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The carrying amount of the covered assets at December 31, 2008, consisted of loans accounted for in accordance with
SOP 03-3 (“SOP 03-3 loans”), loans not subject to SOP 03-3 (“Non SOP 03-3 loans”) and other assets as shown in the
following table:
(Dollars in Millions)
SOP 03-3
Loans
Non SOP 03-3
Loans Other Total
Residential mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,763 $2,022 $ – $ 7,785
Commercial real estate loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 427 455 – 882
Commercial loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 127 – 127
Other real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 274 274
Estimated loss reimbursement from the FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 2,382 2,382
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,190 $2,604 $2,656 $11,450
On the acquisition date, the preliminary estimate of the
contractually required payments receivable for all SOP 03-3
loans acquired in the Downey and PFF transactions,
including those covered and not covered under Loss Sharing
Agreements with the FDIC, were $22.8 billion, the cash
flows expected to be collected were $9.2 billion including
interest, and the estimated fair value of the loans was
$6.5 billion. These amounts were determined based upon the
estimated remaining life of the underlying loans, which
include the effects of estimated prepayments. At
December 31, 2008, $309 million of these loans were
classified as nonperforming assets because the expected cash
flows are primarily based on the liquidation of underlying
collateral and the timing and amount of the cash flows
could not be reasonably estimated. Interest income, through
accretion of the difference between the carrying amount of
the SOP 03-3 loans and the expected cash flows, is expected
to be recognized on the remaining $6.0 billion of loans.
There was no allowance for credit losses related to these
SOP 03-3 loans at December 31, 2008. Because of the short
time period between the closing of the transaction and
December 31, 2008, certain amounts related to the
SOP 03-3 loans are preliminary estimates. The Company
expects to finalize its analysis of these loans during the first
six months of 2009 and, therefore, adjustments to the
estimated amounts may occur.
Changes in the carrying amount and accretable yield for loans subject to SOP 03-3 were as follows for the year ended
December 31, 2008:
(Dollars in Millions)
Accretable
Yield
Carrying
Amount
of Loans
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ – $ –
Purchases (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,774 6,453
Payments received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – (200)
Accretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (55) 55
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,719 $6,308
(a) Represents the fair value of the loans at acquisition.
Nonperforming assets include nonaccrual loans,
restructured loans not performing in accordance with
modified terms, other real estate and other nonperforming
assets owned by the Company. For details of the Company’s
nonperforming assets as of December 31, 2008 and 2007,
see Table 14 included in Management’s Discussion and
Analysis which is incorporated by reference into these Notes
to Consolidated Financial Statements.
The following table lists information related to nonperforming loans as of December 31:
(Dollars in Millions) 2008 2007
Loans on nonaccrual status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,260 $540
Restructured loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 17
Total nonperforming loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,411 $557
Interest income that would have been recognized at original contractual terms . . . . . . . . . . . . . . . . . . . . . . . . . $ 123 $ 60
Amount recognized as interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 19
Forgone revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 80 $ 41
U.S. BANCORP 81