US Bank 2004 Annual Report Download - page 44
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Please find page 44 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.Elements of the Allowance for Credit Losses
Allowance Amount Allowance as a Percent of Loans
December 31 (Dollars in Millions) 2004 2003 2002 2001 2000 2004 2003 2002 2001 2000
Commercial
Commercial******************************** $ 663.6 $ 696.1 $ 776.4 $1,068.1 $ 418.8 1.88% 2.08% 2.12% 2.64% .89%
Lease financing **************************** 105.8 90.4 107.6 107.5 17.7 2.13 1.81 2.01 1.84 .31
Total commercial ************************ 769.4 786.5 884.0 1,175.6 436.5 1.92 2.04 2.11 2.54 .83
Commercial real estate
Commercial mortgages********************** 131.1 169.7 152.9 176.6 42.7 .65 .82 .75 .94 .22
Construction and development *************** 40.2 58.8 53.5 76.4 17.7 .55 .89 .82 1.16 .25
Total commercial real estate ************** 171.3 228.5 206.4 253.0 60.4 .62 .84 .77 1.00 .23
Residential mortgages ********************* 33.1 33.3 34.2 21.9 11.6 .22 .25 .35 .28 .12
Retail
Credit card ******************************** 283.2 267.9 272.4 295.2 265.6 4.29 4.52 4.81 5.01 4.42
Retail leasing******************************* 43.8 47.1 44.0 38.7 27.2 .61 .78 .77 .79 .65
Home equity and second mortgages ********** 87.9 100.5 114.7 88.6 107.7 .59 .76 .85 .72 .90
Other retail ******************************** 195.4 234.8 268.6 282.8 250.3 1.34 1.70 2.10 2.39 2.16
Total retail ****************************** 610.3 650.3 699.7 705.3 650.8 1.41 1.67 1.86 2.02 1.93
Total allocated allowance ***************** 1,584.1 1,698.6 1,824.3 2,155.8 1,159.3 1.25 1.43 1.57 1.89 .95
Available for other factors***************** 685.2 670.0 597.7 301.5 627.6 .54 .57 .51 .26 .51
Total allowance ******************************** $2,269.3 $2,368.6 $2,422.0 $2,457.3 $1,786.9 1.80% 2.00% 2.08% 2.15% 1.46%
At December 31, 2004, the allowance for credit losses unemployment rates, the level of bankruptcies and general
was $2,269.3 million (1.80 percent of loans). This compares economic indicators. Management determines the allowance
with an allowance of $2,368.6 million (2.00 percent of that is required for specific loan categories based on relative
loans) at December 31, 2003, and $2,422.0 million risk characteristics of the loan portfolio. On an ongoing
(2.08 percent of loans) at December 31, 2002. The ratio of basis, management evaluates its methods for determining
the allowance for credit losses to nonperforming loans was the allowance for each element of the portfolio and makes
354 percent at year-end 2004, compared with 232 percent enhancements considered appropriate. Table 16 shows the
at year-end 2003 and 196 percent at year-end 2002. The amount of the allowance for credit losses by portfolio
ratio of the allowance for credit losses to loan net charge- category.
offs was 296 percent at year-end 2004, compared with The allowance recorded for commercial and
189 percent at year-end 2003 and 176 percent at year-end commercial real estate loans is based on a regular review of
2002. Management determined that the allowance for credit individual credit relationships. The Company’s risk rating
losses was adequate at December 31, 2004. process is an integral component of the methodology
Several factors were taken into consideration in utilized in determining these elements of the allowance for
evaluating the allowance for credit losses in 2004, including credit losses. An allowance for credit losses is established
the improving credit risk profile of the portfolios and for pools of commercial and commercial real estate loans
declining net charge-offs during the period, the lower level and unfunded commitments based on the risk ratings
of nonperforming assets and relative size of accruing loans assigned. An analysis of the migration of commercial and
90 days or more past due and improving delinquency ratios commercial real estate loans and actual loss experience
in most loan categories compared with December 31, 2003. throughout the business cycle is also conducted quarterly to
Management also considered the uncertainty related to assess the exposure for credits with similar risk
certain industry sectors, including the transportation sector, characteristics. During 2004, the Company enhanced the
the extent of credit exposure to highly leveraged enterprise- process of determining specific allowances for commercial
value borrowers within the portfolio. In addition, and commercial real estate credit facilities by further
concentration risks associated with commercial real estate segmenting these portfolios based upon risk characteristics
and the mix of loans, including credit cards, loans and historical performance. Additionally, the Company
originated through the consumer finance division and lower reassessed the historical timeframe considered in developing
residential mortgages balances, and their relative credit risk inherent loss ratios to more effectively consider the
was evaluated compared with other banks. Finally, the implications of the last business cycle. These enhancements
Company considered the improving economic trends, had the effect of increasing inherent loss ratios for higher
including improving corporate earnings, changes in risk leveraged financings and transportation leases while
42 U.S. BANCORP
Table 16