US Bank 2008 Annual Report Download - page 80

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The following table provides information as to the amount of gross gains and losses realized through the sales of available-for-
sale investment securities:
Year Ended December 31 (Dollars in Millions) 2008 2007 2006
Realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $43 $15 $15
Realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) – (1)
Net realized gains (losses). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $42 $15 $14
Income tax (benefit) on realized gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16 $ 6 $ 5
Included in available-for-sale investment securities are
structured investment vehicle and related securities (“SIVs”)
purchased in the fourth quarter of 2007 from certain money
market funds managed by FAF Advisors, Inc., an affiliate of
the Company. During 2008, the Company exchanged its
interest in certain SIVs for a pro rata portion of the
underlying investment securities according to the applicable
restructuring agreements. The carrying amounts of
exchanged SIVs were allocated to the investment securities
received based on relative fair value. The SIVs and the
investment securities received are collectively referred to as
“SIV-related investments.” Some of these securities
evidenced credit deterioration at time of acquisition by the
Company. SOP 03-3 requires the difference between the
total expected cash flows for these securities and the initial
recorded investment to be recognized in earnings over the
life of the securities, using a level yield. If subsequent
decreases in the fair value of these securities are
accompanied by an adverse change in the expected cash
flows, an other-than-temporary impairment will be recorded
through earnings. Subsequent increases in the expected cash
flows will be recognized as income prospectively over the
remaining life of the securities by increasing the level yield.
During 2008 the Company recorded $550 million of
impairment charges on SIV-related investments subject to
SOP 03-3, primarily as a result of widening market spreads
and changes in expected cash flows.
Changes in the carrying amount and accretable yield of SIV-related investments subject to SOP 03-3 were as follows:
Years Ended December 31 (Dollars in Millions)
Accretable
Yield
Carrying
Amount
of Debt
Securities
Accretable
Yield
Carrying
Amount
of Debt
Securities
2008 2007
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $105 $ 2,427 $ – $ –
Purchases (a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 107 2,445
Payments received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – (274) – (20)
Impairment writedowns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284 (550) – –
Accretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15) 15 (2) 2
Transfers out (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25) (1,110) – –
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $349 $ 508 $105 $2,427
(a) Represents the fair value of the securities at acquisition.
(b) Represents investment securities not subject to SOP 03-3 received in exchange for SIVs.
The Company conducts a regular assessment of its
investment portfolios to determine whether any securities are
other-than-temporarily impaired considering, among other
factors, the nature of the securities, credit ratings or
financial condition of the issuer, the extent and duration of
the unrealized loss, expected cash flows of underlying
collateral, market conditions and the Company’s ability and
intent to hold the securities through the anticipated recovery
period. In addition to the other-than-temporary impairment
recorded on the SIV-related investments subject to SOP 03-3,
the Company recorded other-than-temporary impairment
charges of $470 million during 2008 on certain other SIV-
related investments and other investment securities.
78 U.S. BANCORP