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U
.
S
.
B
A
N
C
O
R
P
2
0
1
1
A
n
n
u
a
l
R
e
p
o
r
t
Momentum
continues
U . S . B A N C O R P 2011 A n n u a l R e p o r t
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Business Scope
Corporate Profi le
Regional
Consumer & Business Banking
& Wealth Management
National
U.S. Bancorp is a diversifi ed fi nancial services holding company and
parent company of U.S. Bank National Association, the nation’s fi fth-largest
commercial bank. U.S. Bancorp was named Fortune Magazine’s 2011
Most Admired Superregional Bank and the fi fth Most Admired company
in management quality in the world. Recognized for its strong fi nancial
performance, prudent risk management, capital generation and product
quality, U.S. Bancorp provides a wide range of fi nancial services for
consumers, businesses, government entities and other fi nancial institutions.
U.S. Bank’s branch network serves 25 states, and we offer regional consumer
and business banking and wealth management services, national wholesale
and trust services and global payments services to more than 17.4 million
Wholesale Banking & Trust Services
customers. Headquartered in Minneapolis, U.S. Bank was founded in 1863
under national Charter #24 and is the nation’s second oldest bank operating
under its original charter. The company will celebrate its sesquicentennial
in 2013. U.S. Bancorp employs 63,000 people.
International
Payments
U.S. Bancorp At A Glance
Ranking
Asset size
Deposits
Loans
Corporate Trust
offices in London
and Dublin
Earnings per common share (diluted)
Return on average assets
Return on average common equity
Customers
Bank branches
ATMs
Consumer and business banking
and wealth management
U.S. Bank is 5th largest U.S. commercial bank
$340 billion
$231 billion
$210 billion
$2.46
1.53%
15.8%
17.4 million
3,085
5,053
Regional
Wholesale banking and trust services
National
Payment services, merchant processing
and corporate trust
International
NYSE symbol
Year founded
USB
1863
Information on this page is as of December 31, 2011
Sustainability
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
governments. Their environmental initiatives focus on:
• Reducing volatile organic compound 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, a program of the Rainforest Alliance,
to the FSC® standards and contains a minimum of 10% post-consumer recycled paper fi bers.
The narrative and fi nancial sections contain 30% post-consumer recycled paper fi bers.
Corporate Inform
Executive Offi ces
U.S. Bancorp
800 Nicollet Mall
Minneapolis, MN 55402
Common Stock Transfer Agent
and Registrar
Computershare Investor Services acts
as our transfer agent and registrar, dividen
paying agent and dividend reinvestment p
administrator, and maintains all shareholde
records for the corporation. Inquiries relate
shareholder records, stock transfers, chan
of ownership, lost stock certificates, chang
of address and dividend payment should b
directed to the transfer agent at:
Computershare Investor 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:
Computershare Investor 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 Computershare’s internet site
clicking on the Investor ServiceDirect® link
Independent Auditor
Ernst & Young LLP serves as the independ
auditor for U.S. Bancorp’s financial stateme
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
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Forward focus
During a diffi cult economic environment,
we continued to benefi t from the
investments we’ve made in this company,
positioning us well as the economy
improves. We are stronger today than
a year ago… and we expect the
momentum to continue.
Please see explanation on Page 17 regarding
the risks and uncertainties that may affect the
accuracy of forward-looking statements.
U.S. BANCORP
U.S. BANCORP
1
1
Selected Financial Highlights
Net Income
(Dollars in Millions)
5,000
2,500
4
2
3
4
,
2
7
8
,
4
7
1
3
3
,
6
4
9
2
,
5
0
2
2
,
07
08
09
10
11
Return on
Average Assets
(In Percents)
3
9
1
.
3
5
.
1
1
2
1
.
6
1
1
.
2
8
.
07
08
09
10
11
Net Interest Margin
(taxable-equivalent basis)
(In Percents)
6
6
3
.
7
6
3
.
7
4
3
.
8
8
3
.
5
6
.
3
0
2.0
1.0
0
4.00
2.00
0
Diluted Earnings
Per Common Share
(In Dollars)
Dividends Declared
Per Common Share
(In Dollars)
0
25
07
08
09
10
11
07
08
09
10
11
Return on Average
Common Equity
(In Percents)
Dividend Payout Ratio
(In Percents)
3.00
1.50
2
4
2
.
6
4
.
2
1
6
1
.
3
7
1
.
7
9
.
.
3
1
2
12.5
.
9
3
1
8
.
5
1
.
7
2
1
2
8
.
07
08
09
10
11
Efficiency Ratio(a)
(In Percents)
.
2
9
4
.
9
6
4
.
4
8
4
.
5
1
5
8
.
1
5
0
60
30
0
0
0
7
1
.
5
2
6
1
.
2.00
1.00
0
0
0
2
.
0
0
2
.
0
0
5
.
100
.
9
4
0
1
.
3
6
6
50
.
6
0
2
.
5
1
21
0
2
.
07
08
09
10
11
Tier 1 Capital
(In Percents)
.
6
0
1
6
9
.
.
5
0
1
8
.
0
1
3
8
.
0
12
6
0
07
08
09
10
11
07
08
09
10
11
07
08
09
10
11
Average Assets
(Dollars in Millions)
Average Shareholders’
Equity
(Dollars in Millions)
350,000
40,000
4
6
2
,
8
1
3
1
6
8
5
8
2
,
0
6
3
8
6
2
,
175,000
0
0
4
4
4
2
,
1
2
6
3
2
2
,
0
0
2
,
2
3
9
4
0
8
2
,
7
0
3
6
2
,
20,000
0
7
5
2
2
,
7
9
9
0
2
,
0
0
Total Risked-based
Capital
(In Percents)
.
3
4
1
.
2
2
1
.
9
2
1
.
3
3
1
3
.
3
1
15
7.5
0
07
08
09
10
11
07
08
09
10
11
07
08
09
10
11
(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
Financial Summary
Year Ended December 31
(Dollars and Shares in Millions, Except Per Share Data)
2011
2010
2009
2011
v 2010
2010
v 2009
Total net revenue (taxable-equivalent basis) ...............................
$ 19,108
$ 18,148
$ 16,668
Noninterest expense ...................................................................
Provision for credit losses ...........................................................
Income taxes and taxable-equivalent adjustments ......................
9,911
2,343
2,066
Net income ..............................................................................
4,788
Net (income) loss attributable to noncontrolling interests ........
84
9,383
4,356
1,144
3,265
52
8,281
5,557
593
2,237
(32)
Net income attributable to U.S. Bancorp .................................
$ 4,872
$ 3,317
$ 2,205
5.3%
5.6
(46.2)
80.6
46.6
61.5
46.9
8.9%
13.3
(21.6)
92.9
46.0
*
50.4
Net income applicable to U.S. Bancorp
common shareholders..........................................................
$ 4,721
$ 3,332
$ 1,803
41.7
84.8
Per Common Share
Earnings per share .......................................................................
$ 2.47
$ 1.74
$ .97
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 ..............................
2.46
.50
16.43
27.05
1,914
1,923
1.73
.20
14.36
26.97
1,912
1,921
.97
.20
12.79
22.51
1,851
1,859
42.0%
42.2
*
14.4
.3
.1
.1
79.4%
78.4
–
12.3
19.8
3.3
3.3
Financial Ratios
Return on average assets.............................................................
1.53%
1.16%
.82%
Return on average common equity ..............................................
Net interest margin (taxable-equivalent basis) .............................
Effi ciency ratio (a) ...........................................................................
15.8
3.65
51.8
12.7
3.88
51.5
8.2
3.67
48.4
Average Balances
Loans ............................................................................................
$201,427
$193,022
$185,805
4.4%
3.9%
Investment securities ...................................................................
63,645
Earning assets ..............................................................................
283,290
Assets ...........................................................................................
318,264
Deposits .......................................................................................
213,159
Total U.S. Bancorp shareholders’ equity ......................................
32,200
47,763
252,042
285,861
184,721
28,049
42,809
237,287
268,360
167,801
26,307
33.3
12.4
11.3
15.4
14.8
11.6
6.2
6.5
10.1
6.6
Period End Balances
Loans ............................................................................................
$209,835
$197,061
$194,755
6.5%
1.2%
Allowance for credit losses ..........................................................
Investment securities ...................................................................
5,014
70,814
Assets ...........................................................................................
340,122
Deposits .......................................................................................
230,885
Total U.S. Bancorp shareholders’ equity ......................................
33,978
5,531
52,978
307,786
204,252
29,519
5,264
44,768
281,176
183,242
25,963
(9.3)
33.7
10.5
13.0
15.1
5.1
18.3
9.5
11.5
13.7
Capital ratios
Tier 1 capital ............................................................................
Total risk-based capital ...........................................................
Leverage ...................................................................................
10.8%
13.3
9.1
Tier 1 common equity to risk-weighted assets
using Basel I defi nition (b).......................................................
Tier 1 common equity to risk-weighted assets
using anticipated Basel III defi nition (b) ..................................
Tangible common equity to tangible assets (b) ..........................
Tangible common equity to risk-weighted assets (b) .................
8.6
8.2
6.6
8.1
10.5%
13.3
9.1
7.8
7.3
6.0
7.2
9.6%
12.9
8.5
6.8
5.3
6.1
* 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-GAAP Financial Measures beginning on page 62.
U.S. BANCORP
3
Momentum
continues
Fellow Shareholders:
U.S. Bancorp has created momentum by
remaining disciplined with our business
strategy and investing for our future
U.S. Bancorp ended 2011 on a high note, reporting both record
net revenue and record net income. We experienced notable
growth in deposits, loans and commitments year-over-year, and
credit quality continued to improve. Our capital position remains
While we are pleased with our fi nancial results, we also recognize
that our nation’s economy is still in the midst of a very slow recovery.
Yes, there are clear areas of improvement, but some of our regions
and customers are still struggling and, despite some improvement,
the unemployment level is still too high and the housing market is
still without direction. We expect to remain steadfast in working
through these challenges with our customers and our communities
— for our collective and future success.
very strong as we continued to generate signifi cant capital each
Contextual information is often as enlightening as the fi nancial data.
quarter through solid and predictable earnings. Indeed, 2011
Therefore, on the pages following this letter, we tell you more about
marked another year of robust and sustainable fi nancial
our strategies and accomplishments, new products and services
performance — at the very top of our peer group — and we
and some examples of how we work with our customers. We will
achieved these results despite a very challenging and uncertain
focus on our continuing momentum and showcase our talented
economic and regulatory environment. We begin 2012 as a
employee leaders.
stronger company than we were just one year ago.
U.S. Bancorp has differentiated itself from the peer banks throughout
Unsettled regulatory and legislative
climate continues
the economic downturn, validating our franchise strengths, including
The myriad rules, regulations, legislation and government scrutiny
our remarkable employees, our focus on customer satisfaction, the
following the economic downturn represent efforts by the Adminis-
company policies of prudent risk controls, the management and
tration, the regulators and the Congress to strengthen the fi nancial
use of our shareholders’ capital and our disciplined, effi cient opera-
services industry and prevent another crisis for our industry and
tions. These results have made us the benefi ciary of a continuing
for our country. These efforts are being repeated on a global scale
fl ight to quality, as customers — as well as employees, prospects
which create a “trebling effect”, making it more challenging to
and investors — seek out U.S. Bancorp as a very solid company in
determine the “new normal” for banking rules and policies in the
which to place their fi nancial trust.
future. This new paradigm also requires us to spend increasingly
Diversified Revenue Mix
By business line 2011 YTD
28%
20%
44%
8%
28%
20%
9%
43%
(cid:129) Payment Services
(cid:129) Wholesale Banking and Commercial Real Estate
(cid:129) Wealth Management and Securities Services
(cid:129) Consumer and Small Business Banking
4
U.S. BANCORP
Solid Capital Position
32
22.6
16
6.8%
)
s
n
o
i
l
l
i
B
n
i
s
r
a
l
l
o
D
(
25.9
7.8%
29.2
12
8.6%
6
)
s
t
n
e
c
r
e
P
n
I
(
0
2009
2010
2011
(cid:129) Tier 1 Capital
(cid:129) Tier 1 Common Ratio
more time, personnel and resources managing the regulatory over-
sight process, adding signifi cantly to our cost of doing business.
That being said, U.S. Bancorp has set in place a structure to man-
age and monitor the regulatory environment and to develop and
deliver a comprehensive, corporate-wide roadmap that ensures
that our company effectively meets all regulatory requirements.
Of primary importance is the Dodd-Frank act, a 2,300-plus page
legal mandate with 1,500 provisions, 16 titles and hundreds of
anticipated rules that affect many of our business lines and,
inevitably, our customers.
While current regulatory reform in our industry is nothing less than
transformational, our management team and Board of Directors
foresee opportunities to make strategic moves to effectively posi-
tion U.S. Bank in a new regulatory environment as an advantaged
competitor. We also see an emerging role for U.S. Bancorp as an
industry leader with a strong, measured and thoughtful voice to help
rebuild the reputation of the banking industry which, along with its
more than 2.4 million employees, serves our country.
Growing markets and businesses
through acquisitions
In the past year, we have made a number of strategic bank
and non-bank acquisitions. All have opened new markets to us,
strengthened existing markets and/or built additional scale in
profi table business lines. It is the strategy that we have followed
for the past several years — and it has worked well. Corporate
trust businesses, payments capabilities and card portfolios are
high on our list, as well as smaller bank asset purchases. We
have demonstrated that we can acquire and integrate acquisitions
effi ciently, smoothly and without disruption to our continuing
organic momentum.
Richard K. Davis
Chairman, President and Chief Executive Offi cer
We also announced several payment and trust-related acquisitions
during the past year, including a portfolio of approximately $700
Over the past year, U.S. Bancorp has taken strategic advantage
million of credit card assets, the institutional trust business of Union
of two FDIC-assisted bank acquisitions. Our purchases have been
Bank, a unit of UnionBanCal Corporation of San Francisco and the
low-risk transactions: well-priced banks in growth markets that
Indiana corporate trust business of UMB Bank N.A. All will allow
help us get closer to achieving our goals of being in the top three
us to continue to gain scale in these businesses, and we expect
in market share in targeted, growing markets. In January of 2011,
to see additional opportunities in payments and corporate trust
we acquired the banking operations of First Community Bank of
in the coming years. In all, U.S. Bancorp has acquired more than
Albuquerque, New Mexico from the FDIC, adding the 25th state
$3.2 billion in card assets and $1.1 trillion in trust assets under
to our branch footprint. In January 2012, we agreed to buy the
administration during the downturn.
$272 million-asset BankEast in Knoxville, Tennessee, further
strengthening our footprint in the attractive Tennessee market.
In total, we have acquired approximately $37 billion in assets in
six FDIC-assisted transactions during the downturn.
As we have noted many times before, we won’t miss a compelling
opportunity, but we will not put our future growth and shareholders’
capital in harm’s way simply to become a bigger bank.
U.S. BANCORP
5
U.S. Bancorp Board of Directors
i ht)
U.S. Bancorp Board of Directors (left to right)
d f Di
U S B
(l ft t
B
t
t
Olivia F. Kirtley, business consultant
b i
Oli
i F Ki tl
lt
Arthur D. Collins, Jr., retired Chairman and Chief Executive Offi cer, Medtronic, Inc.
Richard G. Reiten, retired Chairman and Chief Executive Offi cer,
Roland A. Hernandez, Founding Principal and Chief Executive Offi cer of
Northwest Natural Gas Company
Hernandez Media Ventures
David B. O’Maley, Executive Chairman and retired President and
Joel W. Johnson, retired Chairman and Chief Executive Offi cer,
Chief Executive Offi cer, Ohio National Mutual Holdings, Inc.
Hormel Foods Corporation
Richard K. Davis, Chairman, President and Chief Executive Offi cer, U.S. Bancorp
Patrick T. Stokes, former Chairman and former Chief Executive Offi cer,
Jerry W. Levin, Chairman and Chief Executive Offi cer, JW Levin Partners LLC,
Anheuser-Busch Companies, Inc.
and Chairman and Chief Executive Offi cer, Wilton Brands
Craig D. Schnuck, former Chairman and Chief Executive Offi cer, Schnuck Markets, Inc.
Douglas M. Baker, Jr., Chairman, President and Chief Executive Offi cer, Ecolab, Inc.
Victoria Buynisky Gluckman, retired Chairman and Chief Executive Offi cer,
Doreen Woo Ho, President, San Francisco Port Commission
United Medical Resources, Inc.
Y. Marc Belton, Executive Vice President, Global Strategy,
O’dell M. Owens, M.D., M.P.H., President, Cincinnati State Technical and
Growth and Marketing Innovation, General Mills, Inc.
Community College
Welcome our newest U.S. Bancorp directors
and extensive corporate governance experience will make him
We are delighted to welcome Doreen Woo Ho and Roland
a great addition to U.S. Bancorp’s Board of Directors.
Hernandez to our Board. Doreen’s extensive commercial and
consumer banking background, along with her fi rst-hand
experience in the California banking market, will be an excellent
asset to our company. Roland’s broad retail consumer insights
Revenue
(Dollars in Millions)
5,500
4,721
4,690
4,795
5,104
4,500
4,519
3,500
4Q10
1Q11
2Q11
3Q11
4Q11
6
U.S. BANCORP
Doreen is President of the San Francisco Port Commission, the
governing board responsible for the San Francisco, California,
waterfront. She also served more than 35 years in the banking
industry. Roland is the Founding Principal and Chief Executive Offi cer
of Hernandez Media Ventures, a company engaged in the acquisi-
tion and management of media assets. He also served as Chairman,
President and Chief Executive Offi cer of Telemundo Group, Inc.,
a Spanish-language television and entertainment company.
Rewarding our shareholders
Returning capital to shareholders in the form of dividends and
buybacks is of the utmost importance to our company, and raising
the dividend continues to be the top priority for me, our manage-
ment team and our Board of Directors. Our strong capital levels,
liquidity and ongoing profi tability are key to our ability to return
capital. In fact, we have already reached the capital level we believe
we need to achieve to satisfy Basel III regulatory requirements —
levels that will not be required until 2019. Going forward, coupled
U.S. Bancorp Managing Committee
i ht)
U.S. Bancorp Managing Committee (left to right)
i C
U S B
(l ft t
M
itt
J
Joseph C. Hoesley, Vice Chairman, Commercial Real Estate
l R l E t t
Vi Ch i
h C H
C
l
i
Richard B. Payne, Vice Chairman, Wholesale Banking
P.W. (Bill) Parker, Executive Vice President and Chief Credit Offi cer
Jeffry H. von Gillern, Vice Chairman, Technology and Operations Services
Lee R. Mitau, Executive Vice President and Chief Counsel
Jennie P. Carlson, Executive Vice President, Human Resources
Pamela A. Joseph, Vice Chairman, Payment Services
Howell (Mac) McCullough, III, Executive Vice President, Chief Strategy Offi cer
Richard C. Hartnack, Vice Chairman, Consumer and Small Business Banking
Andrew Cecere, Vice Chairman and Chief Financial Offi cer
Terrance R. Dolan, Vice Chairman, Wealth Management and Securities Services
Richard J. Hidy, Executive Vice President and Chief Risk Offi cer
Richard K. Davis, Chairman, President and Chief Executive Offi cer
with regulator approval, this gives us the added fl exibility to invest
Prospects for the future
in our business and return excess capital — rewarding our share-
Despite the continuing economic uncertainty here and in Europe,
holders through higher dividends and share buybacks. We have
this management team, Board of Directors and 63,000 highly
submitted our request to the regulators for increases in both our
engaged U.S. Bancorp employees join me in looking to the future
dividend and share buyback program and should receive their
of this company with confi dence. U.S. Bancorp has been resilient
response by mid-March.
Average Loans and Deposits
(Dollars in Billions)
230
195.5
190
190.3
223.3
215.4
207.0
202.2
209.4
204.3
197.6
198.8
150
4Q10
1Q11
2Q11
3Q11
4Q11
(cid:129) Loans
(cid:129) Deposits
and successful throughout an historic economic downturn; our
diverse business mix, sound strategies and prudent business
model — as well as our determination to “do the right thing” —
put us in an excellent position for the years ahead.
Sincerely,
Richard K. Davis
Chairman, President and Chief Executive Offi cer
February 23, 2012
U.S. BANCORP
7
80 years and counting: Ziegler and U.S. Bank
One of the largest and most highly regarded Caterpillar equipment dealers in the U.S., Ziegler operates
21 locations in Minnesota and parts of Iowa, serving the construction, mining, agriculture, government,
and power generation industries with rentals, parts, service and fi nancing. Ziegler has been a valued
U.S. Bank customer since 1929, utilizing a wide range of U.S. Bank credit, treasury management, merchant
processing and trust services, a testimony to the importance of building deeper customer relationships.
Shown left to right: Mike Staloch of U.S. Bank, Ziegler’s Relationship Manager for more than 15 years;
Ziegler CFO Mark Allen; Ziegler President Stan Erickson.
Scan the photo above to see the new U.S. Bancorp branding video.
8
U.S. BANCORP
Momentum
customers
U.S. Bank differentiates
through outstanding customer
experience
Customers continued to rank U.S. Bank
high in overall satisfaction, quality and
value according to American Customer
Satisfaction Index (ACSI) research
conducted in the third quarter of 2011.
U.S. Bank once again exceeded the
industry average and that of the four
largest banks in the country.
Connection with our customers
U.S. Bank employs every means possible to connect with our customers, to understand
their goals and needs and to meet their demands for service delivery and product benefi ts.
Convenience is paramount to our customers
In 2011, U.S. Bank continued to offer new convenience for customers and prospects who
can now engage live service representatives in online chat sessions, improving customer
satisfaction. U.S. Bank exceeded fi ve million electronic statements delivered per month,
not only resulting in greater convenience for our customers, but also contributing to our
“green” initiatives.
New products and services
Some new products and services make banking easier, faster and more convenient for
millions of our customers; others serve specialized customer segments.
Money® Magazine cited U.S. Bank checking as the best national checking account, in part
due to our high customer satisfaction ranking by J.D. Power & Associates. We introduced
real-time ATM card and check card alerts to our consumer and business cardholders’
mobile devices and computers. Alerts notify customers of important account activity,
ranging from suspicious activity being detected to cash being withdrawn from an ATM.
Additionally, our successful and easy savings and rewards program, S.T.A.R.T. — Savings
Today And Rewards Tomorrow — continues to grow, with more than 865,000 users
in the fi rst year of its franchise-wide introduction. Our new Visa® Convenient CashTM Card,
is a reloadable prepaid card that allows cardholders to make purchases wherever Visa®
debit is accepted, and is available in all of our branches.
For specialized customer segments, Elavon, a wholly owned subsidiary and a leading
global payments provider, introduced MobileMerchant, an innovative, affordable and
secure payment solution that transforms mobile devices into terminals, allowing small
businesses to accept payments quickly and securely anywhere, anytime. U.S. Bancorp
Fund Services, LLC launched its new Exchange Traded Funds (ETF) service called
ETF-FusionTM with full-service support for investment managers sponsoring ETF products.
U.S. Bank business and government customers benefi t from an enhanced, image-based
national wholesale lockbox technology platform. Remote Cash Deposit service is now
available to businesses and provides secure cash transportation and cash management
solutions for customers in the retail and restaurant industries. Another new tool for
business customers provides secure banking services via their mobile devices. U.S. Bank
Mobile SinglePoint connects them to their account information wherever they are located.
Keynote Systems, leader in Internet
monitoring, ranked U.S. Bank fi rst in
a study of U.S. retail bank websites.
U.S. Bank received top scores in overall
customer experience, as well as in the
categories of brand impact, acquisition
impact and online adoption.
#
1
U.S. BANCORP
9
Momentum
innovation
U.S. Bancorp recognized as fi nancial innovator
Innovation is vital to the future of U.S. Bank, and it is a corporate priority to innovate
and invest in the technology and operations systems that make it easy, fast and secure
to do business with us. We invest in new ways to provide the information, products and
delivery systems our customers need — and to enhance our capabilities in the areas
of regulatory compliance and risk management. We have fostered a culture of innovation
and are committed to investments in technology both externally and internally.
We are developing a wide range of products and integrated delivery systems as our
customers accept, adopt and anticipate more and more emerging technologies and
as they demand immediacy and seamless connections between electronic and mobile
devices, which are becoming central to their lives.
Payments on the cutting edge
U.S. Bank has become a key industry player in payments technologies. We continue
to identify business opportunities and emerging technologies that meet customer needs
today and anticipate what they might be tomorrow. Our initiatives include solutions for
consumers and small businesses, as well as for larger businesses and targeted business
sectors here and internationally. Additionally, U.S. Bank was the fi rst bank in the nation
to offer Mobile Banking and Bill Pay services to under-banked customers on reloadable
prepaid cards such as U.S. Bank ReliaCard.
U.S. Bank, a leader in Mobile Banking and online innovation
We develop ongoing enhancements to our Mobile Banking applications and capabilities.
Mobile innovation is a priority for U.S. Bank because, for millions of our customers,
mobile banking is the maximum convenience. With the launch of new mobile banking
enhancements in 2011, customers now can use their mobile devices to deposit checks
and monitor credit card activity, in addition to features already offered such as person-to-
person payments, access to account balances and transaction history, transfer funds
and pay bills. Recognizing the intersection between the online and mobile banking delivery
channels, U.S. Bank has made great strides to integrate the two in terms of content and
ease of log in.
In the fall of 2011 our online home page at usbank.com was redesigned based on
customer feedback and now offers improved customer-focused content; easier, faster
account applications; ability to apply for multiple products; and more user-friendly
navigation and connections.
Branch technology soars ahead
We recently completed a $200 million franchise-wide technology transformation in
our branch network. New servers, hardware and software at all locations accelerate
processing time and streamline customer transactions. Dubbed SOAR — State of the
Art Renovation — the investment gives our bankers more time to understand customer
needs and deliver faster, user-friendly solutions and customer service.
10
U.S. BANCORP
U.S. Bank gets social
U.S. Bank connects with customers, prospects and our employees through social
media channels. We use social media internally for communications and collaboration
and externally for effective, targeted interactive marketing initiatives. Our presence on
Facebook, Twitter and YouTube lets us engage customers immediately, both proactively
and responsively, creating goodwill by answering questions and responding to any
negative issues with quick reaction. Our growing internal social network, US Book, gives
groups of employees immediate and interactive ways to share, collaborate, network and
stay engaged with U.S. Bank and their colleagues across our footprint.
On the go? Go unencumbered with VITAband
U.S. Bank is a leader in new payments options and innovation, and we widened the lead with the
U.S. Bank MasterCard® PayPassTM VITAband,® a light-weight, durable wristband that combines contactless
payment technology with emergency contact and medical information — great for runners and other sports
enthusiasts or busy people on-the-go who want to travel light and don’t want the bother of carrying cash
and identifi cation.
Scan the photo above to learn more about the VITAband.
innovation
award
Barlow Research Associates, Inc. honored U.S. Bank with a 2011
Monarch Innovation Award, recognizing the company’s ScoreBoard
online payments management tool for small businesses which
helps small businesses make smarter decisions about the fi nancial
operations of their business.
U.S. BANCORP
11
U.S. Bank earns high marks for in-store and on-campus banking
U.S. Bank’s growing branch network includes full service traditional, in-store, and on-campus corporate and university
locations, such as this active offi ce at San Diego State University. Founded in 1897, SDSU’s 30,000 students can earn
bachelor’s degrees in 84 areas, master’s degrees in 76 areas and doctorates in 16 areas; SDSU’s annual economic impact
to the state of California is $6.5 billion. U.S. Bank is proud to partner with SDSU to provide students with our San Diego
State University Campus Card for ATM usage and debit purchases, on-campus ATMs, and a convenient on-campus branch.
Scan the photo above to learn how to bank anywhere with U.S. Bank Mobile Banking.
Ascent Private Capital Management has arrived
In 2011, U.S. Bank Wealth Management developed and launched its
newest business, Ascent Private Capital Management, serving the
needs of ultra high net worth clients. Ascent offers clients a unique
array of services centered around the impact and management
of wealth that set U.S. Bank apart in this highly specialized and
sophisticated business. Our fi rst two Ascent offi ces opened in 2011
in Minneapolis and Denver, with plans to open four additional offi ces
during the next two years.
12
U.S. BANCORP
Momentum
markets
Entering our 25th state and new markets, expanding services
In 2011, U.S. Bank expanded its branch banking network into New Mexico, its 25th
contiguous state, adding 35 branches in New Mexico and three in Arizona with the
acquisition of the banking operations of First Community Bank, a subsidiary of First State
Bancorporation. The transaction established U.S. Bank immediately as one of the top
three banks in market share in the state of New Mexico.
In January 2012, U.S. Bank again acquired important branches with the purchase
of the banking operations of BankEast, a subsidiary of BankEast Corporation, based
in Knoxville, Tennessee, extending our franchise in the attractive Tennessee market.
The former BankEast’s 10 branches in the Knoxville area bring U.S. Bank’s total branch
count in Tennessee to 91, with plans to continue to expand organically in the state.
U.S. Bank Corporate Trust expands to Europe
U.S. Bank’s year-end 2010 acquisition of the domestic and European-based securitization
trust administration businesses of Bank of America, N.A. established U.S. Bank as a leader
in the U.S. structured fi nance trust business and complements U.S. Bank’s current market
position in the U.S. corporate and municipal trust business. It also established a presence
in Europe with offi ces in Ireland and London, England, providing U.S. Bank Corporate
Trust Services with an opportunity to expand its distribution and product offerings abroad.
We continue to look for additional opportunities to acquire business as other banks look
at sales to raise capital to meet new regulatory requirements. U.S. Bank Global Corporate
Trust Services is one of the largest providers of trustee services in municipal, corporate,
asset-backed and international bonds, providing a wide range of trust and agency services.
The momentum continues in Wealth Management
The launch of Ascent Private Capital Management (see sidebar) completes the
transformation of our Wealth Management business into one with the capability to meet
the specialized needs of affl uent, high net worth and ultra high net worth clients. The
Private Client Group now serves greater numbers of affl uent clients more conveniently
through our expansive branch network, while high net worth clients are served by a
dedicated wealth manager and team of specialists in The Private Client Reserve to meet
their demands. With $78.8 billion in assets under management and our targeted advice,
expertise and services, we are among the leaders in Wealth Management, ranked in
Barron’s 2011 “Top 40 Wealth Managers” list.
Growing beyond our 25-state footprint in high-growth businesses
Our Elavon payments business continues to expand internationally, as does Treasury
Management through global partnerships. At the same time, our Corporate Banking,
Corporate Trust, Commercial Real Estate, and Capital Markets businesses continue to
expand in national markets. Our growth in market share, industry-leading fi nancial results
and recognition as one of the nation’s strongest banks has created new awareness of
Elavon
ex
excellence
Elavon, our subsidiary and a leading
global payments provider, won the
Merchant Acquirer of the Year Award
at the Cards & Payments Europe 2011
Conference for making “a major change
to the industry through expansion,
our strength, capital position and expertise. Our ability to deliver on our commitments has
acquisitions or technological
continued a fl ight to quality and generated new business for all these businesses.
advancements.”
U.S. BANCORP
13
Momentum
lending
U.S. Bank leads the industry in loan growth
Small Business is big to us
U.S. Bank works closely with our business
customers to anticipate challenges and
manage concerns. We continued our
“second look” process to help put small
business customers in the best position to
get the capital they need. In 2011, we held
more than 125 seminars, reaching thousands
of business owners and providing valuable
education and information. U.S. Bank set
a new company record for Small Business
Administration (SBA) loan approvals with a
total of $630 million for the SBA fi scal year,
ended September 30, 2011. U.S. Bank was
the No. 1 lender in loans and/or dollar vol-
ume in Kansas City, Minneapolis, Portland,
Seattle, and St. Louis, another sign of our
commitment to small businesses and to
helping get local economies moving again.
Driven primarily by commercial loans and residential mortgages, U.S. Bancorp reported
a 4.4 percent growth in average total loans for 2011 versus 2010, while credit quality
continued to improve. Commercial loans grew by a strong 15.8 percent over the fourth
quarter of last year, the fourth consecutive quarter of year-over-year growth in average
commercial loans, and the growth rate improved each quarter. This is good news for our
company, our customers and an indicator that the nation’s economy is slowly recovering.
Some of the year’s loan growth is due to business refi nancing, and many of those
refi nancing transactions represented large corporate transactions we were invited
to participate in for the fi rst time. They represent growth and increased market share
for our company, as well as opportunities for potential future business.
Additionally, in the fourth quarter of 2011, total average revolving corporate, commercial
and commercial real estate commitments outstanding increased by 21.1 percent year-
over-year, continuing a trend we have experienced for several quarters, an indication that
loans will likely continue to grow into 2012. However, although we are growing commercial
loan commitments, business customers remain cautious, and many are not fully utilizing
their lines of credit — at year-end, commercial and commercial real estate utilization
remained fl at at about 25 percent, below our historic levels of 30 to 35 percent.
Still, it is encouraging that businesses are optimistic about being prepared for the future,
and we are ready to be their fi nancing and fi nancial partner when they are ready to expand,
to increase inventories, and resume other normal growth activities that come with a
robust economy.
Small businesses an economic driver
We’re also seeing substantial growth in Small Business lending through our branch
network, up 13.5 percent over 2010. We have focused the past several years on Small
Business as critical to our communities and the nation’s economy. Our investments
in staffi ng, training and back-offi ce support systems are paying off for us and for our
customers. We added more than 80,000 net new Small Business customers in 2011,
growing market share and creating a pipeline of future growth as small business America
recovers and retakes its rightful position as job creator and economic driver.
Consumer credit comeback
On the consumer side, our branches have become a signifi cant source of card originations
as they market the relationship aspects of new accounts, more closely tying credit and debit
cards to their customers’ core accounts. Despite a subdued economy and well-known
consumer challenges, we have seen growth in automobile, home equity lending and credit
cards, while maintaining our acknowledged standards of underwriting and quality. Residential
“BB
”kk
Best Bank
award
mortgages, one of our core businesses, increased as well, as homeowners refi nanced
U.S. Bank won its second “Best Bank in
and consumers took advantage of low rates and historically low housing prices.
the United States” award in the Euromoney
magazine Awards for Excellence.
— Euromoney, July 2011
14
U.S. BANCORP
Like U.S. Bank, Forster Tool & Manufacturing believes in strong client relationships
Founded in 1958, Forster Tool & Manufacturing is a second-generation business providing precision custom
machining services. Today the company, located in Bensenville, Illinois, continues the tradition of dependable
service. Forster Tool provides precision machined parts for a variety of industries and applications, including:
motion control/instrumentation, medical, dental, electronics, automotive, defense and sporting goods. Customers
of U.S. Bank for just one year, owners Maureen and Scott Forster were impressed by our thoroughness in
understanding their business, our responsiveness and our willingness to help them meet their fi nancial goals.
Left to right: Scott Forster, Maureen Forster, and Joe Minogue, Vice President, Business Banking, U.S. Bank.
Scan the photo above to see our banker trade places with small business owners.
U.S. BANCORP
15
Momentum
commitment
U.S. Bancorp and our employees step up, give back
U.S. Bancorp is known as much for its commitment to our communities, our employees —
and our planet — as we are for our outstanding fi nancial results. We take being good
stewards and good citizens very seriously, and we embrace the responsibility to give back
and support a wide variety of worthwhile efforts that make our communities stronger.
We want each customer and each employee to live and work in a vibrant community.
U.S. Bank wins the 2011 Spirit of
America Award from United Way
We know that it’s the right thing to do and also know that when we help our communities,
we help our company as well.
U.S. Bancorp fully supports the volunteer efforts of our
63,000 employees; we encourage their participation
and support them with paid time off to volunteer. Our
new online volunteer site gives employees easy access to
local volunteer opportunities and our 59 local Development
Network chapters emphasize and organize community
service events. In our Dollars for Doing program, we
donate a “match” of employee volunteer hours at
$5 per hour up to 40 hours. In 2011, our employees
volunteered 141,167 total hours in our communities.
Our own taking care of our own
U.S. Bancorp Foundation
In 2011 U.S. Bancorp donated
$46 million to strengthen our
communities. These grants,
contributions and nonprofit
sponsorships supported
economic development, arts
and culture, education, and
local United Way campaigns
across our franchise.
Scan the photo to see Richard Davis
accept the award.
U.S. Bank hires, supports
and honors heroes
In November, G.I. Jobs magazine named
U.S. Bank one of the Top 100 Military
Friendly Employers.® The list, drawn from a
sample of approximately 5,000 companies,
was created based on specifi c criteria,
One of the programs we’re most proud of is our Employee Assistance Fund. Since it was
including the strength of military recruiting
created in 2008, more than $2 million has been contributed by employees to help their
efforts, the percentage of new hires with
fellow employees in times of exceptional fi nancial need. The Fund has made more than
prior military service, and company policies
300 grants totaling more than $1 million.
toward National Guard and Reserve service.
U.S. Bank partners with Milwaukee to stabilize neighborhoods
U.S. Bank, working with the City of
Milwaukee, established a $1 million
U.S. Bank Community Restoration
Fund to purchase and rehabilitate
properties in the city’s Neighborhood
Stabilization Program (NSP) zones.
The fund provides short-term, low-rate
fi nancing to smaller developers
and includes up to $15 million in
single-family mortgages. Left to right:
Lisa Glover, U.S. Bank Executive Vice
President and Director of Community
Affairs; Developer Cindy Kuhs,
Kuhs Quality Homes, Inc.; Milwaukee
Mayor Tom Barrett; Milwaukee
Redevelopment and Special Projects
Manager Maria Prioletta.
16
U.S. BANCORP
The momentum
continues
• Ongoing innovation and investment
• Prudent capital and risk management
• Strong customer relationships
• Highly engaged employees
• Outstanding customer service
• Continuous community support
On the following pages, learn more about the fi nancial results
and corporate policies that support our goals and strategies
Financials
18 Management’s Discussion
and Analysis
67 Reports of Management and
Independent Accountants
70 Consolidated Financial
Statements
74 Notes to Consolidated
Financial Statements
128 Five-year Consolidated
Financial Statements
130 Quarterly Consolidated
Financial Data
…and drive our momentum.
131 Supplemental Financial Data
134 Company Information
143 Executive Offi cers
145 Directors
Inside Back Cover
Corporate Information
Forward-Looking Statements
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 and are based on the information available to, and assumptions and estimates
made by, management as of the date hereof. These forward-looking statements cover, among other things, anticipated future revenue and
expenses and the future plans and prospects of U.S. Bancorp.
Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those
anticipated, including deterioration in general business and economic conditions; a recurrence of turbulence in the fi nancial markets; continued stress in
the commercial real estate markets, as well as a delay or failure of recovery in the residential real estate markets; changes in interest rates; deterioration
in the credit quality of its loan portfolios or in the value of the collateral securing those loans; deterioration in the value of securities held in its investment
securities portfolio; legal and regulatory developments, increased competition from both banks and non-banks; changes in customer behavior and
preferences; effects of mergers and acquisitions and related integration, effects of critical accounting policies and judgments; and management’s ability
to effectively manage credits risk, residual value risk, market risk, operational risk, interest rate risk and liquidity risk. 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 134–142 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.
U.S. BANCORP
17
Management’s Discussion and Analysis
Overview
U.S. Bancorp and its subsidiaries (the “Company”) achieved
record earnings in 2011, demonstrating the advantage of its
diversified business model, and ability to implement its
strategy. The Company achieved these results despite the
challenges of continued economic weakness and increasing
regulatory costs, by continuing to focus on execution,
prudently managing its businesses and investing in its
franchise. The Company’s 2011 financial results were driven
by record total net revenue, lower credit costs due to a
continued stabilizing economy, and ongoing dedication to
operational efficiency. Total net revenue reflected growth in
both the balance sheet and fee-based businesses. The
Company grew both loans and deposits substantially in 2011,
benefiting from investments it made in its business lines and
the overall “flight-to-quality” by customers.
The Company earned $4.9 billion in 2011, an increase of
46.9 percent over 2010. Growth in total net revenue of $960
million (5.3 percent) was attributable to an increase in net
interest income, the result of higher earning assets and
continued growth in lower cost core deposit funding, and
higher noninterest income. Noninterest income grew year-
over-year as increases in payments-related revenue and other
fee-based businesses were partially offset by expected
decreases in revenue from recent legislative actions. The
Company’s total net charge-offs and nonperforming assets
decreased throughout the year. The Company also continued
to focus on effectively managing costs while making
investments to increase revenue and enhance customer service,
with an industry-leading efficiency ratio (the ratio of
noninterest expense to taxable-equivalent net revenue,
excluding net securities gains and losses) in 2011 of
51.8 percent.
The Company’s capital position remained strong and
grew during 2011, with a Tier 1 common equity to risk-
weighted assets ratio (using Basel I definition) of 8.6 percent
and a Tier 1 capital ratio of 10.8 percent at December 31,
2011. Importantly, using anticipated Basel III calculations, the
Company’s Tier 1 common equity ratio was 8.2 percent at
December 31, 2011 — well above the proposed minimum of 7
percent required in 2019 when these calculations are proposed
to be fully implemented. In addition, at December 31, 2011,
the Company’s total risk-based capital ratio was 13.3 percent,
and its tangible common equity to risk-weighted assets ratio
was 8.1 percent (refer to “Non-GAAP Financial Measures”
for further information on the calculation of the Tier 1
common equity to risk-weighted assets and tangible common
equity to risk-weighted assets ratios). Given the strength of its
capital position and on-going ability to generate significant
capital through earnings, the Company was able to return 31
percent of its earnings to common shareholders in the form of
dividends and common share repurchases during 2011. Credit
rating organizations rate the Company’s debt among the
highest of its large domestic banking peers. This comparative
financial strength provides the Company with favorable
funding costs, strong liquidity and the ability to attract new
customers, leading to growth in loans and deposits.
In 2011, the Company’s loans and deposits grew
significantly. Average loans and deposits increased
$8.4 billion (4.4 percent) and $28.4 billion (15.4 percent),
respectively, over 2010. Loan growth reflected increases in
residential mortgages, commercial loans, commercial real
estate loans and other retail loans, partially offset by decreases
in loans covered by loss sharing agreements with the Federal
Deposit Insurance Corporation (“FDIC”) (“covered” loans)
and credit card loans. Deposit growth reflected the
Company’s continued benefit from customer
“flight-to-quality”.
The Company’s provision for credit losses decreased
$2.0 billion (46.2 percent) in 2011, compared with 2010. Net
charge-offs decreased $1.3 billion (32.0 percent) in 2011,
compared with 2010, due to improvement in all major loan
portfolio classes. The provision for credit losses was $500
million less than net charge-offs in 2011, while exceeding net
charge-offs by $175 million in 2010, reflecting improvement
in credit trends and the risk profile of the Company’s loan
portfolio throughout 2011.
18
U.S. BANCORP
T A B L E 1 Selected Financial Data
Year ended December 31
(Dollars and Shares in Millions, Except Per Share Data)
2011
2010
2009
2008
2007
Condensed Income Statement
Net interest income (taxable-equivalent basis) (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities gains (losses), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$ 10,348
8,791
(31)
Total net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,108
9,911
2,343
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable-equivalent adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling interests . . . . . . . . . . . . . . . . . . . .
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income applicable to U.S. Bancorp common shareholders . . . . . . . . . . . . . .
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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-offs as a percent of average loans outstanding . . . . . . . . . . . . . . . . . . . .
Average Balances
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total U.S. Bancorp shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Period End Balances
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total U.S. Bancorp shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset Quality
Nonperforming assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for credit losses as a percentage of period-end loans . . . . . . . . . . . . . . .
Capital Ratios
Tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total risk-based capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 common equity to risk-weighted assets using Basel I definition (d) . . . . . .
Tier 1 common equity to risk-weighted assets using anticipated Basel III
definition (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tangible common equity to tangible assets (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tangible common equity to risk-weighted assets (d) . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,788
8,438
(78)
18,148
9,383
4,356
$
8,716
8,403
(451)
16,668
8,281
5,557
$
7,866
7,789
(978)
14,677
7,348
3,096
$
6,764
7,281
15
14,060
6,907
792
4,409
209
935
3,265
52
3,317
3,332
1.74
1.73
.200
14.36
26.97
1,912
1,921
$
$
$
2,830
198
395
2,237
(32)
2,205
1,803
.97
.97
.200
12.79
22.51
1,851
1,859
$
$
$
4,233
134
1,087
3,012
(66)
2,946
2,819
1.62
1.61
1.700
10.47
25.01
1,742
1,756
$
$
$
6,361
75
1,883
4,403
(79)
4,324
4,258
2.45
2.42
1.625
11.60
31.74
1,735
1,756
$
$
$
6,854
225
1,841
4,788
84
4,872
4,721
2.47
2.46
.500
16.43
27.05
1,914
1,923
$
$
$
1.53%
15.8
3.65
51.8
1.41
1.16%
12.7
3.88
51.5
2.17
.82%
8.2
3.67
48.4
2.08
1.21%
13.9
3.66
46.9
1.10
1.93%
21.3
3.47
49.2
.54
$201,427
4,873
63,645
283,290
318,264
53,856
213,159
30,703
31,684
32,200
$209,835
70,814
340,122
230,885
31,953
33,978
$193,022
5,616
47,763
252,042
285,861
40,162
184,721
33,719
30,835
28,049
$197,061
52,978
307,786
204,252
31,537
29,519
$185,805
5,820
42,809
237,287
268,360
37,856
167,801
29,149
36,520
26,307
$194,755
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
$184,955
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
43,116
237,615
131,445
43,440
21,046
$
3,774
5,014
$
5,048
5,531
$
5,907
5,264
$
2,624
3,639
$
690
2,260
2.39%
2.81%
2.70%
1.97%
1.47%
10.8%
13.3
9.1
8.6
8.2
6.6
8.1
10.5%
13.3
9.1
7.8
7.3
6.0
7.2
9.6%
12.9
8.5
6.8
10.6%
14.3
9.8
5.1
8.3%
12.2
7.9
5.6
5.3
6.1
3.3
3.7
4.8
5.1
(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) Excludes unrealized gains and losses.
(d) See Non-GAAP Financial Measures beginning on page 62.
U.S. BANCORP
19
Earnings Summary The Company reported net income
attributable to U.S. Bancorp of $4.9 billion in 2011, or $2.46
per diluted common share, compared with $3.3 billion, or
$1.73 per diluted common share, in 2010. Return on average
assets and return on average common equity were 1.53
percent and 15.8 percent, respectively, in 2011, compared
with 1.16 percent and 12.7 percent, respectively, in 2010. The
Company’s results for 2011 included a $263 million gain
from the settlement of litigation related to the termination of a
merchant processing referral agreement (“merchant settlement
gain”), a $46 million gain related to the acquisition of First
Community Bank of New Mexico (“FCB”), and a $130
million expense accrual related to mortgage servicing matters.
The results for 2011 also included net securities losses of $31
million and a provision for credit losses that was lower than
net charge-offs by $500 million. Diluted earnings per common
share for 2010 included a non-recurring $.05 benefit related
to an exchange of perpetual preferred stock for outstanding
income trust securities. The results for 2010 also included a
$103 million gain ($41 million after tax) resulting from the
exchange of the Company’s proprietary long-term mutual
fund business for an equity interest in Nuveen Investments
and cash consideration (“Nuveen gain”), net securities losses
of $78 million and $175 million of provision for credit losses
in excess of net charge-offs.
Total net revenue, on a taxable-equivalent basis, for 2011
was $960 million (5.3 percent) higher than 2010, reflecting a
5.7 percent increase in net interest income and a 4.8 percent
increase in total noninterest income. Net interest income
increased in 2011 as a result of an increase in average earning
assets and continued growth in lower cost core deposit
funding. Noninterest income increased primarily due to the
merchant settlement gain, the gain recognized on the FCB
acquisition, higher payments-related revenue, higher
commercial products revenue and a decrease in net securities
losses, partially offset by lower deposit service charges, trust
and investment management fees and mortgage banking
revenue.
Total noninterest expense in 2011 increased $528 million
(5.6 percent), compared with 2010, primarily due to higher
total compensation and employee benefits expense, including
higher pension costs, higher professional services expense and
other business initiatives.
Acquisitions In January 2011, the Company acquired the
banking operations of FCB from the FDIC. The FCB
transaction did not include a loss sharing agreement. The
Company acquired 38 branch locations and approximately
$1.8 billion in assets, assumed approximately $2.1 billion in
liabilities, and received approximately $412 million in cash
from the FDIC. The Company recognized a $46 million gain
on this transaction during the first quarter of 2011.
20
U.S. BANCORP
In December 2010, the Company acquired the
securitization trust administration business of Bank of
America, N.A. (“securitization trust administration
acquisition”). This transaction included the acquisition of
$1.1 trillion of assets under administration and provided the
Company with approximately $8 billion of deposits at the
time of closing.
Statement of Income Analysis
Net Interest Income Net interest income, on a taxable-
equivalent basis, was $10.3 billion in 2011, compared with
$9.8 billion in 2010 and $8.7 billion in 2009. The $560
million (5.7 percent) increase in net interest income in 2011,
compared with 2010, was primarily the result of growth in
average earning assets and lower cost core deposit funding.
Average earning assets were $31.2 billion (12.4 percent)
higher in 2011 than in 2010, driven by increases in investment
securities, loans and cash balances at the Federal Reserve
reflected in other earning assets. Average deposits increased
$28.4 billion (15.4 percent) in 2011, compared with 2010.
The net interest margin in 2011 was 3.65 percent, compared
with 3.88 percent in 2010 and 3.67 percent in 2009. The
decrease in the net interest margin in 2011, compared with
2010, reflected planned growth in investment securities
balances held for liquidity purposes and higher cash balances
held at the Federal Reserve. 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 $201.4 billion in 2011,
compared with $193.0 billion in 2010. The $8.4 billion
(4.4 percent) increase was driven by growth in residential
mortgages, commercial loans, commercial real estate loans
and other retail loans, partially offset by lower acquisition-
related covered loans and credit card loans. Average
residential mortgages increased $6.0 billion (21.7 percent)
resulting from the net effect of origination and prepayment
activity in the portfolio during 2011 due to the low interest
rate environment. Average commercial loans increased $4.6
billion (9.8 percent) year-over-year, primarily driven by higher
demand from new and existing customers. Growth in average
commercial real estate balances of $1.2 billion (3.6 percent)
was primarily due to the FCB acquisition. The $513 million
(1.1 percent) increase in average other retail loans was
primarily due to higher installment loans (primarily
automobile) and retail leasing balances, partially offset by
lower home equity and second mortgage balances. Average
credit card balances decreased $319 million (1.9 percent) in
2011, compared with 2010, the result of consumers spending
less and paying down their balances. Average covered loans
decreased $3.6 billion (18.2 percent) in 2011, compared with
2010.
T A B L E 2 Analysis of Net Interest Income (a)
Year Ended December 31 (Dollars in Millions)
2011
2010
2009
2011
v 2010
2010
v 2009
$ 12,870
$ 12,375
$ 11,748
$
495
$
627
Components of Net Interest Income
Income on earning assets (taxable-equivalent basis) . . . . . .
Expense on interest-bearing liabilities (taxable-equivalent
basis) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income (taxable-equivalent basis) . . . . . . . . . . . . . . .
$ 10,348
Net interest income, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 10,123
2,522
2,587
9,788
9,579
$
$
3,032
8,716
8,518
$
$
(65)
560
544
$
$
(445)
$ 1,072
$ 1,061
Average Yields and Rates Paid
Earning assets yield (taxable-equivalent basis) . . . . . . . . . . . .
Rate paid on interest-bearing liabilities (taxable-
4.54%
4.91%
4.95%
(.37)%
(.04)%
equivalent basis) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.14
Gross interest margin (taxable-equivalent basis) . . . . . . . . . . . . .
Net interest margin (taxable-equivalent basis) . . . . . . . . . . . . . . . .
3.40%
3.65%
1.24
3.67%
3.88%
1.55
3.40%
3.67%
(.10)
(.27)%
(.23)%
(.31)
.27%
.21%
Average Balances
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net free funds (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 63,645
201,427
283,290
221,690
61,600
$ 47,763
193,022
252,042
209,113
42,929
$ 42,809
185,805
237,287
195,614
41,673
$15,882
8,405
31,248
12,577
18,671
$ 4,954
7,217
14,755
13,499
1,256
(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.
Average investment securities in 2011 were $15.9 billion
The $1.1 billion (12.3 percent) increase in net interest
(33.3 percent) higher than 2010, primarily due to planned
purchases of U.S. Treasury and government agency
mortgage-backed securities, as the Company increased its
on-balance sheet liquidity in response to anticipated
regulatory requirements.
Average total deposits for 2011 were $28.4 billion (15.4
percent) higher than 2010. Excluding deposits from
acquisitions, 2011 average total deposits increased $19.3
billion (10.5 percent) over 2010. Average noninterest-bearing
deposits in 2011 were $13.7 billion (34.1 percent) higher than
2010, primarily due to growth in Wholesale Banking and
Commercial Real Estate, and Wealth Management and
Securities Services balances. Average total savings deposits
were $13.8 billion (13.7 percent) higher in 2011, compared
with 2010, primarily due to growth in corporate and
institutional trust balances, including the impact of the
securitization trust administration acquisition, as well as an
increase in Consumer and Small Business Banking balances
resulting from continued strong participation in a product
offering that includes multiple bank products in a package.
These increases were partially offset by lower broker-dealer
balances. Average time certificates of deposit less than
$100,000 were lower in 2011 by $1.4 billion (8.4 percent),
compared with 2010, a result of maturities and lower
renewals. Average time deposits greater than $100,000 were
$2.3 billion (8.5 percent) higher in 2011, compared with
2010, primarily due to the impact of the securitization trust
administration and FCB acquisitions.
income in 2010, compared with 2009, was primarily the
result of growth in lower cost core deposit funding and
increases in average earning assets. Average earning assets
were $14.8 billion (6.2 percent) higher in 2010 compared
with 2009, driven by increases in average loans and
investment securities. Average deposits increased $16.9 billion
(10.1 percent) in 2010, compared with 2009.
Average total loans increased $7.2 billion (3.9 percent) in
2010, compared with 2009, driven by growth in residential
mortgages, credit card loans, other retail loans, commercial
real estate loans and acquisition-related covered loans,
partially offset by a $5.8 billion (11.0 percent) decline in
commercial loans, which was principally the result of lower
utilization of available commitments by customers.
Residential mortgage growth of $3.2 billion
(13.2 percent) reflected increased origination and refinancing
activity. Average credit card balances for 2010 were
$1.5 billion (9.8 percent) higher than 2009, reflecting growth
in existing portfolios and portfolio purchases. Average other
retail loans increased $600 million (1.3 percent), driven by an
increase in installment loans (primarily automobile). Growth
in average commercial real estate balances of $518 million
(1.5 percent) reflected the impact of new business activity,
partially offset by customer deleveraging. Average covered
loans were $19.9 billion in 2010, compared with $12.7 billion
in 2009, reflecting covered loans acquired from the FDIC in
the fourth quarter of 2009.
U.S. BANCORP
21
T A B L E 3 Net Interest Income — Changes Due to Rate and Volume (a)
Year Ended December 31 (Dollars in Millions)
Volume
Yield/Rate
Total
Volume
Yield/Rate
Total
2011 v 2010
2010 v 2009
Increase (decrease) in
Interest Income
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans
$ 586
(32)
Commercial loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans, excluding covered loans . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
193
56
311
(30)
30
560
(179)
381
226
Total earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,161
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 . . . . . . . . . . . . . . . . . . . . . .
5
18
33
(25)
25
56
(50)
30
36
$(369)
(14)
$ 217
(46)
$ 205
(10)
$(212)
(21)
$
(7)
(31)
(99)
36
(115)
52
(137)
(263)
122
(141)
(142)
(666)
(17)
(74)
(42)
12
(23)
(144)
31
12
(101)
94
92
196
22
(107)
297
(57)
240
84
495
(12)
(56)
(9)
(13)
2
(88)
(19)
42
(65)
(228)
22
182
134
35
145
327
472
89
756
7
36
42
(32)
(46)
7
86
(199)
(106)
131
55
(126)
19
(41)
38
80
118
(14)
(129)
(8)
(49)
8
(126)
(106)
(281)
(81)
23
(339)
(97)
77
56
153
(6)
183
407
590
75
627
(1)
(13)
50
(158)
(152)
(274)
5
(176)
(445)
Increase (decrease) in net interest income . . . . . . . . . . . . . . .
$1,125
$(565)
$ 560
$ 862
$ 210
$1,072
(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.
Average investment securities in 2010 were $5.0 billion
(11.6 percent) higher than 2009, primarily due to purchases of
U.S. Treasury and government agency mortgage-backed
securities and the consolidation of $.6 billion of
held-to-maturity securities held in a variable interest entity
(“VIE”) due to the adoption of new authoritative accounting
guidance effective January 1, 2010.
Average total deposits for 2010 were $16.9 billion (10.1
percent) higher than 2009. Of this increase, $12.0 billion
related to deposits assumed in a fourth quarter of 2009
acquisition. Average noninterest-bearing deposits in 2010
were $2.3 billion (6.1 percent) higher than 2009, primarily
due to growth in Consumer and Small Business Banking and
Wholesale Banking and Commercial Real Estate balances.
Average total savings deposits were $19.0 billion (23.2
percent) higher in 2010, compared with 2009, due to an
increase in savings account balances of $7.8 billion (59.5
percent) resulting from strong participation in a product
offered by Consumer and Small Business Banking, higher
money market savings balances of $7.9 billion (24.8 percent)
from higher corporate trust and Consumer and Small Business
Banking balances, and higher interest checking account
balances of $3.3 billion (9.0 percent) resulting from increases
in Consumer and Small Business Banking and institutional
trust accounts. Average time certificates of deposit less than
$100,000 were lower in 2010 by $1.3 billion (7.0 percent),
compared with 2009, reflecting the run-off of previously
acquired balances and lower renewals. Average time deposits
greater than $100,000 were $3.1 billion (10.3 percent) lower
in 2010, compared with 2009, reflecting the net impact of
acquisitions, more than offset by a decrease in required overall
wholesale funding.
Provision for Credit Losses The provision for credit losses
reflects changes in the credit quality of the entire portfolio of
loans. The Company maintains an allowance for credit losses
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 2011, the provision for credit losses was $2.3 billion,
compared with $4.4 billion and $5.6 billion in 2010 and
22
U.S. BANCORP
2009, respectively. The provision for credit losses was lower
than net charge-offs by $500 million in 2011, and exceeded
net charge-offs by $175 million in 2010 and $1.7 billion in
2009. The $2.0 billion (46.2 percent) decrease in the provision
for credit losses in 2011, compared with 2010, reflected
improving credit trends and the underlying risk profile of the
loan portfolio as economic conditions continued to further
stabilize. Accruing loans ninety days or more past due
decreased by $251 million (22.9 percent) (excluding covered
loans) from December 31, 2010 to December 31, 2011,
reflecting a continued moderation in the level of stress in
economic conditions during 2011. Nonperforming assets
decreased $777 million (23.2 percent) (excluding covered
assets) from December 31, 2010 to December 31, 2011, led
by a reduction in commercial and commercial real estate
nonperforming assets. Commercial real estate nonperforming
assets declined $394 million (30.5 percent), as the Company
continued to resolve and reduce exposure to these assets. Net
charge-offs decreased $1.3 billion (32.0 percent) from 2010,
due to the improvement in the commercial, commercial real
estate, credit card and other retail loan portfolios.
The $1.2 billion decrease in the provision for credit losses
in 2010, compared with 2009, reflected improving credit
trends and the underlying risk profile of the loan portfolio as
economic conditions continued to stabilize in 2010. Accruing
loans ninety days or more past due decreased by $431 million
(excluding covered loans) from December 31, 2009 to
December 31, 2010, reflecting a moderation in the level of
stress in economic conditions during 2010. Delinquencies in
most major loan portfolio classes began to decrease in the
third quarter of 2010. Nonperforming assets decreased $553
million (excluding covered assets) from December 31, 2009 to
December 31, 2010, principally in the construction and land
development portfolios. However, net charge-offs increased
$313 million (8.1 percent) in 2010 over 2009, as borrowers
impacted by weak economic conditions and real estate
markets defaulted on loans.
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 2011 was
$8.8 billion, compared with $8.4 billion in 2010 and $8.0
billion in 2009. The $400 million (4.8 percent) increase in
2011 over 2010 was due to higher payments-related revenues
of 3.5 percent due to continued growth in transaction volumes
and new business initiatives, partially offset by a decline in
credit and debit card revenue due to the impact of legislative-
related changes to debit card interchange fees; higher ATM
processing services income of 6.9 percent largely due to
increased transaction volumes; an increase in commercial
products revenue of 9.1 percent due to higher commercial
leasing revenue, syndication fees and other commercial loan
fees; a 16.2 percent increase in investment products fees and
commissions due to business initiatives; lower net securities
losses of 60.3 percent, primarily due to lower impairments
and an increase in other income. The increase in other income
of 38.3 percent reflected the 2011 merchant settlement gain
and the FCB gain, in addition to higher retail lease residual
revenue, partially offset by the Nuveen gain recognized in
2010. Offsetting these positive variances was a decrease in
deposit service charges of 7.2 percent as a result of 2010
legislative and pricing changes. Trust and investment
management fees declined 7.4 percent as a result of the sale of
the Company’s proprietary long-term mutual fund business in
the fourth quarter of 2010 and lower money market
investment management fees, due to the low interest rate
environment, partially offset by the positive impact of the
securitization trust administration acquisition and improved
equity market conditions. Mortgage banking revenue
decreased 1.7 percent, principally due to lower origination
and sales revenue, partially offset by higher loan servicing
T A B L E 4 Noninterest Income
Year Ended December 31 (Dollars in Millions)
2011
2010
2009
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,073
734
1,355
452
1,000
659
551
841
986
129
(31)
1,011
$1,091
710
1,253
423
1,080
710
555
771
1,003
111
(78)
731
$1,055
669
1,148
410
1,168
970
552
615
1,035
109
(451)
672
2011
v 2010
2010
v 2009
(1.6)%
3.4
8.1
6.9
(7.4)
(7.2)
(.7)
9.1
(1.7)
16.2
60.3
38.3
3.4%
6.1
9.1
3.2
(7.5)
(26.8)
.5
25.4
(3.1)
1.8
82.7
8.8
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8,760
$8,360
$7,952
4.8%
5.1%
U.S. BANCORP
23
revenue and a favorable net change in the valuation of
mortgage servicing rights (“MSRs”) and related economic
hedging activities.
The $408 million (5.1 percent) increase in noninterest
income in 2010 over 2009, was due to higher payments-
related revenues of 6.3 percent, principally due to increased
transaction volumes and business expansion; an increase in
commercial products revenue of 25.4 percent, attributable to
higher standby letters of credit fees, commercial loan and
syndication fees and other capital markets revenue; a decrease
in net securities losses of 82.7 percent, primarily due to lower
impairments; and an 8.8 percent increase in other income,
reflecting the Nuveen gain, higher 2010 gains related to the
Company’s investment in Visa Inc. and higher retail lease
residual revenue, partially offset by a $92 million gain on a
corporate real estate transaction in 2009, a payments-related
contract termination gain that occurred in 2009 and lower
customer derivative revenue. Mortgage banking revenue
decreased 3.1 percent in 2010 compared with 2009,
principally due to lower origination and sales revenue and an
unfavorable net change in the valuation of MSRs and related
economic hedging activities, partially offset by higher
servicing income. Deposit service charges decreased
26.8 percent as a result of Company-initiated and regulatory
revisions to overdraft fee policies, partially offset by account
growth. Trust and investment management fees declined
7.5 percent because of money market investment fee waivers
and customers migrating balances from money market funds
to deposits due to low interest rates.
The implementation of legislation passed under the
Durbin Amendment of the Dodd-Frank Wall Street Reform
and Consumer Protection Act of 2010, reduced noninterest
income beginning in the fourth quarter of 2011 by
approximately $77 million. The Company anticipates future
noninterest income will be reduced approximately
$300 million on an annualized basis, based on anticipated
transaction volume and excluding any mitigating actions the
Company may take.
Noninterest Expense Noninterest expense in 2011 was
$9.9 billion, compared with $9.4 billion in 2010 and
$8.3 billion in 2009. The Company’s efficiency ratio was
51.8 percent in 2011, compared with 51.5 percent in 2010.
The $528 million (5.6 percent) increase in noninterest expense
in 2011 over 2010 was principally due to increased total
compensation, employee benefits, net occupancy and
equipment expense and professional services expense, partially
offset by a decrease in intangible amortization. Total
compensation expense increased 6.9 percent, primarily due to
an increase in staffing related to branch expansion and other
business initiatives, and merit increases. Employee benefits
increased 21.8 percent due to higher pension costs and the
impact of additional staffing. Net occupancy and equipment
expense increased 8.7 percent, principally due to business
expansion and technology initiatives. Professional services
expense increased 25.2 percent due to mortgage servicing-
related and other projects across multiple business lines. Other
intangibles expense decreased 18.5 percent due to the
reduction or completion of amortization of certain
intangibles. Other expense reflected the 2011 $130 million
expense accrual related to mortgage servicing matters, offset
by lower conversion costs and insurance and litigation
matters.
The $1.1 billion (13.3 percent) increase in noninterest
expense in 2010 over 2009 was principally due to
acquisitions, increased total compensation and employee
benefits expense and higher costs related to investments in
affordable housing and other tax-advantaged projects. Total
compensation and employee benefits expense increased
20.6 percent, reflecting acquisitions, branch expansion and
other initiatives, the elimination of a five percent cost
reduction program that was in effect during 2009, higher
incentive compensation costs related to the Company’s
T A B L E 5 Noninterest Expense
Year Ended December 31 (Dollars in Millions)
2011
2010
2009
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net occupancy and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing and business development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology and communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postage, printing and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,041
845
999
383
369
758
303
299
1,914
Total noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$9,911
$3,779
694
919
306
360
744
301
367
1,913
$9,383
$3,135
574
836
255
378
673
288
387
1,755
$8,281
Efficiency ratio (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
51.8%
51.5%
48.4%
2011
v 2010
2010
v 2009
6.9%
21.8
8.7
25.2
2.5
1.9
.7
(18.5)
.1
20.5%
20.9
9.9
20.0
(4.8)
10.5
4.5
(5.2)
9.0
5.6%
13.3%
(a) Computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding securities gains (losses), net.
24
U.S. BANCORP
improved financial results in 2010 from 2009, merit increases,
and increased pension costs associated with previous declines
in the value of pension assets. Net occupancy and equipment
expense and professional services expense increased
9.9 percent and 20.0 percent, respectively, principally due to
acquisitions and other business initiatives. Technology and
communications expense increased 10.5 percent as a result of
business initiatives and volume increases across various
business lines. Postage, printing and supplies expense
increased 4.5 percent, principally due to payments-related
business initiatives. Other expense increased 9.0 percent,
reflecting higher costs related to investments in affordable
housing and other tax-advantaged projects and higher other
real estate owned (“OREO”) costs, partially offset by a
$123 million FDIC special assessment in 2009. Marketing and
business development expense decreased 4.8 percent, largely
due to payments-related initiatives during 2009. Other
intangibles expense decreased 5.2 percent due to the reduction
or completion of amortization of certain intangibles.
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 in expense over the future service period of the
employees. Differences related to the expected return on plan
assets are included in expense over a period of approximately
twelve-years.
The Company expects pension expense to increase $66
million in 2012, primarily driven by a $43 million increase
related to a decrease in the discount rate, a $14 million
increase related to the difference between the 2011 return on
plan assets compared with expectations and a $6 million
increase related to lower future expected returns on plan
assets. If performance of plan assets equals the actuarially-
assumed long-term expected return, the cumulative asset
return difference of $343 million at December 31, 2011 will
incrementally increase pension expense $60 million in 2013,
incrementally decrease pension expense $4 million in 2014,
and incrementally increase pension expense $9 million in
2015 and $14 million in 2016. 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.
The following table shows an analysis of hypothetical changes
in the long-term rate of return (“LTROR”) and discount rate:
LTROR (Dollars in Millions)
Down 100
Basis Points
Up 100
Basis Points
Incremental benefit (expense) . . . . . . . . .
Percent of 2011 net income . . . . . . . . . . .
$ (24)
(.30)%
$ 24
.30%
Discount Rate (Dollars in Millions)
Down 100
Basis Points
Up 100
Basis Points
Incremental benefit (expense) . . . . . . . . .
Percent of 2011 net income . . . . . . . . . . .
$ (87)
(1.10)%
$ 70
.89%
Income Tax Expense The provision for income taxes was
$1.8 billion (an effective rate of 27.8 percent) in 2011,
compared with $935 million (an effective rate of 22.3 percent)
in 2010 and $395 million (an effective rate of 15.0 percent) in
2009. The increase in the effective tax rate over 2010
principally reflected the marginal impact of higher pretax
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 $283.3 billion in 2011, compared
with $252.0 billion in 2010. The increase in average earning
assets of $31.2 billion (12.4 percent) was due to planned
growth in average investment securities of $15.9 billion
(33.3 percent), higher loans of $8.4 billion (4.4 percent) and
higher other earning assets of $7.7 billion, which included
cash balances held at the Federal Reserve.
For average balance information, refer to Consolidated
Daily Average Balance Sheet and Related Yields and Rates on
pages 132 and 133.
Loans The Company’s loan portfolio was $209.8 billion at
December 31, 2011, an increase of $12.8 billion (6.5 percent)
from December 31, 2010. The increase was driven by growth
in commercial loans of $8.3 billion (17.0 percent), residential
mortgages of $6.4 billion (20.7 percent), commercial real
estate loans of $1.2 billion (3.3 percent) and credit card loan
balances of $557 million (3.3 percent), partially offset by
decreases in acquisition-related covered loans of $3.3 billion
(18.0 percent) and other retail loans of $284 million (.6
percent). Table 6 provides a summary of the loan distribution
U.S. BANCORP
25
T A B L E 6 Loan Portfolio Distribution
At December 31 (Dollars in Millions)
Commercial
2011
2010
2009
2008
2007
Amount
Percent
of Total
Amount
Percent
of Total
Amount
Percent
of Total
Amount
Percent
of Total
Amount
Percent
of Total
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . .
$ 50,734
5,914
24.2% $ 42,272
6,126
2.8
21.5% $ 42,255
6,537
3.1
21.7% $ 49,759
6,859
3.4
26.9% $ 44,832
6,242
3.7
29.1%
4.1
Total commercial . . . . . . . . . . . . . . . . . . .
56,648
27.0
48,398
24.6
48,792
25.1
56,618
30.6
51,074
33.2
Commercial Real Estate
Commercial mortgages . . . . . . . . . . . . . . . .
Construction and development . . . . . . . .
29,664
6,187
Total commercial real estate . . . . . . . .
35,851
Residential Mortgages
Residential mortgages . . . . . . . . . . . . . . . . .
Home equity loans, first liens . . . . . . . . . .
28,669
8,413
Total residential mortgages . . . . . . . . .
37,082
Credit Card . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Retail
Retail leasing . . . . . . . . . . . . . . . . . . . . . . . . . .
Home equity and second mortgages . .
Revolving credit. . . . . . . . . . . . . . . . . . . . . . . .
Installment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Automobile . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Student . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other retail . . . . . . . . . . . . . . . . . . . . . . .
Total loans, excluding covered
17,360
5,118
18,131
3,344
5,348
11,508
4,658
14.1
3.0
17.1
13.7
4.0
17.7
8.3
2.4
8.6
1.6
2.6
5.5
2.2
27,254
7,441
34,695
24,315
6,417
30,732
16,803
4,569
18,940
3,472
5,459
10,897
5,054
13.8
3.8
17.6
12.3
3.3
15.6
8.5
2.3
9.6
1.8
2.8
5.5
2.5
25,306
8,787
34,093
20,581
5,475
26,056
16,814
4,568
19,439
3,506
5,455
9,544
4,629
13.0
4.5
17.5
10.6
2.8
13.4
8.6
2.3
10.0
1.8
2.8
4.9
2.4
23,434
9,779
33,213
18,232
5,348
12.7
5.3
18.0
9.9
2.9
23,580
12.8
13,520
7.3
5,126
19,177
3,205
5,525
9,212
4,603
2.8
10.3
1.7
3.0
5.0
2.5
20,146
9,061
29,207
17,099
5,683
22,782
10,956
5,969
16,441
2,731
5,246
8,970
451
13.1
5.9
19.0
11.1
3.7
14.8
7.1
3.9
10.7
1.8
3.4
5.8
.3
48,107
22.9
48,391
24.5
47,141
24.2
46,848
25.3
39,808
25.9
loans . . . . . . . . . . . . . . . . . . . . . . . . . .
195,048
93.0
179,019
90.8
172,896
Covered Loans . . . . . . . . . . . . . . . . . . . . . . . . .
14,787
7.0
18,042
9.2
21,859
88.8
11.2
173,779
94.0
153,827
100.0
11,176
6.0
—
—
Total loans . . . . . . . . . . . . . . . . . . . .
$209,835
100.0% $197,061
100.0% $194,755
100.0% $184,955
100.0% $153,827
100.0%
by product type, while Table 12 provides a summary of the
selected loan maturity distribution by loan category. Average
total loans increased $8.4 billion (4.4 percent) in 2011,
compared with 2010. The increase was due to growth in most
major loan portfolio classes in 2011.
Commercial Commercial loans, including lease financing,
increased $8.3 billion (17.0 percent) as of December 31, 2011,
compared with December 31, 2010. Average commercial
loans increased $4.6 billion (9.8 percent) in 2011, compared
with 2010. The growth was primarily driven by demand from
new and existing customers. 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 and development loans, increased
$1.2 billion (3.3 percent) at December 31, 2011, compared
with December 31, 2010. Average commercial real estate
loans increased $1.2 billion (3.6 percent) in 2011, compared
with 2010. The increases were primarily due to the FCB
acquisition. Table 8 provides a summary of commercial real
estate loans by property type and geographical location. The
collateral for $2.5 billion of commercial real estate loans
included in covered loans at December 31, 2011 was in
California, compared with $4.5 billion at December 31, 2010.
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 2011, approximately $925 million of
construction loans were reclassified to the commercial
mortgage category for bridge financing after completion of the
construction phase. At December 31, 2011 and 2010,
$289 million and $270 million, respectively, of tax-exempt
industrial development loans were secured by real estate. The
Company’s commercial mortgage and construction and
development loans had unfunded commitments of $7.0 billion
and $6.5 billion at December 31, 2011 and 2010, 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 but
are subject to terms and conditions similar to commercial
loans. These loans were included in the commercial loan
category and totaled $1.9 billion and $1.7 billion at
December 31, 2011 and 2010, respectively.
26
U.S. BANCORP
T A B L E 7 Commercial Loans by Industry Group and Geography
(Dollars in Millions)
Industry Group
December 31, 2011
December 31, 2010
Loans
Percent
Loans
Percent
Consumer products and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial services and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Public administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property management and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer staples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Private investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paper and forestry products, mining and basic materials . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Information technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,106
6,439
4,658
4,306
4,192
3,994
3,528
2,879
2,324
2,222
2,111
2,015
1,959
1,749
5,166
16.1%
11.4
8.2
7.6
7.4
7.1
6.2
5.1
4.1
3.9
3.7
3.6
3.4
3.1
9.1
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$56,648
100.0%
Geography
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Iowa, Kansas, Nebraska, North Dakota, South Dakota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arkansas, Indiana, Kentucky, Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Idaho, Montana, Wyoming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arizona, Nevada, New Mexico, Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,664
2,292
3,110
3,968
2,499
3,050
1,514
2,568
2,357
3,586
3,246
1,113
2,351
Total banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38,318
Outside the Company’s banking region
Florida, Michigan, New York, Pennsylvania, Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,204
9,126
Total outside the Company’s banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,330
11.8%
4.0
5.5
7.0
4.4
5.4
2.7
4.5
4.2
6.3
5.7
2.0
4.1
67.6
16.3
16.1
32.4
$ 7,599
5,785
3,744
3,696
3,543
3,390
2,489
2,438
1,788
2,539
1,712
1,926
1,738
1,543
4,468
$48,398
$ 5,588
1,974
2,457
3,993
2,020
2,464
1,508
2,259
2,144
3,465
2,798
1,069
1,741
33,480
7,608
7,310
14,918
15.7%
12.0
7.7
7.7
7.3
7.0
5.1
5.0
3.7
5.3
3.5
4.0
3.6
3.2
9.2
100.0%
11.5%
4.1
5.1
8.2
4.2
5.1
3.1
4.7
4.4
7.2
5.8
2.2
3.6
69.2
15.7
15.1
30.8
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$56,648
100.0%
$48,398
100.0%
Residential Mortgages Residential mortgages held in the
loan portfolio at December 31, 2011, increased $6.4 billion
(20.7 percent) over December 31, 2010. Average residential
mortgages increased $6.0 billion (21.7 percent) in 2011,
compared with 2010. The growth reflected the net effect of
origination and prepayment activity in the portfolio due to the
low interest rate environment. Most loans retained in the
portfolio are to customers with prime or near-prime credit
characteristics at the date of origination.
Credit Card Total credit card loans increased $557 million
(3.3 percent) at December 31, 2011, compared with
December 31, 2010. The increase primarily reflected credit
card portfolio purchases of approximately $700 million in the
fourth quarter of 2011. Average credit card balances
decreased $319 million (1.9 percent) in 2011, compared with
2010, the result of consumers spending less and paying down
their balances.
U.S. BANCORP
27
T A B L E 8 Commercial Real Estate Loans by Property Type and Geography
(Dollars in Millions)
Property Type
Business owner occupied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial property
Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilders
Condominiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Multi-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hotel/motel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Health care facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2011
December 31, 2010
Loans
Percent
Loans
Percent
$11,756
32.8%
$11,416
32.9%
1,561
4,590
4,402
3,632
283
988
6,293
2,041
305
4.4
12.8
12.3
10.1
.8
2.8
17.5
5.7
.8
1,530
3,783
4,288
3,551
463
1,144
6,130
2,134
256
4.4
10.9
12.4
10.2
1.3
3.3
17.7
6.2
.7
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$35,851
100.0%
$34,695
100.0%
Geography
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Iowa, Kansas, Nebraska, North Dakota, South Dakota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arkansas, Indiana, Kentucky, Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Idaho, Montana, Wyoming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,634
1,569
1,411
1,891
1,599
1,436
1,961
3,540
1,892
2,295
1,736
1,183
Arizona, Nevada, New Mexico, Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,189
Total banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31,336
Outside the Company’s banking region
Florida, Michigan, New York, Pennsylvania, Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total outside Company’s banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,470
2,045
4,515
21.3%
4.4
3.9
5.3
4.4
4.0
5.5
9.9
5.3
6.4
4.8
3.3
8.9
87.4
6.9
5.7
12.6
$ 7,515
1,524
1,248
1,805
1,558
1,402
1,809
3,488
1,724
2,205
1,634
1,185
2,938
30,035
2,711
1,949
4,660
21.6%
4.4
3.6
5.2
4.5
4.0
5.2
10.1
5.0
6.4
4.7
3.4
8.5
86.6
7.8
5.6
13.4
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$35,851
100.0%
$34,695
100.0%
Other Retail Total other retail loans, which include retail
leasing, home equity and second mortgages and other retail
loans, decreased $284 million (.6 percent) at December 31,
2011, compared with December 31, 2010. The decrease was
primarily due to a decrease in home equity and second
mortgages and student loans, partially offset by increases in
retail leasing and automobile loans primarily during the
second half of the year. Average other retail loans increased
$513 million (1.1 percent) in 2011, compared with 2010. The
increase was primarily driven by higher installment and retail
leasing loans, partially offset by lower home equity and
second mortgages.
28
U.S. BANCORP
T A B L E 9 Residential Mortgages by Geography
(Dollars in Millions)
December 31, 2011
December 31, 2010
Loans
Percent
Loans
Percent
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Iowa, Kansas, Nebraska, North Dakota, South Dakota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arkansas, Indiana, Kentucky, Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Idaho, Montana, Wyoming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arizona, Nevada, New Mexico, Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,339
2,354
2,560
2,955
1,849
2,051
1,541
2,101
1,325
1,759
2,822
825
2,281
Total banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28,762
Outside the Company’s banking region
Florida, Michigan, New York, Pennsylvania, Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total outside Company’s banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,819
4,501
8,320
11.7%
6.3
6.9
8.0
5.0
5.5
4.2
5.7
3.6
4.7
7.6
2.2
6.2
77.6
10.3
12.1
22.4
$ 3,339
1,947
2,123
2,457
1,643
1,824
1,246
1,726
1,171
1,522
2,431
688
1,944
24,061
3,137
3,534
6,671
10.9%
6.3
6.9
8.0
5.4
5.9
4.1
5.6
3.8
5.0
7.9
2.2
6.3
78.3
10.2
11.5
21.7
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$37,082
100.0%
$30,732
100.0%
T A B L E 1 0 Credit Card Loans by Geography
(Dollars in Millions)
December 31, 2011
December 31, 2010
Loans
Percent
Loans
Percent
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Iowa, Kansas, Nebraska, North Dakota, South Dakota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arkansas, Indiana, Kentucky, Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Idaho, Montana, Wyoming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arizona, Nevada, New Mexico, Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,719
670
791
1,193
619
1,326
623
849
959
863
1,353
377
788
Total banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,130
Outside the Company’s banking region
Florida, Michigan, New York, Pennsylvania, Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total outside Company’s banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,923
2,307
5,230
9.9%
3.9
4.5
6.9
3.6
7.6
3.6
4.9
5.5
5.0
7.8
2.2
4.5
69.9
16.8
13.3
30.1
$ 1,788
665
773
1,192
581
1,330
623
837
954
858
1,292
373
785
12,051
2,724
2,028
4,752
10.6%
3.9
4.6
7.1
3.5
7.9
3.7
5.0
5.7
5.1
7.7
2.2
4.7
71.7
16.2
12.1
28.3
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$17,360
100.0%
$16,803
100.0%
U.S. BANCORP
29
T A B L E 1 1 Other Retail Loans by Geography
(Dollars in Millions)
December 31, 2011
December 31, 2010
Loans
Percent
Loans
Percent
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Iowa, Kansas, Nebraska, North Dakota, South Dakota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arkansas, Indiana, Kentucky, Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Idaho, Montana, Wyoming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arizona, Nevada, New Mexico, Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,793
2,175
2,233
4,400
2,170
2,620
1,851
2,058
1,907
2,522
2,765
1,125
2,135
Total banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33,754
Outside the Company’s banking region
Florida, Michigan, New York, Pennsylvania, Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,493
7,860
Total outside Company’s banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,353
12.0%
4.5
4.6
9.2
4.5
5.5
3.9
4.3
4.0
5.2
5.8
2.3
4.4
70.2
13.5
16.3
29.8
$ 5,868
2,319
2,264
4,748
2,144
2,644
1,969
2,192
1,972
2,419
2,818
1,233
2,171
34,761
5,959
7,671
13,630
12.1%
4.8
4.7
9.8
4.4
5.5
4.1
4.5
4.1
5.0
5.8
2.5
4.5
71.8
12.3
15.9
28.2
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$48,107
100.0%
$48,391
100.0%
Of the total residential mortgages, credit card and other
retail loans outstanding at December 31, 2011, approximately
72.8 percent were to customers located in the Company’s
primary banking region. Tables 9, 10 and 11 provide a
geographic summary of residential mortgages, credit card
loans and retail loans outstanding, respectively, as of
December 31, 2011 and 2010. The collateral for $5.2 billion
of residential mortgages and other retail loans included in
covered loans at December 31, 2011 was in California.
Loans Held for Sale Loans held for sale, consisting primarily
of residential mortgages to be sold in the secondary market,
were $7.2 billion at December 31, 2011, compared with $8.4
billion at December 31, 2010. The decrease in loans held for
sale was principally due to a higher level of mortgage loan
origination and refinancing activity in the second half of 2010
compared with the second half of 2011.
Most of the residential mortgage loans the Company
originates follow guidelines that allow the loans to be sold
into existing, highly liquid secondary markets; in particular in
government agency transactions and to government sponsored
enterprises (“GSEs”). The Company also originates residential
mortgages that follow its own investment guidelines with the
intent to hold such loans in the loan portfolio, primarily well
secured jumbo mortgages to borrowers with high credit
quality, and near-prime non-conforming mortgages. The
Company generally retains portfolio loans through maturity;
however, the Company’s intent may change over time based
upon various factors such as ongoing asset/liability
management activities, assessment of product profitability,
credit risk, liquidity needs, and capital implications. If the
Company’s intent or ability to hold an existing portfolio loan
changes, it is transferred to loans held for sale.
T A B L E 1 2 Selected Loan Maturity Distribution
At December 31, 2011 (Dollars in Millions)
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
One Year
or Less
$22,187
9,623
1,755
17,360
8,644
3,544
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$63,113
Total of loans due after one year with
Predetermined interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Floating interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over One
Through
Five Years
$31,615
19,652
4,846
—
25,216
3,912
$85,241
Over
Five Years
$ 2,846
6,576
30,481
—
14,247
7,331
Total
$ 56,648
35,851
37,082
17,360
48,107
14,787
$61,481
$209,835
$ 67,992
$ 78,730
30
U.S. BANCORP
T A B L E 1 3 Investment Securities
At December 31, 2011 (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 (e)
Amortized
Cost Fair Value
Weighted-
Average
Maturity
in Years
Weighted-
Average
Yield (e)
Maturing in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturing after one year through five years . . . . . . . . . . . . .
Maturing after five years through ten years . . . . . . . . . . . .
Maturing after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
394 $
541
48
62
395
547
53
62
.3
2.0
8.2
11.1
2.06% $
– $
.93
4.25
3.15
2,500
–
60
–
2,535
–
60
–
2.2
–
13.2
–%
.99
–
1.87
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,045 $ 1,057
2.2
1.64% $ 2,560 $ 2,595
2.4
1.01%
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
672 $
32,056
6,975
1,767
673
32,917
6,775
1,736
.6
3.5
7.0
12.7
2.47% $
2.74
2.24
1.74
220 $
13,940
1,412
519
218
14,230
1,440
531
.5
3.7
5.6
11.4
1.55%
2.53
1.68
1.47
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$41,470 $42,101
4.4
2.61% $16,091 $16,419
4.0
2.40%
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
13 $
151
693
17
22
154
694
17
.2
3.4
7.9
12.7
9.71% $
2 $
12.53
3.08
11.10
34
17
22
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
874 $
887
7.1
4.97% $
75 $
Obligations of State and Political
Subdivisions (b) (c)
Maturing in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturing after one year through five years . . . . . . . . . . . . .
Maturing after five years through ten years . . . . . . . . . . . .
Maturing after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
99 $
3,981
2,008
306
99
4,087
2,063
290
.7
4.1
5.7
21.1
1.66% $
6.76
6.79
7.48
– $
5
3
15
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,394 $ 6,539
5.4
6.73% $
23 $
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
69 $
–
25
1,201
54
–
22
968
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,295 $ 1,044
Other Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
278 $
309
Total investment securities (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$51,356 $51,937
.4
–
5.8
29.4
27.4
13.1
5.2
5.74% $
1 $
–
6.38
3.87
99
28
–
4.02% $
128 $
3.87% $
– $
3.19% $18,877 $19,216
2
36
18
24
80
–
6
3
14
23
1
85
13
–
99
–
.1
2.5
6.6
22.5
9.3
.5
3.1
5.8
15.1
11.0
.3
4.1
8.8
–
5.1
–
3.9
1.01%
1.01
.85
1.01
.98%
8.32%
8.47
5.27
5.51
6.16%
.84%
1.42
1.18
–
1.36%
–%
2.21%
(a) Information related to asset and mortgage-backed securities included above is presented based upon weighted-average maturities anticipating future prepayments.
(b) Information related to obligations of state and political subdivisions is presented based upon yield to first optional call date if the security is purchased at a premium, yield to maturity if
purchased at par or a discount.
(c) Maturity calculations for obligations of state and political subdivisions are based on the first optional call date for securities with a fair value above par and contractual maturity for securities with
a fair value equal to or below par.
(d) The weighted-average maturity of the available-for-sale investment securities was 7.4 years at December 31, 2010, with a corresponding weighted-average yield of 3.41 percent. The weighted-
average maturity of the held-to-maturity investment securities was 6.3 years at December 31, 2010, with a corresponding weighted-average yield of 2.07 percent.
(e) Average yields are presented on a fully-taxable equivalent basis under a tax rate of 35 percent. Yields on available-for-sale and held-to-maturity securities are computed based on amortized
cost balances. Average yield and maturity calculations exclude equity securities that have no stated yield or maturity.
2011
2010
At 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortized
Cost
$ 3,605
57,561
949
6,417
1,701
Percent
of Total
5.1%
82.0
1.4
9.1
2.4
Total investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$70,233
100.0%
Amortized
Cost
$ 2,724
40,654
1,197
6,862
1,887
$53,324
Percent
of Total
5.1%
76.2
2.3
12.9
3.5
100.0%
U.S. BANCORP
31
Investment Securities The Company uses its investment
securities portfolio to manage enterprise interest rate risk,
provide liquidity (including the ability to meet proposed
regulatory requirements), generate interest and dividend
income, and as collateral for public deposits and wholesale
funding sources. While the Company intends to hold its
investment securities indefinitely, it may sell available-for-sale
securities in response to structural changes in the balance
sheet and related interest rate risk and to meet liquidity
requirements, among other factors.
Investment securities totaled $70.8 billion at
December 31, 2011, compared with $53.0 billion at
December 31, 2010. The $17.8 billion (33.7 percent) increase
primarily reflected $16.6 billion of net investment purchases
and a $927 million favorable change in unrealized gains
(losses) on available-for-sale investment securities.
Held-to-maturity securities were $18.9 billion at
December 31, 2011, compared with $1.5 billion at
December 31, 2010, primarily reflecting planned growth in
U.S. Treasury and government agency mortgage-backed
securities, as the Company increased its on-balance sheet
liquidity in response to anticipated regulatory requirements.
Average investment securities were $63.6 billion in 2011,
compared with $47.8 billion in 2010. The weighted-average
yield of the available-for-sale portfolio was 3.19 percent at
December 31, 2011, compared with 3.41 percent at
December 31, 2010. The average maturity of the
available-for-sale portfolio was 5.2 years at December 31,
2011, compared with 7.4 years at December 31, 2010. The
weighted-average yield of the held-to-maturity portfolio was
2.21 percent at December 31, 2011, compared with 2.07
percent at December 31, 2010. The average maturity of the
held-to-maturity portfolio was 3.9 years at December 31,
2011, compared with 6.3 years at December 31, 2010.
Investment securities by type are shown in Table 13.
At December 31, 2011, the Company’s net unrealized
gain on available-for-sale securities was $581 million,
compared with a net unrealized loss of $346 million at
December 31, 2010. The favorable change in net unrealized
gains (losses) was primarily due to increases in the fair value
of state and political securities and agency mortgage-backed
securities. Unrealized losses on available-for-sale securities in
an unrealized loss position totaled $691 million at
December 31, 2011, compared with $1.2 billion at
December 31, 2010. The Company conducts a regular
assessment of its investment portfolio to determine whether
any securities are other-than-temporarily impaired. When
assessing unrealized losses for other-than-temporary
impairment, the Company considers the nature of the
investment, the financial condition of the issuer, the extent
and duration of unrealized loss, expected cash flows of
underlying assets and market conditions. At December 31,
2011, the Company had no plans to sell securities with
unrealized losses and believes it is more likely than not that it
would not be required to sell such securities before recovery of
their amortized cost.
32
U.S. BANCORP
There is limited market activity for non-agency mortgage-
backed securities held by the Company. As a result, the
Company estimates the fair value of these securities using
estimates of expected cash flows, discount rates and
management’s assessment of various other market factors,
which are judgmental in nature. The Company recorded
$35 million of impairment charges in earnings during 2011
predominately on non-agency mortgage-backed securities.
These impairment charges were due to changes in expected
cash flows primarily resulting from increases in defaults in the
underlying mortgage pools. Further adverse changes in
security performance or market conditions may result in
additional impairment charges in future periods.
During 2010, the Company recognized impairment
charges in earnings of $91 million predominately on
non-agency mortgage-backed and structured investment-
related securities. These impairment charges were due to
changes in expected cash flows resulting from increases in
defaults in the underlying mortgage pools and regulatory
actions in the first quarter of 2010 related to an insurer of
some of the securities.
Refer to Notes 5 and 21 in the Notes to Consolidated
Financial Statements for further information on investment
securities.
Deposits Total deposits were $230.9 billion at December 31,
2011, compared with $204.3 billion at December 31, 2010.
The $26.6 billion (13.0 percent) increase in total deposits
reflected organic growth in core deposits due to the overall
“flight-to-quality” by customers. Average total deposits
increased $28.4 billion (15.4 percent) over 2010 due to
increases in noninterest-bearing and total savings account
balances, reflecting organic growth, as well as acquisitions.
Noninterest-bearing deposits at December 31, 2011,
increased $23.3 billion (51.3 percent) over December 31,
2010. Average noninterest-bearing deposits increased $13.7
billion (34.1 percent) in 2011, compared with 2010. The
increase was primarily due to growth in Wholesale Banking
and Commercial Real Estate, and Wealth Management and
Securities Services balances.
Interest-bearing savings deposits increased $5.5 billion
(4.8 percent) at December 31, 2011, compared with
December 31, 2010. The increase in these deposit balances
was related to increases in savings and interest checking
balances, partially offset by lower money market savings
account balances. The $3.8 billion (15.5 percent) increase in
savings account balances reflected continued strong
participation in a savings product offered by Consumer and
Small Business Banking that includes multiple bank products
in a package. The $2.8 billion (6.4 percent) increase in interest
checking account balances was primarily due to higher
Consumer and Small Business Banking, national corporate
T A B L E 1 4 Deposits
The composition of deposits was as follows:
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
2011
2010
2009
2008
2007
Noninterest-bearing deposits . . .
Interest-bearing deposits
$ 68,579
29.7% $ 45,314
22.2% $ 38,186
20.8% $ 37,494
23.5% $ 33,334
25.4%
Interest checking . . . . . . . . . . . . .
Money market savings . . . . . . .
Savings accounts . . . . . . . . . . . .
45,933
45,854
28,018
19.9
19.9
12.1
43,183
46,855
24,260
21.2
22.9
11.9
38,436
40,848
16,885
21.0
22.3
9.2
32,254
26,137
9,070
20.2
16.4
5.7
28,996
24,301
5,001
22.1
18.5
3.8
Total of savings
deposits . . . . . . . . . . . . . . . . .
Time certificates of deposit less
than $100,000 . . . . . . . . . . . . . . . .
Time deposits greater than
$100,000
Domestic . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . .
Total interest-bearing
119,805
51.9
114,298
56.0
96,169
52.5
67,461
42.3
58,298
44.4
14,952
6.5
15,083
7.4
18,966
10.4
18,425
11.7
14,160
10.8
12,583
14,966
5.4
6.5
12,330
17,227
6.0
8.4
16,858
13,063
9.2
7.1
20,791
15,179
13.0
9.5
15,351
10,302
11.7
7.8
deposits . . . . . . . . . . . . . . . . .
162,306
70.3
158,938
77.8
145,056
79.2
121,856
76.5
98,111
74.6
Total deposits . . . . . . . . . . . . . . . .
$230,885
100.0% $204,252
100.0% $183,242
100.0% $159,350
100.0% $131,445
100.0%
The maturity of time deposits was as follows:
At December 31, 2011 (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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,375
2,297
2,885
3,355
1,908
1,214
912
6
$14,952
$17,103
1,723
2,305
2,292
1,506
1,509
1,029
82
Total
$19,478
4,020
5,190
5,647
3,414
2,723
1,941
88
$27,549
$42,501
banking and corporate trust balances, partially offset by lower
broker-dealer balances. The $1.0 billion (2.1 percent) decrease
in money market savings account balances was primarily due
to lower Consumer and Small Business Banking, and broker-
dealer balances, partially offset by higher Wealth
Management and Securities Services balances. Average
interest-bearing savings deposits in 2011 increased
$13.8 billion (13.7 percent), compared with 2010, primarily
due to growth in corporate and institutional trust balances,
including the impact of the securitization trust administration
acquisition, as well as an increase in Consumer and Small
Business Banking balances, partially offset by lower broker-
dealer balances.
Interest-bearing time deposits at December 31, 2011,
decreased $2.1 billion (4.8 percent), compared with
December 31, 2010, driven by decreases in both time
certificates of deposit less than $100,000 and time deposits
greater than $100,000. Time certificates of deposit less than
$100,000 decreased $131 million (.9 percent) at
December 31, 2011, compared with December 31, 2010, as a
result of decreases in Consumer and Small Business Banking
balances. Average time certificates of deposit less than
$100,000 in 2011 decreased $1.4 billion (8.4 percent),
compared with 2010, reflecting maturities and lower
renewals. Time deposits greater than $100,000 decreased $2.0
billion (6.8 percent) at December 31, 2011, compared with
December 31, 2010. Average time deposits greater than
$100,000 in 2011 increased $2.3 billion (8.5 percent),
compared with 2010 primarily due to the impact of the
securitization trust administration and FCB acquisitions.
During 2010, the Dodd-Frank Wall Street Reform and
Consumer Protection Act was signed into law, resulting in a
permanent increase in the statutory standard maximum
deposit insurance amount for domestic deposits to $250,000
per depositor. Domestic time deposits greater than $250,000
were $4.7 billion at December 31, 2011, compared with
$5.4 billion at December 31, 2010.
U.S. BANCORP
33
Borrowings The Company utilizes both short-term and long-
term borrowings as part of its asset/liability management and
funding strategies. Short-term borrowings, which include
federal funds purchased, commercial paper, repurchase
agreements, borrowings secured by high-grade assets and
other short-term borrowings, were $30.5 billion at
December 31, 2011, compared with $32.6 billion at
December 31, 2010. The $2.1 billion (6.4 percent) decrease in
short-term borrowings reflected reduced borrowing needs by
the Company as a result of increases in deposits.
Long-term debt was $32.0 billion at December 31, 2011,
compared with $31.5 billion at December 31, 2010, reflecting
$2.3 billion of medium-term note issuances and a $1.4 billion
increase in long-term debt related to certain consolidated
VIEs, partially offset by $1.6 billion of subordinated debt
repayments and maturities, $.8 billion of extinguishments of
junior subordinated debentures, and a $.4 billion decrease in
Federal Home Loan Bank advances. 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, processing errors, technology,
breaches of internal controls and in data security, and
business continuation and disaster recovery. Interest rate risk
is the potential reduction of net interest income as a result of
changes in interest rates, which can affect the re-pricing of
assets and liabilities differently. Market risk arises from
fluctuations in interest rates, foreign exchange rates, and
security prices that may result in changes in the values of
financial instruments, such as trading and available-for-sale
securities, certain mortgage loans held for sale, MSRs and
derivatives that are accounted for on a fair value basis.
Liquidity risk is the possible inability to fund obligations to
depositors, investors or borrowers. Further, 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. In addition
to the risks identified above, other risk factors exist that may
impact the Company. Refer to “Risk Factors” beginning on
page 134, for a detailed discussion of these factors.
34
U.S. BANCORP
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.
In addition, credit quality ratings as defined by the
Company, are an important part of the Company’s overall
credit risk management and evaluation of its allowance for
credit losses. Loans with a pass rating represent those not
classified on the Company’s rating scale for problem credits,
as minimal risk has been identified. Loans with a special
mention or classified rating, including all of the Company’s
loans that are 90 days or more past due and still accruing,
nonaccrual loans, and those considered troubled debt
restructurings (“TDRs”), encompass all loans held by the
Company that it considers to have a potential or well-defined
weakness that may put full collection of contractual cash
flows at risk. The Company’s internal credit quality ratings
for consumer loans are primarily based on delinquency and
nonperforming status, except for a limited population of
larger loans within those portfolios that are individually
evaluated. For this limited population, the determination of
the internal credit quality rating may also consider collateral
value and customer cash flows. The Company recently began
obtaining recent collateral value estimates for the majority of
its residential mortgage and home equity and second mortgage
portfolios, which allows the Company to compute estimated
loan-to-value (“LTV”) ratios reflecting current market
conditions. These individual refreshed loan-to-value ratios are
considered in the determination of the appropriate allowance
for credit losses. The Company strives to identify potential
problem loans early, record any necessary charge-offs
promptly and maintain appropriate allowance levels for
probable incurred loan losses. Refer to Notes 1 and 6 in the
Notes to Consolidated Financial Statements for further
information of the Company’s loan portfolios including
internal credit quality ratings.
The Company categorizes its loan portfolio into three
segments, which is the level at which it develops and
documents a systematic methodology to determine the
allowance for credit losses. The Company’s three loan
portfolio segments are commercial lending, consumer lending
and covered loans. The commercial lending segment includes
loans and leases made to small business, middle market, large
corporate, commercial real estate, financial institution, and
public sector customers. Key risk characteristics relevant to
commercial lending segment loans include the industry and
geography of the borrower’s business, purpose of the loan,
repayment source, borrower’s debt capacity and financial
flexibility, loan covenants, and nature and value of pledged
collateral, if any. These risk characteristics, among others, are
considered in determining estimates about the likelihood of
default by the borrowers and the severity of loss in the event
of default. The Company considers these risk characteristics in
assigning internal risk ratings to, or forecasting losses on,
these loans which are the significant factors in determining the
allowance for credit losses for loans in the commercial lending
segment.
The consumer lending segment represents loans and
leases made to consumer customers including residential
mortgages, credit card loans, and other retail loans such as
revolving consumer lines, auto loans and leases, student loans,
and home equity loans and lines. Home equity and second
mortgage loans are junior lien closed-end accounts fully
disbursed at origination. These loans typically are fixed rate
loans, secured by residential real estate, with a 10 or 15 year
fixed payment amortization schedule. Home equity lines are
revolving accounts giving the borrower the ability to draw
and repay balances repeatedly, up to a maximum
commitment, and are secured by residential real estate. These
include accounts in either a first or junior lien position.
Typical terms on home equity lines are variable rates
benchmarked to the prime rate, with a 15 year draw period
during which a minimum payment is equivalent to the
monthly interest, followed by a 10 year amortization period.
At December 31, 2011, substantially all of the Company’s
home equity lines were in the draw period. Key risk
characteristics relevant to consumer lending segment loans
primarily relate to the borrowers’ capacity and willingness to
repay and include unemployment rates and other economic
factors, customer payment history and in some cases, updated
loan-to-value information on collateral-dependent loans.
These risk characteristics, among others, are reflected in
forecasts of delinquency levels, bankruptcies and losses which
are the primary factors in determining the allowance for credit
losses for the consumer lending segment.
The covered loan segment represents loans acquired in
FDIC-assisted transactions that are covered by loss sharing
agreements with the FDIC that greatly reduce the risk of
future credit losses to the Company. Key risk characteristics
for covered segment loans are consistent with the segment
they would otherwise be included in had the loss share
coverage not been in place but consider the indemnification
provided by the FDIC.
The Company further disaggregates its loan portfolio
segments into various classes based on their underlying risk
characteristics. The two classes within the commercial lending
segment are commercial loans and commercial real estate
loans. The three classes within the consumer lending segment
are residential mortgages, credit card loans and other retail
loans. The covered loan segment consists of only one class.
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 derivative transactions 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 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.
Beginning in late 2007, financial markets suffered
significant disruptions, leading to and exacerbated by
declining real estate values and subsequent economic
challenges, both domestically and globally. Median home
prices, which peaked in 2006, declined across most domestic
markets, which had a significant adverse impact on the
collectability of residential mortgage loans. Residential
mortgage delinquencies increased throughout 2008 and 2009.
High unemployment levels throughout 2009, 2010 and 2011
further increased losses in prime-based residential portfolios
and credit cards.
Economic conditions began to stabilize in late 2009 and
continued to improve throughout 2010 and 2011, though
unemployment and under-employment continued to be
elevated, consumer confidence and spending remained lower
and stress continued in the residential mortgage portfolio due
to a decline in home values. Credit costs peaked for the
Company in late 2009 and have trended downward
thereafter. The provision for credit losses was lower than net
charge-offs by $500 million in 2011, and exceeded net charge-
offs by $175 million in 2010 and $1.7 billion in 2009. The
$2.0 billion (46.2 percent) decrease in the provision for credit
losses in 2011, compared with 2010, reflected improving
credit trends and the underlying risk profile of the loan
portfolio as economic conditions continued to further
stabilize.
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
U.S. BANCORP
35
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 consumer
lending products, including residential mortgages, credit card
loans, retail leases, home equity, revolving credit, lending to
students and other consumer loans. These consumer lending
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 2011.
The commercial loan class is diversified among various
industries with somewhat higher concentrations in consumer
products and services, financial services, healthcare, capital
goods (including manufacturing and commercial construction-
related businesses), and commercial services and supplies.
Additionally, the commercial loan class is diversified across
the Company’s geographical markets with 67.6 percent of
total commercial loans within the Company’s Consumer and
Small Business Banking markets. Credit relationships outside
of the Company’s Consumer and Small Business Banking
markets relate to 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 geographical locations of
commercial loans outstanding at December 31, 2011 and
2010.
homebuilding industry sector. From a geographical
perspective, the Company’s commercial real estate loan class
is generally well diversified. However, at December 31, 2011,
21.3 percent of the Company’s commercial real estate loans
were secured by collateral in California, which has
experienced higher delinquency levels and credit quality
deterioration due to excess home inventory levels and
declining valuations. Included in commercial real estate at
year-end 2011 was approximately $1.1 billion in loans related
to land held for development and $1.5 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 loan class is diversified
across the Company’s geographical markets with 87.4 percent
of total commercial real estate loans outstanding at
December 31, 2011, within the Company’s Consumer and
Small Business Banking markets.
The Company’s consumer lending segment utilizes several
distinct business processes and channels to originate consumer
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 and Small Business Banking, the consumer finance
division specializes in serving channel-specific and alternate
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 the Company’s 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.
The commercial real estate loan class reflects the
Residential mortgages represent an important financial
Company’s focus on serving business owners within its
geographic footprint as well as regional and national
investment-based real estate owners and builders. Within the
commercial real estate loan class, 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, 2011 and 2010. At December 31, 2011,
approximately 32.8 percent of the commercial real estate
loans represented business owner-occupied properties that
tend to exhibit less credit risk than nonowner-occupied
properties. The investment-based real estate mortgages are
diversified among various property types with somewhat
higher concentrations in multi-family and retail properties.
During 2011, the Company continued to reduce its level of
exposure to homebuilders, given the stress in the
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. The Company may retain residential
mortgage loans it originates on its balance sheet or sell the
loans 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 Company recently began estimating updated
loan-to-value information quarterly, based on a method that
combines automated valuation model updates and
36
U.S. BANCORP
appropriate home price indices. Loan-to-value is the ratio of
the loan’s outstanding principal balance to the current
estimate of property value. For home equity and second
mortgages, combined loan-to-value (“CLTV”) is the
combination of the first mortgage original principal balance
and the second lien outstanding principal balance, relative to
the current estimate of property value. Certain loans do not
have a loan-to-value or combined loan-to-value primarily due
to lack of availability of appropriate automated valuation
model and/or home price indices values, or lack of necessary
valuation data on portfolio acquisitions.
The following tables provide summary information for the
loan-to-values of residential mortgages and home equity and
second mortgages by distribution channel and type at
December 31, 2011:
Residential mortgages
(Dollars in Millions)
Consumer Finance
Interest
Only Amortizing
Total
Percent
of Total
Less than or equal to 80% . . $ 734 $ 4,566 $ 5,300
2,905
Over 80% through 90% . . . . .
1,558
Over 90% through 100% . . . .
3,174
Over 100% . . . . . . . . . . . . . . . . . .
2,554
1,342
2,433
351
216
741
41.0%
22.5
12.0
24.5
Total . . . . . . . . . . . . . . . . . . . . . $2,042 $10,895 $12,937 100.0%
Other
Less than or equal to 80% . . $ 840 $13,024 $13,864
2,360
Over 80% through 90% . . . . .
1,267
Over 90% through 100% . . . .
1,631
Over 100% . . . . . . . . . . . . . . . . . .
No LTV available . . . . . . . . . . . .
124
Loans purchased from
GNMA mortgage
pools (a) . . . . . . . . . . . . . . . . . . .
2,093
1,012
1,061
124
267
255
570
–
4,899
4,899
–
57.4%
9.8
5.2
6.8
.5
20.3
Total . . . . . . . . . . . . . . . . . . . . . $1,932 $22,213 $24,145 100.0%
Total Company
Less than or equal to 80% . . $1,574 $17,590 $19,164
5,265
Over 80% through 90% . . . . .
2,825
Over 90% through 100% . . . .
4,805
Over 100% . . . . . . . . . . . . . . . . . .
No LTV available . . . . . . . . . . . .
124
Loans purchased from
GNMA mortgage
pools (a) . . . . . . . . . . . . . . . . . . .
4,647
2,354
3,494
124
618
471
1,311
–
4,899
4,899
–
51.7%
14.2
7.6
13.0
.3
13.2
Total . . . . . . . . . . . . . . . . . . . . . $3,974 $33,108 $37,082 100.0%
(a) Represents loans purchased from Government National Mortgage Association ("GNMA")
mortgage pools whose payments are primarily insured by the Federal Housing
Administration or guaranteed by the Department of Veterans Affairs.
Home equity and second mortgages
(Dollars in Millions)
Lines
Loans
Total
Percent
of Total
Consumer Finance
Less than or equal to 80% . . . $
Over 80% through 90% . . . . . .
Over 90% through 100% . . . .
Over 100% . . . . . . . . . . . . . . . . . . .
No LTV/CLTV available . . . . . .
712 $
366
218
566
3
62 $
49
65
347
2
774
415
283
913
5
32.4%
17.4
11.8
38.2
.2
Total . . . . . . . . . . . . . . . . . . . . . . $ 1,865 $ 525 $ 2,390 100.0%
Other
Less than or equal to 80% . . . $ 6,749 $ 622 $ 7,371
2,528
Over 80% through 90% . . . . . .
2,000
Over 90% through 100% . . . .
3,429
Over 100% . . . . . . . . . . . . . . . . . . .
413
No LTV/CLTV available . . . . . .
2,291
1,771
2,882
375
237
229
547
38
46.8%
16.1
12.7
21.8
2.6
Total . . . . . . . . . . . . . . . . . . . . . . $14,068 $1,673 $15,741 100.0%
Total Company
Less than or equal to 80% . . . $ 7,461 $ 684 $ 8,145
2,943
Over 80% through 90% . . . . . .
2,283
Over 90% through 100% . . . .
4,342
Over 100% . . . . . . . . . . . . . . . . . . .
418
No LTV/CLTV available . . . . . .
2,657
1,989
3,448
378
286
294
894
40
44.9%
16.2
12.6
24.0
2.3
Total . . . . . . . . . . . . . . . . . . . . . . $15,933 $2,198 $18,131 100.0%
Within the consumer finance division, at December 31,
2011, approximately $1.9 billion of residential mortgages
were to customers that may be defined as sub-prime
borrowers based on credit scores from independent agencies
at loan origination, compared with $2.1 billion at
December 31, 2010. In addition to residential mortgages, at
December 31, 2011, the consumer finance division had $.5
billion of home equity and second mortgage loans to
customers that may be defined as sub-prime borrowers,
unchanged from December 31, 2010.
The following table provides further information on the
loan-to-values of residential mortgages, specifically for the
consumer finance division, at December 31, 2011:
(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% . . . . . . . . . . . . . . . . . . .
2 $
1
3
11
513 $
258
268
796
515
259
271
807
4.0%
2.0
2.1
6.2
Total . . . . . . . . . . . . . . . . . . . . . . $
17 $ 1,835 $ 1,852
14.3%
Other Borrowers
Less than or equal to 80% . . . $ 732 $ 4,053 $ 4,785
2,646
Over 80% through 90% . . . . . .
1,287
Over 90% through 100% . . . .
2,367
Over 100% . . . . . . . . . . . . . . . . . . .
2,296
1,074
1,637
350
213
730
37.0%
20.5
9.9
18.3
Total . . . . . . . . . . . . . . . . . . . . . . $2,025 $ 9,060 $11,085
85.7%
Total Consumer Finance . . . $2,042 $10,895 $12,937
100.0%
U.S. BANCORP
37
The following table provides further information on the
loan-to-values of home equity and second mortgages
specifically for the consumer finance division at December 31,
2011:
(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% . . . . . . . . . . . . . . . . . . . . . .
No LTV/CLTV available . . . . . . . . .
$
39 $ 31 $
19
17
57
–
23
41
221
2
70
42
58
278
2
2.9%
1.8
2.4
11.6
.1
Total . . . . . . . . . . . . . . . . . . . . . . . . .
$ 132 $318 $ 450
18.8%
Other Borrowers
Less than or equal to 80% . . . . . .
Over 80% through 90% . . . . . . . . .
Over 90% through 100% . . . . . . .
Over 100% . . . . . . . . . . . . . . . . . . . . . .
No LTV/CLTV available . . . . . . . . .
$ 673 $ 31 $ 704
373
225
635
3
26
24
126
–
347
201
509
3
29.5%
15.6
9.4
26.6
.1
Total . . . . . . . . . . . . . . . . . . . . . . . . .
$1,733 $207 $1,940
81.2%
Total Consumer Finance . . . . . .
$1,865 $525 $2,390 100.0%
The total amount of consumer lending segment
residential mortgage, home equity and second mortgage loans
to customers that may be defined as sub-prime borrowers
represented only .7 percent of total assets at December 31,
2011, compared with .9 percent at December 31, 2010.
Covered loans included $1.5 billion in loans with negative-
amortization payment options at December 31, 2011,
compared with $1.6 billion at December 31, 2010. Other than
covered loans, the Company does not have any residential
mortgages with payment schedules that would cause balances
to increase over time.
Home equity and second mortgages were $18.1 billion at
December 31, 2011, and included $5.2 billion of home equity
lines in a first lien position and $12.9 billion of home equity
and second mortgage loans and lines in a junior lien position.
Loans and lines in a junior lien position at December 31,
2011, included approximately $3.7 billion of loans and lines
for which the Company also serviced the related first lien
loan, and approximately $9.2 billion where the Company did
not service the related first lien loan. The Company was able
to determine the status of the related first liens on
approximately 65 percent of the total portfolio using
information the Company has as the servicer of the first lien
or information it received from its primary regulator on loans
serviced by other large servicers. The Company uses this
information to estimate the first lien status on the remainder
of the portfolio. The Company also evaluates other indicators
of credit risk for these junior lien loans and lines including
delinquency, estimated average combined loan-to-value ratios
and weighted average credit scores in making its assessment of
credit risk, related loss estimates and determining the
allowance for credit losses.
38
U.S. BANCORP
The following table provides a summary of delinquency
statistics and other credit quality indicators for the Company’s
junior lien positions at December 31, 2011:
Junior Liens Behind
Company Owned
or Serviced
First Lien
Third Party
First Lien
Total
$3,717
$9,166
$12,883
(Dollars in Millions)
Total . . . . . . . . . . . . . . . . . . . . . . . .
Percent 30 – 89 days past
due . . . . . . . . . . . . . . . . . . . . . . .
1.59%
1.97%
1.86%
Percent 90 days or more
past due . . . . . . . . . . . . . . . . . .
Weighted-average CLTV . . . .
Weighted-average credit
.83%
90%
.93%
88%
.90%
89%
score . . . . . . . . . . . . . . . . . . . . .
761
757
759
See the Analysis and Determination of the Allowance for
Credit Losses section for additional information on how the
Company determines the allowance for credit losses for loans
in a junior lien position.
The decline in housing prices over the past several years
has deteriorated the collateral support of the residential
mortgage, home equity and second mortgage portfolios.
However, the underwriting criteria the Company employs
consider the relevant income and credit characteristics of the
borrower, such that the collateral is not the primary source of
repayment.
Credit card and other retail loans principally reflect the
Company’s focus on consumers within its geographical
footprint of branches and certain niche lending activities that
are nationally focused. Approximately 69.8 percent of the
Company’s credit card balances relate to cards originated
through the Company’s branches or co-branded, travel and
affinity programs that generally experience better credit
quality performance than portfolios generated through other
channels.
Tables 9, 10 and 11 provide a geographical summary of
the residential mortgage, credit card and other retail loan
portfolios, respectively.
Assets acquired by the Company in FDIC-assisted
transactions 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.
T A B L E 1 5 Delinquent Loan Ratios as a Percent of Ending Loan Balances
At December 31,
90 days or more past due excluding nonperforming loans
Commercial
2011
2010
2009
2008
2007
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.09%
—
.15%
.02
.25%
—
.15%
—
.08%
—
Total commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Real Estate
Commercial mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential Mortgages (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit Card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Retail
Retail leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other retail (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans, excluding covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.08
.02
.13
.04
.98
1.36
.02
.43
.38
.43
.13
—
.01
—
1.63
1.86
.05
.49
.45
.61
.22
—
.07
.02
2.80
2.59
.11
.57
.53
.88
.13
—
.36
.11
1.55
2.20
.16
.45
.42
.56
Covered Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.15
6.04
3.59
5.25
.07
.02
.02
.02
.86
1.94
.10
.37
.33
.38
—
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.84%
1.11% 1.19%
.84%
.38%
At December 31,
90 days or more past due including nonperforming loans
2011
2010
2009
2008
2007
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans, excluding covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.63%
2.55
2.73
2.65
.52
1.54
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.42
1.37% 2.25%
3.73
3.70
3.22
.58
5.22
4.59
3.43
.66
2.19
12.94
2.87
9.76
.82%
.43%
3.34
2.44
2.69
.47
1.57
8.55
1.02
1.10
2.06
.37
.74
—
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.30%
3.17% 3.64% 2.00%
.74%
(a) Delinquent loan ratios exclude $2.6 billion, $2.6 billion, $2.2 billion, $1.1 billion, and $.6 billion at December 31, 2011, 2010, 2009, 2008 and 2007, respectively, of loans purchased from
Government National Mortgage Association ("GNMA") mortgage pools whose repayments are primarily insured by the Federal Housing Administration or guaranteed by the Department of
Veterans Affairs. Including these loans, the ratio of residential mortgages 90 days or more past due including all nonperforming loans was 9.84 percent, 12.28 percent, 12.86 percent, 6.95
percent, and 3.78 percent at December 31, 2011, 2010, 2009, 2008, and 2007, respectively.
(b) Beginning in 2008, delinquent loan ratios exclude student loans that are guaranteed by the federal government. Including these loans, the ratio of total other retail loans 90 days or more past
due including nonperforming loans was .99 percent, 1.04 percent, .91 percent, and .64 percent at December 31, 2011, 2010, 2009, and 2008, respectively.
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
whose repayments of principal and interest are primarily
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
consumer lending 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 nine months 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 consumer lending
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 lending loans are
generally not subject to re-aging policies.
Accruing loans 90 days or more past due totaled $1.8
billion ($843 million excluding covered loans) at
U.S. BANCORP
39
The following table provides information on delinquent and
nonperforming consumer lending loans as a percent of ending
loan balances, by channel:
At December 31
2011
2010
2011
2010
Consumer Finance Other Consumer Lending
Residential Mortgages (a)
30-89 days . . . . . . . . . . . . . . . . . 1.87% 2.38%
90 days or more . . . . . . . . . . . 1.71
Nonperforming . . . . . . . . . . . . . 2.50
2.26
2.99
.67%
.59
1.35
.95%
1.24
1.52
Total . . . . . . . . . . . . . . . . . . . . 6.08% 7.63% 2.61% 3.71%
Credit Card
30-89 days . . . . . . . . . . . . . . . . . —% —% 1.37% 1.60%
90 days or more . . . . . . . . . . . —
Nonperforming . . . . . . . . . . . . . —
1.36
1.29
1.86
1.36
—
—
Total . . . . . . . . . . . . . . . . . . . . —% —% 4.02% 4.82%
Other Retail
Retail Leasing
30-89 days . . . . . . . . . . . . . . . . . —% —%
90 days or more . . . . . . . . . . . —
Nonperforming . . . . . . . . . . . . . —
—
—
Total . . . . . . . . . . . . . . . . . . . . —% —%
Home Equity and Second
Mortgages
30-89 days . . . . . . . . . . . . . . . . . 2.01% 1.98%
90 days or more . . . . . . . . . . . 1.42
.21
Nonperforming . . . . . . . . . . . . .
1.82
.20
.19%
.02
—
.21%
.73%
.63
.22
.37%
.05
—
.42%
.76%
.62
.19
Total . . . . . . . . . . . . . . . . . . . . 3.64% 4.00% 1.58% 1.57%
Other (b)
30-89 days . . . . . . . . . . . . . . . . . 4.92% 4.42%
90 days or more . . . . . . . . . . .
.90
Nonperforming . . . . . . . . . . . . . —
.68
—
.60%
.19
.11
.77%
.25
.12
Total . . . . . . . . . . . . . . . . . . . . 5.82% 5.10%
.90% 1.14%
(a) Excludes loans purchased from GNMA mortgage pools that are 90 days or more past due
that continue to accrue interest.
(b) Includes revolving credit, installment, automobile and student loans.
Within the consumer finance division at December 31,
2011, approximately $363 million and $63 million of these
delinquent residential mortgages and home equity and other
retail loans, respectively, were to customers that may be
defined as sub-prime borrowers, compared with $412 million
and $75 million, respectively, at December 31, 2010.
The following table provides summary delinquency
information for covered loans:
At December 31
(Dollars in Millions)
Amount
As a Percent of Ending
Loan Balances
2011
2010
2011
2010
30-89 days . . . . . . . . . $ 362
910
90 days or more . . . .
926
Nonperforming . . . . .
$ 757
1,090
1,244
2.45%
6.15
6.26
4.19%
6.04
6.90
Total . . . . . . . . . . . . $2,198
$3,091
14.86% 17.13%
December 31, 2011, compared with $2.2 billion ($1.1 billion
excluding covered loans) at December 31, 2010, and $2.3
billion ($1.5 billion excluding covered loans) at December 31,
2009. The $251 million (22.9 percent) decrease, excluding
covered loans, reflected a moderation in the level of stress in
economic conditions during 2011. These loans are not
included in nonperforming assets and continue to accrue
interest because they are adequately secured by collateral, are
in the process of collection and are reasonably expected to
result in repayment or restoration to current status, or are
managed in homogeneous portfolios with specified charge-off
timeframes adhering to regulatory guidelines. The ratio of
accruing loans 90 days or more past due to total loans was
.84 percent (.43 percent excluding covered loans) at
December 31, 2011, compared with 1.11 percent (.61 percent
excluding covered loans) at December 31, 2010, and
1.19 percent (.88 percent excluding covered loans) at
December 31, 2009.
The following table provides summary delinquency
information for residential mortgages, credit card and other
retail loans included in the consumer lending segment:
At December 31
(Dollars in Millions)
Residential Mortgages (a)
Amount
As a Percent of Ending
Loan Balances
2011
2010
2011
2010
30-89 days . . . . . . . . . . . . . $ 404
364
90 days or more . . . . . . .
650
Nonperforming . . . . . . . . .
$ 456
500
636
1.09% 1.48%
.98
1.75
1.63
2.07
Total . . . . . . . . . . . . . . . $1,418
$1,592
3.82% 5.18%
Credit Card
30-89 days . . . . . . . . . . . . . $ 238
236
90 days or more . . . . . . .
224
Nonperforming . . . . . . . . .
$ 269
313
228
1.37% 1.60%
1.36
1.29
1.86
1.36
Total . . . . . . . . . . . . . . . $ 698
$ 810
4.02% 4.82%
Other Retail
Retail Leasing
30-89 days . . . . . . . . . . . . . $
90 days or more . . . . . . .
Nonperforming . . . . . . . . .
Total . . . . . . . . . . . . . . . $
Home Equity and
10
1
—
11
$
$
17
2
—
19
Second Mortgages
30-89 days . . . . . . . . . . . . . $ 162
133
90 days or more . . . . . . .
40
Nonperforming . . . . . . . . .
$ 175
148
36
.19% .37%
.02
—
.05
—
.21% .42%
.90% .93%
.73
.22
.78
.19
Total . . . . . . . . . . . . . . . $ 335
$ 359
1.85% 1.90%
Other (b)
30-89 days . . . . . . . . . . . . . $ 168
50
90 days or more . . . . . . .
27
Nonperforming . . . . . . . . .
$ 212
66
29
.68% .85%
.20
.11
.26
.12
Total . . . . . . . . . . . . . . . $ 245
$ 307
.99% 1.23%
(a) Excludes $2.6 billion at December 31, 2011, and 2010, of loans purchased from GNMA
mortgage pools that are 90 days or more past due that continue to accrue interest.
(b) Includes revolving credit, installment, automobile and student loans.
40
U.S. BANCORP
Restructured Loans In certain circumstances, the Company
may modify the terms of a loan to maximize the collection of
amounts due when a borrower is experiencing financial
difficulties or is expected to experience difficulties in the near-
term. In most cases the modification is either a concessionary
reduction in interest rate, extension of the maturity date or
reduction in the principal balance that would otherwise not be
considered. Concessionary modifications are classified as
TDRs unless the modification results in only an insignificant
delay in the payments to be received. TDRs accrue interest if
the borrower complies with the revised terms and conditions
and has demonstrated repayment performance at a level
commensurate with the modified terms over several payment
cycles. Loans classified as TDRs are considered impaired loans
for reporting and measurement purposes.
Troubled Debt Restructurings The Company continues to
work with customers to modify loans for borrowers who are
experiencing financial difficulties, including those acquired
through FDIC-assisted acquisitions. Many of the Company’s
TDRs are determined on a case-by-case basis in connection
with ongoing loan collection processes. The modifications
vary within each of the Company’s loan classes. Commercial
lending segment TDRs generally include extensions of the
maturity date and may be accompanied by an increase or
decrease to the interest rate. The Company may also work
with the borrower to make other changes to the loan to
mitigate losses, such as obtaining additional collateral and/or
guarantees to support the loan.
The Company has also implemented certain residential
mortgage loan restructuring programs that may result in
TDRs. The Company participates in the U.S. Department of
the Treasury Home Affordable Modification Program
(“HAMP”). HAMP gives qualifying homeowners an
opportunity to permanently modify their loan and achieve
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 modifies
residential mortgage loans under Federal Housing
Administration, Department of Veterans Affairs, or other
internal programs. Under these programs, the Company
provides concessions to qualifying borrowers experiencing
financial difficulties. The concessions may include adjustments
to interest rates, conversion of adjustable rates to fixed rates,
extensions of maturity dates or deferrals of payments,
capitalization of accrued interest and/or outstanding advances,
or in limited situations, partial forgiveness of loan principal.
In most instances, participation in residential mortgage loan
restructuring programs requires the customer to complete a
short-term trial period. A permanent loan modification is
contingent on the customer successfully completing the trial
period arrangement and the loan documents are not modified
until that time. Loans that require a trial period arrangement
are reported as TDRs when offered to a borrower.
Credit card and other retail loan modifications are
generally part of distinct restructuring programs. The
Company offers a workout program providing customers
modification solutions over a specified time period, generally
up to 60 months. The Company also provides modification
programs to qualifying customers experiencing a temporary
financial hardship in which reductions are made to monthly
required minimum payments for up to 12 months.
Modifications to loans in the covered segment are similar
in nature to that described above for non-covered loans, and
the evaluation and determination of TDR status is similar,
except that acquired loans restructured after acquisition are
not considered TDRs for purposes of the Company’s
accounting and disclosure if the loans evidenced credit
deterioration as of the acquisition date and are accounted for
in pools. Losses associated with modifications on covered
loans, including the economic impact of interest rate
reductions, are generally eligible for reimbursement under the
loss sharing agreements.
During 2011, the Company adopted new accounting
guidance that provided clarification to the scope of
determining whether loan modifications should be considered
TDRs. The adoption of this guidance resulted in additional
restructurings being considered TDRs, but did not have a
material impact on the Company’s allowance for credit losses.
Short-term Modifications The Company makes short-term
modifications that it does not consider to be TDRs in limited
circumstances to assist borrowers experiencing temporary
hardships. Consumer lending programs include payment
reductions, deferrals of up to three past due payments, and the
ability to return to current status if the borrower makes
required payments. The Company may also make short-term
modifications to commercial lending loans, with the most
common modification being an extension of the maturity date
of three months or less. Such extensions generally are used
when the maturity date is imminent and the borrower is
experiencing some level of financial stress, but the Company
believes the borrower will pay all contractual amounts owed.
These short-term modifications made were not material.
U.S. BANCORP
41
The following table provides a summary of TDRs by loan class, including the delinquency status for TDRs that continue to
accrue interest and TDRs included in nonperforming assets:
As a Percent of Performing TDRs
At December 31, 2011
(Dollars in Millions)
Performing
TDRs
30-89 Days
Past Due
90 Days or more
Past Due
Nonperforming
TDRs
Total
TDRs
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TDRs, excluding GNMA and covered loans . . . . . . . . . . . . .
Loans purchased from GNMA mortgage pools . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 345
537
2,002
360
121
3,365
1,265
244
4.1%
1.0
6.3
11.3
9.4
5.9
12.1
2.2
1.3%
—
5.7
9.7
7.2
4.8
27.5
4.1
$ 110(a)
341(b)
169
224(c)
27(c)
871
—
254
$ 455
878
2,171(d)
584
148(e)
4,236
1,265(f)
498
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,874
7.3%
10.7%
$1,125
$5,999
(a) Primarily represents loans less than six months from the modification date that have not met the performance period required to return to accrual status (generally six months) and small
business credit cards with a modified rate equal to 0 percent.
(b) Primarily represents loans less than six months from the modification date that have not met the performance period required to return to accrual status (generally six months).
(c) Primarily represents loans with a modified rate equal to 0 percent.
(d) Includes $75 million of residential mortgage loans in trial period arrangements at December 31, 2011.
(e) Includes $3 million of home equity and second mortgage loans in trial period arrangements at December 31, 2011.
(f)
Includes $207 million of Federal Housing Association and Department of Veterans Affairs residential mortgage loans in trial period arrangements at December 31, 2011.
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 or those that have not met the performance
period required to return to accrual status, other real estate
and other nonperforming assets owned by the Company.
Nonperforming assets are generally either originated by the
Company or acquired under FDIC loss sharing agreements
that substantially reduce the risk of credit losses to the
Company. Interest payments collected from assets on
nonaccrual status are typically applied against the principal
balance and not recorded as income.
At December 31, 2011, total nonperforming assets were
$3.8 billion, compared with $5.0 billion at December 31,
2010 and $5.9 billion at December 31, 2009. Excluding
covered assets, nonperforming assets were $2.6 billion at
December 31, 2011, compared with $3.4 billion at
December 31, 2010 and $3.9 billion at December 31, 2009.
The $777 million (23.2 percent) decrease in nonperforming
assets, excluding covered assets, from December 31, 2010 to
December 31, 2011, was primarily driven by reductions in
construction and development nonperforming loans and by
improvement in the other commercial and commercial
mortgage portfolios. These decreases were partially offset by
higher nonperforming residential mortgages as stress
continued in the residential mortgage portfolios due to the
decline in home values. Nonperforming covered assets at
December 31, 2011 were $1.2 billion, compared with
$1.7 billion at December 31, 2010 and $2.0 billion at
December 31, 2009. These assets are covered by loss sharing
agreements with the FDIC that substantially reduce the risk of
credit losses to the Company. In addition, the majority of the
nonperforming covered assets were considered credit-impaired
at acquisition and recorded at their estimated fair value at
acquisition. The ratio of total nonperforming assets to total
loans and other real estate was 1.79 percent (1.32 percent
excluding covered assets) at December 31, 2011, compared
with 2.55 percent (1.87 percent excluding covered assets) at
December 31, 2010 and 3.02 percent (2.25 percent excluding
covered assets) at December 31, 2009.
Other real estate, excluding covered assets, was
$404 million at December 31, 2011, compared with
$511 million at December 31, 2010 and $437 million at
December 31, 2009, and was related to foreclosed properties
that previously secured loan balances.
42
U.S. BANCORP
T A B L E 1 6 Nonperforming Assets (a)
At December 31 (Dollars in Millions)
Commercial
2011
2010
2009
2008
2007
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 280
32
$ 519
78
Total commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Real Estate
Commercial mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential Mortgages (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit Card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Retail
Retail leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total nonperforming loans, excluding covered loans . . . . . . . . . . . . . . . . .
Covered Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total nonperforming loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Real Estate (c)(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered Other Real Estate (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
312
354
545
899
650
224
—
67
67
2,152
926
3,078
404
274
18
597
545
748
1,293
636
228
—
65
65
2,819
1,244
4,063
511
453
21
$ 866
125
991
581
1,192
1,773
467
142
—
62
62
3,435
1,350
4,785
437
653
32
$ 290
102
392
294
780
1,074
210
67
—
25
25
1,768
369
2,137
190
274
23
Total nonperforming assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,774
$5,048
$5,907
$2,624
Total nonperforming assets, excluding covered assets . . . . . . . . . . . . . . .
$2,574
$3,351
$3,904
$1,981
$128
53
181
84
209
293
54
14
—
15
15
557
—
557
111
—
22
$690
$690
Excluding covered assets:
Accruing loans 90 days or more past due (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming loans to total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming assets to total loans plus other real estate (c) . . . . . . . . . . . . . . . . .
$ 843
$1,094
$1,525
$ 967
$584
1.10%
1.32%
1.57%
1.87%
1.99%
2.25%
1.02%
1.14%
.36%
.45%
Including covered assets:
Accruing loans 90 days or more past due (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming loans to total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming assets to total loans plus other real estate (c) . . . . . . . . . . . . . . . . .
$1,753
$2,184
$2,309
$1,554
$584
1.47%
1.79%
2.06%
2.55%
2.46%
3.02%
1.16%
1.42%
.36%
.45%
Changes in Nonperforming Assets
(Dollars in Millions)
Commercial and
Commercial
Real Estate
Credit Card,
Other Retail
and Residential
Mortgages (f)
Covered
Assets
Total
Balance December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,204
$1,147
$ 1,697
$ 5,048
Additions to nonperforming assets
New nonaccrual loans and foreclosed properties . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advances on loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions in nonperforming assets
Paydowns, payoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return to performing status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-offs (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net additions to (reductions in) nonperforming assets . . . . . . . . . . . . . . . . . .
1,514
68
1,582
(677)
(463)
(246)
(925)
(2,311)
(729)
750
—
750
(332)
(70)
(91)
(305)
(798)
(48)
626
5
631
(453)
(385)
(291)
1
(1,128)
(497)
2,890
73
2,963
(1,462)
(918)
(628)
(1,229)
(4,237)
(1,274)
Balance December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,475
$1,099
$ 1,200
$ 3,774
(a) Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due.
(b) Excludes $2.6 billion, $2.6 billion, $2.2 billion, $1.1 billion and $.6 billion at December 31, 2011, 2010, 2009, 2008 and 2007, respectively, of loans purchased from GNMA mortgage pools that
are 90 days or more past due that continue to accrue interest, as their repayments are primarily insured by the Federal Housing Administration or guaranteed by the Department of Veterans
Affairs.
(c) Foreclosured GNMA loans of $692 million, $575 million, $359 million, $209 million and $102 million at December 31, 2011, 2010, 2009, 2008 and 2007, respectively, continue to accrue
interest and are recorded as other assets and excluded from nonperforming assets because they are insured by the Federal Housing Administration or guaranteed by the Department of
Veterans Affairs.
(d) Includes equity investments in entities whose principal assets are other real estate owned.
(e) Charge-offs exclude actions for certain card products and loan sales that were not classified as nonperforming at the time the charge-off occurred.
(f) Residential mortgage information excludes changes related to residential mortgages serviced by others.
U.S. BANCORP
43
T A B L E 1 7 Net Charge-Offs as a Percent of Average Loans Outstanding
Year Ended December 31
Commercial
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.76% 1.80% 1.60%
.96
2.82
1.47
2011
2010
2009
2008
2007
Total commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.79
1.76
1.75
Commercial Real Estate
Commercial mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit Card (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Retail
Retail leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home equity and second mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.73
4.20
1.40
1.45
5.19
—
1.66
1.20
Total other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.25
Total loans, excluding covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.53
.07
1.23
6.32
2.47
1.97
7.32
.27
1.72
1.68
1.56
2.41
.09
.42
5.35
1.82
2.00
6.90
.74
1.75
1.85
1.69
2.23
.09
.53%
1.36
.63
.15
1.48
.55
1.01
4.73
.65
1.01
1.39
1.15
1.10
.38
.24%
.61
.29
.06
.11
.08
.28
3.34
.25
.46
.96
.64
.54
—
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.41% 2.17% 2.08% 1.10%
.54%
(a) Net charge-off as a percent of average loans outstanding, excluding portfolio purchases where the acquired loans were recorded at fair value at the purchase date, were 5.36 percent, 7.99
percent and 7.14 percent for the years ended December 31, 2011, 2010 and 2009, respectively.
The following table provides an analysis of OREO, excluding
covered assets, as a percent of their related loan balances,
including geographical location detail for residential
(residential mortgage, home equity and second mortgage) and
commercial (commercial and commercial real estate) loan
balances:
At December 31,
(Dollars in Millions)
Residential
Amount
As a Percent of Ending
Loan Balances
2011
2010
2011
2010
Minnesota . . . . . . . . . .
California . . . . . . . . . . .
Illinois . . . . . . . . . . . . . .
Colorado . . . . . . . . . . .
Missouri . . . . . . . . . . . .
All other states . . . . .
$ 22
16
10
10
7
86
Total
residential . . . . .
151
Commercial
Nevada . . . . . . . . . . . . .
California . . . . . . . . . . .
Connecticut . . . . . . . .
Ohio . . . . . . . . . . . . . . . .
Arizona . . . . . . . . . . . . .
All other states . . . . .
44
26
25
18
16
124
Total
$ 28
21
16
9
10
134
218
58
23
—
20
14
178
.39%
.22
.31
.27
.26
.26
.27
3.13
.18
4.78
.38
1.41
.18
.53%
.34
.57
.27
.39
.46
.44
3.93
.18
—
.48
1.50
.28
commercial . . .
253
293
Total OREO . . .
$404
$511
.27
.21%
.35
.29%
Analysis of Loan Net Charge-Offs Total loan net charge-offs
were $2.8 billion in 2011, compared with $4.2 billion in 2010
and $3.9 billion in 2009. The ratio of total loan net charge-
offs to average loans was 1.41 percent in 2011, compared
with 2.17 percent in 2010 and 2.08 percent in 2009. The
decrease in total net charge-offs in 2011, compared with
2010, was principally due to stabilizing economic conditions.
Total net charge-offs peaked for the Company in the first
quarter of 2010 and have trended lower since.
Commercial and commercial real estate loan net charge-
offs for 2011 were $904 million (1.04 percent of average
loans outstanding), compared with $1.7 billion (2.06 percent
of average loans outstanding) in 2010 and $1.5 billion
(1.78 percent of average loans outstanding) in 2009. The
decrease in net charge-offs in 2011, compared with 2010,
reflected the impact of efforts to resolve and reduce exposure
to problem assets in the Company’s commercial real estate
portfolios and improvement in the other commercial
portfolios due to the stabilizing economy. The increase in net
charge-offs in 2010, compared with 2009, reflected the
weakening economy and rising unemployment throughout
most of 2009, which affected the residential housing markets,
including homebuilding and related industries, commercial
real estate properties and other commercial loans.
Residential mortgage loan net charge-offs for 2011 were
$489 million (1.45 percent of average loans outstanding),
compared with $546 million (1.97 percent of average loans
outstanding) in 2010 and $489 million (2.00 percent of
average loans outstanding) in 2009. Credit card loan net
charge-offs for 2011 were $834 million (5.19 percent of
average loans outstanding), compared with $1.2 billion
(7.32 percent of average loans outstanding) in 2010 and
$1.0 billion (6.90 percent of average loans outstanding) in
44
U.S. BANCORP
Analysis and Determination of the Allowance for Credit
Losses The allowance for credit losses reserves for probable
and estimable losses incurred in the Company’s loan and lease
portfolio, and includes certain amounts that do not represent
loss exposure to the Company because those losses are
recoverable under loss sharing agreements with the FDIC. The
allowance for credit losses is increased through provisions
charged to operating earnings and reduced by net charge-offs.
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, 2011, the allowance for credit losses
was $5.0 billion (2.39 percent of total loans and 2.52 percent
of loans excluding covered loans), compared with an
allowance of $5.5 billion (2.81 percent of total loans and
3.03 percent of loans excluding covered loans) at
December 31, 2010. The ratio of the allowance for credit
losses to nonperforming loans was 163 percent (228 percent
excluding covered loans) at December 31, 2011, compared
with 136 percent (192 percent excluding covered loans) at
December 31, 2010. The ratio of the allowance for credit
losses to annual loan net charge-offs at December 31, 2011,
was 176 percent, compared with 132 percent at December 31,
2010, as net charge-offs continue to decline due to stabilizing
economic conditions. Management determined the allowance
for credit losses was appropriate at December 31, 2011.
2009. Other retail loan net charge-offs for 2011 were
$604 million (1.25 percent of average loans outstanding),
compared with $745 million (1.56 percent of average loans
outstanding) in 2010 and $797 million (1.69 percent of
average loans outstanding) in 2009. The decrease in total
residential mortgage, credit card and other retail loan net
charge-offs in 2011, compared with 2010, reflected the impact
of more stable economic conditions. The increase in total
residential mortgage, credit card and other retail loan net
charge-offs in 2010, compared with 2009, reflected the
adverse impact of economic conditions on consumers, as
higher unemployment levels increased losses in the prime-
based residential mortgage and credit card portfolios.
The following table provides an analysis of net charge-offs as
a percent of average loans outstanding managed by the
consumer finance division, compared with other consumer
lending loans:
Average Loans
Percent of
Average
Loans
2011
2010
2011
2010
Year Ended December 31
(Dollars in Millions)
Consumer Finance
Residential mortgages . . . . $12,302
Home equity and second
$10,739
2.77% 3.63%
mortgages . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . .
Other Consumer Lending
2,457
517
2,479
603
4.27
3.48
5.28
3.65
Residential mortgages . . . . $21,409
Home equity and second
$16,965
.69% .92%
mortgages . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . .
16,098
24,199
16,806
23,393
1.26
1.15
1.19
1.62
Total Company
Residential mortgages . . . . $33,711
Home equity and second
$27,704
1.45% 1.97%
mortgages . . . . . . . . . . . . . .
Other (a) . . . . . . . . . . . . . . . . . . .
18,555
24,716
19,285
23,996
1.66
1.20
1.72
1.68
(a) Includes revolving credit, installment, automobile and student loans.
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
Sub-prime borrowers . . .
Other borrowers . . . . . . . .
Average Loans
Percent of
Average Loans
2011
2010
2011
2010
$ 1,975
10,327
$ 2,300
8,439
6.18% 6.39%
2.12
2.88
Total . . . . . . . . . . . . . . . . . .
$12,302
$10,739
2.77% 3.63%
Home equity and
second mortgages
Sub-prime borrowers . . .
Other borrowers . . . . . . . .
$
491
1,966
$
575
1,904
9.16% 10.26%
3.05
3.78
Total . . . . . . . . . . . . . . . . . .
$ 2,457
$ 2,479
4.27% 5.28%
U.S. BANCORP
45
T A B L E 1 8 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail
Retail leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home equity and second mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other retail. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
$5,531
2010
$5,264
2009
$3,639
2008
$2,260
2007
$2,256
423
93
516
231
312
543
502
922
10
327
396
733
13
784
134
918
333
538
871
554
1,270
25
348
490
863
20
769
227
996
103
516
619
493
1,093
47
347
504
898
12
282
113
395
34
139
173
236
630
41
185
344
570
5
154
63
217
16
10
26
63
389
23
82
232
337
—
Total charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,229
4,496
4,111
2,009
1,032
Recoveries
Commercial
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate
Commercial mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail
Retail leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home equity and second mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other retail. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail
Retail leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home equity and second mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other retail. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
74
36
110
22
23
45
13
88
10
19
100
129
1
386
349
57
406
209
289
498
489
834
—
308
296
604
12
Total net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,843
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change for credit losses to be reimbursed by the FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions and other changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,343
(17)
—
48
43
91
13
13
26
8
70
13
17
88
118
2
315
736
91
827
320
525
845
546
1,200
12
331
402
745
18
4,181
4,356
92
—
30
40
70
2
3
5
4
62
11
9
81
101
1
243
739
187
926
101
513
614
489
1,031
36
338
423
797
11
3,868
5,557
—
(64)
27
26
53
1
—
1
2
65
6
7
56
69
—
190
255
87
342
33
139
172
234
565
35
178
288
501
5
1,819
3,096
—
102
52
28
80
4
—
4
2
69
7
8
70
85
—
240
102
35
137
12
10
22
61
320
16
74
162
252
—
792
792
—
4
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,014
$5,531
$5,264
$3,639
$2,260
Components
Allowance for loan losses, excluding losses to be reimbursed by the FDIC . . . . . . . . . . . . . . . . .
Allowance for credit losses to be reimbursed by the FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liability for unfunded credit commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,678
75
261
Total allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,014
$5,218
92
221
$5,531
$5,079
—
185
$5,264
$3,514
—
125
$3,639
$2,058
—
202
$2,260
Allowance for Credit Losses as a Percentage of
Period-end loans, excluding covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming loans, excluding covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming assets, excluding covered assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-offs, excluding covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Period-end loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.52%
228
191
174
2.39%
163
133
176
3.03%
192
162
130
2.81%
136
110
132
3.04%
153
135
136
2.70%
110
89
136
2.09%
206
184
201
1.97%
170
139
200
1.47%
406
328
285
1.47%
406
328
285
Note: At December 31, 2011 and 2010, $1.8 billion and $2.2 billion, respectively, of the total allowance for credit losses related to incurred losses on credit card and other retail loans.
(a) Relates to covered loan charge-offs and recoveries not reimbursable by the FDIC.
46
U.S. BANCORP
T A B L E 1 9 Elements of the Allowance for Credit Losses
At December 31 (Dollars in Millions)
2011
2010
2009
2008
2007
2011
2010
2009
2008
2007
Allowance Amount
Allowance as a Percent of Loans
Commercial
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . .
$ 929
81
$ 992
112
$1,026
182
$ 782
208
$ 860
146
1.83% 2.35% 2.43% 1.57% 1.92%
1.37
3.03
2.34
1.83
2.78
Total commercial . . . . . . . . . . . . . . . . . . . .
1,010
1,104
1,208
990
1,006
1.78
2.28
2.48
1.75
1.97
Commercial Real Estate
Commercial mortgages . . . . . . . . . . . . . . . .
Construction and development . . . . . . . .
Total commercial real estate . . . . . . . . .
Residential Mortgages . . . . . . . . . . . . . . . .
Credit Card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Retail
Retail leasing . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home equity and second mortgages . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other retail . . . . . . . . . . . . . . . . . . . . .
Covered Loans . . . . . . . . . . . . . . . . . . . . . . . . .
850
304
1,154
927
992
12
536
283
831
100
929
362
1,291
820
1,395
11
411
385
807
114
548
453
1,001
672
1,495
30
374
467
871
17
258
191
449
524
926
49
255
372
676
74
150
108
258
131
487
17
114
247
378
—
2.87
4.91
3.22
2.50
5.71
.23
2.96
1.14
1.73
.68
3.41
4.86
3.72
2.67
8.30
.24
2.17
1.55
1.67
.63
2.17
5.16
2.94
2.58
8.89
.66
1.92
2.02
1.85
.08
1.10
1.95
1.35
2.22
6.85
.96
1.33
1.65
1.44
.66
.74
1.19
.88
.58
4.45
.28
.69
1.42
.95
—
Total allowance . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,014
$5,531
$5,264
$3,639
$2,260
2.39% 2.81% 2.70% 1.97% 1.47%
The allowance recorded for loans in the commercial
lending segment is based on reviews of individual credit
relationships and considers the migration analysis of
commercial lending segment loans and actual loss experience.
The Company currently uses an 11 year period of historical
losses in considering actual loss experience. This timeframe
and the results of the analysis are evaluated quarterly to
determine the appropriateness. The allowance recorded for
impaired loans greater than $5 million in the commercial
lending segment is based on an individual loan analysis
utilizing expected cash flows discounted using the original
effective interest rate, the observable market price, or the fair
value of the collateral for collateral-dependent loans. The
allowance recorded for all other commercial lending segment
loans is determined on a homogenous pool basis and includes
consideration of product mix, risk characteristics of the
portfolio, bankruptcy experience, and historical losses,
adjusted for current trends. The allowance established for
commercial lending segment loans, was $2.2 billion at
December 31, 2011, compared with $2.4 billion at
December 31, 2010. The decrease in the allowance for
commercial lending segment loans of $231 million at
December 31, 2011, compared with December 31, 2010,
reflected the impact of efforts by the Company to resolve and
reduce exposure to problem assets in the commercial real
estate portfolios and improvement in other commercial
portfolios due to the stabilizing economy.
The allowance recorded for purchased impaired and TDR
loans in the consumer lending segment is determined on a
homogenous pool basis utilizing expected cash flows
discounted using the original effective interest rate of the pool.
The allowance recorded for all other consumer lending
segment loans is determined on a homogenous pool basis and
includes consideration of product mix, risk characteristics of
the portfolio, bankruptcy experience, delinquency status and
historical losses, adjusted for current trends.
When evaluating the appropriateness of the allowance for
credit losses for any loans and lines in a junior lien position,
the Company considers the delinquency and modification
status of the first lien. At December 31, 2011, the Company
serviced the first lien on 29 percent of the home equity loans
and lines in a junior lien position and receives information
from its primary regulator on the status of the first liens that
are serviced by other large servicers in the industry when the
second lien is current. As a result, at December 31, 2011, the
Company had information on the status of the first liens
related to approximately 65 percent of the home equity loans
and lines in a junior lien position. The Company uses this
information to estimate the first lien status on the remainder
of the portfolio. Regardless of whether or not the Company
services the first lien, an assessment is made of economic
conditions, problem loans, recent loss experience and other
factors in determining the allowance for credit losses. At
December 31, 2011, the Company knew the related first lien
was delinquent or modified on $299 million of the home
equity loans and lines in a junior lien position or 1.6 percent
of the total home equity portfolio. Based on this information,
the Company estimated $459 million or 2.5 percent of the
total home equity portfolio at December 31, 2011,
represented junior liens where the first lien was delinquent or
modified. The Company uses historical loss experience on the
loans and lines in a junior lien position where the first lien is
serviced by the Company to establish loss estimates for junior
liens and lines when they are current. The Company applies
U.S. BANCORP
47
this estimate to the remaining portfolio of junior lien loans
and lines where the first lien is serviced by others. Historically,
the number of junior lien defaults in any period has been a
small percentage of the total portfolio (for example, only 1.9
percent for the year ended December 31, 2011), and the long-
term average loss rate on the small percentage of loans that
default has been approximately 80 percent. In periods of
economic stress such as the current environment, the
Company has experienced loss severity rates in excess of 90
percent for junior liens that default. In addition, the Company
obtains updated credit scores on its home equity portfolio
each quarter and in some cases more frequently, and uses this
information to qualitatively supplement its loss estimation
methods. Credit score distributions for the portfolio are
monitored monthly and any changes in the distribution are
one of the factors considered in assessing the Company’s loss
estimates. The allowance established for consumer lending
segment loans was $2.8 billion at December 31, 2011,
compared with $3.0 billion at December 31, 2010. The $272
million decrease in the allowance for consumer lending
segment loans at December 31, 2011, compared with
December 31, 2010, reflected the impact of more stable
economic conditions.
The allowance for covered segment loans is evaluated
each quarter in a manner similar to that described for
non-covered loans, and represents any decreases in expected
cash flows on those loans after the acquisition date. The
provision for credit losses for covered segment loans considers
the indemnification provided by the FDIC. The allowance
established for covered segment loans was $100 million at
December 31, 2011, compared with $114 million at
December 31, 2010 and principally reflected anticipated credit
losses to be reimbursed by the FDIC.
In addition, the evaluation of the appropriate allowance
for credit losses for purchased non-impaired loans acquired
after January 1, 2009, in the various loan segments 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 credit 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 appropriate allowance
for credit losses for purchased impaired loans in the various
loan segments considers the expected cash flows to be
collected from the borrower. These loans are initially recorded
at fair value and therefore no allowance for credit losses is
48
U.S. BANCORP
recorded at the purchase date. Subsequent to the purchase
date, the expected cash flows of the impaired loans are subject
to evaluation. Decreases in the present value of expected cash
flows are recognized by recording an allowance for credit
losses.
The Company’s methodology for determining the
appropriate allowance for credit losses for all the loan
segments also considers the imprecision inherent in the
methodologies used. As a result, in addition to the amounts
determined under the methodologies described above,
management also considers the potential impact of other
qualitative factors which include, but are not limited to,
economic factors; geographic and other concentration risks;
delinquency and nonaccrual trends; current business
conditions; changes in lending policy, underwriting standards,
internal review and other relevant business practices; and the
regulatory environment. The consideration of these items
results in adjustments to allowance amounts included in the
Company’s allowance for credit losses for each of the above
loan segments. Table 19 shows the amount of the allowance
for credit losses by loan segment, class and underlying
portfolio category.
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
$3.4 billion of retail leasing residuals at December 31, 2011,
compared with $2.9 billion at December 31, 2010. The
Company monitors concentrations of leases by manufacturer
and vehicle “make and model.” As of December 31, 2011,
vehicle lease residuals related to sport utility vehicles were
53.1 percent of the portfolio, while upscale and mid-range
vehicle classes represented approximately 17.2 percent and
16.6 percent of the portfolio, respectively. At year-end 2011,
the largest vehicle-type concentration represented 7.0 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, 2011, the weighted-average origination term of
the portfolio was 42 months, compared with 44 months at
December 31, 2010. Since the beginning of 2009, used vehicle
prices have increased substantially as sales of new vehicles
were affected by the financial condition of the automobile
manufacturers, various government programs and
involvement with the manufacturers, and consumers
preference for used, instead of new, vehicles due to
uncertainty about the economy.
At December 31, 2011, the commercial leasing portfolio
had $620 million of residuals, compared with $661 million at
December 31, 2010. At year-end 2011, lease residuals related
to trucks and other transportation equipment were 32.3
percent of the total residual portfolio. Business and office
equipment represented 22.6 percent of the aggregate portfolio,
while railcars represented 12.9 percent. No other
concentrations of more than 10 percent existed at
December 31, 2011.
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, unauthorized access to its
computer systems, the execution of unauthorized transactions
by employees, errors relating to transaction processing and
technology, breaches of internal controls and in data security,
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, unauthorized access or 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 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 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.
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
U.S. BANCORP
49
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
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,
2011 and 2010, the Company was within 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. Management measures the impact of changes in
market interest rates under a number of scenarios, including
immediate and sustained parallel shifts, and flattening or
steepening of the yield curve. The ALCO policy limits the
change in the 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 2.0 percent decrease in the market value of
equity at December 31, 2011, compared with a 3.6 percent
decrease at December 31, 2010. A 200 bps decrease, where
possible given current rates, would have resulted in a 6.4
percent decrease in the market value of equity at
December 31, 2011, compared with a 5.2 percent decrease at
December 31, 2010.
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. Mortgage prepayment
assumptions are based on many key variables, including
current and projected interest rates compared with underlying
contractual rates, the time since origination and period to next
reset date if floating rate loans, and other factors including
housing price indices and geography, which are updated
regularly based on historical experience and forward market
expectations. The balance and pricing assumptions of deposits
that have no stated maturity are based on historical
performance, the competitive environment, customer
behavior, and product mix. 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.
Sensitivity of Net Interest Income
December 31, 2011
December 31, 2010
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 . . .
*
1.57%
*
1.92%
*
1.64%
*
3.14%
* Given the current level of interest rates, a downward rate scenario can not be computed.
50
U.S. BANCORP
Use of Derivatives to Manage Interest Rate and Other
Derivatives are subject to credit risk associated with
Risks To reduce the sensitivity of earnings to interest rate,
prepayment, credit, price and foreign currency fluctuations
(“asset and liability management positions”), the Company
enters into derivative transactions. The Company uses
derivatives for asset and liability management purposes
primarily in the following ways:
(cid:129) To convert fixed-rate debt from fixed-rate payments to
floating-rate payments;
(cid:129) To convert the cash flows associated with floating-rate
loans and debt from floating-rate payments to fixed-rate
payments;
(cid:129) To mitigate changes in value of the Company’s mortgage
origination pipeline, funded mortgage loans held for sale
and MSRs; and
(cid:129) To mitigate remeasurement volatility of foreign currency
denominated balances.
To manage these risks, the Company may enter into
exchange-traded and over-the-counter derivative contracts,
including interest rate swaps, swaptions, futures, forwards
and options. In addition, the Company enters into interest
rate and foreign exchange derivative contracts to support the
business requirements of its customers (“customer-related
positions”). The Company minimizes the market and liquidity
risks of customer-related positions by entering into similar
offsetting positions with broker-dealers. The Company does
not utilize derivatives for speculative purposes.
The Company does not designate all of the derivatives
that it enters into for risk management purposes as accounting
hedges because of the inefficiency of applying the accounting
requirements and may instead elect fair value accounting for
the related hedged items. In particular, the Company enters
into U.S. Treasury futures, options on U.S. Treasury futures
contracts, interest rate swaps and forward commitments to
buy to-be-announced securities (“TBAs”) 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 TBAs and other 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, 2011, the Company had $14.6 billion of
forward commitments to sell, hedging $6.9 billion of
mortgage loans held for sale and $12.9 billion of unfunded
mortgage loan commitments. The forward commitments to
sell and the unfunded mortgage loan commitments are
considered derivatives under the accounting guidance related
to accounting for derivative instruments and hedging
activities, and the Company has elected the fair value option
for the mortgage loans held for sale.
counterparties to the contracts. Credit risk associated with
derivatives is measured by the Company based on the
probability of counterparty default. The Company manages
the credit risk of its derivative positions by diversifying its
positions among various counterparties, entering into master
netting agreements where possible with its counterparties,
requiring collateral agreements with credit-rating thresholds
and, in certain cases, 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, principally
related to trading activities which support customers’ strategies
to manage their own foreign currency, interest rate risk and
funding activities. The ALCO established the Market Risk
Committee (“MRC”), which oversees market risk
management. The MRC monitors and reviews the Company’s
trading positions and establishes policies for market risk
management, including exposure limits for each portfolio. The
Company also manages market risk of non-trading business
activities, including its MSRs and certain mortgage loans held
for sale. The Company uses a Value at Risk (“VaR”) approach
to measure general market risk. Theoretically, VaR represents
the statistical risk of loss the Company has to adverse market
movements over a one-day time horizon. The Company uses
the Historical Simulation method to calculate VaR for its
trading businesses measured at the ninety-ninth percentile
using a one-year look-back period for distributions derived
from past market data. The market factors used in the
calculations include those pertinent to market risks inherent in
the underlying trading portfolios, principally those that affect
its investment grade bond trading business, foreign currency
transaction business, client derivatives business, loan trading
business and municipal securities business. On average, the
Company expects the one-day VaR to be exceeded two to
three times per year in each business. The Company monitors
the effectiveness of its risk programs by back-testing the
performance of its VaR models, regularly updating the
historical data used by the VaR models and stress testing. If the
Company were to experience market losses in excess of the
estimated VaR more often than expected, the VaR models and
associated assumptions would be analyzed and adjusted. The
Company stress tests its market risk measurements to provide
management with perspectives on market events that may not
be captured by its VaR models, including worst case historical
market movement combinations that have not necessarily
occurred on the same date.
U.S. BANCORP
51
The average, high and low VaR amounts for 2011 were
$2 million, $4 million and $1 million, respectively, compared
with $2 million, $5 million and $1 million, respectively, for
2010. There have been no incidents where the actual trading
losses exceeded the bank-wide one-day VaR during 2011 and
2010.
Liquidity Risk Management The Company’s liquidity risk
management process is designed to identify, measure, and
manage the Company’s funding and liquidity risk to meet its
daily funding needs and to address expected and unexpected
changes in its funding requirements. The Company engages in
various activities to manage its liquidity risk. These include
diversifying its funding sources, stress testing, and holding
readily-marketable assets which can be used as a source of
liquidity if needed. In addition, the Company’s profitable
operations, sound credit quality and strong capital position
have enabled it to develop a large and reliable base of core
deposit funding within its market areas and in domestic and
global capital markets.
The Risk Management Committee of the Company’s
Board of Directors oversees the Company’s liquidity risk
management process and approves the Company’s liquidity
policy and contingency funding plan. The ALCO reviews and
approves the Company’s liquidity policies and guidelines, and
regularly assesses the Company’s ability to meet funding
requirements arising from adverse company-specific or market
events.
The Company’s liquidity policies require it to maintain
diversified wholesale funding sources to avoid maturity, name
and market concentrations. The Company operates a Grand
Cayman branch for issuing Eurodollar time deposits. In
addition, the Company has relationships with dealers to issue
national market retail and institutional savings certificates and
short-term and medium-term notes. The Company also
maintains a significant correspondent banking network and
relationships. Accordingly, the Company has access to
national federal funds, funding through repurchase
agreements and sources of stable, regionally-based certificates
of deposit and commercial paper.
The Company regularly projects its funding needs under
various stress scenarios and maintains contingency plans
consistent with the Company’s access to diversified sources of
contingent funding. The Company maintains a substantial
level of total available liquidity in the form of on- and
off-balance sheet funding sources. These include cash at the
Federal Reserve, unencumbered liquid assets, such as U.S.
Treasury and government agency mortgage-backed securities,
and capacity to borrow at the Federal Home Loan Bank
(“FHLB”) and the Federal Reserve Discount Window.
Unencumbered liquid assets in the Company’s
available-for-sale and held-to-maturity investment portfolios
provide asset liquidity through the Company’s ability to sell
the securities or pledge and borrow against them. At
December 31, 2011, unencumbered available-for-sale and
held-to-maturity investment securities totaled $48.7 billion,
compared with $22.6 billion at December 31, 2010. Refer to
Table 13 and “Balance Sheet Analysis” for further
information on investment securities maturities and trends.
Asset liquidity is further enhanced by the Company’s ability to
pledge loans to access secured borrowing facilities through the
FHLB and Federal Reserve Bank. At December 31, 2011, the
Company could have borrowed an additional $56.4 billion at
the FHLB and Federal Reserve Bank based on collateral
available for additional borrowings.
The Company’s diversified deposit base provides a
sizeable source of relatively stable and low-cost funding, while
reducing the Company’s reliance on the wholesale markets.
Total deposits were $230.9 billion at December 31, 2011,
compared with $204.3 billion at December 31, 2010,
T A B L E 2 0 Debt Ratings
U.S. Bancorp
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior debt and medium-term notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aa3
A1
A3
P-1
A
A-
BBB+
A-1
Moody’s
Standard &
Poor’s
Fitch
F1+
AA-
A+
A
F1+
U.S. Bank National Association
Short-term time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior unsecured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
P-1
Aa2
Aa2/P-1
Aa3
Aa2
P-1
52
U.S. BANCORP
A-1
A+
F1+
AA
A+/A-1 AA-/F1+
A+
AA-
F1+
A
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
AA (high)
R-1 (high)
reflecting organic growth in core deposits and acquired
balances. Refer to Table 14 and “Balance Sheet Analysis” for
further information on deposit trends.
Additional funding is provided by long-term debt and
short-term borrowings. Long-term debt was $32.0 billion at
December 31, 2011, and is an important funding source
because of its multi-year lending structure. Refer to Note 13
of the Notes to Consolidated Financial Statements for
information on the terms and maturities of the Company’s
long-term debt issuances and “Balance Sheet Analysis” for
discussion on long-term debt trends. Short-term borrowings
were $30.5 billion at December 31, 2011, and supplement the
Company’s other funding sources. Refer to Note 12 of the
Notes to Consolidated Financial Statements and “Balance
Sheet Analysis” for information on the terms and trends of the
Company’s short-term borrowings.
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 20 details the rating agencies’ most recent assessments.
In addition to assessing liquidity risk on a consolidated
basis, the Company monitors the parent company’s liquidity.
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. The
Company maintains sufficient funding to meet expected
parent company obligations, without access to the wholesale
funding markets or dividends from subsidiaries, for
12 months when forecasted payments of common stock
dividends are included and 24 months assuming dividends
were reduced to zero. The parent company currently has
T A B L E 2 1 Contractual Obligations
available funds considerably greater than the amounts
required to satisfy these conditions.
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 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, 2011, parent company long-term debt
outstanding was $14.6 billion, compared with $13.0 billion at
December 31, 2010. The $1.6 billion increase was primarily
due to $2.3 billion of medium-term note issuances, partially
offset by $.6 billion of junior subordinated debenture
extinguishments. At December 31, 2011, there was $2.7
billion of parent company debt scheduled to mature in 2012.
Future debt maturities 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.
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 $6.6 billion at December 31, 2011. For further
information, see Note 23 of the Notes to Consolidated
Financial Statements.
At December 31, 2011 (Dollars in Millions)
Contractual Obligations (a)
Long-term debt (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit obligations (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contractual interest payments (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
One Year
or Less
$ 7,046
222
236
38
28,688
5,136
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$41,366
Payments Due By Period
Over One
Through
Three Years
Over Three
Through
Five Years
$ 7,496
374
294
79
9,061
1,848
$19,152
$ 7,057
248
74
81
4,664
1,033
Over Five
Years
$10,354
443
15
202
88
8,004
Total
$31,953
1,287
619
400
42,501
16,021
$13,157
$19,106
$92,781
(a) Unrecognized tax positions of $479 million at December 31, 2011, are excluded as the Company cannot make a reasonably reliable estimate of the period of cash settlement with the
respective taxing authority.
(b) Includes obligations under capital leases.
(c) Amounts only include obligations related to the unfunded non-qualified pension plans and post-retirement medical plan.
(d) Includes accrued interest and future contractual interest obligations.
U.S. BANCORP
53
European Exposures Certain European countries have
recently experienced severe credit deterioration. The Company
does not hold sovereign debt of any European country,
however the Company may have indirect exposure to
sovereign debt through its investments in and transactions
with European banks. At December 31, 2011, the Company
had investments in perpetual preferred stock issued by
European banks with amortized cost totaling $169 million
and unrealized losses totaling $48 million. The Company also
transacts with various European banks as counterparties to
interest rate swaps and foreign currency transactions for its
hedging and customer-related activities, however none of
these banks are domiciled in the countries experiencing the
most significant credit deterioration. These derivative
transactions are subject to master netting and collateral
support agreements which significantly limit the Company’s
exposure to loss as they generally require daily posting of
collateral. At December 31, 2011, the Company was in a net
payable position to each of these European banks.
The Company has not bought or sold credit protection
on the debt of any European country or any company
domiciled in Europe, nor does it provide retail or commercial
lending services in Europe. However, it does provide financing
to domestic multinational corporations that generate revenue
from customers in European countries. While an economic
downturn in Europe could have a negative impact on these
customers’ revenues, it is unlikely that any effect on the
overall credit worthiness of these multinational corporations
would be material to the Company. The Company also
provides merchant processing services directly to merchants in
Europe and through banking affiliations in Europe. The direct
exposure to European banks or governments through this
business is not material to the Company.
The money market funds managed by an affiliate of the
Company do not have any investments in European sovereign
debt. Other than an investment in a bank domiciled in the
Netherlands, those funds also do not have any unsecured
investments in banks domiciled in the Eurozone.
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 also
include any obligation under a variable interest held by an
unconsolidated entity that provides financing, liquidity, credit
enhancement or market risk support. The Company has not
utilized private label asset securitizations as a source of funding.
Commitments to extend credit are legally binding and
generally have fixed expiration dates or other termination
clauses. Many of the Company’s commitments to extend
credit expire without being drawn, and therefore, total
commitment amounts do not necessarily represent future
54
U.S. BANCORP
liquidity requirements or the Company’s exposure to credit
loss. Commitments to extend credit also include consumer
credit lines that are cancelable upon notification to the
consumer. Total contractual amounts of commitments to
extend credit at December 31, 2011 were $194.1 billion. The
Company also issues various types of letters of credit,
including standby and commercial. Total contractual amounts
of letters of credit at December 31, 2011 were $19.6 billion.
For more information on the Company’s commitments to
extend credit and letters of credit, refer to Note 22 in the
Notes to Consolidated Financial Statements.
The Company’s off-balance sheet arrangements with
unconsolidated entities primarily consist of community-based
tax-advantaged investments in affordable housing or business
development entities that provide capital for communities
located in low-income districts and for historic rehabilitation
projects. In addition to providing investment returns, these
arrangements in many cases assist the Company in complying
with requirements of the Community Reinvestment Act. The
investments in these entities generate a return primarily
through the realization of federal and state income tax credits.
The entities in which the Company invests are generally
considered variable interest entities. The Company’s recorded
investment in these entities as of December 31, 2011 was
approximately $1.8 billion.
The Company also has non-controlling financial
investments in private funds and partnerships considered
variable interest entities. The Company’s recorded investment
in these entities was approximately $47 million at
December 31, 2011 and the Company had unfunded
commitments to invest an additional $16 million. For more
information on the Company’s interests in unconsolidated
variable interest entities, refer to Note 8 in the Notes to
Consolidated Financial Statements.
Guarantees are contingent commitments issued by the
Company to customers or other third parties requiring the
Company to perform if certain conditions exist or upon the
occurrence or nonoccurrence of a specified event, such as a
scheduled payment to be made under contract. The
Company’s primary guarantees include commitments from
securities lending activities in which indemnifications are
provided to customers; indemnification or buy-back
provisions related to sales of loans and tax credit investments;
merchant charge-back guarantees through the Company’s
involvement in providing merchant processing services; and
minimum revenue guarantee arrangements. For certain
guarantees, the Company may have access to collateral to
support the guarantee, or through the exercise of other
recourse provisions, be able to offset some or all of any
payments made under these guarantees.
The Company and certain of its subsidiaries, along with
other Visa U.S.A. Inc. member banks, have a contingent
guarantee obligation to indemnify Visa Inc. for potential
losses arising from antitrust lawsuits challenging the practices
of Visa U.S.A. Inc., MasterCard International, the Company
and several other Visa U.S.A. Inc. member banks (the “Visa
Litigation”). The indemnification by the Company and other
Visa U.S.A. Inc. member banks has no maximum amount.
Refer to Note 22 in the Notes to Consolidated Financial
Statements for further details regarding guarantees, other
commitments, and contingent liabilities, including maximum
potential future payments and current carrying amounts.
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, non-cumulative perpetual
preferred stock, common stock and other capital instruments.
The Company repurchased approximately 22 million
shares of its common stock in 2011, compared with
approximately 1 million shares in 2010. The average price
paid for the shares repurchased in 2011 was $24.71 per share,
compared with $23.88 per share in 2010. As of December 31,
2011, the Company had approximately 29 million shares that
may yet be purchased under the current Board of Directors
approved authorization. For a more complete analysis of
activities impacting shareholders’ equity and capital
management programs, refer to Note 15 of the Notes to
Consolidated Financial Statements.
T A B L E 2 2 Regulatory Capital Ratios
At December 31 (Dollars in Millions)
Total U.S. Bancorp shareholders’ equity was $34.0 billion
at December 31, 2011, compared with $29.5 billion at
December 31, 2010. The increase was primarily the result of
corporate earnings, the issuance of $.7 billion of
non-cumulative perpetual preferred stock to extinguish certain
junior subordinated debentures and changes in unrealized
gains and losses on available-for-sale investment securities
included in other comprehensive income, partially offset by
dividends and common share repurchases.
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 that are 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,
U.S. Bancorp
Tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As a percent of risk-weighted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As a percent of adjusted quarterly average assets (leverage ratio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total risk-based capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As a percent of risk-weighted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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
Tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total risk-based capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
$29,173
$25,947
10.8%
9.1%
10.5%
9.1%
$36,067
$33,033
13.3%
13.3%
9.6%
12.5
8.1
13.4%
16.4
12.9
9.0%
12.4
7.7
14.1%
17.2
13.7
Minimum
Well-
Capitalized
4.0%
8.0
4.0
6.0%
10.0
5.0
U.S. BANCORP
55
T A B L E 2 3 Fourth Quarter Results
(Dollars and Shares in Millions, Except Per Share Data)
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) loss attributable to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Three Months Ended
December 31,
2011
2010
$2,673
2,440
(9)
$2,499
2,236
(14)
5,104
2,696
497
1,911
56
527
1,328
22
4,721
2,485
912
1,324
53
315
956
18
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,350
$ 974
Net income applicable to U.S. Bancorp common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,314
$ 951
Per Common Share
Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Interest and rates are presented on a fully taxable-equivalent basis utilizing a tax rate of 35 percent.
.69
$
.69
$
$ .125
1,904
1,911
.50
$
.49
$
$ .050
1,914
1,922
1.62%
16.8
3.60
52.7
1.31%
13.7
3.83
52.5
Government National Mortgage Association, Federal Home
Loan Mortgage Corporation and the Federal National
Mortgage Association. At December 31, 2011, U.S. Bank
National Association met these requirements.
Table 22 provides a summary of capital ratios as of
December 31, 2011 and 2010, 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 equity (using Basel
I definition) and tangible common equity, as a percent of risk-
weighted assets, were 8.6 percent and 8.1 percent,
respectively, at December 31, 2011, compared with 7.8
percent and 7.2 percent, respectively, at December 31, 2010.
The Company’s tangible common equity divided by tangible
assets was 6.6 percent at December 31, 2011, compared with
6.0 percent at December 31, 2010. Additionally, the
Company’s Tier 1 common as a percent of risk-weighted
assets, under the anticipated Basel III definition as if fully
implemented, was 8.2 percent at December 31, 2011,
compared with 7.3 percent at December 31, 2010. Refer to
“Non-GAAP Financial Measures” for further information
regarding the calculation of these ratios.
Fourth Quarter Summary
The Company reported net income attributable to
U.S. Bancorp of $1.4 billion for the fourth quarter of 2011, or
$.69 per diluted common share, compared with $974 million,
or $.49 per diluted common share, for the fourth quarter of
2010. Return on average assets and return on average
common equity were 1.62 percent and 16.8 percent,
respectively, for the fourth quarter of 2011, compared with
returns of 1.31 percent and 13.7 percent, respectively, for the
fourth quarter of 2010. Significant items in the fourth quarter
2011 that impact the comparison of results included the $263
million merchant settlement gain, the $130 million expense
accrual related to mortgage servicing matters, a provision for
credit losses less than net charge-offs by $125 million and net
securities losses of $9 million. Included in the fourth quarter
2010 results were the $103 million ($41 million after tax)
Nuveen gain, a provision for credit losses less than net charge-
offs by $25 million and net securities losses of $14 million.
Total net revenue, on a taxable-equivalent basis for the
fourth quarter of 2011, was $383 million (8.1 percent) higher
than the fourth quarter of 2010, reflecting a 7.0 percent
increase in net interest income and a 9.4 percent increase in
56
U.S. BANCORP
total noninterest income. The increase in net interest income
from 2010 was largely the result of an increase in average
earning assets and continued growth in lower cost core
deposit funding. Noninterest income increased over a year
ago, primarily due to higher mortgage banking revenue,
deposit service charges, merchant processing revenue,
commercial products revenue and the impact of the merchant
settlement gain, partially offset by a reduction in debit card
interchange fees as a result of recent legislation.
Fourth quarter 2011 net interest income, on a taxable-
equivalent basis, was $2.7 billion, compared with $2.5 billion
in the fourth quarter of 2010. The $174 million (7.0 percent)
increase was principally the result of growth in average
earning assets and lower cost core deposit funding. Average
earning assets for the fourth quarter of 2011 increased over
the fourth quarter of 2010 by $35.3 billion (13.6 percent),
driven by increases of $19.0 billion (38.2 percent) in
investment securities, $11.6 billion (5.9 percent) in loans and
$6.3 billion (95.4 percent) in other earning assets, which
primarily reflected an increase in cash balances held at the
Federal Reserve. The net interest margin in the fourth quarter
of 2011 was 3.60 percent, compared with 3.83 percent in the
fourth quarter of 2010, reflecting higher planned balances in
investment securities held for liquidity purposes and growth in
cash balances held at the Federal Reserve.
Noninterest income in the fourth quarter of 2011 was
$2.4 billion, compared with $2.2 billion in the same period of
2010, an increase of $209 million (9.4 percent). The increase
was primarily due to a $151 million (51.2 percent) increase in
other income, which was higher due to the merchant
settlement gain, partially offset by the impact of the Nuveen
gain recorded in the fourth quarter of 2010. Deposit service
charges increased $27 million (18.8 percent), reflecting
product redesign initiatives, as well as higher transaction
volume and account growth. Commercial products revenue
was $12 million (5.8 percent) higher, a result of higher
syndication fees and other commercial loan fees. Mortgage
banking revenue increased $53 million (21.2 percent) over the
fourth quarter of 2010, principally due to higher origination
and sales revenue. Offsetting these positive variances was a $9
million (1.1 percent) decrease in payments-related revenue as
an increase in merchant processing revenue, primarily due to
increased volume, new business initiatives including new fees
for required tax reporting, legislative-mitigation efforts and
the reversal of an accrual for a revenue sharing agreement
termination, was more than offset by a decline in credit and
debit card revenue due to the impact of legislative-related
changes to debit card interchange fees. Trust and investment
management fees decreased $37 million (13.1 percent),
primarily due to the sale of the Company’s proprietary long-
term mutual fund business to Nuveen Investments at the end
of the fourth quarter of 2010 and money market investment
fee waivers. This decline was partially offset by the positive
impact of the securitization trust administration acquisition in
the fourth quarter of 2010 and improved market conditions.
Noninterest expense was $2.7 billion in the fourth quarter
of 2011, an increase of $211 million (8.5 percent) over the
fourth quarter of 2010. The increase was principally due to the
$130 million accrual for mortgage servicing matters in other
expense, as well as increased compensation, employee benefits,
net occupancy and equipment expense, and professional
services expense, partially offset by decreases in other
intangibles expense. Compensation and employee benefits
expense increased $58 million (5.8 percent) and $31 million
(18.1 percent), respectively. Compensation expense increased
primarily as a result of an increase in staffing related to branch
expansion and other business initiatives, in addition to merit
increases. Employee benefits expense increased due to higher
pension costs and the impact of additional staffing. Net
occupancy and equipment expense increased $12 million
(5.1 percent), largely due to business expansion and technology
initiatives. Professional services expense was $34 million
(35.1 percent) higher due to mortgage servicing-related
projects. These increases were partially offset by a decrease in
other intangibles expense of $15 million (16.9 percent), due to
the reduction or completion of the amortization of certain
intangibles, and lower costs related to insurance and litigation.
The provision for credit losses for the fourth quarter of
2011 was $497 million, a decrease of $415 million (45.5
percent) from the same period of 2010. Net charge-offs
decreased $315 million (33.6 percent) in the fourth quarter of
2011, compared with the fourth quarter of 2010, principally
due to improvement in the commercial, commercial real estate
and credit card portfolios. The provision for credit losses was
lower than net charge-offs by $125 million in the fourth
quarter of 2011, compared with $25 million in the fourth
quarter of 2010. Given the current economic conditions, the
Company expects the level of net charge-offs to decrease
modestly and the level of nonperforming assets to trend lower
in the first quarter of 2012.
The provision for income taxes for the fourth quarter of
2011 resulted in an effective tax rate of 28.4 percent,
compared with an effective tax rate of 24.8 percent in the
fourth quarter of 2010. The increase in the effective rate for
the fourth quarter of 2011, 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 and Commercial Real Estate, Consumer and Small
Business Banking, Wealth Management and Securities
Services, Payment Services, and Treasury and Corporate
Support. These operating segments are components of the
Company about which financial information is prepared and
U.S. BANCORP
57
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.
T A B L E 2 4 Line of Business Financial Performance
Year Ended December 31
(Dollars in Millions)
Condensed Income Statement
Net interest income (taxable-equivalent basis) . . . . . . . . . . . . . . . . . . . . . .
Noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities gains (losses), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . .
Average Balance Sheet
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans, excluding covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wholesale Banking and
Commercial Real Estate
Consumer and Small
Business Banking
2011
2010
Percent
Change
2011
2010
Percent
Change
$ 2,123
1,224
–
$ 2,004
1,128
(1)
5.9% $
8.5
*
3,347
1,269
16
1,285
2,062
424
1,638
597
1,041
4
3,131
1,215
16
1,231
1,900
1,255
645
234
411
2
413
6.9
4.4
–
4.4
8.5
(66.2)
*
*
*
*
*
$37,459
19,204
67
–
5
$33,329
19,595
80
–
34
12.4% $
(2.0)
(16.3)
–
(85.3)
7,366
15,537
33,245
–
45,730
56,735
1,495
58,230
1,604
52
64,062
25,172
12,691
9,309
14,511
53,038
1,974
55,012
1,608
69
60,208
17,226
13,547
11,614
11,594
7.0
(24.3)
5.8
(.2)
(24.6)
6.4
46.1
(6.3)
(19.8)
25.2
14.3
3.9
4,604
2,756
–
7,360
4,569
72
4,641
2,719
1,395
1,324
481
843
(1)
842
$
101,878
8,394
110,272
3,520
2,042
124,361
17,903
26,565
40,566
24,437
$
$
$
4,411
2,757
–
7,168
4,282
96
4,378
2,790
1,695
1,095
398
697
(3)
694
7,272
13,821
27,242
–
45,036
93,371
9,542
102,913
3,538
1,906
117,332
16,601
23,800
36,120
25,835
109,471
102,356
9,431
8,614
4.4%
–
–
2.7
6.7
(25.0)
6.0
(2.5)
(17.7)
20.9
20.9
20.9
66.7
21.3
1.3%
12.4
22.0
–
1.5
9.1
(12.0)
7.2
(.5)
7.1
6.0
7.8
11.6
12.3
(5.4)
7.0
9.5
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,045
$
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
61,683
53,981
Total U.S. Bancorp shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,586
5,378
* Not meaningful
58
U.S. BANCORP
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 2011, certain organization and
methodology changes were made and, accordingly, 2010
results were restated and presented on a comparable basis.
Wholesale Banking and Commercial Real Estate Wholesale
Banking and Commercial Real Estate offers lending,
equipment finance and small-ticket leasing, depository,
Wealth Management and
Securities Services
Payment
Services
Treasury and
Corporate Support
Consolidated
Company
2011
2010
Percent
Change
2011
2010
Percent
Change
2011
2010
Percent
Change
2011
2010
Percent
Change
$
358
1,050
–
1,408
1,079
39
1,118
$
293
1,110
–
1,403
984
53
1,037
290
3
287
103
184
–
184
366
17
349
126
223
–
223
$
$
22.2% $ 1,350
3,247
(5.4)
–
–
$ 1,339
3,150
–
.8% $ 1,913
514
(31)
3.1
–
$ 1,741
293
(77)
9.9% $ 10,348
8,791
(31)
75.4
59.7
$ 9,788
8,438
(78)
5.7%
4.2
60.3
.4
9.7
(26.4)
7.8
(20.8)
(82.4)
(17.8)
(18.3)
(17.5)
–
(17.5)
4,597
1,763
172
1,935
2,662
507
2,155
787
1,368
(40)
4,489
1,686
201
1,887
2,602
1,335
1,267
462
805
(29)
2.4
4.6
(14.4)
2.5
2.3
(62.0)
70.1
70.3
69.9
(37.9)
2,396
932
–
932
1,464
14
1,450
98
1,352
121
1,957
849
1
850
1,107
54
1,053
(76)
1,129
82
$ 1,328
$
776
71.1
$ 1,473
$ 1,211
22.4
9.8
*
9.6
32.2
(74.1)
37.7
*
19.8
47.6
21.6
19,108
9,612
299
18,148
9,016
367
9,911
9,197
2,343
6,854
2,066
4,788
84
9,383
8,765
4,356
4,409
1,144
3,265
52
$
4,872
$ 3,317
(41.7)% $ 51,616
35,514
(31.2)
33,711
(28.6)
16,084
*
48,199
(90.9)
$ 1,046
579
389
–
1,565
$ 1,035
571
368
–
1,601
1.1% $ 5,640
–
1.4
–
5.7
16,084
–
898
(2.2)
$ 5,212
–
–
16,400
1,004
3,579
12
3,591
1,463
184
5,990
9,739
3,249
21,687
5,569
3,575
14
3,589
1,516
201
5,802
5,489
2,704
12,601
5,960
40,244
26,754
2,079
2,107
.1
(14.3)
.1
(3.5)
(8.5)
3.2
77.4
20.2
72.1
(6.6)
50.4
(1.3)
22,622
5
22,627
2,362
792
27,936
673
320
30
–
1,023
5,280
22,616
5
22,621
2,347
944
27,308
634
119
23
1
8.2% $
–
–
(1.9)
(10.6)
–
–
–
.6
(16.1)
2.3
6.2
*
30.4
*
105
194
10
–
1
310
6,397
6,707
–
5
95,915
369
2
181
186
738
9,824
$
180
282
14
3
11
490
8,397
8,887
–
7
75,211
212
14
224
403
853
6,640
777
31.7
5,310
(.6)
(36.7)
(23.8)
(24.5)
–
(28.6)
27.5
74.1
(85.7)
(19.2)
(53.8)
(13.5)
48.0
$47,028
34,269
27,704
16,403
47,686
173,090
19,932
193,022
9,009
3,127
285,861
40,162
40,184
60,582
43,793
185,124
16,303
201,427
8,949
3,075
318,264
53,856
42,827
71,773
44,703
213,159
184,721
32,200
28,049
5.3
6.6
(18.5)
5.6
4.9
(46.2)
55.5
80.6
46.6
61.5
46.9
9.8%
3.6
21.7
(1.9)
1.1
7.0
(18.2)
4.4
(.7)
(1.7)
11.3
34.1
6.6
18.5
2.1
15.4
14.8
U.S. BANCORP
59
treasury management, capital markets, foreign exchange,
international trade services and other financial services to
middle market, large corporate, commercial real estate,
financial institution and public sector clients. Wholesale
Banking and Commercial Real Estate contributed $1.0 billion
of the Company’s net income in 2011, or an increase of $632
million compared with 2010. The increase was primarily
driven by lower provision for credit losses and higher net
revenue, partially offset by higher noninterest expense.
Total net revenue increased $216 million (6.9 percent) in
2011, compared with 2010. Net interest income, on a taxable-
equivalent basis, increased $119 million (5.9 percent) in 2011,
compared with 2010, driven by higher average loan and
deposit balances and an increase in loan fees, partially offset
by the impact of declining rates on the margin benefit from
deposits. Total noninterest income increased $97 million (8.6
percent) in 2011, compared with 2010. The increase was
primarily due to growth in commercial products revenue,
including syndication and other capital markets fees,
commercial leasing, foreign exchange and international trade
revenue, and commercial loan fees. In addition, other revenue
increased due to higher equity investment and customer-
related derivative revenue.
Total noninterest expense increased $54 million (4.4
percent) in 2011, compared with 2010, primarily due to
higher total compensation and employee benefits expense, and
increased net shared services costs. The provision for credit
losses decreased $831 million (66.2 percent) in 2011,
compared with 2010. The favorable change was primarily due
to lower net charge-offs. Nonperforming assets were $979
million at December 31, 2011, compared with $1.6 billion at
December 31, 2010. Nonperforming assets as a percentage of
period-end loans were 1.58 percent at December 31, 2011,
compared with 2.87 percent at December 31, 2010. Refer to
the “Corporate Risk Profile” section for further information
on factors impacting the credit quality of the loan portfolios.
Consumer and Small Business Banking Consumer and Small
Business Banking delivers products and services through banking
offices, telephone servicing and sales, on-line services, direct
mail, ATM processing and over mobile devices. It encompasses
community banking, metropolitan banking, in-store banking,
small business banking, consumer lending, mortgage banking,
consumer finance, workplace banking, student banking and
24-hour banking. Consumer and Small Business Banking
contributed $842 million of the Company’s net income in 2011,
or an increase of $148 million (21.3 percent), compared with
2010. Within Consumer and Small Business Banking, the retail
banking division contributed $340 million of the total net
income in 2011, or an increase of $239 million over the prior
year. Mortgage banking contributed $502 million of the
business line’s net income in 2011, or a decrease of $91 million
(15.3 percent) from the prior year.
60
U.S. BANCORP
Total net revenue increased $192 million (2.7 percent) in
2011, compared with 2010. Net interest income, on a taxable-
equivalent basis, increased $193 million (4.4 percent) in 2011,
compared with 2010. The year-over-year increase in net
interest income was primarily due to higher average loan and
deposit balances and improved loan yields, partially offset by
the impact of a decline in the margin benefit from deposits.
Total noninterest income was essentially unchanged in 2011,
compared with 2010, the result of higher retail product
revenue, due to improvement in retail lease end of term
results, and higher ATM processing servicing fees, offset by
year-over-year reductions in mortgage banking revenue,
principally due to lower mortgage loan production, and lower
deposit service charges, principally due to the impact of 2010
legislative and pricing changes.
Total noninterest expense increased $263 million (6.0
percent) in 2011, compared with 2010. The increase reflected
higher total compensation and employee benefits expense,
mortgage servicing-related professional services projects, net
shared services costs and net occupancy and equipment
expenses related to business expansion, partially offset by
lower other intangibles expense.
The provision for credit losses decreased $300 million
(17.7 percent) in 2011, compared with 2010, due to lower net
charge-offs and a reduction in the reserve allocation. As a
percentage of average loans outstanding, net charge-offs
decreased to 1.20 percent in 2011, compared with 1.50
percent in 2010. Nonperforming assets were $1.4 billion at
December 31, 2011, compared with $1.5 billion at
December 31, 2010. Nonperforming assets as a percentage of
period-end loans were 1.21 percent at December 31, 2011,
compared with 1.44 percent at December 31, 2010. Refer to
the “Corporate Risk Profile” section for further information
on factors impacting the credit quality of the loan portfolios.
During 2011, the Company’s two primary banking
subsidiaries, U.S. Bank National Association and U.S. Bank
National Association ND, entered into a Consent Order with
the Office of the Comptroller of the Currency regarding
residential mortgage servicing and foreclosure processes. The
Company also entered into a related Consent Order with the
Board of Governors of the Federal Reserve System. The
Consent Orders were the result of an interagency horizontal
review of the foreclosure practices of the 14 largest mortgage
servicers in the United States.
The Consent Orders mandate certain changes to the
Company’s mortgage servicing and foreclosure processes.
Specifically, the Consent Orders require the Company,
U.S. Bank National Association and U.S. Bank National
Association ND to, among other things, implement a
comprehensive action plan setting forth the steps necessary to
ensure residential mortgage servicing and foreclosure
processes are conducted in accordance with the Consent
Orders; develop and implement other plans and programs to
enhance residential mortgage servicing and foreclosure
processes; retain an independent consultant to conduct a
review of certain residential mortgage foreclosure actions and
to remediate errors or deficiencies identified by the consultant;
and oversee compliance with the Consent Orders and the new
plans and programs. The Company has made significant
progress in complying with these requirements.
The Company has long been committed to sound
modification and foreclosure practices and is committed to
revising its practices where necessary to satisfy the
requirements of the Consent Orders. The Company does not
believe that the resolution of any outstanding issues will
materially affect its financial position, results of operations, or
ability to conduct normal business activities.
Wealth Management and Securities Services Wealth
Management and Securities Services provides private banking,
financial advisory services, investment management, retail
brokerage services, insurance, trust, custody and fund
servicing through five businesses: Wealth Management,
Corporate Trust Services, U.S. Bancorp Asset Management,
Institutional Trust & Custody and Fund Services. Wealth
Management and Securities Services contributed $184 million
of the Company’s net income in 2011, a decrease of $39
million (17.5 percent), compared with 2010.
Total net revenue increased $5 million (.4 percent) in
2011, compared with 2010. Net interest income, on a taxable-
equivalent basis, increased $65 million (22.2 percent) in 2011,
compared with 2010. The increase in net interest income was
primarily due to higher average deposit balances, including
the impact of the securitization trust administration
acquisition. Total noninterest income decreased $60 million
(5.4 percent) in 2011, compared with 2010. Trust and
investment management fees declined, primarily due to the
sale of the Company’s proprietary long-term mutual fund
business in the fourth quarter of 2010 and money market
investment fee waivers due to the low interest rate
environment, partially offset by the impact of the fourth
quarter 2010 securitization trust administration acquisition
and improved market conditions during 2011. Additionally,
investment product fees were higher due to increased sales
volumes.
Total noninterest expense increased $81 million (7.8
percent) in 2011, compared with 2010. The increase in
noninterest expense was primarily due to higher total
compensation and employee benefits expense, higher net
shared services expense and the impact of the securitization
trust administration acquisition, partially offset by reductions
in other intangibles expense and expenses related to the
Company’s proprietary long-term mutual fund business that
was sold in late 2010.
Payment Services Payment Services includes consumer and
business credit cards, stored-value cards, debit cards,
corporate and purchasing card services, consumer lines of
credit and merchant processing. Payment Services contributed
$1.3 billion of the Company’s net income in 2011, or an
increase of $552 million (71.1 percent) compared with 2010.
The increase was primarily due to lower provision for credit
losses and higher total net revenue, partially offset by an
increase in total noninterest expense.
Total net revenue increased $108 million (2.4 percent) in
2011, compared with 2010. Net interest income, on a taxable-
equivalent basis, increased $11 million (.8 percent) in 2011,
compared with 2010, primarily due to higher loan yields,
partially offset by lower retail credit card average loan
balances. Noninterest income increased $97 million (3.1
percent) in 2011, compared with 2010, primarily due to
increased transaction volumes and new business initiatives,
partially offset by a decline in credit and debit card revenue
due to the impact of legislative-related changes to debit card
interchange fees.
Total noninterest expense increased $48 million (2.5
percent) in 2011, compared with 2010, due to higher total
compensation, employee benefits and processing costs,
partially offset by lower other intangibles expense. The
provision for credit losses decreased $828 million (62.0
percent) in 2011, compared with 2010, primarily due to lower
net charge-offs and a reduction in the reserve allocation due to
improved loss rates. As a percentage of average loans
outstanding, net charge-offs were 4.47 percent in 2011,
compared with 6.32 percent in 2010.
Treasury and Corporate Support Treasury and Corporate
Support includes the Company’s investment portfolios, most
covered commercial and commercial real estate loans and
related other real estate owned, funding, capital management,
asset securitization, interest rate risk management, the net
effect of transfer pricing related to average balances and the
residual aggregate of those expenses associated with corporate
activities that are managed on a consolidated basis. Treasury
and Corporate Support recorded net income of $1.5 billion in
2011, compared with $1.2 billion in 2010.
Total net revenue increased $439 million (22.4 percent)
in 2011, compared with 2010. Net interest income, on a
taxable-equivalent basis, increased $172 million (9.9 percent)
in 2011, compared with 2010, reflecting the impact of the
planned growth in the investment portfolio, wholesale funding
decisions and the Company’s asset/liability position. Total
noninterest income increased $267 million in 2011, compared
with 2010, primarily due to the 2011 merchant settlement and
FCB gains, and lower net securities losses, partially offset by
the 2010 Nuveen gain.
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61
Total noninterest expense increased $82 million (9.6
Non-GAAP Financial Measures
percent) in 2011, compared with 2010, due to the 2011
accrual for mortgage servicing matters and increased
compensation and employee benefits expense, partially offset
by a favorable variance in net shared services expense and
lower litigation and insurance costs.
In addition to capital ratios defined by banking regulators, the
Company considers various other measures when evaluating
capital utilization and adequacy, including:
(cid:129) Tangible common equity to tangible assets,
Income taxes are assessed to each line of business at a
(cid:129) Tier 1 common equity to risk-weighted assets using Basel I
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.
definition,
(cid:129) Tier 1 common equity to risk-weighted assets using
anticipated Basel III definition, and
(cid:129) Tangible common equity to risk-weighted assets using Basel
I definition.
The following table shows the Company’s calculation of these Non-GAAP financial measures:
At December 31 (Dollars in Millions)
2011
2010
2009
2008
2007
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill (net of deferred tax liability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, other than mortgage servicing rights . . . . . . . . . . . .
$ 34,971
(2,606)
(993)
(8,239)
(1,217)
$ 30,322
(1,930)
(803)
(8,337)
(1,376)
$ 26,661
(1,500)
(698)
(8,482)
(1,657)
$ 27,033
(7,931)
(733)
(8,153)
(1,640)
$ 21,826
(1,000)
(780)
(7,534)
(1,581)
Tangible common equity (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,916
17,876
14,324
8,576
10,931
Tier 1 capital, determined in accordance with prescribed
regulatory requirements using Basel I definition . . . . . . . . . . . . . . . . .
Trust preferred securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests, less preferred stock not eligible for Tier 1
capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29,173
(2,675)
(2,606)
25,947
(3,949)
(1,930)
22,610
(4,524)
(1,500)
24,426
(4,024)
(7,931)
17,539
(4,024)
(1,000)
(687)
(692)
(692)
(693)
(695)
Tier 1 common equity using Basel I definition (b) . . . . . . . . . . . . . . . .
23,205
19,376
15,894
11,778
11,820
Tier 1 capital, determined in accordance with prescribed
regulatory requirements using anticipated Basel III definition . . . .
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests of real estate investment trusts . . . . . . . . . . .
Tier 1 common equity using anticipated Basel III definition (c) . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill (net of deferred tax liability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, other than mortgage servicing rights . . . . . . . . . . . .
25,636
(2,606)
(664)
22,366
340,122
(8,239)
(1,217)
20,854
(1,930)
(667)
18,257
307,786
(8,337)
(1,376)
281,176
(8,482)
(1,657)
265,912
(8,153)
(1,640)
237,615
(7,534)
(1,581)
Tangible assets (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
330,666
298,073
271,037
256,119
228,500
Risk-weighted assets, determined in accordance with prescribed
regulatory requirements using Basel I definition (e) . . . . . . . . . . . . . .
Risk-weighted assets using anticipated Basel III definition (f) . . . . . .
271,333
274,351
247,619
251,704
235,233
230,628
212,592
Ratios
Tangible common equity to tangible assets (a)/(d) . . . . . . . . . . . . . . . . . .
Tier 1 common equity to risk-weighted assets using Basel I
definition (b)/(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 common equity to risk-weighted assets using anticipated
Basel III definition (c)/(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tangible common equity to risk-weighted assets (a)/(e) . . . . . . . . . . . .
6.6%
6.0%
5.3%
3.3%
4.8%
8.6
8.2
8.1
7.8
7.3
7.2
6.8
6.1
5.1
3.7
5.6
5.1
Note: Anticipated Basel III definitions reflect adjustments for changes to the related elements as proposed in December 2010 by regulatory authorities.
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U.S. BANCORP
These measures are viewed by management as useful
additional methods of reflecting the level of capital available
to withstand unexpected market or economic conditions.
Additionally, presentation of these measures allows investors,
analysts and banking regulators to assess the Company’s
capital position relative to other financial services companies.
Regulatory assessments of the Company’s financial stress
projections are influenced by measures using anticipated Basel
III definitions. These measures differ from capital ratios
defined by current banking regulations principally in that the
numerator excludes trust preferred securities and preferred
stock, the nature and extent of which varies among different
financial services companies. These measures are not defined
in generally accepted accounting principles (“GAAP”) or
federal banking regulations. As a result, these measures
disclosed by the Company may be considered non-GAAP
financial measures.
Because there are no standardized definitions for these
measures, 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.
Accounting Changes
Note 2 of the Notes to Consolidated Financial Statements
discusses accounting standards adopted in 2011, 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 materially 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 GAAP requires management to make
estimates and assumptions. The Company’s financial position
and results of operations can be affected by these estimates
and assumptions, which are integral to understanding the
Company’s financial statements. Critical accounting policies
are those policies management believes are the most important
to the portrayal of the Company’s financial condition and
results, and require management to make estimates that are
difficult, subjective or complex. Most accounting policies are
not considered by management to be critical accounting
policies. 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 GAAP.
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 appropriate allowance for credit losses are
discussed in the “Credit Risk Management” section.
Management’s evaluation of the appropriate allowance
for credit losses is often the most critical of all the 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
U.S. BANCORP
63
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 lending segment loans, the amount of
the allowance 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 appropriate 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 appropriate
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 lending
segment loans is sensitive to the assigned credit risk ratings
and inherent loss rates at December 31, 2011. In the event
that 10 percent of period ending loan balances (including
unfunded commitments) within each risk category of this
segment of the loan portfolio experienced downgrades of two
risk categories, the allowance for credit losses would increase
by approximately $277 million at December 31, 2011. The
Company believes the allowance for credit losses
appropriately considers the imprecision in estimating credit
losses based on credit risk ratings and inherent loss rates but
actual losses may differ from those estimates. In the event that
inherent loss or estimated loss rates for commercial lending
segment loans increased by 10 percent, the allowance for
credit losses would increase by approximately $171 million at
December 31, 2011. The Company’s determination of the
allowance for consumer lending segment loans is sensitive to
changes in estimated loss rates. In the event that estimated loss
rates for this segment of the loan portfolio increased by
10 percent, the allowance for credit losses would increase by
approximately $169 million at December 31, 2011. 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,
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U.S. BANCORP
management believes the risk ratings and inherent loss rates
currently assigned are appropriate. It is possible 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
analysis using estimates of future cash flows and prepayment,
interest and default rates. An example is non-agency
residential mortgage-backed securities. 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
inputs. Certain derivatives, however, must be valued using
techniques that include unobservable inputs. For these
instruments, the significant assumptions must be estimated
and therefore, are subject to judgment. 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 arising
from loss-sharing arrangements with FDIC 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.
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
valuations. 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 interest rate
swaps, forward commitments to buy TBAs, and 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, 2011, to an immediate 25 and
50 bps downward movement in interest rates would be an
increase of approximately $6 million and $21 million,
respectively. An upward movement in interest rates at
December 31, 2011, of 25 and 50 bps would have no impact
to and increase the value of the MSRs and related derivative
instruments by approximately $6 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 is not amortized but is 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.
On an ongoing basis, the accounting for purchased loans
The initial recognition of goodwill and other intangible
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
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.
U.S. BANCORP
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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 2011.
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. The Company does not expect recent legislation will
result in goodwill impairment.
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 235 federal, state and local domestic
jurisdictions and 14 foreign jurisdictions. The estimated
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.
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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 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 Audit 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,
2011. 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 the Company designed and maintained effective internal control over financial reporting as of December 31, 2011.
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, 2011 and 2010, and the
related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended
December 31, 2011. 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, 2011 and 2010, and the consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31, 2011, 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, 2011, 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 23, 2012 expressed an unqualified opinion thereon.
Minneapolis, Minnesota
February 23, 2012
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, 2011, 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, 2011, 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, 2011 and 2010, and the related consolidated statements of
income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2011 and our report
dated February 23, 2012 expressed an unqualified opinion thereon.
Minneapolis, Minnesota
February 23, 2012
U.S. BANCORP
69
U.S. Bancorp
Consolidated Balance Sheet
At December 31 (Dollars in Millions)
Assets
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities
Held-to-maturity (fair value $19,216 and $1,419, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale (included $6,925 and $8,100 of mortgage loans carried at fair value, respectively) . . . . . . . . . .
Loans
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans, excluding covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
$ 13,962
$ 14,487
18,877
51,937
7,156
56,648
35,851
37,082
17,360
48,107
195,048
14,787
209,835
(4,753)
205,082
2,657
8,927
2,736
28,788
1,469
51,509
8,371
48,398
34,695
30,732
16,803
48,391
179,019
18,042
197,061
(5,310)
191,751
2,487
8,954
3,213
25,545
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$340,122
$307,786
Liabilities and Shareholders’ Equity
Deposits
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits greater than $100,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 68,579
134,757
27,549
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
230,885
30,468
31,953
11,845
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
305,151
$ 45,314
129,381
29,557
204,252
32,557
31,537
9,118
277,464
Shareholders’ equity
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock, par value $0.01 a share—authorized: 4,000,000,000 shares;
issued: 2011 and 2010—2,125,725,742 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less cost of common stock in treasury: 2011—215,904,019 shares; 2010—204,822,330 shares . . . . . . . . . . . . .
Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total U.S. Bancorp shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21
8,238
30,785
(6,472)
(1,200)
33,978
993
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34,971
21
8,294
27,005
(6,262)
(1,469)
29,519
803
30,322
2,606
1,930
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$340,122
$307,786
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)
2011
2010
2009
Interest Income
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,370
200
1,820
249
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,639
$10,145
246
1,601
166
12,158
$ 9,564
277
1,606
91
11,538
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
840
531
1,145
2,516
10,123
2,343
7,780
1,073
734
1,355
452
1,000
659
551
841
986
129
4
(60)
25
(31)
1,011
8,760
4,041
845
999
383
369
758
303
299
1,914
9,911
6,629
1,841
4,788
84
928
548
1,103
2,579
9,579
4,356
5,223
1,091
710
1,253
423
1,080
710
555
771
1,003
111
13
(157)
66
(78)
731
8,360
3,779
694
919
306
360
744
301
367
1,913
9,383
4,200
935
3,265
52
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
7,952
3,135
574
836
255
378
673
288
387
1,755
8,281
2,632
395
2,237
(32)
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,872
$ 3,317
$ 2,205
Net income applicable to U.S. Bancorp common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,721
$ 3,332
$ 1,803
Earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average diluted common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
2.47
2.46
.50
1,914
1,923
$
$
$
1.74
1.73
.20
1,912
1,921
$
$
$
.97
.97
.20
1,851
1,859
See Notes to Consolidated Financial Statements.
U.S. BANCORP
71
U.S. Bancorp
Consolidated Statement of Shareholders’ Equity
(Dollars and Shares in Millions)
Balance December 31, 2008 . . . . . . . . . . . . . . . . .
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 (loss) on derivative hedges . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . .
Reclassification for realized (gains) losses . . . . . . . .
Unrealized gains (losses) on retirement plans . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . .
Distributions to noncontrolling interests . . . . . . . . . .
Net other changes in noncontrolling interests . . . . .
Stock option and restricted stock grants . . . . . . . . .
U.S. Bancorp Shareholders
Common
Shares
Outstanding
Preferred
Stock
Common
Stock
Capital
Surplus
Retained
Earnings
Treasury
Stock
1,755 $ 7,931
$20 $5,830 $22,541 $(6,659)
141
2,205
Other
Comprehensive
Income (Loss)
Total
U.S. Bancorp
Shareholders'
Equity
$(3,363)
(141)
$26,300
–
2,205
2,359
2,359
(6,599)
168
(139)
158
1 2,553
(396)
(375)
154
(4)
75
(402)
516
40
492
254
(1,239)
(402)
516
40
492
254
(1,239)
4,225
(6,599)
(139)
(228)
(375)
2,708
(4)
–
–
75
Noncontrolling
Interests
Total
Equity
$733 $27,033
–
2,237
32
2,359
(402)
516
40
492
254
(1,239)
4,257
(6,599)
(139)
(228)
(375)
2,708
(4)
(62)
(5)
75
32
(62)
(5)
Balance December 31, 2009 . . . . . . . . . . . . . . . . .
1,913 $ 1,500
$21 $8,319 $24,116 $(6,509)
$(1,484)
$25,963
$698 $26,661
Change in accounting principle . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 (loss) on derivative hedges . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . .
Reclassification for realized (gains) losses . . . . . . . .
Unrealized gains (losses) on retirement plans . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total comprehensive income (loss) . . . . . . . . .
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock dividends . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of preferred stock . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common and treasury stock . . . . . . . . . .
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . .
Distributions to noncontrolling interests . . . . . . . . . .
Net other changes in noncontrolling interests . . . . .
Stock option and restricted stock grants . . . . . . . . .
(72)
3,317
430
9
(1)
(89)
(385)
118
263
(16)
10
(134)
99
(1)
433
(66)
(145)
24
(28)
(197)
(5)
(73)
3,317
433
(66)
(145)
24
(28)
(197)
(5)
3,333
(89)
(385)
558
129
(16)
–
–
99
(16)
(52)
(89)
3,265
433
(66)
(145)
24
(28)
(197)
(5)
3,281
(89)
(385)
558
129
(16)
(76)
249
99
(52)
(76)
249
Balance December 31, 2010 . . . . . . . . . . . . . . . . .
1,921 $ 1,930
$21 $8,294 $27,005 $(6,262)
$(1,469)
$29,519
$803 $30,322
Change in accounting principle . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 (loss) on derivative hedges . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . .
Reclassification for realized (gains) losses . . . . . . . .
Unrealized gains (losses) on retirement plans . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total comprehensive income (loss) . . . . . . . . .
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock dividends . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of preferred stock . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common and treasury stock . . . . . . . . . .
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . .
Distributions to noncontrolling interests . . . . . . . . . .
Purchase of noncontrolling interests . . . . . . . . . . . . . .
Net other changes in noncontrolling interests . . . . .
Stock option and restricted stock grants . . . . . . . . .
(2)
4,872
676
11
(22)
(129)
(961)
340
(550)
(147)
(3)
94
920
(25)
(343)
(16)
363
(464)
(166)
(2)
4,872
920
(25)
(343)
(16)
363
(464)
(166)
5,141
(129)
(961)
676
193
(550)
–
(3)
–
94
(2)
4,788
(84)
920
(25)
(343)
(16)
363
(464)
(166)
5,057
(129)
(961)
676
193
(550)
(80)
(11)
362
94
(84)
(80)
(8)
362
Balance December 31, 2011 . . . . . . . . . . . . . . . . .
1,910 $ 2,606
$21 $8,238 $30,785 $(6,472)
$(1,200)
$33,978
$993 $34,971
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)
2011
2010
2009
Operating Activities
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities
$ 4,872
$ 3,317
$ 2,205
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,343
266
299
748
(1,663)
(45,848)
48,354
449
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,820
Investing Activities
Proceeds from sales of available-for-sale investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from maturities of held-to-maturity investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from maturities of available-for-sale investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of held-to-maturity investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of available-for-sale investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase in loans outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,018
1,404
12,713
(18,500)
(13,229)
(13,418)
820
(3,078)
636
(1,070)
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(32,704)
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fees paid on exchange of income trust securities for perpetual preferred stock . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24,846
(2,205)
3,611
(3,300)
–
676
180
–
(514)
–
(118)
(817)
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22,359
Change in cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and due from banks at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(525)
14,487
4,356
229
367
(370)
(2,023)
(53,025)
50,895
1,495
5,241
1,212
167
16,068
(1,010)
(24,025)
(6,322)
1,829
(4,278)
923
(936)
(16,372)
20,527
592
7,044
(8,394)
(4)
–
119
–
–
–
(89)
(383)
19,412
8,281
6,206
5,557
220
387
(545)
(1,571)
(52,720)
51,915
2,152
7,600
5,784
11
7,307
(5)
(15,119)
(106)
2,741
(4,332)
3,074
(74)
(719)
7,949
(4,448)
6,040
(11,740)
–
–
2,703
(6,599)
–
(139)
(275)
(1,025)
(7,534)
(653)
6,859
Cash and due from banks at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 13,962
$ 14,487
$ 6,206
Supplemental Cash Flow Disclosures
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net noncash transfers to foreclosed property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions
$
495
2,563
702
Assets (sold) acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities sold (assumed) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,761
(2,100)
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(339)
$
$
$
424
2,631
1,384
(14)
(907)
(921)
$
344
3,153
600
$ 17,212
(17,870)
$
(658)
See Notes to Consolidated Financial Statements.
U.S. BANCORP
73
Notes to Consolidated Financial Statements
N O T E 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 the
Midwest and West regions of the United 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
has both the power to direct the activities of the VIE that most
significantly impact the VIE’s economic performance, and the
obligation to absorb losses or right to receive benefits of the
VIE that could potentially be significant to the VIE.
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 and Commercial Real Estate Wholesale
Banking and Commercial Real Estate offers lending,
equipment finance and small-ticket leasing, depository,
treasury management, capital markets, foreign exchange,
international trade services and other financial services to
middle market, large corporate, commercial real estate,
financial institution and public sector clients.
Consumer and Small Business Banking Consumer and
Small Business Banking delivers products and services through
banking offices, telephone servicing and sales, on-line services,
direct mail, ATM processing and over mobile devices. It
encompasses community banking, metropolitan banking,
in-store banking, small business banking, consumer lending,
mortgage banking, consumer finance, workplace banking,
student banking and 24-hour banking.
74
U.S. BANCORP
Wealth Management and Securities Services Wealth
Management and Securities Services provides private banking,
financial advisory services, investment management, retail
brokerage services, insurance, trust, custody and mutual fund
servicing through five businesses: Wealth Management,
Corporate Trust Services, U.S. Bancorp Asset Management,
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, most
covered commercial and commercial real estate loans and
related other real estate (“OREO”), funding, capital
management, asset securitization, interest rate risk
management, the net effect of transfer pricing related to
average balances and the residual aggregate of those expenses
associated with corporate activities that are managed on a
consolidated basis.
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 24 “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 are included in other
assets and reported at fair value. Changes in fair value and
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 impairment, 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
impairment, 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 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. Investments in 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 offers a broad array of lending products and
categorizes its loan portfolio into three segments, which is the
level at which it develops and documents a systematic
methodology to determine the allowance for credit losses. The
Company’s three loan portfolio segments are commercial
lending, consumer lending and covered loans. The Company
further disaggregates its loan portfolio segments into various
classes based on their underlying risk characteristics. The two
classes within the commercial lending segment are commercial
loans and commercial real estate loans. The three classes
within consumer lending are residential mortgages, credit card
loans and other retail loans. The covered loan segment
consists of only one class.
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 as held for investment 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 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 after January 1, 2009. In accordance with applicable
authoritative accounting guidance, purchased non-impaired
loans acquired in a business combination 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 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 credit losses only when the required allowance
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 covered under loss sharing or similar
credit protection agreements with the Federal Deposit
Insurance Corporation (“FDIC”) are reported in loans along
with the related indemnification asset. Foreclosed real estate
covered under similar agreements is recorded in other 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.
Commitments to Extend Credit Unfunded residential
mortgage loan commitments entered into in connection with
mortgage banking activities intended to be held for sale are
U.S. BANCORP
75
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 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 The allowance for credit losses
reserves for probable and estimable losses incurred in the
Company’s loan and lease portfolio, and includes certain
amounts that do not represent loss exposure to the Company
because those losses are recoverable under loss sharing
agreements with the FDIC. The allowance for credit losses is
increased through provisions charged to operating earnings
and reduced by net charge-offs. Management evaluates the
allowance each quarter to ensure it appropriately reserves for
incurred losses.
The allowance recorded for loans in the commercial
lending segment is based on reviews of individual credit
relationships and considers the migration analysis of
commercial lending segment loans and actual loss experience.
The Company currently uses an 11 year period of historical
losses in considering actual loss experience. This timeframe
and the results of the analysis are evaluated quarterly to
determine the appropriateness. The allowance recorded for
impaired loans greater than $5 million in the commercial
lending segment is based on an individual loan analysis
utilizing expected cash flows discounted using the original
effective interest rate, the observable market price, or the fair
value of the collateral for collateral-dependent loans. The
allowance recorded for all other commercial lending segment
loans is determined on a homogenous pool basis and includes
consideration of product mix, risk characteristics of the
portfolio, bankruptcy experience, and historical losses,
adjusted for current trends. The Company also considers the
impacts of any loan modifications made to commercial
lending segment loans and any subsequent payment defaults
to its expectations of cash flows, principal balance, and
current expectations about the borrower’s ability to pay in
determining the allowance for credit losses.
The allowance recorded for purchased impaired and
Troubled Debt Restructuring (“TDR”) loans in the consumer
lending segment is determined on a homogenous pool basis
utilizing expected cash flows discounted using the original
effective interest rate of the pool. The allowance recorded for
all other consumer lending segment loans is determined on a
homogenous pool basis and includes consideration of product
mix, risk characteristics of the portfolio, bankruptcy
experience, and historical losses, adjusted for current trends.
The Company also considers any modifications made to
consumer lending segment loans including the impacts of any
subsequent payment defaults since modification in
76
U.S. BANCORP
determining the allowance for credit losses, such as
borrower’s ability to pay under the restructured terms, and
the timing and amount of payments.
The allowance for covered segment loans is evaluated
each quarter in a manner similar to that described for
non-covered loans and represents any decreases in expected
cash flows of those loans after the acquisition date. The
provision for credit losses for covered segment loans considers
the indemnification provided by the FDIC.
In addition, subsequent payment defaults on loan
modifications considered TDRs are considered in the
underlying factors used in the determination of the
appropriateness of the allowance for credit losses. For each
loan segment, the Company estimates future loan charge-offs
through a variety of analysis, trends and underlying
assumptions. With respect to the commercial lending segment,
TDRs may be collectively evaluated for impairment where
observed performance history, including defaults, is a primary
driver of the loss allocation. For commercial TDRs
individually evaluated for impairment, attributes of the
borrower are the primary factors in determining the allowance
for credit losses. However, incorporation of loss history is
factored into the allowance methodology applied to this
category of loans. With respect to the consumer lending
segment, performance of the portfolio, including defaults on
TDRs, is considered when estimating future cash flows.
The Company’s methodology for determining the
appropriate allowance for credit losses for all the loan
segments also considers the imprecision inherent in the
methodologies used. As a result, in addition to the amounts
determined under the methodologies described above,
management also considers the potential impact of other
qualitative factors which include, but are not limited to,
economic factors; geographic and other concentration risks;
delinquency and nonaccrual trends; current business
conditions; changes in lending policy, underwriting standards,
internal review and other relevant business practices; and the
regulatory environment. The consideration of these items
results in adjustments to allowance amounts included in the
Company’s allowance for credit losses for each of the above
loan segments.
The Company also assesses the credit risk associated with
off-balance sheet loan commitments, letters of credit, and
derivatives. Credit risk associated with derivatives is reflected
in the fair values recorded for those positions. The liability for
off-balance sheet credit exposure related to loan commitments
and other credit guarantees is included in other liabilities.
Because business processes and credit risks associated with
unfunded credit commitments are essentially the same as for
loans, the Company utilizes similar processes to estimate its
liability for unfunded credit commitments.
Credit Quality The quality of the Company’s loan portfolios
is assessed as a function of net credit losses, levels of
nonperforming assets and delinquencies, and credit quality
ratings as defined by the Company.
For all loan classes, loans are considered past due based on
the number of days delinquent except for monthly amortizing
loans which are classified delinquent based upon the number of
contractually required payments not made (for example, two
missed payments is considered 30 days delinquent).
Commercial lending segment loans are placed on
nonaccrual status when the collection of principal and interest
has become 90 days past due or is otherwise considered
doubtful. When a loan is placed on nonaccrual status, unpaid
accrued interest is reversed. Commercial lending segment
loans are generally fully or partially charged down to the fair
value of the collateral securing the loan, less costs to sell,
when the loan is considered uncollectible.
Consumer lending segment loans are generally charged-off
at a specific number of days or payments past due. Residential
mortgages and other retail loans secured by 1-4 family
properties are generally charged down to fair market value,
less costs to sell, at 180 days past due, and placed on
nonaccrual status in instances where a partial charge-off occurs
unless the loan is well secured and in the process of collection.
Credit card loans continue to accrue interest until the account
is charged off. Credit cards are charged off at 180 days past
due. Other retail loans not secured by 1-4 family properties are
charged-off at 120 days past due; and revolving consumer lines
are charged off at 180 days past due. Similar to credit cards,
other retail loans are generally not placed on nonaccrual status
because of the relative short period of time to charge-off.
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.
For all loan classes, interest payments received on
nonaccrual loans are generally recorded as a reduction to the
loan carrying amount. Interest payments recorded as
reductions to a loan’s carrying amount while a loan is on
nonaccrual are recognized as interest income only upon payoff
of the loan. In certain circumstances, loans in any class may be
restored to accrual status, such as when none of the principal
and interest is past due and prospects for future payment are
no longer in doubt; or the loan becomes well secured and is in
the process of collection. Loans where there has been a partial
charge-off may be returned to accrual status if all principal and
interest (including amounts previously charged-off) is expected
to be collected and the loan is current.
Covered loans not considered to be purchased impaired
are evaluated for delinquency, nonaccrual status and
charge-off consistent with the class of loan they would be
included in had the loss share coverage not been in place.
Generally, purchased impaired loans are considered accruing
loans. However, the timing and amount of future cash flows
for some loans is not reasonably estimable. Those loans are
classified as nonaccrual loans and interest income is not
recognized until the timing and amount of the future cash
flows can be reasonably estimated.
The Company classifies its loan portfolios using internal
credit quality ratings on a quarterly basis. These ratings
include: pass, special mention and classified, and are an
important part of the Company’s overall credit risk
management process and evaluation of the allowance for
credit losses. Loans with a pass rating represent those not
classified on the Company’s rating scale for problem credits,
as minimal credit risk has been identified. Special mention
loans are those that have a potential weakness deserving
management’s close attention. Classified loans are those
where a well-defined weakness has been identified that may
put full collection of contractual cash flows at risk. It is
possible that others, given the same information, may reach
different reasonable conclusions regarding the credit quality
rating classification of specific loans.
Troubled Debt Restructurings In certain circumstances, the
Company may modify the terms of a loan to maximize the
collection of amounts due when a borrower is experiencing
financial difficulties or is expected to experience difficulties in
the near-term. Concessionary modifications are classified as
TDRs unless the modification results in only an insignificant
delay in payments to be received. The Company accrues
interest on TDRs if the borrower complies with the revised
terms and conditions as agreed upon with the Company and
has demonstrated repayment performance at a level
commensurate with the modified terms over several payment
cycles. To the extent a previous restructuring was
insignificant, the Company considers the cumulative effect of
past restructurings related to the receivable when determining
whether a current restructuring is a TDR. Loans classified as
TDRs are considered impaired loans for reporting and
measurement purposes. Many of the Company’s TDRs are
determined on a case-by-case basis in connection with
ongoing loan collection processes. However, the Company has
also implemented certain restructuring programs that may
result in TDRs.
For the commercial lending segment, modifications
generally result in the Company working with borrowers on a
case-by-case basis. Commercial and commercial real estate
modifications generally include extensions of the maturity
date and may be accompanied by an increase or decrease to
the interest rate, which may not be deemed a market rate of
interest. In addition, the Company may work with the
borrower in identifying other changes that mitigate loss to the
Company, which may include additional collateral or
guarantees to support the loan. To a lesser extent, the
Company may waive contractual principal. The Company
classifies these concessions as TDRs to the extent the
Company determines that the borrower is experiencing
financial difficulty.
Modifications for the consumer lending segment are
generally part of programs the Company has initiated. The
Company participates in the U.S. Department of Treasury
Home Affordable Modification Program (“HAMP”). HAMP
gives qualifying homeowners an opportunity to permanently
modify their loan and achieve more affordable monthly
payments, with the U.S. Department of Treasury compensating
the Company for a portion of the reduction in monthly
amounts due from borrowers participating in this program.
U.S. BANCORP
77
The Company also modifies residential mortgage loans under
Federal Housing Administration, Department of Veterans
Affairs, or other internal programs. Under these programs, the
Company provides concessions to qualifying borrowers
experiencing financial difficulties. The concessions may include
adjustments to interest rates, conversion of adjustable rates to
fixed rates, extension of maturity dates or deferrals of
payments, capitalization of accrued interest and/or outstanding
advances, or in limited situations, partial forgiveness of loan
principal. In most instances, participation in residential
mortgage loan restructuring programs requires the customer to
complete a short-term trial period. A permanent loan
modification is contingent on the customer successfully
completing the trial period arrangement and the loan
documents are not modified until that time. Loans that require
a trial period arrangement are reported as TDRs when offered
to the borrower.
Credit card and other retail loan modifications are
generally part of two distinct restructuring programs. The
Company offers workout programs providing customers
experiencing financial difficulty with modifications whereby
balances may be amortized up to 60 months, and generally
include waiver of fees and reduced interest rates. The
Company also provides modification programs to qualifying
customers experiencing a temporary financial hardship in
which reductions are made to monthly required minimum
payments for up to 12 months. Balances related to these
programs are generally frozen, however, may be reopened
upon successful exit of the program, in which account
privileges may be restored.
Modifications to loans in the covered segment are similar
in nature to that described above for non-covered loans, and
the evaluation and determination of TDR status is similar,
except that acquired loans restructured after acquisition are
not considered TDRs for purposes of the Company’s
accounting and disclosure if the loans evidenced credit
deterioration as of the acquisition date and are accounted for
in pools. Losses associated with the modification on covered
loans, including the economic impact of interest rate
reductions, are generally eligible for reimbursement under loss
sharing agreements with the FDIC.
Impaired Loans For all loan classes, a loan is considered to
be impaired when, based on current events or information, it
is probable the Company will be unable to collect all amounts
due per the contractual terms of the loan agreement. Impaired
loans include all nonaccrual and TDR loans. For all loan
classes, interest income on TDR loans is recognized under the
modified terms and conditions if the borrower has
demonstrated repayment performance at a level
commensurate with the modified terms over several payment
cycles. Interest income is not recognized on other impaired
loans until the loan is paid off.
Factors used by the Company in determining whether all
principal and interest payments due on commercial and
commercial real estate loans will be collected and therefore
78
U.S. BANCORP
whether those loans are impaired, include but are not limited
to, the financial condition of the borrower, collateral and/or
guarantees on the loan, and the borrower’s estimated future
ability to pay based on industry, geographic location and
certain financial ratios. The evaluation of impairment on
residential mortgages, credit card and other retail loans is
primarily driven by delinquency status of individual loans or
whether a loan has been modified. Individual covered loans,
whose future losses are covered by loss sharing agreements
with the FDIC that substantially reduce the risk of credit
losses to the Company, are evaluated for impairment and
accounted for in a manner consistent with the class of loan
they would have been included in had the loss sharing
coverage not been in place.
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 OREO is included in other assets, and 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 along with holding costs, such as taxes
and insurance, 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
are carried at the lower-of-cost-or-fair value as determined on
an aggregate basis by type of loan with the exception of loans
for which the Company has elected fair value accounting,
which are carried at fair value. The credit component of any
writedowns upon the transfer of loans to LHFS is reflected in
loan charge-offs.
Where an election is made to carry the LHFS at fair
Revenue Recognition
value, any further decreases or subsequent increases in fair
value are recognized in noninterest income. Where an election
is made to 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. Fair value elections are made at the time of origination
or purchase based on the Company’s fair value election
policy.
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 and are designated
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”), 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”), or a
hedge of the volatility of an investment in foreign operations
driven by changes in foreign currency exchange rates (“net
investment 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. Effective changes in the fair
value of net investment hedges are recorded in accumulated
other comprehensive income (loss). The Company performs an
assessment, both at the inception of a hedge and, at a
minimum, 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
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, unless the forecasted
transaction is at least reasonably possible of occuring, whereby
the amounts within accumulated other comprehensive income
(loss) remain.
The Company recognizes revenue as it is earned based on
contractual terms, as transactions occur, or as services are
provided and collectability 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 and Corporate Payment
Products Revenue Credit and debit card revenue includes
interchange income from consumer credit and debit cards,
annual fees, and other transaction and account management
fees. Corporate payment products revenue primarily includes
interchange income from corporate and purchasing card
transactions processed through card association networks and
merchant discount income from closed loop network
transactions. 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.
Merchant discount income is a fee paid by a merchant to the
Company through the closed loop network. Merchant
discount fees are set by the Company directly with the
merchant. The Company records interchange and merchant
discount 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 and corporate payment products
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
card-issuing bank, card association assessments, and revenue
sharing amounts, and is recognized at the time the merchant’s
transactions are processed or other 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.
U.S. BANCORP
79
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.
Commercial Products Revenue Commercial products
revenue primarily includes revenue related to ancillary services
provided to Wholesale Banking and Commercial Real Estate
customers including standby letter of credit fees, non-yield
related loan fees, syndication and other capital markets
related revenue, non-yield related leasing revenue and foreign
exchange fees. These fees are recognized as earned or as
transactions occur and services are provided.
Mortgage Banking Revenue Mortgage banking revenue
includes revenue derived from mortgages originated and
subsequently sold, generally with servicing retained. The
primary components include: gains and losses on mortgage
sales; servicing revenue, including losses related to the
repurchase of previously-sold loans; changes in fair value for
mortgage loans originated with the intent to sell and measured
at fair value under the fair value option; changes in the fair
value of mortgage servicing rights (“MSRs”); and the impact
of risk management activities associated with the mortgage
origination pipeline, funded loans and MSRs. Net Interest
income from mortgage loans is recorded in interest income.
Refer to Other Significant Policies in Note 1, as well as Note
10 and Note 21 for a further discussion of MSRs.
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.
80
U.S. BANCORP
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
valuations. 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 interest rate swaps, futures, to-be-
announced securities (“TBAs”) and options to mitigate MSR
valuation risk.
Pensions For purposes of its pension 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 or the
net asset value provided by the plans’ administrator. 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 period of approximately twelve-years. The
overfunded or underfunded status of the plans is recorded as
an asset or liability on the consolidated 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. Restricted stock
and restricted stock unit grants are awarded at no cost to the
recipient. 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.
N O T E 2 Accounting Changes
Troubled Debt Restructurings On July 1, 2011, the
Company adopted accounting guidance issued by the
Financial Accounting Standards Board related to identifying
and disclosing TDRs, applicable to modifications occurring on
or after January 1, 2011. This guidance provides clarification
in determining whether a creditor has granted a concession
and whether a debtor is experiencing financial difficulties for
the purpose of determining whether a restructuring constitutes
a TDR. The adoption of this guidance resulted in additional
loan modifications considered to be TDRs which the
Company had not previously considered to be impaired, and
for which the allowance for credit losses had previously been
measured under a collective allowance for credit losses
methodology. These newly classified TDRs primarily relate to
whether or not (i) modifications to interest rates on individual
loans are below a market rate of interest, and (ii) a delay in
payment is insignificant. In addition, the Company now
includes covered loans and residential mortgage loans
repurchased from Government National Association
(“GNMA”) mortgage pools whose repayments are primarily
insured by the Federal Housing Administration or guaranteed
by the Department of Veterans Affairs in its presentation of
TDRs even though the exposure to loss on these loans is
significantly mitigated by the related loss share agreements or
guarantee. Further, the Company also includes loans in a trial
modification period as a result of this guidance. The adoption
of this guidance did not have a material impact on the
Company’s total allowance for credit losses.
N O T E 3 Business Combinations and
Divestitures
In January 2011, the Company acquired the banking
operations of First Community Bank of New Mexico (“FCB”)
from the FDIC. The FCB transaction did not include a loss
sharing agreement. The Company acquired 38 branch
locations and approximately $1.8 billion in assets, assumed
approximately $2.1 billion in liabilities, and received
approximately $412 million in cash from the FDIC. In
addition, the Company recognized a $46 million gain on this
transaction during the first quarter of 2011.
In 2010, the Company acquired the securitization trust
administration business of Bank of America, N.A. This
transaction included the acquisition of $1.1 trillion of assets
under administration and provided the Company with
approximately $8 billion of deposits at the time of closing.
During 2010, the Company exchanged its proprietary
long-term mutual fund business of U.S. Bancorp Asset
Management (formerly FAF Advisors, Inc.), an affiliate of the
Company, for cash consideration and a 9.5 percent equity
interest in Nuveen Investments. The Company recorded a
$103 million gain ($41 million after tax) related to this
transaction. The Company retained all other products and
services previously offered by U.S. Bancorp Asset
Management.
N O T E 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 required reserve balances were approximately $1.7
billion and $1.2 billion at December 31, 2011 and 2010,
respectively. At December 31, 2011 and 2010, the Company
held $8.5 billion and $10.1 billion, respectively of balances at
the Federal Reserve Bank. These balances are included in cash
and due from banks on the consolidated balance sheet.
U.S. BANCORP
81
N O T E 5 Investment Securities
The amortized cost, other-than-temporary impairment recorded in other comprehensive income (loss), gross unrealized holding
gains and losses, and fair value of held-to-maturity and available-for-sale securities at December 31 were as follows:
(Dollars in Millions)
Held-to-maturity (a)
U.S. Treasury and agencies . . . . . . . .
Mortgage-backed securities
Residential
Agency . . . . . . . . . . . . . . . . . . . . . . .
Non-agency
non-prime . . . . . . . . . . . . . . . . . .
Commercial
non-agency . . . . . . . . . . . . . . . . . . .
Asset-backed securities
Collateralized debt
obligations/Collaterized
loan obligations . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of state and political
subdivisions . . . . . . . . . . . . . . . . . . . . .
Obligations of foreign
governments . . . . . . . . . . . . . . . . . . . .
Other debt securities . . . . . . . . . . . . . . .
2011
Unrealized Losses
Other-
than-
Temporary
(d) Other (e) Fair Value
Amortized
Cost
Unrealized
Gains
2010
Unrealized Losses
Other-
than-
Temporary
(d) Other (e) Fair Value
Amortized
Cost
Unrealized
Gains
$ 2,560
$
35
$
–
$
– $ 2,595
$
165
$
–
$
–
$
(1) $
164
16,085
333
2
4
52
23
23
7
121
–
–
13
1
1
–
–
–
–
–
–
(6)
–
–
–
(3) 16,415
847
–
(2)
(2)
(1)
(1)
–
(29)
2
2
63
17
23
7
92
3
10
157
127
27
7
126
–
–
–
13
–
1
–
–
–
–
–
–
(1)
–
–
–
(4)
843
–
(5)
(18)
(7)
(1)
–
(27)
3
5
152
119
27
7
99
Total held-to-maturity . . . . . . . .
$18,877
$ 383
$
(6)
$ (38) $19,216
$ 1,469
$ 14
$
(1)
$ (63) $ 1,419
Available-for-sale (b)
U.S. Treasury and agencies . . . . . . . .
Mortgage-backed securities
Residential
Agency . . . . . . . . . . . . . . . . . . . . . . .
Non-agency
$ 1,045
$
13
$
–
$
(1) $ 1,057
$ 2,559
$
6
$
–
$ (28) $ 2,537
39,337
981
–
(4) 40,314
37,144
718
–
(159) 37,703
Prime (c) . . . . . . . . . . . . . . . . . . .
Non-prime . . . . . . . . . . . . . . . . .
911
1,047
Commercial
Agency . . . . . . . . . . . . . . . . . . . . . . .
Non-agency . . . . . . . . . . . . . . . . . .
Asset-backed securities
Collateralized debt obligations/
Collaterized loan
obligations . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of state and political
133
42
180
694
5
9
7
2
31
16
subdivisions . . . . . . . . . . . . . . . . . . . . .
6,394
167
Obligations of foreign
governments . . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . .
Perpetual preferred securities . . . . . .
Other investments . . . . . . . . . . . . . . . . .
6
1,000
379
188
–
1
25
15
(63)
(247)
–
–
(50)
(7)
–
(2)
803
802
140
42
1,216
1,193
194
47
(3)
(5)
(2)
(24)
206
681
204
709
–
–
–
–
–
(22)
6,539
6,835
–
(174)
(86)
(1)
6
827
318
202
6
1,109
456
183
12
15
5
3
23
23
3
–
–
41
17
(86)
(243)
(39)
(18)
1,103
947
–
–
(2)
(3)
–
–
–
–
–
(2)
–
(1)
(9)
197
50
224
720
(421)
6,417
–
(151)
(49)
(1)
6
958
448
199
Total available-for-sale . . . . . . . .
$51,356
$1,272
$(318)
$(373) $51,937
$51,855
$866
$(334)
$(878) $51,509
(a) Held-to-maturity securities are carried at historical cost adjusted for amortization of premiums and accretion of discounts and credit-related other-than-temporary impairment.
(b) Available-for-sale securities are carried at fair value with unrealized net gains or losses reported within accumulated other comprehensive income (loss) in shareholders’ equity.
(c) Prime securities are those designated as such by the issuer or those with underlying asset characteristics and/or credit enhancements consistent with securities designated as prime.
(d) Represents impairment not related to credit for those securities that have been determined to be other-than-temporarily impaired.
(e) Represents unrealized losses on securities that have not been determined to be other-than-temporarily impaired.
82
U.S. BANCORP
The weighted-average maturity of the available-for-sale
In 2007, the Company purchased certain structured
investment securities was 5.2 years at December 31, 2011,
compared with 7.4 years at December 31, 2010. The
corresponding weighted-average yields were 3.19 percent and
3.41 percent, respectively. The weighted-average maturity of
the held-to-maturity investment securities was 3.9 years at
December 31, 2011, and 6.3 years at December 31, 2010. The
corresponding weighted-average yields were 2.21 percent and
2.07 percent, respectively.
For amortized cost, fair value and yield by maturity date
of held-to-maturity and available-for-sale securities
outstanding at December 31, 2011, refer to Table 13 included
in Management’s Discussion and Analysis which is
incorporated by reference into these Notes to Consolidated
Financial Statements.
Securities carried at $20.7 billion at December 31, 2011,
and $28.0 billion at December 31, 2010, were pledged to
secure public, private and trust deposits, repurchase
agreements and for other purposes required by law. Included
in these amounts were securities sold under agreements to
repurchase where the buyer/lender has the right to sell or
pledge the securities and which were collateralized by
securities with a carrying amount of $7.0 billion at December
31, 2011, and $9.3 billion at December 31, 2010.
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)
2011
2010
2009
Taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-taxable . . . . . . . . . . . . . . . . . . . . . . . . .
$1,517
303
$1,292
309
$1,295
311
investment securities (“SIVs”) from certain money market
funds managed by an affiliate of the Company. Subsequent to
the initial purchase, the Company exchanged its interest in the
SIVs for a pro-rata portion of the underlying investment
securities according to the applicable restructuring
agreements. The SIVs and the investment securities received
are collectively referred to as “SIV-related securities” and are
predominately included in non-agency mortgage-backed
securities and asset-backed securities.
Some of the SIV-related securities evidenced credit
deterioration at the time of acquisition by the Company.
Investment securities with evidence of credit deterioration at
acquisition had an unpaid principal balance and fair value of
$416 million and $145 million, respectively, at December 31,
2011, and $485 million and $173 million, respectively, at
December 31, 2010. Changes in the accretable balance for
these securities were as follows:
Year Ended December 31 (Dollars in Millions)
2011
2010
2009
Balance at beginning of period . . . . . .
Impact of other-than-temporary
impairment accounting
change . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted balance at beginning of
$139
$ 292
$ 349
–
–
(124)
period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions (a) . . . . . . . . . . . . . . . . . . . . . .
Disposals (b) . . . . . . . . . . . . . . . . . . . . . .
Accretion . . . . . . . . . . . . . . . . . . . . . . . . .
Other (c) . . . . . . . . . . . . . . . . . . . . . . . . . .
139
–
–
(17)
(22)
292
66
(219)
(29)
29
225
127
–
(6)
(54)
Balance at end of period . . . . . . . . . . . .
$100
$ 139
$ 292
(a) Primarily resulted from the exchange of certain SIVs for the underlying investment
Total interest income from
securities.
investment securities . . . . . . . . . . .
$1,820
$1,601
$1,606
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)
2011
2010
2009
Realized gains . . . . . . . . . . . . . . . . . . . . . . . . . .
Realized losses . . . . . . . . . . . . . . . . . . . . . . . . .
$11
(7)
Net realized gains (losses) . . . . . . . . . . .
$ 4
$21
(8)
$13
$150
(3)
$147
Income tax (benefit) on net realized
gains (losses) . . . . . . . . . . . . . . . . . . . . . . . .
$ 2
$ 5
$ 56
(b) Primarily resulted from the sale of securities covered under loss sharing agreements with
the FDIC and the exchange of certain SIVs for the underlying investment securities.
(c) Primarily represents changes in projected future cash flows related to variable rates on
certain investment securities.
The Company conducts a regular assessment of its
investment securities with unrealized losses to determine
whether securities are other-than-temporarily impaired
considering, among other factors, the nature of the securities,
credit ratings or financial condition of the issuer, the extent
and duration of the unrealized loss, expected cash flows of
underlying collateral, market conditions and whether the
Company intends to sell or it is more likely than not the
Company will be required to sell the securities.
U.S. BANCORP
83
The following table summarizes other-than-temporary impairment by investment category:
Year Ended December 31 (Dollars in Millions)
Held-to-maturity
2011
2010
2009
Losses
Recorded in
Earnings
Other Gains
(Losses) (b)
Total
Losses
Recorded in
Earnings
Other Gains
(Losses) (b)
Total
Losses
Recorded in
Earnings
Other Gains
(Losses) (b)
Total
Other asset-backed securities . . . . . . .
Total held-to-maturity . . . . . . . . . .
$ –
$ –
$ – $ –
$ – $ –
$ (2)
$ (2)
$ – $
$ – $
(2)
(2)
$
$
–
–
$
$
– $
– $
–
–
Available-for-sale
Mortgage-backed securities
Non-agency residential
Prime (a) . . . . . . . . . . . . . . . . . . . . . . . .
Non-prime . . . . . . . . . . . . . . . . . . . . . .
Commercial non-agency . . . . . . . . . .
Asset-backed securities
Collateralized debt obligations/
Collaterized loan obligations . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of state and political
subdivisions . . . . . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . .
Perpetual preferred securities . . . . . . . .
Other debt securities . . . . . . . . . . . . . . . . .
$ (3)
(24)
–
$ (5) $ (8)
(47)
–
(23)
–
–
(4)
(4)
–
–
–
–
3
–
–
–
–
–
(1)
(4)
–
–
–
$ (5)
(63)
–
(6)
(13)
–
–
(1)
(1)
$(10) $ (15)
(123)
–
(60)
–
$ (13)
(151)
(1)
$(182) $ (195)
(455)
(2)
(304)
(1)
(1)
4
–
–
–
1
(7)
(9)
–
–
(1)
–
(17)
(186)
–
(7)
(223)
–
(3)
88
–
–
–
–
(20)
(98)
–
(7)
(223)
–
Total available-for-sale . . . . . . . . .
$(35)
$(25) $(60)
$(89)
$(66) $(155)
$(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.
(b) Represents the non-credit portion of other-than-temporary impairment recorded in other comprehensive income for securities determined to be other-than-temporarily impaired during the
period.
The Company determined the other-than-temporary impairment recorded in earnings for securities by estimating the future cash
flows of each individual security, using market information where available, and discounting the cash flows at the original
effective rate of the security. Other-than-temporary impairment recorded in other comprehensive income (loss) was measured as
the difference between that discounted amount and the fair value of each security. The following table includes the ranges for
principal assumptions used for those available-for-sale non-agency mortgage-backed securities determined to be other-than-
temporarily impaired:
Prime
Non-Prime
Minimum
Maximum
Average
Minimum
Maximum
Average
December 31, 2011
Estimated lifetime prepayment rates . . . . . . . . . . . . . . . . . . . . . . .
Lifetime probability of default rates . . . . . . . . . . . . . . . . . . . . . . . .
Lifetime loss severity rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2010
Estimated lifetime prepayment rates . . . . . . . . . . . . . . . . . . . . . . .
Lifetime probability of default rates . . . . . . . . . . . . . . . . . . . . . . . .
Lifetime loss severity rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4%
2
40
4%
3
40
15%
9
50
14%
9
55
14%
3
46
13%
3
41
2%
1
8
1%
1
37
11%
20
70
12%
20
71
6%
5
52
6%
8
55
Changes in the credit losses on debt securities (excludes perpetual preferred securities) are summarized as follows:
Year Ended December 31 (Dollars in Millions)
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions to credit losses due to other-than-temporary impairments
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other-than-temporary impairment on debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other changes in credit losses
Increases in expected cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Realized losses (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit losses on security sales and securities expected to be sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
$358
2010
$335
2009
$ 299
7
28
35
(21)
(73)
(1)
–
19
72
91
(26)
(60)
–
18
94
148
242
(49)
(30)
(127)
–
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$298
$358
$ 335
(a) Primarily represents principal losses allocated to mortgage and asset-backed securities in the Company’s portfolio under the terms of the securitization transaction documents.
84
U.S. BANCORP
At December 31, 2011, certain investment securities had a fair value below amortized cost. The following table shows the gross
unrealized losses and fair value of the Company’s investments with unrealized losses, aggregated by investment category and
length of time the individual securities have been in continuous unrealized loss positions, at December 30, 2011:
(Dollars in Millions)
Held-to-maturity
Mortgage-backed securities
Residential
Less Than 12 Months
12 Months or Greater
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-agency non-prime (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial non-agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 697
–
–
$
$ (3)
–
–
Asset-backed securities
Collateralized debt obligations/Collaterized loan obligations . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of state and political subdivisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
–
–
–
–
–
–
–
–
1
3
29
14
9
92
$
–
–
(2)
(2)
(7)
(1)
(29)
$
$ 697
1
3
29
14
9
92
(3)
–
(2)
(2)
(7)
(1)
(29)
Total held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 697
$ (3)
$ 148
$ (41)
$ 845
$ (44)
Available-for-sale
U.S. Treasury and agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities
Residential
$
22
$ (1)
$
–
$
–
$
22
$
(1)
Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-agency (a)
2,689
Prime (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-prime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial non-agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-backed securities
Collateralized debt obligations/Collaterized loan obligations . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of state and political subdivisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of foreign governments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Perpetual preferred securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
102
47
21
14
497
73
6
156
78
1
(3)
(6)
(4)
(2)
(2)
(14)
–
–
(1)
(19)
–
676
649
685
1
9
116
879
–
580
162
2
(1)
3,365
(4)
(107)
(250)
–
(3)
(15)
(22)
–
(173)
(67)
(1)
751
732
22
23
613
952
6
736
240
3
(113)
(254)
(2)
(5)
(29)
(22)
–
(174)
(86)
(1)
Total available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,706
$(52)
$3,759
$(639)
$7,465
$(691)
(a) The Company has $367 million of unrealized losses on residential non-agency mortgage-backed securities. Credit-related other-than-temporary impairment on these securities may occur if
there is further deterioration in underlying collateral pool performance. Borrower defaults may increase if current economic conditions persist or worsen. Additionally, further deterioration in
home prices may increase the severity of projected losses.
(b) Prime securities are those designated as such by the issuer or those with underlying asset characteristics and/or credit enhancements consistent with securities designated as prime.
The Company does not consider these unrealized losses
to be credit-related. These unrealized losses primarily relate to
changes in interest rates and market spreads subsequent to
purchase. A substantial portion of securities that have
unrealized losses are either corporate debt or mortgage-
backed securities issued with high investment grade credit
ratings. In general, the issuers of the investment
securities are contractually prohibited from prepayment at less
than par, and the Company did not pay significant purchase
premiums for these securities. At December 31, 2011, the
Company had no plans to sell securities with unrealized
losses, and believes it is more likely than not it would not be
required to sell such securities before recovery of their
amortized cost.
U.S. BANCORP
85
N O T E 6 Loans and Allowance for Credit Losses
The composition of the loan portfolio at December 31, disaggregated by class and underlying specific portfolio type, was as
follows:
(Dollars in Millions)
Commercial
2011
2010
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 50,734
5,914
$ 42,272
6,126
Total commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
56,648
48,398
Commercial real estate
Commercial mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home equity loans, first liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail
Retail leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home equity and second mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revolving credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Installment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Automobile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Student . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29,664
6,187
35,851
28,669
8,413
37,082
17,360
5,118
18,131
3,344
5,348
11,508
4,658
48,107
27,254
7,441
34,695
24,315
6,417
30,732
16,803
4,569
18,940
3,472
5,459
10,897
5,054
48,391
Total loans, excluding covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
195,048
14,787
179,019
18,042
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$209,835
$197,061
The Company had loans of $67.0 billion at December 31,
2011, and $62.8 billion at December 31, 2010, pledged at the
Federal Home Loan Bank (“FHLB”), and loans of $47.2
billion at December 31, 2011, and $44.6 billion at
December 31, 2010, pledged at the Federal Reserve Bank.
The Company primarily lends to borrowers in the states
in which it has Consumer and Small Business Banking offices.
Collateral for commercial loans may include marketable
securities, accounts receivable, inventory and equipment. For
details of the Company’s commercial portfolio by industry
group and geography as of December 31, 2011 and 2010, 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,
2011 and 2010, see Table 8 included in Management’s
Discussion and Analysis which is incorporated by reference
into these Notes to Consolidated Financial Statements. Such
loans are collateralized by the related property.
Originated loans are reported at the principal amount
outstanding, net of unearned interest and deferred fees and
costs. Net unearned interest and deferred fees and costs
amounted to $1.1 billion at December 31, 2011, and
$1.3 billion at December 31, 2010. All purchased loans and
related indemnification assets are recorded at fair value at the
date of purchase. The Company evaluates purchased loans for
impairment at the date of purchase in accordance with
applicable authoritative accounting guidance. Purchased loans
with evidence of credit deterioration since origination for
which it is probable that all contractually required payments
will not be collected are considered “purchased impaired
loans”. All other purchased loans are considered “purchased
nonimpaired loans”.
On the acquisition date, the estimate of the contractually
required payments receivable for all purchased impaired loans
acquired in the FCB transaction were $502 million, the cash
flows expected to be collected were $338 million including
interest, and the estimated fair values of the loans were $238
million. These amounts were determined based upon the
estimated remaining life of the underlying loans, which
includes the effects of estimated prepayments. For the
purchased nonimpaired loans acquired in the FCB transaction,
the estimate as of the acquisition date of the contractually
required payments receivable were $1.2 billion, the
contractual cash flows not expected to be collected were
$184 million, and the estimated fair value of the loans was
$828 million.
86
U.S. BANCORP
Changes in the accretable balance for all purchased impaired loans, including those acquired in the FCB transaction, for the years
ended December 31, were as follows:
(Dollars in Millions)
2011
2010
2009
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassifications (to)/from nonaccretable difference (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,890
100
(451)
(67)
184
(37)
$2,845
–
(421)
(27)
536
(43)
$2,719
356
(358)
(56)
384
(200)
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,619
$2,890
$2,845
(a) Primarily relates to changes in expected credit performance and changes in variable rates.
Allowance for Credit Losses The allowance for credit losses reserves for probable and estimable losses incurred in the
Company’s loan and lease portfolio and includes certain amounts that do not represent loss exposure to the Company because
those losses are recoverable under loss sharing agreements with the FDIC.
Activity in the allowance for credit losses by portfolio class was as follows:
(Dollars in Millions)
Balance at December 31, 2009 . . . . . . . . . . .
Add
Commercial
Commercial
Real Estate
Residential
Mortgages
Credit
Card
Other
Retail
Total Loans,
Excluding
Covered Loans
Covered
Loans
Total
Loans
$1,208
$1,001
$672
$1,495
$ 871
$5,247
$ 17
$5,264
Provision for credit losses . . . . . . . . . . . . . . . . . . . .
723
1,135
694
1,100
681
4,333
23
4,356
Deduct
Loans charged off . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less recoveries of loans charged off . . . . . . . . .
Net loans charged off . . . . . . . . . . . . . . . . . . . . . .
Net change for credit losses to be reimbursed
by the FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
918
(91)
827
–
871
(26)
845
–
554
(8)
546
1,270
(70)
863
(118)
1,200
745
4,476
(313)
4,163
–
–
–
–
20
(2)
18
92
4,496
(315)
4,181
92
Balance at December 31, 2010 . . . . . . . . . . .
$1,104
$1,291
$820
$1,395
$ 807
$5,417
$114
$5,531
Add
Provision for credit losses . . . . . . . . . . . . . . . . . . . .
312
Deduct
Loans charged off . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less recoveries of loans charged off . . . . . . . . .
Net loans charged off . . . . . . . . . . . . . . . . . . . . . .
Net change for credit losses to be reimbursed
516
(110)
406
by the FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
361
543
(45)
498
–
596
431
628
2,328
15
2,343
502
(13)
489
922
(88)
834
733
(129)
604
3,216
(385)
2,831
13
(1)
12
3,229
(386)
2,843
–
–
–
–
(17)
(17)
Balance at December 31, 2011 . . . . . . . . . . .
$1,010
$1,154
$927
$ 992
$ 831
$4,914
$100
$5,014
U.S. BANCORP
87
Additional detail of the allowance for credit losses by portfolio class was as follows:
(Dollars in Millions)
Allowance balance at December 31, 2011
related to
Loans individually evaluated for impairment (a) . .
TDRs collectively evaluated for impairment . . . . . .
Other loans collectively evaluated for
Commercial
Commercial
Real Estate
Residential
Mortgages
Credit
Card
Other
Retail
Total Loans,
Excluding
Covered Loans
Covered
Loans
Total
Loans
$
$
16
40
61
33
$
1 $
– $
490
219
–
57
$
78 $
839
2 $
–
80
839
impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
954
1,057
436
773
774
3,994
Loans acquired with deteriorated credit
quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
3
–
–
–
3
22
76
4,016
79
Total allowance for credit losses . . . . . . . . . . . . . .
$ 1,010
$ 1,154
$
927 $
992 $
831
$
4,914 $
100 $
5,014
Allowance balance at December 31, 2010
related to
Loans individually evaluated for impairment (a) . .
TDRs collectively evaluated for impairment . . . . . .
Other loans collectively evaluated for
$
$
38
–
55
–
$
– $
– $
320
223
–
30
$
93 $
573
– $
–
93
573
impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,066
1,235
500
1,172
777
4,750
Loans acquired with deteriorated credit
quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
1
–
–
–
1
28
86
4,778
87
Total allowance for credit losses . . . . . . . . . . . . . .
$ 1,104
$ 1,291
$
820 $ 1,395 $
807
$
5,417 $
114 $
5,531
(a) Represents the allowance for credit losses related to loans greater than $5 million classified as nonperforming or TDRs.
Additional detail of loan balances by portfolio class was as follows:
(Dollars in Millions)
December 31, 2011
Loans individually evaluated for impairment (a) . . .
TDRs collectively evaluated for impairment . . . . . . .
Other loans collectively evaluated for
Commercial
Commercial
Real Estate
Residential
Mortgages
Credit
Card
Total Loans,
Excluding
Covered Loans
Other
Retail
Covered
Loans(b)
Total
Loans
$
222
277
$
812
331
$
6 $
– $
3,430
584
–
148
$
1,040 $
4,770
204 $
113
1,244
4,883
impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans acquired with deteriorated credit quality . . .
56,138
11
34,574
134
33,642
4
16,776
–
47,959
–
189,089
149
8,616
5,854
197,705
6,003
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$56,648
$35,851
$37,082 $17,360 $48,107
$195,048 $14,787 $209,835
December 31, 2010
Loans individually evaluated for impairment (a) . . .
TDRs collectively evaluated for impairment . . . . . . .
Other loans collectively evaluated for
$
295
–
$
801
–
$
– $
– $
1,957
452
–
114
$
1,096 $
2,523
– $
–
1,096
2,523
impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans acquired with deteriorated credit quality . . .
48,103
–
33,834
60
28,775
–
16,351
–
48,277
–
175,340
60
11,899
6,143
187,239
6,203
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$48,398
$34,695
$30,732 $16,803 $48,391
$179,019 $18,042 $197,061
(a) Represents loans greater than $5 million classified as nonperforming or TDRs.
(b) Includes expected reimbursements from the FDIC under loss sharing agreements.
Credit Quality The quality of the Company’s loan portfolios
is assessed as a function of net credit losses, levels of
nonperforming assets and delinquencies, and credit quality
ratings as defined by the Company. These credit quality
ratings are an important part of the Company’s overall credit
risk management process and evaluation of its allowance for
credit losses.
88
U.S. BANCORP
The following table provides a summary of loans by portfolio class, including the delinquency status of those that continue to
accrue interest, and those that are nonperforming:
(Dollars in Millions)
December 31, 2011
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current
$ 55,991
34,800
35,664
16,662
47,516
Total loans, excluding covered loans . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
190,633
12,589
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$203,222
December 31, 2010
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 47,412
32,986
29,140
15,993
47,706
Total loans, excluding covered loans . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
173,237
14,951
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$188,188
Accruing
30-89 Days
Past Due
90 Days or
More Past Due
Nonperforming
Total
$ 300
138
404
238
340
1,420
362
$1,782
$ 325
415
456
269
404
1,869
757
$2,626
$
45
14
364
236
184
843
910
$ 312
899
650
224
67
2,152
926
$ 56,648
35,851
37,082
17,360
48,107
195,048
14,787
$1,753
$3,078
$209,835
$
64
1
500
313
216
1,094
1,090
$2,184
$ 597
1,293
636
228
65
2,819
1,244
$ 48,398
34,695
30,732
16,803
48,391
179,019
18,042
$4,063
$197,061
(a) At December 31, 2011, $545 million of loans 30 – 89 days past due and $2.6 billion of loans 90 days or more past due 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, were classified as current, compared with $439
million and $2.6 billion at December 31, 2010, respectively.
Total 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
nonperforming assets as of December 31, 2011 and 2010, see
Table 16 included in Management’s Discussion and Analysis
which is incorporated by reference into these Notes to
Consolidated Financial Statements.
U.S. BANCORP
89
The following table provides a summary of loans by portfolio class and the Company’s internal credit quality rating:
(Dollars in Millions)
December 31, 2011
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pass
$ 54,003
30,733
35,814
16,910
47,665
Total loans, excluding covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
185,125
13,966
Special
Mention
$1,047
793
19
–
24
1,883
187
Criticized
Classified (a)
$ 1,598
4,325
1,249
450
418
8,040
634
Total
Criticized
$ 2,645
5,118
1,268
450
442
9,923
821
Total
$ 56,648
35,851
37,082
17,360
48,107
195,048
14,787
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$199,091
$2,070
$ 8,674
$10,744
$209,835
Total outstanding commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$410,457
$3,418
$ 9,690
$13,108
$423,565
December 31, 2010
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 44,595
28,155
29,355
16,262
47,906
Total loans, excluding covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
166,273
17,073
$1,545
1,540
29
–
70
3,184
283
$ 2,258
5,000
1,348
541
415
9,562
686
$ 3,803
6,540
1,377
541
485
12,746
969
$ 48,398
34,695
30,732
16,803
48,391
179,019
18,042
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$183,346
$3,467
$10,248
$13,715
$197,061
Total outstanding commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$370,031
$4,923
$11,576
$16,499
$386,530
(a) Classified rating on consumer loans primarily based on delinquency status.
(b) At December 31, 2011, $2.6 billion of GNMA loans 90 days or more past due and $2.0 billion of restructured GNMA loans whose repayments are insured by the Federal Housing
Administration or guaranteed by the Department of Veterans Affairs were classified with a pass rating, compared with $2.6 billion and $1.1 billion at December 31, 2010, respectively.
For all loan classes, a loan is considered to be impaired when, based on current events or information, it is probable the
Company will be unable to collect all amounts due per the contractual terms of the loan agreement. A summary of impaired
loans, which include all nonaccrual and TDR loans, by portfolio class was as follows:
(Dollars in Millions)
December 31, 2011
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total impaired loans, excluding GNMA and covered loans . . . . . . . . . . . . . . . . . . .
Loans purchased from GNMA mortgage pools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Period-end
Recorded
Investment (a)
$ 657
1,436
2,652
584
188
5,517
1,265
1,170
Unpaid
Principal
Balance
$ 1,437
2,503
3,193
584
197
7,914
1,265
1,642
Valuation
Allowance
$
62
124
482
219
57
944
18
43
Commitments
to Lend
Additional
Funds
$ 68
25
2
–
–
95
–
49
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7,952
$10,821
$1,005
$144
December 31, 2010
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 596
1,308
2,440
452
152
$4,948
$ 1,631
2,659
2,877
452
189
$ 7,808
$
59
118
334
218
32
$ 761
$ 80
17
–
–
–
$ 97
(a) Substantially all loans classified as impaired at December 31, 2011 and 2010, had an associated allowance for credit losses. The total amount of interest income recognized during 2011 on
loans classified as impaired at December 31, 2011, excluding those acquired with deteriorated credit quality, was $358 million, compared to what would have been recognized at the original
contractual terms of the loans of $523 million.
90
U.S. BANCORP
Additional information on impaired loans for the years ended December 31 follows:
(Dollars in Millions)
Average
Recorded
Investment
Interest
Income
Recognized
2011
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total impaired loans, excluding GNMA and covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans purchased from GNMA mortgage pools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 534
1,537
2,557
485
164
5,277
710
780
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6,767
2010
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 693
1,601
2,297
418
150
$ 12
18
100
15
5
150
25
11
$186
$
8
2
72
11
6
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,159
$ 99
Troubled Debt Restructurings In certain circumstances, the Company may modify the terms of a loan to maximize the
collection of amounts due when a borrower is experiencing financial difficulties or is expected to experience difficulties in the
near-term. The following table provides a summary of loans modified as TDRs for the year ended December 31, 2011, by
portfolio class:
(Dollars in Millions)
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans, excluding GNMA and covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans purchased from GNMA mortgage pools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number
of Loans
5,285
506
3,611
55,951
4,028
69,381
9,569
283
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
79,233
Pre-Modification
Outstanding
Loan
Balance
Post-Modification
Outstanding
Loan Balance
$ 456
1,078
708
322
73
2,637
1,277
604
$4,518
$ 427
1,060
704(a)
321
72(b)
2,584
1,356(c)(d)
575
$4,515
(a) Residential mortgage and home equity and second mortgage TDRs include trial period arrangements offered to customers during the period and the post-modification balances for these loans
reflect the current outstanding balance until a permanent modification is made. At December 31, 2011, 451 loans with outstanding balances of $75 million were in a trial period and have an
estimated post-modification balance of $88 million assuming permanent modification occurs at the end of the trial period.
(b) At December 31, 2011, 53 home equity and second mortgage loans with outstanding balances of $3 million were in a trial period and have an estimated post-modification balance of $5 million
assuming permanent modification occurs at the end of the trial period.
(c) At December 31, 2011, 1,591 loans with outstanding balances of $207 million were in a trial period and have an estimated post-modification balance of $232 million assuming permanent
modification occurs at the end of the trial period.
(d) Post-modification balances typically include capitalization of unpaid accrued interest and/or fees under the various modification programs.
U.S. BANCORP
91
The following table provides a summary of TDR loans that defaulted (fully or partially charged-off or became 90 days or more
past due) during 2011 that were modified as TDRs within 12 months previous to default:
(Dollars in Millions)
Number
of Loans
Amount
Defaulted
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans, excluding GNMA and covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans purchased from GNMA mortgage pools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
665
64
623
8,046
529
9,927
857
11
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,795
$ 26
67
127
43
8
271
124
26
$421
Covered assets represent loans and other assets acquired from the FDIC, subject to loss sharing agreements, and include expected
reimbursements from the FDIC. The carrying amount of the covered assets at December 31, consisted of purchased impaired
loans, purchased nonimpaired loans, and other assets as shown in the following table:
(Dollars in Millions)
2011
Purchased
Impaired
Loans
Purchased
Nonimpaired
Loans
Commercial loans . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate loans . . . . . . . . . . . . . .
Residential mortgage loans . . . . . . . . . . . . . . . .
Credit card loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
Losses reimbursable by the FDIC . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreclosed real estate . . . . . . . . . . . . . . . . . . . . . .
$
68
1,956
3,830
–
–
–
5,854
–
$ 137
4,037
1,360
6
867
–
6,407
–
$
Other
Assets
–
–
–
–
–
2,526
2,526
274
$
Total
205
5,993
5,190
6
867
2,526
14,787
274
2010
Purchased
Impaired
Loans
Purchased
Nonimpaired
Loans
$
70
2,254
3,819
–
–
–
6,143
–
$ 260
5,952
1,620
5
925
–
8,762
–
$
Other
Assets
–
–
–
–
–
3,137
3,137
453
$
Total
330
8,206
5,439
5
925
3,137
18,042
453
Total covered assets . . . . . . . . . . . . . . . . . . . .
$5,854
$6,407
$2,800
$15,061
$6,143
$8,762
$3,590
$18,495
At December 31, 2011, $.2 billion of the purchased
The Company has an equity interest in a joint venture
impaired loans included in covered loans were classified as
nonperforming assets, compared with $.5 billion at
December 31, 2010, because the expected cash flows are
primarily based on the liquidation of underlying collateral and
the timing and amount of the cash flows could not be
reasonably estimated. Interest income is recognized on other
purchased impaired loans through accretion of the difference
between the carrying amount of those loans and their
expected cash flows. The initial determination of the fair value
of the purchased loans includes the impact of expected credit
losses and, therefore, no allowance for credit losses is
recorded at the purchase date. To the extent credit
deterioration occurs after the date of acquisition, the
Company records an allowance for credit losses.
that is accounted for utilizing the equity method. The
principal activities of this entity are to lend to entities that
develop land, and construct and sell residential homes. The
Company provides a warehousing line to this joint venture.
Warehousing advances to this joint venture are repaid when
the sale of loans is completed or the real estate is permanently
refinanced by others. At December 31, 2011 and 2010, the
Company had $716 million and $825 million, respectively, of
outstanding advances to this joint venture. These advances are
included in commercial real estate loans.
Net gains on the sale of loans of $546 million, $574
million and $710 million for the years ended December 31,
2011, 2010 and 2009, respectively, were included in
noninterest income, primarily in mortgage banking revenue.
N O T E 7 Leases
The components of the net investment in sales-type and direct financing leases at December 31 were as follows:
(Dollars in Millions)
2011
2010
Aggregate future minimum lease payments to be received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,882
1,079
Unguaranteed residual values accruing to the lessor’s benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,332)
Unearned income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
181
Initial direct costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,437
1,191
(1,402)
189
Total net investment in sales-type and direct financing leases (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,810
$10,415
(a) The accumulated allowance for uncollectible minimum lease payments was $91 million and $118 million at December 31, 2011 and 2010, respectively.
92
U.S. BANCORP
The minimum future lease payments to be received from sales-type and direct financing leases were as follows at December 31,
2011:
(Dollars in Millions)
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,586
2,581
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,751
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,288
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
378
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
298
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
N O T E 8 Accounting for Transfers and Servicing of Financial Assets and Variable Interest Entities
The Company sells financial assets in the normal course of
business. The majority of the Company’s financial asset sales
are residential mortgage loan sales primarily to government-
sponsored enterprises through established programs, the sale
or syndication of tax-advantaged investments, commercial
loan sales through participation agreements, and other
individual or portfolio loan and securities sales. In accordance
with the accounting guidance for asset transfers, the Company
considers any ongoing involvement with transferred assets in
determining whether the assets can be derecognized from the
balance sheet. For loans sold under participation agreements,
the Company also considers the terms of the loan
participation agreement and whether they meet the definition
of a participating interest and thus qualify for derecognition.
With the exception of servicing and certain performance-
based guarantees, the Company’s continuing involvement
with financial assets sold is minimal and generally limited to
market customary representation and warranty clauses. The
guarantees provided to certain third-parties in connection
with the sale or syndication of certain assets, primarily loan
portfolios and tax-advantaged investments, are further
discussed in Note 22. When the Company sells financial
assets, it may retain servicing rights and/or other interests in
the transferred financial assets. The gain or loss on sale
depends on the previous carrying amount of the transferred
financial assets and the consideration received and any
liabilities incurred in exchange for the transferred assets. Upon
transfer, any servicing assets and other interests that continue
to be held by the Company are initially recognized at fair
value. For further information on MSRs, refer to Note 10. On
a limited basis, the Company may acquire and package high-
grade corporate bonds for select corporate customers, in
which the Company generally has no continuing involvement
with these transactions. Additionally, the Company also is an
authorized Ginnie Mae issuer and issues Ginnie Mae securities
on a regular basis. The Company has no other asset
securitizations or similar asset-backed financing arrangements
that are off-balance sheet.
The Company is involved in various entities that are
considered to be VIEs. The Company’s investments in VIEs
primarily represent private investment funds or partnerships
that make equity investments, provide debt financing or
support community-based investments in affordable housing
development entities that provide capital for communities
located in low-income districts and for historic rehabilitation
projects that may enable the Company to ensure regulatory
compliance with the Community Reinvestment Act. In
addition, the Company sponsors entities to which it transfers
tax-advantaged investments. The Company’s investments in
these entities are designed to generate a return primarily
through the realization of federal and state income tax credits
over specified time periods. The Company realized federal and
state income tax credits related to these investments of
$756 million, $713 million and $685 million for the years
ended December 31, 2011, 2010 and 2009, respectively. The
Company amortizes its investments in these entities as the tax
credits are realized. Tax credit amortization expense is
recorded in tax expense for investments meeting certain
characteristics, and in other noninterest expense for other
investments. Amortization expense recorded in tax expense
was $278 million, $228 million and $265 million, and in
other noninterest expense was $528 million, $546 million and
$436 million for the years ended December 31, 2011, 2010
and 2009, respectively.
At December 31, 2011, approximately $5.6 billion of the
Company’s assets and $4.0 billion of its liabilities included on
the consolidated balance sheet were related to community
development and tax-advantaged investment VIEs, compared
with $3.8 billion and $2.6 billion, respectively, at
December 31, 2010. The majority of the assets of these
consolidated VIEs are reported in other assets, and the
liabilities are reported in long-term debt. The assets of a
particular VIE are the primary source of funds to settle its
obligations. The creditors of the VIEs do not have recourse to
the general credit of the Company. The Company’s exposure
to the consolidated VIEs is generally limited to the carrying
value of its variable interests plus any related tax credits
previously recognized or sold to others.
In addition, the Company sponsors a conduit to which it
previously transferred high-grade investment securities. The
Company consolidates the conduit because of its ability to
manage the activities of the conduit. At December 31, 2011,
U.S. BANCORP
93
$202 million of the held-to-maturity investment securities on
the Company’s consolidated balance sheet related to the
conduit, compared with $400 million at December 31, 2010.
The Company also sponsors a municipal bond securities
tender option bond program. The Company controls the
activities of the program’s entities, is entitled to the residual
returns and provides credit, liquidity and remarketing
arrangements to the program. As a result, the Company has
consolidated the program’s entities. At December 31, 2011,
$5.4 billion of available-for-sale securities and $5.3 billion of
short-term borrowings on the consolidated balance sheet were
related to the tender option bond program, compared with
$5.3 billion of available-for-sale securities and $5.7 billion of
short-term borrowings at December 31, 2010.
The Company is not required to consolidate VIEs in
which it has concluded it does not have a controlling financial
interest, and thus is not the primary beneficiary. In such cases,
the Company does not have both the power to direct the
entities’ most significant activities and the obligation to
absorb losses or right to receive benefits that could potentially
be significant to the VIEs. The Company’s investments in
unconsolidated VIEs ranged from less than $1 million to
$37 million, with an aggregate amount of approximately
$1.8 billion at December 31, 2011, and from less than
$1 million to $41 million, with an aggregate amount of
N O T E 9 Premises and Equipment
approximately $2.0 billion at December 31, 2010. The
Company’s investments in these unconsolidated VIEs
generally are carried in other assets on the consolidated
balance sheet. While the Company believes potential losses
from these investments are remote, the Company’s maximum
exposure to loss from these unconsolidated VIEs was
approximately $4.8 billion at December 31, 2011, compared
with $5.0 billion at December 31, 2010. The maximum
exposure to loss was primarily related to community
development tax-advantaged investments and included
$1.8 billion at December 31, 2011 and $1.9 billion at
December 31, 2010 recorded on the Company’s consolidated
balance sheet and $3.0 billion at December 31, 2011 and
2010 of previously recorded tax credits which remain subject
to recapture by taxing authorities based on compliance
features required to be met at the project level. The remaining
amounts related to investments in private investment funds
and partnerships for which the maximum exposure to loss
included amounts recorded on the consolidated balance sheet
and any unfunded commitments. The maximum exposure was
determined by assuming a scenario where the separate
investments within the individual private funds were to
become worthless, and the community-based business and
housing projects and related tax credits completely failed and
did not meet certain government compliance requirements.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
$ 525
3,144
2,449
95
44
6,257
(3,600)
$ 516
3,073
2,791
88
50
6,518
(4,031)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,657
$ 2,487
N O T E 1 0 Mortgage Servicing Rights
The Company serviced $191.1 billion of residential
mortgage loans for others at December 31, 2011, and
$173.9 billion at December 31, 2010. The net impact
included in mortgage banking revenue of fair value changes
of MSRs and derivatives used to economically hedge MSRs
were net gains of $183 million, $139 million and $147
million for the years ended December 31, 2011, 2010 and
2009, respectively. Loan servicing fees, not including
valuation changes, included in mortgage banking revenue,
were $651 million, $600 million and $512 million for the
years ended December 31, 2011, 2010 and 2009,
respectively.
94
U.S. BANCORP
Changes in fair value of capitalized MSRs for the years ended December 31, are summarized as follows:
2011
(Dollars in Millions)
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rights purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rights capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in fair value of MSRs
$1,837
35
619
2010
2009
$1,749
65
639
$1,194
101
848
Due to change in valuation assumptions (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other changes in fair value (b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(586)
(386)
(249)
(367)
(15)
(379)
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,519
$1,837
$1,749
(a) Principally reflects changes in prepayment speeds, and to a lessor extent, changes in discount rates and escrow earnings assumptions, primarily arising from interest rate changes.
(b) Primarily represents changes due to collection/realization of expected cash flows over time (decay).
The estimated sensitivity to changes in interest rates of the fair value of the MSRs portfolio and the related derivative instruments
as of December 31 follows:
(Dollars in Millions)
Down
50 bps
Net fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$21
2011
Down
25 bps
$6
Up
25 bps
$–
Up
50 bps
$6
Down
50 bps
$6
2010
Down
25 bps
$(5)
Up
25 bps
$5
Up
50 bps
$1
The fair value of MSRs and their sensitivity to changes in
interest rates is influenced by the mix of the servicing portfolio
and characteristics of each segment of the portfolio. The
Company's servicing portfolio consists of the distinct
portfolios of government-insured mortgages, conventional
mortgages and Mortgage Revenue Bond Programs ("MRBP").
The servicing portfolios are predominantly comprised of
fixed-rate agency loans with limited adjustable-rate or jumbo
mortgage loans. The MRBP division specializes in servicing
loans made under state and local housing authority programs.
These programs provide mortgages to low-income and
moderate-income borrowers and are generally government-
insured programs with a favorable rate subsidy, down
payment and/or closing cost assistance.
A summary of the Company's MSRs and related characteristics by portfolio as of December 31 follows:
2011
2010
(Dollars in Millions)
MRBP Government Conventional (b)
Total
MRBP Government Conventional (b)
Total
Servicing portfolio . . . . . . . . . . . . . . . . . .
Fair market value . . . . . . . . . . . . . . . . . . .
Value (bps) (a) . . . . . . . . . . . . . . . . . . . . . .
Weighted-average servicing
fees (bps) . . . . . . . . . . . . . . . . . . . . . . . .
Multiple (value/servicing fees) . . . . . .
Weighted-average note rate . . . . . . . .
Age (in years) . . . . . . . . . . . . . . . . . . . . . . .
Expected prepayment (constant
prepayment rate) . . . . . . . . . . . . . . . .
Expected life (in years) . . . . . . . . . . . . .
Discount rate . . . . . . . . . . . . . . . . . . . . . . .
$13,357
155
$
116
$32,567
290
$
89
$145,158
1,074
$
74
$191,082
1,519
$
79
$12,646
166
$
131
$28,880
342
$
118
$132,393
1,329
$
100
$173,919
1,837
$
106
40
2.90
5.50%
4.2
12.9%
6.4
12.1%
36
2.47
5.08%
2.5
21.1%
4.0
11.3%
29
2.55
4.97%
2.8
22.1%
3.8
10.0%
31
2.55
5.03%
2.8
21.3%
4.0
10.4%
40
3.28
5.75%
4.1
12.3%
6.7
11.9%
38
3.11
5.35%
2.2
17.2%
5.1
11.4%
30
3.33
5.27%
2.7
16.2%
5.3
10.3%
32
3.31
5.32%
2.7
16.1%
5.4
10.6%
(a) Value is calculated as fair market value divided by the servicing portfolio
(b) Represents loans sold to government sponsored enterprises.
N O T E 1 1 Intangible Assets
Intangible assets consisted of the following:
At December 31 (Dollars in Millions)
Estimated
Life (a)
Amortization
Method (b)
Balance
2011
2010
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merchant processing contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposit benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trust relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other identified intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10 years/8 years
18 years/5 years
10 years/6 years
9 years/5 years
(c)
SL/AC
SL/AC
(c)
SL/AC
SL/AC
$ 8,927
348
232
1,519
166
471
$ 8,954
421
283
1,837
200
472
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,663
$12,167
(a) Estimated life represents the amortization period for assets subject to the straight line method and the weighted average or life of the underlying cash flows 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.
U.S. BANCORP
95
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
$ 90
81
35
93
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$299
2010
$102
102
49
114
$367
2009
$117
103
62
105
$387
The estimated amortization expense for the next five years is as follows:
(Dollars in Millions)
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$275
221
168
132
102
The following table reflects the changes in the carrying value of goodwill for the years ended December 31, 2011 and 2010:
(Dollars in Millions)
Balance at December 31, 2009 . . .
Goodwill acquired . . . . . . . . . . . . .
Disposal . . . . . . . . . . . . . . . . . . . . . . .
Other (a) . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2010 . . .
Other (a) . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2011 . . .
Wholesale Banking and
Commercial Real Estate
Consumer and Small
Business Banking
Wealth Management and
Securities Services
Payment
Services
Treasury and
Corporate Support
Consolidated
Company
$1,605
–
–
–
$1,605
–
$1,605
$3,526
9
–
–
$3,535
(21)
$3,514
$1,515
5
(57)
$2,365
–
–
–
(14)
$1,463
–
$2,351
(6)
$1,463
$2,345
$–
–
–
–
$–
–
$–
$9,011
14
(57)
(14)
$8,954
(27)
$8,927
(a) Other changes in goodwill include a reclassification from goodwill to covered loans related to an FDIC-assisted acquisition for Consumer and Small Business Banking and the effect of foreign
exchange translation for Payment Services.
N O T E 1 2 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
2011
2010
2009
Amount
Rate
Amount
Rate
Amount
Rate
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under agreements to repurchase . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,036
6,986
15,973
6,473
.11%
3.35
.12
.26
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$30,468
.89%
Average for the year
Federal funds purchased (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under agreements to repurchase . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
968
7,483
15,204
7,048
Total (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$30,703
22.61%
3.22
.15
.77
1.75%
Maximum month-end balance
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under agreements to repurchase . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,172
9,071
16,768
7,514
$
776
9,261
15,885
6,635
$32,557
$ 2,180
9,211
15,349
6,979
$33,719
$ 6,034
9,261
15,981
8,700
.17%
2.70
.20
.59
.99%
10.09%
2.75
.20
.75
1.65%
.11%
2.82
.17
.48
.98%
8.22%
2.84
.32
.89
1.89%
$ 1,329
8,866
14,608
6,509
$31,312
$ 2,457
8,915
10,924
6,853
$29,149
$ 6,352
9,154
14,608
9,550
(a) Interest and rates are presented on a fully taxable-equivalent basis utilizing a tax rate of 35 percent.
(b) Average federal funds purchased and total short-term borrowings rates include amounts paid by the Company to certain corporate card customers for paying outstanding noninterest-bearing
corporate card balances within certain time frames per specific agreements. These activities reduce the Company’s short-term funding needs, and if they did not occur, the Company would
use other funding alternatives, including the use of federal funds purchased. The amount of this compensation expense paid by the Company and included in federal funds purchased and total
short-term borrowings rates for 2011, 2010 and 2009 was $218 million, $216 million and $199 million, respectively.
96
U.S. BANCORP
N O T E 1 3 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
2011
2010
U.S. Bancorp (Parent Company)
Subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible senior debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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
Floating
Floating
Floating
Fixed
Floating
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Floating
Fixed
Floating
Fixed
Floating
7.500%
3.442%
–%
–%
–%
1.125%-4.200%
.694%
6.300%-6.625%
2026
2016
2035
2036
2037
2012-2021
2012
2039-2067
6.375%
6.300%
4.950%
4.800%
4.375%
3.778%
.681%
.500%-8.250%
.392%-1.204%
5.920%
.191%-.640%
2011
2014
2014
2015
2017
2020
2014
2012-2026
2012-2017
2012
2012-2048
$
199
500
10
10
21
10,530
500
2,691
$
199
–
10
64
21
8,280
500
3,985
132
(22)
14,593
13,037
–
963
1,000
500
1,169
500
414
3,710
4,332
99
1,146
1,500
963
1,000
500
1,348
500
550
4,101
4,332
125
1,157
3,527
17,360
2,424
18,500
$31,953
$31,537
(a) Weighted-average interest rates of medium-term notes, Federal Home Loan Bank advances and bank notes were 2.43 percent, 2.31 percent and 1.01 percent, respectively.
(b) Other includes consolidated community development and tax-advantaged investment VIEs, 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
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 2011, investors elected to put debentures with
a principal amount of $54 million back to the Company. At
December 31, 2011, the weighted average conversion price
per share for all convertible issuances was $38.66.
During 2010, the Company retired $575 million of 5.54
percent fixed-rate junior subordinated debentures issued to a
wholly-owned unconsolidated trust, formed for the purpose of
issuing redeemable Income Trust Securities ("ITS") to third
party investors. During 2011, the same wholly-owned
unconsolidated trust sold the remaining $676 million of junior
subordinated debentures to investors to generate cash
proceeds to purchase the Company's Series A Non-
Cumulative Perpetual Preferred Stock ("Series A Preferred
Stock"). As part of this sale, a consolidated subsidiary of the
Company purchased $176 million of the junior subordinated
debentures, which effectively retired the debt. The Company
classifies the remaining $500 million as subordinated notes in
long-term debt. In addition, during 2011, the Company
elected to redeem $618 million of junior subordinated
debentures issued to four other wholly-owned unconsolidated
trusts that had interest payable at fixed rates ranging from
5.75 percent to 10.20 percent. Refer to Note 14, "Junior
Subordinated Debentures" for further information on the
nature and terms of junior subordinated debentures. There
were no issuances of junior subordinated debentures in 2011
or 2010.
U.S. BANCORP
97
The Company has arrangements with the Federal Home
Loan Bank and Federal Reserve Bank whereby the Company
could have borrowed an additional $56.4 billion and $48.1
billion at December 31, 2011 and 2010, respectively, based on
collateral available.
Maturities of long-term debt outstanding at December 31,
2011, were:
(Dollars in Millions)
Parent
Company
Consolidated
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,672
2,848
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,499
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,747
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,945
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,882
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,046
3,338
4,158
3,041
4,016
10,354
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,593
$31,953
N O T E 1 4 Junior Subordinated Debentures
As of December 31, 2011, the Company sponsored, and
wholly owned 100 percent of the common equity of, five
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 these trusts, which totaled $2.7 billion,
are the sole assets of these trusts. 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 addition, as of December 31, 2011, the Company
sponsored, and wholly owned 100 percent of the common
equity of, USB Capital IX, a wholly-owned unconsolidated
trust, formed for the purpose of issuing redeemable ITS to
third party investors, originally investing the proceeds in
Debentures issued by the Company and entering into stock
purchase contracts to purchase preferred stock in the future.
The Company's obligations under the transaction documents,
taken together, have the effect of providing a full and
unconditional guarantee by the Company, on a subordinated
basis, of the payment obligations of the trust. During 2010,
the Company exchanged depositary shares representing an
ownership interest in the Company's Series A Preferred Stock
to acquire a portion of the ITS issued by USB Capital IX. This
exchange allowed the Company to retire $575 million of the
Debentures and cancel a pro-rata portion of stock purchase
contracts. During 2011, USB Capital IX sold the remaining
$676 million of Debentures to investors to generate cash
proceeds to be used to purchase the Company's Series A
Preferred Stock pursuant to the stock purchase contracts. As
of December 31, 2011, $676 million of the Company's Series
A Preferred Stock is the sole asset of USB Capital IX.
The following table is a summary of the securities issued and, the Debentures held by five of the trusts included in long-term debt,
as of December 31, 2011:
Issuance Trust (Dollars in Millions)
Issuance Date
Securities
Amount
Debentures
Amount
USB Capital XIII . . . . . . . . . .
USB Capital XII . . . . . . . . . . .
USB Capital XI . . . . . . . . . . .
USB Capital X . . . . . . . . . . . .
USB Capital IX . . . . . . . . . . .
USB Capital VIII . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . .
December 2009
February 2007
August 2006
April 2006
March 2006
December 2005
$ 500
535
765
500
675
375
$3,350
$ 501
536
766
501
–
387
$2,691
Rate
Type
Fixed
Fixed
Fixed
Fixed
N/A
Fixed
Rate
6.63
6.30
6.60
6.50
N/A
6.35
Maturity Date
December 2039
February 2067
September 2066
April 2066
N/A
December 2065
Earliest
Redemption Date
December 15, 2014
February 15, 2012
September 15, 2011
April 12, 2011
N/A
December 29, 2010
98
U.S. BANCORP
N O T E 1 5 Shareholders’ Equity
At December 31, 2011 and 2010, 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 shares
of common stock outstanding at December 31, 2011 and
2010, and had 146 million shares reserved for future
issuances, primarily under stock option plans and shares that
may be issued in connection with the Company’s convertible
senior debentures, at December 31, 2011.
The number of shares issued and outstanding and the carrying amount of each outstanding series of the Company’s preferred
stock was as follows:
At December 31
(Dollars in Millions)
Series A . . . . . . . . . .
Series B . . . . . . . . . .
Series D . . . . . . . . . .
Total preferred
stock (a) . . . . .
Shares
Issued and
Outstanding
12,510
40,000
20,000
2011
Liquidation
Preference
$1,251
1,000
500
Discount
$145
–
–
Carrying
Amount
$1,106
1,000
500
Shares
Issued and
Outstanding
5,746
40,000
20,000
2010
Liquidation
Preference
$ 575
1,000
500
Discount
$145
–
–
Carrying
Amount
$ 430
1,000
500
72,510
$2,751
$145
$2,606
65,746
$2,075
$145
$1,930
(a) The par value of all shares issued and outstanding at December 31, 2011 and 2010, was $1.00 per share.
During 2010, the Company issued depositary shares
representing an ownership interest in 5,746 shares of Series A
Preferred Stock to investors, in exchange for their portion of
USB Capital IX Income Trust Securities. During 2011, the
Company issued depositary shares representing an ownership
interest in 6,764 shares of Series A Preferred Stock to USB
Capital IX, thereby settling the stock purchase contract
established between the Company and USB Capital IX as part
of the 2006 issuance of USB Capital IX Income Trust
Securities. The preferred shares were issued to USB Capital IX
for the purchase price specified in the stock forward purchase
contract. The Series A Preferred stock has a liquidation
preference of $100,000 per share, no stated maturity and will
not be subject to any sinking fund or other obligation of the
Company. Dividends, if declared, will accrue and be payable
quarterly, in arrears, at a rate per annum equal to the greater
of three-month LIBOR plus 1.02 percent or 3.50 percent. The
Series A Preferred Stock is redeemable at the Company’s
option, subject to prior approval by the Federal Reserve
Board.
During 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 during 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, on or after specific dates, subject to the
prior approval of the Federal Reserve Board.
During 2011, 2010 and 2009, the Company repurchased
shares of its common stock under various authorizations
approved by its Board of Directors. As of December 31, 2011,
the Company had approximately 29 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)
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
22
1
—
Value
$550
16
4
U.S. BANCORP
99
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, is as follows:
(Dollars in Millions)
Transactions
Pre-tax
Tax-effect
Net-of-tax
Balances
Net-of-Tax
2011
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 (loss) on derivative hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Realized loss on derivative hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification for realized (gains) losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gains (losses) on retirement plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 920
$ (351)
$ 569
$ 360
(25)
(343)
(16)
–
363
(464)
10
130
6
–
(138)
177
(15)
(213)
(10)
–
225
(287)
–
(484)
(49)
(5)
–
(1,022)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 435
$ (166)
$ 269
$(1,200)
2010
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 (loss) on derivative hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Realized loss on derivative hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification for realized (gains) losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gains (losses) on retirement plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 432
$ (163)
$ 269
$ (213)
(66)
(145)
24
–
(28)
(197)
25
56
(10)
–
11
76
(41)
(89)
14
–
(17)
(121)
–
(408)
(39)
(6)
–
(803)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
20
$
(5)
$
15
$(1,469)
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 (loss) on derivative hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Realized loss on derivative hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification for realized (gains) losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gains (losses) on retirement plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,131
$ (810)
$1,321
$ (393)
(402)
516
40
–
492
254
153
(196)
(15)
–
(187)
(97)
(249)
320
25
–
305
157
–
(319)
(53)
(8)
–
(711)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,031
$(1,152)
$1,879
$(1,484)
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, 2011 and 2010, for the
Company and its bank subsidiaries, see Table 22 included in
Management’s Discussion and Analysis, which is incorporated
by reference into these Notes to Consolidated Financial
Statements.
100
U.S. BANCORP
The following table provides the components of the
Company's regulatory capital at December 31:
(Dollars in Millions)
Tier 1 Capital
2011
2010
Common shareholders' equity . . . . . . . . . . . . $ 31,372
2,606
Qualifying preferred stock . . . . . . . . . . . . . . . . .
Qualifying trust preferred securities . . . . . . .
2,675
Noncontrolling interests, less preferred
$ 27,589
1,930
3,949
stock not eligible for Tier 1 capital . . . . . .
687
692
Less intangible assets
Goodwill (net of deferred tax liability) . . .
Other disallowed intangible assets . . . . .
Other (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8,239)
(905)
977
(8,337)
(1,097)
1,221
Total Tier 1 Capital . . . . . . . . . . . . . . . . . . .
29,173
25,947
Tier 2 Capital
Eligible portion of allowance for credit
losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Eligible subordinated debt . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Tier 2 Capital . . . . . . . . . . . . . . . . . . . . .
3,412
3,469
13
6,894
3,125
3,943
18
7,086
Total Risk Based Capital . . . . . . . . . . . . . . . $ 36,067
$ 33,033
Risk-Weighted Assets . . . . . . . . . . . . . . . . . . . . $271,333
$247,619
(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
Corp., a real estate investment trust, for the purpose of issuing
N O T E 1 6 Earnings Per Share
The components of earnings per share were:
Year Ended December 31
(Dollars and Shares in Millions, Except Per Share Data)
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. After January 15, 2012, the rate will be
equal to three-month LIBOR 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.
2011
2010
2009
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity portion of gain on ITS exchange transaction, net of tax (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretion of preferred stock discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deemed dividend on preferred stock redemption (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings allocated to participating stock awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,872
(129)
—
—
—
(22)
$3,317
(89)
118
—
—
(14)
$2,205
(228)
—
(14)
(154)
(6)
Net income applicable to U.S. Bancorp common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,721
$3,332
$1,803
Average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net effect of the exercise and assumed purchase of stock awards and conversion of outstanding
1,914
1,912
1,851
convertible notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9
9
8
Average diluted common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,923
1,921
1,859
Earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2.47
$ 2.46
$ 1.74
$ 1.73
$
$
.97
.97
(a) During 2010, the Company exchanged depositary shares representing an ownership interest in 5,746 shares of Series A Preferred Stock for approximately 46 percent of the outstanding ITS
issued by USB Capital IX to third party investors, retired a pro-rata portion of the related junior subordinated debentures and cancelled a pro-rata portion of the related stock purchase
contracts.
(b) Represents the unaccreted discount remaining on the Company's Series E Fixed Rate Cumulative Perpetual Preferred Stock at the redemption date.
U.S. BANCORP
101
Options and warrants outstanding at December 31,
2011, 2010 and 2009, to purchase 54 million, 56 million and
70 million common shares, respectively, were not included in
the computation of diluted earnings per share for the years
ended December 31, 2011, 2010 and 2009, respectively,
because they were antidilutive. Convertible senior debentures
that could potentially be converted into shares of the
Company's common stock pursuant to specified formulas,
were not included in the computation of dilutive earnings per
share because they were antidilutive.
N O T E 1 7 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 contribution among
various investment alternatives. Total expense for the
Company’s matching contributions was $103 million, $96
million and $78 million in 2011, 2010 and 2009, respectively.
Pension Plans The Company has tax 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. Effective January 1, 2010, the
Company established a new cash balance formula for certain
current and all future eligible employees. Participants receive
annual pay credits based on eligible pay multiplied by a
percentage determined by their age and years of service.
Participants also receive an annual interest credit. Employees
become vested upon completing three years of vesting service.
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 of 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 2011 or 2010, and anticipates no
contributions in 2012. 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 accumulated benefit obligation, the
projected benefit obligation and net pension expense are
substantially consistent with those assumptions used for the
funded qualified plans. In 2012, the Company expects to
contribute $21 million to its non-qualified pension plans
which equals the 2012 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 subsidized retiree health
care benefits by meeting defined 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. Contributions have previously been made to the
plan, and in 2012, the Company anticipates no contributions
to its postretirement welfare plan.
102
U.S. BANCORP
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
2011
2010
2011
2010
Benefit obligation at beginning of measurement period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan participants' contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lump sum settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal subsidy on benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,929
119
169
–
177
(105)
(28)
–
$ 2,496
93
155
–
309
(93)
(31)
–
Benefit obligation at end of measurement period (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,261
$ 2,929
Change In Fair Value Of Plan Assets
Fair value at beginning of measurement period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan participants' contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lump sum settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,305
(90)
21
—
(105)
(28)
$ 2,089
321
19
—
(93)
(31)
Fair value at end of measurement period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,103
$ 2,305
$181
4
9
13
(15)
(25)
–
3
$170
$131
—
1
13
(25)
—
$120
$186
7
11
11
(11)
(25)
–
2
$181
$144
—
1
11
(25)
—
$131
Funded (Unfunded) Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(1,158)
$ (624)
$ (50)
$ (50)
Components Of The Consolidated Balance Sheet
Noncurrent benefit asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current benefit liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent benefit liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
–
(21)
(1,137)
$
6
(24)
(606)
Recognized amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(1,158)
$ (624)
Accumulated Other Comprehensive Income (Loss), Pretax
Net actuarial gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net prior service credit (cost) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net transition asset (obligation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(1,746)
25
–
$(1,398)
35
–
Recognized amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(1,721)
$(1,363)
(a) At December 31, 2011 and 2010, the accumulated benefit obligation for all pension plans was $3.0 billion and $2.7 billion, respectively.
$
–
–
(50)
$ (50)
$ 67
–
–
$ 67
$
–
–
(50)
$ (50)
$ 63
1
(1)
$ 63
The following table provides information for pension plans with benefit obligations in excess of plan assets at December 31:
(Dollars in Millions)
2011
2010
Pension Plans with Projected Benefit Obligations in Excess of Plan Assets
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,261
2,103
Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,986
2,066
$2,895
2,265
2,698
2,265
U.S. BANCORP
103
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:
(Dollars in Millions)
2011
2010
2009
2011
2010
2009
Pension Plans
Postretirement Welfare Plan
Components Of Net Periodic Benefit Cost
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service cost (credit) and transition obligation (asset)
amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial loss (gain) amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 119
169
(207)
(9)
125
$ 93
155
(215)
(12)
64
$ 80
152
(215)
(6)
49
$ 4
9
(5)
–
(6)
$ 7
11
(5)
–
(5)
$ 6
11
(5)
–
(7)
Net periodic benefit cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 197
$ 85
$ 60
$ 2
$ 8
$ 5
Other Changes In Plan Assets And Benefit Obligations
Recognized In Other Comprehensive Income (Loss)
Net actuarial gain (loss) arising during the year . . . . . . . . . . . . .
Net actuarial loss (gain) amortized during the year . . . . . . . . . .
Net prior service credit (cost) arising during the year . . . . . . .
Net prior service cost (credit) and transition obligation
$(474)
125
–
$(203)
64
–
$ 230
49
35
(asset) amortized during the year . . . . . . . . . . . . . . . . . . . . . . . . .
(9)
(12)
(6)
Total recognized in other comprehensive income (loss) . . . . . . . . . .
$(358)
$(151)
$ 308
$10
(6)
–
–
$ 4
$ 6
(5)
–
–
$ 1
$(11)
(7)
–
–
$(18)
Total recognized in net periodic benefit cost and other
comprehensive income (loss) (a) (b) . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(555)
$(236)
$ 248
$ 2
$ (7)
$(23)
(a) The pretax estimated actuarial loss (gain) and prior service cost (credit) for the pension plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit
cost in 2012 are $161 million and $(5) million, respectively.
(b) The pretax estimated actuarial loss (gain) for the postretirement welfare plan that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost in 2012 is
$(7) 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
2011
2010
2011
2010
Discount rate (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.1%
4.1
5.7%
4.0
4.3%
*
4.9%
*
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.0%
12.0
8.0%
14.0
$
8
(8)
$ 10
(9)
(a) The discount rates were developed using a cash flow matching bond model with a modified duration for the qualified pension plans, non-qualified pension plans and postretirement welfare plan
of 14.8, 11.4 and 7.7 years, respectively, for 2011, and of 14.0, 11.0 and 7.7 years, respectively, for 2010.
(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
104
U.S. BANCORP
The following table sets forth weighted average assumptions used to determine net periodic benefit cost for the years ended
December 31:
(Dollars in Millions)
2011
2010
2009
2011
2010
2009
Discount rate (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.7%
8.3
4.0
6.2%
8.5
3.0
6.4%
8.5
3.0
4.9%
3.5
*
5.6%
3.5
*
6.3%
3.5
*
Pension Plans
Postretirement Welfare Plan
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.0%
14.0
8.0%
14.0
7.0%
21.0
$
–
–
$
–
–
$
1
(1)
(a) The discount rates were developed using a cash flow matching bond model with a modified duration for the qualified pension plans, non-qualified pension plans and postretirement welfare plan
of 14.8, 11.4 and 7.7 years, respectively, for 2011, and of 14.0, 11.0 and 7.7 years, respectively, for 2010.
(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 2011
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 2017 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 global equities
diversified among various domestic and international equity
categories is appropriate. The target asset allocation for the
Company’s qualified pension plans at December 31, 2011 is
45 percent passively managed global equities, 25 percent
actively managed global equities, 10 percent domestic mid-
small cap equities, 5 percent emerging markets equities, 5
percent real estate equities, and 10 percent long term debt
securities. The target asset allocation at December 31, 2010
was 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, 2011 and 2010, plan assets of the
qualified pension plans included asset management
arrangements with related parties totaling $95 million and
$512 million, respectively.
Under a contractual agreement with U.S. Bancorp Asset
Management, 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 may
collateralize the loaned securities with either cash or non-cash
securities. Cash collateral held at December 31, 2011 and
2010 totaled $12 million and $232 million, respectively, with
corresponding obligations to return the cash collateral of
$20 million and $240 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 include
investments in equity and U.S. Treasury securities whose fair
values are determined based on quoted prices in active
markets and are classified within Level 1 of the fair value
hierarchy. The qualified pension plans also invest in collective
investment and mutual funds whose fair values are determined
using the net asset value provided by the administrator of the
fund and as a result are classified as Level 2. In addition, the
qualified pension plans invest in long-term debt securities that
are valued using third party pricing services and are classified
as Level 2. The qualified pension plan invests in a money
market mutual fund with cash collateral from its securities
lending arrangement, whose fair value is determined based on
quoted prices in markets that are less active and therefore is
classified as Level 2. Additionally, the qualified pension plan
has investments in limited partnership interests and debt
U.S. BANCORP
105
securities whose fair values are determined by the Company
by analyzing the limited partnerships’ audited financial
statements and by averaging the prices obtained from
independent pricing services, respectively. These securities are
classified as Level 3.
The following table summarizes the plan investment assets measured at fair value at December 31:
Pension Plans
2011
2010
(Dollars in Millions)
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Domestic equity securities . . . . . . . . . . . . . . . . . . . . . . . . .
Domestic mid-small cap equity securities . . . . . . . . .
International equity securities . . . . . . . . . . . . . . . . . . . . . .
Real estate equity securities . . . . . . . . . . . . . . . . . . . . . . .
Collective investment funds
Domestic equity securities . . . . . . . . . . . . . . . . . . . .
Domestic mid-small cap equity securities . . . .
Emerging markets equity securities . . . . . . . . . . .
International equity securities . . . . . . . . . . . . . . . . .
Mutual funds
Money market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt securities . . . . . . . . . . . . . . . . . . . .
Emerging markets equity securities . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$ 16
63
232
159
250
103
–
–
–
–
–
–
–
–
–
36
–
–
–
–
509
53
51
455
6
127
50
–
$ –
7
–
–
–
–
–
–
–
–
–
–
–
6
$
$
30
–
1,174
515
537
51
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
224
–
–
–
$ –
8
–
–
–
–
–
–
–
–
–
–
–
6
Postretirement
Welfare Plan
2011
Level 1
$120
–
–
–
–
–
–
–
–
–
–
–
–
–
2010
Level 1
$131
–
–
–
–
–
–
–
–
–
–
–
–
–
Total (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$823
$1,287
$13
$2,307
$224
$14
$120
$131
(a) Total investment assets of the pension plans exclude obligations to return cash collateral to qualified borrowers of $20 million and $240 million at December 31, 2011 and 2010, respectively,
under security lending arrangements.
The following table summarizes the changes in fair value for all plan investment 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 . . . . . . . . . . . .
Purchases, sales, principal payments, issuances, and settlements . . . . . . . . . . . .
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
Debt
Securities
$ 8
–
(1)
$ 7
Other
$ 6
(9)
9
$ 6
Debt
Securities
$ 7
3
(2)
$ 8
Other
$6
–
–
$6
The following benefit payments are expected to be paid from the retirement plans for the years ended December 31:
(Dollars in Millions)
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017—2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Net of retiree contributions and before Medicare Part D subsidy.
Pension
Plans
$146
153
160
166
173
988
Postretirement
Welfare
Plan (a)
Medicare
Part D
Subsidy
$17
18
19
20
20
93
$2
3
3
3
3
3
106
U.S. BANCORP
N O T E 1 8 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
Stock Option Awards
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. Participants 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. At December 31, 2011, there were 65 million
shares (subject to adjustment for forfeitures) available for
grant under various plans.
The following is a summary of stock options outstanding and exercised under various stock options plans of the Company:
Stock
Options/Shares
Weighted-
Average
Exercise Price
Weighted-Average
Remaining
Contractual Term
Aggregate
Intrinsic Value
(in millions)
Year Ended December 31
2011
Number outstanding at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number outstanding at end of period (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercisable at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010
Number outstanding at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number outstanding at end of period (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercisable at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009
Number outstanding at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
85,622,705
4,063,369
(8,508,107)
(5,354,026)
75,823,941
57,039,334
88,379,469
5,417,631
(5,769,586)
(2,404,809)
85,622,705
57,542,065
82,293,011
14,316,237
(1,085,328)
(7,144,451)
Number outstanding at end of period (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercisable at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
88,379,469
50,538,048
$26.80
28.66
19.49
28.44
$27.60
$29.14
$26.49
23.98
19.38
27.03
$26.80
$28.28
$29.08
12.04
19.98
28.33
$26.49
$27.52
5.2
4.4
5.5
4.4
6.1
4.5
$ (42)
$(120)
$ 15
$ (76)
$(352)
$(253)
(a) Options cancelled include 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
Year Ended December 31
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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
$10.55
2010
$8.36
2009
$3.39
2.5%
2.5%
.47
5.5
2.5%
3.0%
.47
5.5
1.8%
4.2%
.44
5.5
U.S. BANCORP
107
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:
Year Ended December 31 (Dollars in Millions)
Fair value of options vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intrinsic value of options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash received from options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit realized from options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
$ 54
61
165
23
2010
$ 61
35
112
13
2009
$74
3
22
1
To satisfy option exercises, the Company predominantly uses treasury stock.
Additional information regarding stock options outstanding as of December 31, 2011, is as follows:
Outstanding Options
Exercisable Options
Range of Exercise Prices
$11.02 - $15.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$15.01 - $20.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$20.01 - $25.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$25.01 - $30.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$30.01 - $35.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$35.01 - $36.25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
10,225,221
212,080
10,530,634
17,848,881
27,400,486
9,606,639
75,823,941
Restricted Stock and Unit Awards
Weighted-
Average
Remaining
Contractual
Life (Years)
7.1
4.4
4.3
4.8
5.2
5.0
5.2
Weighted-
Average
Exercise
Price
$11.42
19.28
22.68
29.12
31.65
36.07
$27.60
Shares
4,141,927
182,151
6,814,608
13,566,583
22,727,835
9,606,230
57,039,334
A summary of the status of the Company’s restricted shares of stock and unit awards is presented below:
2011
2010
2009
Year Ended December 31
Shares
Nonvested Shares
Outstanding at beginning of
period . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . .
8,811,027
3,136,086
(2,552,979)
(398,839)
Outstanding at end of period . . . .
8,995,295(a)
Weighted-
Average Grant-
Date Fair
Value
$19.74
28.20
20.15
22.20
$22.46
Weighted-
Average Grant-
Date Fair
Value
$16.68
24.05
18.71
20.00
$19.74
Shares
6,788,203
4,398,660
(1,862,228)
(513,608)
8,811,027
Shares
2,420,535
5,435,363
(869,898)
(197,797)
6,788,203
Weighted-
Average
Exercise
Price
$11.43
19.50
22.05
29.32
31.55
36.07
$29.14
Weighted-
Average
Grant-Date
Fair Value
$32.42
12.09
31.84
16.52
$16.68
(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 $72 million, $44 million, and $12 million for 2011, 2010 and 2009, respectively.
Stock-based compensation expense was $118 million, $113 million and $89 million for 2011, 2010 and 2009, respectively. On
an after-tax basis, stock-based compensation was $73 million, $70 million and $55 million for 2011, 2010, and 2009,
respectively. As of December 31, 2011, there was $156 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.
108
U.S. BANCORP
N O T E 1 9
Income Taxes
The components of income tax expense were:
Year Ended December 31 (Dollars in Millions)
2011
2010
2009
Federal
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 907
689
$1,105
(339)
Federal income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,596
State
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
186
59
245
766
200
(31)
169
$ 765
(499)
266
175
(46)
129
Total income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,841
$ 935
$ 395
A reconciliation of expected income tax expense at the federal statutory rate of 35 percent to the Company’s applicable income
tax expense follows:
Year Ended December 31 (Dollars in Millions)
Tax at statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income tax, at statutory rates, net of federal tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax effect of
2011
2010
$2,320
159
$1,470
110
Tax credits, net of related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax-exempt income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(458)
(226)
29
17
(462)
(214)
18
13
2009
$ 921
84
(421)
(202)
(11)
24
Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,841
$ 935
$ 395
The tax effects of fair value adjustments on securities
available-for-sale, derivative instruments in cash flow hedges,
pension and post-retirement plans 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, local and foreign 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 2011, 2010 and 2009 were changes
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. The
Company’s tax returns for the years ended December 31,
2007 and 2008 are under examination by the Internal
Revenue Service, and during 2011, the Internal Revenue
Service began its examination of the Company’s tax returns
for the years ended December 31, 2009 and 2010. 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 position balances are summarized as follows:
Year Ended December 31 (Dollars in Millions)
2011
2010
2009
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions for tax positions taken in prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions for tax positions taken in the current year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exam resolutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Statute expirations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$532
24
2
(70)
(9)
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$479
$440
116
30
—
(54)
$532
$283
31
145
(12)
(7)
$440
U.S. BANCORP
109
The total amount of unrecognized tax positions that, if
recognized, would impact the effective income tax rate as of
December 31, 2011, 2010 and 2009, were $220 million, $253
million and $202 million, respectively. The Company classifies
interest and penalties related to unrecognized tax positions as a
component of income tax expense. At December 31, 2011, the
Company’s uncertain tax position balances included $47 million
in accrued interest. During the years ended December 31, 2011,
2010 and 2009 the Company recorded approximately $(2)
million, $(6) million and $13 million, respectively, in interest on
unrecognized tax positions.
The remainder of the Company’s unrecognized tax
positions relate principally to the timing of deductions for losses
on various securities and debt obligations. The Company
expects the conclusion of examinations and other developments
in 2012 will likely result in a significant decrease in these
uncertain tax positions.
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.
The significant components of the Company’s net deferred tax asset (liability) as of December 31 were:
(Dollars in Millions)
2011
2010
Deferred Tax Assets
Allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and postretirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities available-for-sale and financial instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal, state and foreign net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Partnerships and other investment assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,872
399
281
203
85
26
571
96
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,533
Deferred Tax Liabilities
Leasing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other deferred tax liabilities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,048)
(522)
(517)
(175)
(169)
(176)
Gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,607)
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(51)
$ 2,100
317
113
201
393
52
429
284
3,889
(2,269)
(311)
(407)
(139)
(113)
(176)
(3,415)
(50)
Net Deferred Tax Asset (Liability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(1,125)
$ 424
The Company has established a valuation allowance to
offset deferred tax assets related to 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
$423 million of federal, state and foreign net operating loss
carryforwards which expire at various times through 2023.
Management has determined a valuation reserve is not required
for most of 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.
At December 31, 2011, retained earnings included
approximately $102 million of base year reserves of acquired
thrift institutions, for which no deferred federal income tax
liability has been recognized. These base year reserves would
be recaptured if the Company’s banking subsidiaries cease to
qualify as a bank for federal income tax purposes. The base
year reserves also remain subject to income tax penalty
provisions that, in general, require recapture upon certain
stock redemptions of, and excess distributions to,
stockholders.
110
U.S. BANCORP
N O T E 2 0 Derivative Instruments
The Company recognizes all derivatives in the consolidated
balance sheet at fair value as other assets or liabilities. On the
date the Company enters into a derivative contract, the
derivative is designated as either a hedge of the fair value of a
recognized asset or liability (“fair value hedge”); a hedge of a
forecasted transaction or the variability of cash flows to be
paid related to a recognized asset or liability (“cash flow
hedge”); a hedge of the volatility of an investment in foreign
operations driven by changes in foreign currency exchange
rates (“net investment hedge”); or a designation is not made
as it is a customer-related transaction, an economic hedge for
asset/liability risk management purposes or another stand-
alone derivative created through the Company’s operations
(“free-standing derivative”).
Of the Company’s $54.7 billion of total notional amount
of asset and liability management positions at December 31,
2011, $14.1 billion was designated as a fair value, cash flow
or net investment hedge. When a derivative is designated as a
fair value, cash flow or net investment hedge, the Company
performs an assessment, at inception and, at a minimum,
quarterly thereafter, to determine the effectiveness of the
derivative in offsetting changes in the value or cash flows of
the hedged item(s).
Fair Value Hedges These derivatives are primarily interest
rate swaps that hedge the change in fair value related to
interest rate changes of underlying fixed-rate debt and junior
subordinated debentures. Changes in the fair value of
derivatives designated as fair value hedges, and changes in the
fair value of the hedged items, are recorded in earnings. All
fair value hedges were highly effective for the year ended
December 31, 2011, and the change in fair value attributed to
hedge ineffectiveness was not material.
Cash Flow Hedges These derivatives are interest rate swaps
that are hedges of the forecasted cash flows from the
underlying variable-rate loans and debt. Changes in the fair
value of derivatives designated as cash flow hedges are
recorded in other comprehensive income (loss) until expense
from the cash flows of the hedged items is realized. If a
derivative designated as a cash flow hedge is terminated or
ceases to be highly effective, the gain or loss in other
comprehensive income (loss) is amortized to earnings over the
period the forecasted hedged transactions impact earnings. If a
hedged forecasted transaction is no longer probable, hedge
accounting is ceased and any gain or loss included in other
comprehensive income (loss) is reported in earnings
immediately, unless the forecasted transaction is at least
reasonably possible of occurring, whereby the amounts within
other comprehensive income (loss) remain. At December 31,
2011, the Company had $489 million (net-of-tax) of realized
and unrealized losses on derivatives classified as cash flow
hedges recorded in other comprehensive income (loss),
compared with $414 million (net-of-tax) at December 31,
2010. The estimated amount to be reclassified from other
comprehensive income (loss) into earnings during the next
12 months is a loss of $124 million (net-of-tax). This amount
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, 2011, and the change in fair value
attributed to hedge ineffectiveness was not material.
Net Investment Hedges The Company uses forward
commitments to sell specified amounts of certain foreign
currencies to hedge the volatility of its investment in foreign
operations driven by fluctuations in foreign currency exchange
rates. The ineffectiveness on all net investment hedges was not
material for the year ended December 31, 2011.
Other Derivative Positions The Company enters into free-
standing derivatives to mitigate interest rate risk and for other
risk management purposes. These derivatives include forward
commitments to sell TBAs and other commitments to sell
residential mortgage loans, which are used to economically
hedge the interest rate risk related to residential mortgage
loans held for sale. The Company also enters into
U.S. Treasury futures, options on U.S. Treasury futures
contracts, interest rate swaps and forward commitments to
buy TBAs to economically hedge the change in the fair value
of the Company’s MSRs. The Company also enters into
foreign currency forwards to economically hedge
remeasurement gains and losses the Company recognizes on
foreign currency denominated assets and liabilities. In
addition, the Company acts as a seller and buyer of interest
rate derivatives and foreign exchange contracts for its
customers. To mitigate the market and liquidity risk
associated with these customer derivatives, the Company
enters into similar offsetting positions with broker-dealers.
The Company also has derivative contracts that are created
through its operations, including commitments to originate
mortgage loans held for sale and certain derivative financial
guarantee contracts.
For additional information on the Company’s purpose
for entering into derivative transactions and its overall risk
management strategies, refer to “Management Discussion and
Analysis — Use of Derivatives to Manage Interest Rate and
Other Risks” which is incorporated by reference into these
Notes to Consolidated Financial Statements.
U.S. BANCORP
111
The following table provides information on the fair value of the Company’s derivative positions as of December 31:
(Dollars in Millions)
2011
2010
Asset
Derivatives
Liability
Derivatives
Asset
Derivatives
Liability
Derivatives
Total fair value of derivative positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Netting (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,913
(294)
$1,619
$ 2,554
(1,889)
$ 665
$1,799
(280)
$1,519
$ 2,174
(1,163)
$ 1,011
Note: The fair value of asset and liability derivatives are included in Other assets and Other liabilities on the Consolidated Balance Sheet, respectively.
(a) Represents netting of derivative asset and liability balances, and related collateral, with the same counterparty subject to master netting agreements. Authoritative accounting guidance permits
the netting of derivative receivables and payables when a legally enforceable master netting agreement exists between the Company and a derivative counterparty. A master netting agreement
is an agreement between two counterparties who have multiple derivative contracts with each other that provide for the net settlement of contracts through a single payment, in a single
currency, in the event of default on or termination of any one contract. At December 31, 2011, the amount of cash and money market investments collateral posted by counterparties that was
netted against derivative assets was $88 million and the amount of cash collateral posted by the Company that was netted against derivative liabilities was $1.7 billion. At December 31, 2010,
the amount of cash and money market investments collateral posted by counterparties that was netted against derivative assets was $55 million and the amount of cash collateral posted by
the Company that was netted against derivative liabilities was $936 million.
The following table summarizes the asset and liability management derivative positions of the Company:
Asset Derivatives
Liability Derivatives
Notional
Value
Fair
Value
Weighted-Average
Remaining
Maturity
In Years
Notional
Value
Fair
Value
Weighted-Average
Remaining
Maturity
In Years
(Dollars in Millions)
December 31, 2011
Fair value hedges
Interest rate contracts
Receive fixed/pay floating swaps . . . . . .
$
500
$ 27
Foreign exchange cross-currency
swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
688
17
Cash flow hedges
Interest rate contracts
Pay fixed/receive floating swaps. . . . . . .
Receive fixed/pay floating swaps . . . . . .
Net investment hedges
Foreign exchange forward contracts . . . . .
Other economic hedges
Interest rate contracts
Futures and forwards
–
750
708
–
–
4
Buy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,270
231
150
1
Options
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . .
Written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receive fixed/pay floating swaps . . . . . .
Foreign exchange forward contracts . . . . .
Equity contracts . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit contracts . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2010
Fair value hedges
Interest rate contracts
Receive fixed/pay floating swaps . . . . . .
Foreign exchange cross-currency
swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flow hedges
Interest rate contracts
Pay fixed/receive floating swaps. . . . . . .
Net investment hedges
Foreign exchange forward contracts . . . . .
Other economic hedges
Interest rate contracts
Futures and forwards
Buy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . .
Written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receive fixed/pay floating swaps . . . . . .
Foreign exchange forward contracts . . . . .
Equity contracts . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit contracts . . . . . . . . . . . . . . . . . . . . . . . . . .
112
U.S. BANCORP
1,250
4,421
2,625
261
54
800
1,800
891
–
512
2,879
9,082
1,600
6,321
2,250
158
61
650
–
80
9
1
1
7
72
70
–
3
20
207
–
23
3
1
3
2
4.09
5.17
–
2.75
.08
.07
.15
.07
.10
10.21
.08
1.05
3.71
55.75
6.17
–
.08
.10
.07
.06
.07
10.22
.09
1.60
3.22
$
–
$
–
432
23
4,788
6,250
–
29
14,415
–
11
–
567
10
1,600
–
445
803
6
–
–
134
–
1
–
5
–
8
–
–
4,788
688
–
–
6,312
6,002
–
1,348
–
694
–
1,183
79
51
–
9
–
6
–
7
–
5.17
4.03
2.86
–
.12
.11
–
.13
–
.09
.64
3.59
–
6.17
5.03
–
.05
.09
–
.07
–
.09
–
2.71
The following table summarizes the customer-related derivative positions of the Company:
Asset Derivatives
Liability Derivatives
(Dollars in Millions)
December 31, 2011
Interest rate contracts
Receive fixed/pay floating swaps . . . . . . . . . . . .
Pay fixed/receive floating swaps . . . . . . . . . . . . .
Options
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange rate contracts
Forwards, spots and swaps (a) . . . . . . . . . . . . . .
Options
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2010
Interest rate contracts
Receive fixed/pay floating swaps . . . . . . . . . . . .
Pay fixed/receive floating swaps . . . . . . . . . . . . .
Options
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange rate contracts
Forwards, spots and swaps (a) . . . . . . . . . . . . . .
Options
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Reflects the net of long and short positions.
Notional
Value
Fair
Value
$16,230
99
$1,216
–
2,660
–
7,982
127
–
15,730
1,315
2,024
472
7,772
224
–
26
–
369
5
–
956
24
13
12
384
6
–
Weighted-
Average
Remaining
Maturity In
Years
4.98
1.81
6.11
–
.54
.41
–
4.64
6.12
1.98
.26
.74
.40
–
Notional
Value
Fair
Value
$
523
16,206
$
1
1,182
–
2,660
8,578
–
127
1,294
15,769
115
1,667
7,694
–
224
–
26
360
–
5
21
922
12
13
360
–
6
Weighted-
Average
Remaining
Maturity In
Years
2.52
5.10
–
6.11
.49
–
.41
6.01
4.68
.36
2.35
.75
–
.40
The table below shows the effective portion of the gains (losses) recognized in other comprehensive income (loss) and the gains
(losses) reclassified from other comprehensive income (loss) into earnings (net-of-tax) for the years ended December 31:
Gains (Losses) Recognized in Other
Comprehensive Income (Loss)
Gains (Losses) Reclassified from
Other Comprehensive Income (Loss)
into Earnings
(Dollars in Millions)
2011
2010
2009
2011
2010
2009
Asset and Liability Management Positions
Cash flow hedges
Interest rate contracts (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(213)
$(235)
$114
$(138)
$(148)
$(209)
Net investment hedges
Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34
(25)
(44)
–
–
–
Note: Ineffectiveness on cash flow and net investment hedges was not material for the years ended December 31, 2011, 2010 and 2009.
(a) Gains (Losses) reclassified from other comprehensive income (loss) into interest income on loans and interest expense on long-term debt.
U.S. BANCORP
113
The table below shows the gains (losses) recognized in earnings for fair value hedges, other economic hedges and the customer-
related positions for the years ended December 31:
(Dollars in Millions)
Asset and Liability Management Positions
Fair value hedges (a)
Location of Gains (Losses)
Recognized in Earnings
Gains (Losses) Recognized in
Earnings
2011
2010
2009
Interest rate contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange cross-currency swaps . . . . . . . . . . . .
Other noninterest income
Other noninterest income
$ (36)
(69)
$ (31)
(193)
$ (27)
115
Other economic hedges
Interest rate contracts
Futures and forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased and written options . . . . . . . . . . . . . . . . . . . .
Receive fixed/pay floating swaps . . . . . . . . . . . . . . . . . .
Pay fixed/receive floating swaps . . . . . . . . . . . . . . . . . . .
Foreign exchange forward contracts . . . . . . . . . . . . . . . . .
Equity contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage banking revenue
Mortgage banking revenue
Mortgage banking revenue
Mortgage banking revenue
Commercial products revenue
Compensation expense
Other noninterest income/expense
Customer-Related Positions
Interest rate contracts
Receive fixed/pay floating swaps . . . . . . . . . . . . . . . . . . . . .
Pay fixed/receive floating swaps . . . . . . . . . . . . . . . . . . . . .
Purchased and written options . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange rate contracts
Other noninterest income
Other noninterest income
Other noninterest income
Forwards, spots and swaps . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased and written options . . . . . . . . . . . . . . . . . . . . . . .
Commercial products revenue
Commercial products revenue
23
456
518
1
(81)
1
–
302
(317)
–
53
–
831
425
–
–
(16)
1
(6)
201
(196)
1
49
1
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 $29 million and $72 million for the year
ended December 31, 2011, respectively, $35 million and $193 million for the year ended December 31, 2010, respectively, and $25 million and $(114) million for the year ended December 31,
2009, respectively. The ineffective portion was immaterial for the years ended December 31, 2011, 2010 and 2009.
Derivatives are subject to credit risk associated with
counterparties to the derivative contracts. The Company
measures that credit risk based on its assessment of the
probability of counterparty default and includes that risk
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, where possible, by
requiring collateral agreements. These collateral agreements
require the counterparty to post, on a daily basis, collateral
(typically cash) equal to the Company’s net derivative
receivable. For highly-rated counterparties, the agreements
may include minimum dollar posting thresholds, but allow for
the Company to call for immediate, full collateral coverage
when credit-rating thresholds are triggered by counterparties.
The Company’s collateral agreements are bilateral and,
therefore, contain provisions that require collateralization of
the Company’s net liability derivative positions. Required
collateral coverage is based on certain net liability thresholds
and contingent upon the Company’s credit rating from two of
the nationally recognized statistical rating organizations. If the
Company’s credit rating were to fall below credit ratings
thresholds established in the collateral agreements, the
counterparties to the derivatives could request immediate full
collateral coverage for derivatives in net liability positions.
The aggregate fair value of all derivatives under collateral
agreements that were in a net liability position at
December 31, 2011, was $1.9 billion. At December 31, 2011,
the Company had $1.7 billion of cash posted as collateral
against this net liability position.
N O T E 2 1 Fair Values of Assets and Liabilities
The Company uses fair value measurements for the initial
recording of certain assets and liabilities, periodic
remeasurement of certain assets and liabilities, and
disclosures. Derivatives, trading and available-for-sale
investment securities, certain mortgage loans held for sale
(“MLHFS”) and MSRs are recorded at fair value on a
recurring basis. Additionally, from time to time, the Company
may be required to record at fair value other assets on a
nonrecurring basis, such as loans held for sale, loans held for
investment and certain other assets. These nonrecurring fair
value adjustments typically involve application of
lower-of-cost-or-fair value accounting or impairment write-
downs of individual assets.
Fair value is defined as the exchange price that would be
received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market
participants on the measurement date. A fair value
measurement reflects all of the assumptions that market
participants would use in pricing the asset or liability,
114
U.S. BANCORP
including assumptions about the risk inherent in a particular
valuation technique, the effect of a restriction on the sale or
use of an asset, and the risk of nonperformance.
The Company groups its assets and liabilities measured at
fair value into a three-level hierarchy for valuation techniques
used to measure financial assets and financial liabilities at fair
value. This hierarchy is based on whether the valuation inputs
are observable or unobservable. These levels are:
(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
typically 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 MSRs,
certain debt securities, including the Company’s SIV-related
securities and non-agency mortgage-backed securities, and
certain derivative contracts.
When the Company changes its valuation inputs for
measuring financial assets and financial liabilities at fair value,
either due to changes in current market conditions or other
factors, it may need to transfer those assets or liabilities to
another level in the hierarchy based on the new inputs used.
The Company recognizes these transfers at the end of the
reporting period that the transfers occur. For the years ended
December 31, 2011, 2010 and 2009, there were no significant
transfers of financial assets or financial liabilities between the
hierarchy levels, except for the transfer of non-agency
mortgage-backed securities from Level 2 to Level 3 in the first
quarter of 2009, as discussed below.
The following section describes the valuation
methodologies used by the Company to measure financial
assets and liabilities at fair value and for estimating fair value
for financial instruments not recorded at fair value as required
under disclosure guidance related to the fair value of financial
instruments. In addition, for financial assets and liabilities
measured at fair value, the following section includes an
indication of the level of the fair value hierarchy in which the
assets or liabilities are classified. Where appropriate, the
description includes information about the valuation models
and key inputs to those models. During 2011, 2010 and 2009,
there were no significant changes to the valuation techniques
used by the Company to measure fair value.
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 quoted market prices for
identical securities are available in an active market, these
prices are used to determine fair value and these securities are
classified within Level 1 of the fair value hierarchy. Level 1
investment securities are predominantly U.S. Treasury
securities.
For other securities, quoted market prices may not be
readily available for the specific securities. When possible, the
Company determines fair value based on market observable
information, including quoted market prices for similar
securities, inactive transaction prices, and broker quotes.
These securities are classified within Level 2 of the fair value
hierarchy. Level 2 valuations are provided by a third party
pricing service. The Company reviews the valuation
methodologies utilized by the pricing service and reviews the
security level prices provided by the pricing service against
management’s expectation of fair value, based on changes in
various benchmarks and market knowledge from recent
trading activity. Additionally, the Company validates the fair
value provided by the pricing services by comparing them to
recent observable market trades (where available), broker
provided quotes, or other independent secondary pricing
sources. Prices obtained from the pricing service are adjusted
if they are found to be inconsistent with observable market
data. Level 2 investment securities are predominantly agency
mortgage-backed securities, certain other asset-backed
securities, municipal securities, corporate debt securities, and
perpetual preferred securities.
The fair value of securities for which there are no market
trades, or where trading is inactive as compared to normal
market activity, are classified within Level 3 of the fair value
hierarchy. The Company determines the fair value of these
U.S. BANCORP
115
securities using a cash flow methodology and incorporating
observable market information, where available. Cash flow
methodologies and other market valuation techniques
involving management judgment use assumptions regarding
housing prices, interest rates and borrower performance.
Inputs are refined and updated to reflect market
developments. The primary valuation drivers of these
securities are the prepayment rates, default rates and default
severities associated with the underlying collateral, as well as
the discount rate used to calculate the present value of the
projected cash flows. Level 3 fair values, including the
assumptions used, are subject to an independent internal
review, including a comparison to fair values provided by
third party pricing services, where available. Securities
classified within Level 3 include non-agency mortgage-backed
securities, non-agency commercial mortgage-backed securities,
certain asset-backed securities, certain collateralized debt
obligations and collateralized loan obligations, certain
corporate debt securities and SIV-related securities. Beginning
in the first quarter of 2009, due to the limited number of
trades of non-agency mortgage-backed securities and lack of
reliable evidence about transaction prices, the Company began
determining the fair value of these securities using a cash flow
methodology and incorporating observable market
information, where available. The use of a cash flow
methodology resulted in the Company transferring some non-
agency mortgage-backed securities to Level 3 in the first
quarter of 2009. This transfer did not impact earnings and
was not significant to shareholders’ equity of the Company or
the carrying amount of the securities.
The following table shows the valuation assumption ranges for Level 3 available-for-sale non-agency mortgage-backed securities:
Prime (a)
Non-prime
Minimum
Maximum
Average
Minimum
Maximum
Average
December 31, 2011
Estimated lifetime prepayment rates . . . . . . . . . . . . . . . . . . . . .
Lifetime probability of default rates . . . . . . . . . . . . . . . . . . . . . . .
Lifetime loss severity rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discount margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2010
Estimated lifetime prepayment rates . . . . . . . . . . . . . . . . . . . . .
Lifetime probability of default rates . . . . . . . . . . . . . . . . . . . . . . .
Lifetime loss severity rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discount margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4%
–
9
3
4%
–
16
3
23%
14
80
36
28%
14
100
30
13%
2
39
7
13%
1
41
6
1%
–
8
5
1%
–
10
3
13%
20
88
40
13%
20
88
40
6%
7
54
11
6%
8
56
11
(a) Prime securities are those designated as such by the issuer or those with underlying asset characteristics and/or credit enhancements consistent with securities designated as prime.
Certain mortgage loans held for sale MLHFS measured at
fair value, for which an active secondary market and readily
available market prices exist, are initially valued at the
transaction price and are subsequently valued by comparison
to instruments with similar collateral and risk profiles.
MLHFS are classified within Level 2. Included in mortgage
banking revenue was a $15 million net gain, a $125 million
net loss and a $206 million net gain, for the years ended
December 31, 2011, 2010 and 2009, respectively, from the
changes to fair value of these MLHFS under fair value option
accounting guidance. Changes in fair value due to instrument
specific credit risk were immaterial. Interest income for
MLHFS is measured based on contractual interest rates and
reported as interest income in the Consolidated Statement of
Income. Electing to measure MLHFS at fair value reduces
certain timing differences and better matches changes in fair
value of these assets with changes in the value of the
derivative instruments used to economically hedge them
without the burden of complying with the requirements for
hedge accounting.
Loans The loan portfolio includes adjustable and fixed-rate
loans, the fair value of which was estimated using discounted
cash flow analyses and other valuation techniques. The
116
U.S. BANCORP
expected cash flows of loans considered historical prepayment
experiences and estimated credit losses for nonperforming
loans and were discounted using current rates offered to
borrowers of similar credit characteristics. Generally, loan fair
values reflect Level 3 information.
Mortgage servicing rights MSRs are valued using a cash
flow methodology and third party prices, if available.
Accordingly, MSRs are classified within Level 3. The
Company determines fair value by estimating the present
value of the asset’s future cash flows using market-based
prepayment rates, discount rates, and other assumptions
validated through comparison to trade information, industry
surveys, and independent third party valuations. Risks
inherent in MSRs valuation include higher than expected
prepayment rates and/or delayed receipt of cash flows. Refer
to Note 10 for further information on MSR valuation
assumptions.
Derivatives 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 and
unobservable inputs. Other loan commitments, letters of
credit and guarantees are not actively traded, and the
Company estimates their fair value based on the related
amount of unamortized deferred commitment fees adjusted
for the probable losses for these arrangements.
U.S. BANCORP
117
The following table summarizes the balances of assets and liabilities measured at fair value on a recurring basis:
(Dollars in Millions)
Level 2
Level 3
Level 1
Netting
December 31, 2011
Available-for-sale securities
U.S. Treasury and agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities
$ 562
$
495
$
Residential
Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-agency
Prime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-prime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial
Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
–
–
–
–
–
–
–
–
–
–
193
755
–
–
–
146
40,314
–
–
140
–
86
564
6,539
6
818
318
9
49,289
6,925
–
632
467
–
–
803
802
–
42
120
117
–
–
9
–
–
1,893
–
1,519
1,281
–
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(294)
–
Total
$ 1,057
40,314
803
802
140
42
206
681
6,539
6
827
318
202
51,937
6,925
1,519
1,619
613
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 901
$57,313
$4,693
$ (294)
$62,613
Derivative liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
–
75
75
$ 2,501
538
$ 3,039
December 31, 2010
Available-for-sale securities
U.S. Treasury and agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities
$ 873
$ 1,664
Residential
Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-agency
Prime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-prime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial
Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
–
–
–
–
–
–
–
–
–
–
181
1,054
–
–
–
–
37,703
–
–
197
–
89
587
6,417
6
949
448
18
48,078
8,100
–
846
470
$
$
$
53
–
53
–
–
1,103
947
–
50
135
133
–
–
9
–
–
2,377
–
1,837
953
–
$(1,889)
–
$
665
613
$(1,889)
$ 1,278
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(280)
–
$ 2,537
37,703
1,103
947
197
50
224
720
6,417
6
958
448
199
51,509
8,100
1,837
1,519
470
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,054
$57,494
$5,167
$ (280)
$63,435
Derivative liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
–
–
–
$ 2,072
470
$ 2,542
$ 102
–
$ 102
$(1,163)
–
$ 1,011
470
$(1,163)
$ 1,481
118
U.S. BANCORP
The following table presents the changes in fair value for all assets and liabilities measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) for the years ended December 31:
Net Gains
(Losses)
Included in
Net
Income
Net Gains
(Losses)
Included in
Other
Comprehensive
Income (Loss)
Net Total
Purchases,
Sales, Principal
Payments,
Issuances and
Settlements
Beginning
of Period
Balance
Transfers into
Level 3
End
of Period
Balance
Net Change in
Unrealized Gains
(Losses) Relating
to Assets
Still Held at
End of Period
(Dollars in Millions)
2011
Available-for-sale securities
Mortgage-backed securities
Residential non-agency
Prime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-prime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial non-agency . . . . . . . . . . . . . . . . . . . . . . .
$1,103
947
50
$
6
(7)
3
$
Asset-backed securities
Collateralized debt
obligations/Collateralized
loan obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Total available-for-sale . . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net derivative assets and liabilities . . . . . . . . . . . . . . . . . . .
135
133
9
2,377
1,837
851
13
10
–
25 (a)
(972)(b)
1,550 (c)
4
1
(3)
5
(7)
–
–
–
–
2010
Available-for-sale securities
Mortgage-backed securities
Residential non-agency
Prime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-prime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial non-agency . . . . . . . . . . . . . . . . . . . . . . .
$1,429
968
13
$
2
(47)
2
Asset-backed securities
Collateralized debt obligations/Collateralized
loan obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total available-for-sale . . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net derivative assets and liabilities . . . . . . . . . . . . . . . . . . .
98
357
10
231
3,106
1,749
815
7
2
(1)
5
(30)(e)
(616)(b)
1,427 (f)
2009
Available-for-sale securities
Mortgage-backed securities
Residential non-agency
Prime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-prime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial non-agency . . . . . . . . . . . . . . . . . . . . . . .
$ 183
1,022
17
$
(4)
(141)
(1)
Asset-backed securities
Collateralized debt obligations/Collateralized
loan obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total available-for-sale . . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net derivative assets and liabilities . . . . . . . . . . . . . . . . . . .
86
523
13
–
1,844
1,194
1,698
(3)
(180)
(3)
2
(330)(h)
(394)(b)
(755)(i)
$ 82
146
3
–
11
–
10
252
–
–
$542
151
(1)
2
101
–
(10)
785
–
–
(a) Approximately $(31) million included in securities gains (losses) and $56 million included in interest income.
(b) Included in mortgage banking revenue.
(c) Approximately $716 million included in other noninterest income and $834 million included in mortgage banking revenue.
(d) Approximately $262 million included in other noninterest income and $(645) million included in mortgage banking revenue.
(e) Approximately $(91) million included in securities gains (losses) and $61 million included in interest income.
(f) Approximately $632 million included in other noninterest income and $795 million included in mortgage banking revenue.
(g) Approximately $483 million included in other noninterest income and $(801) million included in mortgage banking revenue.
(h) Approximately $(361) million included in securities gains (losses) and $31 million included in interest income.
(i) Approximately $(1.4) billion included in other noninterest income and $611 million included in mortgage banking revenue.
(j) Approximately $(630) million included in other noninterest income and $(698) million included in mortgage banking revenue.
$ (310)
(139)
(8)
(33)
(19)
–
(509)
654
(1,173)
$ (410)
(120)
32
30
(237)
–
(246)
(951)
704
(1,391)
$
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$ 803
802
42
120
117
9
1,893
1,519
1,228
$1,103
947
50
135
133
9
–
2,377
1,837
851
$
(4)
1
(2)
5
(7)
–
(7)
(972)(b)
(383)(d)
$
76
145
3
4
12
–
–
240
(616)(b)
(318)(g)
$(1,540)
(197)
(3)
$2,248
133
1
$1,429
968
13
$ 358
29
(1)
9
(90)
–
(4)
(1,825)
949
(129)
4
3
–
243
2,632
–
1
98
357
10
231
3,106
1,749
815
3
3
–
(10)
382
(394)(b)
(1,328)(j)
U.S. BANCORP
119
Additional detail of purchases, sales, principal payments, issuances and settlements for assets and liabilities classified within Level
3 for the year ended December 31, 2011, was as follows:
(Dollars in Millions)
Available-for-sale securities
Mortgage-backed securities
Residential non-agency
Purchases
Sales
Principal
Payments
Issuances
Settlements
Net Total
Prime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-prime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial non-agency . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-backed securities
Collateralized debt obligations/Collateralized loan
obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net derivative assets and liabilities . . . . . . . . . . . . . . . . . . . . .
$ –
–
–
–
5
5
35
1
$(115)
(13)
(4)
–
–
(132)
–
(8)
$(195)
(126)
(4)
(33)
(24)
(382)
–
–
$
–
–
–
–
–
$
–
–
–
–
–
–
619(a)
–
–
–
(1,166)
$ (310)
(139)
(8)
(33)
(19)
(509)
654
(1,173)
(a) Represents MSRs capitalized during the period
The Company is also required periodically to measure certain other financial assets at fair value on a nonrecurring basis. These
measurements of fair value usually result from the application of lower-of-cost-or-fair value accounting or write-downs of
individual assets.
The following table summarizes the adjusted carrying values and the level of valuation assumptions for assets measured at fair
value on a nonrecurring basis as of December 31:
(Dollars in Millions)
Level 1
Level 2
Level 3
Loans (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets . . . . . . . . . . . . . . . . . . . . .
Other assets (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$–
–
–
$–
–
–
$168
–
310
Total
$168
–
310
Level 1
Level 2
Level 3
$–
–
–
$404
–
816
$1
1
9
Total
$405
1
825
2011
2010
(a) Represents the carrying value of loans for which adjustments were based on the fair value of the collateral, excluding loans fully charged-off.
(b) Primarily represents the fair value of foreclosed properties that were measured at fair value based on an appraisal or broker price opinion of the collateral subsequent to their initial acquisition.
The following table summarizes losses recognized related to nonrecurring fair value measurements of individual assets or
portfolios for the years ended December 31:
(Dollars in Millions)
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Represents write-downs of loans which were based on the fair value of the collateral, excluding loans fully charged-off.
(b) Primarily represents related losses of foreclosed properties that were measured at fair value subsequent to their initial acquisition.
2011
$
–
177
–
316
2010
$
–
363
1
308
2009
$
2
293
2
178
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 as of December 31:
2011
Aggregate
Unpaid
Principal
$6,635
15
4
Carrying
Amount Over
(Under) Unpaid
Principal
$290
(5)
(1)
Fair Value
Carrying
Amount
$6,925
10
3
2010
Aggregate
Unpaid
Principal
$8,034
18
6
Carrying
Amount Over
(Under) Unpaid
Principal
$66
(7)
–
Fair Value
Carrying
Amount
$8,100
11
6
(Dollars in Millions)
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans 90 days or more past due . . . . . . . . . . .
120
U.S. BANCORP
Disclosures about Fair Value of Financial Instruments The
following table summarizes the estimated fair value for
financial instruments as of December 31, 2011 and 2010, and
includes financial instruments that are not accounted for at
fair value. In accordance with disclosure guidance related to
fair values of financial instruments, the Company did not
include assets and liabilities that are not financial instruments,
such as the value of goodwill, long-term relationships with
deposit, credit card, merchant processing and trust customers,
other purchased intangibles, premises and equipment, deferred
taxes and other liabilities.
The estimated fair values of the Company’s financial instruments as of December 31, are shown in the table below:
(Dollars in Millions)
Financial Assets
2011
2010
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgages held for sale (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 13,962
18,877
3
228
205,082
Financial Liabilities
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
230,885
30,468
31,953
$ 13,962
19,216
3
228
206,646
231,184
30,448
32,664
$ 14,487
1,469
4
267
191,751
204,252
32,557
31,537
$ 14,487
1,419
4
267
192,058
204,799
32,839
31,981
(a) Balance excludes mortgages held for sale for which the fair value option under applicable accounting guidance was elected.
The fair value of unfunded commitments, standby letters of credit and other guarantees is approximately equal to their
carrying value. The carrying value of unfunded commitments and standby letters of credit was $381 million and $353 million at
December 31, 2011 and 2010, respectively. The carrying value of other guarantees was $359 million and $330 million at
December 31, 2011 and 2010, respectively.
N O T E 2 2 Guarantees and Contingent
Letters of Credit
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.
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, 2011, were
approximately $19.2 billion with a weighted-average term of
approximately 22 months. The estimated fair value of standby
letters of credit was approximately $97 million at
December 31, 2011.
U.S. BANCORP
121
The contract or notional amounts of unfunded commitments
to extend credit and letters of credit at December 31, 2011,
were as follows:
(Dollars in Millions)
Commitments to extend credit
Commercial and
commercial real
estate . . . . . . . . . . . . . . . . . . .
Corporate and purchasing
cards (a) . . . . . . . . . . . . . . . . .
Residential mortgages . . . . .
Retail credit cards (a) . . . . . .
Other retail . . . . . . . . . . . . . . . . .
Covered . . . . . . . . . . . . . . . . . . .
Letters of credit
Standby . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . .
Term
Less Than
One Year
Greater Than
One Year
Total
$19,632
$64,394
$84,026
17,713
106
64,411
9,739
72
7,202
396
–
55
545
16,411
1,033
17,713
161
64,956
26,150
1,105
11,997
24
19,199
420
(a) Primarily cancelable at the Company’s discretion.
Lease Commitments
Rental expense for operating leases totaled $291 million in
2011, $277 million in 2010 and $253 million in 2009. 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, 2011:
(Dollars in Millions)
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total minimum lease payments . . . . . . . . .
Less amount representing interest . . . . . .
Capitalized
Leases
Operating
Leases
$ 222
202
172
141
107
443
$1,287
$10
9
7
6
6
27
65
25
Present value of net minimum lease
payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$40
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 guarantee or through the exercise of other
recourse provisions can offset some or all of the maximum
122
U.S. BANCORP
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
$436 million at December 31, 2011.
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 $9.2
billion at December 31, 2011, and represented the market
value of the securities lent to third parties. At December 31,
2011, the Company held assets with a market value of $9.4
billion as collateral for these arrangements.
Asset Sales The Company has provided guarantees to certain
third parties in connection with the sale or syndication of
certain assets, primarily loan portfolios and 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 $2.3 billion at
December 31, 2011, and represented the proceeds received
from the buyer or the guaranteed portion in these transactions
where the buy-back or make-whole provisions have not yet
expired. At December 31, 2011, the Company had reserved
$79 million for potential losses related to the sale or
syndication of tax credits.
The maximum potential future payments do not include
loan sales where the Company provides standard
representations and warranties to the buyer against losses
related to loan underwriting documentation defects that may
have existed at the time of sale that generally are identified
after the occurrence of a triggering event such as delinquency.
For these types of loan sales, the maximum potential future
payments is generally the unpaid principal balance of loans
sold measured at the end of the current reporting period.
Actual losses will be significantly less than the maximum
exposure, as only a fraction of loans sold will have a
representation and warranty breach, and any losses on
repurchase would generally be mitigated by any collateral held
against the loans.
The Company regularly sells loans to government
sponsored enterprises (“GSEs”) as part of its mortgage
banking activities. The Company provides customary
representation and warranties to the GSEs in conjunction with
these sales. These representations and warranties generally
require the Company to repurchase assets if it is subsequently
determined that a loan did not meet specified criteria, such as
a documentation deficiency or rescission of mortgage
insurance. If the Company is unable to cure or refute a
repurchase request, the Company is generally obligated to
repurchase the loan or otherwise reimburse the counterparty
for losses. At December 31, 2011, the Company had reserved
$160 million for potential losses from representation and
warranty obligations. The Company’s reserve reflects
management’s best estimate of losses for representation and
warranty obligations. The Company’s reserving methodology
uses current information about investor repurchase requests,
and assumptions about defect rate, concur rate, repurchase
mix, and loss severity, based upon the Company’s most recent
loss trends. The Company also considers qualitative factors
that may result in anticipated losses differing from historical
loss trends, such as loan vintage, underwriting characteristics
and macroeconomic trends.
The following table is a rollforward of the Company’s
representation and warranty reserve:
Year ended December 31 (Dollars in Millions)
2011
2010
Balance at beginning of period . . . . . .
Net realized losses . . . . . . . . . . . . . . . .
Additions to reserve . . . . . . . . . . . . . . .
$ 180
(137)
117
Balance at end of period . . . . . . . . . . . .
$ 160
$ 72
(93)
201
$180
2009
$ 12
(18)
78
$ 72
As of December 31, 2011 and December 31, 2010, the
Company had $105 million and $165 million, respectively, of
unresolved representation and warranty claims from the
GSEs. The Company does not have a significant amount of
unresolved claims from investors other than the GSEs.
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 $74.3 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 airline companies. The
Company currently processes card transactions in the United
States, Canada and Europe for these merchants. 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,
2011, the value of airline tickets purchased to be delivered at
a future date was $4.6 billion. The Company held collateral of
$438 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 $14 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, 2011, the liability was $64 million primarily
related to these airline processing arrangements.
U.S. BANCORP
123
In the normal course of business, the Company has
Other Contingent Liabilities
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, 2011, the Company held $107
million of merchant escrow deposits as collateral and had a
recorded liability for potential losses of $12 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,
2011, the maximum potential future payments required to be
made by the Company under these arrangements was
approximately $4 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, 2011,
the maximum potential future payments required to be made
by the Company under these agreements were $31 million and
the Company had recorded a related liability of $20 million.
Tender Option Bond Program Guarantee As discussed in
Note 8, the Company sponsors a municipal bond securities
tender option bond program and consolidates the program’s
entities on its consolidated balance sheet. The Company
provides financial performance guarantees related to the
program’s entities. At December 31, 2011, the Company
guaranteed $5.3 billion of borrowings of the program’s
entities, included on the consolidated balance sheet in short-
term borrowings. The Company also included on its
consolidated balance sheet the related $5.4 billion of
available-for-sale investment securities serving as collateral for
this arrangement.
Other Guarantees and Commitments The Company has
also made other financial performance guarantees and
commitments related to the operations of its subsidiaries. At
December 31, 2011, the maximum potential future payments
guaranteed or committed by the Company under these
arrangements were approximately $3.1 billion and the
Company had recorded a related liability of $20 million.
Visa Restructuring and Card Association Litigation The
Company’s payment services business issues and acquires
credit and debit card transactions through the Visa U.S.A. Inc.
card association or its affiliates (collectively “Visa”). In 2007,
Visa completed a restructuring and issued shares of Visa Inc.
common stock to its financial institution members in
contemplation of its initial public offering (“IPO”) completed
in the first quarter of 2008 (the “Visa Reorganization”). As a
part of the Visa Reorganization, the Company received its
proportionate number of shares of Visa Inc. common stock,
which were subsequently converted to Class B shares of Visa
Inc. (“Class B shares”). The Company and certain of its
subsidiaries have been named as defendants along with Visa
U.S.A. Inc. (“Visa U.S.A.”) and MasterCard International
(collectively, the “Card Associations”), as well as several other
banks, in antitrust lawsuits challenging the practices of the
Card Associations (the “Visa Litigation”). Visa U.S.A.
member banks have a contingent obligation to indemnify Visa
Inc. under the Visa U.S.A. bylaws (which were modified at the
time of the restructuring in October 2007) for potential losses
arising from the Visa Litigation. The indemnification by the
Visa U.S.A. member banks has no specific maximum amount.
The Company has also entered into judgment and loss sharing
agreements with Visa U.S.A. and certain other banks in order
to apportion financial responsibilities arising from any
potential adverse judgment or negotiated settlements related
to the Visa Litigation.
In 2007 and 2008, Visa announced settlement agreements
relating to certain of the Visa Litigation matters. Visa U.S.A.
member banks remain obligated to indemnify Visa Inc. for
potential losses arising from the remaining Visa Litigation.
Using proceeds from its IPO and through reductions to the
conversion ratio applicable to the Class B shares held by Visa
U.S.A. member banks, Visa Inc. funds an escrow account for
the benefit of member financial institutions to fund the
expenses of the Visa Litigation, as well as the members’
proportionate share of any judgments or settlements that may
arise out of the Visa Litigation. The receivable related to the
escrow account is classified in other liabilities as a direct offset
to the related Visa Litigation contingent liability. The
Company recognized gains of $51 million in 2011, $72
million in 2010 and $39 million in 2009, related to Visa Inc.’s
funding of the escrow account and resulting reduction in the
conversion ratio applicable to the Class B shares. The amount
recognized in 2011 was net of an additional $58 million
increase to the Company’s liability related to the remaining
124
U.S. BANCORP
Visa Litigation matters. At December 31, 2011, the carrying
amount of the Company’s liability related to the remaining
Visa Litigation matters, net of its share of the escrow
fundings, was zero. The remaining Class B shares held by the
Company will be eligible for conversion to Class A shares,
and thereby marketable, upon settlement of the Visa
Litigation.
Checking Account Overdraft Fee Litigation The Company
is a defendant in three separate cases primarily challenging the
Company’s daily ordering of debit transactions posted to
customer checking accounts for the period from 2003 to
2010. The plaintiffs have requested class action treatment;
however, no class has been certified. The court has denied a
motion by the Company to dismiss these cases. The Company
believes it has meritorious defenses against these matters,
including class certification. No specific damages claim has
been made, and based on facts and circumstances, the
Company believes the potential range of loss would not be
material.
Other During the second quarter of 2011, the Company and
its two primary banking subsidiaries entered into Consent
Orders with U.S. federal banking regulators regarding the
Company’s residential mortgage servicing and foreclosure
processes. The banking regulators have notified the Company
of civil money penalties related to the Consent Orders,
however, these penalties are not significant.
Other federal and state governmental authorities have
reached a settlement agreement in principle with five major
financial institutions regarding their mortgage origination,
servicing, and foreclosure activities. Those governmental
authorities contacted other financial institutions, including the
Company, to discuss their potential participation in a
settlement. The Company has not agreed to any settlement at
this point, however if a settlement were reached it would
likely include an agreement to comply with specified servicing
standards, and settlement payments to governmental
authorities as well as a monetary commitment that could be
satisfied under various loan modification programs (in
addition to the programs the Company already has in place).
The Company has accrued $130 million with respect to these
and related matters.
The Company is subject to various other litigation,
investigations and legal and administrative cases and
proceedings that arise in the ordinary course of its businesses.
Due to their complex nature, it may be years before some
matters are resolved. While it is impossible to ascertain the
ultimate resolution or range of financial liability with respect
to these contingent matters, the Company believes that the
aggregate amount of such liabilities will not have a material
adverse effect on the financial condition, results of operations
or cash flows of the Company.
U.S. BANCORP
125
N O T E 2 3 U.S. Bancorp (Parent Company)
Condensed Balance Sheet
At December 31 (Dollars in Millions)
2011
2010
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,728
1,166
33,179
1,321
6,094
1,190
1,481
$ 6,722
1,454
29,452
1,239
1,500
1,171
1,429
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$49,159
$42,967
Liabilities and Shareholders’ Equity
Short-term funds borrowed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
29
14,593
559
33,978
$
60
13,037
351
29,519
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$49,159
$42,967
Condensed Statement of Income
Year Ended December 31 (Dollars in Millions)
2011
2010
2009
Income
Dividends from bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends from nonbank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,500
7
101
134
Total income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,742
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
424
79
504
1,238
(83)
1,321
3,551
$ —
3
109
105
217
1
366
80
447
(230)
(70)
(160)
3,477
$ 625
94
82
(299)
502
3
332
44
379
123
(197)
320
1,885
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,872
$3,317
$2,205
126
U.S. BANCORP
Condensed Statement of Cash Flows
Year Ended December 31 (Dollars in Millions)
2011
2010
2009
Operating Activities
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities
$ 4,872
$ 3,317
$ 2,205
Equity in undistributed income of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,551)
12
Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,333
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
297
(36)
–
77
(4,613)
–
–
(3)
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,278)
Financing Activities
Net decrease in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments or redemption of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fees paid on exchange of income trust securities for perpetual preferred stock . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(31)
2,426
(851)
–
676
180
–
(514)
–
(118)
(817)
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
951
(3,477)
130
(30)
298
(63)
(1,750)
58
(253)
(300)
300
33
(1,677)
(782)
4,250
(5,250)
(4)
–
119
–
–
–
(89)
(383)
(2,139)
(1,885)
703
1,023
395
(52)
(186)
58
(173)
(800)
–
(29)
(787)
(392)
5,031
(1,054)
–
–
2,703
(6,599)
–
(139)
(275)
(1,025)
(1,750)
Change in cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and due from banks at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,994)
6,722
(3,846)
10,568
(1,514)
12,082
Cash and due from banks at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,728
$ 6,722
$10,568
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 Office 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, 2011, was
approximately $6.6 billion.
N O T E 2 4 Subsequent Events
The Company has evaluated the impact of events that have
occurred subsequent to December 31, 2011 through the date
the consolidated financial statements were filed with the
United States Securities and Exchange Commission. Based on
this evaluation, other than as recorded or disclosed within
these consolidated financial statements and related notes, the
Company has determined none of these events were required
to be recognized or disclosed.
U.S. BANCORP
127
U.S. Bancorp
Consolidated Balance Sheet—Five Year Summary (Unaudited)
At December 31 (Dollars in Millions)
2011
2010
2009
2008
2007
Assets
Cash and due from banks . . . . . . . . . . . . . . . .
Held-to-maturity securities . . . . . . . . . . . .
Available-for-sale securities . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less allowance for loan losses . . . . . . . .
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 13,962
18,877
51,937
7,156
209,835
(4,753)
205,082
43,108
$ 14,487
1,469
51,509
8,371
197,061
(5,310)
191,751
40,199
$
6,206
47
44,721
4,772
194,755
(5,079)
189,676
35,754
$
6,859
53
39,468
3,210
184,955
(3,514)
181,441
34,881
$
8,884
74
43,042
4,819
153,827
(2,058)
151,769
29,027
% Change
2011 v 2010
(3.6)%
*
.8
(14.5)
6.5
(10.5)
7.0
7.2
Total assets . . . . . . . . . . . . . . . . . . . . . . . . .
$340,122
$307,786
$281,176
$265,912
$237,615
10.5%
Liabilities and Shareholders' Equity
Deposits
Noninterest-bearing . . . . . . . . . . . . . . . . . . .
Interest-bearing . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . .
Total U.S. Bancorp shareholders'
equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . .
$ 68,579
162,306
$ 45,314
158,938
$ 38,186
145,056
$ 37,494
121,856
$ 33,334
98,111
230,885
30,468
31,953
11,755
305,061
34,068
993
35,061
204,252
32,557
31,537
9,118
277,464
29,519
803
30,322
183,242
31,312
32,580
7,381
254,515
25,963
698
26,661
159,350
33,983
38,359
7,187
238,879
26,300
733
27,033
131,445
32,370
43,440
8,534
215,789
21,046
780
21,826
51.3%
2.1
13.0
(6.4)
1.3
28.9
9.9
15.4
23.7
15.6
Total liabilities and equity . . . . . . . . . . .
$340,122
$307,786
$281,176
$265,912
$237,615
10.5%
* Not meaningful
128
U.S. BANCORP
U.S. Bancorp
Consolidated Statement of Income — Five-Year Summary (Unaudited)
Year Ended December 31 (Dollars in Millions)
2011
2010
2009
2008
2007
Interest Income
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,370
200
1,820
249
$10,145
246
1,601
166
$ 9,564
277
1,606
91
$10,051
227
1,984
156
$10,627
277
2,095
137
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,639
12,158
11,538
12,418
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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
840
531
1,145
2,516
10,123
2,343
7,780
1,073
734
1,355
452
1,000
659
551
841
986
129
(31)
1,011
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . .
8,760
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling
4,041
845
999
383
369
758
303
299
1,914
9,911
6,629
1,841
4,788
928
548
1,103
2,579
9,579
4,356
5,223
1,091
710
1,253
423
1,080
710
555
771
1,003
111
(78)
731
8,360
3,779
694
919
306
360
744
301
367
1,913
9,383
4,200
935
3,265
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
7,952
3,135
574
836
255
378
673
288
387
1,755
8,281
2,632
395
2,237
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
3,012
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
4,403
interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
84
52
(32)
(66)
(79)
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . .
$ 4,872
$ 3,317
$ 2,205
$ 2,946
$ 4,324
Net income applicable to U.S. Bancorp common
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,721
$ 3,332
$ 1,803
$ 2,819
$ 4,258
% Change
2011 v 2010
2.2%
(18.7)
13.7
50.0
4.0
(9.5)
(3.1)
3.8
(2.4)
5.7
(46.2)
49.0
(1.6)
3.4
8.1
6.9
(7.4)
(7.2)
(.7)
9.1
(1.7)
16.2
60.3
38.3
4.8
6.9
21.8
8.7
25.2
2.5
1.9
.7
(18.5)
.1
5.6
57.8
96.9
46.6
61.5
46.9
41.7
U.S. BANCORP
129
U.S. Bancorp
Quarterly Consolidated Financial Data (Unaudited)
(Dollars in Millions, Except Per Share
Data)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2011
2010
Interest Income
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . .
Investment securities . . . . . . . . . . . .
Other interest income . . . . . . . . . . . .
$2,552
63
428
57
Total interest income . . . . . . .
3,100
Interest Expense
Deposits . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . .
Total interest expense . . . . . .
234
133
281
648
Net interest income . . . . . . . . . . . . . .
Provision for credit losses . . . . . . .
2,452
755
Net interest income after
$2,563
34
459
63
3,119
210
131
290
631
2,488
572
$2,621
42
470
67
3,200
202
143
289
634
2,566
519
$2,634
61
463
62
3,220
194
124
285
603
2,617
497
$2,505
44
410
34
2,993
236
128
277
641
2,352
1,310
$2,515
47
394
39
2,995
229
137
272
638
2,357
1,139
$2,560
71
400
46
3,077
231
149
273
653
2,424
995
$2,565
84
397
47
3,093
232
134
281
647
2,446
912
provision for credit losses . . . . .
1,697
1,916
2,047
2,120
1,042
1,218
1,429
1,534
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
267
175
301
112
256
143
137
191
199
32
(5)
204
286
185
338
114
258
162
144
218
239
35
(8)
175
289
203
338
115
241
183
137
212
245
31
(9)
186
231
171
378
111
245
171
133
220
303
31
(9)
446
258
168
292
105
264
207
137
161
200
25
(34)
135
266
178
320
108
267
199
145
205
243
30
(21)
170
274
191
318
105
267
160
139
197
310
27
(9)
131
293
173
323
105
282
144
134
208
250
29
(14)
295
Total noninterest income . . .
2,012
2,146
2,171
2,431
1,918
2,110
2,110
2,222
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 . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to
noncontrolling interests . . . . . . .
Net income attributable to U.S.
959
230
249
70
65
185
74
75
407
2,314
1,395
366
1,029
17
1,004
210
1,021
203
1,057
202
249
82
90
189
76
75
450
2,425
1,637
458
1,179
24
252
100
102
189
76
75
458
2,476
1,742
490
1,252
21
249
131
112
195
77
74
599
2,696
1,855
527
1,328
22
861
180
227
58
60
185
74
97
394
946
172
226
73
86
186
75
91
522
2,136
2,377
824
161
663
6
951
199
752
14
973
171
229
78
108
186
74
90
476
2,385
1,154
260
894
14
999
171
237
97
106
187
78
89
521
2,485
1,271
315
956
18
Bancorp . . . . . . . . . . . . . . . . . . . . . . .
$1,046
$1,203
$1,273
$1,350
$ 669
$ 766
$ 908
$ 974
Net income applicable to U.S.
Bancorp common
shareholders . . . . . . . . . . . . . . . . . .
$1,003
$1,167
$1,237
$1,314
$ 648
$ 862
$ 871
$ 951
Earnings per common share . . . . .
Diluted earnings per common
share . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
.52
.52
$
$
.61
.60
$
$
.65
.64
$
$
.69
.69
$
$
.34
.34
$
$
.45
.45
$
$
.46
.45
$
$
.50
.49
130
U.S. BANCORP
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
$2.47
2.46
.500
2010
$1.74
1.73
.200
2009
$ .97
.97
.200
2008
$ 1.62
1.61
1.700
2007
$ 2.45
2.42
1.625
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 . . . . . . . .
1.53%
15.8
10.1
20.2
1.16%
12.7
9.8
11.5
.82%
8.2
9.8
20.6
1.21%
13.9
9.2
104.9
1.93%
21.3
9.4
66.3
Other Statistics (Dollars and Shares in Millions)
Common shares outstanding (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average common shares outstanding and common stock equivalents
1,910
1,921
1,913
1,755
1,728
Earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of shareholders (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,914
1,923
52,677
961
$
1,912
1,921
55,371
385
$
1,851
1,859
58,610
375
$
1,742
1,756
61,611
$ 2,971
1,735
1,756
63,837
$ 2,813
(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
2011
Sales Price
High
Low
First quarter . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . .
$28.94
27.05
27.17
27.58
$25.65
23.66
20.10
21.84
2010
Sales Price
Closing
Price
$26.43
25.51
23.54
27.05
Dividends
Declared
$.125
.125
.125
.125
High
Low
$26.84
28.43
24.56
27.30
$22.53
22.06
20.44
21.58
Closing
Price
$25.88
22.35
21.62
26.97
Dividends
Declared
$.050
.050
.050
.050
The common stock of U.S. Bancorp is traded on the New York Stock Exchange, under the ticker symbol "USB." At January 31,
2012, there were 52,466 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, 2011, with the cumulative
total return on the Standard & Poor's 500
Index and the KBW Bank Index. The
comparison assumes $100 was invested on
December 31, 2006, in the Company's
common stock and in each of the foregoing
indices and assumes the reinvestment of all
dividends. The comparisons in the graph are
based upon historical data and are not
indicative of, nor intended to forecast, future
performance of the Company’s common
stock.
150
125
100
100
75
50
25
2006
105
92
78
Total Return
77
66
41
84
70
40
97
84
50
2007
2008
2009
2010
USB
S&P 500
KBW Bank Index
99
86
38
2011
U.S. BANCORP
131
U.S. Bancorp
Consolidated Daily Average Balance Sheet and Related Yields and Rates (a) (Unaudited)
2011
Interest
Average
Balances
Yields
and Rates
Average
Balances
2010
Interest
Yields
and Rates
$ 63,645
4,873
$ 1,980
200
3.11%
4.10
$ 47,763
5,616
$ 1,763
246
3.69%
4.37
Year Ended December 31 (Dollars in Millions)
Assets
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans (b)
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans, excluding covered loans . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other earning assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Total earning assets . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain (loss) on available-for-sale
securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
51,616
35,514
33,711
16,084
48,199
185,124
16,303
201,427
13,345
283,290
(5,192)
227
39,939
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$318,264
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
$ 53,856
42,827
45,119
26,654
15,237
29,466
159,303
30,703
31,684
221,690
9,602
Preferred equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,414
29,786
Total U.S. Bancorp shareholders'
equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32,200
916
33,116
Total liabilities and equity . . . . . . . . . . . . . .
$318,264
2,071
1,622
1,632
1,538
2,649
9,512
928
10,440
250
12,870
65
76
112
290
297
840
537
1,145
2,522
4.01
4.57
4.84
9.56
5.50
5.14
5.69
5.18
1.87
4.54
.15
.17
.42
1.91
1.01
.53
1.75
3.61
1.14
1,977
1,530
1,436
1,516
2,756
9,215
985
10,200
166
12,375
77
132
121
303
295
928
556
1,103
2,587
47,028
34,269
27,704
16,403
47,686
173,090
19,932
193,022
5,641
252,042
(5,399)
94
39,124
$285,861
$ 40,162
40,184
39,679
20,903
16,628
27,165
144,559
33,719
30,835
209,113
7,787
1,742
26,307
28,049
750
28,799
$285,861
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,348
$ 9,788
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.40%
3.32
4.54%
.89
3.65%
3.57%
* Not meaningful
(a) Interest and rates are presented on a fully taxable-equivalent basis utilizing a tax rate of 35 percent.
(b) Interest income and rates on loans include loan fees. Nonaccrual loans are included in average loan balances.
132
U.S. BANCORP
4.20
4.46
5.18
9.25
5.78
5.32
4.94
5.28
2.94
4.91
.19
.33
.58
1.82
1.08
.64
1.65
3.58
1.24
3.67%
3.59
4.91%
1.03
3.88%
3.80%
2009
2008
2007
Average
Balances
Interest
Yields
and Rates
Average
Balances
Interest
Yields
and Rates
Average
Balances
Interest
Yields
and Rates
2011 v 2010
% Change
Average
Balances
$ 42,809
5,820
$ 1,770
277
4.13%
4.76
$ 42,850
3,914
$ 2,160
227
5.04%
5.80
$ 41,313
4,298
$ 2,239
277
5.42%
6.44
33.3%
(13.2)
2,702
1,771
1,419
1,284
2,850
10,026
61
10,087
156
12,630
251
330
20
472
808
1,881
1,144
1,739
4,764
4.98
5.69
6.10
10.74
6.53
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
2,074
1,453
1,380
1,363
2,762
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
9.12
5.87
5.22
4.54
5.17
3.20
4.95
.21
.46
.54
2.58
1.48
.93
1.89
3.50
1.55
52,827
33,751
24,481
14,937
47,086
173,082
12,723
185,805
2,853
237,287
(4,451)
(1,594)
37,118
$268,360
$ 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
54,307
31,110
23,257
11,954
43,616
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
47,812
28,592
22,085
9,574
39,285
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
3,143
2,079
1,354
1,203
2,877
10,656
–
10,656
137
13,309
351
651
19
644
1,089
2,754
1,531
2,260
6,545
6.57
7.27
6.13
12.57
7.32
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
9.8
3.6
21.7
(1.9)
1.1
7.0
(18.2)
4.4
*
12.4
3.8
*
2.1
11.3
34.1
6.6
13.7
27.5
(8.4)
8.5
10.2
(8.9)
2.8
6.0
23.3
38.6
13.2
14.8
22.1
15.0
$268,360
$244,400
$223,621
11.3%
$ 8,716
$ 7,866
$ 6,764
3.40%
3.32
4.95%
1.28
3.67%
3.59%
3.29%
3.23
5.87%
2.21
3.66%
3.60%
2.93%
2.89
6.84%
3.37
3.47%
3.43%
U.S. BANCORP
133
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 $53 million to $236 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 to large national customers focusing
on specific targeted industries. Lending services include
traditional credit products as well as credit card services, leasing
financing and import/export trade, asset-backed lending,
agricultural finance and other products. 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 3,085 banking offices principally operating in the
Midwest and West regions of the United States. The Company
operates a network of 5,053 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
134
U.S. BANCORP
services directly to merchants and through a network of
banking affiliations. Affiliates of Elavon provide similar
merchant services in Canada, Mexico, Brazil and segments of
Europe. The Company also provides trust services in Europe.
These foreign operations are not significant to the Company.
On a full-time equivalent basis, as of December 31, 2011,
U.S. Bancorp employed 62,529 people.
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.
Although, the domestic and global economies generally have
increasingly stabilized from the dramatic downturn
experienced in 2008 and 2009, and the financial markets have
generally improved, business activities across a range of
industries continue to face serious difficulties due to the lack
of consumer spending and the lack of liquidity in the global
credit markets. Heightened credit levels have further increased
these difficulties. 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. Additionally, certain European
countries have experienced credit deterioration primarily due
to excessive debt levels, poor economic conditions, and fiscal
disorder. Deterioration in economic conditions in Europe
could slow the recovery of the domestic economy or
negatively impact the Company’s borrowers or other
counterparties that have direct or indirect exposure to Europe.
Further, dramatic declines in the housing and commercial real
estate markets over the past several years, with falling real
estate prices, increasing foreclosures and high unemployment,
continue to negatively impact the credit performance of real
estate related loans and have resulted in, and may continue to
result in, significant write-downs of asset values by the
Company and other 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 and, in some cases, to fail.
Additional negative market developments may further erode
consumer confidence levels and may cause adverse changes in
payment patterns, causing increases in delinquencies and
default rates. As was the case in 2008 and 2009, such
developments could increase the Company’s charge-offs and
provision for credit losses. Continuing economic deterioration
that affects household 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 lingering effects of the difficult market
conditions experienced by the Company and others in the
financial services industry.
Recently passed and proposed legislation and rulemaking
may adversely affect the Company The United States
government and the Company’s regulators have recently
passed and proposed legislation and rules that impact the
Company, and the Company expects to continue to face
increased regulation. These laws and regulations may affect
the manner in which the Company does business and the
products and services that it provides, affect or restrict the
Company’s ability to compete in its current businesses or its
ability to enter into or acquire new businesses, reduce or limit
the Company’s revenue or impose additional fees, assessments
or taxes on the Company, intensify the regulatory supervision
of the Company and the financial services industry, and
adversely affect the Company’s business operations or have
other negative consequences.
The Dodd-Frank Wall Street Reform and Consumer
Protection Act was signed into law in 2010 and mandates the
most wide-ranging overhaul of financial industry regulation in
decades. This legislation, among other things, establishes a
Consumer Financial Protection Bureau with broad authority
to administer and enforce a new federal regulatory framework
of consumer financial regulation, changes the base for deposit
insurance assessments, introduces regulatory rate-setting for
interchange fees charged to merchants for debit card
transactions, enhances the regulation of consumer mortgage
banking, limits the pre-emption of state laws applicable to
national banks, and excludes certain instruments currently
included in determining the Company’s Tier 1 regulatory
capital ratio. Many of the legislation’s provisions have
extended implementation periods and delayed effective dates
and will require rulemaking by various regulatory agencies.
Accordingly, the Company cannot currently quantify the
ultimate impact of this legislation and the related future
rulemaking, but expects that the legislation will have a
detrimental impact on revenues and expenses, require the
Company to change certain of its business practices, intensify
the regulatory supervision of the Company and the financial
services industry, increase the Company’s capital requirements
and impose additional assessments and costs on the Company,
and otherwise adversely affect the Company’s business.
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, certain mortgage loans held for
sale and mortgage servicing rights (“MSRs”). Its policies also
can affect the Company’s borrowers, potentially increasing
the risk that they may fail to repay their loans or satisfy their
obligations to the Company. Changes in policies of the
Federal Reserve Board are beyond the Company’s control and
the impact of changes in those policies on the Company’s
activities and results of operations can be difficult to predict.
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’s lending businesses and the value of the
loans and debt securities it holds may be adversely
affected by economic conditions, including a reversal or
slowing of the current moderate recovery. Downward
valuation of debt securities could also negatively impact
the Company’s capital position Given the high percentage of
the Company’s assets represented directly or indirectly by
loans, and the importance of lending to its overall business,
weak economic conditions are likely to have a negative impact
on the Company’s business and results of operations. This
could adversely impact loan utilization rates as well as
delinquencies, defaults and customer ability to meet
obligations under the loans. This is particularly the case
during the period in which the aftermath of recessionary
conditions continues and the positive effects of economic
recovery appear to be slow to materialize and unevenly spread
among the Company’s customers.
Further, weak economic conditions would likely have a
negative impact on the Company’s business, its ability to serve
its customers, and its results of operations. Such conditions are
likely to lead to increases in the number of borrowers who
become delinquent or default or otherwise demonstrate a
decreased ability to meet their obligations under their loans. This
U.S. BANCORP
135
would result in higher levels of nonperforming loans, net charge-
offs, provision for credit losses and valuation adjustments on
loans held for sale. The value to the Company of other assets
such as investment securities, most of which are debt securities
or other financial instruments supported by loans, similarly
would be negatively impacted by widespread decreases in credit
quality resulting from a weakening of the economy.
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 Company’s credit rating is important to its
liquidity. A reduction in the Company’s credit rating could
adversely affect its liquidity and competitive position, increase
its funding costs or limit its access to the capital markets.
Loss of customer deposits could increase the Company’s
funding costs The Company relies on bank deposits to be a
low cost and stable source of funding. The Company
competes with banks and other financial services companies
for deposits. If the Company’s competitors raise the rates they
pay on deposits, the Company’s funding costs may increase,
either because the Company raises its rates to avoid losing
deposits or because the Company loses deposits and must rely
on more expensive sources of funding. Higher funding costs
reduce the Company’s net interest margin and net interest
income. In addition, the Company’s bank customers could
take their money out of the bank and put it in alternative
investments. Checking and savings account balances and other
forms of customer deposits may decrease when customers
perceive alternative investments, such as the stock market, as
providing a better risk/return tradeoff. When customers move
money out of bank deposits and into other investments, the
Company may lose a relatively low cost source of funds,
increasing the Company’s funding costs and reducing the
Company’s net interest income.
The soundness of other financial institutions could
adversely affect the Company The Company’s ability to
engage in routine funding or settlement transactions could be
adversely affected by the actions and commercial soundness of
other domestic or foreign 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 and settles 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
136
U.S. BANCORP
generally, could lead to losses or defaults by the Company or
by other institutions and impact the Company’s
predominately United States-based businesses or the less
significant merchant processing and trust businesses it
operates in foreign countries. 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 further increased 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. This consolidation may
produce larger, better-capitalized and more geographically
diverse companies that are capable of offering a wider array of
financial products and services at more competitive prices. The
Company competes with other commercial banks, savings and
loan associations, mutual savings banks, finance companies,
mortgage banking companies, credit unions, investment
companies, credit card companies, and a variety of other
financial services and advisory 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.
The Company continually encounters technological
change The financial services industry is continually
undergoing rapid technological change with frequent
introductions of new technology-driven products and services.
The effective use of technology increases efficiency and enables
financial institutions to better serve customers and to reduce
costs. The Company’s future success depends, in part, upon its
ability to address customer needs by using technology to
provide products and services that will satisfy customer
demands, as well as to create additional efficiencies in the
Company’s operations. The Company may not be able to
effectively implement new technology-driven products and
services or be successful in marketing these products and
services to its customers. Failure to successfully keep pace with
technological change affecting the financial services industry
could negatively affect the Company’s revenue and profit.
Improvements in economic indicators disproportionately
affecting the financial services industry may lag
improvements in the general economy Should the
stabilization of the U.S. economy continue, the improvement of
certain economic indicators, such as unemployment and real
estate asset values and rents, may nevertheless continue to lag
behind the overall economy. These economic indicators typically
affect certain industries, such as real estate and financial services,
more significantly. Furthermore, financial services companies
with a substantial lending business, like the Company’s, are
dependent upon the ability of their borrowers to make debt
service payments on loans. Should unemployment or real estate
asset values fail to recover for an extended period of time, the
Company could be adversely affected.
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 process of eliminating banks as
intermediaries, known as “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 interest rates 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 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.
Company Risk Factors
The Company’s allowance for loan losses may not cover
actual losses When the Company loans money, or commits to
loan money, it incurs credit risk, or the risk of losses if its
borrowers do not repay their loans. Like all financial
institutions, the Company reserves for credit losses by
establishing an allowance through a charge to earnings to
provide for loan defaults and non-performance. The amount of
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. The Company also makes loans to borrowers where it
does not have or service the loan with the first lien on the
property securing its loan. For loans in a junior lien position, the
Company may not have access to information on the position or
performance of the first lien when it is held and serviced by a
third party and this may adversely affect the accuracy of the loss
estimates for loans of these types. 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
materially and adversely affect its financial results.
The Company may suffer increased losses in its loan
portfolio despite its underwriting practices The Company
seeks to mitigate the risks inherent in its loan portfolio by
adhering to specific underwriting practices. These practices
generally 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
U.S. BANCORP
137
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 in economic conditions or 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. For example, at
December 31, 2011, 21.3 percent of the Company’s commercial
real estate loans and 11.7 percent of its residential mortgages
were secured by collateral in California. Continued deterioration
in real estate values and underlying economic conditions in
California could result in significantly higher credit losses to the
Company.
The Company faces increased risk arising out of its
mortgage lending and servicing businesses During 2011,
the Company and its two primary banking subsidiaries,
entered into consent orders with various regulatory authorities
as a result of an interagency horizontal review of the
foreclosure practices of the 14 largest mortgage servicers in
the United States. The consent orders mandated certain
changes to the Company’s mortgage servicing and foreclosure
processes. The Company has made significant progress in
complying with the consent orders. In addition to the
interagency examination by U.S. federal banking regulators,
the Company has received inquiries from other governmental,
legislative and regulatory authorities on this topic, has
cooperated, and continues to cooperate, with these inquiries.
These inquiries may lead to other administrative, civil or
criminal proceedings, possibly resulting in remedies including
fines, penalties, restitution, or alterations in the Company’s
business practices. Additionally, reputational damage arising
from the consent orders or from other inquiries and industry-
wide publicity could also have an adverse effect upon the
Company’s existing mortgage business and could reduce
future business opportunities.
In addition to governmental or regulatory investigations,
the Company, like other companies with residential mortgage
origination and servicing operations, faces the risk of class
actions and other litigation arising out of these operations.
The Company has reserved for these matters, but the ultimate
resolution could exceed those reserves.
138
U.S. BANCORP
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 reduce its
earnings The Company has a portfolio of MSRs, which is the
right to service a mortgage loan–collect principal, interest and
escrow amounts–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.
The Company relies on its employees, systems and
certain counterparties, and certain failures could
materially adversely affect its operations 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, unauthorized access to its computer
systems, 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. Third parties with which the Company
does business could also be sources of operational risk to the
Company, including risks relating to breakdowns or failures
of those parties’ systems or employees. 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.
If personal, confidential or proprietary information of
customers or clients in the Company’s possession were to be
mishandled or misused, the Company could suffer significant
regulatory consequences, reputational damage and financial
loss. This mishandling or misuse could include, for example, if
the information were erroneously provided to parties who are
not permitted to have the information, either by fault of the
Company’s systems, employees, or counterparties, or where
the information is intercepted or otherwise inappropriately
taken by third parties.
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 business, earnings and capital from negative
publicity, is inherent in the Company’s business and increased
substantially because of the financial crisis beginning in 2008.
The reputation of the financial services industry in general has
been damaged as a result of the financial crisis and other
matters affecting the financial services industry, including
mortgage foreclosure issues. Negative public opinion about
the financial services industry generally or the Company
specifically could adversely affect the Company’s ability to
keep and attract customers, and expose the Company to
litigation and regulatory action. Negative publicity can result
from the Company’s actual or alleged conduct in any number
of activities, including lending practices, mortgage servicing
and foreclosure practices, corporate governance, regulatory
compliance, mergers and acquisitions, and related disclosure,
sharing or inadequate protection of customer information,
and actions taken by government regulators and community
organizations in response to that conduct. 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 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
MSRs; 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
U.S. BANCORP
139
asset balances; or significantly increase its accrued taxes
liability. For more information, refer to “Critical Accounting
Policies” in this Annual Report.
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
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
cost savings at levels or within timeframes originally
anticipated and may result in unforeseen integration
difficulties and dilution to existing shareholders 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.
There can be no assurance that the Company’s
acquisitions will have the anticipated positive results,
including results related to expected revenue increases, cost
savings, increases in geographic or product presence, and/or
other projected benefits from the acquisition. Integration
efforts could divert management’s attention and resources,
which could adversely affect the Company’s operations or
results. 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 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. 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.
Future acquisitions could be material to the Company
and it may issue additional shares of stock to pay for those
acquisitions, which would dilute current shareholders’
ownership interests.
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.
The Company’s business could suffer if the Company fails
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
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.
The Company has risk related to legal proceedings The
Company is involved in judicial, regulatory and arbitration
proceedings concerning matters arising from its business
activities. The Company establishes reserves for legal claims
when payments associated with the claims become probable
and the costs can be reasonably estimated. The Company may
still incur legal costs for a matter even if it has not established
a reserve. In addition, the actual cost of resolving a legal claim
may be substantially higher than any amounts reserved for
that matter. The ultimate resolution of any pending or future
legal proceeding, depending on the remedy sought and
granted, could materially adversely affect the Company’s
results of operations and financial condition.
140
U.S. BANCORP
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 environmental liabilities, its financial condition and
results of operations could be adversely affected.
The Company’s business and financial performance could
be adversely affected, directly or indirectly, by disasters,
by terrorist activities or by international hostilities Neither
the occurrence nor the potential impact of disasters, terrorist
activities or international hostilities can be predicted. However,
these occurrences could impact the Company directly (for
example, by interrupting the Company’s systems, which could
prevent the Company from obtaining deposits, originating
loans and processing and controlling its flow of business,
causing significant damage to the Company’s facilities or
otherwise preventing the Company from conducting business
in the ordinary course), or indirectly as a result of their impact
on the Company’s borrowers, depositors, other customers,
suppliers or other counterparties (for example, by damaging
properties pledged as collateral for the Company’s loans or
impairing the ability of certain borrowers to repay their loans).
The Company could also suffer adverse consequences to the
extent that disasters, terrorist activities or international
hostilities affect the financial markets or the economy in
general or in any particular region. These types of impacts
could lead, for example, to an increase in delinquencies,
bankruptcies or defaults that could result in the Company
experiencing higher levels of nonperforming assets, net charge-
offs and provisions for credit losses.
The Company’s ability to mitigate the adverse
consequences of these occurrences is in part dependent on the
quality of the Company’s resiliency planning, and the
Company’s ability, if any, to anticipate the nature of any such
event that occurs. The adverse impact of disasters, terrorist
activities or international hostilities also could be increased to
the extent that there is a lack of preparedness on the part of
national or regional emergency responders or on the part of
other organizations and businesses that the Company transacts
with, particularly those that it depends upon, but has no
control over. Additionally, the nature and level of natural
disasters may be exacerbated by global climate change.
The Company’s information systems may experience
interruptions or breaches in security The Company relies
heavily on communications and information systems to
conduct its business. Any failure, interruption or breach in
security of these systems could result in failures or disruptions
to its accounting, deposit, loan and other systems, and could
adversely affect its customer relationships. While the Company
has policies and procedures designed to prevent or limit the
effect of these possible events, there can be no assurance that
any such failure, interruption or security breach will not occur
or, if any does occur, that it will be adequately addressed. The
occurrence of any failure, interruption or security breach of the
Company’s systems could damage its reputation, result in a
loss of customer business, subject it to additional regulatory
scrutiny, or expose it to civil litigation and possible financial
liability.
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 a significant portion 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
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
U.S. BANCORP
141
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.
142
U.S. BANCORP
Executive Officers
Richard K. Davis
Terrance R. Dolan
Mr. Davis is Chairman, President and Chief Executive Officer
of U.S. Bancorp. Mr. Davis, 54, 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. 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, Human Resources, of
U.S. Bancorp. Ms. Carlson, 51, has served in this position
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, 51, has served in this position since
February 2007. Until that time, he served as Vice Chairman,
Wealth Management and Securities Services of U.S. Bancorp
since the merger of Firstar Corporation and U.S. Bancorp in
February 2001. 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.
Mr. Dolan is Vice Chairman, Wealth Management and
Securities Services, of U.S. Bancorp. Mr. Dolan, 50, has served
in this position since July 2010. From September 1998 to July
2010, Mr. Dolan served as U.S. Bancorp’s Controller. He
additionally held the title of Executive Vice President from
January 2002 until June 2010 and Senior Vice President from
September 1998 until January 2002.
Richard C. Hartnack
Mr. Hartnack is Vice Chairman, Consumer and Small
Business Banking, of U.S. Bancorp. Mr. Hartnack, 66, has
served in this position since April 2005, when he joined
U.S. Bancorp. 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, 49, has served in this position
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, Commercial Real Estate, of
U.S. Bancorp. Mr. Hoesley, 57, has served in this position
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 since joining U.S. Bancorp in 1992.
U.S. BANCORP
143
Pamela A. Joseph
P.W. Parker
Ms. Joseph is Vice Chairman, Payment Services, of
U.S. Bancorp. Ms. Joseph, 52, has served in this position 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.
Mr. Parker is Executive Vice President and Chief Credit
Officer of U.S. Bancorp. Mr. Parker, 55, 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.
Howell D. McCullough III
Richard B. Payne, Jr.
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, 55, 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.
Mr. Payne is Vice Chairman, Wholesale Banking, of
U.S. Bancorp. Mr. Payne, 64, has served in this position since
November 2010, when he assumed the additional
responsibility for Commercial Banking at U.S. Bancorp. From
July 2006, when he joined U.S. Bancorp, until November
2010, Mr. Payne served as Vice Chairman, Corporate
Banking at U.S. Bancorp. 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.
Lee R. Mitau
Jeffry H. von Gillern
Mr. Mitau is Executive Vice President and General Counsel of
U.S. Bancorp. Mr. Mitau, 63, has served in this position since
1995. Mr. Mitau also serves as Corporate Secretary. Prior to
1995 he was a partner at the law firm of Dorsey & Whitney
LLP.
Mr. von Gillern is Vice Chairman, Technology and
Operations Services, of U.S. Bancorp. Mr. von Gillern, 46, has
served in this position since July 2010. From April 2001,
when he joined U.S. Bancorp, until July 2010, Mr. von Gillern
served as Executive Vice President of U.S. Bancorp,
additionally serving as Chief Information Officer from July
2007 until July 2010.
144
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 and Chief Executive Officer
Ecolab Inc.
(Cleaning and sanitizing products)
St. Paul, Minnesota
Y. Marc Belton3,4
Executive Vice President, Global Strategy,
Growth and Marketing Innovation
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)
Chicago, Illinois
Roland A. Hernandez3,4
Founding Principal and Chief Executive Officer
Hernandez Media Ventures
(Media)
Pasadena, California
Joel W. Johnson3,6
Retired Chairman and Chief Executive Officer
Hormel Foods Corporation
(Consumer food products)
Scottsdale, Arizona
Olivia F. Kirtley1,3,5
Business Consultant
(Consulting)
Louisville, Kentucky
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
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’Maley2,5
Executive Chairman and Retired 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
President
Cincinnati State Technical and Community College
(Higher Education)
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
Former Chairman and Former Chief Executive Officer
Anheuser-Busch Companies, Inc.
(Consumer products)
St. Louis, Missouri
Doreen Woo Ho4,6
President
San Francisco Port Commission
(Government)
San Francisco, California
U.S. BANCORP
145
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Corporate Information
Executive Offi ces
U.S. Bancorp
800 Nicollet Mall
Minneapolis, MN 55402
Common Stock Transfer Agent
and Registrar
Computershare Investor Services acts
Dividends and
Reinvestment Plan
U.S. Bancorp currently pays quarterly
Privacy
U.S. Bancorp is committed to respecting the
privacy of our customers and safeguarding the
dividends on our common stock on or
financial and personal information provided
about the 15th day of January, April, July and
to us. To learn more about the U.S. Bancorp
October, subject to approval by our Board of
commitment to protecting privacy, visit
Directors. U.S. Bancorp shareholders can
usbank.com and click on Privacy Pledge.
choose to participate in a plan that provides
as our transfer agent and registrar, dividend
automatic reinvestment of dividends and/or
paying agent and dividend reinvestment plan
optional cash purchase of additional shares
Code of Ethics
U.S. Bancorp places the highest importance
administrator, and maintains all shareholder
of U.S. Bancorp common stock. For more
on honesty and integrity. Each year, every
records for the corporation. Inquiries related to
information, please contact our transfer agent,
U.S. Bancorp employee certifies compliance
shareholder records, stock transfers, changes
Computershare Investor Services.
with the letter and spirit of our Code of Ethics
of ownership, lost stock certificates, changes
of address and dividend payment should be
directed to the transfer agent at:
Computershare Investor 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:
Computershare Investor Services
500 Ross St., 6th Floor
Pittsburgh, PA 15219
Investor Relations Contacts
Judith T. Murphy
Executive Vice President
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
Corporate Investor and Public Relations
About U.S. Bank.
judith.murphy@usbank.com
Phone: 612-303-0783 or 866-775-9668
Diversity
U.S. Bancorp and our subsidiaries are
Financial Information
U.S. Bancorp news and financial results are
committed to developing and maintaining
a workplace that reflects the diversity
available through our website and by mail.
of the communities we serve. We support
Website For information about U.S. Bancorp,
including news, financial results, annual
reports and other documents filed with the
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.
Mail At your request, we will mail to you our
quarterly earnings, news releases, quarterly
financial data reported on Form 10-Q,
Equal Employment Opportunity/
Affi rmative Action
U.S. Bancorp and our subsidiaries are
Form 10-K, and additional copies of our
committed to providing Equal Employment
annual reports. Please contact:
Opportunity to all employees and applicants
Telephone representatives are available
Securities and Exchange Commission, access
weekdays from 8:00 a.m. to 6:00 p.m.
our home page on the internet at usbank.
Central Time, and automated support is
com, click on About U.S. Bank.
available 24 hours a day, 7 days a week.
Specifi c information about your account is
available on Computershare’s internet site by
clicking on the Investor ServiceDirect® link.
Independent Auditor
Ernst & Young LLP serves as the independent
U.S. Bancorp Investor Relations
auditor for U.S. Bancorp’s financial statements.
800 Nicollet Mall
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.
Minneapolis, MN 55402
investorrelations@usbank.com
Phone: 866-775-9668
Media Requests
Thomas J. Joyce
Senior Vice President
Corporate Public Relations
thomas.joyce@usbank.com
Phone: 612-303-3167
U.S. Bank, Member FDIC
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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U . S . B A N C O R P 2011 A n n u a l R e p o