US Bank 2012 Annual Report Download - page 54

TABLE 19 Elements of the Allowance for Credit Losses
Allowance Amount Allowance as a Percent of Loans
At December 31 (Dollars in Millions) 2012 2011 2010 2009 2008 2012 2011 2010 2009 2008
Commercial
Commercial ............................ $ 979 $ 929 $ 992 $1,026 $ 782 1.61% 1.83% 2.35% 2.43% 1.57%
Lease financing ........................ 72 81 112 182 208 1.31 1.37 1.83 2.78 3.03
Total commercial .................... 1,051 1,010 1,104 1,208 990 1.59 1.78 2.28 2.48 1.75
CommercialRealEstate
Commercial mortgages ................ 641 850 929 548 258 2.07 2.87 3.41 2.17 1.10
Construction and development ........ 216 304 362 453 191 3.63 4.91 4.86 5.16 1.95
Total commercial real estate ......... 857 1,154 1,291 1,001 449 2.32 3.22 3.72 2.94 1.35
Residential Mortgages ................... 935 927 820 672 524 2.12 2.50 2.67 2.58 2.22
Credit Card .............................. 863 992 1,395 1,495 926 5.04 5.71 8.30 8.89 6.85
Other Retail
Retail leasing ........................... 11 12 11 30 49 .20 .23 .24 .66 .96
Home equity and second mortgages . . . 583 536 411 374 255 3.49 2.96 2.17 1.92 1.33
Other ................................... 254 283 385 467 372 .99 1.14 1.55 2.02 1.65
Total other retail ..................... 848 831 807 871 676 1.78 1.73 1.67 1.85 1.44
Covered Loans ........................... 179 100 114 17 74 1.58 .68 .63 .08 .66
Total allowance ........................... $4,733 $5,014 $5,531 $5,264 $3,639 2.12% 2.39% 2.81% 2.70% 1.97%
the Company considers the delinquency and modification
status of the first lien. At December 31, 2012, the Company
serviced the first lien on 32 percent of the home equity loans
and lines in a junior lien position. The Company also
considers information received from its primary regulator on
the status of the first liens that are serviced by other large
servicers in the industry and the status of first lien mortgage
accounts reported on customer credit bureau files. 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. Based on the available
information, the Company estimated $505 million or 3.0
percent of the total home equity portfolio at December 31,
2012, 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 or can be identified in credit bureau
data to establish loss estimates for junior lien loans and lines
the Company services when they are current, but the first lien
is delinquent or modified. Historically, the number of junior
lien defaults in any period has been a small percentage of the
total portfolio (for example, only 1.7 percent for the twelve
months ended December 31, 2012), and the long-term average
loss rate on the small percentage of loans that default has been
approximately 80 percent. In periods of economic stress such
as the current environment, the Company has experienced loss
severity rates in excess of 90 percent for junior liens that
default. In addition, the Company obtains updated credit
scores on its home equity portfolio each quarter and in some
cases more frequently, and uses this information to
qualitatively supplement its loss estimation methods. Credit
score distributions for the portfolio are monitored monthly
and any changes in the distribution are one of the factors
considered in assessing the Company’s loss estimates.
The allowance established for consumer lending segment
loans was $2.6 billion at December 31, 2012, compared with
$2.8 billion at December 31, 2011. The $104 million decrease
in the allowance for consumer lending segment loans at
December 31, 2012, compared with December 31, 2011,
reflected the impact of more stable economic conditions.
The allowance for the covered loan segment is evaluated
each quarter in a manner similar to that described for non-
covered loans, and represents any decreases in expected cash
flows on those loans after the acquisition date. The provision
for credit losses for covered loans considers the
indemnification provided by the FDIC. The allowance
established for covered loans was $179 million at
December 31, 2012, compared with $100 million at
December 31, 2011. The increase reflected a delay in the
anticipated timing of defaults and collateral disposition.
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
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