U.S. Bancorp's CEO Discusses Q1 2012 Results - Earnings Call Transcript

U.S. Bancorp (USB)

Q1 2012 Earnings Call

April 17, 2012 8:00 am ET


Judith T. Murphy - Senior Vice President, Director of Investor Relations and Analyst

Richard K. Davis - Chairman, Chief Executive Officer, President, Chairman of Executive Committee and Member of Risk Management Committee

Andrew Cecere - Vice Chairman and Chief Financial Officer

P. W. Parker - Chief Credit Officer and Executive Vice President


Christoph M. Kotowski - Oppenheimer & Co. Inc., Research Division

Moshe Orenbuch - Crédit Suisse AG, Research Division

Matthew D. O'Connor - Deutsche Bank AG, Research Division

Leanne Erika Penala - BofA Merrill Lynch, Research Division

John E. McDonald - Sanford C. Bernstein & Co., LLC., Research Division

Edward R. Najarian - ISI Group Inc., Research Division

Kenneth M. Usdin - Jefferies & Company, Inc., Research Division

Paul J. Miller - FBR Capital Markets & Co., Research Division

Michael Mayo - Credit Agricole Securities (USA) Inc., Research Division

Nancy A. Bush - NAB Research, LLC, Research Division

Betsy Graseck - Morgan Stanley, Research Division

Gregory W. Ketron - UBS Investment Bank, Research Division

Christopher Gamaitoni - Compass Point Research & Trading, LLC, Research Division



Welcome to U.S. Bancorp's First Quarter 2012 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] This call will be recorded and available for replay beginning today at approximately 11:00 a.m. Eastern Daylight Time through Tuesday, April 24, at midnight Eastern Daylight Time. I will now turn the conference call over to Judy Murphy, Director of Investor Relations for U.S. Bancorp.

Judith T. Murphy

Thank you, Brooke, and good morning to everyone who has joined our call. Richard Davis, Andy Cecere and Bill Parker are here with me today to review U.S. Bancorp's first quarter 2012 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 2 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 K. Davis

Thank you, Judy, and good morning, everyone. We're pleased to share our results with you today, and I'll begin with the highlights on Page 3 of the presentation. U.S. Bank recorded net income of $1.3 billion for the first quarter of 2012 or $0.67 per diluted common share. Total net revenue was higher by 9.1% over the same quarter of 2011, driven by 7.3% growth in net interest income and 11.3% growth in fee revenue.

Total average loans grew year-over-year and linked quarter by 6.4% and 1.5%, respectively, and we also experienced strong loan growth and total average deposits of 11.7% over the prior year and 2.2% linked quarter. Credit Quality continued to improve as net charge-offs declined by 8.2%, and nonperforming assets decreased in total by 8.5% from the prior quarter.

We continue to generate significant capital each quarter. Our Tier 1 common equity ratio was 8.7% at March 31, or 8.4% using anticipated Basel III guidelines, while the Tier 1 capital ratio ended the quarter at 10.9%. Capital actions this quarter included a 56% dividend increase, and we repurchased 16 million shares of common stock during the first quarter.

The 5-quarter trends of our industry-leading performance metrics are shown on the left-hand side of Slide 4. Return on average assets in the first quarter was 1.6%, and return on average common equity was 16.2%. We've stated that our company can achieve a normalized ROA in the range of 1.6% to 1.9% and an ROE between 16% and 19%. Both performance ratios have now reached their respective ranges.

Our net interest margin and efficiency ratio are shown on the graph on the right-hand side of Slide 4. This quarter's net interest margin of 3.6% was 9 basis points lower than the same quarter of last year but equal to the prior quarter, and Andy will discuss the margin in more detail in just a couple of minutes. Our efficiency ratio for the first quarter was 51.9%, and consistent with our expectation, this ratio remained in the low 50s.

Turning to Slide 5. Our capital position remains strong and continues to grow. At March 31, our Tier 1 common equity ratio, using anticipated Basel III guidelines, was 8.4%. At 8.4%, we are well above the 7% Basel III minimum requirement and above the level of which we believe we need to be.

Turning to Slide 6. On March 13, after receiving the results of our 2012 Comprehensive Capital Analysis and Review from the Federal Reserve, we announced a $0.28 or 56% increase in our annual dividend. In addition to the dividend increase, the board authorized a new 100 million share repurchase program. As we've indicated in the past, our long-term goal is to return between 60% and 80% of our earnings to our shareholders through dividends and buybacks. During the first quarter, we returned 66% of our earnings to our shareholders, 29% of which in the form of dividends and 37% in the form of share buybacks.

Average total loans outstanding increased by $12.6 billion or 6.6% year-over-year. As expected, linked quarter loan growth and average total of loans was 1.5%. Significantly, new loan originations, excluding mortgage production, plus new and renewed commitments, totaled over $36 billion this quarter. This represents a 4.5% year-over-year increase in new and renewed lending activity.

Total revolving corporate and commercial commitments outstanding increased year-over-year by 25.7% and 5.1% on a linked quarter basis while utilization remained fairly consistent at approximately 25%. Total average deposits increased by $24 billion or 11.7% over the same quarter last year while total average deposits grew by $5 billion on a linked quarter basis or 2.2%.

Turning to Slide 8. The company reported total net revenue in the first quarter of $4.9 billion, an increase of 9.1% over the prior quarter's -- year's quarter, but 3.4% less than previous quarter. Recall, however, that the fourth quarter included a $263 million litigation settlement gain. Excluding this gain, linked quarter revenue growth was $88 million or 1.8%. The company's revenue growth can be attributed to both our balance sheet and our fee businesses growing as we continue to benefit from our investments in growth initiatives over the past years.

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