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U.S. Bancorp (NYSE:USB)

Q4 2009 Earnings Call

January 20, 2010 8:30 am ET

Executives

Judith T. Murphy – Director of Investor Relations

Richard K. Davis – Chairman of the Board, President & Chief Executive Officer

Andrew Cecere – Vice Chairman & Chief Financial Officer

P. W. Parker – Chief Credit Officer

Analysts

Matthew O’Connor – Deutsche Bank Securities

Betsey Graseck – Morgan Stanley

John MacDonald – Sanford Bernstein & Co.

Heather Wolf – UBS

David Konrad – Keffe, Bruyette & Woods

John Arfstrom – RBC Capital Markets

David Rochester – FBR Capital Markets & Co.

Michael Mayo – Calyon Securities (NYSE:USA), Inc.

Glenn Greenberg – Brave Warrior Advisors

Analyst for Kenneth Usdin – Bank of America Merrill Lynch

Welcome to US Bancorp’s first quarter 2009 earnings conference call. Following a review of the results by Richard Davis Chairman, President and Chief Executive Officer and Andy Cecere US Bancorp’s Vice Chairman and Chief Financial Officer there will be a formal question and answer session. (Operator Instructions) This call will be recorded and available for replay beginning today at approximately noon eastern time through Wednesday, January 27th at 12 midnight eastern time.

I will now turn the conference over to Judy Murphy, Director of Investor Relations for U.S. Bancorp.

Judith T. Murphy

Richard Davis, Andy Cecere and Bill Parker are here with me today to review U.S. Bancorp’s fourth quarter 2009 results and to answer your questions. Richard and Andy will be referencing a slide presentation during their prepared remarks. A copy of the slide presentation as well as our earnings release and supplemental analyst schedules are available on our website at www.USBank.com.

I would like to remind you that any forward-looking statements made during today’s call are subject to risks and uncertainties. Factors that could materially change our current forward-looking assumptions are described on page two of today’s presentation, in our press release and our Form 10K and subsequent reports on file with the SEC. I will now turn the call over to Richard.

Richard K. Davis

I’d like to begin on page three of the presentation and note some of the highlights of our fourth quarter 2009 results. U.S. Bancorp reported net income of $602 million for the fourth quarter of 2009 or $0.30 per diluted common share. Earnings were $0.15 higher than the same quarter last year and equal to the $0.30 per diluted common share the company earned for the third quarter of 2009. We achieved record net revenue of $4.4 billion in the fourth quarter and year-over-year positive operating leverage with an industry leading efficiency ratio of 49.1%.

The flight to quality continued this quarter as we experienced strong year-over-year average deposit growth of 25.2%, 15.3% excluding acquisitions. Average loan growth was 8.2% primarily due to the acquisitions as our commercial customers continue to pay down their balances leaving year-over-year average total loan growth excluding acquisitions at .4%, a point of pride given the current low demand for credit.

As expected, net charge offs and non-performing assets excluding covered assets increased again this quarter and at a more modest pace than the prior quarter. Importantly, total credit costs declined on a linked quarter basis due to a decrease in the provision expense necessary to build the allowance for credit losses. We maintained our strong capital position with the Tier-1 capital ratio increasing from 9.5% at September 30th to 9.6% at December 31.

Finally, during the fourth quarter, we completed the acquisition of the majority of the operations of the banking subsidiaries of FBOP Corporation in an FDIC assisted deal. An acquisition that added 150 branches to our franchise, over $13 billion of loans and more than $14 billion of deposits. We announced last November that we would be selling the three Texas branches acquired in this transaction and the buyer Prosperity Bank announced the purchase of the branches late yesterday. That sale is expected to be completed by the end of the first quarter.

On Slide Four, we show our performance metrics over the past five quarters. Return on average assets in the current quarter was .8% and return on average common equity was 9.6% just slightly below the ratios posted in the third quarter of 2009. The fourth quarter results included two significant items which were net security losses of $158 million and provision expense in excess of net charge offs of $278 million. Excluding these significant items which Andy will discuss in a few minutes, return on average assets and return on average common equity would have been approximately 1.36% and 15.3% respectively.

On the right hand of the Slide is a graph showing the five quarter trends of our net interest margin and efficiency ratio. Our net interest margin of 3.83% improved over the prior quarter by 16 basis points primarily due to the higher loan spread and lower funding costs while our efficiency ratio ended the quarter at 49.1%. Our efficiency ratio reflects in absolute terms our prudent approach to managing operating expenses at a level appropriate for the current environment as well as our continued investment in our businesses and employees to ensure our future growth.

Turning to Slide Five, our capital positions remain strong. Our Tier-1 capital and Tier-1 common equity ratios were 9.6% and 6.8% respectively at December 31st. Additionally, our tangible common equity to tangible assets ratio rose from 3.3% at December 31, 2008 to 5.3% at yearend 2009. Our capital position continues to benefit from our ongoing profitability. With this positive earnings stream, business line momentum, moderating credit costs we continue to expect to generate significant capital going forward.

As I have indicated in the past, this was the first factor we considered when deciding whether this was the right time to recommend an increase to our current quarterly dividend of $0.05 per share. We are confident that our earnings can support a higher dividend. Unfortunately, there remains a great deal of uncertainty for all of us in the banking industry regarding potential legislative and regulatory changes in addition to the timing and the scope of the economic recovery and what that all means for the level of capital that will be required going forward.

I assure you we are acutely aware of how important the dividend is to our shareholders. At this point however, the most prudent approach for our company is to continue to work closely with our regulators and defer action on our dividend until a sustainable economic recovery is evident and clear capital guidelines are established.

Moving on to Slide Six, average total loans outstanding increased by $14.4 billion year-over-year primarily due to the recent acquisitions. As noted on the slide, excluding acquisitions, total average loans grew by .4% year-over-year. On a linked quarter basis total average loans increased by 5.3% driven again by acquisitions. As I mentioned earlier and some [inaudible] last quarter, the lack of growth in average total loans outstanding excluding acquisitions was largely due to the lower usage of revolving lines of credit by our commercial customers.

Specifically, the rate of commitment utilization by our corporate and commercial borrowers declined from an average of about 32% in the third quarter of 2009 to approximately 30% in the fourth quarter. The decline in average balances also reflected an overall softening of demand for new loans by our customers both commercial and consumer as they remain cautious rightsizing their own balance sheets to reflect the current economic conditions. That being said, we continue to originate and renew lines and loans for our customers who want and need credit.

In fact, during the fourth quarter of 2009 U.S. Bank originated over $11 billion of residential mortgages, originated over $4 billion of consumer loans including installment loans, student loans, lines of credit and home equity lines and loans. We originated new prime based credit card accounts with lines totaling over $2 billion and we issued more than $9 billion of new commitments and renewed over $17 billion of commitments to small businesses, commercial and commercial real estate customers.

Overall, excluding mortgage production, new originations plus new and renewed commitments were over $33 billion, slightly higher than the previous quarter’s total bringing the full year 2009 total to over $129 billion. We remain responsive to the credit needs of our current and new creditworthy borrowers. In fact, we have begun to take a second look at small business loans that may have been turned down in the initial credit review process to see if there are additional opportunities to provide them with solutions to their financing needs. We continue to strongly support the government’s efforts to maintain the flow of credit necessary to stimulate and strengthen our economy.

Growth in average total deposits was a key highlight of our fourth quarter. Total average deposits increased by $36.4 billion over the same quarter of last year and $14.5 billion on a linked quarter basis. Excluding acquisitions, the growth rate remains strong at 15.3% on a year-over-year basis and 10.8% annualized on a linked quarter basis. Our company continues to benefit from a flight to quality and remains one of the highest rated financial institutions in the company as rated by S&P, Moodys, [inaudible] and DBRS.

Turning to Slide Seven, the company reported record total net revenue for the fourth quarter of $4.4 billion. In fact, we also achieved record net revenue for the full year of 2009 of $16.7 billion. The growth in revenue was driven by earnings asset growth and expanding net interest margin, business line growth initiatives and acquisitions. Reported total net revenue was impacted in each of the last five quarters by securities valuation losses which are detailed at the bottom of the slide.

Moving on to credit as we turn to Slide Eight. Credit costs in the fourth quarter of 2009 including the cost of building the allowance for credit losses were higher than the same quarter of 2008 but lower than the previous quarter. As expected, the rate of increase in net charge offs moderated on a linked quarter basis. Fourth quarter net charge offs of $1,110,000,000 were approximately 7% higher than the third quarter of 2009. This percentage increase was lower than the 12% increase recorded between the second and third quarters of this year.

The growth in net charge offs once again reflected the stress in the residential home and mortgage related industries and the impact of the economy on both our retail and commercial customers. Also, and as expected, non-performing assets excluding covered assets increased again this quarter. The $184 million or approximately 5% increase was lower than last quarter’s linked quarter growth rate of approximately 12%, another indication that credit quality is deteriorating at a slower pace.

At December 31st total non-performing assets were $5,907,000,000. Included in total non-performing assets were $2 billion and $3 million of loans and other real estate covered by a loss sharing agreement with the FDIC. Given the terms of these agreements with the FDIC, the amount of potential loss on these loans is substantially reduced.

Turning to Slide Nine, you can see that as expected given the upward trend in both net charge offs and non-performing assets in addition to the uncertain and still somewhat weak economy, we increased the allowance for credit losses this quarter by recording a $278 million incremental provision for loan losses. This represented approximately 25% of the current quarter’s total net charge offs of approximately $1.1 billion. This compares with an incremental provision equal to 40% of the net charge offs in the third quarter of 2009 and 100% in the fourth quarter of 2008. This incremental provision raised the company’s allowance for credit losses to period end loans at December 31st excluding covered assets to 3.04% from 2.88% at September 30th. The ratio of allowance to non-performing loans excluding covered assets ended the quarter at 153%.

As we look ahead 90 days, we anticipate continued growth in both net charge offs and non-performing assets, however we expect the rate of growth to once again trend lower. Given the current focus by the investment community on credit quality, we have included the following nine slides which provide credit related information about each of our major loan portfolios. I will highlight just a few items on each slide.

Beginning on Slide 10, provides more detail on the commercial loan portfolio which has declined from an average of over $50 billion in the fourth quarter 2008 to approximately $43 billion in the fourth quarter of 2009 primarily due to the lower line utilization and lower demand. The trend in utilization of outstanding revolving lines of credit is shown on the right hand side of the slide. The net charge off ratio on the portfolio increased to 2.28% in the fourth quarter with losses coming primarily from the more leveraged sections such as correspondent banking and gaming. Non-performing commercial loans as a percentage of average loans were 2.05% for the fourth quarter, very comparable to the previous quarter.

Slide 11 provides additional information on the commercial leasing portfolio. Early stage delinquencies and net charge offs have declined over the last two quarters in this portfolio primarily due to the improvement in small ticket leasing.

Moving on to Slide 12 and the company’s commercial mortgage portfolio. Average commercial real estate mortgages have increased over the past year due to the lack of permanent financing previously available in the CMBS market. Approximately 45% of the portfolio is owner occupied. Overall, net charge offs remain low at just 48 basis points of average loans outstanding.

The commercial real estate construction portfolio is detailed on Slide 13 and is the most stressed portfolio. The net charge off ratio of 6.24% remains elevated and reflects declines in the market value of both commercial and residential construction properties. Residential construction loans outstanding have declined from an average of $4.7 billion in the third quarter of 2007 to $2.3 billion in the fourth quarter of 2009. 13.6% of the loans in this CRE construction portfolio are currently classified as non-performing.

Turning to the residential mortgage portfolio detailed on Slide 14, the net charge off ratio continues to edge higher currently standing at 2.37% for the fourth quarter of 2009. On a positive note and similar to the company’s other retail loan portfolios, early stage delinquencies for the residential mortgage portfolio decreased slightly from 2.39% in the third quarter to 2.36% in the fourth quarter. Restructured residential real estate loans that continue to accrue interest rose by 1.2% this quarter.

As you may recall, our company began actively working with customers to renegotiate loan terms late in 2007 enabling many to keep their homes. Since late 2007, including loans serviced for others we have modified over 27,000 residential mortgage loans totaling approximately $4.6 billion. Additionally, we began participating in the HAMP, the government’s mortgage modification program in September of 2009 and have since begun trial modifications on over 7,400 loans or 26% of eligible loans.

We expect that the number of loan modifications that we complete over time will be lower than the industry average as our initial underwriting was generally more stringent on debt to income. We are finding that a large percentage of the modification requests we receive are already below the 31% debt to income and therefore do not qualify for HAMP. Additionally, these loan modifications exclude acquired covered loans which are modified following the terms of the loss sharing agreements with the FDIC. Going forward we will continue to actively assist our customers whether through HAMP or other programs and support the government’s objective to restore the housing markets.

Slide 15 summarizes our home equity portfolio. Currently overall demand for the home equity products is down although we grew our average home equity loans by 4% year-over-year. Our high quality traditional portfolio has performed very well during this cycle with current net charge off cycle of only 1.29%. The consumer finance originated loans carry lower FICO scores and represent approximately 13% of the total portfolio. The net charge off ratio on the consumer finance portfolio was 6.56% for the fourth quarter.

Credit card loans are detailed on Slide 16. The net charge off ratio has declined each of the last two quarters due to a portfolio purchase in early September. On the right hand side of the slide we have adjusted the ratios for this portfolio purchase to show the upward trend in the credit card net charge offs continues. Given the high quality of our portfolio however, we continue to perform significantly better than the industry average. Similar to the mortgage and home equity products early stage delinquencies improved on a linked quarter basis.

Slide 17 provides additional detail on the retail leasing portfolio. Net charge offs have declined as better used car prices have significantly reduced end of term valuation and credit losses. Finally, Slide 18 summarizes the credit information on other retail loan portfolios. Early stage delinquencies and net charge offs declined during the fourth quarter and as was the case with retail leasing, the auto loan portfolio loss rate improved as used car prices have rebounded from their lows late last year.

In summary and going forward, we expect net charge offs and non-performing assets to continue to increase but at a decreasing rate. Additionally, we will continue to assess the adequacy of our allowance for credit losses and provide for credit losses at a level that reflects changes in the credit risk of the loan portfolio and the current economic conditions.

I will now turn the call over to Andy.

Andrew Cecere

The overall quality of our fourth quarter results reflect both the strength and quality of our organization and I’d like to take a few minutes to provide you with a few more details about the results. I turn your attention to Slide 19 which gives a full view of our fourth quarter and 2009 results. Earnings per diluted common share were $0.30 for the fourth quarter of 2009 equal to the prior quarter and $0.15 higher than the fourth quarter of 2008.

For the full year 2009 the company earned $0.97 per diluted common share. Approximately 40% below the full year 2008 as higher credit costs more than offset a 14% increase in operating income. The key drivers to the company’s fourth quarter results are detailed on Slide 20. The $0.15 per share increase in year-over-year was the result of a 20.8% increase in net revenue driven by a 9.2% increase in net interest income and a 37.8% increase in non-interest income. This favorable change in revenue was partially offset by a 15% increase in non-interest expense and higher credit costs.

Credit costs were impacted by a $478 million increase in net charge offs partially offset by a decrease of $357 million in incremental provision year-over-year as the need for additional reserves lessened. Earnings per diluted common share were comparable on a linked quarter basis. Positive variances in net revenue and the provision for credit losses were offset by growth in non-interest expense.

A summary of the significant items that impact the comparison of our fourth quarter results to prior periods are detailed on Slide 21. The two significant items in the fourth quarter 2009 were net securities losses of $158 million primarily representing impairment on our SIV exposure and provision in excess of net charge offs of $278 million. These two items reduced earnings per diluted common share by approximately $0.18. Significant items in prior comparable periods are listed on Slide 21 and reduced earnings per diluted common share by $0.19 in the third quarter of 2009 and $0.34 in the fourth quarter of 2008.

Turning to Slide 22, net interest income increased year-over-year by $199 million or 9.2% primarily as a result of a $19.4 billion increase in average earning assets, $14.2 billion of which was acquisition related. Net interest margin was two basis points higher than the fourth quarter of 2008 due to our ability to replace wholesale funding with low costs deposits as well as overall lower funding costs. On a linked quarter basis net interest income was higher by $203 million due to an $11.3 billion increase in earnings assets, $9.2 billion of which was acquisition related and a 16 basis point increase in net interest margin.

The net interest margin improved due to the change in mix between wholesale funding and low cost deposits, overall funding costs and a favorable change in loan spreads. The acquisition of FBOP did not have a material impact on net interest margin. Assuming the current rate environment and yield curve, we expect net interest margin to remain relatively stable in the low to mid 380s for the first quarter of 2010.

Slide 23 provides additional detail on our growth in average earning assets this quarter. Year-over-year average total loans grew by 8.2% primarily due to acquisitions while average investment securities increased by $2.2 billion or 5.2%. Linked quarter average total loans grew by $9.7 billion again, primarily due to acquisitions while average investment securities rose by $1.6 billion or 3.7%.

Slide 24 breaks down the growth in average total loans by category. Looking at the chart on the left you can see that the relatively small increase in total average loans, excluding acquisitions was due to a 12.2% drop in average commercial loans as retail residential mortgages and commercial real estate were all higher on a year-over-year basis. The majority of the loans related to FBOP and Downey, PFF acquisitions were reported as covered assets.

Covered assets increased by $13.3 billion year-over-year with FBOP and Downey, PFF contributing $8.9 billion and $4.4 billion of the increase respectively. On a linked quarter basis the growth in average loans was primarily due to acquisitions which accounted for $8.2 billion of the $9.7 billion increase. Average commercial loans declined by $1.2 billion and were partially offset by increases in residential mortgages and other retail lending.

Moving to Slide 25, you can see the very favorable growth in low cost core deposits over the past five quarters. Average total deposits grew by $36.4 billion or 25.2% year-over-year partially due to acquisitions. Importantly, low cost core deposits, non-interest bearing interest checking, money market and savings excluding acquisitions grew by 35.1%. This growth reduced the need for wholesale CD and foreign branch funding and contributed to the net interest margin expansion. On a linked quarter basis average low costs deposits excluding acquisitions grew by $9.2 billion or 7.5% unannualized which again, had a positive impact on the net interest margin.

Slide 26 presents in more detail the changes in non-interest income on a year-over-year and linked quarter basis. Non-interest income in the fourth quarter of 2009 was $553 million or 37.8%. Excluding the favorable change in net securities losses, non-interest income was higher by 26.7%. The positive variance was driven by a 10.3% growth in payments related revenue, mortgage banking related growth of $195 million due to the favorable change in the MSR valuation and related hedge of $103 million and a higher gain on sale margins related to a 36.4% increase in production volumes.

41.2% in commercial product revenue due to concentrated sales efforts related to recent investments in growth initiatives and other higher revenues due to lower end of term lease residual valuation losses and payments contract termination gains. On a linked quarter basis non-interest income was lower by $77 million primarily due to net significant items which were unfavorable by $121 million, a $58 million reduction in mortgage banking revenue primarily due to a 25.2% reduction in production volume and an unfavorable change in the MSR hedge of $34 million and lower trust and investment management fees, deposit service charge and treasury management fees.

These unfavorable variances were partially offset by an increase in other revenues related to lower end of term valuation losses and the payments contract termination fee. Acquisitions had a minimal impact on the variance in fee revenue on a year-over-year or linked quarter basis.

Finally, on Slide 27 we have provided highlights on non-interest expense which was higher year-over-year by $290 million or 15%. The majority of the increase can be attributed to acquisitions which accounted for $86 million of the increase, higher costs related to investments and tax advantage projects which accounted for $79 million of the increase and FDIC insurance expense and other loan expense primarily related to costs associated with other real estate owned.

On a linked quarter basis, non-interest expense was higher by $175 million or 8.5% primarily the result of acquisitions which increased expenses by $66 million, costs related to investments and tax advantage projects which accounted for $60 million of the increase, the elimination on October 1st of the 5% salary reductions related to our early 2009 cost containment initiative, seasonally higher legal and professional expenses and other loan expense associated with other real estate owned.

Finally, the tax rate on the taxable equivalent basis was approximately 21% in the fourth quarter and full year 2009. The rate is expected to gradually increase in 2010 with net income over time. As you turn to Slide 28 I will turn the call back to Richard.

Richard K. Davis

In the fourth quarter of 2009 our company posted record net revenue, achieved positive year-over-year core operating leverage, continued to lend and grew our core deposit base, preserved the strength of our credit rating and capital base and completed a fourth FDIC assisted transaction adding 150 branches to our franchise. Just yesterday we announced the completion of the purchase and conversion of 14 additional branches in Nevada from P. W. Parker &T.

We have positioned this company for growth and we are managing this company for the long term. Our core businesses continue to perform. We are operating from a solid capital and liquidity position and we are well positioned to capitalize on the economic recovery as we enjoy the benefits of the flight to quality, as we continue to invest in organic initiatives, M&A and joint ventures, as we opportunistically acquire and as we benefit from core businesses that are scalable and can be leveraged as this economy recovers.

The coming year will not be without its challenges including a soft economy and its impact on credit quality in addition to the new regulatory and legislative oversight and actions. I am confident that the momentum we have created during the past very challenging year has positioned U.S. Bancorp to grow and prosper as we continue to prudently lend to creditworthy borrowers, judicially invest in and grow our franchise, support our communities, provide best in class customer service and importantly, create value for our shareholders by sustaining our earnings power, high quality balance sheet and capital strength.

That concludes our formal remarks. Andy, Bill and I will now be happy to answer questions from our audience.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Matthew O’Connor – Deutsche Bank Securities.

Matthew O’Connor – Deutsche Bank Securities

Some other banks have pointed to signs that loan demand is increasing especially in small business and the lower end of middle market. I am just wondering if you can comment on what you think your opportunities are there and I guess first if you would agree that there is some signs that it is picking up?

Richard K. Davis

We are seeing short term increases. We had a nice December in virtually every small business category which includes the cards, traditional lines, SBA, small ticket leasing, across the board. January is starting out with kind of a moderate continuation but we are not seeing a robust strength so we are not going to call it a trend yet but we would agree that in the last part of the year we saw an uptick that would give us some hope.

In the rest of the markets though we are seeing the rest of the categories, we would see loans as being fairly predictable. There are some companies in each of the categories that are getting stronger and are starting to move out in front. They are starting to use lending again as part of their growth initiative but by far the majority of the companies are holding back at this point still using their profitability coming from efficiency and balance sheet management not so much from growth.

Matthew O’Connor – Deutsche Bank Securities

Then just separately on credit, your guidance for NPAs and charge offs to increase but at a slower rate and the rate is already pretty low so it feels like 1Q is probably about the peak. One, is that a fair characterization ? And two, shouldn’t the reserve build be about done if that is the case?

Richard K. Davis

Your conclusion is right, that is exactly one we wanted you to make. We are getting down to the point where we have been completely consistent on that trajectory and it has been accurate and we are going to say it again because we are getting close to splitting hairs here. We are going to get down to very nominal increases of both NPAs and charge offs in linked quarter. We would agree, we are getting close to inflection as long as there are no big surprises that we don’t predict in the economy.

Having said that, you can continue to expect the provision as you are seeing we’ll build it at a lesser rate until we think we have a solid consistent pattern of improvement. Once we see that, we believe our ratios are sufficiently acceptable and then you won’t see us add to the provision. We are not quite there, that will be a lacking effect to our consistent expectations of the inflections near term for charge offs and NPAs.

Matthew O’Connor – Deutsche Bank Securities

So just to be clear, even if charge offs and NPAs are flat or down a little bit say in 2Q there will still be some loan loss reserve build?

Richard K. Davis

I think so because we just want to be abundantly careful to make sure that we see a repeated consistency. So one quarter in this environment isn’t enough to convince all of us that we’re done. A couple of quarters, yes and because it is just a matter of time and not a matter of facts we’ll probably continue to add to the provision a little longer until we’re sure.

Operator

Your next question comes from Betsey Graseck – Morgan Stanley.

Betsey Graseck – Morgan Stanley

A couple of questions, one on the dividend you had indicated in the past that two consider any action on the dividend you needed line of sight on earnings and clarification from regulators on capital. Could you maybe just give us an update especially given that Basel III has been announced? I know it is not from the US regulators but how does that factor in to your thinking to what you need to hear from the regulators [inaudible] line of sight on that.

Richard K. Davis

I think they are related actually. I do not know if we are actually calling it Basel III yet but it is getting that nomenclature. Let’s agree, our line of sight is still very good for the company and you might guess we are stress testers par excellence, we know how to stress test the company and we feel that a nominal dividend increase is quite reasonable for this company. But, we also realize and respect the need to work with the regulators who are working on Basel, they are working what eventually will become G20 constructs for our global capitalization and most recently they came out with new guidance for both dividend and stock repurchase paperwork that needs to be completed to confirm our preparation and that is connected to Basel.

All that being said, we continue to work with our regulators to comply with all that necessary information. We know that they are seeking and we agree that the economy needs to be on firm footing longer than it has been so far. So, my characterization would be that despite our own confidence in our own numbers, and I would suspect even our regulator’s confidence in our predictions under the backdrop of an uncertain economy it is prudent for all of us to wait a little longer until we see some stability. Then, we will fulfill the final requirements of the very tedious but appropriate paperwork that needs to be complied with in terms of providing capital guidance and the necessary stress testing that goes along with it. Andy, you might add to that?

Andrew Cecere

We are working with the regulators on a number of different aspects of Basel II and fulfilling our requirements there and we are on track with our own schedules and with the regulators.

Betsey Graseck – Morgan Stanley

The new guidance regarding the dividend, the stock buyback that came out is related to making sure that the stress tests have been done sufficiently to warrant a change in those policies. Is that right?

Richard K. Davis

It really is a stress test overlaid and intersected with capital and being able to say stress test isn’t just a matter of loan quality or earnings but they intersect it with your current capital positions, your ability to earn and generate capital and the quality of your forward view. Put all that together and then they still need to intersect that with what will be the eventual capital guidelines which they have not come out with which we are all waiting for. So until those intersect plus the economy needs a little longer to go. We think we will be among the first to assess that decision. We are in the queue for that but we also appreciate the fact that waiting makes sense for all reasons.

Betsey Graseck – Morgan Stanley

The stress test is kind of fluid, right? It is not the exact same one as was done last April?

Andrew Cecere

No. That’s a stress test that we do on our own numbers and forecast and projections and we do that ever quarter. So it is something that we do on our won and use our own projections and our own definitions of what a stressed economy would look like.

Richard K. Davis

But those stress test definitions to be accepted by the regulators as a real appropriate stress test they would agree with so they can make the assessment against our own evaluation.

Betsey Graseck – Morgan Stanley

Then a separate question on this tax that is being suggested, I know it has to go through Congress, etc. but can you just give us a sense as to what the potential impact could be on your organization and how you anticipate managing for that?

Richard K. Davis

You mean the financial crisis responsibility fee?

Betsey Graseck – Morgan Stanley

Correct.

Richard K. Davis

Which of course is something we all agree hasn’t been approved yet. We understand why it is coming about and we can account for that in our forward view. If it is a July 1st kind of event and we are looking at the 2010 impact for us it is $125 to $150 million on a full year basis. So for us that would be about half that number. We also appreciate that there may be some different definitions which will change, what is included or not included. But, based on our really good core funding and our strong earnings, I think the impact to our EPS as forecasted actually by many of you is not insignificant but it is in the 2% to 4% kind of a range on full year 2011 and that is something that obviously we can manage and we intend to make up for it in discontinued excess performance and make sure our shareholders don’t feel it.

Andrew Cecere

The impact to us has really been diminished over the last four or five quarters as we have experienced tremendous deposit growth with the flight to quality that we talked about. Given that loan demand has been a little weak out there, we have become much more deposit funded as an organization overall.

Richard K. Davis

Having said that though I must say that I am disappointed at the idea of there being kind of one side to this all. We will forever be in that kind of middle ground of being large enough to hit all kinds of systemic important companies being a $280 billion but we’re also going to fight the good fight that we are a fairly simply company and we are in the very basic business of banking and payments and some of these things are perhaps levied at us just based on our size and in some cases based on the actions of a lot of companies in the last few years and a lot of those actions that we did not take.

On calls like this we were withstanding some of the alternatives that some of the others were taking to make a lot of money and we didn’t. I am going to continue to be outspoken on trying to keep U.S. Bank in the family of what is right in the industry but I am going to continue to distinguish us from not being cast with the masses when it comes to things like fees, reputation, impacts and taxation. I am against it because I don’t think it is right.

Operator

Your next question comes from John MacDonald – Sanford Bernstein & Co.

John MacDonald – Sanford Bernstein & Co.

Andy, the net interest margin was significantly better than your guidance. I was just wondering what surprised you on the up side and do you still have an upward bias in your outlook for first quarter or do you really expect it to be kind of flattish this time?

Andrew Cecere

I really do expect it to be flattish John. It wasn’t any one single item I would say it is a combination of three or four things. First, loan spreads both in the wholesale and the retail categories all were a slight bit better than our projections. Secondly, our core deposit growth continues as you see from the numbers. That overall core deposit funding is at a lower costs. Finally, our overall wholesale funding levels are a little bit lower than our expectations. So it is a combination of all those things and given that level of trend we do expect it to be relatively stable in the low to mid 380s for the first quarter.

Richard K. Davis

John, as you compare it to last year’s fourth quarter where we had that blip to 383 based on Downey primarily. This is a more sustainable across the board repeatable kind of margin improvement that we feel confident in settling around there.

John MacDonald – Sanford Bernstein & Co.

Andy, a follow up on your guidance about the tax rate, starting the year at 21% or so, does it ramp up slowly or does it depend on your profitability ramp? What is driving that?

Andrew Cecere

It will ramp up consistent with our profitability so I would expect a moderate ramp up not a significant increase.

John MacDonald – Sanford Bernstein & Co.

Towards what ultimately might be a normal tax rate for you guys?

Andrew Cecere

As we look at the full year of 2010 I would expect somewhere in the low 20s, between 22% and 25% tax adjusted.

John MacDonald – Sanford Bernstein & Co.

Then the final thing, Richard was asked kind of in the past trying to understand the cumulative impact of a number of acquisitions that you have done trying to assess how much of these deals are in your current earnings and how much is still to come. Any sense of the cumulative impact the deals might have on 2010 and beyond on your earnings power?

Andrew Cecere

What I would tell you is we try to isolate the specific expense items as you noted and the loan growth and deposit growth items in the slides and you can see the numbers there. I would say as you look at the revenue growth that occurred here in the fourth quarter, about 20% of that revenue growth was related to the acquisition impact, FBOP, PFF and Downey and the remaining 80% was really core so you can work through the numbers. Most of that increase was in the margins section. The income component was relatively modest it was principally in margin.

Richard K. Davis

To add to that, the company a few years ago might well have had acquisitions like this and it would have been more a play to save the expenses, run off the high cost deposits and move along. In the last couple of years this companies now takes in an acquisition and brings it on for more customers. We protect the depositors. We intend to develop relationships and not lose them just based on price and we are not looking for the cost savings as much, we are looking for the revenue growth.

So what I would say to you is these acquisitions are joining the core franchise now in being more of a revenue focused company and so there is an additional attribute there, a synergy that comes along with it that you should just include in the company being bigger doing better which is in our numbers as we think going forward. But, if I perform for you guys like we said we would this company entirely will perform better with higher levels of revenue and higher levels of operating leverage going forward because we have positioned ourselves to grow as opposed to just being stable with expenses coming down.

Operator

Your next question comes from Heather Wolf – UBS.

Heather Wolf – UBS

I was hoping we could get a bit more information on the modifications specifically if you could repeat the dollar amounts again and also redefault rates, what is sitting in non-performing versus performing, level of debt forgiveness, etc., any information you could give us would be great.

Richard K. Davis

Let’s have Bill do that. I am going to remind you one of my comments was though the HAMP program gets all the headlines, it is not the only program that a lot of us participate in particularly banks like ours that have participated in FDIC deals. In November of 2008 one of our agreements with the FDIC was to be the first bank besides Indy Mac that they at the time owned that would adopt the FDIC modification program. So, we have done that and in fact it is a bigger number for us than HAMP having started HAMP in September.

Also, long before either of those events we were doing what was right for customers by keeping them in their houses and saving ourselves from owning a home. I just want the cover story that it isn’t just HAMP. I said it in my comments and I will say it again, you won’t see us in those monthly HAMP reports probably above the median. We simply don’t have that kind of base of customers or that kind of loan-to-value portfolio that will give us the ability to have big numbers and that is actually a good thing. But headlines will always rank banks and [inaudible] those that have the highest number are the ones doing the best and in some cases it is quite the opposite.

P. W. Parker

We have about a little over $1.3 billion of restructured mortgage loans and those are the accruing restructured loans. We look at both the 60 day redefault rate which is what the regulators use and then we also look at a rate where things enter foreclosure. Our 60 day rate is 27.5% and ones that ultimately wind up in foreclosure is 17.6%. The 27.5% compares to what the OCC put out in their third quarter modification report where it shows industry averages are close to 50% on that. So ours are running significantly better than that.

Heather Wolf – UBS

Any information on debt forgiveness.

P. W. Parker

We do have programs for debt forgiveness. If you run through the HAMP process obviously you don’t get there but we do have our own modification programs so we do sometimes look at that because the cost of putting off the 114 reserve can be significant so sometimes it is in the bank’s and the borrowers best interest to do debt forgiveness.

Richard K. Davis

Heather what we are learning to is there is a new psyche around borrowers and we are learning that sometimes lower payments, sometimes lower principle, sometimes combinations causes permanent behavior changes and sometimes it doesn’t. So despite best efforts if you don’t hit the right psyche with the right borrower you’ll do all these actions and they will continue to default or they’ll walk away. I think the whole industry is learning new reactions to new actions that are coming along and probably in another couple of quarters we’ll probably figure out the best, highest, most efficient way to protect a customer and get them to stay with the home and give us the benefit of not having a property and them staying in it.

Heather Wolf – UBS

I just had one other quick question on deposit growth. It sounds like it has been sort of surprising you guys to the upside, I know it has been surprising me to the upside. Do you have any color going forward about what to expect and maybe what to expect in different rate backdrops as well?

Andrew Cecere

Heather our deposit growth has been across categories both retail and wholesale, across geographies throughout our states and it has been incremental positive each and every quarter. As we look forward I would expect to continue to see growth in our deposits. We have become a little bit more aggressive in retail deposit pricing. I would not expect to see the same level of robust growth that we have seen in the last few quarters but still continued growth. Given our expectation around the continuation of moderate loan demand I think you will see us continue to be more deposit funded.

Richard K. Davis

Let me add to that, there are a couple of other things. We have over 1,000 of our 3,000 branches are in small communities and we have a community banking strategy that forever has been unique and different and it is our secret weapon. As you might guess the propensity of banks that are under stress are small community banks these days and in those markets it is latent, it comes a little later than the beginning of the recession but customers start looking around thinking, “Wow I really need to put my money in a bigger, safer name,” in many cases. So we are seeing robust growth and it just doesn’t come out in the details.

Secondly, we have a corporate trust business that starts to gen up again as the market starts to warm up. There is a lot of good core deposits that come in that category. Then lastly, our corporate banking strategy which we have been talking about for two years, typically we get visibility because of the actions we are taking now on the balance sheet or in our capital markets but one of the undertows to that status is more deposits that come along with those relations. All of those are adding together well above just what would be more deposits from each customer. We have a lot more customers each with deposits.

Operator

Your next question comes from David Konrad – Keffe, Bruyette & Woods.

David Konrad – Keffe, Bruyette & Woods

I had a question regarding FDIC deals. I mean your capital ratio has held in very well this quarter despite the FBOP deal which I think speaks to your capital generation capabilities. But maybe from an operational standpoint, what’s your appetite over the near term to look at more FDIC deals? Then kind of bigger picture how do you view the tradeoffs or the rankings between building your footprint through FDIC deals and increasing the dividend?

Richard K. Davis

We said last time and we are sticking to it, FDIC deals need to be big enough and meaningful enough for us to put our company through the distraction. So, we are still looking at deals that have, I don’t know what I said last time, but probably 50 to 100 branches to make it worth the effort. That means we’re taking out of our near term scope the small bank of Idaho deals that we did last spring and those sort of deals. They are just distraction costs more than they are financial costs.

If we look at those deals of the size that I spoke to, FBOP is a great example, if we don’t feel we can protect those capital levels and continue to grow with our own operating performance then we won’t make that trade off. In other words, if we can’t grow through it we won’t put our burden either on the risk of the dividend being deferred longer or the risk of our capital levels falling. So, it has got to hit that sweet spot and that has a lot to do with our own confidence in our earnings which is why we stress test everything to make sure before we do a deal we can afford to make those tradeoffs.

But, dividend is very important which relates to capital, we will protect it as a precious asset as it is. But, if a great deal comes along and we can afford it and it is meaningful enough to cause a distraction to the company we will grab it and move forward. So a lot of what you have seen in the past is what we will do.

David Konrad – Keffe, Bruyette & Woods

What is your views of the Chicago market with the recent deal you certainly increased your position in Chicago but the market share is still light relative to too many people in that market so what is your plans with Chicago?

Richard K. Davis

In Chicago we are number nine now, I think up from 13 in total deposit market share. What I like about Chicago and it is what I know about California having been a native is it is not the entire market, it is not Chicago land it is the markets we are in. We are a very heavy western franchise neighborhood bank now moving in to the south with FBOP, not so much actually in the city but enough to be connected to the commuters. So while I would love to be more than nine and we will make an effort to be more relevant in that market, we have got enough market position in the communities that I think it is a unique strategy, it is kind of a combo between large metro and community and for us it is working quite well.

So if I could go from nine to say five or six and strengthen the total performance in each of those markets, we would be satisfied with that. Getting to the top three will probably take longer but it is a goal to grow Chicago and to become relevant in its entirety but certainly we’ll start at each market level.

Operator

Your next question comes from John Arfstrom – RBC Capital Markets.

John Arfstrom – RBC Capital Markets

Richard, last quarter you talked a little bit about deposit service charges and you thought that maybe the things sat last quarter it might be 20% or so out of revenues. Just based on what you know now do you think that is still valid?

Richard K. Davis

Yeah I do. First we have a two step process coming up in our life on that topic and this is all pre what may come out of the Consumer Protection Agency that I am sure will come about. In the end of the first quarter we have our own identified opportunities to improve the transaction routines and improve the reaction from our customers by changing the maximum number of overdrafts and the dollar amounts and all of that. That occurs at the end of this quarter and then at the beginning of the third quarter we will follow the rules of the Federal Reserve that has come up with yet a different overlay on rules and regulations on NSF and OD.

All those without any sense for what kind of new offsets we might create and I don’t mean just service charges but new ways of relating to customers and their total relationship. That for us is a $200 to $300 million kind of impact for U.S. Bank this year and we will still as I said, await what will be the potential further negative of what I think the Consumer Protection Agency will probably overlay on some of those fees which they will consider either a nuisance or accepted.

On the other hand, I do think we and not related to what others do so much as what we want to do with our customers is find a better value proposition where we can create different paradigms that include how you can be covered, to provide insurance to customer when the in fact don’t want to be surprised. I think we’re all expecting this opt in opt out to be a moment of time where we will learn a lot about customer behavior. We are expecting extremely low levels of opt in after people begin opting out because we simply aren’t going to build those financial expectations and if they come along we’ll be surprised pleasantly.

In other words, we’re expecting a very, very low percentage of people after they begin in the opt out in July 1st or August 15th to want to jump back in until they experience a moment of embarrassment at which point they may say, “Tell me again now what are my choices?” And we want to have a much better menu of options to say, “ Look if you don’t want to be caught without money at a certain point of time there are a number of different programs or alternatives we can give you to make sure you have an insurance to get through your life because perhaps your behaviors up until now you were paying a lot but you were also getting a lot.”

So we’re expecting $200 to $300 million loss this year. By next year at this time I think we will have a much better understanding of behaviors, customers’ willingness to pay for certain services and by then John I think we’ll have a much better clarity around it. But, for now we’re expecting the worse.

John Arfstrom – RBC Capital Markets

Will you be very aggressive in trying to urge customers to opt in?

Richard K. Davis

No, we’re not going to do that because I want them to do it when they have decided, I want them to initiate it. So if I were to tell you ahead of time to opt in because something that hasn’t happened to you, it won’t be a very sustainable opt in. The rules are going to require us to have you opt in every time you have an issue. So, I’d really rather have you have the moment that you know to call us the minute something happens. I mean think of the alternatives, with mobile banking and stuff like that we could easily create a product where if you have an overdraft circumstance, step out of line, dial this following number or input something in your mobile phone and all of a sudden we’ll transfer money over, then go back in line and get your transaction.

There are lots of ways, or prefunded debt cards we’ll give you to put in your pocket in case you have to flip another card out at a moment of uncertainty. So, I think there will be plenty of ways to give customers alternatives and opt in will be probably the last reaction to a choice of in or out. I think there will be a lot of better alternatives, I don’t want to force people in.

John Arfstrom – RBC Capital Markets

Just one quick follow up, just on the small business lending I think you have talked a little bit about your focus on that and maybe that was a promise to the Administration to go back and relook at the category, but any surprises or is it about what you expected?

Richard K. Davis

You mean the second look?

John Arfstrom – RBC Capital Markets

Yes.

Richard K. Davis

So second look is really working. It is a fairly nominal opportunity to override basically the computer programming that goes along. Small business is not manually underwritten but when you have now a loan that is close call and it was going to be turned down by the computer, we do outsource it to a human. A human who takes a look at the circumstances and sees maybe what the computer couldn’t. I would say probably in low 10% to 15% levels we might find a way to make that deal.

It is not huge but it is better than zero. It is a good faith effort and frankly it is worth the expense we put against it for the opportunity to say yes and build the balance sheet. So I would say it is a good trade off and it is working like I thought it would.

Operator

Your next question comes from David Rochester – FBR Capital Markets & Co.

David Rochester – FBR Capital Markets & Co.

You had mentioned briefly that you were getting more aggressive in retail pricing, it was a positive and I was just wondering what the driver for that was? Are you seeing some of your competition doing the same thing right now?

Andrew Cecere

About a year and a half ago I would say we were in the lower quartile in terms of deposit pricing in the marketplaces that we were in and in addition there were a number of competitors who were very aggressive outside of what I would call normal balance in terms of deposit pricing. So two things have occurred number one, we made a decision to be at least at the median in most of our markets. We felt that was where we needed to be in addition to the convenience and quality of our company we needed deposit pricing in the median. Secondly, many of the competitors have moderated their level of pricing. So those two things combined I think are certainly key factors in our ability to grow retail deposits.

David Rochester – FBR Capital Markets & Co.

Lastly, just given the interest rate scenario analysis you guys conducted, do you anticipate the margin comfortably rising above the 4% range maybe to the 4.25% range in the longer term as NPAs decline?

Andrew Cecere

As I said in our prepared comments, we expect relatively stable low 380s given the current rate environment and yield curve. As you can see from our Q and you’ll see from our K, we continue to be slightly asset sensitive so to the extent rates increase that will help us modestly.

David Rochester – FBR Capital Markets & Co.

So stable next quarter but in the longer term say two to three years out is there any reason structurally why you can’t get back to a 4% to 4.25% range that you see?

Andrew Cecere

No, there is no structural reason we can’t but we’re not projecting out that far.

Richard K. Davis

We report [24] a couple of years ago and one of those issues was not defending deposit pricing and we’re not that bank before. So that is one probably difference between before and after. Also, we’re going to stay on the high quality asset generation so we may not enjoy some of the higher margins that come with higher risk. We’re simply going to stay in the conservative category and kind of earn it the old fashion way. I don’t know that it couldn’t get back up there David but we don’t see that, at least in the next couple of years as an outcome without having to stretch for it and we’re not going to stretch for it.

Operator

Your next question comes from Michael Mayo – Calyon Securities (USA), Inc.

Michael Mayo – Calyon Securities (USA), Inc.

You guys gave some of the impact from FBOP on expenses, fees and loans, what was the impact on net interest income for the fourth quarter and what was the impact on the margin?

Andrew Cecere

There was no material impact to margin Mike and net interest income was just about $100 million.

Michael Mayo – Calyon Securities (USA), Inc.

The HAMP program on the credit losses, the charge offs were what 2.54%. If not for the HAMP program what would have charge offs been?

P. W. Parker

Are you talking about our total residential mortgage charge off rate and what it would have been without the HAMP?

Michael Mayo – Calyon Securities (USA), Inc.

Yes. Yesterday Citigroup gave a number.

P. W. Parker

We don’t have that calculated. It would not be a material difference. Most of our HAMP program is in the FDIC covered but on the securitization portfolio. So a lot of it is not on the balance sheet.

Michael Mayo – Calyon Securities (USA), Inc.

You mentioned loan utilization went from 32% in the third quarter down to 30%. I thought last quarter you said it was an all time low so is this a new all time low for loan utilization?

Richard K. Davis

Yes it is and it was 385 a year ago so it is a big drop. We saw a little uptick in November and then it came back down in December so it was short lived. That might be yearend issues of companies. Remember this is primarily our wholesale customer who have the open to buy, they have got the line available and they are paying it down. That is the best indicator, and I have used this when we have talked to the Administration as well, the best indicator of loan demand is the people who have it can use it, it is there if they want it, it is a preferred rate and they don’t. Until that starts to turn that is your best proxy for what the real loan demand is out in the real world and we’re not seeing it.

Michael Mayo – Calyon Securities (USA), Inc.

When you say wholesale customer, can you define that?

Richard K. Davis

That is going to be anybody above small business even in community banking. So small business is not included but anything from lower middle market to middle market to corporate including commercial real estate in communities and in the large market. So, everything but small business.

Michael Mayo – Calyon Securities (USA), Inc.

So there is just not demand, you are willing to loan but there is no demand?

Richard K. Davis

You got it. That is a good sound bite.

Michael Mayo – Calyon Securities (USA), Inc.

Then last thing, you went through a lot of onetime or noise in the quarter and I guess I can always follow up afterwards, you had over provisioning, you had securities losses, you had a low tax rate and it seemed like you had some other noise in expenses and also fees, the other line. Is there anything else you’d want to really highlight in expenses and fees as being kind of non-permanent?

Andrew Cecere

You know in expenses Mike the fourth quarter is traditionally a high level market for tax amortization expense related to our tax advantage programs and that is typically a seasonal activity that obviously occurs in the fourth quarter. That would be the principle item there. Many of the other things are acquisition related and they are going to be in the run rate on a go forward basis.

Richard K. Davis

I don’t want you to think it was a noisy quarter because I thought it was pretty straight forward but, I will add one more thing. We did mention the impact of our cost containment activity in February of last year. When the market was obviously getting worse, we thought it was prudent to take a 5% expense reduction across the company and we did. Then in October we thought that things were steadying back a bit and the company’s revenue was strong enough and we added it back to the pleasure of the employees and that run rate shows up in the linked quarter aspect but that is now the appropriate run rate that we are back at.

But, were it not for those actions last year we wouldn’t have been able to offset some of the other loan loss charges and things as well. So, we are pleased we did it but that would be a non-sustainable linked quarter effect too Mike. But, other than that I think we should see it as a pretty standard operating.

Operator

Your next question comes from Glenn Greenberg – Brave Warrior Advisors.

Glenn Greenberg – Brave Warrior Advisors

Your non-interest income you haven’t really commented on in the Q&A but it seems to be coming on very strong and I know you said you have a goal of having that be about equal to your net interest income. I wanted to get your thoughts on whether you see perhaps a potential for it to exceed net interest income given the slow growth in the economy?

Richard K. Davis

I do. A couple of years ago it was ahead of net interest income because margins were tight, they yield curve wasn’t very yielded well and our payments and trust businesses were gang busters. It is the complete opposite right now and our payments and trust businesses are just wide opened for business. As I said before, the freeway has got lots of lanes there are just not that many cars on it but when they are ready we’re ready. So I think with a higher margin and a higher asset balance sheet growth coupled with what will soon be the emerging growth again of payments and trusts, I’d love them to compete with each other for 50/50 at intensely higher levels than a couple of years ago and I think we’re on that path. It will lag but it will eventually start giving net interest a run for their money.

Operator

Your next question comes from Analyst for Kenneth Usdin – Bank of America Merrill Lynch.

Analyst for Kenneth Usdin – Bank of America Merrill Lynch

You guys were one of the first to really go to the FDIC assisted deals with Downey and PFF. I was wondering if any of the economics changed year-over-year from when you did FBOP compared to the first two?

Andrew Cecere

I would say that the economics were very similar. The expectations in terms of deposit run off are consistent, the actual are consistent with our expectations. Thus far with FBOP it is starting out the same. The incremental revenue impacts from just having more outlets so to speak in the California marketplace are very positive as Richard mentioned so no, they haven’t changed substantially.

Richard K. Davis

Ken, this is interesting but Downey and PFF really were thrift kind of deals and they were consumer deals and they were mortgage deals. FBOP was a core bank deal with commercial real estate and wholesale customers. So, as much as they looked a lot alike, they were entirely different and I would say that we learned a lot from Downey and our better ability to value something like an FBOP by knowing the difference and each has it different attributes. But, between those two there’s not a deal that I can think of that the FDIC could put before us that we wouldn’t have high confidence in knowing exactly how to model and be able to optimize our bid in order to get the best deal if any of those comes along.

So, we have kind of seen both ranges of it and I have got to say I have to give props to the FDIC. They are good to work with, they give us good feedback along the way from the closing night all the way through the accounting issues we have had very good success and have enjoyed that relationship.

Analyst for Kenneth Usdin – Bank of America Merrill Lynch

One quick follow up on the margin, I know you said there was no impact, I am assuming that refers to the purchase accounting but was there any restructuring done to FBOP’s balance sheet that could have strengthened their core margin?

Andrew Cecere

No. We brought down the loans to fair market value and that’s reflected in the run rate but the impact to the margin was immaterial.

Operator

There are no further questions at this time.

Judith T. Murphy

Thanks everyone for listening to our call today and as always, if you have questions please give me a call. Thanks.

Operator

This concludes today’s conference. Thank you for your participation. You may now disconnect.

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Source: U.S. Bancorp Q4 2009 Earnings Call Transcript
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