US Bank 2015 Annual Report Download - page 91

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 prospectively. The present
value of any decreases in expected cash flows, other than
from decreases in variable interest rates, 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 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
—89 —