US Bank 2003 Annual Report Download - page 84

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Premises and Equipment
Premises and equipment at December 31 consisted of the following:
(Dollars in Millions) 2003 2002
Land******************************************************************************************************* $ 311 $ 275
Buildings and improvements********************************************************************************** 2,226 1,844
Furniture, fixtures and equipment ***************************************************************************** 2,092 2,152
Capitalized building and equipment leases ********************************************************************* 175 173
Construction in progress ************************************************************************************* 74
4,811 4,448
Less accumulated depreciation and amortization *************************************************************** 2,854 2,751
Total**************************************************************************************************** $1,957 $1,697
Mortgage Servicing Rights
The Company’s portfolio of residential mortgages serviced for others was $53.9 billion, $43.1 billion and $22.0 billion at
December 31, 2003, 2002, and 2001 respectively.
The net carrying value of capitalized mortgage servicing rights was as follows:
December 31 (Dollars in Millions) 2003 2002
Initial carrying value, net of amortization ********************************************************** $ 830 $ 849
Impairment valuation allowance****************************************************************** (160) (207)
Net carrying value ************************************************************************** $ 670 $ 642
Changes in capitalized mortgage servicing rights are summarized as follows:
Year Ended December 31 (Dollars in Millions) 2003 2002
Balance at beginning of year************************************************************** $ 642 $ 360
Rights purchased********************************************************************* 55 229
Rights capitalized********************************************************************* 338 357
Amortization ************************************************************************* (156) (94)
Rights sold ************************************************************************** — (24)
Impairment ************************************************************************** (209) (186)
Balance at end of year ******************************************************************* $ 670 $ 642
The key economic assumptions used to estimate the value of the mortgage servicing rights portfolio were as follows:
December 31 (Dollars in Millions) 2003 2002
Fair value ************************************************************************************* $670 $655
Expected weighted-average life (in years) ********************************************************* 5.2 4.8
Discount rate ********************************************************************************** 9.9% 9.8%
The estimated sensitivity of the fair value of the mortgage servicing rights portfolio to changes in interest rates at
December 31, 2003, was as follows:
Down Scenario Up Scenario
(Dollars in Millions) 50 bps 25 bps 25 bps 50 bps
Fair value************************************************************************************ $(127) $(78) $75 $133
The Company utilizes the investment securities mix of the servicing portfolio and characteristics of each
portfolio as an economic hedge against possible adverse segment of the portfolio. In the current interest rate
interest rate changes. The Company also, from time to time, environment, mortgage loans originated as part of
purchases principal-only securities that act as a partial government agency and state loan programs tend to
economic hedge. The Company is able to recognize experience slower prepayment speeds and better cash flows
reparations from increases in fair value of servicing rights than conventional mortgage loans. The Company’s servicing
when impairment reserves are released. portfolio consists of the distinct portfolios of The Leader
The fair value of mortgage servicing rights and its Mortgage Company, LLC (a wholly-owned subsidiary) and
sensitivity to changes in interest rates is influenced by the U.S. Bank Home Mortgage.
82 U.S. Bancorp
Note 10
Note 11