U.S. Bancorp Reports Record Earnings for the Second Quarter of 2013

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U.S. Bancorp Reports Record Earnings for the Second Quarter of 2013

MINNEAPOLIS--(BUSINESS WIRE)-- U.S. Bancorp (NYS: USB) today reported net income of $1,484 million for the second quarter of 2013, or $.76 per diluted common share. Earnings for the second quarter of 2013 were driven by a year-over-year reduction in noninterest expense and a lower provision for credit losses. Highlights for the second quarter of 2013 included:

  • Industry-leading performance ratios, including:
    • Return on average assets of 1.70 percent
    • Return on average common equity of 16.1 percent
    • Efficiency ratio of 51.7 percent
  • Strong new lending activity of $65.7 billion during the second quarter, including:
    • $37.6 billion of new and renewed commercial and commercial real estate commitments
    • $2.6 billion of lines related to new credit card accounts
    • $25.5 billion of mortgage and other retail loan originations
  • Growth in average total loans of 5.2 percent over the second quarter of 2012 (7.2 percent excluding covered loans) and 1.2 percent on a linked quarter basis (1.6 percent excluding covered loans)
    • Growth in average total commercial loans of 11.2 percent over the second quarter of 2012 and 2.2 percent over the first quarter of 2013
    • Growth in average total commercial real estate loans of 3.7 percent over the second quarter of 2012 and 1.8 percent over the first quarter of 2013
    • Growth in average commercial and commercial real estate commitments of 10.2 percent year-over-year and 2.2 percent over the prior quarter
  • Continued strong growth in average deposits of 7.0 percent over the second quarter of 2012
    • Average noninterest-bearing deposits growth of 3.6 percent and average total savings deposits growth of 13.1 percent year-over-year
    • Growth in average total savings deposits of 2.1 percent over the linked quarter, while noninterest-bearing deposits remained relatively stable with an increase of .7 percent
  • Lower net charge-offs on both a linked quarter and year-over-year basis. Provision for credit losses was $30 million less than net charge-offs
    • Net charge-offs were $41 million lower than the first quarter of 2013
    • Annualized net charge-offs to average total loans ratio declined to .70 percent
    • Allowance to period-end loans of 2.02 percent at June 30, 2013
  • Nonperforming assets declined on both a linked quarter and year-over-year basis
    • Nonperforming assets (excluding covered assets) decreased 5.3 percent from the first quarter of 2013
    • Allowance to nonperforming assets (excluding covered assets) was 231 percent at June 30, 2013, compared with 221 percent at March 31, 2013, and 210 percent at June 30, 2012
  • Capital generation continues to reinforce capital position. Ratios at June 30, 2013 were:
    • Tier 1 capital ratio of 11.1 percent
    • Total risk based capital ratio of 13.3 percent
    • Tier 1 common equity to risk-weighted assets ratio of 9.2 percent
    • Tier 1 common equity ratio of approximately 8.3 percent using proposed rules for the Basel III standardized approach released June 2012 and 8.6 percent estimated using final rules released July 2013
  • Returned 73 percent of second quarter earnings to shareholders through dividends and share buybacks
    • Repurchased 18 million shares of common stock during the second quarter
    • Annual dividend raised from $.78 to $.92, an 18 percent increase
                  
EARNINGS SUMMARY                Table 1
($ in millions, except per-share data)     Percent Percent   
ChangeChange
2Q1Q2Q2Q13 vs2Q13 vsYTDYTDPercent
2013 2013 2012 1Q13 2Q12 2013 2012 Change
 
Net income attributable to U.S. Bancorp$1,484$1,428$1,4153.94.9$2,912$2,7535.8
Diluted earnings per common share$.76$.73$.714.17.0$1.49$1.388.0
 
Return on average assets (%)1.701.651.671.681.64
Return on average common equity (%)16.116.016.516.116.3
Net interest margin (%)3.433.483.583.463.59
Efficiency ratio (%)51.750.751.151.251.5
Tangible efficiency ratio (%) (a)50.649.649.850.150.1
 
Dividends declared per common share$.230$.195$.19517.917.9$.425$.3909.0
Book value per common share (period-end)$18.94$18.71$17.451.28.5
 

(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 $1,484 million for the second quarter of 2013, 4.9 percent higher than the $1,415 million for the second quarter of 2012, and 3.9 percent higher than the $1,428 million for the first quarter of 2013. Diluted earnings per common share of $.76 in the second quarter of 2013 were $.05 higher than the second quarter of 2012 and $.03 higher than the previous quarter. Return on average assets and return on average common equity were 1.70 percent and 16.1 percent, respectively, for the second quarter of 2013, compared with 1.67 percent and 16.5 percent, respectively, for the second quarter of 2012. The provision for credit losses was lower than net charge-offs by $30 million in the second quarter and first quarter of 2013 and $50 million lower in the second quarter of 2012.


U.S. Bancorp Chairman, President and Chief Executive Officer Richard K. Davis said, "Our Company earned record net income of $1,484 million in the second quarter, or $.76 per diluted common share. In addition, we achieved profitability metrics that remain among the very best in our industry, including a return on average assets of 1.70 percent, return on average common equity of 16.1 percent and an efficiency ratio of 51.7 percent. I take great pride in our Company's ability to attain these record results, particularly given the current slow, albeit steady, growth we have seen in the markets we serve.

"The second quarter of each year is one of our Company's strongest from a fee revenue growth perspective, and this year was no exception, as we experienced linked quarter growth in virtually all categories of fee income. We also experienced solid average loan and deposit growth year-over-year of 5.2 percent and 7.0 percent, respectively. Importantly, average total loans grew by 1.2 percent linked quarter, accelerating from the 1.0 percent linked quarter growth we experienced in the first quarter. Given early industry indicators, our linked quarter loan growth shows that we are continuing to gain market share. Average deposits increased by 1.0 percent over the first quarter - a rate fairly comparable to the growth in average loans. Commercial and commercial real estate utilization rates remain, however, fairly flat at approximately 25 percent.

"Credit quality remains strong, as the ratio of net charge-offs to average total loans fell to .70 percent this quarter from .79 percent in the prior quarter. Nonperforming assets declined by over 5 percent and late stage delinquencies also improved. Our provision for credit losses was $30 million less than net charge-offs for the quarter, reflecting the improvement in the credit metrics and overall quality of the Company's loan portfolio.

"We continue to generate significant capital each quarter. At June 30th, the Company's Tier 1 capital ratio was 11.1 percent, while the Tier 1 common equity ratio was 8.6 percent as estimated under the final Basel III rules released earlier this month. As anticipated, in June we announced an 18 percent increase in the dividend rate on our common stock, raising the rate to $.92 on an annualized basis. This higher dividend, combined with the repurchase of 18 million shares during the quarter, resulted in a 73 percent return of earnings to shareholders - in-line with our goal of returning 60-80 percent of our earnings to shareholders each year. The Company's capital position remains strong and, importantly, has allowed us to return to a normal capital distribution mode.

"Last Friday, I had the privilege of joining a small group of our employees on stage at the NYSE to ring The Closing Bell in celebration of the 150th anniversary of the signing of our national bank charter. I want to thank employees who traveled to New York City to represent their co-workers as we commemorated this milestone, and also want to take this opportunity to thank all of our 66,000 employees whose hard work and dedication have contributed to the success of our Company. We have a rich 150 year heritage upon which we will build a very strong future for the benefit of our customers, our employees, our communities and our shareholders."

                 
INCOME STATEMENT HIGHLIGHTS               Table 2
(Taxable-equivalent basis, $ in millions,    Percent Percent   
except per-share data)ChangeChange
2Q1Q2Q2Q13 vs2Q13 vsYTDYTDPercent
2013 2013 2012 1Q13 2Q12 2013 2012 Change
 
Net interest income$2,672$2,709$2,713(1.4)(1.5)$5,381$5,403(.4)
Noninterest income2,276 2,165 2,3555.1(3.4)4,441 4,594(3.3)
Total net revenue4,9484,8745,0681.5(2.4)9,8229,997(1.8)
Noninterest expense2,557 2,470 2,6013.5(1.7)5,027 5,161(2.6)
Income before provision and taxes2,3912,4042,467(.5)(3.1)4,7954,836(.8)
Provision for credit losses362 403 470(10.2)(23.0)765 951(19.6)
Income before taxes2,0292,0011,9971.41.64,0303,8853.7
Taxable-equivalent adjustment565655--1.8112111.9
Applicable income taxes529 558 564(5.2)(6.2)1,087 1,091(.4)
Net income1,4441,3871,3784.14.82,8312,6835.5
Net (income) loss attributable to
noncontrolling interests40 41 37(2.4)8.181 7015.7
Net income attributable to U.S. Bancorp$1,484 $1,428 $1,4153.94.9$2,912 $2,7535.8
Net income applicable to U.S. Bancorp
common shareholders$1,405 $1,358 $1,3453.54.5$2,763 $2,6305.1
Diluted earnings per common share$.76 $.73 $.714.17.0$1.49 $1.388.0
                    

Net income attributable to U.S. Bancorp for the second quarter of 2013 was $69 million (4.9 percent) higher than the second quarter of 2012, and $56 million (3.9 percent) higher than the first quarter of 2013. The increase in net income year-over-year was principally due to a reduction in noninterest expense and a lower provision for credit losses. On a linked quarter basis the increase in net income was due to growth in noninterest income and a reduction in the provision for credit losses.

Total net revenue on a taxable-equivalent basis for the second quarter of 2013 was $4,948 million; $120 million (2.4 percent) lower than the second quarter of 2012, reflecting a 1.5 percent decrease in net interest income and a 3.4 percent decrease in noninterest income. The decrease in net interest income year-over-year was the result of a decline in loan and investment portfolio rates, partially offset by higher average earning assets, continued growth in lower cost coredeposit funding and the positive impact from maturities of higher-rate long-term debt during 2012. Noninterest income decreased year-over-year, primarily due to lower mortgage banking revenue. Total net revenue on a taxable-equivalent basis was $74 million (1.5 percent) higher on a linked quarter basis due to a 5.1 percent increase in noninterest income driven by seasonally higher payments-related revenue and increases in the majority of other revenue categories, partially offset by a 1.4 percent decrease in net interest income, the result of declining loan and investment securities portfolio rates and lower average earning assets.

Total noninterest expense in the second quarter of 2013 was $2,557 million; $44 million (1.7 percent) lower than the second quarter of 2012 and $87 million (3.5 percent) higher than the first quarter of 2013. The decrease in total noninterest expense year-over-year was primarily the result of the impact of a second quarter 2012 accrual for the Company's portion of an indemnification obligation associated with Visa Inc. (NYS: V) litigation matters ("Visa accrual") and lower professional services expense, partially offset by higher compensation and employee benefits expense. The increase in total noninterest expense on a linked quarter basis was primarily due to higher insurance and regulatory expense relative to the prior quarter and seasonally higher professional services and marketing and business development costs.

The Company's provision for credit losses for the second quarter of 2013 was $362 million, $41 million lower than the prior quarter and $108 million lower than the second quarter of 2012. The provision for credit losses was lower than net charge-offs by $30 million in the second quarter and first quarter of 2013 and $50 million lower in the second quarter of 2012. Net charge-offs in the second quarter of 2013 were $392 million, compared with $433 million in the first quarter of 2013, and $520 million in the second quarter of 2012. Given current economic conditions, the Company expects the level of net charge-offs to be relatively stable in the third quarter of 2013.

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 $1,921 million at June 30, 2013, compared with $2,029 million at March 31, 2013, and $2,256 million at June 30, 2012. The decrease in nonperforming assets, excluding covered assets, compared with a year ago was driven primarily by reductions in the construction and development portfolio, as well as by improvement in commercial mortgages, total commercial and credit card loans. Covered nonperforming assets were $355 million at June 30, 2013, compared with $377 million at March 31, 2013, and $773 million at June 30, 2012. The ratio of the allowance for credit losses to period-end loans, including covered loans, was 2.02 percent at June 30, 2013, compared with 2.11 percent at March 31, 2013, and 2.25 percent at March 31, 2012. The Company expects total nonperforming assets to remain relatively stable in the third quarter of 2013.

                 
NET INTEREST INCOME   Table 3
(Taxable-equivalent basis; $ in millions)
    Change Change   
2Q1Q2Q2Q13 vs2Q13 vsYTDYTD
2013 2013 2012 1Q13 2Q12 2013 2012 Change
Components of net interest income
Income on earning assets$3,095$3,168$3,285$(73)$(190)$6,263$6,574$(311)
Expense on interest-bearing liabilities423  459  572  (36) (149) 882  1,171  (289)
Net interest income$2,672  $2,709  $2,713  $(37) $(41) $5,381  $5,403  $(22)
 
Average yields and rates paid
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