US Bank 2009 Annual Report Download - page 77

Held-to-maturity Securities Debt securities for which the
Company has the positive intent and ability to hold to
maturity are reported at historical cost adjusted for
amortization of premiums and accretion of discounts.
Declines in fair value related to other-than-temporary losses,
if any, are reported in noninterest income.
Securities Purchased Under Agreements to Resell and
Securities Sold Under Agreements to Repurchase Securities
purchased under agreements to resell and securities sold
under agreements to repurchase are generally accounted for
as collateralized financing transactions and are recorded at
the amounts at which the securities were acquired or sold,
plus accrued interest. The fair value of collateral received is
continually monitored and additional collateral is obtained
or requested to be returned to the Company as deemed
appropriate.
Equity Investments in Operating Entities
Equity investments in public entities in which the Company’s
ownership is less than 20 percent are accounted for as
available-for-sale securities and are carried at fair value.
Similar investments in private entities are accounted for
using the cost method. Investments in entities where the
Company has a significant influence (generally between
20 percent and 50 percent ownership) but does not control
the entity are accounted for using the equity method.
Limited partnerships and limited liability companies where
the Company’s ownership interest is greater than 5 percent
are accounted for using the equity method. All equity
investments are evaluated for impairment at least annually
and more frequently if certain criteria are met.
Loans
The Company’s accounting methods for loans differ
depending on whether the loans are originated or purchased,
and for purchased loans, whether the loans were acquired at
a discount related to evidence of credit deterioration since
date of origination.
Originated Loans Held for Investment Loans the Company
originates are reported at the principal amount outstanding,
net of unearned income, net deferred loan fees or costs, and
any direct principal charge-offs. Interest income is accrued
on the unpaid principal balances as earned. Loan and
commitment fees and certain direct loan origination costs
are deferred and recognized over the life of the loan and/or
commitment period as yield adjustments.
Purchased Loans All purchased loans (non-impaired and
impaired) acquired on or after January 1, 2009 are initially
measured at fair value as of the acquisition date in
accordance with applicable authoritative accounting
guidance. Credit discounts are included in the determination
of fair value. An allowance for credit losses is not recorded
at the acquisition date for loans purchased on or after
January 1, 2009. In accordance with applicable authoritative
accounting guidance, purchased non-impaired loans acquired
prior to January 1, 2009 were generally recorded at the
predecessor’s carrying value including an allowance for
credit losses.
In determining the acquisition date fair value of
purchased impaired loans, and in subsequent accounting, the
Company generally aggregates purchased consumer loans
and certain smaller balance commercial loans into pools of
loans with common risk characteristics, while accounting for
larger balance commercial loans individually. Expected cash
flows at the purchase date in excess of the fair value of loans
are recorded as interest income over the life of the loans if
the timing and amount of the future cash flows is reasonably
estimable. Subsequent to the purchase date, increases in cash
flows over those expected at the purchase date are
recognized as interest income prospectively. The present
value of any decreases in expected cash flows after the
purchase date is recognized by recording an allowance for
credit losses. Revolving loans, including lines of credit and
credit cards loans, and leases are excluded from purchased
impaired loans accounting.
For purchased loans acquired on or after January 1, 2009
that are not deemed impaired at acquisition, credit discounts
representing the principal losses expected over the life of the
loan are a component of the initial fair value. Subsequent to
the purchase date, the methods utilized to estimate the required
allowance for credit losses for these loans is similar to
originated loans, however, the Company records a provision
for loan losses only when the required allowance, net of any
expected reimbursement under any loss sharing agreements
with the Federal Deposit Insurance Corporation (“FDIC”),
exceeds any remaining credit discounts. The remaining
differences between the purchase price and the unpaid principal
balance at the date of acquisition are recorded in interest
income over the life of the loans.
Covered Assets Loans and foreclosed real estate covered
under loss sharing or similar credit protection agreements
with the FDIC are reported in loans along with the related
indemnification asset. In accordance with applicable
authoritative accounting guidance effective for the
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