Even a well-run bank like US Bancorp (NYSE:USB) isn't immune to its environment. Lately, competition for both deposits and loans has been heating up in the banking industry. This pressure on margins has also been exacerbated by a flat yield curve, overabundant liquidity, and lax credit standards. In spite of all this, Income Investor recommendation US Bancorp reported a decent fourth quarter.

For the quarter, net income of $1.19 billion increased 4.5% over the year-ago period. Like its peers, US Bancorp's net interest margins have been squeezed by increasing competition, forcing the company to offer higher rates on its deposits and lower rates on its loans. Fourth-quarter net interest margin contracted 32 basis points compared to a year ago, mostly because of tighter credit spreads. As a result, net interest income (the difference between what the company earns on its assets and what it pays on its liabilities) decreased 5% year over year. On a more positive note, credit quality stayed firm, with net charge-offs down year over year. The company voiced confidence that its credit losses wouldn't creep up in the coming year.

Fee income (non-interest income) increased by double digits, thanks to growth in payment processing, wealth management fees, and deposit service charges. Net checking accounts increased at an annualized 5% rate. Management watches this measure very closely, because they believe that getting a customer's checking account is a prelude to other services. In the conference call, management also noted that it was finished with the integration of Wachovia's (NYSE:WB) Trust and Custody Systems, and was progressing with SunTrust's (NYSE:STI) Trust System.

Performance ratios stayed strong, with a 2.18% return on average assets (anything over 1% is considered good), a return on average equity of 23.2% (10%-15% is the usual benchmark), and an efficiency ratio of 44.5% (anything under 50% is good). So, despite the somewhat lackluster numbers, US Bancorp performed well in the face of increasing competition.

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