US BANCORP \DE\
10-Ks and 10-Qs
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Table of Contents
![[FORM 10-Q]](https://www.sec.gov/Archives/edgar/data/36104/000095012311046628/c63321c6332100.gif)
![[USBANCORP LOGO]](https://www.sec.gov/Archives/edgar/data/36104/000095012311046628/c63321usb5star.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 March 31, 2011
OR
o
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
(not applicable)
Commission file number 1-6880
U.S. BANCORP
(Exact name of registrant as specified in its charter)
|
Delaware
|
41-0255900 | |
|
(State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer
Identification No.) |
800 Nicollet Mall
Minneapolis, Minnesota
55402
(Address of principal executive offices, including zip code)
651-466-3000
(Registrant’s telephone number, including area code)
(not applicable)
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been
subject to such filing requirements for the past 90 days.
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
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Smaller reporting company o | |
|
(Do not check if a smaller reporting company)
|
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 April 30, 2011
1,926,650,215 shares |
Table of Contents
and
Form 10-Q
Cross Reference Index
|
Part I —
Financial Information
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4) Financial Statements (Item 1)
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| 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. Continued 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, 2010, 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.
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1 |
Table of Contents
Table 1 Selected Financial Data
|
Three Months
Ended
|
|||||||||||||
| March 31, | |||||||||||||
|
Percent
|
|||||||||||||
| (Dollars and Shares in Millions, Except Per Share Data) | 2011 | 2010 | Change | ||||||||||
|
Condensed Income Statement
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|||||||||||||
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Net interest income (taxable-equivalent basis) (a)
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$ | 2,507 | $ | 2,403 | 4.3 | % | |||||||
|
Noninterest income
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2,017 | 1,952 | 3.3 | ||||||||||
|
Securities gains (losses), net
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(5 | ) | (34 | ) | 85.3 | ||||||||
|
Total net revenue
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4,519 | 4,321 | 4.6 | ||||||||||
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Noninterest expense
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2,314 | 2,136 | 8.3 | ||||||||||
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Provision for credit losses
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755 | 1,310 | (42.4 | ) | |||||||||
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Income before taxes
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1,450 | 875 | 65.7 | ||||||||||
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Taxable-equivalent adjustment
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55 | 51 | 7.8 | ||||||||||
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Applicable income taxes
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366 | 161 | * | ||||||||||
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Net income
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1,029 | 663 | 55.2 | ||||||||||
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Net (income) loss attributable to noncontrolling interests
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17 | 6 | * | ||||||||||
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Net income attributable to U.S. Bancorp
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$ | 1,046 | $ | 669 | 56.4 | ||||||||
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Net income applicable to U.S. Bancorp common shareholders
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$ | 1,003 | $ | 648 | 54.8 | ||||||||
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Per Common Share
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|||||||||||||
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Earnings per share
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$ | .52 | $ | .34 | 52.9 | % | |||||||
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Diluted earnings per share
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.52 | .34 | 52.9 | ||||||||||
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Dividends declared per share
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.125 | .050 | * | ||||||||||
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Book value per share
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14.83 | 13.16 | 12.7 | ||||||||||
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Market value per share
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26.43 | 25.88 | 2.1 | ||||||||||
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Average common shares outstanding
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1,918 | 1,910 | .4 | ||||||||||
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Average diluted common shares outstanding
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1,928 | 1,919 | .5 | ||||||||||
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Financial Ratios
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|||||||||||||
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Return on average assets
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1.38 | % | .96 | % | |||||||||
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Return on average common equity
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14.5 | 10.5 | |||||||||||
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Net interest margin (taxable-equivalent basis) (a)
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3.69 | 3.90 | |||||||||||
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Efficiency ratio (b)
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51.1 | 49.0 | |||||||||||
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Average Balances
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|||||||||||||
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Loans
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$ | 197,570 | $ | 192,878 | 2.4 | % | |||||||
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Loans held for sale
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6,104 | 3,932 | 55.2 | ||||||||||
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Investment securities
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56,405 | 46,211 | 22.1 | ||||||||||
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Earning assets
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273,940 | 248,828 | 10.1 | ||||||||||
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Assets
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307,896 | 281,722 | 9.3 | ||||||||||
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Noninterest-bearing deposits
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44,189 | 38,000 | 16.3 | ||||||||||
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Deposits
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204,305 | 182,531 | 11.9 | ||||||||||
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Short-term borrowings
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32,203 | 32,551 | (1.1 | ) | |||||||||
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Long-term debt
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31,567 | 32,456 | (2.7 | ) | |||||||||
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Total U.S. Bancorp shareholders’ equity
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30,009 | 26,414 | 13.6 | ||||||||||
|
March 31,
2011 |
December 31,
2010 |
||||||||||||
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Period End Balances
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|||||||||||||
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Loans
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$ | 198,038 | $ | 197,061 | .5 | % | |||||||
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Allowance for credit losses
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5,498 | 5,531 | (.6 | ) | |||||||||
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Investment securities
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60,461 | 52,978 | 14.1 | ||||||||||
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Assets
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311,462 | 307,786 | 1.2 | ||||||||||
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Deposits
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208,293 | 204,252 | 2.0 | ||||||||||
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Long-term debt
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31,775 | 31,537 | .8 | ||||||||||
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Total U.S. Bancorp shareholders’ equity
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30,507 | 29,519 | 3.3 | ||||||||||
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Capital ratios
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|||||||||||||
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Tier 1 capital
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10.8 | % | 10.5 | % | |||||||||
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Total risk-based capital
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13.8 | 13.3 | |||||||||||
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Leverage
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9.0 | 9.1 | |||||||||||
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Tier 1 common equity to risk-weighted assets using Basel I
definition (c)
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8.2 | 7.8 | |||||||||||
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Tier 1 common equity to risk-weighted assets using
anticipated Basel III definition (c)
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7.7 | ||||||||||||
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Tangible common equity to tangible assets (c)
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6.3 | 6.0 | |||||||||||
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Tangible common equity to risk-weighted assets (c)
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7.6 | 7.2 | |||||||||||
| * | 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 beginning on page 24. |
|
|
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 $1.0 billion
for the first quarter of 2011, or $.52 per diluted common share,
compared with $669 million, or $.34 per diluted common
share for the first quarter of 2010. Return on average assets
and return on average common equity were 1.38 percent and
14.5 percent, respectively, for the first quarter of 2011,
compared with .96 percent and 10.5 percent,
respectively, for the first quarter of 2010. Included in the
first quarter of 2011 was a $46 million gain related to the
acquisition of First Community Bank of New Mexico
(“FCB”) in a transaction with the Federal Deposit
Insurance Corporation (“FDIC”). The first quarter of
2010 results included net securities losses of $34 million.
The provision for credit losses for the first quarter of 2011
was $50 million lower than net charge-offs, compared with
$175 million in excess of net charge-offs for the first
quarter of 2010.
Total net revenue, on a taxable-equivalent basis, for the first
quarter of 2011 was $198 million (4.6 percent) higher
than the first quarter of 2010, reflecting a 4.3 percent
increase in net interest income and a 4.9 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 and continued growth in lower cost core deposit
funding. Noninterest income increased over a year ago, primarily
due to higher payments-related revenue, commercial products
revenue and other income, as well as lower securities losses.
Total noninterest expense in the first quarter of 2011 was
$178 million (8.3 percent) higher than the first
quarter of 2010, primarily due to higher total compensation and
employee benefits expense, including higher pension costs.
The provision for credit losses for the first quarter of 2011
was $755 million, or $555 million (42.4 percent)
lower than the first quarter of 2010. Net charge-offs in the
first quarter of 2011 were $805 million, compared with
$1.1 billion in the first quarter of 2010. 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.
Net Interest
Income
Net
interest income, on a taxable-equivalent basis, was
$2.5 billion in the first quarter of 2011, compared with
$2.4 billion in the first quarter of 2010. The
$104 million (4.3 percent) increase was primarily the
result of growth in average earning assets and lower cost core
deposit funding. Average earning assets were $25.1 billion
(10.1 percent) higher in the first quarter of 2011,
compared with the first quarter of 2010, driven by increases of
$4.7 billion (2.4 percent) in average loans,
$10.2 billion (22.1 percent) in average investment
securities and $8.1 billion in average other earning
assets, which included balances held at the Federal Reserve. The
net interest margin in the first quarter of 2011 was
3.69 percent, compared with 3.90 percent in the first
quarter of 2010. The decrease in the net interest margin
reflected higher balances in lower yielding investment
securities and growth in cash balances held at the Federal
Reserve. Refer to the “Consolidated Daily Average Balance
Sheet and Related Yields and Rates” tables for further
information on net interest income.
Total average loans for the first quarter of 2011 were
$4.7 billion (2.4 percent) higher than the first
quarter of 2010, driven by growth in residential mortgages
(20.3 percent), commercial loans (3.0 percent),
commercial real estate loans (3.0 percent) and retail loans
(1.0 percent), partially offset by a 17.6 percent
decrease in loans covered by loss sharing agreements with the
FDIC. The increases were driven by demand for loans and lines by
new and existing credit-worthy borrowers and the impact of the
FCB acquisition. Average loans acquired in FDIC-assisted
transactions that are covered by loss sharing agreements with
the FDIC (“covered” loans) were $17.6 billion in
the first quarter of 2011, compared with $21.4 billion in
the same period of 2010.
Average investment securities in the first quarter of 2011 were
$10.2 billion (22.1 percent) higher than the first
quarter of 2010, primarily due to purchases of
U.S. Treasury and government agency-related securities, as
the Company increased its on-balance sheet liquidity in response
to anticipated regulatory requirements.
Average total deposits for the first quarter of 2011 were
$21.8 billion (11.9 percent) higher than the first
|
|
3 |
Table of Contents
Table 2 Noninterest Income
|
Three Months
Ended
|
||||||||||||
| March 31, | ||||||||||||
|
Percent
|
||||||||||||
| (Dollars in Millions) | 2011 | 2010 | Change | |||||||||
|
Credit and debit card revenue
|
$ | 267 | $ | 258 | 3.5 | % | ||||||
|
Corporate payment products revenue
|
175 | 168 | 4.2 | |||||||||
|
Merchant processing services
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301 | 292 | 3.1 | |||||||||
|
ATM processing services
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112 | 105 | 6.7 | |||||||||
|
Trust and investment management fees
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256 | 264 | (3.0 | ) | ||||||||
|
Deposit service charges
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143 | 207 | (30.9 | ) | ||||||||
|
Treasury management fees
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137 | 137 | – | |||||||||
|
Commercial products revenue
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191 | 161 | 18.6 | |||||||||
|
Mortgage banking revenue
|
199 | 200 | (.5 | ) | ||||||||
|
Investment products fees and commissions
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32 | 25 | 28.0 | |||||||||
|
Securities gains (losses), net
|
(5 | ) | (34 | ) | 85.3 | |||||||
|
Other
|
204 | 135 | 51.1 | |||||||||
|
Total noninterest income
|
$ | 2,012 | $ | 1,918 | 4.9 | % | ||||||
quarter of 2010. Excluding deposits from acquisitions, first
quarter 2011 average total deposits increased $13.2 billion
(7.3 percent) over the first quarter of 2010. Average
noninterest-bearing deposits for the first quarter of 2011 were
$6.2 billion (16.3 percent) higher than the same
period of 2010, primarily due to growth in Wholesale Banking and
Commercial Real Estate and Consumer and Small Business Banking
balances. Average total savings deposits were $14.7 billion
(14.9 percent) higher in the first quarter of 2011,
compared with the first quarter of 2010, primarily the result of
growth in corporate trust balances, including the impact of the
December 30, 2010 acquisition of the securitization trust
administration business of Bank of America, N.A.
(“securitization trust acquisition”), and Consumer and
Small Business Banking balances. Average time certificates of
deposit less than $100,000 were lower in the first quarter of
2011 by $3.1 billion (16.7 percent), compared with the
first quarter of 2010, as a result of expected decreases in
acquired certificates of deposit and decreases in Consumer and
Small Business Banking balances. Average time deposits greater
than $100,000 were $4.0 billion (14.5 percent) higher
in the first quarter of 2011, compared with the first quarter of
2010, principally due to higher balances in Wholesale Banking
and Commercial Real Estate and institutional and corporate
trust, including the impact of the securitization trust
acquisition, and the FCB acquisition.
Provision for
Credit Losses
The
provision for credit losses for the first quarter of 2011
decreased $555 million (42.4 percent) from the first
quarter of 2010. Net charge-offs decreased $330 million
(29.1 percent) in the first quarter of 2011, compared with
the first quarter of 2010, principally due to improvement in the
commercial, commercial real estate, credit card and other retail
loan portfolios. Delinquencies also decreased in most major loan
categories in the first quarter of 2011, compared to the first
quarter of 2010. The provision for credit losses was
$50 million lower than net charge-offs in the first quarter
of 2011, but exceeded net charge-offs by $175 million in
the first quarter of 2010. 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 first quarter of 2011 was $2.0 billion,
compared with $1.9 billion in the first quarter of 2010.
The $94 million (4.9 percent) increase was due to
higher payments-related revenues, principally due to increased
transaction volumes and business expansion, and an increase in
commercial products revenue attributable to higher standby
letters of credit fees, commercial loan and syndication fees,
foreign exchange income and other capital markets revenue. In
addition, net securities losses decreased, primarily due to
lower impairments in the current year, and other income
increased principally due to the FCB gain and a gain related to
the Company’s investment in Visa Inc. recorded during the
first quarter of 2011. Offsetting these positive variances was a
decrease in deposit service charges from the prior year,
primarily due to Company-initiated and regulatory revisions to
overdraft fee policies, partially offset by core account growth.
In addition, trust and investment management fees declined as a
result of the transfer of the Company’s long-term asset
management business in the fourth quarter of 2010, partially
offset by the positive impact of the securitization trust
acquisition and improved market conditions.
Noninterest
Expense
Noninterest
expense was $2.3 billion in the first quarter of 2011,
compared with $2.1 billion in the first quarter of 2010, or
an increase of $178 million (8.3 percent). The
increase in noninterest expense from a year ago was principally
due
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U.S. Bancorp |
Table of Contents
Table 3 Noninterest Expense
|
Three Months
Ended
|
|||||||||||||
| March 31, | |||||||||||||
|
Percent
|
|||||||||||||
| (Dollars in Millions) | 2011 | 2010 | Change | ||||||||||
|
Compensation
|
$ | 959 | $ | 861 | 11.4 | % | |||||||
|
Employee benefits
|
230 | 180 | 27.8 | ||||||||||
|
Net occupancy and equipment
|
249 | 227 | 9.7 | ||||||||||
|
Professional services
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70 | 58 | 20.7 | ||||||||||
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Marketing and business development
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65 | 60 | 8.3 | ||||||||||
|
Technology and communications
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185 | 185 | – | ||||||||||
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Postage, printing and supplies
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74 | 74 | – | ||||||||||
|
Other intangibles
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75 | 97 | (22.7 | ) | |||||||||
|
Other
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407 | 394 | 3.3 | ||||||||||
|
Total noninterest expense
|
$ | 2,314 | $ | 2,136 | 8.3 | % | |||||||
|
Efficiency ratio (a)
|
51.1 | % | 49.0 | % | |||||||||
| (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. |
to increased total compensation and employee benefits expense.
Total compensation increased primarily due to acquisitions,
branch expansion and other business initiatives. Employee
benefits expense increased due to higher pension and medical
costs and the impact of additional staff. Net occupancy and
equipment expense increased principally due to business
expansion and technology initiatives. Professional services
expense increased due to technology-related and other projects
across multiple business lines. Other expense increased over the
prior year primarily due to insurance and litigation matters.
These increases were partially offset by a decrease in other
intangibles expense due to the reduction or completion of the
amortization of certain intangibles.
Income Tax
Expense
The
provision for income taxes was $366 million (an effective
rate of 26.2 percent) for the first quarter of 2011,
compared with $161 million (an effective rate of
19.5 percent) for the first quarter of 2010. The increase
in the effective tax rate for the first quarter of 2011,
compared with the same period of the prior year, principally
reflected the marginal impact of higher pretax earnings
year-over-year.
For further information on income taxes, refer to Note 10
of the Notes to Consolidated Financial Statements.
Loans
The
Company’s total loan portfolio was $198.0 billion at
March 31, 2011, compared with $197.1 billion at
December 31, 2010, an increase of $977 million
(.5 percent). The increase was driven primarily by
increases in most major loan categories, partially offset by
lower retail and covered loans. The $874 million
(1.8 percent) increase in commercial loans and
$742 million (2.1 percent) increase in commercial real
estate loans were primarily driven by the FCB acquisition and
higher loan demand from new and existing customers.
Residential mortgages held in the loan portfolio increased
$1.6 billion (5.2 percent) at March 31, 2011,
compared with December 31, 2010. Most loans retained in the
portfolio are to customers with prime or near-prime credit
characteristics at the date of origination.
Total retail loans outstanding, which include credit card,
retail leasing, home equity and second mortgages and other
retail loans, decreased $1.4 billion (2.2 percent) at
March 31, 2011, compared with December 31, 2010. The
decrease was primarily driven by lower credit card and home
equity balances.
Loans Held for
Sale
Loans held
for sale, consisting primarily of residential mortgages to be
sold in the secondary market, were $4.1 billion at
March 31, 2011, compared with $8.4 billion at
December 31, 2010. The decrease in loans held for sale was
principally due to a decrease in mortgage loan origination and
refinancing activity, primarily driven by an increase in
interest rates during the first quarter of 2011.
Investment
Securities
Investment
securities totaled $60.5 billion at March 31, 2011,
compared with $53.0 billion at December 31, 2010. The
$7.5 billion (14.1 percent) increase primarily
reflected $7.0 billion of net investment purchases and
$.3 billion of securities acquired in the FCB acquisition,
both primarily in the
held-to-maturity
investment portfolio.
Held-to-maturity
securities were $8.2 billion at March 31, 2011,
compared with $1.5 billion at December 31, 2010,
primarily reflecting increases in U.S. Treasury and agency
mortgage-backed securities, as the Company increased its
on-balance sheet liquidity in response to anticipated
regulatory requirements.
The Company conducts a regular assessment of its investment
portfolio to determine whether any securities are
other-than-temporarily
impaired. At March 31, 2011, the Company’s net
unrealized loss on
|
|
5 |
Table of Contents
Table 4 Investment Securities
| Available-for-Sale | Held-to-Maturity | ||||||||||||||||||||||||||||||||||
|
Weighted-
|
Weighted-
|
||||||||||||||||||||||||||||||||||
|
Average
|
Weighted-
|
Average
|
Weighted-
|
||||||||||||||||||||||||||||||||
|
Amortized
|
Fair
|
Maturity in
|
Average
|
Amortized
|
Fair
|
Maturity in
|
Average
|
||||||||||||||||||||||||||||
| March 31, 2011 (Dollars in Millions) | Cost | Value | Years | Yield (e) | Cost | Value | Years | Yield (e) | |||||||||||||||||||||||||||
|
U.S. Treasury and Agencies
|
|||||||||||||||||||||||||||||||||||
|
Maturing in one year or less
|
$ | 905 | $ | 907 | .3 | 2.01 | % | $ | – | $ | – | – | – | % | |||||||||||||||||||||
|
Maturing after one year through five years
|
1,605 | 1,579 | 2.6 | 1.21 | 1,419 | 1,410 | 2.9 | 1.04 | |||||||||||||||||||||||||||
|
Maturing after five years through ten years
|
33 | 34 | 6.7 | 4.87 | – | – | – | – | |||||||||||||||||||||||||||
|
Maturing after ten years
|
18 | 17 | 12.0 | 3.66 | 62 | 62 | 11.0 | 1.76 | |||||||||||||||||||||||||||
|
Total
|
$ | 2,561 | $ | 2,537 | 1.9 | 1.56 | % | $ | 1,481 | $ | 1,472 | 3.2 | 1.07 | % | |||||||||||||||||||||
|
Mortgage-Backed Securities(a)
|
|||||||||||||||||||||||||||||||||||
|
Maturing in one year or less
|
$ | 527 | $ | 528 | .7 | 2.51 | % | $ | 105 | $ | 105 | .8 | 1.48 | % | |||||||||||||||||||||
|
Maturing after one year through five years
|
16,224 | 16,466 | 3.7 | 3.09 | 3,126 | 3,130 | 3.7 | 2.77 | |||||||||||||||||||||||||||
|
Maturing after five years through ten years
|
18,359 | 18,377 | 6.2 | 3.01 | 2,573 | 2,569 | 6.1 | 3.14 | |||||||||||||||||||||||||||
|
Maturing after ten years
|
5,259 | 5,277 | 13.4 | 1.55 | 530 | 532 | 14.0 | 1.45 | |||||||||||||||||||||||||||
|
Total
|
$ | 40,369 | $ | 40,648 | 6.1 | 2.84 | % | $ | 6,334 | $ | 6,336 | 5.5 | 2.79 | % | |||||||||||||||||||||
|
Asset-Backed Securities(a)
|
|||||||||||||||||||||||||||||||||||
|
Maturing in one year or less
|
$ | 3 | $ | 12 | .4 | 15.16 | % | $ | 103 | $ | 102 | .1 | .59 | % | |||||||||||||||||||||
|
Maturing after one year through five years
|
173 | 191 | 2.8 | 13.55 | 55 | 59 | 2.1 | .94 | |||||||||||||||||||||||||||
|
Maturing after five years through ten years
|
481 | 501 | 7.6 | 3.60 | 49 | 48 | 5.8 | .90 | |||||||||||||||||||||||||||
|
Maturing after ten years
|
250 | 247 | 10.4 | 2.24 | 33 | 29 | 23.1 | .80 | |||||||||||||||||||||||||||
|
Total
|
$ | 907 | $ | 951 | 7.5 | 5.16 | % | $ | 240 | $ | 238 | 4.9 | .76 | % | |||||||||||||||||||||
|
Obligations of State and Political
|
|||||||||||||||||||||||||||||||||||
|
Subdivisions(b)(c)
|
|||||||||||||||||||||||||||||||||||
|
Maturing in one year or less
|
$ | 15 | $ | 14 | .7 | 5.92 | % | $ | – | $ | – | .5 | 6.99 | % | |||||||||||||||||||||
|
Maturing after one year through five years
|
991 | 992 | 3.9 | 6.03 | 6 | 6 | 3.6 | 8.02 | |||||||||||||||||||||||||||
|
Maturing after five years through ten years
|
856 | 845 | 6.4 | 6.62 | 5 | 6 | 6.1 | 6.56 | |||||||||||||||||||||||||||
|
Maturing after ten years
|
4,966 | 4,561 | 21.2 | 6.86 | 15 | 14 | 15.8 | 5.53 | |||||||||||||||||||||||||||
|
Total
|
$ | 6,828 | $ | 6,412 | 16.8 | 6.71 | % | $ | 26 | $ | 26 | 10.9 | 6.30 | % | |||||||||||||||||||||
|
Other Debt Securities
|
|||||||||||||||||||||||||||||||||||
|
Maturing in one year or less
|
$ | 10 | $ | 12 | .7 | 4.30 | % | $ | – | $ | – | – | – | % | |||||||||||||||||||||
|
Maturing after one year through five years
|
63 | 55 | 1.1 | 6.20 | 14 | 12 | 2.3 | 1.27 | |||||||||||||||||||||||||||
|
Maturing after five years through ten years
|
31 | 30 | 6.5 | 6.33 | 118 | 95 | 7.5 | 1.15 | |||||||||||||||||||||||||||
|
Maturing after ten years
|
1,332 | 1,218 | 31.7 | 4.17 | – | – | – | – | |||||||||||||||||||||||||||
|
Total
|
$ | 1,436 | $ | 1,315 | 29.6 | 4.31 | % | $ | 132 | $ | 107 | 7.0 | 1.16 | % | |||||||||||||||||||||
|
Other Investments
|
$ | 341 | $ | 385 | 16.1 | 3.87 | % | $ | – | $ | – | – | – | % | |||||||||||||||||||||
|
Total investment securities (d)
|
$ | 52,442 | $ | 52,248 | 8.0 | 3.37 | % | $ | 8,213 | $ | 8,179 | 5.1 | 2.41 | % | |||||||||||||||||||||
| (a) | Information related to asset and mortgage-backed securities included above is presented based upon weighted-average maturities anticipating future prepayments. |
| (b) | Information related to obligations of state and political subdivisions is presented based upon yield to first optional call date if the security is purchased at a premium, yield to maturity if purchased at par or a discount. | |
| (c) | 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 7.4 years at December 31, 2010, with a corresponding weighted-average yield of 3.41 percent. The weighted-average maturity of the held-to-maturity investment securities was 6.3 years at December 31, 2010, with a corresponding weighted-average yield of 2.07 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. |
| March 31, 2011 | December 31, 2010 | ||||||||||||||||
|
Amortized
|
Percent
|
Amortized
|
Percent
|
||||||||||||||
| (Dollars in Millions) | Cost | of Total | Cost | of Total | |||||||||||||
|
U.S. Treasury and agencies
|
$ | 4,042 | 6.7 | % | $ | 2,724 | 5.1 | % | |||||||||
|
Mortgage-backed securities
|
46,703 | 77.0 | 40,654 | 76.2 | |||||||||||||
|
Asset-backed securities
|
1,147 | 1.9 | 1,197 | 2.3 | |||||||||||||
|
Obligations of state and political subdivisions
|
6,854 | 11.3 | 6,862 | 12.9 | |||||||||||||
|
Other debt securities and investments
|
1,909 | 3.1 | 1,887 | 3.5 | |||||||||||||
|
Total investment securities
|
$ | 60,655 | 100.0 | % | $ | 53,324 | 100.0 | % | |||||||||
available-for-sale
securities was $194 million, compared with
$346 million at December 31, 2010. The favorable
change in net unrealized losses was primarily due to increases
in the fair value of non-agency mortgage-backed securities and
trust preferred securities. Unrealized losses on
available-for-sale
securities in an unrealized loss position totaled
$1.1 billion at March 31, 2011, compared with
$1.2 billion at December 31, 2010. 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 March 31,
|
|
U.S. Bancorp |
Table of Contents
2011, the Company had no plans to sell securities with
unrealized losses and believes it is more likely than not that
it would not be required to sell such securities before recovery
of their amortized cost.
There is limited market activity for 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 $6 million of impairment
charges in earnings during the first quarter of 2011,
predominately on non-agency mortgage-backed securities. These
impairment charges were due to changes in expected cash flows
resulting from increases in defaults in the underlying mortgage
pools. Further adverse changes in market conditions may result
in additional impairment charges in future periods. Refer to
Notes 4 and 12 in the Notes to Consolidated Financial
Statements for further information on investment securities.
Deposits
Total
deposits were $208.3 billion at March 31, 2011,
compared with $204.3 billion at December 31, 2010, the
result of increases in savings, noninterest-bearing and time
deposits, partially offset by decreases in money market and
interest checking deposits. Savings account balances increased
$2.1 billion (8.6 percent), primarily due to continued
strong participation in a savings product offered by Consumer
and Small Business Banking. Noninterest-bearing deposits
increased $1.7 billion (3.8 percent), primarily due to
increases in Wholesale Banking and Commercial Real Estate
balances. Time certificates of deposit less than $100,000
increased $289 million (1.9 percent) primarily due to
the FCB acquisition. Time deposits greater than $100,000
increased $2.4 billion (8.0 percent), principally due
to higher Wholesale Banking and Commercial Real Estate and
institutional trust balances and the FCB acquisition. Time
deposits greater than $100,000 are managed as an alternative to
other funding sources, such as wholesale borrowing, based
largely on relative pricing. Money market balances decreased
$1.6 billion (3.4 percent) primarily due to lower
broker dealer balances. Interest checking balances decreased
$840 million (1.9 percent) primarily due to lower
institutional trust balances.
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
$31.0 billion at March 31, 2011, compared with
$32.6 billion at December 31, 2010. The
$1.6 billion (4.7 percent) decrease in short-term
borrowings was primarily in repurchase agreements and reflected
reduced borrowing needs as a result of increases in deposits.
Long-term debt was $31.8 billion at March 31, 2011,
compared with $31.5 billion at December 31, 2010. The
$.3 billion (.8 percent) increase was primarily due to
an increase in long-term debt related to certain consolidated
variable interest entities. 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, mortgage servicing rights (“MSRs”) and
derivatives that are accounted for on a fair value 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
|
|
7 |
Table of Contents
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, 2010, for a more detailed
discussion on credit risk management processes.
The Company manages its credit risk, in part, through
diversification of its loan portfolio and limit setting by
product type criteria and concentrations. As part of its normal
business activities, the Company offers a broad array of
commercial and retail lending products. The Company’s
retail lending business utilizes several distinct business
processes and channels to originate retail credit, including
traditional branch lending, indirect lending, portfolio
acquisitions and a consumer finance division. Generally, loans
managed by the Company’s consumer finance division exhibit
higher credit risk characteristics, but are priced commensurate
with the differing risk profile. With respect to residential
mortgages originated through these channels, the Company may
either retain the loans on its balance sheet or sell its
interest in the balances into the secondary market while
retaining the servicing rights and customer relationships. For
residential mortgages that are retained in the Company’s
portfolio and for home equity and second mortgages, credit risk
is also diversified by geography and managed by adherence to
loan-to-value
and borrower credit criteria during the underwriting process.
The following tables provide summary information of the
loan-to-values
of residential mortgages and home equity and second mortgages by
distribution channel and type at March 31, 2011 (excluding
covered loans):
|
Residential
mortgages
|
Interest
|
Percent
|
||||||||||||||||
| (Dollars in Millions) | Only | Amortizing | Total | of Total | ||||||||||||||
|
Consumer Finance
|
||||||||||||||||||
|
Less than or equal to 80%
|
$ | 1,415 | $ | 5,162 | $ | 6,577 | 54.9 | % | ||||||||||
|
Over 80% through 90%
|
463 | 2,573 | 3,036 | 25.3 | ||||||||||||||
|
Over 90% through 100%
|
425 | 1,789 | 2,214 | 18.5 | ||||||||||||||
|
Over 100%
|
– | 162 | 162 | 1.3 | ||||||||||||||
|
Total
|
$ | 2,303 | $ | 9,686 | $ | 11,989 | 100.0 | % | ||||||||||
|
Other Retail
|
||||||||||||||||||
|
Less than or equal to 80%
|
$ | 1,900 | $ | 17,010 | $ | 18,910 | 92.9 | % | ||||||||||
|
Over 80% through 90%
|
53 | 686 | 739 | 3.6 | ||||||||||||||
|
Over 90% through 100%
|
66 | 640 | 706 | 3.5 | ||||||||||||||
|
Over 100%
|
– | – | – | – | ||||||||||||||
|
Total
|
$ | 2,019 | $ | 18,336 | $ | 20,355 | 100.0 | % | ||||||||||
|
Total Company
|
||||||||||||||||||
|
Less than or equal to 80%
|
$ | 3,315 | $ | 22,172 | $ | 25,487 | 78.8 | % | ||||||||||
|
Over 80% through 90%
|
516 | 3,259 | 3,775 | 11.7 | ||||||||||||||
|
Over 90% through 100%
|
491 | 2,429 | 2,920 | 9.0 | ||||||||||||||
|
Over 100%
|
– | 162 | 162 | .5 | ||||||||||||||
|
Total
|
$ | 4,322 | $ | 28,022 | $ | 32,344 | 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%
|
$ | 1,067 | $ | 194 | $ | 1,261 | 50.6 | % | ||||||||||
|
Over 80% through 90%
|
446 | 139 | 585 | 23.5 | ||||||||||||||
|
Over 90% through 100%
|
317 | 219 | 536 | 21.5 | ||||||||||||||
|
Over 100%
|
50 | 60 | 110 | 4.4 | ||||||||||||||
|
Total
|
$ | 1,880 | $ | 612 | $ | 2,492 | 100.0 | % | ||||||||||
|
Other Retail
|
||||||||||||||||||
|
Less than or equal to 80%
|
$ | 11,408 | $ | 1,176 | $ | 12,584 | 78.0 | % | ||||||||||
|
Over 80% through 90%
|
2,052 | 448 | 2,500 | 15.5 | ||||||||||||||
|
Over 90% through 100%
|
641 | 345 | 986 | 6.1 | ||||||||||||||
|
Over 100%
|
41 | 25 | 66 | .4 | ||||||||||||||
|
Total
|
$ | 14,142 | $ | 1,994 | $ | 16,136 | 100.0 | % | ||||||||||
|
Total Company
|
||||||||||||||||||
|
Less than or equal to 80%
|
$ | 12,475 | $ | 1,370 | $ | 13,845 | 74.3 | % | ||||||||||
|
Over 80% through 90%
|
2,498 | 587 | 3,085 | 16.6 | ||||||||||||||
|
Over 90% through 100%
|
958 | 564 | 1,522 | 8.2 | ||||||||||||||
|
Over 100%
|
91 | 85 | 176 | .9 | ||||||||||||||
|
Total
|
$ | 16,022 | $ | 2,606 | $ | 18,628 | 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. |
|
|
U.S. Bancorp |
Table of Contents
Within the consumer finance division, at March 31, 2011,
approximately $2.1 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, unchanged from December 31,
2010.
The following table provides further information on the
loan-to-values
of residential mortgages specifically for the consumer finance
division at March 31, 2011:
|
Interest
|
Percent of
|
|||||||||||||||||
| (Dollars in Millions) | Only | Amortizing | Total | Division | ||||||||||||||
|
Sub-Prime
Borrowers
|
||||||||||||||||||
|
Less than or equal to 80%
|
$ | 5 | $ | 946 | $ | 951 | 7.9 | % | ||||||||||
|
Over 80% through 90%
|
2 | 474 | 476 | 4.0 | ||||||||||||||
|
Over 90% through 100%
|
13 | 574 | 587 | 4.9 | ||||||||||||||
|
Over 100%
|
– | 44 | 44 | .4 | ||||||||||||||
|
Total
|
$ | 20 | $ | 2,038 | $ | 2,058 | 17.2 | % | ||||||||||
|
Other Borrowers
|
||||||||||||||||||
|
Less than or equal to 80%
|
$ | 1,410 | $ | 4,216 | $ | 5,626 | 46.9 | % | ||||||||||
|
Over 80% through 90%
|
461 | 2,099 | 2,560 | 21.3 | ||||||||||||||
|
Over 90% through 100%
|
412 | 1,215 | 1,627 | 13.6 | ||||||||||||||
|
Over 100%
|
– | 118 | 118 | 1.0 | ||||||||||||||
|
Total
|
$ | 2,283 | $ | 7,648 | $ | 9,931 | 82.8 | % | ||||||||||
|
Total Consumer Finance
|
$ | 2,303 | $ | 9,686 | $ | 11,989 | 100.0 | % | ||||||||||
In addition to residential mortgages, at March 31, 2011,
the consumer finance division had $.5 billion of home
equity and second mortgage loans to customers that may be
defined as
sub-prime
borrowers, unchanged from December 31, 2010.
The following table provides further information on the
loan-to-values
of home equity and second mortgages specifically for the
consumer finance division at March 31, 2011:
|
Percent
|
||||||||||||||||||
| (Dollars in Millions) | Lines | Loans | Total | of Total | ||||||||||||||
|
Sub-Prime
Borrowers
|
||||||||||||||||||
|
Less than or equal to 80%
|
$ | 63 | $ | 115 | $ | 178 | 7.1 | % | ||||||||||
|
Over 80% through 90%
|
41 | 78 | 119 | 4.8 | ||||||||||||||
|
Over 90% through 100%
|
7 | 133 | 140 | 5.6 | ||||||||||||||
|
Over 100%
|
33 | 48 | 81 | 3.3 | ||||||||||||||
|
Total
|
$ | 144 | $ | 374 | $ | 518 | 20.8 | % | ||||||||||
|
Other Borrowers
|
||||||||||||||||||
|
Less than or equal to 80%
|
$ | 1,004 | $ | 79 | $ | 1,083 | 43.4 | % | ||||||||||
|
Over 80% through 90%
|
405 | 61 | 466 | 18.7 | ||||||||||||||
|
Over 90% through 100%
|
310 | 86 | 396 | 15.9 | ||||||||||||||
|
Over 100%
|
17 | 12 | 29 | 1.2 | ||||||||||||||
|
Total
|
$ | 1,736 | $ | 238 | $ | 1,974 | 79.2 | % | ||||||||||
|
Total Consumer Finance
|
$ | 1,880 | $ | 612 | $ | 2,492 | 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 .8 percent of total assets at
March 31, 2011, compared with .9 percent at
December 31, 2010. Covered loans included $1.5 billion
in loans with
negative-amortization
payment options at March 31, 2011, compared with
$1.6 billion at December 31, 2010. Other than covered
loans, the Company does not have any residential mortgages with
payment schedules that would cause balances to increase over
time.
Table 5 Delinquent Loan Ratios as a Percent of Ending Loan Balances
|
March 31,
|
December 31,
|
|||||||
| 90 days or more past due excluding nonperforming loans | 2011 | 2010 | ||||||
|
Commercial
|
||||||||
|
Commercial
|
.13 | % | .15 | % | ||||
|
Lease financing
|
.03 | .02 | ||||||
|
Total commercial
|
.12 | .13 | ||||||
|
Commercial Real Estate
|
||||||||
|
Commercial mortgages
|
.02 | – | ||||||
|
Construction and development
|
.01 | .01 | ||||||
|
Total commercial real estate
|
.02 | – | ||||||
|
Residential Mortgages
|
1.33 | 1.63 | ||||||
|
Retail
|
||||||||
|
Credit card
|
1.62 | 1.86 | ||||||
|
Retail leasing
|
.04 | .05 | ||||||
|
Other retail
|
.45 | .49 | ||||||
|
Total retail
|
.71 | .81 | ||||||
|
Total loans, excluding covered loans
|
.52 | .61 | ||||||
|
Covered Loans
|
5.83 | 6.04 | ||||||
|
Total loans
|
.99 | % | 1.11 | % | ||||
|
March 31,
|
December 31,
|
|||||||
| 90 days or more past due including nonperforming loans | 2011 | 2010 | ||||||
|
Commercial
|
1.12 | % | 1.37 | % | ||||
|
Commercial real estate
|
4.17 | 3.73 | ||||||
|
Residential mortgages (a)
|
3.45 | 3.70 | ||||||
|
Retail (b)
|
1.23 | 1.26 | ||||||
|
Total loans, excluding covered loans
|
2.17 | 2.19 | ||||||
|
Covered loans
|
12.51 | 12.94 | ||||||
|
Total loans
|
3.07 | % | 3.17 | % | ||||
| (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 11.42 percent at March 31, 2011, and 12.28 percent at December 31, 2010. |
| (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 March 31, 2011, and 1.60 percent at December 31, 2010. |
|
|
9 |
Table of Contents
Loan
Delinquencies
Trends
in delinquency ratios are an indicator, among other
considerations, of credit risk within the Company’s loan
portfolios. The Company measures delinquencies, both including
and excluding nonperforming loans, to enable comparability with
other companies. Accruing loans 90 days or more past due
totaled $2.0 billion ($949 million excluding covered
loans) at March 31, 2011, compared with $2.2 billion
($1.1 billion excluding covered loans) at December 31,
2010. The $145 million (13.3 percent) decrease,
excluding covered loans, reflected a moderation in the level of
stress in economic conditions in the first quarter of 2011.
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 .99 percent (.52 percent
excluding covered loans) at March 31, 2011, compared with
1.11 percent (.61 percent excluding covered loans) at
December 31, 2010.
The following table provides summary delinquency information for
residential mortgages and retail loans, excluding covered loans:
|
As a Percent of
Ending
|
||||||||||||||||||
| Amount | Loan Balances | |||||||||||||||||
|
March 31,
|
December 31,
|
March 31,
|
December 31,
|
|||||||||||||||
| (Dollars in Millions) | 2011 | 2010 | 2011 | 2010 | ||||||||||||||
|
Residential mortgages
|
||||||||||||||||||
|
30-89 days
|
$ | 395 | $ | 456 | 1.22 | % | 1.48 | % | ||||||||||
|
90 days or more
|
432 | 500 | 1.33 | 1.63 | ||||||||||||||
|
Nonperforming
|
685 | 636 | 2.12 | 2.07 | ||||||||||||||
|
Total
|
$ | 1,512 | $ | 1,592 | 4.67 | % | 5.18 | % | ||||||||||
|
Retail
|
||||||||||||||||||
|
Credit card
|
||||||||||||||||||
|
30-89 days
|
$ | 228 | $ | 269 | 1.44 | % | 1.60 | % | ||||||||||
|
90 days or more
|
258 | 313 | 1.62 | 1.86 | ||||||||||||||
|
Nonperforming
|
255 | 228 | 1.61 | 1.36 | ||||||||||||||
|
Total
|
$ | 741 | $ | 810 | 4.67 | % | 4.82 | % | ||||||||||
|
Retail leasing
|
||||||||||||||||||
|
30-89 days
|
$ | 12 | $ | 17 | .26 | % | .37 | % | ||||||||||
|
90 days or more
|
2 | 2 | .04 | .05 | ||||||||||||||
|
Nonperforming
|
– | – | – | – | ||||||||||||||
|
Total
|
$ | 14 | $ | 19 | .30 | % | .42 | % | ||||||||||
|
Home equity and second mortgages
|
||||||||||||||||||
|
30-89 days
|
$ | 151 | $ | 175 | .81 | % | .93 | % | ||||||||||
|
90 days or more
|
133 | 148 | .71 | .78 | ||||||||||||||
|
Nonperforming
|
42 | 36 | .23 | .19 | ||||||||||||||
|
Total
|
$ | 326 | $ | 359 | 1.75 | % | 1.90 | % | ||||||||||
|
Other retail
|
||||||||||||||||||
|
30-89 days
|
$ | 154 | $ | 212 | .63 | % | .85 | % | ||||||||||
|
90 days or more
|
60 | 66 | .25 | .26 | ||||||||||||||
|
Nonperforming
|
33 | 29 | .13 | .12 | ||||||||||||||
|
Total
|
$ | 247 | $ | 307 | 1.01 | % | 1.23 | % | ||||||||||
|
|
U.S. Bancorp |
Table of Contents
The following table provides information on delinquent and
nonperforming loans, excluding covered loans, as a percent of
ending loan balances, by channel:
| Consumer Finance (a) | Other Retail | |||||||||||||||||
|
March 31,
|
December 31,
|
March 31,
|
December 31,
|
|||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||||
|
Residential mortgages
|
||||||||||||||||||
|
30-89 days
|
1.90 | % | 2.38 | % | .82 | % | .95 | % | ||||||||||
|
90 days or more
|
1.85 | 2.26 | 1.03 | 1.24 | ||||||||||||||
|
Nonperforming
|
2.93 | 2.99 | 1.64 | 1.52 | ||||||||||||||
|
Total
|
6.68 | % | 7.63 | % | 3.49 | % | 3.71 | % | ||||||||||
|
Retail
|
||||||||||||||||||
|
Credit card
|
||||||||||||||||||
|
30-89 days
|
– | % | – | % | 1.44 | % | 1.60 | % | ||||||||||
|
90 days or more
|
– | – | 1.62 | 1.86 | ||||||||||||||
|
Nonperforming
|
– | – | 1.61 | 1.36 | ||||||||||||||
|
Total
|
– | % | – | % | 4.67 | % | 4.82 | % | ||||||||||
|
Retail leasing
|
||||||||||||||||||
|
30-89 days
|
– | % | – | % | .26 | % | .37 | % | ||||||||||
|
90 days or more
|
– | – | .04 | .05 | ||||||||||||||
|
Nonperforming
|
– | – | – | – | ||||||||||||||
|
Total
|
– | % | – | % | .30 | % | .42 | % | ||||||||||
|
Home equity and second mortgages
|
||||||||||||||||||
|
30-89 days
|
1.61 | % | 1.98 | % | .69 | % | .76 | % | ||||||||||
|
90 days or more
|
1.40 | 1.82 | .60 | .62 | ||||||||||||||
|
Nonperforming
|
.20 | .20 | .23 | .19 | ||||||||||||||
|
Total
|
3.21 | % | 4.00 | % | 1.52 | % | 1.57 | % | ||||||||||
|
Other retail
|
||||||||||||||||||
|
30-89 days
|
3.16 | % | 4.42 | % | .57 | % | .77 | % | ||||||||||
|
90 days or more
|
.66 | .68 | .23 | .25 | ||||||||||||||
|
Nonperforming
|
– | – | .14 | .12 | ||||||||||||||
|
Total
|
3.82 | % | 5.10 | % | .94 | % | 1.14 | % | ||||||||||
| (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. |
Within the consumer finance division at March 31, 2011,
approximately $364 million and $59 million of these
delinquent and nonperforming residential mortgages and home
equity and other retail loans, respectively, were to customers
that may be defined as
sub-prime
borrowers, compared with $412 million and $75 million,
respectively, at December 31, 2010.
The following table provides summary delinquency information for
covered loans:
|
As a Percent of
|
||||||||||||||||||
|
Ending
|
||||||||||||||||||
| Amount | Loan Balances | |||||||||||||||||
|
March 31,
|
December 31,
|
March 31,
|
December 31,
|
|||||||||||||||
| (Dollars in Millions) | 2011 | 2010 | 2011 | 2010 | ||||||||||||||
|
30-89 days
|
$ | 743 | $ | 757 | 4.31 | % | 4.19 | % | ||||||||||
|
90 days or more
|
1,005 | 1,090 | 5.83 | 6.04 | ||||||||||||||
|
Nonperforming
|
1,151 | 1,244 | 6.68 | 6.90 | ||||||||||||||
|
Total
|
$ | 2,899 | $ | 3,091 | 16.82 | % | 17.13 | % | ||||||||||
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
March 31, 2011, loans modified under these programs,
excluding loans purchased from GNMA mortgage pools whose
repayments are insured by the Federal Housing Administration or
guaranteed by the Department of Veterans Affairs, represented
less than 1.0 percent of total residential mortgage loan
balances and 1.5 percent of credit card receivable
balances, compared with less than 1.0 percent of total
mortgage loan balances and 1.9 percent of credit card
receivable balances at December 31, 2010. Because these
changes have an insignificant impact on the economic return on
the loan, the Company does not consider loans modified
|
|
11 |
Table of Contents
under these hardship programs to be TDRs. The Company determines
applicable allowances for credit 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 1.3 percent of total commercial and
commercial real estate loan balances at March 31, 2011,
compared with approximately 1.1 percent at
December 31, 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 credit 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 March 31, 2011 and
December 31, 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 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 | ||||||||||||||||||||||
|
March 31,
2011
|
Performing
|
30-89 Days
|
90 Days or more
|
Nonperforming
|
Total
|
|||||||||||||||||
| (Dollars in Millions) | TDRs | Past Due | Past Due | TDRs | TDRs | |||||||||||||||||
|
Commercial
|
$ | 59 | 43.2 | % | 3.4 | % | $ | 66 | (b) | $ | 125 | |||||||||||
|
Commercial real estate
|
184 | – | – | 152 | (b) | 336 | ||||||||||||||||
|
Residential mortgages (a)
|
1,890 | 4.9 | 5.3 | 156 | 2,046 | |||||||||||||||||
|
Credit card
|
212 | 10.2 | 7.0 | 255 | (c) | 467 | ||||||||||||||||
|
Other retail
|
86 | 7.8 | 5.7 | 31 | 117 | |||||||||||||||||
|
Total
|
$ | 2,431 | 6.0 | % | 5.0 | % | $ | 660 | $ | 3,091 | ||||||||||||
| (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. |
|
|
U.S. Bancorp |
Table of Contents
The following table provides a summary of TDRs, excluding
covered loans, that continue to accrue interest:
|
As a Percent of
|
||||||||||||||||||
|
Ending
|
||||||||||||||||||
| Amount | Loan Balances | |||||||||||||||||
|
March 31,
|
December 31,
|
March 31,
|
December 31,
|
|||||||||||||||
| (Dollars in Millions) | 2011 | 2010 | 2011 | 2010 | ||||||||||||||
|
Commercial
|
$ | 59 | $ | 77 | .12 | % | .16 | % | ||||||||||
|
Commercial real estate
|
184 | 15 | .52 | .04 | ||||||||||||||
|
Residential mortgages (a)
|
1,890 | 1,804 | 5.84 | 5.87 | ||||||||||||||
|
Credit card
|
212 | 224 | 1.34 | 1.33 | ||||||||||||||
|
Other retail
|
86 | 87 | .18 | .18 | ||||||||||||||
|
Total
|
$ | 2,431 | $ | 2,207 | 1.23 | % | 1.12 | % | ||||||||||
| (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 continue to accrue interest
were $224 million higher at March 31, 2011, than at
December 31, 2010, primarily reflecting loan modifications
for certain commercial real estate and residential mortgage
customers in light of current economic conditions. The Company
continues to actively work with customers to modify loans for
borrowers who are having financial difficulties, including those
acquired through FDIC-assisted acquisitions.
Nonperforming
Assets
The
level of nonperforming assets represents another indicator of
the potential for future credit losses. Nonperforming assets
include nonaccrual loans, restructured loans not performing in
accordance with modified terms, other real estate and other
nonperforming assets owned by the Company, and are generally
either originated by the Company or acquired under FDIC loss
sharing agreements that substantially reduce the risk of credit
losses to the Company. Additionally, nonperforming assets at
March 31, 2011 included $287 million of loans and
other real estate acquired through the recent acquisition of FCB
from the FDIC, which were not covered by a loss sharing
agreement. Assets associated with the FCB transaction were
recorded at their estimated fair value, including any discount
for expected losses, at the acquisition date and included in the
related asset categories. At March 31, 2011, total
nonperforming assets were $5.0 billion, unchanged from
December 31, 2010. Excluding covered assets, nonperforming
assets were $3.5 billion at March 31, 2011, compared
with $3.4 billion at December 31, 2010. Nonperforming
assets, excluding covered assets and nonperforming assets from
the FCB acquisition, at March 31, 2011, were
$3.2 billion, a $159 million (4.7 percent)
decrease from December 31, 2010. This decline was
principally in the commercial real estate portfolios, as the
Company continued to resolve and reduce the exposure to these
assets. There was also an improvement in other commercial
portfolios, reflecting the stabilizing economy. However, stress
continued in the residential mortgage portfolio due to the
overall duration of the economic slowdown. Nonperforming covered
assets at March 31, 2011, were $1.5 billion, compared
with $1.7 billion at December 31, 2010. 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
2.52 percent (1.92 percent excluding covered assets)
at March 31, 2011, compared with 2.55 percent
(1.87 percent excluding covered assets) at
December 31, 2010.
|
|
13 |
Table of Contents
Table 6 Nonperforming Assets (a)
|
March 31,
|
December 31,
|
|||||||
| (Dollars in Millions) | 2011 | 2010 | ||||||
|
Commercial
|
||||||||
|
Commercial
|
$ | 439 | $ | 519 | ||||
|
Lease financing
|
54 | 78 | ||||||
|
Total commercial
|
493 | 597 | ||||||
|
Commercial Real Estate
|
||||||||
|
Commercial mortgages
|
635 | 545 | ||||||
|
Construction and development
|
835 | 748 | ||||||
|
Total commercial real estate
|
1,470 | 1,293 | ||||||
|
Residential Mortgages
|
685 | 636 | ||||||
|
Retail
|
||||||||
|
Credit card
|
255 | 228 | ||||||
|
Retail leasing
|
– | – | ||||||
|
Other retail
|
75 | 65 | ||||||
|
Total retail
|
330 | 293 | ||||||
|
Total nonperforming loans, excluding covered loans
|
2,978 | 2,819 | ||||||
|
Covered Loans
|
1,151 | 1,244 | ||||||
|
Total nonperforming loans
|
4,129 | 4,063 | ||||||
|
Other Real Estate (b)(c)
|
480 | 511 | ||||||
|
Covered Other Real Estate (c)
|
390 | 453 | ||||||
|
Other Assets
|
21 | 21 | ||||||
|
Total nonperforming assets
|
$ | 5,020 | $ | 5,048 | ||||
|
Total nonperforming assets, excluding covered assets
|
$ | 3,479 | $ | 3,351 | ||||
|
Excluding covered assets:
|
||||||||
|
Accruing loans 90 days or more past due
|
$ | 949 | $ | 1,094 | ||||
|
Nonperforming loans to total loans
|
1.65 | % | 1.57 | % | ||||
|
Nonperforming assets to total loans plus other real
estate (b)
|
1.92 | % | 1.87 | % | ||||
|
Including covered assets:
|
||||||||
|
Accruing loans 90 days or more past due
|
$ | 1,954 | $ | 2,184 | ||||
|
Nonperforming loans to total loans
|
2.08 | % | 2.06 | % | ||||
|
Nonperforming assets to total loans plus other real
estate (b)
|
2.52 | % | 2.55 | % | ||||
Changes
in Nonperforming Assets
|
Commercial and
|
Retail and
|
||||||||||||
|
Commercial
|
Residential
|
||||||||||||
| (Dollars in Millions) | Real Estate | Mortgages (e) | Total | ||||||||||
|
Balance December 31, 2010
|
$ | 3,596 | $ | 1,452 | $ | 5,048 | |||||||
|
Additions to nonperforming assets
|
|||||||||||||
|
New nonaccrual loans and foreclosed properties
|
780 | 194 | 974 | ||||||||||
|
Advances on loans
|
13 | – | 13 | ||||||||||
|
Total additions
|
793 | 194 | 987 | ||||||||||
|
Reductions in nonperforming assets
|
|||||||||||||
|
Paydowns, payoffs
|
(330 | ) | (39 | ) | (369 | ) | |||||||
|
Net sales
|
(154 | ) | (47 | ) | (201 | ) | |||||||
|
Return to performing status
|
(113 | ) | (12 | ) | (125 | ) | |||||||
|
Charge-offs (d)
|
(266 | ) | (54 | ) | (320 | ) | |||||||
|
Total reductions
|
(863 | ) | (152 | ) | (1,015 | ) | |||||||
|
Net additions to (reductions in) nonperforming assets
|
(70 | ) | 42 | (28 | ) | ||||||||
|
Balance March 31, 2011
|
$ | 3,526 | $ | 1,494 | $ | 5,020 | |||||||
| (a) | Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due. |
| (b) | Excludes $563 million and $575 million at March 31, 2011, and December 31, 2010, 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. |
|
|
U.S. Bancorp |
Table of Contents
The Company expects total nonperforming assets, excluding
covered assets, to trend lower in the second quarter of 2011.
Other real estate, excluding covered assets, was
$480 million at March 31, 2011, compared with
$511 million at December 31, 2010, and was related to
foreclosed properties that previously secured loan balances.
The following table provides an analysis of other real estate
owned (“OREO”), excluding covered assets, as a percent
of their related loan balances, including geographical location
detail for residential (residential mortgage, home equity and
second mortgage) and commercial (commercial and commercial real
estate) loan balances:
|
As a Percent of
|
||||||||||||||||||
|
Ending
|
||||||||||||||||||
| Amount | Loan Balances | |||||||||||||||||
|
March 31,
|
December 31,
|
March 31,
|
December 31,
|
|||||||||||||||
| (Dollars in Millions) | 2011 | 2010 | 2011 | 2010 | ||||||||||||||
|
Residential
|
||||||||||||||||||
|
Minnesota
|
$ | 28 | $ | 28 | .52 | % | .53 | % | ||||||||||
|
California
|
19 | 21 | .29 | .34 | ||||||||||||||
|
Illinois
|
16 | 16 | .55 | .57 | ||||||||||||||
|
Nevada
|
11 | 11 | 1.52 | 1.49 | ||||||||||||||
|
Washington
|
9 | 9 | .29 | .29 | ||||||||||||||
|
All other states
|
121 | 133 | .37 | .42 | ||||||||||||||
|
Total residential
|
204 | 218 | .40 | .44 | ||||||||||||||
|
Commercial
|
||||||||||||||||||
|
Nevada
|
52 | 58 | 3.67 | 3.93 | ||||||||||||||
|
Oregon
|
30 | 26 | .86 | .74 | ||||||||||||||
|
Ohio
|
20 | 20 | .48 | .48 | ||||||||||||||
|
Colorado
|
19 | 16 | .52 | .44 | ||||||||||||||
|
California
|
19 | 23 | .14 | .18 | ||||||||||||||
|
All other states
|
136 | 150 | .23 | .26 | ||||||||||||||
|
Total commercial
|
276 | 293 | .33 | .35 | ||||||||||||||
|
Total OREO
|
$ | 480 | $ | 511 | .27 | % | .29 | % | ||||||||||
Analysis of
Loan Net
Charge-Offs
Total
net charge-offs were $805 million for the first quarter of
2011, compared with net charge-offs of $1.1 billion for the
first quarter of 2010. The ratio of total loan net charge-offs
to average loans outstanding on an annualized basis for the
first quarter of 2011 was 1.65 percent, compared with
2.39 percent for the first quarter of 2010. The decrease in
total net charge-offs for the first quarter 2011, compared with
the first quarter of 2010, was due to improvement in all major
loan portfolios. The Company expects the level of net
charge-offs to continue to trend lower in the second quarter of
2011.
Commercial and commercial real estate loan net charge-offs for
the first quarter of 2011 were $264 million
(1.28 percent of average loans outstanding on an annualized
basis), compared with $469 million (2.34 percent of
average loans outstanding on an annualized basis) for the first
quarter of 2010. The decrease reflected the impact of efforts to
resolve and reduce exposure to problem assets in the
Company’s commercial real estate portfolios and improvement
in the other commercial portfolios due to the stabilizing
economy.
Residential mortgage loan net charge-offs for the first quarter
of 2011 were $129 million (1.65 percent of average
loans outstanding on an annualized basis), compared with
$145 million (2.23 percent of average loans
outstanding on an annualized basis) for the first quarter of
2010. Retail loan net charge-offs for the first quarter of 2011
were $410 million (2.59 percent of average loans
outstanding on an annualized basis), compared with
$518 million (3.30 percent of average loans
outstanding on an annualized basis) for the first quarter of
2010. The decreases in residential mortgage and retail loan net
charge-offs for the first quarter of
Table 7 Net Charge-offs as a Percent of Average Loans Outstanding
|
Three Months
Ended
|
||||||||
| March 31, | ||||||||
| 2011 | 2010 | |||||||
|
Commercial
|
||||||||
|
Commercial
|
1.19 | % | 2.41 | % | ||||
|
Lease financing
|
.94 | 2.14 | ||||||
|
Total commercial
|
1.16 | 2.38 | ||||||
|
Commercial Real Estate
|
||||||||
|
Commercial mortgages
|
.59 | .73 | ||||||
|
Construction and development
|
4.61 | 6.80 | ||||||
|
Total commercial real estate
|
1.44 | 2.28 | ||||||
|
Residential Mortgages
|
1.65 | 2.23 | ||||||
|
Retail
|
||||||||
|
Credit card (a)
|
6.21 | 7.73 | ||||||
|
Retail leasing
|
.09 | .45 | ||||||
|
Home equity and second mortgages
|
1.75 | 1.88 | ||||||
|
Other retail
|
1.33 | 1.93 | ||||||
|
Total retail
|
2.59 | 3.30 | ||||||
|
Total loans, excluding covered loans
|
1.81 | 2.68 | ||||||
|
Covered Loans
|
.05 | .06 | ||||||
|
Total loans
|
1.65 | % | 2.39 | % | ||||
| (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 6.45 and 8.42 percent for the three months ended March 31, 2011 and 2010, respectively. |
|
|
15 |
Table of Contents
2011, compared with the first quarter of 2010, reflected the
impact of more stable economic conditions.
The following table provides an analysis of net charge-offs as a
percent of average loans outstanding managed by the consumer
finance division, compared with other retail loans:
| Three Months Ended March 31, | ||||||||||||||||||
|
Percent of
|
||||||||||||||||||
| Average Loans | Average Loans | |||||||||||||||||
| (Dollars in Millions) | 2011 | 2010 | 2011 | 2010 | ||||||||||||||
|
Consumer Finance (a)
|
||||||||||||||||||
|
Residential mortgages
|
$ | 11,895 | $ | 10,341 | 3.20 | % | 4.16 | % | ||||||||||
|
Home equity and second mortgages
|
2,507 | 2,474 | 5.01 | 6.23 | ||||||||||||||
|
Other retail
|
606 | 602 | 4.68 | 4.72 | ||||||||||||||
|
Other Retail
|
||||||||||||||||||
|
Residential mortgages
|
$ | 19,882 | $ | 16,067 | .71 | % | .98 | % | ||||||||||
|
Home equity and second mortgages
|
16,294 | 16,928 | 1.24 | 1.25 | ||||||||||||||
|
Other retail
|
24,085 | 22,741 | 1.25 | 1.85 | ||||||||||||||
|
Total Company
|
||||||||||||||||||
|
Residential mortgages
|
$ | 31,777 | $ | 26,408 | 1.65 | % | 2.23 | % | ||||||||||
|
Home equity and second mortgages
|
18,801 | 19,402 | 1.75 | 1.88 | ||||||||||||||
|
Other retail
|
24,691 | 23,343 | 1.33 | 1.93 | ||||||||||||||
| (a) | Consumer finance category included credit originated and managed by the consumer finance division, as well as the majority of home equity and second mortgages with a loan-to-value greater than 100 percent that were originated in the branches. |
The following table provides further information on net
charge-offs as a percent of average loans outstanding for the
consumer finance division:
| Three Months Ended March 31, | ||||||||||||||||||
|
Percent of
|
||||||||||||||||||
| Average Loans | Average Loans | |||||||||||||||||
| (Dollars in Millions) | 2011 | 2010 | 2011 | 2010 | ||||||||||||||
|
Residential mortgages
|
||||||||||||||||||
|
Sub-prime
borrowers
|
$ | 2,081 | $ | 2,432 | 6.43 | % | 6.67 | % | ||||||||||
|
Other borrowers
|
9,814 | 7,909 | 2.52 | 3.38 | ||||||||||||||
|
Total
|
$ | 11,895 | $ | 10,341 | 3.20 | % | 4.16 | % | ||||||||||
|
Home equity and second mortgages
|
||||||||||||||||||
|
Sub-prime
borrowers
|
$ | 527 | $ | 609 | 10.77 | % | 11.32 | % | ||||||||||
|
Other borrowers
|
1,980 | 1,865 | 3.48 | 4.57 | ||||||||||||||
|
Total
|
$ | 2,507 | $ | 2,474 | 5.01 | % | 6.23 | % | ||||||||||
Analysis and
Determination of the Allowance for Credit
Losses
The
allowance for credit 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 March 31,
2011, 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 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. Refer to “Management’s Discussion and
Analysis — Analysis and Determination of the Allowance
for Credit Losses” in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2010, for further
discussion on the analysis and determination of the allowance
for credit losses.
|
|
U.S. Bancorp |
Table of Contents
Table 8 Summary of Allowance for Credit Losses
|
Three Months
Ended
|
||||||||
| March 31, | ||||||||
| (Dollars in Millions) | 2011 | 2010 | ||||||
|
Balance at beginning of period
|
$ | 5,531 | $ | 5,264 | ||||
|
Charge-offs
|
||||||||
|
Commercial
|
||||||||
|
Commercial
|
137 | 251 | ||||||
|
Lease financing
|
24 | 45 | ||||||
|
Total commercial
|
161 | 296 | ||||||
|
Commercial real estate
|
||||||||
|
Commercial mortgages
|
45 | 47 | ||||||
|
Construction and development
|
95 | 151 | ||||||
|
Total commercial real estate
|
140 | 198 | ||||||
|
Residential mortgages
|
133 | 146 | ||||||
|
Retail
|
||||||||
|
Credit card
|
268 | 328 | ||||||
|
Retail leasing
|
4 | 9 | ||||||
|
Home equity and second mortgages
|
85 | 94 | ||||||
|
Other retail
|
106 | 132 | ||||||
|
Total retail
|
463 | 563 | ||||||
|
Covered loans (a)
|
2 | 3 | ||||||
|
Total charge-offs
|
899 | 1,206 | ||||||
|
Recoveries
|
||||||||
|
Commercial
|
||||||||
|
Commercial
|
12 | 8 | ||||||
|
Lease financing
|
10 | 11 | ||||||
|
Total commercial
|
22 | 19 | ||||||
|
Commercial real estate
|
||||||||
|
Commercial mortgages
|
5 | 1 | ||||||
|
Construction and development
|
10 | 5 | ||||||
|
Total commercial real estate
|
15 | 6 | ||||||
|
Residential mortgages
|
4 | 1 | ||||||
|
Retail
|
||||||||
|
Credit card
|
21 | 16 | ||||||
|
Retail leasing
|
3 | 4 | ||||||
|
Home equity and second mortgages
|
4 | 4 | ||||||
|
Other retail
|
25 | 21 | ||||||
|
Total retail
|
53 | 45 | ||||||
|
Covered loans (a)
|
– | – | ||||||
|
Total recoveries
|
94 | 71 | ||||||
|
Net Charge-offs
|
||||||||
|
Commercial
|
||||||||
|
Commercial
|
125 | 243 | ||||||
|
Lease financing
|
14 | 34 | ||||||
|
Total commercial
|
139 | 277 | ||||||
|
Commercial real estate
|
||||||||
|
Commercial mortgages
|
40 | 46 | ||||||
|
Construction and development
|
85 | 146 | ||||||
|
Total commercial real estate
|
125 | 192 | ||||||
|
Residential mortgages
|
129 | 145 | ||||||
|
Retail
|
||||||||
|
Credit card
|
247 | 312 | ||||||
|
Retail leasing
|
1 | 5 | ||||||
|
Home equity and second mortgages
|
81 | 90 | ||||||
|
Other retail
|
81 | 111 | ||||||
|
Total retail
|
410 | 518 | ||||||
|
Covered loans (a)
|
2 | 3 | ||||||
|
Total net charge-offs
|
805 | 1,135 | ||||||
|
Provision for credit losses
|
755 | 1,310 | ||||||
|
Net change for credit losses to be reimbursed by the FDIC
|
17 | – | ||||||
|
Acquisitions and other changes
|
– | – | ||||||
|
Balance at end of period
|
$ | 5,498 | $ | 5,439 | ||||
|
Components
|
||||||||
|
Allowance for loan losses, excluding losses to be reimbursed by
the FDIC
|
$ | 5,161 | $ | 5,235 | ||||
|
Allowance for credit losses to be reimbursed by the FDIC
|
109 | – | ||||||
|
Liability for unfunded credit commitments
|
228 | 204 | ||||||
|
Total allowance for credit losses
|
$ | 5,498 | $ | 5,439 | ||||
|
Allowance for credit losses as a percentage of
|
||||||||
|
Period-end loans, excluding covered loans
|
2.97 | % | 3.20 | % | ||||
|
Nonperforming loans, excluding covered loans
|
180 | 156 | ||||||
|
Nonperforming assets, excluding covered assets
|
154 | 136 | ||||||
|
Annualized net charge-offs, excluding covered loans
|
165 | 118 | ||||||
|
Period-end loans
|
2.78 | % | 2.85 | % | ||||
|
Nonperforming loans
|
133 | 109 | ||||||
|
Nonperforming assets
|
110 | 85 | ||||||
|
Annualized net charge-offs
|
168 | 118 | ||||||
| Note: | At March 31, 2011, $2.1 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. |
|
|
17 |
Table of Contents
At March 31, 2011, the allowance for credit losses was
$5.5 billion (2.78 percent of total loans and
2.97 percent of loans excluding covered loans), compared
with an allowance of $5.5 billion (2.81 percent of
total loans and 3.03 percent of loans excluding covered
loans) at December 31, 2010. During the first quarter of
2011, the Company increased the allowance for credit losses by
$17 million to reflect covered loan losses reimbursable by
the FDIC. The ratio of the allowance for credit losses to
nonperforming loans was 133 percent (180 percent
excluding covered loans) at March 31, 2011, compared with
136 percent (192 percent excluding covered loans) at
December 31, 2010. The ratio of the allowance for credit
losses to annualized loan net charge-offs was 168 percent
at March 31, 2011, compared with 132 percent of full
year 2010 net charge-offs at December 31, 2010.
Residual
Value Risk
Management
The
Company manages its risk to changes in the residual value of
leased assets through disciplined residual valuation setting at
the inception of a lease, diversification of its leased assets,
regular residual asset valuation reviews and monitoring of
residual value gains or losses upon the disposition of assets.
As of March 31, 2011, no significant change in the amount
of residual values or concentration of the portfolios had
occurred since December 31, 2010. 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, 2010, 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, 2010, 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 March 31,
2011, and December 31, 2010, 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, 2010, 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
Sensitivity
of Net Interest Income
| March 31, 2011 | December 31, 2010 | |||||||||||||||||||||||||||||||||||
|
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
|
* | 1.57 | % | * | 3.11 | % | * | 1.64 | % | * | 3.14 | % | ||||||||||||||||||||||||
* Given
the current level of interest rates, a downward rate scenario
can not be computed.
|
|
U.S. Bancorp |
Table of Contents
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 5.0 percent decrease in the market value of
equity at March 31, 2011, compared with a 3.6 percent
decrease at December 31, 2010. A 200 bps decrease,
where possible given current rates, would have resulted in a
4.9 percent decrease in the market value of equity at
March 31, 2011, compared with a 5.2 percent decrease
at December 31, 2010. 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, 2010, 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 from fixed-rate payments to floating-rate payments; |
| • | To convert the cash flows associated with floating-rate debt 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
support 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 may instead elect 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, interest rate swaps and forward commitments
to buy residential mortgage loans to mitigate fluctuations in
the value of its MSRs, but does not designate those derivatives
as accounting hedges.
Additionally, the Company uses forward commitments to sell
residential mortgage loans at specified prices to economically
hedge the interest rate risk in its residential mortgage loan
production activities. At March 31, 2011, the Company had
$6.5 billion of forward commitments to sell mortgage loans
hedging $3.9 billion of mortgage loans held for sale and
$4.3 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
hedging 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 one-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
|
|
19 |
Table of Contents
Table 9 Regulatory Capital Ratios
|
March 31,
|
December 31,
|
|||||||
| (Dollars in Millions) | 2011 | 2010 | ||||||
|
Tier 1 capital
|
$ | 26,821 | $ | 25,947 | ||||
|
As a percent of risk-weighted assets
|
10.8 | % | 10.5 | % | ||||
|
As a percent of adjusted quarterly average assets (leverage
ratio)
|
9.0 | % | 9.1 | % | ||||
|
Total risk-based capital
|
$ | 34,198 | $ | 33,033 | ||||
|
As a percent of risk-weighted assets
|
13.8 | % | 13.3 | % | ||||
Company’s trading VaR did not exceed $2 million during the
first quarter of 2011 and $5 million during the first
quarter of 2010.
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. 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, 2010, for further
discussion on liquidity risk management.
At March 31, 2011, parent company long-term debt
outstanding was $13.0 billion, unchanged from
December 31, 2010. As of March 31, 2011, there was no
parent company debt scheduled to mature in the remainder of 2011.
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
$5.9 billion at March 31, 2011.
Capital
Management
The
Company is committed to managing capital to maintain strong
protection for depositors and creditors and for maximum
shareholder benefit. The Company also manages its capital to
exceed regulatory capital requirements for well-capitalized bank
holding companies. Table 9 provides a summary of regulatory
capital ratios as of March 31, 2011, and December 31,
2010. All regulatory ratios exceeded regulatory
“well-capitalized” requirements. Total
U.S. Bancorp shareholders’ equity was
$30.5 billion at March 31, 2011, compared with
$29.5 billion at December 31, 2010. The increase was
primarily the result of corporate earnings, and changes in
unrealized gains and losses on
available-for-sale
investment securities included in other comprehensive income,
partially offset by dividends. Refer to “Management’s
Discussion and Analysis — Capital Management” in
the Company’s Annual Report on Form 10-K for the year ended
December 31, 2010, for further discussion on capital
management.
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 (using Basel I
definition) and tangible common equity, as a percent of
risk-weighted assets, were 8.2 percent and
7.6 percent, respectively, at March 31, 2011, compared
with 7.8 percent and 7.2 percent, respectively, at
December 31, 2010. The Company’s tangible common
equity divided by tangible assets was 6.3 percent at
March 31, 2011, compared with 6.0 percent at
December 31, 2010. Additionally, the Company’s
Tier 1 common as a percent of risk-weighted assets, under
anticipated Basel III guidelines, was 7.7 percent at
March 31, 2011. Refer to “Non-Regulatory Capital
Ratios” for further information regarding the calculation
of these measures.
During the first quarter of 2011, the Company received
regulatory approval to increase its quarterly common stock
dividend, and on March 18, 2011, increased its dividend
rate per common share by 150 percent, from $.05 per quarter
to $.125 per quarter.
On December 13, 2010, the Company announced its Board of
Directors had approved an authorization to repurchase
20 million shares of common stock through December 31,
2011. On March 18, 2011, the Company announced its Board of
Directors had approved an authorization to repurchase
50 million shares of common stock through December 31,
2011. This new authorization replaced the December 13, 2010
authorization. All shares repurchased during the first quarter
of 2011 were repurchased under the December 13, 2010 and
March 18, 2011 repurchase programs in connection with the
administration of the Company’s employee benefit plans in
the ordinary course of business.
|
|
20 |
Table of Contents
The following table provides a detailed analysis of all shares
repurchased during the first quarter of 2011:
|
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 | Programs | per Share | Programs | ||||||||||
|
January (a)
|
43,657 | $ | 27.45 | 19,956,172 | |||||||||
|
February (a)
|
741,149 | 28.50 | 19,215,023 | ||||||||||
|
March (b)
|
80,417 | 27.18 | 49,998,820 | ||||||||||
|
Total
|
865,223 | $ | 28.32 | 49,998,820 | |||||||||
| (a) | All shares purchased during January and February of 2011 were purchased under the publicly announced December 13, 2010 authorization. |
| (b) | During March of 2011, 79,237 shares were purchased under the publicly announced December 13, 2010 authorization and 1,180 shares were purchased under the publicly announced March 18, 2011 authorization. |
LINE OF
BUSINESS FINANCIAL REVIEW
The Company’s major lines of business are Wholesale Banking
and Commercial Real Estate, Consumer and Small Business Banking,
Wealth Management and 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, 2010, 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 2011, certain organization and methodology
changes were made and, accordingly, 2010 results were restated
and presented on a comparable basis.
Wholesale Banking
and Commercial Real
Estate
Wholesale
Banking and Commercial Real Estate 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 and Commercial Real
Estate contributed $206 million of the Company’s net
income in the first quarter of 2011, or an increase of
$197 million, compared with the first quarter of 2010. The
increase was primarily driven by higher net revenue and lower
provision for credit losses, partially offset by higher
noninterest expense.
Total net revenue increased $73 million (10.0 percent)
in the first quarter of 2011, compared with the first quarter of
2010. Net interest income, on a taxable-equivalent basis,
increased $45 million (9.7 percent) in the first
quarter of 2011, compared with the first quarter of 2010. The
increase was primarily due to higher average loan and deposit
balances, improved spreads on new loans and an increase in loan
fees, partially offset by the impact of declining rates on the
margin benefit from deposits. Total noninterest income increased
$28 million (10.5 percent) in the first quarter of
2011, compared with the first quarter of 2010, mainly due to
strong growth in commercial products revenue, including
syndication and other capital markets fees, foreign exchange and
international trade revenue, and commercial loan and standby
letters of credit fees.
Total noninterest expense increased $26 million
(9.5 percent) in the first quarter of 2011, compared with
the first quarter of 2010, primarily due to higher total
compensation and employee benefits expense and increased shared
services costs. The provision for credit losses decreased
$263 million (59.5 percent) in the first quarter of
2011, compared with the first quarter of 2010. The favorable
change was primarily due to a decrease in the reserve allocation
and lower net charge-offs for the first quarter of 2011,
compared with the first quarter of 2010. Nonperforming assets
were $1.4 billion at March 31, 2011, $1.6 billion
at December 31, 2010, and $2.3 billion at
March 31, 2010. Nonperforming assets as a percentage of
period-end loans were 2.50 percent at March 31, 2011,
2.87 percent at December 31, 2010, and
4.20 percent at March 31, 2010. Refer to the
“Corporate Risk Profile” section for further
information on factors impacting the credit quality of the loan
portfolios.
Consumer and
Small Business
Banking
Consumer
and Small Business 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 and Small Business Banking contributed
$132 million of the Company’s net income in the first
quarter of 2011, or a decrease of $42 million
(24.1 percent), compared with the first quarter of 2010.
The decrease was due to higher total noninterest expense,
partially offset by an increase in total net revenue.
|
|
U.S. Bancorp |
Table of Contents
Table 10 Line of Business Financial Performance
|
Wholesale Banking
and
|
Consumer and
Small
|
||||||||||||||||||||||||
| Commercial Real Estate | Business Banking | ||||||||||||||||||||||||
|
Three Months Ended
March 31
|
Percent
|
Percent
|
|||||||||||||||||||||||
| (Dollars in Millions) | 2011 | 2010 | Change | 2011 | 2010 | Change | |||||||||||||||||||
|
Condensed Income Statement
|
|||||||||||||||||||||||||
|
Net interest income (taxable-equivalent basis)
|
$ | 508 | $ | 463 | 9.7 | % | $ | 1,134 | $ | 1,033 | 9.8 | % | |||||||||||||
|
Noninterest income
|
294 | 266 | 10.5 | 607 | 669 | (9.3 | ) | ||||||||||||||||||
|
Securities gains (losses), net
|
– | – | – | – | – | – | |||||||||||||||||||
|
Total net revenue
|
802 | 729 | 10.0 | 1,741 | 1,702 | 2.3 | |||||||||||||||||||
|
Noninterest expense
|
296 | 270 | 9.6 | 1,118 | 1,004 | 11.4 | |||||||||||||||||||
|
Other intangibles
|
4 | 4 | – | 18 | 28 | (35.7 | ) | ||||||||||||||||||
|
Total noninterest expense
|
300 | 274 | 9.5 | 1,136 | 1,032 | 10.1 | |||||||||||||||||||
|
Income before provision and income taxes
|
502 | 455 | 10.3 | 605 | 670 | (9.7 | ) | ||||||||||||||||||
|
Provision for credit losses
|
179 | 442 | (59.5 | ) | 398 | 396 | .5 | ||||||||||||||||||
|
Income before income taxes
|
323 | 13 | * | 207 | 274 | (24.5 | ) | ||||||||||||||||||
|
Income taxes and taxable-equivalent adjustment
|
118 | 5 | * | 75 | 100 | (25.0 | ) | ||||||||||||||||||
|
Net income
|
205 | 8 | * | 132 | 174 | (24.1 | ) | ||||||||||||||||||
|
Net (income) loss attributable to noncontrolling interests
|
1 | 1 | – | – | – | – | |||||||||||||||||||
|
Net income attributable to U.S. Bancorp
|
$ | 206 | $ | 9 | * | $ | 132 | $ | 174 | (24.1 | ) | ||||||||||||||
|
Average Balance Sheet
|
|||||||||||||||||||||||||
|
Commercial
|
$ | 35,278 | $ | 33,822 | 4.3 | % | $ | 7,097 | $ | 7,203 | (1.5 | )% | |||||||||||||
|
Commercial real estate
|
19,193 | 19,872 | (3.4 | ) | 15,147 | 13,219 | 14.6 | ||||||||||||||||||
|
Residential mortgages
|
61 | 68 | (10.3 | ) | 31,330 | 25,957 | 20.7 | ||||||||||||||||||
|
Retail
|
7 | 45 | (84.4 | ) | 45,544 | 44,601 | 2.1 | ||||||||||||||||||
|
Total loans, excluding covered loans
|
54,539 | 53,807 | 1.4 | 99,118 | 90,980 | 8.9 | |||||||||||||||||||
|
Covered loans
|
1,862 | 2,152 | (13.5 | ) | 8,758 | 9,967 | (12.1 | ) | |||||||||||||||||
|
Total loans
|
56,401 | 55,959 | .8 | 107,876 | 100,947 | 6.9 | |||||||||||||||||||
|
Goodwill
|
1,604 | 1,608 | (.2 | ) | 3,535 | 3,531 | .1 | ||||||||||||||||||
|
Other intangible assets
|
59 | 76 | (22.4 | ) | 2,228 | 2,049 | 8.7 | ||||||||||||||||||
|
Assets
|
61,894 | 60,944 | 1.6 | 123,455 | 113,561 | 8.7 | |||||||||||||||||||
|
Noninterest-bearing deposits
|
19,995 | 16,122 | 24.0 | 17,192 | 15,591 | 10.3 | |||||||||||||||||||
|
Interest checking
|
13,998 | 13,934 | .5 | 25,375 | 23,232 | 9.2 | |||||||||||||||||||
|
Savings products
|
9,803 | 11,158 | (12.1 | ) | 39,611 | 34,036 | 16.4 | ||||||||||||||||||
|
Time deposits
|
12,663 | 11,080 | 14.3 | 24,280 | 28,321 | (14.3 | ) | ||||||||||||||||||
|
Total deposits
|
56,459 | 52,294 | 8.0 | 106,458 | 101,180 | 5.2 | |||||||||||||||||||
|
Total U.S. Bancorp shareholders’ equity
|
5,508 | 5,410 | 1.8 | 9,262 | 8,430 | 9.9 | |||||||||||||||||||
* Not
meaningful
Within Consumer and Small Business Banking, the retail banking
division contributed $18 million of the total net income in
the first quarter of 2011, or a decrease of $56 million
(75.7 percent) from the first quarter of 2010. Mortgage
banking contributed $114 million of Consumer and Small
Business Banking’s net income in the first quarter of 2011,
or an increase of $14 million (14.0 percent) from the
first quarter of 2010.
Total net revenue increased $39 million (2.3 percent)
in the first quarter of 2011, compared with the first quarter of
2010. Net interest income, on a taxable-equivalent basis,
increased $101 million (9.8 percent) in the first
quarter of 2011, compared with the first quarter of 2010. The
year-over-year
increase in net interest income was due to improved loan
spreads, and higher loan and deposit volumes, partially offset
by a decline in the margin benefit from deposits. Total
noninterest income decreased $62 million (9.3 percent)
in the first quarter of 2011, compared with the first quarter of
2010. The
year-over-year
decrease in noninterest income was driven by a reduction in
deposit service charges, reflecting the impact of
Company-initiated and regulatory revisions to overdraft fee
policies, partially offset by core account growth.
Total noninterest expense increased $104 million
(10.1 percent) in the first quarter of 2011, compared with
the first quarter of 2010. The increase reflected higher
compensation and employee benefits expense, shared services
costs and net occupancy and equipment expenses related to
business expansion, partially offset by lower other intangibles
expense.
The provision for credit losses increased $2 million
(.5 percent) in the first quarter of 2011, compared with
the first quarter of 2010, as lower net charge-offs were offset
by an increase in the reserve allocation. As a percentage of
average loans outstanding on an annualized basis, net
charge-offs decreased to 1.28 percent in the first quarter
of 2011, compared with 1.64 percent in the first quarter of
2010. Nonperforming assets were $1.8 billion at
March 31, 2011, $1.5 billion at December 31,
2010, and $1.7 billion at March 31, 2010. The increase
in nonperforming assets at March 31, 2011, compared with
December 31, 2010, was due to the FCB acquisition.
Nonperforming assets as a percentage of period-end loans were
1.66 percent at March 31, 2011, 1.44 percent at
December 31, 2010, and 1.64 percent at March 31,
2010. Refer to the “Corporate Risk Profile” section
for further information
|
|
U.S. Bancorp |
Table of Contents
|
Wealth Management
and
|
Payment
|
Treasury and
|
Consolidated
|
|||||||||||||||||||||||||||||||||||||||||||||
| Securities Services | Services | Corporate Support | Company | |||||||||||||||||||||||||||||||||||||||||||||
|
Percent
|
Percent
|
Percent
|
Percent
|
|||||||||||||||||||||||||||||||||||||||||||||
| 2011 | 2010 | Change | 2011 | 2010 | Change | 2011 | 2010 | Change | 2011 | 2010 | Change | |||||||||||||||||||||||||||||||||||||
| $ | 89 | $ | 65 | 36.9 | % | $ | 331 | $ | 346 | (4.3 | )% | $ | 445 | $ | 496 | (10.3 | )% | $ | 2,507 | $ | 2,403 | 4.3 | % | |||||||||||||||||||||||||
| 269 | 269 | – | 761 | 741 | 2.7 | 86 | 7 | * | 2,017 | 1,952 | 3.3 | |||||||||||||||||||||||||||||||||||||
| – | – | – | – | – | – | (5 | ) | (34 | ) | 85.3 | (5 | ) | (34 | ) | 85.3 | |||||||||||||||||||||||||||||||||
| 358 | 334 | 7.2 | 1,092 | 1,087 | .5 | 526 | 469 | 12.2 | 4,519 | 4,321 | 4.6 | |||||||||||||||||||||||||||||||||||||
| 264 | 235 | 12.3 | 421 | 386 | 9.1 | 140 | 144 | (2.8 | ) | 2,239 | 2,039 | 9.8 | ||||||||||||||||||||||||||||||||||||
| 10 | 13 | (23.1 | ) | 43 | 52 | (17.3 | ) | – | – | – | 75 | 97 | (22.7 | ) | ||||||||||||||||||||||||||||||||||
| 274 | 248 | 10.5 | 464 | 438 | 5.9 | 140 | 144 | (2.8 | ) | 2,314 | 2,136 | 8.3 | ||||||||||||||||||||||||||||||||||||
| 84 | 86 | (2.3 | ) | 628 | 649 | (3.2 | ) | 386 | 325 | 18.8 | 2,205 | 2,185 | .9 | |||||||||||||||||||||||||||||||||||
| 5 | 2 | * | 162 | 463 | (65.0 | ) | 11 | 7 | 57.1 | 755 | 1,310 | (42.4 | ) | |||||||||||||||||||||||||||||||||||
| 79 | 84 | (6.0 | ) | 466 | 186 | * | 375 | 318 | 17.9 | 1,450 | 875 | 65.7 | ||||||||||||||||||||||||||||||||||||
| 29 | 31 | (6.5 | ) | 170 | 68 | * | 29 | 8 | * | 421 | 212 | 98.6 | ||||||||||||||||||||||||||||||||||||
| 50 | 53 | (5.7 | ) | 296 | 118 | * | 346 | 310 | 11.6 | 1,029 | 663 | 55.2 | ||||||||||||||||||||||||||||||||||||
| – | – | – | (9 | ) | (7 | ) | (28.6 | ) | 25 | 12 | * | 17 | 6 | * | ||||||||||||||||||||||||||||||||||
| $ | 50 | $ | 53 | (5.7 | ) | $ | 287 | $ | 111 | * | $ | 371 | $ | 322 | 15.2 | $ | 1,046 | $ | 669 | 56.4 | ||||||||||||||||||||||||||||
| $ | 1,019 | $ | 1,031 | (1.2 | )% | $ | 5,221 | $ | 4,883 | 6.9 | % | $ | 98 | $ | 343 | (71.4 | )% | $ | 48,713 | $ | 47,282 | 3.0 | % | |||||||||||||||||||||||||
| 589 | 562 | 4.8 | – | – | – | 250 | 498 | (49.8 | ) | 35,179 | 34,151 | 3.0 | ||||||||||||||||||||||||||||||||||||
| 381 | 375 | 1.6 | – | – | – | 5 | 8 | (37.5 | ) | 31,777 | 26,408 | 20.3 | ||||||||||||||||||||||||||||||||||||
| 1,647 | 1,532 | 7.5 | 17,064 | 17,412 | (2.0 | ) | 1 | 32 | (96.9 | ) | 64,263 | 63,622 | 1.0 | |||||||||||||||||||||||||||||||||||
| 3,636 | 3,500 | 3.9 | 22,285 | 22,295 | – | 354 | 881 | (59.8 | ) | 179,932 | 171,463 | 4.9 | ||||||||||||||||||||||||||||||||||||
| 13 | 15 | (13.3 | ) | – | – | – | 7,005 | 9,281 | (24.5 | ) | 17,638 | 21,415 | (17.6 | ) | ||||||||||||||||||||||||||||||||||
| 3,649 | 3,515 | 3.8 | 22,285 | 22,295 | – | 7,359 | 10,162 | (27.6 | ) | 197,570 | 192,878 | 2.4 | ||||||||||||||||||||||||||||||||||||
| 1,463 | 1,515 | (3.4 | ) | 2,357 | 2,356 | – | – | – | – | 8,959 | 9,010 | (.6 | ) | |||||||||||||||||||||||||||||||||||
| 197 | 221 | (10.9 | ) | 837 | 1,004 | (16.6 | ) | 6 | 8 | (25.0 | ) | 3,327 | 3,358 | (.9 | ) | |||||||||||||||||||||||||||||||||
| 6,039 | 5,732 | 5.4 | 27,227 | 26,976 | .9 | 89,281 | 74,509 | 19.8 | 307,896 | 281,722 | 9.3 | |||||||||||||||||||||||||||||||||||||
| 6,145 | 5,369 | 14.5 | 685 | 609 | 12.5 | 172 | 309 | (44.3 | ) | 44,189 | 38,000 | 16.3 | ||||||||||||||||||||||||||||||||||||
| 3,107 | 2,676 | 16.1 | 164 | 105 | 56.2 | 1 | 47 | (97.9 | ) | 42,645 | 39,994 | 6.6 | ||||||||||||||||||||||||||||||||||||
| 21,385 | 13,397 | 59.6 | 26 | 21 | 23.8 | 154 | 319 | (51.7 | ) | 70,979 | 58,931 | 20.4 | ||||||||||||||||||||||||||||||||||||
| 9,083 | 5,402 | 68.1 | – | 1 | * | 466 | 802 | (41.9 | ) | 46,492 | 45,606 | 1.9 | ||||||||||||||||||||||||||||||||||||
| 39,720 | 26,844 | 48.0 | 875 | 736 | 18.9 | 793 | 1,477 | (46.3 | ) | 204,305 | 182,531 | 11.9 | ||||||||||||||||||||||||||||||||||||
| 2,076 | 2,117 | (1.9 | ) | 5,295 | 5,350 | (1.0 | ) | 7,868 | 5,107 | 54.1 | 30,009 | 26,414 | 13.6 | |||||||||||||||||||||||||||||||||||
on factors impacting the credit quality of the loan portfolios.
On April 13, 2011, the Company’s two primary banking
subsidiaries, U.S. Bank National Association and
U.S. Bank National Association ND, entered into a Consent
Order with the Office of the Comptroller of the Currency
regarding residential mortgage servicing and foreclosure
processes. The Company also entered into a related Consent Order
with the Board of Governors of the Federal Reserve System. The
Consent Orders were the result of the recent interagency
horizontal review of the foreclosure practices of the 14 largest
mortgage servicers in the United States. The Company has long
been committed to sound modification and foreclosure practices
and is committed to revising these processes to meet the
expectations of its regulators. The Company does not believe
that the resolution of any outstanding issues will materially
affect its financial position, results of operations, or ability
to conduct normal business activities.
Wealth Management
and Securities
Services
Wealth
Management and Securities Services provides private banking,
financial advisory services, investment management, retail
brokerage services, insurance, trust, custody and fund servicing
through five businesses: Wealth Management, Corporate
Trust Services, U.S. Bancorp Asset Management,
Institutional Trust & Custody and Fund Services.
Wealth Management and Securities Services contributed
$50 million of the Company’s net income in the first
quarter of 2011, or a decrease of $3 million
(5.7 percent), compared with the first quarter of 2010. The
decrease was due to higher total noninterest expense, partially
offset by an increase in total net revenue.
Total net revenue increased $24 million (7.2 percent)
in the first quarter of 2011, compared with the first quarter of
2010. Net interest income, on a taxable-equivalent basis,
increased $24 million (36.9 percent) in the first
quarter of 2011, compared with the first quarter of 2010. The
year over year increase in net interest income was primarily due
to higher average deposit balances, including the impact of the
securitization trust acquisition. Total noninterest income was
flat compared with the first quarter of 2010. Trust and
investment management fees declined, primarily due to the
transfer of the long-term asset management business in the
fourth quarter of 2010, partially offset by the impact of the
fourth quarter securitization trust acquisition and improved
market conditions during the first quarter of 2011.
Additionally, there was an increase in investment
|
|
23 |
Table of Contents
product fees due to increased sales volume. Total noninterest
expense increased $26 million (10.5 percent) in the
first quarter of 2011, compared with the first quarter of 2010.
The increase in noninterest expense was primarily due to higher
compensation and employee benefits expense and the impact of the
securitization trust acquisition, partially offset by a
reduction in other intangibles 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 $287 million of the
Company’s net income in the first quarter of 2011, or an
increase of $176 million, compared with the first quarter
of 2010. The increase was primarily due to a decrease in the
provision for credit losses.
Total net revenue increased $5 million (.5 percent) in
the first quarter 2011, compared with the first quarter of 2010.
Net interest income, on a taxable-equivalent basis, decreased
$15 million (4.3 percent) in the first quarter of
2011, compared with the first quarter of 2010, primarily due to
lower retail credit card average loan balances and loan fees.
Noninterest income increased $20 million (2.7 percent)
in the first quarter of 2011, compared with the first quarter of
2010, primarily due to increased transaction volumes, including
business expansion.
Total noninterest expense increased $26 million
(5.9 percent) in the first quarter of 2011, compared with
the first quarter of 2010, driven by higher compensation and
employee benefits expense and processing costs, partially offset
by lower other intangibles expense. The provision for credit
losses decreased $301 million (65.0 percent) in the
first quarter of 2011, compared with the first quarter of 2010,
due to lower net charge-offs and a favorable change in the
reserve allocation due to improved loss rates. As a percentage
of average loans outstanding, net charge-offs were
5.40 percent in the first quarter of 2011, compared with
6.82 percent in the first quarter of 2010.
Treasury and
Corporate
Support
Treasury
and Corporate Support includes the Company’s investment
portfolios, most covered commercial and commercial real estate
loans and related other real estate owned, 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
$371 million in the first quarter of 2011, compared with
$322 million in the first quarter of 2010.
Total net revenue increased $57 million (12.2 percent)
in the first quarter of 2011, compared with the first quarter of
2010. Net interest income, on a taxable-equivalent basis,
decreased $51 million (10.3 percent) in the first
quarter of 2011, compared with the first quarter of 2010,
reflecting the impact of the current rate environment, lower
average covered asset balances, wholesale funding decisions and
the Company’s asset/liability position. Total noninterest
income increased $108 million in the first quarter of 2011,
compared with the first quarter of 2010, principally due to the
FCB and Visa gains and lower net securities losses.
Total noninterest expense decreased $4 million
(2.8 percent) in the first quarter of 2011, compared with
the first quarter of 2010, as a favorable variance in the shared
services allocation was partially offset by higher pension costs.
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 using Basel I definition, |
| • | Tier 1 common equity to risk-weighted assets using anticipated Basel III definition, and |
| • | Tangible common equity to risk-weighted assets using Basel I definition. |
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 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
|
|
U.S. Bancorp |
Table of Contents
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:
|
March 31,
|
December 31,
|
|||||||
| (Dollars in Millions) | 2011 | 2010 | ||||||
|
Total equity
|
$ | 31,335 | $ | 30,322 | ||||
|
Preferred stock
|
(1,930 | ) | (1,930 | ) | ||||
|
Noncontrolling interests
|
(828 | ) | (803 | ) | ||||
|
Goodwill (net of deferred tax liability)
|
(8,317 | ) | (8,337 | ) | ||||
|
Intangible assets, other than mortgage servicing rights
|
(1,342 | ) | (1,376 | ) | ||||
|
Tangible common equity (a)
|
18,918 | 17,876 | ||||||
|
Tier 1 capital, determined in accordance with prescribed
regulatory requirements using Basel I definition
|
26,821 | 25,947 | ||||||
|
Trust preferred securities
|
(3,949 | ) | (3,949 | ) | ||||
|
Preferred stock
|
(1,930 | ) | (1,930 | ) | ||||
|
Noncontrolling interests, less preferred stock not eligible for
Tier 1 capital
|
(694 | ) | (692 | ) | ||||
|
Tier 1 common equity using Basel I definition (b)
|
20,248 | 19,376 | ||||||
|
Tier 1 capital, determined in accordance with prescribed
regulatory requirements using anticipated Basel III
definition
|
21,855 | |||||||
|
Preferred stock
|
(1,930 | ) | ||||||
|
Noncontrolling interests of real estate investment trusts
|
(667 | ) | ||||||
|
Tier 1 common equity using anticipated Basel III
definition (c)
|
19,258 | |||||||
|
Total assets
|
311,462 | 307,786 | ||||||
|
Goodwill (net of deferred tax liability)
|
(8,317 | ) | (8,337 | ) | ||||
|
Intangible assets, other than mortgage servicing rights
|
(1,342 | ) | (1,376 | ) | ||||
|
Tangible assets (d)
|
301,803 | 298,073 | ||||||
|
Risk-weighted assets, determined in accordance with prescribed
regulatory requirements using Basel I definition (e)
|
247,486 | 247,619 | ||||||
|
Risk-weighted assets using anticipated Basel III
definition (f)
|
250,931 | |||||||
|
Ratios
|
||||||||
|
Tangible common equity to tangible assets (a)/(d)
|
6.3 | % | 6.0 | % | ||||
|
Tier 1 common equity to risk-weighted assets using Basel I
definition (b)/(e)
|
8.2 | 7.8 | ||||||
|
Tier 1 common equity to risk-weighted assets using
anticipated Basel III definition (c)/(f)
|
7.7 | |||||||
|
Tangible common equity to risk-weighted assets (a)/(e)
|
7.6 | 7.2 | ||||||
Note:
Anticipated Basel III definitions reflect adjustments for
changes to the related elements as proposed in December 2010 by
regulatory authorities.
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, 2010.
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 controls 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.
|
|
25 |
Table of Contents
U.S. Bancorp
Consolidated
Balance Sheet
|
March 31,
|
December 31,
|
|||||||
| (Dollars in Millions) | 2011 | 2010 | ||||||
| (Unaudited) | ||||||||
|
Assets
|
||||||||
|
Cash and due from banks
|
$ | 13,800 | $ | 14,487 | ||||
|
Investment securities
|
||||||||
|
Held-to-maturity
(fair value $8,179 and $1,419, respectively)
|
8,213 | 1,469 | ||||||
|
Available-for-sale
|
52,248 | 51,509 | ||||||
|
Loans held for sale (included $3,910 and $8,100 of mortgage
loans carried at fair value, respectively)
|
4,141 | 8,371 | ||||||
|
Loans
|
||||||||
|
Commercial
|
49,272 | 48,398 | ||||||
|
Commercial real estate
|
35,437 | 34,695 | ||||||
|
Residential mortgages
|
32,344 | 30,732 | ||||||
|
Retail
|
63,745 | 65,194 | ||||||
|
Total loans, excluding covered loans
|
180,798 | 179,019 | ||||||
|
Covered loans
|
17,240 | 18,042 | ||||||
|
Total loans
|
198,038 | 197,061 | ||||||
|
Less allowance for loan losses
|
(5,270 | ) | (5,310 | ) | ||||
|
Net loans
|
192,768 | 191,751 | ||||||
|
Premises and equipment
|
2,508 | 2,487 | ||||||
|
Goodwill
|
8,947 | 8,954 | ||||||
|
Other intangible assets
|
3,415 | 3,213 | ||||||
|
Other assets
|
25,422 | 25,545 | ||||||
|
Total assets
|
$ | 311,462 | $ | 307,786 | ||||
|
Liabilities and Shareholders’ Equity
|
||||||||
|
Deposits
|
||||||||
|
Noninterest-bearing
|
$ | 47,039 | $ | 45,314 | ||||
|
Interest-bearing
|
129,344 | 129,381 | ||||||
|
Time deposits greater than $100,000
|
31,910 | 29,557 | ||||||
|
Total deposits
|
208,293 | 204,252 | ||||||
|
Short-term borrowings
|
31,021 | 32,557 | ||||||
|
Long-term debt
|
31,775 | 31,537 | ||||||
|
Other liabilities
|
9,038 | 9,118 | ||||||
|
Total liabilities
|
280,127 | 277,464 | ||||||
|
Shareholders’ equity
|
||||||||
|
Preferred stock
|
1,930 | 1,930 | ||||||
|
Common stock, par value $0.01 a share — authorized:
4,000,000,000 shares; issued: 3/31/11 and
12/31/10 — 2,125,725,742 shares
|
21 | 21 | ||||||
|
Capital surplus
|
8,215 | 8,294 | ||||||
|
Retained earnings
|
27,769 | 27,005 | ||||||
|
Less cost of common stock in treasury: 3/31/11 —
199,210,990 shares; 12/31/10 —
204,822,330 shares
|
(6,089 | ) | (6,262 | ) | ||||
|
Accumulated other comprehensive income (loss)
|
(1,339 | ) | (1,469 | ) | ||||
|
Total U.S. Bancorp shareholders’ equity
|
30,507 | 29,519 | ||||||
|
Noncontrolling interests
|
828 | 803 | ||||||
|
Total equity
|
31,335 | 30,322 | ||||||
|
Total liabilities and equity
|
$ | 311,462 | $ | 307,786 | ||||
See
Notes to Consolidated Financial Statements.
|
|
U.S. Bancorp |
Table of Contents
U.S. Bancorp
Consolidated
Statement of Income
|
Three Months
Ended
|
||||||||
| (Dollars and Shares in Millions, Except Per Share Data) | March 31, | |||||||
| (Unaudited) | 2011 | 2010 | ||||||
|
Interest Income
|
||||||||
|
Loans
|
$ | 2,552 | $ | 2,505 | ||||
|
Loans held for sale
|
63 | 44 | ||||||
|
Investment securities
|
428 | 410 | ||||||
|
Other interest income
|
57 | 34 | ||||||
|
Total interest income
|
3,100 | 2,993 | ||||||
|
Interest Expense
|
||||||||
|
Deposits
|
234 | 236 | ||||||
|
Short-term borrowings
|
133 | 128 | ||||||
|
Long-term debt
|
281 | 277 | ||||||
|
Total interest expense
|
648 | 641 | ||||||
|
Net interest income
|
2,452 | 2,352 | ||||||
|
Provision for credit losses
|
755 | 1,310 | ||||||
|
Net interest income after provision for credit losses
|
1,697 | 1,042 | ||||||
|
Noninterest Income
|
||||||||
|
Credit and debit card revenue
|
267 | 258 | ||||||
|
Corporate payment products revenue
|
175 | 168 | ||||||
|
Merchant processing services
|
301 | 292 | ||||||
|
ATM processing services
|
112 | 105 | ||||||
|
Trust and investment management fees
|
256 | 264 | ||||||
|
Deposit service charges
|
143 | 207 | ||||||
|
Treasury management fees
|
137 | 137 | ||||||
|
Commercial products revenue
|
191 | 161 | ||||||
|
Mortgage banking revenue
|
199 | 200 | ||||||
|
Investment products fees and commissions
|
32 | 25 | ||||||
|
Securities gains (losses), net
|
||||||||
|
Realized gains (losses), net
|
1 | 12 | ||||||
|
Total
other-than-temporary
impairment
|
(11 | ) | (87 | ) | ||||
|
Portion of
other-than-temporary
impairment recognized in other comprehensive income
|
5 | 41 | ||||||
|
Total securities gains (losses), net
|
(5 | ) | (34 | ) | ||||
|
Other
|
204 | 135 | ||||||
|
Total noninterest income
|
2,012 | 1,918 | ||||||
|
Noninterest Expense
|
||||||||
|
Compensation
|
959 | 861 | ||||||
|
Employee benefits
|
230 | 180 | ||||||
|
Net occupancy and equipment
|
249 | 227 | ||||||
|
Professional services
|
70 | 58 | ||||||
|
Marketing and business development
|
65 | 60 | ||||||
|
Technology and communications
|
185 | 185 | ||||||
|
Postage, printing and supplies
|
74 | 74 | ||||||
|
Other intangibles
|
75 | 97 | ||||||
|
Other
|
407 | 394 | ||||||
|
Total noninterest expense
|
2,314 | 2,136 | ||||||
|
Income before income taxes
|
1,395 | 824 | ||||||
|
Applicable income taxes
|
366 | 161 | ||||||
|
Net income
|
1,029 | 663 | ||||||
|
Net (income) loss attributable to noncontrolling interests
|
17 | 6 | ||||||
|
Net income attributable to U.S. Bancorp
|
$ | 1,046 | $ | 669 | ||||
|
Net income applicable to U.S. Bancorp common shareholders
|
$ | 1,003 | $ | 648 | ||||
|
Earnings per common share
|
$ | .52 | $ | .34 | ||||
|
Diluted earnings per common share
|
$ | .52 | $ | .34 | ||||
|
Dividends declared per common share
|
$ | .125 | $ | .050 | ||||
|
Average common shares outstanding
|
1,918 | 1,910 | ||||||
|
Average diluted common shares outstanding
|
1,928 | 1,919 | ||||||
See
Notes to Consolidated Financial Statements.
|
|
U.S. Bancorp |
Table of Contents
U.S. Bancorp
Consolidated
Statement of Shareholders’ Equity
| U.S. Bancorp Shareholders | ||||||||||||||||||||||||||||||||||||||||
|
Total
|
||||||||||||||||||||||||||||||||||||||||
|
Other
|
U.S. Bancorp
|
|||||||||||||||||||||||||||||||||||||||
|
(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, 2009
|
1,913 | $ | 1,500 | $ | 21 | $ | 8,319 | $ | 24,116 | $ | (6,509 | ) | $ | (1,484 | ) | $ | 25,963 | $ | 698 | $ | 26,661 | |||||||||||||||||||
|
Change in accounting principle
|
(73 | ) | (73 | ) | (16 | ) | (89 | ) | ||||||||||||||||||||||||||||||||
|
Net income (loss)
|
669 | 669 | (6 | ) | 663 | |||||||||||||||||||||||||||||||||||
|
Changes in unrealized gains and losses on securities
available-for-sale
|
386 | 386 | 386 | |||||||||||||||||||||||||||||||||||||
|
Other-than-temporary
impairment not recognized in earnings on securities
available-for-sale
|
(41 | ) | (41 | ) | (41 | ) | ||||||||||||||||||||||||||||||||||
|
Unrealized loss on derivative hedges
|
(39 | ) | (39 | ) | (39 | ) | ||||||||||||||||||||||||||||||||||
|
Foreign currency translation
|
8 | 8 | 8 | |||||||||||||||||||||||||||||||||||||
|
Reclassification for realized losses
|
35 | 35 | 35 | |||||||||||||||||||||||||||||||||||||
|
Income taxes
|
(132 | ) | (132 | ) | (132 | ) | ||||||||||||||||||||||||||||||||||
|
Total comprehensive income (loss)
|
886 | (6 | ) | 880 | ||||||||||||||||||||||||||||||||||||
|
Preferred stock dividends
|
(19 | ) | (19 | ) | (19 | ) | ||||||||||||||||||||||||||||||||||
|
Common stock dividends
|
(96 | ) | (96 | ) | (96 | ) | ||||||||||||||||||||||||||||||||||
|
Issuance of common and treasury stock
|
4 | (87 | ) | 115 | 28 | 28 | ||||||||||||||||||||||||||||||||||
|
Purchase of treasury stock
|
(1 | ) | (15 | ) | (15 | ) | (15 | ) | ||||||||||||||||||||||||||||||||
|
Distributions to noncontrolling interests
|
– | (18 | ) | (18 | ) | |||||||||||||||||||||||||||||||||||
|
Net other changes in noncontrolling interests
|
– | 21 | 21 | |||||||||||||||||||||||||||||||||||||
|
Stock option and restricted stock grants
|
35 | 35 | 35 | |||||||||||||||||||||||||||||||||||||
|
Balance March 31, 2010
|
1,916 | $ | 1,500 | $ | 21 | $ | 8,267 | $ | 24,597 | $ | (6,409 | ) | $ | (1,267 | ) | $ | 26,709 | $ | 679 | $ | 27,388 | |||||||||||||||||||
|
Balance December 31, 2010
|
1,921 | $ | 1,930 | $ | 21 | $ | 8,294 | $ | 27,005 | $ | (6,262 | ) | $ | (1,469 | ) | $ | 29,519 | $ | 803 | $ | 30,322 | |||||||||||||||||||
|
Change in accounting principle
|
(2 | ) | (2 | ) | (2 | ) | ||||||||||||||||||||||||||||||||||
|
Net income (loss)
|
1,046 | 1,046 | (17 | ) | 1,029 | |||||||||||||||||||||||||||||||||||
|
Changes in unrealized gains and losses on securities
available-for-sale
|
161 | 161 | 161 | |||||||||||||||||||||||||||||||||||||
|
Other-than-temporary
impairment not recognized in earnings on securities
available-for-sale
|
(5 | ) | (5 | ) | (5 | ) | ||||||||||||||||||||||||||||||||||
|
Unrealized gain on derivative hedges
|
62 | 62 | 62 | |||||||||||||||||||||||||||||||||||||
|
Foreign currency translation
|
(3 | ) | (3 | ) | (3 | ) | ||||||||||||||||||||||||||||||||||
|
Reclassification for realized losses
|
(4 | ) | (4 | ) | (4 | ) | ||||||||||||||||||||||||||||||||||
|
Income taxes
|
(81 | ) | (81 | ) | (81 | ) | ||||||||||||||||||||||||||||||||||
|
Total comprehensive income (loss)
|
1,176 | (17 | ) | 1,159 | ||||||||||||||||||||||||||||||||||||
|
Preferred stock dividends
|
(39 | ) | (39 | ) | (39 | ) | ||||||||||||||||||||||||||||||||||
|
Common stock dividends
|
(241 | ) | (241 | ) | (241 | ) | ||||||||||||||||||||||||||||||||||
|
Issuance of common and treasury stock
|
7 | (103 | ) | 198 | 95 | 95 | ||||||||||||||||||||||||||||||||||
|
Purchase of treasury stock
|
(1 | ) | (25 | ) | (25 | ) | (25 | ) | ||||||||||||||||||||||||||||||||
|
Distributions to noncontrolling interests
|
– | (18 | ) | (18 | ) | |||||||||||||||||||||||||||||||||||
|
Net other changes in noncontrolling interests
|
– | 60 | 60 | |||||||||||||||||||||||||||||||||||||
|
Stock option and restricted stock grants
|
24 | 24 | 24 | |||||||||||||||||||||||||||||||||||||
|
Balance March 31, 2011
|
1,927 | $ | 1,930 | $ | 21 | $ | 8,215 | $ | 27,769 | $ | (6,089 | ) | $ | (1,339 | ) | $ | 30,507 | $ | 828 | $ | 31,335 | |||||||||||||||||||
See
Notes to Consolidated Financial Statements.
|
|
28 |
Table of Contents
U.S. Bancorp
Consolidated
Statement of Cash Flows
|
Three Months
Ended
|
||||||||
|
(Dollars in
Millions)
|
March 31, | |||||||
| (Unaudited) | 2011 | 2010 | ||||||
|
Operating Activities
|
||||||||
|
Net cash provided by operating activities
|
$6,228 | $2,876 | ||||||
|
Investing Activities
|
||||||||
|
Proceeds from sales of
available-for-sale
investment securities
|
141 | 922 | ||||||
|
Proceeds from maturities of
held-to-maturity
investment securities
|
102 | 66 | ||||||
|
Proceeds from maturities of
available-for-sale
investment securities
|
3,189 | 3,070 | ||||||
|
Purchases of
held-to-maturity
investment securities
|
(6,524 | ) | (64 | ) | ||||
|
Purchases of
available-for-sale
investment securities
|
(3,896 | ) | (5,205 | ) | ||||
|
Net (increase) decrease in loans outstanding
|
(672 | ) | 1,944 | |||||
|
Proceeds from sales of loans
|
234 | 440 | ||||||
|
Purchases of loans
|
(581 | ) | (622 | ) | ||||
|
Acquisitions, net of cash acquired
|
650 | 832 | ||||||
|
Other, net
|
(131 | ) | (302 | ) | ||||
|
Net cash provided by (used in) investing activities
|
(7,488 | ) | 1,081 | |||||
|
Financing Activities
|
||||||||
|
Net increase in deposits
|
2,254 | 314 | ||||||
|
Net decrease in short-term borrowings
|
(1,652 | ) | (769 | ) | ||||
|
Proceeds from issuance of long-term debt
|
370 | 902 | ||||||
|
Principal payments or redemption of long-term debt
|
(378 | ) | (2,143 | ) | ||||
|
Proceeds from issuance of common stock
|
94 | 28 | ||||||
|
Cash dividends paid on preferred stock
|
(19 | ) | (19 | ) | ||||
|
Cash dividends paid on common stock
|
(96 | ) | (96 | ) | ||||
|
Net cash provided by (used in) financing activities
|
573 | (1,783 | ) | |||||
|
Change in cash and due from banks
|
(687 | ) | 2,174 | |||||
|
Cash and due from banks at beginning of period
|
14,487 | 6,206 | ||||||
|
Cash and due from banks at end of period
|
$13,800 | $8,380 | ||||||
See
Notes to Consolidated Financial Statements.
|
|
29 |
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, 2010. 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
Troubled Debt
Restructurings
In
April 2011, the Financial Accounting Standards Board
(“FASB”) issued new accounting guidance related to
identifying and disclosing troubled debt restructurings
(“TDRs”), effective for the Company on July 1,
2011, to be applied retrospectively to restructurings occurring
on or after January 1, 2011. This guidance provides
clarification in determining whether a creditor has granted a
concession and whether a debtor is experiencing financial
difficulties for the purpose of determining whether a
restructuring constitutes a TDR. The Company is currently
assessing the impact of this guidance on its financial
statements.
Note 3 Business Combinations
During the first quarter of 2011, the Company acquired the
banking operations of First Community Bank of New Mexico
(“FCB”) from the Federal Deposit Insurance Corporation
(“FDIC”). The FCB transaction did not include a loss
sharing agreement. The Company acquired 38 branch locations and
approximately $2.1 billion in assets, assumed approximately
$2.1 billion in liabilities, and received approximately
$412 million in cash from the FDIC. In addition, the
Company recognized a $46 million gain on this transaction
during the first quarter of 2011.
|
|
U.S. Bancorp |
Table of Contents
Note 4 Investment Securities
The amortized cost,
other-than-temporary
impairment recorded in other comprehensive income (loss), gross
unrealized holding gains and losses, and fair value of
held-to-maturity
and
available-for-sale
securities were as follows:
| March 31, 2011 | December 31, 2010 | |||||||||||||||||||||||||||||||||||||||||||||||
| 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
|
$ | 1,481 | $ | – | $ | – | $ | (9 | ) | $ | 1,472 | $ | 165 | $ | – | $ | – | $ | (1 | ) | $ | 164 | ||||||||||||||||||||||||||
|
Mortgage-backed securities
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Residential
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Agency
|
6,325 | 21 | – | (16 | ) | 6,330 | 847 | – | – | (4 | ) | 843 | ||||||||||||||||||||||||||||||||||||
|
Non-agency
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Non-prime
|
2 | – | – | – | 2 | 3 | – | – | – | 3 | ||||||||||||||||||||||||||||||||||||||
|
Commercial
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Non-agency
|
7 | – | – | (3 | ) | 4 | 10 | – | – | (5 | ) | 5 | ||||||||||||||||||||||||||||||||||||
|
Asset-backed securities
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Collateralized debt obligations/
Collaterized loan obligations |
114 | 14 | – | (9 | ) | 119 | 157 | 13 | – | (18 | ) | 152 | ||||||||||||||||||||||||||||||||||||
|
Other
|
126 | 1 | – | (8 | ) | 119 | 127 | – | (1 | ) | (7 | ) | 119 | |||||||||||||||||||||||||||||||||||
|
Obligations of state and political subdivisions
|
26 | 1 | – | (1 | ) | 26 | 27 | 1 | – | (1 | ) | 27 | ||||||||||||||||||||||||||||||||||||
|
Obligations of foreign governments
|
7 | – | – | – | 7 | 7 | – | – | – | 7 | ||||||||||||||||||||||||||||||||||||||
|
Other debt securities
|
125 | – | – | (25 | ) | 100 | 126 | – | – | (27 | ) | 99 | ||||||||||||||||||||||||||||||||||||
|
Total
held-to-maturity
|
$ | 8,213 | $ | 37 | $ | – | $ | (71 | ) | $ | 8,179 | $ | 1,469 | $ | 14 | $ | (1 | ) | $ | (63 | ) | $ | 1,419 | |||||||||||||||||||||||||
|
Available-for-sale
(b)
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
U.S. Treasury and agencies
|
$ | 2,561 | $ | 5 | $ | – | $ | (29 | ) | $ | 2,537 | $ | 2,559 | $ | 6 | $ | – | $ | (28 | ) | $ | 2,537 | ||||||||||||||||||||||||||
|
Mortgage-backed securities
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Residential
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Agency
|
37,983 | 681 | – | (146 | ) | 38,518 | 37,144 | 718 | – | (159 | ) | 37,703 | ||||||||||||||||||||||||||||||||||||
|
Non-agency
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Prime (c)
|
1,030 | 12 | (41 | ) | (38 | ) | 963 | 1,216 | 12 | (86 | ) | (39 | ) | 1,103 | ||||||||||||||||||||||||||||||||||
|
Non-prime
|
1,141 | 21 | (183 | ) | (32 | ) | 947 | 1,193 | 15 | (243 | ) | (18 | ) | 947 | ||||||||||||||||||||||||||||||||||
|
Commercial
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Agency
|
168 | 4 | – | (2 | ) | 170 | 194 | 5 | – | (2 | ) | 197 | ||||||||||||||||||||||||||||||||||||
|
Non-agency
|
47 | 3 | – | – | 50 | 47 | 3 | – | – | 50 | ||||||||||||||||||||||||||||||||||||||
|
Asset-backed securities
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Collateralized debt obligations/
Collaterized loan obligations |
203 | 34 | (2 | ) | (2 | ) | 233 | 204 | 23 | (2 | ) | (1 | ) | 224 | ||||||||||||||||||||||||||||||||||
|
Other
|
704 | 25 | (2 | ) | (9 | ) | 718 | 709 | 23 | (3 | ) | (9 | ) | 720 | ||||||||||||||||||||||||||||||||||
|
Obligations of state and political subdivisions
|
6,828 | 9 | – | (425 | ) | 6,412 | 6,835 | 3 | – | (421 | ) | 6,417 | ||||||||||||||||||||||||||||||||||||
|
Obligations of foreign governments
|
6 | – | – | – | 6 | 6 | – | – | – | 6 | ||||||||||||||||||||||||||||||||||||||
|
Corporate debt securities
|
1,109 | – | – | (105 | ) | 1,004 | 1,109 | – | – | (151 | ) | 958 | ||||||||||||||||||||||||||||||||||||
|
Perpetual preferred securities
|
456 | 52 | – | (38 | ) | 470 | 456 | 41 | – | (49 | ) | 448 | ||||||||||||||||||||||||||||||||||||
|
Other investments
|
206 | 14 | – | – | 220 | 183 | 17 | – | (1 | ) | 199 | |||||||||||||||||||||||||||||||||||||
|
Total
available-for-sale
|
$ | 52,442 | $ | 860 | $ | (228 | ) | $ | (826 | ) | $ | 52,248 | $ | 51,855 | $ | 866 | $ | (334 | ) | $ | (878 | ) | $ | 51,509 | ||||||||||||||||||||||||
| (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. |
The weighted-average maturity of the
available-for-sale
investment securities was 8.0 years at March 31, 2011,
compared with 7.4 years at December 31, 2010. The
corresponding weighted-average yields were 3.37 percent and
3.41 percent, respectively. The weighted-average maturity
of the
held-to-maturity
investment securities was 5.1 years at March 31, 2011,
and 6.3 years at December 31, 2010. The corresponding
weighted-average yields were 2.41 percent and
2.07 percent, respectively.
For amortized cost, fair value and yield by maturity date of
held-to-maturity
and
available-for-sale
securities outstanding at March 31, 2011, 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 $24.5 billion at March 31, 2011,
and $28.0 billion at December 31, 2010, were pledged
to secure public, private and trust deposits, repurchase
agreements and for other purposes required by law. Included in
these amounts were securities sold under agreements to
repurchase where the buyer/lender has the right to sell or
pledge the securities and which were collateralized by
securities with a carrying amount of $7.7 billion at
March 31, 2011, and $9.3 billion at December 31,
2010.
|
|
31 |
Table of Contents
The following table provides information about the amount of
interest income from taxable and non-taxable investment
securities:
|
Three Months Ended
March 31
|
||||||||
| (Dollars in Millions) | 2011 | 2010 | ||||||
|
Taxable
|
$ | 351 | $ | 333 | ||||
|
Non-taxable
|
77 | 77 | ||||||
|
Total interest income from investment securities
|
$ | 428 | $ | 410 | ||||
The following table provides information about the amount of
gross gains and losses realized through the sales of
available-for-sale
investment securities:
|
Three Months Ended
March 31
|
||||||||
| (Dollars in Millions) | 2011 | 2010 | ||||||
|
Realized gains
|
$ | 1 | $ | 12 | ||||
|
Realized losses
|
– | – | ||||||
|
Net realized gains (losses)
|
$ | 1 | $ | 12 | ||||
|
Income tax (benefit) on realized gains (losses)
|
$ | – | $ | 4 | ||||
In 2007, the Company purchased certain structured investment
securities (“SIVs”) from certain money market funds
managed by 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 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
$449 million and $170 million, respectively, at
March 31, 2011, and $485 million and
$173 million, respectively, at December 31, 2010.
Changes in the accretable balance for these securities were as
follows:
|
Three Months Ended
March 31
|
||||||||
| (Dollars in Millions) | 2011 | 2010 | ||||||
|
Balance at beginning of period
|
$ | 139 | $ | 292 | ||||
|
Accretion
|
(5 | ) | (7 | ) | ||||
|
Other (a)
|
(8 | ) | 34 | |||||
|
Balance at end of period
|
$ | 126 | $ | 319 | ||||
| (a) | 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.
The following table summarizes
other-than-temporary
impairment by investment category:
| 2011 | 2010 | ||||||||||||||||||||||||||
|
Losses
|
Losses
|
||||||||||||||||||||||||||
|
Three Months Ended
March 31
|
Recorded in
|
Other Gains
|
Recorded in
|
Other Gains
|
|||||||||||||||||||||||
| (Dollars in Millions) | Earnings | (Losses) | Total | Earnings | (Losses) | Total | |||||||||||||||||||||
|
Held-to-maturity
|
|||||||||||||||||||||||||||
|
Asset-backed securities
|
|||||||||||||||||||||||||||
|
Other
|
$ | – | $ | – | $ | – | $ | (2 | ) | $ | – | $ | (2 | ) | |||||||||||||
|
Total
held-to-maturity
|
$ | – | $ | – | $ | – | $ | (2 | ) | $ | – | $ | (2 | ) | |||||||||||||
|
Available-for-sale
|
|||||||||||||||||||||||||||
|
Mortgage-backed securities
|
|||||||||||||||||||||||||||
|
Non-agency residential
|
|||||||||||||||||||||||||||
|
Prime (a)
|
$ | (1 | ) | $ | 1 | $ | – | $ | (2 | ) | $ | (9 | ) | $ | (11 | ) | |||||||||||
|
Non-prime
|
(5 | ) | (6 | ) | (11 | ) | (35 | ) | (32 | ) | (67 | ) | |||||||||||||||
|
Asset-backed securities
|
|||||||||||||||||||||||||||
|
Collateralized debt obligations/Collaterized loan obligations
|
– | – | – | (1 | ) | – | (1 | ) | |||||||||||||||||||
|
Other
|
– | – | – | (5 | ) | (1 | ) | (6 | ) | ||||||||||||||||||
|
Other debt securities
|
– | – | – | (1 | ) | 1 | – | ||||||||||||||||||||
|
Total
available-for-sale
|
$ | (6 | ) | $ | (5 | ) | $ | (11 | ) | $ | (44 | ) | $ | (41 | ) | $ | (85 | ) | |||||||||
| (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. |
|
|
U.S. Bancorp |
Table of Contents
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 (loss) was
measured as the difference between that discounted amount and
the fair value of each security. The following table includes
the ranges for principal assumptions used at March 31,
2011, 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
|
14 | % | 14 | % | 14 | % | 1 | % | 12 | % | 6 | % | |||||||||||||||
|
Lifetime probability of default rates
|
3 | 3 | 3 | 1 | 19 | 8 | |||||||||||||||||||||
|
Lifetime loss severity rates
|
40 | 40 | 40 | 37 | 70 | 55 | |||||||||||||||||||||
Changes in the credit losses on non-agency mortgage-backed
securities, including SIV-related securities, and other debt
securities are summarized as follows:
|
Three Months Ended
March 31
|
||||||||
| (Dollars in Millions) | 2011 | 2010 | ||||||
|
Balance at beginning of period
|
$ | 358 | $ | 335 | ||||
|
Credit losses on securities not previously considered
other-than-temporarily
impaired
|
1 | 13 | ||||||
|
Decreases in expected cash flows on securities for which
other-than-temporary
impairment was previously recognized
|
5 | 33 | ||||||
|
Increases in expected cash flows
|
(7 | ) | (1 | ) | ||||
|
Realized losses
|
(17 | ) | (7 | ) | ||||
|
Credit losses on security sales and securities expected to be
sold
|
(1 | ) | – | |||||
|
Other
|
– | 18 | ||||||
|
Balance at end of period
|
$ | 339 | $ | 391 | ||||
|
|
33 |
Table of Contents
At March 31, 2011, certain investment securities had a fair
value below amortized cost. The following table shows the gross
unrealized losses and fair value of the Company’s
investments with unrealized losses, aggregated by investment
category and length of time the individual securities have been
in continuous unrealized loss positions, at March 31, 2011:
| 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
|
|||||||||||||||||||||||||||||
|
U.S. Treasury and agencies
|
$ | 1,361 | $ | (9 | ) | $ | – | $ | – | $ | 1,361 | $ | (9 | ) | |||||||||||||||
|
Mortgage-backed securities
|
|||||||||||||||||||||||||||||
|
Residential
|
|||||||||||||||||||||||||||||
|
Agency
|
3,317 | (16 | ) | – | – | 3,317 | (16 | ) | |||||||||||||||||||||
|
Non-agency
|
|||||||||||||||||||||||||||||
|
Non-prime
|
– | – | 2 | – | 2 | – | |||||||||||||||||||||||
|
Commercial
|
|||||||||||||||||||||||||||||
|
Non-agency
|
– | – | 4 | (3 | ) | 4 | (3 | ) | |||||||||||||||||||||
|
Asset-backed securities
|
|||||||||||||||||||||||||||||
|
Collateralized debt obligations/Collaterized loan obligations
|
– | – | 52 | (9 | ) | 52 | (9 | ) | |||||||||||||||||||||
|
Other
|
100 | – | 16 | (8 | ) | 116 | (8 | ) | |||||||||||||||||||||
|
Obligations of state and political subdivisions
|
1 | – | 9 | (1 | ) | 10 | (1 | ) | |||||||||||||||||||||
|
Other debt securities
|
– | – | 100 | (25 | ) | 100 | (25 | ) | |||||||||||||||||||||
|
Total
held-to-maturity
|
$ | 4,779 | $ | (25 | ) | $ | 183 | $ | (46 | ) | $ | 4,962 | $ | (71 | ) | ||||||||||||||
|
Available-for-sale
|
|||||||||||||||||||||||||||||
|
U.S. Treasury and agencies
|
$ | 1,546 | $ | (29 | ) | $ | – | $ | – | $ | 1,546 | $ | (29 | ) | |||||||||||||||
|
Mortgage-backed securities
|
|||||||||||||||||||||||||||||
|
Residential
|
|||||||||||||||||||||||||||||
|
Agency
|
11,437 | (146 | ) | 6 | – | 11,443 | (146 | ) | |||||||||||||||||||||
|
Non-agency
|
|||||||||||||||||||||||||||||
|
Prime (a)
|
43 | – | 779 | (79 | ) | 822 | (79 | ) | |||||||||||||||||||||
|
Non-prime
|
38 | (3 | ) | 757 | (212 | ) | 795 | (215 | ) | ||||||||||||||||||||
|
Commercial
|
|||||||||||||||||||||||||||||
|
Agency
|
91 | (2 | ) | – | – | 91 | (2 | ) | |||||||||||||||||||||
|
Non-agency
|
3 | – | 1 | – | 4 | – | |||||||||||||||||||||||
|
Asset-backed securities
|
|||||||||||||||||||||||||||||
|
Collateralized debt obligations/Collaterized loan obligations
|
9 | (2 | ) | 8 | (2 | ) | 17 | (4 | ) | ||||||||||||||||||||
|
Other
|
116 | (1 | ) | 23 | (10 | ) | 139 | (11 | ) | ||||||||||||||||||||
|
Obligations of state and political subdivisions
|
4,545 | (257 | ) | 1,115 | (168 | ) | 5,660 | (425 | ) | ||||||||||||||||||||
|
Corporate debt securities
|
15 | – | 908 | (105 | ) | 923 | (105 | ) | |||||||||||||||||||||
|
Perpetual preferred securities
|
– | – | 260 | (38 | ) | 260 | (38 | ) | |||||||||||||||||||||
|
Other investments
|
– | – | 4 | – | 4 | – | |||||||||||||||||||||||
|
Total
available-for-sale
|
$ | 17,843 | $ | (440 | ) | $ | 3,861 | $ | (614 | ) | $ | 21,704 | $ | (1,054 | ) | ||||||||||||||
| (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 have
unrealized losses are either corporate debt, obligations of
state and political subdivisions or mortgage-backed securities
issued with high investment grade credit ratings. In general,
the issuers of the investment securities are contractually
prohibited from prepayment at less than par, and the Company did
not pay significant purchase premiums for these securities. At
March 31, 2011, the Company had no plans to sell securities
with unrealized losses, and believes it is more likely than not
it would not be required to sell such securities before recovery
of their amortized cost.
|
|
U.S. Bancorp |
Table of Contents
Note 5 Loans and Allowance for Credit Losses
The composition of the loan portfolio was as follows:
| March 31, 2011 | December 31, 2010 | ||||||||||||||||
|
Percent
|
Percent
|
||||||||||||||||
| (Dollars in Millions) | Amount | of Total | Amount | of Total | |||||||||||||
|
Commercial
|
|||||||||||||||||
|
Commercial
|
$ | 43,249 | 21.8 | % | $ | 42,272 | 21.5 | % | |||||||||
|
Lease financing
|
6,023 | 3.1 | 6,126 | 3.1 | |||||||||||||
|
Total commercial
|
49,272 | 24.9 | 48,398 | 24.6 | |||||||||||||
|
Commercial real estate
|
|||||||||||||||||
|
Commercial mortgages
|
28,236 | 14.3 | 27,254 | 13.8 | |||||||||||||
|
Construction and development
|
7,201 | 3.6 | 7,441 | 3.8 | |||||||||||||
|
Total commercial real estate
|
35,437 | 17.9 | 34,695 | 17.6 | |||||||||||||
|
Residential mortgages
|
|||||||||||||||||
|
Residential mortgages
|
25,671 | 13.0 | 24,315 | 12.3 | |||||||||||||
|
Home equity loans, first liens
|
6,673 | 3.3 | 6,417 | 3.3 | |||||||||||||
|
Total residential mortgages
|
32,344 | 16.3 | 30,732 | 15.6 | |||||||||||||
|
Retail
|
|||||||||||||||||
|
Credit card
|
15,874 | 8.0 | 16,803 | 8.5 | |||||||||||||
|
Retail leasing
|
4,727 | 2.4 | 4,569 | 2.3 | |||||||||||||
|
Home equity and second mortgages
|
18,628 | 9.4 | 18,940 | 9.6 | |||||||||||||
|
Other retail
|
|||||||||||||||||
|
Revolving credit
|
3,339 | 1.7 | 3,472 | 1.8 | |||||||||||||
|
Installment
|
5,290 | 2.7 | 5,459 | 2.8 | |||||||||||||
|
Automobile
|
10,936 | 5.5 | 10,897 | 5.5 | |||||||||||||
|
Student
|
4,951 | 2.5 | 5,054 | 2.5 | |||||||||||||
|
Total other retail
|
24,516 | 12.4 | 24,882 | 12.6 | |||||||||||||
|
Total retail
|
63,745 | 32.2 | 65,194 | 33.0 | |||||||||||||
|
Total loans, excluding covered loans
|
180,798 | 91.3 | 179,019 | 90.8 | |||||||||||||
|
Covered loans
|
17,240 | 8.7 | 18,042 | 9.2 | |||||||||||||
|
Total loans
|
$ | 198,038 | 100.0 | % | $ | 197,061 | 100.0 | % | |||||||||
The Company had loans of $61.3 billion at March 31,
2011, and $62.8 billion at December 31, 2010, pledged
at the Federal Home Loan Bank (“FHLB”), and loans of
$44.5 billion at March 31, 2011, and
$44.6 billion at December 31, 2010, pledged at the
Federal Reserve Bank.
Originated loans are presented net of unearned interest and
deferred fees and costs, which amounted to $1.2 billion at
March 31, 2011, and $1.3 billion at December 31,
2010. In accordance with applicable authoritative accounting
guidance, 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 in the Downey
Savings and Loan Association, F.A.; PFF Bank and Trust; and
First Bank of Oak Park Corporation transactions and included
expected reimbursements from the FDIC of approximately
$2.9 billion at March 31, 2011
|
|
35 |
Table of Contents
and $3.1 billion at December 31, 2010. The carrying
amount of the covered assets consisted of purchased impaired
loans, purchased nonimpaired loans, and other assets as shown in
the following table:
| March 31, 2011 | December 31, 2010 | |||||||||||||||||||||||||||||||||||
|
Purchased
|
Purchased
|
Purchased
|
Purchased
|
|||||||||||||||||||||||||||||||||
|
impaired
|
nonimpaired
|
Other
|
impaired
|
nonimpaired
|
Other
|
|||||||||||||||||||||||||||||||
| (Dollars in Millions) | loans | loans | assets | Total | loans | loans | assets | Total | ||||||||||||||||||||||||||||
|
Commercial loans
|
$ | 74 | $ | 215 | $ | – | $ | 289 | $ | 70 | $ | 260 | $ | – | $ | 330 | ||||||||||||||||||||
|
Commercial real estate loans
|
2,286 | 5,499 | – | 7,785 | 2,254 | 5,952 | – | 8,206 | ||||||||||||||||||||||||||||
|
Residential mortgage loans
|
3,775 | 1,550 | – | 5,325 | 3,819 | 1,620 | – | 5,439 | ||||||||||||||||||||||||||||
|
Retail loans
|
– | 918 | – | 918 | – | 930 | – | 930 | ||||||||||||||||||||||||||||
|
Losses reimbursable by the FDIC
|
– | – | 2,923 | 2,923 | – | – | 3,137 | 3,137 | ||||||||||||||||||||||||||||
|
Covered loans
|
6,135 | 8,182 | 2,923 | 17,240 | 6,143 | 8,762 | 3,137 | 18,042 | ||||||||||||||||||||||||||||
|
Foreclosed real estate
|
– | – | 390 | 390 | – | – | 453 | 453 | ||||||||||||||||||||||||||||
|
Total covered assets
|
$ | 6,135 | $ | 8,182 | $ | 3,313 | $ | 17,630 | $ | 6,143 | $ | 8,762 | $ | 3,590 | $ | 18,495 | ||||||||||||||||||||
At March 31, 2011, $.4 billion of the purchased
impaired loans included in covered loans were classified as
nonperforming assets, compared with $.5 billion at
December 31, 2010, 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 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
credit losses.
On the acquisition date, the preliminary estimate of the
contractually required payments receivable for all purchased
impaired loans acquired in the FCB transaction were $502
million, the cash flows expected to be collected were $338
million including interest, and the estimated fair values of the
loans were $238 million. These amounts were determined based
upon the estimated remaining life of the underlying loans, which
includes the effects of estimated prepayments. For the purchased
nonimpaired loans acquired in the FCB transaction, the
preliminary estimate as of the acquisition date of the
contractually required payments receivable were
$1.2 billion, the contractual cash flows not expected to be
collected were $184 million, and the estimated fair value
of the loans was $828 million.
Changes in the accretable balance for all purchased impaired
loans, including those acquired in the FCB transaction, were as
follows:
| Three Months Ended March 31, | |||||||||
| (Dollars in Millions) | 2011 | 2010 | |||||||
|
Balance at beginning of period
|
$ | 2,890 | $ | 2,845 | |||||
|
Purchases
|
100 | – | |||||||
|
Accretion
|
(112 | ) | (101 | ) | |||||
|
Disposals
|
(1 | ) | (7 | ) | |||||
|
Reclassifications (to)/from nonaccretable difference (a)
|
(48 | ) | 92 | ||||||
|
Other
|
(28 | ) | (4 | ) | |||||
|
Balance at end of period
|
$ | 2,801 | $ | 2,825 | |||||
| (a) | Primarily relates to improvements in expected credit performance and changes in variable rates. |
The allowance for credit 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 are
taken into consideration in evaluating the allowance for credit
losses, 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 loan balances classified as
TDRs. Management also considers the uncertainty related to
certain industry sectors, and the extent of credit exposure to
specific borrowers within the portfolio. In addition,
concentration risks associated with commercial real estate and
the mix of loans, including credit cards, loans originated
through the consumer finance division and residential mortgage
balances, and their relative credit risks, are evaluated.
Finally, the Company considers current economic conditions that
might impact the portfolio. This evaluation is inherently
subjective as it requires estimates,
|
|
U.S. Bancorp |
Table of Contents
including amounts of future cash collections expected on
nonaccrual loans, which may be susceptible to significant
change. The allowance for credit losses relating to originated
loans that have become impaired is based on expected cash flows
discounted using the original effective interest rate, the
observable market price, or the fair value of the collateral for
certain collateral-dependent loans. To the extent credit
deterioration occurs on purchased loans after the date of
acquisition, the Company records an allowance for credit losses.
The Company determines the amount of the allowance required for
certain sectors based on relative risk characteristics of the
loan portfolio. The allowance recorded for commercial loans is
generally based on quarterly reviews of individual credit
relationships and an analysis of the migration of commercial
loans and actual loss experience. The allowance recorded for
homogeneous commercial and consumer loans is based on an
analysis of product mix, risk characteristics of the portfolio,
bankruptcy experiences, and historical losses, adjusted for
current trends, for each homogenous category or group of loans.
The allowance is increased through provisions charged to
operating earnings and reduced by net charge-offs.
The Company also assesses the credit risk associated with
off-balance sheet loan commitments, letters of credit, and
derivatives. Credit risk associated with derivatives is
reflected in the fair values recorded for those positions. The
liability for off-balance sheet credit exposure related to loan
commitments and other credit guarantees is included in other
liabilities. Because business processes and credit risks
associated with unfunded credit commitments are essentially the
same as for loans, the Company utilizes similar processes to
estimate its liability for unfunded credit commitments.
Activity in the allowance for credit losses, by portfolio type,
for the three months ended March 31, 2011, was as follows:
|
Total Loans,
|
||||||||||||||||||||||||||||||||||||
|
Commercial
|
Residential
|
Credit
|
Other
|
Excluding
|
Covered
|
Total
|
||||||||||||||||||||||||||||||
| (Dollars in Millions) | Commercial | Real Estate | Mortgages | Card | Retail | Covered Loans | Loans | Loans | ||||||||||||||||||||||||||||
|
Balance at beginning of period
|
$ | 1,104 | $ | 1,291 | $ | 820 | $ | 1,395 | $ | 807 | $ | 5,417 | $ | 114 | $ | 5,531 | ||||||||||||||||||||
|
Add
|
||||||||||||||||||||||||||||||||||||
|
Provision for credit losses
|
174 | 109 | 128 | 128 | 210 | 749 | 6 | 755 | ||||||||||||||||||||||||||||
|
Deduct
|
||||||||||||||||||||||||||||||||||||
|
Loans charged off
|
161 | 140 | 133 | 268 | 195 | 897 | 2 | 899 | ||||||||||||||||||||||||||||
|
Less recoveries of loans charged off
|
(22 | ) | (15 | ) | (4 | ) | (21 | ) | (32 | ) | (94 | ) | – | (94 | ) | |||||||||||||||||||||
|
Net loans charged off
|
139 | 125 | 129 | 247 | 163 | 803 | 2 | 805 | ||||||||||||||||||||||||||||
|
Net change for credit losses to be reimbursed by the FDIC
|
– | – | – | – | – | – | 17 | 17 | ||||||||||||||||||||||||||||
|
Balance at end of period
|
$ | 1,139 | $ | 1,275 | $ | 819 | $ | 1,276 | $ | 854 | $ | 5,363 | $ | 135 | $ | 5,498 | ||||||||||||||||||||
Additional detail of the allowance for credit losses by
portfolio type, at March 31, 2011 and December 31,
2010, was as follows:
|
Total Loans,
|
||||||||||||||||||||||||||||||||||||
|
Commercial
|
Residential
|
Credit
|
Other
|
Excluding
|
Covered
|
Total
|
||||||||||||||||||||||||||||||
| (Dollars in Millions) | Commercial | Real Estate | Mortgages | Card | Retail | Covered Loans | Loans | Loans | ||||||||||||||||||||||||||||
|
Allowance balance at March 31, 2011 related to:
|
||||||||||||||||||||||||||||||||||||
|
Loans individually evaluated for impairment (a)
|
$ | 14 | $ | 65 | $ | – | $ | – | $ | – | $ | 79 | $ | – | $ | 79 | ||||||||||||||||||||
|
TDRs collectively evaluated for impairment
|
24 | – | 333 | 207 | 47 | 611 | – | 611 | ||||||||||||||||||||||||||||
|
Other loans collectively evaluated for impairment
|
1,101 | 1,209 | 486 | 1,069 | 807 | 4,672 | 28 | 4,700 | ||||||||||||||||||||||||||||
|
Loans acquired with deteriorated credit quality
|
– | 1 | – | –– | – | 1 | 107 | 108 | ||||||||||||||||||||||||||||
|
Total allowance for credit losses
|
$ | 1,139 | $ | 1,275 | $ | 819 | $ | 1,276 | $ | 854 | $ | 5,363 | $ | 135 | $ | 5,498 | ||||||||||||||||||||
|
Allowance balance at December 31, 2010 related to:
|
||||||||||||||||||||||||||||||||||||
|
Loans individually evaluated for impairment (a)
|
$ | 38 | $ | 55 | $ | – | $ | – | $ | – | $ | 93 | $ | – | $ | 93 | ||||||||||||||||||||
|
TDRs collectively evaluated for impairment
|
– | – | 320 | 223 | 30 | 573 | – | 573 | ||||||||||||||||||||||||||||
|
Other loans collectively evaluated for impairment
|
1,066 | 1,235 | 500 | 1,172 | 777 | 4,750 | 28 | 4,778 | ||||||||||||||||||||||||||||
|
Loans acquired with deteriorated credit quality
|
– | 1 | – | – | – | 1 | 86 | 87 | ||||||||||||||||||||||||||||
|
Total allowance for credit losses
|
$ | 1,104 | $ | 1,291 | $ | 820 | $ | 1,395 | $ | 807 | $ | 5,417 | $ | 114 | $ | 5,531 | ||||||||||||||||||||
| (a) | Represents the allowance for credit losses related to commercial and commercial real estate loans that are greater than $5 million and are classified as nonperforming or TDRs. |
|
|
37 |
Table of Contents
Additional detail of loan balances, by portfolio type, at
March 31, 2011 and December 31, 2010, was as follows:
|
Total Loans,
|
||||||||||||||||||||||||||||||||||||
|
Commercial
|
Residential
|
Credit
|
Other
|
Excluding
|
Covered
|
Total
|
||||||||||||||||||||||||||||||
| (Dollars in Millions) | Commercial | Real Estate | Mortgages | Card | Retail | Covered Loans | Loans | Loans | ||||||||||||||||||||||||||||
|
March 31, 2011:
|
||||||||||||||||||||||||||||||||||||
|
Loans individually evaluated for impairment (a)
|
$ | 182 | $ | 932 | $ | – | $ | – | $ | – | $ | 1,114 | $ | – | $ | 1,114 | ||||||||||||||||||||
|
TDRs collectively evaluated for impairment
|
56 | – | 2,046 | 467 | 117 | 2,686 | – | 2,686 | ||||||||||||||||||||||||||||
|
Other loans collectively evaluated for impairment
|
49,017 | 34,243 | 30,283 | 15,407 | 47,754 | 176,704 | 11,105 | 187,809 | ||||||||||||||||||||||||||||
|
Loans acquired with deteriorated credit quality
|
17 | 262 | 15 | – | – | 294 | 6,135 | 6,429 | ||||||||||||||||||||||||||||
|
Total loans
|
$ | 49,272 | $ | 35,437 | $ | 32,344 | $ | 15,874 | $ | 47,871 | $ | 180,798 | $ | 17,240 | (b) | $ | 198,038 | |||||||||||||||||||
|
December 31, 2010:
|
||||||||||||||||||||||||||||||||||||
|
Loans individually evaluated for impairment (a)
|
$ | 295 | $ | 801 | $ | – | $ | – | $ | – | $ | 1,096 | $ | – | $ | 1,096 | ||||||||||||||||||||
|
TDRs collectively evaluated for impairment
|
– | – | 1,957 | 452 | 114 | 2,523 | – | 2,523 | ||||||||||||||||||||||||||||
|
Other loans collectively evaluated for impairment
|
48,103 | 33,834 | 28,775 | 16,351 | 48,277 | 175,340 | 11,899 | 187,239 | ||||||||||||||||||||||||||||
|
Loans acquired with deteriorated credit quality
|
– | 60 | – | – | – | 60 | 6,143 | 6,203 | ||||||||||||||||||||||||||||
|
Total loans
|
$ | 48,398 | $ | 34,695 | $ | 30,732 | $ | 16,803 | $ | 48,391 | $ | 179,019 | $ | 18,042 | (b) | $ | 197,061 | |||||||||||||||||||
| (a) | Represents commercial and commercial real estate loans that are greater than $5 million and are classified as nonperforming or TDRs. |
| (b) | Includes expected reimbursements from the FDIC under loss sharing agreements. |
Credit
Quality
The
quality of the Company’s loan portfolios is assessed as a
function of net credit losses, levels of nonperforming assets
and delinquencies, and credit quality ratings as defined by the
Company. These credit quality ratings are an important part of
the Company’s overall credit risk management process and
evaluation of its allowance for credit losses.
Generally, commercial loans (including impaired loans) are
placed on nonaccrual status when the collection of interest or
principal has become 90 days past due or is otherwise
considered doubtful. When a loan is placed on nonaccrual status,
unpaid accrued interest is reversed. Future interest payments
are generally applied against principal. Commercial loans are
generally fully or partially charged down to the fair value of
collateral securing the loan, less costs to sell, when the loan
is deemed to be uncollectible, repayment is deemed beyond
reasonable time frames, the borrower has filed for bankruptcy,
or the loan is unsecured and greater than six months past due.
Loans secured by 1-4 family properties are generally charged
down to fair value, less costs to sell, at 180 days past
due, and placed on nonaccrual status in instances where a
partial charge-off occurs. Revolving consumer lines and credit
cards are charged off at 180 days past due and closed-end
consumer loans, other than loans secured by 1-4 family
properties, are charged off at 120 days past due and are,
therefore, generally not placed on nonaccrual status. Certain
retail customers having financial difficulties may have the
terms of their credit card and other loan agreements modified to
require only principal payments and, as such, these loans are
reported as nonaccrual.
Generally, purchased impaired loans are considered accruing
loans. However, the timing and amount of future cash flows for
some loans is not reasonably estimable. Those loans are
classified as nonaccrual loans and interest income is not
recognized until the timing and amount of the future cash flows
can be reasonably estimated.
|
|
U.S. Bancorp |
Table of Contents
The following table provides a summary of loans by portfolio
type, including the delinquency status of those that continue to
accrue interest, and those that are nonperforming:
| Accruing | |||||||||||||||||||||||
|
30-89 Days
|
90 Days or
|
||||||||||||||||||||||
| (Dollars in Millions) | Current | Past Due | More Past Due | Nonperforming | Total | ||||||||||||||||||
|
March 31, 2011:
|
|||||||||||||||||||||||
|
Commercial
|
$ | 48,399 | $ | 322 | $ | 58 | $ | 493 | $ | 49,272 | |||||||||||||
|
Commercial real estate
|
33,700 | 261 | 6 | 1,470 | 35,437 | ||||||||||||||||||
|
Residential mortgages
|
30,832 | 395 | 432 | 685 | 32,344 | ||||||||||||||||||
|
Credit card
|
15,133 | 228 | 258 | 255 | 15,874 | ||||||||||||||||||
|
Other retail
|
47,284 | 317 | 195 | 75 | 47,871 | ||||||||||||||||||
|
Total loans, excluding covered loans
|
175,348 | 1,523 | 949 | 2,978 | 180,798 | ||||||||||||||||||
|
Covered loans
|
14,341 | 743 | 1,005 | 1,151 | 17,240 | ||||||||||||||||||
|
Total loans
|
$ | 189,689 | $ | 2,266 | $ | 1,954 | $ | 4,129 | $ | 198,038 | |||||||||||||
|
December 31, 2010:
|
|||||||||||||||||||||||
|
Commercial
|
$ | 47,412 | $ | 325 | $ | 64 | $ | 597 | $ | 48,398 | |||||||||||||
|
Commercial real estate
|
32,986 | 415 | 1 | 1,293 | 34,695 | ||||||||||||||||||
|
Residential mortgages
|
29,140 | 456 | 500 | 636 | 30,732 | ||||||||||||||||||
|
Credit card
|
15,993 | 269 | 313 | 228 | 16,803 | ||||||||||||||||||
|
Other retail
|
47,706 | 404 | 216 | 65 | 48,391 | ||||||||||||||||||
|
Total loans, excluding covered loans
|
173,237 | 1,869 | 1,094 | 2,819 | 179,019 | ||||||||||||||||||
|
Covered loans
|
14,951 | 757 | 1,090 | 1,244 | 18,042 | ||||||||||||||||||
|
Total loans
|
$ | 188,188 | $ | 2,626 | $ | 2,184 | $ | 4,063 | $ | 197,061 | |||||||||||||
The Company classifies its loan portfolios using internal credit
quality ratings on a quarterly basis. These ratings include:
pass, special mention and classified, and are an important part
of the Company’s overall credit risk management process and
evaluation of the allowance for credit losses. Loans with a pass
rating represent those not classified on the Company’s
rating scale for problem credits, as minimal credit risk has
been identified. Special mention loans are those that have a
potential weakness deserving management’s close attention.
Classified loans are those where a well-defined weakness has
been identified that may put full collection of contractual cash
flows at risk. It is possible that others, given the same
information, may reach different reasonable conclusions
regarding the credit quality rating classification of specific
loans.
The following table provides a summary of loans by portfolio
type and the Company’s internal credit quality rating:
| Criticized | |||||||||||||||||||||||||
|
Special
|
Total
|
||||||||||||||||||||||||
| (Dollars in Millions) | Pass | Mention | Classified (a) | Criticized | Total | ||||||||||||||||||||
|
March 31, 2011:
|
|||||||||||||||||||||||||
|
Commercial
|
$ | 45,164 | $ | 1,659 | $ | 2,449 | $ | 4,108 | $ | 49,272 | |||||||||||||||
|
Commercial real estate
|
29,043 | 1,623 | 4,771 | 6,394 | 35,437 | ||||||||||||||||||||
|
Residential mortgages
|
30,991 | 25 | 1,328 | 1,353 | 32,344 | ||||||||||||||||||||
|
Credit card
|
15,361 | – | 513 | 513 | 15,874 | ||||||||||||||||||||
|
Other retail
|
47,404 | 75 | 392 | 467 | 47,871 | ||||||||||||||||||||
|
Total loans, excluding covered loans
|
167,963 | 3,382 | 9,453 | 12,835 | 180,798 | ||||||||||||||||||||
|
Covered loans
|
16,315 | 215 | 710 | 925 | 17,240 | ||||||||||||||||||||
|
Total loans
|
$ | 184,278 | $ | 3,597 | $ | 10,163 | $ | 13,760 | $ | 198,038 | |||||||||||||||
|
Total outstanding commitments
|
$ | 373,648 | $ | 5,192 | $ | 11,529 | $ | 16,721 | $ | 390,369 | |||||||||||||||
|
December 31, 2010:
|
|||||||||||||||||||||||||
|
Commercial
|
$ | 44,595 | $ | 1,545 | $ | 2,258 | $ | 3,803 | $ | 48,398 | |||||||||||||||
|
Commercial real estate
|
28,155 | 1,540 | 5,000 | 6,540 | 34,695 | ||||||||||||||||||||
|
Residential mortgages
|
29,355 | 29 | 1,348 | 1,377 | 30,732 | ||||||||||||||||||||
|
Credit card
|
16,262 | – | 541 | 541 | 16,803 | ||||||||||||||||||||
|
Other retail
|
47,906 | 70 | 415 | 485 | 48,391 | ||||||||||||||||||||
|
Total loans, excluding covered loans
|
166,273 | 3,184 | 9,562 | 12,746 | 179,019 | ||||||||||||||||||||
|
Covered loans
|
17,073 | 283 | 686 | 969 | 18,042 | ||||||||||||||||||||
|
Total loans
|
$ | 183,346 | $ | 3,467 | $ | 10,248 | $ | 13,715 | $ | 197,061 | |||||||||||||||
|
Total outstanding commitments
|
$ | 370,031 | $ | 4,923 | $ | 11,576 | $ | 16,499 | $ | 386,530 | |||||||||||||||
| (a) | Classified rating on consumer loans based on delinquency status. |
A loan is considered to be impaired when, based on current
events or information, it is probable the Company will be unable
to collect all amounts due per the contractual terms of the loan
agreement. Impaired loans include certain nonaccrual commercial
loans, loans for which a charge-off has been recorded based upon
the fair value of the underlying collateral and loans modified
as TDRs. Interest income is recognized on impaired loans under
the modified terms and conditions if the borrower has
demonstrated repayment performance at a level commensurate with
the
|
|
39 |
Table of Contents
modified terms over several payment cycles. Purchased credit
impaired loans are not reported as impaired loans as long as
they continue to perform at least as well as expected at
acquisition. Nonaccrual commercial lease financing loans of
$54 million and $78 million at March 31, 2011 and
December 31, 2010, respectively, were excluded from
impaired loans as commercial lease financing loans are accounted
for under authoritative accounting guidance for leases, and are
excluded from the definition of an impaired loan under loan
impairment guidance.
A summary of impaired loans, excluding covered loans, was as
follows:
|
Commitments
|
||||||||||||||||||
|
Period-end
|
Unpaid
|
to Lend
|
||||||||||||||||
|
Recorded
|
Principal
|
Valuation
|
Additional
|
|||||||||||||||
| (Dollars in Millions) | Investment | Balance | Allowance | Funds | ||||||||||||||
|
March 31, 2011:
|
||||||||||||||||||
|
Commercial
|
$ | 498 | $ | 1,594 | $ | 67 | $ | 49 | ||||||||||
|
Commercial real estate
|
1,654 | 3,262 | 126 | 19 | ||||||||||||||
|
Residential mortgages
|
2,575 | 3,015 | 343 | – | ||||||||||||||
|
Credit card
|
467 | 467 | 207 | – | ||||||||||||||
|
Other retail
|
161 | 197 | 48 | – | ||||||||||||||
|
Total
|
$ | 5,355 | $ | 8,535 | $ | 791 | $ | 68 | ||||||||||
|
December 31, 2010:
|
||||||||||||||||||
|
Commercial
|
$ | 596 | $ | 1,631 | $ | 59 | $ | 80 | ||||||||||
|
Commercial real estate
|
1,308 | 2,659 | 118 | 17 | ||||||||||||||
|
Residential mortgages
|
2,440 | 2,877 | 334 | – | ||||||||||||||
|
Credit card
|
452 | 452 | 218 | – | ||||||||||||||
|
Other retail
|
152 | 189 | 32 | – | ||||||||||||||
|
Total
|
$ | 4,948 | $ | 7,808 | $ | 761 | $ | 97 | ||||||||||
Additional information on impaired loans for the three months
ended March 31, 2011 follows:
|
Average
|
Interest
|
|||||||||
|
Recorded
|
Income
|
|||||||||
| (Dollars in Millions) | Investment | Recognized | ||||||||
|
Commercial
|
$ | 547 | $ | 1 | ||||||
|
Commercial real estate
|
1,481 | 2 | ||||||||
|
Residential mortgages
|
2,507 | 25 | ||||||||
|
Credit card
|
459 | 3 | ||||||||
|
Other retail
|
157 | 1 | ||||||||
|
Total
|
$ | 5,151 | $ | 32 | ||||||
Net gains on the sale of loans of $215 million and
$111 million for the three months ended March 31, 2011 and
2010, respectively, and were included in noninterest income,
primarily in mortgage banking revenue.
Note 6 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 13. When the Company sells financial assets, it may
retain servicing rights
and/or
other
interests in the transferred financial assets. The gain or loss
on sale depends on the previous carrying amount of the
transferred financial assets and the consideration received and
any 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
(“MSRs”), refer to Note 7. The Company has no
asset securitizations or similar asset-backed financing
arrangements that are off-balance sheet.
|
|
U.S. Bancorp |
Table of Contents
The Company is involved in various entities that are considered
to be variable interest entities (“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. The Company’s investments in
these entities are designed to generate a return primarily
through the realization of federal and state income tax credits
over specified time periods. The Company realized federal and
state income tax credits related to these investments of
$153 million and $148 million for the three months
ended March 31, 2011 and 2010, respectively. The Company
amortizes its investments in these entities as the tax credits
are realized. Tax credit amortization expense is recorded in tax
expense for investments meeting certain characteristics, and in
other noninterest expense for other investments. Amortization
expense recorded in tax expense was $58 million and
$44 million, and in other noninterest expense was
$113 million and $117 million for the three months
ended March 31, 2011 and 2010, respectively.
At March 31, 2011, approximately $4.2 billion of the
Company’s assets and $3.0 billion of its liabilities
included on the consolidated balance sheet related to community
development and tax-advantaged investment VIEs, compared with
$3.8 billion and $2.6 billion, respectively, at
December 31, 2010. The majority of the assets of these
consolidated VIEs are reported in other assets, and the
liabilities are reported in long-term debt. 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.
In addition, the Company sponsors a conduit to which it
previously transferred high-grade investment securities. The
Company consolidates the conduit because of its ability to
manage the activities of the conduit. At March 31, 2011,
$374 million of the
held-to-maturity
investment securities on the Company’s consolidated balance
sheet related to the conduit, compared with $400 million at
December 31, 2010.
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, liquidity and remarketing arrangements to the
program. As a result, the Company has consolidated the
program’s entities. At March 31, 2011 and
December 31, 2010, $5.3 billion of
available-for-sale
securities and $5.7 billion of short-term borrowings on the
consolidated balance sheet were related to the tender option
bond program.
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 $48 million, with an aggregate amount of
approximately $1.9 billion at March 31, 2011, and from
less than $1 million to $41 million, with an aggregate
amount of approximately $2.0 billion at December 31,
2010. 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 $4.7 billion at March 31, 2011, compared
with $5.0 billion at December 31, 2010. 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 7 Mortgage Servicing Rights
The Company serviced $182.7 billion of residential mortgage
loans for others at March 31, 2011, and $173.9 billion
at December 31, 2010. The net impact included in mortgage
banking revenue of assumption changes on the fair value of MSRs
and fair value changes of derivatives used to economically hedge
MSR value changes was a net gain of $62 million and
$42 million for the three months ended March 31, 2011
and 2010, respectively. Loan servicing fees, not including
valuation changes, included in mortgage banking revenue, were
$157 million and $142 million for the three months
ended March 31, 2011, and 2010, respectively.
Changes in fair value of capitalized MSRs are summarized as
follows:
|
Three Months
Ended
|
||||||||
| March 31, | ||||||||
| (Dollars in Millions) | 2011 | 2010 | ||||||
|
Balance at beginning of period
|
$ | 1,837 | $ | 1,749 | ||||
|
Rights purchased
|
7 | 5 | ||||||
|
Rights capitalized
|
213 | 132 | ||||||
|
Changes in fair value of MSRs
|
||||||||
|
Due to change in valuation assumptions (a)
|
102 | (36 | ) | |||||
|
Other changes in fair value (b)
|
(86 | ) | (72 | ) | ||||
|
Balance at end of period
|
$ | 2,073 | $ | 1,778 | ||||
| (a) | Principally reflects changes in discount rates and prepayment speed assumptions, primarily arising from interest rate changes. |
| (b) | Primarily represents changes due to collection/realization of expected cash flows over time (decay). |
The estimated sensitivity to changes in interest rates of the
fair value of the MSRs portfolio and the related derivative
instruments at March 31, 2011, was as follows:
| Down Scenario | Up Scenario | ||||||||||||||||
| (Dollars in Millions) | 50 bps | 25 bps | 25 bps | 50 bps | |||||||||||||
|
Net fair value
|
$ | 6 | $ | (6 | ) | $ | – | $ | – | ||||||||
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.
A summary of the Company’s MSRs and related characteristics
by portfolio as of March 31, 2011 was as follows:
| (Dollars in Millions) | MRBP | Government | Conventional | Total | |||||||||||||
|
Servicing portfolio
|
$ | 12,707 | $ | 30,654 | $ | 139,304 | $ | 182,665 | |||||||||
|
Fair market value
|
$ | 168 | $ | 388 | $ | 1,517 | $ | 2,073 | |||||||||
|
Value (bps) (a)
|
132 | 127 | 109 | 113 | |||||||||||||
|
Weighted-average servicing fees (bps)
|
40 | 37 | 30 | 32 | |||||||||||||
|
Multiple (value/servicing fees)
|
3.30 | 3.43 | 3.63 | 3.53 | |||||||||||||
|
Weighted-average note rate
|
5.69 | % | 5.24 | % | 5.13 | % | 5.19 | % | |||||||||
|
Age (in years)
|
4.2 | 2.2 | 2.6 | 2.6 | |||||||||||||
|
Expected prepayment (constant prepayment rate)
|
12.6 | % | 15.7 | % | 14.3 | % | 14.4 | % | |||||||||
|
Expected life (in years)
|
6.5 | 5.6 | 5.9 | 5.9 | |||||||||||||
|
Discount rate
|
11.9 | % | 11.3 | % | 10.2 | % | 10.5 | % | |||||||||
| (a) | Value is calculated as fair market value divided by the servicing portfolio. |
|
|
U.S. Bancorp |
Table of Contents
Note 8 Earnings Per Share
The components of earnings per share were:
|
Three Months
Ended
|
||||||||
| March 31, | ||||||||
| (Dollars and Shares in Millions, Except Per Share Data) | 2011 | 2010 | ||||||
|
Net income attributable to U.S. Bancorp
|
$ | 1,046 | $ | 669 | ||||
|
Preferred dividends
|
(39 | ) | (19 | ) | ||||
|
Earnings allocated to participating stock awards
|
(4 | ) | (2 | ) | ||||
|
Net income applicable to U.S. Bancorp common shareholders
|
$ | 1,003 | $ | 648 | ||||
|
Average common shares outstanding
|
1,918 | 1,910 | ||||||
|
Net effect of the exercise and assumed purchase of stock awards
and conversion of outstanding convertible notes
|
10 | 9 | ||||||
|
Average diluted common shares outstanding
|
1,928 | 1,919 | ||||||
|
Earnings per common share
|
$ | .52 | $ | .34 | ||||
|
Diluted earnings per common share
|
$ | .52 | $ | .34 | ||||
Options and warrants outstanding at March 31, 2011 and 2010
to purchase 55 million and 56 million common shares,
respectively, were not included in the computation of diluted
earnings per share for the three months ended March 31,
2011 and 2010, respectively, because they were antidilutive.
Convertible senior debentures that could potentially be
converted into shares of the Company’s common stock
pursuant to specified formulas, were not included in the
computation of dilutive earnings per share because they were
antidilutive.
Note 9 Employee Benefits
The components of net periodic benefit cost for the
Company’s retirement plans were:
| Three Months Ended March 31, | |||||||||||||||||
|
Postretirement
|
|||||||||||||||||
| Pension Plans | Welfare Plan | ||||||||||||||||
| (Dollars in Millions) | 2011 | 2010 | 2011 | 2010 | |||||||||||||
|
Service cost
|
$ | 30 | $ | 23 | $ | 1 | $ | 2 | |||||||||
|
Interest cost
|
42 | 39 | 2 | 2 | |||||||||||||
|
Expected return on plan assets
|
(52 | ) | (54 | ) | (1 | ) | (1 | ) | |||||||||
|
Prior service (credit) cost and transition (asset) obligation
amortization
|
(2 | ) | (3 | ) | – | – | |||||||||||
|
Actuarial (gain) loss amortization
|
31 | 16 | (1 | ) | (1 | ) | |||||||||||
|
Net periodic benefit cost
|
$ | 49 | $ | 21 | $ | 1 | $ | 2 | |||||||||
|
|
43 |
Table of Contents
Note 10 Income Taxes
The components of income tax expense were:
|
Three Months
Ended
|
||||||||
| March 31, | ||||||||
| (Dollars in Millions) | 2011 | 2010 | ||||||
|
Federal
|
||||||||
|
Current
|
$ | 406 | $ | 154 | ||||
|
Deferred
|
(44 | ) | (20 | ) | ||||
|
Federal income tax
|
362 | 134 | ||||||
|
State
|
||||||||
|
Current
|
10 | 29 | ||||||
|
Deferred
|
(6 | ) | (2 | ) | ||||
|
State income tax
|
4 | 27 | ||||||
|
Total income tax provision
|
$ | 366 | $ | 161 | ||||
A reconciliation of expected income tax expense at the federal
statutory rate of 35 percent to the Company’s
applicable income tax expense follows:
|
Three Months
Ended
|
||||||||
| March 31, | ||||||||
| (Dollars in Millions) | 2011 | 2010 | ||||||
|
Tax at statutory rate
|
$ | 488 | $ | 289 | ||||
|
State income tax, at statutory rates, net of federal tax benefit
|
3 | 17 | ||||||
|
Tax effect of
|
||||||||
|
Tax credits, net of related expenses
|
(87 | ) | (100 | ) | ||||
|
Tax-exempt income
|
(56 | ) | (52 | ) | ||||
|
Noncontrolling interests
|
6 | 2 | ||||||
|
Other items
|
12 | 5 | ||||||
|
Applicable income taxes
|
$ | 366 | $ | 161 | ||||
The Company’s income tax returns are subject to review and
examination by federal, state, local and foreign government
authorities. On an ongoing basis, numerous federal, state, local
and foreign examinations are in progress and cover multiple tax
years. As of March 31, 2011, the federal taxing authority
had completed its examination of the Company through the fiscal
year ended December 31, 2006. The years open to examination
by foreign, state and local government authorities vary by
jurisdiction.
The Company’s net deferred tax position was a
$135 million liability at March 31, 2011, and a
$424 million asset at December 31, 2010.
|
|
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
designation is not made as it is a customer-related transaction,
an economic hedge for asset/liability risk management purposes
or another stand-alone derivative created through the
Company’s operations (“free-standing derivative”).
Of the Company’s $33.9 billion of total notional
amount of asset and liability management positions at
March 31, 2011, $8.6 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 three months ended March 31, 2011, 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 March 31, 2011, the Company had $375 million
(net-of-tax)
of realized and unrealized losses on derivatives classified as
cash flow hedges recorded in other comprehensive income (loss),
compared with $414 million
(net-of-tax)
at December 31, 2010. The estimated amount to be
reclassified from other comprehensive income (loss) into
earnings during the remainder of 2011 and the next
12 months is a loss of $101 million
(net-of-tax)
and $133 million
(net-of-tax),
respectively. This includes gains and losses related to hedges
that were terminated early for which the forecasted transactions
are still probable. All cash flow hedges were highly effective
for the three months ended March 31, 2011, 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 three
months ended March 31, 2011 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,
interest rate swaps 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 for its customers. To mitigate
the market and liquidity risk associated with these customer
derivatives, the Company enters into similar offsetting
positions. The Company also has derivative contracts that are
created through its operations, including commitments to
originate mortgage loans held for sale and certain derivative
financial guarantee contracts.
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:
| March 31, 2011 | December 31, 2010 | ||||||||||||||||
|
Asset
|
Liability
|
Asset
|
Liability
|
||||||||||||||
| (Dollars in Millions) | Derivatives | Derivatives | Derivatives | Derivatives | |||||||||||||
|
Total fair value of derivative positions
|
$ | 1,494 | $ | 1,904 | $ | 1,799 | $ | 2,174 | |||||||||
|
Netting (a)
|
(327 | ) | (944 | ) | (280 | ) | (1,163 | ) | |||||||||
|
Total
|
$ | 1,167 | $ | 960 | $ | 1,519 | $ | 1,011 | |||||||||
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 March 31, 2011, the amount of cash and money market investments collateral posted by counterparties that was netted against derivative assets was $66 million and the amount of cash collateral posted by the Company that was netted against derivative liabilities was $680 million. At December 31, 2010, the amount of cash and money market investments collateral posted by counterparties that was netted against derivative assets was $55 million and the amount of cash collateral posted by the Company that was netted against derivative liabilities was $936 million. |
The following table summarizes the asset and liability
management derivative positions of the Company:
| Asset Derivatives | Liability Derivatives | ||||||||||||||||||||||||||
|
Weighted-
|
Weighted-
|
||||||||||||||||||||||||||
|
Average
|
Average
|
||||||||||||||||||||||||||
|
Remaining
|
Remaining
|
||||||||||||||||||||||||||
|
Notional
|
Fair
|
Maturity
|
Notional
|
Fair
|
Maturity
|
||||||||||||||||||||||
| (Dollars in Millions) | Value | Value | In Years | Value | Value | In Years | |||||||||||||||||||||
|
March 31, 2011
|
|||||||||||||||||||||||||||
|
Fair value hedges
|
|||||||||||||||||||||||||||
|
Interest rate contracts
|
|||||||||||||||||||||||||||
|
Receive fixed/pay floating swaps
|
$ | 1,300 | $ | 48 | 56.44 | $ | 500 | $ | 2 | 4.91 | |||||||||||||||||
|
Foreign exchange cross-currency swaps
|
1,420 | 105 | 6.00 | – | – | – | |||||||||||||||||||||
|
Cash flow hedges
|
|||||||||||||||||||||||||||
|
Interest rate contracts
|
|||||||||||||||||||||||||||
|
Pay fixed/receive floating swaps
|
– | – | – | 4,788 | 625 | 4.85 | |||||||||||||||||||||
|
Net investment hedges
|
|||||||||||||||||||||||||||
|
Foreign exchange forward contracts
|
– | – | – | 542 | 8 | .08 | |||||||||||||||||||||
|
Other economic hedges
|
|||||||||||||||||||||||||||
|
Interest rate contracts
|
|||||||||||||||||||||||||||
|
Futures and forwards
|
|||||||||||||||||||||||||||
|
Buy
|
4,079 | 24 | .08 | 1,111 | 6 | .07 | |||||||||||||||||||||
|
Sell
|
2,033 | 9 | .16 | 4,446 | 25 | .06 | |||||||||||||||||||||
|
Options
|
|||||||||||||||||||||||||||
|
Purchased
|
4,615 | – | .06 | – | – | – | |||||||||||||||||||||
|
Written
|
3,387 | 19 | .07 | 92 | – | .09 | |||||||||||||||||||||
|
Receive fixed/pay floating swaps
|
2,475 | 10 | 10.36 | 400 | 6 | 10.36 | |||||||||||||||||||||
|
Foreign exchange forward contracts
|
300 | 1 | .10 | 588 | 4 | .08 | |||||||||||||||||||||
|
Equity contracts
|
27 | 1 | .33 | 39 | 1 | 2.06 | |||||||||||||||||||||
|
Credit contracts
|
573 | 1 | 2.56 | 1,199 | 7 | 2.90 | |||||||||||||||||||||
|
December 31, 2010
|
|||||||||||||||||||||||||||
|
Fair value hedges
|
|||||||||||||||||||||||||||
|
Interest rate contracts
|
|||||||||||||||||||||||||||
|
Receive fixed/pay floating swaps
|
1,800 | 72 | 55.75 | – | – | – | |||||||||||||||||||||
|
Foreign exchange cross-currency swaps
|
891 | 70 | 6.17 | 445 | – | 6.17 | |||||||||||||||||||||
|
Cash flow hedges
|
|||||||||||||||||||||||||||
|
Interest rate contracts
|
|||||||||||||||||||||||||||
|
Pay fixed/receive floating swaps
|
– | – | – | 4,788 | 688 | 5.03 | |||||||||||||||||||||
|
Net investment hedges
|
|||||||||||||||||||||||||||
|
Foreign exchange forward contracts
|
512 | 3 | .08 | – | – | – | |||||||||||||||||||||
|
Other economic hedges
|
|||||||||||||||||||||||||||
|
Interest rate contracts
|
|||||||||||||||||||||||||||
|
Futures and forwards
|
|||||||||||||||||||||||||||
|
Buy
|
2,879 | 20 | .10 | 6,312 | 79 | .05 | |||||||||||||||||||||
|
Sell
|
9,082 | 207 | .07 | 6,002 | 51 | .09 | |||||||||||||||||||||
|
Options
|
|||||||||||||||||||||||||||
|
Purchased
|
1,600 | – | .06 | – | – | – | |||||||||||||||||||||
|
Written
|
6,321 | 23 | .07 | 1,348 | 9 | .07 | |||||||||||||||||||||
|
Receive fixed/pay floating swaps
|
2,250 | 3 | 10.22 | – | – | – | |||||||||||||||||||||
|
Foreign exchange forward contracts
|
158 | 1 | .09 | 694 | 6 | .09 | |||||||||||||||||||||
|
Equity contracts
|
61 | 3 | 1.60 | – | – | – | |||||||||||||||||||||
|
Credit contracts
|
650 | 2 | 3.22 | 1,183 | 7 | 2.71 | |||||||||||||||||||||
|
|
U.S. Bancorp |
Table of Contents
The following table summarizes the customer-related derivative
positions of the Company:
| Asset Derivatives | Liability Derivatives | ||||||||||||||||||||||||||
|
Weighted-
|
Weighted-
|
||||||||||||||||||||||||||
|
Average
|
Average
|
||||||||||||||||||||||||||
|
Remaining
|
Remaining
|
||||||||||||||||||||||||||
|
Notional
|
Fair
|
Maturity
|
Notional
|
Fair
|
Maturity
|
||||||||||||||||||||||
| (Dollars in Millions) | Value | Value | In Years | Value | Value | In Years | |||||||||||||||||||||
|
March 31, 2011
|
|||||||||||||||||||||||||||
|
Interest rate contracts
|
|||||||||||||||||||||||||||
|
Receive fixed/pay floating swaps
|
$ | 15,502 | $ | 821 | 4.59 | $ | 1,807 | $ | 30 | 5.90 | |||||||||||||||||
|
Pay fixed/receive floating swaps
|
2,103 | 32 | 5.78 | 14,767 | 788 | 4.78 | |||||||||||||||||||||
|
Options
|
|||||||||||||||||||||||||||
|
Purchased
|
1,910 | 13 | 2.06 | 95 | 9 | .10 | |||||||||||||||||||||
|
Written
|
348 | 10 | .18 | 1,695 | 13 | 2.31 | |||||||||||||||||||||
|
Foreign exchange rate contracts
|
|||||||||||||||||||||||||||
|
Forwards, spots and swaps (a)
|
8,764 | 394 | .67 | 8,681 | 374 | .67 | |||||||||||||||||||||
|
Options
|
|||||||||||||||||||||||||||
|
Purchased
|
324 | 6 | .20 | – | – | – | |||||||||||||||||||||
|
Written
|
– | – | – | 324 | 6 | .20 | |||||||||||||||||||||
|
December 31, 2010
|
|||||||||||||||||||||||||||
|
Interest rate contracts
|
|||||||||||||||||||||||||||
|
Receive fixed/pay floating swaps
|
15,730 | 956 | 4.64 | 1,294 | 21 | 6.01 | |||||||||||||||||||||
|
Pay fixed/receive floating swaps
|
1,315 | 24 | 6.12 | 15,769 | 922 | 4.68 | |||||||||||||||||||||
|
Options
|
|||||||||||||||||||||||||||
|
Purchased
|
2,024 | 13 | 1.98 | 115 | 12 | .36 | |||||||||||||||||||||
|
Written
|
472 | 12 | .26 | 1,667 | 13 | 2.35 | |||||||||||||||||||||
|
Foreign exchange rate contracts
|
|||||||||||||||||||||||||||
|
Forwards, spots and swaps (a)
|
7,772 | 384 | .74 | 7,694 | 360 | .75 | |||||||||||||||||||||
|
Options
|
|||||||||||||||||||||||||||
|
Purchased
|
224 | 6 | .40 | – | – | – | |||||||||||||||||||||
|
Written
|
– | – | – | 224 | 6 | .40 | |||||||||||||||||||||
| (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
(net-of-tax):
|
Gains (Losses)
Recognized in
|
Gains (Losses)
Reclassified from Other
|
||||||||||||||||
|
Other Comprehensive
Income
|
Comprehensive Income
(Loss) into
|
||||||||||||||||
| (Loss) | Earnings | ||||||||||||||||
| Three Months Ended March 31 (Dollars in Millions) | 2011 | 2010 | 2011 | 2010 | |||||||||||||
|
Asset and Liability Management Positions
|
|||||||||||||||||
|
Cash flow hedges
|
|||||||||||||||||
|
Interest rate contracts
|
|||||||||||||||||
|
Pay fixed/receive floating swaps (a)
|
$ | 5 | $ | (67 | ) | $ | (34 | ) | $ | (43 | ) | ||||||
|
Net investment hedges
|
|||||||||||||||||
|
Foreign exchange forward contracts
|
(32 | ) | (31 | ) | – | – | |||||||||||
Note:
Ineffectiveness on cash flow and net investment hedges was not
material for the three months ended March 31, 2011 and
2010.
| (a) | Gains (Losses) reclassified from other comprehensive income (loss) into interest 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)
|
||||||||||||||
|
Location of
|
Recognized in
|
|||||||||||||
|
Three Months Ended
March 31
|
Gains (Losses)
|
Earnings | ||||||||||||
| (Dollars in Millions) | Recognized in Earnings | 2011 | 2010 | |||||||||||
|
Asset and Liability Management Positions
|
||||||||||||||
|
Fair value hedges (a)
|
||||||||||||||
|
Interest rate contracts
|
Other noninterest income | $ | 14 | $ | (96 | ) | ||||||||
|
Foreign exchange cross-currency swaps
|
Other noninterest income | 73 | (70 | ) | ||||||||||
|
Other economic hedges
|
||||||||||||||
|
Interest rate contracts
|
||||||||||||||
|
Futures and forwards
|
Mortgage banking revenue | (14 | ) | 20 | ||||||||||
|
Purchased and written options
|
Mortgage banking revenue | 49 | 70 | |||||||||||
|
Foreign exchange forward contracts
|
Commercial products revenue | (14 | ) | (11 | ) | |||||||||
|
Equity contracts
|
Compensation expense | 1 | – | |||||||||||
|
Credit contracts
|
Other noninterest income/expense | (1 | ) | – | ||||||||||
|
Customer-Related Positions
|
||||||||||||||
|
Interest rate contracts
|
||||||||||||||
|
Receive fixed/pay floating swaps
|
Other noninterest income | (147 | ) | 69 | ||||||||||
|
Pay fixed/receive floating swaps
|
Other noninterest income | 140 | (67 | ) | ||||||||||
|
Foreign exchange rate contracts
|
||||||||||||||
|
Forwards, spots and swaps
|
Commercial products revenue | 14 | 10 | |||||||||||
| (a) | Gains (Losses) on items hedged by interest rate contracts and foreign exchange forward contracts, included in noninterest income (expense), were $(14) million and $(72) million for the three months ended March 31, 2011, respectively, and $94 million and $69 million for the three months ended March 31, 2010, respectively. The ineffective portion was immaterial for the three months ended March 31, 2011 and 2010. |
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
March 31, 2011, was $1.2 billion. At March 31, 2011,
the Company had $680 million of cash posted as collateral
against this net liability position.
|
|
U.S. Bancorp |
Table of Contents
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, trading and
available-for-sale
investment securities, certain mortgage loans held for sale
(“MLHFS”) and MSRs are recorded at fair value on a
recurring basis. Additionally, from time to time, the Company
may be required to record at fair value other assets on a
nonrecurring basis, such as loans held for sale, loans held for
investment and certain other assets. These nonrecurring fair
value adjustments typically involve application of
lower-of-cost-or-fair
value accounting or impairment write-downs of individual assets.
Fair value is defined as the exchange price that would be
received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market
participants on the measurement date. A fair value measurement
reflects all of the assumptions that market participants would
use in pricing the asset or liability, including assumptions
about the risk inherent in a particular valuation technique, the
effect of a restriction on the sale or use of an asset, and the
risk of nonperformance.
The Company groups its assets and liabilities measured at fair
value into a three-level hierarchy for valuation techniques used
to measure financial assets and financial liabilities at fair
value. This hierarchy is based on whether the valuation inputs
are observable or unobservable. These levels are:
|
•
|
Level 1 — Quoted prices in active markets for identical assets or liabilities. Level 1 includes U.S. Treasury and exchange-traded instruments. | |
|
•
|
Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 includes debt securities that are traded less frequently than exchange-traded instruments and which are valued using third-party pricing services; derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data; and MLHFS whose values are determined using quoted prices for similar assets or pricing models with inputs that are observable in the market or can be corroborated by observable market data. | |
|
•
|
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category includes residential MSRs, certain debt securities, including the Company’s SIV-related securities 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 three months ended
March 31, 2011 and 2010, there were no significant
transfers of financial assets or financial liabilities between
the hierarchy levels.
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.
|
|
49 |
Table of Contents
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, certain asset-backed securities,
certain collateralized debt obligations and collateralized loan
obligations, certain corporate debt securities and SIV-related
securities. 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.
Cash flow methodologies and other market valuation techniques
involving management judgment use assumptions regarding housing
prices, interest rates and borrower performance. Inputs are
refined and updated to reflect market developments. The primary
valuation drivers of these securities are the prepayment rates,
default rates and default severities associated with the
underlying collateral, as well as the discount rate used to
calculate the present value of the projected cash flows.
The following table shows the valuation assumption ranges for
Level 3
available-for-sale
non-agency mortgage-backed securities at March 31, 2011:
| 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 | 2 | – | 20 | 8 | |||||||||||||||||||||
|
Lifetime loss severity rates
|
16 | 87 | 40 | 10 | 88 | 55 | |||||||||||||||||||||
|
Discount margin
|
3 | 33 | 5 | 3 | 40 | 10 | |||||||||||||||||||||
| (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 $125 million net loss and a $42 million
net gain, for the three months ended March 31, 2011 and
2010, 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 $3.9 billion as of
March 31, 2011, which exceeded the unpaid principal balance
by $82 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 valuations. 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
|
|
U.S. Bancorp |
Table of Contents
Level 2 of the fair value hierarchy as the significant
inputs to the models are observable. An exception to the
Level 2 classification is certain derivative transactions
for which the risk of nonperformance cannot be observed in the
market. These derivatives are classified within Level 3 of
the fair value hierarchy. In addition, commitments to sell,
purchase and originate mortgage loans that meet the requirements
of a derivative, are valued by pricing models that include
market observable and unobservable inputs. Due to the
significant unobservable inputs, these commitments are
classified within Level 3 of the fair value hierarchy.
Deposit
Liabilities
The
fair value of demand deposits, savings accounts and certain
money market deposits is equal to the amount payable on demand.
The fair value of fixed-rate certificates of deposit was
estimated by discounting the contractual cash flow using current
market rates.
Short-term
Borrowings
Federal
funds purchased, securities sold under agreements to repurchase,
commercial paper and other short-term funds borrowed have
floating rates or short-term maturities. The fair value of
short-term borrowings was determined by discounting contractual
cash flows using current market rates.
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 and unobservable 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 | |||||||||||||||||
|
March 31, 2011
|
||||||||||||||||||||||
|
Available-for-sale
securities
|
||||||||||||||||||||||
|
U.S. Treasury and agencies
|
$ | 870 | $ | 1,667 | $ | – | $ | – | $ | 2,537 | ||||||||||||
|
Mortgage-backed securities
|
||||||||||||||||||||||
|
Residential
|
||||||||||||||||||||||
|
Agency
|
– | 38,518 | – | – | 38,518 | |||||||||||||||||
|
Non-agency
|
||||||||||||||||||||||
|
Prime
|
– | – | 963 | – | 963 | |||||||||||||||||
|
Non-prime
|
– | – | 947 | – | 947 | |||||||||||||||||
|
Commercial
|
||||||||||||||||||||||
|
Agency
|
– | 170 | – | – | 170 | |||||||||||||||||
|
Non-agency
|
– | – | 50 | – | 50 | |||||||||||||||||
|
Asset-backed securities
|
||||||||||||||||||||||
|
Collateralized debt obligations/Collateralized loan obligations
|
– | 91 | 142 | – | 233 | |||||||||||||||||
|
Other
|
– | 585 | 133 | – | 718 | |||||||||||||||||
|
Obligations of state and political subdivisions
|
– | 6,412 | – | – | 6,412 | |||||||||||||||||
|
Obligations of foreign governments
|
– | 6 | – | – | 6 | |||||||||||||||||
|
Corporate debt securities
|
– | 995 | 9 | – | 1,004 | |||||||||||||||||
|
Perpetual preferred securities
|
– | 470 | – | – | 470 | |||||||||||||||||
|
Other investments
|
213 | 7 | – | – | 220 | |||||||||||||||||
|
Total
available-for-sale
|
1,083 | 48,921 | 2,244 | – | 52,248 | |||||||||||||||||
|
Mortgage loans held for sale
|
– | 3,910 | – | – | 3,910 | |||||||||||||||||
|
Mortgage servicing rights
|
– | – | 2,073 | – | 2,073 | |||||||||||||||||
|
Derivative assets
|
– | 685 | 809 | (327 | ) | 1,167 | ||||||||||||||||
|
Other assets
|
– | 581 | – | – | 581 | |||||||||||||||||
|
Total
|
$ | 1,083 | $ | 54,097 | $ | 5,126 | $ | (327 | ) | $ | 59,979 | |||||||||||
|
Derivative liabilities
|
$ | – | $ | 1,842 | $ | 62 | $ | (944 | ) | $ | 960 | |||||||||||
|
Other liabilities
|
– | 565 | – | – | 565 | |||||||||||||||||
|
Total
|
$ | – | $ | 2,407 | $ | 62 | $ | (944 | ) | $ | 1,525 | |||||||||||
|
December 31, 2010
|
||||||||||||||||||||||
|
Available-for-sale
securities
|
||||||||||||||||||||||
|
U.S. Treasury and agencies
|
$ | 873 | $ | 1,664 | $ | – | $ | – | $ | 2,537 | ||||||||||||
|
Mortgage-backed securities
|
||||||||||||||||||||||
|
Residential
|
||||||||||||||||||||||
|
Agency
|
– | 37,703 | – | – | 37,703 | |||||||||||||||||
|
Non-agency
|
||||||||||||||||||||||
|
Prime
|
– | – | 1,103 | – | 1,103 | |||||||||||||||||
|
Non-prime
|
– | – | 947 | – | 947 | |||||||||||||||||
|
Commercial
|
||||||||||||||||||||||
|
Agency
|
– | 197 | – | – | 197 | |||||||||||||||||
|
Non-agency
|
– | – | 50 | – | 50 | |||||||||||||||||
|
Asset-backed securities
|
||||||||||||||||||||||
|
Collateralized debt obligations/Collateralized loan obligations
|
– | 89 | 135 | – | 224 | |||||||||||||||||
|
Other
|
– | 587 | 133 | – | 720 | |||||||||||||||||
|
Obligations of state and political subdivisions
|
– | 6,417 | – | – | 6,417 | |||||||||||||||||
|
Obligations of foreign governments
|
– | 6 | – | – | 6 | |||||||||||||||||
|
Corporate debt securities
|
– | 949 | 9 | – | 958 | |||||||||||||||||
|
Perpetual preferred securities
|
– | 448 | – | – | 448 | |||||||||||||||||
|
Other investments
|
181 | 18 | – | – | 199 | |||||||||||||||||
|
Total
available-for-sale
|
1,054 | 48,078 | 2,377 | – | 51,509 | |||||||||||||||||
|
Mortgage loans held for sale
|
– | 8,100 | – | – | 8,100 | |||||||||||||||||
|
Mortgage servicing rights
|
– | – | 1,837 | – | 1,837 | |||||||||||||||||
|
Derivative assets
|
– | 846 | 953 | (280 | ) | 1,519 | ||||||||||||||||
|
Other assets
|
– | 470 | – | – | 470 | |||||||||||||||||
|
Total
|
$ | 1,054 | $ | 57,494 | $ | 5,167 | $ | (280 | ) | $ | 63,435 | |||||||||||
|
Derivative liabilities
|
$ | – | $ | 2,072 | $ | 102 | $ | (1,163 | ) | $ | 1,011 | |||||||||||
|
Other liabilities
|
– | 470 | – | – | 470 | |||||||||||||||||
|
Total
|
$ | – | $ | 2,542 | $ | 102 | $ | (1,163 | ) | $ | 1,481 | |||||||||||
|
|
U.S. Bancorp |
Table of Contents
The following table presents the changes in fair value for all
assets and liabilities measured at fair value on a recurring
basis using significant unobservable inputs (Level 3):
|
Net Gains
|
Net Total
|
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
March 31,
|
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 | |||||||||||||||||||||||||
|
2011
|
||||||||||||||||||||||||||||||||
|
Available-for-sale
securities
|
||||||||||||||||||||||||||||||||
|
Mortgage-backed securities
|
||||||||||||||||||||||||||||||||
|
Residential non-agency
|
||||||||||||||||||||||||||||||||
|
Prime
|
$ | 1,103 | $ | 2 | $ | 46 | $ | (188 | ) | $ | – | $ | 963 | $ | 38 | |||||||||||||||||
|
Non-prime
|
947 | – | 51 | (51 | ) | – | 947 | 51 | ||||||||||||||||||||||||
|
Commercial non-agency
|
50 | – | 1 | (1 | ) | – | 50 | – | ||||||||||||||||||||||||
|
Asset-backed securities
|
||||||||||||||||||||||||||||||||
|
Collateralized debt obligations/Collateralized loan obligations
|
135 | 4 | 9 | (6 | ) | – | 142 | 9 | ||||||||||||||||||||||||
|
Other
|
133 | 4 | 3 | (7 | ) | – | 133 | 3 | ||||||||||||||||||||||||
|
Corporate debt securities
|
9 | – | – | – | – | 9 | – | |||||||||||||||||||||||||
|
Total
available-for-sale
|
2,377 | 10 | (a) | 110 | (253 | ) | – | 2,244 | 101 | |||||||||||||||||||||||
|
Mortgage servicing rights
|
1,837 | 16 | (b) | – | 220 | – | 2,073 | 16 | (b) | |||||||||||||||||||||||
|
Net derivative assets and liabilities
|
851 | 43 | (c) | – | (147 | ) | – | 747 | (139 | ) (d) | ||||||||||||||||||||||
|
2010
|
||||||||||||||||||||||||||||||||
|
Available-for-sale
securities
|
||||||||||||||||||||||||||||||||
|
Mortgage-backed securities
|
||||||||||||||||||||||||||||||||
|
Residential non-agency
|
||||||||||||||||||||||||||||||||
|
Prime
|
$ | 1,429 | $ | – | $ | 29 | $ | (154 | ) | $ | – | $ | 1,304 | $ | 27 | |||||||||||||||||
|
Non-prime
|
968 | (31 | ) | 16 | (53 | ) | – | 900 | 16 | |||||||||||||||||||||||
|
Commercial non-agency
|
13 | – | 1 | – | – | 14 | 1 | |||||||||||||||||||||||||
|
Asset-backed securities
|
||||||||||||||||||||||||||||||||
|
Collateralized debt obligations/Collateralized loan obligations
|
98 | 2 | – | (21 | ) | – | 79 | – | ||||||||||||||||||||||||
|
Other
|
357 | (2 | ) | (6 | ) | (14 | ) | – | 335 | (6 | ) | |||||||||||||||||||||
|
Corporate debt securities
|
10 | – | – | – | – | 10 | – | |||||||||||||||||||||||||
|
Other investments
|
231 | (2 | ) | 13 | (5 | ) | – | 237 | 13 | |||||||||||||||||||||||
|
Total
available-for-sale
|
3,106 | (33 | ) (e) | 53 | (247 | ) | – | 2,879 | 51 | |||||||||||||||||||||||
|
Mortgage servicing rights
|
1,749 | (108 | ) (b) | – | 137 | – | 1,778 | (108 | ) (b) | |||||||||||||||||||||||
|
Net derivative assets and liabilities
|
815 | 372 | (f) | – | (282 | ) | – | 905 | (27 | ) (g) | ||||||||||||||||||||||
| (a) | Approximately $(6) million included in securities gains (losses) and $16 million included in interest income. |
| (b) | Included in mortgage banking revenue. | |
| (c) | Approximately $(5) million included in other noninterest income and $48 million included in mortgage banking revenue. | |
| (d) | Approximately $(129) million included in other noninterest income and $(10) million included in mortgage banking revenue. | |
| (e) | Approximately $(46) million included in securities gains (losses) and $13 million included in interest income. | |
| (f) | Approximately $241 million included in other noninterest income and $131 million included in mortgage banking revenue. | |
| (g) | Approximately $79 million included in other noninterest income and $(106) million included in mortgage banking revenue. |
|
|
53 |
Table of Contents
Additional detail of purchases, sales, principal payments,
issuances and settlements for assets and liabilities classified
within Level 3 for the three months ended March 31,
2011, was as follows:
|
Principal
|
|||||||||||||||||||||||||||
| (Dollars in Millions) | Purchases | Sales | Payments | Issuances | Settlements | Net Total | |||||||||||||||||||||
|
Available-for-sale
securities
|
|||||||||||||||||||||||||||
|
Mortgage-backed securities
|
|||||||||||||||||||||||||||
|
Residential non-agency
|
|||||||||||||||||||||||||||
|
Prime
|
$ | – | $ | (115 | ) | $ | (73 | ) | $ | – | $ | – | $ | (188 | ) | ||||||||||||
|
Non-prime
|
– | (12 | ) | (39 | ) | – | – | (51 | ) | ||||||||||||||||||
|
Commercial non-agency
|
– | – | (1 | ) | – | – | (1 | ) | |||||||||||||||||||
|
Asset-backed securities
|
|||||||||||||||||||||||||||
|
Collateralized debt obligations/Collateralized loan obligations
|
– | – | (6 | ) | – | – | (6 | ) | |||||||||||||||||||
|
Other
|
– | – | (7 | ) | – | – | (7 | ) | |||||||||||||||||||
|
Total
available-for-sale
|
– | (127 | ) | (126 | ) | – | – | (253 | ) | ||||||||||||||||||
|
Mortgage servicing rights
|
7 | – | – | 213 | (a) | 220 | |||||||||||||||||||||
|
Net derivative assets and liabilities
|
– | (1 | ) | – | – | (146 | ) | (147 | ) | ||||||||||||||||||
| (a) | Represents MSRs capitalized during the period. |
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:
| March 31, 2011 | December 31, 2010 | |||||||||||||||||||||||||||||||||||
| (Dollars in Millions) | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||||
|
Loans (a)
|
$ | – | $ | 64 | $ | – | $ | 64 | $ | – | $ | 404 | $ | 1 | $ | 405 | ||||||||||||||||||||
|
Other real estate owned (b)
|
– | 291 | – | 291 | – | 812 | – | 812 | ||||||||||||||||||||||||||||
|
Other intangible assets
|
– | – | – | – | – | – | 1 | 1 | ||||||||||||||||||||||||||||
|
Other assets
|
– | – | – | – | – | 4 | 9 | 13 | ||||||||||||||||||||||||||||
| (a) | Represents the carrying value of loans for which adjustments are based on the appraised value of the collateral, excluding loans fully charged-off. |
| (b) | 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. |
The following table summarizes losses recognized related to
nonrecurring fair value measurements of individual assets or
portfolios for the three months ended March 31:
| (Dollars in Millions) | 2011 | 2010 | ||||||
|
Loans (a)
|
$ | 15 | $ | 121 | ||||
|
Other real estate owned (b)
|
87 | 50 | ||||||
|
Other intangible assets
|
– | – | ||||||
|
Other assets
|
– | – | ||||||
| (a) | Represents write-downs of loans which are based on the appraised value of the collateral, excluding loans fully charged-off. |
| (b) | Represents related losses of foreclosed properties that were measured at fair value subsequent to their initial acquisition. |
Fair
Value Option
The following table summarizes the differences between the
aggregate fair value carrying amount of MLHFS for which the fair
value option has been elected and the aggregate unpaid principal
amount that the Company is contractually obligated to receive at
maturity:
| March 31, 2011 | December 31, 2010 | |||||||||||||||||||||||||||
|
Carrying
|
Carrying
|
|||||||||||||||||||||||||||
|
Fair Value
|
Aggregate
|
Amount Over
|
Fair Value
|
Aggregate
|
Amount Over
|
|||||||||||||||||||||||
|
Carrying
|
Unpaid
|
(Under) Unpaid
|
Carrying
|
Unpaid
|
(Under) Unpaid
|
|||||||||||||||||||||||
| (Dollars in Millions) | Amount | Principal | Principal | Amount | Principal | Principal | ||||||||||||||||||||||
|
Total loans
|
$ | 3,910 | $ | 3,828 | $ | 82 | $ | 8,100 | $ | 8,034 | $ | 66 | ||||||||||||||||
|
Nonaccrual loans
|
11 | 17 | (6 | ) | 11 | 18 | (7 | ) | ||||||||||||||||||||
|
Loans 90 days or more past due
|
5 | 6 | (1 | ) | 6 | 6 | – | |||||||||||||||||||||
|
|
U.S. Bancorp |
Table of Contents
Disclosures about
Fair Value of Financial
Instruments
The
following table summarizes the estimated fair value for
financial instruments as of March 31, 2011 and December 31,
2010, and includes financial instruments that are not accounted
for at fair value. In accordance with disclosure guidance
related to fair values of financial instruments, the Company did
not include assets and liabilities that are not financial
instruments, such as the value of goodwill, long-term
relationships with deposit, credit card, merchant processing and
trust customers, other purchased intangibles, premises and
equipment, deferred taxes and other liabilities.
The estimated fair values of the Company’s financial
instruments are shown in the table below:
| March 31, 2011 | December 31, 2010 | ||||||||||||||||
|
Carrying
|
Fair
|
Carrying
|
Fair
|
||||||||||||||
| (Dollars in Millions) | Amount | Value | Amount | Value | |||||||||||||
|
Financial Assets
|
|||||||||||||||||
|
Cash and due from banks
|
$ | 13,800 | $ | 13,800 | $ | 14,487 | $ | 14,487 | |||||||||
|
Investment securities
held-to-maturity
|
8,213 | 8,179 | 1,469 | 1,419 | |||||||||||||
|
Mortgages held for sale (a)
|
4 | 4 | 4 | 4 | |||||||||||||
|
Other loans held for sale
|
227 | 228 | 267 | 267 | |||||||||||||
|
Loans
|
192,768 | 192,996 | 191,751 | 192,058 | |||||||||||||
|
Financial Liabilities
|
|||||||||||||||||
|
Deposits
|
208,293 | 208,722 | 204,252 | 204,799 | |||||||||||||
|
Short-term borrowings
|
31,021 | 31,245 | 32,557 | 32,839 | |||||||||||||
|
Long-term debt
|
31,775 | 32,174 | 31,537 | 31,981 | |||||||||||||
| (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 $360 million and $353 million
at March 31, 2011 and December 31, 2010, respectively.
The carrying value of other guarantees was $334 million and
$330 million at March 31, 2011 and December 31,
2010, respectively.
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 first quarter of 2011, Visa
deposited additional funds into the escrow account and further
reduced the conversion ratio applicable to the Class B
shares. As a result, the Company recognized a gain of
$22 million during the first quarter of 2011 related to the
effective repurchase of a portion of the Class B shares.
|
|
55 |
Table of Contents
At March 31, 2011, the carrying amount of the
Company’s liability related to the remaining Visa
Litigation matters, was $27 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
upon settlement of the Visa Litigation.
The following table is a summary of other guarantees and
contingent liabilities of the Company at March 31, 2011:
|
Maximum
|
||||||||
|
Potential
|
||||||||
|
Carrying
|
Future
|
|||||||
| (Dollars in Millions) | Amount | Payments | ||||||
|
Standby letters of credit
|
$ | 106 | $ | 19,581 | ||||
|
Third-party borrowing arrangements
|
– | 130 | ||||||
|
Securities lending indemnifications
|
– | 7,962 | ||||||
|
Asset sales (a)
|
181 | 1,670 | ||||||
|
Merchant processing
|
72 | 73,080 | ||||||
|
Contingent consideration arrangements
|
5 | 5 | ||||||
|
Minimum revenue guarantees
|
24 | 38 | ||||||
|
Other guarantees
|
25 | 8,035 | ||||||
| (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 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 March 31, 2011, the
value of airline tickets purchased to be delivered at a future
date was $7.0 billion. The Company held collateral of
$596 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 entities
(“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 March 31, 2011, the Company had
reserved $181 million for potential losses from
representations 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 from 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 range or range of loss can be determined currently.
Other
On
April 13, 2011, the Company and its two primary banking
subsidiaries entered into Consent Orders with U.S. federal
banking regulators regarding the Company’s residential
mortgage servicing and foreclosure processes. The Company has
not been notified of any monetary penalty related to the Consent
Orders, however the Consent Orders could result in fines,
penalties, restitutions or other alterations to the
Company’s business practices. Other
|
|
U.S. Bancorp |
Table of Contents
governmental authorities are reported to be discussing various
actions with certain mortgage servicers, although the Company
has not been notified of any pending regulatory actions or
penalties beyond the Consent Orders. Such actions could also
lead to fines, settlements or alterations in business practices.
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, 2010.
Note 14 Subsequent Events
The Company has evaluated the impact of events that have
occurred subsequent to March 31, 2011 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 or disclosed in the consolidated
financial statements and related notes.
|
|
57 |
Table of Contents
U.S. Bancorp
Consolidated
Daily Average Balance Sheet and Related Yields and Rates (a)
| For the Three Months Ended March 31, | ||||||||||||||||||||||||||||||||
| 2011 | 2010 | |||||||||||||||||||||||||||||||
|
Yields
|
Yields
|
% Change
|
||||||||||||||||||||||||||||||
|
(Dollars in
Millions)
|
Average
|
and
|
Average
|
and
|
Average
|
|||||||||||||||||||||||||||
| (Unaudited) | Balances | Interest | Rates | Balances | Interest | Rates | Balances | |||||||||||||||||||||||||
|
Assets
|
||||||||||||||||||||||||||||||||
|
Investment securities
|
$ | 56,405 | $ | 468 | 3.32 | % | $ | 46,211 | $ | 451 | 3.90 | % | 22.1 | % | ||||||||||||||||||
|
Loans held for sale
|
6,104 | 63 | 4.16 | 3,932 | 44 | 4.50 | 55.2 | |||||||||||||||||||||||||
|
Loans (b)
|
||||||||||||||||||||||||||||||||
|
Commercial
|
48,713 | 501 | 4.16 | 47,282 | 483 | 4.13 | 3.0 | |||||||||||||||||||||||||
|
Commercial real estate
|
35,179 | 396 | 4.56 | 34,151 | 370 | 4.39 | 3.0 | |||||||||||||||||||||||||
|
Residential mortgages
|
31,777 | 393 | 4.97 | 26,408 | 347 | 5.27 | 20.3 | |||||||||||||||||||||||||
|
Retail
|
64,263 | 1,044 | 6.59 | 63,622 | 1,064 | 6.78 | 1.0 | |||||||||||||||||||||||||
|
Total loans, excluding covered loans
|
179,932 | 2,334 | 5.25 | 171,463 | 2,264 | 5.34 | 4.9 | |||||||||||||||||||||||||
|
Covered loans
|
17,638 | 235 | 5.37 | 21,415 | 253 | 4.77 | (17.6 | ) | ||||||||||||||||||||||||
|
Total loans
|
197,570 | 2,569 | 5.26 | 192,878 | 2,517 | 5.28 | 2.4 | |||||||||||||||||||||||||
|
Other earning assets
|
13,861 | 57 | 1.67 | 5,807 | 34 | 2.39 | * | |||||||||||||||||||||||||
|
Total earning assets
|
273,940 | 3,157 | 4.65 | 248,828 | 3,046 | 4.94 | 10.1 | |||||||||||||||||||||||||
|
Allowance for loan losses
|
(5,418 | ) | (5,312 | ) | (2.0 | ) | ||||||||||||||||||||||||||
|
Unrealized gain (loss) on
available-for-sale
securities
|
(320 | ) | (407 | ) | 21.4 | |||||||||||||||||||||||||||
|
Other assets
|
39,694 | 38,613 | 2.8 | |||||||||||||||||||||||||||||
|
Total assets
|
$ | 307,896 | $ | 281,722 | 9.3 | |||||||||||||||||||||||||||
|
Liabilities and Shareholders’ Equity
|
||||||||||||||||||||||||||||||||
|
Noninterest-bearing deposits
|
$ | 44,189 | $ | 38,000 | 16.3 | |||||||||||||||||||||||||||
|
Interest-bearing deposits
|
||||||||||||||||||||||||||||||||
|
Interest checking
|
42,645 | 19 | .18 | 39,994 | 19 | .19 | 6.6 | |||||||||||||||||||||||||
|
Money market savings
|
45,649 | 28 | .25 | 40,902 | 37 | .36 | 11.6 | |||||||||||||||||||||||||
|
Savings accounts
|
25,330 | 35 | .57 | 18,029 | 25 | .57 | 40.5 | |||||||||||||||||||||||||
|
Time certificates of deposit less than $100,000
|
15,264 | 72 | 1.91 | 18,335 | 80 | 1.77 | (16.7 | ) | ||||||||||||||||||||||||
|
Time deposits greater than $100,000
|
31,228 | 80 | 1.04 | 27,271 | 75 | 1.12 | 14.5 | |||||||||||||||||||||||||
|
Total interest-bearing deposits
|
160,116 | 234 | .59 | 144,531 | 236 | .66 | 10.8 | |||||||||||||||||||||||||
|
Short-term borrowings
|
32,203 | 135 | 1.70 | 32,551 | 130 | 1.62 | (1.1 | ) | ||||||||||||||||||||||||
|
Long-term debt
|
31,567 | 281 | 3.60 | 32,456 | 277 | 3.45 | (2.7 | ) | ||||||||||||||||||||||||
|
Total interest-bearing liabilities
|
223,886 | 650 | 1.18 | 209,538 | 643 | 1.24 | 6.8 | |||||||||||||||||||||||||
|
Other liabilities
|
9,003 | 7,092 | 26.9 | |||||||||||||||||||||||||||||
|
Shareholders’ equity
|
||||||||||||||||||||||||||||||||
|
Preferred equity
|
1,930 | 1,500 | 28.7 | |||||||||||||||||||||||||||||
|
Common equity
|
28,079 | 24,914 | 12.7 | |||||||||||||||||||||||||||||
|
Total U.S. Bancorp shareholders’ equity
|
30,009 | 26,414 | 13.6 | |||||||||||||||||||||||||||||
|
Noncontrolling interests
|
809 | 678 | 19.3 | |||||||||||||||||||||||||||||
|
Total equity
|
30,818 | 27,092 | 13.8 | |||||||||||||||||||||||||||||
|
Total liabilities and equity
|
$ | 307,896 | $ | 281,722 | 9.3 | % | ||||||||||||||||||||||||||
|
Net interest income
|
$ | 2,507 | $ | 2,403 | ||||||||||||||||||||||||||||
|
Gross interest margin
|
3.47 | % | 3.70 | % | ||||||||||||||||||||||||||||
|
Gross interest margin without taxable-equivalent increments
|
3.39 | 3.62 | ||||||||||||||||||||||||||||||
|
Percent of Earning Assets
|
||||||||||||||||||||||||||||||||
|
Interest income
|
4.65 | % | 4.94 | % | ||||||||||||||||||||||||||||
|
Interest expense
|
.96 | 1.04 | ||||||||||||||||||||||||||||||
|
Net interest margin
|
3.69 | % | 3.90 | % | ||||||||||||||||||||||||||||
|
Net interest margin without taxable-equivalent increments
|
3.61 | % | 3.82 | % | ||||||||||||||||||||||||||||
| * | 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
| 12 | Computation of Ratio of Earnings to Fixed Charges | ||||
| 31 | .1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 | |||
| 31 | .2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 | |||
| 32 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. section 1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 | ||||
| 101 | Financial statements from the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2011, 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. |
|
|
59 |
Table of Contents
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: May 6, 2011
|
|
U.S. Bancorp |
Table of Contents
Computation
of Ratio of Earnings to Fixed Charges
|
Three Months
Ended
|
||||||||||
| (Dollars in Millions) | March 31, 2011 | |||||||||
|
Earnings
|
||||||||||
| 1. | Net income attributable to U.S. Bancorp | $ | 1,046 | |||||||
| 2. | Applicable income taxes, including expense related to unrecognized tax positions | 366 | ||||||||
| 3. | Net income attributable to U.S. Bancorp before income taxes (1 + 2) | $ | 1,412 | |||||||
| 4. | Fixed charges: | |||||||||
| a. | Interest expense excluding interest on deposits* | $ | 414 | |||||||
| b. | Portion of rents representative of interest and amortization of debt expense | 26 | ||||||||
| c. | Fixed charges excluding interest on deposits (4a + 4b) | 440 | ||||||||
| d. | Interest on deposits | 234 | ||||||||
| e. | Fixed charges including interest on deposits (4c + 4d) | $ | 674 | |||||||
| 5. | Amortization of interest capitalized | $ | – | |||||||
| 6. | Earnings excluding interest on deposits (3 + 4c + 5) | 1,852 | ||||||||
| 7. | Earnings including interest on deposits (3 + 4e + 5) | 2,086 | ||||||||
| 8. | Fixed charges excluding interest on deposits (4c) | 440 | ||||||||
| 9. | Fixed charges including interest on deposits (4e) | 674 | ||||||||
|
Ratio of Earnings to Fixed Charges
|
||||||||||
| 10. | Excluding interest on deposits (line 6/line 8) | 4.21 | ||||||||
| 11. | Including interest on deposits (line 7/line 9) | 3.09 | ||||||||
| * | Excludes interest expense related to unrecognized tax positions |
|
|
61 |
Table of Contents
EXHIBIT
31.1
CERTIFICATION
PURSUANT TO
RULE 13a-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Richard K. Davis, certify that:
| (1) | I have reviewed this Quarterly Report on Form 10-Q of U.S. Bancorp; |
| (2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| (3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| (4) | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| (5) | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/
Richard
K. Davis
Richard K. Davis
Chief Executive Officer
Dated: May 6, 2011
|
|
U.S. Bancorp |
Table of Contents
EXHIBIT 31.2
CERTIFICATION
PURSUANT TO
RULE 13a-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Andrew Cecere, certify that:
| (1) | I have reviewed this Quarterly Report on Form 10-Q of U.S. Bancorp; |
| (2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| (3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| (4) | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| (5) | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/
Andrew
Cecere
Andrew Cecere
Chief Financial Officer
Dated: May 6, 2011
|
|
63 |
Table of Contents
EXHIBIT 32
CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
the undersigned, Chief Executive Officer and Chief Financial
Officer of U.S. Bancorp, a Delaware corporation (the
“Company”), do hereby certify that:
| (1) | The Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. |
|
/s/
Richard
K. Davis
|
/s/
Andrew
Cecere
|
|
| Richard K. Davis | Andrew Cecere | |
| Chief Executive Officer | Chief Financial Officer |
Dated: May 6, 2011
|
|
U.S. Bancorp |
Table of Contents
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Corporate Information
Executive
Offices
U.S. Bancorp
800 Nicollet Mall
Minneapolis, MN 55402
Common
Stock Transfer Agent and Registrar
BNY Mellon Shareowner Services acts
as our transfer agent and registrar, dividend paying agent and
dividend reinvestment plan administrator, and maintains all
shareholder records for the corporation. Inquiries related to
shareholder records, stock transfers, changes of ownership, lost
stock certificates, changes of address and dividend payment
should be directed to the transfer agent at:
BNY Mellon Shareowner Services
P.O. Box 358015
Pittsburgh, PA 15252-8015
Phone: 888-778-1311 or 201-680-6578
(international calls)
Internet: bnymellon.com/shareowner
For Registered or Certified Mail:
BNY Mellon Shareowner Services
500 Ross St., 6th Floor
Pittsburgh, PA 15219
Telephone representatives are
available weekdays from 8:00 a.m. to 6:00 p.m. Central
Time, and automated support is available 24 hours a day,
7 days a week. Specific information about your account is
available on BNY Mellon’s internet site by clicking on the
Investor
ServiceDirect
®
link.
Independent
Auditor
Ernst & Young LLP serves
as the independent auditor for U.S. Bancorp’s
financial statements.
Common
Stock Listing and Trading
U.S. Bancorp common stock is listed
and traded on the New York Stock Exchange under the ticker
symbol USB.
Dividends
and Reinvestment Plan
U.S. Bancorp currently pays
quarterly dividends on our common stock on or about the
15th day of January, April, July and October, subject to
approval by our Board of Directors. U.S. Bancorp
shareholders can choose to participate in a plan that provides
automatic reinvestment of dividends and/or optional cash
purchase of additional shares of U.S. Bancorp common stock.
For more information, please contact our transfer agent, BNY
Mellon Shareowner Services.
Investor
Relations Contacts
Judith T. Murphy
Executive Vice President, Corporate
Investor and Public Relations
judith.murphy@usbank.com
Phone: 612-303-0783 or
866-775-9668
Financial
Information
U.S. Bancorp news and financial
results are available through our website and by mail.
Website
For
information about U.S. Bancorp, including news, financial
results, annual reports and other documents filed with the
Securities and Exchange Commission, access our home page on the
internet at usbank.com, 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
.
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 Business CombinationsNote 4 Investment SecuritiesNote 5 Loans and Allowance For Credit LossesNote 6 Accounting For Transfers and Servicing Of Financial Assets and Variable Interest EntitiesNote 7 Mortgage Servicing RightsNote 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