US BANCORP Return on Average Assets of 1.51 percent and Return on Average Common Equity of 14.5 percent Year-over-Year Positive Operating Leverage Returned 78 percent of Third Quarter Earnings to Shareholders MINNEAPOLIS--(BUSINESS WIRE)--Oct. 22, 2014-- U.S. Bancorp (NYSE:USB) today reported net income of $1,471 million for the third quarter of 2014, or $.78 per diluted common share, compared with $1,468 million, or $.76 per diluted common share, in the third quarter of 2013. Highlights for the third quarter of 2014 included:
Net income attributable to U.S. Bancorp was $1,471 million for the third quarter of 2014, .2 percent higher than the $1,468 million for the third quarter of 2013, and 1.6 percent lower than the $1,495 million for the second quarter of 2014. Diluted earnings per common share of $.78 in the third quarter of 2014 were $.02 higher than the third quarter of 2013 and equal to the previous quarter. Return on average assets and return on average common equity were 1.51 percent and 14.5 percent, respectively, for the third quarter of 2014, compared with 1.65 percent and 15.8 percent, respectively, for the third quarter of 2013. The provision for credit losses was lower than net charge-offs by $25 million in the third quarter of 2014 and in the second quarter of 2014, and $30 million lower than net charge-offs in the third quarter of 2013. U.S. Bancorp Chairman, President and Chief Executive Officer Richard K. Davis said, "U.S. Bank delivered another solid performance in the third quarter with $1.5 billion of net income, or $.78 per diluted common share. Our ability to provide customers and clients with a diverse array of banking products and services while addressing their distinct financial objectives, in any economic environment, allows us to continue generating an industry-leading financial performance. Our return on average common equity, return on average assets, and efficiency ratio metrics remain among the strongest in the industry. Our consistently solid financial performance is a result of our adhering closely to the core fundamentals of controlling expenses, managing capital prudently, selectively investing in initiatives that generate steady long-term growth, and expanding existing customer relationships. That was certainly the case in the third quarter as our disciplined approach returned positive operating leverage and the diversification of our business profile allowed us to maintain our momentum as the economy slowly rebounds. "Value creation for our customers and shareholders is our highest priority. One way we create value for our customers is by preserving and leveraging our industry-leading financial strength to help them more efficiently reach their financial goals and objectives. For example, our average deposits grew 7.4 percent over the prior year to $271 billion. In a challenging macro-economic environment, retail and institutional customers gravitate toward the strength and security of U.S. Bank. Likewise, we returned 78 percent of third quarter earnings to shareholders through dividends and share buybacks. Both examples demonstrate our commitment to value creation. The better we are at addressing and meeting our customers' financial goals and objectives, the stronger our financial performance will be. "As we head into the final quarter of the year, we remain diligently focused on executing our plan, even with the ongoing economic headwinds, with an emphasis on providing our customers with the trusted products and services to help them build more secure financial futures, backed by the financial strength of U.S. Bank."
Net income attributable to U.S. Bancorp for the third quarter of 2014 was $3 million (.2 percent) higher than the third quarter of 2013, and $24 million (1.6 percent) lower than the second quarter of 2014. The increase in net income year-over-year was principally due to an increase in total net revenue, driven by increases in both net interest income and fee-based revenue. The decrease in net income on a linked quarter basis was principally due to increased noninterest expense driven by merger integration, mortgage servicing- related expenses, and seasonal tax-advantaged projects costs, partially offset by a decrease in the provision for credit losses. The second quarter of 2014 included two previously disclosed notable items impacting other noninterest income and other noninterest expense that, together, had no impact to diluted earnings per common share. Total net revenue on a taxable-equivalent basis for the third quarter of 2014 was $4,990 million which was $99 million (2.0 percent) higher than the third quarter of 2013, reflecting a 3.0 percent increase in noninterest income and a 1.3 percent increase in net interest income. Noninterest income increased year-over-year due to higher revenue in most fee businesses, partially offset by lower mortgage banking revenue. The increase in net interest income year-over-year was the result of an increase in average earning assets and continued growth in lower cost core deposit funding, offset by lower loan fees. Total net revenue on a taxable-equivalent basis was $198 million (3.8 percent) lower on a linked quarter basis due to an 8.3 percent decrease in noninterest income as a result of the sale of Visa, Inc. Class B common stock in the second quarter of 2014 and lower mortgage banking revenue, partially offset by a $4 million increase in net interest income, the result of an increase in average earning assets and growth in lower cost deposits, offset by lower loan fees. Total noninterest expense in the third quarter of 2014 was $2,614 million which was $49 million (1.9 percent) higher than the third quarter of 2013 and $139 million (5.0 percent) lower than the second quarter of 2014. The increase in total noninterest expense year-over-year was primarily due to an increase in compensation expense, reflecting the impact of merit increases, acquisitions, and higher staffing for risk and compliance activities. The decrease in total noninterest expense on a linked quarter basis was due to the second quarter settlement with the U.S. Department of Justice to resolve an investigation relating to the endorsement of mortgage loans under the Federal Housing Administration's insurance program ("FHA DOJ settlement"), partially offset by Charter One merger integration costs and higher mortgage servicing-related costs. The Company's provision for credit losses for the third quarter of 2014 was $311 million, $13 million (4.0 percent) lower than the prior quarter and $13 million (4.4 percent) higher than the third quarter of 2013. The provision for credit losses was lower than net charge-offs by $25 million in the third quarter of 2014 and in the second quarter of 2014, and $30 million lower than net charge-offs in the third quarter of 2013. Net charge-offs in the third quarter of 2014 were $336 million, compared with $349 million in the second quarter of 2014, and $328 million in the third quarter of 2013. Given current economic conditions, the Company expects the level of net charge-offs to remain relatively stable in the fourth 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 $1,763 million at September 30, 2014, compared with $1,766 million at June 30, 2014, and $1,880 million at September 30, 2013. 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 $160 million at September 30, 2014, compared with $177 million at June 30, 2014, and $332 million at September 30, 2013. The loss sharing agreement for the majority of the nonperforming covered assets expires in the fourth quarter of 2014. The ratio of the allowance for credit losses to period-end loans was 1.80 percent at September 30, 2014, compared with 1.82 percent at June 30, 2014, and 1.98 percent at September 30, 2013. The Company expects total nonperforming assets to remain relatively stable in the fourth quarter of 2014.
Net Interest Income Net interest income on a taxable-equivalent basis in the third quarter of 2014 was $2,748 million, an increase of $34 million (1.3 percent) from the third quarter of 2013. The increase was the result of growth in average earning assets and growth in lower cost coredeposit funding, partially offset by lower rates on new loans and securities and lower loan fees. Average earning assets were $31.4 billion (10.0 percent) higher than the third quarter of 2013, driven by increases of $14.5 billion (6.3 percent) in average total loans and $18.2 billion (24.2 percent) in average investment securities, partially offset by a decrease of $1.4 billion (28.5 percent) in average loans held for sale. Net interest income increased $4 million on a linked quarter basis, due to higher average earning assets, partially offset by lower loan fees and lower loan and investment securities rates. The net interest margin in the third quarter of 2014 was 3.16 percent, compared with 3.43 percent in the third quarter of 2013, and 3.27 percent in the second quarter of 2014. 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 investment portfolio at lower average rates, lower loan fees due to the previously communicated wind down of the short-term, small-dollar deposit advance product, Checking Account Advance ("CAA"), and lower rates on new loans, partially offset by lower funding costs. On a linked quarter basis, the reduction in net interest margin was principally due to growth in lower rate investment securities and lower loan fees due to the CAA product wind down.
Average total loans were $14.5 billion (6.3 percent) higher in the third quarter of 2014 than the third quarter of 2013, driven by growth in total commercial loans (13.6 percent), total commercial real estate (6.1 percent), residential mortgages (5.8 percent), credit card (4.9 percent), and total other retail loans (3.6 percent). These increases were partially offset by a decline in covered loans (25.6 percent). Average total loans, excluding covered loans, were higher by 7.7 percent year-over-year. Average total loans were $3.4 billion (1.4 percent) higher in the third quarter of 2014 than the second quarter of 2014, driven by growth in total commercial loans (3.1 percent), credit card (2.1 percent), total other retail loans (1.6 percent), total commercial real estate (.8 percent), and residential mortgages (.3 percent). These increases were partially offset by a decline in covered loans (7.6 percent). Average total loans, excluding covered loans, were higher by 1.7 percent on a linked quarter basis. Average investment securities in the third quarter of 2014 were $18.2 billion (24.2 percent) higher year-over-year and $5.6 billion (6.3 percent) higher than the prior quarter. The increases were primarily due to purchases of U.S. government agency-backed securities, net of prepayments and maturities, in anticipation of final liquidity coverage ratio regulatory requirements.
Average total deposits for the third quarter of 2014 were $18.6 billion (7.4 percent) higher than the third quarter of 2013. Average noninterest-bearing deposits increased $5.9 billion (8.6 percent) year-over-year, mainly in Consumer and Small Business Banking, including the $.4 billion impact of the Charter One acquisition, corporate trust, and commercial banking balances. Average total savings deposits were $19.0 billion (14.0 percent) higher year-over-year, the result of growth in Consumer and Small Business Banking, including the $3.4 billion impact of the Charter One acquisition, corporate trust, broker-dealer, and government banking related balances. Time deposits less than $100,000 were $1.5 billion (11.6 percent) lower due to maturities, while time deposits greater than $100,000 decreased $4.8 billion (13.6 percent), primarily due to a decline in broker-dealer and Consumer and Small Business Banking 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 $8.7 billion (3.3 percent) over the second quarter of 2014. Average noninterest-bearing deposits increased $2.3 billion (3.2 percent) on a linked quarter basis, due to higher balances in Consumer and Small Business Banking, including the impact of the Charter One acquisition, and Wholesale Banking and Commercial Real Estate, partially offset by lower corporate trust balances. Average total savings deposits increased $7.0 billion (4.7 percent), reflecting increases in Consumer and Small Business Banking, including the impact of the Charter One acquisition, corporate trust, and broker-dealer balances, partially offset by a decrease in government banking related balances. Compared with the second quarter of 2014, average time deposits less than $100,000 increased $74 million (.7 percent) due to an increase in Consumer and Small Business Banking driven by the impact of the Charter One acquisition. Average time deposits greater than $100,000 decreased $675 million (2.2 percent) on a linked quarter basis, principally due to declines in Wholesale Banking and Commercial Real Estate and corporate trust balances.
Noninterest Income Third quarter noninterest income was $2,242 million which was $65 million (3.0 percent) higher than the third quarter of 2013 and $202 million (8.3 percent) lower than the second quarter of 2014. The year-over-year increase in noninterest income was due to increases in a majority of fee revenue categories, partially offset by a $68 million (20.7 percent) reduction in mortgage banking revenue, principally due to a $59 million unfavorable change in the valuation of mortgage servicing rights ("MSRs"), net of hedging activities, compared with the prior year. Trust and investment management fees increased $35 million (12.5 percent) year-over-year, reflecting account growth, improved market conditions and business expansion. Merchant processing services revenue was $16 million (4.3 percent) higher as a result of an increase in product fees and higher volumes, partially offset by lower rates. Credit and debit card revenue increased $7 million (2.9 percent) over the third quarter of 2013 primarily due to higher transaction volumes. Deposit services charges were $5 million (2.8 percent) higher than a year ago due to account growth, the Charter One acquisition and pricing changes. The increase in other income was primarily due to gains on sales of other equity investments and an increase in retail leasing revenue. Noninterest income was $202 million (8.3 percent) lower in the third quarter of 2014 than the second quarter of 2014, primarily due to the second quarter Visa, Inc. Class B common stock sale, lower mortgage banking revenue, and lower commercial products revenue. Mortgage banking revenue decreased $18 million (6.5 percent), principally due to a $44 million unfavorable change in the valuation of MSRs, net of hedging activities, partially offset by an increase in origination and sales revenue. Commercial products revenue decreased $12 million (5.4 percent) due to lower wholesale transaction activity, including standby letters of credit, loan and bond underwriting fees, and syndication fees. Credit and debit card revenue decreased $8 million (3.1 percent) primarily due to higher rewards. Partially offsetting these decreases was an increase in deposit service charges of $14 million (8.2 percent), mainly due to higher transaction volumes. Additionally, corporate payment products revenue increased $13 million (7.1 percent) on a linked quarter basis, principally due to seasonally higher transaction volumes, and trust and investment management fees were $4 million (1.3 percent) higher than the prior quarter due to improved market conditions and account growth, including business expansion.
Noninterest Expense Noninterest expense in the third quarter of 2014 totaled $2,614 million, an increase of $49 million (1.9 percent) over the third quarter of 2013, and a $139 million (5.0 percent) decrease from the second quarter of 2014. The increase in total noninterest expense year-over-year was the result of higher compensation expense, reflecting the impact of merit increases, acquisitions, and higher staffing for risk and compliance activities. Net occupancy and equipment expense increased $9 million (3.8 percent) year-over-year due to business initiatives and maintenance costs. Professional services expense increased $8 million (8.5 percent) due mainly to mortgage servicing-related project costs. The $17 million (3.9 percent) increase in other expense primarily reflected the Charter One merger integration and mortgage servicing-related expenses, partially offset by lower costs for investments in tax-advantaged projects related to a change in first quarter 2014 in accounting for affordable housing investments. Offsetting these increases was a $28 million (10.1 percent) reduction in employee benefits expense driven by lower pension costs. Noninterest expense decreased $139 million (5.0 percent) on a linked quarter basis, primarily driven by the second quarter FHA DOJ settlement in other expense, partially offset by mortgage servicing-related expenses, the Charter One merger integration costs, and seasonally higher costs related to investments in tax-advantaged projects. Marketing and business development expense decreased $18 million (18.8 percent) due to charitable contributions in the second quarter of 2014 and the timing of marketing programs in Payment Services. Additionally, employee benefits expense decreased $7 million (2.7 percent) primarily resulting from lower payroll tax expense. Partially offsetting these decreases was a $7 million (.6 percent) increase in compensation expense reflecting the impact of merit increases, and additional employees related to the Charter One acquisition and for risk and compliance activities. Professional services expense was $5 million (5.2 percent) higher, mainly due to higher mortgage servicing-related project costs. Provision for Income Taxes The provision for income taxes for the third quarter of 2014 resulted in a tax rate on a taxable-equivalent basis of 28.0 percent (effective tax rate of 26.0 percent), compared with 29.5 percent (effective tax rate of 27.5 percent) in the third quarter of 2013, and 28.5 percent (effective tax rate of 26.6 percent) in the second quarter of 2014.
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U S Bancorp : Reports $1.5 Billion of Net Income for the Third Quarter 2014
October 29, 2014 at 09:01 am EDT
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