U.S. Bancorp 2013 Annual Report
EXTENDI NG TH E ADVANTAGE
Corporate Profile
U.S. Bancorp, with assets of $364 billion at December 31,
2013, is a diversified financial services holding company and
the parent company of U.S. Bank, the nation’s fifth-largest
commercial bank.
In 2013, U.S. Bancorp was named Fortune magazine’s Most
Admired Superregional Bank for the third consecutive year.
U.S. Bancorp is headquartered in Minneapolis, Minnesota,
and is recognized for delivering consistent, industry-leading
financial results, practicing prudent risk management,
generating high levels of capital and developing innovative
services and delivery channels.
The Company offers a wide range of financial products and
services through four major lines of business: Consumer and
Small Business Banking, Wholesale Banking and Commercial
Real Estate, Payment Services, and Wealth Management
and Securities Services. U.S. Bancorp has 17.9 million
customers and 67,000 employees.
Business Scope
Regional
National
International
Consumer & Business Banking
and Wealth Management
Wholesale Banking
and Wealth Management
& Securities Services
Payments and Corporate Trust
Wealth Management
offices in New York City,
Wilmington, Delaware,
and Naples and
Palm Beach,
Florida
Corporate Trust
offices in London
and Dublin
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 defined 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 certified by SmartWood, a program
of the Rainforest Alliance, to the FSC® standards and contains a minimum
of 10 percent post-consumer recycled paper fibers.
EXTENDING THE ADVA NTAG E
Ongoing investments, initiatives and prudent
management practices have given U.S. Bancorp
a competitive advantage, allowing the Company to
operate from a position of strength, scale, growth
and profitability. This position creates advantages for
our shareholders and investors, our customers, our
employees and our communities — and supports
the recovery and strength of our nation’s economy.
We continue to manage, invest and innovate to
further extend this advantage.
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U.S. BANCORP
1
SEL ECTED FINANCIAL HIGHLIGHTS
Net Income
(Dollars in Millions)
Diluted Earnings
Per Common Share
(In Dollars)
7
4
6
,
5
6
3
8
,
5
2
7
8
,
4
6,000
3,000
5
0
2
,
2
0
7
1
3
,
3
3.50
6000
4500
1.75
3000
3
7
.
1
1500
7
9
.
0
0
0
0
.
3
4
8
6 2
4
.
.
2
Dividends Declared
Per Common Share
(In Dollars)
3.500
1.00
5
8
8
.
8
7
.
2.625
.50
1.750
0.875
0
2
.
0
2
.
0
0.000
0
5
.
09
10
11
12
13
09
10
11
12
13
09
10
11
12
13
Return on
Average Assets
(In Percents)
Return on Average
Common Equity
(In Percents)
Dividend Payout Ratio
(In Percents)
5
6
.
1
5
6
.
1
3
5
.
1
6
1
.
1
2
8
.
8
.
5
1
2
.
6
1
8
.
5
1
20
2.0
10
1.5
7
.
2
1
1.0
2
.
8
0.5
0
0.0
3
.
9
2
4
.
7
2
30
20
15
6
.
0
2
10
2
.
0
2
5
.
1
1
5
0
15
0
09
10
11
12
13
09
10
11
12
13
09
10
11
12
13
Net Interest Margin
(taxable-equivalent basis)
(In Percents)
8
8
.
3
7
6
.
3
5
6
.
3
8
5
.
3
4
4
.
3
Efficiency Ratio (a)
(In Percents)
Tier 1 Capital
(In Percents)
60
4
12
60
5
.
0
1
8
.
0
1
8
.
0
1
2
.
1
1
3
5
.
1
5
8
.
1
5
5
.
1
5
4
.
2
5
4
.
8
4
30
0
2
1
0
6
.
45
9
6
30
15
0
0
09
10
11
12
13
09
10
11
12
13
09
10
11
12
13
2.0
1.0
0
4.00
2.00
0
Average Assets
(Dollars in Millions)
360,000
1
6
8
,
5
8
2
0
6
3
,
8
6
2
180,000
9
4
8
,
2
4
3
0
8
6
,
2
5
3
4
6
2
,
8
1
3
40,000
20,000
Average Shareholders’
Equity
(Dollars in Millions)
360000
7
1
9
,
9
3
1
1
6
,
7
3
0
0
2
,
2
3
9
4
0
,
8
2
270000
7
0
3
6
2
180000
,
0
90000
0
0
Total Risk-based
Capital
(In Percents)
15
40000
.
9
30000
2
1
3
.
3
1
3
.
3
1
1
.
3
1
2
.
3
1
7.5
20000
10000
0
0
09
10
11
12
13
09
10
11
12
13
09
10
11
12
13
(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
1.00
0.75
0.50
0.25
0.00
30.0
22.5
15.0
7.5
0.0
12
9
6
3
0
15.00
11.25
7.50
3.75
0.00
EXTENDI NG THE ADVANTA GE
2013
v 2012
(3.4)%
(1.7)
(28.8)
(8.3)
4.4
(33.8)
3.3
3.1
6.0%
5.6
13.5
8.8
26.5
(2.5)
(2.5)
5.6%
3.5
2.9
2.9
6.3
6.1
5.3%
(4.1)
7.1
2.9
5.2
5.4
2012
v 2011
6.2%
5.5
(19.7)
19.1
14.7
86.9
15.9
14.0
15.4%
15.4
56.0
11.4
18.1
(1.4)
(1.4)
6.9%
13.9
8.1
7.7
10.6
16.8
6.4%
(5.6)
5.2
4.0
7.9
14.8
FINANCIAL SUMMARY
Year Ended December 31
(Dollars and Shares in Millions, Except Per Share Data)
2013
2012
2011
Total net revenue (taxable-equivalent basis) ..................................
Noninterest expense .....................................................................
Provision for credit losses .............................................................
Income taxes and taxable-equivalent adjustments .........................
$ 19,602
10,274
1,340
2,256
Net income ...............................................................................
Net (income) loss attributable to noncontrolling interests ............
5,732
104
$ 20,288
10,456
1,882
2,460
5,490
157
$ 19,108
9,911
2,343
2,066
4,788
84
Net income attributable to U.S. Bancorp ...................................
$ 5,836
$ 5,647
$ 4,872
Net income applicable to U.S. Bancorp common shareholders ...
$ 5,552
$ 5,383
$ 4,721
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 ................................
$ 3.02
3.00
.885
19.92
40.40
1,839
1,849
$ 2.85
2.84
.780
18.31
31.94
1,887
1,896
$ 2.47
2.46
.500
16.43
27.05
1,914
1,923
Financial Ratios
Return on average assets ..............................................................
Return on average common equity ................................................
Net interest margin (taxable-equivalent basis) ................................
Efficiency ratio(a) .............................................................................
Average Balances
Loans ............................................................................................
Investment securities .....................................................................
Earning assets ...............................................................................
Assets ...........................................................................................
Deposits ........................................................................................
Total U.S. Bancorp shareholders’ equity ........................................
Period End Balances
Loans ............................................................................................
Allowance for credit losses ............................................................
Investment securities .....................................................................
Assets ...........................................................................................
Deposits ........................................................................................
Total U.S. Bancorp shareholders’ equity ........................................
Capital Ratios
Tier 1 capital .................................................................................
Total risk-based capital .................................................................
Leverage .......................................................................................
Tangible common equity to tangible assets(b) .................................
Tangible common equity to risk-weighted assets
using Basel I definition(b) .............................................................
Tier 1 common equity to risk-weighted assets
using Basel I definition(b) .............................................................
Common equity tier 1 to risk-weighted assets estimated
using final rules for the Basel III standardized approach(b) ...........
Common equity tier 1 to risk-weighted assets
approximated using proposed rules for the Basel III
standardized approach released June 2012(b) ............................
Common equity tier 1 to risk-weighted assets
approximated using proposed rules for the Basel III
standardized approach released prior to June 2012(b) ................
1.65%
15.8
3.44
52.4
1.65%
16.2
3.58
51.5
1.53%
15.8
3.65
51.8
$227,474
75,046
315,139
352,680
250,457
39,917
$235,235
4,537
79,855
364,021
262,123
41,113
$215,374
72,501
306,270
342,849
235,710
37,611
$223,329
4,733
74,528
353,855
249,183
38,998
$201,427
63,645
283,290
318,264
213,159
32,200
$209,835
5,014
70,814
340,122
230,885
33,978
11.2%
13.2
9.6
7.7
10.8%
13.1
9.2
7.2
10.8%
13.3
9.1
6.6
9.1
9.4
8.8
—
—
8.6
9.0
—
8.1
—
8.1
8.6
—
—
8.2
(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 65.
U.S. BANCORP
3
EXTENDING OUR STRENGTH
Fellow Shareholders:
levels. We submitted our 2014 Comprehensive Capital Plan
U.S. Bancorp remains true to its core strengths — serving
to the Federal Reserve in early January of this year, and are
our customers and supporting our communities, engaging
awaiting regulatory approval to, once again, raise our dividend
our employees and helping our country. We reward our
and continue our stock buyback program.
shareholders by ensuring that the Company remains strong,
prudently managed and profitable.
Another record year
Performance vs. Peers since 2008
We achieved record net income of $5.8 billion for the year
2013 or $3.00 per diluted common share, representing a
Return on Average Assets
(In Percents)
5.6 percent increase over 2012. Our profitability measures were,
once again, industry-leading, including a return on average
assets of 1.65 percent, a return on average common equity
of 15.8 percent and an efficiency ratio of 52.4 percent, placing
1.40
7
3
.
1
7
1
1
.
0
1
1
.
us at the top of our peer group. Importantly, we returned
$4 billion, or 71%, of earnings to you, our shareholders,
through dividends and share buybacks — well within our goal
of returning between 60 to 80 percent of earnings each year.
I am particularly proud to have achieved these results during
a year that was marked by continued slow economic growth,
.70
0
a significant pullback in mortgage activity and ongoing
regulatory and legislative change and uncertainty. Our results
clearly demonstrate the benefits we derive from our diverse
15.0
2
.
4
1
mix of businesses and conservative risk profile.
Credit quality continues to be strong. Total net charge-offs
declined by 30.1 percent from 2012, while total nonperforming
assets decreased year-over-year by 23.7 percent (13.2 percent
excluding covered assets). The improvement in both net
charge-offs and nonperforming assets, as well as the overall
quality of our loan portfolio, allowed us to release $125 million
of reserves for credit losses in 2013. Our Company, as well as
the industry, is expected to continue to benefit from a relatively
stable credit environment as the economy steadily improves.
We continue to generate significant capital each quarter
through our earnings. Total U.S. Bancorp shareholders’
equity was $41.1 billion at December 31, 2013, compared
with $39.0 billion at December 31, 2012. Our capital ratios
7.5
0
80
40
0
5
8
.
0
3
7
.
0
9
5
.
0
9
1
.
0
8
0
.
0
2
3
.
0
USB Peer 1 Peer 2 Peer 3
Peer 4
Peer 5
Peer 6
Peer 7
Peer 8
Peer 9
Return on Average Common Equity
(In Percents)
5
.
1
1
6
.
9
4
.
8
9
7
.
8
.
4
8
.
0
3
.
2
USB Peer 1 Peer 2 Peer 3
Peer 4
Peer 5
Peer 6
Peer 7
Peer 8
Peer 9
Efficiency Ratio
(In Percents)
.
6
7
5
2
.
0
6
2
.
1
6
7
.
8
6
9
.
3
6
6
.
0
7
8
.
0
7
9
.
1
7
.
5
7
6 5
0
5
.
exceeded both regulatory requirements and our own target
USB Peer 1 Peer 2 Peer 3
Peer 4
Peer 5
Peer 6 Peer 7 Peer 8
Peer 9
Source: SNL and company reports, 1Q08 through 4Q13 annualized
Peer banks: BAC, BBT, FITB, JPM, KEY, PNC, RF, STI and WFC
4
U.S. BANCORP
1.40
1.05
0.70
0.35
0.00
15.00
11.25
7.50
3.75
0.00
80
60
40
20
0
EXTENDI NG THE ADVANTA GE
“Banking remains crucial to the recovery and the soundness of the nation’s economy.”
— Richard Davis
Heightened focus on regulation and compliance
compliance functions at U.S. Bancorp. Bill was previously
2013 was another year of increased federal banking regulation
Chief Credit Officer for U.S. Bancorp, an area he will continue
– with more expected to come in 2014.
to oversee in his new role. We already enjoy a well-deserved
As new regulations are finalized and become effective, we
respond quickly and seek to understand any impacts beyond
the initial rulings. Compliance has become a top priority for
our industry and, as a result, for every leader and employee
at U.S. Bancorp. Compliance is a foundation for trust — and
banking is a business of trust. Every bank must have a well-
run compliance function — and we have one. Our systems,
people and policies are in place to protect the Company, our
reputation as a leader among banks for our operating, credit
and risk profile, and Bill’s leadership in his expanded role
will serve to enhance that standing. Richard J. Hidy, who
previously held the role of Chief Risk Officer, retires from
U.S. Bancorp in March after 20 years of significant contribu-
tions to U.S. Bancorp and as a leader in building our risk
management reputation. We wish Rich all the best as he
begins this new chapter in his life.
customers and, consequently, our shareholders. We have
What’s ahead?
chosen to be active, vocal and visible within the industry and
U.S. Bancorp is in an enviable position. We are in the
play a leading role in coordinating with bank regulators about
businesses we want to be in, and we do not face the need
the possible outcomes and, importantly, the unintended
to divest of any businesses due to regulatory or profitability
consequences of regulatory over-reach.
We continue our focus on protecting our customers’ accounts
from fraud and cyber attacks. Threats to our Bank’s data
and customer information are persistent and increasing, and
we utilize a wide range of sophisticated fraud detection and
prevention tools to keep our Company and our customers
safe. U.S. Bank has also taken the lead to develop a
comprehensive and collaborative approach to defending
against cyber attacks on the financial services industry.
The banking industry will face more challenges in the coming
year and beyond, but banking remains crucial to the recovery
and, ultimately, the soundness of the nation’s economy.
Dealing directly and effectively with regulation is something all
banks must do for the sake of their customers, employees,
shareholders and the country. We take that responsibility very
seriously. We manage this company, not just for the benefit of
our reputation and the value we can return to shareholders,
but for the financial well-being of all of our constituents.
To further strengthen our focus on risk and compliance,
we recently promoted P.W. “Bill” Parker to the position of
Vice Chairman and Chief Risk Officer, overseeing all risk and
Richard K. Davis
Chairman, President and Chief Executive Officer
U.S. BANCORP
5
EXTENDING OUR STRENG TH
constraints. We continue to enjoy the benefits of the “flight
increase and deposits decrease as the recovery takes hold.
to quality” as customers recognize our exceptional products
However, for this current stage, deposits are still growing, an
and services, our superior financial performance and industry-
indication that a robust recovery has yet to begin. We’re not
leading debt ratings — all signs of an outstanding banking
at the inflection point yet, but dialogue with our customers
franchise. Our prudent management culture, a disciplined
leads us to believe that the recovery will accelerate in the
attention to measuring every aspect of our business and a
second half of this year. As I have said before, we are well-
commitment to aligning expenses with revenue have resulted
positioned to capitalize on the upturn. Until then, we will
in a balance sheet that is strong and growing, along with
continue to prudently manage our Company — watching our
a mix of business that is well diversified and a franchise
expenses and keeping them aligned with revenue, maintaining
performance that is consistent, predictable and repeatable.
and growing our market share and investing for the future.
We resist the temptation to enter businesses we don’t
understand; we don’t follow irrational players in the market
and we remain steadfastly diligent in evaluating potential
acquisitions that could only extend our success.
Opportunity to grow
We are asked regularly about our interest in acquisitions —
and our answer is always the same. We are interested in
deepening our market share where we already have a branch
2014 is beginning much like 2013 with corporations and
network. Our recent agreement to acquire branches in
consumers husbanding cash and foregoing discretionary
Chicago, which doubles our presence in that great city, is
spending and investments. Soon we will see consumers
a perfect example. We expect to be a net branch grower
begin to spend rather than accumulate. We will also see
in the coming years. We like branches. Some of them might
corporations begin to invest, rather than stockpile. Eventually,
not be traditional branches but, rather, in-store or on-site
we will expect to see spending and credit line utilization
branches in partnership with supermarkets, corporations,
Average Loans and Deposits
(Dollars in Billions)
243.8
245.0
247.4
222.4
225.2
220.3
256.9
252.4
229.4
232.8
260
230
200
hospitals, colleges or other high-traffic locations. We are
not interested in leap-frogging across states or acquiring a
few branches in a state where we have no critical mass or
presence. Additionally, we would like to continue to acquire
corporate trust and payments-related portfolios and companies;
260
acquisitions that increase competitive and operational scale in
these high value businesses. I have referred to our acquisition
245
focus as “one-offs.” By that I mean discrete, strategic acquisi-
230
tions which are smaller, rather than transformational, that are
priced correctly and enhance our franchise, capabilities and
215
product set and, ultimately, make sense for our shareholders.
200
4Q12
1Q13
2Q13
3Q13
4Q13
A strong team and a strong future
Deposits
Loans
6
U.S. BANCORP
I am very proud of our record full year 2013 earnings and
results. Our Company’s results are directly tied to the hard
work and dedication of our 67,000 employees, and I want to
take this opportunity to thank them for their contribution to
our success.
EXTENDI NG THE ADVANTA GE
EXTENDI NG THE ADVANTA GE
U.S. Bancorp Board of Directors (left to right)
U.S. Bancorp Managing Committee (left to right)
Doreen Woo Ho; President, San Francisco Port Commission
O’dell M. Owens, M.D., M.P.H.; President, Cincinnati State Technical
and Community College
Patrick T. Stokes; former Chairman and Chief Executive Officer,
Anheuser-Busch Companies, Inc.
David B. O’Maley; retired Chairman, President and Chief Executive Officer,
Ohio National Financial Services, Inc.
Joel W. Johnson; retired Chairman and Chief Executive Officer,
Hormel Foods Corporation
Victoria Buyniski Gluckman; retired Chairman and
Chief Executive Officer, United Medical Resources, Inc.
Y. Marc Belton; Executive Vice President, Global Strategy,
Growth and Marketing Innovation, General Mills, Inc.
Douglas M. Baker, Jr.; Chairman and Chief Executive Officer, Ecolab, Inc.
Richard K. Davis; Chairman, President and Chief Executive Officer,
U.S. Bancorp
Craig D. Schnuck; former Chairman and Chief Executive Officer,
Schnuck Markets, Inc.
James L. Chosy, Executive Vice President, General Counsel and
Corporate Secretary
Michael S. LaFontaine, Executive Vice President and
Chief Operational Risk Officer
P.W. (Bill) Parker, Vice Chairman and Chief Risk Officer
Jeffry H. von Gillern, Vice Chairman, Technology and Operations Services
Pamela A. Joseph, Vice Chairman, Payment Services
John R. Elmore, Vice Chairman, Community Banking and Branch Delivery
Richard K. Davis, Chairman, President and Chief Executive Officer
Howell D. (Mac) McCullough, III, Executive Vice President,
Chief Strategy Officer
Richard B. Payne, Vice Chairman, Wholesale Banking
Terrance R. Dolan, Vice Chairman, Wealth Management and
Securities Services
Jennie P. Carlson, Executive Vice President, Human Resources
Joseph C. Hoesley, Vice Chairman, Commercial Real Estate
Andrew Cecere, Vice Chairman and Chief Financial Officer
Olivia F. Kirtley; Business consultant
Mark G. Runkel, Executive Vice President and Chief Credit Officer
Arthur D. Collins, Jr.; retired Chairman and Chief Executive Officer,
Medtronic, Inc.
Jerry W. Levin; Chairman and Chief Executive Officer, Wilton Brands Inc.,
and Chairman and Chief Executive Officer, JW Levin Partners LLC
Roland A. Hernandez; Founding Principal and Chief Executive Officer,
Hernandez Media Ventures
Kent V. Stone, Vice Chairman, Consumer Banking Sales and Support
As we look forward to the coming year, we are mindful of
Sincerely,
the strength of our company and how we, as a bank, remain
an integral part of the growth and vibrancy of the nation’s
economy, our communities and the customers we serve and
support. We are focused on the future and confident in our
ability to deliver outstanding products, service and results for
the benefit of our customers, communities, employees and,
Richard K. Davis
ultimately, for you, our shareholders.
Chairman, President and Chief Executive Officer
February 21, 2014
U.S. BANCORP
7
EXTENDING OUR COVERAGE
In the past few years, U.S. Bancorp has made major
foreign exchange and derivatives for our customers. Our
investments to provide our customers with all the products,
2012 acquisition of AIS Fund Administration has enhanced
services and financial expertise they need and in all the
our Global Corporate Trust operational capabilities and
ways they want to use them — full-service branch locations,
allowed us to provide a wide range of support services to
specialized offices, on-the-go kiosks, or via online, mobile,
fund managers and investors in alternative assets.
voice and virtual channels. We are continuously extending
our channel delivery options and the geography of
U.S. Bancorp coverage.
Building depth while serving new markets
in and out of footprint
We continue to build depth in our existing markets by opening
Expanding product and service offerings
new branch locations and by acquiring branches. Our January
Across all lines of business, we are bringing new service
2014 agreement to purchase the Chicago branch banking
capabilities and product offerings to our customers. Through
operations of the Charter One Bank franchise, owned by
strategic business line acquisitions, hiring new expertise,
RBS Citizens Financial Group, also includes Charter One’s
internal innovations and new business models, we are able
Chicago small business operations and select middle market
to compete with any size financial services provider. We have
relationships. Once complete, the acquisition will nearly
expanded our capital markets activities, entering the municipal
double U.S. Bank’s deposit market share in the Chicago
bond and private placements businesses and investing in
metro area. We are also piloting a new Anchor Branch distri-
bution model that puts custom branches in a market, rather
than the traditional all-purpose structure. At the same time,
we are extending our non-branch business coverage into
new markets. In Wholesale Banking we are optimizing
distribution and putting more bankers where our customers
need them. We’ve enhanced Relationship Manager coverage,
and our contiguous state initiative puts new focus on markets
where U.S. Bank is known, but not yet prominent, and where
U.S. Bank has tremendous opportunities to grow and
increase market share.
Integrating delivery channels for a consistent
customer experience
Our customers want the same outstanding U.S. Bank service
and capabilities whether they are in a branch or using digital
media. To that end, we have made significant investments
in mobile device banking and online banking upgrades and
enhancements, not just to be the bank customers can always
access and can always take along, but also the bank that
creates an unrivaled customer experience. We know that it’s
not just the technology; it’s what we do with it to make banking
more dependable, portable and seamless across channels.
8
U.S. BANCORP
Building Deeper Relationships increases customer satisfactionBuilding Deeper Relationships (BDR)with our customers started as an exploratory project and has become a fundamental part of the U.S. Bancorp culture. We make the customer our focus, increase collaboration among business lines, foster the sharing of information and resources and delve deeper to understand needs and opportunities. An essential extension of BDR is our ongoing relationship review program and, in Corporate and Commercial Banking, our Voice of the Customer program brings customers in for facilitated discussion sessions on all aspects of their accounts. “Pilot is committed to providing high quality, innovative products.”
— Paul Morrisroe, Chairman and CEO, Pilot Chemical Company
EXTENDI NG THE ADVANTA GE
Pilot Chemical is a 62-year-old, privately owned and independent global specialty chemical company providing
high-quality products and services to the household and industrial detergent, personal care, lubricant, oil field,
emulsion polymerization, textile and agriculture industries. Pilot, headquartered in Cincinnati, Ohio, is an
industry leader in chemical innovation and has a world-class safety program. U.S. Bank was pleased to lead
the financing of a major Pilot acquisition in 2012 and in financing Pilot’s largest infrastructure investment
in the company’s history at its Middletown, Ohio, facility. Pilot is just one of the thousands of outstanding
companies U.S. Bank helps to achieve their growth and expansion goals.
Shown, left to right:
David M. Waizmann, Director of Finance and Accounting, Pilot Chemical Company
Steve Mullinger, Vice President, Commercial Banking, U.S. Bank
Paul Morrisroe, Chairman and CEO, Pilot Chemical Company
Pam Butcher, President and Chief Operating Officer, Pilot Chemical Company
Scan the photo and
see how our business
is your business.
U.S. BANCORP
9
EXTENDING HOR IZONS
A culture of innovation is active and productive at U.S. Bancorp.
We have invested heavily in the people and technology that
We are at the forefront of the industry in developing new tools
let us anticipate and meet the demand for banking that is
and technologies, new products and services, new business
available anytime, anywhere. Every branch now has the latest
structures and leadership skills — and new ways to serve
automation tools for opening accounts more quickly, advising
our customers.
At U.S. Bancorp, technology doesn’t replace people; it makes
them more capable and makes our company smarter. When
we look at the value of innovation, we look at the value it creates
for our customers — and ultimately for our shareholders.
customers on comparative benefits of products and for
developing a full picture of customer relationships. We
continuously enhance our card benefits and invest in the
systems that give every line of business the ability to
compete and win.
Innovation on site. Elavon®, a wholly owned subsidiary of U.S. Bancorp and a leading global payments provider, has
opened a mobile innovation center at its Atlanta headquarters to focus on payments-based mobile innovations.
The center, known internally as The Grove, is adding at least 50 new jobs to the market and is designed to foster
innovation, new technology and new product development for mobile payments, as well as expand on Elavon’s
existing product and service lines and leverage additional third party relationships. The Grove’s full-service,
cross-functional team operates as a separate business unit to keep pace with the growing demand by consumers
and businesses for the security and technology to drive mobile payments worldwide.
10
U.S. BANCORP
EXTENDI NG THE ADVANTA GE
“Innovation through The Grove fuels customers’ growth and, in turn, ours.”
— Marianne Johnson, Executive Vice President, Global Products and Innovation, Elavon
We have completely redesigned our online banking platform
for innovations in products, payments and Mobile and
and have taken the mobile banking space by storm with
Online Banking. The results in customer adoption and
innovations in digital and mobile capabilities. We have recently
revenue are substantial.
piloted or launched mobile account opening, Mobile Photo
Balance Transfer, voice commands, smartphone Pay a Person,
our Fanfare™ loyalty program, Go Mobile, Video Banking and
Travel Virtual Pay, to name just a few. In Payments, we have
our own “Shark Tank” to generate new ideas.
Innovation is everybody’s job
It’s not just the digital experts at U.S. Bank who are respon-
sible for extending our horizons and for innovative thinking.
“Innovate” is formalized in our explicit distinctive leadership
expectations for all leaders and managers, from the CEO and
U.S. Bank has been recognized as one of the most innova-
Managing Committee to every employee on the front line or
tive banks in the nation, and we win awards and top rankings
in the back office.
Shown below, far right, with members of The Grove team:
Guy Harris, President, Elavon North America
Scan the photo and
see how our business
is your business.
Innovation is more than technology
At U.S. Bank, we want all leaders and employees to be
always thinking of new ways to do their jobs, new ways
to design our products and new ways to structure their
businesses, innovating ways to make U.S. Bank different —
and better.
One way U.S. Bank stays abreast of changing customer
preferences and expectations is our Dynamic Dozen program.
It’s a changing group of “twenty-something” employees
from across the bank who advise management on the
viewpoint of young customers and bankers. They become
especially valuable as U.S. Bank intensifies its interactions
with customers on the social media scene through Facebook,
Twitter, LinkedIn and other sites.
11
Photo Bill PayU.S. Bank is the first major bank in the United States to offer Mobile Photo Bill Pay. Customers can set up bill payments simply by snapping a picture of their bills with their smartphone or tablet camera, eliminating the need for time-consuming information entering. It is always our goal to leverage mobile device capabilities and use innovative solutions to make U.S. Bank mobile banking the best and first choice.
EXTENDING OUR RE ACH
Headquartered in Goodlettsville, Tennessee, Dollar General Corporation has been delivering value to shoppers
for nearly 75 years by offering products that are frequently used and replenished, such as food, snacks, health
and beauty aids, cleaning supplies, basic apparel, housewares and seasonal items at low everyday prices in
convenient neighborhood locations. With over 11,000 stores in 40 states, Dollar General has more retail locations
in the U.S. than any other discount retailer. In addition to high quality private brands, Dollar General sells products
from America’s most-trusted manufacturers such as Procter & Gamble, Kimberly Clark, Unilever, Kellogg’s,
General Mills, Nabisco, Hanes, PepsiCo and Coca-Cola. U.S. Bank is proud to play a role in financing Dollar
General’s growth and success and in providing deposit, treasury management and trust services to the company.
Shown, left to right:
David Tehle, Chief Financial Officer, Dollar General
William Barnum, Senior Vice President,
National Corporate Banking, U.S. Bank
12
U.S. BANCORP
Scan the photo and
see how our business
is your business.
U.S. Bancorp is extending its reach in our footprint communities,
in our national businesses and in our global payments, treasury
management and corporate trust businesses internationally.
We extend our reach to serve ultra high net worth clients
through our Ascent™ Private Capital Management group in
Wealth Management, with its unique focus on helping families
with complex needs build a legacy and make a difference.
Through our high-grade fixed income group, we have
“ We are committed to delivering value and convenience to our customers every day.”
— David Tehle, Chief Financial Officer, Dollar General
EXTENDI NG THE ADVANTA GE
extended our reach to allow large credit-worthy customers
to issue debt to investors, and we can trade investments
for the benefit of our corporate and institutional clients.
Reaching out
Strategic acquisitions have extended our reach in some
areas, and innovative new products and services do the
same in other businesses, while collaboration with our
customers extends the reach, as well as depth of existing
relationships. Our industry-leading debt ratings and
financial performance have opened new doors in national
corporate banking as we vie for new, larger lending
opportunities, particularly in lead and top tier positions.
Those positions in turn, provide potential additional
ancillary services for those customers.
Strategic acquisitions and partnerships
Already one of the largest global providers of corporate
trust services, we continue to build scale and reach in our
securities services business. In November, U.S. Bancorp
Fund Services, LLC, a subsidiary of U.S. Bancorp,
acquired Quintillion Limited, an Ireland-domiciled full-service
hedge fund administrator, to support our strategic initiative
to expand our alternative investment servicing network for
the European investment community. In March, U.S. Bank
also purchased the municipal bond trustee business of
Deutsche Bank, adding approximately $57 billion to the
more than $3 trillion in assets currently under administra-
tion within U.S. Bank’s corporate trust division, further
strengthening our position as the #1 provider of municipal
Our FlexControl® online tool helps credit card customers control
trustee and agency services in the nation.
their payment schedules and avoid fees; our usbankConnect.com
In April, Elavon, a wholly owned subsidiary of U.S. Bancorp
and a global leader in payments solutions, and Banco
Santander created a joint venture to deliver merchant
services in Spain providing service, support and innovative
solutions to enable commerce for businesses of all sizes.
Mobile connects the world
Our online and mobile innovations extend our reach to
anywhere in the world and to new customers who value
the ease, speed and security of our digital innovations.
site gives small business owners free tools and resources and
includes a LinkedIn feature; our Go Mobile app pilot allowed
customers to test a service to quickly and securely pay for every-
day purchases with a wave of their iPhones; and we expanded
our Digital Wallet options with the addition of Square.
As commerce changes, as the world gets ever smaller and
as mobile devices multiply exponentially, U.S. Bank will stay
at the forefront of the global and mobile revolution, extending
our reach.
U.S. BANCORP
13
U.S. Bank’s commitment to expanding wholesale banking, corporate trust and custody, wealth management, fund services, high grade bonds, corporate real estate and other corporate businesses on a national scale is nowhere more apparent than in major cities in states along the east coast — particularly New York City, Boston and Charlotte. Growth in locations, employees, clients and revenue has been substantial as we serve the sophisticated banking, treasury management, credit and capital markets needs of large corporate and institutional clients. Additionally, with our leadership position and expertise in the payments industry, we can build even deeper relationships with our clients who do business nationally and globally. Today, we can compete with anyone in the business, with the best people and products in the industry.East coast distribution system serves expanding customer base EXTENDING
OUR C ONVE NIENCE
AND SER VICE
We believe that when the individuals, families and small
every customer’s experience with U.S. Bank, whether it’s
businesses in communities succeed, we all succeed. That’s
face-to-face, online, with our call centers or via a smart
what U.S. Bank is all about, and it’s integral to the way we
device. We share best practices across our 25-state branch
do business.
footprint so every branch has the skills to make customer
Customer experience makes all the difference
experience extraordinary.
Consumer Banking and Small Business Banking are
Client advocacy is not just for commercial banking and
U.S. Bank’s core businesses, representing 44 percent*
wealth management; we build deeper relationships and
of the revenue of U.S. Bancorp. Along with convenience
practice client advocacy in every branch office, bringing total
and service, we believe that customer experience is a key
focus to each customer interaction. It’s at the branch level
differentiator among banks, and we work to enhance
that we have made such strides in growing our small business
revenue. No longer is revenue generation solely the job of
the Business Banker; every branch manager now proactively
brings U.S. Bank to local businesses. For the past three
years, our branches have also provided the expertise and
service delivery needed by private banking clients.
From cities to small towns to campus and
corporate on-sites, U.S. Bank is there
Our branch locations are convenient to a wide range of
customers, from the largest metropolitan areas to smaller urban
and nonurban areas to specific customers at supermarkets,
colleges, hospitals, corporate campuses and more. We tailor
our buildings, our hours and our internal business structures
to meet the expectations of customers at each branch model.
We are as “local” as any competitor while bringing a full range
of resources for any level of transaction.
We want every small business to get stronger
We are committed to building relationships with our 1.3 million
small business customers by providing best-in-class lending,
deposit and business solutions — plus the personal touch of
a relationship manager. In addition to our small business loans
and solutions, newsletters, websites and experienced bank-
ers, we also support small businesses through numerous
specialized seminars and sponsorships across our markets.
U.S. Bank continues to be a strong supporter of the
U.S. Small Business Administration (SBA) lending programs.
U.S. Bank was the second largest SBA lender in the country
based on loan volume for fiscal year 2013 with $639 million
* Excluding Treasury and Corporate Support.
in volume and 2,519 loans committed. The totals represent
14
U.S. BANCORP
The right branch for the right marketU.S. Bank designs branches that fit the market. Recently U.S. Bank began piloting the Smart Branch. This innovative concept was designed to bring full-service banking to densely populated locations with limited operating space. A full-time personal banker is available to open and service personal and business deposit accounts, credit products, cashier’s checks, gift cards and more. The Smart Branch replaces a traditional teller line with a customer-centric personal banking station adjacent to state-of-the-art ATMs that provide image enabled depos-its and images of deposits on receipts. They also dispense and accept cash in multiple denominations and provide language choice and product offers unique to each customer. Smartphone charging stations and wireless tablets are available for customer convenience. EXTENDI NG THE ADVANTA GE
Rustica Hardware in Provo, Utah, has grown tremendously since its inception in 2007 when Kate started
finding old barn doors and refurbishing them for homeowners. Today, Rustica’s amazing product line includes
a wide array of classic and custom-designed doors and hardware for individuals, architects and builders.
U.S. Bank recognized that the company’s financial needs were as unique as its products and was able to
customize financing for a commercial real estate purchase and working capital, just right for Kate and Paul’s
business plan. We also provided financial services to keep their success on track, including deposit accounts
and merchant services. Today, with help from U.S. Bank, they are in a beautiful (and unique) new facility that
houses their showroom, design studio and plant.
“We know with each stage of growth, we can count on U.S. Bank.”
— Kate Allen, CEO, and Paul Allen, President, Rustica Hardware
Scan the photo and
see how our business
is your business.
a 22 percent increase in dollar volume over 2012 and
Tennessee. In addition, the company also ranked first in
a 52 percent increase in the number of loans provided.
units in Iowa, Kansas City, Minnesota, Nevada, San Diego,
U.S. Bank ranked first in both units and volume in the
Santa Ana, and St. Louis. U.S. Bank was in the top three
SBA districts of Kentucky, Portland, Seattle/Spokane and
in either units or volume in a total of 22 SBA districts.
U.S. BANCORP
15
EXTENDING OUR COMMITMENT
U.S. Bank provides billions of dollars in community development
of commercial economic activity in underserved communities.
investments across the country each year. This commitment
Some of the diverse projects include a science center near Los
to strengthening the foundations of our communities includes
Angeles to encourage math and science literacy, a community
community development loans, tax credit investments,
center in tornado-damaged Kentucky, a new retail plaza in a
U.S. Bank Foundation grants, corporate giving, nonprofit
distressed Brooklyn neighborhood and financing equipment
sponsorships and employee volunteerism. Our community
for a manufacturing plant in rural Wisconsin.
development efforts are designed to provide affordable
housing, transform previously abandoned buildings into new
spaces with new purposes and restore communities through
the acquisition and renovation of foreclosed properties, the
development of renewable energy facilities and the generation
Extending a hand — our employees tutor,
feed, plant and build
Our commitment to communities is not only financial, but also
personal through partnerships with nonprofit organizations
and through the extraordinary volunteer energy of our
U.S. Bank invests hundreds of millions of dollars of financing every year for the development of affordable
housing in communities across the nation through our Community Lending division and through our subsidiary
U.S. Bancorp Community Development Corporation. U.S. Bank partners with both nonprofit and for-profit
developers who are bringing to life a full range of rental living options for families, seniors and those with
special needs. Together with these partners, U.S. Bank helps address the shortage of affordable housing that
exists in nearly every state where we do business. Over the past five years, U.S. Bank has also partnered with
Habitat for Humanity in the development of nearly 3,000 for-sale Habitat homes spanning 30 states. Here we
show how affordable housing can complement the character of neighborhoods and be real assets to communities.
16
U.S. BANCORP
EXTENDI NG THE ADVANTA GE
“Our goal is to transform inner cities and small towns across America.”
— Zack Boyers, Chairman and Chief Executive Officer, U.S. Bancorp Community Development Corporation
67,000 employees. Last year, U.S. Bank volunteers reported
Helping customers and communities
more than a quarter of a million volunteer hours supporting
make dreams come true
thousands of organizations and causes. U.S. Bank encourages
It is not just special financing, grants or gifts that U.S. Bank
employees’ participation by providing up to 16 hours of
can offer to communities. At the very heart of what we do is
paid time off each year for them to volunteer at nonprofits.
to offer financial literacy programs and provide a full menu of
U.S. Bank’s Dollars for Doing program also recognizes
high-quality products and services that meet the diverse needs
employee volunteerism with contributions from the U.S. Bank
of our customers and help them achieve their financial goals.
Foundation to match volunteer time.
We’re helping to provide an economic foundation for our
customers because, in turn, financially healthy residents support
and encourage economically and culturally strong communities.
Donating a dollar to charity introduces
our customers to online bill pay
U.S. Bank Bill Pay Giving has generated $450,000 in contri-
butions from our customers to four nonprofit organizations
since it began in 2011 and nearly $166,000 in 2013 alone.
Nearly 340,000 customers have made a charitable contribu-
tion through Bill Pay Giving. The program was designed to
introduce customers to online bill paying by making their first
“payment” a $1 contribution to charities supporting disaster
relief, environmental protection, education and arts, and
hunger and poverty relief. U.S. Bank matches customers’
“payment” donations up to $50,000 annually. U.S. Bank was
awarded the “Best Corporate Social Responsibility Initiative”
in 2012 by London-based Retail Banking International and
our company also been recognized by United Way and
Junior Achievement.
Shown, left to right starting with facing page:
Hillcrest Villas, developed by a nonprofit affordable housing and service provider
in Thousand Oaks, California; Bancroft School Apartments, a LEED certified
renovation and new construction affordable housing project in the Manheim Park
Neighborhood of Kansas City, Missouri; Germantown Village, a new, 60-unit
affordable-housing community in Dayton, represents a major milestone for the
Germantown-Broadway area as the first completed development in a neighborhood
revitalization initiative.
U.S. BANCORP
17
Extended familyWe take care of our own. U.S. Bank employees support one another in times of need — a natural disaster, a death in the family, an illness, a military deployment. The Employee Assistance Fund (EAF) allows employees to help their colleagues facing financial crises beyond their control when they’ve exhausted their ability to pay for essential expenses. The EAF is funded by employee contributions. Since its inception in 2008, the EAF has granted $3 million to employees in need. In 2013 alone, nearly 12,000 employees donated almost a million dollars to EAF through payroll donations. EXTENDING AN OFFER
Hiring heroes
We honor and support the men and women of the
U.S. military — within U.S. Bank and in the communities
we serve — through our Proud to Serve program.
Hiring veterans is a priority for U.S. Bank. The training,
experience, leadership skills and commitment they bring
makes us a stronger company and a better place to work.
Since January 2012, U.S. Bank has hired more than 1,100
veterans. More than 2,000 veterans work at U.S. Bank,
including members of the National Guard and Reserve.
In 2013, U.S. Bank was a Secretary of
Defense Employer Support Freedom
Award honoree, the Department of
Defense’s highest recognition given to
employers for their support of employees
who are serving in the National Guard
and Reserve. U.S. Bank was one of
nearly 2,900 companies nominated,
one of only 30 finalists and one of only
15 honorees. U.S. Bancorp Chairman,
President and CEO Richard Davis
accepted the award at a ceremony
in Washington, DC in September.
Scan the photo to see
more about our programs
for veterans.
Coming home to a home
Supporting military and veterans’ families
Throughout their U.S. Bank careers, veterans and military
family members can rely on U.S. Bank’s military-friendly
programs and policies to help them balance their unique
personal and professional needs.
For example, veterans who join U.S. Bank receive a
personal welcome from another employee veteran and a
Proud to Serve lapel pin. We give newly-hired veterans extra
paid time off to participate in re-integration activities or attend
to service-related medical issues. U.S. Bank leaders make
phone calls to families of deployed military employees, and
we give special consideration to transfer requests prompted
by a spouse’s military reassignment.
We also offer a variety of financial education products
specifically for customers serving in the military and their
families, and we offer special support through the U.S. Bank
Military Service Center, a dedicated 800-number customer
service line for military members and their families.
In addition to receiving the Freedom Award (see above right),
we’ve been recognized by G.I. Jobs magazine, Military Times
magazine and U.S. Veterans Magazine.
Photograph courtesy of Northwest Florida Daily News Photographer: Devon Ravine
U.S. Bank was proud to donate four homes in 2013 to
nationally recognized military organizations dedicated
to assisting veterans. The homes are now occupied by
combat-wounded soldiers and their families, one each
in Minnesota, California, North Carolina and Florida.
The goal of U.S. Bank’s “Homes for Heroes” program is
to help put veterans on the path to success as civilians.
Shown here, Jeremy Hardy and his family explore their
new home in Niceville, Florida.
18
U.S. BANCORP
EXTENDING TH E ADVANTAG E
The following pages discuss in detail the financial results
we achieved in 2013 — results that position U.S. Bancorp
to Extend the Advantage.
Financials Table of Contents
Management’s Discussion and Analysis
Overview .............................................................
Statement of Income Analysis ...............................
Balance Sheet Analysis .......................................
Corporate Risk Profile ...........................................
Overview .........................................................
Credit Risk Management ..................................
Residual Value Risk Management .....................
Operational Risk Management .........................
Interest Rate Risk Management .......................
Market Risk Management ................................
Liquidity Risk Management ..............................
Capital Management ........................................
Fourth Quarter Summary ......................................
Line of Business Financial Review .........................
Non-GAAP Financial Measures .............................
Accounting Changes ............................................
Critical Accounting Policies ...................................
Controls and Procedures ......................................
Reports of Management and
Independent Accountants....................................
Consolidated Financial Statements and Notes ..........
20
22
27
35
35
36
50
50
51
53
54
58
59
61
65
67
67
70
71
74
Five-year Consolidated Financial Statements ............ 141
Quarterly Consolidated Financial Data ...................... 143
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. Global and domestic economies
could fail to recover from the recent economic downturn or could
experience another severe contraction, which could adversely affect
U.S. Bancorp’s revenues and the values of its assets and liabilities.
Global financial markets could experience a recurrence of significant
turbulence, which could reduce the availability of funding to certain
financial institutions and lead to a tightening of credit, a reduction
of business activity, and increased market volatility. Continued stress
in the commercial real estate markets, as well as a delay or failure
of recovery in the residential real estate markets could cause
additional credit losses and deterioration in asset values. In addition,
U.S. Bancorp’s business and financial performance is likely to be
negatively impacted by recently enacted and future legislation and
regulation. U.S. Bancorp’s results could also be adversely affected by
deterioration in general business and economic conditions; changes
in interest rates; deterioration in the credit quality of its loan portfolios
or in the value of the collateral securing those loans; deterioration in
the value of securities held in its investment securities portfolio; legal
and regulatory developments; increased competition from both banks
and non-banks; changes in customer behavior and preferences;
effects of mergers and acquisitions and related integration; effects of
critical accounting policies and judgments; and management’s ability
Supplemental Financial Data .................................... 146
to effectively manage credit risk, residual value risk, market risk,
Company Information ............................................... 147
operational risk, interest rate risk and liquidity risk.
Executive Officers .................................................... 157
Additional factors could cause actual results to differ from expectations,
Directors .................................................................. 159
including the risks discussed in the “Corporate Risk Profile” section
on pages 35 – 58 and the “Risk Factors” section on pages 147–156
of this report. However, factors other than these also could adversely
affect U.S. Bancorp’s results, and the reader should not consider
these factors to be a complete set of all potential risks or uncertainties.
Forward-looking statements speak only as of the date hereof, and
U.S. Bancorp undertakes no obligation to update them in light of new
information or future events.
U.S. BANCORP
19
Diversity and Inclusion
U.S. Bancorp and our subsidiaries are
committed to developing and maintaining
a workplace that reflects the diversity
of the communities we serve. We value
creating a culture of inclusion where
individual differences are valued and
respected, which enables us to innovate
and drive business success. We support
a work environment where each individual
who shares the fundamental values of the
company has an opportunity to contribute
and grow based on merit.
Equal Opportunity
and Affirmative Action
U.S. Bancorp and our subsidiaries are
committed to providing Equal Employment
Opportunity to all employees and applicants
for employment. In keeping with this
commitment, employment decisions are
made based on abilities, not race, color,
religion, national origin or ancestry, gender,
age, disability, veteran status, sexual
orientation, marital status, gender identity
or expression, genetic information or
any other factors protected by law. The
corporation complies with municipal,
state and federal fair employment laws,
including regulations applying to federal
contractors.
U.S. Bancorp, including each of our
subsidiaries, is an Equal Opportunity
Employer committed to creating a
diverse workforce.
Accessibility
U.S. Bank is committed to providing
ready access to our products and services
so all of our customers, including people
with disabilities, can succeed financially.
To learn more, visit usbank.com and
click on Accessibility.
CORPORATE INFORMATION
Executive Offices
U.S. Bancorp
800 Nicollet Mall
Minneapolis, MN 55402
Common Stock Transfer Agent
and Registrar
Computershare acts as our transfer agent
and registrar, dividend paying agent and
dividend reinvestment plan administrator,
and maintains all shareholder records for
the corporation. Inquiries related to share-
holder records, stock transfers, changes
of ownership, lost stock certificates,
changes of address and dividend payment
should be directed to the transfer agent at:
Computershare
P.O. Box 30170
College Station, TX 77842-3170
Phone: 888-778-1311 or
201-680-6578 (international calls)
Internet: www.computershare.com/investor
Registered or Certified Mail:
Computershare
211 Quality Circle, Suite 210
College Station, TX 77845
Telephone representatives are available
weekdays from 8:00 a.m. to 6:00 p.m.
Central Standard Time, and automated
support is available 24 hours a day, 7 days
a week. Specific information about your
account is available on Computershare’s
Investor Centre™ website.
Independent Auditor
Ernst & Young LLP serves as the
independent auditor for U.S. Bancorp’s
financial statements.
Common Stock Listing
and Trading
U.S. Bancorp common stock is listed and
traded on the New York Stock Exchange
under the ticker symbol USB.
Dividends and
Reinvestment Plan
U.S. Bancorp currently pays quarterly
dividends on our common stock on or
about the 15th day of January, April,
July and October, subject to approval
by our Board of Directors. U.S. Bancorp
shareholders can choose to participate
in a plan that provides automatic
reinvestment of dividends and/or optional
cash purchase of additional shares of
U.S. Bancorp common stock. For more
information, please contact our transfer
agent, Computershare.
U.S. Bank, Member FDIC
Investor Relations Contact
Sean C. O’Connor, CFA
Senior Vice President
Investor Relations
sean.oconnor@usbank.com
Phone: 612-303-0778 or 866-775-9668
Financial Information
U.S. Bancorp news and financial results are
available through our website and by mail.
Website For information about
U.S. Bancorp, including news, financial
results, annual reports and other
documents filed with the Securities and
Exchange Commission, access our home
page on the internet at usbank.com,
click on About U.S. Bank.
Mail At your request, we will mail to you
our quarterly earnings, news releases,
quarterly financial data reported on Form
10-Q, Form 10-K and additional copies
of our annual reports. Please contact:
U.S. Bancorp Investor Relations
800 Nicollet Mall
Minneapolis, MN 55402
investorrelations@usbank.com
Phone: 866-775-9668
Media Requests
Thomas J. Joyce
Senior Vice President
Corporate Public Relations
thomas.joyce@usbank.com
Phone: 612-303-3167
Privacy
U.S. Bancorp is committed to respecting
the privacy of our customers and
safeguarding the financial and personal
information provided to us. To learn more
about the U.S. Bancorp commitment
to protecting privacy, visit usbank.com
and click on Privacy.
Code of Ethics
At U.S. Bancorp, we value high ethical
standards above all else. Our ethical prin-
ciples — integrity, respect, responsibility
and good citizenship — guide everything
we do. Demonstrating these principles
through our words and actions is how
we put the power of US to work for our
employees, customers, shareholders and
communities. Each year, every employee
certifies compliance with the letter and
spirit of our Code of Ethics and Business
Conduct. For details about our Code
of Ethics and Business Conduct,
visit usbank.com and click on About
U.S. Bank and Working at U.S. Bank.
Management’s Discussion and Analysis
Overview
U.S. Bancorp and its subsidiaries (the “Company”) achieved
record earnings in 2013, reflecting growth in its balance
sheet businesses, sound expense management and
improved credit quality. The Company’s results reflected its
continuing ability to manage through an environment marked
by slow economic growth, continued regulatory and
legislative change and uncertainty, as its diversified mix of
businesses and conservative risk profile mitigated the impact
of lower mortgage banking activity during 2013. The
Company experienced solid growth in loans and deposits
during 2013, as it continued to expand and deepen
relationships with current customers, as well as acquire new
customers and market share. In addition, growth in several of
the Company’s fee-based revenue categories helped to
offset the decline in mortgage banking revenue. With
expanded distribution and scale, enhanced products,
services and capabilities, and gains in market share, the
Company remains well positioned to capitalize on future
growth opportunities.
The Company earned $5.8 billion in 2013, an increase of
3.3 percent over 2012, principally due to a lower provision
for credit losses and controlled expenses, partially offset by
lower total net revenue. Total net revenue declined from the
prior year as a result of lower net interest income, due to a
decrease in net interest margin, and lower noninterest
income, due primarily to a decrease in mortgage banking
revenue. The Company’s credit quality continued to improve
throughout the year, as reflected by the decrease in net
charge-offs and nonperforming assets. The Company
continued to focus on effectively controlling expenses,
achieving an industry-leading efficiency ratio (the ratio of
noninterest expense to taxable-equivalent net revenue,
excluding net securities gains and losses) in 2013 of
52.4 percent. In addition, the Company’s return on average
assets and return on common equity were 1.65 percent and
15.8 percent, respectively, the highest among the
Company’s peers.
The Company continues to generate significant capital
through earnings, and returned 71 percent of its 2013
earnings to common shareholders in the form of dividends
and common share repurchases, while maintaining a very
strong capital base. Using the final rules for the Basel III
standardized approach, as if fully implemented, the
Company’s estimated common equity tier 1 to risk-weighted
assets ratio was 8.8 percent at December 31, 2013 — above
the Company’s targeted ratio of 8.0 percent and well above
the minimum of 7.0 percent required in 2019. The Company
had a Tier 1 common equity to risk-weighted assets ratio
(using Basel I definition) of 9.4 percent and a Tier 1 capital
ratio of 11.2 percent at December 31, 2013. In addition, at
December 31, 2013, the Company’s total risk-based capital
ratio was 13.2 percent, and its tangible common equity to
risk-weighted assets ratio was 9.1 percent (refer to “Non-
GAAP Financial Measures” for further information on the
calculation of certain of these measures). 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.
In 2013, the Company’s loans and deposits grew
significantly. Average loans and deposits increased
$12.1 billion (5.6 percent) and $14.7 billion (6.3 percent),
respectively, over 2012. Loan growth reflected increases in
residential mortgages, commercial loans, commercial real
estate loans and credit card loans, partially offset by
decreases in other retail loans and loans covered by loss
sharing agreements with the Federal Deposit Insurance
Corporation (“FDIC”) (“covered” loans), which is a run-off
portfolio. Deposit growth reflected increases in interest
checking, money market and savings deposits.
The Company’s provision for credit losses decreased
$542 million (28.8 percent) in 2013, compared with 2012.
Net charge-offs decreased $632 million (30.1 percent) in
2013, compared with 2012, principally due to improvement
in the commercial, commercial real estate, residential
mortgages and home equity and second mortgages
portfolios. The provision for credit losses was $125 million
less than net charge-offs in 2013, compared with
$215 million less than net charge-offs in 2012.
20
U.S. BANCORP
TABLE 1 Selected Financial Data
Year Ended December 31
(Dollars and Shares in Millions, Except Per Share Data)
2013
2012
2011
2010
2009
Condensed Income Statement
Net interest income (taxable-equivalent basis) (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,828
Noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,765
Securities gains (losses), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9
Total net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,602
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,274
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,340
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,988
Taxable-equivalent adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
224
Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,032
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 . . . . . . . . . . . . . . . . $
5,732
104
5,836
5,552
1.65%
15.8
3.44
52.4
.64
3.02
3.00
.885
19.92
40.40
1,839
1,849
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $227,474
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,723
Investment securities (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
75,046
Earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
315,139
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
352,680
Noninterest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
69,020
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
250,457
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,683
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,280
Total U.S. Bancorp shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39,917
Period End Balances
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $235,235
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
79,855
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
364,021
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
262,123
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,049
Total U.S. Bancorp shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41,113
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tangible common equity to tangible assets (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tangible common equity to risk-weighted assets using Basel I definition (d) . . . . .
Tier 1 common equity to risk-weighted assets using Basel I definition (d) . . . . . . . . .
Common equity tier 1 to risk-weighted assets estimated using final rules for the
2,037
4,537
Basel III standardized approach (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.8
Common equity tier 1 to risk-weighted assets approximated using proposed
rules for the Basel III standardized approach released June 2012 (d) . . . . . . . . . .
Common equity tier 1 to risk-weighted assets approximated using proposed
rules for the Basel III standardized approach released prior to June
2012 (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
–
1.93%
11.2%
13.2
9.6
7.7
9.1
9.4
$ 10,969
9,334
(15)
20,288
10,456
1,882
7,950
224
2,236
$ 10,348
8,791
(31)
19,108
9,911
2,343
6,854
225
1,841
$
$
$
5,490
157
5,647
5,383
2.85
2.84
.780
18.31
31.94
1,887
1,896
$
$
$
4,788
84
4,872
4,721
2.47
2.46
.500
16.43
27.05
1,914
1,923
$
$
$
$
9,788
8,438
(78)
18,148
9,383
4,356
4,409
209
935
3,265
52
3,317
3,332
1.74
1.73
.200
14.36
26.97
1,912
1,921
$
$
$
$
8,716
8,403
(451)
16,668
8,281
5,557
2,830
198
395
2,237
(32)
2,205
1,803
.97
.97
.200
12.79
22.51
1,851
1,859
1.65%
16.2
3.58
51.5
.97
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
$215,374
7,847
72,501
306,270
342,849
67,241
235,710
28,549
28,448
37,611
$223,329
74,528
353,855
249,183
25,516
38,998
$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
$
2,671
4,733
$
3,774
5,014
$
5,048
5,531
$
5,907
5,264
2.12%
2.39%
2.81%
2.70%
10.8%
13.1
9.2
7.2
8.6
9.0
–
8.1
–
10.8%
13.3
9.1
6.6
8.1
8.6
–
–
10.5%
13.3
9.1
6.0
7.2
7.8
–
–
8.2
7.3
9.6%
12.9
8.5
5.3
6.1
6.8
–
–
–
(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 on available-for-sale investment securities and any premiums or discounts recorded related to the transfer of investment securities at fair value
from available-for-sale to held-to-maturity.
(d) See Non-GAAP Financial Measures beginning on page 65.
U.S. BANCORP
21
Earnings Summary The Company reported net income
attributable to U.S. Bancorp of $5.8 billion in 2013, or $3.00
per diluted common share, compared with $5.6 billion, or
$2.84 per diluted common share, in 2012. Return on average
assets and return on average common equity were 1.65
percent and 15.8 percent, respectively, in 2013, compared
with 1.65 percent and 16.2 percent, respectively, in 2012.
The results for 2012 included an $80 million expense accrual
for a mortgage foreclosure-related regulatory settlement. The
provision for credit losses was $125 million lower than net
charge-offs for 2013, compared with $215 million lower than
net charge-offs for 2012.
Total net revenue, on a taxable-equivalent basis, for
2013 was $686 million (3.4 percent) lower than 2012,
reflecting a 1.3 percent decrease in net interest income and
a 5.8 percent decrease in noninterest income. The decrease
in net interest income from the prior year was the result of an
increase in average earning assets, offset by a decrease in
the net interest margin. Noninterest income decreased
primarily due to lower mortgage banking revenue and other
revenue, partially offset by increases in trust and investment
management fees, payments-related revenue and
investment products fees.
Noninterest expense in 2013 decreased $182 million
(1.7 percent), compared with 2012, primarily due to lower
mortgage servicing review-related professional services
expense, the $80 million expense accrual for a mortgage
foreclosure-related regulatory settlement recorded in 2012
and decreases in insurance-related costs and other
expenses, partially offset by higher costs related to
investments in tax-advantaged projects and employee
benefits expense.
Acquisitions In February 2013, the Company acquired
Collective Point of Sale Solutions, a Canadian merchant
processor. The Company recorded approximately
$34 million of assets, including intangibles, and
approximately $4 million of liabilities with this transaction.
In November 2013, the Company acquired Quintillion
Holding Company Limited, a provider of fund administration
services to alternative investment funds. The Company
recorded approximately $57 million of assets, including
intangibles, and assumed approximately $10 million of
liabilities with this transaction.
In January 2012, the Company acquired the banking
operations of BankEast, a subsidiary of BankEast Corporation,
from the FDIC. This transaction did not include a loss sharing
agreement. The Company acquired approximately
$261 million of assets and assumed approximately
$252 million of deposits from the FDIC with this transaction.
In November 2012, the Company acquired the hedge
fund administration servicing business of Alternative
Investment Solutions, LLC. The Company recorded
22
U.S. BANCORP
approximately $108 million of assets, including intangibles,
and approximately $3 million of liabilities with this transaction.
In December 2012, the Company acquired FSV
Payment Systems, Inc., a prepaid card program manager
with a proprietary processing platform. The Company
recorded approximately $243 million of assets, including
intangibles, and approximately $28 million of liabilities with
this transaction.
Statement of Income Analysis
Net Interest Income Net interest income, on a taxable-
equivalent basis, was $10.8 billion in 2013, compared with
$11.0 billion in 2012 and $10.3 billion in 2011. The
$141 million (1.3 percent) decrease in net interest income in
2013, compared with 2012, was primarily the result of lower
net interest margin, partially offset by higher average earning
assets. The net interest margin in 2013 was 3.44 percent,
compared with 3.58 percent in 2012 and 3.65 percent in
2011. The decrease in the net interest margin in 2013,
compared with 2012, primarily reflected lower reinvestment
rates on investment securities, as well as growth in the
investment portfolio, and lower rates on loans, partially offset
by lower rates on deposits and a reduction in higher cost
long-term debt. Average earning assets increased
$8.9 billion (2.9 percent) in 2013, compared with 2012,
driven by increases in loans and investment securities,
partially offset by decreases in loans held for sale and in
other earning assets, primarily due to the deconsolidation of
certain consolidated variable interest entities (“VIEs”) during
2013. 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 $227.5 billion in 2013,
compared with $215.4 billion in 2012. The $12.1 billion
(5.6 percent) increase was driven by growth in residential
mortgages, commercial loans, commercial real estate loans
and credit card loans, partially offset by decreases in other
retail loans and covered loans. Average residential
mortgages increased $7.7 billion (19.1 percent), reflecting
origination and refinancing activity due to the low interest
rate environment during the period. Average commercial
and commercial real estate loans increased $6.4 billion
(10.6 percent) and $1.7 billion (4.7 percent), respectively,
driven by higher demand for loans from new and existing
customers. Average credit card balances increased
$160 million (1.0 percent) in 2013, compared with 2012, due
to customer growth. The $813 million (1.7 percent) decrease
in average other retail loans was primarily due to lower home
equity and second mortgage and student loan balances,
partially offset by higher auto and installment loan and retail
leasing balances. Average covered loans decreased
$3.1 billion (23.7 percent) in 2013, compared with 2012.
TABLE 2 Analysis of Net Interest Income (a)
Year Ended December 31 (Dollars in Millions)
2013
2012
2011
Components of Net Interest Income
Income on earning assets (taxable-equivalent basis) . . . . . . . . . . . . . . . .
Expense on interest-bearing liabilities (taxable-equivalent basis) . . . .
$ 12,513
1,685
$ 13,112
2,143
$ 12,870
2,522
Net interest income (taxable-equivalent basis) . . . . . . . . . . . . . . . . . . . . . . . . .
$ 10,828
$ 10,969
$ 10,348
Net interest income, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 10,604
$ 10,745
$ 10,123
2013
v 2012
2012
v 2011
$ (599)
(458)
$ (141)
$ (141)
$
$
$
242
(379)
621
622
Average Yields and Rates Paid
Earning assets yield (taxable-equivalent basis) . . . . . . . . . . . . . . . . . . . . . .
Rate paid on interest-bearing liabilities (taxable-equivalent basis) . . .
Gross interest margin (taxable-equivalent basis) . . . . . . . . . . . . . . . . . . . . . . .
Net interest margin (taxable-equivalent basis) . . . . . . . . . . . . . . . . . . . . . . . . . .
Average Balances
3.97%
.73
3.24%
3.44%
4.28%
.95
3.33%
3.58%
4.54%
1.14
3.40%
3.65%
(.31)%
(.22)
(.09)%
(.14)%
(.26)%
(.19)
(.07)%
(.07)%
Investment securities (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 75,046
227,474
315,139
230,400
$ 72,501
215,374
306,270
225,466
$ 63,645
201,427
283,290
221,690
$ 2,545
12,100
8,869
4,934
$ 8,856
13,947
22,980
3,776
(a) Interest and rates are presented on a fully taxable-equivalent basis utilizing a federal tax rate of 35 percent.
(b) Excludes unrealized gains and losses on available-for-sale investment securities and any premiums or discounts recorded related to the transfer of investment securities at fair value
from available-for-sale to held-to-maturity.
Average investment securities in 2013 were $2.5 billion
(3.5 percent) higher than 2012, primarily due to purchases of
U.S. government agency-backed securities made in
anticipation of regulatory liquidity coverage ratio
requirements, net of prepayments and maturities.
Average total deposits for 2013 were $14.7 billion
(6.3 percent) higher than 2012. Average noninterest-bearing
deposits in 2013 were $1.8 billion (2.6 percent) higher than
2012 due to growth in Consumer and Small Business
Banking balances. Average total savings deposits were
$14.3 billion (11.7 percent) higher in 2013, compared with
2012, the result of growth in Consumer and Small Business
Banking, Wholesale and Commercial Real Estate, and
corporate trust balances. Average time certificates of deposit
less than $100,000 were lower in 2013 by $1.7 billion
(11.8 percent), compared with 2012, the result of maturities.
Average time deposits greater than $100,000 were
$356 million (1.1 percent) higher in 2013, compared with
2012. Time deposits greater than $100,000 are managed as
an alternative to other funding sources such as wholesale
borrowing, based largely on relative pricing.
The $621 million (6.0 percent) increase in net interest
income in 2012, compared with 2011, was primarily the
result of growth in average earning assets and lower cost
core deposit funding, as well as the positive impact from a
reduction in higher cost long-term debt and the inclusion of
credit card balance transfer fees in interest income
beginning in the first quarter of 2012. Average earning
assets were $23.0 billion (8.1 percent) higher in 2012,
compared with 2011, driven by increases in loans and
investment securities. Average deposits increased $22.6
billion (10.6 percent) in 2012, compared with 2011.
Average total loans increased $13.9 billion (6.9 percent)
in 2012, compared with 2011, driven by growth in
commercial loans, residential mortgages, credit card loans
and commercial real estate loans, partially offset by
decreases in other retail loans and covered loans. Average
commercial loans increased $9.2 billion (17.9 percent) in
2012, compared with 2011, primarily driven by higher
demand from new and existing customers. Average
residential mortgages increased $6.6 billion
(19.5 percent), reflecting origination and refinancing activity
due to the low interest rate environment. Average credit card
balances increased $569 million (3.5 percent) in 2012,
compared with 2011, reflecting the impact of the purchase of
a credit card portfolio in late 2011, partially offset by a
portfolio sale in 2012. Growth in average commercial real
estate balances of $991 million (2.8 percent) was primarily
due to higher demand from new and existing customers. The
$261 million (.5 percent) decrease in average other retail
loans was primarily due to lower home equity and second
mortgage and student loan balances, partially offset by
higher installment loan and retail leasing balances. Average
covered loans decreased $3.1 billion (19.3 percent) in 2012,
compared with 2011.
Average investment securities in 2012 were $8.9 billion
(13.9 percent) higher than 2011, primarily due to purchases
of government agency-backed securities, net of
prepayments and maturities, as the Company increased its
on-balance sheet liquidity in response to anticipated
regulatory requirements.
U.S. BANCORP
23
TABLE 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
2013 v 2012
2012 v 2011
Increase (decrease) in
Interest Income
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense
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 . . . . . . . . . . . . . . . . . . . . . . .
$ 68
(76)
$(240)
(3)
$(172)
(79)
$ 275
122
$(316)
(40)
$ (41)
82
229
78
348
16
(42)
629
(196)
433
(87)
338
3
11
5
(29)
3
(7)
(14)
(253)
(274)
(229)
(127)
(216)
(18)
(128)
(718)
13
(705)
11
(937)
(13)
3
(22)
(33)
(58)
(123)
(76)
15
(184)
–
(49)
132
(2)
(170)
(89)
(183)
(272)
(76)
(599)
(10)
14
(17)
(62)
(55)
(130)
(90)
(238)
(458)
369
45
318
54
(14)
772
(179)
593
(52)
938
4
3
12
(14)
26
31
(38)
(117)
(124)
(272)
(29)
(123)
101
(147)
(470)
77
(393)
53
(696)
(23)
(17)
(58)
(28)
(54)
(180)
(52)
(23)
(255)
97
16
195
155
(161)
302
(102)
200
1
242
(19)
(14)
(46)
(42)
(28)
(149)
(90)
(140)
(379)
Increase (decrease) in net interest income . . . . . . . . . . . . . . . .
$ 612
$(753)
$(141)
$1,062
$(441)
$ 621
(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 total deposits for 2012 were $22.6 billion (10.6
percent) higher than 2011. Average noninterest-bearing
deposits in 2012 were $13.4 billion (24.9 percent) higher
than 2011 due to growth in average balances in a majority of
the lines of business, including Wholesale Banking and
Commercial Real Estate, Wealth Management and Securities
Services, and Consumer and Small Business Banking.
Average total savings deposits were $7.3 billion
(6.4 percent) higher in 2012, compared with 2011, primarily
due to growth in Consumer and Small Business Banking
balances resulting from strong participation in a consumer
savings product offering, and higher corporate trust
balances. These increases were partially offset by lower
government banking and broker-dealer balances. Average
time certificates of deposit less than $100,000 were lower in
2012 by $728 million (4.8 percent), compared with 2011, a
result of maturities and lower renewals. Average time
deposits greater than $100,000 were $2.6 billion
(8.8 percent) higher in 2012, compared with 2011.
Provision for Credit Losses The provision for credit
losses reflects changes in the size and credit quality of the
24
U.S. BANCORP
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 2013, the provision for credit losses was $1.3 billion,
compared with $1.9 billion and $2.3 billion in 2012 and 2011,
respectively. The provision for credit losses was lower than
net charge-offs by $125 million in 2013, $215 million in 2012
and $500 million in 2011. The $542 million (28.8 percent)
decrease in the provision for credit losses in 2013,
compared with 2012, reflected improving credit trends and
the underlying risk profile of the loan portfolio as economic
conditions continued to slowly improve, partially offset by
portfolio growth. Accruing loans ninety days or more past
due increased by $53 million (8.0 percent) (excluding
covered loans) from December 31, 2012 to December 31,
2013, primarily reflecting an increase in restructured
residential mortgages in trial period arrangements.
Nonperforming assets decreased $275 million (13.2 percent)
(excluding covered assets) from December 31, 2012 to
December 31, 2013, led by reductions in nonperforming
commercial mortgages and construction and development
loans, as the Company continued to resolve and reduce
exposure to these problem assets. Net charge-offs
decreased $632 million (30.1 percent) from 2012 due to the
improvement in the commercial, commercial real estate,
residential mortgages and home equity and second
mortgages portfolios, as economic conditions continued to
slowly improve.
The $461 million (19.7 percent) decrease in the
provision for credit losses in 2012, compared with 2011,
reflected improving credit trends and the underlying risk
profile of the loan portfolio as economic conditions continued
to slowly improve in 2012, partially offset by portfolio growth.
Accruing loans ninety days or more past due decreased by
$183 million (21.7 percent) (excluding covered loans) from
December 31, 2011 to December 31, 2012, reflecting
improvement in residential mortgages, credit card and other
retail loan portfolios during 2012. Nonperforming assets
decreased $486 million (18.9 percent) (excluding covered
assets) from December 31, 2011 to December 31, 2012, led
by reductions in nonperforming construction and
development loans, as well as improvement in other
commercial loan portfolios. Net charge-offs decreased
$746 million (26.2 percent) in 2012, compared with 2011,
due to the improvement in most loan portfolios as economic
conditions continued to slowly improve.
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 2013 was
$8.8 billion, compared with $9.3 billion in 2012 and
$8.8 billion in 2011. The $545 million (5.8 percent) decrease
in 2013 from 2012 was principally due to lower mortgage
banking revenue of 30.0 percent, due to lower origination
and sales revenue, partially offset by higher loan servicing
income and favorable changes in the valuation of mortgage
servicing rights (“MSRs”), net of hedging activities. Growth in
several fee categories partially offset the decline in mortgage
banking revenue. Credit and debit card revenue increased
8.2 percent in 2013, compared with 2012, due to higher
transaction volumes, including the impact of business
expansion. Merchant processing services revenue grew
4.5 percent as a result of higher volumes and an increase in
fee-based product revenue. Trust and investment
management fees increased 8.0 percent, reflecting
improved market conditions and business expansion, while
investment products fees and commissions increased
18.7 percent due to higher sales volumes and fees. In
addition, net securities gains (losses) were favorable
compared with 2012, as the Company recognized
impairment on certain money center bank securities during
2012 following rating agency downgrades. Offsetting these
positive variances was a 5.1 percent decrease in corporate
payment products revenue due to lower government–related
transactions, a 2.2 percent decrease in commercial products
revenue due to lower standby letters of credit fees and loan
syndication fees, and a 5.5 percent decrease in ATM
processing services revenue due to lower volumes. Other
income also decreased 23.4 percent, primarily due to a 2012
gain on the sale of a credit card portfolio and lower retail
lease and equity investment revenue.
TABLE 4 Noninterest Income
Year Ended December 31 (Dollars in Millions)
2013
2012
2011
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities gains (losses), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 965
706
1,458
327
1,139
670
538
859
1,356
178
9
569
$ 892
744
1,395
346
1,055
653
541
878
1,937
150
(15)
743
$1,073
734
1,355
452
1,000
659
551
841
986
129
(31)
1,011
2013
v 2012
2012
v 2011
8.2%
(5.1)
4.5
(5.5)
8.0
2.6
(.6)
(2.2)
(30.0)
18.7
*
(23.4)
(16.9)%
1.4
3.0
(23.5)
5.5
(.9)
(1.8)
4.4
96.5
16.3
51.6
(26.5)
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8,774
$9,319
$8,760
(5.8)%
6.4%
* Not meaningful.
U.S. BANCORP
25
The $559 million (6.4 percent) increase in 2012
noninterest income over 2011 was due to strong mortgage
banking revenue growth of 96.5 percent in 2012 over 2011,
principally due to strong origination and sales revenue, as
well as an increase in loan servicing revenue. In addition,
merchant processing services revenue and investment
products fees and commissions increased 3.0 percent and
16.3 percent, respectively, primarily due to higher
transaction volumes. Trust and investment management fees
increased 5.5 percent in 2012, compared with 2011, due to
improved market conditions and business expansion.
Commercial products revenue was 4.4 percent higher,
principally driven by increases in high-grade bond
underwriting fees and commercial loan fees. Net securities
losses were 51.6 percent lower in 2012, compared with
2011, primarily due to higher realized gains on securities
sold in 2012. Offsetting these positive variances was a 16.9
percent decrease in credit and debit card revenue due to
lower debit card interchange fees as a result of 2011
legislation, net of mitigation efforts, and the impact of the
inclusion of credit card balance transfer fees in interest
income beginning in the first quarter of 2012. ATM
processing services revenue was 23.5 percent lower,
primarily due to excluding surcharge fees the Company
passes through to others from revenue, beginning in the first
quarter of 2012, rather than reporting those amounts in
occupancy expense as in previous periods. Other income
also decreased 26.5 percent in 2012, compared with 2011,
primarily due to gains recorded in 2011 from the settlement
of litigation related to the termination of a merchant
processing referral agreement, and the acquisition of the
operations of a bank from the FDIC of $263 million and $46
million, respectively, and a 2012 equity-method investment
charge, partially offset by a 2012 gain on the sale of a credit
card portfolio.
Noninterest Expense Noninterest expense in 2013 was
$10.3 billion, compared with $10.5 billion in 2012 and
TABLE 5 Noninterest Expense
$9.9 billion in 2011. The Company’s efficiency ratio was
52.4 percent in 2013, compared with 51.5 percent in 2012 and
51.8 percent in 2011. The $182 million (1.7 percent) decrease
in noninterest expense in 2013 from 2012 was primarily due to
reductions in professional services and other expenses.
Professional services expense decreased 28.1 percent due to
a reduction in mortgage servicing review-related costs. Other
expense decreased 13.4 percent, reflecting the impact of the
2012 $80 million expense accrual for a mortgage foreclosure-
related regulatory settlement, the impact of a 2012 accrual for
the Company’s portion of an indemnification obligation
associated with Visa Inc., and lower insurance-related costs
and costs related to other real estate owned and FDIC
insurance expense, partially offset by higher tax-advantaged
project costs, including changes in the accounting
presentation of certain investments in tax-advantaged projects
during 2013. Those changes in presentation increased 2013
other expense $79 million, but had no impact on net income
attributable to U.S. Bancorp, as the increase in noninterest
expense was offset by the net impact of a $132 million
reduction in income tax expense and a $53 million reduction in
net income (loss) attributed to noncontrolling interests. In
addition, other intangibles expense decreased 18.6 percent
due to the reduction or completion of the amortization of
certain intangibles. These decreases were partially offset by
increases in other expense categories. Compensation
expense increased 1.2 percent in 2013 over 2012, primarily as
a result of growth in staffing for business initiatives and
business expansion, and merit increases, partially offset by
lower incentive and commission expense, reflecting a
decrease in mortgage banking activity. Employee benefits
expense increased 20.6 percent principally due to higher
pension costs and staffing levels. In addition, net occupancy
and equipment expense was 3.5 percent higher due to
business initiatives and higher rent and maintenance costs,
while technology and communications expense was
3.3 percent higher due to business expansion and technology
projects.
Year Ended December 31 (Dollars in Millions)
2013
2012
2011
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net occupancy and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing and business development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology and communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postage, printing and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,371
1,140
949
381
357
848
310
223
1,695
Total noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,274
$ 4,320
945
917
530
388
821
304
274
1,957
$10,456
$4,041
845
999
383
369
758
303
299
1,914
$9,911
Efficiency ratio (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52.4%
51.5%
51.8%
2013
v 2012
2012
v 2011
1.2%
6.9%
20.6
3.5
(28.1)
(8.0)
3.3
2.0
(18.6)
(13.4)
11.8
(8.2)
38.4
5.1
8.3
.3
(8.4)
2.2
(1.7)%
5.5%
(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.
26
U.S. BANCORP
The $545 million (5.5 percent) increase in noninterest
expense in 2012 over 2011 was principally due to higher
compensation expense, employee benefits expense and
professional services expense. Compensation expense
increased 6.9 percent, primarily as a result of growth in
staffing for business initiatives and mortgage servicing-
related activities, in addition to higher commissions and merit
increases. Employee benefits expense increased 11.8
percent, principally due to higher pension and medical
insurance costs and staffing levels. Professional services
expense increased 38.4 percent, principally due to
mortgage servicing review-related projects. In addition,
technology and communications expense was 8.3 percent
higher due to business expansion and technology projects.
Other expense increased 2.2 percent in 2012 over 2011,
reflecting the 2012 $80 million expense accrual for the
mortgage foreclosure-related settlement, higher regulatory
and insurance-related costs and the 2012 accrual related to
Visa Inc., partially offset by a $130 million expense accrual
related to mortgage servicing matters recorded in 2011,
lower FDIC assessments and lower costs related to other
real estate owned. These increases were partially offset by a
decrease of 8.2 percent in net occupancy and equipment
expense, principally reflecting the change in presentation of
ATM surcharge revenue passed through to others, and a
8.4 percent decrease in other intangibles expense 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 decrease
$127 million in 2014, driven by an increase in the discount
rate and favorable asset returns, partially offset by an
increase related to plan participant life expectancy
assumption changes. 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 16 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 2013 net income . . . . . . . . . . .
$ (28)
(.30)%
$ 28
.30%
Discount Rate (Dollars in Millions)
Down 100
Basis Points
Up 100
Basis Points
Incremental benefit (expense) . . . . . . . .
Percent of 2013 net income . . . . . . . . . . .
$ (100)
(1.05)%
$ 81
.85%
Income Tax Expense The provision for income taxes was
$2.0 billion (an effective rate of 26.2 percent) in 2013,
compared with $2.2 billion (an effective rate of 28.9 percent)
in 2012 and $1.8 billion (an effective rate of 27.8 percent) in
2011.
For further information on income taxes, refer to Note 18
of the Notes to Consolidated Financial Statements.
Balance Sheet Analysis
Average earning assets were $315.1 billion in 2013,
compared with $306.3 billion in 2012. The increase in
average earning assets of $8.8 billion (2.9 percent) was
primarily due to increases in loan balances of $12.1 billion
(5.6 percent) and investment securities of $2.5 billion
(3.5 percent), partially offset by decreases in loans held for
sale of $2.1 billion (27.1 percent) and other earning assets of
$3.7 billion (34.6 percent), primarily due to the
deconsolidation of certain consolidated VIEs during 2013.
For average balance information, refer to Consolidated
Daily Average Balance Sheet and Related Yields and Rates
on pages 144 and 145.
Loans The Company’s loan portfolio was $235.2 billion at
December 31, 2013, an increase of $11.9 billion
(5.3 percent) from December 31, 2012. The increase was
driven by growth in residential mortgages of $7.1 billion
(16.2 percent), commercial loans of $3.8 billion (5.8 percent),
commercial real estate loans of $2.9 billion (7.9 percent) and
credit card loans of $906 million (5.3 percent), partially offset
by a decrease in covered loans of $2.8 billion (25.2 percent).
Table 6 provides a summary of the loan distribution by
product type, while Table 12 provides a summary of the
selected loan maturity distribution by loan category. Average
total loans increased $12.1 billion (5.6 percent) in 2013,
compared with 2012. The increase was due to growth in
most loan portfolio classes in 2013.
U.S. BANCORP
27
Commercial Commercial loans, including lease financing,
increased $3.8 billion (5.8 percent) as of December 31,
2013, compared with December 31, 2012. Average
commercial loans increased $6.4 billion (10.6 percent) in
2013, compared with 2012. The growth was primarily driven
by higher 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 $2.9 billion (7.9 percent) at December 31, 2013,
compared with December 31, 2012. Average commercial
real estate loans increased $1.7 billion (4.7 percent) in 2013,
compared with 2012. The increases reflected higher
demand from new and existing customers. Table 8 provides
a summary of commercial real estate loans by property type
and geographical location. The collateral for $726 million of
commercial real estate loans included in covered loans at
TABLE 6 Loan Portfolio Distribution
December 31, 2013 was in California, compared with
$1.7 billion at December 31, 2012.
The Company reclassifies construction loans to the
commercial mortgage category if permanent financing is
provided by the Company. In 2013, approximately $404 million
of construction loans were reclassified to the commercial
mortgage category. At December 31, 2013 and 2012,
$282 million and $225 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 $10.2 billion
and $9.0 billion at December 31, 2013 and 2012, 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 $3.4 billion and $3.1 billion at
December 31, 2013 and 2012, respectively.
At December 31 (Dollars in Millions)
Commercial
2013
2012
2011
2010
2009
Amount
Percent
of Total
Amount
Percent
of Total
Amount
Percent
of Total
Amount
Percent
of Total
Amount
Percent
of Total
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 64,762
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . .
5,271
27.5% $ 60,742
5,481
2.3
27.2% $ 50,734
5,914
2.5
24.2% $ 42,272
6,126
2.8
21.5% $ 42,255
6,537
3.1
21.7%
3.4
Total commercial . . . . . . . . . . . . . . . . . . . .
70,033
29.8
66,223
29.7
56,648
27.0
48,398
24.6
48,792
25.1
Commercial Real Estate
Commercial mortgages . . . . . . . . . . . . . . . . . . .
Construction and development . . . . . . . . . . .
32,183
7,702
Total commercial real estate . . . . . . . .
39,885
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37,545
13,611
51,156
18,021
5,929
15,442
3,276
5,709
13,743
3,579
13.7
3.3
17.0
15.9
5.8
21.7
7.7
2.5
6.6
1.4
2.4
5.8
1.5
31,005
5,948
36,953
32,648
11,370
44,018
17,115
5,419
16,726
3,332
5,463
12,593
4,179
13.9
2.6
16.5
14.6
5.1
19.7
7.7
2.4
7.5
1.5
2.4
5.6
1.9
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
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
Total other retail . . . . . . . . . . . . . . . . . . . . .
47,678
20.2
47,712
21.3
48,107
22.9
48,391
24.5
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
47,141
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
24.2
Total loans, excluding covered
loans . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered Loans . . . . . . . . . . . . . . . . . . . . . . . .
226,773
8,462
96.4
3.6
212,021
11,308
94.9
5.1
195,048
14,787
93.0
7.0
179,019
18,042
90.8
9.2
172,896
21,859
88.8
11.2
Total loans . . . . . . . . . . . . . . . . . . . . . $235,235 100.0% $223,329 100.0% $209,835 100.0% $197,061 100.0% $194,755 100.0%
28
U.S. BANCORP
TABLE 7 Commercial Loans by Industry Group and Geography
At December 31 (Dollars in Millions)
Industry Group
2013
2012
Loans
Percent
Loans
Percent
Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate, rental and leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wholesale trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance and insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Healthcare and social assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Public administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional, scientific and technical services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transport and storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Educational services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arts, entertainment and recreation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Agriculture, forestry, fishing and hunting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,738
6,788
6,346
5,864
5,401
5,048
3,934
2,747
2,443
2,322
2,222
2,214
2,094
1,508
1,507
1,374
7,483
15.3%
9.7
9.1
8.4
7.7
7.2
5.6
3.9
3.5
3.3
3.2
3.2
3.0
2.1
2.1
2.0
10.7
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$70,033
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida, Michigan, New York, Pennsylvania, Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,748
2,970
3,539
5,086
2,893
3,385
1,941
2,823
2,768
4,091
4,024
1,148
2,917
46,333
11,762
11,938
Total outside Company’s banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,700
12.5%
4.2
5.1
7.3
4.1
4.8
2.8
4.0
4.0
5.8
5.8
1.6
4.2
66.2
16.8
17.0
33.8
$ 9,518
5,855
6,297
6,579
4,735
4,733
4,709
2,185
2,203
2,549
1,964
2,124
2,122
1,553
1,670
1,390
6,037
$66,223
$ 8,081
2,722
3,544
4,720
2,922
3,240
1,792
2,626
2,727
4,244
3,545
1,096
2,435
43,694
11,082
11,447
22,529
14.4%
8.8
9.5
9.9
7.2
7.1
7.1
3.3
3.3
3.9
3.0
3.2
3.2
2.4
2.5
2.1
9.1
100.0%
12.2%
4.1
5.3
7.1
4.4
4.9
2.7
4.0
4.1
6.4
5.4
1.7
3.7
66.0
16.7
17.3
34.0
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$70,033
100.0%
$66,223
100.0%
Residential Mortgages Residential mortgages held in the
loan portfolio at December 31, 2013, increased $7.1 billion
(16.2 percent) over December 31, 2012. Average residential
mortgages increased $7.7 billion (19.1 percent) in 2013,
compared with 2012. The growth reflected origination and
refinancing activity due to the low interest rate environment
during the period. Residential mortgages originated and
placed in the Company’s loan portfolio are primarily well
secured jumbo mortgages and branch-originated first lien
home equity loans to borrowers with high credit quality. 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.
Credit Card Total credit card loans increased $906 million
(5.3 percent) at December 31, 2013, compared with
December 31, 2012. Average credit card balances
increased $160 million (1.0 percent) in 2013, compared with
2012. The increases reflected customer growth during the
period.
U.S. BANCORP
29
TABLE 8 Commercial Real Estate Loans by Property Type and Geography
At December 31 (Dollars in Millions)
Property Type
Business owner occupied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial property
Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Multi-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hotel/motel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential homebuilders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Health care facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
2012
Loans
Percent
Loans
Percent
$11,223
28.1%
$11,405
30.9%
1,567
5,173
4,503
4,253
7,886
3,251
1,728
301
3.9
13.0
11.3
10.7
19.8
8.1
4.3
.8
1,586
4,833
4,537
3,735
6,857
2,569
1,142
289
4.3
13.1
12.3
10.1
18.5
6.9
3.1
.8
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$39,885
100.0%
$36,953
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida, Michigan, New York, Pennsylvania, Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,148
1,781
1,586
2,052
1,573
1,491
1,999
3,548
2,410
2,237
1,718
1,265
3,214
34,022
3,178
2,685
Total outside Company’s banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,863
22.9%
4.5
4.0
5.2
3.9
3.7
5.0
8.9
6.0
5.6
4.3
3.2
8.1
85.3
8.0
6.7
14.7
$ 8,039
1,644
1,555
1,958
1,560
1,512
1,921
3,586
2,011
2,349
1,886
1,156
2,958
32,135
2,405
2,413
4,818
21.8%
4.5
4.2
5.3
4.2
4.1
5.2
9.7
5.4
6.4
5.1
3.1
8.0
87.0
6.5
6.5
13.0
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$39,885
100.0%
$36,953
100.0%
Other Retail Total other retail loans, which include retail
leasing, home equity and second mortgages and other retail
loans, decreased $34 million (.1 percent) at December 31,
2013, compared with December 31, 2012. Average other
retail loans decreased $813 million (1.7 percent) in 2013,
TABLE 9 Residential Mortgages by Geography
At December 31 (Dollars in Millions)
compared with 2012. The decreases were primarily due to
lower home equity and second mortgages and student loan
balances, partially offset by higher auto and installment
loans, and retail leasing balances.
2013
2012
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida, Michigan, New York, Pennsylvania, Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,754
3,012
3,151
4,029
2,224
2,511
2,104
2,868
1,606
2,298
3,510
1,160
3,344
40,571
4,586
5,999
Total outside Company’s banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,585
17.1%
5.9
6.2
7.9
4.3
4.9
4.1
5.6
3.1
4.5
6.9
2.3
6.5
79.3
9.0
11.7
20.7
$ 6,022
2,674
2,882
3,521
2,064
2,301
1,836
2,543
1,482
2,049
3,233
989
2,753
34,349
4,329
5,340
9,669
13.7%
6.1
6.5
8.0
4.7
5.2
4.2
5.8
3.4
4.6
7.3
2.2
6.3
78.0
9.9
12.1
22.0
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$51,156
100.0%
$44,018
100.0%
30
U.S. BANCORP
T A B L E 1 0 Credit Card Loans by Geography
At December 31 (Dollars in Millions)
2013
2012
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida, Michigan, New York, Pennsylvania, Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,856
688
830
1,226
647
1,097
613
801
1,015
892
1,408
360
840
12,273
3,070
2,678
Total outside Company’s banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,748
10.3%
3.8
4.6
6.8
3.6
6.1
3.4
4.4
5.6
5.0
7.8
2.0
4.7
68.1
17.0
14.9
31.9
$ 1,757
665
796
1,196
616
1,071
597
771
972
862
1,342
352
794
11,791
2,884
2,440
5,324
10.3%
3.9
4.6
7.0
3.6
6.3
3.5
4.5
5.7
5.0
7.8
2.1
4.6
68.9
16.8
14.3
31.1
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$18,021
100.0%
$17,115
100.0%
T A B L E 1 1 Other Retail Loans by Geography
At December 31 (Dollars in Millions)
2013
2012
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida, Michigan, New York, Pennsylvania, Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,785
1,921
2,295
3,815
2,160
2,638
1,627
1,793
1,785
2,378
2,824
986
2,165
32,172
7,681
7,825
Total outside Company’s banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,506
12.1%
4.0
4.8
8.0
4.5
5.5
3.4
3.8
3.8
5.0
5.9
2.1
4.6
67.5
16.1
16.4
32.5
$ 5,545
2,068
2,232
4,113
2,234
2,628
1,748
1,954
1,845
2,465
2,772
1,071
2,080
32,755
6,957
8,000
14,957
11.6%
4.3
4.7
8.6
4.7
5.5
3.7
4.1
3.9
5.2
5.8
2.2
4.4
68.7
14.6
16.7
31.3
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$47,678
100.0%
$47,712
100.0%
Of the total residential mortgages, credit card and other
retail loans outstanding at December 31, 2013, approximately
72.8 percent were to customers located in the Company’s
primary banking region compared with 72.5 percent at
December 31, 2012. Tables 9, 10 and 11 provide a
geographic summary of residential mortgages, credit card
loans and other retail loans outstanding, respectively, as of
December 31, 2013 and 2012. The collateral for $3.9 billion of
residential mortgages and other retail loans included in
covered loans at December 31, 2013 was in California,
compared with $5.1 billion at December 31, 2012.
Loans Held for Sale Loans held for sale, consisting
primarily of residential mortgages to be sold in the
secondary market, were $3.3 billion at December 31, 2013,
compared with $8.0 billion at December 31, 2012. The
decrease in loans held for sale was principally due to lower
residential mortgage loan originations during the fourth
quarter of 2013, compared with the fourth quarter of 2012.
Most of the residential mortgage loans the Company
originates or purchases 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”).
U.S. BANCORP
31
T A B L E 1 2 Selected Loan Maturity Distribution
At December 31, 2013 (Dollars in Millions)
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
One Year
or Less
$23,380
8,338
2,563
18,021
9,296
1,629
Over One
Through
Five Years
$ 42,810
24,915
8,100
–
25,491
2,027
Over
Five Years
$ 3,843
6,632
40,493
–
12,891
4,806
Total
$ 70,033
39,885
51,156
18,021
47,678
8,462
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$63,227
$103,343
$68,665
$235,235
Total of loans due after one year with
Predetermined interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Floating interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 79,952
$ 92,056
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 $79.9 billion at
December 31, 2013, compared with $74.5 billion at
December 31, 2012. The $5.4 billion (7.1 percent) increase
reflected $6.7 billion of net investment purchases, partially
offset by a $1.2 billion unfavorable change in net unrealized
gains (losses) on available-for-sale investment securities.
Held-to-maturity securities were $38.9 billion at
December 31, 2013, compared with $34.4 billion at
December 31, 2012, primarily reflecting net purchases of
U.S. government agency-backed securities made in
anticipation of final liquidity coverage ratio regulatory
requirements.
Average investment securities were $75.0 billion in 2013,
compared with $72.5 billion in 2012. The weighted-average
yield of the available-for-sale portfolio was 2.64 percent at
December 31, 2013, compared with 2.93 percent at
December 31, 2012. The average maturity of the available-for-
sale portfolio was 6.0 years at December 31, 2013, compared
with 4.1 years at December 31, 2012. The weighted-average
yield of the held-to-maturity portfolio was 2.00 percent at
December 31, 2013, compared with 1.94 percent at
December 31, 2012. The average maturity of the held-to-
maturity portfolio was 4.5 years at December 31, 2013,
compared with 3.3 years at December 31, 2012. The increases
in the weighted-average maturities from December 31, 2012 to
December 31, 2013, related to the impact of higher interest
rates on anticipated prepayments on mortgage-backed
securities. Investment securities by type are shown in Table 13.
The Company’s available-for-sale securities are carried
at fair value with changes in fair value reflected in other
comprehensive income (loss) unless a security is deemed to
be other-than-temporarily impaired. At December 31, 2013,
32
U.S. BANCORP
the Company’s net unrealized losses on available-for-sale
securities were $125 million, compared with unrealized gains
of $1.1 billion at December 31, 2012. The unfavorable
change in net unrealized gains (losses) was primarily due to
decreases in the fair value of agency mortgage-backed and
state and political securities as a result of increases in
interest rates. Gross unrealized losses on available-for-sale
securities totaled $775 million at December 31, 2013,
compared with $147 million at December 31, 2012.
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, 2013, the Company had no
plans to sell securities with unrealized losses, and believes it
is more likely than not that it would not be required to sell
such securities before recovery of their amortized cost.
There is limited market activity for non-agency mortgage-
backed securities held by the Company. As a result, the
Company estimates the fair value of these securities using
estimates of expected cash flows, discount rates and
management’s assessment of various other market factors,
which are judgmental in nature. The Company recorded
$14 million of impairment charges in earnings during 2013 on
non-agency mortgage-backed securities. These impairment
charges were due to changes in expected cash flows,
primarily resulting from changes in voluntary prepayment and
default assumptions in the underlying mortgage pools. Further
adverse changes in market conditions may result in additional
impairment charges in future periods.
During 2012, the Company recorded $46 million of
impairment charges in earnings 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. During
2012, the Company also recognized impairment charges of
$27 million in earnings related to certain perpetual preferred
securities issued by financial institutions, following the
downgrades of money center banks by a rating agency.
T A B L E 1 3
Investment Securities
At December 31, 2013 (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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
28 $
32
347
701
28
33
331
653
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,108 $ 1,045
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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
226 $
13,864
16,000
2,474
231
13,752
16,007
2,490
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$32,564 $32,480
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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
– $
272
364
–
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
636 $
–
282
371
–
653
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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
70 $
4,671
445
487
70
4,772
438
458
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,673 $ 5,738
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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
6 $
–
–
734
740 $
6
–
–
640
646
338 $
373
Total investment securities (d) . . . . . . . . . . . . . . . . . . . . . . .
$41,059 $40,935
.3
2.7
8.1
14.7
11.9
.6
3.9
5.9
13.1
5.5
–
4.1
7.6
17.6
6.1
.4
2.6
6.6
20.8
4.5
.2
–
–
21.5
21.4
18.9
6.0
4.44% $ 1,811 $ 1,814
81
3.11
1,085
2.59
60
2.39
80
1,163
60
2.52% $ 3,114 $ 3,040
2.63% $
2.16
1.91
1.20
9 $
22,441
12,424
798
9
22,217
12,159
809
1.97% $35,672 $35,194
7.65% $
1.31
2.57
5.15
– $
11
4
1
2.03% $
16 $
6.16% $
6.72
5.80
6.25
– $
3
2
7
–
14
4
9
27
–
3
2
7
6.60% $
12 $
12
1.16% $
6 $
–
–
2.71
76
24
–
2.70% $
106 $
2.88% $
– $
6
76
13
–
95
–
2.64% $38,920 $38,368
.2
1.4
8.5
11.3
3.6
.6
3.7
5.7
12.8
4.6
–
3.4
7.1
20.8
5.0
.4
2.0
7.3
12.2
8.9
.5
1.9
6.8
–
2.9
–
4.5
1.01%
1.36
2.05
1.75
1.42%
2.77%
2.30
1.66
1.24
2.05%
–%
.79
.94
.76
.82%
7.48%
9.52
7.85
2.64
5.02%
1.60%
1.12
.98
–
1.12%
–%
2.00%
(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 4.1 years at December 31, 2012, with a corresponding weighted-average yield of 2.93 percent. The weighted-
average maturity of the held-to-maturity investment securities was 3.3 years at December 31, 2012, with a corresponding weighted-average yield of 1.94 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 investment securities are computed based on
amortized cost balances, excluding any premiums or discounts recorded related to the transfer of investment securities at fair value from available-for-sale to held-to-maturity. Average yield and
maturity calculations exclude equity securities that have no stated yield or maturity.
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
$ 4,222
68,236
652
5,685
1,184
Percent
of Total
5.3%
85.3
.8
7.1
1.5
Total investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$79,979
100.0%
Amortized
Cost
$ 4,365
61,019
637
6,079
1,329
$73,429
Percent
of Total
5.9%
83.1
.9
8.3
1.8
100.0%
2013
2012
U.S. BANCORP
33
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
2013
2012
2011
2010
2009
$ 76,941
29.4% $ 74,172
29.8% $ 68,579
29.7% $ 45,314
22.2% $ 38,186
20.8%
Noninterest-bearing deposits . . . .
Interest-bearing deposits
Interest checking . . . . . . . . . . . . . .
Money market savings . . . . . . . .
Savings accounts . . . . . . . . . . . . .
Total of savings deposits . . .
144,381
Time certificates of deposit less
52,140
59,772
32,469
19.9
22.8
12.4
55.1
50,430
50,987
30,811
132,228
20.2
20.5
12.4
53.1
45,933
45,854
28,018
119,805
19.9
19.9
12.1
51.9
43,183
46,855
24,260
114,298
21.2
22.9
11.9
56.0
38,436
40,848
16,885
96,169
21.0
22.3
9.2
52.5
than $100,000 . . . . . . . . . . . . . . . . .
11,784
4.5
13,744
5.5
14,952
6.5
15,083
7.4
18,966
10.4
Time deposits greater than
$100,000
Domestic . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . .
Total interest-bearing
9,527
19,490
3.6
7.4
12,148
16,891
4.8
6.8
12,583
14,966
5.4
6.5
12,330
17,227
6.0
8.4
16,858
13,063
9.2
7.1
deposits . . . . . . . . . . . . . . . . . .
185,182
70.6
175,011
70.2
162,306
70.3
158,938
77.8
145,056
79.2
Total deposits . . . . . . . . . . . . . . . . .
$262,123 100.0% $249,183 100.0% $230,885
100.0% $204,252 100.0% $183,242 100.0%
The maturity of time deposits was as follows:
At December 31, 2013 (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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,246
1,519
2,025
3,364
1,275
718
633
4
$11,784
$21,372
1,495
1,372
2,431
1,203
662
459
23
Total
$23,618
3,014
3,397
5,795
2,478
1,380
1,092
27
$29,017
$40,801
In December 2013, U.S. banking regulators approved
final rules that prohibit banks from holding certain types of
investments, such as investments in hedge and private
equity funds. The Company does not anticipate the
implementation of these final rules will require any significant
liquidation of securities held or impairment charges.
Refer to Notes 4 and 21 in the Notes to Consolidated
Financial Statements for further information on investment
securities.
Deposits Total deposits were $262.1 billion at
December 31, 2013, compared with $249.2 billion at
December 31, 2012. The $12.9 billion (5.2 percent) increase
in total deposits reflected organic growth in core deposits
due to the overall “flight-to-quality” by customers, particularly
in light of the expiration of unlimited insurance on
noninterest-bearing transaction accounts and uncertainty
about the United States Congress raising the domestic debt
ceiling. Average total deposits increased $14.7 billion (6.3
percent) over 2012 due to increases in noninterest-bearing
and total savings account balances.
Noninterest-bearing deposits at December 31, 2013,
increased $2.8 billion (3.7 percent) over December 31,
2012, reflecting growth in Wholesale Banking and
Commercial Real Estate balances. Average noninterest-
bearing deposits increased $1.8 billion (2.6 percent) in
2013, compared with 2012, primarily due to higher average
Consumer and Small Business Banking balances.
Interest-bearing savings deposits increased
$12.2 billion (9.2 percent) at December 31, 2013, compared
with December 31, 2012. The increase related to money
market savings, interest checking and savings account
balances. The $8.8 billion (17.2 percent) increase in money
market savings account balances was primarily due to
higher Wholesale Banking and Commercial Real Estate and
Wealth Management and Securities Services balances. The
$1.7 billion (3.4 percent) increase in interest checking
account balances was primarily due to higher Consumer
and Small Business Banking and corporate trust balances,
partially offset by lower broker-dealer balances. The
$1.7 billion (5.4 percent) increase in savings account
balances reflected continued strong participation in a
34
U.S. BANCORP
savings product offered by Consumer and Small Business
Banking. Average interest-bearing savings deposits in 2013
increased $14.3 billion (11.7 percent), compared with 2012,
primarily due to growth in Consumer and Small Business
Banking, Wholesale and Commercial Real Estate, and
corporate trust balances.
Interest-bearing time deposits at December 31, 2013,
decreased $2.0 billion (4.6 percent), compared with
December 31, 2012, driven primarily by a decrease in time
certificates of deposit less than $100,000. Time certificates of
deposit less than $100,000 decreased $2.0 billion (14.3
percent) at December 31, 2013, compared with
December 31, 2012. Average time certificates of deposit
less than $100,000 decreased $1.7 billion (11.8 percent) in
2013, compared with 2012. The decreases were the result of
lower Consumer and Small Business Banking balances
primarily due to maturities. Time deposits greater than
$100,000 were essentially unchanged at December 31,
2013, compared with December 31, 2012. Average time
deposits greater than $100,000 in 2013 increased $356
million (1.1 percent), compared with 2012. Time deposits
greater than $100,000 are managed as an alternative to
other funding sources such as wholesale borrowing, based
largely on relative pricing.
Borrowings The Company utilizes both short-term and
long-term borrowings as part of its asset/liability
management and funding strategies. Short-term borrowings,
which include federal funds purchased, commercial paper,
repurchase agreements, borrowings secured by high-grade
assets and other short-term borrowings, were $27.6 billion at
December 31, 2013, compared with $26.3 billion at
December 31, 2012. The $1.3 billion (5.0 percent) increase
in short-term borrowings was primarily due to higher
commercial paper balances, partially offset by lower
repurchase agreement, federal funds purchased and other
short-term borrowings balances.
Long-term debt was $20.0 billion at December 31, 2013,
compared with $25.5 billion at December 31, 2012. The
$5.5 billion (21.4 percent) decrease was primarily due to a
$4.5 billion decrease in long-term debt related to the
deconsolidation of certain consolidated VIEs and $2.9 billion
of medium-term note maturities, partially offset by the
issuance of $1.5 billion of medium-term notes. Refer to
Note 12 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
Company’s Board of Directors has approved a risk appetite
statement and framework for the Company which defines
acceptable levels of risk taking, including risk limits, and
establishes the governance and oversight activities over risk
management and reporting. Compliance with the risk
appetite statement is monitored by the Company’s Board of
Directors and the management Executive Risk Committee.
Within this framework, the Company has established
quantitative measurements and qualitative considerations for
monitoring risk across the Company.
The Company’s most prominent risk exposures are
credit, residual value, operational, interest rate, market,
liquidity and reputation 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, processing errors, technology, breaches of internal
controls and in data security, and business continuation and
disaster recovery. Operational risk also includes legal and
compliance risks, including risks arising from the failure to
adhere to laws, rules, regulations and internal policies and
procedures. Interest rate risk is the potential reduction of net
interest income as a result of changes in interest rates, which
can affect the re-pricing of assets and liabilities differently.
Market risk arises from fluctuations in interest rates, foreign
exchange rates, and security prices that may result in
changes in the values of financial instruments, such as
trading and available-for-sale securities, mortgage 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 147, for a detailed
discussion of these factors.
The Company’s risk management governance approach
is designed to ensure specific lines of risk management
accountability and escalation of key risk information. Under
the guidance of the Executive Risk Committee, designated
risk management personnel implement risk management
policies and interact with the Company’s business lines to
monitor significant risks on a regular basis. In addition, risk
management personnel help promote a culture of
compliance through compliance program standards and
policies, and through oversight, credible challenge, advice,
monitoring, testing and reporting with respect to the
Company’s adherence to laws, rules, regulations and
internal policies and procedures.
U.S. BANCORP
35
Management also provides various risk-related reporting
to the Risk Management Committee of the Board of
Directors. The Risk Management Committee discusses with
management the Company’s risk management performance
quarterly, covering the status of existing matters, areas of
potential future concern, and specific information on certain
types of loss events. The discussion also covers quarterly
reports by management assessing the Company’s
performance relative to the risk appetite statement and the
associated risk tolerance limits, including:
• Qualitative considerations, such as macroeconomic
environment, regulatory and compliance changes,
litigation developments, and technology and
cybersecurity;
• Capital ratios and regulatory projections, including
regulatory measures and stressed scenarios;
• Credit measures, including adversely rated and
nonperforming loans, leveraged transactions, credit
concentrations and lending limits;
• Market risk, including interest rate risk, market value and
net income simulation, and trading-related Value at Risk;
and
• Operational risk, including operational losses, system
availability performance, and various regulatory
compliances measures.
Credit Risk Management The Company’s strategy for
credit risk management includes well-defined, centralized
credit policies, uniform underwriting criteria, and ongoing
risk monitoring and review processes for all commercial and
consumer credit exposures. The strategy also emphasizes
diversification on a geographic, industry and customer level,
regular credit examinations and management reviews of
loans exhibiting deterioration of credit quality. The Risk
Management Committee of the Company’s Board of
Directors oversees the Company’s credit risk management
process.
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, those considered troubled debt
restructurings (“TDRs”), and loans in a junior lien position
that are current but are behind a modified or delinquent loan
in a first lien position, encompass all loans held by the
36
U.S. BANCORP
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 obtains
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 LTV ratios are
considered in the determination of the appropriate allowance
for credit losses. 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. 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 5 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, non-profit 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 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 or
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 in the portfolio 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. A new 10-year draw and 20-year amortization
product was introduced during 2013 to provide customers
the option to repay their outstanding balances over a longer
period. At December 31, 2013, 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 LTV information on real estate based
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, investments in securities and
other financial assets, 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 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 beginning in 2009, further increased losses in prime-
based residential portfolios and credit cards.
Although economic conditions generally have 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
difficulties due to lower consumer confidence and spending,
continued elevated unemployment and under-employment,
and continued stress in the residential mortgage portfolio.
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 $125 million in 2013,
$215 million in 2012 and $500 million in 2011. The $542
million (28.8 percent) decrease in the provision for credit
losses in 2013, compared with 2012, reflected improving
credit trends and the underlying risk profile of the loan
portfolio as economic conditions continued to slowly
improve, partially offset by portfolio growth.
Credit Diversification The Company manages its credit
risk, in part, through diversification of its loan portfolio and
limit setting by product type criteria and concentrations. As
part of its normal business activities, the Company offers a
broad array of traditional commercial lending products and
specialized products such as asset-based lending,
commercial lease financing, agricultural credit, warehouse
mortgage lending, small business 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, auto
loans, retail leases, home equity, revolving credit and other
consumer loans. These consumer lending products are
U.S. BANCORP
37
primarily offered through the branch office network, home
mortgage and loan production offices and indirect
distribution channels, such as auto dealers. 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 2013.
The commercial loan class is diversified among various
industries with somewhat higher concentrations in
manufacturing, wholesale trade, finance and insurance, and
real estate, rental and leasing. Additionally, the commercial
loan class is diversified across the Company’s geographical
markets with 66.2 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, 2013 and 2012.
The commercial real estate loan class reflects the
Company’s focus on serving business owners within its
geographic footprint as well as regional and national
investment-based real estate owners and builders. 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, 2013 and 2012. At December 31, 2013,
approximately 28.1 percent of the commercial real estate
loans represented business owner-occupied properties that
tend to exhibit less credit risk than non owner-occupied
properties. The investment-based real estate mortgages are
diversified among various property types with somewhat
higher concentrations in multi-family, office and retail
properties. From a geographical perspective, the Company’s
commercial real estate loan class is generally well
diversified. However, at December 31, 2013, 22.9 percent of
the Company’s commercial real estate loans were secured
by collateral in California, which has historically experienced
higher delinquency levels and credit quality deterioration in
recessionary periods due to excess home inventory levels
and declining valuations. Included in commercial real estate
at year-end 2013 was approximately $463 million in loans
related to land held for development and $566 million 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 85.3 percent of total commercial real estate
loans outstanding at December 31, 2013, 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,
correspondent banks and loan brokers. Each distinct
underwriting and origination activity manages unique credit
risk characteristics and prices its loan production
commensurate with the differing risk profiles.
Residential mortgages are originated through the
Company’s branches, loan production offices and a
wholesale network of originators. 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
LTV and borrower credit criteria during the underwriting
process.
The Company estimates updated LTV information
quarterly, based on a method that combines automated
valuation model updates and relevant home price indices.
LTV 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 LTV or CLTV, primarily due to lack of availability of
relevant automated valuation model and/or home price
indices values, or lack of necessary valuation data on
acquired loans.
38
U.S. BANCORP
The following tables provide summary information for the
LTVs of residential mortgages and home equity and second
mortgages by borrower type at December 31, 2013:
Residential mortgages
(Dollars in Millions)
Prime Borrowers
Interest
Only Amortizing
Total
Percent
of Total
Less than or equal to 80% . . . . $ 2,188 $35,163 $37,351
Over 80% through 90% . . . . . . .
2,924
Over 90% through 100% . . . . .
1,299
Over 100% . . . . . . . . . . . . . . . . . . .
1,429
83
No LTV available . . . . . . . . . . . . .
2,530
988
973
83
394
311
456
–
86.7%
6.8
3.0
3.3
.2
Total . . . . . . . . . . . . . . . . . . . . . . . $ 3,349 $39,737 $43,086 100.0%
Sub-Prime Borrowers
Less than or equal to 80% . . . . $
Over 80% through 90% . . . . . . .
Over 90% through 100% . . . . .
Over 100% . . . . . . . . . . . . . . . . . . .
No LTV available . . . . . . . . . . . . .
2 $
2
3
4
–
630 $
229
199
326
–
632
231
202
330
–
45.3%
16.6
14.5
23.6
–
Total . . . . . . . . . . . . . . . . . . . . . . . $
11 $ 1,384 $ 1,395 100.0%
Other Borrowers
Less than or equal to 80% . . . . $
Over 80% through 90% . . . . . . .
Over 90% through 100% . . . . .
Over 100% . . . . . . . . . . . . . . . . . . .
No LTV available . . . . . . . . . . . . .
9 $
2
1
2
–
431 $
206
86
172
–
440
208
87
174
–
48.4%
22.9
9.6
19.1
–
Total . . . . . . . . . . . . . . . . . . . . . . . $
14 $
895 $
909 100.0%
Loans Purchased From
GNMA Mortgage
Pools (a) . . . . . . . . . . . . . . . . . . $
Total
Home equity and second mortgages
(Dollars in Millions)
Lines
Loans
Total
Percent
of Total
Prime Borrowers
Less than or equal to 80% . . . . $ 8,776 $
Over 80% through 90% . . . . . . .
Over 90% through 100% . . . . . .
Over 100% . . . . . . . . . . . . . . . . . . . .
No LTV/CLTV available . . . . . . .
2,112
1,061
1,211
221
589 $ 9,365
2,364
252
1,215
154
1,464
253
254
33
63.9%
16.1
8.3
10.0
1.7
Total . . . . . . . . . . . . . . . . . . . . . . . . $13,381 $ 1,281 $14,662 100.0%
Sub-Prime Borrowers
Less than or equal to 80% . . . . $
Over 80% through 90% . . . . . . .
Over 90% through 100% . . . . . .
Over 100% . . . . . . . . . . . . . . . . . . . .
No LTV/CLTV available . . . . . . .
44 $
15
13
26
–
28 $
26
36
108
–
72
41
49
134
–
24.3%
13.8
16.6
45.3
–
Total . . . . . . . . . . . . . . . . . . . . . . . . $
98 $
198 $
296 100.0%
Other Borrowers
Less than or equal to 80% . . . . $
Over 80% through 90% . . . . . . .
Over 90% through 100% . . . . . .
Over 100% . . . . . . . . . . . . . . . . . . . .
No LTV/CLTV available . . . . . . .
355 $
75
17
14
2
Total . . . . . . . . . . . . . . . . . . . . . . . . $
463 $
10 $
5
2
4
–
21 $
365
80
19
18
2
75.4%
16.6
3.9
3.7
.4
484 100.0%
Total
Less than or equal to 80% . . . . $ 9,175 $
Over 80% through 90% . . . . . . .
Over 90% through 100% . . . . . .
Over 100% . . . . . . . . . . . . . . . . . . . .
No LTV/CLTV available . . . . . . .
2,202
1,091
1,251
223
627 $ 9,802
2,485
283
1,283
192
1,616
365
256
33
63.5%
16.1
8.3
10.5
1.6
– $ 5,766 $ 5,766 100.0%
Total . . . . . . . . . . . . . . . . . . . . . . . . $13,942 $ 1,500 $15,442 100.0%
Less than or equal to 80% . . . . $ 2,199 $36,224 $38,423
Over 80% through 90% . . . . . . .
3,363
Over 90% through 100% . . . . .
1,588
Over 100% . . . . . . . . . . . . . . . . . . .
1,933
No LTV available . . . . . . . . . . . . .
83
Loans purchased from GNMA
mortgage pools (a) . . . . . . . .
2,965
1,273
1,471
83
398
315
462
–
5,766
5,766
–
75.1%
6.6
3.1
3.8
.1
11.3
Total . . . . . . . . . . . . . . . . . . . . . . . $ 3,374 $47,782 $51,156 100.0%
(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.
U.S. BANCORP
39
bureau files. The Company also evaluates other indicators of
credit risk for these junior lien loans and lines including
delinquency, estimated average CLTV ratios and updated
weighted-average credit scores in making its assessment of
credit risk, related loss estimates and determining the
allowance for credit losses.
The following table provides a summary of delinquency
statistics and other credit quality indicators for the
Company’s junior lien positions at December 31, 2013:
(Dollars in Millions)
Junior Liens Behind
Company
Owned or
Serviced
First Lien
Third Party
First Lien
Total
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percent 30-89 days past due . . . . . . . . .
Percent 90 days or more past due . . . .
Weighted-average CLTV . . . . . . . . . . . . . .
Weighted-average credit score . . . . . . .
$3,901
$6,813 $10,714
.55%
.13%
78%
.80%
.21%
76%
748
742
.71%
.18%
77%
744
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.
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 67.8 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.
At December 31, 2013, approximately $1.4 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
$1.6 billion at December 31, 2012. In addition to residential
mortgages, at December 31, 2013, $.3 billion of home equity
and second mortgage loans and lines were to customers
that may be defined as sub-prime borrowers, compared with
$.4 billion at December 31, 2012. 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 .5 percent
of total assets at December 31, 2013, compared with
.6 percent at December 31, 2012. The Company considers
sub-prime loans to be those made to borrowers with a risk of
default significantly higher than those approved for prime
lending programs, as reflected in credit scores obtained
from independent agencies at loan origination, in addition to
other credit underwriting criteria. Sub-prime portfolios
include only loans originated according to the Company’s
underwriting programs specifically designed to serve
customers with weakened credit histories. The sub-prime
designation indicators have been and will continue to be
subject to re-evaluation over time as borrower
characteristics, payment performance and economic
conditions change. The sub-prime loans originated during
periods from June 2009 and after are with borrowers who
met the Company’s program guidelines and have a credit
score that generally is at or below a threshold of 620 to 650
at loan origination, depending on the program. Sub-prime
loans originated during periods prior to June 2009 were
based upon program level guidelines without regard to
credit score.
Covered loans included $986 million in loans with
negative-amortization payment options at December 31,
2013, compared with $1.3 billion at December 31, 2012.
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 $15.4 billion
at December 31, 2013, compared with $16.7 billion at
December 31, 2012, and included $4.7 billion of home
equity lines in a first lien position and $10.7 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, 2013, included approximately $3.9 billion of
loans and lines for which the Company also serviced the
related first lien loan, and approximately $6.8 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 using information the Company has as the servicer of
the first lien or information reported on customer credit
40
U.S. BANCORP
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
2013
2012
2011
2010
2009
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.08%
–
.10%
–
.09%
–
.15%
.02
.25%
–
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
.30
.07
.65
1.17
–
.21
.18
.31
.09
.02
.02
.02
.64
1.27
.02
.22
.20
.31
.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
Covered Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.63
.51%
5.86
.59%
6.15
.84%
6.04
1.11%
3.59
1.19%
At December 31,
90 days or more past due including nonperforming loans
2013
2012
2011
2010
2009
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans, excluding covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.27%
.83
2.16
1.60
.58
.97
7.13
.27%
.63%
1.50
2.14
2.12
.66
1.11
9.28
2.55
2.73
2.65
.52
1.54
12.42
1.37%
3.73
3.70
3.22
.58
2.19
12.94
2.25%
5.22
4.59
3.43
.66
2.87
9.76
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.19%
1.52%
2.30%
3.17%
3.64%
(a) Delinquent loan ratios exclude $3.7 billion, $3.2 billion, $2.6 billion, $2.6 billion, and $2.2 billion at December 31, 2013, 2012, 2011, 2010 and 2009, respectively, of loans purchased
from 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 9.34 percent, 9.45 percent, 9.84 percent, 12.28 percent, and 12.86 percent at
December 31, 2013, 2012, 2011, 2010, and 2009, respectively.
(b) 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
all nonperforming loans was .93 percent, 1.08 percent, .99 percent, 1.04 percent, and .91 percent at December 31, 2013, 2012, 2011, 2010, and 2009, 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
$1.2 billion ($713 million excluding covered loans) at
December 31, 2013, compared with $1.3 billion ($660 million
excluding covered loans) at December 31, 2012, and
$1.8 billion ($843 million excluding covered loans) at
U.S. BANCORP
41
December 31, 2011. The $53 million (8.0 percent) increase,
excluding covered loans, from December 31, 2012 to
December 31, 2013, primarily reflected an increase in
restructured residential mortgages in trial period
arrangements that have yet to be re-aged upon permanent
modification. 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
.51 percent (.31 percent excluding covered loans) at
December 31, 2013, compared with .59 percent (.31 percent
excluding covered loans) at December 31, 2012, and .84
percent (.43 percent excluding covered loans) at
December 31, 2011.
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
2013
2012
2013
2012
30-89 days . . . . . . . . . . . . .
90 days or more . . . . . . .
Nonperforming . . . . . . . . .
$ 358 $ 348
281
661
333
770
.70%
.65
1.51
.79%
.64
1.50
Total . . . . . . . . . . . . . . . . .
$1,461 $1,290
2.86% 2.93%
Credit card
30-89 days . . . . . . . . . . . . .
90 days or more . . . . . . .
Nonperforming . . . . . . . . .
$ 226 $ 227
217
146
210
78
1.25% 1.33%
1.17
.43
1.27
.85
Total . . . . . . . . . . . . . . . . .
$ 514 $ 590
2.85% 3.45%
Other retail
Retail leasing
30-89 days . . . . . . . . . . . . .
90 days or more . . . . . . .
Nonperforming . . . . . . . . .
$
11 $
–
1
Total . . . . . . . . . . . . . . . . .
$
12 $
12
1
1
14
.18%
–
.02
.20%
.22%
.02
.02
.26%
Home equity and
second mortgages
30-89 days . . . . . . . . . . . . .
90 days or more . . . . . . .
Nonperforming . . . . . . . . .
$ 102 $ 126
51
189
49
167
.66%
.32
1.08
.76%
.30
1.13
Total . . . . . . . . . . . . . . . . .
$ 318 $ 366
2.06% 2.19%
Other (b)
30-89 days . . . . . . . . . . . . .
90 days or more . . . . . . .
Nonperforming . . . . . . . . .
$ 132 $ 152
44
27
37
23
Total . . . . . . . . . . . . . . . . .
$ 192 $ 223
.50%
.14
.09
.73%
.59%
.17
.11
.87%
(a) Excludes $440 million of loans 30-89 days past due and $3.7 billion of loans 90 days or
more past due at December 31, 2013, purchased from GNMA mortgage pools that
continue to accrue interest, compared with $441 million and $3.2 billion at
December 31, 2012, respectively.
(b) Includes revolving credit, installment, automobile and student loans.
42
U.S. BANCORP
The following tables provide further information on
residential mortgages and home equity and second
mortgages as a percent of ending loan balances by
borrower type at December 31:
Residential mortgages (a)
Prime Borrowers
2013
2012
30-89 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90 days or more . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.55%
.55
1.31
2.41%
Sub-Prime Borrowers
30-89 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90 days or more . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.60%
6.02
13.19
26.81%
Other Borrowers
30-89 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90 days or more . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.65%
1.43
2.09
5.17%
.65%
.58
1.36
2.59%
6.41%
3.89
9.60
19.90%
.97%
.97
1.83
3.77%
(a) Excludes delinquent and nonperforming information on loans purchased from GNMA
mortgage pools as their repayments are primarily insured by the Federal Housing
Administration or guaranteed by the Department of Veterans Affairs.
Home equity and second mortgages
2013
2012
Prime Borrowers
30-89 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90 days or more . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sub-Prime Borrowers
30-89 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90 days or more . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Borrowers
.57%
.27
.98
1.82%
4.39%
2.03
4.73
.64%
.28
1.03
1.95%
4.92%
1.36
4.10
11.15%
10.38%
30-89 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90 days or more . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.24%
.62
1.86
3.72%
1.41%
.47
2.35
4.23%
The following table provides summary delinquency
information for covered loans:
At December 31
(Dollars in Millions)
30-89 days . . . . . . . .
90 days or more . . .
Nonperforming . . . .
Total . . . . . . . . . . . .
2013
$166
476
127
$769
Amount
2012
$ 359
663
386
$1,408
As a Percent of Ending
Loan Balances
2013
1.96%
5.63
1.50
9.09%
2012
3.18%
5.86
3.41
12.45%
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.
Troubled Debt Restructurings 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. At
December 31, 2013, performing TDRs were $6.0 billion,
compared with $5.6 billion and $4.9 billion at December 31,
2012 and 2011, respectively. Loans classified as TDRs are
considered impaired loans for reporting and measurement
purposes.
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, and its own 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. The Company
reports loans in a trial period arrangement as TDRs.
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.
In accordance with regulatory guidance, the Company
considers secured consumer loans that have had debt
discharged through bankruptcy where the borrower has not
reaffirmed the debt to be TDRs. If the loan amount exceeds
the collateral value, the loan is charged down to collateral
value and the remaining amount is reported as
nonperforming.
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.
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:
At December 31, 2013
(Dollars in Millions)
As a Percent of Performing TDRs
Performing
TDRs
30-89 Days
Past Due
90 Days or More
Past Due
Nonperforming
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 248
390
1,997
232
200
3,067
2,607
325
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,999
3.0%
1.7
7.4
8.6
6.1
6.3
7.4
.9
6.5%
1.1%
2.3
7.9
6.4
4.3
6.3
66.6
1.1
32.2%
Total
TDRs
$ 348
533
2,457(d)
310
269(e)
3,917
2,607(f)
375
$100(a)
143(b)
460
78(c)
69(c)
850
–
50
$900
$6,899
(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 $281 million of residential mortgage loans to borrowers that have had debt discharged through bankruptcy and $124 million in trial period arrangements or previously placed
in trial period arrangements but not successfully completed.
(e) Includes $146 million of other retail loans to borrowers that have had debt discharged through bankruptcy and $3 million in trial period arrangements or previously placed in trial period
arrangements but not successfully completed.
(f) Includes $474 million of Federal Housing Administration and Department of Veterans Affairs residential mortgage loans to borrowers that have had debt discharged through bankruptcy
and $987 million in trial period arrangements or previously placed in trial period arrangements but not successfully completed.
U.S. BANCORP
43
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. Short-term modifications were
not material at December 31, 2013.
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 and not accruing interest, restructured loans
that have not met the performance period required to return
to accrual status, other real estate owned 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 generally applied against the principal
balance and not recorded as income. However, interest
income may be recognized for interest payments if the
remaining carrying amount of the loan is believed to be
collectible.
At December 31, 2013, total nonperforming assets were
$2.0 billion, compared with $2.7 billion at December 31,
2012 and $3.8 billion at December 31, 2011. Excluding
covered assets, nonperforming assets were $1.8 billion at
December 31, 2013, compared with $2.1 billion at
December 31, 2012 and $2.6 billion at December 31, 2011.
The $275 million (13.2 percent) decrease in nonperforming
assets, excluding covered assets, from December 31, 2012
to December 31, 2013, was primarily driven by reductions in
the commercial mortgage and construction and
development portfolios, as well as credit card loans.
Nonperforming covered assets at December 31, 2013 were
$224 million, compared with $583 million at December 31,
2012 and $1.2 billion at December 31, 2011. These assets
are covered by loss sharing agreements with the FDIC that
substantially reduce the risk of credit losses to the Company.
The ratio of total nonperforming assets to total loans and
other real estate was .86 percent (.80 percent excluding
covered assets) at December 31, 2013, compared with
1.19 percent (.98 percent excluding covered assets) at
December 31, 2012 and 1.79 percent (1.32 percent
excluding covered assets) at December 31, 2011.
Other real estate owned, excluding covered assets, was
$327 million at December 31, 2013, compared with
$381 million at December 31, 2012 and $404 million at
December 31, 2011, and was related to foreclosed
properties that previously secured loan balances. These
balances exclude foreclosed GNMA loans whose
repayments are primarily insured by the Federal Housing
Administration or guaranteed by the Department of Veterans
Affairs.
The following table provides an analysis of other real estate
owned, 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
2013
2012
2013
2012
Florida . . . . . . . . . . . . . . . . . . . . .
Ohio . . . . . . . . . . . . . . . . . . . . . . .
Washington . . . . . . . . . . . . . . .
California . . . . . . . . . . . . . . . . . .
Minnesota . . . . . . . . . . . . . . . . .
All other states . . . . . . . . . . . .
$ 17
17
16
15
15
186
$ 14
13
14
16
20
191
Total residential . . . . . . . . .
266
268
Commercial
California . . . . . . . . . . . . . . . . . .
Missouri . . . . . . . . . . . . . . . . . . .
Tennessee . . . . . . . . . . . . . . . .
Oregon . . . . . . . . . . . . . . . . . . . .
Wisconsin . . . . . . . . . . . . . . . . .
All other states . . . . . . . . . . . .
Total commercial . . . . . . .
14
14
5
3
3
22
61
8
17
7
5
3
73
113
1.03%
.52
.40
.13
.24
.47
1.55%
.51
.38
.18
.34
.49
.40
.08
.30
.25
.07
.06
.03
.06
.44
.05
.37
.41
.13
.06
.10
.11
Total . . . . . . . . . . . . . . . . .
$327
$381
.14%
.18%
44
U.S. BANCORP
T A B L E 1 6 Nonperforming Assets (a)
At December 31 (Dollars in Millions)
Commercial
2013
2012
2011
2010
2009
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 122
12
$ 107
16
$ 280
32
$ 519
78
Total commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
134
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
182
121
303
770
78
1
190
191
1,476
127
1,603
327
97
10
Total nonperforming assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,037
Total nonperforming assets, excluding covered assets . . . . . . . . . . . . .
$1,813
Excluding covered assets
123
308
238
546
661
146
1
216
217
1,693
386
2,079
381
197
14
$2,671
$2,088
312
354
545
899
650
224
–
67
67
2,152
926
3,078
404
274
18
$3,774
$2,574
597
545
748
1,293
636
228
–
65
65
2,819
1,244
4,063
511
453
21
$5,048
$3,351
$ 866
125
991
581
1,192
1,773
467
142
–
62
62
3,435
1,350
4,785
437
653
32
$5,907
$3,904
Accruing loans 90 days or more past due (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming loans to total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming assets to total loans plus other real estate (c) . . . . . . . . . . . . . .
$ 713
$ 660
$ 843
$1,094
$1,525
.65%
.80%
.80%
.98%
1.10%
1.32%
1.57%
1.87%
1.99%
2.25%
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) . . . . . . . . . . . . . .
$1,189
$1,323
$1,753
$2,184
$2,309
.68%
.86%
.93%
1.19%
1.47%
1.79%
2.06%
2.55%
2.46%
3.02%
Changes in Nonperforming Assets
(Dollars in Millions)
Commercial and
Commercial
Real Estate
Credit Card,
Other Retail
and Residential
Mortgages
Covered
Assets
Total
Balance December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 780
$1,308
$ 583
$ 2,671
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charge-offs (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net additions to (reductions in) nonperforming assets . . . . . . . . . . . . . . .
427
46
473
(266)
(209)
(38)
(246)
(759)
(286)
977
–
977
(276)
(151)
(166)
(373)
(966)
11
146
–
146
(247)
(249)
(8)
(1)
(505)
(359)
1,550
46
1,596
(789)
(609)
(212)
(620)
(2,230)
(634)
Balance December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 494
$1,319
$ 224
$ 2,037
(a) Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due.
(b) Excludes $3.7 billion, $3.2 billion, $2.6 billion, $2.6 billion and $2.2 billion at December 31, 2013, 2012, 2011, 2010 and 2009, 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) Foreclosed GNMA loans of $527 million, $548 million, $692 million, $575 million and $359 million at December 31, 2013, 2012, 2011, 2010 and 2009, 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.
U.S. BANCORP
45
T A B L E 1 7 Net Charge-offs as a Percent of Average Loans Outstanding
Year Ended December 31
Commercial
2013
2012
2011
2010
2009
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.19%
.06
Total commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.18
.43%
.63
.45
.76%
.96
.79
1.80%
1.47
1.60%
2.82
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans, excluding covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.08
(.87)
(.09)
.57
3.90
.02
1.33
.81
.89
.66
.32
.37
.86
.45
1.09
4.01
.04
1.72
.94
1.13
1.03
.08
.73
4.20
1.40
1.45
5.19
–
1.66
1.20
1.25
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
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.64%
.97%
1.41%
2.17%
2.08%
(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 3.92 percent,
4.16 percent, 5.36 percent, 7.99 percent and 7.14 percent for the years ended December 31, 2013, 2012, 2011, 2010 and 2009, respectively.
Analysis of Loan Net Charge-offs Total loan net charge-
offs were $1.5 billion in 2013, compared with $2.1 billion in
2012 and $2.8 billion in 2011. The ratio of total loan net
charge-offs to average loans was .64 percent in 2013,
compared with .97 percent in 2012 and 1.41 percent in
2011. The decrease in total net charge-offs in 2013,
compared with 2012, primarily reflected improvement in the
commercial, commercial real estate, residential mortgages
and home equity and second mortgages portfolios, as
economic conditions continue to slowly improve.
Commercial and commercial real estate loan net
charge-offs for 2013 were $87 million (.08 percent of average
loans outstanding), compared with $441 million (.45 percent
of average loans outstanding) in 2012 and $904 million
(1.04 percent of average loans outstanding) in 2011. The
decrease in net charge-offs in 2013, compared with 2012,
reflected the impact of more stable economic conditions and
a higher level of recoveries. The decrease in net charge-offs
in 2012, compared with 2011, reflected the Company’s
efforts to resolve and reduce exposure to problem assets in
its commercial real estate portfolios and improvement in its
other commercial portfolios due to improvement in the
economy.
Residential mortgage loan net charge-offs for 2013 were
$272 million (.57 percent of average loans outstanding),
compared with $438 million (1.09 percent of average loans
outstanding) in 2012 and $489 million (1.45 percent of
average loans outstanding) in 2011. Credit card loan net
charge-offs in 2013 were $656 million (3.90 percent of
average loans outstanding), compared with $667 million
(4.01 percent of average loans outstanding) in 2012 and
$834 million (5.19 percent of average loans outstanding) in
2011. Other retail loan net charge-offs for 2013 were
$418 million (.89 percent of average loans outstanding),
compared with $541 million (1.13 percent of average loans
outstanding) in 2012 and $604 million (1.25 percent of
average loans outstanding) in 2011. The decrease in total
residential mortgage, credit card and other retail loan net
charge-offs in 2013, compared with 2012, reflected the
impact of more stable economic conditions. The decrease in
total residential mortgage, credit card and other retail loan
net charge-offs in 2012, compared with 2011, reflected the
impact of more stable economic conditions, partially offset
by incremental charge-offs in the residential mortgages and
other retail loan portfolios recorded in 2012 related to
regulatory clarification on bankruptcy loans.
46
U.S. BANCORP
The following table provides an analysis of net charge-offs
as a percent of average loans outstanding for residential
mortgages and home equity and second mortgages by
borrower type:
Year Ended December 31
(Dollars in Millions)
Residential Mortgages
Prime borrowers . . . . . . . . . . . . .
Sub-prime borrowers . . . . . . . .
Other borrowers . . . . . . . . . . . . .
Loans purchased from
GNMA mortgage
pools (a) . . . . . . . . . . . . . . . . . .
Average Loans
Percent of
Average Loans
2013
2012
2013
2012
$40,077 $32,811
1,725
745
1,478
883
.48% .95%
4.74
1.02
6.43
1.88
5,544
5,009
.02
.04
Total . . . . . . . . . . . . . . . . . . . . . .
$47,982 $40,290
.57% 1.09%
Home Equity and
Second Mortgages
Prime borrowers . . . . . . . . . . . . .
Sub-prime borrowers . . . . . . . .
Other borrowers . . . . . . . . . . . . .
$15,114 $16,622
407
422
324
449
1.19% 1.53%
7.09
1.78
8.85
2.37
Total . . . . . . . . . . . . . . . . . . . . . .
$15,887 $17,451
1.33% 1.72%
(a) Represents loans purchased from GNMA mortgage pools whose payments are
primarily insured by the Federal Housing Administration or guaranteed by the
Department of Veterans Affairs.
Analysis 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, including unfunded credit commitments, 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, 2013, the allowance for credit losses
was $4.5 billion (1.93 percent of total loans and 1.94 percent
of loans excluding covered loans), compared with an
allowance of $4.7 billion (2.12 percent of total loans and 2.15
percent of loans excluding covered loans) at December 31,
2012. The ratio of the allowance for credit losses to
nonperforming loans was 283 percent (297 percent
excluding covered loans) at December 31, 2013,
compared with 228 percent (269 percent excluding covered
loans) at December 31, 2012, reflecting a decrease in
nonperforming loans. The ratio of the allowance for credit
losses to annual loan net charge-offs at December 31, 2013,
was 310 percent, compared with 226 percent at
December 31, 2012, as net charge-offs continue to decline
due to stabilizing economic conditions. Management
determined the allowance for credit losses was appropriate
at December 31, 2013.
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. In the migration analysis applied to risk rated
loan portfolios, the Company currently examines up to a
13-year period of historical loss experience. For each loan
type, this historical loss experience is adjusted as necessary
to consider any relevant changes in portfolio composition,
lending policies, underwriting standards, risk management
practices or economic conditions. The results of the analysis
are evaluated quarterly to confirm an appropriate historical
timeframe is selected for each commercial loan type. 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 of the loan, or the fair value of the
collateral for collateral-dependent loans, rather than the
migration analysis. 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, portfolio growth and historical losses, adjusted
for current trends. The allowance established for commercial
lending segment loans was $1.9 billion at December 31,
2013, unchanged from December 31, 2012, reflecting
growth in the portfolios, offset by the impact of the overall
improvement in economic conditions affecting incurred
losses.
The allowance recorded for TDR loans and purchased
impaired 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, or the prior quarter effective rate,
respectively. The allowance for collateral-dependent loans in
the consumer lending segment is determined based on the
fair value of the collateral less costs to sell. 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,
refreshed LTV ratios when possible, portfolio growth and
U.S. BANCORP
47
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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
$4,733
2012
$5,014
2011
$5,531
2010
$5,264
2009
$3,639
212
34
246
71
21
92
297
739
5
237
281
523
37
312
66
378
145
97
242
461
769
9
327
330
666
11
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
Total charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,934
2,527
3,229
4,496
4,111
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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
95
31
126
45
80
125
25
83
4
26
75
105
5
469
117
3
120
26
(59)
(33)
272
656
1
211
206
418
32
72
31
103
31
45
76
23
102
7
26
92
125
1
430
240
35
275
114
52
166
438
667
2
301
238
541
10
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other changes (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,465
1,340
(71)
2,097
1,882
(66)
2,843
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)
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,537
$4,733
$5,014
$5,531
$5,264
Components
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liability for unfunded credit commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,250
287
Total allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,537
$4,424
309
$4,733
$4,753
261
$5,014
$5,310
221
$5,531
$5,079
185
$5,264
Allowance for Credit Losses as a Percentage of
Period-end loans, excluding covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming loans, excluding covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming and accruing loans 90 days or more past due, excluding covered loans . .
Nonperforming assets, excluding covered assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-offs, excluding covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Period-end loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming and accruing loans 90 days or more past due . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.94%
297
201
242
306
1.93%
283
163
223
310
2.15%
269
194
218
218
2.12%
228
139
177
226
2.52%
228
164
191
174
2.39%
163
104
133
176
3.03%
192
138
162
130
2.81%
136
89
110
132
3.04%
153
106
135
136
2.70%
110
74
89
136
(a) Relates to covered loan charge-offs and recoveries not reimbursable by the FDIC.
(b) Beginning in 2010, includes net changes in credit losses to be reimbursed by the FDIC and beginning in 2013, reductions in the allowance for covered loans where the reversal of a
previously recorded allowance was offset by an associated decrease in the indemnification asset.
48
U.S. BANCORP
T A B L E 1 9 Elements of the Allowance for Credit Losses
Allowance Amount
Allowance as a Percent of Loans
At December 31 (Dollars in Millions)
2013
2012
2011
2010
2009
2013
2012
2011
2010
2009
Commercial
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,019
56
$ 979
72
$ 929
81
$ 992
112
$1,026
182
1.57% 1.61% 1.83% 2.35% 2.43%
1.37
1.06
1.31
2.78
1.83
Total commercial . . . . . . . . . . . . . . . . . . . . . . .
1,075
1,051
1,010
1,104
1,208
1.53
1.59
1.78
2.28
2.48
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 . . . . . . . . . . . . . . . . . . . . . . . . .
532
244
776
875
884
14
497
270
781
146
641
216
857
935
863
11
583
254
848
179
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
1.65
3.17
1.95
1.71
4.91
.24
3.22
1.03
1.64
1.73
2.07
3.63
2.32
2.12
5.04
.20
3.49
.99
1.78
1.58
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
Total allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,537
$4,733
$5,014
$5,531
$5,264
1.93% 2.12% 2.39% 2.81% 2.70%
historical losses, adjusted for current trends. Credit card and
other retail loans 90 days or more past due are generally not
placed on nonaccrual status because of the relatively short
period of time to charge-off and, therefore, are excluded
from nonperforming loans and measures that include
nonperforming loans as part of the calculation.
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, 2013,
the Company serviced the first lien on 36 percent of the
home equity loans and lines in a junior lien position. The
Company also considers information received from its
primary regulator on the status of the first liens that are
serviced by other large servicers in the industry and the
status of first lien mortgage accounts reported on customer
credit bureau files. 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. Based on the available information, the Company
estimated $398 million or 2.6 percent of the total home equity
portfolio at December 31, 2013, 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, or can be identified in credit bureau data, to
establish loss estimates for junior lien loans and lines the
Company services that are current, but the first lien is
delinquent or modified. Historically, the number of junior lien
defaults in any period has been a small percentage of the total
portfolio (for example, only 1.4 percent for the twelve months
ended December 31, 2013), and the long-term average loss
rate on the small percentage of loans that default has been
approximately 80 percent. 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 $2.5 billion at December 31, 2013,
compared with $2.6 billion at December 31, 2012. The
$106 million decrease in the allowance for consumer lending
segment loans at December 31, 2013, compared with
December 31, 2012, reflected the impact of more stable
economic conditions, partially offset by portfolio growth.
The allowance for the covered loan segment 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 loans
considers the indemnification provided by the FDIC. The
allowance established for covered loans was $146 million at
December 31, 2013, compared with $179 million at
December 31, 2012, reflecting expected credit losses in
excess of initial fair value adjustments, including $21 million
and $42 million at December 31, 2013 and 2012,
respectively, 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,
U.S. BANCORP
49
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
recorded at the purchase date.
Subsequent to the purchase date, the expected cash
flows of purchased loans are subject to evaluation. Decreases
in the present value of expected cash flows are recognized by
recording an allowance for credit losses with the related
provision for credit losses reduced for the amount
reimbursable by the FDIC, where applicable. If the expected
cash flows on the purchased loans increase such that a
previously recorded impairment allowance can be reversed,
the Company records a reduction in the allowance with a
related reduction in losses reimbursable by the FDIC, where
applicable. Increases in expected cash flows of purchased
loans, when there are no reversals of previous impairment
allowances, are recognized over the remaining life of the loans
and resulting decreases in expected cash flows of the FDIC
indemnification assets are amortized over the shorter of the
remaining contractual term of the indemnification agreements
or the remaining life of the loans. Refer to Note 1 of the Notes
to Consolidated Financial Statements, for more information.
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.
50
U.S. BANCORP
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
$4.6 billion of retail leasing residuals at December 31, 2013,
compared with $3.8 billion at December 31, 2012. The
Company monitors concentrations of leases by manufacturer
and vehicle “make and model.” As of December 31, 2013,
vehicle lease residuals related to sport utility vehicles were
56.4 percent of the portfolio, while upscale and mid-range
vehicle classes represented approximately 15.5 percent and
13.9 percent of the portfolio, respectively. At year-end 2013,
the largest vehicle-type concentration represented
8.9 percent of the aggregate residual value of the vehicles in
the portfolio. At December 31, 2013, the weighted-average
origination term of the portfolio was 40 months, compared
with 41 months at December 31, 2012.
At December 31, 2013, the commercial leasing portfolio
had $542 million of residuals, compared with $567 million at
December 31, 2012. At year-end 2013, lease residuals
related to trucks and other transportation equipment were
33.8 percent of the total residual portfolio. Business and
office equipment represented 26.5 percent of the aggregate
portfolio, while railcars represented 12.1 percent and
manufacturing equipment represented 11.0 percent. No
other concentrations of more than 10 percent existed at
December 31, 2013.
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. Operational risk
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.
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. Business managers are also required to
report on their business line’s management of operational risk.
Business managers are responsible for resolving escalated
matters, and keeping the Company’s operating, executive, and
Board committees informed of the status of such matters. In
addition, the Company’s enterprise risk management personnel
are also expected to promptly escalate known instances where
a risk limit has been exceeded.
The significant increase in regulation and regulatory
oversight initiatives over the past several years has
substantially increased the importance of the Company’s risk
management personnel and activities. For example, the
Consumer Financial Protection Bureau (“CFPB”) has authority
to prescribe rules, or issue orders or guidelines pursuant to
any federal consumer financial law. The CFPB regulates and
examines the Company, its banks and other subsidiaries with
respect to matters that relate to these laws and consumer
financial services and products. The CFPB’s rulemaking,
examination and enforcement authority increases enforcement
risk in this area including the potential for fines and penalties.
Refer to “Supervision and Regulation” in the Company’s
Annual Report on Form 10-K for further discussion of the
regulatory framework applicable to bank holding companies
and their subsidiaries, and the substantial changes to that
regulation.
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.
In the past, the Company has experienced attack
attempts on its computer systems including various denial-of-
service attacks on customer-facing websites. The Company
has not experienced any material losses relating to these
attempts, as a result of its controls, processes and systems to
protect its networks, computers, software and data from
attack, damage or unauthorized access. However, attack
attempts on the Company’s computer systems are increasing
and the Company continues to develop and enhance its
controls and processes to protect against these attempts.
Interest Rate Risk Management In the banking industry,
changes in interest rates are a significant risk that can impact
earnings, market valuations and safety and soundness of an
entity. To minimize the volatility of net interest income and the
market value of assets and liabilities, the Company manages
its exposure to changes in interest rates through asset and
liability management activities within guidelines established by
its Asset Liability Committee (“ALCO”) and approved by the
Board of Directors. The ALCO has the responsibility for
approving and ensuring compliance with the ALCO
management policies, including interest rate risk exposure.
The Company uses net interest income simulation analysis
and market value of equity modeling for measuring and
analyzing consolidated interest rate risk.
U.S. BANCORP
51
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, 2013 and 2012, 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
Sensitivity of Net Interest Income
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 5.1 percent decrease in
the market value of equity at December 31, 2013, compared
with a 2.5 percent decrease at December 31, 2012. A
200 bps decrease, where possible given current rates,
would have resulted in a .8 percent decrease in the market
value of equity at December 31, 2013, compared with a
5.3 percent decrease at December 31, 2012.
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.
Use of Derivatives to Manage Interest Rate and
Other Risks To reduce the sensitivity of earnings to interest
rate, prepayment, credit, price and foreign currency
fluctuations (asset and liability management positions), the
Company enters into derivative transactions. The Company
uses derivatives for asset and liability management
purposes primarily in the following ways:
• To convert fixed-rate debt from fixed-rate payments to
floating-rate payments;
December 31, 2013
December 31, 2012
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 . . . . . . .
*
1.07%
*
1.53%
*
1.42%
*
1.90%
* Given the current level of interest rates, a downward rate scenario can not be computed.
52
U.S. BANCORP
• To convert the cash flows associated with floating-rate
loans and debt from floating-rate payments to fixed-rate
payments;
• To mitigate changes in value of the Company’s mortgage
origination pipeline, funded mortgage loans held for sale
and MSRs;
• To mitigate remeasurement volatility of foreign currency
denominated balances; and
• To mitigate the volatility of the Company’s investment in
foreign operations driven by fluctuations in foreign
currency exchange rates.
To manage these risks, the Company may enter into
exchange-traded, centrally cleared 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 historically has minimized the
market and liquidity risks of customer-related positions by
entering into similar offsetting positions with broker-dealers. In
2014, the Company began to instead actively manage the risks
from its exposure to these customer-related positions on a
portfolio basis by entering into other derivative or
non-derivative financial instruments that partially or fully offset
the exposure from these customer-related positions. 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 interest rate swaps, forward commitments to buy to-be-
announced securities (“TBAs”), U.S. Treasury futures and
options on U.S. Treasury futures to mitigate fluctuations in the
value of its MSRs, but does not designate those derivatives as
accounting hedges. The estimated net sensitivity to changes
in interest rates of the fair value of the MSRs and the related
derivative instruments at December 31, 2013, to an immediate
25, 50 and 100 bps downward movement in interest rates
would be a decrease of approximately $2 million, $5 million
and $36 million, respectively. An upward movement in interest
rates at December 31, 2013, of 25 bps would result in no
change in the fair value of the MSRs and related derivative
instruments, while a 50 and 100 bps increase would decrease
the fair value of the MSRs and related derivative instruments
by $3 million and $14 million, respectively. Refer to Note 9 of
the Notes to Consolidated Financial Statements for additional
information regarding MSRs.
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, 2013, the Company had $5.3 billion of
forward commitments to sell, hedging $2.8 billion of mortgage
loans held for sale and $3.1 billion of unfunded mortgage loan
commitments. The forward commitments to sell and the
unfunded mortgage loan commitments on loans intended to
be sold are considered derivatives under the accounting
guidance related to accounting for derivative instruments and
hedging activities. The Company has elected the fair value
option for the mortgage loans held for sale.
Derivatives are subject to credit risk associated with
counterparties to the contracts. Credit risk associated with
derivatives is measured by the Company based on the
probability of counterparty default. The Company manages the
credit risk of its derivative positions by diversifying its positions
among various counterparties, by entering into master netting
arrangements, and, where possible by requiring collateral
arrangements. The Company may also transfer counterparty
credit risk related to interest rate swaps to third parties through
the use of risk participation agreements. In addition, effective in
2013, certain interest rate swaps and credit contracts are
required to be centrally cleared through clearing houses to
further mitigate counterparty credit risk.
For additional information on derivatives and hedging
activities, refer to Notes 19 and 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. For purposes of its
internal capital adequacy assessment process, the
Company considers risk arising from its trading activities
employing methodologies consistent with the requirements
of regulatory rules for market risk. The Company’s Market
Risk Committee (“MRC”), within the framework of the ALCO,
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 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 corporate bond
trading business, foreign currency transaction business,
client derivatives business, loan trading business and
U.S. BANCORP
53
municipal securities business. On average, the Company
expects the one-day VaR to be exceeded by actual losses
two to three times per year for its trading businesses. 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 average, high, low and period-end VaR amounts for the
Company’s trading positions were as follows:
Year Ended December 31
(Dollars in Millions)
Average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Period-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
2012
$1
3
1
1
$1
3
1
1
The Company did not experience any actual trading
losses for its combined trading businesses that exceeded
VaR by more than a negligible amount during 2013. 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.
The Company calculates Stressed VaR using the same
underlying methodology and model as VaR, except that a
historical continuous one-year look-back period is utilized
that reflects a period of significant financial stress
appropriate to the Company’s trading portfolio. The period
selected by the Company includes the significant market
volatility of the last four months of 2008. The average, high,
low and period-end Stressed VaR amounts for the
Company’s trading positions for 2013 were $4 million,
$8 million, $2 million, and $3 million, respectively.
Valuations of positions in the client derivatives and
foreign currency transaction businesses are based on
quotes from third parties, which are generally compared with
an additional third party quote to determine if there are
material variances. Material variances are approved by the
Company’s market risk management department. Valuation
of positions in the corporate bond trading, loan trading and
municipal securities businesses are based on trader marks.
These trader marks are evaluated against third party prices,
with material variances approved by the Company’s market
risk management and credit administration departments.
The Company also measures the market risk of its
hedging activities related to residential mortgage loans held
for sale and MSRs using the Historical Simulation method.
The VaRs are measured at the ninety-ninth percentile and
employ factors pertinent to the market risks inherent in the
54
U.S. BANCORP
valuation of the assets and hedges. The Company monitors
the effectiveness of the models through back-testing,
updating the data and regular validations. A three-year look-
back period is used to obtain past market data for the
residential mortgage loans held for sale and related hedges.
Beginning in late 2013, the Company began to use a
seven-year look-back period to obtain past market data for
the MSRs and related hedges. Previously, a three-year look-
back period was used. The change in the look-back period
for the MSRs and related hedges allows the Company to
more appropriately capture the expected market volatility in
its VaR analysis.
The average, high and low VaR amounts for residential
mortgage loans held for sale and related hedges and the
MSRs and related hedges were as follows:
Year Ended December 31
(Dollars in Millions)
Residential Mortgage Loans Held For
Sale and Related Hedges
Average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage Servicing Rights and
Related Hedges
Average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
2012
$1
4
–
$3
7
1
$2
7
1
$4
8
2
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 activities 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, approves the Company’s liquidity
policy and reviews the contingency funding plan. The ALCO
reviews and approves the Company’s liquidity policy 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 policy requires 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
T A B L E 2 0 Debt Ratings
Moody’s
Standard &
Poor’s
U.S. Bancorp
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior debt and medium-term notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A1
A2
Baa1
P-1
U.S. Bank National Association
Short-term time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
P-1
Long-term time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aa3
Bank notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Aa3/P-1
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A1
Senior unsecured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aa3
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
P-1
A+
A
BBB+
A-1
A-1+
AA-
AA-/A-1+
A+
AA-
A-1+
Fitch
F1+
AA-
A+
BBB
F1+
F1+
AA
AA-/F1+
A+
AA-
F1+
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)
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-balance sheet
and off-balance sheet funding sources. These include cash at
the Federal Reserve Bank, unencumbered liquid assets, and
capacity to borrow at the Federal Home Loan Bank (“FHLB”)
and the Federal Reserve Bank’s 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, 2013, the
fair value of unencumbered available-for-sale and held-to-
maturity investment securities totaled $61.7 billion, compared
with $54.1 billion at December 31, 2012. 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, 2013, the Company could
have borrowed an additional $69.7 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 $262.1 billion at December 31,
2013, compared with $249.2 billion at December 31, 2012.
Refer to Table 14 and “Balance Sheet Analysis” for further
information on the Company’s deposit trends.
Additional funding is provided by long-term debt and
short-term borrowings. Long-term debt was $20.0 billion at
December 31, 2013, and is an important funding source
because of its multi-year borrowing structure. Refer to Note
12 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 $27.6 billion at December 31, 2013, and supplement
the Company’s other funding sources. Refer to Note 11 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
available funds considerably greater than the amounts
required to satisfy these conditions.
U.S. BANCORP
55
T A B L E 2 1 Contractual Obligations
At December 31, 2013 (Dollars in Millions)
Contractual Obligations (a)
Long-term debt (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit obligations (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contractual interest payments (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity Investment Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments Due By Period
Over One
Through
Three Years
Over Three
Through
Five Years
Over Five
Years
$ 6,826
397
310
41
8,273
755
389
$16,991
$4,079
270
69
43
2,472
455
23
$7,411
$5,012
474
—
131
27
671
23
$6,338
One Year
or Less
$ 4,132
244
338
20
30,029
854
1,214
$36,831
Total
$20,049
1,385
717
235
40,801
2,735
1,649
$67,571
(a) Unrecognized tax positions of $264 million at December 31, 2013, 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.
(d) Includes accrued interest and future contractual interest obligations.
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, 2013, parent company long-term debt
outstanding was $11.4 billion, compared with $12.8 billion at
December 31, 2012. The $1.4 billion decrease was primarily
due to $2.9 billion of medium-term note maturities, partially
offset by issuances of $1.5 billion of medium–term notes. At
December 31, 2013, there was $1.5 billion of parent
company debt scheduled to mature in 2014. 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.
Dividend payments to the Company by its subsidiary
bank are subject to regulatory review and statutory
limitations and, in some instances, regulatory approval. In
general, dividends to the parent company from its banking
subsidiary are limited by rules which compare dividends to
net income for regulatorily-defined periods. For further
information, see Note 23 of the Notes to Consolidated
Financial Statements.
In 2010, the Basel Committee on Banking Supervision
issued Basel III, a global regulatory framework proposed to
56
U.S. BANCORP
enhance international capital and liquidity standards. In
October 2013, U.S. banking regulators released a proposed
regulatory requirement for U.S. banks which would
implement a Liquidity Coverage Ratio (“LCR”) similar to the
measure proposed by the Basel Committee as part of Basel
III. The LCR requires that banks maintain an adequate level
of unencumbered high quality liquid assets to meet
estimated liquidity needs over a 30-day stressed period. The
Company continues to evaluate the impact of the proposed
rule and expects to meet the final standards within the
regulatory timelines.
European Exposures Certain European countries have
experienced severe credit deterioration. The Company does
not hold sovereign debt of any European country, but may
have indirect exposure to sovereign debt through its
investments in, and transactions with, European banks. At
December 31, 2013, the Company had investments in
perpetual preferred stock issued by European banks with an
amortized cost totaling $70 million and unrealized losses
totaling $7 million, compared with an amortized cost totaling
$70 million and unrealized losses totaling $10 million, at
December 31, 2012. The Company also transacts with various
European banks as counterparties to interest rate,
mortgage-related and foreign currency derivatives for its
hedging and customer-related activities, however, none of
these banks are domiciled in the countries experiencing the
most significant credit deterioration. These derivatives are
subject to master netting arrangements. In addition, interest
rate and foreign currency derivative transactions are subject
to collateral arrangements which significantly limit the
Company’s exposure to loss as they generally require daily
posting of collateral. At December 31, 2013, the Company
was in a net receivable position with one bank in the United
Kingdom, in the amount of $64 million. The Company was in a
net payable position to all of the other 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 lending
services in Europe. While the Company does not offer
commercial lending services in Europe, it does provide
financing to domestic multinational corporations that
generate revenue from customers in European countries and
provides a limited number of corporate credit cards to their
European subsidiaries. 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 provides merchant processing and
corporate trust services in Europe either directly or through
banking affiliations in Europe. Operating cash for these
businesses is deposited on a short-term basis with certain
European banks. However, exposure is mitigated by the
Company placing deposits at multiple banks and managing
the amounts on deposit at any bank based on institution-
specific deposit limits. At December 31, 2013, the Company
had an aggregate amount on deposit with European banks
of approximately $382 million.
The money market funds managed by a subsidiary of
the Company do not have any investments in European
sovereign debt, other than approximately $315 million
guaranteed by the country of Germany. Other than
investments in banks in the countries of the Netherlands,
France and Germany, those funds do not have any
unsecured investments in banks domiciled in the Eurozone.
Off-Balance Sheet Arrangements Off-balance sheet
arrangements include any contractual arrangements 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 related to a
variable interest held in 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
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, 2013 were $230.3 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, 2013 were
$17.2 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 private
investment funds or partnerships that make equity
investments, provide debt financing or support community-
based investments in tax-advantaged 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 VIEs. The
Company’s recorded investment in these entities as of
December 31, 2013 was approximately $2.5 billion.
The Company also has non-controlling financial
investments in private funds and partnerships considered
VIEs. The Company’s recorded investment in these entities
was approximately $44 million at December 31, 2013, and
the Company had unfunded commitments to invest an
additional $8 million. For more information on the Company’s
interests in unconsolidated VIEs, refer to Note 7 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. and MasterCard International.
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.
U.S. BANCORP
57
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 its 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.
On June 18, 2013, the Company announced its Board of
Directors had approved an 18 percent increase in the
Company’s dividend rate per common share, from $.195 per
quarter to $.23 per quarter.
The Company repurchased approximately 65 million
shares of its common stock in 2013, compared with
approximately 59 million shares in 2012. The average price
paid for the shares repurchased in 2013 was $35.55 per
share, compared with $31.78 per share in 2012. As of
December 31, 2013, the approximate dollar value of shares
that may yet be purchased by the Company under the current
Board of Directors approved authorization was $488 million.
For a more complete analysis of activities impacting
shareholders’ equity and capital management programs, refer
to Note 14 of the Notes to Consolidated Financial Statements.
Total U.S. Bancorp shareholders’ equity was
$41.1 billion at December 31, 2013, compared with
$39.0 billion at December 31, 2012. The increase was
primarily the result of corporate earnings, partially offset by
dividends and common share repurchases.
As of December 31, 2013, the regulatory capital
requirements effective for the Company follow the Capital
Accord of the Basel Committee on Banking Supervision
(“Basel I”). Under Basel I, 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 the
Company’s bank subsidiary 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 its covered subsidiary
bank.
In June 2012, U.S. banking regulators proposed
regulatory enhancements to the regulatory capital
requirements for U.S. banks, which implement aspects of
Basel III and the Dodd-Frank Act, such as redefining the
regulatory capital elements and minimum capital ratios,
introducing regulatory capital buffers above those
minimums, revising the rules for calculating risk-weighted
assets and introducing a new common equity tier 1 ratio. In
October 2013, U.S. banking regulators approved final
regulatory capital rule enhancements, effective for the
Company beginning January 1, 2014, that are largely
consistent with the June 2012 proposals.
As an approved mortgage seller and servicer, U.S. Bank
National Association, through its mortgage banking division,
is required to maintain various levels of shareholders’ equity,
as specified by various agencies, including the United States
Department of Housing and Urban Development,
Government National Mortgage Association, Federal Home
Loan Mortgage Corporation and the Federal National
Mortgage Association. At December 31, 2013, U.S. Bank
National Association met these requirements.
Table 22 provides a summary of regulatory capital ratios
defined by banking regulators under the FDIC Improvement
Act prompt corrective action provisions applicable to all
banks in effect at December 31, 2013 and 2012, including
Tier 1 and total risk-based capital ratios.
The Company believes certain capital ratios in addition to
regulatory capital ratios defined by banking regulators under
the FDIC Improvement Act prompt corrective action provisions
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 9.4
percent and 9.1 percent, respectively, at December 31, 2013,
compared with 9.0 percent and 8.6 percent, respectively, at
December 31, 2012. The Company’s tangible common equity
divided by tangible assets was 7.7 percent at December 31,
2013, compared with 7.2 percent at December 31, 2012. The
Company’s estimated common equity tier 1 to risk-weighted
assets ratio using final rules for the Basel III standardized
approach was 8.8 percent at December 31, 2013. Refer to
“Non-GAAP Financial Measures” for further information
regarding the calculation of these ratios.
58
U.S. BANCORP
T A B L E 2 2 Regulatory Capital Ratios
At December 31 (Dollars in Millions)
2013
2012
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$33,386
$31,203
11.2%
9.6%
10.8%
9.2%
$39,340
$37,780
13.2%
13.1%
Bank Subsidiary
U.S. Bank National Association
Tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total risk-based capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.3%
12.4
8.8
10.6%
12.7
9.0
Bank Regulatory Capital Requirements
Minimum
Well-
Capitalized
Tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total risk-based capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.0%
8.0
4.0
6.0%
10.0
5.0
Fourth Quarter Summary
The Company reported net income attributable to
U.S. Bancorp of $1.5 billion for the fourth quarter of 2013, or
$.76 per diluted common share, compared with $1.4 billion,
or $.72 per diluted common share, for the fourth quarter of
2012. Return on average assets and return on average
common equity were 1.62 percent and 15.4 percent,
respectively, for the fourth quarter of 2013, compared with
1.62 percent and 15.6 percent, respectively, for the fourth
quarter of 2012. The provision for credit losses was
$35 million lower than net charge-offs for the fourth quarter of
2013, compared with $25 million lower than net charge-offs
for the fourth quarter of 2012. Also included in the fourth
quarter 2012 results was the $80 million expense accrual for
a mortgage foreclosure-related regulatory settlement.
Total net revenue, on a taxable-equivalent basis for the
fourth quarter of 2013, was $223 million (4.4 percent) lower
than the fourth quarter of 2012, reflecting a 1.8 percent
decrease in net interest income and a 7.4 percent decrease
in noninterest income. The decrease in net interest income
from 2012 was the result of an increase in average earning
assets, offset by a decrease in the net interest margin.
Noninterest income decreased from a year ago, primarily
due to lower mortgage banking revenue.
Noninterest expense in the fourth quarter of 2013 was
$4 million (.1 percent) lower than the fourth quarter of 2012.
The modest decrease was primarily due to the impact of the
$80 million mortgage foreclosure-related settlement accrual
in the fourth quarter of 2012 and a reduction in mortgage
servicing review-related professional services expense,
offset by higher costs related to investments in tax-
advantaged projects and employee benefits expense.
Fourth quarter 2013 net interest income, on a taxable-
equivalent basis, was $2.7 billion, compared with $2.8 billion
in the fourth quarter of 2012. The $50 million (1.8 percent)
decrease was principally the result of a lower net interest
margin, partially offset by higher average earning assets.
The net interest margin in the fourth quarter of 2013 was
3.40 percent, compared with 3.55 percent in the fourth
quarter of 2012, primarily reflecting lower rates on loans and
investment securities, partially offset by lower rates on
deposits and the positive impact from maturities of higher-
rate long-term debt. Average earning assets for the fourth
quarter of 2013 increased over the fourth quarter of 2012 by
$7.3 billion (2.3 percent), driven by increases of $12.5 billion
(5.7 percent) in loans and $4.4 billion (6.0 percent) in
investment securities, partially offset by decreases in loans
held for sale of $5.8 billion (66.2 percent) and other earning
assets of $3.8 billion (37.0 percent), primarily due to the
deconsolidation of certain consolidated VIEs during the
second quarter of 2013.
Noninterest income in the fourth quarter of 2013 was
$2.2 billion, compared with $2.3 billion in the same period of
2012, a decrease of $173 million (7.4 percent). The
decrease was principally driven by a $245 million
(51.5 percent) reduction in mortgage banking revenue due
to lower origination and sales revenue, partially offset by
favorable changes in the valuation of MSRs, net of hedging
activities. Growth in several fee categories helped to offset
the decline in mortgage banking revenue. Credit and debit
card revenue increased $21 million (8.7 percent) over the
prior year due to higher transaction volumes, including the
impact of business expansion. Merchant processing
services revenue was $13 million (3.7 percent) higher as a
result of an increase in fee-based product revenue and
U.S. BANCORP
59
T A B L E 2 3 Fourth Quarter Results
(Dollars and Shares in Millions, Except Per Share Data)
Three Months Ended
December 31,
2013
2012
Condensed Income Statement
Net interest income (taxable-equivalent basis) (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities gains (losses), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,733
2,155
1
$2,783
2,326
3
Total net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable-equivalent adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,889
2,682
277
1,930
56
403
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,471
(15)
5,112
2,686
443
1,983
56
552
1,375
45
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,456
$1,420
Net income applicable to U.S. Bancorp common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,389
$1,349
Per Common Share
Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average diluted common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.76
$
$
.76
$ .230
1,821
1,832
.72
$
$
.72
$ .195
1,872
1,880
Financial Ratios
Return on average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on average common equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest margin (taxable-equivalent basis) (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Efficiency ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.62% 1.62%
15.4
3.40
54.9
15.6
3.55
52.6
(a) Interest and rates are presented on a fully taxable-equivalent basis utilizing a tax rate of 35 percent.
higher volumes. Trust and investment management fees
increased $21 million (7.6 percent), reflecting improved
market conditions and business expansion. Deposit service
charges were $7 million (4.1 percent) higher as a result of
pricing changes and an increase in monthly account fees
and account growth. Commercial products revenue
increased $17 million (7.5 percent), principally due to higher
syndication fees and tax-advantaged projects, while
investment products fees increased $6 million (15.4 percent)
due to higher sales volumes and fees. Offsetting these
positive variances was a decline in corporate payment
products revenue of $12 million (6.7 percent) due to lower
government-related transactions.
Noninterest expense in the fourth quarter of 2013 was
$2.7 billion, or $4 million (.1 percent) lower than the fourth
quarter of 2012. The slight decrease was primarily due to
reductions in professional services, other intangibles and
other expense, offset by higher compensation and employee
benefits expense. Professional services expense decreased
$48 million (28.9 percent) due to a reduction in mortgage
servicing review-related costs. Other intangibles expense
decreased $10 million (15.2 percent) due to the reduction or
completion of the amortization of certain intangibles. Other
expense was lower $13 million (2.5 percent) due to the
$80 million fourth quarter 2012 accrual for a mortgage
foreclosure-related regulatory settlement, partially offset by
higher tax-advantaged project costs, including the
accounting presentation changes in the fourth quarter of
2013. Compensation expense increased $20 million
(1.8 percent), reflecting growth in staffing for business
initiatives and the impact of merit increases, partially offset
by lower incentive and commission expense. Employee
benefits expense increased $44 million (19.0 percent),
principally due to higher pension costs and staffing levels. In
addition, net occupancy and equipment expense was
$6 million (2.6 percent) higher due to business initiatives and
higher rent expense and maintenance costs.
The provision for credit losses for the fourth quarter of
2013 was $277 million, a decrease of $166 million
(37.5 percent) from the same period of 2012. Net charge-offs
decreased $156 million (33.3 percent) in the fourth quarter of
2013, compared with the fourth quarter of 2012, principally
due to improvement in the commercial, commercial real
estate, residential mortgages and home equity and second
mortgages portfolios. The provision for credit losses was
lower than net charge-offs by $35 million in the fourth quarter
of 2013, compared with $25 million in the fourth quarter of
60
U.S. BANCORP
2012. Given the current economic conditions, the Company
expects the level of net charge-offs to increase modestly and
total nonperforming assets to be relatively stable in the first
quarter of 2014.
The provision for income taxes for the fourth quarter of
2013 resulted in an effective tax rate of 21.5 percent,
reflecting the reduction in income tax expense due to the
accounting presentation changes related to investments in
tax-advantaged projects and the favorable resolution of
certain state tax matters. The effective tax rate was
28.6 percent in the fourth quarter of 2012.
Line of Business Financial Review
The Company’s major lines of business are Wholesale
Banking and Commercial Real Estate, Consumer and Small
Business Banking, Wealth Management and Securities
Services, Payment Services, and Treasury and Corporate
Support. These operating segments are components of the
Company about which financial information is prepared and
is evaluated regularly by management in deciding how to
allocate resources and assess performance.
Basis for Financial Presentation Business line results
are derived from the Company’s business unit profitability
reporting systems by specifically attributing managed
balance sheet assets, deposits and other liabilities and their
related income or expense. The allowance for credit losses
and related provision expense are allocated to the lines of
business based on the related loan balances managed.
Goodwill and other intangible assets are assigned to the
lines of business based on the mix of business of the
acquired entity. Within the Company, capital levels are
evaluated and managed centrally; however, capital is
allocated to the operating segments to support evaluation of
business performance. Business lines are allocated capital
on a risk-adjusted basis considering economic and
regulatory capital requirements. Generally, the determination
of the amount of capital allocated to each business line
includes credit and operational capital allocations following a
Basel II regulatory framework. Interest income and expense
is determined based on the assets and liabilities managed
by the business line. Because funding and asset liability
management is a central function, funds transfer-pricing
methodologies are utilized to allocate a cost of funds used or
credit for funds provided to all business line assets and
liabilities, respectively, using a matched funding concept.
Also, each business unit is allocated the taxable-equivalent
benefit of tax-exempt products. The residual effect on net
interest income of asset/liability management activities is
included in Treasury and Corporate Support. Noninterest
income and expenses directly managed by each business
line, including fees, service charges, salaries and benefits,
and other direct revenues and costs are accounted for within
each segment’s financial results in a manner similar to the
consolidated financial statements. Occupancy costs are
allocated based on utilization of facilities by the lines of
business. Generally, operating losses are charged to the line
of business when the loss event is realized in a manner
similar to a loan charge-off. Noninterest expenses incurred
by centrally managed operations or business lines that
directly support another business line’s operations are
charged to the applicable business line based on its
utilization of those services, primarily measured by the
volume of customer activities, number of employees or other
relevant factors. These allocated expenses are reported as
net shared services expense within noninterest expense.
Certain activities that do not directly support the operations
of the lines of business or for which the lines of business are
not considered financially accountable in evaluating their
performance are not charged to the lines of business. The
income or expenses associated with these corporate
activities is reported within the Treasury and Corporate
Support line of business. Income taxes are assessed to each
line of business at a standard tax rate with the residual tax
expense or benefit to arrive at the consolidated effective tax
rate included in Treasury and Corporate Support.
Designations, assignments and allocations change from
time to time as management systems are enhanced,
methods of evaluating performance or product lines change
or business segments are realigned to better respond to the
Company’s diverse customer base. During 2013, certain
organization and methodology changes were made and,
accordingly, 2012 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 services, treasury management, capital markets,
international trade services and other financial services to
middle market, large corporate, commercial real estate,
financial institution, non-profit and public sector clients.
Wholesale Banking and Commercial Real Estate contributed
$1.3 billion of the Company’s net income in 2013, or a
decrease of $22 million (1.7 percent) compared with 2012.
The decrease was primarily driven by lower net revenue,
partially offset by a lower provision for credit losses and a
decrease in noninterest expense.
Net revenue decreased $158 million (4.7 percent) in
2013, compared with 2012. Net interest income, on a
taxable-equivalent basis, decreased $16 million
(.8 percent) in 2013, compared with 2012, driven by lower
rates on loans and the impact of lower rates on the margin
benefit from deposits, partially offset by higher average loan
and deposit balances and higher loan fees. Noninterest
income decreased $142 (11.5 percent) in 2013, compared
with 2012, driven by lower commercial products revenue,
primarily due to lower standby letters of credit and other
loan-related fees and capital markets revenue. In addition,
equity investment revenue was lower year-over-year.
U.S. BANCORP
61
Noninterest expense decreased $25 million (2.0
percent) in 2013, compared with 2012, primarily due to lower
costs related to other real estate owned and other
intangibles expense. The provision for credit losses
decreased $99 million in 2013, compared with 2012, due to
lower net charge-offs, partially offset by lower reserve
releases. Nonperforming assets were $322 million at
December 31, 2013, compared with $520 million at
December 31, 2012. Nonperforming assets as a percentage
of period-end loans were .43 percent at December 31, 2013,
compared with .75 percent at December 31, 2012. 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 mobile
devices, such as mobile phones and tablet computers. It
encompasses community banking, metropolitan banking, in-
store banking, small business banking, consumer lending,
mortgage banking, workplace banking, student banking and
24-hour banking. Consumer and Small Business Banking
contributed $1.4 billion of the Company’s net income in
2013, or a decrease of $21 million (1.5 percent), compared
with 2012. The decrease was due to lower net revenue,
offset by a lower provision for credit losses and noninterest
expense. Within Consumer and Small Business Banking, the
retail banking division contributed $716 million of the total net
T A B L E 2 4 Line of Business Financial Performance
Year Ended December 31
(Dollars in Millions)
Wholesale Banking and
Commercial Real Estate
Consumer and Small
Business Banking
2013
2012
Percent
Change
2013
2012
Percent
Change
Condensed Income Statement
Net interest income (taxable-equivalent basis) . . . . . . . . . . . . . . . . . . . . . .
Noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities gains (losses), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,088
1,092
–
$ 2,104
1,234
–
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 . . . . . . . . . . .
3,180
1,248
8
1,256
1,924
(97)
2,021
736
1,285
–
3,338
1,265
16
1,281
2,057
2
2,055
748
1,307
–
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,285
$ 1,307
Average Balance Sheet
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$50,873
20,550
26
–
8
$45,091
19,635
60
–
7
Total loans, excluding covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total U.S. Bancorp shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .
71,457
363
71,820
1,604
25
78,253
31,153
10,515
14,144
18,481
74,293
7,356
64,793
921
65,714
1,604
36
71,606
31,224
10,354
9,413
17,197
68,188
6,436
* Not meaningful
62
U.S. BANCORP
(.8)% $
(11.5)
–
(4.7)
(1.3)
(50.0)
(2.0)
(6.5)
*
(1.7)
(1.6)
(1.7)
–
(1.7)
12.8%
4.7
(56.7)
–
14.3
10.3
(60.6)
9.3
–
(30.6)
9.3
(.2)
1.6
50.3
7.5
9.0
14.3
4,554
2,904
–
7,458
4,684
40
4,724
2,734
607
2,127
774
1,353
–
$
4,737
3,565
–
8,302
4,923
51
4,974
3,328
1,167
2,161
786
1,375
(1)
$
1,353
$
1,374
$
8,396
16,934
47,081
–
44,847
$
8,225
16,136
39,827
–
45,594
117,258
6,566
123,824
3,515
2,406
139,174
21,969
33,006
46,308
21,136
122,419
12,148
109,782
7,510
117,292
3,515
1,787
134,258
20,386
29,911
43,342
23,787
117,426
11,268
(3.9)%
(18.5)
–
(10.2)
(4.9)
(21.6)
(5.0)
(17.8)
(48.0)
(1.6)
(1.5)
(1.6)
*
(1.5)
2.1%
4.9
18.2
–
(1.6)
6.8
(12.6)
5.6
–
34.6
3.7
7.8
10.3
6.8
(11.1)
4.3
7.8
income in 2013, or an increase of $215 million (42.9 percent)
over the prior year. Mortgage banking contributed
$637 million of the business line’s net income in 2013, or a
decrease of $236 million (27.0 percent) from the prior year,
reflecting lower mortgage banking activity in 2013.
Net revenue decreased $844 million (10.2 percent) in
2013, compared with 2012. Net interest income, on a taxable-
equivalent basis, decreased $183 million (3.9 percent) in
2013, compared with 2012, primarily due to lower loan rates,
the impact of lower rates on the margin benefit from deposits
and lower average loans held for sale balances, partially offset
by higher average loan and deposit balances. Noninterest
income decreased $661 million (18.5 percent) in 2013,
compared with 2012, due to lower mortgage banking revenue,
primarily the result of lower mortgage origination and
sales revenue, partially offset by higher mortgage servicing
income and favorable changes in the valuation of MSRs, net of
hedging activities, and lower retail lease revenue.
Noninterest expense decreased $250 million
(5.0 percent) in 2013, compared with 2012. The decrease
reflected reductions in mortgage servicing review-related
costs, the 2012 foreclosure-related regulatory settlement
accrual, lower compensation and employee benefits
expense, and lower costs related to other intangibles
expense and other real estate owned, partially offset by
higher net shared services costs.
The provision for credit losses decreased $560 million
(48.0 percent) in 2013, compared with 2012, due to lower
net charge-offs and a favorable change in the reserve
allocation. As a percentage of average loans outstanding,
Wealth Management and
Securities Services
Payment
Services
Treasury and
Corporate Support
Consolidated
Company
2013
2012
Percent
Change
2013
2012
Percent
Change
2013
2012
Percent
Change
2013
2012
Percent
Change
$ 1,584
3,205
–
$ 1,548
3,195
–
2.3%
.3
–
$
$ 2,246
329
9
$
356
1,235
–
1,591
1,304
36
1,340
251
6
245
89
156
–
$
355
1,121
–
1,476
1,155
40
1,195
281
14
267
96
171
–
$
156
$
171
$ 1,712
650
874
–
1,533
$ 1,333
609
400
–
1,527
4,769
14
4,783
1,535
173
7,643
14,610
4,821
26,830
4,906
51,167
2,385
3,869
11
3,880
1,473
171
6,538
14,514
3,975
23,543
5,105
47,137
2,232
.3%
10.2
–
7.8
12.9
(10.0)
12.1
(10.7)
(57.1)
(8.2)
(7.3)
(8.8)
–
(8.8)
28.4%
6.7
*
–
.4
23.3
27.3
23.3
4.2
1.2
16.9
.7
21.3
14.0
(3.9)
8.5
6.9
4,789
1,964
139
2,103
2,686
769
1,917
697
4,743
1,830
167
1,997
2,746
697
2,049
746
1,220
(39)
1,303
(38)
$ 1,181
$ 1,265
$ 6,086
–
–
16,813
737
$ 5,962
–
–
16,653
810
23,636
5
23,641
2,510
572
29,843
703
449
57
–
1,209
6,046
23,425
5
23,430
2,361
690
29,580
643
1,192
39
–
1,874
5,701
1.0
7.3
(16.8)
5.3
(2.2)
10.3
(6.4)
(6.6)
(6.4)
(2.6)
(6.6)
2.1%
–
–
1.0
(9.0)
.9
–
.9
6.3
(17.1)
.9
9.3
(62.3)
46.2
–
(35.5)
6.1
2,225
219
(15)
2,429
1,009
–
.9%
50.2
*
6.4
(15.7)
–
$ 10,828
8,765
9
$10,969
9,334
(15)
(1.3)%
(6.1)
*
19,602
10,051
223
20,288
10,182
274
(3.4)
(1.3)
(18.6)
1,009
(15.7)
10,274
10,456
(1.7)
1,420
2
1,418
84
1,334
196
22.0
*
18.3
*
28.8
(27.0)
9,328
1,340
7,988
2,256
5,732
104
9,832
1,882
7,950
2,460
5,490
157
(5.1)
(28.8)
.5
(8.3)
4.4
(33.8)
2,584
851
–
851
1,733
55
1,678
(40)
1,718
143
$ 1,861
$
1,530
21.6
$
5,836
$ 5,647
3.3
$
207
103
1
–
–
311
3,095
3,406
–
2
97,767
585
1
89
694
1,369
11,982
$
219
125
3
–
–
(5.5)% $ 67,274
38,237
47,982
16,813
47,125
(17.6)
(66.7)
–
–
347
4,711
5,058
–
4
100,867
474
1
133
477
1,085
11,974
(10.4)
(34.3)
(32.7)
–
(50.0)
(3.1)
23.4
–
(33.1)
45.5
26.2
.1
217,431
10,043
227,474
9,164
3,178
352,680
69,020
48,792
87,428
45,217
250,457
39,917
$60,830
36,505
40,290
16,653
47,938
202,216
13,158
215,374
8,953
2,688
342,849
67,241
45,433
76,470
46,566
235,710
37,611
10.6%
4.7
19.1
1.0
(1.7)
7.5
(23.7)
5.6
2.4
18.2
2.9
2.6
7.4
14.3
(2.9)
6.3
6.1
U.S. BANCORP
63
net charge-offs decreased to .58 percent in 2013, compared
with .92 percent in 2012. Nonperforming assets were
$1.4 billion at December 31, 2013 and 2012. Nonperforming
assets as a percentage of period-end loans were 1.11
percent at December 31, 2013, compared with 1.16 percent
at December 31, 2012. Refer to the “Corporate Risk Profile”
section for further information on factors impacting the credit
quality of the loan portfolios.
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 $156 million
of the Company’s net income in 2013, a decrease of $15
million (8.8 percent), compared with 2012. The decrease from
the prior year was primarily due to higher noninterest expense,
partially offset by higher net revenue.
Net revenue increased $115 million (7.8 percent) in
2013, compared with 2012, driven by a $114 million (10.2
percent) increase in noninterest income, primarily due to the
impact of improved market conditions, business expansion
and higher investment product fees. Net interest income was
essentially unchanged, reflecting higher average loan and
deposit balances, offset by the impact of lower rates on
loans and the margin benefit from deposits.
Noninterest expense increased $145 million (12.1
percent) in 2013, compared with 2012. The increase in
noninterest expense was primarily due to higher
compensation and employee benefits expense, and an
increase in net shared services costs, including the impact
of business expansion.
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 $1.2 billion of the Company’s net income in
2013, or a decrease of $84 million (6.6 percent) compared
with 2012. The decrease was primarily due to higher
noninterest expense and provision for credit losses, partially
offset by higher net revenue.
Net revenue increased $46 million (1.0 percent) in 2013,
compared with 2012. Net interest income, on a taxable-
equivalent basis, increased $36 million (2.3 percent) in 2013,
compared with 2012, driven by higher average loan
balances, improved loan rates and lower rebate costs on the
Company’s government card program. Noninterest income
increased $10 million (.3 percent) in 2013, compared with
2012, reflecting higher credit and debit card revenue on
64
U.S. BANCORP
higher volumes, including the impact of business expansion,
and higher merchant processing services revenue due to
higher volumes and an increase in fee-based product
revenue, partially offset by the impact of a gain on a credit
card portfolio sale in 2012 and lower corporate payment
products revenue due to a reduction in government-related
transactions.
Noninterest expense increased $106 million (5.3
percent) in 2013, compared with 2012, primarily due to
higher total compensation and employee benefits expense,
and higher net shared services expense, including the
impact of business expansion, partially offset by a reduction
in other intangibles expense. The provision for credit losses
increased $72 million (10.3 percent) in 2013, compared with
2012, principally due to lower reserve releases, partially
offset by lower net charge-offs. As a percentage of average
loans outstanding, net charge-offs were 3.29 percent in
2013, compared with 3.44 percent in 2012.
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, interest rate risk management, the net
effect of transfer pricing related to average balances, income
taxes not allocated to the business lines, including most
investments in tax-advantaged projects, 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
$1.9 billion in 2013, compared with $1.5 billion in 2012.
Net revenue increased $155 million (6.4 percent) in
2013, compared with 2012. Net interest income, on a
taxable-equivalent basis, increased $21 million (.9 percent)
in 2013, compared with 2012, reflecting lower funding costs,
partially offset by lower rates on loans and investment
securities. Noninterest income increased $134 million (65.7
percent) in 2013, compared with 2012, primarily due to
higher commercial products revenue and a favorable
change in net securities gains (losses) as the Company
recognized impairments on a number of securities during the
second quarter of 2012.
Noninterest expense decreased $158 million (15.7
percent) in 2013, compared with 2012, primarily reflecting
lower net shared services expense, reductions in litigation
and insurance-related costs, and the 2012 accrual for the
Company’s portion of an indemnification obligation
associated with Visa Inc. These decreases were partially
offset by increases in total compensation and employee
benefits expense and higher costs related to investments in
tax-advantaged projects.
Income taxes are assessed to each line of business at a
managerial tax rate of 36.4 percent with the residual tax
expense or benefit to arrive at the consolidated effective tax
rate included in Treasury and Corporate Support.
Non-GAAP Financial Measures
In addition to capital ratios defined by banking regulators
under the FDIC Improvement Act prompt corrective action
provisions that are currently effective, the Company
considers various other measures when evaluating capital
utilization and adequacy, including:
• Tangible common equity to tangible assets,
• Tangible common equity to risk-weighted assets using
Basel I definition,
• Tier 1 common equity to risk-weighted assets using Basel I
definition,
• Common equity tier 1 to risk-weighted assets estimated
using final rules for the Basel III standardized approach,
and for additional information,
• Common equity tier 1 to risk-weighted assets approximated
using proposed rules for the Basel III standardized
approach released prior to and during June 2012 .
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.
These measures differ from the currently effective capital
ratios defined by 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 are
not currently effective or defined in federal banking
regulations. As a result, these measures disclosed by the
Company may be considered non-GAAP financial measures.
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.
U.S. BANCORP
65
The following table shows the Company’s calculation of these Non-GAAP financial measures:
At December 31 (Dollars in Millions)
2013
2012
2011
2010
2009
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill (net of deferred tax liability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, other than mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 41,807 $ 40,267 $ 34,971 $ 30,322 $ 26,661
(1,500)
(698)
(8,482)
(1,657)
(1,930)
(803)
(8,337)
(1,376)
(4,769)
(1,269)
(8,351)
(1,006)
(2,606)
(993)
(8,239)
(1,217)
(4,756)
(694)
(8,343)
(849)
Tangible common equity (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,165
24,872
21,916
17,876
14,324
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 . . . . . . . . . . . . . .
Tier 1 common equity using Basel I definition (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tangible common equity (as calculated above) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common equity tier 1 estimated using final rules for the Basel III standardized
approach (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tangible common equity (as calculated above) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments (1)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common equity tier 1 approximated using proposed rules for the Basel III
standardized approach released June 2012 (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tangible common equity (as calculated above) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common equity tier 1 approximated using proposed rules for the Basel III
standardized approach released prior to June 2012 (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill (net of deferred tax liability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, other than mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31,203
–
(4,769)
(685)
29,173
(2,675)
(2,606)
(687)
25,947
(3,949)
(1,930)
(692)
22,610
(4,524)
(1,500)
(692)
25,749
23,205
19,376
15,894
33,386
–
(4,756)
(688)
27,942
27,165
224
27,389
24,872
126
24,998
21,916
450
17,876
381
22,366
364,021 353,855 340,122 307,786 281,176
(8,482)
(1,657)
(8,239)
(1,217)
(8,351)
(1,006)
(8,337)
(1,376)
(8,343)
(849)
18,257
Tangible assets (f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
354,829 344,498 330,666 298,073 271,037
Risk-weighted assets, determined in accordance with prescribed regulatory
requirements using Basel I definition (g) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
297,919 287,611 271,333 247,619 235,233
Risk-weighted assets, determined in accordance with prescribed regulatory
requirements using Basel I definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
297,919
13,712
Risk-weighted assets estimated using final rules for the Basel III standardized
approach (h) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
311,631
Risk-weighted assets, determined in accordance with prescribed regulatory
requirements using Basel I definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments (4)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
287,611
21,233
Risk-weighted assets approximated using proposed rules for the Basel III
standardized approach released June 2012 (i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
308,844
Risk-weighted assets approximated using proposed rules for the Basel III
standardized approach released prior to June 2012 (j) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
274,351 251,704
Ratios
Tangible common equity to tangible assets (a)/(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tangible common equity to risk-weighted assets using Basel I definition (a)/(g) . . . . . . . . .
Tier 1 common equity to risk-weighted assets using Basel I definition (b)/(g) . . . . . . . . . . . .
Common equity tier 1 to risk-weighted assets estimated using final rules for the
7.7%
9.1
9.4
7.2%
8.6
9.0
6.6%
8.1
8.6
6.0%
7.2
7.8
5.3%
6.1
6.8
Basel III standardized approach (c)/(h). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.8
Common equity tier 1 to risk-weighted assets approximated using proposed rules for
the Basel III standardized approach released June 2012 (d)/(i) . . . . . . . . . . . . . . . . . . . . . . .
Common equity tier 1 to risk-weighted assets approximated using proposed rules for
the Basel III standardized approach released prior to June 2012 (e)/(j) . . . . . . . . . . . . . . .
–
–
–
8.1
–
–
–
–
–
8.2
7.3
–
–
–
(1) Includes net losses on cash flow hedges included in accumulated other comprehensive income and unrealized losses on securities transferred
from available-for-sale to held-to-maturity included in accumulated other comprehensive income.
(2) Includes disallowed mortgage servicing rights.
(3) Principally net losses on cash flow hedges included in accumulated other comprehensive income.
(4) Includes higher risk-weighting for unfunded loan commitments, investment securities and mortgage servicing rights, and other adjustments.
(5) Includes higher risk-weighting for residential mortgages.
66
U.S. BANCORP
Accounting Changes
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 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 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, 2013. In the event
U.S. BANCORP
67
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 $220 million at December 31,
2013. 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 $138 million at December 31, 2013. The
Company’s determination of the allowance for consumer
lending segment loans is sensitive to changes in estimated
loss rates and estimated impairments on restructured loans.
In the event that estimated losses for this segment of the loan
portfolio increased by 10 percent, the allowance for credit
losses would increase by approximately $211 million at
December 31, 2013. Because several quantitative and
qualitative factors are considered in determining the
allowance for credit losses, these sensitivity analyses do not
necessarily reflect the nature and extent of future changes in
the allowance for credit losses. They are intended to provide
insights into the impact of adverse changes in risk rating and
inherent losses and do not imply any expectation of future
deterioration in the risk rating or loss rates. Given current
processes employed by the Company, management
believes the risk ratings and inherent loss rates currently
assigned are appropriate. It is possible 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 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, impaired loans, other real estate owned 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
68
U.S. BANCORP
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, quoted
market prices may not be available. 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 4 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 19 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 the 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.
On an ongoing basis, the accounting for purchased
loans and related indemnification assets follows applicable
authoritative accounting guidance for purchased non-
impaired loans and purchased impaired loans. Refer to
Note 1 and Note 5 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 re-measured at each subsequent
reporting date. Because MSRs do not trade in an active
market with readily observable prices, the Company
determines the fair value by estimating the present value of
the asset’s future cash flows utilizing market-based
prepayment rates, discount rates, and other assumptions
validated through comparison to trade information, industry
surveys and independent third party 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.
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 unit below its carrying
amount. Other intangible assets are amortized over their
estimated useful lives using straight-line and accelerated
methods and are subject to impairment if events or
circumstances indicate a possible inability to realize the
carrying amount.
The initial recognition of goodwill and other intangible
assets and subsequent impairment analysis require
management to make subjective judgments concerning
estimates of how the acquired assets will perform in the
future using valuation methods including discounted cash
flow analysis. Additionally, estimated cash flows may extend
beyond ten years and, by their nature, are difficult to
determine over an extended timeframe. Events and factors
that may significantly affect the estimates include, among
others, competitive forces, customer behaviors and attrition,
changes in revenue growth trends, cost structures,
technology, changes in discount rates and specific industry
and market conditions. In determining the reasonableness of
cash flow estimates, the Company reviews historical
performance of the underlying assets or similar assets in an
effort to assess and validate assumptions utilized in its
estimates.
In assessing the fair value of reporting units, the
Company considers 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 amount of equity required for the reporting unit’s
activities, considering the specific assets and liabilities of the
reporting unit. The Company determines the amount of
equity for each reporting unit on a risk-adjusted basis
considering economic and regulatory capital requirements,
and includes deductions and limitations related to certain
types of assets including MSRs, purchased credit card
relationship intangibles, and capital markets activity in the
Company’s Wholesale Banking and Commercial Real Estate
segment. The Company does not assign corporate assets
and liabilities to reporting units that do not relate to the
operations of the reporting unit or are not considered in
determining the fair value of the reporting unit. These assets
and liabilities primarily relate to the Company’s investment
securities portfolio and other investments (including direct
equity investments, bank-owned life insurance and tax-
advantaged investments) and corporate debt and other
funding liabilities. In the most recent goodwill impairment
test, the portion of the Company’s total equity allocated to
the Treasury and Corporate Support operating segment
included approximately $4 billion in excess of the economic
and regulatory capital requirements of that segment.
U.S. BANCORP
69
The Company’s annual assessment of potential goodwill
impairment was completed during the second quarter of
2013. Based on the results of this assessment, no goodwill
impairment was recognized. The Company continues to
monitor goodwill and other intangible assets for impairment
indicators throughout the year.
Income Taxes The Company estimates income tax
expense based on amounts expected to be owed to various
tax jurisdictions. Currently, the Company files tax returns in
approximately 279 federal, state and local domestic
jurisdictions and 12 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 18 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 71. 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 73.
70
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, 2013. 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, 2013.
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 72 and their attestation on internal control over financial reporting
appearing on page 73 are based on procedures conducted in accordance with auditing standards of the Public Company
Accounting Oversight Board (United States).
U.S. BANCORP
71
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, 2013 and 2012, and
the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the
three years in the period ended December 31, 2013. 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, 2013 and 2012, and the consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31, 2013, 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, 2013, based on criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(1992 framework) and our report dated February 21, 2014 expressed an unqualified opinion thereon.
Minneapolis, Minnesota
February 21, 2014
72
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, 2013, based on criteria
established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (1992 framework) (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, 2013, 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, 2013 and 2012, and the related consolidated statements
of income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended
December 31, 2013 and our report dated February 21, 2014 expressed an unqualified opinion thereon.
Minneapolis, Minnesota
February 21, 2014
U.S. BANCORP
73
Consolidated Financial Statements and Notes Table of
Contents
Consolidated Financial Statements
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements
Note 1 — Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 2 — Business Combinations and Divestitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 3 — Restrictions on Cash and Due From Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 4 — Investment Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 5 — Loans and Allowance for Credit Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 6 — Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 7 — Accounting for Transfers and Servicing of Financial Assets and Variable Interest Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 8 — Premises and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 9 — Mortgage Servicing Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 10 — Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 11 — Short-Term Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 12 — Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 13 — Junior Subordinated Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 14 — Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 15 — Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 16 — Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 17 — Stock-Based Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 18 — Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 19 — Derivative Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 20 — Netting Arrangements for Certain Financial Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 21 — Fair Values of Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 22 — Guarantees and Contingent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 23 — U.S. Bancorp (Parent Company) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 24 — Subsequent Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
75
76
77
78
79
80
88
88
89
93
101
102
103
103
105
106
106
107
107
111
112
117
119
120
125
126
135
139
140
74
U.S. BANCORP
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 $38,368 and $34,952, respectively; including $994 and $1,482 at fair value
pledged as collateral, respectively) (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available-for-sale ($1,106 and $2,042 pledged as collateral, respectively) (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale (including $3,263 and $7,957 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 (including $111 and $47 of trading securities at fair value pledged as collateral, respectively) (a) . . .
2013
2012
$
8,477
$
8,252
38,920
40,935
3,268
70,033
39,885
51,156
18,021
47,678
226,773
8,462
235,235
(4,250)
230,985
2,606
9,205
3,529
26,096
34,389
40,139
7,976
66,223
36,953
44,018
17,115
47,712
212,021
11,308
223,329
(4,424)
218,905
2,670
9,143
2,706
29,675
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$364,021
$353,855
Liabilities and Shareholders’ Equity
Deposits
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits greater than $100,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 76,941
156,165
29,017
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
262,123
27,608
20,049
12,434
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
322,214
$ 74,172
145,972
29,039
249,183
26,302
25,516
12,587
313,588
Shareholders’ equity
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock, par value $0.01 a share — authorized: 4,000,000,000 shares; issued: 2013 and
2012 — 2,125,725,742 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less cost of common stock in treasury: 2013 — 300,977,274 shares; 2012 — 256,294,227 shares . . . . . . . . . . . . .
Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total U.S. Bancorp shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21
8,216
38,667
(9,476)
(1,071)
41,113
694
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41,807
21
8,201
34,720
(7,790)
(923)
38,998
1,269
40,267
4,756
4,769
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$364,021
$353,855
(a) Includes only collateral pledged by the Company where counterparties have the right to sell or pledge the collateral.
See Notes to Consolidated Financial Statements.
U.S. BANCORP
75
U.S. Bancorp
Consolidated Statement of Income
Year Ended December 31 (Dollars and Shares in Millions, Except Per Share Data)
2013
2012
2011
Interest Income
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,277
203
1,631
174
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,285
Interest Expense
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
561
353
767
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,681
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,604
1,340
9,264
965
706
1,458
327
1,139
670
538
859
1,356
178
23
(6)
(8)
9
569
$10,558
282
1,792
251
12,883
691
442
1,005
2,138
10,745
1,882
8,863
892
744
1,395
346
1,055
653
541
878
1,937
150
59
(62)
(12)
(15)
743
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,774
9,319
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,371
1,140
949
381
357
848
310
223
1,695
4,320
945
917
530
388
821
304
274
1,957
Total noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,274
10,456
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,764
2,032
5,732
104
7,726
2,236
5,490
157
$10,370
200
1,820
249
12,639
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
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,836
$ 5,647
$ 4,872
Net income applicable to U.S. Bancorp common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,552
$ 5,383
$ 4,721
Earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average diluted common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
3.02
3.00
.885
1,839
1,849
$
$
$
2.85
2.84
.780
1,887
1,896
$
$
$
2.47
2.46
.500
1,914
1,923
See Notes to Consolidated Financial Statements.
76
U.S. BANCORP
U.S. Bancorp
Consolidated Statement of Comprehensive Income
Year Ended December 31 (Dollars in Millions)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Comprehensive Income (Loss)
2013
2012
2011
$ 5,732
$5,490
$4,788
Changes in unrealized gains and losses on securities available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other-than-temporary impairment not recognized in earnings on securities available-for-sale . . . . . . . . .
Changes in unrealized gains and losses on derivative hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in unrealized gains and losses on retirement plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification to earnings of realized gains and losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes related to other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,223)
8
37
(34)
590
373
101
Total other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(148)
715
12
(74)
14
(543)
325
(172)
277
920
(25)
(343)
(16)
(464)
363
(166)
269
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive (income) loss attributable to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,584
104
5,767
157
5,057
84
Comprehensive income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,688
$5,924
$5,141
See Notes to Consolidated Financial Statements.
U.S. BANCORP
77
U.S. Bancorp
Consolidated Statement of Shareholders’ Equity
(Dollars and Shares in Millions)
Balance December 31, 2010 . . . .
Change in accounting principle . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . .
Other 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Bancorp Shareholders
Common
Shares
Outstanding
Preferred
Stock
Common
Stock
Capital
Surplus
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss)
Total
U.S. Bancorp
Shareholders’
Equity
Noncontrolling
Interests
Total
Equity
1,921 $1,930
$21 $8,294 $27,005 $(6,262)
$(1,469)
(2)
4,872
(129)
(961)
269
676
11
(22)
(147)
340
(550)
(3)
94
$29,519
(2)
4,872
269
(129)
(961)
676
193
(550)
–
(3)
–
94
(84)
$ 803 $30,322
(2)
4,788
269
(129)
(961)
676
193
(550)
(80)
(8)
(80)
(11)
362
362
94
Balance December 31, 2011 . . . .
1,910 $2,606
$21 $8,238 $30,785 $(6,472)
$(1,200)
$33,978
$ 993 $34,971
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . .
Other 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,647
(238)
(1,474)
277
2,163
18
(59)
(119)
560
(1,878)
82
5,647
277
(238)
(1,474)
2,163
441
(1,878)
–
–
82
(157)
5,490
277
(238)
(1,474)
2,163
441
(1,878)
(76)
(76)
509
509
82
Balance December 31, 2012 . . . .
1,869 $4,769
$21 $8,201 $34,720 $(7,790)
$ (923)
$38,998
$1,269 $40,267
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) . . . . .
Redemption of preferred stock . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,836
8
(8)
(250)
(1,631)
(148)
(500)
487
21
(65)
(100)
650
(2,336)
107
5,836
(148)
(500)
(250)
(1,631)
487
550
(2,336)
–
–
107
(104)
5,732
(148)
(500)
(250)
(1,631)
487
550
(2,336)
(62)
(62)
(409)
(409)
107
Balance December 31, 2013 . . . .
1,825 $4,756
$21 $8,216 $38,667 $(9,476)
$(1,071)
$41,113
$ 694 $41,807
See Notes to Consolidated Financial Statements.
78
U.S. BANCORP
U.S. Bancorp
Consolidated Statement of Cash Flows
Year Ended December 31 (Dollars in Millions)
2013
2012
2011
Operating Activities
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities
$ 5,836
$ 5,647
$ 4,872
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization of premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on sale of loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on sale of securities and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans originated for sale in the secondary market, net of repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,340
297
223
(69)
(1,044)
(74)
(56,698)
61,681
(46)
1,882
287
274
49
(2,889)
(242)
(81,219)
82,302
1,867
2,343
266
299
748
(860)
(25)
(46,366)
48,094
449
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,446
7,958
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
947
8,587
10,147
(13,218)
(13,146)
(12,331)
819
(2,468)
(58)
(303)
2,060
6,336
15,374
(10,247)
(16,605)
(15,158)
1,895
(2,741)
94
(1,261)
1,018
1,404
12,713
(18,500)
(13,229)
(13,418)
820
(3,078)
636
(1,070)
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(21,024)
(20,253)
(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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption of preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends paid on preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends paid on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and due from banks at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,940
1,306
2,041
(2,883)
487
524
(500)
(2,282)
(254)
(1,576)
9,803
225
8,252
18,050
(4,167)
4,966
(11,415)
2,163
395
–
(1,856)
(204)
(1,347)
6,585
(5,710)
13,962
24,846
(2,205)
3,611
(3,300)
676
180
–
(514)
(118)
(817)
22,359
(525)
14,487
Cash and due from banks at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,477
$ 8,252
$ 13,962
Supplemental Cash Flow Disclosures
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net noncash transfers to foreclosed property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncash transfer of investment securities available-for-sale to held-to-maturity . . . . . . . . . . . . . . . . . . . . .
Acquisitions
Assets (sold) acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities sold (assumed) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
812
1,759
323
–
126
(24)
102
$ 1,469
2,218
564
11,705
$
$
194
(260)
(66)
$
495
2,563
702
–
$ 1,761
(2,100)
$
(339)
See Notes to Consolidated Financial Statements.
U.S. BANCORP
79
Notes to Consolidated Financial Statements
NOTE 1 Significant Accounting Policies
U.S. Bancorp is a multi-state financial services holding
company headquartered in Minneapolis, Minnesota.
U.S. Bancorp and its subsidiaries (the “Company”) provide a
full range of financial services, including lending and
depository services through banking offices principally in 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 services, treasury management, capital markets,
international trade services and other financial services to
middle market, large corporate, commercial real estate,
financial institution, non-profit 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 mobile
devices, such as mobile phones and tablet computers. It
80
U.S. BANCORP
encompasses community banking, metropolitan banking, in-
store banking, small business banking, consumer lending,
mortgage banking, workplace banking, student banking and
24-hour banking.
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.
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 owned (“OREO”),
funding, capital management, interest rate risk management,
the net effect of transfer pricing related to average balances,
income taxes not allocated to business lines, including most
tax-advantaged investments, 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 for credit-related 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 the consumer lending
segment 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, other than from decreases in variable
interest rates, after the purchase date is recognized by
recording an allowance for credit losses. Revolving loans,
U.S. BANCORP
81
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 the date
of purchase.
Effective January 1, 2013, the Company adopted new
indemnification asset accounting guidance applicable to
FDIC loss-sharing agreements. The guidance requires any
reduction in expected cash flows from the FDIC resulting
from increases in expected cash flows from the covered
assets (when there are no previous valuation allowances to
reverse) to be amortized over the shorter of the remaining
contractual term of the indemnification agreements or the
remaining life of the covered assets. Prior to adoption of this
guidance, the Company considered such increases in
expected cash flows of purchased loans and decreases in
expected cash flows of the FDIC indemnification assets
together and recognized them over the remaining life of the
loans. The adoption of this guidance did not materially affect
the Company’s financial statements.
Commitments to Extend Credit Unfunded commitments
for residential mortgage loans intended to be held for sale
are considered derivatives and recorded on the balance
sheet at fair value with changes in fair value recorded in
income. All other unfunded loan commitments are not
considered derivatives and are not reported on the balance
sheet. 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.
82
U.S. BANCORP
Allowance for Credit Losses The allowance for credit
losses reserves for probable and estimable losses incurred
in the Company’s loan and lease portfolio, including
unfunded credit commitments, 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. In the migration analysis applied to risk rated loan
portfolios, the Company currently examines up to a 13-year
period of loss experience. For each loan type, this historical
loss experience is adjusted as necessary to consider any
relevant changes in portfolio composition, lending policies,
underwriting standards, risk management practices or
economic conditions. The results of the analysis are evaluated
quarterly to confirm an appropriate historical time frame is
selected for each commercial loan type. 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 of
the loan, or the fair value of the collateral for collateral-
dependent loans, rather than the migration analysis. 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, portfolio growth 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 Troubled Debt Restructuring
(“TDR”) loans and purchased impaired 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, or the prior
quarter effective rate, respectively. The allowance for
collateral-dependent loans in the consumer lending segment
is determined based on the fair value of the collateral less
costs to sell. 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, refreshed loan-to-value ratios when
possible, portfolio growth 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 determining the allowance for credit
losses, such as the borrower’s ability to pay under the
restructured terms, and the timing and amount of payments.
The allowance for the covered loan segment 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 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). When a loan is placed on nonaccrual status,
unpaid accrued interest is reversed.
Commercial lending segment loans are generally
placed on nonaccrual status when the collection of principal
and interest has become 90 days past due or is otherwise
considered doubtful. 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 the
fair value of the collateral securing the loan, 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. Loans and
lines in a junior lien position secured by 1-4 family properties
are placed on nonaccrual status at 120 days past due or
when behind a first lien that has become 180 days or greater
past due or placed on nonaccrual status. Any secured
consumer lending segment loan whose borrower has had
debt discharged through bankruptcy, for which the loan
amount exceeds the fair value of the collateral, is charged
down to the fair value of the related collateral and the
remaining balance is placed on nonaccrual status. 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.
U.S. BANCORP
83
For all loan classes, interest payments received on
nonaccrual loans are generally recorded as a reduction to
the loan carrying amount. Interest payments are generally
recorded as reductions to a loan’s carrying amount while a
loan is on nonaccrual and are recognized as interest income
upon payoff of the loan. Interest income may be recognized
for interest payments if the remaining carrying amount of the
loan is believed to be collectible. In certain circumstances,
loans in any class may be restored to accrual status, such as
when a loan has demonstrated sustained repayment
performance or no amounts are 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 recognizes interest on TDRs if the borrower
complies with the revised terms and conditions as agreed
upon with the Company and has demonstrated repayment
84
U.S. BANCORP
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.
The Company has implemented certain restructuring
programs that may result in TDRs. However, many of the
Company’s TDRs are also determined on a case-by-case
basis in connection with ongoing loan collection processes.
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 residential mortgage loans 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. The Company also modifies
residential mortgage loans under Federal Housing
Administration, Department of Veterans Affairs, or its own
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. The
Company reports loans in a trial period arrangement as
TDRs.
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, accounts may be
reopened upon successful exit of the program, in which
account privileges may be restored.
In addition, the Company considers secured loans to
consumer borrowers that have debt discharged through
bankruptcy where the borrower has not reaffirmed the debt
to be TDRs.
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 generally not recognized
on other impaired loans until the loan is paid off. However,
interest income may be recognized for interest payments if
the remaining carrying amount of the loan is believed to be
collectible.
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
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 loans and other retail
loans is primarily driven by delinquency status of individual
loans or whether a loan has been modified, and considers
any government guarantee where applicable. 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 includes 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 loans
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.
U.S. BANCORP
85
Where an election is made to carry the LHFS at fair
value, any further decreases or subsequent increases in fair
value are recognized in noninterest income. Where an
election is made to 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. The Company has elected fair value
accounting for substantially all its mortgage loans held for
sale.
Derivative Financial Instruments
In the ordinary course of business, the Company enters into
derivative transactions to manage various risks 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 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
received or paid related to a recognized asset or liability
(“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
earnings. Changes in the fair value of a derivative that is
highly effective and designated as a cash flow hedge are
recorded in other comprehensive income (loss) until cash
flows of the hedged item are realized. Any change in fair
value resulting from hedge ineffectiveness is immediately
recorded in noninterest income. Changes in the fair value of
net investment hedges that are highly effective are recorded
in other comprehensive income (loss). 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).
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
86
U.S. BANCORP
immediately, unless the forecasted transaction is at least
reasonably possible of occurring, whereby the amounts
remain within other comprehensive income (loss).
Revenue Recognition
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.
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, capital markets related revenue and
non-yield related leasing revenue. 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 9 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
Goodwill and Other Intangible Assets Goodwill is
recorded on acquired businesses if the purchase price
exceeds the fair value of the net assets acquired. Other
intangible assets are recorded at their fair value upon
completion of a business acquisition or certain other
transactions, and generally represent the value of customer
contracts or relationships. Goodwill is not amortized but is
subject, at a minimum, to annual tests for impairment at a
reporting unit level. In certain situations, an interim impairment
test may be required if events occur or circumstances change
that would more likely than not reduce the fair value of a
reporting unit 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. Determining the
amount of goodwill impairment, if any, includes assessing the
current implied fair value of the reporting unit as if it were
being acquired in a business combination and comparing it to
the carrying amount of the reporting unit’s goodwill.
Determining the amount of other intangible asset impairment,
if any, includes assessing the present value of the estimated
future cash flows associated with the intangible asset and
comparing it to the carrying amount of the 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. The Company uses the deferral
method of accounting on investments that generate
investment tax credits. Under this method, the investment tax
credits are recognized as a reduction to the related asset. In
January 2014, the Financial Accounting Standards Board
issued accounting guidance on the presentation of
investment costs for qualified affordable housing projects on
a net basis with the related tax benefits in income tax
expense. This will permit the Company to apply this
presentation to certain qualified affordable housing
investments for which the costs were previously presented in
other expense. The Company will adopt this guidance
January 1, 2014 and does not expect a material impact to its
financial statements.
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.
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
U.S. BANCORP
87
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
88
U.S. BANCORP
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 Business Combinations and
Divestitures
In February 2013, the Company acquired Collective Point of
Sale Solutions, a Canadian merchant processor. The
Company recorded approximately $34 million of assets,
including intangibles, and approximately $4 million of
liabilities with this transaction.
In November 2013, the Company acquired Quintillion
Holding Company Limited, a provider of fund administration
services to alternative investment funds. The Company
recorded approximately $57 million of assets, including
intangibles, and assumed approximately $10 million of
liabilities with this transaction.
In January 2012, the Company acquired the banking
operations of BankEast, a subsidiary of BankEast
Corporation, from the FDIC. This transaction did not include
a loss sharing agreement. The Company acquired
approximately $261 million of assets and assumed
approximately $252 million of deposits from the FDIC with
this transaction.
In November 2012, the Company acquired the hedge
fund administration servicing business of Alternative
Investment Solutions, LLC. The Company recorded
approximately $108 million of assets, including intangibles,
and approximately $3 million of liabilities with this transaction.
In December 2012, the Company acquired FSV Payment
Systems, Inc., a prepaid card program manager with a
proprietary processing platform. The Company recorded
approximately $243 million of assets, including intangibles,
and approximately $28 million of liabilities with this transaction.
N O T E 3 Restrictions on Cash and Due
from Banks
The Federal Reserve Bank requires bank subsidiaries to
maintain minimum average reserve balances, either in the
form of cash or reserve balances held with the Federal
Reserve Bank. The amount of those required reserve
balances were approximately $1.8 billion and $1.7 billion at
December 31, 2013 and 2012, respectively. At
December 31, 2013 and 2012, the Company held $1.9 billion
and $.9 billion, respectively, of balances at the Federal
Reserve Bank. These balances are included in cash and due
from banks on the Consolidated Balance Sheet.
N O T E 4
Investment Securities
The amortized cost, other-than-temporary impairment recorded in other comprehensive income (loss), gross unrealized
holding gains and losses, and fair value of held-to-maturity and available-for-sale investment securities at December 31 were
as follows:
Amortized
Cost
Unrealized
Gains
2013
Unrealized Losses
Other-than-
Temporary (e) Other (f)
Fair Value
Amortized
Cost
Unrealized
Gains
2012
Unrealized Losses
Other-than-
Temporary (e) Other (f)
Fair Value
$ 3,114
$
5
$ – $ (79) $ 3,040
$ 3,154
$
27
$ – $
– $ 3,181
(Dollars in Millions)
Held-to-maturity (a)
U.S. Treasury and agencies . . . . . . .
Mortgage-backed securities
Residential
Agency . . . . . . . . . . . . . . . . . . . . . . .
Non-agency non-prime (d) . . .
Commercial non-agency . . . . . . . .
35,671
1
–
187
–
–
–
–
–
(665)
–
–
35,193
1
–
31,064
1
2
545
–
–
Asset-backed securities
Collateralized debt obligations/
Collateralized loan
obligations . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of state and political
subdivisions . . . . . . . . . . . . . . . . . . . .
Obligations of foreign
governments . . . . . . . . . . . . . . . . . . . .
Other debt securities . . . . . . . . . . . . . .
–
16
12
7
99
9
4
–
–
–
–
(1)
–
–
–
–
(1)
–
–
(11)
9
18
12
7
88
7
19
20
7
115
15
2
1
–
–
–
–
–
–
(3)
–
–
–
(6)
–
–
31,603
1
2
–
(1)
–
–
(17)
22
17
21
7
98
Total held-to-maturity . . . . . . . . .
$38,920
$205
$ (1) $(756) $38,368
$34,389
$ 590
$ (3) $ (24) $34,952
$ 1,108
$
4
$ – $ (67) $ 1,045
$ 1,211
$
16
$ – $
(1) $ 1,226
31,633
449
–
(529)
31,553
28,754
746
–
(5)
29,495
(16)
(20)
–
–
–
–
–
–
–
–
(4)
(1)
–
–
(1)
624
355
193
42
592
–
6,455
–
(85)
(14)
–
6
731
218
202
486
297
148
20
616
4
5
4
4
13
(8)
(5)
–
(4)
–
–
478
297
152
–
–
24
629
641
372
185
32
579
3
4
8
10
14
–
–
–
–
–
–
–
subdivisions . . . . . . . . . . . . . . . . . . . .
5,673
116
Obligations of foreign
governments . . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . .
Perpetual preferred securities . . . . .
Other investments . . . . . . . . . . . . . . . . .
6
734
205
133
–
–
24
28
(51)
5,738
6,059
396
–
(94)
(17)
–
6
640
212
161
6
814
205
182
–
2
27
20
Total available-for-sale . . . . . . .
$41,059
$651
$(13) $(762) $40,935
$39,040
$1,246
$(36) $(111) $40,139
(a) Held-to-maturity investment securities are carried at historical cost or at fair value at the time of transfer from the available-for-sale to held-to-maturity category, adjusted for amortization
of premiums and accretion of discounts and credit-related other-than-temporary impairment.
(b) Available-for-sale investment 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 at origination. When an issuer designation is unavailable, the Company determines at acquisition date the categorization
based on asset pool characteristics (such as weighted-average credit score, loan-to-value, loan type, prevalence of low documentation loans) and deal performance (such as pool
delinquencies and security market spreads). When the Company determines the designation, prime securities typically have a weighted average credit score of 725 or higher and a
loan-to-value of 80 percent or lower; however, other pool characteristics may result in designations that deviate from these credit score and loan-to-value thresholds.
(d) Includes all securities not meeting the conditions to be designated as prime.
(e) Represents impairment not related to credit for those investment securities that have been determined to be other-than-temporarily impaired.
(f) Represents unrealized losses on investment securities that have not been determined to be other-than-temporarily impaired.
U.S. BANCORP
89
Available-for-sale (b)
U.S. Treasury and agencies . . . . . . .
Mortgage-backed securities
Residential
Agency . . . . . . . . . . . . . . . . . . . . . . .
Non-agency
Prime (c) . . . . . . . . . . . . . . . . . . .
Non-prime (d) . . . . . . . . . . . . .
Commercial agency . . . . . . . . . . . .
Asset-backed securities
Collateralized debt obligations/
Collateralized loan
obligations . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of state and political
The weighted-average maturity of the available-for-sale
investment securities was 6.0 years at December 31, 2013,
compared with 4.1 years at December 31, 2012. The
corresponding weighted-average yields were 2.64 percent
and 2.93 percent, respectively. The weighted-average
maturity of the held-to-maturity investment securities was 4.5
years at December 31, 2013, and 3.3 years at December 31,
2012. The corresponding weighted-average yields were 2.00
percent and 1.94 percent, respectively.
For amortized cost, fair value and yield by maturity date
of held-to-maturity and available-for-sale investment
securities outstanding at December 31, 2013, refer to Table
13 included in Management’s Discussion and Analysis
which is incorporated by reference into these Notes to
Consolidated Financial Statements.
Investment securities with a fair value of $17.3 billion at
December 31, 2013, and $20.1 billion at December 31,
2012, were pledged to secure public, private and trust
deposits, repurchase agreements and for other purposes
required by contractual obligation or law. Included in these
amounts were securities where the Company and certain
counterparties have agreements granting the counterparties
the right to sell or pledge the securities. Investment
securities delivered under these types of arrangements had
a fair value of $2.1 billion at December 31, 2013, and $3.5
billion at December 31, 2012.
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)
2013
2012
2011
Taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,375
256
$1,515
277
$1,517
303
Total interest income from investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,631
$1,792
$1,820
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)
Realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
$23
–
Net realized gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$23
Income tax (benefit) on net realized gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9
2012
2011
$158
(99)
$ 59
$ 23
$11
(7)
$ 4
$ 2
The Company conducts a regular assessment of its
investment securities with unrealized losses to determine
whether investment securities are other-than-temporarily
impaired considering, among other factors, the nature of the
investment securities, credit ratings or financial condition of
the issuer, the extent and duration of the unrealized loss,
expected cash flows of underlying collateral, the existence of
any government or agency guarantees, market conditions
and whether the Company intends to sell or it is more likely
than not the Company will be required to sell the investment
securities.
The following table summarizes other-than-temporary impairment by investment category:
Year Ended December 31 (Dollars in Millions)
Available-for-sale
Mortgage-backed securities
Non-agency residential
Prime (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-prime (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial non-agency . . . . . . . . . . . . . . . . . . .
Other asset-backed securities . . . . . . . . . . . . . . . .
Obligations of state and political
subdivisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Perpetual preferred securities . . . . . . . . . . . . . . . .
2013
2012
2011
Losses
Recorded in
Earnings
Other Gains
(Losses) (c)
Total
Losses
Recorded
in Earnings
Other Gains
(Losses) (c)
Total
Losses
Recorded
in Earnings
Other Gains
(Losses) (c)
Total
$ (6)
(8)
–
–
–
–
$2
6
–
–
–
–
$(4)
(2)
–
–
–
–
$(12)
(33)
(1)
(1)
–
(27)
$ (9) $(21)
(12)
(2)
–
21
(1)
1
–
–
–
(27)
$ (3)
(24)
–
(4)
(4)
–
$ (5) $ (8)
(47)
–
(1)
(23)
–
3
–
–
(4)
–
Total available-for-sale . . . . . . . . . . . . . . . . . .
$(14)
$8
$(6)
$(74)
$12 $(62)
$(35)
$(25) $(60)
(a) Prime securities are those designated as such by the issuer at origination. When an issuer designation is unavailable, the Company determines at acquisition date the categorization
based on asset pool characteristics (such as weighted-average credit score, loan-to-value, loan type, prevalence of low documentation loans) and deal performance (such as pool
delinquencies and security market spreads).
(b) Includes all securities not meeting the conditions to be designated as prime.
(c) Losses represent the non-credit portion of other-than-temporary impairment recorded in other comprehensive income (loss) for investment securities determined to be other-than-
temporarily impaired during the period. Gains represent recoveries in the fair value of securities that had non-credit other-than-temporary impairment during the period.
90
U.S. BANCORP
The Company determined the other-than-temporary
impairment recorded in earnings for debt securities not
intended to be sold by estimating the future cash flows of
each individual investment security, using market information
where available, and discounting the cash flows at the
original effective rate of the investment 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 investment
security. For perpetual preferred securities determined to be
other-than-temporarily impaired, the Company recorded a
loss in earnings for the entire difference between the
securities’ fair value and their amortized cost.
The following table includes the ranges for significant assumptions used for those available-for-sale non-agency mortgage-
backed securities determined to be other-than-temporarily impaired:
Prime (a)
Non-Prime (b)
Minimum
Maximum
Average
Minimum
Maximum
Average
December 31, 2013
Estimated lifetime prepayment rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lifetime probability of default rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lifetime loss severity rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2012
Estimated lifetime prepayment rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lifetime probability of default rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lifetime loss severity rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7%
3
30
6%
3
40
18%
7
50
22%
6
50
15%
5
48
14%
4
47
4%
7
50
3%
3
45
9%
12
65
10%
10
65
5%
9
58
6%
7
56
(a) Prime securities are those designated as such by the issuer at origination. When an issuer designation is unavailable, the Company determines at acquisition date the categorization
based on asset pool characteristics (such as weighted-average credit score, loan-to-value, loan type, prevalence of low documentation loans) and deal performance (such as pool
delinquencies and security market spreads).
(b) Includes all securities not meeting the conditions to be designated as prime.
Changes in the credit losses on debt securities (excluding 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
2013
2012
2011
$134
$ 298
$358
–
14
14
6
41
47
Increases in expected cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Realized losses (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit losses on security sales and securities expected to be sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2)
(23)
(7)
(15)
(39)
(157)
7
28
35
(21)
(73)
(1)
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$116
$ 134
$298
(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.
U.S. BANCORP
91
At December 31, 2013, 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 investment securities with unrealized losses, aggregated by
investment category and length of time the individual investment securities have been in continuous unrealized loss positions,
at December 31, 2013:
(Dollars in Millions)
Held-to-maturity
U.S. Treasury and agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities
Residential agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of state and political subdivisions . . . . . . . . . . . . . . .
Other debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less Than 12 Months
12 Months or Greater
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
$ 1,085
$ (79)
$
–
$
–
$ 1,085
$ (79)
23,922
–
3
–
(647)
–
–
–
373
10
–
12
(18)
(2)
–
(11)
24,295
10
3
12
(665)
(2)
–
(11)
Total held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$25,010
$(726)
$ 395
$ (31)
$25,405
$(757)
Available-for-sale
U.S. Treasury and agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities
Residential
Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-agency (a)
Prime (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-prime (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of state and political subdivisions . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Perpetual preferred securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
849
$ (59)
$
93
$
(8)
$
942
$ (67)
14,015
(484)
1,056
(45)
15,071
(529)
65
74
23
1,479
223
–
(1)
(1)
–
(51)
(5)
–
182
57
3
10
418
116
(11)
(4)
–
–
(89)
(17)
247
131
26
1,489
641
116
(12)
(5)
–
(51)
(94)
(17)
Total available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$16,728
$(601)
$1,935
$(174)
$18,663
$(775)
(a) The Company has $17 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 the underlying collateral pool performance. Borrower defaults may increase if economic conditions worsen. Additionally, deterioration in home prices may increase the
severity of projected losses.
(b) Prime securities are those designated as such by the issuer at origination. When an issuer designation is unavailable, the Company determines at acquisition date the categorization based on
asset pool characteristics (such as weighted-average credit score, loan-to-value, loan type, prevalence of low documentation loans) and deal performance (such as pool delinquencies and
security market spreads).
(c) Includes all securities not meeting the conditions to be 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 investment
securities that have unrealized losses are either corporate
debt issued with high investment grade credit ratings or
agency mortgage-backed securities. 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 investment
securities. At December 31, 2013, the Company had no
plans to sell investment securities with unrealized losses,
and believes it is more likely than not it would not be required
to sell such investment securities before recovery of their
amortized cost.
92
U.S. BANCORP
N O T E 5
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
2013
2012
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 64,762
5,271
Total commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
70,033
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32,183
7,702
39,885
37,545
13,611
51,156
18,021
5,929
15,442
3,276
5,709
13,743
3,579
47,678
$ 60,742
5,481
66,223
31,005
5,948
36,953
32,648
11,370
44,018
17,115
5,419
16,726
3,332
5,463
12,593
4,179
47,712
Total loans, excluding covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
226,773
8,462
212,021
11,308
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$235,235
$223,329
The Company had loans of $77.2 billion at
December 31, 2013, and $74.1 billion at December 31,
2012, pledged at the Federal Home Loan Bank (“FHLB”),
and loans of $53.0 billion at December 31, 2013, and
$48.6 billion at December 31, 2012, pledged at the Federal
Reserve Bank.
The majority of the Company’s loans are 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, 2013 and 2012, 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,
2013 and 2012, 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. The Company
has an equity interest in a joint venture, that it accounts for
under the equity method, whose principal activities 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, 2013 and
2012, the Company had $205 million and $486 million,
respectively, of outstanding advances to this joint venture.
These advances are included in commercial real estate loans.
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 $556 million at December 31, 2013, and $753
million at December 31, 2012. 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.”
U.S. BANCORP
93
Changes in the accretable balance for purchased impaired loans for the years ended December 31, were as follows:
(Dollars in Millions)
2013
2012
2011
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassifications from nonaccretable difference (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,709
–
(499)
(172)
258
359
$2,619
13
(437)
(208)
454
(732)
$2,890
100
(451)
(67)
184
(37)
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,655
$1,709
$2,619
(a) Primarily relates to changes in expected credit performance.
(b) The amount for the year ended December 31, 2013, primarily represents the reclassification of unamortized decreases in the FDIC asset (which are now presented as a separate
component within the covered assets table on page 101), partially offset by the impact of changes in expectations about retaining covered single-family loans beyond the term of the
indemnification agreements. The amount for the year end December 31, 2012, primarily represents a change in the Company’s expectations regarding potential sale of modified
covered loans at the end of the indemnification agreements which results in a reduction in the expected contractual interest payments included in the accretable balance for those
loans that may be sold.
Allowance for Credit Losses The allowance for credit
losses reserves for probable and estimable losses incurred
in the Company’s loan and lease portfolio, including
unfunded credit commitments, 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, 2010 . . . . . . . . . . . .
Add
Commercial
Commercial
Real Estate
Residential
Mortgages
Credit
Card
Other
Retail
Total Loans,
Excluding
Covered Loans
Covered
Loans
Total
Loans
$1,104
$1,291
$820 $1,395 $ 807
$5,417
$114 $5,531
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . .
312
361
596
431
628
2,328
15
2,343
Deduct
Loans charged off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less recoveries of loans charged off . . . . . . . . . . . . .
Net loans charged off . . . . . . . . . . . . . . . . . . . . . . . . . .
Other changes (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
516
(110)
406
–
543
(45)
498
–
502
(13)
489
–
922
(88)
834
–
733
(129)
604
–
3,216
(385)
2,831
–
13
(1)
12
(17)
3,229
(386)
2,843
(17)
Balance at December 31, 2011 . . . . . . . . . . . .
$ 1,010
$ 1,154
$ 927 $ 992 $ 831
$ 4,914
$ 100 $ 5,014
Add
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . .
316
(131)
446
571
558
1,760
122
1,882
Deduct
Loans charged off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less recoveries of loans charged off . . . . . . . . . . . . .
Net loans charged off . . . . . . . . . . . . . . . . . . . . . . . . . .
Other changes (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
378
(103)
275
–
242
(76)
166
–
461
(23)
438
–
769
(102)
667
(33)
666
(125)
541
–
2,516
(429)
2,087
(33)
11
(1)
10
(33)
2,527
(430)
2,097
(66)
Balance at December 31, 2012 . . . . . . . . . . . .
$ 1,051
$ 857
$ 935 $ 863 $ 848
$ 4,554
$ 179 $ 4,733
Add
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . .
144
(114)
212
677
351
1,270
70
1,340
Deduct
Loans charged off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less recoveries of loans charged off . . . . . . . . . . . . .
Net loans charged off . . . . . . . . . . . . . . . . . . . . . . . . . .
Other changes (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
246
(126)
120
–
92
(125)
(33)
–
297
(25)
272
–
739
(83)
656
–
523
(105)
418
–
1,897
(464)
1,433
–
37
(5)
32
(71)
1,934
(469)
1,465
(71)
Balance at December 31, 2013 . . . . . . . . . . . .
$ 1,075
$ 776
$ 875 $ 884 $ 781
$ 4,391
$ 146 $ 4,537
(a) Includes net changes in credit losses to be reimbursed by the FDIC and for the year ended December 31, 2013, reductions in the allowance for covered loans where the reversal of a
previously recorded allowance was offset by an associated decrease in the indemnification asset.
94
U.S. BANCORP
Additional detail of the allowance for credit losses by portfolio class was as follows:
(Dollars in Millions)
Commercial
Commercial
Real Estate
Residential
Mortgages
Credit
Card
Other
Retail
Total Loans,
Excluding
Covered Loans
Covered
Loans
Total
Loans
Allowance Balance at December 31, 2013
Related to
Loans individually evaluated for impairment (a) . . . . . . . . . . .
TDRs collectively evaluated for impairment . . . . . . . . . . . . . . .
Other loans collectively evaluated for impairment . . . . . . . . .
Loans acquired with deteriorated credit quality . . . . . . . . . . .
$
15
19
1,041
–
Total allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . .
$1,075
Allowance Balance at December 31, 2012
Related to
Loans individually evaluated for impairment (a) . . . . . . . . . . .
TDRs collectively evaluated for impairment . . . . . . . . . . . . . . .
Other loans collectively evaluated for impairment . . . . . . . . .
Loans acquired with deteriorated credit quality . . . . . . . . . . .
$
10
28
1,013
–
Total allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . .
$1,051
$ 17
26
700
33
$776
$ 30
29
791
7
$857
$
– $
– $
329
546
–
87
797
–
–
55
726
–
$
32
516
3,810
33
$
– $
4
5
137
32
520
3,815
170
$875 $884 $781
$4,391
$146 $4,537
$
– $
– $
446
489
–
153
710
–
–
97
751
–
$
40
753
3,754
7
$
– $
1
17
161
40
754
3,771
168
$935 $863 $848
$4,554
$179 $4,733
(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, 2013
Loans individually evaluated for impairment (a) . . . . . . .
TDRs collectively evaluated for impairment . . . . . . . . . . .
Other loans collectively evaluated for impairment . . . . .
Loans acquired with deteriorated credit quality . . . . . . .
Commercial
Commercial
Real Estate
Residential
Mortgages
Credit
Card
Total Loans,
Excluding
Covered Loans
Other
Retail
Covered
Loans (b)
Total
Loans
$
197
155
69,680
1
$
237 $
358
39,128
162
– $
– $
5,064
46,090
2
310
17,711
–
–
269
47,409
–
$
434 $
6,156
220,018
165
62 $
87
4,539
3,774
496
6,243
224,557
3,939
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$70,033
$39,885 $51,156 $18,021 $47,678
$226,773 $ 8,462 $235,235
December 31, 2012
Loans individually evaluated for impairment (a) . . . . . . .
TDRs collectively evaluated for impairment . . . . . . . . . . .
Other loans collectively evaluated for impairment . . . . .
Loans acquired with deteriorated credit quality . . . . . . .
$
171
185
65,863
4
$
510 $
391
35,952
100
– $
– $
4,199
39,813
6
442
16,673
–
–
313
47,399
–
$
681 $
48 $
5,530
205,700
110
145
5,814
5,301
729
5,675
211,514
5,411
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$66,223
$36,953 $44,018 $17,115 $47,712
$212,021 $11,308 $223,329
(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.
U.S. BANCORP
95
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, 2013
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current
$ 69,587
39,459
49,695
17,507
47,156
Total loans, excluding covered loans . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
223,404
7,693
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$231,097
December 31, 2012
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 65,701
36,241
42,728
16,525
47,109
Total loans, excluding covered loans . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
208,304
9,900
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$218,204
Accruing
30-89 Days
Past Due
90 Days or
More Past Due
Nonperforming
Total
$ 257
94
358
226
245
1,180
166
$1,346
$ 341
158
348
227
290
1,364
359
$1,723
$
55
29
333
210
86
713
476
$ 134
303
770
78
191
1,476
127
$ 70,033
39,885
51,156
18,021
47,678
226,773
8,462
$1,189
$1,603
$235,235
$
58
8
281
217
96
660
663
$ 123
546
661
146
217
1,693
386
$ 66,223
36,953
44,018
17,115
47,712
212,021
11,308
$1,323
$2,079
$223,329
(a) At December 31, 2013, $440 million of loans 30–89 days past due and $3.7 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 $441 million and $3.2 billion at December 31, 2012, 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, 2013 and 2012,
see Table 16 included in Management’s Discussion and
Analysis which is incorporated by reference into these Notes
to Consolidated Financial Statements.
The following table provides a summary of loans by portfolio class and the Company’s internal credit quality rating:
(Dollars in Millions)
December 31, 2013
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pass
$ 68,075
38,113
50,152
17,733
47,313
Total loans, excluding covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
221,386
8,160
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$229,546
Total outstanding commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$470,046
December 31, 2012
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 63,906
34,096
42,897
16,752
47,294
Total loans, excluding covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
204,945
10,786
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$215,731
Total outstanding commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$442,047
Special
Mention
$1,013
616
5
–
27
1,661
18
$1,679
$2,939
$1,114
621
18
–
36
1,789
61
$1,850
$3,231
Criticized
Classified (a)
Total
Criticized
$ 945
1,156
999
288
338
3,726
284
$4,010
$4,812
$1,203
2,236
1,103
363
382
5,287
461
$5,748
$6,563
$1,958
1,772
1,004
288
365
5,387
302
$5,689
$7,751
$2,317
2,857
1,121
363
418
7,076
522
$7,598
$9,794
Total
$ 70,033
39,885
51,156
18,021
47,678
226,773
8,462
$235,235
$477,797
$ 66,223
36,953
44,018
17,115
47,712
212,021
11,308
$223,329
$451,841
(a) Classified rating on consumer loans primarily based on delinquency status.
(b) At December 31, 2013, $3.7 billion of GNMA loans 90 days or more past due and $2.6 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 $3.2 billion and $2.4 billion at December 31, 2012, respectively.
96
U.S. BANCORP
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:
Period-end
Recorded
Investment (a)
Unpaid
Principal
Balance
Valuation
Allowance
Commitments
to Lend
Additional
Funds
(Dollars in Millions)
December 31, 2013
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 382
693
2,767
310
391
4,543
2,607
452
$
804
1,322
3,492
310
593
6,521
2,607
1,008
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7,602
$10,136
December 31, 2012
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 404
1,077
2,748
442
443
5,114
1,778
767
$ 1,200
2,251
3,341
442
486
7,720
1,778
1,584
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7,659
$11,082
$ 36
51
308
87
59
541
28
30
$599
$ 40
70
415
153
101
779
39
20
$838
$ 54
40
–
–
14
108
–
4
$112
$ 39
4
–
–
3
46
–
12
$ 58
(a) Substantially all loans classified as impaired at December 31, 2013 and 2012, had an associated allowance for credit losses. The total amount of interest income recognized during
2013 on loans classified as impaired at December 31, 2013, excluding those acquired with deteriorated credit quality, was $233 million, compared to what would have been recognized
at the original contractual terms of the loans of $399 million.
U.S. BANCORP
97
Additional information on impaired loans for the years ended December 31 follows:
(Dollars in Millions)
Average
Recorded
Investment
Interest
Income
Recognized
2013
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 382
889
2,749
366
424
4,810
1,967
561
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7,338
2012
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 470
1,314
2,717
510
301
5,312
1,448
980
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7,740
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
$ 29
39
134
16
24
242
100
27
$369
$ 18
43
130
28
19
238
73
29
$340
$ 12
18
100
15
5
150
25
11
$186
98
U.S. BANCORP
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 years ended December 31, by portfolio
class:
(Dollars in Millions)
2013
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
2,429
165
2,179
26,669
4,290
35,732
8,878
123
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44,733
2012
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,843
312
4,616
49,320
10,461
69,552
9,518
192
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
79,262
2011
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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
$ 166
205
309
160
103
943
1,121
94
$2,158
$ 307
493
638
241
279
1,958
1,280
277
$3,515
$ 456
1,078
708
322
73
2,637
1,277
604
$4,518
$ 155
198
304
161
102
920
1,066
72
$2,058
$ 272
461
623
255
275
1,886
1,245
263
$3,394
$ 427
1,060
704
321
72
2,584
1,356
575
$4,515
Residential mortgages, home equity and second
mortgages, and loans purchased from Government National
Mortgage Association (“GNMA”) mortgage pools in the table
above include trial period arrangements offered to
customers during the periods presented. The post-
modification balances for these loans reflect the current
outstanding balance until a permanent modification is made.
In addition, the post-modification balances typically include
capitalization of unpaid accrued interest and/or fees under
the various modification programs. For those loans modified
as TDRs during the fourth quarter of 2013, at December 31,
2013, 416 residential mortgages, 10 home equity and
second mortgage loans and 2,536 loans purchased from
GNMA mortgage pools with outstanding balances of $58
million, $1 million and $328 million, respectively, were in a
trial period and have estimated post-modification balances
of $47 million, $1 million and $307 million, respectively,
assuming permanent modification occurs at the end of the
trial period.
U.S. BANCORP
99
The following table provides a summary of TDR loans that defaulted (fully or partially charged-off or became 90 days or more
past due) for the years ended December 31, that were modified as TDRs within 12 months previous to default:
(Dollars in Millions)
Number
of Loans
Amount
Defaulted
2013
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
642
87
1,099
6,640
1,841
Total loans, excluding GNMA and covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans purchased from GNMA mortgage pools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,309
4,972
63
$
46
102
163
37
80
428
640
49
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,344
$1,117
2012
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
859
111
1,073
9,774
1,818
Total loans, excluding GNMA and covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans purchased from GNMA mortgage pools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,635
1,245
68
$
48
232
146
54
56
536
177
97
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,948
$ 810
2011
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
7,108
557
9,017
857
11
$
26
67
127
36
13
269
124
26
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,885
$ 419
In addition to the defaults in the table above, for the year
ended December 31, 2013, the Company had a total of 591
residential mortgage loans, home equity and second
mortgage loans and loans purchased from GNMA mortgage
pools with aggregate outstanding balances of $78 million
where borrowers did not successfully complete the trial
period arrangement and therefore are no longer eligible for a
permanent modification under the applicable modification
program.
100 U.S. BANCORP
Covered Assets 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)
2013
Purchased
Impaired
Loans
Purchased
Nonimpaired
Loans
Other
Assets
Commercial loans . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate loans . . . . . . . . . . . . . . .
Residential mortgage loans . . . . . . . . . . . . . . . . .
Credit card loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
Losses reimbursable by the FDIC (a) . . . . . . .
Unamortized changes in FDIC asset (b) . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreclosed real estate . . . . . . . . . . . . . . . . . . . . . .
$
–
738
3,037
–
–
–
–
3,775
–
$
32
1,494
890
5
666
–
–
3,087
–
$
–
–
–
–
–
798
802
1,600
97
2012
Purchased
Impaired
Loans
Purchased
Nonimpaired
Loans
$
–
1,323
3,978
–
–
–
–
5,301
–
$ 143
2,695
1,109
5
775
–
–
4,727
–
$
Other
Assets
–
–
–
–
–
1,280
–
1,280
197
$
Total
143
4,018
5,087
5
775
1,280
–
11,308
197
$
Total
32
2,232
3,927
5
666
798
802
8,462
97
Total covered assets . . . . . . . . . . . . . . . . . . . . .
$3,775
$3,087
$1,697
$8,559
$5,301
$4,727
$1,477
$11,505
(a) Relates to loss sharing agreements with remaining terms up to six years.
(b) Represents decreases in expected reimbursements by the FDIC as a result of decreases in expected losses on the covered loans. These amounts are amortized as a reduction in
interest income on covered loans over the shorter of the expected life of the respective covered loans or the remaining contractual term of the indemnification agreements. These
amounts were presented within the separate loan categories prior to January 1, 2013.
At December 31, 2013, $5 million of the purchased
impaired loans included in covered loans were classified as
nonperforming assets, compared with $82 million at
December 31, 2012, 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
N O T E 6
Leases
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.
The components of the net investment in sales-type and direct financing leases at December 31 were as follows:
(Dollars in Millions)
2013
2012
Aggregate future minimum lease payments to be received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unguaranteed residual values accruing to the lessor’s benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unearned income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Initial direct costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,074
783
(1,045)
189
$10,738
890
(1,123)
175
Total net investment in sales-type and direct financing leases (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,001
$10,680
(a) The accumulated allowance for uncollectible minimum lease payments was $68 million and $80 million at December 31, 2013 and 2012, respectively.
The minimum future lease payments to be received from sales-type and direct financing leases were as follows at
December 31, 2013:
(Dollars in Millions)
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,891
3,240
2,518
826
275
324
U.S. BANCORP 101
NOTE 7 Accounting for Transfers and Servicing of Financial Assets and Variable Interest Entities
The Company transfers financial assets in the normal course
of business. The majority of the Company’s financial asset
transfers are residential mortgage loan sales primarily to
government-sponsored enterprises (“GSEs”), transfers 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. Guarantees provided to certain third-parties in
connection with the transfer of assets are further discussed
in Note 22.
For loans sold under participation agreements, the
Company also considers whether the terms of the loan
participation agreement meet the accounting definition of a
participating interest. 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. Any gain or loss on sale depends on
the previous carrying amount of the transferred financial
assets, 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 9.
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 is an authorized GNMA issuer and issues GNMA
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
are primarily related to investments promoting the
development of affordable housing, community development
and renewable energy sources. Some of these investments
support the Company’s regulatory compliance with the
Community Reinvestment Act. The Company’s investments
in these entities are designed to generate a return primarily
through the realization of federal and state income tax
credits, and other tax benefits, over specified time periods.
The Company realized federal and state income tax credits
related to these investments of $1.5 billion, $883 million and
$756 million for the years ended December 31, 2013, 2012
and 2011, respectively. These tax credits are recognized as
a reduction of tax expense or, for certain investments, as a
reduction to the related investment asset. The Company also
102 U.S. BANCORP
recognized, in its Consolidated Statement of Income, $1.2
billion, $1.0 billion and $806 million of costs related to these
investments for the years ended December 31, 2013, 2012
and 2011, respectively, of which $604 million, $482 million
and $278 million, respectively, was included in tax expense
and the remainder was included in noninterest expense.
During 2013, the Company transferred its control over
the most significant activities of certain community
development and tax-advantaged investment VIEs to a third
party manager. The third party manager provides a
guarantee to these VIEs related to the occurrence of certain
tax credit recapture events and, therefore, has an obligation
to absorb certain losses that could potentially be significant
to the VIEs. Previously, the Company consolidated these
VIEs because it had a controlling financial interest in the
entities. After the transfer of control to the third party
manager, the Company no longer had a controlling financial
interest and deconsolidated the VIEs. The deconsolidation
resulted in a decrease in both assets and liabilities, primarily
other assets and long-term debt, respectively, of
approximately $4.6 billion. The deconsolidation, and
remeasurement of the Company’s investment in these
unconsolidated VIEs to fair value, did not materially impact
the Company’s Consolidated Statement of Income. The total
amount of the Company’s investment in the VIEs was $957
million at December 31, 2013 and is reported in other assets.
In addition, the Company sponsors entities to which it
transfers tax-advantaged investments. At December 31,
2013, approximately $2.5 billion of the Company’s assets
and $1.8 billion of its liabilities included on the Consolidated
Balance Sheet were related to community development and
tax-advantaged investment VIEs which the Company has
consolidated, primarily related to these transfers. These
amounts compared to $7.1 billion and $5.2 billion,
respectively, at December 31, 2012, which included VIEs
related to these asset transfers and, also, the VIEs for which
control transferred in 2013. The majority of the assets of
these consolidated VIEs are reported in other assets, and the
liabilities are reported in long-term debt and other liabilities.
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
with a guarantee.
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, 2013,
$116 million of the held-to-maturity investment securities on the
Company’s Consolidated Balance Sheet were related to the
conduit, compared with $144 million at December 31, 2012.
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, 2013, $4.6 billion of available-for-sale
securities and $4.6 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 $5.0 billion of short-term
borrowings at December 31, 2012.
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 the right to receive benefits
that could potentially be significant to the VIEs. The
Company’s investments in these unconsolidated VIEs
generally are carried in other assets on the Consolidated
Balance Sheet. The Company’s investments in
unconsolidated VIEs at December 31, 2013 ranged from less
than $1 million to $37 million, with an aggregate amount of
$2.6 billion, net of $1.7 billion of liabilities recorded primarily
for unfunded capital commitments of the Company to
N O T E 8 Premises and Equipment
specific project sponsors. The Company’s investments in
unconsolidated VIEs at December 31, 2012, ranged from
less than $1 million to $58 million, with an aggregate amount
of $1.9 billion, net of liabilities of $1.3 billion recorded
primarily for unfunded capital commitments. While the
Company believes potential losses from these investments
are remote, the Company’s maximum exposure to loss from
these unconsolidated VIEs was $7.4 billion at December 31,
2013 and $5.2 billion at December 31, 2012. The maximum
exposure to loss was primarily related to community
development tax-advantaged investments and included $2.5
billion at December 31, 2013 and $1.8 billion at
December 31, 2012, on the Company’s Consolidated
Balance Sheet, and $4.9 billion at December 31, 2013 and
$3.3 billion at December 31, 2012, 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 become
worthless, and the community-based business and housing
projects and related tax credits completely fail and do 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2013
529
3,256
2,593
103
24
6,505
(3,899)
$
2012
534
3,222
2,543
97
42
6,438
(3,768)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,606
$ 2,670
N O T E 9 Mortgage Servicing Rights
The Company serviced $226.8 billion of residential mortgage
loans for others at December 31, 2013, and $215.6 billion at
December 31, 2012. The net impact included in mortgage
banking revenue of fair value changes of MSRs due to
changes in valuation assumptions and derivatives used to
economically hedge MSRs were net gains of $192 million,
$102 million and $183 million for the years ended
December 31, 2013, 2012 and 2011, respectively. Loan
servicing fees, not including valuation changes, included in
mortgage banking revenue, were $754 million, $720 million
and $651 million for the years ended December 31, 2013,
2012 and 2011, respectively.
U.S. BANCORP 103
Changes in fair value of capitalized MSRs for the years ended December 31, are summarized as follows:
(Dollars in Millions)
2013
2012
2011
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rights purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rights capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in fair value of MSRs
$1,700
8
769
Due to fluctuations in market interest rates (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due to revised assumptions or models (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other changes in fair value (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
617
33
(447)
$1,519
42
957
(249)
(21)
(548)
$1,837
35
619
(619)
33
(386)
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,680
$1,700
$1,519
(a) Includes changes in MSR value associated with changes in market interest rates, including estimated prepayment rates and anticipated earnings on escrow deposits.
(b) Includes changes in MSR value not caused by changes in market interest rates, such as changes in cost to service, ancillary income, and discount rate, as well as the impact of any
model changes.
(c) Primarily represents changes due to 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
100 bps
Down
50 bps
Down
25 bps
Up
25 bps
Up
50 bps
Up
100 bps
Down
100 bps
Down
50 bps
Down
25 bps
Up
25 bps
Up
50 bps
Up
100 bps
2013
2012
MSR portfolio . . . . . . . . . . . . . . . . . . . .
Derivative instrument hedges . . .
$(435) $(199)
194
399
$(93)
91
$ 82
(82)
$ 154
(157)
$ 287
(301)
$(370) $(217) $(118) $ 126
(121)
473
249
124
$ 249
(243)
$ 480
(486)
Net sensitivity . . . . . . . . . . . . . . . . .
$ (36) $
(5)
$ (2)
$ –
$
(3)
$ (14)
$ 103
$ 32
$
6
$
5
$
6
$
(6)
The fair value of MSRs and their sensitivity to changes in
interest rates is influenced by the mix of the servicing
portfolio and characteristics of each segment of the portfolio.
The Company’s servicing portfolio consists of the distinct
portfolios of government-insured mortgages, conventional
mortgages and Mortgage Revenue Bond Programs
(“MRBP”). The servicing portfolios are predominantly
comprised of fixed-rate agency loans with limited adjustable-
rate or jumbo mortgage loans. The MRBP division
specializes in servicing loans made under state and local
housing authority programs. These programs provide
mortgages to low-income and moderate-income borrowers
and are generally government-insured programs with a
favorable rate subsidy, down payment and/or closing cost
assistance.
A summary of the Company’s MSRs and related characteristics by portfolio as of December 31 follows:
2013
2012
(Dollars in Millions)
MRBP Government Conventional (b)
Total
MRBP Government Conventional (b)
Total
Servicing portfolio . . . . . . . . . . . . . . . . . . . . . . . .
Fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Value (bps) (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average servicing fees (bps) . .
Multiple (value/servicing fees) . . . . . . . . . . . .
Weighted-average note rate . . . . . . . . . . . . . .
Weighted-average age (in years) . . . . . . . . .
Weighted-average expected prepayment
(constant prepayment rate) . . . . . . . . . . . .
Weighted-average expected life
$15,896
180
$
113
39
2.90
4.70%
3.8
$41,659
500
$
120
32
3.75
4.24%
2.6
$169,287 $226,842
2,680
$
118
30
3.93
4.22%
2.6
2,000 $
118
29
4.07
4.17%
2.5
$14,143
154
$
109
40
2.73
5.13%
4.2
$39,048
314
$
80
33
2.42
4.57%
2.4
$162,446 $215,637
1,700
$
79
31
2.55
4.54%
2.6
1,232 $
76
30
2.53
4.48%
2.5
13.5%
11.5%
10.9%
11.2%
13.2%
21.2%
20.4%
20.1%
(in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average discount rate . . . . . . . . . .
6.2
11.9%
6.9
11.2%
7.2
9.8%
7.1
10.2%
6.1
12.1%
4.2
11.4%
4.1
10.0%
4.2
10.4%
(a) Value is calculated as fair value divided by the servicing portfolio.
(b) Represents loans sold primarily to GSEs.
104 U.S. BANCORP
N O T E 1 0
Intangible Assets
Intangible assets consisted of the following:
At December 31 (Dollars in Millions)
Estimated Amortization
Life (a) Method (b)
Balance
2013
2012
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merchant processing contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposit benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trust relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other identified intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10 years/8 years
22 years/5 years
14 years/6 years
9 years/5 years
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c)
SL/AC
SL/AC
(c)
SL/AC
SL/AC
$ 9,205
229
135
2,680
122
363
$ 9,143
281
176
1,700
149
400
$12,734
$11,849
(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.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
$ 64
41
34
84
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$223
2012
$ 74
60
39
101
$274
2011
$ 90
81
35
93
$299
The estimated amortization expense for the next five years is as follows:
(Dollars in Millions)
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$184
148
119
98
78
The following table reflects the changes in the carrying value of goodwill for the years ended December 31, 2013, 2012 and
2011:
(Dollars in Millions)
Balance at December 31, 2010 . . .
Other (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2011 . . .
Goodwill acquired . . . . . . . . . . . . . . . . . . . . .
Other (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2012 . . .
Goodwill acquired . . . . . . . . . . . . . . . . . . . . .
Other (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2013 . . .
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
–
–
$1,605
$3,535
(21)
$3,514
–
–
$3,514
–
–
$3,514
$1,463 $2,351
(6)
–
$1,463 $2,345
143
8
65
–
$1,528 $2,496
20
5
37
–
$1,565 $2,521
$–
–
$–
–
–
$–
–
–
$–
$8,954
(27)
$8,927
208
8
$9,143
57
5
$9,205
(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.
U.S. BANCORP 105
N O T E 1 1 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
2013
2012
2011
Amount
Rate
Amount
Rate
Amount
Rate
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under agreements to repurchase . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
594
2,057
19,400
5,557
.11%
5.34
.11
.19
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$27,608
.52%
Average for the year
Federal funds purchased (b) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under agreements to repurchase . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,879
2,403
17,467
5,934
Total (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$27,683
9.72%
4.65
.12
.72
1.29%
Maximum month-end balance
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under agreements to repurchase . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,569
3,121
19,400
6,301
$
950
3,388
16,202
5,762
$26,302
$ 1,338
4,942
15,806
6,463
$28,549
$ 2,467
5,922
17,385
7,443
.11%
3.26
.12
.29
.57%
15.32%
3.52
.14
.72
1.57%
.11%
3.35
.12
.26
.89%
22.61%
3.22
.15
.77
1.75%
$ 1,036
6,986
15,973
6,473
$30,468
$
968
7,483
15,204
7,048
$30,703
$ 1,172
9,071
16,768
7,514
(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 timeframes 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 2013, 2012 and 2011 was $181 million, $203 million and $218 million, respectively.
N O T E 1 2
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
2013
2012
U.S. Bancorp (Parent Company)
Subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Medium-term notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Junior subordinated debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized lease obligations, mortgage indebtedness and
other (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subsidiaries
Subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank advances . . . . . . . . . . . . . . . . . . . . . . . . .
Bank notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized lease obligations, mortgage indebtedness and
other (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed
Fixed
Fixed
Floating
Fixed
2.950%
7.500%
1.650% - 4.200%
.728%
3.442%
2022
2026
2014 - 2022
2018
2016
Fixed
Fixed
Fixed
Fixed
Floating
Fixed
Floating
Floating
6.300%
4.950%
4.800%
3.778%
.524%
1.250% - 8.250%
.238% - .505%
–%
2014
2014
2015
2020
2014
2014 - 2026
2014 - 2022
2046 - 2048
$ 1,300
199
8,750
500
500
$ 1,300
199
10,600
–
500
167
173
11,416
12,772
963
1,000
500
500
373
13
4,579
142
563
8,633
963
1,000
500
500
373
16
4,579
143
4,670
12,744
$20,049
$25,516
(a) Weighted-average interest rates of Federal Home Loan Bank advances and fixed-rate medium-term notes were .28 percent and 2.78 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.
106 U.S. BANCORP
During 2012, the Company elected to redeem $2.7 billion of
junior subordinated debentures issued to five wholly-owned
unconsolidated trusts that had interest payable at fixed rates
ranging from 6.30 percent to 6.63 percent. There were no
issuances of junior subordinated debentures in 2013 or
2012.
The Company has arrangements with the Federal Home
Loan Bank and Federal Reserve Bank whereby the
Company could have borrowed an additional $69.7 billion
and $60.9 billion at December 31, 2013 and 2012,
respectively, based on collateral available.
N O T E 1 3 Junior Subordinated Debentures
As of December 31, 2013, 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 Income Trust Securities
(“ITS”) to third party investors, originally investing the
proceeds in junior subordinated debt securities
(“Debentures”) issued by the Company and entering into
stock purchase contracts to purchase preferred stock in the
future. During 2010, the Company exchanged depositary
shares representing an ownership interest in its Series A
Non-Cumulative Perpetual Preferred Stock (“Series A
Preferred Stock”) to acquire a portion of the ITS issued by
USB Capital IX and retire a portion of the Debentures and
cancel a pro-rata portion of stock purchase contracts. During
2011, USB Capital IX sold the remaining Debentures,
N O T E 1 4 Shareholders’ Equity
Maturities of long-term debt outstanding at December 31,
2013, were:
(Dollars in Millions)
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Parent
Company
$ 1,499
1,749
1,940
1,247
1,496
3,485
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,416
Consolidated
$ 4,132
3,013
3,813
2,545
1,534
5,012
$20,049
originally issued by the Company to the trust, to investors to
generate cash proceeds to purchase the Company’s Series
A Preferred Stock pursuant to the stock purchase contracts.
As part of this sale, a consolidated subsidiary of the
Company purchased $176 million of the Debentures, which
effectively retired the debt. The Company classifies the
remaining $500 million of debentures at December 31, 2013
and 2012, as long-term debt. As of December 31, 2013 and
2012, $676 million of the Company’s Series A Preferred
Stock was the sole asset of USB Capital IX. 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 junior subordinated basis,
of the payment obligations of the trust.
At December 31, 2013 and 2012, the Company had authority
to issue 4 billion shares of common stock and 50 million
shares of preferred stock. The Company had 1.8 billion
shares and 1.9 billion shares of common stock
outstanding at December 31, 2013 and 2012, respectively.
The Company had 106 million shares reserved for future
issuances, primarily under stock option plans, at
December 31, 2013.
The number of shares issued and outstanding and the carrying amount of each outstanding series of the Company’s preferred
stock was as follows:
2013
2012
At December 31,
(Dollars in Millions)
Series A . . . . . . . . . . . . . . . . . . . . . . . . . .
Series B . . . . . . . . . . . . . . . . . . . . . . . . . .
Series D . . . . . . . . . . . . . . . . . . . . . . . . . .
Series F . . . . . . . . . . . . . . . . . . . . . . . . . .
Series G . . . . . . . . . . . . . . . . . . . . . . . . . .
Series H . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
Issued and
Outstanding
12,510
40,000
–
44,000
43,400
20,000
Total preferred stock (a) . . . . . . .
159,910
Liquidation
Preference
Discount
$1,251
1,000
–
1,100
1,085
500
$4,936
$145
–
–
12
10
13
$180
Carrying
Amount
$1,106
1,000
–
1,088
1,075
487
$4,756
(a) The par value of all shares issued and outstanding at December 31, 2013 and 2012, was $1.00 per share.
Shares
Issued and
Outstanding
12,510
40,000
20,000
44,000
43,400
–
159,910
Liquidation
Preference
Discount
$1,251
1,000
500
1,100
1,085
–
$4,936
$145
–
–
12
10
–
$167
Carrying
Amount
$1,106
1,000
500
1,088
1,075
–
$4,769
During 2013, the Company issued depositary shares
representing an ownership interest in 20,000 shares of
Series H Non-Cumulative Perpetual Preferred Stock with a
liquidation preference of $25,000 per share (the “Series H
Preferred Stock”). The Series H Preferred Stock has no
stated maturity and will not be subject to any sinking fund or
other obligation of the Company. Dividends, if declared, will
accrue and be payable quarterly, in arrears, at a rate per
U.S. BANCORP 107
annum equal to 5.15 percent. The Series H Preferred Stock
is redeemable at the Company’s option, in whole or in part,
on or after July 15, 2018. The Series H Preferred stock is
redeemable at the Company’s option, in whole, but not in
part, prior to July 15, 2018 within 90 days following an official
administrative or judicial decision, amendment to, or change
in the laws or regulations that would not allow the Company
to treat the full liquidation value of the Series H Preferred
Stock as Tier 1 capital for purposes of the capital adequacy
guidelines of the Federal Reserve.
During 2012, the Company issued depositary shares
representing an ownership interest in 44,000 shares of
Series F Non-Cumulative Perpetual Preferred Stock with a
liquidation preference of $25,000 per share (the “Series F
Preferred Stock”), and depositary shares representing an
ownership interest in 43,400 shares of Series G Non-
Cumulative Perpetual Preferred Stock with a liquidation
preference of $25,000 per share (the “Series G Preferred
Stock”). The Series F Preferred Stock and Series G 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 6.50 percent from the date of
issuance to, but excluding, January 15, 2022, and thereafter
at a floating rate per annum equal to three-month LIBOR plus
4.468 percent for the Series F Preferred Stock, and 6.00
percent from the date of issuance to, but excluding, April 15,
2017, and thereafter at a floating rate per annum equal to
three-month LIBOR plus 4.86125 percent for the Series G
Preferred Stock. Both series are redeemable at the
Company’s option, in whole or in part, on or after January 15,
2022, for the Series F Preferred Stock and April 15, 2017, for
the Series G Preferred Stock. Both series are redeemable at
the Company’s option, in whole, but not in part, prior to
January 15, 2022, for the Series F Preferred Stock and prior
to April 15, 2017, for the Series G Preferred Stock, within 90
days following an official administrative or judicial decision,
amendment to, or change in the laws or regulations that
would not allow the Company to treat the full liquidation value
of the Series F Preferred Stock or Series G Preferred Stock,
respectively, as Tier 1 capital for purposes of the capital
adequacy guidelines of the Federal Reserve Board.
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 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”). In conjunction with the issuance of the
Series H Preferred Stock, the Company redeemed at par
value all shares of the Series D Preferred Stock during 2013.
The Company included an $8 million loss in its computation of
earnings per diluted common share for 2013, which
represents the stock issuance costs recorded in capital
surplus upon the issuance of the Series D Preferred Stock that
were reclassified to retained earnings on the redemption date.
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”). The Series B Preferred Stock has no
stated maturity and will not be subject to any sinking fund or
other obligation of the Company. Dividends, if declared, will
accrue and be payable quarterly, in arrears, at a rate per
annum equal to the greater of three-month LIBOR plus
.60 percent, or 3.50 percent. The Series B Preferred Stock is
redeemable at the Company’s option, subject to the prior
approval of the Federal Reserve Board.
During 2013, 2012 and 2011, the Company repurchased
shares of its common stock under various authorizations
approved by its Board of Directors. As of December 31, 2013,
the approximate dollar value of shares that may yet be
purchased by the Company under the current Board of
Directors approved authorization was $488 million.
The following table summarizes the Company’s common stock repurchased in each of the last three years:
(Dollars and Shares in Millions)
Shares
Value
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
65
59
22
$2,336
1,878
550
108 U.S. BANCORP
Shareholders’ equity is affected by transactions and valuations of asset and liability positions that require adjustments to
accumulated other comprehensive income (loss). The reconciliation of the transactions affecting accumulated other
comprehensive income (loss) included in shareholders’ equity for the years ended December 31, is as follows:
Unrealized Gains
(Losses) on
Securities
Available-For-Sale
Unrealized Gains
(Losses) on
Securities
Transferred From
Available-For-Sale
to Held-To-Maturity
Unrealized Gains
(Losses) on
Derivative Hedges
Unrealized Gains
(Losses) on
Retirement Plans
Foreign Currency
Translation
Total
$
679
$107
$(404)
$(1,265)
$(40)
$ (923)
(Dollars in Millions)
2013
Balance at beginning of period . . . . . . . . .
Changes in unrealized gains and
losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other-than-temporary impairment not
recognized in earnings on
securities available-for-sale . . . . . . . .
Foreign currency translation
adjustment . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification to earnings of
realized gains and losses . . . . . . . . .
Applicable income taxes . . . . . . . . . . . . .
2012
Balance at beginning of period . . . . . . . . .
Changes in unrealized gains and
losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other-than-temporary impairment not
recognized in earnings on
securities available-for-sale . . . . . . . .
Transfer of securities from available-
for-sale to held-to-maturity . . . . . . . . .
Foreign currency translation
adjustment . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification to earnings of
realized gains and losses . . . . . . . . .
Applicable income taxes . . . . . . . . . . . . .
(1,223)
8
–
(9)
468
715
12
(224)
–
15
(199)
Balance at end of period . . . . . . . . . . . . . . . .
$
(77)
$
360
$
–
–
–
(59)
22
$ 70
–
–
–
224
–
(51)
(66)
$107
Balance at end of period . . . . . . . . . . . . . . . .
$
679
2011
Balance at beginning of period . . . . . . . . .
Changes in unrealized gains and
losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other-than-temporary impairment not
recognized in earnings on
securities available-for-sale . . . . . . . .
Foreign currency translation
adjustment . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification to earnings of
realized gains and losses . . . . . . . . .
Applicable income taxes . . . . . . . . . . . . .
$ (213)
$
920
(25)
–
31
(353)
Balance at end of period . . . . . . . . . . . . . . . .
$
360
$
–
–
–
–
–
–
–
37
–
–
192
(86)
590
–
–
249
(317)
–
–
(596)
8
(34)
(34)
–
14
373
101
$(261)
$ (743)
$(60)
$(1,071)
$(489)
$(1,022)
$(49)
$(1,200)
(74)
(543)
–
–
–
211
(52)
–
–
–
150
150
–
–
–
14
–
(5)
98
12
–
14
325
(172)
$(404)
$(1,265)
$(40)
$ (923)
$(414)
$ (803)
$(39)
$(1,469)
(343)
(464)
–
–
222
46
–
–
110
135
–
–
113
(25)
(16)
(16)
–
6
363
(166)
$(489)
$(1,022)
$(49)
$(1,200)
U.S. BANCORP 109
Additional detail about the impact to net income for items reclassified out of accumulated other comprehensive income and
into earnings for the year ended December 31, 2013, is as follows:
(Dollars in Millions)
Unrealized gains (losses) on securities available-for-sale
Impact to
Net Income
Affected Line Item in the
Consolidated Statement of Income
Realized gains (losses) on sale of securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other-than-temporary impairment recognized in earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 23
(14)
Total securities gains (losses), net
Unrealized gains (losses) on securities transferred from available-for-sale to
held-to-maturity
Amortization of unrealized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gains (losses) on derivative hedges
Realized gains (losses) on derivative hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gains (losses) on retirement plans
Actuarial gains (losses), prior service cost (credit) and transition obligation (asset)
amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total impact to net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9
(4)
5
Total before tax
Applicable income taxes
Net-of-tax
59
(22)
Interest income
Applicable income taxes
37
Net-of-tax
(192)
74
Net interest income
Applicable income taxes
(118)
Net-of-tax
(249)
96
Employee benefits expense
Applicable income taxes
(153)
$(229)
Net-of-tax
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, 2013 and 2012, for
the Company and its bank subsidiary, see Table 22 included
in Management’s Discussion and Analysis, which is
incorporated by reference into these Notes to Consolidated
Financial Statements.
110 U.S. BANCORP
The following table provides the components of the Company’s regulatory capital at December 31:
(Dollars in Millions)
Tier 1 Capital
2013
2012
Common shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Qualifying preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests, less preferred stock not eligible for Tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less intangible assets
$ 36,357
4,756
688
$ 34,229
4,769
685
Goodwill (net of deferred tax liability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other disallowed intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8,343)
(708)
636
Total Tier 1 Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33,386
Tier 2 Capital
Eligible portion of allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Eligible subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Tier 2 Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,734
2,299
(79)
5,954
(8,351)
(829)
700
31,203
3,609
2,953
15
6,577
Total Risk Based Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 39,340
$ 37,780
Risk-Weighted Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$297,919
$287,611
(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 third party
investors’ interests in consolidated entities, including
preferred stock of consolidated subsidiaries. During 2006,
the Company’s banking subsidiary formed USB Realty
Corp., a real estate investment trust, for the purpose of
issuing 5,000 shares of Fixed-to-Floating Rate Exchangeable
Non-cumulative Perpetual Series A Preferred Stock with a
liquidation preference of $100,000 per share (“Series A
Preferred Securities”) to third party investors. Dividends on
the Series A Preferred Securities, if declared, will accrue and
be payable quarterly, in arrears, at a rate per annum equal to
three-month LIBOR plus 1.147 percent. If USB Realty Corp.
has not declared a dividend on the Series A Preferred
N O T E 1 5 Earnings Per Share
The components of earnings per share were:
Year Ended December 31
(Dollars and Shares in Millions, Except Per Share Data)
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 each
fifth anniversary after the dividend payment date occurring in
January 2012. Any redemption will be subject to the
approval of the Office of the Comptroller of the Currency.
2013
2012
2011
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of preferred stock redemption (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings allocated to participating stock awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,836
(250)
(8)
(26)
$5,647
(238)
–
(26)
$4,872
(129)
–
(22)
Net income applicable to U.S. Bancorp common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,552
$5,383
$4,721
Average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net effect of the exercise and assumed purchase of stock awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,839
10
Average diluted common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,849
Earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3.02
$ 3.00
1,887
9
1,896
$ 2.85
$ 2.84
1,914
9
1,923
$ 2.47
$ 2.46
(a) Represents stock issuance costs originally recorded in capital surplus upon the issuance of the Company’s Series D Non-Cumulative Perpetual Preferred Stock that were reclassified to
retained earnings on the redemption date.
U.S. BANCORP 111
Options outstanding at December 31, 2013, 2012 and
2011, to purchase 5 million, 22 million and 54 million
common shares, respectively, were not included in the
computation of diluted earnings per share for the years
ended December 31, 2013, 2012 and 2011, respectively,
because they were antidilutive. Convertible senior
debentures outstanding at December 31, 2012 and 2011,
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 for the years ended December 31, 2012 and 2011,
because they were antidilutive.
N O T E 1 6 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 their
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.
Beginning with the 2013 matching contribution paid in January
2014, the matching contribution will be invested in the same
manner as an employee’s future contribution elections.
Previously, the matching contribution was initially invested in
the Company’s common stock, and the employee was able to
reinvest the matching contribution among various investment
alternatives. Total expense for the Company’s matching
contributions was $118 million, $111 million and $103 million in
2013, 2012 and 2011, respectively.
Pension Plans The Company has tax qualified
noncontributory defined benefit pension plans that provide
benefits to substantially all its employees. Participants
receive annual cash balance 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. For participants in the plan before
2010 that elected to stay under their existing formula,
pension benefits are provided to eligible employees based
on years of service, multiplied by a percentage of their final
average pay. Additionally, as a result of plan mergers, a
portion of pension benefits may also be provided using a
cash balance benefit formula where only interest credits
continue to be credited to participants’ accounts.
In general, the Company’s qualified pension plans’
funding 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
112 U.S. BANCORP
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 contributions of
$296 million and $35 million to its main pension plan in 2013
and 2012, respectively, and anticipates making contributions
of $185 million to its main pension plan in 2014. 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 2014, the Company expects to
contribute $20 million to its non-qualified pension plans
which equals the 2014 expected benefit payments.
Postretirement Welfare Plan In addition to providing
pension benefits, the Company provides health care and
death benefits to certain former employees who retired prior
to January 1, 2014. Employees retiring after December 31,
2013 are not eligible for retiree health care benefits. This
plan change decreased the plan’s benefit obligation by $35
million during 2013, which will be amortized as a reduction to
plan expense over the remaining life of the plan participants.
The Company expects to contribute $9 million to its
postretirement welfare plan in 2014.
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)
Pension Plans
Postretirement
Welfare Plan
2013
2012
2013
2012
Change In Projected Benefit Obligation
Benefit obligation at beginning of measurement period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Participants’ contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lump sum settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal subsidy on benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,096
168
170
–
–
(388)
(34)
(117)
–
$ 3,261
129
168
–
–
681
(33)
(110)
–
Benefit obligation at end of measurement period (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,895
$ 4,096
Change In Fair Value Of Plan Assets
Fair value at beginning of measurement period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Participants’ contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lump sum settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,321
343
318
–
(34)
(117)
$ 2,103
305
56
–
(33)
(110)
Fair value at end of measurement period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,831
$ 2,321
$142
3
4
10
(35)
(2)
–
(24)
2
$100
$105
–
1
10
–
(24)
$ 92
$170
5
7
10
–
(26)
–
(26)
2
$142
$120
–
1
10
–
(26)
$105
Funded (Unfunded) Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(1,064)
$(1,775)
$ (8)
$ (37)
Components Of The Consolidated Balance Sheet
Current benefit liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent benefit liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(20)
(1,044)
$
(23)
(1,752)
Recognized amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(1,064)
$(1,775)
Accumulated Other Comprehensive Income (Loss), Pretax
Net actuarial gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net prior service credit (cost) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(1,333)
16
$(2,152)
21
Recognized amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(1,317)
$(2,131)
$
–
(8)
$ (8)
$ 75
34
$109
$
–
(37)
$ (37)
$ 84
–
$ 84
(a) At December 31, 2013 and 2012, the accumulated benefit obligation for all pension plans was $3.6 billion and $3.8 billion, respectively.
The following table provides information for pension plans with benefit obligations in excess of plan assets at December 31:
(Dollars in Millions)
2013
2012
Pension Plans with Projected Benefit Obligations in Excess of Plan Assets
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,853
2,787
$3,853
3,566
2,787
$4,096
2,321
$4,096
3,776
2,321
U.S. BANCORP 113
The following table sets forth the components of net periodic benefit cost and other amounts recognized in accumulated other
comprehensive income (loss) for the years ended December 31 for the retirement plans:
Pension Plans
Postretirement Welfare Plan
(Dollars in Millions)
2013
2012
2011
2013
2012
2011
Components Of Net Periodic Benefit Cost
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service cost (credit) and transition obligation (asset)
$ 168
170
(176)
amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial loss (gain) amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5)
264
$ 129
168
(191)
(4)
161
$ 119
169
(207)
(9)
125
$ 3
4
(2)
(1)
(9)
$ 5
7
(2)
–
(7)
$ 4
9
(5)
–
(6)
Net periodic benefit cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 421
$ 263
$ 197
$ (5)
$ 3
$ 2
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 (asset) amortized
during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 555
264
–
$(567)
161
–
$(474)
125
–
(5)
(4)
(9)
Total recognized in other comprehensive income (loss) . . . . . . . . . . . .
$ 814
$(410)
$(358)
$ –
(9)
35
(1)
$25
$24
(7)
–
–
$17
$10
(6)
–
–
$ 4
Total recognized in net periodic benefit cost and other
comprehensive income (loss) (a)(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 393
$(673)
$(555)
$30
$14
$ 2
(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 2014 are $158 million and $(5) million, respectively.
(b) The pretax estimated actuarial loss (gain) and prior service cost (credit) for the postretirement welfare plan that will be amortized from accumulated other comprehensive income (loss)
into net periodic benefit cost in 2014 are $(6) million and $(3) million, respectively.
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
2013
2012
2013
2012
Discount rate (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.97%
4.02
4.07%
4.08
Health care cost trend rate for the next year (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect on accumulated postretirement benefit obligation
One percent increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
One percent decrease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.93%
*
7.50%
3.10%
*
8.00%
$
5
(4)
$
5
(5)
(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 14.6, 11.5, and 6.4 years, respectively, for 2013, and 15.9, 12.2 and 7.2 years, respectively, for 2012.
(b) Determined on an active liability weighted basis.
(c) The rate is assumed to decrease gradually to 5.0 percent by 2019 and remain at this level thereafter.
* Not applicable
114 U.S. BANCORP
The following table sets forth weighted average assumptions used to determine net periodic benefit cost for the years ended
December 31:
Pension Plans
Postretirement Welfare Plan
(Dollars in Millions)
2013
2012
2011
Discount rate (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.07%
7.50
4.08
5.07%
8.00
4.05
5.66%
8.25
4.02
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
3.10%
1.50
*
8.00%
8.00
2012
4.30%
2.25
*
2011
4.90%
3.50
*
8.00%
12.00
8.00%
14.00
$
–
–
$
–
–
$
–
–
(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 15.9, 12.2 and 7.2 years, respectively, for 2013, and 14.8, 11.4 and 7.7 years, respectively, for 2012.
(b) With the help of an independent pension consultant, the Company considers several sources when developing its expected long-term rates of return on plan assets assumptions,
including, but not limited to, past returns and estimates of future returns given the plans’ asset allocation, economic conditions, and peer group LTROR information.
The Company determined its 2013 expected long-term rates of return reflecting current economic conditions and plan assets. The decrease in the pension plans’ LTROR is primarily
due to an increase in the debt securities target asset allocation from 10 percent as of December 31, 2011, to 30 percent as of December 31, 2013.
(c) Determined on an active liability weighted basis.
(d) The pre-65 and post-65 rates are both assumed to decrease gradually to 5.00 percent by 2019 and remain at that level 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. Estimated
future returns and other actuarially determined adjustments
are also considered in calculating the estimated return on
assets.
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. In an effort to reduce volatility, while
recognizing the long-term up-side potential of investing in
equities, the Committee increased the target asset allocation
to 30 percent debt securities for the Company’s qualified
pension plans at December 31, 2013. The remaining target
asset allocation at December 31, 2013 was 35 percent
passively managed global equities, 8 percent actively
managed global equities, 7 percent mid-small cap equities,
5 percent emerging markets equities, 5 percent real estate
equities, 5 percent hedge funds and 5 percent private
equity. The target asset allocation at December 31, 2012
was 35 percent passively managed global equities, 25
percent actively managed global equities, 10 percent mid-
small cap equities, 5 percent emerging markets equities,
5 percent real estate equities, and 20 percent debt
securities.
At December 31, 2013 and 2012, plan assets of the
qualified pension plans included asset management
arrangements with related parties totaling $119 million and
$168 million, respectively.
Under a contractual agreement with U.S. Bancorp Asset
Management, Inc., an affiliate of the Company, certain plan
assets were lent to qualified borrowers on a short-term basis
in exchange for investment fee income. These borrowers
collateralized the loaned securities with either cash or non-
cash securities. In 2013, the qualified pension plan
discontinued its participation in the securities lending
program. Cash collateral held at December 31, 2012 totaled
$14 million, with an obligation to return the cash collateral of
$20 million.
In accordance with 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 are classified as Level 2. In
addition, the qualified pension plans invest in debt securities
and foreign currency transactions that are valued using third
party pricing services and are classified as Level 2. In 2012,
the qualified pension plan invested in a money market
mutual fund with cash collateral from its securities lending
arrangement, whose fair value was determined based on
U.S. BANCORP 115
quoted prices in markets that are less active and was
classified as Level 2. The qualified pension plans invest in
hedge funds and private equity funds whose fair values are
determined using the net asset value provided by the fund
administrators. The Company’s ability to redeem at net asset
value is currently restricted, and accordingly, the
investments in hedge and private equity funds are classified
as Level 3. Additionally, the qualified pension plans invest in
limited partnership interests, and in debt 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
Postretirement
Welfare Plan
(Dollars in Millions)
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Level 1
2013
2012
2013
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate stock
$
62
217
$
–
343
$
Domestic equity securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Mid-small cap equity securities (a) . . . . . . . . . . . . . . . . . .
International equity securities . . . . . . . . . . . . . . . . . . . . . . .
Real estate equity securities (b) . . . . . . . . . . . . . . . . . . . . .
217
148
229
137
Collective investment funds
Domestic equity securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Mid-small cap equity securities (c) . . . . . . . . . . . . . . . . . .
Emerging markets equity securities . . . . . . . . . . . . . . . . .
International equity securities . . . . . . . . . . . . . . . . . . . . . . .
Mutual funds
Money market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Emerging markets equity securities . . . . . . . . . . . . . . . . .
Hedge funds (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
–
–
–
–
–
–
–
–
–
–
–
–
538
58
58
472
–
177
75
–
(7)
–
–
–
–
–
–
–
–
–
–
–
–
–
103
4
$ 119
151
$
–
114
$ –
7
$92
–
275
173
285
132
–
–
–
–
–
–
–
–
–
–
–
–
–
400
59
61
362
7
129
71
–
(7)
–
–
–
–
–
–
–
–
–
–
–
–
3
–
–
–
–
–
–
–
–
–
–
–
–
–
2012
Level 1
$105
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,010
$1,714
$107
$1,135
$1,196
$10
$92
$105
(a) At December 31, 2013 and 2012, securities included $141 million and $164 million in domestic equities, respectively and $7 million and $9 million in international equities, respectively.
(b) At December 31, 2013 and 2012, securities included $67 million and $66 million in domestic equities, respectively, and $70 million and $66 million in international equities, respectively.
(c) At December 31, 2013 and 2012, securities included $26 million and $24 million in domestic equities, respectively, $22 million and $16 million in international equities, respectively, and
$10 million and $19 million in cash and cash equivalents, respectively.
(d) This category consists of several investment strategies diversified across several hedge fund managers.
(e) Total investment assets of the pension plans exclude obligations to return cash collateral to qualified borrowers of $20 million at December 31, 2012, 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, and settlements, net . . . . . . .
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . .
Debt
Securities
$ 7
–
(7)
$ –
2013
Hedge
Funds
$
–
–
103
$103
Other
$3
–
1
$4
2012
2011
Debt
Securities
$ 7
1
(1)
$ 7
Other
$ 6
(2)
(1)
$ 3
Debt
Securities
$ 8
–
(1)
$ 7
Other
$ 6
(9)
9
$ 6
The following benefit payments are expected to be paid from the retirement plans for the years ended December 31:
(Dollars in Millions)
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 – 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Net of expected retiree contributions and before Medicare Part D subsidy.
Pension
Plans
$ 169
177
189
200
205
1,205
Postretirement
Welfare Plan (a)
Medicare Part D
Subsidy Receipts
$15
14
13
12
11
44
$2
2
2
2
2
8
116 U.S. BANCORP
N O T E 1 7 Stock-Based Compensation
As part of its employee and director compensation
programs, the Company may grant certain stock awards
under the provisions of the existing stock compensation
plans, including plans assumed in acquisitions. The plans
provide for grants of options to purchase shares of common
stock at a fixed price equal to the fair value of the underlying
stock at the date of grant. Option grants are generally
exercisable up to ten years from the date of grant. In
addition, the plans provide for grants of shares of common
stock or stock units that are subject to restriction on transfer
prior to vesting. Most stock and unit awards vest over three
to five years and are subject to forfeiture if certain vesting
requirements are not met. Stock incentive plans of acquired
companies are generally terminated at the merger closing
dates. 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, 2013, there were 54 million
shares (subject to adjustment for forfeitures) available for
grant under various plans.
Stock Option Awards
The following is a summary of stock options outstanding and exercised under various stock option plans of the Company:
Year Ended December 31
Stock
Options/Shares
Weighted-
Average
Exercise Price
Weighted-Average
Remaining Contractual
Term
Aggregate
Intrinsic Value
(in millions)
2013
Number outstanding at beginning of period . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
63,171,918
1,168,011
(17,260,740)
(354,424)
Number outstanding at end of period (b) . . . . . . . . . . . . . . . . . . . . . . . .
Exercisable at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46,724,765
39,556,000
2012
Number outstanding at beginning of period . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
75,823,941
4,180,492
(15,681,323)
(1,151,192)
Number outstanding at end of period (b) . . . . . . . . . . . . . . . . . . . . . . . .
Exercisable at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
63,171,918
50,671,654
2011
Number outstanding at beginning of period . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
85,622,705
4,063,369
(8,508,107)
(5,354,026)
Number outstanding at end of period (b) . . . . . . . . . . . . . . . . . . . . . . . .
Exercisable at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
75,823,941
57,039,334
$28.83
33.99
28.41
29.22
$29.12
$29.19
$27.60
28.65
23.12
24.90
$28.83
$30.12
$26.80
28.66
19.49
28.44
$27.60
$29.14
4.4
3.8
4.9
4.2
5.2
4.4
$ 527
$ 444
$ 196
$ 92
$ (42)
$(120)
(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 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:
Year Ended December 31
Estimated fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock volatility factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life of options (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
2012
2011
$12.13
$10.19
$10.55
1.0%
2.6%
.49
5.5
.9%
2.6%
.49
5.5
2.5%
2.5%
.47
5.5
U.S. BANCORP 117
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)
2013
2012
2011
Fair value of options vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intrinsic value of options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash received from options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit realized from options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 41
144
489
56
$ 49
143
362
75
$ 54
61
165
23
To satisfy option exercises, the Company predominantly uses treasury stock.
Additional information regarding stock options outstanding as of December 31, 2013, is as follows:
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
Shares
4,661,087
167,391
3,390,179
13,108,918
17,999,955
7,397,235
46,724,765
Restricted Stock and Unit Awards
Outstanding Options
Exercisable Options
Weighted-
Average
Remaining
Contractual
Life (Years)
5.1
2.4
6.2
5.2
3.9
3.1
4.4
Weighted-
Average
Exercise
Price
$11.39
19.54
23.85
29.05
31.97
36.07
$29.12
Weighted-
Average
Exercise
Price
$11.40
19.54
23.84
29.29
31.83
36.07
$29.19
Shares
4,661,087
167,391
2,216,001
8,276,837
16,837,858
7,396,826
39,556,000
A summary of the status of the Company’s restricted shares of stock and unit awards is presented below:
Year Ended December 31
Shares
Nonvested Shares
Outstanding at beginning of period . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,935,743
3,717,635
(3,744,411)
(255,108)
Outstanding at end of period . . . . . . . . . .
8,653,859
2013
2012
2011
Weighted-
Average Grant-
Date Fair Value
Weighted-
Average Grant-
Date Fair Value
Shares
Weighted-
Average Grant-
Date Fair Value
Shares
$25.04
33.88
22.17
29.18
$29.96
8,995,295
3,085,077
(2,931,820)
(212,809)
8,935,743
$22.46
28.70
20.97
25.01
$25.04
8,811,027
3,136,086
(2,552,979)
(398,839)
8,995,295
$19.74
28.20
20.15
22.20
$22.46
The total fair value of shares vested was $127 million,
$86 million and $72 million for the years ended December
31, 2013, 2012 and 2011, respectively. Stock-based
compensation expense was $129 million, $129 million and
$118 million for the years ended December 31, 2013, 2012
and 2011, respectively. On an after-tax basis, stock-based
compensation was $80 million, $80 million and $73 million
for the years ended December 31, 2013, 2012 and 2011,
respectively. As of December 31, 2013, there was $142
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.
118 U.S. BANCORP
N O T E 1 8
Income Taxes
The components of income tax expense were:
Year Ended December 31 (Dollars in Millions)
2013
2012
2011
Federal
Current. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,885
(83)
$1,853
45
$ 907
689
Federal income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,802
1,898
1,596
State
Current. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
216
14
230
334
4
338
186
59
245
Total income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,032
$2,236
$1,841
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
2013
2012
2011
$2,717
150
$2,704
220
$2,320
159
Tax credits, net of related expenses (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax-exempt income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(648)
(212)
37
(12)
(479)
(219)
55
(45)
(458)
(226)
29
17
Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,032
$2,236
$1,841
(a) Excludes tax credits of $473 million for the year ended December 31, 2013 which were recognized as a reduction to the related investment asset.
The tax effects of fair value adjustments on securities
available-for-sale, derivative instruments in cash flow
hedges, foreign currency translation adjustments, 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. Federal tax examinations for all years ending
through December 31, 2010, are completed and resolved.
The Company’s tax returns for the years ended
December 31, 2011 and 2012 are under examination by the
Internal Revenue Service. 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)
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
$302
44
–
(56)
(26)
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$264
2012
2011
$ 479
73
5
(245)
(10)
$ 302
$532
24
2
(70)
(9)
$479
The total amount of unrecognized tax positions that, if
recognized, would impact the effective income tax rate as of
December 31, 2013, 2012 and 2011, were $181 million, $240
million and $220 million, respectively. The Company
classifies interest and penalties related to unrecognized tax
positions as a component of income tax expense. At
December 31, 2013, the Company’s uncertain tax position
balance included $27 million in accrued interest. During the
years ended December 31, 2013, 2012 and 2011 the
Company recorded approximately $(12) million, $(8) million
and $(2) million, respectively, in interest on unrecognized tax
positions.
U.S. BANCORP 119
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) follows:
At December 31 (Dollars in Millions)
Deferred Tax Assets
Allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and postretirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities available-for-sale and financial instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal, state and foreign net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Partnerships and other investment assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
2012
$ 1,722 $ 1,756
476
523
–
183
60
395
180
485
277
172
165
72
646
179
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,718
3,573
Deferred Tax Liabilities
Leasing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities available-for-sale and financial instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other deferred tax liabilities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,872)
(835)
(666)
(211)
(147)
–
(210)
(2,792)
(490)
(565)
(168)
(201)
(232)
(361)
Gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,941)
(82)
(4,809)
(84)
Net Deferred Tax Asset (Liability). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(1,305) $(1,320)
The Company has approximately $579 million of federal,
state and foreign net operating loss carryforwards which
expire at various times through 2033. Limitations on the
ability to realize these carryforwards is reflected in the
associated valuation allowance. Management has
determined it is more likely than not the other net deferred
tax assets could be realized through carry back to taxable
income in prior years, future reversals of existing taxable
temporary differences and future taxable income.
N O T E 1 9 Derivative Instruments
In the ordinary course of business, the Company enters into
derivative transactions to manage various risks and to
accommodate the business requirements of its customers.
The Company recognizes all derivatives on the Consolidated
Balance Sheet at fair value in other assets or in other 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
received or 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
120 U.S. BANCORP
At December 31, 2013, 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.
operations (“free-standing derivative”). 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 interest rate
swaps the Company uses to hedge the change in fair value
related to interest rate changes of its underlying fixed-rate
debt. 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, 2013, and the change in fair value attributed
to hedge ineffectiveness was not material.
Cash Flow Hedges These derivatives are interest rate
swaps the Company uses to hedge the forecasted cash
flows from its 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 the cash flows of the hedged items are 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
remain within other comprehensive income (loss). At
December 31, 2013, the Company had $261 million (net-of-
tax) of realized and unrealized losses on derivatives
classified as cash flow hedges recorded in other
comprehensive income (loss), compared with $404 million
(net-of-tax) at December 31, 2012. The estimated amount to
be reclassified from other comprehensive income (loss) into
earnings during the next 12 months is a loss of $117 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, 2013, 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, and occasionally non-derivative debt
instruments, 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,
2013. There were no non-derivative debt instruments
designated as net investment hedges at December 31, 2013
or 2012.
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 to-be-announced securities
(“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
(“MLHFS”) and unfunded mortgage loan commitments. The
Company also enters into interest rate swaps, forward
commitments to buy TBAs, U.S. Treasury futures and options
on U.S. Treasury futures 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
historically has entered into similar offsetting positions with
broker-dealers. In 2014, the Company began to instead
actively manage the risks from its exposure to these
customer-related positions on a portfolio basis by entering
into other derivative or non-derivative financial instruments
that partially or fully offset the exposure from these customer-
related positions. The Company also has derivative contracts
that are created through its operations, including
commitments to originate MLHFS.
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 121
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, 2013
Fair value hedges
Interest rate contracts
Receive fixed/pay floating swaps . . . . . . .
$
500
$ 22
2.09
$
–
$
–
Cash flow hedges
Interest rate contracts
Pay fixed/receive floating swaps . . . . . . . .
Receive fixed/pay floating swaps . . . . . . .
772
7,000
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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,310
5,234
2,300
1,902
–
6,813
79
1,209
26
26
–
9
58
–
17
–
24
3
4
6.25
.84
–
.07
.08
.07
.07
–
.02
1.62
4.04
4,288
–
1,056
1,025
346
–
2
3,540
2,121
–
2,352
498
–
4
7
4
–
–
56
4
–
7
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$28,119
$189
$14,730
$580
December 31, 2012
Fair value hedges
Interest rate contracts
Receive fixed/pay floating swaps . . . . . . .
$
500
$ 30
3.09
$
–
$
–
Cash flow hedges
Interest rate contracts
Pay fixed/receive floating swaps . . . . . . . .
Receive fixed/pay floating swaps . . . . . . .
32
7,000
Net investment hedges
Foreign exchange forward contracts . . . . . .
758
Other economic hedges
Interest rate contracts
Futures and forwards
Buy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,164
6,299
Options
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . .
Written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receive fixed/pay floating swaps . . . . . . .
Foreign exchange forward contracts. . . . . . . . .
Equity contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,435
4,991
350
618
31
1,056
–
45
1
138
18
–
123
1
4
–
3
9.88
1.84
.07
.07
.11
.07
.12
10.21
.03
2.80
4.56
4,528
–
–
2,921
12,223
–
4
3,775
1,383
27
1,947
718
–
–
13
57
–
–
14
6
–
10
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$35,234
$363
$26,808
$818
–
2.46
–
.04
.06
.17
–
.08
10.22
.02
–
3.08
–
3.79
–
–
.04
.09
–
.06
10.21
.01
2.46
3.11
122 U.S. BANCORP
The following table summarizes the customer-related 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, 2013
Interest rate contracts
Receive fixed/pay floating swaps . . . . . . .
Pay fixed/receive floating swaps . . . . . . .
Options
$11,717
6,746
$ 600
114
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . .
Written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,489
–
Foreign exchange rate contracts
Forwards, spots and swaps . . . . . . . . . . . .
Options
10,970
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . .
Written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
364
–
33
–
457
11
–
5.11
6.03
4.53
–
.59
.53
–
$ 7,291
12,361
$ 106
560
–
3,489
9,975
–
364
–
33
427
–
11
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$33,286
$1,215
$33,480
$1,137
December 31, 2012
Interest rate contracts
Receive fixed/pay floating swaps . . . . . . .
Pay fixed/receive floating swaps . . . . . . .
Options
$16,671
928
$1,085
14
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . .
Written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,046
286
Foreign exchange rate contracts
Forwards, spots and swaps . . . . . . . . . . . .
Options
12,186
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . .
Written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
323
–
16
–
322
6
–
4.78
11.12
5.24
.75
.43
.55
–
$ 1,090
16,923
$
15
1,042
28
2,788
11,861
–
323
–
16
286
–
6
5.57
4.90
–
4.53
.62
–
.53
9.30
4.74
4.42
5.68
.44
–
.55
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$33,440
$1,443
$33,013
$1,365
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)
2013
2012
2011
2013
2012
2011
Asset and Liability Management Positions
Cash flow hedges
Interest rate contracts (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 25
$(46)
$(213)
$(118)
$(131)
$(138)
Net investment hedges
Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-derivative debt instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(45)
–
(19)
20
34
–
–
–
–
–
–
–
Note: Ineffectiveness on cash flow and net investment hedges was not material for the years ended December 31, 2013, 2012 and 2011.
(a) Gains (Losses) reclassified from other comprehensive income (loss) into interest income on loans and interest expense on long-term debt.
U.S. BANCORP 123
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)
Interest rate contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange cross-currency swaps . . . . . . . . . . . . . . . .
Other economic hedges
Interest rate contracts
Futures and forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased and written options . . . . . . . . . . . . . . . . . . . . . . . .
Receive fixed/pay floating swaps . . . . . . . . . . . . . . . . . . . . . .
Pay fixed/received floating swaps . . . . . . . . . . . . . . . . . . . . .
Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . . .
Equity contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer-Related Positions
Interest rate contracts
Location of Gains (Losses)
Recognized in Earnings
2013
2012
2011
Other noninterest income
Other noninterest income
$
(9)
–
$
3
42
$ (36)
(69)
Mortgage banking revenue
Mortgage banking revenue
Mortgage banking revenue
Mortgage banking revenue
Commercial products revenue
Compensation expense
Other noninterest income/expense
615
243
(322)
–
49
2
6
(361)
378
437
854
175
–
(63)
2
(8)
23
456
518
1
(81)
1
–
(118)
124
302
(317)
Receive fixed/pay floating swaps . . . . . . . . . . . . . . . . . . . . . . . .
Pay fixed/receive floating swaps . . . . . . . . . . . . . . . . . . . . . . . . .
Other noninterest income
Other noninterest income
Foreign exchange rate contracts
Forwards, spots and swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial products revenue
51
50
53
(a) Gains (Losses) on items hedged by interest rate contracts and foreign exchange forward contracts, included in noninterest income (expense), were $8 million and zero for the year
ended December 31, 2013, respectively, $(3) million and $(44) million for the year ended December 31, 2012, respectively, and $29 million and $72 million for the year ended
December 31, 2011, respectively. The ineffective portion was immaterial for the years ended December 31, 2013, 2012 and 2011.
Derivatives are subject to credit risk associated with
counterparties to the derivative contracts. The Company
measures that credit risk using a credit valuation adjustment
and includes it 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 arrangements
and, where possible, by requiring collateral arrangements. A
master netting arrangement allows two counterparties, who
have multiple derivative contracts with each other, the ability
to net settle amounts under all contracts, including any
related collateral, through a single payment and in a single
currency. Collateral arrangements require the counterparty
to deliver, on a daily basis, collateral (typically cash or U.S.
Treasury and agency securities) equal to the Company’s net
derivative receivable. For highly-rated counterparties, the
collateral arrangements may include minimum dollar
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 arrangements are
predominately 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 arrangements, 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
arrangements that were in a net liability position at
December 31, 2013, was $1.0 billion. At December 31, 2013,
the Company had $792 million of cash posted as collateral
against this net liability position.
124 U.S. BANCORP
N O T E 2 0 Netting Arrangements for Certain Financial Instruments
The majority of the Company’s derivative portfolio consists of
bilateral over-the-counter trades. However, due to legislative
changes effective during 2013, certain interest rate swaps
and credit contracts need to be centrally cleared through
clearinghouses. In addition, a portion of the Company’s
derivative positions are exchange-traded. These are
predominately U.S. Treasury futures or options on
U.S. Treasury futures. Of the Company’s $109.6 billion of
total notional amount of derivative positions at December 31,
2013, $8.3 billion related to those centrally cleared through
clearinghouses and $3.6 billion related to those that were
exchange-traded. Irrespective of how derivatives are traded,
the Company’s derivative contracts include offsetting rights
(referred to as netting arrangements), and depending on
expected volume, credit risk, and counterparty preference,
collateral maintenance may be required. For all derivatives,
fair value is determined daily and, depending on the
collateral maintenance requirements, the Company and a
counterparty may receive or deliver collateral, based upon
the net fair value of all derivative positions between the
Company and the counterparty. Collateral is typically cash,
but securities may be allowed under collateral arrangements
with certain counterparties. Receivables and payables
related to cash collateral are included in other assets and
other liabilities on the Consolidated Balance Sheet, along
with the related derivative asset and liability fair values. Any
securities pledged to counterparties as collateral remain on
the Consolidated Balance Sheet. Securities received from
counterparties as collateral are not recognized on the
Consolidated Balance Sheet, unless the counterparty
defaults. Securities used as collateral can be sold, re-
pledged or otherwise used by the party in possession. No
restrictions exist on the use of cash collateral by either party.
Refer to Note 19 for further discussion of the Company’s
derivatives, including collateral arrangements.
As part of the Company’s treasury and broker-dealer
operations, the Company executes transactions that are
treated as securities sold under agreements to repurchase
or securities purchased under agreements to resell, both of
which are accounted for as collateralized financings.
Securities sold under agreements to repurchase include
repurchase agreements and securities loaned transactions.
Securities purchased under agreements to resell include
reverse repurchase agreements and securities borrowed
transactions. For securities sold under agreements to
repurchase, the Company records a liability for the cash
received, which is included in short-term borrowings on the
Consolidated Balance Sheet. For securities purchased under
agreements to resell, the Company records a receivable for
the cash paid, which is included in other assets on the
Consolidated Balance Sheet.
Securities transferred to counterparties under
repurchase agreements and securities loaned transactions
continue to be recognized on the Consolidated Balance
Sheet, are measured at fair value, and are included in
investment securities or other assets. Securities received
from counterparties under reverse repurchase agreements
and securities borrowed transactions are not recognized on
the Consolidated Balance Sheet unless the counterparty
defaults. Under all transactions, the fair values of the
securities are determined daily, and additional cash is
obtained or refunded to counterparties where appropriate.
The securities transferred under repurchase and reverse
repurchase transactions typically are U.S. Treasury
securities or agency mortgage-backed securities. The
securities loaned or borrowed are typically high-grade
corporate bonds traded by the Company’s broker-dealer.
The securities transferred can be sold, repledged or
otherwise used by the party in possession. No restrictions
exist on the use of cash collateral by either party.
The Company executes its derivative, repurchase/
reverse repurchase and securities loaned/borrowed
transactions under the respective industry standard
agreements. These agreements include master netting
arrangements that allow for multiple contracts executed with
the same counterparty to be viewed as a single
arrangement. This allows for net settlement of a single
amount on a daily basis. In the event of default, the master
netting arrangement provides for close-out netting, which
allows all positions with the defaulting counterparty to be
terminated and net settled with a single payment amount.
The Company has elected to offset the assets and
liabilities under netting arrangements for the balance sheet
presentation of the majority of its derivative counterparties,
excluding centrally cleared derivative contracts due to
current uncertainty about the legal enforceability of netting
arrangements with the clearinghouses. The netting occurs at
the counterparty level, and includes all assets and liabilities
related to the derivative contracts, including those
associated with cash collateral received or delivered. The
Company has not elected to offset the assets and liabilities
under netting arrangements for the balance sheet
presentation of repurchase/reverse repurchase and
securities loaned/borrowed transactions.
U.S. BANCORP 125
The following tables provide information on the Company’s netting adjustments, and items not offset on the Consolidated
Balance Sheet but available for offset in the event of default:
(Dollars in Millions)
December 31, 2013
Derivative assets (d) . . . . . . . . . . . . . . . .
Reverse repurchase agreements . . .
Securities borrowed . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2012
Derivative assets (d) . . . . . . . . . . . . . . . .
Reverse repurchase agreements . . .
Securities borrowed . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . .
Gross
Recognized
Assets
Gross Amounts
Offset on the
Consolidated
Balance Sheet (a)
Net Amounts
Presented on the
Gross Amounts Not Offset on the
Consolidated Balance Sheet
Consolidated
Balance Sheet
Financial
Instruments (b)
Collateral
Received (c)
Net Amount
$1,349
87
723
$2,159
$1,546
363
368
$2,277
$(599)
–
–
$(599)
$(418)
–
–
$(418)
$ 750
87
723
$1,560
$1,128
363
368
$1,859
$ (21)
(59)
–
$ (80)
$(148)
(44)
–
$(192)
$
–
(28)
(698)
$(726)
$
–
(319)
(356)
$(675)
$729
–
25
$754
$980
–
12
$992
(a) Includes $124 million and $79 million of cash collateral related payables that were netted against derivative assets at December 31, 2013 and 2012, respectively.
(b) For derivative assets this includes any derivative liability fair values that could be offset in the event of counterparty default; for reverse repurchase agreements this includes any
repurchase agreement payables that could be offset in the event of counterparty default; for securities borrowed this includes any securities loaned payables that could be offset in the
event of counterparty default.
(c) Includes the fair value of securities received by the Company from the counterparty. These securities are not included on the Consolidated Balance Sheet unless the counterparty
defaults.
(d) Excludes $55 million and $260 million of derivative assets centrally cleared or otherwise not subject to netting arrangements at December 31, 2013 and 2012, respectively.
(Dollars in Millions)
December 31, 2013
Derivative liabilities (d) . . . . . . . . . . . . .
Repurchase agreements . . . . . . . . . . .
Securities loaned . . . . . . . . . . . . . . . . . .
Gross
Recognized
Liabilities
$1,598
2,059
–
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,657
December 31, 2012
Derivative liabilities (d) . . . . . . . . . . . . .
Repurchase agreements . . . . . . . . . . .
Securities loaned . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . .
$2,178
3,389
–
$5,567
Gross Amounts
Offset on the
Consolidated
Balance Sheet (a)
Net Amounts
Presented on the
Consolidated
Balance Sheet
Gross Amounts Not Offset on the
Consolidated Balance Sheet
Financial
Instruments (b)
Collateral
Pledged (c)
Net Amount
$(1,192)
–
–
$(1,192)
$(1,549)
–
–
$(1,549)
$ 406
2,059
–
$2,465
$ 629
3,389
–
$4,018
$ (21)
(59)
–
$ (80)
$(148)
(44)
–
$(192)
$
–
(2,000)
–
$(2,000)
$
–
(3,345)
–
$(3,345)
$385
–
–
$385
$481
–
–
$481
(a) Includes $717 million and $1.2 billion of cash collateral related receivables that were netted against derivative liabilities at December 31, 2013 and 2012, respectively.
(b) For derivative liabilities this includes any derivative asset fair values that could be offset in the event of counterparty default; for repurchase agreements this includes any reverse
repurchase agreement receivables that could be offset in the event of counterparty default; for securities loaned this includes any securities borrowed receivables that could be offset in
the event of counterparty default.
(c) Includes the fair value of securities pledged by the Company to the counterparty. These securities are included on the Consolidated Balance Sheet unless the Company defaults.
(d) Excludes $119 million and $5 million of derivative liabilities centrally cleared or otherwise not subject to netting arrangements at December 31, 2013 and 2012, respectively.
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, substantially all MLHFS and MSRs are
recorded at fair value on a recurring basis. Additionally, from
time to time, the Company may be required to record at fair
value other assets on a nonrecurring basis, such as loans
held for sale, loans held for investment and certain other
assets. These nonrecurring fair value adjustments typically
involve application of lower-of-cost-or-fair value accounting
or impairment write-downs of individual assets.
Fair value is defined as the exchange price that would
be received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market
participants on the measurement date. A fair value
measurement reflects all of the assumptions that market
participants would use in pricing the asset or liability,
including assumptions about the risk inherent in a particular
valuation technique, the effect of a restriction on the sale or
use of an asset and the risk of nonperformance.
The Company groups its assets and liabilities
measured at fair value into a three-level hierarchy for
126 U.S. BANCORP
valuation techniques used to measure financial assets and
financial liabilities at fair value. This hierarchy is based on
whether the valuation inputs are observable or
unobservable. These levels are:
• Level 1 — Quoted prices in active markets for identical
assets or liabilities. Level 1 includes U.S. Treasury and
exchange-traded instruments.
• Level 2 — Observable inputs other than Level 1 prices,
such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by
observable market data for substantially the full term of the
assets or liabilities. Level 2 includes debt securities that
are traded less frequently than exchange-traded
instruments and which are typically valued using third
party pricing services; derivative contracts and other
assets and liabilities, including securities, whose value is
determined using a pricing model with inputs that are
observable in the market or can be derived principally
from or corroborated by observable market data; and
MLHFS whose values are determined using quoted prices
for similar assets or pricing models with inputs that are
observable in the market or can be corroborated by
observable market data.
• Level 3 — Unobservable inputs that are supported by little
or no market activity and that are significant to the fair
value of the assets or liabilities. Level 3 assets and
liabilities include financial instruments whose values are
determined using pricing models, discounted cash flow
methodologies, or similar techniques, as well as
instruments for which the determination of fair value
requires significant management judgment or estimation.
This category includes MSRs, certain debt 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. During the
years ended December 31, 2013, 2012 and 2011, there
were no transfers of financial assets or financial liabilities
between the hierarchy levels.
The Company has processes and controls in place to
increase the reliability of estimates it makes in determining
fair value measurements. Items quoted on an exchange are
verified to the quoted price. Items provided by a third party
pricing service are subject to price verification procedures
as discussed in more detail in the specific valuation
discussions provided in the section that follows. For fair
value measurements modeled internally, the Company’s
valuation models are subject to the Company’s Model Risk
Governance Policy and Program, as maintained by the
Company’s credit administration department. The purpose of
model validation is to assess the accuracy of the models’
input, processing, and reporting components. All models are
required to be independently reviewed and approved prior
to being placed in use, and are subject to formal change
control procedures. Under the Company’s Model Risk
Governance Policy, models are required to be reviewed at
least annually to ensure they are operating as intended.
Inputs into the models are market observable inputs
whenever available. When market observable inputs are not
available, the inputs are developed based upon analysis of
historical experience and evaluation of other relevant market
data. Significant unobservable model inputs are subject to
review by senior management in corporate functions, who
are independent from the modeling. Significant
unobservable model inputs are also compared to actual
results, typically on a quarterly basis. Significant Level 3 fair
value measurements are also subject to corporate-level
review and are benchmarked to market transactions or other
market data, when available. Additional discussion of
processes and controls are provided in the valuation
methodologies section that follows.
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, 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 the
years ended December 31, 2013, 2012 and 2011, there
were no significant changes to the valuation techniques
used by the Company to measure fair value.
Cash and Due From Banks The carrying value of cash
and due from banks approximate fair value and are
classified within Level 1. Fair value is provided for disclosure
purposes only.
Federal Funds Sold and Securities Purchased Under
Resale Agreements The carrying value of federal funds
sold and securities purchased under resale agreements
approximate fair value because of the relatively short time
between the origination of the instrument and its expected
realization and are classified within Level 2. Fair value is
provided for disclosure purposes only.
Investment Securities When quoted market prices for
identical securities are available in an active market, these
U.S. BANCORP 127
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 generally provided by a third
party pricing service. The Company reviews the valuation
methodologies utilized by the pricing service and, on a
quarterly basis, 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, each
quarter, 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, agency 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
securities using a discounted cash flow methodology and
incorporating observable market information, where
available. These valuations are modeled by a unit within the
Company’s treasury department. The valuations use
assumptions regarding housing prices, interest rates and
borrower performance. Inputs are refined and updated at
least quarterly to reflect market developments and actual
performance. 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 review by senior
management in corporate functions, who are independent
from the modeling. The fair value measurements are also
compared 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
128 U.S. BANCORP
obligations and collateralized loan obligations and certain
corporate debt securities.
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 $335 million net loss, a
$287 million net gain and a $15 million net gain for the years
ended December 31, 2013, 2012 and 2011, 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 on the
Consolidated Statement of Income. Electing to measure
MLHFS at fair value reduces certain timing differences and
better matches changes in fair value of these assets with
changes in the value of the derivative instruments used to
economically hedge them without the burden of complying
with the requirements for hedge accounting.
Loans The loan portfolio includes adjustable and fixed-rate
loans, the fair value of which was estimated using discounted
cash flow analyses and other valuation techniques. The
expected cash flows of loans considered historical
prepayment experiences and estimated credit losses and
were discounted using current rates offered to borrowers of
similar credit characteristics. Generally, loan fair values reflect
Level 3 information. Fair value is provided for disclosure
purposes only, with the exception of impaired collateral-based
loans that are measured at fair value on a non-recurring basis
utilizing the underlying collateral fair value.
Mortgage Servicing Rights MSRs are valued using a
discounted cash flow methodology. 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 prepayment rates, discount rates, and other
assumptions. The MSR valuations, as well as the assumptions
used, are developed by the mortgage banking division and
are subject to review by senior management in corporate
functions, who are independent from the modeling. The MSR
valuations and assumptions are validated through comparison
to trade information, publicly available data and industry
surveys when available, and are also compared to
independent third party valuations each quarter. Risks
inherent in MSR valuation include higher than expected
prepayment rates and/or delayed receipt of cash flows. There
is minimal observable market activity for MSRs on comparable
portfolios, and, therefore the determination of fair value
requires significant management judgment. Refer to Note 9 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-Derman-Toy 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. The Company monitors and
manages its nonperformance risk by considering its ability to
net derivative positions under master netting arrangements, as
well as collateral received or provided under collateral
arrangements. Accordingly, the Company has elected to
measure the fair value of derivatives, at a counterparty level, on
a net basis. The majority of the derivatives are classified within
Level 2 of the fair value hierarchy, as the significant inputs to the
models, including nonperformance risk, are observable.
However, certain derivative transactions are with counterparties
where risk of nonperformance cannot be observed in the
market, and therefore the credit valuation adjustments result in
these derivatives being classified within Level 3 of the fair value
hierarchy. The credit valuation adjustments for nonperformance
risk are determined by the Company’s treasury department
using credit assumptions provided by credit administration. The
credit assumptions are compared to actual results quarterly and
are recalibrated as appropriate.
The Company also has commitments to purchase and
originate mortgage loans that meet the accounting
requirements of a derivative. These mortgage loan
commitments are valued by pricing models that include
market observable and unobservable inputs, which result in
the commitments being classified within Level 3 of the fair
value hierarchy. The unobservable inputs include
assumptions about the percentage of commitments that
actually become a closed loan and the MSR value that is
inherent in the underlying loan value, both of which are
developed by the Company’s mortgage banking division.
The closed loan percentages for the mortgage loan
commitments are monitored on an on-going basis, as these
percentages are also used for the Company’s economic
hedging activities. The inherent MSR value for the
commitments are generated by the same models used for
the Company’s MSRs and thus are subject to the same
processes and controls as described for the MSRs above.
Other Financial Instruments Other financial instruments
include cost method equity investments and community
development and tax-advantaged related assets and
liabilities. The majority of the Company’s cost method equity
investments are in Federal Home Loan Bank and Federal
Reserve Bank stock, whose carrying amounts approximate
their fair value and are classified within Level 2. Investments
in private equity and other limited partnership funds are
estimated using fund provided net asset values. These
equity investments are classified within Level 3. Fair value is
provided for disclosure purposes only.
Community development and tax-advantaged
investments generate a return primarily through the
realization of federal and state income tax credits, with a
duration typically equal to the period that the tax credits are
realized. Asset balances primarily represent the assets of the
underlying community development and tax-advantaged
entities the Company consolidated per applicable
authoritative accounting guidance. Liabilities of the
underlying consolidated entities were included in long-term
debt. The carrying value of the asset balances are a
reasonable estimate of fair value and are classified within
Level 3. Refer to Note 7 for further information on community
development and tax-advantaged related assets and
liabilities. Fair value is provided for disclosure purposes only.
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. Deposit liabilities are classified within Level 2. Fair
value is provided for disclosure purposes only.
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. Short-term borrowings are
classified within Level 2. Included in short-term borrowings is
the Company’s obligation on securities sold short, which is
required to be accounted for at fair value per applicable
accounting guidance. Fair value for other short-term
borrowings is provided for disclosure purposes only.
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. Long-term debt is classified within Level 2.
Fair value is provided for disclosure purposes only.
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. 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. These arrangements are classified within
Level 3. Fair value is provided for disclosure purposes only.
U.S. BANCORP 129
Significant Unobservable Inputs of Level 3 Assets and Liabilities
The following section provides information on the significant
inputs used by the Company to determine the fair value
measurements of Level 3 assets and liabilities recorded at
fair value on the Consolidated Balance Sheet. In addition, the
following section includes a discussion of the sensitivity of
the fair value measurements to changes in the significant
inputs and a description of any interrelationships between
these inputs for Level 3 assets and liabilities recorded at fair
value on a recurring basis. The discussion below excludes
nonrecurring fair value measurements of collateral value
used for impairment measures for loans and other real estate
owned. These valuations utilize third party appraisal or
broker price opinions, and are classified as Level 3 due to
the significant judgment involved.
Available-For-Sale Investment Securities The
significant unobservable inputs used in the fair value
measurement of the Company’s modeled Level 3 available-
for-sale investment securities are prepayment rates,
probability of default and loss severities associated with the
underlying collateral, as well as the discount margin used to
calculate the present value of the projected cash flows.
Increases in prepayment rates for Level 3 securities will
typically result in higher fair values, as increased
prepayment rates accelerate the receipt of expected cash
flows and reduce exposure to credit losses. Increases in the
probability of default and loss severities will result in lower
fair values, as these increases reduce expected cash flows.
Discount margin is the Company’s estimate of the current
market spread above the respective benchmark rate. Higher
discount margin will result in lower fair values, as it reduces
the present value of the expected cash flows.
Prepayment rates generally move in the opposite
direction of market interest rates. In the current environment,
an increase in the probability of default will generally be
accompanied with an increase in loss severity, as both are
impacted by underlying collateral values. Discount margins
are influenced by market expectations about the security’s
collateral performance, and therefore may directionally move
with probability and severity of default; however, discount
margins are also impacted by broader market forces, such
as competing investment yields, sector liquidity, economic
news, and other macroeconomic factors.
The following table shows the significant valuation assumption ranges for Level 3 available-for-sale investment securities at
December 31, 2013:
Minimum
Maximum
Average
Residential Prime Non-Agency Mortgage-Backed Securities (a)
Estimated lifetime prepayment rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lifetime probability of default rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lifetime loss severity rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discount margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential Non-Prime Non-Agency Mortgage-Backed Securities (b)
Estimated lifetime prepayment rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lifetime probability of default rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lifetime loss severity rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discount margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Asset-Backed Securities
Estimated lifetime prepayment rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lifetime probability of default rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lifetime loss severity rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discount margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6%
–
25
2
2%
4
15
1
6%
5
40
7
20%
7
65
5
10%
12
70
6
6%
5
40
7
13%
4
42
4
6%
8
54
3
6%
5
40
7
(a) Prime securities are those designated as such by the issuer at origination. When an issuer designation is unavailable, the Company determines at acquisition date the categorization
based on asset pool characteristics (such as weighted-average credit score, loan-to-value, loan type, prevalence of low documentation loans) and deal performance (such as pool
delinquencies and security market spreads).
(b) Includes all securities not meeting the conditions to be designated as prime.
130 U.S. BANCORP
Mortgage Servicing Rights The significant unobservable
inputs used in the fair value measurement of the Company’s
MSRs are expected prepayments and the discount rate used
to calculate the present value of the projected cash flows.
Significant increases in either of these inputs in isolation
would result in a significantly lower fair value measurement.
Significant decreases in either of these inputs in isolation
would result in a significantly higher fair value measurement.
There is no direct interrelationship between prepayments
and discount rate. Prepayment rates generally move in the
opposite direction of market interest rates. Discount rates are
generally impacted by changes in market return
requirements.
The following table shows the significant valuation assumption ranges for MSRs at December 31, 2013:
Minimum
Maximum
Average
Expected prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10%
10
21%
13
11%
10
Derivatives The Company has two distinct Level 3
derivative portfolios: (i) the Company’s commitments to sell,
purchase and originate mortgage loans that meet the
requirements of a derivative, and (ii) the Company’s asset/
liability and customer-related derivatives that are Level 3 due
to unobservable inputs related to measurement of risk of
nonperformance by the counterparty.
The significant unobservable inputs used in the fair
value measurement of the Company’s derivative
commitments to sell, purchase and originate mortgage loans
are the percentage of commitments that actually become a
closed loan and the MSR value that is inherent in the
underlying loan value. A significant increase in the rate of
loans that close would result in a larger derivative asset or
liability. A significant increase in the inherent MSR value
would result in an increase in the derivative asset or a
reduction in the derivative liability. Expected loan close rates
and the inherent MSR values are directly impacted by
changes in market rates and will generally move in the same
direction as interest rates.
The following table shows the significant valuation assumption ranges for the Company’s derivative commitments to sell,
purchase and originate mortgage loans at December 31, 2013:
Expected loan close rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inherent MSR value (basis points per loan) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43%
48
100%
221
80%
124
Minimum
Maximum
Average
The significant unobservable input used in the fair value
measurement of certain of the Company’s asset/liability and
customer-related derivatives is the credit valuation
adjustment related to the risk of counterparty
nonperformance. A significant increase in the credit
valuation adjustment would result in a lower fair value
measurement. A significant decrease in the credit valuation
adjustment would result in a higher fair value measurement.
The credit valuation adjustment is impacted by changes in
the Company’s assessment of the counterparty’s credit
position. At December 31, 2013, the minimum, maximum
and average credit valuation adjustment as a percentage of
the derivative contract fair value prior to adjustment was
0 percent, 100 percent and 7 percent, respectively.
U.S. BANCORP 131
The following table summarizes the balances of assets and liabilities measured at fair value on a recurring basis:
(Dollars in Millions)
December 31, 2013
Available-for-sale securities
Level 1
Level 2
Level 3
Netting
Total
U.S. Treasury and agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities
$
7
$ 1,038
$
Residential
Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-agency
Prime (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-prime (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
–
–
–
–
–
–
–
–
–
141
148
–
–
–
143
31,553
–
–
152
24
566
5,738
6
631
212
20
39,940
3,263
–
889
588
–
–
478
297
–
–
63
–
–
9
–
–
847
–
2,680
515
–
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(599)
–
$ 1,045
31,553
478
297
152
24
629
5,738
6
640
212
161
40,935
3,263
2,680
805
731
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$291
$44,680
$4,042
$ (599)
$48,414
Derivative liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
–
112
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$112
$ 1,647
551
$ 2,198
December 31, 2012
Available-for-sale securities
U.S. Treasury and agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$491
$
735
Residential
Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-agency
Prime (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-prime (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
–
–
–
–
–
–
–
–
–
187
678
–
–
–
94
29,495
–
–
193
42
577
6,455
6
722
218
15
38,458
7,957
–
572
386
$
$
$
70
–
70
–
–
624
355
–
–
15
–
–
9
–
–
$(1,192)
–
$
525
663
$(1,192)
$ 1,188
$
–
–
–
–
–
–
–
–
–
–
–
–
$ 1,226
29,495
624
355
193
42
592
6,455
6
731
218
202
40,139
7,957
1,700
1,388
480
1,003
–
1,700
1,234
–
–
–
–
(418)
–
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$772
$47,373
$3,937
$ (418)
$51,664
Derivative liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
–
50
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 50
$ 2,128
351
$ 2,479
$
$
55
–
55
$(1,549)
–
$
634
401
$(1,549)
$ 1,035
(a) Prime securities are those designated as such by the issuer at origination. When an issuer designation is unavailable, the Company determines at acquisition date the categorization
based on asset pool characteristics (such as weighted-average credit score, loan-to-value, loan type, prevalence of low documentation loans) and deal performance (such as pool
delinquencies and security market spreads).
(b) Includes all securities not meeting the conditions to be designated as prime.
(c) Represents the Company’s obligation on securities sold short required to be accounted for at fair value per applicable accounting guidance.
132 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:
Beginning
of Period
Balance
Net Gains
(Losses)
Included in
Net Income
Net Gains
(Losses)
Included in
Other
Comprehensive
Principal
Income (Loss) Purchases Sales
Payments Issuances Settlements
Net Change in
Unrealized Gains
(Losses) Relating
to Assets and
Liabilities
Still Held at
End of Period
End
of Period
Balance
(Dollars in Millions)
2013
Available-for-sale securities
Mortgage-backed securities
Residential non-agency
Asset-backed securities
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . .
Total available-for-sale . . . . . . . . .
Mortgage servicing rights . . . . . . . . . . . . .
Net derivative assets and liabilities . . . .
2012
Available-for-sale securities
Mortgage-backed securities
Residential non-agency
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 . . . .
2011
Available-for-sale securities
Mortgage-backed securities
Residential non-agency
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 . . . .
Prime (a) . . . . . . . . . . . . . . . . . . . . . . . $ 624
Non-prime (b) . . . . . . . . . . . . . . . . . .
355
$
(6)
(13)
$
8
17
$ – $
–
–
(20)
$(148)
(42)
$
–
–
$
– $ 478
297
–
$
9
17
15
9
1,003
1,700
1,179
3
–
(16)(c)
203(d)
(18)(e)
1
–
26(f)
–
–
51
–
51
8
1
–
–
(20)
–
(5)
(7)
–
(197)
–
–
–
–
–
769(g)
–
–
–
–
–
(712)
63
9
847
2,680
445
–
–
26
203(d)
(321)(h)
Prime (a) . . . . . . . . . . . . . . . . . . . . . . . $ 803
Non-prime (b) . . . . . . . . . . . . . . . . . .
802
Commercial non-agency . . . . . . . . .
42
$ (10)
(24)
1
$ 91
228
–
$ – $(109) $(151)
(89)
(5)
– (562)
(38)
–
$
–
–
–
$
– $ 624
355
–
–
–
$ 65
80
–
120
117
9
1,893
1,519
1,228
13
7
–
(13)(i)
(818)(d)
2,398(j)
(8)
–
–
311(f)
–
–
– (104)
(93)
3
–
–
3 (906)
–
(5)
42
3
(21)
(19)
–
(285)
–
–
–
–
–
–
957(g)
–
–
–
–
–
–
–
15
9
1,003
1,700
(2,445) 1,179
–
2
–
147
(818)(d)
150(k)
Prime (a) . . . . . . . . . . . . . . . . . . . . . . . $1,103
Non-prime (b) . . . . . . . . . . . . . . . . . .
947
Commercial non-agency . . . . . . . . .
50
$
6
(7)
3
$
4
1
(3)
$ – $(115) $(195)
(126)
(13)
(4)
(4)
–
–
$
–
–
–
$
– $ 803
802
–
42
–
$
(4)
1
(2)
135
133
9
2,377
1,837
851
13
10
–
25(l)
(972)(d)
1,550(m)
5
(7)
–
–(f)
–
–
–
–
–
5
–
–
5 (132)
–
(8)
35
1
(33)
(24)
–
(382)
–
–
–
–
–
–
619(g)
–
–
–
–
–
–
120
117
9
1,893
1,519
(1,166) 1,228
5
(7)
–
(7)
(972)(d)
442(n)
(a) Prime securities are those designated as such by the issuer at origination. When an issuer designation is unavailable, the Company determines at acquisition date the categorization
based on asset pool characteristics (such as weighted-average credit score, loan-to-value, loan type, prevalence of low documentation loans) and deal performance (such as pool
delinquencies and security market spreads).
(b) Includes all securities not meeting the conditions to be designated as prime.
(c) Approximately $(14) million included in securities gains (losses) and $(2) million included in interest income.
(d) Included in mortgage banking revenue.
(e) Approximately $(149) million included in other noninterest income and $131 million included in mortgage banking revenue.
(f) Included in changes in unrealized gains and losses on securities available-for-sale.
(g) Represents MSRs capitalized during the period.
(h) Approximately $(340) million included in other noninterest income and $19 million included in mortgage banking revenue.
(i) Approximately $(47) million included in securities gains (losses) and $34 million included in interest income.
(j) Approximately $359 million included in other noninterest income and $2.0 billion included in mortgage banking revenue.
(k) Approximately $(109) million included in other noninterest income and $259 million included in mortgage banking revenue.
(l) Approximately $(31) million included in securities gains (losses) and $56 million included in interest income.
(m)Approximately $716 million included in other noninterest income and $834 million included in mortgage banking revenue.
(n) Approximately $262 million included in other noninterest income and $180 million included in mortgage banking revenue.
U.S. BANCORP 133
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 balances of 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 assets (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$–
–
$–
–
$128
150
Total
$128
150
Level 1
Level 2
Level 3
$–
–
$–
–
$140
194
Total
$140
194
2013
2012
(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 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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.
2013
$83
96
2012
$ 68
160
2011
$177
316
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:
(Dollars in Millions)
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans 90 days or more past due . . . . . . . . . . . . . .
2013
Aggregate
Unpaid
Principal
$3,195
14
–
Fair Value
Carrying
Amount
$3,263
9
–
Carrying
Amount Over
(Under) Unpaid
Principal
$68
(5)
–
Fair Value
Carrying
Amount
$7,957
8
2
2012
Aggregate
Unpaid
Principal
$7,588
13
3
Carrying
Amount Over
(Under) Unpaid
Principal
$369
(5)
(1)
Disclosures about Fair Value of Financial Instruments
The following table summarizes the estimated fair value
for financial instruments as of December 31, 2013 and 2012,
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.
Additionally, in accordance with the disclosure guidance,
insurance contracts and investments accounted for under
the equity method are excluded.
134 U.S. BANCORP
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
Cash and due from banks . . . . . .
Federal funds sold and
securities purchased under
resale agreements . . . . . . . . . . .
Investment securities held-to-
maturity . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale (a) . . . . . . . . .
Loans (b) . . . . . . . . . . . . . . . . . . . . . . .
Other financial instruments . . . . .
Financial Liabilities
Deposits . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings (c) . . . . . .
Long-term debt . . . . . . . . . . . . . . . . .
2013
Fair Value
Level 1
Level 2
Level 3
Total
2012
Fair Value
Level 1
Level 2
Level 3
Total
Carrying
Amount
Carrying
Amount
$
8,477 $8,477 $
– $
– $
8,477
$
8,252 $8,252 $
– $
– $
8,252
163
–
163
–
163
437
–
437
–
437
38,920
5
230,857
2,422
262,123
26,945
20,049
2,589
–
–
–
35,678
–
–
1,080
101
5
231,480
1,362
38,368
5
231,480
2,442
–
–
–
262,200
26,863
20,391
–
–
–
262,200
26,863
20,391
34,389
19
218,765
7,367
249,183
25,901
25,516
2,984
–
–
–
31,845
–
–
1,228
123
19
220,354
6,157
34,952
19
220,354
7,385
–
–
–
249,594
25,917
26,205
–
–
–
249,594
25,917
26,205
(a) Excludes mortgages held for sale for which the fair value option under applicable accounting guidance was elected.
(b) Excludes loans measured at fair value on a nonrecurring basis.
(c) Excludes the Company’s obligation on securities sold short required to be accounted for at fair value per applicable accounting guidance.
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 $382 million and
$415 million at December 31, 2013 and 2012, respectively.
The carrying value of other guarantees was $278 million and
$452 million at December 31, 2013 and 2012, respectively.
N O T E 2 2 Guarantees and Contingent Liabilities
Visa Restructuring and Card Association
Litigation The Company’s payment services business issues
and acquires credit and debit card transactions through the
Visa U.S.A. Inc. card association or its affiliates (collectively
“Visa”). In 2007, Visa completed a restructuring and issued
shares of Visa Inc. common stock to its financial institution
members in contemplation of its initial public offering (“IPO”)
completed in the first quarter of 2008 (the “Visa
Reorganization”). As a part of the Visa Reorganization, the
Company received its proportionate number of shares of Visa
Inc. common stock, which were subsequently converted to
Class B shares of Visa Inc. (“Class B shares”). Visa U.S.A. Inc.
(“Visa U.S.A.”) and MasterCard International (collectively, the
“Card Associations”) are defendants 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.
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. has funded an escrow account
for the benefit of member financial institutions to fund their
indemnification obligations associated with 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. On October 19, 2012, Visa signed a
settlement agreement to resolve class action claims associated
with the multi-district interchange litigation, the largest of the
remaining Visa Litigation matters. The settlement has been
approved by the court, but has been challenged by some class
members and is being appealed. At December 31, 2013, the
carrying amount of the Company’s liability related to the Visa
Litigation matters, net of its share of the escrow fundings, was
$41 million and included the Company’s estimate of its
remaining share of the temporary reduction in interchange rates
specified in the settlement agreement. The remaining Class B
shares held by the Company will be eligible for conversion to
Class A shares, and thereby become marketable, upon final
settlement of the Visa Litigation. These shares are excluded
from the Company’s financial instruments disclosures included
in Note 21.
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
U.S. BANCORP 135
Company’s future liquidity requirements. In addition, the
commitments include consumer credit lines that are cancelable
upon notification to the consumer.
The contract or notional amounts of unfunded commitments
to extend credit at December 31, 2013, excluding those
commitments considered derivatives, were as follows:
(Dollars in Millions)
Commercial and commercial
Term
Less Than
One Year
Greater Than
One Year
Total
real estate . . . . . . . . . . . . . . . . . . .
$20,321
$83,530
$103,851
Corporate and purchasing
cards (a) . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . .
Retail credit cards (a) . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . .
Covered . . . . . . . . . . . . . . . . . . . . . . .
Federal funds . . . . . . . . . . . . . . . . . .
20,007
98
71,192
11,382
31
4,898
(a) Primarily cancelable at the Company’s discretion.
–
11
264
17,733
807
–
20,007
109
71,456
29,115
838
4,898
Lease Commitments Rental expense for operating leases
totaled $311 million in 2013, $295 million in 2012 and
$291 million in 2011. 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, 2013:
(Dollars in Millions)
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total minimum lease payments . . . . . . . . . .
Less amount representing interest . . . . . . .
Present value of net minimum lease
payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized
Leases
Operating
Leases
$ 244
215
182
154
116
474
$1,385
$ 9
8
8
6
6
25
62
23
$39
Other Guarantees and Contingent Liabilities
The following table is a summary of other guarantees and
contingent liabilities of the Company at December 31, 2013:
(Dollars in Millions)
Collateral
Held
Carrying
Amount
Maximum
Potential
Future
Payments
Standby letters of credit . . . . . . . . . .
Third-party borrowing
arrangements . . . . . . . . . . . . . . . . . .
$
–
–
Securities lending
indemnifications . . . . . . . . . . . . . . . .
Asset sales . . . . . . . . . . . . . . . . . . . . . . .
Merchant processing . . . . . . . . . . . . .
Contingent consideration
arrangements . . . . . . . . . . . . . . . . . .
Tender option bond program
guarantee . . . . . . . . . . . . . . . . . . . . . .
Minimum revenue guarantees . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,397
–
648
–
4,604
–
–
$ 71
$16,891
–
–
185
69
12
–
12
–
12
5,261
3,656
83,496
12
4,575
12
468
136 U.S. BANCORP
Letters of Credit Standby letters of credit are
commitments the Company issues to guarantee the
performance of a customer to a third party. The guarantees
frequently support public and private borrowing
arrangements, including commercial paper issuances, bond
financings and other similar transactions. The Company
issues commercial letters of credit on behalf of customers to
ensure payment or collection in connection with trade
transactions. In the event of a customer’s nonperformance,
the Company’s credit loss exposure is the same as in any
extension of credit, up to the letter’s contractual amount.
Management assesses the borrower’s credit to determine
the necessary collateral, which may include marketable
securities, receivables, inventory, equipment and real estate.
Since the conditions requiring the Company to fund letters of
credit may not occur, the Company expects its liquidity
requirements to be less than the total outstanding
commitments. The maximum potential future payments
guaranteed by the Company under standby letter of credit
arrangements at December 31, 2013, were approximately
$16.9 billion with a weighted-average term of approximately
21 months. The estimated fair value of standby letters of
credit was approximately $71 million at December 31, 2013.
The contract or notional amount of letters of credit at
December 31, 2013, were as follows:
(Dollars in Millions)
Standby . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . .
Term
Less Than
One Year
$7,778
252
Greater
Than
One Year
$9,113
43
Total
$16,891
295
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 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. The maximum
potential future payments guaranteed by the Company
under these arrangements were approximately $12 million at
December 31, 2013.
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 fair value of the securities lent and the fair value of the
collateral received. Cash collateralizes these transactions.
The maximum potential future payments guaranteed by the
Company under these arrangements were approximately
$5.3 billion at December 31, 2013, and represented the fair
value of the securities lent to third parties. At December 31,
2013, the Company held $5.4 billion of cash 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-
advantaged investments. 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 $3.7 billion at
December 31, 2013, 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, 2013, the Company
had reserved $102 million for potential losses related to the
sale or syndication of tax-advantaged investments.
The maximum potential future payments do not include
loan sales where the Company provides standard
representation 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 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, 2013, the Company
had reserved $83 million for potential losses from
representation and warranty obligations, compared with $240
million at December 31, 2012. The $157 million decrease
reflected the settlement of substantially all representation and
warranty obligations on loans sold to the Federal Home Loan
Mortgage Corporation (“Freddie Mac”) between 2000 and
2008. The Company’s reserve reflects management’s best
estimate of losses for representation and warranty obligations.
The Company’s repurchase reserve is modeled at the loan
level, taking into consideration the individual credit quality and
borrower activity that has transpired since origination. The
model applies credit quality and economic risk factors to
derive a probability of default and potential repurchase that
are based on the Company’s historical loss experience, and
estimates loss severity based on expected collateral value.
The Company also considers qualitative factors that may
result in anticipated losses differing from historical loss trends.
The following table is a rollforward of the Company’s
representation and warranty reserve:
Year Ended December 31
(Dollars in Millions)
Balance at beginning of period . . . .
Net realized losses . . . . . . . . . . . . . .
Change in reserve . . . . . . . . . . . . . . .
2013
2012
2011
$ 240
(115)
(42)
$ 160
(120)
200
$ 180
(137)
117
Balance at end of period . . . . . . . . . . .
$ 83
$ 240
$ 160
As of December 31, 2013 and 2012, the Company had
$89 million and $131 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
U.S. BANCORP 137
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 $83.5 billion. In most
cases, this contingent liability is unlikely to arise, as most
products and services are delivered when purchased and
amounts are refunded when items are returned to
merchants. However, where the product or service is not
provided until a future date (“future delivery”), the potential
for this contingent liability increases. To mitigate this risk, the
Company may require the merchant to make an escrow
deposit, place maximum volume limitations on future delivery
transactions processed by the merchant at any point in time,
or 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 currently processes card transactions in
the United States, Canada, Europe, Mexico and Brazil through
wholly-owned subsidiaries and joint ventures with other
financial institutions. In the event a merchant was unable to
fulfill product or services subject to delayed delivery, such as
airline tickets, 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, 2013, the
value of airline tickets purchased to be delivered at a future
date was $5.2 billion. The Company held collateral of $538
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 $23 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, 2013, the liability was $58 million primarily
related to these airline processing arrangements.
In the normal course of business, the Company has
unresolved charge-backs. The Company assesses the
likelihood of its potential liability based on the extent and
nature of unresolved charge-backs and its historical loss
experience. At December 31, 2013, the Company held $87
million of merchant escrow deposits as collateral and had a
recorded liability for potential losses of $11 million.
Contingent Consideration Arrangements The
Company has contingent payment obligations related to
138 U.S. BANCORP
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, 2013, the maximum potential
future payments required to be made by the Company under
these arrangements was approximately $12 million. If
required, the majority of these contingent payments are
payable within the next 12 months.
Tender Option Bond Program Guarantee As discussed
in Note 7, 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, 2013, the
Company guaranteed $4.6 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 $4.6 billion of
available-for-sale investment securities serving as collateral
for this arrangement.
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, 2013,
the maximum potential future payments required to be made
by the Company under these agreements were $12 million
and the Company had recorded a related liability of
$12 million.
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, 2013, the maximum potential future payments
guaranteed or committed by the Company under these
arrangements were approximately $468 million.
Litigation and Regulatory Matters The Company is
subject to various litigation and regulatory matters that arise in
the ordinary course of its business. The Company establishes
reserves for such matters when potential losses become
probable and can be reasonably estimated. The Company
believes the ultimate resolution of existing legal and regulatory
matters will not have a material adverse effect on the financial
condition, results of operations or cash flows of the Company.
However, changes in circumstances or additional information
could result in additional accruals or resolution in excess of
established accruals, which could adversely affect the
Company’s results from operations, potentially materially.
Certain federal and state governmental authorities
reached settlement agreements in 2012 and 2013 with other
major financial institutions regarding their mortgage
origination, servicing, and foreclosure activities. Those
governmental authorities have had settlement discussions
with other financial institutions, including the Company. The
Company has not agreed to any settlement; 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 is currently subject to other investigations
and examinations by government agencies and bank
regulators concerning mortgage-related practices, including
those related to origination practices for Federal Housing
Administration insured residential home loans, compliance
with selling guidelines relating to residential home loans sold
N O T E 2 3 U.S. Bancorp (Parent Company)
Condensed Balance Sheet
At December 31 (Dollars in Millions)
to GSEs, and various practices related to lender-placed
insurance. The Company is cooperating fully with these
examinations and investigations, any of which could lead to
administrative or legal proceedings or settlements involving
remedies including fines, penalties, restitution or alterations
in the Company’s business practices and in additional costs
and expenses.
Due to their complex nature, it can be years before
litigation and regulatory matters are resolved. For those
litigation and regulatory matters where the Company has
information to develop an estimate or range of loss, the
Company believes the upper end of reasonably possible
losses in aggregate, in excess of any reserves established
for matters where a loss is considered probable, is
approximately $200 million. This estimate is subject to
significant judgment and uncertainties and the matters
underlying the estimate will change from time to time. Actual
results may vary significantly from the current estimates.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
2012
$ 8,371
463
37,558
1,546
2,250
1,534
1,628
$ 3,630
425
38,007
1,445
6,173
1,404
1,550
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$53,350
$52,634
Liabilities and Shareholders’ Equity
Short-term funds borrowed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
138
11,416
683
41,113
$
134
12,772
730
38,998
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$53,350
$52,634
Condensed Statement of Income
Year Ended December 31 (Dollars in Millions)
Income
Dividends from bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends from nonbank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expense
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes and equity in undistributed income of subsidiaries . . . . . . . . . . . . . . . .
Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income of parent company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in undistributed income (losses) of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
2012
2011
$6,100
9
118
66
6,293
325
81
406
5,887
(88)
5,975
(139)
$ 250
4
96
149
499
393
122
515
(16)
(85)
69
5,578
$1,500
7
101
134
1,742
425
79
504
1,238
(83)
1,321
3,551
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,836
$5,647
$4,872
U.S. BANCORP 139
Condensed Statement of Cash Flows
Year Ended December 31 (Dollars in Millions)
2013
2012
2011
Operating Activities
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities
$ 5,836
$ 5,647
$ 4,872
Equity in undistributed (income) losses of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
139
(40)
(5,578)
(35)
(3,551)
12
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,935
34
1,333
Investing Activities
Proceeds from sales and maturities of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity distributions from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (increase) decrease in short-term advances to subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term advances to subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing Activities
Net increase (decrease) in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments or redemption of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption of preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends paid on preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends paid on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
75
(118)
12
4,543
(750)
(9)
3,753
4
1,500
(2,850)
487
524
(500)
(2,282)
(254)
(1,576)
979
(35)
845
207
(500)
(22)
1,474
105
3,550
(5,412)
2,163
395
–
(1,856)
(204)
(1,347)
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,947)
(2,606)
297
(36)
77
(4,613)
–
(3)
(4,278)
(31)
2,426
(851)
676
180
–
(514)
(118)
(817)
951
Change in cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and due from banks at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,741
3,630
(1,098)
4,728
(1,994)
6,722
Cash and due from banks at end of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,371
$ 3,630
$ 4,728
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
bank are subject to regulatory review and statutory
limitations and, in some instances, regulatory approval. In
general, dividends by the Company’s bank subsidiary to the
parent company are limited by rules which compare
dividends to net income for regulatorily-defined periods.
Furthermore, dividends are restricted by regulatory minimum
capital constraints for all national banks.
N O T E 2 4 Subsequent Events
The Company has evaluated the impact of events that have
occurred subsequent to December 31, 2013 through the
date the consolidated financial statements were filed with the
United States Securities and Exchange Commission. Based
on this evaluation, the Company has determined none of
these events were required to be recognized or disclosed in
the consolidated financial statements and related notes.
140 U.S. BANCORP
U.S. Bancorp
Consolidated Balance Sheet – Five Year Summary (Unaudited)
At December 31 (Dollars in Millions)
2013
2012
2011
2010
2009
% Change
2013 v 2012
Assets
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . .
Held-to-maturity securities . . . . . . . . . . . . . . . . . . . .
Available-for-sale securities . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less allowance for loan losses . . . . . . . . . . . . . . .
$
8,477
38,920
40,935
3,268
235,235
(4,250)
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
230,985
41,436
$
8,252
34,389
40,139
7,976
223,329
(4,424)
218,905
44,194
$ 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
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$364,021
$353,855
$340,122
$307,786
$281,176
Liabilities and Shareholders’ Equity
Deposits
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 76,941
185,182
$ 74,172
175,011
$ 68,579
162,306
$ 45,314
158,938
$ 38,186
145,056
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total U.S. Bancorp shareholders’ equity . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . .
262,123
27,608
20,049
12,434
322,214
41,113
694
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41,807
249,183
26,302
25,516
12,587
313,588
38,998
1,269
40,267
230,885
30,468
31,953
11,845
305,151
33,978
993
34,971
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
Total liabilities and equity . . . . . . . . . . . . . . . . . .
$364,021
$353,855
$340,122
$307,786
$281,176
2.7%
13.2
2.0
(59.0)
5.3
3.9
5.5
(6.2)
2.9
3.7%
5.8
5.2
5.0
(21.4)
(1.2)
2.8
5.4
(45.3)
3.8
2.9
U.S. BANCORP 141
U.S. Bancorp
Consolidated Statement of Income – Five-Year Summary
(Unaudited)
Year Ended December 31 (Dollars in Millions)
2013
2012
2011
2010
2009
Interest Income
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,277
203
1,631
174
$10,558
282
1,792
251
$10,370
200
1,820
249
$10,145
246
1,601
166
$ 9,564
277
1,606
91
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,285
12,883
12,639
12,158
11,538
Interest Expense
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
561
353
767
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,681
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,604
1,340
Net interest income after provision for credit
691
442
1,005
2,138
10,745
1,882
840
531
1,145
2,516
10,123
2,343
928
548
1,103
2,579
9,579
4,356
1,202
539
1,279
3,020
8,518
5,557
losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,264
8,863
7,780
5,223
2,961
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
965
706
1,458
327
1,139
670
538
859
1,356
178
9
569
8,774
4,371
1,140
949
381
357
848
310
223
1,695
892
744
1,395
346
1,055
653
541
878
1,937
150
(15)
743
9,319
4,320
945
917
530
388
821
304
274
1,957
Total noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . .
10,274
10,456
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . .
Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling
7,764
2,032
5,732
7,726
2,236
5,490
1,073
734
1,355
452
1,000
659
551
841
986
129
(31)
1,011
8,760
4,041
845
999
383
369
758
303
299
1,914
9,911
6,629
1,841
4,788
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
1,055
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
% Change
2013 v 2012
(2.7)%
(28.0)
(9.0)
(30.7)
(4.6)
(18.8)
(20.1)
(23.7)
(21.4)
(1.3)
(28.8)
4.5
8.2
(5.1)
4.5
(5.5)
8.0
2.6
(.6)
(2.2)
(30.0)
18.7
*
(23.4)
(5.8)
1.2
20.6
3.5
(28.1)
(8.0)
3.3
2.0
(18.6)
(13.4)
(1.7)
.5
(9.1)
4.4
interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
104
157
84
52
(32)
(33.8)
Net income attributable to U.S. Bancorp . . . . . . . . . . . . .
$ 5,836
$ 5,647
$ 4,872
$ 3,317
$ 2,205
Net income applicable to U.S. Bancorp common
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,552
$ 5,383
$ 4,721
$ 3,332
$ 1,803
3.3
3.1
* Not meaningful
142 U.S. BANCORP
U.S. Bancorp
Quarterly Consolidated Financial Data (Unaudited)
(Dollars in Millions, Except Per Share Data)
Interest Income
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
2012
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$2,562
72
410
67
$2,552
54
392
40
$2,568
46
420
34
$2,595
31
409
33
$2,638
65
468
61
$2,631
67
470
60
$2,650
76
438
63
$2,639
74
416
67
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,111
3,038
3,068
3,068
3,232
3,228
3,227
3,196
Interest Expense
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
155
85
218
458
144
87
191
422
134
98
178
410
128
83
180
391
181
123
294
598
177
127
266
570
172
103
226
501
161
89
219
469
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,653
403
2,616
362
2,658
298
2,677
277
2,634
481
2,658
470
2,726
488
2,727
443
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities gains (losses), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,250
2,254
2,360
2,400
2,153
2,188
2,238
2,284
214
172
347
82
278
153
134
200
401
41
5
138
244
176
373
83
284
160
140
209
396
46
6
159
244
192
371
83
280
180
134
207
328
46
(3)
115
263
166
367
79
297
177
130
243
231
45
1
157
202
175
337
87
252
153
134
211
452
35
–
201
235
190
359
89
262
156
142
216
490
38
(19)
197
213
201
345
87
265
174
135
225
519
38
1
193
242
178
354
83
276
170
130
226
476
39
3
152
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,165
2,276
2,177
2,156
2,239
2,355
2,396
2,329
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,082
310
235
78
73
211
76
57
348
1,098
277
234
91
96
214
78
55
414
1,088
278
240
94
85
214
76
55
435
1,103
275
240
118
103
209
80
56
498
1,052
260
220
84
109
201
74
71
489
1,076
229
230
136
80
201
77
70
502
1,109
225
233
144
96
205
75
67
455
1,083
231
234
166
103
214
78
66
511
Total noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,470
2,557
2,565
2,682
2,560
2,601
2,609
2,686
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,945
558
1,973
529
1,972
542
1,874
403
1,832
527
1,942
564
2,025
593
1,927
552
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling
1,387
1,444
1,430
1,471
1,305
1,378
1,432
1,375
interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41
40
38
(15)
33
37
42
45
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . .
$1,428
$1,484
$1,468
$1,456
$1,338
$1,415
$1,474
$1,420
Net income applicable to U.S. Bancorp common
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,358
$1,405
$1,400
$1,389
$1,285
$1,345
$1,404
$1,349
Earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . .
$
$
.73
.73
$
$
.76
.76
$
$
.76
.76
$
$
.76
.76
$
$
.68
.67
$
$
.71
.71
$
$
.74
.74
$
$
.72
.72
U.S. BANCORP 143
U.S. Bancorp
Consolidated Daily Average Balance Sheet and Related
2013
2012
Average
Balances
Interest
Yields
and Rates
Average
Balances
Interest
Yields
and Rates
$ 75,046
5,723
$ 1,767
203
2.35%
3.56
$ 72,501
7,847
$ 1,939
282
2.67%
3.60
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 investment securities . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
67,274
38,237
47,982
16,813
47,125
217,431
10,043
227,474
6,896
315,139
(4,373)
633
41,281
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$352,680
Liabilities and Shareholders’ Equity
Noninterest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing deposits
Interest checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time certificates of deposit less than $100,000 . . . . . . . . . . .
Time deposits greater than $100,000 . . . . . . . . . . . . . . . . . . . . .
Total interest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest-bearing liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity
Preferred equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total U.S. Bancorp shareholders’ equity . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 69,020
48,792
55,512
31,916
12,804
32,413
181,437
27,683
21,280
230,400
11,973
4,804
35,113
39,917
1,370
41,287
2,168
1,589
1,959
1,691
2,318
9,725
643
10,368
175
12,513
36
76
49
186
214
561
357
767
1,685
3.22
4.16
4.08
10.06
4.92
4.47
6.41
4.56
2.53
3.97
.07
.14
.15
1.45
.66
.31
1.29
3.60
.73
2,168
1,638
1,827
1,693
2,488
9,814
826
10,640
251
13,112
46
62
66
248
269
691
447
1,005
2,143
60,830
36,505
40,290
16,653
47,938
202,216
13,158
215,374
10,548
306,270
(4,642)
1,077
40,144
$342,849
$ 67,241
45,433
46,874
29,596
14,509
32,057
168,469
28,549
28,448
225,466
11,406
4,381
33,230
37,611
1,125
38,736
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$352,680
$342,849
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,828
$10,969
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 . .
3.24%
3.17%
3.97%
.53
3.44%
3.37%
(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.
144
U.S. BANCORP
3.56
4.49
4.53
10.16
5.19
4.85
6.28
4.94
2.38
4.28
.10
.13
.22
1.71
.84
.41
1.57
3.53
.95
3.33%
3.26%
4.28%
.70
3.58%
3.51%
Yields and Rates (a) (Unaudited)
2011
2010
2009
Average
Balances
Interest
Yields
and Rates
Average
Balances
Interest
Yields
and Rates
Average
Balances
Interest
Yields
and Rates
2013 v 2012
% Change
Average
Balances
$ 63,645
4,873
$ 1,980
200
3.11%
4.10
$ 47,763
5,616
$ 1,763
246
3.69%
4.37
$ 42,809
5,820
$ 1,770
277
4.13%
4.76
3.5%
(27.1)
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
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
$318,264
$ 53,856
42,827
45,119
26,654
15,237
29,466
159,303
30,703
31,684
221,690
9,602
2,414
29,786
32,200
916
33,116
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
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
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
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
$318,264
$285,861
$268,360
$10,348
$ 9,788
$ 8,716
3.40%
3.32%
4.54%
.89
3.65%
3.57%
3.67%
3.59%
4.91%
1.03
3.88%
3.80%
10.6
4.7
19.1
1.0
(1.7)
7.5
(23.7)
5.6
(34.6)
2.9
5.8
(41.2)
2.8
2.9
2.6%
7.4
18.4
7.8
(11.8)
1.1
7.7
(3.0)
(25.2)
2.2
5.0
9.7
5.7
6.1
21.8
6.6
2.9
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
3.40%
3.32%
4.95%
1.28
3.67%
3.59%
U.S. BANCORP
145
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
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 . . . . . . . .
Other Statistics (Dollars and Shares in Millions)
Common shares outstanding (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average common shares outstanding and common stock equivalents
2013
3.02
3.00
.885
1.65%
15.8
11.3
29.3
$
2012
2.85
2.84
.780
$
2011
2.47
2.46
.500
$
2010
1.74
1.73
.200
$
2009
.97
.97
.200
1.65%
16.2
11.0
27.4
1.53%
15.8
10.1
20.2
1.16%
12.7
9.8
11.5
.82%
8.2
9.8
20.6
1,825
1,869
1,910
1,921
1,913
Earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of shareholders (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,839
1,849
46,632
$ 1,631
1,887
1,896
49,430
$ 1,474
1,914
1,923
52,677
961
$
1,912
1,921
55,371
385
$
1,851
1,859
58,610
375
$
(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
2013
Sales Price
High
Low
First quarter . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . .
$34.73
36.40
38.23
40.83
$32.40
31.99
35.83
35.69
2012
Sales Price
Closing
Price
$33.93
36.15
36.58
40.40
Dividends
Declared
$.195
.230
.230
.230
High
Low
$32.23
32.98
35.15
35.46
$27.21
28.58
31.76
30.96
Closing
Price
$31.68
32.16
34.30
31.94
Dividends
Declared
$.195
.195
.195
.195
The common stock of U.S. Bancorp is traded on the New York Stock Exchange, under the ticker symbol “USB.” At January 31,
2014, there were 46,459 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, 2013, 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, 2008, 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.
146
U.S. BANCORP
260
220
180
140
100
100
60
2008
Total Return
126
98
91
145
121
110
149
112
93
228
176
170
172
136
124
2009
2010
2011
2012
2013
USB
S&P 500
KBW Bank Index (BKX)
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. The Company provides a full
range of financial services, including lending and depository
services, cash management, capital markets, 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 subsidiary is engaged in the
general banking business, principally in domestic markets.
The subsidiary, with $271 billion in deposits at December 31,
2013, provides 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 operating in specific industries
targeted by the Company. 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 capital
markets, 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 fund processing
services to a broad range of mutual and other funds.
Banking and investment services are provided through
a network of 3,081 banking offices principally operating in
the Midwest and West regions of the United States. The
Company operates a network of 4,906 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. Lending products may be originated
through banking offices, indirect correspondents, brokers or
other lending sources. The Company is also one of the
largest providers of corporate and purchasing card services
and corporate trust services in the United States. A wholly-
owned subsidiary, Elavon, Inc. (“Elavon”), provides
merchant processing services directly to merchants and
through a network of banking affiliations. Wholly-owned
subsidiaries, and affiliates of Elavon, provide similar
merchant services in Canada, Mexico, Brazil and segments
of Europe directly or through joint ventures with other
financial institutions. The Company also provides corporate
trust and fund administration services in Europe. These
foreign operations are not significant to the Company.
On a full-time equivalent basis, as of December 31,
2013, U.S. Bancorp employed 65,565 people.
Risk Factors An investment in the Company involves risk,
including the possibility that the value of the investment could
fall substantially and that dividends or other distributions on
the investment could be reduced or eliminated. Below are risk
factors that could adversely affect the Company’s financial
results and condition and the value of, and return on, an
investment in the Company. There may be other factors not
discussed below or elsewhere that could adversely affect the
Company’s financial results and condition.
Industry Risk Factors
Difficult business and economic conditions may
continue to adversely affect the financial services
industry, and a reversal or slowing of the current
moderate economic recovery could adversely affect
the Company’s lending business and the value of
loans and debt securities it holds The Company’s
business activities and earnings are affected by general
business conditions in the United States and abroad,
including factors such as the level and volatility of short-term
and long-term interest rates, inflation, home prices,
unemployment and under-employment levels, bankruptcies,
household income, consumer spending, fluctuations in both
debt and equity capital markets, liquidity of the global
financial markets, the availability and cost of capital and
credit, investor sentiment and confidence in the financial
markets, and the strength of the domestic and global
economies in which the Company operates. The
deterioration of any of these conditions can adversely affect
the Company’s consumer and commercial businesses and
securities portfolios, its level of charge-offs and provision for
credit losses, its capital levels and liquidity, and its results of
operations.
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. A reversal or
slowing of the current economic recovery could adversely
impact loan utilization rates as well as delinquencies,
defaults and customer ability to meet obligations under the
loans.
U.S. BANCORP 147
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.
Downward valuation of debt securities could also negatively
impact the Company’s capital position.
Continued elevated unemployment, under-employment
and household debt, along with continued stress in the
consumer real estate market and certain commercial real
estate markets, pose challenges to domestic economic
performance and the financial services industry. The
sustained high unemployment rate and the lengthy duration
of unemployment have directly impaired consumer finances
and pose risks to the financial services industry. Continued
uncertainty in the housing market and elevated levels of
distressed and delinquent mortgages pose further risks to
the housing market. These factors 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. Additionally, the current
environment of heightened scrutiny of financial institutions,
as well as a continued concern regarding the possibility of a
return to recessionary conditions, has resulted in increased
public awareness of and sensitivity to banking fees and
practices.
Notwithstanding improved financial market conditions in
Europe, many of the structural issues remain and problems
could resurface which could have significant adverse effects
on the Company’s business, results of operations, financial
condition and liquidity. Further 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. 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. Such developments could
increase the Company’s charge-offs and provision for credit
losses. Any future economic deterioration that affects
household or corporate incomes and the continuing concern
regarding the possibility of a return to recessionary
conditions 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.
The Company is subject to extensive government
regulation and supervision, and the regulatory
environment for the financial services industry is
being significantly impacted by financial regulatory
reform initiatives in the United States, including the
Dodd-Frank Wall Street Reform and Consumer
Protection Act Federal and state regulation and supervision
has increased in recent years due to the implementation of the
Dodd-Frank Wall Street Reform and Consumer Protection Act
(the “Dodd-Frank Act”) and other financial reform initiatives.
The Company will continue to face such increased regulation
into 2014 and in future years, as a result of current and future
initiatives intended to provide economic stimulus, financial
market stability, and enhancement of the liquidity and
solvency of financial institutions. Banking regulations are
primarily intended to protect depositors’ funds, federal deposit
insurance funds, and the banking system as a whole, not the
Company’s debt holders or shareholders. These regulations
affect the Company’s lending practices, capital structure,
investment practices, dividend policy, ability to repurchase
common stock, and growth, among other things.
Changes to statutes, regulations or regulatory policies,
or their interpretation or implementation, and/or the
continued heightening of regulatory practices, requirements
or expectations, could affect the Company in substantial and
unpredictable ways. Although many parts of the Dodd-Frank
Act are now in effect, other parts are still in the
implementation stage, which is likely to continue for several
years, including new capital rules effective January 1, 2014,
which phase in through 2018. Accordingly, some uncertainty
remains as to the aggregate impact upon the Company of
the Dodd-Frank Act as fully implemented.
The Company expects more intense scrutiny from bank
supervisors in the examination process and more aggressive
enforcement of regulations on both the federal and state
levels, particularly due to the Company’s status as a covered
institution for the enhanced prudential standards
promulgated under the Dodd-Frank Act. Federal banking law
grants substantial enforcement powers to federal banking
regulators. This enforcement authority includes, among other
things, the ability to assess civil money penalties, to issue
cease and desist or removal orders and to initiate injunctive
actions against banking organizations and institution-
affiliated parties. These enforcement actions may be initiated
for violations of laws and regulations and unsafe or unsound
practices. If the Company were the subject of an
enforcement action, it could have an adverse impact on the
Company.
148
U.S. BANCORP
Compliance with new regulations and supervisory
initiatives will continue to increase the Company’s costs. In
addition, regulatory changes may reduce the Company’s
revenues, limit the types of financial services and products it
may offer, alter the investments it makes, affect the manner
in which it operates its businesses, increase its litigation and
regulatory costs should it fail to appropriately comply with
new laws and regulatory requirements, and increase the
ability of non-banks to offer competing financial services and
products. See “Supervision and Regulation” in the
Company’s Annual Report on Form 10-K for additional
information regarding the extensive regulatory framework
applicable to the Company.
The Company is subject to liquidity risk The
Company’s liquidity is essential for the operation of its
business. Market conditions, unforeseen outflows of cash or
other events could negatively affect the Company’s level or
cost of funding. Although the Company has implemented
strategies to maintain sufficient and diverse sources of
funding to accommodate planned, as well as unanticipated,
changes in assets and liabilities under both normal and
adverse conditions, any substantial, unexpected or
prolonged changes in the level or cost of liquidity could
adversely affect the Company’s business.
More stringent requirements related to on-balance
sheet liquidity have been proposed by U.S. banking
regulators that may require the Company to
purchase additional investment securities and
change its funding mix U.S. banking regulators have
proposed new liquidity-related standards applicable to
larger banking organizations including the Company. The
proposed new rules would require banks to hold sufficient
unencumbered liquid assets to meet certain regulatorily-
defined stress scenarios. The implementation of these
proposed rules could require the Company to increase its
investment security holdings or otherwise change aspects of
its liquidity measures, including in ways that may adversely
affect its results of operations or financial condition. See
“Supervision and Regulation” in the Company’s Annual
Report on Form 10-K for additional information regarding the
capital requirements under the Dodd-Frank Act and Basel III.
The Company’s credit ratings affect its liquidity The
Company’s credit ratings are important to its liquidity. A
reduction in one or more of the Company’s credit ratings
could adversely affect its liquidity and competitive position,
increase its funding costs or limit its access to the capital
markets. The Company’s credit ratings and credit rating
agencies’ outlooks are subject to ongoing review by the
rating agencies which consider a number of factors,
including the Company’s own financial strength,
performance, prospects and operations, as well as factors
not within the control of the Company, including conditions
affecting the financial services industry generally. There can
be no assurance that the Company will maintain its current
ratings and outlooks.
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. 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 services industry,
including brokers and dealers, commercial banks,
investment banks, mutual and hedge funds, and other
institutional clients. As a result, defaults by, or even rumors
or questions about, one or more financial services
institutions, or the financial services industry generally, could
lead to losses or defaults by the Company or by other
institutions and impact the Company’s predominately United
States-based businesses or the less significant merchant
processing, corporate trust and fund administration services
businesses it operates in foreign countries. Many of these
transactions expose the Company to credit risk in the event
of a default by a 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 adversely
affect the Company’s results of operations.
U.S. BANCORP
149
The financial services industry is highly competitive,
Improvements in economic indicators
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 that
traditionally were banking products, and for financial
institutions to compete with technology companies in
providing electronic and internet-based financial solutions.
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’s ability to compete successfully depends on a
number of factors, including, among others, its ability to
develop and execute strategic plans and initiatives;
developing, maintaining and building long-term customer
relationships based on quality service, competitive prices,
high ethical standards and safe, sound assets; and industry
and general economic trends.
The Company continually encounters challenges
brought by 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
continued success depends, in part, upon its ability to
address customer needs by using technology to provide
products and services that customers demand, and 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.
150
U.S. BANCORP
disproportionately affecting the financial services
industry may lag improvements in the general
economy Should the stabilization of the United States
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 interest rates could reduce the
Company’s net interest income The Company’s
earnings 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. 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 United
States 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.
Further downgrades in the U.S. government’s
sovereign credit rating could result in risks to the
Company and general economic conditions that the
Company is not able to predict In 2011, certain ratings
agencies downgraded their sovereign credit rating, or
negatively revised their outlook, of the U.S. government, and
have indicated that they will continue to assess fiscal
projections, as well as the medium-term economic outlook
for the United States. Because of these developments, there
continues to be the perceived risk of a sovereign credit
ratings downgrade of the U.S. government, including the
ratings of U.S. Treasury securities. If such a downgrade were
to occur, the ratings and perceived creditworthiness of
instruments issued, insured or guaranteed by institutions,
agencies or instrumentalities directly linked to the U.S.
government could also be correspondingly affected. A
downgrade might adversely affect the market value of such
instruments. Instruments of this nature are often held by
financial institutions, including the Company, for investment,
liquidity planning and collateral purposes. A downgrade of
the sovereign credit ratings of the U.S. government and
perceived creditworthiness of U.S. government-related
obligations could impact the Company’s liquidity.
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. As one of the
largest lenders in the United States, the credit performance
of the Company’s loan portfolios significantly affects its
financial results and condition. If the current economic
environment were to deteriorate, more of its customers may
have difficulty in repaying their loans or other obligations
which could result in a higher level of credit losses and
provision for credit losses. 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. These economic predictions
and their impact may no longer be capable of accurate
estimation which may, in turn, impact the reliability of the
process. As with any such assessments, the Company may
fail to identify the proper factors or to accurately estimate the
impacts of the factors that the Company does identify. 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 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, 2013, 23 percent
of the Company’s commercial real estate loans and 17
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 primary banking subsidiary,
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. In addition to the interagency
examination by U.S. federal banking regulators, the
Company has received inquiries from other governmental
and regulatory authorities regarding mortgage-related
practices, and has cooperated, and continues to cooperate,
with these inquiries. These inquiries may lead to other
administrative, civil or criminal proceedings, possibly
U.S. BANCORP
151
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 as
appropriate, but the ultimate resolution could exceed those
reserves.
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. It is
possible that, because of economic conditions and/or a weak
or deteriorating housing market, even if interest rates were to
fall or remain low, mortgage originations may also fall or any
increase in mortgage originations may not be enough to offset
the decrease in the MSRs value caused by the lower rates.
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
152
U.S. BANCORP
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
and mobile devices, such as mobile phones and tablet
computers, 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
developing or introducing new products and services,
adapting to changing customer preferences and spending
and saving habits, achieving market acceptance of its
products and services, or sufficiently developing and
maintaining loyal customers.
The Company relies on its employees, systems and
certain counterparties, and certain failures could
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 or third party
actions, the Company could suffer financial loss, face
regulatory action and suffer damage to its reputation.
Operational risks for large institutions such as the
Company have generally increased in recent years in part
because of the proliferation of new technologies, the use of
internet services and telecommunications technologies to
conduct financial transactions, and the increased
sophistication and activities of organized crime, hackers,
terrorists, activists, and other external parties. 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, situations
in which the information is 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.
A breach in the security of the Company’s systems
could disrupt its businesses, result in the disclosure
of confidential information, damage its reputation
and create significant financial and legal exposure
Although the Company devotes significant resources to
maintain and regularly upgrade its systems and processes
that are designed to protect the security of the Company’s
computer systems, software, networks and other technology
assets and the confidentiality, integrity and availability of
information belonging to the Company and its customers, the
Company’s security measures do not provide absolute
security. In fact, many other financial services institutions
and companies engaged in data processing have reported
breaches in the security of their websites or other systems,
some of which have involved sophisticated and targeted
attacks intended to obtain unauthorized access to
confidential information, destroy data, disable or degrade
service, or sabotage systems, often through the introduction
of computer viruses or malware, cyberattacks and other
means. The Company and certain other large financial
institutions in the United States have experienced several
well-publicized series of apparently related attacks from
technically sophisticated and well-resourced third parties
that were intended to disrupt normal business activities by
making internet banking systems inaccessible to customers
for extended periods. These “denial-of-service” attacks have
not breached the Company’s data security systems, but
require substantial resources to defend, and may affect
customer satisfaction and behavior. Furthermore, even if not
directed at the Company, attacks on other entities with whom
it does business or on whom it otherwise relies, or attacks on
financial or other institutions important to the overall
functioning of the financial system could adversely affect,
directly or indirectly, aspects of the Company’s business.
Despite the Company’s efforts to ensure the integrity of
its systems, it is possible that the Company may not be able
to anticipate or to implement effective preventive measures
against all security breaches of these types, especially
because the techniques used change frequently, generally
increase in sophistication, often are not recognized until
launched, and because security attacks can originate from a
wide variety of sources, including persons who are involved
with organized crime or associated with external service
providers or who may be linked to terrorist organizations or
hostile foreign governments. Those parties may also attempt
to fraudulently induce employees, customers or other users
of the Company’s systems to disclose sensitive information in
order to gain access to the Company’s data or that of its
customers or clients. These risks may increase in the future
as the Company continues to increase its mobile payments
and other internet-based product offerings and expands its
internal usage of web-based products and applications.
If the Company’s security systems were penetrated or
circumvented, it could cause serious negative consequences
for the Company, including significant disruption of the
Company’s operations, misappropriation of confidential
information of the Company or that of its customers, or
damage to computers or systems of the Company or those of
its customers and counterparties, and could result in
violations of applicable privacy and other laws, financial loss
to the Company or to its customers, loss of confidence in the
Company’s security measures, customer dissatisfaction,
significant litigation exposure, and harm to the Company’s
reputation, all of which could adversely affect the Company.
The Company’s framework for managing risks may
not be effective in mitigating risk and loss to the
Company The Company’s risk management framework
seeks to mitigate risk and loss to it. The Company has
established processes and procedures intended to identify,
measure, monitor, report, and analyze the types of risk to
which it is subject, including liquidity risk, credit risk, market
risk, interest rate risk, operational risk, legal and compliance
risk, and reputational risk, among others. However, as with
any risk management framework, there are inherent
limitations to the Company’s risk management strategies as
there may exist, or develop in the future, risks that it has not
appropriately anticipated or identified. The recent financial
and credit crises and resulting regulatory reform highlighted
both the importance and some of the limitations of managing
unanticipated risks, and the Company’s regulators remain
focused on ensuring that financial institutions build and
maintain robust risk management policies. If the Company’s
risk management framework proves ineffective, the
Company could suffer unexpected losses which could affect
its results of operations or financial condition.
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
U.S. BANCORP
153
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.
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 investments in certain tax-
advantaged projects may not generate returns as
anticipated and have an adverse impact on the
Company’s financial results The Company invests in
certain tax-advantaged projects promoting the development
of affordable housing, community development and
renewable energy resources. The Company’s investments in
these projects are designed to generate a return primarily
through the realization of federal and state income tax
credits, and other tax benefits, over specified time periods.
The Company is subject to the risk that previously recorded
tax credits, which remain subject to recapture by taxing
authorities based on compliance features required to be met
at the project level, will fail to meet certain government
compliance requirements and will not be able to be realized.
The possible inability to realize these tax credit and other tax
benefits can have a negative impact on the Company’s
financial results. The risk of not being able to realize the tax
credits and other tax benefits depends on many factors
outside of the Company’s control, including changes in the
applicable tax code and the ability of the projects to be
completed.
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
public opinion, 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 public opinion 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 public opinion about other
businesses the Company operates. Although the Company
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U.S. BANCORP
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 asset
balances; or significantly increase its accrued taxes liability.
For more information, refer to “Critical Accounting Policies” in
this Annual Report.
Changes in accounting standards could materially
impact the Company’s financial statements From time
to time, the Financial Accounting Standards Board and the
United States Securities and Exchange Commission change
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. The Company could be
required to apply a new or revised standard retroactively or
apply an existing standard differently, also retroactively, in
each case potentially resulting in the Company 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
customer loss, 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’s ability to pursue or complete an
attractive acquisition could be negatively impacted by
regulatory delay or other regulatory issues. 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.
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 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 third party vendors could also entail significant
delay and expense. In addition, failure of third party vendors to
handle current or higher volumes of use could adversely affect
the Company’s ability to deliver products and services to
clients and otherwise to conduct business. Technological or
financial difficulties of a third party service provider could
adversely affect the Company’s business to the extent those
difficulties result in the interruption or discontinuation of
services provided by that party.
The Company is subject to significant financial and
reputational risks from potential legal liability and
regulatory action The Company faces significant legal
risks in its business, and the volume of claims and amount of
damages and penalties claimed in litigation and regulatory
proceedings against it and other financial institutions remain
high. Increased litigation costs, substantial legal liability or
significant regulatory action against the Company could
negatively impact its financial condition and results of
operations or cause significant reputational harm to the
Company, which in turn could adversely impact its business
prospects. In addition, the Company continues to face
increased litigation risk and regulatory scrutiny. Customers
and clients have grown more litigious. The Company’s
experience with certain regulatory authorities suggests a
migration towards an increasing supervisory focus on
enforcement, including in connection with alleged violations
of law and customer harm.
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
U.S. BANCORP
155
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 relies on dividends from its
subsidiaries for its liquidity needs The Company is a
separate and distinct legal entity from its bank and non-bank
subsidiaries. The Company receives a significant portion of
its cash from dividends paid by its subsidiaries. These
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U.S. BANCORP
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 and certain of its non-bank
subsidiaries may pay to the Company without regulatory
approval. Also, the Company’s right to participate in a
distribution of assets upon a subsidiary’s liquidation or
reorganization is subject to prior claims of the subsidiary’s
creditors, except to the extent that any of the Company’s
claims as a creditor of that subsidiary may be recognized.
The Company has non-banking businesses that are
subject to various risks and uncertainties The
Company is a diversified financial services company, and
the Company’s business model is based on a mix of
businesses that provide a broad range of products and
services delivered through multiple distribution channels. In
addition to banking, the Company provides payment
services, investments, mortgages and corporate and
personal trust services. Although the Company believes its
diversity helps lessen the effect of downturns in any one
segment of its industry, it also means the Company’s
earnings could be subject to various specific risks and
uncertainties related to these non-banking businesses.
The Company’s stock price can be volatile The
Company’s stock price can fluctuate widely in response to a
variety of factors, including:
• actual or anticipated variations in the Company’s quarterly
operating results;
• recommendations by securities analysts;
• significant acquisitions or business combinations;
• strategic partnerships, joint ventures or capital
commitments by, or involving, the Company or the
Company’s competitors;
• operating and stock price performance of other
companies that investors deem comparable to the
Company;
• new technology used or services offered by the
Company’s competitors;
• news reports relating to trends, concerns and other issues
in the financial services industry; and
• changes in government regulations.
General market fluctuations, industry factors and general
economic and political conditions and events, as well as
interest rate changes, currency fluctuations, or unforeseen
events such as terrorist attacks could cause the Company’s
stock price to decrease regardless of the Company’s
operating results.
Executive Officers
Richard K. Davis
Mr. Davis is Chairman, President and Chief Executive Officer
of U.S. Bancorp. Mr. Davis, 55, 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, as Executive Vice
President in 1993.
Jennie P. Carlson
Ms. Carlson is Executive Vice President, Human Resources,
of U.S. Bancorp. Ms. Carlson, 53, 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, 53, 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.
James L. Chosy
Mr. Chosy is Executive Vice President, General Counsel and
Corporate Secretary of U.S. Bancorp. Mr. Chosy, 50, has
served in this position since March 2013. From 2001 to 2013,
he served as the General Counsel and Secretary of Piper
Jaffray Companies. From 1995 to 2001, Mr. Chosy was Vice
President and Associate General Counsel of U.S. Bancorp,
having also served as Assistant Secretary of U.S. Bancorp
from 1995 through 2000 and as Secretary from 2000 until
2001.
Terrance R. Dolan
Mr. Dolan is Vice Chairman, Wealth Management and
Securities Services, of U.S. Bancorp. Mr. Dolan, 52, 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.
John R. Elmore
Mr. Elmore is Vice Chairman, Community Banking and
Branch Delivery, of U.S. Bancorp. Mr. Elmore, 57, has
served in this position since March 2013. From 1999 to 2013,
he served as Executive Vice President, Community Banking,
of U.S. Bancorp and its predecessor company, Firstar
Corporation.
Joseph C. Hoesley
Mr. Hoesley is Vice Chairman, Commercial Real Estate, of
U.S. Bancorp. Mr. Hoesley, 59, 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.
Pamela A. Joseph
Ms. Joseph is Vice Chairman, Payment Services, of
U.S. Bancorp. Ms. Joseph, 54, 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.
Michael S. LaFontaine
Mr. LaFontaine is Executive Vice President and Chief
Operational Risk Officer of U.S. Bancorp. Mr. LaFontaine, 35,
has served in this position since October 2012. From 2007 to
2012, he served as Senior Vice President with responsibility
for U.S. Bancorp’s corporate compliance, anti-money
laundering, and fair lending divisions, and also served as
Chief Compliance Officer since 2005.
Howell D. McCullough III
Mr. McCullough is Executive Vice President and Chief
Strategy Officer of U.S. Bancorp and Head of U.S. Bancorp’s
Enterprise Revenue Office. Mr. McCullough, 57, 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.
U.S. BANCORP
157
P.W. Parker
Mr. Parker is Vice Chairman and Chief Risk Officer of
U.S. Bancorp. Mr. Parker, 57, has served in this position
since December 2013. From October 2007 until December
2013 he served as Executive Vice President and Chief Credit
Officer of U.S. Bancorp. From March 2005 until October
2007, he served as Executive Vice President of Credit
Portfolio Management of U.S. Bancorp, having served as
Senior Vice President of Credit Portfolio Management of
U.S. Bancorp since January 2002.
Richard B. Payne, Jr.
Mr. Payne is Vice Chairman, Wholesale Banking, of
U.S. Bancorp. Mr. Payne, 66, 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.
Mark G. Runkel
Mr. Runkel is Executive Vice President and Chief Credit
Officer of U.S. Bancorp. Mr. Runkel, 37, has served in this
position since December 2013. From February 2011 until
December 2013, he served as Senior Vice President and
Credit Risk Group Manager of U.S. Bancorp Retail and
Payment Services Credit Risk Management, having served
as Senior Vice President and Risk Manager of U.S. Bancorp
Retail and Small Business Credit Risk Management from
June 2009 until February 2011. From March 2005 until May
2009, he served as Vice President and Risk Manager of
U.S. Bancorp.
Kent V. Stone
Mr. Stone is Vice Chairman, Consumer Banking Sales and
Support, of U.S. Bancorp. Mr. Stone, 56, has served in this
position since March 2013. He served as an
Executive Vice President of U.S. Bancorp from 2000 to 2013,
most recently with responsibility for Consumer Banking
Support Services since 2006, and held other senior
leadership positions with U.S. Bancorp since 1991.
Jeffry H. von Gillern
Mr. von Gillern is Vice Chairman, Technology and
Operations Services, of U.S. Bancorp. Mr. von Gillern, 48,
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.
158 U.S. BANCORP
Directors
Richard K. Davis1,6
Chairman, President and Chief Executive Officer
U.S. Bancorp
Minneapolis, Minnesota
Douglas M. Baker, Jr.5,6
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
Doreen Woo Ho3,6
Commissioner
San Francisco Port Commission
(Government)
San Francisco, California
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
Joel W. Johnson3,6
Retired Chairman and Chief Executive Officer
Hormel Foods Corporation
(Consumer food products)
Scottsdale, Arizona
Olivia F. Kirtley1,2,3
Business Consultant
(Consulting)
Louisville, Kentucky
Jerry W. Levin1,2,5
Chairman and Chief Executive Officer
Wilton Brands Inc.
(Consumer products) and
Chairman and Chief Executive Officer
JW Levin Partners LLC
(Private investment and advisory)
New York, New York
David B. O’Maley1,2,5
Retired Chairman, President and Chief Executive Officer
Ohio National Financial Services, Inc.
(Insurance)
Cincinnati, Ohio
O’dell M. Owens, M.D., M.P.H.1,3,4
President
Cincinnati State Technical and Community College
(Higher education)
Cincinnati, Ohio
Craig D. Schnuck4,6
Former Chairman and Chief Executive Officer
Schnuck Markets, Inc.
(Food retail)
St. Louis, Missouri
Patrick T. Stokes1,5,6
Former Chairman and Former Chief Executive Officer
Anheuser-Busch Companies, Inc.
(Consumer products)
St. Louis, Missouri
U.S. BANCORP 159
U.S. Bancorp
800 Nicollet Mall
Minneapolis, MN 55402
usbank.com