US Bank 2003 Annual Report Download - page 38

commercial loan portfolio. Since 2001, the sector has been was primarily due to the Company’s decision to reduce its
impacted by reduced airline travel, slower economic activity exposure to these types of lending arrangements through
and changes in fuel prices. In general, the credit risk profile repayments, refinancing activities and loan sales. The sector
of the trucking, railroad and shipping segments have has also been reduced by charge-offs taken during the year.
improved from a year ago; however, the airline segment The Company’s portfolio of leveraged financings is included
continues to be sluggish. At year-end 2003, the Company’s in Table 7 and is diversified among industry groups similar
transportation portfolio consisted of airline and airfreight to the total commercial loan portfolio, except for higher
businesses (30.0 percent of the sector), trucking businesses concentrations in telecommunications and cable.
(48.4 percent of the sector) and the remainder in the The commercial real estate portfolio reflects the
railroad and shipping businesses (21.6 percent of the Company’s focus on serving business owners within its
sector). Capital goods represented 11.9 percent of the total footprint as well as regional investment-based real estate.
commercial portfolio at December 31, 2003. Included in Table 9 provides a summary of the significant property
this sector were approximately 34.0 percent of loans related types and geographic locations of commercial real estate
to building products while engineering and construction loans outstanding at December 31, 2003 and 2002. At
equipment and machinery businesses were 32.5 percent and December 31, 2003, approximately 29.5 percent of the
21.3 percent, respectively. During 2003, economic commercial real estate loan portfolio represented business
conditions improved and production levels increased owner-occupied properties that tend to exhibit credit risk
resulting in an improvement in the credit quality of the characteristics similar to the middle market commercial loan
capital goods sectors from a year ago. With respect to portfolio. Generally, the investment-based real estate
certain construction and building-related businesses, the mortgages are diversified among various property types with
recent changes in the interest rate environment may somewhat higher concentrations in multi-family, office and
somewhat hamper their future profitability. During 2003, retail properties. Additionally, the commercial real estate
segments of the agricultural industry experienced portfolio is diversified across the Company’s geographical
deterioration in credit quality due to depressed livestock markets with 92.8 percent of total commercial real estate
prices and excess production within the food processing loans outstanding at December 31, 2003, within the
businesses. At December 31, 2003, approximately 24-state banking region.
7.6 percent of the commercial loan portfolio was Analysis of Nonperforming Assets Nonperforming assets
concentrated in the agricultural sector. Within the represents a key indicator, among other considerations, of
agricultural sector, 37.9 percent of loans were to livestock the potential for future credit losses. Nonperforming assets
producers, 30.9 percent to crop producers, 20.4 percent to include nonaccrual loans, restructured loans not performing
food processors and 10.8 percent to wholesalers of in accordance with modified terms and other real estate and
agricultural products. Wholesalers have been less affected other nonperforming assets owned by the Company.
by commodity prices. Interest payments collected from assets on nonaccrual status
Within its commercial lending business, the Company are typically applied against the principal balance and not
also provides financing to enable customers to grow their recorded as income. At December 31, 2003, total
businesses through acquisitions of existing businesses, nonperforming assets were $1,148.1 million, compared with
buyouts or other recapitalizations. During a business cycle $1,373.5 million at year-end 2002 and $1,120.0 million at
with slower economic growth, businesses with leveraged year-end 2001. The ratio of total nonperforming assets to
capital structures may experience insufficient cash flows to total loans and other real estate decreased to .97 percent at
service their debt. The Company manages leveraged December 31, 2003, compared with 1.18 percent and
enterprise-value financings by maintaining well-defined .98 percent at the end of 2002 and 2001, respectively.
underwriting standards, portfolio diversification and actively The $225.4 million decrease in total nonperforming
managing the customer relationship. Regardless of these assets in 2003 reflected a decrease of $204.9 million in
actions, leveraged enterprise-value financings often exhibit nonperforming commercial and commercial real estate
stress during a recession or period of slow economic loans, a decrease of $11.5 million in nonperforming
growth. Given this risk profile, the Company continued to residential mortgages and a $.9 million decrease in
significantly de-emphasize and reduce the size of this nonperforming retail loans. The decrease in nonperforming
portfolio during the past year. The Company actively assets in 2003 was broad-based across most industry sectors
monitors the credit quality of these customers and develops within the commercial loan portfolio including capital
action plans accordingly. Such leveraged enterprise-value goods, consumer-related sectors, manufacturing,
financings approximated $1.8 billion in loans outstanding at telecommunications, and certain segments of transportation.
December 31, 2003, compared with approximately While airline travel has increased from a year ago, the
$2.9 billion outstanding at December 31, 2002. The decline
36 U.S. Bancorp