e10vq
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
þ QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended
March 31, 2008
OR
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF
1934
For the transition period from
(not applicable)
Commission file number
1-6880
U.S. BANCORP
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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41-0255900
(I.R.S. Employer
Identification No.)
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800 Nicollet Mall
Minneapolis, Minnesota
55402
(Address of principal executive offices, including zip code)
651-466-3000
(Registrants telephone number, including area code)
(not applicable)
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to
such filing requirements for the past 90 days.
YES þ NO o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the
definitions of large accelerated filer,
accelerated filer and smaller reporting
company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
YES o NO þ
Indicate the number of shares
outstanding of each of the issuers classes of common
stock, as of the latest practicable date.
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Class
Common Stock, $.01 Par Value
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Outstanding as of April 30, 2008
1,740,566,065 shares
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Table of Contents
and
Form 10-Q
Cross Reference Index
Safe
Harbor Statement under the Private Securities Litigation
Reform Act of 1995.
This Quarterly Report on
Form 10-Q
contains forward-looking statements. Statements that are not
historical or current facts, including statements about beliefs
and expectations, are forward-looking statements. These
statements often include the words may,
could, would, should,
believes, expects,
anticipates, estimates,
intends, plans, targets,
potentially, probably,
projects, outlook or similar
expressions. These forward-looking statements cover, among other
things, anticipated future revenue and expenses and the future
plans and prospects of U.S. Bancorp. Forward-looking
statements involve inherent risks and uncertainties, and
important factors could cause actual results to differ
materially from those anticipated, including changes in general
business and economic conditions, changes in interest rates,
deterioration in the credit quality of our loan portfolios or in
the value of the collateral securing those loans, deterioration
in the value of securities held in our investment securities
portfolio, legal and regulatory developments, increased
competition from both banks and non-banks, changes in customer
behavior and preferences, effects of mergers and acquisitions
and related integration, effects of critical accounting policies
and judgments, and managements ability to effectively
manage credit risk, market risk, operational risk, legal risk
and regulatory and compliance risk. For discussion of these and
other risks that may cause actual results to differ from
expectations, refer to our Annual Report on
Form 10-K
for the year ended December 31, 2007, on file with the
Securities and Exchange Commission, including the sections
entitled Risk Factors and Corporate Risk
Profile. Forward-looking statements speak only as of the
date they are made, and U.S. Bancorp undertakes no
obligation to update them in light of new information or future
events.
Table
1 Selected
Financial Data
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Three Months
Ended
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March 31,
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Percent
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(Dollars and Shares
in Millions, Except Per Share Data)
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2008
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2007
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Change
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Condensed Income Statement
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Net interest income (taxable-equivalent basis) (a)
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$
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1,830
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$
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1,666
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9.8
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%
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Noninterest income
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2,295
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1,722
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33.3
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Securities gains (losses), net
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(251
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)
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1
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*
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Total net revenue
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3,874
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3,389
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14.3
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Noninterest expense
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1,796
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1,572
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14.2
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Provision for credit losses
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485
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177
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*
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Income before taxes
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1,593
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1,640
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(2.9
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)
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Taxable-equivalent adjustment
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27
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17
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58.8
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Applicable income taxes
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476
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493
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(3.4
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)
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Net income
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$
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1,090
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$
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1,130
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(3.5
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Net income applicable to common equity
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$
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1,078
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$
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1,115
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(3.3
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)
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Per Common Share
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Earnings per share
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$
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.62
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$
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.64
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(3.1
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)%
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Diluted earnings per share
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.62
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.63
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(1.6
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Dividends declared per share
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.425
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.400
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6.3
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Book value per share
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11.55
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11.37
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1.6
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Market value per share
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32.36
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34.97
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(7.5
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)
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Average common shares outstanding
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1,731
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1,752
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(1.2
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)
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Average diluted common shares outstanding
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1,749
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1,780
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(1.7
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)
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Financial Ratios
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Return on average assets
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1.85
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%
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2.09
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%
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Return on average common equity
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21.3
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22.4
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Net interest margin (taxable-equivalent basis) (a)
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3.55
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3.51
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Efficiency ratio (b)
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43.5
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46.4
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Average Balances
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Loans
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$
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155,232
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$
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144,693
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7.3
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%
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Loans held for sale
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5,118
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3,843
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33.2
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Investment securities
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43,891
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40,879
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7.4
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Earning assets
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207,014
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191,135
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8.3
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Assets
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236,675
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219,512
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7.8
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Noninterest-bearing deposits
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27,119
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27,677
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(2.0
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)
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Deposits
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130,858
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120,728
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8.4
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Short-term borrowings
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35,890
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26,687
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34.5
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Long-term debt
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39,822
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42,944
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(7.3
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)
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Shareholders equity
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21,479
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21,210
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1.3
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March 31,
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December 31,
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2008
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2007
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Period End Balances
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Loans
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$
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158,300
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$
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153,827
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2.9
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%
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Allowance for credit losses
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2,435
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2,260
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7.7
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Investment securities
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41,696
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43,116
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(3.3
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)
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Assets
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241,781
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237,615
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1.8
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Deposits
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138,270
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131,445
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5.2
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Long-term debt
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36,229
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43,440
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(16.6
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Shareholders equity
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21,572
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21,046
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2.5
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Regulatory capital ratios
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Tier 1 capital
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8.6
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%
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8.3
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%
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Total risk-based capital
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12.6
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12.2
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Leverage
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8.1
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7.9
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Tangible common equity
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5.3
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5.1
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*
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Not
meaningful. |
(a)
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Presented
on a fully taxable-equivalent basis utilizing a tax rate of
35 percent. |
(b)
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Computed
as noninterest expense divided by the sum of net interest income
on a taxable-equivalent basis and noninterest income excluding
securities gains (losses), net. |
OVERVIEW
Earnings
Summary U.S. Bancorp
and its subsidiaries (the Company) reported net
income of $1,090 million for the first quarter of 2008 or
$.62 per diluted common share, compared with
$1,130 million, or $.63 per diluted common share for the
first quarter of 2007. Return on average assets and return on
average common equity were 1.85 percent and
21.3 percent, respectively, for the first quarter of 2008,
compared with returns of 2.09 percent and
22.4 percent, respectively, for the first quarter of 2007.
Several significant items were reflected in the Companys
first quarter 2008 results, including a $492 million gain
related to the Visa Inc. initial public offering that occurred
in March 2008 (Visa Gain) and $253 million of
impairment charges on structured investment securities. The
Companys results also included a provision for credit
losses which exceeded net charge-offs by $192 million,
reflecting continuing stress in the residential real estate
markets and related industries, in addition to the continued
growth of the consumer loan portfolios. The first quarter of
2008 also included a $62 million reduction to pretax income
related to the adoption of a new accounting standard, a
$25 million contribution to the U.S. Bancorp
Foundation and a $22 million accrual for certain litigation
matters. These items taken together had an approximate impact of
($.02) per diluted common share.
Total net revenue, on a taxable-equivalent basis, for the first
quarter of 2008, was $485 million (14.3 percent)
higher than the first quarter of 2007, reflecting a
9.8 percent increase in net interest income and an
18.6 percent increase in noninterest income. The increase
in net interest income from a year ago was driven by growth in
earning assets and improving net interest margins. The growth in
noninterest income included organic growth in operating fee
revenues of 7.3 percent and the net favorable impact of the
Visa Gain, offset by the structured investment securities
impairment and the impact of the adoption of a new accounting
standard in the first quarter of 2008.
Total noninterest expense in the first quarter of 2008 was
$224 million (14.2 percent) higher than in the first
quarter of 2007, principally due to higher costs associated with
business initiatives designed to expand the Companys
geographical presence and strengthen customer relationships,
including investments in relationship managers, branch
initiatives and payment services businesses. The increase in
operating expenses also included higher credit collection costs,
the impact of a new accounting standard, litigation costs, a
charitable contribution and incremental expenses associated with
tax-advantaged projects.
The provision for credit losses for the first quarter of 2008
increased $308 million over the first quarter of 2007. The
increase in the provision for credit losses from a year ago
reflected continuing stress in the residential real estate
markets, including homebuilding and related supplier industries,
driven by declining home prices in several geographic regions.
It also reflected the continued growth of the consumer loan
portfolios. Net charge-offs in the first quarter of 2008 were
$293 million, compared with net charge-offs of
$177 million in the first quarter of 2007. Refer to
Corporate Risk Profile for further information on
the provision for credit losses, net charge-offs, nonperforming
assets and factors considered by the Company in assessing the
credit quality of the loan portfolio and establishing the
allowance for credit losses.
RECENT
ACCOUNTING CHANGES
Effective January 1, 2008, the Company adopted Statement of
Financial Accounting Standards No. 157
(SFAS 157), Fair Value
Measurements, Statement of Financial Accounting Standards
No. 159 (SFAS 159), The Fair Value
Option for Financial Assets and Financial Liabilities and
Securities and Exchange Commission (SEC) Staff
Accounting Bulletin No. 109
(SAB 109), Written Loan Commitments
Recorded at Fair Value Through Earnings. Notes 2 and
10 of the Notes to Consolidated Financial Statements discuss
accounting standards adopted by the Company in the first quarter
of 2008, as well as accounting standards recently issued but not
yet required to be adopted, including the expected impact of
these changes in accounting standards on the Companys
financial statements. To the extent the adoption of new
accounting standards affects the Companys financial
condition, results of operations or liquidity, the impacts are
discussed in the applicable section(s) of Managements
Discussion and Analysis and the Notes to Consolidated Financial
Statements.
STATEMENT
OF INCOME ANALYSIS
Net Interest
Income Net
interest income, on a taxable-equivalent basis, was
$1,830 million in the first quarter of 2008, compared with
$1,666 million in the first
quarter of 2007. The $164 million (9.8 percent)
increase was due to strong growth in average earning assets, as
well as an improving net interest margin from a year ago.
Average earning assets increased $15.9 billion
(8.3 percent) in the first quarter of 2008, compared with
the first quarter of 2007, primarily driven by an increase in
average loans of $10.5 billion (7.3 percent) and
average investment securities of $3.0 billion
(7.4 percent). During the first quarter of 2008, the net
interest margin increased to 3.55 percent, compared with
3.51 percent in the first quarter of 2007. The improvement
in the net interest margin was due to several factors, including
growth in higher spread assets, the benefit of the
Companys current asset/liability position in a declining
interest rate environment and related asset/liability re-pricing
dynamics. Short-term funding rates were marginally lower due to
market volatility and changing liquidity in the overnight fed
fund markets given current market conditions. In addition, the
Companys net interest margin benefited from an increase in
yield-related loan fees. The Company expects the net interest
margin to remain relatively stable throughout the remainder of
the year, given the current rate environment and yield curve.
Refer to the Consolidated Daily Average Balance Sheet and
Related Yields and Rates table for further information on
net interest income.
Average loans for the first quarter of 2008 were
$10.5 billion (7.3 percent) higher than the first
quarter of 2007, driven by growth in a majority of the loan
categories. This included growth in average commercial loans of
$4.7 billion (10.0 percent), retail loans of
$3.5 billion (7.4 percent), residential mortgages of
$1.4 billion (6.5 percent) and commercial real estate
loans of $.9 billion (3.2 percent). The increase in
commercial loans was primarily driven by growth in corporate and
commercial banking balances as business customers utilized bank
credit facilities, rather than the capital markets, to fund
business growth and liquidity requirements. Retail loans
experienced strong growth in credit card balances, installment
products and home equity lines, offset somewhat by lower retail
leasing balances. The increase in residential mortgages
reflected higher balances in the consumer finance division. The
growth in commercial real estate loans reflected higher demand
for bank financing as changing market conditions have limited
borrower access to the capital markets.
Average investment securities in the first quarter of 2008 were
$3.0 billion (7.4 percent) higher than the first
quarter of 2007. The increase was driven by the purchase in the
fourth quarter of 2007 of structured investment securities from
certain money market funds managed by an affiliate and an
increase in tax-exempt municipal securities, partially offset by
a reduction in mortgage-backed securities.
Average noninterest-bearing deposits for the first quarter of
2008 decreased $.6 billion (2.0 percent) compared with
the first quarter of 2007, reflecting a decline in personal and
business demand deposits, partially offset by higher trust
deposits. The decline in personal demand deposit balances
occurred in the Consumer business line. The decline in business
demand deposits occurred within most business lines as business
customers utilized deposit balances to fund business growth and
meet other liquidity requirements.
Average total savings deposits increased year-over-year by
$4.8 billion (8.6 percent) due to a $5.2 billion
(20.8 percent) increase in interest checking balances
driven by higher balances from broker-dealer, government and
institutional trust customers. This increase was partially
offset by a decline of $.3 billion (4.9 percent) in
average savings accounts and $.1 billion (.5 percent)
in average money market savings, primarily within Consumer
Banking.
Average time certificates of deposit less than $100,000 were
lower in the first quarter of 2008 than in the first quarter of
2007 by $1.2 billion (7.9 percent), while average time
deposits greater than $100,000 increased by $7.0 billion
(31.8 percent) over the same period. The decline in time
certificates of deposit less than $100,000 was due to the
Companys funding and pricing decisions and competition for
these deposits by other financial institutions that have more
limited access to wholesale funding sources given the current
market environment.
Provision for
Credit Losses The
provision for credit losses for the first quarter of 2008
increased $308 million over the first quarter of 2007. The
increase in the provision for credit losses from a year ago
reflected continuing stress in the residential real estate
markets, including homebuilding and related supplier industries,
driven by declining home prices in several geographic regions.
It also reflected the continued growth of the consumer loan
portfolios. Net charge-offs in the first quarter of 2008 were
$293 million, compared with net charge-offs of
$177 million in the first quarter of 2007. Refer to
Corporate Risk Profile for further information on
the provision for credit losses, net charge-offs, nonperforming
assets and factors considered by the Company in assessing the
credit quality of the loan portfolio and establishing the
allowance for credit losses.
Table
2
Noninterest Income
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|
|
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|
Three Months
Ended
|
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|
|
March 31,
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|
Percent
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|
(Dollars in Millions)
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2008
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|
|
2007
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|
Change
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|
Credit and debit card revenue
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$
|
248
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|
$
|
206
|
|
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|
20.4
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%
|
Corporate payment products revenue
|
|
|
164
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|
|
|
147
|
|
|
|
11.6
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|
ATM processing services
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|
84
|
|
|
|
77
|
|
|
|
9.1
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|
Merchant processing services
|
|
|
271
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|
|
|
252
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|
|
|
7.5
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|
Trust and investment management fees
|
|
|
335
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|
|
|
322
|
|
|
|
4.0
|
|
Deposit service charges
|
|
|
257
|
|
|
|
247
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|
|
|
4.0
|
|
Treasury management fees
|
|
|
124
|
|
|
|
111
|
|
|
|
11.7
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|
Commercial products revenue
|
|
|
112
|
|
|
|
100
|
|
|
|
12.0
|
|
Mortgage banking revenue
|
|
|
105
|
|
|
|
67
|
|
|
|
56.7
|
|
Investment products fees and commissions
|
|
|
36
|
|
|
|
34
|
|
|
|
5.9
|
|
Securities gains (losses), net
|
|
|
(251
|
)
|
|
|
1
|
|
|
|
*
|
|
Other
|
|
|
559
|
|
|
|
159
|
|
|
|
*
|
|
|
|
|
|
|
|
Total noninterest income
|
|
$
|
2,044
|
|
|
$
|
1,723
|
|
|
|
18.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Not meaningful.
Noninterest
Income Noninterest
income in the first quarter of 2008 was $2,044 million,
compared with $1,723 million in the first quarter of 2007.
The $321 million (18.6 percent) increase in the first
quarter of 2008 over the first quarter of 2007, was driven by
strong organic fee-based revenue growth of 7.3 percent and
the Visa Gain in the first quarter of 2008. The Visa Gain
represented $339 million of cash proceeds received for
Class B shares redeemed in March 2008 and $153 million
related to the Companys proportionate share of stock
redeemed to fund an escrow account for the settlement of Visa
Inc. litigation matters. In addition, noninterest income was
impacted by the adoption of SFAS 157 in the first quarter
of 2008. Trading revenue decreased $62 million, as, under
SFAS 157, primary market and nonperformance risk is now
required to be considered when determining the fair value of
customer derivatives. Mortgage banking revenue grew by
$19 million, as mortgage production gains increased because
the deferral of costs related to the origination of mortgage
loans held for sale (MLHFS) is not permitted under
SFAS 157.
The strong growth in credit and debit card revenue was primarily
driven by an increase in customer accounts and higher customer
transaction volumes over a year ago. Corporate payment products
revenue growth reflected organic growth in sales volumes and
card usage. ATM processing services increased primarily due to
new sales of ATM and debit processing services. Merchant
processing services revenue growth primarily reflected an
increase in the number of merchants and business expansion.
Trust and investment management fees increased year-over-year
due to core account growth, partially offs et by unfavorable
equity market conditions. Deposit service charges growth was
driven by increased transaction-related fees and the impact of
continued growth in net new checking accounts. This growth rate
was muted somewhat as deposit account-related revenue,
traditionally reflected in this fee category, continued to
migrate to yield-related loan fees as customers utilized new
consumer products. Treasury management fees increased due to
higher sales activity and the favorable impact of declining
rates on customer compensating balances. Commercial products
revenue increased year-over-year due to higher foreign exchange,
commercial leasing and other commercial lending fee revenue.
Mortgage banking revenue increased due to an increase in
mortgage servicing income and production gains, including
$19 million from the adoption of SFAS 157. These
favorable impacts to mortgage banking revenue were partially
offset by the unfavorable net change in the valuation of
mortgage servicing rights (MSRs) and related
economic hedging activities. Other income was higher
year-over-year due to the Visa Gain, partially offset by lower
retail lease revenue due to higher end-of-term losses and the
$62 million unfavorable impact to trading income upon
adoption of a new accounting standard. Securities gains (losses)
were lower year-over-year due to an impairment of certain
structured investment securities recognized in the first quarter
of 2008.
Noninterest
Expense Noninterest
expense was $1,796 million in the first quarter of 2008, an
increase of $224 million (14.2 percent) over the first
quarter of 2007. Compensation expense was higher due to growth
in ongoing bank operations, acquired businesses and other bank
initiatives and the impact from the adoption of a new accounting
standard in the first quarter of 2008. Employee benefits expense
increased year-over-year as higher medical costs were partially
offset by
Table
3
Noninterest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
(Dollars in Millions)
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
Compensation
|
|
|
$
|
745
|
|
|
$
|
635
|
|
|
|
17.3
|
%
|
Employee benefits
|
|
|
|
137
|
|
|
|
133
|
|
|
|
3.0
|
|
Net occupancy and equipment
|
|
|
|
190
|
|
|
|
177
|
|
|
|
7.3
|
|
Professional services
|
|
|
|
47
|
|
|
|
47
|
|
|
|
|
|
Marketing and business development
|
|
|
|
79
|
|
|
|
52
|
|
|
|
51.9
|
|
Technology and communications
|
|
|
|
140
|
|
|
|
135
|
|
|
|
3.7
|
|
Postage, printing and supplies
|
|
|
|
71
|
|
|
|
69
|
|
|
|
2.9
|
|
Other intangibles
|
|
|
|
87
|
|
|
|
94
|
|
|
|
(7.4
|
)
|
Other
|
|
|
|
300
|
|
|
|
230
|
|
|
|
30.4
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
$
|
1,796
|
|
|
$
|
1,572
|
|
|
|
14.2
|
%
|
|
|
|
|
Efficiency ratio (a)
|
|
|
|
43.5
|
%
|
|
|
46.4
|
%
|
|
|
|
|
|
|
|
|
(a)
|
|
Computed
as noninterest expense divided by the sum of net interest income
on a taxable-equivalent basis and noninterest income excluding
securities gains (losses), net. |
lower pension costs. Net occupancy and equipment expense
increased over the first quarter of 2007 primarily due to rental
cost escalation, acquisitions and branch-based business
initiatives. Marketing and business development expense
increased year-over-year primarily due to $25 million
recognized in the first quarter of 2008 for a charitable
contribution to the Companys foundation intended to
support community-based programs within the Companys
geographical markets. Other intangibles expense decreased
primarily reflecting the timing and relative size of recent
acquisitions. Other expense increased year-over-year due
primarily to investments in tax-advantaged projects, higher
litigation costs and credit-related costs for other real estate
owned and loan collection activities.
Income Tax
Expense The
provision for income taxes was $476 million (an effective
rate of 30.4 percent) for the first quarter of 2008,
compared with $493 million (an effective rate of
30.4 percent) for the first quarter of 2007. For further
information on income taxes, refer to Note 9 of the Notes
to Consolidated Financial Statements.
BALANCE
SHEET ANALYSIS
Loans The
Companys total loan portfolio was $158.3 billion at
March 31, 2008, compared with $153.8 billion at
December 31, 2007, an increase of $4.5 billion
(2.9 percent). The increase was driven by growth in all
major loan categories. The $1.7 billion (3.3 percent)
increase in commercial loans was primarily driven by new and
existing business customers utilizing bank credit facilities,
rather than the capital markets, to fund business growth and
liquidity requirements, as well as growth in corporate payment
card balances.
Commercial real estate loans increased $.8 billion
(2.6 percent) at March 31, 2008, compared with
December 31, 2007, as developers sought bank financing as
changing market conditions have limited borrower access to the
capital markets.
Residential mortgages held in the loan portfolio increased
$.4 billion (1.9 percent) at March 31, 2008,
compared with December 31, 2007, reflecting an increase in
consumer finance and traditional branch originations.
Total retail loans outstanding, which include credit card,
retail leasing, home equity and second mortgages and other
retail loans, increased $1.6 billion (3.2 percent) at
March 31, 2008, compared with December 31, 2007. The
increase was primarily driven by higher student loans due to the
purchase of a portfolio late in the first quarter of 2008, and
growth in installment, credit card and home equity loans. These
increases were partially offset by a decrease in retail leasing
balances.
Loans Held for
Sale At
March 31, 2008, loans held for sale, consisting primarily
of residential mortgages and student loans to be sold in the
secondary market, were $5.2 billion, compared with
$4.8 billion at December 31, 2007. The increase in
loans held for sale was principally due to seasonal loan
originations and the timing of sales during the first quarter of
2008.
Investment
Securities Investment
securities, both available-for-sale and held-to-maturity,
totaled $41.7 billion at March 31, 2008, compared with
$43.1 billion at December 31, 2007, reflecting
purchases of $1.1 billion of securities, more than offset by
sales, maturities and prepayments. As of March 31, 2008,
approximately 37 percent of the investment securities
portfolio represented adjustable-rate financial instruments,
compared with 39 percent at December 31, 2007.
Adjustable-rate financial instruments include variable-rate
collateralized mortgage obligations, mortgage-backed securities,
agency securities, adjustable-rate money market accounts,
asset-backed securities,
corporate debt securities and floating-rate preferred stock.
The Company conducts a regular assessment of its investment
portfolios to determine whether any securities are
other-than-temporarily impaired. At March 31, 2008, the
available-for-sale securities portfolio included a
$1.6 billion net unrealized loss, compared with a net
unrealized loss of $1.1 billion at December 31, 2007.
The substantial portion of securities with unrealized losses
were either government securities, issued by government-backed
agencies or privately issued securities with high investment
grade credit ratings and limited credit exposure. Some
securities classified within obligations of state and political
subdivisions are supported by mono-line insurers. While
mono-line insurers have experienced credit rating downgrades,
management believes the underlying credit quality of the issuers
and the support of the mono-line insurers alleviate any
impairment concerns. The majority of investment securities
classified as asset-backed securities at March 31, 2008,
represented interests in structured investments. The valuation
of these securities is determined through estimates of expected
cash flows, discount rates and managements assessment of
various market factors, which are judgmental in nature. During
the first quarter of 2008, the Company completed its valuation
of these structured investments and, as a result, recorded
$253 million of impairment charges primarily as a result of
widening credit spreads during the quarter. The Company expects
that approximately $65 million of principal and interest
payments will not be received for certain structured investment
securities, which was incorporated in determining the impairment
charges recorded during the quarter ended March 31, 2008.
On March 31, 2008, the Company exchanged its interest in
certain structured investment securities and received its share
of the underlying investment securities collateral as an in-kind
distribution as permitted under the applicable restructuring
agreements. Refer to Note 3 in the Notes to Consolidated
Financial Statements for further information on investment
securities.
Deposits Total
deposits were $138.3 billion at March 31, 2008,
compared with $131.4 billion at December 31, 2007, an
increase of $6.9 billion (5.2 percent). The increase
in total deposits was primarily the result of increases in
interest checking accounts, money market savings accounts and
time deposits greater than $100,000, partially offset by
decreases in noninterest-bearing deposits and time certificates
of deposit less than $100,000. The $3.1 billion
(10.8 percent) increase in interest checking account
balances was due primarily to higher broker-dealer balances. The
$2.2 billion (8.9 percent) increase in money market
savings account b alances was due to higher broker-dealer and
branch-based balances. Time deposits greater than $100,000
increased $2.9 billion (11.1 percent) at
March 31, 2008, compared with December 31, 2007. Time
deposits greater than $100,000 are largely viewed as purchased
funds and are managed to levels deemed appropriate given
alternative funding sources. The $.5 billion
(1.4 percent) decrease in noninterest-bearing deposits was
primarily due to the seasonal decline of business demand
balances. Time certificates of deposit less than $100,000
decreased $1.2 billion (8.3 percent) at March 31,
2008, compared with December 31, 2007, primarily within
consumer banking, reflecting the Companys funding and
pricing decisions and competition for these deposits by other
financial institutions that have more limited access to
wholesale funding sources given the current market environment.
Borrowings The
Company utilizes both short-term and long-term borrowings to
fund growth of assets in excess of deposit growth. Short-term
borrowings, which include federal funds purchased, commercial
paper, repurchase agreements, borrowings secured by high-grade
assets and other short-term borrowings, were $36.4 billion
at March 31, 2008, compared with $32.4 billion at
December 31, 2007. Short-term funding is managed within
approved liquidity policies. The increase of $4.0 billion
(12.4 percent) in short-term borrowings reflected wholesale
funding associated with the Companys asset growth and
asset/liability management activities. Long-term debt was
$36.2 billion at March 31, 2008, compared with
$43.4 billion at December 31, 2007, primarily
reflecting the repayment of $2.9 billion of convertible
senior debentures and $5.2 billion of medium-term note
maturities in the first quarter of 2008. The $7.2 billion
(16.6 percent) decrease in long-term debt reflected
asset/liability management decisions to fund balance sheet
growth with other funding sources. Refer to the Liquidity
Risk Management section for discussion of liquidity
management of the Company.
CORPORATE
RISK PROFILE
Overview Managing
risks is an essential part of successfully operating a financial
services company. The most prominent risk exposures are credit,
residual value, operational, interest rate, market and liquidity
risk. Credit risk is the risk of not collecting the interest
and/or the
principal balance of a loan or investment when it is due.
Residual value risk is the potential reduction in the
end-of-term value of leased assets or the residual cash flows
related to asset securitization and other off-balance sheet
structures. Operational risk includes risks related to fraud,
legal and compliance risk, processing
errors, technology, breaches of
internal controls and business continuation and disaster
recovery risk. Interest rate risk is the potential reduction of
net interest income as a result of changes in interest rates,
which can affect the repricing of assets and liabilities
differently, as well as their market value. 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 that are accounted for on a mark-to-market basis.
Liquidity risk is the possible inability to fund obligations to
depositors, investors or borrowers. In addition, corporate
strategic decisions, as well as the risks described above, could
give rise to reputation risk. Reputation risk is the risk that
negative publicity or press, whether true or not, could result
in costly litigation or cause a decline in the Companys
stock value, customer base, funding sources or revenue.
Credit Risk
Management The
Companys strategy for credit risk management includes
well-defined, centralized credit policies, uniform underwriting
criteria, and ongoing risk monitoring and review processes for
all commercial and consumer credit exposures. In evaluating its
credit risk, the Company considers changes, if any, in
underwriting activities, the loan portfolio composition
(including product mix and geographic, industry or
customer-specific concentrations), trends in loan performance,
the level of allowance coverage relative to similar banking
institutions and macroeconomic factors. Refer to
Managements Discussion and Analysis
Credit Risk Management in the Companys Annual Report
on
Form 10-K
for the year ended December 31, 2007, for a more detailed
discussion on credit risk management processes.
The Company manages its credit risk, in part through
diversification of its loan portfolio. As part of its normal
business activities, the Company offers a broad array of
commercial and retail lending products. The Companys
retail lending business utilizes several distinct business
processes and channels to originate retail credit, including
traditional branch lending, indirect lending, portfolio
acquisitions and a consumer finance division. Generally, loans
managed by the Companys consumer finance division exhibit
higher credit risk characteristics, but are priced commensurate
with the differing risk profile. With respect to residential
mortgages originated through these channels, the Company may
either retain the loans on its balance sheet or sell its
interest in the balances into the secondary market while
retaining the servicing rights and customer relationships. For
residential mortgages that are retained in the Companys
portfolio, credit risk is also diversified by geography and
monitoring loan-to-values during the underwriting process.
The following table provides summary information of the
loan-to-values of residential mortgages by distribution channel
and type at March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
Percent of
|
|
(Dollars in Millions)
|
|
Only
|
|
Amortizing
|
|
Total
|
|
Total
|
|
|
|
|
Consumer Finance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than or equal to 80%
|
|
$
|
769
|
|
$
|
2,553
|
|
$
|
3,322
|
|
|
33.3
|
%
|
Over 80% through 90%
|
|
|
794
|
|
|
1,615
|
|
|
2,409
|
|
|
24.1
|
|
Over 90% through 100%
|
|
|
840
|
|
|
3,289
|
|
|
4,129
|
|
|
41.4
|
|
Over 100%
|
|
|
|
|
|
116
|
|
|
116
|
|
|
1.2
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,403
|
|
$
|
7,573
|
|
$
|
9,976
|
|
|
100.0
|
%
|
Other Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than or equal to 80%
|
|
$
|
2,396
|
|
$
|
9,635
|
|
$
|
12,031
|
|
|
90.8
|
%
|
Over 80% through 90%
|
|
|
80
|
|
|
540
|
|
|
620
|
|
|
4.7
|
|
Over 90% through 100%
|
|
|
127
|
|
|
464
|
|
|
591
|
|
|
4.5
|
|
Over 100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,603
|
|
$
|
10,639
|
|
$
|
13,242
|
|
|
100.0
|
%
|
Total Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than or equal to 80%
|
|
$
|
3,165
|
|
$
|
12,188
|
|
$
|
15,353
|
|
|
66.1
|
%
|
Over 80% through 90%
|
|
|
874
|
|
|
2,155
|
|
|
3,029
|
|
|
13.1
|
|
Over 90% through 100%
|
|
|
967
|
|
|
3,753
|
|
|
4,720
|
|
|
20.3
|
|
Over 100%
|
|
|
|
|
|
116
|
|
|
116
|
|
|
.5
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,006
|
|
$
|
18,212
|
|
$
|
23,218
|
|
|
100.0
|
%
|
|
Note: loan-to-values
determined as of the date of origination and consider mortgage
insurance, as applicable.
Within the consumer finance division approximately
$3.2 billion, or 32.1 percent of that division,
represents residential mortgages to customers that may be
defined as sub-prime borrowers, compared with $3.3 billion,
or 33.5 percent, at December 31, 2007. The following
table provides further information on residential mortgages for
the consumer finance division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
Pecent of
|
|
(Dollars in Millions)
|
|
Only
|
|
Amortizing
|
|
Total
|
|
Division
|
|
|
|
|
Sub-Prime Borrowers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than or equal to 80%
|
|
$
|
4
|
|
$
|
1,162
|
|
$
|
1,166
|
|
|
11.7
|
%
|
Over 80% through 90%
|
|
|
6
|
|
|
781
|
|
|
787
|
|
|
7.9
|
|
Over 90% through 100%
|
|
|
23
|
|
|
1,157
|
|
|
1,180
|
|
|
11.8
|
|
Over 100%
|
|
|
|
|
|
71
|
|
|
71
|
|
|
.7
|
|
|
|
|
|
|
|
Total
|
|
$
|
33
|
|
$
|
3,171
|
|
$
|
3,204
|
|
|
32.1
|
%
|
Other Borrowers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than or equal to 80%
|
|
$
|
765
|
|
$
|
1,391
|
|
$
|
2,156
|
|
|
21.6
|
%
|
Over 80% through 90%
|
|
|
788
|
|
|
834
|
|
|
1,622
|
|
|
16.3
|
|
Over 90% through 100%
|
|
|
817
|
|
|
2,132
|
|
|
2,949
|
|
|
29.6
|
|
Over 100%
|
|
|
|
|
|
45
|
|
|
45
|
|
|
.4
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,370
|
|
$
|
4,402
|
|
$
|
6,772
|
|
|
67.9
|
%
|
|
|
|
|
|
|
Total Consumer Finance
|
|
$
|
2,403
|
|
$
|
7,573
|
|
$
|
9,976
|
|
|
100.0
|
%
|
|
In addition to residential mortgages, the consumer finance
division had $.8 billion of home equity and second mortgage
loans to customers that may be defined as sub-prime borrowers at
March 31, 2008, compared with $.9 billion at
December 31, 2007. Including residential mortgages, and
home equity and second mortgage loans, the total amount of loans
to customers that may be defined as sub-prime borrowers
represented only 1.7 percent of total assets at
March 31, 2008, and at December 31, 2007. The Company
does not have any residential mortgages whose payment schedule
would cause balances to increase over time.
Loan
Delinquencies Trends
in delinquency ratios represent an indicator, among other
considerations, of credit risk within the Companys loan
portfolios. The Company measures delinquencies, both including
and excluding nonperforming loans, to enable comparability with
other companies. Accruing loans 90 days or more past due
totaled $676 million at March 31, 2008, compared with
$584 million at December 31, 2007. Consistent with
banking industry practices, these loans are not included in
nonperforming assets and continue to accrue interest because
they are adequately secured by collateral,
and/or are
in the process of collection and are reasonably expected to
result in repayment or restoration to current status. The
ratio of accruing loans 90 days or more past due to total
loans was .43 percent at March 31, 2008, compared with
.38 percent at December 31, 2007.
Table
4
Delinquent Loan Ratios as a Percent of Ending Loan Balances
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
90 days or more
past due excluding nonperforming loans
|
|
2008
|
|
|
2007
|
|
Commercial
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
.10
|
%
|
|
|
.08
|
%
|
Lease financing
|
|
|
.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
.09
|
|
|
|
.07
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
Commercial mortgages
|
|
|
.02
|
|
|
|
.02
|
|
Construction and development
|
|
|
.38
|
|
|
|
.02
|
|
|
|
|
|
|
|
|
|
|
Total commercial real estate
|
|
|
.13
|
|
|
|
.02
|
|
Residential mortgages
|
|
|
.98
|
|
|
|
.86
|
|
Retail
|
|
|
|
|
|
|
|
|
Credit card
|
|
|
1.96
|
|
|
|
1.94
|
|
Retail leasing
|
|
|
.11
|
|
|
|
.10
|
|
Other retail
|
|
|
.37
|
|
|
|
.37
|
|
|
|
|
|
|
|
|
|
|
Total retail
|
|
|
.69
|
|
|
|
.68
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
.43
|
%
|
|
|
.38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
90 days or more
past due including nonperforming loans
|
|
2008
|
|
|
2007
|
|
Commercial
|
|
|
.60
|
%
|
|
|
.43
|
%
|
Commercial real estate
|
|
|
1.18
|
|
|
|
1.02
|
|
Residential mortgages (a)
|
|
|
1.24
|
|
|
|
1.10
|
|
Retail (b)
|
|
|
.77
|
|
|
|
.73
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
.86
|
%
|
|
|
.74
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Delinquent
loan ratios exclude advances made pursuant to servicing
agreements to Government National Mortgage Association
(GNMA) mortgage pools whose repayments are insured
by the Federal Housing Administration or guaranteed by the
Department of Veterans Affairs. Including the guaranteed
amounts, the ratio of residential mortgages 90 days or more
past due was 4.19 percent at March 31, 2008, and
3.78 percent at December 31, 2007. |
(b)
|
|
Beginning
in 2008, delinquent loan ratios exclude student loans that are
guaranteed by the federal government. Including the guaranteed
amounts, the ratio of retail loans 90 days or more past due
including nonperforming loans was .79 percent at March 31,
2008. |
To monitor credit risk associated with retail loans, the Company
monitors delinquency ratios in the various stages of collection,
including nonperforming status. The following table provides
summary delinquency information for residential mortgages and
retail loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a Percent of
Ending
|
|
|
|
Amount
|
|
|
Loan Balances
|
|
|
|
March 31,
|
|
December 31,
|
|
|
March 31,
|
|
|
December 31,
|
|
(Dollars in Millions)
|
|
2008
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Residential Mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days
|
|
|
$256
|
|
|
$233
|
|
|
|
1.10
|
%
|
|
|
1.02
|
%
|
90 days or more
|
|
|
228
|
|
|
196
|
|
|
|
.98
|
|
|
|
.86
|
|
Nonperforming
|
|
|
59
|
|
|
54
|
|
|
|
.26
|
|
|
|
.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$543
|
|
|
$483
|
|
|
|
2.34
|
%
|
|
|
2.12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days
|
|
|
$276
|
|
|
$268
|
|
|
|
2.43
|
%
|
|
|
2.44
|
%
|
90 days or more
|
|
|
222
|
|
|
212
|
|
|
|
1.96
|
|
|
|
1.94
|
|
Nonperforming
|
|
|
25
|
|
|
14
|
|
|
|
.22
|
|
|
|
.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$523
|
|
|
$494
|
|
|
|
4.61
|
%
|
|
|
4.51
|
%
|
Retail leasing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days
|
|
|
$36
|
|
|
$39
|
|
|
|
.63
|
%
|
|
|
.65
|
%
|
90 days or more
|
|
|
6
|
|
|
6
|
|
|
|
.11
|
|
|
|
.10
|
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$42
|
|
|
$45
|
|
|
|
.74
|
%
|
|
|
.75
|
%
|
Home equity and second mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days
|
|
|
$102
|
|
|
$107
|
|
|
|
.61
|
%
|
|
|
.65
|
%
|
90 days or more
|
|
|
73
|
|
|
64
|
|
|
|
.44
|
|
|
|
.39
|
|
Nonperforming
|
|
|
11
|
|
|
11
|
|
|
|
.07
|
|
|
|
.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$186
|
|
|
$182
|
|
|
|
1.12
|
%
|
|
|
1.11
|
%
|
Other retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days
|
|
|
$158
|
|
|
$177
|
|
|
|
.84
|
%
|
|
|
1.02
|
%
|
90 days or more
|
|
|
59
|
|
|
62
|
|
|
|
.32
|
|
|
|
.36
|
|
Nonperforming
|
|
|
6
|
|
|
4
|
|
|
|
.03
|
|
|
|
.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$223
|
|
|
$243
|
|
|
|
1.19
|
%
|
|
|
1.40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within these product categories, the following table provides
information on delinquent and nonperforming loans as a percent
of ending loan balances, by channel:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Finance
|
|
|
|
Other Retail
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
2008
|
|
|
2007
|
|
Residential mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days
|
|
|
1.76
|
%
|
|
|
1.58
|
%
|
|
|
|
.61
|
%
|
|
|
.61
|
%
|
90 days or more
|
|
|
1.55
|
|
|
|
1.33
|
|
|
|
|
.55
|
|
|
|
.51
|
|
Nonperforming
|
|
|
.35
|
|
|
|
.31
|
|
|
|
|
.18
|
|
|
|
.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3.66
|
%
|
|
|
3.22
|
%
|
|
|
|
1.34
|
%
|
|
|
1.30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days
|
|
|
|
%
|
|
|
|
%
|
|
|
|
2.43
|
%
|
|
|
2.44
|
%
|
90 days or more
|
|
|
|
|
|
|
|
|
|
|
|
1.96
|
|
|
|
1.94
|
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|
|
.22
|
|
|
|
.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
%
|
|
|
|
%
|
|
|
|
4.61
|
%
|
|
|
4.51
|
%
|
Retail leasing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days
|
|
|
|
%
|
|
|
|
%
|
|
|
|
.63
|
%
|
|
|
.65
|
%
|
90 days or more
|
|
|
|
|
|
|
|
|
|
|
|
.11
|
|
|
|
.10
|
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
%
|
|
|
|
%
|
|
|
|
.74
|
%
|
|
|
.75
|
%
|
Home equity and second mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days
|
|
|
2.32
|
%
|
|
|
2.53
|
%
|
|
|
|
.39
|
%
|
|
|
.41
|
%
|
90 days or more
|
|
|
2.26
|
|
|
|
1.78
|
|
|
|
|
.20
|
|
|
|
.21
|
|
Nonperforming
|
|
|
.16
|
|
|
|
.11
|
|
|
|
|
.06
|
|
|
|
.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4.74
|
%
|
|
|
4.42
|
%
|
|
|
|
.65
|
%
|
|
|
.68
|
%
|
Other retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days
|
|
|
4.40
|
%
|
|
|
6.38
|
%
|
|
|
|
.76
|
%
|
|
|
.88
|
%
|
90 days or more
|
|
|
1.39
|
|
|
|
1.66
|
|
|
|
|
.29
|
|
|
|
.33
|
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|
|
.03
|
|
|
|
.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5.79
|
%
|
|
|
8.04
|
%
|
|
|
|
1.08
|
%
|
|
|
1.23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within the consumer finance division at March 31, 2008,
approximately $240 million and $86 million of these
delinquent and nonperforming residential mortgages and other
retail loans, respectively, were with customers that may be
defined as sub-prime borrowers, compared with $227 million
and $89 million, respectively, at December 31, 2007.
The Company expects the accelerating trends in delinquencies to
continue during the remainder of 2008 as residential home
valuations are expected to continue to decline and economic
factors adversely affect the consumer sector.
Nonperforming
Assets The
level of nonperforming assets represents another indicator of
the potential for future credit losses. At March 31, 2008,
total nonperforming assets were $845 million, compared with
$690 million at December 31, 2007. The ratio of total
nonperforming assets to total loans and other real estate was
.53 percent at March 31, 2008, compared with
.45 percent at December 31, 2007. The increase in
nonperforming assets was driven primarily by an increase in
foreclosed residential properties and the impact of the economic
downturn on commercial customers, including real estate
developers.
Table
5 Nonperforming
Assets (a)
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
(Dollars in Millions)
|
|
2008
|
|
|
2007
|
|
Commercial
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
201
|
|
|
$
|
128
|
|
Lease financing
|
|
|
64
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
265
|
|
|
|
181
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
Commercial mortgages
|
|
|
102
|
|
|
|
84
|
|
Construction and development
|
|
|
212
|
|
|
|
209
|
|
|
|
|
|
|
|
|
|
|
Total commercial real estate
|
|
|
314
|
|
|
|
293
|
|
Residential mortgages
|
|
|
59
|
|
|
|
54
|
|
Retail
|
|
|
|
|
|
|
|
|
Credit card
|
|
|
25
|
|
|
|
14
|
|
Retail leasing
|
|
|
|
|
|
|
|
|
Other retail
|
|
|
17
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
Total retail
|
|
|
42
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans
|
|
|
680
|
|
|
|
557
|
|
Other real estate (b)
|
|
|
141
|
|
|
|
111
|
|
Other assets
|
|
|
24
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets
|
|
$
|
845
|
|
|
$
|
690
|
|
|
|
|
|
|
|
|
|
|
Accruing loans 90 days or more past due
|
|
$
|
676
|
|
|
$
|
584
|
|
Nonperforming loans to total loans
|
|
|
.43
|
%
|
|
|
.36
|
%
|
Nonperforming assets to total loans plus other real
estate (b)
|
|
|
.53
|
%
|
|
|
.45
|
%
|
|
|
|
|
|
|
|
|
|
Changes
in Nonperforming Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and
|
|
|
Retail and
|
|
|
|
|
|
|
Commercial
|
|
|
Residential
|
|
|
|
|
(Dollars in Millions)
|
|
Real Estate
|
|
|
Mortgages (d)
|
|
|
Total
|
|
Balance December 31, 2007
|
|
$
|
485
|
|
|
$
|
205
|
|
|
|
$690
|
|
Additions to nonperforming assets
|
|
|
|
|
|
|
|
|
|
|
|
|
New nonaccrual loans and foreclosed properties
|
|
|
241
|
|
|
|
51
|
|
|
|
292
|
|
Advances on loans
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total additions
|
|
|
246
|
|
|
|
51
|
|
|
|
297
|
|
Reductions in nonperforming assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Paydowns, payoffs
|
|
|
(56
|
)
|
|
|
(8
|
)
|
|
|
(64
|
)
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Return to performing status
|
|
|
(8
|
)
|
|
|
(2
|
)
|
|
|
(10
|
)
|
Charge-offs (c)
|
|
|
(62
|
)
|
|
|
(6
|
)
|
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reductions
|
|
|
(126
|
)
|
|
|
(16
|
)
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net additions to nonperforming assets
|
|
|
120
|
|
|
|
35
|
|
|
|
155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2008
|
|
$
|
605
|
|
|
$
|
240
|
|
|
|
$845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Throughout
this document, nonperforming assets and related ratios do not
include accruing loans 90 days or more past due. |
(b)
|
|
Excludes
$130 million and $102 million at March 31, 2008,
and December 31, 2007, respectively, of foreclosed GNMA
loans which continue to accrue interest . |
(c)
|
|
Charge-offs
exclude actions for certain card products and loan sales that
were not classified as nonperforming at the time the charge-off
occurred. |
(d)
|
|
Residential
mortgage information excludes changes related to residential
mortgages serviced by others. |
Included in nonperforming loans were restructured loans of
$30 million at March 31, 2008, compared with
$17 million at December 31, 2007. At March 31,
2008, and December 31, 2007, the Company had no commitments
to lend additional funds under restructured loans.
Other real estate included in nonperforming assets was
$141 million at March 31, 2008, compared with
$111 million at December 31, 2007, and was primarily
related to properties that the Company has taken ownership of
that once secured residential mortgages and home equity and
second mortgage loan balances. The increase in other real estate
assets was due to higher residential mortgage loan foreclosures
as customers experienced financial difficulties given
inflationary factors, changing interest rates and other current
economic conditions.
The following table provides an analysis of other real estate
owned (OREO) as a percent of their related loan
balances, including further detail for residential mortgages and
home equity and second mortgage loan balances by geographical
location:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a Percent of
Ending
|
|
|
|
Amount
|
|
|
Loan Balances
|
|
|
|
March 31,
|
|
December 31,
|
|
|
March 31,
|
|
|
December 31,
|
|
(Dollars in Millions)
|
|
2008
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michigan
|
|
$
|
21
|
|
$
|
22
|
|
|
|
3.70
|
%
|
|
|
3.47
|
%
|
Minnesota
|
|
|
13
|
|
|
12
|
|
|
|
.25
|
|
|
|
.23
|
|
Ohio
|
|
|
10
|
|
|
10
|
|
|
|
.40
|
|
|
|
.40
|
|
Florida
|
|
|
8
|
|
|
6
|
|
|
|
1.03
|
|
|
|
.70
|
|
Missouri
|
|
|
6
|
|
|
6
|
|
|
|
.23
|
|
|
|
.22
|
|
All other states
|
|
|
64
|
|
|
54
|
|
|
|
.23
|
|
|
|
.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total residential
|
|
|
122
|
|
|
110
|
|
|
|
.31
|
|
|
|
.28
|
|
Commercial
|
|
|
19
|
|
|
1
|
|
|
|
.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OREO
|
|
$
|
141
|
|
$
|
111
|
|
|
|
.09
|
%
|
|
|
.07
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within other real estate in the table above, approximately
$66 million at March 31, 2008, and $61 million at
December 31, 2007, were from portfolios that may be defined
as sub-prime.
The Company expects nonperforming assets to increase moderately
over the next several quarters due to general economic
conditions and continued stress in the residential mortgage
portfolio and residential construction industry.
Restructured
Loans Accruing
Interest On a
case-by-case
basis, management determines whether an account that experiences
financial difficulties should be modified as to its interest
rate or repayment terms to maximize the Companys
collection of its balance. Loans restructured at a rate equal to
or greater than that of a new loan with comparable risk at the
time the contract is modified are excluded from restructured
loans once repayment performance, in accordance with the
modified agreement, has been demonstrated over several payment
cycles. Loans that have interest rates reduced below comparable
market rates remain classified as restructured loans; however,
interest income is accrued at the reduced rate as long as the
customer complies with the revised terms and conditions.
In late 2007, the Company began implementing a mortgage loan
restructuring program for certain qualifying borrowers. In
general, borrowers with sub-prime credit quality, that are
current in their repayment status, will be allowed to retain the
lower of their existing interest rate or the market interest
rate as of their interest reset date.
The following table provides a summary of restructured loans
that continue to accrue interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a Percent of
Ending
|
|
|
|
Amount
|
|
|
Loan Balances
|
|
|
|
March 31,
|
|
December 31,
|
|
|
March 31,
|
|
|
December 31,
|
|
(Dollars in Millions)
|
|
2008
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Commercial
|
|
$
|
19
|
|
$
|
21
|
|
|
|
.04
|
%
|
|
|
.04
|
%
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages
|
|
|
260
|
|
|
157
|
|
|
|
1.12
|
|
|
|
.69
|
|
Credit card
|
|
|
362
|
|
|
324
|
|
|
|
3.19
|
|
|
|
2.96
|
|
Other retail
|
|
|
54
|
|
|
49
|
|
|
|
.13
|
|
|
|
.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
695
|
|
$
|
551
|
|
|
|
.44
|
%
|
|
|
.36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured loans that continue to accrue interest were higher
at March 31, 2008, compared with December 31, 2007,
reflecting the impact of restructurings for certain residential
mortgage customers in light of current economic conditions. The
Company expects this trend to continue during 2008 as
residential home valuations are expected to continue to decline
and certain borrowers take advantage of the Companys
mortgage loan restructuring programs.
Analysis of
Loan Net
Charge-Offs Total
loan net charge-offs were $293 million for the first
quarter of 2008, compared with net charge-offs of
$177 million for the first quarter of 2007. The ratio of
total loan net charge-offs to average loans outstanding on an
annualized basis for the first quarter of 2008 was
.76 percent, compared with .50 percent, for the first
quarter of 2007. The year-over-year increase in total net
charge-offs was due primarily to continued stress in the
residential housing market, homebuilding and related industry
sectors, in addition to the growth of the credit card and other
consumer loan portfolios.
Table
6 Net
Charge-offs as a Percent of Average Loans Outstanding
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Commercial
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
.34
|
%
|
|
|
.31
|
%
|
Lease financing
|
|
|
1.03
|
|
|
|
.22
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
.43
|
|
|
|
.30
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
Commercial mortgages
|
|
|
.08
|
|
|
|
.02
|
|
Construction and development
|
|
|
.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial real estate
|
|
|
.16
|
|
|
|
.01
|
|
Residential mortgages
|
|
|
.46
|
|
|
|
.23
|
|
Retail
|
|
|
|
|
|
|
|
|
Credit card
|
|
|
3.93
|
|
|
|
3.48
|
|
Retail leasing
|
|
|
.49
|
|
|
|
.18
|
|
Home equity and second mortgages
|
|
|
.73
|
|
|
|
.42
|
|
Other retail
|
|
|
1.25
|
|
|
|
.89
|
|
|
|
|
|
|
|
|
|
|
Total retail
|
|
|
1.58
|
|
|
|
1.10
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
.76
|
%
|
|
|
.50
|
%
|
|
|
|
|
|
|
|
|
|
Commercial and commercial real estate loan net charge-offs for
the first quarter of 2008 increased to $67 million
(.33 percent of average loans outstanding on an annualized
basis), compared with $36 million (.19 percent of
average loans outstanding on an annualized basis) for the first
quarter of 2007. The year-over-year increase in net charge-offs
reflected anticipated increases in nonperforming loans and
delinquencies within the portfolios, especially residential
homebuilding and related industry sectors. Given the continuing
stress in the homebuilding and related industries, as well as
the potential impact of the economic downturn on other
commercial customers, the Company expects commercial and
commercial real estate net charge-offs to continue to increase
moderately over the next several quarters.
Retail loan net charge-offs for the first quarter of 2008 were
$200 million (1.58 percent of average loans
outstanding on an annualized basis), compared with
$129 million (1.10 percent of average loans
outstanding on an annualized basis) for the first quarter of
2007. The increase in retail loan net charge-offs in the first
quarter of 2008, compared with the same period of 2007,
reflected continued stress in the residential housing market and
growth in the credit card and other consumer loan portfolios. It
also reflected higher retail loan delinquency ratios, compared
with the prior year. The Company anticipates higher delinquency
levels in the retail portfolios and that retail net charge-offs
will continue to increase, but remain manageable during 2008.
The following table provides an analysis of net charge-offs as a
percent of average loans outstanding managed by the consumer
finance division, compared with other retail related loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31
|
|
|
|
|
|
|
Percent of
|
|
|
|
Average Loans
|
|
|
Average Loans
|
|
(Dollars in Millions)
|
|
2008
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Consumer Finance (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages
|
|
$
|
9,898
|
|
|
$8,491
|
|
|
|
.85
|
%
|
|
|
.53
|
%
|
Home equity and second mortgages
|
|
|
1,873
|
|
|
1,871
|
|
|
|
4.29
|
|
|
|
2.17
|
|
Other retail
|
|
|
429
|
|
|
399
|
|
|
|
5.63
|
|
|
|
3.05
|
|
Other Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages
|
|
$
|
13,080
|
|
|
$13,078
|
|
|
|
.15
|
%
|
|
|
.03
|
%
|
Home equity and second mortgages
|
|
|
14,654
|
|
|
13,684
|
|
|
|
.27
|
|
|
|
.18
|
|
Other retail
|
|
|
17,202
|
|
|
16,039
|
|
|
|
1.15
|
|
|
|
.83
|
|
Total Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages
|
|
$
|
22,978
|
|
|
$21,569
|
|
|
|
.46
|
%
|
|
|
.23
|
%
|
Home equity and second mortgages
|
|
|
16,527
|
|
|
15,555
|
|
|
|
.73
|
|
|
|
.42
|
|
Other retail
|
|
|
17,631
|
|
|
16,438
|
|
|
|
1.25
|
|
|
|
.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Consumer
finance category included credit originated and managed by US
Bank Consumer Finance, as well as home equity and second
mortgages with a loan-to-value greater than 100 percent
that were originated in the branches. |
Within the consumer finance division, the Company originates
loans to customers that may be defined as sub-prime borrowers.
The following table provides further information on net
charge-offs as a percent of average loans outstanding for this
division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31
|
|
|
|
|
|
|
Percent of
|
|
|
|
Average Loans
|
|
|
Average Loans
|
|
(Dollars in Millions)
|
|
2008
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Residential mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-prime borrowers
|
|
$
|
3,220
|
|
|
$3,005
|
|
|
|
1.62
|
%
|
|
|
1.08
|
%
|
Other borrowers
|
|
|
6,678
|
|
|
5,486
|
|
|
|
.48
|
|
|
|
.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,898
|
|
|
$8,491
|
|
|
|
.85
|
%
|
|
|
.53
|
|
Home equity and second mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-prime borrowers
|
|
$
|
854
|
|
|
$911
|
|
|
|
6.59
|
%
|
|
|
2.67
|
%
|
Other borrowers
|
|
|
1,019
|
|
|
960
|
|
|
|
2.37
|
|
|
|
1.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,873
|
|
|
$1,871
|
|
|
|
4.29
|
%
|
|
|
2.17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysis and
Determination of the Allowance for Credit
Losses The
allowance for loan losses provides coverage for probable and
estimable losses inherent in the Companys loan and lease
portfolio. Management evaluates the allowance each quarter to
determine that it is adequate to cover these inherent losses.
Several factors were taken into consideration in evaluating the
allowance for credit losses at March 31, 2008, including
the risk profile of the portfolios, loan net charge-offs during
the period, the level of nonperforming assets, accruing loans
90 days or more past due, delinquency ratios and changes in
restructured loan balances compared with December 31, 2007.
Management also considered the uncertainty related to certain
industry sectors, and the extent of credit exposure to specific
borrowers within the portfolio. In addition, concentration risks
associated with commercial real estate and the mix of loans,
including credit cards, loans originated through the consumer
finance division and residential mortgage balances, and their
relative credit risks, were evaluated. Finally, the Company
considered current economic conditions that might impact the
portfolio.
At March 31, 2008, the allowance for credit losses was
$2,435 million (1.54 percent of loans), compared with
an allowance of $2,260 million (1.47 percent of loans)
at December 31, 2007. The ratio of the allowance for credit
losses to nonperforming loans was 358 percent at
March 31, 2008, compared with 406 percent at
December 31, 2007. The ratio of the allowance for credit
losses to annualized loan net charge-offs was 207 percent
at March 31, 2008, compared with 285 percent at
December 31, 2007.
Residual Value
Risk
Management The
Company manages its risk to changes in the residual value of
leased assets through disciplined residual valuation setting at
the inception of a lease, diversification of its leased assets,
regular residual asset valuation reviews and monitoring of
residual value gains or losses upon the disposition of assets.
As of March 31, 2008, no significant change in the amount
of residuals or concentration of the portfolios has occurred
since December 31, 2007. Refer to Managements
Discussion and Analysis Residual Value Risk
Management in the Companys Annual Report on
Form 10-K
for the year ended December 31, 2007, for further
discussion on residual value risk management.
Operational Risk
Management The
Company manages operational risk through a risk management
framework and its internal control processes. Within this
framework, the Corporate Risk Committee (Risk
Committee) provides oversight and assesses the most
significant operational risks facing the Company within its
business lines. Under the guidance of the Risk Committee,
enterprise risk management personnel establish policies and
interact with business lines to monitor significant operating
risks on a regular basis. Business lines have direct and primary
responsibility and accountability for identifying, controlling,
and monitoring operational risks embedded in their business
activities. Refer to Managements Discussion and
Analysis Operational Risk Management in the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2007, for further
discussion on operational risk management.
Interest Rate
Risk
Management In
the banking industry, changes in interest rates are a
significant risk that can impact earnings, market valuations and
safety and soundness of an entity. To minimize the volatility of
net interest income and the market value of assets and
liabilities, the Company manages its exposure to changes in
interest rates through asset and liability management activities
within guidelines established by its Asset Liability Policy
Committee (ALPC) and approved by the Board of
Directors. ALPC has the responsibility for approving and
ensuring compliance with ALPC management policies, including
interest rate risk exposure. The Company uses Net Interest
Income Simulation Analysis and Market Value of Equity Modeling
for measuring and analyzing consolidated interest rate risk.
Table
7 Summary
of Allowance for Credit Losses
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
March 31,
|
(Dollars in Millions)
|
|
2008
|
|
2007
|
Balance at beginning of period
|
|
$
|
2,260
|
|
|
$
|
2,256
|
|
Charge-offs
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
46
|
|
|
|
45
|
|
Lease financing
|
|
|
22
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
68
|
|
|
|
59
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
Commercial mortgages
|
|
|
4
|
|
|
|
2
|
|
Construction and development
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial real estate
|
|
|
12
|
|
|
|
2
|
|
Residential mortgages
|
|
|
26
|
|
|
|
12
|
|
Retail
|
|
|
|
|
|
|
|
|
Credit card
|
|
|
131
|
|
|
|
89
|
|
Retail leasing
|
|
|
8
|
|
|
|
5
|
|
Home equity and second mortgages
|
|
|
32
|
|
|
|
18
|
|
Other retail
|
|
|
71
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
Total retail
|
|
|
242
|
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
348
|
|
|
|
237
|
|
Recoveries
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
7
|
|
|
|
13
|
|
Lease financing
|
|
|
6
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
13
|
|
|
|
24
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
Commercial mortgages
|
|
|
|
|
|
|
1
|
|
Construction and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial real estate
|
|
|
|
|
|
|
1
|
|
Residential mortgages
|
|
|
|
|
|
|
|
|
Retail
|
|
|
|
|
|
|
|
|
Credit card
|
|
|
23
|
|
|
|
15
|
|
Retail leasing
|
|
|
1
|
|
|
|
2
|
|
Home equity and second mortgages
|
|
|
2
|
|
|
|
2
|
|
Other retail
|
|
|
16
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
Total retail
|
|
|
42
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
55
|
|
|
|
60
|
|
Net Charge-offs
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
39
|
|
|
|
32
|
|
Lease financing
|
|
|
16
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
55
|
|
|
|
35
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
Commercial mortgages
|
|
|
4
|
|
|
|
1
|
|
Construction and development
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial real estate
|
|
|
12
|
|
|
|
1
|
|
Residential mortgages
|
|
|
26
|
|
|
|
12
|
|
Retail
|
|
|
|
|
|
|
|
|
Credit card
|
|
|
108
|
|
|
|
74
|
|
Retail leasing
|
|
|
7
|
|
|
|
3
|
|
Home equity and second mortgages
|
|
|
30
|
|
|
|
16
|
|
Other retail
|
|
|
55
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
Total retail
|
|
|
200
|
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
Total net charge-offs
|
|
|
293
|
|
|
|
177
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses
|
|
|
485
|
|
|
|
177
|
|
Acquisitions and other changes
|
|
|
(17
|
)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
2,435
|
|
|
$
|
2,260
|
|
|
|
|
|
|
|
|
|
|
Components
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
2,251
|
|
|
$
|
2,027
|
|
Liability for unfunded credit commitments
|
|
|
184
|
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
Total allowance for credit losses
|
|
$
|
2,435
|
|
|
$
|
2,260
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses as a percentage of
|
|
|
|
|
|
|
|
|
Period-end loans
|
|
|
1.54
|
%
|
|
|
1.56
|
%
|
Nonperforming loans
|
|
|
358
|
|
|
|
498
|
|
Nonperforming assets
|
|
|
288
|
|
|
|
388
|
|
Annualized net charge-offs
|
|
|
207
|
|
|
|
315
|
|
|
|
|
|
|
|
|
|
|
Net Interest
Income Simulation
Analysis Through
this simulation, management estimates the impact on net interest
income of gradual upward or downward changes of market interest
rates over a one-year period, the effect of immediate and
sustained parallel shifts in the yield curve and the effect of
immediate and sustained flattening or steepening of the yield
curve. The table below summarizes the interest rate risk of net
interest income based on forecasts over the succeeding
12 months. At March 31, 2008, the Companys
overall interest rate risk position was liability sensitive to
changes in interest rates. ALPC policy limits the estimated
change in net interest income to 4.0 percent of forecasted
net interest income over the succeeding 12 months. At
March 31, 2008, and December 31, 2007, the Company was
within policy. Refer to Managements Discussion and
Analysis Net Interest Income Simulation
Analysis in the Companys Annual Report on
Form 10-K
for the year ended December 31, 2007, for further
discussion on net interest income simulation analysis.
Market Value
of Equity
Modeling The
Company also manages interest rate sensitivity by utilizing
market value of equity modeling, which measures the degree to
which the market values of the Companys assets and
liabilities and off-balance sheet instruments will change given
a change in interest rates. ALPC policy limits the change in
market value of equity in a 200 basis point parallel rate
shock to 15 percent of the market value of equity assuming
interest rates at March 31, 2008. The up 200 basis
point scenario resulted in an 11.4 percent decrease in the
market value of equity at March 31, 2008, compared with a
7.6 percent decrease at December 31, 2007. The down
200 basis point scenario resulted in a .3 percent
decrease in the market value of equity at March 31, 2008,
compared with a 3.5 percent decrease at December 31,
2007. At March 31, 2008, and December 31, 2007, the
Company was within its ALPC policy.
The Company also uses duration of equity as a measure of
interest rate risk. The duration of equity is a measure of the
net market value sensitivity of the assets, liabilities and
derivative positions of the Company. At March 31, 2008, the
duration of assets, liabilities and equity was 1.9 years,
1.7 years and 3.4 years, respectively, compared with
1.8 years, 1.9 years and 1.2 years, respectively,
at December 31, 2007. The change in duration of equity
reflects a change in market rates and credit spreads. The
duration of equity measures show that sensitivity of the market
value of equity of the Company was liability sensitive to
changes in interest rates. Refer to Managements
Discussion and Analysis Market Value of Equity
Modeling in the Companys Annual Report on
Form 10-K
for the year ended December 31, 2007, for further
discussion on market value of equity modeling.
Use of
Derivatives to Manage Interest Rate and Other
Risks In the
ordinary course of business, the Company enters into derivative
transactions to manage its interest rate, prepayment, credit,
price and foreign currency risks (asset and liability
management positions) and to accommodate the business
requirements of its customers (customer-related
positions). Refer to Managements Discussion
and Analysis Use of Derivatives to Manage Interest
Rate and Other Risks in the Companys Annual Report
on
Form 10-K
for the year ended December 31, 2007, for further
discussion on the use of derivatives to manage interest rate and
other risks.
By their nature, derivative instruments are subject to market
risk. The Company does not utilize derivative instruments for
speculative purposes. Of the Companys $56.2 billion
of total notional amount of asset and liability management
positions at March 31, 2008, $17.8 billion was
designated as either fair value or cash flow hedges or net
investment hedges of foreign operations. The cash flow hedge
derivative positions are interest rate swaps that hedge the
forecasted cash flows from the underlying variable-rate debt.
The fair value hedges are primarily interest rate swaps that
hedge the change in fair value related to interest rate changes
of underlying fixed-rate debt and subordinated obligations.
At March 31, 2008, the Company had $402 million in
accumulated other comprehensive income related to realized and
unrealized losses on derivatives classified as cash flow hedges.
Unrealized gains and losses are reflected in earnings when the
related cash flows or hedged transactions occur and offset the
related performance of the hedged items. The estimated amount to
be reclassified from accumulated other comprehensive income into
earnings during the remainder of 2008 and the next
12 months is a loss of $32 million and
$167 million, respectively.
Sensitivity
of Net Interest Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008
|
|
|
|
December 31,
2007
|
|
|
|
Down 50
|
|
|
Up 50
|
|
|
Down 200
|
|
|
Up 200
|
|
|
|
Down 50
|
|
|
Up 50
|
|
|
Down 200
|
|
|
Up 200
|
|
|
|
Immediate
|
|
|
Immediate
|
|
|
Gradual*
|
|
|
Gradual
|
|
|
|
Immediate
|
|
|
Immediate
|
|
|
Gradual
|
|
|
Gradual
|
|
Net interest income
|
|
|
.92%
|
|
|
|
(.94)%
|
|
|
|
1.78%
|
|
|
|
(1.68)%
|
|
|
|
|
.54%
|
|
|
|
(1.01)%
|
|
|
|
1.28%
|
|
|
|
(2.55)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Market
rates in the Down 200 Gradual Ramp have been floored in the
later months of the ramp. |
Table
8 Derivative
Positions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008
|
|
|
|
December 31,
2007
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
Notional
|
|
|
Fair
|
|
|
Maturity
|
|
|
|
Notional
|
|
|
Fair
|
|
|
Maturity
|
|
(Dollars in Millions)
|
|
Amount
|
|
|
Value
|
|
|
In Years
|
|
|
|
Amount
|
|
|
Value
|
|
|
In Years
|
|
Asset and Liability Management
Positions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive fixed/pay floating swaps
|
|
$
|
5,000
|
|
|
$
|
195
|
|
|
|
32.95
|
|
|
|
$
|
3,750
|
|
|
$
|
17
|
|
|
|
40.87
|
|
Pay fixed/receive floating swaps
|
|
|
11,979
|
|
|
|
(638
|
)
|
|
|
3.67
|
|
|
|
|
15,979
|
|
|
|
(307
|
)
|
|
|
3.00
|
|
Futures and forwards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy
|
|
|
10,902
|
|
|
|
138
|
|
|
|
.06
|
|
|
|
|
12,459
|
|
|
|
(51
|
)
|
|
|
.12
|
|
Sell
|
|
|
8,158
|
|
|
|
(35
|
)
|
|
|
.13
|
|
|
|
|
11,427
|
|
|
|
(33
|
)
|
|
|
.16
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Written
|
|
|
16,948
|
|
|
|
29
|
|
|
|
.10
|
|
|
|
|
10,689
|
|
|
|
10
|
|
|
|
.12
|
|
Foreign exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps
|
|
|
2,015
|
|
|
|
338
|
|
|
|
8.58
|
|
|
|
|
1,913
|
|
|
|
196
|
|
|
|
8.80
|
|
Forwards
|
|
|
1,076
|
|
|
|
|
|
|
|
.04
|
|
|
|
|
1,111
|
|
|
|
(15
|
)
|
|
|
.03
|
|
Equity contracts
|
|
|
66
|
|
|
|
2
|
|
|
|
2.06
|
|
|
|
|
73
|
|
|
|
(3
|
)
|
|
|
2.33
|
|
Credit default swaps
|
|
|
56
|
|
|
|
2
|
|
|
|
3.35
|
|
|
|
|
56
|
|
|
|
1
|
|
|
|
3.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer-related
Positions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive fixed/pay floating swaps
|
|
$
|
16,900
|
|
|
$
|
752
|
|
|
|
5.22
|
|
|
|
$
|
14,260
|
|
|
$
|
386
|
|
|
|
5.10
|
|
Pay fixed/receive floating swaps
|
|
|
16,893
|
|
|
|
(744
|
)
|
|
|
5.25
|
|
|
|
|
14,253
|
|
|
|
(309
|
)
|
|
|
5.08
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
1,884
|
|
|
|
(31
|
)
|
|
|
2.24
|
|
|
|
|
1,939
|
|
|
|
1
|
|
|
|
2.25
|
|
Written
|
|
|
1,877
|
|
|
|
31
|
|
|
|
2.24
|
|
|
|
|
1,932
|
|
|
|
1
|
|
|
|
2.25
|
|
Risk participation agreements (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
425
|
|
|
|
1
|
|
|
|
6.20
|
|
|
|
|
370
|
|
|
|
1
|
|
|
|
6.23
|
|
Written
|
|
|
1,175
|
|
|
|
(2
|
)
|
|
|
3.95
|
|
|
|
|
628
|
|
|
|
(1
|
)
|
|
|
4.98
|
|
Foreign exchange rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forwards and swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy
|
|
|
3,992
|
|
|
|
192
|
|
|
|
.41
|
|
|
|
|
3,486
|
|
|
|
109
|
|
|
|
.44
|
|
Sell
|
|
|
3,890
|
|
|
|
(182
|
)
|
|
|
.42
|
|
|
|
|
3,426
|
|
|
|
(95
|
)
|
|
|
.44
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
563
|
|
|
|
(22
|
)
|
|
|
1.06
|
|
|
|
|
308
|
|
|
|
(6
|
)
|
|
|
.68
|
|
Written
|
|
|
563
|
|
|
|
22
|
|
|
|
1.06
|
|
|
|
|
293
|
|
|
|
6
|
|
|
|
.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
At
March 31, 2008, the credit equivalent amount was
$4 million and $103 million, compared with
$4 million and $69 million at December 31, 2007,
for purchased and written risk participation agreements,
respectively. |
The change in the fair value of all other asset and liability
management positions attributed to hedge ineffectiveness
recorded in noninterest income was not material for the first
quarter of 2008. Gains or losses on customer-related positions
were not material for the first quarter of 2008. The impact of
the adoption of the SFAS 157 reduced noninterest income
$62 million as it required the Company to consider the
primary market and nonperformance risk in determining the fair
value of customer derivatives.
The Company enters into derivatives to protect its net
investment in certain foreign operations. The Company uses
forward commitments to sell specified amounts of certain foreign
currencies to hedge fluctuations in foreign currency exchange
rates. The net amount of gains or losses included in the
cumulative translation adjustment for the first quarter of 2008
was not material.
The Company uses forward commitments to sell residential
mortgage loans to economically hedge its interest rate risk
related to residential MLHFS. In connection with its mortgage
banking operations, the Company held $6.3 billion of
forward commitments to sell mortgage loans and $5.0 billion
of unfunded mortgage loan commitments at March 31, 2008,
that were derivatives in accordance with the provisions of the
Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedge
Activities. The unfunded mortgage loan commitments are
reported at fair value as options in Table 8.
Effective January 1, 2008, the Company adopted
SFAS 159 and elected to measure certain MLHFS originated on
or after January 1, 2008 at fair value. The fair value
election for MLHFS will reduce certain timing differences and
better match changes in the value of these mortgage loans with
changes in the value of the derivatives used as economic hedges
for these mortgage loans. The Company also utilizes
U.S. Treasury futures, options on U.S. Treasury
futures contracts, interest rate swaps and forward commitments
to buy residential mortgage loans to economically hedge the
change in fair value of its residential MSRs.
Market Risk
Management In
addition to interest rate risk, the Company is exposed to other
forms of market risk as a consequence of conducting normal
trading activities. These trading activities principally support
the risk management processes of the Companys customers
including their management of foreign currency and interest rate
risks. The Company also manages market risk of non-trading
business activities, including its MSRs and loans held-for-sale.
Value at Risk (VaR) is a key measure of market risk
for the Company. Theoretically, VaR represents the maximum
amount that the Company has placed at risk of loss, with a
ninety-ninth percentile degree of confidence, to adverse market
movements in the course of its risk taking activities.
The Companys market valuation risk for trading and
non-trading positions, as estimated by the VaR analysis, was
$2 million and $12 million, respectively, at
March 31, 2008, compared with $1 million and
$15 million at December 31, 2007, respectively. The
Companys VaR limit was $45 million at March 31,
2008. Refer to Managements Discussion and
Analysis Market Risk Management in the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2007, for further
discussion on market risk management.
Liquidity Risk
Management ALPC
establishes policies, as well as analyzes and manages liquidity,
to ensure that adequate funds are available to meet normal
operating requirements in addition to unexpected customer
demands for funds in a timely and cost-effective manner.
Liquidity management is viewed from long-term and short-term
perspectives, as well as from an asset and liability
perspective. Management monitors liquidity through a regular
review of maturity profiles, funding sources, and loan and
deposit forecasts to minimize funding risk. Refer to
Managements Discussion and Analysis
Liquidity Risk Management in the Companys Annual
Report on
Form 10-K
for the year ended December 31, 2007, for further
discussion on liquidity risk management.
At March 31, 2008, parent company long-term debt
outstanding was $8.4 billion, compared with
$10.7 billion at December 31, 2007. The
$2.3 billion decrease was primarily due to the repayment of
$2.9 billion of convertible senior debentures during the
first three months of 2008. As of March 31, 2008, there was
no parent company debt scheduled to mature in the remainder of
2008.
Federal banking laws regulate the amount of dividends that may
be paid by banking subsidiaries without prior approval. The
amount of dividends available to the parent company from its
banking subsidiaries after meeting the regulatory capital
requirements for well-capitalized banks was approximately
$1.3 billion at March 31, 2008.
Off-Balance
Sheet
Arrangements The
Company sponsors an off-balance sheet conduit, a qualified
special purpose entity (QSPE), to which it
transferred high-grade investment securities, funded by the
issuance of commercial paper. Because QSPEs are exempt from
consolidation under the provisions of Financial Accounting
Standards Board Interpretation No. 46R
(FIN 46R), Consolidation of Variable
Interest Entities, the Company does not consolidate the
conduit structure in its financial statements. The conduit held
assets of $1.1 billion at March 31, 2008, and
$1.2 billion at December 31, 2007. These investment
securities include primarily (i) private label asset-backed
securities, which are insurance wrapped by mono-line
insurance companies and (ii) government agency
mortgage-backed securities and collateralized mortgage
obligations. The conduit had commercial paper liabilities of
$.6 billion at March 31, 2008, and $1.2 billion
at December 31, 2007. The Company provides a liquidity
facility to the conduit. Utilization of the liquidity facility
is triggered when the conduit is unable to, or does not issue
commercial paper to fund its assets. In March 2008, the conduit
ceased issuing commercial paper and, based on the terms of the
conduit, the Company began providing funding to replace
outstanding commercial paper as it matures. At March 31,
2008, the balance drawn on the liquidity facility by the conduit
was $.6 billion, which is recorded on the Companys
balance sheet in commercial loans and will be paid by the
proceeds of the underlying investment securities. Most of the
remaining outstanding commercial paper will mature during the
second quarter, resulting in additional draws against the
liquidity facility. A liability for the estimate of the
potential risk of loss for the Company as the liquidity facility
provider is recorded on the balance sheet in other liabilities.
The liability is adjusted downward over time as the liquidity
facility is drawn upon and as underlying assets in the conduit
pay down with the offset
Table
9 Capital
Ratios
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
(Dollars in Millions)
|
|
2008
|
|
|
2007
|
|
Tier 1 capital
|
|
$
|
18,543
|
|
|
$
|
17,539
|
|
As a percent of risk-weighted assets
|
|
|
8.6
|
%
|
|
|
8.3
|
%
|
As a percent of adjusted quarterly average assets (leverage
ratio)
|
|
|
8.1
|
%
|
|
|
7.9
|
%
|
Total risk-based capital
|
|
$
|
27,207
|
|
|
$
|
25,925
|
|
As a percent of risk-weighted assets
|
|
|
12.6
|
%
|
|
|
12.2
|
%
|
Tangible common equity
|
|
$
|
12,327
|
|
|
$
|
11,820
|
|
As a percent of tangible assets
|
|
|
5.3
|
%
|
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
|
recognized as other noninterest income. The liability for the
liquidity facility was $1 million and $2 million at
March 31, 2008, and December 31, 2007, respectively.
Given the credit quality of the underlying investment
securities, including the guarantees provided by insurers and
government agencies, the Company believes it has limited credit
risk related to its fundings as liquidity provider. In addition,
the Company recorded its retained residual interest in the
conduit of $6 million and $2 million at March 31,
2008 and December 31, 2007, respectively.
Capital
Management The
Company is committed to managing capital for maximum shareholder
benefit and maintaining strong protection for depositors and
creditors. In the first quarter of 2008, the Company returned
75 percent of earnings to its common shareholders primarily
through dividends and limited net share repurchases. The Company
also manages its capital to exceed regulatory capital
requirements for well-capitalized bank holding companies. Table
9 provides a summary of capital ratios as of March 31,
2008, and December 31, 2007. All regulatory ratios continue
to be in excess of regulatory well-capitalized
requirements. Total shareholders equity was
$21.6 billion at March 31, 2008, compared with
$21.0 billion at December 31, 2007. The increase was
the result of corporate earnings and the issuance of
$.5 billion of non-cumulative, perpetual preferred stock,
partially offset by dividends and share repurchases.
On August 3, 2006, the Company announced that the Board of
Directors approved an authorization to repurchase
150 million shares of common stock through
December 31, 2008.
The following table provides a detailed analysis of all shares
repurchased under this authorization during the first quarter of
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number
|
|
|
Total Number of
|
|
Average
|
|
of Shares that
May
|
|
|
Shares Purchased
|
|
Price Paid
|
|
Yet Be Purchased
|
Time Period
|
|
as Part of the
Program
|
|
per Share
|
|
Under the Program
|
January
|
|
|
110,000
|
|
$
|
30.78
|
|
|
64,151,002
|
February
|
|
|
185,094
|
|
|
32.88
|
|
|
63,965,908
|
March
|
|
|
2,106,930
|
|
|
33.66
|
|
|
61,858,978
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,402,024
|
|
$
|
33.47
|
|
|
61,858,978
|
|
|
|
|
|
|
|
|
|
|
LINE OF
BUSINESS FINANCIAL REVIEW
Within the Company, financial performance is measured by major
lines of business, which include Wholesale Banking, Consumer
Banking, Wealth Management & Securities Services,
Payment Services, and Treasury and Corporate Support. These
operating segments are components of the Company about which
financial information is available and is evaluated regularly in
deciding how to allocate resources and assess performance.
Basis for
Financial
Presentation Business
line results are derived from the Companys business unit
profitability reporting systems by specifically attributing
managed balance sheet assets, deposits and other liabilities and
their related income or expense. Refer to
Managements Discussion and Analysis Line
of Business Financial Review in the Companys Annual
Report on
Form 10-K
for the year ended December 31, 2007, for further
discussion on the business lines basis for financial
presentation.
Designations, assignments and allocations change from time to
time as management systems are enhanced, methods of evaluating
performance or product lines change or business segments are
realigned to better respond to the Companys diverse
customer base. During 2008, certain organization and methodology
changes were made and, accordingly, 2007 results were restated
and presented on a comparable basis.
Wholesale
Banking Wholesale
Banking offers lending, equipment finance and small-ticket
leasing, depository, treasury management, capital markets,
foreign exchange, international trade services and other
financial services to middle market, large corporate, commercial
real estate and public sector clients. Wholesale Banking
contributed $255 million of the Companys net income
in the first quarter of 2008, a decrease of $17 million
(6.3 percent), compared with the first quarter of 2007. The
decrease was primarily driven by an increase in the provision
for credit losses and higher noninterest expense, partially
offset by higher total net revenue.
Total net revenue increased $5 million (.7 percent) in
the first quarter of 2008, compared with the first
Table
10 Line
of Business Financial Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
|
|
Consumer
|
|
|
|
Banking
|
|
|
|
Banking
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
Percent
|
|
Three Months Ended
March 31 (Dollars in Millions)
|
|
2008
|
|
2007
|
|
Change
|
|
|
|
2008
|
|
2007
|
|
Change
|
|
Condensed Income Statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (taxable-equivalent basis)
|
|
$
|
485
|
|
$
|
451
|
|
|
7.5
|
%
|
|
|
$
|
942
|
|
$
|
961
|
|
|
(2.0
|
)%
|
Noninterest income
|
|
|
193
|
|
|
222
|
|
|
(13.1
|
)
|
|
|
|
471
|
|
|
437
|
|
|
7.8
|
|
Securities gains (losses), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
|
678
|
|
|
673
|
|
|
.7
|
|
|
|
|
1,413
|
|
|
1,398
|
|
|
1.1
|
|
Noninterest expense
|
|
|
239
|
|
|
228
|
|
|
4.8
|
|
|
|
|
705
|
|
|
630
|
|
|
11.9
|
|
Other intangibles
|
|
|
3
|
|
|
4
|
|
|
(25.0
|
)
|
|
|
|
11
|
|
|
14
|
|
|
(21.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
242
|
|
|
232
|
|
|
4.3
|
|
|
|
|
716
|
|
|
644
|
|
|
11.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision and income taxes
|
|
|
436
|
|
|
441
|
|
|
(1.1
|
)
|
|
|
|
697
|
|
|
754
|
|
|
(7.6
|
)
|
Provision for credit losses
|
|
|
35
|
|
|
13
|
|
|
|
*
|
|
|
|
120
|
|
|
72
|
|
|
66.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
401
|
|
|
428
|
|
|
(6.3
|
)
|
|
|
|
577
|
|
|
682
|
|
|
(15.4
|
)
|
Income taxes and taxable-equivalent adjustment
|
|
|
146
|
|
|
156
|
|
|
(6.4
|
)
|
|
|
|
210
|
|
|
248
|
|
|
(15.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
255
|
|
$
|
272
|
|
|
(6.3
|
)
|
|
|
$
|
367
|
|
$
|
434
|
|
|
(15.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
38,685
|
|
$
|
34,708
|
|
|
11.5
|
%
|
|
|
$
|
6,418
|
|
$
|
6,370
|
|
|
.8
|
%
|
Commercial real estate
|
|
|
17,709
|
|
|
16,799
|
|
|
5.4
|
|
|
|
|
11,118
|
|
|
11,091
|
|
|
.2
|
|
Residential mortgages
|
|
|
94
|
|
|
60
|
|
|
56.7
|
|
|
|
|
22,421
|
|
|
21,042
|
|
|
6.6
|
|
Retail
|
|
|
73
|
|
|
65
|
|
|
12.3
|
|
|
|
|
36,472
|
|
|
35,310
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
56,561
|
|
|
51,632
|
|
|
9.5
|
|
|
|
|
76,429
|
|
|
73,813
|
|
|
3.5
|
|
Goodwill
|
|
|
1,329
|
|
|
1,329
|
|
|
|
|
|
|
|
2,217
|
|
|
2,206
|
|
|
.5
|
|
Other intangible assets
|
|
|
31
|
|
|
43
|
|
|
(27.9
|
)
|
|
|
|
1,463
|
|
|
1,597
|
|
|
(8.4
|
)
|
Assets
|
|
|
61,659
|
|
|
56,725
|
|
|
8.7
|
|
|
|
|
87,940
|
|
|
83,967
|
|
|
4.7
|
|
Noninterest-bearing deposits
|
|
|
10,272
|
|
|
10,817
|
|
|
(5.0
|
)
|
|
|
|
11,447
|
|
|
12,101
|
|
|
(5.4
|
)
|
Interest checking
|
|
|
8,009
|
|
|
4,500
|
|
|
78.0
|
|
|
|
|
17,731
|
|
|
17,789
|
|
|
(.3
|
)
|
Savings products
|
|
|
5,803
|
|
|
5,740
|
|
|
1.1
|
|
|
|
|
19,270
|
|
|
19,769
|
|
|
(2.5
|
)
|
Time deposits
|
|
|
14,332
|
|
|
11,808
|
|
|
21.4
|
|
|
|
|
18,793
|
|
|
19,843
|
|
|
(5.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
38,416
|
|
|
32,865
|
|
|
16.9
|
|
|
|
|
67,241
|
|
|
69,502
|
|
|
(3.3
|
)
|
Shareholders equity
|
|
|
6,180
|
|
|
5,800
|
|
|
6.6
|
|
|
|
|
6,507
|
|
|
6,440
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Not
meaningful
quarter of 2007. Net interest income, on a taxable-equivalent
basis, increased $34 million (7.5 percent) in the
first quarter of 2008, compared with the first quarter of 2007,
driven by strong growth in earning asset and deposit balances
and improved credit spreads, partially offset by a decrease in
the margin benefit of deposits. Noninterest income decreased
$29 million (13.1 percent) in the first quarter of
2008, compared with the first quarter of 2007. The decrease was
primarily due to market-related valuation losses and lower
earnings from equity investments, partially offset by higher
treasury management fees, commercial leasing and foreign
exchange revenue.
Total noninterest expense increased $10 million
(4.3 percent) in the first quarter of 2008 compared with
the first quarter of 2007, primarily due to higher compensation
and employee benefits expense related to merit increases,
expanding the business lines national corporate banking
presence, investments to enhance customer relationship
management, and other business initiatives. The provision for
credit losses increased $22 million in the first quarter of
2008, compared with the first quarter of 2007. The unfavorable
change was due to continued credit deterioration in the
homebuilding and commercial home supplier industries.
Nonperforming assets were $424 million at March 31,
2008, $335 million at December 31, 2007, and
$226 million at March 31, 2007. Nonperforming assets
as a percentage of period-end loans were .74 percent at
March 31, 2008, .60 percent at December 31, 2007,
and .44 percent at March 31, 2007. Refer to the
Corporate Risk Profile section for further
information on factors impacting the credit quality of the loan
portfolios.
Consumer
Banking Consumer
Banking delivers products and services through banking offices,
telephone servicing and sales, on-line services, direct mail and
ATMs. It encompasses community banking, metropolitan banking,
in-store banking, small business banking, consumer lending,
mortgage banking, consumer finance, workplace banking, student
banking and
24-hour
banking. Consumer Banking contributed $367 million of the
Companys net income in the first quarter of 2008, a
decrease of $67 million (15.4 percent), compared with
the first quarter of 2007. Within Consumer Banking, the retail
banking division contributed $320 million of the total net
income in the first quarter of 2008, a decrease of
21.8 percent from the same period in the prior year.
Mortgage banking contributed $47 million of the business
lines net income in the first quarter of 2008, an increase
of 88.0 percent over the same period in the prior year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth Management
&
|
|
|
Payment
|
|
|
Treasury and
|
|
|
Consolidated
|
|
|
|
Securities Services
|
|
|
Services
|
|
|
Corporate Support
|
|
|
Company
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
Percent
|
|
|
|
2008
|
|
2007
|
|
Change
|
|
|
2008
|
|
2007
|
|
Change
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
2008
|
|
|
2007
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
122
|
|
$
|
121
|
|
|
.8
|
%
|
|
$
|
252
|
|
$
|
169
|
|
|
49.1
|
%
|
|
$
|
29
|
|
|
$
|
(36
|
)
|
|
|
*
|
%
|
|
$
|
1,830
|
|
|
$
|
1,666
|
|
|
9.8
|
%
|
|
|
|
389
|
|
|
374
|
|
|
4.0
|
|
|
|
769
|
|
|
680
|
|
|
13.1
|
|
|
|
473
|
|
|
|
9
|
|
|
|
*
|
|
|
|
2,295
|
|
|
|
1,722
|
|
|
33.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(251
|
)
|
|
|
1
|
|
|
|
*
|
|
|
|
(251
|
)
|
|
|
1
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
511
|
|
|
495
|
|
|
3.2
|
|
|
|
1,021
|
|
|
849
|
|
|
20.3
|
|
|
|
251
|
|
|
|
(26
|
)
|
|
|
*
|
|
|
|
3,874
|
|
|
|
3,389
|
|
|
14.3
|
|
|
|
|
243
|
|
|
230
|
|
|
5.7
|
|
|
|
379
|
|
|
342
|
|
|
10.8
|
|
|
|
143
|
|
|
|
48
|
|
|
|
*
|
|
|
|
1,709
|
|
|
|
1,478
|
|
|
15.6
|
|
|
|
|
20
|
|
|
23
|
|
|
(13.0
|
)
|
|
|
53
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
|
|
|
|
94
|
|
|
(7.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
263
|
|
|
253
|
|
|
4.0
|
|
|
|
432
|
|
|
395
|
|
|
9.4
|
|
|
|
143
|
|
|
|
48
|
|
|
|
*
|
|
|
|
1,796
|
|
|
|
1,572
|
|
|
14.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
248
|
|
|
242
|
|
|
2.5
|
|
|
|
589
|
|
|
454
|
|
|
29.7
|
|
|
|
108
|
|
|
|
(74
|
)
|
|
|
*
|
|
|
|
2,078
|
|
|
|
1,817
|
|
|
14.4
|
|
|
|
|
1
|
|
|
|
|
|
*
|
|
|
|
134
|
|
|
91
|
|
|
47.3
|
|
|
|
195
|
|
|
|
1
|
|
|
|
*
|
|
|
|
485
|
|
|
|
177
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
247
|
|
|
242
|
|
|
2.1
|
|
|
|
455
|
|
|
363
|
|
|
25.3
|
|
|
|
(87
|
)
|
|
|
(75
|
)
|
|
|
(16.0
|
)
|
|
|
1,593
|
|
|
|
1,640
|
|
|
(2.9
|
)
|
|
|
|
90
|
|
|
88
|
|
|
2.3
|
|
|
|
166
|
|
|
132
|
|
|
25.8
|
|
|
|
(109
|
)
|
|
|
(114
|
)
|
|
|
4.4
|
|
|
|
503
|
|
|
|
510
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
157
|
|
$
|
154
|
|
|
1.9
|
|
|
$
|
289
|
|
$
|
231
|
|
|
25.1
|
|
|
$
|
22
|
|
|
$
|
39
|
|
|
|
(43.6
|
)
|
|
$
|
1,090
|
|
|
$
|
1,130
|
|
|
(3.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,997
|
|
$
|
1,969
|
|
|
1.4
|
%
|
|
$
|
4,257
|
|
$
|
3,834
|
|
|
11.0
|
%
|
|
$
|
352
|
|
|
$
|
138
|
|
|
|
*
|
%
|
|
$
|
51,709
|
|
|
$
|
47,019
|
|
|
10.0
|
%
|
|
|
|
667
|
|
|
690
|
|
|
(3.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
52
|
|
|
|
(19.2
|
)
|
|
|
29,536
|
|
|
|
28,632
|
|
|
3.2
|
|
|
|
|
460
|
|
|
463
|
|
|
(.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
4
|
|
|
|
(25.0
|
)
|
|
|
22,978
|
|
|
|
21,569
|
|
|
6.5
|
|
|
|
|
2,371
|
|
|
2,345
|
|
|
1.1
|
|
|
|
12,056
|
|
|
9,712
|
|
|
24.1
|
|
|
|
37
|
|
|
|
41
|
|
|
|
(9.8
|
)
|
|
|
51,009
|
|
|
|
47,473
|
|
|
7.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,495
|
|
|
5,467
|
|
|
.5
|
|
|
|
16,313
|
|
|
13,546
|
|
|
20.4
|
|
|
|
434
|
|
|
|
235
|
|
|
|
84.7
|
|
|
|
155,232
|
|
|
|
144,693
|
|
|
7.3
|
|
|
|
|
1,564
|
|
|
1,550
|
|
|
.9
|
|
|
|
2,554
|
|
|
2,456
|
|
|
4.0
|
|
|
|
|
|
|
|
28
|
|
|
|
*
|
|
|
|
7,664
|
|
|
|
7,569
|
|
|
1.3
|
|
|
|
|
356
|
|
|
450
|
|
|
(20.9
|
)
|
|
|
1,071
|
|
|
1,088
|
|
|
(1.6
|
)
|
|
|
2
|
|
|
|
42
|
|
|
|
(95.2
|
)
|
|
|
2,923
|
|
|
|
3,220
|
|
|
(9.2
|
)
|
|
|
|
7,933
|
|
|
8,036
|
|
|
(1.3
|
)
|
|
|
21,300
|
|
|
18,796
|
|
|
13.3
|
|
|
|
57,843
|
|
|
|
51,988
|
|
|
|
11.3
|
|
|
|
236,675
|
|
|
|
219,512
|
|
|
7.8
|
|
|
|
|
4,604
|
|
|
4,260
|
|
|
8.1
|
|
|
|
471
|
|
|
455
|
|
|
3.5
|
|
|
|
325
|
|
|
|
44
|
|
|
|
*
|
|
|
|
27,119
|
|
|
|
27,677
|
|
|
(2.0
|
)
|
|
|
|
4,531
|
|
|
2,775
|
|
|
63.3
|
|
|
|
29
|
|
|
9
|
|
|
*
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
30,303
|
|
|
|
25,076
|
|
|
20.8
|
|
|
|
|
5,568
|
|
|
5,517
|
|
|
.9
|
|
|
|
20
|
|
|
20
|
|
|
|
|
|
|
63
|
|
|
|
67
|
|
|
|
(6.0
|
)
|
|
|
30,724
|
|
|
|
31,113
|
|
|
(1.3
|
)
|
|
|
|
3,859
|
|
|
3,868
|
|
|
(.2
|
)
|
|
|
2
|
|
|
3
|
|
|
(33.3
|
)
|
|
|
5,726
|
|
|
|
1,340
|
|
|
|
*
|
|
|
|
42,712
|
|
|
|
36,862
|
|
|
15.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,562
|
|
|
16,420
|
|
|
13.0
|
|
|
|
522
|
|
|
487
|
|
|
7.2
|
|
|
|
6,117
|
|
|
|
1,454
|
|
|
|
*
|
|
|
|
130,858
|
|
|
|
120,728
|
|
|
8.4
|
|
|
|
|
2,414
|
|
|
2,498
|
|
|
(3.4
|
)
|
|
|
5,006
|
|
|
4,749
|
|
|
5.4
|
|
|
|
1,372
|
|
|
|
1,723
|
|
|
|
(20.4
|
)
|
|
|
21,479
|
|
|
|
21,210
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue increased $15 million (1.1 percent)
in the first quarter of 2008, compared with the first quarter of
2007. Net interest income, on a taxable-equivalent basis,
decreased $19 million (2.0 percent) in the first
quarter of 2008, compared with the first quarter of 2007. The
year-over-year decrease in net interest income was due to the
declining funding benefit of deposits and declining deposit
balances, partially offset by growth in average loans of
3.5 percent and higher loan fees. The increase in average
loan balances reflected growth in all loan categories, with the
largest increases in residential mortgages and retail loans. The
favorable change in retail loans was principally driven by an
increase in installment products and home equity lines,
partially offset by a reduction in retail leasing balances due
to customer demand for installment loan products and pricing
competition. The year-over-year decrease in average deposits
primarily reflected a reduction in time, savings and
noninterest-bearing deposit products. Average time deposit
balances in the first quarter of 2008 declined $1.1 billion
(5.3 percent), compared with the first quarter of 2007.
Average savings balances in the first quarter of 2008 declined
$.5 billion (2.5 percent), compared with the first
quarter of 2007. These declines reflected the Companys
funding and pricing decisions and competition for these deposits
by other financial institutions that have more limited access to
the wholesale funding sources given the current market
environment. Fee-based noninterest income increased
$34 million (7.8 percent) in the first quarter of
2008, compared with the first quarter of 2007. The
year-over-year increase in fee-based revenue was driven by an
increase in deposit service charges and mortgage banking
revenue, partially offset by lower lease revenue related to
higher end-of-term losses and declining student loan sales
gains. The increase in mortgage banking revenue was principally
related to an increase in mortgage servicing income and
production gains, including $19 million from the adoption
of SFAS 157. These favorable impacts to mortgage banking
revenue were partially offset by an unfavorable net change in
the valuation of MSRs and related economic hedging activities.
Total noninterest expense increased $72 million
(11.2 percent) in the first quarter of 2008, compared with
the first quarter of 2007. The increase included the net
addition of 21 in-store and 3 traditional branches at
March 31, 2008, compared with March 31, 2007. The
increase was primarily attributable to higher compensation and
employee benefit expense which reflected business investments in
customer service and various promotional activities including
further deployment of the PowerBank initiative, the adoption of
SFAS 157 and higher credit related costs associated with
other real estate owned and foreclosures.
The provision for credit losses increased $48 million
(66.7 percent) in the first quarter of 2008, compared with
the first quarter of 2007. The increase was attributable to
higher net charge-offs, reflecting portfolio growth and credit
deterioration in residential mortgages, home equity and other
installment and consumer loan portfolios from a year ago. As a
percentage of average loans outstanding, net charge-offs
increased to .63 percent in the first quarter of 2008,
compared with .40 percent in the first quarter of 2007.
Commercial and commercial real estate loan net charge-offs
increased $3 million (25.0 percent) and retail loan
and residential mortgage net charge-offs increased
$45 million (75.0 percent) in the first quarter of
2008, compared with the first quarter of 2007. Nonperforming
assets were $370 million at March 31, 2008,
$326 million at December 31, 2007, and
$312 million at March 31, 2007. Nonperforming assets
as a percentage of period-end loans were .50 percent at
March 31, 2008, .45 percent at December 31, 2007,
and .44 percent at March 31, 2007. Refer to the
Corporate Risk Profile section for further
information on factors impacting the credit quality of the loan
portfolios.
Wealth
Management & Securities
Services Wealth
Management & Securities Services provides trust,
private banking, financial advisory, investment management,
retail brokerage services, insurance, custody and mutual fund
servicing through five businesses: Wealth Management, Corporate
Trust, FAF Advisors, Institutional Trust and Custody and
Fund Services. Wealth Management & Securities
Services contributed $157 million of the Companys net
income in the first quarter of 2008, an increase of
$3 million (1.9 percent), compared with the first
quarter of 2007. The increase was attributable to core account
fee growth, partially offset by unfavorable equity market
conditions relative to a year ago.
Total net revenue increased $16 million (3.2 percent)
in the first quarter of 2008, compared with the first quarter of
2007. Net interest income, on a taxable-equivalent basis,
increased $1 million (.8 percent) in the first quarter
of 2008, compared with the first quarter of 2007. Noninterest
income increased $15 million (4.0 percent) in the
first quarter of 2008, compared with the first quarter of 2007,
primarily driven by core account fee growth, partially offset by
unfavorable equity market conditions.
Total noninterest expense increased $10 million
(4.0 percent) in the first quarter of 2008, compared with
the first quarter of 2007. The increase in noninterest expense
was primarily due to higher compensation, employee benefits and
processing-related expenses.
Payment
Services Payment
Services includes consumer and business credit cards,
stored-value cards, debit cards, corporate and purchasing card
services, consumer lines of credit, ATM processing and merchant
processing. Payment Services are highly inter-related with
banking products and services of the other lines of business and
rely on access to the bank subsidiarys settlement network,
lower cost funding available to the Company, cross-selling
opportunities and operating efficiencies. Payment Services
contributed $289 million of the Companys net income
in the first quarter of 2008, an increase of $58 million
(25.1 percent), compared with the first quarter of 2007.
The increase was due to growth in total net revenue, driven by
loan growth and higher transaction volumes, partially offset by
an increase in total noninterest expense and a higher provision
for credit losses.
Total net revenue increased $172 million
(20.3 percent) in the first quarter of 2008, compared with
the first quarter of 2007. Net interest income, on a
taxable-equivalent basis, increased $83 million
(49.1 percent) in the first quarter of 2008, compared with
the first quarter of 2007. The increase was primarily due to
growth in higher yielding retail credit card loan balances and
the timing of asset repricing in a declining rate environment.
Noninterest income increased $89 million
(13.1 percent) in the first quarter of 2008, compared with
the first quarter of 2007. The increase in fee-based revenue was
driven by organic account growth, higher transaction volumes and
business expansion initiatives.
Total noninterest expense increased $37 million
(9.4 percent) in the first quarter of 2008, compared with
the first quarter of 2007, due primarily to new business
initiatives, including costs associated with transaction
processing and a recent acquisition, as well as higher
collection costs.
The provision for credit losses increased $43 million
(47.3 percent) in the first quarter of 2008, compared with
the first quarter of 2007, due to higher net charge-offs, which
reflected average retail credit card portfolio growth and higher
delinquency rates from a year ago. As a percentage of average
loans outstanding, net charge-offs were 3.30 percent in the
first quarter of 2008, compared with 2.72 percent in the
first quarter of 2007.
Treasury and
Corporate
Support Treasury
and Corporate Support includes the Companys investment
portfolios, funding, capital management, asset securitization,
interest rate risk management, the net effect of transfer
pricing related to average balances and the residual
aggregate of those expenses associated with corporate activities
that are managed on a consolidated basis. Treasury and Corporate
Support recorded net income of $22 million in the first
quarter of 2008, a decrease of $17 million
(43.6 percent), compared with the first quarter of 2007.
Total net revenue increased $277 million in the first
quarter of 2008, compared with the first quarter of 2007. Net
interest income, on a taxable-equivalent basis, increased
$65 million in the first quarter of 2008, compared with the
first quarter of 2007, due to a steepening yield curve relative
to the first quarter of 2007, wholesale funding decisions and
the Companys asset and liability management positions.
Noninterest income increased $212 million in the first
quarter of 2008, compared with the first quarter of 2007. The
increase was primarily due to the net impact of the Visa Gain,
partially offset by the structured investment securities
impairment and the transition impact of adopting SFAS 157
during the first quarter of 2008.
Total noninterest expense increased $95 million in the
first quarter of 2008, compared with the first quarter of 2007.
The increase in noninterest expense was driven by higher
compensation and employee benefits expense, a charitable
contribution made to the foundation and higher litigation costs,
partially offset by a reduction in net shared services expense.
The provision for credit losses for this business unit
represents the residual aggregate of the net credit losses
allocated to the reportable business units and the
Companys recorded provision determined in accordance with
accounting principles generally accepted in the United States.
The provision for credit losses increased $194 million in
the first quarter of 2008, compared with the same quarter of the
prior year, driven by incremental provision expense recorded in
the first quarter of 2008, reflecting deterioration in the
credit quality within the loan portfolios related to stress in
the residential real estate markets, including homebuilding and
related supplier industries, and the continued growth of the
consumer loan portfolios. Refer to the Corporate Risk
Profile section for further information on the provision
for credit losses, nonperforming assets and factors considered
by the Company in assessing the credit quality of the loan
portfolio and establishing the allowance for credit losses.
Income taxes are assessed to each line of business at a
managerial tax rate of 36.4 percent with the residual tax
expense or benefit to arrive at the consolidated effective tax
rate included in Treasury and Corporate Support. The
consolidated effective tax rate of the Company was
30.4 percent in the first quarter of 2008 and first quarter
of 2007.
CRITICAL
ACCOUNTING POLICIES
The accounting and reporting policies of the Company comply with
accounting principles generally accepted in the United States
and conform to general practices within the banking industry.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions. The financial position and
results of operations can be affected by these estimates and
assumptions, which are integral to understanding the
Companys financial statements. Critical accounting
policies are those policies that management believes are the
most important to the portrayal of the Companys financial
condition and results, and require management to make estimates
that are difficult, subjective or complex. Most accounting
policies are not considered by management to be critical
accounting policies. Those policies considered to be critical
accounting policies relate to the allowance for credit losses,
estimations of fair value, MSRs, goodwill and other intangibles
and income taxes. Management has discussed the development and
the selection of critical accounting policies with the
Companys Audit Committee. These accounting policies are
discussed in detail in Managements Discussion and
Analysis Critical Accounting Policies and the
Notes to Consolidated Financial Statements in the Companys
Annual Report on
Form 10-K
for the year ended December 31, 2007.
CONTROLS
AND PROCEDURES
Under the supervision and with the participation of the
Companys management, including its principal executive
officer and principal financial officer, the Company has
evaluated the effectiveness of the design and operation of its
disclosure controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934 (the Exchange
Act)). Based upon this evaluation, the principal executive
officer and principal financial officer have concluded that, as
of the end of the period covered by this report, the
Companys disclosure controls and procedures were effective.
During the most recently completed fiscal quarter, there was no
change made in the Companys internal controls over
financial reporting (as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, the Companys
internal control over financial reporting.
U.S. Bancorp
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
(Dollars in
Millions, Except Per Share Data)
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
7,323
|
|
|
$
|
8,884
|
|
Investment securities
|
|
|
|
|
|
|
|
|
Held-to-maturity (fair value $75 and $78, respectively)
|
|
|
72
|
|
|
|
74
|
|
Available-for-sale
|
|
|
41,624
|
|
|
|
43,042
|
|
Loans held for sale (included $3,097 of mortgage loans carried
at fair value at 3/31/08)
|
|
|
5,241
|
|
|
|
4,819
|
|
Loans
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
52,744
|
|
|
|
51,074
|
|
Commercial real estate
|
|
|
29,969
|
|
|
|
29,207
|
|
Residential mortgages
|
|
|
23,218
|
|
|
|
22,782
|
|
Retail
|
|
|
52,369
|
|
|
|
50,764
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
158,300
|
|
|
|
153,827
|
|
Less allowance for loan losses
|
|
|
(2,251
|
)
|
|
|
(2,058
|
)
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
|
156,049
|
|
|
|
151,769
|
|
Premises and equipment
|
|
|
1,805
|
|
|
|
1,779
|
|
Goodwill
|
|
|
7,685
|
|
|
|
7,647
|
|
Other intangible assets
|
|
|
2,962
|
|
|
|
3,043
|
|
Other assets
|
|
|
19,020
|
|
|
|
16,558
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
241,781
|
|
|
$
|
237,615
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
Noninterest-bearing
|
|
$
|
32,870
|
|
|
$
|
33,334
|
|
Interest-bearing
|
|
|
76,895
|
|
|
|
72,458
|
|
Time deposits greater than $100,000
|
|
|
28,505
|
|
|
|
25,653
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
138,270
|
|
|
|
131,445
|
|
Short-term borrowings
|
|
|
36,392
|
|
|
|
32,370
|
|
Long-term debt
|
|
|
36,229
|
|
|
|
43,440
|
|
Other liabilities
|
|
|
9,318
|
|
|
|
9,314
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
220,209
|
|
|
|
216,569
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
Preferred stock, par value $1.00 a share (liquidation preference
of $25,000 per share) authorized: 50,000,000 shares; issued
and outstanding: 3/31/08 60,000 shares and
12/31/07 40,000 shares
|
|
|
1,500
|
|
|
|
1,000
|
|
Common stock, par value $0.01 a share authorized:
4,000,000,000 shares; issued: 3/31/08 and
12/31/07 1,972,643,007 shares
|
|
|
20
|
|
|
|
20
|
|
Capital surplus
|
|
|
5,677
|
|
|
|
5,749
|
|
Retained earnings
|
|
|
23,033
|
|
|
|
22,693
|
|
Less cost of common stock in treasury: 3/31/08
234,624,510 shares; 12/31/07
244,786,039 shares
|
|
|
(7,178
|
)
|
|
|
(7,480
|
)
|
Other comprehensive income
|
|
|
(1,480
|
)
|
|
|
(936
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
21,572
|
|
|
|
21,046
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
241,781
|
|
|
$
|
237,615
|
|
|
|
|
|
|
|
|
|
|
See
Notes to Consolidated Financial Statements.
U.S. Bancorp
Consolidated Statement of Income
|
|
|
|
|
|
|
|
(Dollars and Shares
in Millions, Except Per Share Data)
|
|
Three Months Ended
March 31,
|
(Unaudited)
|
|
2008
|
|
|
2007
|
Interest Income
|
|
|
|
|
|
|
|
Loans
|
|
$
|
2,560
|
|
|
$
|
2,578
|
Loans held for sale
|
|
|
73
|
|
|
|
59
|
Investment securities
|
|
|
535
|
|
|
|
516
|
Other interest income
|
|
|
37
|
|
|
|
34
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
3,205
|
|
|
|
3,187
|
Interest Expense
|
|
|
|
|
|
|
|
Deposits
|
|
|
606
|
|
|
|
675
|
Short-term borrowings
|
|
|
322
|
|
|
|
328
|
Long-term debt
|
|
|
474
|
|
|
|
535
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
1,402
|
|
|
|
1,538
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
1,803
|
|
|
|
1,649
|
Provision for credit losses
|
|
|
485
|
|
|
|
177
|
|
|
|
|
|
|
|
|
Net interest income after provision for credit losses
|
|
|
1,318
|
|
|
|
1,472
|
Noninterest Income
|
|
|
|
|
|
|
|
Credit and debit card revenue
|
|
|
248
|
|
|
|
206
|
Corporate payment products revenue
|
|
|
164
|
|
|
|
147
|
ATM processing services
|
|
|
84
|
|
|
|
77
|
Merchant processing services
|
|
|
271
|
|
|
|
252
|
Trust and investment management fees
|
|
|
335
|
|
|
|
322
|
Deposit service charges
|
|
|
257
|
|
|
|
247
|
Treasury management fees
|
|
|
124
|
|
|
|
111
|
Commercial products revenue
|
|
|
112
|
|
|
|
100
|
Mortgage banking revenue
|
|
|
105
|
|
|
|
67
|
Investment products fees and commissions
|
|
|
36
|
|
|
|
34
|
Securities gains (losses), net
|
|
|
(251
|
)
|
|
|
1
|
Other
|
|
|
559
|
|
|
|
159
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
2,044
|
|
|
|
1,723
|
Noninterest Expense
|
|
|
|
|
|
|
|
Compensation
|
|
|
745
|
|
|
|
635
|
Employee benefits
|
|
|
137
|
|
|
|
133
|
Net occupancy and equipment
|
|
|
190
|
|
|
|
177
|
Professional services
|
|
|
47
|
|
|
|
47
|
Marketing and business development
|
|
|
79
|
|
|
|
52
|
Technology and communications
|
|
|
140
|
|
|
|
135
|
Postage, printing and supplies
|
|
|
71
|
|
|
|
69
|
Other intangibles
|
|
|
87
|
|
|
|
94
|
Other
|
|
|
300
|
|
|
|
230
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
1,796
|
|
|
|
1,572
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,566
|
|
|
|
1,623
|
Applicable income taxes
|
|
|
476
|
|
|
|
493
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,090
|
|
|
$
|
1,130
|
|
|
|
|
|
|
|
|
Net income applicable to common equity
|
|
$
|
1,078
|
|
|
$
|
1,115
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
$
|
.62
|
|
|
$
|
.64
|
Diluted earnings per common share
|
|
$
|
.62
|
|
|
$
|
.63
|
Dividends declared per common share
|
|
$
|
.425
|
|
|
$
|
.400
|
Average common shares outstanding
|
|
|
1,731
|
|
|
|
1,752
|
Average diluted common shares outstanding
|
|
|
1,749
|
|
|
|
1,780
|
|
|
|
|
|
|
|
|
See
Notes to Consolidated Financial Statements.
U.S. Bancorp
Consolidated Statement of Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
(Dollars and Shares
in Millions)
|
|
Common Shares
|
|
|
Preferred
|
|
Common
|
|
Capital
|
|
|
Retained
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
Shareholders
|
|
(Unaudited)
|
|
Outstanding
|
|
|
Stock
|
|
Stock
|
|
Surplus
|
|
|
Earnings
|
|
|
Stock
|
|
|
Income
|
|
|
Equity
|
|
Balance December 31, 2006
|
|
|
1,765
|
|
|
$
|
1,000
|
|
$
|
20
|
|
$
|
5,762
|
|
|
$
|
21,242
|
|
|
$
|
(6,091
|
)
|
|
$
|
(736
|
)
|
|
$
|
21,197
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,130
|
|
|
|
|
|
|
|
|
|
|
|
1,130
|
|
Unrealized gain on securities available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115
|
|
|
|
115
|
|
Unrealized loss on derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
(17
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
17
|
|
Reclassification for realized losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
18
|
|
Change in retirement obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51
|
)
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,213
|
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
(15
|
)
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(697
|
)
|
|
|
|
|
|
|
|
|
|
|
(697
|
)
|
Issuance of common and treasury stock
|
|
|
11
|
|
|
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
350
|
|
|
|
|
|
|
|
335
|
|
Purchase of treasury stock
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,230
|
)
|
|
|
|
|
|
|
(1,230
|
)
|
Stock option and restricted stock grants
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
Shares reserved to meet deferred compensation obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2007
|
|
|
1,742
|
|
|
$
|
1,000
|
|
$
|
20
|
|
$
|
5,745
|
|
|
$
|
21,660
|
|
|
$
|
(6,972
|
)
|
|
$
|
(653
|
)
|
|
$
|
20,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2007
|
|
|
1,728
|
|
|
$
|
1,000
|
|
$
|
20
|
|
$
|
5,749
|
|
|
$
|
22,693
|
|
|
$
|
(7,480
|
)
|
|
$
|
(936
|
)
|
|
$
|
21,046
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,090
|
|
|
|
|
|
|
|
|
|
|
|
1,090
|
|
Unrealized loss on securities available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(799
|
)
|
|
|
(799
|
)
|
Unrealized loss on derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(312
|
)
|
|
|
(312
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40
|
)
|
|
|
(40
|
)
|
Reclassification for realized losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
268
|
|
|
|
268
|
|
Change in retirement obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
6
|
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
333
|
|
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
546
|
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(738
|
)
|
|
|
|
|
|
|
|
|
|
|
(738
|
)
|
Issuance of preferred stock
|
|
|
|
|
|
|
500
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
492
|
|
Issuance of common and treasury stock
|
|
|
12
|
|
|
|
|
|
|
|
|
|
(54
|
)
|
|
|
|
|
|
|
384
|
|
|
|
|
|
|
|
330
|
|
Purchase of treasury stock
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(80
|
)
|
|
|
|
|
|
|
(80
|
)
|
Stock option and restricted stock grants
|
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
Shares reserved to meet deferred compensation obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2008
|
|
|
1,738
|
|
|
$
|
1,500
|
|
$
|
20
|
|
$
|
5,677
|
|
|
$
|
23,033
|
|
|
$
|
(7,178
|
)
|
|
$
|
(1,480
|
)
|
|
$
|
21,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to
Consolidated Financial Statements.
U.S. Bancorp
Consolidated Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
|
March 31,
|
|
(Dollars in
Millions)
|
|
|
|
(Unaudited)
|
|
2008
|
|
|
2007
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
$598
|
|
|
|
$527
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
Proceeds from sales of available-for-sale investment securities
|
|
|
369
|
|
|
|
246
|
|
Proceeds from maturities of investment securities
|
|
|
1,334
|
|
|
|
1,093
|
|
Purchases of investment securities
|
|
|
(1,082
|
)
|
|
|
(1,733
|
)
|
Net increase in loans outstanding
|
|
|
(3,462
|
)
|
|
|
(798
|
)
|
Proceeds from sales of loans
|
|
|
38
|
|
|
|
249
|
|
Purchases of loans
|
|
|
(1,401
|
)
|
|
|
(520
|
)
|
Acquisitions, net of cash acquired
|
|
|
(70
|
)
|
|
|
(60
|
)
|
Other, net
|
|
|
(195
|
)
|
|
|
(1,238
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(4,469
|
)
|
|
|
(2,761
|
)
|
Financing Activities
|
|
|
|
|
|
|
|
|
Net increase (decrease) in deposits
|
|
|
6,825
|
|
|
|
(7,130
|
)
|
Net increase in short-term borrowings
|
|
|
4,023
|
|
|
|
1,576
|
|
Proceeds from issuance of long-term debt
|
|
|
1,302
|
|
|
|
9,778
|
|
Principal payments or redemption of long-term debt
|
|
|
(8,731
|
)
|
|
|
(2,726
|
)
|
Proceeds from issuance of preferred stock
|
|
|
492
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
242
|
|
|
|
227
|
|
Repurchase of common stock
|
|
|
|
|
|
|
(1,217
|
)
|
Cash dividends paid on preferred stock
|
|
|
(15
|
)
|
|
|
(15
|
)
|
Cash dividends paid on common stock
|
|
|
(734
|
)
|
|
|
(706
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
3,404
|
|
|
|
(213
|
)
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
(467
|
)
|
|
|
(2,447
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
9,185
|
|
|
|
8,805
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
|
$8,718
|
|
|
|
$6,358
|
|
|
|
|
|
|
|
|
|
|
See
Notes to Consolidated Financial Statements.
Notes
to Consolidated Financial Statements
(Unaudited)
Note 1 Basis
of Presentation
The accompanying consolidated financial statements have been
prepared in accordance with the instructions to
Form 10-Q
and, therefore, do not include all information and notes
necessary for a complete presentation of financial position,
results of operations and cash flow activity required in
accordance with accounting principles generally accepted in the
United States. In the opinion of management of U.S. Bancorp
(the Company), all adjustments (consisting only of
normal recurring adjustments) necessary for a fair statement of
results for the interim periods have been made. For further
information, refer to the consolidated financial statements and
notes included in the Companys Annual Report on
Form 10-K
for the year ended December 31, 2007. Certain amounts in
prior periods have been reclassified to conform to the current
presentation.
Accounting policies for the lines of business are generally the
same as those used in preparation of the consolidated financial
statements with respect to activities specifically attributable
to each business line. However, the preparation of business line
results requires management to establish methodologies to
allocate funding costs and benefits, expenses and other
financial elements to each line of business. Table 10 Line
of Business Financial Performance provides details of
segment results. This information is incorporated by reference
into these Notes to Consolidated Financial Statements.
Note 2 Accounting
Changes
Fair Value
Option In February
2007, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards No. 159 (SFAS 159), The
Fair Value Option for Financial Assets and Financial
Liabilities, effective for the Company beginning on
January 1, 2008. This Statement provides entities with an
irrevocable option to measure and report selected financial
assets and liabilities at fair value, with the objective to
reduce both the complexity in accounting for financial
instruments and the volatility in earnings caused by measuring
related assets and liabilities differently. The Company elected
the fair value option pursuant to SFAS 159 on
January 1, 2008, for certain mortgage loans held for sale
(MLHFS) originated on or after January 1, 2008.
There was no impact of adopting SFAS 159 on the
Companys financial statements as of the date of adoption.
MLHFS subject to the fair value option are initially measured at
fair value with subsequent changes in fair value recognized as a
component of mortgage banking revenue. For additional
information on the fair value of certain financial assets and
liabilities, refer to Note 10 in the Notes to Consolidated
Financial Statements.
Fair Value
Measurements In
September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157 (SFAS 157),
Fair Value Measurements, effective for the Company
beginning on January 1, 2008. This Statement defines fair
value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. This
statement provides a consistent definition of fair value which
focuses on exit price and prioritizes market-based inputs
obtained from sources independent of the entity over those from
the entitys own inputs that are not corroborated by
observable market data. SFAS 157 also requires
consideration of nonperformance risk when determining fair value
measurements. This statement expands disclosures about the use
of fair value to measure assets and liabilities in interim and
annual periods subsequent to initial recognition. The
disclosures focus on the inputs used to measure fair value, and
for recurring fair value measurements using significant
unobservable inputs, the effect of the measurements on earnings
or changes in net assets for the period. The adoption of
SFAS 157 reduced the Companys earnings by
$.02 per diluted common share for the first quarter of
2008. For additional information on the fair value of certain
financial assets and liabilities, refer to Note 10 in the
Notes to Consolidated Financial Statements.
Written Loan
Commitments In
November 2007, the Securities and Exchange Commission
(SEC) issued Staff Accounting
Bulletin No. 109 (SAB 109),
Written Loan Commitments Recorded at Fair Value Through
Earnings, effective for the Company beginning on
January 1, 2008. SAB 109 expresses the SECs view
that the expected net future cash flows related to the
associated servicing of a loan should be included in the
measurement of all written
loan commitments that are accounted for at fair value through
earnings. The adoption of SAB 109 did not have a material
impact on the Companys financial statements. For
additional information on the fair value of certain financial
assets and liabilities, refer to Note 10 in the Notes to
Consolidated Financial Statements.
Business
Combinations In
December 2007, the FASB issued Statement of Financial Accounting
Standards No. 141 (revised 2007)
(SFAS 141R), Business Combinations,
effective for the Company beginning on January 1, 2009.
SFAS 141R establishes principles and requirements for the
acquirer in a business combination, including the recognition
and measurement of the identifiable assets acquired, the
liabilities assumed and any noncontrolling interest in the
acquired entity as of the acquisition date; the recognition and
measurement of the goodwill acquired in the business combination
or gain from a bargain purchase as of the acquisition date; and
the determination of additional disclosures needed to enable
users of the financial statements to evaluate the nature and
financial effects of the business combination. Under
SFAS 141R, nearly all acquired assets and liabilities
assumed are required to be recorded at fair value at the
acquisition date, including loans. This will eliminate separate
recognition of the acquired allowance for loan losses on the
acquirers balance sheet as credit related factors will be
incorporated directly into the fair value of the loans recorded
at the acquisition date. Other significant changes include
recognizing transaction costs and most restructuring costs as
expenses when incurred. The accounting requirements of
SFAS 141R are applied on a prospective basis for all
transactions completed after the effective date and early
adoption is not permitted.
Noncontrolling
Interests In
December 2007, the FASB issued Statement of Financial Accounting
Standards No. 160 (SFAS 160),
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51, effective for
the Company beginning on January 1, 2009. SFAS 160
will change the accounting and reporting for minority interests,
which will be recharacterized as noncontrolling interests and
classified as a component of equity, separate from the
Companys own equity, in the consolidated balance sheet.
This Statement also requires the amount of net income
attributable to the entity and to the noncontrolling interests
to be shown separately on the face of the consolidated statement
of income. SFAS 160 also requires expanded disclosures that
clearly identify and distinguish between the interests of the
entity and those of the noncontrolling owners. The Company is
currently assessing the impact of this guidance on its financial
statements.
Note 3 Investment
Securities
The amortized cost, fair value weighted-average maturity and
weighted-average yield of held-to-maturity and
available-for-sale securities was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008
|
|
|
|
December 31,
2007
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted-
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Maturity
|
|
|
Average
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Maturity
|
|
|
Average
|
|
(Dollars in Millions)
|
|
Cost
|
|
|
Value
|
|
|
in Years
|
|
|
Yield (c)
|
|
|
|
Cost
|
|
|
Value
|
|
|
in Years
|
|
|
Yield (c)
|
|
Held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities (a)
|
|
$
|
5
|
|
|
$
|
5
|
|
|
|
3.1
|
|
|
|
6.29
|
%
|
|
|
$
|
6
|
|
|
$
|
6
|
|
|
|
3.1
|
|
|
|
6.29
|
%
|
Obligations of state and political subdivisions
|
|
|
55
|
|
|
|
58
|
|
|
|
10.1
|
|
|
|
5.76
|
|
|
|
|
56
|
|
|
|
60
|
|
|
|
10.2
|
|
|
|
6.03
|
|
Other debt securities
|
|
|
12
|
|
|
|
12
|
|
|
|
1.5
|
|
|
|
5.26
|
|
|
|
|
12
|
|
|
|
12
|
|
|
|
1.8
|
|
|
|
5.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held-to-maturity securities
|
|
$
|
72
|
|
|
$
|
75
|
|
|
|
8.2
|
|
|
|
5.71
|
%
|
|
|
$
|
74
|
|
|
$
|
78
|
|
|
|
8.3
|
|
|
|
5.92
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agencies
|
|
$
|
238
|
|
|
$
|
238
|
|
|
|
21.6
|
|
|
|
4.59
|
%
|
|
|
$
|
407
|
|
|
$
|
405
|
|
|
|
7.5
|
|
|
|
5.95
|
%
|
Mortgage-backed securities (a)
|
|
|
31,616
|
|
|
|
30,763
|
|
|
|
5.1
|
|
|
|
4.69
|
|
|
|
|
31,300
|
|
|
|
30,603
|
|
|
|
5.6
|
|
|
|
5.12
|
|
Asset-backed securities (a)(d)
|
|
|
1,993
|
|
|
|
1,993
|
|
|
|
4.6
|
|
|
|
5.81
|
|
|
|
|
2,922
|
|
|
|
2,928
|
|
|
|
5.2
|
|
|
|
5.72
|
|
Obligations of state and political subdivisions (b)
|
|
|
7,114
|
|
|
|
6,739
|
|
|
|
20.8
|
|
|
|
6.78
|
|
|
|
|
7,131
|
|
|
|
7,055
|
|
|
|
10.7
|
|
|
|
6.78
|
|
Other debt securities
|
|
|
1,770
|
|
|
|
1,469
|
|
|
|
31.3
|
|
|
|
5.59
|
|
|
|
|
1,840
|
|
|
|
1,603
|
|
|
|
29.8
|
|
|
|
6.19
|
|
Other investments
|
|
|
505
|
|
|
|
422
|
|
|
|
36.1
|
|
|
|
6.45
|
|
|
|
|
506
|
|
|
|
448
|
|
|
|
|
|
|
|
7.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
|
$
|
43,236
|
|
|
$
|
41,624
|
|
|
|
9.2
|
|
|
|
5.14
|
%
|
|
|
$
|
44,106
|
|
|
$
|
43,042
|
|
|
|
7.4
|
|
|
|
5.51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Information
related to asset and mortgage-backed securities included above
is presented based upon weighted-average maturities anticipating
future prepayments. |
(b)
|
|
Information
related to obligations of state and politcal subdivisions is
presented based upon yield to first optional call date if the
market price is above par, yield to maturity if market price is
below par. |
(c)
|
|
Average
yields are presented on a fully-taxable equivalent basis under a
tax rate of 35 percent. Yields on available-for-sale and
held-to-maturity securities are computed based on historical
cost balances. |
(d)
|
|
Primarily
includes investments in structured investment vehicle securities
with underlying collateral that includes a mix of various
mortgage and other asset-backed securities. Certain amounts
included in asset-backed securities at December 31, 2007,
are reflected in other categories at March 31, 2008, based
on the collateral received upon the exchange of the structured
investment vehicle securities. |
Included in available-for-sale, asset-backed investment
securities, are structured investment vehicle securities
(SIVs) which were purchased in the fourth quarter of
2007 from certain money market funds managed by FAF Advisors,
Inc., an affiliate of the Company. Some of these securities
evidenced credit deterioration at the time of acquisition by the
Company. Statement of Position
No. 03-3
(SOP 03-3),
Accounting for Certain Loans or Debt Securities Acquired
in a Transfer, requires the difference between the total
expected cash flows for these securities and the initial
recorded investment to be recognized in earnings over the life
of the securities, using a level yield. If subsequent decreases
in the fair value of these securities are accompanied by an
adverse change in the expected cash flows, an
other-than-temporary impairment will be recorded through
earnings. Subsequent increases in the expected cash flows will
be recognized as income prospectively over the remaining life of
the security by increasing the level yield. During the first
quarter of 2008, the Company recorded $253 million of
impairment charges on these investments, primarily as a result
of widening credit spreads during the quarter.
On March 31, 2008, the Company exchanged its interest in
certain SIVs and received its share of the underlying investment
securities collateral as an in-kind distribution permitted under
the applicable restructuring agreements. The SIVs and the
investment securities collateral received, are collectively
referred to as SIV-related investments. Upon
acquiring the collateral, the Company evaluated each individual
security to determine whether there was evidence of credit
deterioration at the acquisition date to determine which
securities were subject to
SOP 03-3
accounting. The reconciliation of the securities subject to
SOP 03-3
accounting reflects the removal of $548 million of SIVs
that were exchanged and the addition of $80 million of
underlying investment securities collateral acquired on
March 31, 2008, that had evidence of credit deterioration
as of their acquisition date.
The gross undiscounted cash flows that were due under the
contractual terms of the purchased securities subject to
SOP 03-3,
were $1.7 billion at March 31, 2008, compared with
$2.5 billion at December 31, 2007, which included
payments receivable of $39 million and $33 million at
March 31, 2008 and December 31, 2007, respectively.
Changes in the carrying amount and accretable yield of those
securities subject to
SOP 03-3
for the three months ended March 31, 2008, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount
|
|
|
|
|
|
|
of Debt
|
|
(Dollars in Millions)
|
|
Accretable Yield
|
|
|
Securities
|
|
Balance at beginning of period
|
|
$
|
105
|
|
|
$
|
2,427
|
|
Transfers in (a)
|
|
|
19
|
|
|
|
80
|
|
Payments received
|
|
|
|
|
|
|
(42
|
)
|
Impairment writedowns
|
|
|
195
|
|
|
|
(253
|
)
|
Accretion
|
|
|
(6
|
)
|
|
|
6
|
|
Transfers out (b)
|
|
|
(10
|
)
|
|
|
(548
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
303
|
|
|
$
|
1,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Represents
the fair value of the securities at their transfer date.
Includes certain securities received upon the exchange of
certain SIV securities. |
(b)
|
|
Includes
SIV securities exchanged for underlying collateral on
March 31, 2008. |
The Company conducts a regular assessment of its investment
portfolios to determine whether any securities are
other-than-temporarily impaired considering, among other
factors, the nature of the securities, credit ratings or
financial condition of the issuer, the extent and duration of
the unrealized loss, expected cash flows of underlying
collateral, market conditions and the Companys ability to
hold the securities through the anticipated recovery period.
At March 31, 2008, certain investment securities included
in the held-to-maturity and available-for-sale categories had a
fair value that was below their amortized cost.
The following table shows the gross unrealized losses and fair
value of the Companys investments with unrealized losses
that are not deemed to be other-than-temporarily impaired based
on the period the investments have been in a continuous
unrealized loss position at March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
|
12 Months or Greater
|
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Fair
|
|
Unrealized
|
|
|
|
Fair
|
|
Unrealized
|
|
(Dollars in Millions)
|
|
Value
|
|
|
Losses
|
|
|
|
Value
|
|
Losses
|
|
|
|
Value
|
|
Losses
|
|
Held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of state and political subdivisions
|
|
$
|
17
|
|
|
$
|
(1
|
)
|
|
|
$
|
|
|
$
|
|
|
|
|
$
|
17
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
17
|
|
|
$
|
(1
|
)
|
|
|
$
|
|
|
$
|
|
|
|
|
$
|
17
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agencies
|
|
$
|
180
|
|
|
$
|
(1
|
)
|
|
|
$
|
|
|
$
|
|
|
|
|
$
|
180
|
|
$
|
(1
|
)
|
Mortgage-backed securities
|
|
|
11,402
|
|
|
|
(382
|
)
|
|
|
|
11,929
|
|
|
(529
|
)
|
|
|
|
23,331
|
|
|
(911
|
)
|
Asset-backed securities
|
|
|
204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
204
|
|
|
|
|
Obligations of state and political subdivisions
|
|
|
5,565
|
|
|
|
(334
|
)
|
|
|
|
667
|
|
|
(49
|
)
|
|
|
|
6,232
|
|
|
(383
|
)
|
Other securities and investments
|
|
|
1,101
|
|
|
|
(234
|
)
|
|
|
|
561
|
|
|
(160
|
)
|
|
|
|
1,662
|
|
|
(394
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,452
|
|
|
$
|
(951
|
)
|
|
|
$
|
13,157
|
|
$
|
(738
|
)
|
|
|
$
|
31,609
|
|
$
|
(1,689
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The unrealized losses within each investment category have
occurred as a result of changes in interest rates and credit
spreads over the past few years. The substantial portion of
securities that have unrealized losses are either government
securities, issued by government-backed agencies or privately
issued securities with high investment grade credit ratings.
Unrealized losses within other securities and investments are
also the result of a modest widening of credit spreads since the
initial purchase date. In general, the issuers of the investment
securities do not have the contractual ability to pay them off
at less than par at maturity or any earlier call date. As of the
reporting date, the Company expects to receive all contractual
principal and interest related to these securities other than
certain SIV-related investments, and expects that approximately
$65 million of principal and interest payments will not be
received for certain SIV-related investments. Excluding these
SIV-related investments, the Company has the intent and ability
to hold its investment securities until their anticipated
recovery in value or maturity, resulting in them not being
considered to be other-than-temporarily impaired at
March 31, 2008.
Note 4 Loans
The composition of the loan portfolio was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008
|
|
|
December 31,
2007
|
|
|
|
|
Percent
|
|
|
|
|
Percent
|
(Dollars in Millions)
|
|
Amount
|
|
of Total
|
|
|
Amount
|
|
of Total
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
46,438
|
|
|
29.3
|
%
|
|
|
$
|
44,832
|
|
|
29.1
|
%
|
Lease financing
|
|
|
6,306
|
|
|
4.0
|
|
|
|
|
6,242
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
52,744
|
|
|
33.3
|
|
|
|
|
51,074
|
|
|
33.2
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgages
|
|
|
20,751
|
|
|
13.1
|
|
|
|
|
20,146
|
|
|
13.1
|
|
Construction and development
|
|
|
9,218
|
|
|
5.8
|
|
|
|
|
9,061
|
|
|
5.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial real estate
|
|
|
29,969
|
|
|
18.9
|
|
|
|
|
29,207
|
|
|
19.0
|
|
Residential mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages
|
|
|
17,582
|
|
|
11.1
|
|
|
|
|
17,099
|
|
|
11.1
|
|
Home equity loans, first liens
|
|
|
5,636
|
|
|
3.6
|
|
|
|
|
5,683
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total residential mortgages
|
|
|
23,218
|
|
|
14.7
|
|
|
|
|
22,782
|
|
|
14.8
|
|
Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card
|
|
|
11,346
|
|
|
7.2
|
|
|
|
|
10,956
|
|
|
7.1
|
|
Retail leasing
|
|
|
5,675
|
|
|
3.6
|
|
|
|
|
5,969
|
|
|
3.9
|
|
Home equity and second mortgages
|
|
|
16,648
|
|
|
10.5
|
|
|
|
|
16,441
|
|
|
10.7
|
|
Other retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit
|
|
|
2,719
|
|
|
1.7
|
|
|
|
|
2,731
|
|
|
1.8
|
|
Installment
|
|
|
5,321
|
|
|
3.4
|
|
|
|
|
5,246
|
|
|
3.4
|
|
Automobile
|
|
|
9,342
|
|
|
5.9
|
|
|
|
|
8,970
|
|
|
5.8
|
|
Student
|
|
|
1,318
|
|
|
.8
|
|
|
|
|
451
|
|
|
.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other retail
|
|
|
18,700
|
|
|
11.8
|
|
|
|
|
17,398
|
|
|
11.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total retail
|
|
|
52,369
|
|
|
33.1
|
|
|
|
|
50,764
|
|
|
33.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
158,300
|
|
|
100.0
|
%
|
|
|
$
|
153,827
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans are presented net of unearned interest and deferred fees
and costs, which amounted to $1.4 billion at March 31,
2008, and December 31, 2007.
Note 5 Mortgage
Servicing Rights
The Companys portfolio of residential mortgages serviced
for others was $102.0 billion and $97.0 billion at
March 31, 2008, and December 31, 2007, respectively.
The Company records mortgage servicing rights (MSRs)
initially at fair value and at each subsequent reporting date,
and records changes in fair value in noninterest income in the
period in which they occur. In conjunction with its MSRs, the
Company may utilize derivatives, including futures, forwards and
interest rate swaps to offset the effect of interest rate
changes on the fair value of MSRs. The net impact of assumption
changes on the fair value of MSRs, excluding decay, and the
related derivatives included in mortgage banking revenue was a
net loss of $11 million and net gain of $1 million for
the three months ended March 31, 2008, and 2007,
respectively. Loan servicing fees, not including valuation
changes, included in mortgage banking revenue were
$94 million and $86 million for the three months ended
March 31, 2008, and 2007, respectively.
Changes in fair value of capitalized MSRs are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
(Dollars in Millions)
|
|
2008
|
|
|
2007
|
|
Balance at beginning of period
|
|
$
|
1,462
|
|
|
$
|
1,427
|
|
Rights purchased
|
|
|
4
|
|
|
|
3
|
|
Rights capitalized
|
|
|
143
|
|
|
|
82
|
|
Changes in fair value of MSRs:
|
|
|
|
|
|
|
|
|
Due to change in valuation assumptions (a)
|
|
|
(159
|
)
|
|
|
(23
|
)
|
Other changes in fair value (b)
|
|
|
(60
|
)
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
1,390
|
|
|
$
|
1,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Principally
reflects changes in discount rates and prepayment speed
assumptions, primarily arising from interest rate
changes. |
(b)
|
|
Primarily
represents changes due to collection/realization of expected
cash flows over time (decay). |
The Company determines fair value by estimating the present
value of the assets future cash flows utilizing
market-based prepayment rates, discount rates, and other
assumptions validated through comparison to trade information,
industry surveys, and independent third party appraisals. Risks
inherent in MSRs valuation include higher than expected
prepayment rates and/or delayed receipt of cash flows. The
estimated sensitivity to changes in interest rates of the fair
value of the MSRs portfolio and the related derivative
instruments at March 31, 2008, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Down Scenario
|
|
|
|
Up Scenario
|
|
(Dollars in Millions)
|
|
50 bps
|
|
|
25 bps
|
|
|
|
25 bps
|
|
|
50 bps
|
|
Net fair value
|
|
$
|
(20
|
)
|
|
$
|
(3
|
)
|
|
|
$
|
(12
|
)
|
|
$
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 6 Shareholders
Equity
On March 17, 2008, the Company issued 20 million
depositary shares each representing a 1/1,000th ownership
interest in one of 20,000 shares of Series D
Non-Cumulative Perpetual Preferred Stock (the
Series D Preferred Stock). The shares of
Series D Preferred Stock have a $1.00 par value and a
liquidation preference of $25,000 per share (equivalent to $25
per depositary share). The Series D Preferred Stock has no
stated maturity and will not be subject to any sinking fund or
other redemption or repurchase obligation of the Company.
Dividends on the Series D Preferred Stock, if declared,
will accrue and be payable quarterly on the liquidation
preference amount, in arrears, at a rate per annum equal to
7.875 percent. If the Company has not declared a dividend
on the Series D Preferred Stock before the dividend payment
date for any dividend period, such dividend shall not be
cumulative and shall cease to accrue and be payable, and the
Company will have no obligation to pay dividends accrued for
such dividend period, whether or not dividends on the
Series D Preferred Stock are declared for any future
dividend period.
The Company may not pay dividends on or repurchase shares of its
junior stock unless dividends for the then-current dividend
period of the Series D Preferred Stock have been declared
and sufficient funds set aside to make payment. The Company may
not pay dividends on or repurchase shares of its parity stock
unless such dividends or offers to repurchase parity stock are
made on a proportional basis with respect to the Series D
Preferred Stock.
On April 15, 2013, or thereafter, the Series D
Preferred Stock is redeemable at the Companys option,
subject to the prior approval of the Federal Reserve Board, at a
redemption price equal to $25,000 per share (equivalent to $25
per depositary share), plus any declared and unpaid dividends,
without accumulation of any undeclared dividends. In connection
with this transaction, the Company also entered into a
replacement capital covenant, which restricts the Companys
rights to redeem or repurchase the Series D Preferred
Stock. Except in certain limited circumstances, the
Series D Preferred Stock will not have any voting rights.
For further information on shareholders equity, refer to
Note 14 in the Companys Annual Report on
Form 10-K
for the year ended December 31, 2007.
Note 7 Earnings
Per Share
The components of earnings per share were:
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
|
March 31,
|
|
(Dollars and Shares
in Millions, Except Per Share Data)
|
|
2008
|
|
|
2007
|
|
Net income
|
|
$
|
1,090
|
|
|
$
|
1,130
|
|
Preferred dividends
|
|
|
(12
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
Net income applicable to common equity
|
|
$
|
1,078
|
|
|
$
|
1,115
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding
|
|
|
1,731
|
|
|
|
1,752
|
|
Net effect of the exercise and assumed purchase of stock awards
and conversion of outstanding convertible notes
|
|
|
18
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
Average diluted common shares outstanding
|
|
|
1,749
|
|
|
|
1,780
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
$
|
.62
|
|
|
$
|
.64
|
|
Diluted earnings per common share
|
|
$
|
.62
|
|
|
$
|
.63
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2008 and 2007, options
to purchase 2 million and 12 million shares,
respectively, were outstanding but not included in the
computation of diluted earnings per share because they were
antidilutive.
Note 8 Employee
Benefits
The components of net periodic benefit cost for the
Companys retirement plans were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
Pension Plans
|
|
|
|
Medical Plan
|
|
(Dollars in Millions)
|
|
2008
|
|
|
2007
|
|
|
|
2008
|
|
|
2007
|
|
Service cost
|
|
$
|
19
|
|
|
$
|
18
|
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Interest cost
|
|
|
35
|
|
|
|
31
|
|
|
|
|
3
|
|
|
|
4
|
|
Expected return on plan assets
|
|
|
(56
|
)
|
|
|
(50
|
)
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
Prior service (credit) cost and transition (asset) obligation
amortization
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
Actuarial (gain) loss amortization
|
|
|
8
|
|
|
|
16
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
5
|
|
|
$
|
14
|
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9 Income
Taxes
The components of income tax expense were:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(Dollars in Millions)
|
|
2008
|
|
|
2007
|
|
Federal
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
456
|
|
|
$
|
449
|
|
Deferred
|
|
|
(42
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
Federal income tax
|
|
|
414
|
|
|
|
427
|
|
State
|
|
|
|
|
|
|
|
|
Current
|
|
|
65
|
|
|
|
69
|
|
Deferred
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
State income tax
|
|
|
62
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision
|
|
$
|
476
|
|
|
$
|
493
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of expected income tax expense at the federal
statutory rate of 35 percent to the Companys
applicable income tax expense follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
|
March 31,
|
|
(Dollars in Millions)
|
|
2008
|
|
|
2007
|
|
Tax at statutory rate (35 percent)
|
|
$
|
548
|
|
|
$
|
568
|
|
State income tax, at statutory rates, net of federal tax benefit
|
|
|
40
|
|
|
|
43
|
|
Tax effect of
|
|
|
|
|
|
|
|
|
Tax credits
|
|
|
(60
|
)
|
|
|
(69
|
)
|
Tax-exempt income
|
|
|
(41
|
)
|
|
|
(27
|
)
|
Other items
|
|
|
(11
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
Applicable income taxes
|
|
$
|
476
|
|
|
$
|
493
|
|
|
|
|
|
|
|
|
|
|
The Companys income tax returns are subject to review and
examination by federal, state, local and foreign government
authorities. On an ongoing basis, numerous federal, state, local
and foreign examinations are in progress and cover multiple tax
years. As of March 31, 2008, the federal taxing authority
has completed its examination of the Company through the fiscal
year ended December 31, 2004. The years open to examination
by foreign, state and local government authorities vary by
jurisdication.
The Companys net deferred tax liability was
$964 million at March 31, 2008, and
$1,279 million at December 31, 2007.
Note 10 Fair
Values of Assets and Liabilities
Effective January 1, 2008, the Company adopted
SFAS 157 which defines fair value, establishes a framework
for measuring fair value and expands disclosures about fair
value measurements. Fair value is defined under SFAS 157 as
the exchange price that would be received for an asset or paid
to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date.
Under SFAS 157, a fair value measurement should reflect all
of the assumptions that market participants would use in pricing
the asset or liability, including assumptions about the risk
inherent in a particular valuation technique, the effect of a
restriction on the sale or use of an asset, and the risk of
nonperformance. Upon adoption of SFAS 157, the Company
considered the principal market and nonperformance risk when
determining the fair value measurements for customer derivatives
and reduced trading revenue by $62 million for the quarter
ended March 31, 2008. In addition, SFAS 157 no longer
allows the deferral of origination fees or compensation expense
related to the closing of MLHFS, resulting in additional
mortgage banking revenue and recognition of compensation expense
in the period the MLHFS are originated. The adoption of
SFAS 157 increased both mortgage banking revenue and
compensation expense by $19 million each for the quarter
ended March 31, 2008.
SFAS 157 specifies a three level hierarchy for valuation
techniques used to measure financial assets and financial
liabilities at fair value. This hierarchy is based on whether
the valuation inputs are observable or unobservable. These
levels are:
|
|
|
|
|
Level 1 Quoted prices in active markets for
identical assets or liabilities. Level 1 includes
U.S. Treasury and exchange-traded instruments.
|
|
|
Level 2 Observable inputs other than
Level 1 prices, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or
other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the
assets or liabilities. Level 2 includes debt securities
that are traded less frequently than exchange-traded instruments
and which are valued using third party pricing services;
derivative contracts whose value is determined using a pricing
model with inputs that are observable in the market or can be
derived principally from or corroborated by observable market
data; and MLHFS whose values are determined using quoted prices
for similar assets or pricing models with inputs that are
observable in the market or can be corroborated by observable
market data.
|
|
|
Level 3 Unobservable inputs that are supported
by little or no market activity and that are significant to the
fair value of the assets or liabilities. Level 3 assets and
liabilities include financial instruments whose values are
determined using pricing models, discounted cash flow
methodologies, or similar techniques, as well as
|
|
|
|
|
|
instruments for which the determination of fair value requires
significant management judgment or estimation. This category
generally includes residential MSRs, certain debt securities and
derivative contracts.
|
The following section describes the valuation methodologies used
by the Company to measure different financial assets and
liabilities at fair value and includes an indication of the
level in the fair value hierarchy in which the assets or
liabilities are classified. Where appropriate, the description
includes details of the valuation models and key inputs to those
models.
Derivatives Exchange-traded
derivatives are measured at fair value based on quoted market
(i.e. exchange) prices. Because prices are available for the
identical instrument in an active market, these fair values are
classified within Level 1 of the fair value hierarchy.
The majority of derivatives held by the Company are executed
over the counter and are valued using standard cash flow,
Black-Scholes and Monte Carlo valuation techniques. The models
incorporate various inputs, depending on the type of derivative,
including interest rate curves, foreign exchange rates and
volatility. The majority of these derivatives are classified
within Level 2 of the fair value hierarchy as the
significant inputs to the models are observable. An exception to
the Level 2 classification are certain derivative
transactions with customers for which the risk of nonperformance
cannot be observed in the market. These derivatives are
classified within Level 3 of the fair value hierarchy. In
addition, commitments to sell, purchase and originate mortgage
loans, that meet the requirements of a derivative, are valued by
pricing models that include market observable and unobservable
inputs. Due to the significant unobservable inputs, these
commitments are classified within Level 3 of the fair value
hierarchy.
Investments When
available, quoted market prices are used to determine the fair
value of investment securities and such items are classified
within Level 1 of the fair value hierarchy. An example is
U.S. Treasury securities.
For other securities, the Company determines fair value based on
various sources and may apply matrix pricing with observable
prices for similar bonds where a price for the identical bond is
not observable. Prices are verified, where possible, to prices
obtained from independent sources. Securities measured at fair
value by such methods are classified as Level 2.
Certain securities are not valued based on observable
transactions and are, therefore, classified as Level 3. The fair
value of these securities is based on managements best
estimates. These securities include SIV-related investments. For
the SIV-related investments held by the Company, the majority of
the collateral is residential mortgage-backed securities with
the remaining collateral consisting of commercial
mortgage-backed and asset-backed securities, collateralized debt
obligations and collateralized loan obligations. Exposure to
sub-prime
mortgage-backed
securities is limited.
The estimation process for these securities involves the use of
a cash flow methodology and other market valuation techniques
involving management judgement. The cash flow methodology uses
assumptions that reflect housing price changes, interest rates,
borrower loan-to-value and borrower credit scores. Inputs used
for estimation are refined and updated to reflect market
developments. The fair value of these securities are sensitive
to changes in the estimated cash flows and related assumptions
used and given market conditions are updated on a regular basis.
The collateral cash flows are aggregated and passed through a
distribution waterfall to determine allocation to tranches. Cash
flows are then discounted at an interest rate to estimate the
fair value of the security held by the Company. Discount rates
reflect current market conditions and the relative risk of these
investment securities. The primary drivers that impact the
valuations of these securities are the prepayment and default
rates associated with the underlying collateral, as well as the
discount rate used to present value the projected cash flows.
Securities measured at fair value by this methodology are
classified as Level 3. Related interest income for
investment securities is recorded in interest income in the
Consolidated Statement of Income.
Certain mortgage
loans held for
sale Effective
January 1, 2008, the Company elected the fair value option
under SFAS 159 for MLHFS originated on or after
January 1, 2008, for which an active secondary market and
readily available market prices currently exist to reliably
support fair value pricing models used for these loans. These
MLHFS loans are initially measured at fair value, with
subsequent changes in fair value recognized as a component of
mortgage banking revenue. Electing to measure these MLHFS at
fair value reduces certain timing differences and better matches
changes in fair value of these assets with changes in the value
of the derivative instruments used to economically hedge them
without the burden of complying with the requirements for hedge
accounting under SFAS 133. There was no transition
adjustment required upon adoption of SFAS 159 for MLHFS,
because the Company continued to account for MLHFS originated
prior to 2008 under the lower-of-cost-or-market accounting
method.
MLHFS measured at fair value are initially valued at the
transaction price and are subsequently valued by comparison to
instruments with similar collateral and risk profiles. Included
in mortgage banking revenue in the first quarter of 2008 was
$12 million of net losses from the initial measurement and
subsequent changes to fair value of the MLHFS under the
fair value option. Changes in fair value due to instrument
specific credit risk was immaterial. The fair value of MLHFS
under the fair value option was $3.1 billion as of
March 31, 2008, which exceeded the unpaid principal balance
by $56 million as of that date. Related interest income for
MLHFS continues to be measured based on contractual interest
rates and reported as interest income in the Consolidated
Statement of Income.
Mortgage
servicing
rights MSRs
are valued using a cash flow methodology and third party prices,
if available. Accordingly, MSRs are classified in Level 3.
Refer to Note 5 in the Notes to Consolidated Financial
Statements for further information on the methodology used by
the Company in determining the fair value of its MSRs.
The following table summarizes the balances of assets and
liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIN 39
|
|
|
|
March 31, 2008
(Dollars in Millions)
|
|
Level 1
|
|
Level 2
|
|
|
Level 3
|
|
|
Netting(a)
|
|
|
Total
|
Investment securities available-for-sale
|
|
$
|
168
|
|
$
|
38,928
|
|
|
$
|
2,528
|
|
|
$
|
|
|
|
$
|
41,624
|
Mortgage loans held for sale
|
|
|
|
|
|
3,097
|
|
|
|
|
|
|
|
|
|
|
|
3,097
|
Mortgage servicing rights
|
|
|
|
|
|
|
|
|
|
1,390
|
|
|
|
|
|
|
|
1,390
|
Other assets (b)
|
|
|
|
|
|
974
|
|
|
|
840
|
|
|
|
(34
|
)
|
|
|
1,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
168
|
|
$
|
42,999
|
|
|
$
|
4,758
|
|
|
$
|
(34
|
)
|
|
$
|
47,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
|
|
$
|
1,710
|
|
|
$
|
16
|
|
|
$
|
(34
|
)
|
|
$
|
1,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Financial
Accounting Standards Board Interpretation No. 39
(FIN 39), Offsetting of Amounts Related
to Certain Contracts, permits the netting of derivative
receivables and derivative payables when a legally enforceable
master netting agreement exists between the Company and a
derivative counterparty. A master netting agreement is an
agreement between two counterparties who have multiple
derivative contracts with each other that provide for the net
settlement of all contracts, as well as cash collateral, through
a single payment, in a single currency, in the event of default
on or termination of any one contract. |
(b)
|
|
Represents
primarily derivative receivables and an immaterial amount of
trading securities. |
At March 31, 2008, MLHFS included $130 million of mortgage
loans that were not subject to the fair value option election,
and therefore, are excluded in the table above.
The table below presents a reconciliation for all assets and
liabilities measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) for the
period from January 1, 2008 to March 31, 2008.
Level 3 instruments presented in the table include
SIV-related investments, MSRs and derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2008
|
|
|
|
Investment
|
|
|
Mortgage
|
|
|
|
Net other
|
|
|
|
securities
|
|
|
servicing
|
|
|
|
assets and
|
|
(Dollars in Millions)
|
|
available-for-sale
|
|
|
rights
|
|
|
|
liabilities
|
|
Balance at beginning of period
|
|
$
|
2,923
|
|
|
$
|
1,462
|
|
|
|
$
|
338
|
|
Net gains (losses) included in net income
|
|
|
(253
|
)(a)
|
|
|
(219
|
)(b)
|
|
|
|
462
|
(c)
|
Net gains (losses) included in other comprehensive income
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
Discount accretion
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Purchases, sales, issuances and settlements
|
|
|
(142
|
)
|
|
|
147
|
|
|
|
|
34
|
|
Transfers in and/or out of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
2,528
|
|
|
$
|
1,390
|
|
|
|
$
|
824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gains (losses) relating to assets still
held at March 31, 2008
|
|
$
|
(6
|
)
|
|
$
|
219
|
(b)
|
|
|
$
|
473
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Included
in securities gains (losses). |
(b)
|
|
Included
in mortgage banking revenue. |
(c)
|
|
Approximately
$451 million included in other noninterest income and
$11 million in mortgage banking revenue. |
(d)
|
|
Approximately
$454 million included in other noninterest income and
$19 million in mortgage banking revenue. |
The Company may also be required periodically to measure certain
other financial assets at fair value on a nonrecurring basis in
accordance with accounting principles generally accepted in the
United States. These measurements of fair value usually result
from the application of lower-of-cost-or-market accounting or
write-downs of individual assets. The following table summarizes
the adjusted carrying values and the level of valuation
assumptions used to determine each adjustment to the related
individual assets or portfolios for the three months ended
March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total losses
|
(Dollars in Millions)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
recognized
|
Loans held for sale
|
|
$
|
|
|
$
|
72
|
|
$
|
|
|
$
|
72
|
|
$
|
4
|
Loans (a)
|
|
|
|
|
|
5
|
|
|
|
|
|
5
|
|
|
4
|
Other real estate owned (b)
|
|
|
|
|
|
30
|
|
|
|
|
|
30
|
|
|
10
|
Other intangible assets
|
|
|
|
|
|
|
|
|
1
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Represents
carrying value and related write-downs of loans for which
adjustments are based on the appraised value of the
collateral. |
(b)
|
|
Represents
the fair value and related losses of properties that the Company
has taken ownership of that once secured residential mortgages
and home equity and second mortgage loan balances that were
measured at fair value subsequent to their initial
classification as other real estate owned. |
Fair Value
Option
The following table summarizes the differences between the
aggregate fair value carrying amount of MLHFS for which the fair
value option has been elected and the aggregate unpaid principal
amount that the Company is contractually obligated to receive at
maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess of
|
|
|
|
|
|
|
carrying
|
|
|
Fair value
|
|
Aggregate
|
|
amount over
|
|
|
carrying
|
|
unpaid
|
|
unpaid
|
March 31, 2008
(Dollars in Millions)
|
|
amount
|
|
principal
|
|
principal
|
Total loans
|
|
$
|
3,097
|
|
$
|
3,041
|
|
$
|
56
|
Nonaccrual loans
|
|
|
|
|
|
|
|
|
|
Loans 90 days or more past due
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 11 Guarantees
and Contingent Liabilities
The following table is a summary of the guarantees and
contingent liabilities of the Company at March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
Potential
|
|
|
Carrying
|
|
Future
|
(Dollars in Millions)
|
|
Amount
|
|
Payments
|
Standby letters of credit
|
|
$
|
90
|
|
$
|
13,122
|
Third-party borrowing arrangements
|
|
|
|
|
|
329
|
Securities lending indemnifications
|
|
|
|
|
|
16,940
|
Asset sales (a)
|
|
|
7
|
|
|
422
|
Merchant processing
|
|
|
53
|
|
|
74,888
|
Other guarantees
|
|
|
10
|
|
|
7,445
|
Other contingent liabilities
|
|
|
57
|
|
|
1,942
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
The
maximum potential future payments does not include loan sales
where the Company provides standard representations and
warranties to the buyer against losses related to loan
underwriting documentation. For these types of loan sales, the
maximum potential future payments are not readily determinable
because the Companys obligation under these agreements
depends upon the occurrence of future events. |
The Company, through its subsidiaries, provides merchant
processing services. Under the rules of credit card
associations, a merchant processor retains a contingent
liability for credit card transactions processed. This
contingent liability arises in the event of a billing dispute
between the merchant and a cardholder that is ultimately
resolved in the cardholders favor. In this situation, the
transaction is charged-back to the merchant and the
disputed amount is credited or otherwise refunded to the
cardholder. If the Company is unable to collect this amount from
the merchant, it bears the loss for the amount of the refund
paid to the cardholder.
The Company currently processes card transactions in the United
States, Canada and Europe for airlines, cruise lines and large
tour operators. In the event of liquidation of these merchants,
the Company could become financially liable for refunding
tickets purchased through the credit card associations under the
charge-back provisions. Charge-back risk related to these
merchants is evaluated in a manner similar to credit risk
assessments and, as such, merchant
processing contracts contain various provisions to protect the
Company in the event of default. At March 31, 2008, the
value of airline, cruise line and large tour operator tickets
purchased to be delivered at a future date was
$5.4 billion, with airline tickets representing
94 percent of that amount. The Company held collateral of
$994 million in escrow deposits, letters of credit and
indemnities from financial institutions, and liens on various
assets.
The Company is subject to various litigation, investigations and
legal and administrative cases and proceedings that arise in the
ordinary course of its businesses. Due to their complex nature,
it may be years before some matters are resolved. While it is
impossible to ascertain the ultimate resolution or range of
financial liability with respect to these contingent matters,
the Company believes that the aggregate amount of such
liabilities will not have a material adverse effect on the
financial condition, results of operations or cash flows of the
Company.
Visa
Restructuring and Card Association
Litigation The
Companys payment services business issues and acquires
credit and debit card transactions through the Visa U.S.A. Inc.
card association or its affiliates (collectively,
Visa). On October 3, 2007, Visa completed a
restructuring and issued shares of Visa Inc. common stock to its
financial institution members in contemplation of its initial
public offering (IPO) completed in the first quarter
of 2008 (the Visa Reorganization). As a part of the
Visa Reorganization, the Company received its proportionate
number of Class U.S.A. shares of Visa Inc. common stock. In
addition, the Company and certain of its subsidiaries have been
named as defendants along with Visa U.S.A. Inc. and MasterCard
International (collectively, the Card Associations),
as well as several other banks, in antitrust lawsuits
challenging the practices of the Card Associations (the
Visa Litigation). Visa U.S.A. member banks have a
contingent obligation to indemnify Visa, Inc. under the Visa
U.S.A. bylaws (which were modified at the time of the
restructuring in October 2007) for potential losses arising
from the Visa Litigation. The Company has also entered into
judgment and loss sharing agreements with Visa U.S.A. and
certain other banks in order to apportion financial
responsibilities arising from any potential adverse judgment or
negotiated settlements related to the Visa Litigation.
On November 7, 2007, Visa announced the settlement of the
portion of the Visa Litigation involving American Express, and
accordingly, the Company recorded a $115 million charge in
the third quarter of 2007 for its proportionate share of this
settlement. In addition to the liability related to the
settlement with American Express, Visa U.S.A. member banks were
required to recognize the contingent obligation to indemnify
Visa Inc. under the Visa U.S.A. bylaws for potential losses
arising from the remaining Visa Litigation at the estimated fair
value of such obligation in accordance with Financial Accounting
Standards Board Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of
Others. The contingent obligation of member banks under
the Visa U.S.A. bylaws has no specific maximum amount. While the
estimation of any potential losses related to this litigation is
highly judgmental, the Company recognized a charge of
approximately $215 million in the fourth quarter of 2007.
In March 2008, Visa Inc. completed its IPO, redeemed a portion
of the Class U.S.A. shares, and set aside $3 billion
of the proceeds from the IPO in an escrow account for the
benefit of member financial institutions to fund the expenses of
the Visa Litigation, as well as the members proportionate
share of any judgments or settlements that may arise out of the
Visa Litigation. The Company recorded a $339 million gain
for the portion of its shares that were redeemed for cash and a
$153 million gain for its proportionate share of the escrow
account in the first quarter of 2008. The $153 million
receivable related to the escrow account is classified in other
liabilities as a direct offset to the related Visa Litigation
liabilities. The remaining Visa Inc. shares held by the Company
will be eligible for conversion to Class A shares three
years after the IPO or upon settlement of the Visa Litigation,
whichever is later.
For additional information on the nature of the Companys
guarantees and contingent liabilities, refer to Note 21 in
the Companys Annual Report on
Form 10-K
for the year ended December 31, 2007.
U.S. Bancorp
Consolidated Daily Average Balance Sheet and Related Yields and
Rates (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended March 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yields
|
|
|
|
|
|
|
|
|
Yields
|
|
|
|
% Change
|
|
|
|
(Dollars in
Millions)
|
|
Average
|
|
|
|
|
and
|
|
|
|
Average
|
|
|
|
|
and
|
|
|
|
Average
|
|
|
|
(Unaudited)
|
|
Balances
|
|
|
Interest
|
|
Rates
|
|
|
|
Balances
|
|
|
Interest
|
|
Rates
|
|
|
|
Balances
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
$
|
43,891
|
|
|
$
|
580
|
|
|
5.28
|
%
|
|
|
$
|
40,879
|
|
|
$
|
546
|
|
|
5.34
|
%
|
|
|
|
7.4
|
%
|
|
|
Loans held for sale
|
|
|
5,118
|
|
|
|
73
|
|
|
5.72
|
|
|
|
|
3,843
|
|
|
|
59
|
|
|
6.22
|
|
|
|
|
33.2
|
|
|
|
Loans (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
51,709
|
|
|
|
721
|
|
|
5.60
|
|
|
|
|
47,019
|
|
|
|
774
|
|
|
6.66
|
|
|
|
|
10.0
|
|
|
|
Commercial real estate
|
|
|
29,536
|
|
|
|
463
|
|
|
6.30
|
|
|
|
|
28,632
|
|
|
|
520
|
|
|
7.36
|
|
|
|
|
3.2
|
|
|
|
Residential mortgages
|
|
|
22,978
|
|
|
|
358
|
|
|
6.24
|
|
|
|
|
21,569
|
|
|
|
323
|
|
|
6.02
|
|
|
|
|
6.5
|
|
|
|
Retail
|
|
|
51,009
|
|
|
|
1,026
|
|
|
8.09
|
|
|
|
|
47,473
|
|
|
|
967
|
|
|
8.26
|
|
|
|
|
7.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
155,232
|
|
|
|
2,568
|
|
|
6.65
|
|
|
|
|
144,693
|
|
|
|
2,584
|
|
|
7.23
|
|
|
|
|
7.3
|
|
|
|
Other earning assets
|
|
|
2,773
|
|
|
|
37
|
|
|
5.37
|
|
|
|
|
1,720
|
|
|
|
34
|
|
|
8.02
|
|
|
|
|
61.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
207,014
|
|
|
|
3,258
|
|
|
6.32
|
|
|
|
|
191,135
|
|
|
|
3,223
|
|
|
6.81
|
|
|
|
|
8.3
|
|
|
|
Allowance for loan losses
|
|
|
(2,075
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,036
|
)
|
|
|
|
|
|
|
|
|
|
|
(1.9
|
)
|
|
|
Unrealized gain (loss) on available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
(1,105
|
)
|
|
|
|
|
|
|
|
|
|
|
(619
|
)
|
|
|
|
|
|
|
|
|
|
|
(78.5
|
)
|
|
|
Other assets
|
|
|
32,841
|
|
|
|
|
|
|
|
|
|
|
|
31,032
|
|
|
|
|
|
|
|
|
|
|
|
5.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
236,675
|
|
|
|
|
|
|
|
|
|
|
$
|
219,512
|
|
|
|
|
|
|
|
|
|
|
|
7.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
$
|
27,119
|
|
|
|
|
|
|
|
|
|
|
$
|
27,677
|
|
|
|
|
|
|
|
|
|
|
|
(2.0
|
)
|
|
|
Interest-bearing deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking
|
|
|
30,303
|
|
|
|
88
|
|
|
1.16
|
|
|
|
|
25,076
|
|
|
|
76
|
|
|
1.22
|
|
|
|
|
20.8
|
|
|
|
Money market savings
|
|
|
25,590
|
|
|
|
114
|
|
|
1.79
|
|
|
|
|
25,712
|
|
|
|
163
|
|
|
2.57
|
|
|
|
|
(.5
|
)
|
|
|
Savings accounts
|
|
|
5,134
|
|
|
|
3
|
|
|
.23
|
|
|
|
|
5,401
|
|
|
|
5
|
|
|
.39
|
|
|
|
|
(4.9
|
)
|
|
|
Time certificates of deposit less than $100,000
|
|
|
13,607
|
|
|
|
139
|
|
|
4.11
|
|
|
|
|
14,775
|
|
|
|
158
|
|
|
4.35
|
|
|
|
|
(7.9
|
)
|
|
|
Time deposits greater than $100,000
|
|
|
29,105
|
|
|
|
262
|
|
|
3.62
|
|
|
|
|
22,087
|
|
|
|
273
|
|
|
5.00
|
|
|
|
|
31.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
103,739
|
|
|
|
606
|
|
|
2.35
|
|
|
|
|
93,051
|
|
|
|
675
|
|
|
2.94
|
|
|
|
|
11.5
|
|
|
|
Short-term borrowings
|
|
|
35,890
|
|
|
|
348
|
|
|
3.90
|
|
|
|
|
26,687
|
|
|
|
347
|
|
|
5.28
|
|
|
|
|
34.5
|
|
|
|
Long-term debt
|
|
|
39,822
|
|
|
|
474
|
|
|
4.78
|
|
|
|
|
42,944
|
|
|
|
535
|
|
|
5.04
|
|
|
|
|
(7.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
179,451
|
|
|
|
1,428
|
|
|
3.20
|
|
|
|
|
162,682
|
|
|
|
1,557
|
|
|
3.88
|
|
|
|
|
10.3
|
|
|
|
Other liabilities
|
|
|
8,626
|
|
|
|
|
|
|
|
|
|
|
|
7,943
|
|
|
|
|
|
|
|
|
|
|
|
8.6
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred equity
|
|
|
1,083
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
8.3
|
|
|
|
Common equity
|
|
|
20,396
|
|
|
|
|
|
|
|
|
|
|
|
20,210
|
|
|
|
|
|
|
|
|
|
|
|
.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
21,479
|
|
|
|
|
|
|
|
|
|
|
|
21,210
|
|
|
|
|
|
|
|
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
236,675
|
|
|
|
|
|
|
|
|
|
|
$
|
219,512
|
|
|
|
|
|
|
|
|
|
|
|
7.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
1,830
|
|
|
|
|
|
|
|
|
|
|
$
|
1,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross interest margin
|
|
|
|
|
|
|
|
|
|
3.12
|
%
|
|
|
|
|
|
|
|
|
|
|
2.93
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross interest margin without taxable-equivalent increments
|
|
|
|
|
|
|
|
|
|
3.07
|
|
|
|
|
|
|
|
|
|
|
|
2.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Earning Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
6.32
|
%
|
|
|
|
|
|
|
|
|
|
|
6.81
|
%
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
2.77
|
|
|
|
|
|
|
|
|
|
|
|
3.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
3.55
|
%
|
|
|
|
|
|
|
|
|
|
|
3.51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin without taxable-equivalent increments
|
|
|
|
|
|
|
|
|
|
3.50
|
%
|
|
|
|
|
|
|
|
|
|
|
3.47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Interest
and rates are presented on a fully taxable-equivalent basis
utilizing a tax rate of 35 percent. |
(b)
|
|
Interest
income and rates on loans include loan fees. Nonaccrual loans
are included in average loan balances. |
Part II Other Information
Item 1A. Risk Factors There are
a number of factors that may adversely affect the Companys
business, financial results or stock price. Refer to Risk
Factors in the Companys Annual Report on
Form 10-K
for the year ended December 31, 2007, for discussion of
these risks.
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds Refer to the Capital
Management section within Managements Discussion and
Analysis in Part I for information regarding shares
repurchased by the Company during the first quarter of 2008.
Item 4. Submission of Matters to a Vote of Security
Holders The 2008 Annual Meeting of
Shareholders of U.S. Bancorp was held Tuesday,
April 15, 2008, at the Benson Hotel, Portland, Oregon.
Richard K. Davis, Chairman, President and Chief Executive
Officer, presided.
The holders of 1,530,609,236 shares of common stock,
88.4 percent of the outstanding shares entitled to vote as
of the record date, were represented at the meeting in person or
by proxy. The candidates for election to the Board of Directors
listed in the proxy statement were elected to serve one-year
terms expiring at the annual shareholders meeting in 2009,
and the selection of Ernst & Young LLP as the
Companys independent auditors for the fiscal year ending
December 31, 2008, was ratified. The shareholder proposal
urging the adoption of a policy that shareholders be given an
opportunity to annually ratify the compensation paid to the
executive officers named in the Companys proxy statement
and the shareholder proposal urging the adoption of a policy to
separate the roles of the chairman of the board and chief
executive officer were not approved.
Summary
of Matters Voted Upon by Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
For
|
|
|
Against
|
|
|
|
|
|
|
Election of Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas M. Baker Jr.
|
|
|
1,490,257,217
|
|
|
|
20,532,576
|
|
|
|
|
|
|
|
|
Joel W. Johnson
|
|
|
1,416,056,100
|
|
|
|
94,293,291
|
|
|
|
|
|
|
|
|
David B. OMaley
|
|
|
1,484,615,859
|
|
|
|
26,073,371
|
|
|
|
|
|
|
|
|
Odell M. Owens, M.D., M.P.H.
|
|
|
1,410,363,879
|
|
|
|
100,282,737
|
|
|
|
|
|
|
|
|
Craig D. Schnuck
|
|
|
1,491,554,589
|
|
|
|
19,559,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker
|
|
|
For
|
|
|
Against
|
|
|
Abstain
|
|
|
Non-Vote
|
Ratification of Selection of Auditor
|
|
|
1,372,215,044
|
|
|
|
141,874,220
|
|
|
|
16,519,972
|
|
|
|
|
Proposal to Annually Ratify the Compensation Paid to Executive
Officers Named in the Companys Proxy Statement
|
|
|
427,597,237
|
|
|
|
781,246,349
|
|
|
|
45,587,459
|
|
|
|
276,178,191
|
Proposal to Separate the Roles of the Chairman of the Board and
the Chief Executive Officer
|
|
|
220,125,998
|
|
|
|
1,010,533,633
|
|
|
|
23,771,414
|
|
|
|
276,178,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a copy of the meeting minutes, please write to the Office of
the Corporate Secretary, U.S. Bancorp, 800 Nicollet Mall,
Minneapolis, Minnesota 55402.
|
|
|
3.1
|
|
Restated Certificate of Incorporation, as amended
|
12
|
|
Computation of Ratio of Earnings to Fixed Charges
|
31.1
|
|
Certification of Chief Executive Officer pursuant to
Rule 13a-14(a)
under the Securities Exchange Act of 1934
|
31.2
|
|
Certification of Chief Financial Officer pursuant to
Rule 13a-14(a)
under the Securities Exchange Act of 1934
|
32
|
|
Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. section 1350 as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002
|
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
U.S. BANCORP
|
|
|
|
By:
|
/s/ Terrance
R. Dolan
|
Terrance R. Dolan
Executive Vice President and Controller
(Chief Accounting Officer and Duly Authorized Officer)
DATE: May 12, 2008
EXHIBIT 12
Computation
of Ratio of Earnings to Fixed Charges
|
|
|
|
|
|
|
|
Three Months
Ended
|
(Dollars in Millions)
|
|
March 31, 2008
|
Earnings
|
1.
|
|
Net income
|
|
$
|
1,090
|
2.
|
|
Applicable income taxes, including interest expense related to
unrecognized tax positions
|
|
|
476
|
|
|
|
|
|
|
3.
|
|
Income before income taxes (1 + 2)
|
|
$
|
1,566
|
|
|
|
|
|
|
4.
|
|
Fixed charges:
|
|
|
|
|
|
a. Interest expense excluding interest on deposits*
|
|
$
|
796
|
|
|
b. Portion of rents representative of interest and
amortization of debt expense
|
|
|
20
|
|
|
|
|
|
|
|
|
c. Fixed charges excluding interest on deposits (4a +
4b)
|
|
|
816
|
|
|
d. Interest on deposits
|
|
|
606
|
|
|
|
|
|
|
|
|
e. Fixed charges including interest on deposits (4c +
4d)
|
|
$
|
1,422
|
|
|
|
|
|
|
5.
|
|
Amortization of interest capitalized
|
|
$
|
|
6.
|
|
Earnings excluding interest on deposits (3 + 4c + 5)
|
|
|
2,382
|
7.
|
|
Earnings including interest on deposits (3 + 4e + 5)
|
|
|
2,988
|
8.
|
|
Fixed charges excluding interest on deposits (4c)
|
|
|
816
|
9.
|
|
Fixed charges including interest on deposits (4e)
|
|
|
1,422
|
Ratio of Earnings to Fixed Charges
|
|
|
|
10.
|
|
Excluding interest on deposits (line 6/line 8)
|
|
|
2.92
|
11.
|
|
Including interest on deposits (line 7/line 9)
|
|
|
2.10
|
|
|
|
|
|
|
|
|
|
*
|
|
Excludes
interest expense related to unrecognized tax
positions. |
EXHIBIT 31.1
CERTIFICATION
PURSUANT TO
RULE 13a-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Richard K. Davis, certify that:
|
|
(1)
|
I have reviewed this Quarterly Report on
Form 10-Q
of U.S. Bancorp;
|
|
(2)
|
Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
|
|
(3)
|
Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
|
|
(4)
|
The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e))
and internal control over financial reporting (as defined in
Exchange Act Rules
13a-15(f)
and
15d-15(f))
for the registrant and have:
|
|
|
|
|
(a)
|
designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
|
|
|
|
|
(b)
|
designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
|
|
|
|
|
(c)
|
evaluated the effectiveness of the registrants disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
|
|
|
|
|
(d)
|
disclosed in this report any change in the registrants
internal control over financial reporting that occurred during
the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over
financial reporting; and
|
|
|
(5) |
The registrants other certifying officers and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of the registrants board
of directors (or persons performing the equivalent functions):
|
|
|
|
|
(a)
|
all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and
report financial information; and
|
|
|
|
|
(b)
|
any fraud, whether or not material, that involves management or
other employees who have a significant role in the
registrants internal control over financial reporting.
|
Richard K. Davis
Chief Executive Officer
Dated: May 12, 2008
EXHIBIT 31.2
CERTIFICATION
PURSUANT TO
RULE 13a-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Andrew Cecere, certify that:
|
|
(1)
|
I have reviewed this Quarterly Report on
Form 10-Q
of U.S. Bancorp;
|
|
(2)
|
Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
|
|
(3)
|
Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
|
|
(4)
|
The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e))
and internal control over financial reporting (as defined in
Exchange Act Rules
13a-15(f)
and
15d-15(f))
for the registrant and have:
|
|
|
|
|
(a)
|
designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
|
|
|
|
|
(b)
|
designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
|
|
|
|
|
(c)
|
evaluated the effectiveness of the registrants disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
|
|
|
|
|
(d)
|
disclosed in this report any change in the registrants
internal control over financial reporting that occurred during
the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over
financial reporting; and
|
|
|
(5) |
The registrants other certifying officers and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of the registrants board
of directors (or persons performing the equivalent functions):
|
|
|
|
|
(a)
|
all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and
report financial information; and
|
|
|
|
|
(b)
|
any fraud, whether or not material, that involves management or
other employees who have a significant role in the
registrants internal control over financial reporting.
|
Andrew Cecere
Chief Financial Officer
Dated: May 12, 2008
EXHIBIT 32
CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
the undersigned, Chief Executive Officer and Chief Financial
Officer of U.S. Bancorp, a Delaware corporation (the
Company), do hereby certify that:
|
|
(1)
|
The Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2008 (the
Form 10-Q)
of the Company fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
|
|
(2)
|
The information contained in the
Form 10-Q
fairly presents, in all material respects, the financial
condition and results of operations of the Company.
|
|
|
|
/s/ Richard
K. Davis
|
|
/s/ Andrew
Cecere
|
Richard K. Davis
|
|
Andrew Cecere
|
Chief Executive Officer
|
|
Chief Financial Officer
|
Dated: May 12, 2008
First Class
U.S. Postage
PAID
Permit No. 2440
Minneapolis, MN
Corporate Information
Executive
Offices
U.S. Bancorp
800 Nicollet Mall
Minneapolis, MN 55402
Common
Stock Transfer Agent and Registrar
BNY Mellon Investor Services
acts as our transfer agent and registrar, dividend paying agent
and dividend reinvestment plan administrator, and maintains all
shareholder records for the corporation. Inquiries related to
shareholder records, stock transfers, changes of ownership, lost
stock certificates, changes of address and dividend payment
should be directed to the transfer agent at:
BNY Mellon Investor Services
P.O. Box 358015
Pittsburgh, PA 15252-8015
Phone: 888-778-1311 or 201-680-6578
Internet: bnymellon.com/shareowner
For Registered or Certified Mail:
BNY Mellon Shareowner Services
500 Ross St., 6th Floor
Pittsburgh, PA 15219
Telephone representatives are
available weekdays from 8:00 a.m. to 6:00 p.m. Central
Time, and automated support is available 24 hours a day,
7 days a week. Specific information about your account is
available on BNY Mellons internet site by clicking on
the Investor
ServiceDirect®
link.
Independent
Auditor
Ernst & Young LLP serves
as the independent auditor for U.S. Bancorps
financial statements.
Common
Stock Listing and Trading
U.S. Bancorp common stock is listed
and traded on the New York Stock Exchange under the ticker
symbol USB.
Dividends
and Reinvestment Plan
U.S. Bancorp currently pays
quarterly dividends on our common stock on or about the
15th day of January, April, July and October, subject to
approval by our Board of Directors. U.S. Bancorp
shareholders can choose to participate in a plan that provides
automatic reinvestment of dividends and/or optional cash
purchase of additional shares of U.S. Bancorp common stock.
For more information, please contact our transfer agent,
BNY Mellon Investor Services.
Investor
Relations Contacts
Judith T. Murphy
Senior Vice President, Investor
Relations
judith.murphy@usbank.com
Phone: 612-303-0783 or
866-775-9668
Financial
Information
U.S. Bancorp news and financial
results are available through our website and by mail.
Website For
information about U.S. Bancorp, including news, financial
results, annual reports and other documents filed with the
Securities and Exchange Commission, access our home page on the
internet at usbank.com, click on About U.S. Bancorp, then
Investor/Shareholder Information.
Mail At
your request, we will mail to you our quarterly earnings, news
releases, quarterly financial data reported on
Form 10-Q
and additional copies of our annual reports. Please contact:
U.S. Bancorp Investor Relations
800 Nicollet Mall
Minneapolis, MN 55402
investorrelations@usbank.com
Phone:
866-775-9668
Media
Requests
Steven W. Dale
Senior Vice President, Media
Relations
steve.dale@usbank.com
Phone: 612-303-0784
Privacy
U.S. Bancorp is committed to
respecting the privacy of our customers and safeguarding the
financial and personal information provided to us. To learn more
about the U.S. Bancorp commitment to protecting privacy,
visit usbank.com and click on Privacy Pledge.
Code of
Ethics
U.S. Bancorp places the
highest importance on honesty and integrity. Each year, every
U.S. Bancorp employee certifies compliance with the letter and
spirit of our Code of Ethics and Business Conduct, the guiding
ethical standards of our organization. For details about our
Code of Ethics and Business Conduct, visit usbank.com and click
on About U.S. Bancorp, then Ethics at U.S. Bank.
Diversity
U.S. Bancorp and our
subsidiaries are committed to developing and maintaining a
workplace that reflects the diversity of the communities we
serve. We support a work environment where individual
differences are valued and respected and where each individual
who shares the fundamental values of the company has an
opportunity to contribute and grow based on individual merit.
Equal Employment
Opportunity/Affirmative Action
U.S. Bancorp and our
subsidiaries are committed to providing Equal Employment
Opportunity to all employees and applicants for employment. In
keeping with this commitment, employment decisions are made
based upon performance, skill and abilities, not race, color,
religion, national origin or ancestry, gender, age, disability,
veteran status, sexual orientation or any other factors
protected by law. The corporation complies with municipal, state
and federal fair employment laws, including regulations applying
to federal contractors.
U.S. Bancorp, including each of our
subsidiaries, is an Equal Opportunity Employer committed to
creating a diverse workforce.
U.S. Bancorp
Member FDIC
This report has been produced on
recycled paper.