19 .14 16 .12 25 .19 33 .26 35 .28
 
Credit card 164 3.26 166 3.50 153 3.38 169 3.85 163 3.71
 
Retail leasing 1 .08 1 .08 2 .14 1 .07 1 .07
Home equity and second mortgages 2 .05 6 .15 7 .17 11 .28 14 .36
Other 51   .69 53   .71 45   .65 39   .62 41   .60
Total other retail 54 .43 60 .47 54 .44 51 .43 56 .46
Total net charge-offs,          
excluding covered loans 315 .49 305 .48 292 .47 296 .49 279 .47
Covered loans --   -- --   -- --   -- --   -- --   --
Total net charge-offs 315 .48 305 .47 292 .46 296 .48 279 .46
Provision for credit losses 330 305 282 281 264
Other changes (a) (1 ) --   (10 ) (10 ) (9 )
Balance, end of period $4,320   $4,306   $4,306   $4,326   $4,351  
 
Components
Allowance for loan losses $3,853 $3,863 $3,965 $4,013 $4,023

Liability for unfunded credit commitments

467   443   341   313   328  
Total allowance for credit losses $4,320   $4,306   $4,306   $4,326   $4,351  
 
Gross charge-offs $405 $381 $372 $380 $383
Gross recoveries $90 $76 $80 $84 $104
 
Allowance for credit losses as a percentage of
Period-end loans,
excluding covered loans 1.65 1.67 1.71 1.76 1.79
Nonperforming loans,
excluding covered loans 302 360 347 348 321
Nonperforming assets,
excluding covered assets 255 288 280 279 261
 
Period-end loans 1.63 1.65 1.69 1.74 1.77
Nonperforming loans 303 361 347 349 322
Nonperforming assets 251 283 275 274 257
 

(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 first quarter of 2016 was $330 million, which was $25 million (8.2 percent) higher than the prior quarter and $66 million (25.0 percent) higher than the first quarter of 2015. The increase in provision was driven by deterioration in the Company’s energy-related commercial loan portfolio, reflected by an increase in the Company’s criticized and nonperforming loans. Credit quality, excluding the energy-related loan portfolio, was relatively stable.

The provision for credit losses was $15 million higher than net charge-offs in the first quarter of 2016, equal to net charge-offs in the fourth quarter of 2015 and $15 million lower than net charge-offs in the first quarter of 2015. The first quarter provision reflects an increase in energy-related credit reserves partially offset by lower reserves related to the Company’s retail portfolios. Total net charge-offs in the first quarter of 2016 were $315 million, compared with $305 million in the fourth quarter of 2015, and $279 million in the first quarter of 2015. Net charge-offs increased $10 million (3.3 percent) compared with the fourth quarter of 2015 mainly due to higher commercial loan charge-offs primarily related to the energy portfolio. Net charge-offs increased $36 million (12.9 percent) compared with the first quarter of 2015 primarily due to higher commercial loan net charge-offs mainly related to the energy portfolio, partially offset by lower charge-offs related to residential mortgages. The net charge-off ratio was 0.48 percent in the first quarter of 2016 compared with 0.47 percent in the fourth quarter of 2015 and 0.46 percent in the first quarter of 2015.

Nonperforming assets increased to $1,719 million at March 31, 2016, compared with $1,523 million at December 31, 2015, and $1,696 million at March 31, 2015. The ratio of nonperforming assets to loans and other real estate was 0.65 percent at March 31, 2016, compared with 0.58 percent at December 31, 2015, and 0.69 percent at March 31, 2015. The increase in nonperforming assets on both a year-over-year and linked quarter basis was driven by commercial loans to energy-related businesses, partially offset by improvements in the Company’s residential and commercial real estate portfolios. Accruing loans 90 days or more past due were $804 million ($528 million excluding covered loans) at March 31, 2016 compared with $831 million ($541 million excluding covered loans) at December 31, 2015, and $880 million ($521 million excluding covered loans) at March 31, 2015.

The allowance for credit losses was $4,320 million at March 31, 2016, compared with $4,306 at December 31, 2015, and $4,351 at March 31, 2015. The ratio of the allowance for credit losses to period-end loans was 1.63 percent at March 31, 2016, compared with 1.65 percent at December 31, 2015, and 1.77 percent at March 31, 2015. The ratio of the allowance for credit losses to nonperforming loans was 303 percent at March 31, 2016, compared with 361 percent at December 31, 2015, and 322 percent at March 31, 2015.

At March 31, 2016, approximately $3.4 billion of commercial loans ($11.9 billion of commitments) were to customers in energy-related businesses. Energy-related loans represent 1.3 percent of the Company’s total loans outstanding. The continued uncertainty in energy prices has resulted in further deterioration of a portion of these loans which led to an increase in criticized commitments and nonperforming loans on both a year-over-year and linked quarter basis. Energy-related criticized commitments increased by $2.3 billion in the quarter. Excluding energy-related commitments, criticized assets were 4.8 percent higher linked quarter. Energy-related nonperforming loans increased by $257 million in the first quarter of 2016. Excluding energy-related loans, nonperforming assets decreased 4.1 percent linked quarter. At March 31, 2016, the Company had credit reserves of 9.1 percent of total outstanding energy loan balances, compared with 5.4 percent of total outstanding energy loan balances at December 31, 2015.

                         
  DELINQUENT LOAN RATIOS AS A PERCENT OF ENDING LOAN BALANCES   Table 9  
  (Percent)          
Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
2016   2015   2015   2015   2015
 
Delinquent loan ratios - 90 days or more past due excluding nonperforming loans
Commercial .05 .05 .05 .05 .05
Commercial real estate .04 .03 .05 .05 .07
Residential mortgages .31 .33 .33 .30 .33
Credit card 1.10 1.09 1.10 1.03 1.19
Other retail .15 .15 .14 .14 .15
Total loans, excluding covered loans .20 .21 .20 .19 .22
Covered loans 6.23 6.31 6.57 6.66 7.01
Total loans .30 .32 .32 .32 .36
 
Delinquent loan ratios - 90 days or more past due including nonperforming loans
Commercial .57 .25 .25 .16 .16
Commercial real estate .28 .33 .39 .46 .58
Residential mortgages 1.54 1.66 1.73 1.80 1.95
Credit card 1.14 1.13 1.16 1.12 1.32
Other retail .45 .46 .47 .51 .55
Total loans, excluding covered loans .75 .67 .70 .70 .77
Covered loans 6.39 6.48 6.80 6.88 7.25
Total loans .84 .78 .81 .82 .91
                         
                           
  ASSET QUALITY           Table 10  
  ($ in millions)          
  Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
2016   2015   2015   2015   2015
Nonperforming loans
Commercial $457 $160 $157 $78 $74
Lease financing 16   14   12   12   13
Total commercial 473 174 169 90 87
 
Commercial mortgages 94 92 105 116 142
Construction and development 10   35   39   59   75
Total commercial real estate 104 127 144 175 217
 
Residential mortgages 677 712 735 769 825
Credit card 7 9 12 16 22
Other retail 157   162   171   178   187
Total nonperforming loans, excluding covered loans 1,418 1,184 1,231 1,228 1,338
 
Covered loans 7   8   11   11   12
Total nonperforming loans 1,425 1,192 1,242 1,239 1,350
 
Other real estate (a) 242 280 276 287 293
Covered other real estate (a) 33 32 31 35 37
Other nonperforming assets 19   19   18   16   16
 
Total nonperforming assets (b) $1,719   $1,523   $1,567   $1,577   $1,696
 
Total nonperforming assets, excluding covered assets $1,679   $1,483   $1,525   $1,531   $1,647
 

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

$528   $541   $510   $469   $521
 
Accruing loans 90 days or more past due $804   $831   $825   $801   $880
 

Performing restructured loans, excluding GNMA and covered loans

$2,735   $2,766   $2,746   $2,815   $2,684
 
Performing restructured GNMA and covered loans $1,851   $1,944   $2,031   $2,111   $2,186
 

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

.64 .58 .61 .63 .68
 
Nonperforming assets to loans plus ORE (%) .65 .58 .61 .63 .69
 
(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.
         
                         
  COMMON SHARES               Table 11  
  (Millions)   1Q   4Q   3Q   2Q   1Q
2016   2015   2015   2015   2015
 
Beginning shares outstanding 1,745 1,754 1,767 1,780 1,786

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

3 1 3 1 6
Shares repurchased (16 )   (10 )   (16 )   (14 )   (12 )
Ending shares outstanding 1,732     1,745     1,754     1,767     1,780  
                         

Capital Management

Total U.S. Bancorp shareholders’ equity was $46.8 billion at March 31, 2016, compared with $46.1 billion at December 31, 2015, and $44.3 billion at March 31, 2015. During the first quarter, the Company returned 80 percent of earnings to shareholders through dividends and share buybacks.

                                   
  CAPITAL POSITION                     Table 12    
  ($ in millions)   Mar 31   Dec 31   Sep 30   Jun 30   Mar 31
2016     2015     2015     2015     2015
 
Total U.S. Bancorp shareholders' equity $46,755 $46,131 $45,075 $44,537 $44,277
 
Standardized Approach
 
Basel III transitional standardized approach
Common equity tier 1 capital $32,827 $32,612 $32,124 $31,674 $31,308
Tier 1 capital 38,532 38,431 37,197 36,748 36,382
Total risk-based capital 45,412 45,313 44,015 43,526 43,558
 
Common equity tier 1 capital ratio 9.5 % 9.6 % 9.6 % 9.5 % 9.6 %
Tier 1 capital ratio 11.1 11.3 11.1 11.0 11.1
Total risk-based capital ratio 13.1 13.3 13.1 13.1 13.3
Leverage ratio 9.3 9.5 9.3 9.2 9.3
 

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

9.2 9.1 9.2 9.2 9.2
 
Advanced Approaches
 

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

12.3 12.5 13.0 12.9 12.3
 

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

11.9 11.9 12.4 12.4 11.8
 
Tangible common equity to tangible assets 7.7 7.6 7.7 7.5 7.6
Tangible common equity to risk-weighted assets 9.3 9.2 9.3 9.2 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 estimated common equity tier 1 capital to risk-weighted assets ratio using the Basel III fully implemented standardized approach was 9.2 percent at March 31, 2016, compared with 9.1 percent at December 31, 2015, and 9.2 percent at March 31, 2015. The estimated common equity tier 1 capital to risk-weighted assets ratio using the Basel III fully implemented advanced approaches method was 11.9 percent at March 31, 2016, compared with 11.9 percent at December 31, 2015, and 11.8 percent at March 31, 2015.

On Wednesday, April 20, 2016, at 8:00 a.m. CDT, Richard K. Davis, chairman 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 43811314. For those unable to participate during the live call, a recording will be available at approximately 11:00 a.m. CDT on Wednesday, April 20 and be accessible through Wednesday, April 27 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 43811314.

Minneapolis-based U.S. Bancorp (“USB”), with $429 billion in assets as of March 31, 2016, is the parent company of U.S. Bank National Association, the fifth largest commercial bank in the United States. The Company operates 3,129 banking offices in 25 states and 4,954 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, 2015, 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
(Dollars and Shares in Millions, Except Per Share Data) March 31,
(Unaudited)     2016     2015
Interest Income    
Loans $2,644 $2,493
Loans held for sale 31 41
Investment securities 517 495
Other interest income 29       32  
Total interest income 3,221 3,061
Interest Expense
Deposits 139 118
Short-term borrowings 65 61
Long-term debt 182       184  
Total interest expense 386       363  
Net interest income 2,835 2,698
Provision for credit losses 330       264  
Net interest income after provision for credit losses 2,505 2,434
Noninterest Income
Credit and debit card revenue 266 241
Corporate payment products revenue 170 170
Merchant processing services 373 359
ATM processing services 80 78
Trust and investment management fees 339 322
Deposit service charges 168 161
Treasury management fees 142 137
Commercial products revenue 197 200
Mortgage banking revenue 187 240
Investment products fees 40 47
Securities gains (losses), net 3 --
Other 184       199  
Total noninterest income 2,149 2,154
Noninterest Expense
Compensation 1,249 1,179
Employee benefits 300 317
Net occupancy and equipment 248 247
Professional services 98 77
Marketing and business development 77 70
Technology and communications 233 214
Postage, printing and supplies 79 82
Other intangibles 45 43
Other 420       436  
Total noninterest expense 2,749       2,665  
Income before income taxes 1,905 1,923
Applicable income taxes 504       479  
Net income 1,401 1,444
Net (income) loss attributable to noncontrolling interests (15 )     (13 )
Net income attributable to U.S. Bancorp $1,386       $1,431  
Net income applicable to U.S. Bancorp common shareholders $1,329       $1,365  
 
Earnings per common share $.77 $.77
Diluted earnings per common share $.76 $.76
Dividends declared per common share $.255 $.245
Average common shares outstanding 1,737 1,781
Average diluted common shares outstanding     1,743       1,789  
 
 
U.S. Bancorp
Consolidated Ending Balance Sheet
     
March 31, December 31, March 31,
(Dollars in Millions)   2016   2015   2015
Assets (Unaudited) (Unaudited)
Cash and due from banks $10,981 $11,147 $14,072
Investment securities
Held-to-maturity 42,113 43,590 45,597
Available-for-sale 64,912 61,997 56,826
Loans held for sale 4,005 3,184 8,012
Loans
Commercial 91,277 88,402 82,732
Commercial real estate 42,743 42,137 42,409
Residential mortgages 54,955 53,496 51,089
Credit card 19,957 21,012 17,504
Other retail 51,161     51,206     46,449  
Total loans, excluding covered loans 260,093 256,253 240,183
Covered loans 4,429     4,596     5,118  
Total loans 264,522 260,849 245,301
Less allowance for loan losses (3,853 )   (3,863 )   (4,023 )
Net loans 260,669 256,986 241,278
Premises and equipment 2,486 2,513 2,575
Goodwill 9,368 9,361 9,363
Other intangible assets 3,042 3,350 3,033
Other assets 31,062     29,725     29,477  
Total assets $428,638     $421,853     $410,233  
 
Liabilities and Shareholders' Equity
Deposits
Noninterest-bearing $80,407 $83,766 $79,220
Interest-bearing 225,941     216,634     207,381  
Total deposits 306,348 300,400 286,601
Short-term borrowings 23,777 27,877 28,226
Long-term debt 34,872 32,078 35,104
Other liabilities 16,248     14,681     15,337  
Total liabilities 381,245 375,036 365,268
Shareholders' equity
Preferred stock 5,501 5,501 4,756
Common stock 21 21 21
Capital surplus 8,368 8,376 8,315
Retained earnings 47,267 46,377 43,463
Less treasury stock (13,658 ) (13,125 ) (11,564 )
Accumulated other comprehensive income (loss) (744 )   (1,019 )   (714 )
Total U.S. Bancorp shareholders' equity 46,755 46,131 44,277
Noncontrolling interests 638     686     688  
Total equity 47,393     46,817     44,965  
Total liabilities and equity   $428,638     $421,853     $410,233  
 
         
U.S. Bancorp
Non-GAAP Financial Measures
 
March 31, December 31, September 30, June 30, March 31,
(Dollars in Millions, Unaudited)   2016     2015     2015     2015     2015  
Total equity $47,393 $46,817 $45,767 $45,231 $44,965
Preferred stock (5,501 ) (5,501 ) (4,756 ) (4,756 ) (4,756 )
Noncontrolling interests (638 ) (686 ) (692 ) (694 ) (688 )
Goodwill (net of deferred tax liability) (1) (8,270 ) (8,295 ) (8,324 ) (8,350 ) (8,360 )
Intangible assets, other than mortgage servicing rights (820 )     (838 )     (779 )     (744 )     (783 )  
Tangible common equity (a) 32,164 31,497 31,216 30,687 30,378
 
Tangible common equity (as calculated above) 32,164 31,497 31,216 30,687 30,378
Adjustments (2) 99       67       118       125       158    

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

32,263 31,564 31,334 30,812 30,536
 
Total assets 428,638 421,853 415,943 419,075 410,233
Goodwill (net of deferred tax liability) (1) (8,270 ) (8,295 ) (8,324 ) (8,350 ) (8,360 )
Intangible assets, other than mortgage servicing rights (820 )     (838 )     (779 )     (744 )     (783 )  
Tangible assets (c) 419,548 412,720 406,840 409,981 401,090
 

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

346,227 * 341,360 336,227 333,177 327,709
Adjustments (3) 3,485   *   3,892       3,532       3,532       3,153    

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

349,712 * 345,252 339,759 336,709 330,862
 

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

267,309 * 261,668 248,048 245,038 254,892
Adjustments (4) 3,707   *   4,099       3,723       3,721       3,321    

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

271,016 * 265,767 251,771 248,759 258,213
 
Ratios *
Tangible common equity to tangible assets (a)/(c) 7.7 % 7.6 % 7.7 % 7.5 % 7.6 %
Tangible common equity to risk-weighted assets (a)/(d) 9.3 9.2 9.3 9.2 9.3

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

9.2 9.1 9.2 9.2 9.2

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

  11.9       11.9       12.4       12.4       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.

 

Source: U.S. Bancorp

U.S. Bancorp
Dana Ripley, 612-303-3167
Media
or
Jennifer Thompson, 612-303-0778
Investors/Analysts

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding U.S. Bancorp's business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report or Form 10-K for the most recently ended fiscal year.



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