US Bank 2001 Annual Report Download - page 20

Reconciliation of Operating Earnings(a) to Net Income in Accordance with GAAP
Year Ended December 31 (Dollars in Millions) 2001 2000 1999 1998 1997
Operating earnings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 2,550.8 $3,106.9 $2,799.0 $2,519.3 $2,123.9
Merger and restructuring-related items
Gains on the sale of branches ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 62.2 Ì Ì 48.1 Ì
Integration, conversion and other chargesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (946.4) (348.7) (355.1) (593.8) (633.0)
Securities losses to restructure portfolio ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì (177.7) Ì Ì
Provision for credit losses(b) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (382.2) Ì (7.5) (37.9) (20.3)
Pretax impactÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,266.4) (348.7) (540.3) (583.6) (653.3)
Applicable tax beneÑtÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 422.1 117.4 123.1 197.2 128.7
Net income in accordance with GAAP ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1,706.5 $2,875.6 $2,381.8 $2,132.9 $1,599.3
(a) The Company analyzes its performance on a net income basis in accordance with accounting principles generally accepted in the United States, as well as on an operating basis
before merger and restructuring-related items referred to as ""operating earnings.'' Operating earnings are presented as supplemental information to enhance the readers'
understanding of, and highlight trends in, the Company's Ñnancial results excluding the impact of merger and restructuring-related items of speciÑc business acquisitions and
restructuring activities. Operating earnings should not be viewed as a substitute for net income and earnings per share as determined in accordance with accounting principles
generally accepted in the United States. Merger and restructuring-related items excluded from net income to derive operating earnings may be signiÑcant and may not be
comparable to other companies.
(b) Provision for credit losses in 2001 includes losses of $201.3 million on the disposition of an unsecured small business credit line portfolio, losses of $76.6 million on the sales of
high loan-to-value home equity and indirect automobile loan portfolios, $90.0 million of charges to align credit policies and risk management practices, and $14.3 million to
restructure a co-branding credit card relationship.
Acquisition and Divestiture Activity In addition to stock was exchanged for 2.091 shares of Firstar common
restating all prior periods to reÖect the merger of Firstar stock. Refer to Note 3 and Note 4 of the Notes to
and USBM, operating results for 2001 reÖect the following Consolidated Financial Statements for additional
transactions accounted for as purchases from the date of information regarding business combinations.
completion. On July 24, 2001, the Company acquired On January 18, 2002, the Company announced a
NOVA, the nation's third largest merchant processing deÑnitive agreement to acquire The Leader Mortgage
service provider, in a stock and cash transaction valued at Company, LLC (""Leader''), a wholly owned subsidiary of
approximately $2.1 billion. On September 7, 2001, the First DeÑance Financial Corporation, in a cash transaction.
Company acquired PaciÑc Century Bank in a cash Leader specializes in acquiring servicing of loans originated
transaction. The acquisition included 20 branches located in for state and local housing authorities. Leader had
Southern California with approximately $712 million in $506 million in assets at December 31, 2001. In 2001, it
deposits and $570 million in loans. On October 13, 2000, had $2.1 billion in mortgage production and an $8.6 billion
the Company acquired Scripps Financial Corporation of San servicing portfolio at December 31, 2001. The transaction is
Diego, which had 10 branches in San Diego County and expected to close in the second quarter of 2002.
total assets of $650 million. On September 28, 2000, the STATEMENT OF INCOME ANALYSIS
Company acquired Lyon Financial Services, Inc., a wholly
owned subsidiary of the privately held Schwan's Sales Net Interest Income Net interest income on a taxable-
Enterprises Inc. in Marshall, Minnesota. Lyon Financial equivalent basis was $6.5 billion in 2001, compared with
specializes in small-ticket lease transactions and had $6.1 billion in 2000 and $5.9 billion in 1999. The
$1.3 billion in assets. On April 7, 2000, the Company 5.4 percent increase in 2001 as compared with 2000 was
acquired Oliver-Allen Corporation, Inc., a privately held due to improving net interest margin and growth in average
information technology equipment leasing company with earning assets. The net interest margin in 2001 was
total assets of $280 million. On January 14, 2000, the 4.45 percent, compared with 4.36 percent in 2000. The
Company acquired Peninsula Bank of San Diego, which had improvement in the net interest margin was due to the
11 branches in San Diego County and total assets of funding beneÑt of the declining rate environment and
$491 million. In addition to these business combinations, improved spreads due to product re-pricing dynamics and
the Company purchased 41 branches in Tennessee from loan conduit activities. This was oÅset somewhat by the
First Union National Bank on December 8, 2000, Ñrst quarter 2001 sales of the high loan-to-value (""LTV'')
representing approximately $450 million in assets and home equity portfolios and lower yields on the investment
$1.8 billion in deposits. portfolio. Average earning assets for 2001 increased
On September 20, 1999, Firstar and Mercantile $4.6 billion (3.2 percent) over 2000. The increase was
Bancorporation, Inc. (""Mercantile'') merged in a pooling- primarily driven by increases in the investment portfolio,
of-interests transaction and accordingly all Ñnancial core retail loan growth and the impact of acquisitions. This
information has been restated to include the historical growth was partially oÅset by a $2.7 billion decline in
information of both companies. Each share of Mercantile lower margin residential mortgages and a $2.2 billion
U.S. Bancorp
Table 2
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