US Bank 2005 Annual Report Download - page 40

interest rate or repayment terms to maximize the through ongoing improvement in collection efforts
Company’s collection of its balance. Loans restructured at a underwriting and risk management. These factors have
rate equal to or greater than that of a new loan with resulted in improving credit quality, lower gross charge-offs
comparable risk at the time the contract is modified are and high levels of commercial loan recoveries.
excluded from restructured loans once repayment Commercial and commercial real estate loan net
performance, in accordance with the modified agreement, charge-offs for 2005 were $90 million (.13 percent of
has been demonstrated over several payment cycles. Loans average loans outstanding), compared with $196 million
that have interest rates reduced below comparable market (.29 percent of average loans outstanding) in 2004 and
rates remain classified as restructured loans; however, $609 million (.89 percent of average loans outstanding) in
interest income is accrued at the reduced rate as long as the 2003. The year-over-year improvement in net charge-offs
customer complies with the revised terms and conditions. was broad-based across most industries within the
The following table provides a summary of restructured commercial loan portfolio. The Company anticipates
loans that continue to accrue interest: commercial loan recoveries will decline somewhat over the
next several quarters causing commercial loan net charge-
As a Percent
of Ending Loan offs to stabilize or slightly increase in 2006. The decrease in
Amount Balances
December 31 commercial and commercial real estate loan net charge-offs
(Dollars in Millions) 2005 2004 2005 2004
in 2004, when compared with 2003, was broad-based and
Commercial ***************** $ 6 $ 14 .01% .03% extended across most industries within the commercial loan
Residential mortgages ******** 59 44 .28 .29 portfolio and reflected higher levels of commercial loan
Credit card ***************** 218 138 3.05 2.09
recoveries principally within the Wholesale Banking line of
Other retail****************** 32 31 .08 .08
business.
Total******************* $315 $227 .23% .18%
Retail loan net charge-offs in 2005 were $559 million
Analysis of Loan Net Charge-Offs Total loan net charge-offs (1.26 percent of average loans outstanding), compared with
were $685 million in 2005, compared with $767 million in $542 million (1.32 percent of average loans outstanding) in
2004 and $1,252 million in 2003. The ratio of total loan 2004 and $616 million (1.61 percent of average loans
net charge-offs to average loans was .51 percent in 2005, outstanding) in 2003. Higher levels of retail loan net charge-
compared with .63 percent in 2004 and 1.06 percent in offs in 2005, compared with 2004, reflected approximately
2003. The overall level of net charge-offs in 2005 and 2004 $56 million of charge-offs related to the new bankruptcy
reflected improving economic conditions and the Company’s legislation. The Company anticipates that the higher level of
efforts to reduce the overall risk profile of the portfolio
NET CHARGE-OFFS AS A PERCENT OF AVERAGE LOANS OUTSTANDING
Year Ended December 31 2005 2004 2003 2002 2001
Commercial
Commercial ************************************************* .12% .29% 1.34% 1.29% 1.62%
Lease financing ********************************************** .85 1.42 1.65 2.67 1.95
Total commercial ****************************************** .20 .43 1.38 1.46 1.66
Commercial real estate
Commercial mortgages *************************************** .03 .09 .14 .17 .22
Construction and development ********************************* (.04) .13 .16 .11 .17
Total commercial real estate ******************************** .01 .10 .14 .15 .20
Residential mortgages*************************************** .20 .20 .23 .23 .15
Retail
Credit card ************************************************** 4.20 4.14 4.62 4.97 4.80
Retail leasing ************************************************ .35 .59 .86 .72 .64
Home equity and second mortgages**************************** .46 .54 .70 .73 .85
Other retail ************************************************** 1.20 1.21 1.60 2.11 2.16
Total retail************************************************ 1.26 1.32 1.61 1.85 1.94
Total loans (a) ***************************************** .51% .63% 1.06% 1.20% 1.31%
(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 was 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 $1,876 million (1.59 percent
of average loans) for the year ended December 31, 2001.
38 U.S. BANCORP
Table 15