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Achieves Record Net Income and EPS for the Full Year 2015

Full year return on average assets of 1.44 percent and average common equity of 14.0 percent

Returned 72 percent of full year earnings to shareholders

MINNEAPOLIS--(BUSINESS WIRE)--Jan. 15, 2016-- 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.

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.”

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.

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.

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

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

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.

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.

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.