US Bank 2013 Annual Report Download

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EXTENDING THE ADVANTAGE
U.S. Bancorp 2013 Annual Report

Table of contents

  • Page 1
    U.S. Bancorp 2013 Annual Report EXTENDI NG TH E ADVANTAGE

  • Page 2
    ..., generating high levels of capital and developing innovative services and delivery channels. The Company offers a wide range of financial products and services through four major lines of business: Consumer and Small Business Banking, Wholesale Banking and Commercial Real Estate, Payment Services...

  • Page 3
    ... practices have given U.S. Bancorp a competitive advantage, allowing the Company to operate from a position of strength, scale, growth and profitability. This position creates advantages for our shareholders and investors, our customers, our employees and our communities - and supports the recovery...

  • Page 4
    ... Declared Per Common Share (In Dollars) 6,000 5,836 5,647 4,872 3.50 2.84 3.00 1.00 .885 3,317 2,205 .97 1.73 .20 0 09 10 11 12 13 0 09 10 11 12 13 0 09 10 11 12 13 Return on Average Assets (In Percents) Return on Average Common Equity (In Percents) Dividend Payout Ratio (In Percents...

  • Page 5
    ... Period End Balances Loans ...Allowance for credit losses ...Investment securities ...Assets ...Deposits ...Total U.S. Bancorp shareholders' equity ... Capital Ratios Tier 1 capital ...Total risk-based capital ...Leverage ...Tangible common equity to tangible assets (b) ...Tangible common equity to...

  • Page 6
    ..., 2012. Our capital ratios exceeded both regulatory requirements and our own target 40 0 USB Peer 1 Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 Peer 8 Peer 9 Source: SNL and company reports, 1Q08 through 4Q13 annualized Peer banks: BAC, BBT, FITB, JPM, KEY, PNC, RF, STI and WFC 4 U.S. BANCORP 50...

  • Page 7
    ..., for every leader and employee at U.S. Bancorp. Compliance is a foundation for trust - and banking is a business of trust. Every bank must have a wellrun compliance function - and we have one. Our systems, people and policies are in place to protect the Company, our customers and, consequently, our...

  • Page 8
    ... states or acquiring a Average Loans and Deposits (Dollars in Billions) few branches in a state where we have no critical mass or presence. Additionally, we would like to continue to acquire corporate trust and payments-related portfolios and companies; 252.4 256.9 260 acquisitions that increase...

  • Page 9
    ..., Commercial Real Estate Andrew Cecere, Vice Chairman and Chief Financial Officer Mark G. Runkel, Executive Vice President and Chief Credit Officer Kent V. Stone, Vice Chairman, Consumer Banking Sales and Support As we look forward to the coming year, we are mindful of the strength of our company...

  • Page 10
    ... of U.S. Bancorp coverage. OUR COVERAGE foreign exchange and derivatives for our customers. Our 2012 acquisition of AIS Fund Administration has enhanced our Global Corporate Trust operational capabilities and allowed us to provide a wide range of support services to fund managers and investors in...

  • Page 11
    ... products and services to the household and industrial detergent, personal care, lubricant, oil field, emulsion polymerization, textile and agriculture industries. Pilot, headquartered in Cincinnati, Ohio, is an industry leader in chemical innovation and has a world-class safety program. U.S. Bank...

  • Page 12
    ... a mobile innovation center at its Atlanta headquarters to focus on payments-based mobile innovations. The center, known internally as The Grove, is adding at least 50 new jobs to the market and is designed to foster innovation, new technology and new product development for mobile payments, as...

  • Page 13
    ...piloted or launched mobile account opening, Mobile Photo Balance Transfer, voice commands, smartphone Pay a Person, our Fanfareâ„¢ loyalty program, Go Mobile, Video Banking and Travel Virtual Pay, to name just a few. In Payments, we have our own "Shark Tank" to generate new ideas. U.S. Bank has been...

  • Page 14
    ... its reach in our footprint communities, in our national businesses and in our global payments, treasury management and corporate trust businesses internationally. We extend our reach to serve ultra high net worth clients through our Ascentâ„¢ Private Capital Management group in Wealth Management...

  • Page 15
    ..., fund services, high grade bonds, corporate real estate and other corporate businesses on a national scale is nowhere more apparent than in major cities in states along the east coast - particularly New York City, Boston and Charlotte. Growth in locations, employees, clients and revenue has...

  • Page 16
    ... populated locations with limited operating space. A full-time personal banker is available to open and service personal and business deposit accounts, credit products, cashier's checks, gift cards and more. The Smart Branch replaces a traditional teller line with a customer-centric personal banking...

  • Page 17
    ... was able to customize financing for a commercial real estate purchase and working capital, just right for Kate and Paul's business plan. We also provided financial services to keep their success on track, including deposit accounts and merchant services. Today, with help from U.S. Bank, they are...

  • Page 18
    ... center in tornado-damaged Kentucky, a new retail plaza in a distressed Brooklyn neighborhood and financing equipment for a manufacturing plant in rural Wisconsin. Extending a hand - our employees tutor, feed, plant and build Our commitment to communities is not only financial, but also personal...

  • Page 19
    ...goal is to transform inner cities and small towns across America." - Zack Boyers, Chairman and Chief Executive Officer, U.S. Bancorp Community Development Corporation 67,000 employees. Last year, U.S. Bank volunteers reported more than a quarter of a million volunteer hours supporting thousands of...

  • Page 20
    ... about our programs for veterans. Coming home to a home Supporting military and veterans' families Throughout their U.S. Bank careers, veterans and military family members can rely on U.S. Bank's military-friendly programs and policies to help them balance their unique personal and professional...

  • Page 21
    ...tightening of credit, a reduction of business activity, and increased market volatility. Continued stress in the commercial real estate markets, as well as a delay or failure of recovery in the residential real estate markets could cause additional credit losses and deterioration in asset values. In...

  • Page 22
    ... Deposit Insurance Corporation ("FDIC") ("covered" loans), which is a run-off portfolio. Deposit growth reflected increases in interest checking, money market and savings deposits. The Company's provision for credit losses decreased $542 million (28.8 percent) in 2013, compared with 2012. Net charge...

  • Page 23
    ... ...Efficiency ratio (b) ...Net charge-offs as a percent of average loans outstanding ...Average Balances Loans ...Loans held for sale ...Investment securities (c) ...Earning assets ...Assets ...Noninterest-bearing deposits ...Deposits ...Short-term borrowings ...Long-term debt ...Total U.S. Bancorp...

  • Page 24
    ...activity due to the low interest rate environment during the period. Average commercial and commercial real estate loans increased $6.4 billion (10.6 percent) and $1.7 billion (4.7 percent), respectively, driven by higher demand for loans from new and existing customers. Average credit card balances...

  • Page 25
    ...) increase in net interest income in 2012, compared with 2011, was primarily the result of growth in average earning assets and lower cost core deposit funding, as well as the positive impact from a reduction in higher cost long-term debt and the inclusion of credit card balance transfer fees in...

  • Page 26
    ...Volume (a) 2013 v 2012 2012 v 2011 Total Volume Yield/Rate Total Volume Yield/Rate Year Ended December 31 (Dollars in Millions) Increase (decrease) in Interest Income Investment securities ...Loans held for sale ...Loans Commercial ...Commercial real estate ...Residential mortgages ...Credit card...

  • Page 27
    ... 2012 2012 v 2011 Year Ended December 31 (Dollars in Millions) Credit and debit card revenue ...Corporate payment products revenue ...Merchant processing services ...ATM processing services ...Trust and investment management fees ...Deposit service charges ...Treasury management fees ...Commercial...

  • Page 28
    ... v 2012 2012 v 2011 Year Ended December 31 (Dollars in Millions) Compensation ...Employee benefits ...Net occupancy and equipment ...Professional services ...Marketing and business development ...Technology and communications ...Postage, printing and supplies ...Other intangibles ...Other ...Total...

  • Page 29
    ...the Consolidated Financial Statements for further information on the Company's pension plan funding practices, investment policies and asset allocation strategies, and accounting policies for pension plans. The following table shows an analysis of hypothetical changes in the long-term rate of return...

  • Page 30
    ... 11.2 Commercial Real Estate Commercial mortgages ...Construction and development ...Total commercial real estate ... Residential Mortgages Residential mortgages ...Home equity loans, first liens ...Total residential mortgages ... Credit Card ...Other Retail Retail leasing ...Home equity and second...

  • Page 31
    ... Wyoming ...Arizona, Nevada, New Mexico, Utah ...Total banking region ...Florida, Michigan, New York, Pennsylvania, Texas ...All other states ...Total outside Company's banking region ...Total ... Residential Mortgages Residential mortgages held in the loan portfolio at December 31, 2013, increased...

  • Page 32
    ... ...Arizona, Nevada, New Mexico, Utah ...Total banking region ...Florida, Michigan, New York, Pennsylvania, Texas ...All other states ...Total outside Company's banking region ...Total ... Other Retail Total other retail loans, which include retail leasing, home equity and second mortgages and...

  • Page 33
    ......Ohio ...Oregon ...Washington ...Wisconsin ...Iowa, Kansas, Nebraska, North Dakota, South Dakota ...Arkansas, Indiana, Kentucky, Tennessee ...Idaho, Montana, Wyoming ...Arizona, Nevada, New Mexico, Utah ...Total banking region ...Florida, Michigan, New York, Pennsylvania, Texas ...All other states...

  • Page 34
    ... 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-forsale securities in response to structural changes in the balance sheet and related interest rate risk...

  • Page 35
    ... of investment securities at fair value from available-for-sale to held-to-maturity. Average yield and maturity calculations exclude equity securities that have no stated yield or maturity. 2013 At December 31 (Dollars in Millions) Amortized Cost Percent of Total Amortized Cost 2012 Percent of...

  • Page 36
    ...2012. The increase related to money market savings, interest checking and savings account balances. The $8.8 billion (17.2 percent) increase in money market savings account balances was primarily due to higher Wholesale Banking and Commercial Real Estate and Wealth Management and Securities Services...

  • Page 37
    .... Market risk arises from fluctuations in interest rates, foreign exchange rates, and security prices that may result in changes in the values of financial instruments, such as trading and available-for-sale securities, mortgage loans held for sale, MSRs and derivatives that are accounted for...

  • Page 38
    ...the allowance for credit losses. The Company's three loan portfolio segments are commercial lending, consumer lending and covered loans. The commercial lending segment includes loans and leases made to small business, middle market, large corporate, commercial real estate, financial institution, non...

  • Page 39
    ... real estate, health care and correspondent banking. The Company also offers an array of consumer lending products, including residential mortgages, credit card loans, auto loans, retail leases, home equity, revolving credit and other consumer loans. These consumer lending products are U.S. BANCORP...

  • Page 40
    ... in commercial real estate at year-end 2013 was approximately $463 million in loans related to land held for development and $566 million of loans related to residential and commercial acquisition and development properties. These loans are subject to quarterly monitoring for changes in local market...

  • Page 41
    ... 5,766 5,766 Total ...$ 3,374 $47,782 $51,156 100.0% (a) Represents loans purchased from Government National Mortgage Association ("GNMA") mortgage pools whose payments are primarily insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. U.S. BANCORP 39

  • Page 42
    ... of branches and certain niche lending activities that are nationally focused. Approximately 67.8 percent of the Company's credit card balances relate to cards originated through the Company's branches or co-branded, travel and affinity programs that generally experience better credit quality...

  • Page 43
    ... are limited to one in a five-year period and must meet the qualifications for re-aging described above. All re-aging strategies must be independently approved by the Company's credit administration function. Commercial lending loans are generally not subject to re-aging policies. Accruing loans 90...

  • Page 44
    ...mortgages, credit card and other retail loans included in the consumer lending segment: At December 31 (Dollars in Millions) Amount 2013 2012 As a Percent of Ending Loan Balances 2013 2012 The following tables provide further information on residential mortgages and home equity and second mortgages...

  • Page 45
    ... that time. The Company reports loans in a trial period arrangement as TDRs. Credit card and other retail loan modifications are generally part of distinct restructuring programs. The Company offers a workout program providing customers modification solutions over a specified time period, generally...

  • Page 46
    ... equity and second mortgage) and commercial (commercial and commercial real estate) loan balances: At December 31 (Dollars in Millions) Amount 2013 2012 As a Percent of Ending Loan Balances 2013 2012 Residential Florida ...Ohio ...Washington ...California ...Minnesota ...All other states ...Total...

  • Page 47
    ... Commercial and Commercial Real Estate Credit Card, Other Retail and Residential Mortgages Covered Assets (Dollars in Millions) Total Balance December 31, 2012 ...Additions to nonperforming assets New nonaccrual loans and foreclosed properties ...Advances on loans ...Total additions ...Reductions...

  • Page 48
    ...Construction and development ...Total commercial real estate ... Residential Mortgages ...Credit Card (a) ...Other Retail Retail leasing ...Home equity and second mortgages ...Other ...Total other retail ...Total loans, excluding covered loans ...Covered Loans ...Total loans ... (a) Net charge-off...

  • Page 49
    ... an analysis of net charge-offs as a percent of average loans outstanding for residential mortgages and home equity and second mortgages by borrower type: Year Ended December 31 (Dollars in Millions) Average Loans 2013 2012 Percent of Average Loans 2013 2012 Residential Mortgages Prime borrowers...

  • Page 50
    ... development ...Total commercial real estate ...Residential mortgages ...Credit card ...Other retail Retail leasing ...Home equity and second mortgages ...Other ...Total other retail ...Covered loans (a) ...Total net charge-offs ...Provision for credit losses ...Other changes (b) ...Balance at end...

  • Page 51
    ...the home equity loans and lines in a junior lien position. The Company also considers information received from its primary regulator on the status of the first liens that are serviced by other large servicers in the industry and the status of first lien mortgage accounts reported on customer credit...

  • Page 52
    ..., 2012. At December 31, 2013, the commercial leasing portfolio had $542 million of residuals, compared with $567 million at December 31, 2012. At year-end 2013, lease residuals related to trucks and other transportation equipment were 33.8 percent of the total residual portfolio. Business and office...

  • Page 53
    ... the volatility of net interest income and the market value of assets and liabilities, the Company manages its exposure to changes in interest rates through asset and liability management activities within guidelines established by its Asset Liability Committee ("ALCO") and approved by the Board of...

  • Page 54
    ...decline of forecasted net interest income over the next 12 months. At December 31, 2013 and 2012, the Company was within policy. Market Value of Equity Modeling The Company also interest rates. Management measures the impact of changes in market interest rates under a number of scenarios, including...

  • Page 55
    ... the cash flows associated with floating-rate loans and debt from floating-rate payments to fixed-rate payments; • To mitigate changes in value of the Company's mortgage origination pipeline, funded mortgage loans held for sale and MSRs; • To mitigate remeasurement volatility of foreign currency...

  • Page 56
    ... core deposit funding within its market areas and in domestic and global capital markets. The Risk Management Committee of the Company's Board of Directors oversees the Company's liquidity risk management process, approves the Company's liquidity policy and reviews the contingency funding plan. The...

  • Page 57
    ...AA (high) R-1 (high) U.S. Bank National Association Short-term time deposits ...Long-term time deposits ...Bank notes ...Subordinated debt ...Senior unsecured debt ...Commercial paper ... national market retail and institutional savings certificates and short-term and medium-term notes. The Company...

  • Page 58
    ...debt and other securities under a registration statement filed with the United States Securities and Exchange Commission under these rules is limited by the debt issuance authority granted by the Company's Board of Directors and/or the ALCO policy. At December 31, 2013, parent company long-term debt...

  • Page 59
    ... lending services in Europe. While the Company does not offer commercial lending services in Europe, it does provide financing to domestic multinational corporations that generate revenue from customers in European countries and provides a limited number of corporate credit cards to their European...

  • Page 60
    ... agencies, including the United States Department of Housing and Urban Development, Government National Mortgage Association, Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association. At December 31, 2013, U.S. Bank National Association met these requirements. Table...

  • Page 61
    ... and sales revenue, partially offset by favorable changes in the valuation of MSRs, net of hedging activities. Growth in several fee categories helped to offset the decline in mortgage banking revenue. Credit and debit card revenue increased $21 million (8.7 percent) over the prior year due...

  • Page 62
    ...), reflecting improved market conditions and business expansion. Deposit service charges were $7 million (4.1 percent) higher as a result of pricing changes and an increase in monthly account fees and account growth. Commercial products revenue increased $17 million (7.5 percent), principally due to...

  • Page 63
    ...and Commercial Real Estate Wholesale Banking and Commercial Real Estate offers lending, equipment finance and small-ticket leasing, depository services, treasury management, capital markets, international trade services and other financial services to middle market, large corporate, commercial real...

  • Page 64
    ... and sales, online services, direct mail, ATM processing and mobile devices, such as mobile phones and tablet computers. It encompasses community banking, metropolitan banking, instore banking, small business banking, consumer lending, mortgage banking, workplace banking, student banking and 24-hour...

  • Page 65
    ... reductions in mortgage servicing review-related costs, the 2012 foreclosure-related regulatory settlement accrual, lower compensation and employee benefits expense, and lower costs related to other intangibles expense and other real estate owned, partially offset by higher net shared services...

  • Page 66
    ... income increased $10 million (.3 percent) in 2013, compared with 2012, reflecting higher credit and debit card revenue on Corporate Support includes the Company's investment portfolios, most covered commercial and commercial real estate loans and related other real estate owned, funding, capital...

  • Page 67
    ... investors, analysts and banking regulators to assess the Company's capital position relative to other financial services companies. These measures differ from the currently effective capital ratios defined by banking regulations principally in that the numerator excludes trust preferred securities...

  • Page 68
    ...-GAAP financial measures: At December 31 (Dollars in Millions) 2013 2012 2011 2010 2009 Total equity ...Preferred stock ...Noncontrolling interests ...Goodwill (net of deferred tax liability) ...Intangible assets, other than mortgage servicing rights ...Tangible common equity (a) ...Tier 1 capital...

  • Page 69
    ... market and highly leveraged enterprise-value credits, in determining the overall level of the allowance for credit losses. The Company's determination of the allowance for commercial lending segment loans is sensitive to the assigned credit risk ratings and inherent loss rates at December 31, 2013...

  • Page 70
    ...Balance Sheet, with changes in fair value recorded either through earnings or other comprehensive income (loss) in accordance with applicable accounting principles generally accepted in the United States. These include all of the Company's available-for-sale securities, derivatives and other trading...

  • Page 71
    ... and limitations related to certain types of assets including MSRs, purchased credit card relationship intangibles, and capital markets activity in the Company's Wholesale Banking and Commercial Real Estate segment. The Company does not assign corporate assets and liabilities to reporting units...

  • Page 72
    ...-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...

  • Page 73
    ...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...

  • Page 74
    ... Registered Public Accounting Firm on the Consolidated Financial Statements The Board of Directors and Shareholders of U.S. Bancorp: We have audited the accompanying consolidated balance sheets of U.S. Bancorp as of December 31, 2013 and 2012, and the related consolidated statements of income...

  • Page 75
    ... Public Company Accounting Oversight Board (United States), the consolidated balance sheets of U.S. Bancorp as of December 31, 2013 and 2012, and the related consolidated statements of income, comprehensive income, shareholders' equity, and cash flows for each of the three years in the period ended...

  • Page 76
    ... on Cash and Due From Banks ...Note 4 - Investment Securities ...Note 5 - Loans and Allowance for Credit Losses ...Note 6 - Leases ...Note 7 - Accounting for Transfers and Servicing of Financial Assets and Variable Interest Entities ...Note 8 - Premises and Equipment ...Note 9 - Mortgage Servicing...

  • Page 77
    ... mortgage loans carried at fair value, respectively) ...Loans Commercial ...Commercial real estate ...Residential mortgages ...Credit card ...Other retail ...Total loans, excluding covered loans ...Covered loans ...Total loans ...Less allowance for loan losses ...Net loans ...Premises and equipment...

  • Page 78
    ... Credit and debit card revenue ...Corporate payment products revenue ...Merchant processing services ...ATM processing services ...Trust and investment management fees ...Deposit service charges ...Treasury management fees ...Commercial products revenue ...Mortgage banking revenue ...Investment...

  • Page 79
    ...-than-temporary impairment not recognized in earnings on securities available-for-sale ...Changes in unrealized gains and losses on derivative hedges ...Foreign currency translation ...Changes in unrealized gains and losses on retirement plans ...Reclassification to earnings of realized gains and...

  • Page 80
    ... U.S. Bancorp Shares Preferred Common Capital Retained Treasury Comprehensive Shareholders' Noncontrolling Outstanding Stock Stock Surplus Earnings Stock Income (Loss) Equity Interests (Dollars and Shares in Millions) Total Equity Balance December 31, 2010 ...Change in accounting principle ...Net...

  • Page 81
    ... sales of loans ...Purchases of loans ...Acquisitions, net of cash acquired ...Other, net ...Net cash used in investing activities ... Financing Activities Net increase in deposits ...Net increase (decrease) in short-term borrowings ...Proceeds from issuance of long-term debt ...Principal payments...

  • Page 82
    ...stored-value cards, debit cards, corporate and purchasing card services, consumer lines of credit and merchant processing. Treasury and Corporate Support Treasury and Corporate Support includes the Company's investment portfolios, most covered commercial and commercial real estate loans and related...

  • Page 83
    ...commercial lending segment are commercial loans and commercial real estate loans. The three classes within the consumer lending segment are residential mortgages, credit card loans and other retail loans. The covered loan segment consists of only one class. The Company's accounting methods for loans...

  • Page 84
    ... purchased loans and related indemnification assets are recorded at fair value at the date of purchase. Effective January 1, 2013, the Company adopted new indemnification asset accounting guidance applicable to FDIC loss-sharing agreements. The guidance requires any reduction in expected cash flows...

  • Page 85
    ...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...

  • Page 86
    ... 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...

  • Page 87
    ... of fees and reduced interest rates. The Company also provides modification programs to qualifying customers experiencing a temporary financial hardship in which reductions are made to monthly required minimum payments for up to 12 months. Balances related to these programs are generally frozen...

  • Page 88
    ... credit and debit cards, annual fees, and other transaction and account management fees. Corporate payment products revenue primarily includes interchange income from corporate and purchasing card transactions processed through card association networks and merchant discount income from closed...

  • Page 89
    ... reflect the revenue primarily includes revenue related to ancillary services provided to Wholesale Banking and Commercial Real Estate customers including standby letter of credit fees, nonyield related loan fees, capital markets related revenue and non-yield related leasing revenue. These fees are...

  • Page 90
    ... volatility related to short-term changes in interest rates and market valuations. Actuarial gains and losses include the impact of plan amendments and various unrecognized gains and losses which are deferred and amortized over the future service periods of active employees. The market-related value...

  • Page 91
    ...-backed securities Collateralized debt obligations/ Collateralized loan obligations ...Other ...Obligations of state and political subdivisions ...Obligations of foreign governments ...Corporate debt securities ...Perpetual preferred securities ...Other investments ...Total available-for-sale ... 31...

  • Page 92
    ... (c) Year Ended December 31 (Dollars in Millions) Total Total Total Available-for-sale Mortgage-backed securities Non-agency residential Prime (a) ...Non-prime (b) ...Commercial non-agency ...Other asset-backed securities ...Obligations of state and political subdivisions ...Perpetual preferred...

  • Page 93
    ... and security market spreads). (b) Includes all securities not meeting the conditions to be designated as prime. Changes in the credit losses on debt securities (excluding perpetual preferred securities) are summarized as follows: Year Ended December 31 (Dollars in Millions) 2013 2012 2011 Balance...

  • Page 94
    ... losses primarily relate to changes in interest rates and market spreads subsequent to purchase. A substantial portion of investment securities that have unrealized losses are either corporate debt issued with high investment grade credit ratings or agency mortgage-backed securities. In general...

  • Page 95
    ... Financial Statements. Such loans are collateralized by the related property. The Company has an equity interest in a joint venture, that it accounts for under the equity method, whose principal activities are to lend to entities that develop land, and construct and sell residential homes...

  • Page 96
    ... for credit losses ...Deduct Loans charged off ...Less recoveries of loans charged off ...Net loans charged off ...Other changes (a) ... Balance at December 31, 2013 ... (a) Includes net changes in credit losses to be reimbursed by the FDIC and for the year ended December 31, 2013, reductions in...

  • Page 97
    ...: Commercial Real Estate Residential Mortgages Credit Card Other Retail Total Loans, Excluding Covered Loans Covered Loans Total Loans (Dollars in Millions) Commercial Allowance Balance at December 31, 2013 Related to Loans individually evaluated for impairment (a) ...TDRs collectively evaluated...

  • Page 98
    ...Consolidated Financial Statements. The following table provides a summary of loans by portfolio class and the Company's internal credit quality rating: Criticized (Dollars in Millions) Pass Special Mention Classified (a) Total Criticized Total December 31, 2013 Commercial ...Commercial real estate...

  • Page 99
    ...: Period-end Recorded Investment (a) Unpaid Principal Balance Commitments to Lend Additional Funds (Dollars in Millions) Valuation Allowance December 31, 2013 Commercial ...Commercial real estate ...Residential mortgages ...Credit card ...Other retail ...Total impaired loans, excluding GNMA...

  • Page 100
    Additional information on impaired loans for the years ended December 31 follows: Average Recorded Investment Interest Income Recognized (Dollars in Millions) 2013 Commercial ...Commercial real estate ...Residential mortgages ...Credit card ...Other retail ...Total impaired loans, excluding GNMA ...

  • Page 101
    ... the years ended December 31, by portfolio class: Pre-Modification Outstanding Loan Balance Post-Modification Outstanding Loan Balance (Dollars in Millions) Number of Loans 2013 Commercial ...Commercial real estate ...Residential mortgages ...Credit card ...Other retail ...Total loans, excluding...

  • Page 102
    ... charged-off or became 90 days or more past due) for the years ended December 31, that were modified as TDRs within 12 months previous to default: (Dollars in Millions) Number of Loans Amount Defaulted 2013 Commercial ...Commercial real estate ...Residential mortgages ...Credit card ...Other...

  • Page 103
    ... for credit losses. Leases The components of the net investment in sales-type and direct financing leases at December 31 were as follows: (Dollars in Millions) 2013 2012 Aggregate future minimum lease payments to be received ...Unguaranteed residual values accruing to the lessor's benefit...

  • Page 104
    ... support the Company's regulatory compliance with the Community Reinvestment Act. The Company's investments in these entities are designed to generate a return primarily through the realization of federal and state income tax credits, and other tax benefits, over specified time periods. The Company...

  • Page 105
    ... the years ended December 31, 2013, 2012 and 2011, respectively. Loan servicing fees, not including valuation changes, included in mortgage banking revenue, were $754 million, $720 million and $651 million for the years ended December 31, 2013, 2012 and 2011, respectively. The Company serviced $226...

  • Page 106
    ... in fair value of capitalized MSRs for the years ended December 31, are summarized as follows: (Dollars in Millions) 2013 2012 2011 Balance at beginning of period ...Rights purchased ...Rights capitalized ...Changes in fair value of MSRs Due to fluctuations in market interest rates (a) ...Due to...

  • Page 107
    ...goodwill for the years ended December 31, 2013, 2012 and 2011: (Dollars in Millions) Wholesale Banking and Consumer and Small Wealth Management and Payment Treasury and Consolidated Commercial Real Estate Business Banking Securities Services Services Corporate Support Company Balance at December 31...

  • Page 108
    ... funds purchased and total short-term borrowings rates include amounts paid by the Company to certain corporate card customers for paying outstanding noninterestbearing corporate card balances within certain timeframes per specific agreements. These activities reduce the Company's short-term funding...

  • Page 109
    ...by the Company to the trust, to investors to generate cash proceeds to purchase the Company's Series A Preferred Stock pursuant to the stock purchase contracts. As part of this sale, a consolidated subsidiary of the Company purchased $176 million of the Debentures, which effectively retired the debt...

  • Page 110
    ... Reserve Board. During 2010, the Company issued depositary shares representing an ownership interest in 5,746 shares of Series A Preferred Stock to investors, in exchange for their portion of USB Capital IX Income Trust Securities. During 2011, the Company issued depositary shares representing...

  • Page 111
    ...-For-Sale to Held-To-Maturity (Dollars in Millions) Unrealized Gains (Losses) on Securities Available-For-Sale Unrealized Gains (Losses) on Derivative Hedges Unrealized Gains (Losses) on Retirement Plans Foreign Currency Translation Total 2013 Balance at beginning of period ...Changes in...

  • Page 112
    ...' equity plus qualifying preferred stock, trust preferred securities and noncontrolling interests in consolidated subsidiaries (subject to certain limitations), and is adjusted for the aggregate impact of certain items included in other comprehensive income (loss). Total riskbased capital includes...

  • Page 113
    ...of the Office of the Comptroller of the Currency. Earnings Per Share The components of earnings per share were: Year Ended December 31 (Dollars and Shares in Millions, Except Per Share Data) 2013 2012 2011 Net income attributable to U.S. Bancorp ...Preferred dividends ...Impact of preferred stock...

  • Page 114
    ... the years ended December 31, 2012 and 2011, because they were antidilutive. Employee Benefits Company's Compensation and Human Resources Committee (the "Committee"), assisted by outside consultants, evaluates plan objectives, funding policies and plan investment policies considering its long-term...

  • Page 115
    ... 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: Pension Plans (Dollars in Millions) 2013 2012 Postretirement Welfare Plan 2013 2012 Change In...

  • Page 116
    ... (loss) for the years ended December 31 for the retirement plans: Pension Plans (Dollars in Millions) 2013 2012 2011 Postretirement Welfare Plan 2013 2012 2011 Components Of Net Periodic Benefit Cost Service cost ...Interest cost ...Expected return on plan assets ...Prior service cost (credit) and...

  • Page 117
    ... using the net asset value provided by the administrator of the fund and are classified as Level 2. In addition, the qualified pension plans invest in debt securities and foreign currency transactions that are valued using third party pricing services and are classified as Level 2. In 2012, the...

  • Page 118
    ... ended December 31: 2013 (Dollars in Millions) Debt Securities Hedge Funds Other 2012 Debt Securities Other 2011 Debt Securities Other 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...

  • Page 119
    ... Company for newly issued grants: Year Ended December 31 2013 2012 2011 Estimated fair value ...Risk-free interest rates ...Dividend yield ...Stock volatility factor ...Expected life of options (in years) ... $12.13 1.0% 2.6% .49 5.5 $10.19 .9% 2.6% .49 5.5 $10.55 2.5% 2.5% .47 5.5 U.S. BANCORP...

  • Page 120
    ... effect on the date of grant. The expected dividend yield is based on the Company's expected dividend yield over the life of the options. The following summarizes certain stock option activity of the Company: Year Ended December 31 (Dollars in Millions) 2013 2012 2011 Fair value of options vested...

  • Page 121
    ... of 35 percent to the Company's applicable income tax expense follows: Year Ended December 31 (Dollars in Millions) 2013 2012 2011 Tax at statutory rate ...State income tax, at statutory rates, net of federal tax benefit ...Tax effect of Tax credits, net of related expenses (a) ...Tax-exempt income...

  • Page 122
    ... in Millions) 2013 2012 Deferred Tax Assets Allowance for credit losses ...Accrued expenses ...Pension and postretirement benefits ...Securities available-for-sale and financial instruments ...Stock compensation ...Federal, state and foreign net operating loss carryforwards ...Partnerships and...

  • Page 123
    .... All cash flow hedges were highly effective for the year ended December 31, 2013, and the change in fair value attributed to hedge ineffectiveness was not material. Net Investment Hedges The Company uses forward commitments to sell specified amounts of certain foreign currencies, and occasionally...

  • Page 124
    .../pay floating swaps ...Net investment hedges Foreign exchange forward contracts ...Other economic hedges Interest rate contracts Futures and forwards Buy ...Sell ...Options Purchased ...Written ...Receive fixed/pay floating swaps ...Foreign exchange forward contracts ...Equity contracts ...Credit...

  • Page 125
    ...) - - Note: Ineffectiveness on cash flow and net investment hedges was not material for the years ended December 31, 2013, 2012 and 2011. (a) Gains (Losses) reclassified from other comprehensive income (loss) into interest income on loans and interest expense on long-term debt. U.S. BANCORP 123

  • Page 126
    ... hedges and the customer-related positions for the years ended December 31: (Dollars in Millions) Location of Gains (Losses) Recognized in Earnings 2013 2012 2011 Asset and Liability Management Positions Fair value hedges (a) Interest rate contracts ...Foreign exchange cross-currency swaps ...Other...

  • Page 127
    ... The securities loaned or borrowed are typically high-grade corporate bonds traded by the Company's broker-dealer. The securities transferred can be sold, repledged or otherwise used by the party in possession. No restrictions exist on the use of cash collateral by either party. The Company executes...

  • Page 128
    ... 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...

  • Page 129
    ... these transfers at the end of the reporting period that the transfers occur. During the years ended December 31, 2013, 2012 and 2011, there were no transfers of financial assets or financial liabilities between the hierarchy levels. The Company has processes and controls in place to increase the...

  • Page 130
    ..., nonagency commercial mortgage-backed securities, certain asset-backed securities, certain collateralized debt obligations and collateralized loan obligations and certain corporate debt securities. Mortgage Loans Held For Sale MLHFS measured at fair value, for which an active secondary market and...

  • Page 131
    ...derivatives held by the Company are executed over-the-counter and are valued using standard cash flow, Black-Derman-Toy and Monte Carlo valuation techniques. The models incorporate inputs, depending on the type of derivative, including interest rate curves, foreign exchange rates and volatility. In...

  • Page 132
    ... used to calculate the present value of the projected cash flows. Increases in prepayment rates for Level 3 securities will typically result in higher fair values, as increased prepayment rates accelerate the receipt of expected cash flows and reduce exposure to credit losses. Increases in the...

  • Page 133
    ...values are directly impacted by changes in market rates and will generally move in the same direction as interest rates. The following table shows the significant valuation assumption ranges for the Company's derivative commitments to sell, purchase and originate mortgage loans at December 31, 2013...

  • Page 134
    ... of foreign governments ...Corporate debt securities ...Perpetual preferred securities ...Other investments ...Total available-for-sale ...Mortgage loans held for sale ...Mortgage servicing rights ...Derivative assets ...Other assets ...Total ...Derivative liabilities ...Short-term borrowings...

  • Page 135
    ...Purchases Net Change in Unrealized Gains (Losses) Relating to Assets and End Liabilities Principal of Period Still Held at Sales Payments Issuances Settlements Balance End of Period (Dollars in Millions) Net Gains Beginning (Losses) of Period Included in Balance Net Income 2013 Available-for-sale...

  • Page 136
    ... 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...

  • Page 137
    ...Amount 2012 Fair Value Level 1 Level 2 Level 3 Total (Dollars in Millions) Financial Assets Cash and due from banks ...Federal funds sold and securities purchased under resale agreements ...Investment securities held-tomaturity ...Loans held for sale (a) ...Loans (b) ...Other financial instruments...

  • Page 138
    ... commercial paper issuances, bond financings and other similar transactions. The Company issues commercial letters of credit on behalf of customers to ensure payment or collection in connection with trade transactions. In the event of a customer's nonperformance, the Company's credit loss exposure...

  • Page 139
    ... 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...

  • Page 140
    ... unable to fulfill product or services subject to delayed delivery, such as airline tickets, the Company could become financially liable for refunding tickets purchased through the credit card associations under the charge-back provisions. Charge-back risk related to these merchants is evaluated in...

  • Page 141
    ...will change from time to time. Actual results may vary significantly from the current estimates. U.S. Bancorp (Parent Company) 2013 2012 Condensed Balance Sheet At December 31 (Dollars in Millions) Assets Due from banks, principally interest-bearing ...Available-for-sale securities ...Investments...

  • Page 142
    ...Cash dividends paid on preferred stock ...Cash dividends paid on common stock ...Net cash provided by (used in) financing activities ...Change in cash and due from banks ...Cash and due from banks at beginning of year ...Cash and due from banks at end of year ... Transfer of funds (dividends, loans...

  • Page 143
    ... Balance Sheet - Five Year Summary (Unaudited) At December 31 (Dollars in Millions) 2013 2012 2011 2010 2009 % Change 2013 v 2012 Assets Cash and due from banks ...Held-to-maturity securities ...Available-for-sale securities ...Loans held for sale ...Loans ...Less allowance for loan losses ...Net...

  • Page 144
    ... banking revenue ...Investment products fees ...Securities gains (losses), net ...Other ...Total noninterest income ... Noninterest Expense Compensation ...Employee benefits ...Net occupancy and equipment ...Professional services ...Marketing and business development ...Technology and communications...

  • Page 145
    ... banking revenue ...Investment products fees ...Securities gains (losses), net ...Other ...Total noninterest income ... Noninterest Expense Compensation ...Employee benefits ...Net occupancy and equipment ...Professional services ...Marketing and business development ...Technology and communications...

  • Page 146
    ... and Related 2013 Average Balances Yields and Rates Average Balances 2012 Yields and Rates Year Ended December 31 (Dollars in Millions) Interest Interest Assets Investment securities ...Loans held for sale ...Loans (b) Commercial ...Commercial real estate ...Residential mortgages ...Credit card...

  • Page 147
    ... Rates (a) (Unaudited) 2011 Average Balances Yields and Rates Average Balances 2010 Yields and Rates Average Balances 2009 Yields and Rates 2013 v 2012 % Change Average Balances ... 3.65% 3.57% $ 9,788 3.67% 3.59% 4.91% 1.03 3.88% 3.80% $ 8,716 3.40% 3.32% 4.95% 1.28 3.67% 3.59% U.S. BANCORP 145

  • Page 148
    ... years ended December 31, 2013, with the cumulative total return on the Standard & Poor's 500 Index and the KBW Bank Index. The comparison assumes $100 was invested on December 31, 2008, in the Company's common stock and in each of the foregoing indices and assumes the reinvestment of all dividends...

  • Page 149
    ...a bank holding company under the Bank Holding Company Act of 1956. The Company provides a full range of financial services, including lending and depository services, cash management, capital markets, and trust and investment management services. It also engages in credit card services, merchant and...

  • Page 150
    ...exposure to Europe. Additional negative market developments may further erode consumer confidence levels and may cause adverse changes in payment patterns, causing increases in delinquencies and default rates. Such developments could increase the Company's charge-offs and provision for credit losses...

  • Page 151
    ... to purchase additional investment securities and change its funding mix U.S. banking regulators have deposits to be a low cost and stable source of funding. The Company competes with banks and other financial services companies for deposits. If the Company's competitors raise the rates they pay on...

  • Page 152
    ...rates. Volatility in interest rates can also result in the flow of funds away from financial institutions into direct investments. Direct investments, such as United States government and corporate securities and other investment vehicles (including mutual funds) generally pay higher rates of return...

  • Page 153
    .... Company seeks to mitigate the risks inherent in its loan portfolio by adhering to specific underwriting practices. These practices generally include: analysis of a borrower's credit history, financial statements, tax returns and cash flow projections; valuation of collateral based on reports of...

  • Page 154
    ... institutions such as the Company have generally increased in recent years in part because of the proliferation of new technologies, the use of internet services and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime...

  • Page 155
    ... or associated with external service providers or who may be linked to terrorist organizations or hostile foreign governments. Those parties may also attempt to fraudulently induce employees, customers or other users of the Company's systems to disclose sensitive information in order to gain access...

  • Page 156
    ...more information, refer to "Critical Accounting Policies" in this Annual Report. Changes in accounting standards could materially impact the Company's financial statements From time to time, the Financial Accounting Standards Board and the United States Securities and Exchange Commission change the...

  • Page 157
    ... other banks or financial institutions. The Company cannot predict the number, size or timing of acquisitions. There can be no assurance that the Company's acquisitions will have the anticipated positive results, including results related to expected revenue increases, cost savings, increases in...

  • Page 158
    ... of other companies that investors deem comparable to the Company; • new technology used or services offered by the Company's competitors; • news reports relating to trends, concerns and other issues in the financial services industry; and • changes in government regulations. General market...

  • Page 159
    ... that time, he served as Vice Chairman, Wealth Management and Securities Services of U.S. Bancorp since the merger of Firstar Corporation and U.S. Bancorp in February 2001. Previously, he had served as an executive officer of the former U.S. Bancorp, including as Chief Financial Officer from May...

  • Page 160
    ... Vice President for National City Corporation in Cleveland, with responsibility for Capital Markets, from 2001 to 2006. Mark G. Runkel Mr. Runkel is Executive Vice President and Chief Credit Officer of U.S. Bancorp. Mr. Runkel, 37, has served in this position since December 2013. From February 2011...

  • Page 161
    ...Chairman and Former Chief Executive Officer Anheuser-Busch Companies, Inc. (Consumer products) St. Louis, Missouri 1. Executive Committee 2. Compensation and Human Resources Committee 3. Audit Committee 4. Community Reinvestment and Public Policy Committee 5. Governance Committee 6. Risk Management...

  • Page 162
    ..., we will mail to you our quarterly earnings, news releases, quarterly financial data reported on Form 10-Q, Form 10-K and additional copies of our annual reports. Please contact: U.S. Bancorp Investor Relations 800 Nicollet Mall Minneapolis, MN 55402 [email protected] Phone: 866-775...

  • Page 163
    U.S. Bancorp 800 Nicollet Mall Minneapolis, MN 55402 usbank.com