US Bank 2011 Annual Report Download - page 49

TABLE 19 Elements of the Allowance for Credit Losses
Allowance Amount Allowance as a Percent of Loans
At December 31 (Dollars in Millions) 2011 2010 2009 2008 2007 2011 2010 2009 2008 2007
Commercial
Commercial ............................ $ 929 $ 992 $1,026 $ 782 $ 860 1.83% 2.35% 2.43% 1.57% 1.92%
Lease financing ........................ 81 112 182 208 146 1.37 1.83 2.78 3.03 2.34
Total commercial .................... 1,010 1,104 1,208 990 1,006 1.78 2.28 2.48 1.75 1.97
Commercial Real Estate
Commercial mortgages ................ 850 929 548 258 150 2.87 3.41 2.17 1.10 .74
Construction and development ........ 304 362 453 191 108 4.91 4.86 5.16 1.95 1.19
Total commercial real estate ......... 1,154 1,291 1,001 449 258 3.22 3.72 2.94 1.35 .88
Residential Mortgages ................ 927 820 672 524 131 2.50 2.67 2.58 2.22 .58
Credit Card.............................. 992 1,395 1,495 926 487 5.71 8.30 8.89 6.85 4.45
Other Retail
Retail leasing ........................... 12 11 30 49 17 .23 .24 .66 .96 .28
Home equity and second mortgages . . . 536 411 374 255 114 2.96 2.17 1.92 1.33 .69
Other ................................... 283 385 467 372 247 1.14 1.55 2.02 1.65 1.42
Total other retail ..................... 831 807 871 676 378 1.73 1.67 1.85 1.44 .95
Covered Loans ......................... 100 114 17 74 — .68 .63 .08 .66 —
Total allowance ........................... $5,014 $5,531 $5,264 $3,639 $2,260 2.39% 2.81% 2.70% 1.97% 1.47%
The allowance recorded for loans in the commercial
lending segment is based on reviews of individual credit
relationships and considers the migration analysis of
commercial lending segment loans and actual loss experience.
The Company currently uses an 11 year period of historical
losses in considering actual loss experience. This timeframe
and the results of the analysis are evaluated quarterly to
determine the appropriateness. The allowance recorded for
impaired loans greater than $5 million in the commercial
lending segment is based on an individual loan analysis
utilizing expected cash flows discounted using the original
effective interest rate, the observable market price, or the fair
value of the collateral for collateral-dependent loans. The
allowance recorded for all other commercial lending segment
loans is determined on a homogenous pool basis and includes
consideration of product mix, risk characteristics of the
portfolio, bankruptcy experience, and historical losses,
adjusted for current trends. The allowance established for
commercial lending segment loans, was $2.2 billion at
December 31, 2011, compared with $2.4 billion at
December 31, 2010. The decrease in the allowance for
commercial lending segment loans of $231 million at
December 31, 2011, compared with December 31, 2010,
reflected the impact of efforts by the Company to resolve and
reduce exposure to problem assets in the commercial real
estate portfolios and improvement in other commercial
portfolios due to the stabilizing economy.
The allowance recorded for purchased impaired and TDR
loans in the consumer lending segment is determined on a
homogenous pool basis utilizing expected cash flows
discounted using the original effective interest rate of the pool.
The allowance recorded for all other consumer lending
segment loans is determined on a homogenous pool basis and
includes consideration of product mix, risk characteristics of
the portfolio, bankruptcy experience, delinquency status and
historical losses, adjusted for current trends.
When evaluating the appropriateness of the allowance for
credit losses for any loans and lines in a junior lien position,
the Company considers the delinquency and modification
status of the first lien. At December 31, 2011, the Company
serviced the first lien on 29 percent of the home equity loans
and lines in a junior lien position and receives information
from its primary regulator on the status of the first liens that
are serviced by other large servicers in the industry when the
second lien is current. As a result, at December 31, 2011, the
Company had information on the status of the first liens
related to approximately 65 percent of the home equity loans
and lines in a junior lien position. The Company uses this
information to estimate the first lien status on the remainder
of the portfolio. Regardless of whether or not the Company
services the first lien, an assessment is made of economic
conditions, problem loans, recent loss experience and other
factors in determining the allowance for credit losses. At
December 31, 2011, the Company knew the related first lien
was delinquent or modified on $299 million of the home
equity loans and lines in a junior lien position or 1.6 percent
of the total home equity portfolio. Based on this information,
the Company estimated $459 million or 2.5 percent of the
total home equity portfolio at December 31, 2011,
represented junior liens where the first lien was delinquent or
modified. The Company uses historical loss experience on the
loans and lines in a junior lien position where the first lien is
serviced by the Company to establish loss estimates for junior
liens and lines when they are current. The Company applies
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