US Bank 2002 Annual Report Download - page 23

$.2 billion (1.9 percent), respectively, which was more than reflected service quality initiatives, product promotions
directed toward government banking sectors and customer
offset by an overall decline in average commercial and
decisions to maintain liquidity given the current economic
commercial real estate loans of $6.3 billion (12.5 percent)
environment. The increase in savings products was more
and $.4 billion (1.4 percent), respectively. The decline in than offset by reductions in the average balances of higher
commercial and commercial real estate loans was primarily cost time certificates of deposit (17.3 percent) and time
driven by softness in loan demand, workout activities and certificates of deposit greater than $100,000 (13.2 percent).
reclassifications and transfers to other loan categories. The decline in time certificates and time deposits greater
Approximately $721 million of the change in average than $100,000 reflected funding decisions toward more
commercial loans year-over-year for 2002 was due to the favorably priced wholesale funding sources given the rate
transfer of high credit quality commercial loans to the loan environment and customers’ desire to maintain liquidity.
conduit. Also included in the change in average commercial Average net free funds increased from a year ago,
and commercial real estate loans in 2002, compared with including an increase in average noninterest-bearing deposits
2001, was a reclassification of approximately of $3.6 billion (14.4 percent) in 2002, compared with 2001.
The increase in noninterest-bearing deposits, primarily in
$634.5 million of commercial loans to other loan
business and government banking accounts, reflected
categories, including the commercial real estate category
product promotions and customers maintaining higher
($266.9 million) and residential mortgages ($327.0 million), compensating balances given the current rate environment.
in connection with conforming loan classifications at the The 9 basis point improvement in net interest margin for
time of system conversions. Prior years were not restated, as 2001, compared with 2000, was due to the funding benefit
it was impractical to determine the extent of reclassification of the declining rate environment and improved spreads due
for all periods presented. to product repricing dynamics and loan conduit activities,
Average investment securities were $28.8 billion partially offset by the first quarter of 2001 sales of the high
(31.5 percent) higher in 2002, compared with 2001, loan-to-value (‘‘LTV’’) home equity portfolios and lower
reflecting the reinvestment of proceeds from loan sales, yields on the investment portfolio. The $4.6 billion
declines in commercial and commercial real estate loan (3.2 percent) increase in average earning assets for 2001,
balances and deposits assumed in connection with the Bay compared with 2000, was primarily driven by increases in
the investment portfolio, core retail loan growth and the
View transaction. During 2002, the Company sold
impact of acquisitions. This growth was partially offset by a
$13.7 billion of fixed-rate securities with a portion replaced
$2.6 billion decline in lower margin residential mortgages
with floating-rate securities in conjunction with the and a $2.2 billion reduction related to transfers of high credit
Company’s interest rate risk management strategies. quality commercial loans to the loan conduit. Average
Average interest-bearing deposits of $76.4 billion in investment securities were $4.6 billion (26.6 percent) higher
2002 were lower by $3.4 billion, compared with 2001. in 2001, compared with 2000, reflecting net purchases of
Growth in average savings products (5.4 percent) for 2002
Analysis of Net Interest Income
2002 2001
(Dollars in Millions) 2002 2001 2000 v 2001 v 2000
Components of net interest income
Income on earning assets (taxable-equivalent basis) (a)*** $ 9,590.3 $11,097.8 $12,114.7 $(1,507.5) $(1,016.9)
Expenses on interest-bearing liabilities *************** 2,714.0 4,674.8 6,022.9 (1,960.8) (1,348.1)
Net interest income (taxable-equivalent basis) ************ $ 6,876.3 $ 6,423.0 $ 6,091.8 $ 453.3 $ 331.2
Net interest income, as reported ************************ $ 6,839.7 $ 6,367.1 $ 6,006.4 $ 472.6 $ 360.7
Average yields and rates paid
Earning assets yield (taxable-equivalent basis) ******** 6.43% 7.64% 8.62% (1.21)% (.98)%
Rate paid on interest-bearing liabilities *************** 2.26 3.92 5.19 (1.66) (1.27)
Gross interest margin (taxable-equivalent basis) ********** 4.17% 3.72% 3.43% .45% .29%
Net interest margin (taxable-equivalent basis) ************ 4.61% 4.42% 4.33% .19% .09%
Average balances
Investment securities ******************************* $ 28,829 $ 21,916 $ 17,311 $ 6,913 $ 4,605
Loans ******************************************** 114,456 118,177 118,317 (3,721) (140)
Earning assets ************************************ 149,143 145,165 140,606 3,978 4,559
Interest-bearing liabilities**************************** 120,221 119,390 116,002 831 3,388
Net free funds (b) ********************************** 28,922 25,775 24,604 3,147 1,171
(a) Interest and rates are presented on a fully taxable-equivalent basis utilizing a tax rate of 35 percent.
(b) Represents noninterest-bearing deposits, allowance for credit losses, non-earning assets, other liabilities and equity.
U.S. Bancorp 21
Table 3