US Bank 2002 Annual Report Download - page 52

an interest-only strip and servicing fees from this significantly on off-balance sheet arrangements for liquidity
securitization of $52.8 million in 2002 and $5.2 million in or capital resources.
2001. The unsecured small business credit securitization In January 2003, the Financial Accounting Standards
held average assets of $700.6 million in 2002 and Board issued Interpretation No. 46 (‘‘FIN 46’’),
$123.0 million in 2001. ‘‘Consolidation of Variable Interest Entities’’ (‘‘VIEs’’), an
The corporate and purchasing card securitization interpretation of Accounting Research Bulletin No. 51,
matured in February 2002. At maturity, $420.0 million of ‘‘Consolidated Financial Statements,’’ to improve financial
receivables were transferred from the trust to the Company reporting of special purpose and other entities. The
and recorded at fair value at that time. The Company Company is in the process of determining whether its off-
recognized servicing income of $.5 million in 2002 and balance sheet structures are subject to the provisions of
$4.2 million in 2001 from this securitization. FIN 46. Because the loan and investment conduits and the
During 2002, the Company securitized $144.4 million asset-backed securitizations are qualified special purpose
of highly rated fixed rate municipal bonds. Each municipal entities (‘‘QSPEs’’), which are exempted from consolidation,
bond is sold into a separate trust that is funded by variable the Company does not believe the QSPE structures will
rate certificates that reprice weekly. The Company retains a require consolidation in its financial statements. The
residual interest in each structure that is accounted for as a Company believes it is reasonably possible that synthetic
trading asset and is recorded at fair value. The purpose of leases will be consolidated under the provisions of FIN 46.
the arrangements is to meet our customer demands for At this time, the Company does not believe that the
variable rate tax-free investments. Income and cash flows adoption of FIN 46 will have a material adverse impact on
from these structures were not significant in 2002. the Company’s financial statements.
With respect to real estate and certain equipment, the
CAPITAL MANAGEMENT
Company enters into capital or operating leases to meet its
business requirements. Certain operating lease arrangements The Company is committed to managing capital for
involve third-party lessors that acquire these business assets shareholder benefit while providing sound protection to its
through leveraged financing structures commonly referred to depositors and to its creditors. The Company continually
as ‘‘synthetic leases.’’ At December 31, 2002, synthetic lease assesses its business risks and capital position. The
structures held real estate assets of $434.5 million and Company also manages its capital to exceed regulatory
equipment assets of $45.5 million, compared with capital requirements for well-capitalized bank holding
$372.7 million and $41.6 million, respectively, at companies. To achieve these capital goals, the Company
December 31, 2001. The Company provides guarantees to employs a variety of capital management tools including
the lender in the event of default by the leveraged financing dividends, common share repurchases, and the issuance of
structures or in the event that the Company does not subordinated debt and other capital instruments. Total
exercise its option to purchase the property at the end of shareholders’ equity was $18.1 billion at December 31,
the lease term and the fair value of the assets is less than 2002, compared with $16.5 billion at December 31, 2001.
the purchase price. The maximum end-of-term guarantee, if The increase was primarily the result of corporate earnings,
the fair value of the assets is less than the purchase price, including merger and restructuring-related items, offset by
was $403.0 million at December 31, 2002, and dividends, share buybacks, the effect of a change in
$346.3 million at December 31, 2001. The Company accounting principles and acquisitions.
performs an evaluation for possible declines in fair value of On March 12, 2002, the Company increased its
these assets on an annual basis and is not aware of any dividend rate per common share by 4.0 percent, from
material declines in value of these assets. $.1875 per quarter to $.1950 per quarter. On February 27,
Credit, liquidity, operational and legal structural risks 2001, the Company increased its dividend rate per common
exist due to the nature and complexity of asset share by 15.4 percent, from $.1625 per quarter to
securitizations and other off-balance sheet structures. ALPC $.1875 per quarter. Excluding merger and restructuring-
regularly monitors the performance of each off-balance related charges, the dividend payout ratio for 2002
sheet structure in an effort to minimize these risks and decreased to 42.5 percent, compared with a payout ratio of
ensure compliance with the requirements of the structures. 57.0 percent in 2001.
The Company utilizes its credit risk management systems to On July 17, 2001, the Company’s Board of Directors
evaluate the credit quality of underlying assets and regularly authorized the repurchase of up to 56.4 million shares of
forecasts cash flows to evaluate any potential impairment of the Company’s common stock in connection with the
retained interests. Also, regulatory guidelines require July 24, 2001 acquisition of NOVA. During 2001, the
consideration of asset securitizations in the determination of Company repurchased 19.7 million shares of common stock
risk-based capital ratios. The Company does not rely in both public and private transactions in connection with
50 U.S. Bancorp