US Bank 2013 Annual Report Download - page 93

The Company determined the other-than-temporary
impairment recorded in earnings for debt securities not
intended to be sold by estimating the future cash flows of
each individual investment security, using market information
where available, and discounting the cash flows at the
original effective rate of the investment security. Other-than-
temporary impairment recorded in other comprehensive
income (loss) was measured as the difference between that
discounted amount and the fair value of each investment
security. For perpetual preferred securities determined to be
other-than-temporarily impaired, the Company recorded a
loss in earnings for the entire difference between the
securities’ fair value and their amortized cost.
The following table includes the ranges for significant assumptions used for those available-for-sale non-agency mortgage-
backed securities determined to be other-than-temporarily impaired:
Prime (a) Non-Prime (b)
Minimum Maximum Average Minimum Maximum Average
December 31, 2013
Estimated lifetime prepayment rates ........................................ 7% 18% 15% 4% 9% 5%
Lifetime probability of default rates .......................................... 3 7 5 7 12 9
Lifetime loss severity rates .................................................. 30 50 48 50 65 58
December 31, 2012
Estimated lifetime prepayment rates ........................................ 6% 22% 14% 3% 10% 6%
Lifetime probability of default rates .......................................... 3 6 4 3 10 7
Lifetime loss severity rates .................................................. 40 50 47 45 65 56
(a) Prime securities are those designated as such by the issuer at origination. When an issuer designation is unavailable, the Company determines at acquisition date the categorization
based on asset pool characteristics (such as weighted-average credit score, loan-to-value, loan type, prevalence of low documentation loans) and deal performance (such as pool
delinquencies and security market spreads).
(b) Includes all securities not meeting the conditions to be designated as prime.
Changes in the credit losses on debt securities (excluding perpetual preferred securities) are summarized as follows:
Year Ended December 31 (Dollars in Millions) 2013 2012 2011
Balance at beginning of period ......................................................................................... $134 $ 298 $358
Additions to Credit Losses Due to Other-than-temporary Impairments
Credit losses on securities not previously considered other-than-temporarily impaired ............................. –67
Decreases in expected cash flows on securities for which other-than-temporary impairment was previously
recognized ........................................................................................................ 14 41 28
Total other-than-temporary impairment on debt securities ........................................................ 14 47 35
Other Changes in Credit Losses
Increases in expected cash flows ................................................................................... (2) (15) (21)
Realized losses (a) ................................................................................................... (23) (39) (73)
Credit losses on security sales and securities expected to be sold ................................................. (7) (157) (1)
Balance at end of period ............................................................................................... $116 $ 134 $298
(a) Primarily represents principal losses allocated to mortgage and asset-backed securities in the Company’s portfolio under the terms of the securitization transaction documents.
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