US Bank 2013 Annual Report Download - page 137

The estimated fair values of the Company’s financial instruments as of December 31, are shown in the table below:
2013 2012
Carrying
Amount
Fair Value Carrying
Amount
Fair Value
(Dollars in Millions) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Financial Assets
Cash and due from banks...... $ 8,477 $8,477 $ – $ – $ 8,477 $ 8,252 $8,252 $ – $ – $ 8,252
Federal funds sold and
securities purchased under
resale agreements ........... 163 – 163 – 163 437 – 437 – 437
Investment securities held-to-
maturity ...................... 38,920 2,589 35,678 101 38,368 34,389 2,984 31,845 123 34,952
Loans held for sale (a) ......... 5– – 5 5 19– – 19 19
Loans (b) ....................... 230,857 – – 231,480 231,480 218,765 – – 220,354 220,354
Other financial instruments ..... 2,422 – 1,080 1,362 2,442 7,367 – 1,228 6,157 7,385
Financial Liabilities
Deposits........................ 262,123 – 262,200 – 262,200 249,183 – 249,594 – 249,594
Short-term borrowings (c) ...... 26,945 – 26,863 – 26,863 25,901 – 25,917 – 25,917
Long-term debt................. 20,049 – 20,391 – 20,391 25,516 – 26,205 – 26,205
(a) Excludes mortgages held for sale for which the fair value option under applicable accounting guidance was elected.
(b) Excludes loans measured at fair value on a nonrecurring basis.
(c) Excludes the Company’s obligation on securities sold short required to be accounted for at fair value per applicable accounting guidance.
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 $382 million and
$415 million at December 31, 2013 and 2012, respectively.
The carrying value of other guarantees was $278 million and
$452 million at December 31, 2013 and 2012, respectively.
NOTE 22 Guarantees and Contingent Liabilities
Visa Restructuring and Card Association
Litigation The Company’s payment services business issues
and acquires credit and debit card transactions through the
Visa U.S.A. Inc. card association or its affiliates (collectively
“Visa”). In 2007, Visa completed a restructuring and issued
shares of Visa Inc. common stock to its financial institution
members in contemplation of its initial public offering (“IPO”)
completed in the first quarter of 2008 (the “Visa
Reorganization”). As a part of the Visa Reorganization, the
Company received its proportionate number of shares of Visa
Inc. common stock, which were subsequently converted to
Class B shares of Visa Inc. (“Class B shares”). Visa U.S.A. Inc.
(“Visa U.S.A.”) and MasterCard International (collectively, the
“Card Associations”) are defendants in antitrust lawsuits
challenging the practices of the Card Associations (the “Visa
Litigation”). Visa U.S.A. member banks have a contingent
obligation to indemnify Visa Inc. under the Visa U.S.A. bylaws
(which were modified at the time of the restructuring in October
2007) for potential losses arising from the Visa Litigation. The
indemnification by the Visa U.S.A. member banks has no
specific maximum amount.
Using proceeds from its IPO and through reductions to the
conversion ratio applicable to the Class B shares held by Visa
U.S.A. member banks, Visa Inc. has funded an escrow account
for the benefit of member financial institutions to fund their
indemnification obligations associated with the Visa Litigation.
The receivable related to the escrow account is classified in
other liabilities as a direct offset to the related Visa Litigation
contingent liability. On October 19, 2012, Visa signed a
settlement agreement to resolve class action claims associated
with the multi-district interchange litigation, the largest of the
remaining Visa Litigation matters. The settlement has been
approved by the court, but has been challenged by some class
members and is being appealed. At December 31, 2013, the
carrying amount of the Company’s liability related to the Visa
Litigation matters, net of its share of the escrow fundings, was
$41 million and included the Company’s estimate of its
remaining share of the temporary reduction in interchange rates
specified in the settlement agreement. The remaining Class B
shares held by the Company will be eligible for conversion to
Class A shares, and thereby become marketable, upon final
settlement of the Visa Litigation. These shares are excluded
from the Company’s financial instruments disclosures included
in Note 21.
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
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