US Bank 2004 Annual Report Download - page 37
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Please find page 37 of the 2004 US Bank annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Economic Overview In evaluating its credit risk, the Within the Company’s customer base, commercial loan
Company considers changes, if any, in underwriting demand continued to be somewhat soft through mid-2004.
activities, the loan portfolio composition (including product In the fourth quarter of 2004, most economic indicators
mix and geographic, industry or customer-specific again began to expand and commercial loan balances for
concentrations), trends in loan performance, the level of the Company displayed year-over-year quarterly growth for
allowance coverage relative to similar banking institutions the first time since mid-2001.
and macroeconomic factors. Beginning in 2000, the Credit Diversification The Company manages its credit risk,
domestic economy experienced slower growth. During in part, through diversification of its loan portfolio. As part
2001, corporate earnings weakened and credit quality of its normal business activities, it offers a broad array of
indicators among certain industry sectors deteriorated. The traditional commercial lending products and specialized
stagnant economic growth was evidenced by the Federal products such as asset-based lending, commercial lease
Reserve Board’s (‘‘FRB’’) actions to stimulate economic financing, agricultural credit, warehouse mortgage lending,
growth through a series of interest rate reductions from commercial real estate, health care and correspondent
mid-2001 through late 2002. In addition, events of banking. The Company also offers an array of retail lending
September 11, 2001, had a profound impact on credit products including credit cards, retail leases, home equity,
quality due to changes in consumer confidence and related revolving credit, lending to students and other consumer
spending, governmental priorities and business activities. In loans. These retail credit products are primarily offered
response to declining economic conditions, company-specific through the branch office network, specialized trust, home
portfolio trends, and the Firstar/USBM merger, the mortgage and loan production offices, indirect distribution
Company initiated several actions during 2001 including channels, such as automobile dealers and a consumer
aligning the risk management practices and charge-off finance division. The Company monitors and manages the
policies of the companies and restructuring and disposing of portfolio diversification by industry, customer and
certain portfolios that did not align with the credit risk geography. Table 6 provides information with respect to the
profile of the combined company. The Company also overall product diversification and changes in the mix
implemented accelerated loan workout strategies for certain during 2004.
commercial credits and increased the provision for credit The commercial portfolio reflects the Company’s focus
losses in 2001. on serving small business customers, middle market and
By the end of 2002, economic conditions had stabilized larger corporate businesses throughout its 24-state banking
somewhat, although the banking sector continued to region and large national customers within certain niche
experience elevated levels of nonperforming assets and net industry groups. Table 7 provides a summary of the
charge-offs, especially with respect to certain industry significant industry groups and geographic locations of
segments. Unemployment rates had increased slightly and commercial loans outstanding at December 31, 2004 and
consumer spending and confidence levels had declined 2003. The commercial loan portfolio is diversified among
during that year. Economic conditions began to improve in various industries with somewhat higher concentrations in
early to mid-2003 as evidenced by stronger earnings across consumer products and services, financial services,
many corporate sectors, higher equity valuations, stronger commercial services and supplies, capital goods (including
retail sales and consumer spending, and improving manufacturing and commercial construction-related
economic indicators. Also, unemployment rates stabilized businesses) and agricultural industries. Additionally, the
and began to decline in late 2003. However, the banking commercial portfolio is diversified across the Company’s
industry continued to have elevated levels of nonperforming geographical markets with 84.1 percent of total commercial
assets and net charge-offs compared with the late 1990’s. loans within the 24-state banking region. Credit
Conditions within certain industries, including relationships outside of the Company’s banking region are
manufacturing and airline transportation sectors, lagged specifically targeted industries including the mortgage
behind the growth in the broader economy especially in banking and the leasing businesses. Loans to mortgage
some markets served by the Company. banking customers are primarily warehouse lines which are
During 2004, unemployment rates and bankruptcy collateralized with the underlying mortgages. The Company
levels continued to improve. The trends related to consumer regularly monitors its mortgage collateral position to
spending for retail goods and services continued to expand manage its risk exposure.
throughout the year. While corporate profits continued to Certain industry segments within the commercial loan
be strong, the index of corporate profits retreated somewhat portfolio, including transportation and manufacturing have
in the second quarter of 2004. As a result, equity markets experienced economic stress since 2001. Additionally, highly
stalled in the second and third quarters of 2004 due to leveraged enterprise-value financings have under-performed
uncertainty related to corporate profits and world events.
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