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/36104/000095012311074425/c64684c6468401.gif)
![[USBANCORP LOGO]](https://www.sec.gov/Archives/edgar/data/36104/000095012311074425/c64684c6468402.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 June 30, 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
(Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the
registrant is a shell company (as defined in
Rule 12b-2
of the Exchange Act).
YES
o
NO
þ
Indicate the number of shares
outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
|
Class
|
Outstanding as of July 31, 2011 | |
|
Common Stock, $.01 Par Value
|
1,920,925,356 shares |
Table of Contents
and
Form 10-Q
Cross Reference Index
|
Part I —
Financial Information
|
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| 3 | ||||||||
| 4 | ||||||||
| 6 | ||||||||
| 27 | ||||||||
| 28 | ||||||||
| 28 | ||||||||
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2) Quantitative and Qualitative Disclosures About Market
Risk/Corporate Risk Profile (Item 3)
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| 8 | ||||||||
| 9 | ||||||||
| 19 | ||||||||
| 19 | ||||||||
| 19 | ||||||||
| 20 | ||||||||
| 21 | ||||||||
| 21 | ||||||||
| 22 | ||||||||
| 30 | ||||||||
| 68 | ||||||||
| 68 | ||||||||
| 68 | ||||||||
| 69 | ||||||||
| 70 | ||||||||
| 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 negatively 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.
|
|
1 |
Table of Contents
Table 1 Selected Financial Data
|
Three Months
Ended
|
Six Months Ended
|
|||||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||||
|
Percent
|
Percent
|
|||||||||||||||||||||||||||
| (Dollars and Shares in Millions, Except Per Share Data) | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||||||
|
Condensed Income Statement
|
||||||||||||||||||||||||||||
|
Net interest income (taxable-equivalent basis) (a)
|
$ | 2,544 | $ | 2,409 | 5.6 | % | $ | 5,051 | $ | 4,812 | 5.0 | % | ||||||||||||||||
|
Noninterest income
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2,154 | 2,131 | 1.1 | 4,171 | 4,083 | 2.2 | ||||||||||||||||||||||
|
Securities gains (losses), net
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(8 | ) | (21 | ) | 61.9 | (13 | ) | (55 | ) | 76.4 | ||||||||||||||||||
|
Total net revenue
|
4,690 | 4,519 | 3.8 | 9,209 | 8,840 | 4.2 | ||||||||||||||||||||||
|
Noninterest expense
|
2,425 | 2,377 | 2.0 | 4,739 | 4,513 | 5.0 | ||||||||||||||||||||||
|
Provision for credit losses
|
572 | 1,139 | (49.8 | ) | 1,327 | 2,449 | (45.8 | ) | ||||||||||||||||||||
|
Income before taxes
|
1,693 | 1,003 | 68.8 | 3,143 | 1,878 | 67.4 | ||||||||||||||||||||||
|
Taxable-equivalent adjustment
|
56 | 52 | 7.7 | 111 | 103 | 7.8 | ||||||||||||||||||||||
|
Applicable income taxes
|
458 | 199 | * | 824 | 360 | * | ||||||||||||||||||||||
|
Net income
|
1,179 | 752 | 56.8 | 2,208 | 1,415 | 56.0 | ||||||||||||||||||||||
|
Net (income) loss attributable to noncontrolling interests
|
24 | 14 | 71.4 | 41 | 20 | * | ||||||||||||||||||||||
|
Net income attributable to U.S. Bancorp
|
$ | 1,203 | $ | 766 | 57.0 | $ | 2,249 | $ | 1,435 | 56.7 | ||||||||||||||||||
|
Net income applicable to U.S. Bancorp common shareholders
|
$ | 1,167 | $ | 862 | 35.4 | $ | 2,170 | $ | 1,510 | 43.7 | ||||||||||||||||||
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Per Common Share
|
||||||||||||||||||||||||||||
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Earnings per share
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$ | .61 | $ | .45 | 35.6 | % | $ | 1.13 | $ | .79 | 43.0 | % | ||||||||||||||||
|
Diluted earnings per share
|
.60 | .45 | 33.3 | 1.12 | .79 | 41.8 | ||||||||||||||||||||||
|
Dividends declared per share
|
.125 | .050 | * | .250 | .100 | * | ||||||||||||||||||||||
|
Book value per share
|
15.50 | 13.69 | 13.2 | |||||||||||||||||||||||||
|
Market value per share
|
25.51 | 22.35 | 14.1 | |||||||||||||||||||||||||
|
Average common shares outstanding
|
1,921 | 1,912 | .5 | 1,920 | 1,911 | .5 | ||||||||||||||||||||||
|
Average diluted common shares outstanding
|
1,929 | 1,921 | .4 | 1,929 | 1,920 | .5 | ||||||||||||||||||||||
|
Financial Ratios
|
||||||||||||||||||||||||||||
|
Return on average assets
|
1.54 | % | 1.09 | % | 1.46 | % | 1.03 | % | ||||||||||||||||||||
|
Return on average common equity
|
15.9 | 13.4 | 15.2 | 12.0 | ||||||||||||||||||||||||
|
Net interest margin (taxable-equivalent basis) (a)
|
3.67 | 3.90 | 3.68 | 3.90 | ||||||||||||||||||||||||
|
Efficiency ratio (b)
|
51.6 | 52.4 | 51.4 | 50.7 | ||||||||||||||||||||||||
|
Average Balances
|
||||||||||||||||||||||||||||
|
Loans
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$ | 198,810 | $ | 191,161 | 4.0 | % | $ | 198,194 | $ | 192,015 | 3.2 | % | ||||||||||||||||
|
Loans held for sale
|
3,118 | 4,048 | (23.0 | ) | 4,603 | 3,990 | 15.4 | |||||||||||||||||||||
|
Investment securities
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62,955 | 47,140 | 33.5 | 59,698 | 46,678 | 27.9 | ||||||||||||||||||||||
|
Earning assets
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277,571 | 247,446 | 12.2 | 275,766 | 248,133 | 11.1 | ||||||||||||||||||||||
|
Assets
|
312,610 | 281,340 | 11.1 | 310,266 | 281,530 | 10.2 | ||||||||||||||||||||||
|
Noninterest-bearing deposits
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48,721 | 39,917 | 22.1 | 46,467 | 38,964 | 19.3 | ||||||||||||||||||||||
|
Deposits
|
209,411 | 183,318 | 14.2 | 206,871 | 182,927 | 13.1 | ||||||||||||||||||||||
|
Short-term borrowings
|
29,008 | 32,286 | (10.2 | ) | 30,597 | 32,418 | (5.6 | ) | ||||||||||||||||||||
|
Long-term debt
|
32,183 | 30,242 | 6.4 | 31,877 | 31,343 | 1.7 | ||||||||||||||||||||||
|
Total U.S. Bancorp shareholders’ equity
|
31,967 | 27,419 | 16.6 | 30,994 | 26,919 | 15.1 | ||||||||||||||||||||||
|
June 30,
|
December 31,
|
|||||||||||||||||||||||||||
|
|
2011 | 2010 | ||||||||||||||||||||||||||
|
Period End Balances
|
||||||||||||||||||||||||||||
|
Loans
|
$ | 199,882 | $ | 197,061 | 1.4 | % | ||||||||||||||||||||||
|
Allowance for credit losses
|
5,308 | 5,531 | (4.0 | ) | ||||||||||||||||||||||||
|
Investment securities
|
65,579 | 52,978 | 23.8 | |||||||||||||||||||||||||
|
Assets
|
320,874 | 307,786 | 4.3 | |||||||||||||||||||||||||
|
Deposits
|
214,883 | 204,252 | 5.2 | |||||||||||||||||||||||||
|
Long-term debt
|
32,830 | 31,537 | 4.1 | |||||||||||||||||||||||||
|
Total U.S. Bancorp shareholders’ equity
|
32,452 | 29,519 | 9.9 | |||||||||||||||||||||||||
|
Capital ratios
|
||||||||||||||||||||||||||||
|
Tier 1 capital
|
11.0 | % | 10.5 | % | ||||||||||||||||||||||||
|
Total risk-based capital
|
13.9 | 13.3 | ||||||||||||||||||||||||||
|
Leverage
|
9.2 | 9.1 | ||||||||||||||||||||||||||
|
Tier 1 common equity to risk-weighted assets using Basel I
definition (c)
|
8.4 | 7.8 | ||||||||||||||||||||||||||
|
Tier 1 common equity to risk-weighted assets using
anticipated Basel III definition (c)
|
8.1 | 7.3 | ||||||||||||||||||||||||||
|
Tangible common equity to tangible assets (c)
|
6.5 | 6.0 | ||||||||||||||||||||||||||
|
Tangible common equity to risk-weighted assets (c)
|
8.0 | 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 27. |
|
|
U.S. Bancorp |
Table of Contents
OVERVIEW
Earnings
Summary
U.S. Bancorp
and its subsidiaries (the “Company”) reported net
income attributable to U.S. Bancorp of $1.2 billion
for the second quarter of 2011, or $.60 per diluted common
share, compared with $766 million, or $.45 per diluted
common share for the second quarter of 2010. Return on average
assets and return on average common equity were
1.54 percent and 15.9 percent, respectively, for the
second quarter of 2011, compared with 1.09 percent and
13.4 percent, respectively, for the second quarter of 2010.
Diluted earnings per common share for the second quarter of 2010
included a $.05 benefit related to a non-recurring exchange of
perpetual preferred stock for outstanding income trust
securities. The second quarter of 2010 results also included net
securities losses of $21 million. The provision for credit
losses for the second quarter of 2011 was $175 million
lower than net charge-offs, compared with $25 million in
excess of net charge-offs for the second quarter of 2010.
Total net revenue, on a taxable-equivalent basis, for the second
quarter of 2011 was $171 million (3.8 percent) higher
than the second quarter of 2010, reflecting a 5.6 percent
increase in net interest income and a 1.7 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 and commercial products
revenue, as well as lower net securities losses.
Total noninterest expense in the second quarter of 2011 was
$48 million (2.0 percent) higher than the second
quarter of 2010, primarily due to higher total compensation and
employee benefits expense, including higher pension costs.
The provision for credit losses for the second quarter of 2011
was $572 million, or $567 million (49.8 percent)
lower than the second quarter of 2010. Net charge-offs in the
second quarter of 2011 were $747 million, compared with
$1.1 billion in the second 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.
The Company reported net income attributable to
U.S. Bancorp of $2.2 billion for the first six months
of 2011, or $1.12 per diluted common share, compared with
$1.4 billion, or $.79 per diluted common share for the
first six months of 2010. Return on average assets and return on
average common equity were 1.46 percent and
15.2 percent, respectively, for the first six months of
2011, compared with 1.03 percent and 12.0 percent,
respectively, for the first six months of 2010. The
Company’s results for the first six months of 2011 included
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”). Results for the first six months of 2011
also included net securities losses of $13 million and a
provision for credit losses lower than net charge-offs by
$225 million. The first six months of 2010 included
$200 million of provision for credit losses in excess of
net charge-offs and $55 million of net securities losses.
Total net revenue, on a taxable-equivalent basis, for the first
six months of 2011 was $369 million (4.2 percent)
higher than the first six months of 2010, reflecting a
5.0 percent increase in net interest income and a
3.2 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 net securities losses.
Total noninterest expense in the first six months of 2011 was
$226 million (5.0 percent) higher than the first six
months of 2010, primarily due to higher total compensation and
employee benefits expense, including higher pension costs.
The provision for credit losses for the first six months of 2011
was $1.3 billion, or $1.1 billion (45.8 percent)
lower than the first six months of 2010. Net charge-offs in the
first six months of 2011 were $1.6 billion, compared with
$2.2 billion in the first six months 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.
|
|
3 |
Table of Contents
Net Interest
Income
Net
interest income, on a taxable-equivalent basis, was
$2.5 billion in the second quarter of 2011, compared with
$2.4 billion in the second quarter of 2010. Net interest
income, on a taxable-equivalent basis, was $5.1 billion in
the first six months of 2011, compared with $4.8 billion in
the first six months of 2010. The increases were primarily the
result of growth in average earning assets and lower cost core
deposit funding. Average earning assets increased
$30.1 billion (12.2 percent) in the second quarter and
$27.6 billion (11.1 percent) in the first six months
of 2011, compared with the same periods of 2010, driven by
increases in average investment securities, average loans and
average other earning assets, which included cash balances held
at the Federal Reserve. The net interest margin in the second
quarter and first six months of 2011 was 3.67 percent and
3.68 percent, respectively, compared with 3.90 percent
in both the second quarter and first six months of 2010. The
decreases 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 second quarter and first six months
of 2011 were $7.6 billion (4.0 percent) and
$6.2 billion (3.2 percent) higher, respectively, than
the same periods of 2010, driven by growth in residential
mortgages, commercial loans, commercial real estate loans and
retail loans, partially offset by decreases 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)
decreased $3.8 billion for both the second quarter and
first six months of 2011, or 18.4 percent and
18.0 percent, respectively, compared with the same periods
of 2010.
Average investment securities in the second quarter and first
six months of 2011 were $15.8 billion (33.5 percent)
and $13.0 billion (27.9 percent) higher, respectively,
than the same periods 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 second quarter and first six
months of 2011 were $26.1 billion (14.2 percent) and
$23.9 billion (13.1 percent) higher, respectively,
than the same periods of 2010. Excluding deposits from
acquisitions, second quarter 2011 average total deposits
increased $17.6 billion (9.6 percent) over the second
quarter of 2010. Average noninterest-bearing deposits for the
second quarter and first six months of 2011 were
$8.8 billion (22.1 percent) and $7.5 billion
(19.3 percent) higher, respectively, than the same periods
of 2010, largely due to growth in Wholesale Banking and
Commercial Real Estate and Consumer and Small Business Banking
balances. Average total savings deposits for the second quarter
and first six months of 2011 were $15.1 billion
(15.1 percent) and $14.9 billion (15.0 percent)
higher, respectively, than the same periods of 2010, primarily
due to 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 second quarter and
first six months of 2011 by $1.6 billion (9.5 percent)
and $2.3 billion (13.2 percent), respectively,
compared with the same periods 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 $3.8 billion
(14.4 percent) and $3.9 billion (14.4 percent)
higher in the second quarter and first six months of 2011,
respectively, compared with the same periods 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.
Provision for
Credit Losses
The
provision for credit losses for the second quarter and first six
months of 2011 decreased $567 million (49.8 percent)
and $1.1 billion (45.8 percent), respectively, from
the same periods of 2010. Net charge-offs decreased
$367 million (32.9 percent) and $697 million
(31.0 percent) in the second quarter and first six months
of 2011, respectively, compared with the same periods 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 second quarter of 2011, compared with the first quarter of
2011. The provision for credit losses was lower than net
charge-offs by $175 million in the second quarter and
$225 million in the first six months of 2011, but exceeded
net charge-offs by $25 million in the second quarter and
$200 million in the first six months 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.
|
|
U.S. Bancorp |
Table of Contents
Table 2 Noninterest Income
|
Three Months
Ended
|
Six Months Ended
|
|||||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||||
|
Percent
|
Percent
|
|||||||||||||||||||||||||||
| (Dollars in Millions) | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||||||
|
Credit and debit card revenue
|
$ | 286 | $ | 266 | 7.5 | % | $ | 553 | $ | 524 | 5.5 | % | ||||||||||||||||
|
Corporate payment products revenue
|
185 | 178 | 3.9 | 360 | 346 | 4.0 | ||||||||||||||||||||||
|
Merchant processing services
|
338 | 320 | 5.6 | 639 | 612 | 4.4 | ||||||||||||||||||||||
|
ATM processing services
|
114 | 108 | 5.6 | 226 | 213 | 6.1 | ||||||||||||||||||||||
|
Trust and investment management fees
|
258 | 267 | (3.4 | ) | 514 | 531 | (3.2 | ) | ||||||||||||||||||||
|
Deposit service charges
|
162 | 199 | (18.6 | ) | 305 | 406 | (24.9 | ) | ||||||||||||||||||||
|
Treasury management fees
|
144 | 145 | (.7 | ) | 281 | 282 | (.4 | ) | ||||||||||||||||||||
|
Commercial products revenue
|
218 | 205 | 6.3 | 409 | 366 | 11.7 | ||||||||||||||||||||||
|
Mortgage banking revenue
|
239 | 243 | (1.6 | ) | 438 | 443 | (1.1 | ) | ||||||||||||||||||||
|
Investment products fees and commissions
|
35 | 30 | 16.7 | 67 | 55 | 21.8 | ||||||||||||||||||||||
|
Securities gains (losses), net
|
(8 | ) | (21 | ) | 61.9 | (13 | ) | (55 | ) | 76.4 | ||||||||||||||||||
|
Other
|
175 | 170 | 2.9 | 379 | 305 | 24.3 | ||||||||||||||||||||||
|
Total noninterest income
|
$ | 2,146 | $ | 2,110 | 1.7 | % | $ | 4,158 | $ | 4,028 | 3.2 | % | ||||||||||||||||
Noninterest
Income
Noninterest
income in the second quarter and first six months of 2011 was
$2.1 billion and $4.2 billion, respectively, compared
with $2.1 billion and $4.0 billion in the same periods
of 2010. The $36 million (1.7 percent) increase during
the second quarter and $130 million (3.2 percent)
increase during the first six months of 2011, compared with the
same periods of 2010, were due to higher payments-related
revenues, largely due to increased transaction volumes, and
increases in commercial products revenue attributable to higher
standby letters of credit fees, commercial loan fees and
commercial leasing revenue. The increase in commercial products
revenue for the first six months of 2011, compared with the same
period of 2010, was also due to higher capital markets fees. ATM
processing services income and investment products fees and
commissions increased in the second quarter and first six months
of 2011, compared with the same periods of 2010, due to business
initiatives. In addition, net securities losses decreased,
primarily due to lower impairments in the current year. Other
income for the first six months of 2011 also increased over the
same period of the prior year due to the first quarter 2011 FCB
gain and higher retail lease residual valuation income.
Offsetting these positive variances was a decrease in deposit
service charges in both the second quarter and first six months
of 2011, compared with the same periods of 2010, 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
sale 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.
The Company anticipates the implementation of recently passed
legislation, under the Durbin Amendment of the Dodd-Frank Wall
Street Reform and Consumer Protection Act of 2010, will reduce
future noninterest income by approximately $300 million on
an annualized basis, based on anticipated transaction volume
excluding any mitigating actions the Company may take.
Noninterest
Expense
Noninterest
expense was $2.4 billion in the second quarter and
$4.7 billion in the first six months of 2011, compared with
$2.4 billion in the second quarter and $4.5 billion in
the first six months of 2010, or increases of $48 million
(2.0 percent) and $226 million (5.0 percent),
respectively. The increases in noninterest expense from a year
ago were principally due to increased total compensation and
employee benefits expense. Total compensation increased
primarily due to branch expansion, other business initiatives
and merit increases. 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. These increases were partially offset by decreases in
other intangibles expense due to the reduction or completion of
the amortization of certain intangibles. Other expense was also
lower due to debt extinguishment costs recorded in the second
quarter of 2010 for the exchange of the income trust securities,
lower mortgage servicing and acquisition integration expenses,
and lower costs related to investments in affordable housing and
other tax-advantaged projects. These decreases were partially
offset by higher FDIC deposit insurance expense.
|
|
5 |
Table of Contents
Table 3 Noninterest Expense
|
Three Months
Ended
|
Six Months Ended
|
|||||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||||
|
Percent
|
Percent
|
|||||||||||||||||||||||||||
| (Dollars in Millions) | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||||||
|
Compensation
|
$ | 1,004 | $ | 946 | 6.1 | % | $ | 1,963 | $ | 1,807 | 8.6 | % | ||||||||||||||||
|
Employee benefits
|
210 | 172 | 22.1 | 440 | 352 | 25.0 | ||||||||||||||||||||||
|
Net occupancy and equipment
|
249 | 226 | 10.2 | 498 | 453 | 9.9 | ||||||||||||||||||||||
|
Professional services
|
82 | 73 | 12.3 | 152 | 131 | 16.0 | ||||||||||||||||||||||
|
Marketing and business development
|
90 | 86 | 4.7 | 155 | 146 | 6.2 | ||||||||||||||||||||||
|
Technology and communications
|
189 | 186 | 1.6 | 374 | 371 | .8 | ||||||||||||||||||||||
|
Postage, printing and supplies
|
76 | 75 | 1.3 | 150 | 149 | .7 | ||||||||||||||||||||||
|
Other intangibles
|
75 | 91 | (17.6 | ) | 150 | 188 | (20.2 | ) | ||||||||||||||||||||
|
Other
|
450 | 522 | (13.8 | ) | 857 | 916 | (6.4 | ) | ||||||||||||||||||||
|
Total noninterest expense
|
$ | 2,425 | $ | 2,377 | 2.0 | % | $ | 4,739 | $ | 4,513 | 5.0 | % | ||||||||||||||||
|
Efficiency ratio (a)
|
51.6 | % | 52.4 | % | 51.4 | % | 50.7 | % | ||||||||||||||||||||
| (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. |
Income Tax
Expense
The
provision for income taxes was $458 million (an effective
rate of 28.0 percent) for the second quarter and
$824 million (an effective rate of 27.2 percent) for
the first six months of 2011, compared with $199 million
(an effective rate of 20.9 percent) and $360 million
(an effective rate of 20.3 percent) for the same periods of
2010. The increases in the effective tax rates for the second
quarter and first six months of 2011, compared with the same
periods 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 11
of the Notes to Consolidated Financial Statements.
Loans
The
Company’s total loan portfolio was $199.9 billion at
June 30, 2011, compared with $197.1 billion at
December 31, 2010, an increase of $2.8 billion
(1.4 percent). The increase was driven by increases in most
major loan categories, partially offset by lower retail and
covered loans. The $2.2 billion (4.4 percent) increase
in commercial loans was primarily driven by higher loan demand
from new and existing customers and the $795 million
(2.3 percent) increase in commercial real estate loans was
primarily due to the FCB acquisition.
Residential mortgages held in the loan portfolio increased
$2.4 billion (7.7 percent) at June 30, 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 $863 million (1.3 percent) at
June 30, 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 $3.5 billion at
June 30, 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 due to an increase in interest rates during
the first half of 2011.
Investment
Securities
Investment
securities totaled $65.6 billion at June 30, 2011,
compared with $53.0 billion at December 31, 2010. The
$12.6 billion (23.8 percent) increase primarily
reflected $11.5 billion of net investment purchases and
$.3 billion of securities acquired in the FCB acquisition,
both primarily in the
held-to-maturity
investment portfolio, as well as a $.8 billion favorable
change in unrealized gains (losses) on available-for-sale
investment securities.
Held-to-maturity
securities were $13.3 billion at June 30, 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.
|
|
U.S. Bancorp |
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
|
||||||||||||||||||||||||||
| June 30, 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
|
$ | 819 | $ | 819 | .3 | 1.71 | % | $ | – | $ | – | – | – | % | |||||||||||||||||||
|
Maturing after one year through five years
|
986 | 987 | 1.9 | 1.14 | 2,301 | 2,322 | 2.6 | 1.01 | |||||||||||||||||||||||||
|
Maturing after five years through ten years
|
47 | 49 | 7.4 | 4.49 | – | – | – | – | |||||||||||||||||||||||||
|
Maturing after ten years
|
18 | 18 | 11.7 | 3.66 | 62 | 62 | 10.8 | 3.22 | |||||||||||||||||||||||||
|
Total
|
$ | 1,870 | $ | 1,873 | 1.5 | 1.50 | % | $ | 2,363 | $ | 2,384 | 2.8 | 1.06 | % | |||||||||||||||||||
|
Mortgage-Backed Securities (a)
|
|||||||||||||||||||||||||||||||||
|
Maturing in one year or less
|
$ | 227 | $ | 226 | .7 | 4.07 | % | $ | 9 | $ | 6 | .8 | 1.02 | % | |||||||||||||||||||
|
Maturing after one year through five years
|
15,070 | 15,361 | 3.7 | 3.37 | 6,450 | 6,577 | 4.2 | 3.07 | |||||||||||||||||||||||||
|
Maturing after five years through ten years
|
18,589 | 18,843 | 6.5 | 2.71 | 3,477 | 3,499 | 6.7 | 1.84 | |||||||||||||||||||||||||
|
Maturing after ten years
|
6,626 | 6,641 | 13.3 | 1.51 | 706 | 715 | 14.1 | 1.39 | |||||||||||||||||||||||||
|
Total
|
$ | 40,512 | $ | 41,071 | 6.6 | 2.77 | % | $ | 10,642 | $ | 10,797 | 5.7 | 2.55 | % | |||||||||||||||||||
|
Asset-Backed Securities (a)
|
|||||||||||||||||||||||||||||||||
|
Maturing in one year or less
|
$ | 2 | $ | 12 | .4 | 20.49 | % | $ | 3 | $ | 2 | .6 | 1.06 | % | |||||||||||||||||||
|
Maturing after one year through five years
|
151 | 156 | 3.2 | 10.09 | 71 | 69 | 3.0 | .92 | |||||||||||||||||||||||||
|
Maturing after five years through ten years
|
644 | 673 | 7.8 | 4.12 | 18 | 22 | 6.9 | .84 | |||||||||||||||||||||||||
|
Maturing after ten years
|
96 | 98 | 10.7 | 2.56 | 27 | 26 | 23.3 | .74 | |||||||||||||||||||||||||
|
Total
|
$ | 893 | $ | 939 | 7.3 | 5.00 | % | $ | 119 | $ | 119 | 8.2 | .87 | % | |||||||||||||||||||
|
Obligations of State and Political
Subdivisions (b)(c)
|
|||||||||||||||||||||||||||||||||
|
Maturing in one year or less
|
$ | 14 | $ | 14 | .6 | 6.10 | % | $ | – | $ | – | .2 | 7.06 | % | |||||||||||||||||||
|
Maturing after one year through five years
|
2,312 | 2,321 | 4.0 | 6.50 | 6 | 6 | 3.5 | 8.27 | |||||||||||||||||||||||||
|
Maturing after five years through ten years
|
2,424 | 2,420 | 5.9 | 6.76 | 3 | 4 | 6.2 | 5.36 | |||||||||||||||||||||||||
|
Maturing after ten years
|
2,059 | 1,927 | 21.1 | 6.92 | 15 | 14 | 15.6 | 5.50 | |||||||||||||||||||||||||
|
Total
|
$ | 6,809 | $ | 6,682 | 9.8 | 6.72 | % | $ | 24 | $ | 24 | 11.2 | 6.15 | % | |||||||||||||||||||
|
Other Debt Securities
|
|||||||||||||||||||||||||||||||||
|
Maturing in one year or less
|
$ | 138 | $ | 136 | .6 | 6.27 | % | $ | 1 | $ | 1 | .8 | .90 | % | |||||||||||||||||||
|
Maturing after one year through five years
|
60 | 57 | 1.1 | 6.66 | 13 | 11 | 2.2 | 1.30 | |||||||||||||||||||||||||
|
Maturing after five years through ten years
|
31 | 29 | 6.3 | 6.33 | 118 | 95 | 7.2 | .91 | |||||||||||||||||||||||||
|
Maturing after ten years
|
1,207 | 1,110 | 28.9 | 3.89 | – | – | – | – | |||||||||||||||||||||||||
|
Total
|
$ | 1,436 | $ | 1,332 | 24.6 | 4.29 | % | $ | 132 | $ | 107 | 6.7 | .95 | % | |||||||||||||||||||
|
Other Investments
|
$ | 350 | $ | 402 | 15.6 | 3.77 | % | $ | – | $ | – | – | – | % | |||||||||||||||||||
|
Total investment securities (d)
|
$ | 51,870 | $ | 52,299 | 7.4 | 3.33 | % | $ | 13,280 | $ | 13,431 | 5.2 | 2.26 | % | |||||||||||||||||||
| (a) | Information related to asset and mortgage-backed securities included above is presented based upon weighted-average maturities anticipating future prepayments. | |
| (b) | Information related to obligations of state and politcal subdivisions is presented based upon yield to first optional call date if the security is purchased at a premium, yield to maturity if purchased at par or a discount. | |
| (c) | Maturity calculations for obligations of state and politicial 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. |
| June 30, 2011 | December 31, 2010 | ||||||||||||||||
|
Amortized
|
Percent
|
Amortized
|
Percent
|
||||||||||||||
| (Dollars in Millions) | Cost | of Total | Cost | of Total | |||||||||||||
|
U.S. Treasury and agencies
|
$ | 4,233 | 6.5 | % | $ | 2,724 | 5.1 | % | |||||||||
|
Mortgage-backed securities
|
51,154 | 78.5 | 40,654 | 76.2 | |||||||||||||
|
Asset-backed securities
|
1,012 | 1.6 | 1,197 | 2.3 | |||||||||||||
|
Obligations of state and political subdivisions
|
6,833 | 10.5 | 6,862 | 12.9 | |||||||||||||
|
Other debt securities and investments
|
1,918 | 2.9 | 1,887 | 3.5 | |||||||||||||
|
Total investment securities
|
$ | 65,150 | 100.0 | % | $ | 53,324 | 100.0 | % | |||||||||
|
|
7 |
Table of Contents
The Company conducts a regular assessment of its investment
portfolio to determine whether any securities are
other-than-temporarily
impaired. At June 30, 2011, the Company’s net
unrealized gain on
available-for-sale
securities was $429 million, compared with a net unrealized
loss of $346 million at December 31, 2010. The
favorable change in net unrealized gains (losses) was primarily
due to increases in the fair value of state and political
securities, agency mortgage-backed securities and corporate debt
securities. Unrealized losses on
available-for-sale
securities in an unrealized loss position totaled
$687 million at June 30, 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 June 30, 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 $9 million and
$15 million of impairment charges in earnings during the
second quarter and first six months of 2011, respectively,
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 13 in the Notes to Consolidated Financial
Statements for further information on investment securities.
Deposits
Total
deposits were $214.9 billion at June 30, 2011,
compared with $204.3 billion at December 31, 2010, the
result of increases in noninterest-bearing, savings and time
deposits, partially offset by decreases in money market and
interest checking deposits. Noninterest-bearing deposits
increased $12.0 billion (26.5 percent), primarily due
to increases in Wholesale Banking and Commercial Real Estate,
and corporate trust balances. Savings account balances increased
$2.4 billion (9.9 percent), primarily due to continued
strong participation in a savings product offered by Consumer
and Small Business Banking. Time certificates of deposit less
than $100,000 increased $244 million (1.6 percent)
primarily due to the FCB acquisition. Time deposits greater than
$100,000 were essentially flat at June 30, 2011, compared
with December 31, 2010, and are managed as an alternative
to other funding sources, such as wholesale borrowing, based
largely on relative pricing. Money market balances decreased
$2.4 billion (5.1 percent) primarily due to lower
Consumer and Small Business Banking, and broker-dealer balances.
Interest checking balances decreased $1.6 billion
(3.6 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
$29.7 billion at June 30, 2011, compared with
$32.6 billion at December 31, 2010. The
$2.9 billion (8.9 percent) decrease in short-term
borrowings was primarily in repurchase agreements and commercial
paper balances, and reflected reduced borrowing needs as a
result of increases in deposits. Long-term debt was
$32.8 billion at June 30, 2011, compared with
$31.5 billion at December 31, 2010. The
$1.3 billion (4.1 percent) increase was primarily due
to $1.7 billion of medium-term note and subordinated debt
issuances and a $.5 billion increase in long-term debt
related to certain consolidated variable interest entities,
partially offset by a $.7 billion extinguishment of junior
subordinated debentures in connection with the issuance of
perpetual preferred stock. 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
|
|
U.S. Bancorp |
Table of Contents
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 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.
|
|
9 |
Table of Contents
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 June 30, 2011 (excluding
covered loans):
|
Residential
mortgages
|
Interest
|
Percent
|
|||||||||||||||
| (Dollars in Millions) | Only | Amortizing | Total | of Total | |||||||||||||
|
Consumer Finance
|
|||||||||||||||||
|
Less than or equal to 80%
|
$ | 1,383 | $ | 5,341 | $ | 6,724 | 55.4 | % | |||||||||
|
Over 80% through 90%
|
438 | 2,727 | 3,165 | 26.1 | |||||||||||||
|
Over 90% through 100%
|
398 | 1,684 | 2,082 | 17.1 | |||||||||||||
|
Over 100%
|
– | 167 | 167 | 1.4 | |||||||||||||
|
Total
|
$ | 2,219 | $ | 9,919 | $ | 12,138 | 100.0 | % | |||||||||
|
Other Retail
|
|||||||||||||||||
|
Less than or equal to 80%
|
$ | 1,876 | $ | 17,619 | $ | 19,495 | 93.0 | % | |||||||||
|
Over 80% through 90%
|
48 | 715 | 763 | 3.6 | |||||||||||||
|
Over 90% through 100%
|
61 | 653 | 714 | 3.4 | |||||||||||||
|
Over 100%
|
– | – | – | – | |||||||||||||
|
Total
|
$ | 1,985 | $ | 18,987 | $ | 20,972 | 100.0 | % | |||||||||
|
Total Company
|
|||||||||||||||||
|
Less than or equal to 80%
|
$ | 3,259 | $ | 22,960 | $ | 26,219 | 79.2 | % | |||||||||
|
Over 80% through 90%
|
486 | 3,442 | 3,928 | 11.9 | |||||||||||||
|
Over 90% through 100%
|
459 | 2,337 | 2,796 | 8.4 | |||||||||||||
|
Over 100%
|
– | 167 | 167 | .5 | |||||||||||||
|
Total
|
$ | 4,204 | $ | 28,906 | $ | 33,110 | 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%
|
$ | 1,077 | $ | 194 | $ | 1,271 | 51.5 | % | |||||||||
|
Over 80% through 90%
|
450 | 131 | 581 | 23.6 | |||||||||||||
|
Over 90% through 100%
|
307 | 204 | 511 | 20.7 | |||||||||||||
|
Over 100%
|
48 | 55 | 103 | 4.2 | |||||||||||||
|
Total
|
$ | 1,882 | $ | 584 | $ | 2,466 | 100.0 | % | |||||||||
|
Other Retail
|
|||||||||||||||||
|
Less than or equal to 80%
|
$ | 11,455 | $ | 1,120 | $ | 12,575 | 78.0 | % | |||||||||
|
Over 80% through 90%
|
2,100 | 436 | 2,536 | 15.7 | |||||||||||||
|
Over 90% through 100%
|
623 | 329 | 952 | 5.9 | |||||||||||||
|
Over 100%
|
43 | 25 | 68 | .4 | |||||||||||||
|
Total
|
$ | 14,221 | $ | 1,910 | $ | 16,131 | 100.0 | % | |||||||||
|
Total Company
|
|||||||||||||||||
|
Less than or equal to 80%
|
$ | 12,532 | $ | 1,314 | $ | 13,846 | 74.4 | % | |||||||||
|
Over 80% through 90%
|
2,550 | 567 | 3,117 | 16.8 | |||||||||||||
|
Over 90% through 100%
|
930 | 533 | 1,463 | 7.9 | |||||||||||||
|
Over 100%
|
91 | 80 | 171 | .9 | |||||||||||||
|
Total
|
$ | 16,103 | $ | 2,494 | $ | 18,597 | 100.0 | % | |||||||||
| (a) | Consumer finance category includes credit originated and managed by the consumer finance division, as well as the majority of home equity and second mortgages with a loan-to-value greater than 100 percent that were originated in the branches. |
| Note: | Loan-to-values determined on original appraisal value of collateral and the current amortized loan balance, or maximum of current commitment or current balance on lines. |
Within the consumer finance division, at June 30, 2011,
approximately $2.0 billion of residential mortgages were to
customers that may be defined as
sub-prime
borrowers based on credit scores from independent credit rating
agencies at loan origination, compared with $2.1 billion at
December 31, 2010.
The following table provides further information on the
loan-to-values
of residential mortgages specifically for the consumer finance
division at June 30, 2011:
|
Interest
|
Percent of
|
||||||||||||||||
| (Dollars in Millions) | Only | Amortizing | Total | Division | |||||||||||||
|
Sub-Prime
Borrowers
|
|||||||||||||||||
|
Less than or equal to 80%
|
$ | 4 | $ | 932 | $ | 936 | 7.7 | % | |||||||||
|
Over 80% through 90%
|
2 | 458 | 460 | 3.8 | |||||||||||||
|
Over 90% through 100%
|
12 | 538 | 550 | 4.6 | |||||||||||||
|
Over 100%
|
– | 39 | 39 | .3 | |||||||||||||
|
Total
|
$ | 18 | $ | 1,967 | $ | 1,985 | 16.4 | % | |||||||||
|
Other Borrowers
|
|||||||||||||||||
|
Less than or equal to 80%
|
$ | 1,379 | $ | 4,409 | $ | 5,788 | 47.7 | % | |||||||||
|
Over 80% through 90%
|
436 | 2,269 | 2,705 | 22.3 | |||||||||||||
|
Over 90% through 100%
|
386 | 1,146 | 1,532 | 12.6 | |||||||||||||
|
Over 100%
|
– | 128 | 128 | 1.0 | |||||||||||||
|
Total
|
$ | 2,201 | $ | 7,952 | $ | 10,153 | 83.6 | % | |||||||||
|
Total Consumer Finance
|
$ | 2,219 | $ | 9,919 | $ | 12,138 | 100.0 | % | |||||||||
In addition to residential mortgages, at June 30, 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 June 30, 2011:
|
Percent
|
|||||||||||||||||
| (Dollars in Millions) | Lines | Loans | Total | of Total | |||||||||||||
|
Sub-Prime
Borrowers
|
|||||||||||||||||
|
Less than or equal to 80%
|
$ | 62 | $ | 114 | $ | 176 | 7.1 | % | |||||||||
|
Over 80% through 90%
|
40 | 72 | 112 | 4.6 | |||||||||||||
|
Over 90% through 100%
|
6 | 124 | 130 | 5.3 | |||||||||||||
|
Over 100%
|
31 | 46 | 77 | 3.1 | |||||||||||||
|
Total
|
$ | 139 | $ | 356 | $ | 495 | 20.1 | % | |||||||||
|
Other Borrowers
|
|||||||||||||||||
|
Less than or equal to 80%
|
$ | 1,015 | $ | 80 | $ | 1,095 | 44.4 | % | |||||||||
|
Over 80% through 90%
|
410 | 59 | 469 | 19.0 | |||||||||||||
|
Over 90% through 100%
|
301 | 80 | 381 | 15.4 | |||||||||||||
|
Over 100%
|
17 | 9 | 26 | 1.1 | |||||||||||||
|
Total
|
$ | 1,743 | $ | 228 | $ | 1,971 | 79.9 | % | |||||||||
|
Total Consumer Finance
|
$ | 1,882 | $ | 584 | $ | 2,466 | 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
June 30, 2011, compared with .9 percent at
December 31, 2010. Covered loans included $1.4 billion
in loans with
negative-amortization
payment options at June 30, 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.
|
|
U.S. Bancorp |
Table of Contents
Table 5 Delinquent Loan Ratios as a Percent of Ending Loan Balances
|
June 30,
|
December 31,
|
|||||||
| 90 days or more past due excluding nonperforming loans | 2011 | 2010 | ||||||
|
Commercial
|
||||||||
|
Commercial
|
.09 | % | .15 | % | ||||
|
Lease financing
|
.02 | .02 | ||||||
|
Total commercial
|
.09 | .13 | ||||||
|
Commercial Real Estate
|
||||||||
|
Commercial mortgages
|
– | – | ||||||
|
Construction and development
|
.01 | .01 | ||||||
|
Total commercial real estate
|
.01 | – | ||||||
|
Residential Mortgages
|
1.13 | 1.63 | ||||||
|
Retail
|
||||||||
|
Credit card
|
1.32 | 1.86 | ||||||
|
Retail leasing
|
.02 | .05 | ||||||
|
Other retail
|
.39 | .49 | ||||||
|
Total retail
|
.60 | .81 | ||||||
|
Total loans, excluding covered loans
|
.44 | .61 | ||||||
|
Covered Loans
|
5.66 | 6.04 | ||||||
|
Total loans
|
.87 | % | 1.11 | % | ||||
|
June 30,
|
December 31,
|
|||||||
| 90 days or more past due including nonperforming loans | 2011 | 2010 | ||||||
|
Commercial
|
.86 | % | 1.37 | % | ||||
|
Commercial real estate
|
3.85 | 3.73 | ||||||
|
Residential mortgages (a)
|
3.16 | 3.70 | ||||||
|
Retail (b)
|
1.11 | 1.26 | ||||||
|
Total loans, excluding covered loans
|
1.94 | 2.19 | ||||||
|
Covered loans
|
12.01 | 12.94 | ||||||
|
Total loans
|
2.77 | % | 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 10.81 percent at June 30, 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 1.45 percent at June 30, 2011, and 1.60 percent at December 31, 2010. |
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 $1.7 billion ($804 million excluding covered
loans) at June 30, 2011, compared with $2.2 billion
($1.1 billion excluding covered loans) at December 31,
2010. The $290 million (26.5 percent) decrease,
excluding covered loans, reflected a moderation in the level of
stress in economic conditions in the first six months 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 .87 percent (.44 percent
excluding covered loans) at June 30, 2011, compared with
1.11 percent (.61 percent excluding covered loans) at
December 31, 2010.
|
|
11 |
Table of Contents
The following table provides summary delinquency information for
residential mortgages and retail loans, excluding covered loans:
|
As a Percent of
Ending
|
|||||||||||||||||
| Amount | Loan Balances | ||||||||||||||||
|
June 30,
|
December 31,
|
June 30,
|
December 31,
|
||||||||||||||
| (Dollars in Millions) | 2011 | 2010 | 2011 | 2010 | |||||||||||||
|
Residential mortgages
|
|||||||||||||||||
|
30-89 days
|
$ | 368 | $ | 456 | 1.11 | % | 1.48 | % | |||||||||
|
90 days or more
|
375 | 500 | 1.13 | 1.63 | |||||||||||||
|
Nonperforming
|
671 | 636 | 2.03 | 2.07 | |||||||||||||
|
Total
|
$ | 1,414 | $ | 1,592 | 4.27 | % | 5.18 | % | |||||||||
|
Retail
|
|||||||||||||||||
|
Credit card
|
|||||||||||||||||
|
30-89 days
|
$ | 216 | $ | 269 | 1.34 | % | 1.60 | % | |||||||||
|
90 days or more
|
213 | 313 | 1.32 | 1.86 | |||||||||||||
|
Nonperforming
|
256 | 228 | 1.59 | 1.36 | |||||||||||||
|
Total
|
$ | 685 | $ | 810 | 4.25 | % | 4.82 | % | |||||||||
|
Retail leasing
|
|||||||||||||||||
|
30-89 days
|
$ | 10 | $ | 17 | .20 | % | .37 | % | |||||||||
|
90 days or more
|
1 | 2 | .02 | .05 | |||||||||||||
|
Nonperforming
|
– | – | – | – | |||||||||||||
|
Total
|
$ | 11 | $ | 19 | .22 | % | .42 | % | |||||||||
|
Home equity and second mortgages
|
|||||||||||||||||
|
30-89 days
|
$ | 145 | $ | 175 | .78 | % | .93 | % | |||||||||
|
90 days or more
|
121 | 148 | .65 | .78 | |||||||||||||
|
Nonperforming
|
41 | 36 | .22 | .19 | |||||||||||||
|
Total
|
$ | 307 | $ | 359 | 1.65 | % | 1.90 | % | |||||||||
|
Other retail
|
|||||||||||||||||
|
30-89 days
|
$ | 154 | $ | 212 | .62 | % | .85 | % | |||||||||
|
90 days or more
|
49 | 66 | .20 | .26 | |||||||||||||
|
Nonperforming
|
32 | 29 | .13 | .12 | |||||||||||||
|
Total
|
$ | 235 | $ | 307 | .95 | % | 1.23 | % | |||||||||
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 | ||||||||||||||||
|
June 30,
|
December 31,
|
June 30,
|
December 31,
|
||||||||||||||
| 2011 | 2010 | 2011 | 2010 | ||||||||||||||
|
Residential mortgages
|
|||||||||||||||||
|
30-89 days
|
1.78 | % | 2.38 | % | .72 | % | .95 | % | |||||||||
|
90 days or more
|
1.67 | 2.26 | .83 | 1.24 | |||||||||||||
|
Nonperforming
|
2.74 | 2.99 | 1.61 | 1.52 | |||||||||||||
|
Total
|
6.19 | % | 7.63 | % | 3.16 | % | 3.71 | % | |||||||||
|
Retail
|
|||||||||||||||||
|
Credit card
|
|||||||||||||||||
|
30-89 days
|
– | % | – | % | 1.34 | % | 1.60 | % | |||||||||
|
90 days or more
|
– | – | 1.32 | 1.86 | |||||||||||||
|
Nonperforming
|
– | – | 1.59 | 1.36 | |||||||||||||
|
Total
|
– | % | – | % | 4.25 | % | 4.82 | % | |||||||||
|
Retail leasing
|
|||||||||||||||||
|
30-89 days
|
– | % | – | % | .20 | % | .37 | % | |||||||||
|
90 days or more
|
– | – | .02 | .05 | |||||||||||||
|
Nonperforming
|
– | – | – | – | |||||||||||||
|
Total
|
– | % | – | % | .22 | % | .42 | % | |||||||||
|
Home equity and second mortgages
|
|||||||||||||||||
|
30-89 days
|
1.58 | % | 1.98 | % | .66 | % | .76 | % | |||||||||
|
90 days or more
|
1.14 | 1.82 | .58 | .62 | |||||||||||||
|
Nonperforming
|
.20 | .20 | .22 | .19 | |||||||||||||
|
Total
|
2.92 | % | 4.00 | % | 1.46 | % | 1.57 | % | |||||||||
|
Other retail
|
|||||||||||||||||
|
30-89 days
|
4.16 | % | 4.42 | % | .55 | % | .77 | % | |||||||||
|
90 days or more
|
.76 | .68 | .19 | .25 | |||||||||||||
|
Nonperforming
|
– | – | .13 | .12 | |||||||||||||
|
Total
|
4.92 | % | 5.10 | % | .87 | % | 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. |
|
|
U.S. Bancorp |
Table of Contents
Within the consumer finance division at June 30, 2011,
approximately $346 million and $60 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 | ||||||||||||||||
|
June 30,
|
December 31,
|
June 30,
|
December 31,
|
||||||||||||||
| (Dollars in Millions) | 2011 | 2010 | 2011 | 2010 | |||||||||||||
|
30-89 days
|
$ | 590 | $ | 757 | 3.59 | % | 4.19 | % | |||||||||
|
90 days or more
|
928 | 1,090 | 5.66 | 6.04 | |||||||||||||
|
Nonperforming
|
1,041 | 1,244 | 6.35 | 6.90 | |||||||||||||
|
Total
|
$ | 2,559 | $ | 3,091 | 15.60 | % | 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.
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 June 30, 2011 and
December 31, 2010.
In addition, the Company has 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 | ||||||||||||||||||||
|
|
||||||||||||||||||||
|
June 30,
2011
|
Performing
|
30-89 Days
|
90 Days or more
|
Nonperforming
|
Total
|
|||||||||||||||
| (Dollars in Millions) | TDRs | Past Due | Past Due | TDRs | TDRs | |||||||||||||||
|
Commercial
|
$ | 65 | 5.3 | % | 2.8 | % | $ | 78 | (b) | $ | 143 | |||||||||
|
Commercial real estate
|
225 | 2.9 | – | 119 | (b) | 344 | ||||||||||||||
|
Residential mortgages (a)
|
1,939 | 5.4 | 4.1 | 161 | 2,100 | |||||||||||||||
|
Credit card
|
212 | 10.5 | 6.1 | 256 | (c) | 468 | ||||||||||||||
|
Other retail
|
91 | 9.2 | 6.0 | 31 | 122 | |||||||||||||||
|
Total
|
$ | 2,532 | 5.8 | % | 3.9 | % | $ | 645 | $ | 3,177 | ||||||||||
| (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. |
|
|
13 |
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 | ||||||||||||||||
|
June 30,
|
December 31,
|
June 30,
|
December 31,
|
||||||||||||||
| (Dollars in Millions) | 2011 | 2010 | 2011 | 2010 | |||||||||||||
|
Commercial
|
$ | 65 | $ | 77 | .13 | % | .16 | % | |||||||||
|
Commercial real estate
|
225 | 15 | .63 | .04 | |||||||||||||
|
Residential mortgages (a)
|
1,939 | 1,804 | 5.86 | 5.87 | |||||||||||||
|
Credit card
|
212 | 224 | 1.32 | 1.33 | |||||||||||||
|
Other retail
|
91 | 87 | .19 | .18 | |||||||||||||
|
Total
|
$ | 2,532 | $ | 2,207 | 1.27 | % | 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 $325 million higher at June 30, 2011, than at
December 31, 2010, primarily reflecting loan modifications
for certain real estate-related customers in light of current
economic conditions. The Company continues to work with
customers to modify loans for borrowers who are having financial
difficulties, including those acquired through FDIC-assisted
acquisitions.
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
June 30, 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 1.2 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 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 1.1 percent of total commercial and
commercial real estate loan balances at June 30, 2011,
unchanged from 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.
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
June 30, 2011 included $287 million of loans and other
real estate acquired through the 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 June 30, 2011, total nonperforming
assets were $4.7 billion, compared with $5.0 billion
at December 31, 2010. Excluding covered assets,
nonperforming assets were $3.3 billion at June 30,
2011, compared with $3.4 billion at December 31, 2010.
The $89 million (2.7 percent) decline was principally
in the commercial portfolio, reflecting the stabilizing economy.
However, stress continued in the commercial and residential
mortgage portfolios due to the overall duration of the economic
slowdown. Nonperforming covered assets at June 30, 2011,
were $1.4 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 2.32 percent (1.77 percent excluding
covered assets) at June 30, 2011, compared with
2.55 percent (1.87 percent excluding covered assets)
at December 31, 2010.
|
|
U.S. Bancorp |
Table of Contents
Table 6 Nonperforming Assets (a)
|
June 30,
|
December 31,
|
|||||||
| (Dollars in Millions) | 2011 | 2010 | ||||||
|
Commercial
|
||||||||
|
Commercial
|
$ | 349 | $ | 519 | ||||
|
Lease financing
|
43 | 78 | ||||||
|
Total commercial
|
392 | 597 | ||||||
|
Commercial Real Estate
|
||||||||
|
Commercial mortgages
|
650 | 545 | ||||||
|
Construction and development
|
714 | 748 | ||||||
|
Total commercial real estate
|
1,364 | 1,293 | ||||||
|
Residential Mortgages
|
671 | 636 | ||||||
|
Retail
|
||||||||
|
Credit card
|
256 | 228 | ||||||
|
Retail leasing
|
– | – | ||||||
|
Other retail
|
73 | 65 | ||||||
|
Total retail
|
329 | 293 | ||||||
|
Total nonperforming loans, excluding covered loans
|
2,756 | 2,819 | ||||||
|
Covered Loans
|
1,041 | 1,244 | ||||||
|
Total nonperforming loans
|
3,797 | 4,063 | ||||||
|
Other Real Estate (b)(c)
|
489 | 511 | ||||||
|
Covered Other Real Estate (c)
|
348 | 453 | ||||||
|
Other Assets
|
17 | 21 | ||||||
|
Total nonperforming assets
|
$ | 4,651 | $ | 5,048 | ||||
|
Total nonperforming assets, excluding covered assets
|
$ | 3,262 | $ | 3,351 | ||||
|
Excluding covered assets:
|
||||||||
|
Accruing loans 90 days or more past due
|
$ | 804 | $ | 1,094 | ||||
|
Nonperforming loans to total loans
|
1.50 | % | 1.57 | % | ||||
|
Nonperforming assets to total loans plus other real
estate (b)
|
1.77 | % | 1.87 | % | ||||
|
Including covered assets:
|
||||||||
|
Accruing loans 90 days or more past due
|
$ | 1,732 | $ | 2,184 | ||||
|
Nonperforming loans to total loans
|
1.90 | % | 2.06 | % | ||||
|
Nonperforming assets to total loans plus other real
estate (b)
|
2.32 | % | 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
|
1,277 | 387 | 1,664 | |||||||||
|
Advances on loans
|
51 | – | 51 | |||||||||
|
Total additions
|
1,328 | 387 | 1,715 | |||||||||
|
Reductions in nonperforming assets
|
||||||||||||
|
Paydowns, payoffs
|
(555 | ) | (142 | ) | (697 | ) | ||||||
|
Net sales
|
(320 | ) | (106 | ) | (426 | ) | ||||||
|
Return to performing status
|
(326 | ) | (24 | ) | (350 | ) | ||||||
|
Charge-offs (d)
|
(532 | ) | (107 | ) | (639 | ) | ||||||
|
Total reductions
|
(1,733 | ) | (379 | ) | (2,112 | ) | ||||||
|
Net additions to (reductions in) nonperforming assets
|
(405 | ) | 8 | (397 | ) | |||||||
|
Balance June 30, 2011
|
$ | 3,191 | $ | 1,460 | $ | 4,651 | ||||||
| (a) | Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due. | |
| (b) | Excludes $632 million and $575 million at June 30, 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. |
The Company expects total nonperforming assets to trend lower in
the third quarter of 2011.
Other real estate, excluding covered assets, was
$489 million at June 30, 2011, compared with
$511 million at December 31, 2010, and was related to
foreclosed properties that previously secured loan balances.
|
|
15 |
Table of Contents
Table 7 Net Charge-offs as a Percent of Average Loans Outstanding
|
Three Months
Ended
|
Six Months Ended
|
||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2011 | 2010 | 2011 | 2010 | ||||||||||||||
|
Commercial
|
|||||||||||||||||
|
Commercial
|
.75 | % | 2.23 | % | .97 | % | 2.32 | % | |||||||||
|
Lease financing
|
.88 | 1.41 | .91 | 1.78 | |||||||||||||
|
Total commercial
|
.77 | 2.12 | .96 | 2.25 | |||||||||||||
|
Commercial Real Estate
|
|||||||||||||||||
|
Commercial mortgages
|
.90 | 1.11 | .75 | .92 | |||||||||||||
|
Construction and development
|
5.67 | 7.31 | 5.13 | 7.06 | |||||||||||||
|
Total commercial real estate
|
1.85 | 2.67 | 1.65 | 2.47 | |||||||||||||
|
Residential Mortgages
|
1.46 | 2.06 | 1.55 | 2.14 | |||||||||||||
|
Retail
|
|||||||||||||||||
|
Credit card (a)
|
5.45 | 7.79 | 5.83 | 7.76 | |||||||||||||
|
Retail leasing
|
– | .37 | .04 | .41 | |||||||||||||
|
Home equity and second mortgages
|
1.64 | 1.64 | 1.69 | 1.76 | |||||||||||||
|
Other retail
|
1.16 | 1.70 | 1.25 | 1.81 | |||||||||||||
|
Total retail
|
2.28 | 3.16 | 2.43 | 3.23 | |||||||||||||
|
Total loans, excluding covered loans
|
1.63 | 2.61 | 1.72 | 2.64 | |||||||||||||
|
Covered Loans
|
.12 | .10 | .08 | .08 | |||||||||||||
|
Total loans
|
1.51 | % | 2.34 | % | 1.58 | % | 2.36 | % | |||||||||
| (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 5.62 percent and 8.53 percent for the three months ended June 30, 2011 and 2010, respectively, and 6.03 percent and 8.47 percent for the six months ended June 30, 2011 and 2010, respectively. |
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 | ||||||||||||||||
|
June 30,
|
December 31,
|
June 30,
|
December 31,
|
||||||||||||||
| (Dollars in Millions) | 2011 | 2010 | 2011 | 2010 | |||||||||||||
|
Residential
|
|||||||||||||||||
|
Minnesota
|
$ | 24 | $ | 28 | .44 | % | .53 | % | |||||||||
|
California
|
20 | 21 | .30 | .34 | |||||||||||||
|
Illinois
|
15 | 16 | .51 | .57 | |||||||||||||
|
Colorado
|
14 | 9 | .40 | .27 | |||||||||||||
|
Washington
|
12 | 9 | .38 | .29 | |||||||||||||
|
All other states
|
123 | 135 | .41 | .47 | |||||||||||||
|
Total residential
|
208 | 218 | .40 | .44 | |||||||||||||
|
Commercial
|
|||||||||||||||||
|
Nevada
|
63 | 58 | 4.71 | 3.93 | |||||||||||||
|
Oregon
|
28 | 26 | .79 | .74 | |||||||||||||
|
California
|
22 | 23 | .16 | .18 | |||||||||||||
|
Ohio
|
20 | 20 | .47 | .48 | |||||||||||||
|
Utah
|
18 | 11 | .97 | .64 | |||||||||||||
|
All other states
|
130 | 155 | .21 | .26 | |||||||||||||
|
Total commercial
|
281 | 293 | .33 | .35 | |||||||||||||
|
Total OREO
|
$ | 489 | $ | 511 | .27 | % | .29 | % | |||||||||
Analysis of
Loan Net
Charge-Offs
Total net charge-offs were $747 million for the second
quarter and $1.6 billion for the first six months of 2011,
compared with net charge-offs of $1.1 billion and
$2.2 billion for the same periods of 2010. The ratio of
total loan net charge-offs to average loans outstanding on an
annualized basis for the second quarter and first six months of
2011 was 1.51 percent and 1.58 percent, respectively,
compared with 2.34 percent and 2.36 percent, for the
same periods of 2010. The
year-over-year
decreases in total net charge-offs were principally due to
improvement in the commercial, commercial real estate, credit
card and other retail loan portfolios. The Company expects the
level of net charge-offs to continue to trend lower in the third
quarter of 2011.
Commercial and commercial real estate loan net charge-offs for
the second quarter of 2011 were $260 million
(1.22 percent of average loans outstanding on an annualized
basis), compared with $472 million (2.35 percent of
average loans outstanding on an annualized basis) for the second
quarter of 2010. Commercial and commercial real estate loan net
charge-offs for the first six months of 2011 were
$524 million (1.25 percent of average loans
outstanding on an annualized basis), compared with
$941 million (2.34 percent of average loans
outstanding on an annualized basis) for the first six months of
2010. The decreases 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 second quarter
of 2011 were $119 million (1.46 percent of average
loans outstanding on an annualized basis), compared with
$138 million (2.06 percent of average loans
outstanding on an annualized basis) for the second quarter of
2010. Residential mortgage loan net charge-offs for the first
six months of 2011 were $248 million (1.55 percent of
average loans outstanding on an annualized basis), compared with
$283 million (2.14 percent of average loans
outstanding on an annualized basis) for the first six months of
2010. Retail
|
|
U.S. Bancorp |
Table of Contents
loan net charge-offs for the second quarter of 2011 were
$363 million (2.28 percent of average loans
outstanding on an annualized basis), compared with
$499 million (3.16 percent of average loans
outstanding on an annualized basis) for the second quarter of
2010. Retail loan net charge-offs for the first six months of
2011 were $773 million (2.43 percent of average loans
outstanding on an annualized basis), compared with
$1.0 billion (3.23 percent of average loans
outstanding on an annualized basis) for the first six months of
2010. The
year-over-year
decreases in residential mortgage and retail loan net
charge-offs 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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||
|
Percent of
|
Percent of
|
||||||||||||||||||||||||||||||||||||||
| Average Loans | Average Loans | Average Loans | Average Loans | ||||||||||||||||||||||||||||||||||||
| (Dollars in Millions) | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||||||
|
Consumer Finance (a)
|
|||||||||||||||||||||||||||||||||||||||
|
Residential mortgages
|
$ | 12,083 | $ | 10,487 | 2.82 | % | 3.71 | % | $ | 11,989 | $ | 10,415 | 3.01 | % | 3.93 | % | |||||||||||||||||||||||
|
Home equity and second mortgages
|
2,477 | 2,462 | 4.37 | 5.38 | 2,492 | 2,468 | 4.69 | 5.80 | |||||||||||||||||||||||||||||||
|
Other retail
|
539 | 610 | 1.49 | 1.97 | 554 | 606 | 2.55 | 3.33 | |||||||||||||||||||||||||||||||
|
Other Retail
|
|||||||||||||||||||||||||||||||||||||||
|
Residential mortgages
|
$ | 20,651 | $ | 16,334 | .66 | % | 1.01 | % | $ | 20,269 | $ | 16,201 | .69 | % | 1.00 | % | |||||||||||||||||||||||
|
Home equity and second mortgages
|
16,157 | 16,870 | 1.22 | 1.09 | 16,225 | 16,899 | 1.23 | 1.17 | |||||||||||||||||||||||||||||||
|
Other retail
|
23,959 | 22,747 | 1.16 | 1.69 | 24,040 | 22,744 | 1.22 | 1.77 | |||||||||||||||||||||||||||||||
|
Total Company
|
|||||||||||||||||||||||||||||||||||||||
|
Residential mortgages
|
$ | 32,734 | $ | 26,821 | 1.46 | % | 2.06 | % | $ | 32,258 | $ | 26,616 | 1.55 | % | 2.14 | % | |||||||||||||||||||||||
|
Home equity and second mortgages
|
18,634 | 19,332 | 1.64 | 1.64 | 18,717 | 19,367 | 1.69 | 1.76 | |||||||||||||||||||||||||||||||
|
Other retail
|
24,498 | 23,357 | 1.16 | 1.70 | 24,594 | 23,350 | 1.25 | 1.81 | |||||||||||||||||||||||||||||||
| (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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||
|
Percent of
|
Percent of
|
||||||||||||||||||||||||||||||||||||||
| Average Loans | Average Loans | Average Loans | Average Loans | ||||||||||||||||||||||||||||||||||||
| (Dollars in Millions) | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||||||
|
Residential mortgages
|
|||||||||||||||||||||||||||||||||||||||
|
Sub-prime
borrowers
|
$ | 2,009 | $ | 2,347 | 5.79 | % | 6.15 | % | $ | 2,045 | $ | 2,390 | 6.11 | % | 6.41 | % | |||||||||||||||||||||||
|
Other borrowers
|
10,074 | 8,140 | 2.23 | 3.01 | 9,944 | 8,025 | 2.37 | 3.19 | |||||||||||||||||||||||||||||||
|
Total
|
$ | 12,083 | $ | 10,487 | 2.82 | % | 3.71 | % | $ | 11,989 | $ | 10,415 | 3.01 | % | 3.93 | % | |||||||||||||||||||||||
|
Home equity and second mortgages
|
|||||||||||||||||||||||||||||||||||||||
|
Sub-prime
borrowers
|
$ | 502 | $ | 581 | 8.79 | % | 10.36 | % | $ | 514 | $ | 595 | 9.81 | % | 10.85 | % | |||||||||||||||||||||||
|
Other borrowers
|
1,975 | 1,881 | 3.25 | 3.84 | 1,978 | 1,873 | 3.36 | 4.20 | |||||||||||||||||||||||||||||||
|
Total
|
$ | 2,477 | $ | 2,462 | 4.37 | % | 5.38 | % | $ | 2,492 | $ | 2,468 | 4.69 | % | 5.80 | % | |||||||||||||||||||||||
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 June 30,
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.
|
|
17 |
Table of Contents
Table 8 Summary of Allowance for Credit Losses
|
Three Months
Ended
|
Six Months Ended
|
||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| (Dollars in Millions) | 2011 | 2010 | 2011 | 2010 | |||||||||||||
|
Balance at beginning of period
|
$ | 5,498 | $ | 5,439 | $ | 5,531 | $ | 5,264 | |||||||||
|
Charge-offs
|
|||||||||||||||||
|
Commercial
|
|||||||||||||||||
|
Commercial
|
103 | 232 | 240 | 483 | |||||||||||||
|
Lease financing
|
22 | 35 | 46 | 80 | |||||||||||||
|
Total commercial
|
125 | 267 | 286 | 563 | |||||||||||||
|
Commercial real estate
|
|||||||||||||||||
|
Commercial mortgages
|
70 | 71 | 115 | 118 | |||||||||||||
|
Construction and development
|
105 | 159 | 200 | 310 | |||||||||||||
|
Total commercial real estate
|
175 | 230 | 315 | 428 | |||||||||||||
|
Residential mortgages
|
123 | 141 | 256 | 287 | |||||||||||||
|
Retail
|
|||||||||||||||||
|
Credit card
|
241 | 333 | 509 | 661 | |||||||||||||
|
Retail leasing
|
2 | 7 | 6 | 16 | |||||||||||||
|
Home equity and second mortgages
|
82 | 83 | 167 | 177 | |||||||||||||
|
Other retail
|
97 | 119 | 203 | 251 | |||||||||||||
|
Total retail
|
422 | 542 | 885 | 1,105 | |||||||||||||
|
Covered loans (a)
|
5 | 6 | 7 | 9 | |||||||||||||
|
Total charge-offs
|
850 | 1,186 | 1,749 | 2,392 | |||||||||||||
|
Recoveries
|
|||||||||||||||||
|
Commercial
|
|||||||||||||||||
|
Commercial
|
20 | 9 | 32 | 17 | |||||||||||||
|
Lease financing
|
9 | 13 | 19 | 24 | |||||||||||||
|
Total commercial
|
29 | 22 | 51 | 41 | |||||||||||||
|
Commercial real estate
|
|||||||||||||||||
|
Commercial mortgages
|
6 | – | 11 | 1 | |||||||||||||
|
Construction and development
|
5 | 3 | 15 | 8 | |||||||||||||
|
Total commercial real estate
|
11 | 3 | 26 | 9 | |||||||||||||
|
Residential mortgages
|
4 | 3 | 8 | 4 | |||||||||||||
|
Retail
|
|||||||||||||||||
|
Credit card
|
25 | 16 | 46 | 32 | |||||||||||||
|
Retail leasing
|
2 | 3 | 5 | 7 | |||||||||||||
|
Home equity and second mortgages
|
6 | 4 | 10 | 8 | |||||||||||||
|
Other retail
|
26 | 20 | 51 | 41 | |||||||||||||
|
Total retail
|
59 | 43 | 112 | 88 | |||||||||||||
|
Covered loans (a)
|
– | 1 | – | 1 | |||||||||||||
|
Total recoveries
|
103 | 72 | 197 | 143 | |||||||||||||
|
Net Charge-offs
|
|||||||||||||||||
|
Commercial
|
|||||||||||||||||
|
Commercial
|
83 | 223 | 208 | 466 | |||||||||||||
|
Lease financing
|
13 | 22 | 27 | 56 | |||||||||||||
|
Total commercial
|
96 | 245 | 235 | 522 | |||||||||||||
|
Commercial real estate
|
|||||||||||||||||
|
Commercial mortgages
|
64 | 71 | 104 | 117 | |||||||||||||
|
Construction and development
|
100 | 156 | 185 | 302 | |||||||||||||
|
Total commercial real estate
|
164 | 227 | 289 | 419 | |||||||||||||
|
Residential mortgages
|
119 | 138 | 248 | 283 | |||||||||||||
|
Retail
|
|||||||||||||||||
|
Credit card
|
216 | 317 | 463 | 629 | |||||||||||||
|
Retail leasing
|
– | 4 | 1 | 9 | |||||||||||||
|
Home equity and second mortgages
|
76 | 79 | 157 | 169 | |||||||||||||
|
Other retail
|
71 | 99 | 152 | 210 | |||||||||||||
|
Total retail
|
363 | 499 | 773 | 1,017 | |||||||||||||
|
Covered loans (a)
|
5 | 5 | 7 | 8 | |||||||||||||
|
Total net charge-offs
|
747 | 1,114 | 1,552 | 2,249 | |||||||||||||
|
Provision for credit losses
|
572 | 1,139 | 1,327 | 2,449 | |||||||||||||
|
Net change for credit losses to be reimbursed by the FDIC
|
(15 | ) | 72 | 2 | 72 | ||||||||||||
|
Balance at end of period
|
$ | 5,308 | $ | 5,536 | $ | 5,308 | $ | 5,536 | |||||||||
|
Components
|
|||||||||||||||||
|
Allowance for loan losses, excluding losses to be reimbursed by
the FDIC
|
$ | 4,977 | $ | 5,248 | |||||||||||||
|
Allowance for credit losses to be reimbursed by the FDIC
|
94 | 72 | |||||||||||||||
|
Liability for unfunded credit commitments
|
237 | 216 | |||||||||||||||
|
Total allowance for credit losses
|
$ | 5,308 | $ | 5,536 | |||||||||||||
|
Allowance for credit losses as a percentage of
|
|||||||||||||||||
|
Period-end loans, excluding covered loans
|
2.83 | % | 3.18 | % | |||||||||||||
|
Nonperforming loans, excluding covered loans
|
188 | 168 | |||||||||||||||
|
Nonperforming assets, excluding covered assets
|
159 | 146 | |||||||||||||||
|
Annualized net charge-offs, excluding covered loans
|
174 | 122 | |||||||||||||||
|
Period-end loans
|
2.66 | 2.89 | |||||||||||||||
|
Nonperforming loans
|
140 | 120 | |||||||||||||||
|
Nonperforming assets
|
114 | 94 | |||||||||||||||
|
Annualized net charge-offs
|
177 | 124 | |||||||||||||||
Note:
At June 30, 2011 and 2010, $2.0 billion and
$2.4 billion, respectively, 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. |
|
|
U.S. Bancorp |
Table of Contents
At June 30, 2011, the allowance for credit losses was
$5.3 billion (2.66 percent of total loans and
2.83 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. The Company decreased the
allowance for credit losses by $15 million during the
second quarter and increased the allowance for credit losses by
$2 million during the first six months of 2011, compared
with increases of $72 million for the same periods of the
prior year, to reflect covered loan losses reimbursable by the
FDIC. The ratio of the allowance for credit losses to
nonperforming loans was 140 percent (188 percent
excluding covered loans) at June 30, 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 177 percent
at June 30, 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 June 30, 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 June 30, 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.
Sensitivity
of Net Interest Income
| June 30, 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
|
* | 2.05 | % | * | 3.27 | % | * | 1.64 | % | * | 3.14 | % | |||||||||||||||||||||
| * | Given the current level of interest rates, a downward rate scenario cannot be computed. |
|
|
19 |
Table of Contents
Market Value
of Equity
Modeling
The
Company also manages interest rate sensitivity by utilizing
market value of equity modeling, which measures the degree to
which the market values of the Company’s assets and
liabilities and off-balance sheet instruments will change given
a change in interest rates. Management measures the impact of
changes in market interest rates under a number of scenarios,
including immediate and sustained parallel shifts, and
flattening or steepening of the yield curve. The ALCO policy
limits the change in market value of equity in a 200 bps
parallel rate shock to a 15.0 percent decline. A
200 bps increase would have resulted in a 3.3 percent
decrease in the market value of equity at June 30, 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 6.7 percent decrease in the
market value of equity at June 30, 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 June 30, 2011, the Company had
$6.6 billion of forward commitments to sell mortgage loans
hedging $3.3 billion of mortgage loans held for sale and
$5.4 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 12 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
|
|
U.S. Bancorp |
Table of Contents
Table 9 Regulatory Capital Ratios
|
June 30,
|
December 31,
|
|||||||
| (Dollars in Millions) | 2011 | 2010 | ||||||
|
Tier 1 capital
|
$ | 27,795 | $ | 25,947 | ||||
|
As a percent of risk-weighted assets
|
11.0 | % | 10.5 | % | ||||
|
As a percent of adjusted quarterly average assets (leverage
ratio)
|
9.2 | % | 9.1 | % | ||||
|
Total risk-based capital
|
$ | 35,109 | $ | 33,033 | ||||
|
As a percent of risk-weighted assets
|
13.9 | % | 13.3 | % | ||||
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
Company’s trading VaR did not exceed $2 million during
the first six months of 2011 and did not exceed $5 million
during the first six months 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 June 30, 2011, parent company long-term debt outstanding
was $14.0 billion, compared with $13.0 billion at
December 31, 2010. The $1.0 billion increase was
primarily due to $1.7 billion of medium-term note and
subordinated debt issuances, partially offset by a
$.7 billion extinguishment of junior subordinated
debentures in connection with the issuance of perpetual
preferred stock. As of June 30, 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
$7.0 billion at June 30, 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 June 30, 2011, and December 31,
2010. All regulatory ratios exceeded regulatory
“well-capitalized” requirements. Total
U.S. Bancorp shareholders’ equity was
$32.5 billion at June 30, 2011, compared with
$29.5 billion at December 31, 2010. The increase was
primarily the result of corporate earnings, the issuance of
$.7 billion of perpetual preferred stock in exchange for
the extinguishment of income trust securities 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.
|
|
21 |
Table of Contents
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 equity (using
Basel I definition) and tangible common equity, as a percent of
risk-weighted assets, were 8.4 percent and
8.0 percent, respectively, at June 30, 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 6.5 percent at
June 30, 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 8.1 percent at
June 30, 2011, compared with 7.3 percent at
December 31, 2010. Refer to “Non-Regulatory Capital
Ratios” for further information regarding the calculation
of these measures.
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. All shares repurchased during the second quarter of 2011
were repurchased under this authorization.
The following table provides a detailed analysis of all shares
repurchased during the second 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 | Program | per Share | Program | |||||||||
|
April
|
13,498 | $ | 25.14 | 49,985,322 | ||||||||
|
May
|
3,242 | 25.23 | 49,982,080 | |||||||||
|
June
|
2,507,560 | 25.29 | 47,474,520 | |||||||||
|
Total
|
2,524,300 | $ | 25.29 | 47,474,520 | ||||||||
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 $265 million of the Company’s net
income in the second quarter and $473 million in the first
six months of 2011, or increases of $169 million and
$364 million, respectively, compared with the same periods
of 2010. The increases were primarily driven by higher net
revenue and lower provision for credit losses, partially offset
by higher noninterest expense.
Total net revenue increased $78 million (10.1 percent)
in the second quarter and $148 million (9.8 percent)
in the first six months of 2011, compared with the same periods
of 2010. Net interest income, on a taxable-equivalent basis,
increased $35 million (7.1 percent) in the second
quarter and $82 million (8.6 percent) in the first six
months of 2011, compared with the same periods of 2010. The
year-over-year
increases in net interest income were primarily due to higher
average loan and deposit balances and increases in loan fees,
partially offset by the impact of declining rates on the margin
benefit from deposits. Total noninterest income increased
$43 million (15.2 percent) in the second quarter and
$66 million (11.9 percent) in the first six months of
2011, compared with the same periods of 2010. The increases were
primarily due to growth in commercial products revenue,
including syndication and other capital markets fees, commercial
leasing, foreign exchange and international trade revenue, and
commercial loan and standby letters of credit fees.
Total noninterest expense increased $24 million
(7.9 percent) in the second quarter and $49 million
(8.5 percent) in the first six months of 2011, compared
with the same periods of 2010. The increases were primarily due
to higher total compensation, employee benefits and FDIC deposit
insurance expense and increased shared services costs, partially
offset by lower
|
|
U.S. Bancorp |
Table of Contents
costs on OREO. The provision for credit losses decreased
$204 million (63.9 percent) in the second quarter and
$468 million (61.5 percent) in the first six months of
2011, compared with the same periods of 2010. The favorable
changes were primarily due to lower net charge-offs in the
second quarter and first six months of 2011, compared with the
same periods of 2010. Nonperforming assets were
$1.3 billion at June 30, 2011, $1.4 billion at
March 31, 2011, and $2.0 billion at June 30,
2010. Nonperforming assets as a percentage of period-end loans
were 2.22 percent at June 30, 2011, 2.50 percent
at March 31, 2011, and 3.71 percent at June 30,
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, ATM processing and over mobile devices.
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
$192 million of the Company’s net income in the second
quarter and $331 million in the first six months of 2011,
or increases of $40 million (26.3 percent), and
$22 million (7.1 percent), respectively, compared with
the same periods of 2010. The increases were due to lower
provision for credit losses and increases in total net revenue,
partially offset by higher total noninterest expense.
Within Consumer and Small Business Banking, the retail banking
division contributed $56 million of the total net income in
the second quarter and $75 million in the first six months
of 2011, compared with $18 million and $75 million in
the same periods of 2010. Mortgage banking contributed
$136 million and $256 million of Consumer and Small
Business Banking’s net income in the second quarter and
first six months of 2011, respectively, compared with
$134 million and $234 million in the same periods of
2010.
Total net revenue increased $32 million (1.8 percent)
in the second quarter and $76 million (2.2 percent) in
the first six months of 2011, compared with the same periods of
2010. Net interest income, on a taxable-equivalent basis,
increased $52 million (4.9 percent) in the second
quarter and $152 million (7.2 percent) in the first
six months of 2011, compared with the same periods of 2010. The
year-over-year
increases in net interest income were due to higher loan and
deposit volumes, partially offset by declines in the margin
benefit from deposits. Total noninterest income decreased
$20 million (2.8 percent) in the second quarter and
$76 million (5.5 percent) in the first six months of
2011, compared with the same periods of 2010. The
year-over-year
decreases in noninterest income were driven by reductions in
deposit service charges, reflecting the impact of
Company-initiated and regulatory revisions to overdraft fee
policies, partially offset by core account growth and pricing
changes. Retail lease residual valuation income increased
year-over-year
due to improved retail lease end of term results.
Total noninterest expense increased $43 million
(3.9 percent) in the second quarter and $114 million
(5.3 percent) in the first six months of 2011, compared
with the same periods of 2010. The increases reflected higher
compensation and employee benefits expense, FDIC deposit
insurance expense, shared services costs and net occupancy and
equipment expenses related to business initiatives, partially
offset by lower other intangibles expense and litigation costs.
The provision for credit losses decreased $75 million
(16.8 percent) in the second quarter and $69 million
(8.2 percent) in the first six months of 2011, compared
with the same periods of 2010, principally due to lower net
charge-offs. As a percentage of average loans outstanding on an
annualized basis, net charge-offs decreased to 1.31 percent
in the second quarter of 2011, compared with 1.57 percent
in the second quarter of 2010. Nonperforming assets were
$1.7 billion at June 30, 2011, $1.8 billion at
March 31, 2011, and $1.6 billion at June 30,
2010. Nonperforming assets as a percentage of period-end loans
were 1.58 percent at June 30, 2011, 1.66 percent
at March 31, 2011, and 1.60 percent at June 30,
2010. Refer to the “Corporate Risk Profile” section
for further information on factors impacting the credit quality
of the loan portfolios.
During the second quarter of 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 an interagency
horizontal review of the foreclosure practices of the 14 largest
mortgage servicers in the United States.
The Consent Orders mandate certain changes to the Company’s
mortgage servicing and foreclosure processes. Specifically, the
Consent Orders require the Company, U.S. Bank National
Association and U.S. Bank National Association ND to, among
other things, submit a comprehensive action plan setting forth
the steps necessary to ensure residential mortgage servicing and
|
|
23 |
Table of Contents
Table 10 Line of Business Financial Performance
|
Wholesale Banking
and
|
Consumer and
Small
|
||||||||||||||||||||||||
| Commercial Real Estate | Business Banking | ||||||||||||||||||||||||
|
Three Months Ended
June 30
|
Percent
|
Percent
|
|||||||||||||||||||||||
| (Dollars in Millions) | 2011 | 2010 | Change | 2011 | 2010 | Change | |||||||||||||||||||
|
Condensed Income Statement
|
|||||||||||||||||||||||||
|
Net interest income (taxable-equivalent basis)
|
$ | 525 | $ | 490 | 7.1 | % | $ | 1,123 | $ | 1,071 | 4.9 | % | |||||||||||||
|
Noninterest income
|
326 | 283 | 15.2 | 687 | 707 | (2.8 | ) | ||||||||||||||||||
|
Securities gains (losses), net
|
– | – | – | – | – | – | |||||||||||||||||||
|
Total net revenue
|
851 | 773 | 10.1 | 1,810 | 1,778 | 1.8 | |||||||||||||||||||
|
Noninterest expense
|
322 | 298 | 8.1 | 1,116 | 1,067 | 4.6 | |||||||||||||||||||
|
Other intangibles
|
4 | 4 | – | 18 | 24 | (25.0 | ) | ||||||||||||||||||
|
Total noninterest expense
|
326 | 302 | 7.9 | 1,134 | 1,091 | 3.9 | |||||||||||||||||||
|
Income before provision and income taxes
|
525 | 471 | 11.5 | 676 | 687 | (1.6 | ) | ||||||||||||||||||
|
Provision for credit losses
|
115 | 319 | (63.9 | ) | 372 | 447 | (16.8 | ) | |||||||||||||||||
|
Income before income taxes
|
410 | 152 | * | 304 | 240 | 26.7 | |||||||||||||||||||
|
Income taxes and taxable-equivalent adjustment
|
149 | 55 | * | 111 | 87 | 27.6 | |||||||||||||||||||
|
Net income
|
261 | 97 | * | 193 | 153 | 26.1 | |||||||||||||||||||
|
Net (income) loss attributable to noncontrolling interests
|
4 | (1 | ) | * | (1 | ) | (1 | ) | – | ||||||||||||||||
|
Net income attributable to U.S. Bancorp
|
$ | 265 | $ | 96 | * | $ | 192 | $ | 152 | 26.3 | |||||||||||||||
|
Average Balance Sheet
|
|||||||||||||||||||||||||
|
Commercial
|
$ | 36,075 | $ | 32,840 | 9.9 | % | $ | 7,197 | $ | 7,141 | .8 | % | |||||||||||||
|
Commercial real estate
|
19,103 | 19,452 | (1.8 | ) | 15,590 | 13,786 | 13.1 | ||||||||||||||||||
|
Residential mortgages
|
54 | 71 | (23.9 | ) | 32,282 | 26,364 | 22.4 | ||||||||||||||||||
|
Retail
|
6 | 51 | (88.2 | ) | 45,450 | 44,381 | 2.4 | ||||||||||||||||||
|
Total loans, excluding covered loans
|
55,238 | 52,414 | 5.4 | 100,519 | 91,672 | 9.7 | |||||||||||||||||||
|
Covered loans
|
1,599 | 2,030 | (21.2 | ) | 8,488 | 9,756 | (13.0 | ) | |||||||||||||||||
|
Total loans
|
56,837 | 54,444 | 4.4 | 109,007 | 101,428 | 7.5 | |||||||||||||||||||
|
Goodwill
|
1,604 | 1,608 | (.2 | ) | 3,515 | 3,534 | (.5 | ) | |||||||||||||||||
|
Other intangible assets
|
55 | 71 | (22.5 | ) | 2,244 | 2,005 | 11.9 | ||||||||||||||||||
|
Assets
|
63,028 | 59,999 | 5.0 | 121,847 | 114,379 | 6.5 | |||||||||||||||||||
|
Noninterest-bearing deposits
|
23,273 | 17,371 | 34.0 | 17,837 | 15,994 | 11.5 | |||||||||||||||||||
|
Interest checking
|
14,149 | 12,841 | 10.2 | 26,110 | 23,903 | 9.2 | |||||||||||||||||||
|
Savings products
|
9,350 | 9,758 | (4.2 | ) | 40,530 | 35,763 | 13.3 | ||||||||||||||||||
|
Time deposits
|
12,609 | 10,876 | 15.9 | 24,629 | 26,510 | (7.1 | ) | ||||||||||||||||||
|
Total deposits
|
59,381 | 50,846 | 16.8 | 109,106 | 102,170 | 6.8 | |||||||||||||||||||
|
Total U.S. Bancorp shareholders’ equity
|
5,497 | 5,373 | 2.3 | 9,236 | 8,395 | 10.0 | |||||||||||||||||||
|
Wholesale Banking
and
|
Consumer and
Small
|
||||||||||||||||||||||||
| Commercial Real Estate | Business Banking | ||||||||||||||||||||||||
|
Six Months Ended
June 30
|
Percent
|
Percent
|
|||||||||||||||||||||||
| (Dollars in Millions) | 2011 | 2010 | Change | 2011 | 2010 | Change | |||||||||||||||||||
|
Condensed Income Statement
|
|||||||||||||||||||||||||
|
Net interest income (taxable-equivalent basis)
|
$ | 1,034 | $ | 952 | 8.6 | % | $ | 2,256 | $ | 2,104 | 7.2 | % | |||||||||||||
|
Noninterest income
|
619 | 553 | 11.9 | 1,294 | 1,370 | (5.5 | ) | ||||||||||||||||||
|
Securities gains (losses), net
|
– | – | – | – | – | – | |||||||||||||||||||
|
Total net revenue
|
1,653 | 1,505 | 9.8 | 3,550 | 3,474 | 2.2 | |||||||||||||||||||
|
Noninterest expense
|
616 | 566 | 8.8 | 2,217 | 2,088 | 6.2 | |||||||||||||||||||
|
Other intangibles
|
8 | 9 | (11.1 | ) | 36 | 51 | (29.4 | ) | |||||||||||||||||
|
Total noninterest expense
|
624 | 575 | 8.5 | 2,253 | 2,139 | 5.3 | |||||||||||||||||||
|
Income before provision and income taxes
|
1,029 | 930 | 10.6 | 1,297 | 1,335 | (2.8 | ) | ||||||||||||||||||
|
Provision for credit losses
|
293 | 761 | (61.5 | ) | 774 | 843 | (8.2 | ) | |||||||||||||||||
|
Income before income taxes
|
736 | 169 | * | 523 | 492 | 6.3 | |||||||||||||||||||
|
Income taxes and taxable-equivalent adjustment
|
268 | 60 | * | 191 | 182 | 4.9 | |||||||||||||||||||
|
Net income
|
468 | 109 | * | 332 | 310 | 7.1 | |||||||||||||||||||
|
Net (income) loss attributable to noncontrolling interests
|
5 | – | * | (1 | ) | (1 | ) | – | |||||||||||||||||
|
Net income attributable to U.S. Bancorp
|
$ | 473 | $ | 109 | * | $ | 331 | $ | 309 | 7.1 | |||||||||||||||
|
Average Balance Sheet
|
|||||||||||||||||||||||||
|
Commercial
|
$ | 35,669 | $ | 33,319 | 7.1 | % | $ | 7,156 | $ | 7,180 | (.3 | )% | |||||||||||||
|
Commercial real estate
|
19,155 | 19,665 | (2.6 | ) | 15,355 | 13,503 | 13.7 | ||||||||||||||||||
|
Residential mortgages
|
58 | 69 | (15.9 | ) | 31,802 | 26,162 | 21.6 | ||||||||||||||||||
|
Retail
|
6 | 48 | (87.5 | ) | 45,496 | 44,491 | 2.3 | ||||||||||||||||||
|
Total loans, excluding covered loans
|
54,888 | 53,101 | 3.4 | 99,809 | 91,336 | 9.3 | |||||||||||||||||||
|
Covered loans
|
1,730 | 2,091 | (17.3 | ) | 8,621 | 9,861 | (12.6 | ) | |||||||||||||||||
|
Total loans
|
56,618 | 55,192 | 2.6 | 108,430 | 101,197 | 7.1 | |||||||||||||||||||
|
Goodwill
|
1,604 | 1,608 | (.2 | ) | 3,525 | 3,531 | (.2 | ) | |||||||||||||||||
|
Other intangible assets
|
57 | 73 | (21.9 | ) | 2,236 | 2,030 | 10.1 | ||||||||||||||||||
|
Assets
|
62,460 | 60,463 | 3.3 | 122,630 | 113,983 | 7.6 | |||||||||||||||||||
|
Noninterest-bearing deposits
|
21,650 | 16,758 | 29.2 | 17,510 | 15,785 | 10.9 | |||||||||||||||||||
|
Interest checking
|
14,074 | 13,385 | 5.1 | 25,743 | 23,569 | 9.2 | |||||||||||||||||||
|
Savings products
|
9,580 | 10,454 | (8.4 | ) | 40,067 | 34,904 | 14.8 | ||||||||||||||||||
|
Time deposits
|
12,635 | 10,977 | 15.1 | 24,456 | 27,411 | (10.8 | ) | ||||||||||||||||||
|
Total deposits
|
57,939 | 51,574 | 12.3 | 107,776 | 101,669 | 6.0 | |||||||||||||||||||
|
Total U.S. Bancorp shareholders’ equity
|
5,502 | 5,391 | 2.1 | 9,249 | 8,413 | 9.9 | |||||||||||||||||||
* Not
meaningful
|
|
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 | |||||||||||||||||||||||||||||||||||||
| $ | 86 | $ | 78 | 10.3 | % | $ | 326 | $ | 332 | (1.8 | )% | $ | 484 | $ | 438 | 10.5 | % | $ | 2,544 | $ | 2,409 | 5.6 | % | |||||||||||||||||||||||||
| 271 | 277 | (2.2 | ) | 831 | 791 | 5.1 | 39 | 73 | (46.6 | ) | 2,154 | 2,131 | 1.1 | |||||||||||||||||||||||||||||||||||
| – | – | – | – | – | – | (8 | ) | (21 | ) | 61.9 | (8 | ) | (21 | ) | 61.9 | |||||||||||||||||||||||||||||||||
| 357 | 355 | .6 | 1,157 | 1,123 | 3.0 | 515 | 490 | 5.1 | 4,690 | 4,519 | 3.8 | |||||||||||||||||||||||||||||||||||||
| 281 | 246 | 14.2 | 437 | 416 | 5.0 | 194 | 259 | (25.1 | ) | 2,350 | 2,286 | 2.8 | ||||||||||||||||||||||||||||||||||||
| 10 | 13 | (23.1 | ) | 43 | 50 | (14.0 | ) | – | – | – | 75 | 91 | (17.6 | ) | ||||||||||||||||||||||||||||||||||
| 291 | 259 | 12.4 | 480 | 466 | 3.0 | 194 | 259 | (25.1 | ) | 2,425 | 2,377 | 2.0 | ||||||||||||||||||||||||||||||||||||
| 66 | 96 | (31.3 | ) | 677 | 657 | 3.0 | 321 | 231 | 39.0 | 2,265 | 2,142 | 5.7 | ||||||||||||||||||||||||||||||||||||
| (6 | ) | 2 | * | 89 | 358 | (75.1 | ) | 2 | 13 | (84.6 | ) | 572 | 1,139 | (49.8 | ) | |||||||||||||||||||||||||||||||||
| 72 | 94 | (23.4 | ) | 588 | 299 | 96.7 | 319 | 218 | 46.3 | 1,693 | 1,003 | 68.8 | ||||||||||||||||||||||||||||||||||||
| 26 | 34 | (23.5 | ) | 214 | 109 | 96.3 | 14 | (34 | ) | * | 514 | 251 | * | |||||||||||||||||||||||||||||||||||
| 46 | 60 | (23.3 | ) | 374 | 190 | 96.8 | 305 | 252 | 21.0 | 1,179 | 752 | 56.8 | ||||||||||||||||||||||||||||||||||||
| – | – | – | (10 | ) | (8 | ) | (25.0 | ) | 31 | 24 | 29.2 | 24 | 14 | 71.4 | ||||||||||||||||||||||||||||||||||
| $ | 46 | $ | 60 | (23.3 | ) | $ | 364 | $ | 182 | * | $ | 336 | $ | 276 | 21.7 | $ | 1,203 | $ | 766 | 57.0 | ||||||||||||||||||||||||||||
| $ | 1,077 | $ | 1,085 | (.7 | )% | $ | 5,627 | $ | 5,162 | 9.0 | % | $ | 78 | $ | 112 | (30.4 | )% | $ | 50,054 | $ | 46,340 | 8.0 | % | |||||||||||||||||||||||||
| 580 | 569 | 1.9 | – | – | – | 226 | 357 | (36.7 | ) | 35,499 | 34,164 | 3.9 | ||||||||||||||||||||||||||||||||||||
| 392 | 372 | 5.4 | – | – | – | 6 | 14 | (57.1 | ) | 32,734 | 26,821 | 22.0 | ||||||||||||||||||||||||||||||||||||
| 1,579 | 1,596 | (1.1 | ) | 16,789 | 17,338 | (3.2 | ) | – | 16 | * | 63,824 | 63,382 | .7 | |||||||||||||||||||||||||||||||||||
| 3,628 | 3,622 | .2 | 22,416 | 22,500 | (.4 | ) | 310 | 499 | (37.9 | ) | 182,111 | 170,707 | 6.7 | |||||||||||||||||||||||||||||||||||
| 13 | 15 | (13.3 | ) | 5 | – | * | 6,594 | 8,653 | (23.8 | ) | 16,699 | 20,454 | (18.4 | ) | ||||||||||||||||||||||||||||||||||
| 3,641 | 3,637 | .1 | 22,421 | 22,500 | (.4 | ) | 6,904 | 9,152 | (24.6 | ) | 198,810 | 191,161 | 4.0 | |||||||||||||||||||||||||||||||||||
| 1,463 | 1,522 | (3.9 | ) | 2,370 | 2,335 | 1.5 | – | – | – | 8,952 | 8,999 | (.5 | ) | |||||||||||||||||||||||||||||||||||
| 188 | 208 | (9.6 | ) | 807 | 971 | (16.9 | ) | 5 | 7 | (28.6 | ) | 3,299 | 3,262 | 1.1 | ||||||||||||||||||||||||||||||||||
| 6,025 | 5,808 | 3.7 | 27,564 | 27,212 | 1.3 | 94,146 | 73,942 | 27.3 | 312,610 | 281,340 | 11.1 | |||||||||||||||||||||||||||||||||||||
| 6,636 | 5,749 | 15.4 | 711 | 611 | 16.4 | 264 | 192 | 37.5 | 48,721 | 39,917 | 22.1 | |||||||||||||||||||||||||||||||||||||
| 2,900 | 2,636 | 10.0 | 173 | 115 | 50.4 | 2 | 8 | (75.0 | ) | 43,334 | 39,503 | 9.7 | ||||||||||||||||||||||||||||||||||||
| 21,413 | 14,527 | 47.4 | 29 | 23 | 26.1 | 214 | 220 | (2.7 | ) | 71,536 | 60,291 | 18.7 | ||||||||||||||||||||||||||||||||||||
| 8,459 | 5,884 | 43.8 | – | 1 | * | 123 | 336 | (63.4 | ) | 45,820 | 43,607 | 5.1 | ||||||||||||||||||||||||||||||||||||
| 39,408 | 28,796 | 36.9 | 913 | 750 | 21.7 | 603 | 756 | (20.2 | ) | 209,411 | 183,318 | 14.2 | ||||||||||||||||||||||||||||||||||||
| 2,078 | 2,119 | (1.9 | ) | 5,245 | 5,286 | (.8 | ) | 9,911 | 6,246 | 58.7 | 31,967 | 27,419 | 16.6 | |||||||||||||||||||||||||||||||||||
|
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 | |||||||||||||||||||||||||||||||||||||
| $ | 175 | $ | 143 | 22.4 | % | $ | 656 | $ | 678 | (3.2 | )% | $ | 930 | $ | 935 | (.5 | )% | $ | 5,051 | $ | 4,812 | 5.0 | % | |||||||||||||||||||||||||
| 540 | 553 | (2.4 | ) | 1,592 | 1,533 | 3.8 | 126 | 74 | 70.3 | 4,171 | 4,083 | 2.2 | ||||||||||||||||||||||||||||||||||||
| – | – | – | – | – | – | (13 | ) | (55 | ) | 76.4 | (13 | ) | (55 | ) | 76.4 | |||||||||||||||||||||||||||||||||
| 715 | 696 | 2.7 | 2,248 | 2,211 | 1.7 | 1,043 | 954 | 9.3 | 9,209 | 8,840 | 4.2 | |||||||||||||||||||||||||||||||||||||
| 546 | 479 | 14.0 | 850 | 800 | 6.3 | 360 | 392 | (8.2 | ) | 4,589 | 4,325 | 6.1 | ||||||||||||||||||||||||||||||||||||
| 20 | 27 | (25.9 | ) | 86 | 101 | (14.9 | ) | – | – | – | 150 | 188 | (20.2 | ) | ||||||||||||||||||||||||||||||||||
| 566 | 506 | 11.9 | 936 | 901 | 3.9 | 360 | 392 | (8.2 | ) | 4,739 | 4,513 | 5.0 | ||||||||||||||||||||||||||||||||||||
| 149 | 190 | (21.6 | ) | 1,312 | 1,310 | .2 | 683 | 562 | 21.5 | 4,470 | 4,327 | 3.3 | ||||||||||||||||||||||||||||||||||||
| (1 | ) | 4 | * | 254 | 821 | (69.1 | ) | 7 | 20 | (65.0 | ) | 1,327 | 2,449 | (45.8 | ) | |||||||||||||||||||||||||||||||||
| 150 | 186 | (19.4 | ) | 1,058 | 489 | * | 676 | 542 | 24.7 | 3,143 | 1,878 | 67.4 | ||||||||||||||||||||||||||||||||||||
| 54 | 65 | (16.9 | ) | 385 | 177 | * | 37 | (21 | ) | * | 935 | 463 | * | |||||||||||||||||||||||||||||||||||
| 96 | 121 | (20.7 | ) | 673 | 312 | * | 639 | 563 | 13.5 | 2,208 | 1,415 | 56.0 | ||||||||||||||||||||||||||||||||||||
| – | – | – | (19 | ) | (15 | ) | (26.7 | ) | 56 | 36 | 55.6 | 41 | 20 | * | ||||||||||||||||||||||||||||||||||
| $ | 96 | $ | 121 | (20.7 | ) | $ | 654 | $ | 297 | * | $ | 695 | $ | 599 | 16.0 | $ | 2,249 | $ | 1,435 | 56.7 | ||||||||||||||||||||||||||||
| $ | 1,048 | $ | 1,058 | (.9 | )% | $ | 5,425 | $ | 5,023 | 8.0 | % | $ | 89 | $ | 225 | (60.4 | )% | $ | 49,387 | $ | 46,805 | 5.5 | % | |||||||||||||||||||||||||
| 585 | 566 | 3.4 | – | – | – | 245 | 419 | (41.5 | ) | 35,340 | 34,153 | 3.5 | ||||||||||||||||||||||||||||||||||||
| 387 | 373 | 3.8 | – | – | – | 11 | 12 | (8.3 | ) | 32,258 | 26,616 | 21.2 | ||||||||||||||||||||||||||||||||||||
| 1,613 | 1,564 | 3.1 | 16,928 | 17,375 | (2.6 | ) | – | 24 | * | 64,043 | 63,502 | .9 | ||||||||||||||||||||||||||||||||||||
| 3,633 | 3,561 | 2.0 | 22,353 | 22,398 | (.2 | ) | 345 | 680 | (49.3 | ) | 181,028 | 171,076 | 5.8 | |||||||||||||||||||||||||||||||||||
| 13 | 15 | (13.3 | ) | 1 | – | * | 6,801 | 8,972 | (24.2 | ) | 17,166 | 20,939 | (18.0 | ) | ||||||||||||||||||||||||||||||||||
| 3,646 | 3,576 | 2.0 | 22,354 | 22,398 | (.2 | ) | 7,146 | 9,652 | (26.0 | ) | 198,194 | 192,015 | 3.2 | |||||||||||||||||||||||||||||||||||
| 1,463 | 1,518 | (3.6 | ) | 2,364 | 2,348 | .7 | – | – | – | 8,956 | 9,005 | (.5 | ) | |||||||||||||||||||||||||||||||||||
| 192 | 214 | (10.3 | ) | 823 | 987 | (16.6 | ) | 5 | 6 | (16.7 | ) | 3,313 | 3,310 | .1 | ||||||||||||||||||||||||||||||||||
| 6,033 | 5,769 | 4.6 | 27,399 | 27,098 | 1.1 | 91,744 | 74,217 | 23.6 | 310,266 | 281,530 | 10.2 | |||||||||||||||||||||||||||||||||||||
| 6,392 | 5,560 | 15.0 | 698 | 610 | 14.4 | 217 | 251 | (13.5 | ) | 46,467 | 38,964 | 19.3 | ||||||||||||||||||||||||||||||||||||
| 3,003 | 2,656 | 13.1 | 169 | 110 | 53.6 | 2 | 27 | (92.6 | ) | 42,991 | 39,747 | 8.2 | ||||||||||||||||||||||||||||||||||||
| 21,399 | 13,965 | 53.2 | 28 | 22 | 27.3 | 185 | 270 | (31.5 | ) | 71,259 | 59,615 | 19.5 | ||||||||||||||||||||||||||||||||||||
| 8,769 | 5,644 | 55.4 | – | 1 | * | 294 | 568 | (48.2 | ) | 46,154 | 44,601 | 3.5 | ||||||||||||||||||||||||||||||||||||
| 39,563 | 27,825 | 42.2 | 895 | 743 | 20.5 | 698 | 1,116 | (37.5 | ) | 206,871 | 182,927 | 13.1 | ||||||||||||||||||||||||||||||||||||
| 2,077 | 2,118 | (1.9 | ) | 5,270 | 5,318 | (.9 | ) | 8,896 | 5,679 | 56.6 | 30,994 | 26,919 | 15.1 | |||||||||||||||||||||||||||||||||||
|
|
25 |
Table of Contents
foreclosure processes are conducted in accordance with the
Consent Orders; develop and implement other plans and programs
to enhance residential mortgage servicing and foreclosure
processes; retain an independent consultant to conduct a review
of certain residential mortgage foreclosure actions and to
remediate errors or deficiencies identified by the consultant;
and oversee compliance with the Consent Orders and the new plans
and programs. The Company has made significant progress in
complying with these requirements during the last several months.
The Company has long been committed to sound modification and
foreclosure practices and is committed to revising its practices
where necessary to satisfy the requirements of the Consent
Orders. 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
$46 million of the Company’s net income in the second
quarter and $96 million in the first six months of 2011, or
decreases of $14 million (23.3 percent) and
$25 million (20.7 percent), respectively, compared
with the same periods of 2010. The decreases were due to higher
total noninterest expense, partially offset by increases in
total net revenue.
Total net revenue increased $2 million (.6 percent) in
the second quarter and $19 million (2.7 percent) in
the first six months of 2011, compared with the same periods of
2010. Net interest income, on a taxable-equivalent basis,
increased $8 million (10.3 percent) in the second
quarter and $32 million (22.4 percent) in the first
six months of 2011, compared with the same periods of 2010. The
year-over-year increases in net interest income were primarily
due to higher average deposit balances, including the impact of
the securitization trust acquisition. Total noninterest income
declined $6 million (2.2 percent) in the second
quarter and $13 million (2.4 percent) in the first six
months of 2011, compared with the same periods of 2010. Trust
and investment management fees declined, primarily due to the
sale 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 second quarter and first six months of
2011. Additionally, investment product fees were higher due to
increased sales volumes.
Total noninterest expense increased $32 million
(12.4 percent) in the second quarter and $60 million
(11.9 percent) in the first six months of 2011, compared
with the same periods of 2010. The increases in noninterest
expense were primarily due to higher compensation and employee
benefits expense, higher net shared services expense and the
impact of the securitization trust acquisition, partially offset
by reductions in other intangibles expense and expenses related
to the sale of the long-term asset management business.
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 $364 million of the
Company’s net income in the second quarter and
$654 million in the first six months of 2011, or increases
of $182 million and $357 million, respectively,
compared with the same periods of 2010. The increases were
primarily due to decreases in the provision for credit losses.
Total net revenue increased $34 million (3.0 percent)
in the second quarter and $37 million (1.7 percent) in
the first six months of 2011, compared with the same periods of
2010. Net interest income, on a taxable-equivalent basis,
decreased $6 million (1.8 percent) in the second
quarter and $22 million (3.2 percent) in the first six
months of 2011, compared with the same periods of 2010,
primarily due to lower retail credit card average loan balances
and loan fees. Noninterest income increased $40 million
(5.1 percent) in the second quarter and $59 million
(3.8 percent) in the first six months of 2011, compared
with the same periods of 2010, primarily due to increased
transaction volumes.
Total noninterest expense increased $14 million
(3.0 percent) in the second quarter and $35 million
(3.9 percent) in the first six months of 2011, compared
with the same periods of 2010. The increases were driven by
higher compensation and employee benefits expense and processing
costs, partially offset by lower other intangibles expense. The
provision for credit losses decreased $269 million
(75.1 percent) in the second quarter and $567 million
(69.1 percent) in the first six months of 2011, compared
with the same periods of 2010. The decreases were due to lower
net charge-offs and favorable changes in the reserve allocation
due to improved loss rates. As a percentage of average loans
outstanding, net charge-offs were 4.70 percent in the
second quarter of 2011, compared with 6.72 percent in the
second quarter of 2010.
|
|
U.S. Bancorp |
Table of Contents
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
$336 million in the second quarter and $695 million in
the first six months of 2011, compared with $276 million in
the second quarter and $599 million in the first six months
of 2010.
Total net revenue increased $25 million (5.1 percent)
in the second quarter and $89 million (9.3 percent) in
the first six months of 2011, compared with the same periods of
2010. Net interest income, on a taxable-equivalent basis,
increased $46 million (10.5 percent) in the second
quarter and decreased $5 million (.5 percent) in the
first six months of 2011, compared with the same periods of
2010, reflecting the impact of wholesale funding decisions and
the Company’s asset/liability position. Total noninterest
income decreased $21 million (40.4 percent) in the
second quarter of 2011, compared with the second quarter of
2010, due to a gain related to the Company’s investment in
Visa Inc. recorded in the second quarter of 2010, partially
offset by lower net securities losses. Total noninterest income
increased $94 million in the first six months of 2011,
compared with the same period of 2010, principally due to the
FCB gain recorded in the first quarter of 2011 and lower net
securities losses.
Total noninterest expense decreased $65 million
(25.1 percent) in the second quarter and $32 million
(8.2 percent) in the first six months of 2011, compared
with the same periods of 2010, as favorable variances in the
shared services allocation and the impact of debt extinguishment
costs recorded in the second quarter of 2010, were partially
offset by higher pension and professional services 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.
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 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.
|
|
27 |
Table of Contents
The following table shows the Company’s calculation of
these measures:
|
June 30,
|
December 31,
|
|||||||
| (Dollars in Millions) | 2011 | 2010 | ||||||
|
Total equity
|
$ | 33,341 | $ | 30,322 | ||||
|
Preferred stock
|
(2,606) | (1,930) | ||||||
|
Noncontrolling interests
|
(889) | (803) | ||||||
|
Goodwill (net of deferred tax liability)
|
(8,300) | (8,337) | ||||||
|
Intangible assets, other than mortgage servicing rights
|
(1,277) | (1,376) | ||||||
|
Tangible common equity (a)
|
20,269 | 17,876 | ||||||
|
Tier 1 capital, determined in accordance with prescribed
regulatory requirements using Basel I definition
|
27,795 | 25,947 | ||||||
|
Trust preferred securities
|
(3,267) | (3,949) | ||||||
|
Preferred stock
|
(2,606) | (1,930) | ||||||
|
Noncontrolling interests, less preferred stock not eligible for
Tier 1 capital
|
(695) | (692) | ||||||
|
Tier 1 common equity using Basel I definition (b)
|
21,227 | 19,376 | ||||||
|
Tier 1 capital, determined in accordance with prescribed
regulatory requirements using anticipated Basel III
definition
|
23,931 | 20,854 | ||||||
|
Preferred stock
|
(2,606) | (1,930) | ||||||
|
Noncontrolling interests of real estate investment trusts
|
(667) | (667) | ||||||
|
Tier 1 common equity using anticipated Basel III
definition (c)
|
20,658 | 18,257 | ||||||
|
Total assets
|
320,874 | 307,786 | ||||||
|
Goodwill (net of deferred tax liability)
|
(8,300) | (8,337) | ||||||
|
Intangible assets, other than mortgage servicing rights
|
(1,277) | (1,376) | ||||||
|
Tangible assets (d)
|
311,297 | 298,073 | ||||||
|
Risk-weighted assets, determined in accordance with prescribed
regulatory requirements using
|
||||||||
|
Basel I definition (e)
|
252,882 | 247,619 | ||||||
|
Risk-weighted assets using anticipated Basel III definition
(f)
|
256,205 | 251,704 | ||||||
|
Ratios
|
||||||||
|
Tangible common equity to tangible
assets (a)/(d) |
6.5 | % | 6.0 | % | ||||
|
Tier 1 common equity to risk-weighted assets using Basel I
definition (b)/(e)
|
8.4 | 7.8 | ||||||
|
Tier 1 common equity to risk-weighted assets using
anticipated Basel III definition (c)/(f)
|
8.1 | 7.3 | ||||||
|
Tangible common equity to risk-weighted assets (a)/(e)
|
8.0 | 7.2 | ||||||
| Note: | Anticipated Basel III definitions reflect adjustments for changes to the related elements as proposed in December 2010 by regulatory authorities. |
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.
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.
|
|
U.S. Bancorp |
Table of Contents
(This page intentionally left blank)
|
|
29 |
Table of Contents
U.S. Bancorp
|
June 30,
|
December 31,
|
|||||||
| (Dollars in Millions) | 2011 | 2010 | ||||||
| (Unaudited) | ||||||||
|
Assets
|
||||||||
|
Cash and due from banks
|
$ | 15,250 | $ | 14,487 | ||||
|
Investment securities
|
||||||||
|
Held-to-maturity
(fair value $13,431 and $1,419, respectively)
|
13,280 | 1,469 | ||||||
|
Available-for-sale
|
52,299 | 51,509 | ||||||
|
Loans held for sale (included $3,304 and $8,100 of mortgage
loans carried at fair value, respectively)
|
3,543 | 8,371 | ||||||
|
Loans
|
||||||||
|
Commercial
|
50,550 | 48,398 | ||||||
|
Commercial real estate
|
35,490 | 34,695 | ||||||
|
Residential mortgages
|
33,110 | 30,732 | ||||||
|
Retail
|
64,331 | 65,194 | ||||||
|
Total loans, excluding covered loans
|
183,481 | 179,019 | ||||||
|
Covered loans
|
16,401 | 18,042 | ||||||
|
Total loans
|
199,882 | 197,061 | ||||||
|
Less allowance for loan losses
|
(5,071 | ) | (5,310 | ) | ||||
|
Net loans
|
194,811 | 191,751 | ||||||
|
Premises and equipment
|
2,529 | 2,487 | ||||||
|
Goodwill
|
8,950 | 8,954 | ||||||
|
Other intangible assets
|
3,266 | 3,213 | ||||||
|
Other assets
|
26,946 | 25,545 | ||||||
|
Total assets
|
$ | 320,874 | $ | 307,786 | ||||
|
Liabilities and Shareholders’ Equity
|
||||||||
|
Deposits
|
||||||||
|
Noninterest-bearing
|
$ | 57,310 | $ | 45,314 | ||||
|
Interest-bearing
|
128,087 | 129,381 | ||||||
|
Time deposits greater than $100,000
|
29,486 | 29,557 | ||||||
|
Total deposits
|
214,883 | 204,252 | ||||||
|
Short-term borrowings
|
29,654 | 32,557 | ||||||
|
Long-term debt
|
32,830 | 31,537 | ||||||
|
Other liabilities
|
10,166 | 9,118 | ||||||
|
Total liabilities
|
287,533 | 277,464 | ||||||
|
Shareholders’ equity
|
||||||||
|
Preferred stock
|
2,606 | 1,930 | ||||||
|
Common stock, par value $0.01 a share — authorized:
4,000,000,000 shares;
|
||||||||
|
issued: 6/30/11 and 12/31/10 —
2,125,725,742 shares
|
21 | 21 | ||||||
|
Capital surplus
|
8,235 | 8,294 | ||||||
|
Retained earnings
|
28,701 | 27,005 | ||||||
|
Less cost of common stock in treasury: 6/30/11 —
201,118,719 shares; 12/31/10 —
204,822,330 shares
|
(6,134 | ) | (6,262 | ) | ||||
|
Accumulated other comprehensive income (loss)
|
(977 | ) | (1,469 | ) | ||||
|
Total U.S. Bancorp shareholders’ equity
|
32,452 | 29,519 | ||||||
|
Noncontrolling interests
|
889 | 803 | ||||||
|
Total equity
|
33,341 | 30,322 | ||||||
|
Total liabilities and equity
|
$ | 320,874 | $ | 307,786 | ||||
See
Notes to Consolidated Financial Statements.
|
|
U.S. Bancorp |
Table of Contents
U.S.
Bancorp
Consolidated
Statement of Income
|
Three Months
Ended
|
Six Months Ended
|
|||||||||||||||
| (Dollars and Shares in Millions, Except Per Share Data) | June 30, | June 30, | ||||||||||||||
| (Unaudited) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
|
Interest Income
|
||||||||||||||||
|
Loans
|
$ | 2,563 | $ | 2,515 | $ | 5,115 | $ | 5,020 | ||||||||
|
Loans held for sale
|
34 | 47 | 97 | 91 | ||||||||||||
|
Investment securities
|
459 | 394 | 887 | 804 | ||||||||||||
|
Other interest income
|
63 | 39 | 120 | 73 | ||||||||||||
|
Total interest income
|
3,119 | 2,995 | 6,219 | 5,988 | ||||||||||||
|
Interest Expense
|
||||||||||||||||
|
Deposits
|
210 | 229 | 444 | 465 | ||||||||||||
|
Short-term borrowings
|
131 | 137 | 264 | 265 | ||||||||||||
|
Long-term debt
|
290 | 272 | 571 | 549 | ||||||||||||
|
Total interest expense
|
631 | 638 | 1,279 | 1,279 | ||||||||||||
|
Net interest income
|
2,488 | 2,357 | 4,940 | 4,709 | ||||||||||||
|
Provision for credit losses
|
572 | 1,139 | 1,327 | 2,449 | ||||||||||||
|
Net interest income after provision for credit losses
|
1,916 | 1,218 | 3,613 | 2,260 | ||||||||||||
|
Noninterest Income
|
||||||||||||||||
|
Credit and debit card revenue
|
286 | 266 | 553 | 524 | ||||||||||||
|
Corporate payment products revenue
|
185 | 178 | 360 | 346 | ||||||||||||
|
Merchant processing services
|
338 | 320 | 639 | 612 | ||||||||||||
|
ATM processing services
|
114 | 108 | 226 | 213 | ||||||||||||
|
Trust and investment management fees
|
258 | 267 | 514 | 531 | ||||||||||||
|
Deposit service charges
|
162 | 199 | 305 | 406 | ||||||||||||
|
Treasury management fees
|
144 | 145 | 281 | 282 | ||||||||||||
|
Commercial products revenue
|
218 | 205 | 409 | 366 | ||||||||||||
|
Mortgage banking revenue
|
239 | 243 | 438 | 443 | ||||||||||||
|
Investment products fees and commissions
|
35 | 30 | 67 | 55 | ||||||||||||
|
Securities gains (losses), net
|
||||||||||||||||
|
Realized gains (losses), net
|
1 | – | 2 | 12 | ||||||||||||
|
Total
other-than-temporary
impairment
|
(19 | ) | (30 | ) | (30 | ) | (117 | ) | ||||||||
|
Portion of
other-than-temporary
impairment recognized in other comprehensive income
|
10 | 9 | 15 | 50 | ||||||||||||
|
Total securities gains (losses), net
|
(8 | ) | (21 | ) | (13 | ) | (55 | ) | ||||||||
|
Other
|
175 | 170 | 379 | 305 | ||||||||||||
|
Total noninterest income
|
2,146 | 2,110 | 4,158 | 4,028 | ||||||||||||
|
Noninterest Expense
|
||||||||||||||||
|
Compensation
|
1,004 | 946 | 1,963 | 1,807 | ||||||||||||
|
Employee benefits
|
210 | 172 | 440 | 352 | ||||||||||||
|
Net occupancy and equipment
|
249 | 226 | 498 | 453 | ||||||||||||
|
Professional services
|
82 | 73 | 152 | 131 | ||||||||||||
|
Marketing and business development
|
90 | 86 | 155 | 146 | ||||||||||||
|
Technology and communications
|
189 | 186 | 374 | 371 | ||||||||||||
|
Postage, printing and supplies
|
76 | 75 | 150 | 149 | ||||||||||||
|
Other intangibles
|
75 | 91 | 150 | 188 | ||||||||||||
|
Other
|
450 | 522 | 857 | 916 | ||||||||||||
|
Total noninterest expense
|
2,425 | 2,377 | 4,739 | 4,513 | ||||||||||||
|
Income before income taxes
|
1,637 | 951 | 3,032 | 1,775 | ||||||||||||
|
Applicable income taxes
|
458 | 199 | 824 | 360 | ||||||||||||
|
Net income
|
1,179 | 752 | 2,208 | 1,415 | ||||||||||||
|
Net (income) loss attributable to noncontrolling interests
|
24 | 14 | 41 | 20 | ||||||||||||
|
Net income attributable to U.S. Bancorp
|
$ | 1,203 | $ | 766 | $ | 2,249 | $ | 1,435 | ||||||||
|
Net income applicable to U.S. Bancorp common shareholders
|
$ | 1,167 | $ | 862 | $ | 2,170 | $ | 1,510 | ||||||||
|
Earnings per common share
|
$ | .61 | $ | .45 | $ | 1.13 | $ | .79 | ||||||||
|
Diluted earnings per common share
|
$ | .60 | $ | .45 | $ | 1.12 | $ | .79 | ||||||||
|
Dividends declared per common share
|
$ | .125 | $ | .050 | $ | .250 | $ | .100 | ||||||||
|
Average common shares outstanding
|
1,921 | 1,912 | 1,920 | 1,911 | ||||||||||||
|
Average diluted common shares outstanding
|
1,929 | 1,921 | 1,929 | 1,920 | ||||||||||||
See
Notes to Consolidated Financial Statements.
|
|
31 |
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)
|
1,435 | 1,435 | (20 | ) | 1,415 | |||||||||||||||||||||||||||||||||||
|
Changes in unrealized gains and losses on securities
available-for-sale
|
855 | 855 | 855 | |||||||||||||||||||||||||||||||||||||
|
Other-than-temporary
impairment not recognized in earnings on securities
available-for-sale
|
(50 | ) | (50 | ) | (50 | ) | ||||||||||||||||||||||||||||||||||
|
Unrealized loss on derivative hedges
|
(206 | ) | (206 | ) | (206 | ) | ||||||||||||||||||||||||||||||||||
|
Foreign currency translation
|
30 | 30 | 30 | |||||||||||||||||||||||||||||||||||||
|
Reclassification for realized losses
|
56 | 56 | 56 | |||||||||||||||||||||||||||||||||||||
|
Income taxes
|
(261 | ) | (261 | ) | (261 | ) | ||||||||||||||||||||||||||||||||||
|
Total comprehensive income (loss)
|
1,859 | (20 | ) | 1,839 | ||||||||||||||||||||||||||||||||||||
|
Preferred stock dividends
|
(37 | ) | (37 | ) | (37 | ) | ||||||||||||||||||||||||||||||||||
|
Common stock dividends
|
(192 | ) | (192 | ) | (192 | ) | ||||||||||||||||||||||||||||||||||
|
Issuance of preferred stock
|
430 | 10 | 118 | 558 | 558 | |||||||||||||||||||||||||||||||||||
|
Issuance of common and treasury stock
|
5 | (97 | ) | 143 | 46 | 46 | ||||||||||||||||||||||||||||||||||
|
Purchase of treasury stock
|
(1 | ) | (15 | ) | (15 | ) | (15 | ) | ||||||||||||||||||||||||||||||||
|
Distributions to noncontrolling interests
|
– | (36 | ) | (36 | ) | |||||||||||||||||||||||||||||||||||
|
Net other changes in noncontrolling interests
|
– | 145 | 145 | |||||||||||||||||||||||||||||||||||||
|
Stock option and restricted stock grants
|
60 | 60 | 60 | |||||||||||||||||||||||||||||||||||||
|
Balance June 30, 2010
|
1,917 | $ | 1,930 | $ | 21 | $ | 8,292 | $ | 25,367 | $ | (6,381 | ) | $ | (1,060 | ) | $ | 28,169 | $ | 771 | $ | 28,940 | |||||||||||||||||||
|
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)
|
2,249 | 2,249 | (41 | ) | 2,208 | |||||||||||||||||||||||||||||||||||
|
Changes in unrealized gains and losses on securities
available-for-sale
|
802 | 802 | 802 | |||||||||||||||||||||||||||||||||||||
|
Other-than-temporary
impairment not recognized in earnings on securities
available-for-sale
|
(15 | ) | (15 | ) | (15 | ) | ||||||||||||||||||||||||||||||||||
|
Unrealized gain on derivative hedges
|
(17 | ) | (17 | ) | (17 | ) | ||||||||||||||||||||||||||||||||||
|
Foreign currency translation
|
(17 | ) | (17 | ) | (17 | ) | ||||||||||||||||||||||||||||||||||
|
Reclassification for realized losses
|
(12 | ) | (12 | ) | (12 | ) | ||||||||||||||||||||||||||||||||||
|
Change in retirement obligation
|
55 | 55 | 55 | |||||||||||||||||||||||||||||||||||||
|
Income taxes
|
(304 | ) | (304 | ) | (304 | ) | ||||||||||||||||||||||||||||||||||
|
Total comprehensive income (loss)
|
2,741 | (41 | ) | 2,700 | ||||||||||||||||||||||||||||||||||||
|
Preferred stock dividends
|
(69 | ) | (69 | ) | (69 | ) | ||||||||||||||||||||||||||||||||||
|
Common stock dividends
|
(482 | ) | (482 | ) | (482 | ) | ||||||||||||||||||||||||||||||||||
|
Issuance of preferred stock
|
676 | 676 | 676 | |||||||||||||||||||||||||||||||||||||
|
Issuance of common and treasury stock
|
7 | (109 | ) | 217 | 108 | 108 | ||||||||||||||||||||||||||||||||||
|
Purchase of treasury stock
|
(3 | ) | (89 | ) | (89 | ) | (89 | ) | ||||||||||||||||||||||||||||||||
|
Distributions to noncontrolling interests
|
– | (35 | ) | (35 | ) | |||||||||||||||||||||||||||||||||||
|
Net other changes in noncontrolling interests
|
– | 162 | 162 | |||||||||||||||||||||||||||||||||||||
|
Stock option and restricted stock grants
|
50 | 50 | 50 | |||||||||||||||||||||||||||||||||||||
|
Balance June 30, 2011
|
1,925 | $ | 2,606 | $ | 21 | $ | 8,235 | $ | 28,701 | $ | (6,134 | ) | $ | (977 | ) | $ | 32,452 | $ | 889 | $ | 33,341 | |||||||||||||||||||
See
Notes to Consolidated Financial Statements.
|
|
U.S. Bancorp |
Table of Contents
U.S.
Bancorp
Consolidated
Statement of Cash Flows
|
Six Months Ended
|
||||||||
|
(Dollars in
Millions)
|
June 30, | |||||||
| (Unaudited) | 2011 | 2010 | ||||||
|
Operating Activities
|
||||||||
|
Net cash provided by operating activities
|
$8,809 | $3,960 | ||||||
|
Investing Activities
|
||||||||
|
Proceeds from sales of
available-for-sale
investment securities
|
437 | 1,060 | ||||||
|
Proceeds from maturities of
held-to-maturity
investment securities
|
381 | 100 | ||||||
|
Proceeds from maturities of
available-for-sale
investment securities
|
5,312 | 6,614 | ||||||
|
Purchases of
held-to-maturity
investment securities
|
(11,872 | ) | (64 | ) | ||||
|
Purchases of
available-for-sale
investment securities
|
(5,750 | ) | (9,904 | ) | ||||
|
Net (increase) decrease in loans outstanding
|
(3,026 | ) | 507 | |||||
|
Proceeds from sales of loans
|
375 | 1,030 | ||||||
|
Purchases of loans
|
(1,193 | ) | (1,807 | ) | ||||
|
Acquisitions, net of cash acquired
|
650 | 832 | ||||||
|
Other, net
|
(620 | ) | (779 | ) | ||||
|
Net cash used in investing activities
|
(15,306 | ) | (2,411 | ) | ||||
|
Financing Activities
|
||||||||
|
Net increase (decrease) in deposits
|
8,844 | (602 | ) | |||||
|
Net increase (decrease) in short-term borrowings
|
(3,019 | ) | 1,832 | |||||
|
Proceeds from issuance of long-term debt
|
1,534 | 2,923 | ||||||
|
Principal payments or redemption of long-term debt
|
(484 | ) | (6,684 | ) | ||||
|
Fees paid on exchange of income trust securities for perpetual
preferred stock
|
– | (4 | ) | |||||
|
Proceeds from issuance of preferred stock
|
676 | – | ||||||
|
Proceeds from issuance of common stock
|
104 | 43 | ||||||
|
Cash dividends paid on preferred stock
|
(58 | ) | (38 | ) | ||||
|
Cash dividends paid on common stock
|
(337 | ) | (192 | ) | ||||
|
Net cash provided by (used in) financing activities
|
7,260 | (2,722 | ) | |||||
|
Change in cash and due from banks
|
763 | (1,173 | ) | |||||
|
Cash and due from banks at beginning of period
|
14,487 | 6,206 | ||||||
|
Cash and due from banks at end of period
|
$15,250 | $5,033 | ||||||
See
Notes to Consolidated Financial Statements.
|
|
33 |
Table of Contents
Notes
to Consolidated Financial Statements
(Unaudited)
Note 1 Basis of Presentation
The accompanying consolidated financial statements have been
prepared in accordance with the instructions to
Form 10-Q
and, therefore, do not include all information and notes
necessary for a complete presentation of financial position,
results of operations and cash flow activity required in
accordance with accounting principles generally accepted in the
United States. In the opinion of management of U.S. Bancorp
(the “Company”), all adjustments (consisting only of
normal recurring adjustments) necessary for a fair statement of
results for the interim periods have been made. These financial
statements and notes should be read in conjunction with the
consolidated financial statements and notes included in the
Company’s Annual Report on
Form 10-K
for the year ended December 31, 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 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
In January 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:
| June 30, 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
|
$ | 2,363 | $ | 21 | $ | – | $ | – | $ | 2,384 | $ | 165 | $ | – | $ | – | $ | (1 | ) | $ | 164 | ||||||||||||||||||
|
Mortgage-backed securities
|
|||||||||||||||||||||||||||||||||||||||
|
Residential
|
|||||||||||||||||||||||||||||||||||||||
|
Agency
|
10,635 | 162 | – | (4 | ) | 10,793 | 847 | – | – | (4 | ) | 843 | |||||||||||||||||||||||||||
|
Non-agency
|
|||||||||||||||||||||||||||||||||||||||
|
Non-prime
|
2 | – | – | – | 2 | 3 | – | – | – | 3 | |||||||||||||||||||||||||||||
|
Commercial
|
|||||||||||||||||||||||||||||||||||||||
|
Non-agency
|
5 | – | – | (3 | ) | 2 | 10 | – | – | (5 | ) | 5 | |||||||||||||||||||||||||||
|
Asset-backed securities
|
|||||||||||||||||||||||||||||||||||||||
|
Collateralized debt obligations/Collaterized loan obligations
|
94 | 15 | – | (9 | ) | 100 | 157 | 13 | – | (18 | ) | 152 | |||||||||||||||||||||||||||
|
Other
|
25 | 1 | – | (7 | ) | 19 | 127 | – | (1) | (7 | ) | 119 | |||||||||||||||||||||||||||
|
Obligations of state and political subdivisions
|
24 | 1 | – | (1 | ) | 24 | 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
|
$ | 13,280 | $ | 200 | $ | – | $ | (49 | ) | $ | 13,431 | $ | 1,469 | $ | 14 | $ | (1) | $ | (63 | ) | $ | 1,419 | |||||||||||||||||
|
Available-for-sale
(b)
|
|||||||||||||||||||||||||||||||||||||||
|
U.S. Treasury and agencies
|
$ | 1,870 | $ | 7 | $ | – | $ | (4 | ) | $ | 1,873 | $ | 2,559 | $ | 6 | $ | – | $ | (28 | ) | $ | 2,537 | |||||||||||||||||
|
Mortgage-backed securities
|
|||||||||||||||||||||||||||||||||||||||
|
Residential
|
|||||||||||||||||||||||||||||||||||||||
|
Agency
|
38,217 | 901 | – | (46 | ) | 39,072 | 37,144 | 718 | – | (159 | ) | 37,703 | |||||||||||||||||||||||||||
|
Non-agency
|
|||||||||||||||||||||||||||||||||||||||
|
Prime (c)
|
985 | 8 | (51) | (46 | ) | 896 | 1,216 | 12 | (86) | (39 | ) | 1,103 | |||||||||||||||||||||||||||
|
Non-prime
|
1,108 | 21 | (198) | (36 | ) | 895 | 1,193 | 15 | (243) | (18 | ) | 947 | |||||||||||||||||||||||||||
|
Commercial
|
|||||||||||||||||||||||||||||||||||||||
|
Agency
|
154 | 4 | – | – | 158 | 194 | 5 | – | (2 | ) | 197 | ||||||||||||||||||||||||||||
|
Non-agency
|
48 | 3 | – | (1 | ) | 50 | 47 | 3 | – | – | 50 | ||||||||||||||||||||||||||||
|
Asset-backed securities
|
|||||||||||||||||||||||||||||||||||||||
|
Collateralized debt obligations/Collaterized loan obligations
|
194 | 37 | (2) | (2 | ) | 227 | 204 | 23 | (2) | (1 | ) | 224 | |||||||||||||||||||||||||||
|
Other
|
699 | 25 | (3) | (9 | ) | 712 | 709 | 23 | (3) | (9 | ) | 720 | |||||||||||||||||||||||||||
|
Obligations of state and political subdivisions
|
6,809 | 38 | – | (165 | ) | 6,682 | 6,835 | 3 | – | (421 | ) | 6,417 | |||||||||||||||||||||||||||
|
Obligations of foreign governments
|
6 | – | – | – | 6 | 6 | – | – | – | 6 | |||||||||||||||||||||||||||||
|
Corporate debt securities
|
1,109 | 1 | – | (88 | ) | 1,022 | 1,109 | – | – | (151 | ) | 958 | |||||||||||||||||||||||||||
|
Perpetual preferred securities
|
455 | 56 | – | (36 | ) | 475 | 456 | 41 | – | (49 | ) | 448 | |||||||||||||||||||||||||||
|
Other investments
|
216 | 15 | – | – | 231 | 183 | 17 | – | (1 | ) | 199 | ||||||||||||||||||||||||||||
|
Total
available-for-sale
|
$ | 51,870 | $ | 1,116 | $ | (254) | $ | (433 | ) | $ | 52,299 | $ | 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 7.4 years at both June 30,
2011, and December 31, 2010. The corresponding
weighted-average yields were 3.33 percent and
3.41 percent, respectively. The weighted-average maturity
of the
held-to-maturity
investment securities was 5.2 years at June 30, 2011,
and 6.3 years at December 31, 2010. The corresponding
weighted-average yields were 2.26 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 June 30, 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 $22.7 billion at June 30, 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 $7.2 billion at
June 30, 2011, and $9.3 billion at December 31,
2010.
|
|
35 |
Table of Contents
The following table provides information about the amount of
interest income from taxable and non-taxable investment
securities:
|
Three Months
Ended
|
Six Months Ended
|
||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| (Dollars in Millions) | 2011 | 2010 | 2011 | 2010 | |||||||||||||
|
Taxable
|
$ | 382 | $ | 317 | $ | 733 | $ | 650 | |||||||||
|
Non-taxable
|
77 | 77 | 154 | 154 | |||||||||||||
|
Total interest income from investment securities
|
$ | 459 | $ | 394 | $ | 887 | $ | 804 | |||||||||
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
|
Six Months Ended
|
||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| (Dollars in Millions) | 2011 | 2010 | 2011 | 2010 | |||||||||||||
|
Realized gains
|
$ | 1 | $ | – | $ | 2 | $ | 12 | |||||||||
|
Realized losses
|
– | – | – | – | |||||||||||||
|
Net realized gains (losses)
|
$ | 1 | $ | – | $ | 2 | $ | 12 | |||||||||
|
Income tax (benefit) on realized gains (losses)
|
$ | 1 | $ | – | $ | 1 | $ | 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
$443 million and $168 million, respectively, at
June 30, 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
|
Six Months Ended
|
||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| (Dollars in Millions) | 2011 | 2010 | 2011 | 2010 | |||||||||||||
|
Balance at beginning of period
|
$ | 126 | $ | 319 | $ | 139 | $ | 292 | |||||||||
|
Accretion
|
(4 | ) | (8 | ) | (9 | ) | (15 | ) | |||||||||
|
Other (a)
|
(5 | ) | (9 | ) | (13 | ) | 25 | ||||||||||
|
Balance at end of period
|
$ | 117 | $ | 302 | $ | 117 | $ | 302 | |||||||||
| (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.
|
|
U.S. Bancorp |
Table of Contents
The following tables summarize
other-than-temporary
impairment by investment category:
| 2011 | 2010 | ||||||||||||||||||||||||
|
Losses
|
Losses
|
||||||||||||||||||||||||
|
Three Months Ended
June 30
|
Recorded in
|
Other Gains
|
Recorded in
|
Other Gains
|
|||||||||||||||||||||
| (Dollars in Millions) | Earnings | (Losses) | Total | Earnings | (Losses) | Total | |||||||||||||||||||
|
Held-to-maturity
|
|||||||||||||||||||||||||
|
Asset-backed securities
|
|||||||||||||||||||||||||
|
Other
|
$ | – | $ | – | $ | – | $ | – | $ | – | $ | – | |||||||||||||
|
Total
held-to-maturity
|
$ | – | $ | – | $ | – | $ | – | $ | – | $ | – | |||||||||||||
|
Available-for-sale
|
|||||||||||||||||||||||||
|
Mortgage-backed securities
|
|||||||||||||||||||||||||
|
Non-agency residential
|
|||||||||||||||||||||||||
|
Prime (a)
|
$ | (1 | ) | $ | (4 | ) | $ | (5 | ) | $ | (1 | ) | $ | (1 | ) | $ | (2 | ) | |||||||
|
Non-prime
|
(7 | ) | (6 | ) | (13 | ) | (11 | ) | (11 | ) | (22 | ) | |||||||||||||
|
Asset-backed securities
|
|||||||||||||||||||||||||
|
Collateralized debt obligations/Collaterized loan obligations
|
– | – | – | (4 | ) | – | (4 | ) | |||||||||||||||||
|
Other
|
(1 | ) | – | (1 | ) | (5 | ) | 3 | (2 | ) | |||||||||||||||
|
Other debt securities
|
– | – | – | – | – | – | |||||||||||||||||||
|
Total
available-for-sale
|
$ | (9 | ) | $ | (10 | ) | $ | (19 | ) | $ | (21 | ) | $ | (9 | ) | $ | (30 | ) | |||||||
| (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. |
| 2011 | 2010 | ||||||||||||||||||||||||
|
Losses
|
Losses
|
||||||||||||||||||||||||
|
Six Months Ended
June 30
|
Recorded in
|
Other Gains
|
Recorded in
|
Other Gains
|
|||||||||||||||||||||
| (Dollars in Millions) | Earnings | (Losses) | Total | Earnings | (Losses) | Total | |||||||||||||||||||
|
Held-to-maturity
|
|||||||||||||||||||||||||
|
Asset-backed securities
|
|||||||||||||||||||||||||
|
Other
|
$ | – | $ | – | $ | – | $ | (2 | ) | $ | – | $ | (2 | ) | |||||||||||
|
Total
held-to-maturity
|
$ | – | $ | – | $ | – | $ | (2 | ) | $ | – | $ | (2 | ) | |||||||||||
|
Available-for-sale
|
|||||||||||||||||||||||||
|
Mortgage-backed securities
|
|||||||||||||||||||||||||
|
Non-agency residential
|
|||||||||||||||||||||||||
|
Prime (a)
|
$ | (2 | ) | $ | (3 | ) | $ | (5 | ) | $ | (3 | ) | $ | (10 | ) | $ | (13 | ) | |||||||
|
Non-prime
|
(12 | ) | (12 | ) | (24 | ) | (46 | ) | (43 | ) | (89 | ) | |||||||||||||
|
Asset-backed securities
|
|||||||||||||||||||||||||
|
Collateralized debt obligations/Collaterized loan obligations
|
– | – | – | (5 | ) | – | (5 | ) | |||||||||||||||||
|
Other
|
(1 | ) | – | (1 | ) | (10 | ) | 2 | (8 | ) | |||||||||||||||
|
Other debt securities
|
– | – | – | (1 | ) | 1 | – | ||||||||||||||||||
|
Total
available-for-sale
|
$ | (15 | ) | $ | (15 | ) | $ | (30 | ) | $ | (65 | ) | $ | (50 | ) | $ | (115 | ) | |||||||
| (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. |
|
|
37 |
Table of Contents
The Company determined the
other-than-temporary
impairment recorded in earnings for 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 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 | ||||||||||||||||||||
|
June 30, 2011
|
|||||||||||||||||||||||||
|
Estimated lifetime prepayment rates
|
10 | % | 15 | % | 13 | % | 1 | % | 11 | % | 7 | % | |||||||||||||
|
Lifetime probability of default rates
|
– | 3 | 2 | 1 | 20 | 8 | |||||||||||||||||||
|
Lifetime loss severity rates
|
30 | 50 | 36 | 10 | 70 | 51 | |||||||||||||||||||
|
December 31, 2010
|
|||||||||||||||||||||||||
|
Estimated lifetime prepayment rates
|
4 | % | 14 | % | 13 | % | 1 | % | 12 | % | 6 | % | |||||||||||||
|
Lifetime probability of default rates
|
3 | 9 | 3 | 1 | 20 | 8 | |||||||||||||||||||
|
Lifetime loss severity rates
|
40 | 55 | 41 | 37 | 71 | 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
|
Six Months Ended
|
||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| (Dollars in Millions) | 2011 | 2010 | 2011 | 2010 | |||||||||||||
|
Balance at beginning of period
|
$ | 339 | $ | 391 | $ | 358 | $ | 335 | |||||||||
|
Credit losses on securities not previously considered
other-than-temporarily
impaired
|
1 | 2 | 2 | 15 | |||||||||||||
|
Decreases in expected cash flows on securities for which
other-than-temporary
impairment was previously recognized
|
8 | 19 | 13 | 52 | |||||||||||||
|
Increases in expected cash flows
|
(10 | ) | (12 | ) | (17 | ) | (13 | ) | |||||||||
|
Realized losses
|
(19 | ) | (18 | ) | (36 | ) | (25 | ) | |||||||||
|
Credit losses on security sales and securities expected to be
sold
|
– | – | (1 | ) | – | ||||||||||||
|
Other
|
– | – | – | 18 | |||||||||||||
|
Balance at end of period
|
$ | 319 | $ | 382 | $ | 319 | $ | 382 | |||||||||
|
|
U.S. Bancorp |
Table of Contents
At June 30, 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 June 30, 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
|
$ | 104 | $ | – | $ | – | $ | – | $ | 104 | $ | – | ||||||||||||||
|
Mortgage-backed securities
|
||||||||||||||||||||||||||
|
Residential
|
||||||||||||||||||||||||||
|
Agency
|
1,427 | (4 | ) | – | – | 1,427 | (4 | ) | ||||||||||||||||||
|
Non-agency
|
||||||||||||||||||||||||||
|
Non-prime
|
– | – | 2 | – | 2 | – | ||||||||||||||||||||
|
Commercial
|
||||||||||||||||||||||||||
|
Non-agency
|
– | – | 3 | (3 | ) | 3 | (3 | ) | ||||||||||||||||||
|
Asset-backed securities
|
||||||||||||||||||||||||||
|
Collateralized debt obligations/Collaterized loan obligations
|
1 | (1 | ) | 41 | (8 | ) | 42 | (9 | ) | |||||||||||||||||
|
Other
|
– | – | 15 | (7 | ) | 15 | (7 | ) | ||||||||||||||||||
|
Obligations of state and political subdivisions
|
– | – | 9 | (1 | ) | 9 | (1 | ) | ||||||||||||||||||
|
Other debt securities
|
– | – | 99 | (25 | ) | 99 | (25 | ) | ||||||||||||||||||
|
Total
held-to-maturity
|
$ | 1,532 | $ | (5 | ) | $ | 169 | $ | (44 | ) | $ | 1,701 | $ | (49 | ) | |||||||||||
|
Available-for-sale
|
||||||||||||||||||||||||||
|
U.S. Treasury and agencies
|
$ | 685 | $ | (4 | ) | $ | – | $ | – | $ | 685 | $ | (4 | ) | ||||||||||||
|
Mortgage-backed securities
|
||||||||||||||||||||||||||
|
Residential
|
||||||||||||||||||||||||||
|
Agency
|
7,170 | (46 | ) | 54 | – | 7,224 | (46 | ) | ||||||||||||||||||
|
Non-agency
|
||||||||||||||||||||||||||
|
Prime (a)
|
97 | (4 | ) | 726 | (93 | ) | 823 | (97 | ) | |||||||||||||||||
|
Non-prime
|
56 | (6 | ) | 722 | (228 | ) | 778 | (234 | ) | |||||||||||||||||
|
Commercial
|
||||||||||||||||||||||||||
|
Agency
|
14 | – | – | – | 14 | – | ||||||||||||||||||||
|
Non-agency
|
4 | – | 1 | (1 | ) | 5 | (1 | ) | ||||||||||||||||||
|
Asset-backed securities
|
||||||||||||||||||||||||||
|
Collateralized debt obligations/Collaterized loan obligations
|
11 | (3 | ) | 7 | (1 | ) | 18 | (4 | ) | |||||||||||||||||
|
Other
|
61 | (1 | ) | 76 | (11 | ) | 137 | (12 | ) | |||||||||||||||||
|
Obligations of state and political subdivisions
|
3,177 | (66 | ) | 1,214 | (99 | ) | 4,391 | (165 | ) | |||||||||||||||||
|
Corporate debt securities
|
205 | (2 | ) | 691 | (86 | ) | 896 | (88 | ) | |||||||||||||||||
|
Perpetual preferred securities
|
73 | (1 | ) | 262 | (35 | ) | 335 | (36 | ) | |||||||||||||||||
|
Other investments
|
1 | – | 3 | – | 4 | – | ||||||||||||||||||||
|
Total
available-for-sale
|
$ | 11,554 | $ | (133 | ) | $ | 3,756 | $ | (554 | ) | $ | 15,310 | $ | (687 | ) | |||||||||||
| (a) | Prime securities are those designated as such by the issuer or those with underlying asset characteristics and/or credit enhanacements 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
June 30, 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.
|
|
39 |
Table of Contents
Note 5 Loans and Allowance for Credit Losses
The composition of the loan portfolio was as follows:
| June 30, 2011 | December 31, 2010 | ||||||||||||||||||
|
Percent
|
Percent
|
||||||||||||||||||
| (Dollars in Millions) | Amount | of Total | Amount | of Total | |||||||||||||||
|
Commercial
|
|||||||||||||||||||
|
Commercial
|
$ | 44,658 | 22.4 | % | $ | 42,272 | 21.5 | % | |||||||||||
|
Lease financing
|
5,892 | 2.9 | 6,126 | 3.1 | |||||||||||||||
|
Total commercial
|
50,550 | 25.3 | 48,398 | 24.6 | |||||||||||||||
|
Commercial real estate
|
|||||||||||||||||||
|
Commercial mortgages
|
28,643 | 14.3 | 27,254 | 13.8 | |||||||||||||||
|
Construction and development
|
6,847 | 3.4 | 7,441 | 3.8 | |||||||||||||||
|
Total commercial real estate
|
35,490 | 17.7 | 34,695 | 17.6 | |||||||||||||||
|
Residential mortgages
|
|||||||||||||||||||
|
Residential mortgages
|
26,261 | 13.2 | 24,315 | 12.3 | |||||||||||||||
|
Home equity loans, first liens
|
6,849 | 3.4 | 6,417 | 3.3 | |||||||||||||||
|
Total residential mortgages
|
33,110 | 16.6 | 30,732 | 15.6 | |||||||||||||||
|
Retail
|
|||||||||||||||||||
|
Credit card
|
16,111 | 8.1 | 16,803 | 8.5 | |||||||||||||||
|
Retail leasing
|
4,973 | 2.5 | 4,569 | 2.3 | |||||||||||||||
|
Home equity and second mortgages
|
18,597 | 9.3 | 18,940 | 9.6 | |||||||||||||||
|
Other retail
|
|||||||||||||||||||
|
Revolving credit
|
3,324 | 1.6 | 3,472 | 1.8 | |||||||||||||||
|
Installment
|
5,350 | 2.7 | 5,459 | 2.8 | |||||||||||||||
|
Automobile
|
11,143 | 5.6 | 10,897 | 5.5 | |||||||||||||||
|
Student
|
4,833 | 2.4 | 5,054 | 2.5 | |||||||||||||||
|
Total other retail
|
24,650 | 12.3 | 24,882 | 12.6 | |||||||||||||||
|
Total retail
|
64,331 | 32.2 | 65,194 | 33.0 | |||||||||||||||
|
Total loans, excluding covered loans
|
183,481 | 91.8 | 179,019 | 90.8 | |||||||||||||||
|
Covered loans
|
16,401 | 8.2 | 18,042 | 9.2 | |||||||||||||||
|
Total loans
|
$ | 199,882 | 100.0 | % | $ | 197,061 | 100.0 | % | |||||||||||
The Company had loans of $60.4 billion at June 30,
2011, and $62.8 billion at December 31, 2010, pledged
at the Federal Home Loan Bank (“FHLB”), and loans of
$44.6 billion at both June 30, 2011, and
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
June 30, 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 “purchased impaired
loans”. All other purchased loans are considered
“purchased nonimpaired loans”.
|
|
U.S. Bancorp |
Table of Contents
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
$2.8 billion at June 30, 2011 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:
| June 30, 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
|
$ | 70 | $ | 195 | $ | – | $ | 265 | $ | 70 | $ | 260 | $ | – | $ | 330 | |||||||||||||||||||||
|
Commercial real estate loans
|
2,185 | 4,966 | – | 7,151 | 2,254 | 5,952 | – | 8,206 | |||||||||||||||||||||||||||||
|
Residential mortgage loans
|
3,821 | 1,475 | – | 5,296 | 3,819 | 1,620 | – | 5,439 | |||||||||||||||||||||||||||||
|
Retail loans
|
– | 899 | – | 899 | – | 930 | – | 930 | |||||||||||||||||||||||||||||
|
Losses reimbursable by the FDIC
|
– | – | 2,790 | 2,790 | – | – | 3,137 | 3,137 | |||||||||||||||||||||||||||||
|
Covered loans
|
6,076 | 7,535 | 2,790 | 16,401 | 6,143 | 8,762 | 3,137 | 18,042 | |||||||||||||||||||||||||||||
|
Foreclosed real estate
|
– | – | 348 | 348 | – | – | 453 | 453 | |||||||||||||||||||||||||||||
|
Total covered assets
|
$ | 6,076 | $ | 7,535 | $ | 3,138 | $ | 16,749 | $ | 6,143 | $ | 8,762 | $ | 3,590 | $ | 18,495 | |||||||||||||||||||||
At June 30, 2011, $.3 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
|
Six Months Ended
|
||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||
| (Dollars in Millions) | 2011 | 2010 | 2011 | 2010 | |||||||||||||||
|
Balance at beginning of period
|
$ | 2,801 | $ | 2,825 | $ | 2,890 | $ | 2,845 | |||||||||||
|
Purchases
|
– | – | 100 | – | |||||||||||||||
|
Accretion
|
(115 | ) | (104 | ) | (227 | ) | (205 | ) | |||||||||||
|
Disposals
|
(2 | ) | (11 | ) | (4 | ) | (18 | ) | |||||||||||
|
Reclassifications (to)/from nonaccretable difference (a)
|
335 | 68 | 287 | 160 | |||||||||||||||
|
Other
|
(4 | ) | (29 | ) | (31 | ) | (33 | ) | |||||||||||
|
Balance at end of period
|
$ | 3,015 | $ | 2,749 | $ | 3,015 | $ | 2,749 | |||||||||||
| (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
|
|
41 |
Table of Contents
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, 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
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 | |||||||||||||||||||||||||
|
Three months ended June 30, 2011:
|
|||||||||||||||||||||||||||||||||
|
Balance at beginning of period
|
$ | 1,139 | $ | 1,275 | $ | 819 | $ | 1,276 | $ | 854 | $ | 5,363 | $ | 135 | $ | 5,498 | |||||||||||||||||
|
Add
|
|||||||||||||||||||||||||||||||||
|
Provision for credit losses
|
66 | 147 | 141 | 80 | 136 | 570 | 2 | 572 | |||||||||||||||||||||||||
|
Deduct
|
|||||||||||||||||||||||||||||||||
|
Loans charged off
|
125 | 175 | 123 | 241 | 181 | 845 | 5 | 850 | |||||||||||||||||||||||||
|
Less recoveries of loans charged off
|
(29 | ) | (11 | ) | (4 | ) | (25 | ) | (34 | ) | (103 | ) | – | (103 | ) | ||||||||||||||||||
|
Net loans charged off
|
96 | 164 | 119 | 216 | 147 | 742 | 5 | 747 | |||||||||||||||||||||||||
|
Net change for credit losses to be reimbursed by the FDIC
|
– | – | – | – | – | – | (15 | ) | (15 | ) | |||||||||||||||||||||||
|
Balance at end of period
|
$ | 1,109 | $ | 1,258 | $ | 841 | $ | 1,140 | $ | 843 | $ | 5,191 | $ | 117 | $ | 5,308 | |||||||||||||||||
|
Six months ended June 30, 2011:
|
|||||||||||||||||||||||||||||||||
|
Balance at beginning of period
|
$ | 1,104 | $ | 1,291 | $ | 820 | $ | 1,395 | $ | 807 | $ | 5,417 | $ | 114 | $ | 5,531 | |||||||||||||||||
|
Add
|
|||||||||||||||||||||||||||||||||
|
Provision for credit losses
|
240 | 256 | 269 | 208 | 346 | 1,319 | 8 | 1,327 | |||||||||||||||||||||||||
|
Deduct
|
|||||||||||||||||||||||||||||||||
|
Loans charged off
|
286 | 315 | 256 | 509 | 376 | 1,742 | 7 | 1,749 | |||||||||||||||||||||||||
|
Less recoveries of loans charged off
|
(51 | ) | (26 | ) | (8 | ) | (46 | ) | (66 | ) | (197 | ) | – | (197 | ) | ||||||||||||||||||
|
Net loans charged off
|
235 | 289 | 248 | 463 | 310 | 1,545 | 7 | 1,552 | |||||||||||||||||||||||||
|
Net change for credit losses to be reimbursed by the FDIC
|
– | – | – | – | – | – | 2 | 2 | |||||||||||||||||||||||||
|
Balance at end of period
|
$ | 1,109 | $ | 1,258 | $ | 841 | $ | 1,140 | $ | 843 | $ | 5,191 | $ | 117 | $ | 5,308 | |||||||||||||||||
|
|
U.S. Bancorp |
Table of Contents
Additional detail of the allowance for credit losses by
portfolio type 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 June 30, 2011 related to:
|
|||||||||||||||||||||||||||||||||
|
Loans individually evaluated for impairment (a)
|
$ | 13 | $ | 68 | $ | – | $ | – | $ | – | $ | 81 | $ | – | $ | 81 | |||||||||||||||||
|
TDRs collectively evaluated for impairment
|
30 | – | 341 | 218 | 49 | 638 | – | 638 | |||||||||||||||||||||||||
|
Other loans collectively evaluated for impairment
|
1,066 | 1,188 | 500 | 922 | 794 | 4,470 | 24 | 4,494 | |||||||||||||||||||||||||
|
Loans acquired with deteriorated credit quality
|
– | 2 | – | – | – | 2 | 93 | 95 | |||||||||||||||||||||||||
|
Total allowance for credit losses
|
$ | 1,109 | $ | 1,258 | $ | 841 | $ | 1,140 | $ | 843 | $ | 5,191 | $ | 117 | $ | 5,308 | |||||||||||||||||
|
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. |
Additional detail of loan balances by portfolio type 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 | |||||||||||||||||||||||||
|
June 30, 2011:
|
|||||||||||||||||||||||||||||||||
|
Loans individually evaluated for impairment (a)
|
$ | 140 | $ | 931 | $ | – | $ | – | $ | – | $ | 1,071 | $ | – | $ | 1,071 | |||||||||||||||||
|
TDRs collectively evaluated for impairment
|
61 | – | 2,100 | 468 | 122 | 2,751 | – | 2,751 | |||||||||||||||||||||||||
|
Other loans collectively evaluated for impairment
|
50,334 | 34,325 | 30,998 | 15,643 | 48,098 | 179,398 | 10,325 | 189,723 | |||||||||||||||||||||||||
|
Loans acquired with deteriorated credit quality
|
15 | 234 | 12 | – | – | 261 | 6,076 | 6,337 | |||||||||||||||||||||||||
|
Total loans
|
$ | 50,550 | $ | 35,490 | $ | 33,110 | $ | 16,111 | $ | 48,220 | $ | 183,481 | $ | 16,401 | (b) | $ | 199,882 | ||||||||||||||||
|
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. |
|
|
43 |
Table of Contents
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, 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.
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 | ||||||||||||||||||||
|
June 30, 2011:
|
|||||||||||||||||||||||||
|
Commercial
|
$ | 49,851 | $ | 264 | $ | 43 | $ | 392 | $ | 50,550 | |||||||||||||||
|
Commercial real estate
|
33,965 | 159 | 2 | 1,364 | 35,490 | ||||||||||||||||||||
|
Residential mortgages
|
31,696 | 368 | 375 | 671 | 33,110 | ||||||||||||||||||||
|
Credit card
|
15,426 | 216 | 213 | 256 | 16,111 | ||||||||||||||||||||
|
Other retail
|
47,667 | 309 | 171 | 73 | 48,220 | ||||||||||||||||||||
|
Total loans, excluding covered loans
|
178,605 | 1,316 | 804 | 2,756 | 183,481 | ||||||||||||||||||||
|
Covered loans
|
13,842 | 590 | 928 | 1,041 | 16,401 | ||||||||||||||||||||
|
Total loans
|
$ | 192,447 | $ | 1,906 | $ | 1,732 | $ | 3,797 | $ | 199,882 | |||||||||||||||
|
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.
|
|
U.S. Bancorp |
Table of Contents
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 | ||||||||||||||||||||
|
June 30, 2011:
|
|||||||||||||||||||||||||
|
Commercial
|
$ | 47,140 | $ | 1,312 | $ | 2,098 | $ | 3,410 | $ | 50,550 | |||||||||||||||
|
Commercial real estate
|
29,602 | 1,267 | 4,621 | 5,888 | 35,490 | ||||||||||||||||||||
|
Residential mortgages
|
31,820 | 28 | 1,262 | 1,290 | 33,110 | ||||||||||||||||||||
|
Credit card
|
15,642 | – | 469 | 469 | 16,111 | ||||||||||||||||||||
|
Other retail
|
47,777 | 47 | 396 | 443 | 48,220 | ||||||||||||||||||||
|
Total loans, excluding covered loans
|
171,981 | 2,654 | 8,846 | 11,500 | 183,481 | ||||||||||||||||||||
|
Covered loans
|
15,388 | 204 | 809 | 1,013 | 16,401 | ||||||||||||||||||||
|
Total loans
|
$ | 187,369 | $ | 2,858 | $ | 9,655 | $ | 12,513 | $ | 199,882 | |||||||||||||||
|
Total outstanding commitments
|
$ | 382,717 | $ | 4,409 | $ | 10,720 | $ | 15,129 | $ | 397,846 | |||||||||||||||
|
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 delinguency 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 modified terms over several payment cycles. Purchased
impaired loans are not reported as impaired loans if the timing
and amount of the cash flows expected to be collected are
reasonably estimable and the loans continue to perform at least
as well as expected at acquisition. Nonaccrual commercial leases
of $43 million and $78 million at June 30, 2011
and December 31, 2010, respectively, were excluded from
impaired loans as commercial leases are accounted for under
authoritative accounting guidance for leases, and are excluded
from the definition of an impaired loan under loan impairment
guidance.
|
|
45 |
Table of Contents
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 | |||||||||||||
|
June 30, 2011:
|
|||||||||||||||||
|
Commercial
|
$ | 414 | $ | 1,488 | $ | 68 | $ | 12 | |||||||||
|
Commercial real estate
|
1,589 | 3,227 | 122 | 26 | |||||||||||||
|
Residential mortgages
|
2,610 | 3,065 | 351 | 6 | |||||||||||||
|
Credit card
|
468 | 468 | 218 | – | |||||||||||||
|
Other retail
|
164 | 202 | 50 | – | |||||||||||||
|
Total
|
$ | 5,245 | $ | 8,450 | $ | 809 | $ | 44 | |||||||||
|
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 follows:
|
Three Months
Ended
|
Six Months Ended
|
||||||||||||||||
| June 30, 2011 | June 30, 2011 | ||||||||||||||||
|
Average
|
Interest
|
Average
|
Interest
|
||||||||||||||
|
Recorded
|
Income
|
Recorded
|
Income
|
||||||||||||||
| (Dollars in Millions) | Investment | Recognized | Investment | Recognized | |||||||||||||
|
Commercial
|
$ | 503 | $ | 2 | $ | 525 | $ | 3 | |||||||||
|
Commercial real estate
|
1,517 | 2 | 1,499 | 4 | |||||||||||||
|
Residential mortgages
|
2,541 | 25 | 2,524 | 50 | |||||||||||||
|
Credit card
|
462 | 3 | 461 | 6 | |||||||||||||
|
Other retail
|
159 | 1 | 158 | 2 | |||||||||||||
|
Total
|
$ | 5,182 | $ | 33 | $ | 5,167 | $ | 65 | |||||||||
Net gains on the sale of loans of $51 million and
$92 million for the three months ended June 30, 2011
and 2010, respectively, and $266 million and
$203 million for the six months ended June 30, 2011
and 2010, respectively, 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 14. 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
$166 million and $163 million for the three months
ended June 30, 2011 and 2010, respectively, and
$319 million and $311 million for the six months ended
June 30, 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 $57 million and
$43 million, and in other noninterest expense was
$129 million and $138 million for the three months
ended June 30, 2011 and 2010, respectively. Amortization
expense recorded in tax expense was $115 million and
$87 million, and in other noninterest expense was
$242 million and $255 million for the six months ended
June 30, 2011 and 2010, respectively.
At June 30, 2011, approximately $4.5 billion of the
Company’s assets and $3.2 billion of its liabilities
included on the consolidated balance sheet were 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 June 30, 2011,
$251 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 June 30, 2011,
$5.5 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, compared with $5.3 billion of
available-for-sale
securities and $5.7 billion of short-term borrowings at
December 31, 2010.
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 $38 million, with an aggregate amount of
approximately $1.9 billion at June 30, 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 $4.6 billion at June 30, 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.
Note 7 Mortgage Servicing Rights
The Company serviced $184.9 billion of residential mortgage
loans for others at June 30, 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 $82 million and
$55 million for the three months ended June 30, 2011,
and 2010, respectively, and a net gain of
|
|
47 |
Table of Contents
$144 million and $97 million for the six months ended
June 30, 2011 and 2010, respectively. Loan servicing fees,
not including valuation changes, included in mortgage banking
revenue, were $160 million and $143 million for the
three months ended June 30, 2011, and 2010, respectively,
and $317 million and $285 million for the six months
ended June 30, 2011 and 2010, respectively.
Changes in fair value of capitalized MSRs are summarized as
follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||
| (Dollars in Millions) | 2011 | 2010 | 2011 | 2010 | |||||||||||||||
|
Balance at beginning of period
|
$ | 2,073 | $ | 1,778 | $ | 1,837 | $ | 1,749 | |||||||||||
|
Rights purchased
|
4 | 33 | 11 | 38 | |||||||||||||||
|
Rights capitalized
|
102 | 117 | 315 | 249 | |||||||||||||||
|
Changes in fair value of MSRs
|
|||||||||||||||||||
|
Due to change in valuation assumptions (a)
|
(112 | ) | (314 | ) | (10 | ) | (350 | ) | |||||||||||
|
Other changes in fair value (b)
|
(78 | ) | (71 | ) | (164 | ) | (143 | ) | |||||||||||
|
Balance at end of period
|
$ | 1,989 | $ | 1,543 | $ | 1,989 | $ | 1,543 | |||||||||||
| (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 June 30, 2011 and December 31, 2010
follows:
| June 30, 2011 | December 31, 2010 | ||||||||||||||||||||||||||||||||||||
|
Down
|
Down
|
Up
|
Up
|
Down
|
Down
|
Up
|
Up
|
||||||||||||||||||||||||||||||
| (Dollars in Millions) | 50 bps | 25 bps | 25 bps | 50 bps | 50 bps | 25 bps | 25 bps | 50 bps | |||||||||||||||||||||||||||||
|
Net fair value
|
$ | 7 | $ | 3 | $ | 6 | $ | 4 | $ | 6 | $ | (5 | ) | $ | 5 | $ | 1 | ||||||||||||||||||||
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 at June 30, 2011 and December 31, 2010
follows:
| June 30, 2011 | December 31, 2010 | ||||||||||||||||||||||||||||||||||||
| (Dollars in Millions) | MRBP | Government | Conventional | Total | MRBP | Government | Conventional | Total | |||||||||||||||||||||||||||||
|
Servicing portfolio
|
$ | 12,927 | $ | 31,450 | $ | 140,481 | $ | 184,858 | $ | 12,646 | $ | 28,880 | $ | 132,393 | $ | 173,919 | |||||||||||||||||||||
|
Fair market value
|
$ | 168 | $ | 387 | $ | 1,434 | $ | 1,989 | $ | 166 | $ | 342 | $ | 1,329 | $ | 1,837 | |||||||||||||||||||||
|
Value (bps) (a)
|
130 | 123 | 102 | 108 | 131 | 118 | 100 | 106 | |||||||||||||||||||||||||||||
|
Weighted-average servicing fees (bps)
|
40 | 36 | 29 | 31 | 40 | 38 | 30 | 32 | |||||||||||||||||||||||||||||
|
Multiple (value/servicing fees)
|
3.25 | 3.42 | 3.52 | 3.48 | 3.28 | 3.11 | 3.33 | 3.31 | |||||||||||||||||||||||||||||
|
Weighted-average note rate
|
5.63 | % | 5.20 | % | 5.08 | % | 5.14 | % | 5.75 | % | 5.35 | % | 5.27 | % | 5.32 | % | |||||||||||||||||||||
|
Age (in years)
|
4.2 | 2.3 | 2.6 | 2.7 | 4.1 | 2.2 | 2.7 | 2.7 | |||||||||||||||||||||||||||||
|
Expected prepayment (constant prepayment rate)
|
12.2 | % | 15.3 | % | 15.0 | % | 14.9 | % | 12.3 | % | 17.2 | % | 16.2 | % | 16.1 | % | |||||||||||||||||||||
|
Expected life (in years)
|
6.7 | 5.6 | 5.5 | 5.6 | 6.7 | 5.1 | 5.3 | 5.4 | |||||||||||||||||||||||||||||
|
Discount rate
|
11.9 | % | 11.3 | % | 10.2 | % | 10.5 | % | 11.9 | % | 11.4 | % | 10.3 | % | 10.6 | % | |||||||||||||||||||||
| (a) | Value is calculated as fair market value divided by the servicing portfolio. |
|
|
U.S. Bancorp |
Table of Contents
Note 8 Preferred Stock
At June 30, 2011 and December 31, 2010, the Company
had authority to issue 50 million shares of preferred
stock. The number of shares issued and outstanding and the
carrying amount of each outstanding series of the Company’s
preferred stock was as follows:
| June 30, 2011 | December 31, 2010 | ||||||||||||||||||||||||||||||||||||
|
Shares
|
Shares
|
||||||||||||||||||||||||||||||||||||
|
Issued and
|
Liquidation
|
Carrying
|
Issued and
|
Liquidation
|
Carrying
|
||||||||||||||||||||||||||||||||
| (Dollars in Millions) | Outstanding | Preference | Discount | Amount | Outstanding | Preference | Discount | Amount | |||||||||||||||||||||||||||||
|
Series A
|
12,510 | $ | 1,251 | $ | 145 | $ | 1,106 | 5,746 | $ | 575 | $ | 145 | $ | 430 | |||||||||||||||||||||||
|
Series B
|
40,000 | 1,000 | – | 1,000 | 40,000 | 1,000 | – | 1,000 | |||||||||||||||||||||||||||||
|
Series D
|
20,000 | 500 | – | 500 | 20,000 | 500 | – | 500 | |||||||||||||||||||||||||||||
|
Total preferred stock (a)
|
72,510 | $ | 2,751 | $ | 145 | $ | 2,606 | 65,746 | $ | 2,075 | $ | 145 | $ | 1,930 | |||||||||||||||||||||||
| (a) | The par value of all shares issued and outstanding at June 30, 2011 and December 31, 2010, was $1.00 a share. |
On April 15, 2011, the Company issued depositary shares
representing an ownership interest in 6,764 shares of
Series A Non-Cumulative Perpetual Preferred Stock with a
liquidation preference of $100,000 per share (the
“Series A Preferred Stock”). The Series A
Preferred Stock has no stated maturity and will not be subject
to any sinking fund or other obligation of the Company.
Dividends, if declared, will accrue and be payable quarterly, in
arrears, at a rate per annum equal to the greater of three-month
LIBOR plus 1.02 percent or 3.50 percent. The
Series A Preferred Stock is redeemable at the
Company’s option, subject to prior approval by the Federal
Reserve Board.
For further information on preferred stock, refer to
Note 15 in the Company’s Annual Report on
Form 10-K
for the year ended December 31, 2010.
Note 9 Earnings Per Share
The components of earnings per share were:
|
Three Months
Ended
|
Six Months Ended
|
||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||
| (Dollars and Shares in Millions, Except Per Share Data) | 2011 | 2010 | 2011 | 2010 | |||||||||||||||
|
Net income attributable to U.S. Bancorp
|
$ | 1,203 | $ | 766 | $ | 2,249 | $ | 1,435 | |||||||||||
|
Preferred dividends
|
(30 | ) | (18 | ) | (69 | ) | (37 | ) | |||||||||||
|
Equity portion of gain on ITS exchange transaction, net of tax
(a)
|
– | 118 | – | 118 | |||||||||||||||
|
Earnings allocated to participating stock awards
|
(6 | ) | (4 | ) | (10 | ) | (6 | ) | |||||||||||
|
Net income applicable to U.S. Bancorp common shareholders
|
$ | 1,167 | $ | 862 | $ | 2,170 | $ | 1,510 | |||||||||||
|
Average common shares outstanding
|
1,921 | 1,912 | 1,920 | 1,911 | |||||||||||||||
|
Net effect of the exercise and assumed purchase of stock awards
and conversion of outstanding convertible notes
|
8 | 9 | 9 | 9 | |||||||||||||||
|
Average diluted common shares outstanding
|
1,929 | 1,921 | 1,929 | 1,920 | |||||||||||||||
|
Earnings per common share
|
$ | .61 | $ | .45 | $ | 1.13 | $ | .79 | |||||||||||
|
Diluted earnings per common share
|
$ | .60 | $ | .45 | $ | 1.12 | $ | .79 | |||||||||||
| (a) | On June 10, 2010, the Company exchanged depositary shares representing an ownership interest in 5,746 shares of Series A Preferred Stock for approximately 46 percent of the outstanding Income Trust Securities(“ITS”) issued by USB Capital IX to third-party investors, retired a pro-rata portion of the related junior subordinated debentures and cancelled a pro-rata portion of the related stock purchase contracts. |
Options and warrants to purchase 55 million and
56 million common shares for the three months ended
June 30, 2011 and 2010, respectively, and 55 million
and 56 million common shares for the six months ended
June 30, 2011 and 2010, respectively, were outstanding but
not included in the computation of diluted earnings per share
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.
|
|
49 |
Table of Contents
Note 10 Employee Benefits
The components of net periodic benefit cost for the
Company’s retirement plans were:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||
|
Postretirement
|
Postretirement
|
||||||||||||||||||||||||||||||||||||
| Pension Plans | Welfare Plan | Pension Plans | Welfare Plan | ||||||||||||||||||||||||||||||||||
| (Dollars in Millions) | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||||
|
Service cost
|
$ | 29 | $ | 23 | $ | 1 | $ | 2 | $ | 59 | $ | 46 | $ | 2 | $ | 4 | |||||||||||||||||||||
|
Interest cost
|
42 | 39 | 2 | 3 | 84 | 78 | 4 | 5 | |||||||||||||||||||||||||||||
|
Expected return on plan assets
|
(51 | ) | (53 | ) | (1 | ) | (1 | ) | (103 | ) | (107 | ) | (2 | ) | (2 | ) | |||||||||||||||||||||
|
Prior service (credit) cost and transition (asset) obligation
amortization
|
(3 | ) | (3 | ) | – | – | (5 | ) | (6 | ) | – | – | |||||||||||||||||||||||||
|
Actuarial (gain) loss amortization
|
32 | 16 | (2 | ) | (2 | ) | 63 | 32 | (3 | ) | (3 | ) | |||||||||||||||||||||||||
|
Net periodic benefit cost
|
$ | 49 | $ | 22 | $ | – | $ | 2 | $ | 98 | $ | 43 | $ | 1 | $ | 4 | |||||||||||||||||||||
Note 11 Income Taxes
The components of income tax expense were:
|
Three Months
Ended
|
Six Months Ended
|
||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||
| (Dollars in Millions) | 2011 | 2010 | 2011 | 2010 | |||||||||||||||
|
Federal
|
|||||||||||||||||||
|
Current
|
$ | 51 | $ | 301 | $ | 457 | $ | 455 | |||||||||||
|
Deferred
|
317 | (123 | ) | 273 | (143 | ) | |||||||||||||
|
Federal income tax
|
368 | 178 | 730 | 312 | |||||||||||||||
|
State
|
|||||||||||||||||||
|
Current
|
62 | 32 | 72 | 61 | |||||||||||||||
|
Deferred
|
28 | (11 | ) | 22 | (13 | ) | |||||||||||||
|
State income tax
|
90 | 21 | 94 | 48 | |||||||||||||||
|
Total income tax provision
|
$ | 458 | $ | 199 | $ | 824 | $ | 360 | |||||||||||
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
|
Six Months Ended
|
||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||
| (Dollars in Millions) | 2011 | 2010 | 2011 | 2010 | |||||||||||||||
|
Tax at statutory rate
|
$ | 573 | $ | 333 | $ | 1,061 | $ | 622 | |||||||||||
|
State income tax, at statutory rates, net of federal tax benefit
|
58 | 14 | 61 | 31 | |||||||||||||||
|
Tax effect of
|
|||||||||||||||||||
|
Tax credits, net of related expenses
|
(108 | ) | (110 | ) | (195 | ) | (210 | ) | |||||||||||
|
Tax-exempt income
|
(57 | ) | (53 | ) | (113 | ) | (105 | ) | |||||||||||
|
Noncontrolling interests
|
8 | 5 | 14 | 7 | |||||||||||||||
|
Other items
|
(16 | ) | 10 | (4 | ) | 15 | |||||||||||||
|
Applicable income taxes
|
$ | 458 | $ | 199 | $ | 824 | $ | 360 | |||||||||||
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 June 30, 2011, the federal taxing authority
has completed its examination of the Company through the fiscal
year ended December 31, 2006. The years open to examination
by foreign, state and local government authorities vary by
jurisdiction.
The Company’s net deferred tax position was a
$711 million liability at June 30, 2011, and a
$424 million asset at December 31, 2010.
|
|
U.S. Bancorp |
Table of Contents
Note 12 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 $36.0 billion of total notional
amount of asset and liability management positions at
June 30, 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 six months ended June 30, 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,
unless the forecasted transaction is at least reasonably
possible of occurring, whereby the amounts within other
comprehensive income (loss) remain. At June 30, 2011, the
Company had $424 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 $69 million
(net-of-tax)
and $134 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 six months ended June 30, 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 ineffectiveness on all net investment hedges
was not material for the six months ended June 30, 2011.
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.
|
|
51 |
Table of Contents
The following table provides information on the fair value of
the Company’s derivative positions:
| June 30, 2011 | December 31, 2010 | ||||||||||||||||||
|
Asset
|
Liability
|
Asset
|
Liability
|
||||||||||||||||
| (Dollars in Millions) | Derivatives | Derivatives | Derivatives | Derivatives | |||||||||||||||
|
Total fair value of derivative positions
|
$ | 1,613 | $ | 2,130 | $ | 1,799 | $ | 2,174 | |||||||||||
|
Netting (a)
|
(366 | ) | (1,181 | ) | (280 | ) | (1,163 | ) | |||||||||||
|
Total
|
$ | 1,247 | $ | 949 | $ | 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 June 30, 2011, the amount of cash and money market investments collateral posted by counterparties that was netted against derivative assets was $81 million and the amount of cash collateral posted by the Company that was netted against derivative liabilities was $894 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-Average
|
Weighted-Average
|
|||||||||||||||||||||||||||
|
Remaining
|
Remaining
|
|||||||||||||||||||||||||||
|
Notional
|
Fair
|
Maturity
|
Notional
|
Fair
|
Maturity
|
|||||||||||||||||||||||
| (Dollars in Millions) | Value | Value | In Years | Value | Value | In Years | ||||||||||||||||||||||
|
June 30, 2011
|
||||||||||||||||||||||||||||
|
Fair value hedges
|
||||||||||||||||||||||||||||
|
Interest rate contracts
|
||||||||||||||||||||||||||||
|
Receive fixed/pay floating swaps
|
$ | 1,800 | $ | 46 | 41.88 | $ | – | $ | – | – | ||||||||||||||||||
|
Foreign exchange cross-currency swaps
|
1,452 | 144 | 5.75 | – | – | – | ||||||||||||||||||||||
|
Cash flow hedges
|
||||||||||||||||||||||||||||
|
Interest rate contracts
|
||||||||||||||||||||||||||||
|
Pay fixed/receive floating swaps
|
– | – | – | 4,788 | 705 | 4.60 | ||||||||||||||||||||||
|
Net investment hedges
|
||||||||||||||||||||||||||||
|
Foreign exchange forward contracts
|
– | – | – | 561 | – | .08 | ||||||||||||||||||||||
|
Other economic hedges
|
||||||||||||||||||||||||||||
|
Interest rate contracts
|
||||||||||||||||||||||||||||
|
Futures and forwards
|
||||||||||||||||||||||||||||
|
Buy
|
2,573 | 13 | .11 | 3,890 | 19 | .07 | ||||||||||||||||||||||
|
Sell
|
3,438 | 16 | .16 | 3,127 | 34 | .08 | ||||||||||||||||||||||
|
Options
|
||||||||||||||||||||||||||||
|
Purchased
|
4,250 | – | .06 | – | – | – | ||||||||||||||||||||||
|
Written
|
3,723 | 18 | .07 | 131 | – | .10 | ||||||||||||||||||||||
|
Receive fixed/pay floating swaps
|
400 | 1 | 10.36 | 2,875 | 40 | 10.36 | ||||||||||||||||||||||
|
Foreign exchange forward contracts
|
150 | 1 | .10 | 775 | 6 | .09 | ||||||||||||||||||||||
|
Equity contracts
|
32 | 2 | 1.79 | 29 | 1 | .08 | ||||||||||||||||||||||
|
Credit contracts
|
551 | 1 | 2.43 | 1,471 | 8 | 2.83 | ||||||||||||||||||||||
|
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-Average
|
Weighted-Average
|
||||||||||||||||||||||||
|
Remaining
|
Remaining
|
||||||||||||||||||||||||
|
Notional
|
Fair
|
Maturity
|
Notional
|
Fair
|
Maturity
|
||||||||||||||||||||
| (Dollars in Millions) | Value | Value | In Years | Value | Value | In Years | |||||||||||||||||||
|
June 30, 2011
|
|||||||||||||||||||||||||
|
Interest rate contracts
|
|||||||||||||||||||||||||
|
Receive fixed/pay floating swaps
|
$ | 15,280 | $ | 918 | 4.74 | $ | 780 | $ | 9 | 5.38 | |||||||||||||||
|
Pay fixed/receive floating swaps
|
750 | 10 | 6.85 | 15,370 | 884 | 4.71 | |||||||||||||||||||
|
Options
|
|||||||||||||||||||||||||
|
Purchased
|
2,272 | 11 | 2.04 | 75 | 10 | .34 | |||||||||||||||||||
|
Written
|
312 | 10 | .32 | 2,076 | 11 | 2.21 | |||||||||||||||||||
|
Foreign exchange rate contracts
|
|||||||||||||||||||||||||
|
Forwards, spots and swaps (a)
|
9,106 | 420 | .64 | 9,047 | 401 | .64 | |||||||||||||||||||
|
Options
|
|||||||||||||||||||||||||
|
Purchased
|
105 | 2 | .47 | – | – | – | |||||||||||||||||||
|
Written
|
– | – | – | 105 | 2 | .47 | |||||||||||||||||||
|
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):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||
|
Gains (Losses)
|
Gains (Losses)
|
|||||||||||||||||||||||||||||||||
|
Gains (Losses)
|
Gains (Losses)
|
Recognized in
|
Reclassified
|
|||||||||||||||||||||||||||||||
|
Recognized in
Other
|
Reclassified from
Other Comprehensive
|
Other
|
from Other
Comprehensive
|
|||||||||||||||||||||||||||||||
|
Comprehensive
|
Income (Loss)
|
Comprehensive
|
Income (Loss)
|
|||||||||||||||||||||||||||||||
|
Income (Loss)
|
into Earnings
|
Income (Loss)
|
into Earnings
|
|||||||||||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||||||||
| (Dollars in Millions) | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||||||||||||
|
Asset and Liability Management Positions
|
||||||||||||||||||||||||||||||||||
|
Cash flow hedges
|
||||||||||||||||||||||||||||||||||
|
Interest rate contracts
|
||||||||||||||||||||||||||||||||||
|
Pay fixed/receive floating swaps (a)
|
$ | (84 | ) | $ | (139 | ) | $ | (35 | ) | $ | (36 | ) | $ | (79 | ) | $ | (206 | ) | $ | (69 | ) | $ | (79 | ) | ||||||||||
|
Net investment hedges
|
||||||||||||||||||||||||||||||||||
|
Foreign exchange forward contracts
|
(15 | ) | 48 | – | – | (47 | ) | 17 | – | – | ||||||||||||||||||||||||
Note:
Ineffectiveness on cash flow and net investment hedges was not
material for the three months and six months ended June 30,
2011 and 2010.
| (a) | Gains (Losses) reclassified from other comprehensive income (loss) into interest expense on long-term debt. |
|
|
53 |
Table of Contents
The table below shows the gains (losses) recognized in earnings
for fair value hedges, other economic hedges and the
customer-related positions:
| Gains (Losses) Recognized in Earnings | |||||||||||||||||||||||
|
Location of
|
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||
|
Gains (Losses)
|
|||||||||||||||||||||||
| (Dollars in Millions) | Recognized in Earnings | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||||
|
Asset and Liability Management Positions
|
|||||||||||||||||||||||
|
Fair value hedges (a)
|
|||||||||||||||||||||||
|
Interest rate contracts
|
Other noninterest income | $ | 10 | $ | 12 | $ | 24 | $ | (84 | ) | |||||||||||||
|
Foreign exchange cross-currency swaps
|
Other noninterest income | 25 | (161 | ) | 98 | (231 | ) | ||||||||||||||||
|
Other economic hedges
|
|||||||||||||||||||||||
|
Interest rate contracts
|
|||||||||||||||||||||||
|
Futures and forwards
|
Mortgage banking revenue | (10 | ) | 249 | (24 | ) | 269 | ||||||||||||||||
|
Purchased and written options
|
Mortgage banking revenue | 93 | 121 | 142 | 191 | ||||||||||||||||||
|
Foreign exchange forward contracts
|
Commercial products revenue | (4 | ) | 20 | (18 | ) | 9 | ||||||||||||||||
|
Equity contracts
|
Compensation expense | – | 2 | 1 | 2 | ||||||||||||||||||
|
Credit contracts
|
Other noninterest income/expense | (1 | ) | – | (2 | ) | – | ||||||||||||||||
|
Customer-Related Positions
|
|||||||||||||||||||||||
|
Interest rate contracts
|
|||||||||||||||||||||||
|
Receive fixed/pay floating swaps
|
Other noninterest income | 133 | 285 | (14 | ) | 354 | |||||||||||||||||
|
Pay fixed/receive floating swaps
|
Other noninterest income | (129 | ) | (282 | ) | 11 | (349 | ) | |||||||||||||||
|
Foreign exchange rate contracts
|
|||||||||||||||||||||||
|
Forwards, spots and swaps
|
Commercial products revenue | 13 | 11 | 27 | 21 | ||||||||||||||||||
| (a) | Gains (Losses) on items hedged by interest rate contracts and foreign exchange forward contracts, included in noninterest income (expense), were $(10) million and $(25) million for the three months ended June 30, 2011, respectively, and $(11) million and $161 million for the three months ended June 30, 2010, respectively. Gains (Losses) on items hedged by interest rate contracts and foreign exchange forward contracts, included in noninterest income (expense), were $(24) million and $(97) million for the six months ended June 30, 2011, respectively, and $83 million and $230 million for the six months ended June 30, 2010, respectively. The ineffective portion was immaterial for the three months and six months ended June 30, 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
June 30, 2011, was $1.4 billion. At June 30, 2011, the
Company had $894 million of cash posted as collateral against
this net liability position.
|
|
U.S. Bancorp |
Table of Contents
Note 13 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 six months ended June 30,
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.
|
|
55 |
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:
| Prime (a) | Non-prime | |||||||||||||||||||||||||
| Minimum | Maximum | Average | Minimum | Maximum | Average | |||||||||||||||||||||
|
June 30, 2011
|
||||||||||||||||||||||||||
|
Estimated lifetime prepayment rates
|
4 | % | 20 | % | 12 | % | 1 | % | 13 | % | 6 | % | ||||||||||||||
|
Lifetime probability of default rates
|
– | 14 | 2 | – | 20 | 7 | ||||||||||||||||||||
|
Lifetime loss severity rates
|
20 | 80 | 40 | 10 | 88 | 54 | ||||||||||||||||||||
|
Discount margin
|
3 | 37 | 6 | – | 40 | 10 | ||||||||||||||||||||
|
December 31, 2010
|
||||||||||||||||||||||||||
|
Estimated lifetime prepayment rates
|
4 | % | 28 | % | 13 | % | 1 | % | 13 | % | 6 | % | ||||||||||||||
|
Lifetime probability of default rates
|
– | 14 | 1 | – | 20 | 8 | ||||||||||||||||||||
|
Lifetime loss severity rates
|
16 | 100 | 41 | 10 | 88 | 56 | ||||||||||||||||||||
|
Discount margin
|
3 | 30 | 6 | 3 | 40 | 11 | ||||||||||||||||||||
| (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 an $11 million net loss and a $84 million net
gain, for the three months ended June 30, 2011 and 2010,
respectively, and a $136 million net loss and a
$126 million net gain for the six months ended
June 30, 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 $3.3
billion as of June 30, 2011, which exceeded the unpaid
principal balance by $117 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.
|
|
U.S. Bancorp |
Table of Contents
The majority of derivatives held by the Company are executed
over-the-counter
and are valued using standard cash flow, Black-Scholes and Monte
Carlo valuation techniques. The models incorporate inputs,
depending on the type of derivative, including interest rate
curves, foreign exchange rates and volatility. In addition, all
derivative values incorporate an assessment of the risk of
counterparty nonperformance, measured based on the
Company’s evaluation of credit risk as well as external
assessments of credit risk, where available. In its assessment
of nonperformance risk, the Company considers its ability to net
derivative positions under master netting agreements, as well as
collateral received or provided under collateral support
agreements. The majority of these derivatives are classified
within Level 2 of the fair value hierarchy as the
significant inputs to the models are observable. An exception to
the Level 2 classification is certain derivative
transactions for which the risk of nonperformance cannot be
observed in the market. These derivatives are classified within
Level 3 of the fair value hierarchy. In addition,
commitments to sell, purchase and originate mortgage loans that
meet the requirements of a derivative, are valued by pricing
models that include market observable and unobservable inputs.
Due to the significant unobservable inputs, these commitments
are classified within Level 3 of the fair value hierarchy.
Deposit
Liabilities
The
fair value of demand deposits, savings accounts and certain
money market deposits is equal to the amount payable on demand.
The fair value of fixed-rate certificates of deposit was
estimated by discounting the contractual cash flow using current
market rates.
Short-term
Borrowings
Federal
funds purchased, securities sold under agreements to repurchase,
commercial paper and other short-term funds borrowed have
floating rates or short-term maturities. The fair value of
short-term borrowings was determined by discounting contractual
cash flows using current market rates.
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.
|
|
57 |
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 | |||||||||||||||||
|
June 30, 2011
|
||||||||||||||||||||||
|
Available-for-sale
securities
|
||||||||||||||||||||||
|
U.S. Treasury and agencies
|
$ | 632 | $ | 1,241 | $ | – | $ | – | $ | 1,873 | ||||||||||||
|
Mortgage-backed securities
|
||||||||||||||||||||||
|
Residential
|
||||||||||||||||||||||
|
Agency
|
– | 39,072 | – | – | 39,072 | |||||||||||||||||
|
Non-agency
|
||||||||||||||||||||||
|
Prime
|
– | – | 896 | – | 896 | |||||||||||||||||
|
Non-prime
|
– | – | 895 | – | 895 | |||||||||||||||||
|
Commercial
|
||||||||||||||||||||||
|
Agency
|
– | 158 | – | – | 158 | |||||||||||||||||
|
Non-agency
|
– | – | 50 | – | 50 | |||||||||||||||||
|
Asset-backed securities
|
||||||||||||||||||||||
|
Collateralized debt obligations/Collateralized loan obligations
|
– | 94 | 133 | – | 227 | |||||||||||||||||
|
Other
|
– | 583 | 129 | – | 712 | |||||||||||||||||
|
Obligations of state and political subdivisions
|
– | 6,682 | – | – | 6,682 | |||||||||||||||||
|
Obligations of foreign governments
|
– | 6 | – | – | 6 | |||||||||||||||||
|
Corporate debt securities
|
– | 1,013 | 9 | – | 1,022 | |||||||||||||||||
|
Perpetual preferred securities
|
– | 475 | – | – | 475 | |||||||||||||||||
|
Other investments
|
222 | 9 | – | – | 231 | |||||||||||||||||
|
Total
available-for-sale
|
854 | 49,333 | 2,112 | – | 52,299 | |||||||||||||||||
|
Mortgage loans held for sale
|
– | 3,304 | – | – | 3,304 | |||||||||||||||||
|
Mortgage servicing rights
|
– | – | 1,989 | – | 1,989 | |||||||||||||||||
|
Derivative assets
|
– | 724 | 889 | (366 | ) | 1,247 | ||||||||||||||||
|
Other assets
|
– | 806 | – | – | 806 | |||||||||||||||||
|
Total
|
$ | 854 | $ | 54,167 | $ | 4,990 | $ | (366 | ) | $ | 59,645 | |||||||||||
|
Derivative liabilities
|
$ | – | $ | 2,077 | $ | 53 | $ | (1,181 | ) | $ | 949 | |||||||||||
|
Other liabilities
|
– | 785 | – | – | 785 | |||||||||||||||||
|
Total
|
$ | – | $ | 2,862 | $ | 53 | $ | (1,181 | ) | $ | 1,734 | |||||||||||
|
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) for the three months ended June 30:
|
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
|
|||||||||||||||||||
|
of Period
|
Included in
|
Comprehensive
|
Issuances and
|
of Period
|
Still Held at
|
|||||||||||||||||||
| (Dollars in Millions) | Balance | Net Income | Income (Loss) | Settlements | Balance | End of Period | ||||||||||||||||||
|
2011
|
||||||||||||||||||||||||
|
Available-for-sale
securities
|
||||||||||||||||||||||||
|
Mortgage-backed securities
|
||||||||||||||||||||||||
|
Residential non-agency
|
||||||||||||||||||||||||
|
Prime
|
$ | 963 | $ | 1 | $ | (22 | ) | $ | (46 | ) | $ | 896 | $ | (22 | ) | |||||||||
|
Non-prime
|
947 | (2 | ) | (19 | ) | (31 | ) | 895 | (19 | ) | ||||||||||||||
|
Commercial non-agency
|
50 | 1 | (1 | ) | – | 50 | – | |||||||||||||||||
|
Asset-backed securities
|
||||||||||||||||||||||||
|
Collateralized debt obligations/Collateralized loan obligations
|
142 | 3 | (1 | ) | (11 | ) | 133 | – | ||||||||||||||||
|
Other
|
133 | 3 | (1 | ) | (6 | ) | 129 | (1 | ) | |||||||||||||||
|
Corporate debt securities
|
9 | – | – | – | 9 | – | ||||||||||||||||||
|
Total
available-for-sale
|
2,244 | 6 | (a) | (44 | ) | (94 | ) | 2,112 | (42 | ) | ||||||||||||||
|
Mortgage servicing rights
|
2,073 | (190 | ) (b) | – | 106 | 1,989 | (190 | ) (b) | ||||||||||||||||
|
Net derivative assets and liabilities
|
747 | 373 | (c) | – | (284 | ) | 836 | (30 | ) (d) | |||||||||||||||
|
2010
|
||||||||||||||||||||||||
|
Available-for-sale
securities
|
||||||||||||||||||||||||
|
Mortgage-backed securities
|
||||||||||||||||||||||||
|
Residential non-agency
|
||||||||||||||||||||||||
|
Prime
|
$ | 1,304 | $ | – | $ | 21 | $ | (128 | ) | $ | 1,197 | $ | 19 | |||||||||||
|
Non-prime
|
900 | (6 | ) | 52 | (39 | ) | 907 | 52 | ||||||||||||||||
|
Commercial non-agency
|
14 | – | 1 | – | 15 | 1 | ||||||||||||||||||
|
Asset-backed securities
|
||||||||||||||||||||||||
|
Collateralized debt obligations/Collateralized loan obligations
|
79 | (2 | ) | (2 | ) | – | 75 | (1 | ) | |||||||||||||||
|
Other
|
335 | (3 | ) | 4 | (8 | ) | 328 | 5 | ||||||||||||||||
|
Corporate debt securities
|
10 | – | – | – | 10 | – | ||||||||||||||||||
|
Other investments
|
237 | 4 | 34 | (9 | ) | 266 | 34 | |||||||||||||||||
|
Total
available-for-sale
|
2,879 | (7 | ) (e) | 110 | (184 | ) | 2,798 | 110 | ||||||||||||||||
|
Mortgage servicing rights
|
1,778 | (385 | ) (b) | – | 150 | 1,543 | (385 | ) (b) | ||||||||||||||||
|
Net derivative assets and liabilities
|
905 | 687 | (f) | – | (298 | ) | 1,294 | 68 | (g) | |||||||||||||||
| (a) | Approximately $(9) million included in securities gains (losses) and $15 million included in interest income. | |
| (b) | Included in mortgage banking revenue. | |
| (c) | Approximately $232 million included in other noninterest income and $141 million included in mortgage banking revenue. | |
| (d) | Approximately $115 million included in other noninterest income and $(145) million included in mortgage banking revenue. | |
| (e) | Approximately $(21) million included in securities gains (losses) and $14 million included in interest income. | |
| (f) | Approximately $372 million included in other noninterest income and $315 million included in mortgage banking revenue. | |
| (g) | Approximately $260 million included in other noninterest income and $(192) million included in mortgage banking revenue. |
|
|
59 |
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 June 30,
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
|
$ | – | $ | – | $ | (46 | ) | $ | – | $ | – | $ | (46 | ) | ||||||||||||
|
Non-prime
|
– | – | (31 | ) | – | – | (31 | ) | ||||||||||||||||||
|
Asset-backed securities
|
||||||||||||||||||||||||||
|
Collateralized debt obligations/Collateralized loan obligations
|
– | – | (11 | ) | – | – | (11 | ) | ||||||||||||||||||
|
Other
|
– | – | (6 | ) | – | – | (6 | ) | ||||||||||||||||||
|
Total
available-for-sale
|
– | – | (94 | ) | – | – | (94 | ) | ||||||||||||||||||
|
Mortgage servicing rights
|
4 | – | – | 102 | (a) | – | 106 | |||||||||||||||||||
|
Net derivative assets and liabilities
|
– | (2 | ) | – | – | (282 | ) | (284 | ) | |||||||||||||||||
| (a) | Represents MSRs capitalized during the period |
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) for the six months ended June 30:
|
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
|
|||||||||||||||||||
|
of Period
|
Included in
|
Comprehensive
|
Issuances and
|
of Period
|
Still Held at
|
|||||||||||||||||||
| (Dollars in Millions) | Balance | Net Income | Income (Loss) | Settlements | Balance | End of Period | ||||||||||||||||||
|
2011
|
||||||||||||||||||||||||
|
Available-for-sale
securities
|
||||||||||||||||||||||||
|
Mortgage-backed securities
|
||||||||||||||||||||||||
|
Residential non-agency
|
||||||||||||||||||||||||
|
Prime
|
$ | 1,103 | $ | 3 | $ | 24 | $ | (234 | ) | $ | 896 | $ | 16 | |||||||||||
|
Non-prime
|
947 | (2 | ) | 32 | (82 | ) | 895 | 31 | ||||||||||||||||
|
Commercial non-agency
|
50 | 1 | – | (1 | ) | 50 | – | |||||||||||||||||
|
Asset-backed securities
|
||||||||||||||||||||||||
|
Collateralized debt obligations/Collateralized loan obligations
|
135 | 7 | 8 | (17 | ) | 133 | 9 | |||||||||||||||||
|
Other
|
133 | 7 | 2 | (13 | ) | 129 | 2 | |||||||||||||||||
|
Corporate debt securities
|
9 | – | – | – | 9 | – | ||||||||||||||||||
|
Total
available-for-sale
|
2,377 | 16 | (a) | 66 | (347 | ) | 2,112 | 58 | ||||||||||||||||
|
Mortgage servicing rights
|
1,837 | (174 | ) (b) | – | 326 | 1,989 | (174 | ) (b) | ||||||||||||||||
|
Net derivative assets and liabilities
|
851 | 416 | (c) | – | (431 | ) | 836 | (169 | ) (d) | |||||||||||||||
|
2010
|
||||||||||||||||||||||||
|
Available-for-sale
securities
|
||||||||||||||||||||||||
|
Mortgage-backed securities
|
||||||||||||||||||||||||
|
Residential non-agency
|
||||||||||||||||||||||||
|
Prime
|
$ | 1,429 | $ | – | $ | 50 | $ | (282 | ) | $ | 1,197 | $ | 44 | |||||||||||
|
Non-prime
|
968 | (37 | ) | 68 | (92 | ) | 907 | 68 | ||||||||||||||||
|
Commercial non-agency
|
13 | – | 2 | – | 15 | 1 | ||||||||||||||||||
|
Asset-backed securities
|
||||||||||||||||||||||||
|
Collateralized debt obligations/Collateralized loan obligations
|
98 | – | (2 | ) | (21 | ) | 75 | – | ||||||||||||||||
|
Other
|
357 | (5 | ) | (2 | ) | (22 | ) | 328 | (1 | ) | ||||||||||||||
|
Corporate debt securities
|
10 | – | – | – | 10 | – | ||||||||||||||||||
|
Other investments
|
231 | 2 | 47 | (14 | ) | 266 | 47 | |||||||||||||||||
|
Total
available-for-sale
|
3,106 | (40 | ) (e) | 163 | (431 | ) | 2,798 | 159 | ||||||||||||||||
|
Mortgage servicing rights
|
1,749 | (493 | ) (b) | – | 287 | 1,543 | (493 | ) (b) | ||||||||||||||||
|
Net derivative assets and liabilities
|
815 | 1,059 | (f) | – | (580 | ) | 1,294 | 41 | (g) | |||||||||||||||
| (a) | Approximately $(15) million included in securities gains (losses) and $31 million included in interest income. | |
| (b) | Included in mortgage banking revenue. | |
| (c) | Approximately $227 million included in other noninterest income and $189 million included in mortgage banking revenue. | |
| (d) | Approximately $(14) million included in other noninterest income and $(155) million included in mortgage banking revenue. | |
| (e) | Approximately $(67) million included in securities gains (losses) and $27 million included in interest income. | |
| (f) | Approximately $613 million included in other noninterest income and $446 million included in mortgage banking revenue. | |
| (g) | Approximately $338 million included in other noninterest income and $(297) million included in mortgage banking revenue. |
|
|
U.S. Bancorp |
Table of Contents
Additional detail of purchases, sales, principal payments,
issuances and settlements for assets and liabilities classified
within Level 3 for the six months ended June 30, 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 | ) | $ | (119 | ) | $ | – | $ | – | $ | (234 | ) | |||||||||||
|
Non-prime
|
– | (12 | ) | (70 | ) | – | – | (82 | ) | |||||||||||||||||
|
Commercial non-agency
|
– | – | (1 | ) | – | – | (1 | ) | ||||||||||||||||||
|
Asset-backed securities
|
||||||||||||||||||||||||||
|
Collateralized debt obligations/Collateralized loan obligations
|
– | – | (17 | ) | – | – | (17 | ) | ||||||||||||||||||
|
Other
|
– | – | (13 | ) | – | – | (13 | ) | ||||||||||||||||||
|
Total
available-for-sale
|
– | (127 | ) | (220 | ) | – | – | (347 | ) | |||||||||||||||||
|
Mortgage servicing rights
|
11 | – | – | 315 | (a) | – | 326 | |||||||||||||||||||
|
Net derivative assets and liabilities
|
– | (3 | ) | – | – | (428 | ) | (431 | ) | |||||||||||||||||
| (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:
| June 30, 2011 | December 31, 2010 | ||||||||||||||||||||||||||||||||
| (Dollars in Millions) | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
|
Loans (a)
|
$ | – | $ | 151 | $ | – | $ | 151 | $ | – | $ | 404 | $ | 1 | $ | 405 | |||||||||||||||||
|
Other real estate owned (b)
|
– | 275 | – | 275 | – | 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:
|
Three Months
|
Six Months
|
||||||||||||||||
| Ended June 30, | Ended June 30, | ||||||||||||||||
| (Dollars in Millions) | 2011 | 2010 | 2011 | 2010 | |||||||||||||
|
Loans (a)
|
$ | 106 | $ | 92 | $ | 121 | $ | 213 | |||||||||
|
Other real estate owned (b)
|
62 | 65 | 149 | 115 | |||||||||||||
|
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:
| June 30, 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
|
$ | 3,304 | $ | 3,187 | $ | 117 | $ | 8,100 | $ | 8,034 | $ | 66 | |||||||||||||
|
Nonaccrual loans
|
9 | 15 | (6 | ) | 11 | 18 | (7 | ) | |||||||||||||||||
|
Loans 90 days or more past due
|
4 | 4 | – | 6 | 6 | – | |||||||||||||||||||
|
|
61 |
Table of Contents
Disclosures about
Fair Value of Financial
Instruments
The
following table summarizes the estimated fair value for
financial instruments as of June 30, 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:
| June 30, 2011 | December 31, 2010 | ||||||||||||||||
|
Carrying
|
Fair
|
Carrying
|
Fair
|
||||||||||||||
| (Dollars in Millions) | Amount | Value | Amount | Value | |||||||||||||
|
Financial Assets
|
|||||||||||||||||
|
Cash and due from banks
|
$ | 15,250 | $ | 15,250 | $ | 14,487 | $ | 14,487 | |||||||||
|
Investment securities
held-to-maturity
|
13,280 | 13,431 | 1,469 | 1,419 | |||||||||||||
|
Mortgages held for sale (a)
|
5 | 5 | 4 | 4 | |||||||||||||
|
Other loans held for sale
|
234 | 234 | 267 | 267 | |||||||||||||
|
Loans
|
194,811 | 196,711 | 191,751 | 192,058 | |||||||||||||
|
Financial Liabilities
|
|||||||||||||||||
|
Deposits
|
214,883 | 215,330 | 204,252 | 204,799 | |||||||||||||
|
Short-term borrowings
|
29,654 | 29,816 | 32,557 | 32,839 | |||||||||||||
|
Long-term debt
|
32,830 | 33,419 | 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 $361 million and $353 million
at June 30, 2011 and December 31, 2010, respectively.
The carrying value of other guarantees was $425 million and
$330 million at June 30, 2011 and December 31,
2010, respectively.
Note 14 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”). 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 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.
|
|
U.S. Bancorp |
Table of Contents
At June 30, 2011, the carrying amount of the Company’s
liability related to the remaining Visa Litigation matters, was
$28 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 June 30, 2011:
|
Maximum
|
||||||||
|
Potential
|
||||||||
|
Carrying
|
Future
|
|||||||
| (Dollars in Millions) | Amount | Payments | ||||||
|
Standby letters of credit
|
$ | 100 | $ | 19,290 | ||||
|
Third-party borrowing arrangements
|
– | 129 | ||||||
|
Securities lending indemnifications
|
– | 9,114 | ||||||
|
Asset sales (a)
|
241 | 1,903 | ||||||
|
Merchant processing
|
74 | 78,715 | ||||||
|
Contingent consideration arrangements
|
5 | 5 | ||||||
|
Minimum revenue guarantees
|
24 | 37 | ||||||
|
Other
|
53 | 8,924 | ||||||
| (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 June 30, 2011, the
value of airline tickets purchased to be delivered at a future
date was $7.4 billion. The Company held collateral of
$609 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 June 30, 2011, the Company had
reserved $173 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 being 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
During
the second quarter of 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
governmental authorities are reported to be discussing various
actions with certain mortgage
|
|
63 |
Table of Contents
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 15 Subsequent Events
The Company has evaluated the impact of events that have
occurred subsequent to June 30, 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.
|
|
U.S. Bancorp |
Table of Contents
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|
|
65 |
Table of Contents
U.S.
Bancorp
Consolidated
Daily Average Balance Sheet and Related
Yields and Rates (a)
Yields and Rates (a)
| For the Three Months Ended June 30, | ||||||||||||||||||||||||||||||||
| 2011 | 2010 | |||||||||||||||||||||||||||||||
|
Yields
|
Yields
|
% Change
|
||||||||||||||||||||||||||||||
|
(Dollars in
Millions)
|
Average
|
and
|
Average
|
and
|
Average
|
|||||||||||||||||||||||||||
| (Unaudited) | Balances | Interest | Rates | Balances | Interest | Rates | Balances | |||||||||||||||||||||||||
|
Assets
|
||||||||||||||||||||||||||||||||
|
Investment securities
|
$ | 62,955 | $ | 500 | 3.18 | % | $ | 47,140 | $ | 434 | 3.69 | % | 33.5 | % | ||||||||||||||||||
|
Loans held for sale
|
3,118 | 34 | 4.36 | 4,048 | 47 | 4.61 | (23.0 | ) | ||||||||||||||||||||||||
|
Loans (b)
|
||||||||||||||||||||||||||||||||
|
Commercial
|
50,054 | 517 | 4.14 | 46,340 | 488 | 4.22 | 8.0 | |||||||||||||||||||||||||
|
Commercial real estate
|
35,499 | 400 | 4.53 | 34,164 | 377 | 4.43 | 3.9 | |||||||||||||||||||||||||
|
Residential mortgages
|
32,734 | 400 | 4.89 | 26,821 | 351 | 5.24 | 22.0 | |||||||||||||||||||||||||
|
Retail
|
63,824 | 1,029 | 6.47 | 63,382 | 1,061 | 6.71 | .7 | |||||||||||||||||||||||||
|
Total loans, excluding covered loans
|
182,111 | 2,346 | 5.16 | 170,707 | 2,277 | 5.35 | 6.7 | |||||||||||||||||||||||||
|
Covered loans
|
16,699 | 234 | 5.62 | 20,454 | 252 | 4.93 | (18.4 | ) | ||||||||||||||||||||||||
|
Total loans
|
198,810 | 2,580 | 5.20 | 191,161 | 2,529 | 5.30 | 4.0 | |||||||||||||||||||||||||
|
Other earning assets
|
12,688 | 63 | 1.98 | 5,097 | 39 | 3.03 | * | |||||||||||||||||||||||||
|
Total earning assets
|
277,571 | 3,177 | 4.59 | 247,446 | 3,049 | 4.94 | 12.2 | |||||||||||||||||||||||||
|
Allowance for loan losses
|
(5,331 | ) | (5,443 | ) | 2.1 | |||||||||||||||||||||||||||
|
Unrealized gain (loss) on
available-for-sale
securities
|
250 | (19 | ) | * | ||||||||||||||||||||||||||||
|
Other assets
|
40,120 | 39,356 | 1.9 | |||||||||||||||||||||||||||||
|
Total assets
|
$ | 312,610 | $ | 281,340 | 11.1 | |||||||||||||||||||||||||||
|
Liabilities and Shareholders’ Equity
|
||||||||||||||||||||||||||||||||
|
Noninterest-bearing deposits
|
$ | 48,721 | $ | 39,917 | 22.1 | |||||||||||||||||||||||||||
|
Interest-bearing deposits
|
||||||||||||||||||||||||||||||||
|
Interest checking
|
43,334 | 17 | .16 | 39,503 | 18 | .19 | 9.7 | |||||||||||||||||||||||||
|
Money market savings
|
45,014 | 18 | .16 | 40,256 | 33 | .34 | 11.8 | |||||||||||||||||||||||||
|
Savings accounts
|
26,522 | 28 | .41 | 20,035 | 30 | .59 | 32.4 | |||||||||||||||||||||||||
|
Time certificates of deposit less than $100,000
|
15,368 | 73 | 1.92 | 16,980 | 75 | 1.77 | (9.5 | ) | ||||||||||||||||||||||||
|
Time deposits greater than $100,000
|
30,452 | 74 | .98 | 26,627 | 73 | 1.09 | 14.4 | |||||||||||||||||||||||||
|
Total interest-bearing deposits
|
160,690 | 210 | .52 | 143,401 | 229 | .64 | 12.1 | |||||||||||||||||||||||||
|
Short-term borrowings
|
29,008 | 133 | 1.83 | 32,286 | 139 | 1.72 | (10.2 | ) | ||||||||||||||||||||||||
|
Long-term debt
|
32,183 | 290 | 3.61 | 30,242 | 272 | 3.60 | 6.4 | |||||||||||||||||||||||||
|
Total interest-bearing liabilities
|
221,881 | 633 | 1.14 | 205,929 | 640 | 1.25 | 7.7 | |||||||||||||||||||||||||
|
Other liabilities
|
9,156 | 7,328 | 24.9 | |||||||||||||||||||||||||||||
|
Shareholders’ equity
|
||||||||||||||||||||||||||||||||
|
Preferred equity
|
2,503 | 1,599 | 56.5 | |||||||||||||||||||||||||||||
|
Common equity
|
29,464 | 25,820 | 14.1 | |||||||||||||||||||||||||||||
|
Total U.S. Bancorp shareholders’ equity
|
31,967 | 27,419 | 16.6 | |||||||||||||||||||||||||||||
|
Noncontrolling interests
|
885 | 747 | 18.5 | |||||||||||||||||||||||||||||
|
Total equity
|
32,852 | 28,166 | 16.6 | |||||||||||||||||||||||||||||
|
Total liabilities and equity
|
$ | 312,610 | $ | 281,340 | 11.1 | |||||||||||||||||||||||||||
|
Net interest income
|
$ | 2,544 | $ | 2,409 | ||||||||||||||||||||||||||||
|
Gross interest margin
|
3.45 | % | 3.69 | % | ||||||||||||||||||||||||||||
|
Gross interest margin without taxable-equivalent increments
|
3.37 | 3.61 | ||||||||||||||||||||||||||||||
|
Percent of Earning Assets
|
||||||||||||||||||||||||||||||||
|
Interest income
|
4.59 | % | 4.94 | % | ||||||||||||||||||||||||||||
|
Interest expense
|
.92 | 1.04 | ||||||||||||||||||||||||||||||
|
Net interest margin
|
3.67 | % | 3.90 | % | ||||||||||||||||||||||||||||
|
Net interest margin without taxable-equivalent increments
|
3.59 | % | 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
U.S.
Bancorp
Consolidated
Daily Average Balance Sheet and Related Yields and Rates (a)
| For the Six Months Ended June 30, | ||||||||||||||||||||||||||||||||
| 2011 | 2010 | |||||||||||||||||||||||||||||||
|
Yields
|
Yields
|
% Change
|
||||||||||||||||||||||||||||||
|
(Dollars in
Millions)
|
Average
|
and
|
Average
|
and
|
Average
|
|||||||||||||||||||||||||||
| (Unaudited) | Balances | Interest | Rates | Balances | Interest | Rates | Balances | |||||||||||||||||||||||||
|
Assets
|
||||||||||||||||||||||||||||||||
|
Investment securities
|
$ | 59,698 | $ | 968 | 3.24 | % | $ | 46,678 | $ | 885 | 3.79 | % | 27.9 | % | ||||||||||||||||||
|
Loans held for sale
|
4,603 | 97 | 4.24 | 3,990 | 91 | 4.56 | 15.4 | |||||||||||||||||||||||||
|
Loans (b)
|
||||||||||||||||||||||||||||||||
|
Commercial
|
49,387 | 1,018 | 4.15 | 46,805 | 971 | 4.17 | 5.5 | |||||||||||||||||||||||||
|
Commercial real estate
|
35,340 | 796 | 4.54 | 34,153 | 747 | 4.41 | 3.5 | |||||||||||||||||||||||||
|
Residential mortgages
|
32,258 | 793 | 4.93 | 26,616 | 698 | 5.25 | 21.2 | |||||||||||||||||||||||||
|
Retail
|
64,043 | 2,073 | 6.53 | 63,502 | 2,125 | 6.75 | .9 | |||||||||||||||||||||||||
|
Total loans, excluding covered loans
|
181,028 | 4,680 | 5.21 | 171,076 | 4,541 | 5.34 | 5.8 | |||||||||||||||||||||||||
|
Covered loans
|
17,166 | 469 | 5.49 | 20,939 | 505 | 4.85 | (18.0 | ) | ||||||||||||||||||||||||
|
Total loans
|
198,194 | 5,149 | 5.23 | 192,015 | 5,046 | 5.29 | 3.2 | |||||||||||||||||||||||||
|
Other earning assets
|
13,271 | 120 | 1.82 | 5,450 | 73 | 2.69 | * | |||||||||||||||||||||||||
|
Total earning assets
|
275,766 | 6,334 | 4.62 | 248,133 | 6,095 | 4.94 | 11.1 | |||||||||||||||||||||||||
|
Allowance for loan losses
|
(5,375 | ) | (5,378 | ) | .1 | |||||||||||||||||||||||||||
|
Unrealized gain (loss) on
available-for-sale
securities
|
(33 | ) | (212 | ) | 84.4 | |||||||||||||||||||||||||||
|
Other assets
|
39,908 | 38,987 | 2.4 | |||||||||||||||||||||||||||||
|
Total assets
|
$ | 310,266 | $ | 281,530 | 10.2 | |||||||||||||||||||||||||||
|
Liabilities and Shareholders’ Equity
|
||||||||||||||||||||||||||||||||
|
Noninterest-bearing deposits
|
$ | 46,467 | $ | 38,964 | 19.3 | |||||||||||||||||||||||||||
|
Interest-bearing deposits
|
||||||||||||||||||||||||||||||||
|
Interest checking
|
42,991 | 36 | .17 | 39,747 | 37 | .19 | 8.2 | |||||||||||||||||||||||||
|
Money market savings
|
45,330 | 46 | .20 | 40,577 | 70 | .35 | 11.7 | |||||||||||||||||||||||||
|
Savings accounts
|
25,929 | 63 | .49 | 19,038 | 55 | .58 | 36.2 | |||||||||||||||||||||||||
|
Time certificates of deposit less than $100,000
|
15,316 | 145 | 1.92 | 17,654 | 155 | 1.77 | (13.2 | ) | ||||||||||||||||||||||||
|
Time deposits greater than $100,000
|
30,838 | 154 | 1.01 | 26,947 | 148 | 1.11 | 14.4 | |||||||||||||||||||||||||
|
Total interest-bearing deposits
|
160,404 | 444 | .56 | 143,963 | 465 | .65 | 11.4 | |||||||||||||||||||||||||
|
Short-term borrowings
|
30,597 | 268 | 1.76 | 32,418 | 269 | 1.67 | (5.6 | ) | ||||||||||||||||||||||||
|
Long-term debt
|
31,877 | 571 | 3.60 | 31,343 | 549 | 3.52 | 1.7 | |||||||||||||||||||||||||
|
Total interest-bearing liabilities
|
222,878 | 1,283 | 1.16 | 207,724 | 1,283 | 1.24 | 7.3 | |||||||||||||||||||||||||
|
Other liabilities
|
9,080 | 7,210 | 25.9 | |||||||||||||||||||||||||||||
|
Shareholders’ equity
|
||||||||||||||||||||||||||||||||
|
Preferred equity
|
2,218 | 1,550 | 43.1 | |||||||||||||||||||||||||||||
|
Common equity
|
28,776 | 25,369 | 13.4 | |||||||||||||||||||||||||||||
|
Total U.S. Bancorp shareholders’ equity
|
30,994 | 26,919 | 15.1 | |||||||||||||||||||||||||||||
|
Noncontrolling interests
|
847 | 713 | 18.8 | |||||||||||||||||||||||||||||
|
Total equity
|
31,841 | 27,632 | 15.2 | |||||||||||||||||||||||||||||
|
Total liabilities and equity
|
$ | 310,266 | $ | 281,530 | 10.2 | |||||||||||||||||||||||||||
|
Net interest income
|
$ | 5,051 | $ | 4,812 | ||||||||||||||||||||||||||||
|
Gross interest margin
|
3.46 | % | 3.70 | % | ||||||||||||||||||||||||||||
|
Gross interest margin without taxable-equivalent increments
|
3.38 | 3.62 | ||||||||||||||||||||||||||||||
|
Percent of Earning Assets
|
||||||||||||||||||||||||||||||||
|
Interest income
|
4.62 | % | 4.94 | % | ||||||||||||||||||||||||||||
|
Interest expense
|
.94 | 1.04 | ||||||||||||||||||||||||||||||
|
Net interest margin
|
3.68 | % | 3.90 | % | ||||||||||||||||||||||||||||
|
Net interest margin without taxable-equivalent increments
|
3.60 | % | 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. |
|
|
67 |
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 June 30, 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. |
|
|
U.S. Bancorp |
Table of Contents
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
U.S. BANCORP
| By: |
/s/
Craig
E. Gifford
|
Craig E. Gifford
Controller
(Principal Accounting Officer and Duly Authorized Officer)
DATE: August 8, 2011
|
|
69 |
Table of Contents
EXHIBIT 12
Computation
of Ratio of Earnings to Fixed Charges
|
Three Months
Ended
|
Six Months Ended
|
|||||||||||||
| (Dollars in Millions) | June 30, 2011 | June 30, 2011 | ||||||||||||
|
Earnings
|
||||||||||||||
| 1. | Net income attributable to U.S. Bancorp | $ | 1,203 | $ | 2,249 | |||||||||
| 2. | Applicable income taxes, including expense related to unrecognized tax positions | 458 | 824 | |||||||||||
| 3. | Net income attributable to U.S. Bancorp before income taxes (1 + 2) | $ | 1,661 | $ | 3,073 | |||||||||
| 4. | Fixed charges: | |||||||||||||
| a. | Interest expense excluding interest on deposits* | $ | 421 | $ | 835 | |||||||||
| b. | Portion of rents representative of interest and amortization of debt expense | 25 | 51 | |||||||||||
| c. | Fixed charges excluding interest on deposits (4a + 4b) | 446 | 886 | |||||||||||
| d. | Interest on deposits | 210 | 444 | |||||||||||
| e. | Fixed charges including interest on deposits (4c + 4d) | $ | 656 | $ | 1,330 | |||||||||
| 5. | Amortization of interest capitalized | $ | – | $ | – | |||||||||
| 6. | Earnings excluding interest on deposits (3 + 4c + 5) | 2,107 | 3,959 | |||||||||||
| 7. | Earnings including interest on deposits (3 + 4e + 5) | 2,317 | 4,403 | |||||||||||
| 8. | Fixed charges excluding interest on deposits (4c) | 446 | 886 | |||||||||||
| 9. | Fixed charges including interest on deposits (4e) | 656 | 1,330 | |||||||||||
|
Ratio of Earnings to Fixed Charges
|
||||||||||||||
| 10. | Excluding interest on deposits (line 6/line 8) | 4.72 | 4.47 | |||||||||||
| 11. | Including interest on deposits (line 7/line 9) | 3.53 | 3.31 | |||||||||||
| * | Excludes interest expense related to unrecognized tax positions |
|
|
U.S. Bancorp |
Table of Contents
EXHIBIT 31.1
CERTIFICATION
PURSUANT TO
RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Richard K. Davis, certify that:
| (1) | I have reviewed this Quarterly Report on Form 10-Q of U.S. Bancorp; |
| (2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| (3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| (4) | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| (5) | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/
Richard
K. Davis
Richard K. Davis
Chief Executive Officer
Dated: August 8, 2011
|
|
71 |
Table of Contents
EXHIBIT 31.2
CERTIFICATION
PURSUANT TO
RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Andrew Cecere, certify that:
| (1) | I have reviewed this Quarterly Report on Form 10-Q of U.S. Bancorp; |
| (2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| (3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| (4) | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| (5) | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/
Andrew
Cecere
Andrew Cecere
Chief Financial Officer
Dated: August 8, 2011
|
|
U.S. Bancorp |
Table of Contents
EXHIBIT 32
CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
the undersigned, Chief Executive Officer and Chief Financial
Officer of U.S. Bancorp, a Delaware corporation (the
“Company”), do hereby certify that:
| (1) | The Quarterly Report on Form 10-Q for the quarter ended June 30, 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: August 8, 2011
|
|
73 |
Table of Contents
First Class
U.S. Postage
PAID
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Minneapolis, MN
Corporate Information
Executive
Offices
U.S. Bancorp
800 Nicollet Mall
Minneapolis, MN 55402
Common
Stock Transfer Agent and Registrar
BNY Mellon Shareowner Services acts
as our transfer agent and registrar, dividend paying agent and
dividend reinvestment plan administrator, and maintains all
shareholder records for the corporation. Inquiries related to
shareholder records, stock transfers, changes of ownership, lost
stock certificates, changes of address and dividend payment
should be directed to the transfer agent at:
BNY Mellon Shareowner Services
P.O. Box 358015
Pittsburgh, PA 15252-8015
Phone: 888-778-1311 or 201-680-6578
(international calls)
Internet: bnymellon.com/shareowner
For Registered or Certified Mail:
BNY Mellon Shareowner Services
500 Ross St., 6th Floor
Pittsburgh, PA 15219
Telephone representatives are
available weekdays from 8:00 a.m. to 6:00 p.m. Central
Time, and automated support is available 24 hours a day,
7 days a week. Specific information about your account is
available on BNY Mellon’s internet site by clicking on the
Investor
ServiceDirect
®
link.
Independent
Auditor
Ernst & Young LLP serves
as the independent auditor for U.S. Bancorp’s
financial statements.
Common
Stock Listing and Trading
U.S. Bancorp common stock is listed
and traded on the New York Stock Exchange under the ticker
symbol USB.
Dividends
and Reinvestment Plan
U.S. Bancorp currently pays
quarterly dividends on our common stock on or about the
15th day of January, April, July and October, subject to
approval by our Board of Directors. U.S. Bancorp
shareholders can choose to participate in a plan that provides
automatic reinvestment of dividends and/or optional cash
purchase of additional shares of U.S. Bancorp common stock.
For more information, please contact our transfer agent, BNY
Mellon Shareowner Services.
Investor
Relations Contacts
Judith T. Murphy
Executive Vice President, Corporate
Investor and Public Relations
judith.murphy@usbank.com
Phone: 612-303-0783 or
866-775-9668
Financial
Information
U.S. Bancorp news and financial
results are available through our website and by mail.
Website
For
information about U.S. Bancorp, including news, financial
results, annual reports and other documents filed with the
Securities and Exchange Commission, access our home page on the
internet at usbank.com, 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
Thomas Joyce
Senior Vice President, Media
Relations
thomas.joyce@usbank.com
Phone: 612-303-3167
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 Preferred StockNote 9 Earnings Per ShareNote 10 Employee BenefitsNote 11 Income TaxesNote 12 Derivative InstrumentsNote 13 Fair Values Of Assets and LiabilitiesNote 14 Guarantees and Contingent LiabilitiesNote 15 Subsequent EventsPart II Other InformationItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 6. Exhibits