US Bank 2002 Annual Report Download - page 59

provision for credit losses reflected lower projected loss commissions, investment banking fees and mark-to-market
ratios during 2002 based on recent experience as compared valuation adjustments reflecting the recent adverse capital
with 2001, as well as a reduction in commercial loan markets conditions. Capital markets activities continued to
commitments in 2002 offset by the increase in net experience weak sales volumes and lower levels of
charge-offs. investment banking and merger and acquisition
transactions. Management anticipates continued softness in
Payment Services includes consumer and business credit sales activities and related revenue growth throughout the
cards, corporate and purchasing card services, consumer lines next several quarters. Also contributing to the unfavorable
of credit, ATM processing, merchant processing and debit variances was a litigation charge, including a $25.0 million
cards. Payment Services contributed $722.8 million of the settlement for investment banking regulatory matters at
Company’s net operating earnings in 2002, a 38.6 percent Piper and a $7.5 million liability for funding independent
increase over 2001. The business unit’s financial results were, analyst research for its customers. Given continued adverse
in part, driven by the impact of the NOVA acquisition market conditions, the Capital Markets line of business
completed during the third quarter of 2001. continued to realign its business activities in 2002 to
Total net revenue was $2,379.5 million in 2002, improve its operating model and rationalize the distribution
representing a 26.0 percent increase over 2001. Net interest network.
income increased 13.5 percent, while fee-based income
increased 32.2 percent over 2001. Excluding the impact of Treasury and Corporate Support includes the Company’s
NOVA, total net revenue increased approximately investment portfolios, funding, capital management and
12.7 percent in 2002, compared with 2001 primarily due to asset securitization activities, interest rate risk management,
growth in noninterest income of 16.2 percent. Net interest the net effect of transfer pricing related to average balances,
income, excluding NOVA, was up 7.3 percent in 2002, and the change in residual allocations associated with the
primarily due to an increase in average loans and lower provision for loan losses. It also includes business activities
funding costs on the noninterest-bearing corporate card managed on a corporate basis, including enterprise-wide
loan portfolio. Noninterest income, excluding NOVA, was operations and administrative support functions. Treasury
up 16.2 percent in 2002, primarily due to increases in credit and Corporate Support recorded net operating losses of
and debit card revenue, corporate payment product revenue, $475.4 million in 2002, a 2.9 percent improvement,
ATM servicing revenues and the sales of two co-branded compared with 2001.
credit card portfolios. During 2002, total net revenue was $921.1 million,
Total revenue growth was partially offset by an compared with $569.1 million in 2001. The $352.0 million
increase in noninterest expense of $219.4 million increase was primarily attributable to an increase in net
(37.9 percent), primarily due to the NOVA acquisition. interest income of $469.6 million. The increase in net
Excluding the impact of the NOVA acquisition, noninterest interest income was primarily due to an increase in average
expense for the segment was $8.1 million (2.1 percent) investments of $6.9 billion from a year ago and the benefit
lower in 2002, compared with 2001, primarily due to of changes in the mix of funding during the declining rate
personnel and other operating expense cost saves resulting environment. Noninterest income decreased $117.6 million
from integration activities. The provision for credit losses in 2002 primarily due to a decline in securities gains of
decreased $44.5 million (9.1 percent), compared with 2001. $97.6 million and a reduction in the level of equity
The decrease in provision was primarily a reflection of the investment losses relative to 2001.
improvement in projected loss rates due to enhancements in Noninterest expense was $1,473.0 million in 2002,
collection efforts partially offset by an increase in net compared with $1,549.5 million in 2001, a decrease of
charge-offs of $24.7 million in 2002, compared with 2001. 4.9 percent. Adjusting for the adoption of SFAS 142 in
2002, noninterest expense excluding goodwill amortization
Capital Markets engages in equity and fixed income trading increased by $174.6 million (13.4 percent) in 2002,
activities, offers investment banking and underwriting compared with 2001. The increase was primarily the result
services for corporate and public sector customers and of higher costs associated with corporate performance based
provides financial advisory services and securities, mutual compensation due to the improved Company performance
funds, annuities and insurance products to consumers and in 2002, compared with 2001, in addition to personnel and
regionally based businesses through a network of brokerage related costs for post integration rationalization of
offices. Capital Markets contributed $1.1 million of the technology, operations and support functions.
Company’s net operating earnings in 2002, a 97.2 percent The provision for credit losses for this business unit
decline, compared with 2001. The unfavorable variance in represents the residual aggregate of the credit losses
net operating income from 2001 was due to a decline in allocated to the reportable business units and the
fees related to trading, investment product fees and
U.S. Bancorp 57