US Bank 2002 Annual Report Download - page 81

on the present value of future expected cash flows using $132.7 million in 2001, including fees for servicing,
management’s best estimates of the key assumptions management, administration and accretion income from
including credit losses, prepayment speeds, forward yield retained interests.
curves and discount rates commensurate with the risks At December 31, 2002, the Company had two asset-
involved. Retained interests and liabilities are recorded at backed securitizations to fund indirect automobile loans and
fair value using a discounted cash flow methodology at an unsecured small business credit product. The indirect
inception and are evaluated at least quarterly thereafter. automobile securitization held $156.1 million in assets at
December 31, 2002, compared with $431.5 million at
Conduits and Securitizations The Company sponsors two December 31, 2001. The Company recognized income from
off-balance sheet conduits to which it transfers high-grade an interest-only strip and servicing fees from this
assets: a commercial loan conduit and an investment securitization of $2.8 million during 2002 and $6.1 million
securities conduit. These conduits are funded by issuing during 2001. The indirect automobile securitization held
commercial paper. The commercial loan conduit holds average assets of $276.9 million in 2002 and $655.3 million
primarily high credit quality commercial loans and held in 2001. In January 2003, the Company exercised a cleanup
assets of $4.2 billion at December 31, 2002, and call option on the indirect automobile loan securitization.
$6.9 billion in assets at December 31, 2001. The investment The remaining assets from the securitization were recorded
securities conduit holds high-grade investment securities and on the Company’s balance sheet at fair value.
held assets of $9.5 billion at December 31, 2002, and The unsecured small business credit securitization held
$9.8 billion in assets at December 31, 2001. These $652.4 million in assets at December 31, 2002, of which
investment securities include primarily (i) private label asset- the Company retained $150.1 million of subordinated
backed securities, which are insurance ‘‘wrapped’’ by AAA/ securities, transferor’s interests of $16.3 million and a
Aaa-rated mono-line insurance companies and residual interest-only strip of $53.3 million. This compared
(ii) government agency mortgage-backed securities and with $750.0 million in assets at December 31, 2001, of
collateralized mortgage obligations. The commercial loan which the Company retained $175.3 million of
conduit had commercial paper liabilities of $4.2 billion at subordinated securities, transferor’s interests of
December 31, 2002, and $6.9 billion at December 31, $18.8 million and a residual interest-only strip of
2001. The investment securities conduit had commercial $57.3 million. The qualifying special purpose entity issued
paper liabilities of $9.5 billion at December 31, 2002, and asset-backed variable funding notes in various tranches in
$9.8 billion at December 31, 2001. The Company benefits November 2001 which generated a loss on sale of
by transferring commercial loans and investment securities $64.7 million. The Company provides credit enhancement
into conduits that provide diversification of funding sources in the form of subordinated securities and reserve accounts.
in a capital-efficient manner and generate income. The Company’s risk, primarily from losses in the underlying
The Company provides liquidity facilities to both assets, was considered in determining the fair value of the
conduits. In addition, the Company retains the credit risk of Company’s retained interests in this securitization. The
the loans transferred to the commercial loan conduit Company recognized income from subordinated securities,
through a credit enhancement agreement. Utilization of the an interest-only strip and servicing fees from this
liquidity facilities would be triggered by the conduits’ securitization of $52.8 million in 2002 and $5.2 million in
inability to issue commercial paper to fund their assets. The 2001. The unsecured small business credit securitization
credit enhancement provided to the commercial loan held average assets of $700.6 million in 2002 and
conduit represents a recourse obligation under which the $122.1 million in 2001.
Company would be required to repurchase loans sold to the The corporate and purchasing card securitization
conduit if certain credit-related events of the underlying matured in February 2002. At maturity, $420.0 million of
assets occur. The recorded fair value of the Company’s receivables were transferred from the trust to the Company
liability for the recourse obligation and for both liquidity and recorded at fair value at that time. The Company
facilities was $56.1 million at December 31, 2002, and was recognized servicing income of $.5 million in 2002 and
included in other liabilities. Changes in fair value of these $4.2 million in 2001 from this securitization.
liabilities are recorded in the income statement as other During 2002, the Company securitized $144.4 million
income or expense. In addition, the Company recorded at of highly rated fixed rate municipal bonds. Each municipal
fair value its retained residual interest in both the bond was sold into a separate trust that was funded by
commercial loan and investment securities conduits of variable rate certificates that reprice weekly. The Company
$28.6 million and of $93.4 million, respectively, at retained a residual interest in each structure that was
December 31, 2002. The Company recorded revenue of accounted for as a trading asset and is recorded at fair
$132.2 million from the conduits in 2002 and value. The purpose of the arrangements was to meet our
U.S. Bancorp 79