Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
USB > SEC Filings for USB > Form 10-Q on 3-May-2013All Recent SEC Filings

Show all filings for US BANCORP \DE\ | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for US BANCORP \DE\


3-May-2013

Quarterly Report

Management's Discussion and Analysis

OVERVIEW

Earnings Summary U.S. Bancorp and its subsidiaries (the "Company") reported net income attributable to U.S. Bancorp of $1.4 billion for the first quarter of 2013, or $.73 per diluted common share, compared with $1.3 billion, or $.67 per diluted common share for the first quarter of 2012. Return on average assets and return on average common equity were 1.65 percent and 16.0 percent, respectively, for the first quarter of 2013, compared with 1.60 percent and 16.2 percent, respectively, for the first quarter of 2012. The provision for credit losses was $30 million lower than net charge-offs for the first quarter of 2013, compared with $90 million lower than net charge-offs for the first quarter of 2012.

Total net revenue, on a taxable-equivalent basis, for the first quarter of 2013 was $55 million (1.1 percent) lower than the first quarter of 2012, reflecting a 3.3 percent decrease in noninterest income, partially offset by a .7 percent increase in net interest income. The increase in net interest income over a year ago was the result of higher average earning assets, continued growth in lower cost core deposit funding and the positive impact from maturities of higher rate long-term debt during 2012, partially offset by decreases in loan and investment securities yields. Noninterest income decreased over a year ago, primarily due to lower mortgage banking and other revenue, partially offset by an increase in payments-related revenue and trust and investment management fees.

Noninterest expense in the first quarter of 2013 was $90 million (3.5 percent) lower than the first quarter of 2012, primarily due to favorable variances in litigation, regulatory and insurance-related costs and lower marketing and business development expense, partially offset by higher compensation and employee benefits expense.

The provision for credit losses for the first quarter of 2013 of $403 million was $78 million (16.2 percent) lower than the first quarter of 2012. Net charge-offs in the first quarter of 2013 were $433 million, compared with $571 million in the first quarter of 2012. Refer to "Corporate Risk Profile" for further information on the provision for credit losses, net charge-offs, nonperforming assets and other factors

considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.

STATEMENT OF INCOME ANALYSIS

Net Interest Income Net interest income, on a taxable-equivalent basis, was $2.7 billion in the first quarter of 2013, an increase of $19 million (.7 percent) over the first quarter of 2012. The increase was the result of growth in average earning assets and lower cost core deposit funding, partially offset by a lower net interest margin. Average earning assets were $13.9 billion (4.6 percent) higher in the first quarter of 2013, compared with the first quarter of 2012, driven by increases of $12.3 billion (5.8 percent) in loans, $2.0 billion (2.8 percent) in investment securities and $1.9 billion (27.4 percent) in loans held for sale, partially offset by a decrease in other earning assets of $2.2 billion (19.0 percent) primarily due to lower cash balances held at the Federal Reserve. The net interest margin in the first quarter of 2013 was 3.48 percent, compared with 3.60 percent in the first quarter of 2012. The decrease in the net interest margin from the first quarter of 2012 primarily reflected higher balances in lower-yielding investment securities and loans, partially offset by lower rates on deposits, maturities of higher rate long-term debt during 2012 and a reduction in the cash balances held at the Federal Reserve. Refer to the "Consolidated Daily Average Balance Sheet and Related Yields and Rates" table for further information on net interest income.

Average total loans for the first quarter of 2013 were $12.3 billion (5.8 percent) higher than the first quarter of 2012, driven by growth in residential mortgages (19.2 percent), commercial loans (14.3 percent) and commercial real estate loans (3.4 percent). These increases were driven by higher demand for loans from new and existing customers. The increases were partially offset by declines in credit card loans (1.5 percent), other retail loans (1.4 percent) and loans covered by loss sharing agreements with the Federal Deposit Insurance Corporation ("FDIC") (24.0 percent). Average loans acquired in FDIC-assisted transactions that are covered by loss sharing agreements with the FDIC ("covered" loans) were $11.0 billion in the first quarter of 2013, compared with $14.5 billion in the same period of 2012.

                                U. S. Bancorp   3


--------------------------------------------------------------------------------
  Table of Contents
                           Table 2   Noninterest Income




                                                      Three Months Ended
                                                          March 31,
                                                                        Percent
        (Dollars in Millions)                     2013        2012       Change
        Credit and debit card revenue          $   214     $   202          5.9 %
        Corporate payment products revenue         172         175         (1.7 )
        Merchant processing services               347         337          3.0
        ATM processing services                     82          87         (5.7 )
        Trust and investment management fees       278         252         10.3
        Deposit service charges                    153         153            -
        Treasury management fees                   134         134            -
        Commercial products revenue                200         211         (5.2 )
        Mortgage banking revenue                   401         452        (11.3 )
        Investment products fees                    41          35         17.1
        Securities gains (losses), net               5           -            *
        Other                                      138         201        (31.3 )
        Total noninterest income               $ 2,165     $ 2,239         (3.3 )%

* Not meaningful.

Average investment securities in the first quarter of 2013 were $2.0 billion (2.8 percent) higher than the first quarter of 2012, primarily due to purchases of U.S. government agency-backed securities, net of prepayments and maturities.

Average total deposits for the first quarter of 2013 were $16.7 billion (7.3 percent) higher than the first quarter of 2012. Average noninterest-bearing deposits for the first quarter of 2013 were $2.8 billion (4.4 percent) higher than the same period of 2012, driven by growth in Consumer and Small Business Banking balances. Average total savings deposits were $10.7 billion (8.7 percent) higher in the first quarter of 2013, compared with the first quarter of 2012, the result of growth in Consumer and Small Business Banking balances primarily from continued strong participation in a consumer savings product offering, as well as higher corporate trust and broker-dealer balances. Average time certificates of deposit less than $100,000 were $1.3 billion (9.0 percent) lower in the first quarter of 2013, compared with the same period of 2012, due to maturities. Average time deposits greater than $100,000 were $4.6 billion (16.7 percent) higher in the first quarter of 2013, compared with the first quarter of 2012, principally due to growth in wholesale 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.

Provision for Credit Losses The provision for credit losses for the first quarter of 2013 decreased $78 million (16.2 percent) from the first quarter of 2012. Net charge-offs decreased $138 million (24.2 percent) in the first quarter of 2013, compared with the first quarter of

2012, principally due to improvement in the commercial and commercial real estate portfolios. The provision for credit losses was lower than net charge-offs by $30 million in the first quarter of 2013, compared with $90 million lower than net charge-offs in the first quarter of 2012. Refer to "Corporate Risk Profile" for further information on the provision for credit losses, net charge-offs, nonperforming assets and other factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.

Noninterest Income Noninterest income in the first quarter of 2013 was $2.2 billion, a decrease of $74 million (3.3 percent), compared with the first quarter of 2012. The decrease from a year ago was principally due to a reduction in other income, driven by lower equity investment and retail leasing revenue, and a decrease in mortgage banking revenue due to lower origination and sales revenue, partially offset by an increase in servicing income and a favorable change in the fair value of mortgage servicing rights ("MSRs"). In addition, commercial products revenue was lower from a year ago due to lower syndication and standby letters of credit fees, partially offset by higher bond underwriting fees. Partially offsetting these variances was an increase in credit and debit card revenue over the prior year, driven by business expansion, and an increase in merchant processing services revenue due to higher product fees and business expansion. Trust and investment management fees also increased over the prior year, reflecting improved market conditions and business expansion. In addition, investment products fees increased compared with the prior year, due to higher sales and fee volumes.

4 U. S. Bancorp


Table of Contents
                          Table 3   Noninterest Expense




                                                     Three Months Ended
                                                         March 31,
                                                                        Percent
        (Dollars in Millions)                   2013         2012        Change
        Compensation                         $ 1,082      $ 1,052           2.9 %
        Employee benefits                        310          260          19.2
        Net occupancy and equipment              235          220           6.8
        Professional services                     78           84          (7.1 )
        Marketing and business development        73          109         (33.0 )
        Technology and communications            211          201           5.0
        Postage, printing and supplies            76           74           2.7
        Other intangibles                         57           71         (19.7 )
        Other                                    348          489         (28.8 )
        Total noninterest expense            $ 2,470      $ 2,560          (3.5 )%
        Efficiency ratio (a)                    50.7 %       51.9 %

(a) Computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding securities gains (losses), net.

Noninterest Expense Noninterest expense in the first quarter of 2013 was $2.5 billion, a decrease of $90 million (3.5 percent), compared with the first quarter of 2012. The decrease in noninterest expense from a year ago was primarily due to a reduction in other expense and marketing and business development costs, partially offset by higher compensation and employee benefits expenses. Other expense decreased due to lower litigation, regulatory and insurance-related costs and lower FDIC insurance expense, partially offset by higher costs related to investments in affordable housing and other tax-advantaged projects. Marketing and business development expense was lower, primarily reflecting the timing of charitable contributions in 2012. In addition, other intangibles expense decreased from the same period of the prior year due to the reduction or completion of the amortization of certain intangibles, and professional services expense was lower due to a reduction in mortgage servicing review-related costs. Compensation expense increased primarily as a result of growth in staffing for business initiatives and business expansion, in addition to merit increases. Employee benefits expense increased due to higher pension costs and staffing levels. In addition, net occupancy and equipment expense increased over the same period of the prior year due to business initiatives and expansion, along with higher maintenance costs. Technology and communications expense was higher due to business expansion and technology projects.

Income Tax Expense The provision for income taxes was $558 million (an effective rate of 28.7 percent) for the first quarter of 2013, compared with $527 million (an effective rate of 28.8 percent) for the first quarter of 2012. For further information on income taxes, refer to Note 10 of the Notes to Consolidated Financial Statements.

BALANCE SHEET ANALYSIS

Loans The Company's loan portfolio was $223.4 billion at March 31, 2013, essentially unchanged from December 31, 2012, the result of increases in residential mortgages, commercial real estate and commercial loans, partially offset by lower credit card, other retail and covered loans.

Residential mortgages held in the loan portfolio increased $2.0 billion (4.5 percent) at March 31, 2013, compared with December 31, 2012, reflecting origination and refinancing activity due to the low interest rate environment. Residential mortgages originated and placed in the Company's loan portfolio are primarily well-secured jumbo mortgages and branch-originated first lien home equity loans to borrowers with high credit quality. The Company generally retains portfolio loans through maturity; however, the Company's intent may change over time based upon various factors such as ongoing asset/liability management activities, assessment of product profitability, credit risk, liquidity needs, and capital implications. If the Company's intent or ability to hold an existing portfolio loan changes, it is transferred to loans held for sale.

Commercial real estate loans and commercial loans increased $447 million (1.2 percent) and $100 million (.2 percent), respectively, at March 31, 2013, compared with December 31, 2012, reflecting higher demand from new and existing customers.

Credit card loans decreased $886 million (5.2 percent) at March 31, 2013, compared with December 31, 2012, the result of customers paying down their balances. Other retail loans, which include retail leasing, home equity and second mortgages and other retail loans, decreased $1.0 billion (2.2 percent) at March 31, 2013, compared with December 31, 2012. The decrease was primarily driven by lower home equity and second mortgages and student loan balances.

U. S. Bancorp 5


Table of Contents

Loans Held for Sale Loans held for sale, consisting primarily of residential mortgages to be sold in the secondary market, were $7.7 billion at March 31, 2013, compared with $8.0 billion at December 31, 2012. The decrease in loans held for sale was principally due to a lower amount of residential mortgage loan originations during the first quarter of 2013, as compared with the previous quarter.

Most of the residential mortgage loans the Company originates follow guidelines that allow the loans to be sold into existing, highly liquid secondary markets; in particular in government agency transactions and to government-sponsored enterprises ("GSEs").

Investment Securities Investment securities totaled $75.3 billion at March 31, 2013, compared with $74.5 billion at December 31, 2012. The $758 million (1.0 percent) increase primarily reflected $907 million of net investment purchases, partially offset by a $119 million unfavorable change in net unrealized gains (losses) on available-for-sale investment securities. Held-to-maturity securities were $34.7 billion at March 31, 2013, compared with $34.4 billion at December 31, 2012, primarily reflecting net purchases of U.S government agency-backed securities.

The Company's available-for-sale securities are carried at fair value with changes in fair value reflected in other comprehensive income (loss) unless a security is deemed to be other-than-temporarily impaired. At March 31, 2013, the Company's net unrealized gains on available-for-sale securities were $1.0 billion, compared with $1.1 billion at December 31, 2012. The unfavorable change in net unrealized gains was primarily due to decreases in the fair value of agency

mortgage-backed and state and political securities. Gross unrealized losses on available-for-sale securities totaled $156 million at March 31, 2013, compared with $147 million at December 31, 2012.

The Company conducts a regular assessment of its investment portfolio to determine whether any securities are other-than-temporarily impaired. When assessing unrealized losses for other-than-temporary impairment, the Company considers the nature of the investment, the financial condition of the issuer, the extent and duration of unrealized loss, expected cash flows of underlying assets and market conditions. At March 31, 2013, the Company had no plans to sell securities with unrealized losses, and believes it is more likely than not that it would not be required to sell such securities before recovery of their amortized cost.

There is limited market activity for non-agency mortgage-backed securities held by the Company. As a result, the Company estimates the fair value of these securities using estimates of expected cash flows, discount rates and management's assessment of various other market factors, which are judgmental in nature. The Company recorded $7 million of impairment charges in earnings during the first quarter of 2013 on non-agency mortgage-backed securities. These impairment charges were due to changes in expected cash flows primarily resulting from increases in defaults in the underlying mortgage pools. Further adverse changes in market conditions may result in additional impairment charges in future periods. Refer to Notes 2 and 13 in the Notes to Consolidated Financial Statements for further information on investment securities.

6 U. S. Bancorp


Table of Contents
                         Table 4   Investment Securities




                                                                                Available-for-Sale                                                  Held-to-Maturity
                                                                                              Weighted-                                                          Weighted-
                                                                                                Average       Weighted-                                            Average        Weighted-
                                                             Amortized          Fair        Maturity in         Average         Amortized          Fair        Maturity in          Average
At March 31, 2013 (Dollars in Millions)                           Cost         Value              Years       Yield (e)              Cost         Value              Years        Yield (e)
U.S. Treasury and Agencies
Maturing in one year or less                               $     1,201      $  1,202                 .7            1.47 %     $     1,411      $  1,420                 .7              .97 %
Maturing after one year through five years                         139           141                1.6            2.34             1,034         1,043                1.2             1.03
Maturing after five years through ten years                        152           161                7.3            3.13               968           971                9.3             1.86
Maturing after ten years                                             1             2               14.4            4.15                60            60               11.9             1.81
Total                                                      $     1,493      $  1,506                1.4            1.72 %     $     3,473      $  3,494                3.5             1.25 %
Mortgage-Backed Securities (a)
Maturing in one year or less                               $     1,767      $  1,776                 .6            1.70 %     $       194      $    194                 .6             1.55 %
Maturing after one year through five years                      21,662        22,212                3.5            2.27            27,931        28,355                3.3             2.04
Maturing after five years through ten years                      6,139         6,200                6.1            1.85             2,834         2,856                5.9             1.41
Maturing after ten years                                           403           409               12.2            1.62               122           125               11.0             1.29
Total                                                      $    29,971      $ 30,597                3.9            2.14 %     $    31,081      $ 31,530                3.6             1.98 %
Asset-Backed Securities (a)
Maturing in one year or less                               $         -      $      -                 .1            7.66 %     $         -      $      -                 .3              .43 %
Maturing after one year through five years                          55            64                3.2            2.60                 9             9                3.3              .74
Maturing after five years through ten years                        565           575                7.2            2.26                 8            11                6.8              .84
Maturing after ten years                                             -             -               18.3            5.39                 5            13               22.0              .75
Total                                                      $       620      $    639                6.9            2.29 %     $        22      $     33                8.9              .78 %
Obligations of State and Political Subdivisions (b) (c)
Maturing in one year or less                               $        38      $     38                 .5            7.14 %     $         1      $      1                 .6             6.88 %
Maturing after one year through five years                       5,225         5,552                3.4            6.73                 4             5                2.9             7.47
Maturing after five years through ten years                        614           640                7.8            5.76                 2             2                8.0             7.72
Maturing after ten years                                            50            50               21.2            8.07                12            12               14.5             5.36
Total                                                      $     5,927      $  6,280                3.9            6.65 %     $        19      $     20               10.8             6.12 %
Other Debt Securities
Maturing in one year or less                               $         6      $      6                 .9            1.15 %     $         1      $      1                 .4             1.00 %
Maturing after one year through five years                           -             -                  -               -                94            93                3.0             1.19
Maturing after five years through ten years                          -             -                  -               -                26            12                7.6             1.03
Maturing after ten years                                           814           740               24.2            3.12                 -             -                  -                -
Total                                                      $       820      $    746               24.0            3.11 %     $       121      $    106                3.9             1.16 %
Other Investments                                          $       759      $    802                8.7            1.29 %     $         -      $      -                  -                - %
Total investment securities (d)                            $    39,590      $ 40,570                4.4            2.80 %     $    34,716      $ 35,183                3.6             1.91 %

(a) Information related to asset and mortgage-backed securities included above is presented based upon weighted-average maturities anticipating future prepayments.

(b) Information related to obligations of state and politcal subdivisions is presented based upon yield to first optional call date if the security is purchased at a premium, yield to maturity if purchased at par or a discount.

(c) Maturity calculations for obligations of state and politicial subdivisions are based on the first optional call date for securities with a fair value above par and contractual maturity for securities with a fair value equal to or below par.

(d) The weighted-average maturity of the available-for-sale investment securities was 4.1 years at December 31, 2012, with a corresponding weighted-average yield of 2.93 percent. The weighted-average maturity of the held-to-maturity investment securities was 3.3 years at December 31, 2012, with a corresponding weighted-average yield of 1.94 percent.

(e) Average yields are presented on a fully-taxable equivalent basis under a tax rate of 35 percent. Yields on available-for-sale and held-to-maturity investment securities are computed based on amortized cost balances, excluding any premiums or discounts recorded related to the transfer of investment securities at fair value from available-for-sale to held-to-maturity. Average yield and maturity calculations exclude equity securities that have no stated yield or maturity.

                                                         March 31, 2013                  December 31, 2012
                                                     Amortized        Percent         Amortized         Percent
(Dollars in Millions)                                     Cost       of Total              Cost        of Total
U.S. Treasury and agencies                         $     4,966            6.7 %     $     4,365             5.9 %
Mortgage-backed securities                              61,052           82.1            61,019            83.1
Asset-backed securities                                    642             .9               637              .9
Obligations of state and political subdivisions          5,946            8.0             6,079             8.3
Other debt securities and investments                    1,700            2.3             1,329             1.8
Total investment securities                        $    74,306          100.0 %     $    73,429           100.0 %

U. S. Bancorp 7


Table of Contents

Deposits Total deposits were $248.0 billion at March 31, 2013, compared with $249.2 billion at December 31, 2012, the result of decreases in noninterest bearing deposits, interest checking balances and time certificates less than $100,000, partially offset by increases in money market deposits, time deposits greater than $100,000 and savings deposits. Money market balances increased $3.3 billion (6.5 percent) primarily due to higher corporate trust and institutional trust and custody balances. Time deposits greater than $100,000 increased $2.3 billion (7.8 percent) at March 31, 2013, compared with December 31, 2012. Time deposits greater than $100,000 are managed as an alternative to other funding sources such as wholesale borrowing, based largely on relative pricing. Savings account balances increased $1.3 billion (4.3 percent), primarily due to continued strong participation in a savings product offered by Consumer and . . .

  Add USB to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for USB - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.