US Bank 2011 Annual Report Download - page 47

2009. Other retail loan net charge-offs for 2011 were
$604 million (1.25 percent of average loans outstanding),
compared with $745 million (1.56 percent of average loans
outstanding) in 2010 and $797 million (1.69 percent of
average loans outstanding) in 2009. The decrease in total
residential mortgage, credit card and other retail loan net
charge-offs in 2011, compared with 2010, reflected the impact
of more stable economic conditions. The increase in total
residential mortgage, credit card and other retail loan net
charge-offs in 2010, compared with 2009, reflected the
adverse impact of economic conditions on consumers, as
higher unemployment levels increased losses in the prime-
based residential mortgage and credit card portfolios.
The following table provides an analysis of net charge-offs as
a percent of average loans outstanding managed by the
consumer finance division, compared with other consumer
lending loans:
Average Loans
Percent of
Average
Loans
Year Ended December 31
(Dollars in Millions) 2011 2010 2011 2010
Consumer Finance
Residential mortgages .... $12,302 $10,739 2.77% 3.63%
Home equity and second
mortgages .............. 2,457 2,479 4.27 5.28
Other ...................... 517 603 3.48 3.65
Other Consumer Lending
Residential mortgages .... $21,409 $16,965 .69% .92%
Home equity and second
mortgages .............. 16,098 16,806 1.26 1.19
Other ...................... 24,199 23,393 1.15 1.62
Total Company
Residential mortgages .... $33,711 $27,704 1.45% 1.97%
Home equity and second
mortgages .............. 18,555 19,285 1.66 1.72
Other (a) ................... 24,716 23,996 1.20 1.68
(a) Includes revolving credit, installment, automobile and student loans.
The following table provides further information on net
charge-offs as a percent of average loans outstanding for the
consumer finance division:
Average Loans
Percent of
Average Loans
Year Ended December 31
(Dollars in Millions) 2011 2010 2011 2010
Residential mortgages
Sub-prime borrowers . . . $ 1,975 $ 2,300 6.18% 6.39%
Other borrowers ........ 10,327 8,439 2.12 2.88
Total .................. $12,302 $10,739 2.77% 3.63%
Home equity and
second mortgages
Sub-prime borrowers . . . $ 491 $ 575 9.16% 10.26%
Other borrowers ........ 1,966 1,904 3.05 3.78
Total .................. $ 2,457 $ 2,479 4.27% 5.28%
Analysis and Determination of the Allowance for Credit
Losses The allowance for credit losses reserves for probable
and estimable losses incurred in the Company’s loan and lease
portfolio, and includes certain amounts that do not represent
loss exposure to the Company because those losses are
recoverable under loss sharing agreements with the FDIC. The
allowance for credit losses is increased through provisions
charged to operating earnings and reduced by net charge-offs.
Management evaluates the allowance each quarter to ensure it
appropriately reserves for incurred losses. The evaluation of
each element and the overall allowance is based on a
continuing assessment of problem loans, recent loss
experience and other factors, including regulatory guidance
and economic conditions. Because business processes and
credit risks associated with unfunded credit commitments are
essentially the same as for loans, the Company utilizes similar
processes to estimate its liability for unfunded credit
commitments, which is included in other liabilities in the
Consolidated Balance Sheet. Both the allowance for loan
losses and the liability for unfunded credit commitments are
included in the Company’s analysis of credit losses and
reported reserve ratios.
At December 31, 2011, the allowance for credit losses
was $5.0 billion (2.39 percent of total loans and 2.52 percent
of loans excluding covered loans), compared with an
allowance of $5.5 billion (2.81 percent of total loans and
3.03 percent of loans excluding covered loans) at
December 31, 2010. The ratio of the allowance for credit
losses to nonperforming loans was 163 percent (228 percent
excluding covered loans) at December 31, 2011, compared
with 136 percent (192 percent excluding covered loans) at
December 31, 2010. The ratio of the allowance for credit
losses to annual loan net charge-offs at December 31, 2011,
was 176 percent, compared with 132 percent at December 31,
2010, as net charge-offs continue to decline due to stabilizing
economic conditions. Management determined the allowance
for credit losses was appropriate at December 31, 2011.
U.S. BANCORP 45