US Bank 2014 Annual Report Download

Download and view the complete annual report

Please find the complete 2014 US Bank annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 173

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171
  • 172
  • 173

The intersection of
people and potential
2014 ANNUAL REPORT
The power
of potential

Table of contents

  • Page 1
    The power of potential 2014 ANNUAL REPORT The intersection of people and potential

  • Page 2
    ... + Securities Services - Payment Services Regional - Consumer + Small Business Banking - Wealth Management National - Wholesale Banking + Commercial Real Estate - Wealth Management + Securities Services International - Payment Services - Global Corporate Trust In February 2015, U.S. Bancorp was...

  • Page 3
    ... day. Potential for greatness exists in every business and in every person. U.S. Bancorp employees serve as catalysts for our consumer, small business, wholesale and institutional customers to reach their goals. Investing in their journeys allows us to create value for our shareholders. U.S. BANCORP...

  • Page 4
    ....7% EFFICIENCY RATIO (a) 10 11 12 13 14 51.5% 51.8% 51.5% 52.4% 31.1% COMMON EQUITY TIER 1 CAPITAL (b) 10 11 12 13 14 7.8% 8.6% 9.0% 9.4% 3.23% AVERAGE ASSETS 10 11 12 13 14 $285,861 $318,264 $342,849 $352,680 10 11 12 13 14 $28,049 53.2% AVERAGE U.S. BANCORP SHAREHOLDERS' EQUITY 9.7% TOTAL RISK...

  • Page 5
    ... 5.4 Period End Balances Loans ...$247,851 Allowance for credit losses ...4,375 Investment securities ...101,043 Assets ...402,529 Deposits ...282,733 Total U.S. Bancorp shareholders' equity ...43,479 Capital Ratios Common equity tier 1 capital (b) ...Tier 1 capital (b)...Total risk-based capital...

  • Page 6
    ... its shareholders in 2014 - one of the strongest in the financial services category. I also am proud to announce that U.S. Bancorp has been honored as a 2015 World's Most Ethical Company® by the Ethisphere Institute, an independent 4 center of research promoting best practices in corporate ethics...

  • Page 7
    .... With Consumer and Small Business Banking; Wholesale Banking and Commercial Real Estate; Wealth Management and Securities Services; and Payment Services, we are in precisely the markets where we compete the best, and we are confident this mix of businesses has us well positioned for the future...

  • Page 8
    ...are privileged to work. At U.S. Bancorp, we will continue to stand at the intersection of people and potential every day as we pursue our collective vision for the future. Sincerely, Richard K. Davis Chairman, President and Chief Executive Officer, U.S. Bancorp February 27, 2015 MANAGING COMMITTEE...

  • Page 9
    ... President and Chief Credit Officer 14. Kent V. Stone Vice Chairman, Consumer Banking Sales and Support 15. Jeffry H. von Gillern Vice Chairman, Technology and Operations Services BOARD OF DIRECTORS (below) 1. Richard K. Davis Chairman, President and Chief Executive Officer, U.S. Bancorp 16. Douglas...

  • Page 10
    ... and Chief Executive Officer 8 Our lines of business are the catalysts for our customers. It is the crucial role U.S. Bancorp plays - and has always played. From a checking account at a local branch to complex financing for commercial development, to revitalizing communities, to value creation...

  • Page 11
    CONSUMER + SMALL BUSINESS BANKING WHOLESALE BANKING + COMMERCIAL REAL ESTATE WEALTH MANAGEMENT + SECURITIES SERVICES PAYMENT SERVICES U.S. BANCORP 9 People, potential and purpose intersect in our four powerful lines of business. The power of potential

  • Page 12
    BRANCHES NUMBERING 3,176 means MORE access for MORE customers 10 CONSUMER + SMALL BUSINESS BANKING

  • Page 13
    ...our customers expect to find us. We had 3,176 branches at year-end, including neighborhood branches and locations at corporate, hospital, supermarket and university campuses - plus 24/7 mobile, internet and phone banking. In 2014, with a net 95 additions, U.S. Bank was one of a handful of banks that...

  • Page 14
    ...is safe, secure and seamless whether the customer transacts with the bank via mobile, at the ATM, in person or online. SMALL BUSINESS U.S. Bank understands the specialized needs of small business owners, and we provide the products, services, mentoring and encouragement that helps them reach their...

  • Page 15
    ... and manage their business operations, get account text alerts and more. U.S. Bank is one of the top small business lenders in the United States, consistently ranking among the top banks nationally for Small Business Administration (SBA) lending. WE ADDED 78,500 small business customers in 2014...

  • Page 16
    ...large corporate, commercial real estate and financial institution clients. With our financial strength - U.S. Bank enjoys the best debt ratings in the industry - we are able to develop custom-tailored financing plans that offer the best solutions for companies, large and small, and new tools to help...

  • Page 17
    SINCE 2007, WE ARE ONE OF THE fastest-growing book runners U.S. BANCORP 15 among top banks in the United States, meaning MORE opportunities in corporate banking The power of potential

  • Page 18
    16 WEALTH MANAGEMENT+ SECURITIES SERVICES 53 OFFICES in the United States and internationally provide Global Corporate Trust solutions

  • Page 19
    ...2014 ranked by client assets in accounts of $5 million or more. SECURITIES SERVICES U.S. Bank Global Corporate Trust Services continues to expand and is one of the premier providers of corporate trust services in the United States and Europe, serving private and public companies, government and tax...

  • Page 20
    ..., Europe, Canada, Mexico and Brazil. U.S. Bank's Corporate Payment Systems and Retail Payment Solutions divisions are center stage, helping our consumer and business customers achieve their growth goals while keeping their payments secure through a wide variety of programs that help them pay, track...

  • Page 21
    RANKED BY GLOBAL FINANCE MAGAZINE AS ONE OF THE U.S. BANCORP 19 world's safest banks consecutively in 2012, 2013 & 2014 means MORE secure access for customers everywhere The power of potential

  • Page 22
    ... across the nation." Zack Boyers Chairman and Chief Executive Officer, U.S. Bancorp Community Development Corporation are national programs and initiatives to further financial literacy, Community Reinvestment Act advocacy and adherence, corporate giving, and more. Through the U.S. Bank Foundation...

  • Page 23
    ...increased competition from both banks and non-banks; changes in customer behavior and preferences; breaches in data security; effects of mergers and acquisitions and related integration; effects of critical accounting policies and judgments; and management's ability to effectively manage credit risk...

  • Page 24
    ... to common shareholders through dividends and common share repurchases, by generating steady growth in commercial and consumer lending, new credit card accounts, total deposits and wealth management services, and by maintaining a very strong capital base. The Company's common equity tier 1 to...

  • Page 25
    ... 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...

  • Page 26
    ... investment portfolio at lower average rates, lower loan fees due to the wind down of the short-term, small-dollar deposit advance product, Checking Account Advance ("CAA"), and strong growth in lower margin commercial loans, partially offset by lower funding costs. Refer to the "Interest Rate Risk...

  • Page 27
    ... Securities Services, as well as the impact of the Charter One acquisition. Average total savings deposits for 2014 were $15.2 billion (11.2 percent) higher than 2013, reflecting growth in Consumer and Small Business Banking, Wholesale Banking and Commercial Real Estate and corporate trust balances...

  • Page 28
    ...VOLUME (a) 2014 v 2013 2013 v 2012 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 29
    ... debit card revenue and corporate payment products revenue increased 5.8 percent and 2.5 percent, respectively, primarily due to higher transaction volumes. Deposit service charges were higher 3.4 percent due to account growth, the Charter One acquisition and pricing changes. Investment products fee...

  • Page 30
    ... INCOME 2014 2013 2012 2014 v 2013 2013 v 2012 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...

  • Page 31
    ... accounting policies for pension plans. The following table shows an analysis of hypothetical changes in the discount rate and long-term rate of return ("LTROR"): Discount Rate (Dollars in Millions) Down 100 Basis Points Up 100 Basis Points 29 Incremental benefit (expense) ...Percent of 2014 net...

  • Page 32
    ... demand from new and existing customers. Table 7 provides a summary of commercial loans by industry and geographical locations. 30 Commercial Real Estate The Company's portfolio of commercial real estate loans, which includes commercial mortgages and construction and development loans, increased...

  • Page 33
    ... ...Total commercial real estate ... Residential Mortgages Total residential mortgages ... Credit Card ...Other Retail Retail leasing ...Home equity and second mortgages ...Revolving credit ...Installment ...Automobile ...Student ...Total other retail ...Total loans, excluding covered loans ... 31...

  • Page 34
    .../liability management activities, assessment of product profitability, credit risk, liquidity needs, and capital implications. If the Company's intent or ability to hold an existing portfolio loan changes, it is transferred to loans held for sale. Credit Card Total credit card loans increased $494...

  • Page 35
    ... ...Missouri ...Ohio ...Oregon ...Washington ...Wisconsin ...Iowa, Kansas, Nebraska, North Dakota, South Dakota ...Arkansas, Indiana, Kentucky, Tennessee ...Idaho, Montana, Wyoming ...Arizona, Nevada, New Mexico, Utah ...Total banking region ...Florida, Michigan, New York, Pennsylvania, Texas...

  • Page 36
    ... ...Missouri ...Ohio ...Oregon ...Washington ...Wisconsin ...Iowa, Kansas, Nebraska, North Dakota, South Dakota ...Arkansas, Indiana, Kentucky, Tennessee ...Idaho, Montana, Wyoming ...Arizona, Nevada, New Mexico, Utah ...Total banking region ...Florida, Michigan, New York, Pennsylvania, Texas...

  • Page 37
    ... ...Missouri ...Ohio ...Oregon ...Washington ...Wisconsin ...Iowa, Kansas, Nebraska, North Dakota, South Dakota ...Arkansas, Indiana, Kentucky, Tennessee ...Idaho, Montana, Wyoming ...Arizona, Nevada, New Mexico, Utah ...Total banking region ...Florida, Michigan, New York, Pennsylvania, Texas...

  • Page 38
    ... 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...

  • Page 39
    ... basis under a tax rate of 35 percent. Yields on available-for-sale and held-to-maturity investment securities are computed based on amortized cost balances, excluding any premiums or discounts recorded related to the transfer of investment securities at fair value from available-for-sale to held-to...

  • Page 40
    ... higher money market, savings account and interest checking balances. Money market deposit balances increased $16.8 billion (28.0 percent) at December 31, 2014, compared with December 31, 2013, primarily due to higher corporate trust, broker-dealer, Wholesale Banking and Commercial Real Estate, and...

  • Page 41
    ... in interest rates, foreign exchange rates, and security prices that may result in changes in the values of financial instruments, such as trading and available-for-sale securities, mortgage loans held for sale, MSRs and derivatives that are accounted for on a fair value basis. Liquidity risk is the...

  • Page 42
    ... adversely rated and nonperforming loans, leveraged transactions, credit concentrations and lending limits; - Interest rate and market risk, including market value and net income simulation, and trading-related Value at Risk; - Liquidity risk, including funding projections under various stressed...

  • Page 43
    ... lines, auto loans and leases, student loans, and home equity loans and lines. Home equity or second mortgage loans are junior lien closed-end accounts fully disbursed at origination. These loans typically are fixed rate loans, secured by residential real estate, with a 10- or 15-year fixed payment...

  • Page 44
    ...financing, agricultural credit, warehouse mortgage lending, small business lending, commercial real estate, health care and correspondent banking. The Company also offers an array of consumer lending products, including residential mortgages, credit card loans, auto loans, retail leases, home equity...

  • Page 45
    ...,262 $51,619 100.0% (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 The power of potential combination...

  • Page 46
    ...of home equity lines in a first lien position and $10.9 billion of home equity and second mortgage loans and lines in a junior lien position. Loans and lines in a junior lien position at December 31, 2014, included approximately $4.2 billion of loans and lines for which the Company also serviced the...

  • Page 47
    ... 31, 2014, 2013, 2012, 2011 and 2010, respectively, of loans purchased from GNMA mortgage pools whose repayments are primarily insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. Including these loans, the ratio of residential mortgages 90 days or more...

  • Page 48
    ... 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...

  • Page 49
    ... information on loans purchased from GNMA mortgage pools as their repayments are primarily insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. Home equity and second mortgages 2014 2013 Prime Borrowers 30-89 days ...90 days or more ...Nonperforming...

  • Page 50
    ...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...

  • Page 51
    ... BANCORP The power of potential The following table provides an analysis of other real estate owned, excluding covered assets, as a percent of their related loan balances, including geographical location detail for residential (residential mortgage, home equity and second mortgage) and commercial...

  • Page 52
    ... because they are insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. (d) Includes equity investments in entities whose principal assets are other real estate owned. (e) Charge-offs exclude actions for certain card products and loan sales that were not...

  • Page 53
    ...Total commercial real estate ...Residential Mortgages ...Credit Card ... Other Retail Retail leasing ...Home equity and second mortgages ...Other ...Total other retail ...Total loans, excluding covered loans ...Covered Loans ...Total loans ... Analysis of Loan Net Charge-offs Total loan net charge...

  • Page 54
    ...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 55
    ... for credit losses, the Company also considers the increased risk of loss associated with home equity lines that are contractually scheduled to convert from a revolving status to a fully amortizing payment and with residential lines and loans that have a balloon payoff provision. 53 U.S. BANCORP...

  • Page 56
    ... ...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 of year...

  • Page 57
    ...Credit Card ...Other Retail Retail leasing ...Home equity and second mortgages ...Other ...Total other retail ... Covered Loans ...Total allowance ... 1.77% 1.93% 2.12% 2.39% 2.81% In addition, the evaluation of the appropriate allowance for credit losses for purchased non-impaired loans acquired...

  • Page 58
    ..., 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 denialof-service attacks on customer-facing websites...

  • Page 59
    ... rate changes. The Company manages its interest rate risk position by holding assets on the balance sheet with desired interest rate risk characteristics, implementing certain pricing strategies for loans and deposits and through the selection of derivatives and various funding and investment...

  • Page 60
    ... with floating-rate loans and debt from floating-rate payments to fixed-rate payments; - To mitigate changes in value of the Company's mortgage origination pipeline, funded mortgage loans held for sale and MSRs; - To mitigate remeasurement volatility of foreign currency denominated balances; and...

  • Page 61
    ... manage their own foreign currency, interest rate risk and funding activities. For purposes of its internal capital adequacy assessment process, the Company considers risk arising from its trading activities employing methodologies consistent with the requirements of regulatory rules for market risk...

  • Page 62
    ... 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 the contingency funding plan. The ALCO reviews the Company's liquidity...

  • Page 63
    ...'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...

  • Page 64
    ...31, 2013. The Company also transacts with various European banks as counterparties to interest rate, mortgage-related and foreign currency derivatives for its hedging and customer-related activities; however, none of these banks are domiciled in the countries experiencing the most significant credit...

  • Page 65
    ... from securities lending activities in which indemnifications are provided to customers; indemnification or buy-back provisions related to sales of loans and tax credit investments; merchant charge-back guarantees through the Company's involvement in providing merchant processing services; and...

  • Page 66
    ... in 2013. As of December 31, 2014, the approximate dollar value of shares that may yet be purchased by the Company under the current Board of Directors approved authorization was $520 million. For a more complete analysis of activities impacting shareholders' equity and capital management programs...

  • Page 67
    ... RATIOS U.S. Bancorp U.S. Bank National Association 2013 2014 2013 At December 31 (Dollars in Millions) 2014 Basel III transitional standardized approach/Basel I: Common equity tier 1 capital(a) ...Tier 1 capital ...Total risk-based capital ...Risk-weighted assets ...Common equity tier 1 capital...

  • Page 68
    ... core deposit funding, partially offset by lower rates on new loans and investment securities FOURTH QUARTER RESULTS and lower loan fees. Average earning assets were $35.4 billion (11.1 percent) higher in the fourth quarter of 2014 compared with the same period of 2013, driven by increases in loans...

  • Page 69
    ... and Corporate Support. Noninterest income and 67 U.S. BANCORP The Company's major lines of business are Wholesale Banking and Commercial Real Estate, Consumer and Small Business Banking, Wealth Management and Securities Services, Payment Services, and Treasury and Corporate Support. These...

  • Page 70
    ... Wholesale Banking and Commercial Real Estate Consumer and Small Business Banking 2014 2013 Percent Change Year Ended December 31 (Dollars in Millions) 2014 2013 Percent Change Condensed Income Statement Net interest income (taxable-equivalent basis) ...Noninterest income ...Securities...

  • Page 71
    ...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 72
    ... net shared services expense. 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 $1.1 billion of the Company...

  • Page 73
    ... and Corporate Support includes the Company's investment portfolios, most covered commercial and commercial real estate loans and related other real estate owned, funding, capital management, interest rate risk management, the net effect of transfer pricing related to average balances, income taxes...

  • Page 74
    ... shows the Company's calculation of these Non-GAAP financial measures: At December 31 (Dollars in Millions) 2014 2013 2012 2011 2010 Total equity ...Preferred stock ...Noncontrolling interests ...Goodwill (net of deferred tax liability)(1) ...Intangible assets, other than mortgage servicing rights...

  • Page 75
    ... 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...

  • Page 76
    ...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 mortgage loans held for sale. The estimation of fair value also affects other loans held for sale...

  • Page 77
    ... loan modifications, unfunded loan commitments, the specific terms and provisions of any loss sharing agreements, and specific industry and market conditions that may impact discount rates and independent third party appraisals. On an ongoing basis, the accounting for purchased loans and related...

  • Page 78
    ... 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 13a15(e) and 15d-15(e) under the Securities Exchange Act of...

  • Page 79
    .... 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...

  • Page 80
    ... in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), U.S. Bancorp's internal control over financial reporting as of December...

  • Page 81
    ... of Management. Our responsibility is to express an opinion on U.S. Bancorp's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan...

  • Page 82
    ... Accounting Policies ...Note 2 - Accounting Changes ...Note 3 - Business Combinations ...Note 4 - Restrictions on Cash and Due From Banks ...Note 5 - Investment Securities ...Note 6 - Loans and Allowance for Credit Losses ...Note 7 - Leases ...Note 8 - Accounting for Transfers and Servicing...

  • Page 83
    ...-bearing ...Time deposits greater than $100,000(b) ...Total deposits ...Short-term borrowings ...Long-term debt ...Other liabilities ...Total liabilities ...Shareholders' equity Preferred stock ...Common stock, par value $0.01 a share - authorized: 4,000,000,000 shares; issued: 2014 and 2013 - 2,125...

  • Page 84
    ... debit card revenue ...Corporate payment products revenue ...Merchant processing services ...ATM processing services ...Trust and investment management fees ...Deposit service charges ...Treasury management fees ...Commercial products revenue ...Mortgage banking revenue ...Investment products fees...

  • Page 85
    ... in earnings on securities available-for-sale ...Changes in unrealized gains and losses on derivative hedges ...Foreign currency translation ...Changes in unrealized gains and losses on retirement plans ...Reclassification to earnings of realized gains and losses ...Income taxes related to other...

  • Page 86
    ... U.S. Bancorp Shareholders Common Shares Preferred Common Capital Retained Outstanding Stock Stock Surplus Earnings Accumulated Total Other U.S. Bancorp Treasury Comprehensive Shareholders' Noncontrolling Stock Income (Loss) Equity Interests (Dollars and Shares in Millions) Total Equity Balance...

  • Page 87
    ... 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 88
    .... The Company has five reportable operating segments: Wholesale Banking and Commercial Real Estate Wholesale Banking and Commercial Real Estate offers lending, equipment finance and small-ticket leasing, depository services, treasury management, capital markets, international trade services and...

  • Page 89
    ...to changes in the Company's interest rate risk profile, funding needs, demand for collateralized deposits by public entities or other reasons. Available-for-sale securities are carried at fair value with unrealized net gains or losses reported within other comprehensive income (loss) in shareholders...

  • Page 90
    ... not considered derivatives and are not reported on the balance sheet. For loans purchased after January 1, 2009, the fair value of the unfunded credit commitments is considered in the determination of the fair value of the loans recorded at the date of acquisition. Reserves for credit exposure on...

  • Page 91
    ...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...

  • Page 92
    ... 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...

  • Page 93
    ... decreases in value along with holding costs, such as taxes and insurance, are reported in noninterest expense. 91 U.S. BANCORP Factors used by the Company in determining whether all principal and interest payments due on commercial and commercial real estate loans will be collected and therefore...

  • Page 94
    ... or services are provided, except for annual fees which are recognized over the applicable period. Volume-related payments to partners and credit card associations and costs for rewards programs are also recorded within credit and debit card revenue when earned by the partner or customer. Corporate...

  • Page 95
    ...Wholesale Banking and Commercial Real Estate customers including standby letter of credit fees, non-yield related loan fees, capital markets related revenue and non-yield related leasing revenue. These fees are recognized as earned or as transactions occur and services are provided. Mortgage Banking...

  • Page 96
    ... 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...

  • Page 97
    ... 2013, the Company acquired Collective Point of Sale Solutions, a Canadian merchant processor. The Company recorded approximately $34 million of assets, The Federal Reserve Bank requires bank subsidiaries to maintain minimum average reserve balances, either in the form of cash or reserve balances...

  • Page 98
    ... at fair value at the time of transfer from the available-for-sale to held-to-maturity category, adjusted for amortization of premiums and accretion of discounts and credit-related other-than-temporary impairment. (b) Available-for-sale investment securities are carried at fair value with unrealized...

  • Page 99
    ...Earnings 2012 Other Gains (Losses)(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 ...Perpetual preferred securities ...Total...

  • Page 100
    ... to be credit-related. These unrealized losses primarily relate to changes in interest rates and market spreads subsequent to purchase. A substantial portion of investment securities that have unrealized losses are either corporate debt issued with high investment grade credit ratings or agency...

  • Page 101
    ...accordance with applicable authoritative accounting guidance. Purchased loans U.S. BANCORP Residential mortgages ...Home equity loans, first liens ... 37,545 13,611 The power of potential less than par, and the Company did not pay significant purchase premiums for these investment securities. At...

  • Page 102
    ... loss exposure to the Company because those losses are recoverable under loss sharing agreements with the FDIC. Activity in the allowance for credit losses by portfolio class was as follows: Commercial Real Estate Residential Mortgages Credit Card Other Retail Total Loans, Excluding Covered Loans...

  • Page 103
    ...: 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, 2014 Related to Loans individually evaluated for impairment(a) ...TDRs collectively evaluated...

  • Page 104
    ...estate related to mortgage loans whose payments are primarily insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. In addition, the amount of residential mortgage loans secured by residential real estate in the process of foreclosure at December 31, 2014...

  • Page 105
    ... a summary of loans by portfolio class and the Company's internal credit quality rating: Criticized (Dollars in Millions) Pass Classified(a) Total Special Mention Total Criticized December 31, 2014 Commercial ...Commercial real estate ...Residential mortgages(b) ...Credit card ...Other retail...

  • Page 106
    ... ended December 31 follows: Average Recorded Investment Interest Income Recognized (Dollars in Millions) 2014 Commercial ...Commercial real estate ...Residential mortgages ...Credit card ...Other retail ...Total impaired loans, excluding GNMA and covered loans ...Loans purchased from GNMA mortgage...

  • Page 107
    ... capitalization of unpaid accrued interest and/or fees under the various modification programs. For those loans modified as TDRs during the fourth quarter of 2014, at December 31, 2014, 226 residential mortgages, 16 home equity and second mortgage loans and 1,540 loans purchased from GNMA mortgage...

  • Page 108
    ... 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 2014 Commercial ...Commercial real estate ...Residential mortgages ...Credit card ...Other...

  • Page 109
    ... occurs after the date of acquisition, the Company records an allowance for credit losses. 107 LEASES The components of the net investment in sales-type and direct financing leases at December 31 were as follows: (Dollars in Millions) 2014 2013 Aggregate future minimum lease payments to be...

  • Page 110
    ...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...

  • Page 111
    ... available-for-sale investment securities and $2.7 billion of short-term borrowings on the Consolidated Balance Sheet were related to the tender option bond program, compared with $4.6 billion of available-for-sale investment securities and $4.6 billion of short-term borrowings at December 31, 2013...

  • Page 112
    ... in servicing loans made under state and local housing authority programs. These programs provide mortgages to low-income and moderate-income borrowers and are generally government-insured programs with a favorable rate subsidy, down payment and/or closing cost assistance. A summary of the Company...

  • Page 113
    ...goodwill for the years ended December 31, 2014, 2013 and 2012: (Dollars in Millions) Wholesale Banking and Commercial Real Estate Consumer and Small Business Banking Wealth Management and Securities Services Payment Services Treasury and Corporate Support Consolidated Company Balance at December 31...

  • Page 114
    ...-equivalent basis utilizing a tax rate of 35 percent. (b) Average federal funds purchased and total short-term borrowings rates include amounts paid by the Company to certain corporate card customers for paying outstanding noninterest-bearing corporate card balances within certain timeframes per...

  • Page 115
    ... Trust Securities ("ITS") to third party investors, originally investing the proceeds in junior subordinated debt securities ("Debentures") issued by the Company and entering into stock purchase contracts to purchase preferred stock in the future. During 2010, the Company exchanged depositary shares...

  • Page 116
    ... to, or change in the laws or regulations that would not allow the Company to treat the full liquidation value of the Series H Preferred Stock as Tier 1 capital for purposes of the capital adequacy guidelines of the Federal Reserve. During 2012, the Company issued depositary shares representing an...

  • Page 117
    ...) on Derivative Hedges Unrealized Gains (Losses) on Retirement Plans Foreign Currency Translation Total 2014 Balance at beginning of period ...Changes in unrealized gains and losses ...Other-than-temporary impairment not recognized in earnings on securities available-for-sale ...Foreign currency...

  • Page 118
    ... credit risk and include certain off-balance sheet exposures, such as unfunded loan commitments, letters of credit, and derivative contracts. Under the standardized approach, the Company is also subject to a leverage ratio requirement, a non risk-based asset ratio, which is defined as Tier 1 capital...

  • Page 119
    ... 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 Noncumulative Perpetual Series A Preferred Stock with a liquidation preference of $100,000 per share ("Series A Preferred Securities...

  • Page 120
    ... 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...

  • Page 121
    ...Actual return on plan assets ...Employer contributions ...Participants' contributions ...Lump sum settlements(a) ...Benefit payments ...Fair value at end of measurement period ... Funded (Unfunded) Status ...Components Of The Consolidated Balance Sheet Current benefit liability ...Noncurrent benefit...

  • Page 122
    ... weighted average assumptions used to determine the projected benefit obligations at December 31: Pension Plans (Dollars in Millions) 2014 2013 Postretirement Welfare Plan 2014 2013 Discount rate(a) ...Rate of compensation increase(b) ...Health care cost trend rate for the next year(c) ...Effect on...

  • Page 123
    ... mid-small cap equities, 5 percent emerging markets equities, 5 percent real estate equities, 5 percent hedge funds and 5 percent private equity is appropriate. At December 31, 2014 and 2013, plan assets of the qualified pension plans included asset management arrangements with related parties...

  • Page 124
    ... Welfare Plan 2014 Level 1 2013 Level 1 Cash and cash equivalents ...Debt securities ...Corporate stock Domestic equity securities ...Mid-small cap equity securities(a) ...International equity securities ...Real estate equity securities(b) ...Collective investment funds Domestic equity securities...

  • Page 125
    ... of acquired companies are generally terminated at the merger closing dates. Participants under such plans receive the Company's common stock, or options to buy the Company's stock, based on the conversion terms of the various merger agreements. At December 31, 2014, there were 50 million shares...

  • Page 126
    .... The Company uses historical data to estimate option exercises and employee terminations to estimate the expected life of options. The risk-free interest rate for the expected life of the options is based on the U.S. Treasury yield curve in effect on the date of grant. The expected dividend yield...

  • Page 127
    ...(219) 55 (45) $2,032 $2,236 The tax effects of fair value adjustments on securities available-for-sale, derivative instruments in cash flow hedges, foreign currency translation adjustments, pension and post-retirement plans and certain tax benefits related to stock options are recorded directly to...

  • Page 128
    ... of an investment in foreign operations driven by changes in foreign currency exchange rates ("net investment hedge"); or a designation is not made as it is a customer-related transaction, an economic hedge for asset/liability risk management purposes or another stand-alone derivative created...

  • Page 129
    ... 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...

  • Page 130
    ... Includes short-term underwriting purchase and sale commitments with total asset and liability notional values of $58 million at December 31, 2014, and derivative liability swap agreements related to the sale of a portion of the Company's Class B common shares of Visa Inc. The Visa swap agreements...

  • Page 131
    ... Reclassified from Other Comprehensive Income (Loss) into Earnings 2014 2013 2012 Asset and Liability Management Positions Cash flow hedges Interest rate contracts(a) ...Net investment hedges Foreign exchange forward contracts ...Non-derivative debt instruments ...$ (26) 130 - $ 25 (45) - $(46) (19...

  • Page 132
    ... economic hedges and the customer-related positions for the years ended December 31: (Dollars in Millions) Location of Gains (Losses) Recognized in Earnings 2014 2013 2012 Asset and Liability Management Positions Fair value hedges(a) Interest rate contracts ...Foreign exchange cross-currency swaps...

  • Page 133
    ... high-grade corporate bonds traded by the Company's broker-dealer. In general, the securities transferred can be sold, repledged or otherwise used by the party in possession. No restrictions exist on the use of cash collateral by either party. The Company executes its derivative, repurchase/ reverse...

  • Page 134
    ...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...

  • Page 135
    ... procedures as described in more detail in the specific valuation discussions below. For fair value measurements modeled internally, the Company's valuation models are subject to the Company's Model Risk Governance Policy and Program, as maintained by the Company's risk management department...

  • Page 136
    ..., non-agency commercial mortgagebacked 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 137
    ... community development and tax-advantaged related assets and liabilities. The majority of the Company's cost method equity investments are in Federal Home Loan Bank and Federal Reserve Bank stock, for which the carrying amounts U.S. BANCORP The power of potential characteristics. Generally, loan...

  • Page 138
    ... estimated by discounting the contractual cash flow using current market rates. Deposit liabilities are classified within Level 2. Fair value is provided for disclosure purposes only. 136 Short-term Borrowings Federal funds purchased, securities sold under agreements to repurchase, commercial paper...

  • Page 139
    ... 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...

  • Page 140
    ... shows the significant valuation assumption ranges for the Company's derivative commitments to purchase and originate mortgage loans at December 31, 2014: Minimum Maximum Average Expected loan close rate ...Inherent MSR value (basis points per loan) ... 38% 45 100% 203 76% 129 The significant...

  • Page 141
    ... 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 142
    ... Principal Period End of (Loss) Purchases Sales Payments Issuances Settlements Balance Period (Dollars in Millions) Net Gains (Losses) Beginning Included in of Period Net Balance Income 2014 Available-for-sale securities Mortgage-backed securities Residential non-agency Prime(a) ...Non-prime...

  • Page 143
    ... with deposit, credit card, merchant processing and trust customers, other purchased intangibles, premises and equipment, deferred taxes and other liabilities. Additionally, in accordance with the disclosure guidance, insurance contracts and investments accounted for under the equity method...

  • Page 144
    ..., 2014 and 2013, respectively. GUARANTEES AND CONTINGENT LIABILITIES 142 Visa Restructuring and Card Association Litigation The Company's payment services business issues and acquires credit and debit card transactions through the Visa U.S.A. Inc. card association or its affiliates (collectively...

  • Page 145
    ...The Company manages this credit risk by using the same credit policies it applies to loans. Collateral is obtained to secure commitments based on management's credit assessment of the borrower. The collateral may include marketable securities, receivables, inventory, equipment and real estate. Since...

  • Page 146
    ... 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...

  • Page 147
    ..., merchant processing contracts contain various provisions to protect the Company in the event of default. At December 31, 2014, the value of airline tickets purchased to be delivered at a future date was $5.2 billion. The Company held collateral of $429 million in escrow deposits, letters of credit...

  • Page 148
    ... for residential mortgage-backed securities trusts. Among these lawsuits are actions brought in June 2014 by a group of institutional investors against six bank trustees, including the Company. In BlackRock Allocation Target Shares: Series S Portfolio, et al. v. U.S. Bank National Association, et al...

  • Page 149
    ... 24 U.S. BANCORP (PARENT COMPANY) CONDENSED BALANCE SHEET At December 31 (Dollars in Millions) 2014 2013 Assets Due from banks, principally interest-bearing ...Available-for-sale securities ...Investments in bank subsidiaries ...Investments in nonbank subsidiaries ...Advances to bank subsidiaries...

  • Page 150
    ... from banks at beginning of year ...Cash and due from banks at end of year ... 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...

  • Page 151
    ...) At December 31 (Dollars in Millions) 2014 2013 2012 2011 2010 % Change 2014 v 2013 Assets Cash and due from banks ...Held-to-maturity securities ...Available-for-sale securities ...Loans held for sale ...Loans ...Less allowance for loan losses ...Net loans ...Other assets ...Total assets ...$ 10...

  • Page 152
    ... debit card revenue ...Corporate payment products revenue ...Merchant processing services ...ATM processing services ...Trust and investment management fees ...Deposit service charges ...Treasury management fees ...Commercial products revenue ...Mortgage banking revenue ...Investment products fees...

  • Page 153
    ... debit card revenue ...Corporate payment products revenue ...Merchant processing services ...ATM processing services ...Trust and investment management fees ...Deposit service charges ...Treasury management fees ...Commercial products revenue ...Mortgage banking revenue ...Investment products fees...

  • Page 154
    ... and Related 2014 Average Balances Yields Interest and Rates Average Balances 2013 Yields and Rates Year Ended December 31 (Dollars in Millions) Interest Assets Investment securities ...Loans held for sale ...Loans (b) Commercial ...Commercial real estate ...Residential mortgages ...Credit card...

  • Page 155
    Yields and Rates (a) (Unaudited) 2012 Average Balances Yields and Rates Average Balances 2011 Yields and Rates Average Balances 2010 Yields and Rates 2014 v 2013 % Change Average Balances Interest Interest Interest $ 72,501 7,847 60,830 36,505 40,290 16,653 47,938 202,216 13,158 215,374 10,548 ...

  • Page 156
    ... years ended December 31, 2014, 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, 2009, in the Company's common stock and in each of the foregoing indices and assumes the reinvestment of all dividends...

  • Page 157
    ...Bank Holding Company Act of 1956. The Company provides a full range of financial services, including lending and depository services, cash management, capital markets, and trust and investment management services. It also engages in credit card services, merchant and ATM processing, mortgage banking...

  • Page 158
    ... 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 and/or liquidity measures, including in ways that may be dilutive to shareholders or could limit the Company's ability to pay...

  • Page 159
    ...The Company faces increased regulatory and legal risk arising out of its mortgage lending and servicing businesses In April 2011, the Company and certain other large financial institutions entered into Consent Orders with U.S. federal banking regulators relating to residential mortgage servicing and...

  • Page 160
    ... instruments supported by loans, similarly would be negatively impacted by widespread decreases in credit quality resulting from a weakening of the economy. Downward valuation of debt securities could also negatively impact the Company's capital position. Stress in the commercial real estate markets...

  • Page 161
    ... 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...

  • Page 162
    ... 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...

  • Page 163
    ..., 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...

  • Page 164
    ... in any number of activities, including lending practices, mortgage servicing and foreclosure practices, corporate governance, regulatory compliance, mergers and acquisitions, and related disclosure, sharing or inadequate protection of customer information, and actions taken by government regulators...

  • Page 165
    .... 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...

  • Page 166
    ... 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...

  • Page 167
    ... taxes liability. For more information, refer to "Critical Accounting Policies" in this Annual Report. Changes in accounting standards could materially impact the Company's financial statements From time to time, the Financial Accounting Standards Board and the United States Securities and Exchange...

  • Page 168
    ... merger, she was General Counsel and Secretary of Firstar Corporation and Star Banc Corporation. ANDREW CECERE Mr. Elmore is Vice Chairman, Community Banking and Branch Delivery, of U.S. Bancorp. Mr. Elmore, 58, has served in this position since March 2013. From 1999 to 2013, he served as Executive...

  • Page 169
    ... is Executive Vice President and Chief Credit Officer of U.S. Bancorp. Mr. Runkel, 38, 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...

  • Page 170
    ... San Francisco Port Commission (Government) 1. Executive Committee 2. Compensation and Human Resources Committee 3. Audit Committee 4. Community Reinvestment and Public Policy Committee 5. Governance Committee 6. Risk Management Committee Chairman and Chief Executive Officer Polaris Industries, Inc...

  • Page 171
    ...U.S. Bank. Mail At your request, we will mail to you our quarterly earnings, news releases, quarterly financial data reported on Form 10-Q, Form 10-K and additional copies of our annual reports. Please contact: U.S. Bancorp Investor Relations 800 Nicollet Mall Minneapolis, MN 55402 investorrelations...

  • Page 172
    USBANK.COM U.S. Bancorp 800 Nicollet Mall Minneapolis, MN 55402

  • Page 173
    The power of potential U.S. Bancorp 2014 Annual Report