US Bank 2009 Annual Report Download - page 89

Covered assets represent assets acquired from the FDIC subject to loss sharing agreements and included expected
reimbursements from the FDIC of approximately $3.9 billion at December 31, 2009, and $2.4 billion at December 31, 2008.
The carrying amount of covered assets consisted of purchased impaired loans, purchased nonimpaired loans, and other assets as
shown in the following table:
(Dollar in Millions)
Purchased
impaired
loans
Purchased
nonimpaired
loans
Other
assets Total
Purchased
impaired
loans
Purchased
nonimpaired
loans
Other
assets Total
December 31, 2009 December 31, 2008
Commercial loans . . . . . . . . . . . . . . . . . . . . . $ 86 $ 443 $ – $ 529 $ – $ 127 $ – $ 127
Commercial real estate loans . . . . . . . . . . . . . 3,035 6,724 – 9,759 427 455 – 882
Residential mortgage loans . . . . . . . . . . . . . . 4,712 1,918 – 6,630 5,763 2,022 – 7,785
Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 978 – 1,008 – – –
Foreclosed real estate . . . . . . . . . . . . . . . . . . – – 653 653 – – 274 274
Losses reimbursable by the FDIC . . . . . . . . . . – – 3,933 3,933 – – 2,382 2,382
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,863 $10,063 $4,586 $22,512 $6,190 $2,604 $2,656 $11,450
On the acquisition date, the preliminary estimate of the
contractually required payments receivable for all purchased
impaired loans acquired in the FBOP transaction, including
those covered and not covered under loss sharing agreements
with the FDIC, were $5.0 billion, the cash flows expected to
be collected were $3.3 billion including interest, and the
estimated fair values of the loans were $3.0 billion. These
amounts were determined based upon the estimated
remaining life of the underlying loans, which includes the
effects of estimated prepayments. For the purchased
nonimpaired loans acquired in the FBOP transaction, the
preliminary estimate as of the acquisition date of the
contractually required payments receivable were
$12.7 billion, the contractual cash flows not expected to be
collected were $2.8 billion, and the estimated fair value of
the loans was $8.2 billion. Because of the short time period
between the closing of the FBOP transaction and
December 31, 2009, certain amounts related to purchased
impaired and nonimpaired loans are preliminary estimates.
The Company expects to finalize its analysis of these loans
during the first six months of 2010 and, therefore,
adjustments to the estimated amounts may occur.
At December 31, 2009, $1.1 billion of the purchased
impaired loans acquired in the Downey, PFF and FBOP
transactions, included in covered assets were classified as
nonperforming assets, compared with $298 million at
December 31, 2008, 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 is recognized on other
purchased impaired loans in covered assets through
accretion of the difference between the carrying amount of
those loans and their expected cash flows. The initial
determination of the fair value of the purchased loans
includes the impact of expected credit losses and therefore,
no allowance for credit losses is recorded at the purchase
date. To the extent credit deterioration occurs after the date
of acquisition, the Company records an allowance for loan
losses, net of expected reimbursement from the FDIC under
the loss sharing agreements. There has not been any
significant credit deterioration since the respective
acquisition dates.
Changes in the accretable balance for purchased impaired loans for the Downey, PFF and FBOP transactions were as follows:
Year Ended December 31 (Dollars in Millions) 2009 2008
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,719 $ –
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356 2,774
Accretion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (358) (55)
Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (56) –
Reclassifications (to) from nonaccretable difference, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384 –
Other, including purchase accounting adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (200) –
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,845 $2,719
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
U.S. BANCORP 87