U.S. Bancorp Reports Fourth Quarter and Full Year 2013 Earnings

Achieves Record Earnings for the Full Year 2013

MINNEAPOLIS--()--U.S. Bancorp (NYSE:USB) today reported net income of $1,456 million for the fourth quarter of 2013, or $.76 per diluted common share, compared with $1,420 million, or $.72 per diluted common share, in the fourth quarter of 2012.

Highlights for the full year 2013 included:

  • Record full year 2013 net income of $5.8 billion, 3.3 percent higher than 2012
    • Record full year diluted earnings per common share of $3.00, 5.6 percent higher than 2012
    • Industry-leading performance measures, including return on average assets of 1.65 percent, return on average common equity of 15.8 percent and efficiency ratio of 52.4 percent
    • Returned 71 percent of 2013 earning to shareholders through dividend and share buybacks

Highlights for the fourth quarter of 2013 included:

  • Industry-leading performance ratios, including:
    • Return on average assets of 1.62 percent
    • Return on average common equity of 15.4 percent
    • Efficiency ratio of 54.9 percent
  • Growth in average total loans of 5.7 percent over the fourth quarter of 2012 (7.3 percent excluding covered loans) and 1.5 percent on a linked quarter basis (1.9 percent excluding covered loans)
    • Growth in average total commercial loans of 7.8 percent over the fourth quarter of 2012 and 1.3 percent over the third quarter of 2013
    • Growth in average total commercial real estate loans of 6.7 percent over the fourth quarter of 2012 and 2.1 percent over the third quarter of 2013
    • Growth in average commercial and commercial real estate commitments of 10.1 percent year-over-year and 2.7 percent over the prior quarter
  • Strong new lending activity of $58.4 billion during the fourth quarter, including:
    • $40.6 billion of new and renewed commercial and commercial real estate commitments
    • $2.7 billion of lines related to new credit card accounts
    • $15.1 billion of mortgage and other retail loan originations
  • Continued strong growth in average total deposits of 5.4 percent over the fourth quarter of 2012 and 1.8 percent on a linked quarter basis.
    • Average low cost deposits, including noninterest-bearing and total savings deposits, grew by 8.5 percent year-over-year and 4.8 percent linked quarter
  • Net charge-offs declined on both a linked quarter and year-over-year basis. Provision for credit losses was $35 million less than net charge-offs
    • Net charge-offs were $16 million (4.9 percent) lower than the third quarter of 2013
    • Annualized net charge-offs to average total loans ratio decreased to .53 percent
    • Allowance to period-end loans was 1.93 percent at December 31, 2013
  • Nonperforming assets decreased on both a linked quarter and year-over-year basis
    • Nonperforming assets (excluding covered assets) decreased 3.6 percent from the third quarter of 2013
    • Allowance to nonperforming assets (excluding covered assets) was 242 percent at December 31, 2013, compared with 235 percent at September 30, 2013, and 218 percent at December 31, 2012
  • Tax rate on a taxable-equivalent basis was 23.8 percent for the fourth quarter, compared with 29.5 percent for the third quarter of 2013, principally reflecting the impact of accounting presentation changes related to investments in tax-advantaged projects
    • Change had no impact on net income attributable to U.S. Bancorp
    • Change increased other expense by $31 million, decreased net (income) loss attributable to noncontrolling interests by $53 million and decreased income tax expense by $84 million compared with the third quarter of 2013
  • Capital generation continues to reinforce capital position and return. Ratios at December 31, 2013, were:
    • Tier 1 capital ratio of 11.2 percent
    • Total risk based capital ratio of 13.2 percent
    • Tier 1 common equity to risk-weighted assets ratio of 9.4 percent
    • Common equity tier 1 ratio of 8.8 percent estimated using final rules for the Basel III standardized approach
    • Returned 65 percent of fourth quarter earnings to shareholders through dividends and the buyback of 13 million common shares
                                     
EARNINGS SUMMARY                                   Table 1
($ in millions, except per-share data)             Percent     Percent            
  Change Change
4Q 3Q 4Q 4Q13 vs 4Q13 vs Full Year Full Year Percent
2013 2013 2012 3Q13 4Q12 2013 2012 Change
 
Net income attributable to U.S. Bancorp $1,456 $1,468 $1,420 (.8 ) 2.5 $5,836 $5,647 3.3
Diluted earnings per common share $.76 $.76 $.72 -- 5.6 $3.00 $2.84 5.6
 
Return on average assets (%) 1.62 1.65 1.62 1.65 1.65
Return on average common equity (%) 15.4 15.8 15.6 15.8 16.2
Net interest margin (%) 3.40 3.43 3.55 3.44 3.58
Efficiency ratio (%) 54.9 52.4 52.6 52.4 51.5
Tangible efficiency ratio (%) (a) 53.7 51.3 51.3 51.3 50.2
 
Dividends declared per common share $.230 $.230 $.195 -- 17.9 $.885 $.780 13.5
Book value per common share (period-end) $19.92 $19.31 $18.31 3.2 8.8
 

(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 $1,456 million for the fourth quarter of 2013, 2.5 percent higher than the $1,420 million for the fourth quarter of 2012, and .8 percent lower than the $1,468 million for the third quarter of 2013. Diluted earnings per common share of $.76 in the fourth quarter of 2013 were $.04 higher than the fourth quarter of 2012 and equal to the previous quarter. Return on average assets and return on average common equity were 1.62 percent and 15.4 percent, respectively, for the fourth quarter of 2013, compared with 1.62 percent and 15.6 percent, respectively, for the fourth quarter of 2012. The provision for credit losses was lower than net charge-offs by $35 million in the fourth quarter of 2013, $30 million lower in the third quarter of 2013 and $25 million lower in the fourth quarter of 2012.

U.S. Bancorp Chairman, President and Chief Executive Officer Richard K. Davis said, “Today U.S. Bancorp reported record earnings for full year 2013 of $5.8 billion, or $3.00 per diluted common share. The 2013 results included top-tier returns on average assets and average common equity of 1.65 percent and 15.8 percent, respectively, and an efficiency ratio of 52.4 percent. I am particularly proud to have achieved these results during a year marked by slow economic growth, a significant pullback in mortgage activity and continued regulatory and legislative change and uncertainty. Our results clearly demonstrate the benefits we derive from our diverse mix of businesses and conservative risk profile.

“Our fourth quarter earnings per diluted common share were $.76, a 5.6 percent increase over the same quarter of 2012. The Company’s balance sheet continued to expand during the quarter with average loans higher by 5.7 percent over the prior year and, as expected, 1.5 percent, or 6 percent annualized, on a linked quarter basis. Virtually all loan categories posted growth versus comparable time periods. Fee-based revenue was negatively impacted this quarter on both a year-over-year and linked quarter basis by the reduction in mortgage banking activity, but the impact was muted by growth in other fee businesses and, overall, by prudent expense management.

“Credit quality continues to be strong, as total net charge-offs and nonperforming assets declined, again, in the fourth quarter. Net charge-offs were .53 percent of average total loans, compared with .57 percent in the previous quarter and .85 percent in the same quarter of 2012. Nonperforming assets, excluding covered assets, declined by $67 million, or 3.6 percent from the prior quarter.

“We continue to generate significant capital each quarter, while returning a majority of our earnings to shareholders in the form of share buybacks and dividends. Our tier 1 capital ratio at December 31st was 11.2 percent, and our tier 1 common equity ratio was 9.4 percent. Further, our common equity tier 1 ratio at December 31st, estimated using final rules for the Basel III standardized approach, was 8.8 percent. During 2013, we returned $4.0 billion, or 71 percent, of our earnings to shareholders through dividends and the repurchase of 65 million shares of stock. We completed and submitted our 2014 Comprehensive Capital Plan to the Federal Reserve in early January, and await regulatory approval to raise our dividend and continue our stock buyback program in 2014.

“On January 7th we announced the purchase of a Chicago branch franchise owned by RBS Citizens Financial Group. The investment will nearly double our market share in this important market within our footprint, strengthening our position and adding products, services and convenience for new and existing customers, as well as value for our shareholders.

“Our Company’s results are directly tied to the hard work and dedication of our employees, and I want to take the opportunity today to thank them for their contribution to our success. On January 14th, we held our 8th annual All Employee Meeting. The great majority of our employees attended one of seventy-four meetings scheduled to accommodate numerous time zones across the U.S., Canada and Europe. Employees gathered in person, on the phone, via the web and by satellite connection to hear about our 2013 accomplishments and our new initiatives for 2014. It was a pleasure to once again make this annual connection with our employees. Our employees are engaged and passionate about serving our customers and communities, and I am proud to serve with them.

“I am very pleased with our record full year 2013 earnings. As we look forward to the coming year, we are mindful of the strength of our Company and how we, as a bank, remain an integral part of the growth and vibrancy of the nation’s economy, our communities and the customers we serve and support. We are focused on the future and confident in our ability to deliver outstanding products, service and results for the benefit of our customers, communities, employees and, most importantly, our shareholders.”

                                                 
INCOME STATEMENT HIGHLIGHTS                                   Table 2

(Taxable-equivalent basis, $ in millions, except per-share data)

 

                Percent     Percent            
Change Change
4Q 3Q 4Q 4Q13 vs 4Q13 vs Full Year Full Year Percent
2013     2013     2012     3Q13     4Q12     2013     2012     Change
 
Net interest income $2,733 $2,714 $2,783 .7 (1.8 ) $10,828 $10,969 (1.3 )
Noninterest income 2,156       2,177     2,329 (1.0 ) (7.4 ) 8,774     9,319 (5.8 )
Total net revenue 4,889 4,891 5,112 -- (4.4 ) 19,602 20,288 (3.4 )
Noninterest expense 2,682       2,565     2,686 4.6 (.1 ) 10,274     10,456 (1.7 )
Income before provision and taxes 2,207 2,326 2,426 (5.1 ) (9.0 ) 9,328 9,832 (5.1 )
Provision for credit losses 277       298     443 (7.0 ) (37.5 ) 1,340     1,882 (28.8 )
Income before taxes 1,930 2,028 1,983 (4.8 ) (2.7 ) 7,988 7,950 .5
Taxable-equivalent adjustment 56 56 56 -- -- 224 224 --
Applicable income taxes 403       542     552 (25.6 ) (27.0 ) 2,032     2,236 (9.1 )
Net income 1,471 1,430 1,375 2.9 7.0 5,732 5,490 4.4

Net (income) loss attributable to noncontrolling interests

(15 )     38     45 nm nm 104     157 (33.8 )
Net income attributable to U.S. Bancorp $1,456       $1,468     $1,420 (.8 ) 2.5 $5,836     $5,647 3.3

Net income applicable to U.S. Bancorp common shareholders

$1,389       $1,400     $1,349 (.8 ) 3.0 $5,552     $5,383 3.1
Diluted earnings per common share $.76       $.76     $.72 -- 5.6 $3.00     $2.84 5.6
                                                         

Net income attributable to U.S. Bancorp for the fourth quarter of 2013 was $36 million (2.5 percent) higher than the fourth quarter of 2012, and $12 million (.8 percent) lower than the third quarter of 2013. The increase in net income year-over-year was primarily due to a lower provision for credit losses, partially offset by a reduction in total net revenue, primarily driven by mortgage banking revenue. The decrease in net income on a linked quarter basis was principally due to a decrease in mortgage banking revenue and seasonally higher expense, partially offset by a favorable variance in the provision for credit losses.

Total net revenue on a taxable-equivalent basis for the fourth quarter of 2013 was $4,889 million; $223 million (4.4 percent) lower than the fourth quarter of 2012, reflecting a 1.8 percent decrease in net interest income and a 7.4 percent decrease in noninterest income. Net interest income declined year-over-year, as an increase in average earning assets was offset by a decrease in the net interest margin. Noninterest income declined year-over-year, primarily due to lower mortgage banking revenue. Total net revenue on a taxable-equivalent basis was basically flat on a linked quarter basis as a 1.0 percent decrease in noninterest income, driven by lower mortgage banking revenue, was partially offset by seasonally higher revenues in other business lines and an increase in net interest income.

Total noninterest expense in the fourth quarter of 2013 was $2,682 million; $4 million (.1 percent) lower than the fourth quarter of 2012 and $117 million (4.6 percent) higher than the third quarter of 2013. The modest decrease in total noninterest expense year-over-year was primarily due to the impact of an $80 million mortgage-foreclosure-related regulatory settlement accrual in the fourth quarter of 2012 and a reduction in mortgage servicing review-related professional services expense in the current quarter, offset by higher costs related to investments in tax-advantaged projects and employee benefits expense. The increase in total noninterest expense on a linked quarter basis was primarily due to higher costs related to investments in tax-advantaged projects, seasonally higher professional services expense and increased marketing and business development expense. In addition to an increase due to seasonality, tax-advantaged investment expense reflected the accounting presentation changes in the fourth quarter of 2013.

The Company’s provision for credit losses for the fourth quarter of 2013 was $277 million, $21 million lower than the prior quarter and $166 million lower than the fourth quarter of 2012. The provision for credit losses was lower than net charge-offs by $35 million in the fourth quarter of 2013, $30 million lower in the third quarter of 2013 and $25 million lower in the fourth quarter of 2012. Net charge-offs in the fourth quarter of 2013 were $312 million, compared with $328 million in the third quarter of 2013 and $468 million in the fourth quarter of 2012. Given current economic conditions, the Company expects the level of net charge-offs to increase modestly in the first quarter of 2014.

Nonperforming assets include assets originated or acquired by the Company, as well as loans and other real estate acquired under FDIC loss sharing agreements that substantially reduce the risk of credit losses to the Company (“covered assets”). Excluding covered assets, nonperforming assets were $1,813 million at December 31, 2013, compared with $1,880 million at September 30, 2013, and $2,088 million at December 31, 2012. The decrease in nonperforming assets, excluding covered assets, compared with a year ago was driven primarily by reductions in the commercial mortgage portfolio, as well as by improvement in construction and development and credit card loans. Covered nonperforming assets were $224 million at December 31, 2013, compared with $332 million at September 30, 2013, and $583 million at December 31, 2012. The ratio of the allowance for credit losses to period-end loans, including covered loans, was 1.93 percent at December 31, 2013, compared with 1.98 percent at September 30, 2013, and 2.12 percent at December 31, 2012. The Company expects total nonperforming assets to remain relatively stable in the first quarter of 2014.

                                                 
NET INTEREST INCOME                                   Table 3
(Taxable-equivalent basis; $ in millions)                                
Change Change
4Q 3Q 4Q 4Q13 vs 4Q13 vs Full Year Full Year
2013     2013     2012     3Q13     4Q12     2013     2012     Change
Components of net interest income
Income on earning assets $3,125 $3,125 $3,254 $-- $(129 ) $12,513 $13,112 $(599 )
Expense on interest-bearing liabilities 392       411       471       (19 )     (79 )     1,685       2,143       (458 )
Net interest income $2,733       $2,714       $2,783       $19       $(50 )     $10,828       $10,969       $(141 )
 
Average yields and rates paid
Earning assets yield 3.89 % 3.95 % 4.15 % (.06 )% (.26 )% 3.97 % 4.28 % (.31 )%
Rate paid on interest-bearing liabilities .68       .71       .84       (.03 )     (.16 )     .73       .95       (.22 )
Gross interest margin 3.21 %     3.24 %     3.31 %     (.03 )%     (.10 )%     3.24 %     3.33 %     (.09 )%
Net interest margin 3.40 %     3.43 %     3.55 %     (.03 )%     (.15 )%     3.44 %     3.58 %     (.14 )%
 
Average balances
Investment securities (a) $77,248 $74,988 $72,887 $2,260 $4,361 $75,046 $72,501 $2,545
Loans 232,791 229,362 220,266 3,429 12,525 227,474 215,374 12,100
Earning assets 319,516 315,060 312,227 4,456 7,289 315,139 306,270 8,869
Interest-bearing liabilities 229,201 230,825 224,219 (1,624 ) 4,982 230,400 225,466 4,934
 
(a) Excludes unrealized gain (loss)
 

Net Interest Income

Net interest income on a taxable-equivalent basis in the fourth quarter of 2013 was $2,733 million, a decrease of $50 million (1.8 percent) from the fourth quarter of 2012. The decrease was the result of lower rates on loans and investment securities, partially offset by growth in the corresponding average balances, continued growth in lower cost core deposit funding and the positive impact from maturities of higher-rate long-term debt. Average earning assets were $7.3 billion (2.3 percent) higher than the fourth quarter of 2012, driven by increases of $12.5 billion (5.7 percent) in average total loans and $4.4 billion (6.0 percent) in average investment securities, partially offset by decreases of $5.8 billion (66.2 percent) in average loans held for sale and $3.8 billion (37.0 percent) in other earning assets, principally due to the deconsolidation of certain community development and tax-advantaged investment variable interest entities during the second quarter of 2013. Net interest income increased $19 million (.7 percent) on a linked quarter basis, primarily driven by a $4.5 billion (1.4 percent) increase in average earning assets, reflecting growth in average total loans and investment securities, partially offset by a decline in average loans held for sale, and the positive impact of seasonally lower rebate costs on the Company’s government card program. The net interest margin in the fourth quarter of 2013 was 3.40 percent, compared with 3.55 percent in the fourth quarter of 2012, and 3.43 percent in the third quarter of 2013. The decline in the net interest margin on a year-over-year basis primarily reflected lower reinvestment rates on investment securities, as well as growth in the portfolio, and lower rates on loans, partially offset by lower rates on deposits and a reduction in higher cost long-term debt. On a linked quarter basis, the modest reduction in net interest margin was principally due to growth in lower rate investment securities, as well as the impact of higher cash balances at the Federal Reserve.

                                                 
AVERAGE LOANS                                   Table 4
($ in millions)                 Percent     Percent            
Change Change
4Q 3Q 4Q 4Q13 vs 4Q13 vs Full Year Full Year Percent
2013     2013     2012     3Q13     4Q12     2013     2012     Change
 
Commercial $63,714 $62,856 $58,552 1.4 8.8 $62,012 $55,232 12.3
Lease financing 5,210     5,208     5,377 -- (3.1 ) 5,262     5,598 (6.0 )
Total commercial 68,924 68,064 63,929 1.3 7.8 67,274 60,830 10.6
 
Commercial mortgages 31,780 31,546 30,762 .7 3.3 31,429 30,493 3.1
Construction and development 7,538     6,955     6,089 8.4 23.8 6,808     6,012 13.2
Total commercial real estate 39,318 38,501 36,851 2.1 6.7 38,237 36,505 4.7
 
Residential mortgages 50,732 49,139 43,156 3.2 17.6 47,982 40,290 19.1
 
Credit card 17,366 16,931 16,588 2.6 4.7 16,813 16,653 1.0
 
Retail leasing 5,847 5,664 5,384 3.2 8.6 5,654 5,222 8.3
Home equity and second mortgages 15,488 15,648 16,950 (1.0 ) (8.6 ) 15,887 17,451 (9.0 )
Other 26,059     25,682     25,595 1.5 1.8 25,584     25,265 1.3
Total other retail 47,394     46,994     47,929 .9 (1.1 ) 47,125     47,938 (1.7 )
 
Total loans, excluding covered loans 223,734     219,629     208,453 1.9 7.3 217,431     202,216 7.5
 
Covered loans 9,057     9,733     11,813 (6.9 ) (23.3 ) 10,043     13,158 (23.7 )
 
Total loans $232,791     $229,362     $220,266 1.5 5.7 $227,474     $215,374 5.6
                                                       

Average total loans were $12.5 billion (5.7 percent) higher in the fourth quarter of 2013 than the fourth quarter of 2012, driven by growth in residential mortgages (17.6 percent), commercial loans (8.8 percent), retail leasing (8.6 percent), total commercial real estate (6.7 percent), credit card (4.7 percent), and other retail loans (1.8 percent). These increases were partially offset by declines in home equity and second mortgages (8.6 percent), lease financing (3.1 percent) and covered loans (23.3 percent). Average total loans, excluding covered loans, were higher by 7.3 percent year-over-year. Average total loans were $3.4 billion (1.5 percent) higher in the fourth quarter of 2013 than the third quarter of 2013, driven by increases in residential mortgages (3.2 percent), retail leasing (3.2 percent), credit card (2.6 percent), total commercial real estate (2.1 percent), commercial loans (1.4 percent) and other retail loans (1.5 percent), partially offset by decreases in home equity and second mortgages (1.0 percent) and covered loans (6.9 percent). Excluding covered loans, average total loans grew by 1.9 percent on a linked quarter basis.

Average investment securities in the fourth quarter of 2013 were $4.4 billion (6.0 percent) higher year-over-year and $2.3 billion (3.0 percent) higher than the prior quarter. The increases were primarily due to purchases of U.S. government agency-backed securities in anticipation of final liquidity coverage ratio regulatory requirements, net of prepayments and maturities.

                                                 
AVERAGE DEPOSITS                                   Table 5
($ in millions)                 Percent     Percent            
Change Change
4Q 3Q 4Q 4Q13 vs 4Q13 vs Full Year Full Year Percent
2013     2013     2012     3Q13     4Q12     2013     2012     Change
 
Noninterest-bearing deposits $74,468 $68,264 $72,655 9.1 2.5 $69,020 $67,241 2.6
Interest-bearing savings deposits
Interest checking 50,112 48,235 45,168 3.9 10.9 48,792 45,433 7.4
Money market savings 57,550 55,982 49,545 2.8 16.2 55,512 46,874 18.4
Savings accounts 32,235     32,083     30,231 .5 6.6 31,916     29,596 7.8
Total of savings deposits 139,897 136,300 124,944 2.6 12.0 136,220 121,903 11.7

Time certificates of deposit less than $100,000

11,979 12,495 13,956 (4.1 ) (14.2 ) 12,804 14,509 (11.8 )
Time deposits greater than $100,000 30,562     35,309     32,292 (13.4 ) (5.4 ) 32,413     32,057 1.1
Total interest-bearing deposits 182,438     184,104     171,192 (.9 ) 6.6 181,437     168,469 7.7
Total deposits $256,906     $252,368     $243,847 1.8 5.4 $250,457     $235,710 6.3
                                                       

Average total deposits for the fourth quarter of 2013 were $13.1 billion (5.4 percent) higher than the fourth quarter of 2012. Average noninterest-bearing deposits increased $1.8 billion (2.5 percent) year-over-year, mainly in balances related to corporate trust, commercial real estate and commercial banking businesses. Average total savings deposits were $15.0 billion (12.0 percent) higher year-over-year, the result of growth in Consumer and Small Business Banking, as well as corporate trust, institutional trust, government banking and broker-dealer balances. Certificates of deposit less than $100,000 were $2.0 billion (14.2 percent) lower due to maturities, while time deposits greater than $100,000 decreased $1.7 billion (5.4 percent), primarily due to a decline in Consumer and Small Business Banking and corporate trust balances, partially offset by an increase in Wholesale and Commercial Real Estate balances. 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 $4.5 billion (1.8 percent) over the third quarter of 2013. Average noninterest-bearing deposits increased $6.2 billion (9.1 percent) on a linked quarter basis, mainly in balances related to Wholesale Banking and Commercial Real Estate and corporate trust businesses. Average total savings deposits increased $3.6 billion (2.6 percent), including increases in Consumer and Small Business Banking, Wholesale and Commercial Real Estate Banking and institutional trust balances. Compared with the third quarter of 2013, average time certificates of deposit less than $100,000 declined $516 million (4.1 percent) due to maturities. Average time deposits greater than $100,000 decreased $4.7 billion (13.4 percent) on a linked quarter basis, principally due to lower broker-dealer balances.

                                                 
NONINTEREST INCOME                                   Table 6
($ in millions)                 Percent     Percent            
Change Change
4Q 3Q 4Q 4Q13 vs 4Q13 vs Full Year Full Year Percent
2013     2013     2012     3Q13     4Q12     2013     2012     Change
 
Credit and debit card revenue $263 $244 $242 7.8 8.7 $965 $892 8.2
Corporate payment products revenue 166 192 178 (13.5 ) (6.7 ) 706 744 (5.1 )
Merchant processing services 367 371 354 (1.1 ) 3.7 1,458 1,395 4.5
ATM processing services 79 83 83 (4.8 ) (4.8 ) 327 346 (5.5 )
Trust and investment management fees 297 280 276 6.1 7.6 1,139 1,055 8.0
Deposit service charges 177 180 170 (1.7 ) 4.1 670 653 2.6
Treasury management fees 130 134 130 (3.0 ) -- 538 541 (.6 )
Commercial products revenue 243 207 226 17.4 7.5 859 878 (2.2 )
Mortgage banking revenue 231 328 476 (29.6 ) (51.5 ) 1,356 1,937 (30.0 )
Investment products fees 45 46 39 (2.2 ) 15.4 178 150 18.7
Securities gains (losses), net 1 (3 ) 3

nm  

(66.7 ) 9 (15 )

nm  

Other 157     115       152 36.5 3.3 569     743   (23.4 )
 
Total noninterest income $2,156     $2,177       $2,329 (1.0 ) (7.4 ) $8,774     $9,319   (5.8 )
                                                           

Noninterest Income

Fourth quarter noninterest income was $2,156 million; $173 million (7.4 percent) lower than the fourth quarter of 2012 and $21 million (1.0 percent) lower than the third quarter of 2013. The year-over-year decrease in noninterest income was principally due to a $245 million (51.5 percent) reduction in mortgage banking revenue due to lower origination and sales revenue. Growth in several fee categories helped to offset the decline in mortgage banking revenue. Credit and debit card revenue increased $21 million (8.7 percent) over the prior year due to higher transaction volumes, including the impact of business expansion. Merchant processing services revenue was $13 million (3.7 percent) higher as a result of an increase in product fees and higher volumes. Trust and investment management fees increased $21 million (7.6 percent) year-over-year, reflecting improved market conditions and business expansion. Deposit service charges were $7 million (4.1 percent) higher as a result of pricing changes and an increase in monthly account fees and account growth. Commercial products revenue increased $17 million (7.5 percent) over the prior year, principally due to higher syndication fees on tax-advantaged projects, while investment products fees increased $6 million (15.4 percent) due to higher sales volumes and fees. Offsetting these positive variances was a decline in corporate payment products revenue of $12 million (6.7 percent), the result of lower government-related transactions.

Noninterest income was $21 million (1.0 percent) lower in the fourth quarter of 2013 than the third quarter of 2013, primarily due to a 29.6 percent reduction in mortgage banking revenue, which reflected an unfavorable change in the valuation of mortgage servicing rights (“MSRs”), net of hedging activities, and lower origination and sales revenue. Partially offsetting the decline in mortgage banking revenue linked quarter was growth in credit and debit card revenue, which increased by $19 million (7.8 percent) due to seasonally higher sales volumes. Trust and investment management fees were $17 million (6.1 percent) higher than the prior quarter due to improved market conditions and account growth, including business expansion. Commercial products revenue increased $36 million (17.4 percent), compared with the third quarter, due to higher syndication fees on tax-advantaged projects and an increase in commercial leasing and capital markets revenue. Other revenue was $42 million (36.5 percent) higher on a linked quarter basis, primarily due to higher equity investment and retail lease revenue. Offsetting these positive variances was a decrease in corporate payments products revenue of $26 million (13.5 percent), primarily due to the impact of seasonally higher third quarter government-related transaction volume.

                                                 
NONINTEREST EXPENSE                                   Table 7
($ in millions)                 Percent     Percent            
Change Change
4Q 3Q 4Q 4Q13 vs 4Q13 vs Full Year Full Year Percent
2013     2013     2012     3Q13     4Q12     2013     2012     Change
 
Compensation $1,103 $1,088 $1,083 1.4 1.8 $4,371 $4,320 1.2
Employee benefits 275 278 231 (1.1 ) 19.0 1,140 945 20.6
Net occupancy and equipment 240 240 234 -- 2.6 949 917 3.5
Professional services 118 94 166 25.5 (28.9 ) 381 530 (28.1 )
Marketing and business development 103 85 103 21.2 -- 357 388 (8.0 )
Technology and communications 209 214 214 (2.3 ) (2.3 ) 848 821 3.3
Postage, printing and supplies 80 76 78 5.3 2.6 310 304 2.0
Other intangibles 56 55 66 1.8 (15.2 ) 223 274 (18.6 )
Other 498     435     511 14.5 (2.5 ) 1,695     1,957 (13.4 )
 
Total noninterest expense $2,682     $2,565     $2,686 4.6 (.1 ) $10,274     $10,456 (1.7 )
                                                       

Noninterest Expense

Noninterest expense in the fourth quarter of 2013 totaled $2,682 million, a decrease of $4 million (.1 percent) from the fourth quarter of 2012, and a $117 million (4.6 percent) increase from the third quarter of 2013. The slight decrease in total noninterest expense year-over-year was primarily the net result of lower professional services expense due to a reduction in mortgage servicing review-related costs and the positive impact year-over-year in other expense from an $80 million mortgage foreclosure-related settlement accrual in the fourth quarter of 2012, offset by higher tax-advantaged project costs, including the accounting presentation changes in the current quarter, and an increase in employee benefits expense, driven by higher pension costs. In addition, other intangibles expense decreased $10 million (15.2 percent), the result of the reduction or completion of the amortization of certain intangibles, while other expense also benefited from lower loan-related expenses including costs for other real estate owned. Compensation expense was higher by $20 million (1.8 percent), reflecting growth in staffing for business initiatives and the impact of merit increases, partially offset by lower incentive and commission expense. Net occupancy and equipment expense increased $6 million (2.6 percent) due to business initiatives, higher rent expense and maintenance costs.

Noninterest expense increased $117 million (4.6 percent) on a linked quarter basis, driven by higher costs related to tax-advantaged projects, seasonally higher professional services expense and the timing of marketing and business development projects. Compensation expense increased $15 million (1.4 percent) compared with the prior quarter due to staffing increases for business initiatives. Professional services was $24 million (25.5 percent) higher compared with the third quarter of 2013 due to seasonally higher costs across a majority of the lines of business. Marketing and business development expense increased $18 million (21.2 percent) due to the timing of various marketing programs in Payments Services and Consumer and Small Business Banking. Other expense was $63 million (14.5 percent) higher than the third quarter of 2013, principally due to higher costs related to investments in tax-advantaged projects, reflecting higher volume and the accounting presentation changes.

Provision for Income Taxes

The provision for income taxes for the fourth quarter of 2013 resulted in a tax rate on a taxable-equivalent basis of 23.8 percent (effective tax rate of 21.5 percent), reflecting the impact of the accounting presentation changes related to investments in tax-advantaged projects. The tax rates in the fourth quarter of 2012 and third quarter of 2013 were 30.7 percent (effective tax rate of 28.6 percent) and 29.5 percent (effective tax rate of 27.5 percent), respectively.

                                           
ALLOWANCE FOR CREDIT LOSSES                                 Table 8    
($ in millions)     4Q     3Q     2Q     1Q     4Q  
2013   % (b)   2013   % (b)   2013   % (b)   2013   % (b)   2012   % (b)
 
Balance, beginning of period $4,578 $4,612 $4,708 $4,733 $4,771
 
Net charge-offs
Commercial 33 .21 18 .11 34 .22 32 .22 47 .32
Lease financing 3   .23 (7 ) (.53 ) 4   .31 3 .23 5   .37
Total commercial 36 .21 11 .06 38 .23 35 .22 52 .32
Commercial mortgages 1 .01 2 .03 8 .10 15 .20 12 .16
Construction and development (30 ) (1.58 ) (8 ) (.46 ) (25 ) (1.54 ) 4 .26 5   .33
Total commercial real estate (29 ) (.29 ) (6 ) (.06 ) (17 ) (.18 ) 19 .21 17 .18
 
Residential mortgages 49 .38 57 .46 74 .63 92 .83 96 .88
 
Credit card 163 3.72 160 3.75 173 4.23 160 3.93 161 3.86
 
Retail leasing -- -- 1 .07 (1 ) (.07 ) 1 .07 1 .07
Home equity and second mortgages 37 .95 43 1.09 58 1.45 73 1.80 75 1.76
Other 52   .79 54   .83 48   .76 52 .83 59   .92
Total other retail 89 .75 98 .83 105 .90 126 1.08 135 1.12
Total net charge-offs,          
excluding covered loans 308 .55 320 .58 373 .70 432 .83 461 .88
Covered loans 4   .18 8   .33 19   .73 1 .04 7   .24
Total net charge-offs 312 .53 328 .57 392 .70 433 .79 468 .85
Provision for credit losses 277 298 362 403 443
Other changes (a) (6 ) (4 ) (66 ) 5 (13 )
Balance, end of period $4,537   $4,578   $4,612   $4,708 $4,733  
 
Components
Allowance for loan losses $4,250 $4,258 $4,312 $4,390 $4,424
Liability for unfunded
credit commitments 287   320   300   318 309  
Total allowance for credit losses $4,537   $4,578   $4,612   $4,708 $4,733  
 
Gross charge-offs $429 $450 $506 $549 $576
Gross recoveries $117 $122 $114 $116 $108
 
Allowance for credit losses as a percentage of
Period-end loans,
excluding covered loans 1.94 1.99 2.03 2.11 2.15
Nonperforming loans,
excluding covered loans 297 294 287 274 269
Nonperforming assets,
excluding covered assets 242 235 231 221 218
 
Period-end loans 1.93 1.98 2.02 2.11 2.12
Nonperforming loans 283 276 269 255 228
Nonperforming assets 223 207 203 196 177
 

(a) Includes net changes in credit losses to be reimbursed by the FDIC and, beginning in the second quarter of 2013, reductions in the allowance for covered loans where the reversal of a previously recorded allowance was offset by an associated decrease in the indemnification asset.

(b) Annualized and calculated on average loan balances
 

Credit Quality

The allowance for credit losses was $4,537 million at December 31, 2013, compared with $4,578 million at September 30, 2013, and $4,733 million at December 31, 2012. Net charge-offs and nonperforming assets declined on a linked quarter and year-over-year basis as economic conditions continued to slowly improve. On a linked quarter basis, net charge-offs decreased $16 million (4.9 percent), and nonperforming assets, excluding covered assets, decreased $67 million (3.6 percent). Total net charge-offs in the fourth quarter of 2013 were $312 million, compared with $328 million in the third quarter of 2013, and $468 million in the fourth quarter of 2012. The decrease in total net charge-offs on a linked quarter basis primarily reflected improvement in the construction and development portfolio, as well as improvement in the residential mortgages and home equity and second mortgages portfolios. The $156 million (33.3 percent) decline in net charge-offs year-over-year was due to improvements in the commercial, commercial real estate, residential mortgages and home equity and second mortgages portfolios. The Company recorded $277 million of provision for credit losses in the current quarter, which was $35 million less than net charge-offs.

Commercial and commercial real estate loan net charge-offs were $7 million (.03 percent of average loans outstanding) in the fourth quarter of 2013, compared with $5 million (.02 percent of average loans outstanding) in the third quarter of 2013, and $69 million (.27 percent of average loans outstanding) in the fourth quarter of 2012.

Residential mortgage loan net charge-offs were $49 million (.38 percent of average loans outstanding) in the fourth quarter of 2013, compared with $57 million (.46 percent of average loans outstanding) in the third quarter of 2013, and $96 million (.88 percent of average loans outstanding) in the fourth quarter of 2012. Credit card loan net charge-offs were $163 million (3.72 percent of average loans outstanding) in the fourth quarter of 2013, compared with $160 million (3.75 percent of average loans outstanding) in the third quarter of 2013, and $161 million (3.86 percent of average loans outstanding) in the fourth quarter of 2012. Total other retail loan net charge-offs were $89 million (.75 percent of average loans outstanding) in the fourth quarter of 2013, compared with $98 million (.83 percent of average loans outstanding) in the third quarter of 2013, and $135 million (1.12 percent of average loans outstanding) in the fourth quarter of 2012.

The ratio of the allowance for credit losses to period-end loans was 1.93 percent (1.94 percent excluding covered loans) at December 31, 2013, compared with 1.98 percent (1.99 percent excluding covered loans) at September 30, 2013, and 2.12 percent (2.15 percent excluding covered loans) at December 31, 2012. The ratio of the allowance for credit losses to nonperforming loans was 283 percent (297 percent excluding covered loans) at December 31, 2013, compared with 276 percent (294 percent excluding covered loans) at September 30, 2013, and 228 percent (269 percent excluding covered loans) at December 31, 2012.

                               
DELINQUENCY RATIOS                       Table 9
(Percent)                    
Dec 31 Sep 30 Jun 30 Mar 31 Dec 31
2013     2013     2013     2013     2012
 
Delinquent loan ratios - 90 days or more past due excluding nonperforming loans (a)
Commercial .08 .07 .09 .09 .09
Commercial real estate .07 .02 .03 .02 .02
Residential mortgages .65 .53 .53 .54 .64
Credit card 1.17 1.11 1.10 1.26 1.27
Other retail .18 .16 .16 .18 .20
Total loans, excluding covered loans .31 .27 .27 .29 .31
Covered loans 5.63 5.47 5.40 5.18 5.86
Total loans .51 .48 .49 .52 .59
 
Delinquent loan ratios - 90 days or more past due including nonperforming loans (a)
Commercial .27 .24 .24 .25 .27
Commercial real estate .83 .94 1.13 1.38 1.50
Residential mortgages 2.16 1.99 1.96 2.01 2.14
Credit card 1.60 1.66 1.75 2.04 2.12
Other retail .58 .60 .63 .67 .66
Total loans, excluding covered loans .97 .94 .97 1.06 1.11
Covered loans 7.13 7.13 7.08 7.13 9.28
Total loans 1.19 1.20 1.24 1.35 1.52
 
(a) Ratios are expressed as a percent of ending loan balances.
 
                               
ASSET QUALITY                       Table 10
($ in millions)                    
Dec 31 Sep 30 Jun 30 Mar 31 Dec 31
2013     2013     2013     2013     2012
Nonperforming loans
Commercial $122 $104 $91 $85 $107
Lease financing 12     12     14     16     16
Total commercial 134 116 105 101 123
 
Commercial mortgages 182 210 263 289 308
Construction and development 121     146     161     218     238
Total commercial real estate 303 356 424 507 546
 
Residential mortgages 770 732 685 673 661
Credit card 78 94 109 127 146
Other retail 191     206     222     228     217
Total nonperforming loans, excluding covered loans 1,476 1,504 1,545 1,636 1,693
 
Covered loans 127     156     168     209     386
Total nonperforming loans 1,603 1,660 1,713 1,845 2,079
 
Other real estate (a) 327 366 364 379 381
Covered other real estate (a) 97 176 187 168 197
Other nonperforming assets 10     10     12     14     14
 
Total nonperforming assets (b) $2,037     $2,212     $2,276     $2,406     $2,671
 
Total nonperforming assets, excluding covered assets $1,813     $1,880     $1,921     $2,029     $2,088
 

Accruing loans 90 days or more past due, excluding covered loans

$713     $591     $580     $609     $660
 
Accruing loans 90 days or more past due $1,189     $1,105     $1,119     $1,165     $1,323
 

Performing restructured loans, excluding GNMA and covered loans

$3,067     $3,097     $3,311     $3,318     $3,421
 
Performing restructured GNMA and covered loans $2,932     $2,262     $2,217     $2,294     $2,159
 

Nonperforming assets to loans plus ORE, excluding covered assets (%)

.80 .85 .88 .95 .98

 

Nonperforming assets to loans plus ORE (%)

.86 .95 1.00 1.07 1.19
 
(a) Includes equity investments in entities whose principal assets are other real estate owned.
(b) Does not include accruing loans 90 days or more past due.
 

Nonperforming assets at December 31, 2013, totaled $2,037 million, compared with $2,212 million at September 30, 2013, and $2,671 million at December 31, 2012. Total nonperforming assets at December 31, 2013, included $224 million of covered assets. The ratio of nonperforming assets to loans and other real estate was .86 percent (.80 percent excluding covered assets) at December 31, 2013, compared with .95 percent (.85 percent excluding covered assets) at September 30, 2013, and 1.19 percent (.98 percent excluding covered assets) at December 31, 2012. Total commercial nonperforming assets were $18 million (15.5 percent) higher on a linked quarter basis and $11 million (8.9 percent) higher year-over-year. Commercial real estate nonperforming assets declined by $53 million (14.9 percent) on a linked quarter basis and $243 million (44.5 percent) year-over-year. Residential mortgage nonperforming assets increased $38 million (5.2 percent) on a linked quarter basis and $109 million (16.5 percent) year-over-year. Credit card nonperforming assets were $16 million (17.0 percent) lower on a linked basis and $68 million (46.6 percent) lower year-over-year. Other retail nonperforming assets decreased $15 million (7.3 percent) on a linked quarter basis and $26 million (12.0 percent) year-over-year.

Accruing loans 90 days or more past due were $1,189 million ($713 million excluding covered loans) at December 31, 2013, compared with the $1,105 million ($591 million excluding covered loans) at September 30, 2013, and the $1,323 million ($660 million excluding covered loans) at December 31, 2012.

                                         
CAPITAL POSITION                             Table 11  
($ in millions)     Dec 31     Sep 30     Jun 30     Mar 31     Dec 31
2013       2013       2013       2013       2012
 
Total U.S. Bancorp shareholders' equity $41,113 $40,132 $39,683 $39,531 $38,998
Tier 1 capital 33,386 32,707 32,219 31,774 31,203
Total risk-based capital 39,340 38,873 38,378 38,099 37,780
 
Tier 1 capital ratio 11.2 % 11.2 % 11.1 % 11.0 % 10.8 %
Total risk-based capital ratio 13.2 13.3 13.3 13.2 13.1
Leverage ratio 9.6 9.6 9.5 9.3 9.2
Tangible common equity to tangible assets 7.7 7.4 7.5 7.4 7.2

Tangible common equity to risk-weighted assets using Basel I definition

9.1 8.9 8.9 8.8 8.6

Tier 1 common equity to risk-weighted assets using Basel I definition

9.4 9.3 9.2 9.1 9.0

Common equity tier 1 to risk-weighted assets estimated using final rules for the Basel III standardized approach

8.8 8.6 8.6 -- --

Common equity tier 1 to risk-weighted assets approximated using proposed rules for the Basel III standardized approach released June 2012

-- -- 8.3 8.2 8.1
                                         

Total U.S. Bancorp shareholders’ equity was $41.1 billion at December 31, 2013, compared with $40.1 billion at September 30, 2013, and $39.0 billion at December 31, 2012. During the fourth quarter, the Company returned 65 percent of fourth quarter earnings to shareholders, including $420 million in common stock dividends and $493 million of repurchased common stock. The tier 1 capital ratio was 11.2 percent at both December 31, 2013, and at September 30, 2013, compared with 10.8 percent at December 31, 2012. The tangible common equity to tangible assets ratio was 7.7 percent at December 31, 2013, compared with 7.4 percent at September 30, 2013, and 7.2 percent at December 31, 2012. The tier 1 common equity to risk-weighted assets ratio was 9.4 percent at December 31, 2013, compared with 9.3 percent at September 30, 2013, and 9.0 percent at December 31, 2012. All regulatory ratios continue to be in excess of “well-capitalized” requirements. The common equity tier 1 to risk-weighted assets ratio estimated using final rules for the Basel III standardized approach was 8.8 percent at December 31, 2013, and 8.6 percent at both September 30, 2013, and at June 30, 2013.

                               
COMMON SHARES                       Table 12
(Millions)     4Q     3Q     2Q     1Q     4Q
2013     2013     2013     2013     2012
 
Beginning shares outstanding 1,832 1,844 1,858 1,869 1,880

Shares issued for stock option and stock purchase plans, acquisitions and other corporate purposes

6 5 4 6 2
Shares repurchased (13 )     (17 )     (18 )     (17 )     (13 )
Ending shares outstanding 1,825       1,832       1,844       1,858       1,869  
                                         
                                                         
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 4Q 2013
4Q 3Q 4Q 4Q13 vs 4Q13 vs Full Year Full Year Percent Earnings
Business Line     2013     2013     2012     3Q13     4Q12     2013     2012     Change     Composition  

Wholesale Banking and Commercial Real Estate

$298 $330 $322 (9.7 ) (7.5 ) $1,285 $1,307 (1.7 ) 20 %

Consumer and Small Business Banking

353 338 278 4.4 27.0 1,353 1,374 (1.5 ) 24

Wealth Management and Securities Services

42 33 41 27.3 2.4 156 171 (8.8 ) 3
Payment Services 285 318 318 (10.4 ) (10.4 ) 1,181 1,265 (6.6 ) 20
Treasury and Corporate Support 478 449 461 6.5 3.7 1,861 1,530 21.6 33
 
Consolidated Company $1,456 $1,468 $1,420 (.8 ) 2.5 $5,836 $5,647 3.3 100 %
 
(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 2013, 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, international trade services and other financial services to middle market, large corporate, commercial real estate, financial institution, non-profit and public sector clients. Wholesale Banking and Commercial Real Estate contributed $298 million of the Company’s net income in the fourth quarter of 2013, compared with $322 million in the fourth quarter of 2012 and $330 million in the third quarter of 2013. Wholesale Banking and Commercial Real Estate’s net income decreased $24 million (7.5 percent) from the same quarter of 2012 due to a higher provision for credit losses and a decrease in total net revenue, partially offset by a reduction in total noninterest expense. Total net revenue declined by $19 million (2.3 percent), as a 9.9 percent decrease in total noninterest income was partially offset by a 2.1 percent increase in net interest income. Net interest income increased $11 million (2.1 percent) year-over-year, primarily due to higher average loan and deposit balances, partially offset by lower rates on loans and the impact of lower rates on the margin benefit from deposits. Total noninterest income decreased by $30 million (9.9 percent), driven by lower commercial products revenue, including standby letters of credit fees, foreign exchange revenue and other loan-related fees. In addition, equity investment revenue was lower year-over-year. Total noninterest expense decreased by $6 million (1.9 percent) from a year ago, primarily due to lower costs related to other real estate owned and commercial leasing, as well as a decrease in other intangibles expense. The provision for credit losses was $24 million higher year-over-year due to an unfavorable change in the reserve allocation, driven by higher portfolio volume, partially offset by lower net charge-offs.

Wholesale Banking and Commercial Real Estate’s contribution to net income in the fourth quarter of 2013 was $32 million (9.7 percent) lower than the third quarter of 2013, mainly due to an increase in the provision for credit losses. Total net revenue increased by $12 million (1.5 percent) over the prior quarter. Net interest income increased by $5 million (1.0 percent) on a linked quarter basis, primarily due to increases in average loan and deposit balances, partially offset by lower loan rates and the impact of lower rates on the margin benefit from deposits. Total noninterest income increased by $7 million (2.6 percent), driven by higher commercial products revenue, including an increase in commercial leasing and capital markets revenue, partially offset by lower treasury management fees due to seasonally higher volumes in the prior quarter. Total noninterest expense was relatively flat, increasing $1 million (.3 percent), as higher marketing and business development expense was offset by lower net shared services costs. The provision for credit losses increased by $61 million due to higher net charge-offs and an unfavorable change in the reserve allocation.

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, such as mobile phones and tablet computers. It encompasses community banking, metropolitan banking, in-store banking, small business banking, consumer lending, mortgage banking, workplace banking, student banking and 24-hour banking. Consumer and Small Business Banking contributed $353 million of the Company’s net income in the fourth quarter of 2013, a $75 million (27.0 percent) increase over the fourth quarter of 2012 and a $15 million (4.4 percent) increase over the prior quarter. Within Consumer and Small Business Banking, the retail banking division reported a $166 million increase in its contribution over the same quarter of last year, principally due to a reduction in the provision for credit losses. Retail banking’s total net revenue was 1.0 percent lower than the fourth quarter of 2012. Net interest income decreased 2.0 percent, primarily due to the impact of lower rates on the margin benefit from deposits, partially offset by higher average loan and deposit balances and loan fees. Total noninterest income for the retail banking division increased 1.5 percent over a year ago, principally due to higher deposit service charges, the result of pricing changes and increased monthly account fees and account growth, and retail lease revenue, partially offset by a decrease in ATM processing services revenue due to lower volumes. Total noninterest expense for the retail banking division in the fourth quarter of 2013 decreased .5 percent from the same quarter of the prior year, largely due to reductions in FDIC insurance expense, other intangibles expense, technology and communications expense and costs associated with other real estate owned, partially offset by higher net shared services expense. The provision for credit losses for the retail banking division decreased $272 million on a year-over-year basis due to a favorable change in the reserve allocation related to home equity loans and lower net charge-offs. The contribution of the mortgage banking division was lower by 49.7 percent than the fourth quarter of 2012, reflecting a decrease in total net revenue, partially offset by a reduction in total noninterest expense. The division’s 42.4 percent decrease in total net revenue was due to a 51.7 percent decrease in total noninterest income, driven by lower mortgage origination and sales revenue, as well as an 18.8 percent decrease in net interest income, primarily the result of lower average loans held for sale. Total noninterest expense was 42.2 percent lower than the prior year, reflecting a reduction in mortgage servicing review-related professional services costs and lower compensation costs. The provision for credit losses for the mortgage banking division increased by $12 million (48.0 percent) due to an unfavorable change in the reserve allocation, partially offset by lower net charge-offs.

Consumer and Small Business Banking’s contribution in the fourth quarter of 2013 was $15 million (4.4 percent) higher than the third quarter of 2013, driven by a lower provision for credit losses, partially offset by a decrease in total net revenue. Within Consumer and Small Business Banking, the retail banking division’s contribution increased 40.3 percent, mainly due to a decrease in the provision for credit losses. Total net revenue for the retail banking division increased .4 percent over the previous quarter. Net interest income was flat, as increases in average loan and deposits balances were offset by the impact of lower rates on the margin benefit from deposits. Total noninterest income was 1.5 percent higher on a linked quarter basis, driven by higher retail lease revenue. Total noninterest expense for the retail banking division was .8 percent higher on a linked quarter basis, as increases in compensation, marketing and net occupancy and equipment expense were partially offset by lower net shared services expense. The provision for credit losses decreased $120 million on a linked quarter basis due to a favorable change in the reserve allocation and lower net charge-offs. The contribution of the mortgage banking division decreased 39.5 percent from the third quarter of 2013 due to lower total net revenue, partially offset by a decline in total noninterest expense and a lower provision for credit losses. Total net revenue decreased 22.7 percent due to an 8.5 percent decline in net interest income, the result of lower average loans held for sale, and a 29.9 percent decrease in total noninterest income, primarily due to a reduction in mortgage banking revenue, the result of an unfavorable change in the valuation of MSRs, net of hedging activities, and lower origination and sales revenue. Total noninterest expense decreased 2.5 percent, reflecting lower compensation, employee benefits and net shared services costs, partially offset by higher professional services expense. The mortgage banking division’s provision for credit losses decreased $11 million (22.9 percent) on a linked quarter basis, due to lower net charge-offs and a favorable change in the reserve allocation.

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 fourth quarter of 2013, compared with $41 million in the fourth quarter of 2012 and $33 million in the third quarter of 2013. The business line’s contribution was $1 million (2.4 percent) higher than the same quarter of 2012, as an increase in total net revenue and a lower provision for credit losses were offset by higher total noninterest expense. Total net revenue increased by $28 million (7.3 percent) year-over-year, driven by a $30 million (10.2 percent) increase in total noninterest income, reflecting the impact of improved market conditions, business expansion and higher investment products fees. Net interest income decreased $2 million (2.2 percent), principally due to the impact of lower rates on the margin benefit from deposits, partially offset by higher average loan and deposit balances. Total noninterest expense increased by $36 million (11.5 percent) as a result of higher compensation and employee benefits expense and an increase in net shared services costs, including the impact of business expansion. The provision for credit losses decreased $10 million from the prior year due to lower net charge-offs and a favorable change in the reserve allocation.

The business line’s contribution in the fourth quarter of 2013 was $9 million (27.3 percent) higher than the prior quarter. Total net revenue increased by $23 million (5.9 percent) on a linked quarter basis, reflecting an increase in net interest income (4.7 percent), principally due to higher average deposit balances, and an increase in total noninterest income (6.2 percent), reflecting higher trust and investment management fees, mainly due to improved market conditions and account growth, including business expansion. Total noninterest expense increased $16 million (4.8 percent), primarily as a result of higher compensation expense and professional services costs. The provision for credit losses decreased $7 million on a linked quarter basis due to a favorable change in the reserve allocation and lower net charge-offs.

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 $285 million of the Company’s net income in the fourth quarter of 2013, compared with $318 million in both the fourth quarter of 2012 and third quarter of 2013. The $33 million (10.4 percent) reduction in the business line’s contribution from the prior year was driven by increases in the provision for credit losses and total noninterest expense, partially off by an increase in total net revenue. Total net revenue increased by $37 million (3.1 percent) year-over-year. Net interest income increased by $22 million (5.6 percent), primarily due to higher average loan balances, improved loan rates and lower rebate costs on the Company’s government card program. Total noninterest income was $15 million (1.9 percent) higher year-over-year, reflecting higher credit and debit card revenue on higher transaction volumes, including the impact of business expansion, and merchant processing services revenue, the result of an increase in product fees and higher volumes, partially offset by a decrease in corporate payment products revenue, due to lower government-related transactions. Total noninterest expense increased by $18 million (3.4 percent) over the fourth quarter of 2012, primarily due to higher compensation, employee benefits and net shared services expense, including the impact of business expansion, partially offset by reductions in technology and communications expense, marketing costs and other intangibles expense. The provision for credit losses increased by $67 million (45.0 percent) due to an unfavorable change in the reserve allocation.

Payment Services’ contribution in the fourth quarter of 2013 declined $33 million (10.4 percent), from the third quarter of 2013. Total net revenue increased $9 million (.7 percent) on a linked quarter basis. Net interest income increased by $23 million (5.9 percent) due to higher average loan balances and seasonally lower rebate costs on the Company’s government card program. Total noninterest income declined by $14 million (1.7 percent), reflecting lower corporate payment products revenue due to seasonally lower government-related transaction volumes, partially offset by an increase in credit and debit card revenue due to higher volumes. Total noninterest expense increased by $16 million (3.0 percent) due to higher compensation expense, as well as the timing of marketing programs and professional services costs, partially offset by lower outside data processing expense. The provision for credit losses was $44 million (25.6 percent) higher on a linked quarter basis due to an unfavorable change in the reserve allocation and an increase in net charge-offs.

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, interest rate risk management, the net effect of transfer pricing related to average balances, income taxes not allocated to business lines, including most tax advantaged investments 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 $478 million in the fourth quarter of 2013, compared with net income of $461 million in the fourth quarter of 2012 and net income of $449 million in the third quarter of 2013. Net interest income decreased by $26 million (4.4 percent) from the fourth quarter of 2012, principally due to lower rates on loans and investment securities, partially offset by lower funding costs. Total noninterest income increased by $49 million (67.1 percent) over the fourth quarter of last year, driven by higher equity investment and commercial products revenue, including an increase in syndication fees on tax-advantaged projects. Total noninterest expense increased by $97 million (46.4 percent), principally reflecting an increase in compensation and employee benefits expense and costs related to investments in tax-advantaged projects, partially offset by lower net shared services costs and other real estate owned-related expense. The provision for credit losses was $13 million higher year-over-year, due to an unfavorable change in the reserve allocation, partially offset by a decrease in net charge-offs.

Net income in the fourth quarter of 2013 was $29 million (6.5 percent) higher on a linked quarter basis, reflecting higher total net revenue, partially offset by an increase in the provision for credit losses. Total net revenue was $59 million (9.3 percent) higher than the prior quarter, driven by higher equity investment and commercial products revenue, mainly due to an increase in syndication fees on tax-advantaged projects. An $81 million (36.0 percent) increase in total noninterest expense primarily reflected higher costs related to investments in tax-advantaged projects and an increase in net shared services expense. The provision for credit losses was $12 million higher compared with the third quarter of 2013, due to an unfavorable change in the reserve allocation, partially offset by a decrease in net charge-offs.

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, January 22, 2014, at 8:00 a.m. (CST) 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 13771672. 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, January 22nd, and will run through Wednesday, January 29th, at 11:00 p.m. (CST). 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 13771672. 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 $364 billion in assets as of December 31, 2013, is the parent company of U.S. Bank National Association, the 5th largest commercial bank in the United States. The Company operates 3,081 banking offices in 25 states and 4,906 ATMs and provides a comprehensive line of banking, brokerage, insurance, investment, mortgage, trust and payment services products to consumers, businesses and institutions. 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 hereof. 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 recently enacted and future legislation and regulation. U.S. Bancorp’s results could also be adversely affected by 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, 2012, 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. However, factors other than these also could adversely affect U.S. Bancorp’s results, and the reader should not consider these factors to be a complete set of all potential risks or uncertainties. Forward-looking statements speak only as of the date hereof, 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 that are currently effective, 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,
  • Common equity tier 1 to risk-weighted assets estimated using final rules for the Basel III standardized approach, and for additional information
  • Common equity tier 1 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 the currently effective capital ratios defined by 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 principles (“GAAP”) or are not currently effective or defined in 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
Consolidated Statement of Income
 
    Three Months Ended     Year Ended
(Dollars and Shares in Millions, Except Per Share Data) December 31,     December 31,
(Unaudited)     2013       2012     2013     2012  
Interest Income        
Loans $2,595 $2,639 $10,277 $10,558
Loans held for sale 31 74 203 282
Investment securities 409 416 1,631 1,792
Other interest income 33       67     174     251  
Total interest income 3,068 3,196 12,285 12,883
Interest Expense
Deposits 128 161 561 691
Short-term borrowings 83 89 353 442
Long-term debt 180       219     767     1,005  
Total interest expense 391       469     1,681     2,138  
Net interest income 2,677 2,727 10,604 10,745
Provision for credit losses 277       443     1,340     1,882  
Net interest income after provision for credit losses 2,400 2,284 9,264 8,863
Noninterest Income
Credit and debit card revenue 263 242 965 892
Corporate payment products revenue 166 178 706 744
Merchant processing services 367 354 1,458 1,395
ATM processing services 79 83 327 346
Trust and investment management fees 297 276 1,139 1,055
Deposit service charges 177 170 670 653
Treasury management fees 130 130 538 541
Commercial products revenue 243 226 859 878
Mortgage banking revenue 231 476 1,356 1,937
Investment products fees 45 39 178 150
Securities gains (losses), net 1 3 9 (15 )
Other 157       152     569     743  
Total noninterest income 2,156 2,329 8,774 9,319
Noninterest Expense
Compensation 1,103 1,083 4,371 4,320
Employee benefits 275 231 1,140 945
Net occupancy and equipment 240 234 949 917
Professional services 118 166 381 530
Marketing and business development 103 103 357 388
Technology and communications 209 214 848 821
Postage, printing and supplies 80 78 310 304
Other intangibles 56 66 223 274
Other 498       511     1,695     1,957  
Total noninterest expense 2,682       2,686     10,274     10,456  
Income before income taxes 1,874 1,927 7,764 7,726
Applicable income taxes 403       552     2,032     2,236  
Net income 1,471 1,375 5,732 5,490
Net (income) loss attributable to noncontrolling interests (15 )     45     104     157  
Net income attributable to U.S. Bancorp $1,456       $1,420     $5,836     $5,647  
Net income applicable to U.S. Bancorp common shareholders $1,389       $1,349     $5,552     $5,383  
 
Earnings per common share $.76 $.72 $3.02 $2.85
Diluted earnings per common share $.76 $.72 $3.00 $2.84
Dividends declared per common share $.230 $.195 $.885 $.780
Average common shares outstanding 1,821 1,872 1,839 1,887
Average diluted common shares outstanding     1,832       1,880     1,849     1,896  
 
 
U.S. Bancorp
Consolidated Ending Balance Sheet
       
December 31, December 31,
(Dollars in Millions)     2013       2012  
Assets
Cash and due from banks $8,477 $8,252
Investment securities
Held-to-maturity 38,920 34,389
Available-for-sale 40,935 40,139
Loans held for sale 3,268 7,976
Loans
Commercial 70,033 66,223
Commercial real estate 39,885 36,953
Residential mortgages 51,156 44,018
Credit card 18,021 17,115
Other retail 47,678       47,712  
Total loans, excluding covered loans 226,773 212,021
Covered loans 8,462       11,308  
Total loans 235,235 223,329
Less allowance for loan losses (4,250 )     (4,424 )
Net loans 230,985 218,905
Premises and equipment 2,606 2,670
Goodwill 9,205 9,143
Other intangible assets 3,529 2,706
Other assets 26,096       29,675  
Total assets $364,021       $353,855  
 
Liabilities and Shareholders' Equity
Deposits
Noninterest-bearing $76,941 $74,172
Interest-bearing 156,165 145,972
Time deposits greater than $100,000 29,017       29,039  
Total deposits 262,123 249,183
Short-term borrowings 27,608 26,302
Long-term debt 20,049 25,516
Other liabilities 12,434       12,587  
Total liabilities 322,214 313,588
Shareholders' equity
Preferred stock 4,756 4,769
Common stock 21 21
Capital surplus 8,216 8,201
Retained earnings 38,667 34,720
Less treasury stock (9,476 ) (7,790 )
Accumulated other comprehensive income (loss) (1,071 )     (923 )
Total U.S. Bancorp shareholders' equity 41,113 38,998
Noncontrolling interests 694       1,269  
Total equity 41,807       40,267  
Total liabilities and equity     $364,021       $353,855  
 
           
U.S. Bancorp
Non-GAAP Financial Measures
 

December 31,

September 30,

June 30,

March 31,

December 31,

(Dollars in Millions, Unaudited)     2013       2013       2013       2013       2012  
Total equity $41,807 $41,552 $41,050 $40,847 $40,267
Preferred stock (4,756 ) (4,756 ) (4,756 ) (4,769 ) (4,769 )
Noncontrolling interests (694 ) (1,420 ) (1,367 ) (1,316 ) (1,269 )
Goodwill (net of deferred tax liability) (8,343 ) (8,319 ) (8,317 ) (8,333 ) (8,351 )
Intangible assets, other than mortgage servicing rights (849 )     (878 )     (910 )     (963 )     (1,006 )
Tangible common equity (a) 27,165 26,179 25,700 25,466 24,872
 

Tier 1 capital, determined in accordance with prescribed regulatory requirements using Basel I definition

33,386 32,707 32,219 31,774 31,203
Preferred stock (4,756 ) (4,756 ) (4,756 ) (4,769 ) (4,769 )

Noncontrolling interests, less preferred stock not eligible for Tier 1 capital

(688 )     (686 )     (685 )     (684 )     (685 )
Tier 1 common equity using Basel I definition (b) 27,942 27,265 26,778 26,321 25,749
 
Tangible common equity (as calculated above) 27,165 26,179 25,700
Adjustments (1) 224       258       195  

Common equity tier 1 estimated using final rules for the Basel III standardized approach (c)

27,389 26,437 25,895
 
Tangible common equity (as calculated above) 25,700 25,466 24,872
Adjustments (2) (43 )     81       126  

Common equity tier 1 approximated using proposed rules for the Basel III standardized approach released June 2012 (d)

25,657 25,547 24,998
 
Total assets 364,021 360,681 353,415 355,447 353,855
Goodwill (net of deferred tax liability) (8,343 ) (8,319 ) (8,317 ) (8,333 ) (8,351 )
Intangible assets, other than mortgage servicing rights (849 )     (878 )     (910 )     (963 )     (1,006 )
Tangible assets (e) 354,829 351,484 344,188 346,151 344,498
 

Risk-weighted assets, determined in accordance with prescribed regulatory requirements using Basel I definition (f)

297,919 * 293,155 289,613
Adjustments (3) 13,712   *   13,473       12,476  

Risk-weighted assets estimated using final rules for the Basel III standardized approach (g)

311,631 * 306,628 302,089
 

Risk-weighted assets, determined in accordance with prescribed regulatory requirements using Basel I definition (f)

289,613 289,672 287,611
Adjustments (4) 20,866       21,021       21,233  

Risk-weighted assets approximated using proposed rules for the Basel III standardized approach released June 2012 (h)

310,479 310,693 308,844
 
Ratios *
Tangible common equity to tangible assets (a)/(e) 7.7 % 7.4 % 7.5 % 7.4 % 7.2 %
Tangible common equity to risk-weighted assets using Basel I definition (a)/(f) 9.1 8.9 8.9 8.8 8.6
Tier 1 common equity to risk-weighted assets using Basel I definition (b)/(f) 9.4 9.3 9.2 9.1 9.0

Common equity tier 1 to risk-weighted assets estimated using final rules for the Basel III standardized approach (c)/(g)

8.8 8.6 8.6 -- --

Common equity tier 1 to risk-weighted assets approximated using proposed rules for the Basel III standardized approach released June 2012 (d)/(h)

    --       --       8.3       8.2       8.1  
 
* Preliminary data. Subject to change prior to filings with applicable regulatory agencies.

(1) Includes net losses on cash flow hedges included in accumulated other comprehensive income and unrealized losses on securities transferred from available-for-sale to held-to-maturity included in accumulated other comprehensive income.

(2) Includes net losses on cash flow hedges included in accumulated other comprehensive income, unrealized losses on securities transferred from available-for-sale to held-to-maturity included in accumulated other comprehensive income and disallowed mortgage servicing rights.

(3) Includes higher risk-weighting for unfunded loan commitments, investment securities and mortgage servicing rights, and other adjustments.
(4) Includes higher risk-weighting for residential mortgages, unfunded loan commitments, investment securities and mortgage servicing rights, and other adjustments.

Contacts

U.S. Bancorp
Thomas Joyce
Media
(612) 303-3167
or
Judith T. Murphy
Investors/Analysts
(612) 303-0783

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Contacts

U.S. Bancorp
Thomas Joyce
Media
(612) 303-3167
or
Judith T. Murphy
Investors/Analysts
(612) 303-0783