US Bank 2005 Annual Report Download - page 69

Held-to-maturity Securities Debt securities for which the other pertinent factors, including economic conditions. This
Company has the positive intent and ability to hold to evaluation is inherently subjective as it requires estimates,
maturity are reported at historical cost adjusted for including amounts of future cash collections expected on
amortization of premiums and accretion of discounts. nonaccrual loans, which may be susceptible to significant
Declines in fair value that are deemed other than change. The allowance for credit losses relating to impaired
temporary, if any, are reported in noninterest income. loans is based on the loan’s observable market price, the
collateral for certain collateral-dependent loans, or the
Securities Purchased Under Agreements to Resell and discounted cash flows using the loan’s effective interest rate.
Securities Sold Under Agreements to Repurchase The Company determines the amount of the allowance
Securities purchased under agreements to resell and required for certain sectors based on relative risk
securities sold under agreements to repurchase are generally characteristics of the loan portfolio. The allowance recorded
accounted for as collateralized financing transactions and for commercial loans is based on quarterly reviews of
are recorded at the amounts at which the securities were individual credit relationships and an analysis of the
acquired or sold, plus accrued interest. The fair value of migration of commercial loans and actual loss experience.
collateral received is continually monitored and additional The allowance recorded for homogeneous consumer loans is
collateral obtained or requested to be returned to the based on an analysis of product mix, risk characteristics of
Company as deemed appropriate. the portfolio, bankruptcy experiences, and historical losses,
adjusted for current trends, for each homogenous category
EQUITY INVESTMENTS IN OPERATING 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, letters of credit,
Investments in entities where ownership interest is between and derivatives and determines the appropriate amount of
20 percent and 50 percent are accounted for using the credit loss liability that should be recorded. The liability for
equity method with the exception of limited partnerships off-balance sheet credit exposure related to loan
and limited liability companies where an ownership interest commitments and other financial instruments is included in
of greater than 5 percent requires the use of the equity other liabilities.
method. If the Company has a voting interest greater than
Nonaccrual Loans Generally commercial loans (including
50 percent, the consolidation method is used. All equity impaired loans) are placed on nonaccrual status when the
investments are evaluated for impairment at least annually collection of interest or principal has become 90 days past
and more frequently if certain criteria are met. due or is otherwise considered doubtful. When a loan is
placed on nonaccrual status, unpaid accrued interest is
LOANS
reversed. Future interest payments are generally applied
Loans are reported net of unearned income. Interest income against principal. Revolving consumer lines and credit cards
is accrued on the unpaid principal balances as earned. Loan are charged off by 180 days past due and closed-end
and commitment fees and certain direct loan origination consumer loans other than loans secured by 1-4 family
costs are deferred and recognized over the life of the loan properties are charged off at 120 days past due and are,
and/or commitment period as yield adjustments. therefore, generally not placed on nonaccrual status. Certain
retail customers having financial difficulties may have the
Commitments to Extend Credit Unfunded residential
terms of their credit card and other loan agreements
mortgage loan commitments entered into in connection with
modified to require only principal payments and, as such,
mortgage banking activities are considered derivatives and
are reported as nonaccrual.
recorded on the balance sheet at fair value with changes in
fair value recorded in income. All other unfunded loan Impaired Loans A loan is considered to be impaired when,
commitments are generally related to providing credit based on current information and events, it is probable that
facilities to customers of the bank and are not actively the Company will be unable to collect all amounts due
traded financial instruments. These unfunded commitments (both interest and principal) according to the contractual
are disclosed as off-balance sheet financial instruments in terms of the loan agreement.
Note 23 in the Notes to Consolidated Financial Statements.
Restructured Loans In cases where a borrower experiences
Allowance for Credit Losses Management determines the financial difficulties and the Company makes certain
adequacy of the allowance based on evaluations of credit concessionary modifications to contractual terms, the loan is
relationships, the loan portfolio, recent loss experience, and classified as a restructured loan. Loans restructured at a rate
U.S. BANCORP 67