US Bank 2014 Annual Report Download - page 24

Management’s Discussion and Analysis
OVERVIEW
The consistently solid financial performance of U.S. Bancorp
and its subsidiaries (the “Company”) in 2014 was the result of
it adhering closely to the core fundamentals of managing
capital prudently, selectively investing in initiatives that
generate steady long-term growth, expanding existing
customer relationships and controlling expenses. The
Company’s ability to provide customers and clients with a
diverse array of banking products and services while
addressing their distinctive financial objectives, in any
economic environment, allows it to continue to generate
industry-leading economic performance. The Company’s
return on average common equity, return on average assets,
and efficiency ratio metrics remain among the strongest in
the industry. As the Company heads into 2015, it remains
committed to investing in a strategy centered on helping its
retail, wholesale and institutional customers establish
financially secure futures. The Company is well positioned for
growth as the economic environment shows signs of
improvement and its customers look for a strong and stable
banking partner to help them achieve their financial goals
and objectives.
The Company earned $5.9 billion in 2014, an increase of
.3 percent over 2013, principally due to higher net revenue, a
lower provision for credit losses and controlled expenses.
Total net revenue was higher than the prior year as a result
of increases in both net interest income and noninterest
income. Net interest income was higher due to an increase in
average earning assets, partially offset by a decrease in the
net interest margin. Noninterest income increased due to
higher revenue in most fee businesses and higher other
income, partially offset by lower mortgage banking revenue.
The Company’s credit quality continued to improve
throughout the year, as reflected by the decreases in net
charge-offs and nonperforming assets. The Company’s
continued focus on effectively controlling expenses, allowed
it to achieve an industry-leading efficiency ratio in 2014 of
53.2 percent. In addition, the Company’s return on average
assets and return on common equity were 1.54 percent and
14.7 percent, respectively, the highest among its peers.
During 2014, the Company continued to demonstrate its
ability to create value for shareholders and customers by
returning 72 percent of its earnings to common shareholders
through dividends and common share repurchases, by
generating steady growth in commercial and consumer
lending, new credit card accounts, total deposits and wealth
management services, and by maintaining a very strong
capital base. The Company’s common equity tier 1 to risk-
weighted assets ratio using the Basel III standardized
approach and Basel III advanced approaches, as if fully
implemented, were 9.0 percent and 11.8 percent,
respectively, at December 31, 2014 — above the Company’s
targeted ratio of 8.0 percent and well above the minimum
ratio of 7.0 percent required when fully implemented. Refer
to “Non-GAAP Financial Measures” for further information
on the calculation of these measures. In addition, refer to
Table 22 for a summary of the statutory capital ratios in
effect for the Company at December 31, 2014 and 2013.
Credit rating organizations rate the Company’s debt among
the highest of its large domestic banking peers. This
comparative financial strength provides the Company with
favorable funding costs, strong liquidity and the ability to
attract new customers.
In 2014, the Company’s loans and deposits grew
significantly. Average loans and deposits increased
$14.2 billion (6.3 percent) and $16.2 billion (6.5 percent),
respectively, over 2013. Loan growth reflected increases in
commercial loans, residential mortgages, commercial real
estate loans, credit card loans and other retail loans,
partially offset by a decline in loans covered by loss sharing
agreements with the Federal Deposit Insurance Corporation
(“FDIC”) (“covered” loans), which is a run-off portfolio.
Deposit growth reflected increases in noninterest-bearing
and total savings deposits.
The Company’s provision for credit losses decreased
$111 million (8.3 percent) in 2014, compared with 2013. Net
charge-offs decreased $131 million (8.9 percent) in 2014,
compared with 2013, principally due to improvement in the
residential mortgages and home equity and second
mortgages portfolios, partially offset by higher commercial
loan net charge-offs and lower commercial real estate loan
recoveries. The provision for credit losses was $105 million
less than net charge-offs in 2014, compared with
$125 million less than net charge-offs in 2013.
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