US Bank 2015 Annual Report Download - page 30

Earnings Summary The Company reported net income
attributable to U.S. Bancorp of $5.88 billion in 2015, or $3.16
per diluted common share, compared with $5.85 billion, or
$3.08 per diluted common share, in 2014. Return on average
assets and return on average common equity were 1.44
percent and 14.0 percent, respectively, in 2015, compared
with 1.54 percent and 14.7 percent, respectively, in 2014.
Total net revenue, on a taxable-equivalent basis, for 2015
was $145 million (0.7 percent) higher than 2014, reflecting a
2.0 percent increase in net interest income, partially offset by
a 0.8 percent decrease in noninterest income. The increase in
net interest income from the prior year was the result of an
increase in average earning assets and continued growth in
lower cost core deposit funding, partially offset by a decrease
in the net interest margin. The decrease in noninterest income
was primarily due to a gain related to an equity interest in
Nuveen Investments (“Nuveen gain”) recorded in 2014, lower
gains from sales of shares of Visa Inc. Class B common
stock, a 2015 market valuation adjustment to write down the
value of student loans during the period they were held for
sale (“student loan market adjustment”), and lower mortgage
banking revenue, partially offset by higher revenue in most
other fee businesses and a gain on the sale of a Health
Savings Account deposit portfolio (“HSA deposit sale”)
recorded in 2015.
Noninterest expense in 2015 was $216 million
(2.0 percent) higher than 2014, primarily due to higher
compensation and employee benefits expenses, including
higher costs related to risk and compliance activities, partially
offset by a settlement relating to the Federal Housing
Administration’s insurance program (“FHA DOJ settlement”)
recorded in 2014, prior year legal accruals and charitable
contributions.
Acquisitions In June 2014, the Company acquired the
Chicago-area branch banking operations of the Charter One
Bank franchise (“Charter One”) owned by RBS Citizens
Financial Group. The acquisition included Charter One’s retail
branch network, small business operations and select middle
market relationships. The Company acquired approximately
$969 million of loans and $4.8 billion of deposits with this
transaction.
STATEMENT OF INCOME ANALYSIS
Net Interest Income Net interest income, on a taxable-
equivalent basis, was $11.2 billion in 2015, compared with
$11.0 billion in 2014 and $10.8 billion in 2013. The
$217 million (2.0 percent) increase in net interest income in
2015, compared with 2014, was primarily the result of growth
in average earning assets and continued growth in lower cost
core deposit funding, partially offset by a continued shift in loan
portfolio mix, lower reinvestment rates on investment securities
and lower loan fees due to the wind down of the short-term,
small-dollar deposit advance product, Checking Account
Advance (“CAA”). Average earning assets were $26.4 billion
(7.8 percent) higher in 2015, compared with 2014, driven by
increases in loans and investment securities. The net interest
margin, on a taxable-equivalent basis, in 2015 was
3.05 percent, compared with 3.23 percent in 2014 and
3.44 percent in 2013. The decrease in the net interest margin
in 2015, compared with 2014, primarily reflected a change in
the loan portfolio mix, growth in the investment portfolio at
lower average rates and lower reinvestment rates on
investment securities, as well as lower loan fees due to the
CAA product wind down. Refer to the “Interest Rate Risk
Management” section for further information on the sensitivity
of the Company’s net interest income to changes in interest
rates.
Average total loans were $250.5 billion in 2015, compared
with $241.7 billion in 2014. The $8.8 billion
(3.6 percent) increase was driven by growth in commercial,
commercial real estate, credit card and other retail loans,
partially offset by a decrease in covered loans. Average
commercial loans increased $8.3 billion (11.0 percent), driven
by higher demand for loans from new and existing customers.
Average commercial real estate loans increased $1.8 billion
(4.5 percent), driven by the reclassification of covered
commercial real estate loans resulting from the expiration of
loss sharing agreements related to those loans at the end of
2014, as well as higher loan demand. Average credit card
balances increased $422 million (2.4 percent) in 2015,
compared with 2014, due to customer growth, including
portfolio acquisitions during 2015. The $726 million (1.5
percent) increase in average other retail loans was primarily
due to higher auto and installment loans, partially offset by
lower student loan balances, reflecting their classification as
held for sale for a portion of 2015. Average residential
mortgages were essentially unchanged in 2015, compared
with 2014. Average covered loans decreased $2.6 billion
(34.1 percent) in 2015, compared with 2014, the result of
portfolio run-off and the expiration of the loss sharing
agreements on commercial and commercial real estate loans
at the end of 2014.
—28 —