October 16, 2013 Richard K. Davis Chairman, President and CEO Andy Cecere Vice Chairman and CFO Exhibit 99.2 U.S. Bancorp 3Q13 Earnings Conference Call |
2 Forward-looking Statements and Additional Information The following information appears in accordance with the Private Securities Litigation Reform Act of 1995: This presentation contains forward-looking statements about U.S. Bancorp. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements and are based on the information available to, and assumptions and estimates made by, management as of the date made. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of U.S. Bancorp. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated. Global and domestic economies could fail to recover from the recent economic downturn or could experience another severe contraction, which could adversely affect U.S. Bancorp’s revenues and the values of its assets and liabilities. Global financial markets could experience a recurrence of significant turbulence, which could reduce the availability of funding to certain financial institutions and lead to a tightening of credit, a reduction of business activity, and increased market volatility. Continued stress in the commercial real estate markets, as well as a delay or failure of recovery in the residential real estate markets, could cause additional credit losses and deterioration in asset values. In addition, U.S. Bancorp’s business and financial performance is likely to be negatively impacted by recently enacted and future legislation and regulation. U.S. Bancorp’s results could also be adversely affected by deterioration in general business and economic conditions; changes in interest rates; deterioration in the credit quality of its loan portfolios or in the value of the collateral securing those loans; deterioration in the value of securities held in its investment securities portfolio; legal and regulatory developments; increased competition from both banks and non-banks; changes in customer behavior and preferences; effects of mergers and acquisitions and related integration; effects of critical accounting policies and judgments; and management’s ability to effectively manage credit risk, residual value risk, market risk, operational risk, interest rate risk and liquidity risk. For discussion of these and other risks that may cause actual results to differ from expectations, refer to U.S. Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2012, on file with the Securities and Exchange Commission, including the sections entitled “Risk Factors” and “Corporate Risk Profile” contained in Exhibit 13, and all subsequent filings with the Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934. Forward-looking statements speak only as of the date they are made, and U.S. Bancorp undertakes no obligation to update them in light of new information or future events. This presentation includes non-GAAP financial measures to describe U.S. Bancorp’s performance. The reconciliations of those measures to GAAP measures are provided within or in the appendix of the presentation. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. |
3 3Q13 Earnings Conference Call 3Q13 Highlights Net income of $1.5 billion; $0.76 per diluted common share Average loan growth of 5.7% vs. 3Q12 and average loan growth of 1.9% vs. 2Q13 Strong average deposit growth of 5.5% vs. 3Q12 and 2.0% vs. 2Q13 Net charge-offs declined 16.3% vs. 2Q13 Nonperforming assets declined 2.8% vs. 2Q13 (2.1% excluding covered assets) Capital generation continues to reinforce capital position • Tier 1 common equity ratio estimated at 8.6% using final rules for Basel III standardized approach released July 2013 • Tier 1 common equity ratio of 9.3%; Tier 1 capital ratio of 11.2% Returned 77% of earnings to shareholders in 3Q13 • Repurchased 17 million shares of common stock during 3Q13 |
4 3Q13 Earnings Conference Call Performance Ratios Efficiency ratio 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 |
5 3Q13 Earnings Conference Call Taxable-equivalent basis Revenue Growth Year-Over-Year Growth $ in millions |
6 3Q13 Earnings Conference Call Loan and Deposit Growth Average Balances Year-Over-Year Growth $ in billions |
7 3Q13 Earnings Conference Call Credit Quality * Excluding Covered Assets (assets subject to loss sharing agreements with FDIC) ** Related to a regulatory clarification in the treatment of residential mortgage and other consumer loans to borrowers who have exited bankruptcy but continue to make payments on their loans *** Excluding $54 million of incremental charge-offs $ in millions |
8 3Q13 Earnings Conference Call Earnings Summary $ in millions, except per-share data Taxable-equivalent basis YTD YTD 3Q13 2Q13 3Q12 vs 2Q13 vs 3Q12 2013 2012 % B/(W) Net Interest Income 2,714 $ 2,672 $ 2,783 $ 1.6 (2.5) 8,095 $ 8,186 $ (1.1) Noninterest Income 2,177 2,276 2,396 (4.3) (9.1) 6,618 6,990 (5.3) Total Revenue 4,891 4,948 5,179 (1.2) (5.6) 14,713 15,176 (3.1) Noninterest Expense 2,565 2,557 2,609 (0.3) 1.7 7,592 7,770 2.3 Operating Income 2,326 2,391 2,570 (2.7) (9.5) 7,121 7,406 (3.8) Net Charge-offs 328 392 538 16.3 39.0 1,153 1,629 29.2 Excess Provision (30) (30) (50) -- -- (90) (190) -- Income before Taxes 2,028 2,029 2,082 (0.0) (2.6) 6,058 5,967 1.5 Applicable Income Taxes 598 585 650 (2.2) 8.0 1,797 1,852 3.0 Noncontrolling Interests 38 40 42 (5.0) (9.5) 119 112 6.3 Net Income 1,468 1,484 1,474 (1.1) (0.4) 4,380 4,227 3.6 Preferred Dividends/Other 68 79 70 13.9 2.9 217 193 (12.4) NI to Common 1,400 $ 1,405 $ 1,404 $ (0.4) (0.3) 4,163 $ 4,034 $ 3.2 Diluted EPS 0.76 $ 0.76 $ 0.74 $ - 2.7 2.25 $ 2.12 $ 6.1 Average Diluted Shares 1,843 1,853 1,897 0.5 2.8 1,854 1,901 2.5 % B/(W) |
9 3Q13 Earnings Conference Call 3Q13 Results - Key Drivers vs. 3Q12 Net Revenue decline of 5.6% • Net interest income decline of 2.5%; net interest margin of 3.43% vs. 3.59% in 3Q12 • Noninterest income decline of 9.1% Noninterest expense decline of 1.7% Provision for credit losses lower by $190 million • Net charge-offs lower by $210 million • Provision lower than NCOs by $30 million vs. $50 million in 3Q12 vs. 2Q13 Net Revenue decline of 1.2% • Net interest income growth of 1.6%; net interest margin of 3.43% vs. 3.43% in 2Q13 • Noninterest income decline of 4.3% Noninterest expense increase of 0.3% Provision for credit losses lower by $64 million • Net charge-offs lower by $64 million • Provision lower than NCOs by $30 million vs. $30 million in 2Q13 |
10 3Q13 Earnings Conference Call Capital Position $ in billions RWA = risk-weighted assets 3Q13 2Q13 1Q13 4Q12 3Q12 Shareholders' equity 40.1 $ 39.7 $ 39.5 $ 39.0 $ 38.7 $ Tier 1 capital 32.7 32.2 31.8 31.2 30.8 Total risk-based capital 38.9 38.4 38.1 37.8 37.6 Tier 1 common equity ratio 9.3% 9.2% 9.1% 9.0% 9.0% Tier 1 capital ratio 11.2% 11.1% 11.0% 10.8% 10.9% Total risk-based capital ratio 13.3% 13.3% 13.2% 13.1% 13.3% Leverage ratio 9.6% 9.5% 9.3% 9.2% 9.2% Tangible common equity ratio 7.4% 7.5% 7.4% 7.2% 7.2% Tangible common equity as a % of RWA 8.9% 8.9% 8.8% 8.6% 8.8% Basel III Tier 1 common equity ratio estimated using final rules for the Basel III standardized approach released July 2013 8.6% 8.6% - - - Tier 1 common equity ratio approximated using proposed rules for the Basel III standardized approach released June 2012 - 8.3% 8.2% 8.1% 8.2% |
11 3Q13 Earnings Conference Call Mortgage Repurchase Mortgages Repurchased and Make-whole Payments Mortgage Representation and Warranties Reserve $ in millions 3Q13 2Q13 1Q13 4Q12 3Q12 Beginning Reserve $190 $233 $240 $220 $216 Net Realized Losses (13) (16) (23) (32) (32) Change in Reserve (1) (27) 16 52 36 Ending Reserve $176 $190 $233 $240 $220 Mortgages repurchased and make-whole payments $42 $41 $79 $57 $58 Repurchase activity lower than peers due to: • Conservative credit and underwriting culture • Disciplined origination process - primarily conforming loans ( 95% sold to GSEs) Do not participate in private placement securitization market Outstanding repurchase and make-whole requests balance = $114 million |
12 3Q13 Earnings Conference Call |
13 3Q13 Earnings Conference Call Appendix |
14 3Q13 Earnings Conference Call Average Loans Average Loans Key Points $ in billions vs. 3Q12 Average total loans grew by $12.4 billion, or 5.7% Average total loans, excluding covered loans, were higher by 7.5% Average total commercial loans increased $5.9 billion, or 9.4%; average residential mortgage loans increased $8.2 billion, or 19.9% vs. 2Q13 Average total loans grew by $4.2 billion, or 1.9% Average total loans, excluding covered loans, were higher by 2.2% Average total commercial loans increased $1.3 billion, or 2.0%; average residential mortgage loans increased $2.3 billion, or 4.8% |
15 3Q13 Earnings Conference Call Average Deposits Average Deposits Key Points $ in billions vs. 3Q12 Average total deposits increased by $13.1 billion, or 5.5% Average low cost deposits (NIB, interest checking, money market and savings) increased by $16.0 billion, or 8.5% vs. 2Q13 Average total deposits increased by $5.0 billion, or 2.0% Average low cost deposits increased by $2.0 billion, or 1.0% |
16 3Q13 Earnings Conference Call Net Interest Income Net Interest Income Key Points $ in millions Taxable-equivalent basis vs. 3Q12 Average earning assets grew by $6.1 billion, or 2.0% Net interest margin lower by 16 bps (3.43% vs. 3.59%) driven by: • Lower rates on investment securities and loans • Partially offset by lower rates on deposits and a reduction in higher cost long-term debt vs. 2Q13 Average earning assets grew by $3.1 billion, or 1.0% Net interest margin flat (3.43% vs. 3.43%) |
17 3Q13 Earnings Conference Call Noninterest Income Noninterest Income Key Points $ in millions Payments = credit and debit card revenue, corporate payment products revenue and merchant processing; Service charges = deposit service charges, treasury management fees and ATM processing services vs. 3Q12 Noninterest income declined by $219 million, or 9.1%, driven by: • Mortgage banking revenue decline of $191 million • Higher credit and debit card revenue (14.6% increase), due to higher transaction volumes including the impact of business expansion, and higher merchant processing (7.5% increase), due to an increase in product fees and higher volumes • Higher trust and investment management fees (5.7% increase), due to improved market conditions and business expansion, and higher investment product fees (21.1% increase), due to higher sales volumes and fees • Lower commercial products revenue (8.0% decline), due to lower standby letters of credit, foreign exchange, bond underwriting and syndication fees • Lower corporate payments revenue (4.5% decline), mainly due to lower government-related transactions • Lower other income, principally the result of a gain on sale of a credit card portfolio in 3Q12 vs. 2Q13 Noninterest income declined by $99 million, or 4.3%, driven by: • Mortgage banking revenue decline of $68 million • Higher deposit service charges (12.5% increase), due to higher volumes, pricing changes and an increase in account fees • Higher corporate payments revenue (9.1% increase), due to seasonally higher sales volumes • Lower other income, mainly due to lower equity investment and retail lease revenue |
18 3Q13 Earnings Conference Call Noninterest Expense Noninterest Expense Key Points $ in millions vs. 3Q12 Noninterest expense was lower by $44 million, or 1.7%, driven by: • Lower professional services expense (34.7% decline), due to a reduction in mortgage servicing review-related costs • Lower compensation expense (1.9% decline), mainly due to lower incentive expense • Lower marketing and business development expense (11.5% decline), due to the timing of marketing programs • Lower other expense, mainly due to a reduction in litigation- related expense and lower costs associated with OREO, partially offset by higher costs related to investments in tax- advantaged projects • Higher employee benefits expense (23.6% increase), mainly due to higher pension and medical costs vs. 2Q13 Noninterest expense was higher by $8 million, or 0.3%, driven by: • Higher other expense, mainly due to higher costs related to investments in tax-advantaged projects • Lower marketing and business development expense (11.5% decrease), due to the timing of marketing programs • Lower compensation expense (0.9% decline), reflecting a reduction in commission expense and contract labor costs 3Q12 4Q12 1Q13 2Q13 3Q13 Mortgage servicing matters - $ 80 $ - $ - $ - $ Total - $ 80 $ - $ - $ - $ Notable Noninterest Expense Items |
19 3Q13 Earnings Conference Call Credit Quality - Commercial Loans Average Loans and Net Charge-offs Ratios Key Statistics Comments Strong new lending activity resulted in 2.2% linked quarter loan growth and 10.9% year-over-year growth although utilization rates remained at historically low levels Net charge-offs continued to improve year-over-year and on a linked quarter basis Nonperforming loans improved year-over-year and were relatively stable on a linked quarter basis Early stage delinquencies remained at moderate levels 3Q12 2Q13 3Q13 Average Loans $56,655 $61,507 $62,856 30-89 Delinquencies 0.29% 0.23% 0.28% 90+ Delinquencies 0.07% 0.10% 0.08% Nonperforming Loans 0.23% 0.14% 0.16% $ in millions |
20 3Q13 Earnings Conference Call Credit Quality - Commercial Leases Average Loans and Net Charge-offs Ratios Key Statistics Comments Net charge-offs have shown considerable improvement year-over-year and on a linked quarter basis, even excluding a large recovery in 3Q13 Nonperforming loans and early stage delinquencies improved year-over-year and were relatively stable on a linked quarter basis 3Q12 2Q13 3Q13 Average Loans $5,537 $5,255 $5,208 30-89 Delinquencies 0.93% 0.74% 0.76% 90+ Delinquencies 0.02% 0.00% 0.00% Nonperforming Loans 0.35% 0.27% 0.23% $ in millions |
21 3Q13 Earnings Conference Call Credit Quality - Commercial Real Estate Average Loans and Net Charge-offs Ratios Key Statistics Comments Average loans increased 1.6% on a linked quarter basis and 5.1% year-over-year High levels of commercial real estate recoveries, reflecting continued improvement in market conditions Nonperforming loans continued to decline, down from the peak of 5.36% in 1Q10 3Q12 2Q13 3Q13 Average Loans $36,630 $37,884 $38,501 30-89 Delinquencies 0.18% 0.23% 0.16% 90+ Delinquencies 0.03% 0.03% 0.02% Nonperforming Loans 1.71% 1.11% 0.92% Performing TDRs* $583 $494 $365 $ in millions * TDR = troubled debt restructuring |
22 3Q13 Earnings Conference Call Credit Quality - Residential Mortgage Average Loans and Net Charge-offs Ratios Key Statistics Comments Strong growth in high quality originations (weighted average FICO 760, weighted average LTV 68%) as average loans increased 4.8% over 2Q13, driven by demand for refinancing Over 76% of the balances have been originated since the beginning of 2009, the origination quality metrics and performance to date have significantly outperformed prior vintages with similar seasoning Net charge-offs continue to decline as housing values improve 3Q12 2Q13 3Q13 Average Loans $40,969 $46,873 $49,139 30-89 Delinquencies 0.93% 0.78% 0.70% 90+ Delinquencies 0.72% 0.53% 0.53% Nonperforming Loans 1.81% 1.43% 1.46% $ in millions ** Excludes GNMA loans, whose repayments are insured by the FHA or guaranteed by the Department of VA ($1,915 million 3Q13) * Excluding $22 million related to a regulatory clarification in the treatment of loans to borrowers who have exited bankruptcy but continue to make payments on their loans |
23 3Q13 Earnings Conference Call 3Q12 2Q13 3Q13 Average Loans $16,551 $16,416 $16,931 30-89 Delinquencies 1.41% 1.17% 1.25% 90+ Delinquencies 1.18% 1.10% 1.11% Nonperforming Loans 0.99% 0.65% 0.55% Credit Quality - Credit Card Average Loans and Net Charge-offs Ratios Key Statistics Comments Average loans increased 3.1% on a linked quarter basis Net charge-offs ratio at lowest level since 4Q07 and delinquencies remain near historically low levels Nonperforming loans have decreased for several consecutive quarters $ in millions |
24 3Q13 Earnings Conference Call Credit Quality - Home Equity Average Loans and Net Charge-offs Ratios Key Statistics Comments High-quality originations (weighted average FICO on commitments was 765, weighted average CLTV 69%) originated primarily through the retail branch network to existing bank customers on their primary residence Net charge-off ratio declined on a linked quarter basis 3Q12 2Q13 3Q13 Average Loans $17,329 $15,989 $15,648 30-89 Delinquencies 0.81% 0.74% 0.65% 90+ Delinquencies 0.32% 0.25% 0.25% Nonperforming Loans 1.05% 1.23% 1.15% $ in millions * Excluding $26 million related to a regulatory clarification in the treatment of loans to borrowers who have exited bankruptcy but continue to make payments on their loans |
25 3Q13 Earnings Conference Call Credit Quality - Retail Leasing Average Loans and Net Charge-offs Ratios Key Statistics Comments Strong year-over-year growth (7.8%) driven by high-quality originations (weighted average FICO 769) Delinquencies remain relatively stable at very low levels Strong used auto values continued to contribute to historically low net charge-offs 3Q12 2Q13 3Q13 Average Loans $5,256 $5,653 $5,664 30-89 Delinquencies 0.17% 0.14% 0.15% 90+ Delinquencies 0.02% 0.00% 0.02% Nonperforming Loans 0.02% 0.02% 0.02% $ in millions * Manheim Used Vehicle Value Index source: www.manheimconsulting.com, January 1995 = 100, quarter value = average monthly ending value |
26 3Q13 Earnings Conference Call Credit Quality - Other Retail Average Loans and Net Charge-offs Ratios Key Statistics Comments Growth in Auto Loans continue to offset declines in Student Lending loan balances (see slide 27 for auto loan detail) Delinquencies and nonperforming loans remain relatively stable and at very low levels 3Q12 2Q13 3Q13 Average Loans $25,406 $25,224 $25,682 30-89 Delinquencies 0.59% 0.46% 0.48% 90+ Delinquencies 0.16% 0.14% 0.14% Nonperforming Loans 0.12% 0.11% 0.10% $ in millions * Excluding $5 million related to a regulatory clarification in the treatment of loans to borrowers who have exited bankruptcy but continue to make payments on their loans |
27 3Q13 Earnings Conference Call Credit Quality - Auto Loans Average Loans and Net Charge-offs Ratios Key Statistics Comments Continued growth in Auto Loans driven by high-quality originations (Indirect channel weighted average FICO 756, Direct channel weighted average FICO 747) Low net charge-offs and delinquencies continue as used vehicle values remain strong 3Q12 2Q13 3Q13 Average Loans $12,211 $12,575 $12,946 30-89 Delinquencies 0.43% 0.30% 0.30% 90+ Delinquencies 0.06% 0.02% 0.03% Nonperforming Loans 0.06% 0.02% 0.02% $ in millions Auto Loans are included in Other Retail category |
28 3Q13 Earnings Conference Call Non-GAAP Financial Measures $ in millions 3Q13 2Q13 1Q13 4Q12 3Q12 Total equity 41,552 $ 41,050 $ 40,847 $ 40,267 $ 39,825 $ Preferred stock (4,756) (4,756) (4,769) (4,769) (4,769) Noncontrolling interests (1,420) (1,367) (1,316) (1,269) (1,164) Goodwill (net of deferred tax liability) (8,319) (8,317) (8,333) (8,351) (8,194) Intangible assets, other than mortgage servicing rights (878) (910) (963) (1,006) (980) Tangible common equity (a) 26,179 25,700 25,466 24,872 24,718 Tier 1 capital, determined in accordance with prescribed regulatory requirements using Basel I definition 32,707 32,219 31,774 31,203 30,766 Preferred stock (4,756) (4,756) (4,769) (4,769) (4,769) Noncontrolling interests, less preferred stock not eligible for Tier 1 capital (686) (685) (684) (685) (685) Tier 1 common equity using Basel I definition (b) 27,265 26,778 26,321 25,749 25,312 Tangible common equity (as calculated above) 26,179 25,700 Adjustments 1 258 195 Tier 1 common equity estimated using final rules for the Basel III standardized approach released July 2013 (c) 26,437 25,895 Tangible common equity (as calculated above) 25,700 25,466 24,872 24,718 Adjustments 2 (43) 81 126 157 Tier 1 common equity approximated using proposed rules for the Basel III standardized approach released June 2012 (d) 25,657 25,547 24,998 24,875 1 Includes net losses on cash flow hedges included in accumulated other comprehensive income and unrealized losses on securities transferred from available-for-sale to held-to-maturity included in accumulated other comprehensive income 2 Includes net losses on cash flow hedges included in accumulated other comprehensive income, unrealized losses on securities transferred from available-for-sale to held-to-maturity included in accumulated other comprehensive income and disallowed mortgage servicing rights |
29 3Q13 Earnings Conference Call Non-GAAP Financial Measures $ in millions 3Q13 2Q13 1Q13 4Q12 3Q12 Total assets 360,681 $ 353,415 $ 355,447 $ 353,855 $ 352,253 $ Goodwill (net of deferred tax liability) (8,319) (8,317) (8,333) (8,351) (8,194) Intangible assets, other than mortgage servicing rights (878) (910) (963) (1,006) (980) Tangible assets (e) 351,484 344,188 346,151 344,498 343,079 Risk-weighted assets, determined in accordance with prescribed regulatory requirements using Basel I definition (f) 293,155 289,613 Adjustments 3 13,473 12,476 Risk-weighted assets estimated using final rules for the Basel III standardized approach released July 2013 (g) 306,628 302,089 Risk-weighted assets, determined in accordance with prescribed regulatory requirements using Basel I definition (f) 289,613 289,672 287,611 282,033 Adjustments 4 20,866 21,021 21,233 22,167 Risk-weighted assets approximated using proposed rules for the Basel III standardized approach released June 2012 (h) 310,479 310,693 308,844 304,200 Ratios Tangible common equity to tangible assets (a)/(e) 7.4% 7.5% 7.4% 7.2% 7.2% Tangible common equity to risk-weighted assets using Basel I definition (a)/(f) 8.9% 8.9% 8.8% 8.6% 8.8% Tier 1 common equity to risk-weighted assets using Basel I definition (b)/(f) 9.3% 9.2% 9.1% 9.0% 9.0% Tier 1 common equity to risk-weighted assets estimated using final rules for the Basel III standardized approach released July 2013 (c)/(g) 8.6% 8.6% - - - Tier 1 common equity to risk-weighted assets approximated using proposed rules for the Basel III standardized approach released June 2012 (d)/(h) - 8.3% 8.2% 8.1% 8.2% 3Q13 risk-weighted assets are preliminary data, subject to change prior to filings with applicable regulatory agencies 3 Includes higher risk-weighting for unfunded loan commitments, investment securities and mortgage servicing rights, and other adjustments 4 Includes higher risk-weighting for residential mortgages, unfunded loan commitments, investment securities and mortgage servicing rights, and other adjustments |
October 16, 2013 U.S. Bancorp 3Q13 Earnings Conference Call |