US Bank 2001 Annual Report Download - page 48

completed during the third quarter of 2001. The line of Treasury and Corporate Support recorded a pre-tax loss of
business generated operating income of $1,156.1 million in $733.0 million in 2001, compared to a loss of
2001, an 8.9 percent increase compared with 2000. Total $456.9 million in 2000. The incremental loss was driven by
net revenue growth was 15.9 percent, or $239.4 million, an increase in the provision for credit losses, lower earnings
compared with 2000 including the impact of the NOVA from equity investments and non-recurring gains from the
acquisition of $134.3 million. Excluding the NOVA disposal of oÇce buildings in 2000. During 2001, total net
acquisitions, total net revenue growth was approximately revenue was $1,537.3 million compared with $978.3 million
7.0 percent. Total net revenue growth was partially oÅset a year ago. The $559.0 million increase was primarily due
by increased in noninterest expense of 32.3 percent, to an increase in average investment securities and the
primarily driven by the NOVA acquisition. Excluding the residual beneÑt of declining interest rates given the
impact of the NOVA acquisition, noninterest expenses for Company's interest rate risk management position. Also
the business line were essentially Öat relative to a year ago. included in 2001 were approximately $289.8 million of
Additionally, the provision for credit losses increased securities gains compared with $8.1 million in 2000, oÅset
$79.2 million (22.5 percent) in 2001. The increase in somewhat by lower earnings from equity investments of
provision reÖects deterioration in delinquencies, higher $78.0 million and gains from the disposal of oÇce buildings
bankruptcies and credit losses in the credit card portfolio in 2000. Noninterest expenses were $1,596.8 million in
and the economic slowdown impacting consumers. 2001 compared with $1,471.3 million for the same period
of 2000. The increase was primarily related to core business
Capital Markets engages in equity and fixed income trading operations and higher costs related to increased aÅordable
activities, offers investment banking and underwriting services housing projects. Provision for credit losses for this business
for corporate and public sector customers and provides unit represents the residual aggregate of the credit losses
financial advisory services and securities, mutual funds, allocated to the reportable business units (based on net
annuities and insurance products to consumers and regionally charge-oÅs for the accounting period) and the Company's
based businesses through a network of brokerage offices. recorded provision determined in accordance with generally
Capital Markets contributed $93.1 million of the Company's accepted accounting principles in the United States.
pre-tax income in 2001, compared with $214.3 million in Provision for credit losses for the year ended December 31,
2000, a decrease of 56.6 percent. The unfavorable variance in 2001, was $673.5 million compared with a net recovery of
pre-tax income from 2000 was due to significant decreases in $36.1 million in 2000. The change in the provision reÖects
fees related to trading, investment product fees and the Company's decision in the third quarter of 2001 to
commissions and investment banking revenues reflecting the increase the allowance for credit losses in light of recent
recent adverse capital markets conditions. In response to events, declining economic conditions and deterioration in
significant changes in the securities markets including the credit quality of the loan portfolio from a year ago.
increased volatility, changes in equity valuations, a slowdown Refer to ""Corporate Risk ProÑle'' for further information
in the market for new and secondary issuances of equity and on provision for credit losses, nonperforming assets and
the increasingly competitive environment for the industry, factors considered by the Company in assessing the credit
U.S. Bancorp Piper Jaffray restructured its operations during quality of the loan portfolio and establishing the allowance
2001. Additionally, in June 2001, the Company decided to for credit losses.
discontinue its U.S. Bancorp Libra operations, a business unit
ACCOUNTING CHANGES
that specialized in underwriting and trading high-yield debt
and mezzanine securities. These restructuring activities are Accounting for Derivative Instruments and Hedging
expected to improve operating efficiency of the business unit Activities Statement of Financial Accounting Standards
by removing excess capacity from the product distribution No. 133 (""SFAS 133''), ""Accounting for Derivative
system and brokerage operations. Instruments and Hedging Activities,'' as amended, establishes
accounting and reporting standards for all derivative
Treasury and Corporate Support includes the Company's instruments and criteria for designation and effectiveness of
investment and residential mortgage portfolios, funding, hedging activities. SFAS 133 requires that an entity recognize
capital management and asset securitization activities, all derivatives as either assets or liabilities on the balance
interest rate risk management, the net eÅect of transfer sheet and measure those instruments at fair value. The
pricing related to loan and deposit balances, and the change changes in the fair value of the derivatives are recognized
in residual allocations associated with the provision for loan currently in earnings unless specific hedge accounting criteria
losses. It also includes business activities managed on a are met. If the derivative qualifies as a hedge, the accounting
corporate basis, including income and expense of enterprise- treatment varies based on the type of risk being hedged. On
wide operations and administrative support functions.
U.S. Bancorp
46