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2002 Annual Report and Form 10-K
Service Guaranteed
Five Star

Table of contents

  • Page 1
    2002 Annual Report and Form 10-K Five Star Service Guaranteed

  • Page 2
    ...customer service is a key element in our recruiting practices, our training programs and our employee compensation structure. Help us recognize U.S. Bank employees who exemplify Five Star Service by nominating a candidate for our prestigious Circle of Service Excellence using the business reply card...

  • Page 3
    ...Payment Services Line of Business Highlights: Private Client, Trust & Asset Management, Wholesale Banking, Capital Markets U.S. Bank Hispanic Initiative Every Community Counts Profile U.S. Bancorp is a multi-state financial holding company with headquarters in Minneapolis, Minnesota. U.S. Bancorp...

  • Page 4
    ... Average Assets (Operating Basis)(a) Return on Average Assets Return on Average Equity (Operating Basis)(a) Return on Average Equity Dividend Payout Ratio (Operating Basis)(a) Dividend Payout Ratio Net Interest Margin (Taxable-Equivalent Basis) (In Percents) 5.00 3.75 2.50 1.25 0 4.61 Efficiency...

  • Page 5
    ...efficiency ratio (c) ...Average Balances Loans ...Investment securities ...Earning assets ...Assets ...Deposits ...Total shareholders' equity ...Period End Balances Loans ...Allowance for credit losses ...Investment securities ...Assets ...Deposits ...Total shareholders' equity ...Regulatory capital...

  • Page 6
    ... schedule and met or exceeded our high expectations. We are now a rarity in our industry - a 24-state, $180 billion corporation doing business on a totally unified, single operating system for all of our markets and all of our customers. The service, cost, accuracy and responsiveness advantages of...

  • Page 7
    ... hard to earn. Our shareholders, customers, communities and employees demand - and deserve - to do business with companies they can trust. U.S. Bancorp operates with uncompromising honesty and integrity. Our Board of Directors has had a Corporate Governance Committee for many years. We have adopted...

  • Page 8
    .... Customers can withdraw funds, make deposits, check balances, receive statements, order checks, purchase phone minutes and stamps, transfer funds between accounts and request check copies. To deliver on our commitment of convenience, nearly one-half of the ATMs owned by U.S. Bank are located in...

  • Page 9
    ... call center bankers reached an average of 15,000 each month, representing a 131 percent annual increase. Personalized service, account information, product sales, and more - all with one phone call to U.S. Bank. E-Enabling Customers with Online Capabilities Our nationally recognized Internet web...

  • Page 10
    ... strengthen a customer's existing banking relationship with us, providing opportunities for increased sales and service across every line of business, from credit cards and trust products to home mortgages and investments and insurance products. Among other support programs, employees are regularly...

  • Page 11
    ... Bank Cash Rewards Visa Card. • Verified By Visa ® A new security feature that lets customers add a personal password to their existing U.S. Bank Check Card and U.S. Bank Credit Card. • Private Select Platinum Services • U.S. Bank Access Online A web-based program management and reporting...

  • Page 12
    ...program, easy-to-use customer screens, a streamlined transfer function, online account opening and the ability to nickname accounts. • U.S. Bank Internet Bill Pay reached 100,000 subscribers offering free checking for small business owners, their businesses and their employees. • Home Mortgage...

  • Page 13
    ... retail payment solutions; includes credit, debit and stored value cards through U.S. Bank, correspondent agent banks and co-brand partners Successes • We upgraded an additional 1,376 ATMs to meet the enhanced functionality of our network of 3,408 Super ATMs. Innovative products and services...

  • Page 14
    ... Private Client Group - Private Banking - Personal Trust - Investment Management - Financial and Estate Planning • U.S. Bancorp Asset Management, Inc. - Private Asset Management - Securities Lending - Institutional Advisory - First American FundsTM • U.S. Bancorp Fund Services, LLC - Mutual Fund...

  • Page 15
    ...check). • Enhanced imaging functionality and Internet access for lockbox customers. • U.S. Bancorp Equipment Finance ended 2002 with record bookings in the small ticket leasing group. • Corporate Banking Capital Markets had a record year using interest rate risk manage- ment products to help...

  • Page 16
    .... First-time borrowers can qualify for credit using our Credit Builder Secured Loan and the Secured Visa Card, and U.S. Bank is a partner in the En Su Casa program to provide homeownership counseling and ï¬,exible mortgages. We reach out to Hispanic-owned businesses in face-toface meetings, calling...

  • Page 17
    ... Bancorp Foundation 2002 Charitable Contributions by Program Area 30% United Way & Human Services 26% Economic Opportunity 19% Arts & Culture 16% Education 6% Employee Matching Gifts 3% Miscellaneous Local Bank Management and Bank Advisory Boards Ensure Focus on Each Market Our bank is structured...

  • Page 18
    ...growth, on a taxable-equivalent basis, excluding merger and restructuring-related gains, of 8.4 percent. This growth was driven by strong core growth in consumer and payment processing revenues, cash management fees, and mortgage banking as well as the impact of acquisitions. This revenue growth was...

  • Page 19
    ...-equivalent basis Efficiency ratio Average Balances Loans Loans held for sale Investment securities Earning assets Assets Noninterest-bearing deposits Deposits Short-term borrowings Long-term debt Total shareholders' equity Period End Balances Loans Allowance for credit losses...

  • Page 20
    ... effect of change in accounting 18 U.S. Bancorp principles, referred to in this Annual Report and Form 10-K as ''operating earnings.'' Management believes that separately capturing merger and restructuring-related items in the income statement is important because each acquisition transaction is...

  • Page 21
    ... Trust assets under administration will be transferred to the Company or its affiliated mutual funds. On November 1, 2002, the Company acquired 57 branches and a related operations facility in California from Bay View Bank, a wholly owned subsidiary of Bay View Capital Corporation, in a cash...

  • Page 22
    ..., reï¬,ecting strong growth in average retail loans and residential mortgages of $3.1 billion (9.1 percent) and Company announced that its Board of Directors approved a plan to effect a spin-off of its capital markets business unit, including investment banking and brokerage activities primarily...

  • Page 23
    ...in lower margin residential mortgages and a $2.2 billion reduction related to transfers of high credit quality commercial loans to the loan conduit. Average investment securities were $4.6 billion (26.6 percent) higher in 2001, compared with 2000, reflecting net purchases of Table 3 Analysis of Net...

  • Page 24
    ... Yield/Rate Total Volume 2001 v 2000 Yield/Rate Total Increase (decrease) in Interest income Commercial loans Commercial real estate Residential mortgages Retail loans Total loans Loans held for sale Investment securities Money market investments Trading securities Other earning assets...

  • Page 25
    ... 2001 v 2000 Credit and debit card revenue Corporate payment products revenue ATM processing services Merchant processing services Trust and investment management fees Deposit service charges Cash management fees Commercial products revenue Mortgage banking revenue Trading account profits...

  • Page 26
    ...Furniture and equipment Professional services Advertising and marketing Travel and entertainment Capitalized software Data processing Communication Postage Printing Goodwill Other intangible assets Other Total operating noninterest expense Merger and restructuring-related charges Total...

  • Page 27
    ... support functions. Offsetting these higher costs was a reduction in capital markets-related expenses, the elimination of $251.1 million of goodwill amortization in connection with new accounting principles adopted in 2002 and a reduction in asset write-downs of $52.6 million related to commercial...

  • Page 28
    ... of recent market performance and the results of the independent analysis, the Company made a decision to re-measure its pension plans effective in the third quarter of 2002 based on current information with respect to asset values, a reduction in the LTROR, discount rates, census data and other...

  • Page 29
    ... costs related to cash balance accounts and actual changes in employee demographics, such as retirement age. Excluding the impact of the one-time curtailment gain in 2002, the net increase in pension cost relative to 2002 will be approximately $8.3 million. As discussed above, investment and funding...

  • Page 30
    ..., $8.6 million related to the State Street Corporate Trust acquisition and $7.2 million as a result of other smaller acquisitions. Merger and restructuring-related items in 2001 included $382.2 million in the provision for credit losses, a $62.2 million gain on the required sale of branches and $946...

  • Page 31
    ... ended 2001. The change in 2002 primarily relates to leasing activities and unrealized appreciation in securities available-for-sale and financial instruments. For further information on income taxes, refer to Note 20 of the Notes to Consolidated Financial Statements. BALANCE SHEET ANALYSIS Average...

  • Page 32
    ...Loans Percent Industry Group (Dollars in Millions) Consumer products and services Financials Capital goods Commercial services and supplies Agriculture Transportation Consumer staples Private investors Paper and forestry products, mining and basic materials Health care Property management...

  • Page 33
    ...in small business administration lending, while real estate construction and development loans remained essentially ï¬,at compared with a year ago. Average commercial real estate loans were essentially ï¬,at at $25.7 billion in 2002, compared with $26.1 billion in 2001. Table 9 provides a summary of...

  • Page 34
    ... the growth in average retail loans in 2002, compared with 2001, were portfolio sales of $1.3 billion in 2001 related to the high loan-tovalue home equity portfolio and indirect automobile loans. Table 10 Selected Loan Maturity Distribution December 31, 2002 (Dollars in Millions) One Year or Less...

  • Page 35
    ...$28,255 Note: Information related to asset and mortgage-backed securities included above is presented based upon weighted average maturities anticipating future prepayments. Average yields are presented on a fully-taxable equivalent basis. Yields on available-for-sale securities are computed based...

  • Page 36
    ... bank acquisitions and branch divestitures and management's pricing decisions to change the mix of funding toward lower rate wholesale funding sources. Table 12 provides a summary of total deposits by type of deposit. Borrowings The Company utilizes both short-term and long-term borrowings to fund...

  • Page 37
    ..., operational, interest rate, market and liquidity. Credit risk is the risk of not collecting the interest and/or the principal balance of a loan or investment when it is due. Residual risk is the potential reduction in the end-of-term value of leased assets or the residual cash ï¬,ows related to...

  • Page 38
    ... and specialized products such as asset-based lending, commercial lease financing, agricultural credit, warehouse mortgage lending, commercial real estate, health care and correspondent banking. The Company also offers an array of retail lending products including credit cards, retail leases, home...

  • Page 39
    ... million of loan charge-offs relating to the Company's accelerated loan workout strategy and $90 million of loan write-offs to conform risk management practices, align loan charge-off policies and expedite the transition out of a specific segment of the health care portfolio not meeting the lower...

  • Page 40
    ... in nonperforming retail loans. The increase in nonperforming commercial and commercial real estate assets was principally due to the Company's exposure to certain communications, cable, manufacturing and highly leveraged enterprise value financings. Nonperforming loans in the capital goods sector...

  • Page 41
    ... assets to total loans plus other real estate Net interest lost on nonperforming loans ****** $ $ Delinquent Loan Ratios (as a percent of ending loan balances) 90 days or more past due excluding nonperforming loans At December 31, 2002 2001 2000 1999 1998 Commercial Commercial Lease...

  • Page 42
    ... merger and restructuring-related credit actions and management's extensive review of the commercial loan portfolio in light of economic conditions. The level of the allowance was also impacted by risk rating changes by regulators of shared national credits agented by other banks, Company-speci...

  • Page 43
    ... Total commercial real estate Residential mortgages Retail Credit card Retail leasing Home equity and second mortgages Other retail Total retail Total net charge-offs Provision for credit losses Losses from loan sales/transfers (a Acquisitions and other changes Balance at end of year...

  • Page 44
    ... analysis. Although the Company's level of commercial and commercial real estate loans in higher risk loan categories declined approximately 11 percent, the level of nonperforming loans continued at elevated levels and increased by 22.6 percent in 2002. The change from year-end 2000 to year-end...

  • Page 45
    ... adjust its estimate of losses based on the most recent information available. Refer to Note 1 of the Notes to Consolidated Financial Statements for accounting policies related to the allowance for credit losses. Residual Risk Management The Company manages its risk to changes in the value of lease...

  • Page 46
    ... with applicable regulatory standards, adverse business decisions or their implementation, and customer attrition due to potential negative publicity. The Company operates in many different businesses in diverse markets and relies on the ability of its employees and systems to process a high number...

  • Page 47
    ..., networks and data centers supporting customer applications and business operations. The Company's internal audit function validates the system of internal controls through risk-based, regular and ongoing audit procedures and reports on the effectiveness of internal controls to executive management...

  • Page 48
    ... with its mortgage banking operations, the Company enters into forward commitments to sell mortgage loans related to fixed-rate mortgage loans held for sale and fixed-rate mortgage loan commitments. The Company actively trades foreign exchange contracts to meet customer business needs and acts as...

  • Page 49
    ..., subject to approval by the Company's Board of Directors. The Company's VaR limit was $40 million at December 31, 2002 and 2001. The market valuation risk inherent in its customer-based derivative trading, mortgage banking pipeline, broker-dealer activities (including equities, U.S. Bancorp 47

  • Page 50
    ... debt Preferred stock Commercial paper Aa3 A1 A2 P-1 P-1 Aa2 Aa2/P-1 Aa3 A A- BBB+ A-1 A-1 A+ A+/A-1 A F1 A+ A A F1 F1+ AA- A+/F1+ A U.S. Bank National Association Short-term time deposits Long-term time deposits Bank notes Subordinated debt fixed-income, and high-yield securities) and...

  • Page 51
    ...loan securitization. The remaining assets from the securitization were recorded on the Company's balance sheet at fair value. The unsecured small business credit securitization held $652.4 million in assets at December 31, 2002, of which the Company retained $150.1 million of subordinated securities...

  • Page 52
    ... trust that is funded by variable rate certificates that reprice weekly. The Company retains a residual interest in each structure that is accounted for as a trading asset and is recorded at fair value. The purpose of the arrangements is to meet our customer demands for variable rate tax-free...

  • Page 53
    ... risk-based capital ratio was primarily related to the issuance of $1.0 billion of subordinated debt in 2002. All regulatory ratios, at both the bank and bank holding company level, continue to be in excess of stated ''well capitalized'' requirements. Table 20 provides a summary of tier 1 and total...

  • Page 54
    ... assets Return on average equity Efficiency ratio Banking efficiency ratio (b 2.05% 20.4 48.3 44.1 1.85% 18.6 50.4 46.6 (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...

  • Page 55
    ... line of business. Cash management fees revenue grew primarily due to growth in core business, product enhancements and lower earning credit rates to customers. Mortgage banking revenue was higher due to the acquisition of Leader in April 2002. Mortgage originations and sales and loan servicing...

  • Page 56
    ...income $ 1,469.7 $ 1,330.8 Average Balance Sheet Data Commercial 31,699 $ 37,586 Commercial real estate 16,113 16,959 Residential mortgages 167 157 Retail 136 221 Total loans Goodwill Other intangible assets Assets Noninterest-bearing deposits Savings products Time deposits 48,115 1,331...

  • Page 57
    ... management in response to changes in economic conditions. The Private Client, Trust and Asset Management 2002 Percent 2001 Change 2002 Payment Services Percent 2001 Change 2002 Capital Markets Percent 2001 Change Treasury and Corporate Support 2002 Percent 2001 Change Consolidated Company 2002...

  • Page 58
    ... core retail loan growth of 12.6 percent in 2002 offset by a decline of 4.1 percent in commercial and commercial real estate loans. The change in average deposits included core growth in noninterest-bearing, interest checking and savings account balances, offset by a reduction in balances associated...

  • Page 59
    ...well as a reduction in commercial loan commitments in 2002 offset by the increase in net charge-offs. 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...

  • Page 60
    ... of operations or liquidity, the impacts are discussed in the applicable section(s) of the Management's Discussion and Analysis and the Notes to Consolidated Financial Statements. CRITICAL ACCOUNTING POLICIES The accounting and reporting policies of the Company comply with accounting principles...

  • Page 61
    ...is compared to fair value based on a discounted cash ï¬,ow analysis, utilizing current prepayment speeds and discount rates. Events that may significantly affect the estimates used are changes in interest rates and the related impact on mortgage loan prepayment speeds and the payment performance of...

  • Page 62
    ...its estimates. In assessing the fair value of reportable operating segments, the Company may consider other information to validate the reasonableness of its valuations including public market comparables, multiples of recent mergers and acquisitions of similar businesses and third-party assessments...

  • Page 63
    ... as to the fair presentation, in the financial statements, of the Company's financial position, operating results and cash flows. Report of Independent Accountants To the Shareholders and Board of Directors of U.S. Bancorp: In our opinion, the accompanying consolidated balance sheet and the related...

  • Page 64
    ...) 2002 2001 Assets Cash and due from banks Money market investments Trading securities Investment securities Held-to maturity (fair value $240 and $306, respectively Available-for-sale Loans held for sale Loans Commercial Commercial real estate Residential mortgages Retail Total loans...

  • Page 65
    ...Noninterest Income Credit and debit card revenue Corporate payment products revenue ATM processing services Merchant processing services Trust and investment management fees Deposit service charges Cash management fees Commercial products revenue Mortgage banking revenue Trading account pro...

  • Page 66
    ...Consolidated Statement of Shareholders' Equity (Dollars in Millions) Common Shares Outstanding Common Stock Capital Surplus Retained Earnings Treasury Stock Other Comprehensive Income Total Shareholders' Equity Balance December 31, 1999 Net income Unrealized gain on securities available for sale...

  • Page 67
    ... Purchases of premises and equipment Acquisitions, net of cash acquired Divestitures of branches Other, net Net cash provided by (used in) investing activities Financing Activities Net increase (decrease) in deposits Net increase (decrease) in short-term borrowings Principal payments...

  • Page 68
    ... Consumer Banking delivers products and services to the investment and residential mortgage portfolios, funding, capital management and asset securitization activities, interest rate risk management, the net effect of transfer pricing related to loan and deposit balances, and the change in residual...

  • Page 69
    ... for credit losses relating to impaired loans is based on the loans' observable market price, the collateral for certain collateral-dependent loans, or the discounted cash ï¬,ows using the loan's effective interest rate. The Company determines the amount of the allowance required for certain...

  • Page 70
    ... for retail automobile leases are based on independent assessments of expected used car sales prices at the end-of-term. Impairment tests are conducted based on these valuations considering the probability of the lessee returning the asset to the Company, re-marketing efforts and ancillary fees and...

  • Page 71
    ...and cash equivalents include cash and money market investments, defined as interest-bearing amounts due from banks, federal funds sold and securities purchased under agreements to resell. Stock-Based Compensation The Company grants stock (''MSRs'') are capitalized as separate assets when loans are...

  • Page 72
    ...well as annual financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported net income. SFAS 148 is effective for fiscal years ended after December 15, 2002. The Company plans to continue to account for stock-based employee...

  • Page 73
    ... services offered to customers through the retail brokerage platform of U.S. Bank National Association, U.S. Bancorp Investments, Inc. or U.S. Bancorp Asset Management, Inc. The spin-off would be effected through a dividend of 100% of the Company's ownership interest in the capital markets business...

  • Page 74
    ...Deposits Goodwill and Other Intangibles Cash Paid/ (Received) Shares Issued Accounting Method Corporate Trust business of State Street Bank and Trust Company ***** Bay View Bank branches The Leader Mortgage Company, LLC ** Pacific Century Bank NOVA Corporation U.S. Bancorp First Union branches...

  • Page 75
    ... and centralized corporate support and data processing functions. The severance amounts are determined based on the Company's existing severance pay programs and are paid out over a benefit period of up to two years from the time of termination. The total number of employees included in severance...

  • Page 76
    ...health care industry; and $76.6 million of losses related to the sales of two higher credit risk retail loan portfolios of USBM. Also, the amount included $89.7 million related to the Company's decision to discontinue a high-yield investment banking business, to restructure a co-branding credit card...

  • Page 77
    ... a summary of activity with respect to the Firstar/USBM merger: Severance and EmployeeRelated Systems Conversions and Integration Asset Write-downs and Lease Terminations Balance Sheet Restructurings (Dollars in Millions) Other Total Balance at December 31, 2001 Provision charged to operating...

  • Page 78
    ... Street Corporate Trust Bay View Piper Restructuring Other acquisitions Total $18.6 15.1 7.8 5.8 - 4.8 $52.1 $124.3 48.4 - - 18.1 14.6 $205.4 At December 31, 2002, the integration of Firstar and USBM was substantially completed, and no additional merger and restructuring related charges...

  • Page 79
    ..., fair value and yield by maturity date of held-to-maturity and available-for-sale securities outstanding as of December 31, 2002, see Table 11 included in Management's Discussion and Analysis which is incorporated by reference into these Notes to Consolidated Financial Statements. Note 8 Loans...

  • Page 80
    ...(a Deduct Loans charged off Less recoveries of loans charged off Net loans charged off Losses from loan sales/transfers Acquisitions and other changes Balance at end of year (a) In 2001, $382.2 million of the provision for credit losses was incurred in connection with the Firstar/USBM merger...

  • Page 81
    ... bond was sold into a separate trust that was funded by variable rate certificates that reprice weekly. The Company retained a residual interest in each structure that was accounted for as a trading asset and is recorded at fair value. The purpose of the arrangements was to meet our U.S. Bancorp 79

  • Page 82
    ...for variable rate tax-free investments. Income and cash ï¬,ows from these structures were not significant in 2002. Small Business Administration Programs For the year Servicing Asset Position SBA Loans Year Ended December 31 (Dollars in Millions) 2002 2001 ended December 31, 2002, the Company did...

  • Page 83
    ... information related to loan sales and managed assets was as follows: At December 31 Total Principal Balance (Dollars in Millions) 2002 2001 Principal Amount 90 Days or More Past Due (c) 2002 2001 Year Ended December 31 Average Balance 2002 2001 Net Credit Losses 2002 2001 Commercial Commercial...

  • Page 84
    ... 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. The fair value of that reporting unit was estimated using the present value...

  • Page 85
    ... The following table reï¬,ects the changes in the carrying value of goodwill for the year ended December 31, 2002: Wholesale Banking Consumer Banking Private Client, Trust and Asset Management Payment Services Capital Markets Consolidated Company (Dollars in Millions) Balance at December 31, 2001...

  • Page 86
    ... three years: 2002 (Dollars in Millions) Amount Rate Amount 2001 Rate Amount 2000 Rate At year-end Federal funds purchased Securities sold under agreements to repurchase ******** Commercial paper Treasury, tax and loan notes Other short-term borrowings Total Average for the year Federal funds...

  • Page 87
    ...''), in accordance with the terms of the indenture governing the CZARS. Approximately $57 million in accreted value of the CZARS remains outstanding. In February 2002, the Company's subsidiary U.S. Bank National Association issued $1.0 billion of fixed-rate subordinated notes due August 4, 2014...

  • Page 88
    .... The Trust Preferred Securities qualify as tier I capital of the Company for regulatory capital purposes. The Company used the proceeds from the sales of the Debentures for general corporate purposes. The following table is a summary of the Trust Preferred Securities as of December 31, 2002: Trust...

  • Page 89
    ... per right, subject to adjustment. Following certain other events, each right entitles its holder to purchase for $100 an amount of common stock of the Company, or, in certain circumstances, securities of the acquirer, having a thencurrent market value of twice the exercise price of the right. The...

  • Page 90
    ... Income included in shareholders' equity for the years ended December 31, is as follows: (Dollars in Millions) Pre-tax Tax-effect Net-of-tax 2002 Unrealized gain on securities available-for-sale Unrealized gain on derivatives Realized gain on derivatives Reclassification adjustment for gains...

  • Page 91
    ... and employees' compensation while employed with the Company. Employees are fully vested after five years of service. The Company's funding policy is to contribute amounts to its plans sufficient to meet the minimum funding requirements of the Employee Retirement Income Security Act of 1974, plus...

  • Page 92
    ... At the measurement date, plan assets are determined based on the fair value generally representing observable market prices. The projected benefit obligation is determined based on the present value of projected benefit distributions at an assumed discount rate. Information presented in the four...

  • Page 93
    ... table sets forth the weighted-average plan assumptions and other data: Company (Dollars in Millions) 2002 2001 USBM 2000 Firstar 2001 2000 Pension plan actuarial computations Expected long-term return on plan assets (a Discount rate in determining benefit obligations Rate of increase in future...

  • Page 94
    ...the Company accounted for its employee stock option plans under the fair value method of SFAS 123. The fair value of options was estimated at the grant date using a Black-Scholes option pricing model. Option valuation models require use of highly subjective assumptions. Also, employee stock options...

  • Page 95
    ...was impacted by changes in control provisions that accelerated the vesting of stock options granted to USBM employees. 2000 Weighted-average assumptions in option valuation 2002 2001 Firstar USBM Risk-free interest rates Dividend yields Stock volatility factor Expected life of options (in years...

  • Page 96
    ... tax effects of fair value adjustments on securities available-for-sale, derivative instruments in cash ï¬,ow hedges and certain tax benefits related to stock options are recorded directly to shareholders' equity as part of other comprehensive income. Deferred income tax assets and liabilities re...

  • Page 97
    ... Financial Statements. ASSET AND LIABILITY MANAGEMENT POSITIONS Cash Flow Hedges The Company has $15.9 billion of the change in fair value related to interest rate changes of underlying fixed-rate debt, trust preferred stock, and deposit obligations. In addition, the Company uses forward...

  • Page 98
    ... Company The estimated fair value of medium-term notes, bank notes, Federal Home Loan Bank advances, capital lease obligations and mortgage note obligations estimated fair value was determined using a discounted cash ï¬,ow analysis based on current market rates of similar maturity debt securities...

  • Page 99
    ...The Company manages this credit risk by using the same credit policies it applies to loans. Collateral is obtained to secure commitments based on management's credit assessment of the borrower. The collateral may include marketable securities, receivables, inventory, equipment and real estate. Since...

  • Page 100
    ... minimum lease obligations. Commitments from Securities Lending The Company participates in securities lending activities by acting as the customer's agent involving the loan or sale of securities. The Company indemnifies customers for the difference between the market value of the securities lent...

  • Page 101
    ... At December 31, 2002, the value of future delivery airline tickets purchased was approximately $1.0 billion and the Company held collateral of $144.3 million in escrow deposits and lines of credit related to airline customer transactions. In the normal course of business, the Company has unresolved...

  • Page 102
    ...banking business line recognized a $50.0 million litigation charge in 2002 which included a settlement with certain governmental and regulatory agencies of $25.0 million for investment banking regulatory matters and $7.5 million for funding independent analyst research for its customers. The Company...

  • Page 103
    ...liabilities and shareholders' equity $28,199 $26,971 Condensed Statement of Income Year Ended December 31 (Dollars in Millions) 2002 2001 2000 Income Dividends from bank subsidiaries Dividends from nonbank subsidiaries Interest from subsidiaries Service and management fees from subsidiaries...

  • Page 104
    ... stock Cash dividends paid Net cash provided by (used in) financing activities Change in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Transfer of funds (dividends, loans or advances) from bank subsidiaries to the Company...

  • Page 105
    ...) 2002 2001 Interest-bearing deposits Federal funds sold Securities purchased under agreements to resell Total money market investments $102 61 271 $434 $104 123 398 $625 Regulatory Capital The measures used to assess capital include the capital ratios established by bank regulatory...

  • Page 106
    ... Bancorp Consolidated Balance Sheet - Five-Year Summary December 31 (Dollars in Millions) 2002 2001 2000 1999 1998 % Change 2001-2002 Assets Cash and due from banks Money market investments Trading securities Held-to-maturity securities Available-for-sale securities Loans held for sale Loans...

  • Page 107
    ... revenue Corporate payment products revenue ATM processing services Merchant processing services Credit card and payment processing revenue Trust and investment management fees Deposit service charges Cash management fees Commercial products revenue Mortgage banking revenue Trading account...

  • Page 108
    ...Income Credit and debit card revenue Corporate payment products revenue ********* ATM processing services Merchant processing services Trust and investment management fees ******* Deposit service charges Cash management fees Commercial products revenue Mortgage banking revenue Trading account...

  • Page 109
    ...1,907.8 1,930.0 45,966 $1,090.8 1,903.5 1,898.8 1,930.5 17,523 $ 977.6 Stock Price Range and Dividends 2002 Sales Price High Low Closing Price Dividends Declared High 2001 Sales Price Low Closing Price Dividends Declared First quarter Second quarter Third quarter Fourth quarter $23.07 24.50...

  • Page 110
    ... Related Yields Year Ended December 31 Average Balances 2002 Yields and Rates Average Balances 2001 Yields and Rates (Dollars in Millions) Interest Interest Assets Money market investments Trading securities Taxable securities Non-taxable securities Loans held for sale Loans (b) Commercial...

  • Page 111
    and Rates (a) 2000 Average Balances Yields and Rates Average Balances 1999 Yields and Rates Average Balances 1998 Yields and Rates 2001-2002 % Change Average Balances Interest Interest Interest $ 931 ...4.7 3.6% 8.62% 4.29 4.33 4.27% 7.98% 3.58 4.40 4.33% 8.24% 3.81 4.43 4.34% U.S. Bancorp 109

  • Page 112
    ... File Number 1-6880 U.S. Bancorp Incorporated in the State of Delaware IRS Employer Identification #41-0255900 Address: 800 Nicollet Mall Minneapolis, Minnesota 55402-7014 Telephone: (612) 973-1111 Securities registered pursuant to Section 12(b) of the Act (and listed on the New York Stock Exchange...

  • Page 113
    ...services are principally offered to customers within the Company's domestic markets, to domestic customers with foreign operations and within certain niche national venues. Lending services include traditional credit products as well as credit card services, financing and import/export trade, asset...

  • Page 114
    ... any full-time or part-time employee actively employed by U.S. Bancorp on the grant date, other than individuals eligible to participate in any of the Company's executive stock incentive plans or in U.S. Bancorp Piper Jaffray Inc.'s annual option plan. As of December 31, 2002, options to purchase an...

  • Page 115
    ... completed the audit of the Company's financial statements for the year ended December 31, 2002, and will continue to provide internal audit services under the direction of the Company's internal audit team. No report of PricewaterhouseCoopers LLP on the financial statements of U.S. Bancorp for the...

  • Page 116
    ... year ended December 31, 2001. Amendment No. 1 to U.S. Bancorp 2001 Stock Incentive Plan. U.S. Bancorp 1998 Executive Stock Incentive Plan Summary of U.S. Bancorp 1991 Executive Stock Incentive Plan. U.S. Bancorp 2001 Employee Stock Incentive Plan. Firstar Corporation 1999 Employee Stock Incentive...

  • Page 117
    ... by the undersigned, thereunto duly authorized. U.S. Bancorp By: Jerry A. Grundhofer Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on February 28, 2003, by the following persons on behalf of the...

  • Page 118
    ... the audit committee of registrant's board of directors (or persons fulfilling the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data...

  • Page 119
    ... the audit committee of registrant's board of directors (or persons fulfilling the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data...

  • Page 120
    ... Firstar he was Group Executive Vice President at Visa International from 1994 to 1999. Andrew Cecere Mr. Cecere, 42, has served as Vice Chairman of U.S. Bancorp since the merger of Firstar Corporation and U.S. Bancorp in February 2001. He assumed responsibility for Private Client and Trust Services...

  • Page 121
    ... Real Estate in August 1999. Previously, he had been President of U.S. Bank in Colorado (formerly Colorado National Bank) since 1996. Stephen E. Smith Mr. Smith, 55, has served as Executive Vice President and Director of Human Resources of U.S. Bancorp since the merger of Firstar Corporation...

  • Page 122
    ... Company, Inc. Milwaukee, Wisconsin David B. O'Maley1,2 Chairman, President and Chief Executive Officer Ohio National Financial Services Cincinnati, Ohio 1. 2. 3. 4. 5. Executive Committee Compensation Committee Audit Committee Community Outreach and Fair Lending Committee Governance Committee...

  • Page 123
    ... financial data reported on Form 10-Q and additional copies of our annual reports. Please contact: U.S. Bancorp Investor Relations 800 Nicollet Mall Minneapolis, MN 55402 corporaterelations @usbank.com Phone: 612-303-0799 Media Requests Mellon Investor Services acts as our transfer agent and...

  • Page 124
    U.S. Bancorp 800 Nicollet Mall Minneapolis, Minnesota 55402 usbank.com