US Bank 2011 Annual Report Download - page 34

Investment Securities The Company uses its investment
securities portfolio to manage enterprise interest rate risk,
provide liquidity (including the ability to meet proposed
regulatory requirements), generate interest and dividend
income, and as collateral for public deposits and wholesale
funding sources. While the Company intends to hold its
investment securities indefinitely, it may sell available-for-sale
securities in response to structural changes in the balance
sheet and related interest rate risk and to meet liquidity
requirements, among other factors.
Investment securities totaled $70.8 billion at
December 31, 2011, compared with $53.0 billion at
December 31, 2010. The $17.8 billion (33.7 percent) increase
primarily reflected $16.6 billion of net investment purchases
and a $927 million favorable change in unrealized gains
(losses) on available-for-sale investment securities.
Held-to-maturity securities were $18.9 billion at
December 31, 2011, compared with $1.5 billion at
December 31, 2010, primarily reflecting planned growth in
U.S. Treasury and government agency mortgage-backed
securities, as the Company increased its on-balance sheet
liquidity in response to anticipated regulatory requirements.
Average investment securities were $63.6 billion in 2011,
compared with $47.8 billion in 2010. The weighted-average
yield of the available-for-sale portfolio was 3.19 percent at
December 31, 2011, compared with 3.41 percent at
December 31, 2010. The average maturity of the
available-for-sale portfolio was 5.2 years at December 31,
2011, compared with 7.4 years at December 31, 2010. The
weighted-average yield of the held-to-maturity portfolio was
2.21 percent at December 31, 2011, compared with 2.07
percent at December 31, 2010. The average maturity of the
held-to-maturity portfolio was 3.9 years at December 31,
2011, compared with 6.3 years at December 31, 2010.
Investment securities by type are shown in Table 13.
At December 31, 2011, the Company’s net unrealized
gain on available-for-sale securities was $581 million,
compared with a net unrealized loss of $346 million at
December 31, 2010. The favorable change in net unrealized
gains (losses) was primarily due to increases in the fair value
of state and political securities and agency mortgage-backed
securities. Unrealized losses on available-for-sale securities in
an unrealized loss position totaled $691 million at
December 31, 2011, compared with $1.2 billion at
December 31, 2010. The Company conducts a regular
assessment of its investment portfolio to determine whether
any securities are other-than-temporarily impaired. When
assessing unrealized losses for other-than-temporary
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 assets and market conditions. At December 31,
2011, the Company had no plans to sell securities with
unrealized losses and believes it is more likely than not that it
would not be required to sell such securities before recovery of
their amortized cost.
There is limited market activity for non-agency mortgage-
backed securities held by the Company. As a result, the
Company estimates the fair value of these securities using
estimates of expected cash flows, discount rates and
management’s assessment of various other market factors,
which are judgmental in nature. The Company recorded
$35 million of impairment charges in earnings during 2011
predominately on non-agency mortgage-backed securities.
These impairment charges were due to changes in expected
cash flows primarily resulting from increases in defaults in the
underlying mortgage pools. Further adverse changes in
security performance or market conditions may result in
additional impairment charges in future periods.
During 2010, the Company recognized impairment
charges in earnings of $91 million predominately on
non-agency mortgage-backed and structured investment-
related securities. These impairment charges were due to
changes in expected cash flows resulting from increases in
defaults in the underlying mortgage pools and regulatory
actions in the first quarter of 2010 related to an insurer of
some of the securities.
Refer to Notes 5 and 21 in the Notes to Consolidated
Financial Statements for further information on investment
securities.
Deposits Total deposits were $230.9 billion at December 31,
2011, compared with $204.3 billion at December 31, 2010.
The $26.6 billion (13.0 percent) increase in total deposits
reflected organic growth in core deposits due to the overall
“flight-to-quality” by customers. Average total deposits
increased $28.4 billion (15.4 percent) over 2010 due to
increases in noninterest-bearing and total savings account
balances, reflecting organic growth, as well as acquisitions.
Noninterest-bearing deposits at December 31, 2011,
increased $23.3 billion (51.3 percent) over December 31,
2010. Average noninterest-bearing deposits increased $13.7
billion (34.1 percent) in 2011, compared with 2010. The
increase was primarily due to growth in Wholesale Banking
and Commercial Real Estate, and Wealth Management and
Securities Services balances.
Interest-bearing savings deposits increased $5.5 billion
(4.8 percent) at December 31, 2011, compared with
December 31, 2010. The increase in these deposit balances
was related to increases in savings and interest checking
balances, partially offset by lower money market savings
account balances. The $3.8 billion (15.5 percent) increase in
savings account balances reflected continued strong
participation in a savings product offered by Consumer and
Small Business Banking that includes multiple bank products
in a package. The $2.8 billion (6.4 percent) increase in interest
checking account balances was primarily due to higher
Consumer and Small Business Banking, national corporate
32 U.S. BANCORP