US Bank 2015 Annual Report Download - page 111

The Company recognized $698 million, $771 million and $934
million of expenses related to all of these investments for the
years ended December 31, 2015, 2014 and 2013,
respectively, of which $261 million, $258 million and $297
million, respectively, was included in tax expense and the
remainder was included in noninterest expense.
The Company is not required to consolidate VIEs in which
it has concluded it does not have a controlling financial
interest, and thus is not the primary beneficiary. In such
cases, the Company does not have both the power to direct
the entities’ most significant activities and the obligation to
absorb losses or the right to receive benefits that could
potentially be significant to the VIEs.
The Company’s investments in these unconsolidated VIEs
are carried in other assets on the Consolidated Balance
Sheet. The Company’s unfunded capital and other
commitments related to these unconsolidated VIEs are
generally carried in other liabilities on the Consolidated
Balance Sheet. The Company’s maximum exposure to loss
from these unconsolidated VIEs include the investment
recorded on the Company’s Consolidated Balance Sheet, net
of unfunded capital commitments, and previously recorded
tax credits which remain subject to recapture by taxing
authorities based on compliance features required to be met
at the project level. While the Company believes potential
losses from these investments are remote, the maximum
exposure was determined by assuming a scenario where the
community-based business and housing projects completely
fail and do not meet certain government compliance
requirements resulting in recapture of the related tax credits.
The following table provides a summary of investments in
community development and tax-advantaged VIEs that the
Company has not consolidated:
At December 31 (Dollars in Millions) 2015 2014
Investment carrying amount .............. $5,257 $4,259
Unfunded capital and other commitments . . . 2,499 1,743
Maximum exposure to loss ............... 9,436 8,393
The Company also has noncontrolling financial
investments in private investment funds and partnerships
considered to be VIEs, which are not consolidated. The
Company’s recorded investment in these entities, carried in
other assets on the Consolidated Balance Sheet, was
approximately $32 million at December 31, 2015, compared
with $94 million at December 31, 2014. The maximum
exposure to loss related to these VIEs was $47 million at
December 31, 2015 and $105 million at December 31, 2014,
representing the Company’s investment balance and its
unfunded commitments to invest additional amounts.
The Company’s individual net investments in
unconsolidated VIEs, which exclude any unfunded capital
commitments, ranged from less than $1 million to $46 million
at December 31, 2015, compared with less than $1 million to
$53 million at December 31, 2014.
The Company is required to consolidate VIEs in which it
has concluded it has a controlling financial interest. The
Company sponsors entities to which it transfers its interests in
tax-advantaged investments to third parties. At December 31,
2015, approximately $3.0 billion of the Company’s assets and
$2.2 billion of its liabilities included on the Consolidated
Balance Sheet were related to community development and
tax-advantaged investment VIEs which the Company has
consolidated, primarily related to these transfers. These
amounts compared to $2.7 billion and $2.0 billion,
respectively, at December 31, 2014. The majority of the
assets of these consolidated VIEs are reported in other
assets, and the liabilities are reported in long-term debt and
other liabilities. The assets of a particular VIE are the primary
source of funds to settle its obligations. The creditors of the
VIEs do not have recourse to the general credit of the
Company. The Company’s exposure to the consolidated VIEs
is generally limited to the carrying value of its variable interests
plus any related tax credits previously recognized or
transferred to others with a guarantee.
The Company also sponsors a conduit to which it
previously transferred high-grade investment securities. The
Company consolidates the conduit because of its ability to
manage the activities of the conduit. At December 31, 2015,
$28 million of the held- to-maturity investment securities on the
Company’s Consolidated Balance Sheet were related to the
conduit, compared with $35 million at December 31, 2014.
In addition, the Company sponsors a municipal bond
securities tender option bond program. The Company
controls the activities of the program’s entities, is entitled to
the residual returns and provides credit, liquidity and
remarketing arrangements to the program. As a result, the
Company has consolidated the program’s entities. At
December 31, 2015, $2.3 billion of available-for-sale
investment securities and $2.2 billion of short-term
borrowings on the Consolidated Balance Sheet were related
to the tender option bond program, compared with $2.9
billion of available-for-sale investment securities and $2.7
billion of short-term borrowings at December 31, 2014.
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