US Bank 2003 Annual Report Download - page 101

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The fair value of unfunded commitments, standby commitments and standby letters of credit was
letters of credit and other guarantees is approximately equal $192 million. The carrying value of other guarantees was
to their carrying value. The carrying value of unfunded $132 million.
Guarantees and Contingent Liabilities
COMMITMENTS TO EXTEND CREDIT
Commitments to extend credit are legally binding and The contract or notional amounts of commitments to
generally have fixed expiration dates or other termination extend credit and letters of credit at December 31, 2003,
clauses. The contractual amount represents the Company’s were as follows:
exposure to credit loss, in the event of default by the Less Than After
(Dollars in Millions) One Year One Year Total
borrower. The Company manages this credit risk by using
Commitments to extend credit
the same credit policies it applies to loans. Collateral is Commercial************** $17,240 $30,902 $48,142
obtained to secure commitments based on management’s Corporate and purchasing
cards ***************** 12,525 — 12,525
credit assessment of the borrower. The collateral may Consumer credit cards **** 22,349 — 22,349
include marketable securities, receivables, inventory, Other consumer ********** 1,900 9,690 11,590
equipment and real estate. Since the Company expects many Letters of credit
Standby ***************** 4,667 5,073 9,740
of the commitments to expire without being drawn, total Commercial************** 370 40 410
commitment amounts do not necessarily represent the
Company’s future liquidity requirements. In addition, the LEASE COMMITMENTS
commitments include consumer credit lines that are
cancelable upon notification to the consumer. Rental expense for operating leases amounted to
$151.4 million in 2003, $148.0 million in 2002 and
LETTERS OF CREDIT $165.2 million in 2001. Future minimum payments, net of
sublease rentals, under capitalized leases and noncancelable
Standby letters of credit are conditional commitments the
operating leases with initial or remaining terms of one year
Company issues to guarantee the performance of a customer
or more, consisted of the following at December 31, 2003:
to a third-party. The guarantees frequently support public and
Capitalized Operating
private borrowing arrangements, including commercial paper (Dollars in Millions) Leases Leases
issuances, bond financings and other similar transactions. The 2004 **************************** $ 8.9 $ 181.9
Company issues commercial letters of credit on behalf of 2005 **************************** 7.9 161.7
customers to ensure payment or collection in connection with 2006 **************************** 7.0 146.2
trade transactions. In the event of a customer’s 2007 **************************** 6.6 131.3
2008 **************************** 6.2 110.9
nonperformance, the Company’s credit loss exposure is the
Thereafter *********************** 38.7 516.1
same as in any extension of credit, up to the letter’s
Total minimum lease payments ***** 75.3 $1,248.1
contractual amount. Management assesses the borrower’s
Less amount representing interest ** 28.5
credit to determine the necessary collateral, which may include
Present value of net minimum
marketable securities, real estate, accounts receivable and lease payments *************** $46.8
inventory. Since the conditions requiring the Company to fund
letters of credit may not occur, the Company expects its
GUARANTEES
liquidity requirements to be less than the total outstanding
commitments. The maximum potential future payments Guarantees are contingent commitments issued by the
guaranteed by the Company under standby letter of credit Company to customers or other third-parties. The
arrangements at December 31, 2003, were approximately Company’s guarantees primarily include parent guarantees
$9.7 billion with a weighted average term of approximately related to subsidiaries’ third-party borrowing arrangements;
24 months. The estimated fair value of standby letters of third-party performance guarantees inherent in the
credit was approximately $84.6 million at December 31, 2003. Company’s business operations such as indemnified
securities lending programs and merchant charge-back
guarantees; indemnification or buy-back provisions related
to certain asset sales; and contingent consideration
arrangements related to acquisitions. For certain guarantees,
the Company has recorded a liability related to the
potential obligation, or has access to collateral to support
U.S. Bancorp 99
Note 23