U.S. Bancorp (NYSE: USB) today reported net income of $1,350
million for the fourth quarter of 2011, or $.69 per diluted common
share. Earnings for the fourth quarter of 2011 were driven by
year-over-year growth in total net revenue and a lower provision
for credit losses. Included in the fourth quarter of 2011 results
were a $263 million gain from the settlement of litigation related
to the termination of a merchant processing referral agreement
(“merchant settlement gain”) and a $130 million expense accrual
related to mortgage servicing matters. On a net basis, these two
items increased fourth quarter 2011 diluted earnings per common
share by $.05. Highlights for the fourth quarter of 2011
included:
- Strong new lending activity of $70.0
billion (17.6 percent increase on a linked quarter basis) during
the fourth quarter, including:
- $21.5 billion of new commercial and
commercial real estate commitments
- $21.7 billion of commercial and
commercial real estate commitment renewals
- $2.3 billion of lines related to new
credit card accounts
- $24.5 billion of mortgage and other
retail originations
- Growth in average total loans of 5.9
percent (5.5 percent excluding acquisitions) over the fourth
quarter of 2010
- Growth in average total loans of 2.4
percent on a linked quarter basis, including average total
commercial loan growth of 5.6 percent
- Growth in average total loans,
excluding covered loans, of 8.5 percent over the fourth quarter of
2010 and 3.0 percent over the prior quarter
- Growth in average total commercial
loans of 15.8 percent over the fourth quarter of 2010 (15.6 percent
excluding acquisitions)
- Growth in quarterly average commercial
and commercial real estate commitments of 21.1 percent
year-over-year and 7.2 percent over the prior quarter
- Significant growth in average deposits
of 17.3 percent (11.7 percent excluding acquisitions) over the
fourth quarter of 2010, including:
- Growth in average noninterest-bearing
deposits of 48.2 percent (44.1 percent excluding acquisitions)
- Growth in average total savings
deposits of 11.6 percent (4.6 percent excluding acquisitions)
- Growth in average total deposits of 3.7
percent on a linked quarter basis, including an 8.6 percent
increase in noninterest-bearing deposits
- Total net revenue growth of 8.1 percent
over the fourth quarter of 2010 (6.4 percent growth on a linked
quarter basis)
- Net interest income growth of 7.0
percent over the fourth quarter of 2010 (1.9 percent growth on a
linked quarter basis)
- Average earning assets growth of 13.6
percent year-over-year, including a planned increase in the
investment securities portfolio
- Average earning assets growth of 3.1
percent on a linked quarter basis, including planned growth in the
investment securities portfolio
- Exceptionally strong growth in lower
cost core deposit funding
- Net interest margin of 3.60 percent for
the fourth quarter of 2011, compared with 3.83 percent for the
fourth quarter of 2010, and 3.65 percent for the third quarter of
2011
- Year-over-year growth in fee-based
revenue, driven by:
- Higher mortgage banking revenue (21.2
percent)
- Higher deposit service charges (18.8
percent)
- Higher merchant processing revenue
(17.0 percent)
- Higher commercial products revenue (5.8
percent)
- Net charge-offs and nonperforming
assets declined on a linked quarter basis. Provision for credit
losses was $125 million less than net charge-offs.
- Net charge-offs declined 7.0 percent
from the third quarter of 2011
- Nonperforming assets (excluding covered
assets) decreased 15.2 percent from the third quarter of 2011 (13.0
percent including covered assets)
- Allowance to nonperforming assets
(excluding covered assets) was 191 percent at December 31, 2011,
compared with 166 percent at September 30, 2011, and 162 percent at
December 31, 2010
- Allowance to period-end loans
(excluding covered loans) was 2.52 percent at December 31, 2011,
compared with 2.66 percent at September 30, 2011, and 3.03 percent
at December 31, 2010
- Strong capital generation continues to
fortify capital position; ratios at December 31, 2011 were:
- Tier 1 common equity ratio of 8.6
percent
- Tier 1 capital ratio of 10.8
percent
- Total risk based capital ratio of 13.3
percent
- Tier 1 common equity ratio of 8.2
percent under anticipated Basel III guidelines
- Repurchased 6 million shares of common
stock during the current quarter
EARNINGS
SUMMARY
Table 1 ($
in millions, except per-share data)
Percent Percent
Change Change 4Q 3Q 4Q 4Q11
vs 4Q11 vs Full Year Full Year
Percent 2011 2011 2010
3Q11 4Q10 2011
2010 Change Net income attributable to
U.S. Bancorp $1,350 $1,273 $974 6.0 38.6 $4,872 $3,317 46.9 Diluted
earnings per common share $.69 $.64 $.49 7.8 40.8 $2.46 $1.73 42.2
Return on average assets (%) 1.62 1.57 1.31 1.53 1.16 Return
on average common equity (%) 16.8 16.1 13.7 15.8 12.7 Net interest
margin (%) 3.60 3.65 3.83 3.65 3.88 Efficiency ratio (%) 52.7 51.5
52.5 51.8 51.5 Tangible efficiency ratio (%) (a) 51.3 50.0 50.6
50.2 49.5 Dividends declared per common share $.125 $.125
$.050 -- nm $.500 $.200 nm Book value per common share (period-end)
$16.43 $16.01 $14.36 2.6 14.4
(a) Computed as noninterest expense
divided by the sum of net interest income on a taxable-equivalent
basis and noninterest income
excluding net securities gains (losses) and intangible
amortization.
Net income attributable to U.S. Bancorp was $1,350 million for
the fourth quarter of 2011, 38.6 percent higher than the $974
million for the fourth quarter of 2010 and 6.0 percent higher than
the $1,273 million for the third quarter of 2011. Diluted earnings
per common share of $.69 in the fourth quarter of 2011 were $.20
higher than the fourth quarter of 2010 and $.05 higher than the
previous quarter. Return on average assets and return on average
common equity were 1.62 percent and 16.8 percent, respectively, for
the fourth quarter of 2011, compared with 1.31 percent and 13.7
percent, respectively, for the fourth quarter of 2010. Notable
items in the fourth quarter of 2011 included a $263 million
merchant settlement gain, partially offset by a $130 million
accrual related to mortgage servicing matters, which together
increased diluted earnings per common share for the current quarter
by $.05. Fourth quarter of 2010 results included a $103 million
gain ($41 million after tax) from the exchange of the Company’s
long-term asset management business for an equity interest in
Nuveen Investments and cash consideration (“Nuveen gain”), which
increased fourth quarter of 2010 diluted earnings per common share
by $.02. Additionally, the provision for credit losses for the
fourth quarter of 2011 was $125 million lower than net charge-offs,
compared with a provision for credit losses that was $150 million
lower than net charge-offs for the third quarter of 2011 and $25
million lower than net charge-offs for the fourth quarter of
2010.
U.S. Bancorp Chairman, President and Chief Executive Officer
Richard K. Davis said, “Throughout 2011, we remained focused on
execution - prudently managing our businesses, investing in our
franchise and producing consistent, solid growth and earnings.
Today, I am very proud to report our fourth quarter and full year
2011 results, as they reflect the advantages derived from our
diversified business model and, importantly, our ability to
successfully implement our strategy and accomplish our goals.
Diluted earnings per common share of $.69 for the quarter and $2.46
for the year were 40.8 percent and 42.2 percent higher,
respectively, than the prior year’s comparable periods, and I am
especially pleased to say that we achieved record earnings for full
year 2011. Earnings for the quarter and 2011 were driven by record
revenue, reduced credit costs and our on-going dedication to
operating efficiency. Fourth quarter return on average assets of
1.62 percent and return on average common equity of 16.8 percent
are industry leading, and were achieved despite the continuing
headwinds of the slow recovery and elevated credit and regulatory
costs. In fact, the benefits of our diversified business model were
particularly evident this quarter, as our expanding fee-based and
balance sheet businesses helped to mitigate the unfavorable impact
of recent debit card interchange reductions.
“Once again, we experienced strong growth in average loans and
deposits. Average total loans grew by 2.4 percent on a linked
quarter basis and included a strong 5.6 percent increase in average
total commercial loans. Additionally, commercial and commercial
real estate commitments grew by 7.2 percent in the fourth quarter
over the third quarter, further solidifying our prospects for
growth in 2012. Average deposits also showed strong growth on a
year-over-year and linked quarter basis, as our Company continued
to benefit from the flight to quality and our customers’ trust in
our ability to meet their financial objectives.
“Credit quality continued to improve this quarter, with both net
charge-offs and nonperforming assets lower than the prior quarter.
We expect that nonperforming assets will decline in the coming
quarter as the economy slowly improves. Net charge-offs, at 1.19
percent of average loans outstanding in the fourth quarter, will
also continue to improve over time, but at a slower pace, as we
approach our predicted “through the cycle” net charge-off ratio of
1.0 percent.
“Our Company generates a considerable amount of capital each and
every quarter. At December 31st, our Tier 1 common equity ratio
under anticipated Basel III capital guidelines was 8.2 percent –
well above the 7 percent minimum required. The capital we generated
in the fourth quarter supported both balance sheet growth and
investments in our businesses. In addition, we were able to return
29 percent of our earnings to shareholders through dividends and
buybacks. Earlier this month we submitted our 2012 Comprehensive
Capital Plan to the Federal Reserve and will receive the results by
March 15th. We expect to “pass” the assessment, and we look forward
to moving closer to our long-term goal of returning a majority of
our earnings to shareholders in the form of dividends and buybacks.
As I have said in the past, raising the dividend is a top priority
for our senior management and Board of Directors, and our
shareholders deserve to be rewarded for their investment in our
Company.
“Our Company’s exceptional performance this year was the direct
result of the dedication and hard work of our more than 62,000
remarkable employees. They are engaged and committed to delivering
high quality products and services to our customers, while actively
serving and supporting the communities in which they live and work.
Our talented leaders have been instrumental in our ability to
successfully manage the Company through the current economic,
regulatory and competitive challenges, while positioning us to grow
and succeed in the coming years. I want to take this opportunity to
thank all of our employees and to let them know how exceedingly
proud and grateful I am for their many contributions and
support.
“We ended 2011 where we began – in an industry-leading position
of strength. Throughout 2011, we continued to carefully manage and
invest in our businesses, grow our workforce and support our
communities. We continued to lend and grow our market share. We
continued to innovate and deliver the financial products and
services that our customers need and want. The result is that our
Company is stronger than it was a year ago and very well
“positioned to win” in 2012 and beyond for the benefit of our
customers, employees, communities and, importantly, our
shareholders.”
INCOME
STATEMENT HIGHLIGHTS
Table 2 (Taxable-equivalent basis, $ in millions,
Percent Percent
except per-share data)
Change Change
4Q 3Q 4Q 4Q11 vs 4Q11 vs Full
Year Full Year Percent 2011
2011 2010 3Q11
4Q10 2011 2010
Change Net interest income $2,673 $2,624 $2,499 1.9
7.0 $10,348 $9,788 5.7 Noninterest income 2,431 2,171
2,222 12.0 9.4 8,760 8,360 4.8 Total net revenue 5,104 4,795
4,721 6.4 8.1 19,108 18,148 5.3 Noninterest expense 2,696
2,476 2,485 8.9 8.5 9,911 9,383 5.6 Income before
provision and taxes 2,408 2,319 2,236 3.8 7.7 9,197 8,765 4.9
Provision for credit losses 497 519 912 (4.2 ) (45.5
) 2,343 4,356 (46.2 ) Income before taxes 1,911 1,800 1,324
6.2 44.3 6,854 4,409 55.5 Taxable-equivalent adjustment 56 58 53
(3.4 ) 5.7 225 209 7.7 Applicable income taxes 527 490
315 7.6 67.3 1,841 935 96.9 Net income 1,328 1,252
956 6.1 38.9 4,788 3,265 46.6 Net (income) loss attributable to
noncontrolling interests 22 21 18 4.8 22.2 84
52 61.5 Net income attributable to U.S. Bancorp $1,350
$1,273 $974 6.0 38.6 $4,872 $3,317 46.9 Net income
applicable to U.S. Bancorp common shareholders $1,314 $1,237
$951 6.2 38.2 $4,721 $3,332 41.7 Diluted earnings per
common share $.69 $.64 $.49 7.8 40.8 $2.46
$1.73 42.2
Net income attributable to U.S. Bancorp for the fourth quarter
of 2011 was $376 million (38.6 percent) higher than the fourth
quarter of 2010 and $77 million (6.0 percent) higher than the third
quarter of 2011. The increase in net income year-over-year and on a
linked quarter basis was principally the result of growth in total
net revenue, driven by increases in both net interest income and
fee-based revenue, and a lower provision for credit losses. These
positive variances were partially offset by an increase in total
noninterest expense.
Total net revenue on a taxable-equivalent basis for the fourth
quarter of 2011 was $5,104 million; $383 million (8.1 percent)
higher than the fourth quarter of 2010, reflecting a 7.0 percent
increase in net interest income and a 9.4 percent increase in
noninterest income. The increase in net interest income
year-over-year was largely the result of an increase in average
earning assets and continued growth in lower cost core deposit
funding. Noninterest income increased year-over-year, primarily due
to higher mortgage banking revenue, deposit services charges,
merchant processing revenue, commercial products revenue and the
impact of the merchant settlement gain, partially offset by a
reduction in debit card interchange fees as a result of recent
legislation. Total net revenue on a taxable-equivalent basis was
$309 million (6.4 percent) higher on a linked quarter basis, due to
a 1.9 percent increase in net interest income and a 12.0 percent
increase in total noninterest income, driven by higher mortgage
banking revenue and the merchant settlement gain, partly offset by
the reduction in debit card interchange fees.
Total noninterest expense in the fourth quarter of 2011 was
$2,696 million; $211 million (8.5 percent) higher than the fourth
quarter of 2010 and $220 million (8.9 percent) higher than the
third quarter of 2011. The increase in total noninterest expense
year-over-year was primarily due to higher compensation expense,
employee benefits costs, professional services expense and the
accrual for mortgage servicing matters. The increase in total
noninterest expense on a linked quarter basis was driven by
increased compensation expense, professional services expense and
the accrual for mortgage servicing matters.
The Company’s provision for credit losses declined from a year
ago and on a linked quarter basis. The provision for credit losses
for the fourth quarter of 2011 was $497 million, $22 million lower
than the third quarter of 2011 and $415 million lower than the
fourth quarter of 2010. The provision for credit losses was lower
than net charge-offs by $125 million in the fourth quarter of 2011,
$150 million in the third quarter of 2011, and $25 million in the
fourth quarter of 2010. Net charge-offs in the fourth quarter of
2011 were $622 million, compared with $669 million in the third
quarter of 2011, and $937 million in the fourth quarter of 2010.
Given current economic conditions, the Company expects the level of
net charge-offs to be down modestly in the first quarter of
2012.
Nonperforming assets include assets originated by the Company,
as well as loans and other real estate acquired under FDIC loss
sharing agreements (“covered assets”) that substantially reduce the
risk of credit losses to the Company. Excluding covered assets,
nonperforming assets were $2,574 million at December 31, 2011,
$3,036 million at September 30, 2011, and $3,351 million at
December 31, 2010. The decline on a year-over-year basis was led by
a reduction in commercial and commercial real estate nonperforming
assets. Notably, commercial mortgage and construction and
development nonperforming assets declined by $394 million (30.5
percent), as the Company continued to resolve and reduce exposure
to these problem assets. On a linked quarter basis, there was
improvement in a majority of the portfolios, reflecting the
stabilizing economy. While showing improvement on a linked quarter
basis, there continues to be stress in the residential mortgage
portfolio due to the decline in home values. Covered nonperforming
assets were $1,200 million at December 31, 2011, $1,303 million at
September 30, 2011, and $1,697 million at December 31, 2010. The
ratio of the allowance for credit losses to period-end loans,
excluding covered loans, was 2.52 percent at December 31, 2011,
compared with 2.66 percent at September 30, 2011, and 3.03 percent
at December 31, 2010. The ratio of the allowance for credit losses
to period-end loans, including covered loans, was 2.39 percent at
December 31, 2011, compared with 2.53 percent at September 30,
2011, and 2.81 percent at December 31, 2010. The Company expects
total nonperforming assets to trend lower in the first quarter of
2012.
NET
INTEREST INCOME
Table 3 (Taxable-equivalent basis; $ in millions)
Change
Change 4Q 3Q 4Q 4Q11 vs 4Q11
vs Full Year Full Year 2011
2011 2010 3Q11
4Q10 2011 2010
Change Components of net interest income Income on earning
assets $3,278 $3,258 $3,148 $20 $130 $12,870 $12,375 $495 Expense
on interest-bearing liabilities 605 634
649 (29 ) (44 ) 2,522
2,587 (65 ) Net interest income $2,673
$2,624 $2,499 $49 $174
$10,348 $9,788 $560
Average yields and rates paid Earning assets yield
4.42 % 4.53 % 4.82 % (.11 )% (.40 )% 4.54 % 4.91 % (.37 )% Rate
paid on interest-bearing liabilities 1.08 1.15
1.21 (.07 ) (.13 ) 1.14
1.24 (.10 ) Gross interest margin 3.34 %
3.38 % 3.61 % (.04 )% (.27 )%
3.40 % 3.67 % (.27 )% Net interest margin 3.60 %
3.65 % 3.83 % (.05 )% (.23 )%
3.65 % 3.88 % (.23 )% Average balances
Investment securities (a) $68,801 $66,252 $49,790 $2,549 $19,011
$63,645 $47,763 $15,882 Loans 207,047 202,169 195,484 4,878 11,563
201,427 193,022 8,405 Earning assets 295,114 286,269 259,859 8,845
35,255 283,290 252,042 31,248 Interest-bearing liabilities 222,075
218,969 212,308 3,106 9,767 221,690 209,113 12,577 Net free funds
(b) 73,039 67,300 47,551 5,739 25,488 61,600 42,929 18,671
(a)
Excludes unrealized gain (loss)
(b)
Represents noninterest-bearing deposits,
other noninterest-bearing liabilities and equity, allowance for
loan losses
and unrealized gain (loss) on
available-for-sale securities less non-earning assets.
Net Interest Income
Net interest income on a taxable-equivalent basis in the fourth
quarter of 2011 was $2,673 million, compared with $2,499 million in
the fourth quarter of 2010, an increase of $174 million (7.0
percent). The increase was principally the result of growth in
average earning assets and growth in lower cost core deposit
funding. Average earning assets were $35.3 billion (13.6 percent)
higher than the fourth quarter of 2010, driven by increases of
$19.0 billion (38.2 percent) in average investment securities,
$11.6 billion (5.9 percent) in total average loans and $6.3 billion
(95.4 percent) in average other earning assets, which primarily
reflected an increase in cash balances held at the Federal Reserve.
Net interest income increased $49 million (1.9 percent) on a linked
quarter basis, due to growth in average earning assets, including
lower yielding investment securities, total average loans and loans
held for sale. The net interest margin was 3.60 percent in the
fourth quarter of 2011, compared with 3.83 percent in the fourth
quarter of 2010, and 3.65 percent in the third quarter of 2011. The
expected decline in the net interest margin year-over-year
reflected higher balances in lower yielding investment securities
and cash balances held at the Federal Reserve, compared with the
fourth quarter of 2010. On a linked quarter basis, the expected
decline in net interest margin primarily reflected the impact of
the continued growth in lower yielding investment securities.
AVERAGE
LOANS
Table 4 ($
in millions)
Percent
Percent Change Change
4Q 3Q 4Q 4Q11 vs 4Q11 vs Full
Year Full Year Percent 2011
2011 2010 3Q11
4Q10 2011 2010
Change Commercial $49,437 $46,484 $41,700 6.4 18.6
$45,706 $40,840 11.9 Lease financing 5,834 5,860
6,012 (.4 ) (3.0 ) 5,910 6,188 (4.5 ) Total commercial
55,271 52,344 47,712 5.6 15.8 51,616 47,028 9.8 Commercial
mortgages 29,403 28,979 26,750 1.5 9.9 28,636 25,956 10.3
Construction and development 6,399 6,590 7,827 (2.9 )
(18.2 ) 6,878 8,313 (17.3 ) Total commercial real estate
35,802 35,569 34,577 .7 3.5 35,514 34,269 3.6 Residential
mortgages 36,256 34,026 29,659 6.6 22.2 33,711 27,704 21.7
Credit card 16,271 16,057 16,403 1.3 (.8 ) 16,084 16,403 (1.9 )
Retail leasing 5,150 5,097 4,459 1.0 15.5 4,928 4,405 11.9
Home equity and second mortgages 18,281 18,510 19,119 (1.2 ) (4.4 )
18,555 19,285 (3.8 ) Other 24,901 24,773 24,983 .5
(.3 ) 24,716 23,996 3.0 Total other retail 48,332
48,380 48,561 (.1 ) (.5 ) 48,199 47,686 1.1
Total loans, excluding covered loans 191,932 186,376
176,912 3.0 8.5 185,124 173,090 7.0 Covered loans
15,115 15,793 18,572 (4.3 ) (18.6 ) 16,303
19,932 (18.2 ) Total loans $207,047 $202,169
$195,484 2.4 5.9 $201,427 $193,022 4.4
Total average loans were $11.6 billion (5.9 percent) higher in
the fourth quarter of 2011 than the fourth quarter of 2010, driven
by growth in total commercial loans (15.8 percent), residential
mortgages (22.2 percent) and total commercial real estate loans
(3.5 percent). These increases were partially offset by declines in
credit card balances (.8 percent) total other retail (.5 percent)
and covered loans (18.6 percent). Total average loans, excluding
covered loans, were higher by 8.5 percent year-over-year. Total
average loans were $4.9 billion (2.4 percent) higher in the fourth
quarter of 2011 than the third quarter of 2011, with increases in a
majority of loan categories, including, total commercial loans (5.6
percent), residential mortgages (6.6 percent), credit cards (1.3
percent) and total commercial real estate loans (.7 percent).
Excluding covered loans, total average loans grew by 3.0 percent on
a linked quarter basis. The increases were driven by demand for
loans and lines by new and existing credit-worthy borrowers. In
late December, the Company purchased approximately $700 million of
consumer credit cards ($85 million impact on the current quarter
average).
Average investment securities in the fourth quarter of 2011 were
$19.0 billion (38.2 percent) higher year-over-year and $2.5 billion
(3.8 percent) higher than the prior quarter. The increases over the
prior year and linked quarter were primarily due to purchases of
U.S. Treasury and government agency-backed securities, as the
Company continued to move liquidity on-balance sheet.
AVERAGE
DEPOSITS
Table
5 ($ in millions)
Percent
Percent Change
Change 4Q 3Q 4Q 4Q11 vs 4Q11
vs Full Year Full Year Percent 2011
2011 2010 3Q11
4Q10 2011 2010
Change Noninterest-bearing deposits $63,640 $58,606
$42,950 8.6 48.2 $53,856 $40,162 34.1 Interest-bearing savings
deposits Interest checking 44,287 41,042 41,920 7.9 5.6 42,827
40,184 6.6 Money market savings 45,200 44,623 39,585 1.3 14.2
45,119 39,679 13.7 Savings accounts 27,693 27,042
23,470 2.4 18.0 26,654 20,903 27.5 Total of savings deposits
117,180 112,707 104,975 4.0 11.6 114,600 100,766 13.7 Time
certificates of deposit less than $100,000 15,068 15,251 15,212
(1.2 ) (.9 ) 15,237 16,628 (8.4 ) Time deposits greater than
$100,000 27,430 28,805 27,176 (4.8 ) .9 29,466
27,165 8.5 Total interest-bearing deposits 159,678 156,763
147,363 1.9 8.4 159,303 144,559 10.2 Total deposits
$223,318 $215,369 $190,313 3.7 17.3 $213,159
$184,721 15.4
Average total deposits for the fourth quarter of 2011 were $33.0
billion (17.3 percent) higher than the fourth quarter of 2010.
Noninterest-bearing deposits increased $20.7 billion (48.2 percent)
year-over-year, with growth in the average balances in a majority
of the lines of business including Wholesale Banking, Wealth
Management and Securities Services and Consumer and Small Business
Banking. Average total savings deposits were $12.2 billion (11.6
percent) higher year-over-year, the result of growth in corporate
and institutional trust balances, including the impact of the
December 30, 2010, acquisition of the securitization trust
administration business of Bank of America, N.A. (“securitization
trust administration acquisition”), as well as an increase in
Consumer and Small Business Banking average balances, partially
offset by lower broker-dealer average balances. Average time
certificates of deposit less than $100,000 and time deposits
greater than $100,000, were flat to the prior year.
Average total deposits increased $7.9 billion (3.7 percent) over
the third quarter of 2011. Noninterest-bearing deposits increased
$5.0 billion (8.6 percent), principally due to higher Wholesale
Banking, Consumer and Small Business and corporate trust average
balances. Total average savings deposits increased $4.5 billion
(4.0 percent) on a linked quarter basis due to higher corporate and
institutional trust and Consumer and Small Business Banking average
balances. Average time deposits less than $100,000 remained
relatively unchanged, while average time deposits over $100,000
were $1.4 billion (4.8 percent) lower on a linked quarter basis,
due to lower institutional trust average balances and wholesale
funding decisions.
NONINTEREST INCOME
Table 6 ($ in millions)
Percent Percent
Change Change 4Q 3Q 4Q 4Q11
vs 4Q11 vs Full Year Full Year
Percent 2011 2011 2010
3Q11 4Q10 2011
2010 Change Credit and debit card
revenue $231 $289 $293 (20.1 ) (21.2 ) $1,073 $1,091 (1.6 )
Corporate payment products revenue 171 203 173 (15.8 ) (1.2 ) 734
710 3.4 Merchant processing services 378 338 323 11.8 17.0 1,355
1,253 8.1 ATM processing services 111 115 105 (3.5 ) 5.7 452 423
6.9 Trust and investment management fees 245 241 282 1.7 (13.1 )
1,000 1,080 (7.4 ) Deposit service charges 171 183 144 (6.6 ) 18.8
659 710 (7.2 ) Treasury management fees 133 137 134 (2.9 ) (.7 )
551 555 (.7 ) Commercial products revenue 220 212 208 3.8 5.8 841
771 9.1 Mortgage banking revenue 303 245 250 23.7 21.2 986 1,003
(1.7 ) Investment products fees and commissions 31 31 29 -- 6.9 129
111 16.2 Securities gains (losses), net (9 ) (9 ) (14 ) -- 35.7 (31
) (78 ) 60.3 Other 446 186 295
nm 51.2 1,011 731 38.3 Total
noninterest income $2,431 $2,171 $2,222
12.0 9.4 $8,760 $8,360 4.8
Noninterest Income
Fourth quarter noninterest income was $2,431 million; $209
million (9.4 percent) higher than the fourth quarter of 2010 and
$260 million (12.0 percent) higher than the third quarter of 2011.
The year-over-year growth in noninterest income included a $27
million (18.8 percent) increase in deposit service charges,
reflecting product redesign initiatives, as well as higher
transaction volume and account growth. Commercial products revenue
was $12 million (5.8 percent) higher, as a result of higher
syndication fees and other commercial loan fees. Mortgage banking
revenue increased $53 million (21.2 percent) over the same quarter
of last year, principally due to higher origination and sales
revenue. In addition, other income increased $151 million (51.2
percent), primarily due to the merchant settlement gain, partially
offset by the impact of the fourth quarter of 2010 Nuveen gain.
Offsetting these positive variances was a $9 million (1.1 percent)
decrease in payments-related revenue as an increase in merchant
processing revenue, primarily due to increased volume, new business
initiatives including new fees for required tax reporting,
legislative-mitigation efforts and the reversal of an accrual for a
revenue sharing agreement termination, was more than offset by a
decline in credit and debit card revenue due to the impact of
legislative-related changes to debit card interchange fees. Trust
and investment management fees decreased $37 million (13.1
percent), primarily due to the sale of the long-term asset
management business to Nuveen Investments at the end of the fourth
quarter of 2010 and money market investment fee waivers. This
decline was partially offset by the positive impact of the
securitization trust administration acquisition and improved market
conditions.
Noninterest income was $260 million (12.0 percent) higher in the
fourth quarter of 2011 than the third quarter of 2011, principally
due to an increase in mortgage banking revenue of $58 million (23.7
percent) as the result of higher origination and sales revenue, an
increase in other income due to the merchant settlement gain and a
gain related to the Company’s investment in Visa Inc. (NYSE: V)
(“Visa gain”). Payments-related revenue decreased $50 million (6.0
percent), driven by seasonally lower transaction volumes in
corporate payment products and lower credit and debit card revenue,
the result of legislative-related reductions in debit card
interchange fees. Partially offsetting these unfavorable variances
was an 11.8 percent increase in merchant processing revenue.
Deposit service charges decreased $12 million (6.6 percent) on a
linked quarter basis, principally due to seasonality and lower
transaction volumes.
NONINTEREST EXPENSE
Table 7 ($ in millions)
Percent Percent
Change Change 4Q 3Q 4Q 4Q11
vs 4Q11 vs Full Year Full Year
Percent 2011 2011 2010
3Q11 4Q10 2011
2010 Change Compensation $1,057 $1,021
$999 3.5 5.8 $4,041 $3,779 6.9 Employee benefits 202 203 171 (.5 )
18.1 845 694 21.8 Net occupancy and equipment 249 252 237 (1.2 )
5.1 999 919 8.7 Professional services 131 100 97 31.0 35.1 383 306
25.2 Marketing and business development 112 102 106 9.8 5.7 369 360
2.5 Technology and communications 195 189 187 3.2 4.3 758 744 1.9
Postage, printing and supplies 77 76 78 1.3 (1.3 ) 303 301 .7 Other
intangibles 74 75 89 (1.3 ) (16.9 ) 299 367 (18.5 ) Other 599
458 521 30.8 15.0 1,914 1,913 .1 Total
noninterest expense $2,696 $2,476 $2,485 8.9 8.5
$9,911 $9,383 5.6
Noninterest Expense
Noninterest expense in the fourth quarter of 2011 totaled $2,696
million, an increase of $211 million (8.5 percent) over the fourth
quarter of 2010, and a $220 million (8.9 percent) increase over the
third quarter of 2011. The increase in noninterest expense over the
same quarter of last year was principally due to the accrual for
mortgage servicing matters in other expense, and increased
compensation, employee benefits, net occupancy and equipment and
professional services expense, partially offset by a decrease in
other intangibles expense. Compensation and employee benefits
expense increased over the prior year by $58 million (5.8 percent)
and $31 million (18.1 percent), respectively. The increase in
compensation expense was primarily the result of growth in staffing
related to branch expansion and other business initiatives, in
addition to merit increases. Employee benefits expense increased
due to higher pension costs and the impact of additional staffing.
Net occupancy and equipment expense increased by $12 million (5.1
percent) year-over-year largely due to business expansion and
technology initiatives, while professional services expense was $34
million (35.1 percent) higher year-over-year as a result of
mortgage servicing-related projects. Other expense increased $78
million (15.0 percent) due to the accrual for mortgage servicing
matters, which was partially offset by lower costs related to
insurance and litigation. These unfavorable variances were partly
offset by a decrease in other intangibles expense of $15 million
(16.9 percent) due to the reduction or completion of the
amortization of certain intangibles.
Noninterest expense was $220 million (8.9 percent) higher than
the third quarter of 2011. Compensation expense increased by $36
million (3.5 percent), principally due to additions to staff and
higher incentives related to the Company’s improved financial
results. Professional services expense was higher on a linked
quarter basis by $31 million (31.0 percent) as a result of mortgage
servicing-related projects and seasonally higher expenses, while
marketing and business development expense was higher by $10
million (9.8 percent) due to an increase in the contribution to the
Company’s charitable foundation. In addition, other expense was
$141 million (30.8 percent) more than the previous quarter,
principally due to an accrual for mortgage servicing matters.
Provision for Income Taxes
The provision for income taxes for the fourth quarter of 2011
resulted in a tax rate on a taxable-equivalent basis of 30.5
percent (effective tax rate of 28.4 percent), compared with 27.8
percent (effective tax rate of 24.8 percent) in the fourth quarter
of 2010 and 30.4 percent (effective tax rate of 28.1 percent) in
the third quarter of 2011. The increase in the effective tax rate
year-over-year primarily reflected the marginal impact of higher
pretax earnings.
ALLOWANCE FOR CREDIT LOSSES
Table 8 ($
in millions)
4Q 3Q 2Q
1Q 4Q 2011 2011
2011 2011 2010
Balance, beginning of period $5,190 $5,308 $5,498 $5,531 $5,540
Net charge-offs Commercial 51 90 83 125 117 Lease financing
21 9 13 14 17
Total commercial 72 99 96 139 134 Commercial mortgages 37 68 64 40
90 Construction and development 47 57
100 85 129 Total commercial real estate 84 125
164 125 219 Residential mortgages 119 122 119 129 131
Credit card 193 178 216 247 275 Retail leasing -- (1 ) -- 1
1 Home equity and second mortgages 77 74 76 81 83 Other 75
69 71 81 91 Total other
retail 152 142 147 163
175 Total net charge-offs, excluding covered loans 620 666
742 803 934 Covered loans 2 3 5
2 3 Total net charge-offs 622 669 747 805 937
Provision for credit losses 497 519 572 755 912 Net change for
credit losses to be reimbursed by the FDIC (51 ) 32
(15 ) 17 16 Balance, end of period $5,014
$5,190 $5,308 $5,498
$5,531 Components Allowance for loan losses,
excluding losses to be reimbursed by the FDIC $4,678 $4,823 $4,977
$5,161 $5,218 Allowance for credit losses to be reimbursed by the
FDIC 75 127 94 109 92 Liability for unfunded credit commitments 261
240 237 228 221
Total allowance for credit losses $5,014 $5,190
$5,308 $5,498 $5,531
Gross charge-offs $718 $762 $850 $899 $1,035 Gross recoveries $96
$93 $103 $94 $98 Allowance for credit losses as a percentage
of Period-end loans, excluding covered loans 2.52 2.66 2.83 2.97
3.03 Nonperforming loans, excluding covered loans 228 196 188 180
192 Nonperforming assets, excluding covered assets 191 166 159 154
162 Period-end loans 2.39 2.53 2.66 2.78 2.81 Nonperforming
loans 163 145 140 133 136 Nonperforming assets 133 120 114 110 110
Credit Quality
Net charge-offs and nonperforming assets declined on a linked
quarter and year-over-year basis as economic conditions stabilized.
The allowance for credit losses was $5,014 million at December 31,
2011, compared with $5,190 million at September 30, 2011, and
$5,531 million at December 31, 2010. Total net charge-offs in the
fourth quarter of 2011 were $622 million, compared with $669
million in the third quarter of 2011 and $937 million in the fourth
quarter of 2010. The decrease in total net charge-offs was
principally due to improvement in the commercial and commercial
real estate portfolios, compared with the third quarter of 2011.
The Company recorded $497 million of provision for credit losses,
$125 million less than net charge-offs, during the fourth quarter
of 2011. The allowance for credit losses reimbursable by the FDIC
decreased to $75 million at December 31, 2011.
Commercial and commercial real estate loan net charge-offs
decreased to $156 million in the fourth quarter of 2011 (.68
percent of average loans outstanding), compared with $224 million
(1.01 percent of average loans outstanding) in the third quarter of
2011 and $353 million (1.70 percent of average loans outstanding)
in the fourth quarter of 2010. The decrease primarily reflected
efforts to resolve and reduce exposure to problem assets in these
portfolios.
Residential mortgage loan net charge-offs remained relatively
stable at $119 million (1.30 percent of average loans outstanding)
in the fourth quarter of 2011, compared with $122 million (1.42
percent of average loans outstanding) in the third quarter of 2011
and $131 million (1.75 percent of average loans outstanding) in the
fourth quarter of 2010. Credit card loan net charge-offs increased
to $193 million (4.71 percent of average loans outstanding) in the
fourth quarter of 2011 from $178 million (4.40 percent of average
loans outstanding) in the third quarter of 2011, partially due to
seasonal impacts. Credit card loan net charge-offs were lower,
however, than the $275 million (6.65 percent of average loans
outstanding) in the fourth quarter of 2010. Total other retail loan
net charge-offs were $152 million (1.25 percent of average loans
outstanding) in the fourth quarter of 2011, seasonally higher than
the $142 million (1.16 percent of average loans outstanding) in the
third quarter of 2011, but lower than the $175 million (1.43
percent of average loans outstanding) in the fourth quarter of
2010.
The ratio of the allowance for credit losses to period-end loans
was 2.39 percent (2.52 percent excluding covered loans) at December
31, 2011, compared with 2.53 percent (2.66 percent excluding
covered loans) at September 30, 2011, and 2.81 percent (3.03
percent excluding covered loans) at December 31, 2010. The ratio of
the allowance for credit losses to nonperforming loans was 163
percent (228 percent excluding covered loans) at December 31, 2011,
compared with 145 percent (196 percent excluding covered loans) at
September 30, 2011, and 136 percent (192 percent excluding covered
loans) at December 31, 2010.
CREDIT RATIOS
Table 9 (Percent)
4Q 3Q 2Q 1Q
4Q 2011 2011 2011
2011 2010 Net charge-offs ratios (a)
Commercial .41 .77 .75 1.19 1.11 Lease financing 1.43 .61 .88 .94
1.12 Total commercial .52 .75 .77 1.16 1.11 Commercial
mortgages .50 .93 .90 .59 1.33 Construction and development 2.91
3.43 5.67 4.61 6.54 Total commercial real estate .93 1.39 1.85 1.44
2.51 Residential mortgages 1.30 1.42 1.46 1.65 1.75
Credit card (b) 4.71 4.40 5.45 6.21 6.65 Retail leasing --
(.08 ) -- .09 .09 Home equity and second mortgages 1.67 1.59 1.64
1.75 1.72 Other 1.19 1.11 1.16 1.33 1.45 Total other retail 1.25
1.16 1.23 1.37 1.43 Total net charge-offs, excluding covered
loans 1.28 1.42 1.63 1.81 2.09 Covered loans .05 .08 .12 .05
.06 Total net charge-offs 1.19 1.31 1.51 1.65 1.90
Delinquent loan ratios - 90 days or more past due
excluding
nonperforming loans (c) Commercial .08 .08 .09 .12 .13 Commercial
real estate .04 .08 .01 .02 -- Residential mortgages .98 1.03 1.13
1.33 1.63 Credit card 1.36 1.28 1.32 1.62 1.86 Other retail .38 .36
.35 .41 .45 Total loans, excluding covered loans .43 .43 .44 .52
.61 Covered loans 6.15 5.14 5.66 5.83 6.04 Total loans .84 .78 .87
.99 1.11 Delinquent loan ratios - 90 days or more past due
including nonperforming loans (c) Commercial .63 .79 .86
1.12 1.37 Commercial real estate 2.55 3.51 3.85 4.17 3.73
Residential mortgages 2.73 2.88 3.16 3.45 3.70 Credit card 2.65
2.81 2.91 3.23 3.22 Other retail .52 .50 .51 .56 .58 Total loans,
excluding covered loans 1.54 1.79 1.94 2.17 2.19 Covered loans
12.42 11.70 12.01 12.51 12.94 Total loans 2.30 2.53 2.77 3.07 3.17
(a)
Annualized and calculated on average loan
balances
(b)
Net charge-offs as a percent of average
loans outstanding, excluding portfolio purchaseswhere the acquired
loans were recorded at fair value at the purchase date were
4.88percent for the fourth quarter of 2011, 4.54 percent for the
third quarter of 2011, 5.62 percentfor the second quarter of 2011,
6.45 percent for the first quarter of 2011 and 7.21 percent forthe
fourth quarter of 2010.
(c)
Ratios are expressed as a percent of
ending loan balances.
ASSET QUALITY
Table
10 ($ in millions)
Dec
31 Sep 30 Jun 30 Mar 31 Dec 31
2011 2011 2011
2011 2010 Nonperforming loans Commercial $280
$342 $349 $439 $519 Lease financing 32 40 43
54 78 Total commercial 312 382 392 493 597 Commercial
mortgages 354 600 650 635 545 Construction and development 545
620 714 835 748 Total commercial real
estate 899 1,220 1,364 1,470 1,293 Residential mortgages 650
650 671 685 636 Credit card 224 250 256 255 228 Other retail 67
66 73 75 65 Total nonperforming loans,
excluding covered loans 2,152 2,568 2,756 2,978 2,819
Covered loans 926 1,010 1,041 1,151
1,244 Total nonperforming loans 3,078 3,578 3,797 4,129 4,063
Other real estate (a) 404 452 489 480 511 Covered other real
estate (a) 274 293 348 390 453 Other nonperforming assets 18
16 17 21 21 Total nonperforming assets (b)
$3,774 $4,339 $4,651 $5,020 $5,048
Total nonperforming assets, excluding covered assets $2,574
$3,036 $3,262 $3,479 $3,351 Accruing
loans 90 days or more past due, excluding covered loans $843
$814 $804 $949 $1,094 Accruing loans 90 days
or more past due $1,753 $1,606 $1,732 $1,954
$2,184 Performing restructured loans, excluding GNMA
and covered loans $3,365 $3,095 $2,532 $2,431
$2,207 Performing restructured GNMA and covered loans (c)
$1,509 $1,025 Nonperforming assets to loans plus ORE,
excluding covered assets (%) 1.32 1.60 1.77 1.92 1.87
Nonperforming assets to loans plus ORE (%) 1.79 2.11 2.32 2.52 2.55
(a)
Includes equity investments in entities
whose only asset is other real estate owned
(b)
Does not include accruing loans 90 days or
more past due or restructured loans that continue to accrue
interest
(c)
Prior to new accounting guidance in the
third quarter of 2011 restructured covered loans andloans purchased
from Government National Mortgage Association ("GNMA") mortgage
pools,whose repayments are insured by the Federal Housing
Administration or guaranteed by theDepartment of Veteran Affairs,
were not included in restructured loans
Nonperforming assets at December 31, 2011, totaled $3,774
million, compared with $4,339 million at September 30, 2011, and
$5,048 million at December 31, 2010. Total nonperforming assets at
December 31, 2011, included $1,200 million of assets covered under
loss sharing agreements with the FDIC that substantially reduce the
risk of credit losses to the Company. The ratio of nonperforming
assets to loans and other real estate was 1.79 percent (1.32
percent excluding covered assets) at December 31, 2011, compared
with 2.11 percent (1.60 percent excluding covered assets) at
September 30, 2011, and 2.55 percent (1.87 percent excluding
covered assets) at December 31, 2010. The decrease in nonperforming
assets, excluding covered assets, compared with a year ago was
driven primarily by reductions in the construction and development
nonperforming portfolios, as well as by improvement in other
commercial and commercial mortgage portfolios.
Accruing loans 90 days or more past due were $1,753 million
($843 million excluding covered loans) at December 31, 2011,
compared with $1,606 million ($814 million excluding covered loans)
at September 30, 2011, and $2,184 million ($1,094 million excluding
covered loans) at December 31, 2010. Performing restructured loans,
excluding GNMA and covered loans, increased $270 million compared
with September 30, 2011, and $1,158 million compared with December
31, 2010, as the Company now includes residential mortgage loans
under trial modification and due to the impact of new accounting
guidance adopted in the third quarter of 2011.
CAPITAL POSITION
Table 11 ($
in millions)
Dec 31 Sep 30
Jun 30 Mar 31
Dec 31 2011
2011 2011
2011 2010 Total U.S.
Bancorp shareholders' equity $33,978 $33,230 $32,452 $30,507
$29,519 Tier 1 capital 29,173 28,081 27,795 26,821 25,947 Total
risk-based capital 36,067 35,369 35,109 34,198 33,033 Tier 1
capital ratio 10.8 % 10.8 % 11.0 % 10.8 % 10.5 % Total risk-based
capital ratio 13.3 13.5 13.9 13.8 13.3 Leverage ratio 9.1 9.0 9.2
9.0 9.1 Tier 1 common equity ratio 8.6 8.5 8.4 8.2 7.8 Tangible
common equity ratio 6.6 6.6 6.5 6.3 6.0 Tangible common equity as a
percent of risk-weighted assets 8.1 8.1 8.0 7.6 7.2
Total U.S. Bancorp shareholders’ equity was $34.0 billion at
December 31, 2011, compared with $33.2 billion at September 30,
2011, and $29.5 billion at December 31, 2010. During the fourth
quarter of 2011, the Company repurchased approximately 6 million
shares of common stock under a 50 million share repurchase
authorization announced March 18, 2011. The Tier 1 capital ratio
was 10.8 percent at December 31, 2011, and at September 30, 2011,
compared with 10.5 percent at December 31, 2010. The Tier 1 common
equity ratio was 8.6 percent at December 31, 2011, compared with
8.5 percent at September 30, 2011, and 7.8 percent at December 31,
2010. The tangible common equity ratio was 6.6 percent at December
31, 2011, and at September 30, 2011, compared with 6.0 percent at
December 31, 2010. All regulatory ratios continue to be in excess
of “well-capitalized” requirements. Additionally, the Tier 1 common
equity ratio under anticipated Basel III guidelines was 8.2 percent
at December 31, 2011, and at September 30, 2011, compared with 7.3
percent at December 31, 2010.
COMMON SHARES
Table 12 (Millions)
4Q 3Q 2Q 1Q
4Q 2011 2011 2011
2011 2010 Beginning shares
outstanding 1,913 1,925 1,927 1,921 1,918 Shares issued for stock
option and stock purchase plans, acquisitions and other corporate
purposes 3 1 -- 7 3 Shares repurchased (6 ) (13 ) (2
) (1 ) -- Ending shares outstanding 1,910
1,913 1,925 1,927
1,921
LINE OF
BUSINESS FINANCIAL PERFORMANCE (a)
Table 13 ($ in millions)
Net Income Attributable Net Income Attributable to
U.S. Bancorp Percent Change to U.S. Bancorp 4Q
2011 4Q 3Q 4Q 4Q11 vs 4Q11
vs Full Year Full Year Percent
Earnings Business Line 2011
2011 2010 3Q11
4Q10 2011 2010
Change Composition Wholesale
Banking and Commercial Real Estate $272 $302 $159 (9.9 ) 71.1
$1,045 $413 nm 20 % Consumer and Small Business Banking 274 231 146
18.6 87.7 842 694 21.3 20 Wealth Management and Securities Services
41 43 55 (4.7 ) (25.5 ) 184 223 (17.5 ) 3 Payment Services 321 355
264 (9.6 ) 21.6 1,328 776 71.1 24 Treasury and Corporate Support
442 342 350 29.2 26.3 1,473 1,211 21.6 33
Consolidated Company $1,350 $1,273 $974 6.0
38.6 $4,872 $3,317 46.9 100 % (a) preliminary data
Lines of Business
The Company’s major lines of business are Wholesale Banking and
Commercial Real Estate, Consumer and Small Business Banking, Wealth
Management and Securities Services, Payment Services, and Treasury
and Corporate Support. These operating segments are components of
the Company about which financial information is prepared and is
evaluated regularly by management in deciding how to allocate
resources and assess performance. Noninterest expenses incurred by
centrally managed operations or business lines that directly
support another business line’s operations are charged to the
applicable business line based on its utilization of those
services, primarily measured by the volume of customer activities,
number of employees or other relevant factors. These allocated
expenses are reported as net shared services expense within
noninterest expense. Designations, assignments and allocations
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 the Company’s
diverse customer base. During 2011, certain organization and
methodology changes were made and, accordingly, prior period
results were restated and presented on a comparable basis.
Wholesale Banking and Commercial Real Estate offers
lending, equipment finance and small-ticket leasing, depository,
treasury management, capital markets, foreign exchange,
international trade services and other financial services to middle
market, large corporate, commercial real estate, financial
institution and public sector clients. Wholesale Banking and
Commercial Real Estate contributed $272 million of the Company’s
net income in the fourth quarter of 2011, compared with $159
million in the fourth quarter of 2010 and $302 million in the third
quarter of 2011. Wholesale Banking and Commercial Real Estate’s net
income increased $113 million (71.1 percent) over the same quarter
of 2010, primarily due to a lower provision for credit losses and
lower total noninterest expense. Net interest income increased $11
million (2.1 percent) year-over-year, primarily due to higher
average loan and deposit balances, partially offset by the impact
of lower rates on the margin benefit from deposits. Total
noninterest income decreased $14 million (4.7 percent), mainly due
to lower commercial products revenue, principally syndication fees
and foreign exchange revenue. In addition, other revenue decreased
primarily as a result of lower investment grade bond trading
revenue. Total noninterest expense decreased $22 million (6.3
percent) from a year ago, largely due to lower litigation costs.
The provision for credit losses was $159 million (70.0 percent)
lower year-over-year, principally due to lower net charge-offs.
Wholesale Banking and Commercial Real Estate’s contribution to
net income in the fourth quarter of 2011 was $30 million (9.9
percent) lower than the third quarter of 2011. This decline was
principally due to a reduction in total net revenue of $38 million
(4.4 percent). Net interest income decreased $7 million (1.3
percent) on a linked quarter basis as a result of lower loan rates
and loan fees, partially offset by higher average loan balances.
Total noninterest income decreased by $31 million (9.7 percent),
due to lower commercial products revenue, principally syndication
fees, and lower equity investment and investment grade bond trading
revenue. Total noninterest expense increased by $7 million (2.2
percent), largely due to higher FDIC deposit insurance expense and
costs related to other real estate owned, partially offset by lower
compensation and employee benefits expense. The provision for
credit losses increased $3 million (4.6 percent) on a linked
quarter basis, due to an unfavorable change in the reserve
allocation, partially offset by lower net charge-offs.
Consumer and Small Business Banking delivers products and
services through banking offices, telephone servicing and sales,
on-line services, direct mail, ATM processing and over mobile
devices. It encompasses community banking, metropolitan banking,
in-store banking, small business banking, consumer lending,
mortgage banking, consumer finance, workplace banking, student
banking and 24-hour banking. Consumer and Small Business Banking
contributed $274 million of the Company’s net income in the fourth
quarter of 2011, a $128 million (87.7 percent) increase over the
fourth quarter of 2010, and a $43 million (18.6 percent) increase
over the prior quarter. Within Consumer and Small Business Banking,
the retail banking division reported a $145 million increase in its
contribution over the same quarter of last year. The increase in
the retail banking division’s contribution over the same period of
2010 was principally due to higher total net revenue and a lower
provision for credit losses, partially offset by higher total
noninterest expense. Retail banking’s total net revenue was 6.5
percent higher than the fourth quarter of 2010. Net interest income
increased 3.3 percent, primarily due to higher loan and deposit
volumes and higher loan fees, partially offset by the impact of
lower rates on the margin benefit from deposits. Total noninterest
income for the retail banking division increased 14.7 percent over
a year ago due to an increase in deposit service charges,
reflecting product redesign initiatives, as well as higher
transaction volume and account growth, and an increase in ATM
processing services revenue. In addition, other income increased
year-over-year due to higher retail lease residual revenue. Total
noninterest expense for the retail banking division in the fourth
quarter of 2011 was 4.4 percent higher year-over-year, principally
due to higher compensation and employee benefits expense and higher
net occupancy and equipment expense related to business
initiatives, partially offset by lower other intangibles expense.
The provision for credit losses for the retail banking division
decreased 43.2 percent on a year-over-year basis due to lower net
charge-offs and a reduction in the reserve allocation. The
contribution of the mortgage banking division decreased 10.6
percent from the fourth quarter of 2010, principally due to higher
total noninterest expense and provision for credit losses,
partially offset by an increase in total net revenue. The
division’s 7.9 percent increase in total net revenue was driven by
a 19.3 percent increase in total noninterest income due to higher
mortgage origination and sales revenue, partially offset by lower
net interest income (8.1 percent) due to a decrease in average
loans held-for-sale. Total noninterest expense was 32.5 percent
higher, principally driven by mortgage servicing-related
professional services projects. The provision for credit losses
increased 34.1 percent largely due to a change in the reserve
allocation.
Consumer and Small Business Banking’s contribution in the fourth
quarter of 2011 was $43 million (18.6 percent) higher than the
third quarter of 2011 due to higher total net revenue and a
reduction in the provision for credit losses, partially offset by
higher total noninterest expense. Within Consumer and Small
Business Banking, the retail banking division’s contribution
increased 8.3 percent on a linked quarter basis. Total net revenue
for the retail banking division was relatively flat, as an increase
in net interest income of .6 percent was offset by a 1.8 percent
decrease in total noninterest income, primarily as a result of
lower deposit services charges, reflecting seasonality and lower
transaction volumes. Total noninterest expense for the retail
banking division was 2.5 percent higher than the third quarter of
2011, principally due to an increase in compensation and employee
benefits expense and higher FDIC deposit insurance expense. The
provision for credit losses for the division decreased 15.0 percent
due to lower net charge-offs and a reduction in the reserve
allocation. The contribution of the mortgage banking division
increased 30.0 percent over the third quarter of 2011 due to higher
total net revenue, partially offset by increases in total
noninterest expense and the provision for credit losses. Total net
revenue increased 20.6 percent due to an 18.8 percent increase in
net interest income, the result of higher average loans
held-for-sale. In addition, total noninterest income increased 21.7
percent, driven by increased revenue from mortgage origination and
sales. Total noninterest expense increased 15.6 percent due to
higher compensation and employee benefits expense and mortgage
servicing-related professional services projects. The mortgage
banking division’s provision for credit losses increased 5.8
percent on a linked quarter basis and was related to an increase in
the reserve allocation.
Wealth Management and Securities Services provides
private banking, financial advisory services, investment
management, retail brokerage services, insurance, trust, custody
and fund servicing through five businesses: Wealth Management,
Corporate Trust Services, U.S. Bancorp Asset Management,
Institutional Trust & Custody and Fund Services. Wealth
Management and Securities Services contributed $41 million of the
Company’s net income in the fourth quarter of 2011, a 25.5 percent
decrease from the fourth quarter of 2010, and a 4.7 percent
decrease from the third quarter of 2011. The decrease in the
business line’s contribution, compared with the same quarter of
2010, was due to lower total net revenue, higher total noninterest
expense and an increase in the provision for credit losses. Total
net revenue decreased by $4 million (1.1 percent) year-over-year.
Net interest income was higher by $21 million (26.9 percent),
primarily due to higher average deposit balances, including the
impact of the securitization trust administration acquisition.
However, total noninterest income decreased by $25 million (8.9
percent) from the fourth quarter of 2010. Trust and investment
management fees declined, primarily due to the December 31, 2010,
sale of the long-term asset management business to Nuveen
Investments, partially offset by the purchase of the securitization
trust administration business, as well as money market investment
fee waivers. Total noninterest expense increased by $15 million
(5.5 percent) due to higher compensation and employee benefits
expense, net shared services expense and the impact of the
securitization trust administration acquisition, partially offset
by a reduction in other intangibles expense and expenses related to
the sale to Nuveen Investments. The provision for credit losses was
higher due to an increase in the reserve allocation.
The business line’s contribution in the fourth quarter of 2011
was $2 million (4.7 percent) lower than the prior quarter. Total
net revenue increased $12 million (3.5 percent) due to a $9 million
(10.0 percent) increase in net interest income, driven by the
impact of higher average deposit balances, and a $3 million (1.2
percent) increase in total noninterest income, principally due to
higher syndication fees in commercial products revenue. Total
noninterest expense increased $11 million (4.0 percent) over the
prior quarter, largely due to higher compensation and FDIC deposit
insurance expense. The provision for credit losses was $4 million
higher than the prior quarter due to an increase in the reserve
allocation.
Payment Services includes consumer and business credit
cards, stored-value cards, debit cards, corporate and purchasing
card services, consumer lines of credit and merchant processing.
Payment Services contributed $321 million of the Company’s net
income in the fourth quarter of 2011, an increase of $57 million
(21.6 percent) over the same period of 2010, and a decrease of $34
million (9.6 percent) from the prior quarter. The increase
year-over-year was primarily due to a lower provision for credit
losses and higher total net revenue. Total net revenue increased
$19 million (1.7 percent) year-over-year. Net interest income
increased $33 million (10.1 percent) due to higher loan yields and
loan fees. Total noninterest income decreased $14 million (1.7
percent) year-over-year, as an increase in merchant processing
revenue, primarily due to increased volume, new business
initiatives including new fees for required tax reporting,
legislative-mitigation efforts and the reversal of an accrual for a
revenue sharing agreement termination, was more than offset by a
decline in credit and debit card revenue due to the impact of
legislative-related changes to debit card interchange fees. Total
noninterest expense remained relatively flat compared with the
fourth quarter of 2010, as an increase in compensation and employee
benefits expense was offset by lower other intangibles expense. The
provision for credit losses decreased $75 million (36.4 percent)
due to lower net charge-offs, partially offset by a small increase
in the reserve allocation.
Payment Services’ contribution in the fourth quarter of 2011 was
$34 million (9.6 percent) lower than the third quarter of 2011,
driven by lower total net revenue and higher total noninterest
expense and provision for credit losses. Total net revenue was
lower by $30 million (2.5 percent) than the third quarter of 2011,
as a $25 million (7.5 percent) increase in net interest income,
driven by seasonally lower cost of rebates on the government card
program, was more than offset by a $55 million (6.4 percent)
reduction in total noninterest income. The decline in total
noninterest income was driven by seasonally lower transaction
volumes in corporate payment products and lower credit and debit
card revenue, the result of legislative-related reductions in debit
card interchange fees. Partially offsetting these unfavorable
variances was an increase in merchant processing revenue. Total
noninterest expense increased $15 million (3.1 percent) on a linked
quarter basis, principally due to higher professional services
expense and seasonally higher prepaid card supplies expense. The
provision for credit losses increased $7 million (5.6 percent) due
to an increase in net charge-offs, partially offset by a favorable
change in the reserve allocation.
Treasury and Corporate Support includes the Company’s
investment portfolios, most covered commercial and commercial real
estate loans and related other real estate owned, funding, capital
management, asset securitization, interest rate risk management,
the net effect of transfer pricing related to average balances and
the residual aggregate of those expenses associated with corporate
activities that are managed on a consolidated basis. Treasury and
Corporate Support recorded net income of $442 million in the fourth
quarter of 2011, compared with net income of $350 million in the
fourth quarter of 2010 and net income of $342 million in the third
quarter of 2011. Net interest income increased $92 million (23.1
percent) over the fourth quarter of 2010, reflecting the planned
growth in the investment securities portfolio, as well as the
impact of wholesale funding decisions and the Company’s
asset/liability position. Total noninterest income increased by
$155 million (87.6 percent) year-over-year, principally due to the
merchant settlement gain, partially offset by the impact of the
fourth quarter of 2010 Nuveen gain. Total noninterest expense
increased $129 million (56.8 percent) due to the accrual for
mortgage servicing matters and increased compensation and employee
benefits expense, partially offset by lower costs related to
insurance and litigation.
Net income in the fourth quarter of 2011 was $100 million (29.2
percent) higher on a linked quarter basis, principally due to an
increase in total net revenue, partially offset by higher total
noninterest expense. Total net revenue was higher than the third
quarter of 2011 by $285 million (53.0 percent), principally as a
result of the merchant settlement gain and the Visa gain. A $135
million (61.1 percent) increase in total noninterest expense over
the third quarter of 2011 was primarily driven by the accrual for
mortgage servicing matters.
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.
On Wednesday, January 18, 2012, at 8:00 a.m. (CST) Richard K.
Davis, chairman, president and chief executive officer, and Andrew
Cecere, vice chairman and chief financial officer, will host a
conference call to review the financial results. The
conference call will be available by telephone or on the
Internet. A presentation will be used during the call and
will be available on the Company’s website at
www.usbank.com. To access the conference call from
locations within the United States and Canada, please dial
866-316-1409. Participants calling from outside the United
States and Canada, please dial 706-634-9086. The conference
ID number for all participants is 38163346. For those unable
to participate during the live call, a recording of the call will
be available approximately two hours after the conference call ends
on Wednesday, January 18th, and will run through Wednesday, January
25th, at 11:00 p.m. (CST). To access the recorded message
within the United States and Canada, dial 855-859-2056. If
calling from outside the United States and Canada, please dial
404-537-3406 to access the recording. The conference ID is
38163346. To access the webcast and presentation go to
www.usbank.com and click on “About U.S. Bank”. The
“Webcasts & Presentations” link can be found under the
Investor/Shareholder information heading, which is at the left side
of the bottom of the page.
Minneapolis-based U.S. Bancorp (“USB”), with $340 billion in
assets as of December 31, 2011, is the parent company of U.S. Bank
National Association, the 5th largest commercial bank in the United
States. The Company operates 3,085 banking offices in 25 states and
5,053 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
and its employees are dedicated to improving the communities they
serve, for which the company earned the 2011 Spirit of America
Award, the highest honor bestowed on a company by United Way. Visit
U.S. Bancorp on the web at usbank.com.
Forward-Looking Statements
The following information appears in accordance with the Private
Securities Litigation Reform Act of 1995:
This press release 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 effects of
recently enacted and future legislation and regulation. U.S.
Bancorp’s results could also be adversely affected by continued
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, 2010, 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.
Non-Regulatory Capital Ratios
In addition to capital ratios defined by banking regulators, the
Company considers various other measures when evaluating capital
utilization and adequacy, including:
• Tangible common equity to tangible assets,
• Tier 1 common equity to risk-weighted assets using Basel I
definition,
• Tier 1 common equity to risk-weighted assets using anticipated
Basel III definition, and
• Tangible common equity to risk-weighted assets using Basel I
definition.
These non-regulatory capital ratios are viewed by management as
useful additional methods of reflecting the level of capital
available to withstand unexpected market conditions. Additionally,
presentation of these ratios allows readers to compare the
Company’s capitalization to other financial services companies.
These ratios differ from capital ratios defined by banking
regulators principally in that the numerator excludes preferred
securities, the nature and extent of which varies among different
financial services companies. These ratios are not defined in
Generally Accepted Accounting Principals (“GAAP”) or federal
banking regulations. As a result, these non-regulatory capital
ratios disclosed by the Company may be considered non-GAAP
financial measures.
Because there are no standardized definitions for these
non-regulatory capital ratios, the Company’s calculation methods
may differ from those used by other financial services companies.
Also, there may be limits in the usefulness of these measures to
investors. As a result, the Company encourages readers to consider
the consolidated financial statements and other financial
information contained in this press release in their entirety, and
not to rely on any single financial measure. A table follows that
shows the Company’s calculation of these measures.
U.S. Bancorp
Consolidated Statement
of Income Three Months Ended Year Ended (Dollars and Shares in
Millions, Except Per Share Data) December 31, December 31,
(Unaudited) 2011 2010 2011
2010
Interest Income Loans $2,634
$2,565 $10,370 $10,145 Loans held for sale 61 84 200 246 Investment
securities 463 397 1,820 1,601 Other interest income 62
47 249 166 Total interest
income 3,220 3,093 12,639 12,158
Interest Expense Deposits
194 232 840 928 Short-term borrowings 124 134 531 548 Long-term
debt 285 281 1,145 1,103
Total interest expense 603 647
2,516 2,579 Net interest income 2,617 2,446
10,123 9,579 Provision for credit losses 497 912
2,343 4,356 Net interest income
after provision for credit losses 2,120 1,534 7,780 5,223
Noninterest Income Credit and debit card revenue 231 293
1,073 1,091 Corporate payment products revenue 171 173 734 710
Merchant processing services 378 323 1,355 1,253 ATM processing
services 111 105 452 423 Trust and investment management fees 245
282 1,000 1,080 Deposit service charges 171 144 659 710 Treasury
management fees 133 134 551 555 Commercial products revenue 220 208
841 771 Mortgage banking revenue 303 250 986 1,003 Investment
products fees and commissions 31 29 129 111 Securities gains
(losses), net (9 ) (14 ) (31 ) (78 ) Other 446 295
1,011 731 Total noninterest
income 2,431 2,222 8,760 8,360
Noninterest Expense
Compensation 1,057 999 4,041 3,779 Employee benefits 202 171 845
694 Net occupancy and equipment 249 237 999 919 Professional
services 131 97 383 306 Marketing and business development 112 106
369 360 Technology and communications 195 187 758 744 Postage,
printing and supplies 77 78 303 301 Other intangibles 74 89 299 367
Other 599 521 1,914 1,913
Total noninterest expense 2,696 2,485
9,911 9,383 Income before income taxes
1,855 1,271 6,629 4,200 Applicable income taxes 527
315 1,841 935 Net income 1,328
956 4,788 3,265 Net (income) loss attributable to noncontrolling
interests 22 18 84 52
Net income attributable to U.S. Bancorp $1,350
$974 $4,872 $3,317 Net income
applicable to U.S. Bancorp common shareholders $1,314
$951 $4,721 $3,332
Earnings per common share $.69 $.50 $2.47 $1.74 Diluted earnings
per common share $.69 $.49 $2.46 $1.73 Dividends declared per
common share $.125 $.050 $.500 $.200 Average common shares
outstanding 1,904 1,914 1,914 1,912 Average diluted common shares
outstanding 1,911 1,922 1,923
1,921 U.S. Bancorp
Consolidated Ending Balance Sheet December 31,
December 31, (Dollars in Millions) 2011 2010
Assets Cash and due from banks $13,962 $14,487
Investment securities Held-to-maturity 18,877 1,469
Available-for-sale 51,937 51,509 Loans held for sale 7,156 8,371
Loans Commercial 56,648 48,398 Commercial real estate 35,851 34,695
Residential mortgages 37,082 30,732 Credit card 17,360 16,803 Other
retail 48,107 48,391 Total loans, excluding
covered loans 195,048 179,019 Covered loans 14,787
18,042 Total loans 209,835 197,061 Less allowance for loan
losses (4,753 ) (5,310 ) Net loans 205,082 191,751 Premises
and equipment 2,657 2,487 Goodwill 8,927 8,954 Other intangible
assets 2,736 3,213 Other assets 28,788 25,545
Total assets $340,122 $307,786
Liabilities and Shareholders' Equity Deposits
Noninterest-bearing $68,579 $45,314 Interest-bearing 134,757
129,381 Time deposits greater than $100,000 27,549
29,557 Total deposits 230,885 204,252 Short-term borrowings
30,468 32,557 Long-term debt 31,953 31,537 Other liabilities 11,845
9,118 Total liabilities 305,151 277,464
Shareholders' equity Preferred stock 2,606 1,930 Common stock 21 21
Capital surplus 8,238 8,294 Retained earnings 30,785 27,005 Less
treasury stock (6,472 ) (6,262 ) Accumulated other comprehensive
income (loss) (1,200 ) (1,469 ) Total U.S. Bancorp
shareholders' equity 33,978 29,519 Noncontrolling interests 993
803 Total equity 34,971 30,322
Total liabilities and equity $340,122
$307,786 U.S. Bancorp
Non-Regulatory
Capital Ratios December 31, September 30, June 30, March
31, December 31, (Dollars in Millions, Unaudited) 2011
2011 2011 2011
2010 Total equity $34,971 $34,210 $33,341 $31,335
$30,322 Preferred stock (2,606 ) (2,606 ) (2,606 ) (1,930 ) (1,930
) Noncontrolling interests (993 ) (980 ) (889 ) (828 ) (803 )
Goodwill (net of deferred tax liability) (8,239 ) (8,265 ) (8,300 )
(8,317 ) (8,337 ) Intangible assets, other than mortgage servicing
rights (1,217 ) (1,209 ) (1,277 ) (1,342 )
(1,376 ) Tangible common equity (a) 21,916 21,150 20,269
18,918 17,876 Tier 1 capital, determined in accordance with
prescribed regulatory requirements using Basel I definition 29,173
28,081 27,795 26,821 25,947 Trust preferred securities (2,675 )
(2,675 ) (3,267 ) (3,949 ) (3,949 ) Preferred stock (2,606 ) (2,606
) (2,606 ) (1,930 ) (1,930 ) Noncontrolling interests, less
preferred stock not eligible for Tier 1 capital (687 ) (695
) (695 ) (694 ) (692 ) Tier 1 common equity
using Basel I definition (b) 23,205 22,105 21,227 20,248 19,376
Tier 1 capital, determined in accordance with prescribed
regulatory requirements using anticipated Basel III definition
25,639 24,902 23,931 21,855 20,854 Preferred stock (2,606 ) (2,606
) (2,606 ) (1,930 ) (1,930 ) Noncontrolling interests of real
estate investment trusts (667 ) (667 ) (667 )
(667 ) (667 ) Tier 1 common equity using anticipated Basel
III definition (c) 22,366 21,629 20,658 19,258 18,257 Total
assets 340,122 330,141 320,874 311,462 307,786 Goodwill (net of
deferred tax liability) (8,239 ) (8,265 ) (8,300 ) (8,317 ) (8,337
) Intangible assets, other than mortgage servicing rights (1,217 )
(1,209 ) (1,277 ) (1,342 ) (1,376 )
Tangible assets (d) 330,666 320,667 311,297 301,803 298,073
Risk-weighted assets, determined in accordance with prescribed
regulatory requirements using Basel I definition (e) 271,333 *
261,115 252,882 247,486 247,619 Risk-weighted assets using
anticipated Basel III definition (f) 274,351 * 264,103 256,205
250,931 251,704
Ratios * Tangible common equity to
tangible assets (a)/(d) 6.6 % 6.6 % 6.5 % 6.3 % 6.0 % Tier 1 common
equity to risk-weighted assets using Basel I definition (b)/(e) 8.6
8.5 8.4 8.2 7.8 Tier 1 common equity to risk-weighted assets using
anticipated Basel III definition (c)/(f) 8.2 8.2 8.1 7.7 7.3
Tangible common equity to risk-weighted assets (a)/(e) 8.1
8.1 8.0 7.6
7.2 * Preliminary data. Subject to change prior to
filings with applicable regulatory agencies. Note: Anticipated
Basel III definitions reflect adjustments for changes to the
related elements as proposed in December 2010 by regulatory
authorities.
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