US Bank 2008 Annual Report Download - page 24

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principally a result of growth in corporate and commercial
banking balances as new and existing business customers
used bank credit facilities to fund business growth and
liquidity requirements. The growth in average commercial
real estate balances reflected new business growth, primarily
in business owner-occupied and commercial properties,
driven by capital market conditions and the acquisition of
Mellon 1st Business Bank. The increase in residential
mortgages reflected increased origination activity as a result
of current market interest rate declines. Average covered
assets of $1.3 billion consisted of loans and foreclosed real
estate acquired in the Downey and PFF acquisitions.
Approximately 70 percent of the covered assets are single
family residential mortgages.
Average investment securities were $1.5 billion
(3.7 percent) higher in 2008, compared with 2007. The
increase principally reflected the full year impact of holding
the structured investment securities the Company purchased
in the fourth quarter of 2007 from certain money market
funds managed by an affiliate, higher government agency
securities, 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 the Mellon
1st Business Bank acquisition.
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. The decline in time certificates of deposit less than
$100,000 was 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 given current market conditions.
The decline in net interest income in 2007, compared
with 2006, reflected growth in average earning assets, more
than offset by a lower net interest margin. The $8.5 billion
(4.5 percent) increase in average earning assets for 2007,
compared with 2006, was primarily driven by growth in
average loans and average investment securities. The
18 basis point decline in net interest margin in 2007,
compared with 2006, reflected the competitive business
environment in 2007, the impact of a flat yield curve during
the first half of the year and lower net free funds. In
addition, funding costs were higher because rates paid on
interest-bearing deposits increased and the funding mix
shifted toward higher cost deposits, as customers migrated
22 U.S. BANCORP
Table 2 ANALYSIS OF NET INTEREST INCOME
(Dollars in Millions) 2008 2007 2006
2008
v 2007
2007
v 2006
Components of Net Interest Income
Income on earning assets (taxable-equivalent basis) (a) . . $ 12,630 $ 13,309 $ 12,351 $ (679) $ 958
Expense on interest-bearing liabilities (taxable-equivalent
basis) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,764 6,545 5,561 (1,781) 984
Net interest income (taxable-equivalent basis) . . . . . . . . . . . $ 7,866 $ 6,764 $ 6,790 $ 1,102 $ (26)
Net interest income, as reported . . . . . . . . . . . . . . . . . . . . $ 7,732 $ 6,689 $ 6,741 $ 1,043 $ (52)
Average Yields and Rates Paid
Earning assets yield (taxable-equivalent basis) . . . . . . . . 5.87% 6.84% 6.63% (.97)% .21%
Rate paid on interest-bearing liabilities (taxable-equivalent
basis) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.58 3.91 3.55 (1.33) .36
Gross interest margin (taxable-equivalent basis) . . . . . . . . . 3.29% 2.93% 3.08% .36% (.15)%
Net interest margin (taxable-equivalent basis) . . . . . . . . . . . 3.66% 3.47% 3.65% .19% (.18)%
Average Balances
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,850 $ 41,313 $ 39,961 $ 1,537 $ 1,352
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165,552 147,348 140,601 18,204 6,747
Earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215,046 194,683 186,231 20,363 8,452
Interest-bearing liabilities. . . . . . . . . . . . . . . . . . . . . . . 184,932 167,196 156,613 17,736 10,583
Net free funds (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,114 27,487 29,618 2,627 (2,131)
(a) Interest and rates are presented on a fully taxable-equivalent basis utilizing a federal tax rate of 35 percent.
(b) Represents noninterest-bearing deposits, other noninterest-bearing liabilities and equity, allowance for loan losses, and unrealized gain (loss) on available-for-sale securities, less non-earning
assets.