US Bank 2011 Annual Report Download - page 22

Earnings Summary The Company reported net income
attributable to U.S. Bancorp of $4.9 billion in 2011, or $2.46
per diluted common share, compared with $3.3 billion, or
$1.73 per diluted common share, in 2010. Return on average
assets and return on average common equity were 1.53
percent and 15.8 percent, respectively, in 2011, compared
with 1.16 percent and 12.7 percent, respectively, in 2010. The
Company’s results for 2011 included a $263 million gain
from the settlement of litigation related to the termination of a
merchant processing referral agreement (“merchant settlement
gain”), a $46 million gain related to the acquisition of First
Community Bank of New Mexico (“FCB”), and a $130
million expense accrual related to mortgage servicing matters.
The results for 2011 also included net securities losses of $31
million and a provision for credit losses that was lower than
net charge-offs by $500 million. Diluted earnings per common
share for 2010 included a non-recurring $.05 benefit related
to an exchange of perpetual preferred stock for outstanding
income trust securities. The results for 2010 also included a
$103 million gain ($41 million after tax) resulting from the
exchange of the Company’s proprietary long-term mutual
fund business for an equity interest in Nuveen Investments
and cash consideration (“Nuveen gain”), net securities losses
of $78 million and $175 million of provision for credit losses
in excess of net charge-offs.
Total net revenue, on a taxable-equivalent basis, for 2011
was $960 million (5.3 percent) higher than 2010, reflecting a
5.7 percent increase in net interest income and a 4.8 percent
increase in total noninterest income. Net interest income
increased in 2011 as a result of an increase in average earning
assets and continued growth in lower cost core deposit
funding. Noninterest income increased primarily due to the
merchant settlement gain, the gain recognized on the FCB
acquisition, higher payments-related revenue, higher
commercial products revenue and a decrease in net securities
losses, partially offset by lower deposit service charges, trust
and investment management fees and mortgage banking
revenue.
Total noninterest expense in 2011 increased $528 million
(5.6 percent), compared with 2010, primarily due to higher
total compensation and employee benefits expense, including
higher pension costs, higher professional services expense and
other business initiatives.
Acquisitions In January 2011, the Company acquired the
banking operations of FCB from the FDIC. The FCB
transaction did not include a loss sharing agreement. The
Company acquired 38 branch locations and approximately
$1.8 billion in assets, assumed approximately $2.1 billion in
liabilities, and received approximately $412 million in cash
from the FDIC. The Company recognized a $46 million gain
on this transaction during the first quarter of 2011.
In December 2010, the Company acquired the
securitization trust administration business of Bank of
America, N.A. (“securitization trust administration
acquisition”). This transaction included the acquisition of
$1.1 trillion of assets under administration and provided the
Company with approximately $8 billion of deposits at the
time of closing.
Statement of Income Analysis
Net Interest Income Net interest income, on a taxable-
equivalent basis, was $10.3 billion in 2011, compared with
$9.8 billion in 2010 and $8.7 billion in 2009. The $560
million (5.7 percent) increase in net interest income in 2011,
compared with 2010, was primarily the result of growth in
average earning assets and lower cost core deposit funding.
Average earning assets were $31.2 billion (12.4 percent)
higher in 2011 than in 2010, driven by increases in investment
securities, loans and cash balances at the Federal Reserve
reflected in other earning assets. Average deposits increased
$28.4 billion (15.4 percent) in 2011, compared with 2010.
The net interest margin in 2011 was 3.65 percent, compared
with 3.88 percent in 2010 and 3.67 percent in 2009. The
decrease in the net interest margin in 2011, compared with
2010, reflected planned growth in investment securities
balances held for liquidity purposes and higher cash balances
held at the Federal Reserve. Refer to the “Interest Rate Risk
Management” section for further information on the
sensitivity of the Company’s net interest income to changes in
interest rates.
Average total loans were $201.4 billion in 2011,
compared with $193.0 billion in 2010. The $8.4 billion
(4.4 percent) increase was driven by growth in residential
mortgages, commercial loans, commercial real estate loans
and other retail loans, partially offset by lower acquisition-
related covered loans and credit card loans. Average
residential mortgages increased $6.0 billion (21.7 percent)
resulting from the net effect of origination and prepayment
activity in the portfolio during 2011 due to the low interest
rate environment. Average commercial loans increased $4.6
billion (9.8 percent) year-over-year, primarily driven by higher
demand from new and existing customers. Growth in average
commercial real estate balances of $1.2 billion (3.6 percent)
was primarily due to the FCB acquisition. The $513 million
(1.1 percent) increase in average other retail loans was
primarily due to higher installment loans (primarily
automobile) and retail leasing balances, partially offset by
lower home equity and second mortgage balances. Average
credit card balances decreased $319 million (1.9 percent) in
2011, compared with 2010, the result of consumers spending
less and paying down their balances. Average covered loans
decreased $3.6 billion (18.2 percent) in 2011, compared with
2010.
20 U.S. BANCORP