US Bank 2005 Annual Report Download - page 98

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The contract or notional amounts of commitments to
GUARANTEES AND CONTINGENT
extend credit and letters of credit at December 31, 2005,
LIABILITIES
were as follows:
COMMITMENTS TO EXTEND CREDIT Less Than After
(Dollars in Millions) One Year One Year Total
Commitments to extend credit are legally binding and Commitments to extend credit
generally have fixed expiration dates or other termination Commercial***************** $19,493 $37,973 $ 57,466
clauses. The contractual amount represents the Company’s Corporate and purchasing
exposure to credit loss, in the event of default by the cards ******************* 11,730 25 11,755
Consumer credit cards ******* 41,040 — 41,040
borrower. The Company manages this credit risk by using
Other consumer************* 3,439 12,512 15,951
the same credit policies it applies to loans. Collateral is Letters of credit
obtained to secure commitments based on management’s Standby******************** 5,212 5,531 10,743
credit assessment of the borrower. The collateral may Commercial***************** 242 74 316
include marketable securities, receivables, inventory,
equipment and real estate. Since the Company expects many LEASE COMMITMENTS
of the commitments to expire without being drawn, total
Rental expense for operating leases amounted to $192
commitment amounts do not necessarily represent the
million in 2005, $187 million in 2004 and $208 million in
Company’s future liquidity requirements. In addition, the
2003. Future minimum payments, net of sublease rentals,
commitments include consumer credit lines that are
under capitalized leases and noncancelable operating leases
cancelable upon notification to the consumer.
with initial or remaining terms of one year or more,
LETTERS OF CREDIT consisted of the following at December 31, 2005:
Capitalized Operating
Standby letters of credit are commitments the Company (Dollars in Millions) Leases Leases
issues to guarantee the performance of a customer to a 2006 **************************** $ 5 $ 171
third-party. The guarantees frequently support public and 2007 **************************** 4 159
private borrowing arrangements, including commercial paper 2008 **************************** 3 140
2009 **************************** 3 122
issuances, bond financings and other similar transactions.
2010 **************************** 3 105
The Company issues commercial letters of credit on behalf of
Thereafter ************************ 12 461
customers to ensure payment or collection in connection with
Total minimum lease payments ****** 30 $1,158
trade transactions. In the event of a customer’s
Less amount representing interest *** 21
nonperformance, the Company’s credit loss exposure is the
Present value of net minimum lease
same as in any extension of credit, up to the letter’s
payments ********************* $9
contractual amount. Management assesses the borrower’s
credit to determine the necessary collateral, which may
GUARANTEES
include marketable securities, receivables, inventory,
equipment and real estate. Since the conditions requiring the Guarantees are contingent commitments issued by the
Company to fund letters of credit may not occur, the Company to customers or other third-parties. The
Company expects its liquidity requirements to be less than Company’s guarantees primarily include parent guarantees
the total outstanding commitments. The maximum potential related to subsidiaries’ third-party borrowing arrangements;
future payments guaranteed by the Company under standby third-party performance guarantees inherent in the
letter of credit arrangements at December 31, 2005, were Company’s business operations such as indemnified
approximately $10.7 billion with a weighted-average term of securities lending programs and merchant charge-back
approximately 23 months. The estimated fair value of guarantees; indemnification or buy-back provisions related
standby letters of credit was approximately $82 million at to certain asset sales; and contingent consideration
December 31, 2005. 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
the guarantee or through the exercise of other recourse
provisions can offset some or all of the maximum potential
future payments made under these guarantees.
96 U.S. BANCORP
Note 23