US Bank 2006 Annual Report Download - page 100

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The contract or notional amounts of commitments to
GUARANTEES AND CONTINGENT
extend credit and letters of credit at December 31, 2006,
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 ********************** $20,558 $ 38,961 $59,519
clauses. The contractual amount represents the Company’s
Corporate and purchasing cards (a)*** 12,866 — 12,866
exposure to credit loss, in the event of default by the
Consumer credit cards ************* 41,315 — 41,315
Other consumer ****************** 2,921 13,958 16,879
borrower. The Company manages this credit risk by using
Letters of credit
the same credit policies it applies to loans. Collateral is
Standby ************************* 6,020 5,906 11,926
obtained to secure commitments based on management’s
Commercial ********************** 346 67 413
credit assessment of the borrower. The collateral may
(a) Primarily cancelable at the Company’s discretion.
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
commitment amounts do not necessarily represent the
$193 million in 2006, $192 million in 2005 and
Company’s future liquidity requirements. In addition, the
$187 million in 2004. Future minimum payments, net of
commitments include consumer credit lines that are
sublease rentals, under capitalized leases and noncancelable
cancelable upon notification to the consumer.
operating leases with initial or remaining terms of one year
LETTERS OF CREDIT or more, consisted of the following at December 31, 2006:
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 third- 2007 ****************************** $11 $ 175
party. The guarantees frequently support public and private 2008 ****************************** 10 160
borrowing arrangements, including commercial paper 2009 ****************************** 10 145
2010 ****************************** 10 126
issuances, bond financings and other similar transactions.
2011 ****************************** 9 106
The Company issues commercial letters of credit on behalf of
Thereafter ************************** 43 442
customers to ensure payment or collection in connection with
Total minimum lease payments ********* 93 $1,154
trade transactions. In the event of a customer’s
Less amount representing interest ****** 34
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 *********************** $59
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, 2006, were Company’s business operations such as indemnified
approximately $11.9 billion with a weighted-average term of securities lending programs and merchant charge-back
approximately 24 months. The estimated fair value of guarantees; indemnification or buy-back provisions related
standby letters of credit was approximately $77 million at to certain asset sales; and contingent consideration
December 31, 2006. 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.
98 U.S. BANCORP
Note 21