US Bank 2001 Annual Report Download - page 41

maintaining public conÑdence that facilitates the retention Additionally, the Company previously created asset-backed
and growth of a large, stable supply of core deposits and securitizations to fund the noninterest-bearing corporate
wholesale funds. Ultimately, public conÑdence is generated card loan portfolio and indirect automobile loans. The
through proÑtable operations, sound credit quality and a corporate card securitization held $403 million in average
strong capital position. The Company's performance in assets in 2001 and is scheduled to be liquidated in
these areas has enabled it to develop a large and reliable February 2002. The indirect automobile securitization held
base of core funding within its market areas and in $655 million of average assets in 2001. The Company
domestic and global capital markets. Liquidity management provided credit enhancements in the form of subordination
is viewed from a long-term and short-term perspective, as and reserve accounts at the inception of the transactions.
well as from an asset and liability perspective. Management The Company's risk, primarily for losses in the underlying
monitors liquidity through a regular review of maturity assets, is considered in determining the fair value of the
proÑles, yield and rate behaviors, and loan and deposit Company's retained interests in these securitizations. The
forecasts to minimize funding risk. Company recognized income from residual interests and
The Company maintains strategic liquidity and servicing fees for these securitizations of $15.5 million in
contingency plans that are subject to the availability of asset 2001. Refer to Note 8 of the Notes to Consolidated
liquidity in the balance sheet. ALPC periodically reviews the Financial Statements for further information on these oÅ-
Company's ability to meet funding deÑciencies due to balance sheet structures.
adverse business events. These funding needs are then With respect to real estate and certain equipment, the
matched with speciÑc asset-based sources to ensure Company enters into capital or operating leases to meet its
suÇcient funds are available. Also, strategic liquidity policies business requirements. Certain operating lease arrangements
require diversiÑcation of wholesale funding sources to avoid involve third party lessors that acquire these business assets
concentrations in any one market source. Subsidiary banks through leveraged Ñnancing structures commonly referred to
are members of various Federal Home Loan Banks that as ""synthetic leases''. At December 31, 2001, synthetic lease
provide a source of funding through FHLB advances. The structures held real estate assets of $372.7 million and
Company maintains a Grand Cayman oÇce for issuing equipment of $41.6 million. The Company provides
eurodollar certiÑcates of deposit. The Company also guarantees to the lender in the event of default by the
establishes relationships with dealers to issue national leveraged Ñnancing structures or in the event that the
market retail and institutional savings certiÑcates and short- Company does not exercise its option to purchase the
and medium-term bank notes. Also, the Company's property at the end of the lease term and the fair value of
subsidiary banks have signiÑcant correspondent banking the assets is less than the purchase price. The Company's
networks and corporate accounts. Accordingly, it has access minimum lease obligations for capital and operating
to national fed funds, funding through repurchase arrangements, including those related to synthetic leases, are
agreements and sources of more stable regionally based disclosed in Note 22 of the Notes to Consolidated
certiÑcates of deposit. Financial Statements.
Asset securitization and conduits represent another Credit, liquidity, operational and legal structural risks
source of funding the Company's growth through oÅ- exist due to the nature and complexity of asset
balance sheet structures. The Company has two oÅ-balance securitizations and other oÅ-balance sheet structures. ALPC
sheet conduits that hold high-grade assets. The conduits, regularly monitors the performance of each oÅ-balance
which are funded by issuing commercial paper, held average sheet structure in an eÅort to minimize these risks and
assets of $14.8 billion including short-term participations in ensure compliance with the requirements of the structures.
commercial loans, commercial paper and investment The Company utilizes its credit risk management systems to
securities. The Company provides liquidity facilities to both evaluate credit quality of underlying assets and regularly
conduits and credit enhancement to the loan conduit that forecasts cash Öows to evaluate any potential impairment of
may be triggered by certain events. Based on the current retained interests. Also, regulatory guidelines require
performance of each structure the Company does not consideration of asset securitizations in the determination of
anticipate these triggers will occur in the foreseeable future. risk-based capital ratios.
Included in noninterest income was $132.7 million of The Company's ability to raise negotiated funding at
revenue related to these conduits in 2001 including fees for competitive prices is influenced by rating agencies' views of
servicing activities and liquidity facilities and credit the Company's credit quality, liquidity, capital and earnings.
enhancements. The debt ratings noted in Table 18 reflect the rating agencies'
In November 2001, the Company established a recognition of the strong, consistent financial performance of
$738 million securitization structure related to an unsecured the Company and quality of the balance sheet.
small business credit product that was being discontinued.
U.S. Bancorp 39