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U.S. Bancorp Reports Record Earnings For The Second Quarter Of 2014

Stocks in this article: USB

U.S. Bancorp (NYSE: USB) today reported record net income of $1,495 million for the second quarter of 2014, or $.78 per diluted common share, compared with $1,484 million, or $.76 per diluted common share, in the second quarter of 2013. The second quarter of 2014 included two previously disclosed notable items. The Company reached a 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") for $200 million. In addition, prior to the FHA DOJ settlement, the Company sold 3.0 million shares of the Class B common stock of Visa Inc. resulting in a net pretax gain of $214 million ("Visa sale"). Combined, these notable items had no impact to diluted earnings per common share for the current quarter.

Highlights for the second quarter of 2014 included:

  • Acquisition of Chicago-area Charter One Bank franchise in late June 2014, including $4.8 billion of deposits and $ .9 billion of loans, nearly doubles deposit market share in the Chicago area
  • Growth in average total loans of 6.8 percent over the second quarter of 2013 (6.7 percent excluding the Charter One acquisition and 8.3 percent excluding covered loans) and 2.0 percent on a linked quarter basis (1.9 percent excluding the Charter One acquisition and 2.2 percent excluding covered loans)
    • Growth in average total commercial loans of 12.4 percent over the second quarter of 2013 and 5.9 percent over the first quarter of 2014
    • Growth in average total commercial real estate loans of 6.9 percent over the second quarter of 2013 and 1.1 percent over the first quarter of 2014
    • Growth in average commercial and commercial real estate commitments of 12.7 percent year-over-year and 3.1 percent over the prior quarter
  • Strong new lending activity of $55.5 billion during the second quarter, including:
    • $38.4 billion of new and renewed commercial and commercial real estate commitments
    • $2.8 billion of lines related to new credit card accounts
    • $14.3 billion of mortgage and other retail loan originations
  • Strong growth in average total deposits of 6.0 percent over the second quarter of 2013 (5.8 percent excluding the Charter One acquisition) and 1.9 percent on a linked quarter basis (1.7 percent excluding the Charter One acquisition)
    • Average low cost deposits, including noninterest-bearing and total savings deposits, grew by 8.7 percent year-over-year and 2.6 percent on a linked quarter basis
  • Industry-leading performance ratios, including:
    • Return on average assets of 1.60 percent
    • Return on average common equity of 15.1 percent
    • Efficiency ratio of 53.1 percent (51.3 percent excluding notable items)
  • Net charge-offs declined 11.0 percent on a year-over-year basis. Provision for credit losses was $25 million less than net charge-offs
    • Allowance to period-end loans was 1.82 percent at June 30, 2014
    • Annualized net charge-offs to average total loans ratio was .58 percent
  • Nonperforming assets decreased on both a linked quarter and year-over-year basis
    • Nonperforming assets (excluding covered assets) decreased 1.6 percent on a linked quarter basis and 8.1 percent from the second quarter of 2013
    • Allowance to nonperforming assets (excluding covered assets) was 246 percent at June 30, 2014, compared with 243 percent at March 31, 2014, and 231 percent at June 30, 2013
  • Capital generation continued to reinforce capital position and returns. Ratios at June 30, 2014, were:
    • Basel III transitional standardized approach:
      • Common equity tier 1 capital ratio of 9.6 percent
      • Tier 1 capital ratio of 11.3 percent
      • Total risk-based capital ratio of 13.2 percent
    • Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented standardized approach of 8.9 percent and for the Basel III fully implemented advanced approaches of 11.7 percent
  • Returned 75 percent of second quarter earnings to shareholders through dividends and the buyback of 15 million common shares
                                     
  EARNINGS SUMMARY                               Table 1  
 

($ in millions, except per-share data)

        Percent   Percent      
Change Change
2Q 1Q 2Q 2Q14 vs 2Q14 vs YTD YTD Percent

 

2014   2014   2013   1Q14   2Q13   2014   2013   Change
 
Net income attributable to U.S. Bancorp $1,495 $1,397 $1,484 7.0 .7 $2,892 $2,912 (.7 )
Diluted earnings per common share $.78 $.73 $.76 6.8 2.6 $1.51

$1.49

1.3
 
Return on average assets (%) 1.60 1.56 1.70 1.58 1.68
Return on average common equity (%) 15.1 14.6 16.1 14.9 16.1
Net interest margin (%) 3.27 3.35 3.43 3.31 3.46
Efficiency ratio (%) (a) 53.1 52.9 51.7 53.0 51.2
Tangible efficiency ratio (%) (b) 52.1 51.9 50.6 52.0 50.1
 
Dividends declared per common share $.245 $.230 $.230 6.5 6.5 $.475 $.425 11.8
Book value per common share (period-end) $20.98 $20.48 $18.94 2.4 10.8
 

(a) Efficiency ratio excluding notable items of 51.3% for 2Q 2014 is computed as noninterest expense of $2,753 million less FHA DOJ settlement of $200 million divided by total net revenue of $5,188 million less Visa sale of $214 million.

 

(b) 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 $1,495 million for the second quarter of 2014, .7 percent higher than the $1,484 million for the second quarter of 2013, and 7.0 percent higher than the $1,397 million for the first quarter of 2014. Diluted earnings per common share of $.78 in the second quarter of 2014 were $.02 higher than the second quarter of 2013 and $.05 higher than the previous quarter. Return on average assets and return on average common equity were 1.60 percent and 15.1 percent, respectively, for the second quarter of 2014, compared with 1.70 percent and 16.1 percent, respectively, for the second quarter of 2013. The provision for credit losses was lower than net charge-offs by $25 million in the second quarter of 2014, $35 million lower than net charge-offs in the first quarter of 2014, and $30 million lower than net charge-offs in the second quarter of 2013.

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