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--()--U.S. Bancorp (NYSE: 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 | ||||||||||||||
| Change | Change | |||||||||||||||
| 3Q | 2Q | 3Q | 3Q12 vs | 3Q12 vs | YTD | YTD | Percent | |||||||||
| 2012 | 2012 | 2011 | 2Q12 | 3Q11 | 2012 | 2011 | Change | |||||||||
| Net income attributable to U.S. Bancorp | $1,474 | $1,415 | $1,273 | 4.2 | 15.8 | $4,227 | $3,522 | 20.0 | ||||||||
| Diluted earnings per common share | $.74 | $.71 | $.64 | 4.2 | 15.6 | $2.12 | $1.77 | 19.8 | ||||||||
| Return on average assets (%) | 1.70 | 1.67 | 1.57 | 1.66 | 1.50 | |||||||||||
| Return on average common equity (%) | 16.5 | 16.5 | 16.1 | 16.4 | 15.5 | |||||||||||
| Net interest margin (%) | 3.59 | 3.58 | 3.65 | 3.59 | 3.67 | |||||||||||
| Efficiency ratio (%) | 50.4 | 51.1 | 51.5 | 51.1 | 51.4 | |||||||||||
| Tangible efficiency ratio (%) (a) | 49.1 | 49.8 | 50.0 | 49.8 | 49.8 | |||||||||||
| Dividends declared per common share | $.195 | $.195 | $.125 | -- | 56.0 | $.585 | $.375 | 56.0 | ||||||||
| Book value per common share (period-end) | $18.03 | $17.45 | $16.01 | 3.3 | 12.6 | |||||||||||
| (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. (NYSE: 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.” read more
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