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U.S. Bancorp Reports Fourth Quarter And Full Year 2012 Earnings

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, workplace banking, student banking and 24-hour banking. Consumer and Small Business Banking contributed $269 million of the Company’s net income in the fourth quarter of 2012, a $12 million (4.7 percent) increase over the fourth quarter of 2011, and a $57 million (17.5 percent) decrease from the prior quarter. Within Consumer and Small Business Banking, the retail banking division reported a 48.5 percent decrease in its contribution from the same quarter of last year due to lower total net revenue and a higher provision for credit losses, partially offset by lower total noninterest expense. Retail banking’s total net revenue was 5.3 percent lower than the fourth quarter of 2011. Net interest income decreased 2.4 percent, primarily due to lower loan rates and the impact of lower rates on the margin benefit from deposits, partially offset by higher average loan and deposit balances. Total noninterest income for the retail banking division decreased 11.9 percent from a year ago, principally due to a decrease in ATM processing services revenue, a result of the change in classification of the surcharge revenue passed through to others, and lower retail lease residual revenue. Total noninterest expense for the retail banking division in the fourth quarter of 2012 decreased 3.4 percent from the same quarter of the prior year, largely due to lower net occupancy and equipment expense, as a result of the classification change to ATM surcharge revenue passed through to others, as well as lower FDIC insurance expense and other intangibles expense, partially offset by higher shared services costs, compensation and employee benefits expense. The provision for credit losses for the retail banking division increased 46.1 percent on a year-over-year basis due to a change in the reserve allocation, partially offset by lower net charge-offs. The contribution of the mortgage banking division increased $92 million (100.0 percent) over the fourth quarter of 2011 due to higher total net revenue and a lower provision for credit losses, partially offset by an increase in total noninterest expense. The division’s 39.3 percent increase in total net revenue was primarily due to a 55.3 percent increase in total noninterest income, driven by strong mortgage origination and sales revenue, as well as an increase in loan servicing revenue. In addition, net interest income increased 10.7 percent, primarily the result of higher average loans held for sale. Total noninterest expense was 60.9 percent higher, reflecting the foreclosure-related regulatory settlement accrual and higher mortgage servicing review-related costs, compensation and employee benefits expense. The provision for credit losses for the mortgage banking division decreased by 80.5 percent due to lower net charge-offs and a change in the reserve allocation.

Consumer and Small Business Banking’s contribution in the fourth quarter of 2012 was $57 million (17.5 percent) lower than the third quarter of 2012 due to a decrease in total net revenue and an increase in total noninterest expense, partially offset by a lower provision for credit losses. Within Consumer and Small Business Banking, the retail banking division’s contribution increased 6.3 percent on a linked quarter basis, principally due to a decrease in the provision for credit losses, partially offset by a reduction in total net revenue. Total net revenue for the retail banking division declined 1.8 percent from the previous quarter, mainly due to a reduction in retail lease residual revenue. Total noninterest expense for the retail banking division was relatively flat on a linked quarter basis. The provision for credit losses decreased 11.4 percent on a linked quarter basis due to lower net charge-offs, partially offset by an unfavorable change in the reserve allocation. The contribution of the mortgage banking division decreased 25.2 percent from the third quarter of 2012 due to a decline in total net revenue and an increase in total noninterest expense, partially offset by a lower provision for credit losses. Total net revenue decreased 7.2 percent due to a 3.1 percent decline in net interest income, driven by lower rates on average loans held for sale, and an 8.7 percent decrease in total noninterest income, primarily due to lower mortgage origination and sales revenue, including the impact of an increase in the representations and warranties repurchase reserve. Total noninterest expense increased 25.8 percent, driven by the foreclosure-related regulatory settlement accrual and higher mortgage servicing review-related costs, partially offset by lower compensation expense. The mortgage banking division’s provision for credit losses decreased 55.1 percent on a linked quarter basis due to a change in the reserve allocation.

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