US Bank 2011 Annual Report Download - page 123

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Disclosures about Fair Value of Financial Instruments The
following table summarizes the estimated fair value for
financial instruments as of December 31, 2011 and 2010, and
includes financial instruments that are not accounted for at
fair value. In accordance with disclosure guidance related to
fair values of financial instruments, the Company did not
include assets and liabilities that are not financial instruments,
such as the value of goodwill, long-term relationships with
deposit, credit card, merchant processing and trust customers,
other purchased intangibles, premises and equipment, deferred
taxes and other liabilities.
The estimated fair values of the Company’s financial instruments as of December 31, are shown in the table below:
2011 2010
(Dollars in Millions)
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Financial Assets
Cash and due from banks ................................................... $ 13,962 $ 13,962 $ 14,487 $ 14,487
Investment securities held-to-maturity ...................................... 18,877 19,216 1,469 1,419
Mortgages held for sale (a) .................................................. 3 3 4 4
Other loans held for sale .................................................... 228 228 267 267
Loans ........................................................................ 205,082 206,646 191,751 192,058
Financial Liabilities
Deposits ..................................................................... 230,885 231,184 204,252 204,799
Short-term borrowings ...................................................... 30,468 30,448 32,557 32,839
Long-term debt .............................................................. 31,953 32,664 31,537 31,981
(a) Balance excludes mortgages held for sale for which the fair value option under applicable accounting guidance was elected.
The fair value of unfunded commitments, standby letters of credit and other guarantees is approximately equal to their
carrying value. The carrying value of unfunded commitments and standby letters of credit was $381 million and $353 million at
December 31, 2011 and 2010, respectively. The carrying value of other guarantees was $359 million and $330 million at
December 31, 2011 and 2010, respectively.
NOTE 22 Guarantees and Contingent
Liabilities
Commitments to Extend Credit
Commitments to extend credit are legally binding and
generally have fixed expiration dates or other termination
clauses. The contractual amount represents the Company’s
exposure to credit loss, in the event of default by the
borrower. The Company manages this credit risk by using the
same credit policies it applies to loans. Collateral is obtained
to secure commitments based on management’s credit
assessment of the borrower. The collateral may include
marketable securities, receivables, inventory, equipment and
real estate. Since the Company expects many of the
commitments to expire without being drawn, total
commitment amounts do not necessarily represent the
Company’s future liquidity requirements. In addition, the
commitments include consumer credit lines that are cancelable
upon notification to the consumer.
Letters of Credit
Standby letters of credit are commitments the Company issues
to guarantee the performance of a customer to a third party.
The guarantees frequently support public and private
borrowing arrangements, including commercial paper
issuances, bond financings and other similar transactions. The
Company issues commercial letters of credit on behalf of
customers to ensure payment or collection in connection with
trade transactions. In the event of a customer’s
nonperformance, the Company’s credit loss exposure is the
same as in any extension of credit, up to the letter’s
contractual amount. Management assesses the borrower’s
credit to determine the necessary collateral, which may
include marketable securities, receivables, inventory,
equipment and real estate. Since the conditions requiring the
Company to fund letters of credit may not occur, the
Company expects its liquidity requirements to be less than the
total outstanding commitments. The maximum potential
future payments guaranteed by the Company under standby
letter of credit arrangements at December 31, 2011, were
approximately $19.2 billion with a weighted-average term of
approximately 22 months. The estimated fair value of standby
letters of credit was approximately $97 million at
December 31, 2011.
U.S. BANCORP 121