US Bank 2010 Annual Report Download - page 57

deposit funding. Noninterest income increased over a year
ago, primarily due to higher payments-related revenue,
commercial products revenue, mortgage banking revenue,
other income and lower securities losses.
Fourth quarter 2010 net interest income, on a taxable-
equivalent basis was $2.5 billion, compared with $2.4 billion
in the fourth quarter of 2009. The $139 million (5.9 percent)
increase was principally the result of growth in average
earning assets. Average earning assets for the fourth quarter of
2010 increased over the fourth quarter of 2009 by
$14.5 billion (5.9 percent), driven by increases of $3.8 billion
(2.0 percent) in average loans and $5.6 billion (12.8 percent)
in average investment securities. The net interest margin in
the fourth quarter of 2010 was 3.83 percent, unchanged from
the fourth quarter of 2009, as the impact of favorable funding
rates was offset by a reduction in the yield on residential
mortgages and investment securities.
Noninterest income in the fourth quarter of 2010 was
$2.2 billion, compared with $2.0 billion in the same period
of 2009, an increase of $206 million (10.2 percent). The
increase was due to higher payments-related revenues of
$38 million (5.1 percent), largely due to increased
transaction volumes and business expansion, an increase in
commercial products revenue of $23 million (12.4 percent),
attributable to higher standby letters of credit fees,
commercial loan and syndication fees and other capital
markets revenue. Additionally, mortgage banking revenue
was higher than the fourth quarter of 2009 by $32 million
(14.7 percent), driven by higher origination and sales and
servicing revenue, partially offset by a lower net valuation of
MSRs. Total noninterest income was also favorably
impacted by a decrease in net securities losses of
$144 million (91.1 percent). Other income increased
$50 million (20.4 percent), principally due to the fourth
quarter 2010 Nuveen Gain and a gain related to the
Company’s investment in Visa Inc., partially offset by the
fourth quarter 2009 payments-related contract termination
gain, lower customer derivative revenue and lower retail
lease residual valuation income. Offsetting these positive
variances was a decrease of deposit service charges of
$94 million (39.5 percent) as a result of revised overdraft fee
policies, partially offset by core account growth.
Noninterest expense was $2.5 billion in the fourth
quarter of 2010, an increase of $257 million (11.5 percent)
from the fourth quarter of 2009. The increase was
principally due to the impact of acquisitions and increased
total compensation and employee benefits expense. Total
compensation and employee benefits expense increased
$209 million (21.7 percent), reflecting acquisitions, branch
expansion and other business initiatives, higher incentive
compensation costs related to the Company’s improved
financial results and merit increases. Net occupancy and
equipment expense increased $23 million (10.7 percent),
principally due to acquisitions and other business expansion
and technology initiatives. Professional services expense was
$16 million (19.8 percent) higher, due to technology-related
projects and other projects across multiple business lines.
Postage, printing and supplies expense increased $8 million
(11.4 percent), principally due to payments-related business
initiatives. Other expense increased $17 million
(3.4 percent), largely due to costs associated with OREO,
acquisition integration, insurance and litigation matters.
Other intangibles expense decreased $18 million
(16.8 percent) due to the declining level or completion of
scheduled amortization of certain intangibles.
The provision for credit losses for the fourth quarter of
2010 was $912 million, a decrease of $476 million
(34.3 percent) from the same period of 2009. Net charge-
offs decreased $173 million (15.6 percent) in the fourth
quarter of 2010, compared with the fourth quarter of 2009,
principally due to improvement in the commercial, credit
card and other retail portfolios. The provision for credit
losses was $25 million lower than net charge-offs in the
fourth quarter of 2010, but exceeded net charge-offs by
$278 million in the fourth quarter of 2009.
The provision for income taxes for the fourth quarter of
2010 resulted in an effective tax rate of 24.8 percent,
compared with an effective tax rate of 15.2 percent in the
fourth quarter of 2009. The increase in the effective rate for
the fourth quarter of 2010, compared with the same period
of the prior year, principally reflected the marginal impact of
higher pre-tax earnings year-over-year and the Nuveen Gain
in the fourth quarter of 2010.
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
is evaluated regularly by management in deciding how to
allocate resources and assess performance.
Basis for Financial Presentation Business line results are
derived from the Company’s business unit profitability
reporting systems by specifically attributing managed
U.S. BANCORP 55