US Bank 2014 Annual Report Download - page 55

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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 1.0
percent for the twelve months ended December 31, 2014),
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. In its evaluation
of the allowance for credit losses, the Company also
considers the increased risk of loss associated with home
equity lines that are contractually scheduled to convert from
a revolving status to a fully amortizing payment and with
residential lines and loans that have a balloon payoff
provision.
The allowance established for consumer lending
segment loans was $2.4 billion at December 31, 2014,
compared with $2.5 billion at December 31, 2013. The
$102 million (4.0 percent) decrease in the allowance for
consumer lending segment loans at December 31, 2014,
compared with December 31, 2013, reflected the impact of
more stable economic conditions, partially offset by portfolio
growth.
Theallowanceforthecoveredloansegmentis
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 $65 million at
December 31, 2014, compared with $146 million at
December 31, 2013, reflecting expected credit losses in
excess of initial fair value adjustments, including $16 million
and $21 million at December 31, 2014 and 2013, respectively,
to be reimbursed by the FDIC.
U.S. BANCORP The power of potential
53