US Bank 2003 Annual Report Download - page 41

The decline in residential mortgage delinquencies from the economy, net charge-offs are anticipated to trend lower
December 31, 2002, to December 31, 2003, reflected the in 2004.
general improvement in economic conditions, collection Commercial and commercial real estate loan net
efforts and the effect of portfolio growth on delinquency charge-offs for 2003 were $608.7 million (.89 percent of
ratios reported on a concurrent basis. The decline in retail average loans outstanding), compared with $679.9 million
loan delinquencies from a year ago, reflected improving (.98 percent of average loans outstanding) in 2002 and
economic conditions as well as ongoing collection efforts $884.6 million (1.16 percent of average loans outstanding)
and risk management actions taken by the Company over in 2001. While commercial and commercial real estate loan
the past three years. net charge-offs for 2003 continue at elevated levels
compared with the late 1990’s, improvement from 2002
Analysis of Loan Net Charge-Offs Total loan net charge-offs was broad-based and extended across most industries
decreased $121.3 million to $1,251.7 million in 2003, within the commercial portfolio. In addition, net charge-offs
compared with $1,373.0 million in 2002 and related to the equipment-leasing portfolio declined to
$1,546.5 million in 2001. The ratio of total loan net 1.65 percent of average leases outstanding from
charge-offs to average loans was 1.06 percent in 2003, 2.67 percent in 2002. In 2002, higher levels of net charge-
compared with 1.20 percent in 2002 and 1.31 percent in offs related to the leasing portfolio included airline and
2001. The improvement in net charge-offs in 2003 was due other transportation related losses. The decrease in
to credit risk management initiatives taken by the Company commercial and commercial real estate loan net charge-offs
during the past two years that have improved the credit risk in 2002, when compared with 2001, was driven by credit
profile of the loan portfolio. These initiatives along with actions taken in 2001. Commercial and commercial real
better economic conditions resulted in improving credit risk estate loan net charge-offs in 2001 included approximately
classifications and lower levels of nonperforming assets. The $312.2 million related to several factors including: a large
level of loan net charge-offs during 2002 reflected the cattle fraud, collateral deterioration specific to
impact of soft economic conditions at that time and transportation equipment caused by the impact of higher
weakness in the communications, transportation and fuel prices and the weak economy, deterioration in the
manufacturing sectors, as well as the impact of the economy manufacturing, communications and technology sectors and
on highly leveraged enterprise-value financings. The decline specific management decisions to accelerate its workout
during 2002 reflected net charge-offs taken in 2001 related strategy for certain borrowers. Also included in 2001
to several credit initiatives taken by management in that commercial and commercial real estate loan net charge-offs
year. Due to the Company’s ongoing workout, collection were $95 million in merger and restructuring-related
and risk management efforts and expected improvement in
Net Charge-offs as a Percent of Average Loans Outstanding
Year Ended December 31 2003 2002 2001 2000 1999
Commercial
Commercial ******************************************** 1.34% 1.29% 1.62% .56% .41%
Lease financing***************************************** 1.65 2.67 1.95 .46 .24
Total commercial ************************************ 1.38 1.46 1.66 .55 .40
Commercial real estate
Commercial mortgages ********************************** .14 .17 .21 .03 .02
Construction and development *************************** .16 .11 .17 .11 .03
Total commercial real estate ************************** .14 .15 .20 .05 .02
Residential mortgages ********************************** .23 .23 .15 .11 .11
Retail
Credit card ********************************************* 4.61 4.98 4.80 4.18 4.00
Retail leasing******************************************* .86 .72 .65 .41 .28
Home equity and second mortgages ********************** .70 .74 .85 * *
Other retail ********************************************* 1.60 2.10 2.16 1.32 1.26
Total retail ****************************************** 1.61 1.85 1.94 1.69 1.63
Total loans (a)************************************ 1.06% 1.20% 1.31% .70% .61%
(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 $1,875.8 million (1.59 percent of average loans) for the year ended December 31, 2001.
* Information not available
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