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This Changes Banking Forever. 2001 ANNUAL REPORT and FORM 10-K Contents

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This Changes Banking Forever. 2001 ANNUAL REPORT and FORM 10-K Contents This changes banking forever. 2001 ANNUAL REPORT AND FORM 10-K Contents The New U.S. Bancorp 1 Delivering Five Star Service Guaranteed 2 Graphs of Selected Financial Highlights 3 Financial Summary 5 Letter to Shareholders 6 Growing Diversified Businesses 8 Providing Convenient Access 10 Building the Best Bank in America 12 Capitalizing on Growth Opportunities 14 Providing Local Market Leadership and Community Support Financial Section 16 Management's Discussion and Analysis 48 Responsibility for Financial Statements 48 Report of Independent Accountants 49 Consolidated Financial Statements 53 Notes to Consolidated Financial Statements 84 Five-Year Consolidated Financial Statements 88 Quarterly Consolidated Financial Data 89 Supplemental Financial Data 90 Annual Report on Form 10-K 94 Executive Officers 96 Directors Inside back cover Corporate Information Back cover Corporate Profile Delivering Five Star Service Guaranteed This means that every employee is This changes banking forever. working every day not just to meet cus- tomer needs, but to exceed them. And, if Guaranteed customer service anyone at U.S. Bank fails to keep any of our guarantees, we pay the customer for the inconvenience. by every business line and We recognize that our service is what differentiates U.S. Bank from our competition. Product features and rates every employee for every may be similar among banks, but guaranteed, outstanding service makes transaction, every day. Our U.S. Bank unique. We say that some banks talk about great service, but only exclusive Five Star Service U.S. Bank guarantees it. Circle of Service Excellence Guarantee puts customer Our Five Star Service Guarantee is built on the outstanding efforts of our employees and their commitment and needs first and foremost. contribution to delivering the highest level of quality service for our customers. Each quarter we choose a select few Outstanding customer service is so employees who exemplify outstanding fundamental to the way we do business service for induction into the Circle of that our employees wear lapel pins with Service Excellence. We honor them at the inscription “Service Guaranteed” as a luncheon hosted by U.S. Bancorp a visible symbol of our commitment to executives and at a Board of Directors customers. A replica of that pin is on the meeting. We prominently display their cover of this report, signifying its impor- portraits at our Five Star Halls of Fame, tance to U.S. Bank®. located in seven major markets. Stock In 1996, we created the original options and local recognition are among Five Star Service Guarantee for all of the other ways we reward these top our customers who bank in a branch performers. We invite you to nominate office. Our goal: to bring customers the an outstanding employee for our highest level of service they have ever Circle of Service Excellence using the experienced from a financial institution. attached self-addressed, postage-paid Since then, our pursuit of excellence nomination form. has expanded to every line of business and department at U.S. Bank. Each one has its own set of Five Star Service Guarantees — more than 80 guarantees in all, delivered by all business lines throughout our organization. U.S. Bancorp 1 Diluted Earnings Dividends Declared Net Income Per Common Share Per Common Share (b) (In millions of dollars) (In dollars) (In dollars) Financial Summary 3,106.9 .75 3,200 2.00 .75 2,799.0 2,875.6 .65 2,519.3 2,550.8 1.62 2,381.8 1.45 1.50 2,400 1.50 2,123.9 2,123.9 1.30 1.32 1.23 .50 .46 1,706.5 1.13 1.10 Percent Change Percent Change 1,599.3 1,600 1.00 (Dollars in Millions, Except Per Share Data) 2001 2000 1999 2001 2000 .85 .88 .33 .27 Operating earnings (a) . $ 2,550.8 $ 3,106.9 $ 2,799.0 (17.9)% 11.0% .25 800 .50 Merger and restructuring-related items (after-tax) . (844.3) (231.3) (417.2) Net income . $ 1,706.5 $ 2,875.6 $ 2,381.8 (40.7) 20.7 0 0 0 97 98 99 00 01 97 98 99 00 01 97 98 99 00 01 Per Common Share Operating Earnings(a) Diluted Earnings Per Common Share Earnings per share . $ .89 $ 1.51 $ 1.25 (41.1)% 20.8% Net Income (Operating Basis)(a) Diluted earnings per share . .88 1.50 1.23 (41.3) 22.0 Diluted Earnings Per Common Share Dividends declared per share (b) . .75 .65 .46 15.4 41.3 Book value per share . 8.43 7.97 7.23 5.8 10.2 Market value per share . 20.93 23.25 21.13 (10.0) 10.0 Financial Ratios Return on Average Assets Return on Average Common Equity Dividend Payout Ratio Return on average assets . 1.03% 1.81% 1.59% (In percents) (In percents) (In percents) Return on average equity . 10.5 20.0 18.0 1.96 Net interest margin (taxable-equivalent basis) . 4.45 4.36 4.44 2.00 25 100 1.86 1.81 Efficiency ratio . 57.5 51.9 55.7 1.76 21.2 21.6 1.64 20.3 85.2 1.59 1.54 19.5 20.0 1.49 20 18.0 1.50 17.2 75 Financial Ratios Excluding Merger and 1.24 14.7 15.7 15 57.0 Restructuring-Related Items (a) 1.03 1.00 10.5 50 43.4 Return on average assets . 1.54% 1.96% 1.86% 10 37.3 40.1 31.6 29.9 31.7 Return on average equity . 15.7 21.6 21.2 23.8 25.3 .50 25 Efficiency ratio . 49.5 48.8 50.5 5 Banking efficiency ratio (c) . 45.2 43.5 46.3 0 0 0 97 98 99 00 01 97 98 99 00 01 97 98 99 00 01 Average Balances Loans . $118,177 $118,317 $109,638 (.1)% 7.9% Return on Average Assets (Operating Basis)(a) Return on Average Common Equity Dividend Payout Ratio (Operating Basis)(a) Earning assets . 145,165 140,606 133,757 3.2 5.1 Return on Average Assets (Operating Basis)(a) Dividend Payout Ratio Return on Average Common Equity Assets . 165,944 158,481 150,167 4.7 5.5 Deposits . 104,956 103,426 99,920 1.5 3.5 Total shareholders’ equity . 16,201 14,365 13,221 12.8 8.7 Period End Balances Net Interest Margin Efficiency Ratio Banking Efficiency Ratio (c) Loans . $114,405 $122,365 $113,229 (6.5)% 8.1% (In percents) (In percents) (In percents) Allowance for credit losses . 2,457 1,787 1,710 37.5 4.5 Assets . 171,390 164,921 154,318 3.9 6.9 59.9 58.3 59.5 5.00 4.72 60 55.7 57.5 60 56.1 Deposits . 105,219 109,535 103,417 (3.9) 5.9 4.44 4.44 4.36 4.45 52.2 52.2 51.9 51.7 52.1 52.5 50.5 48.8 49.5 49.7 46.3 46.8 Total shareholders’ equity . 16,461 15,168 13,947 8.5 8.8 43.5 45.2 3.75 Regulatory capital ratios 40 40 Tangible common equity . 5.7% 6.3% 6.7% 2.50 Tier 1 capital . 7.7 7.2 7.4 20 20 Total risk-based capital . 11.7 10.6 11.0 1.25 Leverage . 7.7 7.4 7.5 0 0 0 97 98 99 00 01 97 98 99 00 01 97 98 99 00 01 Efficiency Ratio (Operating Basis)(a) Banking Efficiency Ratio (Operating Basis)(a) (a) The Company analyzes its performance on a net income basis in accordance with accounting principles generally accepted in the United States, as well as on an operating Efficiency Ratio Banking Efficiency Ratio basis before merger and restructuring-related items referred to as “operating earnings.” Operating earnings are presented as supplemental information to enhance the reader’s understanding of, and highlight trends in, the Company’s financial results excluding the impact of merger and restructuring-related items of specific business acquisitions and restructuring activities. Operating earnings should not be viewed as a substitute for net income and earnings per share as determined in accordance with accounting principles generally accepted in the United States. Merger and restructuring-related items excluded from net income to derive operating earnings may be significant and may not be comparable to other companies. Average Shareholders’ Average Equity (b) Dividends per share have not been restated for the 2001 merger of Firstar and the former U.S. Bancorp (“USBM”). Average Assets Equity to Average Assets (c) Without investment banking and brokerage activity. (In millions of dollars) (In millions of dollars) (In percents) Forward-Looking Statements 200,000 20,000 10 9.76 This Annual Report and Form 10-K contains forward-looking statements. Statements that are not historical or current facts, including statements about beliefs and expectations, 9.06 8.67 8.80 are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from 165,944 16,201 8.40 158,481 those anticipated, including the following, in addition to those contained in the Company’s reports on file with the SEC: (i) general economic or industry conditions could be 150,167 8 142,887 15,000 14,365 150,000 13,221 less favorable than expected, resulting in a deterioration in credit quality, a change in the allowance for credit losses, or a reduced demand for credit or fee-based products 129,493 12,383 and services; (ii) the Company could encounter unforeseen complications in connection with the ongoing integration of the products, operations and information systems of 10,882 6 Firstar with USBM that could adversely affect the Company’s operations or customer relationships; (iii) changes in the domestic interest rate environment could reduce net 100,000 10,000 interest income and could increase credit losses; (iv) the conditions of the securities markets could change, adversely affecting revenues from capital markets businesses, the 4 value or credit quality of the Company’s assets, or the availability and terms of funding necessary to meet the Company's liquidity needs; (v) changes in the extensive laws, 50,000 5,000 regulations and policies governing financial services companies could alter the Company's business environment or affect operations; (vi) the potential need to adapt to industry 2 changes in information technology systems, on which the Company is highly dependent, could present operational issues or require significant capital spending; (vii) competitive pressures could intensify and affect the Company's profitability, including as a result of continued industry consolidation, the increased availability of financial services from 0 0 0 non-banks, technological developments, or bank regulatory reform; (viii) acquisitions may not produce revenue enhancements or cost savings at levels or within time frames 97 98 99 00 01 97 98 99 00 01 97 98 99 00 01 originally anticipated, or may result in unforeseen integration difficulties; and (ix) capital investments in the Company’s businesses may not produce expected growth in earnings anticipated at the time of the expenditure.
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