US Bank 2002 Annual Report Download - page 98

Download and view the complete annual report

Please find page 98 of the 2002 US Bank annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 124

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124

by discounting the contractual cash flow using the discount
Fair Values of Financial Instruments
rates implied by the high-grade corporate bond yield curve.
Due to the nature of its business and its customers’ needs, the
Short-term Borrowings Federal funds purchased, securities
Company offers a large number of financial instruments, most
sold under agreements to repurchase and other short-term
of which are not actively traded. When market quotes are
funds borrowed are at floating rates or have short-term
unavailable, valuation techniques including discounted cash
maturities. Their carrying value is assumed to approximate
flow calculations and pricing models or services are used. The
their fair value.
Company also uses various aggregation methods and
assumptions, such as the discount rate and cash flow timing Long-term Debt and Company-obligated Mandatorily
and amounts. As a result, the fair value estimates can neither Redeemable Preferred Securities of Subsidiary Trusts
be substantiated by independent market comparisons, nor Holding Solely the Junior Subordinated Debentures of the
realized by the immediate sale or settlement of the financial Parent Company The estimated fair value of medium-term
instrument. Also, the estimates reflect a point in time and notes, bank notes, Federal Home Loan Bank advances,
could change significantly based on changes in economic capital lease obligations and mortgage note obligations
factors, such as interest rates. Furthermore, the disclosure of estimated fair value was determined using a discounted cash
certain financial and nonfinancial assets and liabilities are not flow analysis based on current market rates of similar
required. Finally, the fair value disclosure is not intended to maturity debt securities to discount cash flows. Other long-
estimate a market value of the Company as a whole. A term debt instruments and company-obligated mandatorily
summary of the Company’s valuation techniques and redeemable preferred securities of subsidiary trusts holding
assumptions follows. solely the junior subordinated debentures of the parent
company were valued using available market quotes.
Cash and Cash Equivalents The carrying value of cash,
amounts due from banks, federal funds sold and securities Interest Rate Swaps, Basis Swaps and Options The interest
purchased under resale agreements was assumed to rate options and swap cash flows were estimated using a
approximate fair value. third-party pricing model and discounted based on
appropriate LIBOR, eurodollar futures, swap and treasury
Securities Generally, trading securities and investment
note yield curves.
securities were valued using available market quotes. In
some instances, for securities that are not widely traded, Loan Commitments, Letters of Credit and Guarantees The
market quotes for comparable securities were used. fair value of commitments, letters of credit and guarantees
represents the estimated costs to terminate or otherwise
Loans The loan portfolio consists of both floating and
settle the obligations with a third-party. Residential
fixed-rate loans, the fair value of which was estimated using
mortgage commitments are actively traded and the fair
discounted cash flow analyses and other valuation
value is estimated using available market quotes. Other loan
techniques. To calculate discounted cash flows, the loans
commitments, letters of credit and guarantees are not
were aggregated into pools of similar types and expected
actively traded. Substantially all of these commitments have
repayment terms. The expected cash flows of loans
floating rates and do not expose the Company to interest
considered historical prepayment experiences and estimated
rate risk assuming no premium or discount was ascribed to
credit losses for nonperforming loans and were discounted
loan commitments because funding could occur at market
using current rates offered to borrowers of similar
rates. The Company estimates the fair value of loan
credit characteristics.
commitments, letters of credit and guarantees based on the
Deposit Liabilities The fair value of demand deposits, related amount of unamortized deferred commitment fees
savings accounts and certain money market deposits is adjusted for the probable losses for these arrangements.
equal to the amount payable on demand at year-end. The
fair value of fixed-rate certificates of deposit was estimated
96 U.S. Bancorp
Note 22