US Bank 2012 Annual Report Download - page 85

needs, demand for collateralized deposits by public entities or
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 related to 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 related to 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 and are recorded at the amounts at
which the securities were acquired or sold, plus accrued
interest. The fair value of collateral received is continually
monitored and additional collateral is obtained or requested
to be returned to the Company as deemed appropriate.
Equity Investments in Operating Entities
Equity investments in public entities in which the Company’s
ownership is less than 20 percent are 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 consumer lending 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
the purchase date, the methods utilized to estimate the
required allowance for credit losses for these loans is similar
to originated loans; however, the Company records a
provision for credit losses only when the required allowance
exceeds any remaining credit discounts. The remaining
differences between the purchase price and the unpaid
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