US Bank 2006 Annual Report Download - page 42

the consumer finance division, compared with traditional losses and the liability for unfunded credit commitments are
branch related loans: included in the Company’s analysis of credit losses.
At December 31, 2006, the allowance for credit losses
Percent of
Average Loans Average Loans
Year Ended December 31 was $2,256 million (1.57 percent of loans), compared with
(Dollars in Millions) 2006 2005 2006 2005 an allowance of $2,251 million (1.65 percent of loans) at
CONSUMER FINANCE (a) December 31, 2005, and $2,269 million (1.82 percent of
Residential mortgages ********* $ 7,414 $ 5,947 .51% .52% loans) at December 31, 2004. The ratio of the allowance
Home equity and second for credit losses to nonperforming loans was 480 percent at
mortgages *************** 1,971 2,431 1.42 1.81 December 31, 2006, compared with 414 percent and
Other retail ****************** 399 393 4.76 5.09 355 percent at December 31, 2005 and 2004, respectively.
TRADITIONAL BRANCH The ratio of the allowance for credit losses to loan net
Residential mortgages ********* $13,639 $12,089 .02% .04%
charge-offs at December 31, 2006, was 415 percent,
Home equity and second
mortgages *************** 13,175 12,514 .17 .19 compared with 329 percent and 296 percent at
Other retail ****************** 15,057 13,670 .74 1.22 December 31, 2005 and 2004, respectively. Management
TOTAL COMPANY determined that the allowance for credit losses was
Residential mortgages ********* $21,053 $18,036 .19% .20% adequate at December 31, 2006.
Home equity and second Several factors were taken into consideration in
mortgages *************** 15,146 14,945 .33 .46 evaluating the allowance for credit losses at December 31,
Other retail ****************** 15,456 14,063 .85 1.33
2006, including the risk profile of the portfolios and loan
(a) Consumer finance category included credit originated and managed by USBCF, as well
as home equity and second mortgages with a loan-to-value greater than 100 percent net charge-offs during the period, the level of
that were originated in the branches. nonperforming assets, accruing loans 90 days or more past
Within the consumer finance division, the Company due, delinquency ratios and changes in restructured loan
originates loans to customers that may be defined as sub- balances compared with December 31, 2005. Management
prime borrowers. The following table provides further also considered the uncertainty related to certain industry
information on net charge-offs as a percentage of average sectors, and the extent of credit exposure to specific
loans outstanding for the division: borrowers within the portfolio. In addition, concentration
Percent of risks associated with commercial real estate and the mix of
Average Loans Average Loans
Year Ended December 31 loans, including credit cards, loans originated through the
(Dollars in Millions) 2006 2005 2006 2005
consumer finance division and residential mortgages
RESIDENTIAL MORTGAGES balances, and their relative credit risks were evaluated.
Sub-prime borrowers************ $2,602 $1,932 .95% .93%
Finally, the Company considered current economic
Other borrowers**************** 4,812 4,015 .27 .32
conditions that might impact the portfolio. Management
Total********************** $7,414 $5,947 .51% .52%
determines the allowance that is required for specific loan
HOME EQUITY AND SECOND
categories based on relative risk characteristics of the loan
MORTGAGES
Sub-prime borrowers************ $ 842 $ 781 1.72% 2.63% portfolio. On an ongoing basis, management evaluates its
Other borrowers**************** 1,129 1,650 1.20 1.43 methods for determining the allowance for each element of
Total********************** $1,971 $2,431 1.42% 1.81% the portfolio and makes enhancements considered
appropriate. Table 17 shows the amount of the allowance
Analysis and Determination of the Allowance for Credit for credit losses by portfolio category.
Losses The allowance for loan losses provides coverage for The allowance recorded for commercial and
probable and estimable losses inherent in the Company’s commercial real estate loans is based, in part, on a regular
loan and lease portfolio. Management evaluates the review of individual credit relationships. The Company’s
allowance each quarter to determine that it is adequate to risk rating process is an integral component of the
cover these inherent losses. The evaluation of each element methodology utilized to determine these elements of the
and the overall allowance is based on a continuing allowance for credit losses. An allowance for credit losses is
assessment of problem loans, recent loss experience and established for pools of commercial and commercial real
other factors, including regulatory guidance and economic estate loans and unfunded commitments based on the risk
conditions. Because business processes and credit risks ratings assigned. An analysis of the migration of commercial
associated with unfunded credit commitments are essentially and commercial real estate loans and actual loss experience
the same as for loans, the Company utilizes similar throughout the business cycle is conducted quarterly to
processes to estimate its liability for unfunded credit assess the exposure for credits with similar risk
commitments, which is included in other liabilities in the characteristics. In addition to its risk rating process, the
Consolidated Balance Sheet. Both the allowance for loan Company separately analyzes the carrying value of impaired
40 U.S. BANCORP