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UNITED STATES
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
For the quarterly period ended March 31, 2002
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
For the transition period from (not applicable)
Commission file number 1-6880
U.S. BANCORP
Delaware (State or other jurisdiction of incorporation or organization) | 41-0255900 (I.R.S. Employer Identification Number) |
225 South Sixth Street
(612) 973-1111
U.S. Bank Place
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months and (2) has been subject to such filing requirements for the 90 days.
YES X NO
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date.
Class Common Stock, $.01 Par Value | Outstanding as of April 30, 2002 1,911,706,605 shares |
Table of Contents
Table of Contents and Form 10-Q Cross Reference Index
Part I — Financial Information | |||||
1) Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 2) | |||||
a) | Overview | 3 | |||
b) | Statement of Income Analysis | 6 | |||
c) | Balance Sheet Analysis | 9 | |||
d) | Accounting Changes | 23 | |||
2) Quantitative and Qualitative Disclosures About Market Risk / Corporate Risk Profile (Item 3) | |||||
a) | Overview | 10 | |||
b) | Credit Risk Management | 10 | |||
c) | Interest Rate Risk Management | 13 | |||
d) | Market Risk Management | 16 | |||
e) | Liquidity Risk Management | 16 | |||
f) | Residual Risk Management | 17 | |||
g) | Operational Risk Management | 18 | |||
h) | Capital Management | 18 | |||
3) Line of Business Financial Review | 19 | ||||
4) Financial Statements (Item 1) | 24 | ||||
Part II — Other Information | |||||
1) Submission of Matters to a Vote of Security Holders (Item 4) | 38 | ||||
2) Exhibits and Reports on Form 8-K (Item 6) | 38 | ||||
3) Signature | 38 | ||||
4) Exhibit 12 — Computation of Earnings to Fixed Charges | Inside Back Cover |
Forward-Looking Statements
U.S. Bancorp | 1 |
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Three Months Ended | |||||||||||||
March 31, | |||||||||||||
Percent | |||||||||||||
(Dollars in Millions, Except Per Share Data) | 2002 | 2001 | Change | ||||||||||
Operating earnings (a) | $ | 841.6 | $ | 797.3 | 5.6 | % | |||||||
Merger and restructuring-related items (after-tax) | (48.4 | ) | (387.2 | ) | |||||||||
Cumulative effect of change in accounting principles (after-tax) | (37.2 | ) | — | ||||||||||
Net income | $ | 756.0 | $ | 410.1 | 84.3 | ||||||||
Per Common Share | |||||||||||||
Earnings per share before cumulative effect of change in accounting principles | $ | .41 | $ | .22 | 86.4 | % | |||||||
Diluted earnings per share before cumulative effect of change in accounting principles | .41 | .21 | 95.2 | ||||||||||
Earnings per share | .39 | .22 | 77.3 | ||||||||||
Diluted earnings per share | .39 | .21 | 85.7 | ||||||||||
Dividends declared per share | .195 | .1875 | 4.0 | ||||||||||
Book value per share | 8.30 | 8.00 | 3.8 | ||||||||||
Market value per share | 22.57 | 23.20 | (2.7 | ) | |||||||||
Average shares outstanding | 1,919.8 | 1,901.1 | 1.0 | ||||||||||
Average diluted shares outstanding | 1,930.1 | 1,915.7 | .8 | ||||||||||
Financial Ratios | |||||||||||||
Return on average assets | 1.83 | % | 1.02 | % | |||||||||
Return on average equity | 19.0 | 10.8 | |||||||||||
Net interest margin (taxable-equivalent basis) | 4.62 | 4.38 | |||||||||||
Efficiency ratio | 48.7 | 65.2 | |||||||||||
Financial Ratios Excluding Merger and Restructuring-Related Items and Cumulative Effect of Change in Accounting Principles (a) | |||||||||||||
Return on average assets | 2.03 | % | 1.98 | % | |||||||||
Return on average equity | 21.1 | 20.9 | |||||||||||
Efficiency ratio | 46.1 | 50.5 | |||||||||||
Banking efficiency ratio (b) | 42.4 | 45.7 | |||||||||||
Average Balances | |||||||||||||
Loans | $ | 113,708 | $ | 121,769 | (6.6 | )% | |||||||
Loans held for sale | 2,354 | 903 | * | ||||||||||
Investment securities | 26,626 | 17,875 | 49.0 | ||||||||||
Earning assets | 145,937 | 143,859 | 1.4 | ||||||||||
Assets | 167,772 | 163,123 | 2.8 | ||||||||||
Noninterest-bearing deposits | 27,485 | 23,591 | 16.5 | ||||||||||
Deposits | 102,012 | 104,484 | (2.4 | ) | |||||||||
Short-term borrowings | 14,564 | 13,121 | 11.0 | ||||||||||
Long-term debt | 26,450 | 23,641 | 11.9 | ||||||||||
Total shareholders’ equity | 16,159 | 15,467 | 4.5 | ||||||||||
March 31, | December 31, | ||||||||||||
2002 | 2001 | ||||||||||||
Period End Balances | |||||||||||||
Loans | $ | 114,747 | $ | 114,405 | .3 | % | |||||||
Allowance for credit losses | 2,462 | 2,457 | .2 | ||||||||||
Investment securities | 24,790 | 26,608 | (6.8 | ) | |||||||||
Assets | 164,745 | 171,390 | (3.9 | ) | |||||||||
Deposits | 102,462 | 105,219 | (2.6 | ) | |||||||||
Long-term debt | 27,054 | 25,716 | 5.2 | ||||||||||
Total shareholders’ equity | 15,892 | 16,461 | (3.5 | ) | |||||||||
Regulatory capital ratios | |||||||||||||
Tangible common equity | 5.8 | % | 5.7 | % | |||||||||
Tier 1 capital | 7.7 | 7.7 | |||||||||||
Total risk-based capital | 12.4 | 11.7 | |||||||||||
Leverage | 7.6 | 7.7 | |||||||||||
(a) | The Company analyzes its performance on a net income basis in accordance with accounting principles generally accepted in the United States, as well as on an operating basis before merger and restructuring-related items and cumulative effect of change in accounting principles referred to as “operating earnings.” Operating earnings are presented as supplemental information to enhance the reader’s understanding of, and highlight trends in, the Company’s financial results excluding the impact of merger and restructuring-related items of specific business acquisitions and restructuring activities and cumulative effect of change in accounting principles. Operating earnings should not be viewed as a substitute for net income and earnings per share as determined in accordance with accounting principles generally accepted in the United States. Merger and restructuring-related items excluded from net income to derive operating earnings may be significant and may not be comparable to other companies. |
(b) | Without investment banking and brokerage activity. |
* | Not meaningful. |
2 | U.S. Bancorp |
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OVERVIEW
Earnings SummaryU.S. Bancorp (the “Company”) reported net income of $756.0 million for the first quarter of 2002, or $.39 per diluted share, compared with $410.1 million, or $.21 per diluted share, for the first quarter of 2001. Return on average assets and return on average equity were 1.83 percent and 19.0 percent for the first quarter of 2002, compared with 1.02 percent and 10.8 percent for the first quarter of 2001. Net income includes after-tax merger and restructuring-related items of $48.4 million ($74.2 million on a pre-tax basis) and a cumulative effect of change in accounting principles of $37.2 million (or $.02 per diluted share) for the first quarter of 2002, compared with $387.2 million ($570.8 million on a pre-tax basis) of merger and restructuring-related items for the first quarter of 2001. For the first quarter of 2002, total merger and restructuring-related items on a pre-tax basis included $64.4 million of net expenses associated with the merger of Firstar Corporation (“Firstar”) and the former U.S. Bancorp (“USBM”) and $9.8 million associated with NOVA Corporation (“NOVA”) and other smaller acquisitions. For the first quarter of 2001, merger and restructuring-related items on a pre-tax basis included $356.5 million of noninterest expense and $166.6 million of provision for credit losses associated with the merger of Firstar and USBM. For the first quarter of 2001, merger and restructuring-related items also included $22.6 million of expense for restructuring operations of U.S. Bancorp Piper Jaffray and $25.1 million related to other acquisitions.
U.S. Bancorp | 3 |
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Table 1 | Selected Financial Data |
Three Months Ended March 31, | |||||||||
(Dollars and Shares in Millions, Except Per Share Data) | 2002 | 2001 | |||||||
Condensed Income Statement | |||||||||
Interest income (taxable-equivalent basis) | $ | 2,371.7 | $ | 3,027.5 | |||||
Interest expense | 701.3 | 1,463.2 | |||||||
Net interest income (taxable-equivalent basis) | 1,670.4 | 1,564.3 | |||||||
Securities gains, net | 44.1 | 216.0 | |||||||
Noninterest income | 1,282.8 | 1,194.7 | |||||||
Total net revenue | 2,997.3 | 2,975.0 | |||||||
Noninterest expense (a) | 1,362.6 | 1,394.3 | |||||||
Provision for credit losses (a) | 335.0 | 365.8 | |||||||
Income before taxes, merger and restructuring-related items and cumulative effect of change in accounting principles | 1,299.7 | 1,214.9 | |||||||
Taxable-equivalent adjustment | 9.1 | 18.5 | |||||||
Income taxes | 449.0 | 399.1 | |||||||
Operating earnings (a) | 841.6 | 797.3 | |||||||
Merger and restructuring-related items (after-tax) | (48.4 | ) | (387.2 | ) | |||||
Cumulative effect of change in accounting principles (after-tax) | (37.2 | ) | — | ||||||
Net income in accordance with GAAP | $ | 756.0 | $ | 410.1 | |||||
Per Common Share | |||||||||
Earnings per share before cumulative effect of change in accounting principles | $ | .41 | $ | .22 | |||||
Diluted earnings per share before cumulative effect of change in accounting principles | .41 | .21 | |||||||
Earnings per share | .39 | .22 | |||||||
Diluted earnings per share | .39 | .21 | |||||||
Dividends declared per share | .195 | .1875 | |||||||
Book value per share | 8.30 | 8.00 | |||||||
Market value per share | 22.57 | 23.20 | |||||||
Average shares outstanding | 1,919.8 | 1,901.1 | |||||||
Average diluted shares outstanding | 1,930.1 | 1,915.7 | |||||||
Financial Ratios | |||||||||
Return on average assets | 1.83 | % | 1.02 | % | |||||
Return on average equity | 19.0 | 10.8 | |||||||
Net interest margin (taxable-equivalent basis) | 4.62 | 4.38 | |||||||
Efficiency ratio | 48.7 | 65.2 | |||||||
Financial Ratios Excluding Merger and Restructuring-Related Items and Cumulative Effect of Change in Accounting Principles (a) | |||||||||
Return on average assets | 2.03 | % | 1.98 | % | |||||
Return on average equity | 21.1 | 20.9 | |||||||
Efficiency ratio | 46.1 | 50.5 | |||||||
Banking efficiency ratio (b) | 42.4 | 45.7 | |||||||
Average Balances | |||||||||
Loans | $ | 113,708 | $ | 121,769 | |||||
Loans held for sale | 2,354 | 903 | |||||||
Investment securities | 26,626 | 17,875 | |||||||
Earning assets | 145,937 | 143,859 | |||||||
Assets | 167,772 | 163,123 | |||||||
Noninterest-bearing deposits | 27,485 | 23,591 | |||||||
Deposits | 102,012 | 104,484 | |||||||
Short-term borrowings | 14,564 | 13,121 | |||||||
Long-term debt | 26,450 | 23,641 | |||||||
Total shareholders’ equity | 16,159 | 15,467 | |||||||
March 31, | December 31, | ||||||||
2002 | 2001 | ||||||||
Period End Balances | |||||||||
Loans | $ | 114,747 | $ | 114,405 | |||||
Allowance for credit losses | 2,462 | 2,457 | |||||||
Investment securities | 24,790 | 26,608 | |||||||
Assets | 164,745 | 171,390 | |||||||
Deposits | 102,462 | 105,219 | |||||||
Long-term debt | 27,054 | 25,716 | |||||||
Total shareholders’ equity | 15,892 | 16,461 | |||||||
Regulatory capital ratios | |||||||||
Tangible common equity | 5.8 | % | 5.7 | % | |||||
Tier 1 capital | 7.7 | 7.7 | |||||||
Total risk-based capital | 12.4 | 11.7 | |||||||
Leverage | 7.6 | 7.7 | |||||||
(a) | The Company analyzes its performance on a net income basis in accordance with accounting principles generally accepted in the United States, as well as on an operating basis before merger and restructuring-related items and cumulative effect of change in accounting principles referred to as “operating earnings.” Operating earnings are presented as supplemental information to enhance the reader’s understanding of, and highlight trends in, the Company’s financial results excluding the impact of merger and restructuring-related items of specific business acquisitions and restructuring activities and cumulative effect of change in accounting principles. Operating earnings should not be viewed as a substitute for net income and earnings per share as determined in accordance with accounting principles generally accepted in the United States. Merger and restructuring-related items excluded from net income to derive operating earnings may be significant and may not be comparable to other companies. |
(b) | Without investment banking and brokerage activity. |
4 | U.S. Bancorp |
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Table 2 | Reconciliation of Operating Earnings to Net Income in Accordance with GAAP |
Three Months Ended | ||||||||||
March 31, | ||||||||||
(Dollars in Millions) | 2002 | 2001 | ||||||||
Operating earnings (a) | $ | 841.6 | $ | 797.3 | ||||||
Merger and restructuring-related items | ||||||||||
Integration, conversion and other charges | (74.2 | ) | (404.2 | ) | ||||||
Provision for credit losses (b) | — | (166.6 | ) | |||||||
Pretax impact | (74.2 | ) | (570.8 | ) | ||||||
Applicable tax benefit | 25.8 | 183.6 | ||||||||
Total merger and restructuring-related items | (48.4 | ) | (387.2 | ) | ||||||
Cumulative effect of change in accounting principles (after-tax) | (37.2 | ) | — | |||||||
Net income in accordance with GAAP | $ | 756.0 | $ | 410.1 | ||||||
(a) | The Company analyzes its performance on a net income basis in accordance with accounting principles generally accepted in the United States, as well as on an operating basis before merger and restructuring-related items and cumulative effect of change in accounting principles referred to as “operating earnings.” Operating earnings are presented as supplemental information to enhance the reader’s understanding of, and highlight trends in, the Company’s financial results excluding the impact of merger and restructuring-related items of specific business acquisitions and restructuring activities and cumulative effect of change in accounting principles. Operating earnings should not be viewed as a substitute for net income and earnings per share as determined in accordance with accounting principles generally accepted in the United States. Merger and restructuring-related items excluded from net income to derive operating earnings may be significant and may not be comparable to other companies. |
(b) | Provision for credit losses in 2001 includes losses of $76.6 million on the sales of high loan-to-value home equity and indirect automobile loan portfolios and $90.0 million of charges to align credit policies and risk management practices. |
Acquisition and Divestiture ActivityU.S. Bancorp and its subsidiaries compose the organization created by the acquisition by Firstar of USBM. The merger was completed on February 27, 2001, as a pooling-of-interests, and accordingly all financial information has been restated to include the historical information of both companies. Each share of Firstar stock was exchanged for one share of the Company’s common stock while each share of USBM stock was exchanged for 1.265 shares of the Company’s common stock. The Company retained the U.S. Bancorp name.
U.S. Bancorp | 5 |
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STATEMENT OF INCOME ANALYSIS
Net Interest IncomeFirst quarter 2002 net interest income, on a taxable-equivalent basis, of $1,670.4 million, compared with $1,564.3 million for the first quarter of 2001, represents a $106.1 million (6.8 percent) increase from a year ago. Average earning assets for the period increased over the first quarter of 2001 by $2.1 billion (1.4 percent), primarily driven by increases in the investment portfolio, core retail loan growth and the impact of acquisitions. Growth in average earning assets was partially offset by declining corporate loan balances, a $3.5 billion reduction related to transfers of short-term, high credit quality, low margin commercial loans to Stellar Funding Group, Inc. (the “loan conduit”), a $1.3 billion decline in residential mortgages, the sale of indirect automobile and high LTV home equity loans and the securitization of a discontinued unsecured small business product. The net interest margin for the first quarter of 2002 was 4.62 percent, compared with 4.38 percent for the first quarter of 2001. The improvement in the net interest margin reflected the funding benefit of the declining rate environment, a more favorable funding mix and improving spreads due to product repricing dynamics and loan conduit transfers, partially offset by lower yields on the investment portfolio.
Table 3 | Analysis of Net Interest Income |
Three Months Ended | |||||||||||||
March 31, | |||||||||||||
2002 | |||||||||||||
(Dollars in Millions) | 2002 | 2001 | v 2001 | ||||||||||
Components of net interest income | |||||||||||||
Income on earning assets (taxable-equivalent basis) | $ | 2,371.7 | $ | 3,027.5 | $ | (655.8 | ) | ||||||
Expenses on interest-bearing liabilities | 701.3 | 1,463.2 | (761.9 | ) | |||||||||
Net interest income (taxable-equivalent basis) | $ | 1,670.4 | $ | 1,564.3 | $ | 106.1 | |||||||
Net interest income, as reported | $ | 1,661.3 | $ | 1,545.8 | $ | 115.5 | |||||||
Average yields and rates paid | |||||||||||||
Earning assets yield (taxable-equivalent basis) | 6.57 | % | 8.50 | % | (1.93 | )% | |||||||
Rate paid on interest-bearing liabilities | 2.40 | 4.98 | (2.58 | ) | |||||||||
Gross interest margin | 4.17 | % | 3.52 | % | .65 | % | |||||||
Net interest margin | 4.62 | % | 4.38 | % | .24 | % | |||||||
Average balances | |||||||||||||
Investment securities | $ | 26,626 | $ | 17,875 | $ | 8,751 | |||||||
Loans | 113,708 | 121,769 | (8,061 | ) | |||||||||
Earning assets | 145,937 | 143,859 | 2,078 | ||||||||||
Interest-bearing liabilities | 118,379 | 119,055 | (676 | ) | |||||||||
Net free funds (a) | 27,558 | 24,804 | 2,754 | ||||||||||
(a) | Represents noninterest-bearing deposits, allowance for credit losses, non-earning assets, other liabilities and equity. |
6 | U.S. Bancorp |
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Table 4 | Noninterest Income |
Three Months Ended | |||||||||
March 31, | |||||||||
(Dollars in Millions) | 2002 | 2001 | |||||||
Credit card fee revenue | $ | 186.9 | $ | 191.7 | |||||
Merchant and ATM processing revenue | 162.1 | 58.0 | |||||||
Trust and investment management fees | 224.3 | 225.0 | |||||||
Deposit service charges | 152.6 | 146.5 | |||||||
Cash management fees | 104.2 | 76.8 | |||||||
Mortgage banking revenue | 52.0 | 48.2 | |||||||
Trading account profits and commissions | 49.9 | 71.9 | |||||||
Investment products fees and commissions | 111.1 | 125.7 | |||||||
Investment banking revenue | 53.2 | 60.2 | |||||||
Insurance product revenue | 40.6 | 39.6 | |||||||
Commercial product revenue | 118.9 | 85.9 | |||||||
Retail product revenue | 8.1 | 17.9 | |||||||
Securities gains, net | 44.1 | 216.0 | |||||||
Other | 18.9 | 47.3 | |||||||
Total noninterest income | $ | 1,326.9 | $ | 1,410.7 | |||||
Provision for Credit LossesThe provision for credit losses was $335.0 million for the first quarter of 2002, compared with $532.4 million for the first quarter of 2001. The provision for credit losses for first quarter 2001 included $166.6 million of merger and restructuring-related items consisting of a $90.0 million charge to align risk management practices and charge-off policies and to expedite the transition out of a specific segment of the healthcare industry not meeting the risk profile of the new company and a $76.6 million provision for credit losses related to the sales of a high LTV home equity portfolio and an indirect automobile loan portfolio of USBM. The provision for credit losses, excluding merger and restructuring-related items, for the first quarter of 2002 was $335.0 million, compared with $365.8 million for first quarter 2001 represented a decrease of $30.8 million (8.4 percent). The change reflects a decrease in net charge-offs year-over-year, a slight decline in nonperforming assets and a moderate improvement in the risk profile of the commercial lending portfolio. Refer to the “Corporate Risk Profile” section for further information on provision for credit losses, net charge-offs, nonperforming assets and other factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.
Noninterest IncomeFirst quarter of 2002 noninterest income was $1,326.9 million, a decrease of $83.8 million (5.9 percent) from the first quarter of 2001. A $171.9 million reduction in net securities gains was the primary contributor to the decrease in noninterest income year-over-year. Credit card fee revenue was lower in the first quarter of 2002 than in the same period of 2001 by $4.8 million (2.5 percent), primarily due to lower corporate card transaction volumes. Merchant and ATM processing revenue was higher in the first quarter of 2002 over the same period of 2001 by $104.1 million, principally due to the acquisition of NOVA in July of 2001. Commercial product revenue, cash management fees, deposit service charges, and mortgage banking revenue also improved in the first quarter of 2002 over the first quarter of 2001 by $33.0 million (38.4 percent), $27.4 million (35.7 percent), $6.1 million (4.2 percent), and $3.8 million (7.9 percent), respectively. The increase in cash management fees and commercial product revenue was primarily driven by the growth in core business, loan conduit activities and product enhancements. The increase in deposit service charges was primarily due to
U.S. Bancorp | 7 |
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Noninterest ExpenseFirst quarter of 2002 noninterest expense was $1,436.8 million, a decrease of $361.7 million (20.1 percent), from the first quarter of 2001. During the first quarter of 2002, noninterest expense included $74.2 million of merger and restructuring-related items, compared with $404.2 million for the first quarter of 2001. Excluding merger and restructuring-related charges, noninterest expense for the first quarter of 2002 totaled $1,362.6 million, a decrease of $31.7 million (2.3 percent) from the first quarter of 2001. The overall decrease in noninterest expense, on an operating basis, from a year ago was due to several factors including, cost savings from the Company’s ongoing integration activities, lower expenses related to capital market activities of $32.3 million and the impact of applying the provisions of SFAS 141 to recent acquisitions and SFAS 142 to purchase acquisitions completed prior to July 1, 2001 (approximately $48 million). Offsetting these cost reductions was the impact of recent acquisitions, including NOVA and Pacific Century Bank, increasing first quarter of 2002 noninterest expense by approximately $115 million, compared with the first quarter of 2001.
Merger and Restructuring-Related ItemsEarnings in the first quarter of 2002 included pre-tax merger and restructuring-related items of $74.2 million compared with $570.8 million in the same quarter of a year ago. The total merger and restructuring-related items for first quarter 2002 included $64.4 million of net expense associated with the Firstar/ USBM merger. In addition, $9.8 million of expense was included in the first quarter of 2002 related to the integration of NOVA and other smaller acquisitions.
Table 5 | Noninterest Expense |
Three Months Ended | |||||||||
March 31, | |||||||||
(Dollars in Millions) | 2002 | 2001 | |||||||
Salaries | $ | 588.3 | $ | 590.5 | |||||
Employee benefits | 96.4 | 108.1 | |||||||
Net occupancy | 100.1 | 110.1 | |||||||
Furniture and equipment | 76.9 | 76.9 | |||||||
Professional services | 27.5 | 30.6 | |||||||
Advertising and marketing | 23.5 | 32.2 | |||||||
Travel and entertainment | 18.1 | 25.1 | |||||||
Capitalized software | 38.4 | 30.1 | |||||||
Data processing | 25.1 | 26.8 | |||||||
Communication | 45.7 | 38.7 | |||||||
Postage | 46.6 | 46.9 | |||||||
Printing | 20.7 | 21.1 | |||||||
Goodwill | — | 67.8 | |||||||
Other intangible assets | 80.2 | 46.6 | |||||||
Other | 175.1 | 142.8 | |||||||
Total operating noninterest expense | 1,362.6 | 1,394.3 | |||||||
Merger and restructuring-related charges | 74.2 | 404.2 | |||||||
Total noninterest expense | $ | 1,436.8 | $ | 1,798.5 | |||||
Efficiency ratio (a) | 48.7 | % | 65.2 | % | |||||
Efficiency ratio, operating basis (b) | 46.1 | 50.5 | |||||||
Banking efficiency ratio, operating basis (b) (c) | 42.4 | 45.7 | |||||||
(a) | Computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding securities gains (losses), net. |
(b) | Operating basis represents the efficiency ratios excluding merger and restructuring-related items. |
(c) | Without investment banking and brokerage activity. |
8 | U.S. Bancorp |
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Income Tax ExpenseThe provision for income taxes was $423.2 million (an effective rate of 34.8 percent) for the first quarter of 2002, compared with $215.5 million (an effective rate of 34.4 percent) for the first quarter of 2001. On an operating basis (excluding the impact of merger and restructuring items and the cumulative effect of change in accounting principles), the provision for income taxes was $449.0 million (an effective rate of 34.8 percent) for the first quarter of 2002 compared with $399.1 million (an effective rate of 33.4 percent) for the first quarter of 2001.
BALANCE SHEET ANALYSIS
LoansThe Company’s total loan portfolio was $114.7 billion at March 31, 2002, compared with $114.4 billion at December 31, 2001, an increase of $342 million (.3 percent). Commercial loans, including lease financing, totaled $46.4 billion at March 31, 2002, essentially flat, compared with $46.3 billion at December 31, 2001. The Company’s portfolio of commercial real estate mortgages and construction loans was $25.1 billion at March 31, 2002, compared with $25.4 billion at December 31, 2001. The decrease of $224 million (.9 percent) was driven by seasonality and slower loan growth under the current economic environment. Residential mortgages held in the loan portfolio were $7.9 billion at March 31, 2002, compared with $7.8 billion at December 31, 2001, an increase of $73 million (.9 percent). Total retail loans outstanding, which include credit card, retail leasing, home equity and second mortgages and other retail loans, were $35.3 billion at March 31, 2002, compared with $34.9 billion at December 31, 2001. The increase of $468 million (1.3 percent) was driven by an increase in home equity loan originations during the recent declining rate environment and an increase in the retail leasing business. This growth was partially offset by a decline in credit card activity due to seasonality.
Loans Held for SaleAt March 31, 2002, loans held for sale, consisting primarily of residential mortgages to be sold in the secondary markets, were $1.9 billion, compared with $2.8 billion at December 31, 2001. The $896 million (31.8 percent) decrease primarily reflects the strong mortgage loan origination volume in late 2001 relative to the first quarter of 2002.
Investment SecuritiesAt March 31, 2002, investment securities, both available-for-sale and held-to-maturity, totaled $24.8 billion, compared with $26.6 billion at December 31, 2001. This $1.8 billion (6.8 percent) decrease was driven by the sale of $3.7 billion in fixed-rate, mortgage-backed securities during first quarter of 2002 partially offset by purchases of floating-rate securities.
DepositsTotal deposits were $102.5 billion at March 31, 2002, compared with $105.2 billion at December 31, 2001. This represented a decline in total deposits of $2.8 billion (2.6 percent) from December 31, 2001. Noninterest-bearing deposits were $28.1 billion at March 31, 2002, compared with $31.2 billion at December 31, 2001, reflecting seasonality among business-related deposit accounts. Interest-bearing deposits totaled $74.3 billion at March 31, 2002, compared with $74.0 billion at December 31, 2001. Growth in interest checking, savings accounts, and money market accounts from year-end was partially offset by reductions in higher-cost savings certificates and domestic time deposits greater than $100,000. The decline in savings certificates and time deposits greater than $100,000 reflected funding decisions toward more favorably priced wholesale funding sources given the recent rate environment.
BorrowingsShort-term borrowings, which include federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings, were $10.6 billion at March 31, 2002, compared with $14.7 billion at December 31, 2001. The decrease of $4.0 billion (27.4 percent) in short-term
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CORPORATE RISK PROFILE
OverviewManaging risks is an essential part of successfully operating a financial services company. The most prominent risk exposures are credit, interest rate, market and liquidity. The Company also has exposure related to changes in residual valuations and ongoing operational activities. Credit risk is the risk of not collecting the interest and/or the principal balance of a loan or investment when it is due. Interest rate risk is the potential reduction of net interest income as a result of changes in interest rates. Rate movements can affect the repricing of assets and liabilities differently, as well as their market value. Market risk arises from fluctuations in interest rates, foreign exchange rates, and equity prices that may result in changes in the values of financial instruments, such as trading account and available-for-sale securities that are accounted for on a mark-to-market basis. Liquidity risk is the possible inability to fund obligations to depositors, investors and borrowers. Residual risk is the potential reduction in the “end-of-term” value of leased assets or the residual cash flows related to asset securitization and other off-balance sheet structures. Operational risk represents the possibility that transactions are processed erroneously and that “material” accounting errors are not detected by the systems of internal accounting controls.
Credit Risk ManagementThe Company’s strategy for credit risk management includes stringent, centralized credit policies, and uniform underwriting criteria for all loans, including specialized lending categories such as mortgage banking, commercial real estate and real estate construction financing, leveraged financing and consumer credit. The strategy also emphasizes diversification on a geographic, industry and customer level, regular credit examinations and quarterly management reviews of large loans and loans experiencing deterioration of credit quality. The Company strives to identify potential problem loans early, take any necessary charge-offs promptly and maintain adequate reserve levels. Commercial banking operations rely on a strong credit culture that combines prudent credit policies and individual lender accountability. In addition, the commercial lenders generally focus on middle market companies within their regions or niche national markets. The Company utilizes a credit risk rating system to measure the credit quality of individual commercial loan transactions and regularly forecasts potential changes in risk ratings and nonperforming status. The risk rating system is intended to identify and measure the credit quality of lending relationships. In the Company’s retail banking operations, standard credit scoring systems are used to assess consumer credit risks and to price consumer products accordingly. The Company also engages in nonlending activities that may give rise to credit risk, including interest rate swap contracts for balance sheet hedging purposes, foreign exchange transactions and interest rate swap contracts for customers, and the processing of credit card transactions for merchants. These activities are subject to the same credit review, analysis and approval processes as those applied to commercial loans.
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Table 6 | Net Charge-offs as a Percent of Average Loans Outstanding |
Three Months Ended | |||||||||||
March 31, | |||||||||||
2002 | 2001 | ||||||||||
Commercial | |||||||||||
Commercial | 1.23 | % | 2.34 | % | |||||||
Lease financing | 2.27 | 1.38 | |||||||||
Total commercial | 1.36 | 2.24 | |||||||||
Commercial real estate | |||||||||||
Commercial mortgages | .19 | .60 | |||||||||
Construction and development | .12 | .05 | |||||||||
Total commercial real estate | .17 | .45 | |||||||||
Residential mortgages | .14 | .14 | |||||||||
Retail | |||||||||||
Credit card | 4.82 | 4.15 | |||||||||
Retail leasing | .84 | .59 | |||||||||
Home equity and second mortgages | .85 | .90 | |||||||||
Other retail | 2.21 | 2.24 | |||||||||
Total retail | 1.95 | 1.87 | |||||||||
Total loans | 1.19 | % | 1.59 | % | |||||||
Analysis of Net Loan Charge-offs Total net loan charge-offs were $335.0 million for the first quarter of 2002, compared with net charge-offs of $477.1 million in the first quarter of 2001, a decrease of $142.1 million. Included in net charge-offs for the first quarter of 2001 were $90.0 million of merger and restructuring-related write-offs to conform risk management practices, align charge-off policies and expedite the transition out of a specific segment of the healthcare portfolio not meeting the risk profile of the combined Company. Management expects net charge-offs to trend downward from first quarter of 2002 levels throughout the remainder of the year.
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Table 7 | Nonperforming Assets (a) |
March 31, | December 31, | ||||||||||
(Dollars in Millions) | 2002 | 2001 | |||||||||
Commercial | |||||||||||
Commercial | $ | 529.9 | $ | 526.6 | |||||||
Lease financing | 203.2 | 180.8 | |||||||||
Total commercial | 733.1 | 707.4 | |||||||||
Commercial real estate | |||||||||||
Commercial mortgages | 121.4 | 131.3 | |||||||||
Construction and development | 32.3 | 35.9 | |||||||||
Total commercial real estate | 153.7 | 167.2 | |||||||||
Residential mortgages | 63.7 | 79.1 | |||||||||
Retail | |||||||||||
Retail leasing | .9 | 6.5 | |||||||||
Other retail | 31.7 | 41.1 | |||||||||
Total retail | 32.6 | 47.6 | |||||||||
Total nonperforming loans | 983.1 | 1,001.3 | |||||||||
Other real estate | 42.6 | 43.8 | |||||||||
Other assets | 85.1 | 74.9 | |||||||||
Total nonperforming assets | $ | 1,110.8 | $ | 1,120.0 | |||||||
Accruing loans 90 days or more past due (b) | $ | 426.8 | $ | 462.9 | |||||||
Nonperforming loans to total loans | .86 | % | .88 | % | |||||||
Nonperforming assets to total loans plus other real estate | .97 | .98 | |||||||||
Delinquent Loan Ratios (c)
March 31, | December 31, | ||||||||||
90 days or more past due | 2002 | 2001 | |||||||||
Commercial | |||||||||||
Commercial | 1.44 | % | 1.44 | % | |||||||
Lease financing | 3.59 | 3.53 | |||||||||
Total commercial | 1.70 | 1.71 | |||||||||
Commercial real estate | |||||||||||
Commercial mortgages | .71 | .73 | |||||||||
Construction and development | .67 | .56 | |||||||||
Total commercial real estate | .70 | .68 | |||||||||
Residential mortgages | 1.65 | 1.79 | |||||||||
Retail | |||||||||||
Credit card | 2.14 | 2.18 | |||||||||
Retail leasing | .16 | .24 | |||||||||
Other retail | .77 | .92 | |||||||||
Total retail | .89 | 1.03 | |||||||||
Total loans | 1.23 | % | 1.28 | % | |||||||
(a) | Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due. |
(b) | These loans are not included in nonperforming assets and continue to accrue interest because they are secured by collateral and/or are in the process of collection and are reasonably expected to result in repayment or restoration to current status. |
(c) | Ratios include nonperforming loans and are expressed as a percent of ending loan balances. |
Analysis of Nonperforming AssetsNonperforming assets at March 31, 2002, totaled $1,110.8 million, compared with $1,120.0 million at December 31, 2001. The level of nonperforming assets has continued to decline since the second quarter of 2001 reflecting actions taken by management to reduce the overall risk profile of the loan portfolios. The ratio of nonperforming assets to loans and other real estate was ...97 percent at March 31, 2002, essentially unchanged, compared with a ratio of .98 percent at December 31, 2001. Although the risk profile of the loan portfolios appears to have stabilized somewhat from year-end, the Company does not expect a significant change in the level of nonperforming assets during the next several quarters due to continued stress in certain industry sectors.
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Analysis and Determination of the Allowance for Credit LossesThe allowance for credit losses provides coverage for probable losses inherent in the Company’s loan portfolio. Management evaluates the allowance each quarter to determine that it is adequate to cover inherent losses. The evaluation of each element and the overall allowance is based on a continuing assessment of problem loans and related off-balance sheet items, recent loss experience, and other factors, including regulatory guidance and economic conditions.
Interest Rate Risk ManagementThe Company manages its exposure to adverse changes in interest rates through asset and liability management activities within guidelines established by its Asset/ Liability Policy Committee (“ALPC”). The Company limits the exposure of interest rate sensitive revenues, which includes both net interest income and selected other income, associated with interest rate movements through asset/ liability management strategies. ALPC uses simulation modeling and market value of equity as the primary methods for measuring and managing consolidated interest rate risk.
Interest Sensitive Revenue Simulation.The Company performs simulation analysis to estimate the impact of changes in interest rates on net interest income and interest sensitive revenue. The model, which is updated monthly, incorporates substantially all of the Company’s assets and liabilities, off-balance sheet instruments and selected fee based revenues, together with forecasted changes in the balance sheet and assumptions that reflect the current interest rate environment. ALPC also calculates the sensitivity of the simulation results to changes in key assumptions, such as the Prime/ LIBOR spread or core deposit repricing. The results from the simulation are reviewed by ALPC monthly and are used to guide ALPC’s hedging strategies. ALPC guidelines, approved by the Company’s Board of Directors, limit the estimated change in interest rate sensitive income to 5.0 percent of forecasted rate sensitive revenue given a 300 basis point change in interest rates occurring over a 12-month time period. Given the low level of rates, currently the down 300 basis points scenario cannot be computed. In simulations as of March 31, 2002, the interest rate risk position of the Company was relatively neutral as the impact of an upward movement in rates of 300 basis points over a 12-month period resulted in less than 1.0 percent change in net interest income. At March 31, 2002, the Company was well within policy guidelines.
Market Value of Equity ModelingThe Company also utilizes the market value of equity as a measurement tool in managing interest rate sensitivity. The market value of equity measures the degree to which the market values of the Company’s assets and liabilities and off-balance sheet instruments will change given a change in interest rates. The amount of market value risk is subject to a limit, approved by the Company’s Board of Directors, of 15 percent change for an immediate 200 basis point rate shock. Given the low level of rates, currently the down 200 basis point scenario cannot be computed. ALPC reviews other down rate scenarios to evaluate the impact of falling rates.
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Table 8 | Summary of Allowance for Credit Losses |
Three Months Ended | ||||||||||||
March 31, | ||||||||||||
(Dollars in Millions) | 2002 | 2001 | ||||||||||
Balance at beginning of period | $ | 2,457.3 | $ | 1,786.9 | ||||||||
Charge-offs | ||||||||||||
Commercial | ||||||||||||
Commercial | 131.0 | 283.2 | ||||||||||
Lease financing | 42.0 | 29.1 | ||||||||||
Total commercial | 173.0 | 312.3 | ||||||||||
Commercial real estate | ||||||||||||
Commercial mortgages | 10.0 | 31.5 | ||||||||||
Construction and development | 2.0 | 1.4 | ||||||||||
Total commercial real estate | 12.0 | 32.9 | ||||||||||
Residential mortgages | 4.1 | 3.9 | ||||||||||
Retail | ||||||||||||
Credit card | 72.9 | 64.5 | ||||||||||
Retail leasing | 11.7 | 6.9 | ||||||||||
Home equity and second mortgages | 27.8 | 30.7 | ||||||||||
Other retail | 84.2 | 84.5 | ||||||||||
Total retail | 196.6 | 186.6 | ||||||||||
Total charge-offs | 385.7 | 535.7 | ||||||||||
Recoveries | ||||||||||||
Commercial | ||||||||||||
Commercial | 10.5 | 12.9 | ||||||||||
Lease financing | 9.9 | 9.5 | ||||||||||
Total commercial | 20.4 | 22.4 | ||||||||||
Commercial real estate | ||||||||||||
Commercial mortgages | 1.2 | 3.0 | ||||||||||
Construction and development | .1 | .6 | ||||||||||
Total commercial real estate | 1.3 | 3.6 | ||||||||||
Residential mortgages | 1.4 | .7 | ||||||||||
Retail | ||||||||||||
Credit card | 5.9 | 6.7 | ||||||||||
Retail leasing | 1.2 | .7 | ||||||||||
Home equity and second mortgages | 1.7 | 4.2 | ||||||||||
Other retail | 18.8 | 20.3 | ||||||||||
Total retail | 27.6 | 31.9 | ||||||||||
Total recoveries | 50.7 | 58.6 | ||||||||||
Net Charge-offs | ||||||||||||
Commercial | ||||||||||||
Commercial | 120.5 | 270.3 | ||||||||||
Lease financing | 32.1 | 19.6 | ||||||||||
Total commercial | 152.6 | 289.9 | ||||||||||
Commercial real estate | ||||||||||||
Commercial mortgages | 8.8 | 28.5 | ||||||||||
Construction and development | 1.9 | .8 | ||||||||||
Total commercial real estate | 10.7 | 29.3 | ||||||||||
Residential mortgages | 2.7 | 3.2 | ||||||||||
Retail | ||||||||||||
Credit card | 67.0 | 57.8 | ||||||||||
Retail leasing | 10.5 | 6.2 | ||||||||||
Home equity and second mortgages | 26.1 | 26.5 | ||||||||||
Other retail | 65.4 | 64.2 | ||||||||||
Total retail | 169.0 | 154.7 | ||||||||||
Total net charge-offs | 335.0 | 477.1 | ||||||||||
Provision for credit losses | 335.0 | 532.4 | ||||||||||
Losses from loan sales/transfers | — | (113.6 | ) | |||||||||
Acquisitions and other changes | 4.2 | .5 | ||||||||||
Balance at end of period | $ | 2,461.5 | $ | 1,729.1 | ||||||||
Allowance as a percentage of: | ||||||||||||
Period-end loans | 2.15 | % | 1.45 | % | ||||||||
Nonperforming loans | 250 | 176 | ||||||||||
Nonperforming assets | 222 | 159 | ||||||||||
Annualized net charge-offs | 181 | 89 | ||||||||||
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Table 9 | Derivative Positions |
Weighted- | ||||||||||||||||||||||||||||||||||||||
Asset and Liability Management Positions | Average | |||||||||||||||||||||||||||||||||||||
Maturing | Remaining | |||||||||||||||||||||||||||||||||||||
Fair | Maturity | |||||||||||||||||||||||||||||||||||||
March 31, 2002 (Dollars in Millions) | 2002 | 2003 | 2004 | 2005 | 2006 | Thereafter | Total | Value | In Years | |||||||||||||||||||||||||||||
Receive fixed/pay floating swaps | ||||||||||||||||||||||||||||||||||||||
Notional amount | $ | 3,148 | $ | 1,068 | $ | 2,973 | $ | 2,111 | $ | 1,120 | $ | 8,670 | $ | 19,090 | $ | 49.9 | 6.42 | |||||||||||||||||||||
Weighted-average | ||||||||||||||||||||||||||||||||||||||
Receive rate | 4.56 | % | 6.05 | % | 5.20 | % | 5.91 | % | 5.32 | % | 6.09 | % | 5.63 | % | ||||||||||||||||||||||||
Pay rate | 1.89 | 1.91 | 1.90 | 2.08 | 1.87 | 2.16 | 2.04 | |||||||||||||||||||||||||||||||
Pay fixed/receive floating swaps | ||||||||||||||||||||||||||||||||||||||
Notional amount | $ | — | $ | — | $ | 800 | $ | 365 | $ | — | $ | — | $ | 1,165 | $ | 13.4 | 2.67 | |||||||||||||||||||||
Weighted-average | ||||||||||||||||||||||||||||||||||||||
Receive rate | — | % | — | % | 1.96 | % | 1.87 | % | — | % | — | % | 1.93 | % | ||||||||||||||||||||||||
Pay rate | — | — | 3.82 | 4.28 | — | — | 3.96 | |||||||||||||||||||||||||||||||
Basis swaps | $ | 500 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 500 | $ | — | .48 | |||||||||||||||||||||
Future and forwards | 2,888 | — | — | — | — | — | 2,888 | 10.0 | .08 | |||||||||||||||||||||||||||||
Options | — | — | — | — | 45 | — | 45 | — | 4.63 | |||||||||||||||||||||||||||||
Customer Intermediated Positions | |||||||||||||||||||||||||||||||||||||
Receive fixed/pay floating swaps | |||||||||||||||||||||||||||||||||||||
Notional amount | $ | 197 | $ | 831 | $ | 430 | $ | 452 | $ | 460 | $ | 713 | $ | 3,083 | $ | 43.5 | 3.50 | ||||||||||||||||||||
Pay fixed/receive floating swaps | |||||||||||||||||||||||||||||||||||||
Notional amount | 196 | 830 | 430 | 452 | 460 | 726 | 3,094 | (31.0 | ) | 3.50 | |||||||||||||||||||||||||||
Basis swaps | — | — | 2 | — | — | — | 2 | — | 2.42 | ||||||||||||||||||||||||||||
Options | 474 | 606 | 76 | — | 30 | 54 | 1,240 | — | 1.33 | ||||||||||||||||||||||||||||
Foreign exchange contracts | |||||||||||||||||||||||||||||||||||||
Purchase | 1,945 | 67 | — | — | — | — | 2,012 | 53.5 | .25 | ||||||||||||||||||||||||||||
Sell | 1,968 | 66 | — | — | — | — | 2,034 | (66.1 | ) | .25 | |||||||||||||||||||||||||||
Use of Derivatives to Manage Interest Rate Risk In the ordinary course of business, the Company enters into derivative transactions to manage interest rate risk, and to accommodate the business requirements of its customers. To manage its interest rate risk, the Company may enter into interest rate swap agreements, and to a lesser degree, basis swaps, and interest rate options such as caps and floors. Interest rate swaps involve the exchange of fixed-rate and variable-rate payments without the exchange of the underlying notional amount on which the interest payments are calculated. In connection with its mortgage banking operations, the Company enters into forward commitments to sell mortgage loans related to fixed-rate mortgage loans held for sale and fixed-rate mortgage loan commitments.
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Market Risk ManagementMarket risk is subject to regular monitoring by management. The Company uses a value-at-risk (“VaR”) model to measure and manage market risk in its trading activities. The VaR model uses an estimate of volatility appropriate to each instrument and a ninety-ninth percentile adverse move in the underlying markets. The Company establishes market risk limits, subject to approval by the Company’s Board of Directors. The Company’s VaR limit was $40 million at March 31, 2002. The market valuation risk inherent in its customer-based derivative trading, mortgage banking pipeline, broker-dealer activities (including equities, fixed-income, and high-yield securities) and foreign exchange, as estimated by the VaR analysis, was $13 million at March 31, 2002.
Liquidity Risk ManagementALPC establishes policies, as well as analyzes and manages liquidity, to ensure that adequate funds are available to meet normal operating requirements in addition to unexpected customer demands for funds, such as high levels of deposit withdrawals or loan demand, in a timely and cost-effective manner. The most important factor in the preservation of liquidity is maintaining public confidence that facilitates the retention and growth of a large, stable supply of core deposits and wholesale funds. Ultimately, public confidence is generated through profitable operations, sound credit quality and a strong capital position. The Company’s performance in these areas has enabled it to develop a large and reliable base of core funding within its market areas and in domestic and global capital markets. Liquidity management is viewed from a long-term and short-term perspective, as well as from an asset and liability perspective. Management monitors liquidity through a regular review of maturity profiles, funding sources, and loan and deposit forecasts to minimize funding risk.
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Residual Risk ManagementThe Company manages its risk to changes in the value of lease residual assets through disciplined residual setting and valuation at the inception of a lease, diversification of its vehicles, a focus on a longer term vehicle leases, effective end-of-term marketing of off-leased vehicles, regular asset valuation reviews and monitoring of residual value gains or losses upon the disposition of assets. To reduce the financial impact of potential changes in vehicle residuals, the Company maintains residual value risk insurance. Also, equipment lease originations are subject to the same stringent underwriting standards referred to in the segment captioned “Credit Risk Management.”
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Table 10 | Capital Ratios |
March 31, | December 31, | ||||||||
(Dollars in Millions) | 2002 | 2001 | |||||||
Tangible common equity | $ | 9,130 | $ | 9,374 | |||||
As a percent of tangible assets | 5.8 | % | 5.7 | % | |||||
Tier 1 capital | $ | 12,246 | $ | 12,488 | |||||
As a percent of risk-weighted assets | 7.7 | % | 7.7 | % | |||||
As a percent of adjusted quarterly average assets (leverage ratio) | 7.6 | % | 7.7 | % | |||||
Total risk-based capital | $ | 19,722 | $ | 19,148 | |||||
As a percent of risk-weighted assets | 12.4 | % | 11.7 | % | |||||
Operational Risk ManagementOperational risk represents the risk of loss resulting from the Company’s operations, including, but not limited to, the risk of fraud by employees or persons outside the Company, the execution of unauthorized transactions by employees, errors relating to transaction processing and systems, and breaches of the internal control system and compliance requirements. This risk of loss also includes the potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards.
Capital ManagementThe Company is committed to managing capital for maximum shareholder benefit and maintaining strong protection for depositors and creditors. Total shareholders’ equity was $15.9 billion at March 31, 2002, compared with $16.5 billion at December 31, 2001. The net decrease was driven by treasury stock repurchases and common stock dividends declared, partially offset by corporate earnings.
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LINE OF BUSINESS FINANCIAL REVIEW
Wholesale Banking Wholesale Banking offers lending, depository, treasury management and other financial services to middle market, large corporate and public sector clients. Wholesale Banking contributed $390.0 million of the Company’s net operating earnings in the first quarter of 2002, a 117.8 percent increase over the first quarter of 2001. The increase was primarily driven by a $345.4 million year-over-year reduction in the provision for credit losses.
Consumer Banking Consumer Banking delivers products and services to the broad consumer market and small businesses through banking offices, telemarketing, on-line services, direct mail and automated teller machines (“ATMs”). It encompasses community banking,
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Table 11 | Line of Business Financial Performance |
Wholesale | Consumer | Private Client, Trust | ||||||||||||||||||||||||||||||||||||
Banking | Banking | and Asset Management | ||||||||||||||||||||||||||||||||||||
Percent | Percent | Percent | ||||||||||||||||||||||||||||||||||||
For the Three Months Ended March 31 (Dollars in Millions) | 2002 | 2001 | Change | 2002 | 2001 | Change | 2002 | 2001 | Change | |||||||||||||||||||||||||||||
Condensed Income Statement | ||||||||||||||||||||||||||||||||||||||
Net interest income (taxable-equivalent basis) | $ | 489.8 | $ | 557.0 | (12.1 | )% | $ | 790.7 | $ | 815.4 | (3.0 | )% | $ | 83.3 | $ | 80.7 | 3.2 | % | ||||||||||||||||||||
Noninterest income | 180.8 | 137.3 | 31.7 | 293.8 | 294.6 | (.3 | ) | 221.0 | 220.2 | .4 | ||||||||||||||||||||||||||||
Total net revenue | 670.6 | 694.3 | (3.4 | ) | 1,084.5 | 1,110.0 | (2.3 | ) | 304.3 | 300.9 | 1.1 | |||||||||||||||||||||||||||
Noninterest expense | 92.1 | 101.2 | (9.0 | ) | 412.8 | 425.6 | (3.0 | ) | 112.0 | 124.0 | (9.7 | ) | ||||||||||||||||||||||||||
Other intangible amortization | 5.2 | 6.0 | (13.3 | ) | 28.5 | 25.8 | 10.5 | 7.6 | 7.5 | 1.3 | ||||||||||||||||||||||||||||
Goodwill amortization | — | — | * | — | — | * | — | — | * | |||||||||||||||||||||||||||||
Total noninterest expense | 97.3 | 107.2 | (9.2 | ) | 441.3 | 451.4 | (2.2 | ) | 119.6 | 131.5 | (9.0 | ) | ||||||||||||||||||||||||||
Operating income | 573.3 | 587.1 | (2.4 | ) | 643.2 | 658.6 | (2.3 | ) | 184.7 | 169.4 | 9.0 | |||||||||||||||||||||||||||
Provision for credit losses | (39.9 | ) | 305.5 | * | 120.0 | 112.3 | 6.9 | 3.7 | 1.9 | 94.7 | ||||||||||||||||||||||||||||
Income before income taxes | 613.2 | 281.6 | * | 523.2 | 546.3 | (4.2 | ) | 181.0 | 167.5 | 8.1 | ||||||||||||||||||||||||||||
Income taxes and taxable-equivalent adjustment | 223.2 | 102.5 | * | 190.4 | 198.8 | (4.2 | ) | 65.9 | 61.0 | 8.0 | ||||||||||||||||||||||||||||
Operating earnings, before merger and restructuring- related items and cumulative effect of change in accounting principles | $ | 390.0 | $ | 179.1 | * | $ | 332.8 | $ | 347.5 | (4.2 | ) | $ | 115.1 | $ | 106.5 | 8.1 | ||||||||||||||||||||||
Merger and restructuring-related items (after-tax) | ||||||||||||||||||||||||||||||||||||||
Cumulative effect of change in accounting principles | ||||||||||||||||||||||||||||||||||||||
Net income | ||||||||||||||||||||||||||||||||||||||
Average Balance Sheet Data | ||||||||||||||||||||||||||||||||||||||
Loans | $ | 49,199 | $ | 57,600 | (14.6 | ) | $ | 49,419 | $ | 49,762 | (.7 | ) | $ | 4,542 | $ | 4,250 | 6.9 | |||||||||||||||||||||
Goodwill | 1,380 | 1,470 | (6.1 | ) | 1,699 | 1,742 | (2.5 | ) | 287 | 304 | (5.6 | ) | ||||||||||||||||||||||||||
Other intangible assets | 135 | 183 | (26.2 | ) | 784 | 485 | 61.6 | 233 | 269 | (13.4 | ) | |||||||||||||||||||||||||||
Assets | 55,986 | 64,856 | (13.7 | ) | 57,832 | 56,761 | 1.9 | 5,779 | 5,642 | 2.4 | ||||||||||||||||||||||||||||
Noninterest-bearing deposits | 12,269 | 9,795 | 25.3 | 12,353 | 11,570 | 6.8 | 2,303 | 1,912 | 20.4 | |||||||||||||||||||||||||||||
Interest-bearing deposits | 7,080 | 5,880 | 20.4 | 59,142 | 62,838 | (5.9 | ) | 4,700 | 5,015 | (6.3 | ) | |||||||||||||||||||||||||||
Total deposits | 19,349 | 15,675 | 23.4 | 71,495 | 74,408 | (3.9 | ) | 7,003 | 6,927 | 1.1 | ||||||||||||||||||||||||||||
Shareholders’ equity | 5,269 | 6,480 | (18.7 | ) | 4,453 | 4,757 | (6.4 | ) | 1,619 | 1,715 | (5.6 | ) | ||||||||||||||||||||||||||
* | Not meaningful |
20 | U.S. Bancorp |
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Payment | Capital | Treasury and | Consolidated | ||||||||||||||||||||||||||||||||||||||||||||||
Services | Markets | Corporate Support | Company | ||||||||||||||||||||||||||||||||||||||||||||||
Percent | Percent | Percent | Percent | ||||||||||||||||||||||||||||||||||||||||||||||
2002 | 2001 | Change | 2002 | 2001 | Change | 2002 | 2001 | Change | 2002 | 2001 | Change | ||||||||||||||||||||||||||||||||||||||
$ | 172.2 | $ | 145.7 | 18.2 | % | $ | 8.0 | $ | 8.6 | (7.0 | )% | $ | 126.4 | $ | (43.1 | ) | * | % | $ | 1,670.4 | $ | 1,564.3 | 6.8 | % | |||||||||||||||||||||||||
367.9 | 267.2 | 37.7 | 170.6 | 221.4 | (22.9 | ) | 92.8 | 270.0 | (65.6 | ) | 1,326.9 | 1,410.7 | (5.9 | ) | |||||||||||||||||||||||||||||||||||
540.1 | 412.9 | 30.8 | 178.6 | 230.0 | (22.3 | ) | 219.2 | 226.9 | (3.4 | ) | 2,997.3 | 2,975.0 | .7 | ||||||||||||||||||||||||||||||||||||
162.9 | 106.4 | 53.1 | 155.0 | 193.6 | (19.9 | ) | 347.6 | 329.1 | 5.6 | 1,282.4 | 1,279.9 | .2 | |||||||||||||||||||||||||||||||||||||
38.6 | 6.3 | * | — | — | * | .3 | 1.0 | (70.0 | ) | 80.2 | 46.6 | 72.1 | |||||||||||||||||||||||||||||||||||||
— | — | * | — | — | * | — | 67.8 | * | — | 67.8 | * | ||||||||||||||||||||||||||||||||||||||
201.5 | 112.7 | 78.8 | 155.0 | 193.6 | (19.9 | ) | 347.9 | 397.9 | (12.6 | ) | 1,362.6 | 1,394.3 | (2.3 | ) | |||||||||||||||||||||||||||||||||||
338.6 | 300.2 | 12.8 | 23.6 | 36.4 | (35.2 | ) | (128.7 | ) | (171.0 | ) | 24.7 | 1,634.7 | 1,580.7 | 3.4 | |||||||||||||||||||||||||||||||||||
109.8 | 86.9 | 26.4 | — | — | * | 141.4 | (140.8 | ) | * | 335.0 | 365.8 | (8.4 | ) | ||||||||||||||||||||||||||||||||||||
228.8 | 213.3 | 7.3 | 23.6 | 36.4 | (35.2 | ) | (270.1 | ) | (30.2 | ) | * | 1,299.7 | 1,214.9 | 7.0 | |||||||||||||||||||||||||||||||||||
83.3 | 77.6 | 7.3 | 8.6 | 13.2 | (34.8 | ) | (113.3 | ) | (35.5 | ) | * | 458.1 | 417.6 | 9.7 | |||||||||||||||||||||||||||||||||||
$ | 145.5 | $ | 135.7 | 7.2 | $ | 15.0 | $ | 23.2 | (35.3 | ) | $ | (156.8 | ) | $ | 5.3 | * | 841.6 | 797.3 | 5.6 | ||||||||||||||||||||||||||||||
(48.4 | ) | (387.2 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
(37.2 | ) | — | |||||||||||||||||||||||||||||||||||||||||||||||
$ | 756.0 | $ | 410.1 | ||||||||||||||||||||||||||||||||||||||||||||||
$ | 10,029 | $ | 9,889 | 1.4 | $ | 248 | $ | 180 | 37.8 | $ | 271 | $ | 88 | * | $ | 113,708 | $ | 121,769 | (6.6 | ) | |||||||||||||||||||||||||||||
1,820 | 314 | * | 306 | 353 | (13.3 | ) | — | 11 | * | 5,492 | 4,194 | 30.9 | |||||||||||||||||||||||||||||||||||||
799 | 135 | * | — | — | * | 6 | — | * | 1,957 | 1,072 | 82.6 | ||||||||||||||||||||||||||||||||||||||
13,246 | 10,734 | 23.4 | 3,220 | 3,156 | 2.0 | 31,709 | 21,974 | 44.3 | 167,772 | 163,123 | 2.8 | ||||||||||||||||||||||||||||||||||||||
328 | 157 | * | 215 | 159 | 35.2 | 17 | (2 | ) | * | 27,485 | 23,591 | 16.5 | |||||||||||||||||||||||||||||||||||||
3 | 4 | (25.0 | ) | — | — | * | 3,602 | 7,156 | (49.7 | ) | 74,527 | 80,893 | (7.9 | ) | |||||||||||||||||||||||||||||||||||
331 | 161 | * | 215 | 159 | 35.2 | 3,619 | 7,154 | (49.4 | ) | 102,012 | 104,484 | (2.4 | ) | ||||||||||||||||||||||||||||||||||||
3,180 | 1,000 | * | 427 | 497 | (14.1 | ) | 1,211 | 1,018 | 19.0 | 16,159 | 15,467 | 4.5 | |||||||||||||||||||||||||||||||||||||
Private Client, Trust and Asset Management Private Client, Trust and Asset Management provides mutual fund processing services, trust, private banking and financial advisory services through four businesses, including: the Private Client Group, Corporate Trust, Institutional Trust and Custody, and Mutual Fund Services, LLC. The business segment also offers investment management services to several client segments including mutual funds, institutional customers, and private asset management. Private
U.S. Bancorp | 21 |
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Payment ServicesPayment Services includes consumer and business credit cards, corporate and purchasing card services, consumer lines of credit, ATM processing and merchant processing. Payment Services contributed $145.5 million of the Company’s net operating earnings in the first quarter of 2002, a 7.2 percent increase over the first quarter of 2001. The business unit’s financial results were, in part, driven by the impact of the NOVA acquisition completed during the third quarter of 2002, offset somewhat by an increase in the provision for credit losses.
Capital Markets Capital Markets engages in equity and fixed income trading activities, offers investment banking and underwriting services for corporate and public sector customers and provides financial advisory services and securities, mutual funds, annuities and insurance products to consumers and regionally-based businesses through a network of brokerage offices. Capital Markets contributed $15.0 million of the Company’s net operating earnings for the first quarter of 2002, compared with $23.2 million for the first quarter of 2001. The unfavorable variance in net operating income from the first quarter of 2001 was due to a decline in fees related to trading, investment product fees and commissions and investment banking revenues, reflecting the recent adverse capital markets conditions. Capital markets activities continued to experience weak sales volumes and lower levels of investment banking and merger and acquisition transactions. Management anticipates continued softness in sales activities and related revenue growth throughout the next several quarters. In response to the adverse market conditions, the Company restructured the division beginning in the first quarter of 2001 to improve the operating model and rationalize the distribution network.
Treasury and Corporate Support Treasury and Corporate Support includes the Company’s investment portfolios, funding, capital management and asset securitization activities, interest rate risk management, the net effect of transfer pricing related to average balances, and the change in residual allocations associated with the provision for loan losses. It also includes business activities managed on a corporate basis, including income and expense of enterprise-wide operations and administrative support functions. Treasury and Corporate Support recorded a net operating loss of $156.8 million in the first quarter of 2002 compared with net operating earnings of $5.3 million in the first quarter of 2001. During the first quarter of 2002, total net revenue was $219.2 million compared with $226.9 million in the first quarter of 2001. The $7.7 million decline consisted of a reduction in securities gains, offset somewhat by an increase in net interest income. The increase in net interest income was primarily due to an increase in average investments of $8.8 billion from a year ago and the benefit of changes in the mix of funding during the declining rate environment. Included for the first quarter of 2002 were
22 | U.S. Bancorp |
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ACCOUNTING CHANGES
Accounting for Business Combinations and Goodwill and Other Intangible AssetsIn June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141 (“SFAS 141”), “Business Combinations” and Statement of Financial Accounting Standard No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets.” SFAS 141 mandates the purchase method of accounting be used for all business combinations initiated after June 30, 2001, and establishes specific criteria for the recognition of intangible assets separately from goodwill. SFAS 142 addresses the accounting for goodwill and intangible assets subsequent to their acquisition. The Company adopted SFAS 142 on January 1, 2002. The most significant changes made by SFAS 142 are that goodwill and indefinite lived intangible assets will no longer be amortized and will be tested for impairment at least annually, thereafter. Any impairment charges from the initial impairment test would be recognized as a “cumulative effect of change in accounting principles” in the income statement. The amortization provisions of SFAS 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the amortization provisions of SFAS 142 are effective upon adoption of SFAS 142.
U.S. Bancorp | 23 |
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March 31, | December 31, | ||||||||||
(Dollars in Millions) | 2002 | 2001 | |||||||||
(Unaudited) | |||||||||||
Assets | |||||||||||
Cash and due from banks | $ | 6,499 | $ | 9,120 | |||||||
Money market investments | 538 | 625 | |||||||||
Trading account securities | 699 | 982 | |||||||||
Investment securities | |||||||||||
Held-to-maturity (fair value $302 and $306, respectively) | 299 | 299 | |||||||||
Available-for-sale | 24,491 | 26,309 | |||||||||
Loans held for sale | 1,924 | 2,820 | |||||||||
Loans | |||||||||||
Commercial | 46,355 | 46,330 | |||||||||
Commercial real estate | 25,149 | 25,373 | |||||||||
Residential mortgages | 7,902 | 7,829 | |||||||||
Retail | 35,341 | 34,873 | |||||||||
Total loans | 114,747 | 114,405 | |||||||||
Less allowance for credit losses | 2,462 | 2,457 | |||||||||
Net loans | 112,285 | 111,948 | |||||||||
Premises and equipment | 1,737 | 1,741 | |||||||||
Customers’ liability on acceptances | 118 | 178 | |||||||||
Goodwill | 5,427 | 5,459 | |||||||||
Other intangible assets | 1,998 | 1,953 | |||||||||
Other assets | 8,730 | 9,956 | |||||||||
Total assets | $ | 164,745 | $ | 171,390 | |||||||
Liabilities and Shareholders’ Equity | |||||||||||
Deposits | |||||||||||
Noninterest-bearing | $ | 28,146 | $ | 31,212 | |||||||
Interest-bearing | 65,020 | 65,447 | |||||||||
Time deposits greater than $100,000 | 9,296 | 8,560 | |||||||||
Total deposits | 102,462 | 105,219 | |||||||||
Short-term borrowings | 10,644 | 14,670 | |||||||||
Long-term debt | 27,054 | 25,716 | |||||||||
Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely the junior subordinated debentures of the parent company | 2,820 | 2,826 | |||||||||
Acceptances outstanding | 118 | 178 | |||||||||
Other liabilities | 5,755 | 6,320 | |||||||||
Total liabilities | 148,853 | 154,929 | |||||||||
Shareholders’ equity | |||||||||||
Common stock, par value $0.01 a share authorized: 3/31/02 and 12/31/01 — 4,000,000,000 shares issued: 3/31/02 — 1,972,773,508 shares; 12/31/01 — 1,972,777,763 shares | 20 | 20 | |||||||||
Capital surplus | 4,894 | 4,906 | |||||||||
Retained earnings | 12,306 | 11,918 | |||||||||
Less cost of common stock in treasury: 3/31/02 — 57,658,131 shares; 12/31/01 — 21,068,251 shares | (1,322 | ) | (478 | ) | |||||||
Other comprehensive income | (6 | ) | 95 | ||||||||
Total shareholders’ equity | 15,892 | 16,461 | |||||||||
Total liabilities and shareholders’ equity | $ | 164,745 | $ | 171,390 | |||||||
24 | U.S. Bancorp |
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Three Months Ended | ||||||||||
March 31, | ||||||||||
(Dollars and Shares in Millions, Except Per Share Data) | ||||||||||
(Unaudited) | 2002 | 2001 | ||||||||
Interest Income | ||||||||||
Loans | $ | 1,931.9 | $ | 2,651.1 | ||||||
Loans held for sale | 39.2 | 16.6 | ||||||||
Investment securities | ||||||||||
Taxable | 347.8 | 253.3 | ||||||||
Non-taxable | 13.2 | 31.2 | ||||||||
Money market investments | 3.3 | 8.9 | ||||||||
Trading securities | 8.2 | 15.9 | ||||||||
Other interest income | 19.0 | 32.0 | ||||||||
Total interest income | 2,362.6 | 3,009.0 | ||||||||
Interest Expense | ||||||||||
Deposits | 395.5 | 883.7 | ||||||||
Short-term borrowings | 78.9 | 186.2 | ||||||||
Long-term debt | 173.1 | 365.7 | ||||||||
Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely the junior subordinated debentures of the parent company | 53.8 | 27.6 | ||||||||
Total interest expense | 701.3 | 1,463.2 | ||||||||
Net interest income | 1,661.3 | 1,545.8 | ||||||||
Provision for credit losses | 335.0 | 532.4 | ||||||||
Net interest income after provision for credit losses | 1,326.3 | 1,013.4 | ||||||||
Noninterest Income | ||||||||||
Credit card fee revenue | 186.9 | 191.7 | ||||||||
Merchant and ATM processing revenue | 162.1 | 58.0 | ||||||||
Trust and investment management fees | 224.3 | 225.0 | ||||||||
Deposit service charges | 152.6 | 146.5 | ||||||||
Cash management fees | 104.2 | 76.8 | ||||||||
Mortgage banking revenue | 52.0 | 48.2 | ||||||||
Trading account profits and commissions | 49.9 | 71.9 | ||||||||
Investment products fees and commissions | 111.1 | 125.7 | ||||||||
Investment banking revenue | 53.2 | 60.2 | ||||||||
Insurance product revenue | 40.6 | 39.6 | ||||||||
Commercial product revenue | 118.9 | 85.9 | ||||||||
Securities gains, net | 44.1 | 216.0 | ||||||||
Other | 27.0 | 65.2 | ||||||||
Total noninterest income | 1,326.9 | 1,410.7 | ||||||||
Noninterest Expense | ||||||||||
Salaries | 588.3 | 590.5 | ||||||||
Employee benefits | 96.4 | 108.1 | ||||||||
Net occupancy | 100.1 | 110.1 | ||||||||
Furniture and equipment | 76.9 | 76.9 | ||||||||
Capitalized software | 38.4 | 30.1 | ||||||||
Communication | 45.7 | 38.7 | ||||||||
Postage | 46.6 | 46.9 | ||||||||
Goodwill | — | 67.8 | ||||||||
Other intangible assets | 80.2 | 46.6 | ||||||||
Merger and restructuring-related charges | 74.2 | 404.2 | ||||||||
Other | 290.0 | 278.6 | ||||||||
Total noninterest expense | 1,436.8 | 1,798.5 | ||||||||
Income before income taxes and cumulative effect of change in accounting principles | 1,216.4 | 625.6 | ||||||||
Applicable income taxes | 423.2 | 215.5 | ||||||||
Income before cumulative effect of change in accounting principles | 793.2 | 410.1 | ||||||||
Cumulative effect of change in accounting principles | (37.2 | ) | — | |||||||
Net income | $ | 756.0 | $ | 410.1 | ||||||
Earnings per share | ||||||||||
Income before cumulative effect of change in accounting principle | $ | .41 | $ | .22 | ||||||
Cumulative effect of change in accounting principles | (.02 | ) | — | |||||||
Net income | $ | .39 | $ | .22 | ||||||
Diluted earnings per share | ||||||||||
Income before cumulative effect of change in accounting principle | $ | .41 | $ | .21 | ||||||
Cumulative effect of change in accounting principles | (.02 | ) | — | |||||||
Net income | $ | .39 | $ | .21 | ||||||
Average common shares | 1,919.8 | 1,901.1 | ||||||||
Average diluted common shares | 1,930.1 | 1,915.7 | ||||||||
U.S. Bancorp | 25 |
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Other | Total | ||||||||||||||||||||||||||||
(Dollars in Millions) | Common Shares | Common | Capital | Retained | Treasury | Comprehensive | Shareholders’ | ||||||||||||||||||||||
(Unaudited) | Outstanding | Stock | Surplus | Earnings | Stock | Income | Equity | ||||||||||||||||||||||
Balance December 31, 2000 | 1,902,083,434 | $ | 19.4 | $ | 4,275.6 | $ | 11,658.0 | $ | (880.1 | ) | $ | 95.5 | $ | 15,168.4 | |||||||||||||||
Net income | 410.1 | 410.1 | |||||||||||||||||||||||||||
Unrealized gain on securities available for sale | 112.0 | 112.0 | |||||||||||||||||||||||||||
Unrealized gain on derivatives | 33.5 | 33.5 | |||||||||||||||||||||||||||
Foreign currency translation adjustment | (1.2 | ) | (1.2 | ) | |||||||||||||||||||||||||
Reclassification adjustment for gains realized in net income | (216.0 | ) | (216.0 | ) | |||||||||||||||||||||||||
Income taxes | 27.0 | 27.0 | |||||||||||||||||||||||||||
Total comprehensive income | 365.4 | ||||||||||||||||||||||||||||
Cash dividends declared on common stock | (357.2 | ) | (357.2 | ) | |||||||||||||||||||||||||
Issuance of common and treasury stock | 3,176,799 | .1 | 10.4 | 18.8 | 29.3 | ||||||||||||||||||||||||
Retirement of treasury stock | (.4 | ) | (823.2 | ) | 823.6 | — | |||||||||||||||||||||||
Shares reserved to meet deferred compensation obligations | .4 | (.4 | ) | — | |||||||||||||||||||||||||
Amortization of restricted stock | 36.8 | 36.8 | |||||||||||||||||||||||||||
Balance March 31, 2001 | 1,905,260,233 | $ | 19.1 | $ | 3,500.0 | $ | 11,710.9 | $ | (38.1 | ) | $ | 50.8 | $ | 15,242.7 | |||||||||||||||
Balance December 31, 2001 | 1,951,709,512 | $ | 19.7 | $ | 4,906.2 | $ | 11,918.0 | $ | (478.1 | ) | $ | 95.4 | $ | 16,461.2 | |||||||||||||||
Net income | 756.0 | 756.0 | |||||||||||||||||||||||||||
Unrealized loss on securities available for sale | (30.3 | ) | (30.3 | ) | |||||||||||||||||||||||||
Unrealized loss on derivatives | (103.4 | ) | (103.4 | ) | |||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | |||||||||||||||||||||||||||
Realized gain on derivatives | .9 | .9 | |||||||||||||||||||||||||||
Reclassification adjustment for gains realized in net income | (30.6 | ) | (30.6 | ) | |||||||||||||||||||||||||
Income taxes | 62.1 | 62.1 | |||||||||||||||||||||||||||
Total comprehensive income | 654.7 | ||||||||||||||||||||||||||||
Cash dividends declared on common stock | (367.7 | ) | (367.7 | ) | |||||||||||||||||||||||||
Issuance of common and treasury stock | 3,451,272 | (19.5 | ) | 81.5 | 62.0 | ||||||||||||||||||||||||
Purchase of treasury stock | (40,014,685 | ) | (923.2 | ) | (923.2 | ) | |||||||||||||||||||||||
Shares reserved to meet deferred compensation obligations | (30,722 | ) | 1.8 | (1.8 | ) | — | |||||||||||||||||||||||
Amortization of restricted stock | 5.2 | 5.2 | |||||||||||||||||||||||||||
Balance March 31, 2002 | 1,915,115,377 | $ | 19.7 | $ | 4,893.7 | $ | 12,306.3 | $ | (1,321.6 | ) | $ | (5.9 | ) | $ | 15,892.2 | ||||||||||||||
26 | U.S. Bancorp |
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Three Months Ended | |||||||||
March 31, | |||||||||
(Dollars in Millions) | |||||||||
(Unaudited) | 2002 | 2001 | |||||||
Operating Activities | |||||||||
Net cash provided by (used in) operating activities | $ | 2,708.9 | $ | 713.9 | |||||
Investing Activities | |||||||||
Securities | |||||||||
Sales | 3,862.9 | 9,322.0 | |||||||
Maturities | 1,667.3 | 651.5 | |||||||
Purchases | (3,719.1 | ) | (8,727.1 | ) | |||||
Loans | |||||||||
Sales and securitization | 437.3 | 3,395.3 | |||||||
Purchases | (1,628.3 | ) | (33.3 | ) | |||||
Net (increase) decrease in loans outstanding | 619.5 | (1,267.8 | ) | ||||||
Net (purchases) sales of bank premises and equipment | (66.4 | ) | (31.4 | ) | |||||
Other, net | (40.1 | ) | (47.9 | ) | |||||
Net cash provided by (used in) investing activities | 1,133.1 | 3,261.3 | |||||||
Financing Activities | |||||||||
Net increase (decrease) in deposits | (2,747.7 | ) | (4,694.3 | ) | |||||
Net increase (decrease) in short-term borrowings | (4,026.0 | ) | (60.9 | ) | |||||
Principal payments on long-term debt | (912.2 | ) | (1,440.0 | ) | |||||
Proceeds from issuance of long-term debt | 2,365.0 | 1,000.0 | |||||||
Proceeds from issuance of common stock | 53.8 | 17.5 | |||||||
Repurchase of common stock | (923.2 | ) | — | ||||||
Cash dividends paid | (360.2 | ) | (154.1 | ) | |||||
Net cash provided by (used in) financing activities | (6,550.5 | ) | (5,331.8 | ) | |||||
Change in cash and cash equivalents | (2,708.5 | ) | (1,356.6 | ) | |||||
Cash and cash equivalents at beginning of period | 9,745.3 | 9,131.6 | |||||||
Cash and cash equivalents at end of period | $ | 7,036.8 | $ | 7,775.0 | |||||
U.S. Bancorp | 27 |
Table of Contents
Note 1 | Basis of Presentation |
The accompanying consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally accepted in the United States. In the opinion of management of U.S. Bancorp (the “Company”), all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of results have been made, and the Company believes such presentation is adequate to make the information presented not misleading. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001. Certain amounts in prior periods have been reclassified to conform to the current presentation.
Note 2 | Accounting Changes |
Accounting for Business Combinations and Goodwill and Other Intangible AssetsIn June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141 (“SFAS 141”), “Business Combinations” and Statement of Financial Accounting Standard No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets.” SFAS 141 mandates the purchase method of accounting be used for all business combinations initiated after June 30, 2001, and establishes specific criteria for the recognition of intangible assets separately from goodwill. SFAS 142 addresses the accounting for goodwill and intangible assets subsequent to their acquisition. The Company adopted SFAS 142 on January 1, 2002. The most significant changes made by SFAS 142 are that goodwill and indefinite lived intangible assets will no longer be amortized and will be tested for impairment at least annually, thereafter. Any impairment charges from the initial impairment test would be recognized as a “cumulative effect of change in accounting principles” in the income statement. The amortization provisions of SFAS 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the amortization provisions of SFAS 142 are effective upon adoption of SFAS 142.
28 | U.S. Bancorp |
Table of Contents
Note 3 | Business Combinations |
On February 27, 2001, Firstar and USBM merged in a pooling-of-interests transaction and accordingly all financial information has been restated to include the historical information of both companies. Each share of Firstar stock was exchanged for one share of the Company’s common stock while each share of USBM stock was exchanged for 1.265 shares of the Company’s common stock. The new Company retained the U.S. Bancorp name.
The following table summarizes acquisitions by the Company completed since January 1, 2001, treating Firstar as the original acquiring company:
Goodwill and | ||||||||||||||||||||||||||
Other | Cash Paid/ | Accounting | ||||||||||||||||||||||||
(Dollars and Shares in Millions) | Date | Assets | Deposits | Intangibles | (Received) | Shares Issued | Method | |||||||||||||||||||
Pacific Century Bank | September 2001 | $ | 570 | $ | 712 | $ | 138 | $ | (40 | ) | — | Purchase | ||||||||||||||
NOVA Corporation | July 2001 | 949 | — | 1,932 | 842 | 56.9 | Purchase | |||||||||||||||||||
U.S. Bancorp | February 2001 | 86,602 | 51,335 | — | — | 952.4 | Pooling | |||||||||||||||||||
Note 4 | Merger and Restructuring-related Items |
The Company recorded pre-tax merger and restructuring-related items of $74.2 million in the first three months of 2002. In 2002, merger-related items were primarily incurred in connection with the merger of Firstar and USBM, the NOVA acquisition and the Company’s various other acquisitions. Refer to Note 3 of the Notes to Consolidated Financial Statements for additional information regarding business combinations.
The components of the merger and restructuring-related items are shown below:
Three Months Ended | ||||||||||||||||
March 31, 2002 | ||||||||||||||||
(Dollars in Millions) | USBM | NOVA | Other (a) | Total | ||||||||||||
Severance and employee-related | $ | (6.7 | ) | $ | — | $ | — | $ | (6.7 | ) | ||||||
Systems conversions and integration | 57.6 | 5.4 | 4.4 | 67.4 | ||||||||||||
Asset write-downs and lease terminations | 14.8 | — | — | 14.8 | ||||||||||||
Balance sheet restructurings | (3.8 | ) | — | — | (3.8 | ) | ||||||||||
Other merger-related charges | 2.5 | — | — | 2.5 | ||||||||||||
Total | $ | 64.4 | $ | 5.4 | $ | 4.4 | $ | 74.2 | ||||||||
(a) | “Other” primarily includes merger and restructuring-related items pertaining to the Lyon Financial Services, Inc. and Pacific Century Bank acquisitions. |
The Company determines merger and restructuring-related charges and related accruals based on its integration strategy and formulated plans. These plans are established as of the acquisition date and regularly evaluated during the integration process.
U.S. Bancorp | 29 |
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The following table presents a summary of activity with respect to the merger and restructuring-related accruals:
Piper | |||||||||||||||||||||
(Dollars in Millions) | USBM | NOVA | Restructuring | Other (a) | Total | ||||||||||||||||
Balance at December 31, 2001 | $ | 124.3 | $ | 48.4 | $ | 18.1 | $ | 14.6 | $ | 205.4 | |||||||||||
Provision charged to operating expense | 64.4 | 5.4 | — | 4.4 | 74.2 | ||||||||||||||||
Additions related to purchase acquisitions | — | .2 | — | — | .2 | ||||||||||||||||
Cash outlays | (98.4 | ) | (5.9 | ) | (4.2 | ) | (8.5 | ) | (117.0 | ) | |||||||||||
Noncash write-downs and other | (4.2 | ) | — | (1.4 | ) | (.6 | ) | (6.2 | ) | ||||||||||||
Balance at March 31, 2002 | $ | 86.1 | $ | 48.1 | $ | 12.5 | $ | 9.9 | $ | 156.6 | |||||||||||
(a) | “Other” primarily includes the acquisitions of Lyon Financial Services, Inc. and Pacific Century Bank. |
The adequacy of the accrued liabilities is reviewed regularly taking into consideration actual and projected payments. Adjustments are made to increase or decrease these accruals as needed. Reversals of expenses can reflect a lower utilization of benefits by affected staff, changes in initial assumptions as a result of subsequent mergers and alterations of business plans.
The following table presents a summary of activity with respect to the merger of Firstar and USBM:
Severance | Systems | Asset | |||||||||||||||||||||||
and | Conversions | Write-downs | Balance | ||||||||||||||||||||||
Employee- | and | and Lease | Sheet | ||||||||||||||||||||||
(Dollars in Millions) | Related | Integration | Terminations | Restructurings | Other | Total | |||||||||||||||||||
Balance at December 31, 2001 | $ | 88.3 | $ | — | $ | 33.1 | $ | 2.1 | $ | .8 | $ | 124.3 | |||||||||||||
Provision charged to operating expense | (6.7 | ) | 57.6 | 14.8 | (3.8 | ) | 2.5 | 64.4 | |||||||||||||||||
Cash outlays | (37.6 | ) | (57.6 | ) | (3.1 | ) | — | (.1 | ) | (98.4 | ) | ||||||||||||||
Noncash write-downs and other | 9.0 | — | (14.5 | ) | 3.8 | (2.5 | ) | (4.2 | ) | ||||||||||||||||
Balance at March 31, 2002 | $ | 53.0 | $ | — | $ | 30.3 | $ | 2.1 | $ | .7 | $ | 86.1 | |||||||||||||
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The components of the merger and restructuring-related accruals for all acquisitions were as follows:
March 31, | December 31, | ||||||||
(Dollars in Millions) | 2002 | 2001 | |||||||
Severance | $ | 66.7 | $ | 106.3 | |||||
Other employee-related costs | 3.8 | 4.7 | |||||||
Lease termination and facility costs | 58.6 | 64.3 | |||||||
Contracts and system write-offs | 18.5 | 18.3 | |||||||
Other | 9.0 | 11.8 | |||||||
Total | $ | 156.6 | $ | 205.4 | |||||
The merger and restructuring-related accrual by significant acquisition or business restructuring was as follows:
March 31, | December 31, | ||||||||
(Dollars in Millions) | 2002 | 2001 | |||||||
USBM | $ | 86.1 | $ | 124.3 | |||||
NOVA | 48.1 | 48.4 | |||||||
Piper Jaffray Companies, Inc. | 12.9 | 20.8 | |||||||
Pacific Century Bank | 1.9 | 3.1 | |||||||
Lyon Financial Services, Inc. | 1.0 | 1.0 | |||||||
Other acquisitions | 6.6 | 7.8 | |||||||
Total | $ | 156.6 | $ | 205.4 | |||||
In connection with the merger of Firstar and USBM, management estimates the Company will incur pre-tax merger-related charges of approximately $206.7 million for the remainder of 2002. These are currently estimated to include $114.1 million for conversions of systems and consolidation of operations, $99.1 million in occupancy and equipment charges (elimination of duplicate facilities and write-offs of equipment) and $(6.5) million in other merger-related costs (primarily balance sheet restructuring charges).
Note 5 | Investment Securities |
The amortized cost and fair value of held-to-maturity and available-for-sale securities consisted of the following:
March 31, 2002 | December 31, 2001 | ||||||||||||||||
Amortized | Fair | Amortized | Fair | ||||||||||||||
(Dollars in Millions) | Cost | Value | Cost | Value | |||||||||||||
Held-to-maturity (a) | |||||||||||||||||
Mortgage-backed securities | $ | 25 | $ | 25 | $ | 28 | $ | 28 | |||||||||
Obligations of state and political subdivisions | 274 | 277 | 271 | 278 | |||||||||||||
Total held-to-maturity securities | $ | 299 | $ | 302 | $ | 299 | $ | 306 | |||||||||
Available-for-sale (b) | |||||||||||||||||
U.S. Treasuries and agencies | $ | 446 | $ | 452 | $ | 439 | $ | 449 | |||||||||
Mortgage-backed securities | 20,756 | 20,695 | 21,937 | 21,964 | |||||||||||||
Other asset-backed securities | 1,671 | 1,650 | 2,091 | 2,064 | |||||||||||||
Obligations of state and political subdivisions | 783 | 799 | 877 | 891 | |||||||||||||
Other | 874 | 895 | 950 | 941 | |||||||||||||
Total available-for-sale securities | $ | 24,530 | $ | 24,491 | $ | 26,294 | $ | 26,309 | |||||||||
(a) | Held-to-maturity securities are carried at historical cost adjusted for amortization of premiums and accretion of discounts. |
(b) | Available-for-sale securities are carried at fair value with unrealized net gains or losses reported within other comprehensive income in shareholders’ equity. |
U.S. Bancorp | 31 |
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Note 6 | Loans |
The composition of the loan portfolio was as follows:
March 31, 2002 | December 31, 2001 | ||||||||||||||||||
Percent | Percent | ||||||||||||||||||
(Dollars in Millions) | Amount | of Total | Amount | of Total | |||||||||||||||
Commercial | |||||||||||||||||||
Commercial | $ | 40,679 | 35.5 | % | $ | 40,472 | 35.4 | % | |||||||||||
Lease financing | 5,676 | 4.9 | 5,858 | 5.1 | |||||||||||||||
Total commercial | 46,355 | 40.4 | 46,330 | 40.5 | |||||||||||||||
Commercial real estate | |||||||||||||||||||
Commercial mortgages | 18,776 | 16.4 | 18,765 | 16.4 | |||||||||||||||
Construction and development | 6,373 | 5.5 | 6,608 | 5.8 | |||||||||||||||
Total commercial real estate | 25,149 | 21.9 | 25,373 | 22.2 | |||||||||||||||
Residential mortgages | 7,902 | 6.9 | 7,829 | 6.8 | |||||||||||||||
Retail | |||||||||||||||||||
Credit card | 5,437 | 4.7 | 5,889 | 5.1 | |||||||||||||||
Retail leasing | 5,187 | 4.5 | 4,906 | 4.3 | |||||||||||||||
Home equity and second mortgages | 12,777 | 11.2 | 12,235 | 10.7 | |||||||||||||||
Other retail | |||||||||||||||||||
Revolving credit | 2,600 | 2.3 | 2,673 | 2.3 | |||||||||||||||
Installment | 2,219 | 1.9 | 2,292 | 2.0 | |||||||||||||||
Automobile | 5,714 | 5.0 | 5,660 | �� | 5.0 | ||||||||||||||
Student | 1,407 | 1.2 | 1,218 | 1.1 | |||||||||||||||
Total other retail | 11,940 | 10.4 | 11,843 | 10.4 | |||||||||||||||
Total retail | 35,341 | 30.8 | 34,873 | 30.5 | |||||||||||||||
Total loans | $ | 114,747 | 100.0 | % | $ | 114,405 | 100.0 | % | |||||||||||
Loans are presented net of unearned interest which amounted to $1.6 billion at March 31, 2002, and December 31, 2001.
Note 7 | Intangible Assets |
Amortizable intangible assets consisted of the following:
March 31, | December 31, | |||||||||
(Dollars in Millions) | 2002 | 2001 | ||||||||
Merchant processing contracts | $ | 652 | $ | 680 | ||||||
Core deposit benefits | 510 | 530 | ||||||||
Mortgage servicing rights | 449 | 360 | ||||||||
Other identified intangibles | 387 | 383 | ||||||||
Total | $ | 1,998 | $ | 1,953 | ||||||
Below is the estimated amortization expense for the years ended:
(Dollars in Millions) | |||||
Remaining | 2002 | $ | 237.2 | ||
2003 | 295.6 | ||||
2004 | 267.9 | ||||
2005 | 243.5 | ||||
2006 | 216.9 | ||||
The following table reflects the changes in the carrying value of goodwill by line of business:
Private Client, | ||||||||||||||||||||||||
Trust | ||||||||||||||||||||||||
Wholesale | Consumer | and Asset | Payment | Capital | Consolidated | |||||||||||||||||||
(Dollars in Millions) | Banking | Banking | Management | Services | Markets | Company | ||||||||||||||||||
Balance at December 31, 2001 | $ | 1,348 | $ | 1,706 | $ | 289 | $ | 1,811 | $ | 305 | $ | 5,459 | ||||||||||||
Goodwill acquired | 25 | — | — | 2 | — | 27 | ||||||||||||||||||
Impairment losses | (59 | ) | — | — | — | — | (59 | ) | ||||||||||||||||
Balance at March 31, 2002 | $ | 1,314 | $ | 1,706 | $ | 289 | $ | 1,813 | $ | 305 | $ | 5,427 | ||||||||||||
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Prior to the adoption of SFAS 142, the Company evaluated goodwill for impairment under a projected undiscounted cash flow model. As a result of the initial impairment test from the adoption of SFAS 142, the Company recognized an impairment loss of $58.8 million resulting in an after-tax loss of $37.2 million. The impairment was primarily related to the purchase of a transportation leasing company in 1998 by the equipment leasing business. This charge is recognized as a “cumulative effect of change in accounting principles” in the income statement. The fair value of that reporting unit was estimated using the present value of future expected cash flows.
Note 8 | Mortgage Servicing Rights |
Changes in capitalized mortgage servicing rights are summarized as follows:
Three Months Ended | Year-Ended | |||||||
(Dollars in Millions) | March 31, 2002 | December 31, 2001 | ||||||
Balance at beginning of period | $ | 360 | $ | 229 | ||||
Rights purchased | 15 | 25 | ||||||
Rights capitalized | 88 | 315 | ||||||
Amortization | (14 | ) | (45 | ) | ||||
Rights sold | — | (103 | ) | |||||
Impairment | — | (61 | ) | |||||
Balance at end of period | $ | 449 | $ | 360 | ||||
The fair value of capitalized mortgage servicing rights was $466 million at March 31, 2002, and $360 million at December 31, 2001. At March 31, 2002, the reduction in the current fair value of mortgage servicing rights to immediate 25 and 50 basis point adverse interest rate changes would be approximately $28 million and $74 million, respectively. The Company has purchased principal-only securities that act as a partial economic hedge to this possible adverse interest rate change. The Company serviced $25.4 billion and $22.0 billion of mortgage loans for other investors as of March 31, 2002, and December 31, 2001, respectively.
Note 9 | Deposits |
The composition of deposits was as follows:
March 31, 2002 | December 31, 2001 | ||||||||||||||||||
Percent | Percent | ||||||||||||||||||
(Dollars in Millions) | Amount | of Total | Amount | of Total | |||||||||||||||
Noninterest-bearing deposits | $ | 28,146 | 27.5 | % | $ | 31,212 | 29.7 | % | |||||||||||
Interest-bearing deposits | |||||||||||||||||||
Savings accounts | 4,913 | 4.8 | 4,637 | 4.4 | |||||||||||||||
Interest checking | 15,285 | 14.9 | 15,251 | 14.5 | |||||||||||||||
Money market accounts | 24,991 | 24.4 | 24,835 | 23.6 | |||||||||||||||
Subtotal | 45,189 | 44.1 | 44,723 | 42.5 | |||||||||||||||
Time certificates of deposit less than $100,000 | 19,831 | 19.3 | 20,724 | 19.7 | |||||||||||||||
Time deposits greater than $100,000 | |||||||||||||||||||
Domestic | 6,952 | 6.8 | 7,286 | 6.9 | |||||||||||||||
Foreign | 2,344 | 2.3 | 1,274 | 1.2 | |||||||||||||||
Total interest-bearing deposits | 74,316 | 72.5 | 74,007 | 70.3 | |||||||||||||||
Total deposits | $ | 102,462 | 100.0 | % | $ | 105,219 | 100.0 | % | |||||||||||
U.S. Bancorp | 33 |
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Note 10 | Long-Term Debt |
Long-term debt (debt with original maturities of more than one year) consisted of the following:
March 31, | December 31, | ||||||||
(Dollars in Millions) | 2002 | 2001 | |||||||
Fixed-rate subordinated notes (5.70% to 8.35%) — maturities to June 2026 | $ | 6,661 | $ | 5,746 | |||||
Medium-term notes (1.99% to 7.50%) — maturities to June 2005 | 3,638 | 3,215 | |||||||
Senior contingent convertible debt 1.50% — due August 2021 | 1,108 | 1,100 | |||||||
Federal Home Loan Bank advances (.50% to 8.25%) — maturities to October 2026 | 7,056 | 7,196 | |||||||
Bank notes (1.80% to 6.25%) — maturities to November 2005 | 7,833 | 7,550 | |||||||
Euro medium-term notes 1.98% — due April 2004 | 400 | 400 | |||||||
Other | 358 | 509 | |||||||
Total | $ | 27,054 | $ | 25,716 | |||||
In February 2002, the Company’s subsidiary U.S. Bank National Association issued $1.0 billion of fixed-rate subordinated notes due February 4, 2014. The interest rate is 6.30% per annum.
Note 11 | Company-obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely the Junior Subordinated Debentures of the Parent Company |
The following table is a summary of the Trust Preferred Securities at March 31, 2002:
Trust | |||||||||||||||||||||||||||||
Preferred | Rate at | ||||||||||||||||||||||||||||
Issuance | Securities | Debentures | Rate | March 31, | Redemption | ||||||||||||||||||||||||
Issuance Trust (Dollars in Millions) | Date | Amount | Amount | Type (a) | 2002 | Maturity Date | Date (b) | ||||||||||||||||||||||
Retail | |||||||||||||||||||||||||||||
USB Capital V | December 2001 | $ | 300 | $ | 309 | Fixed | 7.25% | December 2031 | December 7, 2006 | ||||||||||||||||||||
USB Capital IV | November 2001 | 500 | 515 | Fixed | 7.35% | November 2031 | November 1, 2006 | ||||||||||||||||||||||
USB Capital III | May 2001 | 700 | 722 | Fixed | 7.75% | May 2031 | May 4, 2006 | ||||||||||||||||||||||
USB Capital II | March 1998 | 350 | 361 | Fixed | 7.20% | April 2028 | April 1, 2003 | ||||||||||||||||||||||
Institutional | |||||||||||||||||||||||||||||
Star Capital I | June 1997 | 150 | 155 | Variable | 2.77% | June 2027 | June 15, 2007 | ||||||||||||||||||||||
Mercantile Capital Trust I | February 1997 | 150 | 155 | Variable | 2.71% | February 2027 | February 1, 2007 | ||||||||||||||||||||||
USB Capital I | December 1996 | 300 | 309 | Fixed | 8.27% | December 2026 | December 15, 2006 | ||||||||||||||||||||||
Firstar Capital Trust I | December 1996 | 150 | 155 | Fixed | 8.32% | December 2026 | December 15, 2006 | ||||||||||||||||||||||
FBS Capital I | November 1996 | 300 | 309 | Fixed | 8.09% | November 2026 | November 15, 2006 | ||||||||||||||||||||||
(a) | The variable-rate Trust Preferred Securities re-price quarterly. |
(b) | Earliest date of redemption. |
Note 12 | Shareholders’ Equity |
At December 31, 2000, the Company had the authority to issue 2 billion shares of common stock and 10 million shares of preferred stock. In connection with the merger of Firstar and USBM, on February 27, 2001, the number of authorized common shares for the Company was increased to 4 billion. Additionally, on February 27, 2001, in connection with the merger of Firstar and USBM, the par value of the Company’s common stock was reduced from $1.25 per share to $.01 per share. The Company had 1,915.1 million and 1,951.7 million shares of common stock outstanding at March 31, 2002, and December 31, 2001, respectively.
34 | U.S. Bancorp |
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Note 13 | Earnings Per Share |
The components of earnings per share were:
Three Months Ended | |||||||||
March 31, | |||||||||
(Dollars and Shares in Millions, Except Per Share Data) | 2002 | 2001 | |||||||
Income before cumulative effect of change in accounting principles | $ | 793.2 | $ | 410.1 | |||||
Cumulative effect of change in accounting principles | (37.2 | ) | — | ||||||
Net income | $ | 756.0 | $ | 410.1 | |||||
Weighted average common shares outstanding | 1,919.8 | 1,901.1 | |||||||
Net effect of the assumed purchase of stock based on the treasury stock method for options and stock plans | 10.3 | 14.6 | |||||||
Dilutive common shares outstanding | 1,930.1 | 1,915.7 | |||||||
Earnings per share | |||||||||
Income before cumulative effect of change in accounting principles | $ | .41 | $ | .22 | |||||
Cumulative effect of change in accounting principles | (.02 | ) | — | ||||||
Net income | $ | .39 | $ | .22 | |||||
Diluted earnings per share | |||||||||
Income before cumulative effect of change in accounting principles | $ | .41 | $ | .21 | |||||
Cumulative effect of change in accounting principles | (.02 | ) | — | ||||||
Net income | $ | .39 | $ | .21 | |||||
Note 14 | Income Taxes |
The components of income tax expense were:
Three Months Ended | |||||||||
March 31, | |||||||||
(Dollars in Millions) | 2002 | 2001 | |||||||
Federal | |||||||||
Current | $ | 331.5 | $ | 104.3 | |||||
Deferred | 57.1 | 82.0 | |||||||
Federal income tax | 388.6 | 186.3 | |||||||
State | |||||||||
Current | 23.0 | 28.0 | |||||||
Deferred | 11.6 | 1.2 | |||||||
State income tax | 34.6 | 29.2 | |||||||
Total income tax provision | $ | 423.2 | $ | 215.5 | |||||
The reconciliation between income tax expense and the amount computed by applying the statutory federal income tax rate was as follows:
Three Months Ended | |||||||||
March 31, | |||||||||
(Dollars in Millions) | 2002 | 2001 | |||||||
Tax at statutory rate (35%) | $ | 425.7 | $ | 219.0 | |||||
State income tax, at statutory rates, net of federal tax benefit | 23.6 | 19.0 | |||||||
Tax effect of | |||||||||
Tax-exempt interest, net | (6.6 | ) | (12.0 | ) | |||||
Amortization of nondeductible goodwill | — | 22.8 | |||||||
Tax credits | (20.8 | ) | (17.6 | ) | |||||
Nondeductible merger charges | — | 35.0 | |||||||
Other items | 1.3 | (50.7 | ) | ||||||
Applicable income taxes | $ | 423.2 | $ | 215.5 | |||||
The Company’s net deferred tax liability was $578.7 million at March 31, 2002, and $573.2 million at December 31, 2001.
U.S. Bancorp | 35 |
Table of Contents
Note 15 | Supplemental Disclosures to the Consolidated Financial Statements |
Consolidated Statement of Cash FlowsListed below are supplemental disclosures to the Consolidated Statement of Cash Flows:
Money Market Investments are included with cash and due from banks as part of cash and cash equivalents. Money market investments consisted of the following:
March 31, | December 31, | ||||||||
(Dollars in Millions) | 2002 | 2001 | |||||||
Interest-bearing deposits | $ | 97 | $ | 104 | |||||
Federal funds sold | 63 | 123 | |||||||
Securities purchased under agreements to resell | 378 | 398 | |||||||
Total money market investments | $ | 538 | $ | 625 | |||||
Transfers and Servicing of Financial AssetsThe Company transferred $15.1 billion and $13.2 billion of short-term, high-quality, low-yielding commercial loans into the conduit, Stellar Funding Group, Inc., in the first three months of 2002 and 2001, respectively. The amount of these transfers are reported on a gross basis representing new participations and the renewal of participations. The amount of loan transfers net of repayments was approximately $(1.6) billion and $2.0 billion in the first three months of 2002 and 2001, respectively.
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For the Three Months Ended March 31, | ||||||||||||||||||||||||||||||||
2002 | 2001 | |||||||||||||||||||||||||||||||
Yields | Yields | % Change | ||||||||||||||||||||||||||||||
(Dollars in Millions) | and | and | Average | |||||||||||||||||||||||||||||
(Unaudited) | Balance | Interest | Rates | Balance | Interest | Rates | Balance | |||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Money market investments | $ | 713 | $ | 3.3 | 1.90 | % | $ | 727 | $ | 8.9 | 4.96 | % | (1.9 | )% | ||||||||||||||||||
Trading account securities | 904 | 8.5 | 3.76 | 736 | 16.3 | 8.88 | 22.8 | |||||||||||||||||||||||||
Taxable securities | 25,549 | 347.8 | 5.45 | 15,381 | 253.3 | 6.59 | 66.1 | |||||||||||||||||||||||||
Non-taxable securities | 1,077 | 18.7 | 6.94 | 2,494 | 45.3 | 7.27 | (56.8 | ) | ||||||||||||||||||||||||
Loans held for sale | 2,354 | 39.2 | 6.65 | 903 | 16.6 | 7.33 | * | |||||||||||||||||||||||||
Loans | ||||||||||||||||||||||||||||||||
Commercial | 45,381 | 670.2 | 6.01 | 52,573 | 1,072.4 | 8.26 | (13.7 | ) | ||||||||||||||||||||||||
Commercial real estate | 25,186 | 407.2 | 6.56 | 26,456 | 553.1 | 8.48 | (4.8 | ) | ||||||||||||||||||||||||
Residential mortgages | 7,962 | 143.8 | 7.26 | 9,239 | 181.5 | 7.87 | (13.8 | ) | ||||||||||||||||||||||||
Retail | 35,179 | 714.0 | 8.23 | 33,501 | 848.1 | 10.23 | 5.0 | |||||||||||||||||||||||||
Total loans | 113,708 | 1,935.2 | 6.89 | 121,769 | 2,655.1 | 8.82 | (6.6 | ) | ||||||||||||||||||||||||
Other earning assets | 1,632 | 19.0 | 4.72 | 1,849 | 32.0 | 7.03 | (11.7 | ) | ||||||||||||||||||||||||
Allowance for credit losses | 2,535 | 1,821 | 39.2 | |||||||||||||||||||||||||||||
Total earning assets (a) | 145,937 | 2,371.7 | 6.57 | 143,859 | 3,027.5 | 8.50 | 1.4 | |||||||||||||||||||||||||
Other assets | 24,370 | 21,085 | 15.6 | |||||||||||||||||||||||||||||
Total assets | $ | 167,772 | $ | 163,123 | 2.8 | |||||||||||||||||||||||||||
Liabilities and Shareholders’ Equity | ||||||||||||||||||||||||||||||||
Noninterest-bearing deposits | $ | 27,485 | $ | 23,591 | 16.5 | |||||||||||||||||||||||||||
Interest-bearing deposits | ||||||||||||||||||||||||||||||||
Interest checking | 15,152 | 26.3 | .70 | 13,723 | 70.4 | 2.08 | 10.4 | |||||||||||||||||||||||||
Money market accounts | 24,797 | 75.6 | 1.24 | 24,285 | 245.9 | 4.11 | 2.1 | |||||||||||||||||||||||||
Savings accounts | 4,773 | 6.5 | .55 | 4,497 | 12.7 | 1.14 | 6.1 | |||||||||||||||||||||||||
Time certificates of deposit less than $100,000 | 20,464 | 214.4 | 4.25 | 25,296 | 362.5 | 5.81 | (19.1 | ) | ||||||||||||||||||||||||
Time deposits greater than $100,000 | 9,341 | 72.7 | 3.16 | 13,092 | 192.2 | 5.95 | (28.7 | ) | ||||||||||||||||||||||||
Total interest-bearing deposits | 74,527 | 395.5 | 2.15 | 80,893 | 883.7 | 4.43 | (7.9 | ) | ||||||||||||||||||||||||
Short-term borrowings | 14,564 | 78.9 | 2.20 | 13,121 | 186.2 | 5.75 | 11.0 | |||||||||||||||||||||||||
Long-term debt | 26,450 | 173.1 | 2.64 | 23,641 | 365.7 | 6.25 | 11.9 | |||||||||||||||||||||||||
Company-obligated mandatorily redeemable preferred securities | 2,838 | 53.8 | 7.69 | 1,400 | 27.6 | 8.01 | * | |||||||||||||||||||||||||
Total interest-bearing liabilities | 118,379 | 701.3 | 2.40 | 119,055 | 1,463.2 | 4.98 | (.6 | ) | ||||||||||||||||||||||||
Other liabilities | 5,749 | 5,010 | 14.8 | |||||||||||||||||||||||||||||
Shareholders’ equity | 16,159 | 15,467 | 4.5 | |||||||||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 167,772 | $ | 163,123 | 2.8 | % | ||||||||||||||||||||||||||
Net interest income | $ | 1,670.4 | $ | 1,564.3 | ||||||||||||||||||||||||||||
Gross interest margin | 4.17 | % | 3.52 | % | ||||||||||||||||||||||||||||
Gross interest margin without taxable-equivalent increments | 4.14 | % | 3.47 | % | ||||||||||||||||||||||||||||
Percent of Earning Assets | ||||||||||||||||||||||||||||||||
Interest income | 6.57 | % | 8.50 | % | ||||||||||||||||||||||||||||
Interest expense | 1.95 | 4.12 | ||||||||||||||||||||||||||||||
Net interest margin | 4.62 | % | 4.38 | % | ||||||||||||||||||||||||||||
Net interest margin without taxable-equivalent increments | 4.59 | % | 4.33 | % | ||||||||||||||||||||||||||||
* | Not meaningful. |
(a) | Before deducting the allowance for credit losses and excluding the unrealized gain (loss) on available-for-sale securities. |
U.S. Bancorp | 37 |
Table of Contents
Item 4. Submission of Matters to a Vote of Security Holders —The 2002 Annual Meeting of Shareholders of U.S. Bancorp was held Tuesday, April 16, 2002, at the Americas Center in St. Louis, Missouri. John F. Grundhofer, Chairman, presided and Jerry A. Grundhofer, President and Chief Executive Officer, presented.
Summary of Matters Voted Upon by Shareholders
Number of Shares | |||||||||||||
For | Withheld | ||||||||||||
Election of Class I Directors: | |||||||||||||
Linda L. Ahlers | 1,518,371,451 | 67,084,990 | |||||||||||
Joel W. Johnson | 1,518,283,467 | 67,172,974 | |||||||||||
David B. O’Maley | 1,518,323,939 | 67,132,502 | |||||||||||
O’dell M. Owens, M.D., M.P.H. | 1,518,154,348 | 67,302,093 | |||||||||||
Craig D. Schnuck | 1,518,191,845 | 67,264,596 | |||||||||||
Warren R. Staley | 1,518,237,429 | 67,219,012 |
For | Against | Abstain | ||||||||||
Ratification of Independent Auditors | 1,524,656,822 | 50,179,637 | 10,619,982 | |||||||||
Proposal for Elimination of Supermajority Voting | 749,046,830 | 495,224,481 | 30,278,466 | |||||||||
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K
• | Form 8-K dated January 31, 2002, relating to the Company’s fourth quarter and full year 2001 financial results. | |
• | Form 8-K dated April 16, 2002, relating to the Company’s first quarter, 2002 financial results. |
SIGNATURE
U.S. BANCORP |
By: | /s/ TERRANCE R. DOLAN |
Terrance R. Dolan | |
Executive Vice President and Controller | |
(Chief Accounting Officer and Duly Authorized Officer) |
38 | U.S. Bancorp |
Table of Contents
EXHIBIT 12
Computation of Ratio of Earnings to Fixed Charges
Three Months Ended | |||||
March 31, | |||||
(Dollars in Millions) | 2002 | ||||
Earnings | |||||
1. Income before cumulative effect of change in accounting principles | $ | 793.2 | |||
2. Applicable income taxes | 423.2 | ||||
3. Income before income taxes and cumulative effect of change in accounting principles (1 + 2) | $ | 1,216.4 | |||
4. Fixed charges | |||||
a. Interest expense excluding interest on deposits | $ | 305.8 | |||
b. Portion of rents representative of interest and amortization of debt expense | 19.5 | ||||
c. Fixed charges excluding interest on deposits (4a + 4b) | 325.3 | ||||
d. Interest on deposits | 395.5 | ||||
e. Fixed charges including interest on deposits (4c + 4d) | $ | 720.8 | |||
5. Amortization of interest capitalized | $ | — | |||
6. Earnings excluding interest on deposits (3 + 4c + 5) | 1,541.7 | ||||
7. Earnings including interest on deposits (3 + 4e + 5) | 1,937.2 | ||||
8. Fixed charges excluding interest on deposits (4c) | 325.3 | ||||
9. Fixed charges including interest on deposits (4e) | 720.8 | ||||
Ratio of Earnings to Fixed Charges | |||||
10. Excluding interest on deposits (line 6/ line 8) | 4.74 | ||||
11. Including interest on deposits (line 7/ line 9) | 2.69 | ||||
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Minneapolis, MN | |
Executive Offices
U.S. Bancorp
After June 2002:
Common Stock Transfer Agent and Registrar
U.S. Bank National Association
Independent Public Accountants
Common Stock Listing and Trading
Dividends and Reinvestment Plan
U.S. Bank National Association
Investment Community Contacts
Judith T. Murphy
Financial Information
Web site. For information about U.S. Bancorp, including news and financial results and online annual reports, access our home page on the Internet at usbank.com.
Mail. At your request, we will mail to you our quarterly earnings news releases, quarterly financial data reported on Form 10-Q and additional copies of our annual reports. To be added to U.S. Bancorp mailing list for quarterly earnings news releases or to request other information, please contact:
U.S. Bancorp Investor Relations
Media Requests
Other Business Information
Diversity
Equal Employment Opportunity/Affirmative Action
U.S. Bancorp, including each of our subsidiaries, is an Equal Opportunity Employer and a Drug-Free Workplace.
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