US Bank 2013 Annual Report Download - page 87

Credit card and other retail loan modifications are
generally part of two distinct restructuring programs. The
Company offers workout programs providing customers
experiencing financial difficulty with modifications whereby
balances may be amortized up to 60 months, and generally
include waiver of fees and reduced interest rates. The
Company also provides modification programs to qualifying
customers experiencing a temporary financial hardship in
which reductions are made to monthly required minimum
payments for up to 12 months. Balances related to these
programs are generally frozen; however, accounts may be
reopened upon successful exit of the program, in which
account privileges may be restored.
In addition, the Company considers secured loans to
consumer borrowers that have debt discharged through
bankruptcy where the borrower has not reaffirmed the debt
to be TDRs.
Modifications to loans in the covered segment are
similar in nature to that described above for non-covered
loans, and the evaluation and determination of TDR status is
similar, except that acquired loans restructured after
acquisition are not considered TDRs for purposes of the
Company’s accounting and disclosure if the loans
evidenced credit deterioration as of the acquisition date and
are accounted for in pools. Losses associated with the
modification on covered loans, including the economic
impact of interest rate reductions, are generally eligible for
reimbursement under loss sharing agreements with the
FDIC.
Impaired Loans For all loan classes, a loan is considered
to be impaired when, based on current events or information,
it is probable the Company will be unable to collect all
amounts due per the contractual terms of the loan
agreement. Impaired loans include all nonaccrual and TDR
loans. For all loan classes, interest income on TDR loans is
recognized under the modified terms and conditions if the
borrower has demonstrated repayment performance at a
level commensurate with the modified terms over several
payment cycles. Interest income is generally not recognized
on other impaired loans until the loan is paid off. However,
interest income may be recognized for interest payments if
the remaining carrying amount of the loan is believed to be
collectible.
Factors used by the Company in determining whether all
principal and interest payments due on commercial and
commercial real estate loans will be collected and therefore
whether those loans are impaired include, but are not limited
to, the financial condition of the borrower, collateral and/or
guarantees on the loan, and the borrower’s estimated future
ability to pay based on industry, geographic location and
certain financial ratios. The evaluation of impairment on
residential mortgages, credit card loans and other retail
loans is primarily driven by delinquency status of individual
loans or whether a loan has been modified, and considers
any government guarantee where applicable. Individual
covered loans, whose future losses are covered by loss
sharing agreements with the FDIC that substantially reduce
the risk of credit losses to the Company, are evaluated for
impairment and accounted for in a manner consistent with
the class of loan they would have been included in had the
loss sharing coverage not been in place.
Leases The Company’s lease portfolio includes both direct
financing and leveraged leases. The net investment in direct
financing leases is the sum of all minimum lease payments
and estimated residual values, less unearned income.
Unearned income is recorded in interest income over the
terms of the leases to produce a level yield.
The investment in leveraged leases is the sum of all
lease payments, less nonrecourse debt payments, plus
estimated residual values, less unearned income. Income
from leveraged leases is recognized over the term of the
leases based on the unrecovered equity investment.
Residual values on leased assets are reviewed regularly
for other-than-temporary impairment. Residual valuations for
retail automobile leases are based on independent
assessments of expected used car sale prices at the end-of-
term. Impairment tests are conducted based on these
valuations considering the probability of the lessee returning
the asset to the Company, re-marketing efforts, insurance
coverage and ancillary fees and costs. Valuations for
commercial leases are based upon external or internal
management appraisals. When there is impairment of the
Company’s interest in the residual value of a leased asset,
the carrying value is reduced to the estimated fair value with
the writedown recognized in the current period.
Other Real Estate OREO is included in other assets, and
is property acquired through foreclosure or other
proceedings on defaulted loans. OREO is initially recorded
at fair value, less estimated selling costs. OREO is evaluated
regularly and any decreases in value along with holding
costs, such as taxes and insurance, are reported in
noninterest expense.
Loans Held for Sale
Loans held for sale (“LHFS”) represent mortgage loans
intended to be sold in the secondary market and other loans
that management has an active plan to sell. LHFS are
carried at the lower-of-cost-or-fair value as determined on an
aggregate basis by type of loan with the exception of loans
for which the Company has elected fair value accounting,
which are carried at fair value. The credit component of any
writedowns upon the transfer of loans to LHFS is reflected in
loan charge-offs.
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