US Bank 2001 Annual Report Download - page 32

In evaluating its credit risk, the Company considers portfolios and recognized the need to address the impact
changes, if any, in underwriting activities, the loan portfolio that these events are expected to have on its credit
composition (including product mix and geographic, portfolios. In response to this evaluation, the Company
industry or customer-speciÑc concentrations), trends in loan increased the provision for credit losses approximately
performance, and macroeconomic factors. Generally, the $1,025.0 million in the third quarter of 2001 beyond
domestic economy has experienced slower growth since late expected levels.
2000. Accordingly, the Company began to re-evaluate
Credit DiversiÑcation Tables 7, 9 and 10 provide
underwriting activities to tighten credit availability to certain information with respect to the overall diversiÑcation of the
types of lending, industries and customers. Additionally, in credit portfolio and changes in mix during 2001. Certain
connection with the merger of Firstar and USBM, the industry segments, including transportation, manufacturing,
Company has continued to integrate underwriting standards and technology sectors have experienced economic stress in
throughout the organization. Core loan growth for the 2001. At December 31, 2001, the transportation sector
Company was 4.3 percent in 2001 with the majority of this represented 5.5 percent of the total commercial loan
growth in retail lending. portfolio. It has been impacted by reduced airline travel,
During 2001, corporate earnings growth rates continued slower economic activity and higher fuel costs that
to weaken and credit quality indicators among certain adversely impacted trucking businesses. At year-end 2001,
industry sectors have continued to deteriorate. Large the Company's transportation portfolio consisted of airline
corporate and middle market commercial businesses and airfreight businesses (28.8 percent of the sector),
announced or continued to implement restructuring trucking businesses (53.2 percent) and railroad and
activities in an eÅort to improve operating margins. The shipping. Capital goods represented 13.5 percent of the
stagnant economic growth is evidenced by the Federal total commercial portfolio at December 31, 2001. Included
Reserve Board's (""FRB'') recent actions during late 2000 in this sector were approximately 29.2 percent of loans to
and 2001 to stimulate economic growth through a series of diversiÑed manufacturing businesses while engineering and
interest rate reductions. In response to declining economic construction equipment and machinery businesses were
conditions, company-speciÑc portfolio trends, and the 30.7 percent and 22.8 percent, respectively, of the capital
Firstar/USBM merger, the Company undertook an extensive goods portfolio. Manufacturing production levels and
review of its commercial and consumer loan portfolios in inventory reductions caused some deterioration in these
early 2001. As a result of this review, the Company initiated portfolios during late 2000 and 2001. During 2001, the
several actions during the Ñrst six months of 2001 including technology sector was adversely impacted by lower capital
aligning the risk management practices and charge-oÅ investments by businesses over the past twelve to eighteen
policies of the companies and restructuring and disposing of months. At December 31, 2001, the technology industry
certain portfolios that did not align with the credit risk represented only 2.4 percent of the commercial loan
proÑle of the combined company. Credit portfolio portfolio.
restructuring activities included a speciÑc segment of the Since mid-2000, the agriculture and paper and forestry
Company's healthcare portfolio, selling certain consumer products sectors have been stressed. However, these sectors
loan portfolios of USBM, renegotiating a credit card co- have improved relative to a year ago. At December 31,
branding relationship and discontinuing an unsecured small 2001, the Company's agricultural portfolio was diversiÑed
business product that did not align with the product with 36.9 percent of agricultural loans to livestock
oÅerings of the combined company. The Company also producers, 27.3 percent to crop producers, 20.3 percent to
implemented accelerated loan workout strategies for certain food processors and 15.5 percent to wholesalers of
commercial credits. By the end of the second quarter of agricultural products. Volatility in crop prices continues to
2001, economic stimulus by the FRB as well as adversely aÅect the cash Öows of crop producers. Food
management's actions appeared to have reduced the rate of processors and wholesalers have been less negatively
credit quality deterioration. However, world events during aÅected by commodity pricing and a rebound in livestock
the third quarter of 2001 had a profound impact on prices in 2001 has improved the credit exposure within this
consumer conÑdence and related spending, governmental sector. At December 31, 2001, loans to paper and forestry
priorities and business activities. As a result of these events, products businesses represented 2.2 percent of the
the Company expected the economic slowdown to commercial loan portfolio. The industry continues to be
accelerate or be more prolonged than originally estimated adversely impacted by foreign supplies and over-capacity
by management. Since September 11, 2001, the FRB has within the industry; however, workout strategies continue
reduced the discount rate four times in an eÅort to stabilize to reduce the credit exposure to this industry.
the Ñnancial markets and economic growth. Accordingly,
the Company conducted an additional review of its credit
U.S. Bancorp
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