800 Nicollet Mall
Minneapolis, MN 55402
800.USBANKS (872.2657)
usbank.com
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A N N U A L R E P O R T
We’re there,
from anywhere
Corporate Information
Executive Offces
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 company. Inquiries related to
shareholder records, stock transfers,
changes of ownership, lost stock
certifcates, changes of address
and dividend payment should be
directed to the transfer agent at:
Computershare
P.O. Box 505000
Louisville, KY 40233
Phone: 888.778.1311 or
201.680.6578 (international calls)
computershare.com/investor
Registered or Certifed Mail:
Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202
Telephone representatives are available
weekdays from 8 a.m. to 6 p.m., Central
Time, and automated support is available
24 hours a day, seven days a week.
Specifc 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
fnancial 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.
Investor Relations Contact
Jennifer A. Thompson, CFA
Executive Vice President
Investor Relations
jen.thompson@usbank.com
Phone: 612.303.0778 or 866.775.9668
Financial Information
U.S. Bancorp news and fnancial results are
available through our website and by mail.
Website: For information about
U.S. Bancorp, including news, fnancial
results, annual reports and other
documents fled with the Securities
and Exchange Commission, visit
usbank.com and click on About Us.
Mail: At your request, we will mail to you
our quarterly earnings, news releases,
quarterly fnancial 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
David R. Palombi
Global Chief Communications Offcer
Public Affairs and Communications
david.palombi@usbank.com
Phone: 612.303.3167
Privacy
U.S. Bancorp is committed to
respecting the privacy of our customers
and safeguarding the fnancial 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.
Accessibility
U.S. Bancorp is committed to providing
ready access to our products and services
so all of our customers, including people
with disabilities, can succeed fnancially.
To learn more, visit usbank.com and click
on Accessibility.
Code of Ethics
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 ethical culture has
been recognized by the Ethisphere®
Institute, which again named us to its
World’s Most Ethical Companies® list.
Each year, every employee certifes
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 Us and then Investor
Relations and then Corporate Governance.
Diversity, Equity and Inclusion
At U.S. Bancorp, embracing diversity,
championing equity and fostering
inclusion are business imperatives.
We view everything we do through
a diversity, equity and inclusion lens
to deepen our relationships with our
stakeholders: our employees, customers,
shareholders and communities.
Our employees bring their whole selves to
work. We respect and value each other’s
differences, strengths and perspectives,
and we strive to refect the communities
we serve. This makes us stronger,
more innovative and more responsive
to our diverse customers’ needs.
Equal Opportunity
and Affrmative 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, creed, citizenship, 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 company 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.
©2021 U.S. Bancorp
Fellow
shareholders:
For the past several years, we
focused our time and attention
on addressing the opportunities
and challenges created by the
unprecedented pace of change
and disruption occurring in our
industry. Changing consumer
behaviors, expectations and
preferences caused us to rethink
everything we do. New and
evolving competition prompted us
to pursue partnerships and drive
for growth and scale with renewed
urgency. What’s more, the need to
integrate advancing technology,
build relationships, and empower
our culture to continue to meet
the wants and needs of customers
pushed us to be more agile
and innovative.
As a result, we are more
digitally enabled, resilient and
focused than ever before.
That groundwork was essential
as we entered 2020, which was
a year unlike any other. It began
with words like “opportunity”
and “momentum.” We were
focused on executing a solid,
well-constructed plan and
continuing to deliver on our
longstanding tradition of
excellence. We had all the
right elements to succeed:
dedicated leaders, a capable
team, a strong culture, loyal
customers, diverse businesses,
and a solid fnancial foundation.
Andy Cecere
Chairman, President
and Chief Executive Offcer
1
That foundation enabled us to
continue to execute on our long-
term strategy even as the words
“unprecedented” and “uncertain
times” entered the mainstream. A
global pandemic turned economic
tailwinds into headwinds. Starting
in the second quarter of the year,
gross domestic product collapsed
at an historic rate and partially
rebounded, unemployment
rose, consumer spending
dropped signifcantly, and the
industry booked near-record
loan-loss provisions.
The value of our diversifed
business model was evident
during this time. We reported
record revenues in 2020 despite
a challenging interest rate
environment that pressured
net interest income, and even
though we saw a signifcant drop
in consumer spending activity.
Similarly, although our payments
business was affected by reduced
consumer spending in some of
the hardest-hit categories like
airlines, travel and hospitality, we
had exceptionally strong results in
mortgage banking and commercial
products to help offset the impact.
We are proud of our response
to the pandemic and the related
economic situation. We kept
people healthy and safe while
managing our business well, and
we helped our customers navigate
the pandemic by providing access
to capital, assisting them as they
secured Paycheck Protection
Program (PPP) loans or modifying
loan terms. We developed new
muscle around being fexible,
adaptable and agile – and the way
we were able to approach this
moment in history says a lot about
our company, our culture and
our team. We emerged stronger
together, and I am grateful to our
employees for their fexibility
and resilience.
This past year also brought about
a recommitment to diversity,
equity and inclusion, as the call for
a renewed focus on social justice
hit home in Minneapolis, our
headquarters market. The tragic
death of George Floyd and the
civil unrest that followed changed
the conversation. In the weeks
after these events, we made
multimillion dollar commitments
to address economic and racial
inequities, pledged to double our
partnerships with Black-owned
suppliers in 12 months, and
announced our intention to not
only remain in the communities
that were hardest hit by the unrest
but to rebuild in areas where
our branches were damaged or
destroyed. We also stepped up
our efforts internally to attract,
retain and promote people of
color to leadership roles, increase
awareness of racial issues, and
encourage community involvement
in measurable ways. Addressing
these challenging issues will
take every one of us, and we are
invested in that shared future.
It is safe to say that expectations
have changed, whether they
are focused on corporate social
responsibility or how people want
to do business with the companies
with whom they interact.
The good news is we are ready.
The steps we took during the past
three years positioned us well
for what became inevitable as
economies shut down. Our digital
capabilities enabled us to convert
face-to-face interactions to online
“World’s Most Ethical Companies” and
“Ethisphere” names and marks are
registered trademarks of Ethisphere LLC.
2 U.S. Bancorp 2020 Annual Report | usbank.com /AR20
or virtual ones. Our workplace
collaboration efforts allowed us
to maintain business continuity.
Our money movement solutions
met the need as cash transactions
slowed. Our agile transformation
made it possible for us to develop
just-in-time products and services
that would have taken years to
develop before.
In fact, approximately three-
quarters of our customers
are digitally active across our
mobile and online channels
today. About 56 percent of
our loan sales and roughly 77
percent of our transactions now
take place in a digital way. We
believe our opportunity lies in
the successful combination of
people and technology to serve
our customers. The changes we
are making within our branch
network refect this reality. We
still see considerable traffc in
our branches, proving they are
important – however, the future
branch will have a different
footprint and more of an emphasis
on advice and counsel.
Moving forward, we will continue
to invest in our digital platforms,
offering customers do-it-yourself
(DIY) and do-it-together (DIT)
solutions to meet their needs.
We will continue to leverage our
payments ecosystem, and we
will deliver products and services
with a focus on the unique needs
of individual customer segments.
We will emphasize speed,
convenience and simplicity, and
we will responsibly leverage data
and analytics to be able to be
there in the moments that matter
most for our customers. Our focus
is on meeting them when, where
and how they want, which enables
us to create value and drive
sustainable growth.
Of course, all of this is possible
because of our employees –
who are second to none in their
commitment, dedication and
professionalism. To all my fellow
U.S. Bankers, I say, simply:
“Thanks for all you do.”
Andy Cecere
Chairman, President and
Chief Executive Offcer,
U.S. Bancorp
February 23, 2021
We anticipate many of the
changes we have seen as a result
of the pandemic and upheaval
of 2020 will continue as a new
normal. We expect work will
look different. There will be more
industry disruption. Banking will
be accessed in more customer-
driven ways through the channels
customers prefer, and digital will
be more important. Relationships
will be core to success, and the
companies who thrive will be the
ones – like us – that move quickly,
strategically and responsibly
toward the future.
Although the year brought
uncertainty and change, we are
proud of our efforts and believe
we are on a course for an even
stronger future. We remain a
World’s Most Ethical Company
and one of the highest-rated banks
in the world. Our balance sheet is
healthy and strong, and our leaders
are dedicated to helping our
customers succeed, today
and in the years to come.
3
Financial highlights
Net Income Attributable
to U.S. Bancorp (in millions)
Diluted Earnings
per Common Share
Dividends Declared
per Common Share
Return on
Average Assets
Return on Average
Common Equity
Dividend Payout Ratio
Net Interest Margin (a)
Effciency Ratio (b)
Common Equity
Tier 1 Capital (c)
Average Assets
(in millions)
Average U.S. Bancorp
Shareholders’ Equity (in millions)
Total Risk-Based Capital (c)
(a) Taxable-equivalent basis based on federal income tax rates of 21 percent for 2020, 2019 and 2018 and 35 percent for 2017 and 2016, for those assets and liabilities whose income or expense is
not included for federal income tax purposes.
(b) See Non-GAAP Financial Measures beginning on page 64.
(c) Calculated under the Basel III standardized approach.
4 U.S. Bancorp 2020 Annual Report | usbank.com /AR20
Financial summary
Year Ended December 31
(Dollars and Shares in Millions, Except Per Share Data)
2020
2019
2018
2020
v 2019
2019
v 2018
$12,919
116
13,035
9,602
22,637
12,464
1,379
1,670
7,124
(28)
$7,096
$6,784
$4.15
4.14
1.34
28.01
45.70
1,634
1,638
Net interest income.............................................................................
Taxable-equivalent adjustment(a) .........................................................
Net interest income (taxable-equivalent basis)(b) .............................
Noninterest income ............................................................................
Total net revenue ..............................................................................
Noninterest expense ...........................................................................
Provision for credit losses...................................................................
Income taxes and taxable-equivalent adjustment ..............................
Net income .......................................................................................
Net (income) loss attributable to noncontrolling interests................
$12,825
99
12,924
10,401
23,325
13,369
3,806
1,165
4,985
(26)
$13,052
103
13,155
9,831
22,986
12,785
1,504
1,751
6,946
(32)
Net income attributable to U.S. Bancorp ........................................
$4,959
$6,914
Net income applicable to U.S. Bancorp common shareholders .....
$4,621
$6,583
Per Common Share
Earnings per share ..............................................................................
Diluted earnings per share ..................................................................
Dividends declared per share..............................................................
Book value per share(c) ........................................................................
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) ..................................
Effciency ratio(b)...................................................................................
$3.06
3.06
1.68
31.26
46.59
1,509
1,510
$4.16
4.16
1.58
29.90
59.29
1,581
1,583
.93%
10.0
2.68
57.8
1.45%
14.1
3.06
55.8
1.55%
15.4
3.14
55.1
Average Balances
Loans................................................................................................... $307,269
Investment securities(d) ........................................................................
125,954
481,402
Earning assets.....................................................................................
531,207
Assets .....................................................................................................
398,615
Deposits ..............................................................................................
52,246
Total U.S. Bancorp shareholders’ equity.............................................
$290,686
117,150
430,537
475,653
346,812
52,623
$280,701
113,940
415,067
457,014
333,462
49,763
Period End Balances
Loans ...................................................................................................... $297,707
8,010
Allowance for credit losses .................................................................
136,840
Investment securities ..........................................................................
553,905
Assets .....................................................................................................
429,770
Deposits ..............................................................................................
53,095
Total U.S. Bancorp shareholders’ equity.............................................
$296,102
4,491
122,613
495,426
361,916
51,853
$286,810
4,441
112,165
467,374
345,475
51,029
Capital Ratios
Common equity tier 1 capital ..............................................................
Tier 1 capital........................................................................................
Total risk-based capital .......................................................................
Leverage..............................................................................................
Total leverage exposure.......................................................................
Tangible common equity to tangible assets(b) .....................................
Tangible common equity to risk-weighted assets(b) ............................
Common equity tier 1 capital to risk-weighted assets, refecting the full
9.7%
9.1%
9.1%
11.3
13.4
8.3
7.3
6.9
9.5
10.7
12.7
8.8
7.0
7.5
9.3
10.7
12.6
9.0
7.2
7.8
9.4
implementation of the current expected credit losses methodology(b) ...
9.3
(1.7)%
(3.9)
(1.8)
5.8
1.5
4.6
153.1
(33.5)
(28.2)
18.8
(28.3)
(29.8)
(26.4)%
(26.4)
6.3
4.5
(21.4)
(4.6)
(4.6)
5.7%
7.5
11.8
11.7
14.9
(.7)
.5%
78.4
11.6
11.8
18.7
2.4
1.0%
(11.2)
.9
2.4
1.5
2.6
9.1
4.9
(2.5)
(14.3)
(2.6)
(3.0)
.2%
.5
17.9
6.7
29.7
(3.2)
(3.4)
3.6%
2.8
3.7
4.1
4.0
5.7
3.2%
1.1
9.3
6.0
4.8
1.6
(a) Based on a federal income tax rate of 21 percent for those assets and liabilities whose income or expense is not included for federal income tax purposes.
(b) See Non-GAAP Financial Measures beginning on page 64.
(c) Calculated as U.S. Bancorp common shareholders’ equity divided by common shares outstanding at end of the period.
(d) 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.
5
Always
there
Late in 2020, “pandemic” was declared a
word of the year. It was a ftting choice as
COVID-19 disrupted everything from how
we behaved to how we worked to how we
interacted with each other. At U.S. Bank,
the pandemic required us to answer new
questions, the biggest being: How can we
help our customers navigate these times?
Can we help a business access a
line of credit? Can we help someone
get access to their stimulus money?
Can we help the small businesses in
our communities access a PPP loan?
Can we modify a mortgage or provide
investment counsel? Could we do all of
this, while providing safe environments
and more contactless payment
capabilities for our customers and
employees? Over and over again, the
answer was an unquestionable “Yes.”
6 U.S. Bancorp 2020 Annual Report | usbank.com /AR20
108K
We helped obtain
Paycheck Protection
Program loans for
more than 108,000
small businesses.
Helping each other
and our communities
In addition to working her normal
hours on the retail payments
team in Idaho, U.S. Bank
employee, Dusti Bacon,
volunteered nearly 2,000 hours
last year sewing and donating
more than 7,900 masks.
As the dust settles from a challenging 2020, we remember the tenacity
and fexibility of our employees and how they put our customers frst.
They did it while wearing masks, social distancing, and juggling work
and home life.
We demonstrated once again that we can retain what has always
made us strong – our unique business mix, risk management and
culture – while also accelerating the pace of change, growing at scale,
and most importantly, always being there for our customers.
The resolve of our employees is what powers us. It also propels
us forward, allowing us to help customers, build communities,
engage employees and deliver value to our shareholders even
in a challenging environment.
Reliable
The way our teams showed up every day didn’t go unnoticed.
Consumers interviewed by The Harris Poll ranked us as America’s
most essential bank during COVID-19. The Ethisphere® Institute
named us to the list of World’s Most Ethical Companies® for the
seventh consecutive year.
We have long said that we manage for both the short- and the
long-term and that U.S. Bank is built to weather the harsh conditions.
That was clear both through COVID-19 and as evidenced in annual
federal stress test simulations. Our fnancial results refected a
smart and diverse business mix that produced returns in ideal
and unfavorable conditions.
Flexible
At the onset of the pandemic, we stood ready to help. We quickly
mobilized and pivoted to support our customers and clients.
We introduced several changes to allow forbearance or other payment
relief as well as pricing fexibility on our products and services to make
them more affordable and accessible to customers experiencing
fnancial stress. We also expanded existing hardship assistance
programs, while making them more accessible through the ability
to request assistance online as well as by phone.
Once the federal government launched the Paycheck Protection
Program, our teams worked round-the-clock to help long-standing
and new customers get access to crucial funds. All told, we helped
more than 108,000 small businesses obtain $7.5 billion in loans, meaning
thousands of their employees avoided the loss of paychecks. We also
helped a record number of customers refnance their mortgages or
become homeowners for the frst time.
We were also there for corporate and commercial clients when they
needed us most and saw record volumes and market share gains
throughout our Fixed Income and Capital Markets businesses. And we
provided research, timely insights and other educational resources to
help keep our clients’ wealth management plans on track.
7
77%
By the end of 2020, more
than 77% of all consumer
transactions were
completed digitally.
New features added
to the U.S. Bank
Mobile App include:
• Bank by voice
• Appointment setting
• More personalized insights
Innovative
When the pandemic began, many
of us changed how much we
left the house. Fortunately, our
investments in digital during the
past few years put us in a strong
position to help customers bank
from home. Virtually overnight,
customers shifted their behavior
and took advantage of our digital
tools at an expedited rate. These
investments in our mobile app,
digital capabilities and Agile
development teams were critical
to our COVID-19 response.
By the end of 2020, more than
77% of transactions and more
than half of loan applications were
completed digitally. In addition,
our Paycheck Protection Program
digital application was built
from an existing all-digital small
business lending platform.
Our mobile app, which was
ranked No. 1 in customer service
features by Business Insider
Intelligence, is more than just a
transaction tool. By year-end, we
provided more than 1.6 billion
fnancial insights to U.S. Bank
Mobile App users.
For more complicated banking
transactions and for customers
who wanted assistance in
accessing our digital tools,
we created and launched Do It
Together experiences, where
a banker and customer can
work together while not being
physically in the same place.
Although many activities moved
digitally – including our virtual
shareholder meeting and our
summer internship program –
banking remains an essential
business that requires some
in-person activity. We value
these customer experiences,
and we moved swiftly to make
in-person banking safer by
relying on drive-thru lanes for
many transactions and by adding
personal protection equipment
to our facilities. We recognized
the efforts of our front-line
and offce critical employees
and provided them with pay
incentives during the year.
8 U.S. Bancorp 2020 Annual Report |
usbank.com /AR20
There for
everyone
“We do the right thing” leads our core values.
The culture we built and nurture is the reason
we were able to successfully navigate the events
of 2020 and emerge even stronger.
Our strength affords us the courage to be
uncomfortable and examine areas where we
can grow and implement meaningful change.
U.S. Bank customer
Houston White at work
in his barbershop, HWMR.
9
“ We have to create
opportunities that
bridge gaps, that
generate economic
prosperity, and that
allow people to achieve
their potential.”
Diversity, equity
and inclusion
When George Floyd was killed
in police custody last May, just
four miles from our Minneapolis
headquarters, it sparked
worldwide civil unrest and a call
for lasting change. The weeks
and months that followed further
inspired organizations and
people to take a hard look at
solving systemic economic
and racial inequities.
Our response was actionable
and came directly from our CEO:
“If we are truly going to draw
strength from diversity, we have
to do better. We have to create
opportunities that bridge gaps,
that generate economic
prosperity, and that allow people
to achieve their potential.”
Long ago, we committed to
making our company more
diverse, equitable and inclusive.
We’ve since taken a stand and
expanded our efforts.
A sample of our 2020
action includes:
• We continued to actively work
to expand supplier diversity,
recruitment and leadership
development programs and
were recognized on several
diversity lists for this work
including Top 50 Companies
for Diversity.
• We committed to doubling
Black suppliers and allocated
$100 million in annual capital
and $16 million in grants to
support Black-owned or -led
businesses, housing and
workforce advancement.
• Our chief diversity offcer
moved onto the managing
committee, joining our most
senior leaders reporting to
our CEO.
Pride and inclusion
With more than 100 million
transactions, our LGBTQ+
community-inspired debit card
design is a symbol of pride
and support for more than
250,000 customers.
The Contactless Symbol and Contactless
Indicator are trademarks owned and used
with the permission of EMVCo, LLC.
10 U.S. Bancorp 2020 Annual Report
| usbank.com /AR20
Inclusive banking
Access to banking remains a key priority for us. Whether assisting people
with visual impairments or fnding solutions for underserved groups, we’re
making banking all inclusive.
The U.S. Bank Smart Assistant – voice technology in the U.S. Bank Mobile
App that creates an experience akin to an interaction with a banker – was
created and shaped with the help of vision-impaired users. Great care was
also taken to minimize cognitive burden by using common language.
El Asistente Inteligente de U.S. Bank pronto estará disponible en español.
As we make fnancial education more accessible, we also seek to better
understand the relationships between money and specifc demographics.
In our commissioned U.S. Bank Women and Wealth Insights Study, we
learned more about how we can help women harness their power and
infuence to close the gender wealth gap. A similar study about building
Black wealth launched earlier this year and will help us gain more necessary
knowledge to help close the racial wealth gap that exists in this country.
TOP 50
DiversityInc named
us to their Top 50
Companies for Diversity.
U.S. Bank employee and
accessibility consultant Christina
Granquist, who is blind herself,
helped design the new voice
assistant in our mobile app.
There for our customers
After the civil unrest damaged
a branch in Minneapolis over
the summer, we set up the
U.S. Bank Mobile Banking Unit
to ensure customers
had uninterrupted access
to banking services.
11
$10.7B
We’ve fnanced $10.7
billion in solar projects
through our Community
Development Corporation.
Sustainability practices
We believe that being good stewards of the environment is integral
to both the success of our business and our collective future.
During the past decade, we worked diligently to reduce our operational
greenhouse gas emissions through investments in advancing solar
energy, partnerships with local utilities to purchase renewable energy,
and improving the energy effciency of our buildings.
A sample of our work in 2020 includes:
We are proud to have reached our frst greenhouse gas emissions
reduction target 10 years ahead of schedule.
We were named to the CDP A List for tackling climate change.
Only 5% of global companies assessed earned this grade.
Through our Community Development Corporation, we’ve
fnanced $10.7 billion in solar projects – that’s more than
15% of all solar investment in the United States – since 2011.
We’re encouraging shareholders to opt in to electronic
delivery of the Annual Report and Proxy.
Visit http://enroll.icsdelivery.com/usb to opt in.
Learn more about
our ESG commitment
To learn more, please read
our Environmental, Social
and Governance (ESG) Report,
where we connect long-term
value creation to our
company’s core values at
usbank.com/ESG2020.
12 U.S. Bancorp 2020 Annual Report | usbank.com /AR20
Future
focused
What will banking look like in 25, 10 or even two years? The only
thing we know with certainty is that people and the movement
of money will be involved. Beyond that, our goal is to be there for
our customers.
Investments and optimization
To be there for our customers means imagining and creating the banking experiences they may not
yet even know they want. As we think about the branch of the future – which we’re well on our way to
achieving – we’re tailoring physical locations based on customer behavior. That means optimizing an
in-person experience that is more about fnancial conversations and strategy than transactions.
Whether a customer chooses to bank in person, digitally or a combination of both, we’re thoughtful in
how best to create a personalized experience for our customers to bank where, when and how they want.
We know this combination of our people and digital tools sets us apart and is a key to our future success.
13
“ Relationships will be
the core to success,
and the companies who
thrive will be the ones
– like us – that move
quickly, strategically
and responsibly
toward the future.”
Andy Cecere
Chairman, President
and Chief Executive Offcer
Good neighbors –
and good partners
In a strategic alliance that
extends our customer reach,
we paired with State Farm to
bring our deposit products
and co-branded credit cards
to their customers.
Newer, better, faster
We continued to grow our business by bringing to market technology
and solutions to help our customers bank when, where and how they
want and then adjust as their preferences change.
• To grow our payments business
in Europe, we acquired digital
payment provider Opayo® .
• For our supply chain
customers, we launched
new tools including Quick
Pay and Cash Manager.
• Our business customers
now have clearer visibility into
how their complex treasury
implementations progress
with our award-winning
Onboarding Tracker.
• The U.S. Bank Instant Card™
provides a solution for
companies so employees
without a corporate credit card
can make business purchases.
• Businesses managing cash
fow beneft from the speed
and availability from our
Everyday Funding service.
• Customers started earning
credit card rewards on
emerging categories like food
delivery and streaming with our
new Altitude® Go card, and we
made it easier to apply for new
cards with Text-to-Apply.
• The U.S. Bank Global Currency
Management solution launched,
offering institutional investors a
highly automated and scalable
solution for optimizing
currency management.
• We built out our environmental,
social and governance (ESG)
capabilities for both issuer
and investor clients with a
full range of advisory and
fnancing options.
• Our new VantagePoint™
Accounts Receivable Matching
creates effciency for businesses
by automatically pairing an
incoming payment with an
existing invoice.
14 U.S. Bancorp 2020 Annual Report | usbank.com /AR20
Early adoption
We continue to adopt new technologies in banking. We invested in the new
Akoya Data Access Network and became the frst bank to integrate with
the company, giving our customers a more secure way to link their data 9X
with their favorite third-party apps, as well as more control over their data.
In 2020, customers
engaged with us
digitally nine times
more than in person.
Our 5-star app
The U.S. Bank Mobile App has
been rated 5 out of 5 stars by
over one million users.
We have a history of frsts in fnancial services. We were the frst to sign
on with Zelle® and the frst to integrate with all three digital assistants as
well as enable Apple Pay®, Google Pay™ and Samsung Pay®. We’re able to
be frst because we know our success in the future all begins today.
Reusability
An emphasis on reusable technology is core to our strategy. When we
create platforms and tools with reusability in mind, we’re able to provide
a consistent experience for customers and exponentially save on time
and money.
The fruits of this forward thinking allow us to respond to a competitive
marketplace quickly and lead in times of change – to get new features
into customers’ hands faster.
We have a team solely tasked to fnd ways to repurpose technology and
they are already delivering impressive results:
Cloud Apply
As a bank, application forms are necessary. For consumers,
they can be tedious. We overhauled our consumer checking
application process to dramatically reduce the number of felds
and make them simpler. This yielded a nearly 200% increase
year-over-year in account openings, and we will be scaling this
reusable technology across the organization.
ReliaCard® App
We launched a new prepaid mobile app by repurposing the
U.S. Bank Mobile App components – saving both cost and
valuable time to deliver a powerful tool that more than a dozen
states use to disburse unemployment assistance funds.
Pivot™ App
We launched our new Pivot App which provides comprehensive
data, fles and reports for Investment Services clients on the
go – built in-house and released in just three months by re-using
the U.S. Bank Mobile App platform.
Online banking
We released our reimagined online banking experience,
which takes the best of the mobile app and brings it to the
web interface.
Zelle is a registered trademark of Early Warning Services, LLC. Apple, Siri and Apple Pay are registered trademarks of Apple Inc. Google,
Google Pay and Google Home are trademarks of Google LLC. Samsung Pay is a registered trademark of Samsung Electronics Co., Ltd.
15
Environmental, social, governance
This year we are pleased to release our frst annual Environmental, Social and
Governance (ESG) Report. Throughout the report, we connect long-term value creation
to our company’s core values as we address the business risks and opportunities
presented by key environmental, social and governance issues. The report focuses
on fve ESG topics:
Ethics and business conduct
Every business decision we make begins and ends with our commitment to ethics, to doing the
right thing. Ethical behavior is at the core of our culture. We know we need to work at it daily, in both big and
small ways. At a time when our industry is experiencing rapid change and managing unprecedented challenges,
our commitment to ethics is a powerful constant in our culture and is continually reinforced from the very top
of our company.
Data protection and privacy
By appropriately safeguarding data, we head off threats to information security and respect our
customers’ privacy rights. We are committed to protecting the confdentiality, integrity, availability and privacy
of customer data. Through clear and easily accessible policies, we tell our customers and online visitors why
we collect information from them, how we will use it, and with whom we will share it. We also provide ongoing
education and training to our employees and partners to ensure there are clear expectations on implementing
and maintaining security and privacy technology and processes that protect our customers.
Workforce of the future
We can’t meet the needs of our customers unless we frst meet the needs of our employees and
provide them with the tools, resources and support they need to do their best work. A diverse,
equitable and inclusive workplace that effectively builds talent is essential to our long-term success.
With nearly 70,000 employees in the United States and abroad, we recognize that talent is our greatest asset
and the key to our future success. We are constantly investing to develop a diverse, skilled and engaged
workforce that will support our growth.
Financial well-being and inclusion
We seek to strengthen our communities by improving the fnancial well-being of our customers and
expanding access to the fnancial services that power potential. Improving the fnancial well-being of our
customers, communities and employees is core to the work we do and an investment in our collective future.
Through programs and products that expand access to fnancial education and services, we help build a path
toward increased fnancial security for our customers and communities.
Climate change impact
We are working to stay ahead of the risks climate change poses to our business through sound strategy
and risk management, while we also help our customers seize the opportunities of a green economy.
We have always believed that running our business in an environmentally sustainable manner is an important
component of corporate responsibility. As society’s understanding of the wide-ranging impacts of climate change
has evolved, however, so too has our understanding of the effects a changing climate can have on our business.
We have taken steps to enhance how we assess the fnancial and reputational risks climate change poses to our
company, and we have also begun to focus more on opportunities presented by a changing economy.
16 U.S. Bancorp 2020 Annual Report
Read the full report at: usbank.com/ESG2020
Community investments
At U.S. Bank, we proudly invest in our community. Our 2020 investments include:
275,000
fnancial education
modules
$1.9B
in Small Business
Administration loans
$6.2B
loaned and invested to
revitalize communities
(including PPP loans)
$67M
in corporate
contributions and
foundation giving
$30M
to support
COVID-19 relief and
recovery efforts
80%
approximate number of
PPP loans to businesses
with <10 employees
$39.7B
$50M
$116M
invested in
environmentally benefcial
business since 2008
in capital to CDFIs
for Small Business
Administration PPP funding
in annual, incremental
investments to address racial
and economic inequities
$171M
in American
Dream Home loans
$12M
donated through our
employee giving campaign
$560M+
in diverse
supplier spending
Learn more at: usbank.com/CIR2020
17
Managing Committee
Andrew Cecere
Chairman, President and
Chief Executive Offcer
Elcio R.T. Barcelos
Senior Executive Vice
President and Chief Human
Resources Offcer
James L. Chosy
Senior Executive
Vice President and
General Counsel
Gregory G. Cunningham
Senior Executive
Vice President and
Chief Diversity Offcer
Terrance R. Dolan
Vice Chair and
Chief Financial Offcer
Gunjan Kedia
Vice Chair, Wealth
Management and
Investment Services
James B. Kelligrew
Vice Chair, Corporate &
Commercial Banking
Shailesh M. Kotwal
Vice Chair,
Payment Services
Katherine B. Quinn
Vice Chair and Chief
Administrative Offcer
Jodi L. Richard
Vice Chair and
Chief Risk Offcer
Mark G. Runkel
Senior Executive Vice
President and Chief
Credit Offcer
Dominic V. Venturo
Senior Executive
Vice President and
Chief Digital Offcer
Jeffry H. von Gillern
Vice Chair, Technology
and Operations Services
Timothy A. Welsh
Vice Chair, Consumer
and Business Banking
18 U.S. Bancorp 2020 Annual Report | usbank.com /AR20
Board of Directors
Andrew Cecere
Chairman, President
and Chief Executive Offcer
Warner L. Baxter
Chairman, President and
Chief Executive Offcer,
Ameren Corporation
Dorothy J. Bridges
Former Senior Vice President,
Federal Reserve Bank
of Minneapolis
Elizabeth L. Buse
Former Chief Executive
Offcer, Monitise PLC
Marc N. Casper
Chairman, President and
Chief Executive Offcer,
Thermo Fisher Scientifc Inc.
Kimberly N. Ellison-Taylor
Executive Director of Finance
Thought Leadership,
Oracle Corporation
Kimberly J. Harris
Retired President and Chief
Executive Offcer,
Puget Energy, Inc.
Roland A. Hernandez
Founding Principal and
Chief Executive Offcer,
Hernandez Media Ventures
Olivia F. Kirtley
Business Consultant
(Lead Director)
Karen S. Lynch
President and Chief
Executive Offcer,
CVS Health Corporation
Richard P. McKenney
President and Chief Executive
Offcer, Unum Group
Yusuf Mehdi
Corporate Vice President,
Microsoft Corporation
John P. Wiehoff
Retired Chairman and
Chief Executive Offcer,
C.H. Robinson Worldwide, Inc.
Scott W. Wine
Chief Executive Offcer,
CNH Industrial N.V.
19
About us
U.S. Bancorp, with nearly 70,000 employees and $554 billion in assets as of
December 31, 2020, is the parent company of U.S. Bank National Association,
the ffth-largest commercial bank in the United States.
Founded in 1863, U.S. Bank is committed to serving
its millions of retail, business, wealth management,
payment, commercial, corporate, and investment
customers across the country and around the world
as a trusted and responsible fnancial partner.
This commitment continues to earn us a spot on the
Ethisphere Institute’s World’s Most Ethical Companies
list and puts U.S. Bank in the top 5% of global
companies assessed on the CDP A List for climate
change action. Visit usbank.com to learn more.
Revenue mix by business line
2020 taxable-equivalent basis. Business line revenue percentages exclude Treasury and Corporate Support.
•• Consumer and
Business Banking:
Branches; 24-hour customer centers;
mobile banking; online banking;
mortgages; consumer lending; ATM
and debit processing; workplace
banking; student banking
•• Payment Services:
Credit, debit, prepaid, virtual,
corporate, purchasing and feet
cards; global payment processing;
freight payment services; real time
payments; eCommerce
•• Corporate &
Commercial Banking:
Lending; asset based fnancing;
equipment fnance and small-ticket
leasing; correspondent banking;
depository services; capital markets;
international trade
•• Wealth Management
and Investment Services:
Wealth planning, investments, trust
services; private banking; specialty
asset management; global custody
solutions; global fund services; corporate
and institutional trust services
Our strategic pillars Our strategy is how we will grow; it comes to life by activating our pillars.
Being the Most
Trusted Choice
Driving One
U.S. Bank
Striving for
Simplicity
Creating the
Future Now
20 U.S. Bancorp 2020 Annual Report
usbank.com
The following pages discuss in detail the fnancial results we achieved in 2020 —
results that refect how we are creating the future now.
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. The
COVID-19 pandemic is adversely affecting U.S. Bancorp,
its customers, counterparties, employees, and third-party
service providers, and the ultimate extent of the impacts
on its business, fnancial position, results of operations,
liquidity, and prospects is uncertain. Continued
deterioration in general business and economic conditions
or turbulence in domestic or global fnancial markets
could adversely affect U.S. Bancorp’s revenues and the
values of its assets and liabilities, reduce the availability of
funding to certain fnancial institutions, lead to a tightening
of credit, and increase stock price volatility. In addition,
changes to statutes, regulations, or regulatory policies
or practices could affect U.S. Bancorp in substantial
and unpredictable ways. U.S. Bancorp’s results could
also be adversely affected by changes in interest rates;
further increases in unemployment 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 its investment securities; legal and regulatory
developments; litigation; increased competition from both
banks and non-banks; civil unrest; changes in customer
behavior and preferences; breaches in data security;
failures to safeguard personal information; 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 reputation risk.
Additional factors could cause actual results to differ
from expectations, including the risks discussed in
the “Corporate Risk Profle” section on pages 36 to 58
and “Risk Factors” section on pages 146 to 158 of this
report. In addition, factors other than these risks also
could adversely affect U.S. Bancorp’s results, and the
reader should not consider these risks 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.
22 Management’s Discussion and Analysis
22 Overview
24 Statement of Income Analysis
28 Balance Sheet Analysis
36 Corporate Risk Profle
36 Overview
37 Credit Risk Management
50 Residual Value Risk Management
50 Operational Risk Management
51 Compliance Risk Management
51 Interest Rate Risk Management
53 Market Risk Management
54 Liquidity Risk Management
57 Capital Management
58 Fourth Quarter Summary
60 Line of Business Financial Review
64 Non-GAAP Financial Measures
66 Accounting Changes
66 Critical Accounting Policies
68 Controls and Procedures
69 Reports of Management and
Independent Accountants
73 Consolidated Financial Statements and Notes
140 Five-Year Consolidated Financial Statements
142 Quarterly Consolidated Financial Data
143 Supplemental Financial Data
146 Company Information
159 Managing Committee
161 Directors
21
Management’s Discussion and Analysis
Overview
In 2020, U.S. Bancorp and its subsidiaries (the “Company”)
continued to demonstrate its financial strength despite significant
weakness in the domestic and global economies. The COVID-19
pandemic and the mitigation efforts put in place by companies,
consumers and governmental authorities to contain it created the
most severe negative impact to the domestic and global
economies since the Great Depression. These adverse economic
conditions moderated during the second half of 2020 as the
economies began to recover and unemployment began to
decline. Despite a challenging economic environment, the
Company’s diversified business mix generated healthy fee
revenue growth, capital and liquidity are in a strong position, and
the Company demonstrated strong discipline over its expense
growth while continuing to invest in digital capabilities and key
business initiatives to drive growth and improve efficiencies in the
future.
As a result of the economic challenges, the Company earned
$5.0 billion in 2020, a decrease of $2.0 billion (28.3 percent) from
2019, reflecting an increase in the provision for credit losses,
lower net interest income and higher noninterest expense,
partially offset by noninterest income growth. The increase in the
provision for credit losses was driven by unfavorable economic
conditions caused by the impact of COVID-19 on the domestic
and global economies. Net interest income decreased as a result
of lower interest rates, partially offset by changes in deposit and
funding mix, loan growth and higher loan fees. Noninterest
income increased due to significant growth in mortgage banking
revenue due to refinancing activities and strong growth in
commercial products revenue, partially offset by declines in
payment services revenue and deposit service charges due to
lower consumer and business spending. Noninterest expense
increased reflecting costs incurred related to the COVID-19
environment, an increase in revenue-related production expenses
and higher costs related to developing digital capabilities and
related business investment.
In 2020, the Company grew its loan portfolio and increased
deposits significantly. Average loan balances in 2020 increased
$16.6 billion (5.7 percent) over 2019 primarily due to higher
commercial loans, reflecting customer utilization of bank credit
facilities to support their liquidity requirements, loans made under
the Small Business Administration’s (“SBA”) Paycheck Protection
Program, growth in residential mortgages given the lower interest
rate environment, and higher commercial real estate loans. These
increases were partially offset by lower credit card loans driven by
a decline in consumer spending during the year, and lower other
retail loans. Average deposit balances in 2020 increased
$51.8 billion (14.9 percent) over 2019 primarily due to higher total
savings and noninterest-bearing deposit balances, partially offset
by lower time deposit balances. The growth in average total
savings and noninterest-bearing deposits was primarily a result of
actions taken by the federal government to increase liquidity in
the financial system, customers maintaining balance sheet
liquidity by utilizing existing credit facilities and government
stimulus programs.
The Company’s common equity tier 1 capital to risk-weighted
assets ratio, using the Basel III standardized approach was
9.7 percent at December 31, 2020. Refer to Table 23 for a
summary of the statutory capital ratios in effect for the Company
at December 31, 2020 and 2019. 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.
The Company’s financial strength, business model, credit
culture and focus on efficiency have enabled it to deliver solid
financial performance during the challenging economic
environment of 2020. Given the current economic environment,
the Company will continue to focus on managing credit losses
and operating costs, while also utilizing its financial strength to
grow market share. The Company believes it is well positioned for
long-term growth in earnings per common share and industry-
leading returns on assets and common equity. The Company
remains committed to delivering best-in-class products and
services and in 2021 will continue to invest in its digital
capabilities, technology and people to drive revenue growth and
efficiency improvement.
22
TABLE 1 Selected Financial Data
Year Ended December 31
(Dollars and Shares in Millions, Except Per Share Data)
Condensed Income Statement
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable-equivalent adjustment(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income (taxable-equivalent basis)(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes and taxable-equivalent adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total risk-based capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total leverage exposure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tangible common equity to tangible assets(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tangible common equity to risk-weighted assets(b) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common equity tier 1 capital to risk-weighted assets, reflecting the full
implementation of the current expected credit losses methodology(b)
. . . . . . . . . .
2020
2019
2018
2017
2016
$ 12,825
99
12,924
10,401
23,325
13,369
3,806
6,150
1,165
4,985
(26)
$ 4,959
$ 4,621
$
3.06
3.06
1.68
31.26
46.59
1,509
1,510
$ 13,052
103
13,155
9,831
22,986
12,785
1,504
8,697
1,751
6,946
(32)
$ 6,914
$ 6,583
$
4.16
4.16
1.58
29.90
59.29
1,581
1,583
$ 12,919
116
13,035
9,602
22,637
12,464
1,379
8,794
1,670
7,124
(28)
$ 7,096
$ 6,784
$
4.15
4.14
1.34
28.01
45.70
1,634
1,638
$ 12,380
205
12,585
9,317
21,902
12,790
1,390
7,722
1,469
6,253
(35)
$ 6,218
$ 5,913
$
3.53
3.51
1.16
26.34
53.58
1,677
1,683
$ 11,666
203
11,869
9,290
21,159
11,527
1,324
8,308
2,364
5,944
(56)
$ 5,888
$ 5,589
$
3.25
3.24
1.07
24.63
51.37
1,718
1,724
.93%
10.0
2.68
57.8
.58
1.45%
14.1
3.06
55.8
.50
1.55%
15.4
3.14
55.1
.48
1.39%
13.8
3.10
58.5
.48
1.36%
13.4
3.04
54.5
.47
$307,269
6,985
125,954
481,402
531,207
98,539
398,615
19,182
44,040
52,246
$297,707
136,840
553,905
429,770
41,297
53,095
$290,686
3,769
117,150
430,537
475,653
73,863
346,812
18,137
41,572
52,623
$296,102
122,613
495,426
361,916
40,167
51,853
$280,701
3,230
113,940
415,067
457,014
78,196
333,462
21,790
37,450
49,763
$286,810
112,165
467,374
345,475
41,340
51,029
$276,537
3,574
111,820
406,421
448,582
81,933
333,514
15,022
35,601
48,466
$280,432
112,499
462,040
347,215
32,259
49,040
$267,811
4,181
107,922
389,877
433,313
81,176
312,810
19,906
36,220
47,339
$273,207
109,275
445,964
334,590
33,323
47,298
$ 1,298
8,010
2.69%
$
829
4,491
1.52%
$
989
4,441
1.55%
$ 1,200
4,417
1.58%
$ 1,603
4,357
1.59%
9.7%
11.3
13.4
8.3
7.3
6.9
9.5
9.3
9.1%
10.7
12.7
8.8
7.0
7.5
9.3
9.1%
10.7
12.6
9.0
7.2
7.8
9.4
9.3%
10.8
12.9
8.9
7.6
9.4
9.4%
11.0
13.2
9.0
7.5
9.2
(a) Based on federal income tax rates of 21 percent for 2020, 2019 and 2018 and 35 percent for 2017 and 2016, for those assets and liabilities whose income or expense is not included for
federal income tax purposes.
(b) See Non-GAAP Financial Measures beginning on page 64.
(c) Calculated as U.S. Bancorp common shareholders’ equity divided by common shares outstanding at end of the period.
(d) 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.
23
Earnings Summary The Company reported net income
attributable to U.S. Bancorp of $5.0 billion in 2020, or $3.06 per
diluted common share, compared with $6.9 billion, or $4.16 per
diluted common share, in 2019. Return on average assets and
return on average common equity were 0.93 percent and
10.0 percent, respectively, in 2020, compared with 1.45 percent
and 14.1 percent, respectively, in 2019. During a challenging
period adversely impacted by the COVID-19 pandemic, the
Company’s diversified business generated growth in net revenue
and supported a provision for credit losses of $3.8 billion resulting
in a $2.0 billion increase in the allowance for credit losses in
2020.
Total net revenue for 2020 was $339 million (1.5 percent)
higher than 2019, reflecting a 5.8 percent increase in noninterest
income, partially offset by a 1.7 percent decrease in net interest
income (1.8 percent on a taxable-equivalent basis). The decrease
in net interest income from the prior year was primarily due to the
impact of lower rates, partially offset by changes in deposit and
funding mix, loan growth and higher loan fees. The increase in
noninterest income was driven by significant growth in mortgage
banking revenue and commercial products revenue, as well as
increases in trust and investment management fees and gains on
the sale of investment securities. Growth in these fee categories
was partially offset by a decline in payment services revenue and
deposit service charges related to lower consumer and business
spending. Additionally, other noninterest income declined from
the prior year due to lower equity investment income and certain
asset impairments, partially offset by gains on sale of certain
businesses in 2020.
Noninterest expense in 2020 was $584 million (4.6 percent)
higher than 2019, reflecting costs related to COVID-19 and an
increase in revenue-related production expenses in 2020.
Additionally, noninterest expense reflected an increase in
personnel costs and technology and communications expense
related to developing digital capabilities and related business
investment, as well as an increase in other noninterest expense,
partially offset by lower marketing and business development
expense.
Results for 2019 Compared With 2018 For discussion related
to changes in financial condition and results of operations for
2019 compared with 2018, refer to “Management’s Discussion
and Analysis” in the Company’s Annual Report on Form 10-K for
the year ended December 31, 2019, which was filed with the
Securities and Exchange Commission on February 20, 2020.
Statement of Income Analysis
Net Interest Income Net interest income, on a taxable-
equivalent basis, was $12.9 billion in 2020, compared with
$13.2 billion in 2019. The $231 million (1.8 percent) decrease in
net interest income, on a taxable-equivalent basis, in 2020
compared with 2019, was principally driven by the impact of
lower interest rates from the prior year, partially offset by changes
in deposit and funding mix, loan growth and higher loan fees.
Average earning assets were $50.9 billion (11.8 percent) higher in
2020, compared with 2019, reflecting increases in loans,
investment securities and other earning assets primarily
representing cash balances. The net interest margin, on a
taxable-equivalent basis, in 2020 was 2.68 percent, compared
with 3.06 percent in 2019. The decrease in the net interest
margin in 2020, compared with 2019, was primarily due to the
impact of lower interest rates, changes in the yield curve, a
decision to maintain higher cash balances for liquidity, and higher
premium amortization within the investment portfolio, partially
offset by the net benefit of changes in loan mix and deposit and
funding mix. 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 $307.3 billion in 2020, compared
with $290.7 billion in 2019. The $16.6 billion (5.7 percent)
increase was primarily due to higher commercial loans, residential
mortgages and commercial real estate loans, partially offset by
decreases in credit card loans and other retail loans. Average
commercial loans increased $10.8 billion (10.4 percent), reflecting
the utilization of bank credit facilities by customers to support
liquidity requirements as well as the impact of loans made under
the SBA’s Paycheck Protection Program. Average residential
mortgages increased $5.9 billion (8.7 percent) due to higher
mortgage loan production given the lower interest rate
environment, and higher Government National Mortgage
Association (“GNMA”) buybacks. Average commercial real estate
loans increased $1.2 billion (3.0 percent) in 2020, compared with
2019, primarily the result of higher commercial mortgage new
business in the first half of 2020, along with slower paydowns of
balances by customers in the second half of the year. Average
credit card balances decreased $977 million (4.2 percent),
reflecting the net impact of lower consumer spending during
2020, partially offset by the acquisition of a credit card portfolio in
2020. The $291 million (0.5 percent) decrease in average other
retail loans was primarily due to lower home equity loans,
revolving credit balances, auto loans and retail leasing loans,
partially offset by an increase in installment loans.
24
TABLE 2 Analysis of Net Interest Income(a)
Year Ended December 31 (Dollars in Millions)
Components of Net Interest Income
2020
2019
2018
2020
v 2019
2019
v 2018
Income on earning assets (taxable-equivalent basis) . . . . . . . . . . . . . $ 14,942
2,018
Expense on interest-bearing liabilities (taxable-equivalent basis) . . .
Net interest income (taxable-equivalent basis)(b) . . . . . . . . . . . . . . . . . . $ 12,924
Net interest income, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,825
Average Yields and Rates Paid
$ 17,607
4,452
$ 13,155
$ 13,052
$ 16,298
3,263
$ 13,035
$ 12,919
$ (2,665)
(2,434)
$
$
(231)
(227)
$ 1,309
1,189
$
$
120
133
Earning assets yield (taxable-equivalent basis) . . . . . . . . . . . . . . . . .
Rate paid on interest-bearing liabilities (taxable-equivalent basis) . . .
Gross interest margin (taxable-equivalent basis) . . . . . . . . . . . . . . . . . .
Net interest margin (taxable-equivalent basis) . . . . . . . . . . . . . . . . . . . .
Average Balances
3.10%
.56
2.54%
2.68%
4.09%
1.34
2.75%
3.06%
3.93%
1.04
2.89%
3.14%
(.99)%
(.78)
(.21)%
(.38)%
.16%
.30
(.14)%
(.08)%
Investment securities(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $125,954
307,269
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
481,402
Earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
98,539
Noninterest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
300,076
Interest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
398,615
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
363,298
Interest-bearing liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$117,150
290,686
430,537
73,863
272,949
346,812
332,658
$113,940
280,701
415,067
78,196
255,266
333,462
314,506
$ 8,804
16,583
50,865
24,676
27,127
51,803
30,640
$ 3,210
9,985
15,470
(4,333)
17,683
13,350
18,152
(a) Interest and rates are presented on a fully taxable-equivalent basis based on a federal income tax rate of 21 percent.
(b) See Non-GAAP Financial Measures beginning on page 64.
(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.
Average investment securities in 2020 were $8.8 billion (7.5
percent) higher than in 2019, primarily due to purchases of
mortgage-backed securities, net of prepayments and maturities.
Average total deposits for 2020 were $51.8 billion (14.9
percent) higher than 2019. Average total savings deposits for
2020 were $33.7 billion (14.7 percent) higher than 2019, driven
by increases in Consumer and Business Banking, Corporate and
Commercial Banking, and Wealth Management and Investment
Services balances. Average noninterest-bearing deposits were
$24.7 billion (33.4 percent) higher in 2020, compared with 2019,
reflecting increases across all business lines. The growth in
average total savings and noninterest-bearing deposits was
primarily a result of the actions by the federal government to
increase liquidity in the financial system, customers maintaining
balance sheet liquidity by utilizing existing credit facilities and
government stimulus programs. The increase in average
noninterest-bearing deposits in Payment Services was driven by
state unemployment distributions on prepaid debit cards.
Average time deposits for 2020 were $6.5 billion (14.7 percent)
lower than 2019, primarily driven by decreases in those deposits
managed as an alternative to other funding sources, based
largely on relative pricing and liquidity characteristics, partially
offset by increases in Consumer and Business Banking balances
reflecting the acquisition of deposit balances from State Farm
Bank in the fourth quarter of 2020.
25
TABLE 3 Net Interest Income — Changes Due to Rate and Volume(a)
Year Ended December 31 (Dollars in Millions)
Volume
Yield/Rate
Total
Volume
Yield/Rate
Total
2020 v 2019
2019 v 2018
Increase (decrease) in
Interest Income
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
442
57
231
(112)
(14)
—
604
401
Total earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,365
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 . . . . . . . . . . . . . . . . . . . . . .
36
237
14
(130)
157
21
73
251
$ 222
138
$
(684)
(84)
$
(462)
54
$ 75
28
$ 201
(31)
$ 276
(3)
(1,479)
(519)
(209)
(176)
(316)
—
(2,699)
(563)
(4,030)
(198)
(1,346)
(79)
(439)
(2,062)
(247)
(376)
(2,685)
(1,037)
(462)
22
(288)
(330)
—
(2,095)
(162)
(2,665)
(162)
(1,109)
(65)
(569)
(1,905)
(226)
(303)
(2,434)
167
(28)
224
192
40
(134)
461
27
591
5
86
2
87
180
(65)
111
226
267
66
54
(57)
176
—
506
42
718
72
473
53
208
806
48
109
963
434
38
278
135
216
(134)
967
69
1,309
77
559
55
295
986
(17)
220
1,189
$ 120
Increase (decrease) in net interest income . . . . . . . . . . . . . . . .
$1,114
$(1,345)
$
(231)
$ 365
$(245)
(a) This table shows the components of the change in net interest income by volume and rate on a taxable-equivalent basis based on a federal income tax rate of 21 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.
Provision for Credit Losses The provision for credit losses
reflects changes in economic conditions and the size and credit
quality of the entire portfolio of loans. The Company maintains an
allowance for credit losses considered appropriate by
management for expected losses, based on factors discussed in
the “Analysis and Determination of Allowance for Credit Losses”
section.
In 2020, the provision for credit losses was $3.8 billion,
compared with $1.5 billion in 2019. In March 2020, economic
conditions began to deteriorate, and continued to worsen in the
second quarter of 2020, due to the impact of the COVID-19
pandemic. Economic conditions moderated during the second
half of 2020 as economic projections for both the gross domestic
product and unemployment levels improved throughout the third
and fourth quarters. The Company recognized an increase of
$1.9 billion in the allowance for credit losses during 2020 due to
deteriorating credit quality and expected ongoing effects of these
adverse economic conditions. In addition, the Company
recognized an increase of $120 million in the allowance for credit
losses during 2020, reflecting the expected losses within the
acquired State Farm Bank credit card portfolio. Net charge-offs
increased $332 million (22.8 percent) in 2020, compared with
2019, reflecting higher commercial and commercial real estate
loan net charge-offs, partially offset by a decrease in credit card
loan net charge-offs. Nonperforming assets increased
$469 million (56.6 percent) from December 31, 2019 to
December 31, 2020, primarily driven by increases in
nonperforming commercial and commercial real estate loans.
Refer to “Corporate Risk Profile” for further information on the
provision for credit losses, net charge-offs, nonperforming assets
and other factors considered by the Company in assessing the
credit quality of the loan portfolio and establishing the allowance
for credit losses.
26
TABLE 4 Noninterest Income
Year Ended December 31 (Dollars in Millions)
2020
2019
2018
2020
v 2019
2019
v 2018
Credit and debit card revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate payment products revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merchant 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,338
497
1,261
1,736
677
568
1,143
2,064
192
177
748
$10,401
$1,413
664
1,601
1,673
909
578
934
874
186
73
926
$9,831
$1,401
644
1,531
1,619
1,070
594
895
720
188
30
910
$9,602
(5.3)%
(25.2)
(21.2)
3.8
(25.5)
(1.7)
22.4
*
3.2
*
(19.2)
.9%
3.1
4.6
3.3
(15.0)
(2.7)
4.4
21.4
(1.1)
*
1.8
5.8%
2.4%
* Not meaningful.
Noninterest Income Noninterest income in 2020 was
$10.4 billion, compared with $9.8 billion in 2019. The $570 million
(5.8 percent) increase in 2020 over 2019 reflected growth in
mortgage banking revenue, commercial products revenue, and
trust and investment management fees, as well as higher gains on
sales of investment securities, partially offset by lower payment
services revenue, deposit service charges and other noninterest
income. Mortgage banking revenue increased $1.2 billion in 2020,
compared with 2019, due to higher mortgage loan production
driven by refinancing activities and stronger gain on sale margins,
partially offset by declines in mortgage servicing rights (“MSRs”)
valuations, net of hedging activities. Commercial products revenue
increased 22.4 percent in 2020, compared with 2019, primarily
due to higher corporate bond issuance fees and trading revenue.
Trust and investment management fees increased 3.8 percent due
to business growth and favorable market conditions. Payment
services revenue decreased in 2020, compared with 2019, due to
a 5.3 percent decrease in credit and debit card revenue, a
25.2 percent decrease in corporate payment products revenue
TABLE 5 Noninterest Expense
Year Ended December 31 (Dollars in Millions)
and a 21.2 percent decrease in merchant processing services
revenue, all driven by lower sales volume due to the worldwide
impact of the COVID-19 pandemic on consumer and business
spending. The decrease in credit and debit card revenue was
partially offset by the impact of higher prepaid card fees related to
government stimulus programs adopted in 2020. Deposit service
charges decreased 25.5 percent primarily due to lower consumer
spending activities. Other noninterest income decreased
19.2 percent in 2020, compared with 2019, primarily due to lower
equity investment income and certain 2020 asset impairments as
a result of expected branch closures and property damage from
civil unrest that occurred during the year. These decreases in other
noninterest income were partially offset by higher retail leasing end
of term residual gains, higher tax-advantaged investment
syndication revenue, gains on sales of certain businesses in 2020
and the impact of a charge of $140 million in 2019 for a derivative
liability related to Visa shares previously sold by the Company.
2020
2019
2018
2020
v 2019
2019
v 2018
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,635
1,303
1,092
430
318
1,294
288
176
1,833
$13,369
$ 6,325
1,286
1,123
454
426
1,095
290
168
1,618
$12,785
$ 6,162
1,231
1,063
407
429
978
324
161
1,709
$12,464
4.9%
1.3
(2.8)
(5.3)
(25.4)
18.2
(.7)
4.8
13.3
4.6%
2.6%
4.5
5.6
11.5
(.7)
12.0
(10.5)
4.3
(5.3)
2.6%
Efficiency ratio(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57.8%
55.8%
55.1%
(a) See Non-GAAP Financial Measures beginning on page 64.
27
Noninterest Expense Noninterest expense in 2020 was
$13.4 billion, compared with $12.8 billion in 2019. The
Company’s efficiency ratio was 57.8 percent in 2020, compared
with 55.8 percent in 2019. The $584 million (4.6 percent) increase
in noninterest expense in 2020 over 2019 was driven by
additional expenses of $574 million in 2020, representing
incremental costs related to the prepaid card business, expenses
related to COVID-19, and revenue-related expenses due to
higher mortgage production and capital markets activities. In
addition, the increases were also driven by business investments,
including those related to increased digital capabilities. The
increase in 2020 noninterest expense over 2019 reflected higher
compensation expense, technology and communications
expense, and other noninterest expense, partially offset by lower
marketing and business development expense, net occupancy
and equipment expense, and professional services expense.
Compensation expense increased 4.9 percent in 2020 over
2019, due to the impacts of merit increases and higher variable
compensation related to business production within the
mortgage banking and fixed income capital markets businesses.
Technology and communications expense increased
18.2 percent primarily due to capital expenditures supporting
business technology investments and the impact of increased call
center volume on prepaid cards related to government stimulus
programs adopted in 2020. Other noninterest expense increased
13.3 percent, reflecting expenses in 2020 related to COVID-19,
higher revenue-related costs, merger-related costs related to
acquired deposits, higher FDIC insurance expense driven by an
increase in the assessment base, and higher state franchise
taxes, partially offset by lower costs related to tax-advantaged
projects in 2020 and the impact of $200 million of severance
charges and asset impairment accruals recorded in 2019.
Incremental costs related to COVID-19 include increased liabilities
driven by the Company’s exposure as a credit card processor to
charge-back risk on undelivered goods and services, including
prepaid airline tickets, as well as expenses related to paying
premium compensation to front-line workers and providing a safe
working environment for employees. Marketing and business
development expense decreased 25.4 percent due to a reduction
in travel as a result of COVID-19 and a decrease in 2020
marketing campaigns. Net occupancy and equipment expense
decreased 2.8 percent due to branch closures, while professional
services expense decreased 5.3 percent primarily due to fewer
initiatives in 2020.
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.
Pension expense is expected to remain unchanged at
$201 million in 2021, primarily due to expected earnings on
higher plan assets due to the Company’s 2020 contributions of
$1.2 billion, offset by a lower expected rate of return on assets of
6.50 percent and a lower discount rate. 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 may differ
from the expected amount.
Refer to Note 16 of the Notes to the Consolidated Financial
Statements for further information on the Company’s pension
plan funding practices, investment policies and asset allocation
strategies, and accounting policies for pension plans.
The following table shows the effect of hypothetical changes in
the discount rate and long-term rate of return (“LTROR”) on the
Company’s expected 2021 pension expense:
Discount Rate (Dollars in Millions)
Down 100
Basis Points
Up 100
Basis Points
Incremental benefit (expense) . . . . . . . .
Percent of 2020 net income . . . . . . . . .
$ (115)
(1.73)%
$ 102
1.54%
LTROR (Dollars in Millions)
Down 100
Basis Points
Up 100
Basis Points
Incremental benefit (expense) . . . . . . . .
Percent of 2020 net income . . . . . . . . .
$
(69)
(1.04)%
$ 69
1.04%
Income Tax Expense The provision for income taxes was
$1.1 billion (an effective rate of 17.6 percent) in 2020, compared
with $1.6 billion (an effective rate of 19.2 percent) in 2019. The
reduced tax rate for 2020 was primarily a result of reduced pretax
income driven by current economic conditions, including the
higher provision for credit losses.
For further information on income taxes, refer to Note 18 of
the Notes to Consolidated Financial Statements.
Balance Sheet Analysis
Average earning assets were $481.4 billion in 2020, compared
with $430.5 billion in 2019. The increase in average earning
assets of $50.9 billion (11.8 percent) was primarily due to
increases in loans of $16.6 billion (5.7 percent), investment
securities of $8.8 billion (7.5 percent) and other earning assets of
$22.3 billion, primarily representing higher cash balances.
For average balance information, refer to Consolidated Daily
Average Balance Sheet and Related Yields and Rates on pages
144 and 145.
Loans The Company’s loan portfolio was $297.7 billion at
December 31, 2020, compared with $296.1 billion at
December 31, 2019, an increase of $1.6 billion (0.5 percent). The
increase was driven by an increase in residential mortgages of
$5.6 billion (7.9 percent), partially offset by decreases in credit
card loans of $2.4 billion (9.9 percent), commercial loans of
$992 million (1.0 percent), commercial real estate loans of
$435 million (1.1 percent) and other retail loans of $94 million
28
(0.2 percent). Table 6 provides a summary of the loan distribution by
product type, while Table 12 provides a summary of the selected
loan maturity distribution by loan category. Average total loans
increased $16.6 billion (5.7 percent) in 2020, compared with 2019.
The increase was due to growth in commercial loans, residential
mortgages and commercial real estate loans, partially offset by lower
credit card and other retail loans.
Commercial Commercial loans, including lease financing,
decreased $992 million (1.0 percent) at December 31, 2020,
compared with December 31, 2019, reflecting paydowns by
corporate customers, partially offset by loans made under the SBA’s
Paycheck Protection Program. Average commercial loans increased
$10.8 billion (10.4 percent) in 2020, compared with 2019, reflecting
the utilization of bank credit facilities by customers to support
liquidity requirements as well as the impact of loans made under the
SBA’s Paycheck Protection Program. Table 7 provides a summary
of commercial loans by industry and geographical location.
Commercial Real Estate The Company’s portfolio of commercial
real estate loans, which includes commercial mortgages and
construction and development loans, decreased $435 million (1.1
percent) at December 31, 2020, compared with December 31,
2019. The decrease was primarily the result of customers paying
TABLE 6 Loan Portfolio Distribution
down balances, partially offset by new originations. Average
commercial real estate loans increased $1.2 billion (3.0 percent) in
2020, compared with 2019. 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 criteria are
met. In 2020, approximately $489 million of construction loans
were reclassified to the commercial mortgage category. At
December 31, 2020 and 2019, $80 million and $101 million,
respectively, of tax-exempt industrial development loans were
secured by real estate. The Company’s commercial mortgage
and construction and development loans had unfunded
commitments of $11.3 billion at December 31, 2020 and 2019.
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
have similar characteristics to commercial real estate loans.
These loans were included in the commercial loan category and
totaled $14.0 billion and $14.3 billion at December 31, 2020 and
2019, respectively.
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
2020
2019
2018
2017
2016
Commercial
Commercial . . . . . . . . . . .
Lease financing . . . . . . . .
$ 97,315
5,556
32.7% $ 98,168
5,695
1.9
33.2% $ 96,849
5,595
1.9
33.8% $ 91,958
5,603
1.9
32.8% $ 87,928
5,458
2.0
32.2%
2.0
Total commercial . . . . .
102,871
34.6
103,863
35.1
102,444
35.7
97,561
34.8
93,386
34.2
Commercial Real Estate
Commercial mortgages . .
Construction and
28,472
9.6
29,404
9.9
28,596
10.0
29,367
10.5
31,592
11.6
development . . . . . . . . .
10,839
3.6
10,342
3.5
10,943
3.8
11,096
4.0
11,506
4.2
Total commercial real
estate . . . . . . . . . . . .
39,311
13.2
39,746
13.4
39,539
13.8
40,463
14.5
43,098
15.8
Residential Mortgages
Residential mortgages . . .
Home equity loans, first
66,525
22.4
59,865
20.2
53,034
18.5
46,685
16.6
43,632
16.0
liens . . . . . . . . . . . . . . . .
9,630
3.2
10,721
3.6
12,000
4.2
13,098
4.7
13,642
5.0
Total residential
mortgages . . . . . . . . .
Credit Card . . . . . . . . . . .
76,155
22,346
25.6
7.5
70,586
24,789
23.8
8.4
65,034
23,363
22.7
8.1
59,783
22,180
21.3
7.9
57,274
21,749
21.0
7.9
Other Retail
Retail leasing . . . . . . . . . .
Home equity and
second mortgages . . . .
Revolving credit . . . . . . . .
Installment . . . . . . . . . . . .
Automobile . . . . . . . . . . . .
Student . . . . . . . . . . . . . . .
Total other retail . . . . . .
Covered Loans . . . . . . . .
8,150
2.7
8,490
2.9
8,546
3.0
7,988
2.8
6,316
2.3
12,472
2,688
13,823
19,722
169
4.2
.9
4.6
6.6
.1
15,036
2,899
11,038
19,435
220
5.1
1.0
3.7
6.5
.1
16,122
3,088
9,676
18,719
279
5.6
1.1
3.4
6.5
.1
16,327
3,183
8,989
18,934
1,903
5.8
1.1
3.2
6.8
.7
16,369
3,282
8,087
17,571
2,239
6.0
1.2
3.0
6.4
.8
57,024
19.1
57,118
19.3
56,430
19.7
57,324
20.4
53,864
19.7
—
—
—
—
—
—
3,121
1.1
3,836
1.4
Total loans . . . . . . . . .
$297,707 100.0% $296,102 100.0% $286,810 100.0% $280,432 100.0% $273,207 100.0%
29
TABLE 7 Commercial Loans by Industry Group and Geography
At December 31 (Dollars in Millions)
Industry Group
2020
2019
Loans
Percent
Loans
Percent
Real-estate related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,032
11,208
Financial institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,815
Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,597
Personal, professional and commercial services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,737
Media and entertainment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,277
Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,698
Education and non-profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,395
Automotive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,937
Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,869
Food and beverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,441
Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,157
State and municipal government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,911
Capital goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,892
Metals and mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,813
Building materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,624
Energy (includes Oil and gas) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,150
Power (includes Utilities) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,950
12,368
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.6%
10.9
7.6
7.4
5.6
5.1
4.6
4.3
3.8
3.8
3.3
3.1
2.8
2.8
2.7
2.6
2.1
1.9
12.0
$ 14,329
9,386
6,398
6,799
4,993
5,131
4,262
6,446
4,446
4,009
3,696
3,095
3,465
3,261
2,367
3,644
2,098
2,258
13,780
13.8%
9.0
6.2
6.5
4.8
4.9
4.1
6.2
4.3
3.9
3.6
3.0
3.3
3.1
2.3
3.5
2.0
2.2
13.3
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $102,871
100.0%
$103,863
100.0%
Geography
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,053
3,773
Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,795
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,251
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,085
Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,394
Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,094
Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,083
Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,996
Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,981
Iowa, Kansas, Nebraska, North Dakota, South Dakota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,481
Arkansas, Indiana, Kentucky, North Carolina, Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,116
Idaho, Montana, Wyoming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,269
Arizona, Nevada, New Mexico, Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida, Michigan, New York, Pennsylvania, Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total outside Company’s banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
64,371
20,183
18,317
38,500
13.7%
3.7
5.6
7.0
4.0
4.3
2.0
4.0
3.9
3.9
5.3
1.1
4.1
62.6
19.6
17.8
37.4
$ 12,432
4,025
5,482
7,294
3,875
4,777
1,986
3,910
3,975
4,375
6,461
1,010
4,194
63,796
20,869
19,198
40,067
12.0%
3.9
5.3
7.0
3.7
4.6
1.9
3.8
3.8
4.2
6.2
1.0
4.0
61.4
20.1
18.5
38.6
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $102,871
100.0%
$103,863
100.0%
Residential Mortgages Residential mortgages held in the loan
portfolio at December 31, 2020, increased $5.6 billion (7.9
percent) over December 31, 2019. Average residential mortgages
increased $5.9 billion (8.7 percent) in 2020, compared with 2019.
The growth reflected higher mortgage production given the lower
interest rate environment, and higher GNMA buybacks.
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 decreased $2.4 billion
(9.9 percent) at December 31, 2020, compared with
December 31, 2019. Average credit card balances decreased
$977 million (4.2 percent) in 2020, compared with 2019. The
decreases reflected reduced consumer spending in 2020 driven
by the impact of COVID-19, partially offset by the acquisition of
the State Farm Bank credit card portfolio during 2020.
30
TABLE 8 Commercial Real Estate Loans by Property Type and Geography
At December 31 (Dollars in Millions)
Property Type
2020
2019
Loans
Percent
Loans
Percent
Multi-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,672
8,622
Business owner occupied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,081
Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,645
Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,941
Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,814
Lodging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,724
Residential land and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,812
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22.1%
21.9
15.5
9.3
7.5
7.1
6.9
9.7
$ 8,256
9,111
5,783
3,947
2,650
3,154
3,038
3,807
20.8%
22.9
14.6
9.9
6.7
7.9
7.6
9.6
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $39,311
100.0%
$39,746
100.0%
Geography
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,653
1,680
Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,487
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,869
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
950
1,213
Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,738
Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,427
Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,585
Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,930
Iowa, Kansas, Nebraska, North Dakota, South Dakota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,981
Arkansas, Indiana, Kentucky, North Carolina, Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Idaho, Montana, Wyoming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
997
2,933
Arizona, Nevada, New Mexico, Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida, Michigan, New York, Pennsylvania, Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32,443
3,999
2,869
Total outside Company’s banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,868
24.6%
4.3
3.8
4.7
2.4
3.1
4.4
8.7
4.0
4.9
7.6
2.5
7.5
82.5
10.2
7.3
17.5
$ 9,980
1,649
1,379
1,927
1,114
1,235
1,735
3,505
1,713
2,049
2,828
1,004
3,056
33,174
3,892
2,680
6,572
25.1%
4.1
3.5
4.9
2.8
3.1
4.4
8.8
4.3
5.2
7.1
2.5
7.7
83.5
9.8
6.7
16.5
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $39,311
100.0%
$39,746
100.0%
Other Retail Total other retail loans, which include retail leasing,
home equity and second mortgages and other retail loans,
decreased $94 million (0.2 percent) at December 31, 2020,
compared with December 31, 2019, reflecting decreases in
home equity loans, retail leasing and revolving credit balances,
partially offset by increases in installment loans and auto loans.
Average other retail loans decreased $291 million (0.5 percent) in
2020, compared with 2019. Of the total residential mortgages,
credit card and other retail loans outstanding at December 31,
2020, approximately 70.7 percent were to customers located in
the Company’s primary banking region, compared with
73.2 percent at December 31, 2019. 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, 2020 and 2019.
31
TABLE 9 Residential Mortgages by Geography
At December 31 (Dollars in Millions)
2020
2019
Loans
Percent
Loans
Percent
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $22,994
3,777
Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,786
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,378
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,724
Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,241
Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,399
Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,943
Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,391
Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,969
Iowa, Kansas, Nebraska, North Dakota, South Dakota . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,372
Arkansas, Indiana, Kentucky, North Carolina, Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,334
Idaho, Montana, Wyoming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,087
Arizona, Nevada, New Mexico, Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida, Michigan, New York, Pennsylvania, Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60,395
7,367
8,393
Total outside Company’s banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,760
30.2%
5.0
5.0
5.7
2.3
2.9
3.1
5.2
1.8
2.6
5.7
1.8
8.0
79.3
9.7
11.0
20.7
$22,945
3,864
3,488
4,359
1,704
2,017
2,485
4,075
1,503
1,970
3,921
1,354
5,229
58,914
5,162
6,510
11,672
32.5%
5.5
4.9
6.2
2.4
2.9
3.5
5.8
2.1
2.8
5.6
1.9
7.4
83.5
7.3
9.2
16.5
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $76,155
100.0%
$70,586
100.0%
TABLE 10 Credit Card Loans by Geography
At December 31 (Dollars in Millions)
2020
2019
Loans
Percent
Loans
Percent
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Iowa, Kansas, Nebraska, North Dakota, South Dakota . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arkansas, Indiana, Kentucky, North Carolina, Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . .
Idaho, Montana, Wyoming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arizona, Nevada, New Mexico, Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida, Michigan, New York, Pennsylvania, Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,175
773
1,095
1,126
709
1,153
620
789
926
1,019
1,938
355
1,133
13,811
4,410
4,125
Total outside Company’s banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,535
9.7%
3.5
4.9
5.0
3.2
5.2
2.8
3.5
4.1
4.5
8.7
1.6
5.1
61.8
19.7
18.5
38.2
$ 2,550
854
1,257
1,305
787
1,272
710
903
1,043
1,122
2,106
395
1,286
15,590
4,763
4,436
9,199
10.3%
3.4
5.1
5.3
3.2
5.1
2.9
3.6
4.2
4.5
8.5
1.6
5.2
62.9
19.2
17.9
37.1
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$22,346
100.0%
$24,789
100.0%
32
TABLE 11
Other Retail Loans by Geography
At December 31 (Dollars in Millions)
2020
2019
Loans
Percent
Loans
Percent
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,179
1,886
Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,571
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,009
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,687
Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,579
Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,426
Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,809
Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,219
Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,235
Iowa, Kansas, Nebraska, North Dakota, South Dakota . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,960
Arkansas, Indiana, Kentucky, North Carolina, Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,069
Idaho, Montana, Wyoming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,054
Arizona, Nevada, New Mexico, Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida, Michigan, New York, Pennsylvania, Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35,683
13,522
7,819
Total outside Company’s banking region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,341
16.1%
3.3
4.5
5.3
3.0
4.5
2.5
3.2
2.1
3.9
6.9
1.9
5.4
62.6
23.7
13.7
37.4
$ 9,596
2,015
2,772
3,147
1,820
2,594
1,530
1,810
1,289
2,320
3,927
1,090
3,144
37,054
12,564
7,500
20,064
16.8%
3.5
4.8
5.5
3.2
4.5
2.7
3.2
2.3
4.1
6.9
1.9
5.5
64.9
22.0
13.1
35.1
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $57,024
100.0%
$57,118
100.0%
TABLE 12
Selected Loan Maturity Distribution
At December 31, 2020 (Dollars in Millions)
One Year
or Less
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $42,147
11,748
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,735
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22,346
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,240
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $89,216
Total of loans due after one year with
Predetermined interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Floating interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over One
Through
Five Years
$ 58,051
20,866
9,888
—
25,255
$114,060
Over Five
Years
$ 2,673
6,697
63,532
—
21,529
$94,431
Total
$102,871
39,311
76,155
22,346
57,024
$297,707
$106,018
$102,473
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
$8.8 billion at December 31, 2020, compared with $5.6 billion at
December 31, 2019. The increase in loans held for sale was
principally due to a higher level of mortgage loan closings in late
2020, compared with the same period of 2019, given the lower
interest rate environment. 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”).
33
TABLE 13 Available-for-Sale Investment Securities
2020
Weighted-
2019
Weighted-
At December 31 (Dollars in Millions)
Amortized
Cost
Average Weighted-
Average
Yield(d)
Fair Maturity in
Years
Value
Average Weighted-
Average
Yield(d)
Fair Maturity in
Years
Value
U.S. Treasury and agencies . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities(a) . . . . . . . . . . . . . . . . . .
Asset-backed securities(a) . . . . . . . . . . . . . . . . . . . . .
Obligations of state and political subdivisions(b)(c) . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 21,954 $ 22,391
105,374
103,282
200
205
8,861
8,166
9
9
Total investment securities . . . . . . . . . . . . . . . . . .
$133,611 $136,840
3.8
3.0
6.2
6.3
.1
3.4
Amortized
Cost
$ 19,845
95,385
375
6,499
13
1.37%
1.47
1.47
3.99
1.81
$ 19,839
95,564
383
6,814
13
1.61%
$122,117 $122,613
2.7
4.4
3.1
6.6
.3
4.2
1.68%
2.39
3.09
4.29
2.66
2.38%
(a) Information related to asset and mortgage-backed securities included above is presented based upon weighted-average maturities that take into account anticipated 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, and yield to maturity if the
security is 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 the contractual maturity date for
securities with a fair value equal to or below par.
(d) Yields on investment securities are computed based on amortized cost balances. Weighted-average yields for obligations of state and political subdivisions are presented on a fully-taxable
equivalent basis based on a federal income tax rate of 21 percent.
Investment Securities The Company uses its investment
securities portfolio to manage 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.
Available-for-sale investment securities totaled $136.8 billion
at December 31, 2020, compared with $122.6 billion at
December 31, 2019. The $14.2 billion (11.6 percent) increase
reflected $11.5 billion of net investment purchases and a
$2.7 billion favorable change in net unrealized gains (losses) on
available-for-sale investment securities. The Company had no
outstanding investment securities classified as held-to-maturity at
December 31, 2020 and 2019.
Average investment securities were $126.0 billion in 2020,
compared with $117.2 billion in 2019. The weighted-average
yield of the investment securities portfolio was 1.61 percent at
December 31, 2020, compared with 2.38 percent at
December 31, 2019. The weighted-average maturity of the
investment securities portfolio was 3.4 years at December 31,
2020, compared with 4.2 years at December 31, 2019.
Available-for-sale investment securities by type are shown in
Table 13.
The Company’s available-for-sale investment securities are
carried at fair value with changes in fair value reflected in other
comprehensive income (loss) unless a portion of a security’s
unrealized loss is related to credit and an allowance for credit
losses is necessary. At December 31, 2020, the Company’s net
unrealized gains on available-for-sale securities were $3.2 billion,
compared with $496 million at December 31, 2019. The
favorable change in net unrealized gains was primarily due to
increases in the fair value of mortgage-backed, U.S. Treasury,
and state and political securities as a result of changes in interest
rates. Gross unrealized losses on available-for-sale investment
securities totaled $53 million at December 31, 2020, compared
with $448 million at December 31, 2019. When evaluating credit
losses, the Company considers various factors such as the
nature of the investment security, the credit ratings or financial
condition of the issuer, the extent of the unrealized loss, expected
cash flows of the underlying collateral, the existence of any
government or agency guarantees, and market conditions. At
December 31, 2020, 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.
Refer to Notes 4 and 21 in the Notes to Consolidated
Financial Statements for further information on investment
securities.
34
TABLE 14 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 savings deposits . . . . . . . . . .
Time deposits less than $100,000 . . . .
Time deposits greater than $100,000
2020
2019
2018
2017
2016
Percent
Amount of Total
Percent
Amount of Total
Percent
Amount of Total
Percent
Amount of Total
Percent
Amount of Total
$118,089
27.5% $ 75,590
20.9% $ 81,811
23.7% $ 87,557
25.2% $ 86,097
25.7%
95,894
128,058
57,035
280,987
8,451
22.3
29.8
13.3
65.4
2.0
75,949
120,082
47,401
243,432
10,624
21.0
33.2
13.1
67.3
2.9
73,994
100,396
44,720
219,110
7,422
21.4
29.1
12.9
63.4
2.1
74,520
107,973
43,809
226,302
7,315
21.5
31.1
12.6
65.2
2.1
66,298
109,947
41,783
218,028
8,040
19.8
32.9
12.5
65.2
2.4
Domestic . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . .
10,149
12,094
2.3
2.8
13,077
19,193
3.6
5.3
19,958
17,174
5.8
5.0
10,792
15,249
3.1
4.4
7,230
15,195
2.2
4.5
Total interest-bearing deposits . . .
311,681
72.5
286,326
79.1
263,664
76.3
259,658
74.8
248,493
74.3
Total deposits . . . . . . . . . . . . . . . . . . .
$429,770 100.0% $361,916 100.0% $345,475 100.0% $347,215 100.0% $334,590 100.0%
The maturity of time deposits was as follows:
At December 31, 2020 (Dollars in Millions)
Three months or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Three months through six months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Six months through one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time Deposits
Less Than $100,000
$1,321
1,333
2,231
3,566
$8,451
Time Deposits Greater Than $100,000
Domestic
$ 2,983
1,554
2,292
3,320
$10,149
Foreign
Total
$12,094
—
—
—
$16,398
2,887
4,523
6,886
$12,094
$30,694
Deposits Total deposits were $429.8 billion at December 31,
2020, compared with $361.9 billion at December 31, 2019. The
$67.9 billion (18.7 percent) increase in total deposits reflected
increases in noninterest-bearing and total savings deposits,
partially offset by a decrease in time deposits. The increase in
total deposits includes approximately $10 billion related to the
acquisition of deposit balances from State Farm Bank in the
fourth quarter of 2020. Average total deposits in 2020 increased
$51.8 billion (14.9 percent) over 2019.
Noninterest-bearing deposits at December 31, 2020,
increased $42.5 billion (56.2 percent) from December 31, 2019.
Average noninterest-bearing deposits increased $24.7 billion
(33.4 percent) in 2020, compared with 2019, reflecting increases
across all business lines.
Interest-bearing savings deposits increased $37.6 billion
(15.4 percent) at December 31, 2020, compared with
December 31, 2019. The increase was related to higher interest
checking, savings and money market deposit balances. Interest
checking balances increased $19.9 billion (26.3 percent) primarily
due to higher Consumer and Business Banking, and Wealth
Management and Investment Services balances. Savings
account balances increased $9.6 billion (20.3 percent), driven by
higher Consumer and Business Banking balances. Money market
deposit balances increased $8.0 billion (6.6 percent), primarily
due to higher Consumer and Business Banking, and Wealth
Management and Investment Services balances. Average
interest-bearing savings deposits in 2020 increased $33.7 billion
(14.7 percent), compared with 2019, reflecting higher Consumer
and Business Banking, Corporate and Commercial Banking, and
Wealth Management and Investment Services balances.
The growth in noninterest-bearing and total savings deposits
was primarily a result of the economic impact of the COVID-19
pandemic on the world economy resulting in actions by the
federal government to increase liquidity in the financial system,
customers maintaining balance sheet liquidity by utilizing existing
credit facilities and government stimulus programs. The increase
in noninterest-bearing deposits in Payment Services was driven
by state unemployment distributions on prepaid debit cards.
Interest-bearing time deposits at December 31, 2020,
decreased $12.2 billion (28.4 percent), compared with
December 31, 2019. Average time deposits decreased $6.5 billion
(14.7 percent) in 2020, compared with 2019. The decreases were
primarily driven by a decrease in those deposits managed as an
alternative to other funding sources, based largely on relative pricing
and liquidity characteristics, partially offset by an increase in
Consumer and Business Banking balances reflecting the acquisition
of deposit balances from State Farm Bank during 2020.
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 $11.8 billion at December 31, 2020, compared with
$23.7 billion at December 31, 2019. The $11.9 billion
(50.4 percent) decline in short-term borrowings was primarily due to
decreases in short-term Federal Home Loan Bank (“FHLB”)
35
inability to fund obligations or new business at a reasonable cost
and in a timely manner. Operational risk is the risk to current or
projected financial condition and resilience arising from inadequate
or failed internal processes or systems, people (including human
errors or misconduct), or adverse external events, including the risk
of loss resulting from breaches in data security. Operational risk can
also include the risk of loss due to failures by third parties with which
the Company does business. Compliance risk is the risk that the
Company may suffer legal or regulatory sanctions, financial losses,
and reputational damage if it fails to adhere to compliance
requirements and the Company’s compliance policies. Strategic risk
is the risk to current or projected financial condition arising from
adverse business decisions, poor implementation of business
decisions, or lack of responsiveness to changes in the banking
industry and operating environment. Reputation 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 146, 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 line
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 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 regularly provides 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
advances, commercial paper and other short-term borrowings
balances, partially offset by higher repurchase agreement balances.
Long-term debt was $41.3 billion at December 31, 2020,
compared with $40.2 billion at December 31, 2019. The
$1.1 billion (2.8 percent) increase was primarily due to $3.3 billion
of bank note and $2.8 billion of medium-term note issuances,
partially offset by $4.5 billion of bank note repayments and
maturities, and $1.2 billion of medium-term note repayments.
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,
primarily 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 reputation 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 reputation. Leveraging the Company’s risk management
framework, the specific impacts of COVID-19 and related risks are
identified for each of the most prominent exposures. With respect to
direct impacts from COVID-19, oversight and governance is
managed through a centralized command center with frequent
reporting to the Managing Committee and ERC. The Board of
Directors also oversees the Company’s responsiveness to the
COVID-19 pandemic. Credit risk is the risk of loss associated with a
change in the credit profile or the failure of a borrower or
counterparty to meet its contractual obligations. 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
36
the risk appetite statements and the associated risk limits,
including:
– Macroeconomic environment and other qualitative
considerations, such as regulatory and compliance changes,
litigation developments, and technology and cybersecurity;
– 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 (“VaR”);
– 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;
– Capital ratios and projections, including regulatory measures
and stressed scenarios; and
– Strategic and reputation 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 credit
risk has been identified. Loans with a special mention or classified
rating, including consumer lending and small business loans that
are 90 days or more past due and still accruing, nonaccrual loans,
those loans considered troubled debt restructurings (“TDRs”), and
loans in a junior lien position that are current but are behind a first
lien position on nonaccrual, 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. Refer to Notes
1 and 5 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 two
segments, which is the level at which it develops and documents
a systematic methodology to determine the allowance for credit
losses. The Company’s two loan portfolio segments are
commercial lending and consumer lending.
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, as well as
macroeconomic factors such as unemployment rates, gross
domestic product levels, corporate bond spreads and long-term
interest rates, all of which have been impacted by the COVID-19
pandemic. These risk characteristics, among others, are
considered in determining estimates about the likelihood of
default by the borrowers and the severity of loss in the event of
default. The Company considers these risk characteristics in
assigning internal risk ratings to, or forecasting losses on, these
loans, which are the significant factors in determining the
allowance for credit losses for loans in the commercial lending
segment.
The consumer lending segment represents loans and leases
made to consumer customers, including residential mortgages,
credit card loans, and other retail loans such as revolving
consumer lines, auto loans and leases, home equity loans and
lines, and student loans, a run-off portfolio. 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,
2020, substantially all of the Company’s home equity lines were
in the draw period. Approximately $1.3 billion, or 12 percent, of
the outstanding home equity line balances at December 31,
2020, 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, consumer
bankruptcy filings and other macroeconomic factors, customer
payment history and credit scores, and in some cases, updated
loan-to-value (“LTV”) information reflecting current market
conditions on real estate-based loans. These and other risk
characteristics, including elevated risk resulting from the
COVID-19 pandemic, 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.
37
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.
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 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 levels
and consumer bankruptcy filings, as well as the potential impact
on customers and the domestic economy resulting from the
COVID-19 pandemic.
During the first half of 2020, the COVID-19 pandemic and the
mitigation efforts put in place by companies, consumers and
governmental authorities to contain it created the most severe
negative impact to the domestic and global economies since the
Great Depression. Beginning in the late first quarter and
continuing into the second quarter of 2020, the gross domestic
product declined substantially, while unemployment claims rose
significantly. During the second half of the year, economic
conditions began to moderate as economic projections for both
the gross domestic product and unemployment levels improved
from the second quarter. Although spending on many services
continues to lag pre-pandemic levels, the rebound in the gross
domestic product has been broad based across many industries.
However, economic growth slowed somewhat in the fourth
quarter as the number of COVID-19 cases increased and certain
mitigation efforts were re-instated. Although a significant level of
uncertainty exists related to future economic growth, economic
activity is currently expected to remain at lower levels during the
first half of 2021 and begin to grow in the second half of the year.
Credit Diversification The Company manages its credit risk, in
part, through diversification of its loan portfolio which is achieved
through limit setting by product type criteria, such as industry,
and identification of credit 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 lending, health care lending and
correspondent banking financing. The Company also offers an
array of consumer lending products, including residential
mortgages, credit card loans, auto loans, retail leases, home
equity loans and lines, revolving credit arrangements and other
consumer loans. These consumer lending products are primarily
offered through the branch office network, home mortgage and
loan production offices, mobile and on-line banking, 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 2020.
The commercial loan class is diversified among various industries
with higher concentrations in real estate, financial institutions,
healthcare, personal, professional and commercial services, media
and entertainment, and retail. Additionally, the commercial loan class
is diversified across the Company’s geographical markets with
62.6 percent of total commercial loans within the Company’s
Consumer and Business Banking region. Credit relationships
outside of the Company’s Consumer and Business Banking region
relate to the corporate banking, mortgage banking, auto dealer and
leasing businesses, focusing on large national customers and
specifically targeted industries, such as healthcare, utilities, oil and
gas, and state and municipal government. 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, 2020 and 2019.
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, 2020 and 2019. At December 31,
2020, approximately 21.9 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,
2020, 24.6 percent of the Company’s commercial real estate
loans were secured by collateral in California, which has
historically experienced higher credit quality deterioration in
recessionary periods due to excess inventory levels and declining
valuations. Included in commercial real estate at year-end 2020
was approximately $431 million in loans related to land held for
development and $419 million of loans related to residential and
commercial acquisition and development properties. These loans
38
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 82.5 percent of total commercial real
estate loans outstanding at December 31, 2020, within the
Company’s Consumer and Business Banking region.
The Company’s consumer lending segment utilizes several
distinct business processes and channels to originate consumer
credit, including traditional branch lending, mobile and on-line
banking, indirect lending, alliance partnerships, 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 mortgage originations are generally limited to prime
borrowers and are performed through the Company’s branches, loan
production offices, mobile and on-line services, 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 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 an 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 of residential
mortgages and home equity and second mortgages by LTV at
December 31, 2020:
Residential Mortgages
(Dollars in Millions)
Loan-to-Value
Only Amortizing
Interest
Percent
Total of Total
Less than or equal to 80% . . . . $3,108 $57,562 $60,670
4,257
Over 80% through 90% . . . . . .
432
Over 90% through 100% . . . . .
120
Over 100% . . . . . . . . . . . . . . . .
No LTV available . . . . . . . . . . . .
15
Loans purchased from GNMA
4,248
432
120
15
9
—
—
—
79.6%
5.6
.6
.2
—
mortgage pools(a) . . . . . . . . .
Total(b) . . . . . . . . . . . . . . . . . . $3,117 $73,038 $76,155 100.0%
— 10,661 10,661
14.0
(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 United States Department of Veterans Affairs.
(b) At December 31, 2020, approximately $517 million of residential mortgage balances
were considered sub-prime.
Home Equity and Second Mortgages
(Dollars in Millions)
Lines
Loans
Percent
Total of Total
Loan-to-Value
Less than or equal to 80% . . . . $10,062 $ 708 $10,770 86.3%
Over 80% through 90% . . . . . .
Over 90% through 100% . . . . .
Over 100% . . . . . . . . . . . . . . . .
No LTV/CLTV available . . . . . . .
1,317 10.6
1.7
.7
.7
937
165
83
84
380
42
7
4
207
90
88
Total(a) . . . . . . . . . . . . . . . . . . $11,331 $1,141 $12,472 100.0%
(a) At December 31, 2020, approximately $50 million of home equity and second mortgage
balances were considered sub-prime.
Home equity and second mortgages were $12.5 billion at
December 31, 2020, compared with $15.0 billion at
December 31, 2019, and included $3.5 billion of home equity
lines in a first lien position and $9.0 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, 2020, included
approximately $3.4 billion of loans and lines for which the
Company also serviced the related first lien loan, and
approximately $5.6 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, 2020:
(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 Third Party
First Lien First Lien
Total
$3,445 $5,589 $9,034
.49%
.53%
.52%
.03%
66%
780
.07%
63%
.06%
64%
778
779
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 are diversified across customer
segments and geographies. Diversification in the credit card portfolio
is achieved with broad customer relationship distribution through the
Company’s and financial institution partners’ branches, retail and
affinity partners, and digital channels.
Tables 9, 10 and 11 provide a geographical summary of the
residential mortgage, credit card and other retail loan portfolios,
respectively.
39
TABLE 15 Delinquent Loan Ratios as a Percent of Ending Loan Balances
At December 31
90 days or more past due excluding nonperforming loans
2020
2019
2018
2017
2016
Commercial
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.06%
–
Total commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.05
.08%
–
.08
.07%
–
.07
.06%
–
.06
.06%
–
.06
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered Loans
–
.02
.01
.18
.88
.05
.36
.10
.15
–
.01
–
.01
.17
1.23
.05
.32
.13
.17
–
–
–
–
.18
1.25
.04
.35
.15
.19
–
–
.05
.01
.22
1.28
.03
.28
.15
.17
4.74
.01
.05
.02
.27
1.16
.02
.25
.13
.15
5.53
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.16%
.20%
.20%
.26%
.28%
At December 31
90 days or more past due including nonperforming loans
2020
2019
2018
2017
2016
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.15
.50
Residential mortgages(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.88
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.42
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.57%
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.42%
.27%
.21
.51
1.23
.46
–
.44%
.27%
.29
.63
1.25
.54
–
.49%
.31%
.37
.96
1.28
.46
4.93
.62%
.57%
.31
1.31
1.18
.45
5.68
.78%
(a) Delinquent loan ratios exclude $1.8 billion, $1.7 billion, $1.7 billion, $1.9 billion and $2.5 billion at December 31, 2020, 2019, 2018, 2017 and 2016, respectively, of loans purchased from
GNMA mortgage pools whose repayments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs. Including these
loans, the ratio of residential mortgages 90 days or more past due including all nonperforming loans was 2.87 percent, 2.92 percent, 3.21 percent, 4.16 percent and 5.73 percent at
December 31, 2020, 2019, 2018, 2017, and 2016, 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 a loan account
is considered delinquent if the minimum payment contractually
required to be made is not received by the date specified on the
billing statement. The Company measures delinquencies, both
including and excluding nonperforming loans, to enable
comparability with other companies. Delinquent loans purchased
from GNMA mortgage pools whose repayments are primarily
insured by the Federal Housing Administration or guaranteed by
the United States Department of Veterans Affairs, are excluded
from delinquency statistics. In addition, in certain situations, a
consumer lending customer’s account may be re-aged to
remove it from delinquent status. Generally, the purpose of
re-aging accounts is to assist customers who have recently
overcome temporary financial difficulties and have demonstrated
both the ability and willingness to resume regular payments. To
qualify for re-aging, the account must have been open for at least
nine months and cannot have been re-aged during the preceding
365 days. An account may not be re-aged more than two times
in a five-year period. To qualify for re-aging, the customer must
also have made three regular minimum monthly payments within
the last 90 days. In addition, the Company may re-age the
consumer lending account of a customer who has experienced
longer-term financial difficulties and apply modified,
concessionary terms and conditions to the account. Such
additional re-ages are limited to one in a five-year period and
must meet the qualifications for re-aging described above. All
re-aging strategies must be independently approved by the
Company’s risk management department. Commercial lending
loans are generally not subject to re-aging policies.
Accruing loans 90 days or more past due totaled $477 million
at December 31, 2020, compared with $605 million at
December 31, 2019. 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 0.16 percent at
December 31, 2020, compared with 0.20 percent at
December 31, 2019.
40
The following table provides summary delinquency information for
residential mortgages, credit card and other retail loans included
in the consumer lending segment:
compared with $3.8 billion, $3.9 billion, $4.0 billion and
$4.2 billion at December 31, 2019, 2018, 2017 and 2016,
respectively.
At December 31
(Dollars in Millions)
Residential Mortgages(a)
Amount
As a Percent of Ending
Loan Balances
2020 2019
2020
2019
30-89 days . . . . . . . . . . . . . . . $244 $154
137 120
90 days or more . . . . . . . . . .
245 241
Nonperforming . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . $626 $515
.32%
.18
.32
.82%
.22%
.17
.34
.73%
Credit Card
30-89 days . . . . . . . . . . . . . . . $231 $321
197 306
90 days or more . . . . . . . . . .
— —
Nonperforming . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . $428 $627
1.04%
.88
—
1.92%
1.30%
1.23
—
2.53%
Other Retail
Retail Leasing
30-89 days . . . . . . . . . . . . . . . $ 35 $ 45
4
90 days or more . . . . . . . . . .
Nonperforming . . . . . . . . . . . .
13
Total . . . . . . . . . . . . . . . . . . $ 52 $ 62
4
13
.43%
.05
.16
.64%
.53%
.05
.15
.73%
Home Equity and Second
Mortgages
30-89 days . . . . . . . . . . . . . . . $ 68 $ 77
45
90 days or more . . . . . . . . . .
48
107 116
Nonperforming . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . $220 $241
Other(b)
30-89 days . . . . . . . . . . . . . . . $215 $271
45
90 days or more . . . . . . . . . .
Nonperforming . . . . . . . . . . . .
36
Total . . . . . . . . . . . . . . . . . . $286 $352
37
34
.54%
.36
.86
1.76%
.60%
.10
.09
.79%
.51%
.32
.77
1.60%
.81%
.13
.11
1.05%
(a) Excludes $1.4 billion of loans 30-89 days past due and $1.8 billion of loans 90 days or
more past due at December 31, 2020, purchased from GNMA mortgage pools that
continue to accrue interest, compared with $428 million and $1.7 billion at December 31,
2019, respectively.
(b) Includes revolving credit, installment, automobile and student loans.
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, 2020, performing TDRs were $3.6 billion,
The Company continues to work with customers to modify
loans for borrowers who are experiencing financial difficulties.
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 modifies residential mortgage loans under Federal
Housing Administration, United States Department of Veterans
Affairs, and its own internal programs. Under these programs, the
Company offers qualifying homeowners the opportunity to
permanently modify their loan and achieve more affordable
monthly payments by providing loan concessions. These
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.
Loan modifications or concessions granted to customers
resulting directly from the effects of the COVID-19 pandemic,
who were otherwise in current payment status, are not
considered to be TDRs.
41
The following table provides a summary of TDRs by loan class, including the delinquency status for TDRs that continue to accrue interest
and TDRs included in nonperforming assets:
At December 31, 2020
(Dollars in Millions)
As a Percent of Performing TDRs
Performing
TDRs
30-89 Days
Past Due
90 Days or More
Past Due
Nonperforming
TDRs
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 167
153
1,426
234
197
TDRs, excluding loans purchased from GNMA mortgage
pools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans purchased from GNMA mortgage pools(g) . . . . . . . . . . . . .
2,177
1,434
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,611
6.4%
12.8
5.7
7.9
12.9
7.1
—
4.3%
2.7%
—
4.6
4.0
6.7
4.2
—
2.5%
$230(a)
174(b)
141
—
37(c)
582
—
$582
Total
TDRs
$ 397
327
1,567(d)
234
234(e)
2,759
1,434(f)
$4,193
(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 $272 million of residential mortgage loans to borrowers that have had debt discharged through bankruptcy and $33 million in trial period arrangements or previously placed in trial
period arrangements but not successfully completed.
(e) Includes $77 million of other retail loans to borrowers that have had debt discharged through bankruptcy and $16 million in trial period arrangements or previously placed in trial period
(f)
arrangements but not successfully completed.
Includes $150 million of Federal Housing Administration and United States Department of Veterans Affairs residential mortgage loans to borrowers that have had debt discharged through
bankruptcy and $277 million in trial period arrangements or previously placed in trial period arrangements but not successfully completed.
(g) Approximately 12.3 percent and 41.0 percent of the total TDR loans purchased from GNMA mortgage pools are 30-89 days past due and 90 days or more past due, respectively, but are not
classified as delinquent as their repayments are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs.
Short-term and Other Loan Modifications The Company
makes short-term and other modifications that it does not
consider to be TDRs, in limited circumstances, to assist
borrowers experiencing temporary hardships. Short-term
consumer lending modification 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.
COVID-19 Payment Relief The Company has offered payment
relief, including forbearance, payment deferrals and other
customer accommodations, to assist borrowers that have
experienced financial hardship resulting from the effects of the
COVID-19 pandemic. The majority of these borrowers were not
delinquent on payments at the time they received the payment
relief. From March 2020 through December 31, 2020, the
Company had approved approximately 365,000 loan
modifications for these borrowers, representing approximately
$27.2 billion. The loans modified consisted primarily of payment
forbearance or deferrals of 90 days or less. A portion of the
borrowers who received account modifications are no longer
participating in these payment relief programs, as the programs
are generally short-term; and at December 31, 2020,
approximately 83,000 accounts, representing $10.1 billion, were
currently in an active payment relief program. The recognition of
delinquent or nonaccrual loans and loan net charge-offs may be
delayed for those customers enrolled in these payment relief
programs who would have otherwise moved into past due or
nonaccrual status, as these customer accounts do not continue
to age during the period the payment delay is provided.
42
The following table summarizes borrowers enrolled in payment relief programs as a result of the COVID-19 pandemic at December 31,
2020, as a percentage of the Company’s loans and loan balances:
Percentage of Loan Accounts Percentage of Loan Balances
in Payment Relief Programs
in Payment Relief Programs
Program Details
Commercial . . . . . . . . . . . . .
.11%
.13%
Commercial real estate . . . .
.52
.78
Residential mortgages(a) . . . .
3.00
4.21
Credit cards . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . .
.18
.62
.38
.98
Primarily 3 month payment deferral up to a maximum of
6 months; interest continues to accrue with various
payment options; may include short-term covenant
waivers
Primarily 3 month payment deferral up to a maximum of
6 months; interest continues to accrue with various
payment options; may include short-term covenant
waivers
Primarily 6 month payment forbearance, which may be
extended up to 12 months; interest continues to accrue;
cumulative payments suspended during forbearance
period are either paid-off immediately or under a short-
term repayment plan, or addressed through a
permanent loan modification that either requires
repayment at maturity or through restructured payments
over time
Primarily 3 month payment deferral; interest continues to
accrue
Home equity loan programs are similar to residential
mortgage programs; programs for other loan portfolios
are primarily 2 month payment deferral up to a maximum
of 4 months; interest continues to accrue
Total loans(a) . . . . . . . . . . .
.31%
1.36%
Note: Payment relief generally includes payment deferrals, forbearances, extensions and re-ages, and excludes loans made under the Small Business Administration’s (“SBA”) Paycheck Protection
Program, as amounts due under that program are expected to be fully forgiven by the SBA.
(a) Excludes loans purchased from GNMA mortgage pools, whose repayments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of
Veterans Affairs. At December 31, 2020, 52.12 percent of the total number of accounts and 55.71 percent of the total loan balances of loans purchased from GNMA mortgage pools were to
borrowers enrolled in payment relief programs as a result of the COVID-19 pandemic. Including these loans, 13.61 percent of the total number of accounts and 11.42 percent of the total
balances of residential mortgages were to borrowers enrolled in payment relief programs as result of the COVID-19 pandemic. Including these loans, .61 percent of the total number of
accounts and 3.35 percent of the total balances of all loans were to borrowers enrolled in payment relief programs as result of the COVID-19 pandemic.
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. 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, 2020, total nonperforming assets were
$1.3 billion, compared with $829 million at December 31, 2019.
The $469 million (56.6 percent) increase in nonperforming assets,
from December 31, 2019 to December 31, 2020, was driven by
increases in nonperforming commercial and commercial real
estate loans. The ratio of total nonperforming assets to total loans
and other real estate was 0.44 percent at December 31, 2020,
compared with 0.28 percent at December 31, 2019. The
Company expects nonperforming assets to remain elevated given
current economic conditions.
OREO was $24 million at December 31, 2020, compared with
$78 million at December 31, 2019, 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 United States Department of Veterans Affairs.
43
TABLE 16 Nonperforming Assets(a)
At December 31 (Dollars in Millions)
Commercial
2020
2019
2018
2017
2016
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 321
54
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
375
$172
32
204
$186
23
209
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered Loans
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
411
39
450
245
—
13
107
34
154
—
1,224
Total nonperforming loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Real Estate(c)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24
Covered Other Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Other Assets
50
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total nonperforming assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,298
Accruing loans 90 days or more past due(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 477
Nonperforming loans to total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming assets to total loans plus other real estate(c) . . . . . . . . . . . . . . . . . . . .
.41%
.44%
74
8
82
241
—
13
116
36
165
—
692
78
—
59
76
39
115
296
—
12
145
40
197
—
817
111
—
61
$829
$605
.23%
.28%
$989
$584
.28%
.34%
$ 225
24
$ 443
40
249
108
34
142
442
1
8
126
34
168
6
483
87
37
124
595
3
2
128
27
157
6
1,008
141
21
30
$1,200
$ 720
1,368
186
26
23
$1,603
$ 764
.36%
.43%
.50%
.59%
Changes in Nonperforming Assets
(Dollars in Millions)
Balance December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net additions to (reductions in) nonperforming assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial and
Commercial
Real Estate
Residential
Mortgages,
Credit Card and
Other Retail
Total
$ 321
$ 508
$ 829
1,428
15
1,443
(314)
(237)
(19)
(340)
(910)
533
264
1
265
(123)
(63)
(118)
(25)
(329)
(64)
1,692
16
1,708
(437)
(300)
(137)
(365)
(1,239)
469
Balance December 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 854
$ 444
$ 1,298
(a) Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due.
(b) Excludes $1.8 billion, $1.7 billion, $1.7 billion, $1.9 billion, and $2.5 billion at December 31, 2020, 2019, 2018, 2017 and 2016, 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 United States
Department of Veterans Affairs.
(c) Foreclosed GNMA loans of $33 million, $155 million, $235 million, $267 million and $373 million at December 31, 2020, 2019, 2018, 2017 and 2016, 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 United States Department of
Veterans Affairs.
(d) Charge-offs exclude actions for certain card products and loan sales that were not classified as nonperforming at the time the charge-off occurred.
44
The following table provides an analysis of OREO, 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
2020
2019
2020
2019
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial
Iowa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3
2
2
2
2
12
23
1
—
—
1
$24
$ 6
7
6
10
4
41
74
—
3
1
4
$78
.05%
.01
.17
.04
.07
.03
.03
.04
—
—
—
.01%
.10%
.03
.66
.22
.12
.09
.09
—
.01
—
—
.03%
Analysis of Loan Net Charge-offs Total loan net charge-offs
were $1.8 billion in 2020, compared with $1.5 billion in 2019. The
$332 million (22.8 percent) increase in total net charge-offs in
2020, compared with 2019, reflected higher commercial and
commercial real estate loan net charge-offs, partially offset by a
decrease in credit card loan net charge-offs. The ratio of total
loan net charge-offs to average loans outstanding was
0.58 percent in 2020, compared with 0.50 percent in 2019.
Commercial and commercial real estate loan net charge-offs
for 2020 were $700 million (0.45 percent of average loans
outstanding), compared with $299 million (0.21 percent of
average loans outstanding) in 2019. The increase in net charge-
offs in 2020, compared with 2019, reflected higher charge-offs as
a result of deteriorating economic conditions in 2020.
Residential mortgage loan net charge-offs for 2020 reflected a
net recovery of $12 million (0.02 percent of average loans
outstanding), compared with $3 million of net charge-offs in
2019. Credit card loan net charge-offs in 2020 were $829 million
(3.71 percent of average loans outstanding), compared with
$893 million (3.83 percent of average loans outstanding) in 2019.
Other retail loan net charge-offs for 2020 were $269 million
(0.47 percent of average loans outstanding), compared with
$259 million (0.45 percent of average loans outstanding) in 2019.
The decrease in total residential mortgage, credit card and other
retail loan net charge-offs in 2020, compared with 2019, reflected
lower credit card and residential mortgage loan charge-offs,
partially offset by higher retail leasing charge-offs due to the
inclusion of end of term losses on residual lease values as of
January 1, 2020.
45
TABLE 17 Net Charge-offs as a Percent of Average Loans Outstanding
2019
Year Ended December 31
2020
2018
2017
2016
Commercial
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.45%
.54
Total commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.45
.28%
.22
.28
.25%
.25
.25
.27%
.31
.28
.35%
.34
.35
Commercial Real Estate
Commercial mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.62
.02
.46
Total commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(.02)
Credit Card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.71
Other Retail
Retail leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home equity and second mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.96
(.03)
.56
Total other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.47
.04
.02
.04
—
3.83
.15
(.02)
.76
.45
(.06)
(.02)
(.05)
.03
3.90
.15
(.02)
.79
.46
.03
(.07)
—
.06
3.76
.14
(.03)
.75
.44
(.01)
(.08)
(.03)
.11
3.30
.09
.01
.71
.42
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.58%
.50%
.48%
.48%
.47%
Analysis and Determination of the Allowance for Credit Losses
Prior to January 1, 2020, the allowance for credit losses was
established to reserve for probable and estimable losses incurred in
the Company’s loan and lease portfolio, including unfunded credit
commitments. Effective January 1, 2020, the Company adopted
new accounting guidance which changed previous impairment
recognition to a model that is based on expected losses rather than
incurred losses. The allowance considers expected losses for the
remaining lives of the applicable assets, inclusive of expected
recoveries. The allowance for credit losses is increased through
provisions charged to earnings and reduced by net charge-offs.
Management evaluates the appropriateness of the allowance for
credit losses on a quarterly basis. Multiple economic scenarios are
considered over a three-year reasonable and supportable forecast
period, which incorporates historical loss experience in years two
and three. These economic scenarios are constructed with
interrelated projections of multiple economic variables, and loss
estimates are produced that consider the historical correlation of
those economic variables with credit losses. After the forecast
period, the Company fully reverts to long-term historical loss
experience, adjusted for prepayments and characteristics of the
current loan and lease portfolio, to estimate losses over the
remaining life of the portfolio. The economic scenarios are updated
at least quarterly and are designed to provide a range of reasonable
estimates, which are both better and worse than current
expectations. Scenarios are weighted based on the Company’s
expectation of economic conditions for the foreseeable future and
reflect significant judgment and consider uncertainties that exist.
Final loss estimates also consider factors affecting credit losses not
reflected in the scenarios, due to the unique aspects of current
conditions and expectations. These factors may include, but are not
limited to, loan servicing practices, regulatory guidance, and/or fiscal
and monetary policy actions. 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.
The allowance recorded for credit losses utilizes forward-
looking expected loss models to consider a variety of factors
affecting lifetime credit losses. These factors include, but are not
limited to, macroeconomic variables such as unemployment
rates, real estate prices, gross domestic product levels, corporate
bonds spreads and long-term interest rate forecasts, as well as
loan and borrower characteristics, such as internal risk ratings on
commercial loans and consumer credit scores, delinquency
status, collateral type and available valuation information,
consideration of end-of-term losses on lease residuals, and the
remaining term of the loan, adjusted for expected prepayments.
For each loan portfolio, model estimates are adjusted as
necessary to consider any relevant changes in portfolio
composition, lending policies, underwriting standards, risk
management practices, economic conditions or other factors that
may affect the accuracy of the model. Expected credit loss
estimates also include consideration of expected cash recoveries
on loans previously charged-off or expected recoveries on
collateral-dependent loans where recovery is expected through
sale of the collateral. Where loans do not exhibit similar risk
characteristics, an individual analysis is performed to consider
expected credit losses.
The allowance recorded for individually evaluated loans
greater than $5 million in the commercial lending segment is
based on an 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 as appropriate. 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
46
2019
$4,441
–
2018
$4,417
–
2017
$4,357
–
2016
$4,306
–
TABLE 18 Summary of Allowance for Credit Losses
(Dollars in Millions)
2020
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,491
Change in accounting principle(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,499
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
536
39
575
202
8
210
19
975
101
16
284
401
2,180
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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
53
9
62
17
6
23
31
146
20
20
92
132
394
483
30
513
185
2
187
(12)
829
380
19
399
17
4
21
34
1,028
24
19
342
385
1,867
107
7
114
5
2
7
31
135
11
22
93
126
413
273
12
285
12
2
14
3
893
81
Retail leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4)
Home equity and second mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
192
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
269
Total other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,786
Total net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,806
–
Other changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,010
Components
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,314
696
Liability for unfunded credit commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,010
13
(3)
249
259
1,454
1,504
–
$4,491
$4,020
471
$4,491
328
22
350
6
3
9
48
970
21
25
337
383
1,760
91
8
99
23
5
28
31
124
9
28
87
124
406
237
14
251
(17)
(2)
(19)
17
846
12
(3)
250
259
1,354
1,379
(1)
$4,441
$3,973
468
$4,441
387
27
414
28
2
30
65
887
16
31
308
355
1,751
140
10
150
20
10
30
28
101
6
36
70
112
421
247
17
264
8
(8)
–
37
786
10
(5)
238
243
1,330
1,390
–
$4,417
$3,925
492
$4,417
388
29
417
12
10
22
85
759
9
40
283
332
1,615
81
11
92
16
19
35
25
83
4
39
68
111
346
307
18
325
(4)
(9)
(13)
60
676
5
1
215
221
1,269
1,324
(4)
$4,357
$3,813
544
$4,357
Allowance for Credit Losses as a Percentage of
Period-end loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming and accruing loans 90 days or more past due . . . . . . . . . . . . . . . . . . . .
Nonperforming assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.69%
654
471
617
448
1.52%
649
346
542
309
1.55%
544
317
449
328
1.58%
438
256
368
332
1.59%
318
204
272
343
(a) Effective January 1, 2020, the Company adopted accounting guidance which changed impairment recognition of financial instruments to a model that is based on expected losses rather than
incurred losses.
47
TABLE 19 Allocation of the Allowance for Credit Losses
Allowance Amount
Allowance as a Percent of Loans
At December 31 (Dollars in Millions)
2020
2019
2018
2017
2016
2020
2019
2018
2017
2016
Commercial
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . .
$2,344
79
$1,413
71
$1,388
66
$1,298
74
$1,376
74
2.41% 1.44% 1.43% 1.41% 1.56%
1.18
1.42
1.25
1.32
1.36
Total commercial . . . . . . . . . . . . . . . . . . . . . .
2,423
1,484
1,454
1,372
1,450
2.36
1.43
1.42
1.41
1.55
Commercial Real Estate
Commercial mortgages . . . . . . . . . . . . . . . . . . .
Construction and development . . . . . . . . . . . . .
Total commercial real estate . . . . . . . . . . . . .
Residential Mortgages . . . . . . . . . . . . . . . . .
Credit Card . . . . . . . . . . . . . . . . . . . . . . . . . . .
894
650
1,544
573
2,355
Other Retail
Retail leasing . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home equity and second mortgages . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
252
349
514
Total other retail . . . . . . . . . . . . . . . . . . . . . . .
Covered Loans . . . . . . . . . . . . . . . . . . . . . . . .
1,115
–
272
527
799
433
1,128
78
232
337
647
–
269
531
800
455
1,102
25
265
340
630
–
295
536
831
449
1,056
21
298
359
678
31
282
530
812
510
934
11
300
306
617
34
3.14
6.00
3.93
.75
10.54
3.09
2.80
1.41
1.96
–
.93
5.10
2.01
.61
4.55
.92
1.54
1.00
1.13
–
.94
4.85
2.02
.70
4.72
.29
1.64
1.07
1.12
–
1.00
4.83
2.05
.75
4.76
.26
1.83
1.09
1.18
.99
.89
4.61
1.88
.89
4.29
.17
1.83
.98
1.15
.89
Total allowance . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8,010
$4,491
$4,441
$4,417
$4,357
2.69% 1.52% 1.55% 1.58% 1.59%
also incorporated into the allowance methodology applied to this
category of loans. Commercial lending segment TDR loans may
be collectively evaluated for impairment where observed
performance history, including defaults, is a primary driver of the
loss allocation.
The allowance recorded for TDR loans in the consumer
lending segment is determined on a homogenous pool basis
utilizing expected cash flows discounted using the original
effective interest rate of the pool. The expected cash flows on
TDR loans consider subsequent payment defaults since
modification, the borrower’s ability to pay under the restructured
terms, and the timing and amount of payments. The allowance
for collateral-dependent loans in the consumer lending segment
is determined based on the current fair value of the collateral less
costs to sell.
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, 2020, the Company serviced the
first lien on 38 percent of the home equity loans and lines in a
junior lien position. The Company also considers the status of first
lien mortgage accounts reported on customer credit bureau files
when the first lien is not serviced by the Company. Regardless of
whether 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 $209 million or 1.7 percent of its total home equity
portfolio at December 31, 2020, represented non-delinquent
junior liens where the first lien was delinquent or modified,
excluding loans in COVID-related forbearance programs.
The Company considers historical loss experience on the
loans and lines in a junior lien position to establish loss estimates
for junior lien loans and lines the Company services that are
current, but the first lien is delinquent or modified. The historical
long-term average loss experience related to junior liens has been
relatively limited (less than 1 percent of the total portfolio
annually), and estimates are adjusted to consider current
collateral support and portfolio risk characteristics. These include
updated credit scores and collateral estimates obtained on the
Company’s home equity portfolio each quarter. 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.
Beginning January 1, 2020, when a loan portfolio is
purchased, the acquired loans are divided into those considered
purchased with more than insignificant credit deterioration
(“PCD”) and those not considered purchased with more than
insignificant credit deterioration. An allowance is established for
each population and considers product mix, risk characteristics
of the portfolio, bankruptcy experience, delinquency status and
refreshed LTV ratios when possible. The allowance established
for purchased loans not considered PCD is recognized through
provision expense upon acquisition, whereas the allowance
established for loans considered PCD at acquisition is offset by
an increase in the basis of the acquired loans. Any subsequent
increases and decreases in the allowance related to purchased
loans, regardless of PCD status, are recognized through
provision expense, with charge-offs charged to the allowance.
The Company did not have a material amount of PCD loans
included in its loan portfolio at December 31, 2020.
The Company’s methodology for determining the appropriate
allowance for credit losses also considers the imprecision inherent
in the methodologies used and allocated to the various loan
portfolios. As a result, amounts determined under the
methodologies described above are adjusted by management to
48
consider the potential impact of other qualitative factors not
captured in quantitative model adjustments which include, but are
not limited to, the following: model imprecision, imprecision in
economic scenario assumptions, and emerging risks related to
either changes in the economic environment that are affecting
specific portfolios, or changes in portfolio concentrations over time
that may affect model performance. The consideration of these
items results in adjustments to allowance amounts included in the
Company’s allowance for credit losses for each loan portfolio.
The results of the analysis are evaluated quarterly to confirm
the estimates are appropriate for each loan portfolio. Table 19
shows the amount of the allowance for credit losses by loan class
and underlying portfolio category.
Although the Company determined 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 can vary significantly from the estimated
amounts.
At December 31, 2020, the allowance for credit losses was
$8.0 billion (2.69 percent of period-end loans), compared with an
allowance of $4.5 billion (1.52 percent of period-end loans) at
December 31, 2019. The ratio of the allowance for credit losses to
nonperforming loans was 654 percent at December 31, 2020,
compared with 649 percent at December 31, 2019. The ratio of the
allowance for credit losses to annual loan net charge-offs at
December 31, 2020, was 448 percent, compared with 309 percent
at December 31, 2019. Management determined the allowance for
credit losses was appropriate at December 31, 2020.
The increase in the allowance for credit losses of $3.5 billion
(78.4 percent) at December 31, 2020, compared with
December 31, 2019, reflected the $1.5 billion impact of the
January 1, 2020 adoption of new accounting guidance, along
with an additional $2.0 billion increase during 2020 to recognize
the expected losses resulting from the deteriorating and ongoing
effects of adverse economic conditions driven by the impact of
COVID-19 on the domestic and global economies, as well as new
loan production and acquired loans. Expected loss estimates
consider various factors including the changing economic activity,
potential mitigating effects of government stimulus, estimated
duration and severity of the health crisis, customer specific
information impacting changes in risk ratings, projected
delinquencies and the impact of industry-wide loan modification
efforts designed to limit long-term effects of the COVID-19
pandemic, among other factors.
Changes in economic conditions in 2020 included significant
reductions in economic activity related to actions taken by
customers and governmental authorities to slow the spread of
COVID-19. Levels of employment and overall gross domestic
product in the United States declined significantly with the initial
wave of the pandemic, and had not fully recovered at December
31, 2020, which contributed to the increase in expected credit
losses. At the same time, record economic stimulus measures
were also enacted, and additional measures are being
considered, with the intent to support businesses and consumers
through what is expected to be a period of reduced economic
activity. These competing positive and negative factors are
evaluated through a combination of quantitative calculations
using economic scenarios and qualitative assessments that
consider the high degree of uncertainty related to the
unprecedented levels of both economic stress and the stimulus
response.
The following table summarizes the baseline forecast for key economic variables the Company used in its estimate of the allowance for
credit losses at January 1, 2020 and December 31, 2020:
United States unemployment rate for the three months ending(a)
December 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United States real gross domestic product for the three months ending(b)
December 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Reflects quarterly average of forecasted reported United States unemployment rate.
(b) Reflects cumulative change from December 31, 2019.
January 1,
2020
December 31,
2020
4.0%
4.0
4.0
1.2%
2.2
2.9
6.7%
7.1
6.8
(2.5)%
(1.1)
1.5
49
Baseline economic forecasts are used in combination with
alternative scenarios and historical loss experience as is
considered reasonable and supportable to inform the Company’s
allowance for credit losses. Changes in the allowance for credit
losses are based on a variety of factors, including loan balance
changes, portfolio credit quality and mix changes, and changes in
general economic conditions and expectations (including for
unemployment and gross domestic product), among other
factors. Based on economic conditions at December 31, 2020, it
was difficult to estimate the length and severity of the economic
downturn that may result from COVID-19 and the impact of other
factors that may influence the level of eventual losses and
corresponding requirements for the allowance for credit losses,
including the impact of economic stimulus programs and
customer accommodation activity. While reserves consider the
uncertainty in these estimates, the unpredictability of the
COVID-19 pandemic could continue to result in the recognition of
credit losses in the Company’s loan portfolios and changes in the
allowance for credit losses, particularly if the economy worsens.
The allowance for credit losses related to commercial lending
segment loans increased $1.4 billion during the year ended
December 31, 2020, as increased loan volume and credit
downgrades during the period reflected the impact of COVID-19
on certain industry sectors, including the retail and restaurants,
energy, media and entertainment, lodging and airline industries
that were severely impacted by virus containment measures.
The following table summarizes the Company’s commercial
lending segment credit exposure to customers within the industry
sectors most impacted by COVID-19, as a percentage of total
loans and legal commitments outstanding at December 31, 2020:
Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Energy (includes Oil and gas) . . . . . . . . . . .
Media and entertainment . . . . . . . . . . . . . .
Lodging . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Airline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans
3.8%
.9
2.0
1.3
.3
Outstanding
Commitments
5.2%
2.2
2.2
1.0
.5
The allowance for credit losses related to consumer lending
segment loans increased $592 million during the year ended
December 31, 2020, as higher economic risks, including those
due to increased unemployment, and increases in expected
losses related to acquired portfolios were partially mitigated by
strong underlying credit quality that supports expectations of
long-term repayment, and the decline in funded loan balances.
Residual Value Risk Management The Company manages its
risk to changes in the residual value of leased vehicles, office and
business equipment, and other 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. 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 effective end-of-term marketing of off-lease vehicles.
Included in the retail leasing portfolio was approximately
$6.3 billion of retail leasing residuals at December 31, 2020,
compared with $6.6 billion at December 31, 2019. The Company
monitors concentrations of leases by manufacturer and vehicle
type. As of December 31, 2020, vehicle lease residuals related to
sport utility vehicles were 46.3 percent of the portfolio, while truck
and crossover utility vehicle classes represented approximately
32.8 percent and 14.3 percent of the portfolio, respectively. At
year-end 2020, the individual vehicle model with the largest
residual value outstanding represented 13.2 percent of the
aggregate residual value of all vehicles in the portfolio. At
December 31, 2020 and 2019, the weighted-average origination
term of the portfolio was 41 months. At December 31, 2020, the
commercial leasing portfolio had $498 million of residuals,
compared with $481 million at December 31, 2019. At year-end
2020, lease residuals related to trucks and other transportation
equipment represented 32.2 percent of the total residual
portfolio, while business and office equipment represented
32.1 percent.
Operational Risk Management. 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, including those additional or increased risks
created by the economic and financial disruptions, and the
Company’s alternative working arrangements resulting from the
COVID-19 pandemic. 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
50
controls, processes and systems to protect its networks,
computers, software and data from attack, damage or
unauthorized access but future attacks could be more disruptive
or damaging. Attack attempts on the Company’s computer
systems are evolving and 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 its
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, consumer
protection and other requirements. The Company has controls
and processes in place for the assessment, identification,
monitoring, management and reporting of compliance risks and
issues, including those created or increased by the economic and
financial disruptions caused by the COVID-19 pandemic. Refer to
“Supervision and Regulation” in the Company’s Annual Report on
Form 10-K for further discussion of the regulatory framework
applicable to bank holding companies and their subsidiaries.
Interest Rate Risk Management In the banking industry,
changes in interest rates are a significant risk that can impact
earnings and the safety and soundness of an entity. The
Company manages its exposure to changes in interest rates
through asset and liability management activities within guidelines
established by its Asset Liability Management 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.
TABLE 20 Sensitivity of Net Interest Income
One way the Company measures and analyzes its interest rate
risk is through net interest income simulation analysis.
Simulation 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 various interest rate changes
that differ in the direction, amount and speed of change over
time, as well as the shape 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 reviewed and validated on a
periodic basis with sensitivity analysis being provided for key
variables of the simulation. The results are reviewed monthly by
the ALCO and are used to guide asset/liability management
strategies.
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 selecting derivatives and various funding and
investment portfolio strategies.
Table 20 summarizes the projected impact to net interest
income over the next 12 months of various potential interest rate
changes. The sensitivity of the projected impact to net interest
income over the next 12 months is dependent on balance sheet
growth, product mix, deposit behavior, pricing and funding
decisions. While the Company utilizes models and assumptions
based on historical information and expected behaviors, actual
outcomes could vary significantly.
December 31, 2020
December 31, 2019
Down 50 bps Up 50 bps Down 200 bps Up 200 bps
Gradual
Immediate
Immediate
Gradual
Down 50 bps Up 50 bps Down 200 bps Up 200 bps
Gradual
Immediate
Immediate
Gradual
Net interest income . . . . . . . . . . . . . .
(4.48)%
4.58%
*
6.57%
(1.43)%
.83%
*
.21%
* Given the level of interest rates, downward rate scenario is not computed.
51
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 and available-for-sale investment
securities from fixed-rate payments to floating-rate payments;
– To convert the cash flows associated with floating-rate debt
from floating-rate payments to fixed-rate payments;
– To mitigate changes in value of the Company’s unfunded
mortgage loan commitments, funded MLHFS and MSRs;
– To mitigate remeasurement volatility of foreign currency
denominated balances; and
– To mitigate the volatility of the Company’s net investment in
foreign operations driven by fluctuations in foreign currency
exchange rates.
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 may enter into derivative contracts that are either
exchange-traded, centrally cleared through clearinghouses or
over-the-counter. 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, swaptions, 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,
2020, to an immediate 25, 50 and 100 bps downward movement
in interest rates would be a decrease of approximately $5 million,
an increase of $10 million and an increase of $81 million,
respectively. An immediate upward movement in interest rates at
December 31, 2020, of 25, 50 and 100 bps would result in an
increase of approximately $20 million, $39 million and $46 million,
in the fair value of the MSRs and related derivative instruments,
respectively. Refer to Note 9 of the Notes to Consolidated
Financial Statements for additional information regarding MSRs.
Additionally, the Company uses forward commitments to sell
TBAs and other commitments to sell residential mortgage loans at
specified prices to economically hedge the interest rate risk in its
residential mortgage loan production activities. At December 31,
2020, the Company had $15.0 billion of forward commitments to
sell, hedging $7.0 billion of MLHFS and $12.0 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, including consideration of the COVID-19
pandemic. 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,
interest rate 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 19 and 20 in the Notes to Consolidated
Financial Statements.
LIBOR Transition In July 2017, the United Kingdom’s Financial
Conduct Authority announced that it would no longer require
banks to submit rates for the London InterBank Offered Rate
(“LIBOR”) after 2021. In November 2020, the Intercontinental
Exchange Benchmark Administration, which is the administrator
of LIBOR, proposed to cease the publication of all non-United
States Dollar LIBOR rates and one week and two month United
States Dollar LIBOR rates on December 31, 2021, but extend the
publication of the remainder of United States Dollar LIBOR rates
until June 30, 2023. The Company holds financial instruments
that will be impacted by the discontinuance of LIBOR, including
certain loans, investment securities, derivatives, borrowings and
other financial instruments that use LIBOR as the benchmark
rate. The Company also provides various services to customers
in its capacity as trustee, which involve financial instruments that
will be similarly impacted by the discontinuance of LIBOR. The
Company anticipates these financial instruments will require
transition to a new reference rate. This transition will occur over
time as many of these arrangements do not have an alternative
rate referenced in their contracts or a clear path for the parties to
agree upon an alternative reference rate. In order to facilitate the
transition process, the Company has instituted a LIBOR
Transition Office and commenced an enterprise-wide project to
identify, assess and monitor risks associated with the expected
discontinuance or unavailability of LIBOR, actively engage with
industry working groups and regulators, achieve operational
readiness and engage impacted customers. During 2020, the
Company began modifying its systems, models, procedures and
internal infrastructure to be prepared to accept alternative
52
reference rates. The Company also adopted industry best
practice guidelines for fallback language for new transactions,
converted its cleared interest rate swaps discounting to Secured
Overnight Financing Rate discounting, and distributed
communications to certain impacted parties, both inside and
outside the Company, on the transition. Refer to “Risk Factors”
beginning on page 146, for further discussion on potential risks
that could adversely affect the Company’s financial results as a
result of the LIBOR transition.
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, as well as the remeasurement volatility of foreign
currency denominated balances included on its Consolidated
Balance Sheet (collectively, “Covered Positions”), 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
Covered Positions and establishes policies for market risk
management, including exposure limits for each portfolio. The
Company uses a VaR approach to measure general market risk.
Theoretically, VaR represents the statistical risk of loss the
Company has to adverse market movements over a one-day time
horizon. The Company uses the Historical Simulation method to
calculate VaR for its Covered Positions 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 the Company’s corporate bond trading business, foreign
currency transaction business, client derivatives business, loan
trading business and municipal securities business, as well as
those inherent in the Company’s foreign denominated balances
and the derivatives used to mitigate the related measurement
volatility. On average, the Company expects the one-day VaR to
be exceeded by actual losses two to three times per year related
to these positions. The Company monitors the accuracy of
internal VaR models and modeling processes by back-testing
model performance, regularly updating the historical data used by
the VaR models and regular model validations 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. 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 one-day VaR amounts for
the Company’s Covered Positions were as follows:
Year Ended December 31
(Dollars in Millions)
2020
2019
Average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Period-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2
3
1
2
$1
2
1
1
Given the market volatility in the first quarter of 2020 resulting
from effects of the COVID-19 pandemic, the Company
experienced actual losses for its combined Covered Positions
that exceeded VaR five times during the year ended
December 31, 2020. The Company did not experience any actual
losses for its combined Covered Positions that exceeded VaR
during 2019. 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 Covered Positions. 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 one-day Stressed VaR
amounts for the Company’s Covered Positions were as follows:
Year Ended December 31
(Dollars in Millions)
2020
2019
Average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Period-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6
8
4
5
$6
9
4
5
Valuations of positions in client derivatives and foreign
currency activities are based on discounted 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 senior management in the Company’s
corporate functions. 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 senior
management in the Company’s corporate functions.
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. A
one-year look-back period is used to obtain past market data for
the models.
53
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)
2020
2019
Residential Mortgage Loans Held For Sale
and Related Hedges
Average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage Servicing Rights and Related
Hedges
Average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10
22
2
$19
54
1
$ 3
8
–
$ 7
11
4
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 of the
Company’s Board of Directors oversees the Company’s liquidity
risk management process and approves a contingency funding
plan. The ALCO reviews the Company’s liquidity policy and limits,
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, entity and
market concentrations. The Company operates a Cayman
Islands 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 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 liquidity sources include
cash at the Federal Reserve Bank and certain European central
banks, unencumbered liquid assets, and capacity to borrow from
the FHLB and at Federal Reserve Bank’s Discount Window.
Unencumbered liquid assets in the Company’s investment
securities portfolio provides asset liquidity through the Company’s
ability to sell the securities or pledge and borrow against them. At
December 31, 2020, the fair value of unencumbered investment
securities totaled $125.9 billion, compared with $114.2 billion at
December 31, 2019. Refer to Note 4 of the Notes to
Consolidated Financial Statements and “Balance Sheet Analysis”
for further information on investment securities maturities and
trends. Asset liquidity is further enhanced by the Company’s
practice of pledging loans to access secured borrowing facilities
through the FHLB and Federal Reserve Bank. At December 31,
2020, the Company could have borrowed a total of an additional
$96.5 billion from the FHLB and Federal Reserve Bank based on
collateral available for additional borrowings.
The Company’s diversified deposit base provides a sizeable
source of relatively stable and low-cost funding, while reducing
the Company’s reliance on the wholesale markets. Total deposits
were $429.8 billion at December 31, 2020, compared with
$361.9 billion at December 31, 2019. 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 $41.3 billion at
December 31, 2020, 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 $11.8 billion at
December 31, 2020, and supplement the Company’s other
funding sources. Refer to Note 12 of the Notes to Consolidated
Financial Statements and “Balance Sheet Analysis” for further
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.
54
TABLE 21 Debt Ratings
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
A1
Long-term issuer rating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
P-1
Short-term issuer rating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aa1
Long-term deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
P-1
Short-term deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A1
Senior unsecured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A1
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
P-1
Counterparty risk assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Aa2(cr)/P-1(cr)
Aa3/P-1
Counterparty risk rating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
aa3
Baseline credit assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A+
A-1
A+
A-1
BBB
AA-
A-1+
AA-
A
A-1+
Dominion
Bond Rating
Service
AA
R-1 (middle)
AA
AA (low)
A
AA (high)
R-1 (high)
AA (high)
AA (high)
AA
Fitch
AA-
F1+
A+
A
BBB+
F1+
AA-
F1+
AA
F1+
AA-
F1+
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 securities. The Company establishes
limits for the minimal number of months into the future where the
parent company can meet existing and forecasted obligations
with cash and securities held that can be readily monetized. The
Company measures and manages this limit in both normal and
adverse conditions. The Company maintains sufficient funding to
meet expected capital and debt service obligations for 24 months
without the support of dividends from subsidiaries and assuming
access to the wholesale markets is maintained. The Company
maintains sufficient liquidity to meet its capital and debt service
obligations for 12 months under adverse conditions without the
support of dividends from subsidiaries or access to the wholesale
markets. The parent company is currently well in excess of
required liquidity minimums.
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, 2020, parent company long-term debt
outstanding was $20.9 billion, compared with $18.6 billion at
December 31, 2019. The increase was primarily due to
$2.8 billion of medium-term note issuances, partially offset by
$1.2 billion of medium-term note repayments. As of
December 31, 2020, there was $1.5 billion of parent company
debt scheduled to mature in 2021. Future debt maturities may be
met through medium-term note and capital security issuances
and dividends from subsidiaries, as well as from parent company
cash and cash equivalents.
Dividend payments to the Company by its subsidiary bank are
subject to regulatory review and statutory limitations and, in some
instances, regulatory approval. In general, dividends to the parent
company from its banking subsidiary are limited by rules which
compare dividends to net income for regulatorily-defined periods.
For further information, see Note 24 of the Notes to Consolidated
Financial Statements.
The Company is subject to a regulatory Liquidity Coverage
Ratio (“LCR”) requirement which requires banks to maintain an
adequate level of unencumbered high quality liquid assets to
meet estimated liquidity needs over a 30-day stressed period. At
December 31, 2020, the Company was compliant with this
requirement.
European Exposures The Company provides merchant
processing and corporate trust services in Europe either directly
or through banking affiliations in Europe. Revenue generated from
sources in Europe represented approximately 2 percent of the
Company’s total net revenue for 2020. Operating cash for these
businesses is deposited on a short-term basis typically with
certain European central banks. For deposits placed at other
European banks, exposure is mitigated by the Company placing
55
TABLE 22 Contractual Obligations
At December 31, 2020 (Dollars in Millions)
Contractual Obligations(a)
Payments Due By Period
One Year
or Less
Over One
Through
Three Years
Over Three
Through
Five Years
Long-term debt(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,266
290
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32
Benefit obligations(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,808
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,274
Contractual interest payments(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,592
Equity investment commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
339
Other(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $34,601
$11,480
463
68
5,065
1,272
577
90
$19,015
$11,821
266
109
1,819
719
139
22
$14,895
Over Five
Years
$10,730
344
204
2
597
58
92
$12,027
Total
$41,297
1,363
413
30,694
3,862
2,366
543
$80,538
(a) Unrecognized tax positions of $474 million at December 31, 2020, 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 finance leases.
(c) Amounts include obligations related to the unfunded non-qualified pension plan and postretirement welfare plan.
(d) Includes accrued interest and future contractual interest obligations.
(e) Primarily includes purchase obligations for goods and services covered by noncancellable contracts including cancellation fees.
deposits at multiple banks and managing the amounts on deposit at
any bank based on institution-specific deposit limits. At
December 31, 2020, the Company had an aggregate amount on
deposit with European banks of approximately $10.9 billion,
predominately with the Central Bank of Ireland and Bank of England.
In addition, the Company provides financing to domestic
multinational corporations that generate revenue from customers
in European countries, transacts with various European banks as
counterparties to certain derivative-related activities, and through
a subsidiary, manages money market funds that hold certain
investments in European sovereign debt. Any further deterioration
in economic conditions in Europe, including the potential negative
impact of the United Kingdom’s withdrawal from the European
Union (“Brexit”), is not expected to have a significant effect on the
Company related to these activities. The Company is focused on
providing continuity of services, with minimal disruption resulting
from Brexit, to customers with activities in European countries.
The Company has made certain structural changes to its legal
entities and operations in the United Kingdom and European
Union, where needed, and migrated certain business activities to
the appropriate jurisdictions to continue to provide such services
and generate revenue.
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, 2020 were
$344.2 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, 2020
were $10.4 billion. For more information on the Company’s
commitments to extend credit and letters of credit, refer to
Note 22 in the Notes to Consolidated Financial Statements.
The Company’s off-balance sheet arrangements with
unconsolidated entities primarily consist of private investment
funds or partnerships that make equity investments, provide debt
financing or support community-based investments in
tax-advantaged projects. In addition to providing investment
returns, these arrangements in many cases assist the Company in
complying with requirements of the Community Reinvestment Act.
The investments in these entities generate a return primarily
through the realization of federal and state income tax credits 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, 2020 was approximately $3.0 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 $35 million
at December 31, 2020, and the Company had unfunded
commitments to invest an additional $22 million. For more
information on the Company’s interests in unconsolidated VIEs, refer
to Note 7 in the Notes to Consolidated Financial Statements.
Guarantees are contingent commitments issued by the
Company to customers or other third parties requiring the Company
to perform if certain conditions exist or upon the occurrence or
nonoccurrence of a specified event, such as a scheduled payment
to be made under contract. The Company’s primary guarantees
include commitments from securities lending activities in which
indemnifications are provided to customers; indemnification or
56
buy-back provisions related to sales of loans and tax credit
investments; and merchant charge-back guarantees through the
Company’s involvement in providing merchant processing services.
For certain guarantees, the Company may have access to collateral
to support the guarantee, or through the exercise of other recourse
provisions, be able to offset some or all of any payments made
under these guarantees.
The Company and certain of its subsidiaries, along with other
Visa U.S.A. Inc. member banks, have a contingent guarantee
obligation to indemnify Visa Inc. for potential losses arising from
antitrust lawsuits challenging the practices of Visa U.S.A. Inc. and
MasterCard International. The indemnification by the Company
and other Visa U.S.A. Inc. member banks has no maximum
amount. Refer to Note 22 in the Notes to Consolidated Financial
Statements for further details regarding guarantees, other
commitments, and contingent liabilities, including maximum
potential future payments and current carrying amounts.
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.
The Company repurchased approximately 31 million shares of its
common stock in 2020, compared with approximately 81 million
shares in 2019. The average price paid for the shares repurchased
in 2020 was $53.32 per share, compared with $55.88 per share in
2019. Beginning in March and continuing through the remainder of
2020, the Company suspended all common stock repurchases
except for those done exclusively in connection with its stock-based
compensation programs. This action was initially taken by the
Company to maintain strong capital levels given the impact and
uncertainties of COVID-19 on the economy and global markets. Due
to continued economic uncertainty, the Federal Reserve Board
implemented measures beginning in the third quarter of 2020 and
extending through the first quarter of 2021, restricting capital
distributions of all large bank holding companies, including the
Company. These restrictions initially included capping common
stock dividends at existing rates and restricting share repurchases,
and currently limit the aggregate amount of common stock
dividends and share repurchases to an amount that does not
exceed the average net income of the four preceding calendar
quarters. On December 22, 2020, the Company announced that it
had received its results on the December 2020 Stress Test from the
Federal Reserve Board. Based on those results, the Company
announced that its Board of Directors had approved an
authorization to repurchase $3.0 billion of its common stock
beginning January 1, 2021. The Company will continue to monitor
the economic environment and will adjust its capital distributions as
circumstances warrant. Additional capital distributions are subject to
the approval of the Company’s Board of Directors, and will be
consistent with regulatory requirements. For a more complete
analysis of activities impacting shareholders’ equity and capital
management programs, refer to Note 14 of the Notes to
Consolidated Financial Statements.
Total U.S. Bancorp shareholders’ equity was $53.1 billion at
December 31, 2020, compared with $51.9 billion at
December 31, 2019. The increase was primarily the result of
corporate earnings and changes in unrealized gains and losses
on available-for-sale investment securities included in other
comprehensive income (loss), partially offset by a reduction to
retained earnings due to the January 1, 2020 adoption of
accounting guidance related to the impairment of financial
instruments, dividends and common share repurchases.
The regulatory capital requirements effective for the Company
follow Basel III, with the Company being subject to calculating its
capital adequacy as a percentage of risk-weighted assets under
the standardized approach. 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, tier 1 leverage ratio and
a tier 1 total leverage exposure, or supplementary leverage, ratio.
The Company’s minimum required level for these ratios at
December 31, 2020, which include a stress capital buffer of
2.5 percent for the common equity tier 1 capital, tier 1 capital and
total capital ratios, was 7.0 percent, 8.5 percent, 10.5 percent,
4.0 percent, and 3.0 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 under the FDIC Improvement Act prompt corrective action
provisions that are applicable to all banks. At December 31, 2020,
the minimum “well-capitalized” thresholds under the prompt
corrective action framework for the common equity tier 1 capital
ratio, tier 1 capital ratio, total risk-based capital ratio, tier 1
leverage ratio, and tier 1 total leverage exposure ratio
was 6.5 percent, 8.0 percent, 10.0 percent, 5.0 percent, and
3.0 percent, respectively. During 2020, the Company elected to
adopt a rule issued during 2020 by its regulators which permits
banking organizations who adopt accounting guidance related to
the impairment of financial instruments based on the current
expected credit losses (“CECL”) methodology during 2020, the
option to defer the impact of the effect of that guidance at
adoption plus 25 percent of its quarterly credit reserve increases
over the next two years on its regulatory capital requirements,
followed by a three-year transition period to phase in the
cumulative deferred impact. As of December 31, 2020, the
Company’s bank subsidiary met all regulatory capital ratios to be
considered “well-capitalized”. There are no conditions or events
since December 31, 2020 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
57
TABLE 23 Regulatory Capital Ratios
At December 31 (Dollars in Millions)
Basel III standardized approach:
2020
2019
Common equity tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 38,045
44,474
Tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52,602
Total risk-based capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
393,648
Risk-weighted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 35,713
41,721
49,744
391,269
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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 capital as a percent of total on- and off-balance sheet leverage exposure (total leverage exposure ratio) . . . . . . .
9.7%
11.3
13.4
8.3
7.3
9.1%
10.7
12.7
8.8
7.0
Association, Federal Home Loan Mortgage Corporation and the
Federal National Mortgage Association. At December 31, 2020,
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, 2020 and 2019.
All regulatory ratios exceeded regulatory “well-capitalized”
requirements.
The Company believes certain other capital ratios are useful in
evaluating its capital adequacy. At December 31, 2020, the
Company’s tangible common equity, as a percent of tangible
assets and as a percent of risk-weighted assets determined in
accordance with transitional regulatory capital requirements
related to the CECL methodology under the standardized
approach, was 6.9 percent and 9.5 percent, respectively. This
compares to the Company’s tangible common equity, as a
percent of tangible assets and as a percent of risk-weighted
assets under the standardized approach, of 7.5 percent and
9.3 percent, respectively, at December 31, 2019. In addition, the
Company’s common equity tier 1 capital to risk-weighted assets
ratio, reflecting the full implementation of the CECL methodology
was 9.3 percent at December 31, 2020. Refer to “Non-GAAP
Financial Measures” beginning on page 64 for further information
on these other capital ratios.
Fourth Quarter Summary
The Company reported net income attributable to U.S. Bancorp
of $1.5 billion for the fourth quarter of 2020, or $0.95 per diluted
common share, compared with $1.5 billion, or $0.90 per diluted
common share, for the fourth quarter of 2019. Return on average
assets and return on average common equity were 1.10 percent
and 12.1 percent, respectively, for the fourth quarter of 2020,
compared with 1.21 percent and 11.8 percent, respectively, for
the fourth quarter of 2019.
Total net revenue for the fourth quarter of 2020, was
$84 million (1.5 percent) higher than the fourth quarter of 2019,
reflecting a 4.7 percent increase in noninterest income, partially
offset by a 1.0 percent decrease in net interest income
(0.9 percent on a taxable-equivalent basis). The decrease in net
interest income from the fourth quarter of 2019 was primarily due
to the impact of lower interest rates from a year ago, partially
offset by changes in deposit and funding mix, loan growth and
higher loan fees. The noninterest income increase was driven by
significant growth in mortgage banking revenue due to
refinancing production, growth in commercial products revenue
primarily due to commitment fees on unused lines and higher
other noninterest income. Growth in these fee categories was
partially offset by a decline in payment services revenue and
deposit service charges related to lower consumer and business
spending.
Noninterest expense in the fourth quarter of 2020 was
$37 million (1.1 percent) lower than the fourth quarter of 2019,
reflecting the impact of severance charges and other accruals
recorded in 2019, partially offset by business investments, costs
related to COVID-19 and an increase in revenue-related
production expenses in the fourth quarter of 2020.
Fourth quarter 2020 net interest income, on a taxable-
equivalent basis, was $3.2 billion, representing a decrease of
$30 million (0.9 percent) compared with the fourth quarter of
2019. The decrease was primarily due to the impact of lower
interest rates from the prior year, partially offset by changes in
deposit and funding mix, loan growth and higher loan fees. The
Company expects net interest income to decline slightly in the
first quarter of 2021 in part due to seasonally fewer days.
Average earning assets were $57.7 billion (13.1 percent) higher in
the fourth quarter of 2020, compared with the fourth quarter of
2019, reflecting increases of $7.4 billion (2.5 percent) in average
loans, $11.8 billion (9.7 percent) in average investment securities
and $34.9 billion in average other earning assets including cash
balances being maintained for liquidity given the current
economic environment. The net interest margin, on a taxable-
equivalent basis, in the fourth quarter of 2020 was 2.57 percent,
compared with 2.92 percent in the fourth quarter of 2019. The
decrease in net interest margin was primarily due to the impact of
a lower yield curve and decisions to maintain higher cash
balances for liquidity, partially offset by changes in deposit and
funding mix. The Company expects its net interest margin to be
relatively stable in the first quarter of 2021.
58
TABLE 24 Fourth Quarter Results
(Dollars and Shares in Millions, Except Per Share Data)
Three Months Ended
December 31
2020
2019
Condensed Income Statement
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,175
26
Taxable-equivalent adjustment(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income (taxable-equivalent basis)(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes and taxable-equivalent adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,201
2,550
5,751
3,364
441
1,946
421
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,525
(6)
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,519
Net income applicable to U.S. Bancorp common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,425
Per Common Share
Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Dividends declared per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average diluted common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.95
.95
.42
1,507
1,508
$3,207
24
3,231
2,436
5,667
3,401
395
1,871
378
1,493
(7)
$1,486
$1,408
.91
$
.90
$
$
.42
1,556
1,558
Financial Ratios
Return on average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on average common equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest margin (taxable-equivalent basis)(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Efficiency ratio(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.10%
12.1
2.57
58.8
1.21%
11.8
2.92
60.3
(a) Based on a federal income tax rate of 21 percent for those assets and liabilities whose income or expense is not included for federal income tax purposes.
(b) See Non-GAAP Financial Measures beginning on page 64.
Noninterest income in the fourth quarter of 2020 was
$2.6 billion, representing an increase of $114 million (4.7 percent)
from the fourth quarter of 2019. The increase reflected higher
mortgage banking revenue, commercial products revenue and
other noninterest income, partially offset by lower payment
services revenue and deposit service charges. Mortgage banking
revenue increased $224 million (91.8 percent) due to higher
mortgage loan production driven by refinancing activities and
stronger gain on sale margins, partially offset by declines in the
valuations of MSRs, net of hedging activities. The Company
expects mortgage banking revenue to decline in the first quarter of
2021, as compared with the fourth quarter of 2020, in line with the
industry, as refinancing activity continues to moderate.
Commercial products revenue increased $13 million (5.8 percent)
primarily due to higher commercial loan and commercial leasing
fees. Other noninterest income increased $73 million (52.9
percent) in the fourth quarter of 2020, compared with the same
period of the prior year, reflecting higher retail leasing end of term
residual gains, higher tax-advantaged investment syndication
revenue and the impact of the fourth quarter of 2019 charge for
the increased derivative liability related to Visa shares previously
sold by the Company, partially offset by lower equity investment
income. The decrease in payment services revenue reflected
lower merchant processing services revenue of $98 million
(24.0 percent), lower corporate payment products revenue of
$32 million (20.3 percent) and lower credit and debit card revenue of
$16 million (4.2 percent), all driven by lower sales volume due to the
impact of the COVID-19 pandemic on consumer and business
spending. The decrease in credit and debit card revenue was
partially offset by higher prepaid card fees as a result of government
stimulus programs in 2020. Merchant processing services revenue
and corporate payments products revenue are expected to decline
in the first quarter of 2021, as compared with the first quarter of
2020, reflecting lower travel and hospitality activity due to
COVID-19. However, sales volume trends, excluding travel and
hospitality, are expected to continue to improve compared to the
fourth quarter of 2020, in line with consumer and business spending
activity. Credit and debit card revenue is expected to increase in the
first quarter of 2021, compared to the first quarter of 2020, as
overall increases in sales volume are expected to more than offset
lower travel and hospitality activity, and prepaid debit card volumes
are expected to be higher due to the impact of government stimulus
programs. Deposit service charges decreased $66 million (28.6
percent) primarily due to lower consumer spending activities.
Noninterest expense in the fourth quarter of 2020 was
$3.4 billion, representing a decrease of $37 million (1.1 percent)
59
compared with the fourth quarter of 2019. The fourth quarter of
2020 included incremental costs related to the prepaid card
business, expenses related to COVID-19, and revenue-related
expenses primarily due to higher mortgage production in addition
to business investments, including those related to increased
digital capabilities. The decrease in noninterest expense in the
fourth quarter of 2020, as compared with the same period of the
prior year, reflected lower other noninterest expense, net
occupancy and equipment expense, professional services
expense and marketing and business development expense,
partially offset by higher technology and communications
expense and compensation expense. Other noninterest expense
decreased $102 million (18.9 percent), reflecting the impact of
severance charges and other accruals recorded in the fourth
quarter of 2019, along with lower costs related to tax-advantaged
projects. These decreases in other noninterest expense were
partially offset by higher expenses for revenue-related costs and
COVID-19, merger-related costs related to acquired deposits and
higher state franchise taxes. Net occupancy and equipment
expense decreased $17 million (5.9 percent) due to expected
branch closures, while professional services expense decreased
$16 million (11.5 percent) primarily due to fewer initiatives in
2020. Marketing and business development expense decreased
$12 million (10.3 percent) due to a reduction in travel as a result
of COVID-19. Technology and communications expense
increased $71 million (24.4 percent) primarily due to the impact of
increased call center volume related to prepaid cards and capital
expenditures supporting business technology investments.
Compensation expense in the fourth quarter of 2020 increased
$46 million (2.9 percent) over the same period of the prior year,
due to merit increases and higher variable compensation related
to business production within mortgage banking. The Company
expects its noninterest expenses to be relatively stable in the first
quarter of 2021, as compared with the fourth quarter of 2020.
The provision for credit losses for the fourth quarter of 2020
was $441 million, an increase of $46 million (11.6 percent) from
the same period of 2019. Net charge-offs were $441 million in
the fourth quarter of 2020, compared with $385 million in the
fourth quarter of 2019. The net charge-off ratio was 0.58 percent
in the fourth quarter of 2020, compared with 0.52 percent in the
fourth quarter of 2019.
The provision for income taxes was $395 million (an effective
rate of 20.6 percent) for the fourth quarter of 2020, compared
with $354 million (an effective rate of 19.2 percent) for the same
period of 2019.
Line of Business Financial Review
The Company’s major lines of business are Corporate and
Commercial Banking, Consumer and Business Banking, Wealth
Management and Investment Services, Payment Services, and
Treasury and Corporate Support. These operating segments are
components of the Company about which financial information is
prepared and is evaluated regularly by management in deciding
how to allocate resources and assess performance.
Basis for Financial Presentation Business line results are
derived from the Company’s business unit profitability reporting
systems by specifically attributing managed balance sheet assets,
deposits and other liabilities and their related income or expense.
Refer to Note 23 of the Notes to Consolidated Financial
Statements for further information on the business lines’ basis for
financial presentation.
Designations, assignments and allocations change from time
to time as management systems are enhanced, methods of
evaluating performance or product lines change or business
segments are realigned to better respond to the Company’s
diverse customer base. During 2020, certain organization and
methodology changes were made and, accordingly, 2019 results
were restated and presented on a comparable basis.
Corporate and Commercial Banking Corporate and
Commercial Banking offers lending, equipment finance and small-
ticket leasing, depository services, treasury management, capital
markets services, international trade services and other financial
services to middle market, large corporate, commercial real
estate, financial institution, non-profit and public sector clients.
Corporate and Commercial Banking contributed $1.6 billion of
the Company’s net income in 2020, or a decrease of $122 million
(7.2 percent), compared with 2019.
Net revenue increased $375 million (9.5 percent) in 2020,
compared with 2019. Net interest income, on a taxable-
equivalent basis, increased $158 million (5.1 percent) in 2020,
compared with 2019, primarily due to higher noninterest-bearing
and interest-bearing deposits and strong loan growth, partially
offset by the impact of declining interest rates on the margin
benefit from deposits, changes in loan mix and lower spreads on
loans. Noninterest income increased $217 million (25.2 percent)
in 2020, compared with 2019, primarily due to higher corporate
bond issuance fees and trading revenue as corporate customers
accessed the fixed income capital markets for bond issuances,
as well as higher commercial loan and commercial leasing fees.
Noninterest expense increased $52 million (3.2 percent) in
2020, compared with 2019, primarily driven by higher
compensation expense due to merit increases and variable
compensation related to fixed income capital markets business
production, higher FDIC insurance expense and higher other
noninterest expense driven by legal costs, partially offset by a
reduction in travel as a result of COVID-19. The provision for
credit losses increased $486 million in 2020, compared with
2019, primarily due to higher net charge-offs, along with an
unfavorable change in the reserve allocation based on economic
risks related to COVID-19 in the portfolio.
Consumer and Business Banking Consumer and Business
Banking delivers products and services through banking offices,
telephone servicing and sales, on-line services, direct mail, ATM
processing and mobile devices. It encompasses community
banking, metropolitan banking and indirect lending, as well as
mortgage banking. Consumer and Business Banking contributed
$2.8 billion of the Company’s net income in 2020, or an increase
of $424 million (18.0 percent), compared with 2019.
60
Net revenue increased $887 million (10.2 percent) in 2020,
compared with 2019. Net interest income, on a taxable-
equivalent basis, decreased $88 million (1.4 percent) in 2020,
compared with 2019, reflecting the impact of declining interest
rates on the margin benefit from deposits, partially offset by
higher noninterest-bearing and interest-bearing deposit balances,
loan growth and higher loan fees driven in part by loans made
under the SBA’s Paycheck Protection Program and higher
GNMA buybacks, in addition to favorable loan spreads.
Noninterest income increased $975 million (40.9 percent) in
2020, compared with 2019, primarily due to higher mortgage
banking revenue driven by higher mortgage loan production and
stronger gain on sale margins, partially offset by declines in the
valuation of MSRs, net of hedging activities. Other noninterest
income increased primarily due to higher retail leasing end of term
residual gains. The increases in noninterest income were partially
offset by lower deposit service charges due to lower volume.
Noninterest expense increased $312 million (5.9 percent) in
2020, compared with 2019, primarily due to higher net shared
services expense reflecting the impact of investment in
infrastructure supporting business growth, higher variable
compensation related to strong mortgage banking origination
activities and higher other noninterest expense due to increased
mortgage loan processing costs, partially offset by a reduction in
travel as a result of COVID-19. The provision for credit losses
increased $11 million (3.5 percent) in 2020, compared with 2019,
due to higher net charge-offs.
Wealth Management and Investment Services Wealth
Management and Investment Services provides private banking,
financial advisory services, investment management, retail
brokerage services, insurance, trust, custody and fund servicing
through four businesses: Wealth Management, Global Corporate
Trust & Custody, U.S. Bancorp Asset Management and
Fund Services. Wealth Management and Investment Services
contributed $714 million of the Company’s net income in 2020,
or a decrease of $177 million (19.9 percent), compared with
2019.
Net revenue decreased $102 million (3.4 percent) in 2020,
compared with 2019. Net interest income, on a taxable-
equivalent basis, decreased $176 million (15.0 percent) in 2020,
compared with 2019, primarily due to the impact of declining
interest rates on the margin benefit from deposits, partially offset
by higher interest-bearing and noninterest-bearing deposit
balances, and changes in deposit mix. Noninterest income
increased $74 million (4.1 percent) in 2020, compared with 2019,
primarily due to the impact of favorable market conditions and
business growth on trust and investment management fees,
partially offset by higher fee waivers related to the money market
funds.
Noninterest expense increased $95 million (5.3 percent) in
2020, compared with 2019, reflecting increased net shared
services expense due to technology development and higher
compensation expense due to the impact of merit increases. In
addition, other noninterest expense was higher due to litigation
settlements, partially offset by a reduction in travel as a result of
COVID-19. The provision for credit losses increased $41 million in
2020, compared with 2019, reflecting an unfavorable change in
the reserve allocation driven by downgrades within the loan
portfolio.
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
$1.3 billion of the Company’s net income in 2020, or a decrease
of $185 million (12.7 percent), compared with 2019.
Net revenue decreased $531 million (8.6 percent) in 2020,
compared with 2019. Net interest income, on a taxable-
equivalent basis, increased $56 million (2.3 percent) in 2020,
compared with 2019, primarily due to favorable loan spreads and
higher deposit balances as a result of state unemployment
distributions on prepaid debit cards, partially offset by lower loan
volume and loan fees. Noninterest income decreased
$587 million (15.8 percent) in 2020, compared with 2019, mainly
due to the impacts of COVID-19 on consumer and business
spending volume in all payments businesses including merchant
processing services, corporate payment products, and credit and
debit card revenue. The decrease in credit and debit card
revenue due to lower spending volume was partially offset by
higher prepaid card fees as a result of government stimulus
programs in 2020.
Noninterest expense increased $145 million (4.6 percent) in
2020, compared with 2019, reflecting incremental costs related
to the prepaid card business and higher software expense due to
capital expenditures and acquisitions, partially offset by lower
marketing and business development expense due to the timing
of marketing campaigns. The provision for credit losses
decreased $428 million (38.6 percent) in 2020, compared with
2019, reflecting a favorable change in the reserve allocation
driven by lower outstanding loan balances and lower net charge-
offs, partially offset by the impact on the allowance for credit
losses to recognize the expected losses within the acquired State
Farm Bank credit card portfolio.
61
Corporate and
Commercial Banking
Consumer and
Business Banking
2020
2019
Percent
Change
2020
2019
Percent
Change
$ 3,259
1,078
$ 3,101
861
5.1%
25.2
$ 6,263
3,360
$ 6,351
2,385
(1.4)%
40.9
9.5
3.4
*
3.2
13.8
*
(7.3)
(7.3)
(7.2)
—
(7.2)
10.2%
6.4
(60.0)
—
75.0
9.4
—
(25.0)
10.9
36.4
16.0
21.5
(2.0)
21.1
5.7
9,623
5,573
16
5,589
4,034
322
3,712
929
2,783
—
8,736
5,257
20
5,277
3,459
311
3,148
789
2,359
—
$ 2,783
$ 2,359
$ 12,716
16,076
69,088
—
54,754
$ 9,601
16,135
63,864
—
55,016
152,634
3,500
2,106
170,531
35,543
59,786
70,905
16,645
182,879
15,058
144,616
3,496
2,619
158,932
27,831
51,286
62,269
15,680
157,066
15,151
10.2
6.0
(20.0)
5.9
16.6
3.5
17.9
17.7
18.0
—
18.0
32.4%
(.4)
8.2
—
(.5)
5.5
.1
(19.6)
7.3
27.7
16.6
13.9
6.2
16.4
(.6)
TABLE 25 Line of Business Financial Performance
Year Ended December 31
(Dollars in Millions)
Condensed Income Statement
Net interest income (taxable-equivalent basis) . . . . . . . . . . . . .
Noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before provision and income taxes . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes and taxable-equivalent adjustment . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling interests . . . . .
4,337
1,680
—
1,680
2,657
575
2,082
521
1,561
—
3,962
1,624
4
1,628
2,334
89
2,245
562
1,683
—
Net income (loss) attributable to U.S. Bancorp . . . . . . . . . . . . .
$ 1,561
$ 1,683
Average Balance Sheet
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 86,558
21,753
2
—
7
$ 78,575
20,453
5
—
4
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total U.S. Bancorp shareholders’ equity . . . . . . . . . . . . . . . . . .
108,320
1,647
6
120,829
40,109
13,884
52,534
17,266
123,793
16,385
99,037
1,647
8
108,983
29,400
11,965
43,232
17,625
102,222
15,508
* Not meaningful
62
Wealth Management and
Investment Services
Payment
Services
Treasury and
Corporate Support
Consolidated
Company
2020
2019
Percent
Change
2020
2019
Percent
Change
2020
2019
Percent
Change
2020
2019
Percent
Change
$
996 $ 1,172
1,803
1,877
(15.0)%
4.1
$ 2,530 $ 2,474
3,711
3,124
2,873
1,871
12
1,883
990
38
952
238
714
—
2,975
1,775
13
1,788
1,187
(3)
1,190
299
891
—
(3.4)
5.4
(7.7)
5.3
(16.6)
*
(20.0)
(20.4)
(19.9)
—
5,654
3,133
148
3,281
2,373
681
1,692
423
1,269
—
6,185
3,005
131
3,136
3,049
1,109
1,940
486
1,454
—
2.3%
$
(15.8)
(8.6)
4.3
13.0
4.6
(22.2)
(38.6)
(12.8)
(13.0)
(12.7)
—
$
(124)
962
838
936
—
936
(98)
2,190
(2,288)
(946)
(1,342)
(26)
$
714 $
891
(19.9)
$ 1,269 $ 1,454
(12.7)
$
(1,368) $
57
1,071
1,128
956
—
956
172
(2)
174
(385)
559
(32)
527
*%
(10.2)
(25.7)
(2.1)
—
(2.1)
*
*
*
*
*
18.8
$ 12,924
10,401
$ 13,155
9,831
(1.8)%
5.8
23,325
13,193
176
22,986
12,617
168
13,369
12,785
9,956
3,806
6,150
1,165
4,985
(26)
10,201
1,504
8,697
1,751
6,946
(32)
1.5
4.6
4.8
4.6
(2.4)
*
(29.3)
(33.5)
(28.2)
18.8
*
$ 4,959
$ 6,914
(28.3)
$ 4,449 $ 4,023
510
3,878
—
1,674
578
4,577
—
1,723
10.6%
13.3
18.0
—
2.9
$ 8,936 $ 9,905
—
—
23,309
352
—
—
22,332
271
(9.8)%
—
—
(4.2)
(23.0)
$ 1,308
2,141
—
—
—
$ 1,094
2,288
—
—
—
19.6%
(6.4)
—
—
—
$113,967
40,548
73,667
22,332
56,755
$103,198
39,386
67,747
23,309
57,046
10.4%
3.0
8.7
(4.2)
(.5)
11,327
1,617
39
14,448
16,275
10,348
53,602
2,222
82,447
2,482
10,085
1,617
49
13,336
13,231
9,100
49,612
3,430
75,373
2,441
12.3
—
(20.4)
8.3
23.0
13.7
8.0
(35.2)
9.4
1.7
31,539
3,060
580
36,496
4,356
—
121
1
4,478
6,095
33,566
2,818
536
39,424
1,261
—
112
2
1,375
6,069
(6.0)
8.6
8.2
(7.4)
*
—
8.0
(50.0)
*
.4
3,449
—
—
188,903
2,256
258
766
1,738
5,018
12,226
3,382
—
—
154,978
2,140
202
754
7,680
10,776
13,454
2.0
—
—
21.9
5.4
27.7
1.6
(77.4)
(53.4)
(9.1)
307,269
9,824
2,731
531,207
98,539
84,276
177,928
37,872
398,615
52,246
290,686
9,578
3,212
475,653
73,863
72,553
155,979
44,417
346,812
52,623
5.7
2.6
(15.0)
11.7
33.4
16.2
14.1
(14.7)
14.9
(.7)
63
Treasury and Corporate Support Treasury and Corporate
Support includes the Company’s investment portfolios, 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 a net loss of $1.4 billion in 2020,
compared with net income of $527 million in 2019.
Net revenue decreased $290 million (25.7 percent) in 2020,
compared with 2019. Net interest income, on a taxable-
equivalent basis, decreased $181 million in 2020, compared with
2019, primarily due to higher prepayment amortization and lower
reinvestment yields within the investment portfolio compared with
the prior year. Noninterest income decreased $109 million
(10.2 percent) in 2020, compared with 2019, primarily due to
lower equity investment income, and certain 2020 asset
impairments as a result of expected branch closures and
property damage from civil unrest that occurred during the year.
These decreases in noninterest income were partially offset by
gains on the sale of certain businesses in 2020, higher investment
securities gains and the impact of a 2019 charge for an increased
derivative liability related to Visa shares previously sold by the
Company.
Noninterest expense decreased $20 million (2.1 percent) in
2020, compared with 2019, primarily due to lower net shared
services expense, lower costs related to tax-advantaged projects
and the impact of severance charges and asset impairment
accruals recorded in 2019. These decreases in noninterest
expense were partially offset by the recognition of liabilities related
to airline exposure and COVID-related expenses in 2020, higher
compensation expense reflecting merit increases and stock-
based compensation, higher implementation costs of capital
investments to support business growth, higher state franchise
taxes and higher merger-related costs. The provision for credit
losses was $2.2 billion higher in 2020, compared with 2019,
reflecting the residual impact of changes in the allowance for
credit losses being impacted by adverse economic conditions
and the expected impact to credit losses within the Company’s
loan portfolios due to the COVID-19 pandemic.
Income taxes are assessed to each line of business at a
managerial tax rate of 25.0 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, and
– Common equity tier 1 capital to risk-weighted assets, reflecting
the full implementation of the CECL methodology.
These capital measures are viewed by management as useful
additional methods of evaluating the Company’s utilization of its
capital held and the level of capital available to withstand
unexpected negative 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
capital measures are not defined in generally accepted
accounting principles (“GAAP”), or are not currently effective or
defined in banking regulations. In addition, certain of these
measures differ from currently effective capital ratios defined by
banking regulations principally in that the currently effective ratios,
which are subject to certain transitional provisions, temporarily
exclude the impact of the 2020 adoption of accounting guidance
related to impairment of financial instruments based on the CECL
methodology. As a result, these capital measures disclosed by
the Company may be considered non-GAAP financial measures.
Management believes this information helps investors assess
trends in the Company’s capital adequacy.
The Company also discloses net interest income and related
ratios and analysis on a taxable-equivalent basis, which may also
be considered non-GAAP financial measures. The Company
believes this presentation to be the preferred industry
measurement of net interest income as it provides a relevant
comparison of net interest income arising from taxable and
tax-exempt sources. In addition, certain performance measures,
including the efficiency ratio and net interest margin utilize net
interest income on a taxable-equivalent basis.
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.
64
The following table shows the Company’s calculation of these non-GAAP financial measures:
At December 31 (Dollars in Millions)
2020
2019
2018
2017
2016
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 53,725
(5,983)
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(630)
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill (net of deferred tax liability)(1) . . . . . . . . . . . . . . . . . . . . . . . .
(9,014)
(654)
Intangible assets, other than mortgage servicing rights . . . . . . . . . .
37,444
Tangible common equity(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 52,483
(5,984)
(630)
(8,788)
(677)
36,404
$ 51,657
(5,984)
(628)
(8,549)
(601)
35,895
$ 49,666
(5,419)
(626)
(8,613)
(583)
34,425
$ 47,933
(5,501)
(635)
(8,203)
(712)
32,882
Common equity tier 1 capital, determined in accordance with
transitional regulatory capital requirements related to the CECL
methodology implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common equity tier 1 capital, reflecting the full implementation of
the CECL methodology(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill (net of deferred tax liability)(1) . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, other than mortgage servicing rights . . . . . . . . . .
Tangible assets(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-weighted assets, determined in accordance with prescribed
regulatory capital requirements effective for the Company(d) . . . . .
Adjustments (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-weighted assets, reflecting the full implementation of the
38,045
(1,733)
36,312
553,905
(9,014)
(654)
544,237
393,648
(1,471)
CECL methodology(e)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
392,177
Ratios
Tangible common equity to tangible assets(a)/(c) . . . . . . . . . . . . . . . . .
Tangible common equity to risk-weighted assets(a)/(d) . . . . . . . . . . . .
Common equity tier 1 capital to risk-weighted assets, reflecting the
full implementation of the CECL methodology(b)/(e) . . . . . . . . . . . . .
6.9%
9.5
9.3
495,426
(8,788)
(677)
485,961
467,374
(8,549)
(601)
458,224
462,040
(8,613)
(583)
452,844
445,964
(8,203)
(712)
437,049
391,269
381,661
367,771
358,237
7.5%
9.3
7.8%
9.4
7.6%
9.4
7.5%
9.2
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable-equivalent adjustment(4) . . . . . . . . . . . . . . . . . . . . . .
Net interest income, on a taxable-equivalent basis . . . . . .
Net interest income, on a taxable-equivalent basis (as
calculated above) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Securities gains (losses), net . . . . . . . . . . . . . . . . . . . .
Total net revenue, excluding net securities gains
(losses)(f)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest expense(g) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Efficiency ratio(g)/(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Three Months Ended
December 31
Year Ended December 31
2020
2019
2020
2019
2018
2017
2016
$3,175
26
3,201
$3,207
24
3,231
$12,825
99
12,924
$13,052
103
13,155
$12,919
116
13,035
$12,380
205
12,585
$11,666
203
11,869
3,201
2,550
34
3,231
2,436
26
12,924
10,401
177
13,155
9,831
73
13,035
9,602
30
12,585
9,317
57
11,869
9,290
22
5,717
3,364
58.8%
5,641
3,401
60.3%
23,148
13,369
22,913
12,785
22,607
12,464
21,845
12,790
21,137
11,527
57.8%
55.8%
55.1%
58.5%
54.5%
Year Ended December 31, 2020
Net Revenue
Net Revenue as a Percent of
the Consolidated Company
Net Revenue as a Percent of the
Consolidated Company Excluding
Treasury and Corporate Support
Corporate and Commercial Banking . . . . . . . . . . . . . . . . . . .
Consumer and Business Banking . . . . . . . . . . . . . . . . . . . . .
Wealth Management and Investment Services . . . . . . . . . . .
Payment Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury and Corporate Support . . . . . . . . . . . . . . . . . . . . . .
Consolidated Company . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Treasury and Corporate Support . . . . . . . . . . . . . . . . .
Consolidated Company excluding Treasury and
$
4,337
9,623
2,873
5,654
838
23,325
838
Corporate Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
22,487
19%
41
12
24
4
100%
19%
43
13
25
100%
(1) Includes goodwill related to certain investments in unconsolidated financial institutions per prescribed regulatory requirements.
(2) Includes the estimated increase in the allowance for credit losses related to the adoption of the CECL methodology net of deferred taxes.
(3) Includes the impact of the estimated increase in the allowance for credit losses related to the adoption of the CECL methodology.
(4) Based on federal income tax rates of 21 percent for 2020, 2019 and 2018 and 35 percent for 2017 and 2016, for those assets and liabilities whose income or expense is not included for federal
income tax purposes.
65
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 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.
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 at December 31, 2020 are
discussed in the “Credit Risk Management” section. 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 lag in the
data available to quantify current conditions and events that affect
credit loss reserve estimates. As discussed in the “Analysis and
Determination of Allowance for Credit Losses” section,
management considered the effect of changes in economic
conditions, risk management practices, and other factors that
contributed to imprecision of loss estimates in determining the
allowance for credit losses. If not considered, expected losses in
the credit 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 quantitative variables and 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 expected recoveries. The allowance
for credit losses on commercial lending segment loans measures
the expected loss content on the remaining portfolio exposure,
while nonperforming loans and net charge-offs are measures of
specific impairment events that have already been confirmed.
Therefore, the degree of change in the forward-looking expected
loss in the commercial lending allowance may differ from the level
of changes in nonperforming loans and net charge-offs.
Management maintains an appropriate allowance for credit losses
by updating allowance rates to reflect changes in expected
losses, including expected changes in economic or business
cycle conditions.
Some factors considered in determining the appropriate
allowance for credit losses are more readily quantifiable while
other factors require extensive qualitative judgment. Management
conducts an analysis with respect to the accuracy of risk ratings
and the volatility of expected losses, and utilizes this analysis
along with qualitative factors that can affect the precision of credit
loss estimates, including economic conditions, such as changes
in gross domestic product, unemployment or bankruptcy rates,
and concentration risks, such as risks associated with specific
industries, collateral valuations, and loans to highly leveraged
enterprises, in determining the overall level of the allowance for
credit losses.
The Company considers a range of economic scenarios in its
determination of the allowance for credit losses. These scenarios
are constructed with interrelated projections of multiple economic
variables, and loss estimates are produced that consider the
historical correlation of those economic variables with credit
losses, and also the expectation that conditions will eventually
normalize over the longer run. Scenarios worse than the
Company’s expected outcome at December 31, 2020 include
risks that government stimulus in response to the COVID-19
pandemic is less broad or less effective than expected, or that a
longer or more severe health crisis prolongs the downturn in
66
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. For more
information on investment securities, refer to Note 4 of the Notes
to Consolidated Financial Statements.
As few derivative contracts are listed on an exchange, the
majority of the Company’s derivative positions are valued using
valuation techniques that use readily observable market inputs.
Certain derivatives, however, must be valued using techniques
that include unobservable inputs. For these instruments, the
significant assumptions must be estimated and, therefore, are
subject to judgment. Note 19 of the Notes to Consolidated
Financial Statements provides a summary of the Company’s
derivative positions.
Refer to Note 21 of the Notes to Consolidated Financial
Statements for additional information regarding estimations of fair
value.
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, option adjusted spread,
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 valuation of MSRs include higher than expected prepayment
rates and/or delayed receipt of cash flows. The Company utilizes
derivatives, including interest rate swaps, swaptions, forward
commitments to buy TBAs, U.S. Treasury and Eurodollar futures
and options on U.S. Treasury futures, to mitigate the valuation
risk. Refer to Notes 9 and 21 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.
economic activity, reducing the number of businesses that are
ultimately able to resume operations after the crisis has passed.
Under the range of economic scenarios considered, the
allowance for credit losses would have been lower by
$538 million or higher by $1.2 billion. This range reflects the
sensitivity of the allowance for credit losses specifically related to
the scenarios and weights considered as of December 31, 2020,
and does not consider other potential adjustments that could
increase or decrease loss estimates calculated using alternative
economic scenarios.
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 the economy on the Company’s modeled loss
estimates for the loan portfolio 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 loss model estimates 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
67
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 18 of the Notes to Consolidated Financial Statements for
additional information regarding income taxes.
Controls and Procedures
Under the supervision and with the participation of the
Company’s management, including its principal executive officer
and principal financial officer, the Company has evaluated the
effectiveness of the design and operation of its disclosure
controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 (the
“Exchange Act”)). Based upon this evaluation, the principal
executive officer and principal financial officer have concluded
that, as of the end of the period covered by this report, the
Company’s disclosure controls and procedures were effective.
During the most recently completed fiscal quarter, there was
no change made in the Company’s internal control 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 69. The audit
report of Ernst & Young LLP, the Company’s independent
accountants, regarding the Company’s internal control over
financial reporting is provided on page 72.
68
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, 2020. 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, 2020.
The Company’s independent registered accountants, Ernst & Young LLP, have been engaged to render an independent professional
opinion on the financial statements and issue an audit report on the Company’s internal control over financial reporting. Their opinion on
the financial statements appearing on pages 70 and 71 and their audit report on internal control over financial reporting appearing on
page 72 are based on procedures conducted in accordance with auditing standards of the Public Company Accounting Oversight Board
(United States).
69
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of U.S. Bancorp
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of U.S. Bancorp (the Company) as of December 31, 2020 and 2019,
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, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31,
2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, 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) (PCAOB), the
Company’s internal control over financial reporting as of December 31, 2020, 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 23, 2021 expressed an unqualified opinion thereon.
Adoption of New Accounting Standard
As discussed in Notes 1, 2 and 5 to the consolidated financial statements, the Company changed its method for accounting for credit
losses in 2020. As explained below, auditing the Company’s allowance for credit losses, including adoption of the new accounting
guidance related to the estimate of allowance for credit losses, was a critical audit matter.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to
the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical
audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures
to which it relates.
Allowance for Credit Losses
The Company’s loan and lease portfolio and the associated allowance for credit losses (ACL), were
$297.7 billion and $8.0 billion as of December 31, 2020, respectively. The provision for credit losses was
$3.8 billion for the year ended December 31, 2020. As discussed above and in Notes 1, 2 and 5 to the
financial statements, effective January 1, 2020 the Company adopted new accounting guidance related to the
estimate of ACL, resulting in ACL increase of $1.5 billion. The ACL is established for current expected credit
losses (ECL) on the Company’s loan and lease portfolio, including unfunded credit commitments, by utilizing
forward-looking expected loss models. When determining expected losses, the Company uses multiple
probability weighted economic scenarios over a reasonable and supportable forecast period and then fully
reverts to historical loss experience to estimate losses over the remaining asset lives. Model estimates are
adjusted to consider any relevant changes in portfolio composition, lending policies, underwriting standards,
risk management practices or economic conditions that would affect the accuracy of the model. Additionally,
management may adjust ACL for other qualitative factors such as model imprecision, imprecision in economic
scenario assumptions, and emerging risks related to either changes in the environment that are affecting
specific portfolio segments, or changes in portfolio concentrations.
Description of the
Matter
70
How We
Addressed the
Matter in Our
Audit
Auditing management’s ACL estimate and related provision for credit losses was complex due to the highly
judgmental nature of the probability weighted economic scenarios, expected loss models, as well as model
and qualitative factor adjustments.
We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s
process for establishing the ACL, including management’s controls over: 1) selection and implementation of
forward-looking economic scenarios and the probability weights assigned to them; 2) expected loss models,
including model validation, implementation, monitoring, the completeness and accuracy of key inputs and
assumptions used in the models, and management’s output assessment and related adjustments; 3)
adjustments to reflect management’s consideration of qualitative factors; 4) the ACL methodology and
governance process.
With the support of specialists, we assessed the economic scenarios and related probability weights by,
among other procedures, evaluating management’s methodology and agreeing a sample of key economic
variables used to external sources. We also performed and considered the results of various sensitivity
analyses and analytical procedures, including comparison of a sample of the key economic variables to
alternative external sources, historical statistics and peer bank information.
With respect to expected loss models, with the support of specialists, we evaluated model calculation design
and re-performed the calculation for a sample of models. We also tested the appropriateness of key inputs
and assumptions used in these models by agreeing a sample of inputs to internal sources. As to model
adjustments, with the support of specialists, we evaluated management’s assessment of factors that could
potentially impact accuracy of expected loss models and we evaluated management’s estimate methodology.
We also re-calculated a sample of model adjustments and tested internal and external data used by agreeing a
sample of inputs to internal and external sources.
Regarding the completeness of qualitative factors identified and incorporated into measuring the ACL, we
evaluated the potential impact of imprecision in the expected loss models and economic scenario
assumptions, emerging risks related to changes in the environment impacting specific portfolio segments and
portfolio concentrations. We also evaluated and tested internal and external data used in the qualitative
adjustments by agreeing significant inputs and underlying data to internal and external sources.
We evaluated the overall ACL amount, including model estimates and adjustments, qualitative factors
adjustments, and whether the recorded ACL appropriately reflects expected credit losses on the loan and
lease portfolio and unfunded credit commitments. We reviewed historical loss statistics, peer-bank information,
subsequent events and transactions and considered whether they corroborate or contradict the Company’s
measurement of the ACL. We searched for and evaluated information that corroborates or contradicts
management’s forecasted assumptions and related probability weights as well as identification and
measurement of adjustments to model estimates and qualitative factors.
We have served as the Company’s auditor since 2003.
Minneapolis, Minnesota
February 23, 2021
71
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of U.S. Bancorp
Opinion on Internal Control over Financial Reporting
We have audited U.S. Bancorp’s internal control over financial reporting as of December 31, 2020, 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). In our opinion, U.S. Bancorp (the Company) maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
consolidated balance sheets of the Company as of December 31, 2020 and 2019, 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, 2020, and the
related notes of the Company and our report dated February 23, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’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 the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
Minneapolis, Minnesota
February 23, 2021
72
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
74
75
76
77
78
Notes to Consolidated Financial Statements
79
Note 1 — Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
86
Note 2 — Accounting Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
86
Note 3 — Restrictions on Cash and Due From Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
87
Note 4 — Investment Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90
Note 5 — Loans and Allowance for Credit Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
96
Note 6 — Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
97
Note 7 — Accounting for Transfers and Servicing of Financial Assets and Variable Interest Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
98
Note 8 — Premises and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 9 — Mortgage Servicing Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
99
Note 10 — Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Note 11 — Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Note 12 — Short-Term Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Note 13 — Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Note 14 — Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Note 15 — Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Note 16 — Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Note 17 — Stock-Based Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Note 18 — Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Note 19 — Derivative Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
Note 20 — Netting Arrangements for Certain Financial Instruments and Securities Financing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Note 21 — Fair Values of Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
Note 22 — Guarantees and Contingent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
Note 23 — Business Segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
Note 24 — U.S. Bancorp (Parent Company) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
Note 25 — Subsequent Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
73
U.S. Bancorp
Consolidated Balance Sheet
At December 31 (Dollars in Millions)
2020
2019
Assets
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 62,580
136,840
Available-for-sale investment securities ($402 and $269 pledged as collateral, respectively)(a) . . . . . . . . . . . . . . . . . . . . .
Loans held for sale (including $8,524 and $5,533 of mortgage loans carried at fair value, respectively) . . . . . . . . . . . . .
8,761
Loans
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
102,871
39,311
76,155
22,346
57,024
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
297,707
(7,314)
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets (including $1,255 and $951 of trading securities at fair value pledged as collateral, respectively)(a) . . . . . .
290,393
3,468
9,918
2,864
39,081
$ 22,405
122,613
5,578
103,863
39,746
70,586
24,789
57,118
296,102
(4,020)
292,082
3,702
9,655
3,223
36,168
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $553,905
$495,426
Liabilities and Shareholders’ Equity
Deposits
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $118,089
311,681
Interest-bearing(b)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
429,770
11,766
41,297
17,347
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
500,180
$ 75,590
286,326
361,916
23,723
40,167
17,137
442,943
Shareholders’ equity
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock, par value $0.01 a share — authorized: 4,000,000,000 shares; issued: 2020 and 2019 —
2,125,725,742 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less cost of common stock in treasury: 2020 — 618,618,084 shares; 2019 — 591,570,506 shares . . . . . . . . . . . .
Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total U.S. Bancorp shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,983
5,984
21
8,511
64,188
(25,930)
322
53,095
630
53,725
21
8,475
63,186
(24,440)
(1,373)
51,853
630
52,483
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $553,905
$495,426
(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 $4.4 billion and $7.8 billion at December 31, 2020 and 2019, respectively.
See Notes to Consolidated Financial Statements.
74
U.S. Bancorp
Consolidated Statement of Income
Year Ended December 31 (Dollars and Shares in Millions, Except Per Share Data)
2020
2019
2018
Interest Income
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,018
216
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,428
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
178
Other interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,840
Interest Expense
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
950
141
924
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,015
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,825
3,806
Net interest income after provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,019
Noninterest Income
Credit and debit card revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate payment products revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merchant 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,338
497
1,261
1,736
677
568
1,143
2,064
192
177
748
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,401
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,635
1,303
1,092
430
318
1,294
288
176
1,833
$14,099
162
2,893
340
17,494
2,855
360
1,227
4,442
13,052
1,504
11,548
1,413
664
1,601
1,673
909
578
934
874
186
73
926
9,831
6,325
1,286
1,123
454
426
1,095
290
168
1,618
$13,120
165
2,616
272
16,173
1,869
378
1,007
3,254
12,919
1,379
11,540
1,401
644
1,531
1,619
1,070
594
895
720
188
30
910
9,602
6,162
1,231
1,063
407
429
978
324
161
1,709
Total noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,369
12,785
12,464
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,051
1,066
4,985
(26)
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,959
Net income applicable to U.S. Bancorp common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,621
Earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.06
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.06
1,509
Average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,510
Average diluted common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,594
1,648
6,946
(32)
$ 6,914
$ 6,583
$ 4.16
$ 4.16
1,581
1,583
8,678
1,554
7,124
(28)
$ 7,096
$ 6,784
$ 4.15
$ 4.14
1,634
1,638
See Notes to Consolidated Financial Statements.
75
U.S. Bancorp
Consolidated Statement of Comprehensive Income
Year Ended December 31 (Dollars in Millions)
2020
2019
2018
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,985
$6,946
$7,124
Other Comprehensive Income (Loss)
Changes in unrealized gains and losses on investment securities available-for-sale . . . . . . . . . . . . . . . . . . . .
Unrealized gains and losses on held-to-maturity investment securities transferred to 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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,905
–
(194)
2
(401)
(42)
(575)
Total other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,695
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive (income) loss attributable to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,680
(26)
1,693
141
(229)
26
(380)
20
(322)
949
7,895
(32)
(656)
–
39
3
(302)
93
205
(618)
6,506
(28)
Comprehensive income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,654
$7,863
$6,478
See Notes to Consolidated Financial Statements.
76
U.S. Bancorp
Consolidated Statement of Shareholders’ Equity
U.S. Bancorp Shareholders
Common
Accumulated
Other
Total U.S.
Bancorp
Shares Preferred Common Capital Retained Treasury Comprehensive Shareholders’ Noncontrolling
Interests
Income (Loss)
Outstanding
Stock
1,656 $5,419
Stock
Stock Surplus Earnings
$21 $8,464 $54,142 $(17,602)
(Dollars and Shares in Millions, Except Per Share Data)
Balance December 31, 2017 . . . . . . . . . .
Changes in accounting principle(a) . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) . . . . . . .
Preferred stock dividends(b) . . . . . . . . . . . . . .
Common stock dividends ($1.34 per
share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . .
Balance December 31, 2018 . . . . . . . . . .
Changes in accounting principle . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) . . . . . . .
Preferred stock dividends(c) . . . . . . . . . . . . . .
Common stock dividends ($1.58 per
share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . .
Balance December 31, 2019 . . . . . . . . . .
Change in accounting principle(d) . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) . . . . . . .
Preferred stock dividends(e) . . . . . . . . . . . . . .
Common stock dividends ($1.68 per
share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of preferred stock . . . . . . . . . . . . .
Call 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 . . .
Balance December 31, 2020 . . . . . . . . . .
299
7,096
565
6
(54)
(282)
(2,190)
258
(2,844)
(167)
172
1,608 $5,984
$21 $8,469 $59,065 $(20,188)
7
(81)
2
6,914
(302)
(2,493)
263
(4,515)
(174)
180
1,534 $5,984
$21 $8,475 $63,186 $(24,440)
486
(487)
4
(31)
(1,099)
4,959
(304)
(2,541)
(13)
171
(1,661)
(154)
190
(300)
Equity
$(1,404) $49,040
(1)
7,096
(618)
(282)
(618)
Total
Equity
$626 $49,666
(1)
7,124
(618)
(282)
28
(2,190)
565
91
(2,844)
–
(2,190)
565
91
(2,844)
(31)
(31)
–
172
$(2,322) $51,029
2
6,914
949
(302)
949
5
5
172
$628 $51,657
2
6,946
949
(302)
32
(2,493)
89
(4,515)
–
(2,493)
89
(4,515)
(31)
(31)
–
180
$(1,373) $51,853
(1,099)
4,959
1,695
(304)
1,695
1
1
180
$630 $52,483
(1,099)
4,985
1,695
(304)
26
(2,541)
486
(500)
17
(1,661)
–
(2,541)
486
(500)
17
(1,661)
(25)
(25)
–
190
$53,095
(1)
(1)
190
$630 $53,725
1,507 $5,983
$21 $8,511 $64,188 $(25,930)
$ 322
(a) Reflects the adoption of new accounting guidance on January 1, 2018 to reclassify the impact of the reduced federal statutory tax rate for corporations included in 2017 tax reform legislation
from accumulated other comprehensive income to retained earnings.
(b) Reflects dividends declared per share on the Company’s Series A, Series B, Series F, Series H, Series I, Series J and Series K Non-Cumulative Perpetual Preferred Stock of $3,548.61,
$887.15, $1,625.00, $1,287.52, $1,281.25, $1,325.00 and $576.74, respectively.
(c) Reflects dividends declared per share on the Company’s Series A, Series B, Series F, Series H, Series I, Series J and Series K Non-Cumulative Perpetual Preferred Stock of $3,654.95,
$887.15, $1,625.00, $1,287.52, $1,281.25, $1,325.00 and $1,375.00, respectively.
(d) Effective January 1, 2020, the Company adopted accounting guidance which changed impairment recognition of financial instruments to a model that is based on expected losses rather than
incurred losses. Upon adoption, the Company increased its allowance for credit losses and reduced retained earnings net of deferred taxes through a cumulative-effect adjustment.
(e) Reflects dividends declared per share on the Company’s Series A, Series B, Series F, Series H, Series I, Series J, Series K and Series L Non-Cumulative Perpetual Preferred Stock of
$3,558.332, $889.58, $1,625.00, $1,287.52, $1,281.25, $1,325.00, $1,375.00 and $203.13, respectively.
See Notes to Consolidated Financial Statements.
77
U.S. Bancorp
Consolidated Statement of Cash Flows
Year Ended December 31 (Dollars in Millions)
2020
2019
2018
Operating Activities
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,959
Adjustments to reconcile net income to net cash provided by operating activities
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization of premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on sale of loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on sale of securities and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans originated for sale, net of repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,806
351
176
(2,193)
(344)
(67,449)
65,468
(1,058)
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,716
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 decrease (increase) in loans outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net decrease (increase) in securities purchased under agreements to resell . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,596
–
40,639
–
(68,662)
6,350
2,250
(11,622)
645
(636)
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(15,440)
Financing Activities
Net increase (decrease) 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends paid on preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends paid on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
67,854
(11,957)
14,501
(14,476)
486
15
(1,672)
(300)
(2,552)
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
51,899
Change in cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and due from banks at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40,175
22,405
$ 6,914
$ 7,096
1,504
334
168
(762)
(469)
(36,561)
33,303
458
4,889
11,252
9,137
11,454
(6,701)
(33,814)
(9,871)
2,899
(3,805)
(816)
(1,295)
(21,560)
16,441
9,584
9,899
(11,119)
–
88
(4,525)
(302)
(2,443)
17,623
952
21,453
1,379
306
161
(394)
(510)
(29,214)
30,730
1,010
10,564
1,400
6,619
11,411
(9,793)
(10,077)
(9,234)
4,862
(3,694)
(182)
(289)
(8,977)
(1,740)
(2,512)
12,078
(2,928)
565
86
(2,822)
(274)
(2,092)
361
1,948
19,505
Cash and due from banks at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 62,580
$ 22,405
$ 21,453
Supplemental Cash Flow Disclosures
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,025
2,199
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
Noncash transfer of held-to-maturity investment securities to available-for-sale . . . . . . . . . . . . . . . . . . . .
23
Net noncash transfers to foreclosed property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
941
4,404
43,596
60
$
365
3,056
–
115
See Notes to Consolidated Financial Statements.
78
Notes to Consolidated Financial Statements
NOTE 1 Significant Accounting Policies
U.S. Bancorp is a multi-state financial services holding company
headquartered in Minneapolis, Minnesota. U.S. Bancorp and its
subsidiaries (the “Company”) provide a full range of financial
services, including lending and depository services through
banking offices principally in the Midwest and West regions of the
United States, through on-line services, over mobile devices and
through other distribution channels. The Company also engages
in credit card, merchant, and ATM processing, mortgage
banking, cash management, capital markets, 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
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.
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 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 Debt securities that are not
trading securities but may be sold before maturity in response to
changes in the Company’s interest rate risk profile, funding
needs, demand for collateralized deposits by public entities or
other reasons, are carried at fair value with unrealized net gains or
losses reported within other comprehensive income (loss).
Declines in fair value related to credit, if any, are recorded through
the establishment of an allowance for credit losses.
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
Equity 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 similarly structured limited liability companies
where the Company’s ownership interest is greater than
5 percent are accounted for using the equity method. Equity
investments not using the equity method are accounted for at fair
value with changes in fair value and realized gains or losses
reported in noninterest income, unless fair value is not readily
determinable, in which case the investment is carried at cost
subject to adjustments for any observable market transactions on
the same or similar instruments of the investee. Most of the
Company’s equity investments do not have readily determinable
fair values. 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 two segments, which is the level
at which it develops and documents a systematic methodology
to determine the allowance for credit losses. The Company’s two
loan portfolio segments are commercial lending and consumer
lending. 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.
Previously, the Company categorized loans covered under loss
sharing or similar credit protection agreements with the Federal
Deposit Insurance Corporation (“FDIC”), along with the related
indemnification asset, in a separate covered loans segment.
During 2018 the majority of these loans were sold and the loss
share coverage expired. Any remaining balances were reclassified
to the loan segment they would have otherwise been included in
had the loss share coverage not been in place.
Originated Loans Held for Investment Loans the Company
originates as held for investment are reported at the principal
amount outstanding, net of unearned interest income and
deferred fees and 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
79
loan and/or commitment period as yield adjustments.
Purchased Loans All purchased loans are recorded at fair value
at the date of purchase and those acquired on or after January 1,
2020 are divided into those considered purchased with more
than insignificant credit deterioration (“PCD”) and those not
considered purchased with more than insignificant credit
deterioration. An allowance for credit losses is established for
each population and considers product mix, risk characteristics
of the portfolio, bankruptcy experience, delinquency status and
refreshed loan-to-value ratios when possible. The allowance for
credit losses established for purchased loans not considered
PCD is recognized through provision expense upon acquisition,
whereas the allowance for credit losses established for loans
considered PCD at acquisition is offset by an increase in the
basis of the acquired loans. Any subsequent increases and
decreases in the allowance for credit losses related to purchased
loans, regardless of PCD status, are recognized through
provision expense, with charge-offs charged to the allowance.
The Company did not have a material amount of PCD loans
included in its loan portfolio at December 31, 2020. In
accordance with applicable authoritative accounting guidance,
purchased loans acquired prior to January 1, 2020 were initially
measured at fair value, inclusive of any credit discounts, and an
allowance for credit losses was not recorded as of the acquisition
date.
Commitments to Extend Credit Unfunded commitments for
residential mortgage loans intended to be held for sale are
considered derivatives and recorded in other assets and other
liabilities on the Consolidated Balance Sheet at fair value with
changes in fair value recorded in noninterest income. All other
unfunded loan commitments are not considered derivatives and
are not reported on the Consolidated Balance Sheet. Reserves
for credit exposure on all other unfunded credit commitments are
recorded in other liabilities.
Allowance for Credit Losses Beginning January 1, 2020, the
allowance for credit losses is established for current expected
credit losses on the Company’s loan and lease portfolio, including
unfunded credit commitments. The allowance considers
expected losses for the remaining lives of the applicable assets,
inclusive of expected recoveries. The allowance for credit losses
is increased through provisions charged to earnings and reduced
by net charge-offs. Management evaluates the appropriateness
of the allowance for credit losses on a quarterly basis. Multiple
economic scenarios are considered over a three-year reasonable
and supportable forecast period, which incorporates historical
loss experience in years two and three. These economic
scenarios are constructed with interrelated projections of multiple
economic variables, and loss estimates are produced that
consider the historical correlation of those economic variables
with credit losses. After the forecast period, the Company fully
reverts to long-term historical loss experience, adjusted for
prepayments and characteristics of the current loan and lease
portfolio, to estimate losses over the remaining life of the portfolio.
The economic scenarios are updated at least quarterly and are
designed to provide a range of reasonable estimates, both better
and worse than current expectations. Scenarios are weighted
based on the Company’s expectation of economic conditions for
the foreseeable future and reflect significant judgment and
consider uncertainties that exist. Final loss estimates also
consider factors affecting credit losses not reflected in the
scenarios, due to the unique aspects of current conditions and
expectations. These factors may include, but are not limited to,
loan servicing practices, regulatory guidance, and/or fiscal and
monetary policy actions.
The allowance recorded for credit losses utilizes forward-
looking expected loss models to consider a variety of factors
affecting lifetime credit losses. These factors include, but are not
limited to, macroeconomic variables such as unemployment rate,
real estate prices, gross domestic product levels, corporate
bonds spreads and long-term interest rate forecasts, as well as
loan and borrower characteristics, such as internal risk ratings on
commercial loans and consumer credit scores, delinquency
status, collateral type and available valuation information,
consideration of end-of-term losses on lease residuals, and the
remaining term of the loan, adjusted for expected prepayments.
For each loan portfolio, model estimates are adjusted as
necessary to consider any relevant changes in portfolio
composition, lending policies, underwriting standards, risk
management practices, economic conditions or other factors that
would affect the accuracy of the model. Expected credit loss
estimates also include consideration of expected cash recoveries
on loans previously charged-off or expected recoveries on
collateral dependent loans where recovery is expected through
sale of the collateral. Where loans do not exhibit similar risk
characteristics, an individual analysis is performed to consider
expected credit losses. The allowance recorded for individually
evaluated loans greater than $5 million in the commercial lending
segment is based on an 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 as
appropriate.
The allowance recorded for Troubled Debt Restructuring
(“TDR”) loans in the consumer lending segment is determined on
a homogenous pool basis utilizing expected cash flows
discounted using the original effective interest rate of the pool.
TDRs generally do not include loan modifications granted to
customers resulting directly from the economic effects of the
COVID-19 pandemic, who were otherwise in current payment
status. The expected cash flows on TDR loans consider
subsequent payment defaults since modification, the borrower’s
ability to pay under the restructured terms, and the timing and
amount of payments. 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. With respect to the
commercial lending segment, TDRs may be collectively evaluated
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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.
The Company’s methodology for determining the appropriate
allowance for credit losses also considers the imprecision
inherent in the methodologies used and allocated to the various
loan portfolios. As a result, amounts determined under the
methodologies described above, are adjusted by management to
consider the potential impact of other qualitative factors not
captured in the quantitative model adjustments which include, but
are not limited to the following: model imprecision, imprecision in
economic scenario assumptions, and emerging risks related to
either changes in the environment that are affecting specific
portfolios, or changes in portfolio concentrations over time that
may affect model performance. The consideration of these items
results in adjustments to allowance amounts included in the
Company’s allowance for credit losses for each loan portfolio.
The Company also assesses the credit risk associated with
off-balance sheet loan commitments, letters of credit, investment
securities 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.
The results of the analysis are evaluated quarterly to confirm
the estimates are appropriate for each specific loan portfolio, as
well as the entire loan portfolio, as the entire allowance for credit
losses is available for the entire loan portfolio.
Prior to January 1, 2020, the allowance for credit losses was
established based on an incurred loss model. The allowance
recorded for loans in the commercial lending segment was based
on the migration analysis of commercial loans and actual loss
experience. The allowance recorded for loans in the consumer
lending segment loans was determined on a homogenous pool
basis and primarily included consideration of delinquency status
and historical losses. In addition to the amounts determined
under the methodologies described above, management also
considered the potential impact of qualitative factors.
Credit Quality The credit 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 portfolio 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, reducing interest income in the
current period.
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 placed on
nonaccrual.
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.
Residential mortgage loans and lines in a first lien position are
placed on nonaccrual status in instances where a partial
charge-off occurs unless the loan is well secured and in the
process of collection. Residential mortgage 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 they are 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 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.
The Company classifies its loan portfolio classes using internal
credit quality ratings on a quarterly basis. These ratings include
pass, special mention and classified, and are an important part of
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the Company’s overall credit risk management process and
evaluation of the 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 credit risk has been
identified. Special mention loans are those loans that have a
potential weakness deserving management’s close attention.
Classified loans are those loans 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.
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 interest rate. 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
modifies residential mortgage loans under Federal Housing
Administration, United States Department of Veterans Affairs, or
its own internal programs. Under these programs, the Company
offers qualifying homeowners the opportunity to permanently
modify their loan and achieve more affordable monthly payments
by providing loan concessions. These 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.
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.
Loan modifications or concessions granted to borrowers
resulting directly from the effects of the COVID-19 pandemic,
who were otherwise in current payment status, are not
considered to be TDRs.
Leases The Company, as a lessor, originates retail and
commercial leases either directly to the consumer or indirectly
through dealer networks. Retail leases, primarily automobiles,
have 3 to 5 year terms. Commercial leases may include high
dollar assets such as aircraft or lower cost items such as office
equipment. At lease inception, retail lease customers are
provided with an end-of-term purchase option, which is based on
the expected fair value of the automobile at the expiration of the
lease. Automobile leases do not typically contain options to
extend or terminate the lease. Equipment leases may contain
various types of purchase options. Some option amounts are a
stated value, while others are determined using the fair market
value at the time of option exercise.
Residual values on leased assets are reviewed regularly for
impairment. Residual valuations for retail leases are based on
independent assessments of expected used automobile sale
prices at the end of the lease 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. The Company manages its risk
to changes in the residual value of leased vehicles, office and
business equipment, and other 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. Retail lease residual value risk is mitigated further by
the purchase of residual value insurance coverage and effective
end-of-term marketing of off-lease vehicles.
The Company, as lessee, leases certain assets for use in its
operations. Leased assets primarily include retail branches,
operations centers and other corporate locations, and, to a lesser
extent, office and computer equipment. For each lease with an
original term greater than 12 months, the Company records a
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lease liability and a corresponding right of use (“ROU”) asset. The
Company accounts for the lease and non-lease components in
the majority of its lease contracts as a single lease component,
with the determination of the lease liability at lease inception
based on the present value of the consideration to be paid under
the contract. The discount rate used by the Company is
determined at commencement of the lease using a secured rate
for a similar term as the period of the lease. The Company’s
leases do not include significant variable lease payments.
Certain of the Company’s real estate leases include options to
extend. Lease extension options are generally exercisable at
market rates. Such option periods do not provide a significant
incentive, and their exercise is not reasonably certain.
Accordingly, the Company does not generally recognize
payments occurring during option periods in the calculation of its
ROU assets and lease liabilities.
Other Real Estate Other real estate owned (“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”).
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 a net 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. 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
In the ordinary course of business, the Company recognizes
income derived from various revenue generating activities. Certain
revenues are generated from contracts where they are
recognized when, or as services or products are transferred to
customers for amounts the Company expects to be entitled.
Revenue generating activities related to financial assets and
liabilities are also recognized; including mortgage servicing fees,
loan commitment fees, foreign currency remeasurements, and
gains and losses on securities, equity investments and
unconsolidated subsidiaries. Certain specific policies include the
following:
Credit and Debit Card Revenue Credit and debit card revenue
includes interchange from 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 services are provided. Transaction and account
management fees are recognized as services are provided,
except for annual fees which are recognized over the applicable
period. Costs for rewards programs and certain payments to
partners and credit card associations are also recorded within
credit and debit card revenue when services are provided. The
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Company predominately records credit and debit card revenue
within the Payment Services line of business.
Corporate Payment Products Revenue Corporate payment
products revenue primarily includes interchange from commercial
card products processed through card association networks and
revenue from proprietary network transactions. The Company
records corporate payment products revenue as services are
provided. Certain payments to credit card associations and
customers are also recorded within corporate payment products
revenue as services are provided. Corporate payment products
revenue is recorded within the Payment Services line of business.
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, less 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 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
records merchant processing services revenue within the
Payment Services line of business.
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. Services
provided to clients include trustee, transfer agent, custodian,
fiscal agent, escrow, fund accounting and administration
services. Services provided to mutual funds may include selling,
distribution and marketing services. Trust and investment
management fees are predominately recorded within the Wealth
Management and Investment Services line of business.
Deposit Service Charges Deposit service charges include
service charges on deposit accounts received under depository
agreements with customers to provide access to deposited
funds, serve as a custodian of funds, and when applicable, pay
interest on deposits. Checking or savings accounts may contain
fees for various services used on a day to day basis by a
customer. Fees are recognized as services are delivered to and
consumed by the customer, or as penalty fees are charged.
Deposit service charges also include revenue generated from
ATM transaction processing and settlement services which is
recognized at the time the services are performed. Certain
payments to partners and card associations related to ATM
processing services are also recorded within deposit service
charges as services are provided. Deposit service charges are
reported primarily within the Consumer and Business Banking line
of business.
Treasury Management Fees Treasury management fees
include fees for a broad range of products and services that
enables customers to manage their cash more efficiently. These
products and services include cash and investment management,
receivables management, disbursement services, funds transfer
services, and information reporting. Revenue is recognized as
products and services are provided to customers. The Company
reflects a discount calculated on monthly average collected
customer balances. Total treasury management fees are reported
primarily within the Corporate and Commercial Banking and
Consumer and Business Banking lines of business.
Commercial Products Revenue Commercial products revenue
primarily includes revenue related to ancillary services provided to
Corporate and Commercial Banking and Consumer and Business
Banking customers, including standby letter of credit fees,
non-yield related loan fees, capital markets related revenue, sales
of direct financing leases, and loan and syndication fees. Sales of
direct financing leases are recognized at the point of sale. In
addition, the Company may lead or participate with a group of
underwriters in raising investment capital on behalf of securities
issuers and charge underwriting fees. These fees are recognized
at securities issuance. The Company, in its role as lead
underwriter, arranges deal structuring and use of outside vendors
for the underwriting group. The Company recognizes only those
fees and expenses related to its underwriting commitment.
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 9 and Note 21 for a further discussion of MSRs. Mortgage
banking revenue is reported within the Consumer and Business
Banking line of business.
Investment Products Fees Investment products fees include
commissions related to the execution of requested security
trades, distribution fees from sale of mutual funds, and
investment advisory fees. Commissions and investment advisory
fees are recognized as services are delivered to and utilized by
the customer. Distribution fees are received over time, are
dependent on the consumer maintaining their mutual fund asset
position and the value of such position. These revenues are
estimated and recognized at the point a significant reversal of
revenue becomes remote. Investment products fees are
predominately reported within the Wealth Management and
Investment Services line of business.
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Other Noninterest Income Other noninterest income is
primarily related to financial assets including income on
unconsolidated subsidiaries and equity method investments,
gains on sale of other investments and corporate owned life
insurance proceeds. The Company reports other noninterest
income across all lines of business.
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 whether the carrying value of a reporting unit
exceeds its fair value. 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. For certain investments in qualified affordable
housing projects, the Company presents the expense 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, option adjusted spread, 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 funds’ trustee or 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. Service cost
is included in employee benefits expense on the Consolidated
Statement of Income, with all other components of periodic
pension expense included in other noninterest expense on the
Consolidated Statement of Income. 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 or the remaining life expectancies of
inactive participants. The market-related value utilized to
determine the expected return on plan assets is based on fair
value adjusted for the difference between expected returns and
actual performance of plan assets. The unrealized difference
between actual experience and expected returns is included in
expense over a period of approximately 15 years for active
employees and approximately 30 years for inactive participants.
The overfunded or underfunded status of each plan 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 25 years for furniture and equipment.
The Company, as lessee, records an ROU asset for each
lease with an original term greater than 12 months. ROU assets
are included in premises and equipment, with the corresponding
lease liabilities included in long-term debt and other liabilities.
Capitalized Software The Company capitalizes certain costs
associated with the acquisition or development of internal-use
software. Once the software is ready for its intended use, these
costs are amortized on a straight-line basis over the software’s
expected useful life and reviewed for impairment on an ongoing
basis. Estimated useful lives are generally 3 years, but may range
up to 7 years.
Stock-Based Compensation The Company grants stock-
based awards, which may include 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
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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 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 using the two-class method under which earnings are
allocated to common shareholders and holders of participating
securities. Unvested stock-based compensation awards that
contain nonforfeitable rights to dividends or dividend equivalents
are considered participating securities under the two-class
method. Net income applicable to U.S. Bancorp common
shareholders is then divided by the weighted-average number of
common shares outstanding to determine earnings per common
share. Diluted earnings per common share is calculated by
adjusting income and outstanding shares, assuming conversion
of all potentially dilutive securities.
NOTE 2 Accounting Changes
Financial Instruments—Credit Losses Effective January 1,
2020, the Company adopted accounting guidance, issued by the
Financial Accounting Standards Board (“FASB”) in June 2016,
related to the impairment of financial instruments. This guidance
changes impairment recognition to a model that is based on
expected losses rather than incurred losses, which is intended to
result in more timely recognition of credit losses. This guidance is
also intended to reduce the complexity of accounting guidance
by decreasing the number of credit impairment models that
entities use to account for debt instruments. In addition, the
guidance requires additional credit quality disclosures for loans.
Upon adoption, the Company increased its allowance for credit
losses by approximately $1.5 billion and reduced retained
earnings net of deferred tax balances by approximately
$1.1 billion through a cumulative-effect adjustment. The increase
in the allowance at adoption was primarily related to the
commercial, credit card, installment and other retail loan
portfolios where the allowance for loan losses had not previously
considered the full term of the loans. The Company has elected
to defer the impact of the effect of the guidance at adoption plus
25 percent of its quarterly credit reserve increases over the next
two years on its regulatory capital requirements, followed by a
transition period to phase in the cumulative deferred impact at
25 percent per year from 2022 to 2025, as provided by rules
issued by its regulators.
The adoption of this guidance did not have a material impact
on the Company’s available-for-sale securities as most of this
portfolio consists of U.S. Treasury and residential agency
mortgage-backed securities that inherently have an immaterial
risk of loss.
Reference Interest Rate Transition In March 2020, the FASB
issued accounting guidance, providing temporary optional
expedients and exceptions to the guidance in United States
generally accepted accounting principles on contract
modifications and hedge accounting, to ease the financial
reporting burdens related to the expected market transition from
the London Interbank Offered Rate (“LIBOR”) and other interbank
offered rates to alternative reference rates. Under the guidance, a
company can elect not to apply certain modification accounting
requirements to contracts affected by reference rate transition, if
certain criteria are met. A company that makes this election
would not be required to remeasure the contracts at the
modification date or reassess a previous accounting
determination. This guidance also permits a company to elect
various optional expedients that would allow it to continue
applying hedge accounting for hedging relationships affected by
reference rate transition, if certain criteria are met. The guidance
is effective upon issuance and generally can be applied through
December 31, 2022. The Company is currently assessing the
impact of this guidance on its financial statements.
NOTE 3 Restrictions on Cash and Due from
Banks
Banking regulators require bank subsidiaries to maintain minimum
average reserve balances, either in the form of vault cash or
reserve balances held with central banks or other financial
institutions. The amount of required reserve balances were
approximately $73 million and $3.2 billion at December 31, 2020
and 2019, respectively. The Company held balances at central
banks and other financial institutions of $55.4 billion and
$16.2 billion at December 31, 2020 and 2019, respectively, to
meet these requirements and for other purposes. These balances
are included in cash and due from banks on the Consolidated
Balance Sheet.
86
NOTE 4 Investment Securities
The Company’s 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. The Company had no outstanding investment securities
classified as held-to-maturity at December 31, 2020 and December 31, 2019.
The amortized cost, gross unrealized holding gains and losses, and fair value of available-for-sale investment securities at December 31
were as follows:
2020
2019
(Dollars in Millions)
U.S. Treasury and agencies . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities
Residential agency . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial agency . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of state and political subdivisions . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total available-for-sale . . . . . . . . . . . . . . . . . . . . . . .
Amortized Unrealized Unrealized
Losses
Gains
Cost
Fair
Value
Amortized Unrealized Unrealized
Losses
Gains
Cost
Fair
Value
$ 21,954
$ 462
$(25) $ 22,391
$ 19,845
$ 61
$ (67) $ 19,839
1,950
98,031
170
5,251
5
200
695
8,166
–
9
$133,611 $3,282
(13)
(15)
–
–
–
99,968
5,406
205
8,861
9
$(53) $136,840
93,903
1,482
375
6,499
13
$122,117
557
–
8
318
–
$944
(349)
(29)
–
(3)
–
94,111
1,453
383
6,814
13
$(448) $122,613
Investment securities with a fair value of $11.0 billion at
December 31, 2020, and $8.4 billion at December 31, 2019,
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 $402 million at December 31,
2020, and $269 million at December 31, 2019.
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)
2020
Taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,201
227
Non-taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest income from investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,428
2019
$2,680
213
$2,893
2018
$2,396
220
$2,616
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)
2019
2020
Realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $200
(23)
Realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $177
Income tax (benefit) on net realized gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45
$ 99
(26)
$ 73
$ 18
2018
$30
–
$30
$ 7
The Company conducts a regular assessment of its
available-for-sale investment securities with unrealized losses to
determine whether all or some portion of a security’s unrealized
loss is related to credit and an allowance for credit losses is
necessary. If the Company intends to sell or it is more likely than
not the Company will be required to sell an investment security,
the amortized cost of the security is written down to fair value.
When evaluating credit losses, the Company considers various
factors such as the nature of the investment security, the credit
ratings or financial condition of the issuer, the extent of the
unrealized loss, expected cash flows of underlying collateral, the
existence of any government or agency guarantees, and market
conditions. The Company measures the allowance for credit
losses using market information where available and discounting
the cash flows at the original effective rate of the investment
security. The allowance for credit losses is adjusted each period
through earnings and can be subsequently recovered. The
allowance for credit losses on the Company’s available-for-sale
investment securities was immaterial for the year ended
December 31, 2020.
87
At December 31, 2020, 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 available-for-sale 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, 2020:
Less Than 12 Months
12 Months or Greater
Total
(Dollars in Millions)
Fair
Value
Unrealized
Losses
Fair
Value
$
–
1,028
–
2
–
–
$1,030
Unrealized
Losses
$ –
(2)
–
–
–
–
$(2)
Fair
Value
$3,144
3,776
1,847
2
2
6
$8,777
Unrealized
Losses
$(25)
(13)
(15)
–
–
–
$(53)
$(25)
(11)
(15)
–
–
–
$(51)
from prepayment at less than par, and the Company did not pay
significant purchase premiums for these investment securities. At
December 31, 2020, 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.
During the year ended December 31, 2020, the Company did
not purchase any available-for-sale investment securities that had
more-than-insignificant credit deterioration.
U.S. Treasury and agencies . . . . . . . . . . . . . . . . . . . . . . . . . . $3,144
2,748
Residential agency mortgage-backed securities . . . . . . . . . .
1,847
Commercial agency mortgage-backed securities . . . . . . . . .
–
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
Obligations of state and political subdivisions . . . . . . . . . . . .
6
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total investment securities . . . . . . . . . . . . . . . . . . . . . . . . . $7,747
These unrealized losses primarily relate to changes in interest
rates and market spreads subsequent to purchase of the
investment securities. U.S. Treasury and agencies securities and
agency mortgage-backed securities are issued, guaranteed or
otherwise supported by the United States government. The
Company’s obligations of state and political subdivisions are
generally high grade. Accordingly, the Company does not
consider these unrealized losses to be credit-related and an
allowance for credit losses is not necessary. In general, the
issuers of the investment securities are contractually prohibited
88
The following table provides information about the amortized cost, fair value and yield by maturity date of the available-for-sale investment
securities outstanding at December 31, 2020:
(Dollars in Millions)
U.S. Treasury and Agencies
Amortized
Cost
Fair Value
Weighted-
Average
Maturity in
Years
Weighted-
Average
Yield(e)
Maturing in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,069
10,491
Maturing after one year through five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,874
Maturing after five years through ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
520
Maturing after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,954
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
682
90,156
12,425
19
$ 5,101
10,740
6,034
516
$ 22,391
$
688
92,059
12,607
20
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $103,282
$105,374
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
–
3
197
–
200
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
115
1,245
6,779
27
$
$
$
–
4
200
1
205
117
1,327
7,386
31
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,166
$ 8,861
Other
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
9
–
–
–
9
$
$
9
–
–
–
9
Total investment securities(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $133,611
$136,840
.5
2.5
8.2
12.5
3.8
.6
2.5
6.9
12.2
3.0
–
3.0
6.2
14.2
6.2
.5
3.2
7.0
10.9
6.3
.1
–
–
–
.1
3.4
1.53%
1.29
1.39
1.52
1.37%
1.54%
1.48
1.44
1.31
1.47%
.52%
1.91
1.46
2.41
1.47%
4.44%
4.43
3.90
3.88
3.99%
1.81%
–
–
–
1.81%
1.61%
(a) Information related to asset and mortgage-backed securities included above is presented based upon weighted-average maturities that take into account anticipated 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, and yield to maturity if the
security is 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 the contractual maturity date for
securities with a fair value equal to or below par.
(d) The weighted-average maturity of total available-for-sale investment securities was 4.2 years at December 31, 2019, with a corresponding weighted-average yield of 2.38 percent.
(e) Weighted-average yields for obligations of state and political subdivisions are presented on a fully-taxable equivalent basis based on a federal income tax rate of 21 percent. Yields on
investment securities are computed based on amortized cost balances.
89
NOTE 5 Loans and Allowance for Credit Losses
The composition of the loan portfolio at December 31, disaggregated by class and underlying specific portfolio type, was as follows:
(Dollars in Millions)
Commercial
2020
2019
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 97,315
5,556
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
102,871
$ 98,168
5,695
103,863
Commercial Real Estate
Commercial mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential Mortgages
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home equity loans, first liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28,472
10,839
39,311
66,525
9,630
76,155
Credit Card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22,346
Other Retail
Retail leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home equity and second mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revolving credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Installment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Automobile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Student . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,150
12,472
2,688
13,823
19,722
169
57,024
29,404
10,342
39,746
59,865
10,721
70,586
24,789
8,490
15,036
2,899
11,038
19,435
220
57,118
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 297,707
$ 296,102
The Company had loans of $96.1 billion at December 31,
2020, and $96.2 billion at December 31, 2019, pledged at the
Federal Home Loan Bank, and loans of $67.8 billion at
December 31, 2020, and $76.3 billion at December 31, 2019,
pledged at the Federal Reserve Bank.
The Company offers a broad array of lending products to
consumer and commercial customers, in various industries,
across several geographical locations, predominately in the states
in which it has Consumer and Business Banking offices.
Collateral for commercial and commercial real estate loans may
include marketable securities, accounts receivable, inventory,
equipment, real estate, or the related property.
Originated loans are reported at the principal amount
outstanding, net of unearned interest and deferred fees and
costs, and any partial charge-offs recorded. Net unearned
interest and deferred fees and costs amounted to $763 million at
December 31, 2020 and $781 million at December 31, 2019. All
purchased loans are recorded at fair value at the date of
purchase. Beginning January 1, 2020, the Company evaluates
purchased loans for more-than-insignificant deterioration at the
date of purchase in accordance with applicable authoritative
accounting guidance. Purchased loans that have experienced
more-than-insignificant deterioration from origination are
considered purchased credit deteriorated loans. All other
purchased loans are considered non-purchased credit
deteriorated loans.
90
Allowance for Credit Losses Beginning January 1, 2020, the
allowance for credit losses is established for current expected
credit losses on the Company’s loan and lease portfolio, including
unfunded credit commitments. The allowance for credit losses is
increased through provisions charged to earnings and reduced
by net charge-offs.
Activity in the allowance for credit losses by portfolio class was as follows:
(Dollars in Millions)
Balance at December 31, 2019 . . . . . . .
Add
Commercial
Commercial
Real Estate
Residential
Mortgages
Credit
Card
Other
Retail
Covered
Loans
Total
Loans
$1,484
$ 799
$433
$1,128
$ 647
$ –
$4,491
Change in accounting principle(a) . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . .
378
1,074
Deduct
Loans charged-off . . . . . . . . . . . . . . . . . . . .
Less recoveries of loans charged-off . . . . .
Net loans charged-off . . . . . . . . . . . . . . .
Balance at December 31, 2020 . . . . . . .
Balance at December 31, 2018 . . . . . . .
Add
575
(62)
513
$2,423
$1,454
Provision for credit losses . . . . . . . . . . . . . .
315
Deduct
Loans charged-off . . . . . . . . . . . . . . . . . . . .
Less recoveries of loans charged-off . . . . .
Net loans charged-off . . . . . . . . . . . . . . .
Balance at December 31, 2019 . . . . . . .
Balance at December 31, 2017 . . . . . . .
Add
Provision for credit losses . . . . . . . . . . . . . .
Deduct
Loans charged-off . . . . . . . . . . . . . . . . . . . .
Less recoveries of loans charged-off . . . . .
Net loans charged-off . . . . . . . . . . . . . . .
Other changes . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2018 . . . . . . .
399
(114)
285
$1,484
$1,372
333
350
(99)
251
–
(122)
1,054
210
(23)
187
$1,544
$ 800
13
21
(7)
14
$ 799
$ 831
(50)
9
(28)
(19)
–
(30)
158
19
(31)
(12)
$573
$455
(19)
34
(31)
3
$433
$449
23
48
(31)
17
–
872
1,184
975
(146)
829
$2,355
$1,102
919
1,028
(135)
893
$1,128
$1,056
892
970
(124)
846
–
401
336
401
(132)
269
–
–
–
–
–
$1,115
$ 630
$ –
$ –
276
385
(126)
259
–
–
–
–
$ 647
$ 678
$ –
$ 31
1,499
3,806
2,180
(394)
1,786
$8,010
$4,441
1,504
1,867
(413)
1,454
$4,491
$4,417
211
383
(124)
259
–
(30)
1,379
–
–
–
(1)
1,760
(406)
1,354
(1)
$1,454
$ 800
$455
$1,102
$ 630
$ –
$4,441
(a) Effective January 1, 2020, the Company adopted accounting guidance which changed impairment recognition of financial instruments to a model that is based on expected losses rather than
incurred losses.
The increase in the allowance for credit losses from
December 31, 2019 to December 31, 2020 reflected the
deteriorating and ongoing effects of adverse economic conditions
driven by the impact of COVID-19 on the domestic and global
economies. Expected loss estimates consider both the changes
in economic activity, and the mitigating effects of government
stimulus and industrywide loan modification efforts designed to
limit long term effects of the pandemic.
91
Credit Quality The credit quality of the Company’s loan
portfolios is assessed as a function of net credit losses, levels of
nonperforming assets and delinquencies, and credit quality
ratings as defined by the Company. These credit quality ratings
are an important part of the Company’s overall credit risk
management process and evaluation of the allowance for credit
losses.
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)
Accruing
30-89 Days
Past Due
Current
90 Days or
More Past Due
Nonperforming(b)
Total
December 31, 2020
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $102,127
38,676
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
75,529
Residential mortgages(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,918
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
56,466
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $294,716
December 31, 2019
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $103,273
39,627
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
70,071
Residential mortgages(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24,162
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
56,463
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $293,596
$ 314
183
244
231
318
$1,290
$ 307
34
154
321
393
$1,209
$ 55
2
137
197
86
$477
$ 79
3
120
306
97
$605
$ 375
450
245
–
154
$1,224
$ 204
82
241
–
165
$ 692
$102,871
39,311
76,155
22,346
57,024
$297,707
$103,863
39,746
70,586
24,789
57,118
$296,102
(a) At December 31, 2020, $1.4 billion of loans 30–89 days past due and $1.8 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 United States Department of Veterans Affairs, were classified as current, compared
with $428 million and $1.7 billion at December 31, 2019, respectively.
(b) Substantially all nonperforming loans at December 31, 2020 and 2019, had an associated allowance for credit losses. The Company recognized interest income on nonperforming loans of
$23 million and $24 million for the years ended December 31, 2020 and 2019, respectively, compared to what would have been recognized at the original contractual terms of the loans of
$45 million and $43 million, respectively.
At December 31, 2020, total nonperforming assets held by
the company were $1.3 billion, compared with $829 million at
December 31, 2019. Total nonperforming assets included
$1.2 billion of nonperforming loans, $24 million of OREO and
$50 million of other nonperforming assets owned by the
Company at December 31, 2020, compared with $692 million,
$78 million and $59 million, respectively at December 31, 2019.
At December 31, 2020, the amount of foreclosed residential
real estate held by the Company, and included in OREO, was
$23 million, compared with $74 million at December 31, 2019.
These amounts excluded $33 million and $155 million at
December 31, 2020 and 2019, respectively, of foreclosed
residential real estate related to mortgage loans whose payments
are primarily insured by the Federal Housing Administration or
guaranteed by the United States 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, 2020 and 2019, was $1.0 billion and $1.5 billion,
respectively, of which $812 million and $1.2 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 United States Department of Veterans Affairs.
92
The following table provides a summary of loans by portfolio class and the Company’s internal credit quality rating:
(Dollars in Millions)
Commercial
December 31, 2020
Criticized
December 31, 2019
Criticized
Pass
Special
Mention Classified(a)
Total
Criticized
Total
Pass
Special
Total
Mention Classified(a) Criticized
Total
Originated in 2020 . . . . . . . . . . $ 34,557
17,867
Originated in 2019 . . . . . . . . . .
12,349
Originated in 2018 . . . . . . . . . .
5,257
Originated in 2017 . . . . . . . . . .
2,070
Originated in 2016 . . . . . . . . . .
2,884
Originated prior to 2016 . . . . . .
22,445
Revolving . . . . . . . . . . . . . . . . .
$1,335
269
351
117
81
47
299
$1,753 $ 3,088 $ 37,645
18,485
12,876
5,644
2,177
3,020
23,024
618
527
387
107
136
579
349
176
270
26
89
280
$
–
33,550
21,394
10,464
4,984
5,151
26,307
$
–
174
420
165
10
86
292
Total commercial . . . . . . . . .
97,429
2,499
2,943
5,442 102,871
101,850
1,147
Commercial real estate
Originated in 2020 . . . . . . . . . .
Originated in 2019 . . . . . . . . . .
Originated in 2018 . . . . . . . . . .
Originated in 2017 . . . . . . . . . .
Originated in 2016 . . . . . . . . . .
Originated prior to 2016 . . . . . .
Revolving . . . . . . . . . . . . . . . . .
Total commercial real
9,446
9,514
6,053
2,650
2,005
2,757
1,445
461
454
411
198
132
108
9
1,137
1,005
639
340
140
169
238
1,598
1,459
1,050
538
272
277
247
11,044
10,973
7,103
3,188
2,277
3,034
1,692
–
12,976
9,455
5,863
3,706
4,907
1,965
–
108
71
99
117
78
11
$
– $
– $
–
33,946
21,950
10,726
5,031
5,333
26,877
396
556
262
47
182
570
2,013 103,863
–
216
127
163
177
179
12
–
13,192
9,582
6,026
3,883
5,086
1,977
222
136
97
37
96
278
866
–
108
56
64
60
101
1
estate . . . . . . . . . . . . . . . .
33,870
1,773
3,668
5,441
39,311
38,872
484
390
874
39,746
Residential mortgages(b)
Originated in 2020 . . . . . . . . . .
Originated in 2019 . . . . . . . . . .
Originated in 2018 . . . . . . . . . .
Originated in 2017 . . . . . . . . . .
Originated in 2016 . . . . . . . . . .
Originated prior to 2016 . . . . . .
Revolving . . . . . . . . . . . . . . . . .
Total residential
mortgages . . . . . . . . . . . . .
Credit card(c) . . . . . . . . . . . . . . . . .
Other retail
Originated in 2020 . . . . . . . . . .
Originated in 2019 . . . . . . . . . .
Originated in 2018 . . . . . . . . . .
Originated in 2017 . . . . . . . . . .
Originated in 2016 . . . . . . . . . .
Originated prior to 2016 . . . . . .
Revolving . . . . . . . . . . . . . . . . .
Revolving converted to term . .
Total other retail . . . . . . . . . .
23,262
13,969
5,670
6,918
8,487
17,434
1
75,741
22,149
17,589
11,605
6,814
3,879
1,825
1,906
12,647
503
56,768
1
1
1
1
2
–
–
6
–
–
–
–
–
–
–
–
–
–
3
17
22
24
32
310
–
408
197
7
23
27
22
11
18
110
38
256
4
18
23
25
34
310
–
414
197
7
23
27
22
11
18
110
38
256
23,266
13,987
5,693
6,943
8,521
17,744
1
76,155
22,346
17,596
11,628
6,841
3,901
1,836
1,924
12,757
541
–
18,819
9,204
9,605
11,378
21,168
–
70,174
24,483
–
15,907
10,131
7,907
3,679
3,274
15,509
418
57,024
56,825
–
2
–
–
–
–
–
2
–
–
–
–
–
–
–
10
–
10
–
1
11
21
29
348
–
410
306
–
11
23
28
20
28
138
35
283
–
3
11
21
29
348
–
412
306
–
11
23
28
20
28
148
35
293
–
18,822
9,215
9,626
11,407
21,516
–
70,586
24,789
–
15,918
10,154
7,935
3,699
3,302
15,657
453
57,118
Total loans . . . . . . . . . . . . . . $285,957
$4,278
$7,472 $11,750 $297,707 $292,204
$1,643
$2,255 $3,898 $296,102
Total outstanding
commitments . . . . . . . . . . $627,606
$8,772
$9,374 $18,146 $645,752 $619,224
$2,451
$2,873 $5,324 $624,548
Note: Year of origination is based on the origination date of a loan or the date when the maturity date, pricing or commitment amount is amended.
(a) Classified rating on consumer loans primarily based on delinquency status.
(b) At December 31, 2020, $1.8 billion of GNMA loans 90 days or more past due and $1.4 billion of restructured GNMA loans whose repayments are insured by the Federal Housing
Administration or guaranteed by the United States Department of Veterans Affairs were classified with a pass rating, compared with $1.7 billion and $1.6 billion at December 31, 2019,
respectively.
(c) All credit card loans are considered revolving loans.
93
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)
Number
of Loans
Pre-Modification
Outstanding
Loan
Balance
Post-
Modification
Outstanding
Loan
Balance
2020
3,423
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
149
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,176
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,549
4,027
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans, excluding loans purchased from GNMA mortgage pools . . . . . . . . . . . . . . . . . . . . . . . 32,324
4,630
Loans purchased from GNMA mortgage pools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,954
2019
3,445
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
136
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
417
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,247
2,952
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans, excluding loans purchased from GNMA mortgage pools . . . . . . . . . . . . . . . . . . . . . . . 41,197
6,257
Loans purchased from GNMA mortgage pools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 628
262
402
135
117
1,544
667
$2,211
$ 376
129
55
185
63
808
856
$ 493
218
401
136
114
1,362
659
$2,021
$ 359
125
54
186
61
785
827
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,454
$1,664
$1,612
2018
2,824
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
127
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
526
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,318
2,462
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
Covered Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans, excluding loans purchased from GNMA mortgage pools . . . . . . . . . . . . . . . . . . . . . . . 39,260
6,268
Loans purchased from GNMA mortgage pools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 336
168
73
169
58
1
805
821
$ 311
169
69
171
55
1
776
803
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,528
$1,626
$1,579
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. At
December 31, 2020, 44 residential mortgages, 9 home
equity and second mortgage loans and 423 loans
purchased from GNMA mortgage pools with outstanding
balances of $12 million, less than $1 million and
$64 million, respectively, were in a trial period and have
estimated post-modification balances of $13 million, less
than $1 million and $65 million, respectively, assuming
permanent modification occurs at the end of the trial
period.
Loan modifications or concessions granted to
borrowers resulting directly from the effects of the
COVID-19 pandemic, who were otherwise in current
payment status, are generally not considered to be TDRs.
As of December 31, 2020, approximately $10.1 billion of
loan modifications included on the Company’s
consolidated balance sheet related to borrowers impacted
by the COVID-19 pandemic, consisting primarily of
payment deferrals.
94
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
2020
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans, excluding loans purchased from GNMA mortgage pools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans purchased from GNMA mortgage pools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,148
50
38
6,688
307
8,231
498
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,729
2019
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans, excluding loans purchased from GNMA mortgage pools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans purchased from GNMA mortgage pools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,040
36
137
8,273
380
9,866
997
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,863
2018
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans, excluding loans purchased from GNMA mortgage pools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans purchased from GNMA mortgage pools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
836
39
191
8,012
334
1
9,413
1,447
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,860
$ 80
30
5
35
4
154
66
$220
$ 46
24
15
40
10
135
131
$266
$ 71
15
18
35
5
–
144
187
$331
In addition to the defaults in the table above, the Company
had a total of 115 residential mortgage loans, home equity and
second mortgage loans and loans purchased from GNMA
mortgage pools for the year ended December 31, 2020, 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. These loans had aggregate outstanding balances of
$14 million for the year ended December 31, 2020.
As of December 31, 2020, the Company had $128 million of
commitments to lend additional funds to borrowers whose terms
of their outstanding owed balances have been modified in TDRs.
95
NOTE 6 Leases
The Company, as a lessor, originates retail and commercial
leases either directly to the consumer or indirectly through dealer
networks. Retail leases consist primarily of automobiles, while
commercial leases may include high dollar assets such as aircraft
or lower cost items such as office equipment.
The components of the net investment in sales-type and direct financing leases, at December 31, were as follows:
(Dollars in Millions)
2020
2019
Lease receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11,890
1,787
Unguaranteed residual values accruing to the lessor’s benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net investment in sales-type and direct financing leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,677
$12,324
1,834
$14,158
The Company, as a lessor, recorded $952 million and
$996 million of revenue on its Consolidated Statement of Income
for the years ended December 31, 2020 and 2019,
respectively, primarily consisting of interest income on sales-type
and direct financing leases.
The contractual future lease payments to be received by the Company, at December 31, 2020, were as follows:
(Dollars in Millions)
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales-type and
direct financing leases
Operating leases
$ 4,288
3,664
2,816
1,210
307
496
12,781
(891)
$11,890
$153
121
83
56
38
17
$468
The Company, as lessee, leases certain assets for use in its
operations. Leased assets primarily include retail branches,
operations centers and other corporate locations, and, to a lesser
extent, office and computer equipment. For each lease with an
original term greater than 12 months, the Company records a
lease liability and a corresponding right of use (“ROU”) asset. At
December 31, 2020, the Company’s ROU assets included in
premises and equipment and lease liabilities included in long-term
debt and other liabilities, were $1.1 billion and $1.3 billion,
respectively, compared with $1.3 billion of ROU assets and
$1.4 billion of lease liabilities at December 31, 2019, respectively.
Total costs incurred by the Company, as a lessee, were
$374 million and $394 million for the years ended December 31,
2020 and 2019, respectively, and principally related to
contractual lease payments on operating leases. The Company’s
leases do not impose significant covenants or other restrictions
on the Company.
The following table presents amounts relevant to the Company’s assets leased for use in its operations for the years ended December 31:
2019
(Dollars in Millions)
2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $305
6
Operating cash flows from finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12
Financing cash flows from finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
128
Right of use assets obtained in exchange for new operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6
Right of use assets obtained in exchange for new finance lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$302
7
10
134
10
The following table presents the weighted-average remaining lease terms and discount rates of the Company’s assets leased for use in its
operations at December 31:
2020
2019
7.0
Weighted-average remaining lease term of operating leases (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.6
Weighted-average remaining lease term of finance leases (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average discount rate of operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.0%
Weighted-average discount rate of finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.5%
7.4
10.7
3.2%
14.3%
96
The contractual future lease obligations of the Company at December 31, 2020, were as follows:
(Dollars in Millions)
Operating leases
Finance leases
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 290
254
209
155
111
344
1,363
(129)
$1,234
$ 18
15
15
13
11
29
101
(25)
$ 76
NOTE 7 Accounting for Transfers and Servicing of Financial Assets and Variable Interest
Entities
The Company transfers financial assets in the normal course of
business. The majority of the Company’s financial asset transfers
are residential mortgage loan sales primarily to government-
sponsored enterprises (“GSEs”), transfers of tax-advantaged
investments, commercial loan sales through participation
agreements, and other individual or portfolio loan and securities
sales. In accordance with the accounting guidance for asset
transfers, the Company considers any ongoing involvement with
transferred assets in determining whether the assets can be
derecognized from the balance sheet. Guarantees provided to
certain third parties in connection with the transfer of assets are
further discussed in Note 22.
For loans sold under participation agreements, the Company
also considers whether the terms of the loan participation
agreement meet the accounting definition of a participating
interest. With the exception of servicing and certain performance-
based guarantees, the Company’s continuing involvement with
financial assets sold is minimal and generally limited to market
customary representation and warranty clauses. Any gain or loss
on sale depends on the previous carrying amount of the
transferred financial assets, the consideration received, and any
liabilities incurred in exchange for the transferred assets. Upon
transfer, any servicing assets and other interests that continue to
be held by the Company are initially recognized at fair value. For
further information on MSR’s, refer to Note 9. On a limited basis,
the Company may acquire and package high-grade corporate
bonds for select corporate customers, in which the Company
generally has no continuing involvement with these transactions.
Additionally, the Company is an authorized GNMA issuer and
issues GNMA securities on a regular basis. The Company has no
other asset securitizations or similar asset-backed financing
arrangements that are off-balance sheet.
The Company also provides financial support primarily
through the use of waivers of trust and investment management
fees associated with various unconsolidated registered money
market funds it manages. The Company provided $89 million,
$30 million and $25 million of support to the funds during the
years ended December 31, 2020, 2019 and 2018, respectively.
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 $578 million, $615 million and $689 million for the
years ended December 31, 2020, 2019 and 2018, respectively.
The Company also recognized $414 million, $506 million and
$639 million of investment tax credits for the years ended
December 31, 2020, 2019 and 2018, respectively. The Company
recognized $545 million, $557 million and $604 million of
expenses related to all of these investments for the years ended
December 31, 2020, 2019 and 2018, respectively, of which
$367 million, $318 million and $275 million, respectively, were
included in tax expense and the remaining amounts were
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
97
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)
2020
2019
Investment carrying amount . . . . . . . . . . . . $ 5,378
Unfunded capital and other
commitments . . . . . . . . . . . . . . . . . . . . . .
Maximum exposure to loss . . . . . . . . . . . . .
2,334
11,219
$ 6,148
2,938
12,118
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 $35 million at December 31,
2020 and $31 million at December 31, 2019. The maximum
exposure to loss related to these VIEs was $57 million at
December 31, 2020 and $55 million at December 31, 2019,
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 $78 million at December 31, 2020,
NOTE 8 Premises and Equipment
Premises and equipment at December 31 consisted of the following:
(Dollars in Millions)
compared with less than $1 million to $87 million at
December 31, 2019.
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,
2020, approximately $4.9 billion of the Company’s assets and
$3.7 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 $4.0 billion and $3.2 billion, respectively, at
December 31, 2019. 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.
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 liquidity and remarketing arrangements to
the program. As a result, the Company has consolidated the
program’s entities. At December 31, 2020, $2.4 billion of
available-for-sale investment securities and $1.5 billion of short-
term borrowings on the Consolidated Balance Sheet were related
to the tender option bond program, compared with $3.0 billion of
available-for-sale investment securities and $2.7 billion of short-
term borrowings at December 31, 2019.
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 487
3,519
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,439
Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,038
Right of use assets on operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
110
Right of use assets on finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,618
(5,150)
2020
2019
$ 504
3,513
3,366
1,141
111
21
8,656
(4,954)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,468
$ 3,702
98
NOTE 9 Mortgage Servicing Rights
The Company capitalizes MSRs as separate assets when loans
are sold and servicing is retained. MSRs may also be purchased
from others. The Company carries MSRs at fair value, with
changes in the fair value recorded in earnings during the period in
which they occur. The Company serviced $211.8 billion of
residential mortgage loans for others at December 31, 2020, and
$226.0 billion at December 31, 2019, including subserviced
mortgages with no corresponding MSR asset. Included in
mortgage banking revenue are the MSR fair value changes arising
from market rate and model assumption changes, net of the
value change in derivatives used to economically hedge MSRs.
These changes resulted in a net gain of $18 million, a net loss of
$24 million, and a net gain of $47 million for the years ended
December 31, 2020, 2019 and 2018, respectively. Loan servicing
and ancillary fees, not including valuation changes, included in
mortgage banking revenue were $718 million, $734 million and
$746 million for the years ended December 31, 2020, 2019 and
2018, respectively.
Changes in fair value of capitalized MSRs for the years ended December 31, are summarized as follows:
(Dollars in Millions)
2020
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,546
34
1,030
3
Rights purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rights capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rights sold(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in fair value of MSRs
Due to fluctuations in market interest rates(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due to revised assumptions or models(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other changes in fair value(d)
(719)
(12)
(672)
2019
$2,791
20
559
5
(390)
23
(462)
2018
$2,645
8
397
(27)
98
56
(386)
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,210
$2,546
$2,791
(a) MSRs sold include those having a negative fair value, resulting from the loans being severely delinquent.
(b) Includes changes in MSR value associated with changes in market interest rates, including estimated prepayment rates and anticipated earnings on escrow deposits.
(c) Includes changes in MSR value not caused by changes in market interest rates, such as changes in assumed cost to service, ancillary income and option adjusted spread, as well as the impact
of any model changes.
(d) Primarily the change in MSR value from passage of time and cash flows realized (decay), but also includes the impact of changes to expected cash flows not associated with changes in market
interest rates, such as the impact of deliquencies.
The estimated sensitivity to changes in interest rates of the fair value of the MSR portfolio and the related derivative instruments as of
December 31 follows:
(Dollars in Millions)
MSR portfolio . . . . . . . . . . . . . . . . .
Derivative instrument hedges . . . .
2020
2019
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
$(442) $(271) $(150) $ 169 $ 343
(304)
145
(149)
523
281
$ 671
(625)
$(663) $(316) $(153) $ 141 $ 269
(279)
152
(143)
306
613
$ 485
(550)
Net sensitivity . . . . . . . . . . . . . . .
$ 81 $ 10 $
(5) $ 20 $ 39
$ 46
$ (50) $ (10) $
(1) $
(2) $ (10)
$ (65)
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
servicing portfolio is comprised of loans originated under state
and local housing authority program guidelines which assist
purchases by first-time or low- to moderate-income homebuyers
through a favorable rate subsidy, down payment and/or closing
cost assistance on government- and conventional-insured
mortgages.
99
A summary of the Company’s MSRs and related characteristics by portfolio as of December 31 follows:
(Dollars in Millions)
HFA Government Conventional(d)
Total
HFA Government Conventional(d)
Total
2020
2019
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 option adjusted spread(c) . . . .
$40,396 $25,474
261
$
102
40
2.56
3.91%
5.6
406 $
101
35
2.87
4.43%
3.8
$143,085 $208,955
$ 1,543 $ 2,210
106
32
3.26
3.92%
4.3
108
30
3.55
3.78%
4.2
$44,906 $35,302
451
486 $
$
128
108
39
34
3.29
3.15
3.99%
4.65%
4.9
3.7
$143,310 $223,518
$ 1,609 $ 2,546
114
31
3.67
4.17%
4.6
112
28
4.00
4.07%
4.8
14.1%
5.6
7.7%
18.0%
4.3
7.3%
13.8%
5.5
6.2%
14.4%
5.4
6.6%
12.2%
6.5
8.4%
13.7%
5.7
7.9%
12.2%
5.9
6.9%
12.4%
6.0
7.3%
(a) Represents principal balance of mortgages having corresponding MSR asset.
(b) Calculated as fair value divided by the servicing portfolio.
(c) Option adjusted spread is the incremental spread added to the risk-free rate to reflect optionality and other risk inherent in the MSRs.
(d) Represents loans sold primarily to GSEs.
NOTE 10
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6 years/7 years
22 years/5 years
10 years/7 years
6 years/4 years
(c)
SL/AC
SL/AC
(c)
SL/AC
SL/AC
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance
2020
2019
$ 9,918 $ 9,655
225
82
2,546
27
343
235
64
2,210
19
336
$12,782 $12,878
(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)
2020
Merchant processing contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 49
18
Core deposit benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9
Trust relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100
Other identified intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $176
2019
$ 45
22
10
91
$168
2018
$ 24
26
11
100
$161
The estimated amortization expense for the next five years is as follows:
(Dollars in Millions)
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $149
137
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
98
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
77
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100
The following table reflects the changes in the carrying value of goodwill for the years ended December 31, 2020, 2019 and 2018:
(Dollars in Millions)
Balance at December 31, 2017 . . . . . . . . . . .
Goodwill acquired . . . . . . . . . . . . . . . . . . . . .
Disposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange translation and other . . . .
Balance at December 31, 2018 . . . . . . . . . . .
Goodwill acquired . . . . . . . . . . . . . . . . . . . . .
Foreign exchange translation and other . . . .
Balance at December 31, 2019 . . . . . . . . . . .
Goodwill acquired . . . . . . . . . . . . . . . . . . . . .
Foreign exchange translation and other . . . .
Balance at December 31, 2020 . . . . . . . . . . .
NOTE 11
Deposits
Corporate and
Commercial Banking
Consumer and
Business
Banking
Wealth Management
Investment and Services
Payment
Services Corporate Support
Treasury and Consolidated
Company
$1,647
–
–
–
$1,647
–
–
$1,647
–
–
$1,647
$3,681
–
(155)
(51)
$3,475
–
–
$3,475
–
–
$3,475
$1,569 $2,537
105
–
(13)
–
–
49
$1,618 $2,629
285
2
–
(1)
$1,617 $2,916
180
81
–
2
$1,619 $3,177
$ –
–
–
–
$ –
–
—
$ –
–
–
$ –
$9,434
105
(155)
(15)
$9,369
285
1
$9,655
180
83
$9,918
The composition of deposits at December 31 was as follows:
(Dollars in Millions)
2020
2019
Noninterest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $118,089
Interest-bearing deposits
Interest checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
95,894
128,058
57,035
30,694
Total interest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
311,681
$ 75,590
75,949
120,082
47,401
42,894
286,326
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $429,770
$361,916
The maturities of time deposits outstanding at December 31, 2020 were as follows:
(Dollars in Millions)
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $23,808
3,751
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,314
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,351
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
468
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30,694
101
NOTE 12 Short-Term Borrowings(a)
The following table is a summary of short-term borrowings for the last three years:
(Dollars in Millions)
At year-end
2020
2019
2018
Amount
Rate
Amount
Rate
Amount
Rate
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Securities sold under agreements to repurchase . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . .
777
1,430
6,007
3,552
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,766
Average for the year
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under agreements to repurchase . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,660
1,686
8,141
7,695
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $19,182
Maximum month-end balance
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under agreements to repurchase . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,811
2,183
9,514
20,569
(a) Interest and rates are presented on a fully taxable-equivalent basis utilizing a tax rate of 21 percent.
.08%
.16
.01
1.51
.49%
.35%
.50
.26
1.41
.75%
$
828
1,165
7,576
14,154
$23,723
$ 1,457
1,770
8,186
6,724
$18,137
$ 3,629
2,755
9,431
14,154
1.45%
1.41
1.07
1.94
1.62%
1.94%
2.00
1.45
2.78
2.04%
2.05%
2.20
1.35
2.68
1.92%
1.70%
1.87
.94
2.27
1.78%
$
458
2,582
6,940
4,159
$14,139
$ 1,070
2,279
6,929
11,512
$21,790
$ 4,532
3,225
7,846
16,588
102
Rate(a)
Maturity Date
2020
2019
NOTE 13 Long-Term Debt
Long-term debt (debt with original maturities of more than one year) at December 31 consisted of the following:
Rate
Type
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Floating
(Dollars in Millions)
U.S. Bancorp (Parent Company)
Subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Medium-term notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subsidiaries
Federal Home Loan Bank advances . . . . . . . . . . . . . . . . . . . . . .
Bank notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.950%
3.600%
7.500%
3.100%
3.000%
.850% - 4.125%
.855%
2022
2024
2026
2026
2029
2021 - 2030
2022
Fixed
Floating
Fixed
Floating
1.250% - 8.250%
.474% - .765%
1.800% - 3.450%
– % - .653%
2021 - 2026
2022 - 2026
2021 - 2025
2021 - 2059
$ 1,300
1,000
199
1,000
1,000
15,492
250
683
20,924
1,003
3,272
9,100
5,888
1,110
$ 1,300
1,000
199
1,000
1,000
13,820
250
33
18,602
1,106
3,272
9,550
6,789
848
20,373
21,565
$41,297
$40,167
(a) Weighted-average interest rates of medium-term notes, Federal Home Loan Bank advances and bank notes were 2.61 percent, 1.12 percent and 1.83 percent, respectively.
(b) Includes debt issuance fees and unrealized gains and losses and deferred amounts relating to derivative instruments.
(c) Includes consolidated community development and tax-advantaged investment VIEs, finance lease obligations, 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 $96.5 billion and $97.4 billion at
December 31, 2020 and 2019, respectively, based on collateral
available.
Maturities of long-term debt outstanding at December 31, 2020,
were:
(Dollars in Millions)
Parent
Company
Consolidated
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,509
3,855
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,913
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,283
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,364
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,924
$ 7,266
8,610
2,870
5,933
5,888
10,730
$41,297
103
NOTE 14 Shareholders’ Equity
At December 31, 2020 and 2019, the Company had authority to
issue 4 billion shares of common stock and 50 million shares of
preferred stock. The Company had 1.5 billion shares of common
stock outstanding at December 31, 2020 and 2019. The
Company had 41 million shares reserved for future issuances,
primarily under its stock incentive plans at December 31, 2020.
The number of shares issued and outstanding and the carrying amount of each outstanding series of the Company’s preferred stock were
as follows:
2020
2019
At December 31 (Dollars in Millions)
Series A . . . . . . . . . . . . . . . . . . . . . . . . . .
Series B . . . . . . . . . . . . . . . . . . . . . . . . . .
Series F . . . . . . . . . . . . . . . . . . . . . . . . . . .
Series H . . . . . . . . . . . . . . . . . . . . . . . . . .
Series I . . . . . . . . . . . . . . . . . . . . . . . . . . .
Series J . . . . . . . . . . . . . . . . . . . . . . . . . . .
Series K . . . . . . . . . . . . . . . . . . . . . . . . . .
Series L . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
Issued and
Outstanding
Liquidation
Preference
Discount
12,510
40,000
44,000
–
30,000
40,000
23,000
20,000
$1,251
1,000
1,100
–
750
1,000
575
500
$6,176
$145
–
12
–
5
7
10
14
$193
Carrying
Amount
$1,106
1,000
1,088
–
745
993
565
486
$5,983
Shares
Issued and
Outstanding
12,510
40,000
44,000
20,000
30,000
40,000
23,000
–
209,510
Liquidation
Preference
Discount
Carrying
Amount
$1,106
1,000
1,088
487
745
993
565
–
$145
–
12
13
5
7
10
–
$192
$5,984
$1,251
1,000
1,100
500
750
1,000
575
–
$6,176
Total preferred stock(a) . . . . . . . . . . . . .
209,510
(a) The par value of all shares issued and outstanding at December 31, 2020 and 2019, was $1.00 per share.
During 2020, the Company issued depositary shares
During 2017, the Company issued depositary shares
representing an ownership interest in 20,000 shares of Series L
Non-Cumulative Perpetual Preferred Stock with a liquidation
preference of $25,000 per share (the “Series L Preferred Stock”).
The Series L 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 3.75 percent.
The Series L Preferred Stock is redeemable at the Company’s
option, in whole or in part, on or after January 15, 2026. The
Series L Preferred Stock is redeemable at the Company’s option,
in whole, but not in part, prior to January 15, 2026 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 L
Preferred Stock as Tier 1 capital for purposes of the capital
adequacy guidelines of the Federal Reserve Board.
During 2018, the Company issued depositary shares
representing an ownership interest in 23,000 shares of Series K
Non-Cumulative Perpetual Preferred Stock with a liquidation
preference of $25,000 per share (the “Series K Preferred Stock”).
The Series K 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 5.50 percent.
The Series K Preferred Stock is redeemable at the Company’s
option, in whole or in part, on or after October 15, 2023. The
Series K Preferred Stock is redeemable at the Company’s option,
in whole, but not in part, prior to October 15, 2023 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 K
Preferred Stock as Tier 1 capital for purposes of the capital
adequacy guidelines of the Federal Reserve Board.
representing an ownership interest in 40,000 shares of Series J
Non-Cumulative Perpetual Preferred Stock with a liquidation
preference of $25,000 per share (the “Series J Preferred Stock”).
The Series J 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
5.300 percent from the date of issuance to, but excluding,
April 15, 2027, and thereafter will accrue and be payable
quarterly at a floating rate per annum equal to the three-month
London Interbank Offered Rate (“LIBOR”) plus 2.914 percent. The
Series J Preferred Stock is redeemable at the Company’s option,
in whole or in part, on or after April 15, 2027. The Series J
Preferred Stock is redeemable at the Company’s option, in
whole, but not in part, prior to April 15, 2027 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 J
Preferred Stock as Tier 1 capital for purposes of the capital
adequacy guidelines of the Federal Reserve Board.
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, subject to prior
approval by the Federal Reserve Board.
104
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”).
During 2020, the Company provided notice of its intent to redeem
all outstanding shares of the Series H Preferred Stock during the first
quarter of 2021. The Company removed the outstanding liquidation
preference amount of the Series H Preferred Stock from
shareholders’ equity and included it in other liabilities on the
Consolidated Balance Sheet as of December 31, 2020, because
upon the notification date it became mandatorily redeemable. The
liquidation preference amount equals the redemption price for all
outstanding shares of the Series H Preferred Stock. The Company
included a $13 million loss in the computation of earnings per diluted
common share for 2020, which represents the stock issuance costs
recorded in preferred stock upon the issuance of the Series H
Preferred Stock that were reclassified to retained earnings on the
notification date. Effective January 15, 2021, the Company
redeemed all outstanding shares of the Series H Preferred Stock.
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”).
The Series F 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 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. The Series F Preferred Stock is redeemable at the
Company’s option, in whole or in part, on or after January 15, 2022.
The Series F Preferred Stock is redeemable at the Company’s
option, in whole, but not in part, prior to January 15, 2022 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 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
Non-Cumulative Perpetual Preferred Stock (the “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.
Dividends for certain of the Company’s outstanding series of
preferred stock described above are, or will in the future be,
calculated by reference to LIBOR. The outstanding series contain
fallback provisions in the event that LIBOR is no longer published
or quoted, but these fallback provisions have not yet been
utilized.
During 2020, 2019 and 2018, the Company repurchased shares
of its common stock under various authorizations approved by its
Board of Directors. Beginning in March 2020 and continuing
through the remainder of the year, the Company suspended all
common stock repurchases except for those done exclusively in
connection with its stock-based compensation programs. This
action was initially taken by the Company to maintain strong capital
levels given the impact and uncertainties of COVID-19 on the
economy and global markets. Due to continued economic
uncertainty, the Federal Reserve Board implemented measures
beginning in the third quarter of 2020 and extending through the first
quarter of 2021, restricting capital distributions of all large bank
holding companies, including the Company. These restrictions
initially included capping common stock dividends at existing rates
and restricting share repurchases, and currently limit the aggregate
amount of common stock dividends and share repurchases to an
amount that does not exceed the average net income of the four
preceding calendar quarters. On December 22, 2020, the Company
announced that it had received its results on the December 2020
Stress Test from the Federal Reserve. Based on those results, the
Company announced that its Board of Directors had approved an
authorization to repurchase up to $3.0 billion of its common stock
beginning January 1, 2021. The Company will continue to monitor
the impact of COVID-19 and will adjust its common stock
repurchases as circumstances warrant, including remaining
consistent with regulatory requirements.
The following table summarizes the Company’s common stock
repurchased in each of the last three years:
(Dollars and Shares in Millions)
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
31
81
54
Value
$1,661
4,515
2,844
105
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
Investment
Securities From Available-For-Sale
Unrealized Gains
(Losses) on Investment
Securities Transferred Unrealized Gains Unrealized Gains
(Losses) on
to Held-To-Maturity Derivative Hedges Retirement Plans
(Losses) on Foreign Currency
Translation
Total
(Dollars in Millions)
Available-For-Sale
2020
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 . . . . . . . . . . . . . . . .
Balance at end of period . . . . . . . . . . . . . . . . . .
2019
Balance at beginning of period . . . . . . . . . . . . .
Changes in unrealized gains and losses . . . .
Unrealized gains and losses on
held-to-maturity investment securities
transferred to available-for-sale . . . . . . . . .
Foreign currency translation adjustment(a) . . .
Reclassification to earnings of realized gains
and losses . . . . . . . . . . . . . . . . . . . . . . . . . .
Applicable income taxes . . . . . . . . . . . . . . . .
$ 379
2,905
–
(177)
(690)
$2,417
$ (946)
1,693
150
–
(73)
(445)
$ –
–
–
–
–
$ –
$14
–
(9)
–
(7)
2
$ (51)
(194)
–
10
46
$(1,636)
(401)
–
125
70
$(65) $(1,373)
2,310
2
–
2
—
(1)
(42)
(575)
$(189)
$(1,842)
$(64) $ 322
$ 112
(229)
$(1,418)
(380)
$(84) $(2,322)
1,084
–
–
–
11
55
–
–
89
73
–
26
–
(7)
141
26
20
(322)
Balance at end of period . . . . . . . . . . . . . . . . . .
$ 379
$ –
$ (51)
$(1,636)
$(65) $(1,373)
2018
Balance at beginning of period . . . . . . . . . . . . .
. . . . . .
Revaluation of tax related balances(b)
Changes in unrealized gains and losses . . . .
Foreign currency translation adjustment(a) . . .
Reclassification to earnings of realized gains
and losses . . . . . . . . . . . . . . . . . . . . . . . . . .
Applicable income taxes . . . . . . . . . . . . . . . .
$ (357)
(77)
(656)
–
(30)
174
Balance at end of period . . . . . . . . . . . . . . . . . .
$ (946)
$17
4
–
–
(9)
2
$14
$ 71
15
39
–
(5)
(8)
$(1,066)
(229)
(302)
–
137
42
$(69) $(1,404)
(300)
(13)
(919)
–
3
3
–
(5)
93
205
$ 112
$(1,418)
$(84) $(2,322)
(a) Represents the impact of changes in foreign currency exchange rates on the Company’s investment in foreign operations and related hedges.
(b) Reflects the adoption of new accounting guidance on January 1, 2018 to reclassify the impact of the reduced federal statutory rate for corporations included in 2017 tax reform legislation from
accumulated other comprehensive income to retained earnings.
106
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)
Impact to Net Income
2020
2019
2018
Affected Line Item in the
Consolidated Statement of Income
Unrealized gains (losses) on investment securities available-for-sale
Realized gains (losses) on sale of investment securities . . . . . . . . . . . . . . . . . . . . $ 177
(45)
Unrealized gains (losses) on investment 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) and prior service cost (credit) amortization . . . . . . . . . . .
132
–
–
–
(10)
3
(7)
(125)
32
(93)
$ 73
(18)
55
7
(2)
5
(11)
3
(8)
(89)
22
(67)
$ 30
(7)
Securities gains (losses), net
Applicable income taxes
23
Net-of-tax
9
(2)
7
5
(2)
3
Interest income
Applicable income taxes
Net-of-tax
Interest expense
Applicable income taxes
Net-of-tax
(137) Other noninterest expense
35
Applicable income taxes
(102) Net-of-tax
Total impact to net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32
$(15)
$ (69)
Regulatory Capital The Company uses certain measures
defined by bank regulatory agencies to assess its capital. The
regulatory capital requirements effective for the Company follow
Basel III, with the Company being subject to calculating its capital
adequacy as a percentage of risk-weighted assets under the
standardized approach.
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-weighted assets, which are measured
based on their perceived credit risks and include certain
off-balance sheet exposures, such as unfunded loan
commitments, letters of credit, and derivative contracts. During
2020, the Company elected to adopt a rule issued during 2020
by its regulators which permits banking organizations who adopt
accounting guidance related to the impairment of financial
instruments based on the current expected credit losses
methodology during 2020, the option to defer the impact of the
effect of that guidance at adoption plus 25 percent of its quarterly
credit reserve increases over the next two years on its regulatory
capital requirements, followed by a three-year transition period to
phase in the cumulative deferred impact.
The Company is also subject to leverage ratio requirements,
which is defined as Tier 1 capital as a percentage of adjusted
average assets under the standardized approach and Tier 1
capital as a percentage of total on- and off-balance sheet
leverage exposure under more risk-sensitive advanced
approaches.
107
The following table provides a summary of the regulatory capital requirements in effect, along with the actual components and ratios for
the Company and its bank subsidiary, at December 31, 2020 and 2019:
(Dollars in Millions)
Basel III standardized approach:
Common shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill (net of deferred tax liability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other disallowed intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(9,014)
(654)
601
Total common equity tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38,045
Qualifying preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests eligible for tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,983
451
(5)
U.S. Bancorp
U.S. Bank National Association
2020
2019
2020
2019
$ 47,112
$ 45,869
$ 52,589
$ 48,592
(8,788)
(677)
(691)
35,713
5,984
28
(4)
(9,034)
(654)
1,254
(8,806)
(710)
38
44,155
39,114
–
451
(6)
–
28
(4)
Total tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44,474
41,721
44,600
39,138
Eligible portion of allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated debt and noncontrolling interests eligible for tier 2 capital . . . . . . . . . .
Total tier 2 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,905
3,223
8,128
4,491
3,532
8,023
4,850
3,517
8,367
4,491
3,365
7,856
Total risk-based capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 52,602
$ 49,744
$ 52,967
$ 46,994
Risk-weighted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$393,648
$391,269
$387,388
$383,560
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) . . . . . .
Tier 1 capital as a percent of total on- and off-balance sheet leverage exposure (total
leverage exposure ratio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.7%
11.3
13.4
8.3
9.1%
10.7
12.7
8.8
11.4%
11.5
13.7
8.4
10.2%
10.2
12.3
8.4
7.3
7.0
6.8%
6.7
Minimum(c)
Well-
Capitalized
Bank Regulatory Capital Requirements
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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 capital as a percent of total on- and off-balance sheet leverage exposure (total leverage exposure ratio) . . . . . .
7.0%
8.5
10.5
4.0
3.0
6.5%(d)
8.0
10.0
5.0(d)
3.0
(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., and the portion of deferred tax assets related to net operating loss and tax credit carryforwards not eligible for common equity tier 1 capital. December 31, 2020 amounts also
exclude the impact of the 2020 adoption of accounting guidance related to impairment of financial instruments based on the CECL methodology included in retained earnings.
(b) Includes the remaining portion of deferred tax assets not eligible for total tier 1 capital.
(c) The minimum common equity tier 1 capital, tier 1 capital and total risk-based capital ratio requirements for 2020 reflect a stress capital buffer requirement of 2.5 percent. In 2019, these
minimum capital ratio requirements reflected a capital conservation buffer requirement of 2.5 percent, which has since been replaced by the stress capital buffer requirement. Banks and
financial services holding companies must maintain minimum capital levels, including a stress capital buffer requirement, to avoid limitations on capital distributions and certain discretionary
compensation payments.
(d) A minimum well-capitalized threshold does not apply to U.S. Bancorp for this ratio as it is not formally defined under applicable banking regulations for bank holding companies.
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. During 2016, the Company
purchased 500 shares of the Series A Preferred Securities held
by third-party investors. As of December 31, 2020, 4,500 shares
of the Series A Preferred Securities remain outstanding.
108
NOTE 15 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 call(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings allocated to participating stock awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income applicable to U.S. Bancorp common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020
2019
2018
$4,959
(304)
(13)
(21)
$4,621
1,509
1
1,510
$ 3.06
$ 3.06
$6,914
(302)
–
(29)
$6,583
1,581
2
1,583
$ 4.16
$ 4.16
$7,096
(282)
–
(30)
$6,784
1,634
4
1,638
$ 4.15
$ 4.14
(a) Represents stock issuance costs originally recorded in preferred stock upon issuance of the Company’s Series H Preferred Stock that were reclassified to retained earnings on the date the
Company announced its intent to redeem the outstanding shares.
Options outstanding at December 31, 2020, to purchase 2 million common shares and outstanding at December 31, 2019 and 2018,
to purchase 1 million common shares, were not included in the computation of diluted earnings per share for the years ended
December 31, 2020, 2019 and 2018, because they were antidilutive.
NOTE 16 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
$192 million, $179 million and $171 million in 2020, 2019 and
2018, respectively.
Pension Plans The Company has two tax qualified
noncontributory defined benefit pension plans: the U.S. Bank
Pension Plan and the U.S. Bank Legacy Pension Plan. The U.S.
Bank Legacy Pension Plan was established effective January 1,
2020, to receive a transfer from the U.S. Bank Pension Plan of
the accrued benefits and related plan assets of participants who
terminated employment prior to January 1, 2020. The two plans
have substantively identical terms. The plans provide benefits to
substantially all the Company’s 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 plans 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
past plan mergers, a portion of pension benefits may also be
provided using a cash balance benefit formula where only interest
credits continue to be credited to participants’ accounts.
In general, the Company’s qualified pension plans’ funding
objectives include maintaining a funded status sufficient to meet
participant benefit obligations over time while reducing long-term
funding requirements and pension costs. The Company has an
established process for evaluating the plans, their performance
and significant plan assumptions, including the assumed discount
rate and the long-term rate of return (“LTROR”). 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 Compensation and
Human Resources Committee (the “Committee”) oversees the
Company’s process of evaluating the plans, their performance
and significant plan assumptions.
The Company’s funding policy is to contribute amounts to its
plans sufficient to meet the minimum funding requirements of the
Employee Retirement Income Security Act of 1974, as amended
by the Pension Protection Act, plus such additional amounts as
the Company determines to be appropriate. The Company
contributed $1.1 billion to its qualified pension plans in 2020. The
Company did not contribute to its qualified pension plan in 2019.
The Company does not expect to contribute to the plans in 2021.
Any contributions made to the qualified plans are invested in
accordance with established investment policies and asset
allocation strategies.
In addition to the funded qualified pension plans, the
Company maintains a non-qualified plan that is unfunded and
provides benefits to certain employees. The assumptions used in
computing the accumulated benefit obligation, the projected
109
benefit obligation and net pension expense are substantially
consistent with those assumptions used for the funded qualified
plans. In 2021, the Company expects to contribute approximately
$27 million to its non-qualified pension plan which equals the
2021 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. Prior to December 31, 2020, the
postretirement welfare plan operated as a voluntary employees’
beneficiary association (“VEBA”) plan. Effective December 31,
2020, the VEBA trust was dissolved and the postretirement
welfare plan now operates as an unfunded plan. In 2021, the
Company expects to contribute approximately $5 million to its
postretirement welfare plan which equals the 2021 expected
benefit payments net of participant contributions.
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(a)
Pension Plans
Postretirement
Welfare Plan
2020
2019
2020
2019
Benefit obligation at beginning of measurement period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,829
235
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
235
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
Participants’ contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(18)
Plan amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
754
Actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(55)
Lump sum settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(175)
Benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
Federal subsidy on benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit obligation at end of measurement period(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,805
Change In Fair Value Of Plan Assets
Fair value at beginning of measurement period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,838
737
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,153
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
Participants’ contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(55)
Lump sum settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(175)
Benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
Other changes(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value at end of measurement period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Funded (Unfunded) Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Components Of The Consolidated Balance Sheet
$ 7,498
$
(307)
Noncurrent benefit asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current benefit liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent benefit liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 369
(27)
(649)
$ 5,507
192
249
–
–
1,100
(56)
(163)
–
$ 6,829
$ 4,936
1,095
26
–
(56)
(163)
–
$ 5,838
$
(991)
$
–
(25)
(966)
Recognized amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(307)
$
(991)
Accumulated Other Comprehensive Income (Loss), Pretax
Net actuarial gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(2,557)
18
Net prior service credit (cost) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recognized amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(2,539)
$(2,271)
–
$(2,271)
$ 47
–
1
6
–
(4)
–
(13)
1
$ 38
$ 84
1
5
6
–
(13)
(83)
$ –
$(38)
$ –
(5)
(33)
$(38)
$ 63
11
$ 74
$ 54
–
2
7
–
(4)
–
(13)
1
$ 47
$ 81
6
4
6
–
(13)
–
$ 84
$ 37
$ 37
–
–
$ 37
$ 68
14
$ 82
(a) The increases in the projected benefit obligation for 2020 and 2019 were primarily due to decreases in the discount rate.
(b) At December 31, 2020 and 2019, the accumulated benefit obligation for all pension plans was $7.1 billion and $6.2 billion, respectively.
(c) The fair value of postretirement welfare plan assets decreased in 2020 due to the dissolution of the VEBA trust. Prior to dissolution, the remaining assets in the VEBA trust were used to pay
benefits under other programs of the Company’s health and welfare plan, as permitted by the VEBA trust agreement. The postreirement welfare plan now operates as an unfunded plan.
The following table provides information for pension plans with benefit obligations in excess of plan assets at December 31:
2020
(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
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$676
–
$628
–
2019
$6,829
5,838
$ 553
–
110
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
2020
2019
2018
2020
2019
2018
Components Of Net Periodic Benefit Cost
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 235
235
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(403)
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
Prior service cost (credit) and transition obligation (asset) amortization . . .
134
Actuarial loss (gain) amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net periodic benefit cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 201
Other Changes In Plan Assets And Benefit Obligations
Recognized In Other Comprehensive Income (Loss)
Net actuarial gain (loss) arising during the year . . . . . . . . . . . . . . . . . . . . . . $(420)
134
Net actuarial loss (gain) amortized during the year . . . . . . . . . . . . . . . . . . .
Net prior service (cost) credit and transition (obligation) asset arising
during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18
Net prior service cost (credit) and transition obligation (asset) amortized
during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
$ 192
249
(383)
–
98
$ 156
$ 208
224
(379)
–
146
$ 199
$ –
1
(3)
(3)
(6)
$(11)
$ –
2
(3)
(3)
(6)
$(10)
$ –
2
(3)
(3)
(6)
$(10)
$(388)
98
$(305)
146
$ 1
(6)
$ 7
(6)
$ 3
(6)
–
–
–
–
–
(3)
–
(3)
–
(3)
Total recognized in other comprehensive income (loss) . . . . . . . . . . . . . . . . . $(268)
$(290)
$(159)
$ (8)
$ (2)
$ (6)
Total recognized in net periodic benefit cost and other comprehensive
income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(469)
$(446)
$(358)
$ 3
$ 8
$ 4
The following table sets forth weighted average assumptions used to determine the projected benefit obligations at December 31:
(Dollars in Millions)
Discount rate(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash balance interest crediting rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Health care cost trend rate(c)
Prior to age 65 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
After age 65 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension Plans
2020
2.75%
3.00
3.56
2019
3.40%
3.00
3.56
Postretirement
Welfare Plan
2020
2019
1.82%
*
*
2.80%
*
*
6.00%
6.00%
6.25%
6.25%
(a) The discount rates were developed using a cash flow matching bond model with a modified duration for the qualified pension plan, legacy pension plan, non-qualified pension plan and
postretirement welfare plan of 18.6, 12.9, 12.5 and 6.1 years, respectively, for 2020, and for the qualified pension plan, non-qualified pension plan and postretirement welfare plan of 15.8, 12.3
and 6.1 years, respectively, for 2019.
(b) Determined on an active liability-weighted basis.
(c) The 2020 and 2019 pre-65 and post-65 rates are both assumed to decrease gradually to 5.00 percent by 2025 and remain at this level thereafter.
* Not applicable
The following table sets forth weighted average assumptions used to determine net periodic benefit cost for the years ended December 31:
Pension Plans
Postretirement Welfare Plan
(Dollars in Millions)
2020
2019
2018
Discount rate(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.40%
Cash balance interest crediting rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.00
Expected return on plan assets(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.25
Rate of compensation increase(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.56
4.45%
3.00
7.25
3.52
3.84%
3.00
7.25
3.56
Health care cost trend rate(d)
Prior to age 65 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
After age 65 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020
2.80%
*
3.50
*
2019
2018
4.05%
*
3.50
*
3.34%
*
3.50
*
6.25%
6.25
6.50%
10.00
6.75%
6.75
(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
15.8, 12.3, and 6.1 years, respectively, for 2020, and 14.7, 11.5 and 5.9 years, respectively, for 2019.
(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 2020, 2019 and 2018 pre-65 and post-65 rates are both assumed to decrease gradually to 5.00 percent by 2025 and remain at that level thereafter.
* Not applicable
111
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 United States 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 35 percent long
duration bonds, 30 percent global equities, 10 percent real estate
equities, 10 percent private equity funds, 5 percent domestic
mid-small cap equities, 5 percent emerging markets equities, and
5 percent hedge funds is appropriate.
At December 31, 2020 and 2019, plan assets included an
asset management arrangement with a related party totaling
$1.0 billion and $57 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 21 for further discussion on these levels.
The assets of the qualified pension plans include investments
in equity and U.S. Treasury securities whose fair values are
determined based on quoted prices in active markets and are
classified within Level 1 of the fair value hierarchy. The qualified
pension plans also invest in 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 plans invest 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.
The following table summarizes plan investment assets measured at fair value at December 31:
(Dollars in Millions)
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Qualified Pension Plans
2020
2019
Cash and cash equivalents . . . . . . . . . . $ 975(a) $
Debt securities . . . . . . . . . . . . . . . . . . .
Mutual funds
894
–
1,224
$–
–
$ 975
2,118
$ 58
727
$
–
1,073
$–
–
$
58
1,800
Debt securities . . . . . . . . . . . . . . . . . .
Emerging markets equity
securities . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
–
–
371
174
–
–
–
6
371
174
6
–
–
–
304
136
–
–
–
3
304
136
3
$1,869
$1,769
$6
3,644
$785
$1,513
$3
2,301
Plan investment assets not classified in
fair value hierarchy(b):
Collective investment funds
Domestic equity securities . . . . . . . .
Mid-small cap equity securities(c) . . .
International equity securities . . . . . .
Domestic real estate securities . . . . .
Hedge funds(d) . . . . . . . . . . . . . . . . . . . .
Private equity funds(e) . . . . . . . . . . . . . .
Total plan investment assets at fair
value . . . . . . . . . . . . . . . . . . . . . . . .
1,515
431
718
520
251
419
$7,498
(a) Includes an employer contribution made in late 2020, which was invested consistently with the plan’s target asset allocation subsequent to December 31, 2020.
(b) 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.
(c) At December 31, 2020 and 2019, securities included $431 million and $323 million in domestic equities, respectively.
(d) This category consists of several investment strategies diversified across several hedge fund managers.
(e) This category consists of several investment strategies diversified across several private equity fund managers.
112
Postretirement
Welfare Plan
2020
Level 1
$–
–
2019
Level 1
$40
–
–
–
–
–
–
–
–
–
–
–
–
–
–
40
27
–
17
–
–
–
1,328
323
752
547
283
304
$5,838
$–
$84
The following table summarizes the changes in fair value for qualified pension plans 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020
Other
$3
3
–
$6
2019
Other
$3
–
–
$3
2018
Other
$2
–
1
$3
The following benefit payments are expected to be paid from the retirement plans for the years ended December 31:
(Dollars in Millions)
Pension
Plans
Postretirement
Welfare Plan(a)
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 250
266
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
292
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
312
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
362
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,880
2026-2030 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5
4
4
4
3
12
(a) Net of expected retiree contributions and before Medicare Part D subsidy.
113
NOTE 17 Stock-Based Compensation
As part of its employee and director compensation programs, the
Company currently may grant certain stock awards under the
provisions of its stock incentive plan. The plan provides for grants
of options to purchase shares of common stock at a fixed price
equal to the fair value of the underlying stock at the date of grant.
Option grants are generally exercisable up to ten years from the
date of grant. In addition, the plan provides for grants of shares of
common stock or stock units that are subject to restriction on
transfer prior to vesting. Most stock and unit awards vest over
three to five years and are subject to forfeiture if certain vesting
requirements are not met. Stock incentive plans of acquired
companies are generally terminated at the merger closing dates.
Participants under such plans receive the Company’s common
stock, or options to buy the Company’s common stock, based
on the conversion terms of the various merger agreements. At
December 31, 2020, there were 28 million shares (subject to
adjustment for forfeitures) available for grant under the
Company’s stock incentive plan.
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)
2020
Number outstanding at beginning of period . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number outstanding at end of period(b) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercisable at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
Number outstanding at beginning of period . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number outstanding at end of period(b) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercisable at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018
Number outstanding at beginning of period . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number outstanding at end of period(b) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercisable at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,718,256
(513,293)
(24,572)
5,180,391
4,942,077
9,115,010
(3,333,467)
(63,287)
5,718,256
4,869,805
12,668,467
(3,443,494)
(109,963)
9,115,010
7,372,036
$39.25
27.48
45.08
$40.38
$39.68
$34.52
26.36
36.74
$39.25
$37.67
$32.15
25.41
46.72
$34.52
$31.61
3.7
3.6
4.4
4.0
4.3
3.5
$ 32
$ 34
$115
$105
$102
$104
Note: The Company did not grant any stock option awards during 2020, 2019 and 2018.
(a) Options cancelled include both non-vested (i.e., forfeitures) and vested options (i.e., expirations).
(b) Outstanding options include stock-based awards that may be forfeited in future periods. The impact of the estimated forfeitures is reflected in compensation expense.
Stock-based compensation expense is based on the
estimated fair value of the award at the date of grant or
modification. The fair value of each option award is estimated on
the date of grant using the Black-Scholes option-pricing model,
requiring the use of subjective assumptions. Because employee
stock options have characteristics that differ from those of traded
options, including vesting provisions and trading limitations that
impact their liquidity, the determined value used to measure
compensation expense may vary from the actual fair value of the
employee stock 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020
$ 7
11
14
3
2019
$10
95
88
24
2018
$14
97
87
24
114
To satisfy option exercises, the Company predominantly uses treasury stock.
Additional information regarding stock options outstanding as of December 31, 2020, is as follows:
Range of Exercise Prices
$23.36—$25.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$25.01—$30.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$30.01—$35.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$35.01—$40.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$40.01—$45.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$45.01—$50.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$50.01—$55.01 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
1,248
1,047,197
527,422
1,227,889
1,424,608
–
952,027
5,180,391
Outstanding Options
Exercisable Options
Weighted-
Average
Remaining
Contractual
Life (Years)
.3
.8
2.1
5.1
3.6
–
6.1
3.7
Weighted-
Average
Exercise
Price
$24.84
28.65
33.98
39.49
42.42
–
54.97
$40.38
Weighted-
Average
Exercise
Price
$24.84
28.65
33.98
39.49
42.42
–
54.97
$39.68
Shares
1,248
1,047,197
527,422
1,227,889
1,424,608
–
713,713
4,942,077
Restricted Stock and Unit Awards
A summary of the status of the Company’s restricted shares of stock and unit awards is presented below:
2020
2019
2018
Year Ended December 31
Shares
Outstanding at beginning of
period . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . .
6,606,833
3,552,923
(3,534,770)
(281,673)
Outstanding at end of period . . . . . .
6,343,313
Weighted-
Average Grant-
Date Fair
Value
$48.99
53.90
49.28
53.51
$51.38
Weighted-
Average Grant-
Date Fair
Value
$48.17
50.45
48.69
50.55
$48.99
Shares
6,719,298
3,519,474
(3,270,778)
(361,161)
6,606,833
Weighted-
Average Grant-
Date Fair
Value
$44.49
55.03
46.42
49.07
$48.17
Shares
7,446,955
3,213,023
(3,373,323)
(567,357)
6,719,298
The total fair value of shares vested was $182 million,
$175 million and $182 million for the years ended December 31,
2020, 2019 and 2018, respectively. Stock-based compensation
expense was $189 million, $178 million and $174 million for the
years ended December 31, 2020, 2019 and 2018, respectively.
On an after-tax basis, stock-based compensation was
$142 million, $133 million and $130 million for the years ended
December 31, 2020, 2019 and 2018, respectively. As of
December 31, 2020, there was $128 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 1.7 years as
compensation expense.
115
NOTE 18 Income Taxes
The components of income tax expense were:
Year Ended December 31 (Dollars in Millions)
2020
2019
2018
Federal
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,146
(291)
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
855
$1,162
166
1,328
$1,287
(148)
1,139
State
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
355
(144)
211
379
(59)
320
395
20
415
Total income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,066
$1,648
$1,554
A reconciliation of expected income tax expense at the federal statutory rate of 21 percent to the Company’s applicable income tax
expense follows:
Year Ended December 31 (Dollars in Millions)
2020
2019
2018
Tax at statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,271
240
State income tax, at statutory rates, net of federal tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax effect of
$1,805
355
$1,822
352
Tax credits and benefits, net of related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax-exempt income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nondeductible legal and regulatory expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other items(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(370)
(117)
29
13
(424)
(120)
23
9
(513)
(130)
52
(29)
Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,066
$1,648
$1,554
(a) Includes excess tax benefits associated with stock-based compensation and adjustments related to deferred tax assets and liabilities.
The tax effects of fair value adjustments on securities
available-for-sale, derivative instruments in cash flow hedges,
foreign currency translation adjustments, and pension and post-
retirement plans 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, 2014 are completed and resolved.
The Company’s tax returns for the years ended December 31,
2015, 2016, 2017 and 2018 are under examination by the
Internal Revenue Service. The years open to examination by
foreign, state and local government authorities vary by
jurisdiction.
116
A reconciliation of the changes in the federal, state and foreign uncertain tax position balances are summarized as follows:
Year Ended December 31 (Dollars in Millions)
2020
2019
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $432
62
Additions for tax positions taken in prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6
Additions for tax positions taken in the current year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8)
Exam resolutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(18)
Statute expirations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $474
$335
168
6
(62)
(15)
$432
2018
$287
93
10
(51)
(4)
$335
The total amount of uncertain tax positions that, if
recognized, would impact the effective income tax rate as of
December 31, 2020, 2019 and 2018, were $280 million,
$274 million and $273 million, respectively. The Company
classifies interest and penalties related to uncertain tax positions
as a component of income tax expense. At December 31, 2020,
the Company’s uncertain tax position balance included
$40 million of accrued interest and penalties. During the years
ended December 31, 2020, 2019 and 2018 the Company
recorded approximately $5 million, $7 million and $(25) million,
respectively, in interest and penalties on uncertain tax positions.
Deferred income tax assets and liabilities reflect the tax effect
of estimated temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes
and the amounts used for the same items for income tax
reporting purposes.
The significant components of the Company’s net deferred tax asset (liability) follows:
At December 31 (Dollars in Millions)
2020
2019
Deferred Tax Assets
Federal, state and foreign net operating loss and credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,495
2,042
Allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
554
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
293
Obligation for operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
108
Pension and postretirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
84
Stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9
Partnerships and other investment assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
383
Other deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,968
Deferred Tax Liabilities
Leasing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities available-for-sale and financial instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Right of use operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other deferred tax liabilities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,511)
(802)
(755)
(408)
(249)
(226)
(112)
(145)
(5,208)
(163)
$ 2,592
1,155
485
328
193
78
91
2
257
5,181
(2,700)
(763)
(111)
(546)
(282)
–
(139)
(131)
(4,672)
(127)
Net Deferred Tax Asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 597
$ 382
The Company has approximately $2.3 billion of federal, state
and foreign net operating loss carryforwards which expire at
various times beginning in 2021. A substantial portion of these
carryforwards relate to state-only net operating losses, for which
the related deferred tax asset is subject to a full valuation
allowance as the carryforwards are not expected to be realized
within the carryforward period. 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.
In addition, the Company has $2.3 billion of federal credit
carryforwards which expire at various times through 2040 which
are not subject to a valuation allowance as management believes
that it is more likely than not that the credits will be utilized within
the carryforward period.
117
At December 31, 2020, retained earnings included
approximately $102 million of base year reserves of acquired thrift
institutions, for which no deferred federal income tax liability has
been recognized. These base year reserves would be recaptured
if certain subsidiaries of the Company cease to qualify as a bank
NOTE 19 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 available-for-sale
investment securities and 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.
Cash Flow Hedges These derivatives are interest rate swaps
the Company uses to hedge the forecasted cash flows from its
underlying variable-rate 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, 2020, the
Company had $189 million (net-of-tax) of realized and unrealized
losses on derivatives classified as cash flow hedges recorded in
other comprehensive income (loss), compared with $51 million
(net-of-tax) of realized and unrealized losses at December 31,
2019. The estimated amount to be reclassified from other
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.
comprehensive income (loss) into earnings during the next 12
months is a loss of $41 million (net-of-tax). All cash flow hedges
were highly effective for the year ended December 31, 2020.
Net Investment Hedges The Company uses forward
commitments to sell specified amounts of certain foreign
currencies, and non-derivative debt instruments, to hedge the
volatility of its net investment in foreign operations driven by
fluctuations in foreign currency exchange rates. The carrying
amount of non-derivative debt instruments designated as net
investment hedges was $1.4 billion at December 31, 2020,
compared with $1.3 billion December 31, 2019.
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
MLHFS and unfunded mortgage loan commitments. The
Company also enters into interest rate swaps, swaptions, 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 to earnings 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 certain unfunded
mortgage loan commitments and swap agreements related to the
sale of a portion of its Class B common and preferred shares of
Visa Inc. Refer to Note 21 for further information on these swap
agreements.
118
The following table summarizes the asset and liability management derivative positions of the Company:
Asset Derivatives
Liability Derivatives
Notional
Value
Fair
Value
Weighted-Average
Remaining
Maturity
In Years
Notional
Value
Fair
Value
Weighted-Average
Remaining
Maturity
In Years
(Dollars in Millions)
December 31, 2020
Fair value hedges
Interest rate contracts
Receive fixed/pay floating swaps . . . . . . . . . . . . . . $ 8,500
$ –
1.86
$
–
$
–
Cash flow hedges
Interest rate contracts
Pay fixed/receive floating swaps . . . . . . . . . . . . . .
–
Net investment hedges
Foreign exchange forward contracts . . . . . . . . . . . . .
479
Other economic hedges
Interest rate contracts
Futures and forwards
Buy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,431
10,440
Options
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receive fixed/pay floating swaps . . . . . . . . . . . . . .
Pay fixed/receive floating swaps . . . . . . . . . . . . . .
Foreign exchange forward contracts . . . . . . . . . . . . .
Equity contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,610
5,073
11,064
78
292
127
47
–
–
73
48
121
202
–
–
1
3
1
–
3,250
.06
336
.50
.04
1,925
28,976
4.11
.13
7.31
13.68
.04
.39
.11
–
7,770
907
8,538
341
45
1,832
–
3
5
157
–
198
–
–
2
–
183
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $64,141
$449
$53,920
$548
December 31, 2019
Fair value hedges
Interest rate contracts
Receive fixed/pay floating swaps . . . . . . . . . . . . . . $18,300
$ –
3.89
$ 4,900
$ –
Cash flow hedges
Interest rate contracts
Pay fixed/receive floating swaps . . . . . . . . . . . . . .
1,532
Net investment hedges
Foreign exchange forward contracts . . . . . . . . . . . . .
–
Other economic hedges
Interest rate contracts
Futures and forwards
Buy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,409
16,333
Options
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receive fixed/pay floating swaps . . . . . . . . . . . . . .
Pay fixed/receive floating swaps . . . . . . . . . . . . . .
Foreign exchange forward contracts . . . . . . . . . . . . .
Equity contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,180
1,270
4,408
1,259
113
128
34
–
–
17
13
79
30
–
–
1
2
–
6.06
7,150
–
287
.08
.81
2.97
.08
5.99
5.67
.05
.45
.01
5,477
8,113
–
4,238
5,316
4,497
467
20
1,823
10
3
11
25
–
81
–
–
6
–
165
–
4.59
.06
.07
.07
–
2.53
23.43
5.67
.05
.46
2.44
3.49
2.11
.04
.07
.03
–
2.07
13.04
6.03
.04
1.06
2.45
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $58,966
$142
$42,288
$301
(a) Includes derivative liability swap agreements related to the sale of a portion of the Company’s Class B common and preferred shares of Visa Inc. The Visa swap agreements had a total notional
value, fair value and weighted-average remaining maturity of $1.8 billion, $182 million and 2.50 years at December 31, 2020, respectively, compared to $1.8 billion, $165 million and 2.50 years
at December 31, 2019, respectively. In addition, includes short-term underwriting purchase and sale commitments with total asset and liability notional values of $47 million at December 31,
2020, and $34 million at December 31, 2019.
119
The following table summarizes the customer-related derivative positions of the Company:
(Dollars in Millions)
December 31, 2020
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 . . . . . . . . . . . . . . . . . . $144,859
15,048
Pay fixed/receive floating swaps . . . . . . . . . . . . . . . . . . .
Other(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,921
Options
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
72,655
1,736
Futures
Buy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,851
–
$3,782
2
6
111
46
–
–
4.93
8.43
3.75
1.40
2.76
1.22
–
$ 12,027
134,963
6,387
$
99
1,239
3
1,454
68,205
924
4,090
46
81
–
–
Foreign exchange rate contracts
Forwards, spots and swaps . . . . . . . . . . . . . . . . . . . . . .
Options
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44,845
1,590
.96
45,992
1,565
519
–
2,876
14
–
1
.90
–
2.75
–
519
7,479
–
14
7
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $294,310
$5,552
$282,040
$3,054
December 31, 2019
Interest rate contracts
Receive fixed/pay floating swaps . . . . . . . . . . . . . . . . . . $108,560
28,150
Pay fixed/receive floating swaps . . . . . . . . . . . . . . . . . . .
Other(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,895
Options
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46,406
6,901
Futures
Buy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
894
3,874
$1,865
30
1
43
49
–
1
4.83
3.83
3.45
2.06
1.93
.21
1.18
$ 31,544
101,078
6,218
$
88
753
2
12,804
49,741
–
1,995
47
41
–
–
Foreign exchange rate contracts
Forwards, spots and swaps . . . . . . . . . . . . . . . . . . . . . .
Options
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36,350
748
.97
36,671
729
1,354
–
2,879
17
–
1
.54
–
3.28
–
1,354
7,488
–
17
5
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $242,263
$2,755
$248,893
$1,682
(a) Primarily represents floating rate interest rate swaps that pay based on differentials between specified interest rate indexes.
8.72
4.71
4.22
2.96
1.25
.05
.72
1.13
–
.90
3.81
3.83
4.55
2.98
1.25
1.82
–
1.04
1.07
–
.54
4.33
120
The table below shows the effective portion of the gains (losses) recognized in other comprehensive income (loss) and the gains (losses)
reclassified from other comprehensive income (loss) into earnings (net-of-tax) for the years ended December 31:
Gains (Losses) Recognized in Other
Comprehensive Income (Loss)
Gains (Losses) Reclassified from
Other Comprehensive Income (Loss)
into Earnings
(Dollars in Millions)
2020
2019
2018
2020
2019
2018
Asset and Liability Management Positions
Cash flow hedges
Interest rate contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(145)
$(171)
$29
$(7)
$(8)
Net investment hedges
Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . . . . . .
Non-derivative debt instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(21)
(90)
3
13
39
32
–
–
–
–
Note: The Company does not exclude components from effectiveness testing for cash flow and net investment hedges.
$3
–
–
The table below shows the effect of fair value and cash flow hedge accounting on the Consolidated Statement of Income for the years
ended December 31:
(Dollars in Millions)
Total amount of income and expense line items presented in the
Consolidated Statement of Income in which the effects of fair
value or cash flow hedges are recorded . . . . . . . . . . . . . . . . . . . . .
Asset and Liability Management Positions
Fair value hedges
Interest Income
Interest Expense
2020
2019
2018
2020
2019
2018
$14,840
$17,494
$16,173
$2,015
$4,442
$3,254
Interest rate contract derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hedged items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Flow hedges
Interest rate contract derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
(1)
–
–
–
–
–
–
–
(134)
134
10
(44)
44
11
5
(5)
(5)
Note: The Company does not exclude components from effectiveness testing for fair value and cash flow hedges. The Company reclassified losses of $41 million into earnings during the year
ended December 31, 2020, as a result of the discontinuance of cash flow hedges. The Company did not reclassify gains or losses into earnings as a result of the discontinuance of cash flow
hedges during the years ended December 31, 2019 and 2018.
The table below shows cumulative hedging adjustments and the carrying amount of assets and liabilities designated in fair value hedges:
At December 31 (Dollars in Millions)
Carrying Amount of the
Hedged Assets and Liabilities
Cumulative Hedging
Adjustment(a)
2020
2019
2020
2019
Line Item in the Consolidated Balance Sheet
Available-for-sale investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
99
8,567
$
–
23,195
$
(1)
903
$ –
35
(a) The cumulative hedging adjustment related to discontinued hedging relationships was $726 million and $(7) million at December 31, 2020 and 2019, respectively.
121
The table below shows the gains (losses) recognized in earnings for other economic hedges and the customer-related positions for the
years ended December 31:
(Dollars in Millions)
Asset and Liability Management Positions
Other economic hedges
Interest rate contracts
Location of Gains (Losses)
Recognized in Earnings
2020
2019
2018
Futures and forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased and written options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage banking revenue/
other noninterest income
Mortgage banking revenue
Mortgage banking revenue
Other noninterest income
Compensation expense
Other noninterest income
$
82
1,527
598
3
3
(70)
$ 34
432
316
(24)
–
(140)
$ 110
188
(111)
39
(4)
2
Customer-Related Positions
Interest rate contracts
Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial products revenue
Purchased and written options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial products revenue
Futures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial products revenue
Foreign exchange rate contracts
Forwards, spots and swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial products revenue
Purchased and written options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial products revenue
Credit contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial products revenue
135
(8)
(18)
78
1
(32)
82
10
(5)
82
1
(18)
47
2
9
84
–
2
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 derivative positions that are centrally cleared through
clearinghouses, 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 generally 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 net liability thresholds
and may be 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, 2020, was $1.5 billion.
At December 31, 2020, the Company had $1.3 billion of cash
posted as collateral against this net liability position.
122
NOTE 20 Netting Arrangements for Certain Financial Instruments and Securities Financing
Activities
The Company’s derivative portfolio consists of bilateral
over-the-counter trades, certain interest rate derivatives and
credit contracts required to be centrally cleared through
clearinghouses per current regulations, and exchange-traded
positions which may include U.S. Treasury and Eurodollar futures
or options on U.S. Treasury futures. Of the Company’s
$694.4 billion total notional amount of derivative positions at
December 31, 2020, $362.8 billion related to bilateral
over-the-counter trades, $315.5 billion related to those centrally
cleared through clearinghouses and $16.1 billion related to those
that were exchange-traded. The Company’s derivative contracts
typically 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 19 for
further discussion of the Company’s derivatives, including
collateral arrangements.
As part of the Company’s treasury and broker-dealer
operations, the Company executes transactions that are treated
as securities sold under agreements to repurchase or securities
purchased under agreements to resell, both of which are
accounted for as collateralized financings. Securities sold under
agreements to repurchase include repurchase agreements and
securities loaned transactions. Securities purchased under
agreements to resell include reverse repurchase agreements and
securities borrowed transactions. For securities sold under
agreements to repurchase, the Company records a liability for the
cash received, which is included in short-term borrowings on the
Consolidated Balance Sheet. For securities purchased under
agreements to resell, the Company records a receivable for the
cash paid, which is included in other assets on the Consolidated
Balance Sheet.
Securities transferred to counterparties under repurchase
agreements and securities loaned transactions continue to be
recognized on the Consolidated Balance Sheet, are measured at
fair value, and are included in investment securities or other
assets. Securities received from counterparties under reverse
repurchase agreements and securities borrowed transactions are
not recognized on the Consolidated Balance Sheet unless the
counterparty defaults. The securities transferred under
repurchase and reverse repurchase transactions typically are U.S.
Treasury and agency securities, residential agency mortgage-
backed securities or corporate debt securities. The securities
loaned or borrowed typically are corporate debt securities traded
by the Company’s broker-dealer subsidiary. 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.
123
The following table summarizes the maturities by category of collateral pledged for repurchase agreements and securities loaned
transactions:
(Dollars in Millions)
December 31, 2020
Repurchase agreements
Overnight and
Continuous
Less Than
30 Days
30-89
Days
Greater Than
90 Days
Total
U.S. Treasury and agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential agency mortgage-backed securities . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities loaned
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total securities loaned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 472
398
560
1,430
218
218
Gross amount of recognized liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
$1,648
December 31, 2019
Repurchase agreements
U.S. Treasury and agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential agency mortgage-backed securities . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities loaned
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total securities loaned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 289
266
610
1,165
50
50
Gross amount of recognized liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
$1,215
$–
–
–
–
–
–
$–
$–
–
–
–
–
–
$–
$–
–
–
–
–
–
$–
$–
–
–
–
–
–
$–
$–
–
–
–
–
–
$ 472
398
560
1,430
218
218
$–
$1,648
$–
–
–
–
–
–
$ 289
266
610
1,165
50
50
$–
$1,215
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. 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.
124
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)
Gross
Recognized
Assets
Gross Amounts
Offset on the
Consolidated
Balance
Sheet(a)
Gross Amounts Not Offset on
the Consolidated Balance Sheet
Net Amounts
Presented on the
Consolidated
Financial
Balance Sheet Instruments(b)
Collateral
Received(c)
Net Amount
December 31, 2020
Derivative assets(d) . . . . . . . . . . . . . . . . . . . . . . . . .
Reverse repurchase agreements . . . . . . . . . . . . .
Securities borrowed . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2019
Derivative assets(d) . . . . . . . . . . . . . . . . . . . . . . . . .
Reverse repurchase agreements . . . . . . . . . . . . .
Securities borrowed . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,744
377
1,716
$7,837
$2,857
1,021
1,624
$5,502
$(1,874)
–
–
$(1,874)
$
(982)
–
–
$
(982)
$3,870
377
1,716
$5,963
$1,875
1,021
1,624
$4,520
$(109)
(262)
–
$(371)
$ (80)
(152)
–
$(232)
$
(287)
(115)
(1,670)
$(2,072)
$
(116)
(869)
(1,569)
$(2,554)
$3,474
–
46
$3,520
$1,679
–
55
$1,734
(a) Includes $898 million and $429 million of cash collateral related payables that were netted against derivative assets at December 31, 2020 and 2019, 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 $257 million and $40 million at December 31, 2020 and 2019, respectively, of derivative assets not subject to netting arrangements.
(Dollars in Millions)
Gross
Recognized
Liabilities
Gross Amounts
Offset on the
Consolidated
Balance Sheet(a)
Gross Amounts Not Offset on
the Consolidated Balance Sheet
Net Amounts
Presented on the
Consolidated
Financial
Balance Sheet Instruments(b)
Collateral
Pledged(c)
Net Amount
December 31, 2020
Derivative liabilities(d) . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase agreements . . . . . . . . . . . . . . . . . . . .
Securities loaned . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2019
Derivative liabilities(d) . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase agreements . . . . . . . . . . . . . . . . . . . .
Securities loaned . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,419
1,430
218
$5,067
$1,816
1,165
50
$3,031
$(2,312)
–
–
$(2,312)
$(1,067)
–
–
$(1,067)
$1,107
1,430
218
$2,755
$ 749
1,165
50
$1,964
$(109)
(262)
–
$(371)
$ (80)
(152)
–
$(232)
–
$
(1,168)
(215)
$(1,383)
$
–
(1,012)
(49)
$(1,061)
$ 998
–
3
$1,001
$ 669
1
1
$ 671
(a) Includes $1.3 billion and $514 million of cash collateral related receivables that were netted against derivative liabilities at December 31, 2020 and 2019, 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 $183 million and $167 million at December 31, 2020 and 2019, respectively, of derivative liabilities not subject to netting arrangements.
125
NOTE 21 Fair Values of Assets and Liabilities
The Company uses fair value measurements for the initial
recording of certain assets and liabilities, periodic remeasurement
of certain assets and liabilities, and disclosures. Derivatives,
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.
– 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 and certain derivative contracts.
Valuation Methodologies
The valuation methodologies used by the Company to measure
financial assets and liabilities at fair value are described below. 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 descriptions include
information about the valuation models and key inputs to those
models. During the years ended December 31, 2020, 2019 and
2018, there were no significant changes to the valuation
techniques used by the Company to measure fair value.
Available-For-Sale 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.
Level 2 investment securities are predominantly agency
mortgage-backed securities, certain other asset-backed
securities, obligations of state and political subdivisions and
agency 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 net gain of
$362 million, a net gain of $73 million and a net loss of $60 million
for the years ended December 31, 2020, 2019 and 2018,
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.
Mortgage Servicing Rights MSRs are valued using a
discounted cash flow methodology, and are classified within
Level 3. The Company determines fair value of the MSRs by
126
projecting future cash flows for different interest rate scenarios
using prepayment rates and other assumptions, and discounts
these cash flows using a risk adjusted rate based on option
adjusted spread levels. There is minimal observable market
activity for MSRs on comparable portfolios and, therefore, the
determination of fair value requires significant management
judgment. Refer to Note 9 for further information on MSR
valuation assumptions.
Derivatives The majority of derivatives held by the Company are
executed over-the-counter or centrally cleared through
clearinghouses and are valued using market standard cash flow
valuation techniques. The models incorporate inputs, depending
on the type of derivative, including interest rate curves, foreign
exchange rates and volatility. All derivative values incorporate an
assessment of the risk of counterparty nonperformance,
measured based on the Company’s evaluation of credit risk
including external assessments of credit risk. 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 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 and preferred 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. The Visa swaps require payments by either the Company
or the purchaser of the Visa Inc. Class B common and preferred
shares when there are changes in the conversion rate of the Visa
Inc. Class B common and preferred shares to Visa Inc. Class A
common and preferred shares, respectively, 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 Inc. related litigation
contingencies, and the associated escrow funding. 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 22 for
further information on the Visa Inc. restructuring and related card
association litigation.
Significant Unobservable Inputs of
Level 3 Assets and Liabilities
The following section provides information to facilitate an
understanding of the uncertainty in the fair value measurements
for the Company’s Level 3 assets and liabilities recorded at fair
value on the Consolidated Balance Sheet. This section includes a
description of the significant inputs used by the Company and a
description of any interrelationships between these inputs. 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.
Mortgage Servicing Rights The significant unobservable inputs
used in the fair value measurement of the Company’s MSRs are
expected prepayments and the option adjusted spread that is
added to the risk-free rate to discount projected cash flows.
Significant increases in either of these inputs in isolation would
have resulted in a significantly lower fair value measurement.
Significant decreases in either of these inputs in isolation would
have resulted in a significantly higher fair value measurement.
There is no direct interrelationship between prepayments and
option adjusted spread. Prepayment rates generally move in the
opposite direction of market interest rates. Option adjusted
spread is generally impacted by changes in market return
requirements.
The following table shows the significant valuation assumption ranges for MSRs at December 31, 2020:
Expected prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Option adjusted spread . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9%
6
21%
11
14%
7
(a) Determined based on the relative fair value of the related mortgage loans serviced.
Minimum
Maximum
Weighted
Average(a)
127
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.
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 have resulted in a
larger derivative asset or liability. A significant increase in the
inherent MSR value would have resulted 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, 2020:
Minimum
Maximum
Weighted
Average(a)
Expected loan close rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inherent MSR value (basis points per loan) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22%
39
100%
177
76%
117
(a) Determined based on the relative fair value of the related mortgage loans.
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 have resulted in
a lower fair value measurement. A significant decrease in the
credit valuation adjustment would have resulted in a higher fair
value measurement. The credit valuation adjustment is impacted
by changes in market rates, volatility, market implied credit
spreads, and loss recovery rates, as well as the Company’s
assessment of the counterparty’s credit position. At
December 31, 2020, the minimum, maximum and weighted
average credit valuation adjustment as a percentage of the net
fair value of the counterparty’s derivative contracts prior to
adjustment was 0 percent, 100 percent and 2 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 occurring, 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 have resulted in an
increase in the derivative liability. A decrease in the loss estimate
or an acceleration of the resolution of the related litigation would
have resulted in a decrease in the derivative liability.
128
The following table summarizes the balances of assets and liabilities measured at fair value on a recurring basis:
(Dollars in Millions)
Level 1
Level 3
Level 2
Netting
Total
$ 3,140
$
–
$
–
$ 22,391
December 31, 2020
Available-for-sale securities
U.S. Treasury and agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $19,251
Mortgage-backed securities
Residential agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of state and political subdivisions . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
–
–
–
–
19,251
–
–
4
302
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $19,557
Derivative liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Short-term borrowings and other liabilities(a) . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
–
85
85
December 31, 2019
Available-for-sale securities
99,968
5,406
198
8,860
9
117,581
8,524
–
3,235
1,601
$130,941
$ 3,166
1,672
$ 4,838
–
–
7
1
–
8
–
2,210
2,762
–
$4,980
$ 436
–
$ 436
U.S. Treasury and agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,986
Mortgage-backed securities
$
853
$
Residential agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of state and political subdivisions . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
–
–
–
–
Total available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,986
–
–
9
312
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $19,307
Derivative liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Short-term borrowings and other liabilities(a) . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
–
50
50
94,111
1,453
375
6,813
13
103,618
5,533
–
1,707
1,563
$112,421
$ 1,612
1,578
$ 3,190
–
–
–
8
1
–
9
–
2,546
1,181
–
$3,736
$ 371
–
$ 371
–
–
–
–
–
–
–
–
(1,874)
–
$(1,874)
$(2,312)
–
$(2,312)
$
–
–
–
–
–
–
–
–
–
(982)
–
$
(982)
$(1,067)
–
$(1,067)
99,968
5,406
205
8,861
9
136,840
8,524
2,210
4,127
1,903
$153,604
$ 1,290
1,757
$ 3,047
$ 19,839
94,111
1,453
383
6,814
13
122,613
5,533
2,546
1,915
1,875
$134,482
$
916
1,628
$ 2,544
Note: Excluded from the table above are equity investments without readily determinable fair values. The Company has elected to carry these investments at historical cost, adjusted for impairment
and any changes resulting from observable price changes for identical or similar investments of the issuer. The aggregate carrying amount of these equity investments was $85 million and
$91 million at December 31, 2020 and 2019, respectively. The Company has not recorded impairments or adjustments for observable price changes on these equity investments during 2020 and
2019, or on a cumulative basis.
(a) Primarily represents the Company’s obligation on securities sold short required to be accounted for at fair value per applicable accounting guidance.
129
The following table presents the changes in fair value for all assets and liabilities measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) for the years ended December 31:
Net Gains
(Losses)
Included in
Beginning
Principal
of Period
Balance Net Income Purchases Sales Payments
Issuances Settlements
Net Change
in Unrealized
Gains (Losses)
Relating to
Assets and
Liabilities
Held at
Level 3 Balance End of Period
End of
Period
Transfers into
(Dollars in Millions)
2020
Available-for-sale securities
Asset-backed securities . . . . . . . . . . . . . .
Obligations of state and political
subdivisions . . . . . . . . . . . . . . . . . . . . . .
Total available-for-sale . . . . . . . . . . . .
Mortgage servicing rights . . . . . . . . . . . . . . .
Net derivative assets and liabilities . . . . . . . .
2019
Available-for-sale securities
$
8
$
$ – $ –
$(1) $
–
–
–
(1,403)(a)
2,922(b)
1
9
2,546
810
–
–
34
247
–
–
3
(3)
–
(1)
–
–
1,030(c)
Asset-backed securities . . . . . . . . . . . . . .
Obligations of state and political
$
subdivisions . . . . . . . . . . . . . . . . . . . . . .
$
–
–
–
–
Total available-for-sale . . . . . . . . . . . .
Mortgage servicing rights . . . . . . . . . . . . . . .
Net derivative assets and liabilities . . . . . . . .
–
2,791
80
–
(829)(a)
769(e)
$ – $ –
$ – $
–
–
20
142
–
–
5
(9)
–
–
–
–
–
–
–
–
–
–
$
–
–
–
–
(1,650)
$
–
–
–
559(c)
–
–
–
(172)
$– $
–
7
1
–
8
– 2,210
– 2,326
$8 $
1
8
1
9
9
– 2,546
810
–
$
–
–
–
(1,403)(a)
1,649(d)
$
–
–
–
(829)(a)
782(f)
2018
Mortgage servicing rights . . . . . . . . . . . . . . .
Net derivative assets and liabilities . . . . . . . .
$2,645 $
107
(232)(a) $ 8 $(27)
(41)
21(g)
13
$ – $ 397(c) $
–
–
–
(20)
$– $2,791
80
–
$
(232)(a)
34(h)
(a) Included in mortgage banking revenue.
(b) Approximately $1.9 billion, $1.1 billion and $(70) million included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.
(c) Represents MSRs capitalized during the period.
(d) Approximately $247 million, $1.5 billion and $(70) million included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.
(e) Approximately $482 million, $428 million and $(141) million included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.
(f) Approximately $35 million, $888 million and $(141) million included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.
(g) Approximately $160 million, $(141) million and $2 million included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.
(h) Approximately $20 million, $12 million and $2 million included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.
130
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 December 31:
(Dollars in Millions)
Level 1
Level 2
Level 3
Loans(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$–
–
$–
–
$385
30
Total
$385
30
Level 1
Level 2
Level 3
$–
–
$–
–
$136
46
Total
$136
46
(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.
2020
2019
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)
2020
2019
2018
Loans(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $426
21
Other assets(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$122
17
$83
26
(a) Represents write-downs of loans which were based on the fair value of the collateral, excluding loans fully charged-off.
(b) Primarily represents related losses of foreclosed properties that were measured at fair value subsequent to their initial acquisition.
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 . . . . . . . . . . . . . . .
2020
Aggregate
Unpaid
Principal
$8,136
1
2
Fair Value
Carrying
Amount
$8,524
1
2
Carrying
Amount Over
(Under) Unpaid
Principal
$388
–
–
Fair Value
Carrying
Amount
$5,533
1
1
2019
Aggregate
Unpaid
Principal
$5,366
1
1
Carrying
Amount Over
(Under) Unpaid
Principal
$167
–
–
Fair Value of Financial Instruments
The following section summarizes the estimated fair value for
financial instruments accounted for at amortized cost as of
December 31, 2020 and 2019. 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, receivables and
payables due in one year or less, insurance contracts, equity
investments not accounted for at fair value, and deposits with no
defined or contractual maturities are excluded.
131
The estimated fair values of the Company’s financial instruments as of December 31, are shown in the table below:
2019
2020
(Dollars in Millions)
Financial Assets
Cash and due from banks . . . . .
Federal funds sold and
securities purchased under
resale agreements . . . . . . . . .
Loans held for sale(a) . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . .
Other(b) . . . . . . . . . . . . . . . . . . . .
Financial Liabilities
Time deposits . . . . . . . . . . . . . . .
. . . . . .
Short-term borrowings(c)
Long-term debt . . . . . . . . . . . . .
Other(d) . . . . . . . . . . . . . . . . . . . .
Carrying
Amount
Fair Value
Level 1
Level 2
Level 3
Total
Carrying
Amount
Fair Value
Level 1
Level 2
Level 3
Total
$ 62,580 $62,580 $
– $
– $ 62,580
$ 22,405 $22,405 $
– $
– $ 22,405
377
237
290,393
1,772
30,694
10,009
41,297
4,052
–
–
–
–
–
237
377
377
–
237
– 300,419 300,419
1,772
1,041
731
– 30,864
9,956
–
– 42,485
1,234
–
–
–
–
2,818
30,864
9,956
42,485
4,052
1,036
45
292,082
1,923
42,894
22,095
40,167
3,678
–
–
–
–
1,036
–
1,036
–
43
43
– 297,241 297,241
1,923
994
929
– 42,831
– 21,961
– 41,077
1,342
–
–
–
–
2,336
42,831
21,961
41,077
3,678
(a) Excludes mortgages held for sale for which the fair value option under applicable accounting guidance was elected.
(b) Includes investments in Federal Reserve Bank and Federal Home Loan Bank stock and tax-advantaged investments.
(c) Excludes the Company’s obligation on securities sold short required to be accounted for at fair value per applicable accounting guidance.
(d) Includes operating lease liabilities and liabilities related to tax-advantaged investments.
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 $774 million and $528 million at
December 31, 2020 and 2019, respectively. The carrying value of
other guarantees was $362 million and $200 million at
December 31, 2020 and 2019, respectively.
NOTE 22 Guarantees and Contingent Liabilities
Visa Restructuring and Card Association Litigation The
Company’s payment services business issues credit and debit
cards 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 Brands”) are defendants in antitrust
lawsuits challenging the practices of the Card Brands (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.
In October 2012, Visa signed a settlement agreement to
resolve class action claims associated with the multi-district
interchange litigation pending in the United States District Court
for the Eastern District of New York (the “Multi-District Litigation”).
The U.S. Court of Appeals for the Second Circuit reversed the
approval of that settlement and remanded the matter to the
district court. Thereafter, the case was split into two putative
class actions, one seeking damages (the “Damages Action”) and
a separate class action seeking injunctive relief only (the
“Injunctive Action”). In September 2018, Visa signed a new
settlement agreement, superseding the original settlement
agreement, to resolve the Damages Action. The Damages Action
settlement was approved by the United States District Court for
the Eastern District of New York, but is now on appeal. The
Injunctive Action, which generally seeks changes to Visa rules, is
still pending.
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
132
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, 2020, excluding those
commitments considered derivatives, were as follows:
Term
Less Than
One Year
Greater
Than One
Year
Total
(Dollars in Millions)
Commercial and
commercial real
estate loans . . . . . . . $ 43,642
$110,382
$154,024
Corporate and
purchasing card
loans(a) . . . . . . . . . . . .
Residential
29,541
mortgages . . . . . . . .
319
Retail credit card
loans(a) . . . . . . . . . . . .
Other retail loans . . . . .
Other . . . . . . . . . . . . . .
117,827
12,980
6,486
(a) Primarily cancelable at the Company’s discretion.
–
1
–
22,998
10
29,541
320
117,827
35,978
6,496
Other Guarantees and Contingent
Liabilities
The following table is a summary of other guarantees and
contingent liabilities of the Company at December 31, 2020:
(Dollars in Millions)
Collateral
Held
Standby letters of credit . . . . .
Third party borrowing
$
arrangements . . . . . . . . . . .
–
–
Securities lending
indemnifications . . . . . . . . .
Asset sales . . . . . . . . . . . . . . .
Merchant processing . . . . . . .
Tender option bond program
guarantee . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . .
6,461
–
579
2,374
–
Carrying
Amount
$ 70
–
–
80
211
–
71
Maximum
Potential
Future
Payments
$ 9,789
2
6,298
6,165
89,352
2,036
1,292
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, 2020, were approximately
$9.8 billion with a weighted-average term of approximately 19
months. The estimated fair value of standby letters of credit was
approximately $70 million at December 31, 2020.
The contract or notional amount of letters of credit at
December 31, 2020, were as follows:
(Dollars in Millions)
Term
Less Than
One Year
Standby . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . .
$4,526
536
Greater
Than
One Year
$5,263
30
Total
$9,789
566
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; and indemnification or
buy-back provisions related to certain asset sales. 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 $2 million at December 31,
2020.
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 $6.3 billion at December 31,
2020, and represent the fair value of the securities lent to third
parties. At December 31, 2020, the Company held $6.5 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
133
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 $6.2 billion at December 31,
2020, 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,
2020, the Company had reserved $80 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 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 GSE for losses. At December 31, 2020,
the Company had reserved $19 million for potential losses from
representation and warranty obligations, compared with
$9 million at December 31, 2019. 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, 2020 and 2019, the Company had
$13 million and $10 million, respectively, of unresolved
representation and warranty claims from GSEs. The Company
does not have a significant amount of unresolved claims from
investors other than GSEs.
Merchant Processing The Company, through its subsidiaries,
provides merchant processing services. Under the rules of credit
card associations, a merchant processor retains a contingent
liability for credit card transactions processed. This contingent
liability arises in the event of a billing dispute between the
merchant and a cardholder that is ultimately resolved in the
cardholder’s favor. In this situation, the transaction is “charged-
back” to the merchant and the disputed amount is credited or
otherwise refunded to the cardholder. If the Company is unable
to collect this amount from the merchant, it bears the loss for the
amount of the refund paid to the cardholder.
A cardholder, through its issuing bank, generally has until the
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 of
2020 this amount totaled approximately $89.4 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 and Europe through wholly-owned
subsidiaries. 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 the
purchase price of such products or services 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, 2020, the
value of airline tickets purchased to be delivered at a future date
through card transactions processed by the Company was
$6.0 billion. The Company held collateral of $442 million in
escrow deposits, letters of credit and indemnities from financial
institutions, and liens on various assets. In addition to specific
collateral or other credit enhancements, the Company maintains
a liability for its implied guarantees associated with future delivery.
134
At December 31, 2020, the liability was $185 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, 2020, the Company held $137 million of merchant
escrow deposits as collateral and had a recorded liability for
potential losses of $26 million.
Tender Option Bond Program Guarantee As discussed in
Note 7, the Company sponsors a municipal bond securities
tender option bond program and consolidates the program’s
entities on its Consolidated Balance Sheet. The Company
provides financial performance guarantees related to the
program’s entities. At December 31, 2020, the Company
guaranteed $2.0 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 $2.4 billion of available-for-sale
investment securities serving as collateral for this arrangement.
Other Guarantees and Commitments As of December 31,
2020, the Company sponsored, and 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 the
Company’s preferred stock in the future. As of December 31,
2020, all of the Debentures issued by the Company have either
matured or been retired. Total assets of USB Capital IX were
$682 million at December 31, 2020, consisting primarily of the
Company’s Series A Preferred Stock. 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 to third-party investors totaling $681 million at
December 31, 2020.
The Company has also made other financial performance
guarantees and commitments primarily related to the operations
of its subsidiaries. At December 31, 2020, the maximum potential
future payments guaranteed or committed by the Company
under these arrangements were approximately $611 million.
Litigation and Regulatory Matters
The Company is subject to various litigation and regulatory
matters that arise in the ordinary course of its business. The
Company establishes reserves for such matters when potential
losses become probable and can be reasonably estimated. The
Company believes the ultimate resolution of existing legal and
regulatory matters will not have a material adverse effect on the
financial condition, results of operations or cash flows of the
Company. However, in light of the uncertainties inherent in these
matters, it is possible that the ultimate resolution of one or more
of these matters may have a material adverse effect on the
Company’s results from operations for a particular period, and
future 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.
Residential Mortgage-Backed Securities Litigation Starting in
2011, the Company and other large financial institutions have
been sued in their capacity as trustee for residential mortgage–
backed securities trusts. In the lawsuits brought against the
Company, the investors allege that the Company’s banking
subsidiary, U.S. Bank National Association (“U.S. Bank”), 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 in these matters seek monetary damages
in unspecified amounts and most also seek equitable relief.
Regulatory Matters The Company is continually subject to
examinations, inquiries and investigations in areas of heightened
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).
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 the Company has information to
develop an estimate or range of loss, the Company believes the
upper end of the range 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.
135
NOTE 23 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. 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. The Company has five reportable operating
segments:
Corporate and Commercial Banking Corporate and
Commercial Banking offers lending, equipment finance and small-
ticket leasing, depository services, treasury management, capital
markets services, 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 Business Banking Consumer and Business
Banking delivers products and services through banking offices,
telephone servicing and sales, on-line services, direct mail, ATM
processing and mobile devices. It encompasses community
banking, metropolitan banking and indirect lending, as well as
mortgage banking.
Wealth Management and Investment Services Wealth
Management and Investment Services provides private banking,
financial advisory services, investment management, retail
brokerage services, insurance, trust, custody and fund servicing
through four businesses: Wealth Management, Global Corporate
Trust & Custody, U.S. Bancorp Asset Management 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, funding,
capital management, interest rate risk management, income
taxes not allocated to business segments, 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.
Basis of Presentation Business segment 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 business segments according to the volume and
credit quality of the loan balances managed, but with the impact
of changes in economic forecasts recorded in Treasury and
Corporate Support. Goodwill and other intangible assets are
assigned to the business segments based on the mix of business
of an entity acquired by the Company. Within the Company,
capital levels are evaluated and managed centrally; however,
capital is allocated to the business segments to support
evaluation of business performance. Business segments 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 segment
includes credit allocations following a Basel III regulatory
framework. Interest income and expense is determined based on
the assets and liabilities managed by the business segment.
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 segment 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 segment, 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 business
segments. Generally, operating losses are charged to the
business segment when the loss event is realized in a manner
similar to a loan charge-off. Noninterest expenses incurred by
centrally managed operations or business segments that directly
support another business segment’s operations are charged to
the applicable business segment 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 business segments or for which the
business segments are not considered financially accountable in
evaluating their performance are not charged to the business
segments. The income or expenses associated with these
corporate activities is reported within the Treasury and Corporate
Support business segment. Income taxes are assessed to each
business segment 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.
136
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 2020, certain organization and
methodology changes were made and, accordingly, 2019 results
were restated and presented on a comparable basis.
Business segment results for the years ended December 31 were as follows:
Corporate and
Commercial Banking
Consumer and
Business Banking
Wealth Management and
Investment Services
2020
2019
(Dollars in Millions)
Condensed Income Statement
Net interest income (taxable-equivalent basis) . . . . . . . . . . . . . $ 3,259 $ 3,101
Noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
861
Total net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,962
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,624
Other intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
1,628
Total noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,334
Income (loss) before provision and income taxes . . . . . . . . . . .
89
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,245
Income (loss) before income taxes . . . . . . . . . . . . . . . . . . . . . . .
562
Income taxes and taxable-equivalent adjustment . . . . . . . . . . .
1,683
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
Net (income) loss attributable to noncontrolling interests . . . . .
$ 1,561 $ 1,683
Net income (loss) attributable to U.S. Bancorp . . . . . . . . . . . . .
1,078
4,337
1,680
–
1,680
2,657
575
2,082
521
1,561
–
Average Balance Sheet
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total U.S. Bancorp shareholders’ equity . . . . . . . . . . . . . . . . . .
$108,320 $ 99,037
3,751
1,647
8
108,983
29,400
72,822
102,222
15,508
4,163
1,647
6
120,829
40,109
83,684
123,793
16,385
2020
2019
2020
2019
$ 6,263 $ 6,351
2,385
8,736
5,257
20
5,277
3,459
311
3,148
789
2,359
–
$ 2,783 $ 2,359
3,360
9,623
5,573
16
5,589
4,034
322
3,712
929
2,783
–
$152,634 $144,616
3,989
3,496
2,619
158,932
27,831
129,235
157,066
15,151
7,186
3,500
2,106
170,531
35,543
147,336
182,879
15,058
$
$
996 $ 1,172
1,803
2,975
1,775
13
1,788
1,187
(3)
1,190
299
891
–
891
1,877
2,873
1,871
12
1,883
990
38
952
238
714
–
714 $
$ 11,327 $ 10,085
282
1,617
49
13,336
13,231
62,142
75,373
2,441
287
1,617
39
14,448
16,275
66,172
82,447
2,482
Payment
Services
Treasury and
Corporate Support
Consolidated
Company
2020
2019
(Dollars in Millions)
Condensed Income Statement
Net interest income (taxable-equivalent basis) . . . . . . . . . . . . . $ 2,530 $ 2,474
Noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before provision and income taxes . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . . . . . . . . . . . . . . . . . . . . . .
Income taxes and taxable-equivalent adjustment . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling interests . . . . .
Net income (loss) attributable to U.S. Bancorp . . . . . . . . . . . . .
3,711(a)
6,185
3,005
131
3,136
3,049
1,109
1,940
486
1,454
–
$ 1,269 $ 1,454
3,124(a)
5,654
3,133
148
3,281
2,373
681
1,692
423
1,269
–
Average Balance Sheet
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total U.S. Bancorp shareholders’ equity . . . . . . . . . . . . . . . . . .
$ 31,539 $ 33,566
6
2,818
536
39,424
1,261
114
1,375
6,069
5
3,060
580
36,496
4,356
122
4,478
6,095
2020
2019
2020
2019
$
$
(124) $
962
838
936
–
936
(98)
2,190
(2,288)
(946)
(1,342)
(26)
(1,368) $
57
1,071
1,128
956
–
956
172
(2)
174
(385)
559
(32)
527
$ 3,449 $ 3,382
131,823
162,492
–
–
–
–
154,978
188,903
2,140
2,256
2,762
8,636
10,776
5,018
13,454
12,226
$ 12,924 $ 13,155
10,401(b)
23,325
13,193
176
13,369
9,956
3,806
6,150
1,165
4,985
(26)
9,831(b)
22,986
12,617
168
12,785
10,201
1,504
8,697
1,751
6,946
(32)
$ 4,959 $ 6,914
$307,269 $290,686
139,851
174,133
9,578
9,824
3,212
2,731
475,653
531,207
73,863
98,539
272,949
300,076
346,812
398,615
52,623
52,246
(a) Presented net of related rewards and rebate costs and certain partner payments of $2.1 billion and $2.2 billion for 2020 and 2019, respectively.
(b) Includes revenue generated from certain contracts with customers of $6.9 billion and $7.3 billion for 2020 and 2019, respectively.
137
NOTE 24 U.S. Bancorp (Parent Company)
Condensed Balance Sheet
At December 31 (Dollars in Millions)
2020
2019
Assets
Due from banks, principally interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,279
1,469
Available-for-sale investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52,551
Investments in bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,286
Investments in nonbank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,850
Advances to bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,118
Advances to nonbank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
869
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $75,422
Liabilities and Shareholders’ Equity
Short-term funds borrowed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
20,924
1,403
53,095
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $75,422
$11,583
1,631
48,518
3,128
3,850
1,465
1,211
$71,386
8
$
18,602
923
51,853
$71,386
Condensed Income Statement
Year Ended December 31 (Dollars in Millions)
2020
2019
2018
Income
Dividends from bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,500
Dividends from nonbank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24
172
Interest from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
85
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,781
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 of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
433
140
573
1,208
(78)
1,286
3,673
$7,100
6
317
25
7,448
551
140
691
6,757
(92)
6,849
65
$5,300
6
220
33
5,559
471
133
604
4,955
(91)
5,046
2,050
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,959
$6,914
$7,096
138
Condensed Statement of Cash Flows
Year Ended December 31 (Dollars in Millions)
2020
2019
2018
Operating Activities
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,959
Adjustments to reconcile net income to net cash provided by operating activities
Equity in undistributed income of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,673)
907
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,193
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 provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing Activities
Net increase (decrease) in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments or redemption of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends paid on preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends paid on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
258
–
347
–
–
379
984
(8)
2,750
(1,200)
486
15
(1,672)
(300)
(2,552)
(2,481)
Change in cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and due from banks at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
696
11,583
$ 6,914
$ 7,096
(65)
231
7,080
291
(1,013)
578
(2,600)
2,550
(341)
(535)
8
3,743
(1,500)
–
88
(4,525)
(302)
(2,443)
(4,931)
1,614
9,969
(2,050)
359
5,405
39
(10)
(488)
(500)
–
304
(655)
(1)
2,100
(1,500)
565
86
(2,822)
(274)
(2,092)
(3,938)
812
9,157
Cash and due from banks at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,279
$11,583
$ 9,969
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.
NOTE 25 Subsequent Events
The Company has evaluated the impact of events that have
occurred subsequent to December 31, 2020 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.
139
U.S. Bancorp
Consolidated Balance Sheet—Five Year Summary (Unaudited)
At December 31 (Dollars in Millions)
2020
2019
2018
2017
2016
% Change
2020 v 2019
Assets
Cash and due from banks . . . . . . . . . . . . . . . . . . . $ 62,580
Held-to-maturity securities . . . . . . . . . . . . . . . . . . .
–
136,840
Available-for-sale securities . . . . . . . . . . . . . . . . . .
8,761
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . .
297,707
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7,314)
Less allowance for loan losses . . . . . . . . . . . . . .
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
290,393
55,331
$ 22,405
–
122,613
5,578
296,102
(4,020)
292,082
52,748
$ 21,453
46,050
66,115
2,056
286,810
(3,973)
282,837
48,863
$ 19,505
44,362
68,137
3,554
280,432
(3,925)
276,507
49,975
$ 15,705
42,991
66,284
4,826
273,207
(3,813)
269,394
46,764
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $553,905
$495,426
$467,374
$462,040
$445,964
Liabilities and Shareholders’ Equity
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . $118,089
311,681
Interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 75,590
286,326
$ 81,811
263,664
$ 87,557
259,658
$ 86,097
248,493
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
Total U.S. Bancorp shareholders’ equity . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . .
429,770
11,766
41,297
17,347
500,180
53,095
630
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . .
53,725
361,916
23,723
40,167
17,137
442,943
51,853
630
52,483
345,475
14,139
41,340
14,763
415,717
51,029
628
51,657
347,215
16,651
32,259
16,249
412,374
49,040
626
49,666
334,590
13,963
33,323
16,155
398,031
47,298
635
47,933
Total liabilities and equity . . . . . . . . . . . . . . . . $553,905
$495,426
$467,374
$462,040
$445,964
* Not meaningful
*%
–
11.6
57.1
.5
(81.9)
(.6)
4.9
11.8
56.2%
8.9
18.7
(50.4)
2.8
1.2
12.9
2.4
–
2.4
11.8
140
U.S. Bancorp
Consolidated Statement of Income — Five-Year Summary
(Unaudited)
Year Ended December 31 (Dollars in Millions)
2020
2019
2018
2017
2016
Interest Income
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,018
216
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,428
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
178
Other interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,840
Interest Expense
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
950
141
924
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . .
2,015
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . .
12,825
3,806
Net interest income after provision for credit losses . . . .
9,019
Noninterest Income
Credit and debit card revenue . . . . . . . . . . . . . . . . . . . . .
Corporate payment products revenue . . . . . . . . . . . . . . .
Merchant 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,338
497
1,261
1,736
677
568
1,143
2,064
192
177
748
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . .
10,401
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,635
1,303
1,092
430
318
1,294
288
176
1,833
$14,099
162
2,893
340
17,494
2,855
360
1,227
4,442
13,052
1,504
11,548
1,413
664
1,601
1,673
909
578
934
874
186
73
926
9,831
6,325
1,286
1,123
454
426
1,095
290
168
1,618
$13,120
165
2,616
272
16,173
1,869
378
1,007
3,254
12,919
1,379
11,540
1,401
644
1,531
1,619
1,070
594
895
720
188
30
910
9,602
6,162
1,231
1,063
407
429
978
324
161
1,709
$11,788
144
2,232
182
14,346
1,041
141
784
1,966
12,380
1,390
10,990
1,289
575
1,486
1,522
1,035
618
954
834
173
57
774
9,317
5,746
1,134
1,019
419
542
903
323
175
2,529
$10,777
154
2,078
125
13,134
622
92
754
1,468
11,666
1,324
10,342
1,206
541
1,498
1,427
983
583
971
979
169
22
911
9,290
5,212
1,008
988
502
435
877
311
179
2,015
Total noninterest expense . . . . . . . . . . . . . . . . . . . . . . .
13,369
12,785
12,464
12,790
11,527
Income before income taxes . . . . . . . . . . . . . . . . . . . . . .
Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling
6,051
1,066
4,985
8,594
1,648
6,946
8,678
1,554
7,124
7,517
1,264
6,253
8,105
2,161
5,944
interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(26)
(32)
(28)
(35)
(56)
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . $ 4,959
$ 6,914
$ 7,096
$ 6,218
$ 5,888
Net income applicable to U.S. Bancorp common
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,621
$ 6,583
$ 6,784
$ 5,913
$ 5,589
* Not meaningful
% Change
2020 v 2019
(14.8)%
33.3
(16.1)
(47.6)
(15.2)
(66.7)
(60.8)
(24.7)
(54.6)
(1.7)
*
(21.9)
(5.3)
(25.2)
(21.2)
3.8
(25.5)
(1.7)
22.4
*
3.2
*
(19.2)
5.8
4.9
1.3
(2.8)
(5.3)
(25.4)
18.2
(.7)
4.8
13.3
4.6
(29.6)
(35.3)
(28.2)
18.8
(28.3)
(29.8)
141
U.S. Bancorp
Quarterly Consolidated Financial Data (Unaudited)
(Dollars in Millions, Except Per Share Data)
Interest Income
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020
2019
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$3,311 $2,949 $2,892 $2,866
59
520
34
44
692
69
52
630
41
61
586
34
$3,540 $3,582 $3,555 $3,422
55
709
69
48
734
100
25
705
81
34
745
90
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,116
3,672
3,573
3,479
4,351
4,451
4,437
4,255
Interest Expense
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
525
71
297
893
194
34
244
472
130
19
197
346
101
17
186
304
695
93
304
762
91
293
744
97
315
654
79
315
1,092
1,146
1,156
1,048
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,223
993
3,200
1,737
3,227
635
3,175
441
3,259
377
3,305
365
3,281
367
3,207
395
Net interest income after provision for credit losses . . . . . . . . . .
2,230
1,463
2,592
2,734
2,882
2,940
2,914
2,812
Noninterest Income
Credit and debit card revenue . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate payment products revenue . . . . . . . . . . . . . . . . . . . . .
Merchant 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
304
145
337
427
209
143
246
395
49
50
220
284
101
266
434
133
137
355
648
45
81
130
388
125
347
434
170
145
303
553
48
12
187
362
126
311
441
165
143
239
468
50
34
211
304
162
378
399
217
146
219
169
45
5
247
365
167
404
415
227
153
249
189
47
17
257
366
177
410
421
234
139
240
272
46
25
284
378
158
409
438
231
140
226
244
48
26
138
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,525
2,614
2,712
2,550
2,291
2,490
2,614
2,436
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,620
352
276
99
74
289
72
42
492
1,685
314
271
106
67
309
72
43
451
1,687
335
276
102
72
334
70
44
451
1,643
302
269
123
105
362
74
47
439
1,559
333
277
95
89
257
72
40
365
1,574
314
281
106
111
270
73
42
382
1,595
324
279
114
109
277
74
42
330
1,597
315
286
139
117
291
71
44
541
Total noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,316
3,318
3,371
3,364
3,087
3,153
3,144
3,401
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling interests . . . . . .
1,439
260
1,179
(8)
759
64
695
(6)
1,933
347
1,586
(6)
1,920
395
1,525
(6)
2,086
378
1,708
(9)
2,277
449
1,828
(7)
2,384
467
1,917
(9)
1,847
354
1,493
(7)
Net income attributable to U.S. Bancorp . . . . . . . . . . . . . . . . . . . $1,171 $ 689 $1,580 $1,519
$1,699 $1,821 $1,908 $1,486
Net income applicable to U.S. Bancorp common
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,088 $ 614 $1,494 $1,425
$1,613 $1,741 $1,821 $1,408
Earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . $
.72 $
.72 $
.41 $
.41 $
.99 $
.99 $
.95
.95
$ 1.01 $ 1.09 $ 1.16 $
$ 1.00 $ 1.09 $ 1.15 $
.91
.90
142
U.S. Bancorp
Supplemental Financial Data (Unaudited)
Earnings Per Common Share Summary
2020
2019
2018
2017
2016
Earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.06
3.06
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.68
Dividends declared per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ratios
$ 4.16
4.16
1.58
$ 4.15
4.14
1.34
$ 3.53
3.51
1.16
$ 3.25
3.24
1.07
Return on average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on average common equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average total U.S. Bancorp shareholders’ equity to average assets . . . . .
Dividends per common share to net income per common share . . . . . . . .
Other Statistics (Dollars and Shares in Millions)
Common shares outstanding(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average common shares outstanding and common stock equivalents
.93%
10.0
9.8
54.9
1.45%
14.1
11.1
38.0
1.55%
15.4
10.9
32.3
1.39%
13.8
10.8
32.9
1.36%
13.4
10.9
32.9
1,507
1,534
1,608
1,656
1,697
1,509
Earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,510
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of shareholders(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32,520
Common dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,541
1,581
1,583
33,515
$ 2,493
1,634
1,638
35,154
$ 2,190
1,677
1,683
36,841
$ 1,950
1,718
1,724
38,794
$ 1,842
(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.
The common stock of U.S. Bancorp is traded on the New York Stock Exchange, under the ticker symbol “USB.” At January 31, 2021,
there were 32,468 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, 2020, 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, 2015, 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.
143
U.S. Bancorp
Consolidated Daily Average Balance Sheet and Related Yields
and Rates (a) (Unaudited)
2020
Yields
and
Interest Rates
Average
Balances
2019
Average
Balances
Interest
Yields
and
Rates
$125,954
6,985
$ 2,488 1.98%
216 3.10
$117,150
3,769
$ 2,950
162
2.52%
4.30
Year Ended December 31 (Dollars in Millions)
Assets
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans(b)
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain (loss) on investment securities . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,192 2.80
1,457 3.59
2,666 3.62
2,392 10.71
2,352 4.14
–
–
12,059 3.92
.43
179
14,942 3.10
113,967
40,548
73,667
22,332
56,755
–
307,269
41,194
481,402
(6,858)
2,901
53,762
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$531,207
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 98,539
84,276
125,786
52,142
37,872
300,076
19,182
44,040
363,298
16,494
6,042
46,204
52,246
630
52,876
65
528
46
311
.08
.42
.09
.82
.32
950
144
.75
924 2.10
2,018
.56
.
4,229
1,919
2,644
2,680
2,682
–
14,154
341
17,607
4.10
4.87
3.90
11.50
4.70
–
4.87
1.80
4.09
227
1,637
111
880
2,855
370
1,227
4,452
.31
1.49
.24
1.98
1.05
2.04
2.95
1.34
103,198
39,386
67,747
23,309
57,046
–
290,686
18,932
430,537
(4,007)
(117)
49,240
$475,653
$ 73,863
72,553
109,849
46,130
44,417
272,949
18,137
41,572
332,658
15,880
5,984
46,639
52,623
629
53,252
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$531,207
$475,653
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12,924
$13,155
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 . . . . . . . . . . . .
2.54%
2.52%
3.10%
.42
2.68%
2.66%
2.75%
2.73%
4.09%
1.03
3.06%
3.04%
* Not meaningful
(a) Interest and rates are presented on a fully taxable-equivalent basis based on a federal income tax rate of 21 percent for 2020, 2019 and 2018 and 35 percent for 2017 and 2016.
(b) Interest income and rates on loans include loan fees. Nonaccrual loans are included in average loan balances.
144
2018
2017
2016
Average
Balances
Interest
Yields
and Rates
Average
Balances
Interest
Yields
and Rates
Average
Balances
Interest
Yields
and Rates
2020 v 2019
% Change
Average
Balances
$113,940
3,230
$ 2,674
165
2.35%
5.12
$111,820
3,574
$ 2,328
144
2.08%
4.04
$107,922
4,181
$ 2,181
154
2.02%
3.70
7.5%
85.3
3,795
1,881
2,366
2,545
2,466
134
13,187
272
16,298
3.84
4.71
3.82
11.74
4.39
6.17
4.70
1.58
3.93
150
1,078
56
585
1,869
387
1,007
3,263
.21
1.06
.13
1.51
.73
1.78
2.69
1.04
98,854
39,977
61,893
21,672
56,136
2,169
280,701
17,196
415,067
(3,939)
(1,650)
47,536
$457,014
$ 78,196
70,154
101,732
44,713
38,667
255,266
21,790
37,450
314,506
13,921
5,636
44,127
49,763
628
50,391
$457,014
3,131
1,788
2,180
2,358
2,272
175
11,904
183
14,559
3.26
4.25
3.71
11.28
4.10
5.07
4.30
1.26
3.58
84
644
32
281
1,041
149
784
1,974
.12
.61
.07
.83
.41
1.00
2.20
.65
95,904
42,077
58,784
20,906
55,416
3,450
276,537
14,490
406,421
(3,862)
(348)
46,371
$448,582
$ 81,933
67,953
106,476
43,393
33,759
251,581
15,022
35,601
302,204
15,348
5,490
42,976
48,466
631
49,097
$448,582
2,596
1,698
2,070
2,204
2,114
200
10,882
125
13,342
2.82
3.94
3.72
10.76
4.04
4.73
4.06
1.26
3.42
42
349
34
197
622
97
754
1,473
.07
.36
.09
.60
.27
.49
2.08
.51
92,043
43,040
55,682
20,490
52,330
4,226
267,811
9,963
389,877
(3,837)
593
46,680
$433,313
$ 81,176
61,726
96,518
40,382
33,008
231,634
19,906
36,220
287,760
16,389
5,501
41,838
47,339
649
47,988
$433,313
$13,035
$12,585
$11,869
2.89%
2.86%
3.93%
.79
3.14%
3.11%
2.93%
2.88%
3.58%
.48
3.10%
3.05%
2.91%
2.86%
3.42%
.38
3.04%
2.99%
10.4
3.0
8.7
(4.2)
(.5)
*
5.7
*
11.8
(71.2)
*
9.2
11.7
33.4%
16.2
14.5
13.0
(14.7)
9.9
5.8
5.9
9.2
3.9
1.0
(.9)
(.7)
.2
(.7)
11.7
145
Company Information
General Business Description U.S. Bancorp is a multi-state
financial services holding company headquartered in Minneapolis,
Minnesota that is registered as a bank holding company under
the Bank Holding Company Act of 1956 (the “BHC Act”), and has
elected to be treated as a financial holding company under the
BHC Act. 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, U.S. Bank National
Association, is engaged in the general banking business,
principally in domestic markets. U.S. Bank National Association,
with $443 billion in deposits at December 31, 2020, 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, such as healthcare, utilities, oil and
gas, and state and municipal government. 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 domestic markets, and fund administration services to a
broad range of mutual and other funds.
Banking and investment services are provided through a
network of 2,434 banking offices as of December 31, 2020,
principally operating in the Midwest and West regions of the
United States, through on-line services, over mobile devices and
through other distribution channels. The Company operates a
network of 4,232 ATMs as of December 31, 2020, 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 domestic
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 domestic merchant processing services
directly to merchants. Wholly-owned subsidiaries of Elavon
146
provide similar merchant services in Canada and segments of
Europe. The Company also provides corporate trust and fund
administration services in Europe. These foreign operations are
not significant to the Company.
During the past year, the COVID-19 pandemic has created
economic and operational disruptions that have affected the
Company’s business. Due to responses to the pandemic by the
Company, its customers, its counterparties and governmental
authorities, including “stay-at-home” orders, the Company
temporarily, and in some cases permanently, closed certain of its
offices and reduced operating hours and/or lobby services at its
branches. Although, as of December 31, 2020, the Company has
resumed operations at locations that were temporarily closed,
customer behavior has evolved greatly as more customers are
migrating quickly to on-line and digital-based products and
services. To meet these evolving customer preferences, the
Company has continued and accelerated the development of
digital-based products and services, as well as reduced the
number of higher-cost physical branches.
On a full-time equivalent basis, as of December 31, 2020,
U.S. Bancorp employed 68,108 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 are material to, and could adversely affect, the Company’s
financial results and condition and the value of, and return on, an
investment in the Company.
Economic and Market Conditions Risk
The COVID-19 pandemic has caused and may continue to
cause significant harm to the global economy and the
Company’s businesses The COVID-19 pandemic has had, and
is expected to continue to have, significant effects on global
economic conditions, including disruption and volatility of financial
markets, increased unemployment and other negative outcomes.
It is expected that these negative effects will continue for the
duration of the pandemic, and, if the pandemic is prolonged, or
other diseases emerge, these negative effects on the global
economy could worsen.
The continuation of the economic conditions caused by
COVID-19 are expected to have a material adverse effect on the
Company and its business, including: (i) reduced demand for the
Company’s products and services; (ii) possible increased
recognition of credit losses and increases in the allowance for
credit losses (particularly if unemployment continues to rise and
customers draw on their lines of credit); (iii) possible downgrades
to the Company’s credit ratings; (iv) increased constraints on
liquidity and capital; (v) the possibility of reduced revenues from
the Company’s credit and debit card, corporate payments
products and merchant processing services product
offerings, including because of business closures, unemployment
or requirements for consumers to stay at home; and (vi) the
possibility that the Company’s employees are unable to work
effectively, including because of illness, quarantines, work-from-
home arrangements or other restrictions relating to the pandemic.
Although the United States government has taken steps to
attempt to mitigate some of the effects of the pandemic,
including the passage of the Coronavirus Aid, Relief, and
Economic Security (“CARES”) Act, implementation of other
programs such as the Paycheck Protection Program (“PPP”), and
the provision of additional PPP funding and other COVID-related
relief as part of the 2021 Consolidated Appropriations Act, which
was signed into law in December 2020, there can be no
assurance that these measures, and similar other measures taken
by certain foreign governments to mitigate some of the effects of
the pandemic, will achieve all of their desired results. In addition,
these measures were of limited duration and/or received limited
funding, and certain programs such as temporary lending facilities
administered by the Federal Reserve and United States
Department of Treasury have ended. The Company cannot
predict whether additional governmental relief will be provided in
the future, what form such additional relief, if any, will take, or to
what extent existing relief efforts have mitigated, or will mitigate,
the more severe effects of the pandemic (and consequently the
severity of any effects from the cessation of those programs).
Other negative effects of COVID-19 and the resulting
economic and market disruptions will depend on developments
that are highly uncertain and cannot be predicted at this time.
However, it is likely that the Company’s business, financial
condition, liquidity, capital and results of operations will continue
to be adversely affected until the pandemic subsides and the
domestic economy recovers. Further, the COVID-19 pandemic
may also have the effect of heightening many of the other risks
described in this section. Even after the pandemic subsides, it is
possible that the domestic and other major global economies will
continue to experience a prolonged recession, which the
Company expects would adversely affect its business, financial
condition, liquidity, capital and results of operations, potentially
materially.
Deterioration in business and economic conditions 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. Changes in these
conditions caused by the COVID-19 pandemic adversely affected
the Company’s consumer and commercial businesses and
securities portfolios, its level of charge-offs and provision for
credit losses, and its results of operations during 2020, and other
future changes in these conditions, whether related to the
COVID-19 pandemic or otherwise, could have additional adverse
effects on the Company and its businesses.
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 caused
by COVID-19 negatively affected the Company’s business and
results of operations, including new loan origination activity,
existing loan utilization rates and delinquencies, defaults and the
ability of customers to meet obligations under the loans. Although
the effects of COVID-19 were mitigated in part by governmental
programs and the Company’s measures to assist its borrowers,
there can be no assurances that such measures will continue to
be effective. In addition, future deterioration in economic
conditions, whether caused by COVID-19 or other events, could
have adverse effects on loan origination activity, loan utilization
rates and delinquencies, defaults and the ability of customers to
meet loan obligations. 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 have
been, and would be, negatively impacted by widespread
decreases in credit quality resulting from a weakening of the
economy.
Any deterioration in global economic conditions could damage
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 material
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.
Global political trends toward nationalism and isolationism, could
increase the probability of a deterioration in global economic
conditions.
Changes in interest rates could reduce the Company’s net
interest income The Company’s earnings are dependent to a
large degree on net interest income, which is the difference
between interest income from loans and investments and interest
expense on deposits and borrowings. Net interest income is
significantly affected by market rates of interest, which in turn are
affected by prevailing economic conditions, by the fiscal and
monetary policies of the federal government and by the policies of
various regulatory agencies. 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. During the
first quarter of 2020, United States interest rates fell dramatically
which adversely impacted, and may continue to adversely
impact, the Company’s net interest income. In addition, some
foreign central banks have moved to a negative interest rate
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environment, which has exerted downward pressure on the
profitability of banks in those regions. The Company’s financial
condition could be damaged if this interest rate trend extends to
the United States.
addition, there can be no assurance that actions taken by the
Company and third parties to address these risks and otherwise
prepare for the transition from LIBOR to alternative interest rate
benchmarks will be successful.
Changes in, or the discontinuance of, the London
Interbank Offered Rate (“LIBOR”) as an interest rate
benchmark could adversely affect the Company’s
business, financial condition and results of operations In
July 2017, the United Kingdom’s Financial Conduct Authority,
which regulates LIBOR, announced that it intends to stop
compelling banks to submit rates for the calculation of LIBOR
after 2021. However, in November 2020, the administrator of
LIBOR proposed to extend publication of the most commonly
used United States Dollar LIBOR settings to June 30, 2023 and
will cease publishing two other less frequently used LIBOR
settings on December 31, 2021. The United States federal
banking agencies have issued guidance strongly encouraging
banking organizations to cease using the United States Dollar
LIBOR as a reference rate in “new” contracts as soon as
practicable and in any event by December 31, 2021. It is not
possible to know whether LIBOR will continue to be viewed as an
acceptable market benchmark, what rate or rates may become
accepted alternatives to LIBOR, or what the effect of any such
changes in views or alternatives may have on the financial
markets for LIBOR-linked financial instruments.
In April 2018, the Federal Reserve Bank of New York
commenced publication of the Secured Overnight Financing Rate
(“SOFR”), which has been recommended as an alternative to
United States dollar LIBOR by the Alternative Reference Rates
Committee, a group of market and official sector participants.
However, uncertainty remains as to the transition process and
acceptance of SOFR as the primary alternative to LIBOR.
The market transition from LIBOR to SOFR or a different
alternative reference rate is complex and could have a range of
adverse impacts on the Company. In particular, any such
transition or reform could, among other things, (i) adversely
impact the value of, return on and trading for the Company’s
financial assets or liabilities that are linked to LIBOR, including its
securities, loans and derivatives; (ii) require renegotiations of
outstanding financial assets and liabilities; (iii) result in additional
inquiries or other actions from regulators in respect of the
Company’s preparation and readiness for the LIBOR transition;
(iv) increase the risk of disputes or litigation and/or increase
expenses related to the transition, including with respect to any
actions resulting from the Company’s interpretation and
execution of its roles and responsibilities in corporate trust
transactions; (v) adversely impact the Company’s reputation as it
works with customers to transition loans and financial instruments
from LIBOR; (vi) require successful system and analytics
development and operationalization to transition the Company’s
systems, loan portfolio and risk management processes away
from LIBOR, which will require the Company to rely on the
readiness of its customers, counterparties and third-party
vendors; and (vii) cause significant disruption to financial markets
that are relevant to the Company’s business segments. In
Operations and Business Risk
A breach in the security of the Company’s systems, or the
systems of certain third parties, could disrupt the
Company’s businesses, result in the disclosure of
confidential information, damage its reputation and create
significant financial and legal exposure The Company
experiences numerous attacks on its computer systems,
software, networks and other technology assets daily, and the
number of attacks is increasing. 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 to
protect the confidentiality, integrity and availability of information
belonging to the Company and its customers, the Company’s
security measures may not be effective. Adversaries continue to
develop more sophisticated cyber attacks that could impact the
Company. Many banking 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.
Attacks on financial or other institutions important to the
overall functioning of the financial system could also adversely
affect, directly or indirectly, aspects of the Company’s
businesses. The increasing consolidation, interdependence and
complexity of financial entities and technology systems increases
the risk of operational failure, both for the Company and on an
industry-wide basis, and means that a technology failure, cyber
attack, or other information or security breach that significantly
degrades, deletes or compromises the systems or data of one or
more financial entities could materially affect counterparties or
other market participants, including the Company.
Third parties that facilitate the Company’s business activities,
including exchanges, clearinghouses, payment and ATM
networks, financial 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. The Company’s ability to implement back-up systems
or other safeguards with respect to third-party systems is limited.
Furthermore, an attack on or failure of a third-party system may
not be revealed to the Company in a timely manner, which could
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compromise the Company’s ability to respond effectively. Some
of these third parties may engage vendors of their own, which
introduces the risk that these “fourth parties” could be the source
of operational and security failures. In addition, if a third party or
fourth party obtains access to the customer account data on the
Company’s systems, and that party experiences a breach or
misappropriates such data, the Company and its customers
could suffer material harm, including heightened risk of fraudulent
transactions, losses from fraudulent transactions, increased
operational costs to remediate any security breach and
reputational harm. These risks are expected to continue to
increase as the Company expands its interconnectivity with its
customers and other third parties.
During the past several years a number of retailers and
hospitality companies have disclosed substantial cyber security
breaches affecting debit and credit card accounts of their
customers, some of whom were the Company’s cardholders and
who may experience fraud on their card accounts as a result of a
breach. The Company might suffer losses associated with
reimbursing its customers for such fraudulent transactions, as
well as for other costs related to data security compromise
events, such as replacing cards associated with compromised
card accounts. 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, because the techniques used change
frequently, generally increase in sophistication, often are not
recognized until launched, sometimes go undetected even when
successful, and originate from a wide variety of sources, including
organized crime, hackers, terrorists, activists, hostile foreign
governments and other external parties. Those parties may also
attempt to fraudulently induce employees, customers or other
users of the Company’s systems to disclose sensitive information
to gain access to the Company’s data or that of its customers or
clients, such as through “phishing” and other “social engineering”
schemes. Other types of attacks may include computer viruses,
malicious or destructive code, denial-of-service attacks,
ransomware or ransom demands. During the COVID-19
pandemic, the Company has experienced increased information
security risks, primarily as a result of the increase in work-from-
home arrangements. These risks may increase in the future as
the Company continues to increase its mobile and internet-based
product offerings and expands its internal usage of web-based
products and applications, which is expected to remain elevated
at least as long as the COVID-19 pandemic continues. In
addition, the Company’s customers often use their own devices,
such as computers, smart phones and tablet computers, to
make payments and manage their accounts, and are subject to
“phishing” and other attempts from cyber criminals to
compromise or deny access to 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 have been, and likely will continue to be,
subject to such threats.
In the event that the Company’s physical or cyber security
systems are penetrated or circumvented, or an authorized user
intentionally or unintentionally removes, loses or destroys
operations data, serious negative consequences for the
Company can follow, including significant disruption of the
Company’s operations, misappropriation of confidential Company
and/or customer information, or damage to the Company’s or
customers’ or counterparties’ computers or systems. 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 (including the costs of credit monitoring services); additional
compliance costs; and harm to the Company’s reputation, all of
which could adversely affect the Company.
Because the investigation of any information security breach is
inherently unpredictable and would require substantial time to
complete, the Company may not be able to quickly remediate the
consequences of any breach, which may increase the costs, and
enhance the negative consequences associated with a breach. In
addition, to the extent the Company’s insurance covers aspects
of any breach, such insurance may not be sufficient to cover all of
the Company’s losses.
The Company relies on its employees, systems and third
parties to conduct its business, and certain failures by
systems or misconduct by employees or third parties
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’s business, financial, accounting,
data processing, and other operating systems and facilities may
stop operating properly or become disabled or damaged as a
result of a number of factors, including events that are out of its
control. In addition to the risks posed by information security
breaches, as discussed above, such systems could be
compromised because of spikes in transaction volume, electrical
or telecommunications outages, degradation or loss of internet or
website availability, natural disasters, political or social unrest, and
terrorist acts. The Company’s business operations may be
adversely affected by significant disruption to the operating
systems that support its businesses and customers. If backup
systems are used during outages, they might not process data as
quickly as do the primary systems, resulting in the potential of
some data not being backed up.
The Company could also incur losses resulting from the risk of
fraud by employees or persons outside the Company,
unauthorized access to its computer systems, the execution of
unauthorized transactions by employees, errors relating to
transaction processing and technology, breaches of 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
149
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 not providing the Company their services
for any reason or 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 financial institutions such as the
Company have generally increased in recent years, in part
because of the proliferation of new technologies, implementation
of work-from-home arrangements such as during the COVID-19
pandemic, the use of internet services and telecommunications
technologies to conduct financial transactions, the increased
number and complexity of transactions being processed, and the
increased sophistication and activities of organized crime,
hackers, terrorists, activists, and other external 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 face material legal and reputational
harm if it fails to safeguard personal information The
Company is subject to complex and evolving laws and
regulations, both inside and outside the United States, governing
the privacy and protection of personal information. Protected
individuals can include the Company’s customers (and in some
cases its customers’ customers), its employees, and the
employees of the Company’s suppliers, counterparties and other
third parties. Complying with laws and regulations applicable to
the Company’s collection, use, transfer and storage of personal
information can increase operating costs, impact the
development of new products or services, and reduce
operational efficiency. Any mishandling or misuse of personal
information by the Company or a third party affiliated with the
Company could expose the Company to litigation or regulatory
fines, penalties or other sanctions.
In the United States, several states have recently enacted
consumer privacy laws that impose compliance obligations with
respect to personal information. In particular, the California
Consumer Privacy Act (the “CCPA”) imposes significant
requirements on covered companies with respect to consumer
data privacy rights. In November 2020, voters in the State of
California approved the California Privacy Rights Act (“CPRA”), a
ballot measure that amends and supplements the CCPA by
creating the California Privacy Protection Agency, a watchdog
privacy agency to be appointed shortly after the CPRA’s
enactment. The CPRA also modifies the CCPA by expanding
both the scope of businesses covered by the law and certain
rights relating to personal information and its use, collection, and
disclosure by covered businesses. Compliance with the CCPA,
the CPRA after it becomes effective, and other state statutes,
common law, or regulations designed to protect consumer,
employee, or applicant personal data could potentially require
substantive technology infrastructure and process changes
across many of the Company’s businesses. Non-compliance with
the CCPA, CPRA, or similar laws and regulations could lead to
substantial regulatory fines and penalties, damages from private
causes of action, and/or reputational harm. The Company cannot
predict whether any pending or future state or federal legislation
will be adopted, or the substance and impact of any legislation on
the Company. Future legislation could result in substantial costs
to the Company and could have an adverse effect on its
business, financial condition and results of operations.
The July 2020 decision by the Court of Justice of the
European Union relating to transfers of personal data outside of
the European Union (“Schrems II”) may impact the Company’s
operations and ability to transfer personal data out of the
European Union or may require additional compliance programs.
While the decision invalidated the EU US Privacy Shield
Framework for transferring personal data, this does not impact
the Company as no financial institution was eligible to participate
in the program. However, it did question the use of Standard
Contractual Clauses as a valid process for processing personal
data and prescribed significant due diligence obligations to be
undertaken to ensure the recipient of the personal data can
comply with the clauses and sufficiently protect the data.
Schrems II and subsequent guidance from the European
Commission and European Union Data Protection Board could
result in substantial costs of compliance and failure to adhere to
the guidance may subject the Company to fines or regulatory
oversight.
Additional risks could arise from the failure of the Company or
third parties to provide adequate disclosure or transparency to
the Company’s customers about the personal information
collected from them and its use; to receive, document, and honor
the privacy preferences expressed by the Company’s customers;
to protect personal information from unauthorized disclosure; or
to maintain proper training on privacy practices for all employees
or third parties who have access to personal data. Concerns
regarding the effectiveness of the Company’s measures to
safeguard personal information and abide by privacy preferences,
or even the perception that those measures are inadequate,
could cause the Company to lose existing or potential customers
and thereby reduce its revenues. In addition, any failure or
perceived failure by the Company to comply with applicable
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privacy or data protection laws and regulations could result in
requirements to modify or cease certain operations or practices,
and/or in material liabilities or regulatory fines, penalties, or other
sanctions. Refer to “Supervision and Regulation” in the
Company’s Annual Report on Form 10-K for additional
information regarding data privacy laws and regulations. Any of
these outcomes could damage the Company’s reputation and
otherwise adversely affect its business.
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 mobile
payments, digital wallets or digital currencies. The growth of
many of these technologies was accelerated as a result of the
COVID-19 pandemic and the shift to increased digital activity. 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. When
launching a new product or service or introducing a new platform
for the delivery of products and services, the Company might not
identify or fully appreciate new operational risks arising from those
innovations or might fail to implement adequate controls to
mitigate those risks. 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, including because larger competitors may have
more resources to spend on developing new technologies or
because non-bank competitors have a lower cost structure and
more flexibility, could harm the Company’s competitive position
and negatively affect its revenue and profit.
Damage to the Company’s reputation could adversely
impact its business and financial results Reputation risk, or
the risk to the Company’s business, earnings and capital from
negative public opinion, is inherent in the Company’s business.
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, investors, and
employees and could 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, cybersecurity breaches, failures to
safeguard personal information, discriminating or harassing
behavior of employees toward other employees or customers,
mortgage servicing and foreclosure practices, compensation
practices, sales practices, environmental, social, and governance
practices and disclosures, regulatory compliance, mergers and
acquisitions, and actions taken by government regulators and
community organizations in response to that conduct. In addition,
social and environmental activists are increasingly targeting
financial services firms with public criticism for their relationships
with clients engaged in industries they perceive to be harmful to
communities or the environment. Such criticism directed at the
Company could generate dissatisfaction among its customers,
investors, and employees. 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 pandemics,
terrorist activities, civil unrest or international hostilities
Neither the occurrence nor the potential impact of pandemics,
terrorist activities, civil unrest 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, vendors 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 pandemics, terrorist activities, civil unrest or
international hostilities affect the financial markets or the economy
in general or in any particular region.
During the COVID-19 pandemic, the Company has
experienced significant disruptions to its normal operations,
including the temporary closing of branches and a sudden
increase in the volume of work-from-home arrangements. In
addition, the Company has been indirectly negatively affected by
the pandemic’s effects on the Company’s borrowers and other
customers, and by its effects on global financial markets. Many of
these effects are expected to continue for the duration of the
pandemic, and could worsen if the pandemic continues to spread
or if any vaccines are not effective (including because of lack of
acceptance) or not efficiently distributed, or if governmental and
other responses to the pandemic are ineffective. The COVID-19
pandemic has caused, and other future pandemics, or terrorist
activities, civil unrest or international hostilities, may cause, 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 United States, and in particular, the Minneapolis/St. Paul
metropolitan area following tragic events that occurred in May
2020, has also faced a period of significant civil unrest. Although
civil unrest has not materially affected the Company’s businesses
151
to date, continued unrest or similar events could, directly or
indirectly, have a material adverse effect on the Company’s
operations (for example, by causing shutdowns of branches or
working locations of vendors and other counterparties or
damaging property pledged as collateral for the Company’s
loans).
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 effects of pandemics, terrorist activities, civil unrest 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.
The Company’s operations and financial performance
could be adversely affected by natural disasters, and
climate change can exacerbate those risks while adding
other compliance, market, strategic and reputation risks
Natural disasters could have a material adverse effect on the
Company’s financial position and results of operations, and the
timing and effects of any natural disaster cannot accurately be
predicted. Natural disasters, such as an earthquake, could affect
the Company directly (for example, by interrupting Company
systems, damaging Company facilities or otherwise preventing
the Company from conducting its business in the ordinary
course) or indirectly (for example, by damaging or destroying
customer businesses or otherwise impairing customers’ ability to
repay their loans, or by damaging or destroying property pledged
as collateral for Company loans).
Both the frequency and severity of some kinds of natural
disasters, including wildfires, tornadoes and hurricanes, have
increased as a result of climate change, which further reduces the
Company’s ability to predict their effects accurately. Climate
change poses other risks to the Company’s business and
financial performance as well. It may result in new and/or more
stringent regulatory requirements for the Company, which could
materially affect the Company’s results of operations by requiring
the Company to take costly measures to comply with any new
laws or regulations related to climate change that may be
forthcoming. Changes to regulations or market shifts to low-
carbon products could also impact the credit worthiness of some
of the Company’s customers, which may require the Company to
adjust its lending portfolios and business strategies.
In addition, the Company’s customers, shareholders and
communities have increasing expectations for the Company to
manage its environmental impact, and frequently also evaluate the
Company based on the environmental impact of its customers.
Failure by the Company to appropriately manage its environmental
impact could have a material adverse effect on its reputation and
harm its ability to keep and attract customers and employees.
Regulatory and Legal Risk
The Company is subject to extensive and evolving
government regulation and supervision, which can
increase the cost of doing business, limit the Company’s
ability to make investments and generate revenue, and
lead to costly enforcement actions Banking regulations are
primarily intended to protect depositors’ funds, the federal
Deposit Insurance Fund, and the United States financial 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 activities.
The Company expects that its business will remain subject to
extensive regulation and supervision and that the level of scrutiny
and the enforcement environment may fluctuate over time, based
on numerous factors, including changes in the United States
presidential administration or one or both houses of Congress
and public sentiment regarding financial institutions (which can be
influenced by scandals and other incidents that involve
participants in the industry). In particular, given the recent election
results, the Company and other large financial institutions may
become subject to increased scrutiny and more extensive legal
and regulatory requirements than under the prior presidential and
congressional regime. In addition, changes in key personnel at
the agencies that regulate the Company, including the federal
banking regulators, may result in differing interpretations of
existing rules and guidelines and potentially more stringent
enforcement and more severe penalties than previously. New
regulations or modifications to existing regulations and
supervisory expectations have increased, and may in the future
increase, the Company’s costs over time and necessitate
changes to the Company’s existing regulatory compliance and
risk management infrastructure. 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 or modified laws and regulatory requirements,
and increase the ability of non-banks to offer competing financial
services and products.
Changes to statutes, regulations or regulatory policies, or their
interpretation or implementation, and/or regulatory practices,
requirements or expectations, could affect the Company in
substantial and unpredictable ways. Moreover, general regulatory
practices, such as longer time frames to obtain regulatory
approvals for acquisitions and other activities (and the resultant
impact on businesses the Company may seek to acquire), could
affect the Company’s ability or willingness to make certain
acquisitions or introduce new products or services.
Federal law grants substantial supervisory and enforcement
powers to federal banking regulators and law enforcement
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agencies, including, 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. The financial services industry continues to face
scrutiny from bank supervisors in the examination process and
stringent enforcement of regulations on both the federal and state
levels, particularly with respect to mortgage-related practices,
student lending practices, sales practices and related incentive
compensation programs, and other consumer compliance
matters, as well as compliance with Bank Secrecy Act/anti-
money laundering (“BSA/AML”) requirements and sanctions
compliance requirements as administered by the Office of Foreign
Assets Control, and consumer protection issues more generally.
This heightened regulatory scrutiny, or the results of an
investigation or examination, may lead to additional regulatory
investigations or enforcement actions. There is no assurance that
those actions will not result in regulatory settlements or other
enforcement actions against the Company, which could cause
the Company material financial and reputational harm.
Furthermore, a single event involving a potential violation of law or
regulation may give rise to numerous and overlapping
investigations and proceedings, either by multiple federal and
state agencies and officials in the United States or, in some
instances, regulators and other governmental officials in foreign
jurisdictions. In addition, another financial institution’s violation of
law or regulation relating to a business activity or practice often
will give rise to an investigation of the same or similar activities or
practices of 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 are likely to remain elevated.
In some cases, governmental authorities have required criminal
pleas or other extraordinary terms, including admissions of
wrongdoing and the imposition of monitors, as part of such
settlements, which could have significant consequences for a
financial institution, including loss of customers, reputational
harm, increased exposure to civil litigation, 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.
Non-compliance with sanctions laws and/or AML laws or
failure to maintain an adequate BSA/AML compliance program
can lead to significant monetary penalties and reputational
damage. In addition, federal regulators evaluate the effectiveness
of an applicant in combating money laundering when determining
whether to approve a proposed bank merger, acquisition,
restructuring, or other expansionary activity. There have been a
number of significant enforcement actions against banks, broker-
dealers and non-bank financial institutions with respect to
sanctions laws and BSA/AML laws and some have resulted in
substantial penalties, including against the Company and U.S.
Bank National Association in 2018.
Violations of laws and regulations or deemed deficiencies in
risk management practices or consumer compliance also may be
incorporated into the Company’s confidential supervisory ratings.
A downgrade in these ratings, or these or other regulatory actions
and settlements, could limit the Company’s ability to conduct
expansionary activities for a period of time and require new or
additional regulatory approvals before engaging in certain other
business activities.
Differences in regulation can affect the Company’s ability
to compete effectively The content and application of laws and
regulations applicable to financial institutions vary according to
the size of the institution, the jurisdictions in which the institution
is organized and operates and other factors. Large institutions,
such as the Company, often are subject to more stringent
regulatory requirements and supervision than smaller institutions.
In addition, financial technology companies and other non-bank
competitors may not be subject to banking regulation, or may be
regulated by a national or state agency that does not have the
same regulatory priorities or supervisory requirements as the
Company’s regulators. These differences in regulation can impair
the Company’s ability to compete effectively with competitors
that are less regulated and that do not have similar compliance
costs.
Stringent requirements related to capital and liquidity have
been adopted by United States banking regulators that
may limit the Company’s ability to return earnings to
shareholders or operate or invest in its business United
States banking regulators have adopted 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. In November 2019, the federal banking
regulators adopted two final rules (the “Tailoring Rules”) that
revised the criteria for determining the applicability of regulatory
capital and liquidity requirements for large U.S. banking
organizations, including the Company and U.S. Bank National
Association, and that tailored the application of the Federal
Reserve’s enhanced prudential standards to large banking
organizations. Although the Tailoring Rules and other recent
changes to capital- and liquidity-related rules generally have
simplified the regulatory framework applicable to the Company,
future changes to 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.
During 2020 the Federal Reserve implemented measures
requiring all large bank holding companies to preserve capital
through the suspension of share repurchase programs and
capping common stock dividends to existing rates that do not
exceed the average of the last four quarters’ earnings. These
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capital preservation actions applied to the third and fourth
quarters of 2020. In December 2020, the Federal Reserve
announced that these bank holding companies could continue
existing dividend payments and resume stock repurchases in the
first quarter of 2021, as long as the combined amounts of
repurchases and dividends in that quarter do not exceed the
bank holding company’s average earnings per quarter over the
last four quarters. However, the COVID-19 pandemic and/or
additional actions by the Federal Reserve may cause the
Company to suspend its share repurchase program and limit
capital distributions in future periods, including reducing or
suspending its common stock dividend.
Additional requirements may be imposed in the future. In
December 2017, the Basel Committee finalized a package of
revisions to the Basel III framework (commonly referred to as
“Basel IV”). The changes are meant to improve the calculation of
risk-weighted assets and the comparability of capital ratios.
Federal banking regulators are expected to undertake rule-
makings in future years to implement these revisions in the United
States. The ultimate impact of revisions to the Basel III–based
framework in the United States on the Company’s capital and
liquidity will depend on the final rule-makings and the
implementation process thereafter.
Refer to “Supervision and Regulation” in the Company’s
Annual Report on Form 10-K for additional information regarding
the Company’s capital and liquidity requirements.
The Company is subject to significant financial and
reputation risks from potential legal liability and
governmental actions The Company faces significant legal
risks in its businesses, and the volume of claims and amount of
damages and penalties claimed in litigation and governmental
proceedings against it and other financial institutions are
substantial. Customers, clients and other counterparties are
making claims for substantial or indeterminate amounts of
damages, while banking regulators and certain other
governmental authorities have focused on enforcement. The
Company is named as a defendant or is otherwise involved in
many legal proceedings, including class actions and other
litigation. As a participant in the financial services industry, it is
likely that the Company will continue to experience a high level of
litigation related to its businesses and operations in the future.
Substantial legal liability or significant governmental action against
the Company could materially impact the Company’s financial
condition and results of operations (including because such
matters may be resolved for amounts that exceed established
accruals for a particular period) or cause significant reputational
harm to the Company.
Many financial institutions, including the Company, have
received inquiries from the United States Congress, regulators
and other government agencies and are subject to litigation
regarding participation directly or on behalf of customers and
clients in United States government programs designed to
support individuals, households and businesses impacted by the
economic disruptions caused by the COVID-19 pandemic. The
Company’s participation in these and other programs used in
response to the COVID-19 pandemic may lead to additional
government and regulatory inquiries and litigation in the future,
any of which could negatively impact the Company’s business,
reputation, financial condition and results of 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 if the Company does not
adequately respond to repurchase requests. If economic
conditions and the housing market deteriorate or the GSEs
increase their claims for breached representations and
warranties, the Company could have increased repurchase
obligations and increased losses on repurchases, requiring
material increases to its repurchase reserve.
Credit and Mortgage Business Risk
Heightened credit risk could require the Company to
increase its provision for credit 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. If the current economic environment were to
further deteriorate, the Company’s customers may have more
difficulty in repaying their loans or other obligations, which could
result in a higher level of credit losses and higher provisions for
credit losses. Certain industries where the Company has credit
exposure, including retail, energy, media and entertainment,
lodging, and airlines, have experienced significant operational
challenges as a result of COVID-19. Unexpected stress on the
United States economy or the local economies in which the
Company does business, including the economic stress caused
by the COVID-19 pandemic, has resulted, and in the future may
result, in, among other things, unexpected deterioration in credit
quality of the loan portfolio, or in the value of collateral securing
those loans, which, during the COVID-19 pandemic caused, and
in the future could cause, the Company to establish higher
provisions for credit losses.
In response to the COVID-19 pandemic and to support its
customers, the Company has offered payment deferrals and
other expanded assistance to customers, and, during 2020,
committed to suspend mortgage payments and foreclosure sales
for financially impacted customers for certain periods of time. A
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number of the Company’s customers sought to suspend their
mortgage payments under these programs. Suspensions of
mortgage payments and foreclosures and reduced pricing under
these programs may adversely affect the Company’s revenue
and results of operations. In addition, if these programs are not
effective in mitigating the financial consequences of COVID-19 on
customers, or if customers are unable to pay their loans after
these programs expire, the Company may experience higher
rates of default, increased credit losses and additional increases
to the allowance for credit losses in future periods.
The Company reserves for credit losses by establishing an
allowance through a charge to earnings to provide for loan
defaults and nonperformance. The Company’s allowance for loan
losses is compliant with the Current Expected Credit Loss (CECL)
methodology, which is based on the portfolio’s historical loss
experience, an evaluation of the risks associated with its loan
portfolio, including the size and composition of the loan portfolio,
current and foreseeable economic conditions and borrower and
collateral quality. These conditions inform the Company’s
expected lifetime loss estimates of the portfolio, which is the
foundation for the allowance for credit losses. These forecasts
and estimates require difficult, subjective, and complex
judgments, including forecasts of economic conditions and how
these economic predictions might impair the ability of the
Company’s borrowers to repay their loans. The Company may
not be able to accurately predict these economic conditions and/
or some or all of their effects, which may, in turn, negatively
impact the reliability of the process. The Company also makes
loans to borrowers where it does not have or service the loan
with the first lien on the property securing its loan. For loans in a
junior lien position, the Company may not have access to
information on the position or performance of the first lien when it
is held and serviced by a third party, which 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 states or regions where the Company has
relatively larger concentrations of residential or commercial real
estate could result in higher credit costs.
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, with a fair value of $2.2 billion as of
December 31, 2020. 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.
When 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. Further, it is
possible that, because of economic conditions and/or a weak or
deteriorating housing market, even when interest rates fall or
remain low, mortgage originations may 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
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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.
creditors, except to the extent that any of the Company’s claims
as a creditor of that subsidiary may be recognized. Refer to
“Supervision and Regulation” in the Company’s Annual Report on
Form 10-K for additional information regarding limitations on the
amount of dividends U.S. Bank National Association may pay.
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, is 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,
including those that offer on-line channels. If the Company’s
competitors raise the interest rates they pay on deposits, the
Company’s funding costs may increase, either because the
Company raises the interest rates it pays on deposits to avoid
losing deposits to competitors or because the Company loses
deposits to competitors and must rely on more expensive
sources of funding. Higher funding costs reduce the Company’s
net interest margin and net interest income. Checking and
savings account balances and other forms of customer deposits
may decrease when customers perceive alternative investments,
such as the stock market, as providing a better risk/return
tradeoff. When customers move money out of bank deposits and
into other investments, the Company may lose a relatively low-
cost source of funds, increasing the Company’s funding costs
and reducing the Company’s net interest income.
The Company relies on dividends from its subsidiaries for
its liquidity needs, and the payment of those dividends is
limited by laws and regulations The Company is a separate
and distinct legal entity from U.S. Bank National Association and
its 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 U.S. Bank National Association 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
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. Legislative or regulatory changes also could lead to
increased competition in the financial services sector. For
example, the Economic Growth Act and the Tailoring Rules have
reduced the regulatory burden of large bank holding companies,
including the Company and some of its competitors, and raised
the asset thresholds at which more onerous requirements apply,
which could cause certain large bank holding companies with
less than $250 billion in total consolidated assets, which were
previously subject to more stringent enhanced prudential
standards, to become more competitive or to pursue expansion
more aggressively.
In addition, technology has lowered barriers to entry and
made it possible for non-banks to offer products and services,
such as loans and payment services, that traditionally were
banking products, and made it possible for technology
companies to compete with financial institutions in providing
electronic, internet-based, and mobile phone–based financial
solutions. Competition with non-banks, including technology
companies, to provide financial products and services is
intensifying. In particular, the activity of financial technology
companies (“fintechs”) has grown significantly over recent years
and is expected to continue to grow. Fintechs have and may
continue to offer bank or bank-like products. For example, a
number of fintechs have applied for bank or industrial loan
charters, which, in some cases, have been granted. In addition,
other fintechs have partnered with existing banks to allow them to
offer deposit products or payment services to their customers.
Many of these companies, including the Company’s competitors,
have fewer regulatory constraints, and some have lower cost
structures, in part due to lack of physical structures. Also, the
potential need to adapt to industry changes in information
technology systems, on which the Company and financial
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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 adoption of new technologies or further
developments in current technologies 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 (which may be
altered significantly and with little warning, such as during the
COVID-19 pandemic), achieving market acceptance of its
products and services, or sufficiently developing and maintaining
loyal customer relationships.
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 for bank acquisitions. 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 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 MSRs, 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 losses on the remeasurement of certain
asset and liability balances, or significantly increase its accrued
157
taxes liability. For more information, refer to “Critical Accounting
Policies” in this Annual Report.
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.
General Risk Factors
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, reputation 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. In addition, the Company
relies on quantitative models to measure certain risks and to
estimate certain financial values, and these models could fail to
predict future events or exposures accurately. The Company
must also develop and maintain a culture of risk management
among its employees, as well as manage risks associated with
third parties, and could fail to do so effectively. 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.
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 a result, the Company may not be able to retain key
employees by providing adequate compensation. There is no
assurance that these developments will not cause increased
turnover or impede the Company’s ability to retain and attract the
highest caliber employees.
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,
which are subject credit agencies’ ongoing review of a number of
factors, including factors not within the Company’s control, are
important to the Company’s 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. There
can be no assurance that the Company will maintain its current
ratings and outlooks.
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, on a retroactive basis, in each case potentially
resulting in the Company restating prior period financial
statements.
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Managing Committee
Andrew Cecere
Mr. Cecere is Chairman, President and Chief Executive Officer of
U.S. Bancorp. Mr. Cecere, 60, has served as President of U.S.
Bancorp since January 2016, Chief Executive Officer since April
2017 and Chairman since April 2018. He also served as Vice
Chairman and Chief Operating Officer from January 2015 to
January 2016 and was U.S. Bancorp’s Vice Chairman and Chief
Financial Officer from February 2007 until January 2015. Until that
time, he served as Vice Chairman, Wealth Management and
Investment 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.
Elcio R.T. Barcelos
Mr. Barcelos is Senior Executive Vice President and Chief Human
Resources Officer of U.S. Bancorp. Mr. Barcelos, 50, has served
in this position since joining U.S. Bancorp in September 2020.
From April 2018 until August 2020, he served as Senior Vice
President and Chief People and Places Officer of the Federal
National Mortgage Association (Fannie Mae), having served as
Senior Vice President, Human Resources of the DXC Technology
Company from April 2017 to March 2018. Previously,
Mr. Barcelos served as Senior Vice President and Head of
Human Resources for the Enterprise Services business of
Hewlett Packard Enterprise Company from June 2015 to April
2017, and in other human resources senior leadership positions
at Hewlett-Packard Company and Hewlett Packard Enterprise
Company from July 2009 to June 2015. He previously served in
various leadership roles at Wells Fargo and Bank of America.
James L. Chosy
Mr. Chosy is Senior Executive Vice President and General
Counsel of U.S. Bancorp. Mr. Chosy, 57, has served in this
position since March 2013. He also served as Corporate
Secretary of U.S. Bancorp from March 2013 until April 2016.
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.
Gregory G. Cunningham
Mr. Cunningham is Senior Executive Vice President and Chief
Diversity Officer of U.S. Bancorp. Mr. Cunningham, 57, has
served in this position since July 2020. From July 2019 until July
2020, he served as Senior Vice President and Chief Diversity
Officer of U.S. Bancorp, having served as Vice President of
Customer Engagement of U.S. Bancorp from October 2015, when
he joined U.S. Bancorp, until July 2019. Previously, Mr. Cunningham
served in various roles in the marketing department of Target
Corporation from January 1998 until March 2015.
Terrance R. Dolan
Mr. Dolan is Vice Chair and Chief Financial Officer of U.S.
Bancorp. Mr. Dolan, 59, has served in this position since August
2016. From July 2010 to July 2016, he served as Vice Chair,
Wealth Management and Investment Services, of U.S. Bancorp.
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.
Gunjan Kedia
Ms. Kedia is Vice Chair, Wealth Management and Investment
Services, of U.S. Bancorp. Ms. Kedia, 50, has served in this
position since joining U.S. Bancorp in December 2016. From
October 2008 until May 2016, she served as Executive Vice
President of State Street Corporation where she led the core
investment servicing business in North and South America and
served as a member of State Street’s management committee,
its senior most strategy and policy committee. Previously,
Ms. Kedia was an Executive Vice President of global product
management at Bank of New York Mellon from 2004 to 2008.
James B. Kelligrew
Mr. Kelligrew is Vice Chair, Corporate and Commercial Banking,
of U.S. Bancorp. Mr. Kelligrew, 55, 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.
Shailesh M. Kotwal
Mr. Kotwal is Vice Chair, Payment Services, of U.S. Bancorp.
Mr. Kotwal, 56, 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.
159
Katherine B. Quinn
Ms. Quinn is Vice Chair and Chief Administrative Officer of U.S.
Bancorp. Ms. Quinn, 56, has served in this position since April
2017. From September 2013 to April 2017, she served as
Executive Vice President and Chief Strategy and Reputation
Officer of U.S. Bancorp 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.
Jodi L. Richard
Ms. Richard is Vice Chair and Chief Risk Officer of U.S. Bancorp.
Ms. Richard, 52, has served in this position since October 2018.
She served as Executive Vice President and Chief Operational
Risk Officer of U.S. Bancorp from January 2018 until October
2018, having served as Senior Vice President and Chief
Operational Risk Officer from 2014 until January 2018. Prior to
that time, Ms. Richard held various senior leadership roles at
HSBC from 2003 until 2014, including Executive Vice President
and Head of Operational Risk and Internal Control at HSBC North
America from 2008 to 2014. Ms. Richard started her career at
the Office of the Comptroller of the Currency in 1990 as a national
bank examiner.
Mark G. Runkel
Mr. Runkel is Senior Executive Vice President and Chief Credit
Officer of U.S. Bancorp. Mr. Runkel, 44, 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.
Dominic V. Venturo
Mr. Venturo is Senior Executive Vice President and Chief Digital
Officer of U.S. Bancorp. Mr. Venturo, 54, has served in this
position since July 2020. From January 2015 until July 2020, he
served as Executive Vice President and Chief Innovation Officer of
U.S. Bancorp, having served as Senior Vice President and Chief
Innovation Officer of U.S. Bancorp Payment Services from
January 2010 until January 2015. From January 2007 to
December 2009, Mr. Venturo served as Senior Vice President
and Chief Innovation Officer of U.S. Bancorp Retail Payment
Solutions. Prior to that time, he served as Senior Vice President
and held product management positions in various U.S. Bancorp
Payment Services business lines from December 1998 to
December 2006.
Jeffry H. von Gillern
Mr. von Gillern is Vice Chair, Technology and Operations
Services, of U.S. Bancorp. Mr. von Gillern, 55, 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.
Timothy A. Welsh
Mr. Welsh is Vice Chair, Consumer and Business Banking, of
U.S. Bancorp. Mr. Welsh, 55, has served in this position since
March 2019. Prior to that, he served as Vice Chair, Consumer
Banking Sales and Support since joining U.S. Bancorp in July
2017. From July 2006 until June 2017, he served as a Senior
Partner at McKinsey & Company where he specialized in financial
services and the consumer experience. Previously, Mr. Welsh
served as a Partner at McKinsey from 1999 to 2006.
160
Directors
Andrew Cecere1,3,7
Chairman, President and Chief Executive Officer
U.S. Bancorp
Warner L. Baxter2,4
Chairman, President and Chief Executive Officer
Ameren Corporation
(Energy)
Dorothy J. Bridges6,7
Former Senior Vice President
Federal Reserve Bank of Minneapolis
(Government)
Elizabeth L. Buse2,3
Former Chief Executive Officer
Monitise PLC
(Financial services)
Marc N. Casper1,5,6
Chairman, President and Chief Executive Officer
Thermo Fisher Scientific Inc.
(Life sciences and healthcare technology)
Kimberly N. Ellison-Taylor2,6
Executive Director of Finance Thought Leadership
Oracle Corporation
(Technology)
Kimberly J. Harris1,3,5
Retired President and Chief Executive Officer
Puget Energy, Inc.
(Energy)
1. Executive Committee
2. Audit Committee
3. Capital Planning Committee
4. Compensation and Human Resources Committee
5. Governance Committee
6. Public Responsibility Committee
7. Risk Management Committee
Roland A. Hernandez1,2,3
Founding Principal and Chief Executive Officer
Hernandez Media Ventures
(Media)
Olivia F. Kirtley1,4,5
Business Consultant
(Consulting)
Karen S. Lynch1,2,4
President and Chief Executive Officer
CVS Health Corporation
(Health care)
Richard P. McKenney1,5,7
President and Chief Executive Officer
Unum Group
(Financial protection benefits)
Yusuf I. Mehdi6,7
Corporate Vice President
Microsoft Corporation
(Technology)
John P. Wiehoff6,7
Retired Chairman and Chief Executive Officer
C.H. Robinson Worldwide, Inc.
(Transportation and logistics services)
Scott W. Wine1,2,4
Chief Executive Officer
CNH Industrial N.V.
(Agricultural machinery)
161
We’re there,
from anywhere
Corporate Information
Executive Offces
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 company. Inquiries related to
shareholder records, stock transfers,
changes of ownership, lost stock
certifcates, changes of address
and dividend payment should be
directed to the transfer agent at:
Computershare
P.O. Box 505000
Louisville, KY 40233
Phone: 888.778.1311 or
201.680.6578 (international calls)
computershare.com/investor
Registered or Certifed Mail:
Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202
Telephone representatives are available
weekdays from 8 a.m. to 6 p.m., Central
Time, and automated support is available
24 hours a day, seven days a week.
Specifc 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
fnancial 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.
Investor Relations Contact
Jennifer A. Thompson, CFA
Executive Vice President
Investor Relations
jen.thompson@usbank.com
Phone: 612.303.0778 or 866.775.9668
Financial Information
U.S. Bancorp news and fnancial results are
available through our website and by mail.
Website: For information about
U.S. Bancorp, including news, fnancial
results, annual reports and other
documents fled with the Securities
and Exchange Commission, visit
usbank.com and click on About Us.
Mail: At your request, we will mail to you
our quarterly earnings, news releases,
quarterly fnancial 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
David R. Palombi
Global Chief Communications Offcer
Public Affairs and Communications
david.palombi@usbank.com
Phone: 612.303.3167
Privacy
U.S. Bancorp is committed to
respecting the privacy of our customers
and safeguarding the fnancial 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.
Accessibility
U.S. Bancorp is committed to providing
ready access to our products and services
so all of our customers, including people
with disabilities, can succeed fnancially.
To learn more, visit usbank.com and click
on Accessibility.
Code of Ethics
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 ethical culture has
been recognized by the Ethisphere®
Institute, which again named us to its
World’s Most Ethical Companies® list.
Each year, every employee certifes
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 Us and then Investor
Relations and then Corporate Governance.
Diversity, Equity and Inclusion
At U.S. Bancorp, embracing diversity,
championing equity and fostering
inclusion are business imperatives.
We view everything we do through
a diversity, equity and inclusion lens
to deepen our relationships with our
stakeholders: our employees, customers,
shareholders and communities.
Our employees bring their whole selves to
work. We respect and value each other’s
differences, strengths and perspectives,
and we strive to refect the communities
we serve. This makes us stronger,
more innovative and more responsive
to our diverse customers’ needs.
Equal Opportunity
and Affrmative 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, creed, citizenship, 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 company 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.
©2021 U.S. Bancorp
800 Nicollet Mall
Minneapolis, MN 55402
800.USBANKS (872.2657)
usbank.com
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