-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VeF+Pv89IK4ycFkgnt0idJZmTG+FUNJAVpEX9zTgbuoLNYBLEg5HSmAfUKh7CyDD OQbcbSWNMlFYTXe9XDj+6A== 0000950124-07-000271.txt : 20070116 0000950124-07-000271.hdr.sgml : 20070115 20070116093352 ACCESSION NUMBER: 0000950124-07-000271 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20070116 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20070116 DATE AS OF CHANGE: 20070116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: US BANCORP \DE\ CENTRAL INDEX KEY: 0000036104 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 410255900 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06880 FILM NUMBER: 07530622 BUSINESS ADDRESS: STREET 1: U.S.BANCORP STREET 2: 800 NICOLLET MALL CITY: MINNEAPOLIS STATE: MN ZIP: 55402 BUSINESS PHONE: (651)466-3000 MAIL ADDRESS: STREET 1: U.S.BANCORP STREET 2: 800 NICOLLET MALL CITY: MINNEAPOLIS STATE: MN ZIP: 55402 FORMER COMPANY: FORMER CONFORMED NAME: FIRST BANK SYSTEM INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: FIRST BANK STOCK CORP DATE OF NAME CHANGE: 19720317 8-K 1 c11389e8vk.htm CURRENT REPORT, DATED JANUARY 16, 2007 e8vk
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): January 16, 2007

U.S. BANCORP
 (Exact name of registrant as specified in its charter)

1-6880
(Commission File Number)

     
DELAWARE
(State or other jurisdiction
of incorporation)		   41-0255900
(I.R.S. Employer Identification Number)

800 Nicollet Mall
Minneapolis, Minnesota 55402
(Address of principal executive offices and zip code)

(651) 466-3000
(Registrant’s telephone number, including area code)

(not applicable)
(Former name or former address, if changed since last report)

     Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 Under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
SIGNATURES
Press Release Issued January 16, 2007

Table of Contents

ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

     On January 16, 2007, U.S. Bancorp (the “Company”) issued a press release reporting quarter and year ended December 31, 2006 results. The press release is included as Exhibit 99.1 hereto and is incorporated herein by reference. The information included in the press release is considered to be “furnished” under the Securities Exchange Act of 1934. The press release contains forward-looking statements regarding the Company and includes a cautionary statement identifying important factors that could cause actual results to differ materially from those anticipated.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.

(c) Exhibits.

     99.1 Press Release issued by U.S. Bancorp on January 16, 2007, deemed “furnished” under the Securities Exchange Act of 1934.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

   
  U.S. BANCORP
   
  By /s/ Terrance R. Dolan
Terrance R. Dolan
Executive Vice President and
Controller

     DATE: January 16, 2007

EX-99.1 2 c11389exv99w1.htm PRESS RELEASE ISSUED JANUARY 16, 2007 exv99w1

 

         
(USBANCORP LOGO)   News Release
 
        
 
  Contact:    
 
  Steve Dale   Judith T. Murphy
 
  Media Relations   Investor Relations
 
  (612) 303-0784   (612) 303-0783
U.S. BANCORP REPORTS RECORD 2006 NET INCOME
                                                                             
     
      EARNINGS SUMMARY   Table 1      
      ($ in millions, except per-share data)                           Percent   Percent                  
                                  Change   Change                  
          4Q   3Q   4Q   4Q06 vs   4Q06 vs   Full Year   Full Year   Percent      
          2006   2006   2005   3Q06   4Q05   2006   2005   Change      
                 
                 
      Net income   $ 1,194     $ 1,203     $ 1,143       (.7 )     4.5     $ 4,751     $ 4,489       5.8        
      Diluted earnings per common share     .66       .66       .62       —       6.5       2.61       2.42       7.9        
                                                                             
      Return on average assets (%)     2.18       2.23       2.18                       2.23       2.21                
      Return on average common equity (%)     23.2       23.6       22.6                       23.6       22.5                
      Net interest margin (%)     3.56       3.56       3.88                       3.65       3.97                
      Efficiency ratio (%)     47.2       45.0       43.3                       45.4       44.3                
      Tangible efficiency ratio (%) (a)     44.5       42.4       40.9                       42.8       40.8                
                                                                             
      Dividends declared per common share     $.40       $.33       $.33       21.2       21.2       $1.39       $1.23       13.0        
      Book value per common share (period-end)     11.44       11.30       11.07       1.2       3.3                                
                                                                             
     
(a)   computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding securities gains (losses), net and intangible amortization.
      
                                                                             
     
     MINNEAPOLIS, January 16, 2007 – U.S. Bancorp (NYSE: USB) today reported net income of $1,194 million for the fourth quarter of 2006, compared with $1,143 million for the fourth quarter of 2005. Net income of $.66 per diluted common share in the fourth quarter of 2006 was higher than the same period of 2005 by 6.5 percent, or $.04 per diluted common share. Return on average assets and return on average common equity were 2.18 percent and 23.2 percent, respectively, for the fourth quarter of 2006, compared with returns of 2.18 percent and 22.6 percent, respectively, for the fourth quarter of 2005. Net income for 2006 increased to $4.8 billion, or $2.61 per diluted common share, compared with $4.5 billion, or $2.42 per diluted common share in 2005.
     U.S. Bancorp President and Chief Executive Officer Richard K. Davis said, “The Company’s fourth quarter results were driven by solid growth in our fee-based businesses, excellent credit quality and controlled operating expenses, in addition to a reduction in the effective tax rate. On a very positive note,

 

 

U.S. Bancorp Reports Fourth Quarter 2006 Results
January 16, 2007
Page 2
our net interest margin was stable on a linked quarter basis. The stable margin, combined with annualized earning asset growth of 5.2 percent quarter-over-quarter, resulted in a comparable increase in net interest income over the prior quarter. Once again, we achieved industry-leading profitability metrics with a return on average assets of 2.18 percent and return on average common equity of 23.2 percent. I am very pleased with the financial results, particularly given the challenging economic environment that our Company, and the banking industry as a whole, has faced during this past year. Although the growth in diluted earnings per common share for the fourth quarter and full year 2006 of 6.5 percent and 7.9 percent, respectively, was lower than it has been in the past few years, I believe the emphasis we have placed on growing our fee-based businesses, stabilizing net interest margin, maintaining high credit quality and our disciplined expense control significantly lessened the impact of a disadvantageous yield curve and heightened competition and excess liquidity that the market offered.
     “During the fourth quarter we announced a 21 percent increase in the dividend rate on U.S. Bancorp common stock. This increase is an important part of our strategy to continue our commitment to return 80 percent of our earnings to our shareholders through both dividends and stock buybacks. This increased dividend payout allows our superior, industry-leading profitability to be transferred to our shareholders, while allowing us the financial flexibility we need to support balance sheet growth, capital expenditures and small, cash acquisitions.
     “I am honored to have this opportunity to lead U.S. Bancorp into the future. The long-term goals of our Company have not changed. Specifically, we will continue to produce a minimum return on average common equity of 20 percent, effectively manage the credit and earnings volatility of the Company’s results, deliver high-quality customer service, invest for future growth, target an 80 percent return of earnings to shareholders and, finally, grow earnings per share by ten percent over the long-term. I believe we are very well positioned to continue to produce a consistent, predictable and repeatable earnings stream going forward and make U.S. Bancorp an attractive partner for our customers, communities, employees and shareholders.”
     The Company’s results for the fourth quarter of 2006 improved over the same period of 2005, as net income increased by $51 million (4.5 percent), primarily due to growth in fee-based revenues, lower credit costs and the benefit of a reduction in the effective tax rate from a year ago. This was offset somewhat by lower net interest income and additional operating costs of acquired businesses. Total net revenue on a taxable-equivalent basis for the fourth quarter of 2006 was $3,424 million, $93 million (2.8 percent) higher
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U.S. Bancorp Reports Fourth Quarter 2006 Results
January 16, 2007
Page 3
than the fourth quarter of 2005, primarily reflecting an 11.8 percent increase in noninterest income partially offset by a 5.0 percent decline in net interest income. Noninterest income growth was driven by organic business growth and expansion in trust and payment processing businesses, partially offset by lower mortgage banking revenue principally due to the impact of adopting Statement of Financial Accounting Standards No. 156 “Accounting for Servicing of Financial Assets” (“SFAS 156”) in the first quarter of 2006 and the net valuation loss on economic hedges in relation to the value of mortgage servicing rights (“MSR”) due to relative changes in interest rates at year end. The increase in noninterest income also included a $52 million gain in the fourth quarter of 2006 from the sale of the Company’s 401(k) defined contribution recordkeeping business and a favorable change in securities gains (losses) from the prior year. Total noninterest expense in the fourth quarter of 2006 was $1,612 million, $148 million (10.1 percent) higher than the fourth quarter of 2005, primarily reflecting incremental operating and business integration costs principally associated with recent acquisitions, charges related to the prepayment of certain Company trust preferred debt securities and higher expenses related to investments in tax-advantaged projects from a year ago.
     Provision for credit losses for the fourth quarter of 2006 was $169 million, a decrease of $36 million from the fourth quarter of 2005. The decrease in the provision for credit losses year-over-year primarily reflected the adverse impact in the fourth quarter of 2005 on net charge-offs from changes in bankruptcy law. Net charge-offs in the fourth quarter of 2006 were $169 million, compared with the third quarter of 2006 net charge-offs of $135 million and the fourth quarter of 2005 net charge-offs of $213 million. Total nonperforming assets were $587 million at December 31, 2006, compared with $575 million at September 30, 2006, and $644 million at December 31, 2005. The ratio of the allowance for credit losses to nonperforming loans was 480 percent at December 31, 2006, compared with 476 percent at September 30, 2006, and 414 percent at December 31, 2005.
(MORE)

 

 

U.S. Bancorp Reports Fourth Quarter 2006 Results
January 16, 2007
Page 4
                                                                             
     
      INCOME STATEMENT HIGHLIGHTS   Table 2      
      (Taxable-equivalent basis, $ in millions,                           Percent   Percent                  
           except per-share data)                           Change   Change                  
          4Q   3Q   4Q   4Q06 vs   4Q06 vs   Full Year     Full Year     Percent      
          2006   2006   2005   3Q06   4Q05   2006     2005     Change      
                 
                 
 
 
  Net interest income   $ 1,695     $ 1,673     $ 1,785       1.3       (5.0 )     $6,790       $7,088       (4.2 )      
 
 
  Noninterest income     1,729       1,748       1,546       (1.1 )     11.8       6,846       6,045       13.3        
                                             
 
 
 
Total net revenue
    3,424       3,421       3,331       .1       2.8       13,636       13,133       3.8        
 
 
  Noninterest expense     1,612       1,538       1,464       4.8       10.1       6,180       5,863       5.4        
                                             
 
 
  Income before provision and taxes     1,812       1,883       1,867       (3.8 )     (2.9 )     7,456       7,270       2.6        
 
 
  Provision for credit losses     169       135       205       25.2       (17.6 )     544       666       (18.3 )      
                                             
 
 
  Income before taxes     1,643       1,748       1,662       (6.0 )     (1.1 )     6,912       6,604       4.7        
 
 
  Taxable-equivalent adjustment     15       13       10       15.4       50.0       49       33       48.5        
 
 
  Applicable income taxes     434       532       509       (18.4 )     (14.7 )     2,112       2,082       1.4        
                                             
 
 
  Net income   $ 1,194     $ 1,203     $ 1,143       (.7 )     4.5       $4,751       $4,489       5.8        
                                             
 
 
  Net income applicable to common equity   $ 1,179     $ 1,187     $ 1,143       (.7 )     3.1       $4,703       $4,489       4.8        
                                             
 
 
  Diluted earnings per common share   $.66     $.66     $.62       —       6.5     $2.61     $2.42       7.9        
                                             
 
 
                                                                          
   
Net Interest Income
     Fourth quarter net interest income on a taxable-equivalent basis was $1,695 million, compared with $1,785 million recorded in the fourth quarter of 2005. Average earning assets for the period increased over the fourth quarter of 2005 by $6.6 billion (3.6 percent), primarily driven by an increase in total average loans. This increase was partially offset by a $1.2 billion (3.0 percent) decrease in average investment securities. The positive impact to net interest income from the growth in earning assets was more than offset by a lower net interest margin. The net interest margin in the fourth quarter of 2006 was 3.56 percent, compared with 3.88 percent in the fourth quarter of 2005. The decline in the net interest margin reflected the competitive lending environment and the impact of changes in the yield curve from a year ago. Since the fourth quarter of 2005, credit spreads have tightened by approximately 15 basis points across most lending products due to competitive pricing and a change in mix reflecting growth in lower-spread, fixed-rate credit products and noninterest-bearing corporate and purchasing card balances. The net interest margin also declined due to funding incremental asset growth with higher cost wholesale funding, share repurchases and asset/liability decisions designed to minimize the Company’s rate sensitivity position. An increase in the margin benefit of net free funds partially offset these factors.
(MORE)

 

 

U.S. Bancorp Reports Fourth Quarter 2006 Results
January 16, 2007
Page 5
     Net interest income in the fourth quarter of 2006 increased from the third quarter of 2006 by $22 million (1.3 percent) driven by growth in average earning assets of $2.5 billion. The net interest margin was 3.56 percent for the fourth of 2006, unchanged from the third quarter of 2006. If the Federal Reserve leaves rates unchanged over the next several quarters, the Company expects net interest margin to continue to remain relatively stable as asset repricing occurs and funding costs moderate.
                                                                                     
     
          NET INTEREST INCOME Table 3          
          (Taxable-equivalent basis; $ in millions)                                                    
                                      Change     Change                              
              4Q     3Q     4Q     4Q06 vs     4Q06 vs     Full Year     Full Year                  
              2006     2006     2005     3Q06     4Q05     2006     2005     Change            
                         
         
Components of net interest income
                                                                          
         
Income on earning assets
     $3,236       $3,175       $2,843       $61       $393       $12,351       $10,584       $1,767            
         
Expense on interest-bearing liabilities
     1,541       1,502       1,058       39       483       5,561       3,496       2,065            
                         
         
Net interest income
     $1,695       $1,673       $1,785       $22       $(90 )     $6,790       $7,088       $(298 )          
                         
         
Average yields and rates paid
                                                                          
         
Earning assets yield
     6.79 %     6.74 %     6.18 %     .05 %     .61 %     6.63 %     5.93 %     .70 %          
         
Rate paid on interest-bearing liabilities
     3.84       3.79       2.77       .05 %     1.07       3.55       2.37       1.18            
                         
         
Gross interest margin
     2.95 %     2.95 %     3.41 %     — %     (.46 )%     3.08 %     3.56 %     (.48 )%          
                         
         
Net interest margin
     3.56 %     3.56 %     3.88 %     — %     (.32 )%     3.65 %     3.97 %     (.32 )%          
                         
         
 
                                                                          
         
Average balances
                                                                          
         
Investment securities
     $40,266       $39,806       $41,494       $460     $ (1,228 )     $39,961       $42,103       $(2,142 )          
         
Loans
     143,686       141,491       136,658       2,195       7,028       140,601       131,610       8,991            
         
Earning assets
     189,660       187,190       183,095       2,470       6,565       186,231       178,425       7,806            
         
Interest-bearing liabilities
     159,469       157,248       151,500       2,221       7,969       156,613       147,295       9,318            
         
Net free funds (a)
     30,191       29,942       31,595       249       (1,404 )     29,618       31,130       (1,512 )          
         
 
                                                                          
         
(a)   Represents noninterest-bearing deposits, allowance for loan losses, unrealized gain (loss) on available-for-sale securities, non-earning assets, other noninterest-bearing liabilities and equity.
  
         
 
                                                                          
   
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U.S. Bancorp Reports Fourth Quarter 2006 Results
January 16, 2007
Page 6
                                                                                     
     
          AVERAGE LOANS   Table 4          
          ($ in millions)                           Percent   Percent                      
                                      Change   Change                      
              4Q   3Q   4Q   4Q06 vs   4Q06 vs   Full Year   Full Year   Percent          
              2006   2006   2005   3Q06   4Q05   2006   2005   Change          
                         
                         
         
Commercial
     $41,264       $40,781       $38,816       1.2       6.3       $40,199       $37,718       6.6            
         
Lease financing
     5,394       5,287       4,948       2.0       9.0       5,241       4,923       6.5            
                                                     
         
Total commercial
     46,658       46,068       43,764       1.3       6.6       45,440       42,641       6.6            
         
 
                                                                          
         
 
                                                                          
         
Commercial mortgages
     19,897       19,941       20,307       (.2 )     (2.0 )     20,074       20,268       (1.0 )          
         
Construction and development
     9,029       8,760       8,256       3.1       9.4       8,686       7,696       12.9            
                                                     
         
Total commercial real estate
     28,926       28,701       28,563       .8       1.3       28,760       27,964       2.8            
         
 
                                                                          
         
Residential mortgages
     21,235       21,118       20,319       .6       4.5       21,053       18,036       16.7            
         
 
                                                                          
         
Credit card
     8,242       7,800       6,825       5.7       20.8       7,634       6,615       15.4            
         
Retail leasing
     7,015       7,069       7,403       (.8 )     (5.2 )     7,112       7,346       (3.2 )          
         
Home equity and second mortgages
     15,444       15,166       14,946       1.8       3.3       15,146       14,945       1.3            
         
Other retail
     16,166       15,569       14,838       3.8       8.9       15,456       14,063       9.9            
                                                     
         
Total retail
     46,867       45,604       44,012       2.8       6.5       45,348       42,969       5.5            
                                                     
         
 
                                                                          
         
Total loans
   $ 143,686     $ 141,491     $ 136,658       1.6       5.1     $ 140,601     $ 131,610       6.8            
                                                     
         
 
                                                                          
     
     Average loans for the fourth quarter of 2006 were $7.0 billion (5.1 percent) higher than the fourth quarter of 2005, driven by growth in average total commercial loans of $2.9 billion (6.6 percent), residential mortgages of $916 million (4.5 percent) and total retail loans of $2.9 billion (6.5 percent). Average loans for the fourth quarter of 2006 were higher than the third quarter of 2006 by $2.2 billion (1.6 percent), reflecting growth in total commercial and total retail loans. Residential mortgages and total commercial real estate loans remained relatively flat in the fourth quarter of 2006 compared with the third quarter of 2006. The growth rate of residential mortgages reflected the Company’s decision in early 2006 to begin selling an increased proportion of its residential mortgage loan production, while commercial real estate loan growth reflected customer refinancings given liquidity available in the financial markets, a decision to reduce condominium construction financing and a slowdown in residential homebuilding during 2006.
     Average investment securities in the fourth quarter of 2006 were $1.2 billion (3.0 percent) lower than the fourth quarter of 2005. The change in the balance of the investment securities portfolio from a year ago principally reflected asset/liability management decisions to reduce the focus on residential mortgage-backed assets given the changing rate environment and mix of loan growth. Additionally, the Company reclassified approximately $460 million of principal-only securities to its trading account effective January 1, 2006, in connection with the adoption of SFAS 156.
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U.S. Bancorp Reports Fourth Quarter 2006 Results
January 16, 2007
Page 7
                                                                             
   
  AVERAGE DEPOSITS                                                           Table 5            
   
  ($ in millions)                           Percent     Percent                              
                              Change     Change                              
      4Q     3Q     4Q     4Q06 vs     4Q06 vs     Full Year     Full Year     Percent            
      2006     2006     2005     3Q06     4Q05     2006     2005     Change            
                 
 
 
                                                                          
 
Noninterest-bearing deposits
     $29,020       $28,220       $29,898       2.8       (2.9 )     $28,755       $29,229       (1.6 )          
 
Interest-bearing deposits
                                                                         
 
Interest checking
     24,127       23,595       22,473       2.3       7.4       23,552       22,785       3.4            
 
Money market savings
     26,214       26,116       28,710       .4       (8.7 )     26,667       29,314       (9.0 )          
 
Savings accounts
     5,392       5,598       5,648       (3.7 )     (4.5 )     5,599       5,819       (3.8 )          
                                             
 
Total of savings deposits
     55,733       55,309       56,831       .8       (1.9 )     55,818       57,918       (3.6 )          
 
Time certificates of deposit less than $100,000
     13,974       13,867       13,397       .8       4.3       13,761       13,199       4.3            
 
Time deposits greater than $100,000
     22,255       22,579       22,205       (1.4 )     .2       22,255       20,655       7.7            
                                             
 
Total interest-bearing deposits
     91,962       91,755       92,433       .2       (.5 )     91,834       91,772       .1            
                                             
 
Total deposits
     $120,982       $119,975       $122,331       .8       (1.1 )     $120,589       $121,001       (.3 )          
                                             
 
 
                                                                          
   
     Average noninterest-bearing deposits for the fourth quarter of 2006 decreased $878 million (2.9 percent) compared with the fourth quarter of 2005 reflecting a decline in business demand deposits as these customers reduced excess liquidity to fund business growth, partially offset by higher corporate trust deposits.
     Average total savings deposits declined year-over-year by $1.1 billion (1.9 percent) due to reductions in average money market savings and savings accounts, partially offset by an increase in interest checking balances. Average money market savings balances declined by $2.5 billion (8.7 percent) year-over-year, primarily due to a decline in balances within the branches. This decline was partially offset by an increase in broker dealer balances. The overall decrease in average money market savings balances year-over-year was primarily the result of the Company’s deposit pricing decisions for money market products in relation to other fixed-rate deposit products offered. A portion of branch-based money market savings accounts have migrated to fixed-rate time certificates to take advantage of higher interest rates for these products.
     Average time certificates of deposit less than $100,000 were higher in the fourth quarter of 2006 than in the fourth quarter of 2005 by $577 million (4.3 percent). Additionally, the Company experienced year-over-year growth in average consumer-based time deposits greater than $100,000 of $1.0 billion (28.0 percent) due to customer migration of deposit balances. This increase was offset by a decline in other time deposits greater than $100,000, primarily reflecting asset/liability decisions and related pricing for these time deposits.
     Average noninterest-bearing deposits for the fourth quarter of 2006 increased $800 million (2.8 percent) compared with the third quarter of 2006, primarily due to seasonal growth of business and trust deposits.
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U.S. Bancorp Reports Fourth Quarter 2006 Results
January 16, 2007
Page 8
Total savings deposits had a modest increase of $424 million (.8 percent) from the third quarter of 2006 while time deposits remained relatively stable with a decrease of only $217 million from the prior quarter.
                                                                             
   
  NONINTEREST INCOME                                                           Table 6            
   
  ($ in millions)                           Percent     Percent                              
                              Change     Change                              
      4Q     3Q     4Q     4Q06 vs     4Q06 vs     Full Year     Full Year     Percent            
      2006     2006     2005     3Q06     4Q05     2006     2005     Change            
                 
 
 
                                                                          
 
Credit and debit card revenue
     $210       $206       $197       1.9       6.6       $800       $713       12.2            
 
Corporate payment products revenue
     141       150       126       (6.0 )     11.9       557       488       14.1            
 
ATM processing services
     60       63       61       (4.8 )     (1.6 )     243       229       6.1            
 
Merchant processing services
     244       253       194       (3.6 )     25.8       963       770       25.1            
 
Trust and investment management fees
     319       305       258       4.6       23.6       1,235       1,009       22.4            
 
Deposit service charges
     259       268       238       (3.4 )     8.8       1,023       928       10.2            
 
Treasury management fees
     107       111       104       (3.6 )     2.9       441       437       .9            
 
Commercial products revenue
     104       100       101       4.0       3.0       415       400       3.8            
 
Mortgage banking revenue
     25       68       109       (63.2 )     (77.1 )     192       432       (55.6 )          
 
Investment products fees and commissions
   36       34       37       5.9       (2.7 )     150       152       (1.3 )          
 
Securities gains (losses), net
     11       —       (49 )   nm     nm       14       (106 )   nm            
 
Other
     213       190       170       12.1       25.3       813       593       37.1            
                                             
 
 
                                                                          
 
Total noninterest income
     $1,729       $1,748       $1,546       (1.1 )     11.8       $6,846       $6,045       13.3            
                                             
 
 
                                                                          
     
Noninterest Income
     Fourth quarter noninterest income was $1,729 million, an increase of $183 million (11.8 percent) from the same quarter of 2005 and $19 million (1.1 percent) lower than the third quarter of 2006. The increase in noninterest income over the fourth quarter of 2005 was driven by favorable variances in the majority of fee income categories and a favorable variance of $60 million on net securities gains (losses). Strong growth in fee-based revenue was partially offset by the accounting impact of SFAS 156 on mortgage banking revenue.
     Credit and debit card revenue and corporate payment products revenue were both higher in the fourth quarter of 2006 than the fourth quarter of 2005 by $13 million and $15 million, or 6.6 percent and 11.9 percent, respectively. The strong growth in credit and debit card revenue was primarily driven by higher customer transaction volumes. The corporate payment products revenue growth reflected organic growth in sales volumes and card usage and acquired business expansion. Merchant processing services revenue was higher in the fourth quarter of 2006 than the same quarter a year ago by $50 million (25.8 percent), reflecting an increase in sales volume driven by acquisitions, higher same store sales, changes in pricing and equipment fees. Trust and investment management fees increased by $61 million (23.6 percent) year-over-year, due to recent acquisitions of corporate and institutional trust businesses, customer account growth and
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U.S. Bancorp Reports Fourth Quarter 2006 Results
January 16, 2007
Page 9
favorable equity market conditions. Deposit service charges grew year-over-year by $21 million (8.8 percent) due to increased transaction-related fees and the impact of net new checking accounts. These favorable changes in fee-based revenue were partially offset by the decline in mortgage banking revenue of $84 million (77.1 percent), principally driven by the adoption of the fair value method of accounting for mortgage servicing rights and MSR economic hedging results in the fourth quarter of 2006 due to changes in relative interest rates at year end. Other income was higher by $43 million (25.3 percent) as compared with the fourth quarter of 2005, primarily due to a $52 million gain on the sale of the Company’s 401(k) defined contribution recordkeeping business and $6 million in trading gains related to certain interest rate swaps that the Company determined did not qualify for hedge accounting, partially offset by a decline in equity investment revenue from a year ago.
     Noninterest income was seasonally lower ($19 million or 1.1 percent) in the fourth quarter of 2006 compared with the third quarter of 2006. Payment processing revenues declined due to lower transaction volumes and sales in corporate payment products and merchant processing resulting in decreases of $9 million (6.0 percent) and $9 million (3.6 percent), respectively. Deposit service charges declined by $9 million (3.4 percent) in the fourth quarter of 2006 compared with the third quarter of 2006, reflecting lower transaction-related fees, partially offset by net new account growth. In addition to seasonal declines in revenue, mortgage banking revenue was lower than the third quarter of 2006 by $43 million (63.2 percent), primarily due to changes in the valuation of mortgage servicing rights and the corresponding MSR economic hedges given changes in interest rates at year end. The declines in these revenue categories were partially offset by an increase in trust and investment management fees of $14 million (4.6 percent) due primarily to core fee account growth and favorable equity market conditions. Other revenue increased $23 million (12.1 percent) in the fourth quarter of 2006, primarily due to the gain on the sale of the Company’s 401(k) defined contribution recordkeeping business and trading gains on interest rate derivatives, partially offset by a $32 million gain on the sale of equity interests in a card association in the third quarter of 2006 and lower retail product revenue as a result of higher end-of-term residual losses and slightly lower residual valuations. In addition, noninterest income included $11 million of net securities gains in the fourth quarter of 2006.
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U.S. Bancorp Reports Fourth Quarter 2006 Results
January 16, 2007
Page 10
                                                                             
   
  NONINTEREST EXPENSE                                                           Table 7            
   
  ($ in millions)                           Percent     Percent                              
                              Change     Change                              
      4Q     3Q     4Q     4Q06 vs     4Q06 vs     Full Year     Full Year     Percent            
      2006     2006     2005     3Q06     4Q05     2006     2005     Change            
                 
 
 
                                                                          
 
Compensation
     $621       $632       $601       (1.7 )     3.3       $2,513       $2,383       5.5            
 
Employee benefits
     102       123       101       (17.1 )     1.0       481       431       11.6            
 
Net occupancy and equipment
     166       168       166       (1.2 )     —       660       641       3.0            
 
Professional services
     69       54       47       27.8       46.8       199       166       19.9            
 
Marketing and business development
     61       58       64       5.2       (4.7 )     217       235       (7.7 )          
 
Technology and communications
     133       128       129       3.9       3.1       505       466       8.4            
 
Postage, printing and supplies
     67       66       65       1.5       3.1       265       255       3.9            
 
Other intangibles
     92       89       81       3.4       13.6       355       458       (22.5 )          
 
Debt prepayment
     22       —       —     nm     nm       33       54       (38.9 )          
 
Other
     279       220       210       26.8       32.9       952       774       23.0            
                                             
 
 
                                                                          
 
Total noninterest expense
     $1,612       $1,538       $1,464       4.8       10.1       $6,180       $5,863       5.4            
                                             
 
 
                                                                          
     
Noninterest Expense
     Fourth quarter noninterest expense totaled $1,612 million, an increase of $148 million (10.1 percent) from the same quarter of 2005 and $74 million (4.8 percent) from the third quarter of 2006. Compensation expense was higher year-over-year by $20 million (3.3 percent), primarily due to the corporate and institutional trust and payments processing acquisitions and other growth initiatives undertaken by the Company. Benefits expense remained flat from the fourth quarter of 2005 as higher pension costs from a year ago were offset by lower medical benefits expense due to favorable claims experience. Professional services expense increased by $22 million (46.8 percent) due primarily to revenue enhancement-related business initiatives, including establishing a bank charter in Ireland to support pan-European payment processing. Other intangibles expense increased by $11 million (13.6 percent) from the prior year due to acquisitions in Consumer Banking, Wealth Management and Payment Services. Other expense increased in the fourth quarter of 2006 from the same quarter of 2005 by $69 million (32.9 percent), primarily due to increased investments in tax-advantaged projects and business integration costs relative to a year ago. In addition, noninterest expense in the fourth quarter of 2006 was impacted by $22 million in charges related to the prepayment of certain trust preferred debt securities.
     Noninterest expense in the fourth quarter of 2006 was higher than the third quarter of 2006 by $74 million (4.8 percent). The increase in noninterest expense in the fourth quarter of 2006 from the third quarter of 2006 was primarily due to operating costs from acquired businesses and other business
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U.S. Bancorp Reports Fourth Quarter 2006 Results
January 16, 2007
Page 11
development initiatives, the $22 million debt prepayment charge and increases in tax-advantaged investment expense. These increases were partially offset by a reduction in benefits expense principally due to lower medical costs resulting from favorable claims experience.
Provision for Income Taxes
     The provision for income taxes for the fourth quarter of 2006 declined to an effective tax rate of 26.7 percent compared with an effective tax rate of 30.8 percent in the fourth quarter of 2005 and an effective tax rate of 30.7 percent in third quarter of 2006. The reduction in the effective rate from the same quarter of the prior year reflected incremental tax credits from tax-advantaged investments and a reduction in tax liabilities after the resolution of federal income tax examinations for all years through 2004 and certain state tax examinations during the fourth quarter of 2006. The Company anticipates its effective tax rate for the foreseeable future to approximate 32 percent.
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U.S. Bancorp Reports Fourth Quarter 2006 Results
January 16, 2007
Page 12
                                             
   
  ALLOWANCE FOR CREDIT LOSSES                                   Table 8    
   
  ($ in millions)   4Q     3Q     2Q     1Q     4Q    
      2006     2006     2006     2006     2005    
           
 
 
                                          
 
Balance, beginning of period
     $2,256       $2,251       $2,251       $2,251       $2,258    
 
 
                                          
 
Net charge-offs
                                          
 
Commercial
     24       18       13       5       15    
 
Lease financing
     7       3       7       7       7    
           
 
Total commercial
     31       21       20       12       22    
 
Commercial mortgages
     2       —       (1 )     2       (1 )  
 
Construction and development
     —       —       1       —       —    
           
 
Total commercial real estate
     2       —       —       2       (1 )  
 
 
                                          
 
Residential mortgages
     12       11       11       7       10    
 
 
                                          
 
Credit card
     68       56       50       46       86    
 
Retail leasing
     4       4       2       4       8    
 
Home equity and second mortgages
     13       12       13       12       21    
 
Other retail
     39       31       29       32       67    
           
 
Total retail
     124       103       94       94       182    
           
 
Total net charge-offs
     169       135       125       115       213    
 
Provision for credit losses
     169       135       125       115       205    
 
Acquisitions and other changes
     —       5       —       —       1    
           
 
Balance, end of period
     $2,256       $2,256       $2,251       $2,251       $2,251    
           
 
 
                                          
 
Components
                                          
 
Allowance for loan losses
     $2,022       $2,034       $2,039       $2,035       $2,041    
 
Liability for unfunded credit commitments
     234       222       212       216       210    
           
 
Total allowance for credit losses
     $2,256       $2,256       $2,251       $2,251       $2,251    
           
 
 
                                          
 
Gross charge-offs
     $217       $195       $176       $175       $267    
 
Gross recoveries
     $48       $60       $51       $60       $54    
 
 
                                          
 
Allowance for credit losses as a percentage of
                                       
 
Period-end loans
     1.57       1.58       1.61       1.64       1.65    
 
Nonperforming loans
     480       476       500       432       414    
 
Nonperforming assets
     384       392       409       364       350    
 
 
                                          
     
Credit Quality
     The allowance for credit losses was $2,256 million at December 31, 2006, and at September 30, 2006, compared with $2,251 million at December 31, 2005. The ratio of the allowance for credit losses to period-end loans was 1.57 percent at December 31, 2006, compared with 1.58 percent at September 30, 2006, and 1.65 percent at December 31, 2005. The ratio of the allowance for credit losses to nonperforming loans was 480 percent at December 31, 2006, compared with 476 percent at September 30, 2006, and 414 percent at December 31, 2005. Total net charge-offs in the fourth quarter of 2006 were $169 million, compared with the third quarter of 2006 net charge-offs of $135 million and the fourth quarter of 2005 net charge-offs of
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U.S. Bancorp Reports Fourth Quarter 2006 Results
January 16, 2007
Page 13
$213 million. The year-over-year decrease in total net charge-offs was principally due to the impact in the fourth quarter of 2005 from changes in bankruptcy legislation that went into effect during that timeframe.
     Commercial and commercial real estate loan net charge-offs increased to $33 million in the fourth quarter of 2006 (.17 percent of average loans outstanding) compared with $21 million (.11 percent of average loans outstanding) in the third quarter of 2006 and $21 million (.12 percent of average loans outstanding) in the fourth quarter of 2005. The Company expects commercial net charge-offs to continue to increase somewhat over the next several quarters, due to slightly higher gross charge-offs and lower commercial loan recoveries.
     Retail loan net charge-offs were $124 million in the fourth quarter of 2006 compared with $103 million in the third quarter of 2006 and $182 million in the fourth quarter of 2005. Retail loan net charge-offs increased as compared with the third quarter of 2006 and declined from the fourth quarter of 2005, reflecting the impact of the bankruptcy legislation changes that occurred in the fourth quarter of 2005. Retail loan net charge-offs as a percent of average loans outstanding were 1.05 percent in the fourth quarter of 2006, compared with .90 percent and 1.64 percent in the third quarter of 2006 and fourth quarter of 2005, respectively. The 15 basis point increase in retail net charge-offs from the third quarter of 2006 reflected a higher level of bankruptcy-related losses as the lingering effects of changes in bankruptcy laws were realized throughout 2006. The Company anticipates slightly higher delinquencies in the retail portfolios and that net charge-offs will continue to increase moderately during 2007.
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U.S. Bancorp Reports Fourth Quarter 2006 Results
January 16, 2007
Page 14
                                                         
 
      CREDIT RATIOS   Table 9            
      (Percent)   4Q     3Q     2Q     1Q     4Q            
          2006     2006     2006     2006     2005            
                     
     
Net charge-offs ratios (a)
                                                  
     
Commercial
     .23       .18       .13       .05       .15            
     
Lease financing
     .51       .23       .54       .56       .56            
     
Total commercial
     .26       .18       .18       .11       .20            
     
 
                                                  
     
Commercial mortgages
     .04       —       (.02 )     .04       (.02 )          
     
Construction and development
     —       —       .05       —       —            
     
Total commercial real estate
     .03       —       —       .03       (.01 )          
     
 
                                                  
     
Residential mortgages
     .22       .21       .21       .14       .20            
     
 
                                                  
     
Credit card
     3.27       2.85       2.72       2.62       5.00            
     
Retail leasing
     .23       .22       .11       .22       .43            
     
Home equity and second mortgages
     .33       .31       .35       .33       .56            
     
Other retail
     .96       .79       .77       .87       1.79            
     
Total retail
     1.05       .90       .84       .86       1.64            
     
 
                                                  
     
Total net charge-offs
     .47       .38       .36       .34       .62            
     
 
                                                  
      Delinquent loan ratios - 90 days or more past due excluding nonperforming loans (b)          
     
Commercial
     .05       .06       .05       .05       .05            
     
Commercial real estate
     .01       .01       —       —       —            
     
Residential mortgages
     .45       .36       .30       .31       .32            
     
Retail
     .48       .41       .39       .38       .37            
     
Total loans
     .24       .21       .19       .18       .19            
     
 
                                                  
      Delinquent loan ratios - 90 days or more past due including nonperforming loans (b)          
     
Commercial
     .57       .55       .58       .64       .69            
     
Commercial real estate
     .53       .54       .40       .51       .55            
     
Residential mortgages
     .62       .53       .49       .53       .55            
     
Retail
     .58       .52       .52       .54       .52            
     
Total loans
     .57       .54       .51       .56       .58            
     
 
                                                  
      (a) annualized and calculated on average loan balances          
      (b) ratios are expressed as a percent of ending loan balances          
 
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U.S. Bancorp Reports Fourth Quarter 2006 Results
January 16, 2007
Page 15
                                                         
 
      ASSET QUALITY                                   Table 10            
 
      ($ in millions)                                        
          Dec 31     Sep 30     Jun 30     Mar 31     Dec 31            
          2006     2006     2006     2006     2005            
                     
     
Nonperforming loans
                                                  
     
Commercial
     $196       $192       $203       $219       $231            
     
Lease financing
     40       39       38       41       42            
                     
     
Total commercial
     236       231       241       260       273            
     
Commercial mortgages
     112       114       88       123       134            
     
Construction and development
     38       40       25       23       23            
                     
     
Total commercial real estate
     150       154       113       146       157            
     
Residential mortgages
     36       36       39       45       48            
     
Retail
     48       53       57       70       66            
                     
     
Total nonperforming loans
     470       474       450       521       544            
     
 
                                                  
     
Other real estate
     95       79       77       71       71            
     
Other nonperforming assets
     22       22       23       27       29            
                     
     
 
                                                  
     
Total nonperforming assets (a)
     $587       $575       $550       $619       $644            
                     
     
 
                                                  
     
Accruing loans 90 days or more past due
     $349       $295       $264       $251       $253            
                     
     
 
                                                  
     
Restructured loans that continue to accrue interest
     $405       $369       $370       $371       $315            
                     
     
 
                                                  
     
Nonperforming assets to loans plus ORE (%)
     .41       .40       .39       .45       .47            
     
 
                                                  
      (a) does not include accruing loans 90 days or more past due or restructured loans that continue to accrue interest          
 
     Nonperforming assets at December 31, 2006, totaled $587 million, compared with $575 million at September 30, 2006, and $644 million at December 31, 2005. The ratio of nonperforming assets to loans and other real estate was .41 percent at December 31, 2006, .40 percent at September 30, 2006, and .47 percent at December 31, 2005. Restructured loans that continue to accrue interest have increased from the fourth quarter of 2005, reflecting the impact of implementing higher minimum balance payment requirements for credit card customers in response to industry guidance issued by the banking regulatory agencies.
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U.S. Bancorp Reports Fourth Quarter 2006 Results
January 16, 2007
Page 16
                                                         
       
      CAPITAL POSITION                                   Table 11            
 
      ($ in millions)   Dec 31     Sep 30     Jun 30     Mar 31     Dec 31            
          2006     2006     2006     2006     2005            
             
                     
     
 
                                                  
     
Total shareholders’ equity
     $21,197       $20,926       $20,415       $20,256       $20,086            
     
Tier 1 capital
     17,036       17,042       16,841       16,478       15,145            
     
Total risk-based capital
     24,495       25,011       24,893       24,328       23,056            
     
 
                                                  
     
Tier 1 capital ratio
     8.8 %     8.8 %     8.9 %     8.9 %     8.2 %          
     
Total risk-based capital ratio
     12.6       13.0       13.1       13.1       12.5            
     
Leverage ratio
     8.2       8.3       8.2       8.2       7.6            
     
Common equity to assets
     9.2       9.2       9.1       9.2       9.6            
     
Tangible common equity to assets
     5.5       5.4       5.6       5.4       5.9            
 
     Total shareholders’ equity was $21.2 billion at December 31, 2006, compared with $20.1 billion at December 31, 2005. The increase was the result of corporate earnings and the issuance of $1.0 billion of non-cumulative, perpetual preferred stock on March 27, 2006, partially offset by share buybacks and dividends. In December of 2006, the Company announced a 21 percent increase in its quarterly dividend to common shareholders, increasing the dividend from $.33 per common share to $.40 per common share.
     The Tier 1 capital ratio was 8.8 percent at December 31, 2006, and at September 30, 2006, and 8.2 percent at December 31, 2005. The total risk-based capital ratio was 12.6 percent at December 31, 2006, compared with 13.0 percent at September 30, 2006, and 12.5 percent at December 31, 2005. The leverage ratio was 8.2 percent at December 31, 2006, compared with 8.3 percent at September 30, 2006, and 7.6 percent at December 31, 2005. Tangible common equity to assets was 5.5 percent at December 31, 2006, compared with 5.4 percent at September 30, 2006, and 5.9 percent at December 31, 2005. All regulatory ratios continue to be in excess of stated “well capitalized” requirements.
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U.S. Bancorp Reports Fourth Quarter 2006 Results
January 16, 2007
Page 17
                                                         
 
      COMMON SHARES                                   Table 12            
 
      (Millions)   4Q     3Q     2Q     1Q     4Q            
          2006     2006     2006     2006     2005            
                     
         
 
                                              
     
Beginning shares outstanding
     1,763       1,783       1,783       1,815       1,818            
     
Shares issued for stock option and stock purchase plans, acquisitions and other corporate purposes
     12       10       9       9       6            
     
Shares repurchased
     (10 )     (30 )     (9 )     (41 )     (9 )          
                             
     
Ending shares outstanding
     1,765       1,763       1,783       1,783       1,815            
                             
 
     On December 21, 2004, the Board of Directors of U.S. Bancorp approved an authorization to repurchase up to 150 million shares of outstanding common stock during the following 24 months. On August 3, 2006, the Company announced that the Board of Directors approved an authorization to repurchase 150 million shares of common stock through December 2008. This new authorization replaced the December 21, 2004, share repurchase program. During the fourth quarter of 2006, the Company repurchased 10 million shares of common stock. As of December 31, 2006, there were approximately 122 million shares remaining to be repurchased under the current authorization.
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U.S. Bancorp Reports Fourth Quarter 2006 Results
January 16, 2007
Page 18
                                                                                             
 
          LINE OF BUSINESS FINANCIAL PERFORMANCE (a)                             Table 13            
 
          ($ in millions)                                                    
              Net Income     Percent Change                             4Q 2006            
              4Q     3Q     4Q     4Q06 vs     4Q06 vs     Full Year     Full Year     Percent     Earnings            
          Business Line   2006     2006     2005     3Q06     4Q05     2006     2005     Change     Composition            
                         
         
Wholesale Banking
     $284       $298       $312       (4.7 )     (9.0 )     $1,194       $1,176       1.5       24  %          
         
Consumer Banking
     419       475       428       (11.8 )     (2.1 )     1,793       1,692       6.0       35            
         
Wealth Management
     156       147       130       6.1       20.0       589       479       23.0       13            
         
Payment Services
     237       253       170       (6.3 )     39.4       967       729       32.6       20            
         
Treasury and Corporate Support
     98       30       103     nm       (4.9 )     208       413       (49.6 )     8            
                                                           
         
 
                                                                                  
         
Consolidated Company
   $1,194       $1,203       $1,143       (.7 )     4.5       $4,751       $4,489       5.8       100  %          
                                                           
         
 
                                                                                  
         
(a) preliminary data
                                                                                  
 
Lines of Business
     Within the Company, financial performance is measured by major lines of business, which include Wholesale Banking, Consumer Banking, Wealth Management, Payment Services, and Treasury and Corporate Support. These operating segments are components of the Company about which financial information is available and is evaluated regularly in deciding how to allocate resources and assess performance. Noninterest expenses incurred by centrally managed operations or business lines that directly support another business line’s operations are charged to the applicable business line based on its utilization of those services primarily measured by the volume of customer activities, number of employees or other relevant factors. These allocated expenses are reported as net shared services expense within noninterest expense. Designations, assignments and allocations change from time to time as management systems are enhanced, methods of evaluating performance or product lines change or business segments are realigned to better respond to our diverse customer base. During 2006, certain organization and methodology changes were made and, accordingly, prior period results have been restated and presented on a comparable basis.
     Wholesale Banking offers lending, depository, treasury management and other financial services to middle market, large corporate, commercial real estate, equipment finance, small-ticket leasing and public sector clients, along with lending guaranteed by the Small Business Administration. Wholesale Banking contributed $284 million of the Company’s net income in the fourth quarter of 2006, a 9.0 percent decrease from the same period of 2005 and a 4.7 percent decrease as compared with the third quarter of 2006. The decrease in Wholesale Banking’s fourth quarter 2006 contribution from the same quarter of 2005 was primarily the result of an unfavorable variance in total net revenue (4.7 percent) and an increase in the
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U.S. Bancorp Reports Fourth Quarter 2006 Results
January 16, 2007
Page 19
provision for credit losses from a year ago. Net interest income increases from the growth in average loan balances and the margin benefit of deposits were more than offset by tighter credit spreads and a decline in average deposit balances as customers utilized their liquidity to fund business growth. The unfavorable variance year-over-year in total noninterest income (4.7 percent) was primarily driven by lower equity investment revenue and non-yield loan fees, partially offset by higher income from commercial real estate production, commercial leasing and net securities gains. The unfavorable variance in the provision for credit losses was due to the increase in net charge-offs to $10 million in the fourth quarter of 2006, reflecting fewer wholesale loan recoveries and an increase in gross charge-offs at this stage of the business cycle.
     Wholesale Banking’s contribution to net income in the fourth quarter of 2006 compared with the third quarter of 2006 was $14 million (4.7 percent) lower, due to unfavorable variances in total net revenue (1.0 percent), total noninterest expense (3.1 percent) and the provision for credit losses. Total net revenue was lower on a linked quarter basis due to lower net interest income driven primarily by tightening credit spreads. Total noninterest income remained relatively flat, as net securities gains were offset by lower equity investment revenue. Total noninterest expense increased due primarily to lease production-related commissions and commercial lease expenses. The provision for credit losses increased on a linked quarter basis due to the increase in net charge-offs.
     Consumer Banking delivers products and services through banking offices, telephone servicing and sales, on-line services, direct mail and ATMs. It encompasses community banking, metropolitan banking, in-store banking, small business banking, consumer lending, mortgage banking, consumer finance, workplace banking, student banking, and 24-hour banking. Consumer Banking contributed $419 million of the Company’s net income in the fourth quarter of 2006, a 2.1 percent decrease from the same period of 2005 and an 11.8 percent decrease from the prior quarter. The decline was due to a $28 million reduction in net contribution of the mortgage banking business from a year ago. This unfavorable change in the mortgage banking division was driven by lower average loan warehouse portfolio and origination gains, adverse changes in MSR and related economic hedge valuations and the Company’s adoption of SFAS 156 in early 2006. The mortgage banking division’s total net revenue and noninterest expense declined by approximately $94 million and $50 million, respectively, compared with the fourth quarter of 2005. The contribution of the retail banking division of Consumer Banking increased approximately 4.8 percent from a year ago driven by income before provision and income taxes growth of 2.4 percent and lower credit losses. Net interest income was higher year-over-year primarily due to growth in average loan balances, increased loan fees and
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U.S. Bancorp Reports Fourth Quarter 2006 Results
January 16, 2007
Page 20
the margin benefit of deposits, somewhat offset by lower spreads on those assets given the competitive lending environment. Fee-based revenues for the retail banking division increased 2.5 percent, reflecting growth in deposit service charges (8.9 percent) due to increased transaction-related fees and net new checking accounts, offset somewhat by lower retail leasing revenues due, in part, to slightly lower residual valuations and end-of-term lease residual income. The retail banking division’s total noninterest expense in the fourth quarter of 2006 increased compared with the same quarter of 2005 primarily due to an increase in net shared services expense and increased professional services expense related to various business initiatives. A $12 million year-over-year decrease in net charge-offs (14.1 percent) resulted in the favorable variance in the division’s provision for credit losses. The decline in credit losses from a year ago reflected, in part, the impact of changes in the bankruptcy laws in the fourth quarter of 2005.
     The decrease in Consumer Banking’s contribution in the fourth quarter of 2006 from the third quarter of 2006 was principally due to the lower fee-based revenues and higher provision for credit losses. The decline in total noninterest income was due to a decrease in mortgage banking revenue (62.3 percent) reflecting the impact of the interest rate environment on production gains and MSR and related economic hedge valuations at year end. The quarterly change in revenue also reflected lower deposit service charges (3.4 percent) and retail lease residual income. Total noninterest expense was higher on a linked quarter basis, primarily due to higher net shared services expense partially offset by lower compensation costs in the branch network. The increase in the provision for credit losses during the quarter was due to a $14 million increase in net charge-offs as bankruptcy related charge-offs return to more normalized levels, portfolio growth and somewhat higher loan delinquencies.
     Wealth Management provides trust, private banking, financial advisory, investment management, retail brokerage services, insurance, custody and mutual fund servicing through six businesses: Private Client Group, Corporate Trust, U.S. Bancorp Investments and Insurance, FAF Advisors, Institutional Trust and Custody and Fund Services. Wealth Management contributed $156 million of the Company’s net income in the fourth quarter of 2006, a 20.0 percent increase over the same period of 2005 and a 6.1 percent increase over the third quarter of 2006. The growth in the business line’s contribution in the fourth quarter of 2006 over the same quarter of 2005 was the result of corporate and institutional trust acquisitions, core account fee growth and improved equity market conditions. Net interest income was favorably impacted year-over-year by deposit balance growth and slightly wider deposit spreads, partially offset by tightening asset spreads. Total noninterest income increased by 19.9 percent from the same quarter of 2005, primarily due to recent
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U.S. Bancorp Reports Fourth Quarter 2006 Results
January 16, 2007
Page 21
acquisitions of corporate and institutional trust businesses, core account fee growth and favorable equity market conditions. The increase in total noninterest expense was primarily due to the recent acquisitions.
     The increase in the business line’s contribution in the fourth quarter of 2006, as compared with the third quarter of 2006, was due to core account fee growth and improved equity market conditions.
     Payment Services includes consumer and business credit cards, stored-value cards, debit cards, corporate and purchasing card services, consumer lines of credit, ATM processing and merchant processing. Payment Services contributed $237 million of the Company’s net income in the fourth quarter of 2006, a 39.4 percent increase over the same period of 2005 and a 6.3 percent decrease from the third quarter of 2006. The increase in Payment Services’ contribution in the fourth quarter of 2006 from the same period of 2005 was the result of higher total net revenue (13.9 percent) and a favorable variance in the provision for credit losses (27.4 percent), partially offset by an increase in total noninterest expense (8.0 percent). The increase in total net revenue year-over-year was due to growth in total noninterest income (15.5 percent) and net interest income (8.0 percent), reflecting growth in higher yielding retail loan balances, partially offset by the margin impact of growth in noninterest-bearing corporate and purchasing card balances and intangibles related to recent acquisitions. All revenue categories benefited from higher transaction volumes, rate changes and business expansion initiatives. The growth in total noninterest expense year-over-year primarily reflected new business initiatives, including costs associated with acquisitions and other business growth initiatives, partially offset by the impact of a $19 million write-off associated with a co-branding relationship in the fourth quarter of 2005. The decrease in the provision for credit losses was driven by lower net charge-offs, year-over-year, reflecting the impact of changes in bankruptcy legislation in the fourth quarter of 2005.
     The decrease in Payment Services’ contribution in the fourth quarter of 2006 from the third quarter of 2006 was due primarily to increased provision for credit losses (14.9 percent) and an increase in total noninterest expense (3.8 percent). Total net revenue was essentially flat as growth in net interest income was offset by seasonally lower payment processing fee revenues. The increase in net interest income was primarily driven by growth in higher yielding credit card loan balances and related loan fees. A $10 million increase in net charge-offs drove the increase in the provision for credit losses, as bankruptcy charge-offs continue to return to more normalized levels. The provision was also impacted somewhat by portfolio growth and slightly higher loan delinquencies. The increase in total noninterest expense was primarily due to the impact of marketing and professional services costs from retail payment system initiatives.
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U.S. Bancorp Reports Fourth Quarter 2006 Results
January 16, 2007
Page 22
     Treasury and Corporate Support includes the Company’s investment portfolios, funding, capital management and asset securitization activities, interest rate risk management, the net effect of transfer pricing related to average balances and the residual aggregate of those expenses associated with corporate activities that are managed on a consolidated basis. In addition, prior to the adoption of SFAS 156, changes in mortgage servicing rights valuations due to interest rate changes were managed at a corporate level and, as such, reported within this business unit. Operational expenses incurred by Treasury and Corporate Support on behalf of the other business lines are allocated back to the appropriate business unit, primarily based on customer transaction volume and account activities, deposit balances and employee levels and are identified as net shared services expense. Treasury and Corporate Support recorded net income of $98 million in the fourth quarter of 2006, compared with net income of $103 million in the fourth quarter of 2005 and $30 million in the third quarter of 2006. Net interest income decreased in the current quarter from the fourth quarter of 2005 by $103 million, reflecting primarily the impact of a flatter yield curve and asset/liability management decisions during the past year and the issuance of higher cost wholesale funding. Total noninterest income increased due to the $52 million gain on the sale of the Company’s 401(k) defined contribution recordkeeping business, trading gains related to interest rate derivatives and the favorable impact of net securities losses recorded in the prior year. Total noninterest expense increased $119 million primarily due to operating costs associated with incremental investments in tax-advantaged projects relative to a year ago and business integration costs, offset by an unfavorable variance in intangible assets amortization due to the adoption of SFAS 156. The favorable change in income taxes, compared with a year ago, resulted from expected income tax credits from incremental tax-advantaged investments and the resolution of various federal and state tax examinations.
     Net income in the fourth quarter of 2006 was higher than the third quarter of 2006 due to a increase in total noninterest income ($34 million) related to the gain on sale of the 401(k) recordkeeping business and trading gains related to interest rate derivatives, partially offset by the $32 million gain on the sale of equity interests in a card association and gains from the sale of certain commercial real estate, both of which were recorded in third quarter of 2006. Net interest income improved during the quarter by $25 million reflecting growth in investment securities and the impact of recent changes in interest rate policies of the Federal Reserve. Total noninterest expenses increased by $44 million primarily due to incremental amortization related to tax-advantaged investments. The residual tax benefits recognized by the Treasury and Corporate
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U.S. Bancorp Reports Fourth Quarter 2006 Results
January 16, 2007
Page 23
Support business line increased during the fourth quarter of 2006 primarily due to higher levels of tax credits and the resolution of federal and state tax examinations during the quarter.
Additional schedules containing more detailed information about the Company’s business line results are available on the web at usbank.com or by calling Investor Relations at 612-303-0781.
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U.S. Bancorp Reports Fourth Quarter 2006 Results
January 16, 2007
Page 24
PRESIDENT AND CHIEF EXECUTIVE OFFICER, RICHARD K. DAVIS, AND VICE CHAIRMAN AND CHIEF FINANCIAL OFFICER, DAVID MOFFETT, WILL HOST A CONFERENCE CALL TO REVIEW THE FINANCIAL RESULTS AT 1:00 P.M. (CST) ON TUESDAY, JANUARY 16, 2007. The conference call will be available by telephone or on the internet. To access the conference call, please dial 800-896-8445 and ask for the U.S. Bancorp earnings conference call. Participants calling from outside the United States, please dial 785-830-1916. For those unable to participate during the live call, a recording of the call will be available approximately one hour after the conference call ends on Tuesday, January 16th, and will run though Tuesday, January 23rd, at 11:00 p.m. (CST). To access the recorded message, dial 800-283-4216. If calling from outside the United States, please dial 402-220-9033 to access the recording. Find the recorded call via the internet at usbank.com.
Minneapolis-based U.S. Bancorp (“USB”), with $219 billion in assets, is the 6th largest financial holding company in the United States. The Company operates 2,472 banking offices and 4,841 ATMs, and provides a comprehensive line of banking, brokerage, insurance, investment, mortgage, trust and payment services products to consumers, businesses and institutions. U.S. Bancorp is the parent company of U.S. Bank. Visit U.S. Bancorp on the web at usbank.com.
Forward-Looking Statements
The following information appears in accordance with the Private Securities Litigation Reform Act of 1995:
This press release contains forward-looking statements about U.S. Bancorp. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements. These statements often include the words “may,” “could,” “would,” “should,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of the Company. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated, including changes in general business and economic conditions, changes in interest rates, legal and regulatory developments, increased competition from both banks and non-banks, changes in customer behavior and preferences, effects of mergers and acquisitions and related integration, and effects of critical accounting policies and judgments. For discussion of these and other risks that may cause actual results to differ from expectations, refer to our Annual Report on Form 10-K for the year ended December 31, 2005, on file with the Securities and Exchange Commission, including the sections entitled “Risk Factors” and “Corporate Risk Profile.” Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update them in light of new information or future events.
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U.S. Bancorp
Consolidated Statement of Income
                                   
    Three Months Ended     Year Ended
(Dollars and Shares in Millions, Except Per Share Data)   December 31,     December 31,
(Unaudited)   2006   2005     2006   2005
       
Interest Income
                                  
Loans
     $2,596       $2,255         $9,873       $8,306  
Loans held for sale
     64       52         236       181  
Investment securities
     511       500         2,001       1,954  
Other interest income
     34       26         153       110  
           
Total interest income
     3,205       2,833         12,263       10,551  
Interest Expense
                                  
Deposits
     668       476         2,389       1,559  
Short-term borrowings
     342       230         1,203       690  
Long-term debt
     515       352         1,930       1,247  
           
Total interest expense
     1,525       1,058         5,522       3,496  
           
Net interest income
     1,680       1,775         6,741       7,055  
Provision for credit losses
     169       205         544       666  
           
Net interest income after provision for credit losses
     1,511       1,570         6,197       6,389  
Noninterest Income
                                  
Credit and debit card revenue
     210       197         800       713  
Corporate payment products revenue
     141       126         557       488  
ATM processing services
     60       61         243       229  
Merchant processing services
     244       194         963       770  
Trust and investment management fees
     319       258         1,235       1,009  
Deposit service charges
     259       238         1,023       928  
Treasury management fees
     107       104         441       437  
Commercial products revenue
     104       101         415       400  
Mortgage banking revenue
     25       109         192       432  
Investment products fees and commissions
     36       37         150       152  
Securities gains (losses), net
     11       (49 )       14       (106 )
Other
     213       170         813       593  
           
Total noninterest income
     1,729       1,546         6,846       6,045  
Noninterest Expense
                                  
Compensation
     621       601         2,513       2,383  
Employee benefits
     102       101         481       431  
Net occupancy and equipment
     166       166         660       641  
Professional services
     69       47         199       166  
Marketing and business development
     61       64         217       235  
Technology and communications
     133       129         505       466  
Postage, printing and supplies
     67       65         265       255  
Other intangibles
     92       81         355       458  
Debt prepayment
     22       —         33       54  
Other
     279       210         952       774  
           
Total noninterest expense
     1,612       1,464         6,180       5,863  
           
Income before income taxes
     1,628       1,652         6,863       6,571  
Applicable income taxes
     434       509         2,112       2,082  
           
Net income
     $1,194       $1,143         $4,751       $4,489  
           
Net income applicable to common equity
     $1,179       $1,143         $4,703       $4,489  
           
Earnings per common share
     $.67       $.63         $2.64       $2.45  
Diluted earnings per common share
     $.66       $.62         $2.61       $2.42  
Dividends declared per common share
     $.40       $.33         $1.39       $1.23  
Average common shares outstanding
     1,761       1,816         1,778       1,831  
Average diluted common shares outstanding
     1,789       1,841         1,804       1,857  
       

Page 25

 

U.S. Bancorp
Consolidated Ending Balance Sheet
                 
    December 31,     December 31,  
(Dollars in Millions)   2006     2005  
 
Assets
                
Cash and due from banks
     $8,639       $8,004  
Investment securities
                
Held-to-maturity
     87       109  
Available-for-sale
     40,030       39,659  
Loans held for sale
     3,256       3,030  
Loans
                
Commercial
     46,190       42,942  
Commercial real estate
     28,645       28,463  
Residential mortgages
     21,285       20,730  
Retail
     47,477       44,327  
     
Total loans
     143,597       136,462  
Less allowance for loan losses
     (2,022 )     (2,041 )
     
Net loans
     141,575       134,421  
Premises and equipment
     1,835       1,841  
Goodwill
     7,538       7,005  
Other intangible assets
     3,227       2,874  
Other assets
     13,045       12,522  
     
Total assets
     $219,232       $209,465  
     
 
                
Liabilities and Shareholders’ Equity
                
Deposits
                
Noninterest-bearing
     $32,128       $32,214  
Interest-bearing
     70,330       70,024  
Time deposits greater than $100,000
     22,424       22,471  
     
Total deposits
     124,882       124,709  
Short-term borrowings
     26,933       20,200  
Long-term debt
     37,602       37,069  
Other liabilities
     8,618       7,401  
     
Total liabilities
     198,035       189,379  
Shareholders’ equity
                
Preferred stock
     1,000       —  
Common stock
     20       20  
Capital surplus
     5,762       5,907  
Retained earnings
     21,242       19,001  
Less treasury stock
     (6,091 )     (4,413 )
Other comprehensive income
     (736 )     (429 )
     
Total shareholders’ equity
     21,197       20,086  
     
Total liabilities and shareholders’ equity
     $219,232       $209,465  
 

Page 26

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