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Commerce Communities Value Leadership Opportunities Connections Ethics Goals Growth Hope Ideas Innovation Integrity
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Innovation Integrity Knowledge Progress Security Life Expansion Legacies Commerce Communities Value Leadership Opportunities
Connections Ethics Goals Growth Hope Ideas Innovation Integrity Knowledge Progress Security Life Expansion Legacies
Commerce Communities Value Leadership Opportunities Connections Ethics Goals Growth Hope
Innovation Integrity Progress Life Expansion Legacies Value Leadership Opportunities
USBANK.COM
FPO
U.S. Bancorp
800 Nicollet Mall
Minneapolis, MN 55402
2015 Annual Report
Connections Ethics Goals Growth Hope Ideas Innovation Integrity Knowledge Progress Security
The Power of
Possible
Make Possible Happen
At U.S. Bancorp, we are in the
business of making possible
happen. It’s what motivates
our retail, small business,
wholesale and institutional
customers and our communities.
It’s what drives success for
our company, employees and
shareholders. There’s great
power in possible, and we live it
every day, in everything we do.
Because when we invest in the
power of possible, we all win.
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 shareholder 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)
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 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
Center 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.
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Financial Information
Diversity and Inclusion
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 and
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
Dana E. Ripley
Senior Vice President
Corporate Communications
dana.ripley@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.
At U.S. Bancorp, embracing diversity
and fostering inclusion are business
imperatives. We view everything we do
through a diversity and inclusion lens
to deepen our relationships with our
stakeholders: our employees, customers,
shareholders and communities.
Our 67,000 employees bring their
whole selves to work. We respect and
value each other’s differences, strengths
and perspectives, and we strive to
reflect the communities we serve. This
makes us stronger, more innovative
and more responsive to our diverse
customers’ needs.
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.
Code of Ethics
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.
At U.S. Bancorp, our commitment to
high ethical standards guides everything
we do. Demonstrating this commitment
through our words and actions is how
each of us does the right thing every
day for our customers, shareholders,
communities and each other. Our style of
ethical leadership is why we were named
a World’s Most Ethical Company in 2015
by the Ethisphere Institute.
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 then
Investor Relations.
U.S. Bank, Member FDIC
AT-A-GLANCE
U.S. Bancorp uses its strength
and scope to help customers
achieve financial security.
U.S. Bancorp is a diversified
financial services holding
company and the parent
company of U.S. Bank National
Association, the nation’s fifth-
largest commercial bank.
FOUR MAJOR LINES
OF BUSINESS
– Consumer +
Small Business Banking
– Wholesale Banking +
Commercial Real Estate
– Wealth Management +
Securities Services
– Payment Services
BUSINESS SCOPE
Regional
– Consumer +
Small Business Banking
– Wealth Management
National
– Wholesale Banking +
Commercial Real Estate
– Wealth Management +
Securities Services
International
– Payment Services
– Global Corporate Trust
$422b
in total assets at
Dec 31, 2015
67,000
employees
18.6m
customers
Founded in
1863
— 1 —
FINANCIAL HIGHLIGHTS
Net Income Attributable
to U.S. Bancorp
Diluted Earnings
per Common Share
Dividends Declared
per Common Share
15
14
13
12
11
$5,879
$5,851
$5,836
$5,647
$4,872
15
14
13
12
11
$3.16
$3.08
$3.00
$2.84
$2.46
15
14
13
12
11
$1.010
$.965
$.885
$.780
$.500
Return on
Average Assets
Return on Average
Common Equity
Dividend Payout Ratio
15
14
13
12
11
1.44%
1.54%
1.65%
1.65%
1.53%
15
14
13
12
11
14.0%
14.7%
15.8%
16.2%
15.8%
15
14
13
12
11
31.8%
31.1%
29.3%
27.4%
20.2%
Net Interest Margin (TEB*)
Efficiency Ratio(a)
Common Equity
Tier 1 Capital(b)
15
14
13
12
11
3.05%
3.23%
3.44%
3.58%
3.65%
15
14
13
12
11
53.8%
53.2%
52.4%
51.5%
51.8%
15
14
13
12
11
9.6%
9.7%
9.4%(c)
9.0%(c)
8.6%(c)
Average Assets
Average U.S. Bancorp
Shareholders’ Equity
Total Risk-Based Capital(b)
15
14
13
12
11
$408,865
$380,004
$352,680
$342,849
$318,264
15
14
13
12
11
$44,813
$42,837
$39,917
$37,611
$32,200
15
14
13
12
11
13.3%
13.6%
13.2%
13.1%
13.3%
* Taxable-equivalent basis.
(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) December 31, 2015 and 2014, calculated under the Basel III transitional standardized approach; all other periods calculated under Basel I.
(c) See Non-GAAP Financial Measures beginning on page 73.
— 2 —
U.S. BANCORP 2015 ANNUAL REPORT FINANCIAL SUMMARY
Years ended December 31
(Dollars and Shares in Millions, Except Per Share Data)
2015
2014
2013
2015
v 2014
2014
v 2013
.7%
2.0
(7.9)
–
.4
5.3
.5
.4
2.6%
2.6
4.7
7.4
(5.1)
(2.2)
(2.3)
2.9%
4.3
(8.3)
2.3
3.1
*
.3
.6
2.6%
2.7
9.0
8.8
11.3
(2.0)
(1.9)
3.6%
6.3%
14.2
7.8
7.6
7.7
4.6
5.2%
(1.6)
4.5
4.8
6.2
6.1
20.4
8.2
7.7
6.5
7.3
5.4%
(3.6)
26.5
10.6
7.9
5.8
Total net revenue (taxable-equivalent basis) .........................................
Noninterest expense ............................................................................
Provision for credit losses ....................................................................
Income taxes and taxable-equivalent adjustment ..................................
$20,306
10,931
1,132
2,310
Net income .......................................................................................
Net (income) loss attributable to noncontrolling interests ....................
5,933
(54)
$20,161
10,715
1,229
2,309
5,908
(57)
$19,602
10,274
1,340
2,256
5,732
104
Net income attributable to U.S. Bancorp ...........................................
$5,879
$5,851
$5,836
Net income applicable to U.S. Bancorp common shareholders .........
$5,608
$5,583
$5,552
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) .......................................
Efficiency ratio(a) ....................................................................................
$3.18
3.16
1.010
23.28
42.67
1,764
1,772
$3.10
3.08
.965
21.68
44.95
1,803
1,813
$3.02
3.00
.885
19.92
40.40
1,839
1,849
1.44%
14.0
3.05
53.8
1.54%
14.7
3.23
53.2
1.65%
15.8
3.44
52.4
Average Balances
Loans ................................................................................................ $250,459
103,161
Investment securities ............................................................................
367,445
Earning assets ......................................................................................
408,865
Assets ................................................................................................
287,151
Deposits ...............................................................................................
44,813
Total U.S. Bancorp shareholders’ equity ...............................................
Period End Balances
Loans ................................................................................................ $260,849
4,306
Allowance for credit losses ...................................................................
105,587
Investment securities ............................................................................
421,853
Assets ................................................................................................
300,400
Deposits ...............................................................................................
46,131
Total U.S. Bancorp shareholders’ equity ...............................................
$241,692
90,327
340,994
380,004
266,640
42,837
$247,851
4,375
101,043
402,529
282,733
43,479
$227,474
75,046
315,139
352,680
250,457
39,917
$235,235
4,537
79,855
364,021
262,123
41,113
Capital Ratios
Common equity tier 1 capital(b) ..............................................................
Tier 1 capital(b).......................................................................................
Total risk-based capital(b) .......................................................................
Leverage(b) ............................................................................................
Common equity tier 1 capital to risk-weighted assets for the Basel III
transitional advanced approaches ....................................................
Common equity tier 1 capital to risk-weighted assets estimated for
the Basel III fully implemented standardized approach(c) ....................
Common equity tier 1 capital to risk-weighted assets estimated for
the Basel III fully implemented advanced approaches(c) .....................
Tangible common equity to tangible assets(c) .........................................
Tangible common equity to risk-weighted assets(c) ................................
* Not meaningful.
9.6%
9.7%
9.4%(c)
11.3
13.3
9.5
11.3
13.6
9.3
11.2
13.2
9.6
12.5
12.4
9.1
9.0
8.8
11.9
7.6
9.2
11.8
7.5
9.3
7.7
9.1
(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) December 31, 2015 and 2014, calculated under the Basel III transitional standardized approach; December 31, 2013, calculated under Basel I.
(c) See Non-GAAP Financial Measures beginning on page 73.
— 2 —
— 3 —
Fellow Shareholders:
U.S. Bancorp is in the business of “making
possible happen.”
Every single day. 67,000 committed bankers.
We make possible happen for our shareholders,
our customers, our communities and each
other. It is what our brilliant red shield
represents: the Power of Possible.
We make possible happen for our
shareholders by delivering consistent,
predictable, repeatable, industry-leading
financial results year after year after year. And, by returning capital and
running a trustworthy and reputable banking business, our shareholders
know that we will do it well and we will do it right.
That’s why we were named one of the World’s Most Ethical Companies™
in 2015 by the Ethisphere Institute — the largest U.S.-based bank ever to
make the list. And, we proudly returned to Ethisphere’s list in 2016.
We make possible happen for our customers by helping them
navigate deeply personal financial milestones — from first paycheck
to first day of retirement; by helping small businesses convert back-
of-the-envelope drawings into hung shingles and open doors; by
helping merchants direct commerce efficiently, effectively, conveniently
and securely; by being there for families when they walk into their
neighborhood branch or connect with us through their mobile devices;
and by helping large commercial enterprises manage their daily activities
and expand when new opportunities present themselves.
That’s why, in 2016, we were named the “most admired superregional
bank” in the country by Fortune magazine for the sixth year in a row.
We make possible happen for our communities by investing our time,
resources and passion to build and support vibrant communities. Our new
corporate responsibility framework is called Community Possible, and it
focuses our community investments in Work, Home and Play. The building
blocks that made our country great — a stable job, a home to call your own
— 4 —
Richard K. Davis
Chairman and
Chief Executive Officer
U.S. Bancorp
U.S. BANCORP 2015 ANNUAL REPORT The Power of Possible:
Make Value Happen
I am extremely proud of the remarkable
financial performance that U.S.
Bancorp delivered in 2015 and the
value we created for our shareholders.
Remarkable, because it was a year
underscored by persistent and
historically low interest rates, modest
economic growth, increasing
regulatory requirements and rapidly
evolving customer needs and
expectations. More than any year in
recent history, 2015 required strong
management focus and conviction as
we balanced decisions about operating
efficiencies with opportunities for
investing in future growth.
U.S. Bancorp rose to that challenge,
delivering record net income and record
diluted EPS for the year and returning
72 percent of our 2015 earnings to
shareholders through dividends and
share buybacks. In addition, our return
on average assets (ROA), return on
average equity (ROE) and efficiency
ratio continued to lead the industry.
As we managed the twists and
turns of a challenging 2015, we also
positioned ourselves for growth as
we head into 2016 — as was indicated
by our record fourth quarter revenue
driven by continued momentum in
payment-related fees, increasing loan
growth and stable net interest margin.
We also made solid progress toward
achieving positive operating leverage
as we finished 2015, due to our
continued focus on prudent expense
management.
The Power of Possible:
Make Growth Happen
With a solid foundation established,
we are well positioned for growth in the
years ahead. Our business footprint
is attractive, with leadership in the
most growth-oriented marketplaces
that we have chosen to compete in,
including Payments, Treasury Services,
Wholesale Banking, Consumer and
Small Business Banking and Wealth
Management. And, our capital position
is strong — having exceptional capital
ratios and among the world’s best debt
ratings in the banking industry.
and a community connected through
culture, recreation and play — continue to
be at the heart of possibility for all of us.
In addition to more than 255,000
volunteer hours and more than
$25.4 million in foundation grants, our
Community Development Corporation
(CDC) invested $4.4 billion in the
revitalization of communities and
economic centers across the country.
That’s why we are recognized every
year by organizations like Junior
Achievement, Americans for the Arts,
United Way and local Chambers of
Commerce as well as civic partners for
making our communities better.
We make possible happen for our
employees by investing in our collective
vision and skills to create value for
shareholders and customers while
building productive and successful
careers. We are one U.S. Bank. We
make sound financial decisions for the
enterprise that protect our employees
when the external environment
becomes unsteady, like it was in 2015,
such as delaying spending and hiring
instead of reducing our workforce.
Likewise, we make sound financial
decisions for the enterprise that
allow us to support and cultivate our
employees’ futures. We recently made
every employee a shareholder of U.S.
Bancorp by awarding an appreciation
stock grant — because we believe in
the power of ownership and we want
our employees to know their role
as visionaries for our future, with a
personal stake in our success.
That’s why U.S. Bancorp’s employee
engagement scores remain in the
top quartile of all companies, across
all industries and across all regions
of the world.
— 4 —
— 5 —
Plus, we have an innovation engine
backing all our financial and
competitive strength. Bank Innovation
recently called U.S. Bank “arguably the
most forward-thinking major financial
institution in the United States.” With
consumer behavior changing nearly
every day, experience-enhancing
innovation permeates our decisions
about mobile payments, branch
modernization and every other
customer touch point we have. It’s
central to our growth agenda.
The rapid evolution of consumer
behavior required us to evaluate our
strategic framework in order to keep
current with their pace of change. The
bank — as we know it today — exists
everywhere, and our customers expect
us to be available to them everywhere:
branch, ATM, website, phone or
mobile app. This is not the future of
banking — it is the present of banking.
Likewise, our institutional and
merchant customers — in the United
States and across the globe —
expect even more from their banking
partner. More financial strength.
More innovation. More security. More
information. More connectivity. More
partnership. More flexibility.
Layered with a deeper knowledge
of our customers through data
analytics and customer relationship
management tools, it is imperative that
U.S. Bancorp keep pace with the swift
strides of change and optimism our
customers are experiencing. Whether
they are building a small business
or a lasting family legacy, we must
be available to them in new ways. In
2015, we witnessed this pivot point in
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— 6 —
the customer experience, and we are
investing in the journey and preparing
to grow U.S. Bancorp alongside the
evolution of our customers’ financial
plans and dreams.
Our core businesses — Wholesale
Banking and Commercial Real Estate,
Consumer and Small Business
Banking, Wealth Management and
Securities Services and Payment
Services — are all well positioned
for growth. In 2015, we focused
our strategic framework on three
foundational pillars that will guide our
activities and investments in our vision
for the future:
1. Be the most trusted choice
(governance);
2. Get better every day (optimization);
and
3. Unify the customer experience
(customer focus).
This strategic framework powers
our momentum as we invest in the
expansion of our leadership presence
in the banking industry.
The Power of Possible:
Make Leadership Happen
Leadership. It’s an important word. Our
nation deserves responsible bankers
to lead the way in our economic
recovery — to once again — make
possible happen.
At U.S. Bancorp, leadership starts with
our exceptional Board of Directors.
I am grateful for their dedication and
guidance. They provide us with the
confidence and courage to make the
best decisions and they represent our
shareholder interests in every action
we take. I am also grateful for our
Managing Committee, who provides
their industry-leading expertise to
every decision and turn day-to-day
management into moments for
everyday excellence.
We make possible happen every day as
we pursue our collective vision for the
future. As the economic environment
improves and our customers look for
a strong and stable banking partner
to help them achieve their distinct
financial goals and objectives, we will
be there for them, leading the way.
Important advice; however, the
fundamental theme of his letter was
much bigger and more consequential
than the banking activities at the
beginning of a new era in American
history. His advice remains relevant
today and applies to all 6,799 banks
in the United States as we — once
again — stand at the beginning of
another new era in American history.
As U.S. Bancorp contemplates
the opportunities facing us in 2016,
we will provide leadership as we
help to restore confidence in the
banking industry.
The Power of Possible:
Make Opportunities Happen
In 1863, Hugh McCulloch, the country’s
first Comptroller of the Currency, wrote
a letter to all national banks that he
titled Advice to Bankers of 1863. In the
letter he reiterated the basic tenets of
effective banking — make good loans,
distribute the risk, treat customers well,
be fair with employees, make good
financial decisions and run the bank
with integrity.
At the heart of McCulloch’s letter was
his conviction that banks are at the
center of the U.S. economy. They are
the engine that makes possible happen
every day from Maine to California, and
Florida to Alaska. It was a resounding
reminder of the enormous responsibility
and moral imperative of being a banker.
Do not enter into this career lightly,
for bankers hold the keys to progress,
productivity and prosperity. A cup of
coffee isn’t poured at a neighborhood
coffee house, a field of corn isn’t
harvested, a widget doesn’t come
off the assembly line, a merchant
doesn’t protect its customers’ personal
information, without the expertise and
steady ballast of a bank.
In 2016, banks have the opportunity
to return to their place of prominence
and prestige — being at the center
of progress — provided we
handle that opportunity with care
and responsibility.
I, for one, am proud to be a banker.
It is an honorable profession and
McCulloch’s bold challenge resonates
deeply with me. My focus is forward-
looking. My focus is on value creation
for our shareholders, customers,
communities and employees. My focus is
on running an honorable bank that aligns
with McCulloch’s vision for one of the
most important industries in the world.
Because I am in the business of making
possible happen. Every single day.
Sincerely,
Richard K. Davis
Chairman and
Chief Executive Officer
U.S. Bancorp
February 25, 2016
AWARDS + RECOGNITIONS
A 2015 World’s Most Ethical Company
– Ethisphere Institute, March 2015
BCA 10: Best Businesses Partnering for the Arts
– Americans for the Arts, October 2015
#1 Most Admired Superregional Bank
– Fortune, February 2016 (also in 2011, 2012, 2013, 2014, 2015)
Most Trusted Companies for Retail Banking
– Ponemon Institute, June 2015 (9 years at #1)
Corporate Equality Index (perfect score)
– Human Rights Campaign Foundation, 2015
2015 Military Friendly® Employers
– G.I. Jobs, 2015
Most Powerful Women in Banking
– Individuals and Team
– American Banker Magazine, October 2015
A Top 25 U.S. Employee Resource Group
– Association of ERGs & Councils, August 2015
Greenwich Annual Excellence Awards:
Middle Market Commercial Banking Study
– Greenwich Associates, March 2015
— 6 —
— 7 —
MANAGING COMMITTEE
01
05
09
13
02
06
10
14
03
07
11
15
04
08
12
16
Managing Committee
01. Richard K. Davis Chairman and
06. John R. Elmore Vice Chairman,
12. Katherine B. Quinn Executive
Chief Executive Officer
02. Jennie P. Carlson Executive Vice
President, Human Resources
03. Andrew Cecere President and
Community Banking and
Branch Delivery
Vice President and Chief Strategy and
Reputation Officer
07. Leslie V. Godridge Vice Chairman,
13. Kathleen A. Rogers Vice Chairman
Wholesale Banking
and Chief Financial Officer
Chief Operating Officer
08. James B. Kelligrew Vice Chairman,
14. Mark G. Runkel Executive Vice
04. James L. Chosy Executive Vice
President, General Counsel and
Corporate Secretary
05. Terrance R. Dolan Vice Chairman,
Wealth Management and Securities
Services
Wholesale Banking
President and Chief Credit Officer
09. Shailesh M. Kotwal Vice Chairman,
15. Kent V. Stone Vice Chairman,
Payment Services
Consumer Banking Sales and Support
10. P.W. Parker Vice Chairman and
Chief Risk Officer
16. Jeffry H. von Gillern Vice Chairman,
Technology and Operations Services
11. Richard B. Payne, Jr. Vice Chairman,
Wholesale Banking
— 8 —
U.S. BANCORP 2015 ANNUAL REPORT BOARD OF DIRECTORS
01
20
24
28
17
21
25
29
18
22
26
30
19
23
27
Board of Directors
01. Richard K. Davis Chairman and
21. Roland A. Hernandez Founding
27. O’dell M. Owens, M.D., M.P.H.
Chief Executive Officer, U.S. Bancorp
17. Douglas M. Baker, Jr. Chairman and
Chief Executive Officer, Ecolab Inc.
18. Warner L. Baxter Chairman,
President and Chief Executive Officer,
Ameren Corporation
19. Arthur D. Collins, Jr. Retired
Chairman and Chief Executive Officer,
Medtronic, Inc. (Lead Director)
20. Kimberly J. Harris President and
Chief Executive Officer, Puget Energy,
Inc. and Puget Sound Energy, Inc.
Principal and Chief Executive Officer,
Hernandez Media Ventures
Medical Director, Cincinnati Health
Department
22. Doreen Woo Ho Commissioner,
San Francisco Port Commission
23. Joel W. Johnson Retired Chairman
and Chief Executive Officer, Hormel
Foods Corporation
24. Olivia F. Kirtley Business Consultant
25. Karen S. Lynch President, Aetna Inc.
26. David B. O’Maley Retired Chairman,
President and Chief Executive Officer,
Ohio National Financial Services, Inc.
28. Craig D. Schnuck Former Chairman
and Chief Executive Officer, Schnuck
Markets, Inc.
29. Patrick T. Stokes Former Chairman
and Former Chief Executive Officer,
Anheuser-Busch Companies, Inc.
30. Scott W. Wine Chairman and
Chief Executive Officer, Polaris
Industries, Inc.
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Our lines of business are where we
see the true power of possible.
Driven by our proven stability, our individual and
collective expertise and a belief that we can make
possible happen, we bring unparalleled strength to
all our customers, communities and shareholders.
Through our lines of business, we connect with our
customers and help them achieve their possible.
The power of possible comes to life in our four
core businesses:
CONSUMER + SMALL
BUSINESS BANKING
WHOLESALE BANKING +
COMMERCIAL REAL ESTATE
WEALTH MANAGEMENT +
SECURITIES SERVICES
PAYMENT SERVICES
— 10 —
— 11 —
CONSUMER + SMALL BUSINESS BANKING
Make Life Happen
That spark. We see it every day.
It flashes in a child’s eyes when he
hands us a piggy bank full of change
and we help him open his first
savings account. It lights up the face
of an entrepreneur when we give
her the green light to convert an old
warehouse space into the restaurant
she’s always dreamed of opening.
And it shines in the smile of a
newlywed couple when we tell
them they’re approved to buy
their first home.
— 12 —
U.S. BANCORP 2015 ANNUAL REPORT That spark is possibility transforming
into reality for the individuals, families
and small business customers who
choose U.S. Bank. They come to us
with goals of all shapes and sizes, and
we never tire of helping them bring those
goals to life. We bring the best and
brightest minds together to listen, ask
the right questions and make thoughtful
suggestions. All with the purpose of
making their possible happen.
For our small business owners, we
focus on helping them transform
their dreams and ideas into practical
and prudent plans. Our annual small
business confidence survey helps us
learn how small business owners feel
about the futures of their businesses.
With that knowledge, we help them
stay a step ahead, offering guidance
about what concerns them and ideas
to capture that next big opportunity.
Who We Are for Consumers and
Small Businesses
We know that to give our customers
the right balance of advice and
support, we need to understand what
drives them. By learning about their
“why,” we can deliver a better “how.”
For our consumer banking customers,
one part of that is helping them find
financial stability. We conducted a
study among students to learn how
prepared they are to successfully
manage their personal finances when
they step out on their own. We used
the results to launch tools that show
young adults how to successfully
manage their money and build a solid
financial foundation.
Whatever stage of life a customer is
in — whatever their possible is — being
a good partner is about asking and
listening. When we get to know our
customers, we’re better at inspiring
them with knowledge and helping
them clear the path to financial stability
and growth.
Convenience
We make it easy for customers to
take control of their finances by being
available when and where they need
us. Through all the traditional means,
plus new and emerging technologies,
we make it easy for customers to take
control of their finances. Whether it’s
in a branch, at an ATM, over the phone
with our 24-hour service centers
— 12 —
— 13 —
CONSUMER + SMALL BUSINESS BANKING
or online through social media, our
mobile app or at usbank.com, we work
hard to make sure every customer
feels welcomed, understood, rewarded
and secure in every interaction.
Our Branches
No matter how technology changes
business operations, we will always
believe in the value of face-to-face
interactions. U.S. Bank operates 3,133
banking offices in 25 states, with more
than 35,000 friendly faces and voices,
ready to welcome customers and help
them reach their possible.
As our signature banking model,
customers can stop in for full service
at U.S. Bank branch locations found in
large metropolitan areas or in small rural
towns as stand-alone offices or within
grocery stores, hospitals, corporate
campuses, universities and even iconic
spots, such as Churchill Downs.
Consumer Rewards
We know that every dollar is a hard-
earned dollar, so we offer a variety
of rewards opportunities and savings
options to thank our customers for
banking with us. Our START Smart
savings program provides an
incentive to save by rewarding
customers for reaching incremental
savings milestones.
Small Business
A Strong Reputation
No two small businesses are alike,
but each needs relevant and timely
financial products and support to
thrive. U.S. Bank is one of the leading
small business lenders in the United
States, consistently ranking among the
top banks nationally for Small Business
Administration (SBA) lending. And each
of our small business bankers has an
entrepreneur’s heart and looks at the
world through the customer’s eyes.
Beyond loans and checking accounts,
we provide networking opportunities
for small business owners to exchange
ideas and learn from each other at
U.S. Bank Connect (usbank.com/
connect). This online tool provides a
gateway to information-sharing for
our small business community, with
stories and tips about starting, running
and growing a business. And because
technology and mobile capabilities
are increasingly central to successful
business strategies, we offer award-
winning mobile banking solutions and
online tools for small business owners
to access accounts, accept and make
payments, organize and manage
business operations, get account text
alerts and more.
We believe in putting people first,
and our dedication to making ethical
decisions and doing the right thing
is at the heart of what we do. In
fact, U.S. Bank was named as one
of the “2015 World’s Most Ethical
Companies” by an independent
organization, Ethisphere Institute.
We work hard to meet the banking
needs of the individuals, families and
businesses who choose to bank with
us by offering competitive products
and services, convenient access to
their accounts and proven stability.
One of the
top small
business
lenders
in the United States
— 14 —
U.S. BANCORP 2015 ANNUAL REPORT — 14 —
— 15 —
“ 2015 required strong
management focus
and conviction as we
balanced decisions about
operating efficiencies with
opportunities for investing
in future growth.”
Richard K. Davis
Chairman and
Chief Executive Officer
U.S. Bancorp
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WHOLESALE BANKING + COMMERCIAL REAL ESTATE
Make Expansion Happen
As our economy continues to strengthen,
businesses are looking for ways to grow. And
we’re here, offering the financial strength and
best-in-class debt ratings that give us a unique
advantage while serving our customers.
Our relationship managers are
industry experts who partner closely
with customers and look for ways to
optimize products and services to
move them forward.
Our award-winning Working Capital
DNA® engagement process is one
powerful example of our consultative
approach, offering customers a wealth
of new ideas.
Relationships That Inspire
We offer expert guidance backed by
strength, stability and experience.
That’s why more than 90 percent
of Fortune 500 companies choose
us every year. With strong financial
performance, a focus on solid
relationships and a commitment to
ethical leadership, we are positioned
to build on the success we saw in 2015
and help our wholesale customers
achieve their possible.
Our Impact Is Growing
Over the past 10 years, our Wholesale
Banking business has seen tremendous
growth, making future-focused
decisions even during the economic
downturn. In 2015, we opened a new
National Corporate Banking office in
Dallas, Texas. Our average commercial
loans grew 11 percent, and we saw
record revenue in a number of areas.
We also led more bond issuances and
welcomed a growing number of foreign
exchange customers. Finally, we
brought Commercial Real Estate into
Wholesale Banking, enabling us to
provide an increased depth of service
to our real estate customers.
We also introduced innovative tools,
including U.S. Bank VantagePoint™
and U.S. Bank Liquidity Advantage.
In January 2015, Global Finance
named us a “World’s Best Treasury &
Cash Management Provider 2015.”
Achieving Success Together
We succeed when our customers
succeed. So we leverage our proven
stability, sound strategies and
competitive products and services to
help our customers reach their goals.
— 16 —
— 17 —
Our average
commercial
loans
grew11%
in 2015.
WEALTH MANAGEMENT + SECURITIES SERVICES
Make Legacies Happen
Our Wealth Management and Securities
Services teams design strategies to
help clients achieve their personal and
business goals.
WEALTH MANAGEMENT
Every life is a story. We have the
privilege of helping our Wealth
Management clients shape their stories
and work toward their possible, whether
they’re beginning to accumulate
wealth, enjoying the rewards of
success or planning the legacy
they’ll leave for future generations.
We work at three service levels:
The Private Client Group works with
affluent individuals and families who
are working to build their wealth; The
Private Client Reserve works with high-
net-worth clients who have complex
financial needs; and Ascent Private
Capital Management helps ultra-
high-net-worth clients make a lasting
impact with their wealth. At every
level of service we establish solid
relationships, getting to know each
client’s story and goals so we can
offer relevant support.
Continued Growth
Our approach to wealth management
has helped us attract and retain
clients, affording us growth in
deposits, loans and investment assets.
Our assets under management have
grown to more than $124 billion. And
U.S. Bank Wealth Management was
once again ranked among the top
20 U.S. wealth managers by Barron’s
in 2015.
SECURITIES SERVICES
Made up of Corporate Trust Services,
Institutional Trust and Custody, Fund
Services and Asset Management
divisions, our Securities Services
business is a market leader and
provides administrative services for
organizations in the U.S. and Europe
issuing or managing securities and
investments.
Investing in Technology
Technology advancement is critical
to the success of Securities Services.
At the end of 2014, our corporate
trust services group launched Pivot,
a proprietary online platform for
collateralized loan obligation asset
managers. This tool sets us apart
from the competition for client service
and response, data transparency
and efficiency. Within our Institutional
Trust and Custody division, Pivot has
boosted sales and retention, with a
— 18 —
U.S. BANCORP 2015 ANNUAL REPORT
In the U.S. we were the
top trustee in market
share in two of our three
core categories, municipal
and structured finance,
and second in corporate
transactions.
17 percent lift in market share during
a time when the overall market
declined. Building on this success,
we will expand the platform to
other segments.
Continued Growth
In addition to new technology, our
investments in the right people and
products resulted in market share
growth and industry accolades. In
the U.S. we were the top trustee in
market share in two of our three core
categories, municipal and structured
finance, and second in corporate
transactions. Our Securities Services
teams also received a variety of
awards from industry experts such as
GlobalCapital and HFMWeek, in the
U.S. and in Europe.
— 18 —
— 19 —
PAYMENT SERVICES
Make Commerce Happen
In today’s world, cards have largely replaced
cash and checkbooks. The payments industry is
evolving as rapidly as our purchasing behaviors,
playing an important role for businesses,
consumers, governments and economies. In this
highly competitive marketplace, our Payment
Services organization has significant scale and
focuses on growth through innovations that boost
convenience for our customers and partners.
PAYMENT SERVICES
In our Retail Payment Solutions and
Corporate Payment Systems groups,
we issue credit cards and provide
convenience-boosting tools for
consumers, small businesses and
corporate customers. We also process
payments and keep commerce alive
through our merchant services division,
Elavon, Inc., a wholly owned subsidiary.
Supporting businesses across the
globe, we are in 14 countries and
operate call centers on three continents.
We compete in all major areas:
– Corporate Payment Services ranked
as the #2 largest bankcard issuer
of corporate travel cards and the
#3 largest issuer of commercial
purchasing cards in the United States1
– Retail Payment Services ranked #5
in the United States for debit card
issuing,2 #5 for Small Business Card3
and #8 for both credit card issuing
and prepaid cards4
– Elavon consistently ranks in the top
five merchant acquirers in Europe5
and North America by number of
customers6
Investing in Innovation
Innovation keeps us at the forefront
of the industry. In 2015, Bank
Innovation recognized the team of
innovators within Payment Services
with the #3 ranking on its annual list
of “Innovators to Watch.” And, at our
innovation center called “The Grove,”
Elavon focuses on new technology
and product development for mobile
payments. These teams constantly
anticipate what customers will want
next, building the foundation for
how we’ll innovate, grow, service
customers’ needs and plan our go-to-
market strategies.
Our innovation practice also enabled
us to be early adopters and first-to-
market with mobile payment solutions
that launched in 2015, including
Samsung Pay™ and Android Pay™.
We lead the market with mobile
solutions for account alerts and
fraud management for consumer and
— 20 —
U.S. BANCORP 2015 ANNUAL REPORT enterprise customers. We also piloted
both geolocation and Visa® TravelTag™
last year to help travelers use their
cards with fewer issues related to
fraud management, and we launched
RealTime Rewards for our FlexPerks
Rewards Cards members to instantly
redeem earned rewards for purchases.
And more is on the horizon for 2016.
2015 was busy for merchant services
too, as the industry worked to
enable chip card acceptance across
the United States. In 2015, Elavon
launched an ambitious effort to enable
EMV payments for their customers,
prompting MasterCard® to recognize
them as the top processor for EMV
payments in the United States.
Making Convenience Happen
The payments industry moves fast.
That’s why we invest in innovation
and form partnerships to capture
emerging trends, solve problems
and stay ahead of the competition,
allowing us to provide customers with
more convenience and help drive their
financial success as they work toward
their possible.
1. Nilson Report, June 2015 issue #1066
2. Nilson Report, April 2015 issue #1062
3. Nilson Report, June 2015 issue #1066
(V/MA issuers, excludes AXP)
4. Nilson Report, July 2015 issue #1067 and
Nilson Report, February 2015 issue #1058
5. Nilson Report, June 2015 issue #1065
6. Nilson Report, March 2015 issue #1059
“ Arguably the most
forward-thinking
major financial
institution in the
United States.”
Bank Innovation
— 20 —
— 21 —
Make Communities Happen
In any business, it’s easy to simply focus on
the bottom line — the day-to-day transactions
that keep a company running. But businesses
wouldn’t exist without the foundation of a
community. That’s why, since the day we first
opened our doors for business, we’ve been
deeply committed to our communities.
— 22 —
U.S. BANCORP 2015 ANNUAL REPORT OUR COMMUNITIES
Strong, vibrant communities are the
backbone for stable jobs, quality
homes and opportunities for play.
We help communities find their
possible through financial investments
and ongoing volunteer efforts by
our employees. Because better
communities benefit everyone.
Community Giving in 2015
We help grow our communities
through financial, human and creative
resources at both a corporate and a
local level. Our work includes national
programs and initiatives that promote
financial literacy, affordable housing,
small business development and
economic revitalization. We also
extend our reach at a national level by
supporting organizations like United
Way and the American Red Cross.
In 2015, our company provided
$25.4 million in contributions from the
U.S. Bank Foundation.
Through our U.S. Bancorp Community
Development Corporation, we
provided $4.4 billion in 2015 in
community development lending and
tax credit financing throughout the
communities we serve. These activities
go a long way in helping communities
and residents find their possible
by creating new jobs, rehabilitating
historic buildings, building affordable
and market-rate homes, developing
renewable energy facilities and
generating economic activity in
underserved areas.
We also promoted many arts and
cultural events in our local markets,
including museum exhibits, theater
performances, festivals and art shows.
Built on a belief that the arts help
create more vibrant communities,
we’ve awarded more than $15 million
in grants to the arts over the past
five years. And, in 2015, our support
for the arts was recognized by
Americans for the Arts as a BCA 10:
Best Businesses Partnering with
the Arts in America honoree. This
award recognizes businesses that
demonstrate exceptional commitment
to the arts through grants, local
partnerships, volunteer programs,
matching gifts, sponsorships and
board memberships.
In addition to our financial
contributions, we encourage
community involvement by giving
our employees paid time off to
participate in the community activities
they’re passionate about. In total,
our employees spent more than
255,000 hours volunteering in 2015.
Their volunteer activities included
beautifying neighborhoods, planting
community gardens, cleaning and
painting classrooms, leading financial
literacy classes for children and adults
and building affordable homes with
Habitat for Humanity. Thousands of
employees also share their financial
expertise by serving on the boards of
nonprofit charitable organizations.
“ Our work to
finance and support
community and
economic development
across the country
helps make the places
where we live, work
and play more vibrant
and healthy.”
Reba Dominski
President of the
U.S. Bank Foundation
$3B
invested in
environmentally
beneficial and
profitable business
opportunities in 2015.
(LEED-certified
buildings, renewable
energy, brownfield
development)
— 22 —
— 23 —
OUR COMMUNITIES
2016 Snapshot: Community Possible
Building on our legacy of giving back
to the community, we’re excited to
introduce Community Possible in 2016.
This new model for our community
giving efforts is built around three key
areas: Work, Home and Play.
Our efforts in the area of Work will
support programs and organizations
that help small businesses thrive, help
people succeed in the workplace,
help build clearer pathways to higher
education and help people gain greater
financial literacy. In the area of Home,
we will work to connect individuals
and families to sustainable housing
opportunities. And, finally, through
Play we will focus on investing in
community programs that support
ways for children and adults to
experience play.
One of our first initiatives in the area
of Play is the U.S. Bank Places to
Play program. In partnership with the
Minnesota Vikings, this three-year,
$1 million effort aims to enhance
Minnesota’s play spaces. Supported
by studies showing that play improves
quality of life, we believe that having
safe and accessible play spaces is an
important way to help communities
achieve their possible.
And this is just the beginning.
Stay tuned throughout 2016 as
we continue to announce
exciting new efforts around
Community Possible.
Work
Home
Play
“ We strive to be a responsible steward of the environment
and acknowledge that we have a responsibility to our
customers, employees, investors and the communities that
we serve to better understand the impact of our operations
on global climate change and to help reduce that impact.
We do this through reducing our use of natural resources,
environmentally beneficial lending and investments,
developing products and services that help our customers
reduce their environmental impact and increased due diligence
around our lending practices for high impact industries.”
Richard K. Davis Chairman and Chief Executive Officer, U.S. Bancorp
— 24 —
U.S. BANCORP 2015 ANNUAL REPORT The following pages discuss in detail the
financial results we achieved in 2015–
results that reflect the power of possible.
FINANCIALS TABLE OF CONTENTS
26 Management’s Discussion and Analysis
26 Overview
28 Statement of Income Analysis
33 Balance Sheet Analysis
42 Corporate Risk Profile
42 Overview
43 Credit Risk Management
58 Residual Value Risk Management
58 Operational Risk Management
58 Compliance Risk Management
59 Interest Rate Risk Management
60 Market Risk Management
61 Liquidity Risk Management
65 Capital Management
67 Fourth Quarter Summary
69 Line of Business Financial Review
73 Non-GAAP Financial Measures
75 Accounting Changes
75 Critical Accounting Policies
78 Controls and Procedures
79 Reports of Management and Independent Accountants
82 Consolidated Financial Statements and Notes
150 Five-year Consolidated Financial Statements
152 Quarterly Consolidated Financial Data
153 Supplemental Financial Data
156 Company Information
167 Executive Officers
169 Directors
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. A reversal or slowing of the current economic recovery
or another severe contraction 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. Stress in the commercial real estate
markets, as well as a downturn in the residential real estate markets
could cause credit losses and deterioration in asset values. In addi-
tion, 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; litigation; increased competition from both
banks and non-banks; changes in customer behavior and preferences;
breaches in data security; effects of mergers and acquisitions and
related integration; effects of critical accounting policies and judgments;
and management’s ability to effectively manage credit risk, market risk,
operational risk, compliance risk, strategic risk, interest rate risk, liquidity
risk and reputational risk.
Additional factors could cause actual results to differ from expectations,
including the risks discussed in the “Corporate Risk Profile” section
on pages 42–67 and the “Risk Factors” section on pages 156–166
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.
— 24 —
— 25 —
Management’s Discussion and Analysis
OVERVIEW
U.S. Bancorp and its subsidiaries (the “Company”) delivered
record financial performance in 2015, which was a year
characterized by persistent and historically low interest rates,
modest economic growth, and increasing regulatory
requirements. In 2015, the Company effectively balanced
decisions on operating efficiencies with opportunities for
investing in future growth and addressing its customers’
needs. These actions resulted in delivering record full-year net
income and diluted earnings per share.
The Company earned $5.9 billion in 2015, an increase of
0.5 percent over 2014, principally due to higher net interest
income, a lower provision for credit losses and prudent
management of expenses. Net interest income was higher
than the prior year as a result of an increase in average
earning assets and continued growth in lower cost deposit
funding, partially offset by a decrease in the net interest
margin. The Company’s loan portfolio credit quality continued
to improve throughout the year, as reflected by the decreases
in net charge-offs and nonperforming assets. The Company’s
continued focus on controlling expenses allowed it to achieve
an industry-leading efficiency ratio of 53.8 percent in 2015. In
addition, the Company’s return on average assets and return
on common equity were 1.44 percent and 14.0 percent,
respectively, the highest among its peers.
During 2015, the Company continued to demonstrate its
ability to create value for shareholders and customers by
returning 72 percent of its earnings to common shareholders
through dividends and common share repurchases. This was
accomplished by generating steady growth in commercial and
consumer lending, new credit card accounts and total
deposits, by building momentum in its core business,
particularly within Wealth Management and Securities
Services and Payment Services, and by maintaining a very
strong capital base.
The Company’s common equity tier 1 to risk-weighted
assets ratio using the Basel III standardized approach and
Basel III advanced approaches, as if fully implemented, were
9.1 percent and 11.9 percent, respectively, at December 31,
2015 — above the Company’s targeted ratio of 8.0 percent
and well above the minimum ratio of 7.0 percent required
when fully implemented. Refer to “Non-GAAP Financial
Measures” for further information on the calculation of these
measures. In addition, refer to Table 23 for a summary of the
statutory capital ratios in effect for the Company at
December 31, 2015 and 2014. Further, credit rating
organizations rate the Company’s debt among the highest of
any bank in the world. This comparative financial strength
provides the Company with favorable funding costs, strong
liquidity and the ability to attract new customers.
In 2015, average loans and deposits increased $8.8 billion
(3.6 percent) and $20.5 billion (7.7 percent), respectively, over
2014, reflecting the confidence the Company’s customers
have in trusting one of the highest rated banks in the world.
Loan growth included increases in commercial, commercial
real estate, credit card and other retail loans, partially offset by
a decline in loans covered by loss sharing agreements with
the Federal Deposit Insurance Corporation (“FDIC”) (“covered”
loans), which is a run-off portfolio. Deposit growth included
increases in noninterest-bearing and total savings deposits.
The Company’s provision for credit losses decreased $97
million (7.9 percent) in 2015, compared with 2014. Net
charge-offs decreased $162 million (12.1 percent) in 2015,
compared with 2014, principally due to improvement in
economic conditions during 2015. The provision for credit
losses was $40 million less than net charge-offs in 2015,
compared with $105 million less than net charge-offs in 2014,
reflecting loan growth partially offset by improved economic
conditions.
The Company’s actions to generate growth in its balance
sheet and revenues, combined with making prudent long-
term investments to protect its industry-leading competitive
positions have put it on a positive forward-looking trajectory.
This has been accomplished by helping its customers build
financially secure futures, along with deliberate efforts to
optimize its expense management initiatives. The Company
has positioned itself for growth in 2016, following record
fourth quarter 2015 revenue, increasing loan growth and
stable net interest margin, while making progress toward
achieving positive operating leverage by thoughtfully
managing expenses. The Company remains focused on
delivering consistent, predictable and repeatable financial
results for the benefit of its customers, employees,
communities and shareholders.
— 26 —
T A B L E 1 SELECTED FINANCIAL DATA
Year Ended December 31
(Dollars and Shares in Millions, Except Per Share Data)
2015
2014
2013
2012
2011
Condensed Income Statement
Net interest income (taxable-equivalent basis)(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities gains (losses), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 11,214
9,092
–
20,306
10,931
1,132
$ 10,997
9,161
3
20,161
10,715
1,229
$ 10,828
8,765
9
19,602
10,274
1,340
$ 10,969
9,334
(15)
20,288
10,456
1,882
$ 10,348
8,791
(31)
19,108
9,911
2,343
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable-equivalent adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling interests . . . . . . . . . . . . . . . . . . . .
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income applicable to U.S. Bancorp common shareholders . . . . . . . . . . . . . . .
Per Common Share
Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Book value per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market value per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average diluted common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Ratios
Return on average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on average common equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest margin (taxable-equivalent basis)(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Efficiency ratio(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-offs as a percent of average loans outstanding . . . . . . . . . . . . . . . . . . . .
Average Balances
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities(c)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total U.S. Bancorp shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Period End Balances
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total U.S. Bancorp shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset Quality
Nonperforming assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for credit losses as a percentage of period-end loans . . . . . . . . . . . . . . . .
Capital Ratios
Common equity tier 1 capital(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 capital(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total risk-based capital(d)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leverage(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common equity tier 1 capital to risk-weighted assets for the Basel III transitional
advanced approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully
implemented standardized approach(e)(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
implemented advanced approaches(e)
Tangible common equity to tangible assets(e)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tangible common equity to risk-weighted assets(e) . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Presented on a fully taxable-equivalent basis utilizing a tax rate of 35 percent.
$
$
$
8,243
213
2,097
5,933
(54)
5,879
5,608
3.18
3.16
1.010
23.28
42.67
1,764
1,772
1.44%
14.0
3.05
53.8
.47
$250,459
5,784
103,161
367,445
408,865
79,203
287,151
27,960
33,566
44,813
$260,849
105,587
421,853
300,400
32,078
46,131
$
1,523
4,306
1.65%
9.6%
11.3
13.3
9.5
12.5
9.1
11.9
7.6
9.2
$
$
$
8,217
222
2,087
5,908
(57)
5,851
5,583
3.10
3.08
.965
21.68
44.95
1,803
1,813
1.54%
14.7
3.23
53.2
.55
$241,692
3,148
90,327
340,994
380,004
73,455
266,640
30,252
26,535
42,837
$247,851
101,043
402,529
282,733
32,260
43,479
$
1,808
4,375
1.77%
9.7%
11.3
13.6
9.3
12.4
9.0
11.8
7.5
9.3
$
$
$
7,988
224
2,032
5,732
104
5,836
5,552
3.02
3.00
.885
19.92
40.40
1,839
1,849
1.65%
15.8
3.44
52.4
.64
$227,474
5,723
75,046
315,139
352,680
69,020
250,457
27,683
21,280
39,917
$235,235
79,855
364,021
262,123
20,049
41,113
$
2,037
4,537
$
$
$
7,950
224
2,236
5,490
157
5,647
5,383
2.85
2.84
.780
18.31
31.94
1,887
1,896
1.65%
16.2
3.58
51.5
.97
$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
$
2,671
4,733
$
$
$
6,854
225
1,841
4,788
84
4,872
4,721
2.47
2.46
.500
16.43
27.05
1,914
1,923
1.53%
15.8
3.65
51.8
1.41
$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
$
3,774
5,014
1.93%
2.12%
2.39%
9.4%(e)
9.0%(e)
8.6%(e)
11.2
13.2
9.6
8.8
7.7
9.1
10.8
13.1
9.2
8.1
7.2
8.6
10.8
13.3
9.1
8.2
6.6
8.1
(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) December 31, 2015 and 2014, calculated under the Basel III transitional standardized approach; all other periods calculated under Basel I.
(e) See Non-GAAP Financial Measures beginning on page 73.
(f) December 31, 2015, 2014 and 2013, calculated using final rules for the Basel III fully implemented standardized approach; December 31, 2012, calculated using proposed rules released June
2012; December 31, 2011, calculated using proposed rules released prior to June 2012.
— 27 —
Earnings Summary The Company reported net income
attributable to U.S. Bancorp of $5.88 billion in 2015, or $3.16
per diluted common share, compared with $5.85 billion, or
$3.08 per diluted common share, in 2014. Return on average
assets and return on average common equity were 1.44
percent and 14.0 percent, respectively, in 2015, compared
with 1.54 percent and 14.7 percent, respectively, in 2014.
Total net revenue, on a taxable-equivalent basis, for 2015
was $145 million (0.7 percent) higher than 2014, reflecting a
2.0 percent increase in net interest income, partially offset by
a 0.8 percent decrease in noninterest income. The increase in
net interest income from the prior year was the result of an
increase in average earning assets and continued growth in
lower cost core deposit funding, partially offset by a decrease
in the net interest margin. The decrease in noninterest income
was primarily due to a gain related to an equity interest in
Nuveen Investments (“Nuveen gain”) recorded in 2014, lower
gains from sales of shares of Visa Inc. Class B common
stock, a 2015 market valuation adjustment to write down the
value of student loans during the period they were held for
sale (“student loan market adjustment”), and lower mortgage
banking revenue, partially offset by higher revenue in most
other fee businesses and a gain on the sale of a Health
Savings Account deposit portfolio (“HSA deposit sale”)
recorded in 2015.
Noninterest expense in 2015 was $216 million
(2.0 percent) higher than 2014, primarily due to higher
compensation and employee benefits expenses, including
higher costs related to risk and compliance activities, partially
offset by a settlement relating to the Federal Housing
Administration’s insurance program (“FHA DOJ settlement”)
recorded in 2014, prior year legal accruals and charitable
contributions.
Acquisitions In June 2014, the Company acquired the
Chicago-area branch banking operations of the Charter One
Bank franchise (“Charter One”) owned by RBS Citizens
Financial Group. The acquisition included Charter One’s retail
branch network, small business operations and select middle
market relationships. The Company acquired approximately
$969 million of loans and $4.8 billion of deposits with this
transaction.
STATEMENT OF INCOME ANALYSIS
Net Interest Income Net interest income, on a taxable-
equivalent basis, was $11.2 billion in 2015, compared with
$11.0 billion in 2014 and $10.8 billion in 2013. The
$217 million (2.0 percent) increase in net interest income in
2015, compared with 2014, was primarily the result of growth
in average earning assets and continued growth in lower cost
core deposit funding, partially offset by a continued shift in loan
portfolio mix, lower reinvestment rates on investment securities
and lower loan fees due to the wind down of the short-term,
small-dollar deposit advance product, Checking Account
Advance (“CAA”). Average earning assets were $26.4 billion
(7.8 percent) higher in 2015, compared with 2014, driven by
increases in loans and investment securities. The net interest
margin, on a taxable-equivalent basis, in 2015 was
3.05 percent, compared with 3.23 percent in 2014 and
3.44 percent in 2013. The decrease in the net interest margin
in 2015, compared with 2014, primarily reflected a change in
the loan portfolio mix, growth in the investment portfolio at
lower average rates and lower reinvestment rates on
investment securities, as well as lower loan fees due to the
CAA product wind down. 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 $250.5 billion in 2015, compared
with $241.7 billion in 2014. The $8.8 billion
(3.6 percent) increase was driven by growth in commercial,
commercial real estate, credit card and other retail loans,
partially offset by a decrease in covered loans. Average
commercial loans increased $8.3 billion (11.0 percent), driven
by higher demand for loans from new and existing customers.
Average commercial real estate loans increased $1.8 billion
(4.5 percent), driven by the reclassification of covered
commercial real estate loans resulting from the expiration of
loss sharing agreements related to those loans at the end of
2014, as well as higher loan demand. Average credit card
balances increased $422 million (2.4 percent) in 2015,
compared with 2014, due to customer growth, including
portfolio acquisitions during 2015. The $726 million (1.5
percent) increase in average other retail loans was primarily
due to higher auto and installment loans, partially offset by
lower student loan balances, reflecting their classification as
held for sale for a portion of 2015. Average residential
mortgages were essentially unchanged in 2015, compared
with 2014. Average covered loans decreased $2.6 billion
(34.1 percent) in 2015, compared with 2014, the result of
portfolio run-off and the expiration of the loss sharing
agreements on commercial and commercial real estate loans
at the end of 2014.
— 28 —
T A B L E 2 ANALYSIS OF NET INTEREST INCOME (a)
Year Ended December 31 (Dollars in Millions)
2015
2014
2013
Components of Net Interest Income
Income on earning assets (taxable-equivalent basis) . . . . . . . . . . . . .
. . .
Expense on interest-bearing liabilities (taxable-equivalent basis)
$ 12,619
1,405
$ 12,454
1,457
$ 12,513
1,685
Net interest income (taxable-equivalent basis) . . . . . . . . . . . . . . . . . . . .
$ 11,214
$ 10,997
$ 10,828
Net interest income, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 11,001
$ 10,775
$ 10,604
Average Yields and Rates Paid
2015
v 2014
2014
v 2013
$
$
$
165
(52)
217
226
$
$
$
(59)
(228)
169
171
. . . . . . . . . . . . . . . . .
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) . . . . . . . . . . . . . . . . . . . .
3.43%
.52
2.91%
3.05%
3.65%
.58
3.07%
3.23%
3.97%
.73
3.24%
3.44%
(.22)%
(.06)
(.16)%
(.18)%
(.32)%
(.15)
(.17)%
(.21)%
Average Balances
Investment securities(b)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$103,161
250,459
367,445
269,474
$ 90,327
241,692
340,994
249,972
$ 75,046
227,474
315,139
230,400
$12,834
8,767
26,451
19,502
$15,281
14,218
25,855
19,572
(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 2015 were $12.8 billion
(14.2 percent) higher than 2014, primarily due to purchases of
U.S. government and agency-backed securities, net of
prepayments and maturities, to support regulatory liquidity
coverage ratio requirements.
Average total deposits for 2015 were $20.5 billion
(7.7 percent) higher than 2014. Average noninterest-bearing
deposits for 2015 were $5.7 billion (7.8 percent) higher than
the prior year, reflecting growth in Consumer and Small
Business Banking, and Wholesale Banking and Commercial
Real Estate. Average total savings deposits for 2015 were
$21.0 billion (13.8 percent) higher than 2014, reflecting
growth in Consumer and Small Business Banking, including
the impact of the Charter One branch acquisitions, Wholesale
Banking and Commercial Real Estate and corporate trust
balances. Average time deposits for 2015 were $6.2 billion
(14.9 percent) lower than 2014. Changes in time deposits are
largely related to those deposits managed as an alternative to
other wholesale funding sources, based largely on funding
needs and relative pricing.
The $169 million (1.6 percent) increase in net interest
income in 2014, compared with 2013, was primarily the result
of growth in average earning assets and lower cost core
deposit funding, partially offset by lower rates on new loans
and investment securities and lower loan fees. Average
earning assets were $25.9 billion (8.2 percent) higher in 2014,
compared with 2013, driven by increases in loans and
investment securities, partially offset by decreases in loans
held for sale. The decrease in the net interest margin in 2014,
compared with 2013, primarily reflected lower reinvestment
rates on investment securities, as well as growth in the
investment portfolio at lower average rates, lower loan fees
due to the CAA product wind down, and strong growth in
lower margin commercial loans, partially offset by lower
funding costs.
Average total loans increased $14.2 billion (6.3 percent) in
2014, compared with 2013, driven by growth in commercial
loans, residential mortgages, commercial real estate loans,
credit card loans and other retail loans, partially offset by a
decrease in covered loans. Average commercial loans,
residential mortgages and commercial real estate loans
increased $8.5 billion (12.6 percent), $3.8 billion (8.0
percent) and $2.4 billion (6.2 percent), respectively, driven by
higher demand for loans from new and existing customers.
Average credit card balances increased $822 million (4.9
percent) in 2014, compared with 2013, due to customer
growth. The $1.2 billion (2.6 percent) increase in average
other retail loans was primarily due to higher auto and
installment loans, partially offset by lower student loan
balances. Average covered loans decreased $2.5 billion (24.7
percent) in 2014, compared with 2013.
Average investment securities in 2014 were $15.3 billion
(20.4 percent) higher than 2013, due to purchases of U.S.
government and agency-backed securities, net of
prepayments and maturities, in preparation for final liquidity
coverage ratio requirements.
— 29 —
T A B L E 3 NET INTEREST INCOME — CHANGES DUE TO RATE AND VOLUME (a)
Year Ended December 31 (Dollars in Millions)
Volume
Yield/Rate
Total
Volume
Yield/Rate
Total
2015 v 2014
2014 v 2013
Increase (decrease) in
Interest Income
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans
$ 282
108
$(153)
(30)
$ 129
78
$ 359
(92)
$(135)
17
$ 224
(75)
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 deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest-bearing liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
245
71
1
43
32
392
(154)
238
46
674
2
28
4
(40)
(6)
(20)
192
166
(192)
4
(36)
109
(153)
(268)
(27)
(295)
(31)
(509)
(7)
47
(10)
(32)
(2)
2
(218)
(218)
53
75
(35)
152
(121)
124
(181)
(57)
15
165
(5)
75
(6)
(72)
(8)
(18)
(26)
(52)
272
98
157
83
60
670
(159)
511
(27)
751
3
12
3
(30)
(12)
33
189
210
(212)
(112)
(115)
43
(237)
(633)
(32)
(665)
(27)
(810)
(4)
29
(6)
(103)
(84)
(123)
(231)
(438)
60
(14)
42
126
(177)
37
(191)
(154)
(54)
(59)
(1)
41
(3)
(133)
(96)
(90)
(42)
(228)
Increase (decrease) in net interest income . . . . . . . . . . . . . . . . . . . .
$ 508
$(291)
$ 217
$ 541
$(372)
$ 169
(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 2014 were $16.2 billion
(6.5 percent) higher than 2013. Average noninterest-bearing
deposits for 2014 were $4.4 billion (6.4 percent) higher than
2013, reflecting growth in Consumer and Small Business
Banking, including the impact of the Charter One branch
acquisitions, Wholesale Banking and Commercial Real Estate,
and Wealth Management and Securities Services balances.
Average total savings deposits for 2014 were $15.2 billion
(11.2 percent) higher than 2013, reflecting growth in
Consumer and Small Business Banking, including the impact
of the Charter One branch acquisitions, Wholesale Banking
and Commercial Real Estate and corporate trust balances.
Average time deposits, which are managed based on funding
needs and relative pricing, decreased $3.5 billion
(7.6 percent) in 2014, compared with 2013.
Provision for Credit Losses The provision for credit losses
reflects changes in the size and credit quality of the entire
portfolio of loans. The Company maintains an allowance for
credit losses considered appropriate by management for
probable and estimable incurred losses, based on factors
discussed in the “Analysis and Determination of Allowance for
Credit Losses” section.
In 2015, the provision for credit losses was $1.1 billion,
compared with $1.2 billion and $1.3 billion in 2014 and 2013,
respectively. The provision for credit losses was lower than
net charge-offs by $40 million in 2015, $105 million in 2014
and $125 million in 2013. The $97 million (7.9 percent)
decrease in the provision for credit losses in 2015, compared
with 2014, reflected improving credit trends and the
underlying risk profile of the loan portfolio as economic
conditions continued to slowly improve during the period,
partially offset by portfolio growth. Nonperforming assets
decreased $285 million (15.8 percent) from December 31,
2014 to December 31, 2015, primarily driven by
nonperforming asset reductions in the commercial real estate,
residential mortgages, and home equity and second
mortgage portfolios, as economic conditions continued to
slowly improve during the period. In addition, accruing loans
ninety days or more past due decreased by $114 million (12.1
percent) from December 31, 2014 to December 31, 2015.
Net charge-offs decreased $162 million (12.1 percent) in
— 30 —
2015 from 2014 due to improvement in the residential
mortgages, and home equity and second mortgages
portfolios, as economic conditions continue to slowly improve
in 2015, partially offset by higher commercial loan net charge-
offs.
The $111 million (8.3 percent) decrease in the provision for
credit losses in 2014, compared with 2013, reflected
improving credit trends in residential mortgages and home
equity and second mortgages as economic conditions
improved during 2014, partially offset by portfolio growth and
higher commercial loan net charge-offs and lower commercial
real estate loan recoveries in 2014. Accruing loans ninety
days or more past due decreased by $244 million (20.5
percent) from December 31, 2013 to December 31, 2014,
primarily reflecting improvement in the residential mortgages
portfolio. Nonperforming assets decreased $229 million (11.2
percent) from December 31, 2013 to December 31, 2014,
primarily driven by reductions in the commercial, commercial
mortgage and construction and development portfolios, as
well as by improvement in credit card loans. Net charge-offs
decreased $131 million (8.9 percent) in 2014 from 2013 due
to the improvement in the residential mortgages and home
equity and second mortgages portfolios, reflecting improving
economic conditions, partially offset by higher commercial
loan net charge-offs and lower commercial real estate loan
recoveries in 2014.
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.
T A B L E 4 NONINTEREST INCOME
Noninterest Income Noninterest income in 2015 was
$9.1 billion, compared with $9.2 billion in 2014 and
$8.8 billion in 2013. The $72 million (0.8 percent) decrease in
2015 from 2014 reflected the 2014 Nuveen gain, lower gains
from Visa stock sales, the 2015 student loan market
adjustment and lower mortgage banking revenue, partially
offset by higher revenue in most other fee businesses and the
2015 HSA deposit sale gain. The decrease in mortgage
banking revenue in 2015 of 10.2 percent, compared with
2014, was primarily due to an unfavorable change in the
valuation of mortgage servicing rights (“MSRs”), net of
hedging activities, partially offset by an increase in mortgage
production volume. Credit and debit card revenue increased
4.8 percent in 2015 compared with 2014, due to higher
transaction volumes. Trust and investment management fees
increased 5.5 percent, reflecting the benefits of the
Company’s investments in its corporate trust and fund
services businesses, as well as account growth, improved
market conditions and lower fee waivers. Merchant
processing services revenue was 2.4 percent higher as a
result of higher transaction volumes, along with account
growth and equipment sales to merchants related to new chip
technology requirements. Adjusted for the impact of foreign
currency rate changes, the increase would have been
approximately 6.9 percent. In addition, treasury management
fees increased 2.9 percent in 2015 compared with 2014, due
to higher transaction volumes, and commercial products
revenue increased due to higher syndication and bond
underwriting fees and higher commercial leasing revenue,
partially offset by lower standby letter of credit fees.
Year Ended December 31 (Dollars in Millions)
2015
2014
2013
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,070
708
1,547
318
1,321
702
561
867
906
185
–
907
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$9,092
$1,021
724
1,511
321
1,252
693
545
854
1,009
191
3
1,040
$9,164
$ 965
706
1,458
327
1,139
670
538
859
1,356
178
9
569
$8,774
* Not meaningful.
2015
v 2014
2014
v 2013
4.8%
(2.2)
2.4
(.9)
5.5
1.3
2.9
1.5
(10.2)
(3.1)
*
(12.8)
5.8%
2.5
3.6
(1.8)
9.9
3.4
1.3
(.6)
(25.6)
7.3
(66.7)
82.8
(.8)%
4.4%
— 31 —
The $390 million (4.4 percent) increase in noninterest
income in 2014 from 2013 was principally due to increases in
a majority of fee revenue categories and other income,
partially offset by a reduction in mortgage banking revenue.
Trust and investment management fees increased 9.9
percent in 2014, compared with 2013, reflecting account
growth, improved market conditions and business expansion.
Merchant processing services revenue was 3.6 percent
higher as a result of an increase in fee-based product revenue
and higher volumes, partially offset by lower rates. Credit and
debit card revenue and corporate payment products revenue
increased 5.8 percent and 2.5 percent, respectively, primarily
due to higher transaction volumes. Deposit service charges
were 3.4 percent higher due to account growth, the Charter
One branch acquisitions and pricing changes. Investment
products fee revenue increased 7.3 percent primarily due to
higher transaction volumes. Other income increased 82.8
percent in 2014, compared with 2013, reflecting higher equity
investment income, including 2014 gains on Visa stock sales
and the Nuveen gain, and higher retail leasing revenue. The
decrease in mortgage banking revenue in 2014 of 25.6
percent, compared with 2013, was primarily due to lower
origination and sales revenue, partially offset by favorable
changes in the valuation of MSRs, net of hedging activities.
Noninterest Expense Noninterest expense in 2015 was
$10.9 billion, compared with $10.7 billion in 2014 and
$10.3 billion in 2013. The Company’s efficiency ratio was 53.8
percent in 2015, compared with 53.2 percent in 2014 and
52.4 percent in 2013. The $216 million (2.0 percent) increase
in noninterest expense in 2015 over 2014 reflected higher
compensation, employee benefits and other costs related to
compliance activities during 2015. Compensation expense
increased 6.4 percent, reflecting the impact of merit increases,
higher staffing for risk and compliance activities, as well as the
Charter One branch acquisitions. Employee benefits expense
increased 12.1 percent, primarily the result of higher pension
costs. In addition, technology and communications expense
increased 2.8 percent in 2015 over 2014, reflecting higher
software license and maintenance costs. Offsetting these
increases was a 5.5 percent decrease in marketing and
business development expense reflecting higher charitable
contributions in 2014, a 9.5 percent decrease in postage,
printing and supplies expense due to a 2015 reimbursement
from a business partner, and a 12.6 percent decrease in other
intangibles expense due to the reduction or completion of
amortization of certain intangibles. In addition, other expense
decreased 8.0 percent, reflecting the impact of the 2014 FHA
DOJ settlement and prior year legal accruals, partially offset by
higher current year compliance-related expenses.
T A B L E 5 NONINTEREST EXPENSE
Year Ended December 31 (Dollars in Millions)
2015
2014
2013
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net occupancy and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing and business development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology and communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postage, printing and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,812
1,167
991
423
361
887
297
174
1,819
Total noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,931
$ 4,523
1,041
987
414
382
863
328
199
1,978
$10,715
$ 4,371
1,140
949
381
357
848
310
223
1,695
$10,274
2015
v 2014
6.4%
12.1
.4
2.2
(5.5)
2.8
(9.5)
(12.6)
(8.0)
2.0%
2014
v 2013
3.5%
(8.7)
4.0
8.7
7.0
1.8
5.8
(10.8)
16.7
4.3%
Efficiency ratio(a)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53.8%
53.2%
52.4%
(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).
— 32 —
The $441 million (4.3 percent) increase in noninterest
expense in 2014 over 2013 was the result of increases in
most noninterest expense categories. Compensation expense
increased 3.5 percent, reflecting the impact of merit
increases, acquisitions and higher staffing for risk, compliance
and internal audit activities (partially offset by lower employee
benefits expense of 8.7 percent, driven by lower pension
costs). Net occupancy and equipment expense was 4.0
percent higher due to business initiatives and higher
maintenance costs, and professional services expense
increased 8.7 percent due mainly to mortgage servicing-
related and other project costs. Marketing and business
development expense increased 7.0 percent primarily due to
higher charitable contributions, technology and
communications expense increased 1.8 percent as result of
business initiatives across most business lines, and postage
printing and supplies expense increased 5.8 percent due to
higher postage expense and demand for credit and prepaid
cards. In addition, other expense increased 16.7 percent in
2014 over 2013, reflecting the 2014 FHA DOJ settlement,
accruals related to certain legal matters, Charter One merger
integration costs and mortgage servicing-related expenses,
partially offset by lower tax-advantaged project costs.
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
approximately $100 million in 2016, primarily driven by a
higher expected return on plan assets due to 2015 actual and
2016 expected contributions, a higher discount rate and
lower expected amortization due to recognition of prior
losses. 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,
the actual pension expense decrease may differ from the
expected amount.
Refer to Note 17 of the Notes to the Consolidated
Financial Statements for further information on the Company’s
pension plan funding practices, investment policies and asset
allocation strategies, and accounting policies for pension
plans.
The following table shows an analysis of hypothetical changes
in the discount rate and long-term rate of return (“LTROR”):
Discount Rate (Dollars in Millions)
Down 100
Basis Points
Up 100
Basis Points
. . . . . . . .
Incremental benefit (expense)
Percent of 2015 net income . . . . . . . . .
$ (118)
(1.23)%
$ 95
.99%
LTROR (Dollars in Millions)
Down 100
Basis Points
Up 100
Basis Points
. . . . . . . .
Incremental benefit (expense)
Percent of 2015 net income . . . . . . . . .
$ (35)
(.37)%
$ 35
.37%
Income Tax Expense The provision for income taxes was
$2.1 billion (an effective rate of 26.1 percent) in 2015 and
2014, and $2.0 billion (an effective rate of 26.2 percent) in
2013.
For further information on income taxes, refer to Note 19
of the Notes to Consolidated Financial Statements.
BALANCE SHEET ANALYSIS
Average earning assets were $367.4 billion in 2015,
compared with $341.0 billion in 2014. The increase in average
earning assets of $26.4 billion (7.8 percent) was primarily due
to increases in investment securities of $12.8 billion
(14.2 percent), loans of $8.8 billion (3.6 percent) and loans
held for sale of $2.6 billion (83.7 percent).
For average balance information, refer to Consolidated
Daily Average Balance Sheet and Related Yields and Rates on
pages 154 and 155.
Loans The Company’s loan portfolio was $260.8 billion at
December 31, 2015, compared with $247.9 billion at
December 31, 2014, an increase of $13.0 billion (5.2 percent).
The increase was driven by increases in commercial loans of
$8.0 billion (10.0 percent), credit card loans of $2.5 billion
(13.5 percent), other retail loans of $1.9 billion (3.9 percent)
and residential mortgages of $1.9 billion (3.6 percent), partially
offset by decreases in commercial real estate loans of $658
million (1.5 percent) and covered loans of $685 million
(13.0 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 $8.8 billion
(3.6 percent) in 2015, compared with 2014. The increase was
due to growth in most loan portfolio classes in 2015.
— 33 —
Commercial Commercial loans, including lease financing,
increased $8.0 billion (10.0 percent) at December 31, 2015,
compared with December 31, 2014. Average commercial
loans increased $8.3 billion (11.0 percent) in 2015, compared
with 2014. 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,
decreased $658 million (1.5 percent) at December 31, 2015,
compared with December 31, 2014, primarily the result of
customers paying down balances in the second half of 2015.
Average commercial real estate loans increased $1.8 billion
(4.5 percent) in 2015, compared with 2014. Table 8 provides a
summary of commercial real estate loans by property type and
geographical location.
The Company reclassifies construction loans to the
commercial mortgage category if permanent financing is
provided by the Company. In 2015, approximately $361
million of construction loans were reclassified to the
commercial mortgage category. At December 31, 2015 and
2014, $155 million 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 $10.4 billion and
$10.7 billion at December 31, 2015 and 2014, 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 $5.8 billion and $4.6 billion at
December 31, 2015 and 2014, respectively.
T A B L E 6 LOAN PORTFOLIO DISTRIBUTION
At December 31 (Dollars in Millions)
Amount
Percent
of Total
Amount
Percent
of Total
Amount
Percent
of Total
Amount
Percent
of Total
Amount
Percent
of Total
2015
2014
2013
2012
2011
Commercial
Commercial
. . . . . . . . . . .
Lease financing . . . . . . . .
$ 83,116
5,286
31.9% $ 74,996
5,381
2.0
30.2% $ 64,762
5,271
2.2
27.5% $ 60,742
5,481
2.3
27.2% $ 50,734
5,914
2.5
24.2%
2.8
Total commercial
. . . . .
88,402
33.9
80,377
32.4
70,033
29.8
66,223
29.7
56,648
27.0
Commercial Real Estate
Commercial mortgages . .
Construction and
31,773
12.2
33,360
13.5
32,183
13.7
31,005
13.9
29,664
14.1
development . . . . . . . . .
10,364
3.9
9,435
3.8
7,702
3.3
5,948
2.6
6,187
3.0
Total commercial real
estate . . . . . . . . . . . .
42,137
16.1
42,795
17.3
39,885
17.0
36,953
16.5
35,851
17.1
Residential Mortgages
Residential mortgages . . .
Home equity loans, first
40,425
15.5
38,598
15.6
37,545
15.9
32,648
14.6
28,669
13.7
liens . . . . . . . . . . . . . . . .
13,071
5.0
13,021
5.2
13,611
5.8
11,370
5.1
8,413
4.0
Total residential
mortgages . . . . . . . . .
Credit Card . . . . . . . . . . . . .
53,496
21,012
20.5
8.1
51,619
18,515
20.8
7.5
51,156
18,021
21.7
7.7
44,018
17,115
19.7
7.7
37,082
17,360
17.7
8.3
Other Retail
Retail leasing . . . . . . . . . .
Home equity and second
mortgages . . . . . . . . . . .
. . . . . . . .
Revolving credit
Installment
. . . . . . . . . . . .
Automobile . . . . . . . . . . . .
Student . . . . . . . . . . . . . . .
5,232
2.0
5,871
2.4
5,929
2.5
5,419
2.4
5,118
2.4
16,384
3,354
7,030
16,587
2,619
6.3
1.3
2.7
6.3
1.0
15,916
3,309
6,242
14,822
3,104
6.4
1.3
2.5
6.0
1.3
15,442
3,276
5,709
13,743
3,579
6.6
1.4
2.4
5.8
1.5
16,726
3,332
5,463
12,593
4,179
7.5
1.5
2.4
5.6
1.9
18,131
3,344
5,348
11,508
4,658
8.6
1.6
2.6
5.5
2.2
Total other retail
. . . . . .
51,206
19.6
49,264
19.9
47,678
20.2
47,712
21.3
48,107
22.9
Total loans, excluding
covered loans . . . .
Covered Loans . . . . . . . . .
256,253
4,596
98.2
1.8
242,570
5,281
97.9
2.1
226,773
8,462
96.4
3.6
212,021
11,308
94.9
5.1
195,048
14,787
93.0
7.0
Total loans . . . . . . .
$260,849
100.0% $247,851
100.0% $235,235
100.0% $223,329
100.0% $209,835
100.0%
— 34 —
T A B L E 7 COMMERCIAL LOANS BY INDUSTRY GROUP AND GEOGRAPHY
At December 31 (Dollars in Millions)
Industry Group
2015
2014
Loans
Percent
Loans
Percent
Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate, rental and leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance and insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wholesale trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Healthcare and social assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Public administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional, scientific and technical services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transport and storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Educational services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arts, entertainment and recreation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Agriculture, forestry, fishing and hunting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
$13,404
9,514
8,288
8,069
6,846
5,802
4,190
3,542
3,493
3,262
2,791
2,772
2,208
1,721
1,703
1,435
9,362
15.2%
10.8
9.4
9.1
7.7
6.6
4.7
4.0
4.0
3.7
3.2
3.1
2.5
1.9
1.9
1.6
10.6
$12,261
7,779
7,799
7,350
6,428
5,280
4,033
2,702
3,121
2,941
2,286
2,493
2,604
1,642
1,449
1,404
8,805
15.3%
9.7
9.7
9.1
8.0
6.6
5.0
3.4
3.9
3.7
2.8
3.1
3.2
2.0
1.8
1.7
11.0
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$88,402
100.0%
$80,377
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,253
3,930
4,636
7,166
3,309
4,063
1,938
3,219
2,936
4,543
5,106
1,427
3,280
56,806
15,819
15,777
Total outside Company’s banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31,596
12.7%
4.5
5.3
8.1
3.8
4.6
2.2
3.6
3.3
5.1
5.8
1.6
3.7
64.3
17.9
17.8
35.7
$ 9,961
3,528
4,108
6,316
2,832
3,534
2,130
3,237
3,090
4,400
4,949
1,475
2,951
52,511
14,036
13,830
27,866
12.4%
4.4
5.1
7.9
3.5
4.4
2.6
4.0
3.8
5.5
6.2
1.8
3.7
65.3
17.5
17.2
34.7
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$88,402
100.0%
$80,377
100.0%
Residential Mortgages Residential mortgages held in the
loan portfolio at December 31, 2015, increased $1.9 billion
(3.6 percent) over December 31, 2014, reflecting higher
origination and refinancing activity during 2015. Average
residential mortgages were essentially flat in 2015, compared
with 2014. Residential mortgages originated and placed in the
Company’s loan portfolio include well-secured jumbo
mortgages and branch-originated first lien home equity loans
to borrowers with high credit quality.
Credit Card Total credit card loans increased $2.5 billion
(13.5 percent) at December 31, 2015, compared with
December 31, 2014. Average credit card balances increased
$422 million (2.4 percent) in 2015, compared with 2014. The
increases reflected new and existing customer growth during
the period, including the 2015 acquisitions of credit card
portfolios from Fidelity Investments and Auto Club Trust.
— 35 —
T A B L E 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Healthcare facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
2014
Loans
Percent
Loans
Percent
$11,186
26.6%
$11,535
26.9%
1,530
5,480
4,944
4,165
8,833
3,428
2,319
252
3.6
13.0
11.7
9.9
21.0
8.1
5.5
.6
1,582
5,680
4,896
4,670
8,548
3,624
1,996
264
3.7
13.3
11.4
10.9
20.0
8.5
4.7
.6
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$42,137
100.0%
$42,795
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,456
2,004
1,810
2,022
1,382
1,260
1,988
3,422
2,323
2,227
1,708
1,275
3,259
35,136
3,793
3,208
Total outside Company’s banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,001
24.8%
4.8
4.3
4.8
3.3
3.0
4.7
8.1
5.5
5.3
4.1
3.0
7.7
83.4
9.0
7.6
16.6
$10,545
1,955
2,153
2,031
1,453
1,391
2,012
3,501
2,293
2,202
1,764
1,319
3,383
36,002
3,656
3,137
6,793
24.6%
4.6
5.0
4.7
3.4
3.3
4.7
8.2
5.4
5.1
4.1
3.1
7.9
84.1
8.6
7.3
15.9
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$42,137
100.0%
$42,795
100.0%
Other Retail Total other retail loans, which include retail
leasing, home equity and second mortgages and other retail
loans, increased $1.9 billion (3.9 percent) at December 31,
2015, compared with December 31, 2014. Average other
retail loans increased $726 million (1.5 percent) in 2015,
compared with 2014. The increases were primarily due to
higher auto and installment loans, and home equity and
second mortgages, partially offset by lower retail leasing and
student loan balances. Of the total residential mortgages,
credit card and other retail loans outstanding at
December 31, 2015, approximately 73.4 percent were to
customers located in the Company’s primary banking region
compared with 73.0 percent at December 31, 2014. 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, 2015 and
2014. The collateral for $3.1 billion of residential mortgages
and other retail loans included in covered loans at
December 31, 2015 was in California, compared with $3.5
billion at December 31, 2014.
— 36 —
T A B L E 9 RESIDENTIAL MORTGAGES BY GEOGRAPHY
At December 31 (Dollars in Millions)
2015
2014
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,994
3,047
2,991
4,035
1,955
2,322
2,144
3,020
1,556
2,188
3,287
1,209
3,773
43,521
4,321
5,654
Total outside Company’s banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,975
22.4%
5.7
5.6
7.6
3.7
4.3
4.0
5.6
2.9
4.1
6.1
2.3
7.1
81.4
8.1
10.5
18.6
$ 9,943
2,969
3,085
4,002
2,090
2,350
2,071
2,874
1,582
2,225
3,353
1,198
3,518
41,260
4,446
5,913
10,359
19.3%
5.7
6.0
7.7
4.0
4.6
4.0
5.6
3.1
4.3
6.5
2.3
6.8
79.9
8.6
11.5
20.1
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$53,496
100.0%
$51,619
100.0%
T A B L E 1 0 CREDIT CARD LOANS BY GEOGRAPHY
At December 31 (Dollars in Millions)
2015
2014
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,161
787
1,046
1,350
746
1,238
707
898
1,050
996
1,613
406
1,031
14,029
3,600
3,383
Total outside Company’s banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,983
10.3%
3.7
5.0
6.4
3.6
5.9
3.4
4.3
5.0
4.7
7.7
1.9
4.9
66.8
17.1
16.1
33.2
$ 1,919
699
922
1,219
661
1,109
626
809
959
897
1,435
363
884
12,502
3,153
2,860
6,013
10.3%
3.8
5.0
6.6
3.6
6.0
3.4
4.4
5.2
4.8
7.7
1.9
4.8
67.5
17.0
15.5
32.5
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$21,012
100.0%
$18,515
100.0%
— 37 —
T A B L E 1 1 OTHER RETAIL LOANS BY GEOGRAPHY
At December 31 (Dollars in Millions)
2015
2014
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,495
1,995
3,000
3,600
2,191
2,740
1,601
1,724
1,651
2,318
2,925
963
2,539
34,742
8,858
7,606
Total outside Company’s banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,464
14.6%
3.9
5.8
7.0
4.3
5.4
3.1
3.4
3.2
4.5
5.7
1.9
5.0
67.8
17.3
14.9
32.2
$ 6,640
1,931
2,808
3,666
2,142
2,626
1,604
1,731
1,729
2,329
2,819
975
2,362
33,362
8,328
7,574
15,902
13.5%
3.9
5.7
7.4
4.4
5.3
3.3
3.5
3.5
4.7
5.7
2.0
4.8
67.7
16.9
15.4
32.3
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$51,206
100.0%
$49,264
100.0%
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.
Loans Held for Sale Loans held for sale, consisting primarily
of residential mortgages to be sold in the secondary market,
were $3.2 billion at December 31, 2015, compared with $4.8
billion at December 31, 2014. The decrease in loans held for
sale was principally due to a lower level of mortgage loan
closing late in 2015, compared with the same period of 2014.
Almost all of the residential mortgage loans the Company
originates or purchases for sale 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”).
— 38 —
T A B L E 1 2 SELECTED LOAN MATURITY DISTRIBUTION
At December 31, 2015 (Dollars in Millions)
Commercial
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
One Year
or Less
$28,529
11,074
2,705
21,012
9,876
580
Over One
Through
Five Years
$ 55,846
24,476
8,118
—
27,382
774
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$73,776
$116,596
Total of loans due after one year with
Predetermined interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Floating interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over Five
Years
$ 4,027
6,587
42,673
—
13,948
3,242
$70,477
Total
$ 88,402
42,137
53,496
21,012
51,206
4,596
$260,849
$ 82,032
$105,041
Investment Securities The Company uses its investment
securities portfolio to manage enterprise interest rate risk,
provide liquidity (including the ability to meet 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 $105.6 billion at
December 31, 2015, compared with $101.0 billion at
December 31, 2014. The $4.6 billion (4.5 percent) increase
reflected $5.1 billion of net investment purchases, partially
offset by a $457 million unfavorable change in net unrealized
gains (losses) on available-for-sale investment securities.
Average investment securities were $103.2 billion in 2015,
compared with $90.3 billion in 2014. The weighted-average
yield of the available-for-sale portfolio was 2.21 percent at
December 31, 2015, compared with 2.32 percent at
December 31, 2014. The average maturity of the available-
for-sale portfolio was 4.7 years at December 31, 2015,
compared with 4.3 years at December 31, 2014. The
weighted-average yield of the held-to-maturity portfolio was
1.92 percent at December 31, 2015, unchanged from
December 31, 2014. The average maturity of the held-to-
maturity portfolio was 4.2 years at December 31, 2015,
compared with 4.0 years at December 31, 2014. 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, 2015,
the Company’s net unrealized gains on available-for-sale
securities were $180 million, compared with $637 million at
December 31, 2014. 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 $480
million at December 31, 2015, compared with $343 million at
December 31, 2014. 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,
2015, 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.
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 certain 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 5 and 22 in the Notes to Consolidated
Financial Statements for further information on investment
securities.
— 39 —
T A B L E 1 3 INVESTMENT SECURITIES
At December 31, 2015 (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 . . . . . . . . . . . . . . . . . . . . . .
$
476
1,387
2,747
1
$
477
1,393
2,725
1
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,611
$ 4,596
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 . . . . . . . . . . . . . . . . . . . . . .
$
360
32,988
16,468
829
$
363
33,030
16,466
827
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$50,645
$50,686
Asset-Backed Securities(a)
Maturing in one year or less . . . . . . . . . . . . . . . . . . .
Maturing after one year through five years . . . . . . .
Maturing after five years through ten years . . . . . . .
Maturing after ten years . . . . . . . . . . . . . . . . . . . . . .
$
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
–
194
354
–
548
$
$
–
199
361
–
560
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 . . . . . . . . . . . . . . . . . . . . . .
$ 2,175
1,976
881
117
$ 2,216
2,072
902
126
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,149
$ 5,316
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 . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
–
–
–
677
677
187
$
$
$
–
–
–
610
610
229
Total investment securities(d) . . . . . . . . . . . . . . . . . . . .
$61,817
$61,997
.4
2.5
6.8
11.7
4.8
.6
4.1
5.7
12.3
4.7
–
3.4
5.9
–
5.0
.5
1.8
7.4
14.5
2.5
–
–
–
17.6
17.6
22.9
4.7
2.38% $
1.38
2.05
4.15
–
1,097
1,828
–
$
–
1,103
1,816
–
1.88% $ 2,925
$ 2,919
2.25% $
1.92
1.44
1.41
210
31,258
8,933
219
$
210
31,130
8,962
220
1.76% $40,620
$40,522
–% $
3.27
2.75
–
$
–
6
3
1
1
8
3
7
2.94% $
10
$
19
7.04% $
6.87
5.52
7.15
6.72% $
–% $
–
–
2.61
2.61% $
4.59% $
–
1
3
4
8
1
26
–
–
27
–
$
$
$
$
$
–
1
3
4
8
1
24
–
–
25
–
2.21% $43,590
$43,493
–
2.7
6.9
–
5.3
.7
3.7
5.5
11.7
4.2
.1
3.4
6.3
11.8
5.2
.5
2.6
8.9
10.5
9.1
.6
3.8
–
–
3.6
–
4.2
–%
1.42
2.14
–
1.87%
2.08%
2.07
1.44
1.36
1.92%
1.01%
1.05
1.17
1.18
1.10%
11.31%
8.03
3.94
2.32
3.49%
1.64%
1.27
–
–
1.28%
– %
1.92%
(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 4.3 years at December 31, 2014, with a corresponding weighted-average yield of 2.32 percent. The weighted-
average maturity of the held-to-maturity investment securities was 4.0 years at December 31, 2014, with a corresponding weighted-average yield of 1.92 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)
2015
2014
Amortized
Cost
Percent
of Total
Amortized
Cost
Percent
of Total
U.S. Treasury and agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of state and political subdivisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other debt securities and investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
7,536
91,265
558
5,157
891
7.2%
$
86.6
.5
4.9
.8
5,339
87,645
638
5,613
1,171
5.3%
87.3
.6
5.6
1.2
Total investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$105,407
100.0%
$100,406
100.0%
— 40 —
T A B L E 1 4 DEPOSITS
The composition of deposits was as follows:
At December 31 (Dollars in Millions)
Noninterest-bearing deposits . . . . . . . .
Interest-bearing deposits
Interest checking . . . . . . . . . . . . . . . .
Money market savings . . . . . . . . . . . .
Savings accounts . . . . . . . . . . . . . . . .
Total of savings deposits . . . . . . . .
Time deposits less than $100,000 . . . .
Time deposits greater than $100,000
2015
2014
2013
2012
2011
Amount
Percent
of Total
Amount
Percent
of Total
Amount
Percent
of Total
Amount
Percent
of Total
Amount
Percent
of Total
$ 83,766
27.9% $ 77,323
27.3% $ 76,941
29.4% $ 74,172
29.8% $ 68,579
29.7%
59,169
86,159
38,468
183,796
9,050
19.7
28.7
12.8
61.2
3.0
55,058
76,536
35,249
166,843
10,609
19.5
27.1
12.4
59.0
3.8
52,140
59,772
32,469
144,381
11,784
19.9
22.8
12.4
55.1
4.5
50,430
50,987
30,811
132,228
13,744
20.2
20.5
12.4
53.1
5.5
45,933
45,854
28,018
119,805
14,952
19.9
19.9
12.1
51.9
6.5
Domestic . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . .
7,272
16,516
2.4
5.5
10,636
17,322
3.8
6.1
9,527
19,490
3.6
7.4
12,148
16,891
4.8
6.8
12,583
14,966
5.4
6.5
Total interest-bearing deposits . . . .
216,634
72.1
205,410
72.7
185,182
70.6
175,011
70.2
162,306
70.3
Total deposits . . . . . . . . . . . . . . . . . . .
$300,400 100.0% $282,733 100.0% $262,123 100.0% $249,183 100.0% $230,885 100.0%
The maturity of time deposits was as follows:
At December 31, 2015 (Dollars in Millions)
Three months or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Three months through six months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Six months through one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time Deposits
Less Than $100,000
Time Deposits Greater Than $100,000
Domestic
Foreign
Total
$1,324
1,087
2,298
2,018
994
742
585
2
$9,050
$1,791
668
1,474
1,584
586
535
633
1
$7,272
$16,478
19
19
—
—
—
—
—
$19,593
1,774
3,791
3,602
1,580
1,277
1,218
3
$16,516
$32,838
Deposits Total deposits were $300.4 billion at December 31,
2015, compared with $282.7 billion at December 31, 2014.
The $17.7 billion (6.2 percent) increase in total deposits
reflected growth in total savings and noninterest-bearing
deposits, partially offset by a decrease in time deposits.
Average total deposits in 2015 increased $20.5 billion (7.7
percent) over 2014 due to increases in total savings deposits
and noninterest-bearing deposits, including those obtained in
the Charter One branch acquisitions, partially offset by a
decrease in time deposits.
Noninterest-bearing deposits at December 31, 2015,
increased $6.4 billion (8.3 percent) over December 31, 2014,
primarily due to higher Wholesale Banking and Commercial
Real Estate, Consumer and Small Business Banking, and
corporate trust balances. Average noninterest-bearing
deposits increased $5.7 billion (7.8 percent) in 2015,
compared with 2014, reflecting growth in Consumer and
Small Business Banking and Wholesale Banking and
Commercial Real Estate, as well as the impact of the Charter
One branch acquisitions.
Interest-bearing savings deposits increased $17.0 billion
(10.2 percent) at December 31, 2015, compared with
December 31, 2014. The increase was related to higher
money market, interest checking and savings account
balances. Money market deposit balances increased $9.6
billion (12.6 percent) at December 31, 2015, compared with
December 31, 2014, primarily due to higher Wholesale
Banking and Commercial Real Estate, and broker-dealer
balances. Interest checking balances increased $4.1 billion
(7.5 percent) primarily due to higher Consumer and Small
Business Banking, and corporate trust balances, partially
offset by lower broker-dealer balances. Savings account
balances increased $3.2 billion (9.1 percent), primarily due to
higher Consumer and Small Business Banking balances.
Average interest-bearing savings deposits in 2015 increased
$21.0 billion (13.8 percent), compared with 2014, reflecting
growth in Consumer and Small Business Banking, Wholesale
Banking and Commercial Real Estate and Wealth
Management and Securities Services balances, as well as the
impact of the Charter One branch acquisitions.
Interest-bearing time deposits at December 31, 2015,
decreased $5.7 billion (14.9 percent), compared with
December 31, 2014. Average time deposits decreased $6.2
billion (14.9 percent) in 2015, compared with 2014. Changes
— 41 —
in time deposits are largely related to those deposits managed
as an alternative to other wholesale funding sources, based
largely on funding needs and 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 $27.9 billion at
December 31, 2015, compared with $29.9 billion at
December 31, 2014. The $2.0 billion (6.7 percent) decrease in
short-term borrowings was primarily due to decreases in
other short-term borrowings balances.
Long-term debt was $32.1 billion at December 31, 2015,
compared with $32.3 billion at December 31, 2014. The $182
million (0.6 percent) decrease reflected $1.4 billion of bank
note repayments, and $3.1 billion of medium-term note and
subordinated note maturities, partially offset by the issuances
of $2.4 billion of bank notes and a $1.7 billion increase in
Federal Home Loan Bank (“FHLB”) advances.
Refer to Notes 12 and 13 of the Notes to Consolidated
Financial Statements for additional information regarding
short-term borrowings and 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 management
framework which establishes governance and risk
management requirements for all risk-taking activities. This
framework includes Company and business line risk appetite
statements which set boundaries for the types and amount of
risk that may be undertaken in pursuing business objectives
and initiatives. The Board of Directors, through its Risk
Management Committee, oversees performance relative to
the risk management framework, risk appetite statements,
and other policy requirements.
The Executive Risk Committee (“ERC”), which is chaired by
the Chief Risk Officer and includes the Chief Executive Officer
and other members of the executive management team,
oversees execution against the risk management framework
and risk appetite statements. The ERC focuses on current and
emerging risks, including strategic and reputational risks, by
directing timely and comprehensive actions. Senior operating
committees have also been established, each responsible for
overseeing a specified category of risk.
The Company’s most prominent risk exposures are credit,
interest rate, market, liquidity, operational, compliance,
strategic, and reputational. 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. Interest rate
risk is the potential reduction of net interest income or market
valuations as a result of changes in interest rates. 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 (“MLHFS”),
MSRs and derivatives that are accounted for on a fair value
basis. Liquidity risk is the possible inability to fund obligations
or new business at a reasonable cost and in a timely manner.
Operational risk is the risk of loss resulting from inadequate or
failed internal processes, people, or systems, or from external
events, including the risk of loss resulting from breaches in
data security. Operational risk can also include failures by
third parties with which the Company does business.
Compliance risk is the risk of loss arising from violations of, or
nonconformance with, laws, rules, regulations, prescribed
practices, internal policies, and procedures, or ethical
standards, potentially exposing the Company to fines, civil
money penalties, payment of damages, and the voiding of
contracts. Compliance risk also arises in situations where the
laws or rules governing certain Company products or
activities of the Company’s customers may be ambiguous or
untested. Strategic risk is the risk to earnings or capital arising
from adverse business decisions or improper implementation
of those decisions. Reputational risk is the risk to current or
anticipated earnings, capital, or franchise or enterprise value
arising from negative public opinion. This risk may impair the
Company’s competitiveness by affecting its ability to establish
new relationships or services, or continue serving existing
relationships. In addition to the risks identified above, other
risk factors exist that may impact the Company. Refer to
“Risk Factors” beginning on page 156, for a detailed
discussion of these factors.
The Company’s Board and management-level governance
committees are supported by a “three lines of defense” model
for establishing effective checks and balances. The first line of
defense, the business lines, manages risks in conformity with
established limits and policy requirements. In turn, business
leaders and their risk officers establish programs to ensure
conformity with these limits and policy requirements. The
second line of defense, which includes the Chief Risk Officer’s
organization as well as policy and oversight activities of
corporate support functions, translates risk appetite and
strategy into actionable risk limits and policies. The second
line of defense monitors first line of defense conformity with
limits and policies, and provides reporting and escalation of
emerging risks and other concerns to senior management
and the Risk Management Committee of the Board of
— 42 —
Directors. The third line of defense, internal audit, is responsible
for providing the Audit Committee of the Board of Directors and
senior management with independent assessment and
assurance regarding the effectiveness of the Company’s
governance, risk management, and control processes.
Management provides various risk reports to the Risk
Management Committee of the Board of Directors. The Risk
Management Committee discusses with management the
Company’s risk management performance, and provides a
summary of key risks to the entire Board of Directors,
covering the status of existing matters, areas of potential
future concern, and specific information on certain types of
loss events. The Risk Management Committee considers
quarterly reports by management assessing the Company’s
performance relative to the risk appetite statements and the
associated risk limits, including:
– Qualitative considerations, such as the macroeconomic
environment, regulatory and compliance changes, litigation
developments, and technology and cybersecurity;
– Capital ratios and projections, including regulatory measures
and stressed scenarios;
– Credit measures, including adversely rated and
nonperforming loans, leveraged transactions, credit
concentrations and lending limits;
– Interest rate and market risk, including market value and net
income simulation, and trading-related Value at Risk;
– Liquidity risk, including funding projections under various
stressed scenarios;
– Operational and compliance risk, including losses stemming
from events such as fraud, processing errors, control
breaches, breaches in data security, or adverse business
decisions, as well as reporting on technology performance,
and various legal and regulatory compliance measures; and
– Reputational and strategic risk considerations, impacts and
responses.
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 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 loans
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 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 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
6 in the Notes to Consolidated Financial Statements for
further discussion 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
— 43 —
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 10- or 15-year
draw period during which a minimum payment is equivalent to
the monthly interest, followed by a 20- or 10-year
amortization period, respectively. At December 31, 2015,
substantially all of the Company’s home equity lines were in
the draw period. Approximately $920 million, or 6 percent, of
the outstanding home equity line balances at December 31,
2015, will enter the amortization period within the next 36
months. 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), collateral values, trends in loan performance
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 employment levels, median home prices and the financial
markets have slowly improved, business activities across
certain industries and regions continue to face challenges due
to slow global economic growth. If commodity prices inclusive
of energy, remain depressed for an extended period of time,
the industry and the overall economy could be negatively
impacted.
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 $40 million in 2015,
$105 million in 2014 and $125 million in 2013. The $97 million
(7.9 percent) decrease in the provision for credit losses in
2015, compared with 2014, reflected improving credit trends
and the underlying risk profile of the loan portfolio as
economic conditions continued to slowly improve throughout
2015, partially offset by portfolio growth and deterioration in
certain loans to customers in energy-related businesses.
— 44 —
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
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 2015.
The commercial loan class is diversified among various
industries with somewhat higher concentrations in
manufacturing, finance and insurance, wholesale trade, and
real estate, rental and leasing. Additionally, the commercial
loan class is diversified across the Company’s geographical
markets with 64.3 percent of total commercial loans within
the Company’s Consumer and Small Business Banking
region. Credit relationships outside of the Company’s
Consumer and Small Business Banking region 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, 2015 and 2014. At
December 31, 2015, approximately $3.2 billion of the
commercial loans outstanding were to customers in energy-
related businesses, compared with $3.1 billion at
December 31, 2014. The decline in energy prices over the
past year has resulted in deterioration of a portion of these
loans; however, the impact of this deterioration was not
significant to the Company during 2015. A further decline in
energy prices, or if prices remain at current levels for an
extended period of time, could result in an increase in the
Company’s loan charge-offs and provision for credit losses.
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, 2015 and 2014. At December 31, 2015,
approximately 26.6 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, 2015, 24.8 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 inventory levels and
declining valuations. Included in commercial real estate at
year-end 2015 was approximately $681 million in loans
related to land held for development and $676 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 83.4 percent of total commercial real estate loans
outstanding at December 31, 2015, within the Company’s
Consumer and Small Business Banking region.
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 on its
outstanding residential mortgages quarterly, based on a
— 45 —
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.
The following tables provide summary information for the
LTVs of residential mortgages and home equity and second
mortgages by borrower type at December 31, 2015:
Residential mortgages
(Dollars in Millions)
Prime Borrowers
Interest
Only Amortizing
Total
Percent
of Total
Less than or equal to 80% . . . . . $1,697 $40,278 $41,975
2,801
Over 80% through 90% . . . . . . .
Over 90% through 100% . . . . . .
987
1,106
Over 100% . . . . . . . . . . . . . . . . .
120
No LTV available . . . . . . . . . . . . .
2,743
956
1,065
118
58
31
41
2
89.3%
6.0
2.1
2.4
.2
Total
. . . . . . . . . . . . . . . . . . . . $1,829 $45,160 $46,989 100.0%
Sub-Prime Borrowers
Less than or equal to 80% . . . . . $
Over 80% through 90% . . . . . . .
Over 90% through 100% . . . . . .
Over 100% . . . . . . . . . . . . . . . . .
No LTV available . . . . . . . . . . . . .
– $
–
–
–
–
603 $
173
133
161
2
603
173
133
161
2
56.3%
16.1
12.4
15.0
.2
Total
. . . . . . . . . . . . . . . . . . . . $
– $ 1,072 $ 1,072 100.0%
Other Borrowers
Less than or equal to 80% . . . . . $
Over 80% through 90% . . . . . . .
Over 90% through 100% . . . . . .
Over 100% . . . . . . . . . . . . . . . . .
No LTV available . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . $
Loans Purchased From
2 $
–
–
–
–
2 $
387 $
88
46
102
–
389
88
46
102
–
62.2%
14.1
7.4
16.3
–
623 $
625 100.0%
GNMA Mortgage Pools(a)
. . $
– $ 4,810 $ 4,810 100.0%
Total
Less than or equal to 80% . . . . . $1,699 $41,268 $42,967
3,062
Over 80% through 90% . . . . . . .
1,166
Over 90% through 100% . . . . . .
1,369
Over 100% . . . . . . . . . . . . . . . . .
No LTV available . . . . . . . . . . . . .
122
Loans purchased from GNMA
3,004
1,135
1,328
120
58
31
41
2
80.3%
5.7
2.2
2.6
.2
mortgage pools(a)
. . . . . . . . . .
–
4,810
4,810
9.0
Total
. . . . . . . . . . . . . . . . . . . . $1,831 $51,665 $53,496 100.0%
(a) Represents loans purchased from Government National Mortgage Association (“GNMA”)
mortgage pools whose payments are primarily insured by the Federal Housing
Administration or guaranteed by the Department of Veterans Affairs.
Home equity and second mortgages
(Dollars in Millions)
Lines
Loans
Total
Percent
of Total
Prime Borrowers
Less than or equal to 80% . . . .
Over 80% through 90% . . . . . .
Over 90% through 100% . . . . .
Over 100% . . . . . . . . . . . . . . . .
No LTV/CLTV available . . . . . . .
$10,861 $ 538 $11,399
2,555
920
812
96
2,191
804
691
64
364
116
121
32
72.2%
16.2
5.8
5.2
.6
Total . . . . . . . . . . . . . . . . . . . .
$14,611 $1,171 $15,782 100.0%
Sub-Prime Borrowers
Less than or equal to 80% . . . .
Over 80% through 90% . . . . . .
Over 90% through 100% . . . . .
Over 100% . . . . . . . . . . . . . . . .
No LTV/CLTV available . . . . . . .
Total . . . . . . . . . . . . . . . . . . . .
Other Borrowers
Less than or equal to 80% . . . .
Over 80% through 90% . . . . . .
Over 90% through 100% . . . . .
Over 100% . . . . . . . . . . . . . . . .
No LTV/CLTV available . . . . . . .
$
$
$
39 $
10
8
17
–
26 $
19
21
54
1
65
29
29
71
1
33.3%
14.9
14.9
36.4
.5
74 $ 121 $
195 100.0%
242 $
36
11
9
91
12 $
3
1
2
–
254
39
12
11
91
62.4%
9.6
2.9
2.7
22.4
Total . . . . . . . . . . . . . . . . . . . .
$
389 $
18 $
407 100.0%
Total
Less than or equal to 80% . . . .
Over 80% through 90% . . . . . .
Over 90% through 100% . . . . .
Over 100% . . . . . . . . . . . . . . . .
No LTV/CLTV available . . . . . . .
$11,142 $ 576 $11,718
2,623
961
894
188
2,237
823
717
155
386
138
177
33
71.5%
16.0
5.9
5.5
1.1
Total . . . . . . . . . . . . . . . . . . . .
$15,074 $1,310 $16,384 100.0%
At December 31, 2015, approximately $1.1 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 $1.2
billion at December 31, 2014. In addition to residential
mortgages, at December 31, 2015, $195 million of home
equity and second mortgage loans were to customers that
may be defined as sub-prime borrowers, compared with
$238 million at December 31, 2014. 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 0.3 percent
of total assets at December 31, 2015, compared with
0.4 percent at December 31, 2014. 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
— 46 —
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 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.
Home equity and second mortgages were $16.4 billion at
December 31, 2015, compared with $15.9 billion at
December 31, 2014, and included $5.0 billion of home equity
lines in a first lien position and $11.4 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,
2015, included approximately $4.5 billion of loans and lines
for which the Company also serviced the related first lien loan,
and approximately $6.9 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 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, 2015:
(Dollars in Millions)
. . . . . . . . . . . . . . . . . . . . . . .
Total
Percent 30-89 days past due . . .
Percent 90 days or more past
due . . . . . . . . . . . . . . . . . . . . . .
Weighted-average CLTV . . . . . . .
Weighted-average credit score . .
Junior Liens Behind
Company Owned
or Serviced
First Lien
Third Party
First Lien
Total
$4,480 $6,872 $11,352
.29%
.43%
.37%
.06%
74%
.08%
71%
773
766
.07%
72%
769
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 71.1 percent of the
Company’s credit card balances at December 31, 2015 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.
Covered assets were acquired by the Company in FDIC-
assisted transactions and include loans with characteristics
indicative of a high credit risk profile, including a substantial
concentration in California and loans with negative-
amortization payment options. Because 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. As of December 31, 2015, the loss
share coverage provided by the FDIC has expired on all
previously covered assets, except for residential mortgages
and home equity and second mortgage loans that remain
covered under loss sharing agreements with remaining terms
of up to four years.
— 47 —
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
Commercial
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Real Estate
Commercial mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential Mortgages(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit Card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Retail
Retail leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home equity and second mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Total other retail (b)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans, excluding covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
2014
2013
2012
2011
.06%
–
.05%
–
.08%
–
.10%
–
.09%
–
.05
–
.13
.03
.33
1.09
.02
.25
.11
.15
.21
6.31
.05
.02
.14
.05
.40
1.13
.02
.26
.12
.15
.23
7.48
.08
.02
.30
.07
.65
1.17
–
.32
.14
.18
.31
5.63
.09
.02
.02
.02
.64
1.27
.02
.30
.17
.20
.31
5.86
.08
.02
.13
.04
.98
1.36
.02
.73
.20
.38
.43
6.15
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.32%
.38%
.51%
.59%
.84%
At December 31,
90 days or more past due including nonperforming loans
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages(a)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans, excluding covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
2014
2013
2012
2011
.25%
.33
1.66
1.13
.46
.67
6.48
.19%
.65
2.07
1.30
.53
.83
7.74
.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
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.78%
.97%
1.19%
1.52%
2.30%
(a) Delinquent loan ratios exclude $2.9 billion, $3.1 billion, $3.7 billion, $3.2 billion, and $2.6 billion at December 31, 2015, 2014, 2013, 2012, and 2011, 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 7.15 percent, 8.02 percent, 9.34 percent, 9.45 percent, and 9.84 percent at December 31, 2015, 2014,
2013, 2012, and 2011, 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 .75 percent, .84 percent, .93 percent, 1.08 percent, and .99 percent at December 31, 2015, 2014, 2013, 2012, and 2011, 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 are primarily
insured by the Federal Housing Administration or guaranteed
by the Department of Veterans Affairs, as well as student loans
guaranteed by the federal government, 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
risk management department. Commercial lending loans are
generally not subject to re-aging policies.
— 48 —
Accruing loans 90 days or more past due totaled $831
million ($541 million excluding covered loans) at December 31,
2015, compared with $945 million ($550 million excluding
covered loans) at December 31, 2014, and $1.2 billion ($713
million excluding covered loans) at December 31, 2013.
Accruing loans 90 days or more past due 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 0.32 percent (0.21 percent
excluding covered loans) at December 31, 2015, compared with
0.38 percent (0.23 percent excluding covered loans) at
December 31, 2014, and 0.51 percent (0.31 percent excluding
covered loans) at December 31, 2013.
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
2015
2014
2015
2014
30-89 days . . . . . . . . . . .
90 days or more . . . . . . .
Nonperforming . . . . . . . .
$ 170 $ 221
204
864
176
712
Total
. . . . . . . . . . . . . .
$1,058 $1,289
Credit Card
30-89 days . . . . . . . . . . .
90 days or more . . . . . . .
Nonperforming . . . . . . . .
$ 243 $ 229
210
30
228
9
Total
. . . . . . . . . . . . . .
$ 480 $ 469
Other Retail
Retail Leasing
30-89 days . . . . . . . . . . .
90 days or more . . . . . . .
Nonperforming . . . . . . . .
$
11 $
1
3
Total
. . . . . . . . . . . . . .
$
15 $
11
1
1
13
Home Equity and
Second Mortgages
30-89 days . . . . . . . . . . .
90 days or more . . . . . . .
Nonperforming . . . . . . . .
$
59 $
41
136
85
42
170
.32%
.33
1.33
1.98%
1.15%
1.09
.04
2.28%
.21%
.02
.06
.29%
.36%
.25
.83
Total
Other(b)
. . . . . . . . . . . . . .
$ 236 $ 297
1.44%
30-89 days . . . . . . . . . . .
90 days or more . . . . . . .
Nonperforming . . . . . . . .
$ 154 $ 142
32
16
33
23
Total
. . . . . . . . . . . . . .
$ 210 $ 190
.52%
.11
.08
.71%
.43%
.40
1.67
2.50%
1.24%
1.13
.16
2.53%
.18%
.02
.02
.22%
.54%
.26
1.07
1.87%
.51%
.12
.06
.69%
(a) Excludes $320 million of loans 30-89 days past due and $2.9 billion of loans 90 days or
more past due at December 31, 2015, purchased from GNMA mortgage pools that
continue to accrue interest, compared with $431 million and $3.1 billion at December 31,
2014, respectively.
(b) Includes revolving credit, installment, automobile and student loans.
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
2015
2014
30-89 days . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90 days or more . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming . . . . . . . . . . . . . . . . . . . . . . . . .
.25%
.30
1.12
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.67%
.33%
.35
1.42
2.10%
Sub-Prime Borrowers
30-89 days . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90 days or more . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming . . . . . . . . . . . . . . . . . . . . . . . . .
3.92%
2.52
15.30
5.12%
3.41
16.73
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21.74%
25.26%
Other Borrowers
30-89 days . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90 days or more . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming . . . . . . . . . . . . . . . . . . . . . . . . .
1.60%
1.12
4.00
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.72%
1.37%
1.13
3.50
6.00%
(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
2015
2014
Prime Borrowers
30-89 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90 days or more . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming . . . . . . . . . . . . . . . . . . . . . . . . . .
.31%
.23
.74
.47%
.24
.95
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.28%
1.66%
Sub-Prime Borrowers
30-89 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90 days or more . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming . . . . . . . . . . . . . . . . . . . . . . . . . .
2.56%
1.03
4.62
3.36%
1.26
5.88
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.21%
10.50%
Other Borrowers
30-89 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90 days or more . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming . . . . . . . . . . . . . . . . . . . . . . . . . .
1.23%
.74
2.45
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.42%
1.18%
.40
2.36
3.94%
The following table provides summary delinquency
information for covered loans:
At December 31
(Dollars in Millions)
30-89 days . . . . . . . . . .
90 days or more . . . . . .
Nonperforming . . . . . . .
2015
$ 62
290
8
Total . . . . . . . . . . . . . .
$360
Amount
2014
$ 68
395
14
$477
As a Percent of Ending
Loan Balances
2015
2014
1.35%
6.31
.17
7.83%
1.28%
7.48
.27
9.03%
— 49 —
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, which is
generally six months or greater. At December 31, 2015,
performing TDRs were $4.7 billion, compared with $5.1
billion, $6.0 billion, $5.6 billion and $4.9 billion at
December 31, 2014, 2013, 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
and continues to report them as TDRs after the trial period.
Credit card and other retail loan TDRs are generally part of
distinct restructuring programs providing customers
modification solutions over a specified time period, generally
up to 60 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 covered 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.
— 50 —
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, 2015
(Dollars in Millions)
Performing
TDRs
30-89 Days
Past Due
90 Days or More
Past Due
Nonperforming
TDRs
As a Percent of Performing 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 346
209
1,863
201
147
2,766
1,913
31
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,710
2.5%
3.7
3.3
10.2
4.6
3.8
5.2
.6
4.3%
.9%
3.5
3.6
6.1
4.4
3.5
67.8
5.7
$ 89(a)
61(b)
465
9(c)
64(c)
688
—
4
Total
TDRs
$ 435
270
2,328(d)
210
211(e)
3,454
1,913(f)
35
29.6%
$692
$5,402
(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 $299 million of residential mortgage loans to borrowers that have had debt discharged through bankruptcy and $77 million in trial period arrangements or previously placed in trial
period arrangements but not successfully completed.
(e) Includes $104 million of other retail loans to borrowers that have had debt discharged through bankruptcy and $19 million in trial period arrangements or previously placed in trial period
arrangements but not successfully completed.
(f)
Includes $460 million of Federal Housing Administration and Department of Veterans Affairs residential mortgage loans to borrowers that have had debt discharged through bankruptcy and
$668 million in trial period arrangements or previously placed in trial period arrangements but not successfully completed.
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,
2015.
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 (“OREO”) 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, 2015, total nonperforming assets were
$1.5 billion, compared with $1.8 billion at December 31, 2014
and $2.0 billion at December 31, 2013. The $285 million
(15.8 percent) decrease in nonperforming assets, from
December 31, 2014 to December 31, 2015, was primarily
driven by reductions in the commercial real estate loans,
residential mortgages and home equity and second mortgage
balances, as economic conditions continued to slowly
improve during 2015. Nonperforming covered assets at
December 31, 2015 were $40 million, compared with $51
million at December 31, 2014 and $224 million at
December 31, 2013. The ratio of total nonperforming assets
to total loans and other real estate was 0.58 percent at
December 31, 2015, compared with 0.73 percent at
December 31, 2014, and 0.86 percent at December 31,
2013.
OREO, excluding covered assets, was $280 million at
December 31, 2015, compared with $288 million at
December 31, 2014 and $327 million at December 31, 2013,
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.
— 51 —
T A B L E 1 6 NONPERFORMING ASSETS (a)
At December 31 (Dollars in Millions)
Commercial
2015
2014
2013
2012
2011
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 160
14
$
Total commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Real Estate
Commercial mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction and development
Total commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential Mortgages(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit Card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Retail
Retail leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home equity and second mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
174
92
35
127
712
9
3
136
23
162
1,184
8
1,192
280
32
19
Total nonperforming assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,523
Total nonperforming assets, excluding covered assets . . . . . . . . . .
$1,483
Excluding covered assets
99
13
112
175
84
259
864
30
1
170
16
187
1,452
14
1,466
288
37
17
$1,808
$1,757
$ 122
12
$ 107
16
$ 280
32
134
182
121
303
770
78
1
167
23
191
1,476
127
1,603
327
97
10
$2,037
$1,813
123
308
238
546
661
146
1
189
27
217
1,693
386
2,079
381
197
14
$2,671
$2,088
312
354
545
899
650
224
–
40
27
67
2,152
926
3,078
404
274
18
$3,774
$2,574
. . . . . . . . . . . . . . . . . . . . . .
Accruing loans 90 days or more past due(b)
Nonperforming loans to total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming assets to total loans plus other real estate(c) . . . . . . . . . .
$ 541
$ 550
$ 713
$ 660
$ 843
.46%
.58%
.60%
.72%
.65%
.80%
.80%
.98%
1.10%
1.32%
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) . . . . . . . . . .
$ 831
$ 945
$1,189
$1,323
$1,753
.46%
.58%
.59%
.73%
.68%
.86%
.93%
1.19%
1.47%
1.79%
CHANGES IN NONPERFORMING ASSETS
(Dollars in Millions)
Commercial and
Commercial
Real Estate
Residential
Mortgages,
Credit Card and
Other Retail
Balance December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 431
$1,326
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 . . . . . . . . . . .
394
54
448
(271)
(53)
(6)
(213)
(543)
(95)
500
–
500
(275)
(129)
(171)
(104)
(679)
(179)
Covered
Assets
$ 51
Total
$ 1,808
24
–
24
(8)
(25)
(1)
(1)
(35)
(11)
918
54
972
(554)
(207)
(178)
(318)
(1,257)
(285)
Balance December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 336
$1,147
$ 40
$ 1,523
(a) Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due.
(b) Excludes $2.9 billion, $3.1 billion, $3.7 billion, $3.2 billion and $2.6 billion at December 31, 2015, 2014, 2013, 2012 and 2011, 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 $535 million, $641 million, $527 million, $548 million and $692 million at December 31, 2015, 2014, 2013, 2012 and 2011, 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.
— 52 —
The following table provides an analysis of OREO, excluding covered assets, as a percent of their related loan balances, including
geographical location detail for residential (residential mortgage, home equity and second mortgage) and commercial (commercial
and commercial real estate) loan balances:
At December 31
(Dollars in Millions)
Residential
Amount
As a Percent of Ending
Loan Balances
2015
2014
2015
2014
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total residential
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
South Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 23
18
17
17
11
164
250
$ 16
16
17
13
10
161
233
11
5
2
2
1
9
30
11
12
3
2
1
26
55
.37% .26%
.42
1.12
.56
.49
.31
.37
1.06
.42
.44
.32
.36
.35
.05
.08
.13
.48
.04
.01
.02
.05
.19
.20
.44
.04
.03
.04
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$280
$288
.11% .12%
T A B L E 1 7 NET CHARGE-OFFS AS A PERCENT OF AVERAGE LOANS OUTSTANDING
Year Ended December 31
Commercial
2015
2014
2013
2012
2011
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.26%
.27
Total commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.26
.26%
.17
.26
.19%
.06
.18
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans, excluding covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02
(.33)
(.07)
.21
3.61
.09
.24
.65
.45
.48
–
(.03)
(.05)
(.03)
.38
3.73
.03
.61
.71
.60
.57
.15
.08
(.87)
(.09)
.57
3.90
.02
1.33
.81
.89
.66
.32
.43%
.63
.45
.37
.86
.45
1.09
4.01
.04
1.72
.94
1.13
1.03
.08
.76%
.96
.79
.73
4.20
1.40
1.45
5.19
–
1.66
1.20
1.25
1.53
.07
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.47%
.55%
.64%
.97%
1.41%
— 53 —
Analysis of Loan Net Charge-offs Total loan net charge-
offs were $1.2 billion in 2015, compared with $1.3 billion in
2014 and $1.5 billion in 2013. The decrease in total net
charge-offs in 2015, compared with 2014, reflected
improvement in the residential mortgages and home equity
and second mortgages portfolios, as economic conditions
continue to slowly improve during the period, partially offset
by higher commercial loan net charge-offs. The ratio of total
loan net charge-offs to average loans was 0.47 percent in
2015, compared with 0.55 percent in 2014 and 0.64 percent
in 2013.
Commercial and commercial real estate loan net charge-
offs for 2015 were $191 million (0.15 percent of average loans
outstanding), compared with $182 million (0.16 percent of
average loans outstanding) in 2014 and $87 million
(0.08 percent of average loans outstanding) in 2013. The
increase in net charge-offs in 2015, compared with 2014,
reflected lower commercial loan recoveries in 2015. The
increase in net charge-offs in 2014, compared with 2013,
reflected higher commercial loan net charge-offs and lower
recoveries in commercial real estate.
Residential mortgage loan net charge-offs for 2015 were
$109 million (0.21 percent of average loans outstanding),
compared with $195 million (0.38 percent of average loans
outstanding) in 2014 and $272 million (0.57 percent of
average loans outstanding) in 2013. Credit card loan net
charge-offs in 2015 were $651 million (3.61 percent of
average loans outstanding), compared with $658 million
(3.73 percent of average loans outstanding) in 2014 and $656
million (3.90 percent of average loans outstanding) in 2013.
Other retail loan net charge-offs for 2015 were $221 million
(0.45 percent of average loans outstanding), compared with
$288 million (0.60 percent of average loans outstanding) in
2014 and $418 million (0.89 percent of average loans
outstanding) in 2013. The decrease in total residential
mortgage, credit card and other retail loan net charge-offs in
2015, compared with 2014, reflected continued improvement
in economic conditions during 2015. The decrease in total
residential mortgage, credit card and other retail loan net
charge-offs in 2014, compared with 2013, reflected
improvement in economic conditions during 2014, especially
in residential housing prices.
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
2015
2014
2015
2014
$44,980 $44,006
1,302
858
1,144
714
.15% .30%
2.62
.98
4.07
1.05
5,002
5,652
.06
.05
Total
. . . . . . . . . . . . . . . . . .
$51,840 $51,818
.21% .38%
Home Equity and Second
Mortgages
Prime borrowers . . . . . . . . . . .
Sub-prime borrowers . . . . . . .
Other borrowers . . . . . . . . . . .
$15,371 $14,804
262
498
214
461
.19% .53%
2.34
.87
5.34
.60
Total
. . . . . . . . . . . . . . . . . .
$16,046 $15,564
.24% .61%
(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 and Determination of the Allowance for Credit
Losses The allowance for credit losses reserves for probable and
estimable losses incurred in the Company’s loan and lease
portfolio, 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 external
factors such as 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, 2015, the allowance for credit losses
was $4.3 billion (1.65 percent of period-end loans), compared
with an allowance of $4.4 billion (1.77 percent of period-end
loans) at December 31, 2014. The ratio of the allowance for
credit losses to nonperforming loans was 361 percent at
December 31, 2015, compared with 298 percent at
December 31, 2014, reflecting a decrease in nonperforming
loans. The ratio of the allowance for credit losses to annual
loan net charge-offs at December 31, 2015, was 367 percent,
compared with 328 percent at December 31, 2014, reflecting
— 54 —
the impact of improving economic conditions over the past
year. Management determined the allowance for credit losses
was appropriate at December 31, 2015.
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 15-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, less selling costs, 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,
and historical losses, adjusted for current trends. The allowance
established for commercial lending segment loans was
$2.0 billion at December 31, 2015, compared with $1.9 billion at
December 31, 2014, reflecting growth in the portfolios and the
uncertain outlook for commodity prices. At December 31, 2015
the Company had credit reserves of approximately 5 percent of
total energy loan balances.
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 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, 2015, the Company serviced the
first lien on 39 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 $291 million or 1.8
percent of the total home equity portfolio at December 31, 2015,
represented non-delinquent 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 0.7 percent for the twelve months ended
December 31, 2015), 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. In its evaluation of
the allowance for credit losses, the Company also considers the
increased risk of loss associated with home equity lines that are
contractually scheduled to convert from a revolving status to a
fully amortizing payment and with residential lines and loans that
have a balloon payoff provision.
The allowance established for consumer lending segment
loans was $2.3 billion at December 31, 2015, compared with
$2.4 billion at December 31, 2014. The $181 million (7.4
percent) decrease in the allowance for consumer lending
segment loans at December 31, 2015, compared with
December 31, 2014, reflected the impact of more stable
economic conditions during 2015, 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 $38 million at December 31, 2015, compared with
$65 million at December 31, 2014, reflecting expected credit
losses in excess of initial fair value adjustments, including $2
million and $16 million at December 31, 2015 and 2014,
respectively, to be reimbursed by the FDIC.
— 55 —
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans(a)
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans(a)
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
Covered loans(a)
Retail leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home equity and second mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other changes(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Components
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liability for unfunded credit commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
$4,375
2014
$4,537
2013
$4,733
2012
$5,014
2011
$5,531
289
25
314
20
2
22
135
726
8
73
238
319
–
1,516
84
11
95
15
35
50
26
75
3
35
60
98
–
344
205
14
219
5
(33)
(28)
109
651
278
27
305
21
15
36
216
725
6
121
257
384
13
1,679
92
18
110
30
19
49
21
67
4
26
66
96
2
345
186
9
195
(9)
(4)
(13)
195
658
212
34
246
71
21
92
297
739
5
237
281
523
37
1,934
95
31
126
45
80
125
25
83
4
26
75
105
5
469
117
3
120
26
(59)
(33)
272
656
312
66
378
145
97
242
461
769
9
327
330
666
11
2,527
72
31
103
31
45
76
23
102
7
26
92
125
1
430
240
35
275
114
52
166
438
667
423
93
516
231
312
543
502
922
10
327
396
733
13
3,229
74
36
110
22
23
45
13
88
10
19
100
129
1
386
349
57
406
209
289
498
489
834
5
38
178
221
–
1,172
1,132
(29)
$4,306
$3,863
443
$4,306
1.67%
360
247
288
364
1.65%
361
213
283
367
2
95
191
288
11
1,334
1,229
(57)
$4,375
$4,039
336
$4,375
1.78%
297
215
245
326
1.77%
298
181
242
328
1
211
206
418
32
1,465
1,340
(71)
$4,537
$4,250
287
$4,537
1.94%
297
201
242
306
1.93%
283
163
223
310
2
301
238
541
10
2,097
1,882
(66)
$4,733
$4,424
309
$4,733
2.15%
269
194
218
218
2.12%
228
139
177
226
–
308
296
604
12
2,843
2,343
(17)
$5,014
$4,753
261
$5,014
2.52%
228
164
191
174
2.39%
163
104
133
176
(a) Relates to covered loan charge-offs and recoveries not reimbursable by the FDIC.
(b) 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, and the impact of any loan sales.
— 56 —
T A B L E 1 9 ELEMENTS OF THE ALLOWANCE FOR CREDIT LOSSES
At December 31 (Dollars in Millions)
2015
2014
2013
2012
2011
2015
2014
2013
2012
2011
Allowance Amount
Allowance as a Percent of Loans
Commercial
Commercial
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,231
56
$1,094
52
$1,019
56
$ 979
72
$ 929
81
1.48% 1.46% 1.57% 1.61% 1.83%
1.06
1.06
1.37
1.31
.97
Total commercial . . . . . . . . . . . . . . . . . . . . . . .
1,287
1,146
1,075
1,051
1,010
1.46
1.43
1.53
1.59
1.78
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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
285
439
724
631
883
12
448
283
743
38
479
247
726
787
880
14
470
287
771
65
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
.90
4.24
1.72
1.18
4.20
.23
2.73
.96
1.45
.83
1.44
2.62
1.70
1.52
4.75
.24
2.95
1.04
1.57
1.23
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
Total allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,306
$4,375
$4,537
$4,733
$5,014
1.65% 1.77% 1.93% 2.12% 2.39%
In addition, the evaluation of the appropriate allowance for
credit losses for purchased non-impaired loans acquired after
January 1, 2009, in the various loan segments considers
credit discounts recorded as a part of the initial determination
of the fair value of the loans. For these loans, no allowance for
credit losses is recorded at the purchase date. Credit
discounts representing the principal losses expected over the
life of the loans are a component of the initial fair value.
Subsequent to the purchase date, the methods utilized to
estimate the required allowance for credit losses for these
loans is similar to originated loans; however, the Company
records a provision for credit losses only when the required
allowance, net of any expected reimbursement under any loss
sharing agreements with the FDIC, exceeds any remaining
credit discounts.
The evaluation of the appropriate allowance for credit
losses for purchased impaired loans in the various loan
segments considers the expected cash flows to be collected
from the borrower. These loans are initially recorded at fair
value and therefore no allowance for credit losses is recorded
at the purchase date.
Subsequent to the purchase date, the expected cash
flows of purchased loans are subject to evaluation. Decreases
in 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.
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.
— 57 —
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
$4.4 billion of retail leasing residuals at December 31, 2015,
compared with $4.8 billion at December 31, 2014. The
Company monitors concentrations of leases by manufacturer
and vehicle “make and model.” As of December 31, 2015,
vehicle lease residuals related to sport utility vehicles were 36.4
percent of the portfolio, while auto and crossover vehicle
classes represented approximately 32.7 percent and 20.0
percent of the portfolio, respectively. At year-end 2015, the
largest vehicle-type concentration represented 7.4 percent of
the aggregate residual value of the vehicles in the portfolio. At
December 31, 2015, the weighted-average origination term of
the portfolio was 40 months, compared with 39 months at
December 31, 2014. At December 31, 2015, the commercial
leasing portfolio had $511 million of residuals, compared with
$543 million at December 31, 2014. At year-end 2015, lease
residuals related to trucks and other transportation equipment
were 30.7 percent of the total residual portfolio. Business and
office equipment represented 30.3 percent of the aggregate
portfolio, and railcars represented 12.7 percent. No other
concentrations of more than 10 percent existed at December
31, 2015.
Operational Risk Management Operational risk is the risk of
loss resulting from inadequate or failed internal processes,
people, or systems, or from external events, including the risk of
loss resulting from fraud, litigation and breaches in data security.
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. Business lines have direct and primary responsibility
and accountability for identifying, controlling, and monitoring
operational risks embedded in their business activities. The
Company maintains a system of controls with the objective of
providing proper transaction authorization and execution, proper
system operations, proper oversight of third parties with whom it
does business, safeguarding of assets from misuse or theft, and
ensuring the reliability and security of financial and other data.
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
processes to minimize operational risks, there is no absolute
assurance that business disruption or operational losses
would not occur from an external event or internal control
breakdown. 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.
Compliance Risk Management The Company may suffer
legal or regulatory sanctions, material financial loss, or damage
to reputation through failure to comply with laws, regulations,
rules, standards of good practice, and codes of conduct,
including those related to compliance with Bank Secrecy Act/
anti-money laundering requirements, sanctions compliance
requirements as administered by the Office of Foreign Assets
Control, and other requirements. The Company has controls
and processes in place for the assessment, identification,
monitoring, management and reporting of compliance risks
and issues.
The significant increase in regulation and regulatory
oversight initiatives over the past several years has
substantially increased the importance of the Company’s
compliance 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 bank 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
— 58 —
holding companies and their subsidiaries, and the substantial
changes to that regulation.
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 manage the impact on net interest income and the
market value of assets and liabilities, the Company manages its
exposure to changes in interest rates through asset and liability
management activities within guidelines established by its Asset
Liability Committee (“ALCO”) and approved by the Board of
Directors. The ALCO has the responsibility for approving and
ensuring compliance with the ALCO management policies,
including interest rate risk exposure. The Company uses net
interest income simulation analysis and market value of equity
modeling for measuring and analyzing consolidated interest rate
risk.
Net Interest Income Simulation Analysis One of the primary
tools used to measure interest rate risk and the effect of interest
rate changes on net interest income is simulation analysis. The
monthly analysis incorporates substantially all of the Company’s
assets and liabilities and off-balance sheet instruments, together
with forecasted changes in the balance sheet and assumptions
that reflect the current interest rate environment. Through this
simulation, management estimates the impact on net interest
income of a 200 basis point (“bps”) upward or downward
gradual change of market interest rates over a one-year period.
The simulation also estimates the effect of immediate and
sustained parallel shifts in the yield curve of 50 bps as well as
the effect of immediate and sustained flattening or steepening of
the yield curve. This simulation includes assumptions about how
the balance sheet is likely to be affected by changes in loan and
deposit growth. Assumptions are made to project interest rates
for new loans and deposits based on historical analysis,
management’s outlook and re-pricing strategies. These
assumptions are validated on a periodic basis. A sensitivity
analysis is provided for key variables of the simulation. The
results are reviewed by the ALCO monthly and are used to
guide asset/liability management strategies.
Table 20 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 with desired interest rate risk characteristics
on its balance sheet, 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
T A B L E 2 0 SENSITIVITY OF NET INTEREST INCOME
4.0 percent decline of forecasted net interest income over the
next 12 months. At December 31, 2015 and 2014, the
Company was within policy.
Market Value of Equity Modeling The Company also
manages interest rate sensitivity by utilizing market value of
equity modeling, which measures the degree to which the
market values of the Company’s assets and liabilities and off-
balance sheet instruments will change given a change in interest
rates. 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. Wholesale prepayment assumptions are based on
several key factors, including but not limited to, age, loan term,
product type and seasonality, as well as macroeconomic factors
including unemployment, interest rates and commercial real
estate price indices. These factors are updated regularly based
on historical experience and forward market expectations.
Mortgage prepayment assumptions are based on many key
variables, including, but not limited to, 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.
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 5.8
percent decrease in the market value of equity at December 31,
2015, compared with a 6.7 percent decrease at December 31,
2014. A 200 bps decrease, where possible given current rates,
would have resulted in a 7.0 percent decrease in the market
value of equity at December 31, 2015, compared with a
7.1 percent decrease at December 31, 2014. At December 31,
2015 and 2014, the Company was within policy.
December 31, 2015
December 31, 2014
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 . . . . . . . . . . . . . .
*
1.78%
*
2.69%
*
1.38%
*
1.68%
* Given the current level of interest rates, a downward rate scenario can not be computed.
— 59 —
Use of Derivatives to Manage Interest Rate and Other
Risks To manage the sensitivity of earnings and capital to
interest rate, prepayment, credit, price and foreign currency
fluctuations (asset and liability management positions), the
Company enters into derivative transactions. The Company
uses derivatives for asset and liability management purposes
primarily in the following ways:
– To convert fixed-rate debt from fixed-rate payments to
floating-rate payments;
– To convert the cash flows associated with floating-rate
loans and debt from floating-rate payments to fixed-rate
payments;
– To mitigate changes in value of the Company’s mortgage
origination pipeline, funded MLHFS and MSRs;
– To mitigate remeasurement volatility of foreign currency
denominated balances; and
– To mitigate the volatility of the Company’s investment in
foreign businesses driven by fluctuations in foreign currency
exchange rates.
The Company may enter into derivative contracts that are
either exchange-traded, centrally cleared through
clearinghouses or over-the-counter. In addition, the Company
enters into interest rate and foreign exchange derivative
contracts to support the business requirements of its
customers (customer-related positions). The Company
minimizes the market and liquidity risks of customer-related
positions by either entering into similar offsetting positions
with broker-dealers, or 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 and Eurodollar
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,
2015, to an immediate 25, 50 and 100 bps downward
movement in interest rates would be a decrease of
approximately $7 million, $24 million and $123 million,
respectively. An immediate upward movement in interest rates
at December 31, 2015 of 25, 50 and 100 bps would
decrease the fair value of the MSRs and related derivative
instruments by $2 million, $16 million and $33 million,
respectively. Refer to Note 10 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, 2015, the Company had $5.4 billion of
forward commitments to sell, hedging $2.1 billion of MLHFS
and $4.1 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 MLHFS.
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, certain interest rate swaps and
forwards and credit contracts are required to be centrally
cleared through clearinghouses to further mitigate
counterparty credit risk.
For additional information on derivatives and hedging
activities, refer to Notes 20 and 21 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
— 60 —
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 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)
2015
2014
Average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Period-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1
2
1
1
$1
2
1
1
The Company did not experience any actual trading losses
for its combined trading businesses that exceeded VaR
during 2015 and 2014. 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 were as follows:
Year Ended December 31
(Dollars in Millions)
2015
2014
Average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Period-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4
8
2
3
$4
8
2
5
Valuations of positions in the client derivatives and foreign
currency transaction businesses are based on standard cash
flow or other valuation techniques using market-based
assumptions. These valuations are compared to third party
quotes or other market prices to determine if there are
significant variances. Significant 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 significant variances approved by the
Company’s risk management department.
The Company also measures the market risk of its hedging
activities related to residential MLHFS 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 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 models.
The average, high and low VaR amounts for the residential
MLHFS and related hedges and the MSRs and related
hedges were as follows:
Year Ended December 31
(Dollars in Millions)
2015
2014
Residential Mortgage Loans Held For Sale
and Related Hedges
Average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage Servicing Rights and Related
Hedges
Average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1
2
–
$6
8
4
$1
2
–
$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 Company’s Board of Directors approves the
Company’s liquidity policy. The Risk Management Committee
— 61 —
of the Company’s Board of Directors oversees the
Company’s liquidity risk management process and approves
the contingency funding plan. The ALCO reviews 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
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 certificates of deposit and
commercial paper.
The Company regularly projects its funding needs under
various stress scenarios and maintains a contingency funding
plan consistent with the Company’s access to diversified
T A B L E 2 1 DEBT RATINGS
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 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, 2015, the fair value of
unencumbered available-for-sale and held-to-maturity
investment securities totaled $92.4 billion, compared with
$86.9 billion at December 31, 2014. 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, 2015, the Company could
have borrowed an additional $74.9 billion at the FHLB and
Federal Reserve Bank based on collateral available for
additional borrowings.
Moody’s
Standard &
Poor’s
U.S. Bancorp
Long-term issuer rating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term issuer rating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior unsecured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Junior subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A1
A1
A1
A2
A3
P-1
U.S. Bank National Association
Long-term issuer rating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term issuer rating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior unsecured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Counterparty risk assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A1
P-1
Aa1
P-1
A1
A1
P-1
Aa2(cr)/P-1(cr)
A+
A-1
A+
A-
BBB
BBB
A-1
AA-
A-1+
AA-
A
A-1+
Dominion
Bond
Rating Service
AA
R-1 (middle)
AA
AA (low)
AA (low)
A
R-1 (high)
AA (high)
AA (high)
AA
Fitch
AA
F1+
AA
AA-
BBB+
F1+
AA
F1+
AA+
F1+
AA
AA-
F1+
— 62 —
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 $300.4 billion at December 31, 2015,
compared with $282.7 billion at December 31, 2014. Refer to
Table 14 and “Balance Sheet Analysis” for further information
on the Company’s deposits.
Additional funding is provided by long-term debt and
short-term borrowings. Long-term debt was $32.1 billion at
December 31, 2015, and is an important funding source
because of its multi-year borrowing structure. Refer to Note
13 of the Notes to Consolidated Financial Statements for
information on the terms and maturities of the Company’s
long-term debt issuances and “Balance Sheet Analysis” for
discussion on long-term debt trends. Short-term borrowings
were $27.9 billion at December 31, 2015, and supplement
the Company’s other funding sources. Refer to Note 12 of the
Notes to Consolidated Financial Statements and “Balance
Sheet Analysis” for information on the terms and trends of the
Company’s short-term borrowings.
The Company’s ability to raise negotiated funding at
competitive prices is influenced by rating agencies’ views of
the Company’s credit quality, liquidity, capital and earnings.
Table 21 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 and capital
T A B L E 2 2 CONTRACTUAL OBLIGATIONS
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.
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, 2015, parent company long-term debt
outstanding was $11.5 billion, compared with $13.2 billion at
December 31, 2014. The decrease was primarily due to the
maturity of $1.7 billion of medium-term notes. At
December 31, 2015, there was $1.9 billion of parent
company debt scheduled to mature in 2016. 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.
At December 31, 2015 (Dollars in Millions)
Contractual Obligations(a)
Long-term debt(b)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit obligations(c)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contractual interest payments(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity investment commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
One Year
or Less
$ 6,359
265
22
25,158
841
1,948
199
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$34,792
Payments Due By Period
Over One
Through
Three Years
Over Three
Through
Five Years
$12,930
445
45
5,182
990
512
243
$20,347
$3,552
292
48
2,495
657
25
70
$7,139
Over Five
Years
$ 9,237
471
156
3
1,015
36
130
$11,048
Total
$32,078
1,473
271
32,838
3,503
2,521
642
$73,326
(a) Unrecognized tax positions of $243 million at December 31, 2015, 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.
(e) Primarily includes purchase obligations for goods and services covered by noncancellable contracts and contracts including cancellation fees.
— 63 —
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 24 of the Notes to Consolidated Financial Statements.
During 2014, U.S. banking regulators approved a final
regulatory Liquidity Coverage Ratio (“LCR”), requiring banks
to maintain an adequate level of unencumbered high quality
liquid assets to meet estimated liquidity needs over a 30-day
stressed period. The LCR requirement became effective for
the Company January 1, 2015, subject to certain transition
provisions over the following two years to full implementation
by January 1, 2017. At December 31, 2015, the Company
was compliant with the fully implemented LCR requirement
based on its interpretation of the final U.S. LCR rule.
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, 2015, the Company had investments in
perpetual preferred stock issued by European banks with an
amortized cost totaling $22 million and unrealized losses
totaling $1 million, compared with an amortized cost totaling
$66 million and unrealized losses totaling $2 million, at
December 31, 2014. The Company also transacts with
various European banks as counterparties to interest rate 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, 2015, the Company was in a net receivable
position with six banks in Europe, totaling $21 million. The
Company was in a net payable position to each 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 in Europe to existing
Company customers. While further deterioration in economic
conditions 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 significant 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, 2015, the Company
had an aggregate amount on deposit with European banks of
approximately $2.0 billion, predominately with the Central
Bank of Ireland.
The money market funds managed by a subsidiary of the
Company do not have any investments in European sovereign
debt, other than approximately $275 million at December 31,
2015 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, 2015 were $279.6 billion. The
Company also issues and confirms various types of letters of
credit, including standby and commercial. Total contractual
amounts of letters of credit at December 31, 2015 were $13.3
billion. For more information on the Company’s commitments
to extend credit and letters of credit, refer to Note 23 in the
Notes to Consolidated Financial Statements.
The Company’s off-balance sheet arrangements with
unconsolidated entities primarily consist of private investment
— 64 —
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, and other tax benefits, such as tax
deductions from operating losses of the investments, over
specified time periods. The entities in which the Company
invests are generally considered variable interest entities
(“VIEs”). The Company’s recorded net investment in these
entities as of December 31, 2015 was approximately
$2.8 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 $32 million at December 31, 2015, and
the Company had unfunded commitments to invest an
additional $15 million. For more information on the
Company’s interests in unconsolidated VIEs, refer to Note 8 in
the Notes to Consolidated Financial Statements.
Guarantees are contingent commitments issued by the
Company to customers or other third parties requiring the
Company to perform if certain conditions exist or upon the
occurrence or nonoccurrence of a specified event, such as a
scheduled payment to be made under contract. The
Company’s primary guarantees include commitments from
securities lending activities in which indemnifications are
provided to customers; indemnification or buy-back
provisions related to sales of loans and tax credit investments;
merchant charge-back guarantees through the Company’s
involvement in providing merchant processing services; and
minimum revenue guarantee arrangements. For certain
guarantees, the Company may have access to collateral to
support the guarantee, or through the exercise of other
recourse provisions, be able to offset some or all of any
payments made under these guarantees.
The Company and certain of its subsidiaries, along with
other Visa U.S.A. Inc. member banks, have a contingent
guarantee obligation to indemnify Visa Inc. for potential losses
arising from antitrust lawsuits challenging the practices of Visa
U.S.A. Inc. and MasterCard International. The indemnification
by the Company and other Visa U.S.A. Inc. member banks
has no maximum amount. Refer to Note 23 in the Notes to
Consolidated Financial Statements for further details
regarding guarantees, other commitments, and contingent
liabilities, including maximum potential future payments and
current carrying amounts.
Capital Management The Company is committed to
managing capital to maintain strong protection for depositors
and creditors and for maximum shareholder benefit. The
Company continually assesses its business risks and capital
position. The Company also manages its capital to exceed
regulatory capital requirements for banking organizations. 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 16, 2015, the Company announced its Board of
Directors had approved a 4.1 percent increase in the
Company’s dividend rate per common share, from $0.245
per quarter to $0.255 per quarter.
The Company repurchased approximately 52 million shares
of its common stock in 2015, compared with approximately
54 million shares in 2014. The average price paid for the
shares repurchased in 2015 was $43.54 per share, compared
with $41.65 per share in 2014. As of December 31, 2015, the
approximate dollar value of shares that may yet be purchased
by the Company under the current Board of Directors
approved authorization was $1.3 billion. For a more complete
analysis of activities impacting shareholders’ equity and capital
management programs, refer to Note 15 of the Notes to
Consolidated Financial Statements.
Total U.S. Bancorp shareholders’ equity was $46.1 billion
at December 31, 2015, compared with $43.5 billion at
December 31, 2014. The increase was primarily the result of
corporate earnings, partially offset by dividends and common
share repurchases.
Beginning January 1, 2014, the regulatory capital
requirements effective for the Company follow Basel III,
subject to certain transition provisions from Basel I over the
following four years to full implementation by January 1, 2018.
Basel III includes two comprehensive methodologies for
calculating risk-weighted assets: a general standardized
approach and more risk-sensitive advanced approaches, with
the Company’s capital adequacy being evaluated against the
methodology that is most restrictive. Under Basel III, banking
regulators define minimum capital requirements for banks and
financial services holding companies. These requirements are
expressed in the form of a minimum common equity tier 1
capital ratio, tier 1 capital ratio, total risk-based capital ratio,
and tier 1 leverage ratio. The minimum required level for these
ratios at December 31, 2015, was 4.5 percent, 6.0 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. At December 31, 2015, the
minimum “well-capitalized” threshold for the common equity
— 65 —
tier 1 capital ratio, tier 1 capital ratio, total risk-based capital
ratio, and tier 1 leverage ratio was 6.5 percent, 8.0 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.
As an approved mortgage seller and servicer, U.S. Bank
National Association, through its mortgage banking division, is
required to maintain various levels of shareholder’s 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, 2015, U.S. Bank National Association met
these requirements.
Table 23 provides a summary of statutory regulatory
capital ratios in effect for the Company at December 31, 2015
and 2014.
During 2014, U.S. banking regulators approved a final
regulatory Supplementary Leverage Ratio (“SLR”) requirement
for banks calculating capital adequacy using advanced
approaches under Basel III. The SLR is defined as tier 1
capital divided by total leverage exposure, which includes
both on- and off-balance sheet exposures. At December 31,
2015, the Company’s SLR exceeds the applicable minimum
SLR requirement effective January 1, 2018.
The Company believes certain capital ratios in addition to
statutory regulatory capital ratios are useful in evaluating its
capital adequacy. The Company’s tangible common equity,
as a percent of tangible assets and as a percent of risk-
weighted assets calculated under the transitional
standardized approach, was 7.6 percent and 9.2 percent,
respectively, at December 31, 2015, compared with
7.5 percent and 9.3 percent, respectively, at December 31,
2014. The Company’s common equity tier 1 to risk-weighted
assets ratio using the Basel III standardized approach as if
fully implemented was 9.1 percent at December 31, 2015,
compared with 9.0 percent at December 31, 2014. The
Company’s common equity tier 1 to risk-weighted assets
ratio using the Basel III advanced approaches as if fully
implemented was 11.9 percent at December 31, 2015,
compared with 11.8 percent at December 31, 2014. Refer to
“Non-GAAP Financial Measures” for further information
regarding the calculation of these ratios.
— 66 —
T A B L E 2 3 REGULATORY CAPITAL RATIOS
At December 31 (Dollars in Millions)
Basel III transitional standardized approach:
U.S. Bancorp
U.S. Bank National
Association
2015
2014
2015
2014
Common equity tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total risk-based capital
Risk-weighted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common equity tier 1 capital as a percent of risk-weighted assets . . . . . . . . . . . . .
Tier 1 capital as a percent of risk-weighted assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Total risk-based capital as a percent of risk-weighted assets . . . . . . . . . . . . . . . . .
Tier 1 capital as a percent of adjusted quarterly average assets (leverage ratio) . . .
$ 32,612
38,431
45,313
341,360
$ 30,856
36,020
43,208
317,398
$ 33,831
34,148
41,112
336,938
$ 32,381
32,789
40,008
313,261
9.6%
11.3
13.3
9.5
9.7%
11.3
13.6
9.3
10.0%
10.1
12.2
8.5
10.3%
10.5
12.8
8.6
Basel III transitional advanced approaches:
Common equity tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total risk-based capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-weighted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common equity tier 1 capital as a percent of risk-weighted assets . . . . . . . . . . . . .
Tier 1 capital as a percent of risk-weighted assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Total risk-based capital as a percent of risk-weighted assets . . . . . . . . . . . . . . . . .
$ 32,612
38,431
42,262
261,668
$ 30,856
36,020
40,475
248,596
$ 33,831
34,148
38,090
258,207
$ 32,381
32,789
37,299
245,007
12.5%
14.7
16.2
12.4%
14.5
16.3
13.1%
13.2
14.8
13.2%
13.4
15.2
Bank Regulatory Capital Requirements
2015
Common equity tier 1 capital as a percent of risk-weighted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 capital as a percent of risk-weighted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total risk-based capital as a percent of risk-weighted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 capital as a percent of adjusted quarterly average assets (leverage ratio)
2014
Common equity tier 1 capital as a percent of risk-weighted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 capital as a percent of risk-weighted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total risk-based capital as a percent of risk-weighted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 capital as a percent of adjusted quarterly average assets (leverage ratio)
Minimum
Well-
Capitalized
4.5%
6.0
8.0
4.0
4.0%
5.5
8.0
4.0
6.5%
8.0
10.0
5.0
*
6.0%
10.0
5.0
* Not applicable.
FOURTH QUARTER SUMMARY
The Company reported net income attributable to
U.S. Bancorp of $1.5 billion for the fourth quarter of 2015, or
$0.80 per diluted common share, compared with $1.5 billion,
or $0.79 per diluted common share, for the fourth quarter of
2014. Return on average assets and return on average
common equity were 1.41 percent and 13.7 percent,
respectively, for the fourth quarter of 2015, compared with
1.50 percent and 14.4 percent, respectively, for the fourth
quarter of 2014.
Total net revenue, on a taxable-equivalent basis for the
fourth quarter of 2015, was $42 million (0.8 percent) higher
than the fourth quarter of 2014, reflecting a 2.6 percent
increase in net interest income, partially offset by a
1.3 percent decrease in noninterest income. The increase in
net interest income from the fourth quarter of 2014 was the
result of growth in average earning assets, partially offset by a
continued shift in loan portfolio mix. Noninterest income
decreased from a year ago primarily due to the impact of the
fourth quarter 2014 Nuveen gain, partially offset by fee
revenue growth and the HSA deposit sale.
Noninterest expense in the fourth quarter of 2015 was
higher than the fourth quarter of 2014, primarily due to
increases in compensation and employee benefits expenses
and other costs related to risk and compliance activities,
partially offset by lower charitable contributions and the
impact of prior year legal accruals.
Fourth quarter 2015 net interest income, on a taxable-
equivalent basis, was $2.9 billion, compared with $2.8 billion
in the fourth quarter of 2014. The $72 million
(2.6 percent) increase was principally the result of growth in
average earning assets, partially offset by a continued shift in
loan portfolio mix. Average earning assets were $18.1 billion
(5.1 percent) higher in the fourth quarter of 2015, compared
with the fourth quarter of 2014, driven by increases of $10.3
billion (4.2 percent) in loans and $7.4 billion (7.5 percent) in
investment securities. The net interest margin, on a taxable-
equivalent basis, in the fourth quarter of 2015 was
3.06 percent, compared with 3.14 percent in the fourth
quarter of 2014, reflecting a change in the loan portfolio mix,
as well as growth in the investment portfolio at lower average
rates and lower reinvestment rates on investment securities.
— 67 —
T A B L E 2 4 FOURTH QUARTER RESULTS
(Dollars and Shares in Millions, Except Per Share Data)
Three Months Ended
December 31,
2015
2014
Condensed Income Statement
Net interest income (taxable-equivalent basis)(a)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities gains (losses), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable-equivalent adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,871
2,339
1
5,211
2,809
305
2,097
52
556
1,489
(13)
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,476
Net income applicable to U.S. Bancorp common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,404
Per Common Share
Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average diluted common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.80
$
$
.80
$ .255
1,747
1,754
$2,799
2,369
1
5,169
2,804
288
2,077
55
521
1,501
(13)
$1,488
$1,420
.79
$
$
.79
$ .245
1,787
1,796
Financial Ratios
Return on average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on average common equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest margin (taxable-equivalent basis)(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Efficiency ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.41%
13.7
3.06
53.9
1.50%
14.4
3.14
54.3
(a) Interest and rates are presented on a fully taxable-equivalent basis utilizing a tax rate of 35 percent.
Noninterest income in the fourth quarter of 2015 was $2.3
billion, compared with $2.4 billion in the same period of 2014,
representing a decrease of $30 million (1.3 percent). The
decrease was due to the impact of the fourth quarter 2014
Nuveen gain, partially offset by fee revenue growth and the
HSA deposit sale. The fee revenue growth reflected higher
credit and debit card revenue, trust and investment
management fees and merchant processing services
revenue, partially offset by a decrease in mortgage banking
revenue, primarily due to an unfavorable change in the
valuation of MSRs, net of hedging activities. Credit and debit
card revenue increased $22 million (8.1 percent) over the
fourth quarter of 2014, due to higher transaction volumes.
Trust and investment management fees increased $14 million
(4.3 percent), reflecting the benefits of the Company’s
investments in its corporate trust and fund services
businesses, as well as account growth, improved market
conditions and lower fee waivers. Merchant processing
services revenue increased $9 million (2.3 percent) as a result
of higher transaction volumes, along with account growth and
equipment sales to merchants related to new chip card
technology requirements. Adjusted for the approximate $16
million impact of foreign currency rate changes, year-over-
year merchant processing services growth would have been
approximately 6.5 percent.
Noninterest expense in the fourth quarter of 2015 was $2.8
billion, or $5 million (0.2 percent) higher than the fourth quarter
of 2014. Compensation expense increased $61 million (5.3
percent), reflecting the impact of merit increases and higher
staffing for risk and compliance activities, while employee
benefits expense was $27 million (11.0 percent) higher, mainly
due to increased pension costs. Offsetting these increases
was a $33 million (25.6 percent) decline in marketing and
business development expense, principally due to charitable
contributions in the fourth quarter of 2014, and a $35 million
(6.4 percent) decline in other noninterest expense, reflecting
the impact of fourth quarter 2014 legal accruals partially offset
by higher compliance-related expenses.
The provision for credit losses for the fourth quarter of
2015 was $305 million, an increase of $17 million
(5.9 percent) from the same period of 2014. The provision for
credit losses was equal to net charge-offs in the fourth
quarter of 2015 and $20 million lower than net charge-offs in
the fourth quarter of 2014. Net charge-offs were $305 million
— 68 —
in the fourth quarter of 2015, compared with $308 million in
the fourth quarter of 2014.
The provision for income taxes for the fourth quarter of
2015 resulted in an effective tax rate of 27.2 percent,
compared with an effective tax rate of 25.8 percent for the
fourth quarter of 2014.
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 III 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 2015, certain
organization and methodology changes were made and,
accordingly, 2014 results were restated and presented on a
comparable basis.
— 69 —
T A B L E 2 5 LINE OF BUSINESS FINANCIAL PERFORMANCE
Year Ended December 31
(Dollars in Millions)
Wholesale Banking and
Commercial Real Estate
Consumer and Small
Business Banking
2015
2014
Percent
Change
2015
2014
Percent
Change
Condensed Income Statement
Net interest income (taxable-equivalent basis) . . . . . . . . . . . . . . . . . . . . $ 2,034
890
Noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
Securities gains (losses), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,030
965
–
Total net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,924
1,295
4
Total noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,299
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 . . . . . . . . . . .
1,625
235
1,390
506
884
–
2,995
1,224
4
1,228
1,767
51
1,716
624
1,092
–
.2%
$
(7.8)
–
(2.4)
5.8
–
5.8
(8.0)
*
(19.0)
(18.9)
(19.0)
–
4,617
2,497
–
7,114
4,818
40
4,858
2,256
127
2,129
775
1,354
–
$
4,717
2,601
–
7,318
4,552
40
4,592
2,726
393
2,333
850
1,483
–
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . $
884
$ 1,092
(19.0)
$
1,354
$
1,483
(2.1)%
(4.0)
–
(2.8)
5.8
–
5.8
(17.2)
(67.7)
(8.7)
(8.8)
(8.7)
–
(8.7)
Average Balance Sheet
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $64,369
19,415
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans, excluding covered loans . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total U.S. Bancorp shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . .
83,794
–
83,794
1,647
20
92,205
36,018
7,436
28,047
15,025
86,526
8,251
$57,864
18,452
12
–
4
76,332
190
76,522
1,627
21
83,787
32,302
10,557
18,321
18,140
79,320
7,568
* Not meaningful
11.2%
5.2
(33.3)
–
(50.0)
$ 10,051
19,006
50,007
–
46,964
$
9,070
18,825
50,405
–
46,220
10.8%
1.0
(.8)
–
1.6
9.8
*
9.5
1.2
(4.8)
10.0
11.5
(29.6)
53.1
(17.2)
9.1
9.0
126,028
4,934
130,962
3,682
2,594
147,832
26,137
39,957
53,813
15,829
135,736
10,953
124,520
5,780
130,300
3,603
2,674
144,137
23,743
36,222
49,974
17,951
127,890
11,484
1.2
(14.6)
.5
2.2
(3.0)
2.6
10.1
10.3
7.7
(11.8)
6.1
(4.6)
— 70 —
Wealth Management and
Securities Services
Payment
Services
Treasury and
Corporate Support
Consolidated
Company
2015
2014
Percent
Change
2015
2014
Percent
Change
2015
2014
Percent
Change
2015
2014
Percent
Change
$
386
1,466
–
1,852
1,420
28
1,448
404
–
404
147
257
–
$
383
1,396
–
1,779
1,343
33
1,376
403
9
394
143
251
–
$
257
$
251
.8%
5.0
–
$ 1,930
3,371
–
$ 1,749
3,292
–
4.1
5.7
(15.2)
5.2
.2
*
2.5
2.8
2.4
–
2.4
5,301
2,540
102
2,642
2,659
787
1,872
681
1,191
(31)
5,041
2,310
122
2,432
2,609
766
1,843
670
1,173
(35)
$ 1,160
$ 1,138
10.3%
2.4
–
5.2
10.0
(16.4)
8.6
1.9
2.7
1.6
1.6
1.5
11.4
1.9
$ 2,321
571
1,816
–
1,517
$ 1,964
602
1,392
–
1,457
18.2%
(5.1)
30.5
–
4.1
$ 7,059
–
–
18,057
596
$ 6,542
–
–
17,635
672
7.9%
–
–
2.4
(11.3)
6,225
1
6,226
1,567
126
9,178
14,469
7,944
33,984
3,344
59,741
2,308
5,415
5
5,420
1,568
159
8,500
15,157
5,877
29,361
3,901
54,296
2,284
15.0
(80.0)
14.9
(.1)
(20.8)
8.0
(4.5)
35.2
15.7
(14.3)
10.0
1.1
25,712
–
25,712
2,474
411
31,796
879
605
91
–
1,575
5,868
24,849
5
24,854
2,514
484
31,097
740
555
78
–
1,373
5,697
3.5
*
3.5
(1.6)
(15.1)
2.2
18.8
9.0
16.7
–
14.7
3.0
$
2,247
868
–
3,115
684
–
684
2,431
(17)
2,448
201
2,247
(23)
$
2,118
907
3
3,028
1,087
–
6.1%
(4.3)
*
2.9
(37.1)
–
$ 11,214
9,092
–
$ 10,997
9,161
3
2.0%
(.8)
*
20,306
10,757
174
20,161
10,516
199
1,087
(37.1)
10,931
10,715
1,941
10
1,931
22
1,909
(22)
25.2
*
26.8
*
17.7
(4.5)
17.9
9,375
1,132
8,243
2,310
5,933
(54)
9,446
1,229
8,217
2,309
5,908
(57)
$
5,879
$
5,851
.7
2.3
(12.6)
2.0
(.8)
(7.9)
.3
–
.4
5.3
.5
$
2,224
$
1,887
$
283
3,423
9
–
–
3,715
50
3,765
–
–
127,854
1,700
32
481
1,360
3,573
17,433
$
294
2,713
9
–
–
3,016
1,580
4,596
–
–
112,483
1,513
37
439
1,772
3,761
15,804
(3.7)%
26.2
–
–
–
$ 84,083
42,415
51,840
18,057
49,079
$ 75,734
40,592
51,818
17,635
48,353
11.0%
4.5
–
2.4
1.5
23.2
(96.8)
(18.1)
–
–
13.7
12.4
(13.5)
9.6
(23.3)
(5.0)
10.3
245,474
4,985
250,459
9,370
3,151
408,865
79,203
55,974
116,416
35,558
287,151
44,813
234,132
7,560
241,692
9,312
3,338
380,004
73,455
53,248
98,173
41,764
266,640
42,837
4.8
(34.1)
3.6
.6
(5.6)
7.6
7.8
5.1
18.6
(14.9)
7.7
4.6
— 71 —
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
$884 million of the Company’s net income in 2015, or a
decrease of $208 million (19.0 percent) compared with 2014.
The decrease was primarily driven by a higher provision for
credit losses, higher noninterest expense and lower net
revenue.
Net revenue decreased $71 million (2.4 percent) in 2015,
compared with 2014. Noninterest income decreased $75
million (7.8 percent) in 2015, compared with 2014, driven by
higher loan-related charges, partially offset by higher loan
syndication and bond underwriting fees, as well as higher
commercial leasing revenue. Net interest income, on a
taxable-equivalent basis, increased $4 million (0.2 percent) in
2015, compared with 2014, driven by increases in average
loans and deposits, partially offset by lower rates and fees on
loans.
Noninterest expense increased $71 million (5.8 percent) in
2015, compared with 2014, primarily resulting from higher
compensation expense due to higher variable compensation
and merit increases, higher benefits expense due to increased
pension costs, an increase in the FDIC insurance assessment
allocation based on increased loan volumes, and higher net
shared services expense. The provision for credit losses
increased $184 million in 2015, compared with 2014, due to
an unfavorable change in the reserve allocation driven by a
decline in energy prices and an increase in net charge-offs.
Nonperforming assets were $168 million at December 31,
2015, compared with $170 million at December 31, 2014.
Nonperforming assets as a percentage of period-end loans
were 0.19 percent at December 31, 2015, compared with
0.21 percent at December 31, 2014. 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 and
indirect lending, as well as mortgage banking. Consumer and
Small Business Banking contributed $1.4 billion of the
Company’s net income in 2015, or a decrease of $129 million
(8.7 percent), compared with 2014. The decrease was due to
lower net revenue and higher noninterest expense, partially
offset by a decrease in the provision for credit losses.
Net revenue decreased $204 million (2.8 percent) in 2015,
compared with 2014. Net interest income, on a taxable-
equivalent basis, decreased $100 million (2.1 percent) in
2015, compared with 2014, primarily due to lower rates on
loans and lower loan fees due to the wind down of the CAA
product, partially offset by higher average loan, deposit and
loans held for sale balances. Noninterest income decreased
$104 million (4.0 percent) in 2015, compared with 2014,
primarily the result of lower mortgage banking revenue due to
an unfavorable change in the valuation of MSRs, net of
hedging activities, partially offset by higher mortgage
production revenue. Noninterest expense increased
$266 million (5.8 percent) in 2015, compared with 2014, the
result of higher compensation, employee benefits and
mortgage servicing-related expenses.
The provision for credit losses decreased $266 million
(67.7 percent) in 2015, compared with 2014, due to lower net
charge-offs and a favorable change in the reserve allocation
driven by improvements in the mortgage portfolio. As a
percentage of average loans outstanding, net charge-offs
decreased to 0.25 percent in 2015, compared with 0.38
percent in 2014. Nonperforming assets were $1.3 billion at
December 31, 2015, compared with $1.4 billion at
December 31, 2014. Nonperforming assets as a percentage
of period-end loans were 0.95 percent at December 31,
2015, compared with 1.10 percent at December 31, 2014.
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 $257 million
of the Company’s net income in 2015, an increase of $6
million (2.4 percent), compared with 2014. The increase from
the prior year was primarily due to higher net revenue, partially
offset by higher noninterest expense.
Net revenue increased $73 million (4.1 percent) in 2015,
compared with 2014, driven by a $70 million (5.0 percent)
increase in noninterest income, reflecting the impact of
account growth, improved market conditions and lower fee
waivers. Net interest income, on a taxable-equivalent basis,
increased $3 million (0.8 percent) in 2015, compared with
2014, principally due to higher average loan and deposit
— 72 —
balances, partially offset by a lower loan rates and a decrease
in the margin benefit of corporate trust deposits.
Noninterest expense increased $72 million (5.2 percent) in
2015, compared with 2014. The increase in noninterest
expense was primarily due to higher net shared services
expense and higher compensation and employee benefits
expenses primarily due to merit increases and increased
pension costs, respectively.
Payment Services Payment Services includes consumer
and business credit cards, stored-value cards, debit cards,
corporate, government and purchasing card services,
consumer lines of credit and merchant processing. Payment
Services contributed $1.2 billion of the Company’s net
income in 2015, or an increase of $22 million (1.9 percent)
compared with 2014. The increase was primarily due to
higher net revenue, partially offset by higher noninterest
expense and an increase in the provision for credit losses.
Net revenue increased $260 million (5.2 percent) in 2015,
compared with 2014. Net interest income, on a taxable-
equivalent basis, increased $181 million (10.3 percent) in
2015, compared with 2014, primarily driven by improved loan
rates and higher average loan balances and fees. Noninterest
income increased $79 million (2.4 percent) in 2015, compared
with 2014, primarily due to an increase in credit and debit
card revenue on higher transaction volumes, along with higher
merchant processing services revenue, driven by increased
transaction volumes and product fees and equipment sales to
merchants related to new chip card technology requirements,
partially offset by the impact of foreign currency rate changes.
Noninterest expense increased $210 million (8.6 percent)
in 2015, compared with 2014, primarily due to higher net
shared services and compensation and marketing expenses.
The provision for credit losses increased $21 million (2.7
percent) in 2015, compared with 2014, primarily due to an
unfavorable change in the reserve allocation due to loan
growth. As a percentage of average loans outstanding, net
charge-offs were 3.01 percent in 2015, compared with 3.11
percent in 2014.
Treasury and Corporate Support Treasury and Corporate
Support includes the Company’s investment portfolios, most
covered commercial and commercial real estate loans and
related OREO, funding, capital management, interest rate risk
management, 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 $2.2 billion in 2015, compared with $1.9 billion in 2014.
Net revenue increased $87 million (2.9 percent) in 2015,
compared with 2014. Net interest income, on a taxable-
equivalent basis, increased $129 million (6.1 percent) in 2015,
compared with 2014, principally due to growth in the
investment securities portfolio. Noninterest income decreased
$42 million (4.6 percent) in 2015, compared with 2014,
primarily due to lower other income from Visa stock sales, the
2015 student loan market adjustment and the 2014 Nuveen
gain, partially offset by the 2015 HSA deposit sale gain and
higher commercial products revenue.
Noninterest expense decreased $403 million (37.1
percent) in 2015, compared with 2014, principally due to a
reduction of reserves for losses allocated to the business
lines, lower costs related to investments in tax-advantaged
projects, the 2014 FHA DOJ settlement and lower charitable
contributions, partially offset by higher compensation
expense, reflecting the impact of merit increases and staffing
for risk and compliance activities, and higher employee
benefits expense, reflecting higher pension costs.
Income taxes are assessed to each line of business at a
managerial tax rate of 36.4 percent with the residual tax
expense or benefit to arrive at the consolidated effective tax
rate included in Treasury and Corporate Support.
NON-GAAP FINANCIAL MEASURES
In addition to capital ratios defined by banking regulators, the
Company considers various other measures when evaluating
capital utilization and adequacy, including:
– Tangible common equity to tangible assets,
– Tangible common equity to risk-weighted assets,
– Common equity tier 1 capital to risk-weighted assets
estimated for the Basel III fully implemented standardized
approach, and
– Common equity tier 1 capital to risk-weighted assets
estimated for the Basel III fully implemented advanced
approaches.
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 currently effective capital ratios
defined by banking regulations principally in that the numerator
includes unrealized gains and losses related to available-for-sale
securities and excludes preferred securities, including preferred
stock, the nature and extent of which varies among different
financial services companies. These measures are not defined in
— 73 —
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.
The following table shows the Company’s calculation of these Non-GAAP financial measures:
At December 31 (Dollars in Millions)
2015
2014
2013
2012
2011
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 46,817
(5,501)
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(686)
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8,295)
Goodwill (net of deferred tax liability)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(838)
Intangible assets, other than mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . .
$ 44,168
(4,756)
(689)
(8,403)
(824)
$ 41,807
(4,756)
(694)
(8,343)
(849)
$ 40,267
(4,769)
(1,269)
(8,351)
(1,006)
$ 34,971
(2,606)
(993)
(8,239)
(1,217)
Tangible common equity(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tangible common equity (as calculated above)
Adjustments(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31,497
31,497
67
29,496
29,496
172
27,165
27,165
224
24,872
24,872
126
21,916
21,916
450
Common equity tier 1 capital estimated for the Basel III fully implemented
standardized and advanced approaches(3)(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31,564
29,668
27,389
24,998
22,366
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 1 definition(c) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill (net of deferred tax liability)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, other than mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . .
421,853
(8,295)
(838)
402,529
(8,403)
(824)
33,386
–
(4,756)
(688)
27,942
364,021
(8,343)
(849)
31,203
–
(4,769)
(685)
25,749
353,855
(8,351)
(1,006)
29,173
(2,675)
(2,606)
(687)
23,205
340,122
(8,239)
(1,217)
Tangible assets(d)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
412,720
393,302
354,829
344,498
330,666
Risk-weighted assets, determined in accordance with prescribed transitional
standardized approach regulatory requirements(4)(e) . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
341,360
3,892
317,398
11,110
297,919
13,712
287,611
21,233
271,333
3,018
Risk-weighted assets estimated for the Basel III fully implemented standardized
approach(3)(f)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
345,252
328,508
311,631
308,844
274,351
Risk-weighted assets, determined in accordance with prescribed transitional
advanced approaches regulatory requirements . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
261,668
4,099
248,596
3,270
Risk-weighted assets estimated for the Basel III fully implemented advanced
approaches(g)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
265,767
251,866
Ratios
Tangible common equity to tangible assets(a)/(d)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tangible common equity to risk-weighted assets(a)/(e) . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . .
Tier 1 common equity to risk-weighted assets using Basel I definition(c)/(e)
Common equity tier 1 capital to risk-weighted assets estimated for the Basel III
7.6%
9.2
7.5%
9.3
7.7%
9.1
9.4
7.2%
8.6
9.0
6.6%
8.1
8.6
fully implemented standardized approach(b)/(f)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.1
9.0
8.8
8.1
8.2
Common equity tier 1 capital to risk-weighted assets estimated for the Basel III
fully implemented advanced approaches(b)/(g)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.9
11.8
(1) Includes goodwill related to certain investments in unconsolidated financial institutions per prescribed regulatory requirements beginning March 31, 2014.
(2) Includes net losses on cash flow hedges included in accumulated other comprehensive income (loss) and other adjustments.
(3) December 31, 2015, 2014 and 2013, calculated using final rules for the Basel III fully implemented standardized approach; December 31, 2012, calculated using proposed rules for the Basel III
fully implemented standardized approach released June 2012; December 31, 2011, calculated using proposed rules for the Basel III fully implemented standardized approach released prior to
June 2012.
(4) December 31, 2015 and 2014, calculated under the Basel III transitional standardized approach; all other periods calculated under Basel I.
(5) Includes higher risk-weighting for unfunded loan commitments, investment securities, residential mortgages, MSRs and other adjustments.
(6) Primarily reflects higher risk-weighting for MSRs.
— 74 —
ACCOUNTING CHANGES
Note 2 of the Notes to Consolidated Financial Statements
discusses accounting standards recently issued but not yet
required to be adopted and the expected impact of these
changes in accounting standards. To the extent the adoption
of new accounting standards materially affects the
Company’s financial condition or results of operations, the
impacts are discussed in the applicable section(s) of the
Management’s Discussion and Analysis and the Notes to
Consolidated Financial Statements.
CRITICAL ACCOUNTING POLICIES
The accounting and reporting policies of the Company comply
with accounting principles generally accepted in the United
States and conform to general practices within the banking
industry. The preparation of financial statements in conformity
with GAAP requires management to make estimates and
assumptions. The Company’s financial position and results of
operations can be affected by these estimates and
assumptions, which are integral to understanding the
Company’s financial statements. Critical accounting policies are
those policies management believes are the most important to
the portrayal of the Company’s financial condition and results,
and require management to make estimates that are difficult,
subjective or complex. Most accounting policies are not
considered by management to be critical accounting policies.
Several factors are considered in determining whether or not a
policy is critical in the preparation of financial statements. These
factors include, among other things, whether the estimates are
significant to the financial statements, the nature of the
estimates, the ability to readily validate the estimates with other
information (including third party sources or available prices),
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 methodologies utilized to determine
each element of the allowance reflect management’s
assessment of credit risk as identified through assessments
completed of individual credits and of homogenous pools
affected by material credit events, 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 changes in economic conditions, risk
management practices, and other factors that contribute to
imprecision of loss estimates 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 banking institution.
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 changing credit quality, while
nonperforming loans and net charge-offs may be slower to
reflect changes. 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 degree of
change in the commercial lending allowance may differ from
the level of changes in nonperforming loans and net charge-
offs. Also, management would maintain an appropriate
allowance for credit losses by increasing allowance rates
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
— 75 —
qualitative factors that can affect the precision of credit loss
estimates, including economic conditions, such as changes in
unemployment or bankruptcy rates, and concentration risks,
such as risks associated with specific industries, the housing
market, and loans to highly leveraged enterprises, 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, 2015. In the event that 10 percent of period
ending loan balances (including unfunded commitments)
within each risk category of this segment of the loan portfolio
experienced downgrades of two risk categories, the
allowance for credit losses would increase by approximately
$236 million at December 31, 2015. 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 $158 million at
December 31, 2015. 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
$183 million at December 31, 2015. 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 investment securities,
derivatives and other trading instruments, MSRs and MLHFS.
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, OREO and other repossessed assets.
Fair value is generally defined as the exit price at which an
asset or liability could be exchanged in a current transaction
between willing, unrelated parties, other than in a forced or
liquidation sale. Fair value is based on quoted market prices in
an active market, or if market prices are not available, is
estimated using models employing techniques such as matrix
pricing or discounting expected cash flows. The significant
assumptions used in the models, which include assumptions
for interest rates, discount rates, prepayments and credit
losses, are independently verified against observable market
data where possible. Where observable market data is not
available, the estimate of fair value becomes more subjective
and involves a high degree of judgment. In this circumstance,
fair value is estimated based on management’s judgment
regarding the value that market participants would assign to
the asset or liability. This valuation process takes into
consideration factors such as market illiquidity. Imprecision in
estimating these factors can impact the amount recorded on
the balance sheet for a particular asset or liability with related
impacts to earnings or other comprehensive income (loss).
When available, trading and available-for-sale securities are
valued based on quoted market prices. However, certain
securities are traded less actively and therefore, 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 5 of the Notes to Consolidated Financial Statements.
As few derivative contracts are listed on an exchange, the
majority of the Company’s derivative positions are valued
using valuation techniques that use readily observable market
inputs. Certain derivatives, however, must be valued using
techniques that include unobservable inputs. For these
instruments, the significant assumptions must be estimated
and therefore, are subject to judgment. Note 20 of the Notes
to Consolidated Financial Statements provides a summary of
the Company’s derivative positions.
Refer to Note 22 of the Notes to Consolidated Financial
Statements for additional information regarding estimations of
fair value.
— 76 —
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
Notes 1 and 6 of the Notes to Consolidated Financial
Statements for additional information. In addition, refer to the
“Analysis and Determination of the Allowance for Credit
Losses” section for information on the determination of the
required allowance for credit losses, if any, for these loans.
Mortgage Servicing Rights MSRs are capitalized as
separate assets when loans are sold and servicing is retained,
or may be purchased from others. The Company records
MSRs at fair value. 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. Refer to Notes 10 and
22 of the Notes to Consolidated Financial Statements for
additional information on the assumptions used in determining
the fair value of MSRs and an analysis of the sensitivity to
changes in interest rates of the fair value of the MSRs portfolio
and the related derivative instruments used 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
— 77 —
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 $3 billion in excess of the
economic and regulatory capital requirements of that
segment.
The Company’s annual assessment of potential goodwill
impairment was completed during the second quarter of
2015. 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 the various tax
jurisdictions in which it operates, including federal, state and
local domestic jurisdictions, and an insignificant amount to
foreign jurisdictions. The estimated income tax expense is
reported in the Consolidated Statement of Income. Accrued
taxes are reported in other assets or other liabilities on the
Consolidated Balance Sheet and represent the net estimated
amount due to or to be received from taxing jurisdictions
either currently or deferred to future periods. Deferred taxes
arise from differences between assets and liabilities measured
for financial reporting purposes versus income tax reporting
purposes. Deferred tax assets are recognized if, in
management’s judgment, their realizability is determined to be
more likely than not. Uncertain tax positions that meet the
more likely than not recognition threshold are measured to
determine the amount of benefit to recognize. An uncertain
tax position is measured at the largest amount of benefit
management believes is more likely than not to be realized
upon settlement. In estimating accrued taxes, the Company
assesses the relative merits and risks of the appropriate tax
treatment considering statutory, judicial and regulatory
guidance in the context of the tax position. Because of the
complexity of tax laws and regulations, interpretation can be
difficult and subject to legal judgment given specific facts and
circumstances. It is possible that others, given the same
information, may at any point in time reach different
reasonable conclusions regarding the estimated amounts of
accrued taxes.
Changes in the estimate of accrued taxes occur
periodically due to changes in tax rates, interpretations of tax
laws, the status of examinations being conducted by various
taxing authorities, and newly enacted statutory, judicial and
regulatory guidance that impacts the relative merits and risks
of tax positions. These changes, when they occur, affect
accrued taxes and can be significant to the operating results
of the Company. Refer to Note 19 of the Notes to
Consolidated Financial Statements for additional information
regarding income taxes.
CONTROLS AND PROCEDURES
Under the supervision and with the participation of the
Company’s management, including its principal executive
officer and principal financial officer, the Company has
evaluated the effectiveness of the design and operation of its
disclosure controls and procedures (as defined in Rules 13a-
15(e) and 15d-15(e) under the Securities Exchange Act of
1934 (the “Exchange Act”)). Based upon this evaluation, the
principal executive officer and principal financial officer have
concluded that, as of the end of the period covered by this
report, the Company’s disclosure controls and procedures
were effective.
During the most recently completed fiscal quarter, there
was no change made in the Company’s internal controls over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, the Company’s internal
control over financial reporting.
The annual report of the Company’s management on
internal control over financial reporting is provided on
page 79. 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 81.
— 78 —
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,
2015. 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 (2013 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, 2015.
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 80 and their attestation on internal control over financial reporting appearing on
page 81 are based on procedures conducted in accordance with auditing standards of the Public Company Accounting Oversight
Board (United States).
— 79 —
Report of Independent Registered Public Accounting Firm
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, 2015 and 2014, 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, 2015. 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, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 2015, 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, 2015, based on criteria established in Internal Control
— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) and our report dated February 25, 2016 expressed an unqualified opinion thereon.
Minneapolis, Minnesota
February 25, 2016
— 80 —
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, 2015, based on criteria established in
Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 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, 2015, 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, 2015 and 2014, 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, 2015 and our report dated February 25, 2016 expressed an unqualified opinion thereon.
Minneapolis, Minnesota
February 25, 2016
— 81 —
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 — Accounting Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 3 — Business Combinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 4 — Restrictions on Cash and Due From Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 5 — Investment Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 6 — Loans and Allowance for Credit Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 7 — Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 8 — Accounting for Transfers and Servicing of Financial Assets and Variable Interest Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 9 — Premises and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 10 — Mortgage Servicing Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 11 — Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 12 — Short-Term Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 13 — Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 14 — Junior Subordinated Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 15 — Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 16 — Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 17 — Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 18 — Stock-Based Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 19 — Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 20 — Derivative Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 21 — Netting Arrangements for Certain Financial Instruments and Securities Financing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 22 — Fair Values of Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 23 — Guarantees and Contingent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 24 — U.S. Bancorp (Parent Company) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 25 — Subsequent Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
83
84
85
86
87
88
96
96
96
97
100
108
108
110
110
111
112
113
113
114
119
119
124
126
127
132
134
143
148
149
— 82 —
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 $43,493 and $45,140, respectively; including $526 at fair value pledged as collateral at
December 31, 2014)(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available-for-sale ($1,018 and $330 pledged as collateral, respectively)(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . .
Loans held for sale (including $3,110 and $4,774 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 $121 and $157 of trading securities at fair value pledged as collateral, respectively)(a) . . . . . . . .
2015
2014
$ 11,147
$ 10,654
43,590
61,997
3,184
88,402
42,137
53,496
21,012
51,206
256,253
4,596
260,849
(3,863)
256,986
2,513
9,361
3,350
29,725
44,974
56,069
4,792
80,377
42,795
51,619
18,515
49,264
242,570
5,281
247,851
(4,039)
243,812
2,618
9,389
3,162
27,059
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$421,853
$402,529
Liabilities and Shareholders’ Equity
Deposits
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing(b)
$ 83,766
216,634
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
300,400
27,877
32,078
14,681
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
375,036
$ 77,323
205,410
282,733
29,893
32,260
13,475
358,361
Shareholders’ equity
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock, par value $0.01 a share — authorized: 4,000,000,000 shares; issued: 2015 and 2014 —
2,125,725,742 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less cost of common stock in treasury: 2015 — 380,534,801 shares; 2014 — 339,859,034 shares . . . . . . . . . . . .
Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total U.S. Bancorp shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,501
4,756
21
8,376
46,377
(13,125)
(1,019)
46,131
686
46,817
21
8,313
42,530
(11,245)
(896)
43,479
689
44,168
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$421,853
$402,529
(a) Includes only collateral pledged by the Company where counterparties have the right to sell or pledge the collateral.
(b) lncludes time deposits greater than $250,000 balances of $2.6 billion and $5.0 billion at December 31, 2015 and 2014, respectively.
See Notes to Consolidated Financial Statements.
— 83 —
U.S. Bancorp
Consolidated Statement of Income
Year Ended December 31 (Dollars and Shares in Millions, Except Per Share Data)
2015
2014
2013
Interest Income
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,059
206
2,001
136
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,402
Interest Expense
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt
457
245
699
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,401
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,001
1,132
Net interest income after provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,869
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
1,070
708
1,547
318
1,321
702
561
867
906
185
1
(1)
–
–
907
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,092
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
4,812
1,167
991
423
361
887
297
174
1,819
$10,113
128
1,866
121
12,228
465
263
725
1,453
10,775
1,229
9,546
1,021
724
1,511
321
1,252
693
545
854
1,009
191
11
(7)
(1)
3
1,040
9,164
4,523
1,041
987
414
382
863
328
199
1,978
$10,277
203
1,631
174
12,285
561
353
767
1,681
10,604
1,340
9,264
965
706
1,458
327
1,139
670
538
859
1,356
178
23
(6)
(8)
9
569
8,774
4,371
1,140
949
381
357
848
310
223
1,695
Total noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,931
10,715
10,274
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,030
2,097
5,933
(54)
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,879
Net income applicable to U.S. Bancorp common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,608
Earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average diluted common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.18
$
$
3.16
$ 1.010
1,764
1,772
7,995
2,087
5,908
(57)
$ 5,851
$ 5,583
$
$
$
3.10
3.08
.965
1,803
1,813
7,764
2,032
5,732
104
$ 5,836
$ 5,552
$
$
$
3.02
3.00
.885
1,839
1,849
See Notes to Consolidated Financial Statements.
— 84 —
U.S. Bancorp
Consolidated Statement of Comprehensive Income
Year Ended December 31 (Dollars in Millions)
2015
2014
2013
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,933
$5,908
$ 5,732
Other Comprehensive Income (Loss)
Changes in unrealized gains and losses on securities available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other-than-temporary impairment not recognized in earnings on securities available-for-sale . . . . . . . . . . .
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 (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(457)
–
(25)
20
(142)
393
88
(123)
764
1
(41)
(4)
(733)
297
(109)
175
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive (income) loss attributable to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,810
(54)
6,083
(57)
(1,223)
8
37
(34)
590
373
101
(148)
5,584
104
Comprehensive income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,756
$6,026
$ 5,688
See Notes to Consolidated Financial Statements.
— 85 —
U.S. Bancorp
Consolidated Statement of Shareholders’ Equity
(Dollars and Shares in Millions)
Balance December 31, 2012 . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . .
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
1,869 $4,769
$21 $8,201 $34,720 $ (7,790)
$ (923)
(500)
8
5,836
(8)
(250)
(1,631)
487
21
(65)
(100)
650
(2,336)
(148)
107
$38,998
5,836
(148)
(500)
(250)
(1,631)
487
550
(2,336)
–
–
107
(104)
$1,269 $40,267
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
Net income (loss) . . . . . . . . . . . . . . . . .
Other comprehensive income (loss)
. .
Preferred stock dividends . . . . . . . . . .
Common stock dividends . . . . . . . . . .
Issuance of common and treasury
stock . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of treasury stock . . . . . . . . .
Distributions to noncontrolling
interests . . . . . . . . . . . . . . . . . . . . . .
Net other changes in noncontrolling
interests . . . . . . . . . . . . . . . . . . . . . .
Stock option and restricted stock
grants . . . . . . . . . . . . . . . . . . . . . . . .
5,851
(243)
(1,745)
175
15
(54)
(13)
493
(2,262)
110
5,851
175
(243)
(1,745)
480
(2,262)
–
–
110
57
5,908
175
(243)
(1,745)
480
(2,262)
(59)
(59)
(3)
(3)
110
Balance December 31, 2014 . . . . . .
1,786 $4,756
$21 $8,313 $42,530 $(11,245)
$ (896)
$43,479
$ 689 $44,168
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 . . . . . . . . . . . . . . . . . . . . . . . .
5,879
(247)
(1,785)
(123)
745
11
(52)
(55)
366
(2,246)
118
5,879
(123)
(247)
(1,785)
745
311
(2,246)
–
–
118
54
5,933
(123)
(247)
(1,785)
745
311
(2,246)
(55)
(55)
(2)
(2)
118
Balance December 31, 2015 . . . . . .
1,745 $5,501
$21 $8,376 $46,377 $(13,125)
$(1,019)
$46,131
$ 686 $46,817
See Notes to Consolidated Financial Statements.
— 86 —
U.S. Bancorp
Consolidated Statement of Cash Flows
Year Ended December 31 (Dollars in Millions)
2015
2014
2013
Operating Activities
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities
$ 5,879
$ 5,851
$ 5,836
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization of premises and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,132
307
174
(993)
(403)
(43,312)
45,211
787
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,782
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
690
10,567
13,395
(9,234)
(20,502)
(11,788)
1,723
(4,475)
–
(1,526)
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(21,150)
Financing Activities
Net increase in deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (decrease) increase 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,290
(2,016)
5,067
(5,311)
745
295
–
(2,190)
(242)
(1,777)
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,861
Change in cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and due from banks at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
493
10,654
1,229
302
199
(801)
(595)
(30,858)
29,962
43
5,332
475
9,479
7,212
(15,597)
(21,752)
(12,873)
1,657
(2,355)
3,436
506
(29,812)
15,822
2,285
16,394
(4,128)
–
453
–
(2,200)
(243)
(1,726)
26,657
2,177
8,477
1,340
297
223
(1,044)
(74)
(56,698)
61,681
(115)
11,446
947
8,587
10,147
(13,218)
(13,146)
(12,331)
819
(2,468)
(58)
(303)
(21,024)
12,940
1,306
2,041
(2,883)
487
524
(500)
(2,282)
(254)
(1,576)
9,803
225
8,252
Cash and due from banks at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 11,147
$ 10,654
$ 8,477
Supplemental Cash Flow Disclosures
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net noncash transfers to foreclosed property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions
Assets (sold) acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities sold (assumed)
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
742
1,434
204
–
–
–
$
748
1,476
199
$ 1,376
(4,797)
$ (3,421)
$
$
$
812
1,759
323
126
(24)
102
See Notes to Consolidated Financial Statements.
— 87 —
Notes to Consolidated Financial Statements
N O T E 1 SIGNIFICANT ACCOUNTING POLICIES
U.S. Bancorp is a multi-state financial services holding
company headquartered in Minneapolis, Minnesota.
U.S. Bancorp and its subsidiaries (the “Company”) provide a
full range of financial services, including lending and
depository services through banking offices principally in the
Midwest and West regions of the United States. The
Company also engages in credit card, merchant, and ATM
processing, mortgage banking, insurance, trust and
investment management, brokerage, and leasing activities,
principally in domestic markets.
Basis of Presentation The consolidated financial statements
include the accounts of the Company and its subsidiaries and
all variable interest entities (“VIEs”) for which the Company has
both the power to direct the activities of the VIE that most
significantly impact the VIE’s economic performance, and the
obligation to absorb losses or right to receive benefits of the
VIE that could potentially be significant to the VIE.
Consolidation eliminates all significant intercompany accounts
and transactions. Certain items in prior periods have been
reclassified to conform to the current presentation.
Uses of Estimates The preparation of financial statements in
conformity with accounting principles generally accepted in
the United States 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
encompasses community banking, metropolitan banking and
indirect lending, as well as mortgage 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, government 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, income taxes
not allocated to 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.
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 25 “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
— 88 —
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 for credit-related 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 with a
receivable or payable recorded at the amounts at which the
securities were acquired or sold, plus accrued interest.
Collateral requirements are continually monitored and
additional collateral is received or provided as required. The
Company records a receivable or payable for cash collateral
paid or received.
EQUITY INVESTMENTS IN OPERATING ENTITIES
Equity investments in public entities in which the Company’s
ownership is less than 20 percent are generally 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, 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
— 89 —
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 amortizes 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)
over the shorter of the remaining contractual term of the
indemnification agreements or the remaining life of the
covered assets. Prior to January 1, 2013, 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.
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 generally considered in the
determination of the fair value of the loans recorded at the
date of acquisition. Reserves for credit exposure on all other
unfunded credit commitments are recorded in other liabilities.
Allowance for Credit Losses The allowance for credit
losses reserves for probable and estimable losses incurred in
the Company’s loan and lease portfolio, 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 15-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, less selling costs,
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.
— 90 —
The allowance for the covered loan segment is evaluated
each quarter in a manner similar to that described for non-
covered loans and reflects 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, historical loss experience is also
incorporated 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 each loan segment
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.
For all loan classes, interest payments received on
nonaccrual loans are generally recorded as a reduction to a
loan’s carrying amount while a loan is on nonaccrual and are
recognized as interest income upon payoff of the loan.
However, 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
— 91 —
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 when 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, and those loans are
classified as nonaccrual loans with interest income 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 performance at a level commensurate
with the modified terms over several payment cycles, which is
generally six months or greater. 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 all of the above 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 and
continues to report them as TDRs after the trial period.
Credit card and other retail loan TDRs are generally part of
distinct restructuring 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.
— 92 —
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 accounting and disclosure purposes 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. The fair value of 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.
Where an election is made to carry the LHFS at fair value,
any change in fair value is 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 above the loan cost basis 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 (“MLHFS”).
— 93 —
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 immediately, unless the forecasted transaction is at
least reasonably possible of occurring, whereby the amounts
remain within other comprehensive income (loss).
REVENUE RECOGNITION
when the Company acts on an agency basis for others.
Certain specific policies include the following:
Credit and Debit Card Revenue Credit and debit card
revenue includes interchange from consumer credit and debit
cards processed through card association networks, annual
fees, and other transaction and account management fees.
Interchange rates are generally set by the credit card
associations and based on purchase volumes and other
factors. The Company records interchange 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 costs for rewards programs are
also recorded within credit and debit card revenue when
earned by the partner or customer.
Corporate Payment Products Revenue Corporate
payment products revenue primarily includes interchange
from corporate and purchasing cards processed through card
association networks and revenue from proprietary network
transactions. The Company records corporate payment
products revenue as transactions occur. Volume-related
payments to customers and credit card associations are also
recorded within corporate payment products revenue when
earned by the customer or card association.
Merchant Processing Services Merchant processing
services revenue consists principally of merchant discount
and other transaction and account management fees charged
to merchants for the electronic processing of card association
network transactions, net of interchange paid to the card-
issuing bank, card association assessments, and revenue
sharing amounts. All of these are 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.
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
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.
— 94 —
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.
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; 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 fair value for
derivative commitments to purchase and originate mortgage
loans; changes in the fair value of mortgage servicing rights
(“MSRs”); and the impact of risk management activities
associated with the mortgage origination pipeline, funded
loans and MSRs. Net interest income from mortgage loans is
recorded in interest income. Refer to Other Significant Policies
in Note 1, as well as Note 10 and Note 22 for a further
discussion of MSRs.
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. Beginning
January 1, 2014, the Company presents the expense on
certain qualified affordable housing investments in tax
expense rather than noninterest expense.
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 as mortgage banking revenue 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 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
— 95 —
expected returns and actual performance of plan assets. The
unrealized difference between actual experience and
expected returns is included in expense over a period of
approximately twelve years. The overfunded or underfunded
status of the plans is recorded as an asset or liability on the
Consolidated Balance Sheet, with changes in that status
recognized through other comprehensive income (loss).
Premises and Equipment Premises and equipment are
stated at cost less accumulated depreciation and depreciated
primarily on a straight-line basis over the estimated life of the
assets. Estimated useful lives range up to 40 years for newly
constructed buildings and from 3 to 20 years for furniture and
equipment.
Capitalized leases, less accumulated amortization, are
included in premises and equipment. Capitalized lease
obligations are included in long-term debt. Capitalized leases
are amortized on a straight-line basis over the lease term and
the amortization is included in depreciation expense.
Stock-Based Compensation The Company grants stock-
based awards, including restricted stock, restricted stock units
and options to purchase common stock of the Company.
Stock option grants are for a fixed number of shares to
employees and directors with an exercise price equal to the
fair value of the shares at the date of grant. Restricted stock
and restricted stock unit grants are awarded at no cost to the
recipient. Stock-based compensation for awards is recognized
in the Company’s results of operations on a straight-line basis
over the vesting period. The Company immediately recognizes
compensation cost of awards to employees that meet
retirement status, despite their continued active employment.
The amortization of stock-based compensation reflects
estimated forfeitures adjusted for actual forfeiture experience.
As compensation expense is recognized, a deferred tax asset
is recorded that represents an estimate of the future tax
deduction from exercise or release of restrictions. At the time
stock-based awards are exercised, cancelled, expire, or
restrictions are released, the Company may be required to
recognize an adjustment to tax expense, depending on the
market price of the Company’s common stock at that time.
Per Share Calculations Earnings per common share is
calculated by dividing net income applicable to U.S. Bancorp
common shareholders by the weighted average number of
common shares outstanding. Diluted earnings per common
share is calculated by adjusting income and outstanding shares,
assuming conversion of all potentially dilutive securities.
N O T E 2 ACCOUNTING CHANGES
Revenue Recognition In May 2014, the Financial
Accounting Standards Board (“FASB”) issued accounting
guidance, originally effective for the Company on January 1,
2017, related to revenue recognition from contracts with
customers. In August 2015, the FASB delayed the effective
date of this guidance by one year, resulting in it becoming
effective for the Company on January 1, 2018.
This guidance amends certain currently existing revenue
recognition accounting guidance and allows for either
retrospective application to all periods presented or a
modified retrospective approach where the guidance would
only be applied to existing contracts in effect at the adoption
date and new contracts going forward. The Company is
currently evaluating the impact of this guidance under the
modified retrospective approach and expects the adoption
will not be material to its financial statements.
Consolidation In February 2015, the FASB issued
accounting guidance, effective for the Company on
January 1, 2016, related to the analysis required by
organizations to evaluate whether they should consolidate
certain legal entities. The Company expects the adoption of
this guidance will not be material to its financial statements.
N O T E 3 BUSINESS COMBINATIONS
In June 2014, the Company acquired the Chicago-area
branch banking operations of the Charter One Bank franchise
(“Charter One”) owned by RBS Citizens Financial Group. The
acquisition included Charter One’s retail branch network,
small business operations and select middle market
relationships. The Company acquired approximately
$969 million of loans and $4.8 billion of deposits with this
transaction.
N O T E 4 RESTRICTIONS ON CASH AND DUE FROM BANKS
Banking regulators require bank subsidiaries to maintain
minimum average reserve balances, either in the form of cash
or reserve balances held with central banks or other financial
institutions. The amount of required reserve balances were
approximately $2.2 billion and $2.0 billion at December 31,
2015 and 2014, respectively, and primarily represent those
required to be held at the Federal Reserve Bank. At
December 31, 2015 and 2014, the Company held $3.3 billion
and $4.4 billion, respectively, of balances at the Federal
Reserve Bank and other financial institutions to meet these
requirements. These balances are included in cash and due
from banks on the Consolidated Balance Sheet.
— 96 —
N O T E 5 INVESTMENT SECURITIES
The amortized cost, other-than-temporary impairment recorded in other comprehensive income (loss), gross unrealized holding
gains and losses, and fair value of held-to-maturity and available-for-sale investment securities at December 31 were as follows:
(Dollars in Millions)
Held-to-maturity(a)
U.S. Treasury and agencies . . . . . . . . . . . .
Mortgage-backed securities
Residential
Amortized
Cost
Unrealized
Gains
2015
Unrealized Losses
Other-than-
Temporary(e) Other(f)
Fair Value
Amortized
Cost
Unrealized
Gains
2014
Unrealized Losses
Other-than-
Temporary(e) Other(f)
Fair Value
$ 2,925
$ 14
$ – $ (20) $ 2,919
$ 2,717
$ 15
$ – $ (18) $ 2,714
Agency . . . . . . . . . . . . . . . . . . . . . . . . .
Non-agency non-prime(d) . . . . . . . . . . .
40,619
1
175
–
Asset-backed securities
Collateralized debt obligations/
Collateralized loan obligations . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of state and political
subdivisions . . . . . . . . . . . . . . . . . . . . . . .
Obligations of foreign governments . . . . . .
Other debt securities . . . . . . . . . . . . . . . . . .
–
10
8
9
18
6
3
1
–
–
–
–
–
–
–
–
–
(273) 40,521
1
–
42,204
1
335
–
–
–
(1)
–
(2)
6
13
8
9
16
–
13
9
9
21
7
4
1
–
–
–
–
–
–
–
–
–
(176) 42,363
1
–
–
–
(1)
–
(1)
7
17
9
9
20
Total held-to-maturity . . . . . . . . . . . . .
$43,590
$199
$ – $(296) $43,493
$44,974
$362
$ – $(196) $45,140
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
subdivisions . . . . . . . . . . . . . . . . . . . . . . .
Obligations of foreign governments . . . . . .
Corporate debt securities . . . . . . . . . . . . . .
Perpetual preferred securities . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . .
$ 4,611
$ 12
$ – $ (27) $ 4,596
$ 2,622
$ 14
$ – $
(4) $ 2,632
50,056
384
–
(364) 50,076
44,668
593
–
(244) 45,017
316
221
52
16
532
5,149
–
677
153
34
6
20
–
3
9
169
–
3
20
34
(3)
(1)
–
–
–
–
–
–
–
–
(1)
–
–
–
–
(2)
–
(70)
(12)
–
318
240
52
19
541
5,316
–
610
161
68
399
261
112
18
607
5,604
6
690
200
245
9
20
3
4
13
265
–
3
27
29
(2)
(1)
–
–
–
–
–
–
–
–
(1)
–
–
–
(1)
(1)
–
(79)
(10)
–
405
280
115
22
619
5,868
6
614
217
274
Total available-for-sale . . . . . . . . . . . . .
$61,817
$660
$(4) $(476) $61,997
$55,432
$980
$(3) $(340) $56,069
(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.
The weighted-average maturity of the available-for-sale
investment securities was 4.7 years at December 31, 2015,
compared with 4.3 years at December 31, 2014. The
corresponding weighted-average yields were 2.21 percent
and 2.32 percent, respectively. The weighted-average
maturity of the held-to-maturity investment securities was 4.2
years at December 31, 2015, and 4.0 years at December 31,
2014. The corresponding weighted-average yields were both
1.92 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, 2015, refer to Table 13 included
— 97 —
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 $13.1 billion at
December 31, 2015, and $12.6 billion at December 31, 2014,
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 securing these
types of arrangements had a fair value of $1.0 billion at
December 31, 2015, and $856 million at December 31, 2014.
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)
2015
Taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,778
223
Total interest income from investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,001
2014
$1,634
232
$1,866
2013
$1,375
256
$1,631
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized gains (losses)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax (benefit) on net realized gains (losses)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
$ 7
(6)
$ 1
$ –
2014
$11
–
$11
$ 4
2013
$23
–
$23
$ 9
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 Company determines 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) is measured as the difference between that
discounted amount and the fair value of each investment
security. The total amount of other-than-temporary
impairment recorded was immaterial for the years ended
December 31, 2015, 2014 and 2013.
Changes in the credit losses on debt 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
Decreases in expected cash flows on securities for which other-than-temporary impairment was previously
recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other-than-temporary impairment on debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Changes in Credit Losses
Increases in expected cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Realized losses(a)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit losses on security sales and securities expected to be sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
$101
2014
$116
2013
$134
1
1
(3)
(15)
–
3
3
(5)
(13)
–
14
14
(2)
(23)
(7)
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 84
$101
$116
(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.
— 98 —
At December 31, 2015, 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, 2015:
(Dollars in Millions)
Less Than 12 Months
12 Months or Greater
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Held-to-maturity
U.S. Treasury and agencies . . . . . . . . . . . . . . . . . . . . . . . .
Residential agency mortgage-backed securities . . . . . . .
Other asset-backed securities . . . . . . . . . . . . . . . . . . . . . .
Obligations of state and political subdivisions . . . . . . . . . .
Other debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,306
17,819
–
–
–
Total held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . .
$19,125
$ (19)
(150)
–
–
–
$(169)
$
60
4,156
6
2
17
$4,241
$
(1)
(123)
–
(1)
(2)
$(127)
$ 1,366
21,975
6
2
17
$23,366
$ (20)
(273)
–
(1)
(2)
$(296)
Available-for-sale
U.S. Treasury and agencies . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgage-backed securities
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 . . . . . . . . . . . . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,919
$ (27)
$
8
$
–
$ 2,927
$ (27)
18,603
(171)
6,267
(193)
24,870
(364)
59
–
–
35
–
–
1
(1)
–
–
–
–
–
–
107
17
2
62
425
73
–
(3)
(1)
–
(2)
(70)
(12)
–
166
17
2
97
425
73
1
(4)
(1)
–
(2)
(70)
(12)
–
Total available-for-sale . . . . . . . . . . . . . . . . . . . . . . . .
$21,617
$(199)
$6,961
$(281)
$28,578
$(480)
(a) The Company had $5 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,
2015, 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.
— 99 —
N O T E 6 LOANS AND ALLOWANCE FOR CREDIT LOSSES
The composition of the loan portfolio at December 31, disaggregated by class and underlying specific portfolio type, was as
follows:
(Dollars in Millions)
Commercial
2015
2014
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 83,116
5,286
$ 74,996
5,381
Total commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
88,402
80,377
Commercial Real Estate
Commercial mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction and development
Total commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential Mortgages
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home equity loans, first liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31,773
10,364
42,137
40,425
13,071
53,496
Credit Card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,012
Other Retail
Retail leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home equity and second mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revolving credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Installment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Automobile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Student
Total other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,232
16,384
3,354
7,030
16,587
2,619
51,206
33,360
9,435
42,795
38,598
13,021
51,619
18,515
5,871
15,916
3,309
6,242
14,822
3,104
49,264
Total loans, excluding covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
256,253
4,596
242,570
5,281
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$260,849
$247,851
The Company had loans of $78.1 billion at December 31,
2015, and $79.8 billion at December 31, 2014, pledged at the
Federal Home Loan Bank, and loans of $63.4 billion at
December 31, 2015, and $61.8 billion at December 31, 2014,
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, 2015
and 2014, 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,
2015 and 2014, see Table 8 included in Management’s
Discussion and Analysis which is incorporated by reference
into these Notes to Consolidated Financial Statements. Such
loans are collateralized by the related property.
Originated loans are reported at the principal amount
outstanding, net of unearned interest and deferred fees and
costs. Net unearned interest and deferred fees and costs
amounted to $550 million at December 31, 2015, and
$574 million at December 31, 2014. 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.”
— 100 —
Changes in the accretable balance for purchased impaired loans for the years ended December 31, were as follows:
(Dollars in Millions)
2015
2014
2013
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassifications from nonaccretable difference(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(b)
$1,309
(382)
(132)
163
(1)
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 957
$1,655
(441)
(131)
229
(3)
$1,309
$1,709
(499)
(172)
258
359
$1,655
(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, partially offset by the impact of changes in
expectations about retaining covered single-family loans beyond the term of the indemnification agreements.
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:
Commercial
Commercial
Real Estate
Residential
Mortgages
Credit
Card
Other
Retail
Total Loans,
Excluding
Covered Loans
Covered
Loans
Total
Loans
$1,146
$ 726
$787
$880
$ 771
$4,310
$ 65
$4,375
(Dollars in Millions)
Balance at December 31, 2014 . . . . . . . . .
Add
Provision for credit losses . . . . . . . . . . . . . .
Deduct
Loans charged off . . . . . . . . . . . . . . . . . . . .
. . . . .
Less recoveries of loans charged off
Net loans charged off
. . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Other changes(a)
Balance at December 31, 2015 . . . . . . . . .
Balance at December 31, 2013 . . . . . . . . .
Add
Provision for credit losses . . . . . . . . . . . . . .
Deduct
Loans charged off . . . . . . . . . . . . . . . . . . . .
. . . . .
Less recoveries of loans charged off
Net loans charged off
. . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Other changes(a)
361
314
(95)
219
(1)
(30)
22
(50)
(28)
–
266
305
(110)
195
–
(63)
36
(49)
(13)
–
$1,287
$1,075
$ 724
$ 776
$631
$875
$883
$884
$ 743
$ 781
107
657
278
1,245
(16)
1,229
(47)
654
193
1,131
135
(26)
109
–
726
(75)
651
–
319
(98)
221
–
216
(21)
195
–
725
(67)
658
(3)
384
(96)
288
–
1
–
–
–
(28)
$ 38
$146
1,132
1,516
(344)
1,172
(29)
$4,306
$4,537
1,516
(344)
1,172
(1)
$4,268
$4,391
1,666
(343)
1,323
(3)
$4,310
$4,554
13
(2)
11
(54)
1,679
(345)
1,334
(57)
$ 65
$179
$4,375
$4,733
Balance at December 31, 2014 . . . . . . . . .
Balance at December 31, 2012 . . . . . . . . .
Add
$1,146
$1,051
$ 726
$ 857
$787
$935
$880
$863
$ 771
$ 848
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 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, and the impact of any loan sales.
— 101 —
Additional detail of the allowance for credit losses by portfolio class was as follows:
(Dollars in Millions)
Allowance Balance at December 31, 2015
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 . . . . . . . .
Total allowance for credit losses . . . . . . . . . . . . . . . . .
Allowance Balance at December 31, 2014
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 . . . . . . . .
Total allowance for credit losses . . . . . . . . . . . . . . . . .
Commercial
Commercial
Real Estate
Residential
Mortgages
Credit
Card
Other
Retail
Total Loans,
Excluding
Covered Loans
Covered
Loans
Total
Loans
$
11
10
1,266
–
$1,287
$
5
12
1,129
–
$1,146
$
2
7
703
12
$724
$
4
12
678
32
$726
$
–
236
395
–
$
–
57
826
–
$
–
33
710
–
$631
$883
$743
$
–
319
468
–
$
–
61
819
–
$
–
41
730
–
$787
$880
$771
$
13
343
3,900
12
$4,268
$
9
445
3,824
32
$4,310
$ –
2
–
36
$38
$ –
4
1
60
$65
$
13
345
3,900
48
$4,306
$
9
449
3,825
92
$4,375
(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)
Commercial
Commercial
Real Estate
Residential
Mortgages
Credit
Card
Total Loans,
Excluding
Covered Loans
Other
Retail
Covered
Loans(b)
Total
Loans
–
211
50,995
–
–
237
49,027
–
390
5,070
252,590
2,799
299
5,681
238,555
3,316
December 31, 2015
Loans individually evaluated for impairment(a) . . . . . . . .
. . . . . . . . .
TDRs collectively evaluated for impairment
. . . .
Other loans collectively evaluated for impairment
Loans acquired with deteriorated credit quality . . . . . .
$
336
138
87,927
1
$
41
235
41,566
295
$
13 $
– $
$
390 $
– $
4,241
49,241
1
210
20,802
–
5,035
250,531
297
35
2,059
2,502
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$88,402
$42,137
$53,496 $21,012 $51,206
$256,253 $4,596 $260,849
December 31, 2014
Loans individually evaluated for impairment(a) . . . . . . . .
. . . . . . . . .
TDRs collectively evaluated for impairment
Other loans collectively evaluated for impairment
. . . .
Loans acquired with deteriorated credit quality . . . . . .
$
159
124
80,093
1
$
128
393
41,744
530
$
12 $
– $
$
299 $
– $
4,653
46,953
1
240
18,275
–
5,647
236,092
532
34
2,463
2,784
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$80,377
$42,795
$51,619 $18,515 $49,264
$242,570 $5,281 $247,851
(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 and evaluation of its allowance for credit
losses.
— 102 —
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, 2015
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages(a)
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current
$ 87,863
41,907
52,438
20,532
50,745
Total loans, excluding covered loans . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
253,485
4,236
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$257,721
December 31, 2014
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages(a)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 79,977
42,406
50,330
18,046
48,764
Total loans, excluding covered loans . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
239,523
4,804
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$244,327
Accruing
30-89 Days
Past Due
90 Days or
More Past Due
Nonperforming
Total
$ 317
89
170
243
224
1,043
62
$1,105
$ 247
110
221
229
238
1,045
68
$1,113
$ 48
14
176
228
75
541
290
$831
$ 41
20
204
210
75
550
395
$945
$ 174
127
712
9
162
1,184
8
$ 88,402
42,137
53,496
21,012
51,206
256,253
4,596
$1,192
$260,849
$ 112
259
864
30
187
1,452
14
$ 80,377
42,795
51,619
18,515
49,264
242,570
5,281
$1,466
$247,851
(a) At December 31, 2015, $320 million of loans 30–89 days past due and $2.9 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 $431
million and $3.1 billion at December 31, 2014, 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, 2015 and 2014,
see Table 16 included in Management’s Discussion and
Analysis which is incorporated by reference into these Notes
to Consolidated Financial Statements.
At December 31, 2015, the amount of foreclosed
residential real estate held by the Company, and included in
OREO, was $282 million ($250 million excluding covered
assets), compared with $270 million ($233 million excluding
covered assets) at December 31, 2014. This excludes $535
million and $641 million at December 31, 2015 and 2014,
respectively, of foreclosed residential real estate related to
mortgage loans whose payments are primarily insured by the
Federal Housing Administration or guaranteed by the
Department of Veterans Affairs. In addition, the amount of
residential mortgage loans secured by residential real estate in
the process of foreclosure at December 31, 2015 and 2014,
was $2.6 billion and $2.9 billion, respectively, of which $1.9
billion and $2.1 billion, respectively, related to loans
purchased from Government National Mortgage Association
(“GNMA”) mortgage pools whose repayments are insured by
the Federal Housing Administration or guaranteed by the
Department of Veterans Affairs.
— 103 —
The following table provides a summary of loans by portfolio class and the Company’s internal credit quality rating:
(Dollars in Millions)
Pass
Special
Mention
Criticized
Classified(a)
Total
Criticized
Total
December 31, 2015
Commercial(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail
Total loans, excluding covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 85,206
41,079
52,548
20,775
50,899
250,507
4,507
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$255,014
Total outstanding commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$539,614
December 31, 2014
Commercial(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail
Total loans, excluding covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 78,409
41,322
50,479
18,275
48,932
237,417
5,164
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$242,581
Total outstanding commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$501,535
(a) Classified rating on consumer loans primarily based on delinquency status.
$1,629
365
2
–
6
2,002
–
$2,002
$3,945
$1,204
451
5
–
20
1,680
–
$1,680
$2,964
$1,567
693
946
237
301
3,744
89
$3,833
$4,845
$ 764
1,022
1,135
240
312
3,473
117
$3,590
$4,179
$3,196
1,058
948
237
307
5,746
89
$5,835
$8,790
$1,968
1,473
1,140
240
332
5,153
117
$5,270
$7,143
$ 88,402
42,137
53,496
21,012
51,206
256,253
4,596
$260,849
$548,404
$ 80,377
42,795
51,619
18,515
49,264
242,570
5,281
$247,851
$508,678
(b) At December 31, 2015, $1.1 billion of loans to customers in energy-related businesses had a special mention or classified rating, compared with $122 million at December 31, 2014.
(c) At December 31, 2015, $2.9 billion of GNMA loans 90 days or more past due and $1.9 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 $3.1 billion and $2.2 billion at December 31, 2014, respectively.
For all loan classes, a loan is considered to be impaired when, based on current events or information, it is probable the Company
will be unable to collect all amounts due per the contractual terms of the loan agreement. A summary of impaired loans, which
include all nonaccrual and TDR loans, by portfolio class was as follows:
(Dollars in Millions)
Period-end
Recorded
Investment(a)
Unpaid
Principal
Balance
Valuation
Allowance
Commitments
to Lend
Additional
Funds
December 31, 2015
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 520
336
2,575
210
309
3,950
1,913
39
$1,110
847
3,248
210
503
5,918
1,913
48
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,902
$7,879
December 31, 2014
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 329
624
2,730
240
361
4,284
2,244
43
$ 769
1,250
3,495
240
570
6,324
2,244
55
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6,571
$8,623
$ 25
11
199
57
35
327
40
2
$369
$ 21
23
273
61
44
422
50
4
$476
$154
1
–
–
4
159
–
1
$160
$ 51
18
–
–
4
73
–
1
$ 74
(a) Substantially all loans classified as impaired at December 31, 2015 and 2014, had an associated allowance for credit losses. The total amount of interest income recognized during 2015 on
loans classified as impaired at December 31, 2015, excluding those acquired with deteriorated credit quality, was $274 million, compared to what would have been recognized at the original
contractual terms of the loans of $370 million.
— 104 —
Additional information on impaired loans for the years ended December 31 follows:
(Dollars in Millions)
Average
Recorded
Investment
Interest
Income
Recognized
2015
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 383
433
2,666
221
336
4,039
2,079
42
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6,160
2014
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 414
592
2,742
273
377
4,398
2,609
334
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7,341
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 382
889
2,749
366
424
4,810
1,967
561
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7,338
$ 13
16
131
4
14
178
95
1
$274
$
9
26
140
9
17
201
124
15
$340
$ 29
39
134
16
24
242
100
27
$369
— 105 —
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)
2015
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
1,607
108
2,080
26,772
2,530
33,097
8,199
16
Pre-Modification
Outstanding
Loan
Balance
Post-Modification
Outstanding
Loan
Balance
$ 385
78
260
133
54
910
864
5
$ 396
76
258
134
54
918
862
5
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41,312
$1,779
$1,785
2014
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,027
78
2,089
26,511
2,833
33,538
8,961
43
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42,542
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,429
165
2,179
26,669
4,290
35,732
8,878
123
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44,733
$ 238
80
271
144
61
794
1,000
15
$1,809
$ 166
205
309
160
103
943
1,121
94
$2,158
$ 203
71
274
145
61
754
1,013
14
$1,781
$ 155
198
304
161
102
920
1,066
72
$2,058
Residential mortgages, home equity and second
mortgages, and loans purchased from 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 2015, at December 31,
2015, 151 residential mortgages, 66 home equity and second
mortgage loans and 1,954 loans purchased from GNMA
mortgage pools with outstanding balances of $18 million,
$5 million and $257 million, respectively, were in a trial period
and have estimated post-modification balances of $24 million,
$5 million and $259 million, respectively, assuming permanent
modification occurs at the end of the trial period.
— 106 —
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
2015
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
Commercial
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail
494
18
273
6,286
636
7,707
598
5
8,310
629
22
611
6,335
845
8,442
876
14
9,332
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
$
21
8
36
29
12
106
75
1
$ 182
$
44
12
86
33
24
199
102
5
$ 306
$
46
102
163
37
80
428
640
49
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,344
$1,117
In addition to the defaults in the table above, for the year
ended December 31, 2015, the Company had a total of
1,885 residential mortgage loans, home equity and second
mortgage loans and loans purchased from GNMA mortgage
pools with aggregate outstanding balances of $252 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.
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)
2015
Purchased
Impaired
Loans
Purchased
Nonimpaired
Loans
Residential mortgage loans . . . . . . . . . . . . . .
Other retail loans . . . . . . . . . . . . . . . . . . . . . .
. . . . . . .
Losses reimbursable by the FDIC(a)
. . . . .
Unamortized changes in FDIC asset(b)
Covered loans . . . . . . . . . . . . . . . . . . . . . .
Foreclosed real estate . . . . . . . . . . . . . . . . . .
$2,502
–
–
–
2,502
–
$ 615
447
–
–
1,062
–
2014
Purchased
Impaired
Loans
Purchased
Nonimpaired
Loans
Other
Total
$2,784
–
–
–
2,784
–
$ 738
584
–
–
1,322
–
$
–
–
717
458
1,175
37
$3,522
584
717
458
5,281
37
Other
Total
$
–
–
517
515
1,032
32
$3,117
447
517
515
4,596
32
Total covered assets . . . . . . . . . . . . . . . . .
$2,502
$1,062
$1,064
$4,628
$2,784
$1,322
$1,212
$5,318
(a) Relates to loss sharing agreements with remaining terms up to four 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.
— 107 —
Interest income is recognized on purchased impaired loans
through accretion of the difference between the carrying amount
of those loans and their expected cash flows. The initial
determination of the fair value of the purchased loans includes
the impact of expected credit losses and, therefore, no
allowance for credit losses is recorded at the purchase date. To
the extent credit deterioration occurs after the date of
acquisition, the Company records an allowance for credit losses.
N O T E 7 LEASES
The components of the net investment in sales-type and direct financing leases at December 31 were as follows:
(Dollars in Millions)
2015
2014
Aggregate future minimum lease payments to be received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unguaranteed residual values accruing to the lessor’s benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unearned income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Initial direct costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,257
766
(887)
204
$11,173
695
(1,004)
202
Total net investment in sales-type and direct financing leases(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,340
$11,066
(a) The accumulated allowance for uncollectible minimum lease payments was $66 million and $65 million at December 31, 2015 and 2014, respectively.
The minimum future lease payments to be received from sales-type and direct financing leases were as follows at December 31, 2015:
(Dollars in Millions)
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,772
3,207
1,880
756
307
335
N O T E 8 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 23.
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 10. On a limited basis, the Company may acquire
and package high-grade corporate bonds for select corporate
customers, in which the Company generally has no continuing
involvement with these transactions. Additionally, the Company
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 affordable
housing, community development and renewable energy
sources. Some of these tax-advantaged investments support
the Company’s regulatory compliance with the Community
Reinvestment Act. The Company’s investments in these
entities generate a return primarily through the realization of
federal and state income tax credits, and other tax benefits,
such as tax deductions from operating losses of the
investments, over specified time periods. These tax credits
are recognized as a reduction of tax expense or, for
investments qualifying as investment tax credits, as a
reduction to the related investment asset. The Company
recognized federal and state income tax credits related to its
affordable housing and other tax-advantaged investments in
tax expense of $733 million, $773 million and $758 million for
the years ended December 31, 2015, 2014 and 2013,
respectively. The Company also recognized $1.2 billion, $937
million and $780 million of investment tax credits for the years
ended December 31, 2015, 2014 and 2013, respectively.
— 108 —
The Company recognized $698 million, $771 million and $934
million of expenses related to all of these investments for the
years ended December 31, 2015, 2014 and 2013,
respectively, of which $261 million, $258 million and $297
million, respectively, was included in tax expense and the
remainder was included in noninterest expense.
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
are carried in other assets on the Consolidated Balance
Sheet. The Company’s unfunded capital and other
commitments related to these unconsolidated VIEs are
generally carried in other liabilities on the Consolidated
Balance Sheet. The Company’s maximum exposure to loss
from these unconsolidated VIEs include the investment
recorded on the Company’s Consolidated Balance Sheet, net
of unfunded capital commitments, and previously recorded
tax credits which remain subject to recapture by taxing
authorities based on compliance features required to be met
at the project level. While the Company believes potential
losses from these investments are remote, the maximum
exposure was determined by assuming a scenario where the
community-based business and housing projects completely
fail and do not meet certain government compliance
requirements resulting in recapture of the related tax credits.
The following table provides a summary of investments in
community development and tax-advantaged VIEs that the
Company has not consolidated:
At December 31 (Dollars in Millions)
Investment carrying amount
. . . . . . . . . . . . . .
Unfunded capital and other commitments . . .
Maximum exposure to loss . . . . . . . . . . . . . . .
2015
$5,257
2,499
9,436
2014
$4,259
1,743
8,393
The Company also has noncontrolling financial
investments in private investment funds and partnerships
considered to be VIEs, which are not consolidated. The
Company’s recorded investment in these entities, carried in
other assets on the Consolidated Balance Sheet, was
approximately $32 million at December 31, 2015, compared
with $94 million at December 31, 2014. The maximum
exposure to loss related to these VIEs was $47 million at
December 31, 2015 and $105 million at December 31, 2014,
representing the Company’s investment balance and its
unfunded commitments to invest additional amounts.
The Company’s individual net investments in
unconsolidated VIEs, which exclude any unfunded capital
commitments, ranged from less than $1 million to $46 million
at December 31, 2015, compared with less than $1 million to
$53 million at December 31, 2014.
The Company is required to consolidate VIEs in which it
has concluded it has a controlling financial interest. The
Company sponsors entities to which it transfers its interests in
tax-advantaged investments to third parties. At December 31,
2015, approximately $3.0 billion of the Company’s assets and
$2.2 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 $2.7 billion and $2.0 billion,
respectively, at December 31, 2014. 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
transferred to others with a guarantee.
The Company also 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, 2015,
$28 million of the held- to-maturity investment securities on the
Company’s Consolidated Balance Sheet were related to the
conduit, compared with $35 million at December 31, 2014.
In addition, the Company 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, 2015, $2.3 billion of available-for-sale
investment securities and $2.2 billion of short-term
borrowings on the Consolidated Balance Sheet were related
to the tender option bond program, compared with $2.9
billion of available-for-sale investment securities and $2.7
billion of short-term borrowings at December 31, 2014.
— 109 —
N O T E 9 PREMISES AND EQUIPMENT
Premises and equipment at December 31 consisted of the following:
(Dollars in Millions)
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized building and equipment leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
2014
$ 522
3,348
2,721
113
19
6,723
(4,210)
$ 534
3,323
2,719
126
26
6,728
(4,110)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,513
$ 2,618
N O T E 1 0 MORTGAGE SERVICING RIGHTS
The Company serviced $231.8 billion of residential mortgage
loans for others at December 31, 2015, and $225.0 billion at
December 31, 2014, which include subserviced mortgages
with no corresponding MSRs asset. 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 $23 million,
$241 million (of which $44 million related to excess servicing
rights sold during 2014) and $192 million for the years ended
December 31, 2015, 2014 and 2013, respectively. Loan
servicing fees, not including valuation changes, included in
mortgage banking revenue, were $728 million, $732 million
and $754 million for the years ended December 31, 2015,
2014 and 2013, respectively.
Changes in fair value of capitalized MSRs for the years ended December 31, are summarized as follows:
(Dollars in Millions)
2015
2014
2013
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rights purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rights capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rights sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in fair value of MSRs
$2,338
29
632
–
Due to fluctuations in market interest rates(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due to revised assumptions or models(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other changes in fair value(c)
(58)
10
(439)
$2,680
5
382
(141)
(276)
86
(398)
$1,700
8
769
–
617
33
(447)
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,512
$2,338
$2,680
(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. 2014 includes a $44 million revaluation gain related to excess servicing rights sold.
(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
2015
2014
MSR portfolio . . . . . . . . . . . . . . . . . .
Derivative instrument hedges . . . . .
$(598) $(250) $(114)
107
226
475
$ 96
(98)
$ 176
(192)
$ 344
(377)
$(540) $(242) $(114) $ 100
(102)
109
223
441
$ 185
(197)
$ 346
(375)
Net sensitivity . . . . . . . . . . . . . . . .
$(123) $ (24) $
(7)
$ (2) $ (16)
$ (33)
$ (99) $ (19) $
(5) $
(2) $ (12)
$ (29)
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 Housing Finance Agency (“HFA”) mortgages.
The servicing portfolios are predominantly comprised of fixed-
rate agency loans with limited adjustable-rate or jumbo
mortgage loans. The HFA 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.
— 110 —
A summary of the Company’s MSRs and related characteristics by portfolio as of December 31 follows:
(Dollars in Millions)
HFA Government Conventional(c)
Total
HFA Government Conventional(c)
Total
2015
2014
Servicing portfolio(a)
. . . . . . . . . . . . . . . . . . . .
Fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Value (bps)(b) . . . . . . . . . . . . . . . . . . . . . . . . . .
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 (in years) . . .
Weighted-average discount rate . . . . . . . . . .
$26,492
297
$
112
36
3.11
4.46%
3.1
$40,350
443
$
110
34
3.24
4.08%
3.6
$162,533 $229,375
2,512
$
110
29
3.79
4.13%
3.4
1,772 $
109
27
4.04
4.09%
3.4
$19,706
213
$
108
37
2.92
4.58%
3.6
$40,471
426
$
105
33
3.18
4.18%
3.2
$162,620 $222,797
2,338
$
105
29
3.62
4.19%
3.2
1,699 $
104
27
3.85
4.14%
3.1
12.8%
6.1
11.8%
13.9%
5.7
11.2%
10.4%
6.6
9.4%
11.3%
6.4
10.0%
12.8%
6.2
11.9%
14.8%
5.5
11.2%
11.4%
6.5
9.6%
12.1%
6.3
10.1%
(a) Represents principal balance of mortgages having corresponding MSR asset.
(b) Value is calculated as fair value divided by the servicing portfolio.
(c) Represents loans sold primarily to GSEs.
N O T E 1 1 INTANGIBLE ASSETS
Intangible assets consisted of the following:
At December 31 (Dollars in Millions)
Estimated
Life(a)
Amortization
Method(b)
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merchant processing contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposit benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trust relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other identified intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8 years/8 years
22 years/5 years
10 years/6 years
8 years/4 years
(c)
SL/AC
SL/AC
(c)
SL/AC
SL/AC
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance
2015
2014
$ 9,361
135
194
2,512
75
434
$ 9,389
174
234
2,338
97
319
$12,711
$12,551
(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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
$ 35
40
21
78
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$174
2014
$ 50
38
27
84
$199
2013
$ 64
41
34
84
$223
The estimated amortization expense for the next five years is as follows:
(Dollars in Millions)
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$173
162
130
101
78
— 111 —
The following table reflects the changes in the carrying value of goodwill for the years ended December 31, 2015, 2014 and 2013:
(Dollars in Millions)
Wholesale Banking and
Commercial Real Estate
Consumer and Small
Business Banking
Wealth Management and
Securities Services
Payment
Services
Treasury and
Corporate Support
Consolidated
Company
Balance at December 31, 2012 . . . .
Goodwill acquired . . . . . . . . . . . . . . .
Other(a) . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2013 . . . .
Goodwill acquired . . . . . . . . . . . . . . .
Other(a) . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2014 . . . .
Other(a) . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2015 . . . .
$1,605
–
–
$1,605
43
–
$1,648
(1)
$1,647
$3,514
–
–
$3,514
166
–
$3,680
1
$3,681
(a) Other changes in goodwill include the effect of foreign exchange translation.
N O T E 1 2 SHORT-TERM BORROWINGS(a)
The following table is a summary of short-term borrowings for the last three years:
$1,528
37
–
$1,565
8
(3)
$2,496
20
5
$2,521
–
(30)
$1,570
(3)
$2,491
(25)
$1,567
$2,466
$–
–
–
$–
–
–
$–
–
$–
$9,143
57
5
$9,205
217
(33)
$9,389
(28)
$9,361
(Dollars in Millions)
At year-end
2015
2014
2013
Amount
Rate
Amount
Rate
Amount
Rate
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under agreements to repurchase . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . .
$
647
1,092
22,022
4,116
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$27,877
Average for the year
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds purchased(b)
Securities sold under agreements to repurchase . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,169
973
21,892
3,926
Total(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$27,960
Maximum month-end balance
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under agreements to repurchase . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,868
1,124
23,101
7,656
.23%
.02
.21
.69
.27%
15.05%
.10
.12
1.13
.89%
.12%
.05
.12
.51
.19%
7.94%
1.07
.12
.78
.88%
$
886
948
22,197
5,862
$29,893
$ 2,366
798
21,227
5,861
$30,252
$ 3,258
948
22,322
7,417
.11%
5.34
.11
.19
.52%
9.72%
4.65
.12
.72
1.29%
$
594
2,057
19,400
5,557
$27,608
$ 1,879
2,403
17,467
5,934
$27,683
$ 3,569
3,121
19,400
6,301
(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 2015, 2014 and 2013 was $175 million, $186 million and $181 million, respectively.
— 112 —
N O T E 1 3 LONG-TERM DEBT
Long-term debt (debt with original maturities of more than one year) at December 31 consisted of the following:
(Dollars in Millions)
Rate Type
Rate(a)
Maturity Date
2015
2014
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
Fixed
Floating
Fixed
Fixed
Fixed
Fixed
Floating
Fixed
Floating
2.950%
3.600%
7.500%
1.650% - 4.125%
.720% - .852%
3.442%
2022
2024
2026
2016 - 2024
2018 - 2019
2016
4.800%
3.778%
1.250% - 8.250%
.335% - .847%
1.100% - 2.800%
.016% - .803%
2015
2020
2017 - 2026
2016 - 2025
2017 - 2025
2016 - 2055
$ 1,300
1,000
199
7,500
750
500
$ 1,300
1,000
199
9,250
750
500
204
190
11,453
13,189
–
–
11
9,081
5,850
4,928
500
500
11
7,334
4,050
6,069
755
607
20,625
19,071
$32,078
$32,260
(a) Weighted-average interest rates of medium-term notes, Federal Home Loan Bank advances and bank notes were 2.43 percent, .57 percent and 1.20 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.
The Company has arrangements with the Federal Home
Loan Bank and Federal Reserve Bank whereby the Company
could have borrowed an additional $74.9 billion and $76.0
billion at December 31, 2015 and 2014, respectively, based
on collateral available.
Maturities of long-term debt outstanding at December 31,
2015, were:
(Dollars in Millions)
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . .
Parent
Company
$ 1,926
1,249
1,498
1,511
–
5,269
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,453
Consolidated
$ 6,359
7,144
5,786
3,505
47
9,237
$32,078
N O T E 1 4 JUNIOR SUBORDINATED DEBENTURES
As of December 31, 2015, 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, 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, 2015 and 2014, as long-term debt. As of
December 31, 2015 and 2014, $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.
— 113 —
N O T E 1 5 SHAREHOLDERS’ EQUITY
At December 31, 2015 and 2014, the Company had authority
to issue 4 billion shares of common stock and 50 million
shares of preferred stock. The Company had 1.7 billion and
1.8 billion shares of common stock outstanding at
December 31, 2015 and 2014, respectively. The Company
had 80 million shares reserved for future issuances, primarily
under its stock incentive plans at December 31, 2015.
The number of shares issued and outstanding and the carrying amount of each outstanding series of the Company’s preferred
stock was as follows:
At December 31,
(Dollars in Millions)
Series A . . . . . . . . . . . . . . . . . . . . . . . . . .
Series B . . . . . . . . . . . . . . . . . . . . . . . . . .
Series F . . . . . . . . . . . . . . . . . . . . . . . . . . .
Series G . . . . . . . . . . . . . . . . . . . . . . . . . .
Series H . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Series I
Shares
Issued and
Outstanding
12,510
40,000
44,000
43,400
20,000
30,000
Total preferred stock(a)
. . . . . . . . . . . . .
189,910
2015
2014
Liquidation
Preference
Discount
$1,251
1,000
1,100
1,085
500
750
$5,686
$145
–
12
10
13
5
$185
Carrying
Amount
$1,106
1,000
1,088
1,075
487
745
$5,501
Shares
Issued and
Outstanding
12,510
40,000
44,000
43,400
20,000
–
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, 2015 and 2014, was $1.00 per share.
During 2015, the Company issued depositary shares
representing an ownership interest in 30,000 shares of
Series I Non-Cumulative Perpetual Preferred Stock with a
liquidation preference of $25,000 per share (the “Series I
Preferred Stock”). The Series I 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 semiannually, in arrears, at a rate per annum
equal to 5.125 percent from the date of issuance to, but
excluding, January 15, 2021, and thereafter will accrue and
be payable quarterly at a floating rate per annum equal to
three-month LIBOR plus 3.486 percent. The Series I Preferred
Stock is redeemable at the Company’s option, in whole or in
part, on or after January 15, 2021. The Series I Preferred
stock is redeemable at the Company’s option, in whole, but
not in part, prior to January 15, 2021 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 I
Preferred Stock as Tier 1 capital for purposes of the capital
adequacy guidelines of the Federal Reserve.
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 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
— 114 —
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 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 2015, 2014 and 2013, the Company repurchased
shares of its common stock under various authorizations
approved by its Board of Directors. As of December 31,
2015, the approximate dollar value of shares that may yet be
purchased by the Company under the current Board of
Directors approved authorization was $1.3 billion.
The following table summarizes the Company’s common
stock repurchased in each of the last three years:
(Dollars and Shares in Millions)
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
52
54
65
Value
$2,246
2,262
2,336
— 115 —
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
(Dollars in Millions)
2015
Balance at beginning of period . . . . . . . . . . . . . .
Changes in unrealized gains and losses . . . . .
Foreign currency translation adjustment(a) . . . .
Reclassification to earnings of realized gains
and losses . . . . . . . . . . . . . . . . . . . . . . . . . .
Applicable income taxes . . . . . . . . . . . . . . . . .
$ 392
(457)
–
–
176
Balance at end of period . . . . . . . . . . . . . . . . . . .
$ 111
2014
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(a) . . . .
Reclassification to earnings of realized gains
and losses . . . . . . . . . . . . . . . . . . . . . . . . . .
Applicable income taxes . . . . . . . . . . . . . . . . .
$
(77)
764
1
–
(3)
(293)
Balance at end of period . . . . . . . . . . . . . . . . . . .
$ 392
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(a) . . . .
Reclassification to earnings of realized gains
and losses . . . . . . . . . . . . . . . . . . . . . . . . . .
Applicable income taxes . . . . . . . . . . . . . . . . .
$ 679
(1,223)
8
–
(9)
468
Balance at end of period . . . . . . . . . . . . . . . . . . .
$
(77)
$ 52
–
–
(25)
9
$ 36
$ 70
–
–
–
(30)
12
$ 52
$107
–
–
–
(59)
22
$ 70
$(172)
(25)
–
195
(65)
$(1,106)
(142)
–
223
(31)
$(62) $ (896)
(624)
20
–
20
–
(1)
393
88
$ (67)
$(1,056)
$(43) $(1,019)
$(261)
(41)
$ (743)
(733)
$(60) $(1,071)
(10)
–
–
–
186
(56)
–
–
144
226
–
(4)
–
2
1
(4)
297
(109)
$(172)
$(1,106)
$(62) $ (896)
$(404)
37
$(1,265)
590
$(40) $ (923)
(596)
–
–
–
192
(86)
–
–
249
(317)
–
(34)
–
14
8
(34)
373
101
$(261)
$ (743)
$(60) $(1,071)
(a) Represents the impact of changes in foreign currency exchange rates on the Company’s investment in foreign operations and related hedges.
— 116 —
Additional detail about the impact to net income for items reclassified out of accumulated other comprehensive income (loss) and
into earnings for the years ended December 31, is as follows:
(Dollars in Millions)
Unrealized gains (losses) on securities available-for-sale
Realized gains (losses) on sale of securities . . . . . . . . . . . . . . . . . . . . . . . .
Other-than-temporary impairment recognized in earnings . . . . . . . . . . . .
$
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(195)
75
(120)
(223)
85
(138)
$(242)
Impact to Net Income
2015
2014
2013
Affected Line Item in the
Consolidated Statement of Income
1
(1)
–
–
–
25
(9)
16
$ 11
(8)
$ 23
(14)
Total securities gains (losses), net
3
(1)
2
30
(12)
18
(186)
71
(115)
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
(144)
56
(88)
$(183)
(249)
96
(153)
$(229)
Employee benefits expense
Applicable income taxes
Net-of-tax
Regulatory Capital The Company uses certain measures
defined by bank regulatory agencies to access its capital.
Beginning January 1, 2014, the regulatory capital
requirements effective for the Company follow Basel III,
subject to certain transition provisions from Basel I over the
following four years to full implementation by January 1, 2018.
Basel III includes two comprehensive methodologies for
calculating risk-weighted assets: a general standardized
approach and more risk-sensitive advanced approaches, with
the Company’s capital adequacy being evaluated against the
methodology that is most restrictive.
Tier 1 capital is considered core capital and includes
common shareholders’ equity adjusted for the aggregate
impact of certain items included in other comprehensive
income (loss) (“common equity tier 1 capital”), plus qualifying
preferred stock, trust preferred securities and noncontrolling
interests in consolidated subsidiaries subject to certain
limitations. Total risk-based capital includes Tier 1 capital and
other items such as subordinated debt and the allowance for
credit losses. Capital 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. Under the standardized
approach, 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, 2015 and 2014, for the
Company and its bank subsidiary, see Table 23 included in
Management’s Discussion and Analysis, which is
incorporated by reference into these Notes to Consolidated
Financial Statements.
— 117 —
The following table provides the components of the Company’s regulatory capital at December 31:
(Dollars in Millions)
Basel III transitional standardized approach:
Common shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less intangible assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill (net of deferred tax liability)
Other disallowed intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total common equity tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Qualifying preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests eligible for tier 1 capital
Total tier 1 capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Eligible portion of allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated debt and noncontrolling interests eligible for tier 2 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total tier 2 capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
2014
$ 40,630
$ 38,723
(8,295)
(335)
612
32,612
5,501
318
38,431
4,255
2,616
11
6,882
(8,403)
(165)
701
30,856
4,756
408
36,020
3,957
3,215
16
7,188
Total risk-based capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 45,313
$ 43,208
Risk-weighted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$341,360
$317,398
Basel III transitional advanced approaches:
Common shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less intangible assets
Goodwill (net of deferred tax liability)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other disallowed intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total common equity tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Qualifying preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests eligible for tier 1 capital
Total tier 1 capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Eligible portion of allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated debt and noncontrolling interests eligible for tier 2 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total tier 2 capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 40,630
$ 38,723
(8,295)
(335)
612
32,612
5,501
318
38,431
1,204
2,616
11
3,831
(8,403)
(165)
701
30,856
4,756
408
36,020
1,224
3,215
16
4,455
Total risk-based capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 42,262
$ 40,475
Risk-weighted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$261,668
$248,596
(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
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.
— 118 —
N O T E 1 6 EARNINGS PER SHARE
The components of earnings per share were:
Year Ended December 31
(Dollars and Shares in Millions, Except Per Share Data)
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of preferred stock redemption(a)
Earnings allocated to participating stock awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
2014
2013
$5,879
(247)
–
(24)
$5,851
(243)
–
(25)
$5,836
(250)
(8)
(26)
Net income applicable to U.S. Bancorp common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,608
$5,583
$5,552
Average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net effect of the exercise and assumed purchase of stock awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average diluted common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,764
8
1,772
$ 3.18
$ 3.16
1,803
10
1,813
$ 3.10
$ 3.08
1,839
10
1,849
$ 3.02
$ 3.00
(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.
Options outstanding at December 31, 2015 and 2013 to
purchase 1 million and 5 million common shares, respectively,
were not included in the computation of diluted earnings per
N O T E 1 7 EMPLOYEE BENEFITS
Employee Retirement Savings Plan The Company has a
defined contribution retirement savings plan that covers
substantially all its employees. Qualified employees are allowed
to contribute up to 75 percent of their annual compensation,
subject to Internal Revenue Service limits, through salary
deductions under Section 401(k) of the Internal Revenue
Code. Employee contributions are invested at their direction
among a variety of investment alternatives. Employee
contributions are 100 percent matched by the Company, up to
four percent of each employee’s eligible annual compensation.
The Company’s matching contribution vests immediately and
is invested in the same manner as each employee’s future
contribution elections. Total expense for the Company’s
matching contributions was $131 million, $122 million and
$118 million in 2015, 2014 and 2013, respectively.
Pension Plans The Company has a tax qualified
noncontributory defined benefit pension plan that provides
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.
share for the years ended December 31, 2015 and 2013,
respectively, because they were antidilutive.
In general, the Company’s qualified pension plan’s 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 the plan,
its performance and significant plan assumptions, including
the assumed discount rate and the long-term rate of return
(“LTROR”). Annually, the Company’s Compensation and
Human Resources Committee (the “Committee”), assisted by
outside consultants, evaluates plan objectives, funding
policies and plan investment policies considering its long-term
investment time horizon and asset allocation strategies. The
process also evaluates significant plan assumptions. Although
plan assumptions are established annually, the Company may
update its analysis on an interim basis in order to be
responsive to significant events that occur during the year,
such as plan mergers and amendments.
The Company’s funding policy is to contribute amounts to
its plan 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 $414 million and $475 million
to its pension plan in 2015 and 2014, respectively, and
expects to contribute $348 million to its pension plan in 2016.
Any contributions made to the qualified plan are invested in
accordance with established investment policies and asset
allocation strategies.
— 119 —
In addition to the funded qualified pension plan, the
Company maintains a non-qualified plan that is unfunded and
provides 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 plan. In 2016, the Company expects to
contribute $22 million to its non-qualified pension plan which
equals the 2016 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. The
Company expects to contribute $7 million to its
postretirement welfare plan in 2016.
The following table summarizes the changes in benefit obligations and plan assets for the years ended December 31, and the
funded status and amounts recognized in the Consolidated Balance Sheet at December 31 for the retirement plans:
(Dollars in Millions)
Change In Projected Benefit Obligation
Pension Plan
Postretirement
Welfare Plan
2015
2014
2015
2014
Benefit obligation at beginning of measurement period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Participants’ contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lump sum settlements(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal subsidy on benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,612
188
195
–
(176)
(37)
(132)
–
$ 3,895
152
197
–
781
(286)
(127)
–
Benefit obligation at end of measurement period(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,650
$ 4,612
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(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,187
(99)
436
–
(37)
(132)
$ 2,831
269
500
–
(286)
(127)
Fair value at end of measurement period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,355
$ 3,187
Funded (Unfunded) Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Components Of The Consolidated Balance Sheet
$(1,295)
$(1,425)
Current benefit liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent benefit liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(21)
(1,274)
Recognized amount
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(1,295)
Accumulated Other Comprehensive Income (Loss), Pretax
Net actuarial gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net prior service credit (cost)
$(1,806)
7
Recognized amount
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(1,799)
$
(21)
(1,404)
$(1,425)
$(1,894)
11
$(1,883)
(a) 2014 includes $242 million of payments as a result of a bulk lump sum offering to certain deferred vested participants.
(b) At December 31, 2015 and 2014, the accumulated benefit obligation for all pension plans was $4.3 billion.
$104
–
3
10
(5)
–
(21)
2
$ 93
$ 85
–
8
10
–
(21)
$ 82
$ (11)
$
–
(11)
$ (11)
$ 55
28
$ 83
$100
–
3
11
13
–
(25)
2
$104
$ 92
–
7
11
–
(25)
$ 85
$ (19)
$
–
(19)
$ (19)
$ 55
31
$ 86
The following table provides information for pension plans with benefit obligations in excess of plan assets at December 31:
(Dollars in Millions)
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
2014
$4,650
3,355
$4,650
4,310
3,355
$4,612
3,187
$4,612
4,250
3,187
— 120 —
The following table sets forth the components of net periodic benefit cost and other amounts recognized in accumulated other
comprehensive income (loss) for the years ended December 31 for the retirement plans:
(Dollars in Millions)
Pension Plans
Postretirement Welfare Plan
2015
2014
2013
2015
2014
2013
Components Of Net Periodic Benefit Cost
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service cost (credit) and transition obligation (asset) amortization . . .
Actuarial loss (gain) amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 188
195
(223)
(4)
234
Net periodic benefit cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 390
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
$(146)
234
–
$ 152
197
(208)
(5)
158
$ 294
$(719)
158
–
$ 168
170
(176)
(5)
264
$ 421
$ 555
264
–
during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4)
(5)
(5)
Total recognized in other comprehensive income (loss)
. . . . . . . . . . . . . . . . .
$ 84
$(566)
$ 814
$ –
3
(1)
(3)
(4)
$(5)
$ 4
(4)
–
(3)
$(3)
$ –
3
(1)
(3)
(6)
$ (7)
$(14)
(6)
–
(3)
$(23)
$ 3
4
(2)
(1)
(9)
$ (5)
$ –
(9)
35
(1)
$25
Total recognized in net periodic benefit cost and other comprehensive
income (loss)(a)(b)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(306)
$(860)
$ 393
$ 2
$(16)
$30
(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 2016 are $175 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 2016 are $(4) 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
2015
2014
2015
2014
Discount rate(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.45%
4.06
4.13%
4.07
Health care cost trend rate for the next year(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect on accumulated postretirement benefit obligation
One percent increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
One percent decrease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.59%
*
6.50%
3.46%
*
7.00%
$
5
(5)
$
6
(5)
(a) The discount rates were developed using a cash flow matching bond model with a modified duration for the qualified pension plan, non-qualified pension plan and postretirement welfare plan of
15.0, 11.9, and 6.3 years, respectively, for 2015, and 15.9, 12.4 and 6.8 years, respectively, for 2014.
(b) Determined on an active liability-weighted basis.
(c) The rate is assumed to decrease gradually to 5.00 percent by 2019 and remain at this level thereafter.
* Not applicable
— 121 —
The following table sets forth weighted average assumptions used to determine net periodic benefit cost for the years ended
December 31:
(Dollars in Millions)
Pension Plans
Postretirement Welfare Plan
2015
2014
2013
2015
2014
2013
Discount rate(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase(c)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.13%
7.50
4.07
4.97%
7.50
4.02
4.07%
7.50
4.08
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.46%
1.50
*
7.00%
7.00
3.93%
1.50
*
7.50%
7.50
3.10%
1.50
*
8.00%
8.00
$
–
–
$
–
–
$
–
–
(a) The discount rates were developed using a cash flow matching bond model with a modified duration for the qualified pension plan, non-qualified pension plan and postretirement welfare plan of
15.9, 12.4 and 6.8 years, respectively, for 2015, and 14.6, 11.5 and 6.4 years, respectively, for 2014.
(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 determines its expected
long-term rates of return reflecting current economic conditions and plan assets.
(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 minimize volatility, while
recognizing the long-term up-side potential of investing in
equities, the Committee has determined that a target asset
allocation of 43 percent global equities, 30 percent debt
securities, 7 percent domestic mid-small cap equities, 5
percent emerging markets equities, 5 percent real estate
equities, 5 percent hedge funds and 5 percent private equity
funds is appropriate.
At December 31, 2015 and 2014, plan assets of the
qualified pension plan included asset management
arrangements with related parties totaling $63 million and
$70 million, respectively.
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 22 for further discussion on
these levels.
The assets of the qualified pension plan 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 plan also invests in U.S.
agency, corporate and municipal debt securities, which are all
valued based on observable market prices or data by third-
party pricing services, and mutual funds which are valued
based on quoted net asset values provided by the trustee of
the fund; these assets are classified as Level 2. Additionally,
the qualified pension plan invests in certain assets that are
valued based on net asset values as a practical expedient,
including investments in collective investment funds, hedge
funds, and private equity funds; the net asset values are
provided by the fund trustee or administrator and are not
classified in the fair value hierarchy based on new accounting
guidance issued by the FASB during 2015.
— 122 —
The following table summarizes the plan investment assets measured at fair value at December 31:
Pension Plans
2015
2014
(Dollars in Millions)
Level 1
Level 2
Level 3
Cash and cash equivalents . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . .
Corporate stock
Domestic equity securities . . . . . . . . .
. . . .
Mid-small cap equity securities(a)
International equity securities . . . . . . .
Real estate equity securities(b) . . . . . . .
Mutual funds
Debt securities . . . . . . . . . . . . . . . . . . .
Emerging markets equity securities . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan investment assets not classified in
fair value hierarchy(e):
Collective investment funds
Domestic equity securities . . . . . . . . .
Mid-small cap equity securities(c)
. . . .
Emerging markets equity securities . .
International equity securities . . . . . . .
Hedge funds(d) . . . . . . . . . . . . . . . . . . . . .
Private equity funds . . . . . . . . . . . . . . . . .
Total plan investment assets at fair
value . . . . . . . . . . . . . . . . . . . . . . . . .
$
64
361
$
–
465
$
$–
–
178
146
123
163
–
–
–
–
–
–
–
197
81
–
–
–
–
–
–
–
1
Total
64
826
178
146
123
163
197
81
1
Level 1
Level 2
Level 3
$
78
347
$
–
496
$
$–
–
196
146
197
163
–
–
–
–
–
–
–
219
81
–
–
–
–
–
–
–
2
Total
78
843
196
146
197
163
219
81
2
Postretirement
Welfare Plan
2015
Level 1
$82
–
2014
Level 1
$85
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$1,035
$743
$1
1,779
$1,127
$796
$2
1,925
82
85
679
68
75
533
171
50
539
54
75
421
148
25
$3,355
$3,187
$82
$85
(a) At December 31, 2015 and 2014, securities included $139 million and $141 million in domestic equities, respectively, and $7 million and $5 million in international equities, respectively.
(b) At December 31, 2015 and 2014, securities included $90 million and $89 million in domestic equities, respectively, and $73 million and $74 million in international equities, respectively.
(c) At December 31, 2015 and 2014, securities included $30 million and $25 million in domestic equities, respectively, $20 million and $27 million in international equities, respectively, and
$18 million and $2 million in cash and cash equivalents, respectively.
(d) This category consists of several investment strategies diversified across several hedge fund managers.
(e) These investments are valued based on net asset value per share as a practical expedient; fair values are provided to reconcile to total investment assets of the plans at fair value.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
Other
$ 2
(1)
–
$ 1
2014
Other
$ 4
(2)
–
$ 2
2013
Debt
Securities
$ 7
–
(7)
$ –
Other
$3
–
1
$4
The following benefit payments are expected to be paid from the retirement plans for the years ended December 31:
(Dollars in Millions)
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 – 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Net of expected retiree contributions and before Medicare Part D subsidy.
Pension
Plans
$ 198
209
218
229
234
1,368
Postretirement
Welfare Plan(a)
Medicare Part D
Subsidy Receipts
$13
12
12
11
10
41
$2
2
2
2
2
7
— 123 —
N O T E 1 8 STOCK-BASED COMPENSATION
As part of its employee and director compensation programs, the
three to five years and are subject to forfeiture if certain vesting
Company currently may grant certain stock awards under the
requirements are not met. Stock incentive plans of acquired
provisions of its stock incentive plan. The plan provides for grants
companies are generally terminated at the merger closing dates.
of options to purchase shares of common stock at a fixed price
Participants under such plans receive the Company’s common
equal to the fair value of the underlying stock at the date of grant.
stock, or options to buy the Company’s common stock, based
Option grants are generally exercisable up to ten years from the
on the conversion terms of the various merger agreements. At
date of grant. In addition, the plan provides for grants of shares of
December 31, 2015, there were 47 million shares (subject to
common stock or stock units that are subject to restriction on
adjustment for forfeitures) available for grant under various plans.
transfer prior to vesting. Most stock and unit awards vest over
STOCK OPTION AWARDS
The following is a summary of stock options outstanding and exercised under prior and existing stock incentive 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)
2015
Number outstanding at beginning of period . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33,649,198
1,122,697
(8,721,834)
(324,353)
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Number outstanding at end of period(b)
Exercisable at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25,725,708
22,446,095
2014
Number outstanding at beginning of period . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46,724,765
1,246,451
(13,851,590)
(470,428)
Number outstanding at end of period(b)
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercisable at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33,649,198
28,923,260
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
(a) Options cancelled include both non-vested (i.e., forfeitures) and vested options.
$29.31
44.28
29.59
32.93
$29.82
$28.68
$29.12
40.32
29.59
31.12
$29.31
$28.79
$28.83
33.99
28.41
29.22
$29.12
$29.19
3.6
3.0
4.0
3.4
4.4
3.8
$331
$314
$526
$467
$527
$444
(b) Outstanding options include stock-based awards that may be forfeited in future periods. The impact of the estimated forfeitures is reflected in compensation expense.
Stock-based compensation expense is based on the
estimated fair value of the award at the date of grant or
modification. The fair value of each option award is estimated
on the date of grant using the Black-Scholes option-pricing
model, requiring the use of subjective assumptions. Because
employee stock options have characteristics that differ from
those of traded options, including vesting provisions and
Year Ended December 31
trading limitations that impact their liquidity, the determined
value used to measure compensation expense may vary from
the actual fair value of the employee stock options. The
following table includes the weighted average estimated fair
value of stock options granted and the assumptions utilized
by the Company for newly issued grants:
Estimated fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock volatility factor
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life of options (in years)
— 124 —
2015
2014
2013
$12.23
$11.38
$12.13
1.7%
2.6%
.37
5.5
1.7%
2.6%
.38
5.5
1.0%
2.6%
.49
5.5
Expected stock volatility is based on several factors
including the historical volatility of the Company’s common
stock, implied volatility determined from traded options and
other factors. The Company uses historical data to estimate
option exercises and employee terminations to estimate the
expected life of options. The risk-free interest rate for the
expected life of the options is based on the U.S. Treasury
yield curve in effect on the date of grant. The expected
dividend yield is based on the Company’s expected dividend
yield over the life of the options.
The following summarizes certain stock option activity of the Company:
Year Ended December 31 (Dollars in Millions)
Fair value of options vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intrinsic value of options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash received from options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit realized from options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
$ 25
130
257
50
2014
$ 33
171
408
66
2013
$ 41
144
489
56
To satisfy option exercises, the Company predominantly uses treasury stock.
Additional information regarding stock options outstanding as of December 31, 2015, 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 – $40.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$40.01 – $44.32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
2,664,092
161,218
2,051,039
5,911,183
9,215,909
3,523,469
2,198,798
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25,725,708
RESTRICTED STOCK AND UNIT AWARDS
Outstanding Options
Exercisable Options
Weighted-
Average
Remaining
Contractual
Life (Years)
3.1
2.0
4.2
5.0
2.6
1.1
8.6
3.6
Weighted-
Average
Exercise
Price
$11.20
19.58
23.85
28.49
32.21
36.04
42.32
$29.82
Weighted-
Average
Exercise
Price
$11.20
19.58
23.85
28.47
32.11
36.04
40.32
$28.68
Shares
2,664,092
161,218
2,051,039
5,051,861
8,719,854
3,523,469
274,562
22,446,095
A summary of the status of the Company’s restricted shares of stock and unit awards is presented below:
Year Ended December 31
Outstanding at beginning of period . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
7,921,571
2,897,396
(3,428,736)
(495,400)
Outstanding at end of period . . . . . . . . . . . . .
6,894,831
2015
2014
2013
Weighted-
Average Grant-
Date Fair
Value
$34.09
44.24
33.27
38.66
$38.44
Weighted-
Average Grant-
Date Fair
Value
$29.96
40.37
29.38
34.05
$34.09
Shares
8,653,859
3,133,168
(3,409,650)
(455,806)
7,921,571
Weighted-
Average Grant-
Date Fair
Value
$25.04
33.88
22.17
29.18
$29.96
Shares
8,935,743
3,717,635
(3,744,411)
(255,108)
8,653,859
The total fair value of shares vested was $152 million,
$139 million and $127 million for the years ended
December 31, 2015, 2014 and 2013, respectively. Stock-
based compensation expense was $125 million, $125 million
and $129 million for the years ended December 31, 2015,
2014 and 2013, respectively. On an after-tax basis, stock-
based compensation was $78 million, $78 million and $80
million for the years ended December 31, 2015, 2014 and
2013, respectively. As of December 31, 2015, there was
$158 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 2.5 years as compensation
expense.
— 125 —
N O T E 1 9 INCOME TAXES
The components of income tax expense were:
Year Ended December 31 (Dollars in Millions)
2015
2014
2013
Federal
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,956
(223)
Federal income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,733
$1,888
(126)
1,762
$1,885
(83)
1,802
State
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
346
18
364
331
(6)
325
216
14
230
Total income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,097
$2,087
$2,032
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
2015
$2,810
237
2014
$2,798
211
2013
$2,717
150
Tax credits and benefits, net of related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax-exempt income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(700)
(201)
(19)
(30)(a)
(701)
(205)
(20)
4
(648)
(212)
37
(12)
Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,097
$2,087
$2,032
(a) Includes the resolution of certain tax matters with taxing authorities.
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, 2012, 2013 and 2014 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 (reductions) for tax positions taken in prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions for tax positions taken in the current year
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exam resolutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Statute expirations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
$267
(17)
13
(17)
(3)
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$243
2014
$264
31
4
(22)
(10)
$267
2013
$302
44
–
(56)
(26)
$264
The total amount of unrecognized tax positions that, if
recognized, would impact the effective income tax rate as of
December 31, 2015, 2014 and 2013, were $165 million,
$192 million and $181 million, respectively. The Company
classifies interest and penalties related to unrecognized tax
positions as a component of income tax expense. At
December 31, 2015, the Company’s unrecognized tax
position balance included $30 million in accrued interest.
During the years ended December 31, 2015, 2014 and 2013
the Company recorded approximately $(1) million, $4 million
and $(12) million, respectively, in interest on unrecognized tax
positions.
While certain examinations may be concluded, statutes
may lapse or other developments may occur, the Company
does not believe there will be a significant increase or decrease
in uncertain tax positions over the next twelve months.
— 126 —
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)
2015
2014
Deferred Tax Assets
Allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal, state and foreign net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Partnerships and other investment assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and postretirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other deferred tax assets, net
$ 1,615
764
464
380
247
131
219
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,820
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,026)
(859)
(859)
(204)
(111)
(47)
(55)
(5,161)
(137)
$ 1,652
630
212
403
437
143
208
3,685
(3,042)
(871)
(772)
(212)
(90)
(165)
(159)
(5,311)
(101)
Net Deferred Tax Asset (Liability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(1,478)
$(1,727)
The Company has approximately $1.1 billion of federal, state
At December 31, 2015, retained earnings included
and foreign net operating loss carryforwards which expire at
various times through 2035. A substantial portion of these
carryforwards relate to state-only net operating losses. These
carryforwards are subject to a full 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.
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.
N O T E 2 0 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 fair value hedge, cash
flow hedge, net investment hedge, or a designation is not
made as it is a customer-related transaction, an economic
hedge for asset/liability risk management purposes or another
stand-alone derivative created through the Company’s
operations (“free-standing derivative”). 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, 2015, and
the change in fair value attributed to hedge ineffectiveness
was not material.
— 127 —
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, 2015, the Company had $67 million (net-of-
tax) of realized and unrealized losses on derivatives classified
as cash flow hedges recorded in other comprehensive
income (loss), compared with $172 million (net-of-tax) of
realized and unrealized losses at December 31, 2014. The
estimated amount to be reclassified from other
comprehensive income (loss) into earnings during the next 12
months is a loss of $68 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, 2015, 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 businesses
driven by fluctuations in foreign currency exchange rates. The
ineffectiveness on all net investment hedges was not material
for the year ended December 31, 2015. There were no non-
derivative debt instruments designated as net investment
hedges at December 31, 2015 or 2014.
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 MLHFS and unfunded mortgage loan
commitments. The Company also enters into interest rate
swaps, forward commitments to buy TBAs, U.S. Treasury
and Eurodollar 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. The
Company mitigates the market and liquidity risk associated
with these customer derivatives by entering into similar
offsetting positions with broker-dealers, or 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’s customer
derivatives and related hedges are monitored and reviewed by
the Company’s Market Risk Committee, which establishes
policies for market risk management, including exposure limits
for each portfolio. The Company also has derivative contracts
that are created through its operations, including
commitments to originate MLHFS and swap agreements
related to the sale of a portion of its Class B common shares
of Visa Inc. Refer to Note 22 for further information on these
swap agreements.
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.
— 128 —
The following table summarizes the asset and liability management derivative positions of the Company:
(Dollars in Millions)
December 31, 2015
Fair value hedges
Interest rate contracts
Asset Derivatives
Liability Derivatives
Notional
Value
Fair
Value
Weighted-Average
Remaining
Maturity
In Years
Notional
Value
Fair
Value
Weighted-Average
Remaining
Maturity
In Years
Receive fixed/pay floating swaps . . . . . . . . . . . . . . . . . . . . .
$ 3,050
$ 73
4.43
$
–
$
–
Cash flow hedges
Interest rate contracts
Pay fixed/receive floating swaps . . . . . . . . . . . . . . . . . . . . . .
1,772
Net investment hedges
Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . .
1,140
Other economic hedges
Interest rate contracts
Futures and forwards
Buy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sell
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receive fixed/pay floating swaps . . . . . . . . . . . . . . . . . . . . .
Pay fixed/receive floating swaps . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . .
Equity contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,812
3,201
2,935
3,199
3,733
287
3,023
62
1,192
36
7
4
17
12
–
29
42
2
13
–
2
–
9.22
5,009
146
.04
–
.07
.09
.06
.10
9.98
9.82
.01
.47
2.58
.04
452
2,559
–
5
4,748
4,158
2,380
24
2,821
662
–
1
7
–
1
18
35
10
1
3
64
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$27,442
$201
$22,818
$286
December 31, 2014
Fair value hedges
Interest rate contracts
Receive fixed/pay floating swaps . . . . . . . . . . . . . . . . . . . . .
$ 2,750
$ 65
5.69
$
–
$
–
Cash flow hedges
Interest rate contracts
Pay fixed/receive floating swaps . . . . . . . . . . . . . . . . . . . . . .
Receive fixed/pay floating swaps . . . . . . . . . . . . . . . . . . . . .
272
250
6
–
Net investment hedges
Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . .
1,047
31
Other economic hedges
Interest rate contracts
Futures and forwards
Buy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sell
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receive fixed/pay floating swaps . . . . . . . . . . . . . . . . . . . . .
Pay fixed/receive floating swaps . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . .
Equity contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,839
448
2,500
2,643
3,552
15
510
86
1,247
58
45
10
–
31
14
–
3
3
3
4
7.76
.16
.04
.07
.13
.06
.08
10.22
10.22
.03
.60
3.29
.03
5,748
–
315
–
–
–
60
6,713
–
4
250
–
6,176
–
2,282
390
–
62
–
–
1
–
41
–
5
48
–
1.13
–
.06
.12
–
.08
10.18
9.97
.03
.82
2.99
2.60
–
1.94
–
–
.08
.09
–
.11
10.22
–
.02
–
2.85
3.20
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$20,217
$215
$21,623
$472
(a) Includes short-term underwriting purchase and sale commitments with total asset and liability notional values of $36 million and $58 million at December 31, 2015 and 2014, respectively, and
derivative liability swap agreements related to the sale of a portion of the Company’s Class B common shares of Visa Inc. The Visa swap agreements had a total notional value, fair value and
weighted average remaining maturity of $626 million, $64 million and 2.75 years at December 31, 2015, respectively, compared to $332 million, $44 million and 3.75 years at December 31,
2014, respectively.
— 129 —
The following table summarizes the customer-related derivative positions of the Company:
(Dollars in Millions)
December 31, 2015
Interest rate contracts
Asset Derivatives
Liability Derivatives
Notional
Value
Fair
Value
Weighted-Average
Remaining
Maturity
In Years
Notional
Value
Fair
Value
Weighted-Average
Remaining
Maturity
In Years
Receive fixed/pay floating swaps . . . . . . . . . . . . . . . . . . . .
Pay fixed/receive floating swaps . . . . . . . . . . . . . . . . . . . . .
Options
$32,647
10,685
$1,097
43
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,705
146
Futures
Buy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
45
10
2
–
–
5.69
4.55
2.61
2.23
–
.97
$14,068
35,045
$
54
1,160
146
8,482
2,859
–
1
9
2
–
Foreign exchange rate contracts
Forwards, spots and swaps . . . . . . . . . . . . . . . . . . . . . . . .
Options
18,399
851
.59
17,959
830
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,485
–
43
–
1.19
–
–
1,485
–
43
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$72,112
$2,046
$80,044
$2,099
December 31, 2014
Interest rate contracts
Receive fixed/pay floating swaps . . . . . . . . . . . . . . . . . . . .
Pay fixed/receive floating swaps . . . . . . . . . . . . . . . . . . . . .
Options
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Futures
Buy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange rate contracts
Forwards, spots and swaps . . . . . . . . . . . . . . . . . . . . . . . .
Options
$21,724
4,622
$ 888
26
4,409
24
1,811
152
10
–
–
–
6.09
3.27
3.79
2.42
.22
1.08
$ 5,880
21,821
$
24
892
24
4,375
226
46
–
10
–
–
17,062
890
.52
14,645
752
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
976
–
39
–
.44
–
–
976
–
39
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$50,780
$1,853
$47,993
$1,717
4.71
5.74
2.23
2.57
.84
–
.58
–
1.19
3.79
6.08
2.42
3.79
.45
1.73
.59
–
.44
— 130 —
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:
(Dollars in Millions)
2015
2014
2013
2015
2014
2013
Gains (Losses) Recognized in Other
Comprehensive Income (Loss)
Gains (Losses) Reclassified from
Other Comprehensive Income (Loss)
into Earnings
Asset and Liability Management Positions
Cash flow hedges
Interest rate contracts(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (15)
$ (26)
$ 25
$(120)
$(115)
$(118)
Net investment hedges
Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . . . . . .
101
130
(45)
–
–
–
Note: Ineffectiveness on cash flow and net investment hedges was not material for the years ended December 31, 2015, 2014 and 2013.
(a) Gains (Losses) reclassified from other comprehensive income (loss) into interest income on loans and interest expense on long-term debt.
The table below shows the gains (losses) recognized in earnings for fair value hedges, other economic hedges and the customer-
related positions for the years ended December 31:
(Dollars in Millions)
Asset and Liability Management Positions
Fair value hedges(a)
Location of Gains (Losses)
Recognized in Earnings
2015
2014
2013
Interest rate contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noninterest income
$
7
$ 29
$
(9)
Other economic hedges
Interest rate contracts
Futures and forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased and written options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receive fixed/pay floating swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pay fixed/receive floating swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage banking revenue
Mortgage banking revenue
Mortgage banking revenue
Mortgage banking revenue
Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial products revenue
Compensation expense
Equity contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noninterest income
Credit contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noninterest income
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer-Related Positions
Interest rate contracts
Receive fixed/pay floating swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pay fixed/receive floating swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased and written options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Futures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noninterest income
Other noninterest income
Other noninterest income
Other noninterest income
Foreign exchange rate contracts
Forwards, spots and swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial products revenue
Purchased and written options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial products revenue
186
191
139
(33)
108
(1)
2
–
360
(320)
3
1
74
2
(122)
287
384
–
(29)
2
–
(43)
686
(652)
–
–
66
1
615
243
(322)
–
49
2
6
–
(361)
378
–
–
51
–
(a) Gains (Losses) on items hedged by interest rate contracts included in noninterest income (expense), were $(7) million, $(27) million and $8 million for the years ended December 31, 2015, 2014
and 2013, respectively. The ineffective portion was immaterial for the years ended December 31, 2015, 2014 and 2013.
— 131 —
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 collateral (typically cash or U.S. Treasury and agency
securities) equal to the Company’s net derivative receivable,
subject to minimum transfer and credit rating requirements.
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 additional collateral coverage up to and
including full collateral coverage for derivatives in a net liability
position. The aggregate fair value of all derivatives under
collateral arrangements that were in a net liability position at
December 31, 2015, was $956 million. At December 31,
2015, the Company had $823 million of cash posted as
collateral against this net liability position.
N O T E 2 1 NETTING ARRANGEMENTS FOR CERTAIN FINANCIAL INSTRUMENTS AND SECURITIES FINANCING
ACTIVITIES
The majority of the Company’s derivative portfolio consists of
bilateral over-the-counter trades. However, current
regulations require that certain interest rate swaps and
forwards 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 $202.4 billion total
notional amount of derivative positions at December 31,
2015, $69.8 billion related to those centrally cleared through
clearinghouses and $8.3 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
under collateral support arrangements, 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. In general, securities
used as collateral can be sold, repledged or otherwise used
by the party in possession. No restrictions exist on the use of
cash collateral by either party. Refer to Note 20 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.
The securities transferred under repurchase and reverse
repurchase transactions typically are U.S. Treasury and
— 132 —
agency securities or residential agency mortgage-backed
securities. The securities loaned or borrowed typically are
corporate debt securities traded by the Company’s broker-
dealer. In general, 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.
Repurchase/reverse repurchase and securities loaned/
borrowed transactions expose the Company to counterparty
risk. The Company manages this risk by performing
assessments, independent of business line managers, and
establishing concentration limits on each counterparty.
Additionally, these transactions include collateral
arrangements that require the fair values of the underlying
securities to be determined daily, resulting in cash being
obtained or refunded to counterparties to maintain specified
collateral levels. At December 31, 2015, the Company had no
outstanding securities loaned transactions.
The following table summarizes the maturities by category of collateral pledged for repurchase agreements at December 31, 2015:
(Dollars in Millions)
U.S. Treasury and agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential agency mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross amount of recognized liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Overnight and
Continuous
Less Than
30 Days
$122
802
$924
$
–
168
$168
Total
$ 122
970
$1,092
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 of these 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.
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, 2015
. . . . . . . . . . . . . . . . . . . . .
Derivative assets(d)
Reverse repurchase agreements . . . . . . . . . .
Securities borrowed . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2014
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
Consolidated
Balance Sheet
Gross Amounts Not Offset on
the Consolidated Balance Sheet
Financial
Instruments(b)
Collateral
Received(c)
Net
Amount
$1,879
106
772
$2,757
$1,847
40
638
$2,525
$(807)
–
–
$(807)
$(870)
–
–
$(870)
$1,072
106
772
$1,950
$ 977
40
638
$1,655
$ (82)
(102)
–
$(184)
$ (58)
(40)
–
$ (98)
$
–
(4)
(753)
$(757)
$
–
–
(620)
$(620)
$ 990
–
19
$1,009
$ 919
–
18
$ 937
(a) Includes $165 million and $258 million of cash collateral related payables that were netted against derivative assets at December 31, 2015 and 2014, 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 $368 million and $221 million of derivative assets centrally cleared or otherwise not subject to netting arrangements at December 31, 2015 and 2014, respectively.
— 133 —
(Dollars in Millions)
Gross
Recognized
Liabilities
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
December 31, 2015
Derivative liabilities(d) . . . . . . . . . . . . . . . . . . . . .
Repurchase agreements . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2014
Derivative liabilities(d) . . . . . . . . . . . . . . . . . . . . .
Repurchase agreements . . . . . . . . . . . . . . . . .
Securities loaned . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,809
1,092
$2,901
$1,847
948
47
$2,842
$(1,283)
–
$(1,283)
$(1,317)
–
–
$(1,317)
$ 526
1,092
$1,618
$ 530
948
47
$1,525
$ (82)
(102)
$(184)
$ (58)
(40)
–
$ (98)
$
–
(990)
$(990)
$
–
(908)
(46)
$(954)
$444
–
$444
$472
–
1
$473
(a) Includes $641 million and $705 million of cash collateral related receivables that were netted against derivative liabilities at December 31, 2015 and 2014, 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 $576 million and $342 million of derivative liabilities centrally cleared or otherwise not subject to netting arrangements at December 31, 2015 and 2014, respectively.
N O T E 2 2 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, MSRs and substantially all MLHFS are
recorded at fair value on a recurring basis. Additionally, from
time to time, the Company may be required to record at fair
value other assets on a nonrecurring basis, such as loans
held for sale, loans held for investment and certain other
assets. These nonrecurring fair value adjustments typically
involve application of lower-of-cost-or-fair value accounting or
impairment write-downs of individual assets.
Fair value is defined as the exchange price that would be
received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants
on the measurement date. A fair value measurement reflects
all of the assumptions that market participants would use in
pricing the asset or liability, including assumptions about the
risk inherent in a particular valuation technique, the effect of a
restriction on the sale or use of an asset and the risk of
nonperformance.
The Company groups its assets and liabilities measured
at fair value into a three-level hierarchy for valuation techniques
used to measure financial assets and financial liabilities at fair
value. This hierarchy is based on whether the valuation inputs
are observable or unobservable. These levels are:
– Level 1 — Quoted prices in active markets for identical
assets or liabilities. Level 1 includes U.S. Treasury securities,
as well as exchange-traded instruments, including certain
perpetual preferred and corporate debt securities.
– 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 in which the transfers occur. During the years
ended December 31, 2015, 2014 and 2013, there were no
transfers of financial assets or financial liabilities between the
hierarchy levels.
— 134 —
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
described in more detail in the specific valuation discussions
below. 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 risk management 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, 2015, 2014 and 2013, 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
prices are used to determine fair value and these securities
are classified within Level 1 of the fair value hierarchy. Level 1
investment securities include U.S. Treasury and exchange-
traded 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 service 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 relevant 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 certain 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 by 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
— 135 —
compared to fair values provided by third party pricing
services and broker provided quotes, where available.
Securities classified within Level 3 include non-agency
mortgage-backed securities, non-agency commercial
mortgage-backed securities, certain asset-backed securities,
certain collateralized debt obligations and collateralized loan
obligations 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 $27 million net gain, a $185 million net gain
and a $335 million net loss for the years ended December 31,
2015, 2014 and 2013, 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 is estimated using discounted
cash flow analyses and other valuation techniques. The
expected cash flows of loans consider historical prepayment
experiences and estimated credit losses and are discounted
using current rates offered to borrowers with 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, and 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 when available, publicly available data and
industry surveys 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 10 for further
information on MSR valuation assumptions.
Derivatives The majority of derivatives held by the Company
are executed over-the-counter and are valued using standard
cash flow, Black-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 the risk management department. The credit
assumptions are compared to actual results quarterly and are
recalibrated as appropriate.
The Company also has other derivative contracts that are
created through its operations, including commitments to
purchase and originate mortgage loans and swap
agreements executed in conjunction with the sale of a portion
of its Class B common shares of Visa Inc. (“the Visa swaps”).
The 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.
— 136 —
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. The Visa swaps require payments by
either the Company or the purchaser of the Visa Inc. Class B
common shares when there are changes in the conversion
rate of the Visa Inc. Class B common shares to Visa Inc.
Class A common shares, as well as quarterly payments to the
purchaser based on specified terms of the agreements.
Management reviews and updates the Visa swaps fair value in
conjunction with its review of Visa related litigation
contingencies, and the associated escrow funding. The fair
value of the Visa swaps are calculated by the Company’s
corporate development department using a discounted cash
flow methodology which includes unobservable inputs about
the timing and settlement amounts related to the resolution of
certain Visa related litigation. The expected litigation resolution
impacts the Visa Inc. Class B common share to Visa Inc.
Class A common share conversion rate, as well as the
ultimate termination date for the Visa swaps. Accordingly, the
Visa swaps are classified within Level 3. Refer to Note 23 for
further information on the Visa restructuring and related card
association litigation.
Other Financial Instruments Other financial instruments
include cost method equity investments and certain
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, for which the carrying amounts
approximate fair value and are classified within Level 2.
Investments in other equity and limited partnership funds are
estimated using fund provided net asset values. These equity
investments are classified within Level 3. The community
development and tax-advantaged related asset balances
primarily represent the underlying assets of consolidated
community development and tax-advantaged entities. The
community development and tax-advantaged related liabilities
represent the underlying liabilities of the consolidated entities
(included in long-term debt) and liabilities related to other third
party interests (included in other liabilities). The carrying value
of the community development and tax-advantaged related
asset and other liability balances are a reasonable estimate of
fair value and are classified within Level 3. Refer to Note 8 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.
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 OREO. These
valuations utilize third party appraisal or broker price opinions,
and are classified as Level 3 due to the significant judgment
involved.
— 137 —
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, 2015:
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5%
–
15
2
3%
4
20
1
6%
5
40
6
20%
7
60
5
13%
12
70
6
6%
5
40
6
14%
4
33
3
8%
7
52
3
6%
5
40
6
(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.
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, 2015:
Expected prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10%
9
19%
13
11%
10
Minimum
Maximum
Average
Derivatives The Company has two distinct Level 3 derivative
portfolios: (i) the Company’s commitments to 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. In addition, the Company’s Visa swaps are
classified within Level 3.
— 138 —
The significant unobservable inputs used in the fair value
measurement of the Company’s derivative commitments to
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 purchase and
originate mortgage loans at December 31, 2015:
Expected loan close rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inherent MSR value (basis points per loan)
9%
30
100%
196
79%
120
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, 2015, the minimum, maximum and average
credit valuation adjustment as a percentage of the derivative
contract fair value prior to adjustment was 0 percent, 98
percent and 5 percent, respectively.
The significant unobservable inputs used in the fair value
measurement of the Visa swaps are management’s estimate
of the probability of certain litigation scenarios, and the timing
of the resolution of the related litigation loss estimates in
excess, or shortfall, of the Company’s proportional share of
escrow funds. An increase in the loss estimate or a delay in
the resolution of the related litigation would result in an
increase in the derivative liability. A decrease in the loss
estimate or an acceleration of the resolution of the related
litigation would result in a decrease in the derivative liability.
— 139 —
The following table summarizes the balances of assets and liabilities measured at fair value on a recurring basis:
(Dollars in Millions)
December 31, 2015
Available-for-sale securities
Level 1
Level 2
Level 3
Netting
Total
U.S. Treasury and agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities
$3,708
$
888
$
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 . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Perpetual preferred securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
–
–
–
–
–
–
102
48
40
3,898
–
–
–
202
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,100
Derivative liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2
122
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 124
December 31, 2014
Available-for-sale securities
50,076
–
–
52
19
539
5,316
499
113
28
57,530
3,110
–
1,632
589
$62,861
$ 2,266
645
$ 2,911
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
–
–
–
–
–
–
–
101
55
251
1,758
–
–
–
231
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,989
Derivative liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
–
101
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 101
45,017
–
–
115
22
557
5,868
6
504
162
23
53,555
4,774
–
1,408
641
$60,378
$ 2,103
608
$ 2,711
U.S. Treasury and agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities
$1,351
$ 1,281
$
–
–
318
240
–
–
2
–
9
–
–
$
–
–
–
–
–
–
–
–
–
–
–
569
–
2,512
615
–
$3,696
$ 117
–
$ 117
–
–
–
(807)
–
$ (807)
$(1,283)
–
$(1,283)
–
–
405
280
–
–
62
–
–
9
–
–
$
–
–
–
–
–
–
–
–
–
–
–
–
756
–
2,338
660
–
$3,754
$
$
86
–
86
–
–
–
(870)
–
$ (870)
$(1,317)
–
$(1,317)
$ 4,596
50,076
318
240
52
19
541
5,316
610
161
68
61,997
3,110
2,512
1,440
791
$69,850
$ 1,102
767
$ 1,869
$ 2,632
45,017
405
280
115
22
619
5,868
6
614
217
274
56,069
4,774
2,338
1,198
872
$65,251
$
872
709
$ 1,581
(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.
— 140 —
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)
2015
Available-for-sale securities
Mortgage-backed securities
Residential non-agency
Prime(a)
Non-prime(b)
. . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
$ 405
280
$
Asset-backed securities
Other . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . .
Total available-for-sale . . . . . . . .
Mortgage servicing rights . . . . . . . . . . .
Net derivative assets and liabilities . . . .
62
9
756
2,338
574
2014
Available-for-sale securities
Mortgage-backed securities
Residential non-agency
Prime(a)
Non-prime(b)
. . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
$ 478
297
$
Asset-backed securities
Other . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . .
Total available-for-sale . . . . . . . .
Mortgage servicing rights . . . . . . . . . . .
Net derivative assets and liabilities . . . .
63
9
847
2,680
445
2013
Available-for-sale securities
Mortgage-backed securities
Residential non-agency
–
(1)
4
–
3(c)
(487)(d)
707(e)
–
(6)
4
–
(2)(i)
(588)(d)
904(j)
$ (4)
(1)
$ – $
–
–
–
$ (83)
(38)
$
(2)
–
(7)(f)
–
–
–
–
–
29
1
(51)
–
(51)
–
(13)
(11)
–
(132)
–
–
$15
19
$ – $
–
–
–
34(f)
–
–
5
–
5
5
1
–
–
–
–
–
(141)
(4)
$ (88)
(30)
$
(10)
–
(128)
–
–
Prime(a)
Non-prime(b)
. . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
$ 624
355
$
(6)
(13)
$ 8
17
$ – $
–
–
(20)
$(148)
(42)
$
Asset-backed securities
Other . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . .
Total available-for-sale . . . . . . . .
Mortgage servicing rights . . . . . . . . . . .
Net derivative assets and liabilities . . . .
15
9
1,003
1,700
1,179
3
–
(16)(l)
203(d)
(18)(m)
1
–
26(f)
–
–
51
–
51
8
1
–
–
(20)
–
(5)
(7)
–
(197)
–
–
–
–
–
–
–
632(g)
–
–
–
–
–
–
382(g)
–
–
–
–
–
–
769(g)
–
$
– $ 318
240
–
$
–
–
2
9
–
–
(771)
569
2,512
498
(4)
(1)
–
–
(5)
(487)(d)
135(h)
$
– $ 405
280
–
$ 14
19
–
–
62
9
–
–
(772)
756
2,338
574
–
–
33
(588)(d)
188(k)
$
– $ 478
297
–
$
9
17
–
–
63
9
–
–
(712)
847
2,680
445
–
–
26
203(d)
(321)(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) Included in interest income.
(d) Included in mortgage banking revenue.
(e) Approximately $289 million included in other noninterest income and $418 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 $92 million included in other noninterest income and $43 million included in mortgage banking revenue.
(i) Approximately $(3) million included in securities gains (losses) and $1 million included in interest income.
(j) Approximately $404 million included in other noninterest income and $500 million included in mortgage banking revenue.
(k) Approximately $128 million included in other noninterest income and $60 million included in mortgage banking revenue.
(l) Approximately $(14) million included in securities gains (losses) and $(2) million included in interest income.
(m) Approximately $(149) million included in other noninterest income and $131 million included in mortgage banking revenue.
(n) Approximately $(340) million included in other noninterest income and $19 million included in mortgage banking revenue.
— 141 —
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 as of the measurement date of assets measured at fair value on a nonrecurring basis, and
still held as of the reporting date as of December 31:
(Dollars in Millions)
Level 1
Level 2
Level 3
Loans(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$–
–
$–
–
$87
66
Total
$87
66
Level 1
Level 2
Level 3
$–
–
$–
–
$77
90
Total
$77
90
(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.
2015
2014
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)
2015
$175
42
2014
$108
70
2013
$83
96
(a) Represents write-downs of student loans held for sale based on non-binding quoted prices received for the portfolio, that were subsequently transferred to loans, and 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.
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 . . . . . . . . . . . . . . .
2015
Aggregate
Unpaid
Principal
$3,032
7
–
Fair Value
Carrying
Amount
$3,110
5
–
Carrying
Amount Over
(Under) Unpaid
Principal
$78
(2)
–
Fair Value
Carrying
Amount
$4,774
6
1
2014
Aggregate
Unpaid
Principal
$4,582
9
1
Carrying
Amount Over
(Under) Unpaid
Principal
$192
(3)
–
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL
INSTRUMENTS
The following table summarizes the estimated fair value for
financial instruments as of December 31, 2015 and 2014, 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.
— 142 —
The estimated fair values of the Company’s financial instruments as of December 31, are shown in the table below:
(Dollars in Millions)
Carrying
Amount
2015
Fair Value
Level 1
Level 2
Level 3
Total
2014
Fair Value
Level 1
Level 2
Level 3
Total
Carrying
Amount
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 . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . .
$ 11,147 $11,147 $
– $
– $ 11,147
$ 10,654 $10,654 $
– $
– $ 10,654
169
–
169
–
169
118
–
118
–
118
43,590
74
256,899
2,311
300,400
27,110
32,078
1,353
2,275
–
–
–
41,138
–
–
921
80
74
259,736
1,398
43,493
74
259,736
2,319
–
–
–
–
300,225
26,782
32,412
–
–
–
–
1,353
300,225
26,782
32,412
1,353
44,974
18
243,735
2,187
282,733
29,184
32,260
1,231
1,928
–
–
–
43,124
–
–
924
88
18
245,424
1,269
45,140
18
245,424
2,193
–
–
–
–
282,708
28,973
32,659
–
–
–
–
1,231
282,708
28,973
32,659
1,231
(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, deferred non-yield
related loan fees, standby letters of credit and other guarantees
is approximately equal to their carrying value. The carrying value
of unfunded commitments, deferred non-yield related loan fees
and standby letters of credit was $515 million and $413 million
at December 31, 2015 and 2014, respectively. The carrying
value of other guarantees was $184 million and $211 million at
December 31, 2015 and 2014, respectively.
N O T E 2 3 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. In
addition, a number of class members opted out of the
settlement and have filed actions against the Card
Associations. At December 31, 2015, the carrying amount of
the Company’s liability related to the Visa Litigation matters,
net of its share of the escrow fundings, was $19 million.
During 2015, the Company sold 2.5 million of its Class B
shares. These sales, and any previous sales of its Class B
shares, do not impact the Company’s liability for the Visa
Litigation matters or the receivable related to the escrow
account. The remaining 6.4 million Class B shares held by the
Company will be eligible for conversion to Class A shares of
Visa Inc., 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 22.
— 143 —
Commitments to Extend Credit Commitments to extend
credit are legally binding and generally have fixed expiration
dates or other termination clauses. The contractual amount
represents the Company’s exposure to credit loss, in the
event of default by the borrower. The Company manages this
credit risk by using the same credit policies it applies to loans.
Collateral is obtained to secure commitments based on
management’s credit assessment of the borrower. The
collateral may include marketable securities, receivables,
inventory, equipment and real estate. Since the Company
expects many of the commitments to expire without being
drawn, total commitment amounts do not necessarily
represent the Company’s future liquidity requirements. In
addition, the commitments include consumer credit lines that
are cancelable upon notification to the consumer.
The contract or notional amounts of unfunded commitments
to extend credit at December 31, 2015, excluding those
commitments considered derivatives, were as follows:
(Dollars in Millions)
Commercial and
commercial real
estate loans . . . . . . . .
Corporate and
Term
Less Than
One Year
Greater Than
One Year
Total
$25,917
$93,924
$119,841
purchasing card
loans(a) . . . . . . . . . . . .
23,608
Residential
mortgages . . . . . . . . .
315
Retail credit card
loans(a) . . . . . . . . . . . .
Other retail loans . . . . .
Covered loans . . . . . . .
Other . . . . . . . . . . . . . . .
95,832
12,951
–
5,203
(a) Primarily cancelable at the Company’s discretion.
–
13
–
21,141
568
94
23,608
328
95,832
34,092
568
5,297
Lease Commitments Rental expense for operating leases
totaled $328 million in 2015, $326 million in 2014 and
$311 million in 2013. 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, 2015:
(Dollars in Millions)
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter
Total minimum lease payments . . . . . . . . .
Less amount representing interest . . . . . . .
Present value of net minimum lease
Capitalized
Leases
Operating
Leases
$ 14
13
13
11
10
42
103
35
$ 265
242
203
166
126
471
$1,473
payments . . . . . . . . . . . . . . . . . . . . . . . . .
$ 68
OTHER GUARANTEES AND CONTINGENT LIABILITIES
The following table is a summary of other guarantees and
contingent liabilities of the Company at December 31, 2015:
(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 . . . . . . . . . . . . . . . . . . .
–
–
4,387
–
409
–
2,254
–
–
$ 57
$13,020
–
–
119
61
2
–
2
–
8
4,246
5,089
94,995
2
2,183
12
792
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 also issues and confirms
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 or counterparty’s nonperformance,
the Company’s credit loss exposure is similar to that 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, 2015, were approximately $13.0 billion with a
weighted-average term of approximately 21 months. The
estimated fair value of standby letters of credit was
approximately $57 million at December 31, 2015.
The contract or notional amount of letters of credit at
December 31, 2015, were as follows:
(Dollars in Millions)
Standby . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . .
Less Than
One Year
$5,701
218
Term
Greater
Than
One Year
$7,319
48
Total
$13,020
266
— 144 —
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 $8 million at
December 31, 2015.
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 $4.2
billion at December 31, 2015, and represent the fair value of
the securities lent to third parties. At December 31, 2015, the
Company held $4.4 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 $5.1 billion at December 31, 2015, 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, 2015, the Company had reserved $89 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 representations and warranties to the GSEs in
conjunction with these sales. These representations and
warranties generally require the Company to repurchase
assets if it is subsequently determined that a loan did not
meet specified criteria, such as a documentation deficiency or
rescission of mortgage insurance. If the Company is unable to
cure or refute a repurchase request, the Company is generally
obligated to repurchase the loan or otherwise reimburse the
counterparty for losses. At December 31, 2015, the Company
had reserved $30 million for potential losses from
representation and warranty obligations, compared with $46
million at December 31, 2014. 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.
As of December 31, 2015 and 2014, the Company had
$12 million and $19 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,
— 145 —
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 later of up to four months after the date the transaction is
processed or the receipt of the product or service to present
a charge-back to the Company as the merchant processor.
The absolute maximum potential liability is estimated to be the
total volume of credit card transactions that meet the
associations’ requirements to be valid charge-back
transactions at any given time. Management estimates that
the maximum potential exposure for charge-backs would
approximate the total amount of merchant transactions
processed through the credit card associations for the last
four months. For the last four months this amount totaled
approximately $95.0 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 has been purchased but 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 future 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, 2015, the
value of airline tickets purchased to be delivered at a future
date was $6.7 billion. The Company held collateral of $307
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 $26 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, 2015, the liability was $49 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, 2015, the Company held $76
million of merchant escrow deposits as collateral and had a
recorded liability for potential losses of $12 million.
Contingent Consideration Arrangements The Company
has contingent payment obligations related to certain
business combination transactions. Payments are guaranteed
as long as certain post-acquisition performance-based criteria
are met or customer relationships are maintained. At
December 31, 2015, the maximum potential future payments
required to be made by the Company under these
arrangements was approximately $2 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 8, the Company sponsors a municipal bond securities
tender option bond program and consolidates the program’s
entities on its Consolidated Balance Sheet. The Company
provides financial performance guarantees related to the
program’s entities. At December 31, 2015, the Company
guaranteed $2.2 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 $2.3 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, 2015,
the maximum potential future payments required to be made
by the Company under these agreements were $12 million.
Other Guarantees and Commitments The Company has
also made other financial performance guarantees and
commitments primarily related to the operations of its
subsidiaries. At December 31, 2015, the maximum potential
future payments guaranteed or committed by the Company
under these arrangements were approximately $792 million.
— 146 —
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.
Litigation Matters In the last several years, the Company
and other large financial institutions have been sued in their
capacity as trustee for residential mortgage–backed securities
trusts. Among these lawsuits are actions originally brought in
June 2014 by a group of institutional investors, including
BlackRock and PIMCO funds, against six bank trustees,
including the Company. These actions are in early stages and
currently are pending in the Supreme Court of the State of
New York, New York County, and in the United States District
Court for the Southern District of New York. In these lawsuits,
the investors allege that U.S. Bank National Association as
trustee caused them to incur substantial losses by failing to
enforce loan repurchase obligations and failing to abide by
appropriate standards of care after events of default allegedly
occurred. The plaintiffs seek monetary damages in an
unspecified amount and also seek equitable relief.
Regulatory Matters The Company is currently subject to
examinations, inquiries and investigations by government
agencies and bank regulators concerning mortgage-related
practices, including those related to compliance with selling
guidelines relating to residential home loans sold to GSEs,
foreclosure-related expenses submitted to the Federal
Housing Administration or GSEs for reimbursement, lender-
placed insurance, and notices and filings in bankruptcy
cases. The Company is also subject to ongoing
examinations, inquiries and investigations by government
agencies, bank regulators and law enforcement with respect
to Bank Secrecy Act/anti-money laundering compliance
program adequacy and effectiveness and sanctions
compliance requirements as administered by the Office of
Foreign Assets Control. In October 2015, the Company
entered into a Consent Order with the Office of the
Comptroller of the Currency (the “OCC”) concerning
deficiencies in its Bank Secrecy Act/anti-money laundering
compliance program, and requiring an ongoing review of that
program. If the Company does not satisfactorily correct the
identified deficiencies, it could be required to enter into
further orders, pay fines or penalties or further modify its
business practices. Some of the compliance program
enhancements and other actions required by the Consent
Order have already been, or are currently in the process of
being, implemented, and are not expected to be material to
the Company.
The Company is also continually subject to examinations,
inquiries and investigations in areas of increasing regulatory
scrutiny, such as compliance, risk management, third party
risk management and consumer protection.
The Company is cooperating fully with all pending
examinations, inquiries and investigations, any of which could
lead to administrative or legal proceedings or settlements.
Remedies in these proceedings or settlements may include
fines, penalties, restitution or alterations in the Company’s
business practices (which may increase the Company’s
operating expenses and decrease its revenue).
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).
In April 2011, the Company and certain other large
financial institutions entered into Consent Orders with the
OCC and the Board of Governors of the Federal Reserve
System relating to residential mortgage servicing and
foreclosure practices. In June 2015, the Company entered
into an agreement to amend the 2011 Consent Order it had
with the OCC. The OCC terminated the amended Consent
Order in February 2016. Depending on the Company’s
progress toward addressing the requirements of the 2011
Consent Order it has with the Board of Governors of the
Federal Reserve System, the Company may be required to
enter into further orders and settlements, pay additional fines
or penalties, make restitution or further modify the Company’s
business practices (which may increase the Company’s
operating expenses and decrease its revenue).
Outlook Due to their complex nature, it can be years before
litigation and regulatory matters are resolved. The Company
may be unable to develop an estimate or range of loss where
matters are in early stages, there are significant factual or
legal issues to be resolved, damages are unspecified or
uncertain, or there is uncertainty as to a litigation class being
certified or the outcome of pending motions, appeals or
proceedings. For those litigation and regulatory matters where
— 147 —
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,
will not be material to its financial condition, results of
operations or cash flows. The Company’s estimates are
subject to significant judgment and uncertainties, and the
matters underlying the estimates will change from time to
time. Actual results may vary significantly from the current
estimates.
N O T E 2 4 U.S. BANCORP (PARENT COMPANY)
CONDENSED BALANCE SHEET
At December 31 (Dollars in Millions)
2015
2014
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,426
352
41,708
2,060
3,150
823
983
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$58,502
Liabilities and Shareholders’ Equity
Short-term funds borrowed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
25
11,453
893
46,131
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$58,502
$10,775
464
39,599
1,906
2,650
550
1,762
$57,706
$
177
13,189
861
43,479
$57,706
CONDENSED STATEMENT OF INCOME
Year Ended December 31 (Dollars in Millions)
2015
2014
2013
Income
Dividends from bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends from nonbank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,900
3
120
55
Total income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,078
Expense
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes and equity in undistributed income of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . .
Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income of parent company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in undistributed income (losses) of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
292
105
397
3,681
(207)
3,888
1,991
$3,850
38
123
64
4,075
335
90
425
3,650
(94)
3,744
2,107
$6,100
9
118
66
6,293
325
81
406
5,887
(88)
5,975
(139)
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,879
$5,851
$5,836
— 148 —
CONDENSED STATEMENT OF CASH FLOWS
Year Ended December 31 (Dollars in Millions)
2015
2014
2013
Operating Activities
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities
$ 5,879
$ 5,851
$ 5,836
Equity in undistributed (income) losses of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,991)
507
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,395
Investing Activities
Proceeds from sales and maturities of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (increase) decrease in short-term advances to subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term advances to subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal collected on long-term advances to subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net
Net cash (used in) provided by investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing Activities
Net (decrease) increase 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
153
(47)
(273)
(500)
–
(6)
(673)
(152)
–
(1,750)
745
295
–
(2,190)
(242)
(1,777)
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5,071)
Change in cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and due from banks at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,349)
10,775
(2,107)
48
3,792
46
(39)
984
(1,800)
1,400
(52)
539
39
3,250
(1,500)
–
453
–
(2,200)
(243)
(1,726)
(1,927)
2,404
8,371
139
(40)
5,935
75
(118)
4,543
(750)
–
3
3,753
4
1,500
(2,850)
487
524
(500)
(2,282)
(254)
(1,576)
(4,947)
4,741
3,630
Cash and due from banks at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,426
$10,775
$ 8,371
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 minimum capital constraints for all national
banks.
N O T E 2 5 SUBSEQUENT EVENTS
The Company has evaluated the impact of events that have
occurred subsequent to December 31, 2015 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.
— 149 —
U.S. Bancorp
Consolidated Balance Sheet — Five Year Summary (Unaudited)
At December 31 (Dollars in Millions)
2015
2014
2013
2012
2011
% Change
2015 v 2014
Assets
Cash and due from banks . . . . . . . . . . . . . . . . . . .
Held-to-maturity securities . . . . . . . . . . . . . . . . . . .
Available-for-sale securities . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less allowance for loan losses . . . . . . . . . . . . . .
$ 11,147
43,590
61,997
3,184
260,849
(3,863)
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
256,986
44,949
$ 10,654
44,974
56,069
4,792
247,851
(4,039)
243,812
42,228
$
8,477
38,920
40,935
3,268
235,235
(4,250)
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
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
$421,853
$402,529
$364,021
$353,855
$340,122
Liabilities and Shareholders’ Equity
Deposits
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 83,766
216,634
$ 77,323
205,410
$ 76,941
185,182
$ 74,172
175,011
$ 68,579
162,306
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
Total U.S. Bancorp shareholders’ equity . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . .
300,400
27,877
32,078
14,681
375,036
46,131
686
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . .
46,817
282,733
29,893
32,260
13,475
358,361
43,479
689
44,168
262,123
27,608
20,049
12,434
322,214
41,113
694
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
Total liabilities and equity . . . . . . . . . . . . . . . .
$421,853
$402,529
$364,021
$353,855
$340,122
4.6%
(3.1)
10.6
(33.6)
5.2
4.4
5.4
6.4
4.8
8.3%
5.5
6.2
(6.7)
(.6)
8.9
4.7
6.1
(.4)
6.0
4.8
— 150 —
U.S. Bancorp
Consolidated Statement of Income — Five-Year Summary (Unaudited)
Year Ended December 31 (Dollars in Millions)
2015
2014
2013
2012
2011
Interest Income
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,059
206
2,001
136
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,402
Interest Expense
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
457
245
699
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . .
1,401
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . .
11,001
1,132
Net interest income after provision for credit losses . . . .
9,869
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,070
708
1,547
318
1,321
702
561
867
906
185
–
907
9,092
4,812
1,167
991
423
361
887
297
174
1,819
$10,113
128
1,866
121
12,228
465
263
725
1,453
10,775
1,229
9,546
1,021
724
1,511
321
1,252
693
545
854
1,009
191
3
1,040
9,164
4,523
1,041
987
414
382
863
328
199
1,978
$10,277
203
1,631
174
12,285
561
353
767
1,681
10,604
1,340
9,264
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
$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
(15)
743
9,319
4,320
945
917
530
388
821
304
274
1,957
Total noninterest expense . . . . . . . . . . . . . . . . . . . . . . .
10,931
10,715
10,274
10,456
Income before income taxes . . . . . . . . . . . . . . . . . . . . . .
Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling
8,030
2,097
5,933
7,995
2,087
5,908
7,764
2,032
5,732
7,726
2,236
5,490
$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
(31)
1,011
8,760
4,041
845
999
383
369
758
303
299
1,914
9,911
6,629
1,841
4,788
interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(54)
(57)
104
157
84
Net income attributable to U.S. Bancorp . . . . . . . . . . . . .
$ 5,879
$ 5,851
$ 5,836
$ 5,647
$ 4,872
Net income applicable to U.S. Bancorp common
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,608
$ 5,583
$ 5,552
$ 5,383
$ 4,721
* Not meaningful
% Change
2015 v 2014
(.5)%
60.9
7.2
12.4
1.4
(1.7)
(6.8)
(3.6)
(3.6)
2.1
(7.9)
3.4
4.8
(2.2)
2.4
(.9)
5.5
1.3
2.9
1.5
(10.2)
(3.1)
*
(12.8)
(.8)
6.4
12.1
.4
2.2
(5.5)
2.8
(9.5)
(12.6)
(8.0)
2.0
.4
.5
.4
5.3
.5
.4
— 151 —
U.S. Bancorp
Quarterly Consolidated Financial Data (Unaudited)
(Dollars in Millions, Except Per Share Data)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2015
2014
Interest Income
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities . . . . . . . . . . . . . . . . . . . . . . .
Other interest income . . . . . . . . . . . . . . . . . . . . . .
$2,493
41
495
32
Total interest income . . . . . . . . . . . . . . . . . . . . .
3,061
Interest Expense
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt
Total interest expense . . . . . . . . . . . . . . . . . . . .
118
61
184
363
Net interest income . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . .
2,698
264
Net interest income after provision for credit
$2,463
65
505
35
3,068
113
62
177
352
2,716
281
$2,520
60
502
35
3,117
113
66
170
349
2,768
282
$2,583
40
499
34
3,156
113
56
168
337
2,819
305
$2,522
27
441
32
3,022
119
69
184
372
2,650
306
$2,532
24
461
30
3,047
114
63
181
358
2,689
324
$2,518
36
476
27
$2,541
41
488
32
3,057
3,102
115
72
178
365
117
59
182
358
2,692
311
2,744
288
losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,434
2,435
2,486
2,514
2,344
2,365
2,381
2,456
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
241
170
359
78
322
161
137
200
240
47
–
199
266
178
395
80
334
174
142
214
231
48
–
210
269
190
400
81
329
185
143
231
224
46
(1)
229
294
170
393
79
336
182
139
222
211
44
1
269
239
173
356
78
304
157
133
205
236
46
5
176
259
182
384
82
311
171
140
221
278
47
–
369
251
195
387
81
315
185
136
209
260
49
(3)
177
272
174
384
80
322
180
136
219
235
49
1
318
Total noninterest income . . . . . . . . . . . . . . . . . .
2,154
2,272
2,326
2,340
2,108
2,444
2,242
2,370
Noninterest Expense
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . .
Net occupancy and equipment . . . . . . . . . . . . . . .
Professional services . . . . . . . . . . . . . . . . . . . . . . .
Marketing and business development
. . . . . . . . .
Technology and communications . . . . . . . . . . . . .
Postage, printing and supplies . . . . . . . . . . . . . . .
Other intangibles . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Total noninterest expense . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . .
Applicable income taxes . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling
1,179
317
247
77
70
214
82
43
436
2,665
1,923
479
1,444
1,196
293
247
106
96
221
64
43
416
2,682
2,025
528
1,497
1,225
285
251
115
99
222
77
42
459
2,775
2,037
534
1,503
1,212
272
246
125
96
230
74
46
508
2,809
2,045
556
1,489
1,115
289
249
83
79
211
81
49
388
2,544
1,908
496
1,412
1,125
257
241
97
96
214
80
48
595
2,753
2,056
547
1,509
1,132
250
249
102
78
219
81
51
452
2,614
2,009
523
1,486
1,151
245
248
132
129
219
86
51
543
2,804
2,022
521
1,501
interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(13)
(14)
(14)
(13)
(15)
(14)
(15)
(13)
Net income attributable to U.S. Bancorp . . . . . . .
$1,431
$1,483
$1,489
$1,476
$1,397
$1,495
$1,471
$1,488
Net income applicable to U.S. Bancorp common
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,365
$1,417
$1,422
$1,404
$1,331
$1,427
$1,405
$1,420
Earnings per common share . . . . . . . . . . . . . . . . .
Diluted earnings per common share . . . . . . . . . . .
$
$
.77
.76
$
$
.80
.80
$
$
.81
.81
$
$
.80
.80
$
$
.73
.73
$
$
.79
.78
$
$
.78
.78
$
$
.79
.79
— 152 —
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2015
3.18
3.16
1.010
$
2014
3.10
3.08
.965
$
2013
3.02
3.00
.885
$
2012
2.85
2.84
.780
$
2011
2.47
2.46
.500
Ratios
Return on average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on average common equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average total U.S. Bancorp shareholders’ equity to average assets . . . . .
Dividends per common share to net income per common share . . . . . . . .
1.44%
14.0
11.0
31.8
1.54%
14.7
11.3
31.1
1.65%
15.8
11.3
29.3
1.65%
16.2
11.0
27.4
1.53%
15.8
10.1
20.2
Other Statistics (Dollars and Shares in Millions)
Common shares outstanding(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average common shares outstanding and common stock equivalents
1,745
1,786
1,825
1,869
1,910
Earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of shareholders(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,764
1,772
40,666
$ 1,785
1,803
1,813
44,114
$ 1,745
1,839
1,849
46,632
$ 1,631
1,887
1,896
49,430
$ 1,474
1,914
1,923
52,677
961
$
(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
2015
Sales Price
2014
Sales Price
First quarter
. . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . .
High
$45.49
45.29
46.26
44.58
Low
$40.70
42.12
38.81
39.28
Closing
Price
$43.67
43.40
41.01
42.67
Dividends
Declared
$.245
.255
.255
.255
High
$43.66
43.92
43.75
46.10
Low
$38.72
39.86
40.58
38.10
Closing
Price
$42.86
43.32
41.83
44.95
Dividends
Declared
$.230
.245
.245
.245
The common stock of U.S. Bancorp is traded on the New York Stock Exchange, under the ticker symbol “USB.” At January 31,
2016, there were 40,607 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, 2015, 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, 2010, 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.
260
220
180
140
100
100
60
2010
102
102
77
2011
Total Return
182
178
154
181
177
155
160
157
141
124
118
102
2012
2013
2014
2015
USB
S&P 500
KBW Bank Index (BKX)
— 153 —
U.S. Bancorp
Consolidated Daily Average Balance Sheet and Related Yields and
Rates (a) (Unaudited)
2015
2014
Year Ended December 31 (Dollars in Millions)
Average
Balances
Interest
Yields
and Rates
Average
Balances
Interest
Yields
and Rates
$103,161
5,784
$ 2,120
206
2.05%
3.56
$ 90,327
3,148
$ 1,991
128
2.20%
4.08
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,281
1,650
1,966
1,969
2,020
9,886
271
10,157
136
12,619
2.71
3.89
3.79
10.90
4.12
4.03
5.42
4.06
1.69
3.43
84,083
42,415
51,840
18,057
49,079
245,474
4,985
250,459
8,041
367,445
(4,035)
710
44,745
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$408,865
Liabilities and Shareholders’ Equity
Noninterest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing deposits
Interest checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 79,203
55,974
79,266
37,150
35,558
207,948
27,960
33,566
269,474
14,686
4,836
39,977
44,813
689
45,502
30
192
40
195
457
249
699
1,405
.05
.24
.11
.55
.22
.89
2.08
.52
2,228
1,575
2,001
1,817
2,141
9,762
452
10,214
121
12,454
35
117
46
267
465
267
725
1,457
75,734
40,592
51,818
17,635
48,353
234,132
7,560
241,692
5,827
340,994
(4,187)
466
42,731
$380,004
$ 73,455
53,248
63,977
34,196
41,764
193,185
30,252
26,535
249,972
13,053
4,756
38,081
42,837
687
43,524
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$408,865
$380,004
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,214
$10,997
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 . . . . . . . .
(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.
2.91%
2.85%
3.43%
.38
3.05%
2.99%
— 154 —
2.94
3.88
3.86
10.30
4.43
4.17
5.97
4.23
2.08
3.65
.07
.18
.14
.64
.24
.88
2.73
.58
3.07%
3.00%
3.65%
.42
3.23%
3.16%
2013
2012
2011
Average
Balances
Interest
Yields
and Rates
Average
Balances
Interest
Yields
and Rates
Average
Balances
Interest
Yields
and Rates
2015 v 2014
% Change
Average
Balances
$ 75,046
5,723
$ 1,767
203
2.35%
3.56
$ 72,501
7,847
$ 1,939
282
2.67%
3.60
$ 63,645
4,873
$ 1,980
200
3.11%
4.10
14.2%
83.7
2,168
1,638
1,827
1,693
2,488
9,814
826
10,640
251
13,112
46
62
66
517
691
447
1,005
2,143
3.56
4.49
4.53
10.16
5.19
4.85
6.28
4.94
2.38
4.28
.10
.13
.22
1.11
.41
1.57
3.53
.95
2,168
1,589
1,959
1,691
2,318
9,725
643
10,368
175
12,513
36
76
49
400
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
.88
.31
1.29
3.60
.73
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
$352,680
$ 69,020
48,792
55,512
31,916
45,217
181,437
27,683
21,280
230,400
11,973
4,804
35,113
39,917
1,370
41,287
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
46,566
168,469
28,549
28,448
225,466
11,406
4,381
33,230
37,611
1,125
38,736
2,071
1,622
1,632
1,538
2,649
9,512
928
10,440
250
12,870
65
76
112
587
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
44,703
159,303
30,703
31,684
221,690
9,602
2,414
29,786
32,200
916
33,116
$352,680
$342,849
$318,264
$10,828
$10,969
$10,348
3.24%
3.17%
3.97%
.53
3.44%
3.37%
3.33%
3.26%
4.28%
.70
3.58%
3.51%
— 155 —
11.0
4.5
–
2.4
1.5
4.8
(34.1)
3.6
38.0
7.8
3.6
52.4
4.7
7.6
7.8%
5.1
23.9
8.6
(14.9)
7.6
(7.6)
26.5
7.8
12.5
1.7
5.0
4.6
.3
4.5
7.6
4.01
4.57
4.84
9.56
5.50
5.14
5.69
5.18
1.87
4.54
.15
.17
.42
1.31
.53
1.75
3.61
1.14
3.40%
3.32%
4.54%
.89
3.65%
3.57%
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 $310 billion in deposits at December 31,
2015, 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, lease 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.
Other U.S. Bancorp non-banking subsidiaries offer
investment and insurance products to the Company’s
customers principally within its markets, and fund
administration services to a broad range of mutual and other
funds.
Banking and investment services are provided through a
network of 3,133 banking offices principally operating in the
Midwest and West regions of the United States, through on-
line services and over mobile devices. The Company operates
a network of 4,936 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, 2015,
U.S. Bancorp employed 65,433 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.
REGULATORY AND LEGAL RISK
The Company is subject to extensive and expanding
government regulation and supervision, which can lead
to costly enforcement actions while increasing the cost
of doing business and limiting the Company’s ability to
generate revenue 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 2016 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, the federal Deposit Insurance
Fund, and the banking system as a whole, and not the
Company’s debt holders or shareholders. These regulations,
and the Company’s inability to act in certain instances without
receiving prior regulatory approval, affect the Company’s
lending practices, capital structure, investment practices,
dividend policy, ability to repurchase common stock, and
ability to pursue strategic acquisitions, 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. For example, the Office of the
Comptroller of the Currency’s (the “OCC’s”) Guidelines for
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Heightened Standards and the Federal Reserve’s Enhanced
Prudential Supervision Rules have required and will continue
to require significant Board of Directors oversight and
management focus on governance and risk-management
activities. The OCC has also recently proposed guidelines
that, if implemented, will require banks to develop and
maintain a recovery plan subject to regulatory review, which
could present new challenges and demands on resources. In
addition, many parts of the Dodd-Frank Act are still in the
implementation stage, which leaves some uncertainty as to its
fully implemented aggregate impact upon the Company.
The financial services industry is facing more intense
scrutiny from bank supervisors in the examination process
and more aggressive enforcement of regulations on both the
federal and state levels, particularly with respect to mortgage-
related practices and other consumer compliance matters,
and compliance with Bank Secrecy Act/anti-money
laundering requirements and sanctions compliance
requirements as administered by the Office of Foreign Assets
Control. In accordance with this trend, the Company entered
into a Consent Order with the OCC in October 2015 that
concerns deficiencies in its Bank Secrecy Act/anti-money
laundering compliance program, and requires an ongoing
review of that program. Federal banking law grants
substantial enforcement powers to federal banking regulators.
This enforcement authority includes, among other things, the
ability to assess significant civil or criminal monetary penalties,
fines, or restitution; 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
does not make satisfactory progress toward addressing the
requirements of the October 2015 Consent Order, for
example, it may be required to enter into further orders and
settlements, pay fines or other penalties or further modify its
business practices (which may increase the Company’s
operating expenses and decrease its revenue). Foreign
supervisors also have increased regulatory scrutiny and
enforcement in areas related to consumer compliance, money
laundering, and information technology systems and controls,
among others. Any future enforcement action could have a
material adverse impact on the Company.
In general, the amounts paid by financial institutions in
settlement of proceedings or investigations and the severity of
other terms of regulatory settlements have been increasing
dramatically and are likely to continue to increase. In some
cases, governmental authorities have required criminal pleas
or other extraordinary terms as part of such settlements,
which could have significant consequences for a financial
institution, including loss of customers, restrictions on the
ability to access the capital markets, and the inability to
operate certain businesses or offer certain products for a
period of time. Violations of laws and regulations or deemed
deficiencies in risk management practices also may be
incorporated into the Company’s bank supervisory ratings. A
downgrade in these ratings, or other regulatory actions and
settlements, such as the October 2015 Consent Order, can
limit the Company’s ability to pursue acquisitions or conduct
other expansionary activities for a period of time and require
new or additional regulatory approvals before engaging in
certain other business activities.
Compliance with new regulations and supervisory
initiatives may 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.
More stringent requirements related to capital and
liquidity have been adopted by U.S. banking regulators
that may limit the Company’s ability to return earnings
to shareholders or operate or invest in its business U.S.
banking regulators have adopted more stringent capital- and
liquidity-related standards applicable to larger banking
organizations, including the Company. The rules require
banks to hold more and higher quality capital as well as
sufficient unencumbered liquid assets to meet certain stress
scenarios defined by regulation. The implementation of these
rules including the common equity tier 1 capital conservation
buffer, or additional capital- and liquidity-related rules could
require the Company to take further steps to increase its
capital, increase its investment security holdings, divest
assets or operations or otherwise change aspects of its
capital and/or liquidity measures, including in ways that may
be dilutive to shareholders or could limit the Company’s ability
to pay common stock dividends, repurchase its common
stock, invest in its businesses or provide loans to its
customers. See “Supervision and Regulation” in the
Company’s Annual Report on Form 10-K for additional
information regarding the capital and liquidity requirements
under the Dodd-Frank Act and Basel III.
Additional requirements are expected in the future. The
Board of Governors of the Federal Reserve System has
recently proposed a policy statement that details the
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framework it would follow in setting the countercyclical capital
buffer, a macroprudential tool that would raise capital
requirements when there is an elevated risk of above normal
losses in the U.S. financial system. Furthermore, the Basel
Committee on Banking Supervision (the “Basel Committee”)
has published several consultative papers regarding (i) the
standardized approach to credit risk, (ii) a fundamental review
of the trading book, (iii) interest rate risk in the banking book,
and (iv) operational risk. Finally, the Basel Committee has
published its final net stable funding ratio framework. The U.S.
banking regulators are expected to incorporate all of these
measures into domestic regulation. The ultimate impact on
the Company’s capital and liquidity will depend on the final
U.S. rulemakings and implementation process thereafter.
The Company is subject to significant financial and
reputational risks from potential legal liability and
governmental actions The Company faces significant legal
risks in its business, and the volume of claims and amount of
damages and penalties claimed in litigation and governmental
proceedings against it and other financial institutions are
increasing. Customers, clients and other counterparties have
grown more litigious and are making claims for substantial or
indeterminate amounts of damages, while banking regulators
and certain other governmental authorities, such as the U.S.
Department of Justice, have demonstrated an increasing
focus on enforcement, including in connection with alleged
violations of law and customer harm. In addition,
governmental authorities have begun to seek criminal
penalties against companies in the financial services sector for
regulatory violations and have begun to require an admission
of wrongdoing from financial institutions in connection with
settling such matters. Criminal convictions or admissions of
wrongdoing in a settlement with the government can lead to
greater exposure in civil litigation and reputational harm.
As an example of increased risks arising from litigation, the
Company and other large financial institutions have been sued
over the past several years in their capacity as trustee for
residential mortgage–backed securities (“RMBS”) trusts. The
plaintiffs in these actions allege that the significant losses they
incurred as investors in the RMBS trusts were caused by the
trustees’ failure to enforce loan repurchase obligations and to
abide by appropriate standards of care after events of default
allegedly occurred, while also arguing to broaden the trustees’
duties. Although the Company has denied liability and
believes it has meritorious defenses in these cases, any
finding of liability or new or enhanced duties in one or more of
these cases against the Company, or another financial
institution, could result in a significant financial loss or require
a modification to the Company’s business practices, which
could negatively impact the Company’s financial results.
Increased litigation costs, substantial legal liability or
significant governmental action against the Company could
materially 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.
The Company faces increased regulatory and legal risk
arising out of its mortgage lending and servicing
businesses The Company is subject to investigations,
examinations and inquiries by government agencies and bank
regulators concerning mortgage-related practices, including
those related to compliance with selling guidelines relating to
residential home loans sold to GSEs, foreclosure-related
expenses submitted to the Federal Housing Administration or
GSEs for reimbursement, lender-placed insurance, and
notices and filings in bankruptcy cases. The Company is
cooperating fully with these investigations, examinations and
inquiries, any of which could lead to administrative or legal
proceedings or settlements. Remedies in such proceedings or
settlements may include fines, penalties, restitution or
alterations to the Company’s business practices, which could
increase the Company’s operating expenses and decrease its
revenue. Additionally, reputational damage arising from these
or 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 may be required to repurchase mortgage
loans or indemnify mortgage loan purchasers as a
result of breaches in contractual representations and
warranties When the Company sells mortgage loans that it
has originated to various parties, including GSEs, it is required
to make customary representations and warranties to the
purchaser about the mortgage loans and the manner in which
they were originated. The Company may be required to
repurchase mortgage loans or be subject to indemnification
claims in the event of a breach of contractual representations
or warranties that is not remedied within a certain period.
Contracts for residential mortgage loan sales to the GSEs
include various types of specific remedies and penalties that
could be applied to inadequate responses to repurchase
requests. If economic conditions and the housing market
deteriorate or the GSEs increase their claims of breached
representations and warranties, the Company could have
increased repurchase obligations and increased loss severity
on repurchases, requiring material increases to its repurchase
reserve.
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
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take title to real estate. As a result, the Company could be
subject to environmental liabilities with respect to these
properties. The Company may be held liable to a
governmental entity or to third parties for property damage,
personal injury, investigation and clean-up costs incurred by
these parties in connection with environmental contamination
or may be required to investigate or clean up hazardous or
toxic substances or chemical releases at a property. The
costs associated with investigation or remediation activities
could be substantial. In addition, if the Company is the owner
or former owner of a contaminated site, it may be subject to
common law claims by third parties based on damages and
costs resulting from environmental contamination emanating
from the property. If the Company becomes subject to
significant environmental liabilities, its financial condition and
results of operations could be adversely affected.
ECONOMIC AND MARKET CONDITIONS RISK
Deterioration in business and economic conditions
could adversely affect the financial services industry,
and a reversal or slowing of the current 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 or another severe contraction
could adversely impact loan utilization rates as well as
delinquencies, defaults and customer ability to meet
obligations under the loans. 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.
Stress in the commercial real estate markets, or a downturn
in the residential real estate markets, could cause credit losses
and deterioration in asset values for the Company and other
financial institutions. A downturn in used auto prices from its
current levels could result in increased credit losses and
impairment of residual lease values for the Company.
Additionally, the current environment of heightened scrutiny of
financial institutions, as well as a continued focus on the pace
and sustainability of the economic recovery, has resulted in
increased public awareness of and sensitivity to banking fees
and practices.
Any further deterioration in global economic conditions,
including those related to recent disruptions in Europe and
China, 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 these
regions. Such global disruptions can undermine investor
confidence, cause a contraction of available credit, or create
market volatility, any of which could have significant adverse
effects on the Company’s businesses, results of operations,
financial condition and liquidity, even if the Company’s direct
exposure to the affected region is limited. The continued
depression of commodity prices, inclusive of energy prices,
for an extended period of time, as well as other negative
domestic market developments, may erode consumer
confidence levels and cause adverse changes in payment
patterns, leading to increases in delinquencies and default
rates in certain industries, or regions. Such developments
could increase the Company’s loan 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.
Improvements in economic indicators
disproportionately affecting the financial services
industry may lag improvements in the general economy
Should the moderate recovery of the United States economy
continue, the improvement of certain economic indicators,
such as real estate asset values, may nevertheless continue
to lag behind the overall economy, which can affect certain
industries, such as real estate and financial services, more
significantly. Should 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
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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 financial position 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 the past, 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. As a
result, 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
create uncertainty in the U.S. and global financial markets and
negatively impact the Company’s liquidity.
CREDIT AND MORTGAGE BUSINESS RISK
Heightened credit risk could require the Company to
increase its provision for loan losses, which could have a
material adverse effect on the Company’s results of
operations and financial condition When the Company
lends money, or commits to lend 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. The Company incurred
high levels of losses on loans during the most recent financial
crisis and recovery period, and 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 higher
provisions for credit losses. The Company reserves for credit
losses by establishing an allowance through a charge to
earnings to provide for loan defaults and nonperformance. 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. 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.
A concentration of credit and market risk in the
Company’s loan portfolio could increase the potential
for significant losses 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.
Deterioration in economic conditions or real estate values in
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states or regions where the Company has relatively larger
concentrations of residential or commercial real estate could
result in higher credit costs. In particular, deterioration in real
estate values and underlying economic conditions in California
could result in significantly higher credit losses to the
Company.
Changes in interest rates can impact 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 MSRs can decrease, which in turn reduces the
Company’s earnings. Futher, 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.
A decline in the soundness of other financial institutions
could adversely affect the Company’s results of
operations 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, the soundness of 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.
Change in residual value of leased assets may have an
adverse impact on the Company’s financial results The
Company engages in leasing activities and is subject to the
risk that the residual value of the property under lease will be
less than the Company’s recorded asset value. Adverse
changes in the residual value of leased assets can have a
negative impact on the Company’s financial results. The risk of
changes in the realized value of the leased assets compared to
recorded residual values depends on many factors outside of
the Company’s control, including supply and demand for the
assets, condition of the assets at the end of the lease term,
and other economic factors.
OPERATIONS AND BUSINESS RISK
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, as well as its intellectual
property, 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.
Many financial services institutions, retailers and other
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, cyber
attacks 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 financial or other institutions important
to the overall functioning of the financial system could adversely
affect, directly or indirectly, aspects of the Company’s
businesses.
Third parties with which the Company does business or
that facilitate its business activities, including exchanges,
clearinghouses, payment and ATM networks, financial
— 161 —
intermediaries or vendors that provide services or technology
solutions for the Company’s operations, could also be sources
of operational and security risks to the Company, including
with respect to breakdowns or failures of their systems,
misconduct by their employees or cyber attacks that could
affect their ability to deliver a product or service to the
Company or result in lost or compromised information of the
Company or its customers. In addition, several large and small
retailers and hospitality companies have recently disclosed
substantial cyber security breaches affecting debit and credit
card accounts of their customers, some of whom were the
Company’s cardholders. Although these incidents have not yet
had a material impact on the Company, these attacks involving
Company cards are likely to continue and could, individually or
in the aggregate, have a material adverse effect on the
Company’s financial condition or results of operations.
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 organized crime, hackers,
terrorists, activists, and other external parties, including
parties sponsored by 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, such as
through “phishing” schemes. 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. In addition, the Company’s customers often use
their own devices, such as computers, smart phones and
tablets, to make payments and manage their accounts. The
Company has limited ability to assure the safety and security
of its customers’ transactions with the Company to the extent
they are using their own devices, which could be subject to
similar threats.
If the Company’s security systems were penetrated or
circumvented, or if an authorized user intentionally or
unintentionally removed, lost or destroyed operations data, 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. These consequences 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; regulatory fines, penalties or
intervention; reimbursement or other compensatory costs;
additional compliance costs; and harm to the Company’s
reputation, all of which could adversely affect the Company.
The Company relies on its employees, systems and
third parties to conduct its business, 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. The Company
incurs risks for potential losses resulting from its 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, fines or civil money
penalties 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 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 parties carefully, it does not control their
actions. Any problems caused by third party service
providers, 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 service providers could also entail significant delay
and expense. In addition, failure of third party service
providers 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 businesses to
the extent those difficulties result in the interruption or
discontinuation of services provided by that party.
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
— 162 —
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 third party service providers, or where the
information is intercepted or otherwise inappropriately taken by
third parties. 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 legal or regulatory action and suffer damage to its
reputation.
The Company could lose market share and experience
increased costs if it does not effectively develop and
implement new technology The financial services industry is
continually undergoing rapid technological change with
frequent introductions of new technology-driven products and
services, including innovative ways that customers can make
payments or manage their accounts, such as through the use
of digital wallets or digital currencies. 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 want to adopt, and create additional
efficiencies in the Company’s operations. Developing and
deploying new technology-driven products and services can
also involve costs that the Company may not recover and
divert resources away from other product development efforts.
The Company may not be able to effectively develop and
implement profitable 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 harm the Company’s competitive position and
negatively affect its revenue and profit.
Negative publicity could damage the Company’s
reputation and adversely impact its business and
financial results Reputational 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, executive compensation,
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
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 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.
— 163 —
LIQUIDITY RISK
If the Company does not effectively manage its liquidity,
its business could suffer The Company’s liquidity is
essential for the operation of its business. Market conditions,
unforeseen outflows of funds or other events could negatively
affect the Company’s level or cost of funding, affecting its
ongoing ability to accommodate liability maturities and deposit
withdrawals, meet contractual obligations, and fund asset
growth and new business transactions at a reasonable cost
and in a timely manner. If the Company’s access to stable
and low-cost sources of funding, such as customer deposits,
are reduced, the Company might need to use alternative
funding, which could be more expensive or of limited
availability. Any substantial, unexpected or prolonged
changes in the level or cost of liquidity could adversely affect
the Company’s business.
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.
A downgrade in the Company’s credit ratings could
have a material adverse effect on its liquidity, funding
costs and access to capital markets 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, increase its funding costs or limit its access
to the capital markets. Further, a downgrade could decrease
the number of investors and counterparties willing or able,
contractually or otherwise, to do business or lend to the
Company, thereby adversely affecting the Company’s
competitive position. 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.
The Company relies on dividends from its subsidiaries
for its liquidity needs and the payment of those
dividends could be limited by laws and regulations 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 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.
COMPETITIVE AND STRATEGIC RISK
The financial services industry is highly competitive,
and competitive pressures could intensify and
adversely affect the Company’s financial results The
Company operates in a highly competitive industry that could
become even more competitive as a result of legislative,
regulatory and technological changes, as well as continued
industry consolidation, which may increase in connection with
current economic and market conditions. This consolidation
may produce larger, better-capitalized and more
geographically diverse companies that are capable of offering
a wider array of financial products and services at more
competitive prices. The Company competes with other
commercial banks, savings and loan associations, mutual
savings banks, finance companies, mortgage banking
companies, credit unions, investment companies, credit card
companies, and a variety of other financial services and
advisory companies. In addition, technology has lowered
barriers to entry and made it possible for non-banks to offer
products and services 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
— 164 —
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. A failure to
compete effectively could contribute to downward price
pressure on the Company’s products or services or a loss of
market share.
The Company may need to lower prices on existing
products and services and develop and introduce new
products and services to maintain market share The
Company’s success depends, in part, on its ability to adapt
its products and services to evolving industry standards.
There is increasing pressure to provide products and services
at lower prices. Lower prices can reduce the Company’s net
interest margin and revenues from its fee-based products and
services. In addition, the widespread adoption of new
technologies, including internet services and mobile devices,
such as mobile phones and tablet computers, could require
the Company to make substantial expenditures to modify or
adapt its 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 customer relationships.
The Company’s business could suffer if it fails to attract
and retain skilled employees The Company’s success
depends, in large part, on its ability to attract and retain key
employees. 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 in,
and may continue to result in, additional regulation and
legislation in this area, as well as additional legislative and
regulatory initiatives. 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 may not be able to complete future
acquisitions, and completed acquisitions may not
produce revenue enhancements or cost savings at
levels or within timeframes originally anticipated, may
result in unforeseen integration difficulties, and may
dilute existing shareholders’ interests 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 it
might pursue.
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.
For example, the Company may be required to sell branches
as a condition to receiving regulatory approval. If the
Company commits certain regulatory violations, including
those that result in a downgrade in certain of the Company’s
bank regulatory ratings, governmental authorities could, as a
consequence, preclude it from pursuing future acquisitions for
a period of time.
There can be no assurance that acquisitions the Company
completes 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. 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, loss of key employees, disruption of the
Company’s businesses or the businesses 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. In addition, future acquisitions may
also expose the Company to increased legal or regulatory
risks. Finally, 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.
ACCOUNTING AND TAX RISK
The Company’s reported financial results depend on
management’s selection of accounting methods and
certain assumptions and estimates, which, if incorrect,
could cause unexpected losses in the future The
Company’s accounting policies and methods are fundamental
to how the Company records and reports its financial
— 165 —
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 of operations. 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 of operations. 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. As an example, the Financial Accounting
Standards Board has issued proposed guidance related to a
change in the accounting for credit losses on financial
instruments. This proposed guidance represents a significant
departure from current accounting guidance and requires
earlier recognition of credit losses in a company’s financial
statements as it utilizes an expected credit loss concept
rather than the incurred loss concept. This new guidance is
expected to be adopted by way of a cumulative effect
adjustment recorded to beginning retained earnings upon the
effective date.
The Company’s investments in certain tax-advantaged
projects may not generate returns as anticipated and
may have an adverse impact on the Company’s
financial results The Company invests in certain tax-
advantaged projects promoting 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.
RISK MANAGEMENT
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. 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, compliance risk, strategic risk, reputational risk, and
operational risk related to its employees, systems and
vendors, 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 incur litigation and negative regulatory consequences,
and suffer unexpected losses that could affect its financial
condition or results of operations.
— 166 —
Executive Officers
RICHARD K. DAVIS
Mr. Davis is Chairman and Chief Executive Officer of
U.S. Bancorp. Mr. Davis, 58, has served as Chairman of
U.S. Bancorp since December 2007 and as Chief Executive
Officer since December 2006. He also served as President
from October 2004 until January 2016, and 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, 55, 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 President and Chief Operating Officer of
U.S. Bancorp. Mr. Cecere, 55, has served in this position
since January 2016. From January 2015 to January 2016, he
served as U.S. Bancorp’s Vice Chairman and Chief Operating
Officer, and from February 2007 to January 2015, he served
as U.S. Bancorp’s Vice Chairman and Chief Financial Officer.
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, 52, 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, 54, 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, 59, 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.
LESLIE V. GODRIDGE
Ms. Godridge is Vice Chairman, Wholesale Banking, of U.S.
Bancorp. Ms. Godridge, 60, has served in this position since
January 2016. From February 2013 until December 2015, she
served as Executive Vice President, National Corporate
Specialized Industries and Global Treasury Management, of
U.S. Bancorp. From February 2007, when she joined U.S.
Bancorp, until January 2013, Ms. Godridge served as
Executive Vice President, National Corporate and Institutional
Banking, of U.S. Bancorp. Prior to that time, she served as
Senior Executive Vice President and a member of the
Executive Committee at The Bank of New York, where she
was head of BNY Asset Management, Private Banking,
Consumer Banking and Regional Commercial Banking from
2004 to 2006.
JAMES B. KELLIGREW
Mr. Kelligrew is Vice Chairman, Wholesale Banking, of U.S.
Bancorp. Mr. Kelligrew, 50, has served in this position since
January 2016. From March 2014 until December 2015, he
served as Executive Vice President, Fixed Income and Capital
Markets, of U.S. Bancorp, having served as Executive Vice
President, Credit Fixed Income, of U.S. Bancorp from May
2009 to March 2014. Prior to that time, he held various
leadership positions with Wells Fargo Securities from 2003 to
2009, and with Bank of America Securities from 1993 to
2003.
— 167 —
SHAILESH M. KOTWAL
Mr. Kotwal is Vice Chairman, Payment Services, of U.S.
Bancorp. Mr. Kotwal, 51, has served in this position since
joining U.S. Bancorp in March 2015. From July 2008 until
May 2014, he served as Executive Vice President of TD Bank
Group with responsibility for retail banking products and
services and as Chair of its enterprise payments council.
From 2006 until 2008, he served as President, International,
of eFunds Corporation. Previously, Mr. Kotwal served in
various leadership roles at American Express Company from
1989 until 2006, including responsibility for operations in
North and South America, Europe and the Asia-Pacific
regions.
P.W. PARKER
Mr. Parker is Vice Chairman and Chief Risk Officer of
U.S. Bancorp. Mr. Parker, 59, 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, 68, 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.
KATHERINE B. QUINN
Ms. Quinn is Executive Vice President and Chief Strategy and
Reputation Officer of U.S. Bancorp. Ms. Quinn, 51, has
served in this position since joining U.S. Bancorp in
September 2013 and has served on U.S. Bancorp’s
Managing Committee since January 2015. From September
2010 until January 2013, she served as Chief Marketing
Officer of WellPoint, Inc. (now known as Anthem, Inc.), having
served as Head of Corporate Marketing of WellPoint from July
2005 until September 2010. Prior to that time, she served as
Chief Marketing and Strategy Officer at The Hartford from
2003 until 2005.
KATHLEEN A. ROGERS
Ms. Rogers is Vice Chairman and Chief Financial Officer of
U.S. Bancorp. Ms. Rogers, 50, has served in this position
since January 2015. From June 2005 until January 2015, she
served as U.S. Bancorp’s Executive Vice President, Business
Line Reporting and Planning, having served in various financial
roles at U.S. Bancorp since joining the Company in 1987.
MARK G. RUNKEL
Mr. Runkel is Executive Vice President and Chief Credit
Officer of U.S. Bancorp. Mr. Runkel, 39, 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, 58, 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, 50, 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.
— 168 —
Directors
RICHARD K. DAVIS1,6
Chairman and Chief Executive Officer
U.S. Bancorp
DOUGLAS M. BAKER, JR.1,5,6
Chairman and Chief Executive Officer
Ecolab Inc.
(Cleaning and sanitizing products)
WARNER L. BAXTER3,4
Chairman, President and Chief Executive Officer
Ameren Corporation
(Energy)
ARTHUR D. COLLINS, JR.1,2,5
Retired Chairman and Chief Executive Officer
Medtronic, Inc.
(Medical device and technology)
OLIVIA F. KIRTLEY2,6
Business Consultant
(Consulting)
KAREN S. LYNCH4,6
President
Aetna Inc.
(Healthcare benefits)
DAVID B. O’MALEY1,2,5
Retired Chairman, President and Chief Executive Officer
Ohio National Financial Services, Inc.
(Insurance)
O’DELL M. OWENS, M.D., M.P.H.2,4
Medical Director
Cincinnati Health Department
(Government)
KIMBERLY J. HARRIS1,4,5
President and Chief Executive Officer
Puget Energy, Inc. and Puget Sound Energy, Inc.
(Energy)
CRAIG D. SCHNUCK5,6
Former Chairman and Chief Executive Officer
Schnuck Markets, Inc.
(Food retail)
ROLAND A. HERNANDEZ1,3,4
Founding Principal and Chief Executive Officer
Hernandez Media Ventures
(Media)
PATRICK T. STOKES1,5,6
Former Chairman and Former Chief Executive Officer
Anheuser-Busch Companies, Inc.
(Consumer products)
SCOTT W. WINE2,3,4
Chairman and Chief Executive Officer
Polaris Industries, Inc.
(Motorized products)
DOREEN WOO HO3,6
Commissioner
San Francisco Port Commission
(Government)
JOEL W. JOHNSON3,6
Retired Chairman and Chief Executive Officer
Hormel Foods Corporation
(Consumer food products)
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
— 169 —
The Power of
Possible
Make Possible Happen
At U.S. Bancorp, we are in the
business of making possible
happen. It’s what motivates
our retail, small business,
wholesale and institutional
customers and our communities.
It’s what drives success for
our company, employees and
shareholders. There’s great
power in possible, and we live it
every day, in everything we do.
Because when we invest in the
power of possible, we all win.
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 shareholder 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)
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 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
Center 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.
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Financial Information
Diversity and Inclusion
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 and
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
Dana E. Ripley
Senior Vice President
Corporate Communications
dana.ripley@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.
At U.S. Bancorp, embracing diversity
and fostering inclusion are business
imperatives. We view everything we do
through a diversity and inclusion lens
to deepen our relationships with our
stakeholders: our employees, customers,
shareholders and communities.
Our 67,000 employees bring their
whole selves to work. We respect and
value each other’s differences, strengths
and perspectives, and we strive to
reflect the communities we serve. This
makes us stronger, more innovative
and more responsive to our diverse
customers’ needs.
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.
Code of Ethics
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.
At U.S. Bancorp, our commitment to
high ethical standards guides everything
we do. Demonstrating this commitment
through our words and actions is how
each of us does the right thing every
day for our customers, shareholders,
communities and each other. Our style of
ethical leadership is why we were named
a World’s Most Ethical Company in 2015
by the Ethisphere Institute.
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 then
Investor Relations.
U.S. Bank, Member FDIC
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USBANK.COM
U.S. Bancorp
800 Nicollet Mall
Minneapolis, MN 55402
2015 Annual Report
Connections Ethics Goals Growth Hope Ideas Innovation Integrity Knowledge Progress Security