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MINNEAPOLIS--(BUSINESS WIRE)--Oct. 16, 2013-- U.S. Bancorp (NYSE:USB) today reported net income of $1,468 million for the third quarter of 2013, or $.76 per diluted common share, compared with $1,474 million, or $.74 per diluted common share, in the third quarter of 2012. Highlights for the third quarter of 2013 included:

• Industry-leading performance ratios, including:
  • Return on average assets of 1.65 percent
  • Return on average common equity of 15.8 percent
  • Efficiency ratio of 52.4 percent
• Growth in average total loans of 5.7 percent over the third quarter of 2012 (7.5 percent excluding covered loans) and 1.9 percent on a linked quarter basis (2.2 percent excluding covered loans)
  • Growth in average total commercial loans of 9.4 percent over the third quarter of 2012 and 2.0 percent over the second quarter of 2013
  • Growth in average total commercial real estate loans of 5.1 percent over the third quarter of 2012 and 1.6 percent over the second quarter of 2013
  • Growth in average commercial and commercial real estate commitments of 9.9 percent year-over-year and 3.2 percent over the prior quarter
• Strong new lending activity of $63.1 billion during the third quarter, including:
  • $37.8 billion of new and renewed commercial and commercial real estate commitments
  • $2.8 billion of lines related to new credit card accounts
  • $22.5 billion of mortgage and other retail loan originations
• Continued strong growth in average total deposits of 5.5 percent over the third quarter of 2012 and 2.0 percent on a linked quarter basis.
  • Average low cost deposits, including noninterest-bearing and total savings deposits, grew by 8.5 percent year-over-year and 1.0 percent linked quarter
• Net charge-offs declined on both a linked quarter and year-over-year basis. Provision for credit losses was $30 million less than net charge-offs
  • Net charge-offs were $64 million (16.3 percent) lower than the second quarter of 2013
  • Annualized net charge-offs to average total loans ratio declined to .57 percent
  • Allowance to period-end loans was 1.98 percent at September 30, 2013

• Nonperforming assets declined on both a linked quarter and year-over-year basis
  • Nonperforming assets (excluding covered assets) decreased 2.1 percent from the second quarter of 2013
  • Allowance to nonperforming assets (excluding covered assets) was 235 percent at September 30, 2013, compared with 231 percent at June 30, 2013, and 213 percent at September 30, 2012
• Capital generation continues to reinforce capital position and return. Ratios at September 30, 2013 were:
  • Tier 1 capital ratio of 11.2 percent
  • Total risk based capital ratio of 13.3 percent
  • Tier 1 common equity to risk-weighted assets ratio of 9.3 percent
  • Tier 1 common equity ratio of 8.6 percent estimated using final rules for Basel III standardized approach released July 2013
  • Returned 77 percent of third quarter earnings to shareholders through dividends and over 17 million in share buybacks

Net income attributable to U.S. Bancorp was $1,468 million for the third quarter of 2013, .4 percent lower than the $1,474 million for the third quarter of 2012, and 1.1 percent lower than the $1,484 million for the second quarter of 2013. Diluted earnings per common share of $.76 in the third quarter of 2013 were $.02 higher than the third quarter of 2012 and equal to the previous quarter. Return on average assets and return on average common equity were 1.65 percent and 15.8 percent, respectively, for the third quarter of 2013, compared with 1.70 percent and 16.5 percent, respectively, for the third quarter of 2012. The provision for credit losses was lower than net charge-offs by $30 million in the third quarter and the second quarter of 2013 and $50 million lower in the third quarter of 2012.

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

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

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

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

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

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

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

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

The Company’s provision for credit losses for the third quarter of 2013 was $298 million, $64 million lower than the prior quarter and $190 million lower than the third quarter of 2012. The provision for credit losses was lower than net charge-offs by $30 million in the third quarter and second quarter of 2013, and $50 million lower in the third quarter of 2012. Net charge-offs in the third quarter of 2013 were $328 million, compared with $392 million in the second quarter of 2013 and $538 million in the third quarter of 2012. Given current economic conditions, the Company expects the level of net charge-offs to be relatively stable in the fourth quarter of 2013.

Nonperforming assets include assets originated or acquired by the Company, as well as loans and other real estate acquired under FDIC loss sharing agreements that substantially reduce the risk of credit losses to the Company (“covered assets”). Excluding covered assets, nonperforming assets were $1,880 million at September 30, 2013, compared with $1,921 million at June 30, 2013, and $2,188 million at September 30, 2012. The decrease in nonperforming assets, excluding covered assets, compared with a year ago was driven primarily by reductions in the commercial mortgage portfolio, as well as by improvement in construction and development, total commercial and credit card loans. Covered nonperforming assets were $332 million at September 30, 2013, compared with $355 million at June 30, 2013, and $647 million at September 30, 2012. The ratio of the allowance for credit losses to period-end loans, including covered loans, was 1.98 percent at September 30, 2013, compared with 2.02 percent at June 30, 2013, and 2.19 percent at September 30, 2012. The Company expects total nonperforming assets to remain relatively stable in the fourth quarter of 2013.

Net Interest Income

Net interest income on a taxable-equivalent basis in the third quarter of 2013 was $2,714 million, a decrease of $69 million (2.5 percent) from the third quarter of 2012. The decrease was the result of lower rates on loans and investment securities, partially offset by higher average earning assets, continued growth in lower cost core deposit funding and the positive impact from maturities of higher-rate long-term debt. Average earning assets were $6.1 billion (2.0 percent) higher than the third quarter of 2012, driven by increases of $12.4 billion (5.7 percent) in average total loans and $2.5 billion (3.5 percent) in average investment securities, partially offset by decreases of $3.5 billion (41.1 percent) in average loans held for sale and $5.4 billion (48.5 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 $42 million (1.6 percent) on a linked quarter basis, driven by a $3.1 billion (1.0 percent) increase in average earning assets, reflecting growth in average total loans, partially offset by declines in average loans held for sale and other earning assets. The net interest margin in the third quarter of 2013 was 3.43 percent, compared with 3.59 percent in the third quarter of 2012, and 3.43 percent in the second quarter of 2013. The decline in the net interest margin on a year-over-year basis primarily reflected lower rates on investment securities and loans, partially offset by lower rates on deposits and a reduction in higher cost long-term debt.

Average total loans were $12.4 billion (5.7 percent) higher in the third quarter of 2013 than the third quarter of 2012, driven by growth in residential mortgages (19.9 percent), commercial loans (10.9 percent), retail leasing (7.8 percent), total commercial real estate (5.1 percent), credit card (2.3 percent) and other retail loans (1.1 percent). These increases were partially offset by declines in home equity and second mortgages (9.7 percent), lease financing (5.9 percent) and covered loans (22.7 percent). Average total loans, excluding covered loans, were higher by 7.5 percent year-over-year. Average total loans were $4.2 billion (1.9 percent) higher in the third quarter of 2013 than the second quarter of 2013, driven by increases in residential mortgages (4.8 percent), credit card (3.1 percent), commercial loans (2.2 percent), other retail loans (1.8 percent), total commercial real estate (1.6 percent) and retail leasing (.2 percent), partially offset by decreases in home equity and second mortgages (2.1 percent), lease financing (.9 percent) and covered loans (6.3 percent). Excluding covered loans, average total loans grew by 2.2 percent on a linked quarter basis.

Average investment securities in the third quarter of 2013 were $2.5 billion (3.5 percent) higher year-over-year and $.6 billion (.7 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.

Average total deposits for the third quarter of 2013 were $13.1 billion (5.5 percent) higher than the third quarter of 2012. Average noninterest-bearing deposits were relatively stable with an increase of $137 million (.2 percent) year-over-year. Average total savings deposits were $15.8 billion (13.1 percent) higher year-over-year, the result of growth in Consumer and Small Business Banking, as well as in corporate trust, broker-dealer and government-related balances. Average time certificates of deposit less than $100,000 were $1.9 billion (13.0 percent) lower due to maturities, while time deposits greater than $100,000 decreased $1.0 billion (2.8 percent), primarily due to a decline in Consumer and Small Business Banking and corporate trust 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 $5.0 billion (2.0 percent) over the second quarter of 2013. Average noninterest-bearing deposits increased $1.4 billion (2.1 percent) on a linked quarter basis, mainly in Consumer and Small Business Banking and Wholesale Banking and Commercial Real Estate. Average total savings deposits increased modestly, $600 million (.4 percent), as higher broker-dealer balances were offset by lower corporate trust balances. Compared with the second quarter of 2013, average time certificates of deposit less than $100,000 declined $657 million (5.0 percent) due to maturities. Average time deposits greater than $100,000 increased $3.6 billion (11.5 percent) on a linked quarter basis, principally due to higher broker-dealer and other wholesale banking balances, partially offset by lower corporate trust balances.

Noninterest Income

Third quarter noninterest income was $2,177 million; $219 million (9.1 percent) lower than the third quarter of 2012 and $99 million (4.3 percent) lower than the second quarter of 2013. The year-over-year decrease in noninterest income was principally due to a $191 million (36.8 percent) reduction in mortgage banking revenue due to lower origination and sales revenue, partially offset by higher servicing income and a favorable change in the valuation of mortgage servicing rights (“MSRs”), net of hedging activities. Growth in several fee categories helped to offset the decline in mortgage banking revenue. Credit and debit card revenue increased $31 million (14.6 percent) over the prior year due to higher transaction volumes, including the impact of business expansion. Merchant processing services revenue was $26 million (7.5 percent) higher as a result of an increase in product fees and higher volumes. Trust and investment management fees increased $15 million (5.7 percent) year-over-year, reflecting improved market conditions and business expansion, while investment products fees increased $8 million (21.1 percent) over the prior year due to higher sales volumes and fees. Offsetting these positive variances were declines in corporate payment products revenue of $9 million (4.5 percent), the result of lower government-related transactions, and commercial products revenue, which decreased $18 million (8.0 percent) year-over-year due to lower standby letters of credit, foreign exchange, bond underwriting and syndication fees. In addition, other revenue declined by $78 million (40.4 percent), principally the result of a gain on the sale of a credit card portfolio in the third quarter of 2012.

Noninterest income was $99 million (4.3 percent) lower in the third quarter of 2013 than the second quarter of 2013, driven by a reduction in mortgage banking revenue due to lower origination and sales revenue, partially offset by higher servicing income and a favorable change in the valuation of MSRs, net of hedging activities. Partially offsetting the decline in mortgage banking revenue was growth in corporate payment products revenue, which increased by $16 million (9.1 percent) on a linked quarter basis due to seasonally higher sales volumes. Deposit service charges were $20 million (12.5 percent) higher than the second quarter of 2013, due to higher volumes, pricing changes and an increase in account fees. Offsetting these positives variances was other revenue, which decreased $44 million (27.7 percent) linked quarter, primarily due to lower equity investment and retail lease revenue, as well as the impact of a small merchant processing-related contract termination gain recorded in the second quarter of 2013. In addition, treasury management revenue was $6 million (4.3 percent) lower due to seasonally higher tax-processing transaction volumes in the second quarter.

Noninterest Expense

Noninterest expense in the third quarter of 2013 totaled $2,565 million, a decrease of $44 million (1.7 percent) from the third quarter of 2012, and an $8 million (.3 percent) increase from the second quarter of 2013. The decrease in total noninterest expense year-over-year was driven by lower professional services expense due to a reduction in mortgage servicing review-related costs. Compensation expense decreased $21 million (1.9 percent), primarily as a result of lower incentive expense. Marketing and business development expense was $11 million (11.5 percent) lower than the prior year due to the timing of marketing programs, while other intangibles expense decreased $12 million (17.9 percent) year-over-year, the result of the reduction or completion of the amortization of certain intangibles. Other expense decreased by $20 million (4.4 percent), largely due to a reduction in litigation-related expense and lower costs associated with other real estate owned, partially offset by higher costs related to investments in tax-advantaged projects. These reductions were partially offset by higher employee benefits expense of $53 million (23.6 percent), principally due to higher pension and medical costs. Net occupancy and equipment expense increased $7 million (3.0 percent) due to business initiatives, higher rent expense and maintenance costs. Technology and communications expense was $9 million (4.4 percent) higher than last year, reflecting both business expansion and technology projects.

Noninterest expense increased $8 million (.3 percent) on a linked quarter basis. Net occupancy and equipment expense was $6 million (2.6 percent) higher, driven by utilities and maintenance costs, while other expense increased $21 million (5.1 percent) principally due to higher costs related to investments in tax-advantaged projects. Partially offsetting these unfavorable variances was a decrease in compensation expense of $10 million (.9 percent), reflecting a reduction in commission expense and contract labor costs, and lower marketing and business development expense of $11 million (11.5 percent) due to the timing of marketing programs.

Provision for Income Taxes

The provision for income taxes for the third quarter of 2013 resulted in a tax rate on a taxable-equivalent basis of 29.5 percent (effective tax rate of 27.5 percent), compared with 31.2 percent (effective tax rate of 29.3 percent) in the third quarter of 2012, and 28.8 percent (effective tax rate of 26.8 percent) in the second quarter of 2013.

Credit Quality

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 $64 million (16.3 percent), and nonperforming assets, excluding covered assets, decreased $41 million (2.1 percent). The allowance for credit losses was $4,578 million at September 30, 2013, compared with $4,612 million at June 30, 2013, and $4,771 million at September 30, 2012. Total net charge-offs in the third quarter of 2013 were $328 million, compared with $392 million in the second quarter of 2013, and $538 million in the third quarter of 2012. The decrease in total net charge-offs on a linked quarter basis primarily reflected improvement in the total commercial portfolio, as well as improvement in the residential mortgages, credit card and home equity and second mortgages portfolios. The $210 million (39.0 percent) decline in net charge-offs year-over-year was primarily due to improvement in the commercial, commercial real estate, residential mortgages and home equity and second mortgages portfolios. The Company recorded $298 million of provision for credit losses in the current quarter, which was $30 million less than net charge-offs.

Commercial and commercial real estate loan net charge-offs decreased to $5 million (.02 percent of average loans outstanding) in the third quarter of 2013, compared with $21 million (.08 percent of average loans outstanding) in the second quarter of 2013, and $91 million (.37 percent of average loans outstanding) in the third quarter of 2012.

Residential mortgage loan net charge-offs were $57 million (.46 percent of average loans outstanding) in the third quarter of 2013, compared with $74 million (.63 percent of average loans outstanding) in the second quarter of 2013, and $121 million (1.17 percent of average loans outstanding) in the third quarter of 2012. Credit card loan net charge-offs were $160 million (3.75 percent of average loans outstanding) in the third quarter of 2013, compared with $173 million (4.23 percent of average loans outstanding) in the second quarter of 2013, and $167 million (4.01 percent of average loans outstanding) in the third quarter of 2012. Total other retail loan net charge-offs were $98 million (.83 percent of average loans outstanding) in the third quarter of 2013, compared with $105 million (.90 percent of average loans outstanding) in the second quarter of 2013, and $157 million (1.30 percent of average loans outstanding) in the third quarter of 2012.

The ratio of the allowance for credit losses to period-end loans was 1.98 percent (1.99 percent excluding covered loans) at September 30, 2013, compared with 2.02 percent (2.03 percent excluding covered loans) at June 30, 2013, and 2.19 percent (2.26 percent excluding covered loans) at September 30, 2012. The ratio of the allowance for credit losses to nonperforming loans was 276 percent (294 percent excluding covered loans) at September 30, 2013, compared with 269 percent (287 percent excluding covered loans) at June 30, 2013, and 202 percent (244 percent excluding covered loans) at September 30, 2012.

Nonperforming assets at September 30, 2013, totaled $2,212 million, compared with $2,276 million at June 30, 2013, and $2,835 million at September 30, 2012. Total nonperforming assets at September 30, 2013, included $332 million of covered assets. The ratio of nonperforming assets to loans and other real estate was .95 percent (.85 percent excluding covered assets) at September 30, 2013, compared with 1.00 percent (.88 percent excluding covered assets) at June 30, 2013, and 1.30 percent (1.06 percent excluding covered assets) at September 30, 2012. Total commercial nonperforming assets were $36 million (23.7 percent) lower than a year ago, while increasing modestly on a linked quarter basis. Commercial mortgage and construction and development nonperforming assets declined by $275 million (43.6 percent) year-over-year and $68 million (16.0 percent) on a linked quarter basis. Credit card nonperforming assets were $69 million (42.3 percent) lower on a year-over-year basis and $15 million (13.8 percent) lower on a linked quarter basis. Residential mortgage nonperforming assets decreased $25 million (3.3 percent) from the third quarter of 2012, while increasing $47 million (6.9 percent) over the prior quarter. Other retail nonperforming assets decreased $4 million (1.9 percent) year-over-year and $16 million (7.2 percent) on a linked quarter basis.

Accruing loans 90 days or more past due were $1,105 million ($591 million excluding covered loans) at September 30, 2013, compared with the $1,119 million ($580 million excluding covered loans) at June 30, 2013, and the $1,326 million ($644 million excluding covered loans) at September 30, 2012.

Total U.S. Bancorp shareholders’ equity was $40.1 billion at September 30, 2013, compared with $39.7 billion at June 30, 2013, and $38.7 billion at September 30, 2012. During the third quarter, the Company returned 77 percent of third quarter earnings to shareholders, including $422 million in common stock dividends and $659 million of repurchased common stock. The Tier 1 capital ratio was 11.2 percent at September 30, 2013, compared with 11.1 percent at June 30, 2013, and 10.9 percent at September 30, 2012. The tangible common equity to tangible assets ratio was 7.4 percent at September 30, 2013, compared with 7.5 percent at June 30, 2013, and 7.2 percent at September 30, 2012. The Tier 1 common equity to risk-weighted assets ratio was 9.3 percent at September 30, 2013, compared with 9.2 percent at June 30, 2013, and 9.0 percent at September 30, 2012. All regulatory ratios continue to be in excess of “well-capitalized” requirements. The Tier 1 common equity to risk-weighted assets ratio estimated using final rules for the Basel III standardized approach released July 2013 was approximately 8.6 percent at September 30, 2013, and at June 30, 2013.