Notes to Consolidated Financial Statements
(Unaudited)
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Note 1
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Basis of Presentation
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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. These
financial statements and notes should be read in conjunction with the consolidated financial statements and notes included in the Companys Annual Report on Form 10-K for the year ended December 31, 2013. 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, expenses and other financial elements to each line of business. Table 10 Line of Business Financial Performance included in Managements Discussion and Analysis provides details of segment results. This
information is incorporated by reference into these Notes to Consolidated Financial Statements.
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Note 2
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Investment Securities
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The amortized cost, other-than-temporary impairment recorded in other comprehensive income (loss), gross unrealized holding
gains and losses, and fair value of held-to-maturity and available-for-sale investment securities were as follows:
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March 31, 2014
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December 31, 2013
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Unrealized Losses
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Unrealized Losses
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(Dollars in Millions)
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Amortized
Cost
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Unrealized
Gains
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Other-than-
Temporary(e)
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Other (f)
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Fair
Value
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Amortized
Cost
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Unrealized
Gains
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Other-than-
Temporary(e)
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Other (f)
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Fair
Value
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Held-to-maturity (a)
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U.S. Treasury and agencies
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$
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1,984
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$
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3
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$
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$
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(59
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$
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1,928
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$
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3,114
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$
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5
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$
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$
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(79
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$
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3,040
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Mortgage-backed securities
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Residential
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Agency
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38,593
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209
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(476
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38,326
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35,671
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187
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(665
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35,193
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Non-agency non-prime (d)
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1
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1
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1
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1
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Asset-backed securities
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Collateralized debt obligations/Collateralized loan obligations
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9
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9
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9
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9
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Other
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15
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4
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(1
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(1
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17
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16
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4
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(1
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(1
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18
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Obligations of state and political subdivisions
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11
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11
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12
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12
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Obligations of foreign governments
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9
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9
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7
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7
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Other debt securities
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99
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(11
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88
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99
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(11
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88
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Total held-to-maturity
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$
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40,712
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$
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225
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$
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(1
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$
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(547
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$
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40,389
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$
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38,920
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$
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205
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$
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(1
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$
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(756
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$
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38,368
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Available-for-sale (b)
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U.S. Treasury and agencies
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$
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1,104
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$
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4
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$
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$
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(46
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$
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1,062
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$
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1,108
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$
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4
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$
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$
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(67
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$
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1,045
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Mortgage-backed securities
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Residential
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Agency
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35,426
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498
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(440
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35,484
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31,633
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449
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(529
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31,553
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Non-agency
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Prime (c)
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466
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7
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(5
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(3
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465
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486
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4
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(8
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(4
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478
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Non-prime (d)
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290
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10
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(3
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)
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297
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297
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5
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(5
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297
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Commercial agency
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140
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4
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144
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148
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4
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152
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Asset-backed securities
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Collateralized debt obligations/Collateralized loan obligations
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19
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5
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24
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20
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4
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24
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Other
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615
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13
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628
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616
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13
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629
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Obligations of state and political subdivisions
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5,432
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174
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(21
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5,585
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5,673
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116
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(51
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5,738
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Obligations of foreign governments
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6
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6
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6
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6
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Corporate debt securities
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735
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(65
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)
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670
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734
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(94
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)
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640
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Perpetual preferred securities
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205
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26
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(13
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)
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218
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|
|
|
205
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24
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|
|
|
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|
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(17
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)
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212
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Other investments
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|
151
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27
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|
|
|
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|
|
178
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|
|
|
133
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|
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28
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|
|
|
|
|
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161
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Total available-for-sale
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$
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44,589
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$
|
768
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$
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(8
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)
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$
|
(588
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)
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$
|
44,761
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|
|
$
|
41,059
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|
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$
|
651
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|
|
$
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(13
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)
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$
|
(762
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)
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$
|
40,935
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(a)
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Held-to-maturity investment securities are carried at historical cost or at fair value at the time of transfer from the available-for-sale to held-to-maturity category, adjusted for amortization of premiums and
accretion of discounts and credit-related other-than-temporary impairment.
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(b)
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Available-for-sale investment securities are carried at fair value with unrealized net gains or losses reported within accumulated other comprehensive income (loss) in shareholders equity.
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(c)
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Prime securities are those designated as such by the issuer at origination. When an issuer designation is unavailable, the Company determines at acquisition date the categorization based on asset pool characteristics
(such as weighted-average credit score, loan-to-value, loan type, prevalence of low documentation loans) and deal performance (such as pool delinquencies and security market spreads). When the Company determines the designation, prime securities
typically have a weighted average credit score of 725 or higher and a loan-to-value of 80 percent or lower; however, other pool characteristics may result in designations that deviate from these credit score and loan-to-value thresholds.
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(d)
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Includes all securities not meeting the conditions to be designated as prime.
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(e)
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Represents impairment not related to credit for those investment securities that have been determined to be other-than-temporarily impaired.
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(f)
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Represents unrealized losses on investment securities that have not been determined to be other-than-temporarily impaired.
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The weighted-average maturity of the available-for-sale investment securities was 5.4 years at March 31, 2014, compared with 6.0 years at
December 31, 2013. The corresponding weighted-average yields were 2.52 percent and 2.64 percent, respectively. The weighted-average maturity of the held-to-maturity investment securities was 4.5 years at March 31, 2014, and
December 31, 2013. The corresponding weighted-average yields were 2.00 percent at March 31, 2014, and December 31, 2013.
For amortized cost, fair value and yield by maturity date of held-to-maturity and available-for-sale investment securities outstanding at
March 31, 2014, refer to Table 4 included in Managements Discussion and Analysis which is incorporated by reference into these Notes to Consolidated Financial Statements.
Investment securities with a fair value of $13.7 billion at March 31, 2014, and $17.3 billion at December 31, 2013, were pledged to
secure public, private and trust deposits, repurchase agreements and for other purposes required by contractual obligation or law. Included in these amounts were securities where the Company and certain counterparties have agreements granting the
counterparties the right to sell or pledge the securities. Investment securities delivered under these types of arrangements had a fair value of $652 million at March 31, 2014, and $2.1 billion at December 31, 2013.
The following table provides information about the amount of interest income from taxable and non-taxable
investment securities:
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Three Months Ended March 31
(Dollars in Millions)
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2014
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2013
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Taxable
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$
|
381
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$
|
344
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Non-taxable
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60
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|
66
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Total interest income from investment securities
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$
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441
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$
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410
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The following table provides information about the amount of gross gains and losses realized through the sales of
available-for-sale investment securities:
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Three Months Ended March 31
(Dollars in Millions)
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2014
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2013
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Realized gains
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$
|
5
|
|
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$
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12
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Realized losses
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|
|
|
|
|
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Net realized gains (losses)
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$
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5
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|
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$
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12
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Income tax (benefit) on net realized gains (losses)
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$
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2
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$
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5
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The Company conducts a regular assessment of its investment securities with unrealized losses to determine
whether investment securities are other-than-temporarily impaired considering, among other factors, the nature of the investment securities, credit ratings or financial condition of the issuer, the extent and duration of the unrealized loss,
expected cash flows of underlying collateral, the existence of any government or agency guarantees, market conditions and whether the Company intends to sell or it is more likely than not the Company will be required to sell the investment
securities.
The following table summarizes other-than-temporary impairment by investment category:
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2014
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|
2013
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Three Months Ended March 31
(Dollars in Millions)
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Losses
Recorded in
Earnings
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Other Gains
(Losses) (c)
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Total
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Losses
Recorded in
Earnings
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|
Other Gains
(Losses) (c)
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Total
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Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-agency residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Prime (a)
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|
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$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
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)
|
|
$
|
1
|
|
|
$
|
|
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Non-prime (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
5
|
|
|
|
(1
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)
|
Total available-for-sale
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(7
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)
|
|
$
|
6
|
|
|
$
|
(1
|
)
|
(a)
|
Prime securities are those designated as such by the issuer at origination. When an issuer designation is unavailable, the Company determines at acquisition date the categorization based on asset pool characteristics
(such as weighted-average credit score, loan-to-value, loan type, prevalence of low documentation loans) and deal performance (such as pool delinquencies and security market spreads).
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(b)
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Includes all securities not meeting the conditions to be designated as prime.
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(c)
|
Losses represent the non-credit portion of other-than-temporary impairment recorded in other comprehensive income (loss) for investment securities determined to be other-than-temporarily impaired during the period.
Gains represent recoveries in the fair value of securities that had non-credit other-than-temporary impairment during the period.
|
The Company determined the other-than-temporary impairment recorded in earnings for debt securities not intended to be sold by estimating the
future cash flows of each individual investment security, using market information where available, and discounting the cash flows at the original effective rate of the investment security. Other-than-temporary impairment recorded in other
comprehensive income (loss) was measured as the difference between that discounted amount and the fair value of each investment security.
The following
table includes the ranges for significant assumptions used for those available-for-sale non-agency mortgage-backed securities determined to be other-than-temporarily impaired during the three months ended March 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime (a)
|
|
|
|
Minimum
|
|
|
Maximum
|
|
|
Average
|
|
Estimated lifetime prepayment rates
|
|
|
20
|
%
|
|
|
20
|
%
|
|
|
20
|
%
|
Lifetime probability of default rates
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
Lifetime loss severity rates
|
|
|
45
|
|
|
|
45
|
|
|
|
45
|
|
(a)
|
Prime securities are those designated as such by the issuer at origination. When an issuer designation is unavailable, the Company determines at acquisition date the categorization based on asset pool characteristics
(such as weighted-average credit score, loan-to-value, loan type, prevalence of low documentation loans) and deal performance (such as pool delinquencies and security market spreads).
|
Changes in the credit losses on debt securities are summarized as follows:
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
(Dollars in Millions)
|
|
2014
|
|
|
2013
|
|
Balance at beginning of period
|
|
$
|
116
|
|
|
$
|
134
|
|
Additions to Credit Losses Due to Other-than-temporary Impairments
|
|
|
|
|
|
|
|
|
Decreases in expected cash flows on securities for which other-than-temporary impairment was previously recognized
|
|
|
|
|
|
|
7
|
|
Total other-than-temporary impairment on debt securities
|
|
|
|
|
|
|
7
|
|
Other Changes in Credit Losses
|
|
|
|
|
|
|
|
|
Increases in expected cash flows
|
|
|
(2
|
)
|
|
|
|
|
Realized losses (a)
|
|
|
(3
|
)
|
|
|
(8
|
)
|
Balance at end of period
|
|
$
|
111
|
|
|
$
|
133
|
|
(a)
|
Primarily represents principal losses allocated to mortgage and asset-backed securities in the Companys portfolio under the terms of the securitization transaction documents.
|
At March 31, 2014, certain investment securities had a fair value below amortized cost. The following table shows the gross unrealized losses and fair
value of the Companys investment securities with unrealized losses, aggregated by investment category and length of time the individual investment securities have been in continuous unrealized loss positions, at March 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
(Dollars in Millions)
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
Held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agencies
|
|
$
|
1,012
|
|
|
$
|
(59
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,012
|
|
|
$
|
(59
|
)
|
Residential agency mortgage-backed securities
|
|
|
22,447
|
|
|
|
(432
|
)
|
|
|
1,202
|
|
|
|
(44
|
)
|
|
|
23,649
|
|
|
|
(476
|
)
|
Other asset-backed securities
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
(2
|
)
|
|
|
10
|
|
|
|
(2
|
)
|
Obligations of state and political subdivisions
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
Other debt securities
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
(11
|
)
|
|
|
12
|
|
|
|
(11
|
)
|
Total held-to-maturity
|
|
$
|
23,462
|
|
|
$
|
(491
|
)
|
|
$
|
1,224
|
|
|
$
|
(57
|
)
|
|
$
|
24,686
|
|
|
$
|
(548
|
)
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agencies
|
|
$
|
845
|
|
|
$
|
(41
|
)
|
|
$
|
95
|
|
|
$
|
(5
|
)
|
|
$
|
940
|
|
|
$
|
(46
|
)
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
14,566
|
|
|
|
(323
|
)
|
|
|
2,580
|
|
|
|
(117
|
)
|
|
|
17,146
|
|
|
|
(440
|
)
|
Non-agency (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime (b)
|
|
|
47
|
|
|
|
(1
|
)
|
|
|
175
|
|
|
|
(7
|
)
|
|
|
222
|
|
|
|
(8
|
)
|
Non-prime (c)
|
|
|
33
|
|
|
|
|
|
|
|
44
|
|
|
|
(3
|
)
|
|
|
77
|
|
|
|
(3
|
)
|
Other asset-backed securities
|
|
|
23
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
Obligations of state and political subdivisions
|
|
|
441
|
|
|
|
(17
|
)
|
|
|
81
|
|
|
|
(4
|
)
|
|
|
522
|
|
|
|
(21
|
)
|
Obligations of foreign governments
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
Corporate debt securities
|
|
|
50
|
|
|
|
|
|
|
|
442
|
|
|
|
(65
|
)
|
|
|
492
|
|
|
|
(65
|
)
|
Perpetual preferred securities
|
|
|
|
|
|
|
|
|
|
|
120
|
|
|
|
(13
|
)
|
|
|
120
|
|
|
|
(13
|
)
|
Total available-for-sale
|
|
$
|
16,011
|
|
|
$
|
(382
|
)
|
|
$
|
3,540
|
|
|
$
|
(214
|
)
|
|
$
|
19,551
|
|
|
$
|
(596
|
)
|
(a)
|
The Company has $11 million of unrealized losses on residential non-agency mortgage-backed securities. Credit-related other-than-temporary impairment on these securities may occur if there is further deterioration in
the underlying collateral pool performance. Borrower defaults may increase if economic conditions worsen. Additionally, deterioration in home prices may increase the severity of projected losses.
|
(b)
|
Prime securities are those designated as such by the issuer at origination. When an issuer designation is unavailable, the Company determines at acquisition date the categorization based on asset pool characteristics
(such as weighted-average credit score, loan-to-value, loan type, prevalence of low documentation loans) and deal performance (such as pool delinquencies and security market spreads).
|
(c)
|
Includes all securities not meeting the conditions to be designated as prime.
|
The
Company does not consider these unrealized losses to be credit-related. These unrealized losses primarily relate to changes in interest rates and market spreads subsequent to purchase. A substantial portion of investment securities that have
unrealized losses are either corporate debt issued with high investment grade credit ratings or agency mortgage-backed securities. In general, the issuers of the investment securities are contractually prohibited from prepayment at less than par,
and the Company did not pay significant purchase premiums for these investment securities. At March 31, 2014, the Company had no plans to sell investment securities with unrealized losses, and believes it is more likely than not it would not be
required to sell such investment securities before recovery of their amortized cost.
|
|
|
Note 3
|
|
Loans and Allowance for Credit Losses
|
The composition of the loan portfolio, disaggregated by class and underlying specific portfolio type, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2014
|
|
|
December 31, 2013
|
|
(Dollars in Millions)
|
|
Amount
|
|
|
Percent
of Total
|
|
|
Amount
|
|
|
Percent
of Total
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
68,556
|
|
|
|
28.8
|
%
|
|
$
|
64,762
|
|
|
|
27.5
|
%
|
Lease financing
|
|
|
5,145
|
|
|
|
2.1
|
|
|
|
5,271
|
|
|
|
2.3
|
|
Total commercial
|
|
|
73,701
|
|
|
|
30.9
|
|
|
|
70,033
|
|
|
|
29.8
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgages
|
|
|
31,878
|
|
|
|
13.4
|
|
|
|
32,183
|
|
|
|
13.7
|
|
Construction and development
|
|
|
8,253
|
|
|
|
3.4
|
|
|
|
7,702
|
|
|
|
3.3
|
|
Total commercial real estate
|
|
|
40,131
|
|
|
|
16.8
|
|
|
|
39,885
|
|
|
|
17.0
|
|
Residential Mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages
|
|
|
38,316
|
|
|
|
16.1
|
|
|
|
37,545
|
|
|
|
15.9
|
|
Home equity loans, first liens
|
|
|
13,392
|
|
|
|
5.6
|
|
|
|
13,611
|
|
|
|
5.8
|
|
Total residential mortgages
|
|
|
51,708
|
|
|
|
21.7
|
|
|
|
51,156
|
|
|
|
21.7
|
|
Credit Card
|
|
|
17,129
|
|
|
|
7.2
|
|
|
|
18,021
|
|
|
|
7.7
|
|
Other Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail leasing
|
|
|
6,009
|
|
|
|
2.5
|
|
|
|
5,929
|
|
|
|
2.5
|
|
Home equity and second mortgages
|
|
|
15,261
|
|
|
|
6.4
|
|
|
|
15,442
|
|
|
|
6.6
|
|
Revolving credit
|
|
|
3,187
|
|
|
|
1.3
|
|
|
|
3,276
|
|
|
|
1.4
|
|
Installment
|
|
|
5,751
|
|
|
|
2.4
|
|
|
|
5,709
|
|
|
|
2.4
|
|
Automobile
|
|
|
13,933
|
|
|
|
5.9
|
|
|
|
13,743
|
|
|
|
5.8
|
|
Student
|
|
|
3,466
|
|
|
|
1.5
|
|
|
|
3,579
|
|
|
|
1.5
|
|
Total other retail
|
|
|
47,607
|
|
|
|
20.0
|
|
|
|
47,678
|
|
|
|
20.2
|
|
Total loans, excluding covered loans
|
|
|
230,276
|
|
|
|
96.6
|
|
|
|
226,773
|
|
|
|
96.4
|
|
Covered Loans
|
|
|
8,099
|
|
|
|
3.4
|
|
|
|
8,462
|
|
|
|
3.6
|
|
Total loans
|
|
$
|
238,375
|
|
|
|
100.0
|
%
|
|
$
|
235,235
|
|
|
|
100.0
|
%
|
The Company had loans of $76.8 billion at March 31, 2014, and $77.2 billion at December 31, 2013,
pledged at the Federal Home Loan Bank (FHLB), and loans of $56.7 billion at March 31, 2014, and $53.0 billion at December 31, 2013, pledged at the Federal Reserve Bank.
Originated loans are reported at the principal amount outstanding, net of unearned interest and deferred fees and costs. Net unearned interest
and deferred fees and costs amounted to $584 million at March 31, 2014, and $556 million at December 31, 2013. All purchased loans and related indemnification assets are recorded at fair value at the date of purchase. The Company
evaluates purchased loans for impairment at the date of purchase in accordance with applicable authoritative accounting guidance. Purchased loans with evidence of credit deterioration since origination for which it is probable that all contractually
required payments will not be collected are considered purchased impaired loans. All other purchased loans are considered purchased nonimpaired loans.
Changes in the accretable balance for purchased impaired loans were as follows:
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
(Dollars in Millions)
|
|
2014
|
|
|
2013
|
|
Balance at beginning of period
|
|
$
|
1,655
|
|
|
$
|
1,709
|
|
Accretion
|
|
|
(111
|
)
|
|
|
(136
|
)
|
Disposals
|
|
|
(40
|
)
|
|
|
(38
|
)
|
Reclassifications from nonaccretable difference (a)
|
|
|
81
|
|
|
|
10
|
|
Other (b)
|
|
|
(1
|
)
|
|
|
376
|
|
Balance at end of period
|
|
$
|
1,584
|
|
|
$
|
1,921
|
|
(a)
|
Primarily relates to changes in expected credit performance.
|
(b)
|
The amount in first quarter 2013 primarily represents the reclassification of unamortized decreases in the FDIC asset (which are presented as a separate component within the covered assets table on page 52 beginning
in 2013), partially offset by the impact of changes in expectations about retaining covered single-family loans beyond the term of the indemnification agreements.
|
Allowance for Credit Losses
The
allowance for credit losses reserves for probable and estimable losses incurred in the Companys loan and lease portfolio, including unfunded credit commitments, and includes certain amounts that do not represent loss exposure to the Company
because those losses are recoverable under loss sharing agreements with the Federal Deposit Insurance Corporation (FDIC). The allowance for credit losses is increased through provisions charged to operating earnings and reduced by net
charge-offs. Management evaluates the allowance each quarter to ensure it appropriately reserves for incurred losses.
The allowance recorded for loans in the commercial lending segment is based on reviews of
individual credit relationships and considers the migration analysis of commercial lending segment loans and actual loss experience. In the migration analysis applied to risk rated loan portfolios, the Company currently examines up to a 13-year
period of loss experience. For each loan type, this historical loss experience is adjusted as necessary to consider any relevant changes in portfolio composition, lending policies, underwriting standards, risk management practices or economic
conditions. The results of the analysis are evaluated quarterly to confirm an appropriate historical time frame is selected for each commercial loan type. The allowance recorded for impaired loans greater than $5 million in the commercial
lending segment is based on an individual loan analysis utilizing expected cash flows discounted using the original effective interest rate, the observable market price of the loan, or the fair value of the collateral for collateral-dependent loans,
rather than the migration analysis. The allowance recorded for all other commercial lending segment loans is determined on a homogenous pool basis and includes consideration of product mix, risk characteristics of the portfolio, bankruptcy
experience, portfolio growth and historical losses, adjusted for current trends. The Company also considers the impacts of any loan modifications made to commercial lending segment loans and any subsequent payment defaults to its expectations of
cash flows, principal balance, and current expectations about the borrowers ability to pay in determining the allowance for credit losses.
The allowance recorded for Troubled Debt Restructuring (TDR) loans and purchased impaired loans in the consumer lending segment is
determined on a homogenous pool basis utilizing expected cash flows discounted using the original effective interest rate of the pool, or the prior quarter effective rate, respectively. The allowance for collateral-dependent loans in the consumer
lending segment is determined based on the fair value of the collateral less costs to sell. The allowance recorded for all other consumer lending segment loans is determined on a homogenous pool basis and includes consideration of product mix, risk
characteristics of the portfolio, bankruptcy experience, delinquency status, refreshed loan-to-value ratios when possible, portfolio growth and historical losses, adjusted for current trends. The Company also considers any modifications made to
consumer lending segment loans including the impacts of any subsequent payment defaults since modification in determining the allowance for credit losses, such as the borrowers ability to pay under the restructured terms, and the timing and
amount of payments.
The allowance for the covered loan segment is evaluated each quarter in a manner similar to that described for
non-covered loans and represents any decreases in expected cash flows of those loans after the acquisition date. The provision for credit losses for covered loans considers the indemnification provided by the FDIC.
In addition, subsequent payment defaults on loan modifications considered TDRs are considered in the underlying factors used in the
determination of the appropriateness of the allowance for credit losses. For each loan segment, the Company estimates future loan charge-offs through a variety of analysis, trends and underlying assumptions. With respect to the commercial lending
segment, TDRs may be collectively evaluated for impairment where observed performance history, including defaults, is a primary driver of the loss allocation. For commercial TDRs individually evaluated for impairment, attributes of the borrower are
the primary factors in determining the allowance for credit losses. However, incorporation of loss history is factored into the allowance methodology applied to this category of loans. With respect to the consumer lending segment, performance of the
portfolio, including defaults on TDRs, is considered when estimating future cash flows.
The Companys methodology for determining
the appropriate allowance for credit losses for all the loan segments also considers the imprecision inherent in the methodologies used. As a result, in addition to the amounts determined under the methodologies described above, management also
considers the potential impact of other qualitative factors which include, but are not limited to, economic factors; geographic and other concentration risks; delinquency and nonaccrual trends; current business conditions; changes in lending policy,
underwriting standards, internal review and other relevant business practices; and the regulatory environment. The consideration of these items results in adjustments to allowance amounts included in the Companys allowance for credit losses
for each of the above loan segments.
The Company also assesses the credit risk associated with off-balance sheet loan commitments,
letters of credit, and derivatives. Credit risk associated with derivatives is reflected in the fair values recorded for those positions. The liability for off-balance sheet credit exposure related to loan commitments and other credit guarantees is
included in other liabilities. Because business processes and credit risks associated with unfunded credit commitments are essentially the same as for loans, the Company utilizes similar processes to estimate its liability for unfunded credit
commitments.
Activity in the allowance for credit losses by portfolio class was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
Commercial
|
|
|
Commercial
Real Estate
|
|
|
Residential
Mortgages
|
|
|
Credit
Card
|
|
|
Other
Retail
|
|
|
Total Loans,
Excluding
Covered
Loans
|
|
|
Covered
Loans
|
|
|
Total
Loans
|
|
Balance at December 31, 2012
|
|
$
|
1,051
|
|
|
$
|
857
|
|
|
$
|
935
|
|
|
$
|
863
|
|
|
$
|
848
|
|
|
$
|
4,554
|
|
|
$
|
179
|
|
|
$
|
4,733
|
|
Add
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses
|
|
|
(4
|
)
|
|
|
(40
|
)
|
|
|
83
|
|
|
|
192
|
|
|
|
132
|
|
|
|
363
|
|
|
|
40
|
|
|
|
403
|
|
Deduct
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans charged off
|
|
|
56
|
|
|
|
43
|
|
|
|
100
|
|
|
|
193
|
|
|
|
156
|
|
|
|
548
|
|
|
|
1
|
|
|
|
549
|
|
Less recoveries of loans charged off
|
|
|
(21
|
)
|
|
|
(24
|
)
|
|
|
(8
|
)
|
|
|
(33
|
)
|
|
|
(30
|
)
|
|
|
(116
|
)
|
|
|
|
|
|
|
(116
|
)
|
Net loans charged off
|
|
|
35
|
|
|
|
19
|
|
|
|
92
|
|
|
|
160
|
|
|
|
126
|
|
|
|
432
|
|
|
|
1
|
|
|
|
433
|
|
Other changes (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
Balance at March 31, 2013
|
|
$
|
1,012
|
|
|
$
|
798
|
|
|
$
|
926
|
|
|
$
|
895
|
|
|
$
|
854
|
|
|
$
|
4,485
|
|
|
$
|
223
|
|
|
$
|
4,708
|
|
Balance at December 31, 2013
|
|
$
|
1,075
|
|
|
$
|
776
|
|
|
$
|
875
|
|
|
$
|
884
|
|
|
$
|
781
|
|
|
$
|
4,391
|
|
|
$
|
146
|
|
|
$
|
4,537
|
|
Add
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses
|
|
|
52
|
|
|
|
(37
|
)
|
|
|
44
|
|
|
|
170
|
|
|
|
80
|
|
|
|
309
|
|
|
|
(3
|
)
|
|
|
306
|
|
Deduct
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans charged off
|
|
|
63
|
|
|
|
8
|
|
|
|
61
|
|
|
|
184
|
|
|
|
100
|
|
|
|
416
|
|
|
|
6
|
|
|
|
422
|
|
Less recoveries of loans charged off
|
|
|
(27
|
)
|
|
|
(11
|
)
|
|
|
(4
|
)
|
|
|
(14
|
)
|
|
|
(24
|
)
|
|
|
(80
|
)
|
|
|
(1
|
)
|
|
|
(81
|
)
|
Net loans charged off
|
|
|
36
|
|
|
|
(3
|
)
|
|
|
57
|
|
|
|
170
|
|
|
|
76
|
|
|
|
336
|
|
|
|
5
|
|
|
|
341
|
|
Other changes (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
(5
|
)
|
Balance at March 31, 2014
|
|
$
|
1,091
|
|
|
$
|
742
|
|
|
$
|
862
|
|
|
$
|
884
|
|
|
$
|
785
|
|
|
$
|
4,364
|
|
|
$
|
133
|
|
|
$
|
4,497
|
|
(a)
|
Includes net changes in credit losses to be reimbursed by the FDIC and reductions in the allowance for covered loans where the reversal of a previously recorded allowance was offset by an associated decrease in the
indemnification asset.
|
Additional detail of the allowance for credit losses by portfolio class was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
Commercial
|
|
|
Commercial
Real Estate
|
|
|
Residential
Mortgages
|
|
|
Credit
Card
|
|
|
Other
Retail
|
|
|
Total Loans,
Excluding
Covered
Loans
|
|
|
Covered
Loans
|
|
|
Total
Loans
|
|
Allowance Balance at March 31, 2014 Related to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment (a)
|
|
$
|
19
|
|
|
$
|
12
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
31
|
|
|
$
|
|
|
|
$
|
31
|
|
TDRs collectively evaluated for impairment
|
|
|
15
|
|
|
|
20
|
|
|
|
333
|
|
|
|
77
|
|
|
|
51
|
|
|
|
496
|
|
|
|
4
|
|
|
|
500
|
|
Other loans collectively evaluated for impairment
|
|
|
1,057
|
|
|
|
674
|
|
|
|
529
|
|
|
|
807
|
|
|
|
734
|
|
|
|
3,801
|
|
|
|
1
|
|
|
|
3,802
|
|
Loans acquired with deteriorated credit quality
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
128
|
|
|
|
164
|
|
Total allowance for credit losses
|
|
$
|
1,091
|
|
|
$
|
742
|
|
|
$
|
862
|
|
|
$
|
884
|
|
|
$
|
785
|
|
|
$
|
4,364
|
|
|
$
|
133
|
|
|
$
|
4,497
|
|
Allowance Balance at December 31, 2013 Related to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment (a)
|
|
$
|
15
|
|
|
$
|
17
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
32
|
|
|
$
|
|
|
|
$
|
32
|
|
TDRs collectively evaluated for impairment
|
|
|
19
|
|
|
|
26
|
|
|
|
329
|
|
|
|
87
|
|
|
|
55
|
|
|
|
516
|
|
|
|
4
|
|
|
|
520
|
|
Other loans collectively evaluated for impairment
|
|
|
1,041
|
|
|
|
700
|
|
|
|
546
|
|
|
|
797
|
|
|
|
726
|
|
|
|
3,810
|
|
|
|
5
|
|
|
|
3,815
|
|
Loans acquired with deteriorated credit quality
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
|
137
|
|
|
|
170
|
|
Total allowance for credit losses
|
|
$
|
1,075
|
|
|
$
|
776
|
|
|
$
|
875
|
|
|
$
|
884
|
|
|
$
|
781
|
|
|
$
|
4,391
|
|
|
$
|
146
|
|
|
$
|
4,537
|
|
(a)
|
Represents the allowance for credit losses related to loans greater than $5 million classified as nonperforming or TDRs.
|
Additional detail of loan balances by portfolio class was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
Commercial
|
|
|
Commercial
Real Estate
|
|
|
Residential
Mortgages
|
|
|
Credit
Card
|
|
|
Other
Retail
|
|
|
Total Loans,
Excluding
Covered
Loans
|
|
|
Covered
Loans (b)
|
|
|
Total
Loans
|
|
March 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment (a)
|
|
$
|
282
|
|
|
$
|
214
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
496
|
|
|
$
|
82
|
|
|
$
|
578
|
|
TDRs collectively evaluated for impairment
|
|
|
136
|
|
|
|
327
|
|
|
|
5,142
|
|
|
|
289
|
|
|
|
263
|
|
|
|
6,157
|
|
|
|
92
|
|
|
|
6,249
|
|
Other loans collectively evaluated for impairment
|
|
|
73,281
|
|
|
|
39,452
|
|
|
|
46,565
|
|
|
|
16,840
|
|
|
|
47,344
|
|
|
|
223,482
|
|
|
|
4,288
|
|
|
|
227,770
|
|
Loans acquired with deteriorated credit quality
|
|
|
2
|
|
|
|
138
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
141
|
|
|
|
3,637
|
|
|
|
3,778
|
|
Total loans
|
|
$
|
73,701
|
|
|
$
|
40,131
|
|
|
$
|
51,708
|
|
|
$
|
17,129
|
|
|
$
|
47,607
|
|
|
$
|
230,276
|
|
|
$
|
8,099
|
|
|
$
|
238,375
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment (a)
|
|
$
|
197
|
|
|
$
|
237
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
434
|
|
|
$
|
62
|
|
|
$
|
496
|
|
TDRs collectively evaluated for impairment
|
|
|
155
|
|
|
|
358
|
|
|
|
5,064
|
|
|
|
310
|
|
|
|
269
|
|
|
|
6,156
|
|
|
|
87
|
|
|
|
6,243
|
|
Other loans collectively evaluated for impairment
|
|
|
69,680
|
|
|
|
39,129
|
|
|
|
46,090
|
|
|
|
17,711
|
|
|
|
47,409
|
|
|
|
220,019
|
|
|
|
4,538
|
|
|
|
224,557
|
|
Loans acquired with deteriorated credit quality
|
|
|
1
|
|
|
|
161
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
164
|
|
|
|
3,775
|
|
|
|
3,939
|
|
Total loans
|
|
$
|
70,033
|
|
|
$
|
39,885
|
|
|
$
|
51,156
|
|
|
$
|
18,021
|
|
|
$
|
47,678
|
|
|
$
|
226,773
|
|
|
$
|
8,462
|
|
|
$
|
235,235
|
|
(a)
|
Represents loans greater than $5 million classified as nonperforming or TDRs.
|
(b)
|
Includes expected reimbursements from the FDIC under loss sharing agreements.
|
Credit Quality
The quality of the Companys loan portfolios is assessed as a function of net credit losses, levels of
nonperforming assets and delinquencies, and credit quality ratings as defined by the Company.
For all loan classes, loans are
considered past due based on the number of days delinquent except for monthly amortizing loans which are classified delinquent based upon the number of contractually required payments not made (for example, two missed payments is considered 30 days
delinquent). When a loan is placed on nonaccrual status, unpaid accrued interest is reversed.
Commercial lending segment loans are
generally placed on nonaccrual status when the collection of principal and interest has become 90 days past due or is otherwise considered doubtful. Commercial lending segment loans are generally fully or partially charged down to the fair value of
the collateral securing the loan, less costs to sell, when the loan is considered uncollectible.
Consumer lending segment loans are
generally charged-off at a specific number of days or payments past due. Residential mortgages and other retail loans secured by 1-4 family properties are generally charged down to the fair value of the collateral securing the loan, less costs to
sell, at 180 days past due, and placed on nonaccrual status in instances where a partial charge-off occurs unless the loan is well secured and in the process of collection. Loans and lines in a junior lien position secured by 1-4 family properties
are placed on nonaccrual status at 120 days past due or when behind a first lien that has become 180 days or greater past due or placed on nonaccrual status. Any secured consumer lending segment loan whose borrower has had debt discharged through
bankruptcy, for which the loan amount exceeds the fair value of the collateral, is charged down to the fair value of the related collateral and the remaining balance is placed on nonaccrual status. Credit card loans continue to accrue interest until
the account is charged off. Credit cards are charged off at 180 days past due. Other retail loans not secured by 1-4 family properties are charged-off at 120 days past due; and revolving consumer lines are charged off at 180 days past due. Similar
to credit cards, other retail loans are generally not placed on nonaccrual status because of the relative short period of time to charge-off. Certain retail customers having financial difficulties may have the terms of their credit card and other
loan agreements modified to require only principal payments and, as such, are reported as nonaccrual.
For all loan classes, interest
payments received on nonaccrual loans are generally recorded as a reduction to the loan carrying amount. Interest payments are generally recorded as reductions to a loans carrying amount while a loan is on nonaccrual and are recognized as
interest income upon payoff of the loan. Interest income may be recognized for interest payments if the remaining carrying amount of the loan is believed to be collectible. In certain circumstances, loans in any class may be restored to accrual
status, such as when a loan has demonstrated sustained repayment performance or no amounts are past due and prospects for future payment are no longer in doubt; or the loan becomes well secured and is in the process of collection. Loans where there
has been a partial charge-off may be returned to accrual status if all principal and interest (including amounts previously charged-off) is expected to be collected and the loan is current.
Covered loans not considered to be purchased impaired are evaluated for delinquency, nonaccrual
status and charge-off consistent with the class of loan they would be included in had the loss share coverage not been in place. Generally, purchased impaired loans are considered accruing loans. However, the timing and amount of future cash flows
for some loans is not reasonably estimable. Those loans are classified as nonaccrual loans and interest income is not recognized until the timing and amount of the future cash flows can be reasonably estimated.
The following table provides a summary of loans by portfolio class, including the delinquency status of those that continue to accrue interest, and those that
are nonperforming:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
Current
|
|
|
30-89 Days
Past Due
|
|
|
90 Days or
More Past Due
|
|
|
Nonperforming
|
|
|
Total
|
|
March 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
73,257
|
|
|
$
|
210
|
|
|
$
|
46
|
|
|
$
|
188
|
|
|
$
|
73,701
|
|
Commercial real estate
|
|
|
39,780
|
|
|
|
58
|
|
|
|
24
|
|
|
|
269
|
|
|
|
40,131
|
|
Residential mortgages (a)
|
|
|
50,294
|
|
|
|
306
|
|
|
|
331
|
|
|
|
777
|
|
|
|
51,708
|
|
Credit card
|
|
|
16,653
|
|
|
|
203
|
|
|
|
208
|
|
|
|
65
|
|
|
|
17,129
|
|
Other retail
|
|
|
47,131
|
|
|
|
202
|
|
|
|
86
|
|
|
|
188
|
|
|
|
47,607
|
|
Total loans, excluding covered loans
|
|
|
227,115
|
|
|
|
979
|
|
|
|
695
|
|
|
|
1,487
|
|
|
|
230,276
|
|
Covered loans
|
|
|
7,339
|
|
|
|
156
|
|
|
|
472
|
|
|
|
132
|
|
|
|
8,099
|
|
Total loans
|
|
$
|
234,454
|
|
|
$
|
1,135
|
|
|
$
|
1,167
|
|
|
$
|
1,619
|
|
|
$
|
238,375
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
69,587
|
|
|
$
|
257
|
|
|
$
|
55
|
|
|
$
|
134
|
|
|
$
|
70,033
|
|
Commercial real estate
|
|
|
39,459
|
|
|
|
94
|
|
|
|
29
|
|
|
|
303
|
|
|
|
39,885
|
|
Residential mortgages (a)
|
|
|
49,695
|
|
|
|
358
|
|
|
|
333
|
|
|
|
770
|
|
|
|
51,156
|
|
Credit card
|
|
|
17,507
|
|
|
|
226
|
|
|
|
210
|
|
|
|
78
|
|
|
|
18,021
|
|
Other retail
|
|
|
47,156
|
|
|
|
245
|
|
|
|
86
|
|
|
|
191
|
|
|
|
47,678
|
|
Total loans, excluding covered loans
|
|
|
223,404
|
|
|
|
1,180
|
|
|
|
713
|
|
|
|
1,476
|
|
|
|
226,773
|
|
Covered loans
|
|
|
7,693
|
|
|
|
166
|
|
|
|
476
|
|
|
|
127
|
|
|
|
8,462
|
|
Total loans
|
|
$
|
231,097
|
|
|
$
|
1,346
|
|
|
$
|
1,189
|
|
|
$
|
1,603
|
|
|
$
|
235,235
|
|
(a)
|
At March 31, 2014, $417 million of loans 3089 days past due and $3.6 billion of loans 90 days or more past due purchased from Government National Mortgage Association (GNMA) mortgage pools
whose repayments are insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs, were classified as current, compared with $440 million and $3.7 billion at December 31, 2013, respectively.
|
At March 31, 2014, the amount of foreclosed residential real estate held by the Company, and included in other
real estate owned was $283 million ($250 million excluding covered assets). This excludes $540 million of foreclosed residential real estate related to mortgage loans whose payments are primarily insured by the Federal Housing Administration or
guaranteed by the Department of Veterans Affairs. In addition, the amount of residential mortgage loans secured by residential real estate in the process of foreclosure at March 31, 2014, was $3.4 billion, of which $2.4 billion related to loans
purchased from Government National Mortgage Association (GNMA) mortgage pools whose repayments are insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs.
The Company classifies its loan portfolios using internal credit quality ratings on a quarterly basis. These ratings include: pass, special
mention and classified, and are an important part of the Companys overall credit risk management process and evaluation of the allowance for credit losses. Loans with a pass rating represent those not classified on the Companys rating
scale for problem credits, as minimal credit risk has been identified. Special mention loans are those that have a potential weakness deserving managements close attention. Classified loans are those where a well-defined weakness has been
identified that may put full collection of contractual cash flows at risk. It is possible that others, given the same information, may reach different reasonable conclusions regarding the credit quality rating classification of specific loans.
The following table provides a summary of loans by portfolio class and the Companys internal credit
quality rating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Criticized
|
|
|
|
|
(Dollars in Millions)
|
|
Pass
|
|
|
Special
Mention
|
|
|
Classified (a)
|
|
|
Total
Criticized
|
|
|
Total
|
|
March 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
71,544
|
|
|
$
|
1,111
|
|
|
$
|
1,046
|
|
|
$
|
2,157
|
|
|
$
|
73,701
|
|
Commercial real estate
|
|
|
38,520
|
|
|
|
538
|
|
|
|
1,073
|
|
|
|
1,611
|
|
|
|
40,131
|
|
Residential mortgages (b)
|
|
|
50,521
|
|
|
|
4
|
|
|
|
1,183
|
|
|
|
1,187
|
|
|
|
51,708
|
|
Credit card
|
|
|
16,856
|
|
|
|
|
|
|
|
273
|
|
|
|
273
|
|
|
|
17,129
|
|
Other retail
|
|
|
47,228
|
|
|
|
24
|
|
|
|
355
|
|
|
|
379
|
|
|
|
47,607
|
|
Total loans, excluding covered loans
|
|
|
224,669
|
|
|
|
1,677
|
|
|
|
3,930
|
|
|
|
5,607
|
|
|
|
230,276
|
|
Covered loans
|
|
|
7,812
|
|
|
|
6
|
|
|
|
281
|
|
|
|
287
|
|
|
|
8,099
|
|
Total loans
|
|
$
|
232,481
|
|
|
$
|
1,683
|
|
|
$
|
4,211
|
|
|
$
|
5,894
|
|
|
$
|
238,375
|
|
Total outstanding commitments
|
|
$
|
476,506
|
|
|
$
|
2,871
|
|
|
$
|
5,086
|
|
|
$
|
7,957
|
|
|
$
|
484,463
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
68,075
|
|
|
$
|
1,013
|
|
|
$
|
945
|
|
|
$
|
1,958
|
|
|
$
|
70,033
|
|
Commercial real estate
|
|
|
38,113
|
|
|
|
616
|
|
|
|
1,156
|
|
|
|
1,772
|
|
|
|
39,885
|
|
Residential mortgages (b)
|
|
|
50,152
|
|
|
|
5
|
|
|
|
999
|
|
|
|
1,004
|
|
|
|
51,156
|
|
Credit card
|
|
|
17,733
|
|
|
|
|
|
|
|
288
|
|
|
|
288
|
|
|
|
18,021
|
|
Other retail
|
|
|
47,313
|
|
|
|
27
|
|
|
|
338
|
|
|
|
365
|
|
|
|
47,678
|
|
Total loans, excluding covered loans
|
|
|
221,386
|
|
|
|
1,661
|
|
|
|
3,726
|
|
|
|
5,387
|
|
|
|
226,773
|
|
Covered loans
|
|
|
8,160
|
|
|
|
18
|
|
|
|
284
|
|
|
|
302
|
|
|
|
8,462
|
|
Total loans
|
|
$
|
229,546
|
|
|
$
|
1,679
|
|
|
$
|
4,010
|
|
|
$
|
5,689
|
|
|
$
|
235,235
|
|
Total outstanding commitments
|
|
$
|
470,046
|
|
|
$
|
2,939
|
|
|
$
|
4,812
|
|
|
$
|
7,751
|
|
|
$
|
477,797
|
|
(a)
|
Classified rating on consumer loans primarily based on delinquency status.
|
(b)
|
At March 31, 2014, $3.6 billion of GNMA loans 90 days or more past due and $2.7 billion of restructured GNMA loans whose repayments are insured by the Federal Housing Administration or guaranteed by the
Department of Veterans Affairs were classified with a pass rating, compared with $3.7 billion and $2.6 billion at December 31, 2013, respectively.
|
For all loan classes, a loan is considered to be impaired when, based on current events or information, it is probable the Company will be
unable to collect all amounts due per the contractual terms of the loan agreement. Impaired loans include all nonaccrual and TDR loans. For all loan classes, interest income on TDR loans is recognized under the modified terms and conditions if the
borrower has demonstrated repayment performance at a level commensurate with the modified terms over several payment cycles. Interest income is generally not recognized on other impaired loans until the loan is paid off. However, interest income may
be recognized for interest payments if the remaining carrying amount of the loan is believed to be collectible.
Factors used by the
Company in determining whether all principal and interest payments due on commercial and commercial real estate loans will be collected and therefore whether those loans are impaired include, but are not limited to, the financial condition of the
borrower, collateral and/or guarantees on the loan, and the borrowers estimated future ability to pay based on industry, geographic location and certain financial ratios. The evaluation of impairment on residential mortgages, credit card loans
and other retail loans is primarily driven by delinquency status of individual loans or whether a loan has been modified, and considers any government guarantee where applicable. Individual covered loans, whose future losses are covered by loss
sharing agreements with the FDIC that substantially reduce the risk of credit losses to the Company, are evaluated for impairment and accounted for in a manner consistent with the class of loan they would have been included in had the loss sharing
coverage not been in place.
A summary of impaired loans by portfolio class was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
Period-end
Recorded
Investment (a)
|
|
|
Unpaid
Principal
Balance
|
|
|
Valuation
Allowance
|
|
|
Commitments
to Lend
Additional
Funds
|
|
March 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
452
|
|
|
$
|
879
|
|
|
$
|
35
|
|
|
$
|
37
|
|
Commercial real estate
|
|
|
628
|
|
|
|
1,218
|
|
|
|
39
|
|
|
|
49
|
|
Residential mortgages
|
|
|
2,739
|
|
|
|
3,645
|
|
|
|
297
|
|
|
|
|
|
Credit card
|
|
|
289
|
|
|
|
289
|
|
|
|
77
|
|
|
|
|
|
Other retail
|
|
|
385
|
|
|
|
433
|
|
|
|
55
|
|
|
|
4
|
|
Total impaired loans, excluding GNMA and covered loans
|
|
|
4,493
|
|
|
|
6,464
|
|
|
|
503
|
|
|
|
90
|
|
Loans purchased from GNMA mortgage pools
|
|
|
2,716
|
|
|
|
2,716
|
|
|
|
40
|
|
|
|
|
|
Covered loans
|
|
|
419
|
|
|
|
920
|
|
|
|
22
|
|
|
|
3
|
|
Total
|
|
$
|
7,628
|
|
|
$
|
10,100
|
|
|
$
|
565
|
|
|
$
|
93
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
382
|
|
|
$
|
804
|
|
|
$
|
36
|
|
|
$
|
54
|
|
Commercial real estate
|
|
|
693
|
|
|
|
1,322
|
|
|
|
51
|
|
|
|
40
|
|
Residential mortgages
|
|
|
2,767
|
|
|
|
3,492
|
|
|
|
308
|
|
|
|
|
|
Credit card
|
|
|
310
|
|
|
|
310
|
|
|
|
87
|
|
|
|
|
|
Other retail
|
|
|
391
|
|
|
|
593
|
|
|
|
59
|
|
|
|
14
|
|
Total impaired loans, excluding GNMA and covered loans
|
|
|
4,543
|
|
|
|
6,521
|
|
|
|
541
|
|
|
|
108
|
|
Loans purchased from GNMA mortgage pools
|
|
|
2,607
|
|
|
|
2,607
|
|
|
|
28
|
|
|
|
|
|
Covered loans
|
|
|
452
|
|
|
|
1,008
|
|
|
|
30
|
|
|
|
4
|
|
Total
|
|
$
|
7,602
|
|
|
$
|
10,136
|
|
|
$
|
599
|
|
|
$
|
112
|
|
(a)
|
Substantially all loans classified as impaired at March 31, 2014 and December 31, 2013, had an associated allowance for credit losses.
|
Additional information on impaired loans follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
Three Months Ended March 31
(Dollars in Millions)
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
Commercial
|
|
$
|
417
|
|
|
$
|
2
|
|
|
$
|
391
|
|
|
$
|
10
|
|
Commercial real estate
|
|
|
660
|
|
|
|
9
|
|
|
|
1,055
|
|
|
|
11
|
|
Residential mortgages
|
|
|
2,753
|
|
|
|
35
|
|
|
|
2,728
|
|
|
|
34
|
|
Credit card
|
|
|
300
|
|
|
|
3
|
|
|
|
418
|
|
|
|
4
|
|
Other retail
|
|
|
388
|
|
|
|
4
|
|
|
|
443
|
|
|
|
6
|
|
Total impaired loans, excluding GNMA and covered loans
|
|
|
4,518
|
|
|
|
53
|
|
|
|
5,035
|
|
|
|
65
|
|
Loans purchased from GNMA mortgage pools
|
|
|
2,662
|
|
|
|
33
|
|
|
|
1,844
|
|
|
|
23
|
|
Covered loans
|
|
|
435
|
|
|
|
5
|
|
|
|
681
|
|
|
|
7
|
|
Total
|
|
$
|
7,615
|
|
|
$
|
91
|
|
|
$
|
7,560
|
|
|
$
|
95
|
|
Troubled Debt Restructurings
In certain circumstances, the Company may modify the terms of a loan to maximize the collection of amounts due when a borrower is experiencing financial difficulties or is expected to
experience difficulties in the near-term. Concessionary modifications are classified as TDRs unless the modification results in only an insignificant delay in payments to be received. The Company recognizes interest on TDRs if the borrower complies
with the revised terms and conditions as agreed upon with the Company and has demonstrated repayment performance at a level commensurate with the modified terms over several payment cycles. To the extent a previous restructuring was insignificant,
the Company considers the cumulative effect of past restructurings related to the receivable when determining whether a current restructuring is a TDR. Loans classified as TDRs are considered impaired loans for reporting and measurement purposes.
The following table provides a summary of loans modified as TDRs during the periods presented by portfolio
class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
Three Months Ended March 31
(Dollars in Millions)
|
|
Number
of Loans
|
|
|
Pre-Modification
Outstanding
Loan
Balance
|
|
|
Post-Modification
Outstanding
Loan
Balance
|
|
|
Number
of Loans
|
|
|
Pre-Modification
Outstanding
Loan
Balance
|
|
|
Post-Modification
Outstanding
Loan
Balance
|
|
Commercial
|
|
|
619
|
|
|
$
|
79
|
|
|
$
|
77
|
|
|
|
815
|
|
|
$
|
34
|
|
|
$
|
33
|
|
Commercial real estate
|
|
|
15
|
|
|
|
11
|
|
|
|
8
|
|
|
|
63
|
|
|
|
80
|
|
|
|
78
|
|
Residential mortgages
|
|
|
528
|
|
|
|
70
|
|
|
|
70
|
|
|
|
807
|
|
|
|
110
|
|
|
|
105
|
|
Credit card
|
|
|
6,816
|
|
|
|
40
|
|
|
|
40
|
|
|
|
7,818
|
|
|
|
48
|
|
|
|
48
|
|
Other retail
|
|
|
787
|
|
|
|
21
|
|
|
|
20
|
|
|
|
1,865
|
|
|
|
49
|
|
|
|
49
|
|
Total loans, excluding GNMA and covered loans
|
|
|
8,765
|
|
|
|
221
|
|
|
|
215
|
|
|
|
11,368
|
|
|
|
321
|
|
|
|
313
|
|
Loans purchased from GNMA mortgage pools
|
|
|
2,563
|
|
|
|
257
|
|
|
|
246
|
|
|
|
1,256
|
|
|
|
177
|
|
|
|
182
|
|
Covered loans
|
|
|
13
|
|
|
|
9
|
|
|
|
8
|
|
|
|
50
|
|
|
|
53
|
|
|
|
41
|
|
Total loans
|
|
|
11,341
|
|
|
$
|
487
|
|
|
$
|
469
|
|
|
|
12,674
|
|
|
$
|
551
|
|
|
$
|
536
|
|
Residential mortgages, home equity and second mortgages, and loans purchased from GNMA mortgage pools in the
table above include trial period arrangements offered to customers during the periods presented. The post-modification balances for these loans reflect the current outstanding balance until a permanent modification is made. In addition, the
post-modification balances typically include capitalization of unpaid accrued interest and/or fees under the various modification programs. For those loans modified as TDRs during the first quarter of 2014, at March 31, 2014,
227 residential mortgages, 21 home equity and second mortgage loans and 1,657 loans purchased from GNMA mortgage pools with outstanding balances of $27 million, $1 million and $204 million, respectively, were in a trial period and have
estimated post-modification balances of $28 million, $1 million and $194 million, respectively, assuming permanent modification occurs at the end of the trial period.
The Company has implemented certain restructuring programs that may result in TDRs. However, many of the Companys TDRs are also
determined on a case-by-case basis in connection with ongoing loan collection processes.
For the commercial lending segment,
modifications generally result in the Company working with borrowers on a case-by-case basis. Commercial and commercial real estate modifications generally include extensions of the maturity date and may be accompanied by an increase or decrease to
the interest rate, which may not be deemed a market rate of interest. In addition, the Company may work with the borrower in identifying other changes that mitigate loss to the Company, which may include additional collateral or guarantees to
support the loan. To a lesser extent, the Company may waive contractual principal. The Company classifies these concessions as TDRs to the extent the Company determines that the borrower is experiencing financial difficulty.
Modifications for the consumer lending segment are generally part of programs the Company has initiated. The Company participates in the U.S.
Department of Treasury Home Affordable Modification Program (HAMP). HAMP gives qualifying homeowners an opportunity to permanently modify residential mortgage loans and achieve more affordable monthly payments, with the U.S. Department
of Treasury compensating the Company for a portion of the reduction in monthly amounts due from borrowers participating in this program. The Company also modifies residential mortgage loans under Federal Housing Administration, Department of
Veterans Affairs, or its own internal programs. Under these programs, the Company provides concessions to qualifying borrowers experiencing financial difficulties. The concessions may include adjustments to interest rates, conversion of adjustable
rates to fixed rates, extension of maturity dates or deferrals of payments, capitalization of accrued interest and/or outstanding advances, or in limited situations, partial forgiveness of loan principal. In most instances, participation in
residential mortgage loan restructuring programs requires the customer to complete a short-term trial period. A permanent loan modification is contingent on the customer successfully completing the trial period arrangement and the loan documents are
not modified until that time. The Company reports loans in a trial period arrangement as TDRs.
Credit card and other retail loan
modifications are generally part of two distinct restructuring programs. The Company offers workout programs providing customers experiencing financial difficulty with modifications whereby balances may be amortized up to 60 months, and generally
include waiver of fees and reduced interest rates. The Company also provides modification programs to qualifying customers experiencing a temporary financial hardship in which reductions are made to monthly required minimum payments for up to 12
months. Balances related to these programs are generally frozen; however, accounts may be reopened upon successful exit of the program, in which account privileges may be restored.
In addition, the Company considers secured loans to consumer borrowers that have debt discharged
through bankruptcy where the borrower has not reaffirmed the debt to be TDRs.
Modifications to loans in the covered segment are similar
in nature to that described above for non-covered loans, and the evaluation and determination of TDR status is similar, except that acquired loans restructured after acquisition are not considered TDRs for purposes of the Companys accounting
and disclosure if the loans evidenced credit deterioration as of the acquisition date and are accounted for in pools. Losses associated with the modification on covered loans, including the economic impact of interest rate reductions, are generally
eligible for reimbursement under loss sharing agreements with the FDIC.
The following table provides a summary of TDR loans that defaulted (fully or
partially charged-off or became 90 days or more past due) during the periods presented that were modified as TDRs within 12 months previous to default:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
Three Months Ended March 31
(Dollars in Millions)
|
|
Number
of Loans
|
|
|
Amount
Defaulted
|
|
|
Number
of Loans
|
|
|
Amount
Defaulted
|
|
Commercial
|
|
|
145
|
|
|
$
|
5
|
|
|
|
168
|
|
|
$
|
2
|
|
Commercial real estate
|
|
|
6
|
|
|
|
7
|
|
|
|
19
|
|
|
|
28
|
|
Residential mortgages
|
|
|
148
|
|
|
|
22
|
|
|
|
183
|
|
|
|
31
|
|
Credit card
|
|
|
1,461
|
|
|
|
8
|
|
|
|
1,986
|
|
|
|
11
|
|
Other retail
|
|
|
185
|
|
|
|
6
|
|
|
|
517
|
|
|
|
28
|
|
Total loans, excluding GNMA and covered loans
|
|
|
1,945
|
|
|
|
48
|
|
|
|
2,873
|
|
|
|
100
|
|
Loans purchased from GNMA mortgage pools
|
|
|
71
|
|
|
|
10
|
|
|
|
3,822
|
|
|
|
478
|
|
Covered loans
|
|
|
8
|
|
|
|
3
|
|
|
|
10
|
|
|
|
3
|
|
Total loans
|
|
|
2,024
|
|
|
$
|
61
|
|
|
|
6,705
|
|
|
$
|
581
|
|
In addition to the defaults in the table above, for the three months ended March 31, 2014, the Company
had a total of 176 residential mortgage loans, home equity and second mortgage loans and loans purchased from GNMA mortgage pools with aggregate outstanding balances of $23 million where borrowers did not successfully complete the trial period
arrangement and therefore are no longer eligible for a permanent modification under the applicable modification program.
Covered Assets
Covered assets represent loans and other assets acquired from the FDIC, subject to loss sharing agreements, and include
expected reimbursements from the FDIC. The carrying amount of the covered assets consisted of purchased impaired loans, purchased nonimpaired loans and other assets as shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2014
|
|
|
December 31, 2013
|
|
(Dollars in Millions)
|
|
Purchased
Impaired
Loans
|
|
|
Purchased
Nonimpaired
Loans
|
|
|
Other
Assets
|
|
|
Total
|
|
|
Purchased
Impaired
Loans
|
|
|
Purchased
Nonimpaired
Loans
|
|
|
Other
Assets
|
|
|
Total
|
|
Commercial loans
|
|
$
|
|
|
|
$
|
28
|
|
|
$
|
|
|
|
$
|
28
|
|
|
$
|
|
|
|
$
|
32
|
|
|
$
|
|
|
|
$
|
32
|
|
Commercial real estate loans
|
|
|
649
|
|
|
|
1,450
|
|
|
|
|
|
|
|
2,099
|
|
|
|
738
|
|
|
|
1,494
|
|
|
|
|
|
|
|
2,232
|
|
Residential mortgage loans
|
|
|
2,988
|
|
|
|
855
|
|
|
|
|
|
|
|
3,843
|
|
|
|
3,037
|
|
|
|
890
|
|
|
|
|
|
|
|
3,927
|
|
Credit card loans
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
Other retail loans
|
|
|
|
|
|
|
644
|
|
|
|
|
|
|
|
644
|
|
|
|
|
|
|
|
666
|
|
|
|
|
|
|
|
666
|
|
Losses reimbursable by the FDIC (a)
|
|
|
|
|
|
|
|
|
|
|
772
|
|
|
|
772
|
|
|
|
|
|
|
|
|
|
|
|
798
|
|
|
|
798
|
|
Unamortized changes in FDIC asset (b)
|
|
|
|
|
|
|
|
|
|
|
708
|
|
|
|
708
|
|
|
|
|
|
|
|
|
|
|
|
802
|
|
|
|
802
|
|
Covered loans
|
|
|
3,637
|
|
|
|
2,982
|
|
|
|
1,480
|
|
|
|
8,099
|
|
|
|
3,775
|
|
|
|
3,087
|
|
|
|
1,600
|
|
|
|
8,462
|
|
Foreclosed real estate
|
|
|
|
|
|
|
|
|
|
|
73
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
97
|
|
|
|
97
|
|
Total covered assets
|
|
$
|
3,637
|
|
|
$
|
2,982
|
|
|
$
|
1,553
|
|
|
$
|
8,172
|
|
|
$
|
3,775
|
|
|
$
|
3,087
|
|
|
$
|
1,697
|
|
|
$
|
8,559
|
|
(a)
|
Relates to loss sharing agreements with remaining terms up to five years.
|
(b)
|
Represents decreases in expected reimbursements by the FDIC as a result of decreases in expected losses on the covered loans. These amounts are amortized as a reduction in interest income on covered loans over the
shorter of the expected life of the respective covered loans or the remaining contractual term of the indemnification agreements.
|
At March 31, 2014, $4 million of the purchased impaired loans included in covered loans were classified as nonperforming assets, compared
with $5 million at December 31, 2013, because the expected cash flows are primarily based on the liquidation of underlying collateral and the timing and amount of the cash flows could not be reasonably estimated. Interest income is recognized
on other purchased impaired loans through accretion of the difference between the carrying amount of those loans and their expected cash flows. The initial determination of the fair value of the purchased loans includes the impact of expected credit
losses and, therefore, no allowance for credit losses is recorded at the purchase date. To the extent credit deterioration occurs after the date of acquisition, the Company records an allowance for credit losses.
|
|
|
Note 4
|
|
Accounting for Transfers and Servicing of Financial Assets and Variable Interest Entities
|
The Company transfers financial assets in the normal course of business. The majority of the Companys financial asset
transfers are residential mortgage loan sales primarily to government-sponsored enterprises (GSEs), transfers of tax-advantaged investments, commercial loan sales through participation agreements, and other individual or portfolio loan
and securities sales. In accordance with the accounting guidance for asset transfers, the Company considers any ongoing involvement with transferred assets in determining whether the assets can be derecognized from the balance sheet. Guarantees
provided to certain third-parties in connection with the transfer of assets are further discussed in Note 14.
For loans sold under
participation agreements, the Company also considers whether the terms of the loan participation agreement meet the accounting definition of a participating interest. With the exception of servicing and certain performance-based guarantees, the
Companys continuing involvement with financial assets sold is minimal and generally limited to market customary representation and warranty clauses. Any gain or loss on sale depends on the previous carrying amount of the transferred financial
assets, the consideration received, and any liabilities incurred in exchange for the transferred assets. Upon transfer, any servicing assets and other interests that continue to be held by the Company are initially recognized at fair value. For
further information on mortgage servicing rights (MSRs), refer to Note 5. On a limited basis, the Company may acquire and package high-grade corporate bonds for select corporate customers, in which the Company generally has no continuing
involvement with these transactions. Additionally, the Company is an authorized GNMA issuer and issues GNMA securities on a regular basis. The Company has no other asset securitizations or similar asset-backed financing arrangements that are
off-balance sheet.
The Company is involved in various entities that are considered to be variable interest entities (VIEs).
The Companys investments in VIEs are primarily related to investments promoting affordable housing, community development and renewable energy sources. Some of these tax-advantaged investments support the Companys regulatory compliance
with the Community Reinvestment Act. The Companys investments in these entities generate a return primarily through the realization of federal and state income tax credits, and other tax benefits, such as tax deductions from operating
losses of the investments, over specified time periods. These tax credits are recognized as a reduction of tax expense or, for investments qualifying as investment tax credits, as a reduction to the related investment asset. In January 2014,
the Financial Accounting Standards Board issued accounting guidance for qualified affordable housing projects. This new guidance permits the Company to present the expense on certain qualified affordable housing investments in tax expense rather
than noninterest expense. The Company adopted this guidance January 1, 2014, on a prospective basis, because the impact on prior financial statements was not material. The Company recognized federal and state income tax credits related to its
affordable housing and other tax-advantaged investments in tax expense of $178 million and $167 million for the three months ended March 31, 2014 and 2013, respectively. The Company also recognized $103 million and $69 million of investment tax
credits for the three months ended March 31, 2014 and 2013, respectively. The Company recognized $164 million and $212 million of expenses related to all of these investments for the three months ended March 31, 2014 and 2013, respectively, of
which $71 million and $80 million, respectively, was included in tax expense and the remainder was included in noninterest expense.
The Company is not required to consolidate VIEs in which it has concluded it does not have a controlling financial interest, and thus is not
the primary beneficiary. In such cases, the Company does not have both the power to direct the entities most significant activities and the obligation to absorb losses or the right to receive benefits that could potentially be significant to
the VIEs. The Companys investments in these unconsolidated VIEs, including funded and unfunded capital commitments, are carried in other assets on the Consolidated Balance Sheet. The Companys unfunded capital and other commitments
related to these unconsolidated VIEs are generally carried in other liabilities on the Consolidated Balance Sheet. The Companys maximum exposure to loss from these unconsolidated VIEs include the investment recorded on the Companys
Consolidated Balance Sheet, net of unfunded capital commitments, and previously recorded tax credits which remain subject to recapture by taxing authorities based on compliance features required to be met at the project level. While the Company
believes potential losses from these investments are remote, the maximum exposure was determined by assuming a scenario where the community-based business and housing projects completely fail and do not meet certain government compliance
requirements resulting in recapture of the related tax credits.
The following table provides a summary of investments in community development and tax-advantaged VIEs that the
Company has not consolidated:
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
March 31,
2014
|
|
|
December 31,
2013
|
|
Investment carrying amount
|
|
$
|
4,036
|
|
|
$
|
4,178
|
|
Unfunded capital and other commitments
|
|
|
1,532
|
|
|
|
1,661
|
|
Maximum exposure to loss
|
|
|
7,453
|
|
|
|
7,390
|
|
The Companys individual net investments in these unconsolidated VIEs, which exclude any unfunded capital
commitments, ranged from less than $1 million to $34 million at March 31, 2014, compared with less than $1 million to $37 million at December 31, 2013.
In addition, the Company sponsors entities to which it transfers tax-advantaged investments to third parties. At March 31, 2014,
approximately $2.5 billion of the Companys assets and $1.9 billion of its liabilities included on the Consolidated Balance Sheet were related to community development and tax-advantaged investment VIEs which the Company has consolidated,
primarily related to these transfers. These amounts compared to $2.5 billion and $1.8 billion, respectively, at December 31, 2013. The majority of the assets of these consolidated VIEs are reported in other assets, and the liabilities are
reported in long-term debt and other liabilities. The assets of a particular VIE are the primary source of funds to settle its obligations. The creditors of the VIEs do not have recourse to the general credit of the Company. The Companys
exposure to the consolidated VIEs is generally limited to the carrying value of its variable interests plus any related tax credits previously recognized or transferred to others with a guarantee.
The Company also sponsors a conduit to which it previously transferred high-grade investment securities. The Company consolidates the conduit
because of its ability to manage the activities of the conduit. At March 31, 2014, $115 million of the held-to-maturity investment securities on the Companys Consolidated Balance Sheet were related to the conduit, compared with $116
million at December 31, 2013.
In addition, the Company sponsors a municipal bond securities tender option bond program. The Company
controls the activities of the programs entities, is entitled to the residual returns and provides credit, liquidity and remarketing arrangements to the program. As a result, the Company has consolidated the programs entities. At
March 31, 2014, $4.5 billion of available-for-sale securities and $4.3 billion of short-term borrowings on the Consolidated Balance Sheet were related to the tender option bond program, compared with $4.6 billion of available-for-sale
securities and $4.6 billion of short-term borrowings at December 31, 2013.
The Company also has noncontrolling financial
investments in private investment funds and partnerships considered VIEs, which are not consolidated. The Companys recorded investment in these entities, carried in other assets on the Consolidated Balance Sheet, was approximately $99 million
at March 31, 2014, compared with $98 million at December 31, 2013. The maximum exposure to loss related to these VIEs was $107 million at March 31, 2014 and December 31, 2013, representing the Companys investment
balance and its unfunded commitments to invest additional amounts.
|
|
|
Note 5
|
|
Mortgage Servicing Rights
|
The Company serviced $227.2 billion of residential mortgage loans for others at March 31, 2014, and $226.8 billion at
December 31, 2013, which include subserviced mortgages with no corresponding MSRs asset. The net impact included in mortgage banking revenue of fair value changes of MSRs due to changes in valuation assumptions and derivatives used to
economically hedge MSRs were net gains of $58 million and $41 million for the three months ended March 31, 2014 and 2013, respectively. Loan servicing fees, not including valuation changes, included in mortgage banking revenue, were $188
million and $187 million for the three months ended March 31, 2014 and 2013, respectively.
Changes in fair value of capitalized MSRs are summarized
as follows:
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
(Dollars in Millions)
|
|
2014
|
|
|
2013
|
|
Balance at beginning of period
|
|
$
|
2,680
|
|
|
$
|
1,700
|
|
Rights purchased
|
|
|
1
|
|
|
|
2
|
|
Rights capitalized
|
|
|
84
|
|
|
|
254
|
|
Changes in fair value of MSRs
|
|
|
|
|
|
|
|
|
Due to fluctuations in market interest rates (a)
|
|
|
(76
|
)
|
|
|
127
|
|
Due to revised assumptions or models (b)
|
|
|
12
|
|
|
|
(6
|
)
|
Other changes in fair value (c)
|
|
|
(83
|
)
|
|
|
(122
|
)
|
Balance at end of period
|
|
$
|
2,618
|
|
|
$
|
1,955
|
|
(a)
|
Includes changes in MSR value associated with changes in market interest rates, including estimated prepayment rates and anticipated earnings on escrow deposits.
|
(b)
|
Includes changes in MSR value not caused by changes in market interest rates, such as changes in cost to service, ancillary income, and discount rate, as well as the impact of any model changes.
|
(c)
|
Primarily represents changes due to realization of expected cash flows over time (decay).
|
The
estimated sensitivity to changes in interest rates of the fair value of the MSRs portfolio and the related derivative instruments was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2014
|
|
|
December 31, 2013
|
|
(Dollars in Millions)
|
|
Down
100 bps
|
|
|
Down
50 bps
|
|
|
Down
25 bps
|
|
|
Up
25 bps
|
|
|
Up
50 bps
|
|
|
Up
100 bps
|
|
|
Down
100 bps
|
|
|
Down
50 bps
|
|
|
Down
25 bps
|
|
|
Up
25 bps
|
|
|
Up
50 bps
|
|
|
Up
100 bps
|
|
MSR portfolio
|
|
$
|
(463
|
)
|
|
$
|
(210
|
)
|
|
$
|
(97
|
)
|
|
$
|
85
|
|
|
$
|
159
|
|
|
$
|
297
|
|
|
$
|
(435
|
)
|
|
$
|
(199
|
)
|
|
$
|
(93
|
)
|
|
$
|
82
|
|
|
$
|
154
|
|
|
$
|
287
|
|
Derivative instrument hedges
|
|
|
409
|
|
|
|
201
|
|
|
|
96
|
|
|
|
(84
|
)
|
|
|
(156
|
)
|
|
|
(287
|
)
|
|
|
399
|
|
|
|
194
|
|
|
|
91
|
|
|
|
(82
|
)
|
|
|
(157
|
)
|
|
|
(301
|
)
|
Net sensitivity
|
|
$
|
(54
|
)
|
|
$
|
(9
|
)
|
|
$
|
(1
|
)
|
|
$
|
1
|
|
|
$
|
3
|
|
|
$
|
10
|
|
|
$
|
(36
|
)
|
|
$
|
(5
|
)
|
|
$
|
(2
|
)
|
|
$
|
|
|
|
$
|
(3
|
)
|
|
$
|
(14
|
)
|
The fair value of MSRs and their sensitivity to changes in interest rates is influenced by the mix of the
servicing portfolio and characteristics of each segment of the portfolio. The Companys servicing portfolio consists of the distinct portfolios of government-insured mortgages, conventional mortgages and Mortgage Revenue Bond Programs
(MRBP). The servicing portfolios are predominantly comprised of fixed-rate agency loans with limited adjustable-rate or jumbo mortgage loans. The MRBP division specializes in servicing loans made under state and local housing authority
programs. These programs provide mortgages to low-income and moderate-income borrowers and are generally government-insured programs with a favorable rate subsidy, down payment and/or closing cost assistance.
A summary of the Companys MSRs and related characteristics by portfolio was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2014
|
|
|
December 31, 2013
|
|
(Dollars in Millions)
|
|
MRBP
|
|
|
Government
|
|
|
Conventional (b)
|
|
|
Total
|
|
|
MRBP
|
|
|
Government
|
|
|
Conventional (b)
|
|
|
Total
|
|
Servicing portfolio
|
|
$
|
16,459
|
|
|
$
|
41,550
|
|
|
$
|
166,628
|
|
|
$
|
224,637
|
|
|
$
|
15,896
|
|
|
$
|
41,659
|
|
|
$
|
169,287
|
|
|
$
|
226,842
|
|
Fair value
|
|
$
|
188
|
|
|
$
|
485
|
|
|
$
|
1,945
|
|
|
$
|
2,618
|
|
|
$
|
180
|
|
|
$
|
500
|
|
|
$
|
2,000
|
|
|
$
|
2,680
|
|
Value (bps) (a)
|
|
|
114
|
|
|
|
117
|
|
|
|
117
|
|
|
|
117
|
|
|
|
113
|
|
|
|
120
|
|
|
|
118
|
|
|
|
118
|
|
Weighted-average servicing fees (bps)
|
|
|
39
|
|
|
|
32
|
|
|
|
29
|
|
|
|
30
|
|
|
|
39
|
|
|
|
32
|
|
|
|
29
|
|
|
|
30
|
|
Multiple (value/servicing fees)
|
|
|
2.92
|
|
|
|
3.66
|
|
|
|
4.03
|
|
|
|
3.90
|
|
|
|
2.90
|
|
|
|
3.75
|
|
|
|
4.07
|
|
|
|
3.93
|
|
Weighted-average note rate
|
|
|
4.67
|
%
|
|
|
4.23
|
%
|
|
|
4.16
|
%
|
|
|
4.21
|
%
|
|
|
4.70
|
%
|
|
|
4.24
|
%
|
|
|
4.17
|
%
|
|
|
4.22
|
%
|
Weighted-average age (in years)
|
|
|
3.8
|
|
|
|
2.8
|
|
|
|
2.7
|
|
|
|
2.8
|
|
|
|
3.8
|
|
|
|
2.6
|
|
|
|
2.5
|
|
|
|
2.6
|
|
Weighted-average expected prepayment (constant prepayment rate)
|
|
|
13.3
|
%
|
|
|
11.8
|
%
|
|
|
11.1
|
%
|
|
|
11.4
|
%
|
|
|
13.5
|
%
|
|
|
11.5
|
%
|
|
|
10.9
|
%
|
|
|
11.2
|
%
|
Weighted-average expected life (in years)
|
|
|
6.2
|
|
|
|
6.7
|
|
|
|
7.0
|
|
|
|
6.9
|
|
|
|
6.2
|
|
|
|
6.9
|
|
|
|
7.2
|
|
|
|
7.1
|
|
Weighted-average discount rate
|
|
|
11.9
|
%
|
|
|
11.2
|
%
|
|
|
9.8
|
%
|
|
|
10.2
|
%
|
|
|
11.9
|
%
|
|
|
11.2
|
%
|
|
|
9.8
|
%
|
|
|
10.2
|
%
|
(a)
|
Value is calculated as fair value divided by the servicing portfolio.
|
(b)
|
Represents loans sold primarily to GSEs.
|
At March 31, 2014 and December 31, 2013, the Company had authority to issue 50 million shares of preferred
stock. The number of shares issued and outstanding and the carrying amount of each outstanding series of the Companys preferred stock was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2014
|
|
|
December 31, 2013
|
|
(Dollars in Millions)
|
|
Shares
Issued and
Outstanding
|
|
|
Liquidation
Preference
|
|
|
Discount
|
|
|
Carrying
Amount
|
|
|
Shares
Issued and
Outstanding
|
|
|
Liquidation
Preference
|
|
|
Discount
|
|
|
Carrying
Amount
|
|
Series A
|
|
|
12,510
|
|
|
$
|
1,251
|
|
|
$
|
145
|
|
|
$
|
1,106
|
|
|
|
12,510
|
|
|
$
|
1,251
|
|
|
$
|
145
|
|
|
$
|
1,106
|
|
Series B
|
|
|
40,000
|
|
|
|
1,000
|
|
|
|
|
|
|
|
1,000
|
|
|
|
40,000
|
|
|
|
1,000
|
|
|
|
|
|
|
|
1,000
|
|
Series F
|
|
|
44,000
|
|
|
|
1,100
|
|
|
|
12
|
|
|
|
1,088
|
|
|
|
44,000
|
|
|
|
1,100
|
|
|
|
12
|
|
|
|
1,088
|
|
Series G
|
|
|
43,400
|
|
|
|
1,085
|
|
|
|
10
|
|
|
|
1,075
|
|
|
|
43,400
|
|
|
|
1,085
|
|
|
|
10
|
|
|
|
1,075
|
|
Series H
|
|
|
20,000
|
|
|
|
500
|
|
|
|
13
|
|
|
|
487
|
|
|
|
20,000
|
|
|
|
500
|
|
|
|
13
|
|
|
|
487
|
|
Total preferred stock (a)
|
|
|
159,910
|
|
|
$
|
4,936
|
|
|
$
|
180
|
|
|
$
|
4,756
|
|
|
|
159,910
|
|
|
$
|
4,936
|
|
|
$
|
180
|
|
|
$
|
4,756
|
|
(a)
|
The par value of all shares issued and outstanding at March 31, 2014 and December 31, 2013, was $1.00 per share.
|
|
|
|
Note 7
|
|
Accumulated Other Comprehensive Income (Loss)
|
Shareholders equity is affected by transactions and valuations of asset and liability positions that require adjustments
to accumulated other comprehensive income (loss). The reconciliation of the transactions affecting accumulated other comprehensive income (loss) included in shareholders equity for the three months ended March 31, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
Unrealized Gains
(Losses)
on
Securities
Available-For-Sale
|
|
|
Unrealized Gains
(Losses) on
Securities
Transferred From
Available-For-
Sale to Held-To-
Maturity
|
|
|
Unrealized Gains
(Losses) on
Derivative Hedges
|
|
|
Unrealized Gains
(Losses) on
Retirement Plans
|
|
|
Foreign
Currency
Translation
|
|
|
Total
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(77
|
)
|
|
$
|
70
|
|
|
$
|
(261
|
)
|
|
$
|
(743
|
)
|
|
$
|
(60
|
)
|
|
$
|
(1,071
|
)
|
Changes in unrealized gains and losses
|
|
|
301
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
290
|
|
Other-than-temporary impairment not recognized in earnings on securities available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
Reclassification to earnings of realized gains and losses
|
|
|
(5
|
)
|
|
|
(7
|
)
|
|
|
49
|
|
|
|
36
|
|
|
|
|
|
|
|
73
|
|
Applicable income taxes
|
|
|
(113
|
)
|
|
|
3
|
|
|
|
(15
|
)
|
|
|
(14
|
)
|
|
|
1
|
|
|
|
(138
|
)
|
Balance at end of period
|
|
$
|
106
|
|
|
$
|
66
|
|
|
$
|
(238
|
)
|
|
$
|
(721
|
)
|
|
$
|
(63
|
)
|
|
$
|
(850
|
)
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
679
|
|
|
$
|
107
|
|
|
$
|
(404
|
)
|
|
$
|
(1,265
|
)
|
|
$
|
(40
|
)
|
|
$
|
(923
|
)
|
Changes in unrealized gains and losses
|
|
|
(120
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(124
|
)
|
Other-than-temporary impairment not recognized in earnings on securities available-for-sale
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
(10
|
)
|
Reclassification to earnings of realized gains and losses
|
|
|
(5
|
)
|
|
|
(20
|
)
|
|
|
54
|
|
|
|
62
|
|
|
|
|
|
|
|
91
|
|
Applicable income taxes
|
|
|
43
|
|
|
|
7
|
|
|
|
(18
|
)
|
|
|
(17
|
)
|
|
|
4
|
|
|
|
19
|
|
Balance at end of period
|
|
$
|
603
|
|
|
$
|
94
|
|
|
$
|
(371
|
)
|
|
$
|
(1,221
|
)
|
|
$
|
(46
|
)
|
|
$
|
(941
|
)
|
Additional detail about the impact to net income for items reclassified out of accumulated other comprehensive
income and into earnings for the three months ended March 31, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact to Net Income
|
|
|
|
(Dollars in Millions)
|
|
2014
|
|
|
2013
|
|
|
Affected Line Item in the
Consolidated Statement of Income
|
Unrealized gains (losses) on securities available-for-sale
|
|
|
|
|
|
|
|
|
|
|
Realized gains (losses) on sale of securities
|
|
$
|
5
|
|
|
$
|
12
|
|
|
Total securities gains (losses), net
|
Other-than-temporary impairment recognized in earnings
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
|
Total before tax
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
Applicable income taxes
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
Net-of-tax
|
Unrealized gains (losses) on securities transferred from available-for-sale to held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrealized gains
|
|
|
7
|
|
|
|
20
|
|
|
Interest income
|
|
|
|
(3
|
)
|
|
|
(7
|
)
|
|
Applicable income taxes
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
13
|
|
|
Net-of-tax
|
Unrealized gains (losses) on derivative hedges
|
|
|
|
|
|
|
|
|
|
|
Realized gains (losses) on derivative hedges
|
|
|
(49
|
)
|
|
|
(54
|
)
|
|
Net interest income
|
|
|
|
19
|
|
|
|
21
|
|
|
Applicable income taxes
|
|
|
|
|
|
|
|
|
|
|
(30
|
)
|
|
|
(33
|
)
|
|
Net-of-tax
|
Unrealized gains (losses) on retirement plans
|
|
|
|
|
|
|
|
|
|
|
Actuarial gains (losses), prior service cost (credit) and transition obligation (asset) amortization
|
|
|
(36
|
)
|
|
|
(62
|
)
|
|
Employee benefits expense
|
|
|
|
14
|
|
|
|
24
|
|
|
Applicable income taxes
|
|
|
|
|
|
|
|
|
|
|
(22
|
)
|
|
|
(38
|
)
|
|
Net-of-tax
|
|
|
|
|
Total impact to net income
|
|
$
|
(45
|
)
|
|
$
|
(55
|
)
|
|
|
|
|
|
Note 8
|
|
Earnings Per Share
|
The components of earnings per share were:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
(Dollars and Shares in Millions, Except Per Share Data)
|
|
2014
|
|
|
2013
|
|
Net income attributable to U.S. Bancorp
|
|
$
|
1,397
|
|
|
$
|
1,428
|
|
Preferred dividends
|
|
|
(60
|
)
|
|
|
(64
|
)
|
Earnings allocated to participating stock awards
|
|
|
(6
|
)
|
|
|
(6
|
)
|
Net income applicable to U.S. Bancorp common shareholders
|
|
$
|
1,331
|
|
|
$
|
1,358
|
|
Average common shares outstanding
|
|
|
1,818
|
|
|
|
1,858
|
|
Net effect of the exercise and assumed purchase of stock awards
|
|
|
10
|
|
|
|
9
|
|
Average diluted common shares outstanding
|
|
|
1,828
|
|
|
|
1,867
|
|
Earnings per common share
|
|
$
|
.73
|
|
|
$
|
.73
|
|
Diluted earnings per common share
|
|
$
|
.73
|
|
|
$
|
.73
|
|
Options outstanding at March 31, 2013, to purchase 11 million common shares were not included in the
computation of diluted earnings per share for the three months ended March 31, 2013, because they were antidilutive.
The components of net periodic benefit cost for the Companys retirement plans were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
Pension Plans
|
|
|
Postretirement
Welfare Plan
|
|
(Dollars in Millions)
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Service cost
|
|
$
|
38
|
|
|
$
|
42
|
|
|
$
|
|
|
|
$
|
1
|
|
Interest cost
|
|
|
49
|
|
|
|
42
|
|
|
|
1
|
|
|
|
1
|
|
Expected return on plan assets
|
|
|
(52
|
)
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
Prior service cost (credit) and transition obligation (asset) amortization
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
Actuarial loss (gain) amortization
|
|
|
40
|
|
|
|
66
|
|
|
|
(2
|
)
|
|
|
(3
|
)
|
Net periodic benefit cost
|
|
$
|
74
|
|
|
$
|
105
|
|
|
$
|
(2
|
)
|
|
$
|
(1
|
)
|
The components of income tax expense were:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
(Dollars in Millions)
|
|
2014
|
|
|
2013
|
|
Federal
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
490
|
|
|
$
|
490
|
|
Deferred
|
|
|
(67
|
)
|
|
|
12
|
|
Federal income tax
|
|
|
423
|
|
|
|
502
|
|
State
|
|
|
|
|
|
|
|
|
Current
|
|
|
83
|
|
|
|
58
|
|
Deferred
|
|
|
(10
|
)
|
|
|
(2
|
)
|
State income tax
|
|
|
73
|
|
|
|
56
|
|
Total income tax provision
|
|
$
|
496
|
|
|
$
|
558
|
|
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)
|
|
2014
|
|
|
2013
|
|
Tax at statutory rate
|
|
$
|
668
|
|
|
$
|
681
|
|
State income tax, at statutory rates, net of federal tax benefit
|
|
|
43
|
|
|
|
36
|
|
Tax effect of
|
|
|
|
|
|
|
|
|
Tax credits and benefits, net of related expenses
|
|
|
(165
|
)
|
|
|
(106
|
)
|
Tax-exempt income
|
|
|
(52
|
)
|
|
|
(54
|
)
|
Noncontrolling interests
|
|
|
(5
|
)
|
|
|
14
|
|
Other items
|
|
|
7
|
|
|
|
(13
|
)
|
Applicable income taxes
|
|
$
|
496
|
|
|
$
|
558
|
|
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, 2014, the federal taxing authority has completed its examination of the
Company through the fiscal year ended December 31, 2010. The years open to examination by foreign, state and local government authorities vary by jurisdiction.
The Companys net deferred tax liability was $1.5 billion at March 31, 2014, and $1.3 billion at December 31, 2013.
|
|
|
Note 11
|
|
Derivative Instruments
|
In the ordinary course of business, the Company enters into derivative transactions to manage various risks and to accommodate
the business requirements of its customers. The Company recognizes all derivatives on the Consolidated Balance Sheet at fair value in other assets or in other liabilities. On the date the Company enters into a derivative contract, the derivative is
designated as either a hedge of the fair value of a recognized asset or liability (fair value hedge); a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability
(cash flow hedge); a hedge of the volatility of an investment in foreign operations driven by changes in foreign currency exchange rates (net investment hedge); or a designation is not made as it is a customer-related
transaction, an economic hedge for asset/liability risk management purposes or another stand-alone derivative created through the Companys operations (free-standing derivative). When a derivative is designated as a fair value, cash
flow or net investment hedge, the Company performs an assessment, at inception and, at a minimum, quarterly thereafter, to determine the effectiveness of the derivative in offsetting changes in the value or cash flows of the hedged item(s).
Fair Value Hedges
These
derivatives are interest rate swaps the Company uses to hedge the change in fair value related to interest rate changes of its underlying fixed-rate debt. Changes in the fair value of derivatives designated as fair value hedges, and changes in the
fair value of the hedged items, are recorded in earnings. All fair value hedges were highly effective for the three months ended March 31, 2014, and the change in fair value attributed to hedge ineffectiveness was not material.
Cash Flow Hedges
These derivatives are interest rate swaps the Company uses to hedge the forecasted cash flows from its underlying variable-rate loans and debt. Changes in the fair value of derivatives
designated as cash flow hedges are recorded in other comprehensive income (loss) until the cash flows of the hedged items are realized. If a derivative designated as a cash flow hedge is terminated or ceases to be highly effective, the gain or loss
in other comprehensive income (loss) is amortized to earnings over the period the forecasted hedged transactions impact earnings. If a hedged forecasted transaction is no longer probable, hedge accounting is ceased and any gain or loss included in
other comprehensive income (loss) is reported in earnings immediately, unless the forecasted transaction is at least reasonably possible of occurring, whereby the amounts remain within other comprehensive income (loss). At March 31, 2014, the
Company had $238 million (net-of-tax) of realized and unrealized losses on derivatives classified as cash flow hedges recorded in other comprehensive income (loss), compared with $261 million (net-of-tax) at December 31, 2013. The estimated
amount to be reclassified from other comprehensive income (loss) into earnings during the remainder of 2014 and the next 12 months are losses of $88 million (net-of-tax) and $119 million (net-of-tax), respectively. This amount includes gains and
losses related to hedges that were terminated early for which the forecasted transactions are still probable. All cash flow hedges were highly effective for the three months ended March 31, 2014, and the change in fair value attributed to hedge
ineffectiveness was not material.
Net Investment Hedges
The Company uses forward commitments to sell specified amounts of certain foreign currencies, and occasionally non-derivative debt instruments, to hedge the volatility of its investment in
foreign operations driven by fluctuations in foreign currency exchange rates. The ineffectiveness on all net investment hedges was not material for the three months ended March 31, 2014. There were no non-derivative debt instruments designated
as net investment hedges at March 31, 2014 or December 31, 2013.
Other Derivative
Positions
The Company enters into free-standing derivatives to mitigate interest rate risk and for other risk management purposes. These derivatives include forward
commitments to sell to-be-announced securities (TBAs) and other commitments to sell residential mortgage loans, which are used to economically hedge the interest rate risk related to residential mortgage loans held for sale
(MLHFS) and unfunded mortgage loan commitments. The Company also enters into interest rate swaps, forward commitments to buy TBAs, U.S. Treasury futures and options on U.S. Treasury futures to economically hedge the change in the fair
value of the Companys MSRs. The Company also enters into foreign currency forwards to economically hedge remeasurement gains and losses the Company recognizes on foreign currency denominated assets and liabilities. In addition, the Company
acts as a seller and buyer of interest rate derivatives and foreign exchange contracts for its customers. To mitigate the market and liquidity risk associated with these customer derivatives, the Company historically has entered into similar
offsetting positions with broker-dealers. In 2014, the Company began to actively manage the risks from its exposure to customer-related interest rate positions on a portfolio basis by entering into other derivative or non-derivative financial
instruments that partially or fully offset the exposure from these customer-related positions. The Companys customer derivatives and related hedges are monitored and reviewed by the Companys Market Risk Committee, which establishes
policies for market risk management, including exposure limits for each portfolio. The Company also has derivative contracts that are created through its operations, including commitments to originate MLHFS.
For additional information on the Companys purpose for entering into derivative transactions and its overall risk management strategies,
refer to Management Discussion and Analysis Use of Derivatives to Manage Interest Rate and Other Risks which is incorporated by reference into these Notes to Consolidated Financial Statements.
The following table summarizes the asset and liability management derivative positions of the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
(Dollars in Millions)
|
|
Notional
Value
|
|
|
Fair
Value
|
|
|
Weighted-Average
Remaining
Maturity
In Years
|
|
|
Notional
Value
|
|
|
Fair
Value
|
|
|
Weighted-Average
Remaining
Maturity
In Years
|
|
March 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive fixed/pay floating swaps
|
|
$
|
500
|
|
|
$
|
17
|
|
|
|
1.84
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
Cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay fixed/receive floating swaps
|
|
|
272
|
|
|
|
17
|
|
|
|
8.52
|
|
|
|
5,462
|
|
|
|
451
|
|
|
|
2.53
|
|
Receive fixed/pay floating swaps
|
|
|
7,000
|
|
|
|
22
|
|
|
|
.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
|
1,082
|
|
|
|
9
|
|
|
|
.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other economic hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures and forwards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy
|
|
|
2,259
|
|
|
|
13
|
|
|
|
.07
|
|
|
|
1,526
|
|
|
|
1
|
|
|
|
.04
|
|
Sell
|
|
|
2,345
|
|
|
|
7
|
|
|
|
.11
|
|
|
|
2,119
|
|
|
|
9
|
|
|
|
.09
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
3,250
|
|
|
|
|
|
|
|
.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Written
|
|
|
2,427
|
|
|
|
27
|
|
|
|
.08
|
|
|
|
6
|
|
|
|
|
|
|
|
.07
|
|
Receive fixed/pay floating swaps
|
|
|
3,375
|
|
|
|
5
|
|
|
|
10.23
|
|
|
|
100
|
|
|
|
|
|
|
|
10.23
|
|
Foreign exchange forward contracts
|
|
|
1,618
|
|
|
|
3
|
|
|
|
.01
|
|
|
|
2,230
|
|
|
|
8
|
|
|
|
.03
|
|
Equity contracts
|
|
|
68
|
|
|
|
1
|
|
|
|
1.38
|
|
|
|
9
|
|
|
|
|
|
|
|
1.22
|
|
Credit contracts
|
|
|
1,298
|
|
|
|
4
|
|
|
|
3.85
|
|
|
|
2,198
|
|
|
|
6
|
|
|
|
3.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
25,494
|
|
|
$
|
125
|
|
|
|
|
|
|
$
|
13,650
|
|
|
$
|
475
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive fixed/pay floating swaps
|
|
$
|
500
|
|
|
$
|
22
|
|
|
|
2.09
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
Cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay fixed/receive floating swaps
|
|
|
772
|
|
|
|
26
|
|
|
|
6.25
|
|
|
|
4,288
|
|
|
|
498
|
|
|
|
2.46
|
|
Receive fixed/pay floating swaps
|
|
|
7,000
|
|
|
|
26
|
|
|
|
.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,056
|
|
|
|
4
|
|
|
|
.04
|
|
Other economic hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures and forwards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy
|
|
|
2,310
|
|
|
|
9
|
|
|
|
.07
|
|
|
|
1,025
|
|
|
|
7
|
|
|
|
.06
|
|
Sell
|
|
|
5,234
|
|
|
|
58
|
|
|
|
.08
|
|
|
|
346
|
|
|
|
4
|
|
|
|
.17
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
2,300
|
|
|
|
|
|
|
|
.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Written
|
|
|
1,902
|
|
|
|
17
|
|
|
|
.07
|
|
|
|
2
|
|
|
|
|
|
|
|
.08
|
|
Receive fixed/pay floating swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,540
|
|
|
|
56
|
|
|
|
10.22
|
|
Foreign exchange forward contracts
|
|
|
6,813
|
|
|
|
24
|
|
|
|
.02
|
|
|
|
2,121
|
|
|
|
4
|
|
|
|
.02
|
|
Equity contracts
|
|
|
79
|
|
|
|
3
|
|
|
|
1.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit contracts
|
|
|
1,209
|
|
|
|
4
|
|
|
|
4.04
|
|
|
|
2,352
|
|
|
|
7
|
|
|
|
3.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
28,119
|
|
|
$
|
189
|
|
|
|
|
|
|
$
|
14,730
|
|
|
$
|
580
|
|
|
|
|
|
The following table summarizes the customer-related derivative positions of the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
(Dollars in Millions)
|
|
Notional
Value
|
|
|
Fair
Value
|
|
|
Weighted-Average
Remaining
Maturity
In Years
|
|
|
Notional
Value
|
|
|
Fair
Value
|
|
|
Weighted-Average
Remaining
Maturity
In Years
|
|
March 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive fixed/pay floating swaps
|
|
$
|
13,905
|
|
|
$
|
622
|
|
|
|
5.43
|
|
|
$
|
6,082
|
|
|
$
|
52
|
|
|
|
5.01
|
|
Pay fixed/receive floating swaps
|
|
|
5,700
|
|
|
|
61
|
|
|
|
4.75
|
|
|
|
14,226
|
|
|
|
590
|
|
|
|
5.43
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
3,249
|
|
|
|
18
|
|
|
|
4.54
|
|
|
|
26
|
|
|
|
|
|
|
|
3.17
|
|
Written
|
|
|
26
|
|
|
|
|
|
|
|
3.17
|
|
|
|
3,249
|
|
|
|
18
|
|
|
|
4.54
|
|
Futures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124
|
|
|
|
|
|
|
|
.21
|
|
Sell
|
|
|
787
|
|
|
|
|
|
|
|
1.29
|
|
|
|
421
|
|
|
|
|
|
|
|
1.13
|
|
Foreign exchange rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forwards, spots and swaps
|
|
|
12,049
|
|
|
|
445
|
|
|
|
.59
|
|
|
|
11,759
|
|
|
|
415
|
|
|
|
.58
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
724
|
|
|
|
13
|
|
|
|
.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Written
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
724
|
|
|
|
13
|
|
|
|
.58
|
|
Total
|
|
$
|
36,440
|
|
|
$
|
1,159
|
|
|
|
|
|
|
$
|
36,611
|
|
|
$
|
1,088
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive fixed/pay floating swaps
|
|
$
|
11,717
|
|
|
$
|
600
|
|
|
|
5.11
|
|
|
$
|
7,291
|
|
|
$
|
106
|
|
|
|
5.57
|
|
Pay fixed/receive floating swaps
|
|
|
6,746
|
|
|
|
114
|
|
|
|
6.03
|
|
|
|
12,361
|
|
|
|
560
|
|
|
|
4.90
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
3,489
|
|
|
|
33
|
|
|
|
4.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Written
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,489
|
|
|
|
33
|
|
|
|
4.53
|
|
Foreign exchange rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forwards, spots and swaps
|
|
|
10,970
|
|
|
|
457
|
|
|
|
.59
|
|
|
|
9,975
|
|
|
|
427
|
|
|
|
.62
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
364
|
|
|
|
11
|
|
|
|
.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Written
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
364
|
|
|
|
11
|
|
|
|
.53
|
|
Total
|
|
$
|
33,286
|
|
|
$
|
1,215
|
|
|
|
|
|
|
$
|
33,480
|
|
|
$
|
1,137
|
|
|
|
|
|
The table below shows the effective portion of the gains (losses) recognized in other comprehensive income (loss) and the
gains (losses) reclassified from other comprehensive income (loss) into earnings (net-of-tax) for the three months ended March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses)
Recognized in
Other
Comprehensive
Income (Loss)
|
|
|
Gains (Losses)
Reclassified
from Other
Comprehensive
Income (Loss)
into Earnings
|
|
(Dollars in Millions)
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Asset and Liability Management Positions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts (a)
|
|
$
|
(7
|
)
|
|
$
|
|
|
|
$
|
(30
|
)
|
|
$
|
(33
|
)
|
Net investment hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
Note:
|
Ineffectiveness on cash flow and net investment hedges was not material for the three months ended March 31, 2014 and 2013.
|
(a)
|
Gains (Losses) reclassified from other comprehensive income (loss) into interest income on loans and interest expense on long-term debt.
|
The table below shows the gains (losses) recognized in earnings for fair value hedges, other economic hedges and
the customer-related positions for the three months ended March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
Location of Gains (Losses)
Recognized in Earnings
|
|
|
2014
|
|
|
2013
|
|
Asset and Liability Management Positions
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
Other noninterest income
|
|
|
$
|
(2
|
)
|
|
$
|
(2
|
)
|
Other economic hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures and forwards
|
|
|
Mortgage banking revenue
|
|
|
|
(49
|
)
|
|
|
236
|
|
Purchased and written options
|
|
|
Mortgage banking revenue
|
|
|
|
66
|
|
|
|
129
|
|
Receive fixed/pay floating swaps
|
|
|
Mortgage banking revenue
|
|
|
|
109
|
|
|
|
(40
|
)
|
Foreign exchange forward contracts
|
|
|
Commercial products revenue
|
|
|
|
(5
|
)
|
|
|
8
|
|
Credit contracts
|
|
|
Other noninterest income/expense
|
|
|
|
|
|
|
|
(1
|
)
|
Customer-Related Positions
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive fixed/pay floating swaps
|
|
|
Other noninterest income
|
|
|
|
134
|
|
|
|
(96
|
)
|
Pay fixed/receive floating swaps
|
|
|
Other noninterest income
|
|
|
|
(129
|
)
|
|
|
96
|
|
Foreign exchange rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
Forwards, spots and swaps
|
|
|
Commercial products revenue
|
|
|
|
16
|
|
|
|
7
|
|
(a)
|
Gains (Losses) on items hedged by interest rate contracts included in noninterest income (expense), were $2 million for both the three months ended March 31, 2014 and 2013. The ineffective portion was immaterial
for the three months ended March 31, 2014 and 2013.
|
Derivatives are subject to credit risk associated with
counterparties to the derivative contracts. The Company measures that credit risk using a credit valuation adjustment and includes it within the fair value of the derivative. The Company manages counterparty credit risk through diversification of
its derivative positions among various counterparties, by entering into master netting arrangements and, where possible, by requiring collateral arrangements. A master netting arrangement allows two counterparties, who have multiple derivative
contracts with each other, the ability to net settle amounts under all contracts, including any related collateral, through a single payment and in a single currency. Collateral arrangements require the counterparty to deliver collateral (typically
cash or U.S. Treasury and agency securities) equal to the Companys net derivative receivable, subject to minimum transfer and credit rating requirements.
The Companys collateral arrangements are predominately bilateral and, therefore, contain provisions that require collateralization of
the Companys net liability derivative positions. Required collateral coverage is based on certain net liability thresholds and contingent upon the Companys credit rating from two of the nationally recognized statistical rating
organizations. If the Companys credit rating were to fall below credit ratings thresholds established in the collateral arrangements, the counterparties to the derivatives could request immediate additional collateral coverage up to and
including full collateral coverage for derivatives in a net liability position. The aggregate fair value of all derivatives under collateral arrangements that were in a net liability position at March 31, 2014, was $965 million. At
March 31, 2014, the Company had $804 million of cash posted as collateral against this net liability position.
|
|
|
Note 12
|
|
Netting Arrangements for Certain Financial Instruments
|
The majority of the Companys derivative portfolio consists of bilateral over-the-counter trades. However, per current
regulations, certain interest rate swaps and forwards and credit contracts need to be centrally cleared through clearinghouses. In addition, a portion of the Companys derivative positions are exchange-traded. These are predominately U.S.
Treasury futures or options on U.S. Treasury futures. Of the Companys $112.2 billion of total notional amount of derivative positions at March 31, 2014, $16.2 billion related to those centrally cleared through clearinghouses and
$5.8 billion related to those that were exchange-traded. Irrespective of how derivatives are traded, the Companys derivative contracts include offsetting rights (referred to as netting arrangements), and depending on expected volume,
credit risk, and counterparty preference, collateral maintenance may be required. For all derivatives, fair value is determined daily and, depending on the collateral maintenance requirements, the Company and a counterparty may receive or deliver
collateral, based upon the net fair value of all derivative positions between the Company and the counterparty. Collateral is typically cash, but securities may be allowed under collateral arrangements with certain counterparties. Receivables and
payables related to cash collateral are included in other assets and other liabilities on the Consolidated Balance Sheet, along with the related derivative asset and liability fair values. Any securities pledged to counterparties as collateral
remain on the Consolidated Balance Sheet. Securities received from counterparties as collateral are not recognized on the Consolidated Balance Sheet, unless the
counterparty defaults. Securities used as collateral can be sold, re-pledged or otherwise used by the party in possession. In general, no restrictions exist on the use of cash collateral by
either party. Refer to Note 11 for further discussion of the Companys derivatives, including collateral arrangements.
As part
of the Companys treasury and broker-dealer operations, the Company executes transactions that are treated as securities sold under agreements to repurchase or securities purchased under agreements to resell, both of which are accounted for as
collateralized financings. Securities sold under agreements to repurchase include repurchase agreements and securities loaned transactions. Securities purchased under agreements to resell include reverse repurchase agreements and securities borrowed
transactions. For securities sold under agreements to repurchase, the Company records a liability for the cash received, which is included in short-term borrowings on the Consolidated Balance Sheet. For securities purchased under agreements to
resell, the Company records a receivable for the cash paid, which is included in other assets on the Consolidated Balance Sheet.
Securities transferred to counterparties under repurchase agreements and securities loaned transactions continue to be recognized on the
Consolidated Balance Sheet, are measured at fair value, and are included in investment securities or other assets. Securities received from counterparties under reverse repurchase agreements and securities borrowed transactions are not recognized on
the Consolidated Balance Sheet unless the counterparty defaults. In connection with all of these transactions, the fair values of the securities are determined daily, and additional cash is obtained or refunded to counterparties where appropriate.
The securities transferred under repurchase and reverse repurchase transactions typically are U.S. Treasury securities or agency mortgage-backed securities. The securities loaned or borrowed typically are high-grade corporate bonds traded by the
Companys broker-dealer. In general, the securities transferred can be sold, repledged or otherwise used by the party in possession. No restrictions exist on the use of cash collateral by either party.
The Company executes its derivative, repurchase/reverse repurchase and securities loaned/borrowed transactions under the respective industry
standard agreements. These agreements include master netting arrangements that allow for multiple contracts executed with the same counterparty to be viewed as a single arrangement. This allows for net settlement of a single amount on a daily basis.
In the event of default, the master netting arrangement provides for close-out netting, which allows all positions with the defaulting counterparty to be terminated and net settled with a single payment amount.
The Company has elected to offset the assets and liabilities under netting arrangements for the balance sheet presentation of the majority of
its derivative counterparties, excluding centrally cleared derivative contracts due to current uncertainty about the legal enforceability of netting arrangements with the clearinghouses. The netting occurs at the counterparty level, and includes all
assets and liabilities related to the derivative contracts, including those associated with cash collateral received or delivered. The Company has not elected to offset the assets and liabilities under netting arrangements for the balance sheet
presentation of repurchase/reverse repurchase and securities loaned/borrowed transactions.
The following tables provide information on the
Companys netting adjustments, and items not offset on the Consolidated Balance Sheet but available for offset in the event of default:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Recognized
Assets
|
|
|
Gross Amounts
Offset on the
Consolidated
Balance Sheet (a)
|
|
|
Net
Amounts
Presented on the
Consolidated
Balance Sheet
|
|
|
Gross Amounts Not Offset on
the Consolidated Balance Sheet
|
|
|
Net
Amount
|
|
(Dollars in Millions)
|
|
|
|
|
Financial
Instruments (b)
|
|
|
Collateral
Received (c)
|
|
|
March 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets (d)
|
|
$
|
1,218
|
|
|
$
|
(470
|
)
|
|
$
|
748
|
|
|
$
|
(32
|
)
|
|
$
|
|
|
|
$
|
716
|
|
Reverse repurchase agreements
|
|
|
26
|
|
|
|
|
|
|
|
26
|
|
|
|
(19
|
)
|
|
|
(7
|
)
|
|
|
|
|
Securities borrowed
|
|
|
680
|
|
|
|
|
|
|
|
680
|
|
|
|
|
|
|
|
(660
|
)
|
|
|
20
|
|
Total
|
|
$
|
1,924
|
|
|
$
|
(470
|
)
|
|
$
|
1,454
|
|
|
$
|
(51
|
)
|
|
$
|
(667
|
)
|
|
$
|
736
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets (d)
|
|
$
|
1,349
|
|
|
$
|
(599
|
)
|
|
$
|
750
|
|
|
$
|
(21
|
)
|
|
$
|
|
|
|
$
|
729
|
|
Reverse repurchase agreements
|
|
|
87
|
|
|
|
|
|
|
|
87
|
|
|
|
(59
|
)
|
|
|
(28
|
)
|
|
|
|
|
Securities borrowed
|
|
|
723
|
|
|
|
|
|
|
|
723
|
|
|
|
|
|
|
|
(698
|
)
|
|
|
25
|
|
Total
|
|
$
|
2,159
|
|
|
$
|
(599
|
)
|
|
$
|
1,560
|
|
|
$
|
(80
|
)
|
|
$
|
(726
|
)
|
|
$
|
754
|
|
(a)
|
Includes $87 million and $124 million of cash collateral related payables that were netted against derivative assets at March 31, 2014 and December 31, 2013, respectively.
|
(b)
|
For derivative assets this includes any derivative liability fair values that could be offset in the event of counterparty default; for reverse repurchase agreements this includes any repurchase agreement payables
that could be offset in the event of counterparty default; for securities borrowed this includes any securities loaned payables that could be offset in the event of counterparty default.
|
(c)
|
Includes the fair value of securities received by the Company from the counterparty. These securities are not included on the Consolidated Balance Sheet unless the counterparty defaults.
|
(d)
|
Excludes $66 million and $55 million of derivative assets centrally cleared or otherwise not subject to netting arrangements at March 31, 2014 and December 31, 2013, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Recognized
Liabilities
|
|
|
Gross Amounts
Offset on the
Consolidated
Balance Sheet (a)
|
|
|
Net Amounts
Presented on the
Consolidated
Balance Sheet
|
|
|
Gross Amounts Not Offset on
the Consolidated Balance Sheet
|
|
|
Net
Amount
|
|
(Dollars in Millions)
|
|
|
|
|
Financial
Instruments (b)
|
|
|
Collateral
Pledged (c)
|
|
|
March 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities (d)
|
|
$
|
1,485
|
|
|
$
|
(1,138
|
)
|
|
$
|
347
|
|
|
$
|
(32
|
)
|
|
$
|
|
|
|
$
|
315
|
|
Repurchase agreements
|
|
|
699
|
|
|
|
|
|
|
|
699
|
|
|
|
(19
|
)
|
|
|
(680
|
)
|
|
|
|
|
Securities loaned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,184
|
|
|
$
|
(1,138
|
)
|
|
$
|
1,046
|
|
|
$
|
(51
|
)
|
|
$
|
(680
|
)
|
|
$
|
315
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities (d)
|
|
$
|
1,598
|
|
|
$
|
(1,192
|
)
|
|
$
|
406
|
|
|
$
|
(21
|
)
|
|
$
|
|
|
|
$
|
385
|
|
Repurchase agreements
|
|
|
2,059
|
|
|
|
|
|
|
|
2,059
|
|
|
|
(59
|
)
|
|
|
(2,000
|
)
|
|
|
|
|
Securities loaned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,657
|
|
|
$
|
(1,192
|
)
|
|
$
|
2,465
|
|
|
$
|
(80
|
)
|
|
$
|
(2,000
|
)
|
|
$
|
385
|
|
(a)
|
Includes $754 million and $717 million of cash collateral related receivables that were netted against derivative liabilities at March 31, 2014 and December 31, 2013, respectively.
|
(b)
|
For derivative liabilities this includes any derivative asset fair values that could be offset in the event of counterparty default; for repurchase agreements this includes any reverse repurchase agreement
receivables that could be offset in the event of counterparty default; for securities loaned this includes any securities borrowed receivables that could be offset in the event of counterparty default.
|
(c)
|
Includes the fair value of securities pledged by the Company to the counterparty. These securities are included on the Consolidated Balance Sheet unless the Company defaults.
|
(d)
|
Excludes $78 million and $119 million of derivative liabilities centrally cleared or otherwise not subject to netting arrangements at March 31, 2014 and December 31, 2013, respectively.
|
|
|
|
Note 13
|
|
Fair Values of Assets and Liabilities
|
The Company uses fair value measurements for the initial recording of certain assets and liabilities, periodic remeasurement
of certain assets and liabilities, and disclosures. Derivatives, trading and available-for-sale investment securities, substantially all MLHFS and MSRs are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may
be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of
lower-of-cost-or-fair value accounting or impairment write-downs of individual assets.
Fair value is defined as the exchange price that
would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value
measurement reflects all of the assumptions that market participants would use in pricing the asset or liability, including assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an
asset and the risk of nonperformance.
The Company groups its assets and liabilities measured at fair value into a three-level hierarchy
for valuation techniques used to measure financial assets and financial liabilities at fair value. This hierarchy is based on whether the valuation inputs are observable or unobservable. These levels are:
|
|
|
Level 1 Quoted prices in active markets for identical assets or liabilities. Level 1 includes U.S. Treasury 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 typically valued using third
party pricing services; derivative contracts and other assets and liabilities, including securities, whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by
observable market data; and MLHFS whose values are determined using quoted prices for similar assets or pricing models with inputs that are observable in the market or can be corroborated by observable market data.
|
|
|
|
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial
instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This
category includes MSRs, certain debt securities and certain derivative contracts.
|
When the Company changes its valuation
inputs for measuring financial assets and financial liabilities at fair value, either due to changes in current market conditions or other factors, it may need to transfer those assets or liabilities to another level in the hierarchy based on the
new inputs used. The Company recognizes these transfers at the end of the reporting period that the transfers occur. During the three months ended March 31, 2014 and 2013, there were no transfers of financial assets or financial liabilities
between the hierarchy levels.
The Company has processes and controls in place to increase the reliability of estimates it
makes in determining fair value measurements. Items quoted on an exchange are verified to the quoted price. Items provided by a third party pricing service are subject to price verification procedures as discussed in more detail in the specific
valuation discussions below. For fair value measurements modeled internally, the Companys valuation models are subject to the Companys Model Risk Governance Policy and Program, as maintained by the Companys credit administration
department. The purpose of model validation is to assess the accuracy of the models input, processing, and reporting components. All models are required to be independently reviewed and approved prior to being placed in use, and are subject to
formal change control procedures. Under the Companys Model Risk Governance Policy, models are required to be reviewed at least annually to ensure they are operating as intended. Inputs into the models are market observable inputs whenever
available. When market observable inputs are not available, the inputs are developed based upon analysis of historical experience and evaluation of other relevant market data. Significant unobservable model inputs are subject to review by senior
management in corporate functions, who are independent from the modeling. Significant unobservable model inputs are also compared to actual results, typically on a quarterly basis. Significant Level 3 fair value measurements are also subject to
corporate-level review and are benchmarked to market transactions or other market data, when available. Additional discussion of processes and controls are provided in the valuation methodologies section that follows.
The following section describes the valuation methodologies used by the Company to measure financial assets and liabilities at fair value and
for estimating fair value for financial instruments not recorded at fair value as required under disclosure guidance related to the fair value of financial instruments. In addition, the following section includes an indication of the level of the
fair value hierarchy in which the assets or liabilities are classified. Where appropriate, the description includes information about the valuation models and key inputs to those models. During the three months ended March 31, 2014 and 2013,
there were no significant changes to the valuation techniques used by the Company to measure fair value.
Cash and Due From Banks
The
carrying value of cash and due from banks approximate fair value and are classified within Level 1. Fair value is provided for disclosure purposes only.
Federal Funds Sold and Securities Purchased Under Resale Agreements
The carrying value of federal funds sold and securities purchased under resale agreements approximate fair value because of the relatively short time between the origination of the
instrument and its expected realization and are classified within Level 2. Fair value is provided for disclosure purposes only.
Investment Securities
When quoted market prices for identical securities are available in an active market, these prices are used
to determine fair value and these securities are classified within Level 1 of the fair value hierarchy. Level 1 investment securities are predominantly U.S. Treasury securities.
For other securities, quoted market prices may not be readily available for the specific securities. When possible, the Company determines
fair value based on market observable information, including quoted market prices for similar securities, inactive transaction prices, and broker quotes. These securities are classified within Level 2 of the fair value hierarchy. Level 2 valuations
are generally provided by a third party pricing service. The Company reviews the valuation methodologies utilized by the pricing service and, on a quarterly basis, reviews the security level prices provided by the pricing service against
managements expectation of fair value, based on changes in various benchmarks and market knowledge from recent trading activity. Additionally, each quarter, the Company validates the fair value provided by the pricing services by comparing
them to recent observable market trades (where available), broker provided quotes, or other independent secondary pricing sources. Prices obtained from the pricing service are adjusted if they are found to be inconsistent with observable market
data. Level 2 investment securities are predominantly agency mortgage-backed securities, certain other asset-backed securities, municipal securities, corporate debt securities, agency debt securities and perpetual preferred securities.
The fair value of securities for which there are no market trades, or where trading is inactive as compared to normal market activity, are
classified within Level 3 of the fair value hierarchy. The Company determines the fair value of these securities by using a discounted cash flow methodology and incorporating observable market information, where available. These valuations are
modeled by a unit within the Companys treasury department. The valuations use assumptions regarding housing prices, interest rates and borrower performance. Inputs are refined and updated at least quarterly to reflect market developments and
actual performance. The primary valuation drivers of these securities are the prepayment rates, default rates and default severities associated with the underlying collateral, as well as the
discount rate used to calculate the present value of the projected cash flows. Level 3 fair values, including the assumptions used, are subject to review by senior management in corporate
functions, who are independent from the modeling. The fair value measurements are also compared to fair values provided by third party pricing services, where available. Securities classified within Level 3 include non-agency mortgage-backed
securities, non-agency commercial mortgage-backed securities, certain asset-backed securities, certain collateralized debt obligations and collateralized loan obligations and certain corporate debt securities.
Mortgage Loans Held For
Sale
MLHFS measured at fair value, for which an active secondary market and readily available market prices exist, are initially valued at the transaction price and are
subsequently valued by comparison to instruments with similar collateral and risk profiles. MLHFS are classified within Level 2. Included in mortgage banking revenue was a $52 million net gain and a $175 million net loss for the three months
ended March 31, 2014 and 2013, respectively, from the changes to fair value of these MLHFS under fair value option accounting guidance. Changes in fair value due to instrument specific credit risk were immaterial. Interest income for MLHFS is
measured based on contractual interest rates and reported as interest income on the Consolidated Statement of Income. Electing to measure MLHFS at fair value reduces certain timing differences and better matches changes in fair value of these assets
with changes in the value of the derivative instruments used to economically hedge them without the burden of complying with the requirements for hedge accounting.
Loans
The loan portfolio includes
adjustable and fixed-rate loans, the fair value of which was estimated using discounted cash flow analyses and other valuation techniques. The expected cash flows of loans considered historical prepayment experiences and estimated credit losses and
were discounted using current rates offered to borrowers with similar credit characteristics. Generally, loan fair values reflect Level 3 information. Fair value is provided for disclosure purposes only, with the exception of impaired
collateral-based loans that are measured at fair value on a non-recurring basis utilizing the underlying collateral fair value.
Mortgage Servicing Rights
MSRs are valued using a discounted cash flow methodology. Accordingly, MSRs are classified within
Level 3. The Company determines fair value by estimating the present value of the assets future cash flows using prepayment rates, discount rates, and other assumptions. The MSR valuations, as well as the assumptions
used, are developed by the mortgage banking division and are subject to review by senior management in corporate functions, who are independent from the
modeling. The MSR valuations and assumptions are validated through comparison to trade information, publicly available data and industry surveys when available, and are also compared to independent third party valuations each quarter. Risks inherent
in MSR valuation include higher than expected prepayment rates and/or delayed receipt of cash flows. There is minimal observable market activity for MSRs on comparable portfolios, and, therefore the determination of fair value requires significant
management judgment. Refer to Note 5 for further information on MSR valuation assumptions.
Derivatives
The majority of
derivatives held by the Company are executed over-the-counter and are valued using standard cash flow, Black-Derman-Toy and Monte Carlo valuation techniques. The models incorporate inputs, depending on the type of derivative, including interest rate
curves, foreign exchange rates and volatility. In addition, all derivative values incorporate an assessment of the risk of counterparty nonperformance, measured based on the Companys evaluation of credit risk as well as external assessments of
credit risk, where available. The Company monitors and manages its nonperformance risk by considering its ability to net derivative positions under master netting arrangements, as well as collateral received or provided under collateral
arrangements. Accordingly, the Company has elected to measure the fair value of derivatives, at a counterparty level, on a net basis. The majority of the derivatives are classified within Level 2 of the fair value hierarchy, as the significant
inputs to the models, including nonperformance risk, are observable. However, certain derivative transactions are with counterparties where risk of nonperformance cannot be observed in the market, and therefore the credit valuation adjustments
result in these derivatives being classified within Level 3 of the fair value hierarchy. The credit valuation adjustments for nonperformance risk are determined by the Companys treasury department using credit assumptions provided by
credit administration. The credit assumptions are compared to actual results quarterly and are recalibrated as appropriate.
The
Company also has commitments to purchase and originate mortgage loans that meet the accounting requirements of a derivative. These mortgage loan commitments are valued by pricing models that include market observable and unobservable inputs, which
result in the commitments being classified within Level 3 of the fair value
hierarchy. The unobservable inputs include assumptions about the percentage of commitments that actually become a closed loan and the MSR value that is inherent in the underlying loan value, both
of which are developed by the Companys mortgage banking division. The closed loan percentages for the mortgage loan commitments are monitored on an on-going basis, as these percentages are also used for the Companys economic hedging
activities. The inherent MSR value for the commitments are generated by the same models used for the Companys MSRs and thus are subject to the same processes and controls as described for the MSRs above.
Other Financial Instruments
Other
financial instruments include cost method equity investments and certain community development and tax-advantaged related assets and liabilities. The majority of the Companys cost method equity investments are in Federal Home Loan Bank and
Federal Reserve Bank stock, for which the carrying amounts approximate fair value and are classified within Level 2. Investments in private equity and other limited partnership funds are estimated using fund provided net asset values. These equity
investments are classified within Level 3. The community development and tax-advantaged related asset balances primarily represent the underlying assets of consolidated community development and tax-advantaged entities. The community development and
tax-advantaged related liabilities represent the underlying liabilities of the consolidated entities (included in long-term debt) and liabilities related to other third party interests (included in other liabilities). The carrying value of the
community development and tax-advantaged related asset and other liability balances are a reasonable estimate of fair value and are classified within Level 3. Refer to Note 4 for further information on community development and tax-advantaged
related assets and liabilities. Fair value is provided for disclosure purposes only.
Deposit
Liabilities
The fair value of demand deposits, savings accounts and certain money market deposits is equal to the amount payable on demand. The fair value of fixed-rate
certificates of deposit was estimated by discounting the contractual cash flow using current market rates. Deposit liabilities are classified within Level 2. Fair value is provided for disclosure purposes only.
Short-term Borrowings
Federal
funds purchased, securities sold under agreements to repurchase, commercial paper and other short-term funds borrowed have floating rates or short-term maturities. The fair value of short-term borrowings was determined by discounting contractual
cash flows using current market rates. Short-term borrowings are classified within Level 2. Included in short-term borrowings is the Companys obligation on securities sold short, which is required to be accounted for at fair value per
applicable accounting guidance. Fair value for other short-term borrowings is provided for disclosure purposes only.
Long-term Debt
The fair value for most long-term debt was determined by discounting contractual cash flows using current market
rates. Junior subordinated debt instruments were valued using market quotes. Long-term debt is classified within Level 2. Fair value is provided for disclosure purposes only.
Loan Commitments, Letters of Credit and Guarantees
The fair value of commitments, letters of credit and guarantees represents the estimated costs to terminate or otherwise settle the obligations with a third party. Other loan commitments,
letters of credit and guarantees are not actively traded, and the Company estimates their fair value based on the related amount of unamortized deferred commitment fees adjusted for the probable losses for these arrangements. These arrangements are
classified within Level 3. Fair value is provided for disclosure purposes only.
Significant Unobservable Inputs of Level 3 Assets and Liabilities
The following section provides information on the significant inputs used by the Company to determine the fair value measurements of Level 3 assets
and liabilities recorded at fair value on the Consolidated Balance Sheet. In addition, the following section includes a discussion of the sensitivity of the fair value measurements to changes in the significant inputs and a description of any
interrelationships between these inputs for Level 3 assets and liabilities recorded at fair value on a recurring basis. The discussion below excludes nonrecurring fair value measurements of collateral value used for impairment measures for loans and
other real estate owned. These valuations utilize third party appraisal or broker price opinions, and are classified as Level 3 due to the significant judgment involved.
Available-For-Sale Investment Securities
The significant unobservable inputs used in the fair value measurement of the Companys modeled Level 3 available-for-sale investment securities are prepayment rates,
probability of default and loss severities associated with the underlying collateral, as well as the discount margin used to calculate the present
value of the projected cash flows. Increases in prepayment rates for Level 3 securities will typically result in higher fair values, as increased prepayment rates accelerate the receipt of
expected cash flows and reduce exposure to credit losses. Increases in the probability of default and loss severities will result in lower fair values, as these increases reduce expected cash flows. Discount margin is the Companys estimate of
the current market spread above the respective benchmark rate. Higher discount margin will result in lower fair values, as it reduces the present value of the expected cash flows.
Prepayment rates generally move in the opposite direction of market interest rates. In the current environment, an increase in the probability
of default will generally be accompanied with an increase in loss severity, as both are impacted by underlying collateral values. Discount margins are influenced by market expectations about the securitys collateral performance, and therefore
may directionally move with probability and severity of default; however, discount margins are also impacted by broader market forces, such as competing investment yields, sector liquidity, economic news, and other macroeconomic factors.
The following table shows the significant valuation assumption ranges for Level 3 available-for-sale investment securities at March 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
|
Maximum
|
|
|
Average
|
|
Residential Prime Non-Agency Mortgage-Backed Securities (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated lifetime prepayment rates
|
|
|
6
|
%
|
|
|
25
|
%
|
|
|
14
|
%
|
Lifetime probability of default rates
|
|
|
|
|
|
|
7
|
|
|
|
4
|
|
Lifetime loss severity rates
|
|
|
15
|
|
|
|
75
|
|
|
|
40
|
|
Discount margin
|
|
|
2
|
|
|
|
5
|
|
|
|
3
|
|
Residential Non-Prime Non-Agency Mortgage-Backed Securities (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated lifetime prepayment rates
|
|
|
2
|
%
|
|
|
10
|
%
|
|
|
6
|
%
|
Lifetime probability of default rates
|
|
|
4
|
|
|
|
12
|
|
|
|
7
|
|
Lifetime loss severity rates
|
|
|
15
|
|
|
|
70
|
|
|
|
53
|
|
Discount margin
|
|
|
1
|
|
|
|
5
|
|
|
|
3
|
|
Other Asset-Backed Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated lifetime prepayment rates
|
|
|
6
|
%
|
|
|
6
|
%
|
|
|
6
|
%
|
Lifetime probability of default rates
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
Lifetime loss severity rates
|
|
|
40
|
|
|
|
40
|
|
|
|
40
|
|
Discount margin
|
|
|
7
|
|
|
|
7
|
|
|
|
7
|
|
(a)
|
Prime securities are those designated as such by the issuer at origination. When an issuer designation is unavailable, the Company determines at acquisition date the categorization based on asset pool characteristics
(such as weighted-average credit score, loan-to-value, loan type, prevalence of low documentation loans) and deal performance (such as pool delinquencies and security market spreads).
|
(b)
|
Includes all securities not meeting the conditions to be designated as prime.
|
Mortgage Servicing Rights
The significant unobservable inputs used in the fair value measurement of the Companys MSRs are
expected prepayments and the discount rate used to calculate the present value of the projected cash flows. Significant increases in either of these inputs in isolation would result in a significantly lower fair value measurement. Significant
decreases in either of these inputs in isolation would result in a significantly higher fair value measurement. There is no direct interrelationship between prepayments and discount rate. Prepayment rates generally move in the opposite direction of
market interest rates. Discount rates are generally impacted by changes in market return requirements.
The following table shows the significant
valuation assumption ranges for MSRs at March 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
|
Maximum
|
|
|
Average
|
|
Expected prepayment
|
|
|
10
|
%
|
|
|
20
|
%
|
|
|
11
|
%
|
Discount rate
|
|
|
10
|
|
|
|
14
|
|
|
|
10
|
|
Derivatives
The Company has two distinct Level 3 derivative
portfolios: (i) the Companys commitments to purchase and originate mortgage loans that meet the requirements of a derivative, and (ii) the Companys asset/liability and customer-related derivatives that are Level 3 due to
unobservable inputs related to measurement of risk of nonperformance by the counterparty.
The significant unobservable inputs used
in the fair value measurement of the Companys derivative commitments to sell, purchase and originate mortgage loans are the percentage of commitments that actually become a closed loan and the MSR value that is inherent in the underlying loan
value. A significant increase in the rate of loans that close would result in a larger derivative asset or liability. A significant increase in the inherent MSR value would result in an increase in the derivative asset or a reduction in the
derivative liability. Expected loan close rates and the inherent MSR values are directly impacted by changes in market rates and will generally move in the same direction as interest rates.
The following table shows the significant valuation assumption ranges for the Companys derivative
commitments to sell, purchase and originate mortgage loans at March 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
|
Maximum
|
|
|
Average
|
|
Expected loan close rate
|
|
|
43
|
%
|
|
|
100
|
%
|
|
|
76
|
%
|
Inherent MSR value (basis points per loan)
|
|
|
48
|
|
|
|
209
|
|
|
|
126
|
|
The significant unobservable input used in the fair value measurement of certain of the Companys
asset/liability and customer-related derivatives is the credit valuation adjustment related to the risk of counterparty nonperformance. A significant increase in the credit valuation adjustment would result in a lower fair value measurement. A
significant decrease in the credit valuation adjustment would result in a higher fair value measurement. The credit valuation adjustment is impacted by changes in the Companys assessment of the counterpartys credit position. At
March 31, 2014, the minimum, maximum and average credit valuation adjustment as a percentage of the derivative contract fair value prior to adjustment was 0 percent, 100 percent and 7 percent, respectively.
The following table summarizes the balances of assets and liabilities measured at fair value on a recurring
basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Netting
|
|
|
Total
|
|
March 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agencies
|
|
$
|
7
|
|
|
$
|
1,055
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,062
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
|
|
|
|
35,484
|
|
|
|
|
|
|
|
|
|
|
|
35,484
|
|
Non-agency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime (a)
|
|
|
|
|
|
|
|
|
|
|
465
|
|
|
|
|
|
|
|
465
|
|
Non-prime (b)
|
|
|
|
|
|
|
|
|
|
|
297
|
|
|
|
|
|
|
|
297
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
|
|
|
|
144
|
|
|
|
|
|
|
|
|
|
|
|
144
|
|
Asset-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations/Collateralized loan obligations
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
Other
|
|
|
|
|
|
|
563
|
|
|
|
65
|
|
|
|
|
|
|
|
628
|
|
Obligations of state and political subdivisions
|
|
|
|
|
|
|
5,585
|
|
|
|
|
|
|
|
|
|
|
|
5,585
|
|
Obligations of foreign governments
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Corporate debt securities
|
|
|
|
|
|
|
661
|
|
|
|
9
|
|
|
|
|
|
|
|
670
|
|
Perpetual preferred securities
|
|
|
|
|
|
|
218
|
|
|
|
|
|
|
|
|
|
|
|
218
|
|
Other investments
|
|
|
159
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale
|
|
|
166
|
|
|
|
43,759
|
|
|
|
836
|
|
|
|
|
|
|
|
44,761
|
|
Mortgage loans held for sale
|
|
|
|
|
|
|
1,827
|
|
|
|
|
|
|
|
|
|
|
|
1,827
|
|
Mortgage servicing rights
|
|
|
|
|
|
|
|
|
|
|
2,618
|
|
|
|
|
|
|
|
2,618
|
|
Derivative assets
|
|
|
|
|
|
|
742
|
|
|
|
542
|
|
|
|
(470
|
)
|
|
|
814
|
|
Other assets
|
|
|
118
|
|
|
|
856
|
|
|
|
|
|
|
|
|
|
|
|
974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
284
|
|
|
$
|
47,184
|
|
|
$
|
3,996
|
|
|
$
|
(470
|
)
|
|
$
|
50,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
|
|
|
$
|
1,503
|
|
|
$
|
60
|
|
|
$
|
(1,138
|
)
|
|
$
|
425
|
|
Short-term borrowings (c)
|
|
|
75
|
|
|
|
599
|
|
|
|
|
|
|
|
|
|
|
|
674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
75
|
|
|
$
|
2,102
|
|
|
$
|
60
|
|
|
$
|
(1,138
|
)
|
|
$
|
1,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agencies
|
|
$
|
7
|
|
|
$
|
1,038
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,045
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
|
|
|
|
31,553
|
|
|
|
|
|
|
|
|
|
|
|
31,553
|
|
Non-agency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime (a)
|
|
|
|
|
|
|
|
|
|
|
478
|
|
|
|
|
|
|
|
478
|
|
Non-prime (b)
|
|
|
|
|
|
|
|
|
|
|
297
|
|
|
|
|
|
|
|
297
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
|
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
|
152
|
|
Asset-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations/Collateralized loan obligations
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
Other
|
|
|
|
|
|
|
566
|
|
|
|
63
|
|
|
|
|
|
|
|
629
|
|
Obligations of state and political subdivisions
|
|
|
|
|
|
|
5,738
|
|
|
|
|
|
|
|
|
|
|
|
5,738
|
|
Obligations of foreign governments
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Corporate debt securities
|
|
|
|
|
|
|
631
|
|
|
|
9
|
|
|
|
|
|
|
|
640
|
|
Perpetual preferred securities
|
|
|
|
|
|
|
212
|
|
|
|
|
|
|
|
|
|
|
|
212
|
|
Other investments
|
|
|
141
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale
|
|
|
148
|
|
|
|
39,940
|
|
|
|
847
|
|
|
|
|
|
|
|
40,935
|
|
Mortgage loans held for sale
|
|
|
|
|
|
|
3,263
|
|
|
|
|
|
|
|
|
|
|
|
3,263
|
|
Mortgage servicing rights
|
|
|
|
|
|
|
|
|
|
|
2,680
|
|
|
|
|
|
|
|
2,680
|
|
Derivative assets
|
|
|
|
|
|
|
889
|
|
|
|
515
|
|
|
|
(599
|
)
|
|
|
805
|
|
Other assets
|
|
|
143
|
|
|
|
588
|
|
|
|
|
|
|
|
|
|
|
|
731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
291
|
|
|
$
|
44,680
|
|
|
$
|
4,042
|
|
|
$
|
(599
|
)
|
|
$
|
48,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
|
|
|
$
|
1,647
|
|
|
$
|
70
|
|
|
$
|
(1,192
|
)
|
|
$
|
525
|
|
Short-term borrowings (c)
|
|
|
112
|
|
|
|
551
|
|
|
|
|
|
|
|
|
|
|
|
663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
112
|
|
|
$
|
2,198
|
|
|
$
|
70
|
|
|
$
|
(1,192
|
)
|
|
$
|
1,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Prime securities are those designated as such by the issuer at origination. When an issuer designation is unavailable, the Company determines at acquisition date the categorization based on asset pool characteristics
(such as weighted-average credit score, loan-to-value, loan type, prevalence of low documentation loans) and deal performance (such as pool delinquencies and security market spreads).
|
(b)
|
Includes all securities not meeting the conditions to be designated as prime.
|
(c)
|
Represents the Companys obligation on securities sold short required to be accounted for at fair value per applicable accounting guidance.
|
The following table presents the changes in fair value for all assets and liabilities measured at fair value on
a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
Beginning
of Period
Balance
|
|
|
Net Gains
(Losses)
Included in
Net Income
|
|
|
Net Gains
(Losses)
Included in
Other
Comprehensive
Income (Loss)
|
|
|
Purchases
|
|
|
Sales
|
|
|
Principal
Payments
|
|
|
Issuances
|
|
|
Settlements
|
|
|
End
of
Period
Balance
|
|
|
Net Change in
Unrealized
Gains (Losses)
Relating to
Assets and
Liabilities
Still Held at
End of Period
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential non-agency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime (a)
|
|
$
|
478
|
|
|
$
|
|
|
|
$
|
7
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(20
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
465
|
|
|
$
|
7
|
|
Non-prime (b)
|
|
|
297
|
|
|
|
(1
|
)
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
297
|
|
|
|
7
|
|
Asset-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
63
|
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
65
|
|
|
|
1
|
|
Corporate debt securities
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
Total available-for-sale
|
|
|
847
|
|
|
|
|
|
|
|
15
|
(e)
|
|
|
2
|
|
|
|
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
836
|
|
|
|
15
|
|
Mortgage servicing rights
|
|
|
2,680
|
|
|
|
(147
|
)(c)
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
84
|
(f)
|
|
|
|
|
|
|
2,618
|
|
|
|
(147
|
)(c)
|
Net derivative assets and liabilities
|
|
|
445
|
|
|
|
185
|
(d)
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(149
|
)
|
|
|
482
|
|
|
|
60
|
(g)
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential non-agency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime (a)
|
|
$
|
624
|
|
|
$
|
(2
|
)
|
|
$
|
11
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(34
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
599
|
|
|
$
|
11
|
|
Non-prime (b)
|
|
|
355
|
|
|
|
(7
|
)
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
350
|
|
|
|
14
|
|
Asset-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
15
|
|
|
|
1
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
Corporate debt securities
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
Total available-for-sale
|
|
|
1,003
|
|
|
|
(8
|
)(h)
|
|
|
25
|
(e)
|
|
|
25
|
|
|
|
|
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
998
|
|
|
|
25
|
|
Mortgage servicing rights
|
|
|
1,700
|
|
|
|
(1
|
)(c)
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
254
|
(f)
|
|
|
|
|
|
|
1,955
|
|
|
|
(1
|
)(c)
|
Net derivative assets and liabilities
|
|
|
1,179
|
|
|
|
147
|
(i)
|
|
|
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(340
|
)
|
|
|
986
|
|
|
|
71
|
(j)
|
(a)
|
Prime securities are those designated as such by the issuer at origination. When an issuer designation is unavailable, the Company determines at acquisition date the categorization based on asset pool characteristics
(such as weighted-average credit score, loan-to-value, loan type, prevalence of low documentation loans) and deal performance (such as pool delinquencies and security market spreads).
|
(b)
|
Includes all securities not meeting the conditions to be designated as prime.
|
(c)
|
Included in mortgage banking revenue.
|
(d)
|
Approximately $81 million included in other noninterest income and $104 million included in mortgage banking revenue.
|
(e)
|
Included in changes in unrealized gains and losses on securities available-for-sale.
|
(f)
|
Represents MSRs capitalized during the period.
|
(g)
|
Approximately $21 million included in other noninterest income and $39 million included in mortgage banking revenue.
|
(h)
|
Approximately $(7) million included in securities gains (losses) and $(1) million included in interest income.
|
(i)
|
Approximately $(3) million included in other noninterest income and $150 million included in mortgage banking revenue.
|
(j)
|
Approximately $(88) million included in other noninterest income and $159 million included in mortgage banking revenue.
|
The Company is also required periodically to measure certain other financial assets at fair value on a nonrecurring basis. These measurements
of fair value usually result from the application of lower-of-cost-or-fair value accounting or write-downs of individual assets.
The following table
summarizes the balances of assets measured at fair value on a nonrecurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2014
|
|
|
December 31, 2013
|
|
(Dollars in Millions)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Loans (a)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
67
|
|
|
$
|
67
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
128
|
|
|
$
|
128
|
|
Other assets (b)
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
150
|
|
|
|
150
|
|
(a)
|
Represents the carrying value of loans for which adjustments were based on the fair value of the collateral, excluding loans fully charged-off.
|
(b)
|
Primarily represents the fair value of foreclosed properties that were measured at fair value based on an appraisal or broker price opinion of the collateral subsequent to their initial acquisition.
|
The following table summarizes losses recognized related to nonrecurring fair value measurements of individual
assets or portfolios for the three months ended March 31:
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
2014
|
|
|
2013
|
|
Loans (a)
|
|
$
|
16
|
|
|
$
|
21
|
|
Other assets (b)
|
|
|
19
|
|
|
|
39
|
|
(a)
|
Represents write-downs of loans which were based on the fair value of the collateral, excluding loans fully charged-off.
|
(b)
|
Primarily represents related losses of foreclosed properties that were measured at fair value subsequent to their initial acquisition.
|
Fair Value Option
The following table summarizes the differences
between the aggregate fair value carrying amount of MLHFS for which the fair value option has been elected and the aggregate unpaid principal amount that the Company is contractually obligated to receive at maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2014
|
|
|
December 31, 2013
|
|
(Dollars in Millions)
|
|
Fair Value
Carrying
Amount
|
|
|
Aggregate
Unpaid
Principal
|
|
|
Carrying
Amount Over
(Under) Unpaid
Principal
|
|
|
Fair Value
Carrying
Amount
|
|
|
Aggregate
Unpaid
Principal
|
|
|
Carrying
Amount Over
(Under) Unpaid
Principal
|
|
Total loans
|
|
$
|
1,827
|
|
|
$
|
1,764
|
|
|
$
|
63
|
|
|
$
|
3,263
|
|
|
$
|
3,195
|
|
|
$
|
68
|
|
Nonaccrual loans
|
|
|
10
|
|
|
|
15
|
|
|
|
(5
|
)
|
|
|
9
|
|
|
|
14
|
|
|
|
(5
|
)
|
Loans 90 days or more past due
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disclosures about Fair Value of Financial Instruments
The following table summarizes the estimated fair value for financial instruments as of March 31, 2014 and December 31, 2013, and
includes financial instruments that are not accounted for at fair value. In accordance with disclosure guidance related to fair values of financial instruments, the Company did not include assets and liabilities that are not financial instruments,
such as the value of goodwill, long-term relationships with deposit, credit card, merchant processing and trust customers, other purchased intangibles, premises and equipment, deferred taxes and other liabilities. Additionally, in accordance with
the disclosure guidance, insurance contracts and investments accounted for under the equity method are excluded.
The estimated fair values of the
Companys financial instruments are shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2014
|
|
|
December 31, 2013
|
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
(Dollars in Millions)
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
7,408
|
|
|
$
|
7,408
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,408
|
|
|
$
|
8,477
|
|
|
$
|
8,477
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,477
|
|
Federal funds sold and securities purchased under resale agreements
|
|
|
56
|
|
|
|
|
|
|
|
56
|
|
|
|
|
|
|
|
56
|
|
|
|
163
|
|
|
|
|
|
|
|
163
|
|
|
|
|
|
|
|
163
|
|
Investment securities held-to-maturity
|
|
|
40,712
|
|
|
|
1,443
|
|
|
|
38,847
|
|
|
|
99
|
|
|
|
40,389
|
|
|
|
38,920
|
|
|
|
2,589
|
|
|
|
35,678
|
|
|
|
101
|
|
|
|
38,368
|
|
Loans held for sale (a)
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
16
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
Loans (b)
|
|
|
234,119
|
|
|
|
|
|
|
|
|
|
|
|
235,218
|
|
|
|
235,218
|
|
|
|
230,857
|
|
|
|
|
|
|
|
|
|
|
|
231,480
|
|
|
|
231,480
|
|
Other financial instruments
|
|
|
2,307
|
|
|
|
|
|
|
|
954
|
|
|
|
1,364
|
|
|
|
2,318
|
|
|
|
2,443
|
|
|
|
|
|
|
|
1,080
|
|
|
|
1,383
|
|
|
|
2,463
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
260,612
|
|
|
|
|
|
|
|
260,623
|
|
|
|
|
|
|
|
260,623
|
|
|
|
262,123
|
|
|
|
|
|
|
|
262,200
|
|
|
|
|
|
|
|
262,200
|
|
Short-term
borrowings (c)
|
|
|
30,107
|
|
|
|
|
|
|
|
30,001
|
|
|
|
|
|
|
|
30,001
|
|
|
|
26,945
|
|
|
|
|
|
|
|
26,863
|
|
|
|
|
|
|
|
26,863
|
|
Long-term debt
|
|
|
23,774
|
|
|
|
|
|
|
|
24,127
|
|
|
|
|
|
|
|
24,127
|
|
|
|
20,049
|
|
|
|
|
|
|
|
20,391
|
|
|
|
|
|
|
|
20,391
|
|
Other liabilities
|
|
|
1,253
|
|
|
|
|
|
|
|
|
|
|
|
1,253
|
|
|
|
1,253
|
|
|
|
1,263
|
|
|
|
|
|
|
|
|
|
|
|
1,263
|
|
|
|
1,263
|
|
(a)
|
Excludes mortgages held for sale for which the fair value option under applicable accounting guidance was elected.
|
(b)
|
Excludes loans measured at fair value on a nonrecurring basis.
|
(c)
|
Excludes the Companys obligation on securities sold short required to be accounted for at fair value per applicable accounting guidance.
|
The fair value of unfunded commitments, standby letters of credit and other guarantees is approximately equal to their carrying value. The
carrying value of unfunded commitments and standby letters of credit was $399 million and $382 million at March 31, 2014 and December 31, 2013, respectively. The carrying value of other guarantees was $275 million and $278 million at
March 31, 2014 and December 31, 2013, respectively.
|
|
|
Note 14
|
|
Guarantees and Contingent Liabilities
|
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). In 2007, Visa completed a restructuring and issued shares of Visa Inc. common stock to its financial institution members in contemplation of its initial public offering (IPO) completed in the first quarter of 2008 (the
Visa Reorganization). As a part of the Visa Reorganization, the Company received its proportionate number of shares of Visa Inc. common stock, which were subsequently converted to Class B shares of Visa Inc. (Class B shares).
Visa U.S.A. Inc. (Visa U.S.A.) and MasterCard International (collectively, the Card Associations) are defendants in antitrust lawsuits challenging the practices of the Card Associations (the Visa Litigation). Visa
U.S.A. member banks have a contingent obligation to indemnify Visa Inc. under the Visa U.S.A. bylaws (which were modified at the time of the restructuring in October 2007) for potential losses arising from the Visa Litigation. The indemnification by
the Visa U.S.A. member banks has no specific maximum amount.
Using proceeds from its IPO and through reductions to the conversion
ratio applicable to the Class B shares held by Visa U.S.A. member banks, Visa Inc. has funded an escrow account for the benefit of member financial institutions to fund their indemnification obligations associated with the Visa Litigation. The
receivable related to the escrow account is classified in other liabilities as a direct offset to the related Visa Litigation contingent liability. On October 19, 2012, Visa signed a settlement agreement to resolve class action claims
associated with the multi-district interchange litigation, the largest of the remaining Visa Litigation matters. The settlement has been approved by the court, but has been challenged by some class members and is being appealed. In addition, a
number of class members opted out of the settlement and have filed actions against the Card Associations. At March 31, 2014, the carrying amount of the Companys liability related to the Visa Litigation matters, net of its share of the
escrow fundings, was $24 million and included the Companys estimate of its remaining share of the temporary reduction in interchange rates specified in the settlement agreement. The remaining Class B shares held by the Company will be eligible
for conversion to Class A shares, and thereby become marketable, upon final settlement of the Visa Litigation. These shares are excluded from the Companys financial instruments disclosures included in Note 13.
Other Guarantees and Contingent Liabilities
The following table
is a summary of other guarantees and contingent liabilities of the Company at March 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
Collateral
Held
|
|
|
Carrying
Amount
|
|
|
Maximum
Potential
Future
Payments
|
|
Standby letters of credit
|
|
$
|
|
|
|
$
|
69
|
|
|
$
|
16,638
|
|
Third-party borrowing arrangements
|
|
|
|
|
|
|
|
|
|
|
16
|
|
Securities lending indemnifications
|
|
|
5,008
|
|
|
|
|
|
|
|
4,902
|
|
Asset sales
|
|
|
|
|
|
|
183
|
|
|
|
3,786
|
(a)
|
Merchant processing
|
|
|
839
|
|
|
|
71
|
|
|
|
85,817
|
|
Contingent consideration arrangements
|
|
|
|
|
|
|
11
|
|
|
|
12
|
|
Tender option bond program guarantee
|
|
|
4,455
|
|
|
|
|
|
|
|
4,349
|
|
Minimum revenue guarantees
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The maximum potential future payments do not include loan sales where the Company provides standard representation and warranties to the buyer against losses related to loan underwriting documentation defects that
may have existed at the time of sale that generally are identified after the occurrence of a triggering event such as delinquency. For these types of loan sales, the maximum potential future payments is generally the unpaid principal balance of
loans sold measured at the end of the current reporting period. Actual losses will be significantly less than the maximum exposure, as only a fraction of loans sold will have a representation and warranty breach, and any losses on repurchase would
generally be mitigated by any collateral held against the loans.
|
Merchant
Processing
The Company, through its subsidiaries, provides merchant processing services. Under the rules of credit card associations, a merchant processor retains a contingent
liability for credit card transactions processed. This contingent liability arises in the event of a billing dispute between the merchant and a cardholder that is ultimately resolved in the 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, Europe, Mexico and Brazil through
wholly-owned subsidiaries and joint ventures with other financial institutions. In the event a merchant was unable to fulfill product or services subject to delayed delivery, such as airline tickets, the Company could become financially liable for
refunding tickets purchased through the credit card associations under the charge-back provisions.
Charge-back risk related to these merchants is evaluated in 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, 2014, the value of airline tickets purchased to be delivered at a future date was $8.6 billion. The Company held collateral of $690 million in escrow deposits, letters of credit and indemnities from
financial institutions, and liens on various assets.
Asset Sales
The Company regularly sells loans to GSEs as part of its mortgage banking activities. The Company provides customary representation and warranties to the GSEs in conjunction with these sales.
These representations and warranties generally require the Company to repurchase assets if it is subsequently determined that a loan did not meet specified criteria, such as a documentation deficiency or rescission of mortgage insurance. If the
Company is unable to cure or refute a repurchase request, the Company is generally obligated to repurchase the loan or otherwise reimburse the counterparty for losses. At March 31, 2014, the Company had reserved $75 million for potential losses
from representation and warranty obligations, compared with $83 million at December 31, 2013. The Companys reserve reflects managements best estimate of losses for representation and warranty obligations. The Companys
repurchase reserve is modeled at the loan level, taking into consideration the individual credit quality and borrower activity that has transpired since origination. The model applies credit quality and economic risk factors to derive a probability
of default and potential repurchase that are based on the Companys historical loss experience, and estimates loss severity based on expected collateral value. The Company also considers qualitative factors that may result in anticipated losses
differing from historical loss trends.
The following table is a rollforward of the Companys representation and warranty reserve:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
(Dollars in Millions)
|
|
2014
|
|
|
2013
|
|
Balance at beginning of period
|
|
$
|
83
|
|
|
$
|
240
|
|
Net realized losses
|
|
|
(10
|
)
|
|
|
(23
|
)
|
Additions to reserve
|
|
|
2
|
|
|
|
16
|
|
Balance at end of period
|
|
$
|
75
|
|
|
$
|
233
|
|
As of March 31, 2014 and December 31, 2013, the Company had $44 million and $89 million,
respectively, of unresolved representation and warranty claims from the GSEs. The Company does not have a significant amount of unresolved claims from investors other than the GSEs.
Litigation and Regulatory Matters
The
Company is subject to various litigation and regulatory matters that arise in the ordinary course of its business. The Company establishes reserves for such matters when potential losses become probable and can be reasonably estimated. The Company
believes the ultimate resolution of existing legal and regulatory matters will not have a material adverse effect on the financial condition, results of operations or cash flows of the Company. However, changes in circumstances or additional
information could result in additional accruals or resolution in excess of established accruals, which could adversely affect the Companys results from operations, potentially materially.
Certain federal and state governmental authorities reached settlement agreements in 2012 and 2013 with other major financial institutions
regarding their mortgage origination, servicing, and foreclosure activities. Those governmental authorities have had settlement discussions with other financial institutions, including the Company. The Company has not agreed to any settlement;
however, if a settlement were reached it would likely include an agreement to comply with specified servicing standards, and settlement payments to governmental authorities as well as a monetary commitment that could be satisfied under various loan
modification programs (in addition to the programs the Company already has in place).
The Company is currently subject to other
investigations and examinations by government agencies and bank regulators concerning mortgage-related practices, including those related to origination and servicing practices for Federal Housing Administration (FHA) insured residential
home loans, compliance with selling guidelines relating to residential home loans sold to GSEs, and various practices related to lender-placed insurance. Regarding FHA loan origination, the U.S. Department of Housing and Urban Development Office of
Inspector General and the U.S. Department of Justice are investigating the Companys compliance with FHA insurance program requirements. The Company is cooperating fully with these examinations and investigations, any of which could lead to
administrative or legal proceedings or settlements. Remedies in these proceedings or settlements may include fines, penalties, restitution or alterations in the Companys business practices (which may increase the Companys operating
expenses).
Due to their complex nature, it can be years before litigation and regulatory matters are
resolved. For those litigation and regulatory matters where the Company has information to develop an estimate or range of loss, the Company believes the upper end of reasonably possible losses in aggregate, in excess of any reserves established for
matters where a loss is considered probable, is approximately $200 million. This estimate is subject to significant judgment and uncertainties and the matters underlying the estimate will change from time to time. Actual results may vary
significantly from the current estimates.
For additional information on the nature of the Companys guarantees and contingent
liabilities, refer to Note 22 in the Companys Annual Report on Form 10-K for the year ended December 31, 2013.
|
|
|
Note 15
|
|
Subsequent Events
|
The Company has evaluated the impact of events that have occurred subsequent to March 31, 2014 through the date the
consolidated financial statements were filed with the United States Securities and Exchange Commission. Based on this evaluation, the Company has determined none of these events were required to be recognized or disclosed in the consolidated
financial statements and related notes.
U.S. Bancorp
Consolidated Daily
Average Balance Sheet and Related Yields and Rates (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
(Unaudited)
|
|
Average
Balances
|
|
|
|
|
Interest
|
|
|
|
|
Yields
and
Rates
|
|
|
Average
Balances
|
|
|
|
|
Interest
|
|
|
|
|
Yields
and
Rates
|
|
|
|
|
|
|
% Change
Average
Balances
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
$
|
82,216
|
|
|
|
|
$
|
473
|
|
|
|
|
|
2.30
|
%
|
|
$
|
73,467
|
|
|
|
|
$
|
445
|
|
|
|
|
|
2.42
|
%
|
|
|
|
|
|
|
11.9
|
%
|
Loans held for sale
|
|
|
2,626
|
|
|
|
|
|
27
|
|
|
|
|
|
4.14
|
|
|
|
8,764
|
|
|
|
|
|
72
|
|
|
|
|
|
3.29
|
|
|
|
|
|
|
|
(70.0
|
)
|
Loans (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
70,834
|
|
|
|
|
|
534
|
|
|
|
|
|
3.05
|
|
|
|
65,299
|
|
|
|
|
|
539
|
|
|
|
|
|
3.34
|
|
|
|
|
|
|
|
8.5
|
|
Commercial real estate
|
|
|
40,050
|
|
|
|
|
|
387
|
|
|
|
|
|
3.92
|
|
|
|
37,218
|
|
|
|
|
|
393
|
|
|
|
|
|
4.28
|
|
|
|
|
|
|
|
7.6
|
|
Residential mortgages
|
|
|
51,584
|
|
|
|
|
|
503
|
|
|
|
|
|
3.92
|
|
|
|
45,109
|
|
|
|
|
|
477
|
|
|
|
|
|
4.25
|
|
|
|
|
|
|
|
14.4
|
|
Credit card
|
|
|
17,407
|
|
|
|
|
|
434
|
|
|
|
|
|
10.11
|
|
|
|
16,528
|
|
|
|
|
|
415
|
|
|
|
|
|
10.19
|
|
|
|
|
|
|
|
5.3
|
|
Other retail
|
|
|
47,657
|
|
|
|
|
|
558
|
|
|
|
|
|
4.74
|
|
|
|
47,246
|
|
|
|
|
|
582
|
|
|
|
|
|
4.99
|
|
|
|
|
|
|
|
.9
|
|
Total loans, excluding covered loans
|
|
|
227,532
|
|
|
|
|
|
2,416
|
|
|
|
|
|
4.30
|
|
|
|
211,400
|
|
|
|
|
|
2,406
|
|
|
|
|
|
4.61
|
|
|
|
|
|
|
|
7.6
|
|
Covered loans
|
|
|
8,327
|
|
|
|
|
|
130
|
|
|
|
|
|
6.27
|
|
|
|
11,021
|
|
|
|
|
|
178
|
|
|
|
|
|
6.49
|
|
|
|
|
|
|
|
(24.4
|
)
|
Total loans
|
|
|
235,859
|
|
|
|
|
|
2,546
|
|
|
|
|
|
4.36
|
|
|
|
222,421
|
|
|
|
|
|
2,584
|
|
|
|
|
|
4.70
|
|
|
|
|
|
|
|
6.0
|
|
Other earning assets
|
|
|
5,525
|
|
|
|
|
|
32
|
|
|
|
|
|
2.32
|
|
|
|
9,340
|
|
|
|
|
|
67
|
|
|
|
|
|
2.91
|
|
|
|
|
|
|
|
(40.8
|
)
|
Total earning assets
|
|
|
326,226
|
|
|
|
|
|
3,078
|
|
|
|
|
|
3.81
|
|
|
|
313,992
|
|
|
|
|
|
3,168
|
|
|
|
|
|
4.07
|
|
|
|
|
|
|
|
3.9
|
|
Allowance for loan losses
|
|
|
(4,260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,468
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.7
|
|
Unrealized gain (loss) on investment securities
|
|
|
257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78.3
|
)
|
Other assets
|
|
|
42,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.5
|
|
Total assets
|
|
$
|
364,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
351,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.7
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
$
|
70,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
66,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.7
|
%
|
Interest-bearing deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking
|
|
|
51,305
|
|
|
|
|
|
8
|
|
|
|
|
|
.06
|
|
|
|
48,404
|
|
|
|
|
|
10
|
|
|
|
|
|
.08
|
|
|
|
|
|
|
|
6.0
|
|
Money market savings
|
|
|
59,244
|
|
|
|
|
|
24
|
|
|
|
|
|
.17
|
|
|
|
53,096
|
|
|
|
|
|
17
|
|
|
|
|
|
.13
|
|
|
|
|
|
|
|
11.6
|
|
Savings accounts
|
|
|
33,200
|
|
|
|
|
|
12
|
|
|
|
|
|
.15
|
|
|
|
31,409
|
|
|
|
|
|
14
|
|
|
|
|
|
.18
|
|
|
|
|
|
|
|
5.7
|
|
Time deposits less than $100,000
|
|
|
11,443
|
|
|
|
|
|
34
|
|
|
|
|
|
1.22
|
|
|
|
13,610
|
|
|
|
|
|
54
|
|
|
|
|
|
1.61
|
|
|
|
|
|
|
|
(15.9
|
)
|
Time deposits greater than $100,000
|
|
|
31,463
|
|
|
|
|
|
41
|
|
|
|
|
|
.53
|
|
|
|
32,099
|
|
|
|
|
|
60
|
|
|
|
|
|
.75
|
|
|
|
|
|
|
|
(2.0
|
)
|
Total interest-bearing deposits
|
|
|
186,655
|
|
|
|
|
|
119
|
|
|
|
|
|
.26
|
|
|
|
178,618
|
|
|
|
|
|
155
|
|
|
|
|
|
.35
|
|
|
|
|
|
|
|
4.5
|
|
Short-term borrowings
|
|
|
29,490
|
|
|
|
|
|
69
|
|
|
|
|
|
.95
|
|
|
|
28,164
|
|
|
|
|
|
86
|
|
|
|
|
|
1.23
|
|
|
|
|
|
|
|
4.7
|
|
Long-term debt
|
|
|
22,131
|
|
|
|
|
|
184
|
|
|
|
|
|
3.35
|
|
|
|
25,404
|
|
|
|
|
|
218
|
|
|
|
|
|
3.48
|
|
|
|
|
|
|
|
(12.9
|
)
|
Total interest-bearing liabilities
|
|
|
238,276
|
|
|
|
|
|
372
|
|
|
|
|
|
.63
|
|
|
|
232,186
|
|
|
|
|
|
459
|
|
|
|
|
|
.80
|
|
|
|
|
|
|
|
2.6
|
|
Other liabilities
|
|
|
12,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.5
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred equity
|
|
|
4,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(.3
|
)
|
Common equity
|
|
|
37,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.5
|
|
Total U.S. Bancorp shareholders equity
|
|
|
41,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.6
|
|
Noncontrolling interests
|
|
|
688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46.6
|
)
|
Total equity
|
|
|
42,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.9
|
|
Total liabilities and equity
|
|
$
|
364,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
351,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.7
|
|
Net interest income
|
|
|
|
|
|
|
|
$
|
2,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross interest margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.27
|
%
|
|
|
|
|
|
|
|
|
Gross interest margin without taxable-equivalent increments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Earning Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.81
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.07
|
%
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.59
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.48
|
%
|
|
|
|
|
|
|
|
|
Net interest margin without taxable-equivalent increments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.41
|
%
|
|
|
|
|
|
|
|
|
(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.
|