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

Noninterest expense increased $77 million (3.0 percent) on a linked quarter basis. The majority of the variance was in other expense, which increased $56 million (12.3 percent) due to the $80 million mortgage foreclosure-related regulatory settlement accrual and higher costs related to investments in affordable housing and other tax-advantaged projects, partially offset by lower litigation and insurance-related costs. Professional services expense was $22 million (15.3 percent) higher, principally due to mortgage servicing review-related projects. Partially offsetting these increases was a $26 million (2.3 percent) decrease in compensation expense, which was largely related to lower incentive costs.

Provision for Income Taxes

The provision for income taxes for the fourth quarter of 2012 resulted in a tax rate on a taxable-equivalent basis of 30.7 percent (effective tax rate of 28.6 percent), compared with 30.5 percent (effective tax rate of 28.4 percent) in the fourth quarter of 2011 and 31.2 percent (effective tax rate of 29.3 percent) in the third quarter of 2012.

                     
ALLOWANCE FOR CREDIT LOSSES                   Table 8
($ in millions)   4Q   3Q   2Q   1Q   4Q
2012   2012   2012   2012   2011
 
Balance, beginning of period $4,771 $4,864 $4,919 $5,014 $5,190
 
Net charge-offs
Commercial 47 59 56 78 51
Lease financing 5     7     15     8     21  
Total commercial 52 66 71 86 72
Commercial mortgages 12 20 47 35 37
Construction and development 5     5     6     36     47  
Total commercial real estate 17 25 53 71 84
 
Residential mortgages 96 121 109 112 119
 
Credit card 161 167 170 169 193
 
Retail leasing 1 -- -- 1 --
Home equity and second mortgages 75 89 63 74 77
Other 59     68     54     57     75  
Total other retail 135     157     117     132     152  
Total net charge-offs, excluding covered loans 461 536 520 570 620
Covered loans 7     2     --     1     2  
Total net charge-offs 468 538 520 571 622
Provision for credit losses 443 488 470 481 497
Net change for credit losses to be reimbursed by the FDIC (13 ) (10 ) (5 ) (5 ) (51 )
Other changes --     (33 )   --     --     --  
Balance, end of period $4,733     $4,771     $4,864     $4,919     $5,014  
 
Components
Allowance for loan losses, excluding losses to be
reimbursed by the FDIC $4,382 $4,426 $4,507 $4,575 $4,678
Allowance for credit losses to be reimbursed
by the FDIC 42 55 65 70 75
Liability for unfunded credit commitments 309     290     292     274     261  
Total allowance for credit losses $4,733     $4,771     $4,864     $4,919     $5,014  
 
Gross charge-offs $576 $639 $631 $681 $718
Gross recoveries $108 $101 $111 $110 $96
 
Allowance for credit losses as a percentage of
Period-end loans, excluding covered loans 2.15 2.26 2.34 2.44 2.52
Nonperforming loans, excluding covered loans 269 244 247 238 228
Nonperforming assets, excluding covered assets 218 213 210 199 191
 
Period-end loans 2.12 2.19 2.25 2.32 2.39
Nonperforming loans 228 202 196 174 163
Nonperforming assets 177 168 161 142 133
                               
 

Credit Quality

Net charge-offs and nonperforming assets declined on a linked quarter and year-over-year basis as economic conditions continued to slowly improve. On a linked quarter basis, net charge-offs decreased $70 million (13.0 percent), while nonperforming assets, excluding covered assets, decreased $100 million (4.6 percent). The allowance for credit losses was $4,733 million at December 31, 2012, compared with $4,771 million at September 30, 2012, and $5,014 million at December 31, 2011. Total net charge-offs in the fourth quarter of 2012 were $468 million, compared with $538 million in the third quarter of 2012 and $622 million in the fourth quarter of 2011. The decrease in total net charge-offs on a linked quarter basis reflected improvement in the commercial and commercial real estate portfolios, as well as the impact of $54 million of incremental charge-offs recorded in the third quarter of 2012 due to the regulatory clarification in the treatment of loans to consumer borrowers who had debt discharged through bankruptcy but continue to make payments on their loans. The $154 million (24.8 percent) decline in net charge-offs year-over-year, was primarily due to improvement in the commercial, commercial real estate and credit card portfolios. The Company recorded $443 million of provision for credit losses, $25 million less than net charge-offs for the fourth quarter of 2012.

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