US Bank 2002 Annual Report Download - page 44

December 31, 2001 and 2000, respectively. The decline in compared with $21.9 million and $11.6 million at
the allowance for commercial and commercial real estate December 31, 2001 and 2000, respectively. The increase in
loans reflected a reduction of $93.7 million related to a allowance for the residential mortgage portfolio primarily
change in the volume of commercial and commercial real reflected the growth of the portfolio, a higher percentage of
estate portfolios and mix of the risk ratings within the first-lien home equity loans originated by the Company’s
portfolio. The remaining decline of $244.3 million reflected Consumer Finance division that tend to have slightly higher
improvements in loss severity rates determined from loss ratios and the impact of the continued downturn in
historical migration analysis. Although the Company’s level economic conditions. The allowance established for retail
of commercial and commercial real estate loans in higher loans was $699.7 million at December 31, 2002, compared
risk loan categories declined approximately 11 percent, the with $705.3 million and $650.8 million at December 31,
level of nonperforming loans continued at elevated levels 2001 and 2000, respectively. The slight decrease in the
and increased by 22.6 percent in 2002. The change from allowance for the retail portfolio in 2002 primarily reflected
year-end 2000 to year-end 2001 reflected higher levels of an improvement in the credit quality and delinquency trends
nonperforming loans, increased loss severity reflected in the of the credit card portfolio, offset by the impact of higher
historical migration, increased sector risk in certain unemployment and continued softness in economic
industries and deterioration in credit risk ratings compared conditions. The increase in the allowance established for
with 2000. retail loans in 2001 was due to an increase in net loss ratios
The allowance recorded for the residential mortgages caused by deteriorating economic conditions.
and retail loan portfolios is based on an analysis of product Regardless of the extent of the Company’s analysis of
mix, credit scoring and risk composition of the portfolio, customer performance, portfolio trends or risk management
loss and bankruptcy experiences, economic conditions and processes, certain inherent but undetected losses are
historical and expected delinquency and charge-off statistics probable within the loan portfolios. This is due to several
for each homogenous category or group of loans. Based on factors, including inherent delays in obtaining information
this information and analysis, an allowance was established regarding a customer’s financial condition or changes in
approximating a rolling twelve-month estimate of net their unique business conditions, the judgmental nature of
charge-offs. The allowance established for residential individual loan evaluations, collateral assessments and the
mortgages was $34.2 million at December 31, 2002,
Elements of the Allowance for Credit Losses (a)
Allowance Amount Allowance as a Percent of Loans
December 31 (Dollars in Millions) 2002 2001 2000 1999 1998 2002 2001 2000 1999 1998
Commercial
Commercial ******************* $ 776.4 $1,068.1 $ 418.8 $ 408.3 $ 343.7 2.12% 2.64% .89% .97% .91%
Lease financing *************** 107.6 107.5 17.7 20.2 21.5 2.01 1.84 .31 .53 .65
Total commercial *********** 884.0 1,175.6 436.5 428.5 365.2 2.11 2.54 .83 .93 .89
Commercial real estate
Commercial mortgages********* 152.9 176.6 42.7 110.4 105.2 .75 .94 .22 .59 .63
Construction and development ** 53.5 76.4 17.7 22.5 25.9 .82 1.16 .25 .35 .50
Total commercial real estate** 206.4 253.0 60.4 132.9 131.1 .77 1.00 .23 .53 .60
Residential mortgages ******** 34.2 21.9 11.6 18.6 27.2 .35 .28 .12 .15 .18
Retail
Credit card******************** 272.4 295.2 265.6 320.8 304.3 4.81 5.01 4.42 6.41 6.27
Retail leasing ***************** 44.0 38.7 27.2 18.6 6.5 .77 .79 .65 .88 .40
Home equity and
second mortgages********** 114.7 88.6 107.7 * * .85 .72 .90 * *
Other retail ******************* 268.6 282.8 250.3 389.2 365.6 2.10 2.39 2.16 1.74 1.62
Total retail ***************** 699.7 705.3 650.8 728.6 676.4 1.86 2.02 1.93 2.47 2.32
Total allocated allowance **** 1,824.3 2,155.8 1,159.3 1,308.6 1,199.9 1.57 1.89 .95 1.16 1.12
Available for other factors *** 597.7 301.5 627.6 401.7 505.8 .51 .26 .51 .35 .47
Total allowance ******************* $2,422.0 $2,457.3 $1,786.9 $1,710.3 $1,705.7 2.08% 2.15% 1.46% 1.51% 1.59%
(a) During 2001, the Company changed its methodology for determining the specific allowance for elements of the loan portfolio. Table 16 has been restated for 2000. Due to the
Company’s inability to gather historical loss data on a combined basis for 1998 and 1999, the methodologies and amounts assigned to each element of the loan portfolio for these
years have not been conformed. Utilizing the prior methods, the total assigned to the allocated allowance for 2000 was $1,397.3 million and the allowance available for other factors
portion was $389.6 million. Refer to paragraph four in the section captioned ‘‘Analysis and Determination of Allowance for Credit Losses.’’
* Information not available
42 U.S. Bancorp
Table 16