US Bank 2008 Annual Report Download - page 86

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$479 million of total assets related to various VIEs were
consolidated by the Company in its financial statements.
Creditors of these VIEs have no recourse to the general
credit of the Company. The Company is not required to
consolidate other VIEs as it is not the primary beneficiary. In
such cases, the Company does not absorb the majority of the
entities’ expected losses nor does it receive a majority of the
entities’ expected residual returns. At December 31, 2008,
the amounts of the Company’s investment in unconsolidated
VIEs ranged from less than $1 million to $55 million with
an aggregate amount of approximately $2.1 billion. While
the Company believes potential losses from these
investments is remote, the Company’s maximum exposure to
these unconsolidated VIEs, including any tax implications,
was approximately $3.9 billion at December 31, 2008,
assuming that all of the separate investments within the
individual private funds are deemed worthless and the
community-based business and housing projects, and related
tax credits, completely failed and did not meet certain
government compliance requirements.
Note 9 PREMISES AND EQUIPMENT
Premises and equipment at December 31 consisted of the following:
(Dollars in Millions) 2008 2007
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 343 $ 335
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,465 2,432
Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,487 2,463
Capitalized building and equipment leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 164
Construction in progress. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 8
5,492 5,402
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,702) (3,623)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,790 $ 1,779
Note 10 MORTGAGE SERVICING RIGHTS
The Company serviced $120.3 billion of residential
mortgage loans for others at December 31, 2008, and
$97.0 billion at December 31, 2007. The net impact of
assumption changes on the fair value of MSRs, and fair
value changes of derivatives used to offset MSR value
changes included in mortgage banking revenue and net
interest income was a loss of $122 million, $35 million and
$37 million for the years ended December 31, 2008, 2007
and 2006, respectively. Loan servicing fees, not including
valuation changes, included in mortgage banking revenue
were $404 million, $353 million and $319 million for the
years ended December 31, 2008, 2007 and 2006,
respectively.
Changes in fair value of capitalized MSRs are summarized as follows:
Year Ended December 31 (Dollars in Millions) 2008 2007 2006
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,462 $1,427 $1,123
Rights purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 14 52
Rights capitalized. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 515 440 398
Rights sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – (130) –
Changes in fair value of MSRs:
Due to change in valuation assumptions (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (592) (102) 26
Other changes in fair value (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (243) (187) (172)
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,194 $1,462 $1,427
(a) Principally reflects changes in discount rates and prepayment speed assumptions, primarily arising from interest rate changes.
(b) Primarily represents changes due to collection/realization of expected cash flows over time (decay).
The estimated sensitivity to changes in interest rates of the fair value of the MSRs portfolio and the related derivative
instruments at December 31, 2008, was as follows:
(Dollars in Millions) 50 bps 25 bps 25 bps 50 bps
Down Scenario Up Scenario
Net fair value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(4) $(7) $6 $12
84 U.S. BANCORP