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results reflect an $81 million favorable change in the decline in net interest margin reflected the current lending
valuation of MSRs, due to changing longer-term interest environment, asset/liability management decisions and the
rates. These favorable changes were partially offset by impact of changes in the yield curve from a year ago. Since
higher securities losses of $28 million compared with the the fourth quarter of 2004, credit spreads have tightened by
fourth quarter of 2004 and additional bankruptcy-related approximately 25 basis points across most lending products
credit losses of approximately $56 million in the fourth due to competitive pricing, growth in noninterest-bearing
quarter of 2005. corporate payment card balances and a change in mix due
Total net revenue, on a taxable-equivalent basis for the to growth in lower-spread, fixed-rate credit products. The
fourth quarter of 2005, was $96 million (3.0 percent) higher net interest margin also declined due to funding incremental
than the fourth quarter of 2004, primarily reflecting a asset growth with higher cost wholesale funding, share
7.7 percent increase in noninterest income due to 9.5 percent repurchases and asset/liability decisions designed to
growth in fee-based revenue across the majority of fee minimize the Company’s rate sensitivity position, including
categories and expansion in payment processing businesses. an 18.3 percent reduction in the net receive fixed swap
This was partially offset by the increase in securities losses position since December 31, 2004. An increase in the
compared with the fourth quarter of 2004 driven by asset/ margin benefit of net free funds and loan fees partially
liability risk management decisions given the flatter yield offset these factors.
curve and continued growth in fixed-rate loan products. Noninterest income in the fourth quarter of 2005 was
Fourth quarter net interest income, on a taxable- $1,546 million, compared with $1,435 million in the same
equivalent basis was $1,785 million, compared with period of 2004. The $111 million (7.7 percent) increase was
$1,800 million in the fourth quarter of 2004. Average driven by favorable variances in the majority of fee income
earning assets increased by $12.2 billion (7.1 percent), categories, partially offset by a $28 million reduction in net
primarily driven by a $5.3 billion (35.1 percent) increase in securities gains (losses). Credit and debit card revenue and
residential mortgages, a $3.6 billion (8.9 percent) increase corporate payment products revenue were both higher in
in total commercial loans and a $2.7 billion (6.3 percent) the fourth quarter of 2005 than the fourth quarter of 2004
increase in total retail loans. The positive impact to net by $13 million and $25 million, or 7.1 percent and
interest income from the growth in earning assets was offset 24.8 percent, respectively. The growth in credit and debit
by a lower net interest margin. The net interest margin for card revenue was primarily driven by higher transaction
the fourth quarter of 2005 was 3.88 percent, compared volumes. The corporate payment products revenue growth
with 4.20 percent in the fourth quarter of 2004. The reflected growth in sales, card usage, rate changes and the
FOURTH QUARTER SUMMARY
Three Months Ended
December 31,
(In Millions, Except Per Share Data) 2005 2004
Condensed Income Statement
Net interest income (taxable-equivalent basis) (a)******************************************************************* $1,785 $1,800
Noninterest income******************************************************************************************** 1,595 1,456
Securities gains (losses), net ************************************************************************************ (49) (21)
Total net revenue******************************************************************************************* 3,331 3,235
Noninterest expense******************************************************************************************* 1,464 1,579
Provision for credit losses ************************************************************************************** 205 64
Income before taxes**************************************************************************************** 1,662 1,592
Taxable-equivalent adjustment ********************************************************************************** 10 8
Applicable income taxes *************************************************************************************** 509 528
Net income *********************************************************************************************** $1,143 $1,056
Per Common Share
Earnings per share ******************************************************************************************** $ .63 $ .57
Diluted earnings per share************************************************************************************** .62 .56
Dividends declared per share *********************************************************************************** .33 .30
Average common shares outstanding **************************************************************************** 1,816 1,865
Average diluted common shares outstanding********************************************************************** 1,841 1,894
Financial Ratios
Return on average assets ************************************************************************************** 2.18% 2.16%
Return on average equity*************************************************************************************** 22.6 21.2
Net interest margin (taxable-equivalent basis)********************************************************************** 3.88 4.20
Efficiency ratio (b)********************************************************************************************** 43.3 48.5
(a) Interest and rates are presented on a fully taxable-equivalent basis utilizing a tax rate of 35 percent.
(b) Computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding securities gains (losses), net.
U.S. BANCORP 51
Table 22