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U.S. Bancorp CEO Discusses Q3 2010 Results - Earnings Call Transcript

U.S. Bancorp CEO Discusses Q3 2010 Results - Earnings Call Transcript

U.S. Bancorp (

USB

)

Q3 2010 Earnings Conference Call

October 20, 2010 8:30 AM ET

Executives

Judith Murphy – IR

Richard Davis – Chairman, President and CEO

Andrew Cecere – Vice Chairman and CFO

Bill Parker – EVP and Chief Credit Officer

Analysts

Jon Arfstrom – RBC Capital Markets Corporation

Edward Najarian – ISI Group

John McDonald – Stanford Bernstein Research

TheStreet Recommends

Betsy Graseck – Morgan Stanley

Nancy Bush – NAB Research

Matthew O’Connor – Deutsche Bank AG

Heather Wolf – UBS Securities

Paul Miller – FBR Capital Markets

Michael Mayo – CLSA

David Konrad – Keefe, Bruyette, & Woods, Inc.

Matthew Burnell – Wells Fargo Securities, LLC

Meredith Whitney – Meredith Whitney Advisory Group

Presentation

Operator

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Previous Statements by USB
» U.S. Bancorp Q2 2010 Earnings Call Transcript
» U.S. Bancorp Q1 2010 Earnings Call Transcript
» U.S. Bancorp Q4 2009 Earnings Call Transcript
» U.S. Bancorp Q3 2009 Earnings Call Transcript

Welcome to U.S. Bancorp’s Third Quarter 2010 Earnings Conference Call. Following a review of the results by Richard Davis, Chairman, President and Chief Executive Officer; and Andy Cecere, U.S. Bancorp’s Vice Chairman and Chief Financial Officer, there will be a formal question-and-answer session.

(Operator Instructions) I will now turn the conference call over to Judy Murphy, Director of Investor Relations for U.S. Bancorp.

Judith Murphy

Thank you, Brandy, and good morning to everyone, who has joined our call today. Richard Davis, Andy Cecere and Bill Parker are here with me today to review U.S. Bancorp’s Third Quarter 2010 Results and to answer your questions. Richard and Andy will be referencing a slide presentation during their prepared remarks. A copy of the slide presentation, as well as our earnings release and supplemental analysts’ schedules, are available on our website at usbank.com.

I would like to remind you that any forward-looking statements made during today’s call are subject to risk and uncertainty. Factors that could materially change our current forward-looking assumptions are described on page two of today’s presentation in our press release and in our Form 10-K and subsequent reports on file with the SEC.

I will now turn the call over to Richard.

Richard Davis

Thank you, Judy, and good morning, everyone, and thank you for joining us. I’d like to begin on page three of the presentation and review a few of the highlights of our quarterly results.

U.S. Bancorp reported net income of $908 million for the third quarter of 2010 or $0.45 per diluted common share. Earnings were $0.15 higher than the same quarter of last year and equal to the second quarter of 2010.

We achieved record total net revenue of $4.6 billion in the third quarter. This represented a 7.9% increase over the same quarter of 2009 and a 1.5 % increase over the prior quarter.

Total average loans grew year-over-year by 5.8%, benefiting from recent acquisitions. Excluding acquisitions, average loans were down slightly from last year. Importantly, however, on a length quarter basis, average total loans grew by 0.7%.

We continue to post strong year-over-year average deposit growth, particularly in the low cost categories, including non-interest bearing, interest checking, money market and savings. These categories grew on average 13.6% year-over-year or 9% excluding acquisitions.

Once again credit quality improved quarter-over-quarter as net charge-offs and nonperforming assets, excluding covered assets declined by 10.7% and 4.6% respectively from the second quarter.

Our capital position remains strong and growing with the Tier 1 common ratio and the Tier 1 capital ratio increasing to 7.6% and 10.3%, respectively, at September 30th.

Slide four graphs our performance metrics over the past five quarters. Return on average assets in the third quarter was 1.26%, and return on average common equity was 12.8%. The five quarter trends of our net interest margin and efficiency ratio are shown in the graph on the right-hand of the slide four.

This quarter’s net interest margin of 3.91% was just slightly higher than the prior quarter and 24 basis points higher than the same quarter of 2009.

Our third quarter efficiency ratio was 51.9%, slightly lower than the prior quarter, but above the same quarter of last year.

We remain the best among our peers in terms of efficiency and the increase in this ratio reflects both ongoing investments and the impact of recent legislative and regulatory actions on revenue and on expense.

Turning to slide five. Our capital position remains strong and continuous to grow. Additionally, our tangible common equity to tangible assets ratio rose from 5.4% at September 30th, 2009, to 6.2% at September 30th, 2010.

Our company continues to generate significant capital each quarter due to the momentum in our diverse business mix in addition to our superior efficiency and our ongoing profitability.

As I’ve said before, we are confident that our capital levels and our ability to generate new capital each quarter can support a dividend increase and allow us to meet or exceed any capital requirements that maybe forth coming.

Increasing the dividend remains a top priority for our management team and our Board of Directors, though we must continue to wait for final regulatory capital guidelines to be established and regulatory approval to be given before a dividend action can be taken. We fully expect, however, to be one of the first banks to raise our dividend once those guidelines have been determined.

Moving on to slide six. Average total loans outstanding increased by over $10 billion year-over-year. But as noted on the slide, excluding acquisitions, total average loans declined by 0.4% year-over-year as the average commitment utilization rate by our commercial and corporate borrowers declined from 32% in the third quarter of 2009 to 26% in the third of this year.

On a linked to quarter basis, however, total loans increased by 0.7% as we experienced slightly higher demand for new loans from creditworthy borrowers and as the average utilization rate on commitments stabilize albeit at a historically low level.

Notably, we recorded an increase in average commercial loans outstanding quarter-over-quarter. This is the first linked quarter increase since the fourth quarter of 2008.

At September 30th, total loans were approximately $3 billion higher than at June 30th. Again, signifying that we are seeing some improvement in loan demand coupled with an ongoing flight to quality as we continue to originate and renew lines and loans for our qualified customers, who want and who need credit.

In fact, during the third of 2010, U.S. Bank originated over $16.5 billion of residential mortgages, originated almost $6 billion of other consumer loans, including installment loans, student loans, lines of credit and home equity lines and loans. We originated new prime-based credit card accounts with lines totaling $1.4 billion, and we issued $12 billion of new commitments and renewed almost $19 billion of commitments to small businesses, commercial and commercial real estate customers.

Overall, excluding mortgage production, new originations plus new and renewed commitments total approximately $38 billion, about $2 billion higher than the previous quarter’s total.

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