U.S. Bancorp Reports Fourth Quarter and Full Year 2012 Earnings
Achieves Record Total Net Revenue and Earnings for Full Year 2012
MINNEAPOLIS--(BUSINESS WIRE)-- U.S. Bancorp (NYS: USB) today reported net income of $1,420 million for the fourth quarter of 2012, or $.72 per diluted common share, and $5,647 million of net income, or $2.84 per diluted common share, for full year 2012. Included in the fourth quarter of 2012 results was a previously disclosed $80 million expense accrual for a mortgage foreclosure-related regulatory settlement, which reduced quarterly diluted earnings per common share by $.03.
Summary highlights for the full year of 2012 included:
Record full year 2012 net income of $5.6 billion, 15.9 percent higher than 2011
Record full year diluted earnings per common share of $2.84, 15.4 percent higher than 2011
Record full year total net revenue of $20.3 billion, 6.2 percent higher than 2011
Industry-leading performance measures, including return on average assets of 1.65 percent, return on average common equity of 16.2 percent and efficiency ratio of 51.5 percent
Positive full year operating leverage
Highlights for the fourth quarter of 2012 included:
Strong new lending activity of $71.5 billion during the fourth quarter, including:
$39.8 billion of new and renewed commercial and commercial real estate commitments
$2.6 billion of lines related to new credit card accounts
$29.1 billion of mortgage and other retail loan originations
Growth in average total loans of 6.4 percent over the fourth quarter of 2011 (8.6 percent excluding covered loans) and 1.5 percent on a linked quarter basis (6.0 percent annualized)
Growth in average total commercial loans of 15.7 percent over the fourth quarter of 2011 and 2.8 percent over the third quarter of 2012
Growth in average commercial and commercial real estate commitments of 15.6 percent year-over-year and 2.5 percent over the prior quarter
Significant growth in average deposits of 9.2 percent over the fourth quarter of 2011, including:
Growth in average noninterest-bearing deposits of 14.2 percent year-over-year and 6.6 percent over the third quarter
Growth in average total savings deposits of 6.6 percent year-over-year and 3.7 percent over the third quarter
Net interest income growth of 4.1 percent over the fourth quarter of 2011
Average earning assets growth of 5.8 percent year-over-year and 1.1 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 3.55 percent for the fourth quarter of 2012, compared with 3.60 percent for the fourth quarter of 2011, and 3.59 percent for the third quarter of 2012
Positive operating leverage and an improved efficiency ratio on a year-over-year basis
Net charge-offs declined on both a linked quarter and year-over-year basis. Provision for credit losses was $25 million less than net charge-offs
Net charge-offs were $70 million lower than the third quarter of 2012; third quarter of 2012 included $54 million of incremental charge-offs due to a regulatory clarification
Annualized net charge-offs to average total loans ratio declined to .85 percent
Excluding covered loans, allowance to period-end loans was 2.15 percent at year end
Nonperforming assets declined on both a linked quarter and year-over-year basis
Nonperforming assets (excluding covered assets) decreased 4.6 percent from the third quarter of 2012 (5.8 percent including covered assets)
Allowance to nonperforming assets (excluding covered assets) was 218 percent at year end, compared with 213 percent at September 30, 2012, and 191 percent at December 31, 2011
Capital generation continues to reinforce capital position; ratios at December 31, 2012 were:
Tier 1 capital ratio of 10.8 percent
Total risk based capital ratio of 13.1 percent
Tier 1 common equity to risk-weighted assets ratio of 9.0 percent
Tier 1 common equity ratio of approximately 8.1 percent using proposed rules for the Basel III standardized approach released June 2012
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(a) Computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income
Net income attributable to U.S. Bancorp was $1,420 million for the fourth quarter of 2012, 5.2 percent higher than the $1,350 million for the fourth quarter of 2011, but 3.7 percent lower than the $1,474 million for the third quarter of 2012. Diluted earnings per common share of $.72 in the fourth quarter of 2012 were $.03 higher than the fourth quarter of 2011 and $.02 lower than the previous quarter. Return on average assets and return on average common equity were 1.62 percent and 15.6 percent, respectively, for the fourth quarter of 2012, compared with 1.62 percent and 16.8 percent, respectively, for the fourth quarter of 2011. During the fourth quarter of 2012, the Company recorded an $80 million expense accrual for a mortgage foreclosure-related regulatory settlement, which reduced diluted earnings per common share by $.03. Earnings in the fourth quarter of 2011 included a $263 million merchant settlement gain, partially offset by a $130 million accrual related to mortgage servicing matters, which together increased diluted earnings per common share for the fourth quarter of 2011 by $.05. The provision for credit losses was $25 million lower than net charge-offs in the fourth quarter of 2012, $50 million lower than net charge-offs in the third quarter of 2012 and $125 million lower than net charge-offs in the fourth quarter of 2011.
U.S. Bancorp Chairman, President and Chief Executive Officer Richard K. Davis said, "2012 was a great year for our Company, as we achieved record annual earnings of $5.6 billion, or $2.84 per diluted common share. Further, our 2012 full year results included record total net revenue of $20.3 billion, representing growth in net interest income and fee revenues, as well as controlled expenses. Additionally, we achievedpositive operating leverage for both the year-over-year quarter and full year. Our returns on average assets and average common equity for 2012 of 1.65 percent and 16.2 percent, as well as our efficiency ratio of 51.5 percent, surpassed our performance in 2011 and remain industry-leading.
"As expected, total average loans grew in the fourth quarter over the prior year and linked quarter by 6.4 percent and 1.5 percent, respectively. For the full year 2012, our Company grew total average loans by 6.9 percent over the prior year, accelerating growth over the 4.4 percent increase realized in full year 2011. Total average deposits were also higher in the fourth quarter, increasing by 9.2 percent over the same quarter of last year, while rising 10.6 percent on a full year basis over 2011. Growth in both of these categories demonstrates our Company's continuing ability to expand and deepen relationships with our current customer base, as well as gain new customers and market share. Our fee-based businesses also realized solid growth in 2012, led by mortgage banking. With continued investments in growth initiatives and small, strategic acquisitions, these businesses remain very well positioned to continue to grow and leverage the slow, but steady, economic recovery.
"Credit quality continues to improve, as evidenced by the decline this quarter in both net charge-offs and nonperforming assets. Our annualized net charge-offs ratio of .85 percent for the fourth quarter of 2012 reflects the high quality of our portfolio. Our customers - from individuals, to small businesses, to large corporations - are healthy and productive, having adjusted to the current slow growth, uncertain environment in which they operate today, but they remain poised to take advantage of the recovery as it emerges.
"Our capital position remains strong with a Tier 1 common ratio of 9.0 percent and a Tier 1 capital ratio of 10.8 percent at December 31st. Our Tier 1 common equity ratio, based on our assessment of the proposed rules for the Basel III standardized approach, was 8.1 percent at December 31st, above our targeted ratio of 8.0 percent. We continue to generate significant capital each quarter, and we have set a target to return 60 to 80 percent of our earnings to shareholders in the form of dividends and share buybacks. In 2012, we achieved our target by returning a total of $3.4 billion of earnings to our shareholders through dividends and the repurchase of approximately 59 million shares of common stock. In early January, we completed and submitted our 2013 Comprehensive Capital Plan to the Federal Reserve, and we look forward to receiving regulatory authority by March 31st to raise our dividend and continue our stock buyback program in 2013.
"I am very proud of our current quarter and full year 2012 results, and I want to take this opportunity to thank all of our employees for their contributions, hard work and dedication to serving our customers. These results and our success as a Company are directly tied to the talent, passion and commitment our employees bring to their job everyday, as they work closely with their fellow employees and customers, support their families and enrich the communities in which they live through their volunteer activities.
"On July 13, 2013, U.S. Bank will celebrate its 150th anniversary. Our institution operates under the national charter, signed in 1863, that originally formed the First National Bank of Cincinnati. Since then, our Company has expanded through organic growth and through numerous acquisitions. We have managed through times of prosperity and through times of hardship. We have focused our efforts externally on growth and development and, when necessary, we have focused internally to right the course. Our past has shaped our present and our future. We are a Company with a well diversified business model, prudent risk management and an ability to produce consistent, predictable, repeatable results. We are always mindful of the responsibility we hold to help our customers achieve their financial goals, while supporting and strengthening the communities, and this country, that we serve. We are, once again, stronger and better than we were one year ago. We are focused on the future and continuing to build momentum into 2013 and beyond - all for the benefit of our customers, employees, communities and, importantly, our shareholders."
INCOME STATEMENT HIGHLIGHTS
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Net income attributable to U.S. Bancorp for the fourth quarter of 2012 was $70 million (5.2 percent) higher than the fourth quarter of 2011, but $54 million (3.7 percent) lower than the third quarter of 2012. The increase in net income year-over-year was the result of an increase in total net revenue, driven by higher net interest income, a decrease in noninterest expense and a decline in the provision for credit losses. On a linked quarter basis, the decrease in net income was driven by a decline in noninterest income and an increase in noninterest expense, primarily due to the $80 million mortgage foreclosure-related regulatory settlement accrual, partially offset by a decrease in the provision for credit losses.
Total net revenue on a taxable-equivalent basis for the fourth quarter of 2012 was $5,112 million; $8 million (.2 percent) higher than the fourth quarter of 2011, reflecting a 4.1 percent increase in net interest income, largely offset by a 4.2 percent decrease 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 long-term debt repricing. Noninterest income decreased year-over-year, primarily due to the $263 million merchant settlement gain recorded in the fourth quarter of 2011, partially offset by higher mortgage banking revenue in the current quarter. Total net revenue on a taxable-equivalent basis was $67 million (1.3 percent) lower on a linked quarter basis due to lower fee-based revenue driven by a reduction in mortgage banking revenue and the net impact of a third quarter of 2012 gain on sale of a credit card portfolio and a charge related to an investment under the equity method of accounting.
Total noninterest expense in the fourth quarter of 2012 was $2,686 million; $10 million (.4 percent) lower than the fourth quarter of 2011 and $77 million (3.0 percent) higher than the third quarter of 2012. The decrease in total noninterest expense year-over-year was primarily due to the accrual for mortgage servicing related matters recorded in fourth quarter of 2011, partially offset by the current quarter mortgage foreclosure-related regulatory settlement accrual, as well as higher mortgage servicing review-related professional services costs. Total noninterest expense on a linked quarter basis was higher, primarily due to the accrual for the mortgage foreclosure-related regulatory settlement and an increase in mortgage servicing review-related professional services costs, partially offset by lower compensation expense.
The Company's provision for credit losses for the fourth quarter of 2012 was $443 million, $45 million lower than the prior quarter and $54 million lower than the fourth 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 had debt discharged through bankruptcy but continue to make payments on their loans. The provision for credit losses was lower than net charge-offs by $25 million in the fourth quarter of 2012, $50 million in the third quarter of 2012 and $125 million in the fourth quarter of 2011. Net charge-offs in the fourth quarter of 2012 were $468 million, compared with $538 million in the third quarter of 2012, and $622 million in the fourth quarter of 2011. Given current economic conditions, the Company expects the level of net charge-offs to be relatively stable to down modestly in the first 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 $2,088 million at December 31, 2012, compared with $2,188 million at September 30, 2012, and $2,574 million at December 31, 2011. The declines were led by a reduction in commercial and commercial real estate nonperforming assets. Notably, commercial mortgage and construction and development nonperforming assets declined by $353 million (39.3 percent) year-over-year and $85 million (13.5 percent) on a linked quarter basis, as the Company continued to resolve and reduce exposure to these problem assets. Other real estate owned increased in the current quarter as a result of the Company including residential real estate-related loans for which the borrower had vacated the property but foreclosure had not yet occurred. Substantially all of these loans were reclassified from nonperforming loans to other real estate owned. Covered nonperforming assets were $583 million at December 31, 2012, compared with $647 million at September 30, 2012, and $1,200 million at December 31, 2011. The ratio of the allowance for credit losses to period-end loans, excluding covered loans, was 2.15 percent at December 31, 2012, compared with 2.26 percent at September 30, 2012, and 2.52 percent at December 31, 2011. The ratio of the allowance for credit losses to period-end loans, including covered loans, was 2.12 percent at December 31, 2012, compared with 2.19 percent at September 30, 2012, and 2.39 percent at December 31, 2011. The Company expects total nonperforming assets to trend lower in the first quarter of 2013.
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