(Source: Business Wire)
U.S. Bancorp (NYSE: USB) today reported net income of $603 million for
the third quarter of 2009, or $.30 per diluted common share. Earnings
for the third quarter were driven by record total net revenue of $4.3
billion, the result of strong year-over-year growth in both net interest
income and fee revenue. The Company's results were impacted by three
significant items, including $415 million of provision for credit losses
in excess of net charge-offs, $76 million of net securities losses and a
$39 million gain related to the Company's investment in Visa Inc. (NYSE:
V). These significant items, in total, reduced diluted earnings
per common share by approximately $.19 in the third quarter of 2009.
Highlights for the third quarter of 2009 included:
Average loan growth of 9.3 percent (2.6 percent excluding
acquisitions) over the third quarter of 2008, driven by average retail
loan growth of 9.3 percent, led by credit card balances, home equity
lines and student loans. New lending activity during the third quarter
included:
$8.4 billion of new commercial and commercial real estate
commitments
$17.6 billion of commercial and commercial real estate commitment
renewals
$1.8 billion of lines related to new credit card accounts
(excluding portfolio purchases)
$4.3 billion of other retail originations
Strong average deposit growth of 24.6 percent (16.1 percent excluding
acquisitions) over the third quarter of 2008, including:
Average noninterest-bearing deposits growth of 30.6 percent
Average total savings deposits growth of 33.5 percent
Strong growth in total net revenue of 25.8 percent over the third
quarter of 2008 (14.1 percent excluding net securities losses)
Net interest income growth of 9.7 percent over the third quarter of
2008, driven by an 8.9 percent increase in average earning assets and
an increase in core deposit funding
Net interest margin percentage of 3.67 percent for the third quarter
of 2009, compared with 3.65 percent in the third quarter of 2008 (and
3.60 percent in the second quarter of 2009)
Strong year-over-year growth in noninterest income (19.0 percent,
excluding net securities losses), driven by:
A $215 million increase in mortgage banking revenue due to robust
mortgage loan production volume of $14.8 billion and loan
applications totaling $15.5 billion
An 18.9 percent increase in commercial products revenue
Higher treasury management fees (10.2 percent) and ATM processing
services fees (9.6 percent)
Lower retail lease residual losses
Positive core operating leverage; industry leading efficiency ratio of
47.5 percent in the third quarter of 2009
Credit costs trended higher, but the rate of increase moderated; the
allowance for credit losses increased:
Provision for credit losses exceeded net charge-offs by $415
million, or approximately 40 percent of net charge-offs for the
quarter, resulting in an increase to the allowance for credit
losses
Net charge-offs and nonperforming assets increased, but the rate
of growth moderated to 12.1 percent and 9.4 percent, respectively,
on a linked quarter basis
Allowance to period-end loans increased to 2.72 percent at
September 30, 2009, compared with 2.51 percent at June 30, 2009
Allowance to nonperforming assets was 114 percent at September 30,
2009, and at June 30, 2009
Strong capital ratios at September 30, 2009:
Tier 1 capital ratio of 9.5 percent
Total risk-based capital ratio of 13.0 percent
Tier 1 common equity ratio of 6.8 percent
EARNINGS SUMMARY Table 1
($ in millions, except per-share data) Percent Percent
Change Change
3Q 2Q 3Q 3Q09 vs 3Q09 vs YTD YTD Percent
2009 2009 2008 2Q09 3Q08 2009 2008 Change
Net income attributable to U.S. Bancorp $603 $471 $576 28.0 4.7 $1,603 $2,616 (38.7 )
Diluted earnings per common share .30 .12 .32 nm (6.3 ) .66 1.46 (54.8 )
Return on average assets (%) .90 .71 .94 .81 1.45
Return on average common equity (%) 10.0 4.2 10.8 7.7 16.6
Net interest margin (%) 3.67 3.60 3.65 3.62 3.60
Efficiency ratio (%) 47.5 51.0 47.8 48.1 45.9
Tangible efficiency ratio (%) (a) 45.3 48.7 45.5 45.9 43.7
Dividends declared per common share $.050 $.050 $.425 -- (88.2 ) $.150 $1.275 (88.2 )
Book value per common share (period-end) 12.38 11.86 11.50 4.4 7.7
(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.
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U.S. Bancorp reported net income of $603 million for the third quarter
of 2009, higher than the $576 million for the third quarter of 2008 and
$471 million for the second quarter of 2009. Diluted earnings per common
share of $.30 in the third quarter of 2009 were $.02 lower than the
third quarter of 2008, but $.18 higher on a linked quarter basis. Return
on average assets and return on average common equity were .90 percent
and 10.0 percent, respectively, for the third quarter of 2009, compared
with .94 percent and 10.8 percent, respectively, for the third quarter
of 2008. During the third quarter of 2009, the Company strengthened its
allowance for credit losses by recording $415 million of provision for
credit losses in excess of net charge-offs in light of continued credit
deterioration arising from the current economic environment. Other
significant items in the third quarter of 2009 included $76 million of
net securities losses and a $39 million gain related to the Company's
investment in Visa Inc. These significant items, in total, reduced third
quarter of 2009 diluted earnings per common share by approximately $.19.
In the third quarter of 2008 significant items, which included provision
for credit losses in excess of net charge-offs of $250 million, net
securities losses of $411 million and other market valuation losses,
reduced diluted earnings per common share by approximately $.28.
Significant items in the second quarter of 2009 included provision for
credit losses in excess of net charge-offs of $466 million, a $123
million accrual for an FDIC special assessment, $19 million of net
securities losses and $154 million of accelerated amortization of the
discount associated with TARP preferred stock redeemed on June 17, 2009
("deemed dividend"). In total, these significant items reduced second
quarter of 2009 diluted earnings per common share by approximately $.34.
U.S. Bancorp Chairman, President and Chief Executive Officer Richard K.
Davis said, "The Company's third quarter earnings, once again,
demonstrated the strength and momentum of our diverse business model and
the quality of our franchise. Third quarter earnings benefited from
record total net revenue of $4.3 billion, controlled expenses and
manageable credit costs. Both net interest income and noninterest income
increased over the same quarter of 2008 and the prior quarter, as the
Company continued to experience a "flight to quality" in its traditional
balance sheet businesses, evidenced by the quarter's significant growth
in core deposits, as well as positive results from its fee-based
business lines and recent growth initiatives.
"Once again, credit costs had a significant impact on earnings this
quarter. Total net charge-offs and nonperforming assets were higher than
the previous quarter but, as expected, the rate of increase on a linked
quarter basis moderated. Net charge-offs increased by 12.1 percent and
nonperforming assets rose by 9.4 percent between the second and third
quarters of this year, compared with increases of 17.9 percent and 17.8
percent, respectively, between the first and second quarters of 2009.
The Company strengthened its allowance for credit losses by providing an
incremental $415 million of provision for credit losses. This
incremental provision represented approximately 40 percent of the
quarter's net charge-offs, compared with an incremental provision equal
to approximately 50 percent of net charge-offs in the second quarter.
These actions to strengthen the balance sheet resulted in an allowance
for credit losses as a percent of period end loans at September 30,
2009, of 2.72 percent versus a ratio of 2.51 percent at June 30, 2009.
"The Company's capital position remains solid with a Tier 1 capital
ratio of 9.5 percent and a total risk-based capital ratio of 13.0
percent. Our capital ratios continue to be considerably above the
well-capitalized level as defined by the regulators following our
repayment of the preferred stock issued under the U.S. Treasury's
Capital Purchase Program in the second quarter of 2009. Early in the
third quarter, our Company repurchased the 10-year warrant issued to the
U.S. Treasury, effectively concluding our participation in TARP. The
cost of repurchasing the warrant was $139 million and was recorded as a
reduction to shareholders' equity. We now move forward with the capacity
to continue to invest, unencumbered, in our franchise and fee-based
businesses, as we remain profitable during this difficult business
cycle, generating capital for growth opportunities and our shareholders.
"We continued to invest this quarter in our product and service
offerings, as well as our branch distribution network. The Company also
announced a number of diverse and strategically important acquisitions
this quarter, including purchases of several credit card and merchant
portfolios, a mutual fund administration and accounting servicing
business, a bond trustee business and a banking operation in Nevada.
Additionally, we announced the creation of Syncada, a joint venture with
Visa Inc., and several new merchant alliances both in the United States
and in Europe. These investments demonstrate our Company's continuing
ability and desire to strengthen and expand our businesses by
capitalizing on opportunities that present themselves during this
downturn, positioning us to capture incremental growth as the domestic
and global economies recover.
"We are operating in a challenging and uncertain economic environment,
but our vision into the future is clearer today than it was just three
months ago. We are seeing signs of stabilization and even some
improvement in the economy. While unemployment has not peaked, the rate
of increase has moderated. The housing sector is weak, but the pressure
on housing prices has lessened. Our commercial customers are not yet
increasing the usage of their lines of credit for new investments or
expansion, but they are efficiently managing their businesses through
the cycle. Credit costs remain high, but the rate of deterioration has
slowed. These are all indications of progress in this otherwise
difficult environment.
"Our third quarter results reaffirmed that our fundamental businesses
remain strong and that our unique, independent position has and will
differentiate U.S. Bancorp from its competitors. We are focused on
maintaining our core operational and financial strength, while investing
for growth and remaining poised to capitalize on the recovery. We expect
to continue to be among the best performers in the industry, and our
dedicated and engaged employees remain committed to serving our
customers, supporting our communities, and assisting the government in
their efforts to stimulate and strengthen the economy, while creating
long-term value for our shareholders."
The Company's net income for the third quarter of 2009 was higher than
the same period of 2008 and prior quarter by $27 million (4.7 percent)
and $132 million (28.0 percent), respectively. The increase in net
income year-over-year was principally the result of an increase in total
net revenue and the benefit of a reduction in the effective tax rate,
partially offset by increases in noninterest expense and the provision
for credit losses. Net income was higher than the prior quarter due to
favorable variances in total net revenue and noninterest expense,
partially offset by an increase in the provision for credit losses.
Diluted earnings per common share declined slightly ($.02) from a year
ago, reflecting the increase in average common shares outstanding that
resulted from the Company's common stock offering in the second quarter
of 2009.
Total net revenue on a taxable-equivalent basis for the third quarter of
2009 was $4,250 million; $871 million (25.8 percent) higher than the
third quarter of 2008, reflecting a 9.7 percent increase in net interest
income and a 48.2 percent increase in noninterest income. The increase
in net interest income year-over-year was largely the result of growth
in average earning assets and an increase in core deposit funding, while
noninterest income increased year-over-year, principally due to strong
growth in mortgage banking revenue, a significant decrease in net
securities losses, and lower residual lease valuation losses relative to
the third quarter of 2008. Total net revenue was $91 million (2.2
percent) higher than the previous quarter. Net interest income was 2.5
percent higher than the second quarter of 2009 due to lower funding
rates, while noninterest income, which increased by 1.8 percent over the
prior quarter, benefited from higher payments-related income, growth in
commercial products revenue, the gain related to the Company's
investment in Visa Inc. and lower equity investment valuation losses.
Total noninterest expense in the third quarter of 2009 was $2,053
million; $240 million (13.2 percent) higher than the third quarter of
2008, but $76 million (3.6 percent) lower than the second quarter of
2009. The increase in total noninterest expense year-over-year was
primarily due to higher FDIC deposit insurance expense, marketing and
business development expense, principally related to credit card
initiatives, and the impact of acquisitions. The decrease in total
noninterest expense on a linked quarter basis was due primarily to the
FDIC special assessment in the second quarter of 2009, partially offset
by higher marketing and business development costs.
The increase in the Company's provision for credit losses reflected the
adverse impact of current economic conditions compared with a year ago.
However, on a linked quarter basis, credit deterioration moderated
somewhat. The provision for credit losses for the third quarter of 2009
was $1,456 million, an increase of $61 million over the second quarter
of 2009 and $708 million over the third quarter of 2008. The provision
for credit losses exceeded net charge-offs by $415 million in the third
quarter of 2009, $466 million in the second quarter of 2009, and $250
million in the third quarter of 2008. The increase in the provision for
credit losses reflected current economic conditions and the
corresponding impact on the commercial, commercial real estate and
consumer loan portfolios. It also reflected stress in residential real
estate markets. Net charge-offs in the third quarter of 2009 were $1,041
million, compared with $929 million in the second quarter of 2009 and
$498 million in the third quarter of 2008. Given current economic
conditions and the weakness in home prices and the economy in general,
the Company expects net charge-offs will remain elevated for the
remainder of 2009.
Nonperforming assets were $4,392 million at September 30, 2009, compared
with $4,016 million at June 30, 2009, and $1,492 million at September
30, 2008. At September 30, 2009, $9.9 billion of the Company's assets
were covered by loss sharing agreements ("covered assets") that
substantially reduce the risk of credit losses to the Company, including
$672 million of nonperforming assets, compared with $682 million of
nonperforming covered assets at June 30, 2009. The majority of these
covered nonperforming assets were considered credit-impaired at
acquisition and were recorded at their estimated fair value at the date
of acquisition. The remaining linked quarter and year-over-year increase
in nonperforming assets was driven by stress in residential home
construction and related industries, and the residential mortgage
portfolio, as well as an increase in foreclosed properties, and the
impact of the economic slowdown on commercial customers. The ratio of
the allowance for credit losses to period-end loans, excluding covered
assets, was 2.88 percent at September 30, 2009, compared with 2.66
percent at June 30, 2009, and 1.71 percent at September 30, 2008. The
ratio of the allowance for credit losses to period-end loans, including
covered assets, was 2.72 percent at September 30, 2009, compared with
2.51 percent at June 30, 2009.
