US Bank 2001 Annual Report Download - page 18

Management's Discussion and Analysis
OVERVIEW $2.6 billion in 2001, or $1.32 per diluted share, compared
with $3.1 billion, or $1.62 per diluted share in 2000.
U.S. Bancorp and its subsidiaries (""the Company'') Operating earnings on a ""cash basis'' (calculated by adding
compose the organization created by the acquisition by amortization of goodwill and other intangible assets to
Firstar Corporation (""Firstar'') of the former U.S. Bancorp operating earnings) was $1.59 per diluted share in 2001,
of Minneapolis, Minnesota (""USBM''). The merger was compared with $1.82 per diluted share in 2000. Return on
completed on February 27, 2001, as a pooling-of-interests, average assets and return on average common equity,
and accordingly all Ñnancial information has been restated excluding merger-related items, were 1.54 percent and
to include the historical information of both companies. 15.7 percent in 2001, compared with returns of
Each share of Firstar stock was exchanged for one share of 1.96 percent and 21.6 percent in 2000. Operating earnings
the Company's common stock while each share of USBM in 2001 reÖected total net revenue growth on a taxable-
stock was exchanged for 1.265 shares of the Company's equivalent basis, excluding merger-related gains, of
common stock. The new Company retained the U.S. 6.7 percent, oÅset by growth in noninterest expenses,
Bancorp name. excluding merger and restructuring-related charges, of
5.4 percent. On an operating basis, the eÇciency ratio was
Earnings Summary The Company reported net income of
49.5 percent in 2001, compared with 48.8 percent in 2000.
$1.7 billion in 2001, or $.88 per diluted share, compared
The banking eÇciency ratio (the ratio of expenses to
with $2.9 billion, or $1.50 per diluted share, in 2000.
revenues without the impact of investment banking and
Return on average assets and return on average common
brokerage activity) before merger and restructuring-related
equity were 1.03 percent and 10.5 percent in 2001,
charges was 45.2 percent in 2001, compared with
compared with returns of 1.81 percent and 20.0 percent in
43.5 percent in 2000. The increase in the banking eÇciency
2000. The year-over-year decline in earnings per diluted
ratio was primarily due to the impact of recent acquisitions
share and return on average assets was primarily due to a
including NOVA.
decline in capital markets activities, merger and
Net income and operating earnings for 2001 included a
restructuring-related items and a higher provision for credit
number of signiÑcant items. During 2001, the provision for
losses which reÖected deterioration in economic conditions
credit losses was $2.5 billion, an increase of $1.7 billion
and credit quality relative to a year ago. The reduction in
from a year ago. The change was due to an increased level
the Company's return on average common equity also
of nonperforming assets and charge-oÅs, deterioration in
reÖected the impact of recent acquisitions, which were
speciÑc credit portfolios, merger-related portfolio
accounted for using the purchase method. Net income
restructurings and speciÑc actions taken by management to
included after-tax merger and restructuring-related items of
accelerate the Company's workout strategy for
$844.3 million ($1.3 billion on a pre-tax basis) in 2001
nonperforming assets. Results for 2001 also reÖect the
compared with $231.3 million ($348.7 million on a pre-tax
impairment of retail leasing residuals due to sluggish
basis) in 2000. Merger and restructuring-related items, on a
pre-owned car markets, recognition of mortgage servicing
pre-tax basis, included a $62.2 million gain on the sale of
rights (""MSR'') impairment during the declining rate
branches, $847.2 million of noninterest expenses and
environment and asset write-downs of commercial leasing
$382.2 million of provision for credit losses associated with
partnerships and repossessed tractor/trailer property. These
the merger of Firstar and USBM. Merger and restructuring-
asset impairments were partially oÅset by gains related to
related items also included $50.7 million of expense for
sales of buildings and investment securities.
restructuring operations of U.S. Bancorp Piper JaÅray, and
The Company analyzes its performance on a net
$48.5 million related to the acquisition of NOVA
income basis determined in accordance with accounting
Corporation (""NOVA'') and other recent acquisitions. The
principles generally accepted in the United States, as well as
eÇciency ratio (the ratio of expenses to revenues) increased
on an operating basis before merger-related charges referred
to 57.5 percent in 2001 compared with 51.9 percent in
to in this analysis as ""operating earnings''. Operating
2000 primarily due to the impact of merger and
earnings and related discussions are presented as
restructuring-related items. Refer to page 22 for further
supplementary information in this analysis to enhance the
discussion of merger and restructuring-related items.
readers' understanding of, and highlight trends in, the
The Company had operating earnings (net income
Company's core Ñnancial results excluding the non-recurring
excluding merger and restructuring-related items) of
U.S. Bancorp
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