US Bank 2007 Annual Report Download - page 35

market factors, which are judgmental in nature. Based on
management’s review as of the reporting date, the Company
expected to receive all principal and interest related to
securities within its investment portfolios.
During January 2008, actions by the Federal Reserve
Bank and a related rally in the fixed income markets caused
the fair value of a substantial portion of investment securities
to recover somewhat from their unrealized loss position.
However, credit spreads for certain structured investment
securities widened during the month causing their values to
decline. Given the nature of these structured investments, the
Company is likely to recognize further impairment of these
investments during the next few quarters.
Deposits Total deposits were $131.4 billion at December 31,
2007, compared with $124.9 billion at December 31, 2006.
The $6.5 billion (5.3 percent) increase in total deposits was
primarily the result of increases in interest checking, time
deposits and noninterest-bearing deposits, partially offset by
a decrease in money market savings accounts. Average total
deposits increased $.5 billion (.4 percent) from 2006,
reflecting an increase in average interest checking and
personal certificates of deposit, partially offset by a decrease
in average noninterest-bearing deposits and money market
savings accounts.
Noninterest-bearing deposits at December 31, 2007,
increased $1.2 billion (3.8 percent) from December 31,
2006. The increase was primarily attributed to an increase in
corporate trust deposits, partially offset by a decline in
consumer and business demand deposits as these customers
utilized deposit balances to fund business growth and meet
other liquidity requirements. Average noninterest-bearing
deposits in 2007 decreased $1.4 billion (4.8 percent),
compared with 2006, due primarily to a decline in business
demand deposits.
Interest-bearing savings deposits increased $1.8 billion
(3.2 percent) at December 31, 2007, compared with
December 31, 2006. The increase in these deposit balances was
primarily related to higher interest checking account balances,
partially offset by a reduction in money market savings
balances. The $4.1 billion (16.2 percent) increase in interest
checking account balances was due to higher broker-dealer,
government and institutional trust balances. The $1.9 billion
(7.3 percent) decrease in money market savings account
balances reflected the Company’s deposit pricing decisions for
money market products in relation to fixed-rate time deposit
products and business customer decisions to utilize deposit
liquidity to fund business requirements. Average interest-
bearing savings deposits in 2007 increased $.9 billion
(1.7 percent), compared with 2006, primarily driven by higher
interest checking account balances of $2.6 billion (10.9 percent),
partially offset by a reduction in money market savings account
balances of $1.3 billion (5.0 percent).
Interest-bearing time deposits at December 31, 2007,
increased $3.5 billion (9.7 percent), compared with
December 31, 2006, primarily driven by an increase in time
deposits greater than $100,000. Time deposits greater than
$100,000 increased $3.2 billion (14.4 percent), including a
$.4 billion (8.9 percent) increase in personal certificates of
deposit, compared with December 31, 2006, as customers
migrated money market balances to these products. Average
time certificates of deposit less than $100,000 increased
$.9 billion (6.5 percent) and average time deposits greater
than $100,000 were basically unchanged in 2007, compared
with 2006. Time deposits greater than $100,000 are largely
viewed as purchased funds and are managed to levels
deemed appropriate given alternative funding sources.
Borrowings The Company utilizes both short-term and long-
term borrowings to fund growth of assets in excess of
deposit growth. Short-term borrowings, which include
federal funds purchased, commercial paper, repurchase
agreements, borrowings secured by high-grade assets and
other short-term borrowings, were $32.4 billion at
December 31, 2007, compared with $26.9 billion at
December 31, 2006. Short-term funding is managed within
approved liquidity policies. The increase of $5.5 billion in
short-term borrowings reflected wholesale funding
associated with the Company’s asset growth and asset/
liability management activities.
Long-term debt was $43.4 billion at December 31, 2007,
compared with $37.6 billion at December 31, 2006, reflecting
the issuances of $3.0 billion of convertible senior debentures,
$1.3 billion of subordinated notes, $1.4 billion of medium-term
notes and $.5 billion of junior subordinated debentures, and
the net addition of $10.1 billion of Federal Home Loan Bank
(“FHLB”) advances, partially offset by long-term debt
maturities and repayments. The $5.8 billion (15.5 percent)
increase in long-term debt reflected wholesale funding
associated with the Company’s asset growth and asset/liability
management activities. Refer to Note 12 of the Notes to
Consolidated Financial Statements for additional information
regarding long-term debt and the “Liquidity Risk
Management” section for discussion of liquidity management
of the Company.
CORPORATE RISK PROFILE
Overview Managing risks is an essential part of successfully
operating a financial services company. The most prominent
risk exposures are credit, residual value, operational, interest
rate, market and liquidity risk. Credit risk is the risk of not
collecting the interest and/or the principal balance of a loan
or investment when it is due. Residual value risk is the
potential reduction in the end-of-term value of leased assets or
the residual cash flows related to asset securitization and
other off-balance sheet structures. Operational risk includes
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