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Five Star

Service Guaranteed

 

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The U.S. Bank Five Star Service Guarantee

	Our service is what ultimately differentiates U.S. Bank from our competitors. Every day. Every transaction. To win customers, satisfy them, keep them and expand their business relationship with U.S. Bank, we strive to deliver outstanding service to every customer.
	If we fall short in keeping our service guarantees, and the customer tells us they did not get the service they expected and deserved, we pay the customer for the inconvenience. We consider it a privilege to serve our customers; they are the reason we are in business and because of them, our bank succeeds.
	Our service guarantees apply to every line of business, and we pledge outstanding service to every customer—from personal checking account customers to large corporate banking clients; from small business partners to private banking clients. Every one of our ten million customers is covered by one or more guarantees that encompass accuracy, accessibility, timeliness and responsiveness.
	The U.S. Bank Five Star Service Guarantee is fundamental to the way we do business. Evaluating outstanding customer service is a key element in our recruiting practices, our training programs and our employee compensation structure.

 

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Corporate Profile

U.S. Bancorp is a multi-state financial holding company with headquarters in Minneapolis, Minnesota. U.S. Bancorp is the 8th largest financial holding company in the United States with total assets exceeding $180 billion at year-end 2002.
     Through U.S. Bank® and other subsidiaries, U.S. Bancorp serves more than 10 million customers, principally through 2,142 full-service branch offices in 24 states. In addition, specialized offices across the country and in several foreign countries provide corporate, loan, private client and brokerage services. Customers also access their accounts at U.S. Bancorp through 4,604 U.S. Bank ATMs and telephone banking. More than 1,300,000 customers also do all or part of their banking with U.S. Bancorp via U.S. Bank Internet Banking.
     U.S. Bancorp and its subsidiaries provide a comprehensive selection of premium financial products and services to individuals, businesses, nonprofit organizations, institutions, government entities and public sector clients.
     Major lines of business provided by U.S. Bancorp through U.S. Bank and other subsidiaries include Consumer Banking, Payment Services, Wholesale Banking and Private Client, Trust & Asset Management. All products and services are backed by the exclusive U.S. Bank Five Star Service Guarantee.

Recent announcement regarding our capital markets business: On February 19, 2003, U.S. Bancorp announced its plans to spin-off to U.S. Bancorp shareholders its capital markets business unit, including the investment banking and brokerage activities primarily conducted by its wholly owned subsidiary, U.S. Bancorp Piper Jaffray®. As a result, U.S. Bancorp shareholders would receive shares of the new Piper Jaffray company in a tax-free stock dividend distribution. It is anticipated that the spin-off will be completed in the third quarter of 2003. Once the spin-off is completed, our capital markets business will be owned 100 percent by U.S. Bancorp shareholders, and will become an independent publicly traded company. U.S. Bancorp will hold no continuing equity interest in the company.
     U.S. Bancorp will continue to offer a comprehensive range of investment and financial solutions through U.S. Bank, U.S. Bancorp Asset Management and U.S. Bancorp Investments. U.S. Bancorp Piper Jaffray, through its Capital Markets and Private Advisory Services operations, provides a full range of investment products and services to individuals, institutions and businesses.

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	Graphs of Selected Financial Highlights
	Financial Summary
	Letter to Shareholders
Corporate Governance
	Outstanding Service and Convenience
	Growing Core Revenue
Lines of Business Highlights:
	Consumer Banking
	Payment Services
	Private Client, Trust & Asset Management
	Wholesale Banking
	Capital Markets
U.S. Bank Hispanic Initiative
Every Community Counts
Management’s Discussion and Analysis
Responsibility for Financial Statements of U.S. Bancorp
Report of Independent Accountants
Consolidated Balance Sheet
Consolidated Statement of Income
Consolidated Statement of Shareholders’ Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Consolidated Balance Sheet -- Five-Year Summary
Consolidated Statement of Income -- Five-Year Summary
Quarterly Consolidated Financial Data
Supplemental Financial Data
Consolidated Daily Average Balance Sheet and Related Yields and Rates
Annual Report on Form 10-K
Executive Officers
Directors
EX-10.02 Amendment 1 to 2001 Stock Incentive Plan
EX-10.03 1998 Executive Stock Incentive Plan
EX-10.04 Summary 1991 Exec. Stock Incentive Plan
EX-10.05 2001 Employee Stock Incentive Plan
EX-10.06 Firstar 1999 Emp. Stock Incentive Plan
EX-10.07 Firstar 1998 Emp. Stock Incentive Plan
EX-10.08 Star Banc 1996 Starshare Stock Incentive
EX-10.16 Non Qualified Executive Retirement Plan
EX-10.18 Amendment 1 to Deferred Compensation Plan
EX-10.22 Employment Agreement - Edward Grzedzinski
EX-12 Computation of Ratio of Earnings to Fixed
EX-21 Subsidiaries of the Registrant
EX-23 Consent of PricewaterhouseCoopers LLP

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Graphs of Selected Financial Highlights

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Financial Summary

															2002				2001
Year Ended December 31 (Dollars and Shares in Millions, Except Per Share Data)			2002				2001				2000				v 2001				v 2000
Total net revenue (taxable-equivalent basis)			$	12,744.9			$	11,761.9			$	11,018.2				8.4	%			6.7	%
Noninterest expense				5,932.5				5,658.8				5,368.3				4.8				5.4
Provision for credit losses				1,349.0				2,146.6				828.0
Income taxes				1,925.7				1,405.7				1,715.0
	Operating earnings (a)		$	3,537.7			$	2,550.8			$	3,106.9				38.7	%			(17.9	)%
Merger and restructuring-related items (after-tax)				(211.3	)			(844.3	)			(231.3	)
Cumulative effect of change in accounting principles (after-tax)				(37.2	)			—				—
Net income			$	3,289.2			$	1,706.5			$	2,875.6				92.7	%			(40.7	)%
Per Common Share
Earnings per share before cumulative effect of change in accounting principles			$	1.74			$	.89			$	1.51				95.5	%			(41.1	)%
Diluted earnings per share before cumulative effect of change in accounting principles				1.73				.88				1.50				96.6				(41.3	)
Earnings per share				1.72				.89				1.51				93.3				(41.1	)
Diluted earnings per share				1.71				.88				1.50				94.3				(41.3	)
Dividends declared per share (b)				.78				.75				.65				4.0				15.4
Book value per share				9.44				8.43				7.97				12.0				5.8
Market value per share				21.22				20.93				23.25				1.4				(10.0	)
Average shares outstanding				1,916.0				1,927.9				1,906.0				(.6	)			1.1
Average diluted shares outstanding				1,926.1				1,939.5				1,918.5				(.7	)			1.1
Financial Ratios
Return on average assets				1.91	%			1.03	%			1.81	%
Return on average equity				19.4				10.5				20.0
Net interest margin (taxable-equivalent basis)				4.61				4.42				4.33
Efficiency ratio				50.3				57.5				51.9
Financial Ratios Excluding Merger and Restructuring-Related Items and Cumulative Effect of Change in Accounting Principles (a)
Return on average assets				2.06	%			1.54	%			1.96	%
Return on average equity				20.9				15.7				21.6
Efficiency ratio				47.7				49.5				48.8
Banking efficiency ratio (c)				44.0				45.2				43.5
Average Balances
Loans			$	114,456			$	118,177			$	118,317				(3.1	)%			(.1	)%
Investment securities				28,829				21,916				17,311				31.5				26.6
Earning assets				149,143				145,165				140,606				2.7				3.2
Assets				171,948				165,944				158,481				3.6				4.7
Deposits				105,124				104,956				103,426				.2				1.5
Total shareholders’ equity				16,963				16,201				14,365				4.7				12.8
Period End Balances
Loans			$	116,251			$	114,405			$	122,365				1.6	%			(6.5	)%
Allowance for credit losses				2,422				2,457				1,787				(1.4	)			37.5
Investment securities				28,488				26,608				17,642				7.1				50.8
Assets				180,027				171,390				164,921				5.0				3.9
Deposits				115,534				105,219				109,535				9.8				(3.9	)
Total shareholders’ equity				18,101				16,461				15,168				10.0				8.5
Regulatory capital ratios  Tangible common equity				5.6	%			5.7	%			6.3	%
	Tier 1 capital			7.8				7.7				7.2
	Total risk-based capital			12.2				11.7				10.6
	Leverage			7.5				7.7				7.4

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(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 basis before merger and restructuring-related items and cumulative effect of change in accounting principles referred to in this Annual Report and Form 10-K 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 and cumulative effect of change in accounting principles. 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.
(b)		Dividends per share have not been restated for the 2001 merger of Firstar and the former U.S. Bancorp.
(c)		Without investment banking and brokerage activity.

Forward-Looking Statements

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, are forward-looking statements. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future prospects of the Company. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated, including the following, in addition to those contained in U.S. Bancorp’s reports on file with the SEC: (i) general economic or industry conditions could be 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 and services; (ii) changes in the domestic interest rate environment could reduce net interest income and could increase credit losses; (iii) the conditions of the securities markets could change, adversely affecting revenues from capital markets businesses, the value or credit quality of the Company’s assets, or the availability and terms of funding necessary to meet the Company’s liquidity needs; (iv) changes in the extensive laws, regulations and policies governing financial services companies could alter the Company’s business environment or affect operations; (v) the potential need to adapt to industry changes in information technology systems, on which the Company is highly dependent, could present operational issues or require significant capital spending; (vi) 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 non-banks, technological developments or bank regulatory reform; (vii) acquisitions may not produce revenue enhancements or cost savings at levels or within timeframes originally anticipated, or may result in unforeseen integration difficulties; and (viii) capital investments in the Company’s businesses may not produce expected growth in earnings anticipated at the time of the expenditure. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update them in light of new information or future events.

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Fellow Shareholders:
I am pleased to tell you that U.S. Bancorp achieved its goals for the year 2002—to successfully complete the systems integration of Firstar and the “old” U.S. Bancorp without any disruption of superior service to our customers; to reduce the risk profile of our corporation; and to improve customer service throughout our entire franchise

First, it is not overstating to say that the integration process was virtually flawless and transparent to our more than ten million customers. The integration was completed on schedule and met or exceeded our high expectations. We are now a rarity in our industry—a 24-state, $180 billion corporation doing business on a totally unified, single operating system for all of our markets and all of our customers. The service, cost, accuracy and responsiveness advantages of that are enormous, and we are already putting our new capabilities to work for our customers.
     Second, during the year, we continued to reduce the risk profile of our corporation. We exited higher risk businesses; we intensified and improved collection efforts; and we put improved credit and underwriting policies into effect across the corporation. While our credit costs are still too high, reflecting the nation’s current economic condition, it appears credit quality has stabilized, and the improvements we have made put us in a position of strength to take every advantage of our skill and expertise, our products and services, our markets and an economic recovery.
     Third, a re-energized culture of outstanding customer service is growing appreciably throughout our company, which is especially gratifying in those markets where our relentless pursuit of unparalleled service is a newer concept. We are pleased that our employees embrace customer service as the single most important factor in our ongoing and future success.
     Our goals for 2003 are to generate increased organic growth, maximize our operating leverage, skillfully manage credit quality, continue the reduction of our risk profile—and, as always, grow revenues faster than expenses. We are persistent and disciplined in our approach to these goals—we have specific initiatives in process, and fully anticipate achieving our goals.
     Despite a challenging economy, we ended 2002 seeing an increase in core revenue growth, a decrease in total noninterest expense, improvement in the net interest margin and a significant increase in deposits. Though 2003 will most certainly present its own demands, we have the pieces in place to grow and the momentum to meet whatever challenges may lie ahead.
     Please know that, as always, our highest priority is increasing the value of your investment in U.S. Bancorp. It is the reason we come to work each day.

Sincerely,

Jerry A. Grundhofer

Chairman, President and
Chief Executive Officer

February 28, 2003

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In Remembrance

September 26, 2002, was a sad day for all members of the U.S. Bank family. Four of our U.S. Bank colleagues and a valued customer were victims of a fatal robbery attempt at a U.S. Bank branch office in Norfolk, Nebraska.
     Our hearts are still heavy with the pain of this tragedy, and our thoughts and prayers continue to go out to the families, friends and co-workers of Lisa, Lola, Jo, Samuel and Evonne.

Lisa Bryant		Lola Elwood		Jo Mausbach		Samuel Sun		Evonne Tuttle

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Corporate Governance

Good corporate governance promotes ethical business practices, demands meticulous accounting policies and procedures, and includes a structure with effective checks and balances. Corporate governance is vital to the continued success of U.S. Bancorp and the entire financial services industry.
     Our ethical standards have rewarded us with an enviable reputation in today’s marketplace—a marketplace where trust is hard to earn. Our shareholders, customers, communities and employees demand—and deserve—to do business with companies they can trust.
     U.S. Bancorp operates with uncompromising honesty and integrity. Our Board of Directors has had a Corporate Governance Committee for many years. We have adopted new Corporate Governance Guidelines in response to today’s heightened concern. Our Corporate Governance Guidelines are available for you to view on our Internet web site at usbank.com.
     Following are some of the important elements of our Corporate Governance practices.

Independent Oversight
Our Audit Committee is composed entirely of independent outside directors. In addition, the Board, the Audit Committee and the other committees of the Board meet in “executive session” without management in attendance at every meeting. The presiding director at every executive session of the Board is an independent director. The Board and each committee also have express authority to engage outside advisors to provide additional independent expertise for their deliberations.

Board of Directors’ Focus on U.S. Bancorp
To ensure that our directors are able to focus effectively on our business, we limit the number of other public company boards a director may serve on to three. The Chairman, President and Chief Executive Officer of U.S. Bancorp serves on only two other public company boards. Audit Committee members may serve on no more than three other public company audit committees, and the chairman of the Audit Committee serves on no other audit committees.

Board of Directors’ Knowledge and Expertise
All of our directors are skilled business leaders. Directors are encouraged to attend continuing director education seminars in order to keep a sharp focus on current good governance practices. In addition, the Board and each committee have express authority to retain outside advisors.

Management’s Vested Interest in U.S. Bancorp
We understand clearly that U.S. Bancorp shareholders are the primary beneficiaries of management’s actions. All U.S. Bancorp executive officers and directors own shares of company stock, and in order to further emphasize the alignment of management’s interests with those of our shareholders, we have established stock ownership guidelines for our executive officers.

Disclosure Controls
We have established rigorous procedures to ensure that we provide complete and accurate disclosure in our publicly filed documents. We have also established a telephone hotline for employees to anonymously submit any concern they may have regarding corporate controls or ethical breaches. Management investigates all complaints and directs to our Audit Committee any relating to concerns about our financial statements or public disclosures.

Shareholder Approval of Equity Compensation Plans
All equity compensation plans under which future grants may be made have been shareholder approved. In addition, no options issued under any current plans have been repriced.

U.S. Bancorp Code of Ethics and Business Conduct
Each year, we reiterate the vital importance of our Code of Ethics and Business Conduct. The Code applies to directors, officers and all employees, who must certify annually their compliance with the standards of the Code. The content of the Code is based not solely on what we have the right to do, but, even more importantly, on what is the right thing to do. Our standards are higher than any legal minimum because our business is built on trust. You may review our Code of Ethics and Business Conduct on our Internet web site at usbank.com. Click on About U.S. Bancorp and then on Ethics at U.S. Bank.

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Outstanding Service and Convenience

Choices. Flexibility. Availability. U.S. Bank customers bank on their own schedules and on their own terms. Whether it’s visiting one of our 2,142 branch offices in 24 states, logging onto U.S. Bank Internet Banking from the comfort of home, or stopping by a U.S. Bank ATM while traveling, our customers enjoy the ease and convenience of financial services delivered when, where and how they want them. And, regardless of the distribution system they choose, we deliver responsive, prompt and helpful service—guaranteed.

Broadening Relationships Across Our Branch Network
Our expansive scope multiplies our sales opportunities, and enhances the access our customers have to bank when and where they want.
     Local decision-making, combined with the strength of our company’s extensive resources, is the hallmark of Community Banking. Smaller, non-urban communities enjoy our full array of financial products and services delivered by local people living and working in their communities and responding to local situations with autonomy. In our larger and urban locations, Metropolitan Banking staff deliver products and services as separate lines of business, partnering with all areas of the bank to provide customers with the specialized services they need, such as Commercial Banking, Corporate Banking, Trust or Treasury Management. Banking with us doesn’t stop with brick and mortar buildings. In-Store and Corporate On-Site Banking brings banking right to customers, inside grocery and convenience stores, colleges and universities, workplaces, retirement centers and other high-traffic locations. Specialized trust, home mortgage and brokerage offices across the country and in several international cities add to the extensive network of locations U.S. Bank operates.

Delivering Anytime ATM Access
Customers enjoy 24-hour access to 4,604 U.S. Bank ATMs, making ours the third largest bank-owned ATM network in the nation. But our ATM network isn’t just big; it’s the best in the business. Customers can withdraw funds, make deposits, check balances, receive statements, order checks, purchase phone minutes and stamps, transfer funds between accounts and request check copies. To deliver on our commitment of convenience, nearly one-half of the ATMs owned by U.S. Bank are located in non-bank settings, including corporate offices, manufacturing facilities, shopping centers, gas stations, medical facilities and airports. We deliver convenient access where our customers need it.

Providing Anytime Phone Banking Options
Around the clock, our 24-hour call center bankers are ready to take customers’ calls. Our service centers in Cincinnati, Milwaukee, St. Paul, Denver and Portland handled over 126 million inbound inquiries in 2002, including those served by our interactive voice response system. These centers also handled over one million inbound

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and outbound telesales calls, offering customers new products and services to meet their needs while generating revenue growth. Spanish language options and multilingual call center bankers are always available to meet the needs of our non-English-speaking customers. In 2002, an average of 50,000 callers each month chose to use the Spanish version of 24-Hour Banking, representing a 90 percent increase over 2001. The number of customer service calls to our multilingual call center bankers reached an average of 15,000 each month, representing a 131 percent annual increase. Personalized service, account information, product sales, and more—all with one phone call to U.S. Bank.

E-Enabling Customers with Online Capabilities
Our nationally recognized Internet web site, usbank.com, makes it easier than ever for customers to review account balances, make transfers, open checking accounts, apply for loans and more—anywhere they have Internet access. With a host of new features introduced in 2002, including a streamlined transfer function and online account opening, U.S. Bank Internet Banking was ranked in the elite top 10 Internet banking sites by Gomez.com, an independent quality measurement company. More than 1.3 million customers have selected U.S. Bank Internet Banking to meet their need for easy-to-use, comprehensive and secure online services. In 2002, enrollment in U.S. Bank Bill Pay, our online bill payment product, increased by 25 percent, showing that online banking is quickly becoming the most active banking delivery channel.
     Among other new benefits and functionality introduced in the past year, Trust customers can now enjoy the convenience of U.S. Bank TrustNow Essentials, a way to retrieve account information and reports via the Internet. Corporate Payment Systems has significantly enhanced the capabilities of PowerTrack®, our innovative online business to business payment and transaction system, giving corporate customers even greater control of costs in the supply and payment process. And U.S. Bank AccessOnline, a web-based program management and reporting tool, is the next generation in our complete suite of commercial products.

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U.S. Bank operates branches across 24 states in a wide variety of traditional offices and non-traditional locations. Our Pike Place Market office matches the excitement, traffic and customer service renown of the Pike Place Fish Market. Pictured from U.S. Bank in Seattle are (left) Jeff Shular, region manager, and (center) Julie Jin, assistant branch manager.

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Growing Core Revenue

Attracting. Retaining. Expanding. These are the building blocks we will use to grow core revenue, the foundation for creating and sustaining shareholder value. Ultimately, growth depends on our employees fulfilling the financial needs of our customers. By tapping into the tremendous potential of our employee sales force, focusing on the highest level of service, building cross-market and cross-business partnerships and developing new products and services, we are exceeding customers’ needs, positioning us for superior revenue growth.

Taking Ownership of Our Business
Employees, shareholders and customers are all linked by a common interest—achieving our goals and performance expectations. Ownership of these goals exists at the business line level. Business lines have the autonomy to implement industry-competitive business models and strategies. Resources are allocated based on growth and return expectations, and monthly financial reviews track results. This environment creates a front line accountability where every employee understands and contributes to sales volume targets, service standards and profit objectives. Results are measured quickly and widely shared. National sales management calls provide a forum to communicate sales opportunities and best practices among business lines.

Developing a Superior Sales Culture
Customer needs drive our business. U.S. Bank continues to develop a sales culture designed to proactively identify sales opportunities based on customer needs. Every employee contributes to the revenue growth of our company through sales production, superior customer service, efficiency and a continuous focus on shareholder value. Employees know what is expected within this dynamic sales environment, where everyone takes ownership of our business and is held accountable for the results. And every employee can stand proudly behind our Five Star Service Guaranteed products and services because they are among the finest in the industry, backed by up-to-date processing and technology, personalized training, ongoing product education, effective marketing campaigns and competitive performance incentives. Our Pay for Performance compensation program rewards employees financially and personally for their achievements in sales and customer service and for their contributions to company earnings.

Introducing a New FOCUS
Recognizing the power of the primary checking customer, on April 1, 2002, U.S. Bank introduced a dedicated and focused strategy across the entire franchise to attract, retain and expand the core U.S. Bank customer base, specifically those customers who maintain a primary checking account with U.S. Bank. This initiative, called FOCUS, involves dramatically modifying our activities, investments and attention to increase our demand deposit account base. By concentrating on this critical segment, we are more likely to grow and strengthen a customer’s existing banking relationship with us, providing opportunities for increased sales and service across every line of business, from credit cards and trust products to home mortgages and investments and insurance products.
     Among other support programs, employees are regularly supplied with specialized tools designed to drive growth, build new customer relationships and enhance existing relationships. We are extremely pleased with the exceptional results of our first year’s FOCUS efforts, which have energized us for an even more powerful FOCUS commitment in 2003.

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Partnering Across Our Company
We have the power to share ideas, best practices, capabilities and sales opportunities across business lines throughout 24 states. Local relationship management, combined with expert advice and support from across our organization, truly gives our customers an advantage—personalized service and increased resources. A great partnership in our Private Client Group shows the power of cross-business cooperation. In 2002, the collaboration among Private Banking, Personal Trust and Asset Management was strengthened, allowing clients to manage all their complex financial needs in one place. Significantly more referrals among these business lines resulted in a 28 percent increase in Personal Trust sales.

Providing Innovative Products and Services
We continuously expand our line of superior, competitive products and services to fulfill the financial needs of our broad customer base. In 2002, U.S. Bank introduced a variety of financial services that are helping to fuel revenue and customer growth, while providing first-rate benefits our customers expect and deserve.
     •     Checking That Pays® Rewards customers for using their U.S. Bank Check Card by giving them up to a one percent cash rebate for certain purchases, such as groceries or gas.
     •     Cash Rewards Visa® Card Allows consumer customers to earn a cash rebate of up to one percent on all purchases made with their U.S. Bank Cash Rewards Visa Card.
     •     Verified By Visa® A new security feature that lets customers add a personal password to their existing U.S. Bank Check Card and U.S. Bank Credit Card.
     •     Private Select Platinum Services A comprehensive, integrated approach to financial management in the areas of private banking, personal trust and investments offered through our Private Client Group.
     •     PowerTrack® The newest release in November 2002, significantly enhances customer capability to control costs in the supply chain and payment process.
     •     U.S. Bank Access Online A web-based program management and reporting tool that can be configured to best support customers’ business processes.
     •     Quick Credit Line A one-application line, loan or lease solution for small business credit needs under $50,000.
     •     SBA Express Provides streamlined loan processing for Small Business Administration loans under $250,000.
     •     U.S. Bank TrustNow Essentials A way for Trust customers to retrieve and customize account information and reports via the Internet.
     •     FACTS 529 Trust and Agency Accounts Unique products combining the benefits of a 529 Savings Plan with the value of a fiduciary relationship.

     •     First American Funds™ Enhanced family of funds with three new fixed income funds—Intermediate Government Bond Fund, Short Tax Free Fund and Ohio Tax Free Fund.

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Lines of Business

Diversified. Specialized. Extensive. U.S. Bancorp is among the leaders in virtually every segment of the financial services industry. Each U.S. Bancorp line of business works strategically with customers to meet their needs, deepening each relationship with best-in-class products and comprehensive service.

Consumer Banking
Consumer Banking delivers an extensive array of products and services to the consumer and small business markets. Our multiple delivery channels include full-service banking offices, ATMs, telephone customer service and telesales, highly-ranked online banking and direct mail. These channels ensure customers have anytime, all-the-time access to all of their U.S. Bank accounts. Our Consumer Banking business is a recognized industry leader with its mandate for service and convenience, new products and other competitive advantages.

Strengths				Key Business Units
-		2,142 full-service branch banking offices		-		Community Branch Banking
-		4,604 ATMs		-		Metropolitan Branch Banking
-		Top 2 bank lessor		-		In-Store and Corporate On-Site Banking
-		Top 3 Small Business Administration (SBA) bank		-		24-Hour Banking and Financial Sales
		lender by volume		-		Consumer Lending
-		Top 3 small business lender		-		Home Mortgage
-		Top 4 branch network		-		Investments and Insurance
-		Top 4 Small Business Internet Banking site as rated by		-		Group Sales and Student Banking
		by Speer and Associates		-		Small Business Banking
-		Top 9 student loan provider
-		Top 9 Internet Banking site as rated by Gomez.com
-		Unparalleled sales and service culture built on customer needs

Successes

•		Enhanced usbank.com with a host of new features, including easy-to-use customer screens, a streamlined transfer function, online account opening and the ability to nickname accounts.
•		U.S. Bank Internet Bill Pay reached 100,000 subscribers in 2002 as enrollment grew by 25 percent.
•		In the August 12, 2002, issue of BtoB magazine, usbank.com was named one of the 100 best business to business sites in the country.
•		U.S. Bank SBA Division provided an all-time record $416.9 million in SBA loans, a 24 percent increase over 2001; originated a record 1,127 loans to small businesses nationwide, a 91 percent increase over 2001.
•		Introduced the innovative “Free x 3” checking program, offering free checking for small business owners, their businesses and their employees.
•		Home Mortgage realized its fifth straight year of increased profitability, with an average annual growth rate of 23 percent.
•		Consumer Finance achieved a record $5 billion in receivables. Consumer Finance, a nationally recognized Home Equity mortgage lender, provides an additional level of credit to U.S. Bank customers not served by traditional products.
•		Group Sales and Student Banking reached a milestone of over 500 Campus Banking relationships with colleges and universities, and over 6,000 Group Sales workplace banking relationships with companies across the country.
*		Total net revenue is on a taxable-equivalent basis. Treasury and Corporate Support contributed 7.2% of 2002 total net revenue.

10 U.S. Bancorp

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Payment Services
Our unique payment services business specializes in credit and debit card products, corporate and purchasing card services and ATM and merchant processing. Customized products and services, coupled with cutting-edge technology, provide consumers, small and large merchants, government entities, financial institutions, small businesses, large corporations and co-brand partners with the most advanced payment services tools available. Revenue growth in this business is accelerating and its ultimate long-term potential is virtually limitless.

		Strengths								Key Business Units
•		Top commercial bankcard issuer		•		Processor of 6 percent of all		•		Corporate Payment Systems
•		Top purchasing bankcard				ATM/debit point of sale				– Travel and entertainment, purchasing, fleet,
		provider				transactions in the U.S.				freight payment systems and business to business
•		Top corporate bankcard		•		Processor of				payments
		provider				ATM/debit/credit		•		Transaction Services
•		Top 2 fleet card				transactions for more than				– ATM banking
		provider				21 percent of all banks in the				– Elan Financial Services
•		Top 2 freight payments provider		•		U.S.		•		NOVA Information Systems, Inc.
•		Top 3 bank-owned ATM network		•		Proprietary technology				– Merchant processing with top 3 market share
•		Top 3 merchant payment				Industry-leading		•		Retail Payment Solutions
		processor				implementation and service				– Relationship-based retail payment solutions;
•		Top 6 U.S. credit and debit card				models				includes credit, debit and stored value cards
		issuer in total sales volume								through U.S. Bank, correspondent agent banks
•		Top 9 ATM processor								and co-brand partners
•		Top 8 worldwide credit and debit
		card issuer in total sales volume

Successes

•		We upgraded an additional 1,376 ATMs to meet the enhanced functionality of our network of 3,408 Super ATMs. Innovative products and services available include stamp dispensing, event ticket sales, voice guidance, multi-language support, pre-paid phone minutes, PIN changes, statements, check reorders and check copy requests.
•		More than 3,300 financial institutions, located in every state and Puerto Rico, choose Elan Financial Services for credit card issuing and to fulfill their ATM, debit card and merchant processing needs.
•		PowerTrack, our innovative online business to business payment and transaction processing system, is our fastest growing Corporate Payment Systems product, with 2002 revenue growth of 25 percent and income contribution growth of 60 percent.
•		Leading the industry, Corporate Payment Systems successfully held its first ever Financial Supply Chain conference, attended by 1,000 clients.
•		Corporate Payment Systems signed its first Global Corporate Payment Systems client, marking the start of exciting new growth and revenue potential.
•		Introduced eCommerce Suite, an e-procurement product that helps businesses empower their employees to make company purchases while simplifying the procurement process.
•		Retail Payment Solutions launched the U.S. Bank Payroll (AccelaPay) and Child Support (ReliaCard) products in 2002; one of the first four issuers to launch payroll product.
•		Retail Payment Solutions successfully launched REI® Visa and Korean Air SKYPASS® co-brand credit card programs.
•		Continued to expand U.S. Bank ATM convenience in non-bank locations such as corporate offices, manufacturing facilities, shopping centers, retailers, supermarkets, gas and convenience stores, colleges and universities, medical facilities, airports and more.

 

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Private Client, Trust & Asset Management

To help individual and institutional clients build, manage and preserve wealth, Private Client, Trust & Asset Management provides mutual fund processing, trust, private banking, financial advisory, retirement, trustee, custody and investment management services. Experienced, committed advisors and relationship managers offer thoughtful solutions based on a highly sophisticated understanding of client needs.

Key Business Units

Strengths

•

Corporate Trust Services

•

Private Client Group

•

Top municipal finance trustee

-

Escrow

-

Private Banking

•

Top 5 in corporate and asset-backed bond issues

-

Public Finance/Structured Finance/Corporate Finance

- -

Personal Trust Investment Management

• •

Top 5 bank-affiliated U.S. mutual fund family Top 5 full-service, third-party provider of mutual fund services

-

Document Custody

-

Financial and Estate Planning

•

Top 6 bank provider of recordkeeping by assets

•

Institutional Trust & Custody

•

U.S. Bancorp Asset Management, Inc.

•

Private Client Group has $63.2 billion in assets under administration

- -

Retirement Plans Institutional Custody

- -

Private Asset Management Securities Lending

•

U.S. Bancorp Asset Management has more than $113 billion in assets under management**; ranks as the 37th largest asset manager domiciled in the U.S.

-

Master Trust

-

Institutional Advisory

•

First American Funds family includes open-end funds with assets of more

-

First American FundsTM

than $52 billion**

•

U.S. Bancorp Fund Services, LLC

•

24 First American Funds named Lipper leaders as of December 31, 2002

-

Mutual Fund Administration and Compliance

•

Easy access, flexibility and creative customization of products and services

-

Transfer Agent

-

Mutual Fund Accounting

-

Fund Distribution

-

Partnership Administration

-

Offshore Trust Administration

Successes

•		Introduced Private Select Platinum Services, an innovative and comprehensive approach to financial and estate management.
•		Private Client Group implemented new financial and estate planning software tools, enhancing our ability to provide sophisticated planning for clients.
•		Launched broker resource site within First American Funds Internet web site.
•		Automation of the U.S. Bancorp Fund Services compliance and financial reporting in 2002, coupled with the development of online client service tools, increased efficiencies and accuracy and enhanced client convenience.
•		Fund Services grew core revenue by 10 percent due to expansion of services offered, a solid and winning client base and a strong competitive position.
•		Corporate Trust Services introduced U.S. Bank SPANS Online, a state-of-the-art Internet reporting and processing system for commercial paper and medium-term issuing and paying agency clients.
•		Institutional Trust & Custody introduced Solution Online, an online, fully automated, multifund-family retirement product.
•		Asset Management introduced the FACTS 529 Plan and Oregon College Savings Plan, and the Private Client Group introduced new FACTS 529 Trust and Agency Accounts, new tax-efficient ways to save for college expenses.
*		Total net revenue is on a taxable-equivalent basis. Treasury and Corporate Support contributed 7.2% of 2002 total net revenue.
**		Assets are as of December 31, 2002, and reflect U.S. Bancorp Asset Management, Inc. and its affiliated private asset management group within U.S. Bank National Association. Investment products, including shares of mutual funds, are not obligations of, or guaranteed by, any bank, including U.S. Bank or any U.S. Bancorp affiliate, nor are they insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other agency. An investment in such products involves investment risk, including possible loss of principal.

 

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Wholesale Banking

U.S. Bank is a full financial partner with the expertise, flexibility and responsiveness to make a difference. We offer lending, depository, treasury management and other financial solutions to meet the complex needs of middle market, large corporate, financial institution and public sector clients. Whether working with local or global clients, U.S. Bank understands industries and markets, and has enormous resources to help our customers grow. Partnering with all areas of U.S. Bank, including Corporate Payment Systems, ATM and Merchant Processing, Trust, e-Commerce and more, we deliver all the financial “pieces” that can mean success.

		Key Business Units				Strengths
•		Commercial Banking		•		Leading depository bank for federal, state and municipal governments
•		Corporate Banking		•		Leading correspondent banking depository for community banks
•		Government Banking		•		Top 5 bank-owned leasing company
•		International Banking		•		Top 7 treasury management provider
•		Real Estate Banking		•		Locally based relationship managers
•		Treasury Management U.S. Bancorp Equipment Finance		•		Combine superior relationship-based partnerships with the most effective new electronic systems and technology platforms
				•		Strategic solutions driven by customer need

Successes

•		Launched U.S. Bank E-Payment Service, allowing government entities and businesses to accept or collect payments via the Internet (e-check).
•		Enhanced imaging functionality and Internet access for lockbox customers.
•		U.S. Bancorp Equipment Finance ended 2002 with record bookings in the small ticket leasing group.
•		Corporate Banking Capital Markets had a record year using interest rate risk management products to help customers take full advantage of the historical low interest rates.
•		Record spread on new business volume in U.S. Bancorp Equipment Finance.
•		Launched U.S. Bank Global Trade Works, an Internet-based international trade solution for initiating and reviewing import, export and standby letters of credit, as well as documentary collections.

Capital Markets

Under the U.S. Bancorp Piper Jaffray brand, the division engages in equity and fixed income trading activities, offers investment banking and underwriting services for corporate and public sector clients and provides financial advisory services and securities, mutual funds, annuities and insurance products to consumers and regionally based businesses through a network of brokerage offices.

		Key Business Units				Strengths
•		Equity Capital Markets		•		Leading provider of fixed-income investment banking services
•		Fixed Income Capital Markets		•		Leading growth company investment bank
•		Private Advisory Services		•		Experienced, trusted advisors
•		Venture Capital		•		Offers personalized guidance and convenient financial products and services to meet investment needs
				•		Provides in-depth research in the communications, consumer, health care, financial institutions, industrial growth and technology industries

Successes

•		Private Advisory Services enhanced financial advisor tools and streamlined back office systems, creating greater client convenience and satisfaction.
•		Equity Capital Markets continued to gain share in merger and acquisition product area, despite a decline in the overall industry.
•		Expanded in various strategic product categories, including a significant addition to convertible securities investment banking and trading product offering.
•		Record year for Fixed Income Capital Markets in public finance deal volume.
•		Fixed Income taxable co-managed deals doubled over 2001.

U.S. Bancorp 13

 

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U.S. Bank Hispanic Initiative
You have friends at U.S. Bank.

Our vision is to become the Best Bank in America for Hispanics. To deliver on our commitment of providing unparalleled products, service and support to the Hispanic market, the coordinated U.S. Bank Hispanic Initiative focuses our strategies on four impact areas: staffing, marketing, products and community involvement.
     Hiring Spanish-speaking branch staff and call center representatives is a priority. Our employees reflect the diversity of their local communities, maintain strong relationships with Hispanic individuals, businesses and community organizations and communicate most effectively with customers.
     Any employee across our company can contact bilingual bankers using an internal directory, so customers who speak another language can be served anywhere, anytime.
     Spanish-language marketing tools assist our employees in fulfilling the financial needs of Spanish-speaking customers. Branch signage, brochures, bilingual direct mail, billboards and print and radio advertisements communicate our products, services and commitment to the Hispanic market.
     We offer many products and services tailored to meet the specific needs of Hispanic customers. Our ATMs and 24-Hour Banking system feature complete Spanish language options. Product information in Spanish is also available on our web site at usbank.com/espanol. We accept identification issued by the Consulate of Mexico to open an account. First-time borrowers can qualify for credit using our Credit Builder Secured Loan and the Secured Visa Card, and U.S. Bank is a partner in the En Su Casa program to provide homeownership counseling and flexible mortgages. We reach out to Hispanic-owned businesses in face-to-face meetings, calling sessions and letters.
     U.S. Bank also sponsors a variety of cultural and community events of importance to Hispanic communities, including events during Cinco de Mayo and Hispanic Heritage Month. We sponsor and partner with local and national Hispanic organizations, including the United States Hispanic Chamber of Commerce (USHCC), the National Council of La Raza (NCLR) and the Latin Business Association (LBA).

Iniciativa Hispana de U.S. Bank        
Usted tiene amigos en U.S. Bank.

Nuestra vision es convertirnos en el Mejor Banco de los Estados Unidos de America para la comunidad hispana. Para poder cumplir con nuestro compromiso de brindar productos, servicios y asistencia inigualables al mercado de la comunidad hispana, la coordinada Iniciativa Hispana de U.S. Bank concentra su estrategia en cuatro areas de impacto: contratacion de personal, mercadeo, productos y compromiso con la comunidad.
     Una de nuestras prioridades es la contratacion de personal que hable espanol para las sucursales y centros de atencion telefonica. Nuestros empleados reflejan la diversidad de sus comunidades locales, mantienen solidas relaciones con particulares, empresas y organizaciones comunitarias hispanas y se comunican de un modo muy eficaz con los clientes. Todos los empleados de nuestra empresa pueden ponerse en contacto con agentes bilingües por medio de un directorio interno, para que los clientes que hablan otros idiomas puedan recibir atencion en cualquier lugar y en cualquier momento.
     Las herramientas de mercadeo en espanol ayudan a nuestros empleados a satisfacer las necesidades financieras de los clientes de habla hispana. Los carteles publicitarios de las sucursales, los folletos, la correspondencia directa bilingüe, las carteleras y la publicidad en medios graficos y radiofonicos difunden nuestros productos, servicios y compromiso con el mercado hispano.
     Ofrecemos multiples productos y servicios personalizados para satisfacer las necesidades especificas de los clientes hispanos. Nuestros cajeros automaticos y nuestro Servicio bancario las 24 horas (24-Hour Banking) presentan todo el menu de opciones en espanol. La informacion de productos en espanol tambien esta disponible en nuestro sitio de Internet: usbank.com/espanol. Aceptamos documentos de identidad emitidos por el Consulado de Mexico para abrir una cuenta. Quienes solicitan un credito por primera vez pueden calificar para dicho credito utilizando nuestro Prestamo Asegurado para el Desarrollo de Historial de Credito y la Tarjeta Visa Asegurada. U.S. Bank es socio del programa En Su Casa que brinda asesoramiento e hipotecas flexibles a los propietarios. Llegamos a las empresas cuyos duenos son hispanos a traves de reuniones personales, sesiones telefonicas y correspondencia.
     U.S. Bank tambien es patrocinador de una variedad de acontecimientos culturales y comunitarios de importancia para la poblacion hispana, entre los cuales se incluyen los eventos del Cinco de Mayo y del Mes de la Herencia Hispana. Patrocinamos y nos asociamos con organizaciones hispanas locales y nacionales, incluyendo la Camara de Comercio Hispana de los Estados Unidos de America (USHCC, por sus siglas en ingles), el Consejo Nacional de la Raza (NCLR) y la Asociacion de Empresas Latinas/os (LBA).

14 U.S. Bancorp

 

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U.S. Bank supports a wide range of community events and activities, including (above) the U.S. Bank Junior Padres program for youngsters in San Diego and (left) U.S. Bank Wild Lights at the St. Louis Zoo.

Every Community Counts

From Seattle to Sioux Falls, from San Diego to Paducah, from Minneapolis to Missoula, U.S. Bank values each community we serve. Recognizing that we are only as successful as the communities in which we operate, we take a leadership position in economic development, quality of life issues and cultural and charitable endeavors.
     We offer customers in all our markets top quality financial products and services, and we offer specialized products for those customers who may just be starting out or who need extra help in getting established or reestablished financially.
     Among those specialized products are our innovative programs for first-time home buyers, small businesses and affordable housing developers. In 2002, we made over a billion dollars in loans and investments to support the creation of affordable housing, to launch businesses and to foster economic revitalization.

U.S. Bancorp Continues Our Long Tradition of Charitable Giving
Through the U.S. Bancorp Foundation, in 2002, we provided more than $22 million in cash grants to a wide range of qualified nonprofit organizations. From affordable housing to art museums, from youth mentorship to United Way, U.S. Bancorp Foundation helped communities achieve their dreams in 2002.
     In addition to cash grants, we provide loan assistance, expertise, more than 150 sponsor relationships across our banking region, in-kind donations and tens of thousands of hours of volunteering by our employees.

Local Bank Management and Bank Advisory Boards Ensure Focus on Each Market
Our bank is structured so that every community has seasoned leaders, capable managers and an employee base committed to their local market. These leadership teams know their markets and the people in them; they know the community needs and what it takes to build a strong economic base; they understand the businesses and the industries that make their communities strong. In addition, we have more than 174 local advisory boards whose 1,266 members are respected business leaders of the cities, towns and rural areas in which we do business. Our advisory boards offer us valuable insights and perspective..

U.S. Bancorp 15

 

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OVERVIEW

U.S. Bancorp and its subsidiaries (the “Company”) comprise the organization created by the acquisition by Firstar Corporation of the former U.S. Bancorp of Minneapolis, Minnesota (“USBM”). The merger was completed on February 27, 2001, as a pooling-of-interests, and accordingly all financial information has been restated to include the historical information of both companies. Each share of Firstar stock was exchanged for one share of the Company’s common stock while each share of USBM stock was exchanged for 1.265 shares of the Company’s common stock. The new company retained the U.S. Bancorp name.

Earnings Summary The Company reported net income of $3.3 billion in 2002, or $1.71 per diluted share, compared with $1.7 billion, or $.88 per diluted share, in 2001. Return on average assets and return on average equity were 1.91 percent and 19.4 percent in 2002, compared with returns of 1.03 percent and 10.5 percent in 2001. The increase in earnings per diluted share, return on average assets and return on average equity was primarily due to total net revenue growth, lower noninterest expense and a reduction in the provision for credit losses. Net income in 2002 included after-tax merger and restructuring-related items of $211.3 million ($324.1 million on a pre-tax basis) and a cumulative effect of change in accounting principles of $37.2 million, or $0.2 per diluted share, compared with after-tax merger and restructuring-related items of $844.3 million ($1.3 billion on a pre-tax basis) in 2001. Refer to the “Accounting Changes” section for further discussion of the earnings impact of changes in accounting principles. Merger and restructuring-related items in 2002, on a pre-tax basis, included $271.1 million of net expenses associated with the Firstar/USBM merger and $53.0 million associated with the acquisition of NOVA Corporation and other smaller acquisitions. In 2001, merger and restructuring-related items, on a pre-tax basis, included a $62.2 million gain on the sale of branches, $847.2 million of noninterest expense and $382.2 million of provision for credit losses associated with the Firstar/USBM merger. Merger and restructuring-related items in 2001 also included $50.7 million of expense for restructuring operations of U.S. Bancorp Piper Jaffray, and $48.5 million related to the acquisition of NOVA and other smaller acquisitions. Refer to the “Merger and Restructuring-Related Items” section for further discussion.

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Table 1	Selected Financial Data

Year Ended December 31
(Dollars and Shares in Millions, Except Per Share Data)			2002				2001				2000				1999				1998
Condensed Income Statement
Net interest income (taxable-equivalent basis) (a)			$	6,876.3			$	6,423.0			$	6,091.8			$	5,888.0			$	5,659.9
Noninterest income				5,568.7				5,072.0				4,918.3				4,276.4				3,637.2
Securities gains, net				299.9				329.1				8.1				13.2				29.1
	Total net revenue			12,744.9				11,824.1				11,018.2				10,177.6				9,326.2
Noninterest expense				6,256.6				6,605.2				5,717.0				5,661.3				5,423.4
Provision for credit losses				1,349.0				2,528.8				828.0				646.0				491.3
	Income before taxes and cumulative effect of change in accounting principles			5,139.3				2,690.1				4,473.2				3,870.3				3,411.5
Taxable-equivalent adjustment				36.6				55.9				85.4				96.3				111.2
Income taxes				1,776.3				927.7				1,512.2				1,392.2				1,167.4
Income before cumulative effect of change in accounting principles				3,326.4				1,706.5				2,875.6				2,381.8				2,132.9
Cumulative effect of change in accounting principles (after-tax)				(37.2	)			—				—				—				—
	Net income		$	3,289.2			$	1,706.5			$	2,875.6			$	2,381.8			$	2,132.9
Per Common Share
Earnings per share before cumulative effect of change in accounting principles			$	1.74			$	.89			$	1.51			$	1.25			$	1.12
Diluted earnings per share before cumulative effect of change in accounting principles				1.73				.88				1.50				1.23				1.10
Earnings per share				1.72				.89				1.51				1.25				1.12
Diluted earnings per share				1.71				.88				1.50				1.23				1.10
Dividends declared per share (b)				.78				.75				.65				.46				.33
Book value per share				9.44				8.43				7.97				7.23				6.61
Market value per share				21.22				20.93				23.25				21.13				31.00
Average shares outstanding				1,916.0				1,927.9				1,906.0				1,907.8				1,898.8
Average diluted shares outstanding				1,926.1				1,939.5				1,918.5				1,930.0				1,930.5
Financial Ratios
Return on average assets				1.91	%			1.03	%			1.81	%			1.59	%			1.49	%
Return on average equity				19.4				10.5				20.0				18.0				17.2
Net interest margin (taxable-equivalent basis)				4.61				4.42				4.33				4.40				4.43
Efficiency ratio				50.3				57.5				51.9				55.7				58.3
Average Balances
Loans			$	114,456			$	118,177			$	118,317			$	109,638			$	102,451
Loans held for sale				2,644				1,911				1,303				1,450				1,264
Investment securities				28,829				21,916				17,311				19,271				21,114
Earning assets				149,143				145,165				140,606				133,757				127,738
Assets				171,948				165,944				158,481				150,167				142,887
Noninterest-bearing deposits				28,715				25,109				23,820				23,556				23,011
Deposits				105,124				104,956				103,426				99,920				98,940
Short-term borrowings				11,304				12,980				12,586				11,707				11,102
Long-term debt				29,604				24,608				22,410				20,248				15,732
Total shareholders’ equity				16,963				16,201				14,365				13,221				12,383
Period End Balances
Loans			$	116,251			$	114,405			$	122,365			$	113,229			$	106,958
Allowance for credit losses				2,422				2,457				1,787				1,710				1,706
Investment securities				28,488				26,608				17,642				17,449				20,965
Assets				180,027				171,390				164,921				154,318				150,714
Deposits				115,534				105,219				109,535				103,417				104,346
Long-term debt				28,588				25,716				21,876				21,027				18,679
Total shareholders’ equity				18,101				16,461				15,168				13,947				12,574
Regulatory capital ratios
	Tangible common equity			5.6	%			5.7	%			6.3	%			*				*
	Tier 1 capital			7.8				7.7				7.2				7.4				*
	Total risk-based capital			12.2				11.7				10.6				11.0				*
	Leverage			7.5				7.7				7.4				7.5				*

*	Information was not available to compute pre-merger proforma percentages.

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$29.2 million, compared with 2001, and the recognition of $186.0 million in MSR impairments in 2002, an increase of $125.2 million, compared with 2001. Results for 2002 also reflected $67.4 million in gains from credit card portfolio sales; a $50.0 million litigation charge, including investment banking regulatory matters at Piper; incremental personnel costs of $46.4 million, in part to rationalize post-integration technology, operations and support functions; and $25.5 million in leasing residual impairments. Notable items in 2001 included $1.2 billion in the provision for credit losses representing an incremental third quarter provision of $1,025 million and a $160 million increase in the first quarter of 2001 in connection with the acceleration of certain workout strategies. Results for 2001 also reflected $36.0 million of leasing residual impairments, $40.2 million of write-downs of commercial leasing partnerships and $22.2 million of asset write-downs of tractor/trailer inventory and other items. Excluding the impact of these items, accounting changes and acquisitions, the Company’s revenue growth in 2002 was 5.4 percent while noninterest expense was essentially flat.

Table 1	Selected Financial Data — Supplemental Information

Financial Results and Ratios on an Operating Basis (c)

Year Ended December 31
(Dollars and Shares in Millions)			2002				2001				2000				1999				1998
Condensed Income Statement
Net interest income (taxable-equivalent basis) (a)			$	6,876.3			$	6,423.0			$	6,091.8			$	5,888.0			$	5,659.9
Noninterest income				5,568.7				5,009.8				4,918.3				4,276.4				3,589.1
Securities gains, net				299.9				329.1				8.1				13.2				29.1
	Total net revenue			12,744.9				11,761.9				11,018.2				10,177.6				9,278.1
Noninterest expense				5,932.5				5,658.8				5,368.3				5,128.5				4,829.6
Provision for credit losses				1,349.0				2,146.6				828.0				638.5				453.4
	Income before taxes and merger and restructuring- related items and cumulative effect of change in accounting principles			5,463.4				3,956.5				4,821.9				4,410.6				3,995.1
Taxable-equivalent adjustment				36.6				55.9				85.4				96.3				111.2
Income taxes				1,889.1				1,349.8				1,629.6				1,515.3				1,364.6
Operating earnings				3,537.7				2,550.8				3,106.9				2,799.0				2,519.3
Merger and restructuring-related items (after-tax)				(211.3	)			(844.3	)			(231.3	)			(417.2	)			(386.4	)
Cumulative effect of change in accounting principles (after-tax)				(37.2	)			—				—				—				—
	Net income in accordance with GAAP		$	3,289.2			$	1,706.5			$	2,875.6			$	2,381.8			$	2,132.9
Average diluted shares outstanding				1,926.1				1,939.5				1,918.5				1,930.0				1,930.5
Financial Ratios
Return on average assets				2.06	%			1.54	%			1.96	%			1.86	%			1.76	%
Return on average equity				20.9				15.7				21.6				21.2				20.3
Efficiency ratio				47.7				49.5				48.8				50.5				52.2
Banking efficiency ratio (d)				44.0				45.2				43.5				46.3				49.7

(a)	Interest and rates are presented on a fully taxable-equivalent basis utilizing a tax rate of 35 percent.
(b)	Dividends per share have not been restated for the 2001 Firstar/USBM merger.
(c)	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 basis before merger and restructuring-related items and cumulative effect of change in accounting principles referred to in this Annual Report and Form 10-K 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 and cumulative effect of change in accounting principles. 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.
(d)	Without investment banking and brokerage activity.

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Acquisition and Divestiture Activity In addition to restating all prior periods to reflect the Firstar/USBM merger, operating results for 2002 reflected the following transactions accounted for as purchases from the date of completion.

Table 2	Reconciliation of Operating Earnings to Net Income in Accordance with GAAP

Year Ended December 31 (Dollars in Millions, Except Per Share Data)				2002				2001				2000				1999				1998
Operating earnings (a)				$	3,537.7			$	2,550.8			$	3,106.9			$	2,799.0			$	2,519.3
Merger and restructuring-related items
	Gains on the sale of branches				—				62.2				—				—				48.1
	Integration, conversion and other charges				(324.1	)			(946.4	)			(348.7	)			(355.1	)			(593.8	)
	Securities losses to restructure portfolio				—				—				—				(177.7	)			—
	Provision for credit losses (b)				—				(382.2	)			—				(7.5	)			(37.9	)
	Pre-tax impact				(324.1	)			(1,266.4	)			(348.7	)			(540.3	)			(583.6	)
	Applicable tax benefit				112.8				422.1				117.4				123.1				197.2
		Total merger and restructuring-related items (after-tax)			(211.3	)			(844.3	)			(231.3	)			(417.2	)			(386.4	)
Cumulative effect of change in accounting principles (after-tax)					(37.2	)			—				—				—				—
Net income in accordance with GAAP				$	3,289.2			$	1,706.5			$	2,875.6			$	2,381.8			$	2,132.9
Diluted earnings per share
	Operating earnings (a)			$	1.84			$	1.32			$	1.62			$	1.45			$	1.30
	Net income in accordance with GAAP				1.71				.88				1.50				1.23				1.10

(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 basis before merger and restructuring-related items and cumulative effect of change in accounting principles referred to in this Annual Report and Form 10-K 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 and cumulative effect of change in accounting principles. 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.
(b)	Provision for credit losses in 2001 includes losses of $201.3 million on the disposition of an unsecured small business product, losses of $76.6 million on the sales of high loan-to-value home equity loans and the indirect automobile loan portfolio of USBM, a $90.0 million charge to align risk management practices, align charge-off policies and expedite the transition out of a specific segment of the health care industry not meeting the lower risk appetite of the Company, and a $14.3 million charge related to the restructuring of a co-branding credit card relationship.

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Planned Tax-Free Distribution On February 19, 2003, the Company announced that its Board of Directors approved a plan to effect a spin-off of its capital markets business unit, including investment banking and brokerage activities primarily conducted by its wholly owned subsidiary, U.S. Bancorp Piper Jaffray Inc. In 2002, the capital markets business unit had average assets of $3.0 billion, generated revenues of $737.3 million (5.8 percent of total consolidated revenues) and contributed $1.1 million of net income representing less than 1 percent of the Company’s consolidated net income.

STATEMENT OF INCOME ANALYSIS

Net Interest Income Net interest income, on a taxable-equivalent basis, was $6.9 billion in 2002, compared with $6.4 billion in 2001 and $6.1 billion in 2000. The increase in net interest income in 2002 was due to improvement in net interest margin and growth in average earning assets. The net interest margin in 2002 was 4.61 percent, compared with 4.42 percent and 4.33 percent in 2001 and 2000, respectively. Average earning assets were $149.1 billion for 2002, compared with $145.2 billion and $140.6 billion for 2001 and 2000, respectively.

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Table 3	Analysis of Net Interest Income

															2002				2001
(Dollars in Millions)			2002				2001				2000				v 2001				v 2000
Components of net interest income
	Income on earning assets (taxable-equivalent basis) (a)		$	9,590.3			$	11,097.8			$	12,114.7			$	(1,507.5	)		$	(1,016.9	)
	Expenses on interest-bearing liabilities			2,714.0				4,674.8				6,022.9				(1,960.8	)			(1,348.1	)
Net interest income (taxable-equivalent basis)			$	6,876.3			$	6,423.0			$	6,091.8			$	453.3			$	331.2
Net interest income, as reported			$	6,839.7			$	6,367.1			$	6,006.4			$	472.6			$	360.7
Average yields and rates paid
	Earning assets yield (taxable-equivalent basis)			6.43	%			7.64	%			8.62	%			(1.21	)%			(.98	)%
	Rate paid on interest-bearing liabilities			2.26				3.92				5.19				(1.66	)			(1.27	)
Gross interest margin (taxable-equivalent basis)				4.17	%			3.72	%			3.43	%			.45	%			.29	%
Net interest margin (taxable-equivalent basis)				4.61	%			4.42	%			4.33	%			.19	%			.09	%
Average balances
	Investment securities		$	28,829			$	21,916			$	17,311			$	6,913			$	4,605
	Loans			114,456				118,177				118,317				(3,721	)			(140	)
	Earning assets			149,143				145,165				140,606				3,978				4,559
	Interest-bearing liabilities			120,221				119,390				116,002				831				3,388
	Net free funds (b)			28,922				25,775				24,604				3,147				1,171

(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, non-earning assets, other liabilities and equity.

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Provision for Credit Losses The provision for credit losses is recorded to bring the allowance for credit losses to a level deemed appropriate by management based on factors discussed in the “Analysis and Determination of Allowance for Credit Losses” section. The provision for credit losses was $1,349.0 million in 2002, compared with $2,528.8 million and $828.0 million in 2001 and 2000, respectively.

Table 4	Net Interest Income — Changes Due to Rate and Volume (a)

					2002 v 2001												2001 v 2000
(Dollars in Millions)					Volume				Yield/Rate				Total				Volume				Yield/Rate				Total
Increase (decrease) in
	Interest income
		Commercial loans			$	(450.8	)		$	(535.7	)		$	(986.5	)		$	.8			$	(614.1	)		$	(613.3	)
		Commercial real estate				(27.5	)			(338.9	)			(366.4	)			3.6				(297.8	)			(294.2	)
		Residential mortgages				(12.6	)			(50.3	)			(62.9	)			(202.9	)			(2.6	)			(205.5	)
		Retail loans				288.2				(543.6	)			(255.4	)			248.4				(245.3	)			3.1
			Total loans			(202.7	)			(1,468.5	)			(1,671.2	)			49.9				(1,159.8	)			(1,109.9	)
		Loans held for sale				56.4				(32.7	)			23.7				47.7				(2.9	)			44.8
		Investment securities				403.7				(235.2	)			168.5				314.1				(190.5	)			123.6
		Money market investments				(1.8	)			(14.2	)			(16.0	)			(12.7	)			(14.6	)			(27.3	)
		Trading securities				12.6				(31.0	)			(18.4	)			(.6	)			2.3				1.7
		Other earning assets				(3.9	)			9.8				5.9				(22.1	)			(27.7	)			(49.8	)
			Total			264.3				(1,771.8	)			(1,507.5	)			376.3				(1,393.2	)			(1,016.9	)
	Interest expense
		Interest checking				24.4				(125.7	)			(101.3	)			19.2				(86.0	)			(66.8	)
		Money market accounts				8.7				(406.9	)			(398.2	)			94.7				(383.7	)			(289.0	)
		Savings accounts				3.3				(20.7	)			(17.4	)			(6.7	)			(24.8	)			(31.5	)
		Time certificates of deposit less than $100,000				(215.2	)			(282.8	)			(498.0	)			(142.9	)			(74.0	)			(216.9	)
		Time deposits greater than $100,000				(83.1	)			(244.8	)			(327.9	)			9.2				(195.7	)			(186.5	)
			Total interest-bearing deposits			(261.9	)			(1,080.9	)			(1,342.8	)			(26.5	)			(764.2	)			(790.7	)
		Short-term borrowings				(68.9	)			(215.8	)			(284.7	)			24.5				(272.1	)			(247.6	)
		Long-term debt				240.3				(582.4	)			(342.1	)			148.4				(475.3	)			(326.9	)
		Company-obligated mandatorily redeemable preferred securities				62.1				(53.3	)			8.8				43.9				(26.8	)			17.1
			Total			(28.4	)			(1,932.4	)			(1,960.8	)			190.3				(1,538.4	)			(1,348.1	)
		Increase (decrease) in net interest income			$	292.7			$	160.6			$	453.3			$	186.0			$	145.2			$	331.2

(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.

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Noninterest Income Noninterest income in 2002 was $5.9 billion, compared with $5.4 billion in 2001 and $4.9 billion in 2000. Noninterest income in 2001 included $62.2 million of merger and restructuring-related gains in connection with the sale of 14 branches representing $771 million in deposits. Refer to Note 5 of the Notes to Consolidated Financial Statements for further information on merger and restructuring-related items.

Table 5	Noninterest Income

															2002				2001
(Dollars in Millions)			2002				2001				2000				v 2001				v 2000
Credit and debit card revenue			$	517.0			$	465.9			$	431.0				11.0	%			8.1	%
Corporate payment products revenue				325.7				297.7				299.2				9.4				(.5	)
ATM processing services				136.9				130.6				141.9				4.8				(8.0	)
Merchant processing services				567.3				308.9				120.0				83.7				*
Trust and investment management fees				899.1				894.4				926.2				.5				(3.4	)
Deposit service charges				714.0				667.3				555.6				7.0				20.1
Cash management fees				416.9				347.3				292.4				20.0				18.8
Commercial products revenue				479.2				437.4				350.0				9.6				25.0
Mortgage banking revenue				330.2				234.0				189.9				41.1				23.2
Trading account profits and commissions				206.5				221.6				258.4				(6.8	)			(14.2	)
Investment products fees and commissions				428.9				460.1				466.6				(6.8	)			(1.4	)
Investment banking revenue				207.4				258.2				360.3				(19.7	)			(28.3	)
Securities gains, net				299.9				329.1				8.1				(8.9	)			*
Other				339.6				286.4				526.8				18.6				(45.6	)
	Total operating noninterest income			5,868.6				5,338.9				4,926.4				9.9				8.4
Merger and restructuring-related gains				—				62.2				—				*				*
	Total noninterest income		$	5,868.6			$	5,401.1			$	4,926.4				8.7	%			9.6	%

* Not meaningful

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Noninterest Expense Noninterest expense in 2002 was $6.3 billion, compared with $6.6 billion and $5.7 billion in 2001 and 2000, respectively. Noninterest expense included merger and restructuring-related charges of $324.1 million in 2002, compared with $946.4 million in 2001 and $348.7 million in 2000. Excluding merger and

Table 6	Noninterest Expense

															2002				2001
(Dollars in Millions)			2002				2001				2000				v 2001				v 2000
Salaries			$	2,409.2			$	2,347.1			$	2,427.1				2.6	%			(3.3	)%
Employee benefits				367.7				366.2				399.8				.4				(8.4	)
Net occupancy				409.3				417.9				396.9				(2.1	)			5.3
Furniture and equipment				306.0				305.5				308.2				.2				(.9	)
Professional services				142.5				123.8				109.0				15.1				13.6
Advertising and marketing				117.9				121.6				122.1				(3.0	)			(.4	)
Travel and entertainment				83.6				90.6				107.0				(7.7	)			(15.3	)
Capitalized software				148.1				136.1				111.9				8.8				21.6
Data processing				112.5				80.0				149.7				40.6				(46.6	)
Communication				183.8				181.4				138.8				1.3				30.7
Postage				178.4				179.8				174.5				(.8	)			3.0
Printing				79.8				77.9				86.5				2.4				(9.9	)
Goodwill				—				251.1				235.0				*				6.9
Other intangible assets				553.0				278.4				157.3				98.6				77.0
Other				840.7				701.4				444.5				19.9				57.8
	Total operating noninterest expense			5,932.5				5,658.8				5,368.3				4.8				5.4
Merger and restructuring-related charges				324.1				946.4				348.7				(65.8	)			*
	Total noninterest expense		$	6,256.6			$	6,605.2			$	5,717.0				(5.3	)%			15.5	%
Efficiency ratio (a)				50.3	%			57.5	%			51.9	%
Efficiency ratio, operating basis (b)				47.7				49.5				48.8
Banking efficiency ratio, operating basis (b) (c)				44.0				45.2				43.5

(a)	Computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding securities gains (losses), net.
(b)	Operating basis represents the efficiency ratios excluding merger and restructuring-related items.
(c)	Without investment banking and brokerage activity.
*	Not meaningful

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Pension Plans Because of the long-term nature of pension plans, the accounting for pensions is complex and can be impacted by several factors, including accounting methods, investment and funding policies and the plan’s actuarial assumptions. The Company’s pension accounting policy complies with the Statement of Financial Accounting Standards No. 87, “Employer’s Accounting for Pension Plans” (“SFAS 87”), and reflects the long-term nature of benefit obligations and the investment horizon of plan assets. The Company has an established process for evaluating the plans, their performance and significant plan assumptions, including the assumed discount rate and the long-term rate of return (“LTROR”). At least annually, an independent consultant is engaged to assist U.S. Bancorp’s Compensation Committee in evaluating plan objectives, investment policies considering its long-term investment time horizon and asset allocation strategies, funding policies and significant plan assumptions. Although plan assumptions are established annually, the Company may update its analysis on an interim basis in order to be responsive to significant events that occur during the year, such as plan mergers and amendments.

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														As Reported
		Combined or Weighted Plan
		Assumptions (a)												USBM								Firstar
		2003				2002				2001				2001				2000				2001				2000
Expected long-term return on plan assets			9.9	%			10.9	%			11.6	%			11.0	%			9.5	%			12.2	%			12.2	%
Discount rate in determining benefit obligations			6.8				7.2				7.9				7.5				7.8				7.5				8.0
Rate of increase in future compensation			3.5				3.5				4.8				3.5				5.6				3.5				4.0

(a)	The weighted rates for 2002 represent a blended rate utilizing the original 2002 assumption for the first six months of 2002 and the rates for 2003 for the second six months of 2002. The rates for 2003 represent the most recent information available at the re-measurement date.

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			Asset Allocation												Expected Returns
			Typical				December																Standard
Asset Class			Asset Mix				2002				Target (a)				Compound				Average				Deviation
Domestic Equities
	Large Cap			30	%			33	%			36	%			8.5	%			9.9	%			18.0	%
	Mid Cap			15				18				18				8.8				10.8				21.1
	Small Cap			15				27				26				9.0				11.5				24.0
International Equities				10				18				20				8.7				10.8				21.9
Fixed Income				30				—				—
Other				—				4				—
Total mix or weighted rates				100	%			100	%			100	%			9.1				10.7				18.8
	LTROR assumed			8.1	%							9.9	% (b)
	Standard deviation			14.1	%							18.8	%
	Sharpe ratio (c)			.409								.382

(a)	The target asset allocation was modified slightly from the existing asset allocation at September 30, 2002, to enhance the portfolio’s diversification.
(b)	The LTROR assumed for the target asset allocation strategy of 9.9 percent is based on a range of estimates evaluated by the Company, including the compound expected return of 9.1 percent and the average expected return of 10.7 percent.
(c)	The Sharpe ratio is a direct measure of reward-to-risk. The Sharpe ratio for these asset allocation strategies is considered to be within acceptable parameters.

     Regardless of the extent of the Company’s analysis of alternative asset allocation strategies, economic scenarios and possible outcomes, plan assumptions developed are subject to imprecision and changes in economic factors. To illustrate, for the period from 1994 to 2001, the actual return on plan assets was 11.3 percent compared with an

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			Base
LTROR		7.9%				8.9%				9.9%				10.9%				11.9%
Incremental benefit (cost)		$	(40.7	)		$	(20.4	)		$	—			$	20.4			$	40.7
Percent of 2002 net income			(.77	)%			(.38	)%			—	%			.38	%			.77	%

			Base
Discount		4.8%				5.8%				6.8%				7.8%				8.8%
Incremental benefit (cost)		$	(49.3	)		$	(25.2	)		$	—			$	9.9			$	26.2
Percent of 2002 net income			(.93	)%			(.48	)%			—	%			.19	%			.49	%

Merger and Restructuring-Related Items The Company incurred merger and restructuring-related items in each of the last three years in conjunction with its acquisitions. Merger and restructuring-related items included in pre-tax earnings were $324.1 million ($211.3 million after-tax) in 2002, compared with $1,266.4 million ($844.3 million after-tax) and $348.7 million ($231.3 million after-tax) for 2001 and 2000, respectively. Merger and restructuring-related items in 2002 included $271.1 million of net expense associated with the Firstar/USBM merger and $53.0 million associated with NOVA and other smaller acquisitions. Merger and restructuring-related items in 2002 associated with the Firstar/USBM merger were primarily related to systems conversions and integration, asset write-downs and lease terminations recognized at the completion of conversions. Offsetting a portion of these costs in 2002 was an asset gain related to the sale of a non-strategic investment in a sub-prime lending business and a mark-to-market recovery associated with the liquidation of U.S. Bancorp Libra’s investment portfolio. The Company exited this business in 2001 and the liquidation efforts were substantially completed in the second quarter of 2002.

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Income Tax Expense The provision for income taxes was $1,776.3 million (an effective rate of 34.8 percent) in 2002, compared with $927.7 million (an effective rate of 35.2 percent) in 2001 and $1,512.2 million (an effective rate of 34.5 percent) in 2000. The decrease in the effective tax rate in 2002, compared with 2001, was primarily driven by a change in unitary state tax apportionment factors, a decrease in non-deductible merger and restructuring-related charges and the change in accounting for goodwill. The effective tax rate increase in 2001, compared with 2000, was primarily due to a decline in tax-exempt interest related to sales of investment securities, the impact of unitary state tax apportionment factors on the Company, non-deductible merger and restructuring-related costs and the acquisition of NOVA.

BALANCE SHEET ANALYSIS

Average earning assets were $149.1 billion in 2002, compared with $145.2 billion in 2001. The increase in average earning assets of $3.9 billion (2.7 percent) was primarily driven by increases in the investment portfolio, core retail loan growth, and the impact of acquisitions. This growth was partially offset by declines in commercial and commercial real estate loans reflecting lower borrowing

Table 7	Loan Portfolio Distribution

					2002								2001								2000								1999								1998
									Percent								Percent								Percent								Percent								Percent
December 31 (Dollars in Millions)					Amount				of Total				Amount				of Total				Amount				of Total				Amount				of Total				Amount				of Total
Commercial
	Commercial				$	36,584				31.5	%		$	40,472				35.4	%		$	47,041				38.5	%		$	42,021				37.1	%		$	37,777				35.3	%
	Lease financing					5,360				4.6				5,858				5.1				5,776				4.7				3,835				3.4				3,291				3.1
		Total commercial				41,944				36.1				46,330				40.5				52,817				43.2				45,856				40.5				41,068				38.4
Commercial real estate
	Commercial mortgages					20,325				17.5				18,765				16.4				19,466				15.9				18,636				16.5				16,602				15.5
	Construction and development					6,542				5.6				6,608				5.8				6,977				5.7				6,506				5.7				5,206				4.9
		Total commercial real estate				26,867				23.1				25,373				22.2				26,443				21.6				25,142				22.2				21,808				20.4
Residential mortgages						9,746				8.4				7,829				6.8				9,397				7.7				12,760				11.3				14,982				14.0
Retail
	Credit card					5,665				4.9				5,889				5.1				6,012				4.9				5,004				4.4				4,856				4.5
	Retail leasing					5,680				4.9				4,906				4.3				4,153				3.4				2,123				1.9				1,621				1.5
	Home equity and second mortgages (a)					13,572				11.6				12,235				10.7				11,956				9.7				*				*				*				*
	Other retail
		Revolving credit				2,650				2.3				2,673				2.3				2,750				2.2				*				*				*				*
		Installment				2,258				1.9				2,292				2.0				2,186				1.8				*				*				*				*
		Automobile				6,343				5.5				5,660				5.0				5,609				4.6				*				*				*				*
		Student				1,526				1.3				1,218				1.1				1,042				.9				*				*				*				*
			Total other retail (a)			12,777				11.0				11,843				10.4				11,587				9.5				22,344				19.7				22,623				21.2
		Total retail				37,694				32.4				34,873				30.5				33,708				27.5				29,471				26.0				29,100				27.2
			Total loans		$	116,251				100.0	%		$	114,405				100.0	%		$	122,365				100.0	%		$	113,229				100.0	%		$	106,958				100.0	%

(a)	Home equity and second mortgages are included within the total other retail category for the periods prior to the year 2000.

*	Information not available

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Loans The Company’s total loan portfolio was $116.3 billion at December 31, 2002, compared with $114.4 billion at December 31, 2001, an increase of $1.9 billion (1.6 percent). The increase in total loans was driven by strong retail loan and residential mortgage growth, partially offset by a decline in commercial loans due in part to current economic conditions. During 2002, there were reclassifications between loan categories that occurred in connection with conforming loan classifications at the time of system conversions. Prior years were not restated, as it was impractical to determine the extent of reclassification for all periods presented. Average total loans decreased $3.7 billion (3.1 percent) in 2002, compared with 2001. The decline in total average loans in 2002, compared with 2001, was driven by the decline in commercial and commercial real estate loans in 2002 and the impact of transfers of high credit quality commercial loans to the loan conduit in 2001. The decline in commercial and commercial real estate loans was partially offset by growth in retail loans and residential mortgages. Average total loans on a core basis decreased by $2.7 billion (2.2 percent) relative to the prior year.

Commercial Commercial loans, including lease financing, totaled $41.9 billion at December 31, 2002, compared with $46.3 billion at December 31, 2001, a decrease of $4.4 billion (9.5 percent). The decline was driven by softness in loan demand, credit-related actions including

Table 8	Commercial Loan Exposure by Industry Group and Geography

			December 31, 2002								December 31, 2001
Industry Group (Dollars in Millions)			Loans				Percent				Loans				Percent
Consumer products and services			$	7,206				17.2	%		$	7,622				16.5	%
Financials				5,769				13.7				5,859				12.6
Capital goods				5,486				13.1				6,497				14.0
Commercial services and supplies				3,853				9.2				4,178				9.0
Agriculture				3,153				7.5				3,433				7.4
Transportation				2,231				5.3				2,560				5.5
Consumer staples				1,924				4.6				2,060				4.5
Private investors				1,759				4.2				1,864				4.0
Paper and forestry products, mining and basic materials				1,664				4.0				2,053				4.4
Health care				1,475				3.5				1,567				3.4
Property management and development				1,266				3.0				1,384				3.0
Technology				797				1.9				1,089				2.4
Energy				575				1.4				410				.9
Other				4,786				11.4				5,754				12.4
	Total		$	41,944				100.0	%		$	46,330				100.0	%
Geography
California			$	4,127				9.8	%		$	3,969				8.6	%
Colorado				1,796				4.3				2,008				4.3
Illinois				2,214				5.3				2,339				5.0
Minnesota				6,605				15.7				6,511				14.1
Missouri				2,895				6.9				2,104				4.5
Ohio				2,455				5.9				2,896				6.3
Oregon				1,604				3.8				2,014				4.3
Washington				3,129				7.5				3,882				8.4
Wisconsin				3,052				7.3				3,115				6.7
Iowa, Kansas, Nebraska, North Dakota, South Dakota				4,421				10.5				5,059				10.9
Arkansas, Indiana, Kentucky, Tennessee				1,865				4.4				1,897				4.1
Idaho, Montana, Wyoming				996				2.4				1,014				2.2
Arizona, Nevada, Utah				986				2.4				1,057				2.3
	Total banking region			36,145				86.2				37,865				81.7
Outside the Company’s banking region				5,799				13.8				8,465				18.3
	Total		$	41,944				100.0	%		$	46,330				100.0	%

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Commercial Real Estate The Company’s portfolio of commercial real estate loans, which includes commercial mortgages and construction loans, was $26.9 billion at December 31, 2002, compared with $25.4 billion at December 31, 2001, an increase of $1.5 billion (5.9 percent). Included in the change in commercial real estate loans at year-end was a net reclassification of approximately $.5 billion to the commercial real estate loan category predominately from the commercial loan category. Commercial mortgages outstanding increased by $1.6 billion (8.3 percent), driven by loan reclassifications and growth in small business administration lending, while real estate construction and development loans remained essentially flat compared with a year ago. Average commercial real estate loans were essentially flat at $25.7 billion in 2002, compared with $26.1 billion in 2001. Table 9 provides a summary of commercial real estate exposures by property type and geographic location.

Table 9	Commercial Real Estate Exposure by Property Type and Geography

			December 31, 2002								December 31, 2001
Property Type (Dollars in Millions)			Loans				Percent				Loans				Percent
Business owner occupied			$	6,513				24.2	%		$	5,159				20.3	%
Multi-family				3,258				12.1				2,842				11.2
Commercial property
	Industrial			1,227				4.6				1,995				7.9
	Office			3,564				13.3				2,948				11.6
	Retail			3,832				14.3				2,704				10.7
	Other			1,447				5.4				1,949				7.7
Homebuilders				2,142				8.0				1,417				5.6
Hotel/motel				2,585				9.6				1,985				7.8
Health care facilities				1,290				4.8				1,183				4.7
Other				1,009				3.7				3,191				12.5
	Total		$	26,867				100.0	%		$	25,373				100.0	%
Geography
California			$	4,277				15.9	%		$	3,399				13.4	%
Colorado				1,190				4.4				840				3.3
Illinois				1,140				4.2				1,581				6.2
Minnesota				1,508				5.6				1,401				5.5
Missouri				2,297				8.6				2,439				9.6
Ohio				2,264				8.4				2,274				9.0
Oregon				1,614				6.0				1,427				5.6
Washington				3,242				12.1				2,671				10.5
Wisconsin				2,040				7.6				2,128				8.4
Iowa, Kansas, Nebraska, North Dakota, South Dakota				1,895				7.1				2,016				8.0
Arkansas, Indiana, Kentucky, Tennessee				1,679				6.2				2,055				8.1
Idaho, Montana, Wyoming				682				2.5				690				2.7
Arizona, Nevada, Utah				1,439				5.4				1,182				4.7
	Total banking region			25,267				94.0				24,103				95.0
Outside the Company’s banking region				1,600				6.0				1,270				5.0
	Total		$	26,867				100.0	%		$	25,373				100.0	%

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Residential Mortgages Residential mortgages held in the loan portfolio were $9.7 billion at December 31, 2002, compared with $7.8 billion at December 31, 2001, an increase of $1.9 billion (24.5 percent). The increase in residential mortgages was driven by an increase in refinancing given the current rate environment and strong growth in first lien home equity loans through the Company’s Consumer Finance division. The increase also reflects a decision to retain adjustable rate mortgages in the portfolio for asset liability management purposes and a reclassification of approximately $.7 billion to the residential mortgages category predominately from the commercial loan category. This growth was partially offset by approximately $.9 billion in residential loan sales during 2002. Average residential mortgages of $8.4 billion were essentially unchanged from a year ago.

Retail Total retail loans outstanding, which include credit card, retail leasing, home equity and second mortgages and other retail loans, were $37.7 billion at December 31, 2002, compared with $34.9 billion at December 31, 2001. The increase of $2.8 billion (8.1 percent) was driven by an increase in home equity lines during the recent declining rate environment and an increase in the retail leasing portfolio. This growth was partially offset by two credit card sales in 2002 that totaled approximately $483 million. Average retail loans increased $3.1 billion (9.1 percent) to $36.5 billion in 2002. Impacting the growth in average retail loans in 2002, compared with 2001, were portfolio sales of $1.3 billion in 2001 related to the high loan-to-value home equity portfolio and indirect automobile loans. On a core basis, average retail loans increased $1.8 billion (5.3 percent) from a year ago with growth in most retail loan categories. Of the total retail loans outstanding, approximately 89.8 percent are to customers located in the Company’s banking region.

Loans Held for Sale At December 31, 2002, loans held for sale, consisting primarily of residential mortgages to be sold in the secondary markets, were $4.2 billion, compared with $2.8 billion at December 31, 2001. The $1.3 billion (47.5 percent) increase primarily reflected strong mortgage loan origination volume in connection with refinancing activity in 2002 given the declining interest rates for residential mortgage loans. Residential mortgage production was $23.2 billion in 2002, compared with $15.6 billion in 2001. This is substantially higher than mortgage production of $6.7 billion in 2000.

Investment Securities The Company uses its investment securities portfolio for several purposes. It serves as a vehicle to manage interest rate and prepayment risk, generates interest and dividend income from the investment of excess funds depending on loan demand, provides liquidity and is used as collateral for public deposits and wholesale funding sources.

Table 10	Selected Loan Maturity Distribution

							Over One
			One Year				Through				Over Five
December 31, 2002 (Dollars in Millions)			or Less				Five Years				Years				Total
Commercial			$	21,037			$	18,039			$	2,868			$	41,944
Commercial real estate				7,382				13,147				6,338				26,867
Residential mortgages				841				1,827				7,078				9,746
Retail				11,660				16,010				10,024				37,694
	Total loans		$	40,920			$	49,023			$	26,308			$	116,251
Total of loans due after one year with Predetermined interest rates															$	38,185
	Floating interest rates														$	37,146

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Table 11	Investment Securities

				Available-for-Sale																Held-to-Maturity
												Weighted																Weighted
												Average				Weighted												Average				Weighted
				Amortized				Fair				Maturity in				Average				Amortized				Fair				Maturity in				Average
December 31, 2002 (Dollars in Millions)				Cost				Value				Years				Yield				Cost				Value				Years				Yield
U.S. Treasury and agencies
	Maturing in one year or less			$	162			$	164				.44				3.83	%		$	—			$	—				—				—	%
	Maturing after one year through five years				207				218				2.97				4.37				—				—				—				—
	Maturing after five years through ten years				41				42				7.33				4.12				—				—				—				—
	Maturing after ten years				11				12				11.38				5.23				—				—				—				—
		Total		$	421			$	436				2.64				4.16	%		$	—			$	—				—				—	%
Mortgage-backed securities
	Maturing in one year or less			$	3,878			$	3,904				.61				3.33	%		$	—			$	—				—				—	%
	Maturing after one year through five years				20,359				20,988				2.69				5.18				20				20				3.25				7.67
	Maturing after five years through ten years				725				768				5.61				5.27				—				—				—				—
	Maturing after ten years				5				6				13.85				6.12				—				—				—				—
		Total		$	24,967			$	25,666				2.46				4.90	%		$	20			$	20				3.25				7.67	%
Asset-backed securities
	Maturing in one year or less			$	1			$	1				.25				5.50	%		$	—			$	—				—				—	%
	Maturing after one year through five years				446				459				3.39				5.24				—				—				—				—
	Maturing after five years through ten years				199				210				7.12				5.72				—				—				—				—
	Maturing after ten years				—				—				—				—				—				—				—				—
		Total		$	646			$	670				4.53				5.39	%		$	—			$	—				—				—	%
Obligations of states and political subdivisions
	Maturing in one year or less			$	102			$	103				.42				7.26	%		$	34			$	35				.47				3.60	%
	Maturing after one year through five years				263				275				2.73				7.26				62				66				2.97				6.20
	Maturing after five years through ten years				140				147				6.89				7.42				48				52				7.20				6.28
	Maturing after ten years				53				54				18.32				9.32				69				67				15.07				5.85
		Total		$	558			$	579				4.83				7.50	%		$	213			$	220				7.44				5.69	%
Other debt securities
	Maturing in one year or less			$	33			$	34				.63				5.50	%		$	—			$	—				—				—	%
	Maturing after one year through five years				165				165				2.57				11.41				—				—				—				—
	Maturing after five years through ten years				4				3				6.54				5.15				—				—				—				—
	Maturing after ten years				262				233				24.36				2.30				—				—				—				—
		Total		$	464			$	435				14.76				5.80	%		$	—			$	—				—				—	%
Other investments				$	485			$	469				—				—	%		$	—			$	—				—				—	%
Total investment securities				$	27,541			$	28,255				2.77				4.97	%		$	233			$	240				7.08				5.86	%

Note:

Information related to asset and mortgage-backed securities included above is presented based upon weighted average maturities anticipating future prepayments. Average yields are presented on a fully-taxable equivalent basis. Yields on available-for-sale securities are computed based on historical cost balances. Average yield and maturity calculations exclude equity securities that have no stated yield or maturity.

			2002								2001
			Amortized				Percent				Amortized				Percent
At December 31 (Dollars in Millions)			Cost				of Total				Cost				of Total
U.S. treasuries and agencies			$	421				1.5	%		$	439				1.7	%
Mortgage-backed securities				24,987				90.0				21,965				82.6
Asset-backed securities				646				2.3				2,091				7.9
Obligations of states and political subdivisions				771				2.8				1,148				4.3
Other securities and investments				949				3.4				950				3.5
	Total investment securities		$	27,774				100.0	%		$	26,593				100.0	%

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Deposits Total deposits were $115.5 billion at December 31, 2002, compared with $105.2 billion at December 31, 2001, an increase of $10.3 billion (9.8 percent). The increase in total deposits was the result of the continued desire by customers to maintain liquidity and specific deposit gathering initiatives and funding decisions in 2002.

Borrowings The Company utilizes both short-term and long-term borrowings to fund growth of earning assets in excess of deposit growth. Short-term borrowings, which include federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings, were $7.8 billion at December 31, 2002, down $6.9 billion (46.8 percent) from $14.7 billion at year-end 2001. Short-term funding is managed to levels deemed appropriate given

Table 12	Deposits

The composition of deposits was as follows:

				2002								2001								2000								1999								1998
								Percent								Percent								Percent								Percent								Percent
December 31 (Dollars in Millions)				Amount				of Total				Amount				of Total				Amount				of Total				Amount				of Total				Amount				of Total
Noninterest-bearing deposits				$	35,106				30.4	%		$	31,212				29.7	%		$	26,633				24.3	%		$	26,350				25.5	%		$	27,479				26.3	%
Interest-bearing deposits
	Interest checking				17,467				15.1				15,251				14.5				13,982				12.8				13,141				12.7				13,385				12.8
	Money market accounts				27,753				24.0				24,835				23.6				23,899				21.8				22,751				22.0				22,086				21.2
	Savings accounts				5,021				4.4				4,637				4.4				4,516				4.1				5,445				5.3				6,352				6.1
		Total of savings deposits			50,241				43.5				44,723				42.5				42,397				38.7				41,337				40.0				41,823				40.1
Time certificates of deposit less than $100,000					17,973				15.5				20,724				19.7				25,780				23.5				25,394				24.5				27,935				26.8
Time deposits greater than $100,000
	Domestic				9,427				8.2				7,286				6.9				11,221				10.3				9,348				9.0				6,261				6.0
	Foreign				2,787				2.4				1,274				1.2				3,504				3.2				988				1.0				848				.8
		Total interest-bearing deposits			80,428				69.6				74,007				70.3				82,902				75.7				77,067				74.5				76,867				73.7
	Total deposits			$	115,534				100.0	%		$	105,219				100.0	%		$	109,535				100.0	%		$	103,417				100.0	%		$	104,346				100.0	%

The maturity of time deposits greater than $100,000 was as follows:

December 31 (Dollars in Millions)			2002
Three months or less			$	7,533
Over three months through six months				1,376
Over six months through twelve months				1,701
Over twelve months				1,604
	Total		$	12,214

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CORPORATE RISK PROFILE

Overview Managing risks is an essential part of successfully operating a financial services company. The most prominent risk exposures are credit, residual, operational, interest rate, market and liquidity. Credit risk is the risk of not collecting the interest and/or the principal balance of a loan or investment when it is due. Residual risk is the potential reduction in the end-of-term value of leased assets or the residual cash flows related to asset securitization and other off-balance sheet structures. Operational risk includes risks related to fraud, legal and compliance risk, processing errors, technology and breaches of internal controls. Interest rate risk is the potential reduction of net interest income as a result of changes in interest rates. Rate movements can affect the repricing of assets and liabilities differently, as well as their market value. Market risk arises from fluctuations in interest rates, foreign exchange rates, and equity prices that may result in changes in the values of financial instruments, such as trading and available-for-sale securities that are accounted for on a mark-to-market basis. Liquidity risk is the possible inability to fund obligations to depositors, investors or borrowers. In addition, corporate strategic decisions, as well as the risks described above, could give rise to reputation risk. Reputation risk is the risk that negative publicity or press, whether true or not, could result in costly litigation or cause a decline in the Company’s stock value, customer base or revenue.

Credit Risk Management The Company’s strategy for credit risk management includes well defined, centralized credit policies, uniform underwriting criteria, and ongoing risk monitoring and review processes for all commercial and consumer credit exposures. The strategy also emphasizes diversification on a geographic, industry and customer level, regular credit examinations and management reviews of loans experiencing deterioration of credit quality. The Company strives to identify potential problem loans early, take any necessary charge-offs promptly and maintain adequate reserve levels for probable loan losses. Commercial banking operations rely on a strong credit culture that combines prudent credit policies and individual lender accountability. The Company utilizes a credit risk rating system to measure the credit quality of individual commercial loan transactions and regularly forecasts potential changes in risk ratings and nonperforming status. The risk rating system is intended to identify and measure the credit quality of lending relationships. In the Company’s retail banking operations, standard credit scoring systems are used to assess consumer credit risks and to price consumer products accordingly. The Company also engages in non-lending activities that may give rise to credit risk, including interest rate swap contracts for balance sheet hedging purposes, foreign exchange transactions and interest rate swap contracts for customers, settlement risk and the processing of credit card transactions for merchants. These activities are also subject to credit review, analysis and approval processes.

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Credit Diversification The Company manages its credit risk, in part, through diversification of its loan portfolio. As part of its normal business activities, it offers a broad array of traditional commercial lending products and specialized products such as asset-based lending, commercial lease financing, agricultural credit, warehouse mortgage lending, commercial real estate, health care and correspondent banking. The Company also offers an array of retail lending products including credit cards, retail leases, home equity, revolving credit, lending to students and other consumer loans. These retail credit products are primarily offered through the branch office network, specialized trust, home mortgage and loan production offices, indirect distribution channels, such as automobile dealers and a consumer finance company. The Company monitors and manages the portfolio diversification by industry, customer and geography. Table 7 provides information with respect to the overall product diversification and changes in mix in 2002.

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Analysis of Loan Net Charge-Offs Total loan net charge-offs decreased $173.5 million to $1,373.0 million in 2002, compared with $1,546.5 million in 2001 and $825.4 million in 2000. The ratio of total loan net charge-offs to average loans was 1.20 percent in 2002, compared with 1.31 percent in 2001 and .70 percent in 2000. Included in loan net charge-offs for 2001 were $313.2 million of commercial loan charge-offs related to specific events or credit initiatives taken by management, $160 million of loan charge-offs relating to the Company’s accelerated loan workout strategy and $90 million of loan write-offs to conform risk management practices, align loan charge-off policies and expedite the transition out of a specific segment of the health care portfolio not meeting the lower risk appetite of the Company. The level of loan net charge-offs during 2002 reflected the impact of soft economic conditions and continued weakness in the communications, transportation and manufacturing sectors, as well as the impact of the weak economy on highly leveraged enterprise value financings. Assuming no further deterioration in the economy, net charge-offs are expected to remain at recent levels until the economy improves.

Table 13	Net Charge-offs as a Percent of Average Loans Outstanding

Year Ended December 31					2002				2001				2000				1999				1998
Commercial
	Commercial					1.29	%			1.62	%			.56	%			.41	%			*	%
	Lease financing					2.67				1.95				.46				.24				*
		Total commercial				1.46				1.66				.55				.40				.31
Commercial real estate
	Commercial mortgages					.17				.21				.03				.02				*
	Construction and development					.11				.17				.11				.03				*
		Total commercial real estate				.15				.20				.05				.02				(.04	)
Residential mortgages						.23				.15				.11				.11				.07
Retail
	Credit card					4.98				4.80				4.18				4.00				4.02
	Retail leasing					.72				.65				.41				.28				*
	Home equity and second mortgages					.74				.85				*				*				*
	Other retail					2.10				2.16				1.32				1.26				*
		Total retail				1.85				1.94				1.69				1.63				1.54
			Total loans (a)			1.20	%			1.31	%			.70	%			.61	%			.53	%

(a)	In accordance with guidance provided in the Interagency Guidance on Certain Loans Held for Sale, loans held with the intent to sell are transferred to the Loans Held for Sale category based on the lower of cost or fair value. At the time of transfer, the portion of the mark-to-market losses representing probable credit losses determined in accordance with policies and methods utilized to determine the allowance for credit losses is included in net charge-offs. The remaining portion of the losses is reported separately as a reduction of the allowance for credit losses under “Losses from loan sales/transfers.” Had the entire amount of the loss been reported as charge-offs, total net charge-offs would have been $1,875.8 million (1.59 percent of average loans) for the year ended December 31, 2001.
*	Information not available

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Analysis of Nonperforming Assets Nonperforming assets include nonaccrual loans, restructured loans not performing in accordance with modified terms, other real estate and other nonperforming assets owned by the Company. Interest payments are typically applied against the principal balance and not recorded as income. At December 31, 2002, total nonperforming assets were $1,373.5 million, compared with $1,120.0 million at year-end 2001 and $867.0 million at year-end 2000. The ratio of total nonperforming assets to total loans and other real estate increased to 1.18 percent at December 31, 2002, compared with .98 percent and .71 percent for the years ending 2001 and 2000, respectively.

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Table 14	Nonperforming Assets (a)

					At December 31,
(Dollars in Millions)					2002				2001				2000				1999				1998
Commercial
	Commercial				$	760.4			$	526.6			$	470.4			$	219.0			$	230.4
	Lease financing					166.7				180.8				70.5				31.5				17.7
		Total commercial				927.1				707.4				540.9				250.5				248.1
Commercial real estate
	Commercial mortgages					174.6				131.3				105.5				138.2				86.9
	Construction and development					57.5				35.9				38.2				31.6				28.4
		Total commercial real estate				232.1				167.2				143.7				169.8				115.3
Residential mortgages						52.0				79.1				56.9				72.8				98.7
Retail
	Credit card					—				—				8.8				5.0				2.6
	Retail leasing					1.0				6.5				—				.4				.5
	Other retail					25.1				41.1				15.0				21.1				30.4
		Total retail				26.1				47.6				23.8				26.5				33.5
			Total nonperforming loans			1,237.3				1,001.3				765.3				519.6				495.6
Other real estate						59.5				43.8				61.1				40.0				35.1
Other assets						76.7				74.9				40.6				28.9				16.9
			Total nonperforming assets		$	1,373.5			$	1,120.0			$	867.0			$	588.5			$	547.6
Restructured loans accruing interest (b)					$	1.4			$	—			$	—			$	—			$	—
Accruing loans 90 days or more past due (c)					$	426.4			$	462.9			$	385.2			$	248.6			$	252.9
Nonperforming loans to total loans						1.06	%			.88	%			.63	%			.46	%			.46	%
Nonperforming assets to total loans plus other real estate						1.18	%			.98	%			.71	%			.52	%			.51	%
Net interest lost on nonperforming loans					$	65.4			$	63.0			$	50.8			$	29.5			$	21.3

Delinquent Loan Ratios

					At December 31,
(as a percent of ending loan balances)					2002				2001				2000				1999				1998
90 days or more past due excluding nonperforming loans
Commercial
	Commercial					.14	%			.14	%			.11	%			.05	%			.08	%
	Lease financing					.10				.45				.02				—				.03
		Total commercial				.14				.18				.10				.05				.07
Commercial real estate
	Commercial mortgages					.03				.03				.07				.08				.06
	Construction and development					.07				.02				.03				.05				.06
		Total commercial real estate				.04				.02				.06				.07				.06
Residential mortgages						.90				.78				.62				.42				.52
Retail
	Credit card					2.09				2.18				1.70				1.23				1.02
	Retail leasing					.19				.11				.20				.12				.10
	Other retail					.54				.74				.62				.41				.36
		Total retail				.72				.90				.76				.53				.45
			Total loans			.37	%			.40	%			.31	%			.22	%			.24	%

			At December 31,
90 days or more past due including nonperforming
loans			2002				2001				2000				1999				1998
Commercial				2.35				1.71				1.13				.59				.68
Commercial real estate				.90				.68				.60				.74				.59
Residential mortgages				1.44				1.79				1.23				.99				1.17
Retail				.79				1.03				.83				.62				.57
	Total loans			1.43	%			1.28	%			.94	%			.68	%			.70	%

(a)	Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due.
(b)	Nonaccrual restructured loans are included in the respective nonperforming loan categories and excluded from restructured loans accruing interest.
(c)	These loans are not included in nonperforming assets and continue to accrue interest because they are secured by collateral and/or are in the process of collection and are reasonably expected to result in repayment or restoration to current status.

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Residential mortgages 30 to 89 days or more past due were 2.85 percent of the total residential mortgage portfolio at December 31, 2002, compared with 3.40 percent at December 31, 2001, and 2.93 percent at December 31, 2000. Residential mortgages 90 days or more past due totaled 1.44 percent at December 31, 2002, compared with 1.79 percent at December 31, 2001, and 1.23 percent at December 31, 2000. The improvement in 2002 reflects, in part, the mix of first-lien home equity loans originated through the Company’s consumer finance division. Retail loans 30 to 89 days or more past due were 2.46 percent of the total retail portfolio at December 31, 2002, compared with 3.30 percent at December 31, 2001, and 2.96 percent at December 31, 2000. The percentage of retail loans 90 days or more past due was .79 percent of total retail loans at December 31, 2002, compared with 1.03 percent at December 31, 2001, and ..83 percent at December 31, 2000. The improvement in retail loan delinquencies from December 31, 2001, to December 31, 2002, primarily reflected the risk management actions, stabilization and improvement in collection efforts resulting from the successful completion of the integration efforts. The increase in retail loan delinquencies from December 31, 2000, to December 31, 2001, was primarily related to the credit card, home equity and revolving credit line portfolios and reflected the economic slowdown and unemployment trends during 2001.

Analysis and Determination of the Allowance for Credit Losses The allowance for credit losses provides coverage for probable and estimable losses inherent in the Company’s loan and lease portfolio. Management evaluates the allowance each quarter to determine that it is adequate to cover inherent losses. The evaluation of each element and the overall allowance is based on a continuing assessment of problem loans and related off-balance sheet items, recent loss experience and other factors, including regulatory guidance and economic conditions.

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Table 15	Summary of Allowance for Credit Losses

(Dollars in Millions)						2002				2001				2000				1999				1998
Balance at beginning of year						$	2,457.3			$	1,786.9			$	1,710.3			$	1,705.7			$	1,665.8
Charge-offs
	Commercial
		Commercial					559.2				779.0				319.8				250.1				*
		Lease financing					188.8				144.4				27.9				12.4				*
			Total commercial				748.0				923.4				347.7				262.5				202.3
	Commercial real estate
		Commercial mortgages					40.9				49.5				15.8				19.1				*
		Construction and development					8.8				12.6				10.3				2.6				*
			Total commercial real estate				49.7				62.1				26.1				21.7				23.6
	Residential mortgages						23.1				15.8				13.7				16.2				14.4
	Retail
		Credit card					304.9				294.1				235.8				220.2				223.9
		Retail leasing					45.2				34.2				14.8				6.2				*
		Home equity and second mortgages					107.9				112.7				*				*				*
		Other retail					311.9				329.1				379.5				376.0				*
			Total retail				769.9				770.1				630.1				602.4				533.4
				Total charge-offs			1,590.7				1,771.4				1,017.6				902.8				773.7
Recoveries
	Commercial
		Commercial					67.4				60.6				64.0				84.8				*
		Lease financing					39.9				30.4				7.2				4.0				*
			Total commercial				107.3				91.0				71.2				88.8				81.9
	Commercial real estate
		Commercial mortgages					9.1				9.1				10.8				15.1				*
		Construction and development					1.4				.8				2.6				1.0				*
			Total commercial real estate				10.5				9.9				13.4				16.1				31.0
	Residential mortgages						4.0				3.2				1.3				1.4				3.0
	Retail
		Credit card					24.6				23.4				27.5				34.6				36.9
		Retail leasing					6.3				4.5				2.0				1.1				*
		Home equity and second mortgages					10.6				12.9				*				*				*
		Other retail					54.4				80.0				76.8				88.2				*
			Total retail				95.9				120.8				106.3				123.9				112.6
				Total recoveries			217.7				224.9				192.2				230.2				228.5
Net Charge-offs
	Commercial
		Commercial					491.8				718.4				255.8				165.3				*
		Lease financing					148.9				114.0				20.7				8.4				*
			Total commercial				640.7				832.4				276.5				173.7				120.4
	Commercial real estate
		Commercial mortgages					31.8				40.4				5.0				4.0				*
		Construction and development					7.4				11.8				7.7				1.6				*
			Total commercial real estate				39.2				52.2				12.7				5.6				(7.4	)
	Residential mortgages						19.1				12.6				12.4				14.8				11.4
	Retail
		Credit card					280.3				270.7				208.3				185.6				187.0
		Retail leasing					38.9				29.7				12.8				5.1				*
		Home equity and second mortgages					97.3				99.8				*				*				*
		Other retail					257.5				249.1				302.7				287.8				*
			Total retail				674.0				649.3				523.8				478.5				420.8
				Total net charge-offs			1,373.0				1,546.5				825.4				672.6				545.2
Provision for credit losses							1,349.0				2,528.8				828.0				646.0				491.3
Losses from loan sales/transfers (a)							—				(329.3	)			—				—				—
Acquisitions and other changes							(11.3	)			17.4				74.0				31.2				93.8
Balance at end of year						$	2,422.0			$	2,457.3			$	1,786.9			$	1,710.3			$	1,705.7
Allowance as a percent of
	Period-end loans						2.08	%			2.15	%			1.46	%			1.51	%			1.59	%
	Nonperforming loans						196				245				233				329				344
	Nonperforming assets						176				219				206				291				312
	Net charge-offs (a)						176				159				216				254				313

(a)	In accordance with guidance provided in the Interagency Guidance on Certain Loans Held for Sale, loans held with the intent to sell are transferred to the Loans Held for Sale category based on the lower of cost or fair value. At the time of the transfer, the portion of the mark-to-market losses representing probable credit losses determined in accordance with policies and methods utilized to determine the allowance for credit losses is included in net charge-offs. The remaining portion of the losses is reported separately as a reduction of the allowance for credit losses under “Losses from loan sales/transfers.” Had the entire amount of the loss been reported as charge-offs, total net charge-offs would have been $1,875.8 million for the year ended 2001. Additionally, the allowance as a percent of net charge-offs would have been 131 percent for the year ended December 31, 2001.
*	Information not available

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December 31, 2001 and 2000, respectively. The decline in the allowance for commercial and commercial real estate loans reflected a reduction of $93.7 million related to a change in the volume of commercial and commercial real estate portfolios and mix of the risk ratings within the portfolio. The remaining decline of $244.3 million reflected improvements in loss severity rates determined from historical migration analysis. Although the Company’s level of commercial and commercial real estate loans in higher risk loan categories declined approximately 11 percent, the level of nonperforming loans continued at elevated levels and increased by 22.6 percent in 2002. The change from year-end 2000 to year-end 2001 reflected higher levels of nonperforming loans, increased loss severity reflected in the historical migration, increased sector risk in certain industries and deterioration in credit risk ratings compared with 2000.

Table 16	Elements of the Allowance for Credit Losses (a)

				Allowance Amount																				Allowance as a Percent of Loans
December 31 (Dollars in Millions)				2002				2001				2000				1999				1998				2002				2001				2000				1999				1998
Commercial
	Commercial			$	776.4			$	1,068.1			$	418.8			$	408.3			$	343.7				2.12	%			2.64	%			.89	%			.97	%			.91	%
	Lease financing				107.6				107.5				17.7				20.2				21.5				2.01				1.84				.31				.53				.65
		Total commercial			884.0				1,175.6				436.5				428.5				365.2				2.11				2.54				.83				.93				.89
Commercial real estate
	Commercial mortgages				152.9				176.6				42.7				110.4				105.2				.75				.94				.22				.59				.63
	Construction and development				53.5				76.4				17.7				22.5				25.9				.82				1.16				.25				.35				.50
		Total commercial real estate			206.4				253.0				60.4				132.9				131.1				.77				1.00				.23				.53				.60
Residential mortgages					34.2				21.9				11.6				18.6				27.2				.35				.28				.12				.15				.18
Retail
	Credit card				272.4				295.2				265.6				320.8				304.3				4.81				5.01				4.42				6.41				6.27
	Retail leasing				44.0				38.7				27.2				18.6				6.5				.77				.79				.65				.88				.40
	Home equity and second mortgages				114.7				88.6				107.7				*				*				.85				.72				.90				*				*
	Other retail				268.6				282.8				250.3				389.2				365.6				2.10				2.39				2.16				1.74				1.62
		Total retail			699.7				705.3				650.8				728.6				676.4				1.86				2.02				1.93				2.47				2.32
		Total allocated allowance			1,824.3				2,155.8				1,159.3				1,308.6				1,199.9				1.57				1.89				.95				1.16				1.12
		Available for other factors			597.7				301.5