US Bank 2008 Annual Report Download - page 57

Company’s ability to increase its quarterly dividend and
repurchase its common stock for up to three years or for as
long as the preferred stock issued under the program
remains outstanding, if shorter. The American Recovery and
Reinvestment Act of 2009, requires the United States
Treasury, subject to consultation with appropriate banking
regulators, to permit participants in the Capital Purchase
Program to repay any amounts previously received without
regard to whether the recipient has replaced such funds from
any other sources or to any waiting period. Refer to Note 15
in the Notes to Consolidated Financial Statements for
further information.
During 2008 and 2007, the Company repurchased
2 million and 58 million shares, respectively, of its common
stock under various authorizations approved by its Board of
Directors. The average price paid for the shares repurchased
in 2008 was $33.59 per share, compared with $34.84 per
share in 2007. As of December 31, 2008, the Company had
approximately 20 million shares that may yet be purchased
under the current Board of Director approved authorization,
in connection with the administration of its employee benefit
plans in the ordinary course of business, to the extent
permitted under the Capital Purchase Program of the
Emergency Economic Stabilization Act of 2008. For a
complete analysis of activities impacting shareholders’ equity
and capital management programs, refer to Note 15 of the
Notes to Consolidated Financial Statements.
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 covered 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, 2008, U.S. Bank
National Association met these requirements.
Table 21 provides a summary of capital ratios as of
December 31, 2008 and 2007, including Tier 1 and total
risk-based capital ratios, as defined by the regulatory
agencies.
FOURTH QUARTER SUMMARY
The Company reported net income of $330 million for the
fourth quarter of 2008, or $.15 per diluted common share,
compared with $942 million, or $.53 per diluted common
share, for the fourth quarter of 2007. Return on average
assets and return on average common equity were
.51 percent and 5.3 percent, respectively, for the fourth
quarter of 2008, compared with returns of 1.63 percent and
18.3 percent, respectively, for the fourth quarter of 2007.
Challenging market conditions continued and had an impact
on the fourth quarter of 2008 results. Significant items
reflected in the fourth quarter of 2008 results included
$253 million of net securities losses, primarily on structured
investment-related securities. In addition, the Company
increased the allowance for credit losses by recording
$635 million of provision for credit losses expense in excess
of net charge-offs. The Company’s results for the fourth
quarter of 2007 were also impacted by significant items,
including a $215 million Visa Charge and $107 million of
valuation losses related to structured investment securities.
Total net revenue, on a taxable-equivalent basis for the
fourth quarter of 2008, was $50 million (1.4 percent) higher
than the fourth quarter of 2007, reflecting a 22.6 percent
increase in net interest income, offset by a 19.2 percent
decrease in noninterest income. The increase in net interest
income from a year ago, was driven by growth in average
earning assets and an increase in the net interest margin.
Noninterest income declined from a year ago, as payment
services, trust and investment management fees and deposit
service charges were affected by the impact of the slowing
economy on equity valuations and customer behavior. In
addition, noninterest income was adversely impacted by
securities impairments, market-related valuation losses and
retail lease residual losses.
Fourth quarter net interest income, on a taxable-
equivalent basis was $2,161 million, compared with
$1,763 million in the fourth quarter of 2007. Average
earning assets for the period increased over the fourth
quarter of 2007 by $25.7 billion (12.8 percent, 9.4 percent
excluding acquisitions), primarily driven by a $25.8 billion
(17.0 percent) increase in average loans. The net interest
margin in the fourth quarter of 2008 was 3.81 percent,
compared with 3.51 percent in the fourth quarter of 2007,
reflecting growth in higher-spread loans, asset/liability re-
pricing in a declining interest rate environment and
U.S. BANCORP 55