US Bank 2004 Annual Report Download - page 71
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Please find page 71 of the 2004 US Bank annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Declines in fair value that are deemed other than subjective as it requires estimates, including amounts of
temporary, if any, are reported in noninterest income. future cash collections expected on nonaccrual loans, which
may be susceptible to significant change. The allowance for
Securities Purchased Under Agreements to Resell and credit losses relating to impaired loans is based on the
Securities Sold Under Agreements to Repurchase loan’s observable market price, the collateral for certain
Securities purchased under agreements to resell and collateral-dependent loans, or the discounted cash flows
securities sold under agreements to repurchase are generally using the loan’s effective interest rate.
accounted for as collateralized financing transactions and The Company determines the amount of the allowance
are recorded at the amounts at which the securities were required for certain sectors based on relative risk
acquired or sold, plus accrued interest. Securities pledged as characteristics of the loan portfolio. The allowance recorded
collateral under these financing arrangements cannot be sold for commercial loans is based on quarterly reviews of
or repledged by the secured party. The fair value of individual credit relationships and an analysis of the
collateral received is continually monitored and additional migration of commercial loans and actual loss experience.
collateral obtained or requested to be returned to the The allowance recorded for homogeneous consumer loans is
Company as deemed appropriate. based on an analysis of product mix, risk characteristics of
the portfolio, bankruptcy experiences, and historical losses,
EQUITY INVESTMENTS IN OPERATING adjusted for current trends, for each homogenous category
ENTITIES or group of loans. The allowance is increased through
Equity investments in public entities in which ownership is provisions charged to operating earnings and reduced by net
less than 20 percent are accounted for as available-for-sale charge-offs.
securities and carried at fair value. Similar investments in The Company also assesses the credit risk associated
private entities are accounted for using the cost method. with off-balance sheet loan commitments and letters of
Investments in entities where ownership interest is between credit and determines the appropriate amount of credit loss
20 percent and 50 percent are accounted for using the liability that should be recorded. The liability for off-
equity method with the exception of limited partnerships balance sheet credit exposure related to loan commitments
and limited liability companies where an ownership interest is included in the allowance for credit losses.
of greater than 5 percent requires the use of the equity
Nonaccrual Loans Generally commercial loans (including
method. If the Company has a voting interest greater than impaired loans) are placed on nonaccrual status when the
50 percent, the consolidation method is used. All equity collection of interest or principal has become 90 days past
investments are evaluated for impairment at least annually due or is otherwise considered doubtful. When a loan is
and more frequently if certain criteria are met. placed on nonaccrual status, unpaid accrued interest is
reversed. Future interest payments are generally applied
LOANS
against principal. Revolving consumer lines and credit cards
Loans are reported net of unearned income. Interest income are charged off by 180 days past due and closed-end
is accrued on the unpaid principal balances as earned. Loan consumer loans other than loans secured by 1-4 family
and commitment fees and certain direct loan origination properties are charged off at 120 days past due and are,
costs are deferred and recognized over the life of the loan therefore, generally not placed on nonaccrual status.
and/or commitment period as yield adjustments.
Impaired Loans A loan is considered to be impaired when,
Commitments to Extend Credit Unfunded residential based on current information and events, it is probable that
mortgage loan commitments entered into in connection with the Company will be unable to collect all amounts due
mortgage banking activities are considered derivatives and (both interest and principal) according to the contractual
recorded on the balance sheet at fair value with changes in terms of the loan agreement.
fair value recorded in income. All other unfunded loan
Restructured Loans In cases where a borrower experiences
commitments are generally related to providing credit financial difficulties and the Company makes certain
facilities to customers of the bank and are not actively concessionary modifications to contractual terms, the loan is
traded financial instruments. These unfunded commitments classified as a restructured loan. Loans restructured at a rate
are disclosed as off-balance sheet financial instruments in equal to or greater than that of a new loan with
Note 24 in the Notes to Consolidated Financial Statements. comparable risk at the time the contract is modified may be
Allowance for Credit Losses Management determines the excluded from restructured loans in the calendar years
adequacy of the allowance based on evaluations of the loan subsequent to the restructuring if they are in compliance
portfolio, recent loss experience, and other pertinent factors, with the modified terms.
including economic conditions. This evaluation is inherently
U.S. BANCORP 69