US Bank 2003 Annual Report Download - page 24

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growth in lower-yielding investment securities as a percent Average investment securities were $8.4 billion
of total earning assets, changes in loan mix and a decline in (29.2 percent) higher in 2003, compared with 2002,
the margin benefit from net free funds due to lower average reflecting the reinvestment of proceeds from loan sales,
interest rates. In addition, the net interest margin declined declining commercial loan balances and deposits assumed in
year-over-year as a result of consolidating high credit connection with the Bay View transaction. During 2003, the
quality, low margin loans from Stellar Funding Group, Inc., Company sold $15.3 billion of fixed-rate securities classified
a commercial loan conduit, onto the Company’s balance as available-for-sale as part of the Company’s interest rate
sheet in mid-2003. risk management practices. During early 2003, sales of
Total average loans of $118.4 billion in 2003 were fixed-rate securities offset much of the economic impact of
$3.9 billion (3.4 percent) higher, compared with 2002, changes in MSR valuations. During the course of 2003, the
reflecting growth in average residential mortgages, retail Company began repositioning the investment portfolio by
loans and commercial real estate loans of $3.3 billion (39.0 reinvesting proceeds from the sale of fixed-rate securities
percent), $1.7 billion (4.6 percent) and $1.4 billion into floating-rate instruments.
(5.5 percent), respectively. Growth in these categories was Average interest-bearing deposits of $84.8 billion in
offset somewhat by an overall decline in average 2003 were higher by $8.4 billion (11.0 percent), compared
commercial loans of $2.5 billion (5.7 percent). The decline with 2002. Approximately $3.0 billion of the year-over-year
in commercial loans was primarily driven by softness in increase in average interest-bearing deposits was due to
commercial loan demand, modestly offset by the acquisitions, while the remaining growth was driven by
consolidation of loans from Stellar Funding Group, Inc. in increases in savings balances. The increase in savings
mid-2003. Despite recent economic growth, the Company balances reflected product initiatives, increasing government
anticipates that commercial loan demand will continue to banking deposits and customer decisions to maintain
be soft in early 2004 while business customers utilize liquidity. The Company anticipates that the growth in
liquidity in deposit accounts to fund business activities.
Net Interest Income — Changes Due to Rate and Volume (a)
2003 v 2002 2002 v 2001
(Dollars in Millions) Volume Yield/Rate Total Volume Yield/Rate Total
Increase (decrease) in
Interest income
Investment securities***************** $ 428.4 $ (235.2) $ 193.2 $ 403.7 $ (235.2) $ 168.5
Loans held for sale ****************** 62.7 (31.1) 31.6 56.4 (32.7) 23.7
Commercial loans ******************* (149.0) (157.8) (306.8) (451.0) (536.1) (987.1)
Commercial real estate*************** 90.2 (141.9) (51.7) (27.5) (338.9) (366.4)
Residential mortgages *************** 232.5 (114.4) 118.1 (12.6) (50.3) (62.9)
Retail loans ************************* 134.9 (363.9) (229.0) 288.2 (543.6) (255.4)
Total loans*********************** 308.6 (778.0) (469.4) (202.9) (1,468.9) (1,671.8)
Other earning assets***************** 6.4 (2.4) 4.0 (.8) 6.3 5.5
Total **************************** 806.1 (1,046.7) (240.6) 256.4 (1,730.5) (1,474.1)
Interest expense
Interest checking ******************** 22.6 (40.6) (18.0) 24.4 (125.7) (101.3)
Money market accounts ************** 87.7 (82.8) 4.9 8.7 (406.9) (398.2)
Savings accounts******************** 3.5 (7.4) (3.9) 3.3 (20.7) (17.4)
Time certificates of deposit less than
$100,000 ************************ (146.3) (146.2) (292.5) (215.2) (282.8) (498.0)
Time deposits greater than $100,000 ** 26.3 (105.5) (79.2) (83.1) (244.8) (327.9)
Total interest-bearing deposits ***** (6.2) (382.5) (388.7) (261.9) (1,080.9) (1,342.8)
Short-term borrowings**************** 8.5 (64.6) (56.1) (63.6) (189.1) (252.7)
Long-term debt ********************** 48.4 (181.0) (132.6) 247.5 (576.9) (329.4)
Company-obligated mandatorily
redeemable preferred securities **** (9.7) (23.8) (33.5) 62.1 (53.3) 8.8
Total **************************** 41.0 (651.9) (610.9) (15.9) (1,900.2) (1,916.1)
Increase (decrease) in net interest
income *************************** $ 765.1 $ (394.8) $ 370.3 $ 272.3 $ 169.7 $ 442.0
(a) This table shows the components of the change in net interest income by volume and rate on a taxable-equivalent basis utilizing a tax rate of 35 percent. This table does not take
into account the level of noninterest-bearing funding, nor does it fully reflect changes in the mix of assets and liabilities. The change in interest not solely due to changes in volume
or rates has been allocated on a pro-rata basis to volume and yield/rate.
22 U.S. Bancorp
Table 3