U.S. Bancorp Reports Earnings for the Third Quarter of 2013

U.S. Bancorp Reports Earnings for the Third Quarter of 2013

MINNEAPOLIS--(BUSINESS WIRE)-- U.S. Bancorp (NYS: USB) today reported net income of $1,468 million for the third quarter of 2013, or $.76 per diluted common share, compared with $1,474 million, or $.74 per diluted common share, in the third quarter of 2012. Highlights for the third quarter of 2013 included:

  • Industry-leading performance ratios, including:
    • Return on average assets of 1.65 percent
    • Return on average common equity of 15.8 percent
    • Efficiency ratio of 52.4 percent
  • Growth in average total loans of 5.7 percent over the third quarter of 2012 (7.5 percent excluding covered loans) and 1.9 percent on a linked quarter basis (2.2 percent excluding covered loans)
    • Growth in average total commercial loans of 9.4 percent over the third quarter of 2012 and 2.0 percent over the second quarter of 2013
    • Growth in average total commercial real estate loans of 5.1 percent over the third quarter of 2012 and 1.6 percent over the second quarter of 2013
    • Growth in average commercial and commercial real estate commitments of 9.9 percent year-over-year and 3.2 percent over the prior quarter
  • Strong new lending activity of $63.1 billion during the third quarter, including:
    • $37.8 billion of new and renewed commercial and commercial real estate commitments
    • $2.8 billion of lines related to new credit card accounts
    • $22.5 billion of mortgage and other retail loan originations
  • Continued strong growth in average total deposits of 5.5 percent over the third quarter of 2012 and 2.0 percent on a linked quarter basis.
    • Average low cost deposits, including noninterest-bearing and total savings deposits, grew by 8.5 percent year-over-year and 1.0 percent linked quarter
  • Net charge-offs declined 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 $64 million (16.3 percent) lower than the second quarter of 2013
    • Annualized net charge-offs to average total loans ratio declined to .57 percent
    • Allowance to period-end loans was 1.98 percent at September 30, 2013
  • Nonperforming assets declined on both a linked quarter and year-over-year basis
    • Nonperforming assets (excluding covered assets) decreased 2.1 percent from the second quarter of 2013
    • Allowance to nonperforming assets (excluding covered assets) was 235 percent at September 30, 2013, compared with 231 percent at June 30, 2013, and 213 percent at September 30, 2012
  • Capital generation continues to reinforce capital position and return. Ratios at September 30, 2013 were:
    • Tier 1 capital ratio of 11.2 percent
    • Total risk based capital ratio of 13.3 percent
    • Tier 1 common equity to risk-weighted assets ratio of 9.3 percent
    • Tier 1 common equity ratio of 8.6 percent estimated using final rules for Basel III standardized approach released July 2013
    • Returned 77 percent of third quarter earnings to shareholders through dividends and over 17 million in share buybacks
                         
EARNINGS SUMMARY                 Table 1
($ in millions, except per-share data)        Percent  Percent      
ChangeChange
3Q2Q3Q3Q13 vs3Q13 vsYTDYTDPercent
2013  2013  2012  2Q13  3Q12  2013  2012  Change
 
Net income attributable to U.S. Bancorp$1,468$1,484$1,474(1.1)(.4)$4,380$4,2273.6
Diluted earnings per common share$.76$.76$.74--2.7$2.25$2.126.1
 
Return on average assets (%)1.651.701.701.671.66
Return on average common equity (%)15.816.116.516.016.4
Net interest margin (%)3.433.433.593.453.59
Efficiency ratio (%)52.451.750.451.651.1
Tangible efficiency ratio (%) (a)51.350.649.150.549.8
 
Dividends declared per common share$.230$.230$.195--17.9$.655$.58512.0
Book value per common share (period-end)$19.31$18.94$18.032.07.1
 
(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 $1,468 million for the third quarter of 2013, .4 percent lower than the $1,474 million for the third quarter of 2012, and 1.1 percent lower than the $1,484 million for the second quarter of 2013. Diluted earnings per common share of $.76 in the third quarter of 2013 were $.02 higher than the third quarter of 2012 and equal to the previous quarter. Return on average assets and return on average common equity were 1.65 percent and 15.8 percent, respectively, for the third quarter of 2013, compared with 1.70 percent and 16.5 percent, respectively, for the third quarter of 2012. The provision for credit losses was lower than net charge-offs by $30 million in the third quarter and the second quarter of 2013 and $50 million lower in the third quarter of 2012.


U.S. Bancorp Chairman, President and Chief Executive Officer Richard K. Davis said, "The Company's third quarter earnings of $1.5 billion, or $.76 per diluted common share, reflected our continuing ability to manage through the current uncertain and slow-growing economy. Our Company produced industry-leading performance metrics, including return on average assets of 1.65 percent, return on average common equity of 15.8 percent and an efficiency ratio of 52.4 percent, as our diversified mix of businesses mitigated the impact of the pull-back in mortgage banking activity.

"Our balance sheet businesses continued to expand, as average total loans grew by 5.7 percent year-over-year and 1.9 percent linked quarter, accelerating from the 1.2 percent linked quarter growth in the second quarter of this year. Given reported industry trends, these results would indicate that our Company continues to gain market share. Average total deposits posted similar growth at 5.5 percent over the prior year and 2.0 percent linked quarter. Our net interest margin of 3.43 percent was equal to the prior quarter and, coupled with the growth in earning assets, led to an increase in net interest income on a linked quarter basis.

"Credit quality continued to improve this quarter with the ratio of net charge-offs to average loans outstanding falling to .57 percent from .70 percent in the prior quarter. Nonperforming assets also declined again this quarter, and we released $30 million of reserves, equal to the prior quarter's release. The quality of our loan portfolio remains high and we expect net charge-offs and nonperforming assets levels to be relatively stable for the remainder of the year.

"The Company continues to generate significant capital, and we returned 77 percent of our third quarter earnings to shareholders in the form of dividends and buybacks, while maintaining our very strong capital base. Our Tier 1 common and Tier 1 capital ratios at quarter end were 9.3 percent and 11.2 percent, respectively. Our Tier 1 common equity ratio was 8.6 percent at September 30th as estimated under the final Basel III rules released in July, well above the required minimum requirement of 7.0 percent and our own targeted ratio of 8.0 percent.

"In September, we hosted U.S. Bancorp's 2013 Investor Day in New York City. Throughout the day, our senior management team took the opportunity to review our accomplishments since the last Investor Day in 2010. The theme of the conference was "extending the advantage," and we described to the audience our expanded distribution and scale, our enhanced products, services and capabilities, our gains in market share and, importantly, how our position in the industry allows us to continue to capitalize on future growth opportunities. In other words, how we are "extending the advantage" that we have already created by investing in our diversified business model, maintaining prudent risk management, focusing on operating integrity and compliance, sustaining strong capital and liquidity, and providing superior returns for our shareholders. We will further extend our advantage by capitalizing on the strength of our markets and distribution, fostering the culture within our Company that has given us the success we enjoy today, advocating for our customers and our communities, and preparing our employees for the realities of the new economy, all while providing consistent, predictable, repeatable results for our shareholders."

                         
INCOME STATEMENT HIGHLIGHTS                 Table 2
(Taxable-equivalent basis, $ in millions,        Percent  Percent      
except per-share data)ChangeChange
3Q2Q3Q3Q13 vs3Q13 vsYTDYTDPercent
2013  2013  2012  2Q13  3Q12  2013  2012  Change
 
Net interest income$2,714$2,672$2,7831.6(2.5)$8,095$8,186(1.1)
Noninterest income2,177  2,276  2,396(4.3)(9.1)6,618  6,990(5.3)
Total net revenue4,8914,9485,179(1.2)(5.6)14,71315,176(3.1)
Noninterest expense2,565  2,557  2,609.3(1.7)7,592  7,770(2.3)
Income before provision and taxes2,3262,3912,570(2.7)(9.5)7,1217,406(3.8)
Provision for credit losses298  362  488(17.7)(38.9)1,063  1,439(26.1)
Income before taxes2,0282,0292,082--(2.6)6,0585,9671.5
Taxable-equivalent adjustment565657--(1.8)168168--
Applicable income taxes542  529  5932.5(8.6)1,629  1,684(3.3)
Net income1,4301,4441,432(1.0)(.1)4,2614,1153.5
Net (income) loss attributable to
noncontrolling interests38  40  42(5.0)(9.5)119  1126.3
Net income attributable to U.S. Bancorp$1,468  $1,484  $1,474(1.1)(.4)$4,380  $4,2273.6
Net income applicable to U.S. Bancorp
common shareholders$1,400  $1,405  $1,404(.4)(.3)$4,163  $4,0343.2
Diluted earnings per common share$.76  $.76  $.74--2.7$2.25  $2.126.1
                            

Net income attributable to U.S. Bancorp for the third quarter of 2013 was $6 million (.4 percent) lower than the third quarter of 2012, and $16 million (1.1 percent) lower than the second quarter of 2013. The decrease in net income year-over-year and on a linked quarter basis was principally due to a reduction in mortgage banking revenue, largely offset by a lower provision for credit losses and controlled expenses.

Total net revenue on a taxable-equivalent basis for the third quarter of 2013 was $4,891 million; $288 million (5.6 percent) lower than the third quarter of 2012, reflecting a 2.5 percent decrease in net interest income and a 9.1 percent decrease in noninterest income. Net interest income declined year-over-year, as an increase in average earning assets was offset by a decrease in the net interest margin. Noninterest income declined year-over-year, primarily due to lower mortgage banking revenue. Total net revenue on a taxable-equivalent basis was $57 million (1.2 percent) lower on a linked quarter basis due to a 4.3 percent decrease in noninterest income driven by lower mortgage banking revenue, partially offset by a 1.6 percent increase in net interest income, the result of growth in average earning assets and a stable net interest margin.

Total noninterest expense in the third quarter of 2013 was $2,565 million; $44 million (1.7 percent) lower than the third quarter of 2012 and $8 million (.3 percent) higher than the second quarter of 2013. The decrease in total noninterest expense year-over-year was primarily due to a reduction in mortgage servicing review-related professional services expense and lower compensation expense, partially offset by higher employee benefits expense. The modest increase in total noninterest expense on a linked quarter basis was primarily due to higher costs related to investments in tax-advantaged projects, partially offset by lower compensation expense and marketing and business development costs.

The Company's provision for credit losses for the third quarter of 2013 was $298 million, $64 million lower than the prior quarter and $190 million lower than the third quarter of 2012. The provision for credit losses was lower than net charge-offs by $30 million in the third quarter and second quarter of 2013, and $50 million lower in the third quarter of 2012. Net charge-offs in the third quarter of 2013 were $328 million, compared with $392 million in the second quarter of 2013 and $538 million in the third quarter of 2012. Given current economic conditions, the Company expects the level of net charge-offs to be relatively stable in the fourth 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 $1,880 million at September 30, 2013, compared with $1,921 million at June 30, 2013, and $2,188 million at September 30, 2012. The decrease in nonperforming assets, excluding covered assets, compared with a year ago was driven primarily by reductions in the commercial mortgage portfolio, as well as by improvement in construction and development, total commercial and credit card loans. Covered nonperforming assets were $332 million at September 30, 2013, compared with $355 million at June 30, 2013, and $647 million at September 30, 2012. The ratio of the allowance for credit losses to period-end loans, including covered loans, was 1.98 percent at September 30, 2013, compared with 2.02 percent at June 30, 2013, and 2.19 percent at September 30, 2012. The Company expects total nonperforming assets to remain relatively stable in the fourth quarter of 2013.

                         
NET INTEREST INCOME                  Read Full Story

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