US Bank 2003 Annual Report Download - page 23

$449 million. The goodwill reflected the strategic value of branches located in southern California and total assets of
the combined organization’s leadership position in the $570 million. On July 24, 2001, the Company acquired
corporate trust business and processing economies of scale NOVA Corporation (‘‘NOVA’’), a merchant processor,
resulting from the transaction. As part of the purchase which had total assets of $2.9 billion.
price, $75 million was placed in escrow for up to eighteen Refer to Notes 3, 4 and 5 of the Notes to Consolidated
months with payment contingent on the successful Financial Statements for additional information regarding
transition of business relationships. discontinued operations, business combinations and merger
On November 1, 2002, the Company acquired 57 and restructuring-related items.
branches and a related operations facility in northern
STATEMENT OF INCOME ANALYSIS
California from Bay View, a wholly-owned subsidiary of
Bay View Capital Corporation, in a cash transaction. The Net Interest Income Net interest income, on a taxable-
transaction represented total assets acquired of $853 million equivalent basis, was $7.2 billion in 2003, compared with
and total liabilities assumed (primarily retail and small $6.8 billion in 2002 and $6.4 billion in 2001. The increase
business deposits) of $3.3 billion. Included in total assets in net interest income in 2003 was driven by an increase in
were approximately $336 million of select loans primarily average earning assets, growth in average net free funds and
with depository relationships, core deposit intangibles of favorable changes in the Company’s average funding mix.
$56 million and goodwill of $427 million. The goodwill Also contributing to the year-over-year increase in net
reflected the strategic value of expanding the Company’s interest income were recent acquisitions, including Leader,
market within the San Francisco Bay area. State Street Corporate Trust and Bay View, which
On April 1, 2002, the Company acquired Cleveland- accounted for approximately $71.9 million of the increase
based Leader, a wholly-owned subsidiary of First Defiance during 2003. Average earning assets were $160.8 billion for
Financial Corp., in a cash transaction. The transaction 2003, compared with $147.4 billion and $143.5 billion for
represented total assets acquired of $531 million and total 2002 and 2001, respectively. The $13.4 billion (9.1 percent)
liabilities assumed of $446 million. Included in total assets increase in average earning assets for 2003, compared with
were mortgage servicing rights and other intangibles of 2002, was primarily driven by increases in investment
$173 million and goodwill of $18 million. Leader securities, loans held for sale, residential mortgages and
specializes in acquiring servicing of loans originated for retail loans, partially offset by a decline in commercial
state and local housing authorities. loans. The net interest margin in 2003 was 4.49 percent,
The following acquisitions were completed during the compared with 4.65 percent and 4.46 percent in 2002 and
year 2001. On September 7, 2001, the Company acquired 2001, respectively. The 16 basis point decline in 2003 net
Pacific Century Bank (‘‘Pacific Century’’), which had 20 interest margin, compared with 2002, primarily reflected
Analysis of Net Interest Income
2003 2002
(Dollars in Millions) 2003 2002 2001 v 2002 v 2001
Components of net interest income
Income on earning assets (taxable-equivalent basis) (a) $ 9,286.2 $ 9,526.8 $11,000.9 $ (240.6) $(1,474.1)
Expense on interest-bearing liabilities ***************** 2,068.7 2,679.6 4,595.7 (610.9) (1,916.1)
Net interest income (taxable-equivalent basis)************* $ 7,217.5 $ 6,847.2 $ 6,405.2 $ 370.3 $ 442.0
Net interest income, as reported ************************ $ 7,189.3 $ 6,814.3 $ 6,350.7 $ 375.0 $ 463.6
Average yields and rates paid
Earning assets yield (taxable-equivalent basis)********* 5.77% 6.46% 7.67% (.69)% (1.21)%
Rate paid on interest-bearing liabilities **************** 1.60 2.26 3.91 (.66) (1.65)
Gross interest margin (taxable-equivalent basis)*********** 4.17% 4.20% 3.76% (.03)% .44%
Net interest margin (taxable-equivalent basis) ************* 4.49% 4.65% 4.46% (.16)% .19%
Average balances
Investment securities******************************** $ 37,248 $ 28,829 $ 21,916 $ 8,419 $ 6,913
Loans ********************************************* 118,362 114,453 118,177 3,909 (3,724)
Earning assets ************************************* 160,808 147,410 143,501 13,398 3,909
Interest-bearing liabilities **************************** 129,004 118,697 117,614 10,307 1,083
Net free funds (b) ********************************** 31,804 28,713 25,887 3,091 2,826
(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, unrealized gain (loss) on available-for-sale securities, non-earning assets, other noninterest-bearing liabilities
and equity.
U.S. Bancorp 21
Table 2