US Bank 2015 Annual Report Download - page 75

balances, partially offset by a lower loan rates and a decrease
in the margin benefit of corporate trust deposits.
Noninterest expense increased $72 million (5.2 percent) in
2015, compared with 2014. The increase in noninterest
expense was primarily due to higher net shared services
expense and higher compensation and employee benefits
expenses primarily due to merit increases and increased
pension costs, respectively.
Payment Services Payment Services includes consumer
and business credit cards, stored-value cards, debit cards,
corporate, government and purchasing card services,
consumer lines of credit and merchant processing. Payment
Services contributed $1.2 billion of the Company’s net
income in 2015, or an increase of $22 million (1.9 percent)
compared with 2014. The increase was primarily due to
higher net revenue, partially offset by higher noninterest
expense and an increase in the provision for credit losses.
Net revenue increased $260 million (5.2 percent) in 2015,
compared with 2014. Net interest income, on a taxable-
equivalent basis, increased $181 million (10.3 percent) in
2015, compared with 2014, primarily driven by improved loan
rates and higher average loan balances and fees. Noninterest
income increased $79 million (2.4 percent) in 2015, compared
with 2014, primarily due to an increase in credit and debit
card revenue on higher transaction volumes, along with higher
merchant processing services revenue, driven by increased
transaction volumes and product fees and equipment sales to
merchants related to new chip card technology requirements,
partially offset by the impact of foreign currency rate changes.
Noninterest expense increased $210 million (8.6 percent)
in 2015, compared with 2014, primarily due to higher net
shared services and compensation and marketing expenses.
The provision for credit losses increased $21 million (2.7
percent) in 2015, compared with 2014, primarily due to an
unfavorable change in the reserve allocation due to loan
growth. As a percentage of average loans outstanding, net
charge-offs were 3.01 percent in 2015, compared with 3.11
percent in 2014.
Treasury and Corporate Support Treasury and Corporate
Support includes the Company’s investment portfolios, most
covered commercial and commercial real estate loans and
related OREO, funding, capital management, interest rate risk
management, income taxes not allocated to the business
lines, including most investments in tax-advantaged projects,
and the residual aggregate of those expenses associated with
corporate activities that are managed on a consolidated
basis. Treasury and Corporate Support recorded net income
of $2.2 billion in 2015, compared with $1.9 billion in 2014.
Net revenue increased $87 million (2.9 percent) in 2015,
compared with 2014. Net interest income, on a taxable-
equivalent basis, increased $129 million (6.1 percent) in 2015,
compared with 2014, principally due to growth in the
investment securities portfolio. Noninterest income decreased
$42 million (4.6 percent) in 2015, compared with 2014,
primarily due to lower other income from Visa stock sales, the
2015 student loan market adjustment and the 2014 Nuveen
gain, partially offset by the 2015 HSA deposit sale gain and
higher commercial products revenue.
Noninterest expense decreased $403 million (37.1
percent) in 2015, compared with 2014, principally due to a
reduction of reserves for losses allocated to the business
lines, lower costs related to investments in tax-advantaged
projects, the 2014 FHA DOJ settlement and lower charitable
contributions, partially offset by higher compensation
expense, reflecting the impact of merit increases and staffing
for risk and compliance activities, and higher employee
benefits expense, reflecting higher pension costs.
Income taxes are assessed to each line of business at a
managerial tax rate of 36.4 percent with the residual tax
expense or benefit to arrive at the consolidated effective tax
rate included in Treasury and Corporate Support.
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
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