Company Adopts 'Fair Value' Method of Accounting for Stock-Based Compensation.
Fourth Quarter EPS From Continuing Operations Reduced by $.02 Per Diluted
Share and Full Year EPS From Continuing Operations Reduced by $.06 Per Diluted
Share
EARNINGS SUMMARY Table 1
($ in millions, except per-share data) Percent Percent
Change Change
4Q 3Q 4Q 4Q03 vs 4Q03 vs
2003 2003 2002 3Q03 4Q02
Income from
continuing
operations
before
cumulative
effect of
accounting
change, net $970.3 $940.7 $858.6 3.1 13.0
Net income 977.0 950.9 819.7 2.7 19.2
Earnings per
share from
continuing
operations
before
cumulative
effect of
accounting
change
(diluted) 0.50 0.48 0.45 4.2 11.1
Earnings per
share
(diluted) 0.50 0.49 0.43 2.0 16.3
Return on
average
assets (%) 2.05 1.98 1.83
Return on
average
equity(%) 19.4 19.5 17.8
Efficiency
ratio (%) 43.1 40.3 48.8
Dividends
declared per
share $0.240 $0.205 $0.195 17.1 23.1
Book value
per share
(period-end) 10.01 10.26 9.62 (2.4) 4.1
Net interest
margin (%) 4.42 4.43 4.65
Full Full
Year Year Percent
2003 2002 Change
Income from continuing
operations before
cumulative effect of
accounting change, net $3,710.1 $3,228.0 14.9
Net income 3,732.6 3,168.1 17.8
Earnings per share from
continuing operations
before cumulative effect
of accounting change (diluted) 1.92 1.68 14.3
Earnings per share (diluted) 1.93 1.65 17.0
Return on average assets (%) 1.99 1.84
Return on average equity(%) 19.2 18.3
Efficiency ratio (%) 45.6 48.8
Dividends declared per share $0.855 $0.78 9.6
Book value per share
(period-end)
Net interest margin (%) 4.49 4.65
MINNEAPOLIS, Jan. 20 /PRNewswire-FirstCall/ -- U.S. Bancorp (NYSE: USB)
today reported net income of $977.0 million for the fourth quarter of 2003,
compared with $819.7 million for the fourth quarter of 2002. Net income of
$.50 per diluted share in the fourth quarter of 2003 was higher than the same
period of 2002 by $.07 (16.3 percent). Return on average assets and return on
average equity were 2.05 percent and 19.4 percent, respectively, for the
fourth quarter of 2003, compared with returns of 1.83 percent and
17.8 percent, respectively, for the fourth quarter of 2002. Net income in the
fourth quarter of 2003 included after-tax merger and restructuring-related
items of ($5.0) million, which had an immaterial impact on earnings per share,
compared with ($69.9) million, or ($.03) per diluted share, in the fourth
quarter of 2002.
U.S. Bancorp Chairman, President and Chief Executive Officer Jerry A.
Grundhofer said, "2003 concluded a 5-year period dominated by transformational
acquisitions and their resulting integration activities. Due to the
dedication and support of our exceptional employees, we now have a company
that is uniquely positioned to achieve consistent earnings growth as a result
of our balanced business mix, advantaged scale, reduced risk profile, low-cost
leadership position and emphasis on customer service.
"Specific to 2003, we achieved our earnings objectives, despite the soft
economy, increasing net income by 17.8 percent while producing
industry-leading returns on assets and equity of 1.99 percent and
19.2 percent, respectively. In addition, we completed the spin-off of Piper
Jaffray to our shareholders, a company with a market value of approximately
$880 million, increased our cash dividend twice during the year resulting in a
increase of 23.1 percent from the rate paid in the fourth quarter of 2002 and
announced our intention to return 80 percent of earnings to shareholders
through dividends or share repurchases.
"Looking forward to 2004, we see business conditions improving, as
evidenced by the significant improvements we saw in the fourth quarter of 2003
in credit quality, as well as improving trends in our fiduciary and payments
businesses. In this improving environment, we intend to achieve our stated
long-term earnings per share growth goal of 10 percent, while continuing to
make the investments that are necessary to ensure top line growth.
"In closing, I would like to thank all of our employees for their hard
work and commitment in making 2003 a year of significant progress. Their
focus on service quality, expanding existing customer relationships and
acquiring new customer relationships was apparent in 2003 and will be critical
to achieving our objectives in the future."
The Company's results for the fourth quarter of 2003 improved over the
same period of 2002, primarily due to growth in net interest income and fee
based products and services, as well as controlled operating expense and lower
credit costs. Net income from continuing operations was $970.3 million, or
$.50 per diluted share, for the fourth quarter of 2003, compared with
$858.6 million, or $.45 per diluted share for the fourth quarter of 2002,
representing an 11.1 percent annual growth rate.
Total net revenue on a taxable-equivalent basis for the fourth quarter of
2003 was $37.7 million (1.2 percent) lower than the fourth quarter of 2002,
which primarily reflected the net reduction in securities gains (losses) of
$106.3 million, in addition to an unfavorable variance in commercial products
revenue and lower year-over-year gains from the sale of assets. Otherwise,
favorable revenue growth occurred in net interest income, payment systems
revenue, cash management fees, trust and investment management fees, and
mortgage banking revenue. Acquisitions, including the 57 branches of Bay View
Bank in California and the corporate trust business of State Street Bank and
Trust Company ("State Street Corporate Trust"), contributed approximately
$33.0 million of additional net revenue year-over-year.
Total noninterest expense in the fourth quarter of 2003 was lower than the
fourth quarter of 2002 by $144.2 million (9.7 percent), primarily reflecting a
$99.7 million reduction in merger and restructuring-related charges, a
$54.1 million favorable change in the recognition of mortgage servicing rights
("MSR") impairment and cost savings from completed merger and restructuring-
related activities. These positive variances were partially offset by expense
increases due to acquisitions, which accounted for approximately $16.0 million
of expense growth year-over-year.
Provision for credit losses for the fourth quarter of 2003 was
$286.0 million, a decrease of $63.0 million (18.1 percent) from the fourth
quarter of 2002. Net charge-offs in the fourth quarter of 2003 were
$285.1 million, compared with the third quarter of 2003 net charge-offs of
$309.9 million and the fourth quarter of 2002 net charge-offs of
$378.5 million. The decline in losses from a year ago was primarily the
result of an improving credit risk profile and collection efforts. Total
nonperforming assets declined to $1,148.1 million at December 31, 2003, from
$1,318.3 million at September 30, 2003 (12.9 percent), and $1,373.5 million at
December 31, 2002 (16.4 percent). The ratio of the allowance for credit
losses to nonperforming loans was 232 percent at December 31, 2003, compared
with 202 percent at September 30, 2003, and 196 percent at December 31, 2002.
On December 31, 2003, the Company announced that it had completed the
spin-off of Piper Jaffray Companies (NYSE: PJC). The Company distributed one
share of Piper Jaffray Companies common stock for every 100 shares of U.S.
Bancorp common stock held by shareholders of record as of 5:00 p.m., EST, on
December 22, 2003, by means of a special dividend. In connection with the
spin-off, accounting rules require that the financial statements be restated
for all prior periods. As such, historical financial results related to Piper
Jaffray have been segregated and accounted for in the Company's financial
statements as discontinued operations. Net income in the fourth quarter of
2003 included after-tax income from the discontinued operations of Piper
Jaffray Companies of $6.7 million, which had an immaterial impact on diluted
earnings per share. This compared with an after-tax loss of ($38.9) million,
or ($.02) per diluted share, in the fourth quarter of 2002. For the full year
2003, net income included after-tax income from discontinued operations of
$22.5 million, or $.01 per diluted share, compared with an after-tax loss of
($22.7) million, or ($.01) per diluted share, for the full year 2002.
Effective January 8, 2004, the Company elected to adopt the "fair value"
method of accounting for stock-based compensation. This resulted in the
Company recognizing compensation expense for the estimated fair value of all
employee stock options granted, modified or settled in fiscal years beginning
after December 15, 1994. The company has implemented this accounting change
utilizing the "retroactive restatement method," which requires all financial
statement periods to be restated for all stock-based compensation.
Consequently, the financial results for the fourth quarter of 2003, full year
2003 and all respective prior periods have been restated to reflect this
change in accounting. The impact of this change on diluted earnings per share
from continuing operations for fourth quarter of 2003 and fourth quarter of
2002 was ($.02) and ($.01), respectively. In addition, the impact on diluted
earnings per share from continuing operations for full year 2003 and 2002 was
($.06) and ($.05), respectively, due to this change. The impact of this
change on diluted earnings per share for the fourth quarter of 2003 and 2002
was ($.01) and ($.02), respectively, and ($.06) per diluted share for both
full year 2003 and 2002.
INCOME STATEMENT HIGHLIGHTS Table 2
(Taxable-equivalent basis, $ in millions, Percent Percent
except per-share data) Change Change
4Q 3Q 4Q 4Q03 vs 4Q03 vs
2003 2003 2002 3Q03 4Q02
Net interest
income $1,816.7 $1,825.5 $1,765.3 (0.5) 2.9
Noninterest
income 1,296.6 1,177.4 1,385.7 10.1 (6.4)
Total net
revenue 3,113.3 3,002.9 3,151.0 3.7 (1.2)
Noninterest
expense 1,342.4 1,253.3 1,486.6 7.1 (9.7)
Provision
for credit
losses 286.0 310.0 349.0 (7.7) (18.1)
Income from
continuing
operations
before income
taxes and
cumulative
effect of
accounting
change 1,484.9 1,439.6 1,315.4 3.1 12.9
Taxable-
equivalent
adjustment 7.2 7.0 7.7 2.9 (6.5)
Applicable
income taxes 507.4 491.9 449.1 3.2 13.0
Income from
continuing
operations
before
cumulative
effect of
accounting
change 970.3 940.7 858.6 3.1 13.0
Income (loss)
from
discontinued
operations
(after-tax) 6.7 10.2 (38.9) nm nm
Cumulative
effect of
accounting
change
(after-tax) -- -- -- nm nm
Net income $977.0 $950.9 $819.7 2.7 19.2
Diluted
earnings
per share:
Income from
continuing
operations
before
cumulative
effect of
accounting
change $0.50 $0.48 $0.45 4.2 11.1
Discontinued
operations -- 0.01 (0.02) nm nm
Cumulative
effect of
accounting
change -- -- -- nm nm
Net
income $0.50 $0.49 $0.43 2.0 16.3
Full Full
Year Year Percent
2003 2002 Change
Net interest income $7,217.5 $6,847.2 5.4
Noninterest income 5,313.0 5,210.7 2.0
Total net revenue 12,530.5 12,057.9 3.9
Noninterest expense 5,596.9 5,740.5 (2.5)
Provision for credit losses 1,254.0 1,349.0 (7.0)
Income from continuing
operations before income
taxes and cumulative
effect of accounting change 5,679.6 4,968.4 14.3
Taxable-equivalent adjustment 28.2 32.9 (14.3)
Applicable income taxes 1,941.3 1,707.5 13.7
Income from continuing
operations before cumulative
effect of accounting change 3,710.1 3,228.0 14.9
Income (loss) from
discontinued operations
(after-tax) 22.5 (22.7) nm
Cumulative effect of
accounting change (after-tax) -- (37.2) nm
Net income $3,732.6 $3,168.1 17.8
Diluted earnings per share:
Income from continuing
operations before
cumulative effect of
accounting change $1.92 $1.68 14.3
Discontinued operations 0.01 (0.01) nm
Cumulative effect of
accounting change -- (0.02) nm
Net income $1.93 $1.65 17.0
Net Interest Income
Fourth quarter net interest income on a taxable-equivalent basis was
$1,816.7 million, compared with $1,765.3 million recorded in the fourth
quarter of 2002. Average earning assets for the period increased over the
fourth quarter of 2002 by $12.6 billion (8.3 percent), primarily driven by
increases in investment securities, residential mortgages, and retail loans,
partially offset by a decline in commercial loans and loans held for sale
related to mortgage banking activities. The net interest margin in the fourth
quarter of 2003 was 4.42 percent, compared with 4.43 percent in the third
quarter of 2003 and 4.65 percent in the fourth quarter of 2002. The decline
in the net interest margin in the fourth quarter of 2003 from the fourth
quarter of 2002 primarily reflected growth in lower-yielding investment
securities as a percent of total earning assets, a change in loan mix, and a
decline in the margin benefit from net free funds due to lower interest rates.
In addition, the net interest margin declined year-over-year as a result of
consolidating loans from Stellar Funding Group, Inc., a commercial loan
conduit, onto the Company's balance sheet during the third quarter of 2003.
The slight decline in the net interest margin in the fourth quarter of 2003
from the third quarter of 2003 also reflected a similar change in earning
asset mix.
NET INTEREST INCOME Table 3
(Taxable-equivalent basis; $ in millions)
Change Change
4Q 3Q 4Q 4Q03 vs 4Q03 vs
2003 2003 2002 3Q03 4Q02
Components of net
interest income
Income on earning
assets $2,294.9 $2,318.3 $2,389.1 $(23.4) $(94.2)
Expense on
interest-bearing
liabilities 478.2 492.8 623.8 (14.6) (145.6)
Net interest income $1,816.7 $1,825.5 $1,765.3 $(8.8) $51.4
Average yields and
rates paid
Earning assets yield 5.58% 5.63% 6.29% (0.05)% (0.71)%
Rate paid on
interest-bearing
liabilities 1.44 1.49 2.05 (0.05) (0.61)
Gross interest margin 4.14% 4.14% 4.24% -- % (0.10)%
Net interest margin 4.42% 4.43% 4.65% (0.01)% (0.23)%
Average balances
Investment securities $40,774 $37,777 $30,399 $2,997 $10,375
Loans 119,300 119,982 115,405 (682) 3,895
Earning assets 163,705 163,865 151,099 (160) 12,606
Interest-bearing
liabilities 131,990 131,693 120,682 297 11,308
Net free funds* 31,715 32,172 30,417 (457) 1,298
* Represents noninterest-bearing deposits, allowance for credit losses,
unrealized gain (loss) on available-for-sale securities, non-earning
assets, other non-interest bearing liabilities and equity.
Full Full
Year Year
2003 2002 Change
Components of net
interest income
Income on earning assets $9,286.2 $9,526.8 $(240.6)
Expense on
interest-bearing
liabilities 2,068.7 2,679.6 (610.9)
Net interest income $7,217.5 $6,847.2 $370.3
Average yields and rates paid
Earning assets yield 5.77% 6.46% (0.69)%
Rate paid on
interest-bearing
liabilities 1.60 2.26 (0.66)
Gross interest margin 4.17% 4.20% (0.03)%
Net interest margin 4.49% 4.65% (0.16)%
Average balances
Investment securities $37,248 $28,829 $8,419
Loans 118,362 114,453 3,909
Earning assets 160,808 147,410 13,398
Interest-bearing
liabilities 129,004 118,697 10,307
Net free funds* 31,804 28,713 3,091
* Represents noninterest-bearing deposits, allowance for credit losses,
unrealized gain (loss) on available-for-sale securities, non-earning
assets, other non-interest bearing liabilities and equity.
AVERAGE LOANS Table 4
($ in millions) Percent Percent
Change Change
4Q 3Q 4Q 4Q03 vs 4Q03 vs
2003 2003 2002 3Q03 4Q02
Commercial $35,080 $36,958 $36,880 (5.1) (4.9)
Lease financing 4,959 5,022 5,413 (1.3) (8.4)
Total
commercial 40,039 41,980 42,293 (4.6) (5.3)
Commercial
mortgages 20,230 20,089 20,056 0.7 0.9
Construction
and development 7,060 7,308 6,587 (3.4) 7.2
Total commercial
real estate 27,290 27,397 26,643 (0.4) 2.4
Residential
mortgages 13,374 12,234 8,966 9.3 49.2
Credit card 5,713 5,606 5,662 1.9 0.9
Retail leasing 5,895 5,806 5,626 1.5 4.8
Home equity and
second mortgages 13,084 13,093 13,651 (0.1) (4.2)
Other retail 13,905 13,866 12,564 0.3 10.7
Total retail 38,597 38,371 37,503 0.6 2.9
Total loans $119,300 $119,982 $115,405 (0.6) 3.4
Full Full
Year Year Percent
2003 2002 Change
Commercial $36,238 $38,244 (5.2)
Lease financing 5,088 5,573 (8.7)
Total commercial 41,326 43,817 (5.7)
Commercial mortgages 20,166 19,212 5.0
Construction and development 6,976 6,511 7.1
Total commercial real estate 27,142 25,723 5.5
Residential mortgages 11,696 8,412 39.0
Credit card 5,525 5,633 (1.9)
Retail leasing 5,804 5,389 7.7
Home equity and
second mortgages 13,239 13,232 0.1
Other retail 13,630 12,247 11.3
Total retail 38,198 36,501 4.6
Total loans $118,362 $114,453 3.4
Average loans for the fourth quarter of 2003 were $3.9 billion
(3.4 percent) higher than the fourth quarter of 2002, primarily due to growth
in average residential mortgages of $4.4 billion (49.2 percent) and retail
loans of $1.1 billion (2.9 percent) year-over-year. Total commercial loans
declined by $2.3 billion (5.3 percent), while total commercial real estate
loans increased by $647 million (2.4 percent). Although the consolidation of
loans from the Stellar commercial loan conduit had a positive impact on
average loan balances year-over-year, current credit markets and soft economic
conditions throughout much of 2003 led to the overall decrease in total
commercial loans. Average loans for the fourth quarter of 2003 were lower
than the third quarter of 2003 by $682 million (.6 percent), reflecting
reductions in commercial and commercial real estate loans, partially offset by
growth in both residential mortgages and retail loans.
Average investment securities in the fourth quarter of 2003 were
$10.4 billion (34.1 percent) higher than the fourth quarter of 2002,
reflecting the reinvestment of proceeds from loan sales, declines in
commercial loan balances and additional deposits assumed in connection with
the Bay View Bank branch acquisition. Investment securities at December 31,
2003, were $14.8 billion higher than at December 31, 2002, and $8.3 billion
higher than the balance at September 30, 2003. The increase from the third
quarter primarily reflects the timing of securities sales late in the third
quarter. During the fourth quarter of 2003, the Company continued to acquire
floating-rate securities and shorter-term fixed-rate securities as part of its
asset/liability management activities.
AVERAGE DEPOSITS Table 5
($ in millions) Percent Percent
Change Change
4Q 3Q 4Q 4Q03 vs 4Q03 vs
2003 2003 2002 3Q03 4Q02
Noninterest-
bearing
deposits $29,647 $31,907 $31,220 (7.1) (5.0)
Interest-
bearing
deposits
Interest
checking 20,595 20,148 16,505 2.2 24.8
Money market
accounts 35,351 33,980 27,238 4.0 29.8
Savings
accounts 5,708 5,846 5,011 (2.4) 13.9
Savings
products 61,654 59,974 48,754 2.8 26.5
Time
certificates
of deposit
less than
$100,000 14,182 14,824 18,334 (4.3) (22.6)
Time deposits
greater than
$100,000 10,786 11,251 12,709 (4.1) (15.1)
Total
interest-
bearing
deposits 86,622 86,049 79,797 0.7 8.6
Total deposits $116,269 $117,956 $111,017 (1.4) 4.7
Full Full
Year Year Percent
2003 2002 Change
Noninterest-bearing deposits $31,715 $28,715 10.4
Interest-bearing deposits
Interest checking 19,104 15,631 22.2
Money market accounts 32,310 25,237 28.0
Savings accounts 5,612 4,928 13.9
Savings products 57,026 45,796 24.5
Time certificates of
deposit less than $100,000 15,493 19,283 (19.7)
Time deposits greater
than $100,000 12,319 11,330 8.7
Total interest-bearing
deposits 84,838 76,409 11.0
Total deposits $116,553 $105,124 10.9
Average noninterest-bearing deposits in the fourth quarter of 2003 were
lower than the fourth quarter of 2002 by $1.6 billion (5.0 percent). The
change is primarily due to lower mortgage banking activities and a decline in
Federal government deposits related to their decision in the third quarter to
pay for treasury management services rather than maintain compensating
balances. Average interest-bearing deposits increased by $6.8 billion
(8.6 percent) over the fourth quarter of 2002. Approximately $1.7 billion of
the increase in average interest-bearing deposits was due to acquisitions,
while the remaining $5.1 billion of growth was driven by increases in savings
products balances, partially offset by decreases in time certificates of
deposit less than $100,000 and time deposits greater than $100,000.
Average noninterest-bearing deposits in the fourth quarter of 2003 were
$2.3 billion (7.1 percent) lower than the third quarter of 2003 due to lower
government-related deposits, while average interest-bearing deposits were
slightly higher (.7 percent). Noninterest-bearing deposits at December 31,
2003, were essentially flat compared to September 30, 2003, and $2.6 billion
(7.5 percent) lower than at December 31, 2002.
NONINTEREST INCOME Table 6
($ in millions) Percent Percent
Change Change
4Q 3Q 4Q 4Q03 vs 4Q03 vs
2003 2003 2002 3Q03 4Q02
Credit and
debit card
revenue $153.4 $137.6 $143.7 11.5 6.8
Corporate
payment
products
revenue 88.7 95.7 80.4 (7.3) 10.3
ATM
processing
services 40.3 41.3 41.7 (2.4) (3.4)
Merchant
processing
services 146.0 146.3 142.0 (0.2) 2.8
Trust and
investment
management
fees 246.6 239.8 213.6 2.8 15.4
Deposit
service
charges 186.6 187.0 186.4 (0.2) 0.1
Cash management
fees 116.3 126.2 102.6 (7.8) 13.4
Commercial
products
revenue 98.5 97.8 108.3 0.7 (9.0)
Mortgage
banking
revenue 91.9 89.5 88.4 2.7 4.0
Investment
products
fees and
commissions 36.2 35.5 35.0 2.0 3.4
Securities
gains
(losses),
net (0.1) (108.9) 106.2 (99.9) nm
Other 92.2 89.6 137.4 2.9 (32.9)
Total
noninterest
income $1,296.6 $1,177.4 $1,385.7 10.1 (6.4)
Full Full
Year Year Percent
2003 2002 Change
Credit and debit card revenue $560.7 $517.0 8.5
Corporate payment
products revenue 361.3 325.7 10.9
ATM processing services 165.9 160.6 3.3
Merchant processing services 561.4 567.3 (1.0)
Trust and investment
management fees 953.9 892.1 6.9
Deposit service charges 715.8 690.3 3.7
Cash management fees 466.3 416.9 11.8
Commercial products revenue 400.5 479.2 (16.4)
Mortgage banking revenue 367.1 330.2 11.2
Investment products fees
and commissions 144.9 132.7 9.2
Securities gains (losses), net 244.8 299.9 (18.4)
Other 370.4 398.8 (7.1)
Total noninterest income $5,313.0 $5,210.7 2.0
Noninterest Income
Fourth quarter noninterest income was $1,296.6 million, a decrease of
$89.1 million (6.4 percent) from the same quarter of 2002, and a
$119.2 million (10.1 percent) increase over the third quarter of 2003. The
decline in noninterest income from the fourth quarter of 2002 was driven by a
net reduction in gains (losses) on the sale of securities, other income and
commercial products revenue, partially offset by increases in payment services
revenue, cash management fees, trust and investment management fees, mortgage
banking revenue, and the effects of acquisitions, including the branches of
Bay View Bank and State Street Corporate Trust, which contributed
approximately $24.3 million in additional noninterest income in the fourth
quarter of 2003. Credit and debit card revenue and corporate payment products
revenue were higher in the fourth quarter of 2003 than the fourth quarter of
2002 by $9.7 million (6.8 percent) and $8.3 million (10.3 percent),
respectively. Although credit and debit card revenue grew year-over-year, the
growth was somewhat muted due to the impact of the settlement of the antitrust
litigation brought against VISA USA and Mastercard by Wal-Mart Stores, Inc.,
Sears Roebuck & Co. and other retailers, which lowered the interchange rate on
signature debit transactions beginning August 1, 2003. The year-over-year
impact of the VISA settlement on credit and debit card revenue was
approximately $12.6 million. This change in the interchange rate, in addition
to higher customer loyalty rewards expenses, however, was more than offset by
increases in transaction volumes and other rate adjustments. The corporate
payment products revenue growth reflected growth in sales and card usage.
Merchant processing services revenue was higher in the fourth quarter of 2003
than the same quarter of 2002 by $4.0 million (2.8 percent), due to an
increase in transaction volume, which was partially offset by lower processing
spreads resulting from changes in the mix of merchants. The favorable
variance in trust and investment management fees of $33.0 million
(15.4 percent) in the fourth quarter of 2003 over the same period of 2002 was
principally driven by the acquisition of State Street Corporate Trust, which
contributed approximately $21.1 million in fees during the fourth quarter of
2003. In addition, trust and investment management fees benefited from higher
equity market valuations and account growth year-over-year. Cash management
fees grew by $13.7 million (13.4 percent) in the fourth quarter of 2003 over
the same period of 2002. The increase in cash management fees year-over-year
was primarily driven by a change during the third quarter of 2003 in the
Federal government's payment methodology for treasury management services from
compensating balances, reflected in net interest income, to fees. Mortgage
banking revenue increased by $3.5 million (4.0 percent) over the same period
of 2002 due to higher loan servicing revenue, which was slightly offset by a
decline in origination and sales revenue. Offsetting these favorable
variances were declines in other income and commercial products revenue
year-over-year. Other income declined primarily due to a $46.5 million gain
on the sale of a co-branded credit card portfolio recorded in the fourth
quarter of 2002. Commercial products revenue declined by $9.8 million
(9.0 percent) year-over-year, principally reflecting lower commercial loan
conduit servicing fees, which resulted, in part, from unwinding the Stellar
commercial loan conduit.
Noninterest income increased in the fourth quarter of 2003 by
$119.2 million (10.1 percent) over the third quarter of 2003, primarily due to
the net favorable change in gains (losses) on the sale of securities of
$108.8 million and increases in credit and debit card revenue and trust and
investment management fees. These favorable variances were partially offset
by lower corporate payment product fees and cash management fees. Credit and
debit card revenue in the fourth quarter was seasonally higher than the third
quarter of 2003. The VISA USA settlement had a slight negative impact of
$4.9 million, as the reduced interchange rates became effective August 1,
2003. Trust and investment management fees increased by $6.8 million
(2.8 percent) over the third quarter of 2003 due to the impact of improving
equity market valuations, annual fees and core account growth. Corporate
payment products fees were seasonally lower than the third quarter of 2003,
primarily due to the government purchasing card sales volumes, while cash
management fees declined from the prior quarter due to lower fees from
government-related sources.
NONINTEREST EXPENSE Table 7
($ in millions) Percent Percent
Change Change
4Q 3Q 4Q 4Q03 vs 4Q03 vs
2003 2003 2002 3Q03 4Q02
Salaries $539.4 $543.8 $545.1 (0.8) (1.0)
Employee benefits 81.3 75.8 83.0 7.3 (2.0)
Net occupancy 91.9 93.9 96.1 (2.1) (4.4)
Furniture and
equipment 69.7 67.4 71.6 3.4 (2.7)
Communication 37.8 38.5 38.5 (1.8) (1.8)
Postage 43.2 43.9 41.7 (1.6) 3.6
Other intangible
assets 124.2 10.8 156.7 nm (20.7)
Merger and
restructuring-
related charges 7.6 10.2 107.3 (25.5) (92.9)
Other 347.3 369.0 346.6 (5.9) 0.2
Total noninterest
expense $1,342.4 $1,253.3 $1,486.6 7.1 (9.7)
Full Full
Year Year Percent
2003 2002 Change
Salaries $2,176.8 $2,167.5 0.4
Employee benefits 328.4 317.5 3.4
Net occupancy 372.6 375.9 (0.9)
Furniture and equipment 271.1 282.8 (4.1)
Communication 157.2 145.7 7.9
Postage 175.8 172.4 2.0
Other intangible assets 682.4 553.0 23.4
Merger and
restructuring-related charges 46.2 321.2 (85.6)
Other 1,386.4 1,404.5 (1.3)
Total noninterest expense $5,596.9 $5,740.5 (2.5)
Noninterest Expense
Fourth quarter noninterest expense totaled $1,342.4 million, a decrease of
$144.2 million (9.7 percent) from the fourth quarter of 2002. The decline in
expense year-over-year was primarily due to a $99.7 million reduction in
merger and restructuring-related charges, the favorable change in MSR
impairment of $54.1 million and cost savings from merger and
restructuring-related activities. These positive variances were partially
offset by the impact of recent acquisitions, including the branches of Bay
View Bank and State Street Corporate Trust. The acquisitions contributed
approximately $16.0 million of expense growth to the quarter.
Noninterest expense in the fourth quarter of 2003 was higher than the
third quarter of 2003 by $89.1 million (7.1 percent). The unfavorable
variance was primarily due to the MSR repairment ($108.5 million) taken in the
third quarter of 2003. No expense was recorded in the fourth quarter of 2003
related to changes in MSR valuations. Partially offsetting this negative
variance was other expense, which was $21.7 million (5.9 percent) lower than
the prior quarter, primarily reflecting a decline in tax-related liabilities
and merchant processing expenses.
ALLOWANCE FOR CREDIT LOSSES Table 8
($ in millions) 4Q 3Q 2Q 1Q 4Q
2003 2003 2003 2003 2002
Balance,
beginning
of period $2,367.7 $2,367.6 $2,408.5 $2,422.0 $2,460.5
Net charge-offs
Commercial 100.9 123.9 122.9 137.9 136.7
Lease financing 14.9 19.2 26.9 23.0 58.2
Total
commercial 115.8 143.1 149.8 160.9 194.9
Commercial
mortgages 10.0 5.9 9.3 2.9 13.5
Construction
and development 2.9 4.6 2.5 1.0 (0.9)
Total
commercial
real estate 12.9 10.5 11.8 3.9 12.6
Residential
mortgages 7.2 7.3 6.5 5.9 6.6
Credit card 62.3 59.3 64.5 68.7 69.1
Retail leasing 11.3 12.2 12.6 13.9 10.7
Home equity and
second mortgages 20.4 23.2 23.9 25.4 24.4
Other retail 55.2 54.3 53.8 55.1 60.2
Total retail 149.2 149.0 154.8 163.1 164.4
Total net
charge-offs 285.1 309.9 322.9 333.8 378.5
Provision for
credit losses 286.0 310.0 323.0 335.0 349.0
Acquisitions and
other changes -- -- (41.0) (14.7) (9.0)
Balance, end
of period $2,368.6 $2,367.7 $2,367.6 $2,408.5 $2,422.0
Net charge-offs
to average
loans (%) 0.95 1.02 1.10 1.16 1.30
Allowance as a
percentage of:
Period-end loans 2.00 1.98 1.98 2.06 2.08
Nonperforming
loans 232 202 194 194 196
Nonperforming
assets 206 180 174 177 176
Credit Quality
The allowance for credit losses was $2,368.6 million at December 31, 2003,
compared with the allowance for credit losses of $2,367.7 million at
September 30, 2003, and $2,422.0 million at December 31, 2002. The ratio of
the allowance for credit losses to nonperforming loans was 232 percent at
December 31, 2003, compared with 202 percent at September 30, 2003, and
196 percent at December 31, 2002. The ratio of the allowance for credit
losses to period-end loans was 2.00 percent at December 31, 2003, compared
with 1.98 percent at September 30, 2003, and 2.08 percent at December 31,
2002. Total net charge-offs in the fourth quarter of 2003 were
$285.1 million, compared with the third quarter of 2003 net charge-offs of
$309.9 million and the fourth quarter of 2002 net charge-offs of
$378.5 million.
Commercial and commercial real estate loan net charge-offs were
$128.7 million for the fourth quarter of 2003, or .76 percent of average loans
outstanding, compared with $153.6 million, or .88 percent of average loans
outstanding, in the third quarter of 2003 and $207.5 million, or 1.19 percent
of average loans outstanding, in the fourth quarter of 2002. The decline in
net charge-offs was broad-based across most industries within the commercial
loan portfolio.
Retail loan net charge-offs of $149.2 million in the fourth quarter of
2003 were essentially flat to the third quarter of 2003 and $15.2 million
(9.2 percent) lower than the fourth quarter of 2002. Retail loan net
charge-offs as a percent of average loans outstanding were 1.53 percent in the
fourth quarter of 2003, compared with 1.54 percent and 1.74 percent in the
third quarter of 2003 and fourth quarter of 2002, respectively. Lower levels
of retail loan net charges-offs principally reflected the Company's
improvement in ongoing collection efforts and risk management.
CREDIT RATIOS Table 9
(Percent) 4Q 3Q 2Q 1Q 4Q
2003 2003 2003 2003 2002
Net charge-offs
ratios*
Commercial 1.14 1.33 1.35 1.54 1.47
Lease financing 1.19 1.52 2.11 1.78 4.27
Total commercial 1.15 1.35 1.44 1.57 1.83
Commercial
mortgages 0.20 0.12 0.19 0.06 0.27
Construction and
development 0.16 0.25 0.14 0.06 (0.05)
Total commercial
real estate 0.19 0.15 0.17 0.06 0.19
Residential
mortgages 0.21 0.24 0.24 0.24 0.29
Credit card 4.33 4.20 4.80 5.17 4.84
Retail leasing 0.76 0.83 0.88 0.98 0.75
Home equity and
second mortgages 0.62 0.70 0.72 0.76 0.71
Other retail 1.57 1.55 1.59 1.69 1.90
Total retail 1.53 1.54 1.63 1.75 1.74
Total net charge-offs 0.95 1.02 1.10 1.16 1.30
Delinquent loan
ratios - 90 days or
more past due
excluding
nonperforming loans**
Commercial 0.06 0.11 0.09 0.10 0.14
Commercial real
estate 0.02 0.01 0.02 0.03 0.04
Residential
mortgages 0.61 0.63 0.65 0.82 0.90
Retail 0.56 0.57 0.63 0.71 0.72
Total loans 0.28 0.29 0.30 0.34 0.37
Delinquent loan
ratios - 90 days or
more past due
including
nonperforming loans**
Commercial 1.97 2.31 2.27 2.33 2.35
Commercial real
estate 0.82 0.75 0.82 0.85 0.90
Residential
mortgages 0.91 0.98 1.13 1.37 1.44
Retail 0.62 0.63 0.70 0.77 0.79
Total loans 1.14 1.27 1.32 1.40 1.43
* annualized and calculated on average loan balances
** ratios are expressed as a percent of ending loan balances
The overall level of net charge-offs in the fourth quarter of 2003
continued to reflect current economic conditions. Due to the Company's
ongoing efforts to reduce the overall risk profile of the organization, net
charge-offs are expected to continue to trend lower.
ASSET QUALITY Table 10
($ in millions)
Dec 31 Sep 30 Jun 30 Mar 31 Dec 31
2003 2003 2003 2003 2002
Nonperforming loans
Commercial $623.5 $793.9 $795.2 $808.4 $760.4
Lease financing 113.3 111.6 126.6 129.4 166.7
Total
commercial 736.8 905.5 921.8 937.8 927.1
Commercial
mortgages 177.6 161.5 182.0 174.6 174.6
Construction and
development 39.9 40.2 35.3 46.1 57.5
Total commercial
real estate 217.5 201.7 217.3 220.7 232.1
Residential
mortgages 40.5 46.1 56.0 57.4 52.0
Retail 25.2 21.6 24.2 23.9 26.1
Total
nonperforming
loans 1,020.0 1,174.9 1,219.3 1,239.8 1,237.3
Other real estate 72.6 70.4 71.5 66.2 59.5
Other
nonperforming
assets 55.5 73.0 68.9 56.6 76.7
Total
nonperforming
assets* $1,148.1 $1,318.3 $1,359.7 $1,362.6 $1,373.5
Accruing loans
90 days or more
past due $329.4 $352.4 $360.7 $403.5 $426.4
Nonperforming
assets to loans
plus ORE (%) 0.97 1.10 1.14 1.16 1.18
* does not include accruing loans 90 days or more past due
Nonperforming assets at December 31, 2003, totaled $1,148.1 million,
compared with $1,318.3 million at September 30, 2003, and $1,373.5 million at
December 31, 2002. The ratio of nonperforming assets to loans and other real
estate was .97 percent at December 31, 2003, compared with 1.10 percent at
September 30, 2003, and 1.18 percent at December 31, 2002. Given the
Company's ongoing efforts to reduce the overall risk profile of the
organization, nonperforming assets are expected to continue to trend lower.
CAPITAL POSITION Table 11
($ in millions) Dec 31 Sep 30 Jun 30 Mar 31 Dec 31
2003 2003 2003 2003 2002
Total shareholders'
equity $19,242 $19,771 $19,521 $18,862 $18,436
Tier 1 capital 14,623 14,589 13,950 13,215 12,941
Total risk-based
capital 21,703 21,859 21,392 20,242 20,088
Common equity
to assets 10.2% 10.5% 10.0% 10.4% 10.2%
Tangible common
equity to assets 6.5 6.6 6.0 6.0 5.7
Tier 1 capital ratio 9.2 9.0 8.5 8.2 8.0
Total risk-based
capital ratio 13.6 13.5 13.0 12.6 12.4
Leverage ratio 8.0 8.0 7.8 7.6 7.7
Total shareholders' equity was $19.2 billion at December 31 2003, compared
with $18.4 billion at December 31, 2002. The increase was the result of
corporate earnings offset primarily by dividends, including the special
dividend of $685 million related to the spin-off of Piper Jaffray Companies.
Tangible common equity to assets was 6.5 percent at December 31, 2003,
compared with 6.6 percent at September 30, 2003, and 5.7 percent at
December 31, 2002. The Tier 1 capital ratio was 9.2 percent at December 31,
2003, compared with 9.0 percent at September 30, 2003, and 8.0 percent at
December 31, 2002. The total risk-based capital ratio was 13.6 percent at
December 31, 2003, compared with 13.5 percent at September 30, 2003, and
12.4 percent at December 31, 2002. The leverage ratio was 8.0 percent at
December 31, 2003, compared with 8.0 percent at September 30, 2003, and
7.7 percent at December 31, 2002. All regulatory ratios continue to be in
excess of stated "well capitalized" requirements.
COMMON SHARES Table 12
(Millions) 4Q 3Q 2Q 1Q 4Q
2003 2003 2003 2003 2002
Beginning shares
outstanding 1,927.4 1,924.5 1,919.0 1,917.0 1,914.7
Shares issued
for stock option
and stock
purchase plans,
acquisitions
and other
corporate
purposes 10.5 2.9 5.5 2.0 2.3
Shares
repurchased (15.0) -- -- -- --
Ending shares
outstanding 1,922.9 1,927.4 1,924.5 1,919.0 1,917.0
On December 16, 2003, the board of directors of U.S. Bancorp approved an
authorization to repurchase 150 million shares of outstanding common stock
over the next 24 months. This repurchase program replaced the Company's
previous program, which was set to expire in December 2003. During the fourth
quarter of 2003, the Company repurchased 15.0 million shares of common stock
in both open market and privately negotiated transactions under these
authorizations. As of December 31, 2003, there were approximately 142 million
shares remaining to be repurchased under the current authorization.
LINE OF BUSINESS FINANCIAL PERFORMANCE* Table 13
($ in millions)
Net Operating Earnings** Percent Change
4Q 3Q 4Q 4Q03 vs 4Q03 vs
Business Line 2003 2003 2002 3Q03 4Q02
Wholesale
Banking $307.2 $308.7 $262.1 (0.5) 17.2
Consumer
Banking 419.8 440.8 390.5 (4.8) 7.5
Private Client,
Trust and
Asset
Management 134.5 129.8 111.3 3.6 20.8
Payment
Services 196.6 189.0 214.2 4.0 (8.2)
Treasury and
Corporate
Support (82.8) (120.9) (49.6) 31.5 (66.9)
Consolidated
Company $975.3 $947.4 $928.5 2.9 5.0
* preliminary data
** earnings before merger and restructuring-related items, discontinued
operations and cumulative effect of change in accounting principles
Full Full 4Q 2003
Year Year Percent Earnings
2003 2002 Change Composition
Wholesale Banking $1,195.3 $1,115.7 7.1 31%
Consumer Banking 1,688.4 1,521.0 11.0 43
Private Client, Trust
and Asset Management 506.5 456.7 10.9 14
Payment Services 732.8 704.6 4.0 20
Treasury and
Corporate Support (382.5) (360.7) (6.0) (8)
Consolidated Company $3,740.5 $3,437.3 8.8 100%
* preliminary data
** earnings before merger and restructuring-related items, discontinued
operations and cumulative effect of change in accounting principles
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, 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. During 2003,
certain organization and methodology changes were made and, accordingly,
results for 2003 and 2002 have been restated and presented on a comparable
basis.
Wholesale Banking offers lending, depository, treasury management and
other financial services to middle market, large corporate and public sector
clients. Wholesale Banking contributed $307.2 million of the Company's
operating earnings in the fourth quarter of 2003, a 17.2 percent increase over
the same period of 2002, but slightly less than the third quarter of 2003.
The increase in Wholesale Banking's fourth quarter 2003 contribution over the
fourth quarter of 2002 was the result of essentially flat net revenue, lower
noninterest expense (8.4 percent), and a favorable variance in the provision
for credit losses (45.6 percent). Total net revenue in the fourth quarter of
2003 was essentially flat to the fourth quarter of 2002, the net effect of an
unfavorable variance in net interest income (1.3 percent) and higher
noninterest income (3.8 percent). The decrease in net interest income was
primarily due to declines in average total loans outstanding (3.7 percent),
partially offset by increases in average total deposits (20.4 percent).
Higher cash management fees (20.0 percent) primarily drove Wholesale Banking's
favorable variance in noninterest income year-over-year. The increase in cash
management fees was principally driven by a change during the third quarter of
2003 in the Federal government's payment methodology for treasury management
services from compensating balances to fees. Wholesale Banking's favorable
variance in noninterest expense year-over-year was driven by a decrease in
other expense, the result of lower loan workout-related expense relative to
the fourth quarter of 2002. The slight decrease in Wholesale Banking's
contribution to operating earnings in the fourth quarter of 2003 from the
third quarter of 2003 was the net result of an unfavorable variance in net
revenue (3.7 percent) and higher noninterest expense (6.2 percent), offset by
a favorable reduction in the provision for credit losses (26.8 percent). Net
revenue in the fourth quarter of 2003 was lower than the previous quarter due
to decreases in both net interest income (3.1 percent) and noninterest income
(5.1 percent). The change in net interest income reflected reductions from
the prior quarter in the business line's average loans outstanding and average
deposits, while declines in cash management fees and commercial products
revenue led to the unfavorable variance in noninterest income quarter to
quarter. The increase in noninterest expense was principally due to higher
legal and professional expenses. Lower net charge-offs from improving credit
quality drove the favorable variance in provision for credit losses.
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
contributed $419.8 million of the Company's operating earnings in the fourth
quarter of 2003, a 7.5 percent increase over the same period of 2002, but a
4.8 percent decline from the third quarter of 2003. The increase in Consumer
Banking's fourth quarter 2003 contribution over the fourth quarter of 2002 was
the result of lower noninterest expense (7.6 percent) and provision for credit
losses (16.5 percent), partially offset by an unfavorable variance in net
revenue (1.3 percent). Net interest income improved year-over-year
(1.8 percent), the result of increases in average loans and average deposits,
as well as the acquisition of the Bay View Bank branches in California.
Noninterest income also improved in the fourth quarter of 2003 over the same
period of 2002, primarily due to positive changes in mortgage banking revenue
and investment products fees and commissions. Offsetting the favorable
variances in net interest income and noninterest income was a net reduction in
gains (losses) on the sale of securities of $38.3 million. Noninterest
expense in the fourth quarter of 2003 was lower than the fourth quarter of
2002 (7.6 percent), mainly due to the change in MSR valuation, partly offset
by the impact of the acquisition of the Bay View Bank branches. The decline
in Consumer Banking's contribution in the fourth quarter of 2003 from the
third quarter of 2003 was primarily the result of a decrease in net interest
income (2.7 percent). Variances in noninterest income and noninterest expense
were largely offsetting due to the change in MSR valuation and the net
reduction in gains (losses) on sale of securities, respectively, quarter to
quarter.
Private Client, Trust and Asset Management provides trust, private
banking, financial advisory, investment management and mutual fund processing
services through five businesses: Private Client Group, Corporate Trust, Asset
Management, Institutional Trust and Custody, and Custody and Fund Services,
LLC. Private Client, Trust and Asset Management contributed $134.5 million of
the Company's operating earnings in the fourth quarter of 2003, 20.8 percent
higher than the same period of 2002 and 3.6 percent higher than the third
quarter of 2003. The favorable variance in the business line's contribution
in the fourth quarter of 2003 over the fourth quarter of 2002 was the result
of a favorable variance in net revenue (18.4 percent), partly offset by an
unfavorable variance in noninterest expense of (16.9 percent). The increase
in net revenue was primarily due to the acquisition of State Street Corporate
Trust, which added approximately $30.5 million of net revenue in the fourth
quarter of 2003, and increases due to higher equity market valuations and core
account growth. Higher total deposit balances (48.2 percent) favorably
impacted net interest income year-over-year. The unfavorable variance in
expense was, also, primarily due to the acquisition of State Street Corporate
Trust, partly offset by business line cost savings year-over-year. The
increase in the business line's contribution (3.6 percent) in the fourth
quarter of 2003 over the prior quarter of 2003 was the result of higher net
revenue (1.4 percent), lower noninterest expense (1.0 percent) and a
$1.3 million decrease in the provision for credit losses. The increase in net
interest income from the third quarter of 2003 to the fourth quarter of 2003
was primarily driven by an increase in average total deposits (4.7 percent),
while noninterest income benefited from higher equity market valuations,
annual fees and core customer growth.
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 contributed
$196.6 million of the Company's operating earnings in the fourth quarter of
2003, an 8.2 percent decrease from the same period of 2002, but a 4.0 percent
increase over the third quarter of 2003. The decline in Payment Services'
contribution in the fourth quarter of 2003 from the same period of 2002 was
the result of lower net revenue (7.2 percent), partially offset by a decline
in noninterest expense (5.8 percent) and a lower provision for credit losses
(6.3 percent). The reduction in net revenue year-over-year was primarily due
to lower net interest income (12.2 percent), which reflected lower spreads on
retail credit cards and a reduction in loan fees relative to the prior year's
quarter, in addition to a reduction in other revenue. Other revenue decreased
due to gains of $46.5 million on the sale of a co-branded credit card loan
portfolio that was completed in the fourth quarter of 2002. Partially
offsetting these declines were growth in credit and debit card revenue
(6.7 percent), corporate payment products revenue (10.3 percent) and merchant
processing services revenue (2.8 percent). Although credit and debit card
revenue was negatively impacted in the fourth quarter of 2003 by the VISA
debit card settlement and higher customer loyalty rewards expenses, increases
in transaction volumes and other rate adjustments more than offset these
detrimental changes. Noninterest expense declined (5.8 percent) in the fourth
quarter of 2003 from the fourth quarter of 2002, primarily due to savings from
the completion of systems integration activity. The increase in Payment
Services' contribution in the fourth quarter of 2003 over the previous quarter
was primarily due to seasonally higher net revenue from retail credit and
debit card products, partially offset by seasonally lower corporate payment
products revenue and higher provision for credit losses.
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 business activities managed on a corporate basis,
including enterprise-wide operations and administrative support functions.
Treasury and Corporate Support recorded an operating loss of ($82.8) million
in the fourth quarter of 2003, compared with operating losses of
($49.6) million in the fourth quarter of 2002 and ($120.9) million in the
third quarter of 2003. The increase in the loss year-over-year was largely
the result of a decrease in net revenue (10.6 percent) and a $29.6 million
increase in provision for credit losses relative to the fourth quarter of
2002. The decline in net revenue from the fourth quarter of 2002 was
primarily due to a net reduction in gains (losses) on the sale of securities.
The decrease in the business line's loss in the fourth quarter of 2003 from
the third quarter of 2003 was the result of favorable variances in net revenue
(18.5 percent) and noninterest expense (5.0 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.
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, JERRY A. GRUNDHOFER, AND
VICE CHAIRMAN AND CHIEF FINANCIAL OFFICER, DAVID M. MOFFETT, WILL HOST A
CONFERENCE CALL TO REVIEW THE FINANCIAL RESULTS ON TUESDAY, January 20, 2004,
AT 1:00 p.m. (CST). To access the conference call, please dial 800-245-3043
and ask for the U.S. Bancorp earnings conference call. Participants calling
from outside the United States, please call 785-832-2422. For those unable to
participate during the live call, a recording of the call will be available
approximately one hour after the conference call ends on Tuesday, January 20,
2004, and will run through Tuesday, January 27, 2004, at 11:00 p.m. (CST). To
access the recorded message dial 888-566-0152. If calling from outside the
United States, please dial 402-220-9186.
Minneapolis-based U.S. Bancorp ("USB"), with $189 billion in assets, is
the 8th largest financial services holding company in the United States. The
company operates 2,243 banking offices and 4,425 ATMs, and provides a
comprehensive line of banking, brokerage, insurance, investment, mortgage,
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 statements often include
the words "may," "could," "would," "should," "believes," "expects,"
"anticipates," "estimates," "intends," "plans," "targets," "potentially,"
"probably," "projects," "outlook" or similar expressions. These
forward-looking statements cover, among other things, anticipated future
revenue and expenses, 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) inflation, changes in securities market
conditions and monetary fluctuations could adversely affect 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) changes in consumer spending and savings habits could adversely
affect the Company's results of operations; (viii) changes in the financial
performance and condition of the Company's borrowers could negatively affect
repayment of such borrowers' loans; (ix) acquisitions may not produce revenue
enhancements or cost savings at levels or within time frames originally
anticipated, or may result in unforeseen integration difficulties; (x) capital
investments in the Company's businesses may not produce expected growth in
earnings anticipated at the time of the expenditure; and (xi) acts or threats
of terrorism, and/or political and military actions taken by the U.S. or other
governments in response to acts or threats of terrorism or otherwise could
adversely affect general economic or industry conditions. 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) 2003 2002 2003 2002
Interest Income
Loans $1,796.0 $1,913.6 $7,272.0 $7,743.0
Loans held for sale 31.3 57.5 202.2 170.6
Investment securities
Taxable 432.5 372.1 1,654.6 1,438.2
Non-taxable 6.3 10.3 29.4 46.1
Other interest income 21.6 27.9 99.8 96.0
Total interest income 2,287.7 2,381.4 9,258.0 9,493.9
Interest Expense
Deposits 245.1 343.7 1,096.6 1,485.3
Short-term borrowings 43.5 41.6 166.8 222.9
Long-term debt 166.0 205.3 702.2 834.8
Company-obligated mandatorily
redeemable preferred securities
of subsidiary trusts holding
solely the junior subordinated
debentures of the parent company 23.6 33.2 103.1 136.6
Total interest expense 478.2 623.8 2,068.7 2,679.6
Net interest income 1,809.5 1,757.6 7,189.3 6,814.3
Provision for credit losses 286.0 349.0 1,254.0 1,349.0
Net interest income after
provision for credit losses 1,523.5 1,408.6 5,935.3 5,465.3
Noninterest Income
Credit and debit card revenue 153.4 143.7 560.7 517.0
Corporate payment products revenue 88.7 80.4 361.3 325.7
ATM processing services 40.3 41.7 165.9 160.6
Merchant processing services 146.0 142.0 561.4 567.3
Trust and investment management
fees 246.6 213.6 953.9 892.1
Deposit service charges 186.6 186.4 715.8 690.3
Cash management fees 116.3 102.6 466.3 416.9
Commercial products revenue 98.5 108.3 400.5 479.2
Mortgage banking revenue 91.9 88.4 367.1 330.2
Investment products fees and
commissions 36.2 35.0 144.9 132.7
Securities gains (losses), net (.1) 106.2 244.8 299.9
Other 92.2 137.4 370.4 398.8
Total noninterest income 1,296.6 1,385.7 5,313.0 5,210.7
Noninterest Expense
Salaries 539.4 545.1 2,176.8 2,167.5
Employee benefits 81.3 83.0 328.4 317.5
Net occupancy 91.9 96.1 372.6 375.9
Furniture and equipment 69.7 71.6 271.1 282.8
Communication 37.8 38.5 157.2 145.7
Postage 43.2 41.7 175.8 172.4
Other intangible assets 124.2 156.7 682.4 553.0
Merger and restructuring-related
charges 7.6 107.3 46.2 321.2
Other 347.3 346.6 1,386.4 1,404.5
Total noninterest
expense 1,342.4 1,486.6 5,596.9 5,740.5
Income from continuing operations
before income taxes and
cumulative effect of
accounting change 1,477.7 1,307.7 5,651.4 4,935.5
Applicable income taxes 507.4 449.1 1,941.3 1,707.5
Income from continuing operations
before cumulative effect of
accounting change 970.3 858.6 3,710.1 3,228.0
Income (loss) from discontinued
operations (after-tax) 6.7 (38.9) 22.5 (22.7)
Cumulative effect of accounting
change (after-tax) -- -- -- (37.2)
Net income $977.0 $819.7 $3,732.6 $3,168.1
Earnings Per Share
Income from continuing
operations before cumulative
effect of accounting change $.50 $.45 $1.93 $1.68
Discontinued operations .01 (.02) .01 (.01)
Cumulative effect of
accounting change -- -- -- (.02)
Net income $.51 $.43 $1.94 $1.65
Diluted Earnings Per Share
Income from continuing
operations before cumulative
effect of accounting change $.50 $.45 $1.92 $1.68
Discontinued operations -- (.02) .01 (.01)
Cumulative effect of
accounting change -- -- -- (.02)
Net income $.50 $.43 $1.93 $1.65
Dividends declared per share $.240 $.195 $.855 $.780
Average common shares 1,927.3 1,916.2 1,923.7 1,916.0
Average diluted common shares 1,950.8 1,923.6 1,936.2 1,924.8
U.S. Bancorp
Consolidated Ending Balance Sheet
December 31, December 31,
(Dollars in Millions) 2003 2002
Assets
Cash and due from banks $8,630 $10,758
Investment securities
Held-to-maturity 152 233
Available-for-sale 43,182 28,255
Loans held for sale 1,433 4,159
Loans
Commercial 38,526 41,944
Commercial real estate 27,242 26,867
Residential mortgages 13,457 9,746
Retail 39,010 37,694
Total loans 118,235 116,251
Less allowance for credit
losses (2,369) (2,422)
Net loans 115,866 113,829
Premises and equipment 1,957 1,697
Customers' liability on acceptances 121 140
Goodwill 6,025 6,325
Other intangible assets 2,124 2,321
Other assets 9,796 12,310
Total assets $189,286 $180,027
Liabilities and Shareholders' Equity
Deposits
Noninterest-bearing $32,470 $35,106
Interest-bearing 74,749 68,214
Time deposits greater than
$100,000 11,833 12,214
Total deposits 119,052 115,534
Short-term borrowings 10,850 7,806
Long-term debt 31,215 28,588
Company-obligated mandatorily
redeemable preferred securities of
subsidiary trusts holding solely the
junior subordinated debentures of the
parent company 2,601 2,994
Acceptances outstanding 121 140
Other liabilities 6,205 6,529
Total liabilities 170,044 161,591
Shareholders' equity
Common stock 20 20
Capital surplus 5,851 5,799
Retained earnings 14,508 13,105
Less treasury stock (1,205) (1,272)
Other comprehensive income 68 784
Total shareholders' equity 19,242 18,436
Total liabilities and
shareholders' equity $189,286 $180,027
SOURCE U.S. Bancorp
