US Bank 2006 Annual Report Download - page 50

DEBT RATINGS
Dominion
Standard & Bond
Moody’s Poor’s Fitch Rating Service
U.S. BANCORP
Short-term borrowings **************************************************** F1+ R-1 (middle)
Senior debt and medium-term notes ***************************************** Aa2 AA AA– AA
Subordinated debt******************************************************** Aa3 AA- A+ AA (low)
Preferred stock ********************************************************** A1 A+ A+
Commercial paper ******************************************************** P-1 A-1+ F1+ R-1 (middle)
U.S. BANK NATIONAL ASSOCIATION
Short-term time deposits ************************************************** P-1 A-1+ F1+ R-1 (high)
Long-term time deposits*************************************************** Aa1 AA+ AA AA (high)
Bank notes ************************************************************* Aa1/P-1 AA+/A-1+ AA-/F1+ AA (high)
Subordinated debt******************************************************** Aa2 AA A+ AA
Commercial paper ******************************************************** P-1 A-1+ F1+ R-1 (high)
VaR modeling of trading activities is subject to certain these areas has enabled it to develop a large and reliable
limitations. Additionally, it should be recognized that there base of core funding within its market areas and in
are assumptions and estimates associated with VaR domestic and global capital markets. Liquidity management
modeling, and actual results could differ from those is viewed from long-term and short-term perspectives, as
assumptions and estimates. The Company mitigates these well as from an asset and liability perspective. Management
uncertainties through regular monitoring of trading monitors liquidity through a regular review of maturity
activities by management and other risk management profiles, funding sources, and loan and deposit forecasts to
practices, including stop-loss and position limits related to minimize funding risk.
its trading activities. Stress-test models are used to provide The Company maintains strategic liquidity and
management with perspectives on market events that VaR contingency plans that are subject to the availability of asset
models do not capture. liquidity in the balance sheet. Monthly, ALPC reviews the
The Company establishes market risk limits, subject to Company’s ability to meet funding requirements due to
approval by the Company’s Board of Directors. Due to the adverse business events. These funding needs are then
election of fair value measurement of its residential MSRs matched with specific asset-based sources to ensure
and related hedging strategy during the first quarter of sufficient funds are available. Also, strategic liquidity
2006, the Company increased its VaR limit to $40 million policies require diversification of wholesale funding sources
at March 31, 2006, compared with $20 million at to avoid concentrations in any one market source.
December 31, 2005. The VaR limits were $3 million and Subsidiary companies are members of various Federal Home
$37 million at December 31, 2006, for trading and non- Loan Banks that provide a source of funding through FHLB
trading market risk, respectively. The Company’s market advances. The Company maintains a Grand Cayman branch
valuation risk, as estimated by the VaR analysis, was for issuing eurodollar time deposits. The Company also
$1 million and $30 million at December 31, 2006, issues commercial paper through its Canadian branch. In
compared with $1 million and less than $1 million at addition, the Company establishes relationships with dealers
December 31, 2005, for trading and non-trading positions, to issue national market retail and institutional savings
respectively. certificates and short- and medium-term bank notes. The
Company’s subsidiary banks also have significant
Liquidity Risk Management ALPC establishes policies, as correspondent banking networks and corporate accounts.
well as analyzes and manages liquidity, to ensure that Accordingly, the Company has access to national fed funds,
adequate funds are available to meet normal operating funding through repurchase agreements and sources of
requirements in addition to unexpected customer demands stable, regionally-based certificates of deposit and
for funds, such as high levels of deposit withdrawals or commercial paper.
loan demand, in a timely and cost-effective manner. The The Company’s ability to raise negotiated funding at
most important factor in the preservation of liquidity is competitive prices is influenced by rating agencies’ views of
maintaining public confidence that facilitates the retention the Company’s credit quality, liquidity, capital and
and growth of a large, stable supply of core deposits and earnings. On September 13, 2006, Fitch revised the
wholesale funds. Ultimately, public confidence is generated Company’s outlook to ‘‘Positive’’. On October 26, 2006,
through profitable operations, sound credit quality and a Dominion Bond Rating Service upgraded the Company’s
strong capital position. The Company’s performance in senior and unsecured subordinated debt ratings to AA and
48 U.S. BANCORP
Table 19