US Bank 2009 Annual Report Download - page 57

gains and losses on available-for-sale investment securities
and derivatives included in other comprehensive income.
Banking regulators define minimum capital
requirements for banks and financial services holding
companies. These requirements are expressed in the form of
a minimum Tier 1 capital ratio, total risk-based capital
ratio, and Tier 1 leverage ratio. The minimum required level
for these ratios is 4.0 percent, 8.0 percent, and 4.0 percent,
respectively. The Company targets its regulatory capital
levels, at both the bank and bank holding company level, to
exceed the “well-capitalized” threshold for these ratios of
6.0 percent, 10.0 percent, and 5.0 percent, respectively. The
most recent notification from the Office of the Comptroller
of the Currency categorized each of the Company’s banks as
“well-capitalized”, under the FDIC Improvement Act
prompt corrective action provisions applicable to all banks.
There are no conditions or events since that notification that
management believes have changed the risk-based category
of any covered subsidiary banks.
As an approved mortgage seller and servicer, U.S. Bank
National Association, through its mortgage banking division,
is required to maintain various levels of shareholders’ equity,
as specified by various agencies, including the United States
Department of Housing and Urban Development,
Government National Mortgage Association, Federal Home
Loan Mortgage Corporation and the Federal National
Mortgage Association. At December 31, 2009, U.S. Bank
National Association met these requirements.
Table 20 provides a summary of capital ratios as of
December 31, 2009 and 2008, including Tier 1 and total
risk-based capital ratios, as defined by the regulatory
agencies.
The Company believes certain capital ratios in addition
to regulatory capital ratios are useful in evaluating its capital
adequacy. The Company’s Tier 1 common and tangible
common equity, as a percent of risk-weighted assets, was
6.8 percent and 6.1 percent, respectively, at December 31,
2009, compared with 5.1 percent and 3.7 percent,
respectively, at December 31, 2008. The Company’s tangible
common equity divided by tangible assets was 5.3 percent at
December 31, 2009, compared with 3.3 percent at
December 31, 2008. Refer to “Non-Regulatory Capital
Ratios” for further information regarding the calculation of
these measures.
Fourth Quarter Summary
The Company reported net income attributable to
U.S. Bancorp of $602 million for the fourth quarter of 2009,
or $.30 per diluted common share, compared with
$330 million, or $.15 per diluted common share, for the
fourth quarter of 2008. Return on average assets and return
on average common equity were .86 percent and
9.6 percent, respectively, for the fourth quarter of 2009,
compared with returns of .51 percent and 5.3 percent,
respectively, for the fourth quarter of 2008. In light of the
credit deterioration arising from the current economic
environment, the Company strengthened its allowance for
credit losses in the fourth quarter of 2009 by recording
$278 million of provision for credit losses in excess of net
charge-offs. The Company also recorded $158 million of net
securities losses in the fourth quarter, including $179 million
of impairments, partially offset by $21 million of net gains
on the sale of securities. The $179 million of impairments
was principally due to the anticipated exchange of a
structured investment vehicle for its underlying securities.
This structured investment vehicle was purchased from an
affiliate in the fourth quarter of 2007 and represents the last
such investment expected to be restructured through an
exchange of securities. Significant items reflected in the
fourth quarter of 2008 results included $635 million of
provision for credit losses in excess of net charge-offs,
$253 million of net securities losses and a Visa Gain of
$59 million.
Total net revenue, on a taxable-equivalent basis for the
fourth quarter of 2009, was $752 million (20.8 percent)
higher than the fourth quarter of 2008, reflecting a
9.2 percent increase in net interest income and a
37.8 percent increase in noninterest income. The increase in
net interest income from 2008 was largely the result of
growth in average earning assets and an increase in lower
cost core deposit funding, both of which reflected
acquisitions. Noninterest income increased principally due to
growth in mortgage banking revenue, a decrease in net
securities losses, and lower retail lease residual valuation
losses, partially offset by the fourth quarter 2008 Visa Gain.
Fourth quarter net interest income, on a taxable-
equivalent basis was $2.4 billion, compared with
$2.2 billion in the fourth quarter of 2008. Average earning
assets for the period increased over the fourth quarter of
2008 by $19.4 billion (8.6 percent), driven by an increase of
$14.4 billion (8.2 percent) in average loans and $2.2 billion
(5.2 percent) in average investment securities. The net
interest margin in the fourth quarter of 2009 was
3.83 percent, compared with 3.81 percent in the fourth
quarter of 2008.
Noninterest income in the fourth quarter of 2009 was
$2.0 billion, compared with $1.5 billion in the same period
of 2008, an increase of $553 million (37.8 percent).
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