US BANCORP \DE\
10-Ks and 10-Qs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table of Contents
![[FORM 10-Q]](https://www.sec.gov/Archives/edgar/data/36104/000095012310102514/c59631c5963100.gif)
![[USBANCORP LOGO]](https://www.sec.gov/Archives/edgar/data/36104/000095012310102514/c59631usb5star.gif)
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 September 30, 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
(State or other jurisdiction of incorporation or organization) |
41-0255900
(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.
YES
þ
NO
o
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).
YES
þ
NO
o
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. (Check one):
|
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).
YES
o
NO
þ
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 October 31, 2010
1,918,307,353 shares |
Table of Contents
and
Form 10-Q
Cross Reference Index
|
Part I —
Financial Information
|
||||||||
| 3 | ||||||||
| 4 | ||||||||
| 7 | ||||||||
| 27 | ||||||||
| 28 | ||||||||
| 28 | ||||||||
| 9 | ||||||||
| 9 | ||||||||
| 19 | ||||||||
| 19 | ||||||||
| 19 | ||||||||
| 20 | ||||||||
| 21 | ||||||||
| 21 | ||||||||
| 22 | ||||||||
| 30 | ||||||||
| 60 | ||||||||
| 60 | ||||||||
| 60 | ||||||||
| 61 | ||||||||
| 62 | ||||||||
| 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 is likely to be impacted by effects of
recently enacted and future legislation and regulation.
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, residual value risk, market risk, operational risk,
interest rate risk and liquidity 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
|
Nine Months Ended
|
|||||||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||||||
|
Percent
|
Percent
|
|||||||||||||||||||||||||||
| (Dollars and Shares in Millions, Except Per Share Data) | 2010 | 2009 | Change | 2010 | 2009 | Change | ||||||||||||||||||||||
|
Condensed Income Statement
|
||||||||||||||||||||||||||||
|
Net interest income (taxable-equivalent basis) (a)
|
$ 2,477 | $ 2,157 | 14.8 | % | $ | 7,289 | $ | 6,356 | 14.7 | % | ||||||||||||||||||
|
Noninterest income
|
2,119 | 2,169 | (2.3 | ) | 6,202 | 6,229 | (.4 | ) | ||||||||||||||||||||
|
Securities gains (losses), net
|
(9 | ) | (76 | ) | 88.2 | (64 | ) | (293 | ) | 78.2 | ||||||||||||||||||
|
Total net revenue
|
4,587 | 4,250 | 7.9 | 13,427 | 12,292 | 9.2 | ||||||||||||||||||||||
|
Noninterest expense
|
2,385 | 2,053 | 16.2 | 6,898 | 6,053 | 14.0 | ||||||||||||||||||||||
|
Provision for credit losses
|
995 | 1,456 | (31.7 | ) | 3,444 | 4,169 | (17.4 | ) | ||||||||||||||||||||
|
Income before taxes
|
1,207 | 741 | 62.9 | 3,085 | 2,070 | 49.0 | ||||||||||||||||||||||
|
Taxable-equivalent adjustment
|
53 | 50 | 6.0 | 156 | 148 | 5.4 | ||||||||||||||||||||||
|
Applicable income taxes
|
260 | 86 | * | 620 | 287 | * | ||||||||||||||||||||||
|
Net income
|
894 | 605 | 47.8 | 2,309 | 1,635 | 41.2 | ||||||||||||||||||||||
|
Net (income) loss attributable to noncontrolling interests
|
14 | (2 | ) | * | 34 | (32 | ) | * | ||||||||||||||||||||
|
Net income attributable to U.S. Bancorp
|
$ 908 | $ 603 | 50.6 | $ | 2,343 | $ | 1,603 | 46.2 | ||||||||||||||||||||
|
Net income applicable to U.S. Bancorp common shareholders
|
$ 871 | $ 583 | 49.4 | $ | 2,381 | $ | 1,223 | 94.7 | ||||||||||||||||||||
|
Per Common Share
|
||||||||||||||||||||||||||||
|
Earnings per share
|
$ .46 | $ .31 | 48.4 | % | $ | 1.25 | $ | .67 | 86.6 | % | ||||||||||||||||||
|
Diluted earnings per share
|
.45 | .30 | 50.0 | 1.24 | .66 | 87.9 | ||||||||||||||||||||||
|
Dividends declared per share
|
.05 | .05 | – | .15 | .15 | – | ||||||||||||||||||||||
|
Book value per share
|
14.19 | 12.38 | 14.6 | |||||||||||||||||||||||||
|
Market value per share
|
21.62 | 21.86 | (1.1 | ) | ||||||||||||||||||||||||
|
Average common shares outstanding
|
1,913 | 1,908 | .3 | 1,911 | 1,832 | 4.3 | ||||||||||||||||||||||
|
Average diluted common shares outstanding
|
1,920 | 1,917 | .2 | 1,920 | 1,840 | 4.3 | ||||||||||||||||||||||
|
Financial Ratios
|
||||||||||||||||||||||||||||
|
Return on average assets
|
1.26 | % | .90 | % | 1.11 | % | .81 | % | ||||||||||||||||||||
|
Return on average common equity
|
12.8 | 10.0 | 12.3 | 7.7 | ||||||||||||||||||||||||
|
Net interest margin (taxable-equivalent basis) (a)
|
3.91 | 3.67 | 3.90 | 3.62 | ||||||||||||||||||||||||
|
Efficiency ratio (b)
|
51.9 | 47.5 | 51.1 | 48.1 | ||||||||||||||||||||||||
|
Average Balances
|
||||||||||||||||||||||||||||
|
Loans
|
$192,541 | $181,968 | 5.8 | % | $ | 192,192 | $ | 183,837 | 4.5 | % | ||||||||||||||||||
|
Loans held for sale
|
6,465 | 7,359 | (12.1 | ) | 4,824 | 6,222 | (22.5 | ) | ||||||||||||||||||||
|
Investment securities
|
47,870 | 42,558 | 12.5 | 47,080 | 42,357 | 11.2 | ||||||||||||||||||||||
|
Earning assets
|
251,916 | 234,111 | 7.6 | 249,408 | 234,559 | 6.3 | ||||||||||||||||||||||
|
Assets
|
286,060 | 264,411 | 8.2 | 283,056 | 265,579 | 6.6 | ||||||||||||||||||||||
|
Noninterest-bearing deposits
|
39,732 | 36,982 | 7.4 | 39,223 | 36,800 | 6.6 | ||||||||||||||||||||||
|
Deposits
|
182,660 | 166,362 | 9.8 | 182,837 | 163,391 | 11.9 | ||||||||||||||||||||||
|
Short-term borrowings
|
36,303 | 28,025 | 29.5 | 33,727 | 29,278 | 15.2 | ||||||||||||||||||||||
|
Long-term debt
|
29,422 | 36,797 | (20.0 | ) | 30,696 | 37,780 | (18.8 | ) | ||||||||||||||||||||
|
Total U.S. Bancorp shareholders’ equity
|
28,887 | 24,679 | 17.1 | 27,582 | 26,559 | 3.9 | ||||||||||||||||||||||
|
September 30,
2010 |
December 31,
2009 |
|||||||||||||||||||||||||||
|
Period End Balances
|
||||||||||||||||||||||||||||
|
Loans
|
$194,617 | $194,755 | (.1 | )% | ||||||||||||||||||||||||
|
Allowance for credit losses
|
5,540 | 5,264 | 5.2 | |||||||||||||||||||||||||
|
Investment securities
|
48,963 | 44,768 | 9.4 | |||||||||||||||||||||||||
|
Assets
|
290,654 | 281,176 | 3.4 | |||||||||||||||||||||||||
|
Deposits
|
187,406 | 183,242 | 2.3 | |||||||||||||||||||||||||
|
Long-term debt
|
30,353 | 32,580 | (6.8 | ) | ||||||||||||||||||||||||
|
Total U.S. Bancorp shareholders’ equity
|
29,151 | 25,963 | 12.3 | |||||||||||||||||||||||||
|
Capital ratios
|
||||||||||||||||||||||||||||
|
Tier 1 capital
|
10.3 | % | 9.6 | % | ||||||||||||||||||||||||
|
Total risk-based capital
|
13.3 | 12.9 | ||||||||||||||||||||||||||
|
Leverage
|
9.0 | 8.5 | ||||||||||||||||||||||||||
|
Tier 1 common equity to risk-weighted assets (c)
|
7.6 | 6.8 | ||||||||||||||||||||||||||
|
Tangible common equity to tangible assets (c)
|
6.2 | 5.3 | ||||||||||||||||||||||||||
|
Tangible common equity to risk-weighted assets (c)
|
7.2 | 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 27. |
|
|
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 $908 million
for the third quarter of 2010 or $.45 per diluted common share,
compared with $603 million, or $.30 per diluted common
share for the third quarter of 2009. Return on average assets
and return on average common equity were 1.26 percent and
12.8 percent, respectively, for the third quarter of 2010,
compared with .90 percent and 10.0 percent,
respectively, for the third quarter of 2009. Significant items
in the third quarter of 2009 that impact the comparison of
results included provision for credit losses in excess of net
charge-offs of $415 million, net securities losses of
$76 million, and a $39 million gain related to the
Company’s investment in Visa Inc.
Total net revenue, on a taxable-equivalent basis, for the third
quarter of 2010 was $337 million (7.9 percent) higher than
the third quarter of 2009, reflecting a 14.8 percent
increase in net interest income and a .8 percent increase
in total noninterest income. The increase in net interest income
over a year ago was largely the result of an increase in average
earning assets, primarily related to acquisitions, and continued
growth in lower cost core deposit funding. Noninterest income
increased over a year ago as a result of higher payments-related
revenue, commercial products revenue and mortgage banking
revenue.
Total noninterest expense in the third quarter of 2010 was
$332 million (16.2 percent) higher than the third
quarter of 2009, primarily due to the impact of acquisitions and
higher total compensation and employee benefits expense.
The provision for credit losses for the third quarter of 2010
was $995 million, or $461 million (31.7 percent)
lower than the third quarter of 2009. The provision for credit
losses equaled net charge-offs in the third quarter of 2010, and
exceeded net charge-offs by $415 million in the third
quarter of 2009. Net charge-offs in the third quarter of 2010
were $995 million, compared with net charge-offs of
$1,041 million in the third quarter of 2009. Refer to
“Corporate Risk Profile” for further information on
the provision for credit losses, net charge-offs, nonperforming
assets and other factors considered by the Company in assessing
the credit quality of the loan portfolio and establishing the
allowance for credit losses.
The Company reported net income attributable to
U.S. Bancorp of $2.3 billion for the first nine months
of 2010 or $1.24 per diluted common share, compared with
$1.6 billion, or $.66 per diluted common share for the
first nine months of 2009. Return on average assets and return
on average common equity were 1.11 percent and
12.3 percent, respectively, for the first nine months of
2010, compared with .81 percent and 7.7 percent,
respectively, for the first nine months of 2009. Diluted
earnings per common share for the first nine months of 2010
included a non-recurring $.05 benefit in the second quarter
related to an exchange of newly issued perpetual preferred stock
for outstanding income trust securities (“ITS
exchange”), net of related debt extinguishment costs. Also
impacting the first nine months of 2010 were $200 million
of provision for credit losses in excess of net charge-offs, net
securities losses of $64 million and a $28 million
gain related to the Company’s investment in Visa Inc. The
first nine months of 2009 included $1.4 billion of
provision for credit losses in excess of net charge-offs, net
securities losses of $293 million, a $123 million
Federal Deposit Insurance Corporation (“FDIC”) special
assessment, a $92 million gain from a corporate real estate
transaction, a $39 million gain related to the
Company’s investment in Visa Inc. and a reduction to
earnings per share from recognition of $154 million of
unaccreted preferred stock discount as a result of the
redemption of preferred stock previously issued to the
U.S. Department of the Treasury.
Total net revenue, on a taxable-equivalent basis, for the first
nine months of 2010 was $1.1 billion (9.2 percent)
higher than the first nine months of 2009, reflecting a
14.7 percent increase in net interest income and a
3.4 percent increase in total noninterest income. The
increase in net interest income over a year ago was largely the
result of continued growth in lower cost core deposit funding
and an increase in average earning assets. 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 lower mortgage
banking revenue, deposit service charges and trust and
investment management fees.
Total noninterest expense in the first nine months of 2010 was
$845 million (14.0 percent) higher than the first nine
months of 2009, primarily due to the impact of acquisitions,
higher total compensation and employee benefits expense and
costs related to investments in affordable housing and other
tax-advantaged projects,
|
|
3 |
Table of Contents
partially offset by lower FDIC deposit insurance expense due to
the special assessment in the second quarter of 2009.
The provision for credit losses for the first nine months of
2010 was $3.4 billion, or $725 million
(17.4 percent) lower than the first nine months of 2009.
The provision for credit losses exceeded net charge-offs by
$200 million in the first nine months of 2010, compared
with $1.4 billion in the first nine months of 2009. Net
charge-offs in the first nine months of 2010 were
$3.2 billion, compared with net charge-offs of
$2.8 billion in the first nine months 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.
Net Interest
Income
Net
interest income, on a taxable-equivalent basis, was
$2.5 billion in the third quarter of 2010, compared with
$2.2 billion in the third quarter of 2009. Net interest
income, on a taxable-equivalent basis, was $7.3 billion in
the first nine months of 2010, compared with $6.4 billion
in the first nine months of 2009. The increases were primarily
the result of continued growth in lower cost core deposit
funding, increases in average earning assets and a higher net
interest margin. Average deposits increased $16.3 billion
(9.8 percent) in the third quarter and $19.4 billion
(11.9 percent) in the first nine months of 2010, compared
with the same periods of 2009. Average earning assets were
$17.8 billion (7.6 percent) higher in the third
quarter and $14.8 billion (6.3 percent) higher in the
first nine months of 2010, compared with the same periods of
2009, driven by increases in average loans and investment
securities. The net interest margin in the third quarter and
first nine months of 2010 was 3.91 percent and
3.90 percent, respectively, compared with 3.67 percent
in the third quarter of 2009 and 3.62 percent in the first
nine months of 2009. The increases in net interest margin were
principally due to the impact of favorable funding rates as a
result of the increase in deposits and improved credit spreads.
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 third quarter and first nine months
of 2010 were $10.6 billion (5.8 percent) and
$8.4 billion (4.5 percent) higher, respectively, than
the same periods of 2009, driven by growth in residential
mortgages, retail loans, commercial real estate loans and
acquired loans covered by loss sharing agreements with the FDIC,
partially offset by a decline in commercial loans which was
principally the result of lower utilization by customers of
available commitments. Residential mortgage growth reflected
increased origination and refinancing activity as a result of
market interest rate declines. Average retail loans increased
year-over-year,
driven by increases in credit card and installment (primarily
auto) loans. Average credit card balances for the third quarter
and first nine months of 2010 were $1.1 billion
(7.3 percent) and $2.0 billion (13.6 percent)
higher, respectively, than the same periods of 2009, reflecting
growth in existing portfolios and portfolio purchases during
2009 and the second quarter of 2010. Growth in average
commercial real estate balances reflected the impact of new
business activity, partially offset by customer debt
deleveraging. Assets acquired in FDIC-assisted transactions that
are covered by loss sharing agreements with the FDIC
(“covered assets” or “covered loans”) relate
to the fourth quarter 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 fourth quarter 2009 acquisition of the
banking operations of First Bank of Oak Park Corporation
(“FBOP”). Average covered loans were
$19.3 billion and $20.4 billion in the third quarter
and first nine months of 2010, respectively, compared with
$10.3 billion and $10.8 billion in the same periods of
2009.
Average investment securities in the third quarter and first
nine months of 2010 were $5.3 billion (12.5 percent)
and $4.7 billion (11.2 percent) higher, respectively,
than the same periods of 2009, primarily due 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.
Average total deposits for the third quarter and first nine
months of 2010 were $16.3 billion (9.8 percent) and
$19.4 billion (11.9 percent) higher, respectively,
than the same periods of 2009. Excluding deposits from
acquisitions, third quarter 2010 average total deposits
increased $4.5 billion (2.7 percent) over the third
quarter of 2009. Average noninterest-bearing deposits for the
third quarter and first nine months of 2010 were
$2.8 billion (7.4 percent) and $2.4 billion
(6.6 percent) higher, respectively, than the same periods
of 2009, primarily due to growth in Consumer and Wholesale
Banking business line balances and the impact of acquisitions.
Average total savings deposits were $13.9 billion
(16.3 percent) higher in the third quarter and
$21.7 billion (28.0 percent) higher in the first nine
|
|
U.S. Bancorp |
Table of Contents
Table 2 Noninterest Income
|
Three Months
Ended
|
Nine Months Ended
|
|||||||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||||||
|
Percent
|
Percent
|
|||||||||||||||||||||||||||
| (Dollars in Millions) | 2010 | 2009 | Change | 2010 | 2009 | Change | ||||||||||||||||||||||
|
Credit and debit card revenue
|
$ | 274 | $ | 267 | 2.6 | % | $ | 798 | $ | 782 | 2.0 | % | ||||||||||||||||
|
Corporate payment products revenue
|
191 | 181 | 5.5 | 537 | 503 | 6.8 | ||||||||||||||||||||||
|
Merchant processing services
|
318 | 300 | 6.0 | 930 | 836 | 11.2 | ||||||||||||||||||||||
|
ATM processing services
|
105 | 103 | 1.9 | 318 | 309 | 2.9 | ||||||||||||||||||||||
|
Trust and investment management fees
|
267 | 293 | (8.9 | ) | 798 | 891 | (10.4 | ) | ||||||||||||||||||||
|
Deposit service charges
|
160 | 256 | (37.5 | ) | 566 | 732 | (22.7 | ) | ||||||||||||||||||||
|
Treasury management fees
|
139 | 141 | (1.4 | ) | 421 | 420 | .2 | |||||||||||||||||||||
|
Commercial products revenue
|
197 | 157 | 25.5 | 563 | 430 | 30.9 | ||||||||||||||||||||||
|
Mortgage banking revenue
|
310 | 276 | 12.3 | 753 | 817 | (7.8 | ) | |||||||||||||||||||||
|
Investment products fees and commissions
|
27 | 27 | – | 82 | 82 | – | ||||||||||||||||||||||
|
Securities gains (losses), net
|
(9 | ) | (76 | ) | 88.2 | (64 | ) | (293 | ) | 78.2 | ||||||||||||||||||
|
Other
|
131 | 168 | (22.0 | ) | 436 | 427 | 2.1 | |||||||||||||||||||||
|
Total noninterest income
|
$ | 2,110 | $ | 2,093 | .8 | % | $ | 6,138 | $ | 5,936 | 3.4 | % | ||||||||||||||||
months of 2010, compared with the same periods of 2009,
primarily the result of growth in Consumer Banking,
institutional and corporate trust balances, and the impact of
acquisitions. Average time certificates of deposit less than
$100,000 were lower in the third quarter and first nine months
of 2010 by $961 million (5.7 percent) and
$586 million (3.3 percent), respectively, compared
with the same periods in 2009, as decreases in Consumer Banking
balances were partially offset by acquisition-related growth.
Average time deposits greater than $100,000 were
$617 million (2.3 percent) higher and
$4.1 billion (13.2 percent) lower in the third quarter
and first nine months of 2010, respectively, compared with the
same periods of 2009, reflecting the net impact of acquisitions,
offset by a decrease in required overall wholesale funding.
Provision for
Credit Losses
The
provision for credit losses for the third quarter and first nine
months of 2010 decreased $461 million (31.7 percent)
and $725 million (17.4 percent), respectively, from
the same periods of 2009. Net charge-offs decreased
$46 million (4.4 percent) in the third quarter of
2010, compared with the third quarter of 2009, principally due
to improvement in the commercial and commercial real estate
portfolios. Net charge-offs increased $486 million
(17.6 percent) in the first nine months of 2010, compared
with the same period of 2009, as borrowers impacted by weak
economic conditions and real estate markets defaulted on loans.
Delinquencies decreased in most major loan categories in the
third quarter of 2010, compared to the second quarter of 2010.
The provision for credit losses equaled net charge-offs in the
third quarter of 2010, but exceeded net charge-offs by
$415 million in the third quarter of 2009. The provision
for credit losses exceeded net charge-offs by $200 million
in the first nine months of 2010, compared with
$1.4 billion in the first nine months of 2009. Refer to
“Corporate Risk Profile” for further information on
the provision for credit losses, net charge-offs, nonperforming
assets and other 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 third quarter and first nine months of 2010 was
$2.1 billion and $6.1 billion, respectively, compared
with $2.1 billion and $5.9 billion in the same periods
of 2009. The $17 million (.8 percent) increase during
the third quarter and $202 million (3.4 percent)
increase during the first nine months of 2010, compared with the
same periods of 2009, were due to higher payments-related
revenues, principally due to increased transaction volumes,
increases in commercial products revenue attributable to higher
standby letters of credit fees, commercial loan fees and
syndication revenue, and decreases in net securities losses,
primarily due to lower impairments in the current year. Mortgage
banking revenue increased for the third quarter of 2010 compared
to the third quarter of 2009 due to higher production and
servicing revenue, partially offset by an unfavorable net change
in the valuation of mortgage servicing rights (“MSRs”)
and related economic hedging activities. Mortgage banking
revenue declined in the first nine months of 2010, compared with
the same period in 2009, principally due to lower loan
production, partially offset by higher servicing income and a
favorable net change in the valuation of MSRs and related
economic hedging activities. Deposit service charges decreased
in the third quarter and first nine months of 2010, compared
with the same periods of the prior year, as a result of
Company-initiated and regulatory revisions to overdraft fee
policies and lower overdraft incidences. Trust and investment
management fees declined in the
|
|
5 |
Table of Contents
Table 3 Noninterest Expense
|
Three Months
Ended
|
Nine Months Ended
|
|||||||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||||||
|
Percent
|
Percent
|
|||||||||||||||||||||||||||
| (Dollars in Millions) | 2010 | 2009 | Change | 2010 | 2009 | Change | ||||||||||||||||||||||
|
Compensation
|
$ | 973 | $ | 769 | 26.5 | % | $ | 2,780 | $ | 2,319 | 19.9 | % | ||||||||||||||||
|
Employee benefits
|
171 | 134 | 27.6 | 523 | 429 | 21.9 | ||||||||||||||||||||||
|
Net occupancy and equipment
|
229 | 203 | 12.8 | 682 | 622 | 9.6 | ||||||||||||||||||||||
|
Professional services
|
78 | 63 | 23.8 | 209 | 174 | 20.1 | ||||||||||||||||||||||
|
Marketing and business development
|
108 | 137 | (21.2 | ) | 254 | 273 | (7.0 | ) | ||||||||||||||||||||
|
Technology and communications
|
186 | 175 | 6.3 | 557 | 487 | 14.4 | ||||||||||||||||||||||
|
Postage, printing and supplies
|
74 | 72 | 2.8 | 223 | 218 | 2.3 | ||||||||||||||||||||||
|
Other intangibles
|
90 | 94 | (4.3 | ) | 278 | 280 | (.7 | ) | ||||||||||||||||||||
|
Other
|
476 | 406 | 17.2 | 1,392 | 1,251 | 11.3 | ||||||||||||||||||||||
|
Total noninterest expense
|
$ | 2,385 | $ | 2,053 | 16.2 | % | $ | 6,898 | $ | 6,053 | 14.0 | % | ||||||||||||||||
|
Efficiency ratio (a)
|
51.9 | % | 47.5 | % | 51.1 | % | 48.1 | % | ||||||||||||||||||||
| (a) | Computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding securities gains (losses), net. |
third quarter and first nine months of 2010, compared with the
same periods of 2009, as low interest rates negatively impacted
money market investment fees and lower money market fund
balances led to a decline in account-level fees. Other income
decreased in the third quarter of 2010, compared with the third
quarter of 2009, primarily due to the third quarter 2009 gain
related to the Company’s investment in Visa Inc. and lower
customer derivative revenue, partially offset by improved retail
lease
end-of-term
results and higher income from equity investments. The increase
in other income for the first nine months of 2010, compared with
the first nine months of 2009, reflected improved retail lease
end-of-term
results and higher income from equity investments, partially
offset by the $92 million gain on a corporate real estate
transaction that occurred in the first quarter of 2009 and lower
customer derivative revenue.
Noninterest
Expense
Noninterest
expense was $2.4 billion in the third quarter and
$6.9 billion in the first nine months of 2010, compared
with $2.1 billion in the third quarter and
$6.1 billion in the first nine months of 2009, or increases
of $332 million (16.2 percent) and $845 million
(14.0 percent), respectively. The increases in noninterest
expense from a year ago were principally due to acquisitions,
increased total compensation and employee benefits expense and
higher costs related to investments in affordable housing and
other tax-advantaged projects. Total compensation and employee
benefits expense increased, reflecting acquisitions, a five
percent cost reduction program that was in effect during the
second and third quarters of 2009, higher incentives costs
related to improved financial results, merit increases, and
increased pension costs associated with previous declines in the
value of pension assets. Net occupancy and equipment expense and
professional services expense increased principally due to
acquisitions and other business initiatives. Technology and
communications expense increased as a result of business
initiatives and volume increases across various business lines.
Other expense increased in the third quarter and first nine
months of 2010, compared with the same periods of 2009,
reflecting higher costs related to investments in affordable
housing and other tax-advantaged projects, which benefit the
Company’s income tax expense, and higher other real estate
owned (“OREO”) costs, partially offset by the
$123 million FDIC special assessment recorded in the second
quarter of 2009. Marketing and business development expense
decreased in the third quarter and first nine months of 2010,
compared with the same periods of the prior year, largely due to
payments-related initiatives during 2009, partially offset by
increased contributions to the Company’s charitable
foundation in the third quarter of 2010.
Income Tax
Expense
The
provision for income taxes was $260 million (an effective
rate of 22.5 percent) for the third quarter and
$620 million (an effective rate of 21.2 percent) for
the first nine months of 2010, compared with $86 million
(an effective rate of 12.4 percent) and $287 million
(an effective rate of 14.9 percent) for the same periods of
2009. The increases in the effective tax rate for the third
quarter and first nine months of 2010, compared with the same
periods of the prior year, primarily reflected the marginal
impact of higher pre-tax earnings
year-over-year.
For further information on income taxes, refer to Note 10
of the Notes to Consolidated Financial Statements.
|
|
U.S. Bancorp |
Table of Contents
Loans
The
Company’s total loan portfolio was $194.6 billion at
September 30, 2010, compared with $194.8 billion at
December 31, 2009, a decrease of $138 million
(.1 percent). The decrease was driven primarily by lower
commercial and covered loans, partially offset by higher
residential mortgages and retail loans. The $1.2 billion
(2.4 percent) decrease in commercial loans was primarily
driven by lower capital spending and uncertain economic
conditions decreasing utilization of existing commitments by
business customers. The decrease was also due to the
consolidation of a VIE and elimination of a related loan balance
as a result of adopting new authoritative accounting guidance
effective January 1, 2010.
Commercial real estate loans increased $225 million
(.7 percent) at September 30, 2010, compared with
December 31, 2009, reflecting the impact of new business
activity, partially offset by customer debt deleveraging.
Residential mortgages held in the loan portfolio increased
$2.5 billion (9.7 percent) at September 30, 2010,
compared with December 31, 2009, reflecting an increase in
mortgage banking origination and refinancing activity as a
result of current market interest rate declines. 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, increased $1.1 billion (1.7 percent) at
September 30, 2010, compared with December 31, 2009.
The increase was primarily driven by higher installment
(primarily auto) and federally-guaranteed student loans,
partially offset by lower credit card, home equity and retail
leasing balances.
Loans Held for
Sale
Loans held
for sale, consisting primarily of residential mortgages, were
$8.4 billion at September 30, 2010, compared with
$4.8 billion at December 31, 2009. The increase in
loans held for sale was principally due to an increase in
mortgage loan origination and refinancing activity as a result
of a decline in market interest rates.
Investment
Securities
Investment
securities totaled $49.0 billion at September 30,
2010, compared with $44.8 billion at December 31,
2009. The $4.2 billion (9.4 percent) increase
reflected $2.3 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 $1.3 billion favorable change in net unrealized
gains (losses) on
available-for-sale
securities.
The Company conducts a regular assessment of its investment
portfolio to determine whether any securities are
other-than-temporarily
impaired. At September 30, 2010, the Company’s net
unrealized gain on
available-for-sale
securities was $633 million, compared with a net unrealized
loss of $635 million at December 31, 2009. The
favorable change in net unrealized gains (losses) was primarily
due to increases in the fair value of agency and certain
non-agency mortgage-backed and state and political securities.
Unrealized losses on
available-for-sale
securities in an unrealized loss position totaled
$689 million at September 30, 2010, compared with
$1.3 billion at December 31, 2009. When assessing
unrealized losses for
other-than-temporary
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 September 30, 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 $18 million and $85 million of impairment
charges in earnings during the third quarter and first nine
months of 2010, respectively, predominately on non-agency
mortgage-backed and structured investment related securities.
These impairment charges were due to changes in expected cash
flows resulting from increases in defaults in the underlying
mortgage pools and regulatory actions in the first quarter of
2010 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
12 in the Notes to Consolidated Financial Statements for further
information on investment securities.
|
|
7 |
Table of Contents
Table 4 Investment Securities
| Available-for-Sale | Held-to-Maturity | ||||||||||||||||||||||||||||||||
|
Weighted-
|
Weighted-
|
||||||||||||||||||||||||||||||||
|
Average
|
Weighted-
|
Average
|
Weighted-
|
||||||||||||||||||||||||||||||
|
September 30,
2010
|
Amortized
|
Fair
|
Maturity in
|
Average
|
Amortized
|
Fair
|
Maturity in
|
Average
|
|||||||||||||||||||||||||
| (Dollars in Millions) | Cost | Value | Years | Yield(e) | Cost | Value | Years | Yield(e) | |||||||||||||||||||||||||
|
U.S. Treasury and Agencies
|
|||||||||||||||||||||||||||||||||
|
Maturing in one year or less
|
$ | 1,192 | $ | 1,198 | .3 | 2.26 | % | $ | – | $ | – | – | – | % | |||||||||||||||||||
|
Maturing after one year through five years
|
100 | 103 | 1.8 | 2.73 | – | – | – | – | |||||||||||||||||||||||||
|
Maturing after five years through ten years
|
50 | 54 | 8.1 | 4.44 | – | – | – | – | |||||||||||||||||||||||||
|
Maturing after ten years
|
201 | 201 | 13.5 | 1.99 | 63 | 63 | 11.3 | 1.81 | |||||||||||||||||||||||||
|
Total
|
$ | 1,543 | $ | 1,556 | 2.4 | 2.33 | % | $ | 63 | $ | 63 | 11.3 | 1.81 | % | |||||||||||||||||||
|
Mortgage-Backed Securities (a)
|
|||||||||||||||||||||||||||||||||
|
Maturing in one year or less
|
$ | 2,282 | $ | 2,286 | .6 | 1.82 | % | $ | – | $ | – | – | – | % | |||||||||||||||||||
|
Maturing after one year through five years
|
29,151 | 29,992 | 3.2 | 3.25 | 14 | 8 | 2.4 | 1.80 | |||||||||||||||||||||||||
|
Maturing after five years through ten years
|
4,203 | 4,011 | 6.3 | 2.78 | 3 | 3 | 6.1 | .76 | |||||||||||||||||||||||||
|
Maturing after ten years
|
771 | 688 | 12.3 | 1.98 | – | – | – | – | |||||||||||||||||||||||||
|
Total
|
$ | 36,407 | $ | 36,977 | 3.6 | 3.08 | % | $ | 17 | $ | 11 | 3.1 | 1.60 | % | |||||||||||||||||||
|
Asset-Backed Securities (a)
|
|||||||||||||||||||||||||||||||||
|
Maturing in one year or less
|
$ | 4 | $ | 11 | .5 | 17.37 | % | $ | 137 | $ | 128 | .4 | .70 | % | |||||||||||||||||||
|
Maturing after one year through five years
|
205 | 210 | 3.3 | 13.89 | 82 | 82 | 2.6 | 1.09 | |||||||||||||||||||||||||
|
Maturing after five years through ten years
|
571 | 589 | 8.3 | 3.13 | 74 | 69 | 7.1 | .81 | |||||||||||||||||||||||||
|
Maturing after ten years
|
148 | 150 | 10.8 | 2.54 | 18 | 13 | 21.9 | .82 | |||||||||||||||||||||||||
|
Total
|
$ | 928 | $ | 960 | 7.6 | 5.47 | % | $ | 311 | $ | 292 | 3.8 | .83 | % | |||||||||||||||||||
|
Obligations of State and Political
Subdivisions
(b)(c)
|
|||||||||||||||||||||||||||||||||
|
Maturing in one year or less
|
$ | 8 | $ | 8 | .3 | 7.29 | % | $ | 1 | $ | 1 | .3 | 7.79 | % | |||||||||||||||||||
|
Maturing after one year through five years
|
1,594 | 1,630 | 4.2 | 6.33 | 5 | 5 | 3.6 | 7.99 | |||||||||||||||||||||||||
|
Maturing after five years through ten years
|
4,899 | 4,997 | 6.2 | 6.79 | 8 | 9 | 6.2 | 6.85 | |||||||||||||||||||||||||
|
Maturing after ten years
|
346 | 322 | 21.9 | 7.18 | 15 | 15 | 16.3 | 5.55 | |||||||||||||||||||||||||
|
Total
|
$ | 6,847 | $ | 6,957 | 6.5 | 6.70 | % | $ | 29 | $ | 30 | 10.7 | 6.40 | % | |||||||||||||||||||
|
Other Debt Securities
|
|||||||||||||||||||||||||||||||||
|
Maturing in one year or less
|
$ | 6 | $ | 7 | .2 | .89 | % | $ | 1 | $ | 1 | .2 | 1.21 | % | |||||||||||||||||||
|
Maturing after one year through five years
|
92 | 81 | 1.7 | 6.61 | 16 | 12 | 2.8 | 1.44 | |||||||||||||||||||||||||
|
Maturing after five years through ten years
|
31 | 30 | 7.0 | 6.33 | 88 | 74 | 7.3 | 1.17 | |||||||||||||||||||||||||
|
Maturing after ten years
|
1,376 | 1,211 | 31.2 | 4.29 | 32 | 20 | 10.1 | 1.16 | |||||||||||||||||||||||||
|
Total
|
$ | 1,505 | $ | 1,329 | 28.8 | 4.46 | % | $ | 137 | $ | 107 | 7.4 | 1.20 | % | |||||||||||||||||||
|
Other Investments
|
$ | 543 | $ | 627 | 12.9 | 2.43 | % | $ | – | $ | – | – | – | % | |||||||||||||||||||
|
Total investment securities (d)
|
$ | 47,773 | $ | 48,406 | 4.9 | 3.66 | % | $ | 557 | $ | 503 | 5.9 | 1.35 | % | |||||||||||||||||||
| (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 politcal 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) | Maturity calculations for obligations of state and political subdivisions are based on the first optional call date for securities with a fair value above par and contractual maturity for securities with a fair value equal to or below par. | |
| (d) | 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. | |
| (e) | 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. |
| September 30, 2010 | December 31, 2009 | ||||||||||||||||
|
Amortized
|
Percent
|
Amortized
|
Percent
|
||||||||||||||
| (Dollars in Millions) | Cost | of Total | Cost | of Total | |||||||||||||
|
U.S. Treasury and agencies
|
$ | 1,606 | 3.3 | % | $ | 3,415 | 7.5 | % | |||||||||
|
Mortgage-backed securities
|
36,424 | 75.4 | 32,289 | 71.1 | |||||||||||||
|
Asset-backed securities
|
1,239 | 2.6 | 559 | 1.2 | |||||||||||||
|
Obligations of state and political subdivisions
|
6,876 | 14.2 | 6,854 | 15.1 | |||||||||||||
|
Other debt securities and investments
|
2,185 | 4.5 | 2,286 | 5.1 | |||||||||||||
|
Total investment securities
|
$ | 48,330 | 100.0 | % | $ | 45,403 | 100.0 | % | |||||||||
|
|
U.S. Bancorp |
Table of Contents
Deposits
Total
deposits were $187.4 billion at September 30, 2010,
compared with $183.2 billion at December 31, 2009, the
result of increases in savings, interest checking and
noninterest-bearing deposit balances, partially offset by
decreases in time deposits. Savings account balances increased
$5.8 billion (34.3 percent), primarily due to
continued strong participation in a savings product offered by
Consumer Banking. Noninterest-bearing deposits increased
$2.6 billion (6.7 percent), primarily due to increases
in Wholesale and Consumer Banking balances. Interest checking
balances increased $1.5 billion (3.8 percent),
primarily due to higher broker dealer balances. Time
certificates of deposit less than $100,000 decreased
$3.5 billion (18.2 percent), as a result of decreases
in Consumer Banking and expected decreases in acquired
certificates of deposit. Time deposits greater than $100,000
decreased $2.1 billion (7.1 percent). 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 as
part of its asset/liability management and funding strategies.
Short-term borrowings, which include federal funds purchased,
commercial paper, repurchase agreements, borrowings secured by
high-grade assets and other short-term borrowings, were
$34.3 billion at September 30, 2010, compared with
$31.3 billion at December 31, 2009. The
$3.0 billion (9.7 percent) increase in short-term
borrowings reflected wholesale funding associated with the
Company’s asset growth and asset/liability management
activities.
Long-term debt was $30.4 billion at September 30,
2010, compared with $32.6 billion at December 31,
2009, reflecting a $2.6 billion net decrease in Federal
Home Loan Bank advances, $5.3 billion of medium-term note
maturities and repayments and the extinguishment of
$.6 billion of junior subordinated debentures in connection
with the ITS exchange, partially offset by $4.3 billion of
medium-term note and subordinated debt issuances and the
consolidation of $2.1 billion of long-term debt related to
certain VIEs at September 30, 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 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, processing errors, technology,
breaches of internal controls and business continuation and
disaster recovery. 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 and derivatives 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
|
|
9 |
Table of Contents
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 September 30, 2010
(excluding covered loans):
|
Residential
mortgages
|
Interest
|
Percent
|
|||||||||||||||
| (Dollars in Millions) | Only | Amortizing | Total | of Total | |||||||||||||
|
Consumer Finance
|
|||||||||||||||||
|
Less than or equal to 80%
|
$ | 1,336 | $ | 4,317 | $ | 5,653 | 51.6 | % | |||||||||
|
Over 80% through 90%
|
522 | 2,107 | 2,629 | 24.0 | |||||||||||||
|
Over 90% through 100%
|
491 | 2,033 | 2,524 | 23.1 | |||||||||||||
|
Over 100%
|
– | 147 | 147 | 1.3 | |||||||||||||
|
Total
|
$ | 2,349 | $ | 8,604 | $ | 10,953 | 100.0 | % | |||||||||
|
Other Retail
|
|||||||||||||||||
|
Less than or equal to 80%
|
$ | 1,947 | $ | 14,227 | $ | 16,174 | 91.7 | % | |||||||||
|
Over 80% through 90%
|
61 | 560 | 621 | 3.5 | |||||||||||||
|
Over 90% through 100%
|
77 | 762 | 839 | 4.8 | |||||||||||||
|
Over 100%
|
– | – | – | – | |||||||||||||
|
Total
|
$ | 2,085 | $ | 15,549 | $ | 17,634 | 100.0 | % | |||||||||
|
Total Company
|
|||||||||||||||||
|
Less than or equal to 80%
|
$ | 3,283 | $ | 18,544 | $ | 21,827 | 76.3 | % | |||||||||
|
Over 80% through 90%
|
583 | 2,667 | 3,250 | 11.4 | |||||||||||||
|
Over 90% through 100%
|
568 | 2,795 | 3,363 | 11.8 | |||||||||||||
|
Over 100%
|
– | 147 | 147 | .5 | |||||||||||||
|
Total
|
$ | 4,434 | $ | 24,153 | $ | 28,587 | 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%
|
$ | 942 | $ | 202 | $ | 1,144 | 46.8 | % | |||||||||
|
Over 80% through 90%
|
426 | 154 | 580 | 23.8 | |||||||||||||
|
Over 90% through 100%
|
336 | 256 | 592 | 24.2 | |||||||||||||
|
Over 100%
|
54 | 73 | 127 | 5.2 | |||||||||||||
|
Total
|
$ | 1,758 | $ | 685 | $ | 2,443 | 100.0 | % | |||||||||
|
Other Retail
|
|||||||||||||||||
|
Less than or equal to 80%
|
$ | 11,759 | $ | 1,363 | $ | 13,122 | 78.2 | % | |||||||||
|
Over 80% through 90%
|
2,034 | 480 | 2,514 | 15.0 | |||||||||||||
|
Over 90% through 100%
|
692 | 384 | 1,076 | 6.4 | |||||||||||||
|
Over 100%
|
41 | 26 | 67 | .4 | |||||||||||||
|
Total
|
$ | 14,526 | $ | 2,253 | $ | 16,779 | 100.0 | % | |||||||||
|
Total Company
|
|||||||||||||||||
|
Less than or equal to 80%
|
$ | 12,701 | $ | 1,565 | $ | 14,266 | 74.2 | % | |||||||||
|
Over 80% through 90%
|
2,460 | 634 | 3,094 | 16.1 | |||||||||||||
|
Over 90% through 100%
|
1,028 | 640 | 1,668 | 8.7 | |||||||||||||
|
Over 100%
|
95 | 99 | 194 | 1.0 | |||||||||||||
|
Total
|
$ | 16,284 | $ | 2,938 | $ | 19,222 | 100.0 | % | |||||||||
| (a) | Consumer finance category includes 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. |
Within the consumer finance division, at September 30,
2010, approximately $2.2 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 the
loan-to-values
of residential mortgages specifically for the consumer finance
division at September 30, 2010:
|
Interest
|
Percent of
|
||||||||||||||||
| (Dollars in Millions) | Only | Amortizing | Total | Division | |||||||||||||
|
Sub-Prime
Borrowers
|
|||||||||||||||||
|
Less than or equal to 80%
|
$ | 6 | $ | 995 | $ | 1,001 | 9.1 | % | |||||||||
|
Over 80% through 90%
|
3 | 508 | 511 | 4.7 | |||||||||||||
|
Over 90% through 100%
|
14 | 656 | 670 | 6.1 | |||||||||||||
|
Over 100%
|
– | 55 | 55 | .5 | |||||||||||||
|
Total
|
$ | 23 | $ | 2,214 | $ | 2,237 | 20.4 | % | |||||||||
|
Other Borrowers
|
|||||||||||||||||
|
Less than or equal to 80%
|
$ | 1,330 | $ | 3,322 | $ | 4,652 | 42.5 | % | |||||||||
|
Over 80% through 90%
|
519 | 1,599 | 2,118 | 19.3 | |||||||||||||
|
Over 90% through 100%
|
477 | 1,377 | 1,854 | 16.9 | |||||||||||||
|
Over 100%
|
– | 92 | 92 | .8 | |||||||||||||
|
Total
|
$ | 2,326 | $ | 6,390 | $ | 8,716 | 79.6 | % | |||||||||
|
Total Consumer Finance
|
$ | 2,349 | $ | 8,604 | $ | 10,953 | 100.0 | % | |||||||||
In addition to residential mortgages, at September 30,
2010, the consumer finance division had $.5 billion of home
equity and second mortgage loans to customers that may be
defined as
sub-prime
borrowers, compared with $.6 billion at December 31,
2009.
The following table provides further information on the
loan-to-values
of home equity and second mortgages specifically for the
consumer finance division at September 30, 2010:
|
Percent
|
|||||||||||||||||
| (Dollars in Millions) | Lines | Loans | Total | of Total | |||||||||||||
|
Sub-Prime
Borrowers
|
|||||||||||||||||
|
Less than or equal to 80%
|
$ | 38 | $ | 119 | $ | 157 | 6.4 | % | |||||||||
|
Over 80% through 90%
|
42 | 91 | 133 | 5.4 | |||||||||||||
|
Over 90% through 100%
|
6 | 156 | 162 | 6.6 | |||||||||||||
|
Over 100%
|
35 | 57 | 92 | 3.8 | |||||||||||||
|
Total
|
$ | 121 | $ | 423 | $ | 544 | 22.3 | % | |||||||||
|
Other Borrowers
|
|||||||||||||||||
|
Less than or equal to 80%
|
$ | 904 | $ | 83 | $ | 987 | 40.4 | % | |||||||||
|
Over 80% through 90%
|
384 | 63 | 447 | 18.3 | |||||||||||||
|
Over 90% through 100%
|
330 | 100 | 430 | 17.6 | |||||||||||||
|
Over 100%
|
19 | 16 | 35 | 1.4 | |||||||||||||
|
Total
|
$ | 1,637 | $ | 262 | $ | 1,899 | 77.7 | % | |||||||||
|
Total Consumer Finance
|
$ | 1,758 | $ | 685 | $ | 2,443 | 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 1.0 percent of total assets at
September 30, 2010, compared with 1.1 percent at
December 31, 2009. Covered loans include $1.7 billion
in loans with
negative-amortization
payment options at September 30, 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.
|
|
U.S. Bancorp |
Table of Contents
Table 5 Delinquent Loan Ratios as a Percent of Ending Loan Balances
|
September 30,
|
December 31,
|
|||||||
| 90 days or more past due excluding nonperforming loans | 2010 | 2009 | ||||||
|
Commercial
|
||||||||
|
Commercial
|
.22 | % | .25 | % | ||||
|
Lease financing
|
.02 | – | ||||||
|
Total commercial
|
.19 | .22 | ||||||
|
Commercial Real Estate
|
||||||||
|
Commercial mortgages
|
– | – | ||||||
|
Construction and development
|
.22 | .07 | ||||||
|
Total commercial real estate
|
.05 | .02 | ||||||
|
Residential Mortgages
|
1.75 | 2.80 | ||||||
|
Retail
|
||||||||
|
Credit card
|
2.09 | 2.59 | ||||||
|
Retail leasing
|
.05 | .11 | ||||||
|
Other retail
|
.47 | .57 | ||||||
|
Total retail
|
.85 | 1.07 | ||||||
|
Total loans, excluding covered loans
|
.66 | .88 | ||||||
|
Covered Loans
|
4.96 | 3.59 | ||||||
|
Total loans
|
1.08 | % | 1.19 | % | ||||
|
September 30,
|
December 31,
|
|||||||
| 90 days or more past due including nonperforming loans | 2010 | 2009 | ||||||
|
Commercial
|
1.67 | % | 2.25 | % | ||||
|
Commercial real estate
|
4.20 | 5.22 | ||||||
|
Residential mortgages (a)
|
3.90 | 4.59 | ||||||
|
Retail (b)
|
1.26 | 1.39 | ||||||
|
Total loans, excluding covered loans
|
2.37 | 2.87 | ||||||
|
Covered loans
|
11.12 | 9.76 | ||||||
|
Total loans
|
3.23 | % | 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 12.64 percent at September 30, 2010, and 12.86 percent 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 1.58 percent at September 30, 2010, and 1.57 percent at December 31, 2009. |
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 $2.1 billion ($1.2 billion excluding covered
loans) at September 30, 2010, compared with
$2.3 billion ($1.5 billion excluding covered loans) at
December 31, 2009. The $360 million
(23.6 percent) decrease, excluding covered loans, reflected
a moderation in the level of stress in economic conditions in
the first nine months 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 1.08 percent
(.66 percent excluding covered loans) at September 30,
2010, compared with 1.19 percent (.88 percent
excluding covered loans) at December 31, 2009.
|
|
11 |
Table of Contents
The following table provides summary delinquency information for
residential mortgages and retail loans, excluding covered loans:
|
As a Percent of
Ending
|
|||||||||||||||||
| Amount | Loan Balances | ||||||||||||||||
|
September 30,
|
December 31,
|
September 30,
|
December 31,
|
||||||||||||||
| (Dollars in Millions) | 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Residential mortgages
|
|||||||||||||||||
|
30-89 days
|
$ | 472 | $ | 615 | 1.65 | % | 2.36 | % | |||||||||
|
90 days or more
|
500 | 729 | 1.75 | 2.80 | |||||||||||||
|
Nonperforming
|
614 | 467 | 2.15 | 1.79 | |||||||||||||
|
Total
|
$ | 1,586 | $ | 1,811 | 5.55 | % | 6.95 | % | |||||||||
|
Retail
|
|||||||||||||||||
|
Credit card
|
|||||||||||||||||
|
30-89 days
|
$ | 306 | $ | 400 | 1.85 | % | 2.38 | % | |||||||||
|
90 days or more
|
344 | 435 | 2.09 | 2.59 | |||||||||||||
|
Nonperforming
|
199 | 142 | 1.21 | .84 | |||||||||||||
|
Total
|
$ | 849 | $ | 977 | 5.15 | % | 5.81 | % | |||||||||
|
Retail leasing
|
|||||||||||||||||
|
30-89 days
|
$ | 20 | $ | 34 | .46 | % | .74 | % | |||||||||
|
90 days or more
|
2 | 5 | .05 | .11 | |||||||||||||
|
Nonperforming
|
– | – | – | – | |||||||||||||
|
Total
|
$ | 22 | $ | 39 | .51 | % | .85 | % | |||||||||
|
Home equity and second mortgages
|
|||||||||||||||||
|
30-89 days
|
$ | 178 | $ | 181 | .93 | % | .93 | % | |||||||||
|
90 days or more
|
141 | 152 | .73 | .78 | |||||||||||||
|
Nonperforming
|
35 | 32 | .18 | .17 | |||||||||||||
|
Total
|
$ | 354 | $ | 365 | 1.84 | % | 1.88 | % | |||||||||
|
Other retail
|
|||||||||||||||||
|
30-89 days
|
$ | 203 | $ | 256 | .81 | % | 1.10 | % | |||||||||
|
90 days or more
|
69 | 92 | .28 | .40 | |||||||||||||
|
Nonperforming
|
28 | 30 | .11 | .13 | |||||||||||||
|
Total
|
$ | 300 | $ | 378 | 1.20 | % | 1.63 | % | |||||||||
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 | ||||||||||||||||
|
September 30,
|
December 31,
|
September 30,
|
December 31,
|
||||||||||||||
| 2010 | 2009 | 2010 | 2009 | ||||||||||||||
|
Residential mortgages
|
|||||||||||||||||
|
30-89 days
|
2.61 | % | 3.99 | % | 1.05 | % | 1.30 | % | |||||||||
|
90 days or more
|
2.33 | 4.00 | 1.39 | 2.02 | |||||||||||||
|
Nonperforming
|
3.18 | 3.04 | 1.51 | .98 | |||||||||||||
|
Total
|
8.12 | % | 11.03 | % | 3.95 | % | 4.30 | % | |||||||||
|
Retail
|
|||||||||||||||||
|
Credit card
|
|||||||||||||||||
|
30-89 days
|
– | % | – | % | 1.85 | % | 2.38 | % | |||||||||
|
90 days or more
|
– | – | 2.09 | 2.59 | |||||||||||||
|
Nonperforming
|
– | – | 1.21 | .84 | |||||||||||||
|
Total
|
– | % | – | % | 5.15 | % | 5.81 | % | |||||||||
|
Retail leasing
|
|||||||||||||||||
|
30-89 days
|
– | % | – | % | .46 | % | .74 | % | |||||||||
|
90 days or more
|
– | – | .05 | .11 | |||||||||||||
|
Nonperforming
|
– | – | – | – | |||||||||||||
|
Total
|
– | % | – | % | .51 | % | .85 | % | |||||||||
|
Home equity and second mortgages
|
|||||||||||||||||
|
30-89 days
|
2.37 | % | 2.54 | % | .72 | % | .70 | % | |||||||||
|
90 days or more
|
1.60 | 2.02 | .61 | .60 | |||||||||||||
|
Nonperforming
|
.16 | .20 | .18 | .16 | |||||||||||||
|
Total
|
4.13 | % | 4.76 | % | 1.51 | % | 1.46 | % | |||||||||
|
Other retail
|
|||||||||||||||||
|
30-89 days
|
4.14 | % | 5.17 | % | .73 | % | 1.00 | % | |||||||||
|
90 days or more
|
.83 | 1.17 | .26 | .37 | |||||||||||||
|
Nonperforming
|
– | .16 | .12 | .13 | |||||||||||||
|
Total
|
4.97 | % | 6.50 | % | 1.11 | % | 1.50 | % | |||||||||
| (a) | Consumer finance category includes 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. |
|
|
U.S. Bancorp |
Table of Contents
Within the consumer finance division at September 30, 2010,
approximately $418 million and $77 million of these
delinquent and nonperforming residential mortgages and other
retail loans, respectively, were to 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 | ||||||||||||||||
|
September 30,
|
December 31,
|
September 30,
|
December 31,
|
||||||||||||||
| (Dollars in Millions) | 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
30-89 days
|
$ | 853 | $ | 1,195 | 4.48 | % | 5.46 | % | |||||||||
|
90 days or more
|
945 | 784 | 4.96 | 3.59 | |||||||||||||
|
Nonperforming
|
1,172 | 1,350 | 6.16 | 6.18 | |||||||||||||
|
Total
|
$ | 2,970 | $ | 3,329 | 15.60 | % | 15.23 | % | |||||||||
Restructured
Loans
In
certain circumstances, the Company may modify the terms of a
loan to maximize the collection of amounts due when a borrower
is experiencing financial difficulties or is expected to
experience difficulties in the near-term. In most cases the
modification is either a concessionary reduction in interest
rate, extension of the maturity date or reduction in the
principal balance that would otherwise not be considered.
Concessionary modifications are classified as troubled debt
restructurings (“TDRs”) unless the modification is
short-term, or results in only an insignificant delay or
shortfall in the payments to be received. TDRs accrue interest
if 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.
Short-Term
Modifications
The
Company makes short-term modifications to assist borrowers
experiencing temporary hardships. Consumer programs include
short-term interest rate reductions (three months or less for
residential mortgages and twelve months or less for credit
cards), deferrals of up to three past due payments, and the
ability to return to current status if the borrower makes
required payments during the short-term modification period. At
September 30, 2010, loans modified under these programs
represented less than 1.0 percent of total residential
mortgage loan balances and 2.2 percent of credit card
receivable balances, respectively. Because these changes have an
insignificant impact on the economic return on the loan, the
Company does not consider loans modified under these hardship
programs to be TDRs. The Company determines applicable
allowances for loan losses for these loans in a manner
consistent with other homogeneous loan portfolios.
The Company may also modify commercial loans on a short-term
basis, with the most common modification being an extension of
the maturity date of twelve months or less. Such extensions
generally are used when the maturity date is imminent and the
borrower is experiencing some level of financial stress but the
Company believes the borrower will ultimately pay all
contractual amounts owed. These extended loans represented
approximately 1.4 percent of total commercial and
commercial real estate loan balances at September 30, 2010.
Because interest is charged during the extension period (at the
original contractual rate or, in many cases, a higher rate), the
extension has an insignificant impact on the economic return on
the loan. Therefore, the Company does not consider such
extensions to be TDRs. The Company determines the applicable
allowance for loan losses on these loans in a manner consistent
with other commercial loans.
Troubled Debt
Restructurings
Many
of the Company’s TDRs are determined on a
case-by-case
basis in connection with ongoing loan collection processes.
However, the Company has also implemented certain restructuring
programs that may result in TDRs. The consumer finance division
has a mortgage loan restructuring program where certain
qualifying borrowers facing an interest rate reset who 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. Both the consumer finance division modification
program and the HAMP program require the customer to complete a
trial period, where the loan modification is contingent on the
customer satisfactorily completing the trial period and the loan
documents are not modified until that time. The Company reports
loans that are modified following the satisfactory completion of
the trial period as TDRs. Loans in the pre-modification trial
phase represented less than 1.0 percent of residential
mortgage loan balances at September 30, 2010.
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
|
|
13 |
Table of Contents
economic impact of interest rate reductions, are generally
eligible for reimbursement under the loss sharing agreements.
Acquired loans restructured after acquisition are not considered
TDRs 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.
The following table provides a summary of TDRs by loan type,
including the delinquency status for TDRs that continue to
accrue interest and TDRs included in nonperforming assets
(excluding covered loans):
| As a Percent of Performing TDRs | ||||||||||||||||||||||||
|
September 30,
2010
|
Performing
|
30-89 Days
|
90 Days or more
|
Nonperforming
|
Total
|
|||||||||||||||||||
| (Dollar in Millions) | TDRs | Past Due | Past Due | TDRs | TDRs | |||||||||||||||||||
|
Commercial
|
$ | 46 | 12.7 | % | 4.6 | % | $ | 78 | (b) | $ | 124 | |||||||||||||
|
Commercial real estate
|
70 | – | 10.7 | 115 | (b) | 185 | ||||||||||||||||||
|
Residential mortgages (a)
|
1,747 | 6.6 | 5.9 | 151 | 1,898 | |||||||||||||||||||
|
Credit card
|
229 | 12.0 | 9.1 | 199 | (c) | 428 | ||||||||||||||||||
|
Other retail
|
88 | 9.6 | 6.8 | 24 | 112 | |||||||||||||||||||
|
Total
|
$ | 2,180 | 7.2 | % | 6.4 | % | $ | 567 | $ | 2,747 | ||||||||||||||
| (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, and loans in the trial period under HAMP or the Company’s program where a legal modification of the loan is contingent on the customer successfully completing the trial modification period. | |
| (b) | Primarily represents loans less than six months from the modification date that have not met the performance period required to return to accrual status (generally six months) and, for commercial, small business credit cards with a modified rate equal to 0 percent. | |
| (c) | Represents consumer credit cards with a modified rate equal to 0 percent. |
The following table provides a summary of TDRs, excluding
covered loans, that are performing in accordance with the
modified terms, and therefore continue to accrue interest:
|
As a Percent of
Ending
|
|||||||||||||||||
| Amount | Loan Balances | ||||||||||||||||
|
September 30,
|
December 31,
|
September 30,
|
December 31,
|
||||||||||||||
| (Dollars in Millions) | 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Commercial
|
$ | 46 | $ | 35 | .10 | % | .07 | % | |||||||||
|
Commercial real estate
|
70 | 110 | .20 | .32 | |||||||||||||
|
Residential mortgages (a)
|
1,747 | 1,354 | 6.11 | 5.20 | |||||||||||||
|
Credit card
|
229 | 221 | 1.39 | 1.31 | |||||||||||||
|
Other retail
|
88 | 74 | .18 | .16 | |||||||||||||
|
Total
|
$ | 2,180 | $ | 1,794 | 1.12 | % | .92 | % | |||||||||
| (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, and loans in the trial period under HAMP or the Company’s program where a legal modification of the loan is contingent on the customer successfully completing the trial modification period. |
TDRs, excluding covered loans, that are performing in accordance
with modified terms were $386 million higher at
September 30, 2010, than at December 31, 2009,
primarily reflecting loan modifications for certain residential
mortgage customers in light of current economic conditions. The
Company continues to work with customers to modify loans for
borrowers who are having financial difficulties, including those
acquired through FDIC-assisted bank acquisitions, but expects
the overall level of loan modifications to moderate through the
remainder of 2010.
Nonperforming
Assets
The
level of nonperforming assets represents another indicator of
the potential for future credit losses. At September 30,
2010, total nonperforming assets were $5.4 billion,
compared with $5.9 billion at December 31, 2009.
Excluding covered assets, nonperforming assets were
$3.6 billion at September 30, 2010, compared with
$3.9 billion at December 31, 2009. The
$341 million (8.7 percent) decrease in nonperforming
assets, excluding covered assets, was principally in the
construction and land development portfolios, as the Company
continued to resolve and reduce the exposure to these assets.
There was also an improvement in other commercial portfolios as
the economy has begun to stabilize. However, there is continued
stress in the residential mortgage and credit card portfolios,
as well as an increase in foreclosed properties, due to the
impact of the overall duration of the economic slowdown.
Nonperforming covered assets at September 30, 2010 were
$1.9 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 2.76 percent
(2.02 percent excluding covered assets) at
September 30, 2010, compared with 3.02 percent
(2.25 percent excluding covered assets) at
December 31, 2009.
The Company expects nonperforming assets, excluding covered
assets, to trend lower in the fourth quarter of 2010.
Other real estate, excluding covered assets, was
$537 million at September 30, 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.
|
|
U.S. Bancorp |
Table of Contents
Table 6 Nonperforming Assets (a)
|
September 30,
|
December 31,
|
|||||||
| (Dollars in Millions) | 2010 | 2009 | ||||||
|
Commercial
|
||||||||
|
Commercial
|
$ | 594 | $ | 866 | ||||
|
Lease financing
|
111 | 125 | ||||||
|
Total commercial
|
705 | 991 | ||||||
|
Commercial Real Estate
|
||||||||
|
Commercial mortgages
|
624 | 581 | ||||||
|
Construction and development
|
799 | 1,192 | ||||||
|
Total commercial real estate
|
1,423 | 1,773 | ||||||
|
Residential Mortgages
|
614 | 467 | ||||||
|
Retail
|
||||||||
|
Credit card
|
199 | 142 | ||||||
|
Retail leasing
|
– | – | ||||||
|
Other retail
|
63 | 62 | ||||||
|
Total retail
|
262 | 204 | ||||||
|
Total nonperforming loans, excluding covered loans
|
3,004 | 3,435 | ||||||
|
Covered Loans
|
1,172 | 1,350 | ||||||
|
Total nonperforming loans
|
4,176 | 4,785 | ||||||
|
Other Real Estate (b)(c)
|
537 | 437 | ||||||
|
Covered Other Real Estate (c)
|
679 | 653 | ||||||
|
Other Assets
|
22 | 32 | ||||||
|
Total nonperforming assets
|
$ | 5,414 | $ | 5,907 | ||||
|
Total nonperforming assets, excluding covered assets
|
$ | 3,563 | $ | 3,904 | ||||
|
Excluding covered assets:
|
||||||||
|
Accruing loans 90 days or more past due
|
$ | 1,165 | $ | 1,525 | ||||
|
Nonperforming loans to total loans
|
1.71 | % | 1.99 | % | ||||
|
Nonperforming assets to total loans plus other real
estate (b)
|
2.02 | % | 2.25 | % | ||||
|
Including covered assets:
|
||||||||
|
Accruing loans 90 days or more past due
|
$ | 2,110 | $ | 2,309 | ||||
|
Nonperforming loans to total loans
|
2.15 | % | 2.46 | % | ||||
|
Nonperforming assets to total loans plus other real
estate (b)
|
2.76 | % | 3.02 | % | ||||
Changes
in Nonperforming Assets
|
Commercial and
|
Retail and
|
|||||||||||
|
Commercial
|
Residential
|
|||||||||||
| (Dollars in Millions) | Real Estate | Mortgages (e) | Total | |||||||||
|
Balance December 31, 2009
|
$ | 4,727 | $ | 1,180 | $ | 5,907 | ||||||
|
Additions to nonperforming assets
|
||||||||||||
|
New nonaccrual loans and foreclosed properties
|
2,847 | 911 | 3,758 | |||||||||
|
Advances on loans
|
173 | – | 173 | |||||||||
|
Total additions
|
3,020 | 911 | 3,931 | |||||||||
|
Reductions in nonperforming assets
|
||||||||||||
|
Paydowns, payoffs
|
(1,609 | ) | (156 | ) | (1,765 | ) | ||||||
|
Net sales
|
(402 | ) | (308 | ) | (710 | ) | ||||||
|
Return to performing status
|
(480 | ) | (28 | ) | (508 | ) | ||||||
|
Charge-offs (d)
|
(1,262 | ) | (179 | ) | (1,441 | ) | ||||||
|
Total reductions
|
(3,753 | ) | (671 | ) | (4,424 | ) | ||||||
|
Net additions to (reductions in) nonperforming assets
|
(733 | ) | 240 | (493 | ) | |||||||
|
Balance September 30, 2010
|
$ | 3,994 | $ | 1,420 | $ | 5,414 | ||||||
| (a) | Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due. | |
| (b) | Excludes $541 million and $359 million at September 30, 2010, and December 31, 2009, respectively, of foreclosed GNMA loans which continue to accrue interest. | |
| (c) | Includes equity investments in entities whose only assets are other real estate owned. | |
| (d) | Charge-offs exclude actions for certain card products and loan sales that were not classified as nonperforming at the time the charge-off occurred. | |
| (e) | Residential mortgage information excludes changes related to residential mortgages serviced by others. |
|
|
15 |
Table of Contents
Table 7 Net Charge-offs as a Percent of Average Loans Outstanding
|
Three Months
Ended
|
Nine Months Ended
|
||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | ||||||||||||||
|
Commercial
|
|||||||||||||||||
|
Commercial
|
1.49 | % | 1.78 | % | 2.04 | % | 1.39 | % | |||||||||
|
Lease financing
|
1.18 | 2.66 | 1.58 | 3.08 | |||||||||||||
|
Total commercial
|
1.45 | 1.89 | 1.98 | 1.60 | |||||||||||||
|
Commercial Real Estate
|
|||||||||||||||||
|
Commercial mortgages
|
1.72 | .49 | 1.20 | .40 | |||||||||||||
|
Construction and development
|
4.56 | 6.62 | 6.25 | 5.06 | |||||||||||||
|
Total commercial real estate
|
2.40 | 2.22 | 2.45 | 1.75 | |||||||||||||
|
Residential Mortgages
|
1.88 | 2.10 | 2.05 | 1.86 | |||||||||||||
|
Retail
|
|||||||||||||||||
|
Credit card (a)
|
7.11 | 6.99 | 7.54 | 6.91 | |||||||||||||
|
Retail leasing
|
.19 | .66 | .34 | .83 | |||||||||||||
|
Home equity and second mortgages
|
1.62 | 1.82 | 1.71 | 1.68 | |||||||||||||
|
Other retail
|
1.65 | 1.94 | 1.76 | 1.83 | |||||||||||||
|
Total retail
|
2.95 | 3.05 | 3.13 | 2.89 | |||||||||||||
|
Total loans, excluding covered loans
|
2.26 | 2.41 | 2.51 | 2.12 | |||||||||||||
|
Covered Loans
|
.14 | – | .10 | .10 | |||||||||||||
|
Total loans
|
2.05 | % | 2.27 | % | 2.26 | % | 2.01 | % | |||||||||
| (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 7.84 percent and 8.26 percent for the three months and nine months ended September 30, 2010, respectively, and 7.30 percent and 7.03 percent for the three months and nine months ended September 30, 2009, respectively. |
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 | ||||||||||||||||
|
September 30,
|
December 31,
|
September 30,
|
December 31,
|
||||||||||||||
| (Dollars in Millions) | 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Residential
|
|||||||||||||||||
|
Minnesota
|
$ | 29 | $ | 27 | .50 | % | .49 | % | |||||||||
|
California
|
20 | 15 | .29 | .27 | |||||||||||||
|
Illinois
|
13 | 8 | .42 | .29 | |||||||||||||
|
Colorado
|
10 | 7 | .28 | .20 | |||||||||||||
|
Arizona
|
9 | 6 | .81 | .58 | |||||||||||||
|
All other states
|
130 | 110 | .48 | .40 | |||||||||||||
|
Total residential
|
211 | 173 | .44 | .38 | |||||||||||||
|
Commercial
|
|||||||||||||||||
|
Oregon
|
56 | 28 | 1.64 | .81 | |||||||||||||
|
Nevada
|
49 | 73 | 5.81 | 3.57 | |||||||||||||
|
Ohio
|
24 | – | .61 | – | |||||||||||||
|
Virginia
|
18 | 8 | 3.73 | 1.21 | |||||||||||||
|
Washington
|
16 | 2 | .29 | .04 | |||||||||||||
|
All other states
|
163 | 153 | .24 | .23 | |||||||||||||
|
Total commercial
|
326 | 264 | .40 | .32 | |||||||||||||
|
Total OREO
|
$ | 537 | $ | 437 | .31 | % | .25 | % | |||||||||
| Note: | OREO balances include equity investments in entities whose only assets are other real estate owned. |
Analysis of
Loan Net
Charge-Offs
Total
net charge-offs were $995 million and $3.2 billion for
the third quarter and first nine months of 2010, respectively,
compared with net charge-offs of $1,041 million and
$2.8 billion for the same periods of 2009. The ratio of
total loan net charge-offs to average loans outstanding on an
annualized basis for the third quarter and first nine months of
2010 was 2.05 percent and 2.26 percent, respectively,
compared with 2.27 percent and 2.01 percent, for the
same periods of 2009. The decrease in total net charge-offs for
the third quarter 2010, compared with the third quarter of 2009,
was principally due to improvement in the commercial loan
portfolio. The increase in total net charge-offs for the first
nine months of 2010, compared with the same period of the prior
year, 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 card and other
consumer and commercial loans. The Company expects the level of
net charge-offs to continue to trend lower in the fourth quarter
of 2010.
Commercial and commercial real estate loan net charge-offs for
the third quarter of 2010 were $378 million
(1.85 percent of average loans outstanding on an annualized
basis), compared with $433 million (2.02 percent of
average loans outstanding on an annualized basis) for the third
quarter of 2009. The decrease primarily reflected the resolution
of certain major construction projects and the impact of more
stable economic conditions on the Company’s commercial loan
portfolios. Commercial and commercial real estate loan net
charge-offs for the first nine months of 2010 were
$1.3 billion (2.18 percent of average loans
outstanding on an annualized basis), compared with
$1.1 billion (1.66 percent of average loans
outstanding on an annualized basis) for the first nine months of
2009. The
year-over-year
increase 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 other commercial loans.
|
|
U.S. Bancorp |
Table of Contents
Residential mortgage loan net charge-offs for the third quarter
of 2010 were $132 million (1.88 percent of average
loans outstanding on an annualized basis), compared with
$129 million (2.10 percent of average loans
outstanding on an annualized basis) for the third quarter of
2009. Residential mortgage loan net charge-offs for the first
nine months of 2010 were $415 million (2.05 percent of
average loans outstanding on an annualized basis), compared with
$336 million (1.86 percent of average loans
outstanding on an annualized basis) for the first nine months of
2009. Retail loan net charge-offs for the third quarter of 2010
were $478 million (2.95 percent of average loans
outstanding on an annualized basis), compared with
$479 million (3.05 percent of average loans
outstanding on an annualized basis) for the third quarter of
2009. Retail loan net charge-offs for the first nine months of
2010 were $1.5 billion (3.13 percent of average loans
outstanding on an annualized basis), compared with
$1.3 billion (2.89 percent of average loans
outstanding on an annualized basis) for the first nine months of
2009. The retail loan net charge-offs percentage was impacted by
credit card portfolio purchases recorded at fair value beginning
in the second quarter of 2009. The increases in residential
mortgage and retail loan net charge-offs for the first nine
months of 2010, compared with the same period of 2009, 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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||
|
Percent of
|
Percent of
|
||||||||||||||||||||||||||||||||||||||
| Average Loans | Average Loans | Average Loans | Average Loans | ||||||||||||||||||||||||||||||||||||
| (Dollars in Millions) | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||||||||
|
Consumer Finance (a)
|
|||||||||||||||||||||||||||||||||||||||
|
Residential mortgages
|
$ | 10,805 | $ | 9,996 | 3.49 | % | 3.69 | % | $ | 10,546 | $ | 9,882 | 3.78 | % | 3.52 | % | |||||||||||||||||||||||
|
Home equity and second mortgages
|
2,448 | 2,476 | 4.86 | 5.93 | 2,461 | 2,450 | 5.49 | 6.38 | |||||||||||||||||||||||||||||||
|
Other retail
|
608 | 591 | 3.92 | 4.70 | 607 | 561 | 3.52 | 5.96 | |||||||||||||||||||||||||||||||
|
Other Retail
|
|||||||||||||||||||||||||||||||||||||||
|
Residential mortgages
|
$ | 17,085 | $ | 14,409 | .86 | % | .99 | % | $ | 16,499 | $ | 14,214 | .95 | % | .71 | % | |||||||||||||||||||||||
|
Home equity and second mortgages
|
16,841 | 16,892 | 1.15 | 1.22 | 16,879 | 16,848 | 1.16 | .99 | |||||||||||||||||||||||||||||||
|
Other retail
|
23,673 | 22,056 | 1.59 | 1.87 | 23,057 | 22,234 | 1.71 | 1.73 | |||||||||||||||||||||||||||||||
|
Total Company
|
|||||||||||||||||||||||||||||||||||||||
|
Residential mortgages
|
$ | 27,890 | $ | 24,405 | 1.88 | % | 2.10 | % | $ | 27,045 | $ | 24,096 | 2.05 | % | 1.86 | % | |||||||||||||||||||||||
|
Home equity and second mortgages
|
19,289 | 19,368 | 1.62 | 1.82 | 19,340 | 19,298 | 1.71 | 1.68 | |||||||||||||||||||||||||||||||
|
Other retail
|
24,281 | 22,647 | 1.65 | 1.94 | 23,664 | 22,795 | 1.76 | 1.83 | |||||||||||||||||||||||||||||||
| (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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||
|
Percent of
|
Percent of
|
||||||||||||||||||||||||||||||||||||||
| Average Loans | Average Loans | Average Loans | Average Loans | ||||||||||||||||||||||||||||||||||||
| (Dollars in Millions) | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||||||||
|
Residential mortgages
|
|||||||||||||||||||||||||||||||||||||||
|
Sub-prime
borrowers
|
$ | 2,266 | $ | 2,620 | 6.30 | % | 6.06 | % | $ | 2,348 | $ | 2,726 | 6.38 | % | 5.79 | % | |||||||||||||||||||||||
|
Other borrowers
|
8,539 | 7,376 | 2.74 | 2.85 | 8,198 | 7,156 | 3.03 | 2.65 | |||||||||||||||||||||||||||||||
|
Total
|
$ | 10,805 | $ | 9,996 | 3.49 | % | 3.69 | % | $ | 10,546 | $ | 9,882 | 3.78 | % | 3.52 | % | |||||||||||||||||||||||
|
Home equity and second mortgages
|
|||||||||||||||||||||||||||||||||||||||
|
Sub-prime
borrowers
|
$ | 553 | $ | 657 | 9.33 | % | 10.87 | % | $ | 581 | $ | 685 | 10.36 | % | 11.52 | % | |||||||||||||||||||||||
|
Other borrowers
|
1,895 | 1,819 | 3.56 | 4.14 | 1,880 | 1,765 | 3.98 | 4.39 | |||||||||||||||||||||||||||||||
|
Total
|
$ | 2,448 | $ | 2,476 | 4.86 | % | 5.93 | % | $ | 2,461 | $ | 2,450 | 5.49 | % | 6.38 | % | |||||||||||||||||||||||
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 includes certain amounts that do not represent loss exposure
to the Company because those losses are recoverable under 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
September 30, 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 TDR 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
|
|
17 |
Table of Contents
Table 8 Summary of Allowance for Credit Losses
|
Three Months
Ended
|
Nine Months Ended
|
|||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (Dollars in Millions) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
|
Balance at beginning of period
|
$ | 5,536 | $ | 4,571 | $ | 5,264 | $ | 3,639 | ||||||||
|
Charge-offs
|
||||||||||||||||
|
Commercial
|
||||||||||||||||
|
Commercial
|
163 | 210 | 646 | 510 | ||||||||||||
|
Lease financing
|
28 | 54 | 108 | 183 | ||||||||||||
|
Total commercial
|
191 | 264 | 754 | 693 | ||||||||||||
|
Commercial real estate
|
||||||||||||||||
|
Commercial mortgages
|
114 | 31 | 232 | 73 | ||||||||||||
|
Construction and development
|
95 | 159 | 405 | 370 | ||||||||||||
|
Total commercial real estate
|
209 | 190 | 637 | 443 | ||||||||||||
|
Residential mortgages
|
135 | 130 | 422 | 339 | ||||||||||||
|
Retail
|
||||||||||||||||
|
Credit card
|
314 | 287 | 975 | 791 | ||||||||||||
|
Retail leasing
|
5 | 11 | 21 | 39 | ||||||||||||
|
Home equity and second mortgages
|
84 | 92 | 261 | 249 | ||||||||||||
|
Other retail
|
124 | 130 | 375 | 374 | ||||||||||||
|
Total retail
|
527 | 520 | 1,632 | 1,453 | ||||||||||||
|
Covered loans (a)
|
7 | 1 | 16 | 9 | ||||||||||||
|
Total charge-offs
|
1,069 | 1,105 | 3,461 | 2,937 | ||||||||||||
|
Recoveries
|
||||||||||||||||
|
Commercial
|
||||||||||||||||
|
Commercial
|
10 | 10 | 27 | 21 | ||||||||||||
|
Lease financing
|
10 | 10 | 34 | 29 | ||||||||||||
|
Total commercial
|
20 | 20 | 61 | 50 | ||||||||||||
|
Commercial real estate
|
||||||||||||||||
|
Commercial mortgages
|
1 | 1 | 2 | 2 | ||||||||||||
|
Construction and development
|
1 | – | 9 | 1 | ||||||||||||
|
Total commercial real estate
|
2 | 1 | 11 | 3 | ||||||||||||
|
Residential mortgages
|
3 | 1 | 7 | 3 | ||||||||||||
|
Retail
|
||||||||||||||||
|
Credit card
|
18 | 16 | 50 | 45 | ||||||||||||
|
Retail leasing
|
3 | 3 | 10 | 8 | ||||||||||||
|
Home equity and second mortgages
|
5 | 3 | 13 | 7 | ||||||||||||
|
Other retail
|
23 | 19 | 64 | 62 | ||||||||||||
|
Total retail
|
49 | 41 | 137 | 122 | ||||||||||||
|
Covered loans (a)
|
– | 1 | 1 | 1 | ||||||||||||
|
Total recoveries
|
74 | 64 | 217 | 179 | ||||||||||||
|
Net Charge-offs
|
||||||||||||||||
|
Commercial
|
||||||||||||||||
|
Commercial
|
153 | 200 | 619 | 489 | ||||||||||||
|
Lease financing
|
18 | 44 | 74 | 154 | ||||||||||||
|
Total commercial
|
171 | 244 | 693 | 643 | ||||||||||||
|
Commercial real estate
|
||||||||||||||||
|
Commercial mortgages
|
113 | 30 | 230 | 71 | ||||||||||||
|
Construction and development
|
94 | 159 | 396 | 369 | ||||||||||||
|
Total commercial real estate
|
207 | 189 | 626 | 440 | ||||||||||||
|
Residential mortgages
|
132 | 129 | 415 | 336 | ||||||||||||
|
Retail
|
||||||||||||||||
|
Credit card
|
296 | 271 | 925 | 746 | ||||||||||||
|
Retail leasing
|
2 | 8 | 11 | 31 | ||||||||||||
|
Home equity and second mortgages
|
79 | 89 | 248 | 242 | ||||||||||||
|
Other retail
|
101 | 111 | 311 | 312 | ||||||||||||
|
Total retail
|
478 | 479 | 1,495 | 1,331 | ||||||||||||
|
Covered loans (a)
|
7 | – | 15 | 8 | ||||||||||||
|
Total net charge-offs
|
995 | 1,041 | 3,244 | 2,758 | ||||||||||||
|
Provision for credit losses
|
995 | 1,456 | 3,444 | 4,169 | ||||||||||||
|
Net change for credit losses to be reimbursed by the FDIC
|
4 | – | 76 | – | ||||||||||||
|
Acquisitions and other changes
|
– | – | – | (64 | ) | |||||||||||
|
Balance at end of period
|
$ | 5,540 | $ | 4,986 | $ | 5,540 | $ | 4,986 | ||||||||
|
Components
|
||||||||||||||||
|
Allowance for loan losses, excluding losses to be reimbursed by
the FDIC
|
$ | 5,245 | $ | 4,825 | ||||||||||||
|
Allowance for credit losses to be reimbursed by the FDIC
|
76 | – | ||||||||||||||
|
Liability for unfunded credit commitments
|
219 | 161 | ||||||||||||||
|
Total allowance for credit losses
|
$ | 5,540 | $ | 4,986 | ||||||||||||
|
Allowance for credit losses as a percentage of
|
||||||||||||||||
|
Period-end loans, excluding covered loans
|
3.10 | % | 2.88 | % | ||||||||||||
|
Nonperforming loans, excluding covered loans
|
181 | 150 | ||||||||||||||
|
Nonperforming assets, excluding covered assets
|
153 | 134 | ||||||||||||||
|
Annualized net charge-offs, excluding covered loans
|
139 | 121 | ||||||||||||||
|
Period-end loans
|
2.85 | % | 2.73 | % | ||||||||||||
|
Nonperforming loans
|
133 | 136 | ||||||||||||||
|
Nonperforming assets
|
102 | 114 | ||||||||||||||
|
Annualized net charge-offs
|
140 | 121 | ||||||||||||||
| Note: | At September 30, 2010, $2.3 billion of the total allowance for credit losses related to incurred losses on retail loans. |
| (a) | Relates to covered loan charge-offs and recoveries not reimbursable by the FDIC. |
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 September 30, 2010, the allowance for credit losses was
$5.5 billion (2.85 percent of total loans and
3.10 percent of loans excluding covered loans), compared
with an allowance of $5.3 billion
|
|
U.S. Bancorp |
Table of Contents
(2.70 percent of total loans and 3.04 percent of loans
excluding covered loans) at December 31, 2009. During the
third quarter and first nine months of 2010, the Company
increased the allowance for credit losses by $4 million and
$76 million, respectively, to reflect covered loan losses
reimbursable by the FDIC. The ratio of the allowance for credit
losses to nonperforming loans was 133 percent
(181 percent excluding covered loans) at September 30,
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 140 percent at September 30, 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 September 30, 2010, no significant change in the
amount of residual values 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 table below 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
September 30, 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.
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. Management measures the impact of
changes in market interest rates under a number of scenarios,
including immediate and sustained parallel shifts, and
flattening or steepening of the yield curve. 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 3.9 percent
decrease in the market value of
Sensitivity
of Net Interest Income
| September 30, 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
|
* | 1.47 | % | * | 2.53 | % | * | .43 | % | * | 1.00 | % | |||||||||||||||||||||
| * | Given the current level of interest rates, a downward rate scenario cannot be computed. |
|
|
19 |
Table of Contents
equity at September 30, 2010, compared with a
4.3 percent decrease at December 31, 2009. A
200 bps decrease, where possible given current rates, would
have resulted in a 5.5 percent decrease in the market value
of equity at September 30, 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 and, therefore, has generally elected fair value
accounting for the related hedged items. 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 September 30, 2010, the Company
had $18.4 billion of forward commitments to sell mortgage
loans hedging $8.2 billion of mortgage loans held for sale
and $16.2 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
where possible 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 11 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, principally related to trading activities
which support customers’ strategies to manage their own
foreign currency, interest rate risks and funding activities.
The ALCO established the Market Risk Committee
(“MRC”), which oversees market risk management. The
MRC monitors and reviews the Company’s trading positions
and establishes policies for market risk management, including
exposure limits for each portfolio. The 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
1-day
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. The Company’s trading VaR did not
exceed $5 million during the first
|
|
U.S. Bancorp |
Table of Contents
Table 9 Regulatory Capital Ratios
|
September 30,
|
December 31,
|
|||||||
| (Dollars in Millions) | 2010 | 2009 | ||||||
|
Tier 1 capital
|
$ | 24,908 | $ | 22,610 | ||||
|
As a percent of risk-weighted assets
|
10.3 | % | 9.6 | % | ||||
|
As a percent of adjusted quarterly average assets (leverage
ratio)
|
9.0 | % | 8.5 | % | ||||
|
Total risk-based capital
|
$ | 32,265 | $ | 30,458 | ||||
|
As a percent of risk-weighted assets
|
13.3 | % | 12.9 | % | ||||
nine months of 2010 and $3 million during the first nine
months 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 September 30, 2010, parent company long-term debt
outstanding was $13.0 billion, compared with
$14.5 billion at December 31, 2009. The
$1.5 billion decrease was primarily due to repayments and
maturities of $4.8 billion of medium-term notes and the
extinguishment of $.6 billion of junior subordinated
debentures in connection with the ITS exchange, partially offset
by $3.8 billion of medium-term note issuances. As of
September 30, 2010, there was no parent company debt
scheduled to mature in the remainder of 2010.
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
$4.0 billion at September 30, 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 September 30, 2010, and
December 31, 2009. All regulatory ratios exceeded
regulatory “well-capitalized” requirements. Total
U.S. Bancorp shareholders’ equity was
$29.2 billion at September 30, 2010, compared with
$26.0 billion at December 31, 2009. The increase was
primarily the result of corporate earnings, the issuance of
$.4 billion of perpetual preferred stock in connection with
the ITS exchange, 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
7.6 percent and 7.2 percent, respectively, at
September 30, 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 6.2 percent at September 30, 2010, compared with
5.3 percent at 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 third 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.
|
|
21 |
Table of Contents
The following table provides a detailed analysis of all shares
repurchased during the third 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 | |||||||||
|
July
|
12,395 | $ | 23.46 | 19,031,343 | ||||||||
|
August
|
84 | 21.74 | 19,031,259 | |||||||||
|
September
|
823 | 23.23 | 19,030,436 | |||||||||
|
Total
|
13,302 | $ | 23.43 | 19,030,436 | ||||||||
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. Starting with the current
period, lines of business results include the impact of
transferring the operating activities of the FBOP acquisition to
the appropriate operating segments. Covered commercial and
commercial real estate credit-impaired loans and related OREO
remain in Treasury and Corporate Support.
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 $137 million of the
Company’s net income in the third quarter and
$238 million in the first nine months of 2010, or increases
of $108 million and $151 million, respectively,
compared with the same periods of 2009. The increases were
primarily driven by higher net revenue and lower provision for
credit losses expense, partially offset by higher noninterest
expense.
Total net revenue increased $80 million (10.8 percent)
in the third quarter and $185 million (8.4 percent) in
the first nine months of 2010, compared with the same periods of
2009. Net interest income, on a taxable-equivalent basis,
increased $38 million (7.6 percent) in the third
quarter and $33 million (2.2 percent) in the first
nine months of 2010, compared with the same periods of 2009. The
increases were primarily due to improved loan spreads, partially
offset by a decrease in average total loans and the impact of
declining rates on the margin benefit from deposits. Total
noninterest income increased $42 million
(17.6 percent) in the third quarter and $152 million
(21.9 percent) in the first nine months of 2010, compared
with the same periods of 2009, mainly due to strong growth in
commercial products revenue, including standby letters of
credit, commercial loan and capital markets fees and higher
equity investment income, partially offset by lower customer
derivative revenue.
Total noninterest expense increased $49 million
(18.2 percent) in the third quarter and $102 million
(12.5 percent) in the first nine months of 2010, compared
with the same periods of 2009, primarily due to higher total
compensation and employee benefits expense and increased costs
related to OREO. The provision for credit losses decreased
$141 million (32.9 percent) in the third quarter and
$149 million (12.0 percent) in the first nine months
of 2010, compared with the same periods of 2009. The favorable
changes were primarily due to decreases in the reserve
allocation in both periods, partially offset by higher net
charge-offs for the first nine months of 2010, compared with the
same period of 2009. Nonperforming assets were $1.9 billion
at September 30, 2010, $2.2 billion at June 30,
2010, and $2.5 billion at September 30, 2009.
Nonperforming assets as a percentage of period-end loans were
3.34 percent at September 30, 2010, 3.79 percent
at June 30, 2010, and 4.25 percent at
September 30, 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 $243 million of the
Company’s net income in the third
|
|
U.S. Bancorp |
Table of Contents
quarter and $586 million in the first nine months of 2010,
or an increase of $37 million (18.0 percent) and
decrease of $52 million (8.2 percent), respectively,
compared with the same periods of 2009.
Within Consumer Banking, the retail banking division contributed
$60 million of the total net income in the third quarter
and $169 million in the first nine months of 2010, or
decreases of $4 million (6.3 percent) and
$46 million (21.4 percent) from the same periods of
2009. Mortgage banking contributed $183 million of Consumer
Banking’s net income in the third quarter and
$417 million in the first nine months of 2010, or an
increase of $41 million (28.9 percent) and a decrease
of $6 million (1.4 percent) from the same periods of
2009, respectively.
Total net revenue increased $63 million (3.5 percent)
in the third quarter and $63 million (1.2 percent) in
the first nine months of 2010, compared with the same periods of
2009. Net interest income, on a taxable-equivalent basis,
increased $106 million (10.5 percent) in the third
quarter and $191 million (6.4 percent) in the first
nine months of 2010, compared with the same periods of 2009. The
year-over-year
increases in net interest income were due to improved loan
spreads, and higher deposit volumes and loan fees, partially
offset by a decline in the margin benefit of deposits. Total
noninterest income decreased $43 million (5.6 percent)
in the third quarter and $128 million (5.8 percent) in
the first nine months of 2010, compared with the same periods of
2009. The
year-over-year
decreases in noninterest income were driven by lower deposit
service charges, principally due to the impact of
Company-initiated and regulatory revisions to overdraft fee
policies and lower overdraft incidences, partially offset by
improvement in retail lease
end-of-term
results and higher ATM processing servicing fees. The decline in
noninterest income in the first nine months of 2010, as compared
to the same period of 2009, also included a decrease in mortgage
banking revenue, primarily due to lower mortgage loan production.
Total noninterest expense increased $165 million
(17.8 percent) in the third quarter and $432 million
(15.7 percent) in the first nine months of 2010, compared
with the same periods of 2009. The increases reflected higher
total compensation and employee benefits expense, higher
processing costs and net occupancy and equipment expenses
related to business expansion, including the impact of the FBOP
acquisition.
The provision for credit losses decreased $162 million
(30.6 percent) in the third quarter and $290 million
(19.9 percent) in the first nine months of 2010, compared
with the same periods of 2009, as stress within the residential
mortgage, home equity, installment and other consumer loan
portfolios moderated. As a percentage of average loans
outstanding on an annualized basis, net charge-offs decreased to
1.41 percent in the third quarter of 2010, compared with
1.61 percent in the third quarter of 2009. Nonperforming
assets were $1.5 billion at September 30, 2010,
$1.5 billion at June 30, 2010, and $1.2 billion
at September 30, 2009. Nonperforming assets as a percentage
of period-end loans were 1.46 percent at September 30,
2010, 1.48 percent at June 30, 2010, and
1.28 percent at September 30, 2009. Refer to the
“Corporate Risk Profile” section for further
information on factors impacting the credit quality of the loan
portfolios.
Increased attention has been placed in the mortgage banking
industry recently on documentation and review associated with
foreclosure processes. The Company believes its foreclosure
processes follow established safeguards, and the Company
routinely reviews its policies and procedures to reconfirm their
quality. The Company will continue to review its foreclosure
processes and comply with any information requests received from
its regulators or other governmental officials. The Company does
not, however, have plans to halt foreclosures.
Wealth
Management & Securities
Services
Wealth
Management & Securities Services provides trust,
private banking, financial advisory, investment management,
retail brokerage services, insurance, custody and fund servicing
through five businesses: Wealth Management, Corporate Trust, FAF
Advisors, Institutional Trust & Custody and
Fund Services.
During the third quarter of 2010, the Company announced a
strategic alliance with a third party under which it will
receive an ownership interest in the third party in exchange for
the long-term asset management business of FAF Advisors,
primarily representing the equity and fixed income mutual funds.
U.S. Bancorp Asset Management will retain the
Company’s money market fund business. The transaction is
expected to close in the fourth quarter of 2010.
Wealth Management & Securities Services contributed
$53 million of the Company’s net income in the third
quarter and $165 million in the first nine months of 2010,
or decreases of $31 million (36.9 percent) and
$103 million (38.4 percent), respectively, compared
with the same periods of 2009. The decreases were primarily
attributable to lower net revenue and higher total noninterest
expense.
Total net revenue decreased $7 million (1.9 percent)
in the third quarter and $84 million (7.4 percent) in
the first nine months of 2010, compared with the same periods of
2009. Net interest income, on a taxable-equivalent basis,
increased $16 million (22.9 percent) in the third
quarter and $2 million (.9 percent) in the first nine
months of 2010, compared with the same periods of 2009. The year
over year increases in net interest income were primarily
|
|
23 |
Table of Contents
Table 10 Line of Business Financial Performance
|
Wholesale
|
Consumer
|
||||||||||||||||||||||||
| Banking | Banking | ||||||||||||||||||||||||
|
Three Months Ended
September 30
|
Percent
|
Percent
|
|||||||||||||||||||||||
| (Dollars in Millions) | 2010 | 2009 | Change | 2010 | 2009 | Change | |||||||||||||||||||
|
Condensed Income Statement
|
|||||||||||||||||||||||||
|
Net interest income (taxable-equivalent basis)
|
$ | 541 | $ | 503 | 7.6 | % | $ | 1,113 | $ | 1,007 | 10.5 | % | |||||||||||||
|
Noninterest income
|
281 | 238 | 18.1 | 730 | 773 | (5.6 | ) | ||||||||||||||||||
|
Securities gains (losses), net
|
(1 | ) | – | * | – | – | – | ||||||||||||||||||
|
Total net revenue
|
821 | 741 | 10.8 | 1,843 | 1,780 | 3.5 | |||||||||||||||||||
|
Noninterest expense
|
314 | 263 | 19.4 | 1,069 | 906 | 18.0 | |||||||||||||||||||
|
Other intangibles
|
4 | 6 | (33.3 | ) | 23 | 21 | 9.5 | ||||||||||||||||||
|
Total noninterest expense
|
318 | 269 | 18.2 | 1,092 | 927 | 17.8 | |||||||||||||||||||
|
Income before provision and income taxes
|
503 | 472 | 6.6 | 751 | 853 | (12.0 | ) | ||||||||||||||||||
|
Provision for credit losses
|
288 | 429 | (32.9 | ) | 367 | 529 | (30.6 | ) | |||||||||||||||||
|
Income before income taxes
|
215 | 43 | * | 384 | 324 | 18.5 | |||||||||||||||||||
|
Income taxes and taxable-equivalent adjustment
|
78 | 16 | * | 140 | 118 | 18.6 | |||||||||||||||||||
|
Net income
|
137 | 27 | * | 244 | 206 | 18.4 | |||||||||||||||||||
|
Net (income) loss attributable to noncontrolling interests
|
– | 2 | * | (1 | ) | – | * | ||||||||||||||||||
|
Net income attributable to U.S. Bancorp
|
$ | 137 | $ | 29 | * | $ | 243 | $ | 206 | 18.0 | |||||||||||||||
|
Average Balance Sheet
|
|||||||||||||||||||||||||
|
Commercial
|
$ | 33,889 | $ | 37,905 | (10.6 | )% | $ | 6,430 | $ | 6,544 | (1.7 | )% | |||||||||||||
|
Commercial real estate
|
21,439 | 21,550 | (.5 | ) | 11,903 | 11,416 | 4.3 | ||||||||||||||||||
|
Residential mortgages
|
71 | 83 | (14.5 | ) | 27,449 | 23,934 | 14.7 | ||||||||||||||||||
|
Retail
|
34 | 43 | (20.9 | ) | 45,167 | 44,154 | 2.3 | ||||||||||||||||||
|
Total loans, excluding covered loans
|
55,433 | 59,581 | (7.0 | ) | 90,949 | 86,048 | 5.7 | ||||||||||||||||||
|
Covered loans
|
1,866 | – | * | 9,362 | 9,299 | .7 | |||||||||||||||||||
|
Total loans
|
57,299 | 59,581 | (3.8 | ) | 100,311 | 95,347 | 5.2 | ||||||||||||||||||
|
Goodwill
|
1,476 | 1,475 | .1 | 3,258 | 3,105 | 4.9 | |||||||||||||||||||
|
Other intangible assets
|
67 | 87 | (23.0 | ) | 1,617 | 1,762 | (8.2 | ) | |||||||||||||||||
|
Assets
|
62,188 | 64,200 | (3.1 | ) | 115,195 | 110,269 | 4.5 | ||||||||||||||||||
|
Noninterest-bearing deposits
|
18,254 | 17,432 | 4.7 | 15,743 | 13,943 | 12.9 | |||||||||||||||||||
|
Interest checking
|
10,635 | 13,441 | (20.9 | ) | 23,759 | 21,020 | 13.0 | ||||||||||||||||||
|
Savings products
|
8,891 | 10,541 | (15.7 | ) | 36,573 | 27,210 | 34.4 | ||||||||||||||||||
|
Time deposits
|
11,643 | 12,470 | (6.6 | ) | 25,019 | 25,092 | (.3 | ) | |||||||||||||||||
|
Total deposits
|
49,423 | 53,884 | (8.3 | ) | 101,094 | 87,265 | 15.8 | ||||||||||||||||||
|
Total U.S. Bancorp shareholders’ equity
|
5,386 | 4,939 | 9.1 | 8,426 | 7,278 | 15.8 | |||||||||||||||||||
|
Wholesale
|
Consumer
|
||||||||||||||||||||||||
| Banking | Banking | ||||||||||||||||||||||||
|
Nine Months Ended
September 30
|
Percent
|
Percent
|
|||||||||||||||||||||||
| (Dollars in Millions) | 2010 | 2009 | Change | 2010 | 2009 | Change | |||||||||||||||||||
|
Condensed Income Statement
|
|||||||||||||||||||||||||
|
Net interest income (taxable-equivalent basis)
|
$ | 1,541 | $ | 1,508 | 2.2 | % | $ | 3,180 | $ | 2,989 | 6.4 | % | |||||||||||||
|
Noninterest income
|
846 | 696 | 21.6 | 2,093 | 2,221 | (5.8 | ) | ||||||||||||||||||
|
Securities gains (losses), net
|
(1 | ) | (3 | ) | 66.7 | – | – | – | |||||||||||||||||
|
Total net revenue
|
2,386 | 2,201 | 8.4 | 5,273 | 5,210 | 1.2 | |||||||||||||||||||
|
Noninterest expense
|
907 | 798 | 13.7 | 3,109 | 2,684 | 15.8 | |||||||||||||||||||
|
Other intangibles
|
12 | 19 | (36.8 | ) | 75 | 68 | 10.3 | ||||||||||||||||||
|
Total noninterest expense
|
919 | 817 | 12.5 | 3,184 | 2,752 | 15.7 | |||||||||||||||||||
|
Income before provision and income taxes
|
1,467 | 1,384 | 6.0 | 2,089 | 2,458 | (15.0 | ) | ||||||||||||||||||
|
Provision for credit losses
|
1,096 | 1,245 | (12.0 | ) | 1,164 | 1,454 | (19.9 | ) | |||||||||||||||||
|
Income before income taxes
|
371 | 139 | * | 925 | 1,004 | (7.9 | ) | ||||||||||||||||||
|
Income taxes and taxable-equivalent adjustment
|
134 | 52 | * | 337 | 366 | (7.9 | ) | ||||||||||||||||||
|
Net income
|
237 | 87 | * | 588 | 638 | (7.8 | ) | ||||||||||||||||||
|
Net (income) loss attributable to noncontrolling interests
|
1 | – | * | (2 | ) | – | * | ||||||||||||||||||
|
Net income attributable to U.S. Bancorp
|
$ | 238 | $ | 87 | * | $ | 586 | $ | 638 | (8.2 | ) | ||||||||||||||
|
Average Balance Sheet
|
|||||||||||||||||||||||||
|
Commercial
|
$ | 34,040 | $ | 40,434 | (15.8 | )% | $ | 6,395 | $ | 6,636 | (3.6 | )% | |||||||||||||
|
Commercial real estate
|
21,557 | 21,418 | .6 | 11,647 | 11,499 | 1.3 | |||||||||||||||||||
|
Residential mortgages
|
69 | 83 | (16.9 | ) | 26,537 | 23,619 | 12.4 | ||||||||||||||||||
|
Retail
|
41 | 58 | (29.3 | ) | 44,695 | 44,412 | .6 | ||||||||||||||||||
|
Total loans, excluding covered loans
|
55,707 | 61,993 | (10.1 | ) | 89,274 | 86,166 | 3.6 | ||||||||||||||||||
|
Covered loans
|
2,017 | – | * | 9,757 | 10,441 | (6.6 | ) | ||||||||||||||||||
|
Total loans
|
57,724 | 61,993 | (6.9 | ) | 99,031 | 96,607 | 2.5 | ||||||||||||||||||
|
Goodwill
|
1,474 | 1,475 | (.1 | ) | 3,253 | 3,149 | 3.3 | ||||||||||||||||||
|
Other intangible assets
|
71 | 93 | (23.7 | ) | 1,802 | 1,606 | 12.2 | ||||||||||||||||||
|
Assets
|
62,766 | 66,952 | (6.3 | ) | 112,260 | 110,527 | 1.6 | ||||||||||||||||||
|
Noninterest-bearing deposits
|
17,837 | 16,998 | 4.9 | 15,193 | 14,047 | 8.2 | |||||||||||||||||||
|
Interest checking
|
11,042 | 11,455 | (3.6 | ) | 23,625 | 20,625 | 14.5 | ||||||||||||||||||
|
Savings products
|
10,125 | 8,432 | 20.1 | 35,260 | 25,721 | 37.1 | |||||||||||||||||||
|
Time deposits
|
11,213 | 13,514 | (17.0 | ) | 26,592 | 26,166 | 1.6 | ||||||||||||||||||
|
Total deposits
|
50,217 | 50,399 | (.4 | ) | 100,670 | 86,559 | 16.3 | ||||||||||||||||||
|
Total U.S. Bancorp shareholders’ equity
|
5,455 | 4,957 | 10.0 | 8,350 | 7,395 | 12.9 | |||||||||||||||||||
* Not
meaningful
|
|
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 | |||||||||||||||||||||||||||||||||||||
| $ | 86 | $ | 70 | 22.9 | % | $ | 335 | $ | 303 | 10.6 | % | $ | 402 | $ | 274 | 46.7 | % | $ | 2,477 | $ | 2,157 | 14.8 | % | |||||||||||||||||||||||||
| 276 | 299 | (7.7 | ) | 805 | 783 | 2.8 | 27 | 76 | (64.5 | ) | 2,119 | 2,169 | (2.3 | ) | ||||||||||||||||||||||||||||||||||
| – | – | – | – | – | – | (8 | ) | (76 | ) | 89.5 | (9 | ) | (76 | ) | 88.2 | |||||||||||||||||||||||||||||||||
| 362 | 369 | (1.9 | ) | 1,140 | 1,086 | 5.0 | 421 | 274 | 53.6 | 4,587 | 4,250 | 7.9 | ||||||||||||||||||||||||||||||||||||
| 250 | 211 | 18.5 | 433 | 417 | 3.8 | 229 | 162 | 41.4 | 2,295 | 1,959 | 17.2 | |||||||||||||||||||||||||||||||||||||
| 13 | 16 | (18.8 | ) | 50 | 50 | – | – | 1 | * | 90 | 94 | (4.3 | ) | |||||||||||||||||||||||||||||||||||
| 263 | 227 | 15.9 | 483 | 467 | 3.4 | 229 | 163 | 40.5 | 2,385 | 2,053 | 16.2 | |||||||||||||||||||||||||||||||||||||
| 99 | 142 | (30.3 | ) | 657 | 619 | 6.1 | 192 | 111 | 73.0 | 2,202 | 2,197 | .2 | ||||||||||||||||||||||||||||||||||||
| 15 | 10 | 50.0 | 307 | 494 | (37.9 | ) | 18 | (6 | ) | * | 995 | 1,456 | (31.7 | ) | ||||||||||||||||||||||||||||||||||
| 84 | 132 | (36.4 | ) | 350 | 125 | * | 174 | 117 | 48.7 | 1,207 | 741 | 62.9 | ||||||||||||||||||||||||||||||||||||
| 31 | 48 | (35.4 | ) | 127 | 45 | * | (63 | ) | (91 | ) | 30.8 | 313 | 136 | * | ||||||||||||||||||||||||||||||||||
| 53 | 84 | (36.9 | ) | 223 | 80 | * | 237 | 208 | 13.9 | 894 | 605 | 47.8 | ||||||||||||||||||||||||||||||||||||
| – | – | – | (8 | ) | (7 | ) | (14.3 | ) | 23 | 3 | * | 14 | (2 | ) | * | |||||||||||||||||||||||||||||||||
| $ | 53 | $ | 84 | (36.9 | ) | $ | 215 | $ | 73 | * | $ | 260 | $ | 211 | 23.2 | $ | 908 | $ | 603 | 50.6 | ||||||||||||||||||||||||||||
| $ | 990 | $ | 1,055 | (6.2 | )% | $ | 5,328 | $ | 4,845 | 10.0 | % | $ | 147 | $ | 873 | (83.2 | )% | $ | 46,784 | $ | 51,222 | (8.7 | )% | |||||||||||||||||||||||||
| 586 | 566 | 3.5 | – | – | – | 262 | 297 | (11.8 | ) | 34,190 | 33,829 | 1.1 | ||||||||||||||||||||||||||||||||||||
| 365 | 385 | (5.2 | ) | – | – | – | 5 | 3 | 66.7 | 27,890 | 24,405 | 14.3 | ||||||||||||||||||||||||||||||||||||
| 1,665 | 1,554 | 7.1 | 17,501 | 16,472 | 6.2 | 2 | 1 | * | 64,369 | 62,224 | 3.4 | |||||||||||||||||||||||||||||||||||||
| 3,606 | 3,560 | 1.3 | 22,829 | 21,317 | 7.1 | 416 | 1,174 | (64.6 | ) | 173,233 | 171,680 | .9 | ||||||||||||||||||||||||||||||||||||
| 14 | – | * | – | – | – | 8,066 | 989 | * | 19,308 | 10,288 | 87.7 | |||||||||||||||||||||||||||||||||||||
| 3,620 | 3,560 | 1.7 | 22,829 | 21,317 | 7.1 | 8,482 | 2,163 | * | 192,541 | 181,968 | 5.8 | |||||||||||||||||||||||||||||||||||||
| 1,515 | 1,512 | .2 | 2,341 | 2,362 | (.9 | ) | 419 | – | * | 9,009 | 8,454 | 6.6 | ||||||||||||||||||||||||||||||||||||
| 194 | 249 | (22.1 | ) | 929 | 939 | (1.1 | ) | 122 | 7 | * | 2,929 | 3,044 | (3.8 | ) | ||||||||||||||||||||||||||||||||||
| 5,716 | 5,850 | (2.3 | ) | 27,539 | 25,311 | 8.8 | 75,422 | 58,781 | 28.3 | 286,060 | 264,411 | 8.2 | ||||||||||||||||||||||||||||||||||||
| 4,930 | 4,818 | 2.3 | 619 | 538 | 15.1 | 186 | 251 | (25.9 | ) | 39,732 | 36,982 | 7.4 | ||||||||||||||||||||||||||||||||||||
| 4,788 | 3,669 | 30.5 | 124 | 86 | 44.2 | 2 | 2 | – | 39,308 | 38,218 | 2.9 | |||||||||||||||||||||||||||||||||||||
| 14,351 | 9,271 | 54.8 | 24 | 19 | 26.3 | 174 | 170 | 2.4 | 60,013 | 47,211 | 27.1 | |||||||||||||||||||||||||||||||||||||
| 6,530 | 5,354 | 22.0 | 1 | 1 | – | 414 | 1,034 | (60.0 | ) | 43,607 | 43,951 | (.8 | ) | |||||||||||||||||||||||||||||||||||
| 30,599 | 23,112 | 32.4 | 768 | 644 | 19.3 | 776 | 1,457 | (46.7 | ) | 182,660 | 166,362 | 9.8 | ||||||||||||||||||||||||||||||||||||
| 2,092 | 2,043 | 2.4 | 5,289 | 4,797 | 10.3 | 7,694 | 5,622 | 36.9 | 28,887 | 24,679 | 17.1 | |||||||||||||||||||||||||||||||||||||
|
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 | |||||||||||||||||||||||||||||||||||||
| $ | 235 | $ | 233 | .9 | % | $ | 1,013 | $ | 849 | 19.3 | % | $ | 1,320 | $ | 777 | 69.9 | % | $ | 7,289 | $ | 6,356 | 14.7 | % | |||||||||||||||||||||||||
| 820 | 906 | (9.5 | ) | 2,337 | 2,197 | 6.4 | 106 | 209 | (49.3 | ) | 6,202 | 6,229 | (.4 | ) | ||||||||||||||||||||||||||||||||||
| – | – | – | – | – | – | (63 | ) | (290 | ) | 78.3 | (64 | ) | (293 | ) | 78.2 | |||||||||||||||||||||||||||||||||
| 1,055 | 1,139 | (7.4 | ) | 3,350 | 3,046 | 10.0 | 1,363 | 696 | 95.8 | 13,427 | 12,292 | 9.2 | ||||||||||||||||||||||||||||||||||||
| 735 | 648 | 13.4 | 1,235 | 1,101 | 12.2 | 634 | 542 | 17.0 | 6,620 | 5,773 | 14.7 | |||||||||||||||||||||||||||||||||||||
| 40 | 49 | (18.4 | ) | 151 | 141 | 7.1 | – | 3 | * | 278 | 280 | (.7 | ) | |||||||||||||||||||||||||||||||||||
| 775 | 697 | 11.2 | 1,386 | 1,242 | 11.6 | 634 | 545 | 16.3 | 6,898 | 6,053 | 14.0 | |||||||||||||||||||||||||||||||||||||
| 280 | 442 | (36.7 | ) | 1,964 | 1,804 | 8.9 | 729 | 151 | * | 6,529 | 6,239 | 4.6 | ||||||||||||||||||||||||||||||||||||
| 19 | 24 | (20.8 | ) | 1,128 | 1,436 | (21.4 | ) | 37 | 10 | * | 3,444 | 4,169 | (17.4 | ) | ||||||||||||||||||||||||||||||||||
| 261 | 418 | (37.6 | ) | 836 | 368 | * | 692 | 141 | * | 3,085 | 2,070 | 49.0 | ||||||||||||||||||||||||||||||||||||
| 96 | 150 | (36.0 | ) | 304 | 133 | * | (95 | ) | (266 | ) | 64.3 | 776 | 435 | 78.4 | ||||||||||||||||||||||||||||||||||
| 165 | 268 | (38.4 | ) | 532 | 235 | * | 787 | 407 | 93.4 | 2,309 | 1,635 | 41.2 | ||||||||||||||||||||||||||||||||||||
| – | – | – | (24 | ) | (18 | ) | (33.3 | ) | 59 | (14 | ) | * | 34 | (32 | ) | * | ||||||||||||||||||||||||||||||||
| $ | 165 | $ | 268 | (38.4 | ) | $ | 508 | $ | 217 | * | $ | 846 | $ | 393 | * | $ | 2,343 | $ | 1,603 | 46.2 | ||||||||||||||||||||||||||||
| $ | 1,038 | $ | 1,211 | (14.3 | )% | $ | 5,126 | $ | 4,546 | 12.8 | % | $ | 199 | $ | 960 | (79.3 | )% | $ | 46,798 | $ | 53,787 | (13.0 | )% | |||||||||||||||||||||||||
| 581 | 571 | 1.8 | – | – | – | 380 | 165 | * | 34,165 | 33,653 | 1.5 | |||||||||||||||||||||||||||||||||||||
| 373 | 390 | (4.4 | ) | – | – | – | 66 | 4 | * | 27,045 | 24,096 | 12.2 | ||||||||||||||||||||||||||||||||||||
| 1,620 | 1,526 | 6.2 | 17,417 | 15,526 | 12.2 | 21 | 4 | * | 63,794 | 61,526 | 3.7 | |||||||||||||||||||||||||||||||||||||
| 3,612 | 3,698 | (2.3 | ) | 22,543 | 20,072 | 12.3 | 666 | 1,133 | (41.2 | ) | 171,802 | 173,062 | (.7 | ) | ||||||||||||||||||||||||||||||||||
| 14 | – | * | – | – | – | 8,602 | 334 | * | 20,390 | 10,775 | 89.2 | |||||||||||||||||||||||||||||||||||||
| 3,626 | 3,698 | (1.9 | ) | 22,543 | 20,072 | 12.3 | 9,268 | 1,467 | * | 192,192 | 183,837 | 4.5 | ||||||||||||||||||||||||||||||||||||
| 1,517 | 1,512 | .3 | 2,346 | 2,348 | (.1 | ) | 416 | – | * | 9,006 | 8,484 | 6.2 | ||||||||||||||||||||||||||||||||||||
| 208 | 265 | (21.5 | ) | 967 | 904 | 7.0 | 134 | 5 | * | 3,182 | 2,873 | 10.8 | ||||||||||||||||||||||||||||||||||||
| 5,787 | 5,996 | (3.5 | ) | 27,245 | 24,259 | 12.3 | 74,998 | 57,845 | 29.7 | 283,056 | 265,579 | 6.6 | ||||||||||||||||||||||||||||||||||||
| 5,351 | 4,902 | 9.2 | 613 | 534 | 14.8 | 229 | 319 | (28.2 | ) | 39,223 | 36,800 | 6.6 | ||||||||||||||||||||||||||||||||||||
| 4,798 | 3,742 | 28.2 | 115 | 82 | 40.2 | 19 | 2 | * | 39,599 | 35,906 | 10.3 | |||||||||||||||||||||||||||||||||||||
| 14,104 | 7,391 | 90.8 | 23 | 18 | 27.8 | 236 | 139 | 69.8 | 59,748 | 41,701 | 43.3 | |||||||||||||||||||||||||||||||||||||
| 5,944 | 6,114 | (2.8 | ) | 1 | 1 | – | 517 | 3,189 | (83.8 | ) | 44,267 | 48,984 | (9.6 | ) | ||||||||||||||||||||||||||||||||||
| 30,197 | 22,149 | 36.3 | 752 | 635 | 18.4 | 1,001 | 3,649 | (72.6 | ) | 182,837 | 163,391 | 11.9 | ||||||||||||||||||||||||||||||||||||
| 2,111 | 2,068 | 2.1 | 5,308 | 4,736 | 12.1 | 6,358 | 7,403 | (14.1 | ) | 27,582 | 26,559 | 3.9 | ||||||||||||||||||||||||||||||||||||
|
|
25 |
Table of Contents
due to higher deposit volumes, partially offset by a decline in
the related margin benefit. Noninterest income decreased
$23 million (7.7 percent) in the third quarter and
$86 million (9.5 percent) in the first nine months of
2010, compared with the same periods of 2009, as low interest
rates negatively impacted money market investment fees and lower
money market fund balances led to a decline in account-level
fees.
Total noninterest expense increased $36 million
(15.9 percent) in the third quarter and $78 million
(11.2 percent) in the first nine months of 2010, compared
with the same periods of 2009. The increases in noninterest
expense were primarily due to higher total compensation and
employee benefits expense.
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 $215 million of the
Company’s net income in the third quarter and
$508 million in the first nine months of 2010, or increases
of $142 million and $291 million, respectively,
compared with the same periods of 2009. The increases were
primarily due to increases in total net revenue and decreases in
the provision for credit losses, partially offset by higher
noninterest expense.
Total net revenue increased $54 million (5.0 percent)
in the third quarter and $304 million (10.0 percent)
in the first nine months of 2010, compared with the same periods
of 2009. Net interest income, on a taxable-equivalent basis,
increased $32 million (10.6 percent) in the third
quarter and $164 million (19.3 percent) in the first
nine months of 2010, compared with the same periods 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, as well as reduced loan fees
from the implementation of the Credit Card Accountability,
Responsibility and Disclosure Act of 2009 legislation beginning
in the second quarter of 2010. Noninterest income increased
$22 million (2.8 percent) in the third quarter and
$140 million (6.4 percent) in the first nine months of
2010, compared with the same periods of 2009, driven by higher
transaction volumes across all products.
Total noninterest expense increased $16 million
(3.4 percent) in the third quarter and $144 million
(11.6 percent) in the first nine months of 2010, compared
with the same periods of 2009, driven by higher total
compensation, employee benefits and professional services
expense, partially offset by lower marketing and business
development expense. The provision for credit losses decreased
$187 million (37.9 percent) in the third quarter
and $308 million (21.4 percent) in the first nine
months of 2010, compared with the same periods of 2009, due
to a reduction in the reserve allocation.
As a percentage of average loans outstanding, net
charge-offs were 6.08 percent in the third quarter of 2010,
compared with 6.31 percent in the third quarter of 2009.
Treasury and
Corporate
Support
Treasury
and Corporate Support includes the Company’s investment
portfolios, covered commercial and commercial real estate
credit-impaired loans and related OREO, funding, 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
$260 million in the third quarter and $846 million in
the first nine months of 2010, compared with $211 million
in the third quarter and $393 million in the first nine
months of 2009.
Total net revenue increased $147 million
(53.6 percent) in the third quarter and $667 million
(95.8 percent) in the first nine months of 2010, compared
with the same periods of 2009. Net interest income, on a
taxable-equivalent basis, increased $128 million
(46.7 percent) in the third quarter and $543 million
(69.9 percent) in the first nine months of 2010, compared
with the same periods of 2009, reflecting the impact of the FBOP
acquisition, the current interest rate environment, wholesale
funding decisions and the Company’s asset/liability
position. Total noninterest income increased $19 million in
the third quarter of 2010, compared with the third quarter of
2009, primarily due to lower securities impairments, partially
offset by the impact of the third quarter of 2009 gain related
to the Company’s investment in Visa Inc. Total noninterest
income increased $124 million in the first nine months of
2010, compared with the same period of 2009, primarily due to
lower net securities losses, partially offset by a gain on a
corporate real estate transaction recognized in the first
quarter of 2009.
Total noninterest expense increased $66 million
(40.5 percent) in the third quarter and $89 million
(16.3 percent) in the first nine months of 2010, compared
with the same periods of 2009. The increases in noninterest
expense were driven by higher total compensation and employee
benefits expense, increased costs related to affordable housing
and other tax advantaged projects, and higher litigation-related
expenses. The increases in noninterest expense for the first
nine months of 2010, over the same period of 2009,
|
|
U.S. Bancorp |
Table of Contents
were partially offset by the FDIC special assessment recognized
in the second quarter of 2009.
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.
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.
The following table shows the Company’s calculation of
these measures:
|
September 30,
|
December 31,
|
|||||||
| (Dollars in Millions) | 2010 | 2009 | ||||||
|
Total equity
|
$ | 29,943 | $ | 26,661 | ||||
|
Preferred stock
|
(1,930) | (1,500) | ||||||
|
Noncontrolling interests
|
(792) | (698) | ||||||
|
Goodwill (net of deferred tax liability)
|
(8,429) | (8,482) | ||||||
|
Intangible assets, other than mortgage servicing rights
|
(1,434) | (1,657) | ||||||
|
Tangible common equity (a)
|
17,358 | 14,324 | ||||||
|
Tier 1 capital, determined in accordance with prescribed
regulatory requirements
|
24,908 | 22,610 | ||||||
|
Trust preferred securities
|
(3,949) | (4,524) | ||||||
|
Preferred stock
|
(1,930) | (1,500) | ||||||
|
Noncontrolling interests, less preferred stock not eligible for
Tier 1 capital
|
(694) | (692) | ||||||
|
Tier 1 common equity (b)
|
18,335 | 15,894 | ||||||
|
Total assets
|
290,654 | 281,176 | ||||||
|
Goodwill (net of deferred tax liability)
|
(8,429) | (8,482) | ||||||
|
Intangible assets, other than mortgage servicing rights
|
(1,434) | (1,657) | ||||||
|
Tangible assets (c)
|
280,791 | 271,037 | ||||||
|
Risk-weighted assets, determined in accordance with prescribed
regulatory requirements (d)
|
242,490 | 235,233 | ||||||
|
Ratios
|
||||||||
|
Tangible common equity to tangible assets (a)/(c)
|
6.2 | % | 5.3 | % | ||||
|
Tier 1 common equity to risk-weighted assets (b)/(d)
|
7.6 | 6.8 | ||||||
|
Tangible common equity to risk-weighted assets (a)/(d)
|
7.2 | 6.1 | ||||||
|
|
27 |
Table of Contents
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 GAAP
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
(This page intentionally left blank)
|
|
29 |
Table of Contents
U.S.
Bancorp
|
September 30,
|
December 31,
|
|||||||
| (Dollars in Millions) | 2010 | 2009 | ||||||
| (Unaudited) | ||||||||
|
Assets
|
||||||||
|
Cash and due from banks
|
$ | 4,470 | $ | 6,206 | ||||
|
Investment securities
|
||||||||
|
Held-to-maturity
(fair value $503 and $48, respectively)
|
557 | 47 | ||||||
|
Available-for-sale
|
48,406 | 44,721 | ||||||
|
Loans held for sale (included $8,198 and $4,327 of mortgage
loans carried at fair value, respectively)
|
8,438 | 4,772 | ||||||
|
Loans
|
||||||||
|
Commercial
|
47,627 | 48,792 | ||||||
|
Commercial real estate
|
34,318 | 34,093 | ||||||
|
Residential mortgages
|
28,587 | 26,056 | ||||||
|
Retail
|
65,047 | 63,955 | ||||||
|
Total loans, excluding covered loans
|
175,579 | 172,896 | ||||||
|
Covered loans
|
19,038 | 21,859 | ||||||
|
Total loans
|
194,617 | 194,755 | ||||||
|
Less allowance for loan losses
|
(5,321 | ) | (5,079 | ) | ||||
|
Net loans
|
189,296 | 189,676 | ||||||
|
Premises and equipment
|
2,304 | 2,263 | ||||||
|
Goodwill
|
9,024 | 9,011 | ||||||
|
Other intangible assets
|
2,856 | 3,406 | ||||||
|
Other assets
|
25,303 | 21,074 | ||||||
|
Total assets
|
$ | 290,654 | $ | 281,176 | ||||
|
Liabilities and Shareholders’ Equity
|
||||||||
|
Deposits
|
||||||||
|
Noninterest-bearing
|
$ | 40,750 | $ | 38,186 | ||||
|
Interest-bearing
|
118,863 | 115,135 | ||||||
|
Time deposits greater than $100,000
|
27,793 | 29,921 | ||||||
|
Total deposits
|
187,406 | 183,242 | ||||||
|
Short-term borrowings
|
34,341 | 31,312 | ||||||
|
Long-term debt
|
30,353 | 32,580 | ||||||
|
Other liabilities
|
8,611 | 7,381 | ||||||
|
Total liabilities
|
260,711 | 254,515 | ||||||
|
Shareholders’ equity
|
||||||||
|
Preferred stock
|
1,930 | 1,500 | ||||||
|
Common stock, par value $0.01 a share — authorized:
4,000,000,000 shares;
|
||||||||
|
issued: 9/30/10 and 12/31/09 —
2,125,725,742 shares
|
21 | 21 | ||||||
|
Capital surplus
|
8,310 | 8,319 | ||||||
|
Retained earnings
|
26,147 | 24,116 | ||||||
|
Less cost of common stock in treasury: 9/30/10 —
208,128,537 shares; 12/31/09 —
212,786,937 shares
|
(6,363 | ) | (6,509 | ) | ||||
|
Accumulated other comprehensive income (loss)
|
(894 | ) | (1,484 | ) | ||||
|
Total U.S. Bancorp shareholders’ equity
|
29,151 | 25,963 | ||||||
|
Noncontrolling interests
|
792 | 698 | ||||||
|
Total equity
|
29,943 | 26,661 | ||||||
|
Total liabilities and equity
|
$ | 290,654 | $ | 281,176 | ||||
See
Notes to Consolidated Financial Statements.
|
|
U.S. Bancorp |
Table of Contents
U.S. Bancorp
Consolidated
Statement of Income
|
Three Months
Ended
|
Nine Months Ended
|
|||||||||||||||
| (Dollars and Shares in Millions, Except Per Share Data) | September 30, | September 30, | ||||||||||||||
| (Unaudited) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
|
Interest Income
|
||||||||||||||||
|
Loans
|
$ | 2,560 | $ | 2,373 | $ | 7,580 | $ | 7,068 | ||||||||
|
Loans held for sale
|
71 | 87 | 162 | 221 | ||||||||||||
|
Investment securities
|
400 | 374 | 1,204 | 1,210 | ||||||||||||
|
Other interest income
|
46 | 23 | 119 | 65 | ||||||||||||
|
Total interest income
|
3,077 | 2,857 | 9,065 | 8,564 | ||||||||||||
|
Interest Expense
|
||||||||||||||||
|
Deposits
|
231 | 299 | 696 | 937 | ||||||||||||
|
Short-term borrowings
|
149 | 138 | 414 | 412 | ||||||||||||
|
Long-term debt
|
273 | 313 | 822 | 1,007 | ||||||||||||
|
Total interest expense
|
653 | 750 | 1,932 | 2,356 | ||||||||||||
|
Net interest income
|
2,424 | 2,107 | 7,133 | 6,208 | ||||||||||||
|
Provision for credit losses
|
995 | 1,456 | 3,444 | 4,169 | ||||||||||||
|
Net interest income after provision for credit losses
|
1,429 | 651 | 3,689 | 2,039 | ||||||||||||
|
Noninterest Income
|
||||||||||||||||
|
Credit and debit card revenue
|
274 | 267 | 798 | 782 | ||||||||||||
|
Corporate payment products revenue
|
191 | 181 | 537 | 503 | ||||||||||||
|
Merchant processing services
|
318 | 300 | 930 | 836 | ||||||||||||
|
ATM processing services
|
105 | 103 | 318 | 309 | ||||||||||||
|
Trust and investment management fees
|
267 | 293 | 798 | 891 | ||||||||||||
|
Deposit service charges
|
160 | 256 | 566 | 732 | ||||||||||||
|
Treasury management fees
|
139 | 141 | 421 | 420 | ||||||||||||
|
Commercial products revenue
|
197 | 157 | 563 | 430 | ||||||||||||
|
Mortgage banking revenue
|
310 | 276 | 753 | 817 | ||||||||||||
|
Investment products fees and commissions
|
27 | 27 | 82 | 82 | ||||||||||||
|
Securities gains (losses), net
|
||||||||||||||||
|
Realized gains (losses), net
|
9 | 1 | 21 | 126 | ||||||||||||
|
Total
other-than-temporary
impairment
|
(28 | ) | (148 | ) | (145 | ) | (860 | ) | ||||||||
|
Portion of
other-than-temporary
impairment recognized in other comprehensive income
|
10 | 71 | 60 | 441 | ||||||||||||
|
Total securities gains (losses), net
|
(9 | ) | (76 | ) | (64 | ) | (293 | ) | ||||||||
|
Other
|
131 | 168 | 436 | 427 | ||||||||||||
|
Total noninterest income
|
2,110 | 2,093 | 6,138 | 5,936 | ||||||||||||
|
Noninterest Expense
|
||||||||||||||||
|
Compensation
|
973 | 769 | 2,780 | 2,319 | ||||||||||||
|
Employee benefits
|
171 | 134 | 523 | 429 | ||||||||||||
|
Net occupancy and equipment
|
229 | 203 | 682 | 622 | ||||||||||||
|
Professional services
|
78 | 63 | 209 | 174 | ||||||||||||
|
Marketing and business development
|
108 | 137 | 254 | 273 | ||||||||||||
|
Technology and communications
|
186 | 175 | 557 | 487 | ||||||||||||
|
Postage, printing and supplies
|
74 | 72 | 223 | 218 | ||||||||||||
|
Other intangibles
|
90 | 94 | 278 | 280 | ||||||||||||
|
Other
|
476 | 406 | 1,392 | 1,251 | ||||||||||||
|
Total noninterest expense
|
2,385 | 2,053 | 6,898 | 6,053 | ||||||||||||
|
Income before income taxes
|
1,154 | 691 | 2,929 | 1,922 | ||||||||||||
|
Applicable income taxes
|
260 | 86 | 620 | 287 | ||||||||||||
|
Net income
|
894 | 605 | 2,309 | 1,635 | ||||||||||||
|
Net (income) loss attributable to noncontrolling interests
|
14 | (2 | ) | 34 | (32 | ) | ||||||||||
|
Net income attributable to U.S. Bancorp
|
$ | 908 | $ | 603 | $ | 2,343 | $ | 1,603 | ||||||||
|
Net income applicable to U.S. Bancorp common shareholders
|
$ | 871 | $ | 583 | $ | 2,381 | $ | 1,223 | ||||||||
|
Earnings per common share
|
$ | .46 | $ | .31 | $ | 1.25 | $ | .67 | ||||||||
|
Diluted earnings per common share
|
$ | .45 | $ | .30 | $ | 1.24 | $ | .66 | ||||||||
|
Dividends declared per common share
|
$ | .05 | $ | .05 | $ | .15 | $ | .15 | ||||||||
|
Average common shares outstanding
|
1,913 | 1,908 | 1,911 | 1,832 | ||||||||||||
|
Average diluted common shares outstanding
|
1,920 | 1,917 | 1,920 | 1,840 | ||||||||||||
See
Notes to Consolidated Financial Statements.
|
|
31 |
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 (Loss) | 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
|
1,603 | 1,603 | 32 | 1,635 | ||||||||||||||||||||||||||||||||||||
|
Changes in unrealized gains and losses on securities
available-for-sale
|
2,569 | 2,569 | 2,569 | |||||||||||||||||||||||||||||||||||||
|
Other-than-temporary
impairment not recognized in earnings on securities
available-for-sale
|
(441 | ) | (441 | ) | (441 | ) | ||||||||||||||||||||||||||||||||||
|
Unrealized gain on derivatives
|
375 | 375 | 375 | |||||||||||||||||||||||||||||||||||||
|
Foreign currency translation
|
25 | 25 | 25 | |||||||||||||||||||||||||||||||||||||
|
Reclassification for realized losses
|
297 | 297 | 297 | |||||||||||||||||||||||||||||||||||||
|
Income taxes
|
(1,074 | ) | (1,074 | ) | (1,074 | ) | ||||||||||||||||||||||||||||||||||
|
Total comprehensive income
|
3,354 | 32 | 3,386 | |||||||||||||||||||||||||||||||||||||
|
Redemption of preferred stock
|
(6,599 | ) | (6,599 | ) | (6,599 | ) | ||||||||||||||||||||||||||||||||||
|
Repurchase of common stock warrant
|
(139 | ) | (139 | ) | (139 | ) | ||||||||||||||||||||||||||||||||||
|
Preferred stock dividends and discount accretion
|
168 | (377 | ) | (209 | ) | (209 | ) | |||||||||||||||||||||||||||||||||
|
Common stock dividends
|
(279 | ) | (279 | ) | (279 | ) | ||||||||||||||||||||||||||||||||||
|
Issuance of common and treasury stock
|
157 | 1 | 2,561 | 129 | 2,691 | 2,691 | ||||||||||||||||||||||||||||||||||
|
Purchase of treasury stock
|
(4 | ) | (4 | ) | (4 | ) | ||||||||||||||||||||||||||||||||||
|
Net other changes in noncontrolling interests
|
– | (12 | ) | (12 | ) | |||||||||||||||||||||||||||||||||||
|
Distributions to noncontrolling interests
|
– | (44 | ) | (44 | ) | |||||||||||||||||||||||||||||||||||
|
Stock option and restricted stock grants
|
56 | 56 | 56 | |||||||||||||||||||||||||||||||||||||
|
Balance September 30, 2009
|
1,912 | $ | 1,500 | $ | 21 | $ | 8,308 | $ | 23,629 | $ | (6,534 | ) | $ | (1,753 | ) | $ | 25,171 | $ | 709 | $ | 25,880 | |||||||||||||||||||
|
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
|
(72 | ) | (1 | ) | (73 | ) | (16 | ) | (89 | ) | ||||||||||||||||||||||||||||||
|
Net income
|
2,343 | 2,343 | (34 | ) | 2,309 | |||||||||||||||||||||||||||||||||||
|
Changes in unrealized gains and losses on securities
available-for-sale
|
1,265 | 1,265 | 1,265 | |||||||||||||||||||||||||||||||||||||
|
Other-than-temporary
impairment not recognized in earnings on securities
available-for-sale
|
(60 | ) | (60 | ) | (60 | ) | ||||||||||||||||||||||||||||||||||
|
Unrealized loss on derivatives
|
(331 | ) | (331 | ) | (331 | ) | ||||||||||||||||||||||||||||||||||
|
Foreign currency translation
|
16 | 16 | 16 | |||||||||||||||||||||||||||||||||||||
|
Reclassification for realized losses
|
65 | 65 | 65 | |||||||||||||||||||||||||||||||||||||
|
Income taxes
|
(364 | ) | (364 | ) | (364 | ) | ||||||||||||||||||||||||||||||||||
|
Total comprehensive income
|
2,934 | (34 | ) | 2,900 | ||||||||||||||||||||||||||||||||||||
|
Preferred stock dividends
|
(70 | ) | (70 | ) | (70 | ) | ||||||||||||||||||||||||||||||||||
|
Common stock dividends
|
(288 | ) | (288 | ) | (288 | ) | ||||||||||||||||||||||||||||||||||
|
Issuance of preferred stock
|
430 | 10 | 118 | 558 | 558 | |||||||||||||||||||||||||||||||||||
|
Issuance of common and treasury stock
|
6 | (103 | ) | 162 | 59 | 59 | ||||||||||||||||||||||||||||||||||
|
Purchase of treasury stock
|
(1 | ) | (16 | ) | (16 | ) | (16 | ) | ||||||||||||||||||||||||||||||||
|
Distributions to noncontrolling interests
|
– | (57 | ) | (57 | ) | |||||||||||||||||||||||||||||||||||
|
Net other changes in noncontrolling
interests |
– | 201 | 201 | |||||||||||||||||||||||||||||||||||||
|
Stock option and restricted stock grants
|
84 | 84 | 84 | |||||||||||||||||||||||||||||||||||||
|
Balance September 30, 2010
|
1,918 | $ | 1,930 | $ | 21 | $ | 8,310 | $ | 26,147 | $ | (6,363 | ) | $ | (894 | ) | $ | 29,151 | $ | 792 | $ | 29,943 | |||||||||||||||||||
See
Notes to Consolidated Financial Statements.
|
|
U.S. Bancorp |
Table of Contents
U.S. Bancorp
Consolidated
Statement of Cash Flows
|
Nine Months Ended
|
||||||||
|
(Dollars in
Millions)
|
September 30, | |||||||
| (Unaudited) | 2010 | 2009 | ||||||
|
Operating Activities
|
||||||||
|
Net cash provided by operating activities
|
$2,806 | $4,220 | ||||||
|
Investing Activities
|
||||||||
|
Proceeds from sales of
available-for-sale
investment securities
|
1,113 | 4,622 | ||||||
|
Proceeds from maturities of investment securities
|
10,944 | 5,743 | ||||||
|
Purchases of investment securities
|
(14,429 | ) | (10,220 | ) | ||||
|
Net (increase) decrease in loans outstanding
|
(2,720 | ) | 113 | |||||
|
Proceeds from sales of loans
|
1,365 | 2,226 | ||||||
|
Purchases of loans
|
(3,669 | ) | (3,598 | ) | ||||
|
Acquisitions, net of cash acquired
|
832 | 220 | ||||||
|
Other, net
|
(1,151 | ) | 839 | |||||
|
Net cash used in investing activities
|
(7,715 | ) | (55 | ) | ||||
|
Financing Activities
|
||||||||
|
Net increase in deposits
|
3,681 | 10,179 | ||||||
|
Net increase (decrease) in short-term borrowings
|
2,376 | (5,817 | ) | |||||
|
Proceeds from issuance of long-term debt
|
5,349 | 5,032 | ||||||
|
Principal payments or redemption of long-term debt
|
(7,942 | ) | (10,167 | ) | ||||
|
Fees paid on exchange of income trust securities for perpetual
preferred stock
|
(4 | ) | – | |||||
|
Proceeds from issuance of common stock
|
56 | 2,688 | ||||||
|
Redemption of preferred stock
|
– | (6,599 | ) | |||||
|
Repurchase of common stock warrant
|
– | (139 | ) | |||||
|
Cash dividends paid on preferred stock
|
(56 | ) | (256 | ) | ||||
|
Cash dividends paid on common stock
|
(287 | ) | (929 | ) | ||||
|
Net cash provided by (used in) financing activities
|
3,173 | (6,008 | ) | |||||
|
Change in cash and due from banks
|
(1,736 | ) | (1,843 | ) | ||||
|
Cash and due from banks at beginning of period
|
6,206 | 6,859 | ||||||
|
Cash and due from banks at end of period
|
$4,470 | $5,016 | ||||||
See
Notes to Consolidated Financial Statements.
|
|
33 |
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 concept of qualifying special-purpose
entities 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:
| September 30, 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
|
$ | 63 | $ | – | $ | – | $ | – | $ | 63 | $ | – | $ | – | $ | – | $ | – | $ | – | ||||||||||||||||||||||||||||||
|
Mortgage-backed securities
|
||||||||||||||||||||||||||||||||||||||||||||||||||
|
Residential
|
||||||||||||||||||||||||||||||||||||||||||||||||||
|
Agency
|
4 | – | – | – | 4 | 4 | – | – | – | 4 | ||||||||||||||||||||||||||||||||||||||||
|
Non-agency
|
||||||||||||||||||||||||||||||||||||||||||||||||||
|
Non-prime
|
3 | – | – | – | 3 | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||
|
Commercial
|
10 | – | – | (6 | ) | 4 | – | – | – | – | – | |||||||||||||||||||||||||||||||||||||||
|
Asset-backed securities
|
||||||||||||||||||||||||||||||||||||||||||||||||||
|
Collateralized debt obligations/Collaterized loan obligations
|
183 | 11 | – | (22 | ) | 172 | – | – | – | – | – | |||||||||||||||||||||||||||||||||||||||
|
Other
|
128 | – | (2 | ) | (6 | ) | 120 | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||||
|
Obligations of state and political subdivisions
|
29 | 2 | – | (1 | ) | 30 | 32 | 2 | – | (1 | ) | 33 | ||||||||||||||||||||||||||||||||||||||
|
Other debt securities
|
137 | – | – | (30 | ) | 107 | 11 | – | – | – | 11 | |||||||||||||||||||||||||||||||||||||||
|
Total
held-to-maturity
|
$ | 557 | $ | 13 | $ | (2 | ) | $ | (65 | ) | $ | 503 | $ | 47 | $ | 2 | $ | – | $ | (1 | ) | $ | 48 | |||||||||||||||||||||||||||
|
Available-for-sale
(b)
|
||||||||||||||||||||||||||||||||||||||||||||||||||
|
U.S. Treasury and agencies
|
$ | 1,543 | $ | 13 | $ | – | $ | – | $ | 1,556 | $ | 3,415 | $ | 10 | $ | – | $ | (21 | ) | $ | 3,404 | |||||||||||||||||||||||||||||
|
Mortgage-backed securities
|
||||||||||||||||||||||||||||||||||||||||||||||||||
|
Residential
|
||||||||||||||||||||||||||||||||||||||||||||||||||
|
Agency
|
33,834 | 982 | – | (3 | ) | 34,813 | 29,288 | 501 | – | (47 | ) | 29,742 | ||||||||||||||||||||||||||||||||||||||
|
Non-agency
|
||||||||||||||||||||||||||||||||||||||||||||||||||
|
Prime (c)
|
1,292 | 13 | (92 | ) | (44 | ) | 1,169 | 1,624 | 8 | (110 | ) | (93 | ) | 1,429 | ||||||||||||||||||||||||||||||||||||
|
Non-prime
|
1,233 | 10 | (269 | ) | (29 | ) | 945 | 1,359 | 11 | (297 | ) | (105 | ) | 968 | ||||||||||||||||||||||||||||||||||||
|
Commercial
|
48 | 2 | – | – | 50 | 14 | – | (1 | ) | – | 13 | |||||||||||||||||||||||||||||||||||||||
|
Asset-backed securities
|
||||||||||||||||||||||||||||||||||||||||||||||||||
|
Collateralized debt obligations/Collaterized loan obligations
|
219 | 27 | (3 | ) | – | 243 | 199 | 11 | (5 | ) | – | 205 | ||||||||||||||||||||||||||||||||||||||
|
Other
|
709 | 21 | (4 | ) | (9 | ) | 717 | 360 | 12 | (5 | ) | (10 | ) | 357 | ||||||||||||||||||||||||||||||||||||
|
Obligations of state and political subdivisions
|
6,847 | 145 | – | (35 | ) | 6,957 | 6,822 | 30 | – | (159 | ) | 6,693 | ||||||||||||||||||||||||||||||||||||||
|
Obligations of foreign governments
|
6 | – | – | – | 6 | 6 | – | – | – | 6 | ||||||||||||||||||||||||||||||||||||||||
|
Corporate debt securities
|
1,153 | – | – | (147 | ) | 1,006 | 1,179 | – | – | (301 | ) | 878 | ||||||||||||||||||||||||||||||||||||||
|
Perpetual preferred securities
|
482 | 46 | – | (53 | ) | 475 | 483 | 30 | – | (90 | ) | 423 | ||||||||||||||||||||||||||||||||||||||
|
Other investments (d)
|
407 | 63 | – | (1 | ) | 469 | 607 | 9 | – | (13 | ) | 603 | ||||||||||||||||||||||||||||||||||||||
|
Total
available-for-sale
|
$ | 47,773 | $ | 1,322 | $ | (368 | ) | $ | (321 | ) | $ | 48,406 | $ | 45,356 | $ | 622 | $ | (418 | ) | $ | (839 | ) | $ | 44,721 | ||||||||||||||||||||||||||
| (a) | Held-to-maturity securities are carried at historical cost adjusted for amortization of premiums and 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 Federal Deposit Insurance Corporation (“FDIC”) with a fair value of $277 million and $231 million at September 30, 2010 and December 31, 2009, respectively . |
The weighted-average maturity of the
available-for-sale
investment securities was 4.9 years at September 30,
2010, compared with 7.1 years at December 31, 2009.
The corresponding weighted-average yields were 3.66 percent
and 4.00 percent, respectively. The weighted-average
maturity of the
held-to-maturity
investment securities was 5.9 years at September 30,
2010, and 8.4 years at December 31, 2009. The
corresponding weighted-average yields were 1.35 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 September 30, 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 $29.8 billion at September 30,
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
|
|
35 |
Table of Contents
pledge the securities and which were collateralized by
securities with a carrying amount of $8.7 billion at
September 30, 2010 and $8.9 billion at
December 31, 2009.
The following table provides information about the amount of
interest income from taxable and non-taxable investment
securities:
|
Three Months
Ended
|
Nine Months Ended
|
||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| (Dollars in Millions) | 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Taxable
|
$ | 323 | $ | 300 | $ | 973 | $ | 984 | |||||||||
|
Non-taxable
|
77 | 74 | 231 | 226 | |||||||||||||
|
Total interest income from investment securities
|
$ | 400 | $ | 374 | $ | 1,204 | $ | 1,210 | |||||||||
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
|
Nine Months Ended
|
||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| (Dollars in Millions) | 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Realized gains
|
$ | 9 | $ | 1 | $ | 21 | $ | 128 | |||||||||
|
Realized losses
|
– | – | – | (2 | ) | ||||||||||||
|
Net realized gains (losses)
|
$ | 9 | $ | 1 | $ | 21 | $ | 126 | |||||||||
|
Income tax (benefit) on realized gains (losses)
|
$ | 4 | $ | – | $ | 8 | $ | 48 | |||||||||
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 the 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 the SIV-related 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 $806 million and $314 million, respectively,
at September 30, 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
|
Nine Months Ended
|
||||||||||||||||
| September, 30, | September 30, | ||||||||||||||||
| (Dollars in Millions) | 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Balance at beginning of period
|
$ | 302 | $ | 174 | $ | 292 | $ | 349 | |||||||||
|
Impact of
other-than-temporary
impairment accounting change
|
– | – | – | (124 | ) | ||||||||||||
|
Adjusted balance at beginning of period
|
302 | 174 | 292 | 225 | |||||||||||||
|
Additions (a)
|
66 | – | 66 | – | |||||||||||||
|
Disposals (a)
|
(50 | ) | – | (50 | ) | – | |||||||||||
|
Accretion
|
(8 | ) | (1 | ) | (23 | ) | (3 | ) | |||||||||
|
Other (b)
|
(1 | ) | 3 | 24 | (46 | ) | |||||||||||
|
Balance at end of period
|
$ | 309 | $ | 176 | $ | 309 | $ | 176 | |||||||||
| (a) | Additions and disposals resulted from exchange of certain SIV securities for the underlying investment securities in the third quarter of 2010. | |
| (b) | Primarily 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
September 30
|
Recorded in
|
Other Gains
|
Recorded in
|
Other Gains
|
|||||||||||||||||||||
| (Dollars in Millions) | Earnings | (Losses) | Total | Earnings | (Losses) | Total | |||||||||||||||||||
|
Available-for-sale
|
|||||||||||||||||||||||||
|
Mortgage-backed securities
|
|||||||||||||||||||||||||
|
Non-agency residential
|
|||||||||||||||||||||||||
|
Prime (a)
|
$ | (1 | ) | $ | (1 | ) | $ | (2 | ) | $ | (1 | ) | $ | (23 | ) | $ | (24 | ) | |||||||
|
Non-prime
|
(13 | ) | (11 | ) | (24 | ) | (41 | ) | (45 | ) | (86 | ) | |||||||||||||
|
Asset-backed securities
|
|||||||||||||||||||||||||
|
Collateralized debt obligations/Collaterized loan obligations
|
(1 | ) | – | (1 | ) | (6 | ) | (7 | ) | (13 | ) | ||||||||||||||
|
Other
|
(2 | ) | 2 | – | (9 | ) | 4 | (5 | ) | ||||||||||||||||
|
Perpetual preferred securities
|
(1 | ) | (1 | ) | (16 | ) | – | (16 | ) | ||||||||||||||||
|
Corporate debt securities
|
– | – | – | (4 | ) | – | (4 | ) | |||||||||||||||||
|
Total
available-for-sale
|
$ | (18 | ) | $ | (10 | ) | $ | (28 | ) | $ | (77 | ) | $ | (71 | ) | $ | (148 | ) | |||||||
| 2010 | 2009 | ||||||||||||||||||||||||
|
Losses
|
Losses
|
||||||||||||||||||||||||
|
Nine Months Ended
September 30
|
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)
|
$ | (4 | ) | $ | (11 | ) | $ | (15 | ) | $ | (9 | ) | $ | (152 | ) | $ | (161 | ) | |||||||
|
Non-prime
|
(59 | ) | (54 | ) | (113 | ) | (118 | ) | (244 | ) | (362 | ) | |||||||||||||
|
Commercial
|
– | – | – | (1 | ) | (1 | ) | (2 | ) | ||||||||||||||||
|
Asset-backed securities
|
|||||||||||||||||||||||||
|
Collateralized debt obligations/Collaterized loan obligations
|
(6 | ) | – | (6 | ) | (11 | ) | (7 | ) | (18 | ) | ||||||||||||||
|
Other
|
(12 | ) | 4 | (8 | ) | (50 | ) | (37 | ) | (87 | ) | ||||||||||||||
|
Perpetual preferred securities
|
(1 | ) | – | (1 | ) | (223 | ) | – | (223 | ) | |||||||||||||||
|
Corporate debt securities
|
– | – | – | (7 | ) | – | (7 | ) | |||||||||||||||||
|
Other debt securities
|
(1 | ) | 1 | – | – | – | – | ||||||||||||||||||
|
Total
available-for-sale
|
$ | (83 | ) | $ | (60 | ) | $ | (143 | ) | $ | (419 | ) | $ | (441 | ) | $ | (860 | ) | |||||||
| (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 September 30, 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 | % | 18 | % | 13 | % | 1 | % | 12 | % | 6 | % | |||||||||||||
|
Lifetime probability of default rates
|
– | 9 | 2 | 2 | 20 | 9 | |||||||||||||||||||
|
Lifetime loss severity rates
|
38 | 100 | 49 | 37 | 70 | 57 | |||||||||||||||||||
|
|
37 |
Table of Contents
Changes in the credit losses on non-agency mortgage-backed
securities, including SIV-related investments, and other debt
securities are summarized as follows:
|
Three Months
Ended
|
Nine Months Ended
|
||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||
| (Dollars in Millions) | 2010 | 2009 | 2010 | 2009 | |||||||||||||||
|
Balance at beginning of period
|
$ | 382 | $ | 400 | $ | 335 | $ | 299 | |||||||||||
|
Credit losses on securities not previously considered
other-than-temporarily
impaired
|
3 | 17 | 18 | 92 | |||||||||||||||
|
Decreases in expected cash flows on securities for which
other-than-temporary
impairment was previously recognized
|
15 | 44 | 67 | 104 | |||||||||||||||
|
Increases in expected cash flows
|
(4 | ) | (2 | ) | (17 | ) | (29 | ) | |||||||||||
|
Realized losses
|
(19 | ) | (3 | ) | (44 | ) | (10 | ) | |||||||||||
|
Credit losses on security sales and securities expected to be
sold
|
– | (1 | ) | – | (1 | ) | |||||||||||||
|
Other
|
– | – | 18 | – | |||||||||||||||
|
Balance at end of period
|
$ | 377 | $ | 455 | $ | 377 | $ | 455 | |||||||||||
At September 30, 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 September 30,
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
|
$ | – | $ | – | $ | 3 | $ | – | $ | 3 | $ | – | ||||||||||||||
|
Commercial
|
– | – | 4 | (6 | ) | 4 | (6 | ) | ||||||||||||||||||
|
Asset-backed securities
|
||||||||||||||||||||||||||
|
Collateralized debt obligations/Collaterized loan obligations
|
– | – | 85 | (22 | ) | 85 | (22 | ) | ||||||||||||||||||
|
Other
|
– | – | 17 | (8 | ) | 17 | (8 | ) | ||||||||||||||||||
|
Obligations of state and political subdivisions
|
– | – | 10 | (1 | ) | 10 | (1 | ) | ||||||||||||||||||
|
Corporate debt securities
|
– | – | 99 | (30 | ) | 99 | (30 | ) | ||||||||||||||||||
|
Total
held-to-maturity
|
$ | – | $ | – | $ | 218 | $ | (67 | ) | $ | 218 | $ | (67 | ) | ||||||||||||
|
Available-for-sale
|
||||||||||||||||||||||||||
|
U.S. Treasury and agencies
|
$ | – | $ | – | $ | 1 | $ | – | $ | 1 | $ | – | ||||||||||||||
|
Mortgage-backed securities
|
||||||||||||||||||||||||||
|
Residential
|
||||||||||||||||||||||||||
|
Agency
|
3,558 | (3 | ) | 57 | – | 3,615 | (3 | ) | ||||||||||||||||||
|
Non-agency
|
||||||||||||||||||||||||||
|
Prime (a)
|
3 | – | 1,023 | (136 | ) | 1,026 | (136 | ) | ||||||||||||||||||
|
Non-prime
|
72 | (9 | ) | 754 | (289 | ) | 826 | (298 | ) | |||||||||||||||||
|
Commercial
|
5 | – | 3 | – | 8 | – | ||||||||||||||||||||
|
Asset-backed securities
|
||||||||||||||||||||||||||
|
Collateralized debt obligations/Collaterized loan obligations
|
23 | (1 | ) | 10 | (2 | ) | 33 | (3 | ) | |||||||||||||||||
|
Other
|
117 | (1 | ) | 27 | (12 | ) | 144 | (13 | ) | |||||||||||||||||
|
Obligations of state and political subdivisions
|
163 | (1 | ) | 1,147 | (34 | ) | 1,310 | (35 | ) | |||||||||||||||||
|
Obligations of foreign governments
|
6 | – | – | – | 6 | – | ||||||||||||||||||||
|
Corporate debt securities
|
– | – | 971 | (147 | ) | 971 | (147 | ) | ||||||||||||||||||
|
Perpetual preferred securities
|
49 | (1 | ) | 294 | (52 | ) | 343 | (53 | ) | |||||||||||||||||
|
Other investments
|
– | – | 4 | (1 | ) | 4 | (1 | ) | ||||||||||||||||||
|
Total
available-for-sale
|
$ | 3,996 | $ | (16 | ) | $ | 4,291 | $ | (673 | ) | $ | 8,287 | $ | (689 | ) | |||||||||||
| (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 does not consider these unrealized losses to be
credit-related. These unrealized losses primarily relate to
changes in interest rates and market spreads subsequent to
purchase. A substantial portion of securities that
|
|
U.S. Bancorp |
Table of Contents
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 September 30, 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.
Note 4 Loans
The composition of the loan portfolio was as follows:
| September 30, 2010 | December 31, 2009 | ||||||||||||||||||
|
Percent
|
Percent
|
||||||||||||||||||
| (Dollars in Millions) | Amount | of Total | Amount | of Total | |||||||||||||||
|
Commercial
|
|||||||||||||||||||
|
Commercial
|
$ | 41,565 | 21.4 | % | $ | 42,255 | 21.7 | % | |||||||||||
|
Lease financing
|
6,062 | 3.1 | 6,537 | 3.4 | |||||||||||||||
|
Total commercial
|
47,627 | 24.5 | 48,792 | 25.1 | |||||||||||||||
|
Commercial real estate
|
|||||||||||||||||||
|
Commercial mortgages
|
26,421 | 13.6 | 25,306 | 13.0 | |||||||||||||||
|
Construction and development
|
7,897 | 4.0 | 8,787 | 4.5 | |||||||||||||||
|
Total commercial real estate
|
34,318 | 17.6 | 34,093 | 17.5 | |||||||||||||||
|
Residential mortgages
|
|||||||||||||||||||
|
Residential mortgages
|
22,816 | 11.7 | 20,581 | 10.6 | |||||||||||||||
|
Home equity loans, first liens
|
5,771 | 3.0 | 5,475 | 2.8 | |||||||||||||||
|
Total residential mortgages
|
28,587 | 14.7 | 26,056 | 13.4 | |||||||||||||||
|
Retail
|
|||||||||||||||||||
|
Credit card
|
16,490 | 8.5 | 16,814 | 8.6 | |||||||||||||||
|
Retail leasing
|
4,334 | 2.2 | 4,568 | 2.3 | |||||||||||||||
|
Home equity and second mortgages
|
19,222 | 9.9 | 19,439 | 10.0 | |||||||||||||||
|
Other retail
|
|||||||||||||||||||
|
Revolving credit
|
3,488 | 1.8 | 3,506 | 1.8 | |||||||||||||||
|
Installment
|
5,630 | 2.9 | 5,455 | 2.8 | |||||||||||||||
|
Automobile
|
10,671 | 5.5 | 9,544 | 4.9 | |||||||||||||||
|
Student
|
5,212 | 2.6 | 4,629 | 2.4 | |||||||||||||||
|
Total other retail
|
25,001 | 12.8 | 23,134 | 11.9 | |||||||||||||||
|
Total retail
|
65,047 | 33.4 | 63,955 | 32.8 | |||||||||||||||
|
Total loans, excluding covered loans
|
175,579 | 90.2 | 172,896 | 88.8 | |||||||||||||||
|
Covered loans
|
19,038 | 9.8 | 21,859 | 11.2 | |||||||||||||||
|
Total loans
|
$ | 194,617 | 100.0 | % | $ | 194,755 | 100.0 | % | |||||||||||
The Company had loans of $60.7 billion at
September 30, 2010, and $55.6 billion at
December 31, 2009, pledged at the Federal Home Loan Bank,
and loans of $44.3 billion at September 30, 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
September 30, 2010, and December 31, 2009. In
accordance with applicable authoritative accounting guidance
effective for the Company 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
$3.5 billion at September 30, 2010 and
|
|
39 |
Table of Contents
$3.9 billion at 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:
| September 30, 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
|
$ | 70 | $ | 295 | $ | – | $ | 365 | $ | 86 | $ | 443 | $ | – | $ | 529 | |||||||||||||||||||||
|
Commercial real estate loans
|
2,357 | 6,311 | – | 8,668 | 3,035 | 6,724 | – | 9,759 | |||||||||||||||||||||||||||||
|
Residential mortgage loans
|
3,833 | 1,717 | – | 5,550 | 4,712 | 1,918 | – | 6,630 | |||||||||||||||||||||||||||||
|
Retail loans
|
– | 953 | – | 953 | 30 | 978 | – | 1,008 | |||||||||||||||||||||||||||||
|
Losses reimbursable by the FDIC
|
– | – | 3,502 | 3,502 | – | – | 3,933 | 3,933 | |||||||||||||||||||||||||||||
|
Covered loans
|
6,260 | 9,276 | 3,502 | 19,038 | 7,863 | 10,063 | 3,933 | 21,859 | |||||||||||||||||||||||||||||
|
Foreclosed real estate
|
– | – | 679 | 679 | – | – | 653 | 653 | |||||||||||||||||||||||||||||
|
Total covered assets
|
$ | 6,260 | $ | 9,276 | $ | 4,181 | $ | 19,717 | $ | 7,863 | $ | 10,063 | $ | 4,586 | $ | 22,512 | |||||||||||||||||||||
At September 30, 2010, $.6 billion of the purchased
impaired loans included in covered loans were classified as
nonperforming assets, compared with $1.1 billion at
December 31, 2009, 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.
Changes in the accretable balance for purchased impaired loans
for the Downey Savings and Loan Association, F.A. PFF Bank and
Trust, and First Bank of Oak Park Corporation, transactions were
as follows:
|
Three Months
Ended
|
Nine Months Ended
|
||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| (Dollars in Millions) | 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Balance at beginning of period
|
$ | 2,749 | $ | 2,074 | $ | 2,845 | $ | 2,719 | |||||||||
|
Accretion
|
(103 | ) | (82 | ) | (308 | ) | (265 | ) | |||||||||
|
Disposals
|
(2 | ) | (3 | ) | (20 | ) | (50 | ) | |||||||||
|
Reclassifications (to)/from nonaccretable difference
|
156 | 94 | 316 | (139 | ) | ||||||||||||
|
Other
|
(4 | ) | (17 | ) | (37 | ) | (199 | ) | |||||||||
|
Balance at end of period
|
$ | 2,796 | $ | 2,066 | $ | 2,796 | $ | 2,066 | |||||||||
Net gains on the sale of loans of $105 million and $214 million
for the three months ended September 30, 2010 and 2009,
respectively, and $308 million and $583 million for the nine
months ended September 30, 2010 and 2009, respectively,
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, are 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
|
|
U.S. Bancorp |
Table of Contents
depends on the previous carrying amount of the transferred
financial assets and the consideration received and any
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 a $9 million decrease, which represents the recognition
of noncontrolling interests in the consolidated VIEs. At
September 30, 2010, approximately $3.1 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
an $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 September 30, 2010, $.5 billion
of the
held-to-maturity
investment securities on the Company’s consolidated balance
sheet related to the conduit.
The Company also sponsors a municipal bond securities tender
option bond program. The Company controls the activities of the
program’s entities, is entitled to the residual returns and
provides credit and liquidity arrangements to the program. As a
result, the Company has consolidated the program’s entities
since its inception. At September 30, 2010,
$5.6 billion of
available-for-sale
securities and $5.7 billion of short-term borrowings on the
Company’s consolidated balance sheet were related to the
tender option bond program, unchanged from December 31,
2009.
The Company is not required to consolidate other VIEs in which
it has concluded it does not have a controlling financial
interest, and thus is not the primary beneficiary. In such
cases, the Company does not have both the power to direct the
entities’ most significant activities and the obligation to
absorb losses or right to receive benefits that could
potentially be significant to the VIEs. The Company’s
investments in unconsolidated VIEs ranged from less than
$1 million to $43 million, with an aggregate amount of
approximately $2.1 billion at September 30, 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 are remote, the Company’s maximum exposure to
these unconsolidated VIEs, including any tax implications, was
approximately $5.0 billion at September 30, 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.
|
|
41 |
Table of Contents
Note 6 Mortgage Servicing Rights
The Company serviced $165.9 billion of residential mortgage
loans for others at September 30, 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 $1 million and $67 million
for the three months ended September 30, 2010, and 2009,
respectively, and a net gain of $98 million and
$114 million for the nine months ended September 30,
2010 and 2009, respectively. Loan servicing fees, not including
valuation changes included in mortgage banking revenue, were
$154 million and $131 million for the three months
ended September 30, 2010 and 2009, respectively, and
$439 million and $374 million for the nine months
ended September 30, 2010 and 2009, respectively.
Changes in fair value of capitalized MSRs are summarized as
follows:
|
Three Months
Ended
|
Nine Months Ended
|
||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||
| (Dollars in Millions) | 2010 | 2009 | 2010 | 2009 | |||||||||||||||
|
Balance at beginning of period
|
$ | 1,543 | $ | 1,482 | $ | 1,749 | $ | 1,194 | |||||||||||
|
Rights purchased
|
10 | 16 | 48 | 91 | |||||||||||||||
|
Rights capitalized
|
149 | 254 | 398 | 686 | |||||||||||||||
|
Changes in fair value of MSRs:
|
|||||||||||||||||||
|
Due to change in valuation assumptions (a)
|
(186 | ) | (118 | ) | (536 | ) | (122 | ) | |||||||||||
|
Other changes in fair value (b)
|
(94 | ) | (80 | ) | (237 | ) | (295 | ) | |||||||||||
|
Balance at end of period
|
$ | 1,422 | $ | 1,554 | $ | 1,422 | $ | 1,554 | |||||||||||
| (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 September 30, 2010 was as follows:
| Down Scenario | Up Scenario | ||||||||||||||||||
| (Dollars in Millions) | 50 bps | 25 bps | 25 bps | 50 bps | |||||||||||||||
|
Net fair value
|
$ | 7 | $ | 1 | $ | (1 | ) | $ | (2 | ) | |||||||||
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 September 30, 2010 was as follows:
| (Dollars in Millions) | MRBP | Government | Conventional | Total | |||||||||||||||||
|
Servicing portfolio
|
$ | 12,531 | $ | 26,969 | $ | 126,438 | $ | 165,938 | |||||||||||||
|
Fair value
|
$ | 162 | $ | 273 | $ | 987 | $ | 1,422 | |||||||||||||
|
Value (bps) (a)
|
129 | 101 | 78 | 86 | |||||||||||||||||
|
Weighted-average servicing fees (bps)
|
40 | 39 | 31 | 33 | |||||||||||||||||
|
Multiple (value/weighted-average servicing fees)
|
3.23 | 2.59 | 2.52 | 2.61 | |||||||||||||||||
|
Weighted-average note rate
|
5.82 | % | 5.48 | % | 5.39 | % | 5.44 | % | |||||||||||||
|
Age (in years)
|
4.1 | 2.2 | 2.8 | 2.8 | |||||||||||||||||
|
Expected life (in years)
|
6.7 | 3.8 | 3.7 | 4.0 | |||||||||||||||||
|
Discount rate
|
11.9 | % | 11.4 | % | 10.4 | % | 10.7 | % | |||||||||||||
| (a) | Value is calculated as fair value divided by the servicing portfolio. |
|
|
U.S. Bancorp |
Table of Contents
Note 7 Preferred Stock
At September 30, 2010 and December 31, 2009, the
Company had authority to issue 50 million shares of
preferred stock. The number of shares issued and outstanding and
the carrying amount of each outstanding series of the
Company’s preferred stock was as follows:
| September 30, 2010 | December 31, 2009 | ||||||||||||||||||||||||||||||||||||
|
Shares Issued
|
Liquidation
|
Carrying
|
Shares Issued
|
Liquidation
|
Carrying
|
||||||||||||||||||||||||||||||||
| (Dollars in Millions) | and Outstanding | Preference | Discount | Amount | and Outstanding | Preference | Discount | Amount | |||||||||||||||||||||||||||||
|
Series A
|
5,746 | $ | 575 | $ | 145 | $ | 430 | – | $ | – | $ | – | $ | – | |||||||||||||||||||||||
|
Series B
|
40,000 | 1,000 | – | 1,000 | 40,000 | 1,000 | – | 1,000 | |||||||||||||||||||||||||||||
|
Series D
|
20,000 | 500 | – | 500 | 20,000 | 500 | – | 500 | |||||||||||||||||||||||||||||
|
Total preferred stock (a)
|
65,746 | $ | 2,075 | $ | 145 | $ | 1,930 | 60,000 | $ | 1,500 | $ | – | $ | 1,500 | |||||||||||||||||||||||
| (a) | The par value of all shares issued and outstanding at September 30, 2010 and December 31, 2009, was $1.00 a share. |
On June 10, 2010, the Company exchanged depositary shares
representing an ownership interest in 5,746 shares of
Series A Non-Cumulative Perpetual Preferred Stock with a
liquidation preference of $100,000 per share (the
“Series A Preferred Stock”) for approximately
46 percent of the outstanding Income Trust Securities
(“ITS”) issued by USB Capital IX to third party
investors, retired a pro-rata portion of the related junior
subordinated debentures and cancelled a pro-rata portion of the
related stock purchase contracts. The Series A Preferred
Stock has no stated maturity and will not be subject to any
sinking fund or other obligation of the Company. Dividends, if
declared, will accrue and be payable semi-annually, in arrears,
at a rate per annum equal to 7.189 percent through a
specified stock purchase date for the remaining untendered ITS
expected to be April 15, 2011, and thereafter, payable
quarterly, at a rate per annum equal to the greater of
three-month LIBOR plus 1.02 percent or 3.50 percent.
The Series A Preferred Stock is redeemable at the
Company’s option subsequent to the stock purchase date,
subject to prior approval by the Federal Reserve Board.
For further information on junior subordinated debentures and
preferred stock, refer to Notes 14 and 15, respectively, in
the Company’s Annual Report on
Form 10-K
for the year ended December 31, 2009.
Note 8 Earnings Per Share
The components of earnings per share were:
|
Three Months
Ended
|
Nine Months Ended
|
||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||
| (Dollars and Shares in Millions, Except Per Share Data) | 2010 | 2009 | 2010 | 2009 | |||||||||||||||
|
Net income attributable to U.S. Bancorp
|
$ | 908 | $ | 603 | $ | 2,343 | $ | 1,603 | |||||||||||
|
Preferred dividends
|
(33 | ) | (19 | ) | (70 | ) | (209 | ) | |||||||||||
|
Equity portion of gain on ITS exchange transaction, net of tax
|
– | – | 118 | – | |||||||||||||||
|
Accretion of preferred stock discount
|
– | – | – | (14 | ) | ||||||||||||||
|
Deemed dividend on preferred stock redemption
|
– | – | – | (154 | ) | ||||||||||||||
|
Earnings allocated to participating stock awards
|
(4 | ) | (1 | ) | (10 | ) | (3 | ) | |||||||||||
|
Net income applicable to U.S. Bancorp common shareholders
|
$ | 871 | $ | 583 | $ | 2,381 | $ | 1,223 | |||||||||||
|
Average common shares outstanding
|
1,913 | 1,908 | 1,911 | 1,832 | |||||||||||||||
|
Net effect of the exercise and assumed purchase of stock awards
and conversion of outstanding convertible notes
|
7 | 9 | 9 | 8 | |||||||||||||||
|
Average diluted common shares outstanding
|
1,920 | 1,917 | 1,920 | 1,840 | |||||||||||||||
|
Earnings per common share
|
$ | .46 | $ | .31 | $ | 1.25 | $ | .67 | |||||||||||
|
Diluted earnings per common share
|
$ | .45 | $ | .30 | $ | 1.24 | $ | .66 | |||||||||||
Options and warrants to purchase 65 million and
70 million common shares for the three months ended
September 30, 2010 and 2009, respectively, and
56 million and 75 million common shares for the nine
months ended September 30, 2010 and 2009, respectively,
were outstanding but not included in the computation of diluted
earnings per share because they were antidilutive.
|
|
43 |
Table of Contents
Note 9 Employee Benefits
The components of net periodic benefit cost for the
Company’s retirement plans were:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||
|
Postretirement
|
Postretirement
|
||||||||||||||||||||||||||||||||||||
| Pension Plans | Welfare Plan | Pension Plans | Welfare Plan | ||||||||||||||||||||||||||||||||||
| (Dollars in Millions) | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||||||
|
Service cost
|
$ | 24 | $ | 20 | $ | 2 | $ | 1 | $ | 70 | $ | 60 | $ | 6 | $ | 4 | |||||||||||||||||||||
|
Interest cost
|
38 | 38 | 3 | 2 | 116 | 114 | 8 | 8 | |||||||||||||||||||||||||||||
|
Expected return on plan assets
|
(54 | ) | (54 | ) | (2 | ) | (1 | ) | (161 | ) | (161 | ) | (4 | ) | (4 | ) | |||||||||||||||||||||
|
Prior service (credit) cost and transition (asset) obligation
amortization
|
(3 | ) | (2 | ) | – | – | (9 | ) | (5 | ) | – | – | |||||||||||||||||||||||||
|
Actuarial (gain) loss amortization
|
16 | 13 | (1 | ) | (1 | ) | 48 | 37 | (4 | ) | (5 | ) | |||||||||||||||||||||||||
|
Net periodic benefit cost
|
$ | 21 | $ | 15 | $ | 2 | $ | 1 | $ | 64 | $ | 45 | $ | 6 | $ | 3 | |||||||||||||||||||||
Note 10 Income Taxes
The components of income tax expense were:
|
Three Months
Ended
|
Nine Months Ended
|
||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||
| (Dollars in Millions) | 2010 | 2009 | 2010 | 2009 | |||||||||||||||
|
Federal
|
|||||||||||||||||||
|
Current
|
$ | 313 | $ | 327 | $ | 768 | $ | 1,011 | |||||||||||
|
Deferred
|
(123 | ) | (282 | ) | (266 | ) | (802 | ) | |||||||||||
|
Federal income tax
|
190 | 45 | 502 | 209 | |||||||||||||||
|
State
|
|||||||||||||||||||
|
Current
|
82 | 67 | 143 | 152 | |||||||||||||||
|
Deferred
|
(12 | ) | (26 | ) | (25 | ) | (74 | ) | |||||||||||
|
State income tax
|
70 | 41 | 118 | 78 | |||||||||||||||
|
Total income tax provision
|
$ | 260 | $ | 86 | $ | 620 | $ | 287 | |||||||||||
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
|
Nine Months Ended
|
||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||
| (Dollars in Millions) | 2010 | 2009 | 2010 | 2009 | |||||||||||||||
|
Tax at statutory rate
|
$ | 403 | $ | 242 | $ | 1,025 | $ | 673 | |||||||||||
|
State income tax, at statutory rates, net of federal tax benefit
|
46 | 27 | 77 | 51 | |||||||||||||||
|
Tax effect of
|
|||||||||||||||||||
|
Tax credits
|
(114 | ) | (134 | ) | (324 | ) | (285 | ) | |||||||||||
|
Tax-exempt income
|
(56 | ) | (52 | ) | (161 | ) | (150 | ) | |||||||||||
|
Noncontrolling interests
|
5 | (1 | ) | 12 | (11 | ) | |||||||||||||
|
Other items
|
(24 | ) | 4 | (9 | ) | 9 | |||||||||||||
|
Applicable income taxes
|
$ | 260 | $ | 86 | $ | 620 | $ | 287 | |||||||||||
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 September 30, 2010, the federal taxing
authority has 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
$288 million at September 30, 2010, and
$190 million at December 31, 2009.
|
|
U.S. Bancorp |
Table of Contents
Note 11 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 (“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”); a hedge of the volatility of an
investment in foreign operations driven by changes in foreign
currency exchange rates (“net investment hedge”); or a
customer accommodation or an economic hedge for asset/liability
risk management purposes (“free-standing derivative”).
Of the Company’s $57.1 billion of total notional amount of
asset and liability management positions at September 30,
2010, $8.8 billion was designated as a fair value, cash
flow or net investment hedge. When a derivative is designated as
a fair value, cash flow or net investment hedge, the Company
performs an assessment, at inception and, at a minimum,
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 nine months ended September 30, 2010, and
the change in fair value attributed to hedge ineffectiveness 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
expense 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 September 30, 2010, the Company had $531 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 $35 million and $134 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 nine months ended September 30, 2010, and the
change in fair value attributed to hedge ineffectiveness was not
material.
Net Investment
Hedges
The Company
uses forward commitments to sell specified amounts of certain
foreign currencies to hedge the volatility of its investment in
foreign operations driven by fluctuations in foreign currency
exchange rates. The net amount of related gains or losses
included in the cumulative translation adjustment for the nine
months ended September 30, 2010 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 customer
accommodation 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.
|
|
45 |
Table of Contents
The following table provides information on the fair value of
the Company’s derivative positions:
| September 30, 2010 | December 31, 2009 | ||||||||||||||||||
|
Asset
|
Liability
|
Asset
|
Liability
|
||||||||||||||||
| (Dollars in Millions) | Derivatives | Derivatives | Derivatives | Derivatives | |||||||||||||||
|
Total fair value of derivative positions
|
$ | 2,186 | $ | 2,708 | $ | 1,582 | $ | 1,854 | |||||||||||
|
Netting (a)
|
(287 | ) | (1,703 | ) | (421 | ) | (995 | ) | |||||||||||
|
Total
|
$ | 1,899 | $ | 1,005 | $ | 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 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 September 30, 2010, the amount of cash and money market investments collateral posted by counterparties that was netted against derivative assets was $92 million and the amount of cash collateral posted by the Company that was netted against derivative liabilities was $1.5 billion. 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-Average
|
Weighted-Average
|
|||||||||||||||||||||||||||
|
Remaining
|
Remaining
|
|||||||||||||||||||||||||||
|
Notional
|
Fair
|
Maturity
|
Notional
|
Fair
|
Maturity
|
|||||||||||||||||||||||
| (Dollars in Millions) | Value | Value | In Years | Value | Value | In Years | ||||||||||||||||||||||
|
September 30, 2010
|
||||||||||||||||||||||||||||
|
Fair value hedges
|
||||||||||||||||||||||||||||
|
Interest rate contracts
|
||||||||||||||||||||||||||||
|
Receive fixed/pay floating swaps
|
$ | 2,175 | $ | 105 | 55.88 | $ | – | $ | – | – | ||||||||||||||||||
|
Foreign exchange cross-currency swaps
|
1,363 | 100 | 6.42 | – | – | – | ||||||||||||||||||||||
|
Cash flow hedges
|
||||||||||||||||||||||||||||
|
Interest rate contracts
|
||||||||||||||||||||||||||||
|
Pay fixed/receive floating swaps
|
– | – | – | 4,788 | 873 | 5.28 | ||||||||||||||||||||||
|
Net investment hedges
|
||||||||||||||||||||||||||||
|
Foreign exchange forward contracts
|
– | – | – | 492 | 23 | .08 | ||||||||||||||||||||||
|
Other economic hedges
|
||||||||||||||||||||||||||||
|
Interest rate contracts
|
||||||||||||||||||||||||||||
|
Futures and forwards
|
||||||||||||||||||||||||||||
|
Buy
|
16,338 | 115 | .08 | 3,884 | 2 | .04 | ||||||||||||||||||||||
|
Sell
|
5,378 | 8 | .11 | 12,973 | 102 | .10 | ||||||||||||||||||||||
|
Options
|
||||||||||||||||||||||||||||
|
Purchased
|
1,000 | – | .11 | – | – | – | ||||||||||||||||||||||
|
Written
|
5,824 | 91 | .14 | 9 | – | .15 | ||||||||||||||||||||||
|
Foreign exchange forward contracts
|
391 | 1 | .09 | 329 | 2 | .09 | ||||||||||||||||||||||
|
Equity contracts
|
23 | 1 | .83 | 31 | 1 | 2.53 | ||||||||||||||||||||||
|
Credit contracts
|
790 | 4 | 2.93 | 1,313 | 1 | 2.67 | ||||||||||||||||||||||
|
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-Average
|
Weighted-Average
|
|||||||||||||||||||||||||||
|
Remaining
|
Remaining
|
|||||||||||||||||||||||||||
|
Notional
|
Fair
|
Maturity
|
Notional
|
Fair
|
Maturity
|
|||||||||||||||||||||||
| (Dollars in Millions) | Value | Value | In Years | Value | Value | In Years | ||||||||||||||||||||||
|
September 30, 2010
|
||||||||||||||||||||||||||||
|
Interest rate contracts
|
||||||||||||||||||||||||||||
|
Receive fixed/pay floating swaps
|
$ | 17,835 | $ | 1,350 | 4.66 | $ | 100 | $ | 1 | 6.47 | ||||||||||||||||||
|
Pay fixed/receive floating swaps
|
155 | 1 | 4.72 | 17,781 | 1,316 | 4.71 | ||||||||||||||||||||||
|
Options
|
||||||||||||||||||||||||||||
|
Purchased
|
1,868 | 9 | 1.80 | 115 | 21 | .61 | ||||||||||||||||||||||
|
Written
|
603 | 21 | .40 | 1,380 | 9 | 2.31 | ||||||||||||||||||||||
|
Foreign exchange rate contracts
|
||||||||||||||||||||||||||||
|
Forwards, spots and swaps (a)
|
8,017 | 372 | .59 | 7,856 | 349 | .61 | ||||||||||||||||||||||
|
Options
|
||||||||||||||||||||||||||||
|
Purchased
|
246 | 8 | .44 | – | – | – | ||||||||||||||||||||||
|
Written
|
– | – | – | 246 | 8 | .44 | ||||||||||||||||||||||
|
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 (loss) and the
gains (losses) reclassified from other comprehensive income
(loss) into earnings:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||
|
Gains (Losses)
|
Gains (Losses)
|
||||||||||||||||||||||||||||||||
|
Gains (Losses)
Recognized
|
Reclassified from
Other
|
Gains (Losses)
Recognized
|
Reclassified from
Other
|
||||||||||||||||||||||||||||||
|
in Other
Comprehensive
|
Comprehensive
Income
|
in Other
Comprehensive
|
Comprehensive
Income
|
||||||||||||||||||||||||||||||
| Income (Loss) | (Loss) into Earnings | Income (Loss) | (Loss) into Earnings | ||||||||||||||||||||||||||||||
| (Dollars in Millions) | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||
|
Asset and Liability Management Positions
|
|||||||||||||||||||||||||||||||||
|
Cash flow hedges
|
|||||||||||||||||||||||||||||||||
|
Interest rate contracts
|
|||||||||||||||||||||||||||||||||
|
Pay fixed/receive floating swaps (a)
|
$ | (77 | ) | $ | (12 | ) | $ | (34 | ) | $ | (54 | ) | $ | (204 | ) | $ | 236 | $ | (113 | ) | $ | (164 | ) | ||||||||||
|
Net investment hedges
|
|||||||||||||||||||||||||||||||||
|
Foreign exchange forward contracts
|
(53 | ) | (23 | ) | – | – | (36 | ) | (32 | ) | – | – | |||||||||||||||||||||
Note:
Ineffectiveness on cash flow and net investment hedges was not
material for the three months and nine months ended
September 30, 2010 and 2009.
| (a) | Gains (Losses) reclassified from other comprehensive income (loss) into interest income (expense) on long-term debt. |
|
|
47 |
Table of Contents
The table below shows the gains (losses) recognized in earnings
for fair value hedges, other economic hedges and the
customer-related positions:
| Gains (Losses) Recognized in Earnings | |||||||||||||||||||||||
|
Three Months
Ended
|
|||||||||||||||||||||||
|
Location of
|
September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
|
Gains (Losses)
|
|||||||||||||||||||||||
| (Dollars in Millions) | Recognized in Earnings | 2010 | 2009 | 2010 | 2009 | ||||||||||||||||||
|
Asset and Liability Management Positions
|
|||||||||||||||||||||||
|
Fair value hedges (a)
|
|||||||||||||||||||||||
|
Interest rate contracts
|
Other noninterest income | $ | 20 | $ | (31 | ) | $ | (64 | ) | $ | (136 | ) | |||||||||||
|
Foreign exchange cross-currency swaps
|
Other noninterest income | 80 | 97 | (151 | ) | 148 | |||||||||||||||||
|
Other economic hedges
|
|||||||||||||||||||||||
|
Interest rate contracts
|
|||||||||||||||||||||||
|
Futures and forwards
|
Mortgage banking revenue | 286 | (10 | ) | 555 | 263 | |||||||||||||||||
|
Purchased and written options
|
Mortgage banking revenue | 183 | 87 | 374 | 244 | ||||||||||||||||||
|
Foreign exchange forward contracts
|
Commercial products revenue | (14 | ) | (30 | ) | (5 | ) | (50 | ) | ||||||||||||||
|
Equity contracts
|
Compensation expense | 1 | (8 | ) | 3 | (22 | ) | ||||||||||||||||
|
Credit contracts
|
Other noninterest income/expense | – | (5 | ) | – | 30 | |||||||||||||||||
|
Customer-Related Positions
|
|||||||||||||||||||||||
|
Interest rate contracts
|
|||||||||||||||||||||||
|
Receive fixed/pay floating swaps
|
Other noninterest income | 213 | 142 | 567 | (429 | ) | |||||||||||||||||
|
Pay fixed/receive floating swaps
|
Other noninterest income | (216 | ) | (143 | ) | (565 | ) | 458 | |||||||||||||||
|
Purchased and written options
|
Other noninterest income | 1 | – | 1 | (1 | ) | |||||||||||||||||
|
Foreign exchange rate contracts
|
|||||||||||||||||||||||
|
Forwards, spots and swaps
|
Commercial products revenue | 13 | 9 | 34 | 37 | ||||||||||||||||||
|
Purchased and written options
|
Commercial products revenue | 1 | – | 1 | 1 | ||||||||||||||||||
| (a) | Gains (Losses) on items hedged by interest rate contracts and foreign exchange forward contracts, included in noninterest income (expense), were $(18) million and $(80) million for the three months ended September 30, 2010, respectively, and $30 million and $(96) million for the three months ended September 30, 2009, respectively. Gains (Losses) on items hedged by interest rate contracts and foreign exchange forward contracts, included in noninterest income (expense), were $65 million and $150 million for the nine months ended September 30, 2010, respectively, and $133 million and $(146) million for the nine months ended September 30, 2009, respectively. The ineffective portion was immaterial for the three months and nine months ended September 30, 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 where possible 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
September 30, 2010, was $2.0 billion. At
September 30, 2010, the Company had $1.5 billion of
cash posted as collateral against this net liability position.
Note 12 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 measurements 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
|
|
U.S. Bancorp |
Table of Contents
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 third quarter and first nine
months 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 verified, where possible,
to prices of observable market trades as obtained from
independent sources. Securities measured at fair value by such
methods are classified within 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 classified within Level 3. Securities
classified within 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
|
|
49 |
Table of Contents
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 September 30, 2010:
| Prime (a) | Non-prime | |||||||||||||||||||||||||
| Minimum | Maximum | Average | Minimum | Maximum | Average | |||||||||||||||||||||
|
Estimated lifetime prepayment rates
|
4 | % | 28 | % | 13 | % | 1 | % | 13 | % | 6 | % | ||||||||||||||
|
Lifetime probability of default rates
|
– | 14 | 1 | – | 20 | 8 | ||||||||||||||||||||
|
Lifetime loss severity rates
|
– | 100 | 44 | 10 | 88 | 56 | ||||||||||||||||||||
|
Discount margin
|
3 | 28 | 6 | 3 | 30 | 12 | ||||||||||||||||||||
| (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. MLHFS
are classified within Level 2. Included in mortgage banking
revenue was a $26 million net loss and $206 million
net gain, for the third quarter of 2010 and 2009, respectively,
and $100 million and $171 million of net gains for the
first nine months of 2010 and 2009, respectively, from the
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 $8.2 billion as of September 30, 2010, which
exceeded the unpaid principal balance by $322 million as of
that date. 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. 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 within 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.
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
|
|
U.S. Bancorp |
Table of Contents
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.
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.
|
|
51 |
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 | |||||||||||||||||
|
September 30, 2010
|
||||||||||||||||||||||
|
Available-for-sale
securities
|
||||||||||||||||||||||
|
U.S. Treasury and agencies
|
$ | 9 | $ | 1,547 | $ | – | $ | – | $ | 1,556 | ||||||||||||
|
Mortgage-backed securities
|
||||||||||||||||||||||
|
Residential
|
||||||||||||||||||||||
|
Agency
|
– | 34,813 | – | – | 34,813 | |||||||||||||||||
|
Non-agency
|
||||||||||||||||||||||
|
Prime
|
– | – | 1,169 | – | 1,169 | |||||||||||||||||
|
Non-prime
|
– | – | 945 | – | 945 | |||||||||||||||||
|
Commercial
|
– | – | 50 | – | 50 | |||||||||||||||||
|
Asset-backed securities
|
||||||||||||||||||||||
|
Collateralized debt obligations/Collateralized loan obligations
|
– | 94 | 149 | – | 243 | |||||||||||||||||
|
Other
|
– | 587 | 130 | – | 717 | |||||||||||||||||
|
Obligations of state and political subdivisions
|
– | 6,957 | – | – | 6,957 | |||||||||||||||||
|
Obligations of foreign governments
|
– | 6 | – | – | 6 | |||||||||||||||||
|
Corporate debt securities
|
– | 997 | 9 | – | 1,006 | |||||||||||||||||
|
Perpetual preferred securities
|
– | 475 | – | – | 475 | |||||||||||||||||
|
Other investments
|
189 | 3 | 277 | – | 469 | |||||||||||||||||
|
Total
available-for-sale
|
198 | 45,479 | 2,729 | – | 48,406 | |||||||||||||||||
|
Mortgage loans held for sale
|
– | 8,198 | – | – | 8,198 | |||||||||||||||||
|
Mortgage servicing rights
|
– | – | 1,422 | – | 1,422 | |||||||||||||||||
|
Derivative assets
|
– | 714 | 1,472 | (287 | ) | 1,899 | ||||||||||||||||
|
Other assets
|
– | 487 | – | – | 487 | |||||||||||||||||
|
Total
|
$ | 198 | $ | 54,878 | $ | 5,623 | $ | (287 | ) | $ | 60,412 | |||||||||||
|
Derivative liabilities
|
$ | – | $ | 2,668 | $ | 40 | $ | (1,703 | ) | $ | 1,005 | |||||||||||
|
Other liabilities
|
– | 477 | – | – | 477 | |||||||||||||||||
|
Total
|
$ | – | $ | 3,145 | $ | 40 | $ | (1,703 | ) | $ | 1,482 | |||||||||||
|
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 following tables present 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
|
|||||||||||||||||||||||
|
Three Months Ended
September 30,
|
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 | |||||||||||||||||||||
|
2010
|
||||||||||||||||||||||||||||
|
Available-for-sale
securities
|
||||||||||||||||||||||||||||
|
Mortgage-backed securities
|
||||||||||||||||||||||||||||
|
Residential non-agency
|
||||||||||||||||||||||||||||
|
Prime
|
$ | 1,197 | $ | 1 | $ | 22 | $ | (51 | ) | $ | – | $ | 1,169 | $ | 22 | |||||||||||||
|
Non-prime
|
907 | (9 | ) | 36 | 11 | – | 945 | 36 | ||||||||||||||||||||
|
Commercial
|
15 | 1 | 1 | 33 | – | 50 | 1 | |||||||||||||||||||||
|
Asset-backed securities
|
||||||||||||||||||||||||||||
|
Collateralized debt obligations/Collateralized loan obligations
|
75 | 3 | 2 | 69 | – | 149 | 2 | |||||||||||||||||||||
|
Other
|
328 | 3 | 8 | (209 | ) | – | 130 | 8 | ||||||||||||||||||||
|
Corporate debt securities
|
10 | (1 | ) | – | – | – | 9 | – | ||||||||||||||||||||
|
Other securities and investments
|
266 | 2 | 16 | (7 | ) | – | 277 | 16 | ||||||||||||||||||||
|
Total
available-for-sale
|
2,798 | – | (a) | 85 | (154 | ) | – | 2,729 | 85 | |||||||||||||||||||
|
Mortgage servicing rights
|
1,543 | (280 | )(b) | – | 159 | – | 1,422 | (280 | )(b) | |||||||||||||||||||
|
Net derivative assets and liabilities
|
1,294 | 364 | (c) | – | (226 | ) | – | 1,432 | (213 | )(d) | ||||||||||||||||||
|
2009
|
||||||||||||||||||||||||||||
|
Available-for-sale
securities
|
||||||||||||||||||||||||||||
|
Mortgage-backed securities
|
||||||||||||||||||||||||||||
|
Residential non-agency
|
||||||||||||||||||||||||||||
|
Prime
|
$ | 2,431 | $ | 1 | $ | 110 | $ | (513 | ) | $ | – | $ | 2,029 | $ | 105 | |||||||||||||
|
Non-prime
|
1,058 | (40 | ) | 46 | (51 | ) | – | 1,013 | 46 | |||||||||||||||||||
|
Commercial
|
15 | – | – | (2 | ) | – | 13 | – | ||||||||||||||||||||
|
Asset-backed securities
|
||||||||||||||||||||||||||||
|
Collateralized debt obligations/Collateralized loan obligations
|
84 | – | – | 17 | – | 101 | – | |||||||||||||||||||||
|
Other
|
435 | (8 | ) | 7 | (48 | ) | – | 386 | 8 | |||||||||||||||||||
|
Corporate debt securities
|
10 | – | – | – | – | 10 | – | |||||||||||||||||||||
|
Total
available-for-sale
|
4,033 | (47 | )(e) | 163 | (597 | ) | – | 3,552 | 159 | |||||||||||||||||||
|
Mortgage servicing rights
|
1,482 | (198 | )(b) | – | 270 | – | 1,554 | (198 | )(b) | |||||||||||||||||||
|
Net derivative assets and liabilities
|
968 | 193 | (f) | – | (16 | ) | – | 1,145 | (329 | )(g) | ||||||||||||||||||
| (a) | Approximately $(18) million included in securities gains (losses) and $18 million included in interest income. | |
| (b) | Included in mortgage banking revenue. | |
| (c) | Approximately $(66) million included in other noninterest income and $430 million included in mortgage banking revenue. | |
| (d) | Approximately $172 million included in other noninterest income and $(385) million included in mortgage banking revenue. | |
| (e) | Approximately $(52) million included in securities gains (losses) and $5 million included in interest income. | |
| (f) | Approximately $(40) million included in other noninterest income and $233 million included in mortgage banking revenue. | |
| (g) | Approximately $(149) million included in other noninterest income and $(180) million included in mortgage banking revenue. |
|
|
53 |
Table of Contents
|
Net Gains
|
Net Change in
|
|||||||||||||||||||||||||||
|
(Losses)
|
Purchases,
|
Unrealized Gains
|
||||||||||||||||||||||||||
|
Net Gains
|
Included in
|
Sales, Principal
|
(Losses) Relating
|
|||||||||||||||||||||||||
|
Beginning
|
(Losses)
|
Other
|
Payments,
|
End
|
to Assets
|
|||||||||||||||||||||||
|
Nine Months Ended
September 30,
|
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 | |||||||||||||||||||||
|
2010
|
||||||||||||||||||||||||||||
|
Available-for-sale
securities
|
||||||||||||||||||||||||||||
|
Mortgage-backed securities
|
||||||||||||||||||||||||||||
|
Residential non-agency
|
||||||||||||||||||||||||||||
|
Prime
|
$ | 1,429 | $ | 1 | $ | 72 | $ | (333 | ) | $ | – | $ | 1,169 | $ | 66 | |||||||||||||
|
Non-prime
|
968 | (46 | ) | 104 | (81 | ) | – | 945 | 104 | |||||||||||||||||||
|
Commercial
|
13 | 1 | 3 | 33 | – | 50 | 2 | |||||||||||||||||||||
|
Asset-backed securities
|
||||||||||||||||||||||||||||
|
Collateralized debt obligations/Collateralized loan obligations
|
98 | 3 | – | 48 | – | 149 | 3 | |||||||||||||||||||||
|
Other
|
357 | (2 | ) | 6 | (231 | ) | – | 130 | 7 | |||||||||||||||||||
|
Corporate debt securities
|
10 | (1 | ) | – | – | – | 9 | – | ||||||||||||||||||||
|
Other securities and investments
|
231 | 4 | 63 | (21 | ) | – | 277 | 63 | ||||||||||||||||||||
|
Total
available-for-sale
|
3,106 | (40 | )(a) | 248 | (585 | ) | – | 2,729 | 245 | |||||||||||||||||||
|
Mortgage servicing rights
|
1,749 | (773 | )(b) | – | 446 | – | 1,422 | (773 | )(b) | |||||||||||||||||||
|
Net derivative assets and liabilities
|
815 | 856 | (c) | – | (239 | ) | – | 1,432 | (178 | )(d) | ||||||||||||||||||
|
2009
|
||||||||||||||||||||||||||||
|
Available-for-sale
securities
|
||||||||||||||||||||||||||||
|
Mortgage-backed securities
|
||||||||||||||||||||||||||||
|
Residential non-agency
|
||||||||||||||||||||||||||||
|
Prime
|
$ | 183 | $ | (4 | ) | $ | 477 | $ | (875 | ) | $ | 2,248 | $ | 2,029 | $ | 465 | ||||||||||||
|
Non-prime
|
1,022 | (115 | ) | 127 | (154 | ) | 133 | 1,013 | 5 | |||||||||||||||||||
|
Commercial
|
17 | (1 | ) | (1 | ) | (3 | ) | 1 | 13 | (1 | ) | |||||||||||||||||
|
Asset-backed securities
|
||||||||||||||||||||||||||||
|
Collateralized debt obligations/Collateralized loan obligations
|
86 | (4 | ) | 4 | 11 | 4 | 101 | 4 | ||||||||||||||||||||
|
Other
|
523 | (48 | ) | (30 | ) | (62 | ) | 3 | 386 | (127 | ) | |||||||||||||||||
|
Corporate debt securities
|
13 | (3 | ) | – | – | – | 10 | – | ||||||||||||||||||||
|
Total
available-for-sale
|
1,844 | (175 | )(e) | 577 | (1,083 | ) | 2,389 | 3,552 | 346 | |||||||||||||||||||
|
Mortgage servicing rights
|
1,194 | (417 | )(b) | – | 777 | – | 1,554 | (416 | )(b) | |||||||||||||||||||
|
Net derivative assets and liabilities
|
1,698 | (446 | )(f) | – | (108 | ) | 1 | 1,145 | (61 | )(g) | ||||||||||||||||||
| (a) | Approximately $(85) million included in securities gains (losses) and $45 million included in interest income. | |
| (b) | Included in mortgage banking revenue. | |
| (c) | Approximately $(20) million included in other noninterest income and $876 million included in mortgage banking revenue. | |
| (d) | Approximately $504 million included in other noninterest income and $(682) million included in mortgage banking revenue. | |
| (e) | Approximately $(187) million included in securities gains (losses) and $12 million included in interest income. | |
| (f) | Approximately $(961) million included in other noninterest income and $515 million included in mortgage banking revenue. | |
| (g) | Approximately $458 million included in other noninterest income and $(519) million included in mortgage banking revenue. |
The Company is also 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:
| September 30, 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)
|
– | 213 | 1 | 214 | – | 235 | 5 | 240 | |||||||||||||||||||||||||
|
Other real estate owned (c)
|
– | 261 | – | 261 | – | 183 | – | 183 | |||||||||||||||||||||||||
|
Other intangible assets
|
– | – | – | – | – | – | 3 | 3 | |||||||||||||||||||||||||
| (a) | Represents the 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 the 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. |
|
|
U.S. Bancorp |
Table of Contents
The following table summarizes losses recognized related to
nonrecurring fair value measurements of individual assets or
portfolios:
|
Three Months
Ended
|
Nine Months Ended
|
||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| (Dollars in Millions) | 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Loans held for sale
|
$ | – | $ | 1 | $ | – | $ | 2 | |||||||||
|
Loans (a)
|
67 | 72 | 280 | 217 | |||||||||||||
|
Other real estate owned (b)
|
97 | 60 | 212 | 124 | |||||||||||||
|
Other intangible assets
|
– | – | – | 1 | |||||||||||||
| (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:
| September 30, 2010 | December 31, 2009 | ||||||||||||||||||||||||
|
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
|
$ | 8,198 | $ | 7,876 | $ | 322 | $ | 4,327 | $ | 4,264 | $ | 63 | |||||||||||||
|
Nonaccrual loans
|
12 | 18 | (6 | ) | – | – | – | ||||||||||||||||||
|
Loans 90 days or more past due
|
7 | 7 | – | 23 | 30 | (7 | ) | ||||||||||||||||||
Disclosures about
Fair Value of Financial
Instruments
The
following table summarizes the estimated fair value for
financial instruments as of September 30, 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:
| September 30, 2010 | December 31, 2009 | ||||||||||||||||
|
Carrying
|
Fair
|
Carrying
|
Fair
|
||||||||||||||
| (Dollars in Millions) | Amount | Value | Amount | Value | |||||||||||||
|
Financial Assets
|
|||||||||||||||||
|
Cash and due from banks
|
$ | 4,470 | $ | 4,470 | $ | 6,206 | $ | 6,206 | |||||||||
|
Investment securities
held-to-maturity
|
557 | 503 | 47 | 48 | |||||||||||||
|
Mortgages held for sale (a)
|
4 | 4 | 29 | 29 | |||||||||||||
|
Other loans held for sale
|
236 | 236 | 416 | 416 | |||||||||||||
|
Loans
|
189,296 | 190,363 | 189,676 | 184,157 | |||||||||||||
|
Financial Liabilities
|
|||||||||||||||||
|
Deposits
|
187,406 | 188,144 | 183,242 | 183,504 | |||||||||||||
|
Short-term borrowings
|
34,341 | 34,772 | 31,312 | 31,674 | |||||||||||||
|
Long-term debt
|
30,353 | 31,296 | 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 $370 million and $356 million
at September 30, 2010 and December 31, 2009,
respectively. The carrying value of other guarantees was $326
million and $285 million at September 30, 2010 and
December 31, 2009, respectively.
|
|
55 |
Table of Contents
Note 13 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, which were
subsequently converted to Class B shares of Visa Inc.
(“Class B shares”). 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 indemnification by the Visa U.S.A.
member banks 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 relating
to certain of the Visa Litigation matters. 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 Visa U.S.A. member banks, Visa Inc. has established 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
contingent liability, and will decline as amounts are paid out
of the escrow account. During the third quarter of 2009 and the
second quarter of 2010, 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 gains of $39 million and $28 million during
the third quarter of 2009 and second quarter of 2010,
respectively, related to the effective repurchase of a portion
of its Class B shares.
At September 30, 2010, the carrying amount of the
Company’s liability related to the remaining Visa
Litigation matters was $91 million. Class B shares are
non-transferable, except for transfers to other Visa U.S.A.
member banks. The remaining Class B shares held by the
Company will be eligible for conversion to Class A shares
in 2011 or upon resolution of the Visa Litigation, whichever is
later.
The following table is a summary of other guarantees and
contingent liabilities of the Company at September 30, 2010:
|
Maximum
|
||||||||
|
Potential
|
||||||||
|
Carrying
|
Future
|
|||||||
| (Dollars in Millions) | Amount | Payments | ||||||
|
Standby letters of credit
|
$ | 123 | $ | 18,782 | ||||
|
Third-party borrowing arrangements
|
– | 132 | ||||||
|
Securities lending indemnifications
|
– | 7,362 | ||||||
|
Asset sales (a)
|
147 | 1,417 | ||||||
|
Merchant processing
|
64 | 72,651 | ||||||
|
Other guarantees
|
3 | 5,778 | ||||||
|
Other contingent liabilities
|
21 | 2,307 | ||||||
| (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. |
Merchant
Processing
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 airline companies. In the event of
liquidation of these merchants, the Company could become
financially liable for refunding
|
|
U.S. Bancorp |
Table of Contents
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 provisions to protect the Company in the event of
default. At September 30, 2010, the value of airline
tickets purchased to be delivered at a future date was
$4.8 billion. The Company held collateral of $474 million
in escrow deposits, letters of credit and indemnities from
financial institutions, and liens on various assets.
Asset
Sales
The Company
regularly sells loans to government-sponsored enterprises
(“GSEs”) as part of its mortgage banking activities.
The Company provides customary representations and warranties to
the GSEs in conjunction with these sales. These representations
and warranties generally require the Company to repurchase
assets if it is subsequently determined that a loan did not meet
specified criteria, such as a documentation deficiency or
rescission of mortgage insurance. If the Company is unable to
cure or refute a repurchase request, the Company is generally
obligated to repurchase the loan or otherwise reimburse the
counterparty for losses. At September 30, 2010, the Company
had reserved $147 million for potential losses from
representation and warranty obligations. The reserve is based on
the Company’s repurchase and loss trends, and quantitative
and qualitative factors that may result in anticipated losses
different than historical loss trends, including loan vintage,
underwriting characteristics and macroeconomic trends.
Checking Account
Overdraft Fee
Litigation
The
Company is a defendant in three separate cases primarily
challenging the Company’s daily ordering of debit
transactions posted to customer checking accounts for the period
from 2003 to 2010. The plaintiffs have requested class action
treatment, however, no class has been certified. The court has
denied a motion by the Company to dismiss these cases. The
Company believes it has meritorious defenses against these
matters, including class certification. As these cases are in
the early stages and no damages have been specified, no specific
loss or range of loss can be determined currently.
Other
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 14 Subsequent Events
The Company has evaluated the impact of events that have
occurred subsequent to September 30, 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.
|
|
57 |
Table of Contents
U.S. Bancorp
Consolidated
Daily Average Balance Sheet and Related
Yields and Rates (a)
Yields and Rates (a)
| For the Three Months Ended September 30, | ||||||||||||||||||||||||||||||||
| 2010 | 2009 | |||||||||||||||||||||||||||||||
|
Yields
|
Yields
|
% Change
|
||||||||||||||||||||||||||||||
|
(Dollars in
Millions)
|
Average
|
and
|
Average
|
and
|
Average
|
|||||||||||||||||||||||||||
| (Unaudited) | Balances | Interest | Rates | Balances | Interest | Rates | Balances | |||||||||||||||||||||||||
|
Assets
|
||||||||||||||||||||||||||||||||
|
Investment securities
|
$ | 47,870 | $ | 441 | 3.69 | % | $ | 42,558 | $ | 414 | 3.89 | % | 12.5 | % | ||||||||||||||||||
|
Loans held for sale
|
6,465 | 71 | 4.43 | 7,359 | 87 | 4.74 | (12.1 | ) | ||||||||||||||||||||||||
|
Loans (b)
|
||||||||||||||||||||||||||||||||
|
Commercial
|
46,784 | 501 | 4.26 | 51,222 | 513 | 3.98 | (8.7 | ) | ||||||||||||||||||||||||
|
Commercial real estate
|
34,190 | 390 | 4.52 | 33,829 | 367 | 4.30 | 1.1 | |||||||||||||||||||||||||
|
Residential mortgages
|
27,890 | 361 | 5.17 | 24,405 | 343 | 5.62 | 14.3 | |||||||||||||||||||||||||
|
Retail
|
64,369 | 1,082 | 6.67 | 62,224 | 1,047 | 6.67 | 3.4 | |||||||||||||||||||||||||
|
Total loans, excluding covered loans
|
173,233 | 2,334 | 5.35 | 171,680 | 2,270 | 5.25 | .9 | |||||||||||||||||||||||||
|
Covered loans
|
19,308 | 240 | 4.93 | 10,288 | 115 | 4.40 | 87.7 | |||||||||||||||||||||||||
|
Total loans
|
192,541 | 2,574 | 5.31 | 181,968 | 2,385 | 5.21 | 5.8 | |||||||||||||||||||||||||
|
Other earning assets
|
5,040 | 46 | 3.61 | 2,226 | 23 | 4.06 | * | |||||||||||||||||||||||||
|
Total earning assets
|
251,916 | 3,132 | 4.95 | 234,111 | 2,909 | 4.94 | 7.6 | |||||||||||||||||||||||||
|
Allowance for loan losses
|
(5,406 | ) | (4,673 | ) | (15.7 | ) | ||||||||||||||||||||||||||
|
Unrealized gain (loss) on
available-for-sale
securities
|
475 | (1,318 | ) | * | ||||||||||||||||||||||||||||
|
Other assets
|
39,075 | 36,291 | 7.7 | |||||||||||||||||||||||||||||
|
Total assets
|
$ | 286,060 | $ | 264,411 | 8.2 | |||||||||||||||||||||||||||
|
Liabilities and Shareholders’ Equity
|
||||||||||||||||||||||||||||||||
|
Noninterest-bearing deposits
|
$ | 39,732 | $ | 36,982 | 7.4 | |||||||||||||||||||||||||||
|
Interest-bearing deposits
|
||||||||||||||||||||||||||||||||
|
Interest checking
|
39,308 | 19 | .19 | 38,218 | 21 | .22 | 2.9 | |||||||||||||||||||||||||
|
Money market savings
|
38,005 | 31 | .33 | 33,387 | 37 | .43 | 13.8 | |||||||||||||||||||||||||
|
Savings accounts
|
22,008 | 32 | .59 | 13,824 | 19 | .55 | 59.2 | |||||||||||||||||||||||||
|
Time certificates of deposit less than $100,000
|
16,024 | 75 | 1.86 | 16,985 | 115 | 2.69 | (5.7 | ) | ||||||||||||||||||||||||
|
Time deposits greater than $100,000
|
27,583 | 74 | 1.06 | 26,966 | 107 | 1.58 | 2.3 | |||||||||||||||||||||||||
|
Total interest-bearing deposits
|
142,928 | 231 | .64 | 129,380 | 299 | .92 | 10.5 | |||||||||||||||||||||||||
|
Short-term borrowings
|
36,303 | 151 | 1.65 | 28,025 | 140 | 1.97 | 29.5 | |||||||||||||||||||||||||
|
Long-term debt
|
29,422 | 273 | 3.70 | 36,797 | 313 | 3.38 | (20.0 | ) | ||||||||||||||||||||||||
|
Total interest-bearing liabilities
|
208,653 | 655 | 1.25 | 194,202 | 752 | 1.54 | 7.4 | |||||||||||||||||||||||||
|
Other liabilities
|
8,003 | 7,838 | 2.1 | |||||||||||||||||||||||||||||
|
Shareholders’ equity
|
||||||||||||||||||||||||||||||||
|
Preferred equity
|
1,930 | 1,500 | 28.7 | |||||||||||||||||||||||||||||
|
Common equity
|
26,957 | 23,179 | 16.3 | |||||||||||||||||||||||||||||
|
Total U.S. Bancorp shareholders’ equity
|
28,887 | 24,679 | 17.1 | |||||||||||||||||||||||||||||
|
Noncontrolling interests
|
785 | 710 | 10.6 | |||||||||||||||||||||||||||||
|
Total equity
|
29,672 | 25,389 | 16.9 | |||||||||||||||||||||||||||||
|
Total liabilities and equity
|
$ | 286,060 | $ | 264,411 | 8.2 | % | ||||||||||||||||||||||||||
|
Net interest income
|
$ | 2,477 | $ | 2,157 | ||||||||||||||||||||||||||||
|
Gross interest margin
|
3.70 | % | 3.40 | % | ||||||||||||||||||||||||||||
|
Gross interest margin without taxable-equivalent increments
|
3.62 | 3.31 | ||||||||||||||||||||||||||||||
|
Percent of Earning Assets
|
||||||||||||||||||||||||||||||||
|
Interest income
|
4.95 | % | 4.94 | % | ||||||||||||||||||||||||||||
|
Interest expense
|
1.04 | 1.27 | ||||||||||||||||||||||||||||||
|
Net interest margin
|
3.91 | % | 3.67 | % | ||||||||||||||||||||||||||||
|
Net interest margin without taxable-equivalent increments
|
3.83 | % | 3.58 | % | ||||||||||||||||||||||||||||
| * | 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. |
|
|
U.S. Bancorp |
Table of Contents
U.S. Bancorp
Consolidated
Daily Average Balance Sheet and Related
Yields and Rates (a)
Yields and Rates (a)
| For the Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||
| 2010 | 2009 | |||||||||||||||||||||||||||||||
|
Yields
|
Yields
|
% Change
|
||||||||||||||||||||||||||||||
|
(Dollars in
Millions)
|
Average
|
and
|
Average
|
and
|
Average
|
|||||||||||||||||||||||||||
| (Unaudited) | Balances | Interest | Rates | Balances | Interest | Rates | Balances | |||||||||||||||||||||||||
|
Assets
|
||||||||||||||||||||||||||||||||
|
Investment securities
|
$ | 47,080 | $ | 1,326 | 3.76 | % | $ | 42,357 | $ | 1,334 | 4.20 | % | 11.2 | % | ||||||||||||||||||
|
Loans held for sale
|
4,824 | 162 | 4.49 | 6,222 | 221 | 4.74 | (22.5 | ) | ||||||||||||||||||||||||
|
Loans (b)
|
||||||||||||||||||||||||||||||||
|
Commercial
|
46,798 | 1,472 | 4.20 | 53,787 | 1,570 | 3.90 | (13.0 | ) | ||||||||||||||||||||||||
|
Commercial real estate
|
34,165 | 1,137 | 4.45 | 33,653 | 1,085 | 4.31 | 1.5 | |||||||||||||||||||||||||
|
Residential mortgages
|
27,045 | 1,059 | 5.22 | 24,096 | 1,027 | 5.69 | 12.2 | |||||||||||||||||||||||||
|
Retail
|
63,794 | 3,207 | 6.72 | 61,526 | 3,050 | 6.63 | 3.7 | |||||||||||||||||||||||||
|
Total loans, excluding covered loans
|
171,802 | 6,875 | 5.35 | 173,062 | 6,732 | 5.20 | (.7 | ) | ||||||||||||||||||||||||
|
Covered loans
|
20,390 | 745 | 4.88 | 10,775 | 370 | 4.58 | 89.2 | |||||||||||||||||||||||||
|
Total loans
|
192,192 | 7,620 | 5.30 | 183,837 | 7,102 | 5.16 | 4.5 | |||||||||||||||||||||||||
|
Other earning assets
|
5,312 | 119 | 2.98 | 2,143 | 65 | 4.02 | * | |||||||||||||||||||||||||
|
Total earning assets
|
249,408 | 9,227 | 4.94 | 234,559 | 8,722 | 4.97 | 6.3 | |||||||||||||||||||||||||
|
Allowance for loan losses
|
(5,387 | ) | (4,233 | ) | (27.3 | ) | ||||||||||||||||||||||||||
|
Unrealized gain (loss) on
available-for-sale
securities
|
19 | (1,913 | ) | * | ||||||||||||||||||||||||||||
|
Other assets
|
39,016 | 37,166 | 5.0 | |||||||||||||||||||||||||||||
|
Total assets
|
$ | 283,056 | $ | 265,579 | 6.6 | |||||||||||||||||||||||||||
|
Liabilities and Shareholders’ Equity
|
||||||||||||||||||||||||||||||||
|
Noninterest-bearing deposits
|
$ | 39,223 | $ | 36,800 | 6.6 | |||||||||||||||||||||||||||
|
Interest-bearing deposits
|
||||||||||||||||||||||||||||||||
|
Interest checking
|
39,599 | 56 | .19 | 35,906 | 57 | .21 | 10.3 | |||||||||||||||||||||||||
|
Money market savings
|
39,710 | 101 | .34 | 29,541 | 108 | .49 | 34.4 | |||||||||||||||||||||||||
|
Savings accounts
|
20,038 | 87 | .58 | 12,160 | 49 | .54 | 64.8 | |||||||||||||||||||||||||
|
Time certificates of deposit less than $100,000
|
17,105 | 230 | 1.80 | 17,691 | 366 | 2.76 | (3.3 | ) | ||||||||||||||||||||||||
|
Time deposits greater than $100,000
|
27,162 | 222 | 1.09 | 31,293 | 357 | 1.53 | (13.2 | ) | ||||||||||||||||||||||||
|
Total interest-bearing deposits
|
143,614 | 696 | .65 | 126,591 | 937 | .99 | 13.4 | |||||||||||||||||||||||||
|
Short-term borrowings
|
33,727 | 420 | 1.66 | 29,278 | 422 | 1.93 | 15.2 | |||||||||||||||||||||||||
|
Long-term debt
|
30,696 | 822 | 3.58 | 37,780 | 1,007 | 3.56 | (18.8 | ) | ||||||||||||||||||||||||
|
Total interest-bearing liabilities
|
208,037 | 1,938 | 1.25 | 193,649 | 2,366 | 1.63 | 7.4 | |||||||||||||||||||||||||
|
Other liabilities
|
7,477 | 7,855 | (4.8 | ) | ||||||||||||||||||||||||||||
|
Shareholders’ equity
|
||||||||||||||||||||||||||||||||
|
Preferred equity
|
1,678 | 5,438 | (69.1 | ) | ||||||||||||||||||||||||||||
|
Common equity
|
25,904 | 21,121 | 22.6 | |||||||||||||||||||||||||||||
|
Total U.S. Bancorp shareholders’ equity
|
27,582 | 26,559 | 3.9 | |||||||||||||||||||||||||||||
|
Noncontrolling interests
|
737 | 716 | 2.9 | |||||||||||||||||||||||||||||
|
Total equity
|
28,319 | 27,275 | 3.8 | |||||||||||||||||||||||||||||
|
Total liabilities and equity
|
$ | 283,056 | $ | 265,579 | 6.6 | % | ||||||||||||||||||||||||||
|
Net interest income
|
$ | 7,289 | $ | 6,356 | ||||||||||||||||||||||||||||
|
Gross interest margin
|
3.69 | % | 3.34 | % | ||||||||||||||||||||||||||||
|
Gross interest margin without taxable-equivalent increments
|
3.61 | 3.26 | ||||||||||||||||||||||||||||||
|
Percent of Earning Assets
|
||||||||||||||||||||||||||||||||
|
Interest income
|
4.94 | % | 4.97 | % | ||||||||||||||||||||||||||||
|
Interest expense
|
1.04 | 1.35 | ||||||||||||||||||||||||||||||
|
Net interest margin
|
3.90 | % | 3.62 | % | ||||||||||||||||||||||||||||
|
Net interest margin without taxable-equivalent increments
|
3.82 | % | 3.54 | % | ||||||||||||||||||||||||||||
| * | 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. |
|
|
59 |
Table of Contents
There are a number of other 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 6. | Exhibits |
| 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 September 30, 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. |
|
|
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/
Craig
E. Gifford
|
Craig E. Gifford
Controller
(Principal Accounting Officer and Duly Authorized Officer)
DATE: November 8, 2010
|
|
61 |
Table of Contents
EXHIBIT 12
Computation
of Ratio of Earnings to Fixed Charges
|
Three Months
Ended
|
Nine Months Ended
|
|||||||||||||
| (Dollars in Millions) | September 30, 2010 | September 30, 2010 | ||||||||||||
|
Earnings
|
||||||||||||||
| 1. | Net income attributable to U.S. Bancorp | $ | 908 | $ | 2,343 | |||||||||
| 2. | Applicable income taxes, including interest expense related to unrecognized tax positions | 260 | 620 | |||||||||||
| 3. | Net income attributable to U.S. Bancorp before income taxes (1 + 2) | $ | 1,168 | $ | 2,963 | |||||||||
| 4. | Fixed charges: | |||||||||||||
| a. | Interest expense excluding interest on deposits* | $ | 422 | $ | 1,236 | |||||||||
| b. | Portion of rents representative of interest and amortization of debt expense | 24 | 76 | |||||||||||
| c. | Fixed charges excluding interest on deposits (4a + 4b) | 446 | 1,312 | |||||||||||
| d. | Interest on deposits | 231 | 696 | |||||||||||
| e. | Fixed charges including interest on deposits (4c + 4d) | $ | 677 | $ | 2,008 | |||||||||
| 5. | Amortization of interest capitalized | $ | – | $ | – | |||||||||
| 6. | Earnings excluding interest on deposits (3 + 4c + 5) | 1,614 | 4,275 | |||||||||||
| 7. | Earnings including interest on deposits (3 + 4e + 5) | 1,845 | 4,971 | |||||||||||
| 8. | Fixed charges excluding interest on deposits (4c) | 446 | 1,312 | |||||||||||
| 9. | Fixed charges including interest on deposits (4e) | 677 | 2,008 | |||||||||||
|
Ratio of Earnings to Fixed Charges
|
||||||||||||||
| 10. | Excluding interest on deposits (line 6/line 8) | 3.62 | 3.26 | |||||||||||
| 11. | Including interest on deposits (line 7/line 9) | 2.73 | 2.48 | |||||||||||
| * | 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
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: November 8, 2010
|
|
63 |
Table of Contents
EXHIBIT 31.2
CERTIFICATION
PURSUANT TO
RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
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: November 8, 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 September 30, 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: November 8, 2010
|
|
65 |
Table of Contents
First Class
U.S. Postage
PAID
Permit No. 2440
Minneapolis, MN
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 PresentationNote 2 Accounting ChangesNote 3 Investment SecuritiesNote 4 LoansNote 5 Accounting For Transfers and Servicing Of Financial Assets and Variable Interest EntitiesNote 6 Mortgage Servicing RightsNote 7 Preferred StockNote 8 Earnings Per ShareNote 9 Employee BenefitsNote 10 Income TaxesNote 11 Derivative InstrumentsNote 12 Fair Values Of Assets and LiabilitiesNote 13 Guarantees and Contingent LiabilitiesNote 14 Subsequent EventsPart II Other InformationItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 6. Exhibits