U.S. Bancorp Reports Record Earnings for the Third Quarter of 2012

Before you go, we thought you'd like these...
Before you go close icon

U.S. Bancorp Reports Record Earnings for the Third Quarter of 2012

15.8 Percent Increase in Net Income Over Prior Year was Driven by Record Total Net Revenue

MINNEAPOLIS--(BUSINESS WIRE)-- U.S. Bancorp (NYS: USB) today reported record net income of $1,474 million for the third quarter of 2012, or $.74 per diluted common share. Earnings for the third quarter of 2012 were driven by year-over-year growth in total net revenue and positive operating leverage. Highlights for the third quarter of 2012 included:

  • Strong new lending activity of $66.6 billion during the third quarter, including:
    • $35.7 billion of new and renewed commercial and commercial real estate commitments
    • $2.4 billion of lines related to new credit card accounts
    • $28.5 billion of mortgage and other retail loan originations
  • Growth in average total loans of 7.3 percent over the third quarter of 2011 (9.6 percent excluding covered loans)
    • Growth in average total loans on a linked quarter basis of 1.6 percent, excluding the impact of a credit card portfolio sale, or 1.3 percent inclusive of the portfolio sale (2.0 percent excluding covered loans)
    • Growth in average total commercial loans of 18.8 percent over the third quarter of 2011 and 3.6 percent over the second quarter of 2012
    • Growth in average commercial and commercial real estate commitments of 21.0 percent year-over-year and 3.5 percent over the prior quarter
  • Significant growth in average deposits of 11.1 percent over the third quarter of 2011, including:
    • Growth in average noninterest-bearing deposits of 16.2 percent
    • Growth in average total savings deposits of 6.9 percent
  • Total net revenue growth of 8.0 percent over the third quarter of 2011 and 2.2 percent on a linked quarter basis, reaching a record high for the quarter
  • Net interest income growth of 6.1 percent over the third quarter of 2011 and 2.6 percent on a linked quarter basis
    • Average earning assets growth of 7.9 percent year-over-year and 1.7 percent on a linked quarter basis
    • Continued strong growth in lower cost core deposit funding on a year-over-year and linked quarter basis
    • Net interest margin of 3.59 percent for the third quarter of 2012, compared with 3.65 percent for the third quarter of 2011, and 3.58 percent for the second quarter of 2012
  • Year-over-year and linked quarter growth in fee-based revenue of 10.4 percent and 1.7 percent, respectively, led by higher mortgage banking revenue
  • Positive operating leverage on both a year-over-year and a linked quarter basis
  • Net charge-offs declined 19.6 percent year-over-year, while increasing 3.5 percent on a linked quarter basis. Provision for credit losses was $50 million less than net charge-offs
    • Net charge-offs increased by $18 million over the second quarter of 2012; included $54 million of incremental charge-offs due to a regulatory clarification
    • Annualized net charge-offs to average total loans ratio of .99 percent (.89 percent, excluding incremental charge-offs)
    • Allowance to period-end loans (excluding covered loans) was 2.26 percent at September 30, 2012, compared with 2.34 percent at June 30, 2012, and 2.66 percent at September 30, 2011
  • Nonperforming assets declined on both a linked quarter and year-over-year basis
    • Nonperforming assets (excluding covered assets) decreased 3.0 percent from the second quarter of 2012 (6.4 percent including covered assets)
    • Allowance to nonperforming assets (excluding covered assets) was 213 percent at September 30, 2012, compared with 210 percent at June 30, 2012, and 166 percent at September 30, 2011
  • Capital generation continues to fortify capital position; ratios at September 30, 2012 were:
    • Tier 1 capital ratio of 10.9 percent
    • Total risk based capital ratio of 13.3 percent
    • Tier 1 common equity to risk-weighted assets ratio of 9.0 percent
    • Tier 1 common equity ratio of approximately 8.2 percent using proposed rules for the Basel III standardized approach released June 2012
                 
EARNINGS SUMMARY               Table 1
($ in millions, except per-share data)    Percent Percent   
ChangeChange
3Q2Q3Q3Q12 vs3Q12 vsYTDYTDPercent
2012 2012 2011 2Q12 3Q11 2012 2011 Change
 
Net income attributable to U.S. Bancorp$1,474$1,415$1,2734.215.8$4,227$3,52220.0
Diluted earnings per common share$.74$.71$.644.215.6$2.12$1.7719.8
 
Return on average assets (%)1.701.671.571.661.50
Return on average common equity (%)16.516.516.116.415.5
Net interest margin (%)3.593.583.653.593.67
Efficiency ratio (%)50.451.151.551.151.4
Tangible efficiency ratio (%) (a)49.149.850.049.849.8
 
Dividends declared per common share$.195$.195$.125--56.0$.585$.37556.0
Book value per common share (period-end)$18.03$17.45$16.013.312.6
 
(a) Computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income
excluding net securities gains (losses) and intangible amortization.
 

Net income attributable to U.S. Bancorp was $1,474 million for the third quarter of 2012, 15.8 percent higher than the $1,273 million for the third quarter of 2011 and 4.2 percent higher than the $1,415 million for the second quarter of 2012. Diluted earnings per common share of $.74 in the third quarter of 2012 were $.10 higher than the third quarter of 2011 and $.03 higher than the previous quarter. Return on average assets and return on average common equity were 1.70 percent and 16.5 percent, respectively, for the third quarter of 2012, compared with 1.57 percent and 16.1 percent, respectively, for the third quarter of 2011. During the third quarter of 2012, the Company recognized a gain on the sale of a credit card portfolio, recorded a charge related to an investment under the equity method of accounting and recorded incremental provision for credit losses for charge-offs related to a regulatory clarification in the treatment of residential mortgage and other consumer loans to borrowers who have exited bankruptcy but continue to make payments on their loans. Taken together, these items had no impact on third quarter diluted earnings per common share. During the second quarter, the Company recorded an accrual related to its portion of indemnification obligations associated with Visa Inc. (NYS: V) litigation matters, which reduced diluted earnings per common share by $.02 ("Visa accrual"). The provision for credit losses was $50 million lower than net charge-offs in the second and third quarters of 2012 and $150 million lower than net charge-offs in the third quarter of 2011.

U.S. Bancorp Chairman, President and Chief Executive Officer Richard K. Davis said, "I am very proud to announce our Company's third quarter results. U.S. Bancorp, today, reported record net income of $1.5 billion, or $.74 diluted earnings per common share, on record total net revenue of $5.2 billion. Once again, we achieved industry-leading performance metrics with returns on average assets and average common equity of 1.70 percent and 16.5 percent, respectively, as well as an efficiency ratio of 50.4 percent. Additionally, we posted positive operating leverage on both a year-over-year and linked quarter basis, and we achieved these results despite an economy described as only modestly growing and burdened by uncertainty.

"Our third quarter earnings included continued strong mortgage banking activity, which contributed to our growth in fee income, residential real estate loans and loans held for sale. Solid new lending activity outside of mortgage also helped to grow our balance sheet, particularly in commercial loans, which grew on average by 21.9 percent year-over-year and 4.2 percent on a linked quarter basis. On the retail side, automobile loans and leases, a national business for our Company, also continued to show good growth in the quarter. Finally, strong growth in average deposits over the prior time periods demonstrated that we continued to enjoy a flight to quality as consumers and businesses sought a safe and stable financial partner and, along with the growth in our loan and fee-based businesses, continued to expand our market share.

"The overall credit quality of our loan portfolio continued to improve, as net charge-offs and nonperforming assets, excluding a change in reporting for collateralized loans to consumers who have filed for bankruptcy, both declined on a linked quarter basis. We expect this downward trend in net charge-offs and nonperforming assets to continue in the fourth quarter, with the net charge-off ratio remaining below one percent.

"With our growth in earnings, we continued to generate significant capital. Our capital ratios remained strong with a Tier 1 common ratio of 9.0 percent and a Tier 1 capital ratio of 10.9 percent at September 30th. Importantly, based on our assessment of the proposed rules for the Basel III standardized approach, our Tier 1 common equity ratio was 8.2 percent at September 30th, above our targeted ratio of 8.0 percent. We are where we need to be in terms of our capital levels. As a result, during the third quarter we were able to return 67 percent of our earnings to shareholders in the form of dividends and share buybacks - consistent with our goal of returning 60-80 percent of the capital we generate back to our shareholders.

"Finally, I want to take this opportunity to thank our almost 66,000 dedicated, engaged employees, who come to work each day with the goal of providing our customers with the products and services they need to handle their finances, buy a home, prepare for retirement, or manage and expand their businesses. In other words, help them shape their future and reach their dreams. Our industry has an important role to play in the growth and success of each of our customers - large and small - and the economy as a whole. I look forward to being a part of that future for the benefit of our customers, communities, employees and, importantly, our shareholders."

                       
INCOME STATEMENT HIGHLIGHTS                     Table 2
(Taxable-equivalent basis, $ in millions,       Percent  Percent    
except per-share data)ChangeChange
3Q2Q3Q3Q12 vs3Q12 vsYTDYTDPercent
2012  2012  2011 2Q12  3Q11 2012  2011 Change
 
Net interest income$2,783$2,713$2,6242.66.1$8,186$7,6756.7
Noninterest income2,396  2,355  2,1711.710.46,990  6,32910.4
Total net revenue5,1795,0684,7952.28.015,17614,0048.4
Noninterest expense2,609  2,601  2,476.35.47,770  7,2157.7
Income before provision and taxes2,5702,4672,3194.210.87,4066,7899.1
Provision for credit losses488  470  5193.8(6.0)1,439  1,846(22.0)
Income before taxes2,0821,9971,8004.315.75,9674,94320.7
Taxable-equivalent adjustment5755583.6(1.7)168169(.6)
Applicable income taxes593  564  4905.121.01,684  1,31428.2
Net income1,4321,3781,2523.914.44,1153,46018.9
Net (income) loss attributable to
noncontrolling interests42  37  2113.5nm112  6280.6
Net income attributable to U.S. Bancorp$1,474  $1,415  $1,2734.215.8$4,227  $3,52220.0
Net income applicable to U.S. Bancorp
common shareholders$1,404  $1,345  $1,2374.413.5$4,034  $3,40718.4
Diluted earnings per common share$.74  $.71  $.644.215.6$2.12  $1.7719.8
                        
 

Net income attributable to U.S. Bancorp for the third quarter of 2012 was $201 million (15.8 percent) higher than the third quarter of 2011 and $59 million (4.2 percent) higher than the second quarter of 2012. The increase in net income year-over-year and on a linked quarter basis was the result of growth in total net revenue, driven by increases in both net interest income and fee-based revenue. In addition, the year-over-year increase was impacted by a reduction in the provision for credit losses. These positive variances in both periods were partially offset by an increase in noninterest expense.

Total net revenue on a taxable-equivalent basis for the third quarter of 2012 reached a record $5,179 million; $384 million (8.0 percent) higher than the third quarter of 2011, reflecting a 6.1 percent increase in net interest income and a 10.4 percent increase in noninterest income. The increase in net interest income year-over-year was the result of higher average earning assets, continued growth in lower cost coredeposit funding and the positive impact from lower cost long-term debt. Noninterest income increased year-over-year, primarily due to higher mortgage banking revenue, partially offset by legislative-related reductions in credit and debit card revenue and a reclass of ATM processing services revenue. Total net revenue on a taxable-equivalent basis was $111 million (2.2 percent) higher on a linked quarter basis due to both higher net interest income and fee-based revenue, the latter of which was driven by higher mortgage banking revenue.

Total noninterest expense in the third quarter of 2012 was $2,609 million; $133 million (5.4 percent) higher than the third quarter of 2011 and $8 million (.3 percent) higher than the second quarter of 2012. The increase in total noninterest expense year-over-year was primarily due to higher compensation expense, employee benefits costs, and mortgage servicing review-related professional services costs. Total noninterest expense on a linked quarter basis was higher, primarily due to increases in compensation, marketing and business development expense and other expense, offset by the impact of the Visa accrual recorded in the second quarter of 2012.

The Company's provision for credit losses for the third quarter of 2012 was $488 million, $18 million higher than the prior quarter and $31 million lower than the third quarter of 2011. The third quarter of 2012 provision for credit losses included $54 million in charge-offs related to a regulatory clarification in the treatment of residential mortgage and other consumer loans to borrowers who have exited bankruptcy but continue to make payments on their loans. The provision for credit losses was lower than net charge-offs by $50 million in the third quarter of 2012 and the second quarter of 2012, and $150 million lower than net charge-offs in the third quarter of 2011. Net charge-offs in the third quarter of 2012 were $538 million, compared with $520 million in the second quarter of 2012, and $669 million in the third quarter of 2011. Given current economic conditions, the Company expects the level of net charge-offs to be lower in the fourth quarter of 2012.

Nonperforming assets include assets originated or acquired by the Company, as well as loans and other real estate acquired under FDIC loss sharing agreements that substantially reduce the risk of credit losses to the Company ("covered assets"). Excluding covered assets, nonperforming assets were $2,188 million at September 30, 2012, compared with $2,256 million at June 30, 2012, and $3,036 million at September 30, 2011. The decline was led by a reduction in commercial and commercial real estate nonperforming assets. Notably, commercial mortgage and construction and development nonperforming assets declined by $589 million (48.3 percent) year-over-year and $59 million (8.6 percent) on a linked quarter basis, as the Company continued to resolve and reduce exposure to these problem assets. Nonperforming assets at September 30, 2012, included approximately $109 million of loans placed on nonaccrual status due to the regulatory clarification in the treatment of residential mortgage and other consumer loans to borrowers who have exited bankruptcy but continue to make payments on their loans. In addition, beginning in the second quarter of 2012, the Company included junior lien loans and lines greater than 120 days past due, as well as junior lien loans and lines behind a first lien greater than 180 days past due or on nonaccrual status, as nonperforming loans. Covered nonperforming assets were $647 million at September 30, 2012, compared with $773 million at June 30, 2012, and $1,303 million at September 30, 2011. The ratio of the allowance for credit losses to period-end loans, excluding covered loans, was 2.26 percent at September 30, 2012, compared with 2.34 percent at June 30, 2012, and 2.66 percent at September 30, 2011. The ratio of the allowance for credit losses to period-end loans, including covered loans, was 2.19 percent at September 30, 2012, compared with 2.25 percent at June 30, 2012, and 2.53 percent at September 30, 2011. The Company expects total nonperforming assets to trend lower in the fourth quarter of 2012.

                  
NET INTEREST INCOME                Table 3
(Taxable-equivalent basis; $ in millions)         
ChangeChange
3Q2Q3Q3Q12 vs3Q12 vsYTDYTD
2012 2012 2011  2Q12 3Q11 2012 2011 Change
Components of net interest income Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners

Gift Finder Promo
More to Explore
Sun, Dec 11
Set Your Location
City, State, or Zip