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

Nonperforming assets include assets originated or acquired by the Company, as well as loans and other real estate acquired under FDIC loss sharing agreements that substantially reduce the risk of credit losses to the Company (“covered assets”). Excluding covered assets, nonperforming assets were $2,088 million at December 31, 2012, compared with $2,188 million at September 30, 2012, and $2,574 million at December 31, 2011. The declines were led by a reduction in commercial and commercial real estate nonperforming assets. Notably, commercial mortgage and construction and development nonperforming assets declined by $353 million (39.3 percent) year-over-year and $85 million (13.5 percent) on a linked quarter basis, as the Company continued to resolve and reduce exposure to these problem assets. Other real estate owned increased in the current quarter as a result of the Company including residential real estate-related loans for which the borrower had vacated the property but foreclosure had not yet occurred. Substantially all of these loans were reclassified from nonperforming loans to other real estate owned. Covered nonperforming assets were $583 million at December 31, 2012, compared with $647 million at September 30, 2012, and $1,200 million at December 31, 2011. The ratio of the allowance for credit losses to period-end loans, excluding covered loans, was 2.15 percent at December 31, 2012, compared with 2.26 percent at September 30, 2012, and 2.52 percent at December 31, 2011. The ratio of the allowance for credit losses to period-end loans, including covered loans, was 2.12 percent at December 31, 2012, compared with 2.19 percent at September 30, 2012, and 2.39 percent at December 31, 2011 . The Company expects total nonperforming assets to trend lower in the first quarter of 2013.

                                 
NET INTEREST INCOME                               Table 3
(Taxable-equivalent basis; $ in millions)                
Change Change
4Q 3Q 4Q 4Q12 vs 4Q12 vs Full Year Full Year
2012   2012   2011   3Q12   4Q11   2012   2011   Change
Components of net interest income
Income on earning assets $3,254 $3,284 $3,278 $(30 ) $(24 ) $13,112 $12,870 $242
Expense on interest-bearing liabilities 471     501     605     (30 )   (134 )   2,143     2,522     (379 )
Net interest income $2,783     $2,783     $2,673     --     $110     $10,969     $10,348     $621  
 
Average yields and rates paid
Earning assets yield 4.15 % 4.24 % 4.42 % (.09 )% (.27 )% 4.28 % 4.54 % (.26 )%
Rate paid on interest-bearing liabilities .84     .88     1.08     (.04 )   (.24 )   .95     1.14     (.19 )
Gross interest margin 3.31 %   3.36 %   3.34 %   (.05 )%   (.03 )%   3.33 %   3.40 %   (.07 )%
Net interest margin 3.55 %   3.59 %   3.60 %   (.04 )%   (.05 )%   3.58 %   3.65 %   (.07 )%
 
Average balances
Investment securities (a) $72,887 $72,454 $68,801 $433 $4,086 $72,501 $63,645 $8,856
Loans 220,266 216,928 207,047 3,338 13,219 215,374 201,427 13,947
Earning assets 312,227 308,959 295,114 3,268 17,113 306,270 283,290 22,980
Interest-bearing liabilities 224,219 226,109 222,075 (1,890 ) 2,144 225,466 221,690 3,776
 
(a) Excludes unrealized gain (loss)
                                 
 

Net Interest Income

Net interest income on a taxable-equivalent basis in the fourth quarter of 2012 was $2,783 million, an increase of $110 million (4.1 percent) over the fourth quarter of 2011. The increase was principally the result of growth in average earning assets and lower cost core deposit funding, as well as the positive impact from long-term debt repricing. The year-over-year increase was also impacted by a change in the classification of credit card balance transfer fees from noninterest income to interest income beginning in the first quarter of 2012. Average earning assets were $17.1 billion (5.8 percent) higher than the fourth quarter of 2011, driven by increases of $13.2 billion (6.4 percent) in average total loans and $4.1 billion (5.9 percent) in average investment securities. Net interest income was flat on a linked quarter basis, as growth in average earning assets, principally average total loans, was offset by a 4 basis point decline in the net interest margin. The net interest margin in the fourth quarter of 2012 was 3.55 percent, compared with 3.60 percent in the fourth quarter of 2011, and 3.59 percent in the third quarter of 2012. The decline in the net interest margin year-over-year primarily reflected higher balances in lower yielding investment securities and lower loan rates, partially offset by lower rates on deposits and long-term debt and a reduction in cash balances held at the Federal Reserve. On a linked quarter basis, the net interest margin declined due to a reduction in the yield on the investment securities portfolio and lower loan rates.

                                 
AVERAGE LOANS                               Table 4
($ in millions)         Percent   Percent      
Change Change
4Q 3Q 4Q 4Q12 vs 4Q12 vs Full Year Full Year Percent
2012   2012   2011   3Q12   4Q11   2012   2011   Change
 
Commercial $58,552 $56,655 $49,437 3.3 18.4 $55,232 $45,706 20.8
Lease financing 5,377   5,537   5,834 (2.9 ) (7.8 ) 5,598   5,910 (5.3 )
Total commercial 63,929 62,192 55,271 2.8 15.7 60,830 51,616 17.9
 
Commercial mortgages 30,762 30,686 29,403 .2 4.6 30,493 28,636 6.5
Construction and development 6,089   5,944   6,399 2.4 (4.8 ) 6,012   6,878 (12.6 )
Total commercial real estate 36,851 36,630 35,802 .6 2.9 36,505 35,514 2.8
 
Residential mortgages 43,156 40,969 36,256 5.3 19.0 40,290 33,711 19.5
 
Credit card 16,588 16,551 16,271 .2 1.9 16,653 16,084 3.5
 
Retail leasing 5,384 5,256 5,150 2.4 4.5 5,222 4,928 6.0
Home equity and second mortgages 16,950 17,329 18,281 (2.2 ) (7.3 ) 17,451 18,555 (5.9 )
Other 25,595   25,406   24,901 .7 2.8 25,265   24,716 2.2
Total other retail 47,929   47,991   48,332 (.1 ) (.8 ) 47,938   48,199 (.5 )
 
Total loans, excluding covered loans 208,453   204,333   191,932 2.0 8.6 202,216   185,124 9.2
 
Covered loans 11,813   12,595   15,115 (6.2 ) (21.8 ) 13,158   16,303 (19.3 )
 
Total loans $220,266   $216,928   $207,047 1.5 6.4 $215,374   $201,427 6.9
                                 
 

Average total loans were $13.2 billion (6.4 percent) higher in the fourth quarter of 2012 than the fourth quarter of 2011, driven by growth in residential mortgages (19.0 percent), commercial loans (18.4 percent), commercial mortgages (4.6 percent), retail leasing (4.5 percent), other retail loans (2.8 percent) and credit card loans (1.9 percent). These increases were partially offset by declines in lease financing (7.8 percent), home equity and second mortgages (7.3 percent), construction and development loans (4.8 percent) and covered loans (21.8 percent). Average total loans, excluding covered loans, were higher by 8.6 percent year-over-year. Average total loans were $3.3 billion (1.5 percent) higher in the fourth quarter of 2012 than the third quarter of 2012, driven by increases in residential mortgages (5.3 percent), commercial loans (3.3 percent), retail leasing (2.4 percent) and other retail loans (.7 percent), partially offset by decreases in lease financing (2.9 percent), home equity and second mortgages (2.2 percent) and covered loans (6.2 percent). Excluding covered loans, average total loans grew by 2.0 percent on a linked quarter basis.

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