US Bank 2014 Annual Report Download - page 89

Available-for-sale Securities These securities are not
trading securities but may be sold before maturity in
response to changes in the Company’s interest rate risk
profile, funding needs, demand for collateralized deposits by
public entities or other reasons. Available-for-sale securities
are carried at fair value with unrealized net gains or losses
reported within other comprehensive income (loss) in
shareholders’ equity. Declines in fair value for credit-related
other-than-temporary impairment, if any, are reported in
noninterest income.
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 for credit-related other-than-
temporary impairment, 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
accounted for as collateralized financing transactions with a
receivable or payable recorded at the amounts at which the
securities were acquired or sold, plus accrued interest.
Collateral requirements are continually monitored and
additional collateral is received or provided as required. The
Company records a receivable or payable for cash collateral
paid or received.
EQUITY INVESTMENTS IN OPERATING ENTITIES
Equity investments in public entities in which the Company’s
ownership is less than 20 percent are generally 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.
Investments in 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 offers a broad array of lending products and
categorizes its loan portfolio into three segments, which is
the level at which it develops and documents a systematic
methodology to determine the allowance for credit losses.
The Company’s three loan portfolio segments are
commercial lending, consumer lending and covered loans.
The Company further disaggregates its loan portfolio
segments into various classes based on their underlying risk
characteristics. The two classes within the commercial
lending segment are commercial loans and commercial real
estate loans. The three classes within the consumer lending
segment are residential mortgages, credit card loans and
other retail loans. The covered loan segment consists of only
one class.
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 as held for investment 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 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 after January 1,
2009. In accordance with applicable authoritative accounting
guidance, purchased non-impaired loans acquired in a
business combination 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
U.S. BANCORP The power of potential
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