US Bank 2013 Annual Report Download - page 51

TABLE 19 Elements of the Allowance for Credit Losses
Allowance Amount Allowance as a Percent of Loans
At December 31 (Dollars in Millions) 2013 2012 2011 2010 2009 2013 2012 2011 2010 2009
Commercial
Commercial ............................... $1,019 $ 979 $ 929 $ 992 $1,026 1.57% 1.61% 1.83% 2.35% 2.43%
Lease financing ........................... 56 72 81 112 182 1.06 1.31 1.37 1.83 2.78
Total commercial ....................... 1,075 1,051 1,010 1,104 1,208 1.53 1.59 1.78 2.28 2.48
Commercial Real Estate
Commercial mortgages ................... 532 641 850 929 548 1.65 2.07 2.87 3.41 2.17
Construction and development ........... 244 216 304 362 453 3.17 3.63 4.91 4.86 5.16
Total commercial real estate ........... 776 857 1,154 1,291 1,001 1.95 2.32 3.22 3.72 2.94
Residential Mortgages ............... 875 935 927 820 672 1.71 2.12 2.50 2.67 2.58
Credit Card ............................. 884 863 992 1,395 1,495 4.91 5.04 5.71 8.30 8.89
Other Retail
Retail leasing ............................. 14 11 12 11 30 .24 .20 .23 .24 .66
Home equity and second mortgages ..... 497 583 536 411 374 3.22 3.49 2.96 2.17 1.92
Other ...................................... 270 254 283 385 467 1.03 .99 1.14 1.55 2.02
Total other retail ........................ 781 848 831 807 871 1.64 1.78 1.73 1.67 1.85
Covered Loans ......................... 146 179 100 114 17 1.73 1.58 .68 .63 .08
Total allowance .............................. $4,537 $4,733 $5,014 $5,531 $5,264 1.93% 2.12% 2.39% 2.81% 2.70%
historical losses, adjusted for current trends. Credit card and
other retail loans 90 days or more past due are generally not
placed on nonaccrual status because of the relatively short
period of time to charge-off and, therefore, are excluded
from nonperforming loans and measures that include
nonperforming loans as part of the calculation.
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, 2013,
the Company serviced the first lien on 36 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 $398 million or 2.6 percent of the total home equity
portfolio at December 31, 2013, 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 that 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 1.4 percent for the twelve months
ended December 31, 2013), and the long-term average loss
rate on the small percentage of loans that default has been
approximately 80 percent. 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 $2.5 billion at December 31, 2013,
compared with $2.6 billion at December 31, 2012. The
$106 million decrease in the allowance for consumer lending
segment loans at December 31, 2013, compared with
December 31, 2012, reflected the impact of more stable
economic conditions, partially offset by portfolio growth.
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 $146 million at
December 31, 2013, compared with $179 million at
December 31, 2012, reflecting expected credit losses in
excess of initial fair value adjustments, including $21 million
and $42 million at December 31, 2013 and 2012,
respectively, to be reimbursed by the FDIC.
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,
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