US Bank 2015 Annual Report Download - page 28

Management’s Discussion and Analysis
OVERVIEW
U.S. Bancorp and its subsidiaries (the “Company”) delivered
record financial performance in 2015, which was a year
characterized by persistent and historically low interest rates,
modest economic growth, and increasing regulatory
requirements. In 2015, the Company effectively balanced
decisions on operating efficiencies with opportunities for
investing in future growth and addressing its customers’
needs. These actions resulted in delivering record full-year net
income and diluted earnings per share.
The Company earned $5.9 billion in 2015, an increase of
0.5 percent over 2014, principally due to higher net interest
income, a lower provision for credit losses and prudent
management of expenses. Net interest income was higher
than the prior year as a result of an increase in average
earning assets and continued growth in lower cost deposit
funding, partially offset by a decrease in the net interest
margin. The Company’s loan portfolio 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 controlling expenses allowed it to achieve
an industry-leading efficiency ratio of 53.8 percent in 2015. In
addition, the Company’s return on average assets and return
on common equity were 1.44 percent and 14.0 percent,
respectively, the highest among its peers.
During 2015, 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. This was
accomplished by generating steady growth in commercial and
consumer lending, new credit card accounts and total
deposits, by building momentum in its core business,
particularly within Wealth Management and Securities
Services and Payment 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
9.1 percent and 11.9 percent, respectively, at December 31,
2015 — 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 23 for a summary of the
statutory capital ratios in effect for the Company at
December 31, 2015 and 2014. Further, credit rating
organizations rate the Company’s debt among the highest of
any bank in the world. This comparative financial strength
provides the Company with favorable funding costs, strong
liquidity and the ability to attract new customers.
In 2015, average loans and deposits increased $8.8 billion
(3.6 percent) and $20.5 billion (7.7 percent), respectively, over
2014, reflecting the confidence the Company’s customers
have in trusting one of the highest rated banks in the world.
Loan growth included increases in commercial, commercial
real estate, credit card 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 included
increases in noninterest-bearing and total savings deposits.
The Company’s provision for credit losses decreased $97
million (7.9 percent) in 2015, compared with 2014. Net
charge-offs decreased $162 million (12.1 percent) in 2015,
compared with 2014, principally due to improvement in
economic conditions during 2015. The provision for credit
losses was $40 million less than net charge-offs in 2015,
compared with $105 million less than net charge-offs in 2014,
reflecting loan growth partially offset by improved economic
conditions.
The Company’s actions to generate growth in its balance
sheet and revenues, combined with making prudent long-
term investments to protect its industry-leading competitive
positions have put it on a positive forward-looking trajectory.
This has been accomplished by helping its customers build
financially secure futures, along with deliberate efforts to
optimize its expense management initiatives. The Company
has positioned itself for growth in 2016, following record
fourth quarter 2015 revenue, increasing loan growth and
stable net interest margin, while making progress toward
achieving positive operating leverage by thoughtfully
managing expenses. The Company remains focused on
delivering consistent, predictable and repeatable financial
results for the benefit of its customers, employees,
communities and shareholders.
—26 —