Nonperforming loans of $3.078 billion [$2.152 billion in regular and $0.926 billion in covered]; plus OREO of $678 million [$404 million in regular and $274 million in covered]; plus 'other NPAs' of $18 million resulted in Total Nonperforming assets of $3.774 billion, compared with $5.046 billion at 12-30-10. Excluding covered assets, Q4-11 NPAs were $2.574 billion. Nonperforming assets to loans plus OREO was 1.79% [1.32% excluding covered assets] compared with 2.55% [1.87% excluding covered assets] in Q4-10. With Total assets of $340.122 billion, NPAs [excluding covered NPAs] to asset ratio was 0.76%. Total net charge-offs in Q4-11 were $622 million, compared with $669 million in Q3-11, and $937 million in Q4-10. Total net charge-offs [excluding covered assets] to total loans ratio was 1.28% compared to 1.42% in Q3-11 and 2.09% in Q4-10.

 

From the Conference Call
     For 2011 USB experienced good loan growth. There was an improvement in credit quality. 29% of earnings returned to investors via dividends and buy-backs in Q4 - and 31% for the full year. ROE 15.8% for the full year. Tier 1 capital at 8.2% - above the minimum of 7.7%. USB will submit their capital program to the FED and expects approval to increase the dividend and continue buy-backs in 2012. USB projects loan growth in 2012. Customers continue to hold high levels of cash. USB has had 7 straight quarters of improvement in charge-offs and NPAs. Delinquencies and criticized assets also continue to fall. Q4-10 contained the sale of an asset management subsidiary that resulted in a one time gain of $0.02/share in that quarter. USB had $70.8 billion in investment securities. Durbin related regulations which cut debit card interchange fees lowed non-interest income by $70 million - and cut that line by 21%.
     Credit Suisse - any additional discussion about capital return targets and talks with regulators - FEECAR results expected March 15th. Last year the approval process was binary - thus our requests were conservative. This year we will be more aggressive in those requests.
     It sounds like now is not the year to deploy your excess capital. USB: FED gave guidelines for dividends - but not buy-backs. We will not get the right mix we want right away. But we will be moving towards our target
     The Sanford Bernstein analyst notes that USB left some of the buy back provisions on the table USB did not do all the buy-backs that they had pre-announced or projected. USB: Yes - we carried over some provision. We were lower on buy backs in 2011 due to some uncertainties in cash flows. Example - the pension debit was uncertain. We should be back in the market [doing buy backs] in Q1-11. The analyst wanted a projection of USB's expenses line. USB: Q1 tends to have a higher benefit expense rate. Q4-11 did not have much in anything unusual. Outlook on NIM? USB: We did increase our security portfolio which built our LCR ratio - which we will hold right now. There was a 5 bps decline that was related to growth in the securities portfolio. We should have higher cash balance at the Fed - and that will push down NIM by 3 bps [flat outlook for full year]. We have tremendous deposit growth - with no great places to put it. We do have debt maturity expirations - most of those maturities start in Q2.
     The RBC Capital analyst asked if commercial loan yields were down? USB: Over all margins were down due to a change in the mix of floating vs. fixed loans. Yields look stable - loan spreads are stabilizing. The analyst asked about potential acquisitions? USB: Non-bank and corporate trust business will have opportunities for acquisitions. We should see opportunities in purchases of payment portfolios.
     Brian with Numeria - merchant processing fees and acceleration of growth - what is the trend? USB same store sales was 4% - and growth will be a bit above that. In cards - you have grown balances without giving up on yields. Are you doing something different from your piers. USB: we are not aggressive [with mail solicitations] there. But the branches have helped with originations. WE expect that trend to continue. On corporate payments - why the fall? USB: That declines was partly due to government business. With government payments - Q3 is the best. So that fall was expected. Don't read much into that change
     The Morgan Stanley analyst want more color on mortgage servicing revenues. USB: The $130 million hit is a one time event. The $38 million hit is ongoing [which sounded like a reserve for potential litigation].
     The FBR analyst noted that residential lending was up to due to refis - and wanted to know if they were mostly jumbos? USB: Two main pieces - two thirds is jumbo. But there are refi loans done in the branches - which were mainly 15 to 20 year loans. What kind of rates? USB: All in rates are in the 4s - we stay competitive with the market. We also do ARMs.
     On the growth of USB's portfolio of securities - was it a result of a 'special product' - and why was the growth mostly in 'held to maturity'? USB: Most of the growth in our security portfolios is related to the need to increase liquidity ratio in light of Basel III requirements. [On loan growth] We have seen growth in small business, CnI and residential real estate loans. We are taking market share in small business loans. You can not see that much in our totals now - but as the economy grows, that growth should kick in.
     Changing view in branch banking USB: transactions will go down - due to mobile banking activity. You do not need to see a teller as often as you use to. There is more conversation on investments. We will shrink teller lines - and have more private offices.
     Stern Magee: What is your fee income outlook in the light of Durban? USB: Durban had a $77 million was impact in Q4 - with full year run rate of that impact at $300 million. When will we see inflection point on the restructured [TDR] line? USB: It will go up for the next few quarters - with less growth in modifications late in 2012.