e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2007
OR
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from (not applicable)
Commission file number 1-6880
U.S. BANCORP
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization) |
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41-0255900
(I.R.S. Employer
Identification No.) |
800 Nicollet Mall
Minneapolis, Minnesota 55402
(Address of principal executive offices, including zip code)
651-466-3000
(Registrants telephone number, including area code)
(not applicable)
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been
subject to such filing requirements for the past 90 days.
YES þ NO o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated
filer and large accelerated filer in
Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated
filer þ Accelerated
filer o Non-accelerated
filer o
Indicate by check mark whether the
registrant is a shell company (as defined in
Rule 12b-2 of the
Exchange Act).
YES o NO þ
Indicate the number of shares
outstanding of each of the issuers classes of common
stock, as of the latest practicable date.
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Class
Common Stock, $.01 Par Value
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Outstanding as of October 31, 2007
1,726,662,458 shares |
Table of Contents and
Form 10-Q Cross
Reference Index
Safe Harbor Statement under the Private
Securities Litigation Reform Act of 1995.
This Form 10-Q
contains forward-looking statements. Statements that are not
historical or current facts, including statements about beliefs
and expectations, are forward-looking statements. These
statements often include the words may,
could, would, should,
believes, expects,
anticipates, estimates,
intends, plans, targets,
potentially, probably,
projects, outlook or similar
expressions. These forward-looking statements cover, among other
things, anticipated future revenue and expenses and the future
plans and prospects of U.S. Bancorp. Forward-looking
statements involve inherent risks and uncertainties, and
important factors could cause actual results to differ
materially from those anticipated, including changes in general
business and economic conditions, changes in interest rates,
legal and regulatory developments, increased competition from
both banks and non-banks, changes in customer behavior and
preferences, effects of mergers and acquisitions and related
integration, effects of critical accounting policies and
judgments, and managements ability to effectively manage
credit risk, market risk, operational risk, legal risk, and
regulatory and compliance risk. For discussion of these and
other risks that may cause actual results to differ from
expectations, refer to our Annual Report on
Form 10-K for the
year ended December 31, 2006, on file with the Securities
and Exchange Commission, including the sections entitled
Risk Factors and Corporate Risk Profile.
Forward-looking statements speak only as of the date they are
made, and U.S. Bancorp undertakes no obligation to update
them in light of new information or future events.
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Table 1 |
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Selected Financial Data |
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Three Months Ended | |
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Nine Months Ended | |
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September 30, | |
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September 30, | |
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Percent | |
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Percent | |
(Dollars and Shares in Millions, Except Per Share Data) |
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2007 | |
|
2006 | |
|
Change | |
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2007 | |
|
2006 | |
|
Change | |
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Condensed Income Statement
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Net interest income (taxable-equivalent basis) (a)
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$1,685 |
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|
$1,673 |
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|
.7 |
% |
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|
$5,001 |
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|
$5,095 |
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|
(1.8 |
)% |
Noninterest income
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|
1,837 |
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|
1,748 |
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|
5.1 |
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5,384 |
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5,114 |
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5.3 |
|
Securities gains (losses), net
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7 |
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* |
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11 |
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3 |
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* |
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Total net revenue
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3,529 |
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|
|
3,421 |
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3.2 |
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|
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|
10,396 |
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|
10,212 |
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1.8 |
|
Noninterest expense
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|
1,628 |
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|
1,538 |
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|
5.9 |
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|
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4,813 |
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4,568 |
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5.4 |
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Provision for credit losses
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199 |
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|
135 |
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47.4 |
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567 |
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375 |
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51.2 |
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Income before taxes
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1,702 |
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1,748 |
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(2.6 |
) |
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5,016 |
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5,269 |
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(4.8 |
) |
Taxable-equivalent adjustment
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18 |
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13 |
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38.5 |
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53 |
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|
34 |
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55.9 |
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Applicable income taxes
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508 |
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532 |
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(4.5 |
) |
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1,501 |
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1,678 |
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(10.5 |
) |
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Net income
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$1,176 |
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$1,203 |
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(2.2 |
) |
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$3,462 |
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$3,557 |
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(2.7 |
) |
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Net income applicable to common equity
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$1,161 |
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$1,187 |
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(2.2 |
) |
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$3,417 |
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$3,524 |
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(3.0 |
) |
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Per Common Share
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Earnings per share
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$.67 |
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$.67 |
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% |
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$1.97 |
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$1.98 |
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(.5 |
)% |
Diluted earnings per share
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.67 |
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.66 |
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1.5 |
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1.94 |
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1.95 |
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(.5 |
) |
Dividends declared per share
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.40 |
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.33 |
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21.2 |
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1.20 |
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.99 |
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21.2 |
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Book value per share
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11.46 |
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11.30 |
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1.4 |
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Market value per share
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32.53 |
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33.22 |
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(2.1 |
) |
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Average common shares outstanding
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1,725 |
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1,771 |
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(2.6 |
) |
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1,737 |
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1,784 |
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(2.6 |
) |
Average diluted common shares outstanding
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1,745 |
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1,796 |
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(2.8 |
) |
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1,762 |
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1,809 |
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(2.6 |
) |
Financial Ratios
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Return on average assets
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2.09 |
% |
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2.23 |
% |
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2.09 |
% |
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2.24 |
% |
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Return on average common equity
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23.3 |
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23.6 |
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22.9 |
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23.7 |
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Net interest margin (taxable-equivalent basis) (a)
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3.44 |
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3.56 |
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3.46 |
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3.68 |
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Efficiency ratio (b)
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46.2 |
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45.0 |
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46.3 |
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44.7 |
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Average Balances
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Loans
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$147,517 |
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$141,491 |
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4.3 |
% |
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$145,965 |
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$139,561 |
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4.6 |
% |
Loans held for sale
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4,547 |
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3,851 |
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18.1 |
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4,244 |
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3,560 |
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19.2 |
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Investment securities
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41,128 |
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39,806 |
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3.3 |
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40,904 |
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39,858 |
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2.6 |
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Earning assets
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194,886 |
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|
187,190 |
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4.1 |
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192,788 |
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185,075 |
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4.2 |
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Assets
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223,505 |
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214,089 |
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4.4 |
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221,694 |
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212,188 |
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4.5 |
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Noninterest-bearing deposits
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26,947 |
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28,220 |
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(4.5 |
) |
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27,531 |
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28,666 |
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(4.0 |
) |
Deposits
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119,145 |
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119,975 |
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(.7 |
) |
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119,610 |
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120,456 |
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(.7 |
) |
Short-term borrowings
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29,155 |
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23,601 |
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23.5 |
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28,465 |
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23,398 |
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21.7 |
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Long-term debt
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46,452 |
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41,892 |
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10.9 |
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44,696 |
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40,462 |
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10.5 |
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Shareholders equity
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20,741 |
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|
20,917 |
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(.8 |
) |
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20,947 |
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|
20,543 |
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2.0 |
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September 30, 2007 |
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December 31, 2006 |
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Period End Balances
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Loans
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$149,039 |
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$143,597 |
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3.8 |
% |
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Allowance for credit losses
|
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|
2,260 |
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|
2,256 |
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.2 |
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Investment securities
|
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|
40,371 |
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|
40,117 |
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|
.6 |
|
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Assets
|
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|
227,628 |
|
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|
219,232 |
|
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|
3.8 |
|
|
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|
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Deposits
|
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|
122,748 |
|
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|
124,882 |
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(1.7 |
) |
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Long-term debt
|
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|
45,241 |
|
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|
37,602 |
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20.3 |
|
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Shareholders equity
|
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|
20,766 |
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|
21,197 |
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(2.0 |
) |
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Regulatory capital ratios
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Tier 1 capital
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|
8.6 |
% |
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8.8 |
% |
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Total risk-based capital
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|
12.8 |
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12.6 |
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Leverage
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8.1 |
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8.2 |
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Tangible common equity
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5.3 |
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5.5 |
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* |
|
Not meaningful. |
(a) |
|
Presented on a fully taxable-equivalent basis utilizing a tax
rate of 35 percent. |
(b) |
|
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. |
Managements Discussion and Analysis
OVERVIEW
Earnings Summary
U.S. Bancorp and its
subsidiaries (the Company) reported net income of
$1,176 million for the third quarter of 2007 or
$.67 per diluted common share, compared with
$1,203 million, or $.66 per diluted common share for
the third quarter of 2006. Return on average assets and return
on average common equity were 2.09 percent and
23.3 percent, respectively, for the third quarter of 2007,
compared with returns of 2.23 percent and
23.6 percent, respectively, for the third quarter of 2006.
The Companys results for the third quarter of 2007
declined from the same period of 2006, as strong fee-based
revenue growth in Payment Services and Wealth
Management & Securities Services was offset by higher
operating expenses and an expected increase in credit costs. In
addition, the third quarter of 2006 included a $32 million
gain on the sale of equity interests in a cardholder association.
Total net revenue, on a taxable-equivalent basis, for the third
quarter of 2007, was $108 million (3.2 percent) higher
than the third quarter of 2006, primarily reflecting a
5.5 percent increase in noninterest income. Net interest
income also increased slightly from a year ago, driven by growth
in earning assets. Noninterest income growth was driven
primarily by organic business growth in fee-based revenue. This
growth in noninterest income was muted somewhat by adverse
market conditions experienced during the third quarter of 2007.
These market factors reduced trading and other revenue by
approximately $21 million from a year ago. Additionally,
the third quarter of 2006 included a $32 million gain on
the sale of equity interests in a cardholder association.
Total noninterest expense in the third quarter of 2007 was
$90 million (5.9 percent) higher than in the third
quarter of 2006, principally due to higher operating costs from
investments in personnel, branches, customer service
initiatives, marketing, business integration costs related to
acquisitions, costs related to tax-advantaged investments and an
increase in credit-related costs for other real estate owned and
collection activities.
The provision for credit losses for the third quarter of 2007
increased $64 million (47.4 percent), compared with
the third quarter of 2006. The increase in the provision for
credit losses from a year ago reflected growth in credit card
accounts and higher commercial loan losses. In addition, the
provision for credit losses in the third quarter of 2006
partially reflected the favorable residual impact on net
charge-offs, principally for credit cards and other retail
charge-offs, resulting from changes in bankruptcy laws in the
fourth quarter of 2005. Net charge-offs in the third quarter of
2007 were $199 million, compared with $135 million in
the third quarter of 2006. Refer to Corporate Risk
Profile for further information on the provision for
credit losses, net charge-offs, nonperforming assets and factors
considered by the Company in assessing the credit quality of the
loan portfolio and establishing the allowance for credit losses.
The Company reported net income of $3,462 million for the
first nine months of 2007 or $1.94 per diluted common
share, compared with $3,557 million, or $1.95 per
diluted common share for the first nine months of 2006. Return
on average assets and return on average common equity were
2.09 percent and 22.9 percent, respectively, for the
first nine months of 2007, compared with returns of
2.24 percent and 23.7 percent, respectively, for the
first nine months of 2006. The Companys results for the
first nine months of 2007 declined from the same period of 2006,
as strong fee-based revenue growth was offset by higher
operating expenses and an expected increase in credit costs. In
addition, the first nine months of 2006 included
$67 million of gains from the initial public offering and
subsequent sale of equity interests of a cardholder association.
Total net revenue, on a taxable-equivalent basis, for the first
nine months of 2007, was $184 million (1.8 percent)
higher than the first nine months of 2006, primarily reflecting
a 5.4 percent increase in noninterest income, partially
offset by a 1.8 percent decline in net interest income from
a year ago. Noninterest income growth was driven by organic
business growth and expansion in payment processing and trust
businesses. Fee-based revenue growth was partially offset by the
net favorable impact in the first nine months of 2006 of
$84 million from several previously reported items,
including a $44 million trading gain related to certain
derivatives, $67 million of gains from the initial public
offering and subsequent sale of a cardholder association and a
$10 million gain related to a favorable settlement in the
merchant processing business, offset by a $37 million
reduction in mortgage banking revenue due principally to the
adoption of fair value accounting standards for mortgage
servicing rights (MSRs).
Total noninterest expense in the first nine months of 2007 was
$245 million (5.4 percent) higher than in the first
nine months of 2006, principally due to higher operating costs
from investments in business initiatives, business integration
costs related to acquisitions, costs related to tax-advantaged
investments, credit-related costs for other real estate owned
and collection activities and an increase in merchant airline
processing expenses primarily due to sales volumes and business
expansion with a major airline. Growth in expenses from a year
ago was partially offset by an $11 million debt prepayment
charge recorded in the first nine months of 2006.
The provision for credit losses for the first nine months of
2007 increased $192 million (51.2 percent), compared
with the same period of 2006. The increase in the provision for
credit losses from a year ago reflected growth in credit card
accounts and higher commercial loan losses. In addition, the
provision for credit losses in the first nine months of 2006
partially reflected the favorable residual impact on net
charge-offs, principally for credit cards and other retail
charge-offs, resulting from changes in bankruptcy laws in fourth
quarter of 2005. Net charge-offs in the first nine months of
2007 were $567 million, compared with $375 million in
the first nine months of 2006. Refer to Corporate Risk
Profile for further information on the provision for
credit losses, net charge-offs, nonperforming assets and factors
considered by the Company in assessing the credit quality of the
loan portfolio and establishing the allowance for credit losses.
STATEMENT OF INCOME ANALYSIS
Net Interest Income Net
interest income, on a taxable-equivalent basis, was
$1,685 million in the third quarter of 2007, compared with
$1,673 million in the third quarter of 2006. Net interest
income, on a taxable-equivalent basis, was $5,001 million
in the first nine months of 2007, compared with
$5,095 million in the first nine months of 2006. Compared
with the same periods of 2006, average earning assets increased
$7.7 billion in both the third quarter and first nine
months of 2007, or 4.1 percent and 4.2 percent,
respectively. The increases were primarily driven by growth in
total average loans of $6.0 billion (4.3 percent) and
$6.4 billion (4.6 percent) in the third quarter and
first nine months of 2007, respectively, compared with the same
periods of 2006. The positive impact on net interest income from
the growth in earning assets was offset by a lower net interest
margin. The net interest margin in the third quarter and first
nine months of 2007 was 3.44 percent and 3.46 percent,
respectively, compared with 3.56 percent and
3.68 percent, respectively, for the same periods of 2006,
reflecting the competitive environment and the impact of a flat
yield curve during the past several quarters. Compared with the
same periods of 2006, credit spreads tightened by approximately
5 basis points in the third quarter and 8 basis points
in the first nine months of 2007 across most lending products
due to competitive loan pricing. In addition, funding costs were
higher as rates paid on interest-bearing deposits increased and
the funding mix continued to shift toward higher cost deposits
and other funding sources. Net interest margin was also impacted
by a decline in net free funds due to a decline in
noninterest-bearing deposits, investment in bank-owned life
insurance, share repurchases and the impact of acquisitions. An
increase in loan fees partially offset these factors.
The Company anticipates the net interest margin to remain
relatively stable throughout the remainder of the year. Refer to
the Consolidated Daily Average Balance Sheet and Related
Yields and Rates table for further information on net
interest income.
Average loans for the third quarter and first nine months of
2007 were $6.0 billion (4.3 percent) and
$6.4 billion (4.6 percent) higher, respectively, than
the same periods of 2006, reflecting growth in retail loans,
commercial loans and residential mortgages, partially offset by
a decline in commercial real estate loans. Average credit card
balances for the third quarter and first nine months of 2007
increased $2.1 billion (26.9 percent) and
$1.8 billion (24.1 percent), respectively, compared
with the same periods of 2006, as a result of growth in branch
originated, co-branded and financial institution partner
portfolios.
Average investment securities in the third quarter and first
nine months of 2007 were $1.3 billion (3.3 percent)
and $1.0 billion (2.6 percent) higher, respectively,
than the same periods of 2006, driven primarily by an increase
in the municipal securities portfolio, partially offset by a
reduction in mortgage-backed assets.
Average noninterest-bearing deposits for the third quarter and
first nine months of 2007 decreased $1.3 billion
(4.5 percent) and $1.1 billion (4.0 percent),
respectively, compared with the same periods of 2006, reflecting
a decline in business demand deposits within most business lines
as customers utilized deposit balances to fund business growth
and meet other liquidity requirements.
Average total savings deposits increased $1.0 billion
(1.9 percent) and $.3 billion (.5 percent) in the
third quarter and first nine months of 2007, compared with the
same periods of 2006, as increases in interest
checking balances were offset by declines in money market and
savings balances, primarily within Consumer Banking. Interest
checking balances for the third quarter and first nine months of
2007 increased $2.5 billion (10.4 percent) and
$2.3 billion (9.9 percent), respectively, compared
with the same periods of 2006, due to higher broker-dealer,
government and institutional trust balances. Average money
market and savings balances for the third quarter and first nine
months of 2007 decreased $1.4 billion (4.5 percent)
and $2.0 billion (6.2 percent), respectively, compared
with the same periods of 2006, as a result of the Companys
deposit pricing decisions for money market products in relation
to other fixed-rate deposit products. A portion of branch-based
money market savings accounts migrated to fixed-rate time
certificates, as customers took advantage of higher interest
rates for these products.
Average time certificates of deposit less than $100,000 were
higher in the third quarter and first nine months of 2007 by
$.7 billion (5.2 percent) and $1.0 billion
(7.3 percent), respectively, compared with the same periods
of 2006. The year-over-year growth in time certificates less
than $100,000 was primarily due to consumer-based time deposits,
reflecting customer migration to higher rate deposit products.
Average time deposits greater than $100,000 decreased
$1.3 billion (5.9 percent) and $1.0 billion
(4.6 percent) in the third quarter and first nine months of
2007, respectively, compared with the same periods of 2006. Time
deposits greater than $100,000 are largely viewed as purchased
funds and are managed at levels deemed appropriate, given
alternative funding sources.
Provision for Credit Losses
The provision for credit
losses for the third quarter and first nine months of 2007
increased $64 million (47.4 percent) and
$192 million (51.2 percent), respectively, compared
with the same periods of 2006. The increases in the provision
for credit losses in the third quarter and first nine months of
2007 from the same periods a year ago reflected growth in credit
card accounts and higher commercial loan losses. In addition,
the provision for credit losses in the third quarter and first
nine months of 2006 partially reflected the favorable residual
impact on net charge-offs, principally for credit cards and
other retail charge-offs, resulting from changes in bankruptcy
laws in the fourth quarter of 2005. Net charge-offs were
$199 million in the third quarter and $567 million in
the first nine months of 2007, compared with $135 million
in the third quarter and $375 million in the first nine
months of 2006. Refer to Corporate Risk Profile for
further information on the provision for credit losses, net
charge-offs, nonperforming assets and factors considered by the
Company in assessing the credit quality of the loan portfolio
and establishing the allowance for credit losses.
Noninterest Income
Noninterest income in the
third quarter and first nine months of 2007 was
$1,844 million and $5,395 million, respectively,
compared with $1,748 million and $5,117 million in the
same periods of 2006. The $96 million (5.5 percent)
increase during the third quarter and $278 million
(5.4 percent) increase during the first nine months of
2007, compared with the same periods in 2006, were driven by
strong organic fee-based revenue growth, offset somewhat by
market conditions in the third
|
|
|
Table 2 |
|
Noninterest Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
Nine Months Ended | |
|
|
September 30, | |
|
|
September 30, | |
|
|
| |
|
|
|
|
Percent | |
|
|
|
|
Percent | |
(Dollars in Millions) |
|
2007 | |
|
2006 | |
|
Change | |
|
|
2007 | |
|
2006 | |
|
Change | |
|
|
|
|
Credit and debit card revenue
|
|
|
$235 |
|
|
|
$206 |
|
|
|
14.1 |
% |
|
|
|
$668 |
|
|
|
$590 |
|
|
|
13.2 |
% |
Corporate payment products revenue
|
|
|
164 |
|
|
|
150 |
|
|
|
9.3 |
|
|
|
|
466 |
|
|
|
416 |
|
|
|
12.0 |
|
ATM processing services
|
|
|
62 |
|
|
|
63 |
|
|
|
(1.6 |
) |
|
|
|
183 |
|
|
|
183 |
|
|
|
|
|
Merchant processing services
|
|
|
287 |
|
|
|
253 |
|
|
|
13.4 |
|
|
|
|
822 |
|
|
|
719 |
|
|
|
14.3 |
|
Trust and investment management fees
|
|
|
331 |
|
|
|
305 |
|
|
|
8.5 |
|
|
|
|
995 |
|
|
|
916 |
|
|
|
8.6 |
|
Deposit service charges
|
|
|
271 |
|
|
|
268 |
|
|
|
1.1 |
|
|
|
|
786 |
|
|
|
764 |
|
|
|
2.9 |
|
Treasury management fees
|
|
|
118 |
|
|
|
111 |
|
|
|
6.3 |
|
|
|
|
355 |
|
|
|
334 |
|
|
|
6.3 |
|
Commercial products revenue
|
|
|
107 |
|
|
|
100 |
|
|
|
7.0 |
|
|
|
|
312 |
|
|
|
311 |
|
|
|
.3 |
|
Mortgage banking revenue
|
|
|
76 |
|
|
|
68 |
|
|
|
11.8 |
|
|
|
|
211 |
|
|
|
167 |
|
|
|
26.3 |
|
Investment products fees and commissions
|
|
|
36 |
|
|
|
34 |
|
|
|
5.9 |
|
|
|
|
108 |
|
|
|
114 |
|
|
|
(5.3 |
) |
Securities gains (losses), net
|
|
|
7 |
|
|
|
|
|
|
|
* |
|
|
|
|
11 |
|
|
|
3 |
|
|
|
* |
|
Other
|
|
|
150 |
|
|
|
190 |
|
|
|
(21.1 |
) |
|
|
|
478 |
|
|
|
600 |
|
|
|
(20.3 |
) |
|
|
|
|
|
|
|
Total noninterest income
|
|
|
$1,844 |
|
|
|
$1,748 |
|
|
|
5.5 |
% |
|
|
|
$5,395 |
|
|
|
$5,117 |
|
|
|
5.4 |
% |
|
|
|
|
quarter of 2007 adversely impacting valuations for certain
trading securities and loans held for sale within a commercial
real estate joint venture. Additionally, the third quarter and
first nine months of 2006 were impacted by several previously
reported, one-time items.
The growth in credit and debit card revenue was primarily driven
by an increase in customer accounts and higher customer
transaction volumes from a year ago. The corporate payment
products revenue growth reflected organic growth in sales
volumes and card usage, and an acquired business. Merchant
processing services revenue growth reflected an increase in
customers and sales volumes. Trust and investment management
fees increased year-over-year due to core account growth and
favorable market conditions. Deposit service charges grew
year-over-year due primarily to increased transaction-related
fees and continued growth in net new checking accounts.
Additionally, deposit account-related revenue, traditionally
reflected in this fee category, continued to migrate to
yield-related loan fees as customers utilized new consumer
products. Treasury management fees increased over the prior year
due to new customer growth, higher cross-selling activities with
existing customers and new product offerings. Mortgage banking
revenue grew year-over-year due to an increase in mortgage
servicing income and production gains, partially offset by a
change in the valuation of MSRs and related economic hedging
activities. Mortgage banking revenue further increased in the
first nine months of 2007 due to changes in accounting for MSRs
and mortgage banking revenue that resulted in a $37 million
reduction in revenue in the first quarter of 2006. Commercial
products revenue increased in the third quarter of 2007,
compared with the same period of the prior year, due to higher
foreign exchange revenue, syndication fees and commercial
leasing revenue.
Favorable changes in fee-based revenue were partially offset by
a decline in other income. The reduction in other income in the
third quarter of 2007, compared with the third quarter of 2006,
reflected the $32 million gain recognized in the third
quarter of 2006 related to the sale of equity interests of a
cardholder association. The decline also included third quarter
2007 market valuation losses of approximately $21 million,
partially offset by an increase in revenue from investment in
bank-owned life insurance programs. Other income further
declined in the first nine months of 2007, compared with the
first nine months of 2006, as a result of a $10 million
favorable settlement within the merchant processing business and
a $44 million trading gain related to terminating certain
interest rate swaps recognized in the first quarter of 2006, as
well as a $35 million gain on the initial public offering
of a cardholder association recognized in the second quarter of
2006.
Noninterest Expense
Noninterest expense was
$1,628 million in the third quarter and $4,813 million
in the first nine months of 2007, reflecting increases of
$90 million (5.9 percent) and $245 million
(5.4 percent), respectively, from the same periods of 2006.
Compensation expense increased due to ongoing bank operations
and acquired businesses. Net occupancy and equipment expense
increased primarily due to acquisitions and branch-based
business initiatives. Professional services expense for the
first nine months of 2007 increased over the same period of the
prior year due to revenue enhancing business initiatives and
higher legal fees associated with the establishment of a bank
charter in Ireland to support pan-European payment processing
and litigation. Marketing and
|
|
|
Table 3 |
|
Noninterest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
Nine Months Ended | |
|
|
September 30, | |
|
|
September 30, | |
|
|
| |
|
|
|
|
Percent | |
|
|
|
|
Percent | |
(Dollars in Millions) |
|
2007 | |
|
2006 | |
|
Change | |
|
|
2007 | |
|
2006 | |
|
Change | |
|
|
|
|
Compensation
|
|
$ |
656 |
|
|
$ |
632 |
|
|
|
3.8 |
% |
|
|
$ |
1,950 |
|
|
$ |
1,892 |
|
|
|
3.1 |
% |
Employee benefits
|
|
|
119 |
|
|
|
123 |
|
|
|
(3.3 |
) |
|
|
|
375 |
|
|
|
379 |
|
|
|
(1.1 |
) |
Net occupancy and equipment
|
|
|
175 |
|
|
|
168 |
|
|
|
4.2 |
|
|
|
|
511 |
|
|
|
494 |
|
|
|
3.4 |
|
Professional services
|
|
|
56 |
|
|
|
54 |
|
|
|
3.7 |
|
|
|
|
162 |
|
|
|
130 |
|
|
|
24.6 |
|
Marketing and business development
|
|
|
66 |
|
|
|
58 |
|
|
|
13.8 |
|
|
|
|
178 |
|
|
|
156 |
|
|
|
14.1 |
|
Technology and communications
|
|
|
127 |
|
|
|
128 |
|
|
|
(.8 |
) |
|
|
|
378 |
|
|
|
372 |
|
|
|
1.6 |
|
Postage, printing and supplies
|
|
|
70 |
|
|
|
66 |
|
|
|
6.1 |
|
|
|
|
210 |
|
|
|
198 |
|
|
|
6.1 |
|
Other intangibles
|
|
|
94 |
|
|
|
89 |
|
|
|
5.6 |
|
|
|
|
283 |
|
|
|
263 |
|
|
|
7.6 |
|
Debt prepayment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11 |
|
|
|
* |
|
Other
|
|
|
265 |
|
|
|
220 |
|
|
|
20.5 |
|
|
|
|
766 |
|
|
|
673 |
|
|
|
13.8 |
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
$ |
1,628 |
|
|
$ |
1,538 |
|
|
|
5.9 |
% |
|
|
$ |
4,813 |
|
|
$ |
4,568 |
|
|
|
5.4 |
% |
|
|
|
|
|
|
Efficiency ratio (a)
|
|
|
46.2 |
% |
|
|
45.0 |
% |
|
|
|
|
|
|
|
46.3 |
% |
|
|
44.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Not meaningful |
(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. |
business development expense for the third quarter and first
nine months of 2007 increased year-over-year due to the timing
of customer promotions, solicitations and advertising
activities. Postage, printing and supplies expense increased
primarily due to changes in postal rates. Other intangibles
expense increased from the same periods of 2006 due to recent
acquisitions in Consumer Banking, Wealth Management &
Securities Services and Payment Services. Other expense
increased over the prior year due to costs related to affordable
housing and other tax-advantaged investments, an increase in
merchant processing expenses driven by transaction volumes,
integration expenses related to recent acquisitions and higher
credit-related costs for other real estate owned and loan
collection activities.
Income Tax Expense The
provision for income taxes was $508 million (an effective
rate of 30.2 percent) for the third quarter and
$1,501 million (an effective rate of 30.2 percent) for
the first nine months of 2007, compared with $532 million
(an effective rate of 30.7 percent) and $1,678 million
(an effective rate of 32.1 percent) for the same periods of
2006. For further information on income taxes, refer to
Note 7 of the Notes to Consolidated Financial Statements.
BALANCE SHEET ANALYSIS
Loans The Companys
total loan portfolio was $149.0 billion at
September 30, 2007, compared with $143.6 billion at
December 31, 2006, an increase of $5.4 billion
(3.8 percent). The increase was driven by growth in retail
loans, commercial loans and residential mortgages, partially
offset by a slight decrease in commercial real estate loans. The
$1.8 billion (3.9 percent) increase in commercial
loans was primarily driven by new customer relationships,
utilization under lines of credit and growth in corporate
payment card and commercial leasing balances.
Commercial real estate loans decreased slightly to
$28.5 billion at September 30, 2007, compared with
$28.6 billion at December 31, 2006. The decline in
commercial real estate balances reflected customer refinancing,
a management decision to reduce condominium construction
financing in selected markets and a slowdown in residential
homebuilding impacting construction lending.
Residential mortgages held in the loan portfolio increased
$1.3 billion (6.0 percent) at September 30, 2007,
compared with December 31, 2006, reflecting an increase in
consumer finance originations.
Total retail loans outstanding, which include credit card,
retail leasing, home equity and second mortgages and other
retail loans, increased $2.5 billion (5.2 percent) at
September 30, 2007, compared with December 31, 2006.
The increase was primarily driven by growth in credit card,
installment and home equity loans, partially offset by decreases
in retail leasing and student loan balances.
At September 30, 2007, the residential and home equity and
second mortgage portfolios included approximately
$3.2 billion and $.9 billion, respectively, of loans
to customers that may be defined as sub-prime borrowers.
Together, these balances represented 2.8 percent of the
Companys total loans outstanding at September 30,
2007.
Loans Held for Sale Loans
held for sale, consisting primarily of residential mortgages and
student loans to be sold in the secondary market, were
$4.6 billion at September 30, 2007, compared with
$3.3 billion at December 31, 2006. The increase in
loans held for sale was principally due to loan originations and
the timing of sales during the first nine months of 2007.
Investment Securities
Investment securities,
including available-for-sale and
held-to-maturity,
totaled
|
|
|
Table 4 |
|
Available-for-Sale Investment Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007 | |
|
|
December 31, 2006 | |
|
|
| |
|
|
|
|
Weighted- | |
|
|
|
Weighted- | |
|
|
|
|
|
|
Average | |
|
Weighted- | |
|
|
|
|
Average | |
|
Weighted- | |
|
|
Amortized | |
|
|
|
Maturity | |
|
Average | |
|
|
Amortized | |
|
|
|
Maturity | |
|
Average | |
(Dollars in Millions) |
|
Cost | |
|
Fair Value | |
|
in Years | |
|
Yield (c) | |
|
|
Cost | |
|
Fair Value | |
|
in Years | |
|
Yield (c) | |
|
|
|
|
U.S. Treasury and agencies
|
|
|
$444 |
|
|
|
$440 |
|
|
|
9.9 |
|
|
|
5.98 |
% |
|
|
|
$472 |
|
|
|
$467 |
|
|
|
10.1 |
|
|
|
5.94 |
% |
Mortgage-backed securities (a)
|
|
|
32,005 |
|
|
|
31,130 |
|
|
|
7.0 |
|
|
|
5.16 |
|
|
|
|
34,465 |
|
|
|
33,787 |
|
|
|
5.6 |
|
|
|
5.10 |
|
Asset-backed securities (a)
|
|
|
5 |
|
|
|
5 |
|
|
|
.1 |
|
|
|
5.65 |
|
|
|
|
7 |
|
|
|
7 |
|
|
|
.1 |
|
|
|
5.32 |
|
Obligations of state and political subdivisions (b)
|
|
|
6,691 |
|
|
|
6,624 |
|
|
|
10.7 |
|
|
|
6.77 |
|
|
|
|
4,463 |
|
|
|
4,539 |
|
|
|
9.7 |
|
|
|
6.68 |
|
Other debt securities
|
|
|
1,883 |
|
|
|
1,772 |
|
|
|
27.0 |
|
|
|
6.16 |
|
|
|
|
994 |
|
|
|
993 |
|
|
|
23.8 |
|
|
|
6.08 |
|
Other investments
|
|
|
333 |
|
|
|
322 |
|
|
|
|
|
|
|
7.00 |
|
|
|
|
229 |
|
|
|
237 |
|
|
|
|
|
|
|
6.26 |
|
|
|
|
|
|
|
|
Total available-for-sale investment securities
|
|
|
$41,361 |
|
|
|
$40,293 |
|
|
|
8.6 |
|
|
|
5.50 |
% |
|
|
|
$40,630 |
|
|
|
$40,030 |
|
|
|
6.6 |
|
|
|
5.32 |
% |
|
|
|
|
|
|
|
(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) |
|
Average yields are presented on a fully-taxable equivalent
basis under a tax rate of 35 percent. Yields are computed
based on historical cost balances. Average yield and maturity
calculations exclude equity securities that have no stated yield
or maturity. |
$40.4 billion at September 30, 2007, compared with
$40.1 billion at December 31, 2006, reflecting
purchases of $5.4 billion of securities, which were offset
by sales, maturities, prepayments and a $.5 billion
increase in the unrealized loss on the available-for-sale
portfolio. As of September 30, 2007, approximately
36 percent of the investment securities portfolio
represented adjustable-rate financial instruments, compared with
37 percent at December 31, 2006. Adjustable-rate
financial instruments include variable-rate collateralized
mortgage obligations, mortgage-backed securities, agency
securities, adjustable-rate money market accounts, asset-backed
securities, corporate debt securities and floating-rate
preferred stock.
The Company conducts a regular assessment of its investment
portfolios to determine whether any securities are
other-than-temporarily impaired. The substantial portion of
securities that have unrealized losses are either government
securities, issued by government-backed agencies or privately
issued securities with high investment grade credit ratings. As
of the reporting date, the Company expects to receive all
contractual principal and interest related to these securities.
Deposits Total deposits
were $122.7 billion at September 30, 2007, compared
with $124.9 billion at December 31, 2006, a decrease
of $2.1 billion (1.7 percent). The decrease in total
deposits was primarily the result of decreases in
noninterest-bearing deposits and money market savings accounts,
partially offset by increases in interest checking accounts and
time deposits. The $3.9 billion (12.0 percent)
decrease in noninterest-bearing deposits was primarily due to a
decline of business demand deposits. The $2.5 billion
(9.7 percent) decrease in money market savings account
balances reflected the Companys deposit pricing decisions
for money market products in relation to other fixed-rate
deposit products and business customer decisions to utilize
deposit liquidity. Interest checking account balances increased
$2.5 billion (10.0 percent) primarily due to higher
broker-dealer, government and institutional trust balances.
Time deposits greater than $100,000 increased $1.1 billion
(5.1 percent), including a $.5 billion (10.9 percent)
increase in personal certificates of deposit, at
September 30, 2007, compared with December 31, 2006.
Time deposits greater than $100,000 are largely viewed as
purchased funds and are managed to levels deemed appropriate
given alternative funding sources.
Borrowings The Company
utilizes both short-term and long-term borrowings to fund growth
of assets in excess of deposit growth. Short-term borrowings,
which include federal funds purchased, commercial paper,
repurchase agreements, borrowings secured by high-grade assets
and other short-term borrowings, were $28.9 billion at
September 30, 2007, compared with $26.9 billion at
December 31, 2006. Short-term funding is managed within
approved liquidity policies. Long-term debt was
$45.2 billion at September 30, 2007, compared with
$37.6 billion at December 31, 2006, reflecting the
issuances of $3.0 billion of convertible senior debentures,
$1.3 billion of subordinated notes, $1.4 billion of
medium-term bank notes and $.5 billion of junior
subordinated debentures, and the net addition of
$8.8 billion of Federal Home Loan Bank
(FHLB) advances, partially offset by long-term debt
maturities and repayments. The $7.6 billion
(20.3 percent) increase in long-term debt reflected
wholesale funding associated with the Companys asset
growth and asset/liability management activities. Refer to the
Liquidity Risk Management section for discussion of
liquidity management of the Company.
CORPORATE RISK PROFILE
Overview Managing risks is
an essential part of successfully operating a financial services
company. The most prominent risk exposures are credit, residual
value, operational, interest rate, market and liquidity risk.
Credit risk is the risk of not collecting the interest and/or
the principal balance of a loan or investment when it is due.
Residual value risk is the potential reduction in the
end-of-term value of
leased assets or the residual cash flows related to asset
securitization and other off-balance sheet structures.
Operational risk includes risks related to fraud, legal and
compliance risk, processing errors, technology, breaches of
internal controls and business continuation and disaster
recovery risk. Interest rate risk is the potential reduction of
net interest income as a result of changes in interest rates,
which can affect the repricing of assets and liabilities
differently, as well as their market value. Market risk arises
from fluctuations in interest rates, foreign exchange rates, and
security prices that may result in changes in the values of
financial instruments, such as trading and available-for-sale
securities that are accounted for on a
mark-to-market basis.
Liquidity risk is the possible inability to fund obligations to
depositors, investors or borrowers. In addition, corporate
strategic decisions, as well as the risks described above, could
give rise to reputation risk. Reputation risk is the risk that
negative publicity or press, whether true or not, could result
in costly litigation or cause a decline in the Companys
stock value, customer base or revenue.
|
|
|
Table 5 |
|
Delinquent Loan Ratios as a Percent of Ending Loan Balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, | |
|
December 31, | |
90 days or more past due excluding nonperforming loans |
|
2007 | |
|
2006 | |
|
Commercial
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
.09 |
% |
|
|
.06 |
% |
|
Lease financing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
.07 |
|
|
|
.05 |
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
Commercial mortgages
|
|
|
.02 |
|
|
|
.01 |
|
|
Construction and development
|
|
|
.08 |
|
|
|
.01 |
|
|
|
|
|
|
Total commercial real estate
|
|
|
.04 |
|
|
|
.01 |
|
Residential mortgages
|
|
|
.64 |
|
|
|
.45 |
|
Retail
|
|
|
|
|
|
|
|
|
|
Credit card
|
|
|
1.66 |
|
|
|
1.75 |
|
|
Retail leasing
|
|
|
.06 |
|
|
|
.03 |
|
|
Other retail
|
|
|
.25 |
|
|
|
.23 |
|
|
|
|
|
|
Total retail
|
|
|
.52 |
|
|
|
.48 |
|
|
|
|
|
|
|
Total loans
|
|
|
.30 |
% |
|
|
.24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, | |
|
December 31, | |
90 days or more past due including nonperforming loans |
|
2007 | |
|
2006 | |
|
Commercial
|
|
|
.51 |
% |
|
|
.57 |
% |
Commercial real estate
|
|
|
.83 |
|
|
|
.53 |
|
Residential mortgages (a)
|
|
|
.86 |
|
|
|
.62 |
|
Retail
|
|
|
.58 |
|
|
|
.58 |
|
|
|
|
|
Total loans
|
|
|
.65 |
% |
|
|
.57 |
% |
|
|
|
|
(a) |
|
Delinquent loan ratios exclude advances made pursuant to
servicing agreements to Government National Mortgage Association
(GNMA) mortgage pools whose repayments are insured
by the Federal Housing Administration or guaranteed by the
Department of Veterans Affairs. Including the guaranteed
amounts, the ratio of residential mortgages 90 days or
more past due was 3.20 percent at September 30, 2007,
and 3.11 percent at December 31, 2006. |
Credit Risk Management The
Companys strategy for credit risk management includes
well-defined, centralized credit policies, uniform underwriting
criteria, and ongoing risk monitoring and review processes for
all commercial and consumer credit exposures. In evaluating its
credit risk, the Company considers changes, if any, in
underwriting activities, the loan portfolio composition
(including product mix and geographic, industry or
customer-specific concentrations), trends in loan performance,
the level of allowance coverage relative to similar banking
institutions and macroeconomic factors. Refer to
Managements Discussion and Analysis
Credit Risk Management in the Companys Annual Report
on Form 10-K for
the year ended December 31, 2006, for a more detailed
discussion on credit risk management processes.
Loan Delinquencies
Trends in delinquency
ratios represent an indicator, among other considerations, of
credit risk within the Companys loan portfolios. The
Company measures delinquencies, both including and excluding
nonperforming loans, to enable comparability with other
companies. Accruing loans 90 days or more past due totaled
$451 million at September 30, 2007, compared with
$349 million at December 31, 2006. These loans are not
included in nonperforming assets and continue to accrue interest
because they are adequately secured by collateral, and/or are in
the process of collection and are reasonably expected to result
in repayment or restoration to current status. The ratio of
accruing loans 90 days or more past due to total loans was
..30 percent at September 30, 2007, compared with
..24 percent at December 31, 2006.
The Companys retail lending business utilizes several
distinct business processes and channels to originate retail
credit, including traditional branch lending, indirect lending,
portfolio acquisitions and a consumer finance division.
Generally, loans managed by the Companys consumer finance
division exhibit higher credit risk characteristics, but are
priced commensurate with the differing risk profile. To monitor
credit risk associated with retail loans, the Company monitors
delinquency ratios in the various stages of collection,
including nonperforming status.
The following table provides summary delinquency information for
residential mortgages and retail loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a Percent of Ending | |
|
|
Amount | |
|
|
Loan Balances | |
|
|
| |
|
|
September 30, | |
|
December 31, | |
|
|
September 30, | |
|
December 31, | |
(Dollars in Millions) |
|
2007 | |
|
2006 | |
|
|
2007 | |
|
2006 | |
|
|
|
|
Residential mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days
|
|
|
$273 |
|
|
|
$154 |
|
|
|
|
1.21 |
% |
|
|
.72 |
% |
|
|
90 days or more
|
|
|
145 |
|
|
|
95 |
|
|
|
|
.64 |
|
|
|
.45 |
|
|
|
Nonperforming
|
|
|
48 |
|
|
|
36 |
|
|
|
|
.21 |
|
|
|
.17 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$466 |
|
|
|
$285 |
|
|
|
|
2.06 |
% |
|
|
1.34 |
% |
|
|
|
|
Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days
|
|
|
$243 |
|
|
|
$204 |
|
|
|
|
2.37 |
% |
|
|
2.35 |
% |
|
|
90 days or more
|
|
|
170 |
|
|
|
152 |
|
|
|
|
1.66 |
|
|
|
1.75 |
|
|
|
Nonperforming
|
|
|
17 |
|
|
|
31 |
|
|
|
|
.16 |
|
|
|
.36 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$430 |
|
|
|
$387 |
|
|
|
|
4.19 |
% |
|
|
4.46 |
% |
|
Retail leasing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days
|
|
|
$33 |
|
|
|
$34 |
|
|
|
|
.53 |
% |
|
|
.49 |
% |
|
|
90 days or more
|
|
|
4 |
|
|
|
2 |
|
|
|
|
.06 |
|
|
|
.03 |
|
|
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$37 |
|
|
|
$36 |
|
|
|
|
.59 |
% |
|
|
.52 |
% |
|
Home equity and second mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days
|
|
|
$76 |
|
|
|
$79 |
|
|
|
|
.47 |
% |
|
|
.51 |
% |
|
|
90 days or more
|
|
|
33 |
|
|
|
28 |
|
|
|
|
.20 |
|
|
|
.18 |
|
|
|
Nonperforming
|
|
|
12 |
|
|
|
14 |
|
|
|
|
.07 |
|
|
|
.09 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$121 |
|
|
|
$121 |
|
|
|
|
.74 |
% |
|
|
.78 |
% |
|
Other retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days
|
|
|
$160 |
|
|
|
$131 |
|
|
|
|
.93 |
% |
|
|
.80 |
% |
|
|
90 days or more
|
|
|
52 |
|
|
|
44 |
|
|
|
|
.30 |
|
|
|
.27 |
|
|
|
Nonperforming
|
|
|
3 |
|
|
|
3 |
|
|
|
|
.02 |
|
|
|
.02 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$215 |
|
|
|
$178 |
|
|
|
|
1.25 |
% |
|
|
1.09 |
% |
|
|
|
|
Within these product categories, the following table provides
information on delinquent and nonperforming loans as a percent
of ending loan balances, by channel:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Finance | |
|
|
Other Retail | |
|
|
| |
|
|
September 30, | |
|
December 31, | |
|
|
September 30, | |
|
December 31, | |
|
|
2007 | |
|
2006 | |
|
|
2007 | |
|
2006 | |
|
|
|
|
Residential mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days
|
|
|
1.67 |
% |
|
|
.83 |
% |
|
|
|
.88 |
% |
|
|
.66 |
% |
|
|
90 days or more
|
|
|
.84 |
|
|
|
.64 |
|
|
|
|
.50 |
|
|
|
.32 |
|
|
|
Nonperforming
|
|
|
.31 |
|
|
|
.19 |
|
|
|
|
.14 |
|
|
|
.16 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2.82 |
% |
|
|
1.66 |
% |
|
|
|
1.52 |
% |
|
|
1.14 |
% |
|
|
|
|
Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days
|
|
|
|
% |
|
|
|
% |
|
|
|
2.37 |
% |
|
|
2.35 |
% |
|
|
90 days or more
|
|
|
|
|
|
|
|
|
|
|
|
1.66 |
|
|
|
1.75 |
|
|
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|
|
.16 |
|
|
|
.36 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
% |
|
|
|
% |
|
|
|
4.19 |
% |
|
|
4.46 |
% |
|
Retail leasing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days
|
|
|
|
% |
|
|
|
% |
|
|
|
.53 |
% |
|
|
.49 |
% |
|
|
90 days or more
|
|
|
|
|
|
|
|
|
|
|
|
.06 |
|
|
|
.03 |
|
|
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
% |
|
|
|
% |
|
|
|
.59 |
% |
|
|
.52 |
% |
|
Home equity and second mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days
|
|
|
2.39 |
% |
|
|
1.64 |
% |
|
|
|
.22 |
% |
|
|
.35 |
% |
|
|
90 days or more
|
|
|
1.19 |
|
|
|
.79 |
|
|
|
|
.08 |
|
|
|
.10 |
|
|
|
Nonperforming
|
|
|
.11 |
|
|
|
.11 |
|
|
|
|
.07 |
|
|
|
.09 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3.69 |
% |
|
|
2.54 |
% |
|
|
|
.37 |
% |
|
|
.54 |
% |
|
Other retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days
|
|
|
5.92 |
% |
|
|
4.30 |
% |
|
|
|
.80 |
% |
|
|
.71 |
% |
|
|
90 days or more
|
|
|
1.19 |
|
|
|
.76 |
|
|
|
|
.28 |
|
|
|
.26 |
|
|
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|
|
.02 |
|
|
|
.02 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7.11 |
% |
|
|
5.06 |
% |
|
|
|
1.10 |
% |
|
|
.99 |
% |
|
|
|
|
|
|
|
Table 6 |
|
Nonperforming Assets (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, | |
|
December 31, | |
(Dollars in Millions) |
|
2007 | |
|
2006 | |
|
Commercial
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
$161 |
|
|
|
$196 |
|
|
Lease financing
|
|
|
46 |
|
|
|
40 |
|
|
|
|
|
|
Total commercial
|
|
|
207 |
|
|
|
236 |
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
Commercial mortgages
|
|
|
73 |
|
|
|
112 |
|
|
Construction and development
|
|
|
153 |
|
|
|
38 |
|
|
|
|
|
|
Total commercial real estate
|
|
|
226 |
|
|
|
150 |
|
Residential mortgages
|
|
|
48 |
|
|
|
36 |
|
Retail
|
|
|
|
|
|
|
|
|
|
Credit card
|
|
|
17 |
|
|
|
31 |
|
|
Retail leasing
|
|
|
|
|
|
|
|
|
|
Other retail
|
|
|
15 |
|
|
|
17 |
|
|
|
|
|
|
Total retail
|
|
|
32 |
|
|
|
48 |
|
|
|
|
|
|
|
Total nonperforming loans
|
|
|
513 |
|
|
|
470 |
|
Other real estate (b)
|
|
|
113 |
|
|
|
95 |
|
Other assets
|
|
|
15 |
|
|
|
22 |
|
|
|
|
|
|
|
Total nonperforming assets
|
|
|
$641 |
|
|
|
$587 |
|
|
|
|
Accruing loans 90 days or more past due
|
|
|
$451 |
|
|
|
$349 |
|
Nonperforming loans to total loans
|
|
|
.34 |
% |
|
|
.33 |
% |
Nonperforming assets to total loans plus other real estate (b)
|
|
|
.43 |
% |
|
|
.41 |
% |
|
Changes in Nonperforming Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and | |
|
Retail and | |
|
|
|
|
Commercial | |
|
Residential | |
|
|
(Dollars in Millions) |
|
Real Estate | |
|
Mortgages (d) | |
|
Total | |
|
Balance December 31, 2006
|
|
|
$406 |
|
|
|
$181 |
|
|
|
$587 |
|
|
Additions to nonperforming assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New nonaccrual loans and foreclosed properties
|
|
|
396 |
|
|
|
47 |
|
|
|
443 |
|
|
|
Advances on loans
|
|
|
9 |
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
Total additions
|
|
|
405 |
|
|
|
47 |
|
|
|
452 |
|
|
Reductions in nonperforming assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paydowns, payoffs
|
|
|
(107 |
) |
|
|
(18 |
) |
|
|
(125 |
) |
|
|
Net sales
|
|
|
(83 |
) |
|
|
|
|
|
|
(83 |
) |
|
|
Return to performing status
|
|
|
(43 |
) |
|
|
(1 |
) |
|
|
(44 |
) |
|
|
Charge-offs (c)
|
|
|
(136 |
) |
|
|
(10 |
) |
|
|
(146 |
) |
|
|
|
|
|
|
Total reductions
|
|
|
(369 |
) |
|
|
(29 |
) |
|
|
(398 |
) |
|
|
|
|
|
|
|
Net additions to nonperforming assets
|
|
|
36 |
|
|
|
18 |
|
|
|
54 |
|
|
|
|
Balance September 30, 2007
|
|
|
$442 |
|
|
|
$199 |
|
|
|
$641 |
|
|
|
|
|
(a) |
|
Throughout this document, nonperforming assets and related
ratios do not include accruing loans 90 days or more past
due. |
(b) |
|
Excludes $95 million and $83 million of foreclosed
GNMA loans which continue to accrue interest at
September 30, 2007, and December 31, 2006,
respectively. |
(c) |
|
Charge-offs exclude actions for certain card products and
loan sales that were not classified as nonperforming at the time
the charge-off occurred. |
(d) |
|
Residential mortgage information excludes changes related to
residential mortgages serviced by others. |
Within the consumer finance division at September 30, 2007,
approximately $206 million and $77 million of these delinquent
and nonperforming residential mortgages and other retail loans,
respectively, were to customers that may be defined as sub-prime
borrowers, compared with $105 million and $50 million,
respectively, at December 31, 2006.
Nonperforming Assets
The level of
nonperforming assets represents another indicator of the
potential for future credit losses. At September 30, 2007,
total nonperforming assets were $641 million, compared with
$587 million at December 31, 2006. The ratio of total
nonperforming assets to total loans and other real estate was
..43 percent at September 30, 2007, compared with
..41 percent at December 31, 2006. The change in
nonperforming assets reflects higher levels of nonperforming
loans resulting from stress in the mortgage lending and
homebuilding industries and an increase in other real estate
assets primarily representing residential mortgage loan
foreclosures.
Included in nonperforming loans were restructured loans of
$20 million at September 30, 2007, compared with
$38 million at December 31, 2006. At
September 30, 2007, and December 31, 2006, the Company
had no commitments to lend additional funds under restructured
loans.
Other real estate included in nonperforming assets was
$113 million at September 30, 2007, compared with
$95 million at December 31, 2006, and was primarily
related to properties that the Company has taken ownership of
that once secured residential mortgages and home equity and
second mortgage loan balances.
The following table provides an analysis of other real estate as
a percent of their related loan balances, including further
detail for residential mortgages and home equity and second
mortgage loan balances by geographical location:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a Percent of Ending | |
|
|
Amount | |
|
|
Loan Balances | |
|
|
| |
|
|
September 30, | |
|
December 31, | |
|
|
September 30, | |
|
December 31, | |
(Dollars in Millions) |
|
2007 | |
|
2006 | |
|
|
2007 | |
|
2006 | |
|
|
|
|
Residential mortgages and home equity and second mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michigan
|
|
|
$24 |
|
|
|
$17 |
|
|
|
|
4.28 |
% |
|
|
2.90 |
% |
|
Ohio
|
|
|
10 |
|
|
|
12 |
|
|
|
|
.39 |
|
|
|
.48 |
|
|
Minnesota
|
|
|
12 |
|
|
|
11 |
|
|
|
|
.23 |
|
|
|
.21 |
|
|
Colorado
|
|
|
7 |
|
|
|
7 |
|
|
|
|
.25 |
|
|
|
.28 |
|
|
Missouri
|
|
|
6 |
|
|
|
6 |
|
|
|
|
.23 |
|
|
|
.25 |
|
|
All other states
|
|
|
52 |
|
|
|
38 |
|
|
|
|
.21 |
|
|
|
.16 |
|
|
|
|
|
|
|
|
|
Total residential mortgages and home equity and second mortgages
|
|
|
111 |
|
|
|
91 |
|
|
|
|
.29 |
|
|
|
.25 |
|
Commercial real estate and construction
|
|
|
2 |
|
|
|
4 |
|
|
|
|
.01 |
|
|
|
.01 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$113 |
|
|
|
$95 |
|
|
|
|
.08 |
% |
|
|
.07 |
% |
|
|
|
|
Within other real estate in the table above, approximately
$62 million at September 30, 2007, and
$41 million at December 31, 2006, were from portfolios
that may be defined as sub-prime.
The Company expects nonperforming assets to increase moderately
over the next several quarters due to continued stress in the
mortgage lending and homebuilding industries.
Restructured Loans Accruing Interest
On a case-by-case basis,
management determines whether an account that experiences
financial difficulties should be modified as to its interest
rate or repayment terms to maximize the Companys
collection of its balance.
Loans restructured at a rate equal to or greater than that of a
new loan with comparable risk at the time the contract is
modified are excluded from restructured loans once repayment
performance, in accordance with the modified agreement, has been
demonstrated over several payment cycles. Loans that have
interest rates reduced below comparable market rates remain
classified as restructured loans; however, interest income is
accrued at the reduced rate as long as the customer complies
with the revised terms and conditions.
The following table provides a summary of restructured loans
that continue to accrue interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a Percent of Ending | |
|
|
Amount | |
|
|
Loan Balances | |
|
|
| |
|
|
September 30, | |
|
December 31, | |
|
|
September 30, | |
|
December 31, | |
(Dollars in Millions) |
|
2007 | |
|
2006 | |
|
|
2007 | |
|
2006 | |
|
|
|
|
Commercial
|
|
|
$20 |
|
|
|
$18 |
|
|
|
|
.04 |
% |
|
|
.04 |
% |
Commercial real estate
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
Residential mortgages
|
|
|
100 |
|
|
|
80 |
|
|
|
|
.44 |
|
|
|
.38 |
|
Credit card
|
|
|
300 |
|
|
|
267 |
|
|
|
|
2.93 |
|
|
|
3.08 |
|
Other retail
|
|
|
48 |
|
|
|
39 |
|
|
|
|
.12 |
|
|
|
.10 |
|
|
|
|
|
|
|
|
Total
|
|
|
$468 |
|
|
|
$405 |
|
|
|
|
.31 |
% |
|
|
.28 |
% |
|
|
|
|
Analysis of Loan Net Charge-Offs
Total loan net
charge-offs were $199 million and $567 million during
the third quarter and first nine months of 2007, respectively,
compared with net charge-offs of $135 million and
$375 million, respectively, for the same periods of 2006.
The ratio of total loan net charge-offs to average loans
outstanding on an annualized basis in the third quarter and
first nine months of 2007 was .54 percent and
..52 percent, respectively, compared with .38 percent
and .36 percent, respectively, for the same periods of
2006. The year-over-year increases in total net charge-offs were
due primarily to an anticipated increase in consumer
charge-offs, primarily related to credit cards, and somewhat
higher commercial loan net charge-offs. In addition, net
charge-offs during 2006 reflected the beneficial impact of
bankruptcy legislation that went into effect in the fourth
quarter of 2005.
Commercial and commercial real estate loan net charge-offs for
the third quarter of 2007 were
|
|
|
Table 7 |
|
Net Charge-offs as a Percent of Average Loans Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
Nine Months Ended | |
|
|
September 30, | |
|
|
September 30, | |
|
|
| |
|
|
2007 | |
|
2006 | |
|
|
2007 | |
|
2006 | |
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
.25 |
% |
|
|
.18 |
% |
|
|
|
.25 |
% |
|
|
.12 |
% |
|
Lease financing
|
|
|
.76 |
|
|
|
.23 |
|
|
|
|
.52 |
|
|
|
.44 |
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
.31 |
|
|
|
.18 |
|
|
|
|
.29 |
|
|
|
.16 |
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgages
|
|
|
.02 |
|
|
|
|
|
|
|
|
.06 |
|
|
|
.01 |
|
|
Construction and development
|
|
|
.04 |
|
|
|
|
|
|
|
|
.04 |
|
|
|
.02 |
|
|
|
|
|
|
|
|
|
Total commercial real estate
|
|
|
.03 |
|
|
|
|
|
|
|
|
.06 |
|
|
|
.01 |
|
Residential mortgages
|
|
|
.30 |
|
|
|
.21 |
|
|
|
|
.27 |
|
|
|
.18 |
|
Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card
|
|
|
3.09 |
|
|
|
2.85 |
|
|
|
|
3.36 |
|
|
|
2.74 |
|
|
Retail leasing
|
|
|
.19 |
|
|
|
.22 |
|
|
|
|
.20 |
|
|
|
.19 |
|
|
Home equity and second mortgages
|
|
|
.49 |
|
|
|
.31 |
|
|
|
|
.44 |
|
|
|
.33 |
|
|
Other retail
|
|
|
1.00 |
|
|
|
.79 |
|
|
|
|
.93 |
|
|
|
.81 |
|
|
|
|
|
|
|
|
|
Total retail
|
|
|
1.15 |
|
|
|
.90 |
|
|
|
|
1.13 |
|
|
|
.87 |
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
.54 |
% |
|
|
.38 |
% |
|
|
|
.52 |
% |
|
|
.36 |
% |
|
|
|
|
$39 million (.20 percent of average loans outstanding
on an annualized basis), compared with $21 million
(.11 percent of average loans outstanding on an annualized
basis) for the third quarter of 2006. Commercial and commercial
real estate loan net charge-offs for the first nine months of
2007 were $113 million (.20 percent of average loans
outstanding on an annualized basis), compared with
$55 million (.10 percent of average loans outstanding
on an annualized basis) for the first nine months of 2006. Given
the continuing stress in the homebuilding industry, the Company
expects commercial and commercial real estate net charge-offs to
continue to increase moderately over the next several quarters.
Retail loan net charge-offs for the third quarter of 2007 were
$143 million (1.15 percent of average loans
outstanding on an annualized basis), compared with
$103 million (.90 percent of average loans outstanding
on an annualized basis) for the third quarter of 2006. Retail
loan net charge-offs for the first nine months of 2007 were
$410 million (1.13 percent of average loans
outstanding on an annualized basis), compared with
$291 million (.87 percent of average loans outstanding
on an annualized basis) for the first nine months of 2006. The
increase in retail loan net charge-offs reflected growth in the
retail portfolios, including an increase in average credit card
balances of 26.9 percent in the third quarter and
24.1 percent in the first nine months of 2007, compared
with the same periods of the prior year. In addition, net
charge-offs for 2006 reflected the beneficial impact of
bankruptcy legislation changes that occurred in the fourth
quarter of 2005. The Company anticipates higher delinquencies in
the retail portfolios and that retail net charge-offs will
increase moderately over the next several quarters.
The following table provides an analysis of net charge-offs as a
percent of average loans outstanding managed by the consumer
finance division, compared with other retail related loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, | |
|
|
Nine Months Ended September 30, | |
|
|
| |
|
|
|
|
Percent of | |
|
|
|
|
Percent of | |
|
|
Average Loans | |
|
Average Loans | |
|
|
Average Loans | |
|
Average Loans | |
|
|
| |
(Dollars in Millions) | |
2007 | |
|
2006 | |
|
2007 | |
|
2006 | |
|
|
2007 | |
|
2006 | |
|
2007 | |
|
2006 | |
|
|
|
|
Consumer Finance (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages
|
|
$ |
9,360 |
|
|
$ |
7,627 |
|
|
|
.64 |
% |
|
|
.52 |
% |
|
|
$ |
8,943 |
|
|
$ |
7,245 |
|
|
|
.58 |
% |
|
|
.48 |
% |
|
Home equity and second mortgages
|
|
|
1,837 |
|
|
|
1,939 |
|
|
|
3.02 |
|
|
|
1.43 |
|
|
|
|
1,848 |
|
|
|
1,993 |
|
|
|
2.53 |
|
|
|
1.48 |
|
|
Other retail
|
|
|
421 |
|
|
|
397 |
|
|
|
3.77 |
|
|
|
5.00 |
|
|
|
|
410 |
|
|
|
401 |
|
|
|
2.93 |
|
|
|
4.67 |
|
Other Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages
|
|
$ |
12,898 |
|
|
$ |
13,491 |
|
|
|
.06 |
% |
|
|
.03 |
% |
|
|
$ |
12,945 |
|
|
$ |
13,747 |
|
|
|
.05 |
% |
|
|
.03 |
% |
|
Home equity and second mortgages
|
|
|
14,211 |
|
|
|
13,227 |
|
|
|
.17 |
|
|
|
.15 |
|
|
|
|
13,933 |
|
|
|
13,054 |
|
|
|
.16 |
|
|
|
.15 |
|
|
Other retail
|
|
|
16,619 |
|
|
|
15,172 |
|
|
|
.93 |
|
|
|
.68 |
|
|
|
|
16,286 |
|
|
|
14,815 |
|
|
|
.88 |
|
|
|
.70 |
|
Total Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages
|
|
$ |
22,258 |
|
|
$ |
21,118 |
|
|
|
.30 |
% |
|
|
.21 |
% |
|
|
$ |
21,888 |
|
|
$ |
20,992 |
|
|
|
.27 |
% |
|
|
.18 |
% |
|
Home equity and second mortgages
|
|
|
16,048 |
|
|
|
15,166 |
|
|
|
.49 |
|
|
|
.31 |
|
|
|
|
15,781 |
|
|
|
15,047 |
|
|
|
.44 |
|
|
|
.33 |
|
|
Other retail
|
|
|
17,040 |
|
|
|
15,569 |
|
|
|
1.00 |
|
|
|
.79 |
|
|
|
|
16,696 |
|
|
|
15,216 |
|
|
|
.93 |
|
|
|
.81 |
|
|
|
|
|
|
|
|
(a) |
|
Consumer finance category included credit originated and
managed by US Bank Consumer Finance as well as home equity and
second mortgages with a
loan-to-value greater
than 100 percent that were originated in the branches. |
Within the consumer finance division, the Company originates
loans to customers that may be defined as sub-prime borrowers.
The following table provides further information on net
charge-offs as a percent of average loans outstanding for this
division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, | |
|
|
Nine Months Ended September 30, | |
|
|
| |
|
|
|
|
Percent of | |
|
|
|
|
Percent of | |
|
|
Average Loans | |
|
Average Loans | |
|
|
Average Loans | |
|
Average Loans | |
|
|
| |
(Dollars in Millions) | |
|
2007 | |
|
2006 | |
|
2007 | |
|
2006 | |
|
|
2007 | |
|
2006 | |
|
2007 | |
|
2006 | |
|
|
|
|
Residential mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-prime borrowers
|
|
$ |
3,203 |
|
|
$ |
2,754 |
|
|
|
1.24 |
% |
|
|
.86 |
% |
|
|
$ |
3,115 |
|
|
$ |
2,523 |
|
|
|
1.16 |
% |
|
|
.85 |
% |
|
Other borrowers
|
|
|
6,157 |
|
|
|
4,873 |
|
|
|
.32 |
|
|
|
.33 |
|
|
|
|
5,828 |
|
|
|
4,722 |
|
|
|
.28 |
|
|
|
.28 |
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
9,360 |
|
|
$ |
7,627 |
|
|
|
.64 |
% |
|
|
.52 |
% |
|
|
$ |
8,943 |
|
|
$ |
7,245 |
|
|
|
.58 |
% |
|
|
.48 |
% |
Home equity and second mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-prime borrowers
|
|
$ |
914 |
|
|
$ |
850 |
|
|
|
3.91 |
% |
|
|
1.87 |
% |
|
|
$ |
912 |
|
|
$ |
825 |
|
|
|
3.23 |
% |
|
|
1.78 |
% |
|
Other borrowers
|
|
|
923 |
|
|
|
1,089 |
|
|
|
2.15 |
|
|
|
1.09 |
|
|
|
|
936 |
|
|
|
1,168 |
|
|
|
1.86 |
|
|
|
1.26 |
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,837 |
|
|
$ |
1,939 |
|
|
|
3.02 |
% |
|
|
1.43 |
% |
|
|
$ |
1,848 |
|
|
$ |
1,993 |
|
|
|
2.53 |
% |
|
|
1.48 |
% |
|
|
|
|
Analysis and Determination of the Allowance for Credit
Losses The allowance for
loan losses provides coverage for probable and estimable losses
inherent in the Companys loan and lease portfolio.
Management evaluates the allowance each quarter to determine
that it is adequate to cover these inherent losses. Several
factors were taken into consideration in evaluating the
allowance for credit losses at September 30, 2007,
including the risk profile of the portfolios, loan net
charge-offs during the period, the level of nonperforming
assets, accruing loans 90 days or more past due,
delinquency ratios and changes in restructured loan balances
compared with December 31, 2006. Management also considered
the uncertainty related to certain industry sectors, and the
extent of credit exposure to specific borrowers within the
portfolio. In addition, concentration risks associated with
commercial real estate and the mix of loans, including credit
cards, loans originated through the consumer finance division
and residential mortgage balances, and their relative credit
risks were evaluated. Finally, the Company considered current
economic conditions that might impact the portfolio.
|
|
|
Table 8 |
|
Summary of Allowance for Credit Losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
Nine Months Ended | |
|
|
September 30, | |
|
|
September 30, | |
|
|
| |
(Dollars in Millions) |
|
2007 | |
|
2006 | |
|
|
2007 | |
|
2006 | |
|
|
|
|
Balance at beginning of period
|
|
|
$2,260 |
|
|
|
$2,251 |
|
|
|
|
$2,256 |
|
|
|
$2,251 |
|
Charge-offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
38 |
|
|
|
34 |
|
|
|
|
117 |
|
|
|
86 |
|
|
|
Lease financing
|
|
|
16 |
|
|
|
12 |
|
|
|
|
45 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
54 |
|
|
|
46 |
|
|
|
|
162 |
|
|
|
123 |
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgages
|
|
|
3 |
|
|
|
1 |
|
|
|
|
13 |
|
|
|
7 |
|
|
|
Construction and development
|
|
|
1 |
|
|
|
|
|
|
|
|
3 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
Total commercial real estate
|
|
|
4 |
|
|
|
1 |
|
|
|
|
16 |
|
|
|
8 |
|
|
Residential mortgages
|
|
|
17 |
|
|
|
12 |
|
|
|
|
45 |
|
|
|
31 |
|
|
Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card
|
|
|
93 |
|
|
|
65 |
|
|
|
|
280 |
|
|
|
178 |
|
|
|
Retail leasing
|
|
|
5 |
|
|
|
6 |
|
|
|
|
16 |
|
|
|
19 |
|
|
|
Home equity and second mortgages
|
|
|
22 |
|
|
|
14 |
|
|
|
|
58 |
|
|
|
46 |
|
|
|
Other retail
|
|
|
61 |
|
|
|
51 |
|
|
|
|
168 |
|
|
|
141 |
|
|
|
|
|
|
|
|
|
|
Total retail
|
|
|
181 |
|
|
|
136 |
|
|
|
|
522 |
|
|
|
384 |
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
256 |
|
|
|
195 |
|
|
|
|
745 |
|
|
|
546 |
|
Recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
12 |
|
|
|
16 |
|
|
|
|
38 |
|
|
|
50 |
|
|
|
Lease financing
|
|
|
5 |
|
|
|
9 |
|
|
|
|
23 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
17 |
|
|
|
25 |
|
|
|
|
61 |
|
|
|
70 |
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgages
|
|
|
2 |
|
|
|
1 |
|
|
|
|
4 |
|
|
|
6 |
|
|
|
Construction and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial real estate
|
|
|
2 |
|
|
|
1 |
|
|
|
|
4 |
|
|
|
6 |
|
|
Residential mortgages
|
|
|
|
|
|
|
1 |
|
|
|
|
1 |
|
|
|
2 |
|
|
Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card
|
|
|
16 |
|
|
|
9 |
|
|
|
|
48 |
|
|
|
26 |
|
|
|
Retail leasing
|
|
|
2 |
|
|
|
2 |
|
|
|
|
6 |
|
|
|
9 |
|
|
|
Home equity and second mortgages
|
|
|
2 |
|
|
|
2 |
|
|
|
|
6 |
|
|
|
9 |
|
|
|
Other retail
|
|
|
18 |
|
|
|
20 |
|
|
|
|
52 |
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
Total retail
|
|
|
38 |
|
|
|
33 |
|
|
|
|
112 |
|
|
|
93 |
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
57 |
|
|
|
60 |
|
|
|
|
178 |
|
|
|
171 |
|
Net Charge-offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
26 |
|
|
|
18 |
|
|
|
|
79 |
|
|
|
36 |
|
|
|
Lease financing
|
|
|
11 |
|
|
|
3 |
|
|
|
|
22 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
37 |
|
|
|
21 |
|
|
|
|
101 |
|
|
|
53 |
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgages
|
|
|
1 |
|
|
|
|
|
|
|
|
9 |
|
|
|
1 |
|
|
|
Construction and development
|
|
|
1 |
|
|
|
|
|
|
|
|
3 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
Total commercial real estate
|
|
|
2 |
|
|
|
|
|
|
|
|
12 |
|
|
|
2 |
|
|
Residential mortgages
|
|
|
17 |
|
|
|
11 |
|
|
|
|
44 |
|
|
|
29 |
|
|
Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card
|
|
|
77 |
|
|
|
56 |
|
|
|
|
232 |
|
|
|
152 |
|
|
|
Retail leasing
|
|
|
3 |
|
|
|
4 |
|
|
|
|
10 |
|
|
|
10 |
|
|
|
Home equity and second mortgages
|
|
|
20 |
|
|
|
12 |
|
|
|
|
52 |
|
|
|
37 |
|
|
|
Other retail
|
|
|
43 |
|
|
|
31 |
|
|
|
|
116 |
|
|
|
92 |
|
|
|
|
|
|
|
|
|
|
Total retail
|
|
|
143 |
|
|
|
103 |
|
|
|
|
410 |
|
|
|
291 |
|
|
|
|
|
|
|
|
|
|
|
Total net charge-offs
|
|
|
199 |
|
|
|
135 |
|
|
|
|
567 |
|
|
|
375 |
|
|
|
|
|
|
|
Provision for credit losses
|
|
|
199 |
|
|
|
135 |
|
|
|
|
567 |
|
|
|
375 |
|
Acquisitions and other changes
|
|
|
|
|
|
|
5 |
|
|
|
|
4 |
|
|
|
5 |
|
|
|
|
|
|
|
Balance at end of period
|
|
|
$2,260 |
|
|
|
$2,256 |
|
|
|
|
$2,260 |
|
|
|
$2,256 |
|
|
|
|
|
|
|
Components
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
$2,041 |
|
|
|
$2,034 |
|
|
|
|
|
|
|
|
|
|
|
Liability for unfunded credit commitments
|
|
|
219 |
|
|
|
222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for credit losses
|
|
|
$2,260 |
|
|
|
$2,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses as a percentage of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-end loans
|
|
|
1.52 |
% |
|
|
1.58 |
% |
|
|
|
|
|
|
|
|
|
|
Nonperforming loans
|
|
|
441 |
|
|
|
476 |
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets
|
|
|
353 |
|
|
|
392 |
|
|
|
|
|
|
|
|
|
|
|
Annualized net charge-offs
|
|
|
286 |
|
|
|
421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2007, the allowance for credit losses was
$2,260 million (1.52 percent of loans), compared with
an allowance of $2,256 million (1.57 percent of loans)
at December 31, 2006. The ratio of the allowance for credit
losses to nonperforming loans was 441 percent at
September 30, 2007, compared with 480 percent at
December 31, 2006. The ratio of the allowance for credit
losses to annualized loan net charge-offs was 286 percent
at September 30, 2007, compared with 415 percent at
December 31, 2006.
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
September 30, 2007, no significant change in the amount of
residuals or concentration of the portfolios has occurred since
December 31, 2006. 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, 2006, for further discussion on
residual value risk management.
Operational Risk Management
The Company manages
operational risk through a risk management framework and its
internal control processes. Within this framework, the Corporate
Risk Committee (Risk Committee) provides oversight
and assesses the most significant operational risks facing the
Company within its business lines. Under the guidance of the
Risk Committee, enterprise risk management personnel establish
policies and interact with business lines to monitor significant
operating risks on a regular basis. Business lines have direct
and primary responsibility and accountability for identifying,
controlling and monitoring operational risks embedded in their
business activities. Refer to Managements Discussion
and Analysis Operational Risk Management in
the Companys Annual Report on
Form 10-K for the
year ended December 31, 2006, for further discussion on
operational risk management.
Interest Rate Risk Management
In the banking industry,
changes in interest rates are a significant risk that can impact
earnings, market valuations and safety and soundness of an
entity. To minimize the volatility of net interest income and
the market value of assets and liabilities, the Company manages
its exposure to changes in interest rates through asset and
liability management activities within guidelines established by
its Asset Liability Policy Committee (ALPC) and
approved by the Board of Directors. ALPC has the responsibility
for approving and ensuring compliance with ALPC management
policies, including interest rate risk exposure. The Company
uses net interest income simulation analysis and market value of
equity modeling for measuring and analyzing consolidated
interest rate risk.
Net Interest Income Simulation Analysis
Through this simulation,
management estimates the impact on net interest income of
gradual upward or downward changes of market interest rates over
a one-year period, the effect of immediate and sustained
parallel shifts in the yield curve and the effect of immediate
and sustained flattening or steepening of the yield curve. The
table below summarizes the interest rate risk of net interest
income based on forecasts over the succeeding 12 months. At
September 30, 2007, the Companys overall interest
rate risk position was liability sensitive to changes in
interest rates. ALPC policy guidelines limit the estimated
change in net interest income to 4.0 percent of forecasted
net interest income over the succeeding 12 months. At
September 30, 2007, and December 31, 2006, the Company
was within its policy guidelines. 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, 2006, 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, liabilities and off-balance sheet
instruments will change given a change in interest rates. ALPC
guidelines limit the change in market value of equity in a
200 basis point parallel rate shock to 15 percent of
the market value of equity assuming interest rates at
September 30, 2007. The up 200 basis point scenario
resulted in a 7.2 percent decrease in the market value of
equity at September 30, 2007, compared with a
6.7 percent
Sensitivity of Net Interest Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007 |
|
|
December 31, 2006 |
|
|
| |
|
|
Down 50 | |
|
Up 50 | |
|
Down 200 | |
|
Up 200 | |
|
|
Down 50 | |
|
Up 50 | |
|
Down 200 | |
|
Up 200 | |
|
|
Immediate | |
|
Immediate | |
|
Gradual | |
|
Gradual | |
|
|
Immediate | |
|
Immediate | |
|
Gradual | |
|
Gradual | |
| |
Net interest income
|
|
|
.64% |
|
|
|
(1.06)% |
|
|
|
1.56% |
|
|
|
(3.41)% |
|
|
|
|
.42% |
|
|
|
(1.43)% |
|
|
|
.92% |
|
|
|
(2.95)% |
|
|
|
|
|
|
|
|
Table 9 |
|
Derivative Positions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007 | |
|
|
December 31, 2006 | |
|
|
| |
|
|
|
|
Weighted- | |
|
|
|
|
Weighted- | |
|
|
|
|
Average | |
|
|
|
|
Average | |
|
|
|
|
Remaining | |
|
|
|
|
Remaining | |
|
|
Notional | |
|
Fair | |
|
Maturity | |
|
|
Notional | |
|
Fair | |
|
Maturity | |
(Dollars in Millions) |
|
Amount | |
|
Value | |
|
In Years | |
|
|
Amount | |
|
Value | |
|
In Years | |
| |
|
|
Asset and Liability Management Positions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive fixed/pay floating swaps
|
|
|
$2,880 |
|
|
|
$(63 |
) |
|
|
50.77 |
|
|
|
|
$5,345 |
|
|
|
$27 |
|
|
|
22.97 |
|
|
|
Pay fixed/receive floating swaps
|
|
|
17,664 |
|
|
|
(73 |
) |
|
|
2.67 |
|
|
|
|
12,329 |
|
|
|
|
|
|
|
2.33 |
|
|
|
Futures and forwards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy
|
|
|
8,876 |
|
|
|
(41 |
) |
|
|
.10 |
|
|
|
|
4,008 |
|
|
|
|
|
|
|
.22 |
|
|
|
|
Sell
|
|
|
8,841 |
|
|
|
(11 |
) |
|
|
.15 |
|
|
|
|
2,816 |
|
|
|
3 |
|
|
|
.09 |
|
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Written
|
|
|
12,714 |
|
|
|
|
|
|
|
.12 |
|
|
|
|
7,544 |
|
|
|
(1 |
) |
|
|
.13 |
|
|
Foreign exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps
|
|
|
1,879 |
|
|
|
153 |
|
|
|
9.05 |
|
|
|
|
386 |
|
|
|
14 |
|
|
|
8.61 |
|
|
|
Forwards
|
|
|
1,162 |
|
|
|
(29 |
) |
|
|
.02 |
|
|
|
|
318 |
|
|
|
1 |
|
|
|
.02 |
|
|
Equity contracts
|
|
|
78 |
|
|
|
1 |
|
|
|
2.47 |
|
|
|
|
86 |
|
|
|
4 |
|
|
|
2.95 |
|
|
Credit default swaps
|
|
|
46 |
|
|
|
|
|
|
|
4.31 |
|
|
|
|
25 |
|
|
|
(1 |
) |
|
|
4.72 |
|
|
|
Customer-related Positions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive fixed/pay floating swaps
|
|
|
$12,468 |
|
|
|
$78 |
|
|
|
5.25 |
|
|
|
|
$10,371 |
|
|
|
$(42 |
) |
|
|
5.42 |
|
|
|
Pay fixed/receive floating swaps
|
|
|
12,463 |
|
|
|
(12 |
) |
|
|
5.25 |
|
|
|
|
10,341 |
|
|
|
98 |
|
|
|
5.42 |
|
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
2,107 |
|
|
|
3 |
|
|
|
2.08 |
|
|
|
|
1,899 |
|
|
|
5 |
|
|
|
1.92 |
|
|
|
|
Written
|
|
|
2,100 |
|
|
|
|
|
|
|
2.08 |
|
|
|
|
1,899 |
|
|
|
(3 |
) |
|
|
1.92 |
|
|
Risk participation agreements (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
245 |
|
|
|
|
|
|
|
6.83 |
|
|
|
|
206 |
|
|
|
|
|
|
|
6.62 |
|
|
|
Written
|
|
|
525 |
|
|
|
(1 |
) |
|
|
5.73 |
|
|
|
|
356 |
|
|
|
|
|
|
|
6.05 |
|
|
Foreign exchange rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forwards and swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy
|
|
|
2,836 |
|
|
|
135 |
|
|
|
.50 |
|
|
|
|
2,092 |
|
|
|
52 |
|
|
|
.46 |
|
|
|
|
Sell
|
|
|
2,748 |
|
|
|
(123 |
) |
|
|
.51 |
|
|
|
|
2,033 |
|
|
|
(43 |
) |
|
|
.47 |
|
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
173 |
|
|
|
(4 |
) |
|
|
1.03 |
|
|
|
|
408 |
|
|
|
(3 |
) |
|
|
.44 |
|
|
|
|
Written
|
|
|
173 |
|
|
|
4 |
|
|
|
1.03 |
|
|
|
|
408 |
|
|
|
3 |
|
|
|
.44 |
|
|
|
|
|
|
|
|
(a) |
|
At September 30, 2007, the credit equivalent amount was
$2 million and $64 million, compared with $2 million and
$50 million at December 31, 2006, for purchased and
written risk participation agreements, respectively. |
decrease at December 31, 2006. The down 200 basis
point scenario resulted in a 4.0 percent decrease in the
market value of equity at September 30, 2007, compared with
a 1.8 percent decrease at December 31, 2006. At
September 30, 2007, and December 31, 2006, the Company
was within its policy guidelines.
The Company also uses duration of equity as a measure of
interest rate risk. The duration of equity is a measure of the
net market value sensitivity of the assets, liabilities and
derivative positions of the Company. At September 30, 2007,
the duration of assets, liabilities and equity was
1.8 years, 1.9 years and 1.3 years, respectively,
compared with 1.8 years, 1.9 years and 1.6 years,
respectively, at December 31, 2006. The duration of equity
measures shows that sensitivity of the market value of equity of
the Company was liability sensitive to changes in interest
rates. Refer to Managements Discussion and
Analysis Market Value of Equity Modeling in
the Companys Annual Report on
Form 10-K for the
year ended December 31, 2006, for further discussion on
market value of equity modeling.
Use of Derivatives to Manage Interest Rate and Other Risks
In the ordinary course of
business, the Company enters into derivative transactions to
manage its interest rate, prepayment, credit, price and foreign
currency risks (asset and liability management
positions) and to accommodate the business requirements of
its customers (customer-related positions). Refer to
Managements Discussion and Analysis Use
of Derivatives to Manage Interest Rate and Other Risks in
the Companys Annual Report on
Form 10-K for the
year ended December 31, 2006, for further discussion
on the use of derivatives to manage interest rate and other
risks.
By their nature, derivative instruments are subject to market
risk. The Company does not utilize derivative instruments for
speculative purposes. Of the Companys $54.1 billion
of total notional amount of asset and liability management
positions at September 30, 2007, $28.2 billion was
designated as either cash flow or fair value hedges or net
investment hedges of foreign operations. The cash flow hedge
derivative positions are interest rate swaps that hedge the
forecasted cash flows from the underlying variable-rate debt.
The fair value hedges are primarily interest rate swaps that
hedge the change in fair value related to interest rate changes
of underlying fixed-rate debt and subordinated obligations.
In addition, the Company uses forward commitments to sell
residential mortgage loans to hedge its interest rate risk
related to residential mortgage loans held-for-sale. In
connection with its mortgage banking operations, the Company
held $2.4 billion of forward commitments to sell mortgage
loans and $2.9 billion of unfunded mortgage loan
commitments at September 30, 2007, that were derivatives in
accordance with the provisions of the Statement of Financial
Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedge Activities. The unfunded
mortgage loan commitments are reported at fair value as options
in Table 9. The Company also utilizes U.S. Treasury
futures, options on U.S. Treasury futures contracts and
forward commitments to buy residential mortgage loans to
economically hedge the change in fair value of its residential
MSRs.
At September 30, 2007, the Company had $91 million in
accumulated other comprehensive income related to realized and
unrealized losses on derivatives classified as cash flow hedges.
Unrealized gains and losses are reflected in earnings when the
related cash flows or hedged transactions occur and offset the
related performance of the hedged items. The estimated amount to
be reclassified from accumulated other comprehensive income into
earnings during the remainder of 2007 and the next
12 months is a loss of $19 million and
$62 million, respectively.
The change in the fair value of all other asset and liability
management positions attributed to hedge ineffectiveness
recorded in noninterest income was not material for the third
quarter and first nine months of 2007. Gains or losses on
customer-related positions were not material for the third
quarter and first nine months of 2007.
The Company enters into derivatives to protect its net
investment in certain foreign operations. The Company uses
forward commitments to sell specified amounts of certain foreign
currencies to hedge fluctuations in foreign currency exchange
rates. The net amount of gains or losses included in the
cumulative translation adjustment for the third quarter and
first nine months of 2007 was not material.
Market Risk Management In
addition to interest rate risk, the Company is exposed to other
forms of market risk as a consequence of conducting normal
trading activities. These trading activities principally support
the risk management processes of the Companys customers
including their management of foreign currency and interest rate
risks. The Company also manages market risk of non-trading
business activities including its MSRs and loans held-for-sale.
Value at Risk (VaR) is a key measure of market risk
for the Company. Theoretically, VaR represents the maximum
amount that the Company has placed at risk of loss, with a
ninety-ninth percentile degree of confidence, to adverse market
movements in the course of its risk taking activities. The
Companys market valuation risk for trading and non-trading
positions, as estimated by the VaR analysis, was $1 million
and $16 million, respectively, at September 30, 2007,
compared with $1 million and $30 million,
respectively, at December 31, 2006. At September 30,
2007, the Companys VaR limit was $45 million.
During the third quarter of 2007, the financial markets
experienced significant turbulence as the impact of mortgage
delinquencies, defaults and foreclosures has adversely affected
investor confidence in a broad range of investment sectors and
asset classes. Given that the Companys owned investments
are principally U.S. Treasury securities, notes issued by
government-sponsored agencies or privately issued securities
with high investment grade credit ratings, the Company believes
these securities are not other-than-temporarily impaired as of
September 30, 2007, despite being subject to changes in market
valuations. The Companys subsidiary, FAF Advisors, manages
an array of money market funds. Like many money market funds,
these funds invest a portion of their assets in asset-backed
commercial paper and medium-term notes. As problems in the
sub-prime mortgage market have emerged, certain securities
backed by mortgages have experienced both credit and liquidity
issues, and investors have become hesitant to purchase many
types of asset-backed securities, even those with little or no
exposure to sub-prime mortgages. The money market funds managed
by FAF Advisors have some exposure to liquidity and credit
issues in the asset-backed commercial paper market. The Company
has undertaken, or may take, certain steps with respect to
specific investments to
|
|
|
|
|
|
|
|
|
|
|
|
September 30, | |
|
December 31, | |
(Dollars in Millions) |
|
2007 | |
|
2006 | |
|
Tier 1 capital
|
|
$ |
17,368 |
|
|
$ |
17,036 |
|
|
As a percent of risk-weighted assets
|
|
|
8.6 |
% |
|
|
8.8 |
% |
|
As a percent of adjusted quarterly average assets (leverage
ratio)
|
|
|
8.1 |
% |
|
|
8.2 |
% |
Total risk-based capital
|
|
$ |
25,900 |
|
|
$ |
24,495 |
|
|
As a percent of risk-weighted assets
|
|
|
12.8 |
% |
|
|
12.6 |
% |
Tangible common equity
|
|
$ |
11,645 |
|
|
$ |
11,703 |
|
|
As a percent of tangible assets
|
|
|
5.3 |
% |
|
|
5.5 |
% |
|
maintain the credit ratings of the rated money funds managed by
FAF Advisors. While not material to the consolidated financial
statements, management believes the impact of these steps could
range from one to three cents per diluted share over the next
few quarters.
Refer to Managements Discussion and
Analysis Market Risk Management in the
Companys Annual Report on
Form 10-K for the
year ended December 31, 2006, for further discussion on
market risk management.
Liquidity Risk Management
ALPC establishes policies, as
well as analyzes and manages liquidity, to ensure that adequate
funds are available to meet normal operating requirements in
addition to unexpected customer demands for funds in a timely
and cost-effective manner. Liquidity management is viewed from
long-term and short-term perspectives, as well as from an asset
and liability perspective. Management monitors liquidity through
a regular review of maturity profiles, funding sources, and loan
and deposit forecasts to minimize funding risk. Refer to
Managements Discussion and Analysis
Liquidity Risk Management in the Companys Annual
Report on
Form 10-K for the
year ended December 31, 2006, for further discussion on
liquidity risk management.
At September 30, 2007, parent company long-term debt
outstanding was $10.8 billion, compared with
$11.4 billion at December 31, 2006. The
$.6 billion decrease was primarily due to repayments of
$2.4 billion of convertible senior debentures and
$1.4 billion of maturities of subordinated and medium-term
notes, partially offset by the issuances of $3.0 billion of
convertible senior debentures and $.5 billion of junior
subordinated debentures. As of September 30, 2007, there
was no parent company debt scheduled to mature during the
remainder of 2007.
Federal banking laws regulate the amount of dividends that may
be paid by banking subsidiaries without prior approval. The
amount of dividends available to the parent company from its
banking subsidiaries after meeting the regulatory capital
requirements for well-capitalized banks was approximately $1.3
billion at September 30, 2007.
Capital Management The
Company is committed to managing capital for maximum shareholder
benefit and maintaining strong protection for depositors and
creditors. In the first nine months of 2007, the Company
returned 117 percent of earnings to its common shareholders
through a combination of dividends and net share repurchases.
The Company also manages its capital to exceed regulatory
capital requirements for well-capitalized bank holding
companies. Table 10 provides a summary of capital ratios as of
September 30, 2007, and December 31, 2006. All
regulatory ratios continue to be in excess of regulatory
well-capitalized requirements. Total
shareholders equity was $20.8 billion at
September 30, 2007, compared with $21.2 billion at
December 31, 2006. The decrease was the result of share
repurchases and dividends, partially offset by corporate
earnings.
On August 3, 2006, the Company announced that the Board of
Directors approved an authorization to
repurchase 150 million shares of common stock through
December 31, 2008.
The following table provides a detailed analysis of all shares
repurchased under this authorization during the third quarter of
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number | |
|
|
Total Number of | |
|
Average | |
|
of Shares that May | |
|
|
Shares Purchased | |
|
Price Paid | |
|
Yet Be Purchased | |
Time Period | |
|
as Part of the Program | |
|
per Share | |
|
Under the Program | |
|
July
|
|
|
2,654,429 |
|
|
|
$31.92 |
|
|
|
67,245,044 |
|
August
|
|
|
2,738,590 |
|
|
|
29.97 |
|
|
|
64,506,454 |
|
September
|
|
|
17,500 |
|
|
|
33.35 |
|
|
|
64,488,954 |
|
|
|
|
|
Total
|
|
|
5,410,519 |
|
|
|
$30.94 |
|
|
|
64,488,954 |
|
|
LINE OF BUSINESS FINANCIAL REVIEW
Within the Company, financial performance is measured by major
lines of business, which include Wholesale Banking, Consumer
Banking, Wealth Management & Securities Services, Payment
Services, and Treasury and Corporate Support. These operating
segments are components of the Company about which financial
information is available and is evaluated regularly in deciding
how to allocate resources and assess performance.
Basis for Financial Presentation
Business line results are
derived from the Companys business unit profitability
reporting systems by specifically attributing managed balance
sheet assets, deposits and other liabilities and their related
income or expense. Refer to Managements Discussion
and Analysis Line of Business Financial Review
in the Companys Annual Report on
Form 10-K for the
year ended December 31, 2006, 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 2007, certain organization and methodology
changes were made and, accordingly, 2006 results were restated
and presented on a comparable basis.
Wholesale Banking
Wholesale Banking offers
lending, equipment finance and small-ticket leasing, depository,
treasury management, capital markets, foreign exchange,
international trade services and other financial services to
middle market, large corporate, commercial real estate and
public sector clients. Wholesale Banking contributed
$265 million of the Companys net income in the third
quarter and $817 million in the first nine months of 2007,
or decreases of $33 million (11.1 percent) and
$90 million (9.9 percent), respectively, compared with
the same periods of 2006. The decreases were primarily driven by
lower total net revenue, higher total noninterest expense and an
increase in the provision for credit losses.
Total net revenue decreased $36 million (5.2 percent)
in the third quarter and $78 million (3.7 percent) in
the first nine months of 2007, compared with the same periods of
2006. Net interest income, on a taxable-equivalent basis,
decreased $27 million (5.6 percent) in the third
quarter and $82 million (5.7 percent) in the first
nine months of 2007, compared with the same periods of 2006. The
decreases were primarily driven by tighter credit spreads and a
decline in average noninterest-bearing deposit balances as some
customers managed their liquidity to fund business growth or to
generate higher returns by investing excess funds in
interest-bearing deposit and sweep products. The decreases were
partially offset by growth in average loan balances and the
margin benefit of deposits. The increase in average loans was
driven by commercial loan growth during 2006 and the first nine
months of 2007. Noninterest income decreased $9 million
(4.1 percent) in the third quarter of 2007 compared with
the third quarter of 2006 primarily due to market-related
valuation losses in trading securities and a commercial real
estate lending joint venture. Noninterest income increased
$4 million (.6 percent) in the first nine months of
2007, compared with the same period of 2006, due to increases in
treasury management and commercial products revenue. These
increases were partially offset by the market-related valuation
losses in the third quarter of 2007.
Total noninterest expense increased $12 million
(5.3 percent) in the third quarter and $26 million
(3.8 percent) in the first nine months of 2007, compared
with the same periods of 2006, primarily as a result of
increases in personnel expenses related to investments in select
business units. The provision for credit losses increased
$4 million in the third quarter and $38 million in the
first nine months of 2007, compared with the same periods of
2006. The unfavorable changes were due to an increase in gross
charge-offs. Nonperforming assets increased in the third quarter
of 2007 due to stress in the mortgage lending industry.
Nonperforming assets were $292 million at
September 30, 2007, $230 million at June 30,
2007, and $213 million at September 30, 2006.
Nonperforming assets as a percentage of period-end loans were
..56 percent at September 30, 2007, .46 percent at
June 30, 2007, and .42 percent at September 30,
2006. Refer to the Corporate Risk Profile section
for further information on factors impacting the credit quality
of the loan portfolios.
Consumer Banking Consumer
Banking delivers products and services through banking offices,
telephone servicing and sales, on-line services, direct mail and
ATMs. It encompasses community banking, metropolitan banking,
in-store banking, small business banking, consumer lending,
mortgage banking, consumer finance, workplace banking, student
banking and 24-hour
banking. Consumer Banking contributed $455 million of the
Companys net income in the third quarter and
$1,343 million in the first nine months of 2007, or
decreases of $19 million (4.0 percent) and
$32 million (2.3 percent), respectively, compared with
the same periods of 2006. The retail banking division
contributed $420 million of the total contribution in the
third quarter and $1,256 million in the first nine months
of 2007, or decreases of 5.2 percent and 3.9 percent,
respectively, compared with the same periods in the prior
year.
Total net revenue increased $29 million (2.0 percent)
in the third quarter and $95 million (2.3 percent) in
the first nine months of 2007, compared with the same periods of
2006. Net interest income, on a taxable-equivalent basis,
increased $4 million
(.4 percent) in the third quarter and $17 million
(.6 percent) in the first nine months of 2007, compared
with the same periods of 2006. The year-over-year increases in
net interest income were due to growth in average loans, higher
loan fees and the funding benefit of deposits. Partially
offsetting these increases were reduced spreads on commercial
and retail loans due to competitive pricing within the
Companys markets. The increases in average loan balances
reflected growth in all loan categories, with the largest
increase in retail loans. The growth in retail loans was
principally driven by an increase in installment and home equity
loans, partially offset by a reduction in retail leasing
balances due to customer demand for installment loan products
and pricing competition. The year-over-year decreases in average
deposits reflected a reduction in savings and
noninterest-bearing deposit products, partially offset by growth
in time deposits and interest checking. Average time deposit
balances grew $1.4 billion (7.3 percent) in the third
quarter and $1.6 billion (8.8 percent) in the first
nine months of 2007, compared with the same periods of 2006, as
a portion of noninterest-bearing and money market balances
migrated to fixed-rate time deposit products. Average savings
balances declined $1.2 billion (5.9 percent) in the
third quarter and $1.8 billion (8.4 percent) in the
first nine months of 2007, compared with the same periods of
2006, primarily related to a decrease in money market account
balances. Fee-based noninterest income increased
$25 million (5.5 percent) in the third quarter and
$78 million (6.0 percent) in the first nine months of
2007, compared with the same periods of 2006. The increases were
driven by mortgage banking revenue, principally related to
higher production gains and servicing income, as well as an
increase in deposit service charges.
Total noninterest expense increased $26 million
(4.1 percent) in the third quarter and $85 million
(4.6 percent) in the first nine months of 2007, compared
with the same periods of 2006. The increases were primarily
attributable to higher compensation and employee benefits
expense which reflected the net addition, including the impact
of recent acquisitions, of 31 in-store and 19 traditional
branches at September 30, 2007, compared with
September 30, 2006. Credit-related costs on other real
estate owned were also higher in 2007 compared with 2006.
The provision for credit losses increased $33 million
(56.9 percent) in the third quarter and $61 million
(34.7 percent) in the first nine months of 2007, compared
with the same periods of 2006. The increases were attributable
to higher net charge-offs. As a percentage of average loans
outstanding on an annualized basis, net charge-offs increased to
..48 percent in the third quarter of 2007, compared with
..32 percent in the third quarter of 2006. Commercial and
commercial real estate loan net charge-offs increased
$10 million in the third quarter of 2007, compared with the
third quarter of 2006. Retail loan and residential mortgage net
charge-offs increased $23 million (46.9 percent) in
the third quarter of 2007, compared with the third quarter of
2006. Nonperforming assets were $316 million at
September 30, 2007, $300 million at June 30,
2007, and $305 million at September 30, 2006.
Nonperforming assets as a percentage of period-end loans were
..44 percent at September 30, 2007, .42 percent at
June 30, 2007, and .44 percent at September 30,
2006. Refer to the Corporate Risk Profile section
for further information on factors impacting the credit quality
of the loan portfolios.
Wealth Management & Securities Services
Wealth Management &
Securities Services provides trust, private banking, financial
advisory, investment management, retail brokerage services,
insurance, custody and mutual fund servicing through five
businesses: Wealth Management, Corporate Trust, FAF Advisors,
Institutional Trust & Custody and Fund Services.
Wealth Management & Securities Services contributed
$165 million of the Companys net income in the third
quarter and $489 million in the first nine months of 2007,
or increases of $17 million (11.5 percent) and
$52 million (11.9 percent), respectively, compared
with the same periods of 2006. The growth was primarily
attributable to core account fee growth and improved equity
market conditions relative to a year ago.
Total net revenue increased $29 million (6.0 percent)
in the third quarter and $76 million (5.2 percent) in
the first nine months of 2007, compared with the same periods of
2006. Net interest income, on a taxable-equivalent basis,
decreased $3 million (2.3 percent) in the third
quarter and $15 million (3.9 percent) in the first
nine months of 2007, compared with the same periods of 2006. The
decreases in net interest income were due to the unfavorable
impacts of deposit pricing and tightening credit spreads,
partially offset by earnings from deposit growth. The increases
in total deposits were attributable to growth in
noninterest-bearing deposits, interest checking and time
deposits, principally due to acquired businesses. Noninterest
income increased $32 million (9.0 percent) in the
third quarter and $91 million (8.5 percent) in the
first nine months of 2007, compared with the same periods of
2006, primarily driven by core account fee growth and favorable
equity market conditions.
|
|
|
Table 11 |
|
Line of Business Financial Performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale | |
|
|
Consumer | |
|
|
Banking | |
|
|
Banking | |
|
|
| |
|
|
|
|
Percent | |
|
|
|
|
Percent | |
Three Months Ended September 30 (Dollars in Millions) |
|
2007 | |
|
2006 | |
|
Change | |
|
|
2007 | |
|
2006 | |
|
Change | |
|
|
|
|
Condensed Income Statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (taxable-equivalent basis)
|
|
|
$451 |
|
|
|
$478 |
|
|
|
(5.6 |
)% |
|
|
|
$988 |
|
|
|
$984 |
|
|
|
.4 |
% |
Noninterest income
|
|
|
211 |
|
|
|
220 |
|
|
|
(4.1 |
) |
|
|
|
481 |
|
|
|
456 |
|
|
|
5.5 |
|
Securities gains (losses), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
|
662 |
|
|
|
698 |
|
|
|
(5.2 |
) |
|
|
|
1,469 |
|
|
|
1,440 |
|
|
|
2.0 |
|
Noninterest expense
|
|
|
235 |
|
|
|
223 |
|
|
|
5.4 |
|
|
|
|
651 |
|
|
|
625 |
|
|
|
4.2 |
|
Other intangibles
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
12 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
239 |
|
|
|
227 |
|
|
|
5.3 |
|
|
|
|
663 |
|
|
|
637 |
|
|
|
4.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision and income taxes
|
|
|
423 |
|
|
|
471 |
|
|
|
(10.2 |
) |
|
|
|
806 |
|
|
|
803 |
|
|
|
.4 |
|
Provision for credit losses
|
|
|
6 |
|
|
|
2 |
|
|
|
* |
|
|
|
|
91 |
|
|
|
58 |
|
|
|
56.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
417 |
|
|
|
469 |
|
|
|
(11.1 |
) |
|
|
|
715 |
|
|
|
745 |
|
|
|
(4.0 |
) |
Income taxes and taxable-equivalent adjustment
|
|
|
152 |
|
|
|
171 |
|
|
|
(11.1 |
) |
|
|
|
260 |
|
|
|
271 |
|
|
|
(4.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$265 |
|
|
|
$298 |
|
|
|
(11.1 |
) |
|
|
|
$455 |
|
|
|
$474 |
|
|
|
(4.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
$34,339 |
|
|
|
$33,754 |
|
|
|
1.7 |
% |
|
|
|
$6,473 |
|
|
|
$6,436 |
|
|
|
.6 |
% |
Commercial real estate
|
|
|
16,671 |
|
|
|
17,117 |
|
|
|
(2.6 |
) |
|
|
|
11,047 |
|
|
|
10,810 |
|
|
|
2.2 |
|
Residential mortgages
|
|
|
79 |
|
|
|
57 |
|
|
|
38.6 |
|
|
|
|
21,724 |
|
|
|
20,590 |
|
|
|
5.5 |
|
Retail
|
|
|
69 |
|
|
|
43 |
|
|
|
60.5 |
|
|
|
|
36,025 |
|
|
|
34,182 |
|
|
|
5.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
51,158 |
|
|
|
50,971 |
|
|
|
.4 |
|
|
|
|
75,269 |
|
|
|
72,018 |
|
|
|
4.5 |
|
Goodwill
|
|
|
1,329 |
|
|
|
1,329 |
|
|
|
|
|
|
|
|
2,218 |
|
|
|
2,131 |
|
|
|
4.1 |
|
Other intangible assets
|
|
|
36 |
|
|
|
51 |
|
|
|
(29.4 |
) |
|
|
|
1,694 |
|
|
|
1,490 |
|
|
|
13.7 |
|
Assets
|
|
|
56,053 |
|
|
|
56,339 |
|
|
|
(.5 |
) |
|
|
|
86,390 |
|
|
|
82,133 |
|
|
|
5.2 |
|
Noninterest-bearing deposits
|
|
|
10,116 |
|
|
|
11,298 |
|
|
|
(10.5 |
) |
|
|
|
11,955 |
|
|
|
12,616 |
|
|
|
(5.2 |
) |
Interest checking
|
|
|
5,359 |
|
|
|
3,724 |
|
|
|
43.9 |
|
|
|
|
17,659 |
|
|
|
17,451 |
|
|
|
1.2 |
|
Savings products
|
|
|
5,372 |
|
|
|
5,489 |
|
|
|
(2.1 |
) |
|
|
|
19,330 |
|
|
|
20,550 |
|
|
|
(5.9 |
) |
Time deposits
|
|
|
10,677 |
|
|
|
12,069 |
|
|
|
(11.5 |
) |
|
|
|
20,161 |
|
|
|
18,790 |
|
|
|
7.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
31,524 |
|
|
|
32,580 |
|
|
|
(3.2 |
) |
|
|
|
69,105 |
|
|
|
69,407 |
|
|
|
(.4 |
) |
Shareholders equity
|
|
|
5,704 |
|
|
|
5,740 |
|
|
|
(.6 |
) |
|
|
|
6,430 |
|
|
|
6,534 |
|
|
|
(1.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale | |
|
|
Consumer | |
|
|
Banking | |
| |
Banking | |
|
|
| |
|
|
|
|
Percent | |
|
|
|
|
Percent | |
Nine Months Ended September 30 (Dollars in Millions) |
|
2007 | |
|
2006 | |
|
Change | |
|
|
2007 | |
|
2006 | |
|
Change | |
|
|
|
|
Condensed Income Statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (taxable-equivalent basis)
|
|
|
$1,359 |
|
|
|
$1,441 |
|
|
|
(5.7 |
)% |
|
|
|
$2,916 |
|
|
|
$2,899 |
|
|
|
.6 |
% |
Noninterest income
|
|
|
674 |
|
|
|
668 |
|
|
|
.9 |
|
|
|
|
1,383 |
|
|
|
1,305 |
|
|
|
6.0 |
|
Securities gains (losses), net
|
|
|
|
|
|
|
2 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
|
2,033 |
|
|
|
2,111 |
|
|
|
(3.7 |
) |
|
|
|
4,299 |
|
|
|
4,204 |
|
|
|
2.3 |
|
Noninterest expense
|
|
|
704 |
|
|
|
678 |
|
|
|
3.8 |
|
|
|
|
1,912 |
|
|
|
1,829 |
|
|
|
4.5 |
|
Other intangibles
|
|
|
12 |
|
|
|
12 |
|
|
|
|
|
|
|
|
39 |
|
|
|
37 |
|
|
|
5.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
716 |
|
|
|
690 |
|
|
|
3.8 |
|
|
|
|
1,951 |
|
|
|
1,866 |
|
|
|
4.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision and income taxes
|
|
|
1,317 |
|
|
|
1,421 |
|
|
|
(7.3 |
) |
|
|
|
2,348 |
|
|
|
2,338 |
|
|
|
.4 |
|
Provision for credit losses
|
|
|
32 |
|
|
|
(6 |
) |
|
|
* |
|
|
|
|
237 |
|
|
|
176 |
|
|
|
34.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,285 |
|
|
|
1,427 |
|
|
|
(10.0 |
) |
|
|
|
2,111 |
|
|
|
2,162 |
|
|
|
(2.4 |
) |
Income taxes and taxable-equivalent adjustment
|
|
|
468 |
|
|
|
520 |
|
|
|
(10.0 |
) |
|
|
|
768 |
|
|
|
787 |
|
|
|
(2.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$817 |
|
|
|
$907 |
|
|
|
(9.9 |
) |
|
|
|
$1,343 |
|
|
|
$1,375 |
|
|
|
(2.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
$34,486 |
|
|
|
$33,154 |
|
|
|
4.0 |
% |
|
|
|
$6,441 |
|
|
|
$6,372 |
|
|
|
1.1 |
% |
Commercial real estate
|
|
|
16,725 |
|
|
|
17,237 |
|
|
|
(3.0 |
) |
|
|
|
11,066 |
|
|
|
10,699 |
|
|
|
3.4 |
|
Residential mortgages
|
|
|
70 |
|
|
|
56 |
|
|
|
25.0 |
|
|
|
|
21,357 |
|
|
|
20,477 |
|
|
|
4.3 |
|
Retail
|
|
|
67 |
|
|
|
41 |
|
|
|
63.4 |
|
|
|
|
35,619 |
|
|
|
33,748 |
|
|
|
5.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
51,348 |
|
|
|
50,488 |
|
|
|
1.7 |
|
|
|
|
74,483 |
|
|
|
71,296 |
|
|
|
4.5 |
|
Goodwill
|
|
|
1,329 |
|
|
|
1,329 |
|
|
|
|
|
|
|
|
2,214 |
|
|
|
2,115 |
|
|
|
4.7 |
|
Other intangible assets
|
|
|
40 |
|
|
|
55 |
|
|
|
(27.3 |
) |
|
|
|
1,657 |
|
|
|
1,425 |
|
|
|
16.3 |
|
Assets
|
|
|
56,555 |
|
|
|
56,003 |
|
|
|
1.0 |
|
|
|
|
85,170 |
|
|
|
80,982 |
|
|
|
5.2 |
|
Noninterest-bearing deposits
|
|
|
10,683 |
|
|
|
11,806 |
|
|
|
(9.5 |
) |
|
|
|
12,069 |
|
|
|
12,651 |
|
|
|
(4.6 |
) |
Interest checking
|
|
|
4,896 |
|
|
|
3,332 |
|
|
|
46.9 |
|
|
|
|
17,808 |
|
|
|
17,628 |
|
|
|
1.0 |
|
Savings products
|
|
|
5,389 |
|
|
|
5,458 |
|
|
|
(1.3 |
) |
|
|
|
19,580 |
|
|
|
21,385 |
|
|
|
(8.4 |
) |
Time deposits
|
|
|
10,604 |
|
|
|
12,521 |
|
|
|
(15.3 |
) |
|
|
|
20,052 |
|
|
|
18,434 |
|
|
|
8.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
31,572 |
|
|
|
33,117 |
|
|
|
(4.7 |
) |
|
|
|
69,509 |
|
|
|
70,098 |
|
|
|
(.8 |
) |
Shareholders equity
|
|
|
5,738 |
|
|
|
5,655 |
|
|
|
1.5 |
|
|
|
|
6,402 |
|
|
|
6,417 |
|
|
|
(.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth Management & | |
|
|
Payment | |
|
|
Treasury and | |
|
|
Consolidated | |
|
|
Securities Services | |
|
|
Services | |
|
|
Corporate Support | |
|
|
Company | |
|
|
|
|
|
Percent | |
|
|
|
|
Percent | |
|
|
|
|
Percent | |
|
|
|
|
Percent | |
|
|
2007 | |
|
2006 | |
|
Change | |
|
|
2007 | |
|
2006 | |
|
Change | |
|
|
2007 | |
|
2006 | |
|
Change | |
|
|
2007 | |
|
2006 | |
|
Change | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$125 |
|
|
|
$128 |
|
|
|
(2.3 |
)% |
|
|
|
$185 |
|
|
|
$164 |
|
|
|
12.8 |
% |
|
|
|
$(64 |
) |
|
|
$(81 |
) |
|
|
21.0 |
% |
|
|
|
$1,685 |
|
|
|
$1,673 |
|
|
|
.7 |
% |
|
|
|
386 |
|
|
|
354 |
|
|
|
9.0 |
|
|
|
|
748 |
|
|
|
673 |
|
|
|
11.1 |
|
|
|
|
11 |
|
|
|
45 |
|
|
|
(75.6 |
) |
|
|
|
1,837 |
|
|
|
1,748 |
|
|
|
5.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
* |
|
|
|
|
7 |
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
511 |
|
|
|
482 |
|
|
|
6.0 |
|
|
|
|
933 |
|
|
|
837 |
|
|
|
11.5 |
|
|
|
|
(46 |
) |
|
|
(36 |
) |
|
|
(27.8 |
) |
|
|
|
3,529 |
|
|
|
3,421 |
|
|
|
3.2 |
|
|
|
|
227 |
|
|
|
230 |
|
|
|
(1.3 |
) |
|
|
|
344 |
|
|
|
312 |
|
|
|
10.3 |
|
|
|
|
77 |
|
|
|
59 |
|
|
|
30.5 |
|
|
|
|
1,534 |
|
|
|
1,449 |
|
|
|
5.9 |
|
|
|
|
23 |
|
|
|
20 |
|
|
|
15.0 |
|
|
|
|
55 |
|
|
|
53 |
|
|
|
3.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94 |
|
|
|
89 |
|
|
|
5.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250 |
|
|
|
250 |
|
|
|
|
|
|
|
|
399 |
|
|
|
365 |
|
|
|
9.3 |
|
|
|
|
77 |
|
|
|
59 |
|
|
|
30.5 |
|
|
|
|
1,628 |
|
|
|
1,538 |
|
|
|
5.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
261 |
|
|
|
232 |
|
|
|
12.5 |
|
|
|
|
534 |
|
|
|
472 |
|
|
|
13.1 |
|
|
|
|
(123 |
) |
|
|
(95 |
) |
|
|
(29.5 |
) |
|
|
|
1,901 |
|
|
|
1,883 |
|
|
|
1.0 |
|
|
|
|
1 |
|
|
|
|
|
|
|
* |
|
|
|
|
100 |
|
|
|
74 |
|
|
|
35.1 |
|
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
199 |
|
|
|
135 |
|
|
|
47.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
260 |
|
|
|
232 |
|
|
|
12.1 |
|
|
|
|
434 |
|
|
|
398 |
|
|
|
9.0 |
|
|
|
|
(124 |
) |
|
|
(96 |
) |
|
|
(29.2 |
) |
|
|
|
1,702 |
|
|
|
1,748 |
|
|
|
(2.6 |
) |
|
|
|
95 |
|
|
|
84 |
|
|
|
13.1 |
|
|
|
|
158 |
|
|
|
145 |
|
|
|
9.0 |
|
|
|
|
(139 |
) |
|
|
(126 |
) |
|
|
(10.3 |
) |
|
|
|
526 |
|
|
|
545 |
|
|
|
(3.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$165 |
|
|
|
$148 |
|
|
|
11.5 |
|
|
|
|
$276 |
|
|
|
$253 |
|
|
|
9.1 |
|
|
|
|
$15 |
|
|
|
$30 |
|
|
|
(50.0 |
) |
|
|
|
$1,176 |
|
|
|
$1,203 |
|
|
|
(2.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$2,094 |
|
|
|
$1,868 |
|
|
|
12.1 |
% |
|
|
|
$4,341 |
|
|
|
$3,880 |
|
|
|
11.9 |
% |
|
|
|
$143 |
|
|
|
$130 |
|
|
|
10.0 |
% |
|
|
|
$47,390 |
|
|
|
$46,068 |
|
|
|
2.9 |
% |
|
|
|
680 |
|
|
|
711 |
|
|
|
(4.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64 |
|
|
|
63 |
|
|
|
1.6 |
|
|
|
|
28,462 |
|
|
|
28,701 |
|
|
|
(.8 |
) |
|
|
|
452 |
|
|
|
466 |
|
|
|
(3.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
5 |
|
|
|
(40.0 |
) |
|
|
|
22,258 |
|
|
|
21,118 |
|
|
|
5.4 |
|
|
|
|
2,350 |
|
|
|
2,410 |
|
|
|
(2.5 |
) |
|
|
|
10,924 |
|
|
|
8,927 |
|
|
|
22.4 |
|
|
|
|
39 |
|
|
|
42 |
|
|
|
(7.1 |
) |
|
|
|
49,407 |
|
|
|
45,604 |
|
|
|
8.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,576 |
|
|
|
5,455 |
|
|
|
2.2 |
|
|
|
|
15,265 |
|
|
|
12,807 |
|
|
|
19.2 |
|
|
|
|
249 |
|
|
|
240 |
|
|
|
3.8 |
|
|
|
|
147,517 |
|
|
|
141,491 |
|
|
|
4.3 |
|
|
|
|
1,553 |
|
|
|
1,379 |
|
|
|
12.6 |
|
|
|
|
2,497 |
|
|
|
2,477 |
|
|
|
.8 |
|
|
|
|
|
|
|
|
1 |
|
|
|
* |
|
|
|
|
7,597 |
|
|
|
7,317 |
|
|
|
3.8 |
|
|
|
|
402 |
|
|
|
452 |
|
|
|
(11.1 |
) |
|
|
|
1,087 |
|
|
|
1,157 |
|
|
|
(6.1 |
) |
|
|
|
(1 |
) |
|
|
|
|
|
|
* |
|
|
|
|
3,218 |
|
|
|
3,150 |
|
|
|
2.2 |
|
|
|
|
8,095 |
|
|
|
7,853 |
|
|
|
3.1 |
|
|
|
|
21,227 |
|
|
|
17,855 |
|
|
|
18.9 |
|
|
|
|
51,740 |
|
|
|
49,909 |
|
|
|
3.7 |
|
|
|
|
223,505 |
|
|
|
214,089 |
|
|
|
4.4 |
|
|
|
|
4,353 |
|
|
|
4,028 |
|
|
|
8.1 |
|
|
|
|
381 |
|
|
|
339 |
|
|
|
12.4 |
|
|
|
|
142 |
|
|
|
(61 |
) |
|
|
* |
|
|
|
|
26,947 |
|
|
|
28,220 |
|
|
|
(4.5 |
) |
|
|
|
3,018 |
|
|
|
2,412 |
|
|
|
25.1 |
|
|
|
|
13 |
|
|
|
5 |
|
|
|
* |
|
|
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
|
|
26,052 |
|
|
|
23,595 |
|
|
|
10.4 |
|
|
|
|
5,531 |
|
|
|
5,628 |
|
|
|
(1.7 |
) |
|
|
|
21 |
|
|
|
20 |
|
|
|
5.0 |
|
|
|
|
47 |
|
|
|
27 |
|
|
|
74.1 |
|
|
|
|
30,301 |
|
|
|
31,714 |
|
|
|
(4.5 |
) |
|
|
|
3,492 |
|
|
|
3,243 |
|
|
|
7.7 |
|
|
|
|
5 |
|
|
|
3 |
|
|
|
66.7 |
|
|
|
|
1,510 |
|
|
|
2,341 |
|
|
|
(35.5 |
) |
|
|
|
35,845 |
|
|
|
36,446 |
|
|
|
(1.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,394 |
|
|
|
15,311 |
|
|
|
7.1 |
|
|
|
|
420 |
|
|
|
367 |
|
|
|
14.4 |
|
|
|
|
1,702 |
|
|
|
2,310 |
|
|
|
(26.3 |
) |
|
|
|
119,145 |
|
|
|
119,975 |
|
|
|
(.7 |
) |
|
|
|
2,460 |
|
|
|
2,340 |
|
|
|
5.1 |
|
|
|
|
4,911 |
|
|
|
4,799 |
|
|
|
2.3 |
|
|
|
|
1,236 |
|
|
|
1,504 |
|
|
|
(17.8 |
) |
|
|
|
20,741 |
|
|
|
20,917 |
|
|
|
(.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth Management & | |
|
|
Payment | |
|
|
Treasury and | |
|
|
Consolidated | |
|
|
Securities Services | |
|
|
Services | |
|
|
Corporate Support | |
|
|
Company | |
|
|
|
|
|
Percent | |
|
|
|
|
Percent | |
|
|
|
|
Percent | |
|
|
|
|
Percent | |
|
|
2007 | |
|
2006 | |
|
Change | |
|
|
2007 | |
|
2006 | |
|
Change | |
|
|
2007 | |
|
2006 | |
|
Change | |
|
|
2007 | |
|
2006 | |
|
Change | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$366 |
|
|
|
$381 |
|
|
|
(3.9 |
)% |
|
|
|
$520 |
|
|
|
$483 |
|
|
|
7.7 |
% |
|
|
|
$(160 |
) |
|
|
$(109 |
) |
|
|
(46.8 |
)% |
|
|
|
$5,001 |
|
|
|
$5,095 |
|
|
|
(1.8 |
)% |
|
|
|
1,164 |
|
|
|
1,073 |
|
|
|
8.5 |
|
|
|
|
2,140 |
|
|
|
1,917 |
|
|
|
11.6 |
|
|
|
|
23 |
|
|
|
151 |
|
|
|
(84.8 |
) |
|
|
|
5,384 |
|
|
|
5,114 |
|
|
|
5.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11 |
|
|
|
1 |
|
|
|
* |
|
|
|
|
11 |
|
|
|
3 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,530 |
|
|
|
1,454 |
|
|
|
5.2 |
|
|
|
|
2,660 |
|
|
|
2,400 |
|
|
|
10.8 |
|
|
|
|
(126 |
) |
|
|
43 |
|
|
|
* |
|
|
|
|
10,396 |
|
|
|
10,212 |
|
|
|
1.8 |
|
|
|
|
691 |
|
|
|
702 |
|
|
|
(1.6 |
) |
|
|
|
1,004 |
|
|
|
904 |
|
|
|
11.1 |
|
|
|
|
219 |
|
|
|
192 |
|
|
|
14.1 |
|
|
|
|
4,530 |
|
|
|
4,305 |
|
|
|
5.2 |
|
|
|
|
69 |
|
|
|
64 |
|
|
|
7.8 |
|
|
|
|
163 |
|
|
|
150 |
|
|
|
8.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
283 |
|
|
|
263 |
|
|
|
7.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
760 |
|
|
|
766 |
|
|
|
(.8 |
) |
|
|
|
1,167 |
|
|
|
1,054 |
|
|
|
10.7 |
|
|
|
|
219 |
|
|
|
192 |
|
|
|
14.1 |
|
|
|
|
4,813 |
|
|
|
4,568 |
|
|
|
5.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
770 |
|
|
|
688 |
|
|
|
11.9 |
|
|
|
|
1,493 |
|
|
|
1,346 |
|
|
|
10.9 |
|
|
|
|
(345 |
) |
|
|
(149 |
) |
|
|
* |
|
|
|
|
5,583 |
|
|
|
5,644 |
|
|
|
(1.1 |
) |
|
|
|
1 |
|
|
|
2 |
|
|
|
(50.0 |
) |
|
|
|
294 |
|
|
|
199 |
|
|
|
47.7 |
|
|
|
|
3 |
|
|
|
4 |
|
|
|
(25.0 |
) |
|
|
|
567 |
|
|
|
375 |
|
|
|
51.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
769 |
|
|
|
686 |
|
|
|
12.1 |
|
|
|
|
1,199 |
|
|
|
1,147 |
|
|
|
4.5 |
|
|
|
|
(348 |
) |
|
|
(153 |
) |
|
|
* |
|
|
|
|
5,016 |
|
|
|
5,269 |
|
|
|
(4.8 |
) |
|
|
|
280 |
|
|
|
249 |
|
|
|
12.4 |
|
|
|
|
437 |
|
|
|
417 |
|
|
|
4.8 |
|
|
|
|
(399 |
) |
|
|
(261 |
) |
|
|
(52.9 |
) |
|
|
|
1,554 |
|
|
|
1,712 |
|
|
|
(9.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$489 |
|
|
|
$437 |
|
|
|
11.9 |
|
|
|
|
$762 |
|
|
|
$730 |
|
|
|
4.4 |
|
|
|
|
$51 |
|
|
|
$108 |
|
|
|
(52.8 |
) |
|
|
|
$3,462 |
|
|
|
$3,557 |
|
|
|
(2.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$2,018 |
|
|
|
$1,644 |
|
|
|
22.7 |
% |
|
|
|
$4,114 |
|
|
|
$3,726 |
|
|
|
10.4 |
% |
|
|
|
$141 |
|
|
|
$133 |
|
|
|
6.0 |
% |
|
|
|
$47,200 |
|
|
|
$45,029 |
|
|
|
4.8 |
% |
|
|
|
681 |
|
|
|
704 |
|
|
|
(3.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64 |
|
|
|
64 |
|
|
|
|
|
|
|
|
28,536 |
|
|
|
28,704 |
|
|
|
(.6 |
) |
|
|
|
457 |
|
|
|
455 |
|
|
|
.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
21,888 |
|
|
|
20,992 |
|
|
|
4.3 |
|
|
|
|
2,343 |
|
|
|
2,414 |
|
|
|
(2.9 |
) |
|
|
|
10,272 |
|
|
|
8,589 |
|
|
|
19.6 |
|
|
|
|
40 |
|
|
|
44 |
|
|
|
(9.1 |
) |
|
|
|
48,341 |
|
|
|
44,836 |
|
|
|
7.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,499 |
|
|
|
5,217 |
|
|
|
5.4 |
|
|
|
|
14,386 |
|
|
|
12,315 |
|
|
|
16.8 |
|
|
|
|
249 |
|
|
|
245 |
|
|
|
1.6 |
|
|
|
|
145,965 |
|
|
|
139,561 |
|
|
|
4.6 |
|
|
|
|
1,552 |
|
|
|
1,377 |
|
|
|
12.7 |
|
|
|
|
2,481 |
|
|
|
2,410 |
|
|
|
2.9 |
|
|
|
|
9 |
|
|
|
1 |
|
|
|
* |
|
|
|
|
7,585 |
|
|
|
7,232 |
|
|
|
4.9 |
|
|
|
|
426 |
|
|
|
474 |
|
|
|
(10.1 |
) |
|
|
|
1,099 |
|
|
|
1,125 |
|
|
|
(2.3 |
) |
|
|
|
14 |
|
|
|
|
|
|
|
* |
|
|
|
|
3,236 |
|
|
|
3,079 |
|
|
|
5.1 |
|
|
|
|
8,053 |
|
|
|
7,635 |
|
|
|
5.5 |
|
|
|
|
19,954 |
|
|
|
17,214 |
|
|
|
15.9 |
|
|
|
|
51,962 |
|
|
|
50,354 |
|
|
|
3.2 |
|
|
|
|
221,694 |
|
|
|
212,188 |
|
|
|
4.5 |
|
|
|
|
4,298 |
|
|
|
3,786 |
|
|
|
13.5 |
|
|
|
|
401 |
|
|
|
312 |
|
|
|
28.5 |
|
|
|
|
80 |
|
|
|
111 |
|
|
|
(27.9 |
) |
|
|
|
27,531 |
|
|
|
28,666 |
|
|
|
(4.0 |
) |
|
|
|
2,948 |
|
|
|
2,391 |
|
|
|
23.3 |
|
|
|
|
11 |
|
|
|
4 |
|
|
|
* |
|
|
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
|
|
25,666 |
|
|
|
23,358 |
|
|
|
9.9 |
|
|
|
|
5,439 |
|
|
|
5,596 |
|
|
|
(2.8 |
) |
|
|
|
21 |
|
|
|
19 |
|
|
|
10.5 |
|
|
|
|
54 |
|
|
|
31 |
|
|
|
74.2 |
|
|
|
|
30,483 |
|
|
|
32,489 |
|
|
|
(6.2 |
) |
|
|
|
3,686 |
|
|
|
2,716 |
|
|
|
35.7 |
|
|
|
|
4 |
|
|
|
3 |
|
|
|
33.3 |
|
|
|
|
1,584 |
|
|
|
2,269 |
|
|
|
(30.2 |
) |
|
|
|
35,930 |
|
|
|
35,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,371 |
|
|
|
14,489 |
|
|
|
13.0 |
|
|
|
|
437 |
|
|
|
338 |
|
|
|
29.3 |
|
|
|
|
1,721 |
|
|
|
2,414 |
|
|
|
(28.7 |
) |
|
|
|
119,610 |
|
|
|
120,456 |
|
|
|
(.7 |
) |
|
|
|
2,477 |
|
|
|
2,340 |
|
|
|
5.9 |
|
|
|
|
4,833 |
|
|
|
4,637 |
|
|
|
4.2 |
|
|
|
|
1,497 |
|
|
|
1,494 |
|
|
|
.2 |
|
|
|
|
20,947 |
|
|
|
20,543 |
|
|
|
2.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense was unchanged in the third quarter and
decreased $6 million (.8 percent) in the first nine
months of 2007, compared with the same periods of 2006. The
decrease was primarily due to the completion of certain
acquisition integration activities.
Payment Services Payment
Services includes consumer and business credit cards,
stored-value cards, debit cards, corporate and purchasing card
services, consumer lines of credit, ATM processing and merchant
processing. Payment services are highly
inter-related with
banking products and services of the other lines of business and
rely on access to the settlement network, lower cost funding
available to the Company,
cross-selling
opportunities and operating efficiencies. Payment Services
contributed $276 million of the Companys net income
in the third quarter and $762 million in the first nine
months of 2007, or increases of $23 million
(9.1 percent) and $32 million (4.4 percent),
respectively, compared with the same periods of 2006. The
increases were due to growth in total net revenue driven by loan
growth and higher transaction volumes, partially offset by an
increase in total noninterest expense and a higher provision for
credit losses.
Total net revenue increased $96 million (11.5 percent)
in the third quarter and $260 million (10.8 percent)
in the first nine months of 2007, compared with the same periods
of 2006. Net interest income, on a taxable-equivalent basis,
increased $21 million (12.8 percent) in the third
quarter and $37 million (7.7 percent) in the first
nine months of 2007, compared with the same periods of 2006. The
increases were primarily due to growth in higher yielding retail
credit card loan balances, partially offset by the margin impact
of recent acquisitions and growth in corporate payment card
balances. Noninterest income increased $75 million
(11.1 percent) in the third quarter and $223 million
(11.6 percent) in the first nine months of 2007, compared
with the same periods of 2006. The increases in fee-based
revenue were driven by account growth, higher transaction
volumes and business expansion initiatives. The increase in
noninterest income for the first nine months of 2007, compared
with the same period of the prior year, was partially offset by
a merchant processing settlement recorded in the first quarter
of 2006.
Total noninterest expense increased $34 million
(9.3 percent) in the third quarter and $113 million
(10.7 percent) in the first nine months of 2007, compared
with the same periods of 2006. The increases were primarily
attributable to new business initiatives, including costs
associated with marketing programs, transaction processing and
acquisitions.
The provision for credit losses increased $26 million
(35.1 percent) in the third quarter and $95 million
(47.7 percent) in the first nine months of 2007, compared
with the same periods of 2006, due to higher net charge-offs,
which reflected portfolio growth and a higher level of losses
due to changes in bankruptcy legislation that went into effect
in the fourth quarter of 2005. As a percentage of average loans
outstanding on an annualized basis, net charge-offs were
2.60 percent in the third quarter of 2007, compared with
2.29 percent in the third quarter of 2006.
Treasury and Corporate Support
Treasury and Corporate
Support includes the Companys investment portfolios,
funding, capital management and asset securitization activities,
interest rate risk management, the net effect of transfer
pricing related to average balances and the residual aggregate
of those expenses associated with corporate activities that are
managed on a consolidated basis. Treasury and Corporate Support
contributed $15 million of the Companys net income in
the third quarter and $51 million in the first nine months
of 2007, compared with net income of $30 million and
$108 million in the same periods of 2006, respectively.
Total net revenue decreased $10 million in the third
quarter and $169 million in the first nine months of 2007,
compared with the same periods of 2006. The decline in total net
revenue in the third quarter of 2007 compared to the same period
of 2006 was due primarily to lower noninterest income. The
decline in total net revenue in the first nine months of 2007
compared to the same period of 2006 was due to unfavorable
variances in both net interest income and noninterest income.
The decline in net interest income reflected the impact of
issuing higher cost wholesale funding to support earning asset
growth. Noninterest income decreased $27 million
(60.0 percent) in the third quarter and $118 million
(77.6 percent) in the first nine months of 2007, compared
with the same periods of 2006. The decreases were primarily due
to a gain recognized in the third quarter of 2006 related to the
sale of equity interests in a cardholder association. In
addition, the decrease for the first nine months of 2007,
compared with the same period of the prior year, was also due to
a gain recognized in the second quarter of 2006 related to the
initial public offering of a cardholder association and trading
gains realized in the first quarter of 2006 related to
terminating certain interest rate derivatives.
Total noninterest expense increased $18 million
(30.5 percent) in the third quarter and $27 million
(14.1 percent) in the first nine months of 2007, compared
with the same periods of 2006. The increases
were primarily driven by higher costs related to investments in
affordable housing and other tax-advantaged projects.
The provision for credit losses for this business unit
represents the residual aggregate of the net credit losses
allocated to the reportable business units and the
Companys recorded provision determined in accordance with
accounting principles generally accepted in the United States.
Refer to the Corporate Risk Profile section for
further information on the provision for credit losses,
nonperforming assets and factors considered by the Company in
assessing the credit quality of the loan portfolio and
establishing the allowance for credit losses.
Income taxes are assessed to each line of business at a
managerial tax rate of 36.4 percent with the residual tax
expense or benefit to arrive at the consolidated effective tax
rate included in Treasury and Corporate Support. The
consolidated effective tax rate of the Company was
30.2 percent in the third quarter and first nine months of
2007, compared with 30.7 percent and 32.1 percent in
the same periods of 2006, respectively. The decreases in the
effective tax rate primarily reflected higher tax exempt income
from municipal securities, incremental tax credits generated
from investments in affordable housing and similar
tax-advantaged projects, and expansion of a bank-owned life
insurance program.
CRITICAL ACCOUNTING POLICIES
The accounting and reporting policies of the Company comply with
accounting principles generally accepted in the United States
and conform to general practices within the banking industry.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions. The financial position and
results of operations can be affected by these estimates and
assumptions, which are integral to understanding the
Companys financial statements. Critical accounting
policies are those policies that management believes are the
most important to the portrayal of the Companys financial
condition and results, and require management to make estimates
that are difficult, subjective or complex. Most accounting
policies are not considered by management to be critical
accounting policies. Those policies considered to be critical
accounting policies relate to the allowance for credit losses,
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, 2006.
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, | |
|
December 31, | |
(Dollars in Millions) |
|
2007 | |
|
2006 | |
| |
|
|
(Unaudited) | |
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
$6,636 |
|
|
|
$8,639 |
|
Investment securities
|
|
|
|
|
|
|
|
|
|
Held-to-maturity (fair value $82 and $92, respectively)
|
|
|
78 |
|
|
|
87 |
|
|
Available-for-sale
|
|
|
40,293 |
|
|
|
40,030 |
|
Loans held for sale
|
|
|
4,601 |
|
|
|
3,256 |
|
Loans
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
48,012 |
|
|
|
46,190 |
|
|
Commercial real estate
|
|
|
28,517 |
|
|
|
28,645 |
|
|
Residential mortgages
|
|
|
22,563 |
|
|
|
21,285 |
|
|
Retail
|
|
|
49,947 |
|
|
|
47,477 |
|
|
|
|
|
|
Total loans
|
|
|
149,039 |
|
|
|
143,597 |
|
|
|
|
Less allowance for loan losses
|
|
|
(2,041 |
) |
|
|
(2,022 |
) |
|
|
|
|
|
|
Net loans
|
|
|
146,998 |
|
|
|
141,575 |
|
Premises and equipment
|
|
|
1,779 |
|
|
|
1,835 |
|
Goodwill
|
|
|
7,604 |
|
|
|
7,538 |
|
Other intangible assets
|
|
|
3,150 |
|
|
|
3,227 |
|
Other assets
|
|
|
16,489 |
|
|
|
13,045 |
|
|
|
|
|
|
Total assets
|
|
|
$227,628 |
|
|
|
$219,232 |
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
|
|
|
$28,272 |
|
|
|
$32,128 |
|
|
Interest-bearing
|
|
|
70,916 |
|
|
|
70,330 |
|
|
Time deposits greater than $100,000
|
|
|
23,560 |
|
|
|
22,424 |
|
|
|
|
|
|
Total deposits
|
|
|
122,748 |
|
|
|
124,882 |
|
Short-term borrowings
|
|
|
28,868 |
|
|
|
26,933 |
|
Long-term debt
|
|
|
45,241 |
|
|
|
37,602 |
|
Other liabilities
|
|
|
10,005 |
|
|
|
8,618 |
|
|
|
|
|
|
Total liabilities
|
|
|
206,862 |
|
|
|
198,035 |
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
Preferred stock, par value $1.00 a share (liquidation preference
of $25,000 per share) authorized: 50,000,000 shares;
issued and outstanding: 40,000 shares
|
|
|
1,000 |
|
|
|
1,000 |
|
|
Common stock, par value $0.01 a share authorized:
4,000,000,000 shares; issued: 9/30/07 and
12/31/06 1,972,643,007 shares
|
|
|
20 |
|
|
|
20 |
|
|
Capital surplus
|
|
|
5,748 |
|
|
|
5,762 |
|
|
Retained earnings
|
|
|
22,580 |
|
|
|
21,242 |
|
|
Less cost of common stock in treasury: 9/30/07
247,231,503 shares; 12/31/06
207,928,756 shares
|
|
|
(7,554 |
) |
|
|
(6,091 |
) |
|
Other comprehensive income
|
|
|
(1,028 |
) |
|
|
(736 |
) |
|
|
|
|
|
Total shareholders equity
|
|
|
20,766 |
|
|
|
21,197 |
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
|
$227,628 |
|
|
|
$219,232 |
|
|
See Notes to Consolidated Financial Statements.
U.S. Bancorp
Consolidated Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
Nine Months Ended | |
|
|
September 30, | |
|
|
September 30, | |
(Dollars and Shares in Millions, Except Per Share Data) |
|
| |
(Unaudited) | |
|
2007 | |
|
2006 | |
|
|
2007 | |
|
2006 | |
|
|
|
|
Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
$2,703 |
|
|
|
$2,545 |
|
|
|
|
$7,897 |
|
|
|
$7,277 |
|
Loans held for sale
|
|
|
76 |
|
|
|
64 |
|
|
|
|
205 |
|
|
|
172 |
|
Investment securities
|
|
|
522 |
|
|
|
500 |
|
|
|
|
1,554 |
|
|
|
1,490 |
|
Other interest income
|
|
|
33 |
|
|
|
40 |
|
|
|
|
101 |
|
|
|
119 |
|
|
|
|
|
|
|
|
Total interest income
|
|
|
3,334 |
|
|
|
3,149 |
|
|
|
|
9,757 |
|
|
|
9,058 |
|
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
694 |
|
|
|
640 |
|
|
|
|
2,032 |
|
|
|
1,721 |
|
Short-term borrowings
|
|
|
374 |
|
|
|
321 |
|
|
|
|
1,081 |
|
|
|
861 |
|
Long-term debt
|
|
|
599 |
|
|
|
528 |
|
|
|
|
1,696 |
|
|
|
1,415 |
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
1,667 |
|
|
|
1,489 |
|
|
|
|
4,809 |
|
|
|
3,997 |
|
|
|
|
|
|
|
Net interest income
|
|
|
1,667 |
|
|
|
1,660 |
|
|
|
|
4,948 |
|
|
|
5,061 |
|
Provision for credit losses
|
|
|
199 |
|
|
|
135 |
|
|
|
|
567 |
|
|
|
375 |
|
|
|
|
|
|
|
Net interest income after provision for credit losses
|
|
|
1,468 |
|
|
|
1,525 |
|
|
|
|
4,381 |
|
|
|
4,686 |
|
Noninterest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit and debit card revenue
|
|
|
235 |
|
|
|
206 |
|
|
|
|
668 |
|
|
|
590 |
|
Corporate payment products revenue
|
|
|
164 |
|
|
|
150 |
|
|
|
|
466 |
|
|
|
416 |
|
ATM processing services
|
|
|
62 |
|
|
|
63 |
|
|
|
|
183 |
|
|
|
183 |
|
Merchant processing services
|
|
|
287 |
|
|
|
253 |
|
|
|
|
822 |
|
|
|
719 |
|
Trust and investment management fees
|
|
|
331 |
|
|
|
305 |
|
|
|
|
995 |
|
|
|
916 |
|
Deposit service charges
|
|
|
271 |
|
|
|
268 |
|
|
|
|
786 |
|
|
|
764 |
|
Treasury management fees
|
|
|
118 |
|
|
|
111 |
|
|
|
|
355 |
|
|
|
334 |
|
Commercial products revenue
|
|
|
107 |
|
|
|
100 |
|
|
|
|
312 |
|
|
|
311 |
|
Mortgage banking revenue
|
|
|
76 |
|
|
|
68 |
|
|
|
|
211 |
|
|
|
167 |
|
Investment products fees and commissions
|
|
|
36 |
|
|
|
34 |
|
|
|
|
108 |
|
|
|
114 |
|
Securities gains (losses), net
|
|
|
7 |
|
|
|
|
|
|
|
|
11 |
|
|
|
3 |
|
Other
|
|
|
150 |
|
|
|
190 |
|
|
|
|
478 |
|
|
|
600 |
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
1,844 |
|
|
|
1,748 |
|
|
|
|
5,395 |
|
|
|
5,117 |
|
Noninterest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
656 |
|
|
|
632 |
|
|
|
|
1,950 |
|
|
|
1,892 |
|
Employee benefits
|
|
|
119 |
|
|
|
123 |
|
|
|
|
375 |
|
|
|
379 |
|
Net occupancy and equipment
|
|
|
175 |
|
|
|
168 |
|
|
|
|
511 |
|
|
|
494 |
|
Professional services
|
|
|
56 |
|
|
|
54 |
|
|
|
|
162 |
|
|
|
130 |
|
Marketing and business development
|
|
|
66 |
|
|
|
58 |
|
|
|
|
178 |
|
|
|
156 |
|
Technology and communications
|
|
|
127 |
|
|
|
128 |
|
|
|
|
378 |
|
|
|
372 |
|
Postage, printing and supplies
|
|
|
70 |
|
|
|
66 |
|
|
|
|
210 |
|
|
|
198 |
|
Other intangibles
|
|
|
94 |
|
|
|
89 |
|
|
|
|
283 |
|
|
|
263 |
|
Debt prepayment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11 |
|
Other
|
|
|
265 |
|
|
|
220 |
|
|
|
|
766 |
|
|
|
673 |
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
1,628 |
|
|
|
1,538 |
|
|
|
|
4,813 |
|
|
|
4,568 |
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,684 |
|
|
|
1,735 |
|
|
|
|
4,963 |
|
|
|
5,235 |
|
Applicable income taxes
|
|
|
508 |
|
|
|
532 |
|
|
|
|
1,501 |
|
|
|
1,678 |
|
|
|
|
|
|
|
Net income
|
|
|
$1,176 |
|
|
|
$1,203 |
|
|
|
|
$3,462 |
|
|
|
$3,557 |
|
|
|
|
|
|
|
Net income applicable to common equity
|
|
|
$1,161 |
|
|
|
$1,187 |
|
|
|
|
$3,417 |
|
|
|
$3,524 |
|
|
|
|
|
|
|
Earnings per common share
|
|
|
$.67 |
|
|
|
$.67 |
|
|
|
|
$1.97 |
|
|
|
$1.98 |
|
Diluted earnings per common share
|
|
|
$.67 |
|
|
|
$.66 |
|
|
|
|
$1.94 |
|
|
|
$1.95 |
|
Dividends declared per common share
|
|
|
$.40 |
|
|
|
$.33 |
|
|
|
|
$1.20 |
|
|
|
$.99 |
|
Average common shares outstanding
|
|
|
1,725 |
|
|
|
1,771 |
|
|
|
|
1,737 |
|
|
|
1,784 |
|
Average diluted common shares outstanding
|
|
|
1,745 |
|
|
|
1,796 |
|
|
|
|
1,762 |
|
|
|
1,809 |
|
|
|
|
|
See Notes to Consolidated Financial Statements.
U.S. Bancorp
Consolidated Statement of Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other | |
|
Total | |
(Dollars and Shares in Millions) |
|
Common Shares | |
|
Preferred | |
|
Common | |
|
Capital | |
|
Retained | |
|
Treasury | |
|
Comprehensive | |
|
Shareholders | |
(Unaudited) |
|
Outstanding | |
|
Stock | |
|
Stock | |
|
Surplus | |
|
Earnings | |
|
Stock | |
|
Income | |
|
Equity | |
| |
Balance December 31, 2005
|
|
|
1,815 |
|
|
|
$ |
|
|
|
$20 |
|
|
|
$5,907 |
|
|
|
$19,001 |
|
|
|
$(4,413 |
) |
|
|
$(429 |
) |
|
|
$20,086 |
|
Change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,557 |
|
|
|
|
|
|
|
|
|
|
|
3,557 |
|
Unrealized loss on securities available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52 |
) |
|
|
(52 |
) |
Unrealized gain on derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39 |
|
|
|
39 |
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
5 |
|
Realized loss on derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(199 |
) |
|
|
(199 |
) |
Reclassification for realized losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28 |
|
|
|
28 |
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67 |
|
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,445 |
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33 |
) |
|
|
|
|
|
|
|
|
|
|
(33 |
) |
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,759 |
) |
|
|
|
|
|
|
|
|
|
|
(1,759 |
) |
Issuance of common and treasury stock
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
(95 |
) |
|
|
|
|
|
|
812 |
|
|
|
|
|
|
|
717 |
|
Purchase of treasury stock
|
|
|
(80 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,488 |
) |
|
|
|
|
|
|
(2,488 |
) |
Stock option and restricted stock grants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
Shares reserved to meet deferred compensation obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
(3 |
) |
Issuance of preferred stock
|
|
|
|
|
|
|
1,000 |
|
|
|
|
|
|
|
(52 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
948 |
|
|
|
|
Balance September 30, 2006
|
|
|
1,763 |
|
|
|
$1,000 |
|
|
|
$20 |
|
|
|
$5,770 |
|
|
|
$20,770 |
|
|
|
$(6,093 |
) |
|
|
$(541 |
) |
|
|
$20,926 |
|
|
Balance December 31, 2006
|
|
|
1,765 |
|
|
|
$1,000 |
|
|
|
$20 |
|
|
|
$5,762 |
|
|
|
$21,242 |
|
|
|
$(6,091 |
) |
|
|
$(736 |
) |
|
|
$21,197 |
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,462 |
|
|
|
|
|
|
|
|
|
|
|
3,462 |
|
Unrealized loss on securities available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(482 |
) |
|
|
(482 |
) |
Unrealized loss on derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(73 |
) |
|
|
(73 |
) |
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11 |
|
|
|
11 |
|
Reclassification for realized losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72 |
|
|
|
72 |
|
Change in retirement obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
179 |
|
|
|
179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,170 |
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
(45 |
) |
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,079 |
) |
|
|
|
|
|
|
|
|
|
|
(2,079 |
) |
Issuance of common and treasury stock
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
(34 |
) |
|
|
|
|
|
|
544 |
|
|
|
|
|
|
|
510 |
|
Purchase of treasury stock
|
|
|
(58 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,003 |
) |
|
|
|
|
|
|
(2,003 |
) |
Stock option and restricted stock grants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 |
|
Shares reserved to meet deferred compensation obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
(4 |
) |
|
|
|
Balance September 30, 2007
|
|
|
1,725 |
|
|
|
$1,000 |
|
|
|
$20 |
|
|
|
$5,748 |
|
|
|
$22,580 |
|
|
|
$(7,554 |
) |
|
|
$(1,028 |
) |
|
|
$20,766 |
|
|
See Notes to Consolidated Financial Statements.
U.S. Bancorp
Consolidated Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
September 30, | |
|
|
| |
(Dollars in Millions) |
|
|
|
|
(Unaudited) |
|
2007 | |
|
2006 | |
| |
Operating Activities
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
$2,018 |
|
|
|
$4,716 |
|
Investing Activities
|
|
|
|
|
|
|
|
|
Proceeds from sales of available-for-sale investment securities
|
|
|
1,269 |
|
|
|
1,132 |
|
Proceeds from maturities of investment securities
|
|
|
3,419 |
|
|
|
3,174 |
|
Purchases of investment securities
|
|
|
(5,389 |
) |
|
|
(5,094 |
) |
Net increase in loans outstanding
|
|
|
(3,661 |
) |
|
|
(4,721 |
) |
Proceeds from sales of loans
|
|
|
382 |
|
|
|
456 |
|
Purchases of loans
|
|
|
(1,907 |
) |
|
|
(2,171 |
) |
Acquisitions, net of cash acquired
|
|
|
(73 |
) |
|
|
(587 |
) |
Other, net
|
|
|
(1,182 |
) |
|
|
(305 |
) |
|
|
|
|
Net cash used in investing activities
|
|
|
(7,142 |
) |
|
|
(8,116 |
) |
Financing Activities
|
|
|
|
|
|
|
|
|
Net decrease in deposits
|
|
|
(2,442 |
) |
|
|
(4,313 |
) |
Net increase in short-term borrowings
|
|
|
1,869 |
|
|
|
4,462 |
|
Proceeds from issuance of long-term debt
|
|
|
21,077 |
|
|
|
13,379 |
|
Principal payments or redemption of long-term debt
|
|
|
(13,590 |
) |
|
|
(9,103 |
) |
Proceeds from issuance of preferred stock
|
|
|
|
|
|
|
948 |
|
Proceeds from issuance of common stock
|
|
|
374 |
|
|
|
613 |
|
Repurchase of common stock
|
|
|
(1,983 |
) |
|
|
(2,480 |
) |
Cash dividends paid on preferred stock
|
|
|
(45 |
) |
|
|
(17 |
) |
Cash dividends paid on common stock
|
|
|
(2,095 |
) |
|
|
(1,777 |
) |
|
|
|
|
Net cash provided by financing activities
|
|
|
3,165 |
|
|
|
1,712 |
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
(1,959 |
) |
|
|
(1,688 |
) |
Cash and cash equivalents at beginning of period
|
|
|
8,805 |
|
|
|
8,202 |
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
|
$6,846 |
|
|
|
$6,514 |
|
|
See Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
(Unaudited)
|
|
|
Note 1 |
|
Basis of Presentation |
The accompanying consolidated financial statements have been
prepared in accordance with the instructions to
Form 10-Q and,
therefore, do not include all information and notes necessary
for a complete presentation of financial position, results of
operations and cash flow activity required in accordance with
accounting principles generally accepted in the United States.
In the opinion of management of U.S. Bancorp (the
Company), all adjustments (consisting only of normal
recurring adjustments) necessary for a fair statement of results
for the interim periods have been made. For further information,
refer to the consolidated financial statements and notes
included in the Companys Annual Report on
Form 10-K for the
year ended December 31, 2006. Certain amounts in prior
periods have been reclassified to conform to the current
presentation.
Accounting policies for the lines of business are generally the
same as those used in preparation of the consolidated financial
statements with respect to activities specifically attributable
to each business line. However, the preparation of business line
results requires management to establish methodologies to
allocate funding costs and benefits, expenses and other
financial elements to each line of business. Table 11 Line
of Business Financial Performance provides details of
segment results. This information is incorporated by reference
into these Notes to Consolidated Financial Statements.
|
|
|
Note 2 |
|
Significant Accounting Matters |
Fair Value Option for Financial Assets and Financial
Liabilities In February 2007,
the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 159
(SFAS 159), The Fair Value Option for
Financial Assets and Financial Liabilities, effective for
the Company beginning on January 1, 2008. This Statement
provides entities with an option to report selected financial
assets and liabilities at fair value, with the objective to
reduce both the complexity in accounting for financial
instruments and the volatility in earnings caused by measuring
related assets and liabilities differently. The Company is
currently assessing the impact of this guidance on its financial
statements.
Fair Value Measurements In
September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157 (SFAS 157),
Fair Value Measurements, effective for the Company
beginning on January 1, 2008. This Statement defines fair
value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. This
statement establishes a fair value hierarchy that distinguishes
between valuations obtained from sources independent of the
entity and those from the entitys own unobservable inputs
that are not corroborated by observable market data.
SFAS 157 expands disclosures about the use of fair value to
measure assets and liabilities in interim and annual periods
subsequent to initial recognition. The disclosures focus on the
inputs used to measure fair value, and for recurring fair value
measurements using significant unobservable inputs, the effect
of the measurements on earnings or changes in net assets for the
period. The Company is currently assessing the impact of this
guidance on its financial statements.
Accounting for Uncertainty in Income Taxes
In June 2006, the FASB issued
Interpretation No. 48 (FIN 48),
Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109, Accounting for
Income Taxes, effective for the Company beginning on
January 1, 2007. FIN 48 clarifies the recognition
threshold a tax position is required to meet before being
recognized in the financial statements. FIN 48 also
provides guidance on disclosure and other matters. The adoption
of FIN 48 did not have a material impact on the
Companys financial statements.
Visa Restructuring and Card Association Litigation
The Companys Payment
Services line of business issues and acquires credit and debit
card transactions through the Visa U.S.A. Inc. card association
or its affiliates (collectively Visa). On
October 3, 2007, Visa completed a restructuring and issued
shares of Visa Inc. common stock to its financial institution
members in contemplation of an initial public offering in 2008
(the Visa Reorganization). In addition, the Company
and certain of its subsidiaries are defendants along with Visa
U.S.A. Inc. and MasterCard International (the Card
Associations), as well as several other banks, in
antitrust lawsuits challenging the practices
of the Card Associations (the Litigation). The
Company has entered into judgment and loss sharing agreements
with Visa and certain other banks in order to apportion
financial responsibilities arising from any potential adverse
judgment or negotiated settlements related to the Litigation.
In connection with the Visa Reorganization and the Litigation,
there are a number of significant accounting matters that must
be considered by the financial institution members that have
ownership interests in Visa, are parties to the Litigation, or
have executed judgment and loss sharing agreements. These
matters include the nature and timing of the financial gain
recognition arising from the Visa Reorganization, the
implications of the judgment and loss sharing agreements, and
the timing and amount of recognition of any future obligations
of Visa and/or its financial institution members arising as a
result of the ultimate resolution of the Litigation. Given the
complexity of the Visa Reorganization and the related accounting
matters, the Company, along with several other financial
institution members, has requested guidance from the Office of
the Chief Accountant of the Securities and Exchange Commission
regarding the appropriate accounting treatment for these
matters. Such guidance is expected to be received in the fourth
quarter of 2007. Although the resolution of these accounting
matters may have a significant impact on the Companys
financial statements in future accounting periods (including the
potential for both gains and accruals), the Company believes the
impact of these matters will not be materially adverse to its
financial condition and results of operations.
The composition of the loan portfolio was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007 | |
|
|
December 31, 2006 | |
|
|
| |
|
|
|
|
Percent | |
|
|
|
|
Percent | |
(Dollars in Millions) |
|
Amount | |
|
of Total | |
|
|
Amount | |
|
of Total | |
| |
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
$42,126 |
|
|
|
28.3 |
% |
|
|
|
$40,640 |
|
|
|
28.3 |
% |
|
Lease financing
|
|
|
5,886 |
|
|
|
3.9 |
|
|
|
|
5,550 |
|
|
|
3.9 |
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
48,012 |
|
|
|
32.2 |
|
|
|
|
46,190 |
|
|
|
32.2 |
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgages
|
|
|
19,650 |
|
|
|
13.2 |
|
|
|
|
19,711 |
|
|
|
13.7 |
|
|
Construction and development
|
|
|
8,867 |
|
|
|
5.9 |
|
|
|
|
8,934 |
|
|
|
6.2 |
|
|
|
|
|
|
|
|
|
Total commercial real estate
|
|
|
28,517 |
|
|
|
19.1 |
|
|
|
|
28,645 |
|
|
|
19.9 |
|
Residential mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages
|
|
|
16,799 |
|
|
|
11.3 |
|
|
|
|
15,316 |
|
|
|
10.7 |
|
|
Home equity loans, first liens
|
|
|
5,764 |
|
|
|
3.9 |
|
|
|
|
5,969 |
|
|
|
4.1 |
|
|
|
|
|
|
|
|
|
Total residential mortgages
|
|
|
22,563 |
|
|
|
15.2 |
|
|
|
|
21,285 |
|
|
|
14.8 |
|
Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card
|
|
|
10,251 |
|
|
|
6.9 |
|
|
|
|
8,670 |
|
|
|
6.0 |
|
|
Retail leasing
|
|
|
6,282 |
|
|
|
4.2 |
|
|
|
|
6,960 |
|
|
|
4.9 |
|
|
Home equity and second mortgages
|
|
|
16,210 |
|
|
|
10.9 |
|
|
|
|
15,523 |
|
|
|
10.8 |
|
|
Other retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit
|
|
|
2,679 |
|
|
|
1.8 |
|
|
|
|
2,563 |
|
|
|
1.8 |
|
|
|
Installment
|
|
|
5,203 |
|
|
|
3.5 |
|
|
|
|
4,478 |
|
|
|
3.1 |
|
|
|
Automobile
|
|
|
8,883 |
|
|
|
5.9 |
|
|
|
|
8,693 |
|
|
|
6.1 |
|
|
|
Student
|
|
|
439 |
|
|
|
.3 |
|
|
|
|
590 |
|
|
|
.4 |
|
|
|
|
|
|
|
|
|
|
Total other retail
|
|
|
17,204 |
|
|
|
11.5 |
|
|
|
|
16,324 |
|
|
|
11.4 |
|
|
|
|
|
|
|
|
|
Total retail
|
|
|
49,947 |
|
|
|
33.5 |
|
|
|
|
47,477 |
|
|
|
33.1 |
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
$149,039 |
|
|
|
100.0 |
% |
|
|
|
$143,597 |
|
|
|
100.0 |
% |
|
|
|
|
Loans are presented net of unearned interest and deferred fees
and costs, which amounted to $1.3 billion at
September 30, 2007, and December 31, 2006.
|
|
|
Note 4 |
|
Mortgage Servicing Rights |
The Companys portfolio of residential mortgages serviced
for others was $94.4 billion and $82.9 billion at
September 30, 2007, and December 31, 2006,
respectively. The Company records mortgage servicing rights
(MSRs) initially at fair value and at each
subsequent reporting date, and records changes in fair value in
noninterest income in the period in which they occur. In
conjunction with its MSRs, the Company may utilize derivatives,
including futures and option contracts to manage the volatility
of changes in the fair value of MSRs. The net impact of
assumption changes on the fair value of MSRs, excluding decay,
and the related derivatives included in mortgage banking revenue
was a net gain of $4 million and $7 million for the
three months ended September 30, 2007, and 2006,
respectively, and a net loss of $1 million and
$3 million for the nine months ended September 30,
2007 and 2006, respectively. Loan servicing fees, not including
valuation changes, included in mortgage banking revenue were
$87 million and $79 million for the three months ended
September 30, 2007, and 2006, respectively, and
$260 million and $235 million for the nine months
ended September 30, 2007, and 2006, respectively.
Changes in fair value of capitalized MSRs are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
Nine Months Ended | |
|
|
September 30, | |
|
|
September 30, | |
|
|
| |
(Dollars in Millions) |
|
2007 | |
|
2006 | |
|
|
2007 | |
|
2006 | |
| |
Balance at beginning of period
|
|
|
$1,649 |
|
|
|
$1,323 |
|
|
|
|
$1,427 |
|
|
|
$1,123 |
|
|
Rights purchased
|
|
|
4 |
|
|
|
3 |
|
|
|
|
10 |
|
|
|
50 |
|
|
Rights capitalized
|
|
|
130 |
|
|
|
108 |
|
|
|
|
316 |
|
|
|
278 |
|
|
Rights sold
|
|
|
(130 |
) |
|
|
|
|
|
|
|
(130 |
) |
|
|
|
|
|
Changes in fair value of MSRs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to change in valuation assumptions (a)
|
|
|
(86 |
) |
|
|
(68 |
) |
|
|
|
38 |
|
|
|
3 |
|
|
|
Other changes in fair value (b)
|
|
|
(45 |
) |
|
|
(42 |
) |
|
|
|
(139 |
) |
|
|
(130 |
) |
|
|
|
|
|
|
Balance at end of period
|
|
|
$1,522 |
|
|
|
$1,324 |
|
|
|
|
$1,522 |
|
|
|
$1,324 |
|
|
|
|
|
|
|
|
(a) |
|
Principally reflects changes in discount rates and prepayment
speed assumptions, primarily arising from interest rate
changes. |
(b) |
|
Primarily represents changes due to collection/realization of
expected cash flows over time (decay). |
The Company determines fair value by estimating the present
value of the assets future cash flows utilizing
market-based prepayment rates, discount rates, and other
assumptions validated through comparison to trade information,
industry surveys, and independent third party appraisals. Risks
inherent in the valuation of MSRs include higher than expected
prepayment rates and/or delayed receipt of cash flows. The
estimated sensitivity to changes in interest rates of the fair
value of the MSRs portfolio and the related derivative
instruments at September 30, 2007, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Down Scenario | |
|
|
Up Scenario | |
|
|
| |
(Dollars in Millions) |
|
50 bps | |
|
25 bps | |
|
|
25 bps | |
|
50 bps | |
| |
Net fair value
|
|
|
$(29 |
) |
|
|
$(6 |
) |
|
|
|
$(17 |
) |
|
|
$(56 |
) |
|
|
|
|
|
|
|
Note 5 |
|
Earnings Per Common Share |
The components of earnings per common share were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
Nine Months Ended | |
|
|
September 30, | |
|
|
September 30, | |
|
|
| |
(Dollars and Shares in Millions, Except Per Share Data) |
|
2007 | |
|
2006 | |
|
|
2007 | |
|
2006 | |
| |
Net income
|
|
|
$1,176 |
|
|
|
$1,203 |
|
|
|
|
$3,462 |
|
|
|
$3,557 |
|
Preferred dividends
|
|
|
(15 |
) |
|
|
(16 |
) |
|
|
|
(45 |
) |
|
|
(33 |
) |
|
|
|
|
|
|
Net income applicable to common equity
|
|
|
$1,161 |
|
|
|
$1,187 |
|
|
|
|
$3,417 |
|
|
|
$3,524 |
|
Average common shares outstanding
|
|
|
1,725 |
|
|
|
1,771 |
|
|
|
|
1,737 |
|
|
|
1,784 |
|
Net effect of the exercise and assumed purchase of stock awards
and conversion of outstanding convertible notes
|
|
|
20 |
|
|
|
25 |
|
|
|
|
25 |
|
|
|
25 |
|
|
|
|
|
|
|
Average diluted common shares outstanding
|
|
|
1,745 |
|
|
|
1,796 |
|
|
|
|
1,762 |
|
|
|
1,809 |
|
|
|
|
|
|
|
Earnings per common share
|
|
|
$.67 |
|
|
|
$.67 |
|
|
|
|
$1.97 |
|
|
|
$1.98 |
|
Diluted earnings per common share
|
|
|
$.67 |
|
|
|
$.66 |
|
|
|
|
$1.94 |
|
|
|
$1.95 |
|
|
|
|
|
Options to purchase 14 million and 3 million
common shares for the three months ended September 30, 2007
and 2006, respectively, and 10 million and 4 million
common shares for the nine months ended September 30, 2007
and 2006, respectively, were outstanding but not included in the
computation of diluted earnings per common share because they
were antidilutive.
The components of net periodic benefit cost for the
Companys retirement plans were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, | |
|
|
Nine Months Ended September 30, | |
|
|
| |
|
|
|
|
Postretirement | |
|
|
|
|
Postretirement | |
|
|
Pension Plans | |
|
Medical Plan | |
|
|
Pension Plans | |
|
Medical Plan | |
|
|
| |
(Dollars in Millions) |
|
2007 | |
|
2006 | |
|
2007 | |
|
2006 | |
|
|
2007 | |
|
2006 | |
|
2007 | |
|
2006 | |
| |
Service cost
|
|
|
$18 |
|
|
|
$18 |
|
|
|
$1 |
|
|
|
$1 |
|
|
|
|
$53 |
|
|
|
$54 |
|
|
|
$4 |
|
|
|
$3 |
|
Interest cost
|
|
|
31 |
|
|
|
29 |
|
|
|
4 |
|
|
|
3 |
|
|
|
|
94 |
|
|
|
88 |
|
|
|
11 |
|
|
|
10 |
|
Expected return on plan assets
|
|
|
(50 |
) |
|
|
(48 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
(149 |
) |
|
|
(143 |
) |
|
|
(5 |
) |
|
|
|
|
Prior service credit and transition obligation amortization
|
|
|
(1 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
|
|
Actuarial loss amortization
|
|
|
16 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
47 |
|
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
$14 |
|
|
|
$20 |
|
|
|
$3 |
|
|
|
$4 |
|
|
|
|
$41 |
|
|
|
$62 |
|
|
|
$10 |
|
|
|
$13 |
|
|
|
|
|
The components of income tax expense were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
Nine Months Ended | |
|
|
September 30, | |
|
|
September 30, | |
|
|
| |
(Dollars in Millions) |
|
2007 | |
|
2006 | |
|
|
2007 | |
|
2006 | |
| |
Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
$486 |
|
|
|
$530 |
|
|
|
|
$1,423 |
|
|
|
$1,742 |
|
Deferred
|
|
|
(46 |
) |
|
|
(63 |
) |
|
|
|
(114 |
) |
|
|
(299 |
) |
|
|
|
|
|
|
|
Federal income tax
|
|
|
440 |
|
|
|
467 |
|
|
|
|
1,309 |
|
|
|
1,443 |
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
72 |
|
|
|
70 |
|
|
|
|
203 |
|
|
|
258 |
|
Deferred
|
|
|
(4 |
) |
|
|
(5 |
) |
|
|
|
(11 |
) |
|
|
(23 |
) |
|
|
|
|
|
|
|
State income tax
|
|
|
68 |
|
|
|
65 |
|
|
|
|
192 |
|
|
|
235 |
|
|
|
|
|
|
|
|
Total income tax provision
|
|
|
$508 |
|
|
|
$532 |
|
|
|
|
$1,501 |
|
|
|
$1,678 |
|
|
|
|
|
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 | |
|
|
Nine Months Ended | |
|
|
September 30, | |
|
|
September 30, | |
|
|
| |
(Dollars in Millions) |
|
2007 | |
|
2006 | |
|
|
2007 | |
|
2006 | |
| |
Tax at statutory rate (35 percent)
|
|
|
$590 |
|
|
|
$607 |
|
|
|
|
$1,737 |
|
|
|
$1,832 |
|
State income tax, at statutory rates, net of federal tax benefit
|
|
|
44 |
|
|
|
43 |
|
|
|
|
125 |
|
|
|
153 |
|
Tax effect of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax credits
|
|
|
(75 |
) |
|
|
(97 |
) |
|
|
|
(215 |
) |
|
|
(216 |
) |
|
Tax-exempt income
|
|
|
(39 |
) |
|
|
(23 |
) |
|
|
|
(97 |
) |
|
|
(66 |
) |
|
Other items
|
|
|
(12 |
) |
|
|
2 |
|
|
|
|
(49 |
) |
|
|
(25 |
) |
|
|
|
|
|
|
Applicable income taxes
|
|
|
$508 |
|
|
|
$532 |
|
|
|
|
$1,501 |
|
|
|
$1,678 |
|
|
|
|
|
Effective January 1, 2007, the Company adopted the
provisions of FIN 48. The adoption of FIN 48 did not
result in a cumulative-effect accounting adjustment for the
Company. The Company elected to classify interest and penalties
related to unrecognized tax positions as components of income
tax expense. At January 1, 2007, the Companys total
amount of unrecognized tax positions were $364 million, of
which $237 million related to unrecognized tax positions
that if recognized, would affect the effective tax rate. In
addition, the amount accrued for the payment of interest on
unrecognized tax positions was $22 million.
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 September 30, 2007, the federal taxing
authority has completed its examination of the Company through
the fiscal year ended December 31, 2004. The years open to
examination by foreign, state and local government authorities
vary by jurisdiction.
The Companys net deferred tax liability was
$1,192 million at September 30, 2007, and
$1,483 million at December 31, 2006.
|
|
|
Note 8 |
|
Guarantees and Contingent Liabilities |
The following table is a summary of the guarantees and
contingent liabilities of the Company at September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum | |
|
|
|
|
Potential | |
|
|
Carrying | |
|
Future | |
(Dollars in Millions) |
|
Amount | |
|
Payments | |
|
Standby letters of credit
|
|
|
$70 |
|
|
|
$12,211 |
|
Third-party borrowing arrangements
|
|
|
2 |
|
|
|
332 |
|
Securities lending indemnifications
|
|
|
|
|
|
|
15,768 |
|
Asset sales (a)
|
|
|
6 |
|
|
|
426 |
|
Merchant processing
|
|
|
47 |
|
|
|
79,096 |
|
Other guarantees
|
|
|
28 |
|
|
|
1,369 |
|
Other contingent liabilities
|
|
|
|
|
|
|
2,001 |
|
|
|
|
|
(a) |
|
The maximum potential future payments does not include loan
sales where the Company provides standard representations and
warranties to the buyer against losses related to loan
underwriting documentation. For these types of loan sales, the
maximum potential future payments are not readily determinable
because the Companys obligation under these agreements
depends upon the occurrence of future events. |
The Company, through its subsidiaries, provides merchant
processing services. Under the rules of credit card
associations, a merchant processor retains a contingent
liability for credit card transactions processed. This
contingent liability arises in the event of a billing dispute
between the merchant and a cardholder that is ultimately
resolved in the cardholders favor. In this situation, the
transaction is charged-back to the merchant and the
disputed amount is credited or otherwise refunded to the
cardholder. If the Company is unable to collect this amount from
the merchant, it bears the loss for the amount of the refund
paid to the cardholder.
The Company currently processes card transactions in the United
States, Canada and Europe for airlines, cruise lines and large
tour operators. In the event of liquidation of these merchants,
the Company could become financially liable for refunding
tickets purchased through the credit card associations under the
charge-back provisions. Charge-back risk related to these
merchants is evaluated in a manner similar to credit risk
assessments and, as such, merchant processing contracts contain
various provisions to protect the Company in the event of
default. At September 30, 2007, the value of airline,
cruise line and large tour operator tickets purchased to be
delivered at a future date was $4.9 billion, with airline
tickets representing 90 percent of that amount. The Company
held collateral of $1.1 billion in escrow deposits, letters
of credit and indemnities from financial institutions, and liens
on various assets.
The Company is subject to various other litigation,
investigations and legal and administrative cases and
proceedings that arise in the ordinary course of its businesses.
Due to their complex nature, it may be years before some matters
are resolved. While it is impossible to ascertain the ultimate
resolution or range of financial liability with respect to these
contingent matters, the Company believes that the aggregate
amount of such liabilities will not have a material adverse
effect on the financial condition, results of operations or cash
flows of the Company.
For additional information on the nature of the Companys
guarantees and contingent liabilities, please refer to
Note 21 in the Companys Annual Report on
Form 10-K for the
year ended December 31, 2006.
U.S. Bancorp
Consolidated Daily Average Balance Sheet and Related Yields and
Rates (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, | |
|
|
|
|
|
|
|
2007 | |
|
|
2006 | |
|
|
|
|
|
|
|
|
|
|
|
|
Yields | |
|
|
|
|
Yields | |
|
|
% Change | |
|
|
(Dollars in Millions) |
|
Average | |
|
|
|
and | |
|
|
Average | |
|
|
|
and | |
|
|
Average | |
|
|
(Unaudited) |
|
Balances | |
|
Interest | |
|
Rates | |
|
|
Balances | |
|
Interest | |
|
Rates | |
|
|
Balances | |
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
$ |
41,128 |
|
|
$ |
559 |
|
|
|
5.44 |
% |
|
|
$ |
39,806 |
|
|
$ |
519 |
|
|
|
5.22 |
% |
|
|
|
3.3 |
% |
|
|
Loans held for sale
|
|
|
4,547 |
|
|
|
76 |
|
|
|
6.63 |
|
|
|
|
3,851 |
|
|
|
64 |
|
|
|
6.70 |
|
|
|
|
18.1 |
|
|
|
Loans (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
47,390 |
|
|
|
792 |
|
|
|
6.63 |
|
|
|
|
46,068 |
|
|
|
769 |
|
|
|
6.63 |
|
|
|
|
2.9 |
|
|
|
|
Commercial real estate
|
|
|
28,462 |
|
|
|
525 |
|
|
|
7.33 |
|
|
|
|
28,701 |
|
|
|
538 |
|
|
|
7.44 |
|
|
|
|
(.8 |
) |
|
|
|
Residential mortgages
|
|
|
22,258 |
|
|
|
345 |
|
|
|
6.18 |
|
|
|
|
21,118 |
|
|
|
313 |
|
|
|
5.90 |
|
|
|
|
5.4 |
|
|
|
|
Retail
|
|
|
49,407 |
|
|
|
1,049 |
|
|
|
8.42 |
|
|
|
|
45,604 |
|
|
|
932 |
|
|
|
8.10 |
|
|
|
|
8.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
147,517 |
|
|
|
2,711 |
|
|
|
7.30 |
|
|
|
|
141,491 |
|
|
|
2,552 |
|
|
|
7.16 |
|
|
|
|
4.3 |
|
|
|
Other earning assets
|
|
|
1,694 |
|
|
|
33 |
|
|
|
7.92 |
|
|
|
|
2,042 |
|
|
|
40 |
|
|
|
7.73 |
|
|
|
|
(17.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
194,886 |
|
|
|
3,379 |
|
|
|
6.90 |
|
|
|
|
187,190 |
|
|
|
3,175 |
|
|
|
6.74 |
|
|
|
|
4.1 |
|
|
|
Allowance for loan losses
|
|
|
(2,041 |
) |
|
|
|
|
|
|
|
|
|
|
|
(2,056 |
) |
|
|
|
|
|
|
|
|
|
|
|
.7 |
|
|
|
Unrealized gain (loss) on available-for-sale securities
|
|
|
(1,206 |
) |
|
|
|
|
|
|
|
|
|
|
|
(1,185 |
) |
|
|
|
|
|
|
|
|
|
|
|
(1.8 |
) |
|
|
Other assets
|
|
|
31,866 |
|
|
|