US Bank 2015 Annual Report Download - page 56

Analysis of Loan Net Charge-offs Total loan net charge-
offs were $1.2 billion in 2015, compared with $1.3 billion in
2014 and $1.5 billion in 2013. The decrease in total net
charge-offs in 2015, compared with 2014, reflected
improvement in the residential mortgages and home equity
and second mortgages portfolios, as economic conditions
continue to slowly improve during the period, partially offset
by higher commercial loan net charge-offs. The ratio of total
loan net charge-offs to average loans was 0.47 percent in
2015, compared with 0.55 percent in 2014 and 0.64 percent
in 2013.
Commercial and commercial real estate loan net charge-
offs for 2015 were $191 million (0.15 percent of average loans
outstanding), compared with $182 million (0.16 percent of
average loans outstanding) in 2014 and $87 million
(0.08 percent of average loans outstanding) in 2013. The
increase in net charge-offs in 2015, compared with 2014,
reflected lower commercial loan recoveries in 2015. The
increase in net charge-offs in 2014, compared with 2013,
reflected higher commercial loan net charge-offs and lower
recoveries in commercial real estate.
Residential mortgage loan net charge-offs for 2015 were
$109 million (0.21 percent of average loans outstanding),
compared with $195 million (0.38 percent of average loans
outstanding) in 2014 and $272 million (0.57 percent of
average loans outstanding) in 2013. Credit card loan net
charge-offs in 2015 were $651 million (3.61 percent of
average loans outstanding), compared with $658 million
(3.73 percent of average loans outstanding) in 2014 and $656
million (3.90 percent of average loans outstanding) in 2013.
Other retail loan net charge-offs for 2015 were $221 million
(0.45 percent of average loans outstanding), compared with
$288 million (0.60 percent of average loans outstanding) in
2014 and $418 million (0.89 percent of average loans
outstanding) in 2013. The decrease in total residential
mortgage, credit card and other retail loan net charge-offs in
2015, compared with 2014, reflected continued improvement
in economic conditions during 2015. The decrease in total
residential mortgage, credit card and other retail loan net
charge-offs in 2014, compared with 2013, reflected
improvement in economic conditions during 2014, especially
in residential housing prices.
The following table provides an analysis of net charge-offs as
a percent of average loans outstanding for residential
mortgages and home equity and second mortgages by
borrower type:
Year Ended December 31
(Dollars in Millions)
Average Loans
Percent of
Average Loans
2015 2014 2015 2014
Residential Mortgages
Prime borrowers ........... $44,980 $44,006 .15% .30%
Sub-prime borrowers ....... 1,144 1,302 2.62 4.07
Other borrowers ........... 714 858 .98 1.05
Loans purchased from GNMA
mortgage pools(a) ........ 5,002 5,652 .06 .05
Total .................. $51,840 $51,818 .21% .38%
Home Equity and Second
Mortgages
Prime borrowers ........... $15,371 $14,804 .19% .53%
Sub-prime borrowers ....... 214 262 2.34 5.34
Other borrowers ........... 461 498 .87 .60
Total .................. $16,046 $15,564 .24% .61%
(a) Represents loans purchased from GNMA mortgage pools whose payments are primarily
insured by the Federal Housing Administration or guaranteed by the Department of
Veterans Affairs.
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, including unfunded credit commitments, 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 external
factors such as 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, 2015, the allowance for credit losses
was $4.3 billion (1.65 percent of period-end loans), compared
with an allowance of $4.4 billion (1.77 percent of period-end
loans) at December 31, 2014. The ratio of the allowance for
credit losses to nonperforming loans was 361 percent at
December 31, 2015, compared with 298 percent at
December 31, 2014, reflecting a decrease in nonperforming
loans. The ratio of the allowance for credit losses to annual
loan net charge-offs at December 31, 2015, was 367 percent,
compared with 328 percent at December 31, 2014, reflecting
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