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Table of Contents
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
þ
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended
March 31, 2010
OR
o
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF
1934
For the transition period from
(not applicable)
Commission file number 1-6880
U.S. BANCORP
(Exact name of registrant as specified in its charter)
| Delaware | 41-0255900 | |
|
(State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer
Identification No.) |
800 Nicollet Mall
Minneapolis, Minnesota
55402
(Address of principal executive offices, including zip code)
651-466-3000
(Registrant’s telephone number, including area code)
(not applicable)
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been
subject to such filing requirements for the past 90 days.
þ
YES
o
NO
Indicate by check mark whether the
registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
þ
YES
o
NO
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting
company” in
Rule 12b-2
of the Exchange Act.
|
Large accelerated
filer
þ
|
Accelerated filer o | |
|
Non-accelerated
filer
o
(Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act).
o
YES
þ
NO
Indicate the number of shares
outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
|
Class
Common Stock, $.01 Par Value |
Outstanding as of April 30, 2010
1,916,894,222 shares |
Table of Contents
and
Form 10-Q
Cross Reference Index
|
Part I —
Financial Information
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6) Exhibits
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54 | |||||||
| EX-12 | ||||||||
| EX-31.1 | ||||||||
| EX-31.2 | ||||||||
| EX-32 | ||||||||
| EX-101 INSTANCE DOCUMENT | ||||||||
| EX-101 SCHEMA DOCUMENT | ||||||||
| EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
| EX-101 LABELS LINKBASE DOCUMENT | ||||||||
| EX-101 PRESENTATION LINKBASE DOCUMENT | ||||||||
| EX-101 DEFINITION LINKBASE DOCUMENT | ||||||||
“Safe
Harbor” Statement under the Private Securities Litigation
Reform Act of 1995.
This quarterly report on
Form 10-Q
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 and are based on the information available to, and
assumptions and estimates made by, management as of the date
made. These forward-looking statements cover, among other
things, anticipated future revenue and expenses and the future
plans and prospects of U.S. Bancorp. Forward-looking statements
involve inherent risks and uncertainties, and important factors
could cause actual results to differ materially from those
anticipated. Global and domestic economies could fail to recover
from the recent economic downturn or could experience another
severe contraction, which could adversely affect U.S.
Bancorp’s revenues and the values of its assets and
liabilities. Global financial markets could experience a
recurrence of significant turbulence, which could reduce the
availability of funding to certain financial institutions and
lead to a tightening of credit, a reduction of business
activity, and increased market volatility. Stress in the
commercial real estate markets, as well as a delay or failure of
recovery in the residential real estate markets, could cause
additional credit losses and deterioration in asset values. In
addition, U.S. Bancorp’s business and financial performance
could be impacted as the financial industry restructures in the
current environment, by increased regulation of financial
institutions or other effects of recently enacted or future
legislation, and by changes in the competitive landscape. U.S.
Bancorp’s results could also be adversely affected by
continued deterioration in general business and economic
conditions; changes in interest rates; deterioration in the
credit quality of its loan portfolios or in the value of the
collateral securing those loans; deterioration in the value of
securities held in its investment securities portfolio; 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; effects of critical accounting policies and
judgments; and management’s ability to effectively manage
credit risk, market risk, operational risk, legal risk, and
regulatory and compliance risk.
For discussion of these and other risks that may cause actual
results to differ from expectations, refer to
U.S. Bancorp’s Annual Report on
Form 10-K
for the year ended December 31, 2009, on file with the
Securities and Exchange Commission, including the sections
entitled “Risk Factors” and “Corporate Risk
Profile” contained in Exhibit 13, and all subsequent
filings with the Securities and Exchange Commission under
Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934. Forward-looking statements speak only as
of the date they are made, and U.S. Bancorp undertakes no
obligation to update them in light of new information or future
events.
|
|
1 |
Table of Contents
Table 1 Selected Financial Data
|
Three Months
Ended
|
|||||||||||||
| March 31, | |||||||||||||
|
Percent
|
|||||||||||||
| (Dollars and Shares in Millions, Except Per Share Data) | 2010 | 2009 | Change | ||||||||||
|
Condensed Income Statement
|
|||||||||||||
|
Net interest income (taxable-equivalent basis) (a)
|
$ | 2,403 | $ | 2,095 | 14.7 | % | |||||||
|
Noninterest income
|
1,952 | 1,986 | (1.7 | ) | |||||||||
|
Securities gains (losses), net
|
(34 | ) | (198 | ) | 82.8 | ||||||||
|
Total net revenue
|
4,321 | 3,883 | 11.3 | ||||||||||
|
Noninterest expense
|
2,136 | 1,871 | 14.2 | ||||||||||
|
Provision for credit losses
|
1,310 | 1,318 | (.6 | ) | |||||||||
|
Income before taxes
|
875 | 694 | 26.1 | ||||||||||
|
Taxable-equivalent adjustment
|
51 | 48 | 6.3 | ||||||||||
|
Applicable income taxes
|
161 | 101 | 59.4 | ||||||||||
|
Net income
|
663 | 545 | 21.7 | ||||||||||
|
Net (income) loss attributable to noncontrolling interests
|
6 | (16 | ) | * | |||||||||
|
Net income attributable to U.S. Bancorp
|
$ | 669 | $ | 529 | 26.5 | ||||||||
|
Net income applicable to U.S. Bancorp common shareholders
|
$ | 648 | $ | 419 | 54.7 | ||||||||
|
Per Common Share
|
|||||||||||||
|
Earnings per share
|
$ | .34 | $ | .24 | 41.7 | % | |||||||
|
Diluted earnings per share
|
.34 | .24 | 41.7 | ||||||||||
|
Dividends declared per share
|
.05 | .05 | – | ||||||||||
|
Book value per share
|
13.16 | 10.96 | 20.1 | ||||||||||
|
Market value per share
|
25.88 | 14.61 | 77.1 | ||||||||||
|
Average common shares outstanding
|
1,910 | 1,754 | 8.9 | ||||||||||
|
Average diluted common shares outstanding
|
1,919 | 1,760 | 9.0 | ||||||||||
|
Financial Ratios
|
|||||||||||||
|
Return on average assets
|
.96 | % | .81 | % | |||||||||
|
Return on average common equity
|
10.5 | 9.0 | |||||||||||
|
Net interest margin (taxable-equivalent basis) (a)
|
3.90 | 3.59 | |||||||||||
|
Efficiency ratio (b)
|
49.0 | 45.8 | |||||||||||
|
Average Balances
|
|||||||||||||
|
Loans
|
$ | 192,878 | $ | 185,705 | 3.9 | % | |||||||
|
Loans held for sale
|
3,932 | 5,191 | (24.3 | ) | |||||||||
|
Investment securities
|
46,211 | 42,321 | 9.2 | ||||||||||
|
Earning assets
|
248,828 | 235,314 | 5.7 | ||||||||||
|
Assets
|
281,722 | 266,237 | 5.8 | ||||||||||
|
Noninterest-bearing deposits
|
38,000 | 36,020 | 5.5 | ||||||||||
|
Deposits
|
182,531 | 160,528 | 13.7 | ||||||||||
|
Short-term borrowings
|
32,551 | 32,217 | 1.0 | ||||||||||
|
Long-term debt
|
32,456 | 37,784 | (14.1 | ) | |||||||||
|
Total U.S. Bancorp shareholders’ equity
|
26,414 | 26,819 | (1.5 | ) | |||||||||
|
March 31,
2010 |
December 31,
2009 |
||||||||||||
|
Period End Balances
|
|||||||||||||
|
Loans
|
$ | 191,153 | $ | 194,755 | (1.8 | )% | |||||||
|
Allowance for credit losses
|
5,439 | 5,264 | 3.3 | ||||||||||
|
Investment securities
|
46,913 | 44,768 | 4.8 | ||||||||||
|
Assets
|
282,428 | 281,176 | .4 | ||||||||||
|
Deposits
|
184,039 | 183,242 | .4 | ||||||||||
|
Long-term debt
|
32,399 | 32,580 | (.6 | ) | |||||||||
|
Total U.S. Bancorp shareholders’ equity
|
26,709 | 25,963 | 2.9 | ||||||||||
|
Capital ratios
|
|||||||||||||
|
Tier 1 capital
|
9.9 | % | 9.6 | % | |||||||||
|
Total risk-based capital
|
13.2 | 12.9 | |||||||||||
|
Leverage
|
8.6 | 8.5 | |||||||||||
|
Tier 1 common equity to risk-weighted assets (c)
|
7.1 | 6.8 | |||||||||||
|
Tangible common equity to tangible assets (c)
|
5.6 | 5.3 | |||||||||||
|
Tangible common equity to risk-weighted assets (c)
|
6.5 | 6.1 | |||||||||||
| * | Not meaningful. |
| (a) | Presented on a fully taxable-equivalent basis utilizing a tax rate of 35 percent. | |
| (b) | Computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding net securities gains (losses). | |
| (c) | See Non-Regulatory Capital Ratios on page 22. |
|
|
U.S. Bancorp |
Table of Contents
OVERVIEW
Earnings
Summary
U.S. Bancorp
and its subsidiaries (the “Company”) reported net
income attributable to U.S. Bancorp of $669 million
for the first quarter of 2010 or $.34 per diluted common share,
compared with $529 million, or $.24 per diluted common
share for the first quarter of 2009. Return on average assets
and return on average common equity were .96 percent and
10.5 percent, respectively, for the first quarter of 2010,
compared with .81 percent and 9.0 percent,
respectively, for the first quarter of 2009. The Company
continued to strengthen its allowance for credit losses in the
first quarter of 2010 by recording $175 million of
provision for credit losses in excess of net charge-offs. Also
impacting the first quarter of 2010 were $34 million of net
securities losses. The first quarter of 2009 also included
several significant items, including $530 million of
provision for credit losses in excess of net charge-offs,
$198 million of net securities losses and a
$92 million gain from a corporate real estate transaction.
Total net revenue, on a taxable-equivalent basis, for the first
quarter of 2010 was $438 million (11.3 percent) higher
than the first quarter of 2009, reflecting a 14.7 percent
increase in net interest income and a 7.3 percent increase
in total noninterest income. The increase in net interest income
over a year ago was largely the result of growth in average
earning assets and an increase in lower cost core deposit
funding. Noninterest income increased over a year ago,
principally due to higher payments-related and commercial
products revenue and a decrease in net securities losses,
partially offset by the $92 million corporate real estate
gain in the first quarter of 2009.
Total noninterest expense in the first quarter of 2010 was
$265 million (14.2 percent) higher than the first
quarter of 2009, primarily due to the impact of acquisitions,
higher Federal Deposit Insurance Corporation (“FDIC”)
deposit insurance expense and costs related to affordable
housing and other tax-advantaged projects.
The provision for credit losses for the first quarter of 2010
was $1.3 billion, approximately the same as the first
quarter of 2009. Net charge-offs in the first quarter of 2010
were $1.1 billion, compared with net charge-offs of
$788 million in the first quarter of 2009. The provision
for credit losses exceeded net charge-offs by $175 million
in the first quarter of 2010, compared with $530 million in
the first quarter of 2009. Refer to “Corporate Risk
Profile” for further information on the provision for
credit losses, net charge-offs, nonperforming assets and factors
considered by the Company in assessing the credit quality of the
loan portfolio and establishing the allowance for credit losses.
STATEMENT
OF INCOME ANALYSIS
Net Interest
Income
Net
interest income, on a taxable-equivalent basis, was
$2.4 billion in the first quarter of 2010, compared with
$2.1 billion in the first quarter of 2009. The
$308 million (14.7 percent) increase was primarily the
result of growth in average earning assets and an increase in
lower cost core deposit funding. Average earning assets were
$13.5 billion (5.7 percent) higher in the first
quarter of 2010, compared with the first quarter of 2009, driven
by an increase of $7.2 billion (3.9 percent) in
average loans and $3.9 billion (9.2 percent) in
average investment securities. Average deposits increased
$22.0 billion (13.7 percent) in the first quarter of
2010 over the same period of the prior year. The net interest
margin in the first quarter of 2010 was 3.90 percent,
compared with 3.59 percent for the first quarter of 2009.
Refer to the “Consolidated Daily Average Balance Sheet and
Related Yields and Rates” tables for further information on
net interest income.
Total average loans for the first quarter of 2010 were
$7.2 billion (3.9 percent) higher than the first
quarter of 2009, driven by growth in residential mortgages,
retail loans and acquired loans covered by loss sharing
agreements with the FDIC. Residential mortgages increased
$2.5 billion (10.4 percent), reflecting an increase in
activity throughout most of 2009 as a result of market interest
rate declines, including an increase in government
agency-guaranteed mortgages. Average retail loans increased
$2.7 billion (4.4 percent)
year-over-year,
driven by increases in credit card, home equity and other retail
(primarily auto) loans. Average credit card balances were
$2.8 billion (20.4 percent) higher, reflecting both
growth in existing portfolios and portfolio purchases of
$1.6 billion during 2009. Average home equity and other
retail loans increased 1.0 percent and 1.5 percent,
respectively. Average commercial real estate balances increased
$753 million (2.3 percent), reflecting the impact of
new business activity, partially offset by lower utilization of
existing commitments. Average commercial loans
|
|
3 |
Table of Contents
Table 2 Noninterest Income
|
Three Months
Ended
|
||||||||||||
| March 31, | ||||||||||||
|
Percent
|
||||||||||||
| (Dollars in Millions) | 2010 | 2009 | Change | |||||||||
|
Credit and debit card revenue
|
$ | 258 | $ | 256 | .8 | % | ||||||
|
Corporate payment products revenue
|
168 | 154 | 9.1 | |||||||||
|
Merchant processing services
|
292 | 258 | 13.2 | |||||||||
|
ATM processing services
|
105 | 102 | 2.9 | |||||||||
|
Trust and investment management fees
|
264 | 294 | (10.2 | ) | ||||||||
|
Deposit service charges
|
207 | 226 | (8.4 | ) | ||||||||
|
Treasury management fees
|
137 | 137 | – | |||||||||
|
Commercial products revenue
|
161 | 129 | 24.8 | |||||||||
|
Mortgage banking revenue
|
200 | 233 | (14.2 | ) | ||||||||
|
Investment products fees and commissions
|
25 | 28 | (10.7 | ) | ||||||||
|
Securities gains (losses), net
|
(34 | ) | (198 | ) | 82.8 | |||||||
|
Other
|
135 | 169 | (20.1 | ) | ||||||||
|
Total noninterest income
|
$ | 1,918 | $ | 1,788 | 7.3 | % | ||||||
decreased $8.9 billion (15.8 percent)
year-over-year
principally due to lower utilization of existing commitments and
reduced demand for new loans. Assets acquired in FDIC assisted
transactions that are covered by loss sharing agreements with
the FDIC (“covered assets” or “covered
loans”) relate to the 2008 acquisitions of the banking
operations of Downey Savings and Loan Association, F.A. and PFF
Bank and Trust (“Downey” and “PFF”,
respectively) and the 2009 acquisition of the banking operations
of First Bank of Oak Park Corporation (“FBOP”).
Average covered loans were $21.4 billion in the first
quarter of 2010, compared with $11.3 billion in the first
quarter of 2009.
Average investment securities in the first quarter of 2010 were
$3.9 billion (9.2 percent) higher than the first
quarter of 2009, due primarily to purchases of
U.S. government agency-related securities and the
consolidation of $.6 billion of held-to-maturity securities
held in a variable interest entity (“VIE”) due to the
adoption of new authoritative accounting guidance effective
January 1, 2010. As a result, the composition of the
Company’s investment portfolio shifted to a larger
proportion in U.S. Treasury, agency and agency
mortgage-backed securities, compared with a year ago.
Average total deposits for the first quarter of 2010 were
$22.0 billion (13.7 percent) higher than the first
quarter of 2009. Excluding deposits from acquisitions, average
total deposits increased $7.2 billion (4.5 percent)
over the first quarter of 2009. Noninterest-bearing deposits for
the first quarter of 2010 were $2.0 billion
(5.5 percent) higher than the first quarter of 2009,
primarily due to growth in the Consumer and Wholesale Banking
business lines and the impact of acquisitions. Average total
savings deposits were $28.6 billion (40.7 percent)
higher in the first quarter of 2010 than the first quarter of
2009, the result of growth in Consumer Banking, broker-dealer
and institutional trust customers and the impact of
acquisitions. Average time certificates of deposit less than
$100,000 were higher in the first quarter of 2010 by
$203 million (1.1 percent), as acquisition-related
growth was partially offset by a decrease in Consumer Banking
balances. Average time deposits greater than $100,000 were
$8.8 billion (24.4 percent) lower in the first quarter
of 2010, compared with the first quarter of 2009, reflecting a
decrease in overall wholesale funding requirements.
Provision for
Credit Losses
The
provision for credit losses for the first quarter of 2010
decreased $8 million (.6 percent) from the first
quarter of 2009. Net charge-offs increased $347 million
(44.0 percent) as borrowers defaulted on loans impacted by
weak real estate markets and economic conditions. However,
overall the loan portfolio experienced a decrease in the rate of
credit quality deterioration, with delinquencies declining in
all major loan categories compared to the previous quarter. As a
result, the Company recorded provision for credit losses in
excess of net charge-offs of $175 million in the first
quarter of 2010, compared with $530 million in the first
quarter of 2009. Refer to “Corporate Risk Profile” for
further information on the provision for credit losses, net
charge-offs, nonperforming assets and factors considered by the
Company in assessing the credit quality of the loan portfolio
and establishing the allowance for credit losses.
Noninterest
Income
Noninterest
income in the first quarter of 2010 was $1.9 billion,
compared with $1.8 billion in the first quarter of 2009, an
increase of $130 million (7.3 percent). The increase
in noninterest income included a favorable variance in net
securities losses of $164 million. The increase in
noninterest income was also due to higher fee-based
payments-related income of $50 million (7.5 percent)
and an increase in commercial products revenue of
$32 million (24.8 percent), which was attributable to
higher standby letters of credit, capital markets and other
commercial
|
|
U.S. Bancorp |
Table of Contents
Table 3 Noninterest Expense
|
Three Months
Ended
|
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| March 31, | |||||||||||||
|
Percent
|
|||||||||||||
| (Dollars in Millions) | 2010 | 2009 | Change | ||||||||||
|
Compensation
|
$ | 861 | $ | 786 | 9.5 | % | |||||||
|
Employee benefits
|
180 | 155 | 16.1 | ||||||||||
|
Net occupancy and equipment
|
227 | 211 | 7.6 | ||||||||||
|
Professional services
|
58 | 52 | 11.5 | ||||||||||
|
Marketing and business development
|
60 | 56 | 7.1 | ||||||||||
|
Technology and communications
|
185 | 155 | 19.4 | ||||||||||
|
Postage, printing and supplies
|
74 | 74 | – | ||||||||||
|
Other intangibles
|
97 | 91 | 6.6 | ||||||||||
|
Other
|
394 | 291 | 35.4 | ||||||||||
|
Total noninterest expense
|
$ | 2,136 | $ | 1,871 | 14.2 | % | |||||||
|
Efficiency ratio (a)
|
49.0 | % | 45.8 | % | |||||||||
| (a) | Computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding net securities gains (losses). |
loan fees. Trust and investment management fees declined
$30 million (10.2 percent) as low interest rates
negatively impacted money market investment fees. Deposit
service charges decreased $19 million (8.4 percent) as
a result of lower overdraft incidences and the impact of revised
overdraft fee policies. Mortgage banking revenue declined
$33 million (14.2 percent) principally due to lower
loan production, partially offset by higher servicing income and
a favorable net change in the valuation of mortgage servicing
rights (“MSRs”) and related economic hedging
activities. Other income decreased $34 million
(20.1 percent), the net result of the gain on a corporate
real estate transaction that occurred in the first quarter of
2009 and lower retail lease residual valuation losses and
improved equity investment income in the first quarter of 2010.
Noninterest
Expense
Noninterest
expense in the first quarter of 2010 was $2.1 billion,
compared with $1.9 billion in the first quarter of 2009, an
increase of $265 million (14.2 percent). The increase
in noninterest expense over a year ago was principally due to
acquisitions, higher FDIC deposit insurance expense and costs
related to investments in affordable housing and other
tax-advantaged projects. Compensation expense increased
$75 million (9.5 percent) primarily reflecting
acquisitions. Employee benefits expense increased
$25 million (16.1 percent), a result of acquisitions
and increased pension costs associated with previous declines in
the value of pension assets. Net occupancy and equipment expense
increased $16 million (7.6 percent), while
professional services expense increased $6 million
(11.5 percent), principally due to acquisitions and other
business initiatives. Technology and communications expense
increased $30 million (19.4 percent), as a result of
payments-related initiatives and acquisitions. Other expense
increased $103 million (35.4 percent)
year-over-year
due to higher FDIC deposit insurance expense, costs related to
investments in affordable housing and other tax-advantaged
projects, higher merchant processing expense, growth in mortgage
servicing expense and costs associated with other real estate
owned (“OREO”).
Income Tax
Expense
The
provision for income taxes was $161 million (an effective
rate of 19.5 percent) for the first quarter of 2010,
compared with $101 million (an effective rate of
15.6 percent) for the first quarter of 2009. The increase
in the effective tax rate for the first quarter of 2010,
compared with the same period of the prior year, principally
reflected the marginal impact of higher pre-tax earnings
year-over-year.
For further information on income taxes, refer to Note 9 of
the Notes to Consolidated Financial Statements.
BALANCE
SHEET ANALYSIS
Loans
The
Company’s total loan portfolio was $191.2 billion at
March 31, 2010, compared with $194.8 billion at
December 31, 2009, a decrease of $3.6 billion
(1.8 percent). The decrease was driven primarily by lower
commercial, retail and covered loans. The $2.5 billion
(5.1 percent) decrease in commercial loans was primarily
driven by lower capital spending and economic conditions
impacting loan demand by business customers. The decrease was
also due to the consolidation of a VIE and the elimination of a
related loan balance, the result of the adoption of new
authoritative accounting guidance effective January 1, 2010.
Commercial real estate loans increased $114 million
(.3 percent) at March 31, 2010, compared with
December 31, 2009, reflecting the impact of new business
activity, partially offset by lower utilization of existing
commitments.
Residential mortgages held in the loan portfolio increased
$464 million (1.8 percent) at March 31, 2010,
compared with December 31, 2009, reflecting an increase in
government agency-guaranteed mortgages
|
|
5 |
Table of Contents
Table 4 Investment Securities
| Available-for-Sale | Held-to-Maturity | ||||||||||||||||||||||||||||||||||
|
Weighted-
|
Weighted-
|
||||||||||||||||||||||||||||||||||
|
Average
|
Weighted-
|
Average
|
Weighted-
|
||||||||||||||||||||||||||||||||
|
Amortized
|
Fair
|
Maturity in
|
Average
|
Amortized
|
Fair
|
Maturity in
|
Average
|
||||||||||||||||||||||||||||
| March 31, 2010 (Dollars in Millions) | Cost | Value | Years | Yield (d) | Cost | Value | Years | Yield (d) | |||||||||||||||||||||||||||
|
U.S. Treasury and Agencies
|
|||||||||||||||||||||||||||||||||||
|
Maturing in one year or less
|
$ | 1,227 | $ | 1,233 | .3 | 2.41 | % | $ | – | $ | – | – | – | % | |||||||||||||||||||||
|
Maturing after one year through five years
|
85 | 87 | 2.3 | 3.27 | – | – | – | – | |||||||||||||||||||||||||||
|
Maturing after five years through ten years
|
34 | 34 | 7.5 | 4.79 | – | – | – | – | |||||||||||||||||||||||||||
|
Maturing after ten years
|
1,201 | 1,196 | 14.1 | 1.87 | 64 | 64 | 11.6 | 1.73 | |||||||||||||||||||||||||||
|
Total
|
$ | 2,547 | $ | 2,550 | 7.0 | 2.21 | % | $ | 64 | $ | 64 | 11.6 | 1.73 | % | |||||||||||||||||||||
|
Mortgage-Backed Securities (a)
|
|||||||||||||||||||||||||||||||||||
|
Maturing in one year or less
|
$ | 477 | $ | 476 | .7 | 1.99 | % | $ | – | $ | – | – | – | % | |||||||||||||||||||||
|
Maturing after one year through five years
|
17,850 | 18,143 | 3.3 | 3.31 | 15 | 8 | 2.7 | 1.92 | |||||||||||||||||||||||||||
|
Maturing after five years through ten years
|
14,231 | 14,157 | 6.5 | 3.44 | 4 | 4 | 6.1 | .74 | |||||||||||||||||||||||||||
|
Maturing after ten years
|
1,717 | 1,584 | 11.9 | 1.79 | – | – | – | – | |||||||||||||||||||||||||||
|
Total
|
$ | 34,275 | $ | 34,360 | 5.0 | 3.27 | % | $ | 19 | $ | 12 | 3.5 | 1.68 | % | |||||||||||||||||||||
|
Asset-Backed Securities (a)
|
|||||||||||||||||||||||||||||||||||
|
Maturing in one year or less
|
$ | 1 | $ | – | .5 | 11.90 | % | $ | 68 | $ | 55 | .4 | .94 | % | |||||||||||||||||||||
|
Maturing after one year through five years
|
386 | 382 | 3.0 | 7.19 | 195 | 191 | 2.0 | .76 | |||||||||||||||||||||||||||
|
Maturing after five years through ten years
|
291 | 303 | 7.5 | 4.33 | 90 | 77 | 7.7 | .77 | |||||||||||||||||||||||||||
|
Maturing after ten years
|
99 | 98 | 11.4 | 3.54 | 17 | 10 | 21.7 | .74 | |||||||||||||||||||||||||||
|
Total
|
$ | 777 | $ | 783 | 5.7 | 5.65 | % | $ | 370 | $ | 333 | 4.0 | .79 | % | |||||||||||||||||||||
|
Obligations of State and Political
|
|||||||||||||||||||||||||||||||||||
|
Subdivisions (b)
|
|||||||||||||||||||||||||||||||||||
|
Maturing in one year or less
|
$ | 136 | $ | 136 | .5 | 1.26 | % | $ | 2 | $ | 1 | .6 | 7.90 | % | |||||||||||||||||||||
|
Maturing after one year through five years
|
579 | 580 | 4.3 | 6.87 | 5 | 6 | 3.7 | 7.76 | |||||||||||||||||||||||||||
|
Maturing after five years through ten years
|
4,200 | 4,183 | 6.5 | 6.77 | 9 | 10 | 6.6 | 6.95 | |||||||||||||||||||||||||||
|
Maturing after ten years
|
1,934 | 1,825 | 21.8 | 6.86 | 15 | 15 | 16.8 | 5.56 | |||||||||||||||||||||||||||
|
Total
|
$ | 6,849 | $ | 6,724 | 10.5 | 6.69 | % | $ | 31 | $ | 32 | 10.9 | 6.45 | % | |||||||||||||||||||||
|
Other Debt Securities
|
|||||||||||||||||||||||||||||||||||
|
Maturing in one year or less
|
$ | 6 | $ | 6 | .7 | .89 | % | $ | 4 | $ | 4 | .3 | .84 | % | |||||||||||||||||||||
|
Maturing after one year through five years
|
67 | 59 | 2.1 | 6.34 | 17 | 10 | 3.2 | 1.14 | |||||||||||||||||||||||||||
|
Maturing after five years through ten years
|
56 | 54 | 7.3 | 6.35 | 88 | 75 | 7.8 | 1.14 | |||||||||||||||||||||||||||
|
Maturing after ten years
|
1,402 | 1,158 | 32.3 | 4.29 | 32 | 11 | 10.6 | .99 | |||||||||||||||||||||||||||
|
Total
|
$ | 1,531 | $ | 1,277 | 29.9 | 4.44 | % | $ | 141 | $ | 100 | 7.7 | 1.09 | % | |||||||||||||||||||||
|
Other Investments
|
$ | 564 | $ | 594 | 12.8 | 8.13 | % | $ | – | $ | – | – | – | % | |||||||||||||||||||||
|
Total investment securities (c)
|
$ | 46,543 | $ | 46,288 | 6.9 | 3.85 | % | $ | 625 | $ | 541 | 5.9 | 1.26 | % | |||||||||||||||||||||
| (a) | Information related to asset and mortgage-backed securities included above is presented based upon weighted-average maturities anticipating future prepayments. |
| (b) | Information related to obligations of state and political subdivisions is presented based upon yield to first optional call date if the security is purchased at a premium, yield to maturity if purchased at par or a discount. | |
| (c) | The weighted-average maturity of the available-for-sale investment securities was 7.1 years at December 31, 2009, with a corresponding weighted-average yield of 4.00 percent. The weighted-average maturity of the held-to-maturity investment securities was 8.4 years at December 31, 2009, with a corresponding weighted-average yield of 5.10 percent. | |
| (d) | Average yields are presented on a fully-taxable equivalent basis under a tax rate of 35 percent. Yields on available-for-sale and held-to-maturity securities are computed based on historical cost balances. Average yield and maturity calculations exclude equity securities that have no stated yield or maturity. |
| March 31, 2010 | December 31, 2009 | ||||||||||||||||
|
Amortized
|
Percent
|
Amortized
|
Percent
|
||||||||||||||
| (Dollars in Millions) | Cost | of Total | Cost | of Total | |||||||||||||
|
U.S. Treasury and agencies
|
$ | 2,611 | 5.5 | % | $ | 3,415 | 7.5 | % | |||||||||
|
Mortgage-backed securities
|
34,294 | 72.7 | 32,289 | 71.1 | |||||||||||||
|
Asset-backed securities
|
1,147 | 2.4 | 559 | 1.2 | |||||||||||||
|
Obligations of state and political subdivisions
|
6,880 | 14.6 | 6,854 | 15.1 | |||||||||||||
|
Other debt securities and investments
|
2,236 | 4.8 | 2,286 | 5.1 | |||||||||||||
|
Total investment securities
|
$ | 47,168 | 100.0 | % | $ | 45,403 | 100.0 | % | |||||||||
during the first quarter of 2010. Most loans retained in the
portfolio are to customers with prime or near-prime credit
characteristics at the date of origination.
Total retail loans outstanding, which include credit card,
retail leasing, home equity and second mortgages and other
retail loans, decreased $764 million (1.2 percent) at
March 31, 2010, compared with December 31, 2009. The
decrease was primarily driven by lower credit card, home equity
and retail leasing balances, partially offset by higher
installment and student loan balances.
Loans Held for
Sale
Loans held
for sale, consisting primarily of residential mortgages were
$3.9 billion at March 31, 2010, compared with
$4.8 billion at December 31, 2009. The decrease in
loans held for sale
|
|
U.S. Bancorp |
Table of Contents
was principally due to a decline in mortgage loan origination
activity as compared with late 2009 as a result of increasing
interest rates.
Investment
Securities
Investment
securities totaled $46.9 billion at March 31, 2010,
compared with $44.8 billion at December 31, 2009. The
$2.1 billion (4.8 percent) increase reflected
$1.2 billion of net investment purchases, the consolidation
of $.6 billion of
held-to-maturity
securities held in a VIE due to the adoption of new
authoritative accounting guidance effective January 1,
2010, and a $.4 billion decrease in net unrealized losses
on
available-for-sale
securities. At March 31, 2010, adjustable-rate financial
instruments comprised 47 percent of the investment
securities portfolio.
The Company conducts a regular assessment of its investment
portfolio to determine whether any securities are
other-than-temporarily
impaired. At March 31, 2010, the Company’s net
unrealized loss on
available-for-sale
securities was $255 million, compared with a net unrealized
loss of $635 million at December 31, 2009. The
decrease in net unrealized losses was primarily due to increases
in the fair value of agency mortgage-backed securities. When
assessing impairment, the Company considers the nature of the
investment, the financial condition of the issuer, the extent
and duration of unrealized loss, expected cash flows of
underlying collateral or assets and market conditions. At
March 31, 2010, the Company had no plans to sell securities
with unrealized losses and believes it is more likely than not
it would not be required to sell such securities before recovery
of their amortized cost.
There is limited market activity for structured investment
related and non-agency mortgage-backed securities held by the
Company. As a result, the Company estimates the fair value of
these securities using estimates of expected cash flows,
discount rates and management’s assessment of various other
market factors, which are judgmental in nature. The Company
recorded $46 million of impairment charges in earnings
during the first quarter of 2010, predominately on non-agency
mortgage-backed and structured investment related securities.
These impairment charges were due to changes in expected cash
flows resulting from continuing increases in defaults in the
underlying mortgage pools and regulatory actions related to an
insurer of some of the securities. Further adverse changes in
market conditions may result in additional impairment charges in
future periods. Refer to Notes 3 and 11 in the Notes to
Consolidated Financial Statements for further information on
investment securities.
Deposits
Total
deposits were $184.0 billion at March 31, 2010,
compared with $183.2 billion at December 31, 2009, an
increase of $.8 billion (.4 percent). The increase in
total deposits was primarily the result of increases in savings
accounts, interest checking and noninterest-bearing deposit
accounts, offset by decreases in time certificates of deposit.
Savings account balances increased $2.4 billion
(14.5 percent) due primarily to continued strong
participation in a savings product offered by Consumer Banking
beginning in 2008. Interest checking balances increased
$1.6 billion (4.1 percent) due to higher broker-dealer
balances. Noninterest-bearing deposits increased
$.7 billion (1.9 percent) due primarily to increases
in corporate and commercial banking balances, partially offset
by a decrease in corporate trust balances. Time certificates of
deposit less than $100,000 decreased $1.5 billion
(7.7 percent), and time deposits greater than $100,000
decreased $2.7 billion (9.1 percent), reflecting the
Company’s funding and pricing decisions. Time deposits
greater than $100,000 are managed as an alternative to other
funding sources, such as wholesale borrowing, based largely on
relative pricing.
Borrowings
The
Company utilizes both short-term and long-term borrowings to
fund growth of assets in excess of deposit growth. Short-term
borrowings, which include federal funds purchased, commercial
paper, repurchase agreements, borrowings secured by high-grade
assets and other short-term borrowings, were $31.2 billion
at March 31, 2010, compared with $31.3 billion at
December 31, 2009.
Long-term debt was $32.4 billion at March 31, 2010,
compared with $32.6 billion at December 31, 2009,
reflecting a $1.1 billion net decrease in Federal Home Loan
Bank advances and $1.0 billion of medium-term note
maturities and repayments, partially offset by $.8 billion
of medium-term note issuances and the consolidation of
$1.0 billion of long-term debt related to certain VIEs in
the first quarter of 2010. Refer to the “Liquidity Risk
Management” section for discussion of liquidity management
of the Company.
CORPORATE
RISK PROFILE
Overview
Managing
risks is an essential part of successfully operating a financial
services company. The most prominent risk exposures are credit,
residual value, operational, interest rate, market and liquidity
risk. Credit risk is the risk of not collecting the interest
and/or
the
principal balance of a loan, investment or derivative
|
|
7 |
Table of Contents
contract when it is due. Residual value risk is the potential
reduction in the
end-of-term
value of leased assets. Operational risk includes risks related
to fraud, legal and compliance risk, processing errors,
technology, breaches of internal controls and business
continuation and disaster recovery risk. Interest rate risk is
the potential reduction of net interest income as a result of
changes in interest rates, which can affect the re-pricing of
assets and liabilities differently. Market risk arises from
fluctuations in interest rates, foreign exchange rates, and
security prices that may result in changes in the values of
financial instruments, such as trading and
available-for-sale
securities that are accounted for on a
mark-to-market
basis. Liquidity risk is the possible inability to fund
obligations to depositors, investors or borrowers. In addition,
corporate strategic decisions, as well as the risks described
above, could give rise to reputation risk. Reputation risk is
the risk that negative publicity or press, whether true or not,
could result in costly litigation or cause a decline in the
Company’s stock value, customer base, funding sources or
revenue.
Credit
Risk
Management
The
Company’s strategy for credit risk management includes
well-defined, centralized credit policies, uniform underwriting
criteria, and ongoing risk monitoring and review processes for
all commercial and consumer credit exposures. In evaluating its
credit risk, the Company considers changes, if any, in
underwriting activities, the loan portfolio composition
(including product mix and geographic, industry or
customer-specific concentrations), trends in loan performance,
the level of allowance coverage relative to similar banking
institutions and macroeconomic factors, such as changes in
unemployment rates, gross domestic product and consumer
bankruptcy filings. Refer to “Management’s Discussion
and Analysis — Credit Risk Management” in the
Company’s Annual Report on
Form 10-K
for the year ended December 31, 2009, for a more detailed
discussion on credit risk management processes.
The Company manages its credit risk, in part, through
diversification of its loan portfolio and limit setting by
product type criteria and concentrations. As part of its normal
business activities, the Company offers a broad array of
commercial and retail lending products. The Company’s
retail lending business utilizes several distinct business
processes and channels to originate retail credit, including
traditional branch lending, indirect lending, portfolio
acquisitions and a consumer finance division. Generally, loans
managed by the Company’s consumer finance division exhibit
higher credit risk characteristics, but are priced commensurate
with the differing risk profile. With respect to residential
mortgages originated through these channels, the Company may
either retain the loans on its balance sheet or sell its
interest in the balances into the secondary market while
retaining the servicing rights and customer relationships. For
residential mortgages that are retained in the Company’s
portfolio and for home equity and second mortgages, credit risk
is also diversified by geography and managed by adherence to
loan-to-value
and borrower credit criteria during the underwriting process.
The following tables provide summary information of the
loan-to-values
of residential mortgages and home equity and second mortgages by
distribution channel and type at March 31, 2010 (excluding
covered loans):
|
Residential
mortgages
|
Interest
|
Percent
|
||||||||||||||||
| (Dollars in Millions) | Only | Amortizing | Total | of Total | ||||||||||||||
|
Consumer Finance
|
||||||||||||||||||
|
Less than or equal to 80%
|
$ | 1,299 | $ | 3,716 | $ | 5,015 | 48.4 | % | ||||||||||
|
Over 80% through 90%
|
585 | 1,789 | 2,374 | 22.9 | ||||||||||||||
|
Over 90% through 100%
|
554 | 2,281 | 2,835 | 27.3 | ||||||||||||||
|
Over 100%
|
– | 145 | 145 | 1.4 | ||||||||||||||
|
Total
|
$ | 2,438 | $ | 7,931 | $ | 10,369 | 100.0 | % | ||||||||||
|
Other Retail
|
||||||||||||||||||
|
Less than or equal to 80%
|
$ | 2,055 | $ | 12,775 | $ | 14,830 | 91.8 | % | ||||||||||
|
Over 80% through 90%
|
65 | 570 | 635 | 3.9 | ||||||||||||||
|
Over 90% through 100%
|
89 | 597 | 686 | 4.3 | ||||||||||||||
|
Over 100%
|
– | – | – | – | ||||||||||||||
|
Total
|
$ | 2,209 | $ | 13,942 | $ | 16,151 | 100.0 | % | ||||||||||
|
Total Company
|
||||||||||||||||||
|
Less than or equal to 80%
|
$ | 3,354 | $ | 16,491 | $ | 19,845 | 74.8 | % | ||||||||||
|
Over 80% through 90%
|
650 | 2,359 | 3,009 | 11.3 | ||||||||||||||
|
Over 90% through 100%
|
643 | 2,878 | 3,521 | 13.3 | ||||||||||||||
|
Over 100%
|
– | 145 | 145 | .6 | ||||||||||||||
|
Total
|
$ | 4,647 | $ | 21,873 | $ | 26,520 | 100.0 | % | ||||||||||
| Note: | Loan-to-values determined as of the date of origination and adjusted for cumulative principal payments, and consider mortgage insurance, as applicable. |
|
Home equity and
second mortgages
|
Percent
|
|||||||||||||||||
| (Dollars in Millions) | Lines | Loans | Total | of Total | ||||||||||||||
|
Consumer Finance (a)
|
||||||||||||||||||
|
Less than or equal to 80%
|
$ | 891 | $ | 207 | $ | 1,098 | 44.5 | % | ||||||||||
|
Over 80% through 90%
|
404 | 170 | 574 | 23.2 | ||||||||||||||
|
Over 90% through 100%
|
358 | 297 | 655 | 26.5 | ||||||||||||||
|
Over 100%
|
58 | 86 | 144 | 5.8 | ||||||||||||||
|
Total
|
$ | 1,711 | $ | 760 | $ | 2,471 | 100.0 | % | ||||||||||
|
Other Retail
|
||||||||||||||||||
|
Less than or equal to 80%
|
$ | 11,701 | $ | 1,475 | $ | 13,176 | 78.2 | % | ||||||||||
|
Over 80% through 90%
|
1,937 | 509 | 2,446 | 14.5 | ||||||||||||||
|
Over 90% through 100%
|
726 | 428 | 1,154 | 6.9 | ||||||||||||||
|
Over 100%
|
50 | 25 | 75 | .4 | ||||||||||||||
|
Total
|
$ | 14,414 | $ | 2,437 | $ | 16,851 | 100.0 | % | ||||||||||
|
Total Company
|
||||||||||||||||||
|
Less than or equal to 80%
|
$ | 12,592 | $ | 1,682 | $ | 14,274 | 73.9 | % | ||||||||||
|
Over 80% through 90%
|
2,341 | 679 | 3,020 | 15.6 | ||||||||||||||
|
Over 90% through 100%
|
1,084 | 725 | 1,809 | 9.4 | ||||||||||||||
|
Over 100%
|
108 | 111 | 219 | 1.1 | ||||||||||||||
|
Total
|
$ | 16,125 | $ | 3,197 | $ | 19,322 | 100.0 | % | ||||||||||
| (a) | Consumer finance category included credit originated and managed by the consumer finance division, as well as the majority of home equity and second mortgages with a loan-to-value greater than 100 percent that were originated in the branches. |
| Note: | Loan-to-values determined on original appraisal value of collateral and the current amortized loan balance, or maximum of current commitment or current balance on lines. |
|
|
U.S. Bancorp |
Table of Contents
Within the consumer finance division, at March 31, 2010,
approximately $2.4 billion of residential mortgages were to
customers that may be defined as
sub-prime
borrowers based on credit scores from independent credit rating
agencies at loan origination, compared with $2.5 billion at
December 31, 2009.
The following table provides further information on residential
mortgages for the consumer finance division at March 31,
2010:
|
Interest
|
Percent of
|
|||||||||||||||||
| (Dollars in Millions) | Only | Amortizing | Total | Division | ||||||||||||||
|
Sub-Prime
Borrowers
|
||||||||||||||||||
|
Less than or equal to 80%
|
$ | 6 | $ | 1,024 | $ | 1,030 | 9.9 | % | ||||||||||
|
Over 80% through 90%
|
3 | 554 | 557 | 5.4 | ||||||||||||||
|
Over 90% through 100%
|
14 | 739 | 753 | 7.3 | ||||||||||||||
|
Over 100%
|
– | 62 | 62 | .6 | ||||||||||||||
|
Total
|
$ | 23 | $ | 2,379 | $ | 2,402 | 23.2 | % | ||||||||||
|
Other Borrowers
|
||||||||||||||||||
|
Less than or equal to 80%
|
$ | 1,293 | $ | 2,692 | $ | 3,985 | 38.4 | % | ||||||||||
|
Over 80% through 90%
|
582 | 1,235 | 1,817 | 17.5 | ||||||||||||||
|
Over 90% through 100%
|
540 | 1,542 | 2,082 | 20.1 | ||||||||||||||
|
Over 100%
|
– | 83 | 83 | .8 | ||||||||||||||
|
Total
|
$ | 2,415 | $ | 5,552 | $ | 7,967 | 76.8 | % | ||||||||||
|
Total Consumer Finance
|
$ | 2,438 | $ | 7,931 | $ | 10,369 | 100.0 | % | ||||||||||
In addition to residential mortgages, at March 31, 2010,
the consumer finance division had $.6 billion of home
equity and second mortgage loans to customers that may be
defined as
sub-prime
borrowers, unchanged from December 31, 2009.
The following table provides further information on home equity
and second mortgages for the consumer finance division at
March 31, 2010:
|
Percent
|
||||||||||||||||||
| (Dollars in Millions) | Lines | Loans | Total | of Total | ||||||||||||||
|
Sub-Prime
Borrowers
|
||||||||||||||||||
|
Less than or equal to 80%
|
$ | 39 | $ | 123 | $ | 162 | 6.6 | % | ||||||||||
|
Over 80% through 90%
|
43 | 104 | 147 | 5.9 | ||||||||||||||
|
Over 90% through 100%
|
6 | 182 | 188 | 7.6 | ||||||||||||||
|
Over 100%
|
38 | 65 | 103 | 4.2 | ||||||||||||||
|
Total
|
$ | 126 | $ | 474 | $ | 600 | 24.3 | % | ||||||||||
|
Other Borrowers
|
||||||||||||||||||
|
Less than or equal to 80%
|
$ | 852 | $ | 84 | $ | 936 | 37.9 | % | ||||||||||
|
Over 80% through 90%
|
361 | 66 | 427 | 17.3 | ||||||||||||||
|
Over 90% through 100%
|
352 | 115 | 467 | 18.9 | ||||||||||||||
|
Over 100%
|
20 | 21 | 41 | 1.6 | ||||||||||||||
|
Total
|
$ | 1,585 | $ | 286 | $ | 1,871 | 75.7 | % | ||||||||||
|
Total Consumer Finance
|
$ | 1,711 | $ | 760 | $ | 2,471 | 100.0 | % | ||||||||||
The total amount of residential mortgage, home equity and second
mortgage loans, other than covered loans, to customers that may
be defined as
sub-prime
borrowers represented only 1.1 percent of total assets at
March 31, 2010 and December 31, 2009. Covered loans
Table 5 Delinquent Loan Ratios as a Percent of Ending Loan Balances
|
March 31,
|
December 31,
|
|||||||
| 90 days or more past due excluding nonperforming loans | 2010 | 2009 | ||||||
|
Commercial
|
||||||||
|
Commercial
|
.21 | % | .25 | % | ||||
|
Lease financing
|
– | – | ||||||
|
Total commercial
|
.18 | .22 | ||||||
|
Commercial Real Estate
|
||||||||
|
Commercial mortgages
|
.01 | – | ||||||
|
Construction and development
|
.02 | .07 | ||||||
|
Total commercial real estate
|
.01 | .02 | ||||||
|
Residential Mortgages
|
2.26 | 2.80 | ||||||
|
Retail
|
||||||||
|
Credit card
|
2.57 | 2.59 | ||||||
|
Retail leasing
|
.07 | .11 | ||||||
|
Other retail
|
.51 | .57 | ||||||
|
Total retail
|
1.00 | 1.07 | ||||||
|
Total loans, excluding covered loans
|
.78 | .88 | ||||||
|
Covered Loans
|
3.90 | 3.59 | ||||||
|
Total loans
|
1.12 | % | 1.19 | % | ||||
|
March 31,
|
December 31,
|
|||||||
| 90 days or more past due including nonperforming loans | 2010 | 2009 | ||||||
|
Commercial
|
2.06 | % | 2.25 | % | ||||
|
Commercial real estate
|
5.37 | 5.22 | ||||||
|
Residential mortgages (a)
|
4.33 | 4.59 | ||||||
|
Retail (b)
|
1.37 | 1.39 | ||||||
|
Total loans, excluding covered loans
|
2.82 | 2.87 | ||||||
|
Covered loans
|
11.19 | 9.76 | ||||||
|
Total loans
|
3.74 | % | 3.64 | % | ||||
| (a) | Delinquent loan ratios exclude loans purchased from Government National Mortgage Association (“GNMA”) mortgage pools whose repayments are insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. Including the guaranteed amounts, the ratio of residential mortgages 90 days or more past due including nonperforming loans was 12.86 percent at March 31, 2010 and at December 31, 2009. |
| (b) | Delinquent loan ratios exclude student loans that are guaranteed by the federal government. Including the guaranteed amounts, the ratio of retail loans 90 days or more past due including nonperforming loans was 1.55 percent at March 31, 2010, and 1.57 percent at December 31, 2009. |
|
|
9 |
Table of Contents
include $2.0 billion in loans with
negative-amortization
payment options at March 31, 2010, compared with
$2.2 billion at December 31, 2009. Other than covered
loans, the Company does not have any residential mortgages with
payment schedules that would cause balances to increase over
time.
Loan
Delinquencies
Trends
in delinquency ratios are an indicator, among other
considerations, of credit risk within the Company’s loan
portfolios. The Company measures delinquencies, both including
and excluding nonperforming loans, to enable comparability with
other companies. Accruing loans 90 days or more past due
totaled $2.0 billion ($1.3 billion excluding covered
loans) at March 31, 2010, compared with $2.3 billion
($1.5 billion excluding covered loans) at December 31,
2009. The $204 million decrease, excluding covered loans,
reflected a moderation in the level of stress in economic
conditions in late 2009 and the first quarter of 2010. These
loans are not included in nonperforming assets and continue to
accrue interest because they are adequately secured by
collateral, are in the process of collection and are reasonably
expected to result in repayment or restoration to current
status, or are managed in homogeneous portfolios with specified
charge-off timeframes adhering to regulatory guidelines. The
ratio of accruing loans 90 days or more past due to total
loans was 1.12 percent (.78 percent excluding covered
loans) at March 31, 2010, compared with 1.19 percent
(.88 percent excluding covered loans) at December 31,
2009.
The following table provides summary delinquency information for
residential mortgages and retail loans, excluding covered loans:
|
As a Percent of
Ending
|
||||||||||||||||||
| Amount | Loan Balances | |||||||||||||||||
|
March 31,
|
December 31,
|
March 31,
|
December 31,
|
|||||||||||||||
| (Dollars in Millions) | 2010 | 2009 | 2010 | 2009 | ||||||||||||||
|
Residential mortgages
|
||||||||||||||||||
|
30-89 days
|
$ | 520 | $ | 615 | 1.96 | % | 2.36 | % | ||||||||||
|
90 days or more
|
599 | 729 | 2.26 | 2.80 | ||||||||||||||
|
Nonperforming
|
550 | 467 | 2.07 | 1.79 | ||||||||||||||
|
Total
|
$ | 1,669 | $ | 1,811 | 6.29 | % | 6.95 | % | ||||||||||
|
Retail
|
||||||||||||||||||
|
Credit card
|
||||||||||||||||||
|
30-89 days
|
$ | 382 | $ | 400 | 2.35 | % | 2.38 | % | ||||||||||
|
90 days or more
|
417 | 435 | 2.57 | 2.59 | ||||||||||||||
|
Nonperforming
|
165 | 142 | 1.02 | .84 | ||||||||||||||
|
Total
|
$ | 964 | $ | 977 | 5.94 | % | 5.81 | % | ||||||||||
|
Retail leasing
|
||||||||||||||||||
|
30-89 days
|
$ | 25 | $ | 34 | .56 | % | .74 | % | ||||||||||
|
90 days or more
|
3 | 5 | .07 | .11 | ||||||||||||||
|
Nonperforming
|
– | – | – | – | ||||||||||||||
|
Total
|
$ | 28 | $ | 39 | .63 | % | .85 | % | ||||||||||
|
Home equity and second mortgages
|
||||||||||||||||||
|
30-89 days
|
$ | 164 | $ | 181 | .85 | % | .93 | % | ||||||||||
|
90 days or more
|
133 | 152 | .69 | .78 | ||||||||||||||
|
Nonperforming
|
32 | 32 | .16 | .17 | ||||||||||||||
|
Total
|
$ | 329 | $ | 365 | 1.70 | % | 1.88 | % | ||||||||||
|
Other retail
|
||||||||||||||||||
|
30-89 days
|
$ | 206 | $ | 256 | .89 | % | 1.10 | % | ||||||||||
|
90 days or more
|
82 | 92 | .35 | .40 | ||||||||||||||
|
Nonperforming
|
32 | 30 | .14 | .13 | ||||||||||||||
|
Total
|
$ | 320 | $ | 378 | 1.38 | % | 1.63 | % | ||||||||||
|
|
U.S. Bancorp |
Table of Contents
The following table provides information on delinquent and
nonperforming loans, excluding covered loans, as a percent of
ending loan balances, by channel:
| Consumer Finance (a) | Other Retail | |||||||||||||||||
|
March 31,
|
December 31,
|
March 31,
|
December 31,
|
|||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||
|
Residential mortgages
|
||||||||||||||||||
|
30-89 days
|
3.15 | % | 3.99 | % | 1.20 | % | 1.30 | % | ||||||||||
|
90 days or more
|
3.17 | 4.00 | 1.67 | 2.02 | ||||||||||||||
|
Nonperforming
|
3.21 | 3.04 | 1.35 | .98 | ||||||||||||||
|
Total
|
9.53 | % | 11.03 | % | 4.22 | % | 4.30 | % | ||||||||||
|
Retail
|
||||||||||||||||||
|
Credit card
|
||||||||||||||||||
|
30-89 days
|
– | % | – | % | 2.35 | % | 2.38 | % | ||||||||||
|
90 days or more
|
– | – | 2.57 | 2.59 | ||||||||||||||
|
Nonperforming
|
– | – | 1.02 | .84 | ||||||||||||||
|
Total
|
– | % | – | % | 5.94 | % | 5.81 | % | ||||||||||
|
Retail leasing
|
||||||||||||||||||
|
30-89 days
|
– | % | – | % | .56 | % | .74 | % | ||||||||||
|
90 days or more
|
– | – | .07 | .11 | ||||||||||||||
|
Nonperforming
|
– | – | – | – | ||||||||||||||
|
Total
|
– | % | – | % | .63 | % | .85 | % | ||||||||||
|
Home equity and second mortgages
|
||||||||||||||||||
|
30-89 days
|
2.03 | % | 2.54 | % | .67 | % | .70 | % | ||||||||||
|
90 days or more
|
1.78 | 2.02 | .53 | .60 | ||||||||||||||
|
Nonperforming
|
.16 | .20 | .17 | .16 | ||||||||||||||
|
Total
|
3.97 | % | 4.76 | % | 1.37 | % | 1.46 | % | ||||||||||
|
Other retail
|
||||||||||||||||||
|
30-89 days
|
3.14 | % | 5.17 | % | .83 | % | 1.00 | % | ||||||||||
|
90 days or more
|
.66 | 1.17 | .34 | .37 | ||||||||||||||
|
Nonperforming
|
– | .16 | .14 | .13 | ||||||||||||||
|
Total
|
3.80 | % | 6.50 | % | 1.31 | % | 1.50 | % | ||||||||||
| (a) | Consumer finance category included credit originated and managed by the consumer finance division, as well as the majority of home equity and second mortgages with a loan-to-value greater than 100 percent that were originated in the branches. |
Within the consumer finance division at March 31, 2010,
approximately $476 million and $72 million of these
delinquent and nonperforming residential mortgages and other
retail loans, respectively, were with customers that may be
defined as
sub-prime
borrowers, compared with $557 million and $98 million,
respectively, at December 31, 2009.
The following table provides summary delinquency information for
covered loans:
|
As a Percent of
|
||||||||||||||||||
|
Ending
|
||||||||||||||||||
| Amount | Loan Balances | |||||||||||||||||
|
March 31,
|
December 31,
|
March 31,
|
December 31,
|
|||||||||||||||
| (Dollars in Millions) | 2010 | 2009 | 2010 | 2009 | ||||||||||||||
|
30-89 days
|
$ | 742 | $ | 1,195 | 3.55 | % | 5.46 | % | ||||||||||
|
90 days or more
|
817 | 784 | 3.90 | 3.59 | ||||||||||||||
|
Nonperforming
|
1,524 | 1,350 | 7.28 | 6.18 | ||||||||||||||
|
Total
|
$ | 3,083 | $ | 3,329 | 14.73 | % | 15.23 | % | ||||||||||
Restructured
Loans Accruing
Interest
In
certain circumstances, the Company may modify the terms of a
loan to maximize the collection of amounts due. In most cases,
the modification is either a reduction in interest rate,
extension of the maturity date or a reduction in the principal
balance. Restructured loans accrue interest as long as the
borrower complies with the revised terms and conditions and has
demonstrated repayment performance at a level commensurate with
the modified terms over several payment cycles.
Many of the Company’s loan restructurings occur on a
case-by-case
basis in connection with ongoing loan collection processes.
However, the Company has also implemented certain restructuring
programs. The consumer finance division has a mortgage loan
restructuring program where certain qualifying borrowers facing
an interest rate reset that are current in their repayment
status, are allowed to retain the lower of their existing
interest rate or the market interest rate as of their interest
reset date. The Company also participates in the U.S. Department
of the Treasury Home Affordable Modification Program
(“HAMP”). HAMP gives qualifying homeowners an
opportunity to refinance into more affordable monthly payments,
with the U.S. Department of the Treasury compensating the
Company for a portion of the reduction in monthly amounts due
from borrowers participating in this program.
In addition, the Company has also modified certain mortgage
loans according to provisions in FDIC assisted transaction loss
sharing agreements. Losses associated with modifications on
these loans, including the economic impact of interest rate
reductions, are generally eligible for reimbursement under the
loss sharing agreements.
Acquired loans restructured after acquisition are not considered
restructured loans for purposes of the Company’s accounting
and disclosure if the loans evidenced credit deterioration as of
the acquisition date and are accounted for in pools.
|
|
11 |
Table of Contents
The following table provides a summary of restructured loans,
excluding covered loans, that are performing in accordance with
modified terms, and therefore continue to accrue interest:
|
As a Percent of
|
||||||||||||||||||
|
Ending
|
||||||||||||||||||
| Amount | Loan Balances | |||||||||||||||||
|
March 31,
|
December 31,
|
March 31,
|
December 31,
|
|||||||||||||||
| (Dollars in Millions) | 2010 | 2009 | 2010 | 2009 | ||||||||||||||
|
Commercial
|
$ | 118 | $ | 88 | .25 | % | .18 | % | ||||||||||
|
Commercial real estate
|
87 | 110 | .25 | .32 | ||||||||||||||
|
Residential mortgages (a)
|
1,560 | 1,354 | 5.88 | 5.20 | ||||||||||||||
|
Credit card
|
631 | 617 | 3.89 | 3.67 | ||||||||||||||
|
Other retail
|
120 | 109 | .26 | .23 | ||||||||||||||
|
Total
|
$ | 2,516 | $ | 2,278 | 1.32 | % | 1.17 | % | ||||||||||
| (a) | Excludes loans purchased from GNMA mortgage pools whose repayments are insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. |
Restructured loans, excluding covered loans, were
$238 million higher at March 31, 2010 than at
December 31, 2009, primarily reflecting loan modifications
for certain residential mortgage and consumer credit card
customers in light of current economic conditions. The Company
continues to actively work with customers to modify loans for
borrowers who are having financial difficulties, but expects
increases in restructured loans to moderate.
Nonperforming
Assets
The
level of nonperforming assets represents another indicator of
the potential for future credit losses. At March 31, 2010,
total nonperforming assets were $6.4 billion, compared with
$5.9 billion at December 31, 2009. Excluding covered
assets, nonperforming assets were $4.0 billion at
March 31, 2010, compared with $3.9 billion at
December 31, 2009. The $91 million (2.3 percent)
increase in nonperforming assets, excluding covered assets, was
driven primarily by the continued impact of unfavorable economic
conditions, causing stress in the residential construction
portfolio and related industries and the residential mortgage
portfolio, as well as an increase in foreclosed properties and a
negative impact on other commercial and consumer customers.
Nonperforming covered assets at March 31, 2010 were
$2.4 billion, compared with $2.0 billion at
December 31, 2009. These assets are covered by loss sharing
agreements with the FDIC that substantially reduce the risk of
credit losses to the Company. In addition, the majority of the
nonperforming covered assets were considered credit-impaired at
acquisition and recorded at their estimated fair value at
acquisition. The ratio of total nonperforming assets to total
loans and other real estate was 3.31 percent
(2.34 percent excluding covered assets) at March 31,
2010, compared with 3.02 percent (2.25 percent
excluding covered assets) at December 31, 2009.
Included in nonperforming loans were restructured loans that are
not accruing interest of $469 million at March 31,
2010, compared with $492 million at December 31, 2009.
Other real estate, excluding covered assets, was
$482 million at March 31, 2010, compared with
$437 million at December 31, 2009, and was primarily
related to foreclosed properties that previously secured loan
balances. The increase in other real estate assets reflected
continuing stress in residential construction and related
supplier industries.
The following table provides an analysis of OREO, excluding
covered assets, as a percent of their related loan balances,
including geographical location detail for residential
(residential mortgage, home equity and second mortgage) and
commercial (commercial and commercial real estate) loan balances:
|
As a Percent of
Ending
|
||||||||||||||||||
| Amount | Loan Balances | |||||||||||||||||
|
March 31,
|
December 31,
|
March 31,
|
December 31,
|
|||||||||||||||
| (Dollars in Millions) | 2010 | 2009 | 2010 | 2009 | ||||||||||||||
|
Residential
|
||||||||||||||||||
|
Minnesota
|
$ | 28 | $ | 27 | .52 | % | .49 | % | ||||||||||
|
California
|
16 | 15 | .28 | .27 | ||||||||||||||
|
Illinois
|
10 | 8 | .38 | .29 | ||||||||||||||
|
Missouri
|
9 | 7 | .34 | .26 | ||||||||||||||
|
Colorado
|
8 | 7 | .24 | .20 | ||||||||||||||
|
All other states
|
128 | 109 | .49 | .43 | ||||||||||||||
|
Total residential
|
199 | 173 | .43 | .38 | ||||||||||||||
|
Commercial
|
||||||||||||||||||
|
Nevada
|
62 | 73 | 4.02 | 3.57 | ||||||||||||||
|
California
|
43 | 43 | .31 | .30 | ||||||||||||||
|
Oregon
|
30 | 28 | .87 | .81 | ||||||||||||||
|
Virginia
|
22 | 8 | 4.86 | 1.21 | ||||||||||||||
|
Arizona
|
17 | 24 | 1.88 | 1.79 | ||||||||||||||
|
All other states
|
109 | 88 | .18 | .14 | ||||||||||||||
|
Total commercial
|
283 | 264 | .35 | .32 | ||||||||||||||
|
Total OREO
|
$ | 482 | $ | 437 | .25 | % | .22 | % | ||||||||||
The Company expects nonperforming assets, excluding covered
assets, will remain relatively stable in the second quarter of
2010.
Analysis of
Loan Net
Charge-Offs
Total
net charge-offs were $1.1 billion for the first quarter of
2010, compared with $788 million for the first quarter of
2009. The ratio of total loan net charge-offs to average loans
outstanding on an annualized basis for the first quarter of 2010
was 2.39 percent, compared with 1.72 percent for the
first quarter of 2009. The
year-over-year
increase in total net charge-offs was driven by the weakening
economy and rising unemployment throughout most of 2009
affecting the residential housing markets, including
homebuilding and related industries, commercial real estate
properties and credit costs associated with credit card and
other consumer and commercial loans. The Company expects the
level of net charge-offs will remain relatively stable in the
second quarter of 2010.
|
|
U.S. Bancorp |
Table of Contents
Table 6 Nonperforming Assets (a)
|
March 31,
|
December 31,
|
|||||||
| (Dollars in Millions) | 2010 | 2009 | ||||||
|
Commercial
|
||||||||
|
Commercial
|
$ | 758 | $ | 866 | ||||
|
Lease financing
|
113 | 125 | ||||||
|
Total commercial
|
871 | 991 | ||||||
|
Commercial Real Estate
|
||||||||
|
Commercial mortgages
|
596 | 581 | ||||||
|
Construction and development
|
1,236 | 1,192 | ||||||
|
Total commercial real estate
|
1,832 | 1,773 | ||||||
|
Residential Mortgages
|
550 | 467 | ||||||
|
Retail
|
||||||||
|
Credit card
|
165 | 142 | ||||||
|
Retail leasing
|
– | – | ||||||
|
Other retail
|
64 | 62 | ||||||
|
Total retail
|
229 | 204 | ||||||
|
Total nonperforming loans, excluding covered assets
|
3,482 | 3,435 | ||||||
|
Covered Loans
|
1,524 | 1,350 | ||||||
|
Total nonperforming loans
|
5,006 | 4,785 | ||||||
|
Other Real Estate (b)
|
482 | 437 | ||||||
|
Covered Other Real Estate
|
861 | 653 | ||||||
|
Other Assets
|
31 | 32 | ||||||
|
Total nonperforming assets
|
$ | 6,380 | $ | 5,907 | ||||
|
Total nonperforming assets, excluding covered assets
|
$ | 3,995 | $ | 3,904 | ||||
|
Excluding covered assets:
|
||||||||
|
Accruing loans 90 days or more past due
|
$ | 1,321 | $ | 1,525 | ||||
|
Nonperforming loans to total loans
|
2.05 | % | 1.99 | % | ||||
|
Nonperforming assets to total loans plus other real
estate (b)
|
2.34 | % | 2.25 | % | ||||
|
Including covered assets:
|
||||||||
|
Accruing loans 90 days or more past due
|
$ | 2,138 | $ | 2,309 | ||||
|
Nonperforming loans to total loans
|
2.62 | % | 2.46 | % | ||||
|
Nonperforming assets to total loans plus other real
estate (b)
|
3.31 | % | 3.02 | % | ||||
Changes
in Nonperforming Assets
|
Commercial and
|
Retail and
|
||||||||||||
|
Commercial
|
Residential
|
||||||||||||
| (Dollars in Millions) | Real Estate | Mortgages (d) | Total | ||||||||||
|
Balance December 31, 2009
|
$ | 4,727 | $ | 1,180 | $ | 5,907 | |||||||
|
Additions to nonperforming assets
|
|||||||||||||
|
New nonaccrual loans and foreclosed properties
|
1,336 | 400 | 1,736 | ||||||||||
|
Advances on loans
|
68 | – | 68 | ||||||||||
|
Total additions
|
1,404 | 400 | 1,804 | ||||||||||
|
Reductions in nonperforming assets
|
|||||||||||||
|
Paydowns, payoffs
|
(363 | ) | (45 | ) | (408 | ) | |||||||
|
Net sales
|
(94 | ) | (123 | ) | (217 | ) | |||||||
|
Return to performing status
|
(184 | ) | (3 | ) | (187 | ) | |||||||
|
Charge-offs (c)
|
(454 | ) | (65 | ) | (519 | ) | |||||||
|
Total reductions
|
(1,095 | ) | (236 | ) | (1,331 | ) | |||||||
|
Net additions to nonperforming assets
|
309 | 164 | 473 | ||||||||||
|
Balance March 31, 2010
|
$ | 5,036 | $ | 1,344 | $ | 6,380 | |||||||
| (a) | Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due. |
| (b) | Excludes $389 million and $359 million at March 31, 2010, and December 31, 2009, respectively, of foreclosed GNMA loans which continue to accrue interest. | |
| (c) | Charge-offs exclude actions for certain card products and loan sales that were not classified as nonperforming at the time the charge-off occurred. | |
| (d) | Residential mortgage information excludes changes related to residential mortgages serviced by others. |
|
|
13 |
Table of Contents
Table 7 Net Charge-offs as a Percent of Average Loans Outstanding
|
Three Months
Ended
|
||||||||
| March 31, | ||||||||
| 2010 | 2009 | |||||||
|
Commercial
|
||||||||
|
Commercial
|
2.41 | % | .92 | % | ||||
|
Lease financing
|
2.14 | 3.29 | ||||||
|
Total commercial
|
2.38 | 1.21 | ||||||
|
Commercial Real Estate
|
||||||||
|
Commercial mortgages
|
.73 | .22 | ||||||
|
Construction and development
|
6.80 | 4.82 | ||||||
|
Total commercial real estate
|
2.28 | 1.58 | ||||||
|
Residential Mortgages
|
2.23 | 1.54 | ||||||
|
Retail
|
||||||||
|
Credit card (a)
|
7.73 | 6.32 | ||||||
|
Retail leasing
|
.45 | 1.03 | ||||||
|
Home equity and second mortgages
|
1.88 | 1.48 | ||||||
|
Other retail
|
1.93 | 1.75 | ||||||
|
Total retail
|
3.30 | 2.62 | ||||||
|
Total loans, excluding covered loans
|
2.68 | 1.82 | ||||||
|
Covered Loans
|
.06 | .21 | ||||||
|
Total loans
|
2.39 | % | 1.72 | % | ||||
| (a) | Net charge-offs as a percent of average loans outstanding, excluding portfolio purchases where the acquired loans were recorded at fair value at the purchase date, were 8.42 percent for the three months ended March 31, 2010. |
Commercial and commercial real estate loan net charge-offs for
the first quarter of 2010 were $469 million
(2.34 percent of average loans outstanding on an annualized
basis), compared with $297 million (1.35 percent of
average loans outstanding on an annualized basis) for the first
quarter of 2009. The
year-over-year
increase in net charge-offs reflected stress in commercial real
estate and residential housing, especially homebuilding and
related industry sectors, along with the impact of current
economic conditions on the Company’s commercial loan
portfolios.
Residential mortgage loan net charge-offs for the first quarter
of 2010 were $145 million (2.23 percent of average
loans outstanding on an annualized basis), compared with
$91 million (1.54 percent of average loans outstanding
on an annualized basis) for the first quarter of 2009. Retail
loan net charge-offs for the first quarter of 2010 were
$518 million (3.30 percent of average loans
outstanding on an annualized basis), compared with
$394 million (2.62 percent of average loans
outstanding on an annualized basis) for the first quarter of
2009. The
year-over-year
increases in residential mortgage and retail loan net
charge-offs reflected the continuing adverse impact of economic
conditions on consumers, as rising unemployment levels increased
losses in the prime-based residential mortgage and credit card
portfolios.
The following table provides an analysis of net charge-offs as a
percent of average loans outstanding managed by the consumer
finance division, compared with other retail loans:
| Three Months Ended March 31 | ||||||||||||||||||
|
Percent of
|
||||||||||||||||||
| Average Loans | Average Loans | |||||||||||||||||
| (Dollars in Millions) | 2010 | 2009 | 2010 | 2009 | ||||||||||||||
|
Consumer Finance (a)
|
||||||||||||||||||
|
Residential mortgages
|
$ | 10,341 | $ | 9,898 | 4.16 | % | 2.99 | % | ||||||||||
|
Home equity and second mortgages
|
2,474 | 2,417 | 6.23 | 6.21 | ||||||||||||||
|
Other retail
|
602 | 525 | 4.72 | 7.72 | ||||||||||||||
|
Other Retail
|
||||||||||||||||||
|
Residential mortgages
|
$ | 16,067 | $ | 14,017 | .98 | % | .52 | % | ||||||||||
|
Home equity and second mortgages
|
16,928 | 16,798 | 1.25 | .80 | ||||||||||||||
|
Other retail
|
22,741 | 22,462 | 1.85 | 1.61 | ||||||||||||||
|
Total Company
|
||||||||||||||||||
|
Residential mortgages
|
$ | 26,408 | $ | 23,915 | 2.23 | % | 1.54 | % | ||||||||||
|
Home equity and second mortgages
|
19,402 | 19,215 | 1.88 | 1.48 | ||||||||||||||
|
Other retail
|
23,343 | 22,987 | 1.93 | 1.75 | ||||||||||||||
| (a) | Consumer finance category included credit originated and managed by the consumer finance division, as well as the majority of home equity and second mortgages with a loan-to-value greater than 100 percent that were originated in the branches. |
The following table provides further information on net
charge-offs as a percent of average loans outstanding for the
consumer finance division:
| Three Months Ended March 31 | ||||||||||||||||||
|
Percent of
|
||||||||||||||||||
| Average Loans | Average Loans | |||||||||||||||||
| (Dollars in Millions) | 2010 | 2009 | 2010 | 2009 | ||||||||||||||
|
Residential mortgages
|
||||||||||||||||||
|
Sub-prime
borrowers
|
$ | 2,432 | $ | 2,838 | 6.67 | % | 5.00 | % | ||||||||||
|
Other borrowers
|
7,909 | 7,060 | 3.38 | 2.18 | ||||||||||||||
|
Total
|
$ | 10,341 | $ | 9,898 | 4.16 | % | 2.99 | % | ||||||||||
|
Home equity and second mortgages
|
||||||||||||||||||
|
Sub-prime
borrowers
|
$ | 609 | $ | 713 | 11.32 | % | 10.81 | % | ||||||||||
|
Other borrowers
|
1,865 | 1,704 | 4.57 | 4.28 | ||||||||||||||
|
Total
|
$ | 2,474 | $ | 2,417 | 6.23 | % | 6.21 | % | ||||||||||
|
|
U.S. Bancorp |
Table of Contents
Table 8 Summary of Allowance for Credit Losses
|
Three Months
Ended
|
||||||||
| March 31, | ||||||||
| (Dollars in Millions) | 2010 | 2009 | ||||||
|
Balance at beginning of period
|
$ | 5,264 | $ | 3,639 | ||||
|
Charge-offs
|
||||||||
|
Commercial
|
||||||||
|
Commercial
|
251 | 117 | ||||||
|
Lease financing
|
45 | 63 | ||||||
|
Total commercial
|
296 | 180 | ||||||
|
Commercial real estate
|
||||||||
|
Commercial mortgages
|
47 | 14 | ||||||
|
Construction and development
|
151 | 117 | ||||||
|
Total commercial real estate
|
198 | 131 | ||||||
|
Residential mortgages
|
146 | 93 | ||||||
|
Retail
|
||||||||
|
Credit card
|
328 | 225 | ||||||
|
Retail leasing
|
9 | 15 | ||||||
|
Home equity and second mortgages
|
94 | 72 | ||||||
|
Other retail
|
132 | 118 | ||||||
|
Total retail
|
563 | 430 | ||||||
|
Covered loans
|
3 | 6 | ||||||
|
Total charge-offs
|
1,206 | 840 | ||||||
|
Recoveries
|
||||||||
|
Commercial
|
||||||||
|
Commercial
|
8 | 5 | ||||||
|
Lease financing
|
11 | 8 | ||||||
|
Total commercial
|
19 | 13 | ||||||
|
Commercial real estate
|
||||||||
|
Commercial mortgages
|
1 | 1 | ||||||
|
Construction and development
|
5 | – | ||||||
|
Total commercial real estate
|
6 | 1 | ||||||
|
Residential mortgages
|
1 | 2 | ||||||
|
Retail
|
||||||||
|
Credit card
|
16 | 13 | ||||||
|
Retail leasing
|
4 | 2 | ||||||
|
Home equity and second mortgages
|
4 | 2 | ||||||
|
Other retail
|
21 | 19 | ||||||
|
Total retail
|
45 | 36 | ||||||
|
Covered loans
|
– | – | ||||||
|
Total recoveries
|
71 | 52 | ||||||
|
Net Charge-offs
|
||||||||
|
Commercial
|
||||||||
|
Commercial
|
243 | 112 | ||||||
|
Lease financing
|
34 | 55 | ||||||
|
Total commercial
|
277 | 167 | ||||||
|
Commercial real estate
|
||||||||
|
Commercial mortgages
|
46 | 13 | ||||||
|
Construction and development
|
146 | 117 | ||||||
|
Total commercial real estate
|
192 | 130 | ||||||
|
Residential mortgages
|
145 | 91 | ||||||
|
Retail
|
||||||||
|
Credit card
|
312 | 212 | ||||||
|
Retail leasing
|
5 | 13 | ||||||
|
Home equity and second mortgages
|
90 | 70 | ||||||
|
Other retail
|
111 | 99 | ||||||
|
Total retail
|
518 | 394 | ||||||
|
Covered loans
|
3 | 6 | ||||||
|
Total net charge-offs
|
1,135 | 788 | ||||||
|
Provision for credit losses
|
1,310 | 1,318 | ||||||
|
Acquisitions and other changes
|
– | (64 | ) | |||||
|
Balance at end of period
|
$ | 5,439 | $ | 4,105 | ||||
|
Components
|
||||||||
|
Allowance for loan losses
|
$ | 5,235 | $ | 3,947 | ||||
|
Liability for unfunded credit commitments
|
204 | 158 | ||||||
|
Total allowance for credit losses
|
$ | 5,439 | $ | 4,105 | ||||
|
Allowance for credit losses as a percentage of
|
||||||||
|
Period-end loans, excluding covered loans
|
3.20 | % | 2.37 | % | ||||
|
Nonperforming loans, excluding covered loans
|
156 | 169 | ||||||
|
Nonperforming assets, excluding covered assets
|
136 | 152 | ||||||
|
Annualized net charge-offs, excluding covered loans
|
118 | 129 | ||||||
|
Period-end loans
|
2.85 | % | 2.23 | % | ||||
|
Nonperforming loans
|
109 | 144 | ||||||
|
Nonperforming assets
|
85 | 120 | ||||||
|
Annualized net charge-offs
|
118 | 128 | ||||||
|
|
15 |
Table of Contents
Analysis and
Determination of the Allowance for Credit
Losses
The
allowance for loan losses reserves for probable and estimable
losses incurred in the Company’s loan and lease portfolio,
and considers credit loss protection from loss sharing
agreements with the FDIC. Management evaluates the allowance
each quarter to ensure it appropriately reserves for incurred
losses. Several factors were taken into consideration in
evaluating the allowance for credit losses at March 31,
2010, including the risk profile of the portfolios, loan net
charge-offs during the period, the level of nonperforming
assets, accruing loans 90 days or more past due,
delinquency ratios and changes in restructured loan balances.
Management also considered the uncertainty related to certain
industry sectors, and the extent of credit exposure to specific
borrowers within the portfolio. In addition, concentration risks
associated with commercial real estate and the mix of loans,
including credit cards, loans originated through the consumer
finance division and residential mortgage balances, and their
relative credit risks, were evaluated. Finally, the Company
considered current economic conditions that might impact the
portfolio.
At March 31, 2010, the allowance for credit losses was
$5.4 billion (2.85 percent of total loans and
3.20 percent of loans excluding covered loans), compared
with an allowance of $5.3 billion (2.70 percent of
total loans and 3.04 percent of loans excluding covered
loans) at December 31, 2009. The ratio of the allowance for
credit losses to nonperforming loans was 109 percent
(156 percent excluding covered loans) at March 31,
2010, compared with 110 percent (153 percent excluding
covered loans) at December 31, 2009. The ratio of the
allowance for credit losses to annualized loan net charge-offs
was 118 percent at March 31, 2010, compared with
136 percent of full year 2009 net charge-offs at
December 31, 2009.
Residual
Value Risk
Management
The
Company manages its risk to changes in the residual value of
leased assets through disciplined residual valuation setting at
the inception of a lease, diversification of its leased assets,
regular residual asset valuation reviews and monitoring of
residual value gains or losses upon the disposition of assets.
As of March 31, 2010, no significant change in the amount
of residuals or concentration of the portfolios had occurred
since December 31, 2009. Refer to “Management’s
Discussion and Analysis — Residual Value Risk
Management” in the Company’s Annual Report on
Form 10-K
for the year ended December 31, 2009, for further
discussion on residual value risk management.
Operational
Risk
Management
The
Company manages operational risk through a risk management
framework and its internal control processes. Within this
framework, the Risk Management Committee of the Company’s
Board of Directors provides oversight and assesses the most
significant operational risks facing the Company within its
business lines. Under the guidance of the Risk Management
Committee, enterprise risk management personnel establish
policies and interact with business lines to monitor significant
operating risks on a regular basis. Business lines have direct
and primary responsibility and accountability for identifying,
controlling, and monitoring operational risks embedded in their
business activities. Refer to “Management’s Discussion
and Analysis — Operational Risk Management” in
the Company’s Annual Report on
Form 10-K
for the year ended December 31, 2009, for further
discussion on operational risk management.
Interest
Rate Risk
Management
In
the banking industry, changes in interest rates are a
significant risk that can impact earnings, market valuations and
the safety and soundness of an entity. To minimize the
volatility of net interest income and the market value of assets
and liabilities, the Company manages its exposure to changes in
interest rates through asset and liability management activities
within guidelines established by its Asset Liability Committee
(“ALCO”) and approved by the Board of Directors. The
ALCO has the responsibility for approving and ensuring
compliance with the ALCO management policies, including interest
rate risk exposure. The Company uses net interest income
simulation analysis and market value of equity modeling for
measuring and analyzing consolidated interest rate risk.
Net Interest
Income Simulation
Analysis
Management
estimates the impact on net interest income of changes in market
interest rates under a number of scenarios, including gradual
shifts, immediate and sustained parallel shifts, and flattening
or steepening of the yield curve. The following table summarizes
the projected impact to net interest income over the next
12 months of various potential interest rate changes. The
ALCO policy limits the estimated change in net interest income
in a gradual 200 basis point (“bps”) rate change
scenario to a 4.0 percent decline of forecasted net
interest income over the next 12 months. At March 31,
2010, and December 31, 2009, the Company was within policy.
Refer to “Management’s Discussion and
Analysis — Net Interest Income Simulation
Analysis” in the Company’s Annual Report on
Form 10-K
for the year ended December 31, 2009, for further
discussion on net interest income simulation analysis.
|
|
16 |
Table of Contents
Sensitivity
of Net Interest Income
| March 31, 2010 | December 31, 2009 | |||||||||||||||||||||||||||||||||||
|
Down 50 bps
|
Up 50 bps
|
Down 200 bps
|
Up 200 bps
|
Down 50 bps
|
Up 50 bps
|
Down 200 bps
|
Up 200 bps
|
|||||||||||||||||||||||||||||
| Immediate | Immediate | Gradual* | Gradual | Immediate | Immediate | Gradual* | Gradual | |||||||||||||||||||||||||||||
|
Net interest income
|
* | .68 | % | * | 1.33 | % | * | .43 | % | * | 1.00 | % | ||||||||||||||||||||||||
* Given
the current level of interest rates, a downward rate scenario
can not be computed.
Market Value
of Equity
Modeling
The
Company also manages interest rate sensitivity by utilizing
market value of equity modeling, which measures the degree to
which the market values of the Company’s assets and
liabilities and off-balance sheet instruments will change given
a change in interest rates. The ALCO policy limits the change in
market value of equity in a 200 bps parallel rate shock to
a 15.0 percent decline. A 200 bps increase would have
resulted in a 3.3 percent decrease in the market value of
equity at March 31, 2010, compared with a 4.3 percent
decrease at December 31, 2009. A 200 bps decrease
would have resulted in a 4.4 percent decrease in the market
value of equity at March 31, 2010, compared with a
2.8 percent decrease at December 31, 2009. Refer to
“Management’s Discussion and Analysis —
Market Value of Equity Modeling” in the Company’s
Annual Report on
Form 10-K
for the year ended December 31, 2009, for further
discussion on market value of equity modeling.
Use of
Derivatives to Manage Interest Rate and Other
Risks
To
reduce the sensitivity of earnings to interest rate, prepayment,
credit, price and foreign currency fluctuations (“asset and
liability management positions”), the Company enters into
derivative transactions. The Company uses derivatives for asset
and liability management purposes primarily in the following
ways:
| • | To convert fixed-rate debt, issued to finance the Company, from fixed-rate payments to floating-rate payments; |
| • | To convert the cash flows associated with floating-rate debt, issued to finance the Company, from floating-rate payments to fixed-rate payments; and |
| • | To mitigate changes in value of the Company’s mortgage origination pipeline, funded mortgage loans held for sale and MSRs. |
To manage these risks, the Company may enter into
exchange-traded and
over-the-counter
derivative contracts including interest rate swaps, swaptions,
futures, forwards and options. In addition, the Company enters
into interest rate and foreign exchange derivative contracts to
accommodate the business requirements of its customers
(“customer-related positions”). The Company minimizes
the market and liquidity risks of customer-related positions by
entering into similar offsetting positions with broker-dealers.
The Company does not utilize derivatives for speculative
purposes.
The Company does not designate all of the derivatives that it
enters into for risk management purposes as accounting hedges
because of the inefficiency of applying the accounting
requirements. In particular, the Company enters into
U.S. Treasury futures, options on U.S. Treasury
futures contracts and forward commitments to buy residential
mortgage loans to mitigate fluctuations in the value of its
MSRs, but does not designate those derivatives as accounting
hedges.
Additionally, the Company uses forward commitments to sell
residential mortgage loans at specified prices to economically
hedge the interest rate risk in its residential mortgage loan
production activities. At March 31, 2010, the Company had
$7.1 billion of forward commitments to sell mortgage loans
hedging $3.6 billion of mortgage loans held for sale and
$5.7 billion of unfunded mortgage loan commitments. The
forward commitments to sell and the unfunded mortgage loan
commitments are considered derivatives under the accounting
guidance related to accounting for derivative instruments and
hedge activities, and the Company has elected the fair value
option for the mortgage loans held for sale.
Derivatives are subject to credit risk associated with
counterparties to the contracts. Credit risk associated with
derivatives is measured by the Company based on the probability
of counterparty default. The Company manages the credit risk of
its derivative positions by diversifying its positions among
various counterparties, entering into master netting agreements
with its counterparties, requiring collateral agreements with
credit-rating thresholds and, in certain cases, though
insignificant, transferring the counterparty credit risk related
to interest rate swaps to third-parties through the use of risk
participation agreements.
For additional information on derivatives and hedging
activities, refer to Note 10 in the Notes to Consolidated
Financial Statements.
Market
Risk
Management
In
addition to interest rate risk, the Company is exposed to other
forms of market risk related to its trading activities, which
are principally customer-based, supporting their management of
foreign currency, interest rate risks and funding activities.
The
|
|
U.S. Bancorp |
Table of Contents
Table 9 Regulatory Capital Ratios
|
March 31,
|
December 31,
|
|||||||
| (Dollars in Millions) | 2010 | 2009 | ||||||
|
Tier 1 capital
|
$ | 23,278 | $ | 22,610 | ||||
|
As a percent of risk-weighted assets
|
9.9 | % | 9.6 | % | ||||
|
As a percent of adjusted quarterly average assets (leverage
ratio)
|
8.6 | % | 8.5 | % | ||||
|
Total risk-based capital
|
$ | 30,858 | $ | 30,458 | ||||
|
As a percent of risk-weighted assets
|
13.2 | % | 12.9 | % | ||||
Company also manages market risk of non-trading business
activities, including its MSRs and loans
held-for-sale.
The Company uses a Value at Risk (“VaR”) approach to
measure general market risk. Theoretically, VaR represents the
amount the Company has at risk of loss to adverse market
movements over a specified time horizon. The Company measures
VaR at the ninety-ninth percentile using distributions derived
from past market data. On average, the Company expects the one
day VaR to be exceeded two to three times per year. The Company
monitors the effectiveness of its risk program by back-testing
the performance of its VaR models, regularly updating the
historical data used by the VaR models and stress testing. As
part of its market risk management approach, the Company sets
and monitors VaR limits for each trading portfolio. The
Company’s trading VaR did not exceed $5 million during the
first quarter of 2010 and $1 million during the first
quarter of 2009.
Liquidity
Risk
Management
The
ALCO establishes policies and guidelines, as well as analyzes
and manages liquidity, to ensure adequate funds are available to
meet normal operating requirements, and unexpected customer
demands for funds in a timely and cost-effective manner.
Liquidity management is viewed from long-term and short-term
perspectives, including various stress scenarios, as well as
from an asset and liability perspective. Management monitors
liquidity through a regular review of maturity profiles, funding
sources, and loan and deposit forecasts to minimize funding risk.
Since 2008, the financial markets have been challenging for many
financial institutions. As a result of these financial market
conditions, many banks experienced liquidity constraints,
substantially increased pricing to retain deposits or utilized
the Federal Reserve System discount window to secure adequate
funding. The Company’s profitable operations, sound credit
quality and strong capital position have enabled it to develop a
large and reliable base of core deposit funding within its
market areas and in domestic and global capital markets. This
has allowed the Company to maintain a strong liquidity position,
as depositors and investors in the wholesale funding markets
seek stable financial institutions. Refer to
“Management’s Discussion and Analysis
— Liquidity Risk Management” in the
Company’s Annual Report on
Form 10-K
for the year ended December 31, 2009, for further
discussion on liquidity risk management.
At March 31, 2010, parent company long-term debt
outstanding was $14.4 billion, compared with
$14.5 billion at December 31, 2009. The
$.1 billion decrease was primarily due to repayments and
maturities during the first quarter of 2010 of $1.0 billion
of medium-term notes, partially offset by $.8 billion of
medium-term note issuances. As of March 31, 2010, total
parent company debt scheduled to mature in the remainder of 2010
was $3.8 billion.
Federal banking laws regulate the amount of dividends that may
be paid by banking subsidiaries without prior approval. The
amount of dividends available to the parent company from its
banking subsidiaries after meeting the regulatory capital
requirements for well-capitalized banks was approximately
$3.3 billion at March 31, 2010.
Capital
Management
The
Company is committed to managing capital to maintain strong
protection for depositors and creditors and for maximum
shareholder benefit. The Company also manages its capital to
exceed regulatory capital requirements for well-capitalized bank
holding companies. Table 9 provides a summary of regulatory
capital ratios as of March 31, 2010, and December 31,
2009. All regulatory ratios exceeded regulatory
“well-capitalized” requirements. Total
U.S. Bancorp shareholders’ equity was
$26.7 billion at March 31, 2010, compared with
$26.0 billion at December 31, 2009. The increase was
primarily the result of corporate earnings and changes in
unrealized gains and losses on
available-for-sale
investment securities included in other comprehensive income,
partially offset by dividends.
The Company believes certain capital ratios in addition to
regulatory capital ratios are useful in evaluating its capital
adequacy. The Company’s Tier 1 common and tangible
common equity, as a percent of risk-weighted assets, were
7.1 percent and 6.5 percent, respectively, at
March 31, 2010, compared with 6.8 percent and
6.1 percent, respectively, at December 31, 2009. The
Company’s tangible common equity divided by tangible assets
was 5.6 percent at March 31, 2010, compared with
5.3 percent at
|
|
U.S. Bancorp |
Table of Contents
December 31, 2009. Refer to “Non-Regulatory Capital
Ratios” for further information regarding the calculation
of these measures.
On December 9, 2008, the Company announced its Board of
Directors had approved an authorization to repurchase
20 million shares of common stock through December 31,
2010. All shares repurchased during the first quarter of 2010
were repurchased under this authorization in connection with the
administration of the Company’s employee benefit plans in
the ordinary course of business. The following table provides a
detailed analysis of all shares repurchased during the first
quarter of 2010:
|
Total Number
|
Maximum Number
|
||||||||||||
|
of Shares
|
of Shares that
May
|
||||||||||||
|
Purchased as
|
Average
|
Yet Be Purchased
|
|||||||||||
|
Part of the
|
Price Paid
|
Under the
|
|||||||||||
| Time Period | Program | per Share | Program | ||||||||||
|
January
|
8,098 | $ | 24.99 | 19,687,636 | |||||||||
|
February
|
538,079 | 23.56 | 19,149,557 | ||||||||||
|
March
|
74,040 | 24.91 | 19,075,517 | ||||||||||
|
Total
|
620,217 | $ | 23.74 | 19,075,517 | |||||||||
LINE OF
BUSINESS FINANCIAL REVIEW
The Company’s major lines of business are Wholesale
Banking, Consumer Banking, Wealth Management &
Securities Services, Payment Services, and Treasury and
Corporate Support. These operating segments are components of
the Company about which financial information is prepared and is
evaluated regularly by management in deciding how to allocate
resources and assess performance.
Basis for
Financial
Presentation
Business
line results are derived from the Company’s business unit
profitability reporting systems by specifically attributing
managed balance sheet assets, deposits and other liabilities and
their related income or expense. Refer to
“Management’s Discussion and Analysis — Line
of Business Financial Review” in the Company’s Annual
Report on
Form 10-K
for the year ended December 31, 2009, for further
discussion on the business lines’ basis for financial
presentation.
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 the Company’s diverse
customer base. During 2010, certain organization and methodology
changes were made and, accordingly, 2009 results were restated
and presented on a comparable basis.
Wholesale
Banking
Wholesale
Banking offers lending, equipment finance and small-ticket
leasing, depository, treasury management, capital markets,
foreign exchange, international trade services and other
financial services to middle market, large corporate, commercial
real estate, financial institution and public sector clients.
Wholesale Banking contributed $9 million of the
Company’s net income in the first quarter of 2010, or an
increase of $7 million, compared with the first quarter of
2009. The increase was primarily driven by higher net revenue
partially offset by higher noninterest expense.
Total net revenue increased $31 million (4.2 percent)
in the first quarter of 2010, compared with the first quarter of
2009. Net interest income, on a taxable-equivalent basis,
decreased $32 million (6.1 percent) in the first
quarter of 2010, compared with the first quarter of 2009. This
decrease was driven by a reduction in average loans as a result
of lower utilization of existing commitments and reduced demand
for new loans, as well as the impact of declining rates on the
margin benefit from deposits, which were partially offset by
improved spreads on loans and higher average deposit balances.
Noninterest income increased $63 million
(29.9 percent) in the first quarter of 2010, compared with
the first quarter of 2009 due to higher equity investment income
and strong growth in commercial products revenue, including
standby letters of credit, commercial loan and capital markets
fees.
Total noninterest expense increased $17 million
(6.4 percent) in the first quarter of 2010, compared with
the first quarter of 2009, primarily due to higher compensation
and employee benefits, an increase in FDIC deposit insurance
expense and increased costs related to OREO. The provision for
credit losses increased $3 million (.6 percent) in the
first quarter of 2010, compared with the first quarter of 2009.
The unfavorable change was primarily due to an increase in net
charge-offs, partially offset by a reduction in the reserve
allocation. Nonperforming assets were $2.5 billion at
March 31, 2010, $2.6 billion at December 31,
2009, and $1.8 billion at March 31, 2009.
Nonperforming assets as a percentage of period-end loans were
4.43 percent at March 31, 2010, 4.42 percent at
December 31, 2009, and 2.78 percent at March 31,
2009. Refer to the “Corporate Risk Profile” section
for further information on factors impacting the credit quality
of the loan portfolios.
Consumer
Banking
Consumer
Banking delivers products and services through banking offices,
telephone servicing and sales, on-line services, direct mail and
ATM processing. 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 $197 million of the
Company’s net income in the first quarter of 2010, or a
decrease of $16 million (7.5 percent), compared with
the first quarter of 2009.
|
|
U.S. Bancorp |
Table of Contents
Table 10 Line of Business Financial Performance
|
Wholesale
|
Consumer
|
||||||||||||||||||||||||
| Banking | Banking | ||||||||||||||||||||||||
|
Three Months Ended
March 31
|
Percent
|
Percent
|
|||||||||||||||||||||||
| (Dollars in Millions) | 2010 | 2009 | Change | 2010 | 2009 | Change | |||||||||||||||||||
|
Condensed Income Statement
|
|||||||||||||||||||||||||
|
Net interest income (taxable-equivalent basis)
|
$ | 489 | $ | 521 | (6.1 | )% | $ | 987 | $ | 979 | .8 | % | |||||||||||||
|
Noninterest income
|
274 | 214 | 28.0 | 653 | 655 | (.3 | ) | ||||||||||||||||||
|
Securities gains (losses), net
|
– | (3 | ) | * | – | – | – | ||||||||||||||||||
|
Total net revenue
|
763 | 732 | 4.2 | 1,640 | 1,634 | .4 | |||||||||||||||||||
|
Noninterest expense
|
279 | 260 | 7.3 | 941 | 864 | 8.9 | |||||||||||||||||||
|
Other intangibles
|
4 | 6 | (33.3 | ) | 17 | 23 | (26.1 | ) | |||||||||||||||||
|
Total noninterest expense
|
283 | 266 | 6.4 | 958 | 887 | 8.0 | |||||||||||||||||||
|
Income before provision and income taxes
|
480 | 466 | 3.0 | 682 | 747 | (8.7 | ) | ||||||||||||||||||
|
Provision for credit losses
|
468 | 465 | .6 | 373 | 412 | (9.5 | ) | ||||||||||||||||||
|
Income before income taxes
|
12 | 1 | * | 309 | 335 | (7.8 | ) | ||||||||||||||||||
|
Income taxes and taxable-equivalent adjustment
|
4 | – | * | 112 | 122 | (8.2 | ) | ||||||||||||||||||
|
Net income
|
8 | 1 | * | 197 | 213 | (7.5 | ) | ||||||||||||||||||
|
Net (income) loss attributable to noncontrolling interests
|
1 | 1 | – | – | – | – | |||||||||||||||||||
|
Net income attributable to U.S. Bancorp
|
$ | 9 | $ | 2 | * | $ | 197 | $ | 213 | (7.5 | ) | ||||||||||||||
|
Average Balance Sheet
|
|||||||||||||||||||||||||
|
Commercial
|
$ | 35,233 | $ | 42,989 | (18.0 | )% | $ | 6,006 | $ | 6,440 | (6.7 | )% | |||||||||||||
|
Commercial real estate
|
21,624 | 21,223 | 1.9 | 11,640 | 11,571 | .6 | |||||||||||||||||||
|
Residential mortgages
|
77 | 91 | (15.4 | ) | 25,947 | 23,426 | 10.8 | ||||||||||||||||||
|
Retail
|
46 | 72 | (36.1 | ) | 44,569 | 44,655 | (.2 | ) | |||||||||||||||||
|
Total loans, excluding covered loans
|
56,980 | 64,375 | (11.5 | ) | 88,162 | 86,092 | 2.4 | ||||||||||||||||||
|
Covered loans
|
– | – | – | 7,919 | 10,175 | (22.2 | ) | ||||||||||||||||||
|
Total loans
|
56,980 | 64,375 | (11.5 | ) | 96,081 | 96,267 | (.2 | ) | |||||||||||||||||
|
Goodwill
|
1,475 | 1,475 | – | 3,246 | 3,231 | .5 | |||||||||||||||||||
|
Other intangible assets
|
76 | 99 | (23.2 | ) | 1,909 | 1,484 | 28.6 | ||||||||||||||||||
|
Assets
|
61,798 | 69,814 | (11.5 | ) | 108,208 | 109,263 | (1.0 | ) | |||||||||||||||||
|
Noninterest-bearing deposits
|
16,984 | 16,210 | 4.8 | 14,067 | 13,889 | 1.3 | |||||||||||||||||||
|
Interest checking
|
11,819 | 8,513 | 38.8 | 22,159 | 19,907 | 11.3 | |||||||||||||||||||
|
Savings products
|
11,464 | 7,661 | 49.6 | 30,547 | 24,194 | 26.3 | |||||||||||||||||||
|
Time deposits
|
11,094 | 15,481 | (28.3 | ) | 20,061 | 26,852 | (25.3 | ) | |||||||||||||||||
|
Total deposits
|
51,361 | 47,865 | 7.3 | 86,834 | 84,842 | 2.3 | |||||||||||||||||||
|
Total U.S. Bancorp shareholders’ equity
|
6,273 | 5,724 | 9.6 | 8,060 | 7,109 | 13.4 | |||||||||||||||||||
* Not
meaningful
Within Consumer Banking, the retail banking division contributed
$98 million of the total net income in the first quarter of
2010, an increase of $4 million (4.3 percent) over the
first quarter of 2009. Mortgage banking contributed
$99 million of the business line’s net income in the
first quarter of 2010, or a decrease of $20 million
(16.8 percent) from the first quarter of 2009, reflecting
lower mortgage loan production, including lower interest income
on average mortgage loans held for sale.
Total net revenue increased $6 million (.4 percent) in
the first quarter of 2010, compared with the first quarter of
2009. Net interest income, on a taxable-equivalent basis,
increased $8 million (.8 percent) in the first quarter
of 2010, compared with the first quarter of 2009. The
year-over-year
increase in net interest income was due to increases in deposit
balances and loan spreads, partially offset by the decline in
the margin benefit of deposits in a declining interest rate
environment. The
year-over-year
increase in average deposits reflected core increases, primarily
within savings accounts. Fee-based noninterest income decreased
$2 million (.3 percent) in the first quarter of 2010,
compared with the first quarter of 2009. The
year-over-year
decrease in fee-based revenue was driven by lower mortgage
banking revenue and lower deposit service charges, partially
offset by improvement in retail lease residual valuation losses
and higher ATM processing servicing fees.
Total noninterest expense increased $71 million
(8.0 percent) in the first quarter of 2010, compared with
the first quarter of 2009. The increase reflected higher FDIC
deposit insurance expense, increased net occupancy and equipment
expense, and higher servicing costs associated with OREO and
foreclosures.
The provision for credit losses decreased $39 million
(9.5 percent) in the first quarter of 2010, compared with
the first quarter of 2009. As a percentage of average loans
outstanding on an annualized basis, net charge-offs increased to
1.62 percent in the first quarter of 2010, compared with
1.32 percent in the first quarter of 2009. Commercial and
commercial real estate loan net charge-offs increased
$6 million and retail loan and residential mortgage net
charge-offs increased $70 million in the first quarter of
2010, compared with the first quarter of 2009. Nonperforming
assets were $1.5 billion at March 31, 2010,
$1.3 billion at December 31, 2009, and $957 million at
March 31, 2009. Nonperforming assets as a percentage of
period-end loans were 1.52 percent at March 31, 2010,
1.36 percent at
|
|
U.S. Bancorp |
Table of Contents
|
Wealth Management
&
|
Payment
|
Treasury and
|
Consolidated
|
|||||||||||||||||||||||||||||||||||||||||||||
| Securities Services | Services | Corporate Support | Company | |||||||||||||||||||||||||||||||||||||||||||||
|
Percent
|
Percent
|
Percent
|
Percent
|
|||||||||||||||||||||||||||||||||||||||||||||
| 2010 | 2009 | Change | 2010 | 2009 | Change | 2010 | 2009 | Change | 2010 | 2009 | Change | |||||||||||||||||||||||||||||||||||||
| $ | 68 | $ | 92 | (26.1 | )% | $ | 345 | $ | 268 | 28.7 | % | $ | 514 | $ | 235 | *% | $ | 2,403 | $ | 2,095 | 14.7 | % | ||||||||||||||||||||||||||
| 272 | 309 | (12.0 | ) | 741 | 690 | 7.4 | 12 | 118 | (89.8 | ) | 1,952 | 1,986 | (1.7 | ) | ||||||||||||||||||||||||||||||||||
| — | – | – | – | – | – | (34 | ) | (195 | ) | 82.6 | (34 | ) | (198 | ) | 82.8 | |||||||||||||||||||||||||||||||||
| 340 | 401 | (15.2 | ) | 1,086 | 958 | 13.4 | 492 | 158 | * | 4,321 | 3,883 | 11.3 | ||||||||||||||||||||||||||||||||||||
| 236 | 230 | 2.6 | 376 | 331 | 13.6 | 207 | 95 | * | 2,039 | 1,780 | 14.6 | |||||||||||||||||||||||||||||||||||||
| 14 | 17 | (17.6 | ) | 52 | 45 | 15.6 | 10 | – | * | 97 | 91 | 6.6 | ||||||||||||||||||||||||||||||||||||
| 250 | 247 | 1.2 | 428 | 376 | 13.8 | 217 | 95 | * | 2,136 | 1,871 | 14.2 | |||||||||||||||||||||||||||||||||||||
| 90 | 154 | (41.6 | ) | 658 | 582 | 13.1 | 275 | 63 | * | 2,185 | 2,012 | 8.6 | ||||||||||||||||||||||||||||||||||||
| 4 | 8 | (50.0 | ) | 456 | 433 | 5.3 | 9 | – | * | 1,310 | 1,318 | (.6 | ) | |||||||||||||||||||||||||||||||||||
| 86 | 146 | (41.1 | ) | 202 | 149 | 35.6 | 266 | 63 | * | 875 | 694 | 26.1 | ||||||||||||||||||||||||||||||||||||
| 31 | 53 | (41.5 | ) | 74 | 54 | 37.0 | (9 | ) | (80 | ) | 88.8 | 212 | 149 | 42.3 | ||||||||||||||||||||||||||||||||||
| 55 | 93 | (40.9 | ) | 128 | 95 | 34.7 | 275 | 143 | 92.3 | 663 | 545 | 21.7 | ||||||||||||||||||||||||||||||||||||
| — | – | – | (7 | ) | (6 | ) | (16.7 | ) | 12 | (11 | ) | * | 6 | (16 | ) | * | ||||||||||||||||||||||||||||||||
| $ | 55 | $ | 93 | (40.9 | ) | $ | 121 | $ | 89 | 36.0 | $ | 287 | $ | 132 | * | $ | 669 | $ | 529 | 26.5 | ||||||||||||||||||||||||||||
| $ | 1,037 | $ | 1,378 | (24.7 | )% | $ | 4,883 | $ | 4,287 | 13.9 | % | $ | 123 | $ | 1,040 | (88.2 | )% | $ | 47,282 | $ | 56,134 | (15.8 | )% | |||||||||||||||||||||||||
| 574 | 571 | .5 | – | – | – | 313 | 33 | * | 34,151 | 33,398 | 2.3 | |||||||||||||||||||||||||||||||||||||
| 375 | 395 | (5.1 | ) | – | – | – | 9 | 3 | * | 26,408 | 23,915 | 10.4 | ||||||||||||||||||||||||||||||||||||
| 1,588 | 1,505 | 5.5 | 17,412 | 14,672 | 18.7 | 7 | 10 | (30.0 | ) | 63,622 | 60,914 | 4.4 | ||||||||||||||||||||||||||||||||||||
| 3,574 | 3,849 | (7.1 | ) | 22,295 | 18,959 | 17.6 | 452 | 1,086 | (58.4 | ) | 171,463 | 174,361 | (1.7 | ) | ||||||||||||||||||||||||||||||||||
| — | – | – | – | – | – | 13,496 | 1,169 | * | 21,415 | 11,344 | 88.8 | |||||||||||||||||||||||||||||||||||||
| 3,574 | 3,849 | (7.1 | ) | 22,295 | 18,959 | 17.6 | 13,948 | 2,255 | * | 192,878 | 185,705 | 3.9 | ||||||||||||||||||||||||||||||||||||
| 1,564 | 1,562 | .1 | 2,312 | 2,290 | 1.0 | 413 | – | * | 9,010 | 8,558 | 5.3 | |||||||||||||||||||||||||||||||||||||
| 221 | 282 | (21.6 | ) | 1,004 | 897 | 11.9 | 148 | – | * | 3,358 | 2,762 | 21.6 | ||||||||||||||||||||||||||||||||||||
| 5,849 | 6,246 | (6.4 | ) | 26,949 | 23,298 | 15.7 | 78,918 | 57,616 | 37.0 | 281,722 | 266,237 | 5.8 | ||||||||||||||||||||||||||||||||||||
| 5,363 | 4,971 | 7.9 | 609 | 574 | 6.1 | 977 | 376 | * | 38,000 | 36,020 | 5.5 | |||||||||||||||||||||||||||||||||||||
| 4,818 | 3,541 | 36.1 | 105 | 76 | 38.2 | 1,093 | 2 | * | 39,994 | 32,039 | 24.8 | |||||||||||||||||||||||||||||||||||||
| 13,400 | 6,284 | * | 21 | 18 | 16.7 | 3,499 | 109 | * | 58,931 | 38,266 | 54.0 | |||||||||||||||||||||||||||||||||||||
| 5,402 | 6,417 | (15.8 | ) | 1 | – | * | 9,048 | 5,453 | 65.9 | 45,606 | 54,203 | (15.9 | ) | |||||||||||||||||||||||||||||||||||
| 28,983 | 21,213 | 36.6 | 736 | 668 | 10.2 | 14,617 | 5,940 | * | 182,531 | 160,528 | 13.7 | |||||||||||||||||||||||||||||||||||||
| 2,186 | 2,156 | 1.4 | 5,229 | 4,475 | 16.8 | 4,666 | 7,355 | (36.6 | ) | 26,414 | 26,819 | (1.5 | ) | |||||||||||||||||||||||||||||||||||
December 31, 2009, and .99 percent at March 31,
2009. Refer to the “Corporate Risk Profile” section
for further information on factors impacting the credit quality
of the loan portfolios.
Wealth
Management & Securities
Services
Wealth
Management & Securities Services provides trust,
private banking, financial advisory, investment management,
retail brokerage services, insurance, custody and mutual fund
servicing through five businesses: Wealth Management, Corporate
Trust, FAF Advisors, Institutional Trust & Custody and
Fund Services. Wealth Management & Securities
Services contributed $55 million of the Company’s net
income in the first quarter of 2010, or a decrease of
$38 million (40.9 percent), compared with the first
quarter of 2009. The decrease was primarily attributable to
lower net revenue.
Total net revenue decreased $61 million (15.2 percent)
in the first quarter of 2010, compared with the first quarter of
2009. Net interest income, on a taxable-equivalent basis,
decreased $24 million (26.1 percent) in the first
quarter of 2010, compared with the first quarter of 2009. The
decrease in net interest income was primarily due to the
reduction in the margin benefit from deposits, partially offset
by higher deposit volumes. Noninterest income decreased
$37 million (12.0 percent) in the first quarter of
2010, compared with the first quarter of 2009 as low interest
rates negatively impacted money market investment fees.
Total noninterest expense was relatively flat, increasing
$3 million (1.2 percent), and was offset by a
$4 million (50.0 percent) decrease in the provision
for credit losses, in the first quarter of 2010, compared with
the first quarter of 2009.
Payment
Services
Payment
Services includes consumer and business credit cards,
stored-value cards, debit cards, corporate and purchasing card
services, consumer lines of credit and merchant processing.
Payment Services contributed $121 million of the
Company’s net income in the first quarter of 2010, an
increase of $32 million (36.0 percent) compared with
the first quarter of 2009. The increase was primarily due to an
increase in total net revenue.
Total net revenue increased $128 million
(13.4 percent) in the first quarter of 2010, compared with
the first quarter of 2009. Net interest income, on a
taxable-equivalent basis, increased $77 million
(28.7 percent) in the first quarter of 2010, compared with
the first quarter of 2009, primarily due to strong growth in
credit card loan balances and improved loan spreads, partially
offset by the cost of rebates on the government card program.
Noninterest income increased
|
|
21 |
Table of Contents
$51 million (7.4 percent) in the first quarter of
2010, compared with the first quarter of 2009, driven by higher
merchant processing services and corporate payment products
revenues due to volume growth, including business expansion.
Total noninterest expense increased $52 million
(13.8 percent) in the first quarter of 2010, compared with
the first quarter of 2009, due to higher technology and
communications expense, the result of increased volume, and
higher intangibles expense.
The provision for credit losses increased $23 million
(5.3 percent) in the first quarter of 2010, compared with
the first quarter of 2009, due to higher net charge-offs. As a
percentage of average loans outstanding, net charge-offs were
6.82 percent in the first quarter of 2010, compared with
5.56 percent in the first quarter of 2009.
Treasury and
Corporate
Support
Treasury
and Corporate Support includes the Company’s investment
portfolios, funding, recently acquired assets and assumed
liabilities prior to assignment to business lines, capital
management, asset securitization, 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.
Treasury and Corporate Support recorded net income of
$287 million in the first quarter of 2010, compared with
$132 million in the first quarter of 2009.
Total net revenue increased $334 million in the first
quarter of 2010, compared with the first quarter of 2009. Net
interest income, on a taxable-equivalent basis, increased
$279 million in the first quarter of 2010, compared with
the first quarter of 2009, reflecting the impact of the FBOP
acquisition, the current interest rate environment, wholesale
funding decisions and the Company’s asset/liability
position. Noninterest income increased $55 million
(71.4 percent) in the first quarter of 2010, compared with
the first quarter of 2009. The increase was primarily due to
lower net securities losses partially offset by a gain on a
corporate real estate transaction in the prior year.
Total noninterest expense increased $122 million in the
first quarter of 2010, compared with the first quarter of 2009.
The increase in noninterest expense was driven by the FBOP
acquisition and higher costs related to affordable housing and
other tax advantaged projects.
Income taxes are assessed to each line of business at a
managerial tax rate of 36.4 percent with the residual tax
expense or benefit to arrive at the consolidated effective tax
rate included in Treasury and Corporate Support. The
consolidated effective tax rate of the Company was
19.5 percent in the first quarter of 2010, compared with
15.6 percent in the first quarter of 2009. The increase in
the effective tax rate reflected the marginal impact of higher
pre-tax earnings
year-over-year.
NON-REGULATORY
CAPITAL RATIOS
In addition to capital ratios defined by banking regulators, the
Company considers various other measures when evaluating capital
utilization and adequacy, including:
| • | Tangible common equity to tangible assets, |
| • | Tier 1 common equity to risk-weighted assets, and |
| • | Tangible common equity to risk-weighted assets. |
These non-regulatory capital ratios are viewed by management as
useful additional methods of reflecting the level of capital
available to withstand unexpected market conditions.
Additionally, presentation of these ratios allows readers to
compare the Company’s capitalization to other financial
services companies. These ratios differ from capital ratios
defined by banking regulators principally in that the numerator
excludes shareholders’ equity associated with preferred
securities, the nature and extent of which varies among
different financial services companies. These ratios are not
defined in generally accepted accounting principles
(“GAAP”) or federal banking regulations. As a result,
these non-regulatory capital ratios disclosed by the Company may
be considered non-GAAP financial measures.
Because there are no standardized definitions for these
non-regulatory capital ratios, the Company’s calculation
methods may differ from those used by other financial services
companies. Also, there may be limits in the usefulness of these
measures to investors. As a result, the Company encourages
readers to consider the consolidated financial statements and
other financial information contained in this report in their
entirety, and not to rely on any single financial measure.
|
|
22 |
Table of Contents
The following table shows the Company’s calculation of
these measures.
|
March 31,
|
December 31,
|
|||||||
| (Dollars in Millions) | 2010 | 2009 | ||||||
|
Total equity
|
$ | 27,388 | $ | 26,661 | ||||
|
Preferred stock
|
(1,500 | ) | (1,500 | ) | ||||
|
Noncontrolling interests
|
(679 | ) | (698 | ) | ||||
|
Goodwill (net of deferred tax liability)
|
(8,374 | ) | (8,482 | ) | ||||
|
Intangible assets, other than mortgage servicing rights
|
(1,610 | ) | (1,657 | ) | ||||
|
Tangible common equity (a)
|
15,225 | 14,324 | ||||||
|
Tier 1 capital, determined in accordance with prescribed
regulatory requirements
|
23,278 | 22,610 | ||||||
|
Trust preferred securities
|
(4,524 | ) | (4,524 | ) | ||||
|
Preferred stock
|
(1,500 | ) | (1,500 | ) | ||||
|
Noncontrolling interests, less preferred stock not eligible for
Tier 1 capital
|
(692 | ) | (692 | ) | ||||
|
Tier 1 common equity (b)
|
16,562 | 15,894 | ||||||
|
Total assets
|
282,428 | 281,176 | ||||||
|
Goodwill (net of deferred tax liability)
|
(8,374 | ) | (8,482 | ) | ||||
|
Intangible assets, other than mortgage servicing rights
|
(1,610 | ) | (1,657 | ) | ||||
|
Tangible assets (c)
|
272,444 | 271,037 | ||||||
|
Risk-weighted assets, determined in accordance with prescribed
regulatory requirements (d)
|
234,042 | 235,233 | ||||||
|
Ratios
|
||||||||
|
Tangible common equity to tangible assets (a)/(c)
|
5.6 | % | 5.3 | % | ||||
|
Tier 1 common equity to risk-weighted assets (b)/(d)
|
7.1 | 6.8 | ||||||
|
Tangible common equity to risk-weighted assets (a)/(d)
|
6.5 | 6.1 | ||||||
CRITICAL
ACCOUNTING POLICIES
The accounting and reporting policies of the Company comply with
accounting principles generally accepted in the United States
and conform to general practices within the banking industry.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions. The Company’s financial
position and results of operations can be affected by these
estimates and assumptions, which are integral to understanding
the Company’s financial statements. Critical accounting
policies are those policies management believes are the most
important to the portrayal of the Company’s financial
condition and results, and require management to make estimates
that are difficult, subjective or complex. Most accounting
policies are not considered by management to be critical
accounting policies. Those policies considered to be critical
accounting policies relate to the allowance for credit losses,
fair value estimates, purchased loans and related
indemnification assets, MSRs, goodwill and other intangibles and
income taxes. Management has discussed the development and the
selection of critical accounting policies with the
Company’s Audit Committee. These accounting policies are
discussed in detail in “Management’s Discussion and
Analysis — Critical Accounting Policies” and the
Notes to Consolidated Financial Statements in the Company’s
Annual Report on
Form 10-K
for the year ended December 31, 2009.
CONTROLS
AND PROCEDURES
Under the supervision and with the participation of the
Company’s management, including its principal executive
officer and principal financial officer, the Company has
evaluated the effectiveness of the design and operation of its
disclosure controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934 (the “Exchange
Act”)). Based upon this evaluation, the principal executive
officer and principal financial officer have concluded that, as
of the end of the period covered by this report, the
Company’s disclosure controls and procedures were effective.
During the most recently completed fiscal quarter, there was no
change made in the Company’s internal control over
financial reporting (as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, the Company’s
internal control over financial reporting.
|
|
U.S. Bancorp |
Table of Contents
U.S. Bancorp
|
March 31,
|
December 31,
|
|||||||
| (Dollars in Millions) | 2010 | 2009 | ||||||
| (Unaudited) | ||||||||
|
Assets
|
||||||||
|
Cash and due from banks
|
$ | 8,380 | $ | 6,206 | ||||
|
Investment securities
|
||||||||
|
Held-to-maturity
(fair value $541 and $48, respectively)
|
625 | 47 | ||||||
|
Available-for-sale
|
46,288 | 44,721 | ||||||
|
Loans held for sale (included $3,584 and $4,327 of mortgage
loans carried at fair value, respectively)
|
3,884 | 4,772 | ||||||
|
Loans
|
||||||||
|
Commercial
|
46,312 | 48,792 | ||||||
|
Commercial real estate
|
34,207 | 34,093 | ||||||
|
Residential mortgages
|
26,520 | 26,056 | ||||||
|
Retail
|
63,191 | 63,955 | ||||||
|
Total loans, excluding covered loans
|
170,230 | 172,896 | ||||||
|
Covered loans
|
20,923 | 21,859 | ||||||
|
Total loans
|
191,153 | 194,755 | ||||||
|
Less allowance for loan losses
|
(5,235 | ) | (5,079 | ) | ||||
|
Net loans
|
185,918 | 189,676 | ||||||
|
Premises and equipment
|
2,246 | 2,263 | ||||||
|
Goodwill
|
9,007 | 9,011 | ||||||
|
Other intangible assets
|
3,388 | 3,406 | ||||||
|
Other assets
|
22,692 | 21,074 | ||||||
|
Total assets
|
$ | 282,428 | $ | 281,176 | ||||
|
Liabilities and Shareholders’ Equity
|
||||||||
|
Deposits
|
||||||||
|
Noninterest-bearing
|
$ | 38,913 | $ | 38,186 | ||||
|
Interest-bearing
|
117,922 | 115,135 | ||||||
|
Time deposits greater than $100,000
|
27,204 | 29,921 | ||||||
|
Total deposits
|
184,039 | 183,242 | ||||||
|
Short-term borrowings
|
31,196 | 31,312 | ||||||
|
Long-term debt
|
32,399 | 32,580 | ||||||
|
Other liabilities
|
7,406 | 7,381 | ||||||
|
Total liabilities
|
255,040 | 254,515 | ||||||
|
Shareholders’ equity
|
||||||||
|
Preferred stock
|
1,500 | 1,500 | ||||||
|
Common stock, par value $0.01 a share — authorized:
4,000,000,000 shares;
issued: 3/31/10 and 12/31/09 — 2,125,725,742 shares |
21 | 21 | ||||||
|
Capital surplus
|
8,267 | 8,319 | ||||||
|
Retained earnings
|
24,597 | 24,116 | ||||||
|
Less cost of common stock in treasury: 3/31/10 —
209,654,913 shares; 12/31/09 —
212,786,937 shares
|
(6,409 | ) | (6,509 | ) | ||||
|
Accumulated other comprehensive income (loss)
|
(1,267 | ) | (1,484 | ) | ||||
|
Total U.S. Bancorp shareholders’ equity
|
26,709 | 25,963 | ||||||
|
Noncontrolling interests
|
679 | 698 | ||||||
|
Total equity
|
27,388 | 26,661 | ||||||
|
Total liabilities and equity
|
$ | 282,428 | $ | 281,176 | ||||
See
Notes to Consolidated Financial Statements.
|
|
U.S. Bancorp |
Table of Contents
U.S. Bancorp
Consolidated
Statement of Income
|
Three Months
Ended
|
||||||||
| (Dollars and Shares in Millions, Except Per Share Data) | March 31, | |||||||
| (Unaudited) | 2010 | 2009 | ||||||
|
Interest Income
|
||||||||
|
Loans
|
$ | 2,505 | $ | 2,350 | ||||
|
Loans held for sale
|
44 | 63 | ||||||
|
Investment securities
|
410 | 434 | ||||||
|
Other interest income
|
34 | 20 | ||||||
|
Total interest income
|
2,993 | 2,867 | ||||||
|
Interest Expense
|
||||||||
|
Deposits
|
236 | 324 | ||||||
|
Short-term borrowings
|
128 | 143 | ||||||
|
Long-term debt
|
277 | 353 | ||||||
|
Total interest expense
|
641 | 820 | ||||||
|
Net interest income
|
2,352 | 2,047 | ||||||
|
Provision for credit losses
|
1,310 | 1,318 | ||||||
|
Net interest income after provision for credit losses
|
1,042 | 729 | ||||||
|
Noninterest Income
|
||||||||
|
Credit and debit card revenue
|
258 | 256 | ||||||
|
Corporate payment products revenue
|
168 | 154 | ||||||
|
Merchant processing services
|
292 | 258 | ||||||
|
ATM processing services
|
105 | 102 | ||||||
|
Trust and investment management fees
|
264 | 294 | ||||||
|
Deposit service charges
|
207 | 226 | ||||||
|
Treasury management fees
|
137 | 137 | ||||||
|
Commercial products revenue
|
161 | 129 | ||||||
|
Mortgage banking revenue
|
200 | 233 | ||||||
|
Investment products fees and commissions
|
25 | 28 | ||||||
|
Securities gains (losses), net
|
||||||||
|
Realized gains (losses), net
|
12 | 56 | ||||||
|
Total
other-than-temporary
impairment
|
(87 | ) | (381 | ) | ||||
|
Portion of
other-than-temporary
impairment recognized in other comprehensive income
|
41 | 127 | ||||||
|
Total securities gains (losses), net
|
(34 | ) | (198 | ) | ||||
|
Other
|
135 | 169 | ||||||
|
Total noninterest income
|
1,918 | 1,788 | ||||||
|
Noninterest Expense
|
||||||||
|
Compensation
|
861 | 786 | ||||||
|
Employee benefits
|
180 | 155 | ||||||
|
Net occupancy and equipment
|
227 | 211 | ||||||
|
Professional services
|
58 | 52 | ||||||
|
Marketing and business development
|
60 | 56 | ||||||
|
Technology and communications
|
185 | 155 | ||||||
|
Postage, printing and supplies
|
74 | 74 | ||||||
|
Other intangibles
|
97 | 91 | ||||||
|
Other
|
394 | 291 | ||||||
|
Total noninterest expense
|
2,136 | 1,871 | ||||||
|
Income before income taxes
|
824 | 646 | ||||||
|
Applicable income taxes
|
161 | 101 | ||||||
|
Net income
|
663 | 545 | ||||||
|
Net (income) loss attributable to noncontrolling interests
|
6 | (16 | ) | |||||
|
Net income attributable to U.S. Bancorp
|
$ | 669 | $ | 529 | ||||
|
Net income applicable to U.S. Bancorp common shareholders
|
$ | 648 | $ | 419 | ||||
|
Earnings per common share
|
$ | .34 | $ | .24 | ||||
|
Diluted earnings per common share
|
$ | .34 | $ | .24 | ||||
|
Dividends declared per common share
|
$ | .05 | $ | .05 | ||||
|
Average common shares outstanding
|
1,910 | 1,754 | ||||||
|
Average diluted common shares outstanding
|
1,919 | 1,760 | ||||||
See
Notes to Consolidated Financial Statements.
|
|
25 |
Table of Contents
U.S. Bancorp
Consolidated
Statement of Shareholders’ Equity
| U.S. Bancorp Shareholders | ||||||||||||||||||||||||||||||||||||||||
|
Other
|
Total
|
|||||||||||||||||||||||||||||||||||||||
|
(Dollars and Shares
in Millions)
|
Common Shares
|
Preferred
|
Common
|
Capital
|
Retained
|
Treasury
|
Comprehensive
|
Shareholders’
|
Noncontrolling
|
Total
|
||||||||||||||||||||||||||||||
| (Unaudited) | Outstanding | Stock | Stock | Surplus | Earnings | Stock | Income | Equity | Interests | Equity | ||||||||||||||||||||||||||||||
|
Balance December 31, 2008
|
1,755 | $ | 7,931 | $ | 20 | $ | 5,830 | $ | 22,541 | $ | (6,659 | ) | $ | (3,363 | ) | $ | 26,300 | $ | 733 | $ | 27,033 | |||||||||||||||||||
|
Change in accounting principle
|
141 | (141 | ) | – | – | |||||||||||||||||||||||||||||||||||
|
Net income
|
529 | 529 | 16 | 545 | ||||||||||||||||||||||||||||||||||||
|
Changes in unrealized gains and losses on securities
available-for-sale
|
690 | 690 | 690 | |||||||||||||||||||||||||||||||||||||
|
Other-than-temporary
impairment not recognized in earnings on securities
available-for-sale
|
(127 | ) | (127 | ) | (127 | ) | ||||||||||||||||||||||||||||||||||
|
Unrealized gain on derivatives
|
118 | 118 | 118 | |||||||||||||||||||||||||||||||||||||
|
Foreign currency translation
|
14 | 14 | 14 | |||||||||||||||||||||||||||||||||||||
|
Reclassification for realized losses
|
201 | 201 | 201 | |||||||||||||||||||||||||||||||||||||
|
Income taxes
|
(341 | ) | (341 | ) | (341 | ) | ||||||||||||||||||||||||||||||||||
|
Total comprehensive income
|
1,084 | 16 | 1,100 | |||||||||||||||||||||||||||||||||||||
|
Preferred stock dividends and discount accretion
|
8 | (108 | ) | (100 | ) | (100 | ) | |||||||||||||||||||||||||||||||||
|
Common stock dividends
|
(88 | ) | (88 | ) | (88 | ) | ||||||||||||||||||||||||||||||||||
|
Issuance of common and treasury stock
|
4 | (114 | ) | 116 | 2 | 2 | ||||||||||||||||||||||||||||||||||
|
Purchase of treasury stock
|
(3 | ) | (3 | ) | (3 | ) | ||||||||||||||||||||||||||||||||||
|
Net other changes in noncontrolling interests
|
– | (30 | ) | (30 | ) | |||||||||||||||||||||||||||||||||||
|
Stock option and restricted stock grants
|
28 | 28 | 28 | |||||||||||||||||||||||||||||||||||||
|
Balance March 31, 2009
|
1,759 | $ | 7,939 | $ | 20 | $ | 5,744 | $ | 23,015 | $ | (6,546 | ) | $ | (2,949 | ) | $ | 27,223 | $ | 719 | $ | 27,942 | |||||||||||||||||||
|
Balance December 31, 2009
|
1,913 | $ | 1,500 | $ | 21 | $ | 8,319 | $ | 24,116 | $ | (6,509 | ) | $ | (1,484 | ) | $ | 25,963 | $ | 698 | $ | 26,661 | |||||||||||||||||||
|
Change in accounting principle
|
(73 | ) | (73 | ) | (16 | ) | (89 | ) | ||||||||||||||||||||||||||||||||
|
Net income
|
669 | 669 | (6 | ) | 663 | |||||||||||||||||||||||||||||||||||
|
Changes in unrealized gains and losses on securities
available-for-sale
|
386 | 386 | 386 | |||||||||||||||||||||||||||||||||||||
|
Other-than-temporary
impairment not recognized in earnings on securities
available-for-sale
|
(41 | ) | (41 | ) | (41 | ) | ||||||||||||||||||||||||||||||||||
|
Unrealized loss on derivatives
|
(39 | ) | (39 | ) | (39 | ) | ||||||||||||||||||||||||||||||||||
|
Foreign currency translation
|
8 | 8 | 8 | |||||||||||||||||||||||||||||||||||||
|
Reclassification for realized losses
|
35 | 35 | 35 | |||||||||||||||||||||||||||||||||||||
|
Income taxes
|
(132 | ) | (132 | ) | (132 | ) | ||||||||||||||||||||||||||||||||||
|
Total comprehensive income
|
886 | (6 | ) | 880 | ||||||||||||||||||||||||||||||||||||
|
Preferred stock dividends
|
(19 | ) | (19 | ) | (19 | ) | ||||||||||||||||||||||||||||||||||
|
Common stock dividends
|
(96 | ) | (96 | ) | (96 | ) | ||||||||||||||||||||||||||||||||||
|
Issuance of common and treasury stock
|
4 | (87 | ) | 115 | 28 | 28 | ||||||||||||||||||||||||||||||||||
|
Purchase of treasury stock
|
(1 | ) | (15 | ) | (15 | ) | (15 | ) | ||||||||||||||||||||||||||||||||
|
Net other changes in noncontrolling interests
|
– | 21 | 21 | |||||||||||||||||||||||||||||||||||||
|
Distributions to noncontrolling interests
|
– | (18 | ) | (18 | ) | |||||||||||||||||||||||||||||||||||
|
Stock option and restricted stock grants
|
35 | 35 | 35 | |||||||||||||||||||||||||||||||||||||
|
Balance March 31, 2010
|
1,916 | $ | 1,500 | $ | 21 | $ | 8,267 | $ | 24,597 | $ | (6,409 | ) | $ | (1,267 | ) | $ | 26,709 | $ | 679 | $ | 27,388 | |||||||||||||||||||
See
Notes to Consolidated Financial Statements.
|
|
U.S. Bancorp |
Table of Contents
U.S. Bancorp
Consolidated
Statement of Cash Flows
|
Three Months
Ended
|
||||||||
|
(Dollars in
Millions)
|
March 31, | |||||||
| (Unaudited) | 2010 | 2009 | ||||||
|
Operating Activities
|
||||||||
|
Net cash provided by operating activities
|
$2,876 | $1,847 | ||||||
|
Investing Activities
|
||||||||
|
Proceeds from sales of
available-for-sale
investment securities
|
922 | 3,132 | ||||||
|
Proceeds from maturities of investment securities
|
3,136 | 1,417 | ||||||
|
Purchases of investment securities
|
(5,269 | ) | (2,861 | ) | ||||
|
Net decrease (increase) in loans outstanding
|
1,944 | (223 | ) | |||||
|
Proceeds from sales of loans
|
440 | 605 | ||||||
|
Purchases of loans
|
(622 | ) | (497 | ) | ||||
|
Acquisitions, net of cash acquired
|
832 | – | ||||||
|
Other, net
|
(302 | ) | 975 | |||||
|
Net cash provided by investing activities
|
1,081 | 2,548 | ||||||
|
Financing Activities
|
||||||||
|
Net increase (decrease) in deposits
|
314 | 3,216 | ||||||
|
Net increase (decrease) in short-term borrowings
|
(769 | ) | (7,976 | ) | ||||
|
Proceeds from issuance of long-term debt
|
902 | 2,597 | ||||||
|
Principal payments or redemption of long-term debt
|
(2,143 | ) | (2,084 | ) | ||||
|
Proceeds from issuance of common stock
|
28 | – | ||||||
|
Cash dividends paid on preferred stock
|
(19 | ) | (107 | ) | ||||
|
Cash dividends paid on common stock
|
(96 | ) | (746 | ) | ||||
|
Net cash used in financing activities
|
(1,783 | ) | (5,100 | ) | ||||
|
Change in cash and due from banks
|
2,174 | (705 | ) | |||||
|
Cash and due from banks at beginning of period
|
6,206 | 6,859 | ||||||
|
Cash and due from banks at end of period
|
$8,380 | $6,154 | ||||||
See
Notes to Consolidated Financial Statements.
|
|
27 |
Table of Contents
Notes
to Consolidated Financial Statements
(Unaudited)
Note 1 Basis of Presentation
The accompanying consolidated financial statements have been
prepared in accordance with the instructions to
Form 10-Q
and, therefore, do not include all information and notes
necessary for a complete presentation of financial position,
results of operations and cash flow activity required in
accordance with accounting principles generally accepted in the
United States. In the opinion of management of U.S. Bancorp
(the “Company”), all adjustments (consisting only of
normal recurring adjustments) necessary for a fair statement of
results for the interim periods have been made. These financial
statements and notes should be read in conjunction with the
consolidated financial statements and notes included in the
Company’s Annual Report on
Form 10-K
for the year ended December 31, 2009. Certain amounts in
prior periods have been reclassified to conform to the current
presentation.
Accounting policies for the lines of business are generally the
same as those used in preparation of the consolidated financial
statements with respect to activities specifically attributable
to each business line. However, the preparation of business line
results requires management to establish methodologies to
allocate funding costs, expenses and other financial elements to
each line of business. Table 10 “Line of Business Financial
Performance” included in Management’s Discussion and
Analysis provides details of segment results. This information
is incorporated by reference into these Notes to Consolidated
Financial Statements.
Note 2 Accounting Changes
Accounting for
Transfers of Financial
Assets
Effective
January 1, 2010, the Company adopted accounting guidance
issued by the Financial Accounting Standards Board
(“FASB”) related to transfers of financial assets.
This guidance removes the exception for qualifying
special-purpose entities from consolidation guidance and the
exception for guaranteed mortgage securitizations when a
transferor had not surrendered control over the transferred
financial assets. In addition, the guidance provides
clarification of the requirements for isolation and limitations
on sale accounting for portions of financial assets. The
guidance also requires additional disclosure about transfers of
financial assets and a transferor’s continuing involvement
with transferred assets. The adoption of this guidance was not
significant to the Company’s financial statements.
Variable Interest
Entities
Effective
January 1, 2010, the Company adopted accounting guidance
issued by the FASB related to variable interest entities
(“VIEs”). Generally, a VIE is an entity with
insufficient equity at risk requiring additional subordinated
financial support, or an entity in which equity investors as a
group, either (i) lack the power through voting or other
similar rights, to direct the activities of the entity that most
significantly impact its performance, (ii) lack the
obligation to absorb the expected losses of the entity or
(iii) lack the right to receive the expected residual
returns of the entity. The new guidance replaces the previous
quantitative-based risks and rewards calculation for determining
whether an entity must consolidate a VIE with an assessment of
whether the entity has both (i) the power to direct the
activities of the VIE that most significantly impact the
VIE’s economic performance and (ii) the obligation to
absorb losses of the VIE or the right to receive benefits from
the VIE that could potentially be significant to the VIE. This
guidance requires reconsideration of whether an entity is a VIE
upon occurrence of certain events, as well as ongoing
assessments of whether a variable interest holder is the primary
beneficiary of a VIE. The Company consolidated approximately
$1.6 billion of assets of previously unconsolidated
entities, and deconsolidated approximately $84 million of
assets of previously consolidated entities upon adoption of this
guidance. Additionally, the adoption of this guidance reduced
total equity by $89 million.
|
|
U.S. Bancorp |
Table of Contents
Note 3 Investment Securities
The amortized cost,
other-than-temporary
impairment recorded in other comprehensive income, gross
unrealized holding gains and losses, and fair value of
held-to-maturity
and
available-for-sale
securities were as follows:
| March 31, 2010 | December 31, 2009 | |||||||||||||||||||||||||||||||||||||||||||
| Unrealized Losses | Unrealized Losses | |||||||||||||||||||||||||||||||||||||||||||
|
Amortized
|
Unrealized
|
Other-than-
|
Fair
|
Amortized
|
Unrealized
|
Other-than-
|
Fair
|
|||||||||||||||||||||||||||||||||||||
| (Dollars in Millions) | Cost | Gains | Temporary | Other | Value | Cost | Gains | Temporary | Other | Value | ||||||||||||||||||||||||||||||||||
|
Held-to-maturity (a)
|
||||||||||||||||||||||||||||||||||||||||||||
|
U.S. Treasury and agencies
|
$ | 64 | $ | – | $ | – | $ | – | $ | 64 | $ | – | $ | – | $ | – | $ | – | $ | – | ||||||||||||||||||||||||
|
Mortgage-backed securities
|
||||||||||||||||||||||||||||||||||||||||||||
|
Residential
|
||||||||||||||||||||||||||||||||||||||||||||
|
Agency
|
4 | – | – | – | 4 | 4 | – | – | – | 4 | ||||||||||||||||||||||||||||||||||
|
Non-agency
|
||||||||||||||||||||||||||||||||||||||||||||
|
Non-prime
|
4 | – | – | – | 4 | – | – | – | – | – | ||||||||||||||||||||||||||||||||||
|
Commercial
|
11 | – | – | (7 | ) | 4 | – | – | – | – | – | |||||||||||||||||||||||||||||||||
|
Asset-backed securities
|
– | – | – | – | – | |||||||||||||||||||||||||||||||||||||||
|
Collateralized debt obligations/Collaterized loan obligations
|
236 | 10 | – | (36 | ) | 210 | – | – | – | – | – | |||||||||||||||||||||||||||||||||
|
Other
|
134 | – | (2) | (9 | ) | 123 | – | – | – | – | – | |||||||||||||||||||||||||||||||||
|
Obligations of state and political subdivisions
|
31 | 2 | – | (1 | ) | 32 | 32 | 2 | – | (1 | ) | 33 | ||||||||||||||||||||||||||||||||
|
Other debt securities
|
141 | – | – | (41 | ) | 100 | 11 | – | – | – | 11 | |||||||||||||||||||||||||||||||||
|
Total
held-to-maturity
|
$ | 625 | $ | 12 | $ | (2) | $ | (94 | ) | $ | 541 | $ | 47 | $ | 2 | $ | – | $ | (1 | ) | $ | 48 | ||||||||||||||||||||||
|
Available-for-sale (b)
|
||||||||||||||||||||||||||||||||||||||||||||
|
U.S. Treasury and agencies
|
$ | 2,547 | $ | 9 | $ | – | $ | (6 | ) | $ | 2,550 | $ | 3,415 | $ | 10 | $ | – | $ | (21 | ) | $ | 3,404 | ||||||||||||||||||||||
|
Mortgage-backed securities
|
||||||||||||||||||||||||||||||||||||||||||||
|
Residential
|
||||||||||||||||||||||||||||||||||||||||||||
|
Agency
|
31,516 | 643 | – | (17 | ) | 32,142 | 29,288 | 501 | – | (47 | ) | 29,742 | ||||||||||||||||||||||||||||||||
|
Non-agency
|
||||||||||||||||||||||||||||||||||||||||||||
|
Prime (c)
|
1,470 | 9 | (111) | (64 | ) | 1,304 | 1,624 | 8 | (110 | ) | (93 | ) | 1,429 | |||||||||||||||||||||||||||||||
|
Non-prime
|
1,275 | 6 | (327) | (54 | ) | 900 | 1,359 | 11 | (297 | ) | (105 | ) | 968 | |||||||||||||||||||||||||||||||
|
Commercial
|
14 | 1 | (1) | – | 14 | 14 | – | (1 | ) | – | 13 | |||||||||||||||||||||||||||||||||
|
Asset-backed securities
|
||||||||||||||||||||||||||||||||||||||||||||
|
Collateralized debt obligations/Collaterized loan obligations
|
153 | 21 | (5) | (1 | ) | 168 | 199 | 11 | (5 | ) | – | 205 | ||||||||||||||||||||||||||||||||
|
Other
|
624 | 7 | (7) | (9 | ) | 615 | 360 | 12 | (5 | ) | (10 | ) | 357 | |||||||||||||||||||||||||||||||
|
Obligations of state and political subdivisions
|
6,849 | 26 | – | (151 | ) | 6,724 | 6,822 | 30 | – | (159 | ) | 6,693 | ||||||||||||||||||||||||||||||||
|
Obligations of foreign governments
|
6 | – | – | – | 6 | 6 | – | – | – | 6 | ||||||||||||||||||||||||||||||||||
|
Corporate debt securities
|
1,179 | – | – | (222 | ) | 957 | 1,179 | – | – | (301 | ) | 878 | ||||||||||||||||||||||||||||||||
|
Perpetual preferred securities
|
483 | 44 | – | (58 | ) | 469 | 483 | 30 | – | (90 | ) | 423 | ||||||||||||||||||||||||||||||||
|
Other investments (d)
|
427 | 15 | – | (3 | ) | 439 | 607 | 9 | – | (13 | ) | 603 | ||||||||||||||||||||||||||||||||
|
Total
available-for-sale
|
$ | 46,543 | $ | 781 | $ | (451) | $ | (585 | ) | $ | 46,288 | $ | 45,356 | $ | 622 | $ | (418 | ) | $ | (839 | ) | $ | 44,721 | |||||||||||||||||||||
| (a) | Held-to-maturity securities are carried at historical cost adjusted for amortization of premiums, accretion of discounts and credit-related other-than-temporary impairment. |
| (b) | Available-for-sale securities are carried at fair value with unrealized net gains or losses reported within accumulated other comprehensive income (loss) in shareholders’ equity. | |
| (c) | Prime securities are those designated as such by the issuer or those with underlying asset characteristics and/or credit enhancements consistent with securities designated as prime. | |
| (d) | Includes securities covered under loss sharing agreements with the FDIC with a fair value of $237 million and $231 million at March 31, 2010 and December 31, 2009, respectively. |
The weighted-average maturity of the
available-for-sale
investment securities was 6.9 years at March 31, 2010,
compared with 7.1 years at December 31, 2009. The
corresponding weighted-average yields were 3.85 percent and
4.00 percent, respectively. The weighted-average maturity
of the
held-to-maturity
investment securities was 5.9 years at March 31, 2010,
and 8.4 years at December 31, 2009. The corresponding
weighted-average yields were 1.26 percent and
5.10 percent, respectively.
For amortized cost, fair value and yield by maturity date of
held-to-maturity
and
available-for-sale
securities outstanding at March 31, 2010, refer to Table 4
included in Management’s Discussion and Analysis which is
incorporated by reference into these Notes to Consolidated
Financial Statements.
Securities carried at $34.7 billion at March 31, 2010,
and $37.4 billion at December 31, 2009, were pledged
to secure public, private and trust deposits, repurchase
agreements and for other purposes required by law. Included in
these amounts were securities sold under agreements to
repurchase where the buyer/lender has the right to sell or
pledge the securities and which were collateralized by
securities with a carrying amount of $8.7 billion at
March 31, 2010, and $8.9 billion at December 31,
2009.
|
|
29 |
Table of Contents
The following table provides information about the amount of
interest income from taxable and non-taxable investment
securities:
|
Three Months Ended
March 31
|
||||||||
| (Dollars in Millions) | 2010 | 2009 | ||||||
|
Taxable
|
$ | 333 | $ | 356 | ||||
|
Non-taxable
|
77 | 78 | ||||||
|
Total interest income from investment securities
|
$ | 410 | $ | 434 | ||||
The following table provides information about the amount of
gross gains and losses realized through the sales of
available-for-sale
investment securities:
|
Three Months Ended
March 31
|
||||||||
| (Dollars in Millions) | 2010 | 2009 | ||||||
|
Realized gains
|
$ | 12 | $ | 57 | ||||
|
Realized losses
|
– | (1 | ) | |||||
|
Net realized gains (losses)
|
$ | 12 | $ | 56 | ||||
|
Income tax (benefit) on realized gains (losses)
|
$ | 4 | $ | 21 | ||||
In the fourth quarter of 2007, the Company purchased certain
structured investment securities (“SIVs”) from certain
money market funds managed by FAF Advisors, Inc., an affiliate
of the Company. Subsequent to the initial purchase, the Company
exchanged its interest in certain SIVs for a pro-rata portion of
the underlying investment securities according to the applicable
restructuring agreements. The SIVs and the investment securities
received are collectively referred to as “SIV-related
securities.” Some of these securities, as well as certain
acquired securities covered under loss sharing agreements with
the FDIC, evidenced credit deterioration at the time of
acquisition by the Company.
Investment securities with evidence of credit deterioration at
acquisition had an unpaid principal balance and fair value of
$1.1 billion and $461 million, respectively, at
March 31, 2010, and $1.2 billion and
$483 million, respectively, at December 31, 2009.
Changes in the accretable balance for these securities were as
follows:
|
Three Months Ended
March 31
|
||||||||
| (Dollars in Millions) | 2010 | 2009 | ||||||
|
Balance at beginning of period
|
$ | 292 | $ | 349 | ||||
|
Impact of
other-than-temporary
impairment accounting change
|
– | (124 | ) | |||||
|
Adjusted balance at beginning of period
|
292 | 225 | ||||||
|
Accretion
|
(7 | ) | (1 | ) | ||||
|
Other (a)
|
34 | – | ||||||
|
Balance at end of period
|
$ | 319 | $ | 224 | ||||
| (a) | Represents changes in projected future cash flows on certain investment securities. |
The Company conducts a regular assessment of its investment
securities with unrealized losses to determine whether
securities are
other-than-temporarily
impaired considering, among other factors, the nature of the
securities, credit ratings or financial condition of the issuer,
the extent and duration of the unrealized loss, expected cash
flows of underlying collateral, market conditions and whether
the Company intends to sell or it is more likely than not the
Company will be required to sell the securities. To determine
whether perpetual preferred securities are
other-than-temporarily
impaired, the Company considers the issuers’ credit
ratings, historical financial performance and strength, the
ability to sustain earnings, and other factors such as market
presence and management experience.
|
|
U.S. Bancorp |
Table of Contents
The following table summarizes
other-than-temporary
impairment by investment category:
| 2010 | 2009 | ||||||||||||||||||||||||||
|
Losses
|
Losses
|
||||||||||||||||||||||||||
|
Three Months Ended
March 31,
|
Recorded in
|
Other Gains
|
Recorded in
|
Other Gains
|
|||||||||||||||||||||||
| (Dollars in Millions) | Earnings | (Losses) | Total | Earnings | (Losses) | Total | |||||||||||||||||||||
|
Held-to-maturity
|
|||||||||||||||||||||||||||
|
Asset-backed securities
|
|||||||||||||||||||||||||||
|
Other
|
$ | (2 | ) | $ | – | $ | (2 | ) | $ | – | $ | – | $ | – | |||||||||||||
|
Total held-to-maturity
|
$ | (2 | ) | $ | – | $ | (2 | ) | $ | – | $ | – | $ | – | |||||||||||||
|
Available-for-sale
|
|||||||||||||||||||||||||||
|
Mortgage-backed securities
|
|||||||||||||||||||||||||||
|
Non-agency residential
|
|||||||||||||||||||||||||||
|
Prime (a)
|
$ | (2 | ) | $ | (9 | ) | $ | (11 | ) | $ | (7 | ) | $ | (119 | ) | $ | (126 | ) | |||||||||
|
Non-prime
|
(35 | ) | (32 | ) | (67 | ) | (28 | ) | (103 | ) | (131 | ) | |||||||||||||||
|
Commercial
|
– | – | – | (1 | ) | (1 | ) | (2 | ) | ||||||||||||||||||
|
Asset-backed securities
|
|||||||||||||||||||||||||||
|
Collateralized debt obligations/Collaterized loan obligations
|
(1 | ) | – | (1 | ) | (5 | ) | 1 | (4 | ) | |||||||||||||||||
|
Other
|
(5 | ) | (1 | ) | (6 | ) | (15 | ) | 95 | 80 | |||||||||||||||||
|
Perpetual preferred securities
|
– | – | – | (195 | ) | – | (195 | ) | |||||||||||||||||||
|
Corporate debt securities
|
– | – | – | (3 | ) | – | (3 | ) | |||||||||||||||||||
|
Other debt securities
|
(1 | ) | 1 | – | – | – | – | ||||||||||||||||||||
|
Total
available-for-sale
|
$ | (44 | ) | $ | (41 | ) | $ | (85 | ) | $ | (254 | ) | $ | (127 | ) | $ | (381 | ) | |||||||||
| (a) | Prime securities are those designated as such by the issuer or those with underlying asset characteristics and/or credit enhancements consistent with securities designated as prime. |
The Company determined the
other-than-temporary
impairment recorded in earnings for securities other than
perpetual preferred securities by estimating the future cash
flows of each individual security, using market information
where available, and discounting the cash flows at the original
effective rate of the security.
Other-than-temporary
impairment recorded in other comprehensive income was measured
as the difference between that discounted amount and the fair
value of each security. The following table includes the ranges
for principal assumptions used at March 31, 2010 for those
available-for-sale non-agency mortgage-backed securities
determined to be
other-than-temporarily
impaired:
| Prime | Non-Prime | ||||||||||||||||||||||||||
| Minimum | Maximum | Average | Minimum | Maximum | Average | ||||||||||||||||||||||
|
Estimated lifetime prepayment rates
|
4 | % | 16 | % | 14 | % | 1 | % | 12 | % | 6 | % | |||||||||||||||
|
Lifetime probability of default rates
|
– | 10 | 2 | 1 | 28 | 7 | |||||||||||||||||||||
|
Lifetime loss severity rates
|
38 | 69 | 44 | 37 | 100 | 59 | |||||||||||||||||||||
Changes in credit losses on non-agency mortgage-backed
securities, including SIV-related investments, and other debt
securities are summarized as follows:
|
Three Months Ended
March 31,
|
||||||||
| (Dollars in Millions) | 2010 | 2009 | ||||||
|
Balance at beginning of period
|
$ | 335 | $ | 299 | ||||
|
Credit losses on securities not previously considered
other-than-temporarily
impaired
|
13 | 54 | ||||||
|
Decreases in expected cash flows on securities for which
other-than-temporary
impairment was previously recognized
|
33 | 5 | ||||||
|
Increases in expected cash flows
|
(1 | ) | – | |||||
|
Realized losses
|
(7 | ) | – | |||||
|
Other
|
18 | – | ||||||
|
Balance at end of period
|
$ | 391 | $ | 358 | ||||
|
|
31 |
Table of Contents
At March 31, 2010, certain investment securities had a fair
value below amortized cost. The following table shows the gross
unrealized losses and fair value of the Company’s
investments with unrealized losses, aggregated by investment
category and length of time the individual securities have been
in continuous unrealized loss positions, at March 31, 2010:
| Less Than 12 Months | 12 Months or Greater | Total | |||||||||||||||||||||||||
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
||||||||||||||||||||||
| (Dollars in Millions) | Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||||
|
Held-to-maturity
|
|||||||||||||||||||||||||||
|
Mortgage-backed securities
|
|||||||||||||||||||||||||||
|
Residential
|
|||||||||||||||||||||||||||
|
Non-agency
|
|||||||||||||||||||||||||||
|
Non-prime
|
$ | – | $ | – | $ | 4 | $ | – | $ | 4 | $ | – | |||||||||||||||
|
Commercial
|
– | – | 4 | (7 | ) | 4 | (7 | ) | |||||||||||||||||||
|
Asset-backed securities
|
|||||||||||||||||||||||||||
|
Collateralized debt obligations/Collaterized loan obligations
|
– | – | 141 | (36 | ) | 141 | (36 | ) | |||||||||||||||||||
|
Other
|
– | – | 123 | (11 | ) | 123 | (11 | ) | |||||||||||||||||||
|
Obligations of state and political subdivisions
|
2 | – | 10 | (1 | ) | 12 | (1 | ) | |||||||||||||||||||
|
Other debt securities
|
– | – | 88 | (41 | ) | 88 | (41 | ) | |||||||||||||||||||
|
Total held-to-maturity
|
$ | 2 | $ | – | $ | 370 | $ | (96 | ) | $ | 372 | $ | (96 | ) | |||||||||||||
|
Available-for-sale
|
|||||||||||||||||||||||||||
|
U.S. Treasury and agencies
|
$ | 1,001 | $ | (6 | ) | $ | 3 | $ | – | $ | 1,004 | $ | (6 | ) | |||||||||||||
|
Mortgage-backed securities
|
|||||||||||||||||||||||||||
|
Residential
|
|||||||||||||||||||||||||||
|
Agency
|
3,708 | (13 | ) | 1,052 | (4 | ) | 4,760 | (17 | ) | ||||||||||||||||||
|
Non-agency
|
|||||||||||||||||||||||||||
|
Prime
|
– | – | 1,244 | (175 | ) | 1,244 | (175 | ) | |||||||||||||||||||
|
Non-prime
|
80 | (13 | ) | 795 | (368 | ) | 875 | (381 | ) | ||||||||||||||||||
|
Commercial
|
2 | – | 2 | (1 | ) | 4 | (1 | ) | |||||||||||||||||||
|
Asset-backed securities
|
|||||||||||||||||||||||||||
|
Collateralized debt obligations/Collaterized loan obligations
|
30 | (4 | ) | 2 | (2 | ) | 32 | (6 | ) | ||||||||||||||||||
|
Other
|
387 | (6 | ) | 21 | (10 | ) | 408 | (16 | ) | ||||||||||||||||||
|
Obligations of state and political subdivisions
|
2,072 | (26 | ) | 2,337 | (125 | ) | 4,409 | (151 | ) | ||||||||||||||||||
|
Obligations of foreign governments
|
6 | – | – | 6 | |||||||||||||||||||||||
|
Corporate debt securities
|
– | – | 932 | (222 | ) | 932 | (222 | ) | |||||||||||||||||||
|
Perpetual preferred securities
|
– | – | 340 | (58 | ) | 340 | (58 | ) | |||||||||||||||||||
|
Other investments
|
83 | (2 | ) | 3 | (1 | ) | 86 | (3 | ) | ||||||||||||||||||
|
Total available-for-sale
|
$ | 7,369 | $ | (70 | ) | $ | 6,731 | $ | (966 | ) | $ | 14,100 | $ | (1,036 | ) | ||||||||||||
The Company does not consider these unrealized losses to be
credit-related. These unrealized losses relate to changes in
interest rates and market spreads subsequent to purchase. A
substantial portion of securities that have unrealized losses
are either corporate debt or non-agency mortgage-backed
securities issued with high investment grade credit ratings. In
general, the issuers of the investment securities are
contractually prohibited from prepayment at less than par, and
the Company did not pay significant purchase premiums for these
securities. At March 31, 2010, the Company had no plans to
sell securities with unrealized losses and believes it is more
likely than not it would not be required to sell such securities
before recovery of their amortized cost.
|
|
U.S. Bancorp |
Table of Contents
Note 4 Loans
The composition of the loan portfolio was as follows:
| March 31, 2010 | December 31, 2009 | ||||||||||||||||
|
Percent
|
Percent
|
||||||||||||||||
| (Dollars in Millions) | Amount | of Total | Amount | of Total | |||||||||||||
|
Commercial
|
|||||||||||||||||
|
Commercial
|
$ | 39,937 | 20.9 | % | $ | 42,255 | 21.7 | % | |||||||||
|
Lease financing
|
6,375 | 3.3 | 6,537 | 3.4 | |||||||||||||
|
Total commercial
|
46,312 | 24.2 | 48,792 | 25.1 | |||||||||||||
|
Commercial real estate
|
|||||||||||||||||
|
Commercial mortgages
|
25,501 | 13.3 | 25,306 | 13.0 | |||||||||||||
|
Construction and development
|
8,706 | 4.6 | 8,787 | 4.5 | |||||||||||||
|
Total commercial real estate
|
34,207 | 17.9 | 34,093 | 17.5 | |||||||||||||
|
Residential mortgages
|
|||||||||||||||||
|
Residential mortgages
|
21,037 | 11.0 | 20,581 | 10.6 | |||||||||||||
|
Home equity loans, first liens
|
5,483 | 2.9 | 5,475 | 2.8 | |||||||||||||
|
Total residential mortgages
|
26,520 | 13.9 | 26,056 | 13.4 | |||||||||||||
|
Retail
|
|||||||||||||||||
|
Credit card
|
16,222 | 8.5 | 16,814 | 8.6 | |||||||||||||
|
Retail leasing
|
4,446 | 2.4 | 4,568 | 2.3 | |||||||||||||
|
Home equity and second mortgages
|
19,322 | 10.1 | 19,439 | 10.0 | |||||||||||||
|
Other retail
|
|||||||||||||||||
|
Revolving credit
|
3,431 | 1.8 | 3,506 | 1.8 | |||||||||||||
|
Installment
|
5,433 | 2.8 | 5,455 | 2.8 | |||||||||||||
|
Automobile
|
9,662 | 5.1 | 9,544 | 4.9 | |||||||||||||
|
Student
|
4,675 | 2.4 | 4,629 | 2.4 | |||||||||||||
|
Total other retail
|
23,201 | 12.1 | 23,134 | 11.9 | |||||||||||||
|
Total retail
|
63,191 | 33.1 | 63,955 | 32.8 | |||||||||||||
|
Total loans, excluding covered loans
|
170,230 | 89.1 | 172,896 | 88.8 | |||||||||||||
|
Covered loans
|
20,923 | 10.9 | 21,859 | 11.2 | |||||||||||||
|
Total loans
|
$ | 191,153 | 100.0 | % | $ | 194,755 | 100.0 | % | |||||||||
The Company had loans of $55.6 billion at March 31,
2010, and December 31, 2009, pledged at the Federal Home
Loan Bank (“FHLB”), and loans of $43.5 billion at
March 31, 2010, and $44.2 billion at December 31,
2009, pledged at the Federal Reserve Bank.
Originated loans are presented net of unearned interest and
deferred fees and costs, which amounted to $1.3 billion at
March 31, 2010 and December 31, 2009. In accordance
with applicable authoritative accounting guidance effective for
the Company on January 1, 2009, all purchased loans and
related indemnification assets are recorded at fair value at the
date of purchase. The Company evaluates purchased loans for
impairment in accordance with applicable authoritative
accounting guidance. Purchased loans with evidence of credit
deterioration since origination for which it is probable that
all contractually required payments will not be collected are
considered impaired (“purchased impaired loans”). All
other purchased loans are considered nonimpaired
(“purchased nonimpaired loans”).
Covered assets represent loans and other assets acquired from
the FDIC subject to loss sharing agreements and included
expected reimbursements from the FDIC of approximately
$3.9 billion at March 31, 2010, and
|
|
33 |
Table of Contents
December 31, 2009. The carrying amount of the covered
assets consisted of purchased impaired loans, purchased
nonimpaired loans, and other assets as shown in the following
table:
| March 31, 2010 | December 31, 2009 | |||||||||||||||||||||||||||||||||||
|
Purchased
|
Purchased
|
Purchased
|
Purchased
|
|||||||||||||||||||||||||||||||||
|
impaired
|
nonimpaired
|
Other
|
impaired
|
nonimpaired
|
Other
|
|||||||||||||||||||||||||||||||
| (Dollars in Millions) | loans | loans | assets | Total | loans | loans | assets | Total | ||||||||||||||||||||||||||||
|
Commercial loans
|
$ | 84 | $ | 445 | $ | – | $ | 529 | $ | 86 | $ | 443 | $ | – | $ | 529 | ||||||||||||||||||||
|
Commercial real estate loans
|
2,755 | 6,569 | – | 9,324 | 3,035 | 6,724 | – | 9,759 | ||||||||||||||||||||||||||||
|
Residential mortgage loans
|
4,336 | 1,852 | – | 6,188 | 4,712 | 1,918 | – | 6,630 | ||||||||||||||||||||||||||||
|
Retail
|
35 | 950 | – | 985 | 30 | 978 | – | 1,008 | ||||||||||||||||||||||||||||
|
Losses reimbursable by the FDIC
|
– | – | 3,897 | 3,897 | – | – | 3,933 | 3,933 | ||||||||||||||||||||||||||||
|
Covered loans
|
7,210 | 9,816 | 3,897 | 20,923 | 7,863 | 10,063 | 3,933 | 21,859 | ||||||||||||||||||||||||||||
|
Foreclosed real estate
|
– | – | 861 | 861 | – | – | 653 | 653 | ||||||||||||||||||||||||||||
|
Total covered assets
|
$ | 7,210 | $ | 9,816 | $ | 4,758 | $ | 21,784 | $ | 7,863 | $ | 10,063 | $ | 4,586 | $ | 22,512 | ||||||||||||||||||||
At March 31, 2010 and December 31, 2009,
$1.0 billion and $1.1 billion, respectively, of the
purchased impaired loans included in covered assets were
classified as nonperforming assets because the expected cash
flows are primarily based on the liquidation of underlying
collateral and the timing and amount of the cash flows could not
be reasonably estimated. Interest income is recognized on other
purchased impaired loans in covered loans through accretion of
the difference between the carrying amount of those loans and
their expected cash flows. The initial determination of the fair
value of the purchased loans includes the impact of expected
credit losses and therefore, no allowance for credit losses is
recorded at the purchase date. To the extent credit
deterioration occurs after the date of acquisition, the Company
records an allowance for loan losses, net of expected
reimbursement from the FDIC under the loss sharing agreements.
There has not been any significant credit deterioration since
the respective acquisition dates.
Changes in the accretable balance for purchased impaired loans
for the Downey, PFF, and FBOP transactions were as follows:
|
Three Months Ended
March 31,
|
||||||||
| (Dollars in Millions) | 2010 | 2009 | ||||||
|
Balance at beginning of period
|
$ | 2,845 | $ | 2,719 | ||||
|
Accretion
|
(101 | ) | (96 | ) | ||||
|
Disposals
|
(7 | ) | (11 | ) | ||||
|
Reclassifications (to) from nonaccretable difference, net
|
92 | (2 | ) | |||||
|
Other
|
(4 | ) | (205 | ) | ||||
|
Balance at end of period
|
$ | 2,825 | $ | 2,405 | ||||
For the three months ended March 31, 2010 and 2009, the
Company had net gains on the sale of loans of $111 million and
$116 million, respectively, which were included in noninterest
income, primarily in mortgage banking revenue.
Note 5 Accounting for Transfers and Servicing of Financial Assets and Variable Interest Entities
The Company sells financial assets in the normal course of
business. The majority of the Company’s financial asset
sales are residential mortgage loan sales primarily to
government-sponsored enterprises through established programs,
the sale or syndication of tax-advantaged investments,
commercial loan sales through participation agreements, and
other individual or portfolio loan and securities sales. In
accordance with the accounting guidance for asset transfers, the
Company considers any ongoing involvement with transferred
assets in determining whether the assets can be derecognized
from the balance sheet. For loans sold under participation
agreements, the Company also considers the terms of the loan
participation agreement and whether they meet the definition of
a participating interest and thus qualify for derecognition.
With the exception of servicing and certain performance-based
guarantees, the Company’s continuing involvement with
financial assets sold is minimal and generally limited to market
customary representation and warranty clauses. The guarantees
provided to certain third parties in connection with the sale or
syndication of certain assets, primarily loan portfolios and
tax-advantaged
investments, is further discussed in Note 22 in the
Company’s Annual Report on
Form 10-K
for the year ended December 31, 2009. When the Company
sells financial assets, it may retain servicing rights
and/or
other
interests in the transferred financial assets. The gain or loss
on sale depends on the previous carrying amount of the
transferred financial assets and the consideration received and
any
|
|
U.S. Bancorp |
Table of Contents
liabilities incurred in exchange for the transferred assets.
Upon transfer, any servicing assets and other interests that
continue to be held by the Company are initially recognized at
fair value. For further information on mortgage servicing
rights, refer to Note 6. The Company has no asset
securitizations or similar asset-backed financing arrangements
that are off balance sheet.
The Company is involved in various entities that are considered
to be VIEs. The Company’s investments in VIEs primarily
represent private investment funds or partnerships that make
equity investments, provide debt financing or support
community-based investments in affordable housing, development
entities that provide capital for communities located in
low-income districts and for historic rehabilitation projects
that may enable the Company to ensure regulatory compliance with
the Community Reinvestment Act. In addition, the Company
sponsors entities to which it transfers tax-advantaged
investments.
As a result of adopting new accounting guidance, the Company
consolidated certain community development and tax-advantaged
investment entities on January 1, 2010 that it had not
previously consolidated. The consolidation of these VIEs
increased assets and liabilities by approximately
$1.0 billion. The equity impact of consolidating these VIEs
was an $9 million decrease, which represents the
recognition of noncontrolling interests in the consolidated
VIEs. At March 31, 2010, approximately $1.8 billion of
the Company’s assets and liabilities related to community
development and
tax-advantaged
investment entities VIEs. The majority of the assets of these
consolidated VIEs are reported in other assets, and the
liabilities are reported in long-term debt on the consolidated
balance sheet. The assets of a particular VIE are the primary
source of funds to settle its obligations. The creditors of the
VIEs do not have recourse to the general credit of the Company.
The Company’s exposure to the consolidated VIEs is
generally limited to the carrying value of its variable
interests plus any related tax credits previously recognized.
The Company also deconsolidated certain community development
and tax-advantaged investment entities as a result of adopting
the new accounting guidance, principally because the Company did
not have power to direct the activities that most significantly
impact the VIEs. The deconsolidation of these VIEs resulted in a
$84 million decrease in assets and $77 million
decrease in liabilities. The deconsolidation also resulted in a
$7 million decrease to equity, which was principally the
removal of the noncontrolling interests in these VIEs.
In addition, the Company sponsors a conduit to which it
previously transferred high-grade investment securities. Under
accounting rules effective prior to January 1, 2010, the
Company was not the primary beneficiary of the conduit as it did
not absorb the majority of the conduit’s expected losses or
residual returns. Under the new accounting guidance, the Company
consolidated the conduit on January 1, 2010, because of its
ability to manage the activities of the conduit. Consolidation
of the conduit increased
held-to-maturity
investment securities $.6 billion, decreased loans
$.7 billion, and reduced retained earnings
$73 million. At March 31, 2010, $.5 billion of
the
held-to-maturity
investment securities on the Company’s consolidated balance
sheet related to the conduit.
The Company is not required to consolidate other VIEs in which
it is not the primary beneficiary. In such cases, the Company
does not control the entities’ most significant activities
or does not have the obligation to absorb losses or right to
receive benefits that are significant to the VIE. The
Company’s investments in unconsolidated VIEs ranged from
less than $1 million to $104 million, with an
aggregate amount of approximately $2.2 billion at
March 31, 2010, and from less than $1 million to
$63 million, with an aggregate amount of $2.4 billion
at December 31, 2009. The Company’s investments in
these unconsolidated VIEs generally are carried in other assets
on the balance sheet. While the Company believes potential
losses from these investments is remote, the Company’s
maximum exposure to these unconsolidated VIEs, including any tax
implications, was approximately $4.8 billion at
March 31, 2010, compared with $4.7 billion at
December 31, 2009. This maximum exposure is determined by
assuming a scenario where the separate investments within the
individual private funds were to become worthless and the
community-based business and housing projects, and related tax
credits completely failed and did not meet certain government
compliance requirements.
|
|
35 |
Table of Contents
Note 6 Mortgage Servicing Rights
The Company serviced $156.5 billion of residential mortgage
loans for others at March 31, 2010, and $150.8 billion
at December 31, 2009. The net impact included in mortgage
banking revenue of assumption changes on the fair value of
mortgage servicing rights (“MSRs”) and fair value
changes of derivatives used to offset MSR value changes was a
net gain of $42 million and $2 million for the three
months ended March 31, 2010, and 2009, respectively. Loan
servicing fees, not including valuation changes included in
mortgage banking revenue, were $142 million and
$117 million for the three months ended March 31,
2010, and 2009, respectively.
Changes in fair value of capitalized MSRs are summarized as
follows:
|
Three Months
Ended
|
||||||||
| March 31, | ||||||||
| (Dollars in Millions) | 2010 | 2009 | ||||||
|
Balance at beginning of period
|
$ | 1,749 | $ | 1,194 | ||||
|
Rights purchased
|
5 | 33 | ||||||
|
Rights capitalized
|
132 | 193 | ||||||
|
Changes in fair value of MSRs:
|
||||||||
|
Due to change in valuation assumptions (a)
|
(36 | ) | (135 | ) | ||||
|
Other changes in fair value (b)
|
(72 | ) | (103 | ) | ||||
|
Balance at end of period
|
$ | 1,778 | $ | 1,182 | ||||
| (a) | Principally reflects changes in discount rates and prepayment speed assumptions, primarily arising from interest rate changes. |
| (b) | Primarily represents changes due to collection/realization of expected cash flows over time (decay). |
The estimated sensitivity to changes in interest rates of the
fair value of the MSRs portfolio and the related derivative
instruments at March 31, 2010, was as follows:
| Down Scenario | Up Scenario | ||||||||||||||||
| (Dollars in Millions) | 50 bps | 25 bps | 25 bps | 50 bps | |||||||||||||
|
Net fair value
|
$ | 3 | $ | 5 | $ | 1 | $ | 3 | |||||||||
The fair value of MSRs and their sensitivity to changes in
interest rates is influenced by the mix of the servicing
portfolio and characteristics of each segment of the portfolio.
The Company’s servicing portfolio consists of the distinct
portfolios of government-insured mortgages, conventional
mortgages, and Mortgage Revenue Bond Programs
(“MRBP”). The servicing portfolios are predominantly
comprised of fixed-rate agency loans with limited
adjustable-rate or jumbo mortgage loans. The MRBP division
specializes in servicing loans made under state and local
housing authority programs. These programs provide mortgages to
low-income and moderate-income borrowers and are generally
government-insured programs with a favorable rate subsidy, down
payment
and/or
closing cost assistance. Mortgage loans originated as part of
government agency and state loans programs tend to experience
slower prepayment rates and better cash flows than conventional
mortgage loans.
A summary of the Company’s MSRs and related characteristics
by portfolio at March 31, 2010 was as follows:
| (Dollars in Millions) | MRBP(a) | Government | Conventional | Total | |||||||||||||
|
Servicing portfolio
|
$ | 11,985 | $ | 23,275 | $ | 121,252 | $ | 156,512 | |||||||||
|
Fair market value
|
$ | 168 | $ | 311 | $ | 1,299 | $ | 1,778 | |||||||||
|
Value (bps)(a)
|
140 | 134 | 107 | 114 | |||||||||||||
|
Weighted-average servicing fees (bps)
|
40 | 40 | 32 | 34 | |||||||||||||
|
Multiple (value/servicing fees)
|
3.50 | 3.35 | 3.34 | 3.35 | |||||||||||||
|
Weighted-average note rate
|
5.91 | % | 5.60 | % | 5.49 | % | 5.54 | ||||||||||
|
Age (in years)
|
4.0 | 2.1 | 2.6 | 2.6 | |||||||||||||
|
Expected life (in years)
|
6.4 | 5.0 | 5.4 | 5.4 | |||||||||||||
|
Discount rate
|
11.5 | % | 11.2 | % | 10.3 | % | 10.5 | % | |||||||||
| (a) | Value is calculated as fair market value divided by the servicing portfolio. |
|
|
U.S. Bancorp |
Table of Contents
Note 7 Earnings Per Share
The components of earnings per share were:
|
Three Months
Ended
|
||||||||
| March 31, | ||||||||
| (Dollars and Shares in Millions, Except Per Share Data) | 2010 | 2009 | ||||||
|
Net income attributable to U.S. Bancorp
|
$ | 669 | $ | 529 | ||||
|
Preferred dividends
|
(19 | ) | (100 | ) | ||||
|
Accretion of preferred stock discount
|
– | (8 | ) | |||||
|
Earnings allocated to participating stock awards
|
(2 | ) | (2 | ) | ||||
|
Net income applicable to U.S. Bancorp common shareholders
|
$ | 648 | $ | 419 | ||||
|
Average common shares outstanding
|
1,910 | 1,754 | ||||||
|
Net effect of the exercise and assumed purchase of stock awards
and conversion of outstanding convertible notes
|
9 | 6 | ||||||
|
Average diluted common shares outstanding
|
1,919 | 1,760 | ||||||
|
Earnings per common share
|
$ | .34 | $ | .24 | ||||
|
Diluted earnings per common share
|
$ | .34 | $ | .24 | ||||
Options and warrants outstanding at March 31, 2010 and 2009
to purchase 56 million and 114 million common shares,
respectively, were not included in the computation of diluted
earnings per share for the three months ended March 31,
2010 and 2009, respectively, because they were antidilutive.
Note 8 Employee Benefits
The components of net periodic benefit cost for the
Company’s retirement plans were:
| Three Months Ended March 31, | |||||||||||||||||
|
Postretirement
|
|||||||||||||||||
| Pension Plans | Welfare Plan | ||||||||||||||||
| (Dollars in Millions) | 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Service cost
|
$ | 23 | $ | 20 | $ | 2 | $ | 1 | |||||||||
|
Interest cost
|
39 | 38 | 2 | 3 | |||||||||||||
|
Expected return on plan assets
|
(54 | ) | (54 | ) | (1 | ) | (1 | ) | |||||||||
|
Prior service (credit) cost and transition (asset) obligation
amortization
|
(3 | ) | (1 | ) | – | – | |||||||||||
|
Actuarial (gain) loss amortization
|
16 | 12 | (1 | ) | (2 | ) | |||||||||||
|
Net periodic benefit cost
|
$ | 21 | $ | 15 | $ | 2 | $ | 1 | |||||||||
|
|
37 |
Table of Contents
Note 9 Income Taxes
The components of income tax expense were:
|
Three Months
Ended
|
||||||||
| March 31, | ||||||||
| (Dollars in Millions) | 2010 | 2009 | ||||||
|
Federal
|
||||||||
|
Current
|
$ | 154 | $ | 374 | ||||
|
Deferred
|
(20 | ) | (295 | ) | ||||
|
Federal income tax
|
134 | 79 | ||||||
|
State
|
||||||||
|
Current
|
29 | 49 | ||||||
|
Deferred
|
(2 | ) | (27 | ) | ||||
|
State income tax
|
27 | 22 | ||||||
|
Total income tax provision
|
$ | 161 | $ | 101 | ||||
A reconciliation of expected income tax expense at the federal
statutory rate of 35 percent to the Company’s
applicable income tax expense follows:
|
Three Months
Ended
|
||||||||
| March 31, | ||||||||
| (Dollars in Millions) | 2010 | 2009 | ||||||
|
Tax at statutory rate
|
$ | 289 | $ | 226 | ||||
|
State income tax, at statutory rates, net of federal tax benefit
|
17 | 14 | ||||||
|
Tax effect of
|
||||||||
|
Tax credits
|
(100 | ) | (75 | ) | ||||
|
Tax-exempt income
|
(52 | ) | (49 | ) | ||||
|
Noncontrolling interests
|
2 | (6 | ) | |||||
|
Other items
|
5 | (9 | ) | |||||
|
Applicable income taxes
|
$ | 161 | $ | 101 | ||||
The Company’s income tax returns are subject to review and
examination by federal, state, local and foreign government
authorities. On an ongoing basis, numerous federal, state, local
and foreign examinations are in progress and cover multiple tax
years. As of March 31, 2010, the federal taxing authority
had completed its examination of the Company through the fiscal
year ended December 31, 2006. The years open to examination
by foreign, state and local government authorities vary by
jurisdiction.
The Company’s net deferred tax liability was
$332 million at March 31, 2010, and $190 million
at December 31, 2009.
|
|
U.S. Bancorp |
Table of Contents
Note 10 Derivative Instruments
The Company recognizes all derivatives in the consolidated
balance sheet at fair value as other assets or liabilities. On
the date the Company enters into a derivative contract, the
derivative is designated as either a hedge of the fair value of
a recognized asset or liability, including hedges of foreign
currency exposure (“fair value hedge”); a hedge of a
forecasted transaction or the variability of cash flows to be
paid related to a recognized asset or liability (“cash flow
hedge”); or a customer accommodation or an economic hedge
for asset/liability risk management purposes
(“free-standing derivative”).
Of the Company’s $40.3 billion of total notional
amount of asset and liability management positions at
March 31, 2010, $11.9 billion was designated as a fair
value or cash flow hedge. When a derivative is designated as
either a fair value or cash flow hedge, the Company performs an
assessment, at inception and quarterly thereafter, to determine
the effectiveness of the derivative in offsetting changes in the
value or cash flows of the hedged item(s).
Fair Value
Hedges
These
derivatives are primarily interest rate swaps that hedge the
change in fair value related to interest rate changes of
underlying fixed-rate debt and junior subordinated debentures.
Changes in the fair value of derivatives designated as fair
value hedges, and changes in the fair value of the hedged items,
are recorded in earnings. All fair value hedges were highly
effective for the three months ended March 31, 2010, and
the change in fair value attributed to hedge ineffectiveness was
not material.
The Company also uses forward commitments to sell specified
amounts of certain foreign currencies to hedge the volatility of
its investment in foreign operations as driven by fluctuations
in foreign currency exchange rates. The net amount of gains or
losses included in the cumulative translation adjustment for the
three months ended March 31, 2010 was not material.
Cash Flow
Hedges
These
derivatives are interest rate swaps that are hedges of the
forecasted cash flows from the underlying variable-rate debt.
Changes in the fair value of derivatives designated as cash flow
hedges are recorded in other comprehensive income (loss) until
income from the cash flows of the hedged items is realized. If a
derivative designated as a cash flow hedge is terminated or
ceases to be highly effective, the gain or loss in other
comprehensive income (loss) is amortized to earnings over the
period the forecasted hedged transactions impact earnings. If a
hedged forecasted transaction is no longer probable, hedge
accounting is ceased and any gain or loss included in other
comprehensive income (loss) is reported in earnings immediately.
At March 31, 2010, the Company had $351 million of
realized and unrealized losses on derivatives classified as cash
flow hedges recorded in other comprehensive income (loss). The
estimated amount to be reclassified from other comprehensive
income (loss) into earnings during the remainder of 2010 and the
next 12 months is a loss of $106 million and
$148 million, respectively. This includes gains and losses
related to hedges that were terminated early for which the
forecasted transactions are still probable. All cash flow hedges
were highly effective for the three months ended March 31,
2010, and the change in fair value attributed to hedge
ineffectiveness was not material.
Other Derivative
Positions
The
Company enters into free-standing derivatives to mitigate
interest rate risk and for other risk management purposes. These
derivatives include forward commitments to sell residential
mortgage loans, which are used to economically hedge the
interest rate risk related to residential mortgage loans held
for sale. The Company also enters into U.S. Treasury
futures, options on U.S. Treasury futures contracts and
forward commitments to buy residential mortgage loans to
economically hedge the change in the fair value of the
Company’s residential MSRs. In addition, the Company acts
as a seller and buyer of interest rate derivatives and foreign
exchange contracts to accommodate its customers. To mitigate the
market and liquidity risk associated with these derivatives, the
Company enters into similar offsetting positions.
For additional information on the Company’s purpose for
entering into derivative transactions and its overall risk
management strategies, refer to “Management Discussion and
Analysis — Use of Derivatives to Manage Interest Rate
and Other Risks” which is incorporated by reference into
these Notes to Consolidated Financial Statements.
|
|
39 |
Table of Contents
The following table summarizes the derivative positions of the
Company:
| March 31, 2010 | December 31, 2009 | ||||||||||||||||
|
Asset
|
Liability
|
Asset
|
Liability
|
||||||||||||||
| (Dollars in Millions) | Derivatives | Derivatives | Derivatives | Derivatives | |||||||||||||
|
Total fair value of derivative positions
|
$ | 1,521 | $ | 1,783 | $ | 1,582 | $ | 1,854 | |||||||||
|
Netting (a)
|
(315 | ) | (988 | ) | (421 | ) | (995 | ) | |||||||||
|
Total
|
$ | 1,206 | $ | 795 | $ | 1,161 | $ | 859 | |||||||||
Note:
The fair value of asset and liability derivatives are included
in Other assets and Other liabilities on the Consolidated
Balance Sheet, respectively.
| (a) | Represents netting of derivative asset and liability balances, and related cash collateral, with the same counterparty subject to master netting agreements. Authoritative accounting guidance permits the netting of derivative receivables and payables when a legally enforceable master netting agreement exists between the Company and a derivative counterparty. A master netting agreement is an agreement between two counterparties who have multiple derivative contracts with each other that provide for the net settlement of contracts through a single payment, in a single currency, in the event of default on or termination of any one contract. At March 31, 2010, the amount of cash collateral posted by counterparties that was netted against derivative assets was $101 million and the amount of cash collateral posted by the Company that was netted against derivative liabilities was $776 million. At December 31, 2009, the amount of cash collateral posted by counterparties that was netted against derivative assets was $116 million and the amount of cash collateral posted by the Company that was netted against derivative liabilities was $691 million. |
The following table summarizes the asset and liability
management derivative positions of the Company:
| Asset Derivatives | Liability Derivatives | ||||||||||||||||||||||||||
|
Weighted-
|
Weighted-
|
||||||||||||||||||||||||||
|
Average
|
Average
|
||||||||||||||||||||||||||
|
Remaining
|
Remaining
|
||||||||||||||||||||||||||
|
Notional
|
Fair
|
Maturity
|
Notional
|
Fair
|
Maturity
|
||||||||||||||||||||||
| (Dollars in Millions) | Value | Value | In Years | Value | Value | In Years | |||||||||||||||||||||
|
March 31, 2010
|
|||||||||||||||||||||||||||
|
Fair value hedges
|
|||||||||||||||||||||||||||
|
Interest rate contracts
|
|||||||||||||||||||||||||||
|
Receive fixed/pay floating swaps
|
$ | 2,725 | $ | 128 | 50.09 | $ | – | $ | – | – | |||||||||||||||||
|
Foreign exchange cross-currency swaps
|
1,794 | 158 | 6.54 | – | – | – | |||||||||||||||||||||
|
Cash flow hedges
|
|||||||||||||||||||||||||||
|
Interest rate contracts
|
|||||||||||||||||||||||||||
|
Pay fixed/receive floating swaps
|
– | – | – | 7,363 | 590 | 3.78 | |||||||||||||||||||||
|
Net investment hedges
|
|||||||||||||||||||||||||||
|
Foreign exchange forward contracts
|
515 | 6 | .04 | – | – | – | |||||||||||||||||||||
|
Other economic hedges
|
|||||||||||||||||||||||||||
|
Interest rate contracts
|
|||||||||||||||||||||||||||
|
Futures and forwards
|
|||||||||||||||||||||||||||
|
Buy
|
2,190 | 11 | .09 | 8,122 | 46 | .05 | |||||||||||||||||||||
|
Sell
|
4,448 | 22 | .14 | 2,687 | 11 | .08 | |||||||||||||||||||||
|
Options
|
|||||||||||||||||||||||||||
|
Purchased
|
4,625 | – | .12 | – | – | – | |||||||||||||||||||||
|
Written
|
3,103 | 16 | .10 | 178 | – | .09 | |||||||||||||||||||||
|
Foreign exchange forward contracts
|
198 | 1 | .06 | 208 | 2 | .04 | |||||||||||||||||||||
|
Equity contracts
|
52 | 3 | .55 | – | – | – | |||||||||||||||||||||
|
Credit contracts
|
841 | 3 | 3.51 | 1,279 | 1 | 2.95 | |||||||||||||||||||||
|
December 31, 2009
|
|||||||||||||||||||||||||||
|
Fair value hedges
|
|||||||||||||||||||||||||||
|
Interest rate contracts
|
|||||||||||||||||||||||||||
|
Receive fixed/pay floating swaps
|
3,235 | 70 | 32.71 | 1,950 | 32 | 20.52 | |||||||||||||||||||||
|
Foreign exchange cross-currency swaps
|
1,864 | 272 | 6.81 | – | – | – | |||||||||||||||||||||
|
Cash flow hedges
|
|||||||||||||||||||||||||||
|
Interest rate contracts
|
|||||||||||||||||||||||||||
|
Pay fixed/receive floating swaps
|
– | – | – | 8,363 | 556 | 3.58 | |||||||||||||||||||||
|
Net investment hedges
|
|||||||||||||||||||||||||||
|
Foreign exchange forward contracts
|
536 | 15 | .08 | – | – | – | |||||||||||||||||||||
|
Other economic hedges
|
|||||||||||||||||||||||||||
|
Interest rate contracts
|
|||||||||||||||||||||||||||
|
Futures and forwards
|
|||||||||||||||||||||||||||
|
Buy
|
1,250 | 6 | .07 | 9,862 | 190 | .05 | |||||||||||||||||||||
|
Sell
|
7,533 | 91 | .11 | 1,260 | 3 | .06 | |||||||||||||||||||||
|
Options
|
|||||||||||||||||||||||||||
|
Purchased
|
5,250 | – | .06 | – | – | – | |||||||||||||||||||||
|
Written
|
2,546 | 9 | .08 | 594 | 2 | .09 | |||||||||||||||||||||
|
Foreign exchange forward contracts
|
113 | 1 | .08 | 293 | 2 | .08 | |||||||||||||||||||||
|
Equity contracts
|
27 | 2 | 1.58 | 29 | 1 | .29 | |||||||||||||||||||||
|
Credit contracts
|
863 | 2 | 3.68 | 1,261 | 1 | 3.05 | |||||||||||||||||||||
|
|
U.S. Bancorp |
Table of Contents
The following table summarizes the customer-related derivative
positions of the Company:
| Asset Derivatives | Liability Derivatives | ||||||||||||||||||||||||||
|
Weighted-
|
Weighted-
|
||||||||||||||||||||||||||
|
Average
|
Average
|
||||||||||||||||||||||||||
|
Remaining
|
Remaining
|
||||||||||||||||||||||||||
|
Notional
|
Fair
|
Maturity
|
Notional
|
Fair
|
Maturity
|
||||||||||||||||||||||
| (Dollars in Millions) | Value | Value | In Years | Value | Value | In Years | |||||||||||||||||||||
|
March 31, 2010
|
|||||||||||||||||||||||||||
|
Interest rate contracts
|
|||||||||||||||||||||||||||
|
Receive fixed/pay floating swaps
|
$ | 18,460 | $ | 903 | 4.44 | $ | 509 | $ | 10 | 10.04 | |||||||||||||||||
|
Pay fixed/receive floating swaps
|
720 | 14 | 9.69 | 18,200 | 868 | 4.44 | |||||||||||||||||||||
|
Options
|
|||||||||||||||||||||||||||
|
Purchased
|
1,860 | 17 | 1.80 | 244 | 14 | .69 | |||||||||||||||||||||
|
Written
|
518 | 14 | .44 | 1,586 | 17 | 2.07 | |||||||||||||||||||||
|
Foreign exchange rate contracts
|
|||||||||||||||||||||||||||
|
Forwards, spots and swaps (a)
|
6,031 | 218 | .41 | 5,970 | 217 | .41 | |||||||||||||||||||||
|
Options
|
|||||||||||||||||||||||||||
|
Purchased
|
281 | 7 | .50 | – | – | – | |||||||||||||||||||||
|
Written
|
– | – | – | 281 | 7 | .50 | |||||||||||||||||||||
|
December 31, 2009
|
|||||||||||||||||||||||||||
|
Interest rate contracts
|
|||||||||||||||||||||||||||
|
Receive fixed/pay floating swaps
|
18,700 | 854 | 4.46 | 1,083 | 19 | 7.00 | |||||||||||||||||||||
|
Pay fixed/receive floating swaps
|
1,299 | 24 | 7.36 | 18,490 | 821 | 4.45 | |||||||||||||||||||||
|
Options
|
|||||||||||||||||||||||||||
|
Purchased
|
1,841 | 20 | 1.68 | 231 | 12 | .85 | |||||||||||||||||||||
|
Written
|
477 | 12 | .56 | 1,596 | 20 | 1.90 | |||||||||||||||||||||
|
Foreign exchange rate contracts
|
|||||||||||||||||||||||||||
|
Forwards, spots and swaps (a)
|
5,607 | 193 | .46 | 5,563 | 184 | .45 | |||||||||||||||||||||
|
Options
|
|||||||||||||||||||||||||||
|
Purchased
|
311 | 11 | .64 | – | – | – | |||||||||||||||||||||
|
Written
|
– | – | – | 311 | 11 | .64 | |||||||||||||||||||||
| (a) | Reflects the net of long and short positions. |
The table below shows the effective portion of the gains
(losses) recognized in other comprehensive income and the gains
(losses) reclassified from other comprehensive income (loss)
into earnings:
| Three Months Ended March 31, 2010 | Three Months Ended March 31, 2009 | ||||||||||||||||
|
Gains (Losses)
|
Gains (Losses)
|
||||||||||||||||
|
Gains (Losses)
|
Reclassified from
|
Gains (Losses)
|
Reclassified from
|
||||||||||||||
|
Recognized in
Other
|
Other
Comprehensive
|
Recognized in
Other
|
Other
Comprehensive
|
||||||||||||||
|
Comprehensive
|
Income (Loss)
into
|
Comprehensive
|
Income (Loss)
into
|
||||||||||||||
| (Dollars in Millions) | Income (Loss) | Earnings | Income (Loss) | Earnings | |||||||||||||
|
Asset and Liability Management Positions
|
|||||||||||||||||
|
Cash flow hedges
|
|||||||||||||||||
|
Interest rate contracts
|
|||||||||||||||||
|
Pay fixed/receive floating swaps (a)
|
$ | (351 | ) | $ | (43 | ) | $ | (575 | ) | $ | (57 | ) | |||||
|
Net investment hedges
|
|||||||||||||||||
|
Foreign exchange forward contracts
|
(31 | ) | – | 20 | – | ||||||||||||
Note:
Ineffectiveness on cash flow and net investment hedges was not
material for the three months ended March 31, 2010 and
2009.
| (a) | Gains (Losses) reclassified from other comprehensive income (loss) into interest income (expense) on long-term debt. |
|
|
41 |
Table of Contents
The table below shows the gains (losses) recognized in earnings
for fair value hedges, other economic hedges and
customer-related positions:
|
Location of
|
Gains (Losses) Recognized in Earnings | |||||||||||||
|
Gains (Losses)
|
Three Months
Ended
|
Three Months
Ended
|
||||||||||||
| (Dollars in Millions) | Recognized in Earnings | March 31, 2010 | March 31, 2009 | |||||||||||
|
Asset and Liability Management Positions
|
||||||||||||||
|
Fair value hedges (a)
|
||||||||||||||
|
Interest rate contracts
|
Other noninterest income | $ | (96 | ) | $ | (30 | ) | |||||||
|
Foreign exchange cross-currency swaps
|
Other noninterest income | (70 | ) | (53 | ) | |||||||||
|
Other economic hedges
|
||||||||||||||
|
Interest rate contracts
|
||||||||||||||
|
Futures and forwards
|
Mortgage banking revenue | 20 | 157 | |||||||||||
|
Purchased and written options
|
Mortgage banking revenue | 70 | 109 | |||||||||||
|
Foreign exchange forward contracts
|
Commercial products revenue | (11 | ) | – | ||||||||||
|
Equity contracts
|
Compensation expense | – | (19 | ) | ||||||||||
|
Credit contracts
|
Other noninterest income/expense | – | (1 | ) | ||||||||||
|
Customer-Related Positions
|
||||||||||||||
|
Interest rate contracts
|
||||||||||||||
|
Receive fixed/pay floating swaps
|
Other noninterest income | 69 | (131 | ) | ||||||||||
|
Pay fixed/receive floating swaps
|
Other noninterest income | (67 | ) | 150 | ||||||||||
|
Purchased and written options
|
Other noninterest income | – | – | |||||||||||
|
Foreign exchange rate contracts
|
||||||||||||||
|
Forwards, spots and swaps
|
Commercial products revenue | 10 | 13 | |||||||||||
|
Purchased and written options
|
Commercial products revenue | – | – | |||||||||||
| (a) | Gains (Losses) on items hedged by interest rate contracts and foreign exchange forward contracts, included in noninterest income (expense), were $94 million and $69 million for the three months ended March 31, 2010, respectively, and $30 million and $54 million for the three months ended March 31, 2009, respectively. Ineffective portion was immaterial for the three months ended March 31, 2010 and 2009. |
Derivatives are subject to credit risk associated with
counterparties to the derivative contracts. The Company measures
that credit risk based on its assessment of the probability of
counterparty default and includes that within the fair value of
the derivative. The Company manages counterparty credit risk
through diversification of its derivative positions among
various counterparties, by entering into master netting
agreements and by requiring collateral agreements which allow
the Company to call for immediate, full collateral coverage when
credit-rating thresholds are triggered by counterparties.
The Company’s collateral agreements are bilateral, and
therefore contain provisions that require collateralization of
the Company’s net liability derivative positions. Required
collateral coverage is based on certain net liability thresholds
and contingent upon the Company’s credit rating from two of
the nationally recognized statistical rating organizations. If
the Company’s credit rating were to fall below credit
ratings thresholds established in the collateral agreements, the
counterparties to the derivatives could request immediate full
collateral coverage for derivatives in net liability positions.
The aggregate fair value of all derivatives under collateral
agreements that were in a net liability position at
March 31, 2010, was $1.3 billion. At March 31,
2010, the Company had $776 million of cash posted as
collateral against this net liability position.
|
|
U.S. Bancorp |
Table of Contents
Note 11 Fair Values of Assets and Liabilities
The Company uses fair value measurements for the initial
recording of certain assets and liabilities, periodic
remeasurement of certain assets and liabilities, and
disclosures. Derivatives, available-for-sale investment
securities, certain mortgage loans held for sale
(“MLHFS”) and MSRs are recorded at fair value on a
recurring basis. Additionally, from time to time, the Company
may be required to record at fair value other assets on a
nonrecurring basis, such as loans held for sale, loans held for
investment and certain other assets. These nonrecurring fair
value adjustments typically involve application of
lower-of-cost-or-fair
value accounting or impairment write-downs of individual assets.
Fair value is defined as the exchange price that would be
received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market
participants on the measurement date. A fair value measurement
reflects all of the assumptions that market participants would
use in pricing the asset or liability, including assumptions
about the risk inherent in a particular valuation technique, the
effect of a restriction on the sale or use of an asset, and the
risk of nonperformance.
The Company groups its assets and liabilities measured at fair
value into a three-level hierarchy for valuation techniques used
to measure financial assets and financial liabilities at fair
value. This hierarchy is based on whether the valuation inputs
are observable or unobservable. These levels are:
|
•
|
Level 1 — Quoted prices in active markets for identical assets or liabilities. Level 1 includes U.S. Treasury and exchange-traded instruments. | |
|
•
|
Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 includes debt securities that are traded less frequently than exchange-traded instruments and which are valued using third party pricing services; derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data; and MLHFS whose values are determined using quoted prices for similar assets or pricing models with inputs that are observable in the market or can be corroborated by observable market data. | |
|
•
|
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category includes residential MSRs, certain debt securities, including the Company’s SIV-related investments and non-agency mortgaged-backed securities, and certain derivative contracts. |
When the Company changes its valuation inputs for measuring
financial assets and financial liabilities at fair value, either
due to changes in current market conditions or other factors, it
may need to transfer those assets or liabilities to another
level in the hierarchy based on the new inputs used. The Company
recognizes these transfers at the end of the reporting period
that the transfers occur. For the first quarter of 2010 and
2009, there were no significant transfers of financial assets or
financial liabilities between the hierarchy levels, except for
the transfer of non-agency mortgage-backed securities from
Level 2 to Level 3 in the first quarter of 2009, as
discussed below.
The following section describes the valuation methodologies used
by the Company to measure financial assets and liabilities at
fair value and for estimating fair value for financial
instruments not recorded at fair value as required under
disclosure guidance related to the fair value of financial
instruments. In addition, for financial assets and liabilities
measured at fair value, the following section includes an
indication of the level of the fair value hierarchy in which the
assets or liabilities are classified. Where appropriate, the
description includes information about the valuation models and
key inputs to those models.
Cash and Cash
Equivalents
The
carrying value of cash, amounts due from banks, federal funds
sold and securities purchased under resale agreements was
assumed to approximate fair value.
Investment
Securities
When
available, quoted market prices are used to determine the fair
value of investment securities and such items are classified
within Level 1 of the fair value hierarchy.
For other securities, the Company determines fair value based on
various sources and may apply matrix pricing with observable
prices for similar securities where a price for the identical
security is not observable. Prices are
|
|
43 |
Table of Contents
verified, where possible, to prices of observable market trades
as obtained from independent sources. Securities measured at
fair value by such methods are classified as Level 2.
The fair value of securities for which there are no market
trades, or where trading is inactive as compared to normal
market activity, are categorized as Level 3. Securities
classified as Level 3 include non-agency mortgage-backed
securities, SIV-related, commercial mortgage-backed and
asset-backed securities, collateralized debt obligations and
collateralized loan obligations, and certain corporate debt
securities. Beginning in the first quarter of 2009, due to the
limited number of trades of non-agency mortgage-backed
securities and lack of reliable evidence about transaction
prices, the Company determines the fair value of these
securities using a cash flow methodology and incorporating
observable market information, where available. The use of a
cash flow methodology resulted in the Company transferring some
non-agency mortgage-backed securities to Level 3 in the
first quarter of 2009. This transfer did not impact earnings and
was not significant to shareholders’ equity of the Company
or the carrying amount of the securities.
Cash flow methodologies and other market valuation techniques
involving management judgment use assumptions regarding housing
prices, interest rates and borrower performance. Inputs are
refined and updated to reflect market developments. The primary
valuation drivers of these securities are the prepayment rates,
default rates and default severities associated with the
underlying collateral, as well as the discount rate used to
calculate the present value of the projected cash flows.
The following table shows the valuation assumption ranges for
Level 3 available-for-sale non-agency mortgage-backed
securities at March 31, 2010:
| Prime (a) | Non-prime | ||||||||||||||||||||||||||
| Minimum | Maximum | Average | Minimum | Maximum | Average | ||||||||||||||||||||||
|
Estimated lifetime prepayment rates
|
3 | % | 18 | % | 13 | % | 1 | % | 13 | % | 6 | % | |||||||||||||||
|
Lifetime probability of default rates
|
– | 10 | 1 | – | 28 | 7 | |||||||||||||||||||||
|
Lifetime loss severity rates
|
– | 100 | 47 | 10 | 100 | 56 | |||||||||||||||||||||
|
Discount margin
|
– | 26 | 6 | 3 | 31 | 13 | |||||||||||||||||||||
| (a) | Prime securities are those designated as such by the issuer or those with underlying asset characteristics and/or credit enhancements consistent with securities designated as prime. |
Certain mortgage
loans held for
sale
MLHFS
measured at fair value, for which an active secondary market and
readily available market prices exist, are initially valued at
the transaction price and are subsequently valued by comparison
to instruments with similar collateral and risk profiles.
Included in mortgage banking revenue for the three months ended
March 31, 2010 and 2009, was a $42 million and
$32 million net gain, respectively, from the initial
measurement and subsequent changes to fair value of these MLHFS
under fair value option accounting guidance. Changes in fair
value due to instrument specific credit risk were immaterial.
The fair value of MLHFS was $3.6 billion as of
March 31, 2010, which exceeded the unpaid principal balance
by $74 million as of that date. MLHFS are Level 2.
Related interest income for MLHFS is measured based on
contractual interest rates and reported as interest income in
the Consolidated Statement of Income. Electing to measure MLHFS
at fair value reduces certain timing differences and better
matches changes in fair value of these assets with changes in
the value of the derivative instruments used to economically
hedge them without the burden of complying with the requirements
for hedge accounting.
Loans
The
loan portfolio includes adjustable and fixed-rate loans, the
fair value of which was estimated using discounted cash flow
analyses and other valuation techniques. To calculate discounted
cash flows, the loans were aggregated into pools of similar
types and expected repayment terms. The expected cash flows of
loans considered historical prepayment experiences and estimated
credit losses for nonperforming loans and were discounted using
current rates offered to borrowers of similar credit
characteristics. Generally, loan fair values reflect
Level 3 information.
Mortgage
servicing
rights
MSRs are
valued using a cash flow methodology and third party prices, if
available. Accordingly, MSRs are classified in Level 3. The
Company determines fair value by estimating the present value of
the asset’s future cash flows using market-based prepayment
rates, discount rates, and other assumptions validated through
comparison to trade information, industry surveys, and
independent third party appraisals. Risks inherent in MSRs
valuation include higher than expected prepayment rates
and/or
delayed receipt of cash flows.
|
|
U.S. Bancorp |
Table of Contents
Derivatives
Exchange-traded
derivatives are measured at fair value based on quoted market
(i.e. exchange) prices. Because prices are available for the
identical instrument in an active market, these fair values are
classified within Level 1 of the fair value hierarchy.
The majority of derivatives held by the Company are executed
over-the-counter
and are valued using standard cash flow, Black-Scholes and Monte
Carlo valuation techniques. The models incorporate inputs,
depending on the type of derivative, including interest rate
curves, foreign exchange rates and volatility. In addition, all
derivative values incorporate an assessment of the risk of
counterparty nonperformance, measured based on the
Company’s evaluation of credit risk as well as external
assessments of credit risk, where available. In its assessment
of nonperformance risk, the Company considers its ability to net
derivative positions under master netting agreements, as well as
collateral received or provided under collateral support
agreements. The majority of these derivatives are classified
within Level 2 of the fair value hierarchy as the
significant inputs to the models are observable. An exception to
the Level 2 classification is certain derivative
transactions for which the risk of nonperformance cannot be
observed in the market. These derivatives are classified within
Level 3 of the fair value hierarchy. In addition,
commitments to sell, purchase and originate mortgage loans that
meet the requirements of a derivative, are valued by pricing
models that include market observable and unobservable inputs.
Due to the significant unobservable inputs, these commitments
are classified within Level 3 of the fair value hierarchy.
Deposit
Liabilities
The
fair value of demand deposits, savings accounts and certain
money market deposits is equal to the amount payable on demand.
The fair value of fixed-rate certificates of deposit was
estimated by discounting the contractual cash flow using current
market rates.
Short-term
Borrowings
Federal
funds purchased, securities sold under agreements to repurchase,
commercial paper and other short-term funds borrowed have
floating rates or short-term maturities. The fair value of
short-term borrowings was determined by discounting contractual
cash flows using current market rates.
Long-term
Debt
The fair
value for most long-term debt was determined by discounting
contractual cash flows using current market rates. Junior
subordinated debt instruments were valued using market quotes.
Loan Commitments,
Letters of Credit and
Guarantees
The
fair value of commitments, letters of credit and guarantees
represents the estimated costs to terminate or otherwise settle
the obligations with a third-party. The fair value of
residential mortgage commitments is estimated based on
observable inputs. Other loan commitments, letters of credit and
guarantees are not actively traded, and the Company estimates
their fair value based on the related amount of unamortized
deferred commitment fees adjusted for the probable losses for
these arrangements.
|
|
45 |
Table of Contents
The following table summarizes the balances of assets and
liabilities measured at fair value on a recurring basis:
| (Dollars in Millions) | Level 1 | Level 2 | Level 3 | Netting | Total | |||||||||||||||||
|
March 31, 2010
|
||||||||||||||||||||||
|
Available-for-sale
securities
|
||||||||||||||||||||||
|
U.S. Treasury and agencies
|
$ | 8 | $ | 2,542 | $ | – | $ | – | $ | 2,550 | ||||||||||||
|
Mortgage-backed securities
|
||||||||||||||||||||||
|
Residential
|
||||||||||||||||||||||
|
Agency
|
– | 32,142 | – | – | 32,142 | |||||||||||||||||
|
Non-agency
|
||||||||||||||||||||||
|
Prime
|
– | – | 1,304 | – | 1,304 | |||||||||||||||||
|
Non-prime
|
– | – | 900 | – | 900 | |||||||||||||||||
|
Commercial
|
– | – | 14 | – | 14 | |||||||||||||||||
|
Asset-backed securities
|
||||||||||||||||||||||
|
Collateralized debt obligations/Collateralized loan obligations
|
– | 89 | 79 | – | 168 | |||||||||||||||||
|
Other
|
– | 280 | 335 | – | 615 | |||||||||||||||||
|
Obligations of state and political subdivisions
|
– | 6,724 | – | – | 6,724 | |||||||||||||||||
|
Obligations of foreign governments
|
– | 6 | – | – | 6 | |||||||||||||||||
|
Corporate debt securities
|
– | 947 | 10 | – | 957 | |||||||||||||||||
|
Perpetual preferred securities
|
– | 469 | – | – | 469 | |||||||||||||||||
|
Other investments
|
199 | 3 | 237 | – | 439 | |||||||||||||||||
|
Total
available-for-sale
|
207 | 43,202 | 2,879 | – | 46,288 | |||||||||||||||||
|
Mortgage loans held for sale
|
– | 3,584 | – | – | 3,584 | |||||||||||||||||
|
Mortgage servicing rights
|
– | – | 1,778 | – | 1,778 | |||||||||||||||||
|
Derivative assets
|
– | 584 | 937 | (315 | ) | 1,206 | ||||||||||||||||
|
Other assets
|
1 | 214 | – | – | 215 | |||||||||||||||||
|
Total
|
$ | 208 | $ | 47,584 | $ | 5,594 | $ | (315 | ) | $ | 53,071 | |||||||||||
|
Derivative liabilities
|
$ | – | $ | 1,751 | $ | 32 | $ | (988 | ) | $ | 795 | |||||||||||
|
Other liabilities
|
– | 206 | – | – | 206 | |||||||||||||||||
|
Total
|
$ | – | $ | 1,957 | $ | 32 | $ | (988 | ) | $ | 1,001 | |||||||||||
|
December 31, 2009
|
||||||||||||||||||||||
|
Available-for-sale
securities
|
||||||||||||||||||||||
|
U.S. Treasury and agencies
|
$ | 9 | $ | 3,395 | $ | – | $ | – | $ | 3,404 | ||||||||||||
|
Mortgage-backed securities
|
||||||||||||||||||||||
|
Residential
|
||||||||||||||||||||||
|
Agency
|
– | $ | 29,742 | – | – | 29,742 | ||||||||||||||||
|
Non-agency
|
||||||||||||||||||||||
|
Prime
|
– | – | 1,429 | – | 1,429 | |||||||||||||||||
|
Non-prime
|
– | – | 968 | – | 968 | |||||||||||||||||
|
Commercial
|
– | – | 13 | – | 13 | |||||||||||||||||
|
Asset-backed securities
|
||||||||||||||||||||||
|
Collateralized debt obligations/Collateralized loan obligations
|
– | 107 | 98 | – | 205 | |||||||||||||||||
|
Other
|
– | – | 357 | – | 357 | |||||||||||||||||
|
Obligations of state and political subdivisions
|
– | 6,693 | – | – | 6,693 | |||||||||||||||||
|
Obligations of foreign governments
|
– | 6 | – | – | 6 | |||||||||||||||||
|
Corporate debt securities
|
– | 868 | 10 | – | 878 | |||||||||||||||||
|
Perpetual preferred securities
|
– | 423 | – | – | 423 | |||||||||||||||||
|
Other investments
|
372 | – | 231 | – | 603 | |||||||||||||||||
|
Total
available-for-sale
|
381 | 41,234 | 3,106 | – | 44,721 | |||||||||||||||||
|
Mortgage loans held for sale
|
– | 4,327 | – | – | 4,327 | |||||||||||||||||
|
Mortgage servicing rights
|
– | – | 1,749 | – | 1,749 | |||||||||||||||||
|
Derivative assets
|
– | 713 | 869 | (421 | ) | 1,161 | ||||||||||||||||
|
Other assets
|
– | 247 | – | – | 247 | |||||||||||||||||
|
Total
|
$ | 381 | $ | 46,521 | $ | 5,724 | $ | (421 | ) | $ | 52,205 | |||||||||||
|
Derivative liabilities
|
$ | – | $ | 1,800 | $ | 54 | $ | (995 | ) | $ | 859 | |||||||||||
|
Other liabilities
|
– | 256 | – | – | 256 | |||||||||||||||||
|
Total
|
$ | – | $ | 2,056 | $ | 54 | $ | (995 | ) | $ | 1,115 | |||||||||||
|
|
U.S. Bancorp |
Table of Contents
The table below presents the changes in fair value for all
assets and liabilities measured at fair value on a recurring
basis using significant unobservable inputs (Level 3).
|
Net Gains
|
Net Change in
|
|||||||||||||||||||||||||||||||
|
(Losses)
|
Purchases,
|
Unrealized Gains
|
||||||||||||||||||||||||||||||
|
Net Gains
|
Included in
|
Sales, Principal
|
(Losses) Relating
|
|||||||||||||||||||||||||||||
|
Beginning
|
(Losses)
|
Other
|
Payments,
|
End
|
to Assets
|
|||||||||||||||||||||||||||
|
of Period
|
Included in
|
Comprehensive
|
Issuances and
|
Transfers into
|
of Period
|
Still Held at
|
||||||||||||||||||||||||||
| (Dollars in Millions) | Balance | Net Income | Income (Loss) | Settlements | Level 3 | Balance | End of Period | |||||||||||||||||||||||||
|
Three Months Ended March 31, 2010
|
||||||||||||||||||||||||||||||||
|
Available-for-sale
securities
|
||||||||||||||||||||||||||||||||
|
Mortgage-backed securities
|
||||||||||||||||||||||||||||||||
|
Residential non-agency
|
||||||||||||||||||||||||||||||||
|
Prime
|
$ | 1,429 | $ | – | $ | 29 | $ | (154 | ) | $ | – | $ | 1,304 | $ | 27 | |||||||||||||||||
|
Non-prime
|
968 | (31 | ) | 16 | (53 | ) | – | 900 | 16 | |||||||||||||||||||||||
|
Commercial
|
13 | – | 1 | – | – | 14 | 1 | |||||||||||||||||||||||||
|
Asset-backed securities
|
||||||||||||||||||||||||||||||||
|
Collateralized debt obligations/Collateralized loan obligations
|
98 | 2 | – | (21 | ) | – | 79 | – | ||||||||||||||||||||||||
|
Other
|
357 | (2 | ) | (6 | ) | (14 | ) | – | 335 | (6 | ) | |||||||||||||||||||||
|
Corporate debt securities
|
10 | – | – | – | – | 10 | – | |||||||||||||||||||||||||
|
Other securities and investments
|
231 | (2 | ) | 13 | (5 | ) | – | 237 | 13 | |||||||||||||||||||||||
|
Total
available-for-sale
|
3,106 | (33 | ) (a) | 53 | (247 | ) | – | 2,879 | 51 | |||||||||||||||||||||||
|
Mortgage servicing rights
|
1,749 | (108 | ) (b) | – | 137 | – | 1,778 | (108 | ) (b) | |||||||||||||||||||||||
|
Net derivative assets and liabilities
|
815 | 20 | (c) | – | 70 | – | 905 | (27 | ) (d) | |||||||||||||||||||||||
|
Three Months Ended March 31, 2009
|
||||||||||||||||||||||||||||||||
|
Available-for-sale
securities
|
||||||||||||||||||||||||||||||||
|
Mortgage-backed securities
|
||||||||||||||||||||||||||||||||
|
Residential non-agency
|
||||||||||||||||||||||||||||||||
|
Prime
|
$ | 183 | $ | (6 | ) | $ | 268 | $ | (133 | ) | $ | 2,248 | $ | 2,560 | $ | 260 | ||||||||||||||||
|
Non-prime
|
1,022 | (26 | ) | (22 | ) | (47 | ) | 133 | 1,060 | (145 | ) | |||||||||||||||||||||
|
Commercial
|
17 | (1 | ) | (1 | ) | – | – | 15 | (1 | ) | ||||||||||||||||||||||
|
Asset-backed securities
|
||||||||||||||||||||||||||||||||
|
Collateralized debt obligations/Collateralized loan obligations
|
86 | (5 | ) | 2 | (5 | ) | 4 | 82 | 1 | |||||||||||||||||||||||
|
Other
|
523 | (15 | ) | 4 | (13 | ) | 3 | 502 | (92 | ) | ||||||||||||||||||||||
|
Corporate debt securities
|
13 | (3 | ) | – | – | – | 10 | – | ||||||||||||||||||||||||
|
Total
available-for-sale
|
1,844 | (56 | ) (a) | 251 | (198 | ) | 2,388 | 4,229 | 23 | |||||||||||||||||||||||
|
Mortgage servicing rights
|
1,194 | (238 | ) (b) | – | 226 | – | 1,182 | (238 | ) (b) | |||||||||||||||||||||||
|
Net derivative assets and liabilities
|
1,698 | (37 | ) (e) | – | (105 | ) | – | 1,556 | (399 | ) (f) | ||||||||||||||||||||||
| (a) | Included in securities gains (losses). |
| (b) | Included in mortgage banking revenue. | |
| (c) | Approximately $(111) million included in other noninterest income and $131 million included in mortgage banking revenue. | |
| (d) | Approximately $79 million included in other noninterest income and $(106) million included in mortgage banking revenue. | |
| (e) | Approximately $(319) million included in other noninterest income and $282 million included in mortgage banking revenue. | |
| (f) | Approximately $(177) million included in other noninterest income and $(222) million included in mortgage banking revenue. |
The Company may also be required periodically to measure certain
other financial assets at fair value on a nonrecurring basis.
These measurements of fair value usually result from the
application of
lower-of-cost-or-fair-value
accounting or write-downs of individual assets. The following
table summarizes the adjusted carrying values and the level of
valuation assumptions for assets measured at fair value on a
nonrecurring basis:
| March 31, 2010 | December 31, 2009 | |||||||||||||||||||||||||||||||||||
| (Dollars in Millions) | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||||
|
Loans held for sale (a)
|
$ | – | $ | – | $ | – | $ | – | $ | – | $ | 276 | $ | – | $ | 276 | ||||||||||||||||||||
|
Loans (b)
|
– | 125 | 26 | 151 | – | 235 | 5 | 240 | ||||||||||||||||||||||||||||
|
Other real estate owned (c)
|
– | 99 | – | 99 | – | 183 | – | 183 | ||||||||||||||||||||||||||||
|
Other intangible assets
|
– | – | – | – | – | – | 3 | 3 | ||||||||||||||||||||||||||||
| (a) | Represents carrying value of loans held for sale for which adjustments are based on what secondary markets are currently offering for portfolios with similar characteristics. |
| (b) | Represents carrying value of loans for which adjustments are based on the appraised value of the collateral, excluding loans fully charged-off. | |
| (c) | Represents the fair value of foreclosed properties that were measured at fair value based on the appraisal value of the collateral subsequent to their initial acquisition. |
|
|
47 |
Table of Contents
The following table summarizes losses recognized related to
nonrecurring fair value measurements of individual assets or
portfolios for the three months ended March 31:
| (Dollars in Millions) | 2010 | 2009 | ||||||
|
Loans held for sale
|
$ | – | $ | 1 | ||||
|
Loans (a)
|
121 | 86 | ||||||
|
Other real estate owned (b)
|
50 | 22 | ||||||
| (a) | Represents write-downs of loans which are based on the appraised value of the collateral, excluding loans fully charged-off. |
| (b) | Represents related losses of foreclosed properties that were measured at fair value subsequent to their initial acquisition. |
Fair Value
Option
The following table summarizes the differences between the
aggregate fair value carrying amount of MLHFS for which the fair
value option has been elected and the aggregate unpaid principal
amount that the Company is contractually obligated to receive at
maturity:
| March 31, 2010 | December 31, 2009 | ||||||||||||||||||||||||||
|
Excess of
|
Excess of
|
||||||||||||||||||||||||||
|
Carrying
|
Carrying
|
||||||||||||||||||||||||||
|
Fair Value
|
Aggregate
|
Amount Over
|
Fair Value
|
Aggregate
|
Amount Over
|
||||||||||||||||||||||
|
Carrying
|
Unpaid
|
(Under) Unpaid
|
Carrying
|
Unpaid
|
(Under) Unpaid
|
||||||||||||||||||||||
| (Dollars in Millions) | Amount | Principal | Principal | Amount | Principal | Principal | |||||||||||||||||||||
|
Total loans
|
$ | 3,584 | $ | 3,510 | $ | 74 | $ | 4,327 | $ | 4,264 | $ | 63 | |||||||||||||||
|
Loans 90 days or more past due
|
22 | 29 | (7 | ) | 23 | 30 | (7 | ) | |||||||||||||||||||
Disclosures about
Fair Value of Financial
Instruments
The
following table summarizes the estimated fair value for
financial instruments as of March 31, 2010 and
December 31, 2009, and includes financial instruments that
are not accounted for at fair value. In accordance with
disclosure guidance related to fair values of financial
instruments, the Company did not include assets and liabilities
that are not financial instruments, such as the value of
goodwill, long-term relationships with deposit, credit card,
merchant processing and trust customers, other purchased
intangibles, premises and equipment, deferred taxes and other
liabilities.
The estimated fair values of the Company’s financial
instruments are shown in the table below.
| March 31, 2010 | December 31, 2009 | ||||||||||||||||
|
Carrying
|
Fair
|
Carrying
|
Fair
|
||||||||||||||
| (Dollars in Millions) | Amount | Value | Amount | Value | |||||||||||||
|
Financial Assets
|
|||||||||||||||||
|
Cash and due from banks
|
$ | 8,380 | $ | 8,380 | $ | 6,206 | $ | 6,206 | |||||||||
|
Investment securities
held-to-maturity
|
625 | 541 | 47 | 48 | |||||||||||||
|
Mortgages held for sale (a)
|
22 | 22 | 29 | 29 | |||||||||||||
|
Other loans held for sale
|
278 | 278 | 416 | 416 | |||||||||||||
|
Loans
|
185,918 | 182,029 | 189,676 | 184,157 | |||||||||||||
|
Financial Liabilities
|
|||||||||||||||||
|
Deposits
|
184,039 | 184,392 | 183,242 | 183,504 | |||||||||||||
|
Short-term borrowings
|
31,196 | 31,570 | 31,312 | 31,674 | |||||||||||||
|
Long-term debt
|
32,399 | 32,595 | 32,580 | 32,808 | |||||||||||||
| (a) | Balance excludes mortgages held for sale for which the fair value option under applicable accounting guidance was elected. |
The fair value of unfunded commitments, standby letters of
credit and other guarantees is approximately equal to their
carrying value. The carrying value of unfunded commitments and
standby letters of credit was $351 million and
$356 million at March 31, 2010 and December 31,
2009, respectively. The carrying value of other guarantees was
$283 million and $285 million at March 31, 2010
and December 31, 2009, respectively.
|
|
U.S. Bancorp |
Table of Contents
Note 12 Guarantees and Contingent Liabilities
Visa
Restructuring and Card Association
Litigation
The
Company’s payment services business issues and acquires
credit and debit card transactions through the Visa U.S.A. Inc.
card association or its affiliates (collectively
“Visa”). In 2007, Visa completed a restructuring and
issued shares of Visa Inc. common stock to its financial
institution members in contemplation of its initial public
offering (“IPO”) completed in the first quarter of
2008 (the “Visa Reorganization”). As a part of the
Visa Reorganization, the Company received its proportionate
number of shares of Visa Inc. common stock. In addition, the
Company and certain of its subsidiaries have been named as
defendants along with Visa U.S.A. Inc. (“Visa U.S.A.”)
and MasterCard International (collectively, the “Card
Associations”), as well as several other banks, in
antitrust lawsuits challenging the practices of the Card
Associations (the “Visa Litigation”). Visa U.S.A.
member banks have a contingent obligation to indemnify Visa,
Inc. under the Visa U.S.A. bylaws (which were modified at the
time of the restructuring in October 2007) for potential
losses arising from the Visa Litigation. The contingent
obligation of member banks under the Visa U.S.A. bylaws has no
specific maximum amount. The Company has also entered into
judgment and loss sharing agreements with Visa U.S.A. and
certain other banks in order to apportion financial
responsibilities arising from any potential adverse judgment or
negotiated settlements related to the Visa Litigation.
In 2007 and 2008, Visa announced settlement agreements with
American Express and Discover Financial Services, respectively.
In addition to these settlements, Visa U.S.A. member banks
remain obligated to indemnify Visa Inc. for potential losses
arising from the remaining Visa litigation. Using proceeds from
its initial IPO and through subsequent reductions to the
conversion ratio applicable to the Class B shares held by
member financial institutions, Visa Inc. has funded an escrow
account for the benefit of member financial institutions to fund
the expenses of the Visa Litigation, as well as the
members’ proportionate share of any judgments or
settlements that may arise out of the Visa Litigation. The
receivable related to the escrow account is classified in other
liabilities as a direct offset to the related Visa Litigation
liabilities and will decline as amounts are paid out of the
escrow account. On July 16, 2009, Visa deposited additional
funds into the escrow account and further reduced the conversion
ratio applicable to the Class B shares. As a result, the
Company recognized a $39 million gain related to the
effective repurchase of a portion of its Class B shares.
At March 31, 2010, the carrying amount of the
Company’s liability related to the remaining Visa
litigation was $117 million. The remaining Class B
shares held by the Company will be eligible for conversion to
Class A shares three years after the IPO or upon settlement
of the Visa litigation, whichever is later.
The following table is a summary of other guarantees and
contingent liabilities of the Company at March 31, 2010:
|
Maximum
|
||||||||
|
Potential
|
||||||||
|
Carrying
|
Future
|
|||||||
| (Dollars in Millions) | Amount | Payments | ||||||
|
Standby letters of credit
|
$ | 113 | $ | 17,890 | ||||
|
Third-party borrowing arrangements
|
– | 134 | ||||||
|
Securities lending indemnifications
|
– | 7,328 | ||||||
|
Asset sales (a)
|
73 | 507 | ||||||
|
Merchant processing
|
62 | 66,970 | ||||||
|
Other guarantees
|
3 | 5,794 | ||||||
|
Other contingent liabilities
|
29 | 1,992 | ||||||
| (a) | The maximum potential future payments does not include loan sales where the Company provides standard representations and warranties to the buyer against losses related to loan underwriting documentation. For these types of loan sales, the maximum potential future payments are not readily determinable because the Company’s obligation under these agreements depends upon the occurrence of future events. |
The Company, through its subsidiaries, provides merchant
processing services. Under the rules of credit card
associations, a merchant processor retains a contingent
liability for credit card transactions processed. This
contingent liability arises in the event of a billing dispute
between the merchant and a cardholder that is ultimately
resolved in the cardholder’s favor. In this situation, the
transaction is “charged-back” to the merchant and the
disputed amount is credited or otherwise refunded to the
cardholder. If the Company is unable to collect this amount from
the merchant, it bears the loss for the amount of the refund
paid to the cardholder.
The Company currently processes card transactions in the United
States, Canada and Europe for airlines. In the event of
liquidation of these merchants, the Company could become
financially liable for refunding tickets purchased through the
credit card associations under the charge-back provisions.
Charge-back risk related to these merchants is evaluated in a
manner similar to credit risk assessments and, as such, merchant
processing contracts contain various
|
|
49 |
Table of Contents
provisions to protect the Company in the event of default. At
March 31, 2010, the value of airline tickets purchased to
be delivered at a future date was $5.1 billion. The Company
held collateral of $502 million in escrow deposits, letters
of credit and indemnities from financial institutions, and liens
on various assets.
The Company is subject to various other litigation,
investigations and legal and administrative cases and
proceedings that arise in the ordinary course of its businesses.
Due to their complex nature, it may be years before some matters
are resolved. While it is impossible to ascertain the ultimate
resolution or range of financial liability with respect to these
contingent matters, the Company believes that the aggregate
amount of such liabilities will not have a material adverse
effect on the financial condition, results of operations or cash
flows of the Company.
For additional information on the nature of the Company’s
guarantees and contingent liabilities, refer to Note 22 in
the Company’s Annual Report on
Form 10-K
for the year ended December 31, 2009.
Note 13 Subsequent Events
The Company has evaluated the impact of events that have
occurred subsequent to March 31, 2010 through the date the
consolidated financial statements were filed with the United
States Securities and Exchange Commission. Based on this
evaluation, the Company has determined none of these events were
required to be recognized in the consolidated financial
statements.
|
|
U.S. Bancorp |
Table of Contents
U.S.
Bancorp
Consolidated
Daily Average Balance Sheet and Related Yields and Rates (a)
| For the Three Months Ended March 31, | ||||||||||||||||||||||||||||||||
| 2010 | 2009 | |||||||||||||||||||||||||||||||
|
Yields
|
Yields
|
% Change
|
||||||||||||||||||||||||||||||
|
(Dollars in
Millions)
|
Average
|
and
|
Average
|
and
|
Average
|
|||||||||||||||||||||||||||
| (Unaudited) | Balances | Interest | Rates | Balances | Interest | Rates | Balances | |||||||||||||||||||||||||
|
Assets
|
||||||||||||||||||||||||||||||||
|
Investment securities
|
$ | 46,211 | $ | 451 | 3.90 | % | $ | 42,321 | $ | 477 | 4.51 | % | 9.2 | % | ||||||||||||||||||
|
Loans held for sale
|
3,932 | 44 | 4.50 | 5,191 | 63 | 4.87 | (24.3 | ) | ||||||||||||||||||||||||
|
Loans (b)
|
||||||||||||||||||||||||||||||||
|
Commercial
|
47,282 | 483 | 4.13 | 56,134 | 534 | 3.84 | (15.8 | ) | ||||||||||||||||||||||||
|
Commercial real estate
|
34,151 | 370 | 4.39 | 33,398 | 357 | 4.33 | 2.3 | |||||||||||||||||||||||||
|
Residential mortgages
|
26,408 | 347 | 5.27 | 23,915 | 346 | 5.81 | 10.4 | |||||||||||||||||||||||||
|
Retail
|
63,622 | 1,064 | 6.78 | 60,914 | 992 | 6.61 | 4.4 | |||||||||||||||||||||||||
|
Total loans, excluding covered loans
|
171,463 | 2,264 | 5.34 | 174,361 | 2,229 | 5.17 | (1.7 | ) | ||||||||||||||||||||||||
|
Covered loans
|
21,415 | 253 | 4.77 | 11,344 | 131 | 4.68 | 88.8 | |||||||||||||||||||||||||
|
Total loans
|
192,878 | 2,517 | 5.28 | 185,705 | 2,360 | 5.14 | 3.9 | |||||||||||||||||||||||||
|
Other earning assets
|
5,807 | 34 | 2.39 | 2,097 | 20 | 3.83 | * | |||||||||||||||||||||||||
|
Total earning assets
|
248,828 | 3,046 | 4.94 | 235,314 | 2,920 | 5.01 | 5.7 | |||||||||||||||||||||||||
|
Allowance for loan losses
|
(5,312 | ) | (3,755 | ) | (41.5 | ) | ||||||||||||||||||||||||||
|
Unrealized gain (loss) on
available-for-sale
securities
|
(407 | ) | (2,577 | ) | 84.2 | |||||||||||||||||||||||||||
|
Other assets
|
38,613 | 37,255 | 3.6 | |||||||||||||||||||||||||||||
|
Total assets
|
$ | 281,722 | $ | 266,237 | 5.8 | |||||||||||||||||||||||||||
|
Liabilities and Shareholders’ Equity
|
||||||||||||||||||||||||||||||||
|
Noninterest-bearing deposits
|
$ | 38,000 | $ | 36,020 | 5.5 | |||||||||||||||||||||||||||
|
Interest-bearing deposits
|
||||||||||||||||||||||||||||||||
|
Interest checking
|
39,994 | 19 | .19 | 32,039 | 15 | .18 | 24.8 | |||||||||||||||||||||||||
|
Money market savings
|
40,902 | 37 | .36 | 27,927 | 37 | .54 | 46.5 | |||||||||||||||||||||||||
|
Savings accounts
|
18,029 | 25 | .57 | 10,339 | 14 | .56 | 74.4 | |||||||||||||||||||||||||
|
Time certificates of deposit less than $100,000
|
18,335 | 80 | 1.77 | 18,132 | 128 | 2.87 | 1.1 | |||||||||||||||||||||||||
|
Time deposits greater than $100,000
|
27,271 | 75 | 1.12 | 36,071 | 130 | 1.46 | (24.4 | ) | ||||||||||||||||||||||||
|
Total interest-bearing deposits
|
144,531 | 236 | .66 | 124,508 | 324 | 1.06 | 16.1 | |||||||||||||||||||||||||
|
Short-term borrowings
|
32,551 | 130 | 1.62 | 32,217 | 148 | 1.86 | 1.0 | |||||||||||||||||||||||||
|
Long-term debt
|
32,456 | 277 | 3.45 | 37,784 | 353 | 3.78 | (14.1 | ) | ||||||||||||||||||||||||
|
Total interest-bearing liabilities
|
209,538 | 643 | 1.24 | 194,509 | 825 | 1.72 | 7.7 | |||||||||||||||||||||||||
|
Other liabilities
|
7,092 | 8,163 | (13.1 | ) | ||||||||||||||||||||||||||||
|
Shareholders’ equity
|
||||||||||||||||||||||||||||||||
|
Preferred equity
|
1,500 | 7,935 | (81.1 | ) | ||||||||||||||||||||||||||||
|
Common equity
|
24,914 | 18,884 | 31.9 | |||||||||||||||||||||||||||||
|
Total U.S. Bancorp shareholders’ equity
|
26,414 | 26,819 | (1.5 | ) | ||||||||||||||||||||||||||||
|
Noncontrolling interests
|
678 | 726 | (6.6 | ) | ||||||||||||||||||||||||||||
|
Total equity
|
27,092 | 27,545 | (1.6 | ) | ||||||||||||||||||||||||||||
|
Total liabilities and equity
|
$ | 281,722 | $ | 266,237 | 5.8 | % | ||||||||||||||||||||||||||
|
Net interest income
|
$ | 2,403 | $ | 2,095 | ||||||||||||||||||||||||||||
|
Gross interest margin
|
3.70 | % | 3.29 | % | ||||||||||||||||||||||||||||
|
Gross interest margin without taxable-equivalent increments
|
3.62 | 3.21 | ||||||||||||||||||||||||||||||
|
Percent of Earning Assets
|
||||||||||||||||||||||||||||||||
|
Interest income
|
4.94 | % | 5.01 | % | ||||||||||||||||||||||||||||
|
Interest expense
|
1.04 | 1.42 | ||||||||||||||||||||||||||||||
|
Net interest margin
|
3.90 | % | 3.59 | % | ||||||||||||||||||||||||||||
|
Net interest margin without taxable-equivalent increments
|
3.82 | % | 3.51 | % | ||||||||||||||||||||||||||||
| * | Not meaningful | |
| (a) | Interest and rates are presented on a fully taxable-equivalent basis utilizing a tax rate of 35 percent. | |
| (b) | Interest income and rates on loans include loan fees. Nonaccrual loans are included in average loan balances. |
|
|
51 |
Table of Contents
Part II —
Other Information
Item 1A. Risk
Factors
— There are a number of factors
that may adversely affect the Company’s business, financial
results or stock price. Refer to “Risk Factors” in the
Company’s Annual Report on
Form 10-K
for the year ended December 31, 2009, for discussion of
these risks.
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds
— Refer to the
“Capital Management” section within Management’s
Discussion and Analysis in Part I for information regarding
shares repurchased by the Company during the first quarter of
2010.
Item 6. Exhibits
| 10 | .1 | U.S. Bancorp Amended and Restated 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to Form 8-K filed on April 20, 2010) | |||
| 12 | Computation of Ratio of Earnings to Fixed Charges | ||||
| 31 | .1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 | |||
| 31 | .2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 | |||
| 32 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. section 1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 | ||||
| 101 | Financial statements from the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2010, formatted in Extensible Business Reporting Language: (i) the Consolidated Balance Sheet, (ii) the Consolidated Statement of Income, (iii) the Consolidated Statement of Shareholders’ Equity, (iv) the Consolidated Statement of Cash Flows and (v) the Notes to Consolidated Financial Statements, tagged as blocks of text. |
|
|
U.S. Bancorp |
Table of Contents
SIGNATURE
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, thereunto duly authorized.
U.S. BANCORP
| By: |
/s/
Terrance
R. Dolan
|
Terrance R. Dolan
Executive Vice President and Controller
(Principal Accounting Officer and Duly Authorized Officer)
DATE: May 7, 2010
|
|
53 |
Table of Contents
Exhibit 12
Computation
of Ratio of Earnings to Fixed Charges
|
Three Months
Ended
|
||||||||||
| (Dollars in Millions) | March 31, 2010 | |||||||||
|
Earnings
|
||||||||||
| 1. | Net income attributable to U.S. Bancorp | $ | 669 | |||||||
| 2. | Applicable income taxes, including interest expense related to unrecognized tax positions | 161 | ||||||||
| 3. | Net income attributable to U.S. Bancorp before income taxes (1 + 2) | $ | 830 | |||||||
| 4. | Fixed charges: | |||||||||
| a. | Interest expense excluding interest on deposits* | $ | 405 | |||||||
| b. | Portion of rents representative of interest and amortization of debt expense | 26 | ||||||||
| c. | Fixed charges excluding interest on deposits (4a + 4b) | 431 | ||||||||
| d. | Interest on deposits | 236 | ||||||||
| e. | Fixed charges including interest on deposits (4c + 4d) | $ | 667 | |||||||
| 5. | Amortization of interest capitalized | $ | – | |||||||
| 6. | Earnings excluding interest on deposits (3 + 4c + 5) | 1,261 | ||||||||
| 7. | Earnings including interest on deposits (3 + 4e + 5) | 1,497 | ||||||||
| 8. | Fixed charges excluding interest on deposits (4c) | 431 | ||||||||
| 9. | Fixed charges including interest on deposits (4e) | 667 | ||||||||
|
Ratio of Earnings to Fixed Charges
|
||||||||||
| 10. | Excluding interest on deposits (line 6/line 8) | 2.93 | ||||||||
| 11. | Including interest on deposits (line 7/line 9) | 2.24 | ||||||||
| * | Excludes interest expense related to unrecognized tax positions. |
|
|
U.S. Bancorp |
Table of Contents
EXHIBIT 31.1
CERTIFICATION
PURSUANT TO
RULE 13a-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Richard K. Davis, certify that:
| (1) | I have reviewed this Quarterly Report on Form 10-Q of U.S. Bancorp; |
| (2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| (3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| (4) | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| (5) | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/
Richard
K. Davis
Richard K. Davis
Chief Executive Officer
Dated: May 7, 2010
|
|
55 |
Table of Contents
EXHIBIT 31.2
CERTIFICATION
PURSUANT TO
RULE 13a-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Andrew Cecere, certify that:
| (1) | I have reviewed this Quarterly Report on Form 10-Q of U.S. Bancorp; |
| (2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| (3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| (4) | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| (5) | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/
Andrew
Cecere
Andrew Cecere
Chief Financial Officer
Dated: May 7, 2010
|
|
U.S. Bancorp |
Table of Contents
EXHIBIT 32
CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
the undersigned, Chief Executive Officer and Chief Financial
Officer of U.S. Bancorp, a Delaware corporation (the
“Company”), do hereby certify that:
| (1) | The Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. |
|
/s/
Richard
K. Davis
|
/s/
Andrew
Cecere
|
|
| Richard K. Davis | Andrew Cecere | |
| Chief Executive Officer | Chief Financial Officer |
Dated: May 7, 2010
|
|
57 |
Table of Contents
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Corporate Information
Executive
Offices
U.S. Bancorp
800 Nicollet Mall
Minneapolis, MN 55402
Common
Stock Transfer Agent and Registrar
BNY Mellon Shareowner Services acts
as our transfer agent and registrar, dividend paying agent and
dividend reinvestment plan administrator, and maintains all
shareholder records for the corporation. Inquiries related to
shareholder records, stock transfers, changes of ownership, lost
stock certificates, changes of address and dividend payment
should be directed to the transfer agent at:
BNY Mellon Shareowner Services
P.O. Box 358015
Pittsburgh, PA 15252-8015
Phone: 888-778-1311 or 201-680-6578
(international calls)
Internet: bnymellon.com/shareowner
For Registered or Certified Mail:
BNY Mellon Shareowner Services
500 Ross St., 6th Floor
Pittsburgh, PA 15219
Telephone representatives are
available weekdays from 8:00 a.m. to 6:00 p.m. Central
Time, and automated support is available 24 hours a day,
7 days a week. Specific information about your account is
available on BNY Mellon’s internet site by clicking on the
Investor
ServiceDirect
®
link.
Independent
Auditor
Ernst & Young LLP serves
as the independent auditor for U.S. Bancorp’s
financial statements.
Common
Stock Listing and Trading
U.S. Bancorp common stock is listed
and traded on the New York Stock Exchange under the ticker
symbol USB.
Dividends
and Reinvestment Plan
U.S. Bancorp currently pays
quarterly dividends on our common stock on or about the
15th day of January, April, July and October, subject to
approval by our Board of Directors. U.S. Bancorp
shareholders can choose to participate in a plan that provides
automatic reinvestment of dividends and/or optional cash
purchase of additional shares of U.S. Bancorp common stock.
For more information, please contact our transfer agent, BNY
Mellon Shareowner Services.
Investor
Relations Contacts
Judith T. Murphy
Executive Vice President, Corporate
Investor and Public Relations
judith.murphy@usbank.com
Phone: 612-303-0783 or
866-775-9668
Financial
Information
U.S. Bancorp news and financial
results are available through our website and by mail.
Website
For
information about U.S. Bancorp, including news, financial
results, annual reports and other documents filed with the
Securities and Exchange Commission, access our home page on the
internet at usbank.com, then click on About U.S. Bank.
Mail
At
your request, we will mail to you our quarterly earnings, news
releases, quarterly financial data reported on
Form 10-Q
and additional copies of our annual reports. Please contact:
U.S. Bancorp Investor Relations
800 Nicollet Mall
Minneapolis, MN 55402
investorrelations@usbank.com
Phone:
866-775-9668
Media
Requests
Steven W. Dale
Senior Vice President, Media
Relations
steve.dale@usbank.com
Phone: 612-303-0784
Privacy
U.S. Bancorp is committed to
respecting the privacy of our customers and safeguarding the
financial and personal information provided to us. To learn more
about the U.S. Bancorp commitment to protecting privacy,
visit usbank.com and click on Privacy Pledge.
Code of
Ethics
U.S. Bancorp places the
highest importance on honesty and integrity. Each year, every
U.S. Bancorp employee certifies compliance with the letter and
spirit of our Code of Ethics and Business Conduct, the guiding
ethical standards of our organization. For details about our
Code of Ethics and Business Conduct, visit usbank.com and click
on About U.S. Bank, then Ethics at U.S. Bank.
Diversity
U.S. Bancorp and our
subsidiaries are committed to developing and maintaining a
workplace that reflects the diversity of the communities we
serve. We support a work environment where individual
differences are valued and respected and where each individual
who shares the fundamental values of the Company has an
opportunity to contribute and grow based on individual merit.
Equal Employment
Opportunity/Affirmative Action
U.S. Bancorp and our
subsidiaries are committed to providing Equal Employment
Opportunity to all employees and applicants for employment. In
keeping with this commitment, employment decisions are made
based upon performance, skill and abilities, not race, color,
religion, national origin or ancestry, gender, age, disability,
veteran status, sexual orientation or any other factors
protected by law. The corporation complies with municipal, state
and federal fair employment laws, including regulations applying
to federal contractors.
U.S. Bancorp, including each of our
subsidiaries, is an Equal Opportunity Employer committed to
creating a diverse workforce.
U.S. Bancorp
Member FDIC
This report has been produced on
recycled paper.
TABLE OF CONTENTS
Note 1 Basis Of PresentationprintNote 2 Accounting ChangesprintNote 3 Investment SecuritiesprintNote 4 LoansprintNote 5 Accounting For Transfers and Servicing Of Financial Assets and Variable Interest EntitiesprintNote 6 Mortgage Servicing RightsprintNote 7 Earnings Per ShareprintNote 8 Employee BenefitsprintNote 9 Income TaxesprintNote 10 Derivative InstrumentsprintNote 11 Fair Values Of Assets and LiabilitiesprintNote 12 Guarantees and Contingent LiabilitiesprintNote 13 Subsequent EventsprintPart II Other InformationprintItem 1A. Risk FactorsprintItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsprintItem 6. Exhibitsprint