US Bank 2011 Annual Report Download - page 59

total noninterest income. The increase in net interest income
from 2010 was largely the result of an increase in average
earning assets and continued growth in lower cost core
deposit funding. Noninterest income increased over a year
ago, primarily due to higher mortgage banking revenue,
deposit service charges, merchant processing revenue,
commercial products revenue and the impact of the merchant
settlement gain, partially offset by a reduction in debit card
interchange fees as a result of recent legislation.
Fourth quarter 2011 net interest income, on a taxable-
equivalent basis, was $2.7 billion, compared with $2.5 billion
in the fourth quarter of 2010. The $174 million (7.0 percent)
increase was principally the result of growth in average
earning assets and lower cost core deposit funding. Average
earning assets for the fourth quarter of 2011 increased over
the fourth quarter of 2010 by $35.3 billion (13.6 percent),
driven by increases of $19.0 billion (38.2 percent) in
investment securities, $11.6 billion (5.9 percent) in loans and
$6.3 billion (95.4 percent) in other earning assets, which
primarily reflected an increase in cash balances held at the
Federal Reserve. The net interest margin in the fourth quarter
of 2011 was 3.60 percent, compared with 3.83 percent in the
fourth quarter of 2010, reflecting higher planned balances in
investment securities held for liquidity purposes and growth in
cash balances held at the Federal Reserve.
Noninterest income in the fourth quarter of 2011 was
$2.4 billion, compared with $2.2 billion in the same period of
2010, an increase of $209 million (9.4 percent). The increase
was primarily due to a $151 million (51.2 percent) increase in
other income, which was higher due to the merchant
settlement gain, partially offset by the impact of the Nuveen
gain recorded in the fourth quarter of 2010. Deposit service
charges increased $27 million (18.8 percent), reflecting
product redesign initiatives, as well as higher transaction
volume and account growth. Commercial products revenue
was $12 million (5.8 percent) higher, a result of higher
syndication fees and other commercial loan fees. Mortgage
banking revenue increased $53 million (21.2 percent) over the
fourth quarter of 2010, principally due to higher origination
and sales revenue. Offsetting these positive variances was a $9
million (1.1 percent) decrease in payments-related revenue as
an increase in merchant processing revenue, primarily due to
increased volume, new business initiatives including new fees
for required tax reporting, legislative-mitigation efforts and
the reversal of an accrual for a revenue sharing agreement
termination, was more than offset by a decline in credit and
debit card revenue due to the impact of legislative-related
changes to debit card interchange fees. Trust and investment
management fees decreased $37 million (13.1 percent),
primarily due to the sale of the Company’s proprietary long-
term mutual fund business to Nuveen Investments at the end
of the fourth quarter of 2010 and money market investment
fee waivers. This decline was partially offset by the positive
impact of the securitization trust administration acquisition in
the fourth quarter of 2010 and improved market conditions.
Noninterest expense was $2.7 billion in the fourth quarter
of 2011, an increase of $211 million (8.5 percent) over the
fourth quarter of 2010. The increase was principally due to the
$130 million accrual for mortgage servicing matters in other
expense, as well as increased compensation, employee benefits,
net occupancy and equipment expense, and professional
services expense, partially offset by decreases in other
intangibles expense. Compensation and employee benefits
expense increased $58 million (5.8 percent) and $31 million
(18.1 percent), respectively. Compensation expense increased
primarily as a result of an increase in staffing related to branch
expansion and other business initiatives, in addition to merit
increases. Employee benefits expense increased due to higher
pension costs and the impact of additional staffing. Net
occupancy and equipment expense increased $12 million
(5.1 percent), largely due to business expansion and technology
initiatives. Professional services expense was $34 million
(35.1 percent) higher due to mortgage servicing-related
projects. These increases were partially offset by a decrease in
other intangibles expense of $15 million (16.9 percent), due to
the reduction or completion of the amortization of certain
intangibles, and lower costs related to insurance and litigation.
The provision for credit losses for the fourth quarter of
2011 was $497 million, a decrease of $415 million (45.5
percent) from the same period of 2010. Net charge-offs
decreased $315 million (33.6 percent) in the fourth quarter of
2011, compared with the fourth quarter of 2010, principally
due to improvement in the commercial, commercial real estate
and credit card portfolios. The provision for credit losses was
lower than net charge-offs by $125 million in the fourth
quarter of 2011, compared with $25 million in the fourth
quarter of 2010. Given the current economic conditions, the
Company expects the level of net charge-offs to decrease
modestly and the level of nonperforming assets to trend lower
in the first quarter of 2012.
The provision for income taxes for the fourth quarter of
2011 resulted in an effective tax rate of 28.4 percent,
compared with an effective tax rate of 24.8 percent in the
fourth quarter of 2010. The increase in the effective rate for
the fourth quarter of 2011, compared with the same period of
the prior year, principally reflected the marginal impact of
higher pre-tax earnings year-over-year.
Line of Business Financial Review
The Company’s major lines of business are Wholesale
Banking and Commercial Real Estate, Consumer and Small
Business Banking, Wealth Management and Securities
Services, Payment Services, and Treasury and Corporate
Support. These operating segments are components of the
Company about which financial information is prepared and
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