US Bank 2003 Annual Report Download - page 20

Management’s Discussion and Analysis
OVERVIEW In connection with the Piper Jaffray spin-off and the
change in our method of accounting for stock-based
In 2003, U.S. Bancorp and its subsidiaries (the ‘‘Company’’) compensation, the financial statements of the Company
achieved each of the goals outlined for the year despite have been restated for all prior periods. As such, historical
challenging economic conditions in early 2003. We began financial results related to Piper Jaffray have been
the year with several specific financial objectives. The first segregated and accounted for in the Company’s financial
goal was to focus on organic revenue growth. In 2003, the statements as discontinued operations.
Company’s revenue growth of 3.9 percent included
3.7 percent growth in revenue from baseline business Earnings Summary The Company reported net income of
products and services. The second goal was to continue $3.7 billion in 2003, or $1.93 per diluted share, compared
improving our operating leverage. During 2003, our with $3.2 billion, or $1.65 per diluted share, in 2002.
efficiency ratio improved to 45.6 percent compared with Return on average assets and return on average equity were
48.8 percent in 2002. Third, the Company was determined 1.99 percent and 19.2 percent, respectively, in 2003,
to continue improving its credit quality and reduce the compared with returns of 1.84 percent and 18.3 percent,
overall risk profile of the organization. Nonperforming respectively, in 2002. Net income in 2003 included after-tax
assets have declined 16.4 percent from a year ago and total income from discontinued operations of $22.5 million, or
net charge-offs decreased to 1.06 percent of average loans $.01 per diluted share, compared with an after-tax loss of
outstanding in 2003 compared with 1.20 percent in 2002. $22.7 million, or $.01 per diluted share, in 2002. Included
Finally, despite the challenges of 2003, the Company always in net income for 2002 was an after-tax goodwill
desires to grow revenues faster than expenses. The impairment charge of $37.2 million, or $.02 per diluted
Company’s results for 2003 reflect the achievement of this share, primarily related to the purchase of a transportation
objective. leasing company in 1998 by the equipment leasing business.
The Company’s strong performance is also reflected in This charge was taken at the time of adopting new
our capital levels and the improving outlook by our credit accounting standards related to goodwill and other
rating agencies relative to a year ago. Equity capital of the intangible assets and was recognized as a ‘‘cumulative effect
Company has increased to 6.5 percent of tangible common of accounting change’’ in the income statement. Refer to
equity at December 31, 2003 from 5.7 percent at Note 2 of the Notes to Consolidated Financial Statements
December 31, 2002. Credit ratings assigned by various for further discussion of the impact of changes in
credit rating agencies reflect the favorable rating agency accounting principles.
views of the direction of the Company’s credit quality, risk In 2003, the Company had income from continuing
management, liquidity and capital management practices operations, net of tax, of $3.7 billion, or $1.92 per diluted
and our ability to generate earnings. Each of these factors is share, compared with $3.2 billion, or $1.68 per diluted
considered important by management and discussed further share, in 2002. The 14.9 percent increase in income from
throughout this document. continuing operations was primarily due to growth in net
In concert with achieving our stated financial revenue, lower expenses and decreased credit costs. Net
objectives, the Company took key steps to strategically income from continuing operations included after-tax
change the risk profile of the organization and enhance merger and restructuring-related items of $30.4 million
shareholder value. The Company’s financial statements ($46.2 million on a pre-tax basis), compared with after-tax
reflect decisions by the Company to spin off Piper Jaffray merger and restructuring-related items of $209.3 million
Companies (‘‘Piper Jaffray’’) and to adopt the fair value ($321.2 million on a pre-tax basis) in 2002. The
method of accounting for stock-based compensation. $275.0 million decline in pre-tax merger and restructuring-
Additionally, in December 2003 we announced an related charges was primarily due to the completion of
expanded share repurchase program and further increased integration activities associated with the merger of Firstar
our cash dividend resulting in a 23.1 percent increase from Corporation and the former U.S. Bancorp of Minneapolis
the dividend rate in the fourth quarter of 2002. The tax- (‘‘USBM’’) at the end of 2002. Partially offsetting this
free distribution of Piper Jaffray strategically changed the favorable item in 2003 was a year-over-year decrease of
risk profile of the Company by reducing the earnings $55.1 million in net securities gains realized in 2002, and a
volatility and business risks associated with investment year-over-year increase in the level of mortgage servicing
banking and resulted in the distribution to our shareholders rights (‘‘MSRs’’) impairment of $22.6 million, driven by
of an independent company with approximately
$880 million of market value shortly after the distribution.
18 U.S. Bancorp