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Quality
Strength
Leadership
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U.S. Bancorp At A Glance
Ranking
Asset size
Deposits
Loans
Customers
U.S. Bank is 5th largest
U.S. commercial bank
$281 billion
$183 billion
$195 billion
17.2 million
Payment services and merchant processing
International
Wholesale banking and trust services
National
Consumer and business banking
and wealth management
Regional
Bank branches
ATMs
NYSE symbol
At year-end December 31, 2009
3,002
5,148
USB
Sustainability
Corporate Profi le
This annual report was printed at
Hennegan, a company committed
to sustaining a healthy and safe
environment by exceeding regulatory
and environmental requirements as
defi ned by local, state and federal
government. Their environmental
initiatives focus on:
• Reducing volatile organic
compound (VOC) emissions,
energy and water use.
• Recycling chemical and
paper waste.
• Sourcing environmentally
preferable products.
The paper utilized in this annual
report is certifi ed by SmartWood
to the FSC standards and contains
a minimum of 10% post-consumer
recycled paper fi bers. The narrative
and financial sections contain
30% post-consumer recycled
paper fi bers.
U.S. Bancorp is a diversified financial services
holding company and the parent company of
U.S. Bank National Association, the fi fth-largest
commercial bank in the United States. Our company
is known for its prudent risk management, quality
products and services, outstanding customer service
and its focus on the future. U.S. Bancorp also has
been recognized as one of the safest, most respected
and most trusted banks in the country. At year-end
2009, U.S. Bancorp had total assets of $281 billion.
We offer regional consumer and business banking
and wealth management services, national wholesale
banking and trust services and international payment
services to more than 17.2 million customers.
U.S. Bancorp is headquartered in Minneapolis,
Minnesota, and employs more than 60,000 people.
Visit U.S. Bancorp online at usbank.com
Corporate I
Executive Offi ces
U.S. Bancorp
800 Nicollet Mall
Minneapolis, MN 55
Common Stock T
and Registrar
BNY Mellon Shareow
our transfer agent a
paying agent and di
plan administrator, a
shareholder records
Inquiries related to s
stock transfers, cha
lost stock certificate
and dividend payme
to the transfer agent
BNY Mellon Shareow
P.O. Box 358015
Pittsburgh, PA 1525
Phone: 888-778-13
201-680-6578 (inter
Internet: bnymellon.
For Registered or Ce
BNY Mellon Shareow
500 Ross St., 6th Fl
Pittsburgh, PA 1521
Telephone represent
weekdays from 8:00
Central Time, and a
available 24 hours a
Specifi c information
available on BNY Me
clicking on the Inves
Independent Aud
Ernst & Young LLP s
independent auditor
financial statements
Common Stock L
U.S. Bancorp comm
traded on the New Y
under the ticker sym
U.S. Bank, Member FDIC
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In 2009, individuals, families and businesses of all sizes made
the fl ight to quality to U.S. Bancorp as they sought the
strength and stability of an organization operating on
sound and prudent principles. During a devastating economic
downturn, U.S. Bancorp demonstrated leadership
with sound management, financial performance, customer
relationships and commitment to our communities.
Please see explanation on Page 17 regarding the risks and uncertainties
that may affect the accuracy of forward-looking statements.
U.S. BANCORP
1
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Selected Financial Highlights
Net Income
(Dollars in Millions)
1
5
7
4
,
9
8
4
4
,
4
2
3
4
,
6
4
9
2
,
5
0
2
2
,
05
06
07
08
09
09
Return on
Average Assets
(In Percents)
1
2
2
.
3
2
2
.
3
9
1
.
1
2
1
.
2
8
.
05
06
07
08
09
09
Net Interest Margin
(Taxable-Equivalent Basis)
(In Percents)
7
9
3
.
5
6
3
.
7
4
3
.
6
6
3
.
7
6
.
3
3.00
1.50
0
25
12.5
0
50
25
0
Diluted Earnings
Per Common Share
(In Dollars)
2
4
2
.
1
6
2
.
2
4
2
.
Dividends Declared
Per Common Share
(In Dollars)
2.00
0
0
7
1
.
5
2
6
0 1
9
3
1
.
.
1
6
1
.
7
9
.
0
3
2
1
.
1.00
0
0
2
.
6
.
0
2
05
06
07
08
09
09
Dividend Payout Ratio
(In Percents)
.
9
4
0
1
.
3
6
6
.
2
0
5
.
7
2
5
05
06
07
08
09
09
Tier 1 Capital
(In Percents)
.
6
0
1
6
9
.
3
8
.
8
2 8
8
.
.
05
06
07
08
09
09
Return on Average
Common Equity
(In Percents)
.
5
3
2
.
5
2
2
.
3
1
2
.
9
3
1
2
8
.
05
06
07
08
09
09
Efficiency Ratio(a)
(In Percents)
.
2
9
4 4
5
4
.
4
.
8
4
9
.
6
4
4
.
4
4
0
110
55
0
12
6
0
05
06
07
08
09
09
05
06
07
08
09
09
05
06
07
08
09
09
Average Assets
(Dollars in Millions)
,
1
2
6
3
2
2
2
1
5
,
3
1
2
,
8
9
1
3
0
2
0
0
4
,
,
4
4
2
Average Shareholders’
Equity
(Dollars in Millions)
7
0
3
6
2
,
0
7
5
2
2
,
,
3
5
9
,
9
1
0
1
7
0
2
,
7
9
9
,
0
2
0
6
3
,
8
6
2
30,000
15,000
0
15
7.5
0
Total Risk-Based
Capital
(In Percents)
.
5
2
1
.
6
2
1
.
2
2
1
.
3
4
1
.
9
2
1
5,000
2,500
0
2.4
1.2
0
4.50
2.25
0
300,000
150,000
0
05
06
07
08
09
09
05
06
07
08
09
09
05
06
07
08
09
09
(a) Computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding net securities gains (losses).
2
U.S. BANCORP
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Financial Summary
Year Ended December 31
(Dollars and Shares in Millions, Except Per Share Data)
2009
2008
2007
2009
v 2008
2008
v 2007
Total net revenue (taxable-equivalent basis) ...............................
$ 16,668
$ 14,677
$ 14,060
13.6%
Noninterest expense ...................................................................
Provision for credit losses ...........................................................
Income taxes and taxable-equivalent adjustments ......................
8,281
5,557
593
Net income ..............................................................................
2,237
Net income attributable to noncontrolling interests .................
(32)
7,348
3,096
1,221
3,012
(66)
6,907
792
1,958
4,403
(79)
Net income attributable to U.S. Bancorp .................................
$ 2,205
$ 2,946
$ 4,324
12.7
79.5
(51.4)
(25.7)
51.5
(25.2)
4.4%
6.4
*
(37.6)
(31.6)
16.5
(31.9)
Net income applicable to U.S. Bancorp
common shareholders..........................................................
$ 1,803
$ 2,819
$ 4,258
(36.0)
(33.8)
Per Common Share
Earnings per share .......................................................................
$ .97
Diluted earnings per share ...........................................................
$ .97
Dividends declared per share .......................................................
$ .200
Book value per share ....................................................................
$ 12.79
Market value per share .................................................................
$ 22.51
Average common shares outstanding ..........................................
Average diluted common shares outstanding ..............................
1,851
1,859
$ 1.62
$ 1.61
$ 1.700
$ 10.47
$ 25.01
1,742
1,756
$ 2.45
$ 2.42
$ 1.625
$ 11.60
$ 31.74
1,735
1,756
(40.1)%
(33.9)%
(39.8)
(88.2)
22.2
(10.0)
6.3
5.9
(33.5)
4.6
(9.7)
(21.2)
.4
–
Financial Ratios
Return on average assets.............................................................
.82%
1.21%
1.93%
Return on average common equity ..............................................
Net interest margin (taxable-equivalent basis) .............................
Effi ciency ratio(a)............................................................................
8.2
3.67
48.4
13.9
3.66
46.9
21.3
3.47
49.2
Average Balances
Loans ............................................................................................
$185,805
$165,552
$147,348
12.2%
12.4%
Investment securities ...................................................................
42,809
Earning assets ..............................................................................
237,287
Assets ...........................................................................................
268,360
Deposits .......................................................................................
167,801
Total U.S. Bancorp shareholders’ equity ......................................
26,307
42,850
215,046
244,400
136,184
22,570
41,313
194,683
223,621
121,075
20,997
(.1)
10.3
9.8
23.2
16.6
3.7
10.5
9.3
12.5
7.5
Period End Balances
Loans ............................................................................................
$195,408
$185,229
$153,827
5.5%
20.4%
Allowance for credit losses ..........................................................
Investment securities ...................................................................
5,264
44,768
Assets ...........................................................................................
281,176
Deposits .......................................................................................
183,242
Total U.S. Bancorp shareholders’ equity ......................................
25,963
3,639
39,521
265,912
159,350
26,300
2,260
43,116
237,615
131,445
21,046
44.7
13.3
5.7
15.0
(1.3)
61.0
(8.3)
11.9
21.2
25.0
Capital ratios
Tier 1 capital ............................................................................
Total risk-based capital ...........................................................
Leverage ...................................................................................
Tier 1 common equity to risk-weighted assets(b) ......................
Tangible common equity to tangible assets(b) ..........................
Tangible common equity to risk-weighted assets(b) .................
9.6%
12.9
8.5
6.8
5.3
6.1
10.6%
14.3
9.8
5.1
3.3
3.7
8.3%
12.2
7.9
5.6
4.8
5.1
* Not meaningful
(a) Computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding net securities gains (losses).
(b) See Non-Regulatory Capital Ratios on page 61.
U.S. BANCORP
3
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Fellow Shareholders
During 2009, U.S. Bancorp continued to create
momentum and position the company for
long-term growth and profitability. We protected
our franchise and benefited from a flight to quality.
2009 was a remarkable year — a year that distinguished
Quality, Strength, Leadership
U.S. Bancorp as a very special company.
The theme of this year’s Annual Report to Shareholders
U.S. Bancorp’s fi nancial performance continued to be
industry-leading in 2009. During this unprecedented year
of economic uncertainty and fi nancial recession, we
remained focused on our role as a strong and trusted
guide for our customers and an active participant in our
is Quality, Strength, Leadership. These attributes refl ect
the manner in which U.S. Bancorp has endeavored
to manage through this time of unparalleled turmoil on
behalf of our shareholders, customers, employees
and the communities we serve.
communities. Further, we accepted the challenge to serve
Long before the recent economic events occurred,
as a leader within the fi nancial services industry to promote
U.S. Bancorp was known as a prudent, conservative and
a “new dialogue” and instill confi dence in the key role of
high quality banking company. During the years leading
banks in the economic recovery.
into the recession, we were often considered too prudent
Total Net Revenue
(Taxable-Equivalent Basis)
(Dollars in Billions)
7
.
6
1
7
.
4
1
2
.
3
1
7
.
3
1
.
1
4
1
or too cautious. Our banking model was simple, transparent
and predictable. And while we are pleased that this
conservative operating philosophy has served us very well
during this downturn — we are equally pleased with our
growing momentum and the recent investments we have
made in our franchise, our people and our communities.
Flight to quality
U.S. Bancorp’s stability and soundness created a manifest
fl ight to quality that began two years ago and continues
05
06
07
08
09
09
today, as customers seek a solid fi nancial partner that they
can trust. This strong operating position was best refl ected
in the substantial growth of our balance sheet and further
2
20
10
0
4
U.S. BANCORP
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evidenced by the deeper customer relationships that we
have established in the past year.
While many of our peers are downsizing, restructuring,
or exiting businesses — we are expanding. Additionally,
during 2009, U.S. Bancorp’s business model remained
intact; our simple business strategies proved themselves,
and they continue to be our blueprint for the future.
This stability allowed us to continue our focus on growing
our businesses, adding to our franchise, increasing market
share, further developing our employee talent and taking
advantage of opportunities for acquisitions that will
strengthen U.S. Bancorp in the future. While last year may
have been a time for many to retrench and focus on the
present — we were investing in our company and focusing
on the future.
Continuing strength
U.S. Bancorp’s fourth quarter and full year 2009 earnings
Richard K. Davis
Chairman, President and Chief Executive Officer
fully refl ected the strength and quality of our company.
We achieved record total net revenue for both the quarter
than the same quarter of 2008, but lower than the
and the year; a record $4.4 billion for the fourth quarter
previous quarter. This moderation on a linked quarter basis
and a record $16.7 billion for the full year 2009. The strong
is an indication that slower-paced credit deterioration is
growth in net revenue, the result of our expanding balance
forthcoming. While a slower rise in net charge-offs and
sheet and fee-based businesses, as well as recent
non-performing assets is a very positive trend, both are
investments in our branch network and various growth initia-
still increasing, and accordingly, we continued to increase
tives, was the primary driver behind the increase in fourth
the allowance for credit losses. When we are confi dent
quarter earnings compared with the same period of 2008.
that there is a sustained and predictable decrease in net
Perhaps the most important variables during this economic
recession are asset quality and credit costs. In fact, the
provision for credit losses for 2009 was $2.5 billion higher
than 2008. For the fourth quarter, credit costs, including the
cost of building the allowance for credit losses, were higher
charge-offs and non-performing assets, rather than merely
a slower pace, we will declare that we have fi nally “turned the
corner.” As I have stated previously, I expect U.S. Bancorp
entered this recession later and will exit this recession
earlier than most of our peers.
U.S. BANCORP
5
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Throughout this report, you will fi nd details about our fi nancial
trust, honesty and transparency they bring to everything
results and recent activities. This year, more strongly than
they do for our customers.
ever before, I encourage you to read it thoroughly for a
complete view of our operating results. I believe you will
fi nd it heartening that U.S. Bancorp remained consistently
profi table in 2009, while helping our customers manage
through these unprecedented times.
We are aligned to make the most of an economic recovery
and we have positioned the bank to emerge as an even
stronger competitor. This annual report will also allow you to
see the importance that we place on our engaged and loyal
employees and their personal contributions in creating a
world-class fi nancial institution. Our employees, our most
important asset, fulfi ll the promise of banking through the
Our capital position remains strong. With our positive
earnings stream, business line momentum and moderating
credit costs, we expect to continue to generate signifi cant
capital going forward and build upon this already solid base.
Dividend actions
Increasing the dividend remains one of our most
important priorities. While we are confi dent that our
earnings can support a higher dividend, the permanence
and sustainability of an economic recovery, as well as
the impact of potential regulatory and legislative actions,
remain uncertain and will infl uence the level of capital that
U.S. Bancorp Managing Committee (left to right)
Jennie P. Carlson, Executive Vice President, Human Resources
Lee R. Mitau, Executive Vice President and General Counsel
Pamela A. Joseph, Vice Chairman, Payment Services
William L. Chenevich, Vice Chairman, Technology and Operations Services
P.W. (Bill) Parker, Executive Vice President and Chief Credit Offi cer
Richard C. Hartnack, Vice Chairman, Consumer Banking
Richard J. Hidy, Executive Vice President and Chief Risk Officer
Joseph M. Otting, Vice Chairman, Commercial Banking
Joseph C. Hoesley, Vice Chairman, Commercial Real Estate
Andrew Cecere, Vice Chairman and Chief Financial Officer
Howell (Mac) McCullough, III, Executive Vice President, Chief Strategy Offi cer
Richard B. Payne, Jr., Vice Chairman, Corporate Banking
Richard K. Davis, Chairman, President and Chief Executive Officer
Diane L. Thormodsgard, Vice Chairman, Wealth Management & Securities Services
6
U.S. BANCORP
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200
100
0
Loans and Deposits
(Dollars in Billions)
5
.
6
3
1
7
.
4
2
1
.
6
3
4
1
9
.
4
2
1
.
8
3
5
1
.
4
1
3
1
.
4
5
9
1
2
.
3
8
1
.
2
5
8
1
.
4
9
5
1
0505
05
0606
06
0707
07
0808
08
0909
09
Loans
Deposits
will be required going forward. We will continue to assess
Finally, while we fully support steps to bring stability back to
and evaluate the effect of these factors on our company,
the fi nancial services industry, we will continue to protect
and we will await evidence of a sustainable economic
and differentiate U.S. Bancorp, helping to ensure that any
recovery and clear capital guidelines before we take a
new rules and policies do not impair our ability to best serve
defi nitive action on our dividend.
our customers and shareholders.
Accordingly, the quarterly dividend rate of $.05 per common
Looking forward
share was thoughtfully considered last December and was
I am confi dent that U.S. Bancorp’s momentum will only
maintained. We greatly appreciate the impact that this lower
accelerate in a recovering economy. We have the depth,
dividend rate has on our shareholders, and we are grateful
determination and strength to withstand continuing
for your support of our prudent approach to capital
challenges and we are positioned for growth and prosperity
preservation at this critical time.
in the future. We will continue to manage U.S. Bancorp
Leadership
New rules governing the operations of fi nancial institutions
should be expected in the near future in an effort by
for the benefi t of our shareholders, our customers, our
employees — and the economic well-being of our country
and its economy.
regulators and legislators to prevent a repeat of the issues
Your trust is well placed and we are grateful for your support
that precipitated the current economic recession. We intend
and engagement. We are “dream makers” and look forward
to be involved in the discussions and decision-making that
to our emerging role as one of America’s best banks!
will craft the next generation of banking policy.
Sincerely,
We fully support fi nancial regulatory reform and strong
consumer protection. We recognize the need for oversight
of systemically important institutions, and we welcome a
new model of regulation that would also oversee non-bank
fi nancial services providers. America deserves a strong
fi nancial system that operates in a more transparent and
Richard K. Davis
Chairman, President and Chief Executive Offi cer
prudent manner — and we seek a key role as a partner
February 26, 2010
in the development of this new system.
U.S. BANCORP
7
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Quality
Strength
Leadership
All of US
serving you
It’s a commitment – from all
60,920 of US
We recognize the value of every employee and the
determining role they play in our continued success.
We tell every employee “your career is here,” and we
make the investments and create the programs to support,
develop and leverage employee excellence, engagement
and satisfaction for the benefi t of our customers,
communities and shareholders.
Developing leaders, building careers
The fl ight to quality isn’t just among customers. We’ve
been fortunate that so many talented employees of the
highest caliber want to start or continue their careers at
U.S. Bancorp. A wide range of development programs
and tools are in place to enhance their experience.
When Bonnie Gingrich (right), wanted to refi nance her
mortgage, she called Leticia “Tish” Boland (left), U.S. Bank
CRA loan offi cer in Freeport, Ill. Not only did Tish provide
solid banking advice, she gave her customer personal
comfort on the day Bonnie’s dog had to be put to sleep.
Then, when Bonnie needed some trim painted before the
refi nancing, Tish and her husband rented a ladder and
completed the paint job! For her outstanding service, Tish
was one of our 2009 Circle of Service Excellence winners.
employees with personal and professional opportunities
to learn new skills, network with colleagues and engage
Leading US is our new one-stop platform for leader
in community projects. MentorConnect provides individual
communications and development. This resource offers
and group mentoring programs. These are just a few of
employees easy access to relevant information that helps
the many options available to all employees.
them stay current about strategic business initiatives.
Leaders provide guidance, help develop direction
Harvard Resources provides an online learning and
Our new Leadership Council members were selected
development environment covering dozens of career
to represent the diverse voice of our leaders across the
development topics. Our 56 local and virtual Development
company. These 14 leaders shape direction, provide
Network chapters across the franchise connect
thoughtful leadership and advocate and champion strategic
8
U.S. BANCORP
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Top
Bottom
Joe Hurley, Vice President Small Business Direct Sales, (left)
For the fourth year in a row, U.S. Banker
was pleased with the work of Step Up intern Tangina Edwards
magazine, a SourceMedia publication,
(center), and they remained in contact. Later, when Tangina
recognized U.S. Bancorp’s team of
was looking for a permanent job, Joe recommended her to
56 women leaders who ranked fi rst
U.S. Bank. The hiring manager with whom Tangina met was
among the Top Banking Teams for
Small Business Specialist Logan Rogers (right), who happened
2009 in its September Most Powerful
to have been Joe’s mentee through our MentorConnect
Women in Banking issue.
program. The relationships created by these mentor programs
came full circle, showing how powerful they can be. Tangina
is now in our growing In-Store branch division.
initiatives. Our Diversity Council, launched in January 2010, is
goal to own the number one customer service position in
a forum for employee input on making U.S. Bank inclusive for
our industry, and a recently released report puts U.S. Bank
everyone, regardless of gender, race, disability or generation.
in the top position among the nation’s fi ve largest banks in
Developing future leaders through Step Up
Forrester’s 2010 Customer Experience Index study.
Through the Step Up internship program, U.S. Bancorp
U.S. Bank rewards and recognizes those who create
helps develop a trained and ready workforce. The Step Up
a superlative customer experience. Our prestigious
program in Minneapolis recruits, trains and places youth
Circle of Service Excellence (COSE) program evaluates
in paid summer jobs. U.S. Bank has been a corporate
hundreds of nominations from customers, co-workers
champion of the program since its inception in 2004 and
and communities each quarter to select the 20 employees
has hosted more than 125 Step Up interns.
who will be COSE winners and who receive public
All of US create the customer experience
Delivering outstanding service is the number one priority
at U.S. Bank, whether it is service to our customers,
to our colleagues or to our communities. It’s our stated
recognition and fi nancial rewards.
U.S. BANCORP
9
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Quality
Strength
Leadership
Combining Straightforward
Banking and Innovation
A rock solid foundation allows us to make improvements
and test innovations
U.S. Bancorp has adhered to conservative and traditional
continue to grow our bank through the organic growth
banking principles and products through the years and
of our established lines of business — Payments, Consumer
throughout the recent fi nancial crisis. We’ve focused on
Banking, Wholesale Banking and Wealth Management.
what’s fundamental to our future — and to the future of our
We manage the bank for solid, long-term growth, and we
customers, shareholders and employees. A large part of
do not aspire to focus on the more complicated businesses
what’s fundamental is to embrace what we understand,
such as investment banking, brokerage or insurance.
avoid what doesn’t feel right for our customers, and keep it
as simple as possible in a complex, technological world.
Where fundamental meets the future
At the same time, we are at the forefront of innovation
Our four major lines of business serve a wide range of
to make banking faster, easier or more convenient for our
customers while maintaining our low-risk profi le. We will
customers. We are also developing service delivery that
is more cost effective and reliable.
For some customers, speed and ease of payment
The Dynamic Dozen is a group of 12 twenty-something
transactions are of paramount importance. Through our
U.S. Bank employees who serve as a sounding board for new
ongoing relationship with Visa, we have piloted several
initiatives to help ensure that these programs will be effective
of the industry’s most exciting new payment technologies
from this key demographic perspective. Members serve for
including payWave, MicroTag and other contactless
a one-year term and are selected by the Vice Chair in each
payment innovations.
of our lines of business. Shown here are 11 of the inaugural
2009 class.
10
U.S. BANCORP
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Syncada, our joint venture with Visa, maximizes Visa’s
Mobile Web and Mobile Wallet let our on-the-go customers
connections to banks all over the world and U.S. Bancorp’s
bank anytime, anywhere — innovations for today’s mobile
experience handling corporate payments through our former
customers. Customers simply type “m.usbank.com” into the
PowerTrack product. Syncada was designed to create the
browser of their web-enabled mobile device and start banking
gold standard in global B-to-B payments, creating effi ciency,
right away. Our Mobile Wallet downloadable “app” puts
driving automation and lowering the cost of doing business
U.S. Bank at customers’ fi ngertips to check balances, contact
for corporations and governments. Syncada is enabling our
us, transfer funds and see special offers and rewards. Look
new network to grow by expanding the offering to new
for mobile bill pay in the future.
partners around the globe.
We look for innovations that make our products and
packaging or incremental innovation in product improve-
services simpler and more transparent and that allow our
ment or delivery channels. Collaboration and alliances with
customers to choose products that are right for them. In
valued partners also lead to innovation — our July launch
2009, for example, we introduced our Platinum, Gold and
of Syncada, a joint venture with Visa, handles payments on
Silver package accounts for consumers and business
behalf of corporations and government agencies.
customers, bundling the most-used accounts into quick
and cost-saving packages with special product benefi ts.
We want our customers to bank the way they want,
when they want and where they want. Many choose our
Our ongoing commitment is for surer ways to keep our
branches, our business relationship managers and
systems and our customers’ accounts safe from cyber
our private bankers. Others phone our call centers or bank
predators and identity thieves. Innovation in fraud detection
online. Still others want to take the bank along with them
and mitigation is always at the top of our priority list, as are
everywhere — and “we have an app for that!”
new techniques and technologies to aid risk management.
We are very close to that point where the physical,
Rarely is our innovation a “big bang” that transforms an
electronic and virtual blend into the best possible
industry; often it is a new way to make progress from
customer experience.
where we had been before. Innovation may be in delivery,
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U.S. BANCORP
11
Quality
Strength
Leadership
Strategic Growth
and Expansion
Organic revenue growth
combined with strategic
acquisitions build market share
and expand businesses
Despite the economic downturn, we have steadily
strengthened our company. Consistent with our long-term
growth strategy, we have made opportune in-market,
FDIC-assisted acquisitions since November 2008,
increasing the value and growth potential of our bank.
acquisitions++++
branch
Our strong balance sheet and earnings are critical
Acquisitions not limited to branches
advantages in our ability to seize opportunities while rivals
We have also taken advantage of opportunities to gain scale
are distracted by internal issues or integration struggles.
and increase fee income in other key businesses. In 2009,
In the largest of our acquisitions, in October 2009, we
acquired approximately $18 billion in assets and branch
locations in key growth markets of California, Arizona,
Nevada and Illinois from the nine banks held by FBOP
Corporation, an Illinois company. Earlier in 2009, we
purchased 20 former branches of the failed Colonial Bank
in Las Vegas and northern Nevada from BB&T Corp.,
almost doubling our deposit base in the state.
Other recent bank acquisitions through the FDIC were
Downey Savings & Loan, in California and Arizona;
PFF Bank & Trust in Southern California; and First Bank of
Idaho. They all position us solidly for long-term growth.
we purchased the bond trustee businesses of First Citizens
BancShares and AmeriServ, solidifying our Top 2 position
in these businesses, and the mutual fund administration
business of Fiduciary Management, Inc. with more than
$8 billion in assets under administration. We also acquired
KeyCorp’s and Associated Bank’s credit card issuing
programs; Diner’s Club merchant processing portfolio in
Europe; and Citizens National merchant processing portfolio.
Businesses making a national name for themselves
From the day we opened our fi rst Corporate Banking offi ce in
midtown Manhattan in 2007, we have steadily increased the
reputation and visibility of this comprehensive and growing
business. We support our reputation, capabilities and com-
petitive advice with national marketing that targets Fortune
1000, Forbes 400 and Greenwich 2300 decision makers.
12
U.S. BANCORP
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S.T.A.R.T. savings program goes national. U.S. Bank’s Savings
Today And Rewards TomorrowTM (S.T.A.R.T.) program piloted in
Seattle, Cincinnati and Joplin/Springfi eld, Missouri, is being
rolled out across our 24-state franchise. S.T.A.R.T. allows
customers to regularly transfer money into a savings account
and to earn rewards when they reach certain savings milestones.
Savers receive a $50 U.S. Bank Rewards Visa Card when savings
balances build to $1,000, and if they maintain that balance for one
year, they earn another $50 Rewards Visa Card from U.S. Bank.
In May we opened a new Corporate Banking and
a UK leader in merchant acquiring. In January, we extended
Capital Markets offi ce in Charlotte, North Carolina, creating
the relationship with Santander through the establishment
excitement and 30 new jobs. We’re also creating 1,100
of a joint alliance in Mexico, a refl ection of Elavon’s global
new jobs in Overland Park, Kansas, at a new operations
growth strategy.
center, 50 new jobs in Bowling Green, Kentucky at
our growing Mortgage Center and 45 technical jobs in
Milwaukee to support our growing card business.
Wealth Management restructures to expand
and enhance service to all customer segments
With the goals of creating a best-in-class customer
Our Commercial Banking and Commercial Real Estate
experience and becoming a lifetime fi nancial partner,
divisions also are positioning themselves for organic
Wealth Management recently launched a new service
expansion across the nation.
model for all client segments. In partnership with Consumer
Growth and expansion through partnerships
around the world
Last fall, our wholly owned Payments subsidiary, Elavon,
and Santander Bank launched a partnership for merchant
services in the UK. The alliance combined Elavon’s leading
global payments capability with one of the strongest
banks in the world and positions us, jointly, to become
Banking, many affl uent customers can now be served
directly in our branches, receiving the advice and investment
vehicles to build wealth. Those with greater investment
and servicing needs and higher investable assets are served
by The Private Client Group, and at the most sophisticated
and highest net worth levels, by our exclusive The Private
Client Reserve.
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U.S. BANCORP
13
Quality
Strength
Leadership
Bold Moves
Making the Most of
a Turbulent Year
Payment Services
26%
2009 Revenue
Offers payments and processing services for individual
and corporate credit, prepaid and electronic checks
throughout North America and Europe; issues debit,
credit and prepaid cards; provides a wide range of
fi nancial institution services.
Grew our portfolio signifi cantly, gaining more
U.S. Bank, one of the nation’s top issuers of Visa
than $1.7 billion in cardholder balances and adding
prepaid cards, is honored with a prestigious OSCARD
more than 100,000 new merchants through multiple
award for its ReliaCard® Visa. The OSCARDS recognize
partner distribution channels across North America
international excellence in card innovation.
and Europe.
Elavon and Santander Bank expand their relationship
Introduced FlexPerks,SM one of our largest consumer
with new merchant service alliances in the UK and
card launches. The U.S. Bank FlexPerks Travel
Mexico.
Rewards Visa Signature® credit card was named
the “Best Credit Card if You Want Travel Perks”
by Kiplinger’s Personal Finance in its December
Elavon expands multi-currency capabilities across
its single European processing platform.
2009 “Best List” issue.
U.S. Bank issues its 33 millionth gift card, maintaining
Elavon introduces Fusebox Payment Gateway,
its next-generation hosted payment gateway
providing secure multi-point connectivity across
a merchant’s enterprise.
our position as a top Visa gift card issuer in the
United States.
14
U.S. BANCORP
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Consumer Banking
44%
Wealth Management
& Securities Services
10%
2009 Revenue
2009 Revenue
Provides a full range of fi nancial services
via more than 3,000 branch offi ces, by phone
and Internet to millions of consumers, small
businesses and affl uent clients.
Serving individual, business, institutional and
municipal clients with a full range of services
that help build, manage and protect wealth. Also
provides quality trust, fund and custody services.
Increased U.S. Bank’s share of wallet as we
Completed strategic acquisitions in Corporate
launched Platinum, Gold and Silver account
Trust and Fund Services, complementing existing
packages for consumers and small businesses.
U.S. Bank trust and fund business and strengthening
The packages make account opening easier and
our competitive position in these areas.
faster for our customers, and response has been
very positive; approximately 47 percent of all new
account openings are package accounts.
Created The Private Client Reserve for our high net
worth clients, part of a comprehensive strategy to
better serve customer segments with differing levels
Accelerated growth in Mortgage Banking, achieving
of investment and private banking needs. The Private
national prominence as U.S. Bank ended 2009 as
Client Reserve offers enhanced service through
the sixth-largest mortgage lender in the nation.
dedicated teams of experts. This segmentation strategy
creates opportunities with current and prospective
clients to become their primary fi nancial advisor.
Attained record customer retention levels as we
successfully converted branches acquired from
Downey Savings, PFF Bank and Trust, First Bank
of Idaho, Zion’s Bank, and BB&T/Colonial to
U.S. Bank branches.
To meet customer demand and needs, launched
new investment and advisory services to affl uent
customer segments in our branches in partnership
with Wealth Management.
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U.S. BANCORP
15
Left to right:
Hope Levin, U.S. Bank Arizona President
Brad Parker, U.S. Bank Relationship Management Leader
Christian Roe, CFO, Discount Tire
Andrew Haus, Assistant Treasurer, Discount Tire
Wholesale Banking
2009 Revenue
Headquartered in Scottsdale, Arizona, Discount Tire is
20%
the largest independent tire retailer in North America. Our
relationship with Discount Tire began in 2005 and has steadily
increased through the years. In 2009, a Building Deeper
Relationships customer review showed opportunities for
U.S. Bank to provide additional services to Discount Tire that
would enhance their business. U.S. Bank’s fi nancial stability
was a factor in deepening the relationship, as was the
U.S. Bank Relationship Management Team’s ability to get
things done in a tough credit environment.
Commercial Banking
Delivers relationship-based fi nancial services
Commercial Real Estate
Works with commercial real estate owners, developers
to middle market companies and to specialized
and investors to provide credit, deposit, trust and
industries. Also is very active in Small Business
payments services for industrial, commercial, retail
Administration fi nancing.
and other development.
Commercial Banking team and Community
Brought our customers signifi cant added value with
Banking conducted Building Deeper Relationships
the implementation of an automated construction
comprehensive relationship reviews with more
disbursement system that automated monitoring of
than 8,700 key customers to further understand
budgets and provided enhanced tracking of projects.
customer needs and circumstances.
Partnered with Treasury Management, Integrated
Payments and Wealth Management to offer customers
synergistic services and seamless delivery.
Corporate Banking
Provides a broad set of fi nancial services including
secured and unsecured credit, treasury management,
payment services, capital markets, and leasing to large
Expanded relationship manager coverage in
U.S. corporations, states and municipalities.
additional markets to enhance responsiveness
and customer service.
Established new High Grade Fixed Income business, an
extension of the services we provide to our many large,
well-capitalized customers nationwide.
Opened new National Corporate Banking and Capital
Markets offi ces in Charlotte, North Carolina, to serve
this dynamic part of the country.
Deepened Relationship Manager nationwide coverage.
16
U.S. BANCORP
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Quality
Strength
Leadership
We hope the preceding pages have given you a better
understanding of the values that drive our company, the people
who manage it, our culture of customer service, our key
strategies for prudent growth and our recent accomplishments.
The following pages will give you a complete picture of our
results, the policies and procedures on which our fi nancial
results are based and the details underlying our values,
strategies and accomplishments.
Forward-Looking Statements
Financials
The following information appears in accordance with the Private
Securities Litigation Reform Act of 1995:
This report 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. 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.
Investors are cautioned against placing undue reliance on our forward-
looking statements. Such statements are based upon the current beliefs and
expectations of management of U.S. Bancorp and the information currently
available to management. Such statements speak only as of the date hereof,
and the company undertakes no obligation to update them in light of new
information or future events.
Important factors could cause actual results to differ materially from
those anticipated, including the risks discussed in the Management’s
Discussion and Analysis section that follows, as well as the risks discussed
in detail in the “Risk Factors” section on pages 130–136 of this report.
However, factors other than these also could adversely affect our results,
and the reader should not consider these factors to be a complete set of
all potential risks or uncertainties.
18 Management’s Discussion
and Analysis
67 Reports of Management and
Independent Accountants
70 Consolidated Financial
Statements
74 Notes to Consolidated
Financial Statements
123 Five-year Consolidated
Financial Statements
125 Quarterly Consolidated
Financial Data
128 Supplemental Financial Data
129 Company Information
137 Executive Offi cers
139 Directors
Inside Back Cover
Corporate Information
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U.S. BANCORP
U.S. B
17
Management’s Discussion and Analysis
Overview
The financial performance of U.S. Bancorp and its
subsidiaries (the “Company”) in 2009 demonstrated the
strength and quality of its businesses, as the Company
achieved record total net revenue, maintained a strong
capital position and grew both its balance sheet and fee-
based businesses. While not immune to current economic
conditions, the Company’s well diversified business has
provided substantial resiliency to the credit challenges faced
by many financial institutions. The significant weakness in
the domestic and global economy continued to affect the
Company’s loan portfolios, however the rate of deterioration
moderated throughout 2009. Though business and consumer
customers continue to be affected by the domestic recession
and increased unemployment in the United States, the
Company’s comparative financial strength and enhanced
product offerings attracted a significant amount of new
customer relationships in 2009. Additionally, the Company
continued to invest opportunistically in businesses and
products that strengthen its presence and ability to serve
customers, including Federal Deposit Insurance Corporation
(“FDIC”) assisted transactions.
Despite the economic environment adversely impacting
the banking industry, the Company earned $2.2 billion in
2009. The difficult credit environment and related rise in
credit costs resulted in a $2.5 billion (79.5 percent) increase
in provision for credit losses over 2008. The increase in
provision for credit losses was partially offset by higher net
interest income, a result of growth in earning assets, core
deposit growth and improving net interest margin, lower net
securities losses, and strength in the Company’s fee-based
businesses, particularly mortgage banking. Additionally the
Company continued its focus on effectively managing its
cost structure, with an efficiency ratio (the ratio of
noninterest expense to taxable-equivalent net revenue,
excluding net securities gains and losses) in 2009 of
48.4 percent, one of the lowest in the industry.
The Company maintained strong capital and liquidity
during 2009. In May 2009, the Federal Reserve assessed the
capital adequacy of the largest domestic banks, and
concluded that the Company’s capital would be sufficient
under the Federal Reserve’s projected scenarios. In June, the
Company redeemed all of the $6.6 billion of preferred stock
previously issued to the U.S. Department of the Treasury
under the Capital Purchase Program of the Emergency
Economic Stabilization Act of 2008, or TARP program, and
subsequently repurchased the related common stock
warrant. The Company raised $2.7 billion through the sale
18
U.S. BANCORP
of common stock in May, and at December 31, 2009, the
Company’s Tier 1 capital ratio was 9.6 percent, its total
risk-based capital ratio was 12.9 percent, and its tangible
common equity to risk-weighted assets was 6.1 percent.
Credit rating organizations rate the Company’s debt one of
the highest of its large domestic banking peers. This
comparative financial strength generated growth in loans
and deposits as a result of “flight to quality,” as well as
favorable funding costs and net interest margin expansion.
In 2009, the Company grew its loan portfolio and
increased deposits significantly, both organically and through
acquisition, including an FDIC assisted transaction in the
fourth quarter. Average loans and deposits increased
$20.3 billion (12.2 percent) and $31.6 billion (23.2 percent),
respectively, over 2008. Excluding acquisitions, average
loans and deposits increased $7.7 billion (4.7 percent) and
$19.0 billion (14.2 percent), respectively, over 2008. The
Company originated approximately $129 billion of loans
and commitments for new and existing customers and had
over $55 billion of new mortgage production during 2009.
Despite this activity, the Company has experienced a
decrease in average commercial loan balances as customers
continued to pay down their credit lines and strengthen their
own balance sheets.
The Company’s increase in provision for credit losses
reflected continuing weak economic conditions and the
corresponding impact on commercial, commercial real estate
and consumer loan portfolios, as well as stress in the
residential real estate markets. As a result of these economic
factors and an FDIC assisted acquisition, the Company’s
nonperforming assets as a percent of total loans and other
real estate increased to 3.02 percent at December 31, 2009,
from 1.42 percent at December 31, 2008. In addition, net
charge-offs as a percent of average loans outstanding
increased to 2.08 percent in 2009 from 1.10 percent in
2008. These ratios increased throughout 2009, but at a
decreasing rate in each linked quarter.
The Company’s financial strength, business model,
credit culture and focus on efficiency have enabled it to
deliver consistently profitable financial performance while
operating in a very turbulent environment. Given the current
economic environment, the Company will continue to focus
on managing credit losses and operating costs, while also
utilizing its financial strength to grow market share and
profitability. Despite the likelihood of significant changes in
regulation of the industry, the Company believes it is well
positioned for long-term growth in earnings per common
share and an industry-leading return on common equity. The
Table 1 Selected Financial Data
Year Ended December 31
(Dollars and Shares in Millions, Except Per Share Data)
2009
2008
2007
2006
2005
Condensed Income Statement
Net interest income (taxable-equivalent basis) (a) . . . . . . . .
Noninterest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities gains (losses), net . . . . . . . . . . . . . . . . . . . . . .
Total net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . .
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable-equivalent adjustment . . . . . . . . . . . . . . . . . . . . .
Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling interests . . . . . .
$ 8,716
8,403
(451)
$ 7,866
7,789
(978)
16,668
8,281
5,557
2,830
198
395
2,237
(32)
14,677
7,348
3,096
4,233
134
1,087
3,012
(66)
$ 6,764
7,281
15
14,060
6,907
792
6,361
75
1,883
4,403
(79)
$ 6,790
6,938
14
13,742
6,229
544
6,969
49
2,112
4,808
(57)
$ 7,088
6,257
(106)
13,239
5,919
666
6,654
33
2,082
4,539
(50)
Net income attributable to U.S. Bancorp . . . . . . . . . . . . .
$ 2,205
$ 2,946
$ 4,324
$ 4,751
$ 4,489
Net income applicable to U.S. Bancorp common
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,803
$ 2,819
$ 4,258
$ 4,696
$ 4,483
Per Common Share
Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared per share . . . . . . . . . . . . . . . . . . . . . .
Book value per share . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market value per share . . . . . . . . . . . . . . . . . . . . . . . . . .
Average common shares outstanding . . . . . . . . . . . . . . . .
Average diluted common shares outstanding . . . . . . . . . . .
Financial Ratios
Return on average assets . . . . . . . . . . . . . . . . . . . . . . . .
Return on average common equity . . . . . . . . . . . . . . . . . .
Net interest margin (taxable-equivalent basis) (a) . . . . . . . . .
Efficiency ratio (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average Balances
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earning assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest-bearing deposits . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total U.S. Bancorp shareholders’ equity . . . . . . . . . . . . . . .
Period End Balances
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for credit losses. . . . . . . . . . . . . . . . . . . . . . . .
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total U.S. Bancorp shareholders’ equity . . . . . . . . . . . . . . .
Capital ratios
Tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total risk-based capital
. . . . . . . . . . . . . . . . . . . . . . . .
Leverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 common equity to risk-weighted assets (c) . . . . . . .
Tangible common equity to tangible assets (c) . . . . . . . . .
Tangible common equity to risk-weighted assets (c) . . . . .
.97
$
.97
$
$
.200
$ 12.79
$ 22.51
1,851
1,859
1.62
$
$
1.61
$ 1.700
$ 10.47
$ 25.01
1,742
1,756
2.45
$
$
2.42
$ 1.625
$ 11.60
$ 31.74
1,735
1,756
2.64
$
$
2.61
$ 1.390
$ 11.44
$ 36.19
1,778
1,803
2.45
$
$
2.42
$ 1.230
$ 11.07
$ 29.89
1,831
1,856
.82%
8.2
3.67
48.4
1.21%
13.9
3.66
46.9
1.93%
21.3
3.47
49.2
2.23%
23.5
3.65
45.4
2.21%
22.5
3.97
44.4
$185,805
5,820
42,809
237,287
268,360
37,856
167,801
29,149
36,520
26,307
$195,408
5,264
44,768
281,176
183,242
32,580
25,963
$165,552
3,914
42,850
215,046
244,400
28,739
136,184
38,237
39,250
22,570
$185,229
3,639
39,521
265,912
159,350
38,359
26,300
$147,348
4,298
41,313
194,683
223,621
27,364
121,075
28,925
44,560
20,997
$153,827
2,260
43,116
237,615
131,445
43,440
21,046
$140,601
3,663
39,961
186,231
213,512
28,755
120,589
24,422
40,357
20,710
$143,597
2,256
40,117
219,232
124,882
37,602
21,197
$131,610
3,290
42,103
178,425
203,198
29,229
121,001
19,382
36,141
19,953
$136,462
2,251
39,768
209,465
124,709
37,069
20,086
9.6%
12.9
8.5
6.8
5.3
6.1
10.6%
14.3
9.8
5.1
3.3
3.7
8.3%
8.8%
8.2%
12.2
7.9
5.6
4.8
5.1
12.6
8.2
6.0
5.2
5.6
12.5
7.6
6.4
5.6
6.1
(a) Presented on a fully taxable-equivalent basis utilizing a tax rate of 35 percent.
(b) Computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding net securities gains (losses).
(c) See Non-Regulatory Capital Ratios on page 61.
U.S. BANCORP
19
Company intends to achieve these financial objectives by
providing high-quality customer service, continuing to
carefully manage costs and, where appropriate, strategically
investing in businesses that diversify and generate fee-based
revenues, enhance the Company’s distribution network or
expand its product offerings.
Earnings Summary The Company reported net income
attributable to U.S. Bancorp of $2.2 billion in 2009, or $.97
per diluted common share, compared with $2.9 billion, or
$1.61 per diluted common share, in 2008. Return on average
assets and return on average common equity were .82 percent
and 8.2 percent, respectively, in 2009, compared with
1.21 percent and 13.9 percent, respectively, in 2008. The
results for 2009 reflected higher provision for credit losses, as
the Company experienced a $2.1 billion increase in net
charge-offs and increased its allowance for credit losses by
$1.7 billion due to economic conditions and credit
deterioration. Net securities losses of $451 million in 2009
were $527 million (53.9 percent) lower than 2008.
Total net revenue, on a taxable-equivalent basis, for
2009 was $2.0 billion (13.6 percent) higher than 2008,
reflecting a 10.8 percent increase in net interest income and
a 16.8 percent increase in noninterest income. Net interest
income increased in 2009 as a result of growth in average
earning assets, core deposit growth and improving net
interest margin. Noninterest income increased principally
due to strong growth in mortgage banking revenue, a
decrease in net securities losses and higher commercial
products revenue, ATM processing services and treasury
management fees.
Total noninterest expense in 2009 increased
$933 million (12.7 percent), compared with 2008, primarily
due to the impact of acquisitions, higher FDIC deposit
insurance expense, costs related to affordable housing and
other tax-advantaged investments, and marketing and
business development expense, principally related to credit
card initiatives.
Acquisitions On October 30, 2009, the Company acquired
the banking operations of First Bank of Oak Park
Corporation (“FBOP”) in an FDIC assisted transaction. The
Company acquired approximately $18.0 billion of assets and
assumed approximately $17.4 billion of liabilities, including
$15.4 billion of deposits. The Company entered into loss
sharing agreements with the FDIC providing for specified
credit loss protection for substantially all acquired loans,
foreclosed real estate and selected investment securities.
Under the terms of the loss sharing agreements, the FDIC
will reimburse the Company for 80 percent of the first
20
U.S. BANCORP
$3.5 billion of losses on those assets and 95 percent of losses
beyond that amount. At the acquisition date, the Company
estimated the FBOP assets would incur approximately
$2.8 billion of losses, of which $1.9 billion would be
reimbursable under the loss sharing agreements as losses are
realized in future periods. The Company recorded the
acquired assets and liabilities at their estimated fair values at
the acquisition date. The estimated fair value for loans
reflected expected credit losses at the acquisition date and
related reimbursement under the loss sharing agreements. As
a result, the Company will only recognize a provision for
credit losses and charge-offs on the acquired loans for any
further credit deterioration, net of any expected
reimbursement under the loss sharing agreements.
On November 21, 2008, the Company acquired the
banking operations of Downey Savings & Loan Association,
F.A. (“Downey”), and PFF Bank & Trust (“PFF”) from the
FDIC. The Company acquired approximately $17.4 billion
of assets and assumed approximately $15.8 billion of
liabilities. The Company entered into loss sharing
agreements with the FDIC providing for specified credit loss
and asset yield protection for all single family residential
mortgages and credit loss protection for a significant portion
of commercial and commercial real estate loans and
foreclosed real estate. Under the terms of the loss sharing
agreements, the Company will incur the first $1.6 billion of
losses on those assets. The FDIC will reimburse the
Company for 80 percent of the next $3.1 billion of losses
and 95 percent of losses beyond that amount. At the
acquisition date, the Company estimated the Downey and
PFF assets would incur approximately $4.7 billion of losses,
of which $2.4 billion would be reimbursable under the loss
sharing agreements. At the acquisition date, the Company
identified the acquired non-revolving loans experiencing
credit deterioration, representing the majority of assets
acquired, and recorded those assets at their estimated fair
value, reflecting expected credit losses and the related
reimbursement under the loss sharing agreements. As a
result, the Company only records provision for credit losses
and charge-offs on these loans for any further credit
deterioration after the date of acquisition. Based on the
accounting guidance applicable in 2008, the Company
recorded all other loans at the predecessors’ carrying
amount, net of fair value adjustments for any interest rate
related discount or premium, and an allowance for credit
losses.
At December 31, 2009, $22.5 billion of the Company’s
assets were covered by loss sharing agreements with the
FDIC (“covered assets”), compared with $11.5 billion at
Table 2 Analysis of Net Interest Income
(Dollars in Millions)
2009
2008
2007
2009
v 2008
2008
v 2007
Components of Net Interest Income
Income on earning assets (taxable-equivalent basis) (a) . .
Expense on interest-bearing liabilities (taxable-equivalent
$ 11,748
$ 12,630
$ 13,309
$ (882)
$ (679)
basis) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,032
Net interest income (taxable-equivalent basis) . . . . . . . . . . .
$ 8,716
Net interest income, as reported . . . . . . . . . . . . . . . . . . . .
$ 8,518
4,764
$ 7,866
$ 7,732
6,545
(1,732)
(1,781)
$ 6,764
$ 6,689
$
$
850
786
$ 1,102
$ 1,043
Average Yields and Rates Paid
Earning assets yield (taxable-equivalent basis) . . . . . . . .
Rate paid on interest-bearing liabilities (taxable-equivalent
basis) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross interest margin (taxable-equivalent basis) . . . . . . . . .
Net interest margin (taxable-equivalent basis) . . . . . . . . . . .
Average Balances
4.95%
5.87%
6.84%
(.92)%
(.97)%
1.55
3.40%
3.67%
2.58
3.29%
3.66%
3.91
2.93%
3.47%
(1.03)
(1.33)
.11%
.01%
.36%
.19%
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing liabilities . . . . . . . . . . . . . . . . . . . . . . .
Net free funds (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 42,809
185,805
237,287
195,614
41,673
$ 42,850
165,552
215,046
184,932
30,114
$ 41,313
147,348
194,683
167,196
27,487
$
(41)
20,253
22,241
10,682
11,559
$ 1,537
18,204
20,363
17,736
2,627
(a) Interest and rates are presented on a fully taxable-equivalent basis utilizing a federal tax rate of 35 percent.
(b) Represents noninterest-bearing deposits, other noninterest-bearing liabilities and equity, allowance for loan losses and unrealized gain (loss) on available-for-sale securities less non-earning
assets.
December 31, 2008. The Company’s financial disclosures
segregate covered assets from those acquired assets not
subject to the loss sharing agreements.
Statement of Income Analysis
Net Interest Income Net interest income, on a taxable-
equivalent basis, was $8.7 billion in 2009, compared with
$7.9 billion in 2008 and $6.8 billion in 2007. The
$.8 billion (10.8 percent) increase in net interest income in
2009, compared with 2008, was attributable to growth in
average earning assets and lower cost core deposit funding.
Average earning assets were $237.3 billion for 2009,
compared with $215.1 billion and $194.7 billion for 2008
and 2007, respectively. The $22.2 billion (10.3 percent)
increase in average earning assets in 2009 over 2008 was
principally a result of growth in total average loans,
including originated and acquired loans, and loans
held-for-sale. The net interest margin in 2009 was
3.67 percent, compared with 3.66 percent in 2008 and
3.47 percent in 2007. The net interest margin in 2008
benefited late in the year from significant turbulence in
market rates as a result of financial market disruption. The
net interest margin decreased in early 2009 as market rates
returned to more historically normal levels. However, as a
result of the Company’s ability to attract low cost deposits,
net interest margin increased throughout the remainder of
the year, resulting in a net interest margin in the fourth
quarter of 2009 of 3.83 percent. Given the current interest
rate environment, the Company expects the net interest
margin will remain relatively stable with a positive bias.
Refer to the “Interest Rate Risk Management” section for
further information on the sensitivity of the Company’s net
interest income to changes in interest rates.
Average total loans were $185.8 billion in 2009,
compared with $165.6 billion in 2008. Average loans
increased $20.3 billion (12.2 percent) in 2009, driven by
new loan originations, acquisitions and portfolio purchases.
Average retail loans increased $6.5 billion (11.6 percent)
year-over-year, driven by increases in credit card, home
equity and student loans. Average credit card balances were
$3.0 billion (25.0 percent) higher, reflecting both growth in
existing portfolios and portfolio purchases of approximately
$1.6 billion during 2009. Average home equity and student
loans, included in retail loans, increased 10.2 percent and
57.4 percent, respectively. Average commercial real estate
balances increased $2.6 billion (8.5 percent), and reflected
new business and higher utilization of existing credit
facilities, driven by market conditions. Residential mortgages
increased $1.2 billion (5.3 percent), reflecting an increase in
activity as a result of market interest rate declines, including
an increase in government agency-guaranteed mortgages.
Average commercial loans decreased $1.5 billion
U.S. BANCORP
21
Table 3 Net Interest Income — Changes Due to Rate and Volume (a)
(Dollars in Millions)
Volume
Yield/Rate
Total
Volume
Yield/Rate
Total
2009 v 2008
2008 v 2007
Increase (decrease) in
Interest Income
Investment securities . . . . . . . . . . . . . . . . . $
Loans held for sale . . . . . . . . . . . . . . . . . .
Loans
Commercial loans . . . . . . . . . . . . . . . . .
Commercial real estate. . . . . . . . . . . . . .
Residential mortgage . . . . . . . . . . . . . . .
Retail loans . . . . . . . . . . . . . . . . . . . . .
Total loans, excluding covered assets . . . .
Covered assets . . . . . . . . . . . . . . . . . . .
(2)
111
(74)
150
75
480
631
534
Total loans . . . . . . . . . . . . . . . . . . . .
Other earning assets . . . . . . . . . . . . . . . . .
1,165
7
Total earning assets . . . . . . . . . . . . . .
1,281
Interest Expense
Interest-bearing deposits
Interest checking . . . . . . . . . . . . . . . . . .
Money market accounts . . . . . . . . . . . . .
Savings accounts . . . . . . . . . . . . . . . . .
Time certificates of deposit less than
$100,000 . . . . . . . . . . . . . . . . . . . . .
Time deposits greater than $100,000 . . . .
Total interest-bearing deposits . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . .
Long-term debt. . . . . . . . . . . . . . . . . . . . .
Total interest-bearing liabilities . . . . . . .
46
69
24
149
(5)
283
(272)
(121)
(110)
Increase (decrease) in net interest income . . $1,391
$ (388)
(61)
$ (390)
50
$
83
(25)
$ (162)
(25)
$
(79)
(50)
(554)
(468)
(114)
(489)
(1,625)
(17)
(1,642)
(72)
(2,163)
(219)
(254)
27
(160)
(356)
(962)
(321)
(339)
(628)
(318)
(39)
(9)
(994)
517
(477)
(65)
(882)
(173)
(185)
51
(11)
(361)
(679)
(593)
(460)
(1,622)
$ (541)
(1,732)
$
850
427
183
72
560
1,242
61
1,303
80
1,441
67
25
2
(47)
400
447
493
(269)
671
(868)
(491)
(7)
(506)
(1,872)
–
(1,872)
(61)
(2,120)
(167)
(346)
(1)
(125)
(681)
(1,320)
(880)
(252)
(2,452)
$ 770
$
332
(441)
(308)
65
54
(630)
61
(569)
19
(679)
(100)
(321)
1
(172)
(281)
(873)
(387)
(521)
(1,781)
$ 1,102
(a) This table shows the components of the change in net interest income by volume and rate on a taxable-equivalent basis utilizing a tax rate of 35 percent. This table does not take into
account the level of noninterest-bearing funding, nor does it fully reflect changes in the mix of assets and liabilities. The change in interest not solely due to changes in volume or rates has
been allocated on a pro-rata basis to volume and yield/rate.
(2.7 percent) year-over-year principally due to lower
utilization of existing commitments and a reduction in the
demand for new loans. Average covered assets increased
$11.4 billion, due to the timing of the Downey, PFF and
FBOP acquisitions.
Average investment securities in 2009 were essentially
unchanged from 2008, as security purchases offset maturities
and sales. In 2009, the composition of the Company’s
investment portfolio shifted to a larger proportion in
U.S. Treasury, agency and agency mortgage-backed
securities, compared with a year ago.
Average noninterest-bearing deposits in 2009 were
$9.1 billion (31.7 percent) higher than 2008. The increase
reflected higher business demand deposit balances, partially
offset by lower trust demand deposits.
Average total savings products increased $18.4 billion
(29.0 percent) in 2009, compared with 2008, principally as
a result of a $7.2 billion increase in savings accounts due to
strong participation in a new savings product introduced
across the franchise by Consumer Banking late in the third
quarter of 2008, a $5.7 billion (18.4 percent) increase in
interest checking balances from higher government and
consumer banking customer balances and acquisitions, and a
$5.5 billion (20.9 percent) increase in money market savings
balances from higher broker-dealer, corporate trust and
institutional trust customer balances and acquisitions.
Average time certificates of deposit less than $100,000
increased $4.3 billion (31.6 percent) primarily due to
acquisitions. Average time deposits greater than $100,000
decreased $.2 billion (.7 percent) in 2009, compared with
2008. Time deposits greater than $100,000 are managed as
an alternative to other funding sources, such as wholesale
borrowing, based largely on relative pricing.
The $1.1 billion (16.3 percent) increase in net interest
income in 2008, compared with 2007, was attributable to
strong growth in average earning assets, as well as an
22
U.S. BANCORP
improved net interest margin. The $20.3 billion
(10.5 percent) increase in average earning assets in 2008
over 2007 was principally a result of growth in total average
loans, including originated and acquired loans, and average
investment securities. The increase in the net interest margin
reflected growth in higher-spread loans, asset/liability re-
pricing in a declining interest rate environment and
wholesale funding mix during a period of significant
volatility in short-term funding markets.
Average loans in 2008 were higher by $18.2 billion
(12.4 percent), compared with 2007, driven by growth in
most loan categories. Average investment securities were
$1.5 billion (3.7 percent) higher in 2008, compared with
2007, principally reflecting the full year impact of holding
structured investment securities the Company purchased in
the fourth quarter of 2007 from certain money market funds
managed by an affiliate and higher government agency
securities, partially offset by maturities and sales of
mortgage-backed securities, and realized and unrealized
losses on certain investment securities recorded in 2008.
Average noninterest-bearing deposits in 2008 were
$1.4 billion (5.0 percent) higher than 2007. The increase
reflected higher business and other demand deposit balances,
impacted by customer flight to quality and acquisitions.
Average total savings products increased $6.6 billion
(11.6 percent) in 2008, compared with 2007, principally as
a result of a $5.0 billion (19.2 percent) increase in interest
checking balances from broker-dealer, institutional trust,
government and consumer banking customers, and a
$1.0 billion (3.8 percent) increase in money market savings
balances driven primarily by higher broker-dealer and
consumer banking balances. Average time certificates of
deposit less than $100,000 were lower in 2008 by
$1.1 billion (7.3 percent), compared with 2007, due to the
Company’s funding and pricing decisions and competition
for these deposits. Average time deposits greater than
$100,000 increased by $8.2 billion (36.7 percent) in 2008,
compared with 2007, as a result of the Company’s wholesale
funding decisions and the ability to attract larger customer
deposits as a result of the Company’s relative strength.
Provision for Credit Losses The provision for credit losses
reflects changes in the credit quality of the entire portfolio of
loans, inclusive of credit loss protection from loss sharing
agreements with the FDIC, and is maintained at a level
considered appropriate by management for probable and
estimable incurred losses, based on factors discussed in the
“Analysis and Determination of Allowance for Credit
Losses” section.
In 2009, the provision for credit losses was $5.6 billion,
compared with $3.1 billion and $792 million in 2008 and
2007, respectively. The increases in the provision for credit
losses of $2.5 billion from a year ago and allowance for
credit losses from December 31, 2008 reflected deterioration
in economic conditions during most of the year and the
corresponding impact on the commercial, commercial real
estate and consumer loan portfolios. It also reflected
continuing stress in the residential real estate markets.
Nonperforming assets increased $1.9 billion (excluding
covered assets) over December 31, 2008. The increase was
driven primarily by stress in residential home construction
and related industries, deterioration in the residential
mortgage portfolio, as well as an increase in foreclosed
properties and the impact of the economic slowdown on
commercial and consumer customers. Net charge-offs
increased $2.1 billion from 2008, primarily due to economic
factors affecting the residential housing markets, including
homebuilding and related industries, commercial real estate
properties and credit costs associated with credit card and
other consumer and commercial loans as the economy
weakened and unemployment increased.
Accruing loans ninety days or more past due increased
$558 million (excluding covered assets), primarily due to stress
in residential mortgages, commercial loans, construction loans,
credit cards and home equity loans. Restructured loans that
continue to accrue interest increased $769 million, primarily
reflecting the impact of loan modifications for certain
residential mortgage and consumer credit card customers in
light of current economic conditions.
The $2.3 billion increase in the provision for credit
losses in 2008, compared with 2007, and the increase in the
allowance for credit losses from December 31, 2007 to
December 31, 2008 reflected stress in the residential real
estate markets, including homebuilding and related supplier
industries, driven by declining home prices in most
geographic regions. The increases also reflected deteriorating
economic conditions and the corresponding impact on the
commercial and consumer loan portfolios. Nonperforming
loans increased $1.2 billion (excluding covered assets) over
December 31, 2007. The increase was driven primarily by
weakening real estate values and the impact of the economic
slowdown on other commercial customers, and included
increases in commercial real estate loans, commercial loans
and residential mortgages. Net charge-offs increased
$1.0 billion in 2008, compared with 2007, primarily due to
the factors affecting the residential housing markets,
including the impact on homebuilding and related industries,
U.S. BANCORP
23
Table 4 Noninterest Income
(Dollars in Millions)
2009
2008
Credit and debit card revenue . . . . . . . . . . . . . . . . . . . . . . .
Corporate payment products revenue . . . . . . . . . . . . . . . . . .
Merchant processing services . . . . . . . . . . . . . . . . . . . . . . .
ATM processing services . . . . . . . . . . . . . . . . . . . . . . . . . .
Trust and investment management fees. . . . . . . . . . . . . . . . .
Deposit service charges . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury management fees . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial products revenue . . . . . . . . . . . . . . . . . . . . . . .
Mortgage banking revenue . . . . . . . . . . . . . . . . . . . . . . . . .
Investment products fees and commissions . . . . . . . . . . . . . .
Securities gains (losses), net . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,055
669
1,148
410
1,168
970
552
615
1,035
109
(451)
672
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . .
$7,952
$1,039
671
1,151
366
1,314
1,081
517
492
270
147
(978)
741
$6,811
2007
$ 958
638
1,108
327
1,339
1,077
472
433
259
146
15
524
$7,296
2009
v 2008
1.5%
(.3)
(.3)
12.0
(11.1)
(10.3)
6.8
25.0
*
(25.9)
53.9
(9.3)
16.8%
2008
v 2007
8.5%
5.2
3.9
11.9
(1.9)
.4
9.5
13.6
4.2
.7
*
41.4
(6.6)%
* Not meaningful
and credit costs associated with credit card and other
consumer loan growth during the period.
Refer to “Corporate Risk Profile” for further
information on the provision for credit losses, net charge-
offs, nonperforming assets and other factors considered by
the Company in assessing the credit quality of the loan
portfolio and establishing the allowance for credit losses.
Noninterest Income Noninterest income in 2009 was
$8.0 billion, compared with $6.8 billion in 2008 and
$7.3 billion in 2007. The $1.2 billion (16.8 percent) increase
in 2009 over 2008, was principally due to a $765 million
increase in mortgage banking revenue, the result of strong
mortgage loan production in the current low interest rate
environment and an increase in the valuation of mortgage
servicing rights (“MSRs”) net of related economic hedging
instruments. Other increases in noninterest income included
higher ATM processing services of 12.0 percent related to
growth in transaction volumes and business expansion,
higher treasury management fees of 6.8 percent resulting
from increased new business activity and pricing, and
25.0 percent higher commercial products revenue due to
higher letters of credit, capital markets and other
commercial loan fees. Net securities losses in 2009 were
53.9 percent lower than the prior year. Other income
decreased 9.3 percent, due to $551 million in gains in 2008
related to the Company’s ownership position in Visa Inc.,
partially offset by a reduction in residual lease valuation
losses in the current year, a $92 million gain from a
corporate real estate transaction in 2009, and other
payments-related gains in 2009. Deposit service charges
decreased 10.3 percent primarily due to a decrease in the
number of transaction-related fees, which more than offset
24
U.S. BANCORP
account growth. Trust and investment management fees
declined 11.1 percent, reflecting lower assets under
management account volume and the impact of low interest
rates on money market investment fees. Investment product
fees and commissions declined 25.9 percent due to lower
sales levels from a year ago.
The $485 million (6.6 percent) decrease in 2008 in
noninterest income from 2007, was driven by higher
impairment charges on investment securities and higher
retail lease residual losses, partially offset by the 2008 gains
related to the Company’s ownership position in Visa Inc.
and growth in fee income. In addition, noninterest income
for 2008 was reduced by the adoption of accounting
guidance related to fair value measurements in the financial
statements. Upon adoption of this guidance, trading revenue
decreased $62 million, as a result of the consideration of
nonperformance risk for certain customer-related financial
instruments. The growth in credit and debit card revenue in
2008 over 2007 was primarily driven by an increase in
customer accounts and higher customer transaction volumes.
The corporate payment products revenue growth reflected
growth in sales volumes and business expansion. ATM
processing services revenue increased due primarily to
growth in transaction volumes, including the impact of
additional ATMs during 2008. Merchant processing services
revenue was higher in 2008 than 2007, reflecting higher
transaction volume and business expansion. Treasury
management fees increased due primarily to the favorable
impact of declining rates on customer compensating
balances. Commercial products revenue increased due to
higher foreign exchange revenue, syndication fees, letters of
credit fees, fees on customer derivatives, and other
commercial loan fees. Mortgage banking revenue increased
Table 5 Noninterest Expense
(Dollars in Millions)
Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net occupancy and equipment . . . . . . . . . . . . . . . . . . . . . . .
Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing and business development . . . . . . . . . . . . . . . . . .
Technology and communications . . . . . . . . . . . . . . . . . . . . .
Postage, printing and supplies . . . . . . . . . . . . . . . . . . . . . . .
Other intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009
$3,135
574
836
255
378
673
288
387
1,755
Total noninterest expense . . . . . . . . . . . . . . . . . . . . . . . .
$8,281
2008
$3,039
515
781
240
310
598
294
355
1,216
$7,348
2007
$2,640
494
738
233
260
561
283
376
1,322
$6,907
2009
v 2008
3.2%
11.5
7.0
6.3
21.9
12.5
(2.0)
9.0
44.3
12.7%
2008
v 2007
15.1%
4.3
5.8
3.0
19.2
6.6
3.9
(5.6)
(8.0)
6.4%
Efficiency ratio (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48.4%
46.9%
49.2%
(a) Included in other expense in 2007 was a $330 million charge related to the Company’s contingent obligation to Visa Inc. for indemnification of certain litigation matters.
(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).
in 2008 over 2007 due to an increase in mortgage servicing
income and production revenue, partially offset by a
decrease in the valuation of MSRs net of related economic
hedging instruments. Other income was higher due to the
2008 gains related to the Company’s ownership position in
Visa Inc., partially offset by higher retail lease valuation
losses, lower equity investment revenue, market valuation
losses and the $62 million unfavorable impact to trading
income from the adoption of new accounting guidance.
Noninterest Expense Noninterest expense in 2009 was
$8.3 billion, compared with $7.3 billion in 2008 and
$6.9 billion in 2007. The Company’s efficiency ratio was
48.4 percent in 2009, compared with 46.9 percent in 2008.
The $933 million (12.7 percent) increase in noninterest
expense in 2009, compared with 2008, was principally due
to the impact of acquisitions, higher ongoing FDIC deposit
insurance expense, and a $123 million special assessment,
costs related to affordable housing and other tax-advantaged
investments, and marketing and business development
expense. Compensation expense increased 3.2 percent
primarily due to acquisitions, partially offset by reductions
from cost containment efforts. Employee benefits expense
increased 11.5 percent primarily due to increased pension
costs associated with previous declines in the value of
pension assets. Net occupancy and equipment expense, and
professional services expense increased 7.0 percent and
6.3 percent, respectively, primarily due to acquisitions, as
well as branch-based and other business expansion
initiatives. Marketing and business development expense
increased 21.9 percent principally due to costs related to the
introduction of new credit card products and advertising the
Company’s national branding strategy, while technology and
business communications expense increased 12.5 percent
primarily related to business expansion initiatives. Other
intangibles expense increased 9.0 percent due to
acquisitions. Other expense increased 44.3 percent due to
higher FDIC deposit insurance expense, including a
$123 million special assessment in the second quarter of
2009. Other expense also reflected increased costs related to
investments in affordable housing and other tax-advantaged
projects, higher merchant processing expenses, growth in
mortgage servicing expenses and costs associated with other
real estate owned.
The $441 million (6.4 percent) increase in noninterest
expense in 2008, compared with 2007, was principally due
to investments in business initiatives, including acquisitions,
higher credit collection costs, and incremental expenses
associated with investments in tax-advantaged projects,
partially offset by $330 million of charges recognized in
2007 for the Company’s proportionate share of a contingent
obligation to indemnify Visa Inc. for certain litigation
matters (“2007 Visa Charge”). Compensation expense was
higher in 2008 than 2007 due to growth in ongoing bank
operations, acquired businesses and other bank initiatives to
increase the Company’s banking presence and enhance
customer relationship management. Employee benefits
expense increased as higher payroll taxes and medical costs
were partially offset by lower pension costs. Net occupancy
and equipment expense increased primarily due to
acquisitions and branch-based and other business expansion
initiatives. Marketing and business development expense
increased due to costs incurred in 2008 for a national
advertising campaign, as well as a $25 million charitable
contribution made to the Company’s foundation in 2008.
Technology and communications expense increased due to
higher processing volumes and business expansion. Other
intangibles expense decreased reflecting the timing and
U.S. BANCORP
25
relative size of acquisitions. Other expense decreased,
primarily due to the 2007 Visa Charge, partially offset by
increases in 2008 in credit-related costs for other real estate
owned and loan collection activities and investments in tax-
advantaged projects.
Pension Plans Because of the long-term nature of pension
plans, the related accounting is complex and can be
impacted by several factors, including investment funding
policies, accounting methods, and actuarial assumptions.
The Company’s pension accounting reflects the long-term
nature of the benefit obligations and the investment horizon
of plan assets. Amounts recorded in the financial statements
reflect actuarial assumptions about participant benefits and
plan asset returns. Changes in actuarial assumptions, and
differences in actual plan experience compared with actuarial
assumptions, are deferred and recognized in expense in future
periods. Differences related to participant benefits are
recognized over the future service period of the employees.
Differences related to the expected return on plan assets are
included in expense over a twelve-year period.
The Company expects pension expense to increase
$25 million in 2010, driven by a $27 million increase related
to asset return differences, an $8 million increase related to
other actuarial gains and losses, and a $10 million decrease
related to the January 1, 2010 establishment of a cash
balance pension plan for certain current and all future
eligible employees. If performance of plan assets equals the
actuarially-assumed long-term rate of return (“LTROR”),
the cumulative difference of $613 million at December 31,
2009 will incrementally increase pension expense
$35 million in 2011, $38 million in 2012 and $49 million in
2013, and decrease pension expense $12 million in 2014.
Because of the complexity of forecasting pension plan
activities, the accounting methods utilized for pension plans,
the Company’s ability to respond to factors affecting the
plans and the hypothetical nature of actuarial assumptions,
actual pension expense will differ from these amounts.
Refer to Note 17 of the Notes to the Consolidated
Financial Statements for further information on the
Company’s pension plan funding practices, investment
policies and asset allocation strategies, and accounting
policies for pension plans.
26
U.S. BANCORP
The following table shows an analysis of hypothetical
changes in the LTROR and discount rate:
LTROR (Dollars in Millions)
Down 100
Basis Points
Up 100
Basis Points
Incremental benefit (expense) . . . . .
Percent of 2009 net income . . . . . .
$ (25)
(.70)%
$ 25
.70%
Discount Rate (Dollars in Millions)
Down 100
Basis Points
Up 100
Basis Points
Incremental benefit (expense) . . . . .
Percent of 2009 net income . . . . . .
$ (62)
(1.74)%
$ 56
1.57%
Income Tax Expense The provision for income taxes was
$395 million (an effective rate of 15.0 percent) in 2009,
compared with $1.1 billion (an effective rate of
26.5 percent) in 2008 and $1.9 billion (an effective rate of
30.0 percent) in 2007. The decrease in the effective tax rate
from 2008 reflected the impact of the relative level of tax-
exempt income and investments in affordable housing and
other tax-advantaged projects, combined with lower pre-tax
earnings year-over-year.
For further information on income taxes, refer to
Note 19 of the Notes to Consolidated Financial Statements.
Balance Sheet Analysis
Average earning assets were $237.3 billion in 2009,
compared with $215.0 billion in 2008. The increase in
average earning assets of $22.2 billion (10.3 percent) was
due to growth in total average loans of $20.3 billion
(12.2 percent) and loans held-for-sale of $1.9 billion
(48.7 percent).
For average balance information, refer to Consolidated
Daily Average Balance Sheet and Related Yields and Rates
on pages 126 and 127.
Loans The Company’s loan portfolio was $195.4 billion at
December 31, 2009, an increase of $10.2 billion (5.5 percent)
from December 31, 2008. The increase was driven by growth
in retail loans of $3.6 billion (5.9 percent), residential
mortgages of $2.5 billion (10.5 percent), commercial real estate
loans of $.9 billion (2.6 percent) and covered assets of
$11.1 billion, partially offset by a decrease in commercial loans
of $7.8 billion (13.8 percent). Table 6 provides a summary of
the loan distribution by product type, while Table 10 provides
a summary of selected loan maturity distribution by loan
category. Average total loans increased $20.3 billion
(12.2 percent) in 2009, compared with 2008. The increase was
due to growth in most major loan categories in 2009.
Commercial Commercial loans, including lease financing,
decreased $7.8 billion (13.8 percent) as of December 31,
Table 6 Loan Portfolio Distribution
At December 31 (Dollars in Millions)
Amount
Percent
of Total
Amount
Percent
of Total
Amount
Percent
of Total
Amount
Percent
of Total
Amount
Percent
of Total
2009
2008
2007
2006
2005
Commercial
Commercial . . . . . . . . . . . . . . . $ 42,255
6,537
Lease financing . . . . . . . . . . . .
21.6% $ 49,759
6,859
3.4
26.9% $ 44,832
6,242
3.7
29.1% $ 40,640
5,550
4.1
28.3% $ 37,844
5,098
3.9
27.7%
3.7
Total commercial . . . . . . . . . .
48,792
25.0
56,618
30.6
51,074
33.2
46,190
32.2
42,942
31.4
Commercial Real Estate
Commercial mortgages . . . . . . .
Construction and development . .
25,306
8,787
Total commercial real estate . .
34,093
Residential Mortgages
Residential mortgages . . . . . . . .
Home equity loans, first liens . . .
20,581
5,475
Total residential mortgages . . .
26,056
Retail
Credit card . . . . . . . . . . . . . . .
Retail leasing . . . . . . . . . . . . . .
Home equity and second
16,814
4,568
13.0
4.5
17.5
10.5
2.8
13.3
8.6
2.3
23,434
9,779
33,213
18,232
5,348
12.6
5.3
17.9
9.8
2.9
23,580
12.7
13,520
5,126
7.3
2.8
20,146
9,061
29,207
17,099
5,683
22,782
10,956
5,969
13.1
5.9
19.0
11.1
3.7
14.8
7.1
3.9
19,711
8,934
28,645
15,316
5,969
21,285
8,670
6,960
13.7
6.2
19.9
10.7
4.1
14.8
6.0
4.9
20,272
8,191
28,463
14,538
6,192
20,730
7,137
7,338
14.9
6.0
20.9
10.7
4.5
15.2
5.2
5.4
mortgages . . . . . . . . . . . . . .
19,439
9.9
19,177
10.3
16,441
10.7
15,523
10.8
14,979
11.0
Other retail
Revolving credit
. . . . . . . . . .
Installment . . . . . . . . . . . . . .
Automobile. . . . . . . . . . . . . .
Student . . . . . . . . . . . . . . . .
3,506
5,455
9,544
4,629
Total other retail
. . . . . . . .
23,134
Total retail . . . . . . . . . . . . . .
63,955
Total loans, excluding covered
assets . . . . . . . . . . . . . . .
Covered assets . . . . . . . . . . . .
172,896
22,512
1.8
2.8
4.9
2.4
11.9
32.7
88.5
11.5
3,205
5,525
9,212
4,603
22,545
60,368
173,779
11,450
1.7
3.0
5.0
2.5
12.2
32.6
93.8
6.2
2,731
5,246
8,970
451
17,398
50,764
1.8
3.4
5.8
.3
11.3
33.0
2,563
4,478
8,693
590
16,324
47,477
1.8
3.1
6.1
.4
11.4
33.1
2,504
3,582
8,112
675
14,873
44,327
1.8
2.6
6.0
.5
10.9
32.5
153,827
–
100.0
–
143,597
–
100.0
–
136,462
–
100.0
–
Total loans . . . . . . . . . . . . . . $195,408
100.0% $185,229
100.0% $153,827
100.0% $143,597
100.0% $136,462
100.0%
2009, compared with December 31, 2008. The decrease in
commercial loans was primarily driven by lower capital
spending and economic conditions impacting loan demand
by business customers, along with the access to bond
markets by those customers to refinance their bank debt.
Average commercial loans decreased $1.5 billion
(2.7 percent) in 2009, compared with 2008, primarily due to
lower utilization of existing commitments and a reduction in
demand for new loans. Table 7 provides a summary of
commercial loans by industry and geographical locations.
Commercial Real Estate The Company’s portfolio of
commercial real estate loans, which includes commercial
mortgages and construction loans, increased $.9 billion
(2.6 percent) at December 31, 2009, compared with
December 31, 2008. Average commercial real estate loans
increased $2.6 billion (8.5 percent) in 2009, compared with
2008. The growth in commercial real estate loans reflected
new business growth and the extension of existing credit
facilities, as current market conditions have limited
borrower access to real estate capital markets. Table 8
provides a summary of commercial real estate by property
type and geographic location. The collateral for $4.7 billion
of commercial real estate loans included in covered assets at
December 31, 2009 was in California, compared with
$.8 billion at December 31, 2008.
The Company classifies loans as construction until the
completion of the construction phase. Following
construction, if a loan is retained, the loan is reclassified to
the commercial mortgage category. In 2009, approximately
$947 million of construction loans were reclassified to the
commercial mortgage loan category for permanent financing
after completion of the construction phase. At December 31,
2009, $214 million of tax-exempt industrial development
loans were secured by real estate. The Company’s
commercial real estate mortgages and construction loans had
unfunded commitments of $6.1 billion and $8.0 billion at
U.S. BANCORP
27
Table 7 Commercial Loans by Industry Group and Geography,
Excluding Covered Assets
(Dollars in Millions)
December 31, 2009
December 31, 2008
Loans
Percent
Loans
Percent
Industry Group
Consumer products and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,197
5,123
Financial services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,806
Capital goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,757
Commercial services and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,415
Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,586
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Property management and development
2,000
Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,952
Paper and forestry products, mining and basic materials . . . . . . . . . . . . . . . . .
1,757
Private investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,708
Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,659
Consumer staples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,122
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
878
Information technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,832
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.8%
10.5
7.8
7.7
7.0
5.3
4.1
4.0
3.6
3.5
3.4
2.3
1.8
22.2
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $48,792
100.0%
Geography
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,685
1,903
Colorado. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,611
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,757
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,708
Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,196
Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,610
Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,196
Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,098
Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,123
Iowa, Kansas, Nebraska, North Dakota, South Dakota . . . . . . . . . . . . . . . . . .
1,805
Arkansas, Indiana, Kentucky, Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,073
Idaho, Montana, Wyoming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,000
Arizona, Nevada, Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outside the Company’s banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33,765
15,027
13.7%
3.9
7.4
7.7
3.5
4.5
3.3
4.5
4.3
6.4
3.7
2.2
4.1
69.2
30.8
$10,706
6,669
4,945
4,420
2,447
3,896
3,614
2,308
1,194
1,910
2,568
2,320
1,230
8,391
$56,618
$ 6,638
2,825
3,710
6,195
1,955
2,915
2,171
2,677
2,621
3,755
2,075
1,124
1,993
40,654
15,964
18.9%
11.8
8.7
7.8
4.3
6.9
6.4
4.1
2.1
3.4
4.5
4.1
2.2
14.8
100.0%
11.7%
5.0
6.6
10.9
3.5
5.2
3.8
4.7
4.6
6.6
3.7
2.0
3.5
71.8
28.2
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $48,792
100.0%
$56,618
100.0%
December 31, 2009 and 2008, respectively. The Company
also finances the operations of real estate developers and
other entities with operations related to real estate. These
loans are not secured directly by real estate and are subject
to terms and conditions similar to commercial loans. These
loans were included in the commercial loan category and
totaled $1.8 billion at December 31, 2009.
Residential Mortgages Residential mortgages held in the
loan portfolio at December 31, 2009, increased $2.5 billion
(10.5 percent) from December 31, 2008. Average residential
mortgages increased $1.2 billion (5.3 percent) in 2009,
compared with 2008. The growth principally reflected an
increase in production as a result of market interest rate
declines, including an increase in government agency-
guaranteed mortgages. Most loans retained in the portfolio
are to customers with prime or near-prime credit
characteristics at the date of origination.
Retail Total retail loans outstanding, which include credit
card, retail leasing, home equity and second mortgages and
other retail loans, increased $3.6 billion (5.9 percent) at
December 31, 2009, compared with December 31, 2008.
The increase was primarily driven by growth in credit card
balances and home equity and second mortgages, partially
offset by lower retail leasing balances. Average retail loans
increased $6.5 billion (11.6 percent) in 2009, compared with
2008, as a result of current year growth and a student loan
portfolio purchase in 2008.
28
U.S. BANCORP
Table 8 Commercial Real Estate by Property Type and Geography,
Excluding Covered Assets
(Dollars in Millions)
December 31, 2009
December 31, 2008
Loans
Percent
Loans
Percent
Property Type
Business owner occupied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,944
Commercial property
Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilders
Condominiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Multi-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hotel/motel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Health care facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,500
3,580
4,500
3,614
614
1,704
5,625
1,807
205
32.1%
$11,259
33.9%
4.4
10.5
13.2
10.6
1.8
5.0
16.5
5.3
.6
1,362
3,056
4,052
3,537
764
2,491
4,882
1,561
249
4.1
9.2
12.2
10.7
2.3
7.5
14.7
4.7
.8
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $34,093
100.0%
$33,213
100.0%
Geography
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,432
1,568
Colorado. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,227
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,739
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,568
Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,364
Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,773
Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,307
Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,568
Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,216
Iowa, Kansas, Nebraska, North Dakota, South Dakota . . . . . . . . . . . . . . . . . .
1,602
Arkansas, Indiana, Kentucky, Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,227
Idaho, Montana, Wyoming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,034
Arizona, Nevada, Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outside the Company’s banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29,625
4,468
21.8%
4.6
3.6
5.1
4.6
4.0
5.2
9.7
4.6
6.5
4.7
3.6
8.9
86.9
13.1
$ 6,975
1,661
1,229
1,694
1,528
1,329
1,860
3,222
1,495
2,225
1,528
1,295
3,288
29,329
3,884
21.0%
5.0
3.7
5.1
4.6
4.0
5.6
9.7
4.5
6.7
4.6
3.9
9.9
88.3
11.7
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $34,093
100.0%
$33,213
100.0%
Of the total retail loans and residential mortgages
outstanding, excluding covered assets, at December 31, 2009,
approximately 78.2 percent were to customers located in the
Company’s primary banking region. Table 9 provides a
geographic summary of residential mortgages and retail loans
outstanding as of December 31, 2009 and 2008. The
collateral for $6.6 billion of residential mortgages and retail
loans included in covered assets at December 31, 2009 was in
California, compared with $7.1 billion at December 31, 2008.
U.S. BANCORP
29
Table 9 Residential Mortgages and Retail Loans by Geography,
Excluding Covered Assets
(Dollars in Millions)
December 31, 2009
December 31, 2008
Loans
Percent
Loans
Percent
Residential Mortgages
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,487
1,755
Colorado. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,676
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,216
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,467
Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,682
Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,065
Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,414
Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,067
Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,393
Iowa, Kansas, Nebraska, North Dakota, South Dakota . . . . . . . . . . . . . . . . . .
1,947
Arkansas, Indiana, Kentucky, Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . .
601
Idaho, Montana, Wyoming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,657
Arizona, Nevada, Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.5%
6.7
6.4
8.5
5.6
6.5
4.1
5.4
4.1
5.4
7.5
2.3
6.4
Total banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outside the Company’s banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,427
5,629
78.4
21.6
$ 1,910
1,558
1,458
2,221
1,488
1,608
966
1,298
1,099
1,423
1,933
513
1,421
18,896
4,684
8.1%
6.6
6.2
9.4
6.3
6.8
4.1
5.5
4.7
6.0
8.2
2.2
6.0
80.1
19.9
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26,056
100.0%
$23,580
100.0%
Retail Loans
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,442
3,390
Colorado. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,262
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,396
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,942
Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,837
Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,878
Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,262
Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,878
Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,581
Iowa, Kansas, Nebraska, North Dakota, South Dakota . . . . . . . . . . . . . . . . . .
4,285
Arkansas, Indiana, Kentucky, Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,791
Idaho, Montana, Wyoming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,006
Arizona, Nevada, Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outside the Company’s banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49,950
14,005
13.2%
5.3
5.1
10.0
4.6
6.0
4.5
5.1
4.5
5.6
6.7
2.8
4.7
78.1
21.9
$ 7,705
3,000
3,073
6,108
2,858
3,729
2,833
3,064
2,883
3,609
4,199
1,771
2,843
47,675
12,693
12.7%
5.0
5.1
10.1
4.7
6.2
4.7
5.1
4.8
6.0
7.0
2.9
4.7
79.0
21.0
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $63,955
100.0%
$60,368
100.0%
Table 10 Selected Loan Maturity Distribution
December 31, 2009 (Dollars in Millions)
One Year
or Less
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,052
11,236
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,299
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25,281
Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,712
Covered assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $65,580
Total of loans due after one year with
Predetermined interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Floating interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over One
Through
Five Years
$24,715
16,193
2,899
23,014
7,343
$74,164
Over Five
Years
$ 3,025
6,664
21,858
15,660
8,457
$55,664
Total
$ 48,792
34,093
26,056
63,955
22,512
$195,408
$ 58,573
$ 71,255
30
U.S. BANCORP
Loans Held for Sale Loans held for sale, consisting primarily
of residential mortgages and student loans to be sold in the
secondary market, were $4.8 billion at December 31, 2009,
compared with $3.2 billion at December 31, 2008. The
increase in loans held for sale was principally due to an
increase in mortgage loan origination activity as a result of a
decline in market interest rates.
Investment Securities The Company uses its investment
securities portfolio for several purposes. It serves as a vehicle
to manage enterprise interest rate risk, generates interest and
dividend income from the investment of excess funds
depending on loan demand, provides liquidity and is used as
collateral for public deposits and wholesale funding sources.
While the Company intends to hold its investment securities
indefinitely, it may sell securities in response to structural
changes in the balance sheet and related interest rate risk
and to meet liquidity requirements, among other factors.
At December 31, 2009, investment securities totaled
$44.8 billion, compared with $39.5 billion at December 31,
2008. The $5.3 billion (13.3 percent) increase reflected
$3.1 billion of net investment purchases and a $2.2 billion
decrease in net unrealized losses. At December 31, 2009,
adjustable-rate financial instruments comprised 46 percent
of the investment securities portfolio, compared with
40 percent at December 31, 2008.
Average investment securities were $42.8 billion in
2009, essentially unchanged from 2008. The weighted-
average yield of the available-for-sale portfolio was
4.00 percent at December 31, 2009, compared with
4.56 percent at December 31, 2008. The average maturity of
the available-for-sale portfolio decreased to 7.1 years at
December 31, 2009, from 7.7 years at December 31, 2008.
Investment securities by type are shown in Table 11.
The Company conducts a regular assessment of its
investment portfolios to determine whether any securities are
other-than-temporarily impaired. During 2009, the Financial
Accounting Standards Board issued new accounting
guidance, which the Company adopted effective January 1,
2009, for the measurement and recognition of
other-than-temporary impairment for debt securities. This
guidance requires the portion of other-than-temporary
impairment related to factors other than anticipated credit
losses be recognized in other comprehensive income (loss),
rather than earnings.
At December 31, 2009, the Company’s net unrealized
loss on available-for-sale securities was $.6 billion, compared
with a net unrealized loss of $2.8 billion at December 31,
2008. The decrease in unrealized losses was primarily due to
increases in the fair value of agency mortgage-backed
securities and obligations of state and political subdivisions,
and to amounts recognized as other-than-temporary
impairments in earnings. When assessing impairment, the
Company considers the nature of the investment, the
financial condition of the issuer, the extent and duration of
unrealized loss, expected cash flows of underlying collateral
or assets and market conditions. At December 31, 2009, the
Company had no plans to sell securities with unrealized
losses and believes it is more likely than not it would not be
required to sell such securities before recovery of their
amortized cost.
U.S. BANCORP
31
Table 11 Investment Securities
December 31, 2009 (Dollars in Millions)
U.S. Treasury and Agencies
Available-for-Sale
Held-to-Maturity
Amortized
Cost
Fair
Value
Weighted-
Average
Maturity in
Years
Weighted-
Average
Yield (d)
Amortized
Cost
Fair
Value
Weighted-
Average
Maturity in
Years
Weighted-
Average
Yield (d)
Maturing in one year or less . . . . . . . . . . . . . . . $ 1,091
639
Maturing after one year through five years . . . . .
Maturing after five years through ten years . . . . .
30
1,655
Maturing after ten years . . . . . . . . . . . . . . . . . .
$ 1,096
637
31
1,640
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,415
$ 3,404
Mortgage-Backed Securities (a)
Maturing in one year or less . . . . . . . . . . . . . . . $
Maturing after one year through five years . . . . .
Maturing after five years through ten years . . . . .
Maturing after ten years . . . . . . . . . . . . . . . . . .
540
16,744
12,491
2,510
$
548
16,843
12,383
2,378
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $32,285
$32,152
Asset-Backed Securities (a)
Maturing in one year or less . . . . . . . . . . . . . . . $
Maturing after one year through five years . . . . .
Maturing after five years through ten years . . . . .
Maturing after ten years . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1
427
122
9
559
Obligations of State and Political
Subdivisions (b)
Maturing in one year or less . . . . . . . . . . . . . . . $
Maturing after one year through five years . . . . .
Maturing after five years through ten years . . . . .
Maturing after ten years . . . . . . . . . . . . . . . . . .
137
399
4,326
1,960
$
$
$
1
427
127
7
562
137
400
4,316
1,840
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,822
$ 6,693
Other Debt Securities
Maturing in one year or less . . . . . . . . . . . . . . . $
Maturing after one year through five years . . . . .
Maturing after five years through ten years . . . . .
Maturing after ten years . . . . . . . . . . . . . . . . . .
6
67
56
1,402
$
6
52
48
1,059
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,531
$ 1,165
Other Investments . . . . . . . . . . . . . . . . . . . . . . $
744
$
745
Total investment securities (c). . . . . . . . . . . . . . . . $45,356
$44,721
.3
2.3
7.8
14.2
7.5
.3
3.3
6.6
12.2
5.2
.6
3.2
6.8
19.0
4.2
.6
4.3
6.6
22.3
10.9
.9
2.4
7.6
32.5
30.2
9.6
7.1
2.98%
3.33
4.72
1.93
2.55%
3.32%
3.50
3.66
1.66
3.42%
17.60%
8.69
9.60
23.80
9.15%
1.25%
6.90
6.78
6.84
6.69%
.89%
6.34
6.35
4.28
4.44%
6.71%
4.00%
$ –
–
–
–
$ –
$ –
4
–
–
$ 4
$ –
–
–
–
$ –
$ 2
4
11
15
$32
$ 4
7
–
–
$11
$ –
$47
$ –
–
–
–
$ –
$ –
4
–
–
$ 4
$ –
–
–
–
$ –
$ 2
4
12
15
$33
$ 4
7
–
–
$11
$ –
$48
–
–
–
–
–
–
4.6
–
–
4.6
–
–
–
–
–
.7
3.5
6.5
17.0
10.9
.6
4.1
–
–
2.8
–
8.4
–%
–
–
–
–%
–%
5.11
–
–
5.11%
–%
–
–
–
–%
7.80%
6.37
7.46
5.51
6.39%
1.53%
1.42
–
–
1.46%
–%
5.10%
(a) Information related to asset and mortgage-backed securities included above is presented based upon weighted-average maturities anticipating future prepayments.
(b) Information related to obligations of state and political subdivisions is presented based upon yield to first optional call date if the security is purchased at a premium, yield to maturity if
purchased at par or a discount.
(c) The weighted-average maturity of the available-for-sale investment securities was 7.7 years at December 31, 2008, with a corresponding weighted-average yield of 4.56 percent. The
weighted-average maturity of the held-to-maturity investment securities was 8.5 years at December 31, 2008, with a corresponding weighted-average yield of 5.78 percent.
(d) Average yields are presented on a fully-taxable equivalent basis utilizing 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.
December 31 (Dollars in Millions)
U.S. Treasury and agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of state and political subdivisions. . . . . . . . . . . . . . . . . .
Other debt securities and investments . . . . . . . . . . . . . . . . . . . . . .
Total investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009
2008
Amortized
Cost
$ 3,415
32,289
559
6,854
2,286
$45,403
Percent
of Total
7.5%
71.1
1.2
15.1
5.1
100.0%
Amortized
Cost
$
664
31,271
616
7,258
2,527
$42,336
Percent
of Total
1.6%
73.9
1.4
17.1
6.0
100.0%
32
U.S. BANCORP
During 2009, the Company recognized impairment
charges in earnings related to perpetual preferred securities,
primarily issued by financial institutions, of $223 million.
The net unrealized loss for the Company’s remaining
investments in perpetual preferred securities was $60 million
at December 31, 2009.
There is limited market activity for the structured
investment and non-agency mortgage-backed securities held
by the Company. As a result, the Company estimates the fair
value of these securities using estimates of expected cash
flows, discount rates and management’s assessment of
various market factors, which are judgmental in nature. The
Company recorded $363 million of impairment charges in
earnings on non-agency mortgage-backed and structured
investment related securities during 2009. These impairment
charges were due to changes in expected cash flows resulting
from the continuing decline in housing prices and an
increase in foreclosure activity. Further adverse changes in
Table 12 Deposits
The composition of deposits was as follows:
market conditions may result in additional impairment
charges in future periods.
In 2008, the Company recorded $788 million of
impairment charges on structured investment and related
securities, and $232 million of impairment charges on other
investment securities, including government-sponsored
enterprises, preferred stock and non-agency mortgage-
backed securities.
Refer to Notes 5 and 21 in the Notes to Consolidated
Financial Statements for further information on investment
securities.
Deposits Total deposits were $183.2 billion at December 31,
2009, compared with $159.4 billion at December 31, 2008.
The $23.9 billion (15.0 percent) increase in total deposits
reflected organic growth in core deposits and $15.4 billion
of deposits assumed in the FBOP acquisition. Average total
December 31 (Dollars in Millions)
Amount
Percent
of Total
Amount
Percent
of Total
Amount
Percent
of Total
Amount
Percent
of Total
Amount
Percent
of Total
2009
2008
2007
2006
2005
Noninterest-bearing deposits . . . . . $ 38,186
Interest-bearing deposits
Interest checking . . . . . . . . . . .
Money market savings . . . . . . .
Savings accounts . . . . . . . . . . .
38,436
40,848
16,885
Total of savings deposits . . . .
96,169
Time certificates of deposit less
20.8% $ 37,494
23.5% $ 33,334
25.4% $ 32,128
25.7% $ 32,214
25.8%
21.0
22.3
9.2
52.5
32,254
26,137
9,070
67,461
20.2
16.4
5.7
42.3
28,996
24,301
5,001
58,298
22.1
18.5
3.8
44.4
24,937
26,220
5,314
56,471
20.0
21.0
4.2
45.2
23,274
27,934
5,602
56,810
18.7
22.4
4.5
45.6
than $100,000 . . . . . . . . . . . . .
18,966
10.4
18,425
11.7
14,160
10.8
13,859
11.1
13,214
10.6
Time deposits greater than
$100,000
Domestic . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . .
Total interest-bearing
16,858
13,063
9.2
7.1
20,791
15,179
13.0
9.5
15,351
10,302
11.7
7.8
14,868
7,556
11.9
6.1
14,341
8,130
11.5
6.5
deposits . . . . . . . . . . . . . .
145,056
79.2
121,856
76.5
98,111
74.6
92,754
74.3
92,495
74.2
Total deposits . . . . . . . . . . . . . $183,242
100.0% $159,350
100.0% $131,445
100.0% $124,882
100.0% $124,709
100.0%
The maturity of time deposits was as follows:
December 31, 2009 (Dollars in Millions)
Certificates
Less Than $100,000
Time Deposits
Greater Than $100,000
Three months or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Three months through six months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Six months through one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,573
3,867
4,422
2,426
833
1,390
1,443
12
$18,966
$14,229
3,665
3,079
1,276
466
1,320
1,177
4,709
$29,921
Total
$18,802
7,532
7,501
3,702
1,299
2,710
2,620
4,721
$48,887
U.S. BANCORP
33
deposits increased $31.6 billion (23.2 percent) over 2008,
reflecting an increase in all major deposit categories.
alternative to other funding sources, such as wholesale
borrowing, based largely on relative pricing.
Noninterest-bearing deposits at December 31, 2009,
increased $.7 billion (1.8 percent) from December 31, 2008.
The increase was primarily attributable to higher business
demand balances as well as the FBOP acquisition. The
increase was partially offset by lower broker-dealer balances.
Average noninterest-bearing deposits increased $9.1 billion
(31.7 percent) in 2009, compared with 2008, due primarily
to higher business demand deposits, partially offset by lower
trust demand deposits.
Interest-bearing savings deposits increased $28.7 billion
(42.6 percent) at December 31, 2009, compared with
December 31, 2008. The increase in these deposit balances
was primarily related to higher savings, interest checking
and money market savings balances. The $7.8 billion
(86.2 percent) increase in savings account balances reflected
strong participation in a new savings product introduced in
late 2008 by Consumer Banking, higher broker-dealer
balances, and the impact of the FBOP acquisition. The
$6.2 billion (19.2 percent) increase in interest checking
account balances was due to higher branch-based and
broker-dealer balances, as well as the impact of the FBOP
acquisition. The $14.7 billion (56.3 percent) increase in
money market savings account balances reflected higher
corporate trust, institutional trust and custody, and broker-
dealer balances, as well as the impact of the FBOP
acquisition. Average interest-bearing savings deposits in
2009 increased $18.4 billion (29.0 percent), compared with
2008, primarily driven by higher savings account balances of
$7.2 billion, interest checking account balances of
$5.7 billion (18.4 percent) and money market savings
account balances of $5.5 billion (20.9 percent).
Interest-bearing time deposits at December 31, 2009,
decreased $5.5 billion (10.1 percent), compared with
December 31, 2008, driven primarily by a decrease in time
deposits greater than $100,000, as a result of the Company’s
funding and pricing decisions. Time certificates of deposit
less than $100,000 increased $541 million (2.9 percent) at
December 31, 2009, compared with December 31, 2008.
Average time certificates of deposit less than $100,000 in
2009 increased $4.3 billion (31.6 percent), compared with
2008, due primarily to acquisitions. Time deposits greater
than $100,000 decreased $6.0 billion (16.8 percent) at
December 31, 2009, compared with December 31, 2008.
Average time deposits greater than $100,000 in 2009
decreased $200 million (.7 percent), compared with 2008.
Time deposits greater than $100,000 are managed as an
34
U.S. BANCORP
Borrowings The Company utilizes both short-term and long-
term borrowings to fund growth of assets in excess of
deposit growth. Short-term borrowings, which include
federal funds purchased, commercial paper, repurchase
agreements, borrowings secured by high-grade assets and
other short-term borrowings, were $31.3 billion at
December 31, 2009, compared with $34.0 billion at
December 31, 2008. Short-term funding is managed within
approved liquidity policies. The decrease of $2.7 billion
(7.9 percent) in short-term borrowings reflected reduced
borrowing needs as a result of increases in deposits.
Long-term debt was $32.6 billion at December 31,
2009, compared with $38.4 billion at December 31, 2008,
primarily reflecting $4.5 billion of medium-term note
maturities and repayments, $500 million of subordinated
debt maturities and a $5.7 billion net decrease in Federal
Home Loan Bank advances, partially offset by issuances of
$4.5 billion of medium-term notes and $501 million of
junior subordinated debentures during 2009. Refer to
Note 13 of the Notes to Consolidated Financial Statements
for additional information regarding long-term debt and 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 risk, processing errors,
technology, breaches of internal controls and business
continuation and disaster recovery risk. Interest rate risk is
the potential reduction of net interest income as a result of
changes in interest rates, which can affect the re-pricing of
assets and liabilities differently. Market risk arises from
fluctuations in interest rates, foreign exchange rates, and
security prices that may result in changes in the values of
financial instruments, such as trading and available-for-sale
securities that are accounted for on a mark-to-market basis.
Liquidity risk is the possible inability to fund obligations to
depositors, investors or borrowers. In addition, corporate
strategic decisions, as well as the risks described above,
could give rise to reputation risk. Reputation risk is the risk
that negative publicity or press, whether true or not, could
result in costly litigation or cause a decline in the Company’s
stock value, customer base, funding sources or revenue.
Credit Risk Management The Company’s strategy for credit
risk management includes well-defined, centralized credit
policies, uniform underwriting criteria, and ongoing risk
monitoring and review processes for all commercial and
consumer credit exposures. The strategy also emphasizes
diversification on a geographic, industry and customer level,
regular credit examinations and management reviews of
loans exhibiting deterioration of credit quality. The credit
risk management strategy also includes a credit risk
assessment process, independent of business line managers,
that performs assessments of compliance with commercial
and consumer credit policies, risk ratings, and other critical
credit information. The Company strives to identify
potential problem loans early, record any necessary charge-
offs promptly and maintain appropriate reserve levels for
probable incurred loan losses. Commercial banking
operations rely on prudent credit policies and procedures
and individual lender and business line manager
accountability. Lenders are assigned lending authority based
on their level of experience and customer service
requirements. Credit officers reporting to an independent
credit administration function have higher levels of lending
authority and support the business units in their credit
decision process. Loan decisions are documented with
respect to the borrower’s business, purpose of the loan,
evaluation of the repayment source and the associated risks,
evaluation of collateral, covenants and monitoring
requirements, and risk rating rationale. The Company
utilizes a credit risk rating system to measure the credit
quality of individual commercial loans, including the
probability of default of an obligor and the loss given
default of credit facilities. The Company uses the risk rating
system for regulatory reporting, determining the frequency
of review of the credit exposures, and evaluation and
determination of the specific allowance for commercial
credit losses. The Company regularly forecasts potential
changes in risk ratings, nonperforming status and potential
for loss and the estimated impact on the allowance for credit
losses. In the Company’s retail banking operations, standard
credit scoring systems are used to assess credit risks of
consumer, small business and small-ticket leasing customers
and to price products accordingly. The Company conducts
the underwriting and collections of its retail products in loan
underwriting and servicing centers specializing in certain
retail products. Forecasts of delinquency levels, bankruptcies
and losses in conjunction with projection of estimated losses
by delinquency categories and vintage information are
regularly prepared and are used to evaluate underwriting
and collection and determine the specific allowance for
credit losses for these products. 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. The Company also
engages in non-lending activities that may give rise to credit
risk, including interest rate swap and option contracts for
balance sheet hedging purposes, foreign exchange
transactions, deposit overdrafts and interest rate swap
contracts for customers, and settlement risk, including
Automated Clearing House transactions, and the processing
of credit card transactions for merchants. These activities are
also subject to credit review, analysis and approval
processes.
Economic and Other Factors 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.
For several years prior to mid-2007, economic
conditions were strong, with relatively low unemployment,
expanding retail sales, and favorable trends related to
corporate profits and consumer spending for retail goods
and services. Since mid-2007, corporate profit levels have
weakened, unemployment rates have risen, vehicle and retail
sales have declined and credit quality indicators have
deteriorated substantially. In addition, the mortgage lending
and homebuilding industries have experienced significant
stress. Residential home inventory levels approximated a
8.1 month supply at the end of 2009. Median home prices,
which peaked in mid-2006, have declined across most
domestic markets with severe price reductions in California
and some parts of the Southwest, Northeast and Southeast
regions.
The decline in residential home values has had a
significant adverse impact on residential mortgage loans.
Residential mortgage delinquencies, which increased
dramatically in 2007 for sub-prime borrowers, have also
increased throughout 2008 and 2009 for other classes of
U.S. BANCORP
35
borrowers. Rising unemployment levels have further
increased losses in prime-based residential portfolios and
credit cards.
The unfavorable conditions that have affected the
economy since mid-2007, intensified in 2008 and 2009. This
led to an overall decrease in confidence in the financial
markets. In response to liquidity pressures on short-term
funding markets and stress in the global banking system, the
U.S. Department of the Treasury, the FDIC and U.S. Federal
Reserve System, foreign governments and other central
banks, took a variety of measures to restore confidence in
the financial markets and strengthen financial institutions,
including capital injections and guarantees of bank
liabilities. Domestically, the United States Congress passed a
bill authorizing an increase in federal spending in an attempt
to provide economic stimulus. In late 2009, the domestic
recession moderated by some economic measures, though
unemployment and under-employment continue to be
historically high, consumer confidence and spending remain
lower, and many borrowers continue to have difficulty
meeting their commitments. As a result, the Company
expects nonperforming assets and charge-offs to continue to
increase during early 2010, however at a decreasing rate as
compared with prior quarters. The Company recorded
provision for credit losses in excess of charge-offs during
2009 and 2008 of $1.7 billion and $1.3 billion, respectively,
as the result of these economic and environment factors.
Credit Diversification 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 traditional commercial lending products and
specialized products such as asset-based lending, commercial
lease financing, agricultural credit, warehouse mortgage
lending, commercial real estate, health care and
correspondent banking. The Company also offers an array
of retail lending products including credit cards, retail leases,
home equity, revolving credit, lending to students and other
consumer loans. These retail credit products are primarily
offered through the branch office network, home mortgage
and loan production offices, indirect distribution channels,
such as automobile dealers, and a consumer finance division.
The Company monitors and manages the portfolio
diversification by industry, customer and geography. Table 6
provides information with respect to the overall product
diversification and changes in the mix during 2009.
The commercial portfolio reflects the Company’s focus
on serving small business customers, middle market and
36
U.S. BANCORP
larger corporate businesses throughout its 24-state banking
region, as well as large national customers. The commercial
loan portfolio is diversified among various industries with
somewhat higher concentrations in consumer products and
services, financial services, commercial services and supplies,
capital goods (including manufacturing and commercial
construction-related businesses), property management and
development and agricultural industries. Additionally, the
commercial portfolio is diversified across the Company’s
geographical markets with 69.2 percent of total commercial
loans, excluding covered assets, within the 24-state banking
region. Credit relationships outside of the Company’s
banking region are reflected within the corporate banking,
mortgage banking, auto dealer and leasing businesses
focusing on large national customers and specifically
targeted industries. Loans to mortgage banking customers
are primarily warehouse lines which are collateralized with
the underlying mortgages. The Company regularly monitors
its mortgage collateral position to manage its risk exposure.
Table 7 provides a summary of significant industry groups
and geographic locations of commercial loans outstanding at
December 31, 2009 and 2008.
The commercial real estate portfolio reflects the
Company’s focus on serving business owners within its
geographic footprint as well as regional and national
investment-based real estate owners and builders. At
December 31, 2009, the Company had commercial real
estate loans of $34.1 billion, or 17.5 percent of total loans,
compared with $33.2 billion at December 31, 2008. Within
commercial real estate loans, different property types have
varying degrees of credit risk. Table 8 provides a summary
of the significant property types and geographical locations
of commercial real estate loans outstanding at December 31,
2009 and 2008. At December 31, 2009, approximately
32.1 percent of the commercial real estate loan portfolio
represented business owner-occupied properties that tend to
exhibit credit risk characteristics similar to the middle
market commercial loan portfolio. Generally, the
investment-based real estate mortgages are diversified among
various property types with somewhat higher concentrations
in office and retail properties. During 2009, the Company
continued to reduce its level of exposure to homebuilders,
given the stress in the homebuilding industry sector. From a
geographical perspective, the Company’s commercial real
estate portfolio is generally well diversified. However, at
December 31, 2009, 21.8 percent of the Company’s
commercial real estate portfolio, excluding covered assets,
was secured by collateral in California, which has
experienced higher delinquency levels and credit quality
deterioration due to excess home inventory levels and
declining valuations. During 2009, the Company recorded
$614 million of net charge-offs in the total commercial real
estate portfolio. Included in commercial real estate at year-
end 2009 was approximately $975 million in loans related
to land held for development and $1.9 billion of loans
related to residential and commercial acquisition and
development properties. These loans are subject to quarterly
monitoring for changes in local market conditions due to a
higher credit risk profile. The commercial real estate
portfolio is diversified across the Company’s geographical
markets with 86.9 percent of total commercial real estate
loans outstanding at December 31, 2009, within the 24-state
banking region.
The assets acquired from the FDIC assisted acquisitions
of Downey, PFF and FBOP included nonperforming loans
and other loans with characteristics indicative of a high
credit risk profile, including a substantial concentration in
California, loans with negative-amortization payment
options, and homebuilder and other construction finance
loans. Because most of these loans are covered under loss
sharing agreements with the FDIC, the Company’s financial
exposure to losses from these assets is substantially reduced.
To the extent actual losses exceed the Company’s estimates
at acquisition, the Company’s financial risk would only be
its share of those losses under the loss sharing agreements.
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. Each
distinct underwriting and origination activity manages
unique credit risk characteristics and prices its loan
production commensurate with the differing risk profiles.
Within Consumer Banking, the consumer finance division
specializes in serving channel-specific and alternative lending
markets in residential mortgages, home equity and
installment loan financing. The consumer finance division
manages loans originated through a broker network,
correspondent relationships and U.S. Bank branch offices.
Generally, loans managed by the Company’s consumer
finance division exhibit higher credit risk characteristics, but
are priced commensurate with the differing risk profile.
Residential mortgages represent an important financial
product for consumer customers of the Company and are
originated through the Company’s branches, loan production
offices, a wholesale network of originators and the consumer
finance division. 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. Utilizing the
secondary markets enables the Company to effectively
reduce its credit and other asset/liability risks. For residential
mortgages that are retained in the Company’s portfolio and
for home equity and second mortgages, credit risk is also
diversified by geography and managed by adherence to
loan-to-value and borrower credit criteria during the
underwriting process.
The following tables provide summary information of the
loan-to-values of residential mortgages and home equity and
second mortgages by distribution channel and type at
December 31, 2009 (excluding covered assets):
Residential mortgages
(Dollars in Millions)
Only Amortizing
Percent
of Total
Interest
Total
Consumer Finance
Less than or equal to 80% . . $1,240
608
Over 80% through 90% . . . .
583
Over 90% through 100% . . .
–
Over 100% . . . . . . . . . . . .
$ 3,555 $ 4,795
2,337
3,006
134
1,729
2,423
134
46.7%
22.7
29.3
1.3
Total . . . . . . . . . . . . . $2,431
$ 7,841 $10,272
100.0%
Other Retail
Less than or equal to 80% . . $2,097
68
Over 80% through 90% . . . .
91
Over 90% through 100% . . .
–
Over 100% . . . . . . . . . . . .
$12,369 $14,466
639
679
–
571
588
–
91.7%
4.0
4.3
–
Total . . . . . . . . . . . . . $2,256
$13,528 $15,784
100.0%
Total Company
Less than or equal to 80% . . $3,337
676
Over 80% through 90% . . . .
674
Over 90% through 100% . . .
–
Over 100% . . . . . . . . . . . .
$15,924 $19,261
2,976
3,685
134
2,300
3,011
134
73.9%
11.4
14.2
.5
Total . . . . . . . . . . . . . $4,687
$21,369 $26,056
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.
U.S. BANCORP
37
Home equity and second mortgages
(Dollars in Millions)
Lines
Loans
Total
Percent
of Total
Consumer Finance (a)
Less than or equal to 80%. . . . $
Over 80% through 90% . . . . .
Over 90% through 100% . . . . .
Over 100% . . . . . . . . . . . . .
857 $ 204 $ 1,061
570
175
395
693
323
370
156
95
61
Total
Other Retail
. . . . . . . . . . . . . . $ 1,683 $ 797 $ 2,480
Less than or equal to 80%. . . . $11,702 $1,528 $13,230
2,444
Over 80% through 90% . . . . .
1,208
Over 90% through 100% . . . . .
77
Over 100% . . . . . . . . . . . . .
1,922
754
51
522
454
26
Total
Total Company
. . . . . . . . . . . . . . $14,429 $2,530 $16,959
Less than or equal to 80%. . . . $12,559 $1,732 $14,291
3,014
Over 80% through 90% . . . . .
1,901
Over 90% through 100% . . . . .
233
Over 100% . . . . . . . . . . . . .
2,317
1,124
112
697
777
121
42.8%
23.0
27.9
6.3
100.0%
78.0%
14.4
7.1
.5
100.0%
73.5%
15.5
9.8
1.2
Total. . . . . . . . . . . . . . . . $16,112 $3,327 $19,439
100.0%
(a) Consumer finance category included credit originated and managed by the consumer
finance division, as well as the majority of home equity and second mortgages with a
loan-to-value greater than 100 percent that were originated in the branches.
Note: Loan-to-values determined on original appraisal value of collateral and the current
amortized loan balance, or maximum of current commitment or current balance on lines.
Within the consumer finance division, at December 31,
2009 approximately $2.5 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 the time of loan origination, compared
with $2.9 billion at December 31, 2008.
The following table provides further information on
residential mortgages for the consumer finance division:
(Dollars in Millions)
Only Amortizing
Total
Interest
Percent of
Division
Sub-Prime Borrowers
Less than or equal to 80% . . $
Over 80% through 90% . . . .
Over 90% through 100%. . . .
Over 100% . . . . . . . . . . . .
Total . . . . . . . . . . . . . . $
Other Borrowers
6
3
14
–
23
$1,031 $ 1,037
587
803
57
584
789
57
$2,461 $ 2,484
Less than or equal to 80% . . $1,234
605
Over 80% through 90% . . . .
569
Over 90% through 100%. . . .
–
Over 100% . . . . . . . . . . . .
$2,524 $ 3,758
1,750
2,203
77
1,145
1,634
77
Total . . . . . . . . . . . . . . . $2,408
$5,380 $ 7,788
10.1%
5.7
7.8
.6
24.2%
36.6%
17.0
21.4
.8
75.8%
Total Consumer
Finance . . . . . . . . . . . . . $2,431
$7,841 $10,272
100.0%
In addition to residential mortgages, at December 31, 2009,
the consumer finance division had $.6 billion of home equity
and second mortgage loans to customers that may be
defined as sub-prime borrowers, compared with $.7 billion
at December 31, 2008.
38
U.S. BANCORP
The following table provides further information on home
equity and second mortgages for the consumer finance
division:
(Dollars in Millions)
Lines Loans
Total
Percent
of Total
Sub-Prime Borrowers
Less than or equal to 80% . . . . . . $
Over 80% through 90% . . . . . . . .
Over 90% through 100% . . . . . . .
Over 100% . . . . . . . . . . . . . . . .
33 $123 $ 156
150
41
201
2
110
39
109
199
71
6.3%
6.1
8.1
4.4
Total . . . . . . . . . . . . . . . . . $ 115 $502 $ 617
24.9%
Other Borrowers
Less than or equal to 80% . . . . . . $ 824 $ 81 $ 905
420
Over 80% through 90% . . . . . . . .
492
Over 90% through 100% . . . . . . .
46
Over 100% . . . . . . . . . . . . . . . .
354
368
22
66
124
24
36.5%
16.9
19.8
1.9
Total . . . . . . . . . . . . . . . . . $1,568 $295 $1,863
75.1%
Total Consumer Finance . . . . . $1,683 $797 $2,480
100.0%
The total amount of residential mortgage, home equity
and second mortgage loans, other than covered assets, to
customers that may be defined as sub-prime borrowers
represented only 1.1 percent of total assets at December 31,
2009, compared with 1.4 percent at December 31, 2008.
Covered assets include $2.2 billion in loans with
negative-amortization payment options at December 31,
2009, compared with $3.3 billion at December 31, 2008.
Other than covered assets, the Company does not have any
residential mortgages with payment schedules that would
cause balances to increase over time.
The retail loan portfolio principally reflects the
Company’s focus on consumers within its footprint of
branches and certain niche lending activities that are
nationally focused. Within the Company’s retail loan
portfolio, approximately 73.4 percent of the credit card
balances relate to cards originated through the bank
branches or co-branded and affinity programs that generally
experience better credit quality performance than portfolios
generated through other channels.
Table 9 provides a geographical summary of the
residential mortgage and retail loan portfolios.
Loan Delinquencies Trends in delinquency ratios are an
indicator, among other considerations, of credit risk within
the Company’s loan portfolios. The entire balance of an
account is considered delinquent if the minimum payment
contractually required to be made is not received by the
specified date on the billing statement. The Company
measures delinquencies, both including and excluding
nonperforming loans, to enable comparability with other
companies. Delinquent loans purchased from Government
National Mortgage Association (“GNMA”) mortgage pools,
Table 13 Delinquent Loan Ratios as a Percent of Ending Loan Balances
At December 31,
90 days or more past due excluding nonperforming loans
Commercial
2009
2008
2007
2006
2005
Commercial. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . .
.25%
–
.15%
–
.08%
–
.06%
–
Total commercial . . . . . . . . . . . . . . . . . . . . . . .
.22
Commercial Real Estate
Commercial mortgages . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .
Construction and development
Total commercial real estate . . . . . . . . . . . . . . .
Residential Mortgages . . . . . . . . . . . . . . . . .
Retail
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail leasing. . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total retail . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans, excluding covered assets . . . . . . .
–
.07
.02
2.80
2.59
.11
.57
1.07
.88
Covered Assets . . . . . . . . . . . . . . . . . . . . . . .
3.48
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.18%
At December 31,
90 days or more past due including nonperforming loans
Commercial
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages (a) . . . . . . . . . . . . . . . . . . . .
Retail (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009
2.25%
5.22
4.59
1.39
Total loans, excluding covered assets . . . . . . . . . . . . .
2.87
Covered assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.38
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.96%
.13
–
.36
.11
1.55
2.20
.16
.45
.82
.56
5.13
.84%
2008
.82%
3.34
2.44
.97
1.57
10.74
2.14%
.07
.02
.02
.02
.86
1.94
.10
.37
.68
.38
–
.38%
2007
.43%
1.02
1.10
.73
.74
–
.74%
.05
.01
.01
.01
.42
1.75
.03
.24
.49
.24
–
.24%
2006
.57%
.53
.59
.59
.57
–
.57%
.06%
–
.05
–
–
–
.32
1.26
.04
.23
.37
.19
–
.19%
2005
.69%
.55
.55
.52
.58
–
.58%
(a) Delinquent loan ratios exclude loans purchased from Government National Mortgage Association (“GNMA”) mortgage pools whose repayments are insured by the Federal Housing
Administration or guaranteed by the Department of Veterans Affairs. Including the guaranteed amounts, the ratio of residential mortgages 90 days or more past due including nonperforming
loans was 12.86 percent, 6.95 percent, 3.78 percent, 3.08 percent and 4.35 percent at December 31, 2009, 2008, 2007, 2006 and 2005, respectively.
(b) Beginning in 2008, 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 1.57 percent at December 31, 2009, and 1.10 percent at December 31, 2008.
for which repayments of principal and interest are insured
by the Federal Housing Administration or guaranteed by the
Department of Veterans Affairs, are excluded from
delinquency statistics. In addition, in certain situations, a
retail customer’s account may be re-aged to remove it from
delinquent status. Generally, the purpose of re-aging
accounts is to assist customers who have recently overcome
temporary financial difficulties, and have demonstrated both
the ability and willingness to resume regular payments. To
qualify for re-aging, the account must have been open for at
least one year and cannot have been re-aged during the
preceding 365 days. An account may not be re-aged more
than two times in a five-year period. To qualify for re-aging,
the customer must also have made three regular minimum
monthly payments within the last 90 days. In addition, the
Company may re-age the retail account of a customer who
has experienced longer-term financial difficulties and apply
modified, concessionary terms and conditions to the
account. Such additional re-ages are limited to one in a five-
year period and must meet the qualifications for re-aging
described above. All re-aging strategies must be
independently approved by the Company’s credit
administration function. Commercial loans are not subject to
re-aging policies.
Accruing loans 90 days or more past due totaled
$2.3 billion ($1.5 billion excluding covered assets) at
December 31, 2009, compared with $1.6 billion
($967 million excluding covered assets) at December 31,
2008, and $584 million at December 31, 2007. The
$558 million increase, excluding covered assets, reflected
stress in residential mortgages, commercial loans,
construction loans, credit cards and home equity loans.
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 90-day delinquent loans to total
loans was 1.18 percent (.88 percent excluding covered
assets) at December 31, 2009, compared with .84 percent
(.56 percent excluding covered assets) at December 31,
U.S. BANCORP
39
The following table provides information on delinquent and
nonperforming loans as a percent of ending loan balances by
channel:
December 31,
2009
2008
2009
2008
Consumer
Finance (a)
Other Retail
Residential mortgages
30-89 days . . . . . . . . . . . .
90 days or more. . . . . . . . .
Nonperforming . . . . . . . . . .
3.99% 3.96% 1.30% 1.06%
4.00
3.04
2.61
1.60
2.02
.98
.79
.38
Total . . . . . . . . . . . . . . 11.03% 8.17% 4.30% 2.23%
Retail
Credit card
30-89 days . . . . . . . . . . . .
90 days or more. . . . . . . . .
Nonperforming . . . . . . . . . .
Total . . . . . . . . . . . . . .
Retail leasing
30-89 days . . . . . . . . . . . .
90 days or more. . . . . . . . .
Nonperforming . . . . . . . . . .
Total . . . . . . . . . . . . . .
Home equity and second
mortgages
30-89 days . . . . . . . . . . . .
90 days or more. . . . . . . . .
Nonperforming . . . . . . . . . .
–%
–
–
–%
–%
–
–
–%
–% 2.38% 2.73%
–
–
2.59
.84
2.20
.49
–% 5.81% 5.42%
–%
–
–
–%
.74% .95%
.11
–
.16
–
.85% 1.11%
2.54% 3.24%
2.02
.20
2.36
.14
.70% .59%
.60
.16
.32
.07
Total . . . . . . . . . . . . . .
4.76% 5.74% 1.46% .98%
Other retail
30-89 days . . . . . . . . . . . .
90 days or more. . . . . . . . .
Nonperforming . . . . . . . . . .
5.17% 6.91% 1.00% 1.00%
1.17
.16
1.98
–
.32
.05
.37
.13
Total . . . . . . . . . . . . . .
6.50% 8.89% 1.50% 1.37%
(a) Consumer finance category included credit originated and managed by the consumer
finance division, as well as the majority of home equity and second mortgages with a
loan-to-value greater than 100 percent that were originated in the branches.
Within the consumer finance division at December 31,
2009, approximately $557 million and $98 million of these
delinquent and nonperforming residential mortgages and
other retail loans, respectively, were to customers that may
be defined as sub-prime borrowers, compared with
$467 million and $121 million, respectively at December 31,
2008.
2008. The Company expects delinquencies to continue to
increase during early 2010, as difficult economic conditions
will likely affect more borrowers within both the consumer
and commercial loan portfolios.
The following table provides summary delinquency
information for residential mortgages and retail loans,
excluding covered assets:
December 31,
(Dollars in Millions)
Residential mortgages
Amount
As a Percent of
Ending
Loan Balances
2009
2008
2009
2008
30-89 days . . . . . . . . . . $ 615
729
90 days or more . . . . . .
467
Nonperforming . . . . . . .
$ 536
366
210
2.36% 2.28%
2.80
1.79
1.55
.89
Total . . . . . . . . . . . . $1,811
$1,112
6.95% 4.72%
Retail
Credit card
30-89 days . . . . . . . . . . $ 400
435
90 days or more . . . . . .
142
Nonperforming . . . . . . .
$ 369
297
67
2.38% 2.73%
2.59
.84
2.20
.49
Total . . . . . . . . . . . . $ 977
$ 733
5.81% 5.42%
Retail leasing
30-89 days . . . . . . . . . . $
90 days or more . . . . . .
Nonperforming . . . . . . .
Total . . . . . . . . . . . . $
Home equity and second
34
5
–
39
$
$
49
8
–
57
.74% .96%
.11
–
.16
–
.85% 1.11%
mortgages
30-89 days . . . . . . . . . . $ 181
152
90 days or more . . . . . .
32
Nonperforming . . . . . . .
$ 170
106
14
.93% .89%
.78
.17
.55
.07
Total . . . . . . . . . . . . $ 365
$ 290
1.88% 1.51%
Other retail
30-89 days . . . . . . . . . . $ 256
92
90 days or more . . . . . .
30
Nonperforming . . . . . . .
$ 255
81
11
1.10% 1.13%
.40
.13
.36
.05
Total . . . . . . . . . . . . $ 378
$ 347
1.63% 1.54%
40
U.S. BANCORP
The following table provides summary delinquency
information for covered assets:
December 31,
(Dollars in Millions)
Amount
As a Percent of
Ending
Loan Balances
2009
2008
2009
2008
30-89 days . . . . . . . . . . . $1,195
784
90 days or more . . . . . . . .
2,003
Nonperforming . . . . . . . . .
$ 740
587
643
5.31% 6.46%
3.48
8.90
5.13
5.62
Total
. . . . . . . . . . . . . $3,982
$1,970
17.69% 17.21%
Restructured Loans Accruing Interest In certain
circumstances, the Company may modify the terms of a loan
to maximize the collection of amounts due. In most cases,
the modification is either a reduction in interest rate,
extension of the maturity date or a reduction in the principal
balance. Generally, the borrower is experiencing financial
difficulties or is expected to experience difficulties in the
near-term so concessionary modification is granted to the
borrower that would otherwise not be considered.
Restructured loans accrue interest as long as the borrower
complies with the revised terms and conditions and has
demonstrated repayment performance at a level
commensurate with the modified terms over several payment
cycles.
Many of the Company’s loan restructurings occur on a
case-by-case basis in connection with ongoing loan
collection processes, however, the Company has also
implemented certain restructuring programs. In late 2007,
the consumer finance division began implementing a
mortgage loan restructuring program for certain qualifying
borrowers. In general, certain borrowers facing an interest
rate reset that are current in their repayment status, are
allowed to retain the lower of their existing interest rate or
the market interest rate as of their interest reset date. In
addition, the Company began participating in the
U.S. Department of the Treasury Home Affordable
Modification Program (“HAMP”) during the third quarter
of 2009. 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.
The Company also modified certain mortgage loans
according to provisions in the Downey, PFF and FBOP loss
sharing agreements. Losses associated with modifications on
these loans, including the economic impact of interest rate
reductions, are generally eligible for reimbursement under
the loss sharing agreements.
Acquired loans restructured after acquisition are not
considered restructured loans for purposes of the Company’s
accounting and disclosure if the loans evidenced credit
deterioration as of the acquisition date.
The following table provides a summary of restructured
loans, excluding covered assets, that are performing in
accordance with the modified terms, and therefore continue
to accrue interest:
December 31
(Dollars in Millions)
Commercial . . . . . . . . . . . $
Commercial real estate . . .
Residential
Amount
2009
88
110
$
mortgages (a)
. . . . . . .
Credit card . . . . . . . . . . .
Other retail . . . . . . . . . . .
1,354
617
109
2008
35
138
813
450
73
As a Percent
of Ending
Loan Balances
2009
2008
.18% .06%
.32
.42
5.20
3.67
.23
3.45
3.33
.16
Total . . . . . . . . . . . . . $2,278
$1,509
1.17% .81%
(a) Excludes loans purchased from GNMA mortgage pools whose repayments are insured
by the Federal Housing Administration or guaranteed by the Department of Veterans
Affairs.
Restructured loans, excluding covered assets, were
$769 million higher at December 31, 2009, than at
December 31, 2008, primarily reflecting the impact of loan
modifications for certain residential mortgage and consumer
credit card customers in light of current economic
conditions. The Company expects this trend to continue as
the Company actively works with customers to modify loans
for borrowers who are having financial difficulties.
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. Interest payments collected
from assets on nonaccrual status are typically applied
against the principal balance and not recorded as income.
At December 31, 2009, total nonperforming assets were
$5.9 billion, compared with $2.6 billion at year-end 2008
and $690 million at year-end 2007. Nonperforming assets at
December 31, 2009, included $2.0 billion of covered assets,
compared with $643 million at December 31, 2008. The
majority of these nonperforming covered assets were
considered credit-impaired at acquisition and recorded at
their estimated fair value at acquisition. In addition, these
assets are covered by loss sharing agreements with the FDIC
that substantially reduce the risk of credit losses. The ratio
of total nonperforming assets to total loans and other real
estate was 3.02 percent (2.25 percent excluding covered
U.S. BANCORP
41
assets) at December 31, 2009, compared with 1.42 percent
(1.14 percent excluding covered assets) at December 31,
2008, and .45 percent at December 31, 2007. Excluding
covered assets, the $1.9 billion increase in nonperforming
assets was driven by stress in residential home construction
and related industries, deterioration in the residential
mortgage portfolio, as well as an increase in foreclosed
properties and the impact of the economic slowdown on
commercial and consumer customers.
Included in nonperforming loans were restructured
loans that are not accruing interest of $492 million at
December 31, 2009, compared with $151 million at
December 31, 2008.
Other real estate, excluding covered assets, was
$437 million at December 31, 2009, compared with
$190 million at December 31, 2008, and was primarily
related to foreclosed properties that previously secured loan
balances. The increase in other real estate assets reflected
continuing stress in residential construction and related
supplier industries.
The following table provides an analysis of 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:
December 31,
(Dollars in Millions)
Residential
Amount
As a Percent of Ending
Loan Balances
2009
2008
2009
2008
Minnesota . . . . . . . . $ 27
15
California . . . . . . . . .
8
Illinois . . . . . . . . . . .
8
Michigan . . . . . . . . .
7
Colorado . . . . . . . . .
108
All other states . . . . .
Total residential . . .
173
Commercial
Nevada . . . . . . . . . .
California . . . . . . . . .
Oregon . . . . . . . . . .
Colorado . . . . . . . . .
Utah . . . . . . . . . . . .
All other states . . . . .
73
43
28
15
14
91
Total commercial . .
264
$ 18
13
5
12
6
91
145
–
9
3
–
–
33
45
.49%
.27
.29
1.65
.20
.39
.38
3.57
.30
.81
.43
.80
.16
.32
.34%
.29
.21
2.39
.19
.34
.34
–
.07
.08
–
–
.05
.05
Total OREO . . . . . $437
$190
.22%
.10%
42
U.S. BANCORP
Table 14 Nonperforming Assets (a)
At December 31, (Dollars in Millions)
2009
2008
2007
2006
2005
Commercial
Commercial
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 866
125
Total commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
991
Commercial Real Estate
Commercial mortgages. . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction and development . . . . . . . . . . . . . . . . . . . . . .
Total commercial real estate . . . . . . . . . . . . . . . . . . . . . .
Residential Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total nonperforming loans, excluding covered assets . . .
Covered Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total nonperforming loans . . . . . . . . . . . . . . . . . . . . .
Other Real Estate (b)
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
581
1,192
1,773
467
142
–
62
204
3,435
2,003
5,438
437
32
$ 290
102
392
294
780
1,074
210
67
–
25
92
1,768
643
2,411
190
23
$128
53
181
84
209
293
54
14
–
15
29
557
–
557
111
22
$196
40
236
112
38
150
36
31
–
17
48
470
–
470
95
22
$231
42
273
134
23
157
48
49
–
17
66
544
–
544
71
29
Total nonperforming assets . . . . . . . . . . . . . . . . . . . . . $5,907
$2,624
$690
$587
$644
Excluding covered assets:
Accruing loans 90 days or more past due . . . . . . . . . . . . . $1,525
Nonperforming loans to total loans . . . . . . . . . . . . . . . . .
Nonperforming assets to total loans plus other real
1.99%
$ 967
1.02%
$584
.36%
$349
.33%
$253
.40%
estate (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.25%
1.14%
.45%
.41%
.47%
Including covered assets:
Accruing loans 90 days or more past due . . . . . . . . . . . . . $2,309
Nonperforming loans to total loans . . . . . . . . . . . . . . . . .
Nonperforming assets to total loans plus other real
2.78%
estate (b)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.02%
Net interest foregone on nonperforming loans . . . . . . . . . . . . . $ 169
$1,554
1.30%
1.42%
80
$
$584
.36%
.45%
$ 41
$349
.33%
.41%
$ 39
$253
.40%
.47%
$ 30
Changes in Nonperforming Assets
(Dollars in Millions)
Commercial and
Commercial Real Estate
Retail and
Residential Mortgages (d)
Total
Balance December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,896
$ 728
$ 2,624
Additions to nonperforming assets
New nonaccrual loans and foreclosed properties . . . . . . . . . . . .
Advances on loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired nonaccrual covered assets . . . . . . . . . . . . . . . . . . . .
Total additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions in nonperforming assets
Paydowns, payoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return to performing status . . . . . . . . . . . . . . . . . . . . . . . . . .
Charge-offs (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net additions to nonperforming assets . . . . . . . . . . . . .
3,821
115
1,409
5,345
(542)
(283)
(207)
(1,482)
(2,514)
2,831
1,388
–
33
1,421
(576)
(157)
(10)
(226)
(969)
452
5,209
115
1,442
6,766
(1,118)
(440)
(217)
(1,708)
(3,483)
3,283
Balance December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,727
$1,180
$ 5,907
(a) Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due.
(b) Excludes $359 million, $209 million, $102 million and $83 million at December 31, 2009, 2008, 2007 and 2006, respectively, of foreclosed GNMA loans which continue to accrue interest.
(c) Charge-offs exclude actions for certain card products and loan sales that were not classified as nonperforming at the time the charge-off occurred.
(d) Residential mortgage information excludes changes related to residential mortgages serviced by others.
U.S. BANCORP
43
Table 15 Net Charge-offs as a Percent of Average Loans Outstanding
Year Ended December 31
Commercial
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Real Estate
Commercial mortgages . . . . . . . . . . . . . . . . . . . . . .
Construction and development . . . . . . . . . . . . . . . . .
Total commercial real estate . . . . . . . . . . . . . . . . .
Residential Mortgages . . . . . . . . . . . . . . . . . . . . .
Retail
Credit card (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home equity and second mortgages . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail
Total retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans, excluding covered assets . . . . . . . . .
Covered assets . . . . . . . . . . . . . . . . . . . . . . . . . .
2009
2008
2007
2006
2005
1.60%
2.82
1.75
.42
5.35
1.82
2.00
6.90
.74
1.75
1.85
2.95
2.23
.09
.53%
1.36
.63
.15
1.48
.55
1.01
4.73
.65
1.01
1.39
1.92
1.10
.38
.24%
.61
.15%
.46
.29
.06
.11
.08
.28
3.34
.25
.46
.96
1.17
.54
–
.18
.01
.01
.01
.19
2.88
.20
.33
.85
.92
.39
–
.12%
.85
.20
.03
(.04)
.01
.20
4.20
.35
.46
1.33
1.30
.52
–
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.08%
1.10%
.54%
.39%
.52%
(a) Net charge-offs as a percent of average loans outstanding, excluding portfolio purchases where the acquired loans were recorded at fair value at the purchase date, were 7.14 percent for
the year ended December 31, 2009.
The Company expects nonperforming assets, including
OREO, to continue to increase in early 2010, however at a
decreasing rate as compared with prior quarters, as difficult
economic conditions affect more borrowers in both the
commercial and consumer loan portfolios.
The $1.9 billion increase in total nonperforming assets
at December 31, 2008, as compared with December 31,
2007, was driven primarily by stress in the residential
construction portfolio and related industries, as well as the
residential mortgage portfolio, an increase in foreclosed
properties and the impact of the economic slowdown on
other commercial customers.
Analysis of Loan Net Charge-Offs Total loan net charge-offs
were $3.9 billion in 2009, compared with $1.8 billion in
2008 and $792 million in 2007. The ratio of total loan net
charge-offs to average loans was 2.08 percent in 2009,
compared with 1.10 percent in 2008 and .54 percent in
2007. The increase in net charge-offs in 2009, compared
with 2008, was driven by economic factors affecting the
residential housing markets, including homebuilding and
related industries, commercial real estate properties and
credit costs associated with credit card and other consumer
and commercial loans as the economy weakened and
unemployment increased. Given current economic conditions
and the weakness in home prices and the economy in
general, the Company expects net charge-offs will increase
in early 2010, but expects the rate of increase will decline.
44
U.S. BANCORP
Commercial and commercial real estate loan net charge-
offs for 2009 were $1.5 billion (1.78 percent of average
loans outstanding), compared with $514 million (.60 percent
of average loans outstanding) in 2008 and $159 million
(.21 percent of average loans outstanding) in 2007. The
increase in net charge-offs in 2009, compared with 2008 and
the increase in 2008, compared with 2007, reflected
continuing stress within the portfolios, especially residential
homebuilding and commercial real estate, along with the
impact of weak economic conditions on the commercial loan
portfolios.
Residential mortgage loan net charge-offs for 2009 were
$489 million (2.00 percent of average loans outstanding),
compared with $234 million (1.01 percent of average loans
outstanding) in 2008 and $61 million (.28 percent of
average loans outstanding) in 2007. Retail loan net charge-
offs for 2009 were $1.8 billion (2.95 percent of average
loans outstanding), compared with $1.1 billion (1.92 percent
of average loans outstanding) in 2008 and $572 million
(1.17 percent of average loans outstanding) in 2007. The
increases in residential mortgage and retail loan net charge-
offs in 2009, compared with 2008, reflected the adverse
impact of current economic conditions on consumers, as
rising unemployment levels increased losses in prime-based
residential portfolios and credit cards. The increases in 2008,
compared with 2007, reflected decreasing residential real
estate values in some markets and growth in credit card and
other consumer loan balances, as well as the adverse impact
of weak economic conditions on consumers.
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:
Percent of
Average
Loans
Average Loans
Year Ended December 31
(Dollars in Millions)
2009
2008
2009
2008
Consumer Finance (a)
Residential mortgages . . . $ 9,973 $ 9,923
Home equity and second
3.80% 1.96%
mortgages. . . . . . . . . .
Other retail . . . . . . . . . . .
2,457
571
2,050
461
6.43
5.78
5.71
5.86
Other Retail
Residential mortgages . . . $14,508 $13,334
Home equity and second
.76% .30%
mortgages. . . . . . . . . .
Other retail . . . . . . . . . . .
16,878
22,285
15,500
20,210
1.07
1.75
.39
1.29
Total Company
Residential mortgages . . . $24,481 $23,257
Home equity and second
2.00% 1.01%
mortgages. . . . . . . . . .
Other retail . . . . . . . . . . .
19,335
22,856
17,550
20,671
1.75
1.85
1.01
1.39
(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:
Year Ended December 31
(Dollars in Millions)
Residential mortgages
Average Loans
Percent of
Average Loans
2009
2008
2009
2008
Sub-prime borrowers . . . . $2,674 $3,101
6,822
Other borrowers . . . . . . .
7,299
6.02% 3.51%
2.99
1.25
Total . . . . . . . . . . . . . $9,973 $9,923
3.80% 1.96%
Home equity and second
mortgages
Sub-prime borrowers . . . . $ 670 $ 799
1,251
Other borrowers . . . . . . .
1,787
11.79% 10.01%
4.42
2.96
Total . . . . . . . . . . . . . $2,457 $2,050
6.43% 5.71%
Analysis and Determination of the Allowance for Credit
Losses The allowance for loan losses reserves for probable
and estimable losses incurred in the Company’s loan and
lease portfolio, and considers credit loss protection from loss
sharing agreements with the FDIC. Management evaluates
the allowance each quarter to ensure it appropriately
reserves for incurred losses. The evaluation of each element
and the overall allowance is based on a continuing
assessment of problem loans, recent loss experience and
other factors, including regulatory guidance and economic
conditions. 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,
which is included in other liabilities in the Consolidated
Balance Sheet. Both the allowance for loan losses and the
liability for unfunded credit commitments are included in the
Company’s analysis of credit losses and reported reserve
ratios.
At December 31, 2009, the allowance for credit losses
was $5.3 billion (2.69 percent of total loans and
3.04 percent of loans excluding covered assets), compared
with an allowance of $3.6 billion (1.96 percent of total
loans and 2.09 percent of loans excluding covered assets) at
December 31, 2008, and $2.3 billion (1.47 percent of total
loans) at December 31, 2007. The ratio of the allowance for
credit losses to nonperforming loans was 97 percent
(153 percent excluding covered assets) at December 31,
2009, compared with 151 percent (206 percent excluding
covered assets) and 406 percent at December 31, 2008 and
2007, respectively. The ratio of the allowance for credit
losses to loan net charge-offs at December 31, 2009, was
136 percent (both including and excluding covered assets),
compared with 200 percent (201 percent excluding covered
assets) and 285 percent at December 31, 2008 and 2007,
respectively. Management determined the allowance for
credit losses was appropriate at December 31, 2009.
Several factors were taken into consideration in
evaluating the allowance for credit losses at December 31,
2009, including the risk profile of the portfolios, loan net
charge-offs during the period, the level of nonperforming
assets, accruing loans 90 days or more past due, delinquency
ratios and changes in restructured loan balances.
Management also considered the uncertainty related to
certain industry sectors, and the extent of credit exposure to
specific borrowers within the portfolio. In addition,
concentration risks associated with commercial real estate
and the mix of loans, including credit cards, loans originated
through the consumer finance division and residential
mortgages balances, and their relative credit risks, were
evaluated. Finally, the Company considered current
economic conditions that might impact the portfolio.
Management determines the allowance that is required for
specific loan categories based on relative risk characteristics
of the loan portfolio. On an ongoing basis, management
evaluates its methods for determining the allowance for each
element of the portfolio and makes enhancements considered
appropriate. Table 17 shows the amount of the allowance
for credit losses by portfolio category.
U.S. BANCORP
45
Table 16 Summary of Allowance for Credit Losses
(Dollars in Millions)
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charge-Offs
Commercial
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate
Commercial mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home equity and second mortgages . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recoveries
Commercial
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate
Commercial mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home equity and second mortgages . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Charge-Offs
Commercial
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate
Commercial mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home equity and second mortgages . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions and other changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009
2008
2007
2006
2005
$3,639
$2,260
$2,256
$2,251
$2,269
769
227
996
103
516
619
493
1,093
47
347
504
1,991
12
4,111
30
40
70
2
3
5
4
62
11
9
81
163
1
243
739
187
926
101
513
614
489
1,031
36
338
423
1,828
11
3,868
5,557
(64)
282
113
395
34
139
173
236
630
41
185
344
1,200
5
2,009
27
26
53
1
–
1
2
65
6
7
56
134
–
190
255
87
342
33
139
172
234
565
35
178
288
1,066
5
1,819
3,096
102
154
63
217
16
10
26
63
389
23
82
232
726
–
1,032
52
28
80
4
–
4
2
69
7
8
70
154
–
240
102
35
137
12
10
22
61
320
16
74
162
572
–
792
792
4
121
51
172
11
1
12
43
256
25
62
193
536
–
763
61
27
88
8
–
8
2
36
11
12
62
121
–
219
60
24
84
3
1
4
41
220
14
50
131
415
–
544
544
5
140
76
216
16
3
19
39
313
38
83
241
675
–
949
95
34
129
10
6
16
3
35
12
15
54
116
–
264
45
42
87
6
(3)
3
36
278
26
68
187
559
–
685
666
1
Balance at end of year
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,264
$3,639
$2,260
$2,256
$2,251
Components
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liability for unfunded credit commitments . . . . . . . . . . . . . . . . . . . . . . . .
Total allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,079
185
$5,264
$3,514
125
$3,639
$2,058
202
$2,260
$2,022
234
$2,256
$2,041
210
$2,251
Allowance for credit losses as a percentage of
Period-end loans, excluding covered assets . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming loans, excluding covered assets . . . . . . . . . . . . . . . . . . . .
Nonperforming assets, excluding covered assets . . . . . . . . . . . . . . . . . . .
Net charge-offs, excluding covered assets . . . . . . . . . . . . . . . . . . . . . . . .
Period-end loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.04%
153
135
136
2.69%
97
89
136
2.09%
206
184
201
1.96%
151
139
200
1.47%
406
328
285
1.47%
406
328
285
1.57%
480
384
415
1.57%
480
384
415
1.65%
414
350
329
1.65%
414
350
329
46
U.S. BANCORP
Table 17 Elements of the Allowance for Credit Losses
December 31 (Dollars in Millions)
2009
2008
2007
2006
2005
2009
2008
2007
2006
2005
Allowance Amount
Allowance as a Percent of Loans
Commercial
Commercial
Lease financing . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . $1,026
182
$ 782
208
$ 860
146
$ 665
90
$ 656
105
2.43% 1.57% 1.92% 1.64% 1.73%
2.34
2.78
3.03
2.06
1.62
Total commercial
Commercial Real Estate
. . . . . . . . . . . . .
Commercial mortgages . . . . . . . . . . .
Construction and development . . . . . .
Total commercial real estate . . . . . .
Residential Mortgages . . . . . . . . . .
Retail
Credit card . . . . . . . . . . . . . . . . . . .
Retail leasing . . . . . . . . . . . . . . . . .
Home equity and second mortgages . .
Other retail . . . . . . . . . . . . . . . . . . .
Total retail . . . . . . . . . . . . . . . . . .
Covered Assets . . . . . . . . . . . . . . .
Total allocated allowance . . . . . . . .
Available for other factors . . . . . . . .
1,208
990
1,006
755
761
2.48
1.75
1.97
1.63
1.77
548
453
1,001
672
1,495
30
374
467
2,366
17
5,264
–
258
191
449
524
926
49
255
372
1,602
74
3,639
–
150
108
258
131
487
17
114
247
865
–
126
74
200
58
298
15
52
177
542
–
115
53
168
39
284
24
62
188
558
–
2,260
–
1,555
701
1,526
725
2.17
5.16
2.94
2.58
8.89
.66
1.92
2.02
3.70
.08
2.69
–
1.10
1.95
1.35
2.22
6.85
.96
1.33
1.65
2.65
.65
1.96
–
.74
1.19
.88
.58
4.45
.28
.69
1.42
1.70
–
1.47
–
.64
.83
.70
.27
3.44
.22
.33
1.08
1.14
–
1.08
.49
.57
.65
.59
.19
3.98
.33
.41
1.26
1.26
–
1.12
.53
Total allowance . . . . . . . . . . . . . . . . . . $5,264
$3,639
$2,260
$2,256
$2,251
2.69% 1.96% 1.47% 1.57% 1.65%
Regardless of the extent of the Company’s analysis of
customer performance, portfolio trends or risk management
processes, certain incurred but undetected losses are
probable within the loan portfolios. This is due to several
factors, including inherent delays in obtaining information
regarding a customer’s financial condition or changes in its
unique business conditions, the judgmental nature of
individual loan evaluations, collateral assessments and the
interpretation of economic trends. Volatility of economic or
customer-specific conditions affecting the identification and
estimation of losses from larger non-homogeneous credits
and the sensitivity of assumptions utilized to establish
allowances for homogeneous groups of loans, loan portfolio
concentrations, and additional subjective considerations are
among other factors. Because of these subjective factors, the
process utilized to determine each element of the allowance
for credit losses by specific loan category has some
imprecision. As such, the Company estimates a range of
incurred losses in the portfolio based on statistical analyses
and management judgment. A statistical analysis attempts to
measure the extent of imprecision and other uncertainty by
determining the volatility of losses over time, across loan
categories. Also, management judgmentally considers loan
concentrations, risks associated with specific industries, the
stage of the business cycle, economic conditions and other
qualitative factors. Beginning in 2007, the Company
assigned this element of the allowance to each portfolio type
to better reflect the Company’s risk in the specific portfolios.
In years prior to 2007, this element of the allowance was
separately categorized as “available for other factors”.
The allowance recorded for commercial and commercial
real estate loans is based, in part, on a regular review of
individual credit relationships. The Company’s risk rating
process is an integral component of the methodology utilized
to determine these elements of the allowance for credit
losses. An allowance for credit losses is established for pools
of commercial and commercial real estate loans and
unfunded commitments based on the risk ratings assigned.
An analysis of the migration of commercial and commercial
real estate loans and actual loss experience is conducted
quarterly to assess the exposure for credits with similar risk
characteristics. In addition to its risk rating process, the
Company separately analyzes the carrying value of impaired
loans to determine whether the carrying value is less than or
equal to the appraised collateral value or the present value
of expected cash flows. Based on this analysis, an allowance
for credit losses may be specifically established for impaired
loans. The allowance established for commercial and
commercial real estate loan portfolios, including impaired
commercial and commercial real estate loans, was
$2.2 billion at December 31, 2009, compared with
$1.4 billion at December 31, 2008, and $1.3 billion at
December 31, 2007. The increase in the allowance for
commercial and commercial real estate loans of
U.S. BANCORP
47
$770 million at December 31, 2009, compared with
December 31, 2008, reflected continuing stress in
commercial real estate and residential housing, especially
residential homebuilding and related industry sectors, along
with the impact of the current economic conditions on the
commercial loan portfolios.
The allowance recorded for the residential mortgages
and retail loan portfolios is based on an analysis of product
mix, credit scoring and risk composition of the portfolio,
loss and bankruptcy experiences, economic conditions and
historical and expected delinquency and charge-off statistics
for each homogenous group of loans. Based on this
information and analysis, an allowance was established
approximating a twelve-month estimate of net charge-offs.
For homogenous loans modified under a troubled debt
restructuring, an allowance was established for any
impairment to the recorded investment in the loan. The
allowance established for residential mortgages was
$672 million at December 31, 2009, compared with
$524 million and $131 million at December 31, 2008 and
2007, respectively. The allowance established for retail loans
was $2.4 billion at December 31, 2009, compared with
$1.6 billion and $865 million at December 31, 2008 and
2007, respectively. The increase in the allowance for the
residential mortgage and retail portfolios in 2009 reflected
the adverse impact of current economic conditions on
customers, as rising unemployment levels have increased
losses in prime-based residential portfolios and credit cards.
The evaluation of the adequacy of the allowance for
credit losses for purchased non-impaired loans acquired on
or after January 1, 2009 considers credit discounts recorded
as a part of the initial determination of the fair value of the
loans. For these loans, no allowance for credit losses is
recorded at the purchase date. Credit discounts representing
the principal losses expected over the life of the loans are a
component of the initial fair value. Subsequent to the
purchase date, the methods utilized to estimate the required
allowance for credit losses for these loans is similar to
originated loans, however, the Company records a provision
for loan losses only when the required allowance, net of any
expected reimbursement under any loss sharing agreements
with the FDIC, exceeds any remaining credit discounts.
The evaluation of the adequacy of the allowance for
credit losses for purchased impaired loans considers the
expected cash flows to be collected from the borrower.
These loans are initially recorded at fair value and therefore
no allowance for loan losses is recorded at the purchase
date. Subsequent to the purchase date, the expected cash
flows of the impaired loans are subject to evaluation.
48
U.S. BANCORP
Decreases in the present value of expected cash flows are
recognized by recording an allowance for credit losses, net
of any expected reimbursement under loss sharing
agreements with the FDIC.
Although the Company determines the amount of each
element of the allowance separately and considers this
process to be an important credit management tool, the
entire allowance for credit losses is available for the entire
loan portfolio. The actual amount of losses incurred can
vary significantly from the estimated amounts.
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. Commercial
lease originations are subject to the same well-defined
underwriting standards referred to in the “Credit Risk
Management” section which includes an evaluation of the
residual value risk. Retail lease residual value risk is
mitigated further by originating longer-term vehicle leases
and effective end-of-term marketing of off-lease vehicles.
Included in the retail leasing portfolio was
approximately $2.9 billion of retail leasing residuals at
December 31, 2009, compared with $3.2 billion at
December 31, 2008. The Company monitors concentrations
of leases by manufacturer and vehicle “make and model.”
As of December 31, 2009, vehicle lease residuals related to
sport utility vehicles were 41.0 percent of the portfolio while
upscale and mid-range vehicle classes represented
approximately 26.4 percent and 14.8 percent, respectively.
At year-end 2009, the largest vehicle-type concentration
represented approximately 6 percent of the aggregate
residual value of the vehicles in the portfolio.
Because retail residual valuations tend to be less volatile
for longer-term leases, relative to the estimated residual at
inception of the lease, the Company actively manages lease
origination production to achieve a longer-term portfolio. At
December 31, 2009, the weighted-average origination term
of the portfolio was 45 months, compared with 47 months
at December 31, 2008. During the several years prior to
2008, vehicle sales volumes experienced strong growth
driven by manufacturer incentives, consumer spending levels
and strong economic conditions. In 2008, sales of used
vehicles softened due to the overall weakening of the
economy. As a result, the Company’s portfolio experienced
deterioration in residual values in 2008 in all categories,
most notably sport utility vehicles and luxury models, as a
result of higher fuel prices and weak economic conditions. In
2009, sales of vehicles were affected by the financial
condition of the automobile manufacturers and various
government programs and involvement with the
manufacturers. Used vehicle pricing improved substantially
throughout 2009. As a result, residual value losses for the
retail leasing portfolio decreased in 2009, compared with
2008. Currently, management expects used vehicle values in
2010 to remain at levels similar to those experienced in
2009.
At December 31, 2009, the commercial leasing portfolio
had $701 million of residuals, compared with $690 million
at December 31, 2008. At year-end 2009, lease residuals
related to trucks and other transportation equipment were
30.1 percent of the total residual portfolio. Business and
office equipment represented 18.3 percent of the aggregate
portfolio, while railcars and aircraft were 16.3 percent and
10.1 percent, respectively. No other significant
concentrations of more than 10 percent existed at
December 31, 2009.
Operational Risk Management Operational risk represents
the risk of loss resulting from the Company’s operations,
including, but not limited to, the risk of fraud by employees
or persons outside the Company, the execution of
unauthorized transactions by employees, errors relating to
transaction processing and technology, breaches of the
internal control system and compliance requirements, and
business continuation and disaster recovery. This risk of loss
also includes the potential legal actions that could arise as a
result of an operational deficiency or as a result of
noncompliance with applicable regulatory standards, adverse
business decisions or their implementation, and customer
attrition due to potential negative publicity.
The Company operates in many different businesses in
diverse markets and relies on the ability of its employees and
systems to process a high number of transactions.
Operational risk is inherent in all business activities, and the
management of this risk is important to the achievement of
the Company’s objectives. In the event of a breakdown in
the internal control system, improper operation of systems
or improper employees’ actions, the Company could suffer
financial loss, face regulatory action and suffer damage to its
reputation.
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. Business managers maintain a system of controls
with the objective of providing proper transaction
authorization and execution, proper system operations,
safeguarding of assets from misuse or theft, and ensuring the
reliability of financial and other data. Business managers
ensure that the controls are appropriate and are
implemented as designed.
Each business line within the Company has designated
risk managers. These risk managers are responsible for,
among other things, coordinating the completion of ongoing
risk assessments and ensuring that operational risk
management is integrated into business decision-making
activities. The Company’s internal audit function validates
the system of internal controls through regular and ongoing
risk-based audit procedures and reports on the effectiveness
of internal controls to executive management and the Audit
Committee of the Board of Directors. Management also
provides various operational risk related reporting to the
Risk Management Committee of the Board of Directors.
Customer-related business conditions may also increase
operational risk, or the level of operational losses in certain
transaction processing business units, including merchant
processing activities. Ongoing risk monitoring of customer
activities and their financial condition and operational
processes serve to mitigate customer-related operational risk.
Refer to Note 22 of the Notes to Consolidated Financial
Statements for further discussion on merchant processing.
Business continuation and disaster recovery planning is also
critical to effectively managing operational risks. Each
business unit of the Company is required to develop,
maintain and test these plans at least annually to ensure that
recovery activities, if needed, can support mission critical
functions, including technology, networks and data centers
supporting customer applications and business operations.
While the Company believes that it has designed
effective methods to minimize operational risks, there is no
absolute assurance that business disruption or operational
losses would not occur in the event of a disaster. On an
ongoing basis, management makes process changes and
investments to enhance its systems of internal controls and
business continuity and disaster recovery plans.
U.S. BANCORP
49
Interest Rate Risk Management In the banking industry,
changes in interest rates are a significant risk that can
impact earnings, market valuations and 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 One of the primary
tools used to measure interest rate risk and the effect of
interest rate changes on net interest income is simulation
analysis. The monthly analysis incorporates substantially all
of the Company’s assets and liabilities and off-balance sheet
instruments, together with forecasted changes in the balance
sheet and assumptions that reflect the current interest rate
environment. Through this simulation, management
estimates the impact on net interest income of a 200 basis
point (“bps”) upward or downward gradual change of
market interest rates over a one-year period. The simulation
also estimates the effect of immediate and sustained parallel
shifts in the yield curve of 50 bps as well as the effect of
immediate and sustained flattening or steepening of the yield
curve. This simulation includes assumptions about how the
balance sheet is likely to be affected by changes in loan and
deposit growth. Assumptions are made to project interest
rates for new loans and deposits based on historical analysis,
management’s outlook and re-pricing strategies. These
assumptions are validated on a periodic basis. A sensitivity
analysis is provided for key variables of the simulation. The
results are reviewed by the ALCO monthly and are used to
guide asset/liability management strategies.
The table below summarizes the projected impact to net
interest income over the next 12 months of various potential
interest rate changes. The Company manages its interest rate
risk position by holding assets on the balance sheet with
desired interest rate risk characteristics, implementing certain
Sensitivity of Net Interest Income
pricing strategies for loans and deposits and through the
selection of derivatives and various funding and investment
portfolio strategies. The Company manages the overall
interest rate risk profile within policy limits. The ALCO
policy limits the estimated change in net interest income in a
gradual 200 bps rate change scenario to a 4.0 percent
decline of forecasted net interest income over the next
12 months. At December 31, 2009 and 2008, the Company
was within this policy.
Market Value of Equity Modeling The Company also
manages interest rate sensitivity by utilizing market value of
equity modeling, which measures the degree to which the
market values of the Company’s assets and liabilities and
off-balance sheet instruments will change given a change in
interest rates. The ALCO policy limits the change in market
value of equity in a 200 bps parallel rate shock to a
15.0 percent decline. A 200 bps increase would have
resulted in a 4.3 percent decrease in the market value of
equity at December 31, 2009, compared with a 7.6 percent
decrease at December 31, 2008. A 200 bps decrease would
have resulted in a 2.8 percent decrease in the market value
of equity at December 31, 2009, compared with a
2.8 percent decrease at December 31, 2008.
The valuation analysis is dependent upon certain key
assumptions about the nature of assets and liabilities with
non-contractual maturities. Management estimates the
average life and rate characteristics of asset and liability
accounts based upon historical analysis and management’s
expectation of rate behavior. These assumptions are
validated on a periodic basis. A sensitivity analysis of key
variables of the valuation analysis is provided to the ALCO
monthly and is used to guide asset/liability management
strategies.
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
December 31, 2009
December 31, 2008
Down 50 bps
Immediate
Up 50 bps
Immediate
Down 200
bps
Gradual*
Up 200 bps
Gradual
Down 50 bps
Immediate
Up 50 bps
Immediate
Down 200
bps
Gradual*
Up 200 bps
Gradual
Net interest income . . . . . . . . . . . . . .
*
.43%
*
1.00%
*
.37%
*
1.05%
* Given the current level of interest rates, a downward rate scenario can not be computed.
50
U.S. BANCORP
derivatives for asset and liability management purposes
primarily in the following ways:
(cid:129) To convert fixed-rate debt, issued to finance the Company,
from fixed-rate payments to floating-rate payments;
(cid:129) To convert the cash flows associated with floating-rate
debt, issued to finance the Company, from floating-rate
payments to fixed-rate payments; and
(cid:129) To mitigate changes in value of the Company’s mortgage
origination pipeline, mortgage loans held for sale and
MSRs.
To manage these risks, the Company may enter into
exchange-traded and over-the-counter derivative contracts,
including interest rate swaps, swaptions, futures, forwards
and options. In addition, the Company enters into interest
rate and foreign exchange derivative contracts to
accommodate the business requirements of its customers
(“customer-related positions”). The Company minimizes the
market and liquidity risks of customer-related positions by
entering into similar offsetting positions with broker-dealers.
The Company does not utilize derivatives for speculative
purposes.
The Company does not designate all of the derivatives it
enters into for risk management purposes as accounting
hedges because of the inefficiency of applying the accounting
requirements. In particular, the Company enters into
U.S. Treasury futures, options on U.S. Treasury futures
contracts and forward commitments to buy residential
mortgage loans to mitigate fluctuations in the value of its
MSRs, but does not designate those derivatives as
accounting hedges.
Additionally, the Company uses forward commitments
to sell residential mortgage loans at specified prices to
economically hedge the interest rate risk in its residential
mortgage loan production activities. At December 31, 2009,
the Company had $8.3 billion of forward commitments to
sell mortgage loans hedging $4.3 billion of mortgage loans
held for sale and $5.7 billion of unfunded mortgage loan
commitments. The forward commitments to sell and the
unfunded mortgage loan commitments are considered
derivatives under the accounting guidance related to
accounting for derivative instruments and hedge activities,
and the Company has elected the fair value option for the
mortgage loans held for sale.
Derivatives are subject to credit risk associated with
counterparties to the contracts. Credit risk associated with
derivatives is measured by the Company based on the
probability of counterparty default. The Company manages
the credit risk of its derivative positions by diversifying its
positions among various counterparties, entering into master
netting agreements with its counterparties, requiring
collateral agreements with credit-rating thresholds and, in
certain cases, though insignificant, transferring the
counterparty credit risk related to interest rate swaps to
third-parties through the use of risk participation
agreements.
For additional information on derivatives and hedging
activities, refer to Note 20 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 as a
consequence of conducting normal trading activities. These
trading activities principally support the risk management
processes of the Company’s customers, including their
management of foreign currency, interest rate risks and
funding activities. 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 specified
time horizon. The Company measures VaR at the ninety-
ninth percentile using distributions derived from past market
data. On average, the Company expects the one day VaR to
be exceeded two to three times per year. The Company
monitors the effectiveness of its risk program by back-testing
the performance of its VaR models, regularly updating the
historical data used by the VaR models and stress testing. As
part of its market risk management approach, the Company
sets and monitors VaR limits for each trading portfolio. The
Company’s trading VaR did not exceed $4 million during
2009 and $1 million during 2008.
Liquidity Risk Management The ALCO establishes policies
and guidelines, as well as analyzes and manages liquidity, to
ensure that adequate funds are available to meet normal
operating requirements in addition to unexpected customer
demands for funds, such as high levels of deposit
withdrawals or loan demand, in a timely and cost-effective
manner. The most important factor in the preservation of
liquidity is maintaining public confidence that facilitates the
retention and growth of a large, stable supply of core
deposits and wholesale funds.
During 2008 and 2009, the financial markets were
challenging for many financial institutions. As a result of
these financial market conditions, many banks experienced
liquidity constraints, substantially increased pricing to retain
deposits or utilized the Federal Reserve System discount
U.S. BANCORP
51
Table 18 Debt Ratings
U.S. Bancorp
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior debt and medium-term notes . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Bank National Association
Short-term time deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Moody’s
Standard &
Poor’s
Aa3
A1
A2
P-1
P-1
Aa1
Aa1/P-1
Aa2
P-1
A+
A
BBB+
A-1
A-1+
AA-
AA-/A-1+
A+
A-1+
Dominion
Bond
Rating Service
R-1 (middle)
AA
AA (low)
A
R-1 (middle)
R-1 (high)
AA (high)
AA (high)
AA
R-1 (high)
Fitch
F1+
AA-
A+
A
F1+
F1+
AA
AA-/F1+
A+
F1+
window to secure adequate funding. In an effort to restore
confidence in the financial system and strengthen financial
institutions, the United States Congress temporarily
increased the standard FDIC coverage limit on deposits from
$100,000 per depositor to $250,000 per depositor. This
increase is effective through the end of 2013. Additionally,
in the fourth quarter of 2008, the FDIC instituted the
Temporary Liquidity Guarantee Program (“TLGP”). The
TLGP consists of two components. First, the FDIC
guaranteed, for a fee, certain new senior unsecured debt
issued by a bank, thrift or bank holding company in 2009.
The Company issued $2.7 billion of debt under this
program, but did not participate after issuing non-
guaranteed debt in May 2009. Second, for a fee, the
program provides unlimited FDIC coverage for noninterest-
bearing transaction deposit accounts. The Company
participated in the transaction account guarantee program
through 2009, but has elected not to participate beyond
2009.
Ultimately, public confidence is generated through
profitable operations, sound credit quality and a strong
capital position. The Company’s performance in these areas
has enabled it to develop a large and reliable base of core
deposit funding within its market areas and in domestic and
global capital markets. This has allowed the Company to
maintain a strong liquidity position, as depositors and
investors in the wholesale funding markets seek stable
financial institutions. Liquidity management is viewed from
long-term and short-term perspectives, 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.
52
U.S. BANCORP
The ALCO reviews the Company’s ability to meet
funding requirements due to adverse business or market
events. The Company stresses its liquidity position regularly
and maintains contingency plans that reflect its access to
diversified funding sources. Also, the Company’s liquidity
policies require diversification of wholesale funding sources
to avoid maturity, name and market concentrations. Certain
subsidiary companies are members of various Federal Home
Loan Banks (“FHLB”) that provide a source of funding
through FHLB advances. The Company maintains a Grand
Cayman branch for issuing eurodollar time deposits. In
addition, the Company establishes relationships with dealers
to issue national market retail and institutional savings
certificates and short-term and medium-term bank notes.
The Company’s subsidiary banks also have significant
correspondent banking networks and relationships.
Accordingly, the Company has access to national fed funds,
funding through repurchase agreements and sources of
stable, regionally-based certificates of deposit and
commercial paper.
The Company’s ability to raise negotiated funding at
competitive prices is influenced by rating agencies’ views of
the Company’s credit quality, liquidity, capital and earnings.
Table 18 details the rating agencies’ most recent assessments.
The parent company’s routine funding requirements
consist primarily of operating expenses, dividends paid to
shareholders, debt service, repurchases of common stock and
funds used for acquisitions. The parent company obtains
funding to meet its obligations from dividends collected
from its subsidiaries and the issuance of debt securities.
Under United States Securities and Exchange
Commission rules, the parent company is classified as a
“well-known seasoned issuer,” which allows it to file a
registration statement that does not have a limit on issuance
Table 19 Contractual Obligations
December 31, 2009 (Dollars in Millions)
Contractual Obligations (a)
Payments Due By Period
One Year
or Less
Over One
Through
Three Years
Over Three
Through
Five Years
Long-term debt (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit obligations (c) . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6,473
7
191
129
35
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6,835
$9,030
13
321
142
77
$9,583
$5,076
9
250
38
82
$5,455
Over Five
Years
$12,001
16
379
–
224
$12,620
Total
$32,580
45
1,141
309
418
$34,493
(a) Unrecognized tax positions of $440 million at December 31, 2009, are excluded as the Company cannot make a reasonably reliable estimate of the period of cash settlement with the
respective taxing authority.
(b) In the banking industry, interest-bearing obligations are principally utilized to fund interest-bearing assets. As such, interest charges on related contractual obligations were excluded
from reported amounts as the potential cash outflows would have corresponding cash inflows from interest-bearing assets.
(c) Amounts only include obligations related to the unfunded non-qualified pension plans and post-retirement medical plan.
capacity. “Well-known seasoned issuers” generally include
those companies with outstanding common securities with a
market value of at least $700 million held by non-affiliated
parties or those companies that have issued at least
$1 billion in aggregate principal amount of non-convertible
securities, other than common equity, in the last three years.
However, the parent company’s ability to issue debt and
other securities under a registration statement filed with the
United States Securities and Exchange Commission under
these rules is limited by the debt issuance authority granted
by the Company’s Board of Directors and/or the ALCO
policy.
At December 31, 2009, parent company long-term debt
outstanding was $14.5 billion, compared with $10.8 billion
at December 31, 2008. Long-term debt activity in 2009
included issuances of $2.7 billion of medium-term notes
guaranteed under the TLGP and $1.8 billion of notes not
guaranteed under this program, and $.5 billion of junior
subordinated debentures. These issuances were partially
offset by $1.0 billion of medium-term note maturities. Total
parent company debt scheduled to mature in 2010 is
$4.8 billion. These debt obligations may be met through
medium-term note and capital security issuances and
dividends from subsidiaries, as well as from parent company
cash and cash equivalents. During 2009, the Company
raised $2.7 billion through the sale of its common stock.
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 $2.8 billion at December 31, 2009. For
further information, see Note 23 of the Notes to
Consolidated Financial Statements.
Off-Balance Sheet Arrangements Off-balance sheet
arrangements include any contractual arrangement to which
an unconsolidated entity is a party, under which the
Company has an obligation to provide credit or liquidity
enhancements or market risk support. Off-balance sheet
arrangements include certain defined guarantees, asset
securitization trusts and conduits. Off-balance sheet
arrangements also include any obligation under a variable
interest held by an unconsolidated entity that provides
financing, liquidity, credit enhancement or market risk
support.
In the ordinary course of business, the Company enters
into an array of commitments to extend credit, letters of
credit and various forms of guarantees that may be
considered off-balance sheet arrangements. The nature and
extent of these arrangements are provided in Note 22 of the
Notes to Consolidated Financial Statements.
The Company has not significantly utilized asset
securitizations or conduits as a source of funding. The
Company sponsors an off-balance sheet conduit to which it
transferred high-grade investment securities in previous
years, initially funded by the conduit’s issuance of
commercial paper. The conduit held assets of $.6 billion at
December 31, 2009, compared with $.8 billion at
December 31, 2008. During 2008, the conduit ceased issuing
commercial paper and began to draw upon a Company-
provided liquidity facility to replace outstanding commercial
paper as it matured. At December 31, 2009, the amount
advanced to the conduit under the liquidity facility was
$.7 billion, compared with $.9 billion at December 31,
2008, and was recorded on the Company’s balance sheet in
commercial loans.
Under accounting rules applicable through 2009, the
Company considered the conduit to be a variable interest
U.S. BANCORP
53
Table 20 Regulatory Capital Ratios
At December 31 (Dollars in Millions)
2009
2008
U.S. Bancorp
Tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $22,610
As a percent of risk-weighted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As a percent of adjusted quarterly average assets (leverage ratio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.6%
8.5%
$24,426
10.6%
9.8%
Total risk-based capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30,458
$32,897
As a percent of risk-weighted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.9%
14.3%
Bank Subsidiaries
U.S. Bank National Association
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 capital
Total risk-based capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Bank National Association ND
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 capital
Total risk-based capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank Regulatory Capital Requirements
7.2%
11.2
6.3
13.2%
16.5
12.8
6.6%
10.5
6.1
14.3%
17.8
12.6
Minimum
Well-
Capitalized
Tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.0%
Total risk-based capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.0
4.0
6.0%
10.0
5.0
entity. The Company was not the primary beneficiary of the
conduit as it did not absorb the majority of the variability of
the conduit’s cash flows or fair value. The Company will
consolidate the conduit beginning in 2010 as a result of a
change in the accounting rules related to variable interest
entities.
Capital Management The Company is committed to
managing capital to maintain strong protection for
depositors and creditors and for maximum shareholder
benefit. The Company continually assesses its business risks
and capital position. The Company also manages its capital
to exceed regulatory capital requirements for well-capitalized
bank holding companies. To achieve these capital goals, the
Company employs a variety of capital management tools,
including dividends, common share repurchases, and the
issuance of subordinated debt, common stock and other
capital instruments.
On May 7, 2009, the Federal Reserve completed an
assessment of the capital adequacy of the nineteen largest
domestic bank holding companies. Based on the results of
their capital adequacy assessment, the Federal Reserve
projected the Company’s capital would be sufficient under
the Federal Reserve’s projected scenarios. Following a
$2.7 billion sale of common stock and issuance of
$1.0 billion of non-guaranteed medium-term notes, the
Company received approval to redeem the $6.6 billion of
preferred stock previously issued to the U.S. Department of
54
U.S. BANCORP
the Treasury on November 14, 2008, under the Capital
Purchase Program of the Emergency Economic Stabilization
Act of 2008. The Company completed the redemption of the
preferred stock on June 17, 2009, and on July 15, 2009,
repurchased the common stock warrant issued in
conjunction with the preferred stock from the
U.S. Department of the Treasury for $139 million. Refer to
Note 15 in the Notes to Consolidated Financial Statements
for further information.
The Company repurchased an immaterial number of
shares of its common stock in 2009, compared with
2 million shares in 2008, under various authorizations
approved by its Board of Directors. The average price paid
for the shares repurchased in 2009 was $14.02 per share,
compared with $33.59 per share in 2008. As of
December 31, 2009, the Company had approximately
20 million shares that may yet be purchased under the
current Board of Director approved authorization. For a
complete analysis of activities impacting shareholders’ equity
and capital management programs, refer to Note 15 of the
Notes to Consolidated Financial Statements.
Total U.S. Bancorp shareholders’ equity was
$26.0 billion at December 31, 2009, compared with
$26.3 billion at December 31, 2008. The decrease was
principally the result of the preferred stock redemption and
repurchase of the common stock warrant, partially offset by
corporate earnings, the proceeds from the public offering of
the Company’s common stock and changes in unrealized
gains and losses on available-for-sale investment securities
and derivatives included in other comprehensive income.
Banking regulators define minimum capital
requirements for banks and financial services holding
companies. These requirements are expressed in the form of
a minimum Tier 1 capital ratio, total risk-based capital
ratio, and Tier 1 leverage ratio. The minimum required level
for these ratios is 4.0 percent, 8.0 percent, and 4.0 percent,
respectively. The Company targets its regulatory capital
levels, at both the bank and bank holding company level, to
exceed the “well-capitalized” threshold for these ratios of
6.0 percent, 10.0 percent, and 5.0 percent, respectively. The
most recent notification from the Office of the Comptroller
of the Currency categorized each of the Company’s banks as
“well-capitalized”, under the FDIC Improvement Act
prompt corrective action provisions applicable to all banks.
There are no conditions or events since that notification that
management believes have changed the risk-based category
of any covered subsidiary banks.
As an approved mortgage seller and servicer, U.S. Bank
National Association, through its mortgage banking division,
is required to maintain various levels of shareholders’ equity,
as specified by various agencies, including the United States
Department of Housing and Urban Development,
Government National Mortgage Association, Federal Home
Loan Mortgage Corporation and the Federal National
Mortgage Association. At December 31, 2009, U.S. Bank
National Association met these requirements.
Table 20 provides a summary of capital ratios as of
December 31, 2009 and 2008, including Tier 1 and total
risk-based capital ratios, as defined by the regulatory
agencies.
The Company believes certain capital ratios in addition
to regulatory capital ratios are useful in evaluating its capital
adequacy. The Company’s Tier 1 common and tangible
common equity, as a percent of risk-weighted assets, was
6.8 percent and 6.1 percent, respectively, at December 31,
2009, compared with 5.1 percent and 3.7 percent,
respectively, at December 31, 2008. The Company’s tangible
common equity divided by tangible assets was 5.3 percent at
December 31, 2009, compared with 3.3 percent at
December 31, 2008. Refer to “Non-Regulatory Capital
Ratios” for further information regarding the calculation of
these measures.
Fourth Quarter Summary
The Company reported net income attributable to
U.S. Bancorp of $602 million for the fourth quarter of 2009,
or $.30 per diluted common share, compared with
$330 million, or $.15 per diluted common share, for the
fourth quarter of 2008. Return on average assets and return
on average common equity were .86 percent and
9.6 percent, respectively, for the fourth quarter of 2009,
compared with returns of .51 percent and 5.3 percent,
respectively, for the fourth quarter of 2008. In light of the
credit deterioration arising from the current economic
environment, the Company strengthened its allowance for
credit losses in the fourth quarter of 2009 by recording
$278 million of provision for credit losses in excess of net
charge-offs. The Company also recorded $158 million of net
securities losses in the fourth quarter, including $179 million
of impairments, partially offset by $21 million of net gains
on the sale of securities. The $179 million of impairments
was principally due to the anticipated exchange of a
structured investment vehicle for its underlying securities.
This structured investment vehicle was purchased from an
affiliate in the fourth quarter of 2007 and represents the last
such investment expected to be restructured through an
exchange of securities. Significant items reflected in the
fourth quarter of 2008 results included $635 million of
provision for credit losses in excess of net charge-offs,
$253 million of net securities losses and a Visa Gain of
$59 million.
Total net revenue, on a taxable-equivalent basis for the
fourth quarter of 2009, was $752 million (20.8 percent)
higher than the fourth quarter of 2008, reflecting a
9.2 percent increase in net interest income and a
37.8 percent increase in noninterest income. The increase in
net interest income from 2008 was largely the result of
growth in average earning assets and an increase in lower
cost core deposit funding, both of which reflected
acquisitions. Noninterest income increased principally due to
growth in mortgage banking revenue, a decrease in net
securities losses, and lower retail lease residual valuation
losses, partially offset by the fourth quarter 2008 Visa Gain.
Fourth quarter net interest income, on a taxable-
equivalent basis was $2.4 billion, compared with
$2.2 billion in the fourth quarter of 2008. Average earning
assets for the period increased over the fourth quarter of
2008 by $19.4 billion (8.6 percent), driven by an increase of
$14.4 billion (8.2 percent) in average loans and $2.2 billion
(5.2 percent) in average investment securities. The net
interest margin in the fourth quarter of 2009 was
3.83 percent, compared with 3.81 percent in the fourth
quarter of 2008.
Noninterest income in the fourth quarter of 2009 was
$2.0 billion, compared with $1.5 billion in the same period
of 2008, an increase of $553 million (37.8 percent).
U.S. BANCORP
55
Mortgage banking revenue increased $195 million as the
lower interest rate environment drove strong mortgage loan
production and related gains, the net change in the valuation
of MSRs and related economic hedging activities was
favorable and servicing income increased. Other income
increased $184 million due to lower retail lease residual
valuation losses, improving equity investment revenue and a
payments-related contract termination gain, partially offset
by the 2008 Visa Gain. In addition, net securities losses
decreased $95 million. The increase in noninterest income
was also due to higher fee-based payments-related income of
$70 million (10.3 percent) and an increase in commercial
products revenue of $54 million (41.2 percent) due to
stronger capital markets, standby letters of credit and other
commercial loan fees. Trust and investment management
fees declined $23 million (7.7 percent) due to lower account-
level fees and the impact of interest rates on money market
investment fees. Investment product fees and commissions
decreased $10 million (27.0 percent) due to lower sales
levels from a year ago. Deposit service charges decreased
Table 21 Fourth Quarter Results
(Dollars and Shares in Millions, Except Per Share Data)
$22 million (8.5 percent) primarily due to a decrease in the
number of overdraft incidences, which more than offset
deposit account growth.
Noninterest expense was $2.2 billion in the fourth
quarter of 2009, an increase of $290 million (15.0 percent)
from the fourth quarter of 2008. The increase in noninterest
expense was principally due to the impact of acquisitions,
and higher FDIC deposit insurance expense, marketing and
business development expense and costs related to
investments in affordable housing and other tax-advantaged
projects. Compensation expense increased $46 million
(6.0 percent) and employee benefits increased $21 million
(16.9 percent), reflecting acquisitions and higher pension
costs. Net occupancy and equipment expense increased
$12 million (5.9 percent) and professional services expense
increased $8 million (11.0 percent) due principally to
acquisitions and other business initiatives. Marketing and
business development expense increased $15 million
(16.7 percent) due to costs related to the introduction of
new credit card products, while technology and
Three Months Ended
December 31,
2009
2008
Condensed Income Statement
Net interest income (taxable-equivalent basis) (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,360
2,174
Noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(158)
Securities gains (losses), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,376
2,228
1,388
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable-equivalent adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
760
50
108
602
–
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 602
Net income applicable to U.S. Bancorp common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 580
Per Common Share
Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .30
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .30
Dividends declared per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .050
1,908
Average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,917
Average diluted common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Ratios
Return on average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on average common equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest margin (taxable-equivalent basis) (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Efficiency ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.86%
9.6
3.83
49.1
(a) Interest and rates are presented on a fully taxable-equivalent basis utilizing a tax rate of 35 percent.
$2,161
1,716
(253)
3,624
1,938
1,267
419
40
27
352
(22)
$ 330
$ 259
$ .15
$ .15
$ .425
1,754
1,763
.51%
5.3
3.81
50.0
56
U.S. BANCORP
communications expense increased $30 million
(19.2 percent), primarily due to payments-related initiatives.
Other intangibles expense increased $14 million
(15.1 percent) due to acquisitions. Other expense increased
$151 million (42.8 percent) due to higher FDIC deposit
insurance expense, costs related to investments in affordable
housing and other tax-advantaged projects, higher merchant
processing expenses, growth in mortgage servicing expenses
and costs associated with OREO.
The provision for credit losses for the fourth quarter of
2009 was $1.4 billion, an increase of $121 million
(9.6 percent) over the same period of 2008. The provision
for credit losses exceeded net charge-offs by $278 million in
the fourth quarter of 2009, compared with $635 million in
the fourth quarter of 2008. The increase in the provision for
credit losses from 2008 reflected deterioration in economic
conditions during most of the year and the corresponding
impact on the commercial, commercial real estate and
consumer loan portfolios. Net charge-offs in the fourth
quarter of 2009 were $1.1 billion, compared with net
charge-offs of $632 million during the fourth quarter of
2008.
The provision for income taxes for the fourth quarter of
2009 resulted in an effective tax rate of 15.2 percent
compared with an effective tax rate of 7.1 percent in the
fourth quarter of 2008. The increase in the effective rate for
the fourth quarter of 2009, compared with the same period
of the prior year, principally reflected the marginal impact of
higher pre-tax earnings year-over-year.
Line of Business Financial Review
The Company’s major lines of business are Wholesale
Banking, Consumer Banking, Wealth Management &
Securities Services, Payment Services, and Treasury and
Corporate Support. These operating segments are
components of the Company about which financial
information is prepared and is evaluated regularly by
management in deciding how to allocate resources and
assess performance.
Basis for Financial Presentation Business line results are
derived from the Company’s business unit profitability
reporting systems by specifically attributing managed
balance sheet assets, deposits and other liabilities and their
related income or expense. Goodwill and other intangible
assets are assigned to the lines of business based on the mix
of business of the acquired entity. Within the Company,
capital levels are evaluated and managed centrally; however,
capital is allocated to the operating segments to support
evaluation of business performance. Business lines are
allocated capital on a risk-adjusted basis considering
economic and regulatory capital requirements. Generally, the
determination of the amount of capital allocated to each
business line includes credit and operational capital
allocations following a Basel II regulatory framework.
Interest income and expense is determined based on the
assets and liabilities managed by the business line. Because
funding and asset liability management is a central function,
funds transfer-pricing methodologies are utilized to allocate
a cost of funds used or credit for funds provided to all
business line assets and liabilities, respectively, using a
matched funding concept. Also, each business unit is
allocated the taxable-equivalent benefit of tax-exempt
products. The residual effect on net interest income of asset/
liability management activities is included in Treasury and
Corporate Support. Noninterest income and expenses
directly managed by each business line, including fees,
service charges, salaries and benefits, and other direct
revenues and costs are accounted for within each segment’s
financial results in a manner similar to the consolidated
financial statements. Occupancy costs are allocated based on
utilization of facilities by the lines of business. Generally,
operating losses are charged to the line of business when the
loss event is realized in a manner similar to a loan charge-
off. Noninterest expenses incurred by centrally managed
operations or business lines that directly support another
business line’s operations are charged to the applicable
business line based on its utilization of those services
primarily measured by the volume of customer activities,
number of employees or other relevant factors. These
allocated expenses are reported as net shared services
expense within noninterest expense. Certain activities that
do not directly support the operations of the lines of
business or for which the lines of business are not considered
financially accountable in evaluating their performance are
not charged to the lines of business. The income or expenses
associated with these corporate activities is reported within
the Treasury and Corporate Support line of business. Income
taxes are assessed to each line of business at a standard tax
rate with the residual tax expense or benefit to arrive at the
consolidated effective tax rate included in Treasury and
Corporate Support.
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 2009, certain
organization and methodology changes were made,
U.S. BANCORP
57
including those to more closely align capital allocation with
Basel II requirements and to allocate the provision for credit
losses based on net charge-offs and changes in the risks of
specific loan portfolios. Previously, the provision in excess of
net charge-offs remained in Treasury and Corporate
Support, and the other lines of business’ results included
only the portion of the provision for credit losses equal to
net charge-offs. Accordingly, 2008 results were restated and
presented on a comparable basis. Due to organizational and
methodology changes, the Company’s basis of financial
presentation differed in 2007. The presentation of
comparative business line results for 2007 is not practical
and has not been provided.
Wholesale Banking Wholesale Banking offers lending,
equipment finance and small-ticket leasing, depository,
treasury management, capital markets, foreign exchange,
international trade services and other financial services to
middle market, large corporate, commercial real estate,
financial institution and public sector clients. Wholesale
Banking contributed $240 million of the Company’s net
income in 2009, or a decrease of $662 million (73.4 percent)
compared with 2008. The decrease was primarily driven by
higher provision for credit losses and noninterest expense,
partially offset by higher net revenue.
Total net revenue increased $171 million (5.8 percent)
in 2009, compared with 2008. Net interest income, on a
Table 22 Line of Business Financial Performance
Year Ended December 31 (Dollars in Millions)
Wholesale
Banking
Consumer
Banking
2009
2008
Percent
Change
2009
2008
Percent
Change
Condensed Income Statement
Net interest income (taxable-equivalent basis) . . . . . . . . . . . . . . . . . . . $ 2,144
985
Noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3)
Securities gains (losses), net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,091
886
(22)
2.5% $ 4,049
2,941
–
11.2
86.4
$ 3,898
2,081
–
Total net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before provision and income taxes . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Income taxes and taxable-equivalent adjustment
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling interests . . . . . . . . . . . .
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . $
3,126
1,090
24
1,114
2,012
1,635
377
138
239
1
240
2,955
1,037
21
1,058
1,897
473
1,424
522
902
–
902
$
5.8
5.1
14.3
5.3
6.1
*
(73.5)
(73.6)
(73.5)
*
(73.4)
6,990
3,575
89
3,664
3,326
1,884
1,442
525
917
–
917
5,979
3,162
62
3,224
2,755
1,428
1,327
484
843
–
843
$
$
3.9%
41.3
–
16.9
13.1
43.5
13.6
20.7
31.9
8.7
8.5
8.8
–
8.8
Average Balance Sheet
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $39,802
21,490
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
84
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53
Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans, excluding covered assets . . . . . . . . . . . . . . . . . . . . . . .
Covered assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total U.S. Bancorp shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . .
61,429
–
61,429
1,474
90
65,839
17,478
11,849
9,270
13,043
51,640
5,598
$40,233
19,203
88
75
(1.1)% $ 6,246
11,487
11.9
24,006
(4.5)
44,398
(29.3)
$ 6,779
11,338
22,779
41,028
(7.9)%
1.3
5.4
8.2
59,599
–
59,599
1,424
65
64,892
11,146
8,248
6,600
15,652
41,646
6,122
3.1
–
3.1
3.5
38.5
1.5
56.8
43.7
40.5
(16.7)
24.0
(8.6)
86,137
9,507
95,644
3,169
1,658
109,056
14,099
20,805
26,535
25,111
86,550
7,051
81,924
1,308
83,232
2,484
1,717
94,207
12,230
18,731
20,716
19,024
70,701
5,870
5.1
*
14.9
27.6
(3.4)
15.8
15.3
11.1
28.1
32.0
22.4
20.1
* Not meaningful
58
U.S. BANCORP
taxable-equivalent basis, increased $53 million (2.5 percent)
in 2009, compared with 2008, driven by strong growth in
deposits and improved spreads on loans, partially offset by
the decline in the margin benefit of deposits in a declining
interest rate environment. Noninterest income increased
$118 million (13.7 percent) in 2009, compared with 2008.
The increase was primarily due to higher treasury
management, letters of credit, commercial loan, and capital
markets fees, partially offset by declining valuations on
equity investments.
Total noninterest expense increased $56 million
(5.3 percent) in 2009, compared with 2008, primarily due to
higher FDIC deposit insurance expense. The provision for
credit losses increased $1.2 billion in 2009, compared with
2008. The unfavorable change was primarily due to an
increase in net charge-offs and deterioration in the credit
quality of commercial and commercial real estate loans.
Nonperforming assets were $2.6 billion at December 31,
2009, compared with $1.3 billion at December 31, 2008.
Nonperforming assets as a percentage of period-end loans
were 4.42 percent at December 31, 2009, compared with
1.95 percent at December 31, 2008. Refer to the “Corporate
Risk Profile” section for further information on factors
impacting the credit quality of the loan portfolios.
Wealth Management &
Securities Services
Payment
Services
Treasury and
Corporate Support
Consolidated
Company
2009
2008
Percent
Change
2009
2008
Percent
Change
2009
2008
Percent
Change
2009
2008
Percent
Change
15.2% $
1.3% $
$
360
1,206
–
1,566
880
69
949
617
32
585
212
373
–
373
$
$
443
1,321
–
1,764
923
77
1,000
764
4
760
276
484
–
484
$
(18.7)% $ 1,178
3,001
–
(8.7)
–
$ 1,023
2,934
–
(11.2)
(4.7)
(10.4)
(5.1)
(19.2)
*
(23.0)
(23.2)
(22.9)
–
(22.9)
4,179
1,500
201
1,701
2,478
1,981
497
180
317
(26)
3,957
1,367
195
1,562
2,395
1,181
1,214
438
776
(28)
$
291
$
748
$ 1,186
566
385
1,552
$ 1,745
533
387
1,493
(32.0)% $ 4,677
–
–
16,017
6.2
(.5)
4.0
$ 4,617
–
–
12,972
3,689
–
3,689
1,563
258
6,061
5,308
3,935
8,404
5,902
4,158
–
4,158
1,563
327
6,597
4,570
4,116
4,828
4,146
23,549
2,126
17,660
2,279
(11.3)
–
(11.3)
–
(21.1)
(8.1)
16.1
(4.4)
74.1
42.4
33.3
(6.7)
20,694
–
20,694
2,308
934
24,816
539
84
19
1
643
4,552
17,589
–
17,589
2,353
999
22,448
498
39
19
1
557
4,587
2.3
–
5.6
9.7
3.1
8.9
3.5
67.7
(59.1)
(58.9)
(59.1)
7.1
(61.1)
–
–
23.5
17.7
–
17.7
(1.9)
(6.5)
10.5
8.2
*
–
–
15.4
(.8)
985
270
(448)
807
849
4
853
(46)
25
(71)
(462)
391
(7)
$
384
916
208
6
3
1,133
3,216
4,349
98
25
62,588
432
193
676
4,118
5,419
6,980
$
$
$
411
567
(956)
22
504
–
504
(482)
10
(492)
(499)
7
(38)
(31)
933
36
3
2
974
–
974
–
1
56,256
295
3
66
5,256
5,620
3,712
*% $ 8,716
8,403
(451)
(52.4)
53.1
$ 7,866
7,789
(978)
10.8%
7.9
53.9
*
68.5
*
69.2
90.5
*
85.6
7.4
*
81.6
16,668
7,894
387
8,281
8,387
5,557
2,830
593
2,237
(32)
14,677
6,993
355
7,348
7,329
3,096
4,233
1,221
3,012
(66)
*
$ 2,205
$ 2,946
13.6
12.9
9.0
12.7
14.4
79.5
(33.1)
(51.4)
(25.7)
51.5
(25.2)
(1.8)% $ 52,827
33,751
24,481
62,023
*
*
50.0
$ 54,307
31,110
23,257
55,570
(2.7)%
8.5
5.3
11.6
16.3
*
*
*
*
11.3
46.4
*
*
(21.7)
(3.6)
88.0
173,082
12,723
185,805
8,612
2,965
268,360
37,856
36,866
44,904
48,175
167,801
26,307
164,244
1,308
165,552
7,824
3,109
244,400
28,739
31,137
32,229
44,079
136,184
22,570
5.4
*
12.2
10.1
(4.6)
9.8
31.7
18.4
39.3
9.3
23.2
16.6
U.S. BANCORP
59
Consumer Banking Consumer Banking delivers products and
services through banking offices, telephone servicing and
sales, on-line services, direct mail and ATM processing. It
encompasses community banking, metropolitan banking, in-
store banking, small business banking, consumer lending,
mortgage banking, consumer finance, workplace banking,
student banking and 24-hour banking. Consumer Banking
contributed $917 million of the Company’s net income in
2009, or an increase of $74 million (8.8 percent), compared
with 2008. Within Consumer Banking, the retail banking
division contributed $359 million of the total net income in
2009, or a decrease of $392 million (52.2 percent) from the
prior year. Mortgage banking contributed $558 million of
the business line’s net income in 2009, or an increase of
$466 million over the prior year, reflecting strong mortgage
loan production and improved loan sale profitability.
Total net revenue increased $1.0 billion (16.9 percent)
in 2009, compared with 2008. Net interest income, on a
taxable-equivalent basis, increased $151 million
(3.9 percent) in 2009, compared with 2008. The
year-over-year increase in net interest income was due to
increases in average loan and deposit balances, partially
offset by the decline in the margin benefit of deposits in a
declining interest rate environment. The increase in average
loan balances reflected core growth in most loan categories,
with the largest increases in retail loans and residential
mortgages. In addition, average loan balances increased due
to the Downey and PFF acquisitions in the fourth quarter of
2008, reflected primarily in covered assets. The favorable
change in retail loans was principally driven by increases in
home equity and federally guaranteed student loan balances.
The year-over-year increase in average deposits reflected core
increases, primarily within savings and time deposits. In
addition, average deposit balances increased due to the
Downey and PFF acquisitions in the fourth quarter of 2008.
Fee-based noninterest income increased $860 million
(41.3 percent) in 2009, compared with 2008. The
year-over-year increase in fee-based revenue was driven by
higher mortgage banking revenue due to strong mortgage
loan production and improved loan sale profitability, an
improvement in retail lease residual losses, and higher ATM
processing services fees, partially offset by lower deposit
service charges.
Total noninterest expense increased $440 million
(13.6 percent) in 2009, compared with 2008. The increase
reflected higher FDIC deposit insurance expense, mortgage
and ATM volume-related expenses, and higher credit related
costs associated with OREO and foreclosures.
60
U.S. BANCORP
The provision for credit losses increased $456 million
(31.9 percent) in 2009, compared with 2008. The increase
was due to growth in net charge-offs and stress in residential
mortgages, home equity and other installment and consumer
loan portfolios from a year ago. As a percentage of average
loans outstanding, net charge-offs increased to 1.50 percent
in 2009, compared with .95 percent in 2008. Commercial
and commercial real estate loan net charge-offs increased
$125 million and retail loan and residential mortgage net
charge-offs increased $519 million in 2009, compared with
2008. Nonperforming assets were $1.3 billion at
December 31, 2009, compared with $1.2 billion at
December 31, 2008. Nonperforming assets as a percentage
of period-end loans were 1.36 percent at December 31,
2009, compared with 1.24 percent at December 31, 2008.
Refer to the “Corporate Risk Profile” section for further
information on factors impacting the credit quality of the
loan portfolios.
Wealth Management & Securities Services Wealth
Management & Securities Services provides trust, private
banking, financial advisory, investment management, retail
brokerage, insurance, custody and mutual fund services
through five businesses: Wealth Management, Corporate
Trust, FAF Advisors, Institutional Trust & Custody and
Fund Services. Wealth Management & Securities Services
contributed $373 million of the Company’s net income in
2009, a decrease of $111 million (22.9 percent), compared
with 2008.
Total net revenue decreased $198 million (11.2 percent)
in 2009, compared with 2008. Net interest income, on a
taxable-equivalent basis, decreased $83 million
(18.7 percent) in 2009, compared with 2008. The decrease
in net interest income was primarily due to the reduction in
the margin benefit from deposits, partially offset by higher
deposit volumes. Noninterest income decreased $115 million
(8.7 percent) in 2009, compared with 2008, reflecting lower
assets under management account volume and the impact of
low interest rates on money market investment fees.
Total noninterest expense decreased $51 million
(5.1 percent) in 2009, compared with 2008. The decrease in
noninterest expense was primarily due to lower
compensation and employee benefits expense, litigation-
related costs and other intangibles expense, partially offset
by higher FDIC deposit insurance expense.
Payment Services Payment Services includes consumer and
business credit cards, stored-value cards, debit cards,
corporate and purchasing card services, consumer lines of
credit and merchant processing. Payment Services’ offerings
are highly inter-related with banking products and services
of the other lines of business and rely on access to the bank
subsidiary’s settlement network, lower cost funding available
to the Company, cross-selling opportunities and operating
efficiencies. Payment Services contributed $291 million of
the Company’s net income in 2009, or a decrease of
$457 million (61.1 percent) compared with 2008. The
decrease was primarily due to a higher provision for credit
losses.
Total net revenue increased $222 million (5.6 percent)
in 2009, compared with 2008. Net interest income, on a
taxable-equivalent basis, increased $155 million
(15.2 percent) in 2009, compared with 2008, primarily due
to growth in credit card loan balances, partially offset by the
cost of rebates on the government card program.
Noninterest income increased $67 million (2.3 percent) in
2009, compared with 2008, driven by higher credit and
debit card fees and a contract termination fee.
Total noninterest expense increased $139 million
(8.9 percent) in 2009, compared with 2008, due to
marketing and business development expense related to the
introduction of new credit card products.
The provision for credit losses increased $800 million
(67.7 percent) in 2009, compared with 2008, due to higher
net charge-offs, retail credit card portfolio growth, higher
delinquency rates and deteriorating economic conditions
during most of the year. As a percentage of average loans
outstanding, net charge-offs were 6.16 percent in 2009,
compared with 3.94 percent in 2008.
Treasury and Corporate Support Treasury and Corporate
Support includes the Company’s investment portfolios,
funding, recently acquired assets and assumed liabilities
prior to assignment to business lines, capital management,
asset securitization, interest rate risk management, the net
effect of transfer pricing related to average balances and the
residual aggregate of expenses associated with corporate
activities that are managed on a consolidated basis. Treasury
and Corporate Support recorded net income of $384 million
in 2009, compared with a net loss of $31 million in 2008.
Total net revenue increased $785 million in 2009,
compared with 2008. Net interest income, on a taxable-
equivalent basis, increased $574 million in 2009, compared
with 2008, reflecting the impact of the declining interest rate
environment, wholesale funding decisions and the
Company’s asset/liability position. Noninterest income
increased $211 million (54.2 percent) in 2009, compared
with 2008. The increase was primarily due to lower
impairment charges on structured investment related
securities, a gain on a corporate real estate transaction and
higher gains on the sale of investment securities in 2009,
partially offset by the net impact of the 2008 gains related to
the Company’s ownership position in Visa Inc. and
impairments on preferred securities and non-agency
mortgage-backed securities in 2009.
Total noninterest expense increased $349 million
(69.2 percent) in 2009, compared with 2008. The increase in
noninterest expense was driven by a 2009 FDIC special
assessment, increased litigation, higher costs related to
affordable housing and other tax advantaged projects, the
impact of the FBOP acquisition, and higher acquisition
integration 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. The
consolidated effective tax rate of the Company was
15.0 percent in 2009, compared with 26.5 percent in 2008.
The decrease in the effective tax rate from 2008 reflected the
impact of the relative level of tax-exempt income, and
investments in affordable housing and other tax-advantaged
projects, combined with lower pre-tax earnings
year-over-year.
Non-Regulatory Capital Ratios
In addition to capital ratios defined by banking regulators,
the Company considers other ratios when evaluating capital
utilization and adequacy, including:
(cid:129) Tangible common equity to tangible assets,
(cid:129) Tier 1 common equity to risk-weighted assets, and
(cid:129) Tangible common equity to risk-weighted assets.
These non-regulatory capital ratios are viewed by
management as useful additional methods of reflecting the
level of capital available to withstand unexpected market
conditions. Additionally, presentation of these ratios allows
readers to compare the Company’s capitalization to other
financial services companies. These ratios differ from capital
ratios defined by banking regulators principally in that the
numerator excludes shareholders’ equity associated with
preferred securities, the nature and extent of which varies
among different financial services companies. These ratios
are not determined in accordance with generally accepted
accounting principals (“GAAP”) and are not defined in
federal banking regulations. As a result, these non-regulatory
capital ratios disclosed by the Company may be considered
non-GAAP financial measures.
U.S. BANCORP
61
Despite the importance of these non-regulatory capital
ratios to the Company, there are no standardized definitions
for them, and, as a result, the Company’s calculation
methods may differ from those used by other financial
services companies. Also, there may be limits in the
usefulness of these measures to investors. As a result, the
Company encourages readers to consider the consolidated
financial statements and other financial information
contained in this report in their entirety, and not to rely on
any single financial measure.
The following table shows the Company’s calculation of the non-regulatory capital ratios:
December 31, (Dollars in Millions)
2009
2008
2007
2006
2005
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,661
(1,500)
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(698)
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . .
(8,482)
Goodwill (net of deferred tax liability). . . . . . . . . . . . . . . . . .
(1,657)
Intangible assets, other than mortgage servicing rights . . . . .
$ 27,033
(7,931)
(733)
(8,153)
(1,640)
$ 21,826
(1,000)
(780)
(7,534)
(1,581)
$ 21,919
(1,000)
(722)
(7,423)
(1,800)
$ 20,301
–
(215)
(7,005)
(1,756)
Tangible common equity (a) . . . . . . . . . . . . . . . . . . . . . .
14,324
8,576
10,931
10,974
11,325
Tier 1 capital, determined in accordance with prescribed
regulatory requirements. . . . . . . . . . . . . . . . . . . . . . . . .
Trust preferred securities . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests, less preferred stock not eligible for
Tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 common equity (b) . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill (net of deferred tax liability). . . . . . . . . . . . . . . . . .
Intangible assets, other than mortgage servicing rights . . . . .
Tangible assets (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-weighted assets, determined in accordance with
22,610
(4,524)
(1,500)
(692)
15,894
281,176
(8,482)
(1,657)
271,037
24,426
(4,024)
(7,931)
(693)
11,778
265,912
(8,153)
(1,640)
256,119
17,539
(4,024)
(1,000)
(695)
11,820
237,615
(7,534)
(1,581)
228,500
17,036
(3,639)
(1,000)
(694)
11,703
219,232
(7,423)
(1,800)
210,009
15,145
(3,057)
–
(215)
11,873
209,465
(7,005)
(1,756)
200,704
prescribed regulatory requirements (d) . . . . . . . . . . . . .
235,233
230,628
212,592
194,659
184,353
Ratios
Tangible common equity to tangible assets (a)/(c) . . . . . . . . .
Tier 1 common equity to risk-weighted assets (b)/(d) . . . . . . .
Tangible common equity to risk-weighted assets (a)/(d) . . . . .
5.3%
6.8
6.1
3.3%
5.1
3.7
4.8%
5.6
5.1
5.2%
6.0
5.6
5.6%
6.4
6.1
Accounting Changes
Note 2 of the Notes to Consolidated Financial Statements
discusses accounting standards adopted in 2009, as well as
accounting standards recently issued but not yet required to
be adopted and the expected impact of these changes in
accounting standards. To the extent the adoption of new
accounting standards affects the Company’s financial
condition or results of operations, the impacts are discussed
in the applicable section(s) of the Management’s Discussion
and Analysis and the Notes to Consolidated Financial
Statements.
Critical Accounting Policies
The accounting and reporting policies of the Company
comply with accounting principles generally accepted in the
United States and conform to general practices within the
banking industry. The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions.
The Company’s financial position and results of operations
can be affected by these estimates and assumptions, which
are integral to understanding the Company’s financial
statements. Critical accounting policies are those policies
management believes are the most important to the
portrayal of the Company’s financial condition and results,
and require management to make estimates that are difficult,
subjective or complex. Most accounting policies are not
considered by management to be critical accounting policies.
Several factors are considered in determining whether or not
a policy is critical in the preparation of financial statements.
These factors include, among other things, whether the
estimates are significant to the financial statements, the
nature of the estimates, the ability to readily validate the
estimates with other information including third-parties
sources or available prices, and sensitivity of the estimates to
changes in economic conditions and whether alternative
accounting methods may be utilized under generally
62
U.S. BANCORP
accepted accounting principles. Management has discussed
the development and the selection of critical accounting
policies with the Company’s Audit Committee.
Significant accounting policies are discussed in Note 1
of the Notes to Consolidated Financial Statements. Those
policies considered to be critical accounting policies are
described below.
Allowance for Credit Losses The allowance for credit losses
is established to provide for probable losses incurred in the
Company’s credit portfolio. The methods utilized to estimate
the allowance for credit losses, key assumptions and
quantitative and qualitative information considered by
management in determining the adequacy of the allowance
for credit losses are discussed in the “Credit Risk
Management” section.
Management’s evaluation of the adequacy of the
allowance for credit losses is often the most critical of
accounting estimates for a banking institution. It is an
inherently subjective process impacted by many factors as
discussed throughout the Management’s Discussion and
Analysis section of the Annual Report. Although risk
management practices, methodologies and other tools are
utilized to determine each element of the allowance, degrees
of imprecision exist in these measurement tools due in part
to subjective judgments involved and an inherent lagging of
credit quality measurements relative to the stage of the
business cycle. Even determining the stage of the business
cycle is highly subjective. As discussed in the “Analysis and
Determination of Allowance for Credit Losses” section,
management considers the effect of imprecision and many
other factors in determining the allowance for credit losses.
If not considered, incurred losses in the portfolio related to
imprecision and other subjective factors could have a
dramatic adverse impact on the liquidity and financial
viability of a bank.
Given the many subjective factors affecting the credit
portfolio, changes in the allowance for credit losses may not
directly coincide with changes in the risk ratings of the
credit portfolio reflected in the risk rating process. This is in
part due to the timing of the risk rating process in relation
to changes in the business cycle, the exposure and mix of
loans within risk rating categories, levels of nonperforming
loans and the timing of charge-offs and recoveries. For
example, the amount of loans within specific risk ratings
may change, providing a leading indicator of improving
credit quality, while nonperforming loans and net charge-
offs continue at elevated levels. Also, inherent loss ratios,
determined through migration analysis and historical loss
performance over the estimated business cycle of a loan,
may not change to the same degree as net charge-offs.
Because risk ratings and inherent loss ratios primarily drive
the allowance specifically allocated to commercial loans, the
amount of the allowance for commercial and commercial
real estate loans might decline; however, the degree of
change differs somewhat from the level of changes in
nonperforming loans and net charge-offs. Also, management
would maintain an adequate allowance for credit losses by
increasing the allowance during periods of economic
uncertainty or changes in the business cycle.
Some factors considered in determining the adequacy of
the allowance for credit losses are quantifiable while other
factors require qualitative judgment. Management conducts
an analysis with respect to the accuracy of risk ratings and
the volatility of inherent losses, and utilizes this analysis
along with qualitative factors, including uncertainty in the
economy from changes in unemployment rates, the level of
bankruptcies and concentration risks, including risks
associated with the weakened housing market and highly
leveraged enterprise-value credits, in determining the overall
level of the allowance for credit losses. The Company’s
determination of the allowance for commercial and
commercial real estate loans is sensitive to the assigned
credit risk ratings and inherent loss rates at December 31,
2009. In the event that 10 percent of loans within these
portfolios experienced downgrades of two risk categories,
the allowance for commercial and commercial real estate
would increase by approximately $331 million at
December 31, 2009. In the event that inherent loss or
estimated loss rates for these portfolios increased by
10 percent, the allowance determined for commercial and
commercial real estate would increase by approximately
$153 million at December 31, 2009. The Company’s
determination of the allowance for residential and retail
loans is sensitive to changes in estimated loss rates. In the
event that estimated loss rates increased by 10 percent, the
allowance for residential mortgages and retail loans would
increase by approximately $250 million at December 31,
2009. Because several quantitative and qualitative factors
are considered in determining the allowance for credit losses,
these sensitivity analyses do not necessarily reflect the nature
and extent of future changes in the allowance for credit
losses. They are intended to provide insights into the impact
of adverse changes in risk rating and inherent losses and do
not imply any expectation of future deterioration in the risk
rating or loss rates. Given current processes employed by the
Company, management believes the risk ratings and inherent
loss rates currently assigned are appropriate. It is possible
U.S. BANCORP
63
that others, given the same information, may at any point in
time reach different reasonable conclusions that could be
significant to the Company’s financial statements. Refer to
the “Analysis and Determination of the Allowance for
Credit Losses” section for further information.
Fair Value Estimates A portion of the Company’s assets and
liabilities are carried at fair value on the Consolidated
Balance Sheet, with changes in fair value recorded either
through earnings or other comprehensive income (loss) in
accordance with applicable accounting principles generally
accepted in the United States. These include all of the
Company’s available-for-sale securities, derivatives and other
trading instruments, MSRs and certain mortgage loans
held-for-sale. The estimation of fair value also affects other
loans held for sale, which are recorded at the lower of cost
or fair value. The determination of fair value is important
for certain other assets that are periodically evaluated for
impairment using fair value estimates, including goodwill
and other intangible assets, assets acquired in business
combinations, impaired loans, OREO and other repossessed
assets.
Fair value is generally defined as the exit price at which
an asset or liability could be exchanged in a current
transaction between willing, unrelated parties, other than in
a forced or liquidation sale. Fair value is based on quoted
market prices in an active market, or if market prices are
not available, is estimated using models employing
techniques such as matrix pricing or discounting expected
cash flows. The significant assumptions used in the models,
which include assumptions for interest rates, discount rates,
prepayments and credit losses, are independently verified
against observable market data where possible. Where
observable market data is not available, the estimate of fair
value becomes more subjective and involves a high degree of
judgment. In this circumstance, fair value is estimated based
on management’s judgment regarding the value that market
participants would assign to the asset or liability. This
valuation process takes into consideration factors such as
market illiquidity. Imprecision in estimating these factors can
impact the amount recorded on the balance sheet for a
particular asset or liability with related impacts to earnings
or other comprehensive income (loss).
When available, trading and available-for-sale securities
are valued based on quoted market prices. However, certain
securities are traded less actively and therefore, may not be
able to be valued based on quoted market prices. The
determination of fair value may require benchmarking to
similar instruments or performing a discounted cash flow
64
U.S. BANCORP
analysis using estimates of future cash flows and
prepayment, interest and default rates. An example is
interests held in entities collateralized by mortgage and/or
debt obligations as part of a structured investment. For more
information on investment securities, refer to Note 5 of the
Notes to Consolidated Financial Statements.
As few derivative contracts are listed on an exchange,
the majority of the Company’s derivative positions are
valued using valuation techniques that use readily observable
market parameters. Certain derivatives, however, must be
valued using techniques that include unobservable
parameters. For these instruments, the significant
assumptions must be estimated and therefore, are subject to
judgment. These instruments are normally traded less
actively. An example includes certain long-dated interest rate
swaps. Note 20 of the Notes to Consolidated Financial
Statements provides a summary of the Company’s derivative
positions.
Refer to Note 21 of the Notes to Consolidated
Financial Statements for additional information regarding
estimations of fair value.
Purchased Loans and Related Indemnification Assets In
accordance with applicable authoritative accounting
guidance effective for the Company beginning January 1,
2009, all purchased loans and related indemnification assets
are recorded at fair value at date of purchase. The initial
valuation of these loans and the related indemnification
assets requires management to make subjective judgments
concerning estimates about how the acquired loans will
perform in the future using valuation methods including
discounted cash flow analysis and independent third-party
appraisals. Factors that may significantly affect the initial
valuation include, among others, market-based and industry
data related to expected changes in interest rates,
assumptions related to probability and severity of credit
losses, estimated timing of credit losses including the
foreclosure and liquidation of collateral, expected
prepayment rates, required or anticipated loan
modifications, unfunded loan commitments, the specific
terms and provisions of any loss sharing agreements, and
specific industry and market conditions that may impact
discount rates and independent third-party appraisals.
On an ongoing basis, the accounting for purchased
loans and related indemnification assets follows applicable
authoritative accounting guidance for purchased non-
impaired loans and purchased impaired loans. Refer to
Note 1 and Note 6 of the Notes to Consolidated Financial
Statements for additional information. In addition, refer to
the “Analysis and Determination of the Allowance for
Credit Losses” section for information on the determination
of the required allowance for credit losses, if any, for these
loans.
Mortgage Servicing Rights MSRs are capitalized as separate
assets when loans are sold and servicing is retained or may
be purchased from others. MSRs are initially recorded at fair
value and remeasured at each subsequent reporting date.
Because MSRs do not trade in an active market with readily
observable prices, the Company determines the fair value by
estimating the present value of the asset’s future cash flows
utilizing market-based prepayment rates, discount rates, and
other assumptions validated through comparison to trade
information, industry surveys and independent third party
appraisals. Changes in the fair value of MSRs are recorded
in earnings during the period in which they occur. Risks
inherent in the MSRs valuation include higher than expected
prepayment rates and/or delayed receipt of cash flows. The
Company may utilize derivatives, including futures and
options contracts, to mitigate the valuation risk. The
estimated sensitivity to changes in interest rates of the fair
value of the MSRs portfolio and the related derivative
instruments at December 31, 2009, to an immediate 25 and
50 bps downward movement in interest rates would be a
decrease of approximately $5 million and $15 million,
respectively. An upward movement in interest rates at
December 31, 2009, of 25 and 50 bps would increase the
value of the MSRs and related derivative instruments by
approximately $2 million and $1 million, respectively. Refer
to Note 10 of the Notes to Consolidated Financial
Statements for additional information regarding MSRs.
Goodwill and Other Intangibles The Company records all
assets and liabilities acquired in purchase acquisitions,
including goodwill and other intangibles, at fair value.
Goodwill and indefinite-lived assets are not amortized but
are subject, at a minimum, to annual tests for impairment.
In certain situations, interim impairment tests may be
required if events occur or circumstances change that would
more likely than not reduce the fair value of a reporting
segment below its carrying amount. Other intangible assets
are amortized over their estimated useful lives using straight-
line and accelerated methods and are subject to impairment
if events or circumstances indicate a possible inability to
realize the carrying amount.
The initial recognition of goodwill and other intangible
assets and subsequent impairment analysis require
management to make subjective judgments concerning
estimates of how the acquired assets will perform in the
future using valuation methods including discounted cash
flow analysis. Additionally, estimated cash flows may extend
beyond ten years and, by their nature, are difficult to
determine over an extended timeframe. Events and factors
that may significantly affect the estimates include, among
others, competitive forces, customer behaviors and attrition,
changes in revenue growth trends, cost structures,
technology, changes in discount rates and specific industry
and market conditions. In determining the reasonableness of
cash flow estimates, the Company reviews historical
performance of the underlying assets or similar assets in an
effort to assess and validate assumptions utilized in its
estimates.
In assessing the fair value of reporting units, the
Company may consider the stage of the current business
cycle and potential changes in market conditions in
estimating the timing and extent of future cash flows. Also,
management often utilizes other information to validate the
reasonableness of its valuations including public market
comparables, and multiples of recent mergers and
acquisitions of similar businesses. Valuation multiples may
be based on revenue, price-to-earnings and tangible capital
ratios of comparable public companies and business
segments. These multiples may be adjusted to consider
competitive differences, including size, operating leverage
and other factors. The carrying amount of a reporting unit is
determined based on the capital required to support the
reporting unit’s activities, including its tangible and
intangible assets. The determination of a reporting unit’s
capital allocation requires management judgment and
considers many factors, including the regulatory capital
regulations and capital characteristics of comparable public
companies in relevant industry sectors. In certain
circumstances, management will engage a third-party to
independently validate its assessment of the fair value of its
reporting units.
The Company’s annual assessment of potential goodwill
impairment was completed during the second quarter of
2009. Based on the results of this assessment, no goodwill
impairment was recognized. Because of current economic
conditions the Company continues to monitor goodwill and
other intangible assets for impairment indicators throughout
the year.
Income Taxes The Company estimates income tax expense
based on amounts expected to be owed to various tax
jurisdictions. Currently, the Company files tax returns in
approximately 286 federal, state and local domestic
jurisdictions and 13 foreign jurisdictions. The estimated
U.S. BANCORP
65
income tax expense is reported in the Consolidated
Statement of Income. Accrued taxes represent the net
estimated amount due to or to be received from taxing
jurisdictions either currently or in the future and are
reported in other assets or other liabilities on the
Consolidated Balance Sheet. In estimating accrued taxes, the
Company assesses the relative merits and risks of the
appropriate tax treatment considering statutory, judicial and
regulatory guidance in the context of the tax position.
Because of the complexity of tax laws and regulations,
interpretation can be difficult and subject to legal judgment
given specific facts and circumstances. It is possible that
others, given the same information, may at any point in time
reach different reasonable conclusions regarding the
estimated amounts of accrued taxes.
Changes in the estimate of accrued taxes occur
periodically due to changes in tax rates, interpretations of
tax laws, the status of examinations being conducted by
various taxing authorities, and newly enacted statutory,
judicial and regulatory guidance that impacts the relative
merits and risks of tax positions. These changes, when they
occur, affect accrued taxes and can be significant to the
operating results of the Company. Refer to Note 19 of the
Notes to Consolidated Financial Statements for additional
information regarding income taxes.
Controls and Procedures
Under the supervision and with the participation of the
Company’s management, including its principal executive
officer and principal financial officer, the Company has
evaluated the effectiveness of the design and operation of its
disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934 (the “Exchange Act”)). Based upon this
evaluation, the principal executive officer and principal
financial officer have concluded that, as of the end of the
period covered by this report, the Company’s disclosure
controls and procedures were effective.
During the most recently completed fiscal quarter, there
was no change made in the Company’s internal controls over
financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) that has materially
affected, or is reasonably likely to materially affect, the
Company’s internal control over financial reporting.
The annual report of the Company’s management on
internal control over financial reporting is provided on
page 67. The attestation report of Ernst & Young LLP, the
Company’s independent accountants, regarding the
Company’s internal control over financial reporting is
provided on page 69.
66
U.S. BANCORP
Report of Management
Responsibility for the financial statements and other information presented throughout this Annual Report rests with the
management of U.S. Bancorp. The Company believes that the consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States and present the substance of transactions based
on the circumstances and management’s best estimates and judgment.
In meeting its responsibilities for the reliability of the financial statements, management is responsible for establishing and
maintaining an adequate system of internal control over financial reporting as defined by Rules 13a-15(f) and 15d-15(f) under
the Securities Exchange Act of 1934. The Company’s system of internal control is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of publicly filed financial statements in accordance with
accounting principles generally accepted in the United States.
To test compliance, the Company carries out an extensive audit program. This program includes a review for compliance with
written policies and procedures and a comprehensive review of the adequacy and effectiveness of the system of internal control.
Although control procedures are designed and tested, it must be recognized that there are limits inherent in all systems of
internal control and, therefore, errors and irregularities may nevertheless occur. Also, estimates and judgments are required to
assess and balance the relative cost and expected benefits of the controls. Projection of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
The Board of Directors of the Company has an Audit Committee composed of directors who are independent of U.S. Bancorp.
The committee meets periodically with management, the internal auditors and the independent accountants to consider audit
results and to discuss internal accounting control, auditing and financial reporting matters.
Management assessed the effectiveness of the Company’s system of internal control over financial reporting as of December 31,
2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission in its Internal Control-Integrated Framework. Based on our assessment and those criteria, management
believes that the Company designed and maintained effective internal control over financial reporting as of December 31, 2009.
The Company’s independent accountants, Ernst & Young LLP, have been engaged to render an independent professional
opinion on the financial statements and issue an attestation report on the Company’s internal control over financial reporting.
Their opinion on the financial statements appearing on page 68 and their attestation on internal control over financial reporting
appearing on page 69 are based on procedures conducted in accordance with auditing standards of the Public Company
Accounting Oversight Board (United States).
U.S. BANCORP
67
Report of Independent Registered Public Accounting Firm
on the Consolidated Financial Statements
The Board of Directors and Shareholders of U.S. Bancorp:
We have audited the accompanying consolidated balance sheets of U.S. Bancorp as of December 31, 2009 and 2008, and the
related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended
December 31, 2009. These financial statements are the responsibility of U.S. Bancorp’s management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of U.S. Bancorp at December 31, 2009 and 2008, and the consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31, 2009, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
U.S. Bancorp’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 26, 2010 expressed an unqualified opinion thereon.
Minneapolis, Minnesota
February 26, 2010
68
U.S. BANCORP
Report of Independent Registered Public Accounting Firm
on Internal Control Over Financial Reporting
The Board of Directors and Shareholders of U.S. Bancorp:
We have audited U.S. Bancorp’s internal control over financial reporting as of December 31, 2009, based on criteria established
in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). U.S. Bancorp’s management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the
accompanying Report of Management. Our responsibility is to express an opinion on U.S. Bancorp’s internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, U.S. Bancorp maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of U.S. Bancorp as of December 31, 2009 and 2008, and the related consolidated statements of
income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2009 and our report
dated February 26, 2010 expressed an unqualified opinion thereon.
Minneapolis, Minnesota
February 26, 2010
U.S. BANCORP
69
U.S. Bancorp
Consolidated Balance Sheet
At December 31 (Dollars in Millions)
2009
2008
Assets
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,206
Investment securities
Held-to-maturity (fair value $48 and $54, respectively). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale (included $4,327 and $2,728 of mortgage loans carried at fair value, respectively) . . . . . . . .
Loans
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47
44,721
4,772
48,792
34,093
26,056
63,955
Total loans, excluding covered assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
172,896
22,512
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
195,408
(5,079)
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
190,329
2,263
9,011
3,406
20,421
$ 6,859
53
39,468
3,210
56,618
33,213
23,580
60,368
173,779
11,450
185,229
(3,514)
181,715
1,790
8,571
2,834
21,412
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $281,176
$265,912
Liabilities and Shareholders’ Equity
Deposits
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 38,186
115,135
Interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29,921
Time deposits greater than $100,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
183,242
31,312
32,580
7,381
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
254,515
$ 37,494
85,886
35,970
159,350
33,983
38,359
7,187
238,879
Shareholders’ equity
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock, par value $0.01 a share — authorized: 4,000,000,000 shares;
issued: 2009 — 2,125,725,742 shares and 2008 — 1,972,643,007 shares . . . . . . . . . . . . . . . . . . . . . . . .
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less cost of common stock in treasury: 2009 — 212,786,937 shares; 2008 — 217,610,679 shares . . . . . . . . .
Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total U.S. Bancorp shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21
8,319
24,116
(6,509)
(1,484)
25,963
698
Total equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26,661
20
5,830
22,541
(6,659)
(3,363)
26,300
733
27,033
1,500
7,931
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $281,176
$265,912
See Notes to Consolidated Financial Statements.
70
U.S. BANCORP
U.S. Bancorp
Consolidated Statement of Income
Year Ended December 31 (Dollars and Shares in Millions, Except Per Share Data)
2009
2008
2007
Interest Income
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,564
277
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,606
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
91
Other interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,538
$10,051
227
1,984
156
12,418
$10,627
277
2,095
137
13,136
Interest Expense
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income after provision for credit losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest Income
Credit and debit card revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate payment products revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merchant processing services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ATM processing services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trust and investment management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposit service charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial products revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage banking revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment products fees and commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities gains (losses), net
Realized gains (losses), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other-than-temporary impairment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Portion of other-than-temporary impairment recognized in other comprehensive income . . . . .
Total securities gains (losses), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,202
539
1,279
3,020
8,518
5,557
2,961
1,055
669
1,148
410
1,168
970
552
615
1,035
109
147
(1,000)
402
(451)
672
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,952
Noninterest Expense
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net occupancy and equipment
Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing and business development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology and communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postage, printing and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,135
574
836
255
378
673
288
387
1,755
8,281
2,632
395
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,237
(32)
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,205
Net income applicable to U.S. Bancorp common shareholders . . . . . . . . . . . . . . . . . . . . . . . . $ 1,803
.97
Earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
.97
Dividends declared per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .200
1,851
Average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,859
Average diluted common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
See Notes to Consolidated Financial Statements.
1,881
1,066
1,739
4,686
7,732
3,096
4,636
1,039
671
1,151
366
1,314
1,081
517
492
270
147
42
(1,020)
–
(978)
741
6,811
3,039
515
781
240
310
598
294
355
1,216
7,348
4,099
1,087
3,012
(66)
$ 2,946
$ 2,819
$ 1.62
$ 1.61
$ 1.700
1,742
1,756
2,754
1,433
2,260
6,447
6,689
792
5,897
958
638
1,108
327
1,339
1,077
472
433
259
146
15
–
–
15
524
7,296
2,640
494
738
233
260
561
283
376
1,322
6,907
6,286
1,883
4,403
(79)
$ 4,324
$ 4,258
$ 2.45
$ 2.42
$ 1.625
1,735
1,756
U.S. BANCORP
71
U.S. Bancorp
Consolidated Statement of Shareholders’ Equity
(Dollars and Shares in Millions)
Balance December 31, 2006 . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . .
Changes in unrealized gains and losses on
securities available-for-sale . . . . . . . . . . . . .
Unrealized loss on derivative hedges . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . .
Reclassification for realized losses. . . . . . . . . . .
Change in retirement obligation . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . .
Total comprehensive income (loss) . . . . . . .
Preferred stock dividends . . . . . . . . . . . . . . . .
Common stock dividends . . . . . . . . . . . . . . . .
Issuance of common and treasury stock . . . . . . .
Purchase of treasury stock . . . . . . . . . . . . . . .
Net other changes in noncontrolling interests . . . .
Stock option and restricted stock grants . . . . . . .
Shares reserved to meet deferred compensation
obligations . . . . . . . . . . . . . . . . . . . . . . .
U.S. Bancorp Shareholders
Common
Shares
Outstanding
Preferred
Stock
Common
Stock
Capital
Surplus
Retained
Earnings
Treasury
Stock
Other
Comprehensive
Income (Loss)
Total
U.S. Bancorp
Shareholders’
Equity
Noncontrolling
Interests
Total
Equity
1,765
$ 1,000
$20 $5,762 $21,242
4,324
$(6,091)
$ (736)
$21,197
4,324
$ 722 $21,919
4,403
79
21
(58)
(60)
(2,813)
(45)
32
627
(2,011)
(5)
(482)
(299)
8
96
352
125
(482)
(299)
8
96
352
125
4,124
(60)
(2,813)
582
(2,011)
–
32
(5)
(482)
(299)
8
96
352
125
4,203
(60)
(2,813)
582
(2,011)
(21)
32
(5)
79
(21)
Balance December 31, 2007 . . . . . . . . . .
1,728
$ 1,000
$20 $5,749 $22,693
$(7,480)
$ (936)
$21,046
$ 780 $21,826
Change in accounting principle . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . .
Changes in unrealized gains and losses on
securities available-for-sale . . . . . . . . . . . . .
Unrealized loss on derivative hedges . . . . . . . . .
Realized loss on derivative hedges . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . .
Reclassification for realized losses. . . . . . . . . . .
Change in retirement obligation . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . .
Total comprehensive income (loss) . . . . . . .
Preferred stock dividends and discount accretion . .
Common stock dividends . . . . . . . . . . . . . . . .
Issuance of preferred stock and related warrant . . .
Issuance of common and treasury stock . . . . . . .
Purchase of treasury stock . . . . . . . . . . . . . . .
Net other changes in noncontrolling interests . . . .
Stock option and restricted stock grants . . . . . . .
Shares reserved to meet deferred compensation
obligations . . . . . . . . . . . . . . . . . . . . . . .
(4)
2,946
4
6,927
29
(2)
(123)
(2,971)
163
(83)
1
917
(91)
(5)
3
(2,729)
(722)
(15)
(117)
1,020
(1,362)
1,495
(1)
2,946
(2,729)
(722)
(15)
(117)
1,020
(1,362)
1,495
516
(119)
(2,971)
7,090
834
(91)
–
1
(5)
66
66
(113)
(1)
3,012
(2,729)
(722)
(15)
(117)
1,020
(1,362)
1,495
582
(119)
(2,971)
7,090
834
(91)
(113)
1
(5)
Balance December 31, 2008 . . . . . . . . . .
1,755
$ 7,931
$20 $5,830 $22,541
$(6,659)
$(3,363)
$26,300
$ 733 $27,033
Change in accounting principle . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . .
Changes in unrealized gains and losses on
securities available-for-sale . . . . . . . . . . . . .
Other-than-temporary impairment not recognized in
earnings on securities available-for-sale . . . . . .
Unrealized gain on derivative hedges . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . .
Reclassification for realized losses. . . . . . . . . . .
Change in retirement obligation . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . .
Total comprehensive income (loss) . . . . . . .
Redemption of preferred stock . . . . . . . . . . . . .
Repurchase of common stock warrant
. . . . . . . .
Preferred stock dividends and discount accretion . .
Common stock dividends . . . . . . . . . . . . . . . .
Issuance of common and treasury stock . . . . . . .
Purchase of treasury stock . . . . . . . . . . . . . . .
Net other changes in noncontrolling interests . . . .
Distributions to noncontrolling interests . . . . . . . .
Stock option and restricted stock grants . . . . . . .
141
2,205
(6,599)
168
(139)
(396)
(375)
158
1
2,553
154
(4)
75
(141)
2,359
(402)
516
40
456
290
(1,239)
–
2,205
2,359
(402)
516
40
456
290
(1,239)
4,225
(6,599)
(139)
(228)
(375)
2,708
(4)
–
–
75
32
32
(5)
(62)
–
2,237
2,359
(402)
516
40
456
290
(1,239)
4,257
(6,599)
(139)
(228)
(375)
2,708
(4)
(5)
(62)
75
Balance December 31, 2009 . . . . . . . . . .
1,913
$ 1,500
$21 $8,319 $24,116
$(6,509)
$(1,484)
$25,963
$ 698 $26,661
See Notes to Consolidated Financial Statements.
72
U.S. BANCORP
U.S. Bancorp
Consolidated Statement of Cash Flows
Year Ended December 31 (Dollars in Millions)
2009
2008
2007
Operating Activities
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,205
Adjustments to reconcile net income to net cash provided by operating activities
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization of premises and equipment. . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sales of securities and other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans originated for sale in the secondary market, net of repayments . . . . . . . . . . . . . . . . .
Proceeds from sales of loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,557
220
387
(545)
(1,571)
(52,720)
51,915
2,152
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,600
Investing Activities
Proceeds from sales of available-for-sale investment securities . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from maturities of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase in loans outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,784
7,318
(15,124)
(106)
2,741
(4,332)
3,074
(74)
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(719)
Financing Activities
Net increase in deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments or redemption of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption of preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends paid on preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends paid on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,949
(4,448)
6,040
(11,740)
–
2,703
(6,599)
–
(139)
(275)
(1,025)
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7,534)
Change in cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and due from banks at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(653)
6,859
$ 2,946
$ 4,324
3,096
218
355
(1,045)
(804)
(32,563)
32,440
664
5,307
2,134
5,722
(6,075)
(14,776)
123
(3,577)
1,483
(1,353)
(16,319)
13,139
(891)
8,534
(16,546)
7,090
688
–
–
–
(68)
(2,959)
8,987
(2,025)
8,884
792
243
376
(97)
(570)
(27,395)
25,389
(158)
2,904
2,135
4,211
(9,816)
(8,015)
421
(2,599)
(111)
(1,367)
(15,141)
6,255
5,069
22,395
(16,836)
–
427
–
(1,983)
–
(60)
(2,785)
12,482
245
8,639
Cash and due from banks at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,206
$ 6,859
$ 8,884
Supplemental Cash Flow Disclosures
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net noncash transfers to foreclosed property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions
344
3,153
600
$ 1,965
4,891
307
Assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,212
(17,870)
Liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 19,474
(18,824)
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(658)
$
650
$ 1,878
6,360
180
$
$
635
(393)
242
See Notes to Consolidated Financial Statements.
U.S. BANCORP
73
Notes to Consolidated Financial Statements
Note 1 Significant Accounting Policies
U.S. Bancorp is a multi-state financial services holding
company headquartered in Minneapolis, Minnesota. U.S.
Bancorp and its subsidiaries (the “Company”) provide a full
range of financial services including lending and depository
services through banking offices principally in 24 states. The
Company also engages in credit card, merchant, and ATM
processing, mortgage banking, insurance, trust and
investment management, brokerage, and leasing activities
principally in domestic markets.
Basis of Presentation The consolidated financial statements
include the accounts of the Company and its subsidiaries
and all variable interest entities (“VIEs”) for which the
Company is the primary beneficiary. Consolidation
eliminates all significant intercompany accounts and
transactions. Certain items in prior periods have been
reclassified to conform to the current presentation.
Uses of Estimates The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions
that affect the amounts reported in the financial statements
and accompanying notes. Actual experience could differ
from those estimates.
Business Segments
Within the Company, financial performance is measured by
major lines of business based on the products and services
provided to customers through its distribution channels. The
Company has five reportable operating segments:
Wholesale Banking Wholesale Banking offers lending,
equipment finance and small-ticket leasing, depository,
treasury management, capital markets, foreign exchange,
international trade services and other financial services to
middle market, large corporate, commercial real estate,
financial institution and public sector clients.
Consumer Banking Consumer Banking delivers products and
services through banking offices, telephone servicing and
sales, on-line services, direct mail and ATM processing. It
encompasses community banking, metropolitan banking, in-
store banking, small business banking, consumer lending,
mortgage banking, consumer finance, workplace banking,
student banking and 24-hour banking.
Wealth Management & Securities Services Wealth
Management & Securities Services provides trust, private
banking, financial advisory, investment management, retail
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brokerage, insurance, custody and mutual fund services
through five businesses: Wealth Management, Corporate
Trust, FAF Advisors, Institutional Trust & Custody and
Fund Services.
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.
Treasury and Corporate Support Treasury and Corporate
Support includes the Company’s investment portfolios,
funding, recently acquired assets and assumed liabilities
prior to assignment to business lines, capital management,
asset securitization, interest rate risk management, the net
effect of transfer pricing related to average balances and the
residual aggregate of those expenses associated with
corporate activities that are managed on a consolidated
basis.
Segment Results Accounting policies for the lines of
business are 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
allocate funding costs and benefits, expenses and other
financial elements to each line of business. For details of
these methodologies and segment results, see “Basis for
Financial Presentation” and Table 22 “Line of Business
Financial Performance” included in Management’s
Discussion and Analysis which is incorporated by reference
into these Notes to Consolidated Financial Statements.
Securities
Realized gains or losses on securities are determined on a
trade date basis based on the specific amortized cost of the
investments sold.
Trading Securities Debt and equity securities held for resale
are classified as trading securities and reported at fair value.
Realized gains or losses are reported in noninterest income.
Available-for-sale Securities These securities are not trading
securities but may be sold before maturity in response to
changes in the Company’s interest rate risk profile, funding
needs, demand for collateralized deposits by public entities
or other reasons. Available-for-sale securities are carried at
fair value with unrealized net gains or losses reported within
other comprehensive income (loss) in shareholders’ equity.
Declines in fair value related to other-than-temporary losses,
if any, are reported in noninterest income.
Held-to-maturity Securities Debt securities for which the
Company has the positive intent and ability to hold to
maturity are reported at historical cost adjusted for
amortization of premiums and accretion of discounts.
Declines in fair value related to other-than-temporary losses,
if any, are reported in noninterest income.
Securities Purchased Under Agreements to Resell and
Securities Sold Under Agreements to Repurchase Securities
purchased under agreements to resell and securities sold
under agreements to repurchase are generally accounted for
as collateralized financing transactions and are recorded at
the amounts at which the securities were acquired or sold,
plus accrued interest. The fair value of collateral received is
continually monitored and additional collateral is obtained
or requested to be returned to the Company as deemed
appropriate.
Equity Investments in Operating Entities
Equity investments in public entities in which the Company’s
ownership is less than 20 percent are accounted for as
available-for-sale securities and are carried at fair value.
Similar investments in private entities are accounted for
using the cost method. Investments in entities where the
Company has a significant influence (generally between
20 percent and 50 percent ownership) but does not control
the entity are accounted for using the equity method.
Limited partnerships and limited liability companies where
the Company’s ownership interest is greater than 5 percent
are accounted for using the equity method. All equity
investments are evaluated for impairment at least annually
and more frequently if certain criteria are met.
Loans
The Company’s accounting methods for loans differ
depending on whether the loans are originated or purchased,
and for purchased loans, whether the loans were acquired at
a discount related to evidence of credit deterioration since
date of origination.
Originated Loans Held for Investment Loans the Company
originates are reported at the principal amount outstanding,
net of unearned income, net deferred loan fees or costs, and
any direct principal charge-offs. Interest income is accrued
on the unpaid principal balances as earned. Loan and
commitment fees and certain direct loan origination costs
are deferred and recognized over the life of the loan and/or
commitment period as yield adjustments.
Purchased Loans All purchased loans (non-impaired and
impaired) acquired on or after January 1, 2009 are initially
measured at fair value as of the acquisition date in
accordance with applicable authoritative accounting
guidance. Credit discounts are included in the determination
of fair value. An allowance for credit losses is not recorded
at the acquisition date for loans purchased on or after
January 1, 2009. In accordance with applicable authoritative
accounting guidance, purchased non-impaired loans acquired
prior to January 1, 2009 were generally recorded at the
predecessor’s carrying value including an allowance for
credit losses.
In determining the acquisition date fair value of
purchased impaired loans, and in subsequent accounting, the
Company generally aggregates purchased consumer loans
and certain smaller balance commercial loans into pools of
loans with common risk characteristics, while accounting for
larger balance commercial loans individually. Expected cash
flows at the purchase date in excess of the fair value of loans
are recorded as interest income over the life of the loans if
the timing and amount of the future cash flows is reasonably
estimable. Subsequent to the purchase date, increases in cash
flows over those expected at the purchase date are
recognized as interest income prospectively. The present
value of any decreases in expected cash flows after the
purchase date is recognized by recording an allowance for
credit losses. Revolving loans, including lines of credit and
credit cards loans, and leases are excluded from purchased
impaired loans accounting.
For purchased loans acquired on or after January 1, 2009
that are not deemed impaired at acquisition, credit discounts
representing the principal losses expected over the life of the
loan are a component of the initial fair value. Subsequent to
the purchase date, the methods utilized to estimate the required
allowance for credit losses for these loans is similar to
originated loans, however, the Company records a provision
for loan losses only when the required allowance, net of any
expected reimbursement under any loss sharing agreements
with the Federal Deposit Insurance Corporation (“FDIC”),
exceeds any remaining credit discounts. The remaining
differences between the purchase price and the unpaid principal
balance at the date of acquisition are recorded in interest
income over the life of the loans.
Covered Assets Loans and foreclosed real estate covered
under loss sharing or similar credit protection agreements
with the FDIC are reported in loans along with the related
indemnification asset. In accordance with applicable
authoritative accounting guidance effective for the
U.S. BANCORP
75
Company beginning January 1, 2009, all purchased loans
and related indemnification assets are recorded at fair value
at date of purchase. Credit losses on these assets are
determined net of the expected reimbursement from the
FDIC.
Commitments to Extend Credit Unfunded residential
mortgage loan commitments entered into in connection with
mortgage banking activities are considered derivatives and
recorded on the balance sheet at fair value with changes in
fair value recorded in income. All other unfunded loan
commitments are generally related to providing credit
facilities to customers of the Company and are not
considered derivatives. For loans purchased on or after
January 1, 2009, the fair value of the unfunded credit
commitments is considered in the determination of the fair
value of the loans recorded at the date of acquisition.
Reserves for credit exposure on all other unfunded credit
commitments are recorded in other liabilities.
Allowance for Credit Losses Management determines the
adequacy of the allowance based on evaluations of credit
relationships, the loan portfolio, recent loss experience, and
other pertinent factors, including economic conditions. 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, net of any expected reimbursement under any loss
sharing agreements with the FDIC.
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 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 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.
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U.S. BANCORP
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.
Nonaccrual Loans 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. Revolving consumer lines and credit cards
are charged off when six months 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.
Impaired Loans A loan is considered to be impaired when,
based on current information and events, it is probable the
Company will be unable to collect all amounts due (both
interest and principal) according to the contractual terms of
the loan agreement.
Impaired loans include certain nonaccrual commercial
loans and loans for which a charge-off has been recorded
based upon the fair value of the underlying collateral.
Impaired loans also include loans that have been modified in
troubled debt restructurings as a concession to borrowers
experiencing financial difficulties. Purchased credit impaired
loans are not reported as impaired loans as long as they
continue to perform at least as well as expected at
acquisition.
Restructured Loans In cases where a borrower experiences
financial difficulties and the Company makes certain
concessionary modifications to contractual terms, the loan is
classified as a restructured loan. Modifications may include
rate reductions, principal forgiveness, forbearance and other
actions intended to minimize the economic loss and to avoid
foreclosure or repossession of collateral. For credit card loan
agreements, such modifications may include canceling the
customer’s available line of credit on the credit card,
reducing the interest rate on the card, and placing the
customer on a fixed payment plan not exceeding 60 months.
The allowance for credit losses on restructured loans is
determined by discounting the restructured cash flows by the
original effective rate. Loans restructured at a rate equal to
or greater than that of a new loan with comparable risk at
the time the loan agreement is modified may be excluded
from restructured loan disclosures in years subsequent to the
restructuring if they are in compliance with the modified
terms.
Generally, a nonaccrual loan that is restructured
remains on nonaccrual for a period of six months to
demonstrate the borrower can meet the restructured terms.
However, performance prior to the restructuring, or
significant events that coincide with the restructuring, are
considered in assessing whether the borrower can meet the
new terms and may result in the loan being returned to
accrual status at the time of restructuring or after a shorter
performance period. If the borrower’s ability to meet the
revised payment schedule is not reasonably assured, the loan
remains classified as a nonaccrual loan.
Leases The Company’s lease portfolio consists of both direct
financing and leveraged leases. The net investment in direct
financing leases is the sum of all minimum lease payments
and estimated residual values, less unearned income.
Unearned income is recorded in interest income over the
terms of the leases to produce a level yield.
The investment in leveraged leases is the sum of all lease
payments (less nonrecourse debt payments) plus estimated
residual values, less unearned income. Income from
leveraged leases is recognized over the term of the leases
based on the unrecovered equity investment.
Residual values on leased assets are reviewed regularly
for other-than-temporary impairment. Residual valuations
for retail automobile leases are based on independent
assessments of expected used car sale prices at the
end-of-term. Impairment tests are conducted based on these
valuations considering the probability of the lessee returning
the asset to the Company, re-marketing efforts, insurance
coverage and ancillary fees and costs. Valuations for
commercial leases are based upon external or internal
management appraisals. When there is impairment of the
Company’s interest in the residual value of a leased asset,
the carrying value is reduced to the estimated fair value with
the writedown recognized in the current period.
Other Real Estate Other real estate (“OREO”), which is
included in other assets, is property acquired through
foreclosure or other proceedings on defaulted loans. OREO
is initially recorded at fair value, less estimated selling costs.
OREO is evaluated regularly and any decreases in value are
reported in noninterest expense.
Loans Held for Sale
Loans held for sale (“LHFS”) represent mortgage loan
originations intended to be sold in the secondary market and
other loans that management has an active plan to sell.
LHFS may be carried at the lower of cost or fair value as
determined on an aggregate basis by type of loan or carried
at fair value where the Company has elected fair value
accounting. The credit component of any writedowns upon
transfer of loans to LHFS is reflected in charge-offs.
Where an election is made to subsequently carry the
LHFS at fair value, any further decreases or subsequent
increases in fair value are recognized in noninterest income.
Where an election is made to subsequently carry LHFS at
lower of cost or fair value, any further decreases are
recognized in noninterest income and increases in fair value
are not recognized until the loans are sold.
Derivative Financial Instruments
In the ordinary course of business, the Company enters into
derivative transactions to manage its interest rate,
prepayment, credit, price and foreign currency risk and to
accommodate the business requirements of its customers.
Derivative instruments are reported in other assets or other
liabilities at fair value. Changes in a derivative’s fair value
are recognized currently in earnings unless specific hedge
accounting criteria are met.
All derivative instruments that qualify for hedge
accounting are recorded at fair value and classified either as
a hedge of the fair value of a recognized asset or liability
(“fair value hedge”) or as a hedge of the variability of cash
flows to be received or paid related to a recognized asset or
liability or a forecasted transaction (“cash flow hedge”).
Changes in the fair value of a derivative that is highly
effective and designated as a fair value hedge, and the
offsetting changes in the fair value of the hedged item, are
recorded in income. Effective changes in the fair value of a
derivative designated as a cash flow hedge are recorded in
accumulated other comprehensive income (loss) until cash
flows of the hedged item are recognized in income. Any
change in fair value resulting from hedge ineffectiveness is
immediately recorded in noninterest income. The Company
U.S. BANCORP
77
performs an assessment, both at the inception of a hedge
and on a quarterly basis thereafter, to determine whether
derivatives designated as hedging instruments are highly
effective in offsetting changes in the value of the hedged
items.
If a derivative designated as a cash flow hedge is
terminated or ceases to be highly effective, the gain or loss
in accumulated 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 accumulated other
comprehensive income (loss) is reported in earnings
immediately.
Revenue Recognition
The Company recognizes revenue as it is earned based on
contractual terms, as transactions occur, or as services are
provided and collectibility is reasonably assured. In certain
circumstances, noninterest income is reported net of
associated expenses that are directly related to variable
volume-based sales or revenue sharing arrangements or
when the Company acts on an agency basis for others.
Certain specific policies include the following:
Credit and Debit Card Revenue Credit and debit card
revenue includes interchange income from credit and debit
cards, annual fees, and other transaction and account
management fees. Interchange income is a fee paid by a
merchant bank to the card-issuing bank through the
interchange network. Interchange fees are set by the credit
card associations and are based on cardholder purchase
volumes. The Company records interchange income as
transactions occur. Transaction and account management
fees are recognized as transactions occur or services are
provided, except for annual fees, which are recognized over
the applicable period. Volume-related payments to partners
and credit card associations and expenses for rewards
programs are also recorded within credit and debit card
revenue. Payments to partners and expenses related to
rewards programs are recorded when earned by the partner
or customer.
Merchant Processing Services Merchant processing services
revenue consists principally of transaction and account
management fees charged to merchants for the electronic
processing of transactions, net of interchange fees paid to
the credit card issuing bank, card association assessments,
and revenue sharing amounts, and is all recognized at the
time the merchant’s transactions are processed or other
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U.S. BANCORP
services are performed. The Company may enter into
revenue sharing agreements with referral partners or in
connection with purchases of merchant contracts from
sellers. The revenue sharing amounts are determined
primarily on sales volume processed or revenue generated
for a particular group of merchants. Merchant processing
revenue also includes revenues related to point-of-sale
equipment recorded as sales when the equipment is shipped
or as earned for equipment rentals.
Trust and Investment Management Fees Trust and
investment management fees are recognized over the period
in which services are performed and are based on a
percentage of the fair value of the assets under management
or administration, fixed based on account type, or
transaction-based fees.
Deposit Service Charges Service charges on deposit
accounts are primarily monthly fees based on minimum
balances or transaction-based fees. These fees are recognized
as earned or as transactions occur and services are provided.
Other Significant Policies
Intangible Assets The price paid over the net fair value of
acquired businesses (“goodwill”) is not amortized. Other
intangible assets are amortized over their estimated useful
lives, using straight-line and accelerated methods. The
recoverability of goodwill and other intangible assets is
evaluated annually, at a minimum, or on an interim basis if
events or circumstances indicate a possible inability to
realize the carrying amount. The evaluation includes
assessing the estimated fair value of the intangible asset
based on market prices for similar assets, where available,
and the present value of the estimated future cash flows
associated with the intangible asset.
Income Taxes Deferred taxes are recorded to reflect the tax
consequences on future years of differences between the tax
basis of assets and liabilities and their financial reporting
carrying amounts.
Mortgage Servicing Rights Mortgage servicing rights
(“MSRs”) are capitalized as separate assets when loans are
sold and servicing is retained or if they are purchased from
others. MSRs are recorded at fair value. The Company
determines the fair value by estimating the present value of
the asset’s future cash flows utilizing market-based
prepayment rates, discount rates, and other assumptions
validated through comparison to trade information, industry
surveys and independent third party appraisals. Changes in
the fair value of MSRs are recorded in earnings during the
period in which they occur. Risks inherent in the MSRs
valuation include higher than expected prepayment rates
and/or delayed receipt of cash flows. The Company utilizes
futures, forwards and options to mitigate MSR valuation
risk. Fair value changes related to the MSRs and the futures,
forwards and options, as well as servicing and other related
fees, are recorded in mortgage banking revenue.
Pensions For purposes of its retirement plans, the Company
utilizes its fiscal year-end as the measurement date. At the
measurement date, plan assets are determined based on fair
value, generally representing observable market prices. The
actuarial cost method used to compute the pension liabilities
and related expense is the projected unit credit method. The
projected benefit obligation is principally determined based
on the present value of projected benefit distributions at an
assumed discount rate. The discount rate utilized is based on
the investment yield of high quality corporate bonds
available in the marketplace with maturities equal to
projected cash flows of future benefit payments as of the
measurement date. Periodic pension expense (or income)
includes service costs, interest costs based on the assumed
discount rate, the expected return on plan assets based on an
actuarially derived market-related value and amortization of
actuarial gains and losses. Pension accounting reflects the
long-term nature of benefit obligations and the investment
horizon of plan assets, and can have the effect of reducing
earnings volatility related to short-term changes in interest
rates and market valuations. Actuarial gains and losses
include the impact of plan amendments and various
unrecognized gains and losses which are deferred and
amortized over the future service periods of active
employees. The market-related value utilized to determine
the expected return on plan assets is based on fair value
adjusted for the difference between expected returns and
actual performance of plan assets. The unrealized difference
between actual experience and expected returns is included
in expense over a twelve-year period. The overfunded or
underfunded status of the plans is recorded as an asset or
liability on the balance sheet, with changes in that status
recognized through other comprehensive income (loss).
Premises and Equipment Premises and equipment are stated
at cost less accumulated depreciation and depreciated
primarily on a straight-line basis over the estimated life of
the assets. Estimated useful lives range up to 40 years for
newly constructed buildings and from 3 to 20 years for
furniture and equipment.
Capitalized leases, less accumulated amortization, are
included in premises and equipment. Capitalized lease
obligations are included in long-term debt. Capitalized leases
are amortized on a straight-line basis over the lease term and
the amortization is included in depreciation expense.
Stock-Based Compensation The Company grants stock-
based awards, including restricted stock, restricted stock
units and options to purchase common stock of the
Company. Stock option grants are for a fixed number of
shares to employees and directors with an exercise price
equal to the fair value of the shares at the date of grant.
Stock-based compensation for awards is recognized in the
Company’s results of operations on a straight-line basis over
the vesting period. The Company immediately recognizes
compensation cost of awards to employees that meet
retirement status, despite their continued active employment.
The amortization of stock-based compensation reflects
estimated forfeitures adjusted for actual forfeiture
experience. As compensation expense is recognized, a
deferred tax asset is recorded that represents an estimate of
the future tax deduction from exercise or release of
restrictions. At the time stock-based awards are exercised,
cancelled, expire, or restrictions are released, the Company
may be required to recognize an adjustment to tax expense,
depending on the market price of the Company’s common
stock at that time.
Per Share Calculations Earnings per common share is
calculated by dividing net income applicable to U.S. Bancorp
common shareholders by the weighted average number of
common shares outstanding. Diluted earnings per common
share is calculated by adjusting income and outstanding
shares, assuming conversion of all potentially dilutive
securities.
Note 2 Accounting Changes
Fair Value Measurements On April 9, 2009, the Financial
Accounting Standards Board (“FASB”) issued new
accounting guidance, which the Company adopted effective
January 1, 2009, for determining fair value for an asset or
liability if there has been a significant decrease in the volume
and level of activity in relation to normal market activity. In
that circumstance, transactions or quoted prices may not be
determinative of fair value. Significant adjustments may be
necessary to quoted prices or alternative valuation
techniques may be required in order to determine the fair
value of the asset or liability under current market
conditions. The adoption of this guidance resulted in the use
of valuation techniques other than quoted prices for the
valuation of the Company’s non-agency mortgage-backed
U.S. BANCORP
79
securities, but the effect was not significant. For additional
information on the fair value of certain financial assets and
liabilities, refer to Note 21.
Other-Than-Temporary-Impairments On April 9, 2009, the
FASB issued new accounting guidance, which the Company
adopted effective January 1, 2009, for the measurement and
recognition of other-than-temporary impairment for debt
securities. If an entity does not intend to sell, and it is more
likely than not that the entity will not be required to sell, a
debt security before recovery of its cost basis,
other-than-temporary impairment should be separated into
(a) the amount representing credit loss and (b) the amount
related to all other factors. The amount of
other-than-temporary impairment related to credit loss is
recognized in earnings and other-than-temporary impairment
related to other factors is recognized in other comprehensive
income (loss). To determine the amount related to credit
loss, the Company applies a methodology similar to that
used for accounting by creditors for impairment of loans.
The Company’s adoption of this guidance resulted in the
recognition of a cumulative-effect adjustment to increase
January 1, 2009 retained earnings, with a corresponding
adjustment to accumulated other comprehensive income
(loss), of $141 million. For additional information on
investment securities, refer to Note 5.
Business Combinations Effective January 1, 2009, the
Company adopted accounting guidance issued by the FASB
which established principles and requirements for the
acquirer in a business combination, including the recognition
and measurement of the identifiable assets acquired, the
liabilities assumed and any noncontrolling interest in the
acquired entity as of the acquisition date; the recognition
and measurement of the goodwill acquired in the business
combination or gain from a bargain purchase as of the
acquisition date; and additional disclosures related to the
nature and financial effects of the business combination.
Under this guidance, nearly all acquired assets and liabilities
assumed are recorded at fair value at the acquisition date,
including loans. The recognition at the acquisition date of an
allowance for loan losses on acquired loans was eliminated,
as credit-related factors are now incorporated directly into
the fair value of the loans. Other significant changes include
recognizing transaction costs and most restructuring costs as
expenses when incurred. These accounting requirements are
applied on a prospective basis for all transactions completed
after the effective date.
Noncontrolling Interests Effective January 1, 2009, the
Company adopted accounting guidance issued by the FASB
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which changes the accounting and reporting for third-party
ownership interests in the Company’s consolidated
subsidiaries. Under the new guidance, these interests are
characterized as noncontrolling interests and classified as a
component of equity, separate from U.S. Bancorp’s own
equity. In addition, the amount of net income attributable to
the entity and to the noncontrolling interests is required to
be shown separately on the consolidated statement of
income. Upon adoption of this guidance, the Company
reclassified $733 million in noncontrolling interests from
other liabilities to equity and reclassified noncontrolling
interests’ share of net income from other noninterest expense
to income attributable to noncontrolling interests.
Accounting for Transfers of Financial Assets In June 2009,
the FASB issued accounting guidance, effective for the
Company January 1, 2010, related to the transfer of
financial assets. This guidance removes the exception for
qualifying special-purpose entities from consolidation
guidance and the exception for guaranteed mortgage
securitizations when a transferor had not surrendered
control over the transferred financial assets. In addition, the
guidance provided clarification of the requirements for
isolation and limitations on portions of financial assets that
are eligible for sale accounting. The guidance also requires
additional disclosure about transfers of financial assets and a
transferor’s continuing involvement with transferred assets.
The Company expects the adoption of this guidance will not
be significant to its financial statements.
Variable Interest Entities In June 2009, the FASB issued
accounting guidance, effective for the Company on
January 1, 2010, related to variable interest entities. This
guidance replaces a quantitative-based risks and rewards
calculation for determining which entity, if any, has both
(a) a controlling financial interest in a variable interest entity
with an approach focused on identifying which entity has
the power to direct the activities of a variable interest entity
that most significantly impact the entity’s economic
performance and (b) the obligation to absorb losses of the
entity or the right to receive benefits from the entity that
could potentially be significant to the variable interest entity.
This guidance requires reconsideration of whether an entity
is a variable interest entity when any changes in facts or
circumstances occur such that the holders of the equity
investment at risk, as a group, lose the power to direct the
activities of the entity that most significantly impact the
entity’s economic performance. It also requires ongoing
assessments of whether a variable interest holder is the
primary beneficiary of a variable interest entity. The
Company expects to consolidate approximately $1.6 billion
of assets of previously unconsolidated entities, and to
deconsolidate approximately $106 million of assets of
previously consolidated entities upon adoption of this
guidance. Additionally, the Company expects the adoption
of this guidance will reduce shareholders’ equity by
$73 million.
Note 3 Business Combinations
On October 30, 2009, the Company acquired the banking
operations of First Bank of Oak Park Corporation (“FBOP”)
in an FDIC assisted transaction. The Company acquired
approximately $18.0 billion of assets and assumed
approximately $17.4 billion of liabilities, including
$15.4 billion of deposits. The Company entered into
separate loss sharing agreements with the FDIC providing
for specified credit loss protection for substantially all
acquired loans, foreclosed real estate and selected investment
securities. Under the terms of the loss sharing agreements,
the FDIC will reimburse the Company for 80 percent of the
first $3.5 billion of losses on those assets and 95 percent of
losses beyond that amount. At the acquisition date, the
Company estimated the FBOP assets would incur
approximately $2.8 billion of losses, of which $1.9 billion
would be reimbursable under the loss sharing agreements as
losses are realized in future periods. The loss sharing
agreements provide for coverage on losses for ten years on
single family residential mortgages, and five years on
commercial and other consumer assets. The Company
recorded the acquired assets and liabilities at their estimated
fair values at the acquisition date. The estimated fair value
for loans reflected expected credit losses at the acquisition
date and related reimbursement under the loss sharing
agreements. As a result, the Company will only recognize a
provision for credit losses and charge-offs on the acquired
loans for any further credit deterioration, net of any
expected reimbursement under the loss sharing agreements.
On November 21, 2008, the Company acquired the
banking operations of Downey Savings & Loan Association,
F.A. (“Downey”), and PFF Bank & Trust (“PFF”) from the
FDIC. The Company acquired approximately $17.4 billion
of assets and assumed approximately $15.8 billion of
liabilities. In connection with these acquisitions, the
Company entered into loss sharing agreements with the
FDIC providing for specified credit loss and asset yield
protection for all single family residential mortgages and
credit loss protection for a significant portion of commercial
and commercial real estate loans and foreclosed real estate.
Under the terms of the loss sharing agreements, the
Company will incur the first $1.6 billion of losses on those
assets. The FDIC will reimburse the Company for 80 percent
of the next $3.1 billion of losses and 95 percent of losses
beyond that amount. At the acquisition date, the Company
estimated the Downey and PFF assets would incur
approximately $4.7 billion of losses, of which $2.4 billion
would be reimbursable under the loss sharing agreements.
As of December 31, 2009, the Company had received loss
reimbursement of $144 million and estimated it will
ultimately receive an additional $2.0 billion from the FDIC
under the loss sharing agreements. At the acquisition date,
the Company identified the acquired non-revolving loans
experiencing credit deterioration, representing the majority
of assets acquired, and recorded those assets at their
estimated fair value, reflecting expected credit losses and the
related reimbursement under loss sharing agreements. As a
result, the Company only records provision for credit losses
and charge-offs on these loans for any further credit
deterioration after the date of acquisition. Based on the
accounting guidance applicable in 2008, the Company
recorded all other loans at the predecessors’ carrying
amount, net of fair value adjustments for any interest rate
related discount or premium, and an allowance for credit
losses.
Included in loans at December 31, 2009, were
$22.5 billion of assets covered by loss sharing agreements
with the FDIC (“covered assets”), compared with
$11.5 billion at December 31, 2008.
Note 4 Restrictions on Cash and Due
from Banks
The Federal Reserve Bank requires bank subsidiaries to
maintain minimum average reserve balances. The amount of
those reserve balances were approximately $1.2 billion and
$.9 billion at December 31, 2009 and 2008, respectively.
U.S. BANCORP
81
Note 5 Investment Securities
The amortized cost, other-than-temporary impairment recorded in other comprehensive income, gross unrealized holding gains
and losses, and fair value of held-to-maturity and available-for-sale securities at December 31 were as follows:
(Dollars in Millions)
Held-to-maturity (a)
2009
Unrealized Losses
2008
Amortized
Cost
Unrealized
Gains
Other-than-
Temporary
Other
Fair
Value
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
Agency residential mortgage-backed
securities . . . . . . . . . . . . . . . . . .
$
Obligations of state and political
subdivisions . . . . . . . . . . . . . . . .
Other debt securities . . . . . . . . . . . .
Total held-to-maturity . . . . . . . . .
$
4
32
11
47
$ –
2
–
$ 2
Available-for-sale (b)
U.S. Treasury and agencies . . . . . . . .
Mortgage-backed securities
$ 3,415
$ 10
$
$
$
–
–
–
–
–
–
$
–
$
4
$
(1)
–
$ (1)
$
33
11
48
$ (21)
$ 3,404
$
$
5
38
10
53
$ –
$
–
$
2
–
$ 2
(1)
–
(1)
–
$
$
$
$
5
39
10
54
682
664
$ 18
Residential
Agency . . . . . . . . . . . . . . . . . .
Non-agency
Prime (c) . . . . . . . . . . . . . . .
Non-prime . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
Commercial
Asset-backed securities
Collateralized debt obligations/
Collateralized loan obligations . . .
Other. . . . . . . . . . . . . . . . . . . . .
Obligations of state and political
subdivisions . . . . . . . . . . . . . . . .
Obligations of foreign governments . . .
Corporate debt securities . . . . . . . . .
Perpetual preferred securities . . . . . . .
Other investments (d) . . . . . . . . . . . .
29,288
501
(47)
29,742
26,512
426
(410)
26,528
1,624
1,359
14
199
360
6,822
6
1,179
483
607
8
11
–
11
12
30
–
–
30
9
(110)
(297)
(1)
(93)
(105)
–
(5)
(5)
–
–
–
–
–
–
(10)
(159)
–
(301)
(90)
(13)
1,429
968
13
205
357
6,693
6
878
423
603
3,160
1,574
17
101
533
7,220
7
1,238
777
480
–
3
–
1
7
4
–
–
1
–
(729)
(423)
–
(11)
(14)
(808)
–
(482)
(387)
(11)
2,431
1,154
17
91
526
6,416
7
756
391
469
Total available-for-sale . . . . . .
$45,356
$622
$(418)
$(839)
$44,721
$42,283
$460
$(3,275)
$39,468
(a) Held-to-maturity securities are carried at historical cost adjusted for amortization of premiums and accretion of discounts.
(b) Available-for-sale securities are carried at fair value with unrealized net gains or losses reported within accumulated other comprehensive income (loss) in shareholders’ equity.
(c) Prime securities are those designated as such by the issuer or those with underlying asset characteristics and/or credit enhancements consistent with securities designated as prime.
(d) Includes $241 million of securities covered under loss sharing agreements with the FDIC.
The weighted-average maturity of the available-for-sale
investment securities was 7.1 years at December 31, 2009,
compared with 7.7 years at December 31, 2008. The
corresponding weighted-average yields were 4.00 percent
and 4.56 percent, respectively. The weighted-average
maturity of the held-to-maturity investment securities was
8.4 years at December 31, 2009, and 8.5 years at
December 31, 2008. The corresponding weighted-average
yields were 5.10 percent and 5.78 percent, respectively.
For amortized cost, fair value and yield by maturity
date of held-to-maturity and available-for-sale securities
outstanding at December 31, 2009, refer to Table 11
included in Management’s Discussion and Analysis which is
incorporated by reference into these Notes to Consolidated
Financial Statements.
Securities carried at $37.4 billion at December 31,
2009, and $33.4 billion at December 31, 2008, were
pledged to secure public, private and trust deposits,
repurchase agreements and for other purposes required by
law. Included in these amounts were securities sold under
agreements to repurchase where the buyer/lender has the
right to sell or pledge the securities and which were
collateralized by securities with a carrying amount of
$8.9 billion at December 31, 2009, and $9.5 billion at
December 31, 2008.
82
U.S. BANCORP
The following table provides information about the amount of interest income from taxable and non-taxable investment
securities:
Year Ended December 31 (Dollars in Millions)
2009
2008
2007
Taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-taxable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,295
311
$1,666
318
$1,833
262
Total interest income from investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,606
$1,984
$2,095
The following table provides information about the amount of gross gains and losses realized through the sales of
available-for-sale investment securities:
Year Ended December 31 (Dollars in Millions)
2009
Realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $150
(3)
Realized losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized gains (losses)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $147
Income tax (benefit) on realized gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 56
2008
$43
(1)
$42
$16
2007
$15
–
$15
$ 6
In the fourth quarter of 2007 the Company purchased
certain structured investment securities (“SIVs”) from certain
money market funds managed by FAF Advisors, Inc., an
affiliate of the Company. Subsequent to the initial purchase,
the Company exchanged its interest in certain SIVs for a
pro-rata portion of the underlying investment securities
according to the applicable restructuring agreements. The
SIVs and the investment securities received are collectively
referred to as “SIV-related securities.” Some of these
securities evidenced credit deterioration at the time of
acquisition by the Company.
Changes in the amortized cost and accretable balance of the SIV-related securities and other investment securities that evidenced
credit deterioration at the time of acquisition were as follows:
Year Ended December 31 (Dollars in Millions)
2009
2008
2007
Accretable
Balance
Amortized
Cost of Debt
Securities
Accretable
Balance
Amortized
Cost of Debt
Securities
Accretable
Balance
Amortized
Cost of Debt
Securities
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . .
$ 349
$ 508
$ 105
$ 2,427
$ –
$
Impact of other-than-temporary impairment accounting
change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(124)
Adjusted balance at beginning of period . . . . . . . . . . . . . . . .
Purchases (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment writedowns . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfers in/(out) (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
225
127
–
–
(6)
(54)
124
632
138
(81)
(192)
6
–
–
105
261
–
284
(15)
(286)
–
2,427
569
(274)
(550)
15
(1,679)
–
–
107
–
–
(2)
–
–
–
–
2,445
(20)
–
2
–
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 292
$ 503
$ 349
$
508
$105
$2,427
(a) Represents the fair value of the securities at acquisition.
(b) Represents investment securities that did not evidence credit deterioration at acquisition date, received in exchange for SIVs or investment securities with changes in projected future
cash flows.
The Company conducts a regular assessment of its
investment securities with unrealized losses to determine
whether securities are other-than-temporarily impaired
considering, among other factors, the nature of the
securities, credit ratings or financial condition of the issuer,
the extent and duration of the unrealized loss, expected cash
flows of underlying collateral, market conditions and
whether the Company intends to sell or it is more likely than
not the Company will be required to sell the securities. To
determine whether perpetual preferred securities are
other-than-temporarily impaired, the Company considers the
issuers’ credit ratings, historical financial performance and
strength, the ability to sustain earnings, and other factors
such as market presence and management experience.
U.S. BANCORP
83
The following table summarizes other-than-temporary impairment by investment category:
Year Ended December 31, 2009 (Dollars in Millions)
Available-for-sale
Mortgage-backed securities
Non-agency residential
Losses
Recorded in
Earnings
Other
Gains
(Losses)
Total
Prime (a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-prime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial
$ (13)
(151)
(1)
$(182)
(304)
(1)
$ (195)
(455)
(2)
Asset-backed securities
Collateralized debt obligations/Collateralized loan obligations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Perpetual preferred securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(17)
(186)
(7)
(223)
(3)
88
–
–
(20)
(98)
(7)
(223)
Total available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(598)
$(402)
$(1,000)
(a) Prime securities are those designated as such by the issuer or those with underlying asset characteristics and/or credit enhancements consistent with securities designated as prime.
The Company determined the other-than-temporary impairment recorded in earnings for securities other than perpetual
preferred securities by estimating the future cash flows of each individual security, using market information where available,
and discounting the cash flows at the original effective rate of the security. Other-than-temporary impairment recorded in other
comprehensive income was measured as the difference between that discounted amount and the fair value of each security. The
following table includes the ranges for principal valuation assumptions used at December 31, 2009 for those non-agency
mortgage-backed securities determined to be other-than-temporarily impaired:
Prime
Non-Prime
Minimum
Maximum
Average
Minimum
Maximum
Average
Estimated lifetime prepayment rates . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lifetime probability of default rates . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lifetime loss severity rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4%
1
38
14%
9
57
13%
1
51
1%
1
37
12%
20
79
7%
9
57
Changes in the amount of unrealized losses on non-agency mortgage-backed securities, including SIV-related investments, and
other debt securities attributed to credit loss are summarized as follows:
Year Ended December 31, 2009 (Dollars in Millions)
Balance at beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit losses on securities not previously considered other-than-temporarily impaired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decreases in expected cash flows on securities for which other-than-temporary impairment was previously recognized . . . . . . . .
Increases in expected cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit losses on security sales and securities expected to be sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 299
94
148
(49)
(30)
(127)
Balance at end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 335
84
U.S. BANCORP
At December 31, 2009, 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 December 31, 2009:
(Dollars in Millions)
Held-to-maturity
Less Than 12 Months
12 Months or Greater
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Obligations of state and political subdivisions . . . . . . . . . . . . . . . . . . .
Total held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1
1
$
$
–
–
Available-for-sale
U.S. Treasury and agencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,911
$ (21)
$
$
$
10
10
4
$
$
$
(1)
(1)
$
$
11
11
$
$
(1)
(1)
–
$ 1,915
$
(21)
Residential
Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-agency
Prime. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-prime. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-backed securities
Collateralized debt obligations/Collateralized loan obligations . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of state and political subdivisions . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Perpetual preferred securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,463
(40)
2,290
(7)
8,753
(47)
20
237
6
26
20
1,829
21
4
179
(5)
(74)
(1)
(3)
(6)
(25)
(12)
–
(12)
1,346
682
–
2
21
2,384
857
308
6
(198)
(328)
–
(2)
(9)
(134)
(289)
(90)
(1)
1,366
919
6
28
41
4,213
878
312
185
(203)
(402)
(1)
(5)
(15)
(159)
(301)
(90)
(13)
Total available-for-sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,716
$(199)
$7,900
$(1,058)
$18,616
$(1,257)
The Company does not consider these unrealized losses
to be credit-related. These unrealized losses relate to changes
in interest rates and market spreads subsequent to purchase.
A substantial portion of securities that have unrealized losses
are either corporate debt or non-agency mortgage-backed
securities issued with high investment grade credit ratings. In
general, the issuers of the investment securities are
contractually prohibited from prepayment at less than par,
and the Company did not pay significant purchase premiums
for these securities. At December 31, 2009, the Company
had no plans to sell securities with unrealized losses and
believes it is more likely than not it would not be required to
sell such securities before recovery of their amortized cost.
U.S. BANCORP
85
Note 6 Loans and Allowance for Credit Losses
The composition of the loan portfolio at December 31 was as follows:
(Dollars in millions)
Commercial
Commercial
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial
Commercial Real Estate
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009
2008
$ 42,255
6,537
$ 49,759
6,859
48,792
56,618
Commercial mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25,306
8,787
23,434
9,779
Total commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34,093
33,213
Residential Mortgages
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home equity loans, first liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,581
5,475
18,232
5,348
Total residential mortgages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26,056
23,580
Retail
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home equity and second mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail
Revolving credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Installment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Automobile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Student. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,814
4,568
19,439
3,506
5,455
9,544
4,629
13,520
5,126
19,177
3,205
5,525
9,212
4,603
Total other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,134
22,545
Total retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
63,955
60,368
Total loans, excluding covered assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
172,896
22,512
173,779
11,450
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$195,408
$185,229
The Company had loans of $55.6 billion at
December 31, 2009, and $45.4 billion at December 31,
2008, pledged at the Federal Home Loan Bank (“FHLB”),
and loans of $44.2 billion at December 31, 2009, and
$47.2 billion at December 31, 2008, pledged at the Federal
Reserve Bank.
The Company primarily lends to borrowers in the
24 states in which it has banking offices. Collateral for
commercial loans may included marketable securities,
accounts receivable, inventory and equipment. For details of
the Company’s commercial portfolio by industry group and
geography as of December 31, 2009 and 2008, see Table 7
included in Management’s Discussion and Analysis which is
incorporated by reference into these Notes to Consolidated
Financial Statements.
For detail of the Company’s commercial real estate
portfolio by property type and geography as of
December 31, 2009, and 2008, see Table 8 included in
Management’s Discussion and Analysis which is
86
U.S. BANCORP
incorporated by reference into these Notes to Consolidated
Financial Statements. Such loans are collateralized by the
related property.
Originated loans are presented net of unearned interest
and deferred fees and costs, which amounted to $1.3 billion
and $1.5 billion at December 31, 2009 and 2008,
respectively. In accordance with applicable authoritative
accounting guidance effective for the Company January 1,
2009, all purchased loans and related indemnification assets
are recorded at fair value at the date of purchase. The
Company evaluates purchased loans for impairment in
accordance with applicable authoritative accounting
guidance. Purchased loans with evidence of credit
deterioration since origination for which it is probable that
all contractually required payments will not be collected are
considered impaired (“purchased impaired loans”). All other
purchased loans are considered nonimpaired (“purchased
nonimpaired loans”).
Covered assets represent assets acquired from the FDIC subject to loss sharing agreements and included expected
reimbursements from the FDIC of approximately $3.9 billion at December 31, 2009, and $2.4 billion at December 31, 2008.
The carrying amount of covered assets consisted of purchased impaired loans, purchased nonimpaired loans, and other assets as
shown in the following table:
December 31, 2009
December 31, 2008
(Dollar in Millions)
Purchased
impaired
loans
Purchased
nonimpaired
loans
Commercial loans . . . . . . . . . . . . . . . . . . . . .
Commercial real estate loans . . . . . . . . . . . . .
Residential mortgage loans . . . . . . . . . . . . . .
Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreclosed real estate . . . . . . . . . . . . . . . . . .
Losses reimbursable by the FDIC . . . . . . . . . .
$
86
3,035
4,712
30
–
–
$
443
6,724
1,918
978
–
–
Other
assets
$
–
–
–
–
653
3,933
$
Total
529
9,759
6,630
1,008
653
3,933
Purchased
impaired
loans
Purchased
nonimpaired
loans
$
–
427
5,763
–
–
–
$ 127
455
2,022
–
–
Other
assets
$
–
–
–
–
274
2,382
$
Total
127
882
7,785
–
274
2,382
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7,863
$10,063
$4,586
$22,512
$6,190
$2,604
$2,656
$11,450
On the acquisition date, the preliminary estimate of the
contractually required payments receivable for all purchased
impaired loans acquired in the FBOP transaction, including
those covered and not covered under loss sharing agreements
with the FDIC, were $5.0 billion, the cash flows expected to
be collected were $3.3 billion including interest, and the
estimated fair values of the loans were $3.0 billion. 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 FBOP transaction, the
preliminary estimate as of the acquisition date of the
contractually required payments receivable were
$12.7 billion, the contractual cash flows not expected to be
collected were $2.8 billion, and the estimated fair value of
the loans was $8.2 billion. Because of the short time period
between the closing of the FBOP transaction and
December 31, 2009, certain amounts related to purchased
impaired and nonimpaired loans are preliminary estimates.
The Company expects to finalize its analysis of these loans
during the first six months of 2010 and, therefore,
adjustments to the estimated amounts may occur.
At December 31, 2009, $1.1 billion of the purchased
impaired loans acquired in the Downey, PFF and FBOP
transactions, included in covered assets were classified as
nonperforming assets, compared with $298 million at
December 31, 2008, because the expected cash flows are
primarily based on the liquidation of underlying collateral
and the timing and amount of the cash flows could not be
reasonably estimated. Interest income is recognized on other
purchased impaired loans in covered assets through
accretion of the difference between the carrying amount of
those loans and their expected cash flows. The initial
determination of the fair value of the purchased loans
includes the impact of expected credit losses and therefore,
no allowance for credit losses is recorded at the purchase
date. To the extent credit deterioration occurs after the date
of acquisition, the Company records an allowance for loan
losses, net of expected reimbursement from the FDIC under
the loss sharing agreements. There has not been any
significant credit deterioration since the respective
acquisition dates.
Changes in the accretable balance for purchased impaired loans for the Downey, PFF and FBOP transactions were as follows:
Year Ended December 31 (Dollars in Millions)
2009
2008
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,719
356
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(358)
Accretion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(56)
Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
384
Reclassifications (to) from nonaccretable difference, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(200)
Other, including purchase accounting adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
–
2,774
(55)
–
–
–
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,845
$2,719
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. For details of the Company’s
U.S. BANCORP
87
nonperforming assets as of December 31, 2009 and 2008,
see Table 14 included in Management’s Discussion and
Analysis which is incorporated by reference into these Notes
to Consolidated Financial Statements.
The following table lists information related to nonperforming loans as of December 31:
(Dollars in Millions)
2009
2008
Loans on nonaccrual status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,946
492
Restructured loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,260
151
Total nonperforming loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,438
$2,411
Interest income that would have been recognized at original contractual terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 468
299
Amount recognized as interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 123
43
Forgone revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 169
$
80
Activity in the allowance for credit losses was as follows:
(Dollars in Millions)
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add
2009
2008
2007
$3,639
$2,260
$2,256
Provision charged to operating expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,557
3,096
792
Deduct
Loans charged off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less recoveries of loans charged off
Net loans charged off
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions and other changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,111
(243)
3,868
(64)
2,009
(190)
1,819
102
1,032
(240)
792
4
Balance at end of year (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,264
$3,639
$2,260
Components
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liability for unfunded credit commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,079
185
$3,514
125
$2,058
202
Total allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,264
$3,639
$2,260
(a) Included in this analysis is activity related to the Company’s liability for unfunded commitments, which is separately recorded in other liabilities in the Consolidated Balance Sheet. The
balance at December 31, 2009 excludes $1.4 billion of credit discounts recorded as part of the initial determination of the fair value of purchased nonimpaired loans related to the FBOP
transaction.
A summary of impaired loans is as follows:
(Dollars in Millions)
Commercial and commercial real estate loans:
Period-end recorded investment
2009
2008
2007
Recorded
Investment
Valuation
Allowance
Recorded
Investment
Valuation
Allowance
Recorded
Investment
Valuation
Allowance
Valuation allowance required . . . . . . . . . . . . . . . . . . . . . . . .
No valuation allowance required . . . . . . . . . . . . . . . . . . . . . .
$1,792
1,045
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,837
Average balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income recognized . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments to lend additional funds . . . . . . . . . . . . . . . . . . .
Restructured accruing homogenous loans:
Period-end recorded investment
. . . . . . . . . . . . . . . . . . . . . . .
Average balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income recognized . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,599
9
289
$2,081
2,520
125
Nonaccrual homogenous loans:
$206
–
$206
$367
$1,023
514
$1,537
$1,006
6
107
$1,336
1,196
71
$115
–
$115
$223
$314
107
$421
$366
–
12
$551
466
29
$34
–
$34
$17
Period-end recorded investment
. . . . . . . . . . . . . . . . . . . . . . .
$ 670
$ 72
$ 302
$ 29
$ 82
$ 1
88
U.S. BANCORP
For the years ended December 31, 2009, 2008 and
2007, the Company had net gains on the sale of loans of
$710 million, $220 million and $163 million, respectively,
which were included in noninterest income, primarily in
mortgage banking revenue.
The Company has an equity interest in a joint venture
that is accounted for utilizing the equity method. The
principal activities of this entity are to develop land, and
construct and sell residential homes.
The Company provides a warehousing line to this joint
venture. Warehousing advances to the joint venture are
repaid when the sale of loans is completed or the real estate
is permanently refinanced by others. At December 31, 2009
and 2008, the Company had $890 million and $894 million,
respectively, of outstanding advances to this joint venture.
Note 7 Leases
The components of the net investment in sales-type and direct financing leases at December 31 were as follows:
(Dollars in Millions)
2009
2008
Aggregate future minimum lease payments to be received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11,797
322
Unguaranteed residual values accruing to the lessor’s benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,539)
Unearned income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
218
Initial direct costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12,712
339
(1,693)
250
Total net investment in sales-type and direct financing leases (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,798
$11,608
(a) The accumulated allowance for uncollectible minimum lease payments was $198 million and $224 million at December 31, 2009 and 2008, respectively.
The minimum future lease payments to be received from sales-type and direct financing leases were as follows at December 31,
2009:
(Dollars in Millions)
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,200
3,288
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,967
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,498
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
522
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
322
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 8 Accounting for Transfers and Servicing of Financial Assets and Variable
Interest Entities
When the Company sells financial assets, it may retain
servicing rights and/or other beneficial interests in the
transferred financial assets. The gain or loss on sale depends,
in part, on the previous carrying amount of the transferred
financial assets and the consideration other than beneficial
interests in the transferred assets received in exchange. Upon
transfer, any servicing assets are initially recognized at fair
value. The remaining carrying amount of the transferred
financial asset is allocated between the assets sold and any
interests that continue to be held by the Company based on
the relative fair values as of the date of transfer.
The Company is involved in various entities that are
considered to be variable interest entities (“VIEs”) as defined
by applicable authoritative accounting guidance. Generally, a
VIE is a corporation, partnership, trust or any other legal
structure that does not have equity investors with
substantive voting rights or has equity investors that do not
have sufficient equity at risk for the entity to independently
finance its activities. 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
a pool of tax credit investments. These entities are
consolidated by the Company as it continues to absorb the
majority of the entities’ expected losses. The Company
expects to consolidate additional entities and deconsolidate
other entities beginning in 2010 as a result of a change in
accounting rules for VIEs.
U.S. BANCORP
89
The Company sponsors an off-balance sheet conduit to
which it transferred high-grade investment securities in prior
years, initially funded by the conduit’s issuance of
commercial paper. The conduit held assets of $.6 billion at
December 31, 2009, compared with $.8 billion at
December 31, 2008. During 2008, the conduit ceased issuing
commercial paper and began to draw upon a Company-
provided liquidity facility to replace outstanding commercial
paper as it matured. At December 31, 2009, the amount
advanced to the conduit under the liquidity facility was
$.7 billion, compared with $.9 billion at December 31,
2008, and was recorded on the Company’s balance sheet in
commercial loans. Under accounting rules applicable
through 2009, the Company considered the conduit to be a
VIE. The Company was not the primary beneficiary of the
conduit as it did not absorb the majority of the variability of
the conduit’s cash flows or fair value. The Company will
consolidate the conduit beginning in 2010 as a result of a
change in the accounting rules related to VIEs.
The Company consolidates VIEs in which it is the
primary beneficiary. At December 31, 2009, approximately
$510 million of total assets related to various VIEs were
consolidated by the Company in its financial statements,
compared with $479 million at December 31, 2008.
Creditors of these VIEs have no recourse to the general
credit of the Company. The Company is not required to
consolidate other VIEs as it is not the primary beneficiary. In
such cases, the Company does not absorb the majority of the
entities’ expected losses nor does it receive a majority of the
entities’ expected residual returns. The Company’s
investments in unconsolidated VIEs, other than the off-
balance sheet conduit, ranged from less than $1 million to
$63 million, with an aggregate amount of approximately
$2.4 billion at December 31, 2009, and from less than
$1 million to $55 million, with an aggregate amount of
$2.1 billion at December 31, 2008. While the Company
believes potential losses from these investments is remote,
the Company’s maximum exposure to these unconsolidated
VIEs, including any tax implications, was approximately
$4.7 billion at December 31, 2009, compared with
$3.9 billion at December 31, 2008, if all of 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 9 Premises and Equipment
Premises and equipment at December 31 consisted of the following:
(Dollars in Millions)
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized building and equipment leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2009
460
2,923
2,643
82
21
6,129
(3,866)
$
2008
343
2,465
2,487
106
91
5,492
(3,702)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,263
$ 1,790
Note 10 Mortgage Servicing Rights
The Company serviced $150.8 billion of residential
mortgage loans for others at December 31, 2009, and
$120.3 billion at December 31, 2008. 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 offset MSR value changes was a net gain
of $147 million, for the year ended December 31, 2009,
compared with net losses of $122 million and $35 million
the years ended December 31, 2008 and 2007, respectively.
Loan servicing fees, not including valuation changes
included in mortgage banking revenue, were $512 million,
$404 million and $353 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
90
U.S. BANCORP
Changes in fair value of capitalized MSRs are summarized as follows:
Year Ended December 31 (Dollars in Millions)
2009
2008
2007
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rights purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rights capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rights sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in fair value of MSRs
$1,194
101
848
–
Due to change in valuation assumptions (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other changes in fair value (b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(15)
(379)
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,749
(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).
$1,462
52
515
–
(592)
(243)
$1,194
$1,427
14
440
(130)
(102)
(187)
$1,462
The estimated sensitivity to changes in interest rates of the fair value of the MSRs portfolio and the related derivative
instruments at December 31, 2009, was as follows:
(Dollars in Millions)
Down Scenario
Up Scenario
50 bps
25 bps
25 bps
50 bps
Net fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(15)
$(5)
$2
$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. Mortgage loans originated as part of government
agency and state loans programs tend to experience slower
prepayment rates and better cash flows than conventional
mortgage loans.
A summary of the Company’s MSRs and related characteristics by portfolio as of December 31 was as follows:
2009
2008
(Dollars in Millions)
MRBP
Government
Conventional
Total
MRBP
Government
Conventional
Total
Servicing portfolio . . . . . . . . . . . . . $11,915
173
Fair market value . . . . . . . . . . . . . . $
Value (bps) (a) . . . . . . . . . . . . . . .
145
Weighted-average servicing fees
(bps) . . . . . . . . . . . . . . . . . . . .
Multiple (value/servicing fees) . . . . .
Weighted-average note rate . . . . . . .
Age (in years) . . . . . . . . . . . . . . . .
Expected life (in years) . . . . . . . . . .
Discount rate . . . . . . . . . . . . . . . .
40
3.63
5.94%
3.8
6.5
11.5%
(a) Value is calculated as fair market value divided by the servicing portfolio.
$21,819
293
$
134
$117,049
$ 1,283
110
$150,783
$ 1,749
116
$12,561
223
$
178
$14,746
166
$
113
$93,032
805
$
87
$120,339
$ 1,194
99
41
3.27
5.68%
2.1
4.8
11.3%
32
3.44
5.56%
2.5
5.3
10.5%
34
3.41
5.61%
2.5
5.3
10.7%
40
4.45
5.94%
3.2
7.3
11.5%
40
2.83
6.23%
2.6
3.6
11.3%
32
2.72
6.01%
2.8
3.5
10.3%
34
2.91
6.03%
2.8
3.9
10.5%
U.S. BANCORP
91
Note 11 Intangible Assets
Intangible assets consisted of the following:
December 31 (Dollars in Millions)
Estimated
Life (a)
Amortization
Method (b)
Balance
2009
2008
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9 years/8 years
Merchant processing contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposit benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 years/5 years
Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trust relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 years/7 years
8 years/5 years
Other identified intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c)
SL/AC
SL/AC
(c)
SL/AC
SL/AC
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,011
473
383
1,749
222
579
$12,417
$ 8,571
564
376
1,194
277
423
$11,405
(a) Estimated life represents the amortization period for assets subject to the straight line method and the weighted average amortization period for intangibles subject to
accelerated methods. If more than one amortization method is used for a category, the estimated life for each method is calculated and reported separately.
(b) Amortization methods: SL = straight line method
AC = accelerated methods generally based on cash flows
(c) Goodwill is evaluated for impairment, but not amortized. Mortgage servicing rights are recorded at fair value, and are not amortized.
Aggregate amortization expense consisted of the following:
Year Ended December 31 (Dollars in Millions)
Merchant processing contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposit benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trust relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other identified intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009
2008
2007
$117
103
62
105
$387
$136
67
68
84
$355
$154
68
76
78
$376
The estimated amortization expense for the next five years is as follows:
(Dollars in Millions)
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $361
281
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
226
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
183
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
142
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The following table reflects the changes in the carrying value of goodwill for the years ended December 31, 2009 and 2008:
(Dollars in Millions)
Wholesale
Banking
Consumer
Banking
Wealth
Management
Payment
Services
Treasury and
Corporate Support
Consolidated
Company
Balance at December 31, 2007 . . . . . . . . . . . . . . . . . . .
Goodwill acquired . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2008 . . . . . . . . . . . . . . . . . . .
Goodwill acquired . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,330
145
–
$1,475
–
–
$2,420
813
–
$3,233
7
–
$1,564
(2)
–
$1,562
2
–
$2,333
12
(44)
$2,301
–
18
Balance at December 31, 2009 . . . . . . . . . . . . . . . . . . .
$1,475
$3,240
$1,564
$2,319
$ –
–
–
$ –
413
–
$413
$7,647
968
(44)
$8,571
422
18
$9,011
(a) Other changes in goodwill include the effect of foreign exchange translation.
92
U.S. BANCORP
Note 12 Short-Term Borrowings (a)
The following table is a summary of short-term borrowings for the last three years:
(Dollars in Millions)
At year-end
2009
2008
2007
Amount
Rate
Amount
Rate
Amount
Rate
Federal funds purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,329
8,866
Securities sold under agreements to repurchase . . . . . . . . . . . . . . . . . . .
14,608
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,509
Other short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.11% $ 2,369
9,493
10,061
12,060
2.82
.17
.48
.17% $ 2,817
10,541
11,229
7,783
2.65
.22
1.87
1.88%
4.11
4.17
5.04
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $31,312
.98% $33,983
1.48% $32,370
4.16%
Average for the year
Federal funds purchased (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,457
8,915
Securities sold under agreements to repurchase . . . . . . . . . . . . . . . . . . .
10,924
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,853
Other short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.22% $ 3,834
11,982
2.84
10,532
.32
11,889
.89
5.19% $ 2,731
10,939
3.07
9,265
1.91
5,990
3.16
9.63%
4.53
4.75
5.54
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29,149
1.89% $38,237
2.99% $28,925
5.29%
Maximum month-end balance
Federal funds purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,352
9,154
Securities sold under agreements to repurchase . . . . . . . . . . . . . . . . . . .
14,608
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,550
Other short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,681
15,198
11,440
17,642
$ 4,419
12,181
11,229
7,783
(a) Interest and rates are presented on a fully taxable-equivalent basis utilizing a tax rate of 35 percent.
(b) Average federal funds purchased rates include compensation expense for corporate card and corporate trust balances.
U.S. BANCORP
93
Note 13 Long-Term Debt
Long-term debt (debt with original maturities of more than one year) at December 31 consisted of the following:
(Dollars in Millions)
Rate Type
Rate (a)
Maturity Date
2009
2008
U.S. Bancorp (Parent Company)
Subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed
Convertible senior debentures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Floating
Floating
Floating
Floating
Fixed
Floating
Fixed
Medium-term notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Junior subordinated debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized lease obligations, mortgage indebtedness and other (b) . . . .
Subtotal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subsidiaries
Subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank advances . . . . . . . . . . . . . . . . . . . . . . . . .
Bank notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized lease obligations, mortgage indebtedness and other (b) . . . .
Subtotal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Floating
Fixed
Floating
Fixed
Floating
7.50%
–%
–%
–%
–%
2026
2035
2035
2036
2037
1.75%-4.50% 2010-2014
.28%-.68% 2010-2012
5.54%-10.20% 2031-2067
7.125%
6.375%
6.30%
4.95%
4.80%
3.80%
4.375%
.56%
2009
2011
2014
2014
2015
2015
2017
2014
.50%-8.25% 2010-2036
.18%-.95% 2010-2017
2012
.004%-.605% 2010-2048
5.92%
$
199
24
447
64
21
4,880
4,435
4,559
(91)
$
199
24
447
64
75
1,350
4,435
4,058
179
14,538
10,831
–
1,500
963
1,000
500
369
1,348
550
4,234
6,833
199
213
333
500
1,500
963
1,000
500
369
1,348
550
6,415
10,373
1,286
2,525
199
18,042
27,528
$32,580
$38,359
(a) Weighted-average interest rates of medium-term notes, Federal Home Loan Bank advances and bank notes were 1.87 percent, 1.84 percent and 2.94 percent, respectively.
(b) Other includes debt issuance fees and unrealized gains and losses and deferred amounts relating to derivative instruments.
Convertible senior debentures issued by the Company pay
interest on a quarterly basis until a specified period of time
(five or nine years prior to the applicable maturity date).
After this date, the Company will not pay interest on the
debentures prior to maturity. On the maturity date or on
any earlier redemption date, the holder will receive the
original principal plus accrued interest. The debentures are
convertible at any time on or prior to the maturity date. If
the convertible senior debentures are converted, holders of
the debentures will generally receive cash up to the accreted
principal amount of the debentures plus, if the market price
of the Company’s common stock exceeds the conversion
price in effect on the date of conversion, a number of shares
of the Company’s common stock, or an equivalent amount
of cash at the Company’s option, as determined in
accordance with specified terms. The convertible senior
debentures are callable by the Company and putable by the
investors at a price equal to 100 percent of the accreted
principal amount plus accrued and unpaid interest. During
2009, investors elected to put debentures with a principal
amount of $54 million back to the Company. At
December 31, 2009, the weighted average conversion price
per share for all convertible issuances was $37.93.
During 2009, the Company issued $501 million of
fixed-rate junior subordinated debentures to a separately
formed wholly-owned trust for the purpose of issuing
Company-obligated mandatorily redeemable preferred
securities at an interest rate of 6.625 percent. Refer to
Note 14, “Junior Subordinated Debentures” for further
information on the nature and terms of these debentures.
There were no such issuances in 2008. There were no
redemptions of junior subordinated debentures in 2009 or
2008.
The Company has an arrangement with the Federal
Home Loan Bank whereby the Company could have
borrowed an additional $17.3 billion and $6.6 billion at
December 31, 2009 and 2008, respectively, based on
collateral available (residential and commercial mortgages).
94
U.S. BANCORP
Maturities of long-term debt outstanding at December 31, 2009, were:
(Dollars in Millions)
Parent
Company
Consolidated
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,783
11
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,623
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
347
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,483
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,291
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter
$ 6,473
1,966
7,064
828
4,248
12,001
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,538
$32,580
Note 14 Junior Subordinated Debentures
As of December 31, 2009, the Company sponsored, and
wholly owned 100 percent of the common equity of, ten
unconsolidated trusts that were formed for the purpose of
issuing Company-obligated mandatorily redeemable
preferred securities (“Trust Preferred Securities”) to third-
party investors and investing the proceeds from the sale of
the Trust Preferred Securities solely in junior subordinated
debt securities of the Company (the “Debentures”). The
Debentures held by the trusts, which totaled $4.6 billion, are
the sole assets of each trust. The Company’s obligations
under the Debentures and related documents, taken together,
constitute a full and unconditional guarantee by the
Company of the obligations of the trusts. The guarantee
covers the distributions and payments on liquidation or
redemption of the Trust Preferred Securities, but only to the
extent of funds held by the trusts. The Company has the
right to redeem the Debentures in whole or in part, on or
after specific dates, at a redemption price specified in the
indentures plus any accrued but unpaid interest to the
redemption date. The Company used the proceeds from the
sales of the Debentures for general corporate purposes.
In connection with the formation of USB Capital IX,
the trust issued redeemable Income Trust Securities (“ITS”)
to third party investors, investing the proceeds in Debentures
issued by the Company and entered into stock purchase
contracts to purchase preferred stock to be issued by the
Company in the future. Pursuant to the stock purchase
contracts, the Company is required to make contract
payments of .65 percent, also payable semi-annually,
through a specified stock purchase date expected to be
April 15, 2011. Prior to the specified stock purchase date,
the trust is required to remarket and sell the Debentures to
third party investors to generate cash proceeds to satisfy its
obligation to purchase the Company’s Series A Non-
Cumulative Perpetual Preferred Stock (“Series A Preferred
Stock”) pursuant to the stock purchase contracts. The
Series A Preferred Stock, when issued pursuant to the stock
purchase contracts, is expected to pay quarterly dividends
equal to the greater of three-month LIBOR plus 1.02 percent
or 3.50 percent. In connection with this transaction, the
Company also entered into a replacement capital covenant
which restricts the Company’s rights to repurchase the ITS
and to redeem or repurchase the Series A Preferred Stock.
The following table is a summary of the Debentures included in long-term debt as of December 31, 2009:
Issuance Trust (Dollars in Millions)
Issuance Date
Securities
Amount
Debentures
Amount
Rate Type
Rate
Maturity Date
Earliest
Redemption Date
USB Capital XIII . . . . . . . . . December 2009
February 2007
USB Capital XII . . . . . . . . . .
August 2006
USB Capital XI . . . . . . . . . .
April 2006
USB Capital X . . . . . . . . . .
USB Capital IX . . . . . . . . . .
March 2006
USB Capital VIII . . . . . . . . . December 2005
August 2005
USB Capital VII . . . . . . . . . .
USB Capital VI . . . . . . . . . .
March 2005
Vail Banks Statutory
Trust II . . . . . . . . . . . . . .
Vail Banks Statutory Trust I . .
March 2001
February 2001
$ 500
535
765
500
1,250
375
300
275
7
17
$ 501
536
766
501
1,251
387
309
284
7
17
Total
. . . . . . . . . . . . . . .
$4,524
$4,559
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
6.63
6.30
6.60
6.50
5.54
6.35
5.88
5.75
December 2039
February 2067
September 2066
April 2066
April 2042
December 2065
August 2035
March 2035
December 15, 2014
February 15, 2012
September 15, 2011
April 12, 2011
April 15, 2015
December 29, 2010
August 15, 2010
March 9, 2010
10.18
10.20
June 2031
February 2031
June 8, 2011
February 22, 2011
U.S. BANCORP
95
Note 15 Shareholders’ Equity
At December 31, 2009 and 2008, the Company had
authority to issue 4 billion shares of common stock and
50 million shares of preferred stock. The Company had
1.9 billion and 1.8 billion shares of common stock
outstanding at December 31, 2009 and 2008, respectively,
and had 132 million shares reserved for future issuances,
primarily under stock incentive plans and shares that may be
issued in connection with the Company’s convertible senior
debentures, at December 31, 2009.
The number of shares issued and outstanding and the carrying amount of each outstanding series of the Company’s preferred
stock was as follows:
December 31, (Dollars in Millions)
2009
2008
Shares Issued
and Outstanding
Carrying
Amount
Shares Issued
and Outstanding
Series B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Series D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Series E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total preferred stock (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40,000
20,000
–
60,000
$1,000
500
–
$1,500
40,000
20,000
6,599,000
6,659,000
(a) The par value of all shares issued and outstanding at December 31, 2009 and 2008, was $1.00 a share.
Carrying
Amount
$1,000
500
6,431
$7,931
On November 14, 2008, the Company issued
6.6 million shares of Series E Fixed Rate Cumulative
Perpetual Preferred Stock (the “Series E Preferred Stock”)
and a warrant to purchase 33 million shares of the
Company’s common stock, at a price of $30.29 per common
share, to the U.S. Department of the Treasury under the
Capital Purchase Program of the Emergency Economic
Stabilization Act of 2008 for proceeds of $6.6 billion. The
Company allocated $172 million of the proceeds to the
warrant, with the resulting discount on the Series E
Preferred Stock being accreted over five years and reported
as a reduction to income applicable to common equity over
that period. On June 17, 2009, the Company redeemed the
Series E Preferred Stock. The Company included in its
computation of earnings per diluted common share for the
year ended December 31, 2009 the impact of a deemed
dividend of $154 million, representing the unaccreted
preferred stock discount remaining on the redemption date.
On July 15, 2009, the Company repurchased the warrant
from the U.S. Department of the Treasury for $139 million.
On March 27, 2006, the Company issued depositary
shares representing an ownership interest in 40,000 shares of
Series B Non-Cumulative Perpetual Preferred Stock with a
liquidation preference of $25,000 per share (the “Series B
Preferred Stock”), and on March 17, 2008, the Company
issued depositary shares representing an ownership interest
in 20,000 shares of Series D Non-Cumulative Perpetual
Preferred Stock with a liquidation preference of $25,000 per
share (the “Series D Preferred Stock”). The Series B
Preferred Stock and Series D Preferred Stock have 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
.60 percent, or 3.50 percent on the Series B Preferred Stock,
and 7.875 percent per annum on the Series D Preferred
Stock. Both series are redeemable at the Company’s option,
subject to the prior approval of the Federal Reserve Board.
During 2009, 2008 and 2007, the Company
repurchased shares of its common stock under various
authorizations approved by its Board of Directors. As of
December 31, 2009, the Company had approximately
20 million shares that may yet be purchased under the
current Board of Directors approved authorization.
The following table summarizes the Company’s common stock repurchased in each of the last three years:
(Dollars and Shares in Millions)
Shares
Value
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
2
58
$
4
91
2,011
96
U.S. BANCORP
Shareholders’ equity is affected by transactions and valuations of asset and liability positions that require adjustments to
accumulated other comprehensive income (loss). The reconciliation of the transactions affecting accumulated other
comprehensive income (loss) included in shareholders’ equity for the years ended December 31, was as follows:
(Dollars in Millions)
Transactions
Pre-tax
Tax-effect
Net-of-tax
Balances
Net-of-Tax
2009
Changes in unrealized gains and losses on securities available-for-sale . . . . . . . . . . . . .
Other-than-temporary impairment not recognized in earnings on securities
available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain on derivative hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Realized loss on derivative hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification for realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in retirement obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,131
$ (810)
$ 1,321
$ (393)
(402)
516
40
–
456
290
153
(196)
(15)
–
(173)
(111)
(249)
320
25
–
283
179
–
(319)
(53)
(8)
–
(711)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,031
$(1,152)
$ 1,879
$(1,484)
2008
Changes in unrealized gains and losses on securities available-for-sale . . . . . . . . . . . . .
Unrealized loss on derivative hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Realized loss on derivative hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification for realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in retirement obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(2,729)
(722)
(117)
(15)
1,020
(1,357)
$ 1,037
274
45
6
(388)
519
$(1,692)
(448)
(72)
(9)
632
(838)
$(1,745)
(639)
(78)
(11)
–
(890)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(3,920)
$ 1,493
$(2,427)
$(3,363)
2007
Changes in unrealized gains and losses on securities available-for-sale . . . . . . . . . . . . .
Unrealized loss on derivative hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Realized loss on derivative hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification for realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in retirement obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (482)
(299)
8
–
96
352
$
183
115
(3)
–
(38)
(132)
$ (299)
(184)
5
–
58
220
$ (659)
(191)
(6)
(28)
–
(52)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (325)
$
125
$ (200)
$ (936)
Regulatory Capital The measures used to assess capital by
bank regulatory agencies include two principal risk-based
ratios, Tier 1 and total risk-based capital. Tier 1 capital is
considered core capital and includes common shareholders’
equity plus qualifying preferred stock, trust preferred
securities and noncontrolling interests in consolidated
subsidiaries (subject to certain limitations), and is adjusted
for the aggregate impact of certain items included in other
comprehensive income (loss). Total risk-based capital
includes Tier 1 capital and other items such as subordinated
debt and the allowance for credit losses. Both measures are
stated as a percentage of risk-adjusted assets, which are
measured based on their perceived credit risk and include
certain off-balance sheet exposures, such as unfunded loan
commitments, letters of credit, and derivative contracts. The
Company is also subject to a leverage ratio requirement, a non
risk-based asset ratio, which is defined as Tier 1 capital as a
percentage of average assets adjusted for goodwill and other
non-qualifying intangibles and other assets.
For a summary of the regulatory capital requirements
and the actual ratios as of December 31, 2009 and 2008, for
the Company and its bank subsidiaries, see Table 20
included in Management’s Discussion and Analysis, which is
incorporated by reference into these Notes to Consolidated
Financial Statements.
U.S. BANCORP
97
The following table provides the components of the
Company’s regulatory capital:
(Dollars in Millions)
Tier 1 Capital
Common shareholders’ equity . . . . . .
Qualifying preferred stock . . . . . . . . .
Qualifying trust preferred securities . .
Noncontrolling interests, less preferred
stock not eligible for Tier 1 capital . .
Less intangible assets
Goodwill (net of deferred tax
December 31
2009
2008
$ 24,463
1,500
4,524
$ 18,369
7,931
4,024
692
693
liability) . . . . . . . . . . . . . . . . . .
(8,482)
(8,153)
Other disallowed intangible
assets . . . . . . . . . . . . . . . . . .
Other (a) . . . . . . . . . . . . . . . . . . . .
(1,322)
1,235
(1,479)
3,041
Total Tier 1 Capital . . . . . . . . . .
22,610
24,426
Tier 2 Capital
Eligible portion of allowance for credit
losses . . . . . . . . . . . . . . . . . . . .
Eligible subordinated debt . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Other
Total Tier 2 Capital . . . . . . . . . .
2,969
4,874
5
7,848
2,892
5,579
–
8,471
Total Risk Based Capital . . . . . .
$ 30,458
$ 32,897
Risk-Weighted Assets . . . . . . . . . . . .
$235,233
$230,628
(a) Includes the impact of items included in other comprehensive income (loss), such as
unrealized gains (losses) on available-for-sale securities, accumulated net gains on cash
flow hedges, pension liability adjustments, etc.
Noncontrolling interests principally represent preferred
stock of consolidated subsidiaries. During 2006, the
Company’s primary banking subsidiary formed USB Realty
Note 16 Earnings Per Share
The components of earnings per share were:
(Dollars and Shares in Millions, Except Per Share Data)
Corp., a real estate investment trust, for the purpose of
issuing 5,000 shares of Fixed-to-Floating Rate Exchangeable
Non-cumulative Perpetual Series A Preferred Stock with a
liquidation preference of $100,000 per share (“Series A
Preferred Securities”) to third party investors, and investing
the proceeds in certain assets, consisting predominately of
mortgage-backed securities from the Company. Dividends on
the Series A Preferred Securities, if declared, will accrue and
be payable quarterly, in arrears, at a rate per annum of
6.091 percent from December 22, 2006 to, but excluding,
January 15, 2012. On January 15, 2012, the rate will be
equal to three-month LIBOR for the related dividend period
plus 1.147 percent. If USB Realty Corp. has not declared a
dividend on the Series A Preferred Securities before the
dividend payment date for any dividend period, such
dividend shall not be cumulative and shall cease to accrue
and be payable, and USB Realty Corp. will have no
obligation to pay dividends accrued for such dividend
period, whether or not dividends on the Series A Preferred
Securities are declared for any future dividend period.
The Series A Preferred Securities will be redeemable, in
whole or in part, at the option of USB Realty Corp. on the
dividend payment date occurring in January 2012 and each
fifth anniversary thereafter, or in whole but not in part, at
the option of USB Realty Corp. on any dividend date before
or after January 2012 that is not a five-year date. Any
redemption will be subject to the approval of the Office of
the Comptroller of the Currency.
2009
2008
2007
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretion of preferred stock discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deemed dividend on preferred stock redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings allocated to participating stock awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,205
(228)
(14)
(154)
(6)
$2,946
(119)
(4)
–
(4)
$4,324
(60)
–
–
(6)
Net income applicable to U.S. Bancorp common shareholders . . . . . . . . . . . . . . . . . . . . . . . . .
$1,803
$2,819
$4,258
Average common shares outstanding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net effect of the exercise and assumed purchase of stock awards and conversion of outstanding
1,851
1,742
1,735
convertible notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
Average diluted common shares outstanding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,859
Earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ .97
$ .97
14
1,756
$ 1.62
$ 1.61
21
1,756
$ 2.45
$ 2.42
Options and warrants outstanding at December 31, 2009,
2008 and 2007, to purchase 70 million, 67 million and
13 million common shares respectively, were not included in
the computation of diluted earnings per share for the years
ended December 31, 2009, 2008 and 2007, respectively,
because they were antidilutive. Convertible senior debentures
98
U.S. BANCORP
that could potentially be converted into shares of the
Company’s common stock pursuant to specified formulas,
were not included in the computation of diluted earnings per
share because they were antidilutive.
Note 17 Employee Benefits
Employee Retirement Savings Plan The Company has a
defined contribution retirement savings plan that covers
substantially all its employees. Qualified employees are
allowed to contribute up to 75 percent of their annual
compensation, subject to Internal Revenue Service limits,
through salary deductions under Section 401(k) of the
Internal Revenue Code. Employee contributions are invested,
at the employees’ direction, among a variety of investment
alternatives. Employee contributions are 100 percent
matched by the Company, up to four percent of an
employee’s eligible annual compensation. The Company’s
matching contribution vests immediately. Although the
matching contribution is initially invested in the Company’s
common stock, an employee can reinvest the matching
contributions among various investment alternatives. Total
expense was $78 million, $76 million and $62 million in
2009, 2008 and 2007, respectively.
Pension Plans The Company has qualified noncontributory
defined benefit pension plans that provide benefits to
substantially all its employees. Pension benefits are provided
to eligible employees based on years of service, multiplied by
a percentage of their final average pay. As a result of plan
mergers, pension benefits may also be provided using two
cash balance benefit formulas where only investment or
interest credits continue to be credited to participants’
accounts. Employees become vested upon completing five
years of vesting service. Effective January 1, 2010, the
Company established a new cash balance formula for certain
current and all future eligible employees. Participants will
receive annual pay credits based on eligible pay multiplied
by a percentage determined by their age and years of service.
Participants will also receive an annual interest credit. This
new plan formula resulted in a $35 million reduction of the
2009 projected benefit obligation.
In general, the Company’s qualified pension plans’
objectives include maintaining a funded status sufficient to
meet participant benefit obligations over time while reducing
long-term funding requirements and pension costs. The
Company has an established process for evaluating all the
plans, their performance and significant plan assumptions,
including the assumed discount rate and the long-term rate
of return (“LTROR”). Annually, the Company’s
Compensation and Human Resources Committee (the
“Committee”), assisted by outside consultants, evaluates
plan objectives, funding policies and plan investment policies
considering its long-term investment time horizon and asset
allocation strategies. The process also evaluates significant
plan assumptions. Although plan assumptions are
established annually, the Company may update its analysis
on an interim basis in order to be responsive to significant
events that occur during the year, such as plan mergers and
amendments.
The Company’s funding policy is to contribute amounts
to its plans sufficient to meet the minimum funding
requirements of the Employee Retirement Income Security
Act of 1974, as amended by the Pension Protection Act, plus
such additional amounts as the Company determines to be
appropriate. The Company made no contributions to the
qualified pension plans in 2009 or 2008, and anticipates no
contributions in 2010. Any contributions made to the
qualified plans are invested in accordance with established
investment policies and asset allocation strategies.
In addition to the funded qualified pension plans, the
Company maintains non-qualified plans that are unfunded
and provide benefits to certain employees. The assumptions
used in computing the present value of the accumulated
benefit obligation, the projected benefit obligation and net
pension expense are substantially consistent with those
assumptions used for the funded qualified plans. In 2010,
the Company expects to contribute $21 million to its non-
qualified pension plans which equals the expected benefit
payments.
Postretirement Welfare Plan In addition to providing
pension benefits, the Company provides health care and
death benefits to certain retired employees. Generally, all
active employees may become eligible for retiree health care
benefits by meeting defined age and service requirements.
The Company may also subsidize the cost of coverage for
employees meeting certain age and service requirements. The
medical plan contains other cost-sharing features such as
deductibles and coinsurance. The estimated cost of these
retiree benefit payments is accrued during the employees’
active service. In 2010, the Company expects to make no
contributions to its postretirement welfare plan.
U.S. BANCORP
99
The following table summarizes the changes in benefit obligations and plan assets for the years ended December 31, and the
funded status and amounts recognized in the consolidated balance sheet at December 31, for the retirement plans:
(Dollars in Millions)
Change In Projected Benefit Obligation
Pension Plans
Postretirement Welfare Plan
2009
2008
2009
2008
Benefit obligation at beginning of measurement period . . . . . . . . . . . . . . . $ 2,368
–
Effect of eliminating early measurement date . . . . . . . . . . . . . . . . . . . . . .
80
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
152
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
Plan participants’ contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(35)
Plan amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49
Actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(118)
Benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
Federal subsidy of benefits paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit obligation at end of measurement period (a) . . . . . . . . . . . . . . . . . $ 2,496
Change In Fair Value Of Plan Assets
Fair value at beginning of measurement period . . . . . . . . . . . . . . . . . . . . $ 1,699
–
Effect of eliminating early measurement date . . . . . . . . . . . . . . . . . . . . . .
489
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
Plan participants’ contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(118)
Benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value at end of measurement period . . . . . . . . . . . . . . . . . . . . . . . . $ 2,089
Funded (Unfunded) Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (407)
Components Of The Consolidated Balance Sheet
Noncurrent benefit asset
Current benefit liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent benefit liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
5
(21)
(391)
$ 2,225
26
76
141
–
–
22
(122)
–
$ 2,368
$ 2,943
32
(1,173)
19
–
(122)
$ 1,699
$ (669)
$
–
(22)
(647)
Recognized amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (407)
$ (669)
Accumulated Other Comprehensive Income (Loss), Pretax
Net actuarial gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,259)
47
Prior service credit (cost) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
Transition asset (obligation). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recognized amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,212)
$(1,538)
18
–
$(1,520)
(a) At December 31, 2009 and 2008, the accumulated benefit obligation for all pension plans was $2.4 billion and $2.2 billion, respectively.
$176
–
6
11
10
–
6
(26)
3
$186
$158
–
1
1
10
(26)
$144
$ (42)
$ –
–
(42)
$ (42)
$ 62
2
(2)
$ 62
$206
(1)
6
12
14
–
(29)
(36)
4
$176
$177
(3)
5
1
14
(36)
$158
$ (18)
$ –
–
(18)
$ (18)
$ 79
3
(2)
$ 80
The following table provides information for pension plans with benefit obligations in excess of plan assets at December 31:
(Dollars in Millions)
2009
2008
Pension Plans with Projected Benefit Obligations in Excess of Plan Assets
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,464
2,052
Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,349
2,052
$2,368
1,699
2,207
1,669
100
U.S. BANCORP
The following table sets forth the components of net periodic benefit cost and other amounts recognized in accumulated other
comprehensive income (loss) for the years ended December 31 for the retirement plans:
Pension Plans
Postretirement Welfare Plan
(Dollars in Millions)
2009
2008
2007
2009
2008
2007
Components Of Net Periodic Benefit Cost
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 80
152
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . .
(215)
Prior service cost (credit) and transition obligation (asset)
amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial loss (gain) amortization . . . . . . . . . . . . . . . . . .
(6)
49
$
76
141
(224)
(6)
32
19
$ 70
126
(199)
(6)
63
$ 6
11
(5)
–
(7)
$ 54
$ 5
Net periodic benefit cost. . . . . . . . . . . . . . . . . . . . . . . . . . $ 60
$
Other Changes In Plan Assets And Benefit
Obligations Recognized In Other Comprehensive
Income (Loss)
Current year actuarial gain (loss) . . . . . . . . . . . . . . . . . . $ 230
49
Actuarial loss (gain) amortization . . . . . . . . . . . . . . . . . .
Current year prior service credit (cost) . . . . . . . . . . . . . .
35
Prior service cost (credit) and transition obligation (asset)
$(1,419)
32
–
$ 258
63
–
amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6)
(6)
(6)
Total recognized in other comprehensive income (loss) . . . . . $ 308
$(1,393)
$ 315
$(11)
(7)
–
–
$(18)
Total recognized in net periodic benefit cost and other
comprehensive income (loss) (a)(b) . . . . . . . . . . . . . . . . $ 248
$(1,412)
$ 261
$(23)
$ 6
12
(6)
–
(4)
$ 8
$35
(4)
–
–
$31
$23
$ 6
14
(6)
–
–
$14
$37
–
–
–
$37
$23
(a) The pretax estimated net loss and prior service credit for the pension plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost in
2010 are $64 million and $12 million, respectively.
(b) The pretax estimated net gain for the postretirement welfare plan that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost in 2010 is
$5 million.
The following table sets forth weighted average assumptions used to determine the projected benefit obligations at
December 31:
(Dollars in Millions)
Pension Plans
Postretirement Welfare Plan
2009
2008
2009
2008
Discount rate (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.2%
3.0
6.4%
3.0
Health care cost trend rate for the next year (c)
Prior to age 65 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
After age 65 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect on accumulated postretirement benefit obligation
One percent increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
One percent decrease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.6%
*
8.0%
14.0
6.3%
*
7.0%
21.0
$
8
(8)
$ 11
(10)
(a) For 2009, the discount rates were developed using Towers Watson’s cash flow matching bond model with a modified duration for the qualified pension plans, non-qualified pension
plans and postretirement welfare plan of 13.4, 10.5 and 8.2 years, respectively. For 2008, the discount rates were developed using Towers Watson’s cash flow matching bond model
with a modified duration for the pension plans and postretirement welfare plan of 12.5 and 8.1 years, respectively.
(b) Determined on a liability weighted basis.
(c) The pre-65 and post-65 rates are assumed to decrease gradually to 5.5 percent by 2017 and 6.0 percent by 2015, respectively, and remain at these levels thereafter.
* Not applicable
U.S. BANCORP
101
The following table sets forth weighted average assumptions used to determine net periodic benefit cost for the years ended
December 31:
(Dollars in Millions)
2009
2008
2007
2009
2008
2007
Pension Plans
Postretirement Welfare Plan
Discount rate (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets (b)
. . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase (c) . . . . . . . . . . . . . . . . . . . . . . .
6.4%
8.5
3.0
6.3%
8.9
3.2
6.0%
8.9
2.2
Health care cost trend rate (d)
Prior to age 65 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
After age 65 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect on total of service cost and interest cost
One percent increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
One percent decrease . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.3%
3.5
*
7.0%
21.0
6.1%
3.5
*
8.0%
9.0
6.0%
3.5
*
8.0%
10.0
$
1
(1)
$ 1
(1)
$
1
(1)
(a) See footnote (a) in previous table (weighted average assumptions used to determine the projected benefit obligations).
(b) With the help of an independent pension consultant, a range of potential expected rates of return, economic conditions, historical performance relative to assumed rates of return and
asset allocation, and peer group LTROR information are used in developing the plan assumptions for its expected long-term rates of return on plan assets. The Company determined its
2009 expected long-term rates of return reflect current economic conditions and plan assets.
(c) Determined on a liability weighted basis.
(d) The pre-65 and post-65 rates are assumed to decrease gradually to 5.5 percent by 2012 and 6.0 percent by 2015, respectively, and remain at these levels thereafter.
* Not applicable
Investment Policies and Asset Allocation In establishing its
investment policies and asset allocation strategies, the
Company considers expected returns and the volatility
associated with different strategies. An independent
consultant performs modeling that projects numerous
outcomes using a broad range of possible scenarios,
including a mix of possible rates of inflation and economic
growth. Starting with current economic information, the
model bases its projections on past relationships between
inflation, fixed income rates and equity returns when these
types of economic conditions have existed over the previous
30 years, both in the U.S. and in foreign countries.
Generally, based on historical performance of the
various investment asset classes, investments in equities have
outperformed other investment classes but are subject to
higher volatility. While an asset allocation including debt
securities and other assets generally has lower volatility and
may provide protection in a declining interest rate
environment, it limits the pension plans’ long-term up-side
potential. Given the pension plans’ investment horizon and
the financial viability of the Company to meet its funding
objectives, the Committee has determined that an asset
allocation strategy investing principally in equities diversified
among various domestic equity categories and international
equities is appropriate. The target asset allocation for the
Company’s qualified pension plans is 55 percent domestic
large cap equities, 19 percent domestic mid cap equities,
6 percent domestic small cap equities and 20 percent
international equities.
At December 31, 2009 and 2008, plan assets of the
qualified pension plans included mutual funds that have
asset management arrangements with related parties totaling
$1.1 billion and $791 million, respectively.
Under a contractual agreement with FAF Advisors, Inc.,
an affiliate of the Company, certain plan assets are lent to
qualified borrowers on a short-term basis in exchange for
investment fee income. These borrowers collateralize the
loaned securities with either cash or non-cash securities.
Cash collateral held at December 31, 2009 and 2008 totaled
$121 million and $151 million, respectively, with
corresponding obligations to return the cash collateral of
$131 million and $165 million, respectively.
Per authoritative accounting guidance, the Company
groups plan assets into a three-level hierarchy for valuation
techniques used to measure their fair value based on whether
the valuation inputs are observable or unobservable. Refer
to Note 21 for further discussion on these levels.
The assets of the qualified pension plans and
postretirement welfare plan include investments in equity
securities and mutual funds whose fair values are determined
based on quoted market prices and such items are classified
within Level 1 of the fair value hierarchy. The qualified
pension plan also has investments in limited partnership
interests whose fair value is determined by the Company by
analyzing the limited partnerships’ audited financial
statements and other related investment activity. These
securities are categorized as Level 3.
102
U.S. BANCORP
The following table summarizes the plan assets measured at fair value at December 31:
(Dollars in Millions)
Domestic equity securities
Pension Plans
2009
2008
Level 1
Level 3
Level 1
Level 3
Postretirement
Welfare Plan
2009
Level 1
2008
Level 1
Large cap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,056
397
Mid cap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
126
Small cap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
442
International equity securities . . . . . . . . . . . . . . . . . . . . . . . .
40
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . .
–
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,083
$–
–
–
–
–
–
6
$6
$ 916
287
94
331
30
30
2
$1,690
$–
–
–
–
–
–
9
$9
$ –
–
–
–
–
144
–
$144
The following table summarizes the changes in fair value for all plan assets measured at fair value using significant
unobservable inputs (Level 3) for the years ended December 31:
(Dollars in Millions)
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gains (losses) relating to assets still held at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
2009
$ 9
(3)
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6
$ –
–
–
–
–
158
–
$158
2008
$8
1
$9
Expected Future Benefit Payments
The following benefit payments are expected to be paid from the retirement plans for the years ended December 31:
(Dollars in Millions)
Pension
Plans
Postretirement
Welfare Plan (a)
Medicare
Part D Subsidy
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 – 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$147
135
138
141
145
809
$ 13
16
18
19
21
121
$2
3
3
3
3
9
(a) Net of retiree contributions and before Medicare Part D subsidy.
Note 18 Stock-Based Compensation
As part of its employee and director compensation
programs, the Company may grant certain stock awards
under the provisions of the existing stock compensation
plans, including plans assumed in acquisitions. The plans
provide for grants of options to purchase shares of common
stock at a fixed price equal to the fair value of the
underlying stock at the date of grant. Option grants are
generally exercisable up to ten years from the date of grant.
In addition, the plans provide for grants of shares of
common stock or stock units that are subject to restriction
on transfer prior to vesting. Most stock and unit awards vest
over three to five years and are subject to forfeiture if
certain vesting requirements are not met. Stock incentive
plans of acquired companies are generally terminated at the
merger closing dates. Option holders under such plans
receive the Company’s common stock, or options to buy the
Company’s stock, based on the conversion terms of the
various merger agreements. The historical stock award
information presented below has been restated to reflect the
options originally granted under acquired companies’ plans.
At December 31, 2009, there were 27 million shares (subject
to adjustment for forfeitures) available for grant under
various plans.
U.S. BANCORP
103
Stock Option Awards
The following is a summary of stock options outstanding and exercised under various stock options plans of the Company:
Year Ended December 31
Stock
Options/Shares
Weighted-Average
Exercise Price
Weighted-Average
Remaining
Contractual Term
Aggregate
Intrinsic Value
(In millions)
2009
Number outstanding at beginning of period . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Number outstanding at end of period (b)
Exercisable at end of period . . . . . . . . . . . . . . . . . . . . . . . . . .
2008
Number outstanding at beginning of period . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number outstanding at end of period (b)
. . . . . . . . . . . . . . . . .
Exercisable at end of period . . . . . . . . . . . . . . . . . . . . . . . . . .
2007
Number outstanding at beginning of period . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
82,293,011
14,316,237
(1,085,328)
(7,144,451)
88,379,469
50,538,048
91,211,464
22,464,085
(28,528,238)
(2,854,300)
82,293,011
43,787,801
97,052,221
13,810,737
(17,595,906)
(2,055,588)
Number outstanding at end of period (b)
. . . . . . . . . . . . . . . . .
Exercisable at end of period . . . . . . . . . . . . . . . . . . . . . . . . . .
91,211,464
62,701,270
$29.08
12.04
19.98
28.33
$26.49
$27.52
$27.22
32.19
25.27
31.94
$29.08
$26.11
$25.42
35.81
23.66
30.59
$27.22
$24.82
6.1
4.5
6.0
4.0
4.9
3.5
$(352)
$(253)
$(335)
$ (48)
$ 413
$ 434
(a) Options cancelled includes both non-vested (i.e., forfeitures) and vested options.
(b) Outstanding options include stock-based awards that may be forfeited in future periods. The impact of the estimated forfeitures is reflected in compensation expense.
Stock-based compensation expense is based on the estimated fair value of the award at the date of grant or modification.
The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model, requiring
the use of subjective assumptions. Because employee stock options have characteristics that differ from those of traded options,
including vesting provisions and trading limitations that impact their liquidity, the determined value used to measure
compensation expense may vary from their actual fair value. The following table includes the weighted average estimated fair
value and assumptions utilized by the Company for newly issued grants:
Estimated fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock volatility factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life of options (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009
$3.39
1.8%
4.2%
.44
5.5
2008
$3.55
3.4%
4.8%
.19
5.0
2007
$5.38
4.7%
4.3%
.20
5.0
Expected stock volatility is based on several factors
including the historical volatility of the Company’s stock,
implied volatility determined from traded options and other
factors. The Company uses historical data to estimate option
exercises and employee terminations to estimate the
expected life of options. The risk-free interest rate for the
expected life of the options is based on the U.S. Treasury
yield curve in effect on the date of grant. The expected
dividend yield is based on the Company’s expected dividend
yield over the life of the options.
The following summarizes certain stock option activity of the Company:
(Dollars in Millions)
Fair value of options vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intrinsic value of options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash received from options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit realized from options exercised. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009
$74
3
22
1
2008
$ 67
262
651
99
2007
$ 61
192
400
73
104
U.S. BANCORP
To satisfy option exercises, the Company predominantly uses treasury stock.
Additional information regarding stock options outstanding as of December 31, 2009, is as follows:
Range of Exercise Prices
Shares
$11.02 – $15.00 . . . . . . . . . . . . . . . . . . . . . 13,262,305
$15.01 – $20.00 . . . . . . . . . . . . . . . . . . . . .
5,375,452
$20.01 – $25.00 . . . . . . . . . . . . . . . . . . . . . 13,761,424
$25.01 – $30.00 . . . . . . . . . . . . . . . . . . . . . 15,076,581
$30.01 – $35.00 . . . . . . . . . . . . . . . . . . . . . 30,427,502
$35.01 – $37.99 . . . . . . . . . . . . . . . . . . . . . 10,476,205
88,379,469
Restricted Stock and Unit Awards
Outstanding Options
Exercisable Options
Weighted-
Average
Remaining
Contractual
Life (Years)
9.1
2.2
2.1
5.4
7.2
7.0
6.1
Weighted-
Average
Exercise
Price
$11.43
18.85
22.17
29.25
31.71
36.06
$26.49
Shares
101,705
5,076,400
13,689,375
12,214,557
14,123,044
5,332,967
50,538,048
Weighted-
Average
Exercise
Price
$13.03
18.92
22.17
29.30
31.14
36.05
$27.52
A summary of the status of the Company’s restricted shares of stock is presented below:
Year Ended December 31
Shares
2009
2008
2007
Weighted-
Average Grant-
Date Fair Value
Weighted-
Average Grant-
Date Fair Value
Shares
Weighted-
Average Grant-
Date Fair Value
Shares
Nonvested Shares
Outstanding at beginning of period. . . . . 2,420,535
Granted . . . . . . . . . . . . . . . . . . . . . 5,435,363
(869,898)
Vested . . . . . . . . . . . . . . . . . . . . . .
(197,797)
Cancelled. . . . . . . . . . . . . . . . . . . .
Outstanding at end of period. . . . . . . . . 6,788,203 (a)
$32.42
12.09
31.84
16.52
$16.68
2,368,085
1,132,239
(958,729)
(121,060)
2,420,535
$31.45
32.24
29.78
32.69
$32.42
2,919,901
952,878
(1,292,748)
(211,946)
2,368,085
$27.32
35.69
25.31
31.05
$31.45
(a) Includes maximum number of shares to be received by participants under awards that are based on the achievement of certain future performance criteria by the Company.
The total fair value of shares vested was $12 million,
$29 million, and $45 million for 2009, 2008 and 2007,
respectively.
Stock-based compensation expense was $89 million,
$85 million and $77 million for 2009, 2008 and 2007,
respectively. On an after-tax basis, stock-based compensation
was $55 million, $53 million and $48 million for 2009,
2008, and 2007, respectively. As of December 31, 2009,
there was $159 million of total unrecognized compensation
cost related to nonvested share-based arrangements granted
under the plans. That cost is expected to be recognized over
a weighted-average period of 2.4 years as compensation
expense.
Note 19 Income Taxes
The components of income tax expense were:
(Dollars in Millions)
2009
2008
2007
Federal
Current
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 765
(499)
Federal income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
266
State
Current
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
175
(46)
129
$1,832
(958)
874
300
(87)
213
$1,732
(95)
1,637
248
(2)
246
Total income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 395
$1,087
$1,883
U.S. BANCORP
105
A reconciliation of expected income tax expense at the federal statutory rate of 35 percent to the Company’s applicable
income tax expense follows:
(Dollars in Millions)
Tax at statutory rate (35 percent) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income tax, at statutory rates, net of federal tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax effect of
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax-exempt income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resolution of state income tax examinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009
$ 921
84
(421)
(202)
(11)
–
24
2008
2007
$1,435
138
$2,200
160
(301)
(173)
(24)
–
12
(245)
(130)
(27)
(57)
(18)
Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 395
$1,087
$1,883
The tax effects of fair value adjustments on securities
available-for-sale, derivative instruments in cash flow hedges
and certain tax benefits related to stock options are recorded
directly to shareholders’ equity as part of other
comprehensive income (loss).
In preparing its tax returns, the Company is required to
interpret complex tax laws and regulations and utilize
income and cost allocation methods to determine its taxable
income. On an ongoing basis, the Company is subject to
examinations by federal, state and local government taxing
authorities that may give rise to differing interpretations of
these complex laws, regulations and methods. Due to the
nature of the examination process, it generally takes years
before these examinations are completed and matters are
resolved. Included in earnings for 2009, 2008 and 2007
were reductions in income tax expense and associated
liabilities related to the resolution of various state income
tax examinations which cover varying years from 2001
through 2008 in different states. The resolution of these
cycles was the result of negotiations held between the
Company and representatives of various taxing authorities
throughout the examinations. Federal tax examinations for
all years ending through December 31, 2006, are completed
and resolved. During 2009, the Internal Revenue Service
began its examination of the Company’s tax returns for the
years ended December 31, 2007 and 2008. The years open
to examination by state and local government authorities
vary by jurisdiction.
A reconciliation of the changes in the federal, state and foreign unrecognized tax positions balances are summarized as follows:
Year Ended December 31 (Dollars in Millions)
2009
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $283
31
Additions for tax positions taken in the prior year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
145
Additions for tax positions taken in the current year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(12)
Exam resolutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7)
Statute expirations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $440
2008
$296
49
8
(63)
(7)
$283
The total amount of unrecognized tax positions that, if
recognized, would impact the effective income tax rate as of
December 31, 2009 and 2008, were $202 million and
$187 million, respectively. The Company classifies interest
and penalties related to unrecognized tax positions as a
component of income tax expense. During the years ended
December 31, 2009 and 2008, the Company recognized
approximately $13 million and $19 million, respectively, in
interest and had approximately $53 million accrued at
December 31, 2009. Substantially all of the current year
additions to uncertain tax positions relate to tax positions
on the timing of the allowance of deductions for losses on
various securities and debt obligations. The ultimate
deductibility is highly certain, however the timing of
deductibility is uncertain.
While certain examinations may be concluded, statutes
may lapse or other developments may occur, the Company
does not believe a significant increase or decrease in the
uncertain tax positions will occur over the next twelve
months.
Deferred income tax assets and liabilities reflect the tax
effect of estimated temporary differences between the
carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for the same items
for income tax reporting purposes.
106
U.S. BANCORP
The significant components of the Company’s net deferred tax asset (liability) as of December 31 were:
(Dollars in Millions)
2009
2008
Deferred Tax Assets
Allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities available-for-sale and financial instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and postretirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal, state and foreign net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investment assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other deferred tax assets, net
$ 2,147
359
275
184
25
58
120
79
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,247
Deferred Tax Liabilities
Leasing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other deferred tax liabilities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,319)
(394)
(280)
(129)
(259)
(3,381)
(56)
$ 1,345
1,473
282
176
211
49
265
106
3,907
(1,996)
(328)
(35)
(140)
(239)
(2,738)
(49)
Net Deferred Tax Asset (Liability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (190)
$ 1,120
The Company has established a valuation allowance to
offset deferred tax assets related to federal, state and foreign
net operating loss carryforwards which are subject to
various limitations under the respective income tax laws and
some of which may expire unused. The Company has
approximately $604 million of federal, state and foreign net
operating loss carryforwards which expire at various times
through 2024. Management has determined a valuation
reserve is not required for the remaining deferred tax assets
because it is more likely than not these assets could be
realized through carry back to taxable income in prior years,
future reversals of existing taxable temporary differences and
future taxable income.
Certain events covered by Internal Revenue Code
section 593(e) will trigger a recapture of base year reserves
of acquired thrift institutions. The base year reserves of
acquired thrift institutions would be recaptured if an entity
ceases to qualify as a bank for federal income tax purposes.
The base year reserves of thrift institutions also remain
subject to income tax penalty provisions that, in general,
require recapture upon certain stock redemptions of, and
excess distributions to, stockholders. At December 31, 2009,
retained earnings included approximately $102 million of
base year reserves for which no deferred federal income tax
liability has been recognized.
Note 20 Derivative Instruments
The Company recognizes all derivatives in the consolidated
balance sheet at fair value as other assets or liabilities. On
the date the Company enters into a derivative contract, the
derivative is designated as either a hedge of the fair value of
a recognized asset or liability, including a hedge of foreign
currency exposure (“fair value hedge”); a hedge of a
forecasted transaction or the variability of cash flows to be
paid related to a recognized asset or liability (“cash flow
hedge”); or a customer accommodation or an economic
hedge for asset/liability risk management purposes (“free-
standing derivative”).
Of the Company’s $46.8 billion of total notional
amount of asset and liability management positions at
December 31, 2009, $15.4 billion was designated as a fair
value or cash flow hedge. When a derivative is designated as
either a fair value or cash flow hedge, the Company
performs an assessment, at inception and quarterly thereafter
to determine the effectiveness of the derivative in offsetting
changes in the value of the hedged items.
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.
U.S. BANCORP
107
The change in fair value attributed to hedge ineffectiveness
was not material.
The Company also uses forward commitments to sell
specified amounts of certain foreign currencies and foreign
denominated debt to hedge the volatility of its investment in
foreign operations as driven by fluctuations in foreign
currency exchange rates. The net amount of gains or losses
included in the cumulative translation adjustment for the
year ended December 31, 2009 was not material.
Cash Flow Hedges These derivatives are interest rate swaps
that are hedges of the forecasted cash flows from the
underlying variable-rate debt. Changes in the fair value of
derivatives designated as cash flow hedges are recorded in
other comprehensive income (loss) until income from the
cash flows of the hedged items is realized. If a derivative
designated as a cash flow hedge is terminated or ceases to be
highly effective, the gain or loss in other comprehensive
income (loss) is amortized to earnings over the period the
forecasted hedged transactions impact earnings. If a hedged
forecasted transaction is no longer probable, hedge
accounting is ceased and any gain or loss included in other
comprehensive income (loss) is reported in earnings
immediately. At December 31, 2009, the Company had
$327 million of realized and unrealized losses on derivatives
classified as cash flow hedges recorded in other
comprehensive income (loss), compared with $650 million at
December 31, 2008. The estimated amount to be reclassified
from other comprehensive income (loss) into earnings during
the next 12 months is a loss of $126 million. 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 year ended
December 31, 2009, and the change in fair value attributed
to hedge ineffectiveness was not material.
Other Derivative Positions The Company enters into free
standing derivatives to mitigate interest rate risk and for
other risk management purposes. These derivatives include
forward commitments to sell residential mortgage loans
which are used to economically hedge the interest rate risk
related to residential mortgage loan production activities.
The Company also enters into U.S. Treasury futures, options
on U.S. Treasury futures contracts and forward
commitments to buy residential mortgage loans to
economically hedge the change in the fair value of the
Company’s residential MSRs. In addition, the Company acts
as a seller and buyer of interest rate derivatives and foreign
exchange contracts to accommodate its customers. To
mitigate the market and liquidity risk associated with these
derivatives, the Company enters into similar offsetting
positions.
For additional information on the Company’s purpose
for entering into derivative transactions and its overall risk
management strategies, refer to “Management Discussion
and Analysis — Use of Derivatives to Manage Interest Rate
and Other Risks” which is incorporated by reference into
these Notes to Consolidated Financial Statements.
108
U.S. BANCORP
The following table summarizes the derivative positions of the Company at December 31, 2009:
Asset Derivatives
Liability Derivatives
Notional
Value
Fair
Value
Weighted - Average
Remaining
Maturity
In Years
Notional
Value
Fair
Value
Weighted - Average
Remaining
Maturity
In Years
(Dollars in Millions)
Asset and Liability Management Positions
Fair value hedges
Interest rate contracts
Receive fixed/pay floating swaps . . . . . . . . . . . . . . $ 3,235
1,864
Foreign exchange cross-currency swaps . . . . . . . . . .
$
70
272
32.71
6.81
$ 1,950
–
$
32
–
20.52
–
Cash flow hedges
Interest rate contracts
Pay fixed/receive floating swaps . . . . . . . . . . . . . .
–
Net investment hedges
Foreign exchange forward contracts (a) . . . . . . . . . . .
536
Other economic hedges
Interest rate contracts
Futures and forwards
Buy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . .
Written . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange forward contracts . . . . . . . . . . . . .
Equity contracts . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit contracts . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,250
7,533
5,250
2,546
113
27
863
Customer-Related Positions
Interest rate contracts
Receive fixed/pay floating swaps . . . . . . . . . . . . . . . .
Pay fixed/receive floating swaps . . . . . . . . . . . . . . . .
Options
18,700
1,299
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,841
477
Foreign exchange rate contracts
–
15
6
91
–
9
1
2
2
854
24
20
12
Forwards, spots and swaps (a) . . . . . . . . . . . . . . . . .
Options
5,607
193
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
311
–
11
–
Total fair value of derivative positions . . . . . . . . . . . . . .
Netting (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,582
(421)
$1,161
–
.08
.07
.11
.06
.08
.08
1.58
3.68
4.46
7.36
1.68
.56
.46
.64
–
8,363
556
–
–
9,862
1,260
–
594
293
29
1,261
1,083
18,490
231
1,596
190
3
–
2
2
1
1
19
821
12
20
5,563
184
–
311
–
11
1,854
(995)
$ 859
3.58
–
.05
.06
–
.09
.08
.29
3.05
7.00
4.45
.85
1.90
.45
–
.64
(a) Reflects the net of long and short positions.
(b) Represents netting of derivative asset and liability balances, and related cash collateral, with the same counterparty subject to master netting agreements. Authoritative
accounting guidance permits the netting of derivative receivables and payables when a legally enforceable master netting agreement exists between the Company and a
derivative counterparty. A master netting agreement is an agreement between two counterparties who have multiple derivative contracts with each other that provide for the
net settlement of contracts through a single payment, in a single currency, in the event of default on or termination of any one contract. At December 31, 2009, the amount of
cash collateral posted by counterparties that was netted against derivative assets was $116 million and the amount of cash collateral posted by the Company that was netted
against derivative liabilities was $691 million.
Note: The fair values of asset and liability derivatives are included in Other assets and Other liabilities on the Consolidated Balance Sheet, respectively.
U.S. BANCORP
109
The table below shows the effective portion of the gains (losses) recognized in other comprehensive income and the gains
(losses) reclassified from other comprehensive income (loss) into earnings:
Year Ended December 31, 2009 (Dollars in Millions)
Asset and Liability Management Positions
Cash flow hedges
Interest rate contracts
Gains (Losses) Recognized in
Other Comprehensive Income
(Loss)
Gains (Losses) Reclassified from
Other Comprehensive Income (Loss)
into Earnings
Pay fixed/receive floating swaps (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net investment hedges
Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,066
(44)
$(2)
–
Note: Ineffectiveness on cash flow and net investment hedges was not material for the year ended December 31, 2009.
(a) Gains (Losses) reclassified from other comprehensive income (loss) into interest income on loans.
The table below shows the gains (losses) recognized in earnings for fair value hedges, other economic hedges and customer-
related positions:
Year Ended December 31, 2009 (Dollars in Millions)
Asset and Liability Management Positions
Fair value hedges (a)
Location of Gains (Losses)
Recognized in Earnings
Gains (Losses)
Recognized in Earnings
Interest rate contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange cross-currency swaps . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noninterest income
Other noninterest income
$ (27)
115
Other economic hedges
Interest rate contracts
Mortgage banking revenue
Futures and forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage banking revenue
Purchased and written options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial products revenue
Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation expense
Credit contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other noninterest income/expense
Customer-Related Positions
Interest rate contracts
Receive fixed/pay floating swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pay fixed/receive floating swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased and written options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noninterest income
Other noninterest income
Other noninterest income
Foreign exchange rate contracts
Forwards, spots and swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased and written options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial products revenue
Commercial products revenue
184
300
(46)
(22)
29
(658)
696
(1)
49
1
(a) Gains (Losses) on items hedged by interest rate contracts and foreign exchange forward contracts, included in noninterest income (expense), were $25 million and
$(114) million for the year ended December 31, 2009, respectively. Ineffective portion was not material for the year ended December 31, 2009.
Derivatives are subject to credit risk associated with
counterparties to the derivative contracts. The Company
measures that credit risk based on its assessment of the
probability of counterparty default and includes that within
the fair value of the derivative. The Company manages
counterparty credit risk through diversification of its
derivative positions among various counterparties, by
entering into master netting agreements and by requiring
collateral agreements which allow the Company to call for
immediate, full collateral coverage when credit-rating
thresholds are triggered by counterparties. The balances in
the table on page 109 do not reflect the impact of these risk
mitigation techniques.
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
December 31, 2009, was $1.2 billion. At December 31,
110
U.S. BANCORP
2009, the Company had $691 million of cash posted as
collateral against this net liability position.
Note 21 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, 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 assets and liabilities at fair value.
This hierarchy is based on whether the valuation inputs are
observable or unobservable. These levels are:
(cid:129) Level 1 — Quoted prices in active markets for identical
assets or liabilities. Level 1 includes U.S. Treasury and
exchange-traded instruments.
(cid:129) 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.
(cid:129) Level 3 — Unobservable inputs that are supported by
little or no market activity and that are significant to the
fair value of the assets or liabilities. Level 3 assets and
liabilities include financial instruments whose values are
determined using pricing models, discounted cash flow
methodologies, or similar techniques, as well as
instruments for which the determination of fair value
requires significant management judgment or estimation.
This category includes residential MSRs, certain debt
securities, including the Company’s SIV-related
investments and non-agency mortgaged-backed securities,
and certain derivative contracts.
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 as Level 2.
The fair value of securities for which there are no
market trades, or where trading is inactive as compared to
normal market activity, are categorized as Level 3. Securities
classified as Level 3 include non-agency mortgage-backed
securities, SIVs, commercial mortgage-backed and asset-
U.S. BANCORP
111
backed securities, collateralized debt obligations and
collateralized loan obligations, and certain corporate debt
securities. In 2009, due to the limited number of trades of
non-agency mortgage-backed securities and lack of reliable
evidence about transaction prices, the Company determined
the fair value of these securities using a cash flow
methodology and incorporating observable market
information, where available. The use of a cash flow
methodology resulted in the Company transferring some
non-agency mortgage-backed securities to Level 3. This
transfer did not impact earnings and was not significant to
shareholders’ equity of the Company or the carrying amount
of the securities.
Cash flow methodologies and other market valuation
techniques involving management judgment use assumptions
regarding housing prices, interest rates and borrower
performance. Inputs are refined and updated to reflect
market developments. The primary valuation drivers of these
securities are the prepayment rates, default rates and default
severities associated with the underlying collateral, as well as
the discount rate used to calculate the present value of the
projected cash flows.
The following table shows the valuation assumption ranges for Level 3 non-agency mortgage-backed securities at December 31,
2009:
Minimum
Prime (a)
Maximum
Average
Minimum
Maximum
Average
Non-prime
Estimated prepayment rates . . . . . . . . . . . . .
Probability of default rates . . . . . . . . . . . . . .
Loss severity rates . . . . . . . . . . . . . . . . . . .
Discount margin . . . . . . . . . . . . . . . . . . . . .
4%
–
–
3
18%
10
100
25
13%
1
47
6
1%
–
10
3
13%
28
100
31
7%
7
55
13
(a) Prime securities are those designated as such by the issuer or those with underlying asset characteristics and/or credit enhancements consistent with securities designated as prime.
Certain mortgage loans held for sale MLHFS measured at
fair value, for which an active secondary market and readily
available market prices exist, are initially valued at the
transaction price and are subsequently valued by comparison
to instruments with similar collateral and risk profiles.
Included in mortgage banking revenue for the year ended
December 31, 2009 and 2008, was $206 million of net gains
and $65 million of net losses, respectively, from the initial
measurement and subsequent changes to fair value of these
MLHFS under fair value option accounting guidance.
Changes in fair value due to instrument specific credit risk
were immaterial. The fair value of MLHFS was $4.3 billion
as of December 31, 2009, which exceeded the unpaid
principal balance by $63 million as of that date. MLHFS are
Level 2. Related interest income for MLHFS is measured
based on contractual interest rates and reported as interest
income in the Consolidated Statement of Income. Electing to
measure MLHFS at fair value reduces certain timing
differences and better matches changes in fair value of these
assets with changes in the value of the derivative instruments
used to economically hedge them without the burden of
complying with the requirements for hedge accounting.
Loans The loan portfolio includes adjustable and fixed-rate
loans, the fair value of which was estimated using
discounted cash flow analyses and other valuation
techniques. To calculate discounted cash flows, the loans
were aggregated into pools of similar types and expected
repayment terms. The expected cash flows of loans
112
U.S. BANCORP
considered historical prepayment experiences and estimated
credit losses for nonperforming loans and were discounted
using current rates offered to borrowers of similar credit
characteristics. Generally, loan fair values reflect Level 3
information.
Mortgage servicing rights MSRs are valued using a cash
flow methodology and third party prices, if available.
Accordingly, MSRs are classified in Level 3. The Company
determines fair value by estimating the present value of the
asset’s future cash flows using market-based prepayment
rates, discount rates, and other assumptions validated
through comparison to trade information, industry surveys,
and independent third party appraisals. Risks inherent in
MSRs valuation include higher than expected prepayment
rates and/or delayed receipt of cash flows.
Derivatives Exchange-traded derivatives are measured at fair
value based on quoted market (i.e. exchange) prices. Because
prices are available for the identical instrument in an active
market, these fair values are classified within Level 1 of the
fair value hierarchy.
The majority of derivatives held by the Company are
executed over-the-counter and are valued using standard
cash flow, Black-Scholes and Monte Carlo valuation
techniques. The models incorporate inputs, depending on the
type of derivative, including interest rate curves, foreign
exchange rates and volatility. In addition, all derivative
values incorporate an assessment of the risk of counterparty
nonperformance, measured based on the Company’s
evaluation of credit risk as well as external assessments of
credit risk, where available. In its assessment of
nonperformance risk, the Company considers its ability to
net derivative positions under master netting agreements, as
well as collateral received or provided under collateral
support agreements. The majority of these derivatives are
classified within Level 2 of the fair value hierarchy as the
significant inputs to the models are observable. An exception
to the Level 2 classification is certain derivative transactions
for which the risk of nonperformance cannot be observed in
the market. These derivatives are classified within Level 3 of
the fair value hierarchy. In addition, commitments to sell,
purchase and originate mortgage loans that meet the
requirements of a derivative, are valued by pricing models
that include market observable and unobservable inputs.
Due to the significant unobservable inputs, these
commitments are classified within Level 3 of the fair value
hierarchy.
Deposit Liabilities The fair value of demand deposits,
savings accounts and certain money market deposits is equal
to the amount payable on demand. The fair value of fixed-
rate certificates of deposit was estimated by discounting the
contractual cash flow using current market rates.
Short-term Borrowings Federal funds purchased, securities
sold under agreements to repurchase, commercial paper and
other short-term funds borrowed have floating rates or
short-term maturities. The fair value of short-term
borrowings was determined by discounting contractual cash
flows using current market rates.
Long-term Debt The fair value for most long-term debt was
determined by discounting contractual cash flows using
current market rates. Junior subordinated debt instruments
were valued using market quotes.
Loan Commitments, Letters of Credit and Guarantees The
fair value of commitments, letters of credit and guarantees
represents the estimated costs to terminate or otherwise
settle the obligations with a third-party. The fair value of
residential mortgage commitments is estimated based on
observable inputs. Other loan commitments, letters of credit
and guarantees are not actively traded, and the Company
estimates their fair value based on the related amount of
unamortized deferred commitment fees adjusted for the
probable losses for these arrangements.
U.S. BANCORP
113
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
December 31, 2009
Available-for-sale securities
U.S. Treasury and agencies. . . . . . . . . . . . . . . . . . . . . . .
$ 9
$ 3,395
$
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(421)
$ (421)
$ (995)
$
–
–
–
(151)
$ (151)
$(1,251)
$ 3,404
29,742
1,429
968
13
205
357
6,693
6
878
423
603
44,721
4,327
1,749
1,408
$52,205
$ 1,115
$39,468
2,728
1,194
2,407
$45,797
$ 1,922
1,429
968
13
98
357
–
–
10
–
231
3,106
–
1,749
869
$5,724
$
54
$1,844
–
1,194
1,744
$4,782
$
46
Mortgage-backed securities
Residential
Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-agency
Prime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-prime . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-backed securities
Collateralized debt obligations/Collateralized loan
obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of state and political subdivisions . . . . . . . . .
Obligations of foreign governments . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . .
Perpetual preferred securities . . . . . . . . . . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total available-for-sale . . . . . . . . . . . . . . . . . . .
Mortgage loans held for sale . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
–
–
–
–
–
–
–
–
–
372
381
–
–
–
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$381
Other liabilities (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ –
December 31, 2008
Available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage loans held for sale . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$474
–
–
–
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$474
Other liabilities (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ –
(a) Represents primarily derivatives and trading securities
$29,742
–
–
–
107
–
6,693
6
868
423
–
41,234
4,327
–
960
$46,521
$ 2,056
$37,150
2,728
–
814
$40,692
$ 3,127
114
U.S. BANCORP
The table below presents the changes in fair value for all assets and liabilities measured at fair value on a recurring basis using
significant unobservable inputs (Level 3).
Beginning
of Period
Balance
Net Gains
(Losses)
Included in
Net Income
Net Gains
(Losses)
Included in
Other
Comprehensive
Income (Loss)
Purchases,
Sales, Principal
Payments,
Issuances and
Settlements
Transfers into
Level 3
End
of Period
Balance
Net Change in
Unrealized Gains
(Losses) Relating
to Assets
Still Held at
End of Period
Year Ended December 31, (Dollars in Millions)
2009
Available-for-sale securities
Mortgage-backed securities
Residential non-agency
Prime . . . . . . . . . . . . . . . . . . .
Non-prime . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
Commercial
$ 183
1,022
17
$
(4)
(141)
(1)
Asset-backed securities
Collateralized debt
obligations/Collateralized loan
obligations . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . .
Other securities and investments . . . .
Total available-for-sale . . . . . . . .
Mortgage servicing rights . . . . . . . . . . .
Net other assets and liabilities. . . . . . . .
2008
86
523
13
–
1,844
1,194
1,698
(3)
(180)
(3)
2
(330) (a)
(394) (b)
(755) (c)
Available-for-sale securities . . . . . . . . .
Mortgage servicing rights . . . . . . . . . . .
Net other assets and liabilities. . . . . . . .
$2,923
1,462
338
$ (781) (a)
(835) (b)
1,296 (e)
$542
151
(1)
2
101
–
(10)
785
–
–
$ (74)
–
–
$(1,540)
(197)
(3)
$2,248
133
1
$1,429
968
13
$
358
29
(1)
9
(90)
–
(4)
(1,825)
949
(129)
$ (887)
567
58
4
3
–
243
2,632
–
1
98
357
10
231
3,106
1,749
815
663
–
6
$1,844
1,194
1,698
3
3
–
(10)
382
(394) (b)
(1,328) (d)
$ (397)
(835) (b)
(92) (f)
(a) Included in securities gains (losses)
(b) Included in mortgage banking revenue.
(c) Approximately $(1.4) billion included in other noninterest income and $611 million included in mortgage banking revenue.
(d) Approximately $(630) million included in other noninterest income and $(698) million included in mortgage banking revenue.
(e) Approximately $1.1 billion included in other noninterest income and $167 million included in mortgage banking revenue.
(f) Approximately $1 million included in other noninterest income and $(93) million included in mortgage banking revenue.
The Company may also be required periodically to measure certain other financial assets at fair value on a nonrecurring
basis. These measurements of fair value usually result from the application of lower-of-cost-or-fair-value accounting or write-
downs of individual assets. The following table summarizes the adjusted carrying values and the level of valuation assumptions
for assets measured at fair value on a nonrecurring basis at December 31:
2009
(Dollars in Millions)
Level 1
Level 2
Level 3
Loans held for sale . . . . . . . . . . . .
Loans (a) . . . . . . . . . . . . . . . . . .
Other real estate owned (b) . . . . . .
Other intangible assets . . . . . . . . .
$–
–
–
–
$276
235
183
–
$–
5
–
3
Total
$276
240
183
3
Level 1
Level 2
Level 3
2008
$–
–
–
–
$ 12
117
66
–
$–
–
–
1
Total
$ 12
117
66
1
(a) Represents 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 subsequent to their initial acquisition.
U.S. BANCORP
115
The following table summarizes losses recognized related to nonrecurring fair value measurements of individual assets or
portfolios for the year ended December 31:
(Dollars in Millions)
2009
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2
293
Loans (a)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
178
Other real estate owned (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
Other intangible 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.
2008
$ 7
100
71
1
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:
December 31 (Dollars in Millions)
2009
2008
Fair Value
Carrying
Amount
Aggregate
Unpaid
Principal
Excess of
Carrying
Amount Over
(Under) Unpaid
Principal
Fair Value
Carrying
Amount
Aggregate
Unpaid
Principal
Excess of
Carrying
Amount Over
(Under) Unpaid
Principal
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans 90 days or more past due . . . . . . . . . . . . . . . . . . . . .
$4,327
23
$4,264
30
$63
(7)
$2,728
11
$2,649
13
$79
(2)
Disclosures about Fair Value of Financial Instruments The following table summarizes the estimated fair value for financial
instruments as of December 31, 2009 and 2008, 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.
December 31 (Dollars in Millions)
Financial Assets
2009
2008
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,206
47
Investment securities held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgages held for sale (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29
416
Other loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
190,329
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Liabilities
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
183,242
31,312
32,580
$ 6,206
48
29
416
184,810
183,504
31,674
32,808
$ 6,859
53
14
468
181,715
159,350
33,983
38,359
$ 6,859
54
14
470
180,311
161,196
34,333
38,135
(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 $356 million and $238 million
at December 31, 2009 and 2008, respectively. The carrying value of other guarantees was $285 million and $302 million at
December 31, 2009 and 2008, respectively.
116
U.S. BANCORP
Note 22 Guarantees and Contingent
Liabilities
Commitments to Extend Credit
Commitments to extend credit are legally binding and
generally have fixed expiration dates or other termination
clauses. The contractual amount represents the Company’s
exposure to credit loss, in the event of default by the
borrower. The Company manages this credit risk by using
the same credit policies it applies to loans. Collateral is
obtained to secure commitments based on management’s
credit assessment of the borrower. The collateral may include
marketable securities, receivables, inventory, equipment and
real estate. Since the Company expects many of the
commitments to expire without being drawn, total
commitment amounts do not necessarily represent the
Company’s future liquidity requirements. In addition, the
commitments include consumer credit lines that are
cancelable upon notification to the consumer.
Letters of Credit
Standby letters of credit are commitments the Company
issues to guarantee the performance of a customer to a third-
party. The guarantees frequently support public and private
borrowing arrangements, including commercial paper
issuances, bond financings and other similar transactions.
The Company issues commercial letters of credit on behalf
of customers to ensure payment or collection in connection
with trade transactions. In the event of a customer’s
nonperformance, the Company’s credit loss exposure is the
same as in any extension of credit, up to the letter’s
contractual amount. Management assesses the borrower’s
credit to determine the necessary collateral, which may
include marketable securities, receivables, inventory,
equipment and real estate. Since the conditions requiring the
Company to fund letters of credit may not occur, the
Company expects its liquidity requirements to be less than
the total outstanding commitments. The maximum potential
future payments guaranteed by the Company under standby
letter of credit arrangements at December 31, 2009, were
approximately $17.9 billion with a weighted-average term of
approximately 19 months. The estimated fair value of
standby letters of credit was approximately $134 million at
December 31, 2009.
The contract or notional amounts of commitments to
extend credit and letters of credit at December 31, 2009,
were as follows:
(Dollars in Millions)
Commitments to extend credit
Commercial. . . . . . . . . . . .
Corporate and purchasing
cards (a) . . . . . . . . . . .
Consumer credit cards (a) . . .
Other consumer . . . . . . . . .
Letters of credit
Standby . . . . . . . . . . . . . .
Commercial. . . . . . . . . . . .
Term
Less Than
One Year
Greater Than
One Year
Total
$17,894
$40,431
$58,325
14,550
63,671
3,676
8,009
263
–
–
16,962
9,890
29
14,550
63,671
20,638
17,899
292
(a) Primarily cancelable at the Company’s discretion.
Lease Commitments
Rental expense for operating leases totaled $253 million in
2009, $234 million in 2008 and $213 million in 2007.
Future minimum payments, net of sublease rentals, under
capitalized leases and noncancelable operating leases with
initial or remaining terms of one year or more, consisted of
the following at December 31, 2009:
(Dollars in Millions)
2010 . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . .
Total minimum lease payments . . . . . . . .
Less amount representing interest . . . . . .
Capitalized
Leases
Operating
Leases
$ 191
171
150
139
111
379
$1,141
$ 7
7
6
5
4
16
$45
15
Present value of net minimum lease
payments . . . . . . . . . . . . . . . . . . . . .
$30
Guarantees
Guarantees are contingent commitments issued by the
Company to customers or other third-parties. The
Company’s guarantees primarily include parent guarantees
related to subsidiaries’ third-party borrowing arrangements;
third-party performance guarantees inherent in the
Company’s business operations, such as indemnified
securities lending programs and merchant charge-back
guarantees; indemnification or buy-back provisions related to
certain asset sales; and contingent consideration
arrangements related to acquisitions. For certain guarantees,
the Company has recorded a liability related to the potential
obligation, or has access to collateral to support the
U.S. BANCORP
117
guarantee or through the exercise of other recourse
provisions can offset some or all of the maximum potential
future payments made under these guarantees.
Third-Party Borrowing Arrangements The Company
provides guarantees to third-parties as a part of certain
subsidiaries’ borrowing arrangements, primarily representing
guaranteed operating or capital lease payments or other debt
obligations with maturity dates extending through 2013. The
maximum potential future payments guaranteed by the
Company under these arrangements were approximately
$135 million at December 31, 2009.
Commitments from Securities Lending The Company
participates in securities lending activities by acting as the
customer’s agent involving the loan of securities. The
Company indemnifies customers for the difference between
the market value of the securities lent and the market value
of the collateral received. Cash collateralizes these
transactions. The maximum potential future payments
guaranteed by the Company under these arrangements were
approximately $6.0 billion at December 31, 2009, and
represented the market value of the securities lent to third-
parties. At December 31, 2009, the Company held assets
with a market value of $6.2 billion as collateral for these
arrangements.
Assets Sales The Company has provided guarantees to
certain third-parties in connection with the sale or
syndication of certain assets, primarily loan portfolios and
low-income housing tax credits. These guarantees are
generally in the form of asset buy-back or make-whole
provisions that are triggered upon a credit event or a change
in the tax-qualifying status of the related projects, as
applicable, and remain in effect until the loans are collected
or final tax credits are realized, respectively. The maximum
potential future payments guaranteed by the Company under
these arrangements were approximately $780 million at
December 31, 2009, and represented the proceeds or the
guaranteed portion received from the buyer in these
transactions where the buy-back or make-whole provisions
have not yet expired. Recourse available to the Company
includes guarantees from the Small Business Administration
(for SBA loans sold), recourse against the correspondent that
originated the loan or to the private mortgage issuer, the
right to collect payments from the debtors, and/or the right
to liquidate the underlying collateral, if any, and retain the
proceeds. Based on its established loan-to-value guidelines,
the Company believes the recourse available is sufficient to
recover future payments, if any, under the loan buy-back
guarantees.
118
U.S. BANCORP
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.
A cardholder, through its issuing bank, generally has
until the latter of up to four months after the date the
transaction is processed or the receipt of the product or
service to present a charge-back to the Company as the
merchant processor. The absolute maximum potential
liability is estimated to be the total volume of credit card
transactions that meet the associations’ requirements to be
valid charge-back transactions at any given time.
Management estimates that the maximum potential exposure
for charge-backs would approximate the total amount of
merchant transactions processed through the credit card
associations for the last four months. For the last four
months this amount totaled approximately $65.5 billion. In
most cases, this contingent liability is unlikely to arise, as
most products and services are delivered when purchased
and amounts are refunded when items are returned to
merchants. However, where the product or service is not
provided until a future date (“future delivery”), the potential
for this contingent liability increases. To mitigate this risk,
the Company may require the merchant to make an escrow
deposit, may place maximum volume limitations on future
delivery transactions processed by the merchant at any point
in time, or may require various credit enhancements
(including letters of credit and bank guarantees). Also,
merchant processing contracts may include event triggers to
provide the Company more financial and operational control
in the event of financial deterioration of the merchant.
The Company’s primary exposure to future delivery is
related to merchant processing for airlines. The Company
currently processes card transactions in the United States,
Canada and Europe for airlines. In the event of liquidation
of these merchants, the Company could become financially
liable for refunding tickets purchased through the credit card
associations under the charge-back provisions. Charge-back
risk related to these merchants is evaluated in a manner
similar to credit risk assessments and, as such, merchant
processing contracts contain various provisions to protect the
Company in the event of default. At December 31, 2009, the
value of airline tickets purchased to be delivered at a future
date was $3.4 billion. The Company held collateral of
$317 million in escrow deposits, letters of credit and
indemnities from financial institutions, and liens on various
assets. With respect to future delivery risk for other
merchants, the Company held $38 million of merchant
escrow deposits as collateral. In addition to specific
collateral or other credit enhancements, the Company
maintains a liability for its implied guarantees associated
with future delivery. At December 31, 2009, the liability was
$48 million primarily related to these airline processing
arrangements.
In the normal course of business, the Company has
unresolved charge-backs. The Company assesses the
likelihood of its potential liability based on the extent and
nature of unresolved charge-backs and its historical loss
experience. At December 31, 2009, the Company had a
recorded liability for potential losses of $17 million.
Contingent Consideration Arrangements The Company has
contingent payment obligations related to certain business
combination transactions. Payments are guaranteed as long
as certain post-acquisition performance-based criteria are
met or customer relationships are maintained. At
December 31, 2009, the maximum potential future payments
required to be made by the Company under these
arrangements was approximately $3 million. If required, the
majority of these contingent payments are payable within the
next 12 months.
Minimum Revenue Guarantees In the normal course of
business, the Company may enter into revenue share
agreements with third party business partners who generate
customer referrals or provide marketing or other services
related to the generation of revenue. In certain of these
agreements, the Company may guarantee that a minimum
amount of revenue share payments will be made to the third
party over a specified period of time. At December 31, 2009,
the maximum potential future payments required to be made
by the Company under these agreements was $24 million.
Other Guarantees The Company has also made financial
performance guarantees related to the operations of its
subsidiaries. The maximum potential future payments
guaranteed by the Company under these arrangements were
approximately $7.8 billion at December 31, 2009.
Other Contingent Liabilities
Visa Restructuring and Card Association Litigation The
Company’s payment services business issues and acquires
credit and debit card transactions through the Visa U.S.A.
Inc. card association or its affiliates (collectively “Visa”). In
2007, Visa completed a restructuring and issued shares of
Visa Inc. common stock to its financial institution members
in contemplation of its initial public offering (“IPO”)
completed in the first quarter of 2008 (the “Visa
reorganization”). As a part of the Visa Reorganization, the
Company received its proportionate number of shares of
Visa Inc. common stock. In addition, the Company and
certain of its subsidiaries have been named as defendants
along with Visa U.S.A. Inc. (“Visa U.S.A.”) and MasterCard
International (collectively, the “Card Associations”), as well
as several other banks, in antitrust lawsuits challenging the
practices of the Card Associations (the “Visa Litigation”).
Visa U.S.A. member banks have a contingent obligation to
indemnify Visa, Inc under the Visa U.S.A. bylaws (which
were modified at the time of the restructuring in October
2007) for potential losses arising from the Visa Litigation.
The contingent obligation of member banks under the Visa
U.S.A. bylaws has no specific maximum amount. The
Company has also entered into judgment and loss sharing
agreements with Visa U.S.A. and certain other banks in
order to apportion financial responsibilities arising from any
potential adverse judgment or negotiated settlements related
to the Visa Litigation.
In 2007 and 2008, Visa announced settlement
agreements with American Express and Discover Financial
Services, respectively. In addition to these settlements, Visa
U.S.A. member banks remain obligated to indemnify Visa
Inc. for potential losses arising from the remaining Visa
litigation. Using proceeds from its initial IPO and through
subsequent reductions to the conversion ratio applicable to
the Class B shares held by member financial institutions,
Visa Inc. has funded an escrow account for the benefit of
member financial institutions to fund the expenses of the
Visa Litigation, as well as the members’ proportionate share
of any judgments or settlements that may arise out of the
Visa Litigation. The receivable related to the escrow account
is classified in other liabilities as a direct offset to the related
Visa Litigation liabilities and will decline as amounts are
paid out of the escrow account. On July 16, 2009, Visa
deposited additional funds into the escrow account and
further reduced the conversion ratio applicable to the
Class B shares. As a result, the Company recognized a
U.S. BANCORP
119
$39 million gain related to the effective repurchase of a
portion of its Class B shares.
At December 31, 2009, the carrying amount of the
Company’s liability related to the remaining Visa Litigation,
was $115 million. The remaining Class B shares held by the
Company will be eligible for conversion to Class A shares
three years after the IPO or upon settlement of the Visa
litigation, whichever is later.
Patent Infringement Litigation In the ordinary course of
business, the Company makes use of various technologies
and business processes to provide products and services to its
customers. From time to time the Company is the target of
claims of persons alleging patent infringement with respect
to these processes or products. Currently, the Company is a
named defendant in a case filed in the U.S. District Court for
the Eastern District of Texas, DataTreasury Corp. v. Wells
Fargo & Co., et al. The plaintiff in that case alleges that the
Note 23 U.S. Bancorp (Parent Company)
Condensed Balance Sheet
December 31 (Dollars in Millions)
Company infringed on six patents involving digital imaging
technology and processes related to check imaging. Because,
among other things, similar technologies existed prior to the
filing of these patents and the Company’s technology and
business processes differ from the plaintiff’s patents, the
Company believes the claims are without merit.
Other The Company is subject to various other litigation,
investigations and legal and administrative cases and
proceedings that arise in the ordinary course of its
businesses. Due to their complex nature, it may be years
before some matters are resolved. While it is impossible to
ascertain the ultimate resolution or range of financial
liability with respect to these contingent matters, including
the DataTreasury case, discussed above, 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.
2009
2008
Assets
Due from banks, principally interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in nonbank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advances to bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advances to nonbank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and Shareholders’ Equity
Short-term funds borrowed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,568
1,554
24,798
854
1,500
918
1,511
$41,703
$
842
14,538
360
25,963
$41,703
$12,082
1,842
21,305
703
700
745
2,161
$39,538
$ 1,234
10,831
1,173
26,300
$39,538
120
U.S. BANCORP
Condensed Statement of Income
Year Ended December 31 (Dollars in Millions)
2009
2008
2007
Income
Dividends from bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 625
94
Dividends from nonbank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
82
Interest from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(299)
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
502
Total income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expense
Interest on short-term funds borrowed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on long-term debt
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes and equity in undistributed income of subsidiaries . . . . . . . . . . . . . .
Applicable income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income of parent company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in undistributed income of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
332
44
379
123
(197)
320
1,885
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,205
$1,935
6
125
(674)
1,392
24
409
45
478
914
(348)
1,262
1,684
$2,946
$3,541
224
587
(27)
4,325
51
663
34
748
3,577
(63)
3,640
684
$4,324
Condensed Statement of Cash Flows
Year Ended December 31 (Dollars in Millions)
2009
2008
2007
Operating Activities
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities
$ 2,205
$ 2,946
$ 4,324
Equity in undistributed income of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,885)
703
1,023
Investing Activities
Proceeds from sales and maturities of investment securities . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity distributions from subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase in short-term advances to subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term advances to subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal collected on long-term advances to subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing Activities
Net increase (decrease) in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments or redemption of long-term debt
Proceeds from issuance of preferred stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption of preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock warrant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends paid on preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends paid on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and due from banks at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and due from banks at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
395
(52)
(186)
58
(173)
(800)
–
(29)
(787)
(392)
5,031
(1,054)
–
2,703
(6,599)
–
(139)
(275)
(1,025)
(1,750)
(1,514)
12,082
$10,568
(1,684)
466
1,728
1,408
(684)
(540)
61
(19)
(600)
–
(22)
(396)
86
3,784
(3,819)
7,090
688
–
–
–
(68)
(2,959)
4,802
6,134
5,948
$12,082
(684)
4
3,644
31
(3,618)
(208)
663
(230)
–
1,000
(32)
(2,394)
(12)
3,536
(4,328)
–
427
–
(1,983)
–
(60)
(2,785)
(5,205)
(3,955)
9,903
$ 5,948
U.S. BANCORP
121
Transfer of funds (dividends, loans or advances) from
bank subsidiaries to the Company is restricted. Federal law
requires loans to the Company or its affiliates to be secured
and generally limits loans to the Company or an individual
affiliate to 10 percent of each bank’s unimpaired capital and
surplus. In the aggregate, loans to the Company and all
affiliates cannot exceed 20 percent of each bank’s
unimpaired capital and surplus.
Dividend payments to the Company by its subsidiary
banks are subject to regulatory review and statutory
limitations and, in some instances, regulatory approval. The
approval of the Comptroller of the Currency is required if
total dividends by a national bank in any calendar year
exceed the bank’s net income for that year combined with its
retained net income for the preceding two calendar years, or
if the bank’s retained earnings are less than zero.
Furthermore, dividends are restricted by the Comptroller of
the Currency’s minimum capital constraints for all national
banks. Within these guidelines, all bank subsidiaries have the
ability to pay dividends without prior regulatory approval.
The amount of dividends available to the parent company
from the bank subsidiaries at December 31, 2009, was
approximately $2.8 billion.
Note 24 Subsequent Events
The Company has evaluated the impact of events that have
occurred subsequent to December 31, 2009 through the date
the consolidated financial statements were filed with the
United States Securities and Exchange Commission. Based
on this evaluation, the Company has determined none of
these events were required to be recognized in the
consolidated financial statements.
122
U.S. BANCORP
U.S. Bancorp
Consolidated Balance Sheet — Five-Year Summary (Unaudited)
December 31 (Dollars in Millions)
2009
2008
2007
2006
2005
% Change
2009 v 2008
Assets
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,206
47
Held-to-maturity securities . . . . . . . . . . . . . . . . . . . . . . . . .
44,721
Available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . .
4,772
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
195,408
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5,079)
Less allowance for loan losses . . . . . . . . . . . . . . . . . . . .
$ 6,859
53
39,468
3,210
185,229
(3,514)
$ 8,884
74
43,042
4,819
153,827
(2,058)
$ 8,639
87
40,030
3,256
143,597
(2,022)
$ 8,004
109
39,659
3,030
136,462
(2,041)
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
190,329
35,101
181,715
34,607
151,769
29,027
141,575
25,645
134,421
24,242
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $281,176
$265,912
$237,615
$219,232
$209,465
Liabilities and Shareholders’ Equity
Deposits
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 38,186
145,056
Interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 37,494
121,856
$ 33,334
98,111
$ 32,128
92,754
$ 32,214
92,495
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total U.S. Bancorp shareholders’ equity. . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . .
183,242
31,312
32,580
7,381
254,515
25,963
698
159,350
33,983
38,359
7,187
238,879
26,300
733
131,445
32,370
43,440
8,534
215,789
21,046
780
124,882
26,933
37,602
7,896
197,313
21,197
722
124,709
20,200
37,069
7,186
189,164
20,086
215
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26,661
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . $281,176
27,033
$265,912
21,826
$237,615
21,919
$219,232
20,301
$209,465
(9.5)%
(11.3)
13.3
48.7
5.5
(44.5)
4.7
1.4
5.7%
1.8%
19.0
15.0
(7.9)
(15.1)
2.7
6.5
(1.3)
(4.8)
(1.4)
5.7%
U.S. BANCORP
123
U.S. Bancorp
Consolidated Statement of Income — Five-Year Summary (Unaudited)
Year Ended December 31 (Dollars in Millions)
2009
2008
2007
2006
2005
Interest Income
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,564
277
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,606
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
91
Other interest income . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,051
227
1,984
156
$10,627
277
2,095
137
$ 9,873
236
2,001
153
$ 8,306
181
1,954
110
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . .
11,538
12,418
13,136
12,263
10,551
% Change
2009 v 2008
(4.8)%
22.0
(19.1)
(41.7)
(7.1)
Interest Expense
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income after provision for credit losses. . . . . . . .
Noninterest Income
Credit and debit card revenue . . . . . . . . . . . . . . . . . . . . . .
Corporate payment products revenue . . . . . . . . . . . . . . . . .
Merchant processing services . . . . . . . . . . . . . . . . . . . . . .
ATM processing services . . . . . . . . . . . . . . . . . . . . . . . . .
Trust and investment management fees . . . . . . . . . . . . . . .
Deposit service charges . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury management fees . . . . . . . . . . . . . . . . . . . . . . . .
Commercial products revenue . . . . . . . . . . . . . . . . . . . . . .
Mortgage banking revenue . . . . . . . . . . . . . . . . . . . . . . . .
Investment products fees and commissions . . . . . . . . . . . . .
Securities gains (losses), net
. . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,202
539
1,279
3,020
8,518
5,557
2,961
1,055
669
1,148
410
1,168
970
552
615
1,035
109
(451)
672
Total noninterest income . . . . . . . . . . . . . . . . . . . . . .
7,952
Noninterest Expense
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net occupancy and equipment
. . . . . . . . . . . . . . . . . . . . .
Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing and business development . . . . . . . . . . . . . . . . .
Technology and communications . . . . . . . . . . . . . . . . . . . .
Postage, printing and supplies . . . . . . . . . . . . . . . . . . . . . .
Other intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total noninterest expense . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . .
Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
3,135
574
836
255
378
673
288
387
1,755
8,281
2,632
395
1,881
1,066
1,739
4,686
7,732
3,096
4,636
1,039
671
1,151
366
1,314
1,081
517
492
270
147
(978)
741
6,811
3,039
515
781
240
310
598
294
355
1,216
7,348
4,099
1,087
2,754
1,433
2,260
6,447
6,689
792
5,897
958
638
1,108
327
1,339
1,077
472
433
259
146
15
524
7,296
2,640
494
738
233
260
561
283
376
1,322
6,907
6,286
1,883
2,389
1,203
1,930
5,522
6,741
544
6,197
809
562
966
313
1,235
1,042
441
415
192
150
14
813
6,952
2,513
481
709
199
233
545
265
355
929
6,229
6,920
2,112
1,559
690
1,247
3,496
7,055
666
6,389
719
492
773
299
1,009
951
437
400
432
152
(106)
593
6,151
2,383
431
694
166
248
506
255
458
778
5,919
6,621
2,082
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling interests . . . . . . . .
2,237
(32)
3,012
(66)
4,403
(79)
4,808
(57)
4,539
(50)
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . $ 2,205
$ 2,946
$ 4,324
$ 4,751
$ 4,489
(36.1)
(49.4)
(26.5)
(35.6)
10.2
79.5
(36.1)
1.5
(.3)
(.3)
12.0
(11.1)
(10.3)
6.8
25.0
*
(25.9)
53.9
(9.3)
16.8
3.2
11.5
7.0
6.3
21.9
12.5
(2.0)
9.0
44.3
12.7
(35.8)
(63.7)
(25.7)
51.5
(25.2)
Net income applicable to U.S. Bancorp common
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,803
$ 2,819
$ 4,258
$ 4,696
$ 4,483
(36.0)
* Not meaningful
124
U.S. BANCORP
U.S. Bancorp
Quarterly Consolidated Financial Data (Unaudited)
(Dollars in Millions, Except Per Share Data)
Interest Income
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . .
Other interest income . . . . . . . . . . . . . . . . . . . . . . . . .
2009
2008
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$2,350
63
434
20
$2,345
71
402
22
$2,373
87
374
23
$2,496
56
396
26
$2,560
73
535
37
$2,429
49
494
43
$2,487
52
478
40
$2,575
53
477
36
Total interest income . . . . . . . . . . . . . . . . . . . . . .
2,867
2,840
2,857
2,974
3,205
3,015
3,057
3,141
Interest Expense
Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest expense . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . .
Net interest income after provision for credit losses . . . . .
Noninterest Income
Credit and debit card revenue . . . . . . . . . . . . . . . . . . .
Corporate payment products revenue . . . . . . . . . . . . . .
Merchant processing services . . . . . . . . . . . . . . . . . . .
ATM processing services. . . . . . . . . . . . . . . . . . . . . . .
Trust and investment management fees . . . . . . . . . . . . .
Deposit service charges . . . . . . . . . . . . . . . . . . . . . . .
Treasury management fees . . . . . . . . . . . . . . . . . . . . .
Commercial products revenue . . . . . . . . . . . . . . . . . . .
Mortgage banking revenue . . . . . . . . . . . . . . . . . . . . .
Investment products fees and commissions . . . . . . . . . .
Securities gains (losses), net . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
324
143
353
820
2,047
1,318
729
256
154
258
102
294
226
137
129
233
28
(198)
169
314
131
341
786
2,054
1,395
659
299
138
313
750
2,107
1,456
651
259
168
278
104
304
250
142
144
308
27
(19)
90
267
181
300
103
293
256
141
157
276
27
(76)
168
265
127
272
664
2,310
1,388
922
273
166
312
101
277
238
132
185
218
27
(158)
245
606
322
474
1,402
1,803
485
1,318
248
164
271
84
335
257
124
112
105
36
(251)
559
458
263
419
1,140
1,875
596
1,279
266
174
309
93
350
278
137
117
81
37
(63)
113
425
276
423
1,124
1,933
748
1,185
269
179
300
94
329
286
128
132
61
37
(411)
8
392
205
423
1,020
2,121
1,267
854
256
154
271
95
300
260
128
131
23
37
(253)
61
Total noninterest income . . . . . . . . . . . . . . . . . . .
1,788
2,055
2,093
2,016
2,044
1,892
1,412
1,463
Noninterest Expense
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net occupancy and equipment . . . . . . . . . . . . . . . . . . .
Professional services . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing and business development . . . . . . . . . . . . . .
Technology and communications . . . . . . . . . . . . . . . . .
Postage, printing and supplies . . . . . . . . . . . . . . . . . . .
Other intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
786
155
211
52
56
155
74
91
291
764
140
208
59
80
157
72
95
554
769
134
203
63
137
175
72
94
406
816
145
214
81
105
186
70
107
504
745
137
190
47
79
140
71
87
283
761
129
190
59
66
149
73
87
304
763
125
199
61
75
153
73
88
276
770
124
202
73
90
156
77
93
353
Total noninterest expense . . . . . . . . . . . . . . . . . . .
1,871
2,129
2,053
2,228
Income before income taxes . . . . . . . . . . . . . . . . . . . .
Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling interests . . . . . .
646
101
545
(16)
585
100
485
(14)
691
86
605
(2)
710
108
602
–
1,779
1,583
476
1,107
(17)
1,818
1,353
386
967
(17)
1,813
1,938
784
198
586
(10)
379
27
352
(22)
Net income attributable to U.S. Bancorp . . . . . . . . . . . .
$ 529
$ 471
$ 603
$ 602
$1,090
$ 950
$ 576
$ 330
Net income applicable to U.S. Bancorp common
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 419
$ 221
$ 583
$ 580
$1,077
$ 926
$ 557
$ 259
Earnings per common share . . . . . . . . . . . . . . . . . . . .
Diluted earnings per common share . . . . . . . . . . . . . . .
$ .24
$ .24
$ .12
$ .12
$ .31
$ .30
$ .30
$ .30
$ .62
$ .62
$ .53
$ .53
$ .32
$ .32
$ .15
$ .15
U.S. BANCORP
125
Average
Balances
Interest
Yields
and Rates
Average
Balances
Interest
Yields
and Rates
$ 42,809
5,820
$ 1,770
277
4.13% $ 42,850
3,914
4.76
$ 2,160
227
5.04%
5.80
U.S. Bancorp
Consolidated Daily Average Balance Sheet and
Year Ended December 31
2009
2008
(Dollars in Millions)
Assets
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans (b)
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans, excluding covered assets . . . . . . . . . . . .
Covered assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total earning assets . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain (loss) on available-for-sale securities . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52,827
33,751
24,481
62,023
173,082
12,723
185,805
2,853
237,287
(4,451)
(1,594)
37,118
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$268,360
Liabilities and Shareholders’ Equity
Noninterest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing deposits
Interest checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market savings. . . . . . . . . . . . . . . . . . . . . . . . . .
Savings accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time certificates of deposit less than $100,000 . . . . . . . . .
Time deposits greater than $100,000 . . . . . . . . . . . . . . . .
Total interest-bearing deposits . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest-bearing liabilities . . . . . . . . . . . . . . . . .
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity
Preferred equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total U.S. Bancorp shareholders’ equity . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 37,856
36,866
31,795
13,109
17,879
30,296
129,945
29,149
36,520
195,614
7,869
4,445
21,862
26,307
714
27,021
2,074
1,453
1,380
4,125
9,032
578
9,610
91
11,748
78
145
71
461
447
1,202
551
1,279
3,032
3.93
4.30
5.64
6.65
5.22
4.54
5.17
3.20
4.95
.21
.46
.54
2.58
1.48
.93
1.89
3.50
1.55
2,702
1,771
1,419
4,134
10,026
61
10,087
156
12,630
251
330
20
472
808
1,881
1,144
1,739
4,764
54,307
31,110
23,257
55,570
164,244
1,308
165,552
2,730
215,046
(2,527)
(2,068)
33,949
$244,400
$ 28,739
31,137
26,300
5,929
13,583
30,496
107,445
38,237
39,250
184,932
7,405
2,246
20,324
22,570
754
23,324
Total liabilities and equity . . . . . . . . . . . . . . . . . . . .
$268,360
$244,400
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,716
$ 7,866
Gross interest margin . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross interest margin without taxable-equivalent increments . .
Percent of Earning Assets
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest margin without taxable-equivalent increments . . . .
* Not meaningful
(a)
(b)
Interest and rates are presented on a fully taxable-equivalent basis utilizing a tax rate of 35 percent.
Interest income and rates on loans include loan fees. Nonaccrual loans are included in average loan balances.
3.40%
3.32
4.95%
1.28
3.67%
3.59%
126
U.S. BANCORP
4.98
5.69
6.10
7.44
6.10
4.68
6.09
5.71
5.87
.81
1.25
.34
3.47
2.65
1.75
2.99
4.43
2.58
3.29%
3.23
5.87%
2.21
3.66%
3.60%
Related Yields And Rates (a) (Unaudited)
2007
2006
2005
Average
Balances
Interest
Yields
and Rates
Average
Balances
Interest
Yields
and Rates
Average
Balances
Interest
Yields
and Rates
2009 v 2008
% Change
Average
Balances
$ 41,313
4,298
$ 2,239
277
5.42% $ 39,961
3,663
6.44
$ 2,063
236
5.16% $ 42,103
3,290
6.45
$ 1,962
181
4.66%
5.49
(.1)%
48.7
3,143
2,079
1,354
4,080
10,656
–
10,656
137
13,309
351
651
19
644
1,089
2,754
1,531
2,260
6,545
47,812
28,592
22,085
48,859
147,348
–
147,348
1,724
194,683
(2,042)
(874)
31,854
$223,621
$ 27,364
26,117
25,332
5,306
14,654
22,302
93,711
28,925
44,560
167,196
7,352
1,000
19,997
20,997
712
21,709
6.57
7.27
6.13
8.35
7.23
–
7.23
7.95
6.84
1.34
2.57
.35
4.40
4.88
2.94
5.29
5.07
3.91
2,969
2,104
1,224
3,602
9,899
–
9,899
153
12,351
233
569
19
524
1,044
2,389
1,242
1,930
5,561
45,440
28,760
21,053
45,348
140,601
–
140,601
2,006
186,231
(2,052)
(1,007)
30,340
$213,512
$ 28,755
23,552
26,667
5,599
13,761
22,255
91,834
24,422
40,357
156,613
7,202
767
19,943
20,710
232
20,942
6.53
7.32
5.81
7.94
7.04
–
7.04
7.64
6.63
.99
2.13
.35
3.81
4.69
2.60
5.08
4.78
3.55
2,501
1,804
1,001
3,025
8,331
–
8,331
110
10,584
135
358
15
389
662
1,559
690
1,247
3,496
42,641
27,964
18,036
42,969
131,610
–
131,610
1,422
178,425
(2,098)
(368)
27,239
$203,198
$ 29,229
22,785
29,314
5,819
13,199
20,655
91,772
19,382
36,141
147,295
6,501
–
19,953
19,953
220
20,173
5.87
6.45
5.55
7.04
6.33
–
6.33
7.77
5.93
.59
1.22
.26
2.95
3.20
1.70
3.56
3.45
2.37
(2.7)
8.5
5.3
11.6
5.4
*
12.2
4.5
10.3
(76.1)
22.9
9.3
9.8
31.7
18.4
20.9
*
31.6
(.7)
20.9
(23.8)
(7.0)
5.8
6.3
97.9
7.6
16.6
(5.3)
15.9
$223,621
$213,512
$203,198
9.8%
$ 6,764
$ 6,790
$ 7,088
2.93%
2.89
6.84%
3.37
3.47%
3.43%
3.08%
3.05
6.63%
2.98
3.65%
3.62%
3.56%
3.54
5.93%
1.96
3.97%
3.95%
U.S. BANCORP
127
U.S. Bancorp
Supplemental Financial Data (Unaudited)
Earnings Per Common Share Summary
Earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . .
Dividends declared per common share. . . . . . . . . . . . . . . . . . .
$
2009
.97
.97
.200
2008
2007
2006
2005
$ 1.62
1.61
1.700
$ 2.45
2.42
1.625
$ 2.64
2.61
1.390
$ 2.45
2.42
1.230
Ratios
Return on average assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on average common equity . . . . . . . . . . . . . . . . . . . . .
Average total U.S. Bancorp shareholders’ equity to average
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends per common share to net income per common share . .
.82%
8.2
9.8
20.6
1.21%
13.9
9.2
104.9
1.93%
21.3
9.4
66.3
2.23%
23.6
9.7
52.7
2.21%
22.5
9.8
50.2
Other Statistics (Dollars and Shares in Millions)
Common shares outstanding (a) . . . . . . . . . . . . . . . . . . . . . . .
Average common shares outstanding and common stock
equivalents
Earnings per common share . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per common share . . . . . . . . . . . . . . . . . . .
Number of shareholders (b) . . . . . . . . . . . . . . . . . . . . . . . . . .
Common dividends declared . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Defined as total common shares less common stock held in treasury at December 31.
(b) Based on number of common stock shareholders of record at December 31.
Stock Price Range and Dividends
1,913
1,755
1,728
1,765
1,815
1,851
1,859
58,610
375
$
1,742
1,756
61,611
$ 2,971
1,735
1,756
63,837
$ 2,813
1,778
1,803
66,313
$ 2,466
1,831
1,856
69,217
$ 2,246
2009
Sales Price
2008
Sales Price
High
Low
Closing
Price
Dividends
Declared
High
Low
Closing
Price
Dividends
Declared
First quarter . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . .
$25.43
21.92
23.49
25.59
$ 8.06
13.92
16.11
20.76
$14.61
17.92
21.86
22.51
$.050
.050
.050
.050
$35.01
35.25
42.23
37.31
$27.86
27.78
20.57
20.22
$32.36
27.89
36.02
25.01
$.425
.425
.425
.425
The common stock of U.S. Bancorp is traded on the New York Stock Exchange, under the ticker symbol “USB.” At
January 31, 2010, there were 58,447 holders of record of the Company’s common stock.
Stock Performance Chart
The following chart compares the cumulative total
shareholder return on the Company’s common stock during
the five years ended December 31, 2009, with the
cumulative total return on the Standard & Poor’s 500 Index
and the Standard & Poor’s 500 Commercial Bank Index.
The comparison assumes $100 was invested on
December 31, 2004, in the Company’s common stock and in
each of the foregoing indices and assumes the reinvestment
of all dividends.
Total Return
126
117
121
128
116
91
100
105
100
102
150
125
100
75
50
97
81
58
102
88
54
25
2004
2005
2006
2007
2008
2009
USB
S&P 500
S&P 500 Commercial Bank Index
128
U.S. BANCORP
Company Information
General Business Description U.S. Bancorp is a multi-state
financial services holding company headquartered in
Minneapolis, Minnesota. U.S. Bancorp was incorporated in
Delaware in 1929 and operates as a financial holding
company and a bank holding company under the Bank
Holding Company Act of 1956. U.S. Bancorp provides a full
range of financial services, including lending and depository
services, cash management, foreign exchange and trust and
investment management services. It also engages in credit
card services, merchant and ATM processing, mortgage
banking, insurance, brokerage and leasing.
U.S. Bancorp’s banking subsidiaries are engaged in the
general banking business, principally in domestic markets.
The subsidiaries range in size from $51 million to
$194 billion in deposits and provide a wide range of
products and services to individuals, businesses, institutional
organizations, governmental entities and other financial
institutions. Commercial and consumer lending services are
principally offered to customers within the Company’s
domestic markets, to domestic customers with foreign
operations and within certain niche national venues. Lending
services include traditional credit products as well as credit
card services, financing and import/export trade, asset-
backed lending, agricultural finance and other products.
Leasing products are offered through bank leasing
subsidiaries. Depository services include checking accounts,
savings accounts and time certificate contracts. Ancillary
services such as foreign exchange, treasury management and
receivable lock-box collection are provided to corporate
customers. U.S. Bancorp’s bank and trust subsidiaries
provide a full range of asset management and fiduciary
services for individuals, estates, foundations, business
corporations and charitable organizations.
U.S. Bancorp’s non-banking subsidiaries primarily offer
investment and insurance products to the Company’s
customers principally within its markets, and mutual fund
processing services to a broad range of mutual funds.
Banking and investment services are provided through a
network of 3,015 banking offices principally operating in
24 states in the Midwest and West. The Company operates a
network of 5,148 branded ATMs and provides 24-hour,
seven day a week telephone customer service. Mortgage
banking services are provided through banking offices and
loan production offices throughout the Company’s markets.
Consumer lending products may be originated through
banking offices, indirect correspondents, brokers or other
lending sources, and a consumer finance division. The
Company is also one of the largest providers of Visa»
corporate and purchasing card services and corporate trust
services in the United States. A wholly-owned subsidiary,
Elavon, Inc. (“Elavon”), provides merchant processing
services directly to merchants and through a network of
banking affiliations. Affiliates of Elavon provide similar
merchant services in Canada and segments of Europe. These
foreign operations are not significant to the Company.
On a full-time equivalent basis, as of December 31,
2009, U.S. Bancorp employed 58,229 people.
Competition The commercial banking business is highly
competitive. Subsidiary banks compete with other
commercial banks and with other financial institutions,
including savings and loan associations, mutual savings
banks, finance companies, mortgage banking companies,
credit unions and investment companies. In recent years,
competition has increased from institutions not subject to
the same regulatory restrictions as domestic banks and bank
holding companies.
Government Policies The operations of the Company’s
various operating units are affected by federal and state
legislative changes and by policies of various regulatory
authorities, including those of the numerous states in which
they operate, the United States and foreign governments.
These policies include, for example, statutory maximum
legal lending rates, domestic monetary policies of the Board
of Governors of the Federal Reserve System, United States
fiscal policy, international currency regulations and
monetary policies, U.S. Patriot Act and capital adequacy and
liquidity constraints imposed by bank regulatory agencies.
Supervision and Regulation As a registered bank holding
company and financial holding company under the Bank
Holding Company Act, U.S. Bancorp is subject to the
supervision of, and regulation by, the Board of Governors of
the Federal Reserve System.
Under the Bank Holding Company Act, a financial
holding company may engage in banking, managing or
controlling banks, furnishing or performing services for
banks it controls, and conducting other financial activities.
U.S. Bancorp must obtain the prior approval of the Federal
Reserve Board before acquiring more than 5 percent of the
outstanding shares of another bank or bank holding
company, and must provide notice to, and in some situations
obtain the prior approval of, the Federal Reserve Board in
connection with engaging in, or acquiring more than
5 percent of the outstanding shares of a company engaged
in, a new financial activity.
Under the Bank Holding Company Act, U.S. Bancorp may
acquire banks throughout the United States, subject only to state
or federal deposit caps and state minimum age requirements.
U.S. BANCORP
129
National banks are subject to the supervision of, and
are examined by, the Comptroller of the Currency. All
subsidiary banks of the Company are members of the
Federal Deposit Insurance Corporation (“FDIC”) and are
subject to examination by the FDIC. In practice, the primary
federal regulator makes regular examinations of each
subsidiary bank subject to its regulatory review or
participates in joint examinations with other federal
regulators. Areas subject to regulation by federal authorities
include the allowance for credit losses, investments, loans,
mergers, issuance of securities, payment of dividends,
establishment of branches and other aspects of operations.
Website Access to SEC Reports U.S. Bancorp’s internet
website can be found at usbank.com. U.S. Bancorp makes
available free of charge on its website its annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and amendments to those reports filed or
furnished pursuant to Section 13 or 15(d) of the Exchange
Act, as well as all other reports filed by U.S. Bancorp with
the United States Securities and Exchange Commission as
soon as reasonably practicable after electronically filed with,
or furnished to, the United States Securities and Exchange
Commission.
Risk Factors The following factors may adversely affect the
Company’s business, financial results or stock price.
Industry Risk Factors
Difficult business and economic conditions may continue to
adversely affect the financial services industry The
Company’s business activities and earnings are affected by
general business conditions in the United States and abroad.
The domestic and global economies have recently
experienced dramatic downturns, with negative effects on
the business, financial condition and results of operations of
financial institutions in the United States and other
countries, and a continuation or worsening of current
financial market conditions could materially and adversely
affect the Company’s business, financial condition, results of
operations, access to credit or the trading price of the
Company’s common stock. Dramatic declines in the housing
and commercial real estate markets over the past two years,
with falling real estate prices and increasing foreclosures and
unemployment, have negatively impacted the credit
performance of real estate related loans and resulted in
significant write-downs of asset values by financial
institutions. These write-downs have caused many financial
institutions to seek additional capital, to reduce or eliminate
dividends, to merge with larger and stronger institutions
130
U.S. BANCORP
and, in some cases, to fail. Market developments may
further erode consumer confidence levels and may cause
adverse changes in payment patterns, causing increases in
delinquencies and default rates, which may impact the
Company’s charge-offs and provision for credit losses.
Continuing economic deterioration that affects household
and/or corporate incomes could also result in reduced
demand for credit or fee-based products and services. A
worsening of these conditions would likely exacerbate the
adverse effects of these difficult market conditions on the
Company and others in the financial services industry.
The Company may be adversely affected by proposed
legislation and rulemaking The United States government
and the Company’s regulators have proposed legislation and
rules that would impact the Company, and the Company
expects to continue to face increased regulation. These laws
and regulations, as well as restrictions contained in current
or future rules implementing or related to them, may
adversely affect the Company. Specifically, any governmental
or regulatory action having the effect of requiring the
Company to obtain additional capital, whether from
governmental or private sources, could have a material
dilutive effect on current shareholders. The Company may
be required to pay significantly higher FDIC premiums
because market developments have depleted the insurance
fund of the FDIC and reduced the ratio of reserves to
insured deposits. Other proposals are pending that would
impose significant fees or assessments on large financial
institutions, including the Company. Legislation and
regulation of overdraft fees, credit cards and other bank
services, as well as changes in the Company’s practices
relating to those and other bank services, may affect the
Company’s revenue and other financial results. Other laws
and regulations are expected to have the effect of increasing
the Company’s costs of doing business and reducing its
revenues, and may limit its ability to pursue business
opportunities or otherwise adversely affect its business. The
Company faces increased regulation of its business and
increased costs associated with these programs.
Other changes in the laws, regulations and policies
governing financial services companies could alter the
Company’s business environment and adversely affect
operations The Board of Governors of the Federal Reserve
System regulates the supply of money and credit in the
United States. Its fiscal and monetary policies determine in a
large part the Company’s cost of funds for lending and
investing and the return that can be earned on those loans
and investments, both of which affect the Company’s net
interest margin. Federal Reserve Board policies can also
materially affect the value of financial instruments that the
Company holds, such as debt securities and mortgage
servicing rights.
The Company and its bank subsidiaries are heavily
regulated at the federal and state levels. This regulation is to
protect depositors, federal deposit insurance funds and the
banking system as a whole. Congress and state legislatures
and federal and state agencies continually review banking
laws, regulations and policies for possible changes. Changes
in statutes, regulations or policies could affect the Company
in substantial and unpredictable ways, including limiting the
types of financial services and products that the Company
offers and/or increasing the ability of non-banks to offer
competing financial services and products. The Company
cannot predict whether any of this potential legislation will
be enacted, and if enacted, the effect that it or any
regulations would have on the Company’s financial
condition or results of operations.
The Company could experience an unexpected inability to
obtain needed liquidity The Company’s liquidity could be
constrained by an unexpected inability to access the capital
markets due to a variety of market dislocations or
interruptions. If the Company is unable to meet its funding
needs on a timely basis, its business would be adversely
affected.
The soundness of other financial institutions could
adversely affect the Company The Company’s ability to
engage in routine funding transactions could be adversely
affected by the actions and commercial soundness of other
financial institutions. Financial services institutions are
interrelated as a result of trading, clearing, counterparty or
other relationships. The Company has exposure to many
different counterparties, and the Company routinely
executes transactions with counterparties in the financial
industry, including brokers and dealers, commercial banks,
investment banks, mutual and hedge funds, and other
institutional clients. As a result, defaults by, or even rumors
or questions about, one or more financial services
institutions, or the financial services industry generally, could
lead to losses or defaults by the Company or by other
institutions. Many of these transactions expose the Company
to credit risk in the event of default of the Company’s
counterparty or client. In addition, the Company’s credit risk
may be exacerbated when the collateral held by the
Company cannot be realized upon or is liquidated at prices
not sufficient to recover the full amount of the financial
instrument exposure due the Company. There is no
assurance that any such losses would not materially and
adversely affect the Company’s results of operations.
The financial services industry is highly competitive, and
competitive pressures could intensify and adversely affect
the Company’s financial results The Company operates in a
highly competitive industry that could become even more
competitive as a result of legislative, regulatory and
technological changes, as well as continued industry
consolidation which may increase in connection with current
economic and market conditions. The Company competes
with other commercial banks, savings and loan associations,
mutual savings banks, finance companies, mortgage banking
companies, credit unions and investment companies. In
addition, technology has lowered barriers to entry and made
it possible for non-banks to offer products and services
traditionally provided by banks. Many of the Company’s
competitors have fewer regulatory constraints and some
have lower cost structures. Also, the potential need to adapt
to industry changes in information technology systems, on
which the Company and financial services industry are
highly dependent, could present operational issues and
require capital spending.
Changes in consumer use of banks and changes in
consumer spending and saving habits could adversely
affect the Company’s financial results Technology and other
changes now allow many consumers to complete financial
transactions without using banks. For example, consumers
can pay bills and transfer funds directly without going
through a bank. This “disintermediation” could result in the
loss of fee income, as well as the loss of customer deposits
and income generated from those deposits. In addition,
changes in consumer spending and saving habits could
adversely affect the Company’s operations, and the
Company may be unable to timely develop competitive new
products and services in response to these changes that are
accepted by new and existing customers.
Changes in the domestic interest rate environment could
reduce the Company’s net interest income The operations
of financial institutions such as the Company are dependent
to a large degree on net interest income, which is the
difference between interest income from loans and
investments and interest expense on deposits and
borrowings. An institution’s net interest income is
significantly affected by market rates of interest, which in
turn are affected by prevailing economic conditions, by the
fiscal and monetary policies of the federal government and
by the policies of various regulatory agencies. Like all
financial institutions, the Company’s balance sheet is
U.S. BANCORP
131
affected by fluctuations in interest rates. Volatility in interest
rates can also result in the flow of funds away from financial
institutions into direct investments. Direct investments, such
as U.S. Government and corporate securities and other
investment vehicles (including mutual funds) generally pay
higher rates of return than financial institutions, because of
the absence of federal insurance premiums and reserve
requirements.
Acts or threats of terrorism and political or military actions
taken by the United States or other governments could
adversely affect general economic or industry conditions
Geopolitical conditions may also affect the Company’s
earnings. Acts or threats of terrorism and political or
military actions taken by the United States or other
governments in response to terrorism, or similar activity,
could adversely affect general economic or industry
conditions.
Company Risk Factors
The Company’s allowance for loan losses may not be
adequate to cover actual losses Like all financial
institutions, the Company maintains an allowance for loan
losses to provide for loan defaults and non-performance.
The Company’s allowance for loan losses is based on its
historical loss experience as well as an evaluation of the
risks associated with its loan portfolio, including the size
and composition of the loan portfolio, current economic
conditions and geographic concentrations within the
portfolio. The stress on the United States economy and the
local economies in which the Company does business may
be greater or last longer than expected, resulting in, among
other things, greater than expected deterioration in credit
quality of the loan portfolio, or in the value of collateral
securing those loans. In addition, the process the Company
uses to estimate losses inherent in its credit exposure
requires difficult, subjective, and complex judgments,
including forecasts of economic conditions and how these
economic predictions might impair the ability of its
borrowers to repay their loans, which may no longer be
capable of accurate estimation which may, in turn, impact
the reliability of the process. Increases in the Company’s
allowance for loan losses may not be adequate to cover
actual loan losses, and future provisions for loan losses
could continue to materially and adversely affect its financial
results.
The Company may continue to suffer increased losses in
its loan portfolio despite its underwriting practices The
Company seeks to mitigate the risks inherent in its loan
132
U.S. BANCORP
portfolio by adhering to specific underwriting practices.
These practices often include: analysis of a borrower’s credit
history, financial statements, tax returns and cash flow
projections; valuation of collateral based on reports of
independent appraisers; and verification of liquid assets.
Although the Company believes that its underwriting criteria
are, and historically have been, appropriate for the various
kinds of loans it makes, the Company has already incurred
high levels of losses on loans that have met these criteria,
and may continue to experience higher than expected losses
depending on economic factors and consumer behavior. In
addition, the Company’s ability to assess the
creditworthiness of its customers may be impaired if the
models and approaches it uses to select, manage, and
underwrite its customers become less predictive of future
behaviors. Finally, the Company may have higher credit risk,
or experience higher credit losses, to the extent its loans are
concentrated by loan type, industry segment, borrower type,
or location of the borrower or collateral. For example, the
Company’s credit risk and credit losses can increase if
borrowers who engage in similar activities are uniquely or
disproportionately affected by economic or market
conditions, or by regulation, such as regulation related to
climate change. Continued deterioration of real estate values
in states or regions where the Company has relatively larger
concentrations of residential or commercial real estate could
result in significantly higher credit costs.
Changes in interest rates can reduce the value of the
Company’s mortgage servicing rights and mortgages held
for sale, and can make its mortgage banking revenue
volatile from quarter to quarter, which can negatively affect
its earnings. The Company has a portfolio of mortgage
servicing rights (“MSRs”), which is the right to service a
mortgage loan for a fee. The Company initially carries its
MSRs using a fair value measurement of the present value of
the estimated future net servicing income, which includes
assumptions about the likelihood of prepayment by
borrowers. Changes in interest rates can affect prepayment
assumptions and thus fair value. As interest rates fall,
prepayments tend to increase as borrowers refinance, and
the fair value of MSR’s can decrease, which in turn reduces
the Company’s earnings.
An increase in interest rates tends to lead to a decrease
in demand for mortgage loans, reducing the Company’s
income from loan originations. Although revenue from the
Company’s MSRs may increase at the same time through
increases in fair value, this offsetting revenue effect, or
“natural hedge,” is not perfectly correlated in amount or
timing. The Company typically uses derivatives and other
instruments to hedge its mortgage banking interest rate risk,
but this hedging activity may not always be successful. The
Company could incur significant losses from its hedging
activities, and there may be periods where it elects not to
hedge its mortgage banking interest rate risk. As a result of
these factors, mortgage banking revenue can experience
significant volatility.
Maintaining or increasing the Company’s market share may
depend on lowering prices and market acceptance of new
products and services The Company’s success depends, in
part, on its ability to adapt its products and services to
evolving industry standards. There is increasing pressure to
provide products and services at lower prices. Lower prices
can reduce the Company’s net interest margin and revenues
from its fee-based products and services. In addition, the
widespread adoption of new technologies, including internet
services, could require the Company to make substantial
expenditures to modify or adapt the Company’s existing
products and services. Also, these and other capital
investments in the Company’s businesses may not produce
expected growth in earnings anticipated at the time of the
expenditure. The Company might not be successful in
introducing new products and services, achieving market
acceptance of its products and services, or developing and
maintaining loyal customers.
Because the nature of the financial services business
involves a high volume of transactions, the Company faces
significant operational risks The Company operates in many
different businesses in diverse markets and relies on the
ability of its employees and systems to process a high
number of transactions. Operational risk is the risk of loss
resulting from the Company’s operations, including, but not
limited to, the risk of fraud by employees or persons outside
of the Company, the execution of unauthorized transactions
by employees, errors relating to transaction processing and
technology, breaches of the internal control system and
compliance requirements and business continuation and
disaster recovery. This risk of loss also includes the potential
legal actions that could arise as a result of an operational
deficiency or as a result of noncompliance with applicable
regulatory standards, adverse business decisions or their
implementation, and customer attrition due to potential
negative publicity. In the event of a breakdown in the
internal control system, improper operation of systems or
improper employee actions, the Company could suffer
financial loss, face regulatory action and suffer damage to its
reputation.
The change in residual value of leased assets may have an
adverse impact on the Company’s financial results The
Company engages in leasing activities and is subject to the
risk that the residual value of the property under lease will
be less than the Company’s recorded asset value. Adverse
changes in the residual value of leased assets can have a
negative impact on the Company’s financial results. The risk
of changes in the realized value of the leased assets
compared to recorded residual values depends on many
factors outside of the Company’s control, including supply
and demand for the assets, condition of the assets at the end
of the lease term, and other economic factors.
Negative publicity could damage the Company’s reputation
and adversely impact its business and financial results
Reputation risk, or the risk to the Company’s earnings and
capital from negative publicity, is inherent in the Company’s
business. Negative publicity can result from the Company’s
actual or alleged conduct in any number of activities,
including lending practices, corporate governance and
acquisitions, and actions taken by government regulators
and community organizations in response to those activities.
Negative publicity can adversely affect the Company’s ability
to keep and attract customers, and can expose the Company
to litigation and regulatory action. Because most of the
Company’s businesses operate under the “U.S. Bank” brand,
actual or alleged conduct by one business can result in
negative publicity about other businesses the Company
operates. Although the Company takes steps to minimize
reputation risk in dealing with customers and other
constituencies, the Company, as a large diversified financial
services company with a high industry profile, is inherently
exposed to this risk.
The Company’s reported financial results depend on
management’s selection of accounting methods and
certain assumptions and estimates The Company’s
accounting policies and methods are fundamental to how the
Company records and reports its financial condition and
results of operations. The Company’s management must
exercise judgment in selecting and applying many of these
accounting policies and methods so they comply with
generally accepted accounting principles and reflect
management’s judgment regarding the most appropriate
manner to report the Company’s financial condition and
results. In some cases, management must select the
accounting policy or method to apply from two or more
alternatives, any of which might be reasonable under the
circumstances, yet might result in the Company’s reporting
U.S. BANCORP
133
materially different results than would have been reported
under a different alternative.
Certain accounting policies are critical to presenting the
Company’s financial condition and results. They require
management to make difficult, subjective or complex
judgments about matters that are uncertain. Materially
different amounts could be reported under different
conditions or using different assumptions or estimates. These
critical accounting policies include: the allowance for credit
losses; estimations of fair value; the valuation of purchased
loans and related indemnification assets; the valuation of
mortgage servicing rights; the valuation of goodwill and
other intangible assets; and income taxes. Because of the
uncertainty of estimates involved in these matters, the
Company may be required to do one or more of the
following: significantly increase the allowance for credit
losses and/or sustain credit losses that are significantly
higher than the reserve provided; recognize significant
impairment on its goodwill and other intangible asset
balances; or significantly increase its accrued taxes liability.
For more information, refer to “Critical Accounting
Policies” in this Annual Report.
Changes in accounting standards could materially impact
the Company’s financial statements From time to time, the
Financial Accounting Standards Board changes the financial
accounting and reporting standards that govern the
preparation of the Company’s financial statements. These
changes can be hard to predict and can materially impact
how the Company records and reports its financial condition
and results of operations. In some cases, the Company could
be required to apply a new or revised standard retroactively,
resulting in the Company’s restating prior period financial
statements.
Acquisitions may not produce revenue enhancements or
acquired company, or otherwise adversely affect the
Company’s ability to maintain relationships with customers
and employees or achieve the anticipated benefits of the
acquisition. Also, the negative effect of any divestitures
required by regulatory authorities in acquisitions or business
combinations may be greater than expected.
The Company must generally receive federal regulatory
approval before it can acquire a bank or bank holding
company. In determining whether to approve a proposed
bank acquisition, federal bank regulators will consider,
among other factors, the effect of the acquisition on the
competition, financial condition, and future prospects. The
regulators also review current and projected capital ratios
and levels, the competence, experience, and integrity of
management and its record of compliance with laws and
regulations, the convenience and needs of the communities
to be served (including the acquiring institution’s record of
compliance under the Community Reinvestment Act) and
the effectiveness of the acquiring institution in combating
money laundering activities. In addition, the Company
cannot be certain when or if, or on what terms and
conditions, any required regulatory approvals will be
granted. The Company may be required to sell banks or
branches as a condition to receiving regulatory approval.
If new laws were enacted that restrict the ability of the
Company and its subsidiaries to share information about
customers, the Company’s financial results could be
negatively affected The Company’s business model depends
on sharing information among the family of companies
owned by U.S. Bancorp to better satisfy the Company’s
customer needs. Laws that restrict the ability of the
companies owned by U.S. Bancorp to share information
about customers could negatively affect the Company’s
revenue and profit.
cost savings at levels or within timeframes originally
The Company’s business could suffer if the Company fails
anticipated and may result in unforeseen integration
difficulties The Company regularly explores opportunities to
acquire financial services businesses or assets and may also
consider opportunities to acquire other banks or financial
institutions. The Company cannot predict the number, size
or timing of acquisitions.
Difficulty in integrating an acquired business or
company may cause the Company not to realize expected
revenue increases, cost savings, increases in geographic or
product presence, and/or other projected benefits from the
acquisition. The integration could result in higher than
expected deposit attrition (run-off), loss of key employees,
disruption of the Company’s business or the business of the
134
U.S. BANCORP
to attract and retain skilled people The Company’s success
depends, in large part, on its ability to attract and retain key
people. Competition for the best people in most activities the
Company engages in can be intense. The Company may not
be able to hire the best people or to keep them. Recent
strong scrutiny of compensation practices has resulted and
may continue to result in additional regulation and
legislation in this area as well as additional legislative and
regulatory initiatives, and there is no assurance that this will
not cause increased turnover or impede the Company’s
ability to retain and attract the highest caliber employees.
The Company relies on other companies to provide key
components of the Company’s business infrastructure
environmental liabilities, its financial condition and results
of operations could be adversely affected.
Third party vendors provide key components of the
Company’s business infrastructure such as internet
connections, network access and mutual fund distribution.
While the Company has selected these third party vendors
carefully, it does not control their actions. Any problems
caused by these third parties, including as a result of their
not providing the Company their services for any reason or
their performing their services poorly, could adversely affect
the Company’s ability to deliver products and services to the
Company’s customers and otherwise to conduct its business.
Replacing these third party vendors could also entail
significant delay and expense.
Significant legal actions could subject the Company to
substantial uninsured liabilities The Company is from time
to time subject to claims related to its operations. These
claims and legal actions, including supervisory actions by the
Company’s regulators, could involve large monetary claims
and significant defense costs. To protect itself from the cost
of these claims, the Company maintains insurance coverage
in amounts and with deductibles that it believes are
appropriate for its operations. However, the Company’s
insurance coverage may not cover all claims against the
Company or continue to be available to the Company at a
reasonable cost. As a result, the Company may be exposed
to substantial uninsured liabilities, which could adversely
affect the Company’s results of operations and financial
condition.
The Company is exposed to risk of environmental liability
when it takes title to properties In the course of the
Company’s business, the Company may foreclose on and
take title to real estate. As a result, the Company could be
subject to environmental liabilities with respect to these
properties. The Company may be held liable to a
governmental entity or to third parties for property damage,
personal injury, investigation and clean-up costs incurred by
these parties in connection with environmental
contamination or may be required to investigate or clean up
hazardous or toxic substances or chemical releases at a
property. The costs associated with investigation or
remediation activities could be substantial. In addition, if the
Company is the owner or former owner of a contaminated
site, it may be subject to common law claims by third
parties based on damages and costs resulting from
environmental contamination emanating from the property.
If the Company becomes subject to significant
A natural disaster could harm the Company’s business
Natural disasters could harm the Company’s operations
through interference with communications, including the
interruption or loss of the Company’s websites, which would
prevent the Company from obtaining deposits, originating
loans and processing and controlling its flow of business, as
well as through the destruction of facilities and the
Company’s operational, financial and management
information systems. Additionally, natural disasters may
significantly affect loan portfolios by damaging properties
pledged as collateral and by impairing the ability of certain
borrowers to repay their loans. The nature and level of
natural disasters cannot be predicted and may be
exacerbated by global climate change. The ultimate impact
of a natural disaster on future financial results is difficult to
predict and would be affected by a number of factors,
including the extent of damage to the Company’s assets or
the relevant collateral, the extent to which damaged
collateral is not covered by insurance, the extent to which
unemployment and other economic conditions caused by the
natural disaster adversely affect the ability of borrowers to
repay their loans, and the cost of collection and foreclosure
moratoriums, loan forbearances and other accommodations
granted to borrowers and other customers.
The Company faces systems failure risks as well as
security risks, including “hacking” and “identity theft” The
computer systems and network infrastructure the Company
and others use could be vulnerable to unforeseen problems.
These problems may arise in both the Company’s internally
developed systems and the systems of its third-party service
providers. The Company’s operations are dependent upon its
ability to protect computer equipment against damage from
fire, power loss or telecommunication failure. Any damage
or failure that causes an interruption in its operations could
adversely affect its business and financial results. In addition,
the Company’s computer systems and network infrastructure
present security risks, and could be susceptible to hacking or
identity theft.
The Company relies on dividends from its subsidiaries for
its liquidity needs The Company is a separate and distinct
legal entity from its bank subsidiaries and non-bank
subsidiaries. The Company receives substantially all of its
cash from dividends paid by its subsidiaries. These dividends
are the principal source of funds to pay dividends on the
Company’s stock and interest and principal on its debt.
Various federal and state laws and regulations limit the
U.S. BANCORP
135
amount of dividends that its bank subsidiaries and certain of
its non-bank subsidiaries may pay to the Company without
regulatory approval. Also, the Company’s right to
participate in a distribution of assets upon a subsidiary’s
liquidation or reorganization is subject to prior claims of the
subsidiary’s creditors, except to the extent that any of the
Company’s claims as a creditor of that subsidiary may be
recognized.
The Company has non-banking businesses that are subject
to various risks and uncertainties The Company is a
diversified financial services company, and the Company’s
business model is based on a mix of businesses that provide
a broad range of products and services delivered through
multiple distribution channels. In addition to banking, the
Company provides payment services, investments, mortgages
and corporate and personal trust services. Although the
Company believes its diversity helps lessen the effect of
downturns in any one segment of its industry, it also means
the Company’s earnings could be subject to various specific
risks and uncertainties related to these non-banking
businesses.
The Company’s stock price can be volatile The Company’s
stock price can fluctuate widely in response to a variety of
factors, including: actual or anticipated variations in the
Company’s quarterly operating results; recommendations by
securities analysts; significant acquisitions or business
combinations; strategic partnerships, joint ventures or
capital commitments by or involving the Company or the
Company’s competitors; operating and stock price
performance of other companies that investors deem
comparable to the Company; new technology used or
services offered by the Company’s competitors; news reports
relating to trends, concerns and other issues in the financial
services industry; and changes in government regulations.
General market fluctuations, industry factors and general
economic and political conditions and events, as well as
interest rate changes, currency fluctuations, or unforeseen
events such as terrorist attacks could cause the Company’s
stock price to decrease regardless of the Company’s
operating results.
136
U.S. BANCORP
Executive Officers
Richard K. Davis
Mr. Davis is Chairman, President and Chief Executive
Officer of U.S. Bancorp. Mr. Davis, 52, has served as
Chairman of U.S. Bancorp since December 2007, Chief
Executive Officer since December 2006 and President since
October 2004. He also served as Chief Operating Officer
from October 2004 until December 2006. From the time of
the merger of Firstar Corporation and U.S. Bancorp in
February 2001 until October 2004, Mr. Davis served as Vice
Chairman of U.S. Bancorp. From the time of the merger,
Mr. Davis was responsible for Consumer Banking, including
Retail Payment Solutions (card services), and he assumed
additional responsibility for Commercial Banking in 2003.
Mr. Davis has held management positions with the
Company since joining Star Banc Corporation, one of its
predecessors, in 1993 as Executive Vice President.
Jennie P. Carlson
Ms. Carlson is Executive Vice President of U.S. Bancorp.
Ms. Carlson, 49, has served as Executive Vice President,
Human Resources since January 2002. Until that time, she
served as Executive Vice President, Deputy General Counsel
and Corporate Secretary of U.S. Bancorp since the merger of
Firstar Corporation and U.S. Bancorp in February 2001.
From 1995 until the merger, she was General Counsel and
Secretary of Firstar Corporation and Star Banc Corporation.
Andrew Cecere
Mr. Cecere is Vice Chairman and Chief Financial Officer of
U.S. Bancorp. Mr. Cecere, 49, has served as Chief Financial
Officer of U.S. Bancorp since February 2007, and Vice
Chairman since the merger of Firstar Corporation and
U.S. Bancorp in February 2001. From February 2001 until
February 2007 he was responsible for Wealth
Management & Securities Services. Previously, he had served
as an executive officer of the former U.S. Bancorp, including
as Chief Financial Officer from May 2000 through February
2001.
William L. Chenevich
Mr. Chenevich is Vice Chairman of U.S. Bancorp.
Mr. Chenevich, 66, has served as Vice Chairman of
U.S. Bancorp since the merger of Firstar Corporation and
U.S. Bancorp in February 2001, when he assumed
responsibility for Technology and Operations Services.
Previously, he served as Vice Chairman of Technology and
Operations Services of Firstar Corporation from 1999 to
2001.
Richard C. Hartnack
Mr. Hartnack is Vice Chairman of U.S. Bancorp.
Mr. Hartnack, 64, has served in this position since April
2005, when he joined U.S. Bancorp to assume responsibility
for Consumer Banking. Prior to joining U.S. Bancorp, he
served as Vice Chairman of Union Bank of California from
1991 to 2005 with responsibility for Community Banking
and Investment Services.
Richard J. Hidy
Mr. Hidy is Executive Vice President and Chief Risk Officer
of U.S. Bancorp. Mr. Hidy, 47, has served in these positions
since 2005. From 2003 until 2005, he served as Senior Vice
President and Deputy General Counsel of U.S. Bancorp,
having served as Senior Vice President and Associate General
Counsel of U.S. Bancorp and Firstar Corporation since
1999.
Joseph C. Hoesley
Mr. Hoesley is Vice Chairman of U.S. Bancorp. Mr. Hoesley,
55, has served as Vice Chairman of U.S. Bancorp since June
2006. From June 2002 until June 2006, he served as
Executive Vice President and National Group Head of
Commercial Real Estate at U.S. Bancorp, having previously
served as Senior Vice President and Group Head of
Commercial Real Estate at U.S. Bancorp since joining
U.S. Bancorp in 1992.
U.S. BANCORP
137
Pamela A. Joseph
Ms. Joseph is Vice Chairman of U.S. Bancorp. Ms. Joseph, 50,
has served as Vice Chairman of U.S. Bancorp since December
2004. Since November 2004, she has been Chairman and Chief
Executive Officer of Elavon Inc., a wholly owned subsidiary of
U.S. Bancorp. Prior to that time, she had been President and
Chief Operating Officer of Elavon Inc. since February 2000.
Howell D. McCullough III
Mr. McCullough is Executive Vice President and Chief Strategy
Officer of U.S. Bancorp and Head of U.S. Bancorp’s Enterprise
Revenue Office. Mr. McCullough, 53, has served in these
positions since September 2007. From July 2005 until
September 2007, he served as Director of Strategy and
Acquisitions of the Payment Services business of U.S. Bancorp.
He also served as Chief Financial Officer of the Payment
Services business from October 2006 until September 2007.
From March 2001 until July 2005, he served as Senior Vice
President and Director of Investor Relations at U.S. Bancorp.
Lee R. Mitau
Mr. Mitau is Executive Vice President and General Counsel of
U.S. Bancorp. Mr. Mitau, 61, has served in these positions since
1995. Mr. Mitau also serves as Corporate Secretary. Prior to
1995 he was a partner at the law firm of Dorsey & Whitney
LLP.
Joseph M. Otting
Mr. Otting is Vice Chairman of U.S. Bancorp. Mr. Otting, 52,
has served in this position since April 2005, when he assumed
responsibility for Commercial Banking. Previously, he served as
Executive Vice President, East Commercial Banking Group of
U.S. Bancorp from June 2003 to April 2005. He served as
Market President of U.S. Bank in Oregon from December 2001
until June 2003.
P.W. Parker
Mr. Parker is Executive Vice President and Chief Credit Officer
of U.S. Bancorp. Mr. Parker, 53, has served in this position since
October 2007. From March 2005 until October 2007, he
served as Executive Vice President of Credit Portfolio
Management of U.S. Bancorp, having served as Senior Vice
President of Credit Portfolio Management of U.S. Bancorp
since January 2002.
Richard B. Payne, Jr.
Mr. Payne is Vice Chairman of U.S. Bancorp. Mr. Payne, 62,
has served in this position since July 2006, when he joined
U.S. Bancorp to assume responsibility for Corporate Banking.
Prior to joining U.S. Bancorp, he served as Executive Vice
President for National City Corporation in Cleveland, with
responsibility for Capital Markets, from 2001 to 2006.
Diane L. Thormodsgard
Ms. Thormodsgard is Vice Chairman of U.S. Bancorp.
Ms. Thormodsgard, 59, has served as Vice Chairman of
U.S. Bancorp since April 2007, when she assumed
responsibility for Wealth Management & Securities Services.
From 1999 until April 2007, she served as President of
Corporate Trust and Institutional Trust & Custody services of
U.S. Bancorp, having previously served as Chief Administrative
Officer of Corporate Trust at U.S. Bancorp from 1995 to 1999.
138
U.S. BANCORP
Directors
Richard K. Davis1,6
Chairman, President and Chief Executive Officer
U.S. Bancorp
Minneapolis, Minnesota
Douglas M. Baker, Jr.3,6
Chairman, President and Chief Executive Officer
Ecolab Inc.
(Cleaning and sanitizing products)
St. Paul, Minnesota
Y. Marc Belton3,4
Executive Vice President, Worldwide Health,
Brand and New Business Development
General Mills, Inc.
(Consumer food products)
Minneapolis, Minnesota
Victoria Buyniski Gluckman2,4
Retired Chairman and Chief Executive Officer
United Medical Resources, Inc.,
a wholly owned subsidiary of
UnitedHealth Group Incorporated
(Healthcare benefits administration)
Cincinnati, Ohio
Arthur D. Collins, Jr.1,2,5
Retired Chairman and Chief Executive Officer
Medtronic, Inc.
(Medical device and technology)
Minneapolis, Minnesota
Joel W. Johnson3,6
Retired Chairman and Chief Executive Officer
Hormel Foods Corporation
(Consumer food products)
Austin, Minnesota
Olivia F. Kirtley 1,3,5
Business Consultant
(Consulting)
Louisville, Kentucky
Jerry W. Levin1,2,5
Chairman and Chief Executive Officer
Wilton Brands Inc.
(Consumer products) and
Chairman and Chief Executive Officer
JW Levin Partners LLC
(Private investment and advisory)
New York, New York
David B. O’Maley5,6
Chairman, President and Chief Executive Officer
Ohio National Financial Services, Inc.
(Insurance)
Cincinnati, Ohio
O’dell M. Owens, M.D., M.P.H.1,3,4
Independent Consultant and Hamilton County Coroner
(Consulting)
Cincinnati, Ohio
Richard G. Reiten2,3
Retired Chairman and Chief Executive Officer
Northwest Natural Gas Company
(Natural gas utility)
Portland, Oregon
Craig D. Schnuck4,6
Former Chairman and Chief Executive Officer
Schnuck Markets, Inc.
(Food retail)
St. Louis, Missouri
Patrick T. Stokes1,2,6
Retired Chairman and Chief Executive Officer
Anheuser-Busch Companies, Inc.
(Consumer products)
St. Louis, Missouri
1. Executive Committee
2. Compensation and Human Resources Committee
3. Audit Committee
4. Community Reinvestment and Public Policy Committee
5. Governance Committee
6. Risk Management Committee
U.S. BANCORP
139
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Corporate Information
Executive Offi ces
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.
Specifi c 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.
U.S. Bank, Member FDIC
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. Bancorp,
then Investor/Shareholder Information.
Mail At your request, we will mail to you our
quarterly earnings, news releases, quarterly
financial data reported on Form 10-Q,
Form 10-K, and additional copies of our
annual reports. Please contact:
U.S. Bancorp Investor Relations
800 Nicollet Mall
Minneapolis, MN 55402
investorrelations@usbank.com
Phone: 866-775-9668
Media Requests
Steven W. Dale
Senior Vice President, Media Relations
steve.dale@usbank.com
Phone: 612-303-0784
Privacy
U.S. Bancorp is committed to respecting the
privacy of our customers and safeguarding the
financial and personal information provided
to us. To learn more about the U.S. Bancorp
commitment to protecting privacy, visit
usbank.com and click on Privacy Pledge.
Code of Ethics
U.S. Bancorp places the highest importance
on honesty and integrity. Each year, every
U.S. Bancorp employee certifies compliance
with the letter and spirit of our Code of
Ethics and Business Conduct, the guiding
ethical standards of our organization. For
details about our Code of Ethics and
Business Conduct, visit usbank.com and
click on About U.S. Bancorp, then Ethics
at U.S. Bank.
Diversity
U.S. Bancorp and our subsidiaries are
committed to developing and maintaining
a workplace that reflects the diversity
of the communities we serve. We support
a work environment where individual
differences are valued and respected and
where each individual who shares the
fundamental values of the company has
an opportunity to contribute and grow
based on individual merit.
Equal Employment Opportunity/
Affi rmative 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 subsid-
iaries, is an Equal Opportunity Employer
committed to creating a diverse workforce.
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U.S. Bancorp
800 Nicollet Mall
Minneapolis, MN 55402
usbank.com
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