US Bank 2009 Annual Report Download - page 25

improved net interest margin. The $20.3 billion
(10.5 percent) increase in average earning assets in 2008
over 2007 was principally a result of growth in total average
loans, including originated and acquired loans, and average
investment securities. The increase in the net interest margin
reflected growth in higher-spread loans, asset/liability re-
pricing in a declining interest rate environment and
wholesale funding mix during a period of significant
volatility in short-term funding markets.
Average loans in 2008 were higher by $18.2 billion
(12.4 percent), compared with 2007, driven by growth in
most loan categories. Average investment securities were
$1.5 billion (3.7 percent) higher in 2008, compared with
2007, principally reflecting the full year impact of holding
structured investment securities the Company purchased in
the fourth quarter of 2007 from certain money market funds
managed by an affiliate and higher government agency
securities, partially offset by maturities and sales of
mortgage-backed securities, and realized and unrealized
losses on certain investment securities recorded in 2008.
Average noninterest-bearing deposits in 2008 were
$1.4 billion (5.0 percent) higher than 2007. The increase
reflected higher business and other demand deposit balances,
impacted by customer flight to quality and acquisitions.
Average total savings products increased $6.6 billion
(11.6 percent) in 2008, compared with 2007, principally as
a result of a $5.0 billion (19.2 percent) increase in interest
checking balances from broker-dealer, institutional trust,
government and consumer banking customers, and a
$1.0 billion (3.8 percent) increase in money market savings
balances driven primarily by higher broker-dealer and
consumer banking balances. Average time certificates of
deposit less than $100,000 were lower in 2008 by
$1.1 billion (7.3 percent), compared with 2007, due to the
Company’s funding and pricing decisions and competition
for these deposits. Average time deposits greater than
$100,000 increased by $8.2 billion (36.7 percent) in 2008,
compared with 2007, as a result of the Company’s wholesale
funding decisions and the ability to attract larger customer
deposits as a result of the Company’s relative strength.
Provision for Credit Losses The provision for credit losses
reflects changes in the credit quality of the entire portfolio of
loans, inclusive of credit loss protection from loss sharing
agreements with the FDIC, and is maintained at a level
considered appropriate by management for probable and
estimable incurred losses, based on factors discussed in the
“Analysis and Determination of Allowance for Credit
Losses” section.
In 2009, the provision for credit losses was $5.6 billion,
compared with $3.1 billion and $792 million in 2008 and
2007, respectively. The increases in the provision for credit
losses of $2.5 billion from a year ago and allowance for
credit losses from December 31, 2008 reflected deterioration
in economic conditions during most of the year and the
corresponding impact on the commercial, commercial real
estate and consumer loan portfolios. It also reflected
continuing stress in the residential real estate markets.
Nonperforming assets increased $1.9 billion (excluding
covered assets) over December 31, 2008. The increase was
driven primarily by stress in residential home construction
and related industries, deterioration in the residential
mortgage portfolio, as well as an increase in foreclosed
properties and the impact of the economic slowdown on
commercial and consumer customers. Net charge-offs
increased $2.1 billion from 2008, primarily due to economic
factors affecting the residential housing markets, including
homebuilding and related industries, commercial real estate
properties and credit costs associated with credit card and
other consumer and commercial loans as the economy
weakened and unemployment increased.
Accruing loans ninety days or more past due increased
$558 million (excluding covered assets), primarily due to stress
in residential mortgages, commercial loans, construction loans,
credit cards and home equity loans. Restructured loans that
continue to accrue interest increased $769 million, primarily
reflecting the impact of loan modifications for certain
residential mortgage and consumer credit card customers in
light of current economic conditions.
The $2.3 billion increase in the provision for credit
losses in 2008, compared with 2007, and the increase in the
allowance for credit losses from December 31, 2007 to
December 31, 2008 reflected stress in the residential real
estate markets, including homebuilding and related supplier
industries, driven by declining home prices in most
geographic regions. The increases also reflected deteriorating
economic conditions and the corresponding impact on the
commercial and consumer loan portfolios. Nonperforming
loans increased $1.2 billion (excluding covered assets) over
December 31, 2007. The increase was driven primarily by
weakening real estate values and the impact of the economic
slowdown on other commercial customers, and included
increases in commercial real estate loans, commercial loans
and residential mortgages. Net charge-offs increased
$1.0 billion in 2008, compared with 2007, primarily due to
the factors affecting the residential housing markets,
including the impact on homebuilding and related industries,
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