MINNEAPOLIS--(BUSINESS WIRE)--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.”
| INCOME STATEMENT HIGHLIGHTS | Table 2 | ||||||||||||||||||||||
| (Taxable-equivalent basis, $ in millions, | Percent | Percent | |||||||||||||||||||||
| except per-share data) | Change | Change | |||||||||||||||||||||
| 3Q | 2Q | 3Q | 3Q12 vs | 3Q12 vs | YTD | YTD | Percent | ||||||||||||||||
| 2012 | 2012 | 2011 | 2Q12 | 3Q11 | 2012 | 2011 | Change | ||||||||||||||||
| Net interest income | $2,783 | $2,713 | $2,624 | 2.6 | 6.1 | $8,186 | $7,675 | 6.7 | |||||||||||||||
| Noninterest income | 2,396 | 2,355 | 2,171 | 1.7 | 10.4 | 6,990 | 6,329 | 10.4 | |||||||||||||||
| Total net revenue | 5,179 | 5,068 | 4,795 | 2.2 | 8.0 | 15,176 | 14,004 | 8.4 | |||||||||||||||
| Noninterest expense | 2,609 | 2,601 | 2,476 | .3 | 5.4 | 7,770 | 7,215 | 7.7 | |||||||||||||||
| Income before provision and taxes | 2,570 | 2,467 | 2,319 | 4.2 | 10.8 | 7,406 | 6,789 | 9.1 | |||||||||||||||
| Provision for credit losses | 488 | 470 | 519 | 3.8 | (6.0 | ) | 1,439 | 1,846 | (22.0 | ) | |||||||||||||
| Income before taxes | 2,082 | 1,997 | 1,800 | 4.3 | 15.7 | 5,967 | 4,943 | 20.7 | |||||||||||||||
| Taxable-equivalent adjustment | 57 | 55 | 58 | 3.6 | (1.7 | ) | 168 | 169 | (.6 | ) | |||||||||||||
| Applicable income taxes | 593 | 564 | 490 | 5.1 | 21.0 | 1,684 | 1,314 | 28.2 | |||||||||||||||
| Net income | 1,432 | 1,378 | 1,252 | 3.9 | 14.4 | 4,115 | 3,460 | 18.9 | |||||||||||||||
| Net (income) loss attributable to | |||||||||||||||||||||||
| noncontrolling interests | 42 | 37 | 21 | 13.5 | nm | 112 | 62 | 80.6 | |||||||||||||||
| Net income attributable to U.S. Bancorp | $1,474 | $1,415 | $1,273 | 4.2 | 15.8 | $4,227 | $3,522 | 20.0 | |||||||||||||||
| Net income applicable to U.S. Bancorp | |||||||||||||||||||||||
| common shareholders | $1,404 | $1,345 | $1,237 | 4.4 | 13.5 | $4,034 | $3,407 | 18.4 | |||||||||||||||
| Diluted earnings per common share | $.74 | $.71 | $.64 | 4.2 | 15.6 | $2.12 | $1.77 | 19.8 | |||||||||||||||
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 core deposit 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) | |||||||||||||||||||||||||
| Change | Change | ||||||||||||||||||||||||
| 3Q | 2Q | 3Q | 3Q12 vs | 3Q12 vs | YTD | YTD | |||||||||||||||||||
| 2012 | 2012 | 2011 | 2Q12 | 3Q11 | 2012 | 2011 | Change | ||||||||||||||||||
| Components of net interest income | |||||||||||||||||||||||||
| Income on earning assets | $3,284 | $3,285 |
$3,258 |
$(1 | ) | $26 | $9,858 | $9,592 | $266 | ||||||||||||||||
| Expense on interest-bearing liabilities | 501 | 572 | 634 | (71 | ) | (133 | ) | 1,672 | 1,917 | (245 | ) | ||||||||||||||
| Net interest income | $2,783 | $2,713 |
$2,624 |
$70 | $159 | $8,186 | $7,675 | $511 | |||||||||||||||||
| Average yields and rates paid | |||||||||||||||||||||||||
| Earning assets yield | 4.24 | % | 4.34 | % | 4.53 | % | (.10 | )% | (.29 | )% | 4.33 | % | 4.59 | % | (.26 | )% | |||||||||
| Rate paid on interest-bearing liabilities | .88 | 1.02 | 1.15 | (.14 | ) | (.27 | ) | .99 | 1.16 | (.17 | ) | ||||||||||||||
| Gross interest margin | 3.36 | % | 3.32 | % | 3.38 | % | .04 | % | (.02 | )% | 3.34 | % | 3.43 | % | (.09 | )% | |||||||||
| Net interest margin | 3.59 | % | 3.58 | % | 3.65 | % | .01 | % | (.06 | )% | 3.59 | % | 3.67 | % | (.08 | )% | |||||||||
| Average balances | |||||||||||||||||||||||||
| Investment securities (a) | $72,454 | $73,181 |
$66,252 |
$(727 | ) | $6,202 | $72,371 | $61,907 | $10,464 | ||||||||||||||||
| Loans | 216,928 | 214,069 | 202,169 | 2,859 | 14,759 | 213,731 | 199,533 | 14,198 | |||||||||||||||||
| Earning assets | 308,959 | 303,754 | 286,269 | 5,205 | 22,690 | 304,269 | 279,305 | 24,964 | |||||||||||||||||
| Interest-bearing liabilities | 226,109 | 226,229 | 218,969 | (120 | ) | 7,140 | 225,885 | 221,560 | 4,325 | ||||||||||||||||
| (a) Excludes unrealized gain (loss) | |||||||||||||||||||||||||
Net Interest Income
Net interest income on a taxable-equivalent basis in the third quarter of 2012 was $2,783 million, compared with $2,624 million in the third quarter of 2011, an increase of $159 million (6.1 percent). The increase was principally the result of growth in average earning assets and lower cost core deposit funding, as well as reduced rates on long-term debt. The year-over-year increase was also impacted by a change in the classification of credit card balance transfer fees from noninterest income to interest income beginning in the first quarter of 2012. Average earning assets were $22.7 billion (7.9 percent) higher than the third quarter of 2011, driven by increases of $14.8 billion (7.3 percent) in average total loans and $6.2 billion (9.4 percent) in average investment securities. Net interest income increased $70 million (2.6 percent) on a linked quarter basis, the result of growth in average earning assets, including average total loans, average loans held for sale and average cash balances held at the Federal Reserve. The net interest margin in the third quarter of 2012 was 3.59 percent, compared with 3.65 percent in the third quarter of 2011, and 3.58 percent in the second quarter of 2012. The decline in the net interest margin year-over-year primarily reflected higher balances in lower yielding investment securities, partially offset by lower rates on deposits and long-term debt. On a linked quarter basis, the net interest margin was relatively flat, as the reduction in the yield on the investment securities portfolio was offset by favorable funding costs, primarily as a result of lower rates on long-term debt.
| AVERAGE LOANS | Table 4 | ||||||||||||||||||||
| ($ in millions) | Percent | Percent | |||||||||||||||||||
| Change | Change | ||||||||||||||||||||
| 3Q | 2Q | 3Q | 3Q12 vs | 3Q12 vs | YTD | YTD | Percent | ||||||||||||||
| 2012 | 2012 | 2011 | 2Q12 | 3Q11 | 2012 | 2011 | Change | ||||||||||||||
| Commercial | $56,655 | $54,362 | $46,484 | 4.2 | 21.9 | $54,118 | $44,448 | 21.8 | |||||||||||||
| Lease financing | 5,537 | 5,658 | 5,860 | (2.1 | ) | (5.5 | ) | 5,672 | 5,935 | (4.4 | ) | ||||||||||
| Total commercial | 62,192 | 60,020 | 52,344 | 3.6 | 18.8 | 59,790 | 50,383 | 18.7 | |||||||||||||
| Commercial mortgages | 30,686 | 30,624 | 28,979 | .2 | 5.9 | 30,403 | 28,377 | 7.1 | |||||||||||||
| Construction and development | 5,944 | 5,925 | 6,590 | .3 | (9.8 | ) | 5,986 | 7,040 | (15.0 | ) | |||||||||||
| Total commercial real estate | 36,630 | 36,549 | 35,569 | .2 | 3.0 | 36,389 | 35,417 | 2.7 | |||||||||||||
| Residential mortgages | 40,969 | 39,166 | 34,026 | 4.6 | 20.4 | 39,328 | 32,854 | 19.7 | |||||||||||||
| Credit card | 16,551 | 16,696 | 16,057 | (.9 | ) | 3.1 | 16,675 | 16,022 | 4.1 | ||||||||||||
| Retail leasing | 5,256 | 5,151 | 5,097 | 2.0 | 3.1 | 5,167 | 4,852 | 6.5 | |||||||||||||
| Home equity and second mortgages | 17,329 | 17,598 | 18,510 | (1.5 | ) | (6.4 | ) | 17,619 | 18,648 | (5.5 | ) | ||||||||||
| Other | 25,406 | 25,151 | 24,773 | 1.0 | 2.6 | 25,154 | 24,654 | 2.0 | |||||||||||||
| Total other retail | 47,991 | 47,900 | 48,380 | .2 | (.8 | ) | 47,940 | 48,154 | (.4 | ) | |||||||||||
| Total loans, excluding covered loans | 204,333 | 200,331 | 186,376 | 2.0 | 9.6 | 200,122 | 182,830 | 9.5 | |||||||||||||
| Covered loans | 12,595 | 13,738 | 15,793 | (8.3 | ) | (20.2 | ) | 13,609 | 16,703 | (18.5 | ) | ||||||||||
| Total loans | $216,928 | $214,069 | $202,169 | 1.3 | 7.3 | $213,731 | $199,533 | 7.1 | |||||||||||||
Average total loans were $14.8 billion (7.3 percent) higher in the third quarter of 2012 than the third quarter of 2011, driven by growth in commercial loans (21.9 percent), residential mortgages (20.4 percent), commercial mortgages (5.9 percent), credit card loans (3.1 percent) and other retail loans (2.6 percent). These increases were partially offset by declines in construction and development (9.8 percent), home equity and second mortgages (6.4 percent) and covered loans (20.2 percent). Average total loans, excluding covered loans, were higher by 9.6 percent year-over-year. During the third quarter of 2012, the Company sold a nearly $735 million branded consumer and business credit card portfolio. This lowered average loans by approximately $485 million in the third quarter of 2012. This sale was offset year-over-year, by the impact of the purchase of approximately $700 million of consumer credit cards in the fourth quarter of 2011. Average total loans were $2.9 billion (1.3 percent) higher in the third quarter of 2012 than the second quarter of 2012, driven by increases in residential mortgages (4.6 percent), commercial loans (4.2 percent), retail leasing (2.0 percent) and other retail loans (1.0 percent), partially offset by decreases in home equity and second mortgages (1.5 percent), credit card loans (.9 percent) due to the portfolio sale, and covered loans (8.3 percent). Excluding covered loans, average total loans grew by 2.0 percent on a linked quarter basis.
Average investment securities in the third quarter of 2012 were $6.2 billion (9.4 percent) higher year-over-year and $.7 billion (1.0 percent) lower than the prior quarter. The increase over the prior year was primarily due to purchases of U.S. government agency-backed securities. The decrease on a linked quarter basis primarily reflected the sale of non-agency mortgage-backed and other asset-backed securities.
| AVERAGE DEPOSITS | Table 5 | |||||||||||||||||||||||
| ($ in millions) | Percent | Percent | ||||||||||||||||||||||
| Change | Change | |||||||||||||||||||||||
| 3Q | 2Q | 3Q | 3Q12 vs | 3Q12 vs | YTD | YTD | Percent | |||||||||||||||||
| 2012 | 2012 | 2011 | 2Q12 | 3Q11 | 2012 | 2011 | Change | |||||||||||||||||
| Noninterest-bearing deposits | $68,127 | $64,531 | $58,606 | 5.6 | 16.2 | $65,423 | $50,558 | 29.4 | ||||||||||||||||
| Interest-bearing savings deposits | ||||||||||||||||||||||||
| Interest checking | 43,207 | 45,928 | 41,042 | (5.9 | ) | 5.3 | 45,522 | 42,335 | 7.5 | |||||||||||||||
| Money market savings | 47,530 | 44,456 | 44,623 | 6.9 | 6.5 | 45,977 | 45,091 | 2.0 | ||||||||||||||||
| Savings accounts | 29,743 | 29,556 | 27,042 | .6 | 10.0 | 29,383 | 26,304 | 11.7 | ||||||||||||||||
| Total of savings deposits | 120,480 | 119,940 | 112,707 | .5 | 6.9 | 120,882 | 113,730 | 6.3 | ||||||||||||||||
|
Time certificates of deposit less than $100,000 |
14,362 | 14,768 | 15,251 | (2.7 | ) | (5.8 | ) | 14,695 | 15,294 | (3.9 | ) | |||||||||||||
| Time deposits greater than $100,000 | 36,312 | 32,062 | 28,805 | 13.3 | 26.1 | 31,978 | 30,153 | 6.1 | ||||||||||||||||
| Total interest-bearing deposits | 171,154 | 166,770 | 156,763 | 2.6 | 9.2 | 167,555 | 159,177 | 5.3 | ||||||||||||||||
| Total deposits | $239,281 | $231,301 | $215,369 | 3.5 | 11.1 | $232,978 | $209,735 | 11.1 | ||||||||||||||||
Average total deposits for the third quarter of 2012 were $23.9 billion (11.1 percent) higher than the third quarter of 2011. Average noninterest-bearing deposits increased $9.5 billion (16.2 percent) year-over-year, with growth in average balances in a majority of the lines of business, including Wholesale Banking and Commercial Real Estate, Wealth Management and Securities Services, and Consumer and Small Business Banking. Average total savings deposits were $7.8 billion (6.9 percent) higher year-over-year, the result of growth in Consumer and Small Business Banking and corporate trust average balances, partially offset by lower government banking and broker-dealer average balances. Average time certificates of deposit less than $100,000 were $.9 billion (5.8 percent) lower, while time deposits greater than $100,000 were $7.5 billion (26.1 percent) higher than the third quarter of 2011, principally in Wholesale Banking and Commercial Real Estate. Time deposits greater than $100,000 are managed as an alternative to other funding sources such as wholesale borrowing, based largely on relative pricing.
Average total deposits increased $8.0 billion (3.5 percent) over the second quarter of 2012. Average noninterest-bearing deposits increased by $3.6 billion (5.6 percent) on a linked quarter basis, mainly driven by growth in Consumer and Small Business Banking and corporate trust average balances. Average total savings deposits increased slightly, $.5 billion (.5 percent) on a linked quarter basis, due to higher Wholesale Banking and Commercial Real Estate and Consumer and Small Business Banking average balances, partially offset by lower institutional trust average balances. Compared with the second quarter of 2012, average time certificates of deposit less than $100,000 were lower by $.4 billion (2.7 percent), while average time deposits greater than $100,000 increased $4.3 billion (13.3 percent), primarily in Wholesale Banking and Commercial Real Estate.
| NONINTEREST INCOME | Table 6 | |||||||||||||||||||||||
| ($ in millions) | Percent | Percent | ||||||||||||||||||||||
| Change | Change | |||||||||||||||||||||||
| 3Q | 2Q | 3Q | 3Q12 vs | 3Q12 vs | YTD | YTD | Percent | |||||||||||||||||
| 2012 | 2012 | 2011 | 2Q12 | 3Q11 | 2012 | 2011 | Change | |||||||||||||||||
| Credit and debit card revenue | $213 | $235 | $289 | (9.4 | ) | (26.3 | ) | $650 | $842 | (22.8 | ) | |||||||||||||
| Corporate payment products revenue | 201 | 190 | 203 | 5.8 | (1.0 | ) | 566 | 563 | .5 | |||||||||||||||
| Merchant processing services | 345 | 359 | 338 | (3.9 | ) | 2.1 | 1,041 | 977 | 6.6 | |||||||||||||||
| ATM processing services | 87 | 89 | 115 | (2.2 | ) | (24.3 | ) | 263 | 341 | (22.9 | ) | |||||||||||||
| Trust and investment management fees | 265 | 262 | 241 | 1.1 | 10.0 | 779 | 755 | 3.2 | ||||||||||||||||
| Deposit service charges | 174 | 156 | 183 | 11.5 | (4.9 | ) | 483 | 488 | (1.0 | ) | ||||||||||||||
| Treasury management fees | 135 | 142 | 137 | (4.9 | ) | (1.5 | ) | 411 | 418 | (1.7 | ) | |||||||||||||
| Commercial products revenue | 225 | 216 | 212 | 4.2 | 6.1 | 652 | 621 | 5.0 | ||||||||||||||||
| Mortgage banking revenue | 519 | 490 | 245 | 5.9 | nm | 1,461 | 683 | nm | ||||||||||||||||
| Investment products fees and commissions | 38 | 38 | 31 | -- | 22.6 | 111 | 98 | 13.3 | ||||||||||||||||
| Securities gains (losses), net | 1 | (19 | ) | (9 | ) | nm | nm | (18 | ) | (22 | ) | 18.2 | ||||||||||||
| Other | 193 | 197 | 186 | (2.0 | ) | 3.8 | 591 | 565 | 4.6 | |||||||||||||||
| Total noninterest income | $2,396 | $2,355 | $2,171 | 1.7 | 10.4 | $6,990 | $6,329 | 10.4 | ||||||||||||||||
Noninterest Income
Third quarter noninterest income was $2,396 million; $225 million (10.4 percent) higher than the third quarter of 2011 and $41 million (1.7 percent) higher than the second quarter of 2012. The year-over-year increase in noninterest income was primarily driven by strong mortgage banking revenue. The $274 million increase in mortgage banking revenue over the same quarter of last year was principally due to higher origination and sales revenue. Merchant processing services revenue increased $7 million (2.1 percent), primarily due to increased transaction volumes. Trust and investment management fees increased $24 million (10.0 percent) year-over-year due to improved market conditions and business expansion. The $13 million (6.1 percent) increase in commercial products revenue was principally driven by higher bond underwriting fees. Investment products fees and commissions increased $7 million (22.6 percent) compared with the prior year due to increased volumes. Other income increased $7 million (3.8 percent) year-over-year, reflecting the impact of the gain on the credit card portfolio sale, partially offset by the equity-method investment charge and lower retail lease residual revenue. In addition, the third quarter of 2012 had a $10 million favorable change in net securities gains (losses), primarily due to impairments recorded in the prior year. Offsetting these positive variances was a $76 million (26.3 percent) decrease in credit and debit card revenue due to lower debit card interchange fees as a result of legislative-related changes in the fourth quarter of 2011, net of mitigation efforts, and a change in the classification of credit card balance transfer fees from noninterest income to interest income beginning in the first quarter of 2012. However, these negative variances were partially offset by higher transaction volumes. ATM processing services revenue decreased $28 million (24.3 percent), due to classifying surcharge revenue passed through to others as a reduction of revenue beginning in the first quarter of 2012, rather than as occupancy expense as in previous periods. The $9 million (4.9 percent) decrease in deposit service charges reflected process and product changes and lower overdraft volumes.
Noninterest income was $41 million (1.7 percent) higher in the third quarter of 2012 than the second quarter of 2012. Corporate payment products revenue increased $11 million (5.8 percent) due to seasonally higher sales volumes. Deposit service charges were $18 million (11.5 percent) higher on a linked quarter basis due to product redesign and repricing initiatives. A $9 million (4.2 percent) increase in commercial products revenue was principally due to higher syndication fees and bond underwriting revenue. Mortgage banking revenue was $29 million (5.9 percent) higher than the second quarter of 2012 due to higher origination and sales revenue, partially offset by an unfavorable change in the valuation of mortgage servicing rights (“MSRs”), net of hedging activities. In addition, the third quarter of 2012 had a $20 million favorable change in net securities gains (losses), principally due to impairment recognized in the second quarter of 2012 on a number of securities following downgrades of money center banks by a rating agency. These positive variances were offset by a $22 million (9.4 percent) decline in credit and debit card revenue, primarily due to a benefit from the final expiration of debit card customer rewards recognized in the second quarter of 2012. Merchant processing services revenue and treasury management fees decreased $14 million (3.9 percent) and $7 million (4.9 percent), respectively, due to lower volumes. Other income declined $4 million (2.0 percent) on a linked quarter basis, primarily due to the equity-method investment charge and lower retail lease residual revenue, partially offset by the gain on the credit card portfolio sale.
| NONINTEREST EXPENSE | Table 7 | ||||||||||||||||||||
| ($ in millions) | Percent | Percent | |||||||||||||||||||
| Change | Change | ||||||||||||||||||||
| 3Q | 2Q | 3Q | 3Q12 vs | 3Q12 vs | YTD | YTD | Percent | ||||||||||||||
| 2012 | 2012 | 2011 | 2Q12 | 3Q11 | 2012 | 2011 | Change | ||||||||||||||
| Compensation | $1,109 | $1,076 | $1,021 | 3.1 | 8.6 | $3,237 | $2,984 | 8.5 | |||||||||||||
| Employee benefits | 225 | 229 | 203 | (1.7 | ) | 10.8 | 714 | 643 | 11.0 | ||||||||||||
| Net occupancy and equipment | 233 | 230 | 252 | 1.3 | (7.5 | ) | 683 | 750 | (8.9 | ) | |||||||||||
| Professional services | 144 | 136 | 100 | 5.9 | 44.0 | 364 | 252 | 44.4 | |||||||||||||
| Marketing and business development | 96 | 80 | 102 | 20.0 | (5.9 | ) | 285 | 257 | 10.9 | ||||||||||||
| Technology and communications | 205 | 201 | 189 | 2.0 | 8.5 | 607 | 563 | 7.8 | |||||||||||||
| Postage, printing and supplies | 75 | 77 | 76 | (2.6 | ) | (1.3 | ) | 226 | 226 | -- | |||||||||||
| Other intangibles | 67 | 70 | 75 | (4.3 | ) | (10.7 | ) | 208 | 225 | (7.6 | ) | ||||||||||
| Other | 455 | 502 | 458 | (9.4 | ) | (.7 | ) | 1,446 | 1,315 | 10.0 | |||||||||||
| Total noninterest expense | $2,609 | $2,601 | $2,476 | .3 | 5.4 | $7,770 | $7,215 | 7.7 | |||||||||||||
Noninterest Expense
Noninterest expense in the third quarter of 2012 totaled $2,609 million, an increase of $133 million (5.4 percent) over the third quarter of 2011, and an $8 million (.3 percent) increase over the second quarter of 2012. The increase in total noninterest expense year-over-year was primarily due to higher compensation expense, employee benefits expense and professional services expense. Compensation and employee benefits expense increased over the prior year by $88 million (8.6 percent) and $22 million (10.8 percent), respectively. The increase in compensation expense was primarily the result of growth in staffing for business initiatives and mortgage servicing-related activities, in addition to higher commissions and merit increases. Employee benefits expense increased principally due to higher pension costs and staffing levels. Professional services expense was $44 million (44.0 percent) higher year-over-year, principally due to mortgage servicing review-related projects. Technology and communications expense was $16 million (8.5 percent) higher year-over-year, due to business expansion and technology projects. These increases were partly offset by a decrease in net occupancy and equipment expense of $19 million (7.5 percent), principally reflecting the change in classification in the first quarter of 2012 of ATM surcharge revenue passed through to others, and a decrease in other intangibles expense of $8 million (10.7 percent) due to the reduction or completion of the amortization of certain intangibles.
Noninterest expense was relatively flat on a linked quarter basis, as increases in compensation and marketing and business development expense were offset by the impact of the Visa accrual recorded in the second quarter of 2012. Compensation expense increased $33 million (3.1 percent) on a linked quarter basis, due to the impact of an increase in commissions and incentives, as well as higher staffing levels. Professional services expense was $8 million (5.9 percent) higher due to mortgage servicing review-related projects. Marketing and business development was $16 million (20.0 percent) higher compared to the second quarter of 2012 due to the timing of new national media promotions. These increases were partially offset by a $47 million (9.4 percent) decrease in other expense, primarily due to the second quarter of 2012 Visa accrual and lower FDIC insurance costs, partially offset by higher costs related to investments in affordable housing and other tax-advantaged projects.
Provision for Income Taxes
The provision for income taxes for the third quarter of 2012 resulted in a tax rate on a taxable-equivalent basis of 31.2 percent (effective tax rate of 29.3 percent), compared with 30.4 percent (effective tax rate of 28.1 percent) in the third quarter of 2011 and 31.0 percent (effective tax rate of 29.0 percent) in the second quarter of 2012.
| ALLOWANCE FOR CREDIT LOSSES | Table 8 | |||||||||||||||
| ($ in millions) | 3Q | 2Q | 1Q | 4Q | 3Q | |||||||||||
| 2012 | 2012 | 2012 | 2011 | 2011 | ||||||||||||
| Balance, beginning of period | $4,864 | $4,919 | $5,014 | $5,190 | $5,308 | |||||||||||
| Net charge-offs | ||||||||||||||||
| Commercial | 59 | 56 | 78 | 51 | 90 | |||||||||||
| Lease financing | 7 | 15 | 8 | 21 | 9 | |||||||||||
| Total commercial | 66 | 71 | 86 | 72 | 99 | |||||||||||
| Commercial mortgages | 20 | 47 | 35 | 37 | 68 | |||||||||||
| Construction and development | 5 | 6 | 36 | 47 | 57 | |||||||||||
| Total commercial real estate | 25 | 53 | 71 | 84 | 125 | |||||||||||
| Residential mortgages | 121 | 109 | 112 | 119 | 122 | |||||||||||
| Credit card | 167 | 170 | 169 | 193 | 178 | |||||||||||
| Retail leasing | -- | -- | 1 | -- | (1 | ) | ||||||||||
| Home equity and second mortgages | 89 | 63 | 74 | 77 | 74 | |||||||||||
| Other | 68 | 54 | 57 | 75 | 69 | |||||||||||
| Total other retail | 157 | 117 | 132 | 152 | 142 | |||||||||||
| Total net charge-offs, excluding covered loans | 536 | 520 | 570 | 620 | 666 | |||||||||||
| Covered loans | 2 | -- | 1 | 2 | 3 | |||||||||||
| Total net charge-offs | 538 | 520 | 571 | 622 | 669 | |||||||||||
| Provision for credit losses | 488 | 470 | 481 | 497 | 519 | |||||||||||
| Net change for credit losses to be reimbursed by the FDIC | (10 | ) | (5 | ) | (5 | ) | (51 | ) | 32 | |||||||
| Other changes | (33 | ) | -- | -- | -- | -- | ||||||||||
| Balance, end of period | $4,771 | $4,864 | $4,919 | $5,014 | $5,190 | |||||||||||
| Components | ||||||||||||||||
| Allowance for loan losses, excluding losses to be | ||||||||||||||||
| reimbursed by the FDIC | $4,426 | $4,507 | $4,575 | $4,678 | $4,823 | |||||||||||
| Allowance for credit losses to be reimbursed | ||||||||||||||||
| by the FDIC | 55 | 65 | 70 | 75 | 127 | |||||||||||
| Liability for unfunded credit commitments | 290 | 292 | 274 | 261 | 240 | |||||||||||
| Total allowance for credit losses | $4,771 | $4,864 | $4,919 | $5,014 | $5,190 | |||||||||||
| Gross charge-offs | $639 | $631 | $681 | $718 | $762 | |||||||||||
| Gross recoveries | $101 | $111 | $110 | $96 | $93 | |||||||||||
| Allowance for credit losses as a percentage of | ||||||||||||||||
| Period-end loans, excluding covered loans | 2.26 | 2.34 | 2.44 | 2.52 | 2.66 | |||||||||||
| Nonperforming loans, excluding covered loans | 244 | 247 | 238 | 228 | 196 | |||||||||||
| Nonperforming assets, excluding covered assets | 213 | 210 | 199 | 191 | 166 | |||||||||||
| Period-end loans | 2.19 | 2.25 | 2.32 | 2.39 | 2.53 | |||||||||||
| Nonperforming loans | 202 | 196 | 174 | 163 | 145 | |||||||||||
| Nonperforming assets | 168 | 161 | 142 | 133 | 120 | |||||||||||
Credit Quality
Net charge-offs and nonperforming assets declined on a year-over-year basis as economic conditions continued to slowly improve. On a linked quarter basis, net charge-offs increased $18 million (3.5 percent), while nonperforming assets, excluding covered assets, decreased $68 million (3.0 percent). Both were impacted by the regulatory clarification in the treatment of consumer borrowers exiting bankruptcy. On a linked quarter basis, without the impact of the regulatory clarification, net charge-offs would have decreased by $36 million (6.9 percent) and nonperforming assets, excluding covered assets, would have decreased by $177 million (7.8 percent). The allowance for credit losses was $4,771 million at September 30, 2012, compared with $4,864 million at June 30, 2012, and $5,190 million at September 30, 2011. Total 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. The $18 million (3.5 percent) increase in total net charge-offs on a linked quarter basis, included $54 million of incremental charge-offs due to regulatory guidance related to residential mortgage and other consumer loans to borrowers who have exited bankruptcy but continue to make payments on their loans, partially offset by improvement in commercial and commercial real estate portfolios. The $131 million (19.6 percent) decline in net charge-offs compared with the prior year was due to improvement in the commercial, commercial real estate and credit card portfolios, compared with the third quarter of 2011, partially offset by the current quarter incremental bankruptcy-related charge-offs in the residential mortgage and other retail portfolios. The Company recorded $488 million of provision for credit losses, $50 million less than net charge-offs, during the third quarter of 2012. The allowance for credit losses reimbursable by the FDIC decreased to $55 million at September 30, 2012. In addition, the allowance for credit losses was reduced by $33 million, as a result of the credit card portfolio sale in the current quarter.
Commercial and commercial real estate loan net charge-offs decreased to $91 million (.37 percent of average loans outstanding) in the third quarter of 2012, compared with $124 million (.52 percent of average loans outstanding) in the second quarter of 2012, and $224 million (1.01 percent of average loans outstanding) in the third quarter of 2011.
Residential mortgage loan net charge-offs, including $22 million of current quarter incremental bankruptcy-related charge-offs, were $121 million (1.17 percent of average loans outstanding) in the third quarter of 2012, compared with $109 million (1.12 percent of average loans outstanding) in the second quarter of 2012 and $122 million (1.42 percent of average loans outstanding) in the third quarter of 2011. Credit card loan net charge-offs were $167 million (4.01 percent of average loans outstanding) in the third quarter of 2012, lower than both the $170 million (4.10 percent of average loans outstanding) in the second quarter of 2012, and the $178 million (4.40 percent of average loans outstanding) in the third quarter of 2011. Total other retail loan net charge-offs included $32 million of the current quarter’s incremental bankruptcy-related charge-offs. Total other retail loan net charge-offs were $157 million (1.30 percent of average loans outstanding) in the third quarter of 2012, higher than both the $117 million (.98 percent of average loans outstanding) in the second quarter of 2012, and the $142 million (1.16 percent of average loans outstanding) in the third quarter of 2011.
The ratio of the allowance for credit losses to period-end loans was 2.19 percent (2.26 percent excluding covered loans) at September 30, 2012, compared with 2.25 percent (2.34 percent excluding covered loans) at June 30, 2012, and 2.53 percent (2.66 percent excluding covered loans) at September 30, 2011. The ratio of the allowance for credit losses to nonperforming loans was 202 percent (244 percent excluding covered loans) at September 30, 2012, compared with 196 percent (247 percent excluding covered loans) at June 30, 2012, and 145 percent (196 percent excluding covered loans) at September 30, 2011.
| CREDIT RATIOS | Table 9 | |||||||||||||||||||
| (Percent) | 3Q | 2Q | 1Q | 4Q | 3Q | |||||||||||||||
| 2012 | 2012 | 2012 | 2011 | 2011 | ||||||||||||||||
| Net charge-offs ratios (a) | ||||||||||||||||||||
| Commercial | .41 | .41 | .61 | .41 | .77 | |||||||||||||||
| Lease financing | .50 | 1.07 | .55 | 1.43 | .61 | |||||||||||||||
| Total commercial | .42 | .48 | .61 | .52 | .75 | |||||||||||||||
| Commercial mortgages | .26 | .62 | .47 | .50 | .93 | |||||||||||||||
| Construction and development | .33 | .41 | 2.38 | 2.91 | 3.43 | |||||||||||||||
| Total commercial real estate | .27 | .58 | .79 | .93 | 1.39 | |||||||||||||||
| Residential mortgages | 1.17 | 1.12 | 1.19 | 1.30 | 1.42 | |||||||||||||||
| Credit card (b) | 4.01 | 4.10 | 4.05 | 4.71 | 4.40 | |||||||||||||||
| Retail leasing | -- | -- | .08 | -- | (.08 | ) | ||||||||||||||
| Home equity and second mortgages | 2.04 | 1.44 | 1.66 | 1.67 | 1.59 | |||||||||||||||
| Other | 1.06 | .86 | .92 | 1.19 | 1.11 | |||||||||||||||
| Total other retail | 1.30 | .98 | 1.11 | 1.25 | 1.16 | |||||||||||||||
| Total net charge-offs, excluding covered loans | 1.04 | 1.04 | 1.17 | 1.28 | 1.42 | |||||||||||||||
| Covered loans | .06 | -- | .03 | .05 | .08 | |||||||||||||||
| Total net charge-offs | .99 | .98 | 1.09 | 1.19 | 1.31 | |||||||||||||||
| Delinquent loan ratios - 90 days or more past due excluding nonperforming loans (c) | ||||||||||||||||||||
| Commercial | .06 | .07 | .08 | .08 | .08 | |||||||||||||||
| Commercial real estate | .03 | .03 | .04 | .04 | .08 | |||||||||||||||
| Residential mortgages | .72 | .80 | .79 | .98 | 1.03 | |||||||||||||||
| Credit card | 1.18 | 1.17 | 1.33 | 1.36 | 1.28 | |||||||||||||||
| Other retail | .20 | .19 | .34 | .38 | .36 | |||||||||||||||
| Total loans, excluding covered loans | .31 | .33 | .38 | .43 | .43 | |||||||||||||||
| Covered loans | 5.61 | 4.96 | 5.23 | 6.15 | 5.14 | |||||||||||||||
| Total loans | .61 | .61 | .70 | .84 | .78 | |||||||||||||||
| Delinquent loan ratios - 90 days or more past due including nonperforming loans (c) | ||||||||||||||||||||
| Commercial | .31 | .38 | .61 | .63 | .79 | |||||||||||||||
| Commercial real estate | 1.75 | 1.92 | 2.15 | 2.55 | 3.51 | |||||||||||||||
| Residential mortgages | 2.52 | 2.46 | 2.58 | 2.73 | 2.88 | |||||||||||||||
| Credit card | 2.18 | 2.29 | 2.58 | 2.65 | 2.81 | |||||||||||||||
| Other retail | .64 | .57 | .48 | .52 | .50 | |||||||||||||||
| Total loans, excluding covered loans | 1.24 | 1.27 | 1.40 | 1.54 | 1.79 | |||||||||||||||
| Covered loans | 9.30 | 9.30 | 10.86 | 12.42 | 11.70 | |||||||||||||||
| Total loans | 1.69 | 1.76 | 2.04 | 2.30 | 2.53 | |||||||||||||||
|
(a) Annualized and calculated on average loan balances |
||||||||||||||||||||
| (b) Net charge-offs as a percent of average loans outstanding, excluding portfolio purchases where the acquired loans | ||||||||||||||||||||
| were recorded at fair value at the purchase date were 4.17 percent for the third quarter of 2012, 4.25 percent for | ||||||||||||||||||||
| the second quarter of 2012, 4.21 percent for the first quarter of 2012, 4.88 percent for the fourth quarter of 2011 | ||||||||||||||||||||
| and 4.54 percent for the third quarter of 2011. | ||||||||||||||||||||
|
(c) Ratios are expressed as a percent of ending loan balances. |
||||||||||||||||||||
| ASSET QUALITY | Table 10 | ||||||||||||||
| ($ in millions) | |||||||||||||||
| Sep 30 | Jun 30 | Mar 31 | Dec 31 | Sep 30 | |||||||||||
| 2012 | 2012 | 2012 | 2011 | 2011 | |||||||||||
| Nonperforming loans | |||||||||||||||
| Commercial | $133 | $172 | $280 | $280 | $342 | ||||||||||
| Lease financing | 19 | 23 | 31 | 32 | 40 | ||||||||||
| Total commercial | 152 | 195 | 311 | 312 | 382 | ||||||||||
| Commercial mortgages | 392 | 376 | 380 | 354 | 600 | ||||||||||
| Construction and development | 239 | 314 | 379 | 545 | 620 | ||||||||||
| Total commercial real estate | 631 | 690 | 759 | 899 | 1,220 | ||||||||||
| Residential mortgages | 757 | 660 | 686 | 650 | 650 | ||||||||||
| Credit card | 163 | 189 | 207 | 224 | 250 | ||||||||||
| Other retail | 210 | 182 | 65 | 67 | 66 | ||||||||||
| Total nonperforming loans, excluding covered loans | 1,913 | 1,916 | 2,028 | 2,152 | 2,568 | ||||||||||
| Covered loans | 449 | 570 | 798 | 926 | 1,010 | ||||||||||
| Total nonperforming loans | 2,362 | 2,486 | 2,826 | 3,078 | 3,578 | ||||||||||
| Other real estate (a) | 259 | 324 | 377 | 404 | 452 | ||||||||||
| Covered other real estate (a) | 198 | 203 | 233 | 274 | 293 | ||||||||||
| Other nonperforming assets | 16 | 16 | 18 | 18 | 16 | ||||||||||
|
|
|||||||||||||||
| Total nonperforming assets (b) | $2,835 | $3,029 | $3,454 | $3,774 | $4,339 | ||||||||||
| Total nonperforming assets, excluding covered assets | $2,188 | $2,256 | $2,423 | $2,574 | $3,036 | ||||||||||
| Accruing loans 90 days or more | |||||||||||||||
| past due, excluding covered loans | $644 | $663 | $750 | $843 | $814 | ||||||||||
| Accruing loans 90 days or more past due | $1,326 | $1,315 | $1,492 | $1,753 | $1,606 | ||||||||||
| Performing restructured loans, excluding GNMA | |||||||||||||||
| and covered loans | $3,387 | $3,310 | $3,380 | $3,365 | $3,095 | ||||||||||
| Performing restructured GNMA and covered loans | $2,002 | $1,727 | $1,675 | $1,509 | $1,025 | ||||||||||
| Nonperforming assets to loans | |||||||||||||||
| plus ORE, excluding covered assets (%) | 1.06 | 1.11 | 1.22 | 1.32 | 1.60 | ||||||||||
| Nonperforming assets to loans | |||||||||||||||
| plus ORE (%) | 1.30 | 1.40 | 1.63 | 1.79 | 2.11 | ||||||||||
|
(a) Includes equity investments in entities whose only asset is other real estate owned. |
|||||||||||||||
|
(b) Does not include accruing loans 90 days or more past due or restructured loans that continue to accrue interest. |
|||||||||||||||
Nonperforming assets at September 30, 2012, totaled $2,835 million, compared with $3,029 million at June 30, 2012, and $4,339 million at September 30, 2011. Total nonperforming assets at September 30, 2012, included $647 million of covered assets. The ratio of nonperforming assets to loans and other real estate was 1.30 percent (1.06 percent excluding covered assets) at September 30, 2012, compared with 1.40 percent (1.11 percent excluding covered assets) at June 30, 2012, and 2.11 percent (1.60 percent excluding covered assets) at September 30, 2011. 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 and other commercial loan portfolios, partially offset by an increase in nonperforming other retail loans, primarily due to the policy change for junior lien lines and loans in the second quarter. In addition, residential mortgage and other retail loan portfolios were impacted by the current quarter regulatory clarification in the treatment of consumer borrowers exiting bankruptcy.
Accruing loans 90 days or more past due were $1,326 million ($644 million excluding covered loans) at September 30, 2012, slightly higher than the $1,315 million ($663 million excluding covered loans) at June 30, 2012, but lower than the $1,606 million ($814 million excluding covered loans) at September 30, 2011. Performing restructured loans, excluding GNMA and covered loans, increased $77 million compared with June 30, 2012, and $292 million compared with September 30, 2011. The increase from a year ago and on a linked quarter basis, included $318 million due to the regulatory clarification in the treatment of consumer borrowers exiting bankruptcy.
| CAPITAL POSITION | Table 11 | |||||||||||||||
| ($ in millions) | Sep 30 | Jun 30 | Mar 31 | Dec 31 | Sep 30 | |||||||||||
| 2012 | 2012 | 2012 | 2011 | 2011 | ||||||||||||
| Total U.S. Bancorp shareholders' equity | $38,661 | $37,792 | $35,900 | $33,978 | $33,230 | |||||||||||
| Tier 1 capital | 30,766 | 30,044 | 29,976 | 29,173 | 28,081 | |||||||||||
| Total risk-based capital | 37,559 | 36,429 | 36,431 | 36,067 | 35,369 | |||||||||||
| Tier 1 capital ratio | 10.9 | % | 10.7 | % | 10.9 | % | 10.8 | % | 10.8 | % | ||||||
| Total risk-based capital ratio | 13.3 | 13.0 | 13.3 | 13.3 | 13.5 | |||||||||||
| Leverage ratio | 9.2 | 9.1 | 9.2 | 9.1 | 9.0 | |||||||||||
| Tangible common equity to tangible assets | 7.2 | 6.9 | 6.9 | 6.6 | 6.6 | |||||||||||
| Tangible common equity to risk-weighted assets | 8.8 | 8.5 | 8.3 | 8.1 | 8.1 | |||||||||||
| Tier 1 common equity to risk-weighted assets | ||||||||||||||||
| using Basel I definition | 9.0 | 8.8 | 8.7 | 8.6 | 8.5 | |||||||||||
| Tier 1 common equity to risk-weighted assets | ||||||||||||||||
| using Basel III proposals published prior to June 2012 | -- | -- | 8.4 | 8.2 | 8.2 | |||||||||||
| Tier 1 common equity to risk-weighted assets approximated | ||||||||||||||||
| using proposed rules for the Basel III standardized | ||||||||||||||||
| approach released June 2012 | 8.2 | 7.9 | -- | -- | -- | |||||||||||
Total U.S. Bancorp shareholders’ equity was $38.7 billion at September 30, 2012, compared with $37.8 billion at June 30, 2012, and $33.2 billion at September 30, 2011. The Tier 1 capital ratio was 10.9 percent at September 30, 2012, compared with 10.7 percent at June 30, 2012, and 10.8 percent at September 30, 2011. The tangible common equity to tangible assets ratio was 7.2 percent at September 30, 2012, compared with 6.9 percent at June 30, 2012, and 6.6 percent at September 30, 2011. The Tier 1 common equity to risk-weighted assets ratio was 9.0 percent at September 30, 2012, compared with 8.8 percent at June 30, 2012, and 8.5 percent at September 30, 2011. All regulatory ratios continue to be in excess of “well-capitalized” requirements. Additionally, the Tier 1 common equity to risk-weighted assets ratio using proposed rules for the Basel III standardized approach released June 2012 was approximately 8.2 percent at September 30, 2012 compared with 7.9 percent at June 20, 2012. During the third quarter, the Company declared $367 million in common stock dividends and repurchased common stock totaling $581 million.
| COMMON SHARES | Table 12 | |||||||||||||||||||
| (Millions) | 3Q | 2Q | 1Q | 4Q | 3Q | |||||||||||||||
| 2012 | 2012 | 2012 | 2011 | 2011 | ||||||||||||||||
| Beginning shares outstanding | 1,892 | 1,901 | 1,910 | 1,913 | 1,925 | |||||||||||||||
| Shares issued for stock option and stock purchase | ||||||||||||||||||||
| plans, acquisitions and other corporate purposes | 5 | 4 | 7 | 3 | 1 | |||||||||||||||
| Shares repurchased | (17 | ) | (13 | ) | (16 | ) | (6 | ) | (13 | ) | ||||||||||
| Ending shares outstanding | 1,880 | 1,892 | 1,901 | 1,910 | 1,913 | |||||||||||||||
| LINE OF BUSINESS FINANCIAL PERFORMANCE (a) | Table 13 | |||||||||||||||||||||||
| ($ in millions) | ||||||||||||||||||||||||
| Net Income Attributable | Net Income Attributable | |||||||||||||||||||||||
| to U.S. Bancorp | Percent Change | to U.S. Bancorp | 3Q 2012 | |||||||||||||||||||||
| 3Q | 2Q | 3Q | 3Q12 vs | 3Q12 vs | YTD | YTD | Percent | Earnings | ||||||||||||||||
| Business Line | 2012 | 2012 | 2011 | 2Q12 | 3Q11 | 2012 | 2011 | Change | Composition | |||||||||||||||
| Wholesale Banking and | ||||||||||||||||||||||||
| Commercial Real Estate | $326 | $328 | $304 | (.6 | ) | 7.2 | $984 | $781 | 26.0 | 22 | % | |||||||||||||
| Consumer and Small Business | ||||||||||||||||||||||||
| Banking | 326 | 364 | 221 | (10.4 | ) | 47.5 | 1,060 | 523 | nm | 22 | ||||||||||||||
| Wealth Management and | ||||||||||||||||||||||||
| Securities Services | 42 | 40 | 41 | 5.0 | 2.4 | 127 | 139 | (8.6 | ) | 3 | ||||||||||||||
| Payment Services | 376 | 315 | 354 | 19.4 | 6.2 | 946 | 1,006 | (6.0 | ) | 26 | ||||||||||||||
| Treasury and Corporate Support | 404 | 368 | 353 | 9.8 | 14.4 | 1,110 | 1,073 | 3.4 | 27 | |||||||||||||||
| Consolidated Company | $1,474 | $1,415 | $1,273 | 4.2 | 15.8 | $4,227 | $3,522 | 20.0 | 100 | % | ||||||||||||||
| (a) preliminary data | ||||||||||||||||||||||||
Lines of Business
The Company’s major lines of business are Wholesale Banking and Commercial Real Estate, Consumer and Small Business Banking, Wealth Management and Securities Services, Payment Services, and Treasury and Corporate Support. These operating segments are components of the Company about which financial information is prepared and is evaluated regularly by management in deciding how to allocate resources and assess performance. Noninterest expenses incurred by centrally managed operations or business lines that directly support another business line’s operations are charged to the applicable business line based on its utilization of those services, primarily measured by the volume of customer activities, number of employees or other relevant factors. These allocated expenses are reported as net shared services expense within noninterest expense. Designations, assignments and allocations change from time to time as management systems are enhanced, methods of evaluating performance or product lines change or business segments are realigned to better respond to the Company’s diverse customer base. During 2012, certain organization and methodology changes were made and, accordingly, prior period results were restated and presented on a comparable basis.
Wholesale Banking and Commercial Real Estate offers lending, equipment finance and small-ticket leasing, depository services, treasury management, capital markets, foreign exchange, international trade services and other financial services to middle market, large corporate, commercial real estate, financial institution and public sector clients. Wholesale Banking and Commercial Real Estate contributed $326 million of the Company’s net income in the third quarter of 2012, compared with $304 million in the third quarter of 2011 and $328 million in the second quarter of 2012. Wholesale Banking and Commercial Real Estate’s net income increased $22 million (7.2 percent) over the same quarter of 2011, due to a lower provision for credit losses and lower total noninterest expense, partially offset by lower total net revenue. Net interest income decreased $18 million (3.3 percent) year-over-year, primarily due to lower rates on loans, a decrease in loan fees and the impact of lower rates on the margin benefit from deposits, partially offset by higher average loan and deposit balances. Total noninterest income decreased $21 million (6.6 percent), driven by lower equity investment revenue and commercial products revenue. Commercial products revenue was lower, principally due to a decline in syndication and other loan fees, commercial leasing revenue and standby letters of credit fees, partially offset by an increase in bond underwriting fees. Total noninterest expense decreased $7 million (2.2 percent) from a year ago, primarily due to lower costs related to other real estate owned. The provision for credit losses was $65 million lower year-over-year, primarily due to lower net charge-offs.
Wholesale Banking and Commercial Real Estate’s contribution to net income in the third quarter of 2012 was $2 million (.6 percent) lower than the second quarter of 2012. Total net revenue decreased $16 million (1.9 percent) compared with the prior quarter. Net interest income increased $6 million (1.2 percent) on a linked quarter basis as a result of increased loan and deposit volumes, partially offset by lower loan rates and a reduction in the margin benefit from deposits. Total noninterest income decreased by $22 million (6.9 percent), principally due to a decrease in equity investment revenue in the current quarter and seasonally higher treasury management fees in the second quarter of 2012. Total noninterest expense decreased $12 million (3.7 percent) due to lower shared services expense related to treasury management product processing and lower FDIC insurance expense.
Consumer and Small Business Banking delivers products and services through banking offices, telephone servicing and sales, on-line services, direct mail, ATM processing and over mobile devices. It encompasses community banking, metropolitan banking, in-store banking, small business banking, consumer lending, mortgage banking, consumer finance, workplace banking, student banking and 24-hour banking. Consumer and Small Business Banking contributed $326 million of the Company’s net income in the third quarter of 2012, a $105 million (47.5 percent) increase over the third quarter of 2011, and a $38 million (10.4 percent) decrease from the prior quarter. Within Consumer and Small Business Banking, the retail banking division reported a 32.5 percent decrease in its contribution from the same quarter of last year due to lower total net revenue and a higher provision for credit losses, partially offset by lower total noninterest expense. The division's current quarter provision for credit losses included incremental 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. Retail banking’s total net revenue was 3.8 percent lower than the third quarter of 2011. Net interest income decreased 1.3 percent, primarily due to lower loan rates and the impact of lower rates on the margin benefit from deposits, partially offset by higher average loan and deposit balances. Total noninterest income for the retail banking division decreased 9.4 percent from a year ago, principally due to a decrease in ATM processing services revenue, a result of the change in classification of the surcharge revenue passed through to others, and lower deposit services charges and retail lease residual revenue. Total noninterest expense for the retail banking division in the third quarter of 2012 decreased 1.6 percent from the same quarter of the prior year principally due to lower net occupancy and equipment expense, a result of the classification change to ATM surcharge revenue passed through to others, as well as lower FDIC insurance expense and other intangibles expense, partially offset by higher net shared services costs and compensation and employee benefits expense. The provision for credit losses for the retail banking division increased 8.0 percent on a year-over-year basis due to the incremental bankruptcy-related charge-offs in the current quarter and an increase in the reserve allocation, partially offset by lower other net charge-offs. The contribution of the mortgage banking division increased $144 million over the third quarter of 2011 due to higher total net revenue, partially offset by an increase in total noninterest expense. The division’s 81.1 percent increase in total net revenue was primarily due to a $267 million increase in total noninterest income, driven by strong mortgage origination and sales revenue. In addition, net interest income increased 35.9 percent, primarily the result of higher average loans held-for-sale. Total noninterest expense was 54.5 percent higher, reflecting higher compensation and employee benefits expense and mortgage servicing review-related costs. The provision for credit losses for the mortgage banking division decreased 10.7 percent due to a change in the reserve allocation.
Consumer and Small Business Banking’s contribution in the third quarter of 2012 was $38 million (10.4 percent) lower than the second quarter of 2012 due to increases in total noninterest expense and the provision for credit losses, partially offset by higher total net revenue. Within Consumer and Small Business Banking, the retail banking division’s contribution declined 50.6 percent on a linked quarter basis, principally due to an increase in the provision for credit losses as a result of the incremental bankruptcy-related charge-offs and an increase in the reserve allocation. Total net revenue for the retail banking division was relatively flat as an increase in deposit service charges was offset by a reduction in retail lease residual revenue. Total noninterest expense for the retail banking division was 2.2 percent higher than the second quarter of 2012 principally due to higher marketing and advertising costs and higher net shared services expense, partially offset by lower FDIC insurance expense. The contribution of the mortgage banking division increased 22.5 percent from the second quarter of 2012 due to an increase in total net revenue and a lower provision for credit losses, partially offset by an increase in total noninterest expense. Total net revenue increased 6.1 percent, due to a 5.5 percent increase in total noninterest income, driven by higher mortgage origination and sales revenue, partially offset by an unfavorable change in the valuation of MSRs, net of hedging activities, and a 7.8 percent increase in net interest income due to higher average loans held-for-sale. Total noninterest expense increased 2.2 percent, driven by increased compensation expense and mortgage servicing review-related costs. The mortgage banking division’s provision for credit losses decreased 41.2 percent on a linked quarter basis due to lower net-charge-offs.
Wealth Management and Securities Services provides private banking, financial advisory services, investment management, retail brokerage services, insurance, trust, custody and fund servicing through five businesses: Wealth Management, Corporate Trust Services, U.S. Bancorp Asset Management, Institutional Trust & Custody and Fund Services. Wealth Management and Securities Services contributed $42 million of the Company’s net income in the third quarter of 2012, a 2.4 percent increase from the third quarter of 2011, and a 5.0 percent increase over the second quarter of 2012. The increase in the business line’s contribution, compared with the same quarter of 2011, was due to higher total noninterest income, partially offset by an increase in total noninterest expense. Total net revenue increased by $26 million (7.6 percent) year-over-year. Net interest income was relatively flat, while total noninterest income increased by $29 million (11.4 percent), primarily due to the impact of improved market conditions, business expansion and higher investment products fees and commissions. Total noninterest expense increased by $23 million (8.3 percent) due to higher compensation and employee benefits expense, partially offset by a reduction in acquisition integration costs. The provision for credit losses increased by $2 million due to a change in the reserve allocation.
The business line’s contribution in the third quarter of 2012 was $2 million (5.0 percent) higher than the prior quarter. Total net revenue increased $8 million (2.2 percent) due to a $5 million (1.8 percent) increase in total noninterest income, mainly due to improved market conditions and a $3 million (3.6 percent) increase in net interest income, principally due to higher average loan and deposit balances. Total noninterest expense increased $4 million (1.4 percent) over the prior quarter, as higher compensation expense and net shared services costs were partially offset by a decrease in FDIC insurance expense. The provision for credit losses was $1 million higher than the prior quarter due to a change in the reserve allocation.
Payment Services includes consumer and business credit cards, stored-value cards, debit cards, corporate and purchasing card services, consumer lines of credit and merchant processing. Payment Services contributed $376 million of the Company’s net income in the third quarter of 2012, an increase of $22 million (6.2 percent) from the same period of 2011, and a $61 million (19.4 percent) increase over the prior quarter. The increase year-over-year was primarily due to higher total net revenue, partially offset by an increase in the provision for credit losses. Total net revenue increased $44 million (3.7 percent) year-over-year. Net interest income increased $47 million (14.0 percent), principally due to higher average loan balances, improved loan rates and the credit card balance transfer fees classification change. Total noninterest income decreased $3 million (.4 percent) year-over-year. Credit and debit card revenue decreased due to lower debit card interchange fees as a result of recent legislation, net of mitigation efforts, and the impact of classifying credit card balance transfer fees as interest income in the current year. However, these negative variances were partially offset by higher transaction volumes. Partially offsetting this decrease, other revenue increased due to the impact of the gain on the credit card portfolio sale and merchant processing services revenue increased, principally due to higher transaction volumes. Total noninterest expense was basically flat compared with the third quarter of 2011. The provision for credit losses increased $10 million (8.0 percent) due to a change in the reserve allocation, partially offset by lower net charge-offs.
Payment Services’ contribution in the third quarter of 2012 was $61 million (19.4 percent) higher than the second quarter of 2012, due to higher total net revenue and a lower provision for credit losses. Total net revenue was higher by $41 million (3.4 percent) than the second quarter of 2012. Net interest income increased $6 million (1.6 percent), driven by improved rates on loans and higher loan fees, partially offset by impact of the credit card portfolio sale. Total noninterest income was $35 million (4.3 percent) higher on a linked quarter basis. Other revenue increased compared with the prior quarter, primarily due to the gain on the credit card portfolio sale. Corporate payment products revenue increased due to seasonally higher volumes. Offsetting these increases was a decline in credit and debit card revenue, primarily due to a benefit from the final expiration of debit card customer rewards recognized in the second quarter of 2012. Merchant processing services revenue declined due to lower transaction volumes. Total noninterest expense increased $7 million (1.4 percent) on a linked quarter basis, principally due to the timing of professional services projects. The provision for credit losses decreased $62 million (31.5 percent) due to a favorable change in the reserve allocation.
Treasury and Corporate Support includes the Company’s investment portfolios, most covered commercial and commercial real estate loans and related other real estate owned, funding, capital management, asset securitization, interest rate risk management, the net effect of transfer pricing related to average balances and the residual aggregate of those expenses associated with corporate activities that are managed on a consolidated basis. Treasury and Corporate Support recorded net income of $404 million in the third quarter of 2012, compared with net income of $353 million in the third quarter of 2011 and net income of $368 million in the second quarter of 2012. Net interest income increased $95 million (18.9 percent) over the third quarter of 2011, reflecting lower long-term funding rates, as well as the impact of wholesale funding decisions and the Company’s asset/liability position. Total noninterest income decreased by $4 million (10.3 percent) year-over-year, as the equity-method investment charge was partially offset by higher commercial products revenue. In addition, there was a $10 million favorable change in net securities gains (losses). Total noninterest expense increased by $37 million (17.8 percent), principally due to increased compensation and employee benefits expense and litigation and insurance-related matters, partially offset by lower net shared services expense.
Net income in the third quarter of 2012 was $36 million (9.8 percent) higher on a linked quarter basis, due to an increase in total net revenue and lower total noninterest expense. Total net revenue was higher than the second quarter of 2012 by $41 million (6.9 percent), principally as a result of a 7.9 percent increase in net interest income, reflecting lower long-term funding rates, partially offset by lower rates on the investment securities portfolio. Total noninterest income decreased $3 million (7.9 percent) as the equity-method investment charge was partially offset by higher commercial products revenue and a favorable change in net securities gains (losses). An $18 million (6.8 percent) decrease in total noninterest expense on a linked quarter basis primarily reflected the impact of the Visa accrual in the second quarter of 2012, partially offset by higher costs related to investments in affordable housing other tax-advantaged projects in the current quarter.
Additional schedules containing more detailed information about the Company’s business line results are available on the web at usbank.com or by calling Investor Relations at 612-303-0781.
On Wednesday, October 17, 2012, at 8:00 a.m. (CDT) Richard K. Davis, chairman, president and chief executive officer, and Andrew Cecere, vice chairman and chief financial officer, will host a conference call to review the financial results. The conference call will be available by telephone or on the Internet. A presentation will be used during the call and will be available on the Company’s website at www.usbank.com. To access the conference call from locations within the United States and Canada, please dial 866-316-1409. Participants calling from outside the United States and Canada, please dial 706-634-9086. The conference ID number for all participants is 24046933. For those unable to participate during the live call, a recording of the call will be available approximately two hours after the conference call ends on Wednesday, October 17th, and will run through Wednesday, October 24th, at 11:00 p.m. (CDT). To access the recorded message within the United States and Canada, dial 855-859-2056. If calling from outside the United States and Canada, please dial 404-537-3406 to access the recording. The conference ID is 24046933. To access the webcast and presentation go to www.usbank.com and click on “About U.S. Bank.” The “Webcasts & Presentations” link can be found under the Investor/Shareholder information heading, which is at the left side of the bottom of the page.
Minneapolis-based U.S. Bancorp (“USB”), with $352 billion in assets as of September 30, 2012, is the parent company of U.S. Bank National Association, the 5th largest commercial bank in the United States. The Company operates 3,086 banking offices in 25 states and 5,080 ATMs and provides a comprehensive line of banking, brokerage, insurance, investment, mortgage, trust and payment services products to consumers, businesses and institutions. U.S. Bancorp and its employees are dedicated to improving the communities they serve, for which the company earned the 2011 Spirit of America Award, the highest honor bestowed on a company by United Way. Visit U.S. Bancorp on the web at usbank.com.
Forward-Looking Statements
The following information appears in accordance with the Private Securities Litigation Reform Act of 1995:
This press release contains forward-looking statements about U.S. Bancorp. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements and are based on the information available to, and assumptions and estimates made by, management as of the date made. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of U.S. Bancorp. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated. Global and domestic economies could fail to recover from the recent economic downturn or could experience another severe contraction, which could adversely affect U.S. Bancorp’s revenues and the values of its assets and liabilities. Global financial markets could experience a recurrence of significant turbulence, which could reduce the availability of funding to certain financial institutions and lead to a tightening of credit, a reduction of business activity, and increased market volatility. Continued stress in the commercial real estate markets, as well as a delay or failure of recovery in the residential real estate markets, could cause additional credit losses and deterioration in asset values. In addition, U.S. Bancorp’s business and financial performance is likely to be negatively impacted by effects of recently enacted and future legislation and regulation. U.S. Bancorp’s results could also be adversely affected by continued deterioration in general business and economic conditions; changes in interest rates; deterioration in the credit quality of its loan portfolios or in the value of the collateral securing those loans; deterioration in the value of securities held in its investment securities portfolio; legal and regulatory developments; increased competition from both banks and non-banks; changes in customer behavior and preferences; effects of mergers and acquisitions and related integration; effects of critical accounting policies and judgments; and management’s ability to effectively manage credit risk, residual value risk, market risk, operational risk, interest rate risk, and liquidity risk.
For discussion of these and other risks that may cause actual results to differ from expectations, refer to U.S. Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2011, on file with the Securities and Exchange Commission, including the sections entitled “Risk Factors” and “Corporate Risk Profile” contained in Exhibit 13, and all subsequent filings with the Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934. Forward-looking statements speak only as of the date they are made, and U.S. Bancorp undertakes no obligation to update them in light of new information or future events.
Non-GAAP Financial Measures
In addition to capital ratios defined by banking regulators under the FDIC Improvement Act prompt corrective action provisions applicable to all banks, the Company considers various other measures when evaluating capital utilization and adequacy, including:
- Tangible common equity to tangible assets,
- Tangible common equity to risk-weighted assets using Basel I definition,
- Tier 1 common equity to risk-weighted assets using Basel I definition,
- Tier 1 common equity to risk-weighted assets using Basel III proposals published prior to June 2012, and
- Tier 1 common equity to risk-weighted assets approximated using proposed rules for the Basel III standardized approach released June 2012.
These measures are viewed by management as useful additional methods of reflecting the level of capital available to withstand unexpected market or economic conditions. Additionally, presentation of these measures allows investors, analysts and banking regulators to assess the Company’s capital position relative to other financial services companies. These measures differ from capital ratios defined by current banking regulations principally in that the numerator excludes trust preferred securities and preferred stock, the nature and extent of which varies among different financial services companies. These measures are not defined in generally accepted accounting principals (“GAAP”) or federal banking regulations. As a result, these measures disclosed by the Company may be considered non-GAAP financial measures.
There may be limits in the usefulness of these measures to investors. As a result, the Company encourages readers to consider the consolidated financial statements and other financial information contained in this press release in their entirety, and not to rely on any single financial measure. A table follows that shows the Company’s calculation of these non-GAAP financial measures.
|
U.S. Bancorp |
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|
Consolidated Statement of Income |
|||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||
| (Dollars and Shares in Millions, Except Per Share Data) | September 30, | September 30, | |||||||||||||
| (Unaudited) | 2012 | 2011 | 2012 | 2011 | |||||||||||
| Interest Income | |||||||||||||||
| Loans | $2,650 | $2,621 | $7,919 | $7,736 | |||||||||||
| Loans held for sale | 76 | 42 | 208 | 139 | |||||||||||
| Investment securities | 438 | 470 | 1,376 | 1,357 | |||||||||||
| Other interest income | 63 | 67 | 184 | 187 | |||||||||||
| Total interest income | 3,227 | 3,200 | 9,687 | 9,419 | |||||||||||
| Interest Expense | |||||||||||||||
| Deposits | 172 | 202 | 530 | 646 | |||||||||||
| Short-term borrowings | 103 | 143 | 353 | 407 | |||||||||||
| Long-term debt | 226 | 289 | 786 | 860 | |||||||||||
| Total interest expense | 501 | 634 | 1,669 | 1,913 | |||||||||||
| Net interest income | 2,726 | 2,566 | 8,018 | 7,506 | |||||||||||
| Provision for credit losses | 488 | 519 | 1,439 | 1,846 | |||||||||||
| Net interest income after provision for credit losses | 2,238 | 2,047 | 6,579 | 5,660 | |||||||||||
| Noninterest Income | |||||||||||||||
| Credit and debit card revenue | 213 | 289 | 650 | 842 | |||||||||||
| Corporate payment products revenue | 201 | 203 | 566 | 563 | |||||||||||
| Merchant processing services | 345 | 338 | 1,041 | 977 | |||||||||||
| ATM processing services | 87 | 115 | 263 | 341 | |||||||||||
| Trust and investment management fees | 265 | 241 | 779 | 755 | |||||||||||
| Deposit service charges | 174 | 183 | 483 | 488 | |||||||||||
| Treasury management fees | 135 | 137 | 411 | 418 | |||||||||||
| Commercial products revenue | 225 | 212 | 652 | 621 | |||||||||||
| Mortgage banking revenue | 519 | 245 | 1,461 | 683 | |||||||||||
| Investment products fees and commissions | 38 | 31 | 111 | 98 | |||||||||||
| Securities gains (losses), net | 1 | (9 | ) | (18 | ) | (22 | ) | ||||||||
| Other | 193 | 186 | 591 | 565 | |||||||||||
| Total noninterest income | 2,396 | 2,171 | 6,990 | 6,329 | |||||||||||
| Noninterest Expense | |||||||||||||||
| Compensation | 1,109 | 1,021 | 3,237 | 2,984 | |||||||||||
| Employee benefits | 225 | 203 | 714 | 643 | |||||||||||
| Net occupancy and equipment | 233 | 252 | 683 | 750 | |||||||||||
| Professional services | 144 | 100 | 364 | 252 | |||||||||||
| Marketing and business development | 96 | 102 | 285 | 257 | |||||||||||
| Technology and communications | 205 | 189 | 607 | 563 | |||||||||||
| Postage, printing and supplies | 75 | 76 | 226 | 226 | |||||||||||
| Other intangibles | 67 | 75 | 208 | 225 | |||||||||||
| Other | 455 | 458 | 1,446 | 1,315 | |||||||||||
| Total noninterest expense | 2,609 | 2,476 | 7,770 | 7,215 | |||||||||||
| Income before income taxes | 2,025 | 1,742 | 5,799 | 4,774 | |||||||||||
| Applicable income taxes | 593 | 490 | 1,684 | 1,314 | |||||||||||
| Net income | 1,432 | 1,252 | 4,115 | 3,460 | |||||||||||
| Net (income) loss attributable to noncontrolling interests | 42 | 21 | 112 | 62 | |||||||||||
| Net income attributable to U.S. Bancorp | $1,474 | $1,273 | $4,227 | $3,522 | |||||||||||
| Net income applicable to U.S. Bancorp common shareholders | $1,404 | $1,237 | $4,034 | $3,407 | |||||||||||
| Earnings per common share | $.74 | $.65 | $2.13 | $1.78 | |||||||||||
| Diluted earnings per common share | $.74 | $.64 | $2.12 | $1.77 | |||||||||||
| Dividends declared per common share | $.195 | $.125 | $.585 | $.375 | |||||||||||
| Average common shares outstanding | 1,886 | 1,915 | 1,892 | 1,918 | |||||||||||
| Average diluted common shares outstanding | 1,897 | 1,922 | 1,901 | 1,926 | |||||||||||
| U.S. Bancorp | ||||||||||||
| Consolidated Ending Balance Sheet | ||||||||||||
| September 30, | December 31, | September 30, | ||||||||||
| (Dollars in Millions) | 2012 | 2011 | 2011 | |||||||||
| Assets | (Unaudited) | (Unaudited) | ||||||||||
| Cash and due from banks | $9,382 | $13,962 | $13,708 | |||||||||
| Investment securities | ||||||||||||
| Held-to-maturity | 34,509 | 18,877 | 16,269 | |||||||||
| Available-for-sale | 39,636 | 51,937 | 52,109 | |||||||||
| Loans held for sale | 9,879 | 7,156 | 5,375 | |||||||||
| Loans | ||||||||||||
| Commercial | 62,910 | 56,648 | 53,832 | |||||||||
| Commercial real estate | 36,813 | 35,851 | 35,603 | |||||||||
| Residential mortgages | 41,902 | 37,082 | 35,124 | |||||||||
| Credit card | 16,402 | 17,360 | 16,332 | |||||||||
| Other retail | 47,965 | 48,107 | 48,479 | |||||||||
| Total loans, excluding covered loans | 205,992 | 195,048 | 189,370 | |||||||||
| Covered loans | 12,158 | 14,787 | 15,398 | |||||||||
| Total loans | 218,150 | 209,835 | 204,768 | |||||||||
| Less allowance for loan losses | (4,481 | ) | (4,753 | ) | (4,950 | ) | ||||||
| Net loans | 213,669 | 205,082 | 199,818 | |||||||||
| Premises and equipment | 2,650 | 2,657 | 2,581 | |||||||||
| Goodwill | 8,943 | 8,927 | 8,933 | |||||||||
| Other intangible assets | 2,533 | 2,736 | 2,675 | |||||||||
| Other assets | 31,052 | 28,788 | 28,673 | |||||||||
| Total assets | $352,253 | $340,122 | $330,141 | |||||||||
| Liabilities and Shareholders' Equity | ||||||||||||
| Deposits | ||||||||||||
| Noninterest-bearing | $72,982 | $68,579 | $64,228 | |||||||||
| Interest-bearing | 136,583 | 134,757 | 130,332 | |||||||||
| Time deposits greater than $100,000 | 34,667 | 27,549 | 28,072 | |||||||||
| Total deposits | 244,232 | 230,885 | 222,632 | |||||||||
| Short-term borrowings | 27,853 | 30,468 | 32,029 | |||||||||
| Long-term debt | 26,264 | 31,953 | 30,624 | |||||||||
| Other liabilities | 14,079 | 11,845 | 10,646 | |||||||||
| Total liabilities | 312,428 | 305,151 | 295,931 | |||||||||
| Shareholders' equity | ||||||||||||
| Preferred stock | 4,769 | 2,606 | 2,606 | |||||||||
| Common stock | 21 | 21 | 21 | |||||||||
| Capital surplus | 8,186 | 8,238 | 8,248 | |||||||||
| Retained earnings | 33,730 | 30,785 | 29,704 | |||||||||
| Less treasury stock | (7,442 | ) | (6,472 | ) | (6,419 | ) | ||||||
| Accumulated other comprehensive income (loss) | (603 | ) | (1,200 | ) | (930 | ) | ||||||
| Total U.S. Bancorp shareholders' equity | 38,661 | 33,978 | 33,230 | |||||||||
| Noncontrolling interests | 1,164 | 993 | 980 | |||||||||
| Total equity | 39,825 | 34,971 | 34,210 | |||||||||
| Total liabilities and equity | $352,253 | $340,122 | $330,141 | |||||||||
| U.S. Bancorp | |||||||||||||||||||||
| Non-GAAP Financial Measures | |||||||||||||||||||||
| September 30, | June 30, | March 31, | December 31, | September 30, | |||||||||||||||||
| (Dollars in Millions, Unaudited) | 2012 | 2012 | 2012 | 2011 | 2011 | ||||||||||||||||
| Total equity | $39,825 | $38,874 | $36,914 | $34,971 | $34,210 | ||||||||||||||||
| Preferred stock | (4,769 | ) | (4,769 | ) | (3,694 | ) | (2,606 | ) | (2,606 | ) | |||||||||||
| Noncontrolling interests | (1,164 | ) | (1,082 | ) | (1,014 | ) | (993 | ) | (980 | ) | |||||||||||
| Goodwill (net of deferred tax liability) | (8,194 | ) | (8,205 | ) | (8,233 | ) | (8,239 | ) | (8,265 | ) | |||||||||||
| Intangible assets, other than mortgage servicing rights | (980 | ) | (1,118 | ) | (1,182 | ) | (1,217 | ) | (1,209 | ) | |||||||||||
| Tangible common equity (a) | 24,718 | 23,700 | 22,791 | 21,916 | 21,150 | ||||||||||||||||
| Tier 1 capital, determined in accordance with prescribed | |||||||||||||||||||||
| regulatory requirements using Basel I definition | 30,766 | 30,044 | 29,976 | 29,173 | 28,081 | ||||||||||||||||
| Trust preferred securities | -- | -- | (1,800 | ) | (2,675 | ) | (2,675 | ) | |||||||||||||
| Preferred stock | (4,769 | ) | (4,769 | ) | (3,694 | ) | (2,606 | ) | (2,606 | ) | |||||||||||
| Noncontrolling interests, less preferred stock not | |||||||||||||||||||||
| eligible for Tier 1 capital | (685 | ) | (685 | ) | (686 | ) | (687 | ) | (695 | ) | |||||||||||
| Tier 1 common equity using Basel I definition (b) | 25,312 | 24,590 | 23,796 | 23,205 | 22,105 | ||||||||||||||||
| Tier 1 capital, determined in accordance with prescribed | |||||||||||||||||||||
| regulatory requirements using Basel III proposals published | |||||||||||||||||||||
| prior to June 2012 | 27,578 | 25,636 | 24,902 | ||||||||||||||||||
| Preferred stock | (3,694 | ) | (2,606 | ) | (2,606 | ) | |||||||||||||||
| Noncontrolling interests of real estate investment trusts | (659 | ) | (664 | ) | (667 | ) | |||||||||||||||
| Tier 1 common equity using Basel III proposals published | |||||||||||||||||||||
| prior to June 2012 (c) | 23,225 | 22,366 | 21,629 | ||||||||||||||||||
| Tier 1 capital, determined in accordance with prescribed | |||||||||||||||||||||
| regulatory requirements approximated using proposed rules for | |||||||||||||||||||||
| the Basel III standardized approach released June 2012 | 29,644 | 28,622 | |||||||||||||||||||
| Preferred stock | (4,769 | ) | (4,769 | ) | |||||||||||||||||
| Tier 1 common equity approximated using proposed rules for the Basel III | |||||||||||||||||||||
| standardized approach released June 2012 (d) | 24,875 | 23,853 | |||||||||||||||||||
| Total assets | 352,253 | 353,136 | 340,762 | 340,122 | 330,141 | ||||||||||||||||
| Goodwill (net of deferred tax liability) | (8,194 | ) | (8,205 | ) | (8,233 | ) | (8,239 | ) | (8,265 | ) | |||||||||||
| Intangible assets, other than mortgage servicing rights | (980 | ) | (1,118 | ) | (1,182 | ) | (1,217 | ) | (1,209 | ) | |||||||||||
| Tangible assets (e) | 343,079 | 343,813 | 331,347 | 330,666 | 320,667 | ||||||||||||||||
| Risk-weighted assets, determined in accordance with | |||||||||||||||||||||
| prescribed regulatory requirements using Basel I definition (f) | 282,033 | * | 279,972 | 274,847 | 271,333 | 261,115 | |||||||||||||||
| Risk-weighted assets using Basel III proposals published prior to June 2012 (g) | -- | -- | 277,856 | 274,351 | 264,103 | ||||||||||||||||
| Risk-weighted assets approximated using proposed rules for the Basel III | |||||||||||||||||||||
| standardized approach released June 2012 (h) | 304,200 | * | 303,212 | ||||||||||||||||||
| Ratios * | |||||||||||||||||||||
| Tangible common equity to tangible assets (a)/(e) | 7.2 | % | 6.9 | % | 6.9 | % | 6.6 | % | 6.6 | % | |||||||||||
| Tangible common equity to risk-weighted assets using Basel I definition (a)/(f) | 8.8 | 8.5 | 8.3 | 8.1 | 8.1 | ||||||||||||||||
| Tier 1 common equity to risk-weighted assets using Basel I definition (b)/(f) | 9.0 | 8.8 | 8.7 | 8.6 | 8.5 | ||||||||||||||||
| Tier 1 common equity to risk-weighted assets using Basel III proposals | |||||||||||||||||||||
| published prior to June 2012 (c)/(g) | -- | -- | 8.4 | 8.2 | 8.2 | ||||||||||||||||
| Tier 1 common equity to risk-weighted assets approximated using proposed | |||||||||||||||||||||
| rules for the Basel III standardized approach released June 2012 (d)/(h) | 8.2 | 7.9 | -- | -- | -- | ||||||||||||||||
| * Preliminary data. Subject to change prior to filings with applicable regulatory agencies. | |||||||||||||||||||||