US Bank 2015 Annual Report Download - page 59

TABLE 19 ELEMENTS OF THE ALLOWANCE FOR CREDIT LOSSES
Allowance Amount Allowance as a Percent of Loans
At December 31 (Dollars in Millions) 2015 2014 2013 2012 2011 2015 2014 2013 2012 2011
Commercial
Commercial ............................. $1,231 $1,094 $1,019 $ 979 $ 929 1.48% 1.46% 1.57% 1.61% 1.83%
Lease financing .......................... 56 52 56 72 81 1.06 .97 1.06 1.31 1.37
Total commercial ....................... 1,287 1,146 1,075 1,051 1,010 1.46 1.43 1.53 1.59 1.78
Commercial Real Estate
Commercial mortgages .................... 285 479 532 641 850 .90 1.44 1.65 2.07 2.87
Construction and development .............. 439 247 244 216 304 4.24 2.62 3.17 3.63 4.91
Total commercial real estate .............. 724 726 776 857 1,154 1.72 1.70 1.95 2.32 3.22
Residential Mortgages .................... 631 787 875 935 927 1.18 1.52 1.71 2.12 2.50
Credit Card .............................. 883 880 884 863 992 4.20 4.75 4.91 5.04 5.71
Other Retail
Retail leasing ............................ 12 14 14 11 12 .23 .24 .24 .20 .23
Home equity and second mortgages ......... 448 470 497 583 536 2.73 2.95 3.22 3.49 2.96
Other .................................. 283 287 270 254 283 .96 1.04 1.03 .99 1.14
Total other retail ........................ 743 771 781 848 831 1.45 1.57 1.64 1.78 1.73
Covered Loans ........................... 38 65 146 179 100 .83 1.23 1.73 1.58 .68
Total allowance ............................ $4,306 $4,375 $4,537 $4,733 $5,014 1.65% 1.77% 1.93% 2.12% 2.39%
In addition, the evaluation of the appropriate allowance for
credit losses for purchased non-impaired loans acquired after
January 1, 2009, in the various loan segments considers
credit discounts recorded as a part of the initial determination
of the fair value of the loans. For these loans, no allowance for
credit losses is recorded at the purchase date. Credit
discounts representing the principal losses expected over the
life of the loans are a component of the initial fair value.
Subsequent to the purchase date, the methods utilized to
estimate the required allowance for credit losses for these
loans is similar to originated loans; however, the Company
records a provision for credit losses only when the required
allowance, net of any expected reimbursement under any loss
sharing agreements with the FDIC, exceeds any remaining
credit discounts.
The evaluation of the appropriate allowance for credit
losses for purchased impaired loans in the various loan
segments considers the expected cash flows to be collected
from the borrower. These loans are initially recorded at fair
value and therefore no allowance for credit losses is recorded
at the purchase date.
Subsequent to the purchase date, the expected cash
flows of purchased loans are subject to evaluation. Decreases
in expected cash flows are recognized by recording an
allowance for credit losses with the related provision for credit
losses reduced for the amount reimbursable by the FDIC,
where applicable. If the expected cash flows on the
purchased loans increase such that a previously recorded
impairment allowance can be reversed, the Company records
a reduction in the allowance with a related reduction in losses
reimbursable by the FDIC, where applicable. Increases in
expected cash flows of purchased loans, when there are no
reversals of previous impairment allowances, are recognized
over the remaining life of the loans and resulting decreases in
expected cash flows of the FDIC indemnification assets are
amortized over the shorter of the remaining contractual term
of the indemnification agreements or the remaining life of the
loans. Refer to Note 1 of the Notes to Consolidated Financial
Statements, for more information.
The Company’s methodology for determining the
appropriate allowance for credit losses for all the loan
segments also considers the imprecision inherent in the
methodologies used. As a result, in addition to the amounts
determined under the methodologies described above,
management also considers the potential impact of other
qualitative factors which include, but are not limited to,
economic factors; geographic and other concentration risks;
delinquency and nonaccrual trends; current business
conditions; changes in lending policy, underwriting standards,
internal review and other relevant business practices; and the
regulatory environment. The consideration of these items
results in adjustments to allowance amounts included in the
Company’s allowance for credit losses for each of the above
loan segments. Table 19 shows the amount of the allowance
for credit losses by loan segment, class and underlying
portfolio category.
Although the Company determines the amount of each
element of the allowance separately and considers this
process to be an important credit management tool, the
entire allowance for credit losses is available for the entire loan
portfolio. The actual amount of losses incurred can vary
significantly from the estimated amounts.
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