MINNEAPOLIS, Jan. 21 /PRNewswire-FirstCall/ --
EARNINGS SUMMARY Table 1
($ in millions, except
per-share data) Percent Percent
Change Change
4Q 3Q 4Q 4Q02 vs 4Q02 vs
2002 2002 2001 3Q02 4Q01
Before merger and
restructuring-related items
and cumulative effect of
change in accounting
principles*:
Operating earnings $920.1 $906.2 $785.2 1.5 17.2
Earnings per common
share (diluted) 0.48 0.47 0.40 2.1 20.0
Return on average common
equity(%) 20.4 20.8 18.6
Return on average
assets (%) 2.05 2.08 1.85
Efficiency ratio (%) 48.3 49.4 50.4
Net income 849.8 860.3 695.4 (1.2) 22.2
Earnings per common share
(diluted) 0.44 0.45 0.36 (2.2) 22.2
Dividends declared
per common share 0.195 0.195 0.1875 -- 4.0
Book value per common
share (period-end) 9.44 9.15 8.43 3.2 12.0
Net interest margin (%) 4.63 4.61 4.57
* Merger and restructuring-related items, net of taxes, totaled
$(70.3) million in 4Q02; $(45.9) million in 3Q02, $(89.8) million in
4Q01, $(211.3) in full year 2002, and $(844.3) in full year 2001;
cumulative effect of change in accounting principles totaled
$(37.2) million in 1Q02 and full year 2002.
EARNINGS SUMMARY Table 1 (cont'd)
($ in millions, except per-share data)
Full Year Full Year Percent
2002 2001 Change
Before merger and restructuring-related
items and cumulative effect of change
in accounting principles*:
Operating earnings $3,537.7 $2,550.8 38.7
Earnings per common share (diluted) 1.84 1.32 39.4
Return on average common equity(%) 20.9 15.7
Return on average assets (%) 2.06 1.54
Efficiency ratio (%) 47.7 49.5
Net income 3,289.2 1,706.5 92.7
Earnings per common share (diluted) 1.71 0.88 94.3
Dividends declared per common share 0.78 0.75 4.0
Book value per common share (period-end)
Net interest margin (%) 4.61 4.42
* Merger and restructuring-related items, net of taxes, totaled
$(70.3) million in 4Q02; $(45.9) million in 3Q02, $(89.8) million in
4Q01, $(211.3) in full year 2002, and $(844.3) in full year 2001;
cumulative effect of change in accounting principles totaled
$(37.2) million in 1Q02 and full year 2002.
U.S. Bancorp (NYSE: USB) today reported operating earnings of
$920.1 million for the fourth quarter of 2002, compared with $785.2 million
for the fourth quarter of 2001. Operating earnings of $.48 per diluted share
in the fourth quarter of 2002 were higher than the same period of 2001 by $.08
(20.0 percent). Return on average common equity and return on average assets,
excluding merger and restructuring-related items, were 20.4 percent and 2.05
percent, respectively, in the fourth quarter of 2002, compared with returns of
18.6 percent and 1.85 percent in the fourth quarter of 2001.
Including after-tax merger and restructuring-related items of
$(70.3) million in the fourth quarter of 2002 and $(89.8) million in the
fourth quarter of 2001, the Company recorded net income for the fourth quarter
of 2002 of $849.8 million, or $.44 per diluted share, compared with
$695.4 million, or $.36 per diluted share, for the same period of 2001.
The Company's operating results for the fourth quarter of 2002 improved
over the same period of 2001, primarily due to strong growth in consumer
banking and payment services revenue, offset somewhat by lower investment
banking activity. The fourth quarter of 2002 results included $152.7 million
of significant income items, which were offset by $161.0 million of noteworthy
expense items and asset write-downs. Notable favorable items in the current
quarter included gains on the sale of securities of $106.2 million, an
increase of $84.2 million over the fourth quarter of 2001, and a $46.5 million
gain on the sale of a co-branded credit card portfolio. Offsetting these
favorable items were the recognition of $54.1 million of mortgage servicing
rights ("MSR") impairment, an increase of $26.8 million over the fourth
quarter of 2001, a $50.0 million litigation charge, including investment
banking regulatory matters at U.S. Bancorp Piper Jaffray, incremental
personnel costs of $31.4 million for rationalizing the Company's post-
integration technology, operations, and support functions, and $25.5 million
of leasing residual impairment.
U.S. Bancorp Chairman, President and Chief Executive Officer Jerry A.
Grundhofer said, "We began the year 2002 with three specific goals in mind.
Our first goal was to successfully complete the systems integration of the
'old' U.S. Bancorp and Firstar Corporation. Our second goal was to reduce the
overall risk profile of the Company and, finally, we were determined to
improve customer service throughout our franchise. Despite the efforts needed
to complete these three goals, we had one more objective, and that was to grow
revenue faster than expense. I am extremely pleased to say that we have
achieved all our objectives. The systems integration process was flawlessly
completed during the year. Our credit quality, although still reflecting the
current weakness in the economy, has stabilized and the improvements we have
made in the risk profile of the loan portfolio and our credit processes will
serve us well going forward. Finally, our employees have embraced the Five
Star Service Guarantee and I am delighted with the improvement in customer
service that we have seen during the past year. In addition, despite the
challenging economy, our core revenue growth was 4.9 percent fourth quarter
over fourth quarter, while our core operating expenses actually fell by 6.6
percent over that same period of time. Our net interest margin improved from
4.57 percent in the fourth quarter of 2001 to 4.63 percent in the current
quarter, and we continue to grow higher value retail and commercial deposit
accounts. Finally, I want to thank all of our employees for their dedication
to seeing this Company through the merger and integration process over the
past two years, while they continued to focus on providing our Five Star
Service Guarantee, enhanced relationships with our current customers and
acquired new customers. Without their dedication and support, our Company
would not be in the position we are today - a position that now allows us to
take full advantage of the many opportunities that our markets, our products
and our services, as well as a re-bounding economy, will present to us in 2003
and beyond. We are now in the position to capitalize on our growth
potential."
Total net revenue on a taxable-equivalent basis for the fourth quarter of
2002 grew by $312.7 million (10.4 percent) over the fourth quarter of 2001.
This growth was primarily due to improvement in net interest income, gains on
the sales of securities and a co-branded credit card portfolio, growth in
consumer banking and payment services products revenue, mortgage banking
activities, a reduction in equity investment losses relative to the fourth
quarter of 2001, and acquisitions. Revenue growth was partially offset year-
over-year by lower capital markets activities and leasing residual write-
downs. Excluding the impact of acquisitions and gains on the sales of
securities and loans, losses on equity investments and equipment residual
write-downs, revenue growth was 4.9 percent relative to the fourth quarter of
2001.
Total noninterest expense, before merger and restructuring-related items,
increased from the fourth quarter of 2001 by $47.3 million (3.1 percent),
primarily reflecting the impact of MSR impairment, core banking growth,
litigation costs, post-integration realignment costs, and acquisitions. This
expense growth year-over-year was partially offset by the impact of adopting
new accounting standards related to business combinations and the amortization
of intangibles and integration cost savings.
Provision for credit losses for the fourth quarter of 2002 was
$349.0 million, an increase of $83.2 million over the fourth quarter of 2001.
This higher level of provision for credit losses reflected an increase in
nonperforming assets and net charge-offs year-over-year. Net charge-offs in
the fourth quarter of 2002 were $378.5 million, compared with the third
quarter of 2002 net charge-offs of $329.0 million and fourth quarter of 2001
net charge-offs of $265.8 million. Net charge-offs in the fourth quarter of
2002 reflected continuing weakness in the communications, transportation and
manufacturing sectors, as well as the impact of the economy on highly
leveraged enterprise value financings. Net charge-offs also included a
$36 million charge-off of a leveraged lease to a single U.S. airline entering
bankruptcy during the quarter. This airline exposure was considered in the
Company's provision in the third quarter of 2001 when the allowance for credit
losses grew to reflect continuing weakness in the airline, transportation and
manufacturing industries. Nonperforming assets increased slightly from
$1,344.4 million at September 30, 2002, to $1,373.5 million at December 31,
2002, principally due to the continued weakness in the communications, cable,
transportation, and manufacturing sectors, and the Company's exposure to
highly leveraged enterprise value financings. The ratio of allowance for
credit losses to nonperforming loans was 196 percent at December 31, 2002,
compared with 204 percent at September 30, 2002, and 245 percent at
December 31, 2001.
During the first quarter of 2002, the Company fully adopted new accounting
standards with respect to accounting for business combinations (SFAS 141) and
goodwill and other intangible assets (SFAS 142). Accordingly goodwill is no
longer amortized as an expense and the Company reclassified certain
intangibles and reassessed the impact of the standard on amortization methods
and estimated lives of other intangibles. Additionally, the Company
recognized an after-tax goodwill impairment charge of $37.2 million in the
first quarter of 2002, primarily related to the purchase of a transportation
leasing company in 1998 by the equipment leasing business. This charge was
recognized as a "cumulative effect of change in accounting principles" in the
income statement.
On November 1, 2002, the Company completed the acquisition of 57 branches
in California from Bay View Bank, a wholly-owned subsidiary of Bay View
Capital Corporation (NYSE: BVC), in a cash transaction. The acquisition
included approximately $3.3 billion in retail and small business deposits and
$336 million in selected loans.
On December 31, 2002, the Company completed the acquisition of the
corporate trust business of State Street Bank and Trust Company. As a result
of this transaction, U.S. Bank's corporate trust division acquired
approximately 20,000 new client issuances, 365,000 bondholders and
$689 billion in assets under administration.
INCOME STATEMENT HIGHLIGHTS Table 2
(Taxable-equivalent basis, $ in millions, Percent Percent
except per-share data) Change Change
4Q 3Q 4Q 4Q02 vs 4Q02 vs
2002 2002 2001 3Q02 4Q01
Net interest income $1,775.0 $1,741.1 $1,674.2 1.9 6.0
Noninterest income* 1,546.1 1,558.3 1,334.2 (0.8) 15.9
Total net revenue 3,321.1 3,299.4 3,008.4 0.7 10.4
Noninterest expense* 1,551.2 1,569.9 1,503.9 (1.2) 3.1
Operating income before
merger and restructuring-
related items and
cumulative effect of
change in accounting
principles 1,769.9 1,729.5 1,504.5 2.3 17.6
Provision for credit
losses* 349.0 330.0 265.8 5.8 31.3
Income before taxes,
merger and
restructuring-related
items and cumulative
effect of change in
accounting principles 1,420.9 1,399.5 1,238.7 1.5 14.7
Taxable-equivalent
adjustment 9.2 9.3 9.9 (1.1) (7.1)
Income taxes* 491.6 484.0 443.6 1.6 10.8
Income before merger and
restructuring-related
items and cumulative
effect of change in
accounting principles 920.1 906.2 785.2 1.5 17.2
Merger and
restructuring-related
items (after-tax) (70.3) (45.9) (89.8) nm nm
Cumulative effect of
change in accounting
principles (after-tax) -- -- -- nm nm
Net income $849.8 $860.3 $695.4 (1.2) 22.2
Per diluted common share:
Earnings, before merger
and restructuring-
related items and
cumulative effect of
change in accounting
principles $0.48 $0.47 $0.40 2.1 20.0
Net income $0.44 $0.45 $0.36 (2.2) 22.2
* Before effect of merger and restructuring-related items and cumulative
effect of change in accounting principles
INCOME STATEMENT HIGHLIGHTS Table 2 (cont'd)
(Taxable-equivalent basis, $ in millions,
except per-share data)
Full Year Full Year Percent
2002 2001 Change
Net interest income $6,876.3 $6,423.0 7.1
Noninterest income* 5,868.6 5,338.9 9.9
Total net revenue 12,744.9 11,761.9 8.4
Noninterest expense* 5,932.5 5,658.8 4.8
Operating income before merger and
restructuring-related items and
cumulative effect of change in
accounting principles 6,812.4 6,103.1 11.6
Provision for credit losses* 1,349.0 2,146.6 (37.2)
Income before taxes, merger and
restructuring-related items and
cumulative effect of change in
accounting principles 5,463.4 3,956.5 38.1
Taxable-equivalent adjustment 36.6 55.9 (34.5)
Income taxes* 1,889.1 1,349.8 40.0
Income before merger and
restructuring-related items and
cumulative effect of change in
accounting principles 3,537.7 2,550.8 38.7
Merger and restructuring-related items
(after-tax) (211.3) (844.3) nm
Cumulative effect of change in
accounting principles (after-tax) (37.2) -- nm
Net income $3,289.2 $1,706.5 92.7
Per diluted common share:
Earnings, before merger and
restructuring-related items and
cumulative effect of change in
accounting principles $1.84 $1.32 39.4
Net income $1.71 $0.88 94.3
* Before effect of merger and restructuring-related items and cumulative
effect of change in accounting principles
Net Interest Income
Fourth quarter net interest income on a taxable-equivalent basis was
$1,775.0 million, compared with $1,674.2 million recorded in the fourth
quarter of 2001. Average earning assets for the period increased over the
fourth quarter of 2001 by $6.9 billion (4.7 percent), primarily driven by
increases in the investment portfolio, loans held for sale and retail loan
growth, partially offset by a decline in commercial and commercial real estate
loans. The net interest margin in the fourth quarter of 2002 was 4.63
percent, compared with 4.61 percent in the third quarter of 2002 and 4.57
percent in the fourth quarter of 2001. The improvement in the net interest
margin in the fourth quarter of 2002 over the fourth quarter of 2001 reflected
higher net free funds, the funding benefits of the declining interest rate
environment, a more favorable funding mix and improving spreads due to product
repricing dynamics, and a shift in mix toward retail loans, partially offset
by lower yields on the investment portfolio. The improvement in the net
interest margin in the fourth quarter of 2002 over the third quarter of 2002
reflected higher net free funds and the impact of the acquisition of the
branches of Bay View Bank. Net interest income on a taxable-equivalent basis
in the fourth quarter of 2002 was higher than the third quarter of 2002,
primarily due to a $2.2 billion increase in average earning assets, driven by
loans held for sale and growth in both residential mortgages and retail loans.
NET INTEREST INCOME Table 3
(Taxable-equivalent basis;
$ in millions)
Change Change
4Q 3Q 4Q 4Q02 vs 4Q02 vs
2002 2002 2001 3Q02 4Q01
Components of net
interest income
Income on earning
assets $2,404.7 $2,429.3 $2,518.7 $(24.6) $(114.0)
Expenses on interest-
bearing liabilities 629.7 688.2 844.5 (58.5) (214.8)
Net interest income $1,775.0 $1,741.1 $1,674.2 $33.9 $100.8
Average yields and rates
paid
Earning assets yield 6.27% 6.43% 6.88% (0.16)% (0.61)%
Rate paid on interest-
bearing liabilities 2.05 2.26 2.82 (0.21) (0.77)
Gross interest margin 4.22% 4.17% 4.06% 0.05% 0.16%
Net interest margin 4.63% 4.61% 4.57% 0.02% 0.06%
Average balances
Investment
securities $30,399 $30,219 $25,487 $180 $4,912
Loans 115,407 114,664 114,148 743 1,259
Earning assets 152,556 150,336 145,650 2,220 6,906
Interest-bearing
liabilities 121,851 120,758 118,689 1,093 3,162
Net free funds* 30,705 29,578 26,961 1,127 3,744
* Represents noninterest-bearing deposits, allowance for credit losses,
non-earning assets, other liabilities and equity
NET INTEREST INCOME Table 3(cont'd)
(Taxable-equivalent basis; $ in millions)
Full Year Full Year
2002 2001 Change
Components of net interest income
Income on earning assets $9,590.3 $11,097.8 $ (1,507.5)
Expenses on interest-bearing
liabilities 2,714.0 4,674.8 (1,960.8)
Net interest income $6,876.3 $6,423.0 $453.3
Average yields and rates paid
Earning assets yield 6.43% 7.64% (1.21)%
Rate paid on interest-bearing
liabilities 2.26 3.92 (1.66)
Gross interest margin 4.17% 3.72% 0.45%
Net interest margin 4.61% 4.42% 0.19%
Average balances
Investment securities $28,829 $21,916 $6,913
Loans 114,456 118,177 (3,721)
Earning assets 149,143 145,165 3,978
Interest-bearing liabilities 120,221 119,390 831
Net free funds* 28,922 25,775 3,147
* Represents noninterest-bearing deposits, allowance for credit losses,
non-earning assets, other liabilities and equity
AVERAGE LOANS Table 4
($ in millions) Percent Percent
Change Change
4Q 3Q 4Q 4Q02 vs 4Q02 vs
2002 2002 2001 3Q02 4Q01
Commercial $36,882 $37,673 $40,774 (2.1) (9.5)
Lease financing 5,413 5,543 5,848 (2.3) (7.4)
Total commercial 42,295 43,216 46,622 (2.1) (9.3)
Commercial mortgages 20,056 19,312 18,805 3.9 6.7
Construction and
development 6,587 6,506 6,663 1.2 (1.1)
Total commercial real
estate 26,643 25,818 25,468 3.2 4.6
Residential mortgages 8,966 8,513 7,918 5.3 13.2
Credit card 5,662 5,604 5,607 1.0 1.0
Retail leasing 5,626 5,543 4,821 1.5 16.7
Home equity and second
mortgages 13,651 13,605 12,053 0.3 13.3
Other retail 12,564 12,365 11,659 1.6 7.8
Total retail 37,503 37,117 34,140 1.0 9.9
Total loans $115,407 $114,664 $114,148 0.6 1.1
AVERAGE LOANS Table 4(cont'd)
($ in millions)
Full Year Full Year Percent
2002 2001 Change
Commercial $38,247 $44,220 (13.5)
Lease financing 5,573 5,852 (4.8)
Total commercial 43,820 50,072 (12.5)
Commercial mortgages 19,212 19,004 1.1
Construction and development 6,511 7,077 (8.0)
Total commercial real estate 25,723 26,081 (1.4)
Residential mortgages 8,412 8,576 (1.9)
Credit card 5,633 5,645 (0.2)
Retail leasing 5,389 4,553 18.4
Home equity and second mortgages 13,233 11,727 12.8
Other retail 12,246 11,523 6.3
Total retail 36,501 33,448 9.1
Total loans $114,456 $118,177 (3.1)
Average loans for the fourth quarter of 2002 were $1.3 billion (1.1
percent) higher than the fourth quarter of 2001. Strong growth in average
retail loans of $3.4 billion (9.9 percent) and residential mortgages of
$1.0 billion (13.2 percent) in the fourth quarter of 2002 over the fourth
quarter of 2001 was partially offset by an overall decline in commercial and
commercial real estate loans of $3.2 billion (4.4 percent) over the same
period. Included in the change in the average of both commercial and
commercial real estate loans outstanding in the fourth quarter of 2002 from
the fourth quarter of 2001 was a reclassification of approximately
$1.2 billion of commercial loans to other loan categories, including the
commercial real estate category ($496 million) and residential mortgages
($654 million), in connection with conforming loan classifications at the time
of system conversions during the third quarter of 2002. Prior quarters were
not restated, as it was impractical to determine the extent of
reclassification for all periods presented. Average loans for the fourth
quarter of 2002 were higher than the third quarter of 2002 by $743 million (.6
percent), reflecting growth in retail loans and residential mortgages,
partially offset by a decline in total commercial and commercial real estate
loans. The impact of loan reclassifications relative to the third quarter was
not significant.
Average investment securities for the fourth quarter of 2002 were
$4.9 billion (19.3 percent) higher than the fourth quarter of 2001, reflecting
reinvestment of proceeds from loan sales, declines in commercial and
commercial real estate loan balances and deposits assumed in connection with
the Bay View branch acquisition. Investment securities at December 31, 2002,
were $1.9 billion higher than at December 31, 2001, but essentially equal to
the balance at September 30, 2002. During the fourth quarter of 2002, the
Company sold $3.0 billion of fixed-rate securities. A portion of the fixed-
rate securities sold were replaced with floating-rate securities in
conjunction with the Company's interest rate risk management strategies.
AVERAGE DEPOSITS Table 5
($ in millions) Percent Percent
Change Change
4Q 3Q 4Q 4Q02 vs 4Q02 vs
2002 2002 2001 3Q02 4Q01
Noninterest-bearing
deposits $31,220 $28,838 $27,189 8.3 14.8
Interest-bearing
deposits
Interest checking 16,505 15,534 14,428 6.3 14.4
Money market
accounts 27,238 24,512 25,279 11.1 7.7
Savings accounts 5,011 4,969 4,666 0.8 7.4
Savings
products 48,754 45,015 44,373 8.3 9.9
Time certificates
of deposit less
than $100,000 18,334 18,710 21,455 (2.0) (14.5)
Time deposits
greater than
$100,000 12,709 12,349 9,840 2.9 29.2
Total interest-
bearing
deposits 79,797 76,074 75,668 4.9 5.5
Total deposits $111,017 $104,912 $102,857 5.8 7.9
AVERAGE DEPOSITS Table 5(cont'd)
($ in millions)
Full Year Full Year Percent
2002 2001 Change
Noninterest-bearing deposits $28,715 $25,109 14.4
Interest-bearing deposits
Interest checking 15,631 13,962 12.0
Money market accounts 25,237 24,932 1.2
Savings accounts 4,928 4,571 7.8
Savings products 45,796 43,465 5.4
Time certificates of deposit less
than $100,000 19,283 23,328 (17.3)
Time deposits greater than $100,000 11,330 13,054 (13.2)
Total interest-bearing deposits 76,409 79,847 (4.3)
Total deposits $105,124 $104,956 0.2
Average noninterest-bearing deposits in the fourth quarter of 2002 were
higher than the fourth quarter of 2001 by $4.0 billion (14.8 percent),
primarily due to higher business and government banking demand deposit
balances year-over-year. Average interest-bearing deposits increased by
$4.1 billion (5.5 percent) over the fourth quarter of 2001. Approximately
$2.1 billion of the increase in average interest-bearing deposits was due to
acquisitions. The remaining $2.0 billion of growth was driven by increases in
core banking savings products balances. A decrease in time certificates of
deposit less than $100,000 of 14.5 percent was essentially offset by an
increase in time deposits greater than $100,000.
Total deposits in the fourth quarter of 2002 were $6.1 billion (5.8
percent) higher on average than the third quarter of 2002. $2.2 billion of
the linked quarter growth was due to acquisitions, while the remaining
increase of $3.9 billion (3.7 percent), principally in non-interest bearing
deposits and savings products, was attributable to growth in both the
Wholesale Banking and Consumer Banking business lines.
NONINTEREST INCOME Table 6
($ in millions) Percent Percent
Change Change
4Q 3Q 4Q 4Q02 vs 4Q02 vs
2002 2002 2001 3Q02 4Q01
Credit and debit card
revenue $143.7 $132.8 $121.3 8.2 18.5
Corporate payment
products revenue 80.4 87.6 68.4 (8.2) 17.5
ATM processing services 35.8 36.7 33.2 (2.5) 7.8
Merchant processing
services 142.0 147.3 139.2 (3.6) 2.0
Trust and investment
management fees 214.7 225.2 215.2 (4.7) (0.2)
Deposit service charges 192.3 192.7 171.6 (0.2) 12.1
Cash management fees 102.6 105.8 95.9 (3.0) 7.0
Commercial products
revenue 108.3 125.0 133.1 (13.4)
(18.6)
Mortgage banking revenue 88.4 111.8 68.5 (20.9) 29.1
Trading account profits
and commissions 54.5 52.6 50.3 3.6 8.3
Investment products fees
and commissions 105.4 105.0 112.2 0.4 (6.1)
Investment banking
revenue 48.0 35.7 70.0 34.5 (31.4)
Securities gains, net 106.2 119.0 22.0 (10.8) nm
Other 123.8 81.1 33.3 52.7 nm
Subtotal 1,546.1 1,558.3 1,334.2 (0.8) 15.9
Merger and restructuring-
related gains -- -- --
Total noninterest
income $1,546.1 $1,558.3 $1,334.2
NONINTEREST INCOME Table 6(cont'd)
($ in millions)
Full Year Full Year Percent
2002 2001 Change
Credit and debit card revenue $517.0 $465.9 11.0
Corporate payment products revenue 325.7 297.7 9.4
ATM processing services 136.9 130.6 4.8
Merchant processing services 567.3 308.9 83.7
Trust and investment management fees 899.1 894.4 0.5
Deposit service charges 714.0 667.3 7.0
Cash management fees 416.9 347.3 20.0
Commercial products revenue 479.2 437.4 9.6
Mortgage banking revenue 330.2 234.0 41.1
Trading account profits and commissions 206.5 221.6 (6.8)
Investment products fees and commissions 428.9 460.1 (6.8)
Investment banking revenue 207.4 258.2 (19.7)
Securities gains, net 299.9 329.1 (8.9)
Other 339.6 286.4 18.6
Subtotal 5,868.6 5,338.9 9.9
Merger and restructuring-related gains -- 62.2
Total noninterest income $5,868.6 $5,401.1
Noninterest Income
Fourth quarter noninterest income was $1,546.1 million, an increase of
$211.9 million (15.9 percent) over the same quarter of 2001, but a
$12.2 million (.8 percent) decrease from the third quarter of 2002. The
growth in noninterest income over the fourth quarter of 2001 was driven by net
securities gains, growth in core banking product revenues of $60.8 million
(4.6 percent), a $46.5 million gain on the sale of a co-branded credit card
portfolio, a reduction in equity investment losses of $29.0 million relative
to fourth quarter of 2001, and acquisitions, including The Leader Mortgage
Company, LLC ("Leader") and the branches of Bay View Bank, which contributed
approximately $18.3 million of the favorable variance. Credit and debit card
revenue, corporate payment products revenue and ATM processing services
revenue in the Payment Services line of business were higher in the fourth
quarter of 2002 than the fourth quarter of 2001 by $37.0 (16.6 percent),
primarily reflecting growth in sales and card usage. Merchant processing
services grew by $2.8 million year-over-year, primarily due to higher charge
volume, offset by slightly lower processing rates. Deposit service charges
increased by $20.7 million (12.1 percent) over the fourth quarter of 2001,
primarily due to fee enhancements and new accounts within the Consumer Banking
line of business. Cash management fees revenue grew by $6.7 million (7.0
percent) in the fourth quarter of 2002 over the same period of 2001, with the
majority of the variance attributed to the Wholesale Banking line of business.
The increase in cash management fees over the fourth quarter of 2001 was
driven by growth in core business, product enhancements and lower earning
credit rates to customers. Mortgage banking revenue in the Consumer Banking
line of business increased in the fourth quarter of 2002 compared with the
fourth quarter of 2001, primarily due to the acquisition of Leader earlier in
2002. Mortgage originations and sales and loan servicing revenue continued to
be strong through the fourth quarter of 2002. Offsetting these favorable
variances was a decline in capital markets-related revenue of $24.6 million
(10.6 percent) principally in the Capital Markets line of business, reflecting
softness in the equity capital markets. Somewhat offsetting the reduction in
investment products fees and commissions within the Capital Markets group, was
an increase in investment products fees and commissions of $4.1 million year-
over-year within the Consumer Banking line of business, reflecting the
expansion of investment product sales programs throughout the branch network.
Other fee income was higher in the fourth quarter of 2002 over the same
quarter of 2001 by $90.5 million, primarily due to a $46.5 million gain on the
sale of a co-branded credit card portfolio in the fourth quarter of 2002 and
lower equity investment losses relative to the fourth quarter of 2001.
Noninterest income decreased in the fourth quarter of 2002 by
$12.2 million (.8 percent) from the third quarter of 2002, primarily due to
reductions in mortgage banking revenue, commercial products revenue, gains of
the sale of securities, and trust and investment management fees. The
reduction in mortgage banking revenue in the fourth quarter of 2002 from the
third quarter of 2002 was primarily due to gains on the sale of mortgage loans
recorded in the third quarter of 2002. Offsetting the decline in mortgage
banking fees from the third quarter of 2002, however, was an increase in net
interest income, as mortgage loan production volume increased by $3.0 billion
and the average balance of loans held for sale grew by $1.5 billion.
Commercial products revenue declined on a linked quarter basis due to a
$16.0 million lease residual write-down. Offsetting these negative variances
was an increase in capital markets activity and incremental gains of
$25.6 million from credit card portfolio sales.
NONINTEREST EXPENSE Table 7
($ in millions) Percent Percent
Change Change
4Q 3Q 4Q 4Q02 vs 4Q02 vs
2002 2002 2001 3Q02 4Q01
Salaries $607.3 $606.0 $605.8 0.2 0.2
Employee benefits 86.4 93.8 82.0 (7.9) 5.4
Net occupancy 104.2 103.2 103.9 1.0 0.3
Furniture and equipment 76.4 75.7 78.8 0.9 (3.0)
Capitalized software 35.2 36.8 38.9 (4.3) (9.5)
Communication 47.4 46.6 43.0 1.7 10.2
Postage 43.1 44.3 44.4 (2.7) (2.9)
Goodwill -- -- 62.4 nm nm
Other intangible
assets 156.7 211.4 93.0 (25.9) 68.5
Other 394.5 352.1 351.7 12.0 12.2
Subtotal 1,551.2 1,569.9 1,503.9 (1.2) 3.1
Merger and restructuring-
related charges 107.9 70.4 140.6
Total noninterest
expense $1,659.1 $1,640.3 $1,644.5
NONINTEREST EXPENSE Table 7(cont'd)
($ in millions)
Full Year Full Year Percent
2002 2001 Change
Salaries $2,409.2 $2,347.1 2.6
Employee benefits 367.7 366.2 0.4
Net occupancy 409.3 417.9 (2.1)
Furniture and equipment 306.0 305.5 0.2
Capitalized software 148.1 136.1 8.8
Communication 183.8 181.4 1.3
Postage 178.4 179.8 (0.8)
Goodwill -- 251.1 nm
Other intangible assets 553.0 278.4 98.6
Other 1,377.0 1,195.3 15.2
Subtotal 5,932.5 5,658.8 4.8
Merger and restructuring-related charges 324.1 946.4
Total noninterest expense $6,256.6 $6,605.2
Noninterest Expense
Fourth quarter noninterest expense, before merger and restructuring-
related charges, totaled $1,551.2 million, an increase of $47.3 million (3.1
percent) over the fourth quarter of 2001. The increase in expense year-over-
year was primarily due to a $50.0 million litigation charge, including a
$25.0 million settlement for investment banking regulatory matters at U.S.
Bancorp Piper Jaffray and a $7.5 million liability for funding independent
analyst research for its customers, an increase in MSR impairment of
$26.8 million, the impact of recent acquisitions, including Leader and the
branches of Bay View Bank, which accounted for approximately $35.5 million of
the increase, and a $31.4 million charge for the realignment of the Company's
businesses post-integration. Offsetting these increases in expense were the
impact of adopting new accounting standards related to business combinations
and the amortization of intangibles ($62.4 million), lower capital markets-
related expense and lower core banking expenses, primarily the result of
integration cost savings.
Noninterest expense in the fourth quarter of 2002, before merger and
restructuring-related charges, was lower than the third quarter of 2002 by
$18.7 million (1.2 percent). The favorable variance was primarily due to a
decrease in MSR impairment of $63.6 million from the third quarter of 2002, in
addition to continued cost savings from the Company's integration activity.
Partially offsetting these favorable variances were the $50.0 million
litigation costs and the $31.4 million charge for the realignment of the
Company's businesses post-integration.
SIGNIFICANT ITEMS - MERGER AND RESTRUCTURING Table 8
($ in millions) Actual/ Timing
Current Actual Actual
Summary of Charges Estimate 2001 2002
Firstar/U.S. Bancorp
Severance and employee-related $272.3 $268.2 $4.1
Systems conversions and integration 405.1 208.1 197.0
Asset write-downs and lease
terminations 234.4 130.4 104.0
Charitable foundation 76.0 76.0 --
Balance sheet restructurings 418.8 457.6 (38.8)
Branch sale gain (62.2) (62.2) --
Branch consolidations 20.0 20.0 --
Other merger-related items 73.9 69.1 4.8
Total Firstar/U.S. Bancorp 1,438.3 1,167.2 271.1
NOVA 73.4 1.6 34.9
Other acquisitions, net* 53.4 4.8 18.1
Total on-going merger and
restructuring 1,565.1 1,173.6 324.1
Completed acquisitions and
restructurings 92.8 92.8 --
Total merger and restructuring $1,657.9 $1,266.4 $324.1
* includes estimated amounts for recently announced acquisitions
SIGNIFICANT ITEMS - MERGER AND RESTRUCTURING Table 8(cont'd)
($ in millions)
Actual Actual Actual Actual
Summary of Charges 1Q02 2Q02 3Q02 4Q02
Firstar/U.S. Bancorp
Severance and employee-related $(6.7) $2.2 $1.0 $7.6
Systems conversions and
integration 57.6 64.9 33.0 41.5
Asset write-downs and lease
terminations 14.8 17.4 32.9 38.9
Charitable foundation -- -- -- --
Balance sheet restructurings (3.8) (24.9) (10.1) --
Branch sale gain -- -- -- --
Branch consolidations -- -- -- --
Other merger-related items 2.5 0.9 1.4 --
Total Firstar/U.S. Bancorp 64.4 60.5 58.2 88.0
NOVA 5.4 8.6 7.7 13.2
Other acquisitions, net* 4.4 2.5 4.5 6.7
Total on-going merger and
restructuring 74.2 71.6 70.4 107.9
Completed acquisitions and
restructurings -- -- -- --
Total merger and restructuring $74.2 $71.6 $70.4 $107.9
* includes estimated amounts for recently announced acquisitions
Earnings in the fourth quarter of 2002 included pre-tax net merger and
restructuring-related items of $107.9 million. Total merger and
restructuring-related items in the fourth quarter of 2002 included
$88.0 million of net expense associated with the Firstar/U.S. Bancorp merger.
These merger and restructuring-related items were related to systems
conversions, business integration, asset write-downs taken at the completion
of conversions, lease termination costs and adjustments to accounting
estimates of severance and employee-related liabilities. No additional merger
and restructuring-related items associated with the Firstar/U.S. Bancorp are
expected going forward.
In addition to the Firstar/U.S. Bancorp merger integration, the Company
recorded $19.9 million of expense in the fourth quarter of 2002 for NOVA and
other smaller acquisitions, including Bay View Bank and the corporate trust
business of State Street Bank and Trust Company. The Company anticipates
approximately $70 million of charges in 2003 in connection with NOVA and these
smaller acquisitions.
ALLOWANCE FOR CREDIT LOSSES Table 9
($ in millions) 4Q 3Q 2Q 1Q 4Q
2002 2002 2002 2002 2001
Balance, beginning
of period $2,460.5 $2,466.4 $2,461.5 $2,457.3 $2,458.0
Net charge-offs
Commercial 136.7 124.0 110.6 120.5 65.4
Lease financing 58.2 23.4 35.2 32.1 7.1
Total commercial 194.9 147.4 145.8 152.6 72.5
Commercial mortgages 13.5 3.5 6.0 8.8 5.2
Construction and
development (0.9) 6.0 0.4 1.9 5.1
Total commercial
real estate 12.6 9.5 6.4 10.7 10.3
Residential mortgages 6.6 5.9 3.9 2.7 2.5
Credit card 69.1 70.8 73.4 67.0 72.9
Retail leasing 10.7 9.4 8.3 10.5 9.4
Home equity and
second mortgages 24.4 21.5 25.3 26.1 35.0
Other retail 60.2 64.5 67.4 65.4 63.2
Total retail 164.4 166.2 174.4 169.0 180.5
Total net
charge-offs 378.5 329.0 330.5 335.0 265.8
Provision for credit
losses 349.0 330.0 335.0 335.0 265.8
Acquisitions and
other changes (9.0) (6.9) 0.4 4.2 (0.7)
Balance, end of
period $2,422.0 $2,460.5 $2,466.4 $2,461.5 $2,457.3
Net charge-offs to
average loans (%) 1.30 1.14 1.16 1.19 0.92
Allowance as a
percentage of:
Period-end loans 2.08 2.12 2.15 2.15 2.15
Nonperforming
loans 196 204 241 250 245
Nonperforming
assets 176 183 215 222 219
Credit Quality
The allowance for credit losses was $2,422.0 million at December 31, 2002,
compared with the allowance for credit losses of $2,460.5 million at
September 30, 2002. The ratio of allowance for credit losses to nonperforming
loans was 196 percent at December 31, 2002, compared with 204 percent at
September 30, 2002. The ratio of allowance for credit losses to period-end
loans was 2.08 percent at December 31, 2002, compared with 2.12 percent at
September 30, 2002. Total net charge-offs in the fourth quarter of 2002 were
$378.5 million, compared with the third quarter of 2002 net charge-offs of
$329.0 million and the fourth quarter of 2001 net charge-offs of
$265.8 million.
Commercial and commercial real estate loan net charge-offs were
$207.5 million for the fourth quarter of 2002, or 1.19 percent of average
loans outstanding, compared with $156.9 million, or .90 percent of average
loans outstanding, in the third quarter of 2002 and $82.8 million, or .46
percent of average loans outstanding, in the fourth quarter of 2001. Included
in the fourth quarter of 2002 total commercial loan net charge-offs was a
$36 million charge-off of a leveraged lease to a single U.S. airline entering
bankruptcy during the quarter. The airline exposure was considered in the
Company's provision during the third quarter of 2001 when the allowance for
credit losses grew to reflect continuing weakness in the airline,
transportation, and manufacturing industries.
Retail loan net charge-offs of $164.4 million in the fourth quarter of
2002 were lower than the third quarter of 2002 by $1.8 million (1.1 percent)
and $16.1 million (8.9 percent) lower than the fourth quarter of 2001. Retail
loan net charge-offs as a percent of average loans outstanding were 1.74
percent in the fourth quarter of 2002, compared with 1.78 percent and 2.10
percent in the third quarter of 2002 and fourth quarter of 2001, respectively.
The improvement in retail loan net charges-offs principally reflects
improvement in ongoing collection efforts as a result of the successful
completion of the integration process.
CREDIT RATIOS Table 10
4Q 3Q 2Q 1Q 4Q
2002 2002 2002 2002 2001
Net charge-offs ratios*
Commercial 1.47 1.31 1.14 1.23 0.64
Lease financing 4.27 1.67 2.52 2.27 0.48
Total commercial 1.83 1.35 1.32 1.36 0.62
Commercial mortgages 0.27 0.07 0.13 0.19 0.11
Construction and
development (0.05) 0.37 0.02 0.12 0.30
Total commercial real
estate 0.19 0.15 0.10 0.17 0.16
Residential mortgages 0.29 0.27 0.19 0.14 0.13
Credit card 4.84 5.01 5.23 4.82 5.16
Retail leasing 0.75 0.67 0.62 0.84 0.77
Home equity and second
mortgages 0.71 0.63 0.77 0.85 1.15
Other retail 1.90 2.07 2.24 2.21 2.15
Total retail 1.74 1.78 1.93 1.95 2.10
Total net charge-offs 1.30 1.14 1.16 1.19 0.92
Delinquent loan ratios - 90 days or more past due excluding nonperforming
loans**
Commercial 0.14 0.15 0.10 0.12 0.18
Commercial real estate 0.04 0.04 0.15 0.09 0.02
Residential mortgages 0.90 0.93 0.87 0.84 0.78
Retail 0.72 0.63 0.64 0.80 0.90
Delinquent loan ratios - 90 days or more past due including nonperforming
loans**
Commercial 2.35 2.24 1.79 1.70 1.71
Commercial real estate 0.90 0.82 0.85 0.70 0.68
Residential mortgages 1.44 1.62 1.64 1.65 1.79
Retail 0.79 0.70 0.74 0.89 1.03
* annualized and calculated on average loan balances
** ratios are expressed as a percent of ending loan balances
The level of net charge-offs in the fourth quarter of 2002 reflected
current economic conditions and continued weakness in the communications,
transportation and manufacturing sectors, as well as the impact of the economy
on highly leveraged enterprise value financings. Assuming no further
deterioration in the economy, net charge-offs in the first quarter of 2003
should approximate the level in the fourth quarter of 2002, excluding the
impact of the airline-related leverage lease write-down, and remain fairly
stable through the remainder of the year.
ASSET QUALITY Table 11
($ in millions)
Dec 31 Sep 30 Jun 30 Mar 31 Dec 31
2002 2002 2002 2002 2001
Nonperforming loans
Commercial $760.4 $745.2 $549.9 $529.9 $526.6
Lease financing 166.7 170.6 202.0 203.2 180.8
Total commercial 927.1 915.8 751.9 733.1 707.4
Commercial mortgages 174.6 157.6 133.6 121.4 131.3
Construction and
development 57.5 49.1 43.4 32.3 35.9
Commercial real
estate 232.1 206.7 177.0 153.7 167.2
Residential mortgages 52.0 57.7 62.0 63.7 79.1
Retail 26.1 27.1 34.3 32.6 47.6
Total nonperforming
loans 1,237.3 1,207.3 1,025.2 983.1 1,001.3
Other real estate 59.5 63.3 49.8 42.6 43.8
Other nonperforming
assets 76.7 73.8 72.7 85.1 74.9
Total nonperforming
assets* $1,373.5 $1,344.4 $1,147.7 $1,110.8 $1,120.0
Accruing loans 90 days
past due $426.4 $387.9 $392.6 $426.8 $462.9
Nonperforming assets
to loans plus ORE (%) 1.18 1.16 1.00 0.97 0.98
* does not include accruing loans 90 days past due
Nonperforming assets at December 31, 2002, totaled $1,373.5 million,
compared with $1,344.4 million at September 30, 2002, and $1,120.0 million at
December 31, 2001. The ratio of nonperforming assets to loans and other real
estate was 1.18 percent at December 31, 2002, compared with 1.16 percent at
September 30, 2002, and .98 percent at December 31, 2001. The level of
nonperforming assets principally reflects the continued weakness in the
communications, cable, transportation, and manufacturing sectors, and the
Company's exposure to highly leveraged enterprise value financings. The
Company continues to remain cautious regarding the economy. Nonperforming
assets have stabilized and are expected to remain at current levels until the
economy rebounds.
CAPITAL POSITION Table 12
($ in millions) Dec 31 Sep 30 Jun 30 Mar 31 Dec 31
2002 2002 2002 2002 2001
Total shareholders'
equity $18,101 $17,518 $16,650 $15,892 $16,461
Tier 1 capital 12,606 13,172 12,628 12,246 12,488
Total risk-based
capital 19,753 20,420 19,937 19,722 19,148
Common equity to assets 10.1% 10.1% 9.6% 9.6% 9.6%
Tangible common equity
to assets 5.6 6.1 5.7 5.8 5.7
Tier 1 capital ratio 7.8 8.1 7.9 7.7 7.7
Total risk-based capital
ratio 12.2 12.6 12.5 12.4 11.7
Leverage ratio 7.5 7.9 7.8 7.6 7.7
Total shareholder's equity was $18.1 billion at December 31, 2002,
compared with $16.5 billion at December 31, 2001. The increase was the result
of corporate earnings, including the adverse impact of merger and
restructuring-related items and cumulative effect of change in accounting
principles, offset by dividends and share buybacks.
Tangible common equity to assets was 5.6 percent at December 31, 2002,
compared with 6.1 percent at September 30, 2002, and 5.7 percent at
December 31, 2001. The tier 1 capital ratio was 7.8 percent at December 31,
2002, compared with 8.1 percent at September 30, 2002, and 7.7 percent at
December 31, 2001. The total risk-based capital ratio was 12.2 percent at
December 31, 2002, compared with 12.6 percent at September 30, 2002, and 11.7
percent at December 31, 2001. The improvement in the total risk-based capital
ratio from December 31, 2001, to December 31, 2002, primarily reflects the
issuance of $1.0 billion of fixed-rate subordinated notes during the first
quarter of 2002. The leverage ratio was 7.5 percent at December 31, 2002,
compared with 7.9 percent at September 30, 2002, and 7.7 percent at
December 31, 2001. All capital ratios at December 31, 2002, were lower than
the ratios at September 30, 2002, due to the increase in goodwill and other
intangible assets that resulted from the acquisitions of the Bay View Bank
branches and the corporate trust business of State Street Bank and Trust
Company. All regulatory ratios continue to be in excess of stated "well
capitalized" requirements.
COMMON SHARES Table 13
(Millions) 4Q 3Q 2Q 1Q 4Q
2002 2002 2002 2002 2001
Beginning shares
outstanding 1,914.7 1,914.2 1,915.1 1,951.7 1,969.0
Shares issued for
stock option and
stock purchase plans,
acquisitions and
other corporate
purposes 2.3 0.9 3.9 3.4 1.1
Shares repurchased -- (0.4) (4.8) (40.0) (18.4)
Ending shares
outstanding 1,917.0 1,914.7 1,914.2 1,915.1 1,951.7
On December 18, 2001, the board of directors of U.S. Bancorp approved an
authorization to repurchase 100 million shares of outstanding common stock
through 2003. There are approximately 91.5 million shares remaining to be
repurchased under this authorization.
LINE OF BUSINESS FINANCIAL PERFORMANCE* Table 14
($ in millions)
Pre-Provision Contribution** Percent Change
4Q 3Q 4Q 4Q02 vs 4Q02 vs
Business Line 2002 2002 2001 3Q02 4Q01
Wholesale Banking $583.3 $603.0 $587.7 (3.3) (0.7)
Consumer Banking 717.2 696.3 641.9 3.0 11.7
Private Client, Trust
And Asset Management 177.1 176.0 177.6 0.6 (0.3)
Payment Services 451.8 423.7 360.8 6.6 25.2
Capital Markets (36.1) 12.5 18.1 nm nm
Treasury and Corporate
Support (123.4) (182.0) (281.6) 32.2 56.2
Consolidated Company $1,769.9 $1,729.5 $1,504.5 2.3 17.6
* preliminary data
** contribution before provision for credit losses, merger and
restructuring-related items, cumulative effect of change in accounting
principles and taxes
LINE OF BUSINESS FINANCIAL PERFORMANCE* Table 14(cont'd)
($ in millions)
4Q 2002
Full Year Full Year Percent Earnings
Business Line 2002 2001 Change Composition
Wholesale Banking $2,321.9 $2,352.0 (1.3) 33%
Consumer Banking 2,739.0 2,643.2 3.6 40
Private Client, Trust
And Asset Management 721.0 717.9 0.4 10
Payment Services 1,580.7 1,308.5 20.8 26
Capital Markets 1.7 61.9 (97.3) (2)
Treasury and Corporate Support (551.9) (980.4) 43.7 (7)
Consolidated Company $6,812.4 $6,103.1 11.6 100%
* preliminary data
** contribution before provision for credit losses, merger and
restructuring-related items, cumulative effect of change in accounting
principles and taxes
Lines of Business
Within the Company, financial performance is measured by major lines of
business which include Wholesale Banking, Consumer Banking, Private Client,
Trust and Asset Management, Payment Services, Capital Markets, and Treasury
and Corporate Support. Business line results are derived from the Company's
business unit profitability reporting systems. Designations, assignments and
allocations may change from time to time as management systems are enhanced,
methods of evaluating performance or product lines change or business segments
are realigned to better respond to our diverse customer base. All results for
2002 and 2001 have been restated to present consistent methodologies for all
business lines.
Wholesale Banking offers lending, depository, treasury management and
other financial services to middle market, large corporate and public sector
clients. Wholesale Banking's pre-provision contribution was $583.3 million in
the fourth quarter of 2002, a .7 percent decrease from the same period of 2001
and a 3.3 percent decrease from the third quarter of 2002. The decrease in
Wholesale Banking's fourth quarter 2002 pre-provision contribution from the
fourth quarter of 2001 was the result of slightly lower net revenue (.3
percent) and higher noninterest expense (2.4 percent). Total net revenue in
the fourth quarter of 2002 was lower than the fourth quarter of 2001, with an
unfavorable variance in net interest income (.5 percent), partially offset by
an increase in noninterest income (.5 percent). The reduction in net interest
income was primarily due to lower average loans outstanding (6.9 percent),
partially offset by an increase in average deposits (30.4 percent) and higher
spreads. Offsetting a portion of the decline in net interest income was an
increase in noninterest income year-over-year, which was driven by cash
management fees and other income, partially offset by lower commercial
products revenue, which included a $16.0 million residual write-down on leased
airline and railcar equipment in the current quarter. Noninterest expense
increased by $2.4 million (2.4 percent) in the fourth quarter of 2002 over the
fourth quarter of 2001, primarily due to expenses related to loan workouts.
The decrease in Wholesale Banking's pre-provision contribution in the fourth
quarter of 2002 from the third quarter of 2002 was the result of an
unfavorable variance in net revenue (2.9 percent), primarily the effect of a
$16.0 million lease residual write-down, somewhat offset by lower noninterest
expense (.6 percent).
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, metropolitan banking, small business banking, consumer
lending, mortgage banking, workplace banking, student banking, 24-hour
banking, and investment product and insurance sales. Consumer Banking's pre-
provision contribution was $717.2 million in the fourth quarter of 2002, an
11.7 percent increase over the same period of 2001 and a 3.0 percent increase
over the third quarter of 2002. The increase in Consumer Banking's fourth
quarter 2002 pre-provision contribution over the fourth quarter of 2001 was
the result of higher net revenue (11.8 percent), partially offset by an
increase in noninterest expense (11.8 percent). Net interest income improved
year-over-year by $58.9 million (7.3 percent), the result of a $4.6 billion
increase in earning assets and higher spreads. The growth in noninterest
income was primarily due to increases in mortgage banking revenue, gains on
the sale of securities and deposit service charges. The Consumer Banking
group also posted increases in investment products fees and commissions (14.0
percent) and other revenue, the latter of which was impacted by a change in
accounting for life insurance that occurred in the fourth quarter of 2001.
The increase in mortgage banking revenue can be attributed to the acquisition
of Leader and higher mortgage originations and loan servicing. The
$38.3 million of gains on the sale of securities were assigned to the business
line in the fourth quarter of 2002 to offset a portion of the MSR impairment
of $54.1 million. Noninterest expense in the fourth quarter of 2002 was
higher than the fourth quarter of 2001 (11.8 percent), primarily due to the
increase in MSR impairment and the impact of acquisitions. The improvement in
Consumer Banking's pre-provision contribution in the fourth quarter of 2002
over the third quarter of 2002 was the result of lower net revenue (1.8
percent), which was more than offset by a decrease in noninterest expense (7.4
percent). The Consumer Banking business line benefited overall from strong
mortgage banking results in the current quarter. Due to the increase in
production, mortgage banking's pre-provision contribution increased by
$16.6 million and $22.6 million over the fourth quarter of 2001 and third
quarter of 2002, respectively.
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 Client, Trust and Asset Management's pre-provision contribution was
$177.1 million in the fourth quarter of 2002, essentially equal to the same
period of 2001 and a .6 percent increase over the third quarter of 2002. The
business line's pre-provision contribution in the fourth quarter of 2002 was
slightly below the pre-provision contribution of the fourth quarter of 2001,
the net result of an unfavorable variance in net revenue of $4.4 million
(1.5 percent) and a favorable variance in noninterest expense of $3.9 million
(3.4 percent). The $1.1 million (.6 percent) increase in the business line's
pre-provision contribution in the fourth quarter of 2002 over the third
quarter of 2002 was the result of lower noninterest expense (8.9 percent),
partially offset by lower net revenue (3.3 percent). The decline in trust and
investment management fees and related personnel expenses from the prior
quarter were driven by lower market valuations for assets under management
given equity capital market conditions earlier in the quarter.
Payment Services includes consumer and business credit cards, corporate
and purchasing card services, consumer lines of credit, ATM processing,
merchant processing, and debit cards. Payment Services' pre-provision
contribution was $451.8 million in the fourth quarter of 2002, a 25.2 percent
increase over the same period of 2001 and a 6.6 percent increase over the
third quarter of 2002. The increase in Payment Services' pre-provision
contribution in the fourth quarter of 2002 over the fourth quarter of 2001 was
the result of higher net revenue (17.7 percent), partially offset by higher
noninterest expense (3.5 percent). The growth in net revenue year-over-year
was primarily due to the $46.5 million gain on the sale of a co-branded credit
card portfolio, higher net interest income (9.1 percent) and growth in credit
and debit card revenue, corporate payment products revenue, ATM processing
services, and merchant processing services (10.8 percent). Noninterest
expense grew by $6.8 million (3.5 percent) in the fourth quarter of 2002 over
the fourth quarter of 2001, primarily due to the amortization of other
intangible assets related to acquired merchant processing business. The
increase in Payment Services' pre-provision contribution in the fourth quarter
of 2002 over the third quarter of 2002 was the result of higher net revenue
(4.8 percent), the net result of credit card portfolio sales in the two
quarters, offset by a slight increase in noninterest expense (.8 percent).
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'
pre-provision loss was $(36.1) million in the fourth quarter of 2002, compared
with pre-provision contributions of $18.1 million and $12.5 million in the
fourth quarter of 2001 and third quarter of 2002, respectively. The fourth
quarter of 2002 pre-provision loss in Capital Markets' was primarily the
result of a $50.0 million litigation charge. In addition, net revenue in the
fourth quarter of 2002 was lower (11.1 percent) than the same period of 2001,
primarily due to lower investment products fees and commissions and investment
banking revenues. The decrease in Capital Markets' pre-provision contribution
in the fourth quarter of 2002 from the third quarter of 2002 was the result of
the previously noted $50.0 million litigation charge.
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 credit losses. It also includes business activities managed on
a corporate basis, including enterprise-wide operations and administrative
support functions. Treasury and Corporate Support recorded a pre-provision
loss of $(123.4) million in the fourth quarter of 2002, compared with pre-
provision losses of $(281.6) million in the fourth quarter of 2001 and
$(182.0) million in the third quarter of 2002. The reduction in the pre-
provision loss year-over-year was the result of a $112.1 million increase in
net revenue and $46.1 million decrease in noninterest expense. The increase
in net revenue over the fourth quarter of 2001 was primarily due to gains for
the sale of securities and a reduction in the level of equity investment
losses relative to the fourth quarter of 2001. The improvement in the
noninterest expense year-over-year was principally due to the impact of
adopting new accounting standards related to business combinations and the
amortization of intangibles. The decrease in the business line's pre-
provision loss in the fourth quarter of 2002 from the third quarter of 2002
was the result of favorable variances in net revenue (16.5 percent) and
noninterest expense (5.8 percent).
Additional schedules containing more detailed information about the
Company's business line results are available on the web at usbank.com or by
calling Investor Relations at 612-303-0781.
VICE CHAIRMAN AND CHIEF FINANCIAL OFFICER DAVID M. MOFFETT WILL HOST A
CONFERENCE CALL TO REVIEW THE FINANCIAL RESULTS ON TUESDAY, January 21, 2003,
AT 2:30 p.m. (CST). To access the conference call, please dial 800-223-9488
and ask for the U.S. Bancorp earnings conference call. Participants calling
from outside the United States, please call 203-748-8964. For those unable to
participate during the live call, a recording of the call will be available
from 5:00 p.m. (CST) on Tuesday, January 21, 2003 through 11:00 p.m. (CST) on
Tuesday, January 28, 2003. To access the recorded message dial 800-283-8183.
If calling from outside the United States, please dial 402-220-0867.
Minneapolis-based U.S. Bancorp ("USB"), with $180 billion in assets, is
the 8th largest financial services holding company in the United States. The
company operates 2,142 banking offices and 4,604 ATMs, and provides a
comprehensive line of banking, brokerage, insurance, investment, mortgage, and
trust and payment services products to consumers, businesses and institutions.
U.S. Bancorp is the parent company of U.S. Bank. Visit U.S. Bancorp on the
web at usbank.com.
Forward-Looking Statements
This press release contains forward-looking statements. Statements that
are not historical or current facts, including statements about beliefs and
expectations, are forward-looking statements. These forward-looking
statements cover, among other things, anticipated future expenses and revenue,
and the future prospects of the Company. Forward-looking statements involve
inherent risks and uncertainties, and important factors could cause actual
results to differ materially from those anticipated, including the following,
in addition to those contained in the Company's reports on file with the SEC:
(i) general economic or industry conditions could be less favorable than
expected, resulting in a deterioration in credit quality, a change in the
allowance for credit losses, or a reduced demand for credit or fee-based
products and services; (ii) changes in the domestic interest rate environment
could reduce net interest income and could increase credit losses; (iii) the
conditions of the securities markets could change, adversely affecting
revenues from capital markets businesses, the value or credit quality of the
Company's assets, or the availability and terms of funding necessary to meet
the Company's liquidity needs; (iv) changes in the extensive laws, regulations
and policies governing financial services companies could alter the Company's
business environment or affect operations; (v) the potential need to adapt to
industry changes in information technology systems, on which the Company is
highly dependent, could present operational issues or require significant
capital spending; (vi) competitive pressures could intensify and affect the
Company's profitability, including as a result of continued industry
consolidation, the increased availability of financial services from non-
banks, technological developments, or bank regulatory reform; (vii)
acquisitions may not produce revenue enhancements or cost savings at levels or
within time frames originally anticipated, or may result in unforeseen
integration difficulties; and (viii) capital investments in the Company's
businesses may not produce expected growth in earnings anticipated at the time
of the expenditure. Forward-looking statements speak only as of the date they
are made, and the Company undertakes no obligation to update them in light of
new information or future events.
U.S. Bancorp
CONSOLIDATED STATEMENT OF INCOME
(Dollars and Shares in Millions, Three Months Ended Year Ended
Except Per Share Data) December 31, December 31,
(Unaudited) 2002 2001 2002 2001
Interest Income
Loans $1,913.6 $2,060.4 $7,743.6 $9,413.7
Loans held for sale 57.5 50.5 170.6 146.9
Investment securities
Taxable 372.1 343.8 1,438.2 1,206.1
Non-taxable 10.3 14.6 46.1 89.5
Money market investments 1.8 4.0 10.6 26.6
Trading securities 9.8 16.3 37.1 57.5
Other interest income 30.4 19.2 107.5 101.6
Total interest income 2,395.5 2,508.8 9,553.7 11,041.9
Interest Expense
Deposits 343.7 491.4 1,485.3 2,828.1
Short-term borrowings 45.8 100.6 249.4 534.1
Long-term debt 207.0 217.9 842.7 1,184.8
Company-obligated mandatorily
redeemable preferred securities
of subsidiary trusts holding solely
the junior subordinated debentures
of the parent company 33.2 34.6 136.6 127.8
Total interest expense 629.7 844.5 2,714.0 4,674.8
Net interest income 1,765.8 1,664.3 6,839.7 6,367.1
Provision for credit losses 349.0 265.8 1,349.0 2,528.8
Net interest income after
provision for credit losses 1,416.8 1,398.5 5,490.7 3,838.3
Noninterest Income
Credit and debit card revenue 143.7 121.3 517.0 465.9
Corporate payment products revenue 80.4 68.4 325.7 297.7
ATM processing services 35.8 33.2 136.9 130.6
Merchant processing services 142.0 139.2 567.3 308.9
Trust and investment management
fees 214.7 215.2 899.1 894.4
Deposit service charges 192.3 171.6 714.0 667.3
Cash management fees 102.6 95.9 416.9 347.3
Commercial products revenue 108.3 133.1 479.2 437.4
Mortgage banking revenue 88.4 68.5 330.2 234.0
Trading account profits and
commissions 54.5 50.3 206.5 221.6
Investment products fees and
commissions 105.4 112.2 428.9 460.1
Investment banking revenue 48.0 70.0 207.4 258.2
Securities gains, net 106.2 22.0 299.9 329.1
Merger and restructuring-related
gains -- -- -- 62.2
Other 123.8 33.3 339.6 286.4
Total noninterest income 1,546.1 1,334.2 5,868.6 5,401.1
Noninterest Expense
Salaries 607.3 605.8 2,409.2 2,347.1
Employee benefits 86.4 82.0 367.7 366.2
Net occupancy 104.2 103.9 409.3 417.9
Furniture and equipment 76.4 78.8 306.0 305.5
Capitalized software 35.2 38.9 148.1 136.1
Communication 47.4 43.0 183.8 181.4
Postage 43.1 44.4 178.4 179.8
Goodwill -- 62.4 -- 251.1
Other intangible assets 156.7 93.0 553.0 278.4
Merger and restructuring-related
charges 107.9 140.6 324.1 946.4
Other 394.5 351.7 1,377.0 1,195.3
Total noninterest
expense 1,659.1 1,644.5 6,256.6 6,605.2
Income before income taxes and
cumulative effect of change in
accounting principles 1,303.8 1,088.2 5,102.7 2,634.2
Applicable income taxes 454.0 392.8 1,776.3 927.7
Income before cumulative effect of
change in accounting principles 849.8 695.4 3,326.4 1,706.5
Cumulative effect of change in
accounting principles -- -- (37.2) --
Net income $849.8 $695.4 $3,289.2 $1,706.5
Earnings Per Share
Income before cumulative
effect of change in
accounting principles $.44 $.36 $1.74 $.89
Cumulative effect of change
in accounting principles -- -- (.02) --
Net income $.44 $.36 $1.72 $.89
Diluted Earnings Per Share
Income before cumulative
effect of change in
accounting principles $.44 $.36 $1.73 $.88
Cumulative effect of change
in accounting principles -- -- (.02) --
Net income $.44 $.36 $1.71 $.88
Dividends declared per share $.195 $.1875 $.78 $.75
Average common shares 1,916.2 1,951.7 1,916.0 1,927.9
Average diluted common shares 1,924.2 1,958.9 1,926.1 1,939.5
U.S. Bancorp
CONSOLIDATED ENDING BALANCE SHEET
December 31, December 31,
(Dollars in Millions) 2002 2001
Assets
Cash and due from banks $10,758 $9,120
Money market investments 434 625
Trading account securities 898 982
Investment securities
Held-to-maturity 233 299
Available-for-sale 28,255 26,309
Loans held for sale 4,159 2,820
Loans
Commercial 41,944 46,330
Commercial real estate 26,867 25,373
Residential mortgages 9,746 7,829
Retail 37,694 34,873
Total loans 116,251 114,405
Less allowance for credit losses 2,422 2,457
Net loans 113,829 111,948
Premises and equipment 1,697 1,741
Customers' liability on acceptances 140 178
Goodwill 6,325 5,459
Other intangible assets 2,321 1,953
Other assets 10,978 9,956
Total assets $180,027 $171,390
Liabilities and Shareholders' Equity
Deposits
Noninterest-bearing $35,106 $31,212
Interest-bearing 68,214 65,447
Time deposits greater than $100,000 12,214 8,560
Total deposits 115,534 105,219
Short-term borrowings 7,806 14,670
Long-term debt 28,588 25,716
Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts
holding solely the junior subordinated
debentures of the parent company 2,994 2,826
Acceptances outstanding 140 178
Other liabilities 6,864 6,320
Total liabilities 161,926 154,929
Shareholders' equity
Common stock 20 20
Capital surplus 4,850 4,906
Retained earnings 13,719 11,918
Treasury stock (1,272) (478)
Other comprehensive income 784 95
Total shareholders' equity 18,101 16,461
Total liabilities and
shareholders' equity $180,027 $171,390
SOURCE U.S. Bancorp
