US Bank 2002 Annual Report Download - page 39

portfolio during the past year. The Company actively and commercial properties had risen during the past
monitors the credit quality of these customers and develops 18 months, declining interest rates have allowed real estate
action plans accordingly. Such leveraged enterprise-value owners to reduce interest costs and generally maintain
financings approximated $2.9 billion in loans outstanding at adequate cash flows.
December 31, 2002, compared with approximately Analysis of Loan Net Charge-Offs Total loan net charge-offs
$3.9 billion outstanding at December 31, 2001. The decline decreased $173.5 million to $1,373.0 million in 2002,
was primarily due to the Company’s decision to reduce its compared with $1,546.5 million in 2001 and
exposure to these types of lending arrangements through $825.4 million in 2000. The ratio of total loan net charge-
repayments, refinancing activities and loan sales. The sector offs to average loans was 1.20 percent in 2002, compared
has also been reduced by charge-offs taken during the year. with 1.31 percent in 2001 and .70 percent in 2000.
The Company’s portfolio of leveraged financings is included Included in loan net charge-offs for 2001 were
in Table 8 and is diversified among industry groups similar $313.2 million of commercial loan charge-offs related to
to the total commercial loan portfolio. specific events or credit initiatives taken by management,
The commercial real estate portfolio reflects the $160 million of loan charge-offs relating to the Company’s
Company’s focus on serving business owners within its accelerated loan workout strategy and $90 million of loan
footprint as well as regional investment-based real estate. write-offs to conform risk management practices, align loan
Table 9 provides a summary of the significant property charge-off policies and expedite the transition out of a
types and geographic locations of commercial real estate specific segment of the health care portfolio not meeting the
loans outstanding at December 31, 2002 and 2001. At lower risk appetite of the Company. The level of loan net
December 31, 2002, approximately 24.2 percent of the charge-offs during 2002 reflected the impact of soft
commercial real estate loan portfolio represented business economic conditions and continued weakness in the
owner-occupied properties that tend to exhibit credit risk communications, transportation and manufacturing sectors,
characteristics similar to the middle-market commercial loan as well as the impact of the weak economy on highly
portfolio. Generally, the investment-based real estate leveraged enterprise value financings. Assuming no further
mortgages are diversified among various property types with deterioration in the economy, net charge-offs are expected
somewhat higher concentrations in multi-family, office and to remain at recent levels until the economy improves.
retail properties. Additionally, the commercial real estate Commercial and commercial real estate loan net
portfolio is diversified across the Company’s geographical charge-offs for 2002 were $679.9 million (.98 percent of
markets with 94.0 percent of total commercial real estate average loans outstanding), compared with $884.6 million
loans outstanding at December 31, 2002, within the (1.16 percent of average loans outstanding) in 2001 and
24-state banking region. While vacancies in multi-family
Net Charge-offs as a Percent of Average Loans Outstanding
Year Ended December 31 2002 2001 2000 1999 1998
Commercial
Commercial ******************************************** 1.29% 1.62% .56% .41% *%
Lease financing***************************************** 2.67 1.95 .46 .24 *
Total commercial ************************************ 1.46 1.66 .55 .40 .31
Commercial real estate
Commercial mortgages ********************************** .17 .21 .03 .02 *
Construction and development *************************** .11 .17 .11 .03 *
Total commercial real estate ************************** .15 .20 .05 .02 (.04)
Residential mortgages ********************************** .23 .15 .11 .11 .07
Retail
Credit card ********************************************* 4.98 4.80 4.18 4.00 4.02
Retail leasing******************************************* .72 .65 .41 .28 *
Home equity and second mortgages ********************** .74 .85 * * *
Other retail ********************************************* 2.10 2.16 1.32 1.26 *
Total retail ****************************************** 1.85 1.94 1.69 1.63 1.54
Total loans (a)************************************ 1.20% 1.31% .70% .61% .53%
(a) In accordance with guidance provided in the Interagency Guidance on Certain Loans Held for Sale, loans held with the intent to sell are transferred to the Loans Held for Sale
category based on the lower of cost or fair value. At the time of transfer, the portion of the mark-to-market losses representing probable credit losses determined in accordance
with policies and methods utilized to determine the allowance for credit losses is included in net charge-offs. The remaining portion of the losses is reported separately as a
reduction of the allowance for credit losses under ‘‘Losses from loan sales/transfers.’’ Had the entire amount of the loss been reported as charge-offs, total net charge-offs would
have been $1,875.8 million (1.59 percent of average loans) for the year ended December 31, 2001.
* Information not available
U.S. Bancorp 37
Table 13