Piper Jaffray Companies (NYSE:PJC)
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U.S. Bancorp Reports Record Net Income of $1 Billion for the
First Quarter 2004
EARNINGS SUMMARY Table 1
MINNEAPOLIS, April 20 /PRNewswire-FirstCall/ -- U.S. Bancorp today reported
net income of $1,008.4 million for the first quarter of 2004, compared with
$884.8 million for the first quarter of 2003. Net income of $.52 per diluted
share in the first quarter of 2004 was higher than the same period of 2003 by
$.06 (13.0 percent). Return on average assets and return on average equity
were 2.14 percent and 20.7 percent, respectively, for the first quarter of
2004, compared with returns of 1.95 percent and 19.1 percent, respectively, for
the first quarter of 2003.
U.S. Bancorp Chairman, President and Chief Executive Officer Jerry A.
Grundhofer said, "Our Company's first quarter results, highlighted by achieving
record net income of $1 billion, demonstrate that we are well on our way toward
reaching our financial goals for 2004. We expect our industry- leading return
on average assets and return on average equity of 2.14 percent and 20.7
percent, respectively, to show modest improvement as the year progresses. We
had continued improvement in our credit quality, growth in our fee based
businesses and improvement in our overall operating efficiency. During the
first quarter, we continued to benefit from growth in both consumer deposit
accounts and loans, and we began to see signs of growth in commercial loans.
As the economy improves, we are optimistic that this segment will become even
stronger.
"With all integration activity completed and credit quality issues abating, we
are now focused on generating revenue growth. We remain committed to growing
revenue faster than expense, achieving industry leading performance metrics,
reaching the top quartile in credit quality, sustaining industry leading
capital generation, and returning 80% of our earnings to shareholders; all
while providing exceptional customer service. We have the people, the products
and services, the advanced technology, the low-cost provider leadership
position and the commitment to customer service we need to continue to build
and grow this franchise. I am looking forward to the rest of 2004 and what our
Company can, and will, accomplish."
The Company's results for the first quarter of 2004 improved over the same
period of 2003, primarily due to growth in fee based products and services, as
well as controlled operating expense and lower credit costs. Included in the
current quarter was a $90.0 million reduction in income tax expense related to
the resolution of federal tax examinations covering substantially all of the
Company's legal entities for the years 1995 through 1999. The first quarter of
2004 also included the recognition of $109.3 million ($71.7 million on an
after-tax basis) of mortgage servicing rights ("MSR") impairment, driven by
lower interest rates and related prepayments, and a $35.4 million expense
($23.2 million on an after-tax basis) associated with the prepayment of a
portion of the Company's long term debt. The Company took no securities gains
in the quarter to offset MSR impairment.
Total net revenue on a taxable-equivalent basis for the first quarter of 2004
was $45.5 million (1.4 percent) lower than the first quarter of 2003, primarily
reflecting a $140.7 million reduction in gains on the sale of securities.
Favorable revenue growth in the majority of fee based products and services
categories partially offset the reduction in securities gains.
Total noninterest expense in the first quarter of 2004 was essentially flat to
the first quarter of 2003, primarily reflecting a $17.6 million reduction in
merger and restructuring-related charges, an $11.6 million favorable change in
the recognition of MSR impairment and cost savings from completed integration
activities. These positive variances were partially offset by expense
increases in employee benefits, professional services, marketing and business
development and other expense, the latter of which included a $35.4 million
charge related to the debt prepayment.
Provision for credit losses for the first quarter of 2004 was $235.0 million, a
decrease of $100.0 million (29.9 percent) from the first quarter of 2003. Net
charge-offs in the first quarter of 2004 were $233.9 million, compared with the
fourth quarter of 2003 net charge-offs of $285.1 million and the first quarter
of 2003 net charge-offs of $333.8 million. The decline in losses from a year
ago was primarily the result of an improving credit risk profile and collection
efforts. Total nonperforming assets declined to $1,046.6 million at March 31,
2004, from $1,148.1 million at December 31, 2003 (8.8 percent), and $1,362.6
million at March 31, 2003 (23.2 percent). The ratio of the allowance for
credit losses to nonperforming loans was 258 percent at March 31, 2004,
compared with 232 percent at December 31, 2003, and 194 percent at March 31,
2003.
On December 31, 2003, the Company completed the spin-off of Piper Jaffray
Companies (NYSE:PJC). In connection with the spin-off, accounting rules
require that the financial statements be restated for all prior periods. As
such, historical financial results related to Piper Jaffray Companies have been
segregated and accounted for in the Company's financial statements as
discontinued operations. Net income in the first quarter of 2003 and fourth
quarter of 2003 included after-tax income from the discontinued operations of
Piper Jaffray Companies of $.7 million and $6.7 million, respectively, which
had an immaterial impact on diluted earnings per share.
INCOME STATEMENT HIGHLIGHTS Table 2
(Taxable-equivalent basis,
$ in millions, Percent Percent
except per-share data) Change Change
1Q 4Q 1Q 1Q04 vs 1Q04 vs
2004 2003 2003 4Q03 1Q03
Net interest
income $1,779.0 $1,816.7 $1,776.7 (2.1) 0.1
Noninterest income 1,318.3 1,296.6 1,366.1 1.7 (3.5)
Total net
revenue 3,097.3 3,113.3 3,142.8 (0.5) (1.4)
Noninterest
expense 1,454.9 1,342.4 1,454.6 8.4 --
Provision for
credit losses 235.0 286.0 335.0 (17.8) (29.9)
Income from
continuing
operations before
income taxes 1,407.4 1,484.9 1,353.2 (5.2) 4.0
Taxable-equivalent
adjustment 7.2 7.2 7.3 -- (1.4)
Applicable income
taxes 391.8 507.4 461.8 (22.8) (15.2)
Income from
continuing
operations 1,008.4 970.3 884.1 3.9 14.1
Income from
discontinued
operations
(after-tax) -- 6.7 0.7 nm nm
Net income $1,008.4 $977.0 $884.8 3.2 14.0
Diluted earnings
per share:
Income from
continuing
operations $0.52 $0.50 $0.46 4.0 13.0
Discontinued
operations -- -- -- -- --
Net income $0.52 $0.50 $0.46 4.0 13.0
Net Interest Income
First quarter net interest income on a taxable-equivalent basis was $1,779.0
million, compared with $1,776.7 million recorded in the first quarter of 2003.
Average earning assets for the period increased over the first quarter of 2003
by $10.2 billion (6.6 percent), primarily driven by increases in investment
securities, residential mortgages, and retail loans, partially offset by a
decline in commercial loans and loans held for sale related to mortgage banking
activities. The net interest margin in the first quarter of 2004 was 4.29
percent, compared with 4.42 percent in the fourth quarter of 2003 and 4.59
percent in the first quarter of 2003. The decline in the net interest margin
in the first quarter of 2004 from the first quarter of 2003 primarily reflected
growth in lower-yielding investment securities as a percent of total earning
assets, a change in loan mix, and a decline in the margin benefit from net free
funds due to lower interest rates. In addition, the net interest margin
declined year-over-year as a result of consolidating high credit quality, low
margin loans from Stellar Funding Group, Inc., a commercial loan conduit, onto
the Company's balance sheet during the third quarter of 2003. The decline in
the net interest margin in the first quarter of 2004 from the fourth quarter of
2003 reflected a similar change in earning asset mix.
NET INTEREST INCOME Table 3
(Taxable-equivalent basis; $ in millions)
Change Change
1Q 4Q 1Q 1Q04 vs 1Q04 vs
2004 2003 2003 4Q03 1Q03
Components of net
interest income
Income on
earning assets $2,265.3 $2,294.9 $2,338.5 $(29.6) $(73.2)
Expense on
interest-bearing
liabilities 486.3 478.2 561.8 8.1 (75.5)
Net interest
income $1,779.0 $1,816.7 $1,776.7 $(37.7) $2.3
Average yields
and rates paid
Earning assets
yield 5.47% 5.58% 6.05% (0.11)% (0.58)%
Rate paid on
interest-bearing
liabilities 1.45 1.44 1.82 0.01 (0.37)
Gross interest
margin 4.02% 4.14% 4.23% (0.12)% (0.21)%
Net interest margin 4.29% 4.42% 4.59% (0.13)% (0.30)%
Average balances
Investment
securities $44,744 $40,774 $34,220 $3,970 $10,524
Loans 118,810 119,300 116,311 (490) 2,499
Earning assets 166,359 163,705 156,126 2,654 10,233
Interest-bearing
liabilities 134,966 131,990 124,669 2,976 10,297
Net free funds* 31,393 31,715 31,457 (322) (64)
* Represents noninterest-bearing deposits, allowance for loan losses,
unrealized gain (loss) on available-for-sale securities, non-earning
assets, other non-interest bearing liabilities and equity
AVERAGE LOANS Table 4
($ in millions)
Percent Percent
Change Change
1Q 4Q 1Q 1Q04 vs 1Q04 vs
2004 2003 2003 4Q03 1Q03
Commercial $33,629 $35,080 $36,339 (4.1) (7.5)
Lease financing 4,902 4,959 5,251 (1.1) (6.6)
Total commercial 38,531 40,039 41,590 (3.8) (7.4)
Commercial
mortgages 20,554 20,230 20,241 1.6 1.5
Construction and
development 6,556 7,060 6,542 (7.1) 0.2
Total commercial
real estate 27,110 27,290 26,783 (0.7) 1.2
Residential
mortgages 13,610 13,374 10,124 1.8 34.4
Credit card 5,878 5,713 5,389 2.9 9.1
Retail leasing 6,192 5,895 5,750 5.0 7.7
Home equity and
second mortgages 13,376 13,084 13,470 2.2 (0.7)
Other retail 14,113 13,905 13,205 1.5 6.9
Total retail 39,559 38,597 37,814 2.5 4.6
Total loans $118,810 $119,300 $116,311 (0.4) 2.1
Average loans for the first quarter of 2004 were $2.5 billion (2.1 percent)
higher than the first quarter of 2003, primarily due to growth in average
residential mortgages of $3.5 billion (34.4 percent) and retail loans of $1.7
billion (4.6 percent) year-over-year. Total commercial loans declined by $3.1
billion (7.4 percent), while total commercial real estate loans increased by
$327 million (1.2 percent). Although the consolidation of loans from the
Stellar commercial loan conduit had a positive impact on average loan balances
year-over-year, soft economic conditions throughout much of 2003 led to the
overall decrease in total commercial loans. Average loans for the first
quarter of 2004 were lower than the fourth quarter of 2003 by $490 million (.4
percent), reflecting reductions in commercial and commercial real estate loans,
partially offset by growth in both residential mortgages and retail loans.
While average commercial loans declined for the quarter, the Company's ending
commercial loan balances increased by $480 million from December 31, 2003.
Average investment securities in the first quarter of 2004 were $10.5 billion
(30.8 percent) higher than the first quarter of 2003, reflecting the
reinvestment of proceeds from declining commercial loan balances and deposit
growth from a year ago. Investment securities at March 31, 2004, were $15.0
billion higher than at March 31, 2003, and $2.1 billion higher than the balance
at December 31, 2003. During the first quarter of 2004, the Company continued
to acquire floating-rate securities and shorter-term fixed-rate securities as
part of its asset/liability management activities.
AVERAGE DEPOSITS Table 5
($ in millions)
Percent Percent
Change Change
1Q 4Q 1Q 1Q04 vs 1Q04 vs
2004 2003 2003 4Q03 1Q03
Noninterest-bearing
deposits $29,025 $29,647 $32,824 (2.1) (11.6)
Interest-bearing
deposits
Interest checking 20,948 20,595 17,536 1.7 19.5
Money market
accounts 34,397 35,351 28,683 (2.7) 19.9
Savings accounts 5,898 5,708 5,272 3.3 11.9
Savings
products 61,243 61,654 51,491 (0.7) 18.9
Time certificates
of deposit less
than $100,000 13,618 14,182 17,218 (4.0) (20.9)
Time deposits
greater than
$100,000 12,133 10,786 14,282 12.5 (15.0)
Total interest-
bearing
deposits 86,994 86,622 82,991 0.4 4.8
Total deposits $116,019 $116,269 $115,815 (0.2) 0.2
Average noninterest-bearing deposits for the first quarter of 2004 were lower
than the first quarter of 2003 by $3.8 billion (11.6 percent). The change was
primarily due to lower deposits associated with mortgage banking activities and
a decline in Federal government deposits related to their decision in the third
quarter of 2003 to pay for treasury management services rather than maintain
compensating balances. Average interest-bearing deposits increased by $4.0
billion (4.8 percent) over the first quarter of 2003, driven by increases in
savings products balances, partially offset by decreases in time certificates
of deposit less than $100,000 and time deposits greater than $100,000.
Average noninterest-bearing deposits for the first quarter of 2004 were $622
million (2.1 percent) lower than the fourth quarter of 2003 due to lower
deposits associated with mortgage banking activities and corporate banking.
Average interest-bearing deposits were slightly higher than the fourth quarter
of 2003 (.4 percent), primarily due to increases in time deposits greater than
$100,000, interest checking and savings accounts, partially offset by decreases
in money market accounts and time certificates of deposit less than $100,000.
Noninterest-bearing deposits at March 31, 2004, were lower than at March 31,
2003, by $3.4 billion (9.8 percent) and were $1.4 billion (4.3 percent) lower
than at December 31, 2003.
NONINTEREST INCOME Table 6
($ in millions)
Percent Percent
Change Change
1Q 4Q 1Q 1Q04 vs 1Q04 vs
2004 2003 2003 4Q03 1Q03
Credit and debit
card revenue $141.8 $153.4 $127.4 (7.6) 11.3
Corporate payment
products revenue 94.8 88.7 86.0 6.9 10.2
ATM processing
services 42.2 40.3 42.4 4.7 (0.5)
Merchant processing
services 141.1 146.0 127.3 (3.4) 10.8
Trust and investment
management fees 248.6 246.6 228.6 0.8 8.7
Deposit service
charges 185.2 186.6 163.2 (0.8) 13.5
Treasury management
fees 117.5 116.3 112.0 1.0 4.9
Commercial products
revenue 110.4 98.5 104.2 12.1 6.0
Mortgage banking
revenue 94.2 91.9 95.4 2.5 (1.3)
Investment products
fees and
commissions 39.3 36.2 35.1 8.6 12.0
Securities gains
(losses), net -- (0.1) 140.7 nm nm
Other 103.2 92.2 103.8 11.9 (0.6)
Total noninterest
income $1,318.3 $1,296.6 $1,366.1 1.7 (3.5)
Noninterest Income
First quarter noninterest income was $1,318.3 million, a decrease of $47.8
million (3.5 percent) from the same quarter of 2003, and a $21.7 million (1.7
percent) increase over the fourth quarter of 2003. The decline in noninterest
income in the first quarter of 2004 from the first quarter of 2003 was driven
by a $140.7 million reduction in gains on the sale of securities, partially
offset by increases in most other categories of noninterest income. Credit and
debit card revenue and corporate payment products revenue were higher in the
first quarter of 2004 than the first quarter of 2003 by $14.4 million (11.3
percent) and $8.8 million (10.2 percent), respectively. Although credit and
debit card revenue grew year-over-year, the growth was somewhat muted due to
the impact of the settlement of the antitrust litigation brought against VISA
USA and Mastercard by Wal-Mart Stores, Inc., Sears Roebuck & Co. and other
retailers, which lowered the interchange rate on signature debit transactions
beginning in August 2003. The year-over-year impact of the VISA settlement on
credit and debit card revenue was approximately $8.2 million. This change in
the interchange rate, in addition to higher customer loyalty rewards expenses,
however, were more than offset by increases in transaction volumes and other
rate adjustments. The corporate payment products revenue growth reflected
growth in sales and card usage. Merchant processing services revenue was higher
in the first quarter of 2004 than the same quarter of 2003 by $13.8 million
(10.8 percent), reflecting an increase in transaction volume, partially offset
by lower processing spreads due to a change in the mix of merchants. The
favorable variance in trust and investment management fees of $20.0 million
(8.7 percent) in the first quarter of 2004 over the same period of 2003 was
principally driven by higher equity market valuations year-over-year. Deposit
service charges were higher year- over-year by $22.0 million (13.5 percent) due
to account growth and revenue enhancement initiatives. Treasury management
fees grew by $5.5 million (4.9 percent) in the first quarter of 2004 over the
same period of 2003. The increase in treasury management fees year-over-year
was partially driven by a change during the third quarter of 2003 in the
Federal government's payment methodology for treasury management services from
compensating balances, reflected in net interest income, to fees. Commercial
products revenue increased by $6.2 million (6.0 percent) over the first quarter
of 2003 due to higher letter of credit, foreign exchange, syndication, and
leasing fees, partially offset by a reduction in conduit servicing revenue.
The $4.2 million (12.0 percent) increase in investment products fees and
commissions reflected higher sales activity in the Consumer Banking business
line. Offsetting these favorable variances were slight declines in mortgage
banking revenue and other income year-over-year.
Noninterest income increased in the first quarter of 2004 by $21.7 million (1.7
percent) over the fourth quarter of 2003, the net result of favorable variances
in corporate payment products revenue, ATM processing services, trust and
investment management fees, treasury management fees, commercial products
revenue, mortgage banking revenue, investment products fees and commissions and
other income, partially offset by seasonally lower credit and debit card
revenue and merchant processing services. Corporate payment products revenue,
ATM processing services, commercial products revenue, and investment products
fees and commissions rose due to higher processing volumes and product sales.
Mortgage banking revenue increased due to higher servicing fee income,
partially offset by lower fees from originations and loan sales. Other income
was higher by $11.0 million (11.9 percent), the net result of lower end of term
lease residual losses partially offset by a decrease in revenue from equity
investments relative to the fourth quarter of 2003.
NONINTEREST EXPENSE Table 7
($ in millions)
Percent Percent
Change Change
1Q 4Q 1Q 1Q04 vs 1Q04 vs
2004 2003 2003 4Q03 1Q03
Compensation $535.8 $539.4 $546.0 (0.7) (1.9)
Employee benefits 100.2 81.3 91.7 23.2 9.3
Net occupancy and
equipment 155.7 161.6 161.3 (3.7) (3.5)
Professional
services 32.4 44.2 26.4 (26.7) 22.7
Marketing and
business
development 35.3 50.8 29.8 (30.5) 18.5
Technology and
communications 101.7 106.3 104.9 (4.3) (3.1)
Postage, printing
and supplies 61.6 61.8 60.4 (0.3) 2.0
Other intangibles 226.1 124.2 235.1 82.0 (3.8)
Merger and
restructuring-related
charges -- 7.6 17.6 nm nm
Other 206.1 165.2 181.4 24.8 13.6
Total noninterest
expense $1,454.9 $1,342.4 $1,454.6 8.4 --
Noninterest Expense
First quarter noninterest expense totaled $1,454.9 million, essentially flat to
noninterest expense for the first quarter of 2003. Favorable variances in
merger and restructuring-related charges of $17.6 million and other intangibles
of $9.0 million (3.8 percent), along with general cost savings from completed
integration activities were offset by increases in employee benefits,
professional services, marketing and business development, postage, printing
and supplies and other expense. Other expense in the first quarter of 2004
included a $35.4 million charge related to the prepayment of a portion of the
Company's debt.
Noninterest expense in the first quarter of 2004 was higher than the fourth
quarter of 2003 by $112.5 million (8.4 percent). The unfavorable variance from
the fourth quarter of 2003 was primarily due to the recognition of $109.3
million of MSR impairment and a $35.4 million charge in other expense related
to the prepayment of a portion of the Company's debt in the first quarter of
2004. The fourth quarter of 2003 did not include expense related to changes in
MSR valuations. In addition, seasonally high payroll taxes contributed to the
unfavorable variance in employee benefits quarter- over-quarter. Partially
offsetting these variances were reductions in all other expense categories,
reflecting on-going expense management activities.
ALLOWANCE FOR CREDIT LOSSES Table 8
($ in millions)
1Q 4Q 3Q 2Q 1Q
2004 2003 2003 2003 2003
Balance, beginning
of period $2,368.6 $2,367.7 $2,367.6 $2,408.5 $2,422.0
Net charge-offs
Commercial 53.6 100.9 123.9 122.9 137.9
Lease financing 21.3 14.9 19.2 26.9 23.0
Total commercial 74.9 115.8 143.1 149.8 160.9
Commercial
mortgages 4.6 10.0 5.9 9.3 2.9
Construction and
development 4.7 2.9 4.6 2.5 1.0
Total commercial
real estate 9.3 12.9 10.5 11.8 3.9
Residential
mortgages 7.3 7.2 7.3 6.5 5.9
Credit card 63.4 62.3 59.3 64.5 68.7
Retail leasing 11.0 11.3 12.2 12.6 13.9
Home equity and
second mortgages 19.5 20.4 23.2 23.9 25.4
Other retail 48.5 55.2 54.3 53.8 55.1
Total retail 142.4 149.2 149.0 154.8 163.1
Total net
charge-offs 233.9 285.1 309.9 322.9 333.8
Provision for
credit losses 235.0 286.0 310.0 323.0 335.0
Acquisitions and
other changes -- -- -- (41.0) (14.7)
Balance, end of
period $2,369.7 $2,368.6 $2,367.7 $2,367.6 $2,408.5
Components
Allowance for
loan losses $2,238.3 $2,235.0 $2,241.2 $2,266.2 $2,295.0
Liability for
unfunded credit
commitments * 131.4 133.6 126.5 101.4 113.5
Total allowance
for credit
losses $2,369.7 $2,368.6 $2,367.7 $2,367.6 $2,408.5
Net charge-offs
to average
loans (%) 0.79 0.95 1.02 1.10 1.16
Allowance for credit
losses as a
percentage of:
Period-end loans 1.98 2.00 1.98 1.98 2.06
Nonperforming
loans 258 232 202 194 194
Nonperforming
assets 226 206 180 174 177
* During the first quarter of 2004, the Company reclassified the portion
of its allowance for credit losses related to commercial off-balance
sheet loan commitments and letters of credit to a separate liability
account.
Credit Quality
The allowance for credit losses was $2,369.7 million at March 31, 2004,
compared with the allowance for credit losses of $2,368.6 million at December
31, 2003, and $2,408.5 million at March 31, 2003. The ratio of the allowance
for credit losses to period-end loans was 1.98 percent at March 31, 2004,
compared with 2.00 percent at December 31, 2003, and 2.06 percent at March 31,
2003. The ratio of the allowance for credit losses to nonperforming loans was
258 percent at March 31, 2004, compared with 232 percent at December 31, 2003,
and 194 percent at March 31, 2003. Total net charge-offs in the first quarter
of 2004 were $233.9 million, compared with the fourth quarter of 2003 net
charge-offs of $285.1 million and the first quarter of 2003 net charge-offs of
$333.8 million.
Commercial and commercial real estate loan net charge-offs were $84.2 million
for the first quarter of 2004, or .52 percent of average loans outstanding,
compared with $128.7 million, or .76 percent of average loans outstanding, in
the fourth quarter of 2003 and $164.8 million, or .98 percent of average loans
outstanding, in the first quarter of 2003. The decline in net charge-offs was
broad-based across most industries within the commercial loan portfolio.
Retail loan net charge-offs of $142.4 million in the first quarter of 2004 were
$6.8 million (4.6 percent) lower than the fourth quarter of 2003 and $20.7
million (12.7 percent) lower than the first quarter of 2003. Retail loan net
charge-offs as a percent of average loans outstanding were 1.45 percent in the
first quarter of 2004, compared with 1.53 percent and 1.75 percent in the
fourth quarter of 2003 and first quarter of 2003, respectively. Lower levels of
retail loan net charges-offs principally reflected the Company's improvement in
ongoing collection efforts and risk management.
CREDIT RATIOS Table 9
(Percent)
1Q 4Q 3Q 2Q 1Q
2004 2003 2003 2003 2003
Net charge-offs ratios*
Commercial 0.64 1.14 1.33 1.35 1.54
Lease financing 1.75 1.19 1.52 2.11 1.78
Total commercial 0.78 1.15 1.35 1.44 1.57
Commercial
mortgages 0.09 0.20 0.12 0.19 0.06
Construction and
development 0.29 0.16 0.25 0.14 0.06
Total commercial
real estate 0.14 0.19 0.15 0.17 0.06
Residential
mortgages 0.22 0.21 0.24 0.24 0.24
Credit card 4.34 4.33 4.20 4.80 5.17
Retail leasing 0.71 0.76 0.83 0.88 0.98
Home equity and
second mortgages 0.59 0.62 0.70 0.72 0.76
Other retail 1.38 1.57 1.55 1.59 1.69
Total retail 1.45 1.53 1.54 1.63 1.75
Total net charge-offs 0.79 0.95 1.02 1.10 1.16
Delinquent loan ratios - 90 days or more past due excluding
nonperforming loans**
Commercial 0.06 0.06 0.11 0.09 0.10
Commercial real
estate 0.01 0.02 0.01 0.02 0.03
Residential
mortgages 0.56 0.61 0.63 0.65 0.82
Retail 0.54 0.56 0.57 0.63 0.71
Total loans 0.27 0.28 0.29 0.30 0.34
Delinquent loan ratios - 90 days or more past due including
nonperforming loans**
Commercial 1.67 1.97 2.31 2.27 2.33
Commercial real
estate 0.85 0.82 0.75 0.82 0.85
Residential
mortgages 0.87 0.91 0.98 1.13 1.37
Retail 0.59 0.62 0.63 0.70 0.77
Total loans 1.03 1.14 1.27 1.32 1.40
* annualized and calculated on average loan balances
** ratios are expressed as a percent of ending loan balances
The overall level of net charge-offs in the first quarter of 2004 reflected the
Company's ongoing efforts to reduce the overall risk profile of the
organization. Net charge-offs are expected to continue to trend modestly
lower.
ASSET QUALITY Table 10
($ in millions)
Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
2004 2003 2003 2003 2003
Nonperforming loans
Commercial $510.7 $623.5 $793.9 $795.2 $808.4
Lease financing 115.6 113.3 111.6 126.6 129.4
Total commercial 626.3 736.8 905.5 921.8 937.8
Commercial
mortgages 184.9 177.6 161.5 182.0 174.6
Construction and
development 43.6 39.9 40.2 35.3 46.1
Commercial real
estate 228.5 217.5 201.7 217.3 220.7
Residential
mortgages 42.1 40.5 46.1 56.0 57.4
Retail 20.4 25.2 21.6 24.2 23.9
Total nonperforming
loans 917.3 1,020.0 1,174.9 1,219.3 1,239.8
Other real estate 76.0 72.6 70.4 71.5 66.2
Other nonperforming
assets 53.3 55.5 73.0 68.9 56.6
Total nonperforming
assets* $1,046.6 $1,148.1 $1,318.3 $1,359.7 $1,362.6
Accruing loans 90
days or more past
due $319.2 $329.4 $352.4 $360.7 $403.5
Nonperforming assets
to loans plus ORE
(%) 0.87 0.97 1.10 1.14 1.16
* does not include accruing loans 90 days or more past due
Nonperforming assets at March 31, 2004, totaled $1,046.6 million, compared with
$1,148.1 million at December 31, 2003, and $1,362.6 million at March 31, 2003.
The ratio of nonperforming assets to loans and other real estate was .87
percent at March 31, 2004, compared with .97 percent at December 31, 2003, and
1.16 percent at March 31, 2003. Given the Company's ongoing efforts to reduce
the overall risk profile of the organization, nonperforming assets are expected
to continue to trend lower.
CAPITAL POSITION Table 11
($ in millions)
Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
2004 2003 2003 2003 2003
Total shareholders'
equity $19,452 $19,242 $19,771 $19,521 $18,862
Tier 1 capital 14,499 14,623 14,589 13,950 13,215
Total risk-based
capital 21,559 21,710 21,859 21,392 20,242
Common equity to
assets 10.1% 10.2% 10.5% 10.0% 10.4%
Tangible common
equity to assets 6.4 6.5 6.6 6.0 6.0
Tier 1 capital ratio 8.9 9.1 9.0 8.5 8.2
Total risk-based
capital ratio 13.3 13.6 13.5 13.0 12.6
Leverage ratio 8.0 8.0 8.0 7.8 7.6
Total shareholders' equity was $19.5 billion at March 31, 2004, compared with
$18.9 billion at March 31, 2003. The increase was the result of corporate
earnings offset primarily by dividends, including the special dividend of $685
million related to the spin-off of Piper Jaffray Companies, and share buybacks.
Tangible common equity to assets was 6.4 percent at March 31, 2004, compared
with 6.5 percent at December 31, 2003, and 6.0 percent at March 31, 2003. The
Tier 1 capital ratio was 8.9 percent at March 31, 2004, compared with 9.1
percent at December 31, 2003, and 8.2 percent at March 31, 2003. The total
risk-based capital ratio was 13.3 percent at March 31, 2004, compared with 13.6
percent at December 31, 2003, and 12.6 percent at March 31, 2003. The leverage
ratio was 8.0 percent at March 31, 2004, compared with 8.0 percent at December
31, 2003, and 7.6 percent at March 31, 2003. All regulatory ratios continue to
be in excess of stated "well capitalized" requirements.
COMMON SHARES Table 12
(Millions)
1Q 4Q 3Q 2Q 1Q
2004 2003 2003 2003 2003
Beginning shares
outstanding 1,922.9 1,927.4 1,924.5 1,919.0 1,917.0
Shares issued for
stock option and
stock purchase
plans, acquisitions
and other corporate
purposes 12.1 10.5 2.9 5.5 2.0
Shares repurchased (33.8) (15.0) -- -- --
Ending shares
outstanding 1,901.2 1,922.9 1,927.4 1,924.5 1,919.0
On December 16, 2003, the board of directors of U.S. Bancorp approved an
authorization to repurchase 150 million shares of outstanding common stock
during the following 24 months. During the first quarter of 2004, the Company
repurchased 33.8 million shares of common stock in both open market and
privately negotiated transactions. As of March 31, 2004, there were
approximately 108 million shares remaining to be repurchased under the current
authorization.
LINE OF BUSINESS FINANCIAL PERFORMANCE* Table 13
($ in millions)
Net Operating Earnings** Percent Change 1Q 2004
1Q 4Q 1Q 1Q04 vs 1Q04 vs Earnings
Business Line 2004 2003 2003 4Q03 1Q03 Composition
Wholesale
Banking $264.7 $234.8 $226.0 12.7 17.1 26%
Consumer
Banking*** 321.2 367.7 349.5 (12.6) (8.1) 32
Private Client,
Trust and Asset
Management 123.8 117.6 98.0 5.3 26.3 12
Payment Services 160.5 163.3 132.9 (1.7) 20.8 16
Treasury and
Corporate
Support 138.2 91.9 89.2 50.4 54.9 14
Consolidated
Company $1,008.4 $975.3 $895.6 3.4 12.6 100%
* preliminary data
** earnings before merger and restructuring-related items and
discontinued operations
*** In 1Q04 Consumer Banking's retail banking business grew net operating
earnings by 8.5 percent and 18.6 percent over 4Q03 and 1Q03,
respectively. The Consumer Bank's mortgage banking business
profitability declined in 1Q04 due to MSR impairment of
$109.3 million that was not offset by realizing securities gains in
the quarter.
Lines of Business
Within the Company, financial performance is measured by major lines of
business which include Wholesale Banking, Consumer Banking, Private Client,
Trust and Asset Management, Payment Services, and Treasury and Corporate
Support. These operating segments are components of the Company about which
financial information is available and is evaluated regularly in deciding how
to allocate resources and assess performance. Designations, assignments and
allocations may change from time to time as management systems are enhanced,
methods of evaluating performance or product lines change or business segments
are realigned to better respond to our diverse customer base. During 2004, a
methodology change was made to allocate operational expenses incurred by
Treasury and Corporate Support on behalf of the other major lines of business
back to the appropriate operating segment. These allocations are identified as
net shared services expense on the business lines' income statements.
Accordingly, results for 2003 have been restated and presented on a comparable
basis.
Wholesale Banking offers lending, depository, treasury management and other
financial services to middle market, large corporate and public sector clients.
Wholesale Banking contributed $264.7 million of the Company's operating
earnings in the first quarter of 2004, a 17.1 percent increase over the same
period of 2003 and a 12.7 percent increase over the fourth quarter of 2003.
The increase in Wholesale Banking's first quarter 2004 contribution over the
first quarter of 2003 was the result of favorable variances in total
noninterest expense (5.5 percent) and the provision for credit losses (70.4
percent), partially offset by a decrease in total net revenue (4.6 percent).
Total net revenue in the first quarter of 2004 was lower than in the first
quarter of 2003, reflecting unfavorable variances in both net interest income
(5.3 percent) and noninterest income (3.4 percent). The decrease in net
interest income was primarily due to declines in average total loans
outstanding (6.2 percent), partially offset by higher average total deposits
(4.6 percent). Although treasury management fees were higher (9.7 percent)
year-over-year, the growth was more than offset by unfavorable variances in
commercial products revenue (5.9 percent), primarily conduit servicing fees,
and other revenue. The increase in treasury management fees was principally
driven by a change during the third quarter of 2003 in the Federal government's
payment methodology for treasury management services from compensating balances
to fees. Wholesale Banking's favorable variance in total noninterest expense
year-over-year was driven by a decrease in other expense, the result of lower
loan workout-related expense relative to the first quarter of 2003, partially
offset by an increase in net shared services expense, which is primarily driven
by customer transaction volume and account activities. The decrease in the
provision for credit losses year-over-year was the result of a reduction in net
charge-offs. The increase in Wholesale Banking's contribution to operating
earnings in the first quarter of 2004 over the fourth quarter of 2003 was the
net result of favorable variances in total noninterest expense (4.4 percent)
and the provision for credit losses, partially offset by slightly lower total
net revenue (.2 percent). Total net revenue in the first quarter of 2004 was
lower than the previous quarter due to lower net interest income (2.8 percent)
partially offset by growth in noninterest income (5.6 percent). The change in
net interest income reflected reductions from the prior quarter in the business
line's average loans outstanding and average deposits. The growth
quarter-to-quarter in noninterest income was attributed to higher commercial
products revenue, primarily syndication revenue, lease residual gains and
letter of credit fees. The decrease in noninterest expense was principally due
to lower loan-related expense. Lower net charge-offs from improving credit
quality drove the favorable variance in provision for credit losses.
Consumer Banking delivers products and services to the broad consumer market
and small businesses through banking offices, telemarketing, on-line services,
direct mail and automated teller machines ("ATMs"). It encompasses community
banking, metropolitan banking, small business banking, including lending
guaranteed by the Small Business Administration, small-ticket leasing, consumer
lending, mortgage banking, workplace banking, student banking, 24- hour
banking, and investment product and insurance sales. Consumer Banking
contributed $321.2 million of the Company's operating earnings in the first
quarter of 2004, an 8.1 percent decrease from the same period of 2003 and a
12.6 percent decline from the fourth quarter of 2003. While the retail banking
business segment grew net operating earnings by 18.6 percent and 8.5 percent
over the first quarter of 2003 and the fourth quarter of 2003, respectively,
the contribution of the mortgage banking business declined. The decrease in
the mortgage banking business from the first quarter of 2003 was primarily the
result of a reduction in gains on the sale of securities of $105.8 million
that, generally, are utilized by the Company to offset impairment of mortgage
servicing rights. In the first quarter of 2004, the Company elected not to
sell higher yielding securities to offset MSR impairment within the mortgage
banking business segment.
For the Consumer Banking business, as a whole, the unfavorable variance in
gains on the sale of securities was partially offset with favorable variances
in net interest income (.4 percent), noninterest income (9.7 percent), total
noninterest expense (2.2 percent) and the provision for credit losses (3.9
percent). Net interest income improved year-over-year (.4 percent), the result
of increases in average loans and average core deposits, partially offset by a
decline in the business line's net interest margin. Noninterest income also
improved in the first quarter of 2004 over the same period of 2003, primarily
due to growth in deposit service charges, investment products fees and
commissions and other revenue. Other revenue was higher due to lower lease
residual losses relative to the first quarter of 2003. Total noninterest
expense in the first quarter of 2004 was lower than the first quarter of 2003
(2.2 percent), mainly due to favorable changes in net shared services expense
and lower MSR impairment relative to 2003. A reduction in net charge-offs
year-over-year drove the positive variance in the business line's provision for
credit losses. The decline in Consumer Banking's contribution in the first
quarter of 2004 from the fourth quarter of 2003 was primarily the result of the
recognition of $109.3 million of MSR impairment in 2004. Offsetting this
unfavorable variance were positive changes in total net revenue (1.0 percent),
noninterest expense (3.8 percent) and the provision for credit losses (1.2
percent).
Private Client, Trust and Asset Management provides trust, private banking,
financial advisory, investment management and mutual fund and alternative
investment product services through five businesses: Private Client Group,
Corporate Trust, Asset Management, Institutional Trust, and Custody and Fund
Services, LLC. Private Client, Trust and Asset Management contributed $123.8
million of the Company's operating earnings in the first quarter of 2004, 26.3
percent higher than the same period of 2003 and 5.3 percent higher than the
fourth quarter of 2003. The favorable variance in the business line's
contribution in the first quarter of 2004 over the first quarter of 2003 was
the result of favorable variances in total net revenue (12.0 percent) and total
noninterest expense (2.1 percent). Higher average total deposit balances (45.5
percent) favorably impacted net interest income year-over-year, while
noninterest income benefited from higher asset management revenue due to
improving equity market valuations. The favorable variance in expense was
primarily due to business line cost savings year-over- year and slightly lower
intangible amortization. The increase in the business line's contribution (5.3
percent) in the first quarter of 2004 over the fourth quarter of 2003 was the
result of higher total net revenue (2.0 percent), lower total noninterest
expense (1.4 percent) and a decrease in the provision for credit losses. The
increase in net interest income from the fourth quarter of 2003 to the first
quarter of 2004 was primarily driven by an increase in average total deposits
(8.2 percent), while noninterest income benefited from higher equity market
valuations.
Payment Services includes consumer and business credit cards, corporate and
purchasing card services, consumer lines of credit, ATM processing, merchant
processing, and debit cards. Payment Services contributed $160.5 million of
the Company's operating earnings in the first quarter of 2004, a 20.8 percent
increase over the same period of 2003, but a 1.7 percent decrease over the
fourth quarter of 2003. The increase in Payment Services' contribution in the
first quarter of 2004 from the same period of 2003 was the result of higher
total net revenue (5.2 percent) and a lower provision for credit losses (14.6
percent). The increase in total net revenue year-over- year was primarily due
to growth in noninterest income (10.5 percent), partially offset by lower net
interest income (7.1 percent), which reflected lower spreads on retail credit
cards and a reduction in late fees relative to the prior year's quarter. The
increase in noninterest income was principally the result of growth in credit
and debit card revenue (11.1 percent), corporate payment products revenue (10.2
percent) and merchant processing services revenue (10.8 percent). Although
credit and debit card revenue was negatively impacted in the first quarter of
2004 by the VISA debit card settlement and higher customer loyalty rewards
expense, increases in transaction volumes and other rate adjustments more than
offset these detrimental changes. The decrease in Payment Services'
contribution in the first quarter of 2004 from the fourth quarter of 2003 was
primarily due to seasonally lower total net revenue (2.1 percent), offset by a
reduction in the provision for credit losses, the result of a favorable change
in net charge- offs.
Treasury and Corporate Support includes the Company's investment portfolios,
funding, capital management and asset securitization activities, interest rate
risk management, the net effect of transfer pricing related to average balances
and business activities managed on a corporate basis, including enterprise-wide
operations and administrative support functions. Operational expenses incurred
by Treasury and Corporate Support on behalf of the other business lines are
allocated back primarily based on customer transaction volume and account
activities to the appropriate business unit and are identified as net shared
services expense. Treasury and Corporate Support recorded operating earnings
of $138.2 million in the first quarter of 2004, compared with operating
earnings of $89.2 million in the first quarter of 2003 and $91.9 million in the
fourth quarter of 2003. The increase in operating earnings in the current
quarter over the first quarter of 2003 was largely the net result of a $90.0
million reduction in income tax expense related to the resolution of federal
tax examinations for the years 1995 through 1999 and a $35.4 million charge
associated with the prepayment of a portion of the Company's debt in the first
quarter of 2004. In addition, revenue declined year-over-year due to a $35.8
million decrease in gains on the sale of securities. The favorable variance in
operating earnings in the first quarter of 2004 over the fourth quarter of 2003
was principally the net result of the reduction in income tax expense and the
charge associated with the prepayment of debt, as well as lower revenue from
equity investments relative to the fourth quarter of 2003.
Additional schedules containing more detailed information about the Company's
business line results are available on the web at usbank.com or by calling
Investor Relations at 612-303-0781.
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, JERRY A. GRUNDHOFER, AND VICE
CHAIRMAN AND CHIEF FINANCIAL OFFICER, DAVID M. MOFFETT, WILL HOST A CONFERENCE
CALL TO REVIEW THE FINANCIAL RESULTS ON TUESDAY, April 20, 2004, AT 3:00 p.m.
(CDT). To access the conference call, please dial 800-540-0559 and ask for the
U.S. Bancorp earnings conference call. Participants calling from outside the
United States, please call 785-832-1508. For those unable to participate
during the live call, a recording of the call will be available approximately
one hour after the conference call ends on Tuesday, April 20, 2004, and will
run through Tuesday, April 27, 2004, at 11:00 p.m. (CDT). To access the
recorded message dial 888-276-5315. If calling from outside the United States,
please dial 402-220-2332.
Minneapolis-based U.S. Bancorp ("USB"), with $192 billion in assets, is the 7th
largest financial services holding company in the United States. The company
operates 2,275 banking offices and 4,472 ATMs, and provides a comprehensive
line of banking, brokerage, insurance, investment, mortgage, trust and payment
services products to consumers, businesses and institutions. U.S. Bancorp is
the parent company of U.S. Bank. Visit U.S. Bancorp on the web at usbank.com.
Forward-Looking Statements
This press release contains forward-looking statements. Statements that are
not historical or current facts, including statements about beliefs and
expectations, are forward-looking statements. These statements often include
the words "may," "could," "would," "should," "believes," "expects,"
"anticipates," "estimates," "intends," "plans," "targets," "potentially,"
"probably," "projects," "outlook" or similar expressions. These forward-
looking statements cover, among other things, anticipated future revenue and
expenses, and the future prospects of the Company. Forward-looking statements
involve inherent risks and uncertainties, and important factors could cause
actual results to differ materially from those anticipated, including the
following, in addition to those contained in the Company's reports on file with
the SEC: (i) general economic or industry conditions could be less favorable
than expected, resulting in a deterioration in credit quality, a change in the
allowance for credit losses, or a reduced demand for credit or fee-based
products and services; (ii) changes in the domestic interest rate environment
could reduce net interest income and could increase credit losses; (iii)
inflation, changes in securities market conditions and monetary fluctuations
could adversely affect the value or credit quality of the Company's assets, or
the availability and terms of funding necessary to meet the Company's liquidity
needs; (iv) changes in the extensive laws, regulations and policies governing
financial services companies could alter the Company's business environment or
affect operations; (v) the potential need to adapt to industry changes in
information technology systems, on which the Company is highly dependent, could
present operational issues or require significant capital spending; (vi)
competitive pressures could intensify and affect the Company's profitability,
including as a result of continued industry consolidation, the increased
availability of financial services from non- banks, technological developments,
or bank regulatory reform; (vii) changes in consumer spending and savings
habits could adversely affect the Company's results of operations; (viii)
changes in the financial performance and condition of the Company's borrowers
could negatively affect repayment of such borrowers' loans; (ix) acquisitions
may not produce revenue enhancements or cost savings at levels or within time
frames originally anticipated, or may result in unforeseen integration
difficulties; (x) capital investments in the Company's businesses may not
produce expected growth in earnings anticipated at the time of the expenditure;
and (xi) acts or threats of terrorism, and/or political and military actions
taken by the U.S. or other governments in response to acts or threats of
terrorism or otherwise could adversely affect general economic or industry
conditions. Forward-looking statements speak only as of the date they are
made, and the Company undertakes no obligation to update them in light of new
information or future events.
U.S. Bancorp
Consolidated Statement Of Income
(Dollars and Shares in Millions, Three Months Ended
Except Per Share Data) March 31,
(Unaudited) 2004 2003
Interest Income
Loans $1,747.0 $1,836.7
Loans held for sale 19.9 59.6
Investment securities
Taxable 464.0 396.1
Non-taxable 5.3 8.9
Other interest income 21.9 29.9
Total interest income 2,258.1 2,331.2
Interest Expense
Deposits 227.0 306.6
Short-term borrowings 49.9 39.5
Long-term debt 185.9 184.3
Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts
holding solely the junior subordinated
debentures of the parent company 23.5 31.4
Total interest expense 486.3 561.8
Net interest income 1,771.8 1,769.4
Provision for credit losses 235.0 335.0
Net interest income after provision for
credit losses 1,536.8 1,434.4
Noninterest Income
Credit and debit card revenue 141.8 127.4
Corporate payment products revenue 94.8 86.0
ATM processing services 42.2 42.4
Merchant processing services 141.1 127.3
Trust and investment management fees 248.6 228.6
Deposit service charges 185.2 163.2
Treasury management fees 117.5 112.0
Commercial products revenue 110.4 104.2
Mortgage banking revenue 94.2 95.4
Investment products fees and commissions 39.3 35.1
Securities gains, net -- 140.7
Other 103.2 103.8
Total noninterest income 1,318.3 1,366.1
Noninterest Expense
Compensation 535.8 546.0
Employee benefits 100.2 91.7
Net occupancy and equipment 155.7 161.3
Professional services 32.4 26.4
Marketing and business development 35.3 29.8
Technology and communications 101.7 104.9
Postage, printing and supplies 61.6 60.4
Other intangibles 226.1 235.1
Merger and restructuring-related charges -- 17.6
Other 206.1 181.4
Total noninterest expense 1,454.9 1,454.6
Income from continuing operations before
income taxes 1,400.2 1,345.9
Applicable income taxes 391.8 461.8
Income from continuing operations 1,008.4 884.1
Income (loss) from discontinued operations
(after-tax) -- .7
Net income $1,008.4 $884.8
Earnings Per Share
Income from continuing operations $.53 $.46
Discontinued operations -- --
Net income $.53 $.46
Diluted Earnings Per Share
Income from continuing operations $.52 $.46
Discontinued operations -- --
Net income $.52 $.46
Dividends declared per share $.240 $.205
Average common shares 1,915.4 1,919.0
Average diluted common shares 1,941.1 1,925.6
U.S. Bancorp
Consolidated Ending Balance Sheet
March December March
31, 31, 31,
(Dollars in Millions) 2004 2003 2003
Assets (Unaudited) (Unaudited)
Cash and due from banks $7,177 $8,630 $8,910
Investment securities
Held-to-maturity 137 152 220
Available-for-sale 45,268 43,182 30,231
Loans held for sale 1,644 1,433 3,102
Loans
Commercial 39,006 38,526 42,011
Commercial real estate 27,215 27,242 26,893
Residential mortgages 13,717 13,457 10,329
Retail 39,945 39,010 37,939
Total loans 119,883 118,235 117,172
Less allowance for loan losses (2,238) (2,369) (2,409)
Net loans 117,645 115,866 114,763
Premises and equipment 1,924 1,957 1,655
Customers' liability on acceptances 148 121 140
Goodwill 6,095 6,025 6,332
Other intangible assets 2,025 2,124 2,181
Other assets 10,030 9,796 14,697
Total assets $192,093 $189,286 $182,231
Liabilities and Shareholders' Equity
Deposits
Noninterest-bearing $31,086 $32,470 $34,459
Interest-bearing 74,262 74,749 68,909
Time deposits greater than $100,000 13,616 11,833 11,853
Total deposits 118,964 119,052 115,221
Short-term borrowings 13,431 10,850 6,576
Long-term debt 30,851 31,215 32,068
Junior subordinated debentures issued
to unconsolidated subsidiary trusts * 2,717 2,601 2,983
Acceptances outstanding 148 121 140
Other liabilities 6,530 6,205 6,381
Total liabilities 172,641 170,044 163,369
Shareholders' equity
Common stock 20 20 20
Capital surplus 5,832 5,851 5,823
Retained earnings 15,059 14,508 13,596
Less treasury stock (1,853) (1,205) (1,222)
Other comprehensive income 394 68 645
Total shareholders' equity 19,452 19,242 18,862
Total liabilities and
shareholders' equity $192,093 $189,286 $182,231
* Amounts prior to 2004 represented Company-obligated mandatorily
redeemable preferred securities. The subsidiary grantor trusts, which
issue mandatorily redeemable preferred securities, were de-consolidated
under the provisions of FIN 46 on March 31, 2004.
DATASOURCE: U.S. Bancorp
CONTACT: Media Relations, Steve Dale, +1-612-303-0784, or Investor
Relations, H.D. McCullough, +1-612-303-0786, or Judith T. Murphy,
+1-612-303-0783, all of U.S. Bancorp
Web site: http://www.usbank.com/
Company News On-Call: http://www.prnewswire.com/comp/312402.html