Managements Discussion and Analysis
OVERVIEW
Earnings Summary
U.S. Bancorp and its subsidiaries (the Company) reported net
income attributable to U.S. Bancorp of $1.5 billion for the second quarter of 2014, or $.78 per diluted common share, compared with $1.5 billion, or $.76 per diluted common share, for the second quarter of 2013. Return on average assets
and return on average common equity were 1.60 percent and 15.1 percent, respectively, for the second quarter of 2014, compared with 1.70 percent and 16.1 percent, respectively, for the second quarter of 2013. The results for the
second quarter of 2014 included a $200 million settlement with the U.S. Department of Justice to resolve an investigation relating to the endorsement of mortgage loans under the Federal Housing Administrations insurance program (FHA DOJ
settlement) and a $214 million gain related to the sale of 3.0 million shares of the Companys Class B common stock of Visa Inc. (Visa sale). Combined, these two items had no impact to diluted earnings per
common share for the second quarter of 2014.
Total net revenue, on a taxable-equivalent basis, for the second quarter of 2014
was $240 million (4.9 percent) higher than the second quarter of 2013, reflecting a 2.7 percent increase in net interest income and a 7.4 percent increase in noninterest income. The increase in net interest income from a year ago was
the result of an increase in average earning assets and continued growth in lower cost core deposit funding, partially offset by a decrease in the net interest margin. The noninterest income increase was primarily due to higher revenue in most fee
businesses and the Visa sale, partially offset by lower mortgage banking revenue.
Noninterest expense in the second quarter of
2014 was $196 million (7.7 percent) higher than the second quarter of 2013, primarily due to the FHA DOJ settlement.
The provision for credit losses for the second quarter of 2014 of $324 million was $38 million (10.5 percent) lower than the second quarter of 2013. Net charge-offs in the second quarter of 2014 were
$349 million, compared with $392 million in the second quarter of 2013. Refer to Corporate Risk Profile for further information on the provision for credit losses, net charge-offs, nonperforming assets and other factors considered
by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.
Net
income attributable to U.S. Bancorp for the first six months of 2014 was $2.9 billion, or $1.51 per diluted common share, compared with $2.9 billion, or $1.49 per diluted common share for the first six months of 2013. Return on average assets
and return on average common equity were 1.58 percent and 14.9 percent, respectively, for the first six months of 2014, compared with 1.68 percent and 16.1 percent, respectively, for the first six months of 2013.
Total net revenue, on a taxable-equivalent basis, for the first six months of 2014 was $180 million (1.8 percent) higher than
the first six months of 2013, primarily reflecting a 1.3 percent increase in net interest income and a 2.5 percent increase in noninterest income. The increase in net interest income from a year ago was the result of an increase in average earning
assets and continued growth in lower cost core deposit funding, partially offset by a decrease in the net interest margin. The noninterest income increase was primarily due to higher revenue in most fee businesses and the Visa sale, partially offset
by lower mortgage banking revenue.
Noninterest expense in the first six months of 2014 was $270 million
(5.4 percent) higher than the first six months of 2013, primarily due to the second quarter 2014 FHA DOJ settlement and insurance-related recoveries in the first quarter of 2013.
The provision for credit losses for the first six months of 2014 of $630 million was $135 million (17.6 percent) lower than
the first six months of 2013. Net charge-offs in the first six months of 2014 were $690 million, compared with $825 million in the first six months of 2013. Refer to Corporate Risk Profile for further information on the provision
for credit losses, net charge-offs, nonperforming assets and other factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.
Acquisitions
In June 2014, the Company
acquired the Chicago-area branch banking operations of the Charter One Bank franchise (Charter One) owned by RBS Citizens Financial Group. The acquisition included Charter Ones retail branch network, small business operations and
select middle market relationships. The Company acquired approximately $969 million of loans and $4.8 billion of deposits with this transaction.
STATEMENT OF INCOME ANALYSIS
Net Interest Income
Net interest income, on a taxable-equivalent basis, was $2.7 billion in
the second quarter and $5.5 billion in the first six months of 2014, or increases of $72 million (2.7 percent) and $69 million (1.3 percent), respectively, compared with the same periods of 2013. The increases were the result of growth in
average earning assets and lower cost core deposit funding, partially offset by lower loan fees and lower rates on new loans and investment securities. Average earning assets were $24.1 billion (7.7 percent) higher in the second
quarter and $18.2 billion (5.8 percent) higher in the first six months of 2014, compared with the same periods of 2013, driven by increases in loans and investment securities, partially offset by decreases in loans held for sale. The net interest
margin in the second quarter and first six months of 2014 was 3.27 percent and 3.31 percent, respectively, compared with 3.43 percent and 3.46 percent in the second quarter and first six months of 2013, respectively. The decreases in the
net interest margin from the same periods of the prior year primarily reflected lower reinvestment rates on investment securities, as well as growth in the investment portfolio at lower average rates, and lower rates on new loans, partially offset
by lower rates on deposits and short-term borrowings, and the positive impact from maturities of higher rate long-term debt. Refer to the Consolidated Daily Average Balance Sheet and Related Yields and Rates tables for further
information on net interest income.
Average total loans for the second quarter and first six months of 2014 were
$15.3 billion (6.8 percent) and $14.4 billion (6.4 percent) higher, respectively, than the same periods of 2013, driven by growth in commercial loans, residential mortgages, commercial real estate loans, credit card loans and other retail
loans. These increases were driven by higher demand for loans from new and existing customers. The increases were partially offset by a decline in loans covered by loss sharing agreements with the Federal Deposit Insurance Corporation
(FDIC). Average loans acquired in FDIC-assisted transactions that are covered by loss sharing agreements with the FDIC (covered loans) decreased $2.5 billion (24.5 percent) in the second quarter and $2.6 billion (24.5
percent) in the first six months of 2014, compared with the same periods of 2013, respectively.
Average investment securities
in the second quarter and first six months of 2014 were $13.1 billion (17.7 percent) and $11.0 billion (14.8 percent) higher, respectively, than the same periods of 2013, primarily due to purchases of U.S. government agency-backed
securities, net of prepayments and maturities, in anticipation of final liquidity coverage ratio regulatory requirements.
Average total deposits for the second quarter and first six months of 2014 were $15.0 billion (6.0 percent) and $13.7
billion (5.6 percent) higher, respectively, than the same periods of 2013. Average noninterest-bearing deposits for the second quarter and first six months of 2014 were $5.0 billion (7.4 percent) and $4.7 billion (7.1 percent) higher,
respectively, than the same periods of the prior year, driven primarily by growth in corporate trust, commercial banking and Consumer and Small Business Banking balances. Average total savings deposits for the second quarter and first six months of
2014 were $12.7 billion (9.3 percent) and $11.8 billion (8.7 percent) higher, respectively, than the same periods of 2013, the result of growth in Consumer and Small Business Banking, and in government banking and broker-dealer related
balances. Average time deposits less than $100,000 for the second quarter and first six months of 2014 were $2.2 billion (16.6 percent) and $2.2 billion (16.2 percent) lower, respectively, than the same periods of 2013, due to maturities.
Average time deposits greater than $100,000 for the second quarter and first six months of 2014 were $474 million (1.5 percent) and $555 million (1.7 percent) lower, respectively, than the same periods of the prior year, primarily due to
declines in Consumer and Small Business Banking and corporate trust balances, partially offset by increases in Wholesale Banking and Commercial Real Estate balances. Time deposits greater than $100,000 are managed as an alternative to other funding
sources, such as wholesale borrowing, based largely on relative pricing.
Table 2
|
Noninterest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
|
Six Months Ended
June 30,
|
|
(Dollars in Millions)
|
|
2014
|
|
|
2013
|
|
|
Percent
Change
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Percent
Change
|
|
Credit and debit card revenue
|
|
$
|
259
|
|
|
$
|
244
|
|
|
|
6.1
|
%
|
|
|
|
$
|
498
|
|
|
$
|
458
|
|
|
|
8.7
|
%
|
Corporate payment products revenue
|
|
|
182
|
|
|
|
176
|
|
|
|
3.4
|
|
|
|
|
|
355
|
|
|
|
348
|
|
|
|
2.0
|
|
Merchant processing services
|
|
|
384
|
|
|
|
373
|
|
|
|
2.9
|
|
|
|
|
|
740
|
|
|
|
720
|
|
|
|
2.8
|
|
ATM processing services
|
|
|
82
|
|
|
|
83
|
|
|
|
(1.2
|
)
|
|
|
|
|
160
|
|
|
|
165
|
|
|
|
(3.0
|
)
|
Trust and investment management fees
|
|
|
311
|
|
|
|
284
|
|
|
|
9.5
|
|
|
|
|
|
615
|
|
|
|
562
|
|
|
|
9.4
|
|
Deposit service charges
|
|
|
171
|
|
|
|
160
|
|
|
|
6.9
|
|
|
|
|
|
328
|
|
|
|
313
|
|
|
|
4.8
|
|
Treasury management fees
|
|
|
140
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
273
|
|
|
|
274
|
|
|
|
(.4
|
)
|
Commercial products revenue
|
|
|
221
|
|
|
|
209
|
|
|
|
5.7
|
|
|
|
|
|
426
|
|
|
|
409
|
|
|
|
4.2
|
|
Mortgage banking revenue
|
|
|
278
|
|
|
|
396
|
|
|
|
(29.8
|
)
|
|
|
|
|
514
|
|
|
|
797
|
|
|
|
(35.5
|
)
|
Investment products fees
|
|
|
47
|
|
|
|
46
|
|
|
|
2.2
|
|
|
|
|
|
93
|
|
|
|
87
|
|
|
|
6.9
|
|
Securities gains (losses), net
|
|
|
|
|
|
|
6
|
|
|
|
*
|
|
|
|
|
|
5
|
|
|
|
11
|
|
|
|
(54.5
|
)
|
Other
|
|
|
369
|
|
|
|
159
|
|
|
|
*
|
|
|
|
|
|
545
|
|
|
|
297
|
|
|
|
83.5
|
|
Total noninterest income
|
|
$
|
2,444
|
|
|
$
|
2,276
|
|
|
|
7.4
|
%
|
|
|
|
$
|
4,552
|
|
|
$
|
4,441
|
|
|
|
2.5
|
%
|
Provision for Credit Losses
The provision for credit losses for the second quarter and first six months of 2014 decreased $38 million
(10.5 percent) and $135 million (17.6 percent), respectively, compared with the same periods of 2013. Net charge-offs decreased $43 million (11.0 percent) and $135 million (16.4 percent) in the second quarter and first six months
of 2014, respectively, compared with the same periods of the prior year, due to improvements in the residential mortgages and home equity and second mortgages portfolios. The provision for credit losses was lower than net charge-offs by
$25 million in the second quarter and $60 million in the first six months of 2014, compared with $30 million in the second quarter and $60 million in the first six months of 2013. Refer to Corporate Risk Profile for further
information on the provision for credit losses, net charge-offs, nonperforming assets and other factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.
Noninterest Income
Noninterest income was $2.4 billion in the second quarter and $4.6 billion
in the first six months of 2014, or increases of $168 million (7.4 percent) and $111 million (2.5 percent), respectively, compared with the same periods of 2013. The increases over a year ago were principally due to the Visa sale in the second
quarter 2014, as well as increases in a majority of fee revenue categories, partially offset by reductions in mortgage banking revenue due to lower origination and sales revenue. Credit and debit card revenue and corporate payment products revenue
increased primarily due to higher transaction volumes. Merchant processing services revenue was higher as a result of increases in fee-based product revenue and higher volumes, partially offset by lower rates. Trust and investment management fees
increased, reflecting account growth, improved market conditions and business expansion. Deposit service charges were higher due to account growth and pricing changes. Commercial products revenue increased, principally due to higher bond
underwriting fees and higher syndication fees on tax-advantaged projects. In addition to the Visa sale, other income for the first six months of 2014 reflected higher equity investment revenue than the same period of the prior year.
Noninterest Expense
Noninterest expense was $2.8 billion in the second quarter and $5.3
billion in the first six months of 2014, or increases of $196 million (7.7 percent) and $270 million (5.4 percent), respectively, compared with the same periods of 2013. The increases over a year ago were the result of the FHA DOJ settlement in the
second quarter of 2014, higher compensation expense, reflecting the impact of merit increases and higher staffing for audit, risk and compliance activities (partially offset by lower employee benefits expense driven by lower pension costs), higher
net occupancy and equipment expense due to higher rent expense and maintenance costs, and higher professional services expense due mainly to mortgage servicing-related project costs. In addition, other expense also increased in the first six months
of 2014, compared with the first six months of 2013, due to insurance-related recoveries in the prior year. Offsetting these increases were lower tax-advantaged project costs in the current year as a result of the first quarter of 2014 adoption of
new accounting guidance for certain affordable housing tax credit investments. In addition, other intangibles expense decreased from the prior year due to the reduction or completion of the amortization of certain intangibles.
Table 3
|
Noninterest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
(Dollars in Millions)
|
|
2014
|
|
|
2013
|
|
|
Percent
Change
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Percent
Change
|
|
Compensation
|
|
$
|
1,125
|
|
|
$
|
1,098
|
|
|
|
2.5
|
%
|
|
|
|
$
|
2,240
|
|
|
$
|
2,180
|
|
|
|
2.8
|
%
|
Employee benefits
|
|
|
257
|
|
|
|
277
|
|
|
|
(7.2
|
)
|
|
|
|
|
546
|
|
|
|
587
|
|
|
|
(7.0
|
)
|
Net occupancy and equipment
|
|
|
241
|
|
|
|
234
|
|
|
|
3.0
|
|
|
|
|
|
490
|
|
|
|
469
|
|
|
|
4.5
|
|
Professional services
|
|
|
97
|
|
|
|
91
|
|
|
|
6.6
|
|
|
|
|
|
180
|
|
|
|
169
|
|
|
|
6.5
|
|
Marketing and business development
|
|
|
96
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
175
|
|
|
|
169
|
|
|
|
3.6
|
|
Technology and communications
|
|
|
214
|
|
|
|
214
|
|
|
|
|
|
|
|
|
|
425
|
|
|
|
425
|
|
|
|
|
|
Postage, printing and supplies
|
|
|
80
|
|
|
|
78
|
|
|
|
2.6
|
|
|
|
|
|
161
|
|
|
|
154
|
|
|
|
4.5
|
|
Other intangibles
|
|
|
48
|
|
|
|
55
|
|
|
|
(12.7
|
)
|
|
|
|
|
97
|
|
|
|
112
|
|
|
|
(13.4
|
)
|
Other
|
|
|
595
|
|
|
|
414
|
|
|
|
43.7
|
|
|
|
|
|
983
|
|
|
|
762
|
|
|
|
29.0
|
|
Total noninterest expense
|
|
$
|
2,753
|
|
|
$
|
2,557
|
|
|
|
7.7
|
%
|
|
|
|
$
|
5,297
|
|
|
$
|
5,027
|
|
|
|
5.4
|
%
|
Efficiency ratio (a)
|
|
|
53.1
|
%
|
|
|
51.7
|
%
|
|
|
|
|
|
|
|
|
53.0
|
%
|
|
|
51.2
|
%
|
|
|
|
|
(a)
|
Computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding securities gains (losses), net.
|
Income Tax Expense
The provision for
income taxes was $547 million (an effective rate of 26.6 percent) for the second quarter and $1.0 billion (an effective rate of 26.3 percent) for the first six months of 2014, compared with $529 million (an effective rate of
26.8 percent) and $1.1 billion (an effective rate of 27.7 percent) for the same periods of 2013. For further information on income taxes, refer to Note 12 of the Notes to Consolidated Financial Statements.
BALANCE SHEET ANALYSIS
Loans
The Companys loan portfolio was $243.9 billion at June 30, 2014,
compared with $235.2 billion at December 31, 2013, an increase of $8.7 billion (3.7 percent). The increase was driven primarily by increases in commercial loans, commercial real estate loans, other retail loans and residential mortgages,
including the Charter One acquisition, partially offset by lower credit card and covered loans.
Commercial loans and
commercial real estate loans increased $7.4 billion (10.6 percent) and $912 million (2.3 percent), respectively, at June 30, 2014, compared with December 31, 2013, reflecting higher demand from new and existing customers.
Other retail loans, which include retail leasing, home equity and second mortgages and other retail loans, increased $890
million (1.9 percent) at June 30, 2014, compared with December 31, 2013. The increase was driven by higher auto and installment loans and home equity and second mortgages, partially offset by lower student loan and revolving credit
balances.
Residential mortgages held in the loan portfolio increased $809 million (1.6 percent) at June 30,
2014, compared with December 31, 2013. Residential mortgages originated and placed in the Companys loan portfolio are primarily well-secured jumbo mortgages and branch-originated first lien home equity loans to borrowers with high credit
quality. The Company generally retains portfolio loans through maturity; however, the Companys intent may change over time based upon various factors such as ongoing asset/liability management activities, assessment of product profitability,
credit risk, liquidity needs, and capital implications. If the Companys intent or ability to hold an existing portfolio loan changes, the loan is transferred to loans held for sale.
Credit card loans decreased $379 million (2.1 percent) at June 30, 2014, compared with December 31, 2013, primarily
the result of customers seasonally paying down balances.
Loans Held for Sale
Loans held for sale, consisting primarily of residential mortgages to be sold in the secondary market, were $3.0 billion at June 30, 2014, compared with $3.3 billion at December 31,
2013. The decrease in loans held for sale was principally due to the relative level of mortgage loan closings.
Almost all of
the residential mortgage loans the Company originates or purchases for sale follow guidelines that allow the loans to be sold into existing, highly liquid secondary markets; in particular in government agency transactions and to government-sponsored
enterprises (GSEs).
Investment Securities
Investment securities totaled $90.4 billion at June 30, 2014, compared with $79.9 billion at December 31, 2013. The $10.5 billion (13.2 percent) increase reflected $10.0
billion of net investment purchases, primarily U.S. government agency-backed securities in anticipation of final liquidity coverage ratio regulatory requirements, and a $502 million favorable change in net unrealized gains (losses) on
available-for-sale investment securities.
The Companys available-for-sale securities are carried at fair value with
changes in fair value reflected in other comprehensive income (loss) unless a security is
Table 4
|
Investment Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
|
|
|
Held-to-Maturity
|
|
At June 30, 2014 (Dollars in Millions)
|
|
Amortized
Cost
|
|
|
Fair Value
|
|
|
Weighted-
Average
Maturity in
Years
|
|
|
Weighted-
Average
Yield (e)
|
|
|
|
|
Amortized
Cost
|
|
|
Fair Value
|
|
|
Weighted-
Average
Maturity in
Years
|
|
|
Weighted-
Average
Yield (e)
|
|
U.S. Treasury and Agencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing in one year or less
|
|
$
|
32
|
|
|
$
|
32
|
|
|
|
.2
|
|
|
|
4.36
|
%
|
|
|
|
$
|
180
|
|
|
$
|
181
|
|
|
|
.5
|
|
|
|
1.15
|
%
|
Maturing after one year through five years
|
|
|
724
|
|
|
|
728
|
|
|
|
3.6
|
|
|
|
1.30
|
|
|
|
|
|
404
|
|
|
|
406
|
|
|
|
4.0
|
|
|
|
1.41
|
|
Maturing after five years through ten years
|
|
|
1,034
|
|
|
|
1,009
|
|
|
|
8.1
|
|
|
|
2.80
|
|
|
|
|
|
1,340
|
|
|
|
1,305
|
|
|
|
7.8
|
|
|
|
2.09
|
|
Maturing after ten years
|
|
|
101
|
|
|
|
101
|
|
|
|
18.8
|
|
|
|
1.38
|
|
|
|
|
|
58
|
|
|
|
58
|
|
|
|
10.9
|
|
|
|
1.73
|
|
Total
|
|
$
|
1,891
|
|
|
$
|
1,870
|
|
|
|
6.8
|
|
|
|
2.17
|
%
|
|
|
|
$
|
1,982
|
|
|
$
|
1,950
|
|
|
|
6.5
|
|
|
|
1.86
|
%
|
Mortgage-Backed Securities(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing in one year or less
|
|
$
|
699
|
|
|
$
|
705
|
|
|
|
.7
|
|
|
|
1.84
|
%
|
|
|
|
$
|
134
|
|
|
$
|
133
|
|
|
|
.8
|
|
|
|
1.16
|
%
|
Maturing after one year through five years
|
|
|
24,383
|
|
|
|
24,569
|
|
|
|
3.8
|
|
|
|
2.04
|
|
|
|
|
|
28,844
|
|
|
|
28,853
|
|
|
|
3.6
|
|
|
|
2.15
|
|
Maturing after five years through ten years
|
|
|
12,680
|
|
|
|
12,656
|
|
|
|
5.8
|
|
|
|
1.63
|
|
|
|
|
|
10,518
|
|
|
|
10,496
|
|
|
|
5.5
|
|
|
|
1.58
|
|
Maturing after ten years
|
|
|
1,236
|
|
|
|
1,228
|
|
|
|
12.5
|
|
|
|
1.21
|
|
|
|
|
|
385
|
|
|
|
390
|
|
|
|
12.3
|
|
|
|
1.19
|
|
Total
|
|
$
|
38,998
|
|
|
$
|
39,158
|
|
|
|
4.7
|
|
|
|
1.88
|
%
|
|
|
|
$
|
39,881
|
|
|
$
|
39,872
|
|
|
|
4.2
|
|
|
|
1.99
|
%
|
Asset-Backed Securities(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing in one year or less
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
|
.9
|
|
|
|
.87
|
%
|
Maturing after one year through five years
|
|
|
273
|
|
|
|
283
|
|
|
|
3.7
|
|
|
|
1.78
|
|
|
|
|
|
7
|
|
|
|
10
|
|
|
|
3.7
|
|
|
|
.83
|
|
Maturing after five years through ten years
|
|
|
357
|
|
|
|
365
|
|
|
|
7.4
|
|
|
|
1.64
|
|
|
|
|
|
5
|
|
|
|
6
|
|
|
|
7.0
|
|
|
|
.84
|
|
Maturing after ten years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
15.8
|
|
|
|
.48
|
|
Total
|
|
$
|
630
|
|
|
$
|
648
|
|
|
|
5.8
|
|
|
|
1.70
|
%
|
|
|
|
$
|
14
|
|
|
$
|
25
|
|
|
|
4.8
|
|
|
|
.83
|
%
|
Obligations of State and Political
Subdivisions(b)(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing in one year or less
|
|
$
|
379
|
|
|
$
|
389
|
|
|
|
.7
|
|
|
|
6.57
|
%
|
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
|
.5
|
|
|
|
10.51
|
%
|
Maturing after one year through five years
|
|
|
4,379
|
|
|
|
4,598
|
|
|
|
2.3
|
|
|
|
6.80
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
2.5
|
|
|
|
8.24
|
|
Maturing after five years through ten years
|
|
|
540
|
|
|
|
549
|
|
|
|
6.7
|
|
|
|
5.07
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
7.7
|
|
|
|
8.08
|
|
Maturing after ten years
|
|
|
64
|
|
|
|
62
|
|
|
|
22.2
|
|
|
|
5.52
|
|
|
|
|
|
6
|
|
|
|
7
|
|
|
|
11.7
|
|
|
|
2.49
|
|
Total
|
|
$
|
5,362
|
|
|
$
|
5,598
|
|
|
|
2.9
|
|
|
|
6.59
|
%
|
|
|
|
$
|
10
|
|
|
$
|
11
|
|
|
|
9.0
|
|
|
|
4.57
|
%
|
Other Debt Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing in one year or less
|
|
$
|
6
|
|
|
$
|
6
|
|
|
|
.7
|
|
|
|
1.01
|
%
|
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
|
.3
|
|
|
|
1.78
|
%
|
Maturing after one year through five years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
|
|
|
|
82
|
|
|
|
2.3
|
|
|
|
1.13
|
|
Maturing after five years through ten years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
22
|
|
|
|
6.3
|
|
|
|
.96
|
|
Maturing after ten years
|
|
|
690
|
|
|
|
629
|
|
|
|
19.0
|
|
|
|
2.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
696
|
|
|
$
|
635
|
|
|
|
18.8
|
|
|
|
2.45
|
%
|
|
|
|
$
|
108
|
|
|
$
|
106
|
|
|
|
3.1
|
|
|
|
1.10
|
%
|
Other Investments
|
|
$
|
434
|
|
|
$
|
480
|
|
|
|
14.6
|
|
|
|
2.25
|
%
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
%
|
Total investment securities (d)
|
|
$
|
48,011
|
|
|
$
|
48,389
|
|
|
|
4.9
|
|
|
|
2.43
|
%
|
|
|
|
$
|
41,995
|
|
|
$
|
41,964
|
|
|
|
4.3
|
|
|
|
1.98
|
%
|
(a)
|
Information related to asset and mortgage-backed securities included above is presented based upon weighted-average maturities anticipating future prepayments.
|
(b)
|
Information related to obligations of state and political subdivisions is presented based upon yield to first optional call date if the security is purchased at a premium,
yield to maturity if purchased at par or a discount.
|
(c)
|
Maturity calculations for obligations of state and political subdivisions are based on the first optional call date for securities with a fair value above par and contractual
maturity for securities with a fair value equal to or below par.
|
(d)
|
The weighted-average maturity of the available-for-sale investment securities was 6.0 years at December 31, 2013, with a corresponding weighted-average yield of 2.64
percent. The weighted-average maturity of the held-to-maturity investment securities was 4.5 years at December 31, 2013, with a corresponding weighted-average yield of 2.00 percent.
|
(e)
|
Average yields are presented on a fully-taxable equivalent basis under a tax rate of 35 percent. Yields on available-for-sale and held-to-maturity investment securities are
computed based on amortized cost balances, excluding any premiums or discounts recorded related to the transfer of investment securities at fair value from available-for-sale to held-to-maturity. Average yield and maturity calculations exclude
equity securities that have no stated yield or maturity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
(Dollars in Millions)
|
|
Amortized
Cost
|
|
|
Percent
of Total
|
|
|
Amortized
Cost
|
|
|
Percent
of Total
|
|
U.S. Treasury and agencies
|
|
$
|
3,873
|
|
|
|
4.3
|
%
|
|
$
|
4,222
|
|
|
|
5.3
|
%
|
Mortgage-backed securities
|
|
|
78,879
|
|
|
|
87.6
|
|
|
|
68,236
|
|
|
|
85.3
|
|
Asset-backed securities
|
|
|
644
|
|
|
|
.7
|
|
|
|
652
|
|
|
|
.8
|
|
Obligations of state and political subdivisions
|
|
|
5,372
|
|
|
|
6.0
|
|
|
|
5,685
|
|
|
|
7.1
|
|
Other debt securities and investments
|
|
|
1,238
|
|
|
|
1.4
|
|
|
|
1,184
|
|
|
|
1.5
|
|
Total investment securities
|
|
$
|
90,006
|
|
|
|
100.0
|
%
|
|
$
|
79,979
|
|
|
|
100.0
|
%
|
deemed to be other-than-temporarily impaired. At June 30, 2014, the Companys net unrealized gains on available-for-sale securities were $378 million, compared with net unrealized
losses of $125 million at December 31, 2013. The favorable change in net unrealized gains (losses) was primarily due to increases in the fair value of agency mortgage-backed and state and political securities as a result of decreases in
interest rates and changes in credit spreads. Gross unrealized losses on available-for-sale securities totaled $522 million at June 30, 2014, compared with $775 million at December 31, 2013. At June 30, 2014, the Company had
no plans to sell securities with unrealized losses, and believes it is more likely than not that it would not be required to sell such securities before recovery of their amortized cost.
In December 2013, U.S. banking regulators approved final rules that prohibit banks from holding certain types of investments, such as
investments in hedge and private equity funds. The Company does not anticipate the implementation of these final rules will require any significant liquidation of securities held or impairment charges. Refer to Notes 4 and 15 in the Notes to
Consolidated Financial Statements for further information on investment securities.
Deposits
Total deposits were $276.3
billion at June 30, 2014, compared with $262.1 billion at December 31, 2013, the result of increases in noninterest-bearing deposits, total savings deposits and time deposits greater than $100,000, including the Charter One
acquisition, partially offset by a decrease in time deposits less than $100,000. Noninterest-bearing deposits increased $3.3 billion (4.3 percent), primarily due to higher corporate trust balances. Savings account balances increased $1.9
billion (6.0 percent), primarily due to continued strong participation in a savings product offered by Consumer and Small Business Banking. Money market balances increased $6.2 billion (10.4 percent) primarily due to higher corporate trust
and Wholesale Banking and Commercial Real Estate balances and the Charter One acquisition. Interest checking balances increased $2.8 billion (5.4 percent) primarily due to higher Consumer and Small Business Banking and Wholesale Banking
and Commercial Real Estate balances and the Charter One acquisition, partially offset by lower corporate trust and broker-dealer balances. Time deposits greater than $100,000 increased $448 million (1.5 percent) at June 30, 2014,
compared with December 31, 2013. Time deposits greater than $100,000 are managed as an alternative to other funding sources such as wholesale borrowing, based largely on relative pricing. Time deposits less than $100,000 decreased
$573 million (4.9 percent) at June 30, 2014, compared with December 31, 2013, primarily due to maturities.
Borrowings
The Company utilizes both short-term and long-term borrowings as part of its asset/liability management and funding strategies.
Short-term borrowings, which include federal funds purchased, commercial paper, repurchase agreements, borrowings secured by high-grade assets and other short-term borrowings, were $29.1 billion at June 30, 2014, compared with
$27.6 billion at December 31, 2013. The $1.5 billion (5.4 percent) increase in short-term borrowings was primarily due to higher commercial paper and other short-term borrowings balances, partially offset by lower repurchase
agreement balances. Long-term debt was $25.9 billion at June 30, 2014, compared with $20.0 billion at December 31, 2013. The $5.9 billion (29.1 percent) increase was primarily due to the issuances of $4.6 billion of
bank notes and $2.3 billion of medium-term notes, and a $.9 billion increase in Federal Home Loan Bank advances, partially offset by $1.0 billion of subordinated note and $1.0 billion of medium-term note maturities. These increases in borrowings
were used to fund the Companys loan growth and securities purchases. Refer to the Liquidity Risk Management section for discussion of liquidity management of the Company.
CORPORATE RISK PROFILE
Overview
Managing risks is an essential part of successfully operating a financial services company. The Companys
Board of Directors has approved a risk management framework which establishes governance and risk management requirements for all risk-taking activities. This framework includes a risk appetite statement which sets boundaries for the types and
amount of risk that may be undertaken in pursuing business objectives and initiatives.
The Board of Directors, through its
Risk Management and Audit Committees, oversees performance relative to the risk management framework, risk appetite statement, and other policy requirements. The Board of Directors Community Reinvestment and Public Policy Committee oversees
practices on public interest matters which impact reputational and other risks. The Board of Directors Compensation and Human Resources Committee oversees compensation, talent management, and succession planning programs.
The Executive Risk Management Committee (ERC), which is comprised of senior management and chaired by the Chief Risk Officer,
oversees execution against the risk management framework and risk appetite statement. The ERC focuses on current and emerging risks, including strategic and reputational risks, directing timely and comprehensive actions. Senior operating committees
have also been established, each responsible for overseeing a specified category of risk.
The Companys most prominent risk exposures are credit, residual value, interest rate,
market, liquidity, operational, compliance, strategic, and reputational. Credit risk is the risk of not collecting the interest and/or the principal balance of a loan, investment or derivative contract when it is due. Residual value risk is the
potential reduction in the end-of-term value of leased assets. Interest rate risk is the potential reduction of net interest income as a result of changes in interest rates, which can affect the re-pricing of assets and liabilities differently.
Market risk arises from fluctuations in interest rates, foreign exchange rates, and security prices that may result in changes in the values of financial instruments, such as trading and available-for-sale securities, mortgage loans held for sale,
mortgage servicing rights (MSRs) and derivatives that are accounted for on a fair value basis. Liquidity risk is the possible inability to fund obligations to depositors, investors, or borrowers. Operational risk is the risk of loss
resulting from inadequate or failed internal processes, people, or systems, or from external events. Compliance risk is the risk that customers may suffer economic loss or other injury, and/or that the Company may suffer legal or regulatory
sanctions, material financial loss, or loss to reputation through failure to comply with laws, regulations, rules, standards of good practice, and codes of conduct. Strategic risk is the risk to earnings or capital arising from adverse business
decisions or improper implementation of those decisions. Reputational risk is the potential that negative publicity or press regarding a companys business practices or products, whether true or not, will cause a decline in the customer base,
costly litigation, or revenue reductions. In addition to the risks identified above, other risk factors exist that may impact the Company. Refer to Risk Factors in the Companys Annual Report on Form 10-K for the year ended
December 31, 2013, for a detailed discussion of these factors.
The Companys Board and management-level governance
committees are supported by a three lines of defense model for establishing effective checks and balances. The first line of defense, the business lines, manages risks in conformity with established limits and policy requirements. In
turn, business leaders and their risk officers establish programs to ensure conformity with these limits and policy requirements. The second line of defense, which includes the Chief Risk Officers organization as well as policy and oversight
activities of corporate support functions, translates risk appetite and strategy into actionable risk limits and policies. The second line of defense monitors first line of defense conformity with limits and policies, and provides reporting and
escalation of emerging risks and other concerns to senior management and the Risk Management Committee of the Board of Directors. The third line of defense, internal audit, is responsible for providing the Audit Committee and senior management with
independent assessment and assurance regarding the effectiveness of the Companys governance, risk management, and control processes.
Management provides various risk reports to the Risk Management Committee of the Board of Directors. The Risk Management Committee discusses with management the Companys risk management performance,
and provides a summary of key risks to the entire Board of Directors, covering the status of existing matters, areas of potential future concern, and specific information on certain types of loss events. The discussion also covers quarterly reports
by management assessing the Companys performance relative to the risk appetite statement and the associated risk tolerance limits, including:
|
|
Qualitative considerations, such as the macroeconomic environment, regulatory and compliance changes, litigation developments, and technology and
cybersecurity;
|
|
|
Capital ratios and projections, including regulatory measures and stressed scenarios;
|
|
|
Credit measures, including adversely rated and nonperforming loans, leveraged transactions, credit concentrations and lending limits;
|
|
|
Interest rate and market risk, including market value and net income simulation, and trading-related Value at Risk;
|
|
|
Liquidity risk, including funding projections under various stressed scenarios;
|
|
|
Operational, compliance and strategic risk, including losses stemming from events such as fraud, processing errors, control breaches, or adverse
business decisions, as well as reporting on technology performance, and various legal and regulatory compliance measures; and
|
|
|
Reputational risk considerations, impacts and responses.
|
Credit Risk Management
The Companys strategy for
credit risk management includes well-defined, centralized credit policies, uniform underwriting criteria, and ongoing risk monitoring and review processes for all commercial and consumer credit exposures. In evaluating its credit risk, the Company
considers changes, if any, in underwriting activities, the loan portfolio composition (including product mix and geographic, industry or customer-specific concentrations), trends in loan performance, the level of allowance coverage relative to
similar banking institutions and macroeconomic factors, such as changes in unemployment rates, gross domestic
product and consumer bankruptcy filings. The Risk Management Committee oversees the Companys credit risk management process.
In addition, credit quality ratings, as defined by the Company, are an important part of the Companys overall credit risk management
and evaluation of its allowance for credit losses. Loans with a pass rating represent those not classified on the Companys rating scale for problem credits, as minimal risk has been identified. Loans with a special mention or classified
rating, including all of the Companys loans that are 90 days or more past due and still accruing, nonaccrual loans, those considered troubled debt restructurings (TDRs), and loans in a junior lien position that are current but
are behind a modified or delinquent loan in a first lien position, encompass all loans held by the Company that it considers to have a potential or well-defined weakness that may put full collection of contractual cash flows at risk. The
Companys internal credit quality ratings for consumer loans are primarily based on delinquency and nonperforming status, except for a limited population of larger loans within those portfolios that are individually evaluated. For this limited
population, the determination of the internal credit quality rating may also consider collateral value and customer cash flows. The Company obtains recent collateral value estimates for the majority of its residential mortgage and home equity and
second mortgage portfolios, which allows the Company to compute estimated loan-to-value (LTV) ratios reflecting current market conditions. These individual refreshed LTV ratios are considered in the determination of the appropriate
allowance for credit losses. However, the underwriting criteria the Company employs consider the relevant income and credit characteristics of the borrower, such that the collateral is not the primary source of repayment. Refer to Note 5 in the
Notes to Consolidated Financial Statements for further discussion of the Companys loan portfolios including internal credit quality ratings. In addition, refer to Managements Discussion and Analysis Credit Risk
Management in the Companys Annual Report on Form 10-K for the year ended December 31, 2013, for a more detailed discussion on credit risk management processes.
The Company manages its credit risk, in part, through diversification of its loan portfolio and limit setting by product type criteria and
concentrations. As part of its normal business activities, the Company offers a broad array of lending products. The Company categorizes its loan portfolio into three segments, which is the level at which it develops and documents a systematic
methodology to determine the allowance for credit losses. The Companys three loan portfolio segments are commercial lending, consumer lending and covered loans. The commercial lending segment includes loans and leases made to small business,
middle market, large corporate, commercial real estate, financial institution, non-profit and public sector customers. Key risk characteristics relevant to commercial lending segment loans include the industry and geography of the borrowers
business, purpose of the loan, repayment source, borrowers debt capacity and financial flexibility, loan covenants, and nature of pledged collateral, if any. These risk characteristics, among others, are considered in determining estimates
about the likelihood of default by the borrowers and the severity of loss in the event of default. The Company considers these risk characteristics in assigning internal risk ratings to, or forecasting losses on, these loans which are the
significant factors in determining the allowance for credit losses for loans in the commercial lending segment.
The consumer
lending segment represents loans and leases made to consumer customers including residential mortgages, credit card loans, and other retail loans such as revolving consumer lines, auto loans and leases, student loans, and home equity loans and
lines. Home equity or second mortgage loans are junior lien closed-end accounts fully disbursed at origination. These loans typically are fixed rate loans, secured by residential real estate, with a 10- or 15-year fixed payment amortization
schedule. Home equity lines are revolving accounts giving the borrower the ability to draw and repay balances repeatedly, up to a maximum commitment, and are secured by residential real estate. These include accounts in either a first or junior lien
position. Typical terms on home equity lines in the portfolio are variable rates benchmarked to the prime rate, with a 15-year draw period during which a minimum payment is equivalent to the monthly interest, followed by a 10-year amortization
period. A 10-year draw and 20-year amortization product was introduced during 2013 to provide customers the option to repay their outstanding balances over a longer period. At June 30, 2014, substantially all of the Companys home equity
lines were in the draw period. Key risk characteristics relevant to consumer lending segment loans primarily relate to the borrowers capacity and willingness to repay and include unemployment rates and other economic factors, customer payment
history and in some cases, updated LTV information on real estate based loans. These risk characteristics, among others, are reflected in forecasts of delinquency levels, bankruptcies and losses which are the primary factors in determining the
allowance for credit losses for the consumer lending segment.
The covered loan segment represents loans acquired in FDIC-assisted transactions that are
covered by loss sharing agreements with the FDIC that greatly reduce the risk of future credit losses to the Company. Key risk characteristics for covered segment loans are consistent with the segment they would otherwise be included in had the loss
share coverage not been in place, but consider the indemnification provided by the FDIC.
The Company further disaggregates its
loan portfolio segments into various classes based on their underlying risk characteristics. The two classes within the commercial lending segment are commercial loans and commercial real estate loans. The three classes within the consumer lending
segment are residential mortgages, credit card loans and other retail loans. The covered loan segment consists of only one class.
The Companys consumer lending segment utilizes several distinct business processes and channels to originate consumer credit, including traditional branch lending, indirect lending, portfolio
acquisitions, correspondent banks and loan brokers. Each distinct underwriting and origination activity manages unique credit risk characteristics and prices its loan production commensurate with the differing risk profiles.
Residential mortgages are originated through the Companys branches, loan production offices and a wholesale network of originators.
The Company may retain residential mortgage loans it originates on its balance sheet or sell the loans into the secondary market while retaining the servicing rights and customer relationships. Utilizing the secondary markets enables the Company to
effectively reduce its credit and other asset/liability risks. For residential mortgages that are retained in the Companys portfolio and for home equity and second mortgages, credit risk is also diversified by geography and managed by
adherence to LTV and borrower credit criteria during the underwriting process.
The Company estimates updated LTV information
quarterly, based on a method that combines automated valuation model updates and relevant home price indices. LTV is the ratio of the loans outstanding principal balance to the current estimate of property value. For home equity and second
mortgages, combined loan-to-value (CLTV) is the combination of the first mortgage original principal balance and the second lien outstanding principal balance, relative to the current estimate of property value. Certain loans do not have
a LTV or CLTV, primarily due to lack of availability of relevant automated valuation model and/or home price indices values, or lack of necessary valuation data on acquired loans.
The following tables provide summary information for the LTVs of residential mortgages and home equity and second mortgages by borrower type at June 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages
(Dollars in Millions)
|
|
Interest
Only
|
|
|
Amortizing
|
|
|
Total
|
|
|
Percent
of Total
|
|
Prime Borrowers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than or equal to 80%
|
|
$
|
1,853
|
|
|
$
|
36,606
|
|
|
$
|
38,459
|
|
|
|
87.5
|
%
|
Over 80% through 90%
|
|
|
202
|
|
|
|
2,576
|
|
|
|
2,778
|
|
|
|
6.3
|
|
Over 90% through 100%
|
|
|
138
|
|
|
|
1,033
|
|
|
|
1,171
|
|
|
|
2.7
|
|
Over 100%
|
|
|
182
|
|
|
|
1,237
|
|
|
|
1,419
|
|
|
|
3.2
|
|
No LTV available
|
|
|
|
|
|
|
149
|
|
|
|
149
|
|
|
|
.3
|
|
Total
|
|
$
|
2,375
|
|
|
$
|
41,601
|
|
|
$
|
43,976
|
|
|
|
100.0
|
%
|
Sub-Prime Borrowers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than or equal to 80%
|
|
$
|
|
|
|
$
|
594
|
|
|
$
|
594
|
|
|
|
45.4
|
%
|
Over 80% through 90%
|
|
|
|
|
|
|
210
|
|
|
|
210
|
|
|
|
16.0
|
|
Over 90% through 100%
|
|
|
|
|
|
|
177
|
|
|
|
177
|
|
|
|
13.5
|
|
Over 100%
|
|
|
|
|
|
|
329
|
|
|
|
329
|
|
|
|
25.1
|
|
No LTV available
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
1,310
|
|
|
$
|
1,310
|
|
|
|
100.0
|
%
|
Other Borrowers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than or equal to 80%
|
|
$
|
6
|
|
|
$
|
439
|
|
|
$
|
445
|
|
|
|
51.5
|
%
|
Over 80% through 90%
|
|
|
|
|
|
|
186
|
|
|
|
186
|
|
|
|
21.5
|
|
Over 90% through 100%
|
|
|
|
|
|
|
71
|
|
|
|
71
|
|
|
|
8.2
|
|
Over 100%
|
|
|
|
|
|
|
162
|
|
|
|
162
|
|
|
|
18.8
|
|
No LTV available
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6
|
|
|
$
|
858
|
|
|
$
|
864
|
|
|
|
100.0
|
%
|
Loans Purchased From GNMA Mortgage Pools (a)
|
|
$
|
|
|
|
$
|
5,815
|
|
|
$
|
5,815
|
|
|
|
100.0
|
%
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than or equal to 80%
|
|
$
|
1,859
|
|
|
$
|
37,639
|
|
|
$
|
39,498
|
|
|
|
76.0
|
%
|
Over 80% through 90%
|
|
|
202
|
|
|
|
2,972
|
|
|
|
3,174
|
|
|
|
6.1
|
|
Over 90% through 100%
|
|
|
138
|
|
|
|
1,281
|
|
|
|
1,419
|
|
|
|
2.7
|
|
Over 100%
|
|
|
182
|
|
|
|
1,728
|
|
|
|
1,910
|
|
|
|
3.7
|
|
No LTV available
|
|
|
|
|
|
|
149
|
|
|
|
149
|
|
|
|
.3
|
|
Loans purchased from GNMA mortgage pools (a)
|
|
|
|
|
|
|
5,815
|
|
|
|
5,815
|
|
|
|
11.2
|
|
Total
|
|
$
|
2,381
|
|
|
$
|
49,584
|
|
|
$
|
51,965
|
|
|
|
100.0
|
%
|
(a)
|
Represents loans purchased from Government National Mortgage Association (GNMA) mortgage pools whose payments are primarily insured by the Federal Housing
Administration or guaranteed by the Department of Veterans Affairs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
(Dollars in Millions)
|
|
Lines
|
|
|
Loans
|
|
|
Total
|
|
|
Percent
of Total
|
|
Prime Borrowers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than or equal to 80%
|
|
$
|
8,814
|
|
|
$
|
721
|
|
|
$
|
9,535
|
|
|
|
64.0
|
%
|
Over 80% through 90%
|
|
|
2,074
|
|
|
|
211
|
|
|
|
2,285
|
|
|
|
15.3
|
|
Over 90% through 100%
|
|
|
1,040
|
|
|
|
114
|
|
|
|
1,154
|
|
|
|
7.8
|
|
Over 100%
|
|
|
1,179
|
|
|
|
120
|
|
|
|
1,299
|
|
|
|
8.7
|
|
No LTV/CLTV available
|
|
|
586
|
|
|
|
46
|
|
|
|
632
|
|
|
|
4.2
|
|
Total
|
|
$
|
13,693
|
|
|
$
|
1,212
|
|
|
$
|
14,905
|
|
|
|
100.0
|
%
|
Sub-Prime Borrowers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than or equal to 80%
|
|
$
|
39
|
|
|
$
|
30
|
|
|
$
|
69
|
|
|
|
26.1
|
%
|
Over 80% through 90%
|
|
|
13
|
|
|
|
22
|
|
|
|
35
|
|
|
|
13.3
|
|
Over 90% through 100%
|
|
|
11
|
|
|
|
30
|
|
|
|
41
|
|
|
|
15.5
|
|
Over 100%
|
|
|
27
|
|
|
|
89
|
|
|
|
116
|
|
|
|
44.0
|
|
No LTV/CLTV available
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
1.1
|
|
Total
|
|
$
|
90
|
|
|
$
|
174
|
|
|
$
|
264
|
|
|
|
100.0
|
%
|
Other Borrowers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than or equal to 80%
|
|
$
|
374
|
|
|
$
|
11
|
|
|
$
|
385
|
|
|
|
77.2
|
%
|
Over 80% through 90%
|
|
|
69
|
|
|
|
7
|
|
|
|
76
|
|
|
|
15.2
|
|
Over 90% through 100%
|
|
|
16
|
|
|
|
1
|
|
|
|
17
|
|
|
|
3.4
|
|
Over 100%
|
|
|
16
|
|
|
|
3
|
|
|
|
19
|
|
|
|
3.8
|
|
No LTV/CLTV available
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
.4
|
|
Total
|
|
$
|
477
|
|
|
$
|
22
|
|
|
$
|
499
|
|
|
|
100.0
|
%
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than or equal to 80%
|
|
$
|
9,227
|
|
|
$
|
762
|
|
|
$
|
9,989
|
|
|
|
63.7
|
%
|
Over 80% through 90%
|
|
|
2,156
|
|
|
|
240
|
|
|
|
2,396
|
|
|
|
15.3
|
|
Over 90% through 100%
|
|
|
1,067
|
|
|
|
145
|
|
|
|
1,212
|
|
|
|
7.7
|
|
Over 100%
|
|
|
1,222
|
|
|
|
212
|
|
|
|
1,434
|
|
|
|
9.2
|
|
No LTV/CLTV available
|
|
|
588
|
|
|
|
49
|
|
|
|
637
|
|
|
|
4.1
|
|
Total
|
|
$
|
14,260
|
|
|
$
|
1,408
|
|
|
$
|
15,668
|
|
|
|
100.0
|
%
|
At June 30, 2014, approximately $1.3 billion of residential mortgages were to customers
that may be defined as sub-prime borrowers based on credit scores from independent agencies at loan origination, compared with $1.4 billion at December 31, 2013. In addition to residential mortgages, at June 30, 2014, $.3 billion of home
equity and second mortgage loans were to customers that may be defined as sub-prime borrowers, unchanged from at December 31, 2013. The total amount of consumer lending segment residential mortgage, home equity and second mortgage loans to
customers that may be defined as sub-prime borrowers represented only .4 percent of total assets at June 30, 2014, compared with .5 percent at December 31, 2013. The Company considers sub-prime loans to be those made to borrowers
with a risk of default significantly higher than those approved for prime lending programs, as reflected in credit scores obtained from independent agencies at loan origination, in addition to other credit underwriting criteria. Sub-prime portfolios
include only loans originated according to the Companys underwriting programs specifically designed to serve customers with weakened credit histories. The sub-prime designation indicators have been and will continue to be subject to
re-evaluation over time as borrower characteristics, payment performance and economic conditions change. The sub-prime loans originated during periods from June 2009 and after are with borrowers who met the Companys program guidelines and have
a credit score that generally is at or below a threshold of 620 to 650 depending on the program. Sub-prime loans originated during periods prior to June 2009 were based upon program level guidelines without regard to credit score.
Covered loans included $917 million in loans with negative-amortization payment options at June 30, 2014, compared with $986 million
at December 31, 2013. Other than covered loans, the Company does not have any residential mortgages with payment schedules that would cause balances to increase over time.
Home equity and second mortgages were $15.7 billion at June 30, 2014, compared with $15.4 billion at December 31, 2013, and included $5.0 billion of home equity lines in a first
lien position and $10.7 billion of home equity and second mortgage loans and lines in a junior lien position. Loans and lines in a junior lien position at June 30, 2014, included approximately $4.0 billion of loans and lines for which the
Company also serviced the related first lien loan, and approximately $6.7 billion where the Company did not service the related first lien loan. The Company was able to determine the status of the related first liens using information the
Company has as the servicer of the first lien or information reported on customer credit bureau files. The Company also evaluates other indicators of credit risk for these junior lien loans and lines including delinquency, estimated average CLTV
ratios and updated weighted-average credit scores in making its assessment of credit risk, related loss estimates and determining the allowance for credit losses.
The following table provides a summary of delinquency statistics and other credit quality indicators for the Companys junior lien positions at June 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior Liens Behind
|
|
|
|
|
|
|
Company
Owned or
Serviced
|
|
|
Third Party
|
|
|
|
|
(Dollars in Millions)
|
|
First Lien
|
|
|
First Lien
|
|
|
Total
|
|
Total
|
|
$
|
3,970
|
|
|
$
|
6,754
|
|
|
$
|
10,724
|
|
Percent 3089 days past due
|
|
|
.43
|
%
|
|
|
.58
|
%
|
|
|
.52
|
%
|
Percent 90 days or more past due
|
|
|
.06
|
%
|
|
|
.13
|
%
|
|
|
.10
|
%
|
Weighted-average CLTV
|
|
|
78
|
%
|
|
|
75
|
%
|
|
|
76
|
%
|
Weighted-average credit score
|
|
|
748
|
|
|
|
742
|
|
|
|
744
|
|
See the Analysis and Determination of the Allowance for Credit Losses section for additional information
on how the Company determines the allowance for credit losses for loans in a junior lien position.
Table 5
|
Delinquent Loan Ratios as a Percent of Ending Loan Balances
|
|
|
|
|
|
|
|
|
|
90 days or more past due
excluding
nonperforming loans
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
Commercial
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
.06
|
%
|
|
|
.08
|
%
|
Lease financing
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
.06
|
|
|
|
.08
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
Commercial mortgages
|
|
|
.01
|
|
|
|
.02
|
|
Construction and development
|
|
|
.27
|
|
|
|
.30
|
|
Total commercial real estate
|
|
|
.06
|
|
|
|
.07
|
|
Residential Mortgages (a)
|
|
|
.49
|
|
|
|
.65
|
|
Credit Card
|
|
|
1.06
|
|
|
|
1.17
|
|
Other Retail
|
|
|
|
|
|
|
|
|
Retail leasing
|
|
|
|
|
|
|
|
|
Other
|
|
|
.17
|
|
|
|
.21
|
|
Total other retail (b)
|
|
|
.15
|
|
|
|
.18
|
|
Total loans, excluding covered loans
|
|
|
.25
|
|
|
|
.31
|
|
Covered Loans
|
|
|
6.14
|
|
|
|
5.63
|
|
Total loans
|
|
|
.43
|
%
|
|
|
.51
|
%
|
|
|
|
90 days or more past due
including
nonperforming loans
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
Commercial
|
|
|
.30
|
%
|
|
|
.27
|
%
|
Commercial real estate
|
|
|
.62
|
|
|
|
.83
|
|
Residential mortgages (a)
|
|
|
2.06
|
|
|
|
2.16
|
|
Credit card
|
|
|
1.35
|
|
|
|
1.60
|
|
Other retail (b)
|
|
|
.54
|
|
|
|
.58
|
|
Total loans, excluding covered loans
|
|
|
.87
|
|
|
|
.97
|
|
Covered loans
|
|
|
7.73
|
|
|
|
7.13
|
|
Total loans
|
|
|
1.08
|
%
|
|
|
1.19
|
%
|
(a)
|
Delinquent loan ratios exclude $3.1 billion at June 30, 2014, and $3.7 billion at December 31, 2013, of loans purchased from GNMA mortgage pools whose repayments are
primarily insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. Including these loans, the ratio of residential mortgages 90 days or more past due including all nonperforming loans was 8.04 percent at
June 30, 2014, and 9.34 percent at December 31, 2013.
|
(b)
|
Delinquent loan ratios exclude student loans that are guaranteed by the federal government. Including these loans, the ratio of total other retail loans 90 days or more past
due including all nonperforming loans was .84 percent at June 30, 2014, and .93 percent at December 31, 2013.
|
Loan Delinquencies
Trends in
delinquency ratios are an indicator, among other considerations, of credit risk within the Companys loan portfolios. The Company measures delinquencies, both including and excluding nonperforming loans, to enable comparability with other
companies. Accruing loans 90 days or more past due totaled $1.0 billion ($.6 billion excluding covered loans) at June 30, 2014, compared with $1.2 billion ($.7 billion excluding covered loans) at December 31, 2013. These balances
exclude loans purchased from Government National Mortgage Association (GNMA) mortgage pools whose repayments are primarily insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. Accruing loans
90 days or more past due are not included in nonperforming assets and continue to accrue interest because they are adequately secured by collateral, are in the process of collection and are reasonably expected to result in repayment or restoration
to current status, or are managed in homogeneous portfolios with specified charge-off timeframes adhering to regulatory guidelines. The ratio of accruing loans 90 days or more past due to total loans was .43 percent (.25 percent excluding
covered loans) at June 30, 2014, compared with .51 percent (.31 percent excluding covered loans) at December 31, 2013.
The following table provides summary delinquency information for residential mortgages, credit card and
other retail loans included in the consumer lending segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
|
|
As a Percent of Ending
Loan Balances
|
|
(Dollars in Millions)
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
Residential Mortgages (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days
|
|
$
|
251
|
|
|
$
|
358
|
|
|
|
|
|
.48
|
%
|
|
|
.70
|
%
|
90 days or more
|
|
|
253
|
|
|
|
333
|
|
|
|
|
|
.49
|
|
|
|
.65
|
|
Nonperforming
|
|
|
818
|
|
|
|
770
|
|
|
|
|
|
1.57
|
|
|
|
1.51
|
|
Total
|
|
$
|
1,322
|
|
|
$
|
1,461
|
|
|
|
|
|
2.54
|
%
|
|
|
2.86
|
%
|
Credit Card
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days
|
|
$
|
199
|
|
|
$
|
226
|
|
|
|
|
|
1.13
|
%
|
|
|
1.25
|
%
|
90 days or more
|
|
|
187
|
|
|
|
210
|
|
|
|
|
|
1.06
|
|
|
|
1.17
|
|
Nonperforming
|
|
|
52
|
|
|
|
78
|
|
|
|
|
|
.29
|
|
|
|
.43
|
|
Total
|
|
$
|
438
|
|
|
$
|
514
|
|
|
|
|
|
2.48
|
%
|
|
|
2.85
|
%
|
Other Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Leasing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days
|
|
$
|
10
|
|
|
$
|
11
|
|
|
|
|
|
.16
|
%
|
|
|
.18
|
%
|
90 days or more
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
.02
|
|
|
|
.02
|
|
Total
|
|
$
|
11
|
|
|
$
|
12
|
|
|
|
|
|
.18
|
%
|
|
|
.20
|
%
|
Home Equity and Second Mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days
|
|
$
|
78
|
|
|
$
|
102
|
|
|
|
|
|
.50
|
%
|
|
|
.66
|
%
|
90 days or more
|
|
|
41
|
|
|
|
49
|
|
|
|
|
|
.26
|
|
|
|
.32
|
|
Nonperforming
|
|
|
174
|
|
|
|
167
|
|
|
|
|
|
1.11
|
|
|
|
1.08
|
|
Total
|
|
$
|
293
|
|
|
$
|
318
|
|
|
|
|
|
1.87
|
%
|
|
|
2.06
|
%
|
Other (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days
|
|
$
|
125
|
|
|
$
|
132
|
|
|
|
|
|
.47
|
%
|
|
|
.50
|
%
|
90 days or more
|
|
|
30
|
|
|
|
37
|
|
|
|
|
|
.11
|
|
|
|
.14
|
|
Nonperforming
|
|
|
16
|
|
|
|
23
|
|
|
|
|
|
.06
|
|
|
|
.09
|
|
Total
|
|
$
|
171
|
|
|
$
|
192
|
|
|
|
|
|
.64
|
%
|
|
|
.73
|
%
|
(a)
|
Excludes $407 million of loans 30-89 days past due and $3.1 billion of loans 90 days or more past due at June 30, 2014, purchased from GNMA mortgage pools that continue
to accrue interest, compared with $440 million and $3.7 billion at December 31, 2013, respectively.
|
(b)
|
Includes revolving credit, installment, automobile and student loans.
|
The following tables provide further information on residential
mortgages and home equity and second mortgages as a percent of ending loan balances by borrower type:
|
|
|
|
|
|
|
|
|
Residential mortgages (a)
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
Prime Borrowers
|
|
|
|
|
|
|
|
|
30-89 days
|
|
|
.39
|
%
|
|
|
.55
|
%
|
90 days or more
|
|
|
.43
|
|
|
|
.55
|
|
Nonperforming
|
|
|
1.34
|
|
|
|
1.31
|
|
Total
|
|
|
2.16
|
%
|
|
|
2.41
|
%
|
Sub-Prime Borrowers
|
|
|
|
|
|
|
|
|
30-89 days
|
|
|
5.27
|
%
|
|
|
7.60
|
%
|
90 days or more
|
|
|
3.89
|
|
|
|
6.02
|
|
Nonperforming
|
|
|
15.73
|
|
|
|
13.19
|
|
Total
|
|
|
24.89
|
%
|
|
|
26.81
|
%
|
Other Borrowers
|
|
|
|
|
|
|
|
|
30-89 days
|
|
|
1.27
|
%
|
|
|
1.65
|
%
|
90 days or more
|
|
|
1.51
|
|
|
|
1.43
|
|
Nonperforming
|
|
|
2.78
|
|
|
|
2.09
|
|
Total
|
|
|
5.56
|
%
|
|
|
5.17
|
%
|
(a)
|
Excludes delinquent and nonperforming information on loans purchased from GNMA mortgage pools as their repayments are primarily insured by the Federal Housing Administration
or guaranteed by the Department of Veterans Affairs.
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
Prime Borrowers
|
|
|
|
|
|
|
|
|
30-89 days
|
|
|
.44
|
%
|
|
|
.57
|
%
|
90 days or more
|
|
|
.24
|
|
|
|
.27
|
|
Nonperforming
|
|
|
.99
|
|
|
|
.98
|
|
Total
|
|
|
1.67
|
%
|
|
|
1.82
|
%
|
Sub-Prime Borrowers
|
|
|
|
|
|
|
|
|
30-89 days
|
|
|
3.41
|
%
|
|
|
4.39
|
%
|
90 days or more
|
|
|
1.14
|
|
|
|
2.03
|
|
Nonperforming
|
|
|
6.06
|
|
|
|
4.73
|
|
Total
|
|
|
10.61
|
%
|
|
|
11.15
|
%
|
Other Borrowers
|
|
|
|
|
|
|
|
|
30-89 days
|
|
|
.80
|
%
|
|
|
1.24
|
%
|
90 days or more
|
|
|
.40
|
|
|
|
.62
|
|
Nonperforming
|
|
|
2.01
|
|
|
|
1.86
|
|
Total
|
|
|
3.21
|
%
|
|
|
3.72
|
%
|
The following table provides summary delinquency information for covered loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
|
|
As a Percent of Ending
Loan Balances
|
|
(Dollars in Millions)
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
30-89 days
|
|
$
|
91
|
|
|
$
|
166
|
|
|
|
|
|
1.22
|
%
|
|
|
1.96
|
%
|
90 days or more
|
|
|
457
|
|
|
|
476
|
|
|
|
|
|
6.14
|
|
|
|
5.63
|
|
Nonperforming
|
|
|
119
|
|
|
|
127
|
|
|
|
|
|
1.60
|
|
|
|
1.50
|
|
Total
|
|
$
|
667
|
|
|
$
|
769
|
|
|
|
|
|
8.96
|
%
|
|
|
9.09
|
%
|
Restructured Loans
In certain circumstances, the Company may modify the terms of a loan to maximize the collection of amounts due when a borrower is experiencing financial difficulties or is expected to experience
difficulties in the near-term. In most cases the modification is either a concessionary reduction in interest rate, extension of the maturity date or reduction in the principal balance that would otherwise not be considered.
Troubled Debt Restructurings
Concessionary modifications are classified as TDRs unless the modification results in only an insignificant delay in the payments to be received. TDRs accrue interest if the borrower complies with the revised terms and conditions and has
demonstrated repayment performance at a level commensurate with the modified terms over several payment cycles. At June 30, 2014, performing TDRs were $6.0 billion, unchanged from December 31, 2013. Loans classified as TDRs are considered
impaired loans for reporting and measurement purposes.
The Company continues to work with customers to modify loans for
borrowers who are experiencing financial difficulties, including those acquired through FDIC-assisted acquisitions. Many of the Companys TDRs are determined on a case-by-case basis in connection with ongoing loan collection processes. The
modifications vary within each of the Companys loan classes. Commercial lending segment TDRs generally include extensions of the maturity date and may be accompanied by an increase or decrease to the interest rate. The Company may also work
with the borrower to make other changes to the loan to mitigate losses, such as obtaining additional collateral and/or guarantees to support the loan.
The Company has also implemented certain residential mortgage loan restructuring programs that may result in TDRs. The Company participates in the U.S. Department of the Treasury Home Affordable
Modification Program (HAMP). HAMP gives qualifying homeowners an opportunity to permanently modify their loan and achieve more affordable monthly payments, with the U.S. Department of the 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, and 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, extensions of maturity
dates or deferrals of payments, capitalization of accrued interest and/or outstanding advances, or in limited situations, partial forgiveness of loan principal. In most instances, participation in residential mortgage loan restructuring programs
requires the customer to complete a short-term trial period. A permanent loan modification is contingent on the customer successfully completing the trial period arrangement and the loan documents are not modified until that time. The Company
reports loans in a trial period arrangement as TDRs.
Credit card and other retail loan modifications are generally part of
distinct restructuring programs providing customers modification solutions over a specified time period, generally up to 60 months.
In accordance with regulatory guidance, the Company considers secured consumer loans that have had debt discharged through bankruptcy where the borrower has not reaffirmed the debt to be TDRs. If the loan
amount exceeds the collateral value, the loan is charged down to collateral value and the remaining amount is reported as nonperforming.
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
modifications on covered loans, including the economic impact of interest rate reductions, are generally eligible for reimbursement under the loss sharing agreements.
The following table provides a summary of TDRs by loan class, including the delinquency status for TDRs that
continue to accrue interest and TDRs included in nonperforming assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a Percent of Performing TDRs
|
|
|
|
|
|
|
|
At June 30, 2014
(Dollars in Millions)
|
|
Performing
TDRs
|
|
|
30-89 Days
Past Due
|
|
|
90 Days or More
Past Due
|
|
|
Nonperforming
TDRs
|
|
|
Total
TDRs
|
|
Commercial
|
|
$
|
252
|
|
|
|
9.2
|
%
|
|
|
1.5
|
%
|
|
$
|
146
|
(a)
|
|
$
|
398
|
|
Commercial real estate
|
|
|
330
|
|
|
|
2.2
|
|
|
|
3.3
|
|
|
|
97
|
(b)
|
|
|
427
|
|
Residential mortgages
|
|
|
1,922
|
|
|
|
5.1
|
|
|
|
5.3
|
|
|
|
522
|
|
|
|
2,444
|
(d)
|
Credit card
|
|
|
220
|
|
|
|
8.3
|
|
|
|
6.7
|
|
|
|
52
|
(c)
|
|
|
272
|
|
Other retail
|
|
|
187
|
|
|
|
5.2
|
|
|
|
3.4
|
|
|
|
65
|
(c)
|
|
|
252
|
(e)
|
TDRs, excluding GNMA and covered loans
|
|
|
2,911
|
|
|
|
5.4
|
|
|
|
4.7
|
|
|
|
882
|
|
|
|
3,793
|
|
Loans purchased from GNMA mortgage pools
|
|
|
2,816
|
|
|
|
6.4
|
|
|
|
47.7
|
|
|
|
|
|
|
|
2,816
|
(f)
|
Covered loans
|
|
|
256
|
|
|
|
.4
|
|
|
|
1.4
|
|
|
|
64
|
|
|
|
320
|
|
Total
|
|
$
|
5,983
|
|
|
|
5.7
|
%
|
|
|
24.8
|
%
|
|
$
|
946
|
|
|
$
|
6,929
|
|
(a)
|
Primarily represents loans less than six months from the modification date that have not met the performance period required to return to accrual status (generally six months)
and small business credit cards with a modified rate equal to 0 percent.
|
(b)
|
Primarily represents loans less than six months from the modification date that have not met the performance period required to return to accrual status (generally six
months).
|
(c)
|
Primarily represents loans with a modified rate equal to 0 percent.
|
(d)
|
Includes $311 million of residential mortgage loans to borrowers that have had debt discharged through bankruptcy and $90 million in trial period arrangements or previously
placed in trial period arrangements but not successfully completed.
|
(e)
|
Includes $141 million of other retail loans to borrowers that have had debt discharged through bankruptcy and $4 million in trial period arrangements or previously placed in
trial period arrangements but not successfully completed.
|
(f)
|
Includes $498 million of Federal Housing Administration and Department of Veterans Affairs residential mortgage loans to borrowers that have had debt discharged through
bankruptcy and $698 million in trial period arrangements or previously placed in trial period arrangements but not successfully completed.
|
Short-term Modifications
The
Company makes short-term modifications that it does not consider to be TDRs, in limited circumstances, to assist borrowers experiencing temporary hardships. Consumer lending programs include payment reductions, deferrals of up to three past due
payments, and the ability to return to current status if the borrower makes required payments. The Company may also make short-term modifications to commercial lending loans, with the most common modification being an extension of the maturity date
of three months or less. Such extensions generally are used when the maturity date is imminent and the borrower is experiencing some level of financial stress, but the Company believes the borrower will pay all contractual amounts owed. Short-term
modified loans were not material at June 30, 2014.
Table 6
|
Nonperforming Assets (a)
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
Commercial
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
174
|
|
|
$
|
122
|
|
Lease financing
|
|
|
16
|
|
|
|
12
|
|
Total commercial
|
|
|
190
|
|
|
|
134
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
Commercial mortgages
|
|
|
121
|
|
|
|
182
|
|
Construction and development
|
|
|
105
|
|
|
|
121
|
|
Total commercial real estate
|
|
|
226
|
|
|
|
303
|
|
Residential Mortgages (b)
|
|
|
818
|
|
|
|
770
|
|
Credit Card
|
|
|
52
|
|
|
|
78
|
|
Other Retail
|
|
|
|
|
|
|
|
|
Retail leasing
|
|
|
1
|
|
|
|
1
|
|
Other
|
|
|
190
|
|
|
|
190
|
|
Total other retail
|
|
|
191
|
|
|
|
191
|
|
Total nonperforming loans, excluding covered loans
|
|
|
1,477
|
|
|
|
1,476
|
|
Covered Loans
|
|
|
119
|
|
|
|
127
|
|
Total nonperforming loans
|
|
|
1,596
|
|
|
|
1,603
|
|
Other Real Estate (c)(d)
|
|
|
279
|
|
|
|
327
|
|
Covered Other Real Estate (d)
|
|
|
58
|
|
|
|
97
|
|
Other Assets
|
|
|
10
|
|
|
|
10
|
|
Total nonperforming assets
|
|
$
|
1,943
|
|
|
$
|
2,037
|
|
Total nonperforming assets, excluding covered assets
|
|
$
|
1,766
|
|
|
$
|
1,813
|
|
Excluding covered assets
|
|
|
|
|
|
|
|
|
Accruing loans 90 days or more past due (b)
|
|
$
|
581
|
|
|
$
|
713
|
|
Nonperforming loans to total loans
|
|
|
.62
|
%
|
|
|
.65
|
%
|
Nonperforming assets to total loans plus other real estate (c)
|
|
|
.75
|
%
|
|
|
.80
|
%
|
Including covered assets
|
|
|
|
|
|
|
|
|
Accruing loans 90 days or more past due (b)
|
|
$
|
1,038
|
|
|
$
|
1,189
|
|
Nonperforming loans to total loans
|
|
|
.65
|
%
|
|
|
.68
|
%
|
Nonperforming assets to total loans plus other real estate (c)
|
|
|
.80
|
%
|
|
|
.86
|
%
|
Changes in Nonperforming Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
Commercial and
Commercial
Real Estate
|
|
|
Credit Card,
Other Retail
and Residential
Mortgages
|
|
|
Covered
Assets
|
|
|
Total
|
|
Balance December 31, 2013
|
|
$
|
494
|
|
|
$
|
1,319
|
|
|
$
|
224
|
|
|
$
|
2,037
|
|
Additions to nonperforming assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New nonaccrual loans and foreclosed properties
|
|
|
223
|
|
|
|
364
|
|
|
|
24
|
|
|
|
611
|
|
Advances on loans
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
Total additions
|
|
|
243
|
|
|
|
364
|
|
|
|
24
|
|
|
|
631
|
|
Reductions in nonperforming assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paydowns, payoffs
|
|
|
(88
|
)
|
|
|
(145
|
)
|
|
|
(33
|
)
|
|
|
(266
|
)
|
Net sales
|
|
|
(65
|
)
|
|
|
(60
|
)
|
|
|
(36
|
)
|
|
|
(161
|
)
|
Return to performing status
|
|
|
(15
|
)
|
|
|
(74
|
)
|
|
|
(1
|
)
|
|
|
(90
|
)
|
Charge-offs (e)
|
|
|
(108
|
)
|
|
|
(99
|
)
|
|
|
(1
|
)
|
|
|
(208
|
)
|
Total reductions
|
|
|
(276
|
)
|
|
|
(378
|
)
|
|
|
(71
|
)
|
|
|
(725
|
)
|
Net additions to (reductions in) nonperforming assets
|
|
|
(33
|
)
|
|
|
(14
|
)
|
|
|
(47
|
)
|
|
|
(94
|
)
|
Balance June 30, 2014
|
|
$
|
461
|
|
|
$
|
1,305
|
|
|
$
|
177
|
|
|
$
|
1,943
|
|
(a)
|
Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due.
|
(b)
|
Excludes $3.1 billion and $3.7 billion at June 30, 2014, and December 31, 2013, respectively, of loans purchased from GNMA mortgage pools that are 90 days or more
past due that continue to accrue interest, as their repayments are primarily insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs.
|
(c)
|
Foreclosed GNMA loans of $583 million and $527 million at June 30, 2014, and December 31, 2013, respectively, continue to accrue interest and are recorded as other
assets and excluded from nonperforming assets because they are insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs.
|
(d)
|
Includes equity investments in entities whose principal assets are other real estate owned.
|
(e)
|
Charge-offs exclude actions for certain card products and loan sales that were not classified as nonperforming at the time the charge-off occurred.
|
Nonperforming Assets
The level of nonperforming assets represents another indicator of the potential for future credit losses. Nonperforming assets include nonaccrual loans, restructured loans not performing in
accordance with modified terms and not accruing interest, restructured loans that have not met the performance period required to return to accrual status, other real estate owned and other nonperforming assets owned by the Company. Nonperforming
assets are generally either originated by the Company or acquired under FDIC loss sharing agreements that substantially reduce the risk of credit losses to the Company. Interest payments collected from assets on nonaccrual status are generally
applied against the principal balance and not recorded as income. However, interest income may be recognized for interest payments if the remaining carrying amount of the loan is believed to be collectible.
At June 30, 2014, total nonperforming assets were $1.9 billion, compared with $2.0 billion at December 31, 2013. Excluding
covered assets, nonperforming assets were $1.8 billion at June 30, 2014, representing a $47 million (2.6 percent) decrease from December 31, 2013. The decrease in nonperforming assets, excluding covered assets, was primarily
driven by reductions in the commercial mortgage portfolio, as well as by improvement in construction and development and credit card loans. Nonperforming covered assets at June 30, 2014, were $177 million, compared with $224 million at
December 31, 2013. These assets are covered by loss sharing agreements with the FDIC that substantially reduce the risk of credit losses to the Company. The ratio of total nonperforming assets to total loans and other real estate was
.80 percent (.75 percent excluding covered assets) at June 30, 2014, compared with .86 percent (.80 percent excluding covered assets) at December 31, 2013. The Company expects total nonperforming assets to remain relatively
stable in the third quarter of 2014.
Other real estate owned, excluding covered assets, was $279 million at June 30,
2014, compared with $327 million at December 31, 2013, and was related to foreclosed properties that previously secured loan balances. These balances exclude foreclosed GNMA loans whose repayments are primarily insured by the Federal
Housing Administration or guaranteed by the Department of Veterans Affairs.
The following table provides an analysis of other real estate
owned, excluding covered assets, as a percent of their related loan balances, including geographical location detail for residential (residential mortgage, home equity and second mortgage) and commercial (commercial and commercial real estate) loan
balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
|
|
As a Percent of Ending
Loan Balances
|
|
(Dollars in Millions)
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida
|
|
$
|
19
|
|
|
$
|
17
|
|
|
|
|
|
1.11
|
%
|
|
|
1.03
|
%
|
Minnesota
|
|
|
16
|
|
|
|
15
|
|
|
|
|
|
.25
|
|
|
|
.24
|
|
Washington
|
|
|
13
|
|
|
|
16
|
|
|
|
|
|
.32
|
|
|
|
.40
|
|
Illinois
|
|
|
13
|
|
|
|
14
|
|
|
|
|
|
.30
|
|
|
|
.36
|
|
California
|
|
|
12
|
|
|
|
15
|
|
|
|
|
|
.09
|
|
|
|
.13
|
|
All other states
|
|
|
162
|
|
|
|
189
|
|
|
|
|
|
.42
|
|
|
|
.49
|
|
Total residential
|
|
|
235
|
|
|
|
266
|
|
|
|
|
|
.35
|
|
|
|
.40
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California
|
|
|
13
|
|
|
|
14
|
|
|
|
|
|
.07
|
|
|
|
.08
|
|
Tennessee
|
|
|
4
|
|
|
|
5
|
|
|
|
|
|
.19
|
|
|
|
.25
|
|
Missouri
|
|
|
4
|
|
|
|
14
|
|
|
|
|
|
.09
|
|
|
|
.30
|
|
Indiana
|
|
|
3
|
|
|
|
|
|
|
|
|
|
.24
|
|
|
|
|
|
Virginia
|
|
|
3
|
|
|
|
2
|
|
|
|
|
|
.20
|
|
|
|
.16
|
|
All other states
|
|
|
17
|
|
|
|
26
|
|
|
|
|
|
.02
|
|
|
|
.03
|
|
Total commercial
|
|
|
44
|
|
|
|
61
|
|
|
|
|
|
.04
|
|
|
|
.06
|
|
Total
|
|
$
|
279
|
|
|
$
|
327
|
|
|
|
|
|
.12
|
%
|
|
|
.14
|
%
|
Analysis of Loan Net Charge-Offs
Total loan net charge-offs were $349 million for the second quarter and $690 million for the first six months of 2014, compared with $392 million and $825 million for the same periods of 2013.
The ratio of total loan net charge-offs to average loans outstanding on an annualized basis for the second quarter and first six months of 2014 was .58 percent for both periods, compared with .70 percent and .74 percent for the second quarter
and first six months of 2013, respectively. The year-over-year decreases in total net charge-offs were due to improvements in the residential mortgages and home equity and second mortgages portfolios, due to improvement in the economy. Given current
economic conditions, the Company expects the level of net charge-offs to remain relatively stable in the third quarter of 2014.
Commercial and commercial real estate loan net charge-offs for the second quarter of 2014 were $51 million (.18 percent of average
loans outstanding on an annualized basis), compared with $21 million (.08 percent of average loans outstanding on an annualized basis) for the second quarter of 2013. Commercial and commercial real estate loan net charge-offs for the first
six months of 2014 were $84 million (.15 percent of average loans outstanding on an annualized basis), compared with $75 million (.15 percent of average loans outstanding on an annualized basis) for the first six months of 2013.
Table 7
|
Net Charge-offs as a Percent of Average Loans Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
.30
|
%
|
|
|
.22
|
%
|
|
|
.26
|
%
|
|
|
.22
|
%
|
Lease financing
|
|
|
.24
|
|
|
|
.31
|
|
|
|
.20
|
|
|
|
.27
|
|
Total commercial
|
|
|
.29
|
|
|
|
.23
|
|
|
|
.25
|
|
|
|
.22
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgages
|
|
|
(.08
|
)
|
|
|
.10
|
|
|
|
(.04
|
)
|
|
|
.15
|
|
Construction and development
|
|
|
.09
|
|
|
|
(1.54
|
)
|
|
|
|
|
|
|
(.67
|
)
|
Total commercial real estate
|
|
|
(.04
|
)
|
|
|
(.18
|
)
|
|
|
(.04
|
)
|
|
|
.01
|
|
Residential Mortgages
|
|
|
.44
|
|
|
|
.63
|
|
|
|
.44
|
|
|
|
.73
|
|
Credit Card (a)
|
|
|
3.92
|
|
|
|
4.23
|
|
|
|
3.94
|
|
|
|
4.08
|
|
Other Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail leasing
|
|
|
.07
|
|
|
|
(.07
|
)
|
|
|
.03
|
|
|
|
|
|
Home equity and second mortgages
|
|
|
.60
|
|
|
|
1.45
|
|
|
|
.71
|
|
|
|
1.63
|
|
Other
|
|
|
.68
|
|
|
|
.76
|
|
|
|
.69
|
|
|
|
.80
|
|
Total other retail
|
|
|
.58
|
|
|
|
.90
|
|
|
|
.61
|
|
|
|
.99
|
|
Total loans, excluding covered loans
|
|
|
.60
|
|
|
|
.70
|
|
|
|
.60
|
|
|
|
.76
|
|
Covered Loans
|
|
|
.10
|
|
|
|
.73
|
|
|
|
.17
|
|
|
|
.38
|
|
Total loans
|
|
|
.58
|
%
|
|
|
.70
|
%
|
|
|
.58
|
%
|
|
|
.74
|
%
|
(a)
|
Net charge-offs as a percent of average loans outstanding, excluding portfolio purchases where the acquired loans were recorded at fair value at the purchase date, were
4.23 percent and 4.12 percent for the three and six months ended June 30, 2013, respectively.
|
Residential mortgage loan net charge-offs for the second quarter of 2014 were $57 million (.44 percent of average loans outstanding
on an annualized basis), compared with $74 million (.63 percent of average loans outstanding on an annualized basis) for the second quarter of 2013. Residential mortgage loan net charge-offs for the first six months of 2014 were $114
million (.44 percent of average loans outstanding on an annualized basis), compared with $166 million (.73 percent of average loans outstanding on an annualized basis) for the first six months of 2013. Credit card loan net charge-offs
for the second quarter of 2014 were $170 million (3.92 percent of average loans outstanding on an annualized basis), compared with $173 million (4.23 percent of average loans outstanding on an annualized basis) for the second
quarter of 2013. Credit card loan net charge-offs for the first six months of 2014 were $340 million (3.94 percent of average loans outstanding on an annualized basis), compared with $333 million (4.08 percent of average loans
outstanding on an annualized basis) for the first six months of 2013. Other retail loan net charge-offs for the second quarter of 2014 were $69 million (.58 percent of average loans outstanding on an annualized basis), compared with
$105 million (.90 percent of average loans outstanding on an annualized basis) for the second quarter of 2013. Other retail loan net charge-offs for the first six months of 2014 were $145 million (.61 percent of average loans
outstanding on an annualized basis), compared with $231 million (.99 percent of average loans outstanding on an annualized basis) for the first six months of 2013. The year-over-year decreases in total residential mortgage, credit card and
other retail loan net charge-offs reflected the improvement in economic conditions.
The following table provides an analysis of net charge-offs as a percent of average loans outstanding for residential mortgages and home equity and second mortgages by borrower type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
Average Loans
|
|
|
Percent of
Average Loans
|
|
|
Average Loans
|
|
|
Percent of
Average Loans
|
|
(Dollars in Millions)
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Residential Mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime borrowers
|
|
$
|
43,774
|
|
|
$
|
38,985
|
|
|
|
.33
|
%
|
|
|
.57
|
%
|
|
$
|
43,639
|
|
|
$
|
38,152
|
|
|
|
.35
|
%
|
|
|
.62
|
%
|
Sub-prime borrowers
|
|
|
1,323
|
|
|
|
1,497
|
|
|
|
4.55
|
|
|
|
4.55
|
|
|
|
1,341
|
|
|
|
1,525
|
|
|
|
4.81
|
|
|
|
5.68
|
|
Other borrowers
|
|
|
873
|
|
|
|
876
|
|
|
|
1.38
|
|
|
|
.92
|
|
|
|
887
|
|
|
|
861
|
|
|
|
.91
|
|
|
|
1.17
|
|
Loans purchased from GNMA mortgage pools (a)
|
|
|
5,845
|
|
|
|
5,515
|
|
|
|
.21
|
|
|
|
|
|
|
|
5,833
|
|
|
|
5,458
|
|
|
|
.10
|
|
|
|
|
|
Total
|
|
$
|
51,815
|
|
|
$
|
46,873
|
|
|
|
.44
|
%
|
|
|
.63
|
%
|
|
$
|
51,700
|
|
|
$
|
45,996
|
|
|
|
.44
|
%
|
|
|
.73
|
%
|
Home Equity and Second Mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime borrowers
|
|
$
|
14,564
|
|
|
$
|
15,218
|
|
|
|
.50
|
%
|
|
|
1.27
|
%
|
|
$
|
14,578
|
|
|
$
|
15,433
|
|
|
|
.62
|
%
|
|
|
1.44
|
%
|
Sub-prime borrowers
|
|
|
267
|
|
|
|
333
|
|
|
|
6.01
|
|
|
|
9.64
|
|
|
|
276
|
|
|
|
343
|
|
|
|
5.11
|
|
|
|
8.81
|
|
Other borrowers
|
|
|
496
|
|
|
|
438
|
|
|
|
.81
|
|
|
|
1.83
|
|
|
|
492
|
|
|
|
434
|
|
|
|
.82
|
|
|
|
2.79
|
|
Total
|
|
$
|
15,327
|
|
|
$
|
15,989
|
|
|
|
.60
|
%
|
|
|
1.45
|
%
|
|
$
|
15,346
|
|
|
$
|
16,210
|
|
|
|
.71
|
%
|
|
|
1.63
|
%
|
(a)
|
Represents loans purchased from GNMA mortgage pools whose payments are primarily insured by the Federal Housing Administration or guaranteed by the Department of Veterans
Affairs.
|
Analysis and Determination of the 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 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 historical 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
timeframe 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, and historical losses, adjusted for current trends.
The allowance recorded for 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 LTV ratios when possible, portfolio growth and historical losses, adjusted for current trends. Credit card and other retail loans 90 days or more past due are generally not placed on nonaccrual
status because of the relatively short period of time to charge-off and, therefore, are excluded from nonperforming loans and measures that include nonperforming loans as part of the calculation.
When evaluating the appropriateness of the allowance for credit losses for any loans and lines in a junior lien position, the Company
considers the delinquency and modification status of the first lien. At June 30, 2014, the Company serviced the first lien on 37 percent of the home equity loans and lines in a junior lien position. The Company also considers information
received from its primary regulator on the status of the first liens that are serviced by other large servicers in the industry and the status of first lien mortgage accounts reported on customer credit bureau files. Regardless of whether or not the
Company services the first lien, an assessment is made of economic conditions, problem loans, recent loss experience and other factors in determining the allowance for credit losses. Based on the available information, the Company estimated
$369 million or 2.4 percent of the total home equity portfolio at June 30, 2014, represented junior liens where the first lien was delinquent or modified.
The Company uses historical loss experience on the loans and lines in a junior lien position where the first lien is serviced by the Company, or can be identified in credit bureau data, to establish loss
estimates for junior lien loans and lines the Company services that are current, but the first lien is delinquent or modified. Historically, the number of junior lien defaults in any period has been a small percentage of the total portfolio (for
example, only 1.1 percent for the twelve months ended June 30, 2014), and the long-term average loss rate on the small percentage of loans that default has been approximately 80 percent. In addition, the Company obtains updated credit scores on
its home equity portfolio each quarter, and in some cases more frequently, and uses this information to qualitatively supplement its loss estimation methods. Credit score distributions for the portfolio are monitored monthly and any changes in the
distribution are one of the factors considered in assessing the Companys loss estimates. In its evaluation of the allowance for credit losses, the Company also considers the increased risk of loss associated with home equity lines that are
contractually scheduled to convert from a revolving status to a fully amortizing payment and with residential lines and loans that have a balloon payoff provision.
The allowance for the covered loan segment is evaluated each quarter in a manner similar to that described for non-covered loans, and reflects decreases in expected cash flows on those loans after the
acquisition date. The provision for credit losses for covered loans considers the indemnification provided by the FDIC.
In addition, the evaluation of the appropriate allowance for credit losses for purchased
non-impaired loans acquired after January 1, 2009, in the various loan segments considers credit discounts recorded as a part of the initial determination of the fair value of the loans. For these loans, no allowance for credit losses is
recorded at the purchase date. Credit discounts representing the principal losses expected over the life of the loans are a component of the initial fair value. Subsequent to the purchase date, the methods utilized to estimate the required allowance
for credit losses for these loans is similar to originated loans; however, the Company records a provision for credit losses only when the required allowance, net of any expected reimbursement under any loss sharing agreements with the FDIC, exceeds
any remaining credit discounts.
The evaluation of the appropriate allowance for credit losses for purchased impaired loans in
the various loan segments considers the expected cash flows to be collected from the borrower. These loans are initially recorded at fair value and therefore no allowance for credit losses is recorded at the purchase date.
Subsequent to the purchase date, the expected cash flows of purchased loans are subject to evaluation. Decreases in expected cash flows
are recognized by recording an allowance for credit losses with the related provision for credit losses reduced for the amount reimbursable by the FDIC, where applicable. If the expected cash flows on the purchased loans increase such that a
previously recorded impairment allowance can be reversed, the Company records a reduction in the allowance with a related reduction in losses reimbursable by the FDIC, where applicable. Increases in expected cash flows of purchased loans, when there
are no reversals of previous impairment allowances, are recognized over the remaining life of the loans and resulting decreases in expected cash flows of the FDIC indemnification assets are amortized over the shorter of the remaining contractual
term of the indemnification agreements or the remaining life of the loans. Refer to Note 5 of the Notes to Consolidated Financial Statements, for more information.
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.
Refer to Managements Discussion and Analysis Analysis and Determination of the Allowance for Credit Losses in the Companys Annual Report on Form 10-K for the year ended
December 31, 2013, for further discussion on the analysis and determination of the allowance for credit losses.
At
June 30, 2014, the allowance for credit losses was $4.4 billion (1.82 percent of total loans and 1.83 percent of loans excluding covered loans), compared with $4.5 billion (1.93 percent of total loans and 1.94 percent of
loans excluding covered loans) at December 31, 2013. The ratio of the allowance for credit losses to nonperforming loans was 279 percent (294 percent excluding covered loans) at June 30, 2014, compared with 283 percent
(297 percent excluding covered loans) at December 31, 2013. The ratio of the allowance for credit losses to annualized loan net charge-offs was 318 percent at June 30, 2014, compared with 310 percent of full year
2013 net charge-offs at December 31, 2013, reflecting the impact of improving economic conditions over the past year.
Table 8
|
Summary of Allowance for Credit Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
(Dollars in Millions)
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Balance at beginning of period
|
|
$
|
4,497
|
|
|
$
|
4,708
|
|
|
$
|
4,537
|
|
|
$
|
4,733
|
|
Charge-Offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
69
|
|
|
|
53
|
|
|
|
126
|
|
|
|
100
|
|
Lease financing
|
|
|
7
|
|
|
|
10
|
|
|
|
13
|
|
|
|
19
|
|
Total commercial
|
|
|
76
|
|
|
|
63
|
|
|
|
139
|
|
|
|
119
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgages
|
|
|
3
|
|
|
|
14
|
|
|
|
10
|
|
|
|
43
|
|
Construction and development
|
|
|
6
|
|
|
|
2
|
|
|
|
7
|
|
|
|
16
|
|
Total commercial real estate
|
|
|
9
|
|
|
|
16
|
|
|
|
17
|
|
|
|
59
|
|
Residential mortgages
|
|
|
62
|
|
|
|
81
|
|
|
|
123
|
|
|
|
181
|
|
Credit card
|
|
|
188
|
|
|
|
191
|
|
|
|
372
|
|
|
|
384
|
|
Other retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail leasing
|
|
|
2
|
|
|
|
1
|
|
|
|
3
|
|
|
|
3
|
|
Home equity and second mortgages
|
|
|
31
|
|
|
|
65
|
|
|
|
67
|
|
|
|
144
|
|
Other
|
|
|
62
|
|
|
|
68
|
|
|
|
125
|
|
|
|
143
|
|
Total other retail
|
|
|
95
|
|
|
|
134
|
|
|
|
195
|
|
|
|
290
|
|
Covered loans (a)
|
|
|
2
|
|
|
|
21
|
|
|
|
8
|
|
|
|
22
|
|
Total charge-offs
|
|
|
432
|
|
|
|
506
|
|
|
|
854
|
|
|
|
1,055
|
|
Recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
17
|
|
|
|
19
|
|
|
|
40
|
|
|
|
34
|
|
Lease financing
|
|
|
4
|
|
|
|
6
|
|
|
|
8
|
|
|
|
12
|
|
Total commercial
|
|
|
21
|
|
|
|
25
|
|
|
|
48
|
|
|
|
46
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgages
|
|
|
9
|
|
|
|
6
|
|
|
|
17
|
|
|
|
20
|
|
Construction and development
|
|
|
4
|
|
|
|
27
|
|
|
|
7
|
|
|
|
37
|
|
Total commercial real estate
|
|
|
13
|
|
|
|
33
|
|
|
|
24
|
|
|
|
57
|
|
Residential mortgages
|
|
|
5
|
|
|
|
7
|
|
|
|
9
|
|
|
|
15
|
|
Credit card
|
|
|
18
|
|
|
|
18
|
|
|
|
32
|
|
|
|
51
|
|
Other retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail leasing
|
|
|
1
|
|
|
|
2
|
|
|
|
2
|
|
|
|
3
|
|
Home equity and second mortgages
|
|
|
8
|
|
|
|
7
|
|
|
|
13
|
|
|
|
13
|
|
Other
|
|
|
17
|
|
|
|
20
|
|
|
|
35
|
|
|
|
43
|
|
Total other retail
|
|
|
26
|
|
|
|
29
|
|
|
|
50
|
|
|
|
59
|
|
Covered loans (a)
|
|
|
|
|
|
|
2
|
|
|
|
1
|
|
|
|
2
|
|
Total recoveries
|
|
|
83
|
|
|
|
114
|
|
|
|
164
|
|
|
|
230
|
|
Net Charge-Offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
52
|
|
|
|
34
|
|
|
|
86
|
|
|
|
66
|
|
Lease financing
|
|
|
3
|
|
|
|
4
|
|
|
|
5
|
|
|
|
7
|
|
Total commercial
|
|
|
55
|
|
|
|
38
|
|
|
|
91
|
|
|
|
73
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgages
|
|
|
(6
|
)
|
|
|
8
|
|
|
|
(7
|
)
|
|
|
23
|
|
Construction and development
|
|
|
2
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
(21
|
)
|
Total commercial real estate
|
|
|
(4
|
)
|
|
|
(17
|
)
|
|
|
(7
|
)
|
|
|
2
|
|
Residential mortgages
|
|
|
57
|
|
|
|
74
|
|
|
|
114
|
|
|
|
166
|
|
Credit card
|
|
|
170
|
|
|
|
173
|
|
|
|
340
|
|
|
|
333
|
|
Other retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail leasing
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
|
|
Home equity and second mortgages
|
|
|
23
|
|
|
|
58
|
|
|
|
54
|
|
|
|
131
|
|
Other
|
|
|
45
|
|
|
|
48
|
|
|
|
90
|
|
|
|
100
|
|
Total other retail
|
|
|
69
|
|
|
|
105
|
|
|
|
145
|
|
|
|
231
|
|
Covered loans (a)
|
|
|
2
|
|
|
|
19
|
|
|
|
7
|
|
|
|
20
|
|
Total net charge-offs
|
|
|
349
|
|
|
|
392
|
|
|
|
690
|
|
|
|
825
|
|
Provision for credit losses
|
|
|
324
|
|
|
|
362
|
|
|
|
630
|
|
|
|
765
|
|
Other changes (b)
|
|
|
(23
|
)
|
|
|
(66
|
)
|
|
|
(28
|
)
|
|
|
(61
|
)
|
Balance at end of period (c)
|
|
$
|
4,449
|
|
|
$
|
4,612
|
|
|
$
|
4,449
|
|
|
$
|
4,612
|
|
Components
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
4,132
|
|
|
$
|
4,312
|
|
|
|
|
|
|
|
|
|
Liability for unfunded credit commitments
|
|
|
317
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
Total allowance for credit losses
|
|
$
|
4,449
|
|
|
$
|
4,612
|
|
|
|
|
|
|
|
|
|
Allowance for Credit Losses as a Percentage of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-end loans, excluding covered loans
|
|
|
1.83
|
%
|
|
|
2.03
|
%
|
|
|
|
|
|
|
|
|
Nonperforming loans, excluding covered loans
|
|
|
294
|
|
|
|
287
|
|
|
|
|
|
|
|
|
|
Nonperforming and accruing loans 90 days or more past due, excluding covered loans
|
|
|
211
|
|
|
|
209
|
|
|
|
|
|
|
|
|
|
Nonperforming assets, excluding covered assets
|
|
|
246
|
|
|
|
231
|
|
|
|
|
|
|
|
|
|
Annualized net charge-offs, excluding covered loans
|
|
|
312
|
|
|
|
296
|
|
|
|
|
|
|
|
|
|
Period-end loans
|
|
|
1.82
|
%
|
|
|
2.02
|
%
|
|
|
|
|
|
|
|
|
Nonperforming loans
|
|
|
279
|
|
|
|
269
|
|
|
|
|
|
|
|
|
|
Nonperforming and accruing loans 90 days or more past due
|
|
|
169
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
Nonperforming assets
|
|
|
229
|
|
|
|
203
|
|
|
|
|
|
|
|
|
|
Annualized net charge-offs
|
|
|
318
|
|
|
|
293
|
|
|
|
|
|
|
|
|
|
(a)
|
Relates to covered loan charge-offs and recoveries not reimbursable by the FDIC.
|
(b)
|
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, and the impact of any loan sales.
|
(c)
|
At June 30, 2014 and 2013, $1.7 billion of the total allowance for credit losses related to incurred losses on credit card and other retail loans.
|
Residual Value Risk
Management
The Company manages its risk to changes in the residual value of leased assets through disciplined residual valuation setting at the inception of a lease, diversification
of its leased assets, regular residual asset valuation reviews and monitoring of residual value gains or losses upon the disposition of assets. As of June 30, 2014, no significant change in the amount of residual values or concentration of the
portfolios had occurred since December 31, 2013. Refer to Managements Discussion and Analysis Residual Value Risk Management in the Companys Annual Report on Form 10-K for the year ended
December
31, 2013, for further discussion on residual value risk management.
Operational
Risk Management
Operational risk is inherent in all business activities, and the management of this risk is important to the achievement of the Companys objectives. Business
lines have direct and primary responsibility and accountability for identifying, controlling, and monitoring operational risks embedded in their business activities. Business managers maintain a system of controls with the objective of providing
proper transaction authorization and execution, proper system operations, safeguarding of assets from misuse or theft, and ensuring the reliability of financial and other data. Refer to Managements Discussion and Analysis
Operational Risk Management in the Companys Annual Report on Form 10-K for the year ended December 31, 2013, for further discussion on operational risk management.
Compliance Risk Management
The Company may suffer legal or
regulatory sanctions, material financial loss, or damage to reputation through failure to comply with laws, regulations, rules, standards of good practice, and codes of conduct. The Company has controls and processes in place to ensure assessment,
identification, monitoring, management and reporting of compliance risks and issues.
Interest Rate Risk Management
In the banking industry, changes in interest rates are a significant risk that can impact earnings, market valuations and the safety and soundness of an
entity. To manage the impact on net interest income and the market value of assets and liabilities, the Company manages its exposure to changes in interest rates through asset and liability management activities within guidelines established by its
Asset Liability Committee (ALCO) and approved by the Board of Directors. The ALCO has the responsibility for approving and ensuring compliance with the ALCO management policies, including interest rate risk exposure. The Company uses net
interest income simulation analysis and market value of equity modeling for measuring and analyzing consolidated interest rate risk.
Net Interest Income Simulation Analysis
Management estimates the impact on net interest income of changes in market interest rates under
a number of scenarios, including gradual shifts, immediate and sustained parallel shifts, and flattening or steepening of the yield curve. The table below summarizes the projected impact to net interest income over the next 12 months of various
potential interest rate changes. The ALCO policy limits the estimated change in net interest income in a gradual 200 basis point (bps) rate change scenario to a 4.0 percent decline of forecasted net interest income over the
next 12 months. At June 30, 2014, and December 31, 2013, the Company was within policy. Refer to Managements Discussion and Analysis Net Interest Income Simulation Analysis in the Companys Annual
Report on Form 10-K for the year ended December 31, 2013, for further discussion on net interest income simulation analysis.
Market Value of Equity Modeling
The Company also manages interest rate sensitivity by utilizing market value of equity modeling, which
measures the degree to which the market values of the Companys assets and liabilities and off-balance sheet instruments will change given a change in interest rates. Management measures the impact of changes in market interest rates under a
number of scenarios, including immediate and sustained parallel shifts, and flattening or steepening of the yield curve. The ALCO policy limits the change in market
Sensitivity of Net Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
|
|
|
December 31, 2013
|
|
|
|
Down 50 bps
Immediate
|
|
|
Up 50 bps
Immediate
|
|
|
Down 200 bps
Gradual
|
|
|
Up 200 bps
Gradual
|
|
|
|
|
Down 50 bps
Immediate
|
|
|
Up 50 bps
Immediate
|
|
|
Down 200 bps
Gradual
|
|
|
Up 200 bps
Gradual
|
|
Net interest income
|
|
|
*
|
|
|
|
1.31
|
%
|
|
|
*
|
|
|
|
1.72
|
%
|
|
|
|
|
*
|
|
|
|
1.07
|
%
|
|
|
*
|
|
|
|
1.53
|
%
|
*
|
Given the current level of interest rates, a downward rate scenario can not be computed.
|
value of equity in a 200 bps parallel rate shock to a 15.0 percent decline. A 200 bps increase would have resulted in a 4.0 percent decrease in the market value of equity at
June 30, 2014, compared with a 5.1 percent decrease at December 31, 2013. A 200 bps decrease, where possible given current rates, would have resulted in a 3.7 percent decrease in the market value of equity at June 30,
2014, compared with a .8 percent decrease at December 31, 2013. Refer to Managements Discussion and Analysis Market Value of Equity Modeling in the Companys Annual Report on Form 10-K for the year
ended December 31, 2013, for further discussion on market value of equity modeling.
Use of Derivatives to Manage Interest Rate and Other Risks
To reduce the sensitivity of earnings to interest rate, prepayment, credit, price and foreign currency fluctuations (asset and liability management positions), the Company enters into derivative
transactions. The Company uses derivatives for asset and liability management purposes primarily in the following ways:
|
|
To convert fixed-rate debt from fixed-rate payments to floating-rate payments;
|
|
|
To convert the cash flows associated with floating-rate loans and debt from floating-rate payments to fixed-rate payments;
|
|
|
To mitigate changes in value of the Companys mortgage origination pipeline, funded mortgage loans held for sale and MSRs;
|
|
|
To mitigate remeasurement volatility of foreign currency denominated balances; and
|
|
|
To mitigate the volatility of the Companys investment in foreign operations driven by fluctuations in foreign currency exchange rates.
|
To manage these risks, the Company may enter into exchange-traded, centrally cleared and over-the-counter
derivative contracts, including interest rate swaps, swaptions, futures, forwards and options. In addition, the Company enters into interest rate and foreign exchange derivative contracts to support the business requirements of its customers
(customer-related positions). The Company historically has minimized the market and liquidity risks of customer-related positions by entering 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
Company does not utilize derivatives for speculative purposes.
The Company does not designate all of the derivatives that it
enters into for risk management purposes as accounting hedges because of the inefficiency of applying the accounting requirements and may instead elect fair value accounting for the related hedged items. In particular, the Company enters into
interest rate swaps, forward commitments to buy to-be-announced securities (TBAs), U.S. Treasury futures and options on U.S. Treasury futures to mitigate fluctuations in the value of its MSRs, but does not designate those
derivatives as accounting hedges.
Additionally, the Company uses forward commitments to sell TBAs and other commitments to
sell residential mortgage loans at specified prices to economically hedge the interest rate risk in its residential mortgage loan production activities. At June 30, 2014, the Company had $6.0 billion of forward commitments to sell, hedging
$2.3 billion of mortgage loans held for sale and $4.7 billion of unfunded mortgage loan commitments. The forward commitments to sell and the unfunded mortgage loan commitments on loans intended to be sold are considered derivatives under the
accounting guidance related to accounting for derivative instruments and hedging activities. The Company has elected the fair value option for the mortgage loans held for sale.
Derivatives are subject to credit risk associated with counterparties to the contracts. Credit risk associated with derivatives is measured by the Company based on the probability of counterparty default.
The Company manages the credit risk of its derivative positions by diversifying its positions among various counterparties, by entering into master netting agreements, and, where possible by requiring collateral agreements. The Company may also
transfer counterparty credit risk related to interest rate swaps to third parties through the use of risk participation agreements. In addition, certain interest rate swaps and forwards and credit contracts are required to be centrally cleared
through clearing houses to further mitigate counterparty credit risk.
For additional information on derivatives and hedging
activities, refer to Notes 13 and 14 in the Notes to Consolidated Financial Statements.
Market Risk Management
In addition to interest rate risk, the Company is exposed to other forms of market risk, principally related to trading activities which support customers strategies to manage their own
foreign currency, interest rate risk and funding activities. For purposes of its internal capital adequacy assessment process, the Company considers risk arising from its trading activities employing methodologies consistent with the requirements of
regulatory rules for market risk.
The Companys Market Risk Committee (MRC), within the framework of the ALCO, oversees market risk management. The MRC monitors and reviews the Companys trading positions
and establishes policies for market risk management, including exposure limits for each portfolio. The Company uses a Value at Risk (VaR) approach to measure general market risk. Theoretically, VaR represents the statistical risk of loss
the Company has to adverse market movements over a one-day time horizon. The Company uses the Historical Simulation method to calculate VaR for its trading businesses measured at the ninety-ninth percentile using a one-year look-back period for
distributions derived from past market data. The market factors used in the calculations include those pertinent to market risks inherent in the underlying trading portfolios, principally those that affect its corporate bond trading business,
foreign currency transaction business, client derivatives business, loan trading business and municipal securities business. On average, the Company expects the one-day VaR to be exceeded by actual losses two to three times per year for its trading
businesses. The Company monitors the effectiveness of its risk programs by back-testing the performance of its VaR models, regularly updating the historical data used by the VaR models and stress testing. If the Company were to experience market
losses in excess of the estimated VaR more often than expected, the VaR models and associated assumptions would be analyzed and adjusted.
The
average, high, low and period-end VaR amounts for the Companys trading positions were as follows:
|
|
|
|
|
|
|
|
|
Six Months Ended June 30
(Dollars in Millions)
|
|
2014
|
|
|
2013
|
|
Average
|
|
$
|
1
|
|
|
$
|
1
|
|
High
|
|
|
2
|
|
|
|
2
|
|
Low
|
|
|
1
|
|
|
|
1
|
|
Period-end
|
|
|
1
|
|
|
|
2
|
|
The Company did not experience any actual trading losses for its combined trading businesses that exceeded
VaR by more than a negligible amount during the six months ended June 30, 2014 and 2013. The Company stress tests its market risk measurements to provide management with perspectives on market events that may not be captured by its VaR models,
including worst case historical market movement combinations that have not necessarily occurred on the same date.
The Company
calculates Stressed VaR using the same underlying methodology and model as VaR, except that a historical continuous one-year look-back period is utilized that reflects a period of significant financial stress appropriate to the Companys
trading portfolio. The period selected by the Company includes the significant market volatility of the last four months of 2008.
The average,
high, low and period-end Stressed VaR amounts for the Companys trading positions were as follows:
|
|
|
|
|
|
|
|
|
Six Months Ended June 30
(Dollars in Millions)
|
|
2014
|
|
|
2013
|
|
Average
|
|
$
|
4
|
|
|
$
|
4
|
|
High
|
|
|
8
|
|
|
|
8
|
|
Low
|
|
|
2
|
|
|
|
2
|
|
Period-end
|
|
|
5
|
|
|
|
4
|
|
Valuations of positions in the client derivatives and foreign currency transaction businesses are based on
standard cash flow or other valuation techniques using market-based assumptions. These valuations are compared to third party quotes or other market prices to determine if there are significant differences. Significant differences are approved by
the Companys market risk management department. Valuation of positions in the corporate bond trading, loan trading and municipal securities businesses are based on trader marks. These trader marks are evaluated against third party prices, with
material variances approved by the Companys risk management department.
The Company also measures the market risk of its
hedging activities related to residential mortgage loans held for sale and MSRs using the Historical Simulation method. The VaRs are measured at the ninety-ninth percentile and employ factors pertinent to the market risks inherent in the valuation
of the assets and hedges. The Company monitors the effectiveness of the models through back-testing, updating the data and regular validations. A three-year look-back period is used to obtain past market data for the residential mortgage loans held
for sale and related hedges. A seven-year look-back period is used to obtain past market data for the MSRs and related hedges.
The average,
high and low VaR amounts for the residential mortgage loans held for sale and related hedges and the MSRs and related hedges were as follows:
|
|
|
|
|
|
|
|
|
Six Months Ended June 30
(Dollars in Millions)
|
|
2014
|
|
|
2013
|
|
Residential Mortgage Loans Held For Sale and Related Hedges
|
|
|
|
|
|
|
|
|
Average
|
|
$
|
1
|
|
|
$
|
2
|
|
High
|
|
|
2
|
|
|
|
4
|
|
Low
|
|
|
|
|
|
|
|
|
Mortgage Servicing Rights and Related Hedges
|
|
|
|
|
|
|
|
|
Average
|
|
$
|
3
|
|
|
$
|
3
|
|
High
|
|
|
8
|
|
|
|
6
|
|
Low
|
|
|
2
|
|
|
|
2
|
|
Liquidity Risk Management
The Companys liquidity risk management process is designed to identify, measure, and manage the Companys funding and liquidity risk to meet its daily funding needs and to address
expected and unexpected changes in its funding requirements. The Company engages in various activities to manage its liquidity risk. These activities include diversifying its
funding sources, stress testing, and holding readily-marketable assets which can be used as a source of liquidity if needed. In addition, the Companys profitable operations, sound credit
quality and strong capital position have enabled it to develop a large and reliable base of core deposit funding within its market areas and in domestic and global capital markets.
The Risk Management Committee of the Companys Board of Directors oversees the Companys liquidity risk management process, and
approves the Companys liquidity policy and contingency funding plan. The ALCO reviews and approves the Companys liquidity policy and guidelines, and regularly assesses the Companys ability to meet funding requirements arising from
adverse company-specific or market events.
The Company regularly projects its funding needs under various stress scenarios and
maintains a contingency plan consistent with the Companys access to diversified sources of contingent funding. The Company maintains a substantial level of total available liquidity in the form of on-balance sheet and off-balance sheet funding
sources. These include cash at the Federal Reserve Bank, unencumbered liquid assets, and capacity to borrow at the Federal Home Loan Bank (FHLB) and the Federal Reserve Banks Discount Window. At June 30, 2014, the fair value
of unencumbered available-for-sale and held-to-maturity investment securities totaled $75.7 billion, compared with $61.7 billion at December 31, 2013. Refer to Table 4 and Balance Sheet Analysis for further information on
investment securities maturities and trends. Asset liquidity is further enhanced by the Companys ability to pledge loans to access secured borrowing facilities through the FHLB and Federal Reserve Bank. At June 30, 2014, the Company could
have borrowed an additional $77.9 billion at the FHLB and Federal Reserve Bank based on collateral available for additional borrowings.
The Companys diversified deposit base provides a sizeable source of relatively stable and low-cost funding, while reducing the Companys reliance on the wholesale markets. Total deposits were
$276.3 billion at June 30, 2014, compared with $262.1 billion at December 31, 2013. Refer to Balance Sheet Analysis for further information on the Companys deposits.
Additional funding is provided by long-term debt and short-term borrowings. Long-term debt was $25.9 billion at June 30, 2014,
and is an important funding source because of its multi-year borrowing structure. Short-term borrowings were $29.1 billion at June 30, 2014, and supplement the Companys other funding sources. Refer to Balance Sheet Analysis
for further information on the Companys long-term debt and short-term borrowings.
In addition to assessing liquidity
risk on a consolidated basis, the Company monitors the parent companys liquidity and maintains sufficient funding to meet expected parent company obligations, without access to the wholesale funding markets or dividends from subsidiaries, for
12 months when forecasted payments of common stock dividends are included and 24 months assuming dividends were reduced to zero. The parent company currently has available funds considerably greater than the amounts required to satisfy
these conditions.
At June 30, 2014, parent company long-term debt outstanding was $12.7 billion, compared with
$11.4 billion at December 31, 2013. The $1.3 billion increase was due to the issuance of $2.3 billion of medium-term notes, partially offset by the maturity of $1.0 billion of medium-term notes. As of June 30, 2014, there was $.5
billion of parent company debt scheduled to mature in the remainder of 2014.
In 2010, the Basel Committee on Banking
Supervision issued Basel III, a global regulatory framework proposed to enhance international capital and liquidity standards. In 2013, U.S. banking regulators released a proposed regulatory requirement for U.S. banks which would implement a
Liquidity Coverage Ratio (LCR) similar to the measure proposed by the Basel Committee as part of Basel III. The LCR requires that banks maintain an adequate level of unencumbered high quality liquid assets to meet estimated liquidity
needs over a 30-day stressed period. The Company continues to evaluate the impact of the proposed rule and expects to meet the final standards within the regulatory timelines.
Refer to Managements Discussion and Analysis Liquidity Risk Management in the Companys Annual Report on Form 10-K for the year ended December 31, 2013, for
further discussion on liquidity risk management.
European Exposures
Certain European countries have experienced severe credit deterioration. The Company does not hold sovereign debt of any European country, but may have indirect exposure to sovereign debt through its
investments in, and transactions with, European banks. At June 30, 2014, the Company had investments in perpetual preferred stock issued by European banks with an amortized cost totaling $70 million and unrealized losses totaling $5
million, compared with an amortized cost totaling $70 million and unrealized losses totaling $7 million, at December 31, 2013. The Company also transacts with various European banks as counterparties to interest rate, mortgage-related and
foreign currency derivatives for its hedging and customer-related activities; however, none of
these banks are domiciled in the countries experiencing the most significant credit deterioration. These derivatives are subject to master netting arrangements. In addition, interest rate and
foreign currency derivative transactions are subject to collateral arrangements which significantly limit the Companys exposure to loss as they generally require daily posting of collateral. At June 30, 2014, the Company was in a net
receivable position with four banks in the United Kingdom, one bank in France and one bank in Switzerland, totaling $29 million. The Company was in a net payable position to each of the other European banks.
The Company has not bought or sold credit protection on the debt of any European country or any company domiciled in Europe, nor does it
provide retail lending services in Europe. While the Company does not offer commercial lending services in Europe, it does provide financing to domestic multinational corporations that generate revenue from customers in European countries and
provides a limited number of corporate credit cards to their European subsidiaries. While an economic downturn in Europe could have a negative impact on these customers revenues, it is unlikely that any effect on the overall credit-worthiness
of these multinational corporations would be material to the Company.
The Company provides merchant processing and corporate
trust services in Europe either directly or through banking affiliations in Europe. Operating cash for these businesses is deposited on a short-term basis with certain European banks. However, exposure is mitigated by the Company placing deposits at
multiple banks and managing the amounts on deposit at any bank based on institution-specific deposit limits. At June 30, 2014, the Company had an aggregate amount on deposit with European banks of approximately $472 million.
The money market funds managed by a subsidiary of the Company do not have any investments in European sovereign debt, other than
approximately $397 million at June 30, 2014 guaranteed by the country of Germany. Other than investments in banks in the countries of the Netherlands, France and Germany, those funds do not have any unsecured investments in banks domiciled in
the Eurozone.
Off-Balance Sheet Arrangements
Off-balance sheet arrangements include any contractual arrangements to which an unconsolidated entity is a party, under which the Company has an obligation to provide credit or liquidity
enhancements or market risk support. In the ordinary course of business, the Company enters into an array of commitments to extend credit, letters of credit and various forms of guarantees that may be considered off-balance sheet arrangements. Refer
to Note 16 of the Notes to Consolidated Financial Statements for further information on these arrangements. The Company has not utilized private label asset securitizations as a source of funding. Off-balance sheet arrangements also include any
obligation related to a variable interest held in an unconsolidated entity that provides financing, liquidity, credit enhancement or market risk support. Refer to Note 6 of the Notes to Consolidated Financial Statements for further information
related to the Companys interests in variable interest entities.
Capital Management
The Company is committed to managing capital to maintain strong protection for depositors and creditors and for maximum shareholder benefit. The Company also
manages its capital to exceed regulatory capital requirements for well-capitalized bank holding companies. Prior to 2014, the regulatory capital requirements effective for the Company followed the Capital Accord of the Basel Committee on Banking
Supervision (Basel I). During 2013, U.S. banking regulators approved final regulatory capital rule changes, which implemented aspects of Basel III and the Dodd-Frank Wall Street Reform and Consumer Protection Act, such as
redefining the regulatory capital elements and minimum capital ratios, introducing regulatory capital buffers above those minimums, revising rules for calculating risk-weighted assets and introducing a new common equity tier 1 capital ratio.
Basel III includes two comprehensive methodologies for calculating risk-weighted assets: a general standardized approach and more risk-sensitive advanced approaches. Beginning January 1, 2014, the regulatory capital requirements effective for
the Company follow Basel III, subject to certain transition provisions from Basel I over the next four years to full implementation by January 1, 2018. In addition, as of April 1, 2014, the Company exited its parallel run qualification
period, resulting in its capital adequacy now being evaluated against the Basel III methodology that is most restrictive. Table 9 provides a summary of statutory regulatory capital ratios in effect for the Company at June 30, 2014 and
December 31, 2013. All regulatory ratios exceeded regulatory well-capitalized requirements.
Total
U.S. Bancorp shareholders equity was $42.7 billion at June 30, 2014, compared with $41.1 billion at December 31, 2013. The increase was primarily the result of corporate earnings and changes in unrealized gains and
losses on available-for-sale investment securities included in other comprehensive income, partially offset by dividends and common share repurchases.
Table 9
|
Regulatory Capital Ratios
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
Basel III transitional standardized approach/Basel I:
|
|
|
|
|
|
|
|
|
Common equity tier 1 capital (a)
|
|
$
|
29,760
|
|
|
|
|
|
Tier 1 capital
|
|
|
34,924
|
|
|
$
|
33,386
|
|
Total risk-based capital
|
|
|
41,034
|
|
|
|
39,340
|
|
Risk-weighted assets
|
|
|
309,929
|
|
|
|
297,919
|
|
|
|
|
Common equity tier 1 capital as a percent of risk-weighted assets (a)
|
|
|
9.6
|
%
|
|
|
|
|
Tier 1 capital as a percent of risk-weighted assets
|
|
|
11.3
|
|
|
|
11.2
|
%
|
Tier 1 capital as a percent of adjusted quarterly average assets (leverage ratio)
|
|
|
9.6
|
|
|
|
9.6
|
|
Total risk-based capital as a percent of risk-weighted assets
|
|
|
13.2
|
|
|
|
13.2
|
|
|
|
|
Basel III transitional advanced approaches:
|
|
|
|
|
|
|
|
|
Common equity tier 1 capital (a)
|
|
$
|
29,760
|
|
|
|
|
|
Tier 1 capital
|
|
|
34,924
|
|
|
|
|
|
Total risk-based capital
|
|
|
38,359
|
|
|
|
|
|
Risk-weighted assets
|
|
|
241,929
|
|
|
|
|
|
|
|
|
Common equity tier 1 capital as a percent of risk-weighted assets (a)
|
|
|
12.3
|
%
|
|
|
|
|
Tier 1 capital as a percent of risk-weighted assets
|
|
|
14.4
|
|
|
|
|
|
Total risk-based capital as a percent of risk-weighted assets
|
|
|
15.9
|
|
|
|
|
|
Note:
|
June 30, 2014 amounts calculated under the Basel III transitional standardized and advanced approaches, with the Company being evaluated for capital adequacy against the
approach that is most restrictive. December 31, 2013 amounts calculated under Basel I.
|
(a)
|
Beginning January 1, 2014, the regulatory capital requirements effective for the Company include a common equity tier 1 capital as a percent of risk-weighted assets
ratio.
|
The Company believes
certain capital ratios in addition to statutory regulatory capital ratios are useful in evaluating its capital adequacy. The Companys tangible common equity, as a percent of tangible assets and as a percent of risk-weighted assets calculated
under the standardized approach, were 7.5 percent and 9.2 percent, respectively, at June 30, 2014, compared with 7.7 percent and 9.1 percent, respectively, at December 31, 2013. The Companys common equity tier 1
to risk-weighted assets ratio using the Basel III standardized approach as if fully implemented was 8.9 percent at June 30, 2014, compared with 8.8 percent at December 31, 2013. The Companys common equity tier 1 to
risk-weighted assets ratio using the Basel III advanced approaches as if fully implemented was 11.7 percent at June 30, 2014. Refer to Non-GAAP Financial Measures for further information regarding the calculation of these
ratios.
On March 26, 2014, the Company announced its Board of Directors had approved a one-year authorization to
repurchase up to $2.3 billion of its common stock, from April 1, 2014 through March 31, 2015.
The following table provides a
detailed analysis of all shares purchased by the Company or any affiliated purchaser during the second quarter of 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period (Dollars
in Millions)
|
|
Total Number
of Shares
Purchased
|
|
|
Average
Price Paid
Per Share
|
|
|
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Program (a)
|
|
|
Approximate
Dollar Value
of Shares that May
Yet Be Purchased
Under the
Program
|
|
April
|
|
|
7,774,544
|
(b)
|
|
$
|
40.52
|
|
|
|
7,724,544
|
|
|
$
|
1,987
|
|
May
|
|
|
4,658,450
|
|
|
|
40.90
|
|
|
|
4,658,450
|
|
|
|
1,796
|
|
June
|
|
|
2,960,258
|
|
|
|
43.05
|
|
|
|
2,960,258
|
|
|
|
1,669
|
|
Total
|
|
|
15,393,252
|
(b)
|
|
$
|
41.12
|
|
|
|
15,343,252
|
|
|
$
|
1,669
|
|
(a)
|
All shares were purchased under the stock repurchase program announced on March 26, 2014.
|
(b)
|
Includes 50,000 shares of common stock purchased, at an average price per share of $40.13, in open-market transactions by U.S. Bank National Association, the Companys
principal banking subsidiary, in its capacity as trustee of the Companys Employee Retirement Savings Plan.
|
On June 17, 2014, the Company announced its Board of Directors had approved a 6.5 percent increase in the Companys dividend rate per common share, from $.23 per quarter to $.245 per quarter.
Refer to Managements Discussion and Analysis Capital Management in the Companys Annual
Report on Form 10-K for the year ended December 31,
2013, for further discussion on capital management.
LINE OF BUSINESS FINANCIAL REVIEW
The Companys major lines of business are Wholesale Banking and Commercial Real Estate, Consumer and Small Business Banking, Wealth
Management and Securities Services, Payment Services, and Treasury and Corporate Support. These operating segments are components of the Company about which financial information is prepared and is evaluated regularly by management in deciding how
to allocate resources and assess performance.
Basis for Financial Presentation
Business line results are derived from the Companys business unit profitability reporting systems by specifically attributing managed balance sheet assets, deposits and other liabilities and
their related income or expense. The allowance for credit losses and related provision expense are allocated to the lines of business based on the related loan balances managed. Refer to Managements Discussion and Analysis
Line of Business Financial Review in the Companys Annual Report on Form 10-K for the year ended December 31, 2013, for further discussion on the business lines basis for financial presentation.
Designations, assignments and allocations change from time to time as management systems are enhanced, methods of evaluating performance
or product lines change or business segments are realigned to better respond to the Companys diverse customer base. During 2014, certain organization and methodology changes were made and, accordingly, 2013 results were restated and presented
on a comparable basis.
Wholesale Banking and Commercial Real Estate
Wholesale Banking and Commercial Real Estate offers lending, equipment finance and small-ticket leasing, depository services, treasury management, capital markets, international trade services and other
financial services to middle market, large corporate, commercial real estate, financial institution, non-profit and public sector clients. Wholesale Banking and Commercial Real Estate contributed $281 million of the Companys net income in the
second quarter and $562 million in the first six months of 2014, or decreases of $38 million (11.9 percent) and $75 million (11.8 percent), respectively, compared with the same periods of 2013. The decreases were primarily driven by lower net
revenue and increases in the provision for credit losses.
Net revenue decreased $3 million (.4 percent) in the
second quarter and $42 million (2.7 percent) in the first six months of 2014, compared with the same periods of 2013. Net interest income, on a taxable-equivalent basis, increased $12 million (2.4 percent) in the second quarter and $8
million (.8 percent) in the first six months of 2014, compared with the same periods of 2013. The increases were primarily driven by increases in average loans and deposits, partially offset by lower rates and fees on loans. Noninterest income
decreased $15 million (5.5 percent) in the second quarter and $50 million (9.0 percent) in the first six months of 2014, compared with the same periods of 2013, driven by lower wholesale transaction activity and other loan-related fees,
partially offset by increases in bond underwriting fees.
Noninterest expense increased $5 million (1.6 percent) in
the second quarter and $6 million (1.0 percent) in the first six months of 2014, compared with the same periods of 2013, primarily due to an increase in the FDIC insurance assessment allocation based on the level of commitments, partially
offset by lower professional services expense. The provision for credit losses increased $52 million in the second quarter of 2014, compared with the second quarter of 2013, due to an increase in net charge-offs and an unfavorable change in the
reserve allocation due to loan growth. The provision for credit losses increased $70 million (95.9 percent) in the first six months of 2014, compared with the same period of the prior year, principally due to an unfavorable change in the
reserve allocation due to loan growth. Nonperforming assets were $300 million at June 30, 2014, $313 million at March 31, 2014, and $377 million at June 30, 2013. Nonperforming assets as a percentage of period-end loans were
.38 percent at June 30, 2014, .46 percent at March 31, 2014, and .53 percent at June 30, 2013. Refer to the Corporate Risk Profile section for further information on factors impacting the credit quality of
the loan portfolios.
Consumer and Small Business Banking
Consumer and Small Business Banking delivers products and services through banking offices, telephone servicing and sales, on-line services, direct mail, ATM processing and mobile devices, such as
mobile phones and tablet computers. It encompasses community banking, metropolitan banking, in-store banking, small business banking, consumer lending, mortgage banking, workplace banking, student banking and 24-hour banking. Consumer and Small
Business Banking contributed $314 million of the Companys net income in the second quarter and $595 million in the first six months of 2014, or decreases of $67 million (17.6 percent) and $140 million (19.0 percent),
respectively, compared with the same periods of 2013. The decreases were due to lower net revenue, partially offset by decreases in the provision for credit losses.
Within Consumer and Small Business Banking, the retail banking division contributed $184 million of the total net income in the second quarter and $339 million in the first six months of 2014, or a
decrease of $12 million (6.1 percent) and an increase of $3 million (.9 percent), respectively, from the same periods of 2013. Mortgage banking contributed $130 million and $256 million of Consumer and Small Business Bankings
net income in the second quarter and first six months of 2014, respectively, or decreases of $55 million (29.7 percent) and $143 million (35.8 percent), respectively, from the same periods of 2013, reflecting lower mortgage banking activity in
2014.
Table 10
|
Line of Business Financial Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale Banking and
Commercial Real Estate
|
|
|
|
|
Consumer and Small
Business Banking
|
|
Three Months Ended June 30
(Dollars in Millions)
|
|
2014
|
|
|
2013
|
|
|
Percent
Change
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Percent
Change
|
|
Condensed Income Statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (taxable-equivalent basis)
|
|
$
|
513
|
|
|
$
|
501
|
|
|
|
2.4
|
%
|
|
|
|
$
|
1,077
|
|
|
$
|
1,143
|
|
|
|
(5.8
|
)%
|
Noninterest income
|
|
|
260
|
|
|
|
275
|
|
|
|
(5.5
|
)
|
|
|
|
|
678
|
|
|
|
771
|
|
|
|
(12.1
|
)
|
Securities gains (losses), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
|
773
|
|
|
|
776
|
|
|
|
(.4
|
)
|
|
|
|
|
1,755
|
|
|
|
1,914
|
|
|
|
(8.3
|
)
|
Noninterest expense
|
|
|
316
|
|
|
|
310
|
|
|
|
1.9
|
|
|
|
|
|
1,134
|
|
|
|
1,123
|
|
|
|
1.0
|
|
Other intangibles
|
|
|
1
|
|
|
|
2
|
|
|
|
(50.0
|
)
|
|
|
|
|
8
|
|
|
|
10
|
|
|
|
(20.0
|
)
|
Total noninterest expense
|
|
|
317
|
|
|
|
312
|
|
|
|
1.6
|
|
|
|
|
|
1,142
|
|
|
|
1,133
|
|
|
|
.8
|
|
Income before provision and income taxes
|
|
|
456
|
|
|
|
464
|
|
|
|
(1.7
|
)
|
|
|
|
|
613
|
|
|
|
781
|
|
|
|
(21.5
|
)
|
Provision for credit losses
|
|
|
15
|
|
|
|
(37
|
)
|
|
|
*
|
|
|
|
|
|
120
|
|
|
|
182
|
|
|
|
(34.1
|
)
|
Income before income taxes
|
|
|
441
|
|
|
|
501
|
|
|
|
(12.0
|
)
|
|
|
|
|
493
|
|
|
|
599
|
|
|
|
(17.7
|
)
|
Income taxes and taxable-equivalent adjustment
|
|
|
160
|
|
|
|
182
|
|
|
|
(12.1
|
)
|
|
|
|
|
179
|
|
|
|
218
|
|
|
|
(17.9
|
)
|
Net income
|
|
|
281
|
|
|
|
319
|
|
|
|
(11.9
|
)
|
|
|
|
|
314
|
|
|
|
381
|
|
|
|
(17.6
|
)
|
Net (income) loss attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to U.S. Bancorp
|
|
$
|
281
|
|
|
$
|
319
|
|
|
|
(11.9
|
)
|
|
|
|
$
|
314
|
|
|
$
|
381
|
|
|
|
(17.6
|
)
|
Average Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
57,472
|
|
|
$
|
50,238
|
|
|
|
14.4
|
%
|
|
|
|
$
|
8,947
|
|
|
$
|
8,616
|
|
|
|
3.8
|
%
|
Commercial real estate
|
|
|
20,884
|
|
|
|
19,435
|
|
|
|
7.5
|
|
|
|
|
|
18,800
|
|
|
|
17,690
|
|
|
|
6.3
|
|
Residential mortgages
|
|
|
20
|
|
|
|
28
|
|
|
|
(28.6
|
)
|
|
|
|
|
50,485
|
|
|
|
46,085
|
|
|
|
9.5
|
|
Credit card
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other retail
|
|
|
4
|
|
|
|
7
|
|
|
|
(42.9
|
)
|
|
|
|
|
45,804
|
|
|
|
44,570
|
|
|
|
2.8
|
|
Total loans, excluding covered loans
|
|
|
78,380
|
|
|
|
69,708
|
|
|
|
12.4
|
|
|
|
|
|
124,036
|
|
|
|
116,961
|
|
|
|
6.0
|
|
Covered loans
|
|
|
196
|
|
|
|
377
|
|
|
|
(48.0
|
)
|
|
|
|
|
5,882
|
|
|
|
6,713
|
|
|
|
(12.4
|
)
|
Total loans
|
|
|
78,576
|
|
|
|
70,085
|
|
|
|
12.1
|
|
|
|
|
|
129,918
|
|
|
|
123,674
|
|
|
|
5.0
|
|
Goodwill
|
|
|
1,604
|
|
|
|
1,604
|
|
|
|
|
|
|
|
|
|
3,539
|
|
|
|
3,515
|
|
|
|
.7
|
|
Other intangible assets
|
|
|
21
|
|
|
|
26
|
|
|
|
(19.2
|
)
|
|
|
|
|
2,690
|
|
|
|
2,208
|
|
|
|
21.8
|
|
Assets
|
|
|
85,794
|
|
|
|
76,900
|
|
|
|
11.6
|
|
|
|
|
|
142,708
|
|
|
|
139,313
|
|
|
|
2.4
|
|
Noninterest-bearing deposits
|
|
|
31,258
|
|
|
|
30,199
|
|
|
|
3.5
|
|
|
|
|
|
22,900
|
|
|
|
21,886
|
|
|
|
4.6
|
|
Interest checking
|
|
|
11,379
|
|
|
|
10,233
|
|
|
|
11.2
|
|
|
|
|
|
35,683
|
|
|
|
33,041
|
|
|
|
8.0
|
|
Savings products
|
|
|
17,607
|
|
|
|
12,986
|
|
|
|
35.6
|
|
|
|
|
|
49,103
|
|
|
|
46,145
|
|
|
|
6.4
|
|
Time deposits
|
|
|
18,309
|
|
|
|
16,448
|
|
|
|
11.3
|
|
|
|
|
|
17,720
|
|
|
|
21,626
|
|
|
|
(18.1
|
)
|
Total deposits
|
|
|
78,553
|
|
|
|
69,866
|
|
|
|
12.4
|
|
|
|
|
|
125,406
|
|
|
|
122,698
|
|
|
|
2.2
|
|
Total U.S. Bancorp shareholders equity
|
|
|
7,656
|
|
|
|
7,288
|
|
|
|
5.0
|
|
|
|
|
|
11,380
|
|
|
|
12,112
|
|
|
|
(6.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale Banking and
Commercial Real Estate
|
|
|
|
|
Consumer and Small
Business Banking
|
|
Six Months Ended June 30
(Dollars in Millions)
|
|
2014
|
|
|
2013
|
|
|
Percent
Change
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Percent
Change
|
|
Condensed Income Statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (taxable-equivalent basis)
|
|
$
|
1,003
|
|
|
$
|
995
|
|
|
|
.8
|
%
|
|
|
|
$
|
2,167
|
|
|
$
|
2,306
|
|
|
|
(6.0
|
)%
|
Noninterest income
|
|
|
505
|
|
|
|
555
|
|
|
|
(9.0
|
)
|
|
|
|
|
1,295
|
|
|
|
1,549
|
|
|
|
(16.4
|
)
|
Securities gains (losses), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
|
1,508
|
|
|
|
1,550
|
|
|
|
(2.7
|
)
|
|
|
|
|
3,462
|
|
|
|
3,855
|
|
|
|
(10.2
|
)
|
Noninterest expense
|
|
|
626
|
|
|
|
618
|
|
|
|
1.3
|
|
|
|
|
|
2,259
|
|
|
|
2,269
|
|
|
|
(.4
|
)
|
Other intangibles
|
|
|
2
|
|
|
|
4
|
|
|
|
(50.0
|
)
|
|
|
|
|
16
|
|
|
|
21
|
|
|
|
(23.8
|
)
|
Total noninterest expense
|
|
|
628
|
|
|
|
622
|
|
|
|
1.0
|
|
|
|
|
|
2,275
|
|
|
|
2,290
|
|
|
|
(.7
|
)
|
Income before provision and income taxes
|
|
|
880
|
|
|
|
928
|
|
|
|
(5.2
|
)
|
|
|
|
|
1,187
|
|
|
|
1,565
|
|
|
|
(24.2
|
)
|
Provision for credit losses
|
|
|
(3
|
)
|
|
|
(73
|
)
|
|
|
95.9
|
|
|
|
|
|
253
|
|
|
|
410
|
|
|
|
(38.3
|
)
|
Income before income taxes
|
|
|
883
|
|
|
|
1,001
|
|
|
|
(11.8
|
)
|
|
|
|
|
934
|
|
|
|
1,155
|
|
|
|
(19.1
|
)
|
Income taxes and taxable-equivalent adjustment
|
|
|
321
|
|
|
|
364
|
|
|
|
(11.8
|
)
|
|
|
|
|
339
|
|
|
|
420
|
|
|
|
(19.3
|
)
|
Net income
|
|
|
562
|
|
|
|
637
|
|
|
|
(11.8
|
)
|
|
|
|
|
595
|
|
|
|
735
|
|
|
|
(19.0
|
)
|
Net (income) loss attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to U.S. Bancorp
|
|
$
|
562
|
|
|
$
|
637
|
|
|
|
(11.8
|
)
|
|
|
|
$
|
595
|
|
|
$
|
735
|
|
|
|
(19.0
|
)
|
Average Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
55,989
|
|
|
$
|
49,688
|
|
|
|
12.7
|
%
|
|
|
|
$
|
8,642
|
|
|
$
|
8,558
|
|
|
|
1.0
|
%
|
Commercial real estate
|
|
|
20,729
|
|
|
|
19,216
|
|
|
|
7.9
|
|
|
|
|
|
18,712
|
|
|
|
17,577
|
|
|
|
6.5
|
|
Residential mortgages
|
|
|
21
|
|
|
|
28
|
|
|
|
(25.0
|
)
|
|
|
|
|
50,391
|
|
|
|
45,297
|
|
|
|
11.2
|
|
Credit card
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other retail
|
|
|
4
|
|
|
|
8
|
|
|
|
(50.0
|
)
|
|
|
|
|
45,644
|
|
|
|
44,744
|
|
|
|
2.0
|
|
Total loans, excluding covered loans
|
|
|
76,743
|
|
|
|
68,940
|
|
|
|
11.3
|
|
|
|
|
|
123,389
|
|
|
|
116,176
|
|
|
|
6.2
|
|
Covered loans
|
|
|
220
|
|
|
|
422
|
|
|
|
(47.9
|
)
|
|
|
|
|
5,965
|
|
|
|
6,820
|
|
|
|
(12.5
|
)
|
Total loans
|
|
|
76,963
|
|
|
|
69,362
|
|
|
|
11.0
|
|
|
|
|
|
129,354
|
|
|
|
122,996
|
|
|
|
5.2
|
|
Goodwill
|
|
|
1,604
|
|
|
|
1,604
|
|
|
|
|
|
|
|
|
|
3,527
|
|
|
|
3,515
|
|
|
|
.3
|
|
Other intangible assets
|
|
|
21
|
|
|
|
27
|
|
|
|
(22.2
|
)
|
|
|
|
|
2,715
|
|
|
|
2,113
|
|
|
|
28.5
|
|
Assets
|
|
|
84,029
|
|
|
|
75,816
|
|
|
|
10.8
|
|
|
|
|
|
142,203
|
|
|
|
139,769
|
|
|
|
1.7
|
|
Noninterest-bearing deposits
|
|
|
31,737
|
|
|
|
30,057
|
|
|
|
5.6
|
|
|
|
|
|
22,425
|
|
|
|
21,623
|
|
|
|
3.7
|
|
Interest checking
|
|
|
10,925
|
|
|
|
10,555
|
|
|
|
3.5
|
|
|
|
|
|
35,270
|
|
|
|
32,716
|
|
|
|
7.8
|
|
Savings products
|
|
|
17,373
|
|
|
|
12,445
|
|
|
|
39.6
|
|
|
|
|
|
48,578
|
|
|
|
45,859
|
|
|
|
5.9
|
|
Time deposits
|
|
|
18,347
|
|
|
|
16,461
|
|
|
|
11.5
|
|
|
|
|
|
18,211
|
|
|
|
22,033
|
|
|
|
(17.3
|
)
|
Total deposits
|
|
|
78,382
|
|
|
|
69,518
|
|
|
|
12.8
|
|
|
|
|
|
124,484
|
|
|
|
122,231
|
|
|
|
1.8
|
|
Total U.S. Bancorp shareholders equity
|
|
|
7,591
|
|
|
|
7,219
|
|
|
|
5.2
|
|
|
|
|
|
11,474
|
|
|
|
12,076
|
|
|
|
(5.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth Management and
Securities Services
|
|
Payment
Services
|
|
Treasury and
Corporate Support
|
|
Consolidated
Company
|
|
|
|
2014
|
|
|
2013
|
|
|
Percent
Change
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Percent
Change
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Percent
Change
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Percent
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
91
|
|
|
$
|
87
|
|
|
|
4.6
|
%
|
|
|
|
$
|
415
|
|
|
$
|
387
|
|
|
|
7.2
|
%
|
|
|
|
$
|
648
|
|
|
$
|
554
|
|
|
|
17.0
|
%
|
|
|
|
$
|
2,744
|
|
|
$
|
2,672
|
|
|
|
2.7
|
%
|
|
|
|
347
|
|
|
|
318
|
|
|
|
9.1
|
|
|
|
|
|
832
|
|
|
|
828
|
|
|
|
.5
|
|
|
|
|
|
327
|
|
|
|
78
|
|
|
|
*
|
|
|
|
|
|
2,444
|
|
|
|
2,270
|
|
|
|
7.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
*
|
|
|
|
|
438
|
|
|
|
405
|
|
|
|
8.1
|
|
|
|
|
|
1,247
|
|
|
|
1,215
|
|
|
|
2.6
|
|
|
|
|
|
975
|
|
|
|
638
|
|
|
|
52.8
|
|
|
|
|
|
5,188
|
|
|
|
4,948
|
|
|
|
4.9
|
|
|
|
|
335
|
|
|
|
320
|
|
|
|
4.7
|
|
|
|
|
|
574
|
|
|
|
566
|
|
|
|
1.4
|
|
|
|
|
|
346
|
|
|
|
183
|
|
|
|
89.1
|
|
|
|
|
|
2,705
|
|
|
|
2,502
|
|
|
|
8.1
|
|
|
|
|
9
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
34
|
|
|
|
(11.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
|
|
|
|
55
|
|
|
|
(12.7
|
)
|
|
|
|
344
|
|
|
|
329
|
|
|
|
4.6
|
|
|
|
|
|
604
|
|
|
|
600
|
|
|
|
.7
|
|
|
|
|
|
346
|
|
|
|
183
|
|
|
|
89.1
|
|
|
|
|
|
2,753
|
|
|
|
2,557
|
|
|
|
7.7
|
|
|
|
|
94
|
|
|
|
76
|
|
|
|
23.7
|
|
|
|
|
|
643
|
|
|
|
615
|
|
|
|
4.6
|
|
|
|
|
|
629
|
|
|
|
455
|
|
|
|
38.2
|
|
|
|
|
|
2,435
|
|
|
|
2,391
|
|
|
|
1.8
|
|
|
|
|
6
|
|
|
|
1
|
|
|
|
*
|
|
|
|
|
|
182
|
|
|
|
176
|
|
|
|
3.4
|
|
|
|
|
|
1
|
|
|
|
40
|
|
|
|
(97.5
|
)
|
|
|
|
|
324
|
|
|
|
362
|
|
|
|
(10.5
|
)
|
|
|
|
88
|
|
|
|
75
|
|
|
|
17.3
|
|
|
|
|
|
461
|
|
|
|
439
|
|
|
|
5.0
|
|
|
|
|
|
628
|
|
|
|
415
|
|
|
|
51.3
|
|
|
|
|
|
2,111
|
|
|
|
2,029
|
|
|
|
4.0
|
|
|
|
|
32
|
|
|
|
27
|
|
|
|
18.5
|
|
|
|
|
|
168
|
|
|
|
160
|
|
|
|
5.0
|
|
|
|
|
|
63
|
|
|
|
(2
|
)
|
|
|
*
|
|
|
|
|
|
602
|
|
|
|
585
|
|
|
|
2.9
|
|
|
|
|
56
|
|
|
|
48
|
|
|
|
16.7
|
|
|
|
|
|
293
|
|
|
|
279
|
|
|
|
5.0
|
|
|
|
|
|
565
|
|
|
|
417
|
|
|
|
35.5
|
|
|
|
|
|
1,509
|
|
|
|
1,444
|
|
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
(10
|
)
|
|
|
10.0
|
|
|
|
|
|
(5
|
)
|
|
|
50
|
|
|
|
*
|
|
|
|
|
|
(14
|
)
|
|
|
40
|
|
|
|
*
|
|
|
|
$
|
56
|
|
|
$
|
48
|
|
|
|
16.7
|
|
|
|
|
$
|
284
|
|
|
$
|
269
|
|
|
|
5.6
|
|
|
|
|
$
|
560
|
|
|
$
|
467
|
|
|
|
19.9
|
|
|
|
|
$
|
1,495
|
|
|
$
|
1,484
|
|
|
|
.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,918
|
|
|
$
|
1,667
|
|
|
|
15.1
|
%
|
|
|
|
$
|
6,522
|
|
|
$
|
6,035
|
|
|
|
8.1
|
%
|
|
|
|
$
|
161
|
|
|
$
|
206
|
|
|
|
(21.8
|
)%
|
|
|
|
$
|
75,020
|
|
|
$
|
66,762
|
|
|
|
12.4
|
%
|
|
|
|
608
|
|
|
|
658
|
|
|
|
(7.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
205
|
|
|
|
101
|
|
|
|
*
|
|
|
|
|
|
40,497
|
|
|
|
37,884
|
|
|
|
6.9
|
|
|
|
|
1,309
|
|
|
|
759
|
|
|
|
72.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
51,815
|
|
|
|
46,873
|
|
|
|
10.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,384
|
|
|
|
16,416
|
|
|
|
5.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,384
|
|
|
|
16,416
|
|
|
|
5.9
|
|
|
|
|
1,442
|
|
|
|
1,548
|
|
|
|
(6.8
|
)
|
|
|
|
|
678
|
|
|
|
741
|
|
|
|
(8.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,928
|
|
|
|
46,866
|
|
|
|
2.3
|
|
|
|
|
5,277
|
|
|
|
4,632
|
|
|
|
13.9
|
|
|
|
|
|
24,584
|
|
|
|
23,192
|
|
|
|
6.0
|
|
|
|
|
|
367
|
|
|
|
308
|
|
|
|
19.2
|
|
|
|
|
|
232,644
|
|
|
|
214,801
|
|
|
|
8.3
|
|
|
|
|
6
|
|
|
|
15
|
|
|
|
(60.0
|
)
|
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
1,747
|
|
|
|
3,275
|
|
|
|
(46.7
|
)
|
|
|
|
|
7,836
|
|
|
|
10,385
|
|
|
|
(24.5
|
)
|
|
|
|
5,283
|
|
|
|
4,647
|
|
|
|
13.7
|
|
|
|
|
|
24,589
|
|
|
|
23,197
|
|
|
|
6.0
|
|
|
|
|
|
2,114
|
|
|
|
3,583
|
|
|
|
(41.0
|
)
|
|
|
|
|
240,480
|
|
|
|
225,186
|
|
|
|
6.8
|
|
|
|
|
1,565
|
|
|
|
1,527
|
|
|
|
2.5
|
|
|
|
|
|
2,520
|
|
|
|
2,508
|
|
|
|
.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,228
|
|
|
|
9,154
|
|
|
|
.8
|
|
|
|
|
164
|
|
|
|
173
|
|
|
|
(5.2
|
)
|
|
|
|
|
490
|
|
|
|
585
|
|
|
|
(16.2
|
)
|
|
|
|
|
|
|
|
|
2
|
|
|
|
*
|
|
|
|
|
|
3,365
|
|
|
|
2,994
|
|
|
|
12.4
|
|
|
|
|
8,327
|
|
|
|
7,501
|
|
|
|
11.0
|
|
|
|
|
|
30,913
|
|
|
|
29,402
|
|
|
|
5.1
|
|
|
|
|
|
107,027
|
|
|
|
96,473
|
|
|
|
10.9
|
|
|
|
|
|
374,769
|
|
|
|
349,589
|
|
|
|
7.2
|
|
|
|
|
15,674
|
|
|
|
13,812
|
|
|
|
13.5
|
|
|
|
|
|
711
|
|
|
|
675
|
|
|
|
5.3
|
|
|
|
|
|
1,294
|
|
|
|
294
|
|
|
|
*
|
|
|
|
|
|
71,837
|
|
|
|
66,866
|
|
|
|
7.4
|
|
|
|
|
5,363
|
|
|
|
4,680
|
|
|
|
14.6
|
|
|
|
|
|
563
|
|
|
|
448
|
|
|
|
25.7
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
52,989
|
|
|
|
48,403
|
|
|
|
9.5
|
|
|
|
|
28,469
|
|
|
|
28,031
|
|
|
|
1.6
|
|
|
|
|
|
76
|
|
|
|
54
|
|
|
|
40.7
|
|
|
|
|
|
106
|
|
|
|
81
|
|
|
|
30.9
|
|
|
|
|
|
95,361
|
|
|
|
87,297
|
|
|
|
9.2
|
|
|
|
|
4,238
|
|
|
|
5,592
|
|
|
|
(24.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,897
|
|
|
|
1,153
|
|
|
|
64.5
|
|
|
|
|
|
42,164
|
|
|
|
44,819
|
|
|
|
(5.9
|
)
|
|
|
|
53,744
|
|
|
|
52,115
|
|
|
|
3.1
|
|
|
|
|
|
1,350
|
|
|
|
1,177
|
|
|
|
14.7
|
|
|
|
|
|
3,298
|
|
|
|
1,529
|
|
|
|
*
|
|
|
|
|
|
262,351
|
|
|
|
247,385
|
|
|
|
6.0
|
|
|
|
|
2,285
|
|
|
|
2,368
|
|
|
|
(3.5
|
)
|
|
|
|
|
5,664
|
|
|
|
6,033
|
|
|
|
(6.1
|
)
|
|
|
|
|
15,601
|
|
|
|
12,103
|
|
|
|
28.9
|
|
|
|
|
|
42,586
|
|
|
|
39,904
|
|
|
|
6.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth Management and
Securities Services
|
|
Payment
Services
|
|
Treasury and
Corporate Support
|
|
|
|
|
Consolidated
Company
|
|
|
|
2014
|
|
|
2013
|
|
|
Percent
Change
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Percent
Change
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Percent
Change
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Percent
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
174
|
|
|
$
|
175
|
|
|
|
(.6
|
)%
|
|
|
|
$
|
829
|
|
|
$
|
775
|
|
|
|
7.0
|
%
|
|
|
|
$
|
1,277
|
|
|
$
|
1,130
|
|
|
|
13.0
|
%
|
|
|
|
$
|
5,450
|
|
|
$
|
5,381
|
|
|
|
1.3
|
%
|
|
|
|
686
|
|
|
|
621
|
|
|
|
10.5
|
|
|
|
|
|
1,607
|
|
|
|
1,575
|
|
|
|
2.0
|
|
|
|
|
|
454
|
|
|
|
130
|
|
|
|
*
|
|
|
|
|
|
4,547
|
|
|
|
4,430
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
11
|
|
|
|
(54.5
|
)
|
|
|
|
|
5
|
|
|
|
11
|
|
|
|
(54.5
|
)
|
|
|
|
860
|
|
|
|
796
|
|
|
|
8.0
|
|
|
|
|
|
2,436
|
|
|
|
2,350
|
|
|
|
3.7
|
|
|
|
|
|
1,736
|
|
|
|
1,271
|
|
|
|
36.6
|
|
|
|
|
|
10,002
|
|
|
|
9,822
|
|
|
|
1.8
|
|
|
|
|
670
|
|
|
|
644
|
|
|
|
4.0
|
|
|
|
|
|
1,145
|
|
|
|
1,117
|
|
|
|
2.5
|
|
|
|
|
|
500
|
|
|
|
267
|
|
|
|
87.3
|
|
|
|
|
|
5,200
|
|
|
|
4,915
|
|
|
|
5.8
|
|
|
|
|
18
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
61
|
|
|
|
69
|
|
|
|
(11.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97
|
|
|
|
112
|
|
|
|
(13.4
|
)
|
|
|
|
688
|
|
|
|
662
|
|
|
|
3.9
|
|
|
|
|
|
1,206
|
|
|
|
1,186
|
|
|
|
1.7
|
|
|
|
|
|
500
|
|
|
|
267
|
|
|
|
87.3
|
|
|
|
|
|
5,297
|
|
|
|
5,027
|
|
|
|
5.4
|
|
|
|
|
172
|
|
|
|
134
|
|
|
|
28.4
|
|
|
|
|
|
1,230
|
|
|
|
1,164
|
|
|
|
5.7
|
|
|
|
|
|
1,236
|
|
|
|
1,004
|
|
|
|
23.1
|
|
|
|
|
|
4,705
|
|
|
|
4,795
|
|
|
|
(1.9
|
)
|
|
|
|
2
|
|
|
|
1
|
|
|
|
*
|
|
|
|
|
|
383
|
|
|
|
381
|
|
|
|
.5
|
|
|
|
|
|
(5
|
)
|
|
|
46
|
|
|
|
*
|
|
|
|
|
|
630
|
|
|
|
765
|
|
|
|
(17.6
|
)
|
|
|
|
170
|
|
|
|
133
|
|
|
|
27.8
|
|
|
|
|
|
847
|
|
|
|
783
|
|
|
|
8.2
|
|
|
|
|
|
1,241
|
|
|
|
958
|
|
|
|
29.5
|
|
|
|
|
|
4,075
|
|
|
|
4,030
|
|
|
|
1.1
|
|
|
|
|
62
|
|
|
|
48
|
|
|
|
29.2
|
|
|
|
|
|
308
|
|
|
|
285
|
|
|
|
8.1
|
|
|
|
|
|
124
|
|
|
|
82
|
|
|
|
51.2
|
|
|
|
|
|
1,154
|
|
|
|
1,199
|
|
|
|
(3.8
|
)
|
|
|
|
108
|
|
|
|
85
|
|
|
|
27.1
|
|
|
|
|
|
539
|
|
|
|
498
|
|
|
|
8.2
|
|
|
|
|
|
1,117
|
|
|
|
876
|
|
|
|
27.5
|
|
|
|
|
|
2,921
|
|
|
|
2,831
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18
|
)
|
|
|
(19
|
)
|
|
|
5.3
|
|
|
|
|
|
(11
|
)
|
|
|
100
|
|
|
|
*
|
|
|
|
|
|
(29
|
)
|
|
|
81
|
|
|
|
*
|
|
|
|
$
|
108
|
|
|
$
|
85
|
|
|
|
27.1
|
|
|
|
|
$
|
521
|
|
|
$
|
479
|
|
|
|
8.8
|
|
|
|
|
$
|
1,106
|
|
|
$
|
976
|
|
|
|
13.3
|
|
|
|
|
$
|
2,892
|
|
|
$
|
2,912
|
|
|
|
(.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,881
|
|
|
$
|
1,642
|
|
|
|
14.6
|
%
|
|
|
|
$
|
6,261
|
|
|
$
|
5,948
|
|
|
|
5.3
|
%
|
|
|
|
$
|
166
|
|
|
$
|
198
|
|
|
|
(16.2
|
)%
|
|
|
|
$
|
72,939
|
|
|
$
|
66,034
|
|
|
|
10.5
|
%
|
|
|
|
613
|
|
|
|
657
|
|
|
|
(6.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
221
|
|
|
|
103
|
|
|
|
*
|
|
|
|
|
|
40,275
|
|
|
|
37,553
|
|
|
|
7.2
|
|
|
|
|
1,287
|
|
|
|
670
|
|
|
|
92.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
51,700
|
|
|
|
45,996
|
|
|
|
12.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,395
|
|
|
|
16,472
|
|
|
|
5.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,395
|
|
|
|
16,472
|
|
|
|
5.6
|
|
|
|
|
1,457
|
|
|
|
1,551
|
|
|
|
(6.1
|
)
|
|
|
|
|
688
|
|
|
|
752
|
|
|
|
(8.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,793
|
|
|
|
47,055
|
|
|
|
1.6
|
|
|
|
|
5,238
|
|
|
|
4,520
|
|
|
|
15.9
|
|
|
|
|
|
24,344
|
|
|
|
23,172
|
|
|
|
5.1
|
|
|
|
|
|
388
|
|
|
|
302
|
|
|
|
28.5
|
|
|
|
|
|
230,102
|
|
|
|
213,110
|
|
|
|
8.0
|
|
|
|
|
6
|
|
|
|
12
|
|
|
|
(50.0
|
)
|
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
1,884
|
|
|
|
3,442
|
|
|
|
(45.3
|
)
|
|
|
|
|
8,080
|
|
|
|
10,701
|
|
|
|
(24.5
|
)
|
|
|
|
5,244
|
|
|
|
4,532
|
|
|
|
15.7
|
|
|
|
|
|
24,349
|
|
|
|
23,177
|
|
|
|
5.1
|
|
|
|
|
|
2,272
|
|
|
|
3,744
|
|
|
|
(39.3
|
)
|
|
|
|
|
238,182
|
|
|
|
223,811
|
|
|
|
6.4
|
|
|
|
|
1,566
|
|
|
|
1,527
|
|
|
|
2.6
|
|
|
|
|
|
2,519
|
|
|
|
2,508
|
|
|
|
.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,216
|
|
|
|
9,154
|
|
|
|
.7
|
|
|
|
|
167
|
|
|
|
177
|
|
|
|
(5.6
|
)
|
|
|
|
|
499
|
|
|
|
598
|
|
|
|
(16.6
|
)
|
|
|
|
|
1
|
|
|
|
2
|
|
|
|
(50.0
|
)
|
|
|
|
|
3,403
|
|
|
|
2,917
|
|
|
|
16.7
|
|
|
|
|
8,274
|
|
|
|
7,394
|
|
|
|
11.9
|
|
|
|
|
|
30,643
|
|
|
|
29,422
|
|
|
|
4.1
|
|
|
|
|
|
104,420
|
|
|
|
98,082
|
|
|
|
6.5
|
|
|
|
|
|
369,569
|
|
|
|
350,483
|
|
|
|
5.4
|
|
|
|
|
15,196
|
|
|
|
13,957
|
|
|
|
8.9
|
|
|
|
|
|
704
|
|
|
|
683
|
|
|
|
3.1
|
|
|
|
|
|
1,271
|
|
|
|
314
|
|
|
|
*
|
|
|
|
|
|
71,333
|
|
|
|
66,634
|
|
|
|
7.1
|
|
|
|
|
5,405
|
|
|
|
4,693
|
|
|
|
15.2
|
|
|
|
|
|
551
|
|
|
|
439
|
|
|
|
25.5
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
52,152
|
|
|
|
48,404
|
|
|
|
7.7
|
|
|
|
|
27,782
|
|
|
|
27,466
|
|
|
|
1.2
|
|
|
|
|
|
73
|
|
|
|
50
|
|
|
|
46.0
|
|
|
|
|
|
104
|
|
|
|
88
|
|
|
|
18.2
|
|
|
|
|
|
93,910
|
|
|
|
85,908
|
|
|
|
9.3
|
|
|
|
|
4,202
|
|
|
|
5,775
|
|
|
|
(27.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,773
|
|
|
|
993
|
|
|
|
78.5
|
|
|
|
|
|
42,533
|
|
|
|
45,262
|
|
|
|
(6.0
|
)
|
|
|
|
52,585
|
|
|
|
51,891
|
|
|
|
1.3
|
|
|
|
|
|
1,328
|
|
|
|
1,172
|
|
|
|
13.3
|
|
|
|
|
|
3,149
|
|
|
|
1,396
|
|
|
|
*
|
|
|
|
|
|
259,928
|
|
|
|
246,208
|
|
|
|
5.6
|
|
|
|
|
2,290
|
|
|
|
2,364
|
|
|
|
(3.1
|
)
|
|
|
|
|
5,660
|
|
|
|
5,997
|
|
|
|
(5.6
|
)
|
|
|
|
|
15,161
|
|
|
|
11,887
|
|
|
|
27.5
|
|
|
|
|
|
42,176
|
|
|
|
39,543
|
|
|
|
6.7
|
|
Net revenue decreased $159 million (8.3 percent) in the second quarter and $393
million (10.2 percent) in the first six months of 2014, compared with the same periods of 2013. Net interest income, on a taxable-equivalent basis, decreased $66 million (5.8 percent) in the second quarter and $139 million (6.0
percent) in the first six months of 2014, compared with the same periods of 2013. The decreases in net interest income were primarily due to lower rates and fees on loans, the impact of lower rates on the margin benefit from deposits and lower
average loans held for sale balances, partially offset by higher average loan and deposit balances. Noninterest income decreased $93 million (12.1 percent) in the second quarter and $254 million (16.4 percent) in the first six months of
2014, compared with the same periods of 2013, primarily the result of lower mortgage origination and sales revenue, partially offset by higher deposit service charges and retail lease revenue.
Noninterest expense increased $9 million (.8 percent) in the second quarter and decreased $15 million (.7 percent) in
the first six months of 2014, compared with the same periods of 2013, the result of higher compensation and employee benefits expense and higher litigation-related expense, offset by lower mortgage-related incentive compensation, due to lower
mortgage portfolio production, and lower FDIC insurance assessments. The provision for credit losses decreased $62 million (34.1 percent) in the second quarter and $157 million (38.3 percent) in the first six months of 2014, compared with
the same periods of 2013. The decreases were due to lower net charge-offs and favorable changes in the reserve allocation, partially offset by higher loan balances. As a percentage of average loans outstanding on an annualized basis, net charge-offs
decreased to .40 percent in the second quarter of 2014, compared with .62 percent in the second quarter of 2013. Nonperforming assets were $1.4 billion at June 30, 2014, March 31, 2014, and June 30, 2013. Nonperforming
assets as a percentage of period-end loans were 1.08 percent at June 30, 2014, 1.15 percent at March 31, 2014, and 1.14 percent at June 30, 2013. Refer to the Corporate Risk Profile section for further
information on factors impacting the credit quality of the loan portfolios.
Wealth
Management and Securities Services
Wealth Management and Securities Services provides private banking, financial advisory services, investment management, retail brokerage services,
insurance, trust, custody and fund servicing through five businesses: Wealth Management, Corporate Trust Services, U.S. Bancorp Asset Management, Institutional Trust & Custody and Fund Services. Wealth Management and
Securities Services contributed $56 million of the Companys net income in the second quarter and $108 million in the first six months of 2014, or increases of $8 million (16.7 percent) and $23 million
(27.1 percent), respectively, compared with the same periods of 2013. The increases were primarily due to higher net revenue, partially offset by higher noninterest expense.
Net revenue increased $33 million (8.1 percent) in the second quarter and $64 million (8.0 percent) in the first six months
of 2014, compared with the same periods of 2013. The increases were primarily driven by higher noninterest income of $29 million (9.1 percent) in the second quarter and $65 million (10.5 percent) in the first six months of 2014, compared with the
same periods of 2013, reflecting the impact of account growth, improved market conditions and business expansion. Net interest income, on a taxable-equivalent basis, increased $4 million (4.6 percent) in the second quarter of 2014,
compared with the second quarter of 2013, principally due to higher average loan and deposit balances.
Noninterest expense
increased $15 million (4.6 percent) in the second quarter and $26 million (3.9 percent) in the first six months of 2014, compared with the same periods of 2013. The increases in noninterest expense were primarily due to higher
compensation and employee benefits expense, including the impact of business expansion.
Payment Services
Payment Services
includes consumer and business credit cards, stored-value cards, debit cards, corporate and purchasing card services, consumer lines of credit and merchant processing. Payment Services contributed $284 million of the Companys net income
in the second quarter and $521 million in the first six months of 2014, or increases of $15 million (5.6 percent) and $42 million (8.8 percent), respectively, compared with the same periods of 2013. The increases were primarily due to higher net
revenue, partially offset by higher noninterest expense and provision for credit losses.
Net revenue increased
$32 million (2.6 percent) in the second quarter and $86 million (3.7 percent) in the first six months of 2014, compared with the same periods of 2013. Net interest income, on a taxable-equivalent basis, increased $28 million
(7.2 percent) in the second quarter and $54 million (7.0 percent) in the first six months of 2014, compared with the same periods of 2013, driven by higher average loan balances and improved loan rates. Noninterest income increased
$4 million (.5 percent) in the second quarter and $32 million (2.0 percent) in the first six months of 2014, compared with the same periods of 2013, primarily due to increases in credit and debit card revenue on higher transaction
volumes, and higher merchant processing
services revenue due to higher volumes and increases in fee-based product revenue. The increases in the second quarter of 2014, compared with the second quarter of 2013, were partially offset by
the impact of a small merchant contract termination gain recorded in the second quarter of 2013.
Noninterest expense increased
$4 million (.7 percent) in the second quarter and $20 million (1.7 percent) in the first six months of 2014, compared with the same periods of 2013, primarily due to higher compensation and employee benefits expenses, including
the impact of business initiatives, partially offset by reductions in technology and communications expense and other intangibles expense. The provision for credit losses increased $6 million (3.4 percent) in the second quarter and $2
million (.5 percent) in the first six months of 2014, compared with the same periods of 2013. The increase in the second quarter of 2014, compared with the same period of the prior year, was due to an unfavorable change in the reserve allocation,
partially offset by lower net charge-offs. The increase in the first six months of 2014, compared with the same period of the prior year, was due to higher net charge-offs, partially offset by a favorable change in the reserve allocation. As a
percentage of average loans outstanding, net charge-offs were 3.28 percent in the second quarter of 2014, compared with 3.51 percent in the second quarter of 2013.
Treasury and Corporate Support
Treasury and Corporate Support includes the
Companys investment portfolios, most covered commercial and commercial real estate loans and related other real estate owned, funding, capital management, interest rate risk management, the net effect of transfer pricing related to average
balances, income taxes not allocated to business lines, including most investments in tax-advantaged projects, and the residual aggregate of those expenses associated with corporate activities that are managed on a consolidated basis. Treasury and
Corporate Support recorded net income of $560 million in the second quarter and $1.1 billion in the first six months of 2014, compared with $467 million and $976 million in the same periods of 2013, respectively.
Net revenue increased $337 million (52.8 percent) in the second quarter and $465 million (36.6 percent) in the first six
months of 2014, compared with the same periods of 2013. Net interest income, on a taxable-equivalent basis, increased $94 million (17.0 percent) in the second quarter and $147 million (13.0 percent) in the first six months of 2014,
compared with the same periods of 2013, principally due to increases in average balances in the investment portfolio and lower rates on short-term borrowings. Noninterest income increased $249 million in the second quarter and $324 million in the
first six months of 2014, compared with the same periods of 2013, primarily driven by the Visa sale and higher commercial products revenue. In addition, noninterest income was higher in the first six months of 2014, compared with the same period of
the prior year, due to higher equity investment revenue.
Noninterest expense increased $163 million
(89.1 percent) in the second quarter and $233 million (87.3 percent) in the first six months of 2014, compared with the same periods of 2013, principally due to the FHA DOJ settlement, partially offset by decreases in employee benefits
expense resulting from lower pension costs, and lower costs related to investments in tax-advantaged projects related to a change in the first quarter of 2014 accounting for affordable housing investments. In addition, other expense for the first
six months of 2014 was higher than the first six months of 2013, principally driven by insurance-related recoveries in the prior year.
Income taxes are assessed to each line of business at a managerial tax rate of 36.4 percent with the residual tax expense or benefit to arrive at the consolidated effective tax rate included in
Treasury and Corporate Support.
NON-GAAP FINANCIAL MEASURES
In addition to capital ratios defined by banking regulators, the Company considers various other measures when evaluating capital
utilization and adequacy, including:
|
|
Tangible common equity to tangible assets,
|
|
|
Tangible common equity to risk-weighted assets,
|
|
|
Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented standardized approach,
|
|
|
Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented advanced approaches, and for additional
information,
|
|
|
Tier 1 common equity to risk-weighted assets using Basel I definition.
|
These measures are viewed by management as useful additional methods of reflecting the level of capital available to withstand unexpected
market or economic conditions. Additionally, presentation of these measures allows investors, analysts and banking regulators to assess the Companys capital position relative to other financial services companies. These measures differ from
currently effective capital ratios defined by banking regulations principally in that the numerator includes unrealized gains and losses related to available-for-sale securities and excludes preferred securities, including preferred stock, the
nature and extent of which varies among different financial services companies. These
measures are not defined in generally accepted accounting principles (GAAP), or are not currently effective or defined in federal banking regulations. As a result, these measures
disclosed by the Company may be considered non-GAAP financial measures.
There may be limits in the usefulness of these
measures to investors. As a result, the Company encourages readers to consider the consolidated financial statements and other financial information contained in this report in their entirety, and not to rely on any single financial measure.
The following table shows the Companys calculation of these
non-GAAP financial measures:
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
Total equity
|
|
$
|
43,386
|
|
|
$
|
41,807
|
|
Preferred stock
|
|
|
(4,756
|
)
|
|
|
(4,756
|
)
|
Noncontrolling interests
|
|
|
(686
|
)
|
|
|
(694
|
)
|
Goodwill (net of deferred tax liability) (1)
|
|
|
(8,548
|
)
|
|
|
(8,343
|
)
|
Intangible assets, other than mortgage servicing rights
|
|
|
(925
|
)
|
|
|
(849
|
)
|
Tangible common equity (a)
|
|
|
28,471
|
|
|
|
27,165
|
|
|
|
|
Tangible common equity (as calculated above)
|
|
|
28,471
|
|
|
|
27,165
|
|
Adjustments (2)
|
|
|
224
|
|
|
|
224
|
|
Common equity tier 1 capital estimated for the Basel III fully implemented standardized and advanced approaches (b)
|
|
|
28,695
|
|
|
|
27,389
|
|
|
|
|
Tier 1 capital, determined in accordance with prescribed regulatory requirements using Basel I definition
|
|
|
|
|
|
|
33,386
|
|
Preferred stock
|
|
|
|
|
|
|
(4,756
|
)
|
Noncontrolling interests, less preferred stock not eligible for Tier 1 capital
|
|
|
|
|
|
|
(688
|
)
|
Tier 1 common equity using Basel 1 definition (c)
|
|
|
|
|
|
|
27,942
|
|
|
|
|
Total assets
|
|
|
389,065
|
|
|
|
364,021
|
|
Goodwill (net of deferred tax liability) (1)
|
|
|
(8,548
|
)
|
|
|
(8,343
|
)
|
Intangible assets, other than mortgage servicing rights
|
|
|
(925
|
)
|
|
|
(849
|
)
|
Tangible assets (d)
|
|
|
379,592
|
|
|
|
354,829
|
|
|
|
|
Risk-weighted assets, determined in accordance with prescribed regulatory requirements (3)(e)
|
|
|
309,929
|
|
|
|
297,919
|
|
Adjustments (4)
|
|
|
12,753
|
|
|
|
13,712
|
|
Risk-weighted assets estimated for the Basel III fully implemented standardized approach (f)
|
|
|
322,682
|
|
|
|
311,631
|
|
Risk-weighted assets, determined in accordance with prescribed transitional advanced approaches regulatory requirements
|
|
|
241,929
|
|
|
|
|
|
Adjustments (5)
|
|
|
3,383
|
|
|
|
|
|
Risk-weighted assets estimated for the Basel III fully implemented advanced approaches (g)
|
|
|
245,312
|
|
|
|
|
|
Ratios
|
|
|
|
|
|
|
|
|
Tangible common equity to tangible assets (a)/(d)
|
|
|
7.5
|
%
|
|
|
7.7
|
%
|
Tangible common equity to risk-weighted assets (a)/(e)
|
|
|
9.2
|
|
|
|
9.1
|
|
Tier 1 common equity to risk-weighted assets using Basel I definition (c)/(e)
|
|
|
|
|
|
|
9.4
|
|
Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented standardized
approach (b)/(f)
|
|
|
8.9
|
|
|
|
8.8
|
|
Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented
advanced approaches (b)/(g)
|
|
|
11.7
|
|
|
|
|
|
(1)
|
Includes goodwill related to certain investments in unconsolidated financial institutions per prescribed regulatory requirements beginning March 31, 2014.
|
(2)
|
Includes net losses on cash flow hedges included in accumulated other comprehensive income and other adjustments.
|
(3)
|
June 30, 2014, calculated under the Basel III transitional standardized approach; December 31, 2013, calculated under Basel I.
|
(4)
|
Includes higher risk-weighting for unfunded loan commitments, investment securities, residential mortgages, mortgage servicing rights and other adjustments.
|
(5)
|
Primarily reflects higher risk-weighting for mortgage servicing rights.
|
CRITICAL ACCOUNTING POLICIES
The accounting and reporting policies of the Company comply with accounting principles generally accepted in the United States and conform
to general practices within the banking industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. The Companys financial position and results of operations can be affected
by these estimates and assumptions, which are integral to understanding the Companys financial statements. Critical accounting policies are those policies management believes are the most important to the portrayal of the Companys
financial condition and results, and require management to make estimates that are difficult, subjective or complex. Most accounting policies are not considered by management to be critical accounting policies. Those policies considered to be
critical accounting policies relate to the allowance for credit losses, fair value estimates, purchased loans and related indemnification assets, MSRs, goodwill and other intangibles and income taxes. Management has discussed the development and the
selection of critical accounting policies with the Companys Audit Committee. These accounting policies are discussed in detail in Managements Discussion and Analysis Critical Accounting Policies and the Notes to
Consolidated Financial Statements in the Companys Annual Report on Form 10-K for the year ended December
31, 2013.
CONTROLS AND PROCEDURES
Under the supervision and with the participation of the Companys management, including its principal executive officer and principal financial officer, the Company has evaluated the effectiveness of
the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)). Based upon this evaluation, the principal executive
officer and principal financial officer have concluded that, as of the end of the period covered by this report, the Companys disclosure controls and procedures were effective.
During the most recently completed fiscal quarter, there was no change made in the Companys internal controls over financial
reporting (as defined in
Rules 13a-15(f)
and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Companys internal control over
financial reporting.
U.S. Bancorp
Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
|
(Unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
Cash and due from banks
|
|
$
|
12,636
|
|
|
$
|
8,477
|
|
Investment securities
|
|
|
|
|
Held-to-maturity (fair value $41,964 and $38,368, respectively; including $528 and $994 at fair value pledged as collateral, respectively)
(a)
|
|
|
41,995
|
|
|
|
38,920
|
|
Available-for-sale ($149 and $1,106 pledged as collateral, respectively) (a)
|
|
|
48,389
|
|
|
|
40,935
|
|
Loans held for sale (including $2,994 and $3,263 of mortgage loans carried at fair value, respectively)
|
|
|
3,018
|
|
|
|
3,268
|
|
Loans
|
|
|
|
|
Commercial
|
|
|
77,454
|
|
|
|
70,033
|
|
Commercial real estate
|
|
|
40,797
|
|
|
|
39,885
|
|
Residential mortgages
|
|
|
51,965
|
|
|
|
51,156
|
|
Credit card
|
|
|
17,642
|
|
|
|
18,021
|
|
Other retail
|
|
|
48,568
|
|
|
|
47,678
|
|
Total loans, excluding covered loans
|
|
|
236,426
|
|
|
|
226,773
|
|
Covered loans
|
|
|
7,448
|
|
|
|
8,462
|
|
Total loans
|
|
|
243,874
|
|
|
|
235,235
|
|
Less allowance for loan losses
|
|
|
(4,132
|
)
|
|
|
(4,250
|
)
|
Net loans
|
|
|
239,742
|
|
|
|
230,985
|
|
Premises and equipment
|
|
|
2,614
|
|
|
|
2,606
|
|
Goodwill
|
|
|
9,422
|
|
|
|
9,205
|
|
Other intangible assets
|
|
|
3,337
|
|
|
|
3,529
|
|
Other assets (including $265 and $111 of trading securities at fair value pledged as collateral, respectively) (a)
|
|
|
27,912
|
|
|
|
26,096
|
|
Total assets
|
|
$
|
389,065
|
|
|
$
|
364,021
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
Deposits
|
|
|
|
|
Noninterest-bearing
|
|
$
|
80,266
|
|
|
$
|
76,941
|
|
Interest-bearing
|
|
|
166,531
|
|
|
|
156,165
|
|
Time deposits greater than $100,000
|
|
|
29,465
|
|
|
|
29,017
|
|
Total deposits
|
|
|
276,262
|
|
|
|
262,123
|
|
Short-term borrowings
|
|
|
29,101
|
|
|
|
27,608
|
|
Long-term debt
|
|
|
25,891
|
|
|
|
20,049
|
|
Other liabilities
|
|
|
14,425
|
|
|
|
12,434
|
|
Total liabilities
|
|
|
345,679
|
|
|
|
322,214
|
|
Shareholders equity
|
|
|
|
|
Preferred stock
|
|
|
4,756
|
|
|
|
4,756
|
|
Common stock, par value $0.01 a share authorized: 4,000,000,000 shares; issued: 6/30/14 and
12/31/13 2,125,725,742 shares
|
|
|
21
|
|
|
|
21
|
|
Capital surplus
|
|
|
8,264
|
|
|
|
8,216
|
|
Retained earnings
|
|
|
40,573
|
|
|
|
38,667
|
|
Less cost of common stock in treasury: 6/30/14 316,910,538 shares; 12/31/13 300,977,274
shares
|
|
|
(10,232
|
)
|
|
|
(9,476
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
(682
|
)
|
|
|
(1,071
|
)
|
Total U.S. Bancorp shareholders equity
|
|
|
42,700
|
|
|
|
41,113
|
|
Noncontrolling interests
|
|
|
686
|
|
|
|
694
|
|
Total equity
|
|
|
43,386
|
|
|
|
41,807
|
|
Total liabilities and equity
|
|
$
|
389,065
|
|
|
$
|
364,021
|
|
(a)
|
Includes only collateral pledged by the Company where counterparties have the right to sell or pledge the collateral.
|
See Notes to Consolidated Financial Statements.
U.S. Bancorp
Consolidated Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars and Shares in Millions, Except Per Share Data)
(Unaudited)
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
2,532
|
|
|
$
|
2,552
|
|
|
$
|
5,054
|
|
|
$
|
5,114
|
|
Loans held for sale
|
|
|
24
|
|
|
|
54
|
|
|
|
51
|
|
|
|
126
|
|
Investment securities
|
|
|
461
|
|
|
|
392
|
|
|
|
902
|
|
|
|
802
|
|
Other interest income
|
|
|
30
|
|
|
|
40
|
|
|
|
62
|
|
|
|
107
|
|
Total interest income
|
|
|
3,047
|
|
|
|
3,038
|
|
|
|
6,069
|
|
|
|
6,149
|
|
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
114
|
|
|
|
144
|
|
|
|
233
|
|
|
|
299
|
|
Short-term borrowings
|
|
|
63
|
|
|
|
87
|
|
|
|
132
|
|
|
|
172
|
|
Long-term debt
|
|
|
181
|
|
|
|
191
|
|
|
|
365
|
|
|
|
409
|
|
Total interest expense
|
|
|
358
|
|
|
|
422
|
|
|
|
730
|
|
|
|
880
|
|
Net interest income
|
|
|
2,689
|
|
|
|
2,616
|
|
|
|
5,339
|
|
|
|
5,269
|
|
Provision for credit losses
|
|
|
324
|
|
|
|
362
|
|
|
|
630
|
|
|
|
765
|
|
Net interest income after provision for credit losses
|
|
|
2,365
|
|
|
|
2,254
|
|
|
|
4,709
|
|
|
|
4,504
|
|
Noninterest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit and debit card revenue
|
|
|
259
|
|
|
|
244
|
|
|
|
498
|
|
|
|
458
|
|
Corporate payment products revenue
|
|
|
182
|
|
|
|
176
|
|
|
|
355
|
|
|
|
348
|
|
Merchant processing services
|
|
|
384
|
|
|
|
373
|
|
|
|
740
|
|
|
|
720
|
|
ATM processing services
|
|
|
82
|
|
|
|
83
|
|
|
|
160
|
|
|
|
165
|
|
Trust and investment management fees
|
|
|
311
|
|
|
|
284
|
|
|
|
615
|
|
|
|
562
|
|
Deposit service charges
|
|
|
171
|
|
|
|
160
|
|
|
|
328
|
|
|
|
313
|
|
Treasury management fees
|
|
|
140
|
|
|
|
140
|
|
|
|
273
|
|
|
|
274
|
|
Commercial products revenue
|
|
|
221
|
|
|
|
209
|
|
|
|
426
|
|
|
|
409
|
|
Mortgage banking revenue
|
|
|
278
|
|
|
|
396
|
|
|
|
514
|
|
|
|
797
|
|
Investment products fees
|
|
|
47
|
|
|
|
46
|
|
|
|
93
|
|
|
|
87
|
|
Securities gains (losses), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains (losses), net
|
|
|
3
|
|
|
|
9
|
|
|
|
8
|
|
|
|
21
|
|
Total other-than-temporary impairment
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
(3
|
)
|
Portion of other-than-temporary impairment recognized in other comprehensive income
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(7
|
)
|
Total securities gains (losses), net
|
|
|
|
|
|
|
6
|
|
|
|
5
|
|
|
|
11
|
|
Other
|
|
|
369
|
|
|
|
159
|
|
|
|
545
|
|
|
|
297
|
|
Total noninterest income
|
|
|
2,444
|
|
|
|
2,276
|
|
|
|
4,552
|
|
|
|
4,441
|
|
Noninterest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
1,125
|
|
|
|
1,098
|
|
|
|
2,240
|
|
|
|
2,180
|
|
Employee benefits
|
|
|
257
|
|
|
|
277
|
|
|
|
546
|
|
|
|
587
|
|
Net occupancy and equipment
|
|
|
241
|
|
|
|
234
|
|
|
|
490
|
|
|
|
469
|
|
Professional services
|
|
|
97
|
|
|
|
91
|
|
|
|
180
|
|
|
|
169
|
|
Marketing and business development
|
|
|
96
|
|
|
|
96
|
|
|
|
175
|
|
|
|
169
|
|
Technology and communications
|
|
|
214
|
|
|
|
214
|
|
|
|
425
|
|
|
|
425
|
|
Postage, printing and supplies
|
|
|
80
|
|
|
|
78
|
|
|
|
161
|
|
|
|
154
|
|
Other intangibles
|
|
|
48
|
|
|
|
55
|
|
|
|
97
|
|
|
|
112
|
|
Other
|
|
|
595
|
|
|
|
414
|
|
|
|
983
|
|
|
|
762
|
|
Total noninterest expense
|
|
|
2,753
|
|
|
|
2,557
|
|
|
|
5,297
|
|
|
|
5,027
|
|
Income before income taxes
|
|
|
2,056
|
|
|
|
1,973
|
|
|
|
3,964
|
|
|
|
3,918
|
|
Applicable income taxes
|
|
|
547
|
|
|
|
529
|
|
|
|
1,043
|
|
|
|
1,087
|
|
Net income
|
|
|
1,509
|
|
|
|
1,444
|
|
|
|
2,921
|
|
|
|
2,831
|
|
Net (income) loss attributable to noncontrolling interests
|
|
|
(14
|
)
|
|
|
40
|
|
|
|
(29
|
)
|
|
|
81
|
|
Net income attributable to U.S. Bancorp
|
|
$
|
1,495
|
|
|
$
|
1,484
|
|
|
$
|
2,892
|
|
|
$
|
2,912
|
|
Net income applicable to U.S. Bancorp common shareholders
|
|
$
|
1,427
|
|
|
$
|
1,405
|
|
|
$
|
2,758
|
|
|
$
|
2,763
|
|
Earnings per common share
|
|
$
|
.79
|
|
|
$
|
.76
|
|
|
$
|
1.52
|
|
|
$
|
1.49
|
|
Diluted earnings per common share
|
|
$
|
.78
|
|
|
$
|
.76
|
|
|
$
|
1.51
|
|
|
$
|
1.49
|
|
Dividends declared per common share
|
|
$
|
.245
|
|
|
$
|
.230
|
|
|
$
|
.475
|
|
|
$
|
.425
|
|
Average common shares outstanding
|
|
|
1,811
|
|
|
|
1,843
|
|
|
|
1,815
|
|
|
|
1,851
|
|
Average diluted common shares outstanding
|
|
|
1,821
|
|
|
|
1,853
|
|
|
|
1,825
|
|
|
|
1,860
|
|
See Notes to Consolidated Financial Statements.
U.S. Bancorp
Consolidated Statement of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
(Dollars in Millions)
(Unaudited)
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Net income
|
|
$
|
1,509
|
|
|
$
|
1,444
|
|
|
$
|
2,921
|
|
|
$
|
2,831
|
|
Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in unrealized gains and losses on securities available-for-sale
|
|
|
206
|
|
|
|
(675
|
)
|
|
|
507
|
|
|
|
(795
|
)
|
Other-than-temporary impairment not recognized in earnings on securities available-for-sale
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
7
|
|
Changes in unrealized gains and losses on derivative hedges
|
|
|
(24
|
)
|
|
|
53
|
|
|
|
(35
|
)
|
|
|
50
|
|
Foreign currency translation
|
|
|
18
|
|
|
|
(23
|
)
|
|
|
14
|
|
|
|
(33
|
)
|
Changes in unrealized gains and losses on retirement plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Reclassification to earnings of realized gains and losses
|
|
|
72
|
|
|
|
80
|
|
|
|
145
|
|
|
|
171
|
|
Income taxes related to other comprehensive income
|
|
|
(105
|
)
|
|
|
217
|
|
|
|
(243
|
)
|
|
|
236
|
|
Total other comprehensive income (loss)
|
|
|
168
|
|
|
|
(347
|
)
|
|
|
389
|
|
|
|
(365
|
)
|
Comprehensive income
|
|
|
1,677
|
|
|
|
1,097
|
|
|
|
3,310
|
|
|
|
2,466
|
|
Comprehensive (income) loss attributable to noncontrolling interests
|
|
|
(14
|
)
|
|
|
40
|
|
|
|
(29
|
)
|
|
|
81
|
|
Comprehensive income attributable to U.S. Bancorp
|
|
$
|
1,663
|
|
|
$
|
1,137
|
|
|
$
|
3,281
|
|
|
$
|
2,547
|
|
See Notes to Consolidated Financial Statements.
U.S. Bancorp
Consolidated Statement of Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Bancorp Shareholders
|
|
|
|
|
|
|
|
(Dollars and Shares in Millions)
(Unaudited)
|
|
Common Shares
Outstanding
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Capital
Surplus
|
|
|
Retained
Earnings
|
|
|
Treasury
Stock
|
|
|
Accumulated
Other
Comprehensive
Income(Loss)
|
|
|
Total
U.S. Bancorp
Shareholders
Equity
|
|
|
Noncontrolling
Interests
|
|
|
Total
Equity
|
|
Balance December 31, 2012
|
|
|
1,869
|
|
|
$
|
4,769
|
|
|
$
|
21
|
|
|
$
|
8,201
|
|
|
$
|
34,720
|
|
|
$
|
(7,790
|
)
|
|
$
|
(923
|
)
|
|
$
|
38,998
|
|
|
$
|
1,269
|
|
|
$
|
40,267
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,912
|
|
|
|
|
|
|
|
|
|
|
|
2,912
|
|
|
|
(81
|
)
|
|
|
2,831
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(365
|
)
|
|
|
(365
|
)
|
|
|
|
|
|
|
(365
|
)
|
Redemption of preferred stock
|
|
|
|
|
|
|
(500
|
)
|
|
|
|
|
|
|
8
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
(500
|
)
|
|
|
|
|
|
|
(500
|
)
|
Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(128
|
)
|
|
|
|
|
|
|
|
|
|
|
(128
|
)
|
|
|
|
|
|
|
(128
|
)
|
Common stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(789
|
)
|
|
|
|
|
|
|
|
|
|
|
(789
|
)
|
|
|
|
|
|
|
(789
|
)
|
Issuance of preferred stock
|
|
|
|
|
|
|
487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
487
|
|
|
|
|
|
|
|
487
|
|
Issuance of common and treasury stock
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
(119
|
)
|
|
|
|
|
|
|
294
|
|
|
|
|
|
|
|
175
|
|
|
|
|
|
|
|
175
|
|
Purchase of treasury stock
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,184
|
)
|
|
|
|
|
|
|
(1,184
|
)
|
|
|
|
|
|
|
(1,184
|
)
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30
|
)
|
|
|
(30
|
)
|
Net other changes in noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
209
|
|
|
|
209
|
|
Stock option and restricted stock grants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
|
|
|
|
|
|
|
|
77
|
|
Balance June 30, 2013
|
|
|
1,844
|
|
|
$
|
4,756
|
|
|
$
|
21
|
|
|
$
|
8,167
|
|
|
$
|
36,707
|
|
|
$
|
(8,680
|
)
|
|
$
|
(1,288
|
)
|
|
$
|
39,683
|
|
|
$
|
1,367
|
|
|
$
|
41,050
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2013
|
|
|
1,825
|
|
|
$
|
4,756
|
|
|
$
|
21
|
|
|
$
|
8,216
|
|
|
$
|
38,667
|
|
|
$
|
(9,476
|
)
|
|
$
|
(1,071
|
)
|
|
$
|
41,113
|
|
|
$
|
694
|
|
|
$
|
41,807
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,892
|
|
|
|
|
|
|
|
|
|
|
|
2,892
|
|
|
|
29
|
|
|
|
2,921
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
389
|
|
|
|
389
|
|
|
|
|
|
|
|
389
|
|
Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(121
|
)
|
|
|
|
|
|
|
|
|
|
|
(121
|
)
|
|
|
|
|
|
|
(121
|
)
|
Common stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(865
|
)
|
|
|
|
|
|
|
|
|
|
|
(865
|
)
|
|
|
|
|
|
|
(865
|
)
|
Issuance of common and treasury stock
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
357
|
|
|
|
|
|
|
|
343
|
|
|
|
|
|
|
|
343
|
|
Purchase of treasury stock
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,113
|
)
|
|
|
|
|
|
|
(1,113
|
)
|
|
|
|
|
|
|
(1,113
|
)
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30
|
)
|
|
|
(30
|
)
|
Net other changes in noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
(7
|
)
|
Stock option and restricted stock grants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
|
|
|
|
|
|
|
|
62
|
|
Balance June 30, 2014
|
|
|
1,809
|
|
|
$
|
4,756
|
|
|
$
|
21
|
|
|
$
|
8,264
|
|
|
$
|
40,573
|
|
|
$
|
(10,232
|
)
|
|
$
|
(682
|
)
|
|
$
|
42,700
|
|
|
$
|
686
|
|
|
$
|
43,386
|
|
See Notes to Consolidated Financial Statements.
U.S. Bancorp
Consolidated Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
(Dollars in Millions)
(Unaudited)
|
|
2014
|
|
|
2013
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
Net income attributable to U.S. Bancorp
|
|
$
|
2,892
|
|
|
$
|
2,912
|
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
Provision for credit losses
|
|
|
630
|
|
|
|
765
|
|
Depreciation and amortization of premises and equipment
|
|
|
149
|
|
|
|
148
|
|
Amortization of intangibles
|
|
|
97
|
|
|
|
112
|
|
Provision for deferred income taxes
|
|
|
(35
|
)
|
|
|
(106
|
)
|
(Gain) loss on sale of loans held for sale
|
|
|
(347
|
)
|
|
|
(874
|
)
|
(Gain) loss on sale of securities and other assets
|
|
|
(303
|
)
|
|
|
(26
|
)
|
Loans originated for sale in the secondary market, net of repayments
|
|
|
(12,259
|
)
|
|
|
(36,607
|
)
|
Proceeds from sales of loans held for sale
|
|
|
12,864
|
|
|
|
40,097
|
|
Other, net
|
|
|
196
|
|
|
|
95
|
|
Net cash provided by operating activities
|
|
|
3,884
|
|
|
|
6,516
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
Proceeds from sales of available-for-sale investment securities
|
|
|
361
|
|
|
|
679
|
|
Proceeds from maturities of held-to-maturity investment securities
|
|
|
4,912
|
|
|
|
4,688
|
|
Proceeds from maturities of available-for-sale investment securities
|
|
|
2,832
|
|
|
|
6,074
|
|
Purchases of held-to-maturity investment securities
|
|
|
(8,018
|
)
|
|
|
(5,026
|
)
|
Purchases of available-for-sale investment securities
|
|
|
(10,160
|
)
|
|
|
(7,731
|
)
|
Net increase in loans outstanding
|
|
|
(7,825
|
)
|
|
|
(5,139
|
)
|
Proceeds from sales of loans
|
|
|
500
|
|
|
|
533
|
|
Purchases of loans
|
|
|
(1,143
|
)
|
|
|
(1,312
|
)
|
Acquisitions, net of cash acquired
|
|
|
3,691
|
|
|
|
|
|
Other, net
|
|
|
338
|
|
|
|
(109
|
)
|
Net cash used in investing activities
|
|
|
(14,512
|
)
|
|
|
(7,343
|
)
|
Financing Activities
|
|
|
|
|
|
|
|
|
Net increase in deposits
|
|
|
9,346
|
|
|
|
2,385
|
|
Net increase (decrease) in short-term borrowings
|
|
|
1,247
|
|
|
|
(123
|
)
|
Proceeds from issuance of long-term debt
|
|
|
7,970
|
|
|
|
131
|
|
Principal payments or redemption of long-term debt
|
|
|
(2,089
|
)
|
|
|
(1,374
|
)
|
Proceeds from issuance of preferred stock
|
|
|
|
|
|
|
487
|
|
Proceeds from issuance of common stock
|
|
|
326
|
|
|
|
169
|
|
Redemption of preferred stock
|
|
|
|
|
|
|
(500
|
)
|
Repurchase of common stock
|
|
|
(1,051
|
)
|
|
|
(1,119
|
)
|
Cash dividends paid on preferred stock
|
|
|
(121
|
)
|
|
|
(133
|
)
|
Cash dividends paid on common stock
|
|
|
(841
|
)
|
|
|
(730
|
)
|
Net cash provided by (used in) financing activities
|
|
|
14,787
|
|
|
|
(807
|
)
|
Change in cash and due from banks
|
|
|
4,159
|
|
|
|
(1,634
|
)
|
Cash and due from banks at beginning of period
|
|
|
8,477
|
|
|
|
8,252
|
|
Cash and due from banks at end of period
|
|
$
|
12,636
|
|
|
$
|
6,618
|
|
See Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
(Unaudited)
Note 1
|
Basis of Presentation
|
The accompanying consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and,
therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally accepted in the United States.
In the opinion of management of U.S. Bancorp (the Company), all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of results for the interim periods have been made. 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.
Note 2
|
Accounting Changes
|
Revenue Recognition
In
May 2014, the Financial Accounting Standards Board issued accounting guidance, effective for the Company on January 1, 2017, related to revenue recognition from contracts with customers, which amends certain currently existing revenue
recognition accounting guidance. The guidance allows for either retrospective application to all periods presented or a modified retrospective approach where the guidance would only be applied to existing contracts in effect at the adoption date and
new contracts going forward. The Company is currently evaluating the impact of this guidance under the modified retrospective approach and expects the adoption will not be material to its financial statements.
Note 3
|
Business Combinations
|
In June 2014, the Company acquired the Chicago-area branch banking operations of the Charter One Bank franchise (Charter
One) owned by RBS Citizens Financial Group. The acquisition included Charter Ones retail branch network, small business operations and select middle market relationships. The Company acquired approximately $969 million of loans and
$4.8 billion of deposits with this transaction.
Note 4
|
Investment Securities
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
Unrealized Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Losses
|
|
|
|
|
(Dollars in Millions)
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Other-than-
Temporary (e)
|
|
|
Other (f)
|
|
|
Fair
Value
|
|
|
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Other-than-
Temporary (e)
|
|
|
Other (f)
|
|
|
Fair
Value
|
|
Held-to-maturity (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agencies
|
|
$
|
1,982
|
|
|
$
|
8
|
|
|
$
|
|
|
|
$
|
(40
|
)
|
|
$
|
1,950
|
|
|
|
|
$
|
3,114
|
|
|
$
|
5
|
|
|
$
|
|
|
|
$
|
(79
|
)
|
|
$
|
3,040
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
39,880
|
|
|
|
302
|
|
|
|
|
|
|
|
(311
|
)
|
|
|
39,871
|
|
|
|
|
|
35,671
|
|
|
|
187
|
|
|
|
|
|
|
|
(665
|
)
|
|
|
35,193
|
|
Non-agency non-prime (d)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Asset-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations/Collateralized loan obligations
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
Other
|
|
|
14
|
|
|
|
4
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
17
|
|
|
|
|
|
16
|
|
|
|
4
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
18
|
|
Obligations of state and political subdivisions
|
|
|
10
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
Obligations of foreign governments
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Other debt securities
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
97
|
|
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
88
|
|
Total held-to-maturity
|
|
$
|
41,995
|
|
|
$
|
323
|
|
|
$
|
(1
|
)
|
|
$
|
(353
|
)
|
|
$
|
41,964
|
|
|
|
|
$
|
38,920
|
|
|
$
|
205
|
|
|
$
|
(1
|
)
|
|
$
|
(756
|
)
|
|
$
|
38,368
|
|
Available-for-sale (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agencies
|
|
$
|
1,891
|
|
|
$
|
8
|
|
|
$
|
|
|
|
$
|
(29
|
)
|
|
$
|
1,870
|
|
|
|
|
$
|
1,108
|
|
|
$
|
4
|
|
|
$
|
|
|
|
$
|
(67
|
)
|
|
$
|
1,045
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
38,147
|
|
|
|
547
|
|
|
|
|
|
|
|
(402
|
)
|
|
|
38,292
|
|
|
|
|
|
31,633
|
|
|
|
449
|
|
|
|
|
|
|
|
(529
|
)
|
|
|
31,553
|
|
Non-agency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime (c)
|
|
|
443
|
|
|
|
9
|
|
|
|
(4
|
)
|
|
|
(1
|
)
|
|
|
447
|
|
|
|
|
|
486
|
|
|
|
4
|
|
|
|
(8
|
)
|
|
|
(4
|
)
|
|
|
478
|
|
Non-prime (d)
|
|
|
278
|
|
|
|
10
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
286
|
|
|
|
|
|
297
|
|
|
|
5
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
297
|
|
Commercial agency
|
|
|
130
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
133
|
|
|
|
|
|
148
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
152
|
|
Asset-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations/Collateralized loan obligations
|
|
|
19
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
20
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
Other
|
|
|
611
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
625
|
|
|
|
|
|
616
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
629
|
|
Obligations of state and political subdivisions
|
|
|
5,362
|
|
|
|
245
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
5,598
|
|
|
|
|
|
5,673
|
|
|
|
116
|
|
|
|
|
|
|
|
(51
|
)
|
|
|
5,738
|
|
Obligations of foreign governments
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Corporate debt securities
|
|
|
690
|
|
|
|
3
|
|
|
|
|
|
|
|
(64
|
)
|
|
|
629
|
|
|
|
|
|
734
|
|
|
|
|
|
|
|
|
|
|
|
(94
|
)
|
|
|
640
|
|
Perpetual preferred securities
|
|
|
205
|
|
|
|
30
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
224
|
|
|
|
|
|
205
|
|
|
|
24
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
212
|
|
Other investments
|
|
|
229
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
256
|
|
|
|
|
|
133
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
161
|
|
Total available-for-sale
|
|
$
|
48,011
|
|
|
$
|
900
|
|
|
$
|
(6
|
)
|
|
$
|
(516
|
)
|
|
$
|
48,389
|
|
|
|
|
$
|
41,059
|
|
|
$
|
651
|
|
|
$
|
(13
|
)
|
|
$
|
(762
|
)
|
|
$
|
40,935
|
|
(a)
|
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.
|
(b)
|
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.
|
(c)
|
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.
|
(d)
|
Includes all securities not meeting the conditions to be designated as prime.
|
(e)
|
Represents impairment not related to credit for those investment securities that have been determined to be other-than-temporarily impaired.
|
(f)
|
Represents unrealized losses on investment securities that have not been determined to be other-than-temporarily impaired.
|
The weighted-average maturity of the available-for-sale investment securities was 4.9 years at June 30, 2014, compared with 6.0 years
at December 31, 2013. The corresponding weighted-average yields were 2.43 percent and 2.64 percent, respectively. The weighted-average maturity of the held-to-maturity investment securities was 4.3 years at June 30, 2014, compared with 4.5
years at December 31, 2013. The corresponding weighted-average yields were 1.98 percent and 2.00 percent, respectively.
For amortized cost, fair value and yield by maturity date of held-to-maturity and available-for-sale investment securities outstanding at June 30, 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 $14.1 billion at June 30, 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 $677 million at
June 30, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
|
Six Months Ended
June 30,
|
|
(Dollars in Millions)
|
|
2014
|
|
|
2013
|
|
|
|
|
2014
|
|
|
2013
|
|
Taxable
|
|
$
|
403
|
|
|
$
|
328
|
|
|
|
|
$
|
784
|
|
|
$
|
672
|
|
Non-taxable
|
|
|
58
|
|
|
|
64
|
|
|
|
|
|
118
|
|
|
|
130
|
|
Total interest income from investment securities
|
|
$
|
461
|
|
|
$
|
392
|
|
|
|
|
$
|
902
|
|
|
$
|
802
|
|
The following table provides information about the amount of gross gains and losses realized through the sales of
available-for-sale investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
|
Six Months Ended
June 30,
|
|
(Dollars in Millions)
|
|
2014
|
|
|
2013
|
|
|
|
|
2014
|
|
|
2013
|
|
Realized gains
|
|
$
|
3
|
|
|
$
|
9
|
|
|
|
|
$
|
8
|
|
|
$
|
21
|
|
Realized losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gains (losses)
|
|
$
|
3
|
|
|
$
|
9
|
|
|
|
|
$
|
8
|
|
|
$
|
21
|
|
Income tax (benefit) on net realized gains (losses)
|
|
$
|
1
|
|
|
$
|
3
|
|
|
|
|
$
|
3
|
|
|
$
|
8
|
|
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 tables summarize other-than-temporary impairment by investment category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
|
|
2013
|
|
Three Months Ended June 30
(Dollars in Millions)
|
|
Losses
Recorded in
Earnings
|
|
|
Other Gains
(Losses) (c)
|
|
|
Total
|
|
|
|
|
Losses
Recorded in
Earnings
|
|
|
Other Gains
(Losses) (c)
|
|
|
Total
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-agency residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime (a)
|
|
$
|
(1
|
)
|
|
$
|
1
|
|
|
$
|
|
|
|
|
|
$
|
(3
|
)
|
|
$
|
1
|
|
|
$
|
(2
|
)
|
Non-prime (b)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale
|
|
$
|
(3
|
)
|
|
$
|
1
|
|
|
$
|
(2
|
)
|
|
|
|
$
|
(3
|
)
|
|
$
|
1
|
|
|
$
|
(2
|
)
|
(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)
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
|
|
2013
|
|
Six Months Ended June 30
(Dollars in Millions)
|
|
Losses
Recorded in
Earnings
|
|
|
Other Gains
(Losses) (c)
|
|
|
Total
|
|
|
|
|
Losses
Recorded in
Earnings
|
|
|
Other Gains
(Losses) (c)
|
|
|
Total
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-agency residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime (a)
|
|
$
|
(1
|
)
|
|
$
|
1
|
|
|
$
|
|
|
|
|
|
$
|
(4
|
)
|
|
$
|
2
|
|
|
$
|
(2
|
)
|
Non-prime (b)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
(6
|
)
|
|
|
5
|
|
|
|
(1
|
)
|
Total available-for-sale
|
|
$
|
(3
|
)
|
|
$
|
1
|
|
|
$
|
(2
|
)
|
|
|
|
$
|
(10
|
)
|
|
$
|
7
|
|
|
$
|
(3
|
)
|
(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)
|
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 June 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime (a)
|
|
|
|
|
Non-Prime (b)
|
|
|
|
Minimum
|
|
|
Maximum
|
|
|
Average
|
|
|
|
|
Minimum
|
|
|
Maximum
|
|
|
Average
|
|
Estimated lifetime prepayment rates
|
|
|
15
|
%
|
|
|
20
|
%
|
|
|
16
|
%
|
|
|
|
|
1
|
%
|
|
|
8
|
%
|
|
|
3
|
%
|
Lifetime probability of default rates
|
|
|
4
|
|
|
|
7
|
|
|
|
6
|
|
|
|
|
|
8
|
|
|
|
10
|
|
|
|
9
|
|
Lifetime loss severity rates
|
|
|
15
|
|
|
|
55
|
|
|
|
40
|
|
|
|
|
|
40
|
|
|
|
75
|
|
|
|
63
|
|
(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.
|
Changes in the credit losses on debt securities are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
|
Six Months Ended
June 30,
|
|
(Dollars in Millions)
|
|
2014
|
|
|
2013
|
|
|
|
|
2014
|
|
|
2013
|
|
Balance at beginning of period
|
|
$
|
111
|
|
|
$
|
133
|
|
|
|
|
$
|
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
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
3
|
|
|
|
10
|
|
Total other-than-temporary impairment on debt securities
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
3
|
|
|
|
10
|
|
Other Changes in Credit Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increases in expected cash flows
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
(2
|
)
|
|
|
(1
|
)
|
Realized losses (a)
|
|
|
(3
|
)
|
|
|
(6
|
)
|
|
|
|
|
(6
|
)
|
|
|
(14
|
)
|
Credit losses on security sales and securities expected to be sold
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
(5
|
)
|
Balance at end of period
|
|
$
|
111
|
|
|
$
|
124
|
|
|
|
|
$
|
111
|
|
|
$
|
124
|
|
(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 June 30, 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 June 30, 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
|
|
$
|
|
|
|
$
|
|
|
|
|
|
$
|
968
|
|
|
$
|
(40
|
)
|
|
|
|
$
|
968
|
|
|
$
|
(40
|
)
|
Residential agency mortgage-backed securities
|
|
|
8,419
|
|
|
|
(38
|
)
|
|
|
|
|
9,556
|
|
|
|
(273
|
)
|
|
|
|
|
17,975
|
|
|
|
(311
|
)
|
Other asset-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
(1
|
)
|
|
|
|
|
10
|
|
|
|
(1
|
)
|
Other debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
(2
|
)
|
|
|
|
|
22
|
|
|
|
(2
|
)
|
Total held-to-maturity
|
|
$
|
8,419
|
|
|
$
|
(38
|
)
|
|
|
|
$
|
10,556
|
|
|
$
|
(316
|
)
|
|
|
|
$
|
18,975
|
|
|
$
|
(354
|
)
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agencies
|
|
$
|
109
|
|
|
$
|
|
|
|
|
|
$
|
817
|
|
|
$
|
(29
|
)
|
|
|
|
$
|
926
|
|
|
$
|
(29
|
)
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
9,318
|
|
|
|
(73
|
)
|
|
|
|
|
8,213
|
|
|
|
(329
|
)
|
|
|
|
|
17,531
|
|
|
|
(402
|
)
|
Non-agency (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime (b)
|
|
|
16
|
|
|
|
|
|
|
|
|
|
159
|
|
|
|
(5
|
)
|
|
|
|
|
175
|
|
|
|
(5
|
)
|
Non-prime (c)
|
|
|
59
|
|
|
|
(1
|
)
|
|
|
|
|
42
|
|
|
|
(1
|
)
|
|
|
|
|
101
|
|
|
|
(2
|
)
|
Other asset-backed securities
|
|
|
24
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
Obligations of state and political subdivisions
|
|
|
7
|
|
|
|
|
|
|
|
|
|
355
|
|
|
|
(9
|
)
|
|
|
|
|
362
|
|
|
|
(9
|
)
|
Obligations of foreign governments
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
Corporate debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
443
|
|
|
|
(64
|
)
|
|
|
|
|
443
|
|
|
|
(64
|
)
|
Perpetual preferred securities
|
|
|
|
|
|
|
|
|
|
|
|
|
123
|
|
|
|
(11
|
)
|
|
|
|
|
123
|
|
|
|
(11
|
)
|
Total available-for-sale
|
|
$
|
9,539
|
|
|
$
|
(74
|
)
|
|
|
|
$
|
10,155
|
|
|
$
|
(448
|
)
|
|
|
|
$
|
19,694
|
|
|
$
|
(522
|
)
|
(a)
|
The Company has $7 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
June 30, 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 5
|
Loans and Allowance for Credit Losses
|
The composition of the loan portfolio, disaggregated by class and underlying specific portfolio type, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
|
|
|
December 31, 2013
|
|
(Dollars in Millions)
|
|
Amount
|
|
|
Percent
of Total
|
|
|
|
|
Amount
|
|
|
Percent
of Total
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
72,286
|
|
|
|
29.7
|
%
|
|
|
|
$
|
64,762
|
|
|
|
27.5
|
%
|
Lease financing
|
|
|
5,168
|
|
|
|
2.1
|
|
|
|
|
|
5,271
|
|
|
|
2.3
|
|
Total commercial
|
|
|
77,454
|
|
|
|
31.8
|
|
|
|
|
|
70,033
|
|
|
|
29.8
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgages
|
|
|
32,125
|
|
|
|
13.2
|
|
|
|
|
|
32,183
|
|
|
|
13.7
|
|
Construction and development
|
|
|
8,672
|
|
|
|
3.5
|
|
|
|
|
|
7,702
|
|
|
|
3.3
|
|
Total commercial real estate
|
|
|
40,797
|
|
|
|
16.7
|
|
|
|
|
|
39,885
|
|
|
|
17.0
|
|
Residential Mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages
|
|
|
38,747
|
|
|
|
15.9
|
|
|
|
|
|
37,545
|
|
|
|
15.9
|
|
Home equity loans, first liens
|
|
|
13,218
|
|
|
|
5.4
|
|
|
|
|
|
13,611
|
|
|
|
5.8
|
|
Total residential mortgages
|
|
|
51,965
|
|
|
|
21.3
|
|
|
|
|
|
51,156
|
|
|
|
21.7
|
|
Credit Card
|
|
|
17,642
|
|
|
|
7.2
|
|
|
|
|
|
18,021
|
|
|
|
7.7
|
|
Other Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail leasing
|
|
|
6,001
|
|
|
|
2.5
|
|
|
|
|
|
5,929
|
|
|
|
2.5
|
|
Home equity and second mortgages
|
|
|
15,668
|
|
|
|
6.4
|
|
|
|
|
|
15,442
|
|
|
|
6.6
|
|
Revolving credit
|
|
|
3,216
|
|
|
|
1.3
|
|
|
|
|
|
3,276
|
|
|
|
1.4
|
|
Installment
|
|
|
5,978
|
|
|
|
2.4
|
|
|
|
|
|
5,709
|
|
|
|
2.4
|
|
Automobile
|
|
|
14,353
|
|
|
|
5.9
|
|
|
|
|
|
13,743
|
|
|
|
5.8
|
|
Student
|
|
|
3,352
|
|
|
|
1.4
|
|
|
|
|
|
3,579
|
|
|
|
1.5
|
|
Total other retail
|
|
|
48,568
|
|
|
|
19.9
|
|
|
|
|
|
47,678
|
|
|
|
20.2
|
|
Total loans, excluding covered loans
|
|
|
236,426
|
|
|
|
96.9
|
|
|
|
|
|
226,773
|
|
|
|
96.4
|
|
Covered Loans
|
|
|
7,448
|
|
|
|
3.1
|
|
|
|
|
|
8,462
|
|
|
|
3.6
|
|
Total loans
|
|
$
|
243,874
|
|
|
|
100.0
|
%
|
|
|
|
$
|
235,235
|
|
|
|
100.0
|
%
|
The Company had loans of $78.0 billion at June 30, 2014, and $77.2 billion at December 31, 2013,
pledged at the Federal Home Loan Bank (FHLB), and loans of $60.5 billion at June 30, 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 $574 million at June 30, 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.
On the acquisition date, the estimate of the contractually required payments receivable for all purchased nonimpaired loans acquired in
the Charter One acquisition were $1.5 billion. The contractual cash flows not expected to be collected on these loans of $247 million and the estimated fair value of the loans of $969 million were determined based upon the estimated
remaining life of the underlying loans, which includes the effects of estimated prepayments. The contractual cash flows not expected to be collected primarily reflect a reduction in contractual interest payments resulting from these estimated
prepayments. There were no purchased impaired loans acquired in the Charter One acquisition.
Changes in the accretable balance for purchased impaired loans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
|
Six Months Ended
June 30,
|
|
(Dollars in Millions)
|
|
2014
|
|
|
2013
|
|
|
|
|
2014
|
|
|
2013
|
|
Balance at beginning of period
|
|
$
|
1,584
|
|
|
$
|
1,921
|
|
|
|
|
$
|
1,655
|
|
|
$
|
1,709
|
|
Accretion
|
|
|
(120
|
)
|
|
|
(125
|
)
|
|
|
|
|
(231
|
)
|
|
|
(261
|
)
|
Disposals
|
|
|
(29
|
)
|
|
|
(31
|
)
|
|
|
|
|
(69
|
)
|
|
|
(69
|
)
|
Reclassifications from nonaccretable difference (a)
|
|
|
53
|
|
|
|
48
|
|
|
|
|
|
134
|
|
|
|
58
|
|
Other (b)
|
|
|
(1
|
)
|
|
|
(11
|
)
|
|
|
|
|
(2
|
)
|
|
|
365
|
|
Balance at end of period
|
|
$
|
1,487
|
|
|
$
|
1,802
|
|
|
|
|
$
|
1,487
|
|
|
$
|
1,802
|
|
(a)
|
Primarily relates to changes in expected credit performance.
|
(b)
|
The amount for the six months ended June 30, 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 55 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 reflects 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, historical loss experience is also incorporated 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30
(Dollars in Millions)
|
|
Commercial
|
|
|
Commercial
Real Estate
|
|
|
Residential
Mortgages
|
|
|
Credit
Card
|
|
|
Other
Retail
|
|
|
Total Loans,
Excluding
Covered Loans
|
|
|
Covered
Loans
|
|
|
Total
Loans
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
1,091
|
|
|
$
|
742
|
|
|
$
|
862
|
|
|
$
|
884
|
|
|
$
|
785
|
|
|
$
|
4,364
|
|
|
$
|
133
|
|
|
$
|
4,497
|
|
Add
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses
|
|
|
75
|
|
|
|
(21
|
)
|
|
|
43
|
|
|
|
163
|
|
|
|
63
|
|
|
|
323
|
|
|
|
1
|
|
|
|
324
|
|
Deduct
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans charged off
|
|
|
76
|
|
|
|
9
|
|
|
|
62
|
|
|
|
188
|
|
|
|
95
|
|
|
|
430
|
|
|
|
2
|
|
|
|
432
|
|
Less recoveries of loans charged off
|
|
|
(21
|
)
|
|
|
(13
|
)
|
|
|
(5
|
)
|
|
|
(18
|
)
|
|
|
(26
|
)
|
|
|
(83
|
)
|
|
|
|
|
|
|
(83
|
)
|
Net loans charged off
|
|
|
55
|
|
|
|
(4
|
)
|
|
|
57
|
|
|
|
170
|
|
|
|
69
|
|
|
|
347
|
|
|
|
2
|
|
|
|
349
|
|
Other changes (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
(20
|
)
|
|
|
(23
|
)
|
Balance at end of period
|
|
$
|
1,111
|
|
|
$
|
725
|
|
|
$
|
848
|
|
|
$
|
874
|
|
|
$
|
779
|
|
|
$
|
4,337
|
|
|
$
|
112
|
|
|
$
|
4,449
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
1,012
|
|
|
$
|
798
|
|
|
$
|
926
|
|
|
$
|
895
|
|
|
$
|
854
|
|
|
$
|
4,485
|
|
|
$
|
223
|
|
|
$
|
4,708
|
|
Add
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses
|
|
|
49
|
|
|
|
(38
|
)
|
|
|
69
|
|
|
|
152
|
|
|
|
89
|
|
|
|
321
|
|
|
|
41
|
|
|
|
362
|
|
Deduct
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans charged off
|
|
|
63
|
|
|
|
16
|
|
|
|
81
|
|
|
|
191
|
|
|
|
134
|
|
|
|
485
|
|
|
|
21
|
|
|
|
506
|
|
Less recoveries of loans charged off
|
|
|
(25
|
)
|
|
|
(33
|
)
|
|
|
(7
|
)
|
|
|
(18
|
)
|
|
|
(29
|
)
|
|
|
(112
|
)
|
|
|
(2
|
)
|
|
|
(114
|
)
|
Net loans charged off
|
|
|
38
|
|
|
|
(17
|
)
|
|
|
74
|
|
|
|
173
|
|
|
|
105
|
|
|
|
373
|
|
|
|
19
|
|
|
|
392
|
|
Other changes (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(66
|
)
|
|
|
(66
|
)
|
Balance at end of period
|
|
$
|
1,023
|
|
|
$
|
777
|
|
|
$
|
921
|
|
|
$
|
874
|
|
|
$
|
838
|
|
|
$
|
4,433
|
|
|
$
|
179
|
|
|
$
|
4,612
|
|
(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, and the impact of any loan sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30
(Dollars in Millions)
|
|
Commercial
|
|
|
Commercial
Real Estate
|
|
|
Residential
Mortgages
|
|
|
Credit
Card
|
|
|
Other
Retail
|
|
|
Total Loans,
Excluding
Covered Loans
|
|
|
Covered
Loans
|
|
|
Total
Loans
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
1,075
|
|
|
$
|
776
|
|
|
$
|
875
|
|
|
$
|
884
|
|
|
$
|
781
|
|
|
$
|
4,391
|
|
|
$
|
146
|
|
|
$
|
4,537
|
|
Add
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses
|
|
|
127
|
|
|
|
(58
|
)
|
|
|
87
|
|
|
|
333
|
|
|
|
143
|
|
|
|
632
|
|
|
|
(2
|
)
|
|
|
630
|
|
Deduct
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans charged off
|
|
|
139
|
|
|
|
17
|
|
|
|
123
|
|
|
|
372
|
|
|
|
195
|
|
|
|
846
|
|
|
|
8
|
|
|
|
854
|
|
Less recoveries of loans charged off
|
|
|
(48
|
)
|
|
|
(24
|
)
|
|
|
(9
|
)
|
|
|
(32
|
)
|
|
|
(50
|
)
|
|
|
(163
|
)
|
|
|
(1
|
)
|
|
|
(164
|
)
|
Net loans charged off
|
|
|
91
|
|
|
|
(7
|
)
|
|
|
114
|
|
|
|
340
|
|
|
|
145
|
|
|
|
683
|
|
|
|
7
|
|
|
|
690
|
|
Other changes (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
(25
|
)
|
|
|
(28
|
)
|
Balance at end of period
|
|
$
|
1,111
|
|
|
$
|
725
|
|
|
$
|
848
|
|
|
$
|
874
|
|
|
$
|
779
|
|
|
$
|
4,337
|
|
|
$
|
112
|
|
|
$
|
4,449
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
1,051
|
|
|
$
|
857
|
|
|
$
|
935
|
|
|
$
|
863
|
|
|
$
|
848
|
|
|
$
|
4,554
|
|
|
$
|
179
|
|
|
$
|
4,733
|
|
Add
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses
|
|
|
45
|
|
|
|
(78
|
)
|
|
|
152
|
|
|
|
344
|
|
|
|
221
|
|
|
|
684
|
|
|
|
81
|
|
|
|
765
|
|
Deduct
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans charged off
|
|
|
119
|
|
|
|
59
|
|
|
|
181
|
|
|
|
384
|
|
|
|
290
|
|
|
|
1,033
|
|
|
|
22
|
|
|
|
1,055
|
|
Less recoveries of loans charged off
|
|
|
(46
|
)
|
|
|
(57
|
)
|
|
|
(15
|
)
|
|
|
(51
|
)
|
|
|
(59
|
)
|
|
|
(228
|
)
|
|
|
(2
|
)
|
|
|
(230
|
)
|
Net loans charged off
|
|
|
73
|
|
|
|
2
|
|
|
|
166
|
|
|
|
333
|
|
|
|
231
|
|
|
|
805
|
|
|
|
20
|
|
|
|
825
|
|
Other changes (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61
|
)
|
|
|
(61
|
)
|
Balance at end of period
|
|
$
|
1,023
|
|
|
$
|
777
|
|
|
$
|
921
|
|
|
$
|
874
|
|
|
$
|
838
|
|
|
$
|
4,433
|
|
|
$
|
179
|
|
|
$
|
4,612
|
|
(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, and the impact of any loan sales.
|
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 June 30, 2014 Related to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment (a)
|
|
$
|
19
|
|
|
$
|
7
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
26
|
|
|
$
|
|
|
|
$
|
26
|
|
TDRs collectively evaluated for impairment
|
|
|
15
|
|
|
|
17
|
|
|
|
326
|
|
|
|
69
|
|
|
|
52
|
|
|
|
479
|
|
|
|
3
|
|
|
|
482
|
|
Other loans collectively evaluated for impairment
|
|
|
1,077
|
|
|
|
669
|
|
|
|
522
|
|
|
|
805
|
|
|
|
727
|
|
|
|
3,800
|
|
|
|
4
|
|
|
|
3,804
|
|
Loans acquired with deteriorated credit quality
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
105
|
|
|
|
137
|
|
Total allowance for credit losses
|
|
$
|
1,111
|
|
|
$
|
725
|
|
|
$
|
848
|
|
|
$
|
874
|
|
|
$
|
779
|
|
|
$
|
4,337
|
|
|
$
|
112
|
|
|
$
|
4,449
|
|
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
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment (a)
|
|
$
|
273
|
|
|
$
|
159
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
432
|
|
|
$
|
70
|
|
|
$
|
502
|
|
TDRs collectively evaluated for impairment
|
|
|
133
|
|
|
|
301
|
|
|
|
5,260
|
|
|
|
272
|
|
|
|
252
|
|
|
|
6,218
|
|
|
|
82
|
|
|
|
6,300
|
|
Other loans collectively evaluated for impairment
|
|
|
77,047
|
|
|
|
40,206
|
|
|
|
46,704
|
|
|
|
17,370
|
|
|
|
48,316
|
|
|
|
229,643
|
|
|
|
3,833
|
|
|
|
233,476
|
|
Loans acquired with deteriorated credit quality
|
|
|
1
|
|
|
|
131
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
133
|
|
|
|
3,463
|
|
|
|
3,596
|
|
Total loans
|
|
$
|
77,454
|
|
|
$
|
40,797
|
|
|
$
|
51,965
|
|
|
$
|
17,642
|
|
|
$
|
48,568
|
|
|
$
|
236,426
|
|
|
$
|
7,448
|
|
|
$
|
243,874
|
|
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
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
77,018
|
|
|
$
|
202
|
|
|
$
|
44
|
|
|
$
|
190
|
|
|
$
|
77,454
|
|
Commercial real estate
|
|
|
40,489
|
|
|
|
56
|
|
|
|
26
|
|
|
|
226
|
|
|
|
40,797
|
|
Residential mortgages (a)
|
|
|
50,643
|
|
|
|
251
|
|
|
|
253
|
|
|
|
818
|
|
|
|
51,965
|
|
Credit card
|
|
|
17,204
|
|
|
|
199
|
|
|
|
187
|
|
|
|
52
|
|
|
|
17,642
|
|
Other retail
|
|
|
48,093
|
|
|
|
213
|
|
|
|
71
|
|
|
|
191
|
|
|
|
48,568
|
|
Total loans, excluding covered loans
|
|
|
233,447
|
|
|
|
921
|
|
|
|
581
|
|
|
|
1,477
|
|
|
|
236,426
|
|
Covered loans
|
|
|
6,781
|
|
|
|
91
|
|
|
|
457
|
|
|
|
119
|
|
|
|
7,448
|
|
Total loans
|
|
$
|
240,228
|
|
|
$
|
1,012
|
|
|
$
|
1,038
|
|
|
$
|
1,596
|
|
|
$
|
243,874
|
|
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 June 30, 2014, $407 million of loans 3089 days past due and $3.1 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 June 30, 2014, the amount of foreclosed residential real
estate held by the Company, and included in other real estate owned, was $265 million ($235 million excluding covered assets). This excludes $583 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 June 30, 2014, was $3.4
billion, of which $2.2 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
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
75,426
|
|
|
$
|
1,044
|
|
|
$
|
984
|
|
|
$
|
2,028
|
|
|
$
|
77,454
|
|
Commercial real estate
|
|
|
39,313
|
|
|
|
547
|
|
|
|
937
|
|
|
|
1,484
|
|
|
|
40,797
|
|
Residential mortgages (b)
|
|
|
50,801
|
|
|
|
7
|
|
|
|
1,157
|
|
|
|
1,164
|
|
|
|
51,965
|
|
Credit card
|
|
|
17,403
|
|
|
|
|
|
|
|
239
|
|
|
|
239
|
|
|
|
17,642
|
|
Other retail
|
|
|
48,210
|
|
|
|
18
|
|
|
|
340
|
|
|
|
358
|
|
|
|
48,568
|
|
Total loans, excluding covered loans
|
|
|
231,153
|
|
|
|
1,616
|
|
|
|
3,657
|
|
|
|
5,273
|
|
|
|
236,426
|
|
Covered loans
|
|
|
7,210
|
|
|
|
3
|
|
|
|
235
|
|
|
|
238
|
|
|
|
7,448
|
|
Total loans
|
|
$
|
238,363
|
|
|
$
|
1,619
|
|
|
$
|
3,892
|
|
|
$
|
5,511
|
|
|
$
|
243,874
|
|
Total outstanding commitments
|
|
$
|
488,159
|
|
|
$
|
2,949
|
|
|
$
|
4,606
|
|
|
$
|
7,555
|
|
|
$
|
495,714
|
|
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 June 30, 2014, $3.1 billion of GNMA loans 90 days or more past due and $2.8 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
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
442
|
|
|
$
|
883
|
|
|
$
|
36
|
|
|
$
|
102
|
|
Commercial real estate
|
|
|
556
|
|
|
|
1,113
|
|
|
|
30
|
|
|
|
24
|
|
Residential mortgages
|
|
|
2,740
|
|
|
|
3,670
|
|
|
|
276
|
|
|
|
|
|
Credit card
|
|
|
272
|
|
|
|
272
|
|
|
|
69
|
|
|
|
|
|
Other retail
|
|
|
378
|
|
|
|
410
|
|
|
|
56
|
|
|
|
4
|
|
Total impaired loans, excluding GNMA and covered loans
|
|
|
4,388
|
|
|
|
6,348
|
|
|
|
467
|
|
|
|
130
|
|
Loans purchased from GNMA mortgage pools
|
|
|
2,816
|
|
|
|
2,816
|
|
|
|
54
|
|
|
|
|
|
Covered loans
|
|
|
375
|
|
|
|
810
|
|
|
|
20
|
|
|
|
1
|
|
Total
|
|
$
|
7,579
|
|
|
$
|
9,974
|
|
|
$
|
541
|
|
|
$
|
131
|
|
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 June 30, 2014 and December 31, 2013, had an associated allowance for credit losses.
|
Additional information on impaired loans follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
|
|
2013
|
|
(Dollars in Millions)
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
Three Months Ended June 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
447
|
|
|
$
|
2
|
|
|
|
|
$
|
381
|
|
|
$
|
9
|
|
Commercial real estate
|
|
|
592
|
|
|
|
4
|
|
|
|
|
|
975
|
|
|
|
10
|
|
Residential mortgages
|
|
|
2,739
|
|
|
|
37
|
|
|
|
|
|
2,738
|
|
|
|
33
|
|
Credit card
|
|
|
281
|
|
|
|
3
|
|
|
|
|
|
376
|
|
|
|
5
|
|
Other retail
|
|
|
381
|
|
|
|
4
|
|
|
|
|
|
435
|
|
|
|
6
|
|
Total impaired loans, excluding GNMA and covered loans
|
|
|
4,440
|
|
|
|
50
|
|
|
|
|
|
4,905
|
|
|
|
63
|
|
Loans purchased from GNMA mortgage pools
|
|
|
2,766
|
|
|
|
33
|
|
|
|
|
|
1,880
|
|
|
|
23
|
|
Covered loans
|
|
|
397
|
|
|
|
5
|
|
|
|
|
|
564
|
|
|
|
8
|
|
Total
|
|
$
|
7,603
|
|
|
$
|
88
|
|
|
|
|
$
|
7,349
|
|
|
$
|
94
|
|
Six Months Ended June 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
432
|
|
|
$
|
4
|
|
|
|
|
$
|
386
|
|
|
$
|
19
|
|
Commercial real estate
|
|
|
626
|
|
|
|
13
|
|
|
|
|
|
1,015
|
|
|
|
21
|
|
Residential mortgages
|
|
|
2,746
|
|
|
|
72
|
|
|
|
|
|
2,733
|
|
|
|
67
|
|
Credit card
|
|
|
290
|
|
|
|
6
|
|
|
|
|
|
397
|
|
|
|
9
|
|
Other retail
|
|
|
385
|
|
|
|
8
|
|
|
|
|
|
439
|
|
|
|
12
|
|
Total impaired loans, excluding GNMA and covered loans
|
|
|
4,479
|
|
|
|
103
|
|
|
|
|
|
4,970
|
|
|
|
128
|
|
Loans purchased from GNMA mortgage pools
|
|
|
2,714
|
|
|
|
66
|
|
|
|
|
|
1,862
|
|
|
|
46
|
|
Covered loans
|
|
|
416
|
|
|
|
10
|
|
|
|
|
|
623
|
|
|
|
15
|
|
Total
|
|
$
|
7,609
|
|
|
$
|
179
|
|
|
|
|
$
|
7,455
|
|
|
$
|
189
|
|
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
|
|
(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
|
|
Three Months Ended June 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
566
|
|
|
$
|
74
|
|
|
$
|
66
|
|
|
|
|
|
596
|
|
|
$
|
54
|
|
|
$
|
47
|
|
Commercial real estate
|
|
|
12
|
|
|
|
8
|
|
|
|
7
|
|
|
|
|
|
36
|
|
|
|
37
|
|
|
|
35
|
|
Residential mortgages
|
|
|
679
|
|
|
|
91
|
|
|
|
91
|
|
|
|
|
|
430
|
|
|
|
62
|
|
|
|
63
|
|
Credit card
|
|
|
6,516
|
|
|
|
36
|
|
|
|
36
|
|
|
|
|
|
5,882
|
|
|
|
35
|
|
|
|
36
|
|
Other retail
|
|
|
649
|
|
|
|
13
|
|
|
|
14
|
|
|
|
|
|
807
|
|
|
|
16
|
|
|
|
15
|
|
Total loans, excluding GNMA and covered loans
|
|
|
8,422
|
|
|
|
222
|
|
|
|
214
|
|
|
|
|
|
7,751
|
|
|
|
204
|
|
|
|
196
|
|
Loans purchased from GNMA mortgage pools
|
|
|
2,362
|
|
|
|
281
|
|
|
|
279
|
|
|
|
|
|
2,879
|
|
|
|
345
|
|
|
|
316
|
|
Covered loans
|
|
|
7
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
21
|
|
|
|
13
|
|
|
|
12
|
|
Total loans
|
|
|
10,791
|
|
|
$
|
505
|
|
|
$
|
495
|
|
|
|
|
|
10,651
|
|
|
$
|
562
|
|
|
$
|
524
|
|
Six Months Ended June 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1,185
|
|
|
$
|
153
|
|
|
$
|
143
|
|
|
|
|
|
1,411
|
|
|
$
|
88
|
|
|
$
|
80
|
|
Commercial real estate
|
|
|
27
|
|
|
|
19
|
|
|
|
15
|
|
|
|
|
|
99
|
|
|
|
117
|
|
|
|
113
|
|
Residential mortgages
|
|
|
1,207
|
|
|
|
161
|
|
|
|
161
|
|
|
|
|
|
1,237
|
|
|
|
172
|
|
|
|
168
|
|
Credit card
|
|
|
13,332
|
|
|
|
76
|
|
|
|
76
|
|
|
|
|
|
13,700
|
|
|
|
83
|
|
|
|
84
|
|
Other retail
|
|
|
1,436
|
|
|
|
34
|
|
|
|
34
|
|
|
|
|
|
2,672
|
|
|
|
65
|
|
|
|
64
|
|
Total loans, excluding GNMA and covered loans
|
|
|
17,187
|
|
|
|
443
|
|
|
|
429
|
|
|
|
|
|
19,119
|
|
|
|
525
|
|
|
|
509
|
|
Loans purchased from GNMA mortgage pools
|
|
|
4,925
|
|
|
|
538
|
|
|
|
525
|
|
|
|
|
|
4,135
|
|
|
|
522
|
|
|
|
498
|
|
Covered loans
|
|
|
20
|
|
|
|
11
|
|
|
|
10
|
|
|
|
|
|
71
|
|
|
|
66
|
|
|
|
53
|
|
Total loans
|
|
|
22,132
|
|
|
$
|
992
|
|
|
$
|
964
|
|
|
|
|
|
23,325
|
|
|
$
|
1,113
|
|
|
$
|
1,060
|
|
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 second quarter of 2014, at June 30, 2014,
211 residential mortgages, 30 home equity and second mortgage loans and 1,531 loans purchased from GNMA mortgage pools with outstanding balances of $29 million, $1 million and $187 million, respectively, were in a trial period and have
estimated post-modification balances of $33 million, $1 million and $185 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 distinct restructuring
programs providing customers experiencing financial difficulty with modifications whereby balances may be amortized up to 60 months, and generally include waiver of fees and reduced interest rates.
In addition, the Company considers secured loans to consumer borrowers that have debt discharged through bankruptcy where the borrower has
not reaffirmed the debt to be TDRs.
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
|
|
(Dollars in Millions)
|
|
Number
of Loans
|
|
|
Amount
Defaulted
|
|
|
|
|
Number
of Loans
|
|
|
Amount
Defaulted
|
|
Three Months Ended June 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
150
|
|
|
$
|
3
|
|
|
|
|
|
172
|
|
|
$
|
3
|
|
Commercial real estate
|
|
|
6
|
|
|
|
3
|
|
|
|
|
|
23
|
|
|
|
44
|
|
Residential mortgages
|
|
|
129
|
|
|
|
17
|
|
|
|
|
|
187
|
|
|
|
28
|
|
Credit card
|
|
|
1,460
|
|
|
|
8
|
|
|
|
|
|
1,638
|
|
|
|
10
|
|
Other retail
|
|
|
158
|
|
|
|
4
|
|
|
|
|
|
369
|
|
|
|
15
|
|
Total loans, excluding GNMA and covered loans
|
|
|
1,903
|
|
|
|
35
|
|
|
|
|
|
2,389
|
|
|
|
100
|
|
Loans purchased from GNMA mortgage pools
|
|
|
105
|
|
|
|
12
|
|
|
|
|
|
481
|
|
|
|
68
|
|
Covered loans
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
15
|
|
|
|
9
|
|
Total loans
|
|
|
2,010
|
|
|
$
|
48
|
|
|
|
|
|
2,885
|
|
|
$
|
177
|
|
Six Months Ended June 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
295
|
|
|
$
|
8
|
|
|
|
|
|
340
|
|
|
$
|
5
|
|
Commercial real estate
|
|
|
12
|
|
|
|
10
|
|
|
|
|
|
42
|
|
|
|
72
|
|
Residential mortgages
|
|
|
277
|
|
|
|
39
|
|
|
|
|
|
370
|
|
|
|
59
|
|
Credit card
|
|
|
2,921
|
|
|
|
16
|
|
|
|
|
|
3,624
|
|
|
|
21
|
|
Other retail
|
|
|
343
|
|
|
|
10
|
|
|
|
|
|
886
|
|
|
|
43
|
|
Total loans, excluding GNMA and covered loans
|
|
|
3,848
|
|
|
|
83
|
|
|
|
|
|
5,262
|
|
|
|
200
|
|
Loans purchased from GNMA mortgage pools
|
|
|
176
|
|
|
|
22
|
|
|
|
|
|
4,303
|
|
|
|
546
|
|
Covered loans
|
|
|
10
|
|
|
|
4
|
|
|
|
|
|
25
|
|
|
|
12
|
|
Total loans
|
|
|
4,034
|
|
|
$
|
109
|
|
|
|
|
|
9,590
|
|
|
$
|
758
|
|
In addition to the defaults in the table above, for the three and six months ended June 30, 2014, the
Company had a total of 702 and 878 residential mortgage loans, home equity and second mortgage loans and loans purchased from GNMA mortgage pools with aggregate outstanding balances of $79 million and $102 million, respectively, 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. Effective December 31, 2014, the loss
sharing coverage provided by the FDIC expires on all covered assets, except for single family residential mortgages that remain covered under loss sharing agreements with remaining terms up to five years. The carrying amount of the covered assets
consisted of purchased impaired loans, purchased nonimpaired loans and other assets as shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 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
|
|
$
|
|
|
|
$
|
27
|
|
|
$
|
|
|
|
$
|
27
|
|
|
|
|
$
|
|
|
|
$
|
32
|
|
|
$
|
|
|
|
$
|
32
|
|
Commercial real estate loans
|
|
|
533
|
|
|
|
1,206
|
|
|
|
|
|
|
|
1,739
|
|
|
|
|
|
738
|
|
|
|
1,494
|
|
|
|
|
|
|
|
2,232
|
|
Residential mortgage loans
|
|
|
2,930
|
|
|
|
811
|
|
|
|
|
|
|
|
3,741
|
|
|
|
|
|
3,037
|
|
|
|
890
|
|
|
|
|
|
|
|
3,927
|
|
Credit card loans
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
Other retail loans
|
|
|
|
|
|
|
627
|
|
|
|
|
|
|
|
627
|
|
|
|
|
|
|
|
|
|
666
|
|
|
|
|
|
|
|
666
|
|
Losses reimbursable by the FDIC (a)
|
|
|
|
|
|
|
|
|
|
|
731
|
|
|
|
731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
798
|
|
|
|
798
|
|
Unamortized changes in FDIC asset (b)
|
|
|
|
|
|
|
|
|
|
|
578
|
|
|
|
578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
802
|
|
|
|
802
|
|
Covered loans
|
|
|
3,463
|
|
|
|
2,676
|
|
|
|
1,309
|
|
|
|
7,448
|
|
|
|
|
|
3,775
|
|
|
|
3,087
|
|
|
|
1,600
|
|
|
|
8,462
|
|
Foreclosed real estate
|
|
|
|
|
|
|
|
|
|
|
58
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97
|
|
|
|
97
|
|
Total covered assets
|
|
$
|
3,463
|
|
|
$
|
2,676
|
|
|
$
|
1,367
|
|
|
$
|
7,506
|
|
|
|
|
$
|
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 June 30, 2014 and December 31, 2013, $5 million of the purchased impaired loans included in covered loans were classified as
nonperforming assets, 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 6
|
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 16.
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 7. 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 $179 million and $173 million for the three months ended June 30, 2014 and 2013, respectively, and $357 million and $340 million for the six months ended June 30, 2014 and 2013, respectively.
The Company also recognized $217 million and $131 million of investment tax credits for the three months ended June 30, 2014 and 2013, respectively, and $320 million and $200 million for the six months ended June 30, 2014 and 2013,
respectively. The Company recognized $166 million and $227 million of expenses related to all of these investments for the three months ended June 30, 2014 and 2013, respectively, of which $59 million and $100 million, respectively, was
included in tax expense and the remainder was included in noninterest expense. The Company recognized $330 million and $439 million of expenses related to all of these investments for the six months ended June 30, 2014 and 2013, respectively,
of which $130 million and $180 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)
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
Investment carrying amount
|
|
$
|
4,291
|
|
|
$
|
4,178
|
|
Unfunded capital and other commitments
|
|
|
1,824
|
|
|
|
1,661
|
|
Maximum exposure to loss
|
|
|
7,663
|
|
|
|
7,390
|
|
The Companys individual net investments in these unconsolidated VIEs, which exclude any unfunded
capital commitments, ranged from less than $1 million to $43 million at June 30, 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 June 30, 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 June 30, 2014, $114 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 June 30, 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 June 30, 2014, compared with $98 million at December 31, 2013. The maximum exposure to loss related to these VIEs was $106 million at June 30, 2014 and $107 million at December 31, 2013,
representing the Companys investment balance and its unfunded commitments to invest additional amounts.
Note 7
|
Mortgage Servicing Rights
|
The Company serviced $224.7 billion of residential mortgage loans for others at June 30, 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 $93 million (of which $44 million related to excess servicing rights sold during the second quarter of 2014) and $13 million for the three months ended June 30, 2014 and 2013, respectively,
and net gains of $151 million and $54 million for the six months ended June 30, 2014 and 2013, respectively. Loan servicing fees, not including valuation changes, included in mortgage banking revenue, were $185 million and $187 million for the
three months ended June 30, 2014 and 2013, respectively, and $373 million and $374 million for the six months ended June 30, 2014 and 2013, respectively.
Changes in fair value of capitalized MSRs are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
|
Six Months Ended
June 30,
|
|
(Dollars in Millions)
|
|
2014
|
|
|
2013
|
|
|
|
|
2014
|
|
|
2013
|
|
Balance at beginning of period
|
|
$
|
2,618
|
|
|
$
|
1,955
|
|
|
|
|
$
|
2,680
|
|
|
$
|
1,700
|
|
Rights purchased
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
2
|
|
|
|
5
|
|
Rights capitalized
|
|
|
71
|
|
|
|
233
|
|
|
|
|
|
155
|
|
|
|
487
|
|
Rights sold
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
(141
|
)
|
|
|
|
|
Changes in fair value of MSRs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to fluctuations in market interest rates (a)
|
|
|
(82
|
)
|
|
|
305
|
|
|
|
|
|
(158
|
)
|
|
|
432
|
|
Due to revised assumptions or models (b)
|
|
|
44
|
|
|
|
(3
|
)
|
|
|
|
|
56
|
|
|
|
(9
|
)
|
Other changes in fair value (c)
|
|
|
(99
|
)
|
|
|
(116
|
)
|
|
|
|
|
(182
|
)
|
|
|
(238
|
)
|
Balance at end of period
|
|
$
|
2,412
|
|
|
$
|
2,377
|
|
|
|
|
$
|
2,412
|
|
|
$
|
2,377
|
|
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 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
|
|
$
|
(508
|
)
|
|
$
|
(232
|
)
|
|
$
|
(110
|
)
|
|
$
|
94
|
|
|
$
|
175
|
|
|
$
|
324
|
|
|
|
|
$
|
(435
|
)
|
|
$
|
(199
|
)
|
|
$
|
(93
|
)
|
|
$
|
82
|
|
|
$
|
154
|
|
|
$
|
287
|
|
Derivative instrument hedges
|
|
|
409
|
|
|
|
209
|
|
|
|
103
|
|
|
|
(96
|
)
|
|
|
(181
|
)
|
|
|
(335
|
)
|
|
|
|
|
399
|
|
|
|
194
|
|
|
|
91
|
|
|
|
(82
|
)
|
|
|
(157
|
)
|
|
|
(301
|
)
|
Net sensitivity
|
|
$
|
(99
|
)
|
|
$
|
(23
|
)
|
|
$
|
(7
|
)
|
|
$
|
(2
|
)
|
|
$
|
(6
|
)
|
|
$
|
(11
|
)
|
|
|
|
$
|
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
|
|
|
December 31, 2013
|
|
(Dollars in Millions)
|
|
MRBP
|
|
|
Government
|
|
|
Conventional (b)
|
|
|
Total
|
|
|
|
|
MRBP
|
|
|
Government
|
|
|
Conventional (b)
|
|
|
Total
|
|
Servicing portfolio
|
|
$
|
16,835
|
|
|
$
|
40,632
|
|
|
$
|
165,030
|
|
|
$
|
222,497
|
|
|
|
|
$
|
15,896
|
|
|
$
|
41,659
|
|
|
$
|
169,287
|
|
|
$
|
226,842
|
|
Fair value
|
|
$
|
191
|
|
|
$
|
469
|
|
|
$
|
1,752
|
|
|
$
|
2,412
|
|
|
|
|
$
|
180
|
|
|
$
|
500
|
|
|
$
|
2,000
|
|
|
$
|
2,680
|
|
Value (bps) (a)
|
|
|
113
|
|
|
|
115
|
|
|
|
106
|
|
|
|
108
|
|
|
|
|
|
113
|
|
|
|
120
|
|
|
|
118
|
|
|
|
118
|
|
Weighted-average servicing fees (bps)
|
|
|
38
|
|
|
|
32
|
|
|
|
27
|
|
|
|
29
|
|
|
|
|
|
39
|
|
|
|
32
|
|
|
|
29
|
|
|
|
30
|
|
Multiple (value/servicing fees)
|
|
|
2.97
|
|
|
|
3.59
|
|
|
|
3.93
|
|
|
|
3.72
|
|
|
|
|
|
2.90
|
|
|
|
3.75
|
|
|
|
4.07
|
|
|
|
3.93
|
|
Weighted-average note rate
|
|
|
4.65
|
%
|
|
|
4.21
|
%
|
|
|
4.15
|
%
|
|
|
4.20
|
%
|
|
|
|
|
4.70
|
%
|
|
|
4.24
|
%
|
|
|
4.17
|
%
|
|
|
4.22
|
%
|
Weighted-average age (in years)
|
|
|
3.8
|
|
|
|
2.9
|
|
|
|
2.8
|
|
|
|
2.9
|
|
|
|
|
|
3.8
|
|
|
|
2.6
|
|
|
|
2.5
|
|
|
|
2.6
|
|
Weighted-average expected prepayment (constant prepayment rate)
|
|
|
13.0
|
%
|
|
|
12.7
|
%
|
|
|
12.0
|
%
|
|
|
12.2
|
%
|
|
|
|
|
13.5
|
%
|
|
|
11.5
|
%
|
|
|
10.9
|
%
|
|
|
11.2
|
%
|
Weighted-average expected life (in years)
|
|
|
6.2
|
|
|
|
6.3
|
|
|
|
6.7
|
|
|
|
6.6
|
|
|
|
|
|
6.2
|
|
|
|
6.9
|
|
|
|
7.2
|
|
|
|
7.1
|
|
Weighted-average discount rate
|
|
|
11.9
|
%
|
|
|
11.2
|
%
|
|
|
9.6
|
%
|
|
|
10.1
|
%
|
|
|
|
|
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 June 30, 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 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 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 June 30, 2014 and December 31, 2013, was $1.00 per share.
|
Note 9
|
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 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30
(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
|
|
$
|
106
|
|
|
$
|
66
|
|
|
$
|
(238
|
)
|
|
$
|
(721
|
)
|
|
$
|
(63
|
)
|
|
$
|
(850
|
)
|
Changes in unrealized gains and losses
|
|
|
206
|
|
|
|
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
182
|
|
Other-than-temporary impairment not recognized in earnings on securities available-for-sale
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
18
|
|
Reclassification to earnings of realized gains and losses
|
|
|
|
|
|
|
(9
|
)
|
|
|
45
|
|
|
|
36
|
|
|
|
|
|
|
|
72
|
|
Applicable income taxes
|
|
|
(80
|
)
|
|
|
3
|
|
|
|
(8
|
)
|
|
|
(14
|
)
|
|
|
(6
|
)
|
|
|
(105
|
)
|
Balance at end of period
|
|
$
|
233
|
|
|
$
|
60
|
|
|
$
|
(225
|
)
|
|
$
|
(699
|
)
|
|
$
|
(51
|
)
|
|
$
|
(682
|
)
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
603
|
|
|
$
|
94
|
|
|
$
|
(371
|
)
|
|
$
|
(1,221
|
)
|
|
$
|
(46
|
)
|
|
$
|
(941
|
)
|
Changes in unrealized gains and losses
|
|
|
(675
|
)
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
(622
|
)
|
Other-than-temporary impairment not recognized in earnings on securities available-for-sale
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23
|
)
|
|
|
(23
|
)
|
Reclassification to earnings of realized gains and losses
|
|
|
(6
|
)
|
|
|
(17
|
)
|
|
|
41
|
|
|
|
62
|
|
|
|
|
|
|
|
80
|
|
Applicable income taxes
|
|
|
262
|
|
|
|
7
|
|
|
|
(36
|
)
|
|
|
(25
|
)
|
|
|
9
|
|
|
|
217
|
|
Balance at end of period
|
|
$
|
185
|
|
|
$
|
84
|
|
|
$
|
(313
|
)
|
|
$
|
(1,184
|
)
|
|
$
|
(60
|
)
|
|
$
|
(1,288
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30
(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
|
|
|
507
|
|
|
|
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
472
|
|
Other-than-temporary impairment not recognized in earnings on securities available-for-sale
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
14
|
|
Reclassification to earnings of realized gains and losses
|
|
|
(5
|
)
|
|
|
(16
|
)
|
|
|
94
|
|
|
|
72
|
|
|
|
|
|
|
|
145
|
|
Applicable income taxes
|
|
|
(193
|
)
|
|
|
6
|
|
|
|
(23
|
)
|
|
|
(28
|
)
|
|
|
(5
|
)
|
|
|
(243
|
)
|
Balance at end of period
|
|
$
|
233
|
|
|
$
|
60
|
|
|
$
|
(225
|
)
|
|
$
|
(699
|
)
|
|
$
|
(51
|
)
|
|
$
|
(682
|
)
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
679
|
|
|
$
|
107
|
|
|
$
|
(404
|
)
|
|
$
|
(1,265
|
)
|
|
$
|
(40
|
)
|
|
$
|
(923
|
)
|
Changes in unrealized gains and losses
|
|
|
(795
|
)
|
|
|
|
|
|
|
50
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(746
|
)
|
Other-than-temporary impairment not recognized in earnings on securities available-for-sale
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33
|
)
|
|
|
(33
|
)
|
Reclassification to earnings of realized gains and losses
|
|
|
(11
|
)
|
|
|
(37
|
)
|
|
|
95
|
|
|
|
124
|
|
|
|
|
|
|
|
171
|
|
Applicable income taxes
|
|
|
305
|
|
|
|
14
|
|
|
|
(54
|
)
|
|
|
(42
|
)
|
|
|
13
|
|
|
|
236
|
|
Balance at end of period
|
|
$
|
185
|
|
|
$
|
84
|
|
|
$
|
(313
|
)
|
|
$
|
(1,184
|
)
|
|
$
|
(60
|
)
|
|
$
|
(1,288
|
)
|
Additional detail about the impact to net income for items reclassified out of accumulated other comprehensive income
(loss) and into earnings, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact to Net Income
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Affected Line Item in the
Consolidated Statement of Income
|
(Dollars in Millions)
|
|
2014
|
|
|
2013
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Unrealized gains (losses) on securities available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains (losses) on sale of securities
|
|
$
|
3
|
|
|
$
|
9
|
|
|
|
|
$
|
8
|
|
|
$
|
21
|
|
|
Total securities gains (losses), net
|
Other-than-temporary impairment recognized in earnings
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
|
|
(3
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
5
|
|
|
|
11
|
|
|
Total before tax
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
(2
|
)
|
|
|
(4
|
)
|
|
Applicable income taxes
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
3
|
|
|
|
7
|
|
|
Net-of-tax
|
Unrealized gains (losses) on securities transferred from available-for-sale to held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrealized gains
|
|
|
9
|
|
|
|
17
|
|
|
|
|
|
16
|
|
|
|
37
|
|
|
Interest income
|
|
|
|
(3
|
)
|
|
|
(7
|
)
|
|
|
|
|
(6
|
)
|
|
|
(14
|
)
|
|
Applicable income taxes
|
|
|
|
6
|
|
|
|
10
|
|
|
|
|
|
10
|
|
|
|
23
|
|
|
Net-of-tax
|
Unrealized gains (losses) on derivative hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains (losses) on derivative hedges
|
|
|
(45
|
)
|
|
|
(41
|
)
|
|
|
|
|
(94
|
)
|
|
|
(95
|
)
|
|
Net interest income
|
|
|
|
17
|
|
|
|
16
|
|
|
|
|
|
36
|
|
|
|
37
|
|
|
Applicable income taxes
|
|
|
|
(28
|
)
|
|
|
(25
|
)
|
|
|
|
|
(58
|
)
|
|
|
(58
|
)
|
|
Net-of-tax
|
Unrealized gains (losses) on retirement plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial gains (losses), prior service cost (credit) and transition obligation (asset) amortization
|
|
|
(36
|
)
|
|
|
(62
|
)
|
|
|
|
|
(72
|
)
|
|
|
(124
|
)
|
|
Employee benefits expense
|
|
|
|
14
|
|
|
|
24
|
|
|
|
|
|
28
|
|
|
|
48
|
|
|
Applicable income taxes
|
|
|
|
(22
|
)
|
|
|
(38
|
)
|
|
|
|
|
(44
|
)
|
|
|
(76
|
)
|
|
Net-of-tax
|
|
|
|
|
|
|
|
Total impact to net income
|
|
$
|
(44
|
)
|
|
$
|
(49
|
)
|
|
|
|
$
|
(89
|
)
|
|
$
|
(104
|
)
|
|
|
Note 10
|
Earnings Per Share
|
The components of earnings per share were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
|
Six Months Ended
June 30,
|
|
(Dollars and Shares in Millions, Except Per Share Data)
|
|
2014
|
|
|
2013
|
|
|
|
|
2014
|
|
|
2013
|
|
Net income attributable to U.S. Bancorp
|
|
$
|
1,495
|
|
|
$
|
1,484
|
|
|
|
|
$
|
2,892
|
|
|
$
|
2,912
|
|
Preferred dividends
|
|
|
(61
|
)
|
|
|
(64
|
)
|
|
|
|
|
(121
|
)
|
|
|
(128
|
)
|
Impact of preferred stock redemption (a)
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
(8
|
)
|
Earnings allocated to participating stock awards
|
|
|
(7
|
)
|
|
|
(7
|
)
|
|
|
|
|
(13
|
)
|
|
|
(13
|
)
|
Net income applicable to U.S. Bancorp common shareholders
|
|
$
|
1,427
|
|
|
$
|
1,405
|
|
|
|
|
$
|
2,758
|
|
|
$
|
2,763
|
|
Average common shares outstanding
|
|
|
1,811
|
|
|
|
1,843
|
|
|
|
|
|
1,815
|
|
|
|
1,851
|
|
Net effect of the exercise and assumed purchase of stock awards
|
|
|
10
|
|
|
|
10
|
|
|
|
|
|
10
|
|
|
|
9
|
|
Average diluted common shares outstanding
|
|
|
1,821
|
|
|
|
1,853
|
|
|
|
|
|
1,825
|
|
|
|
1,860
|
|
Earnings per common share
|
|
$
|
.79
|
|
|
$
|
.76
|
|
|
|
|
$
|
1.52
|
|
|
$
|
1.49
|
|
Diluted earnings per common share
|
|
$
|
.78
|
|
|
$
|
.76
|
|
|
|
|
$
|
1.51
|
|
|
$
|
1.49
|
|
(a)
|
Represents stock issuance costs originally recorded in capital surplus upon the issuance of the Companys Series D Non-Cumulative Perpetual Preferred Stock that were
reclassified to retained earnings on the redemption date.
|
Options outstanding at June 30, 2013, to
purchase 10 million and 11 million common shares were not included in the computation of diluted earnings per share for the three months and six months ended June 30, 2013, respectively, because they were antidilutive.
Note 11
|
Employee Benefits
|
The components of net periodic benefit cost for the Companys retirement plans were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
Pension Plans
|
|
|
Postretirement
Welfare Plan
|
|
|
|
|
Pension Plans
|
|
|
Postretirement
Welfare Plan
|
|
(Dollars in Millions)
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Service cost
|
|
$
|
38
|
|
|
$
|
42
|
|
|
$
|
|
|
|
$
|
1
|
|
|
|
|
$
|
76
|
|
|
$
|
84
|
|
|
$
|
|
|
|
$
|
2
|
|
Interest cost
|
|
|
49
|
|
|
|
43
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
98
|
|
|
|
85
|
|
|
|
2
|
|
|
|
2
|
|
Expected return on plan assets
|
|
|
(52
|
)
|
|
|
(44
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
(104
|
)
|
|
|
(88
|
)
|
|
|
|
|
|
|
(1
|
)
|
Prior service cost (credit) and transition obligation (asset) amortization
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
(2
|
)
|
|
|
|
|
Actuarial loss (gain) amortization
|
|
|
39
|
|
|
|
66
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
|
|
79
|
|
|
|
132
|
|
|
|
(3
|
)
|
|
|
(5
|
)
|
Net periodic benefit cost
|
|
$
|
73
|
|
|
$
|
105
|
|
|
$
|
(1
|
)
|
|
$
|
(1
|
)
|
|
|
|
$
|
147
|
|
|
$
|
210
|
|
|
$
|
(3
|
)
|
|
$
|
(2
|
)
|
The components of income tax expense were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
|
Six Months Ended
June 30,
|
|
(Dollars in Millions)
|
|
2014
|
|
|
2013
|
|
|
|
|
2014
|
|
|
2013
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
421
|
|
|
$
|
626
|
|
|
|
|
$
|
911
|
|
|
$
|
1,116
|
|
Deferred
|
|
|
38
|
|
|
|
(104
|
)
|
|
|
|
|
(29
|
)
|
|
|
(92
|
)
|
Federal income tax
|
|
|
459
|
|
|
|
522
|
|
|
|
|
|
882
|
|
|
|
1,024
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
84
|
|
|
|
19
|
|
|
|
|
|
167
|
|
|
|
77
|
|
Deferred
|
|
|
4
|
|
|
|
(12
|
)
|
|
|
|
|
(6
|
)
|
|
|
(14
|
)
|
State income tax
|
|
|
88
|
|
|
|
7
|
|
|
|
|
|
161
|
|
|
|
63
|
|
Total income tax provision
|
|
$
|
547
|
|
|
$
|
529
|
|
|
|
|
$
|
1,043
|
|
|
$
|
1,087
|
|
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
June 30,
|
|
Six Months Ended
June 30,
|
|
(Dollars in Millions)
|
|
2014
|
|
|
2013
|
|
|
|
|
2014
|
|
|
2013
|
|
Tax at statutory rate
|
|
$
|
719
|
|
|
$
|
690
|
|
|
|
|
$
|
1,387
|
|
|
$
|
1,371
|
|
State income tax, at statutory rates, net of federal tax benefit
|
|
|
58
|
|
|
|
4
|
|
|
|
|
|
101
|
|
|
|
40
|
|
Tax effect of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax credits and benefits, net of related expenses
|
|
|
(184
|
)
|
|
|
(112
|
)
|
|
|
|
|
(349
|
)
|
|
|
(218
|
)
|
Tax-exempt income
|
|
|
(51
|
)
|
|
|
(53
|
)
|
|
|
|
|
(103
|
)
|
|
|
(107
|
)
|
Noncontrolling interests
|
|
|
(5
|
)
|
|
|
15
|
|
|
|
|
|
(10
|
)
|
|
|
29
|
|
Other items
|
|
|
10
|
|
|
|
(15
|
)
|
|
|
|
|
17
|
|
|
|
(28
|
)
|
Applicable income taxes
|
|
$
|
547
|
|
|
$
|
529
|
|
|
|
|
$
|
1,043
|
|
|
$
|
1,087
|
|
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 June 30, 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 $1.6 billion at June 30, 2014, and $1.3 billion at December 31, 2013.
Note 13
|
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 six months ended June 30, 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 June 30, 2014, the Company had $225 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 $59 million (net-of-tax) and $121 million (net-of-tax), respectively. These amounts include 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 six months ended June 30, 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 six months ended June 30, 2014. There were no non-derivative debt instruments designated as net
investment hedges at June 30, 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 and a swap agreement related to the sale of a portion of its Class
B common shares of Visa Inc. Refer to Note 16 for further information on the Visa restructuring and related card association litigation.
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
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive fixed/pay floating swaps
|
|
$
|
1,750
|
|
|
$
|
32
|
|
|
|
3.90
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay fixed/receive floating swaps
|
|
|
272
|
|
|
|
12
|
|
|
|
8.27
|
|
|
|
|
|
5,371
|
|
|
|
415
|
|
|
|
2.32
|
|
Receive fixed/pay floating swaps
|
|
|
7,000
|
|
|
|
14
|
|
|
|
.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,069
|
|
|
|
7
|
|
|
|
.05
|
|
Other economic hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures and forwards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy
|
|
|
4,813
|
|
|
|
49
|
|
|
|
.08
|
|
|
|
|
|
62
|
|
|
|
|
|
|
|
.09
|
|
Sell
|
|
|
404
|
|
|
|
3
|
|
|
|
.11
|
|
|
|
|
|
5,583
|
|
|
|
64
|
|
|
|
.10
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
2,320
|
|
|
|
|
|
|
|
.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Written
|
|
|
2,135
|
|
|
|
38
|
|
|
|
.08
|
|
|
|
|
|
8
|
|
|
|
1
|
|
|
|
.09
|
|
Receive fixed/pay floating swaps
|
|
|
3,520
|
|
|
|
49
|
|
|
|
10.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
|
3,848
|
|
|
|
12
|
|
|
|
.01
|
|
|
|
|
|
1,334
|
|
|
|
10
|
|
|
|
.03
|
|
Equity contracts
|
|
|
80
|
|
|
|
1
|
|
|
|
1.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit contracts
|
|
|
1,303
|
|
|
|
4
|
|
|
|
3.59
|
|
|
|
|
|
2,247
|
|
|
|
6
|
|
|
|
3.22
|
|
Other (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
265
|
|
|
|
43
|
|
|
|
4.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
27,445
|
|
|
$
|
214
|
|
|
|
|
|
|
|
|
$
|
15,939
|
|
|
$
|
546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
(a)
|
Represents a swap agreement related to the sale of a portion of the Companys Class B common shares of Visa Inc. The swap requires payments by either party when there are
changes in the conversion rate of Visa Inc. Class B common shares to Visa Inc. Class A common shares, as well as quarterly payments to the purchaser based on specified terms of the agreement.
|
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
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive fixed/pay floating swaps
|
|
$
|
18,487
|
|
|
$
|
733
|
|
|
|
5.58
|
|
|
|
|
$
|
4,072
|
|
|
$
|
25
|
|
|
|
5.40
|
|
Pay fixed/receive floating swaps
|
|
|
3,375
|
|
|
|
29
|
|
|
|
4.58
|
|
|
|
|
|
18,530
|
|
|
|
709
|
|
|
|
5.61
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
3,417
|
|
|
|
13
|
|
|
|
4.50
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
2.92
|
|
Written
|
|
|
25
|
|
|
|
|
|
|
|
2.92
|
|
|
|
|
|
3,417
|
|
|
|
13
|
|
|
|
4.50
|
|
Futures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy
|
|
|
832
|
|
|
|
|
|
|
|
.55
|
|
|
|
|
|
1,131
|
|
|
|
|
|
|
|
.21
|
|
Sell
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
456
|
|
|
|
|
|
|
|
1.36
|
|
Foreign exchange rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forwards, spots and swaps
|
|
|
12,528
|
|
|
|
346
|
|
|
|
.55
|
|
|
|
|
|
11,681
|
|
|
|
317
|
|
|
|
.58
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
698
|
|
|
|
11
|
|
|
|
.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Written
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
698
|
|
|
|
11
|
|
|
|
.59
|
|
Total
|
|
$
|
39,362
|
|
|
$
|
1,132
|
|
|
|
|
|
|
|
|
$
|
40,010
|
|
|
$
|
1,075
|
|
|
|
|
|
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
Gains
(Losses)
Recognized in
Other
Comprehensive
Income
(Loss)
|
|
|
Gains (Losses)
Reclassified
from
Other
Comprehensive
Income
(Loss) into Earnings
|
|
|
|
|
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
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Asset and Liability Management Positions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts (a)
|
|
$
|
(15
|
)
|
|
$
|
33
|
|
|
$
|
(28
|
)
|
|
$
|
(25
|
)
|
|
|
|
$
|
(22
|
)
|
|
$
|
33
|
|
|
$
|
(58
|
)
|
|
$
|
(58
|
)
|
Net investment hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
$
|
9
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
Note: Ineffectiveness on cash flow and net investment hedges was not material for the three and six months ended June 30,
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of
Gains (Losses)
Recognized in Earnings
|
|
Three Months
Ended June 30,
|
|
|
|
|
Six Months
Ended June 30,
|
|
(Dollars in Millions)
|
|
|
2014
|
|
|
2013
|
|
|
|
|
2014
|
|
|
2013
|
|
Asset and Liability Management Positions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
Other noninterest income
|
|
$
|
8
|
|
|
$
|
(5
|
)
|
|
|
|
$
|
6
|
|
|
$
|
(7
|
)
|
Other economic hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures and forwards
|
|
Mortgage banking revenue
|
|
|
(26
|
)
|
|
|
300
|
|
|
|
|
|
(75
|
)
|
|
|
536
|
|
Purchased and written options
|
|
Mortgage banking revenue
|
|
|
80
|
|
|
|
17
|
|
|
|
|
|
146
|
|
|
|
146
|
|
Receive fixed/pay floating swaps
|
|
Mortgage banking revenue
|
|
|
112
|
|
|
|
(219
|
)
|
|
|
|
|
221
|
|
|
|
(259
|
)
|
Foreign exchange forward contracts
|
|
Commercial products revenue
|
|
|
(12
|
)
|
|
|
26
|
|
|
|
|
|
(17
|
)
|
|
|
34
|
|
Equity contracts
|
|
Compensation expense
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
1
|
|
|
|
1
|
|
Credit contracts
|
|
Other noninterest income/expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Other
|
|
Other noninterest income
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
(43
|
)
|
|
|
|
|
Customer-Related Positions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive fixed/pay floating swaps
|
|
Other noninterest income
|
|
|
215
|
|
|
|
(205
|
)
|
|
|
|
|
349
|
|
|
|
(301
|
)
|
Pay fixed/receive floating swaps
|
|
Other noninterest income
|
|
|
(206
|
)
|
|
|
212
|
|
|
|
|
|
(335
|
)
|
|
|
308
|
|
Foreign exchange rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forwards, spots and swaps
|
|
Commercial products revenue
|
|
|
16
|
|
|
|
14
|
|
|
|
|
|
32
|
|
|
|
21
|
|
(a)
|
Gains (Losses) on items hedged by interest rate contracts included in noninterest income (expense), were $(8) million and $5 million for the three months ended June 30,
2014 and 2013, respectively, and $(6) million and $7 million for the six months ended June 30, 2014 and 2013, respectively. The ineffective portion was immaterial for the three and six months ended June 30, 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 June 30, 2014, was $952 million. At June 30,
2014, the Company had $838 million of cash posted as collateral against this net liability position.
Note 14
|
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 $122.8 billion total notional amount of derivative positions at June 30, 2014, $23.3 billion related to those centrally cleared through clearinghouses and
$3.4 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 under collateral support agreements, fair value is determined daily and, depending on the collateral maintenance requirements, the Company and a
counterparty may receive or deliver collateral, based upon the net fair value of all derivative positions between the Company and the counterparty. Collateral is typically cash, but securities may be allowed under collateral arrangements with
certain counterparties. Receivables and payables related to cash collateral are included in other assets and other liabilities on the Consolidated Balance Sheet, along with the related derivative asset and liability fair values. Any securities
pledged to counterparties as collateral remain on the Consolidated Balance Sheet. Securities received from counterparties as collateral are not recognized on the Consolidated Balance Sheet, unless the counterparty defaults. In general, securities
used as collateral can be sold, repledged or otherwise used by the party in possession. No restrictions exist on the use of cash collateral by either party. Refer to Note 13 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 of these positions with the defaulting counterparty to be terminated and net
settled with a single payment amount.
The Company has elected to offset the assets and liabilities under netting arrangements
for the balance sheet presentation of the majority of its derivative counterparties, 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
|
|
|
|
|
(Dollars in Millions)
|
|
|
|
|
|
|
Financial
Instruments (b)
|
|
|
Collateral
Received (c)
|
|
|
Net Amount
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets (d)
|
|
$
|
1,167
|
|
|
$
|
(411
|
)
|
|
$
|
756
|
|
|
|
|
$
|
(31
|
)
|
|
$
|
|
|
|
$
|
725
|
|
Reverse repurchase agreements
|
|
|
180
|
|
|
|
|
|
|
|
180
|
|
|
|
|
|
(10
|
)
|
|
|
(170
|
)
|
|
|
|
|
Securities borrowed
|
|
|
499
|
|
|
|
|
|
|
|
499
|
|
|
|
|
|
(91
|
)
|
|
|
(395
|
)
|
|
|
13
|
|
Total
|
|
$
|
1,846
|
|
|
$
|
(411
|
)
|
|
$
|
1,435
|
|
|
|
|
$
|
(132
|
)
|
|
$
|
(565
|
)
|
|
$
|
738
|
|
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 $76 million and $124 million of cash collateral related payables that were netted against derivative assets at June 30, 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 $179 million and $55 million of derivative assets centrally cleared or otherwise not subject to netting arrangements at June 30, 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
|
|
|
|
|
(Dollars in Millions)
|
|
|
|
|
|
|
Financial
Instruments (b)
|
|
|
Collateral
Pledged (c)
|
|
|
Net Amount
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities (d)
|
|
$
|
1,432
|
|
|
$
|
(1,127
|
)
|
|
$
|
305
|
|
|
|
|
$
|
(31
|
)
|
|
$
|
|
|
|
$
|
274
|
|
Repurchase agreements
|
|
|
677
|
|
|
|
|
|
|
|
677
|
|
|
|
|
|
(10
|
)
|
|
|
(667
|
)
|
|
|
|
|
Securities loaned
|
|
|
259
|
|
|
|
|
|
|
|
259
|
|
|
|
|
|
(91
|
)
|
|
|
(166
|
)
|
|
|
2
|
|
Total
|
|
$
|
2,368
|
|
|
$
|
(1,127
|
)
|
|
$
|
1,241
|
|
|
|
|
$
|
(132
|
)
|
|
$
|
(833
|
)
|
|
$
|
276
|
|
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 $791 million and $717 million of cash collateral related receivables that were netted against derivative liabilities at June 30, 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 $189 million and $119 million of derivative liabilities centrally cleared or otherwise not subject to netting arrangements at June 30, 2014 and December 31,
2013, respectively.
|
Note 15
|
Fair Values of Assets and Liabilities
|
The Company uses fair value measurements for the initial recording of certain assets and liabilities, periodic remeasurement of certain
assets and liabilities, and disclosures. Derivatives, trading and available-for-sale investment securities, MSRs and substantially all MLHFS are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be
required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower-of-cost-or-fair
value accounting or impairment write-downs of individual assets.
Fair value is defined as the exchange price that would be
received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value measurement
reflects all of the assumptions that market participants would use in pricing the asset or liability, including assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset and
the risk of nonperformance.
The Company groups its assets and liabilities measured at fair value into a three-level
hierarchy for valuation techniques used to measure financial assets and financial liabilities at fair value. This hierarchy is based on whether the valuation inputs are observable or unobservable. These levels are:
|
|
|
Level 1 Quoted prices in active markets for identical assets or liabilities. Level 1 includes U.S. Treasury 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 in which the transfers occur. During the six months ended June 30,
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 described 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 risk management 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 six months ended June 30, 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 $46 million net gain and a $146 million net loss for the three months ended June 30, 2014 and 2013, respectively, and a $98 million net gain and a $321 million net loss for the six months ended
June 30, 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 consider 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 7 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 the risk management
department. The credit assumptions are compared to actual results quarterly and are recalibrated as appropriate.
The Company
also has other derivative contracts that are created through its operations, including commitments to purchase and originate mortgage loans and a swap agreement executed in conjunction with the sale of a portion of its Class B common shares of Visa
Inc. (the Visa swap). The mortgage loan commitments are valued by pricing models that include market observable and unobservable inputs, which result in the commitments being classified within Level 3 of the fair value hierarchy.
The unobservable inputs include assumptions about the percentage of commitments that actually become a closed loan and the MSR value that is inherent in the underlying loan value, 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. The Visa swap requires payments by either party when there are changes in the conversion rate of
Visa Inc. Class B common shares to Visa Inc. Class A common shares, as well as quarterly payments to the purchaser based on specified terms of the agreement. The fair value of the Visa swap is calculated using a discounted cash flow methodology
which includes unobservable inputs about the timing and settlement amounts related to the resolution of certain Visa related litigation, as the expected litigation resolution impacts the Visa Inc. Class B common share to Visa Inc. Class A common
share conversion rate, as well as the ultimate termination date for the Visa swap. Accordingly, the Visa swap is classified within Level 3. The Companys corporate development department determines the valuation for the Visa swap. Management
reviews and updates the Visa swap fair value in conjunction with its review of Visa related litigation contingencies, and the associated escrow funding. Refer to Note 16 for further information on the Visa restructuring and related card association
litigation.
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 6 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 June 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
|
Maximum
|
|
|
Average
|
|
Residential Prime Non-Agency Mortgage-Backed Securities (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated lifetime prepayment rates
|
|
|
6
|
%
|
|
|
20
|
%
|
|
|
14
|
%
|
Lifetime probability of default rates
|
|
|
|
|
|
|
7
|
|
|
|
4
|
|
Lifetime loss severity rates
|
|
|
15
|
|
|
|
75
|
|
|
|
38
|
|
Discount margin
|
|
|
2
|
|
|
|
5
|
|
|
|
3
|
|
Residential Non-Prime Non-Agency Mortgage-Backed Securities (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated lifetime prepayment rates
|
|
|
1
|
%
|
|
|
10
|
%
|
|
|
6
|
%
|
Lifetime probability of default rates
|
|
|
4
|
|
|
|
12
|
|
|
|
8
|
|
Lifetime loss severity rates
|
|
|
15
|
|
|
|
75
|
|
|
|
54
|
|
Discount margin
|
|
|
1
|
|
|
|
5
|
|
|
|
2
|
|
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
|
|
|
6
|
|
|
|
6
|
|
|
|
6
|
|
(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 June 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
|
Maximum
|
|
|
Average
|
|
Expected prepayment
|
|
|
11
|
%
|
|
|
22
|
%
|
|
|
12
|
%
|
Discount rate
|
|
|
10
|
|
|
|
13
|
|
|
|
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. In addition, the Companys Visa swap is classified within Level 3.
The significant unobservable inputs used in the fair value measurement of the Companys derivative commitments to purchase and originate mortgage loans are the percentage of commitments that actually
become a closed loan and the MSR value that is inherent in the underlying loan value. A significant increase in the rate of loans that close would 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
purchase and originate mortgage loans at June 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
|
Maximum
|
|
|
Average
|
|
Expected loan close rate
|
|
|
39
|
%
|
|
|
100
|
%
|
|
|
77
|
%
|
Inherent MSR value (basis points per loan)
|
|
|
48
|
|
|
|
209
|
|
|
|
123
|
|
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
June 30, 2014, the minimum, maximum and average credit valuation adjustment as a percentage of the derivative contract fair value prior to adjustment was 0 percent, 99 percent and 7 percent, respectively.
The significant unobservable inputs used in the fair value measurement of the Visa swap are
managements estimate of the probability of certain litigation scenarios, and the timing of the resolution of the related litigation loss estimates in excess, or shortfall, of the Companys proportional share of escrow funds. An increase
in the loss estimate or a delay in the resolution of the related litigation would result in an increase in the derivative liability. A decrease in the loss estimate or an acceleration of the resolution of the related litigation would result in a
decrease in the derivative liability.
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
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agencies
|
|
$
|
755
|
|
|
$
|
1,115
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,870
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
|
|
|
|
38,292
|
|
|
|
|
|
|
|
|
|
|
|
38,292
|
|
Non-agency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime (a)
|
|
|
|
|
|
|
|
|
|
|
447
|
|
|
|
|
|
|
|
447
|
|
Non-prime (b)
|
|
|
|
|
|
|
|
|
|
|
286
|
|
|
|
|
|
|
|
286
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
|
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
133
|
|
Asset-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations/Collateralized loan obligations
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
Other
|
|
|
|
|
|
|
559
|
|
|
|
66
|
|
|
|
|
|
|
|
625
|
|
Obligations of state and political subdivisions
|
|
|
|
|
|
|
5,598
|
|
|
|
|
|
|
|
|
|
|
|
5,598
|
|
Obligations of foreign governments
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Corporate debt securities
|
|
|
|
|
|
|
620
|
|
|
|
9
|
|
|
|
|
|
|
|
629
|
|
Perpetual preferred securities
|
|
|
|
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
|
224
|
|
Other investments
|
|
|
237
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
256
|
|
Total available-for-sale
|
|
|
992
|
|
|
|
46,589
|
|
|
|
808
|
|
|
|
|
|
|
|
48,389
|
|
Mortgage loans held for sale
|
|
|
|
|
|
|
2,994
|
|
|
|
|
|
|
|
|
|
|
|
2,994
|
|
Mortgage servicing rights
|
|
|
|
|
|
|
|
|
|
|
2,412
|
|
|
|
|
|
|
|
2,412
|
|
Derivative assets
|
|
|
|
|
|
|
708
|
|
|
|
638
|
|
|
|
(411
|
)
|
|
|
935
|
|
Other assets
|
|
|
99
|
|
|
|
817
|
|
|
|
|
|
|
|
|
|
|
|
916
|
|
Total
|
|
$
|
1,091
|
|
|
$
|
51,108
|
|
|
$
|
3,858
|
|
|
$
|
(411
|
)
|
|
$
|
55,646
|
|
Derivative liabilities
|
|
$
|
|
|
|
$
|
1,541
|
|
|
$
|
80
|
|
|
$
|
(1,127
|
)
|
|
$
|
494
|
|
Short-term borrowings (c)
|
|
|
214
|
|
|
|
458
|
|
|
|
|
|
|
|
|
|
|
|
672
|
|
Total
|
|
$
|
214
|
|
|
$
|
1,999
|
|
|
$
|
80
|
|
|
$
|
(1,127
|
)
|
|
$
|
1,166
|
|
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 June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
Beginning
of Period
Balance
|
|
|
Net
Gains
(Losses)
Included
in Net
Income
|
|
|
Net
Gains
(Losses)
Included
in
Other
Compre-
hensive
Income
(Loss)
|
|
|
Pur-
chases
|
|
|
Sales
|
|
|
Principal
Pay-
ments
|
|
|
Issu-
ances
|
|
|
Settle-
ments
|
|
|
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)
|
|
$
|
465
|
|
|
$
|
|
|
|
$
|
5
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(23
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
447
|
|
|
$
|
5
|
|
Non-prime (b)
|
|
|
297
|
|
|
|
(3
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
286
|
|
|
|
|
|
Asset-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
65
|
|
|
|
1
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
66
|
|
|
|
|
|
Corporate debt securities
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
Total available-
for-sale
|
|
|
836
|
|
|
|
(2
|
) (c)
|
|
|
6
|
(f)
|
|
|
2
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
808
|
|
|
|
5
|
|
Mortgage servicing rights
|
|
|
2,618
|
|
|
|
(137
|
) (d)
|
|
|
|
|
|
|
1
|
|
|
|
(141
|
)
|
|
|
|
|
|
|
71
|
(g)
|
|
|
|
|
|
|
2,412
|
|
|
|
(137
|
) (d)
|
Net derivative assets and liabilities
|
|
|
482
|
|
|
|
288
|
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(212
|
)
|
|
|
558
|
|
|
|
123
|
(h)
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential non-agency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime (a)
|
|
$
|
599
|
|
|
$
|
(2
|
)
|
|
$
|
(3
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(47
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
547
|
|
|
$
|
(3
|
)
|
Non-prime (b)
|
|
|
350
|
|
|
|
(1
|
)
|
|
|
3
|
|
|
|
|
|
|
|
(20
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
319
|
|
|
|
5
|
|
Asset-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
40
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
1
|
|
Corporate debt securities
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
Total available-
for-sale
|
|
|
998
|
|
|
|
(3
|
) (i)
|
|
|
1
|
(f)
|
|
|
|
|
|
|
(20
|
)
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
|
915
|
|
|
|
3
|
|
Mortgage servicing rights
|
|
|
1,955
|
|
|
|
186
|
(d)
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
233
|
(g)
|
|
|
|
|
|
|
2,377
|
|
|
|
186
|
(d)
|
Net derivative assets and liabilities
|
|
|
986
|
|
|
|
(363
|
) (j)
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(199
|
)
|
|
|
423
|
|
|
|
(286
|
) (k)
|
(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 securities gains (losses).
|
(d)
|
Included in mortgage banking revenue.
|
(e)
|
Approximately $127 million included in other noninterest income and $161 million included in mortgage banking revenue.
|
(f)
|
Included in changes in unrealized gains and losses on securities available-for-sale.
|
(g)
|
Represents MSRs capitalized during the period.
|
(h)
|
Approximately $47 million included in other noninterest income and $76 million included in mortgage banking revenue.
|
(i)
|
Included in securities gains (losses)
|
(j)
|
Approximately $(207) million included in other noninterest income and $(156) million included in mortgage banking revenue.
|
(k)
|
Approximately $(185) million included in other noninterest income and $(101) million included in mortgage banking revenue.
|
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 six months ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
Beginning
of Period
Balance
|
|
|
Net
Gains
(Losses)
Included
in Net
Income
|
|
|
Net Gains
(Losses)
Included in
Other
Compre-
hensive
Income
(Loss)
|
|
|
Pur-chases
|
|
|
Sales
|
|
|
Principal
Payments
|
|
|
Issu-
ances
|
|
|
Settle-
ments
|
|
|
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
|
|
|
$
|
|
|
|
$
|
12
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(43
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
447
|
|
|
$
|
12
|
|
Non-prime (b)
|
|
|
297
|
|
|
|
(4
|
)
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
286
|
|
|
|
7
|
|
Asset-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
63
|
|
|
|
2
|
|
|
|
1
|
|
|
|
4
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
66
|
|
|
|
1
|
|
Corporate debt securities
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
Total available-
for-sale
|
|
|
847
|
|
|
|
(2
|
) (c)
|
|
|
21
|
(f)
|
|
|
4
|
|
|
|
|
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
808
|
|
|
|
20
|
|
Mortgage servicing rights
|
|
|
2,680
|
|
|
|
(284
|
) (d)
|
|
|
|
|
|
|
2
|
|
|
|
(141
|
)
|
|
|
|
|
|
|
155
|
(g)
|
|
|
|
|
|
|
2,412
|
|
|
|
(284
|
) (d)
|
Net derivative assets and liabilities
|
|
|
445
|
|
|
|
473
|
(e)
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(361
|
)
|
|
|
558
|
|
|
|
161
|
(h)
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential non-agency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime (a)
|
|
$
|
624
|
|
|
$
|
(4
|
)
|
|
$
|
8
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(81
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
547
|
|
|
$
|
8
|
|
Non-prime (b)
|
|
|
355
|
|
|
|
(8
|
)
|
|
|
17
|
|
|
|
|
|
|
|
(20
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
319
|
|
|
|
18
|
|
Asset-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
15
|
|
|
|
1
|
|
|
|
1
|
|
|
|
25
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
1
|
|
Corporate debt securities
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
Total available-
for-sale
|
|
|
1,003
|
|
|
|
(11
|
) (i)
|
|
|
26
|
(f)
|
|
|
25
|
|
|
|
(20
|
)
|
|
|
(108
|
)
|
|
|
|
|
|
|
|
|
|
|
915
|
|
|
|
27
|
|
Mortgage servicing rights
|
|
|
1,700
|
|
|
|
185
|
(d)
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
487
|
(g)
|
|
|
|
|
|
|
2,377
|
|
|
|
185
|
(d)
|
Net derivative assets and liabilities
|
|
|
1,179
|
|
|
|
(216
|
) (j)
|
|
|
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
(539
|
)
|
|
|
423
|
|
|
|
(374
|
) (k)
|
(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 securities gains (losses).
|
(d)
|
Included in mortgage banking revenue.
|
(e)
|
Approximately $208 million included in other noninterest income and $265 million included in mortgage banking revenue.
|
(f)
|
Included in changes in unrealized gains and losses on securities available-for-sale.
|
(g)
|
Represents MSRs capitalized during the period.
|
(h)
|
Approximately $85 million included in other noninterest income and $76 million included in mortgage banking revenue.
|
(i)
|
Approximately $(10) million included in securities gains (losses) and $(1) million included in interest income.
|
(j)
|
Approximately $(210) million included in other noninterest income and $(6) million included in mortgage banking revenue.
|
(k)
|
Approximately $(273) million included in other noninterest income and $(101) 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
|
|
|
December 31, 2013
|
|
(Dollars in Millions)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Loans (a)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
102
|
|
|
$
|
102
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
128
|
|
|
$
|
128
|
|
Other assets (b)
|
|
|
|
|
|
|
|
|
|
|
71
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended June 30,
|
|
|
|
|
Six Months
Ended June 30,
|
|
(Dollars in Millions)
|
|
2014
|
|
|
2013
|
|
|
|
|
2014
|
|
|
2013
|
|
Loans (a)
|
|
$
|
31
|
|
|
$
|
12
|
|
|
|
|
$
|
47
|
|
|
$
|
33
|
|
Other assets (b)
|
|
|
15
|
|
|
|
20
|
|
|
|
|
|
34
|
|
|
|
59
|
|
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 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
|
|
$
|
2,994
|
|
|
$
|
2,864
|
|
|
$
|
130
|
|
|
|
|
$
|
3,263
|
|
|
$
|
3,195
|
|
|
$
|
68
|
|
Nonaccrual loans
|
|
|
7
|
|
|
|
11
|
|
|
|
(4
|
)
|
|
|
|
|
9
|
|
|
|
14
|
|
|
|
(5
|
)
|
Loans 90 days or more past due
|
|
|
3
|
|
|
|
4
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disclosures about Fair Value of Financial Instruments
The following table summarizes the estimated fair value for financial instruments as of June 30, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 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
|
|
$
|
12,636
|
|
|
|
|
$
|
12,636
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
12,636
|
|
|
|
|
$
|
8,477
|
|
|
|
|
$
|
8,477
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,477
|
|
Federal funds sold and securities purchased under resale agreements
|
|
|
271
|
|
|
|
|
|
|
|
|
|
271
|
|
|
|
|
|
|
|
271
|
|
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
163
|
|
|
|
|
|
|
|
163
|
|
Investment securities held-to-maturity
|
|
|
41,995
|
|
|
|
|
|
1,413
|
|
|
|
40,454
|
|
|
|
97
|
|
|
|
41,964
|
|
|
|
|
|
38,920
|
|
|
|
|
|
2,589
|
|
|
|
35,678
|
|
|
|
101
|
|
|
|
38,368
|
|
Loans held for sale (a)
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
24
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
Loans (b)
|
|
|
239,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
242,067
|
|
|
|
242,067
|
|
|
|
|
|
230,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
231,480
|
|
|
|
231,480
|
|
Other financial instruments
|
|
|
2,247
|
|
|
|
|
|
|
|
|
|
946
|
|
|
|
1,311
|
|
|
|
2,257
|
|
|
|
|
|
2,443
|
|
|
|
|
|
|
|
|
|
1,080
|
|
|
|
1,383
|
|
|
|
2,463
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
276,262
|
|
|
|
|
|
|
|
|
|
276,150
|
|
|
|
|
|
|
|
276,150
|
|
|
|
|
|
262,123
|
|
|
|
|
|
|
|
|
|
262,200
|
|
|
|
|
|
|
|
262,200
|
|
Short-term borrowings (c)
|
|
|
28,429
|
|
|
|
|
|
|
|
|
|
28,296
|
|
|
|
|
|
|
|
28,296
|
|
|
|
|
|
26,945
|
|
|
|
|
|
|
|
|
|
26,863
|
|
|
|
|
|
|
|
26,863
|
|
Long-term debt
|
|
|
25,891
|
|
|
|
|
|
|
|
|
|
26,331
|
|
|
|
|
|
|
|
26,331
|
|
|
|
|
|
20,049
|
|
|
|
|
|
|
|
|
|
20,391
|
|
|
|
|
|
|
|
20,391
|
|
Other liabilities
|
|
|
1,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,294
|
|
|
|
1,294
|
|
|
|
|
|
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 $405 million and $382 million at June 30, 2014 and December 31, 2013, respectively. The carrying value of other
guarantees was $262 million and $278 million at June 30, 2014 and December 31, 2013, respectively.
Note 16
|
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 June 30, 2014, the carrying amount of the Companys liability related to the Visa Litigation matters, net of its share of the
escrow fundings, was $19 million. During the second quarter of 2014, the Company sold 3.0 million of its Class B shares. This sale does not impact the Companys liability for the Visa Litigation matters or the receivable related to
the escrow account. The remaining 9.6 million Class B shares held by the Company will be eligible for conversion to Class A shares of Visa Inc., and thereby become marketable, upon final settlement of the Visa Litigation. These shares are
excluded from the Companys financial instruments disclosures included in Note 15.
Other Guarantees and Contingent Liabilities
The following table is a summary of other guarantees and contingent liabilities of the Company at June 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
Collateral
Held
|
|
|
Carrying
Amount
|
|
|
Maximum
Potential
Future
Payments
|
|
Standby letters of credit
|
|
$
|
|
|
|
$
|
66
|
|
|
$
|
15,913
|
|
Third-party borrowing arrangements
|
|
|
|
|
|
|
|
|
|
|
14
|
|
Securities lending indemnifications
|
|
|
4,957
|
|
|
|
|
|
|
|
4,824
|
|
Asset sales
|
|
|
|
|
|
|
172
|
|
|
|
3,931
|
(a)
|
Merchant processing
|
|
|
796
|
|
|
|
80
|
|
|
|
93,179
|
|
Contingent consideration arrangements
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
Tender option bond program guarantee
|
|
|
4,470
|
|
|
|
|
|
|
|
4,293
|
|
Minimum revenue guarantees
|
|
|
|
|
|
|
8
|
|
|
|
9
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
466
|
|
(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 June 30, 2014, the value of airline tickets purchased to be delivered at a future date was $8.7 billion. The Company held collateral of
$707 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
June 30, 2014, the Company had reserved $69 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
June 30,
|
|
|
|
|
Six Months Ended
June 30,
|
|
(Dollars in Millions)
|
|
2014
|
|
|
2013
|
|
|
|
|
2014
|
|
|
2013
|
|
Balance at beginning of period
|
|
$
|
75
|
|
|
$
|
233
|
|
|
|
|
$
|
83
|
|
|
$
|
240
|
|
Net realized losses
|
|
|
(2
|
)
|
|
|
(16
|
)
|
|
|
|
|
(12
|
)
|
|
|
(39
|
)
|
Change in reserve
|
|
|
(4
|
)
|
|
|
(27
|
)
|
|
|
|
|
(2
|
)
|
|
|
(11
|
)
|
Balance at end of period
|
|
$
|
69
|
|
|
$
|
190
|
|
|
|
|
$
|
69
|
|
|
$
|
190
|
|
As of June 30, 2014 and December 31, 2013, the Company had $35 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.
In June 2014, the Company entered into a settlement agreement with the U.S. Department of Justice (DOJ), agreeing to pay $200 million without any admission of liability, to resolve an
investigation by the DOJ and the U.S. Department of Housing and Urban Development Office of Inspector General into the Companys compliance with Federal Housing Administration (FHA) insurance program requirements.
The Company is currently subject to other investigations and examinations by government agencies and bank regulators concerning
mortgage-related practices, including those related to servicing practices for FHA insured residential home loans, compliance with selling guidelines relating to residential home loans sold to GSEs, foreclosure-related expenses submitted to the FHA
or GSEs for reimbursement, and various practices related to lender-placed insurance. 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).
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).
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, including some of the matters described above, 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, will not be material to its financial statements. The Companys estimates are subject to significant judgment and uncertainties, and the matters underlying the estimates will change from time to
time. Actual results may vary significantly from the current estimates.
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 17
|
Subsequent Events
|
The Company has evaluated the impact of events that have occurred subsequent to June 30, 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 June 30,
|
|
|
|
|
|
|
|
2014
|
|
2013
|
|
(Dollars in Millions)
(Unaudited)
|
|
Average
Balances
|
|
|
|
|
Interest
|
|
|
|
|
Yields
and
Rates
|
|
|
|
|
Average
Balances
|
|
|
|
|
Interest
|
|
|
|
|
Yields
and
Rates
|
|
|
|
|
|
|
% Change
Average
Balances
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
$
|
87,583
|
|
|
|
|
$
|
492
|
|
|
|
|
|
2.25
|
%
|
|
|
|
$
|
74,438
|
|
|
|
|
$
|
427
|
|
|
|
|
|
2.29
|
%
|
|
|
|
|
|
|
17.7
|
%
|
Loans held for sale
|
|
|
2,247
|
|
|
|
|
|
24
|
|
|
|
|
|
4.20
|
|
|
|
|
|
6,292
|
|
|
|
|
|
54
|
|
|
|
|
|
3.39
|
|
|
|
|
|
|
|
(64.3
|
)
|
Loans (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
75,020
|
|
|
|
|
|
553
|
|
|
|
|
|
2.96
|
|
|
|
|
|
66,762
|
|
|
|
|
|
544
|
|
|
|
|
|
3.27
|
|
|
|
|
|
|
|
12.4
|
|
Commercial real estate
|
|
|
40,497
|
|
|
|
|
|
396
|
|
|
|
|
|
3.92
|
|
|
|
|
|
37,884
|
|
|
|
|
|
395
|
|
|
|
|
|
4.18
|
|
|
|
|
|
|
|
6.9
|
|
Residential mortgages
|
|
|
51,815
|
|
|
|
|
|
499
|
|
|
|
|
|
3.85
|
|
|
|
|
|
46,873
|
|
|
|
|
|
480
|
|
|
|
|
|
4.10
|
|
|
|
|
|
|
|
10.5
|
|
Credit card
|
|
|
17,384
|
|
|
|
|
|
437
|
|
|
|
|
|
10.07
|
|
|
|
|
|
16,416
|
|
|
|
|
|
412
|
|
|
|
|
|
10.05
|
|
|
|
|
|
|
|
5.9
|
|
Other retail
|
|
|
47,928
|
|
|
|
|
|
547
|
|
|
|
|
|
4.58
|
|
|
|
|
|
46,866
|
|
|
|
|
|
572
|
|
|
|
|
|
4.90
|
|
|
|
|
|
|
|
2.3
|
|
Total loans, excluding covered loans
|
|
|
232,644
|
|
|
|
|
|
2,432
|
|
|
|
|
|
4.19
|
|
|
|
|
|
214,801
|
|
|
|
|
|
2,403
|
|
|
|
|
|
4.48
|
|
|
|
|
|
|
|
8.3
|
|
Covered loans
|
|
|
7,836
|
|
|
|
|
|
126
|
|
|
|
|
|
6.44
|
|
|
|
|
|
10,385
|
|
|
|
|
|
171
|
|
|
|
|
|
6.62
|
|
|
|
|
|
|
|
(24.5
|
)
|
Total loans
|
|
|
240,480
|
|
|
|
|
|
2,558
|
|
|
|
|
|
4.26
|
|
|
|
|
|
225,186
|
|
|
|
|
|
2,574
|
|
|
|
|
|
4.58
|
|
|
|
|
|
|
|
6.8
|
|
Other earning assets
|
|
|
5,682
|
|
|
|
|
|
30
|
|
|
|
|
|
2.11
|
|
|
|
|
|
6,011
|
|
|
|
|
|
40
|
|
|
|
|
|
2.68
|
|
|
|
|
|
|
|
(5.5
|
)
|
Total earning assets
|
|
|
335,992
|
|
|
|
|
|
3,104
|
|
|
|
|
|
3.70
|
|
|
|
|
|
311,927
|
|
|
|
|
|
3,095
|
|
|
|
|
|
3.98
|
|
|
|
|
|
|
|
7.7
|
|
Allowance for loan losses
|
|
|
(4,218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,420
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.6
|
|
Unrealized gain (loss) on investment securities
|
|
|
441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(54.2
|
)
|
Other assets
|
|
|
42,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.5
|
|
Total assets
|
|
$
|
374,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
349,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.2
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
$
|
71,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
66,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.4
|
%
|
Interest-bearing deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking
|
|
|
52,989
|
|
|
|
|
|
9
|
|
|
|
|
|
.07
|
|
|
|
|
|
48,403
|
|
|
|
|
|
9
|
|
|
|
|
|
.07
|
|
|
|
|
|
|
|
9.5
|
|
Money market savings
|
|
|
61,370
|
|
|
|
|
|
26
|
|
|
|
|
|
.17
|
|
|
|
|
|
55,368
|
|
|
|
|
|
18
|
|
|
|
|
|
.13
|
|
|
|
|
|
|
|
10.8
|
|
Savings accounts
|
|
|
33,991
|
|
|
|
|
|
12
|
|
|
|
|
|
.14
|
|
|
|
|
|
31,929
|
|
|
|
|
|
12
|
|
|
|
|
|
.16
|
|
|
|
|
|
|
|
6.5
|
|
Time deposits less than $100,000
|
|
|
10,971
|
|
|
|
|
|
30
|
|
|
|
|
|
1.10
|
|
|
|
|
|
13,152
|
|
|
|
|
|
49
|
|
|
|
|
|
1.50
|
|
|
|
|
|
|
|
(16.6
|
)
|
Time deposits greater than $100,000
|
|
|
31,193
|
|
|
|
|
|
37
|
|
|
|
|
|
.47
|
|
|
|
|
|
31,667
|
|
|
|
|
|
56
|
|
|
|
|
|
.71
|
|
|
|
|
|
|
|
(1.5
|
)
|
Total interest-bearing deposits
|
|
|
190,514
|
|
|
|
|
|
114
|
|
|
|
|
|
.24
|
|
|
|
|
|
180,519
|
|
|
|
|
|
144
|
|
|
|
|
|
.32
|
|
|
|
|
|
|
|
5.5
|
|
Short-term borrowings
|
|
|
30,620
|
|
|
|
|
|
65
|
|
|
|
|
|
.85
|
|
|
|
|
|
27,557
|
|
|
|
|
|
88
|
|
|
|
|
|
1.29
|
|
|
|
|
|
|
|
11.1
|
|
Long-term debt
|
|
|
25,752
|
|
|
|
|
|
181
|
|
|
|
|
|
2.82
|
|
|
|
|
|
21,343
|
|
|
|
|
|
191
|
|
|
|
|
|
3.58
|
|
|
|
|
|
|
|
20.7
|
|
Total interest-bearing liabilities
|
|
|
246,886
|
|
|
|
|
|
360
|
|
|
|
|
|
.58
|
|
|
|
|
|
229,419
|
|
|
|
|
|
423
|
|
|
|
|
|
.74
|
|
|
|
|
|
|
|
7.6
|
|
Other liabilities
|
|
|
12,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.2
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred equity
|
|
|
4,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.6
|
)
|
Common equity
|
|
|
37,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.2
|
|
Total U.S. Bancorp shareholders equity
|
|
|
42,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.7
|
|
Noncontrolling interests
|
|
|
688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49.8
|
)
|
Total equity
|
|
|
43,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.8
|
|
Total liabilities and equity
|
|
$
|
374,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
349,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.2
|
|
Net interest income
|
|
|
|
|
|
|
|
$
|
2,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross interest margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.24
|
%
|
|
|
|
|
|
|
|
|
Gross interest margin without taxable-equivalent increments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.05
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.17
|
%
|
|
|
|
|
|
|
|
|
Percent of Earning Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.70
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.98
|
%
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.55
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.43
|
%
|
|
|
|
|
|
|
|
|
Net interest margin without taxable-equivalent increments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.36
|
%
|
|
|
|
|
|
|
|
|
(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.
|
U.S. Bancorp
Consolidated Daily Average Balance Sheet and Related Yields and Rates (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
|
|
|
2014
|
|
2013
|
|
(Dollars in Millions)
(Unaudited)
|
|
Average
Balances
|
|
|
|
|
Interest
|
|
|
|
|
Yields
and
Rates
|
|
|
|
|
Average
Balances
|
|
|
|
|
Interest
|
|
|
|
|
Yields
and
Rates
|
|
|
|
|
|
|
% Change
Average
Balances
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
$
|
84,915
|
|
|
|
|
$
|
965
|
|
|
|
|
|
2.27
|
%
|
|
|
|
$
|
73,955
|
|
|
|
|
$
|
872
|
|
|
|
|
|
2.36
|
%
|
|
|
|
|
|
|
14.8
|
%
|
Loans held for sale
|
|
|
2,435
|
|
|
|
|
|
51
|
|
|
|
|
|
4.17
|
|
|
|
|
|
7,521
|
|
|
|
|
|
126
|
|
|
|
|
|
3.34
|
|
|
|
|
|
|
|
(67.6
|
)
|
Loans (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
72,939
|
|
|
|
|
|
1,087
|
|
|
|
|
|
3.00
|
|
|
|
|
|
66,034
|
|
|
|
|
|
1,083
|
|
|
|
|
|
3.30
|
|
|
|
|
|
|
|
10.5
|
|
Commercial real estate
|
|
|
40,275
|
|
|
|
|
|
783
|
|
|
|
|
|
3.92
|
|
|
|
|
|
37,553
|
|
|
|
|
|
788
|
|
|
|
|
|
4.23
|
|
|
|
|
|
|
|
7.2
|
|
Residential mortgages
|
|
|
51,700
|
|
|
|
|
|
1,002
|
|
|
|
|
|
3.89
|
|
|
|
|
|
45,996
|
|
|
|
|
|
957
|
|
|
|
|
|
4.17
|
|
|
|
|
|
|
|
12.4
|
|
Credit card
|
|
|
17,395
|
|
|
|
|
|
871
|
|
|
|
|
|
10.09
|
|
|
|
|
|
16,472
|
|
|
|
|
|
827
|
|
|
|
|
|
10.12
|
|
|
|
|
|
|
|
5.6
|
|
Other retail
|
|
|
47,793
|
|
|
|
|
|
1,105
|
|
|
|
|
|
4.66
|
|
|
|
|
|
47,055
|
|
|
|
|
|
1,154
|
|
|
|
|
|
4.94
|
|
|
|
|
|
|
|
1.6
|
|
Total loans, excluding covered loans
|
|
|
230,102
|
|
|
|
|
|
4,848
|
|
|
|
|
|
4.24
|
|
|
|
|
|
213,110
|
|
|
|
|
|
4,809
|
|
|
|
|
|
4.54
|
|
|
|
|
|
|
|
8.0
|
|
Covered loans
|
|
|
8,080
|
|
|
|
|
|
256
|
|
|
|
|
|
6.35
|
|
|
|
|
|
10,701
|
|
|
|
|
|
349
|
|
|
|
|
|
6.55
|
|
|
|
|
|
|
|
(24.5
|
)
|
Total loans
|
|
|
238,182
|
|
|
|
|
|
5,104
|
|
|
|
|
|
4.31
|
|
|
|
|
|
223,811
|
|
|
|
|
|
5,158
|
|
|
|
|
|
4.64
|
|
|
|
|
|
|
|
6.4
|
|
Other earning assets
|
|
|
5,604
|
|
|
|
|
|
62
|
|
|
|
|
|
2.22
|
|
|
|
|
|
7,667
|
|
|
|
|
|
107
|
|
|
|
|
|
2.82
|
|
|
|
|
|
|
|
(26.9
|
)
|
Total earning assets
|
|
|
331,136
|
|
|
|
|
|
6,182
|
|
|
|
|
|
3.75
|
|
|
|
|
|
312,954
|
|
|
|
|
|
6,263
|
|
|
|
|
|
4.02
|
|
|
|
|
|
|
|
5.8
|
|
Allowance for loan losses
|
|
|
(4,239
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.6
|
|
Unrealized gain (loss) on investment securities
|
|
|
349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(67.4
|
)
|
Other assets
|
|
|
42,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.5
|
|
Total assets
|
|
$
|
369,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
350,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.4
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
$
|
71,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
66,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.1
|
%
|
Interest-bearing deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking
|
|
|
52,152
|
|
|
|
|
|
17
|
|
|
|
|
|
.07
|
|
|
|
|
|
48,404
|
|
|
|
|
|
19
|
|
|
|
|
|
.08
|
|
|
|
|
|
|
|
7.7
|
|
Money market savings
|
|
|
60,313
|
|
|
|
|
|
50
|
|
|
|
|
|
.17
|
|
|
|
|
|
54,238
|
|
|
|
|
|
35
|
|
|
|
|
|
.13
|
|
|
|
|
|
|
|
11.2
|
|
Savings accounts
|
|
|
33,597
|
|
|
|
|
|
24
|
|
|
|
|
|
.14
|
|
|
|
|
|
31,670
|
|
|
|
|
|
26
|
|
|
|
|
|
.17
|
|
|
|
|
|
|
|
6.1
|
|
Time deposits less than $100,000
|
|
|
11,206
|
|
|
|
|
|
64
|
|
|
|
|
|
1.16
|
|
|
|
|
|
13,380
|
|
|
|
|
|
103
|
|
|
|
|
|
1.56
|
|
|
|
|
|
|
|
(16.2
|
)
|
Time deposits greater than $100,000
|
|
|
31,327
|
|
|
|
|
|
78
|
|
|
|
|
|
.50
|
|
|
|
|
|
31,882
|
|
|
|
|
|
116
|
|
|
|
|
|
.73
|
|
|
|
|
|
|
|
(1.7
|
)
|
Total interest-bearing deposits
|
|
|
188,595
|
|
|
|
|
|
233
|
|
|
|
|
|
.25
|
|
|
|
|
|
179,574
|
|
|
|
|
|
299
|
|
|
|
|
|
.34
|
|
|
|
|
|
|
|
5.0
|
|
Short-term borrowings
|
|
|
30,058
|
|
|
|
|
|
134
|
|
|
|
|
|
.90
|
|
|
|
|
|
27,859
|
|
|
|
|
|
174
|
|
|
|
|
|
1.26
|
|
|
|
|
|
|
|
7.9
|
|
Long-term debt
|
|
|
23,952
|
|
|
|
|
|
365
|
|
|
|
|
|
3.06
|
|
|
|
|
|
23,362
|
|
|
|
|
|
409
|
|
|
|
|
|
3.52
|
|
|
|
|
|
|
|
2.5
|
|
Total interest-bearing liabilities
|
|
|
242,605
|
|
|
|
|
|
732
|
|
|
|
|
|
.61
|
|
|
|
|
|
230,795
|
|
|
|
|
|
882
|
|
|
|
|
|
.77
|
|
|
|
|
|
|
|
5.1
|
|
Other liabilities
|
|
|
12,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.8
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred equity
|
|
|
4,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.0
|
)
|
Common equity
|
|
|
37,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.9
|
|
Total U.S. Bancorp shareholders equity
|
|
|
42,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.7
|
|
Noncontrolling interests
|
|
|
688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48.3
|
)
|
Total equity
|
|
|
42,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.9
|
|
Total liabilities and equity
|
|
$
|
369,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
350,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.4
|
|
Net interest income
|
|
|
|
|
|
|
|
$
|
5,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross interest margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.25
|
%
|
|
|
|
|
|
|
|
|
Gross interest margin without taxable-equivalent increments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.07
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.18
|
%
|
|
|
|
|
|
|
|
|
Percent of Earning Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.02
|
%
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.56
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.46
|
%
|
|
|
|
|
|
|
|
|
Net interest margin without taxable-equivalent increments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.39
|
%
|
|
|
|
|
|
|
|
|
(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.
|