US Bank 2008 Annual Report Download - page 107

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Disclosures about Fair Value of Financial Instruments The
table below summarizes the estimated fair value for financial
instruments as of December 31, 2008 and 2007, excluding
financial instruments where fair value approximates carrying
value. In accordance with SFAS 107, the Company did not
include assets and liabilities that are not financial
instruments in the disclosure, such as the value of the long-
term relationships with deposit, credit card and trust
customers, premises and equipment, goodwill and other
intangibles, deferred taxes and other liabilities. Additionally,
the amounts in the table have not been updated since
December 31, 2008, therefore the valuations may have
changed significantly since that point in time. For these
reasons, the total of the fair value calculations presented
does not represent, and should not be construed to
represent, the underlying value of the Company.
(Dollars in Millions)
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
2008 2007
Financial Assets
Investment securities held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 53 $ 54 $ 74 $ 78
Mortgages held for sale(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 14 3,281 3,281
Other loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 468 470 1,538 1,538
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181,715 180,311 151,769 151,512
Financial Liabilities
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159,350 161,196 131,445 131,469
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,983 34,333 32,370 32,580
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,359 38,135 43,440 43,006
(a) Balance excludes mortgages held for sale for which the fair value option under FAS 159 was elected.
The fair value of unfunded commitments, standby letters of credit and other guarantees is approximately equal to their
carrying value. The carrying value of unfunded commitments and standby letters of credit was $238 million. The carrying value
of other guarantees was $302 million.
Note 22 GUARANTEES AND CONTINGENT
LIABILITIES
COMMITMENTS TO EXTEND CREDIT
Commitments to extend credit are legally binding and
generally have fixed expiration dates or other termination
clauses. The contractual amount represents the Company’s
exposure to credit loss, in the event of default by the
borrower. The Company manages this credit risk by using
the same credit policies it applies to loans. Collateral is
obtained to secure commitments based on management’s
credit assessment of the borrower. The collateral may
include marketable securities, receivables, inventory,
equipment and real estate. Since the Company expects many
of the commitments to expire without being drawn, total
commitment amounts do not necessarily represent the
Company’s future liquidity requirements. In addition, the
commitments include consumer credit lines that are
cancelable upon notification to the consumer.
LETTERS OF CREDIT
Standby letters of credit are commitments the Company
issues to guarantee the performance of a customer to a third-
party. The guarantees frequently support public and private
borrowing arrangements, including commercial paper
issuances, bond financings and other similar transactions.
The Company issues commercial letters of credit on behalf
of customers to ensure payment or collection in connection
with trade transactions. In the event of a customer’s
nonperformance, the Company’s credit loss exposure is the
same as in any extension of credit, up to the letter’s
contractual amount. Management assesses the borrower’s
credit to determine the necessary collateral, which may
include marketable securities, receivables, inventory,
equipment and real estate. Since the conditions requiring the
Company to fund letters of credit may not occur, the
Company expects its liquidity requirements to be less than
the total outstanding commitments. The maximum potential
future payments guaranteed by the Company under standby
letter of credit arrangements at December 31, 2008, were
approximately $16.1 billion with a weighted-average term of
approximately 22 months. The estimated fair value of
standby letters of credit was approximately $85 million at
December 31, 2008.
U.S. BANCORP 105