US Bank 2008 Annual Report Download - page 33

December 31, 2007. 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 and higher
government agency securities, partially offset by sales,
maturities and prepayments, as well as realized and
unrealized losses on investment securities. The weighted-
average yield of the available-for-sale portfolio was
4.55 percent at December 31, 2008, compared with
5.51 percent at December 31, 2007. The average maturity of
the available-for-sale portfolio increased to 7.7 years at
December 31, 2008, from 7.4 years at December 31, 2007.
Investment securities by type are shown in Table 11.
The Company conducts a regular assessment of its
investment portfolios to determine whether any securities are
other-than-temporarily impaired. At December 31, 2008, the
available-for-sale securities portfolio included a $2.8 billion
net unrealized loss, compared with a net unrealized loss of
$1.1 billion at December 31, 2007. When assessing
impairment, the Company considers the nature of the
investment, the financial condition of the issuer, the extent
and duration of unrealized loss, expected cash flows of
underlying collateral or assets, market conditions, and the
Company’s ability and intent to hold securities until
recovery. The Company intends to hold available-for-sale
securities with unrealized losses until recovery. The majority
of securities with unrealized losses were either obligations of
state and political subdivisions or non-agency securities with
high investment grade credit ratings and limited credit
exposure. Some securities classified within obligations of
state and political subdivisions are supported by mono-line
insurers. Because mono-line insurers have experienced credit
rating downgrades, management continuously monitors the
underlying credit quality of the issuers and the support of
the mono-line insurers. As of December 31, 2008,
approximately 6 percent of the available-for-sale securities
portfolio represented perpetual preferred securities and trust
preferred securities, primarily issued by the financial services
sector, or structured investment securities. The unrealized
losses for these securities were approximately $941 million
at December 31, 2008.
There is limited market activity for the structured
investment securities and certain non-agency securities held
by the Company, so the Company’s valuation is determined
using estimates of expected cash flows, discount rates and
management’s assessment of various market factors, which
are judgmental in nature. As a result of the valuation of
these securities and impairment assessment, in 2008 the
Company recorded $232 million of other-than-temporary
impairment on certain investment securities, including
certain non-agency mortgage-backed securities, GSE
preferred stock and perpetual preferred stock of failed
institutions. The Company also recorded $788 million of
impairment charges on structured investment and related
securities during 2008. These impairment charges were a
result of wider market spreads for these types of securities
due to market illiquidity, as well as changes in expected cash
flows resulting from the continuing decline in housing prices
and an increase in foreclosure activity. Further adverse
changes in market conditions may result in additional
impairment charges in future periods. The Company expects
approximately $501 million of principal payments will not
be received for the structured investment-related and non-
agency securities it has impaired. During 2008, the
Company exchanged its interest in certain structured
investment securities and received its pro rata share of the
underlying investment securities as an in-kind distribution
according to the applicable restructuring agreements.
Refer to Note 5 in the Notes to Consolidated Financial
Statements for further information on investment securities.
U.S. BANCORP 31
Table 10 SELECTED LOAN MATURITY DISTRIBUTION
December 31, 2008 (Dollars in Millions)
One Year
or Less
Over One
Through
Five Years
Over Five
Years Total
Commercial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $22,850 $29,753 $ 4,015 $ 56,618
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,359 15,735 7,119 33,213
Residential mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,172 2,665 19,743 23,580
Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,849 22,518 16,001 60,368
Covered assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,870 959 6,621 11,450
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $60,100 $71,630 $53,499 $185,229
Total of loans due after one year with
Predetermined interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 73,023
Floating interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $112,206