01—Abstract
Summary
Summary of the 10-K filed February 27, 2015. Cited figures are marked; the original filing is the authoritative source.
U.S. Bancorp (USB) reported a solid 2014 with net income attributable to the company of $5.9 billiona, or $3.08 per diluted share, up from $3.00 in 2013.
Return on average assets was 1.54% and return on average common equity was 14.7%, with an efficiency ratio of 53.2%. Net revenue rose 2.9% to $20.2 billionb, driven by 1.6% growth in net interest income and 4.4% growth in noninterest income, which was boosted by a $214 million Visa Class B share sale gain and a $124 million Nuveen gain. These gains were partly offset by a $200 million FHA-related DOJ settlement and higher legal reserves.
Balance sheet growth was strong. Average loans rose 6.3% to $241.7 billionc and average deposits rose 6.5%, helped by the June 2014 Charter One branch acquisition. Period-end deposits reached $282.7 billion and total assets $402.5 billion.
Credit quality continued to improve, with net charge-offs falling 8.9% to $1.3 billiond and nonperforming assets declining 11.2% to $1.8 billion. The net interest margin compressed to 3.23% from 3.44%, reflecting lower reinvestment rates and growth in lower-margin commercial loans and investment securities. Capital remained strong under the new Basel III framework.
The common equity tier 1 ratio was 9.7% on a transitional basis, and the company estimated 9.0% on a fully phased-in standardized basis, above its 8.0% target. The company returned 72% of earnings to common shareholders through dividends and buybacks, raised its quarterly dividend 6.5% to $0.245 in June 2014, and repurchased about 54 million shares. Management flagged continuing regulatory pressure, including the Basel III liquidity coverage ratio phase-in, CFPB rulemaking, and litigation over RMBS trustee duties, as key risks for 2015.
02—Key points
Key Highlights
- Net income attributable to U.S. Bancorp of $5.9 billion ($3.08 diluted EPS) in 2014, up from $5.8 billion ($3.00) in 2013
- Return on average assets of 1.54% and return on average common equity of 14.7%, with an industry-leading efficiency ratio of 53.2%
- Net interest margin contracted to 3.23% from 3.44%, while average earning assets grew 8.2% to $341.0 billion
- Credit quality improved: net charge-offs fell 8.9% to $1.3 billion and nonperforming assets fell 11.2% to $1.8 billion
- Common equity tier 1 ratio of 9.0% on a fully phased-in Basel III standardized basis, above the company's 8.0% target
- Returned 72% of earnings to common shareholders; dividend raised 6.5% to $0.245 per quarter and $520 million left on the buyback authorization
- Charter One branch acquisition added $4.8 billion of deposits and $969 million of loans; a $200 million FHA-related DOJ settlement weighed on expenses
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 27, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $20.16B$19.60B | +2.9% |
| Interest Expense | $1.45B$1.68B | −13.6% |
| Net Income | $5.85B$5.84B | +0.3% |
| EPS (Basic) | $3.10$3.02 | +2.6% |
| EPS (Diluted) | $3.08$3.00 | +2.7% |
| Shares Outstanding (Basic) | 1.80B1.84B | −2.0% |
| Shares Outstanding (Diluted) | 1.81B1.85B | −1.9% |
05—Questions
Frequently Asked Questions
How profitable was U.S. Bancorp in 2014 and how did it compare to 2013?
Net income attributable to U.S. Bancorp was $5.9 billion, or $3.08 per diluted common share, versus $5.8 billion and $3.00 in 2013. Return on average assets was 1.54% (down from 1.65%) and return on average common equity was 14.7% (down from 15.8%). Growth was modest because of a higher provision and expense items, partly offset by the Visa share sale and Nuveen gain.
Why did the net interest margin decline in 2014?
The net interest margin fell to 3.23% from 3.44%, mainly because of lower reinvestment rates on investment securities, growth in the lower-yielding investment portfolio, lower loan fees from the wind-down of the Checking Account Advance product, and strong growth in lower-margin commercial loans. Lower funding costs partly offset these pressures.
Is U.S. Bancorp's capital position sufficient under the new Basel III rules?
Yes, according to the filing. The common equity tier 1 ratio was 9.7% on a Basel III transitional basis and an estimated 9.0% on a fully phased-in standardized basis, both above the company's 8.0% targeted ratio. The company also said it exceeds the applicable supplementary leverage ratio and the liquidity coverage ratio requirements, though full Basel III implementation runs through January 1, 2018.
What are the main risks flagged for investors?
The filing highlights extensive and expanding regulation, including CFPB rulemaking and enforcement, heightened mortgage-related scrutiny, and Consent Order obligations. It also flags litigation risk, including suits against the company as RMBS trustee, potential mortgage loan repurchase obligations, interest rate sensitivity of net interest income and mortgage servicing rights, and reliance on subsidiary dividends for holding company liquidity. The filing also notes that a 200 basis point gradual rate decline would reduce market value of equity by 7.1%.
06—Continue